A Leading Networks & System Integration Company
in the Next-Generation Network

Annual Report 2008
Year Ended March 31, 2008

PROFILE

NEC Networks & System Integration Corporation (“the Company”) was established in 1953 as a builder ofcommunication network infrastructure. Today, the Company is working to expand its business realm and increase
shareholder value as a system integrator with its principal business in network integration / support services andtelecommunications engineering.
The NEC Networks & System Integration Group (“the Group”) is made up of core companies in the network
solutions business of the NEC Group. As such, the Group will work in unison to fulfill its corporate philosophy andmanagement guidelines. While strengthening its capabilities in national sales development, system creation,
construction technology and support services, the Group will promote further corporate innovation, amid a rapidlychanging operating environment.

HISTORY

Foundation

Business Expansion(1953~1957)(1958~1979)

Installation of switchingequipment and its
maintenanceBeing a Network
System Integrator(1980~2000)

Data communications

24 hours a day, 365 days a year
nationwide maintenance service in Japan

Software development
Full-scale overseas operations

Focus on communication business
LAN/WAN business

Began business of outsourced
software development
Established as Nippon ElectricInstallation Co., Ltd.
Name changed to NEC
System Integration &Construction, Ltd.

Began overseas
operations4
3
195 195

Began data communications
construction

8
195

Net sales surpassed￥100.0 billion

Listed on the Tokyo
Stock Exchange,
Second Section

7 80 83
197 19 19

Listed on the Tokyo
Stock Exchange,
First Section

2
9 199
198

NEC Networks & System Integration Group Corporate Philosophy

CONTENTS

As a business partner to its customers, the NEC Networks & System Integration
Group aims to build a bridge to a new era by:● Increasing customer value● Helping create a more convenient and prosperous society● Creating peace of mind through the establishment of reliable networks

Business Overview

2

To Our Shareholders

4

Feature7

NEC Networks & System Integration Group Management Guidelines
Aim to increase the corporate value of our customers.
Contribute to shareholders, customers and communities through soundmanagement.
● Maintain a commitment to the highest levels of quality and safety.
● Act as a good, environmentally conscious corporate citizen.
● Aim to create a workplace in which employees can fully exercise
their capabilities.
●

Interview with the President

7

Feature Article

9

Topics

11

Review of Operations

12

Corporate Governance

14●

Further Business
Expansion(2001~)

Network and IT solutions businessOutsourcing services
M&A

Name changed to NEC Networks &System Integration Corporation● TNSi(1) became a Group company●

NTWX(2) became aGroup company(Merged in April 2007)

Net sales surpassed￥200.0 billion

20 0

5

20 0

Nichiwa Co., Ltd.
became a Group
company

Corporate Social Responsibility (CSR) 19
Six-Year Summary of Selected
Financial Data

20

Six-Year Summary of Selected
Financial Data by Segment and Customer

22

Consolidated Balance Sheets

24

Consolidated Statementsof Income26

Consolidated Statements of
Changes in Net Assets

27

Consolidated Statements ofCash Flows28

Notes to Consolidated
Financial Statements

29

Report of Independent Auditors

39

Global Network

40

Investor Information

41

8
20 0

6

7
199

Notes: 1. TNSi: Toyo Networks & System Integration Co., Ltd.
2. NTWX: NEC Telenetworx, Ltd.

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

NEC Networks & System Integration Corporation

1

BUSINESS OVERVIEWNEC Networks & System Integration Corporation provides
leading-edge, high-quality network integration andsupport services that meet the diverse network systemneeds of customers in Japan and overseas.

NEC Networks & System Integration Corporation was established in 1953 primarily as abuilder of communications infrastructure. Today, as a top-class system integrator in Japan’s
network business sector, the Company conducts business not only domestically but globally,in regions such as Southeast Asia, South America and the Middle East.
The Company provides leading-edge, high-quality network integration and support services
for customers of various industries in Japan and overseas, as well as telecommunications
engineering including building large-scale communications infrastructure and related facilities.
As one of very few comprehensive system integrators in Japan, it is in a very unique position.
In addition, the Company sets itself apart by providing one-stop services encompassing
planning, consulting, design, construction, maintenance, network operation and monitoring,and outsourcing for every network system it supplies to customers.
These services enable the Company to respond to customers’ diverse network systemneeds and are a factor behind the deep trust it has established with them.

Consolidated Net Sales by Customer (Year ended March 31, 2008)
Overseas6%

NEC (Communication
system development, etc.)

20%¥ 258.2
billionEnterprise

36%

Government

16%
Telecommunications carriers

22%2Enterprise

Telecommunications Carriers

Government

Overseas

Customers

We offer a wide rangeof network systems tovarious custtomers,
including IP telephony,thin client an
nd NGNrelated syste
ems.

Telecommunications
Engineering

Network Integration
Planning / Consulting

Designing

We build ne
etworkinfrastructurre and installelectrical and air
conditioningg systems.

Proposal
System Design

Procurement
Installation
Implementation

System Integration

Project Management

One-stop Support
Operation / Maintenance / Outsourcing

Support Services

We provide quick,reliable, one
e-stopcustomer su
upportservices, 24
4 hours a
day, 365 dayys a year.

NEC Networks & System Integration Corporation

3

TO OUR SHAREHOLDERS

to improve the quality and reach of fire and disastermanagement systems. However, harsh regional economic
conditions led to a slowdown in capital investment outsidemajor urban centers. Moreover, mobile base station
construction, which had been expanding as a result of theimplementation of the mobile number portability (MNP)
system, experienced a downturn. As a result, network-related
investment weakened slightly.
Under these conditions, the Group worked to bolster its
business base, including through investments, and to improve
profitability in order to further enhance its NGN and enterprisesolutions businesses, with a view toward medium-to-long-termbusiness expansion.
Measures to bolster our business base included our April
2007 merger with NEC Telenetworx, Ltd., which mainly
handles network system maintenance, and Company-wideorganizational reforms in October 2007. These moves
strengthened our support service system and established astrong business base for the NGN era.
In addition to these organizational reforms, we madeefforts to strengthen our medium-to-long-range capacity for
growth with aggressive initiatives to upgrade our systems andenhance our market response, particularly for medium-sizedbusinesses. We developed our EmpoweredOffice1 total officesolutions for enterprises into a full-fledged business andopened the EmpoweredOffice Center, where customers can
get hands-on experience.

Masahiko Yamamoto
President

Overview of the Year Ended March 31, 2008
In the operating environment of the NEC Networks &System Integration Group during the year ended March 31,
2008, telecommunications carriers stepped up investment in
the Next Generation Network (NGN) ahead of the start ofcommercial service in March 2008. Other enterprises,
particularly in urban areas, worked to streamline management
using Information and Communication Technology (ICT) andexpanded the introduction of network systems in order tostrengthen security and internal controls. Local governments
also continued to expand regional public network services and

1. EmpoweredOffice: Solutions that efficiently fuse three elements of office
work (communication, information, and facilities) in an effort to reform
office work processes and the office environment, and also empowereach individual employee to realize greater enterprise viability.

FINANCIAL HIGHLIGHTSNet Sales by Customer

Operating Income andOperating Income to Net Sales(Millions of yen)

(Millions of yen / %)(Millions of yen)5

12,500300,000
254,641 258,212

250,000
200,000

194,012 198,625

4
3.1

150,000
100,000

04

05

06

07

08

(Years ended March 31)■ Overseas■ Government■ Telecommunications carriers■ NEC Group■ Enterprise

4

2

6,056

2,500
0

4,419

04

1

4,812

05

06

07

123,935

100,000

7,849

5,000

154,171

134,911
118,4163

2.4

148,797

150,000

10,7432.8
2.3

50,000200,000

4.2
10,000213,672

7,500

0Total Assets and Total Net Assets*

080(Years ended March 31)■ Operating income

Operating income to net sales

50,000050,971

51,70454,62504

05

06

62,201

66,132

07

08(Years ended March 31)■ Total assets■ Total net assets* Shareholders’ equity for 2004 and 2005

Full-scale investment in NGN-related business is forecast
to grow, and we carried out measures to strengthen our
response in this area. In addition to participating indemonstration tests conducted by telecommunications
carriers, we established the NGN Laboratory in February 2008
to furnish our head office with an NGN environment on parwith telecommunications carriers. We strengthened system
testing, education, training, and personnel development.
Moreover, we upgraded our environment to allow development
and verification of services in cooperation with the
EmpoweredOffice Center mentioned above in order to handle
NGN services for enterprises, a market that is expected to
grow in the future.
To improve profitability, we have firmly established AC-I2
total cost reform activities in our corporate culture. As of thisfiscal year, we have added process reforms and other activities
linked to strengthening profitability. These activities have been
showing steady results in improving profitability, with greaterbusiness efficiency from a reduction in follow-up work hours
and reassessment of work processes.
Consolidated results for the fiscal year were as follows:
Orders:¥254,512 million(a 0.4% increase over the previous year)
Net Sales:¥258,212 million(a 1.4% increase over the previous year)
Operating Income: ¥10,743 million(a 36.9% increase over the previous year)
Net Income:¥4,412 million(a 26.9% increase over the previous year)

Outlook for the Year Ending March 31, 2009
Although the Japanese economy is expected to remain
steady, the impact of trends in the U.S. economy, exchange
rates and the stock market, as well as high prices for crude oiland raw materials, are giving rise to concerns about thedirection of the economy.
Despite concerns about the uncertain economic
environment, enterprises in the Group’s business fields,
particularly those in major urban areas, are expected tocontinue network-related investment, with more widespreaduse of ICT for purposes including strengthening internal control

2. AC-I activities: Abbreviation for “All Costs and Management Innovation.”and security measures. In the telecommunications sector,
although we project a decrease in total investment inequipment for the industry as a whole as companies reduceinvestment in conventional systems, we still expect generally
solid investment due to full-scale upgrades to NGN and theincreasing market share of telecommunications carriers.
In response to this business environment, the NEC
Networks & System Integration Group will continue working to
improve profitability and focus on strengthening its business inorder to increase its capacity for growth.
Based on expansion measures revolving around initiatives
in the previous fiscal year including the strengthening of the
NGN business framework and the commercialization of
EmpoweredOffice, we will work to further increase ourcompetitive edge and improve our market response in the
NGN-related business and the enterprise market, where fullscale expansion is expected. In the support services business,
which underpins our Company’s growth, we will work to
reinforce our business base so that we can, in turn, strengthen
our capabilities to provide maintenance on a nationwide level.
Specifically, in April 2008, we set up our Network Total
Operation Center (nTOC), an integrated operation center thatconcentrates our network system support service functions.
With our nTOC-based services at the core of our support
services business, we will expand the scope of our businesses
by enhancing our support service line-up. At the same time,
our efforts to meet new demand will help us expand our
network integration business.
In April 2008 we made Nichiwa Co., Ltd., which operates
primarily in Kobe and Himeji, a wholly owned subsidiary. This
move will enhance our efforts to expand in Kansai’s enterprisemarket by further strengthening our network systems businessfor medium-sized enterprises in this region through Nichiwa’ssales capabilities and our Group’s SE/SI capabilities.
In addition to efforts to expand markets and reinforce ourbusiness makeup, we will continue to forcefully conduct our
AC-I activities in areas such as reducing follow-up work hours
and to strengthen process reforms, both of which achieved
results in the previous fiscal year. We will also work to further
improve profitability by strengthening management capabilities
for greater efficiency. In tandem with these efforts, our Group
is carrying out initiatives to improve customer satisfaction inareas such as quality and CS3.

3. CS: Abbreviation for “customer satisfaction.” Providing products andservices that put customer satisfaction first.

NEC Networks & System Integration Corporation

5

TO OUR SHAREHOLDERS

The following is our forecast of consolidated performancefor the year ending March 31, 2009.
This forecast assumes average exchange rates for the yearof ¥105 to the U.S. dollar and ¥155 to the euro.
Orders:¥265.0 billion(a 4.1% increase over the previous year)
Net Sales:¥265.0 billion(a 2.6% increase over the previous year)
Operating Income: ¥11.0 billion(a 2.4% increase over the previous year)
Net Income:¥4.9 billion(an 11.1% increase over the previous year)

Dividend Policy
Increasing our shareholders’ profits is a top priority for NEC
Networks & System Integration Corporation. In addition tostrengthening our management base, improving our financial
soundness and increasing our profitability, we work to return
earnings to our shareholders by increasing corporate value. Our
dividend policy is to distribute profits appropriately inaccordance with our shareholders’ expectations while taking
into account consolidated results, investment trends and otherrelevant factors.
Regarding internal reserves, our basic policy is to focus on
strengthening our competitive edge and strategically investingin new and growing domains while taking into account the
future expansion of network-related markets.
For the year ending March 2009, because we expect
increased earnings as a result of cost and process reforms, weplan to increase our annual dividend by ¥2 per share to ¥22 pershare (an increase of ¥1 per share for both the interim andyear-end dividends) so that earnings are distributed to all ourshareholders.
Cash Dividends Per Share (Yen)Year ended March 2008
Year ending March 2009
(Projected)

6Interim Period

Year-end

Full Year

10.00

10.00

20.00

11.00

11.00

22.00

Looking Forward
In addition to steady growth, the NEC Networks & System
Integration Group places great importance on efficientmanagement that stresses increased profits in relation to total
assets, net assets, and net sales.
Our medium-term targets for the year ending March 2009
are net sales of ¥300 billion or more and operating income of¥11.5 billion or more.
During the current fiscal year, we intend to take into
account changes in our business environment in setting
medium-term targets for the year ending March 2010 andthereafter.
In the network-related business, which is one of theGroup’s business domains, we expect continued expansion in
investment by telecommunications carriers and otherenterprises over the medium to long term including investment
in full-scale development of NGN and derivative services.
In this operating environment, based on our corporate
philosophy and management guidelines, we will work as ourcustomers’ best partner to provide highly reliable systems andservices that will satisfy our customers and contribute toincreased customer value.
To strengthen our medium-term growth capabilities, wehave been proactively conducting mergers and acquisitions.
We made NEC Telenetworx, Ltd. a wholly owned subsidiary in
April 2006 (merged in April 2007) to strengthen our NI/SS
business and made Nichiwa a wholly owned subsidiary in April
2008 to strengthen our sales capabilities in the Kansai region.
We will continue to make strategic investments to further
increase our ability to grow in the future.
Furthermore, while constantly promoting enterpriseinnovation and strengthening our business capabilities andprofitability, we will firmly establish our position in the network
business sector with state-of-the-art technologies. In doing so,
we aim to be a company trusted and valued by our customers,
shareholders and other stakeholders. The entire NEC Networks& System Integration Group will work together to realize thesegoals.
September 2008
Masahiko Yamamoto
President

FEATURE■ INTERVIEWWITH THE PRESIDENT
Raising Organizational
Strength to Grow
into a Strong Corporate Group〜Good Communication and Good Teamwork〜

Masahiko Yamamoto
President

What were the factors behind the Company’s strong performancein fiscal 2007, the year ended March 31, 2008?
NEC Networks & System Integration Corporation merged with NEC Telenetworx, Ltd. in
April 2007 to expand its scope of business, and carried out large-scale organizational reforms in
October 2007 to strengthen business related to the Next Generation Network (NGN). As aresult, we enhanced our ability to attract customers in all our business areas. In addition, we
saw positive results from internal management reforms that began several years ago. These
factors were key in boosting profitability.

Internal reforms appear to be taking hold. What changes have you seen?
Employees’ perspectives are gradually changing. Their ability to communicate with people
outside the Company has increased remarkably, resulting in high marks from customers and themarket. For example, the EmpoweredOffice Center we opened in the summer of 2007, therecently launched NGN Laboratory and the Network Total Operation Center (nTOC) all camefrom employees’ ideas.
In order to bring out the latent capabilities of employees, I visit sites within and outside theCompany, pose problems from my own point of view, pick up ideas while discussing theseissues with employees and give those ideas shape. In other words, I am dedicated to thevisualization of change. My aim is for management that results in improved performance for theentire Company through the growth of each employee.

NEC Networks & System Integration Corporation

7

What issues does the Company currently face?
Although we have enhanced profitability over the last several years, we still face issues
related to growth. Sales growth was primarily due to the synergy of business expansion
resulting from our merger with NEC Telenetworx and others. I believe my mission now is toexpand our traditional businesses. To that end, we must have the trust of our customers.
I want to achieve growth by linking the capabilities of strong employees, from the divisionlevel to the entire Company, to bring out our combined strengths. As underperformance in any
one of our businesses, from marketing and sales to system construction and support services,
will result in the loss of customer trust, all divisions must cooperate to strengthen our service
provision capabilities. That is why every day I stress the importance of good communication andgood teamwork.

What areas will you focus on in the future?
The NGN market, which is expected to expand, presents an opportunity for our traditional
businesses to change. While cooperating with the NEC Group, which is in an extremely strong
market position, we will utilize our strengths and expand our market share. We will develop
services using NGN for enterprises as well as for government.
Our aim is to be a dominant player in Japan. We intend to grow into an even stronger
corporate group to become Japan’s number one network system integrator.
We look forward to your continuing support.

8

FEATURE■ FEATURE ARTICLE

The Advent of the NGN Age and the Challenge for
NEC Networks & System Integration Corporation
In March 2008, commercial Next Generation Network (NGN) services began
as the infrastructure of a ubiquitous network society in Japan. The advent of
NGN is considered the first major communications revolution in 100 years.
NEC Networks & System Integration Corporation provides total solutions
from system construction to outsourcing that suit the NGN age.

■ NGN: A Promising Growth Market
Investment in the Expanding NGN Business and Measures to Expand Business
Recently, newspapers and magazines often use the term “NGN.” NGN is a next-generation
information and telecommunications network utilizing characteristics of traditional networks
such as fixed-line telephone networks and the Internet that enables the safe and convenient useof large amounts of diverse information.
Our telecommunications carrier customers are expanding NGN-related capital investment for
full-scale NGN-based services forecast to begin in fiscal 2010.
Expansion of the NGN market is a major business opportunity for the Company. The NEC Grouphas various strengths in NGN-related businesses. NEC Networks & System Integration Corporation inparticular not only handles the core NGN-related system construction, operation and maintenance,
but also actively develops original services. Our target for NGN-related sales to telecommunications
carriers in fiscal 2008 is ¥17.0 billion, and we aim to further expand this business.
Image of NGN

Target for NGN-Related Sales to
Telecommunications Carriers

Telecommunications CarriersEnterprise/Government

Service Providers

IssuesIssuesIssues●●Increase in cost
Decrease in subscriber
revenues●●

Security
Quality●Consumers
IssuesLimited freedom inservice development●

Shortage of
network services

Safety/Security●●

Low cost
Creates new revenue
sources¥

5.0 billion compared with FY 2007
¥17.0 billion¥12.0 billion

NGN
MeritsTarget for NGN-related sales in FY 2008 is¥17.0 billion, an increase of

Merits●●High quality
High security

Convenience/Comfort
Merits●Open and flexible
service infrastructure

Merits●●High-quality video
streaming
Converges mobile andfixed-line communications

FY 2007

FY 2008

NEC Networks & System Integration Corporation

9

The NGN Laboratory
Evaluation Space
Training RooomomHands-on traaining using PCs

For evaluating equipm
mentinterconnection andd
new services, etc.
c.

Machine RoomHouses systems and equipm
ment
that
hat serve as the infrastructu
infrastructure
for NGN service
ervices

Demonstraation
and Exhibitt Space
For trying new
NGN-based services

Roles and Targets of the NGN Laboratory
1. Train engineering staff
2. Improve quality
3. Service creation

1,300 by fiscal 2010
Telecommunications connectivity testing and evaluation
Create services linked to EmpoweredOffice■ Examples of NGN Initiatives
The Service Creation Center, NGN Laboratory
The NGN Laboratory was established in February 2008 as an internal base of development
as we look toward the NGN age. It primarily serves to train engineers, improve quality andcreate services.
With network equipment and servers vital to NGN, the laboratory has an environment
equivalent to the facilities of telecommunications carriers. Full utilization of this advantage
enables us to evaluate and verify newly developed services. In addition, by linking the NGN
Laboratory with EmpoweredOffice, which the Company recommends for improving work
processes and the office environment, we can test laboratory-developed services during actual
operation at the adjacent EmpoweredOffice Center.
We will strengthen training for engineers who can handle NGN from design and construction
to operation and maintenance, and work to achieve one-stop services for NGN-ready networks.

10

FEATURE■ TOPICS
Sales Floor Transformed into an Environment that Boosts Sales and Proposal Abilities
Marketing and Sales Reform Project Introduced as Test Casefor EmpoweredOffice

A simple and spacious work space

Chairs and other fixtures reflect anemployee survey.

The Company promotes the Marketing and Sales Reform Project aimed atreforming marketing and sales processes and effectively utilizing Information andCommunication Technology (ICT). In order to raise our ability to make proposals
to customers by using network integration experience and actual products, we
substantially renovated the office environment of the 7th floor of the head office(approx. 2,300m2) in January 2008.
One major reform was the adoption of a group address system to freely
choose seats for the day’s business. Employees communicate openly with eachother and exchange information and opinions quickly, which enhances sales andmarketing and proposal abilities. A wireless LAN environment has saved timeand raised efficiency by enabling employees to use PCs anywhere in the head
office building and conduct meetings flexibly, even while standing.
We will open the renovated office to customer view as a proving ground for
the EmpoweredOffice solutions and use it as a model office for conducting
proposals and demonstrations.
Through these in-house demonstrations and improvements, we will provide
better office environments for our customers.

Opening of the Largest Domestic Network Total Operation Center
A Variety of Support Services 24 Hours a Day

Customer calls are divided between
Tokyo and Osaka and mutually
backed up.

On April 14, 2008, NEC Networks & System Integration Corporation opened
the Network Total Operation Center (nTOC) in Tokyo and Osaka as a support
base to offer customers safer and more convenient use of the network systems
we provide.
nTOC is one of the largest network system support facilities in Japan interms of floor space, the number of support engineers on staff, and client
capacity.
nTOC is a total operation center that concentrates countrywide support
services such as monitoring, operation and maintenance for the network
systems provided by the Company, including networks, telephony, servers andsecurity. Operation engineers with seasoned knowledge of networks provide
detailed services to meet customer needs 24 hours a day, 365 days a year.
nTOC-based services are the core of the Company’s support service
business. They enhance our support services menu and also help expand the
network integration business.

A variety of support services areavailable 24 hours a day.

NEC Networks & System Integration Corporation

11

REVIEW OF OPERATIONS

Network Integration / Support Services

Percentage of Net Sales

Principal Businesses(Year ended March 31, 2008)

63.6%
Segment Sales

Planning and consulting, software development, construction, operation andmaintenance, outsourcing services and supply of originally developed products anddevices for network systems to strengthen the operating efficiency and competitiveness of customers(Millions of yen)

200,000

Results of the Fiscal Year
161,473 163,418

150,000
116,997

100,000

79,285 85,786

50,000
0
04

05

06

07

(Years ended March 31)

08

For the year ended March 31, 2008, orders for the Network Integration/Support
Services segment increased 0.1 percent year-on-year to ¥164,765 million, and segment
sales increased 1.2 percent to ¥163,418 million. The primary factors behind theseresults were increased system construction and development support to prepare forcommercialization of NGN-related services, initiatives to meet office relocation
demand and stable sales of Information and Communication Technology (ICT) applications and security-related products to enterprises primarily in major metropolitan
areas, and an increase in support services for enterprises and government.
However, orders and sales were essentially unchanged from the previous fiscal
year due to a slowdown in investment in regional consumer-service networks and theweak performance of some consolidated subsidiaries.

Outlook for the Year Ending March 2009
In the year ending March 31, 2009, network system construction and related support services for telecommunications carriers and other enterprises are projected to continue increasing due to strengthening of the NGN-related businesses and responsiveness to the enterprise market, as mentioned in the overall outlook. Accordingly,
orders in the Network Integration/Support Services segment for the next fiscal year are
projected to be ¥175.0 billion, a 6.2 percent increase year-on-year, and sales areprojected to be ¥175.0 billion, a 7.1 percent increase.

12Telecommunications Engineering
Principal Businesses
Installation of data communication bases and construction of ancillary facilities

Results of the Fiscal Year
Orders received for this segment were ¥68,846 million, a 5.6 percent increase yearon-year, and sales were ¥70,339 million, a 4.8 percent increase. These increases wereprimarily the result of an overall increase in the Telecommunications Engineering
segment due to solid expansion of regional public networks by local governments andan increase in construction of broadcasting facilities for digital broadcasting and
CATV and telecommunications facilities for power companies, despite the end of theinvestment cycle for mobile base station construction driven by the introduction of themobile number portability system (MNP).

Percentage of Net Sales(Year ended March 31, 2008)

27.2%

Outlook for the Year Ending March 2009
Demand is expected to remain strong for construction of telecommunications facilities
in Japan, including regional information networks for local governments, and for telecommunications engineering overseas. Accordingly, orders in the Telecommunications
Engineering segment for the next fiscal year are projected to be ¥70.0 billion, a 1.7 percent
increase year-on-year, and sales are projected to be ¥70.0 billion, a 0.5 percent decrease.

Segment Sales(Millions of yen)

100,000
80,00079,85370,404

63,765 67,085

05

06

70,33960,00040,00020,000
0
04

07

08

(Years ended March 31)

Product Sales
Percentage of Net Sales

9.5%(Year ended March 31, 2008)

Principal Businesses
Sales of data communication devices, etc.

Results of the Fiscal Year
Segment Sales

Orders received for this segment were ¥20,900 million, a 12.0 percent decrease yearon-year, and sales were ¥24,454 million, a 6.2 percent decrease. The principal factor in thedecreases was a reduction in sales of stand-alone devices not accompanied by system integration, as the Company concentrated resources in the Network Integration/Support
Services segment, where it can deploy its system integration strengths.

(Millions of yen)

50,00042,43440,00034,87332,90930,00026,082

24,45420,000

Outlook for the Year Ending March 2009

10,000Orders for the next fiscal year in the Product Sales segment, which handles
stand-alone devices, are projected to be ¥20.0 billion, a 4.3 percent decrease year-onyear, and sales are projected to be ¥20.0 billion, an 18.2 percent decrease.

0
04

05

06

07

08

(Years ended March 31)

NEC Networks & System Integration Corporation

13

CORPORATE GOVERNANCE

I. Basic Corporate Governance Policy
The Company believes that the cornerstone of corporate
governance is ensuring management soundness andtransparency by establishing a management system thatenables quick decision-making to respond promptly tochanges in the operating environment, and by practicing
timely, appropriate disclosure.
The Company has adopted the form of a “company withcorporate auditors” in order to build a proper corporate
governance system, centered on the Board of Directors andcorporate auditors.

of executive officers at the managing director level and higher
and corporate auditors, to discuss policies pertaining to key
management and operating issues, and the Business
Execution Committee, which consists primarily of executive
officers and division managers, to monitor the progress ofand report on significant matters concerning businessexecution.
Board of Corporate Auditors

1. Organizational Structure and Operation, Business
Execution, Auditing and Supervision, and Election

The Board of Corporate Auditors consists of fivecorporate auditors, including four outside auditors. It decides
audit policies and related matters, and reports on the statusof 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 forsufficiently scrutinizing directors’ execution of their
responsibilities.

Board of Directors

Principal Activities of Outside Auditors

The Board of Directors is composed of eight directors,
including two outside directors. In addition to maintaining thenumber of directors at an optimum level for quick decisionmaking, the Company has reduced the terms of directors
from two years to one year in order to clarify the
management responsibility of directors and strengthen its
management structure.

The outside auditors attend regular monthly meetings ofthe Board of Directors, extraordinary Board meetings whennecessary, and meetings of the Board of Corporate Auditors.
They utilize their individual knowledge in meeting discussions
and other situations while auditing directors’ execution of
their responsibilities from a fair and objective point of view.

II. Management Organization and Other
Corporate Governance Systems for
Decision-Making, Execution and SupervisionInternal Auditing DivisionPrincipal Activities of Outside Directors
The outside directors attend regular monthly meetings ofthe Board of Directors, as well as extraordinary Board
meetings when necessary. As members of the Board of
Directors, the outside directors apply their ample experienceand knowledge to the Company’s operations in ways such asproviding necessary input to discussions on importantmatters concerning management. At the same time, they
provide advice and make decisions from an external
perspective.
Executive Committee and Business Execution Committee
The Company has adopted an executive officer system toclearly separate supervision and business executionfunctions. Moving to enhance management functions, theCompany also formed the Executive Committee, consisting

14

The Internal Auditing Division, consisting of 10 members,
has been established to conduct internal audits. It examines
whether business execution is being conducted legally andproperly according to relevant laws, regulations and Company
rules.
Cooperation between the Corporate Auditors and theInternal Auditing Division
The Internal Auditing Division mutually cooperates withthe corporate auditors, including making annual reports tothem on the results of audits based on the audit plan for the
fiscal year and exchanging opinions as necessary.
The corporate auditors, Internal Auditing Division andindependent auditors also engage in mutual cooperation by
regularly exchanging opinions as necessary in statutory
audits.

Independent Auditors
The Company has an audit contract with Ernst & Young
ShinNihon as its independent auditors to audit its accounts
for the year ended March 31, 2008.
Note: KPMG AZSA & Co. was appointed to replace Ernst & Young
ShinNihon as the Company’s independent auditors at the General
Meeting of Shareholders held on June 25, 2008.

Cooperation between the Corporate Auditors andIndependent Auditors
The corporate auditors and independent auditors also
engage in mutual cooperation by regularly exchanging
opinions as necessary in statutory audits.
2. Special Factors with a Significant Effect on
Corporate Governance(1) The Company’s parent company is NEC Corporation,
which held 25.5 million shares, or 51.48 percent, of theCompany’s voting rights shares as of March 31, 2008.
Calculation of the actual ratio of voting rights of NEC
Corporation includes 6.4 million shares contributed by
NEC Corporation as a retirement benefit trust to theJapan Trustee Services Bank, Ltd. (The Sumitomo Trustand Banking Company, Limited beneficiary trust account,
NEC Corporation retirement benefit trust account).

policy, the Company revises the policy in response to factors
including changes in the management environment andworks to make the system more effective.
1. Systems for Ensuring Compliance with Laws and theCompany’s Articles of Incorporation in the
Performance of Duties by Directors and Employees(1) Directors and corporate officers shall take the lead inpracticing the NEC Networks & System Integration Group
Charter of Corporate Behavior, (the “Charter of Corporate
Behavior”) and the NEC Networks & System Integration
Group Code of Conduct (the “Code of Conduct”) thatwere adopted to establish business ethics standards for
NEC Networks & System Integration Corporation and its
subsidiaries (the “Group”), and to ensure compliance bydirectors and employees with laws and the Company’s
Articles of Incorporation and rules, and promote theirthorough understanding by way of repeatedly transmitting
information about the importance of complying withthem.
(2) The CSR Promotion Division shall encourage understanding
and implementation of the Charter of Corporate Behavior
and Code of Conduct, and the Internal Auditing Division
shall conduct internal audits of compliance with laws andthe Company’s Articles of Incorporation at each division.

(2) In order to strengthen cooperation with the parent
company in management activities and promote sharing
of information, at the Company’s request one outside
director and two outside auditors are appointed from theparent company. As the number of outside directors does
not constitute a majority on the Board of Directors anddecisions on key management issues are made aftersufficient discussion, independent management judgment
is maintained.

(3) The CSR Promotion Division shall promote the use of theInternal Reporting and Consultation Office, a corporate
ethics hotline, for reporting violation or suspected violationof laws, the Charter of Corporate Behavior or Code of
Conduct, and work to detect such violations at an earlystage.

III. Basic Stance on and Status of Internal
Control Systems(5) The Management Quality Improvement Committee shallinvestigate the cause of misconduct within the Group andformulate and implement concrete preventative
measures.

■ Basic Stance on and Status of Internal Control Systems

The Company established the following basic policy
concerning internal control systems per resolution of theBoard of Directors.
In addition to regularly evaluating the internal control
system and implementing reform measures under the basic(4) A director shall immediately report to corporate auditors
on discovery of any material violation of laws or Company
rules, and shall also report to the Board of Directors
without delay and take corrective measures.

(6) The Company shall maintain no relationship whatsoever
with antisocial factions or groups which threaten theorder and safety of civil society, and shall respond toillegitimate demands in an uncompromising manner.

NEC Networks & System Integration Corporation15

2. System for the Retention and Management ofInformation Relating to the Performance of Duties byDirectors
Directors and employees shall appropriately create, store
and control documents relating to the performance of duties
by directors and employees pursuant to laws and Company
rules including the Regulation on Document Organization.
Appropriate storage and control of information shall be carriedout in accordance with rules including the Basic Rules on
Information Security, the Rules for Trade SecretManagement, and the Rules of Protection and Managementof Personal Information.
3. Rules and Other Systems for Risk Management(1) The Company shall implement risk management
effectively and comprehensively in accordance with the
Basic Rules on Risk Management, and receive the adviceof lawyers, public accountants and other outside
professionals as necessary.
(2) The Management Quality Improvement Committee shalldeliberate on important matters related to risk
management, and promote implementation of concreteCompany-wide risk management measures.
(3) The Executive Committee shall deliberate fully on
important matters from the perspective of risk
management, such as strategies to control material
management risks, and report matters of particularimportance to the Board of Directors.
(4) The Internal Auditing Division shall conduct audits of theenterprise risk management system and the status of
implementation of risk management.
4. Systems for Ensuring the Efficient Performance ofDuties by Directors(1) The Board of Directors shall meet once a month and holdextraordinary meetings as necessary to make decisions ina timely manner.
(2) The performance of duties by directors and executive
officers shall be properly reported to the Board of
Directors.
(3) The Board of Directors shall delegate significant authority
to the executive officers in order to carry out timely
decision-making regarding business operations. The

16

executive officers will carry out their duties in an agile andefficient manner based on the responsibilities set by the
Board of Directors.
(4) The Company shall work to strengthen management
functions through the Executive Committee, which
consists of executive officers at the managing director
level and higher and corporate auditors and discusses
policies pertaining to key management and operating
issues, and the Business Execution Committee, which
consists primarily of executive officers and division
managers and monitors the progress of and reports on
significant matters concerning business execution.
(5) Executive officers and other employees shall perform theirduties competently and efficiently in accordance with theRules of Authority and other Company rules.
5. Systems for Ensuring the Proper Operation of the Group(1) The Company shall cooperate with its parent company
NEC Corporation as necessary with respect to matters
including the establishment of systems for ensuringcorporate ethics and compliance with laws, theCompany’s Articles of Incorporation and rules, andfairness of business operations.
(2) The Company shall guide and assist its subsidiaries inestablishing systems for ensuring corporate ethics,
compliance with laws, the Company’s Articles ofIncorporation and rules, and fairness of business
operations, in accordance with the Charter of Corporate
Behavior and the Code of Conduct.
(3) In addition to dispatching directors and corporate auditors
to subsidiaries, the Company shall, at the Executive
Committee, discuss important operational matters ofsubsidiaries and submit issues for consideration to theBoard of Directors, and cooperate with NEC as necessary,in accordance with the Rules on Control of AffiliatedCompanies.
(4) The Company and its subsidiaries shall prepare financial
statements in accordance with laws and Company rules
and cooperate with the independent auditors in
performing audits, in addition to evaluating, maintaining
and improving internal control over financial reporting inaccordance with laws.
(5) The Internal Auditing Division shall conduct audits toconfirm the appropriateness of business operations at
subsidiaries.

CORPORATE GOVERNANCE(4) Documents evidencing approval of important matters shallbe submitted to corporate auditors for their review.

(6) The corporate auditors shall ensure the appropriateness ofbusiness operations at the Company and its subsidiaries
through operational audits.

8. Systems for Ensuring Effective Audits by Corporate
Auditors

6. Matters Regarding Employees Assisting Corporate
Auditors and the Independence of Such Employees
from Directors(1) Corporate auditors shall attend meetings of the Board of
Directors and other important meetings as they deem
necessary.

The Company shall assign employees to assist corporate
auditors in performing their duties. Corporate auditors may
express an opinion on matters regarding such employees
including their transfer.

(2) Corporate auditors shall exchange information and consult
with each other on the status of audits at meetings of theBoard of Corporate Auditors.
In addition, the corporate auditors shall cooperatewith the independent auditors in the performance of theirduties, regularly receive reports on accounting audits andexchange opinions with them, and cooperate with theInternal Auditing Division to ensure audit duties are
conducted effectively.

7. Systems of Reporting to Corporate Auditors by
Directors and Employees and Other Systems
Regarding Reporting to Corporate Auditors(1) Directors and employees shall report to corporate auditorson the status of the performance of their duties, as
required by the corporate auditors.

■ Basic Stance on and Status of Measures for the(2) The Internal Auditing Division and other divisions shallreport regularly to the corporate auditors depending on
their business contents.

Exclusion of Antisocial Factions
1. Basic Stance on the Exclusion of Antisocial Factions(3) The CSR Promotion Division shall regularly report to thecorporate auditors regarding the status of operations of
the Internal Reporting and Consultation Office, a
corporate ethics hotline.

The Company shall maintain no relationship whatsoever
with antisocial factions or groups which threaten the order andsafety of civil society, and respond to illegitimate demands inan uncompromising manner, as stipulated above in the Basic
Stance on and Status of Internal Control Systems.

Corporate Governance System
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

Executive Officers

Business Execution Committee

Internal Auditing Division

Independent
Auditors

Cooperate

Management Quality
Improvement Committee
Audit

Staff, Management Units and Business Units
Corporate Ethics and Thorough Compliance

Cooperate Group Companies
Internal Reporting and Consultation Office(Corporate Ethics Hotline)

Business Behavior Committee

NEC Networks & System Integration Corporation

17

CORPORATE GOVERNANCE

2. Status of Measures for the Exclusion of Antisocial Factions(1) The Code of Conduct stipulates that all officers andemployees of Group companies take decisive action toensure no relationship whatsoever with antisocial factions
or groups that threaten the order and safety of civilsociety and not engage in actions that support theiractivities.
(2) The Company has established a division to counter
antisocial factions by gathering and uniformly managing
information on such factions.
(3) The Company cooperates closely with local police
stations, lawyers and outside professional organizations
regarding the exclusion of antisocial factions.
(4) The Company works to familiarize officers and employeeswith the exclusion of antisocial factions in ways such asproviding regular educational opportunities.

employees and staff to report issues without incurring
unfair treatment, in addition to the existing Internal
Reporting Office, and is working to identify risks at an
early stage.
(5) In January 2008, the Company established theManagement Quality Improvement Committee tostrengthen internal controls throughout the Group and toreview, examine and share information regarding
compliance and risk management measures throughout
the Company.
(6) To implement effective and comprehensive risk
management, in April 2008 the Company established the
Basic Rules on Risk Management to be observed by
officers and employees.
(7) In July 2008, the Company established the CSR Promotion
Division to further strengthen its CSR initiatives.

IV. Other■ Other Matters Concerning Corporate GovernanceFollowing is the status of implementation of measuresconcerning corporate governance. The Company will further
strengthen corporate governance through ongoing review of
optimal management systems in response to changes in thesocial and operating environments.
(1) Documentation of the internal control system for financial
reporting was carried out in April 2006 to further enhance
the soundness and reliability of financial statements.
(2) The Basic Policy on Internal Control Systems was decided
at the regular Board of Directors meeting in May 2006.
In addition, with the formulation of articles in October2007 expressly regarding the blocking of relations with
antisocial factions or groups, the Company is working tofurther ensure proper operations.
(3) In July 2007, the Company established the Monitoring &Verification Office to verify and approve sales calculations
for orders received and uniformly manage invoicing andpayment, and is working to strengthen internal controls.
(4) The Company improved the usability of the corporate
ethics hotline by establishing an external consultation
office in August 2007 for Company and other Group18

Directors and Corporate Auditors (As of June 25, 2008)

Directors
President

Masahiko Yamamoto
Senior Vice Presidents and Members of the Board

Tooru Rokusha
Koshiro Konno
Yasuo Iijima
Atsushi Fujita
Akinori Kanehako
Members of the Board

Kazuo Tsuzuki
Takayuki Matsui
Corporate Auditors
Masayuki Komura (full-time)
Tetsuiku Okada (full-time)
Harutame Umezawa
Kiyoshi Nakanishi
Tetsujiro AranoCORPORATE SOCIAL RESPONSIBILITY (CSR)

CSR Policy
NEC Networks & System Integration Corporation builds
trusting relationships with its stakeholders by putting
compliance first, working to solve social issues throughbusiness activities, and soundly improving and returning
profits to society.

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

Initiatives for Customers

Strengthen Risk Management
and Compliance

Include Everyone
in Systems and Services

Earn Customer Trust

Build Reliable Information
and Communications Infrastructure

Address Global Warming andEnvironmental Preservation

Provide Multifaceted Security

Improve Working Conditions and Develop Human Resources Globally

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

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

1999, the Company received ISO 14001 certification forenvironmental management. Since then it has worked toreduce waste disposal volume, achieved 100 percent use ofrecycled paper for copy paper in fiscal 2001, improved therecycling rate, changed to small lots for lead soldering for onsite use, and introduced low-pollution vehicles. Moreover, in
recent years, the Company has implemented green
procurement to meet chemical substance regulations (theEuropean RoHS directive and others), and conducted energy
conservation and emissions trading aimed at preventing
global warming.
Information Security and Protecting Personal Information
NEC Networks & System Integration Corporation has
established a personal information protection policy. Moreover,
the Company understands that personal information is an
important information asset, and maintains a complianceprogram (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, theCompany established the Basic Policy on Information Security
and the Basic Rules on Information Security, and conducts
activities to maintain and enhance information security. Basedon 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, throughoperations based on ISO/IEC 27001, an international standard
for information security systems.
ISO 9001: 2000
• 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-IMO190• Organization: SI & Services Operations Unit Outsourcing Service Division• Certificate Number: JQA-IMO351• Organization: SI & Services Operations Unit Customer Engineering Division• Certificate Number: JQA-IMO514• Organization: SI & Services Operations Unit Service Infrastructure Division

Environmental Activities
NEC Networks & System Integration Corporation statesin its Charter of Corporate Behavior that it will “contribute tosociety as an environment-conscious corporate citizen.” In

Privacy Mark• Certificate Number: 21000053(02)NEC Networks & System Integration Corporation

19

SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATANEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars(except per
share figures) 1

Millions of yen(except per share figures)

2008

2007

2006

2005

2004

2003

2008

For the year:
Orders ................................................................... ¥ 254,512 ¥ 253,577 ¥ 223,383 ¥ 207,460 ¥ 196,123 ¥ 203,038 $2,540,293
Net sales ...............................................................

258,212

254,641

213,672

198,625

194,012202,419

2,577,223

Selling, general and administrative expenses ....

24,82425,41320,502

16,921

17,263

17,418

247,769

Operating income ...............................................

10,743

7,849

6,056

4,812

4,419

5,675

107,226

Net income ..........................................................

4,412

3,476

2,609

1,222

500

1,512

44,036

Capital expenditures ..........................................

2,611

2,371

1,804

2,829

1,120

755

26,060Depreciation and amortization .........................

2,130

2,203

1,966

1,712

1,455

1,464

21,260Research and development costs ....................

419

595

455

428

290

58

4,182

At year-end:
Total assets .......................................................... ¥ 154,171 ¥148,797 ¥134,911 ¥ 123,935 ¥ 118,416 ¥ 116,289 $1,538,786
Shareholders’ equity ..........................................

65,251

61,69254,01751,70450,971

51,822651,273

Total net assets ....................................................

66,132

62,201

54,625—Interest-bearing debt .........................................

5,652

5,531

8,800

8,163

—

—

660,066

5,624

5,617

56,41388.67 ¥

70.72 ¥

60.56 ¥

28.24 ¥

10.87 ¥

33.93 $Per share of common stock (yen and U.S. dollars) :Net income .......................................................... ¥0.89

Net assets (BPS) ..................................................

1,311.71

1,233.52

1,285.92

1,231.28

1,213.62

1,202.58

13.09

Cash flow (CFPS) ................................................

130.1

114.8

108.2

69.0

45.0

68.0

1.30

Cash dividends applicable to the year .............

20.00

14.00

14.00

12.00

10.00

10.00

0.20

Operating income to net sales (%) ..................

4.2

3.1

2.8

2.4

2.3

2.8

Return on assets (ROA) (%) 2 .............................

6.9

5.5

4.6

3.9

3.7

3.8

Ratios and return indicators:

Return on equity (ROE) (%) .............................

7.0

6.0

4.9

2.4

1.0

2.9

Shareholders’ equity (Net worth) ratio (%) ....

42.3

41.3

40.0

41.7

43.0

44.6

Current ratio 4 .......................................................

1.97

1.93

1.86

1.77

1.79

1.77

Interest coverage ratio (times) ........................

123.63106.00

65.39

52.87

37.06

30.61

Debt to equity ratio (times) 6 ..............................

0.09

0.09

0.16

0.16

0.11

0.11

Number of employees .......................................

5,817

6,407

4,897

4,199

4,281

4,331

3

5

Net sales per employee (¥ thousands) 7 .......... ¥ 42,247 ¥ 45,053 ¥ 46,982 ¥ 46,864 ¥ 45,056 ¥ 61,056 $ 421,669
Net income per employee (¥ thousands) 8 ......

722

615

574

288

116

342

7,206

Notes:
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥100.19 = U.S.$1.00, the approximate Tokyo foreign exchange
market rate as of March 30, 2008.
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. Current ratio: Current assets / Current liabilities
5. Interest coverage ratio: (Operating income + Interest income + Dividend income) / Interest expenses
6. Debt to equity ratio: Interest-bearing debt / Net assets
7. Net sales per employee: Net sales / Average number of employees during the term
8. Net income per employee: Net income / Average number of employees during the term

20

Net Sales

Operating Income(Millions of yen)

(Millions of yen)

300,000

12,00010,743

254,641 258,212

250,000

10,000213,672

200,000

194,012 198,625

7,849

8,000

150,000

6,056

6,000
4,812

4,419

100,000

4,000

50,000

2,000

0

0
04

05

06

07

08

04

05

(Years ended March 31)

06

07

08

(Years ended March 31)

Net Income

Total Assets andNet Assets*(Millions of yen)

5,000(Millions of yen)

200,000
4,412

4,000

148,797 154,171

150,000

3,476

134,911
123,935

118,416

3,000

2,609

100,000
2,000
1,222

50,97150,0001,000

51,70454,62505

06

62,201

66,132

07

08

500

0

0
04

05

06

07

08

(Years ended March 31)

04■ Total assets■ Net assets(Years ended March 31)* Shareholders’ equity for 2003 through 2005

Operating Income
to Net Sales

ROE and ROA
(%)

(%)

5.0

8.0
7.0

4.2
6.0

4.0

6.0
3.1

4.9

2.8

3.0
2.3

2.4

4.0

3.7

3.9

6.9

5.5

4.6

2.0
2.0

1.0

0
04

05

06

07

(Years ended March 31)

08

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

2.4
1.0

0
04

05

06

07

08

(Years ended March 31)

All graphs are presented on a consolidated basis.

NEC Networks & System Integration Corporation

21

SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA BY SEGMENT AND CUSTOMERNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars(except per
share figures)

Millions of yen(except per share figures)

2008

2007

2006

2005

2004

2003

2008

Orders by business segment ...................... ¥ 254,512 ¥ 253,577 ¥ 223,383 ¥ 207,460 ¥ 196,123 ¥ 203,038 $2,540,293
Information and network integration ..............

—

—

—

—

—

138,149—

Intelligent building and facility engineering ....

—

—

—

—

—

23,874—

Operation and maintenance .............................

—

—

—

—

—

41,013—

Network integration/Support services ............

164,765

164,634

118,41090,08083,063—

1,644,525

Telecommunications engineering ...................

68,846

65,192

68,46275,70372,145—687,154

Product sales .......................................................

20,90023,75036,51041,67640,914—

208,604

Net sales by business segment .................

258,212

254,641

213,672

198,625

194,012202,419

2,577,223

Information and network integration ..............

—

—

—

—

—

138,997—

Intelligent building and facility engineering ....

—

—

—

—

—

22,559—Operation and maintenance .............................

—

—

—

—

—

40,863—

Network integration/Support services ............

163,418

161,473

116,997

85,786

79,285—

1,631,081

Telecommunications engineering ...................

70,33967,08563,76570,40479,853—702,056

Product sales .......................................................

24,45426,08232,90942,43434,873—244,076

Operating income by business segment ...

10,743

7,849

6,056

4,812

4,419

—

107,226

Network integration/Support services ............

11,002

10,964

6,684

5,785

5,644

—

109,811

Telecommunications engineering ...................

4,197

3,139

3,510

3,434

2,826

—

41,890

Product sales .......................................................

892

140

35

(96)

659

—

8,903

Eliminations or corporate ............................

(5,348)(6,394)(4,173)(4,312)(4,710)—(53,379)

Orders by customer .......................................

254,512

253,577

223,383

207,460

196,123

203,038

2,540,293

Government .........................................................

42,87339,14031,14229,891

38,25135,997427,917

Telecommunications carriers ...........................

54,74957,17250,19843,53432,39837,572546,452

NEC Group ...........................................................

53,187

51,83536,486

33,77333,032

33,835

530,861

Enterprise .............................................................

86,52289,15989,46084,38876,98474,977

863,579

Overseas ...............................................................

17,177

16,267

16,096

15,873

15,457

20,675

171,444

Net sales by customer ..................................

258,212

254,641

213,672

198,625

194,012202,419

2,577,223

Government .........................................................

41,76537,46828,71130,89035,80537,765416,858

Telecommunications carriers ...........................

56,47960,23647,70638,70732,641

38,225563,719

NEC Group ...........................................................

51,19552,65035,69734,01531,47533,918210,979

Enterprise .............................................................

92,34188,64583,44481,45880,08274,004

921,659

Overseas ...............................................................

16,42915,64018,114

13,55414,00818,477

163,978

Net sales via NEC ............................................

97,046

90,79758,22056,51054,64053,271

968,620

Ratio of net sales via NEC
to total net sales (%) ...................................

37.6

35.7

27.2

28.5

28.2

26.3

Business segments were changed in the year ended March 31, 2005.

22

Orders by
Business Segment

Net Sales by
Business Segment(Millions of yen)

300,000(Millions of yen)

300,000
254,641 258,212

253,577 254,512

250,000
200,000■ Network integration/

Support services■ Telecommunications
engineering■ Product sales

250,000

223,383
196,123

213,672

207,460

200,000

150,000

150,000

100,000

100,000

50,00050,000■ Network integration/

0
04

05

06

08

(Years ended March 31)

Orders by Customer

194,012 198,625

Support services■ Telecommunications
engineering■ Product sales

0
04

05

06

08

(Years ended March 31)

Net Sales by Customer(Millions of yen)

(Millions of yen)

300,000

300,000
254,641 258,212

253,577 254,512

250,000
200,000

250,000

223,383
196,123

213,672

207,460

150,000

150,000

100,000

100,000

50,000■ Overseas■ Government■ Telecommunications carriers
0■ NEC Group■ Enterprise

50,000■ Overseas■ Government■ Telecommunications carriers
0■ NEC Group■ Enterprise

04

05

06

07

08

(Years ended March 31)

Net Sales via NEC

Ratio of Net Sales via
NEC to Total Net Sales(Millions of yen)

97,046

100,000

90,797

04

05

06

07

08

(Years ended March 31)

(%)

40
35.7

80,00060,000198,625

200,000

30

28.2

28.5

27.2

05

06

37.6

58,22054,640 56,510

20
40,00010

20,000

0

0
04

05

06

07

(Years ended March 31)

08

04

07

08

(Years ended March 31)

All graphs are presented on a consolidated basis.

NEC Networks & System Integration Corporation

23

CONSOLIDATED BALANCE SHEETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
As of March 31, 2008 and 2007

Thousands of
U.S. dollars (note 3)

Millions of yen

Assets

2008

2007

2008

Current assets:
Cash and cash equivalents ..................................................................................

¥ 14,341

Notes and accounts receivable: ..........................................................................

¥

8,602

$ 143,138

96,552

95,353

963,689

Less allowance for doubtful receivables ........................................................

(461)

(200)

(4,601)Inventories (note 5)...............................................................................................

11,80615,090117,836

Deferred income taxes (note 7) ...........................................................................

5,938

5,493

59,267

Other current assets .............................................................................................

2,077

1,159

20,731

Total current assets ......................................................................................

130,256

125,498

1,300,090

Land .......................................................................................................................

2,423

2,423

24,184

Buildings and structures ......................................................................................

7,860

7,522

78,451

Machinery and vehicles .......................................................................................

368

394

3,673

Furniture and fixtures...........................................................................................

9,853

9,295

98,343

Construction in progress......................................................................................

207

325

2,066

Accumulated depreciation ...................................................................................

(12,477)(11,700)(124,533)

Property and equipment, net.......................................................................

8,236

8,260

82,204

Investment securities (note 4) .............................................................................

445

686

4,442

Intangibles, net of accumulated amortization....................................................

3,862

3,758

38,547

Deferred income taxes (note 7) ...........................................................................

7,602

6,549

75,876

Other assets ..........................................................................................................

3,768

4,044

37,609Total investments and other assets ............................................................

15,67915,037

156,493

Total assets ...................................................................................................

¥154,171¥148,797$1,538,786

Property and equipment:

Investments and other assets:24

Thousands of
U.S. dollars (note 3)

Millions of yen

Liabilities and Net Assets

2008

2007

2008

Current liabilities:
Short-term bank loans (note 6)............................................................................

¥

652

¥

531

$

6,508

Notes and accounts payable................................................................................

46,62548,333465,366

Advances received................................................................................................

2,913

3,451

29,075

Accrued income taxes (note 7) ............................................................................

4,461

2,457

44,525

Accrued bonuses to directors and corporate auditors ......................................

59

78

589

Accrued losses on sales contracts ......................................................................

467

183

4,661

Other current liabilities.........................................................................................

11,060

10,137110,390

Total current liabilities..................................................................................

66,23965,173

661,134

Long-term debt (note 6) .......................................................................................

5,000

5,000

49,905

Accrued employees’ retirement benefits (note 8)..............................................

16,66016,300166,284

Accrued retirement benefits for directors and corporate auditors........................

60

95

599

Other liabilities......................................................................................................

79

25

789

Total long-term liabilities .............................................................................

21,80021,422

217,587

Total liabilities...............................................................................................

88,03986,596

878,720

49,773,807 shares in 2008 and 2007..................................................................

13,122

13,122130,971

Capital surplus ......................................................................................................

16,65016,650166,184

Retained earnings.................................................................................................

35,49731,931

354,297

Treasury stock, at cost; 16,352 shares in 2008 and 10,255 shares in 2007 .............

(19)

(11)

(190)

Total shareholders’ equity ...........................................................................

65,251

61,692651,273

11

(14)

110

Long-term liabilities:

Shareholders’ equity (note 9):
Common stock:
Authorized 100,000,000 shares; issued and outstanding

Valuation and translation adjustments:
Net unrealized gain (loss) on other securities....................................................
Deferred gains (losses) on hedges......................................................................

51

(40)

509

Foreign currency translation adjustments..........................................................

(46)

(253)

(459)

Total valuation and translation adjustments..............................................

16

(308)

160

Minority interests ...................................................................................................

865

816

8,634

Total net assets .............................................................................................

66,132

62,201

660,066¥154,171¥148,797$1,538,786

Commitments and contingencies (note 10)
Total liabilities and net assets .....................................................................
See accompanying notes to consolidated financial statements.

NEC Networks & System Integration Corporation

25

CONSOLIDATED STATEMENTS OF INCOME
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (note 3)

Millions of yen

2008

2007

2008

Net sales (note 16) ...................................................................................................

¥258,212¥254,641$2,577,223

Cost of sales (note 16).............................................................................................

222,644

221,379

2,222,218

Gross profit.....................................................................................................

35,56733,262354,996

Selling, general and administrative expenses (note 12)................................

24,82425,413

247,769

Operating income ..........................................................................................

10,743

7,849

107,226

Interest income ......................................................................................................

25

26

250

Interest expenses ...................................................................................................

(88)

(74)

(878)

Dividends income of insurance ............................................................................

111

—

1,108

Reversal of allowance for doubtful receivables ..................................................

—

203

—

Foreign Exchange loss ..........................................................................................

(299)

—

(2,984)

Impairment loss on investment securities...........................................................

(91)

—

(908)

Loss on disposal of property and equipment......................................................

(116)

(80)

(1,158)Loss on devaluation of inventories ......................................................................

—

(77)

—

Sundry taxes ..........................................................................................................

—

(71)

—

Loss on partial termination of an employees’ retirement benefit plan .............

(1,041)—(10,390)

Restructuring charges of a subsidiary .................................................................

(554)

(586)

(5,529)Other, net................................................................................................................

138

84

1,377

.........................................................................................................................

(1,915)(575)(19,114)

Income before income taxes and minority interests ..............................

8,827

7,273

88,103Current ....................................................................................................................

5,985

3,784

59,737

Deferred ..................................................................................................................

(1,575)(29)(15,720).........................................................................................................................

4,409

3,754

44,006

Income before minority interests .................................................................

4,417

3,518

44,086

Minority interests ...................................................................................................

5

41

50

Other income (deductions):

Income taxes (note 7):

Net income ....................................................................................................
See accompanying notes to consolidated financial statements.

26

¥

4,412

¥

3,476

$

44,036

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Millions of yen
Shareholders’ equity
Numbers ofshares ofcommon stock(Thousands)

Balance at March 31, 2006 .................

Commonstock

Valuation and translation adjustments
Net unrealized Deferred Foreign currency
gain (loss) on gains (losses) translation
other securities on hedges
adjustments

CapitalsurplusRetainedearnings

Treasury
stock

Total

43,069¥13,122 ¥12,622¥29,413¥(920)¥54,238

6,704

3,779

916

4,695
(642)

4,695
(642)

(68)
3,476
(8)
0

(68)
3,476
(8)
0

—

—

¥ 150

¥ —

¥(370)

Total

Minority
interests

Total
net assets¥(220)¥608¥54,625

Changes arising during year:
Stock-for-stock exchangetransaction ..................................
Cash dividends ...............................

(642)

Bonuses to directors andcorporate auditors........................

(68)
3,476

Net income.....................................
Purchase of treasury stock ..............

(8)0

Disposition of treasury stock ...........

0

Transfer from other capitalsurplus to retained earnings .........

248

(248)

4,027
16,6502,518
31,931

Net changes in accounts
other than shareholders’ equity ....
Total changes during the year ............
Balance at March 31, 2007 .................

6,704
49,773—
13,122

908
(11)

7,454
61,692

(8)
0

(845)
4,412
(8)
0

(8)
¥ (19)

3,558¥65,251

(164)
(164)
(14)

(40)
(40)
(40)

117
117
(253)

(87)
(87)
(308)

208
208
816

120
7,575
62,201

Changes arising during year:
Cash dividends ...............................

(845)
4,412

Net income.....................................
Purchase of treasury stock ..............
Disposition of treasury stock ...........

0

Net changes in accounts
other than shareholders’ equity ....
Total changes during the year ............
Balance at March 31, 2008 .................

—
49,773—0¥13,122 ¥16,650

3,566¥35,497

(845)
4,412
(8)
0
26
26
¥ 11

91
91
¥ 51

206
206
¥ (46)

324
324
¥ 16

48
48
¥865

372
3,931
¥66,132

Minority
interests

Total
net assets

Thousands of U.S. dollars (note 3)
Shareholders’ equity
Commonstock

Balance at March 31, 2007 .................

CapitalsurplusRetainedearnings

Valuation and translation adjustments

Treasury
stock

Total

$130,971 $166,184 $318,704$(110) $615,750(8,434)44,036(8,434)44,036(80)
0

Net unrealized Deferred Foreign currency
gain (loss) on gains (losses) translation
other securities on hedges
adjustments$(140)$(399)$(2,525)

Total$(3,074) $8,145 $620,830

Changes arising during year:
Cash dividends ...............................
Net income.....................................
Purchase of treasury stock ..............
Disposition of treasury stock ...........

0

(80)
0

Net changes in accounts
other than shareholders’ equity ....
Total changes during the year ............
Balance at March 31, 2008 .................

—
035,592$130,971 $166,184 $354,297(80)
35,513$(190) $651,273(8,434)44,036
(80)
0
260
260
$ 110

908
908
$ 509

2,056
2,056
$ (459)

3,234
3,234
$ 160

479
3,712
479
39,235$8,634 $660,066

See accompanying notes to consolidated financial statements.

NEC Networks & System Integration Corporation

27

CONSOLIDATED STATEMENTS OF CASH FLOWSNEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (note 3)

Millions of yen

2008

2007

2008

¥ 8,827
2,130
53
296
361
261
(35)
(19)
283
(37)
88
91
(12)
(12)
0
116
554
(971)
3,198
(1,762)(565)
12,84537(93)(3,980)8,809¥ 7,2732,203
54(1,115)(1,011)
(162)
(35)
78
159
(39)
74
48
(63)
(22)
0
80
586
1,280
2,614
(1,171)
406
11,23839(70)(3,307)
7,899$ 88,103
21,260
539
2,954
3,603
2,605
(349)
(190)
2,825
(369)
878
908
(120)
(120)
0
1,158
5,529
(9,692)
31,919(17,587)(5,639)128,206
369(928)(39,725)
87,923(1,518)19(1,085)
(10)
24
(46)
55
106
(2,454)(1,216)32(1,149)
(42)
96
(55)
56
146
(2,129)(15,151)
190(10,829)
(100)
240
(459)
549
1,058
(24,493)

125
—
—
(7)
(842)
(3)
(727)
112
5,739
8,602
—

(6,521)
(8)
0
—
(644)
(185)
(7,360)82(1,507)
9,903
56

1,248
—
—
(70)
(8,404)(30)(7,256)
1,118
57,28185,857——¥14,341150¥ 8,602—$143,138

Cash flows from operating activities:
Income before income taxes and minority interests .........................................
Depreciation and amortization ............................................................................
Amortization of goodwill .....................................................................................
Increase (decrease) in allowance for doubtful receivables ...............................
Increase (decrease) in accrued employees’ retirement benefits ......................
(Increase) decrease in prepaid employees’ retirement benefits.......................
Decrease in accrued retirement benefits for directors and corporate auditors .....
Increase (decrease) in accrued bonuses to directors and corporate auditors........
Increase in accrued losses on sales contracts....................................................
Interest and dividend income ..............................................................................
Interest expenses..................................................................................................
Impairment loss on investment securities .........................................................
Gain on sale of investment securities.................................................................
Gain on sale of property and equipment............................................................
Loss on sale of property and equipment............................................................
Loss on disposal of property and equipment ....................................................
Restructuring charges of a subsidiary ................................................................
Decrease (increase) in notes and accounts receivable......................................
Decrease in inventories........................................................................................
Decrease in notes and accounts payable ...........................................................
Other, net ..............................................................................................................
Subtotal .........................................................................................................
Interest and dividend received ............................................................................
Interest paid ..........................................................................................................
Income taxes paid ................................................................................................
Net cash provided by operating activities ..................................................

Cash flows from investing activities:
Purchase of property and equipment .................................................................
Sale of property and equipment .........................................................................
Purchase of intangibles........................................................................................
Purchase of investment securities ......................................................................
Sale of investment securities...............................................................................
Loans receivable made ........................................................................................
Collection of loans receivable..............................................................................
Other, net ..............................................................................................................
Net cash used in investing activities...........................................................

Cash flows from financing activities:
Net increase (decrease) in short-term bank loans .............................................
Purchase of treasury stock...................................................................................
Proceeds from sale of treasury stock..................................................................
Proceeds from sale and purchase of treasury stock, net ..................................
Dividends paid to shareholders...........................................................................
Other, net ..............................................................................................................
Net cash used in financing activities...........................................................
Effect of exchange rate changes on cash and cash equivalents ......................
Net increase (decrease) in cash and cash equivalents ......................................
Cash and cash equivalents at beginning of year ...............................................
Cash and cash equivalents of newly consolidated subsidiaries.......................
Increase in cash and cash equivalents resulting fromthe stock-for-stock exchange transaction .........................................................
Cash and cash equivalents at end of year ..........................................................
See accompanying notes to consolidated financial statements.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31, 2008 and 2007

1 BASIS OF PREPARATION
NEC Networks & System Integration Corporation (the “Company”) and its domestic subsidiaries maintain their books of account in conformity
with the financial accounting standards of Japan, and its foreign subsidiaries maintain their books of account in conformity with those of theircountries of domicile.
The accompanying consolidated financial statements have been compiled from the consolidated financial statements prepared by theCompany as required under the Japanese Financial Instruments and Exchange Law and, have been prepared in accordance with accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International
Financial Reporting Standards.
As permitted by the Japanese Financial Instruments and Exchange Law, amounts of less than one million yen have been omitted. As a result,
the totals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily agree with the sum of theindividual amounts.
Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to the current year’s presentation.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The accompanying consolidated financial statements include the accounts of the Company and the significant companies controlled directly or
indirectly by the Company. All significant intercompany balances and transactions have been eliminated in consolidation.
The difference between the carrying amount and the underlying net assets at fair value at the respective dates of acquisition is allocated to
identifiable assets and liabilities based on fair market value at the dates of acquisition. The unallocated portion of the difference, which isrecognized as goodwill or negative goodwill, is amortized by the straight-line method over a period, up to twenty years, in which the future benefitof each investment is expected.

(b) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates prevailing at the balance sheet
dates, except for assets and liabilities hedged by forward foreign exchange contracts.
All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when such transactions were
made. The resulting exchange gain or loss is credited or charged to income.
The revenue and expense accounts of the foreign subsidiaries are translated into yen at the average exchange rates prevailing during the year,
and, except for the components of shareholders’ equity, the balance sheet accounts are translated at the rates of exchange in effect at thebalance sheet date. The components of shareholders’ equity are translated at their historical exchange rates. Translation adjustments arepresented as a separate component and included in minority interests of net assets in the accompanying consolidated financial statements.

(c) Cash equivalents
All highly liquid investments with a maturity of three months or less when purchased are considered cash equivalents.

(d) Investment securities
Investment securities other than those in subsidiaries and affiliates are classified into three categories: trading, held-to-maturity or other securities.
Trading securities are measured at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classified as othersecurities are measured at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net
assets. Non-marketable securities classified as other securities are carried at cost except for investments in limited partnerships that are
accounted for by the equity method. Investment securities classified as other securities are reviewed for impairment. An impairment loss isrecognized when the fair value of investment securities declines significantly. Cost of securities sold is determined by the moving-averagemethod.

(e) Inventories
Work in process is stated at cost determined on a specific project basis. Purchased goods and materials are stated at cost determined primarily by
the moving-average method.

(f) Depreciation and amortization
Depreciation of property and equipment is principally computed by the declining-balance method, except for certain leased assets of the Company
and property and equipment of certain foreign subsidiaries on which depreciation is computed by the straight-line method, based on the estimateduseful lives of the respective assets. Significant renewals and improvements are capitalized. Maintenance and repair costs are charged to income.
The useful lives of property and equipment are summarized as follows:
Buildings and structures 3 to 47 years
Machinery and vehicles
4 to 11 years
Furniture and fixtures
2 to 20 years

NEC Networks & System Integration Corporation

29

Pursuant to an amendment to the Corporation Tax Law, the Company and its domestic consolidated subsidiaries changed the estimated residual
value of property and equipment which was acquired on or after April 1, 2007 from 5% of the acquisition cost to ¥1. The effect of this change was
immaterial.
Pursuant to an amendment to the Corporation Tax Law, property and equipment acquired on or before March 31, 2007 which were depreciated tothe allowable limit (95% of the acquisition cost) in a particular business year can be further depreciated down to ¥1 evenly over five years starting fromthe following business year. The effect of this change was immaterial.
Intangible assets are amortized by the straight-line method over their estimated useful lives.
Software for sale is amortized based on projected sales volumes within the estimated effective periods (3 years). Software for internal use isamortized by the straight-line method over the estimated useful lives (5 years).

(g) Allowance for doubtful receivables
The allowance for doubtful receivables is provided at an amount determined based on the historical experience of bad debt with respect toordinary receivables, and an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers which areexperiencing financial difficulties.

(h) Accrued losses on sales contracts
Accrued losses on sales contracts are provided for at the amount of estimated losses for work in progress at the balance sheet date. Among sales
orders of the Company on hand at balance sheet date, for projects in which the estimated cost is expected to exceed the amount of the sales
order, such excess costs on sales contracts are accrued.

(i) Leases
Non-cancellable lease transactions are accounted for as operating leases (whether such leases are classified as operating or finance leases) exceptthat lease agreements which stipulate the transfer of ownership of the leased assets to the lessee are accounted for as finance leases.

(j) Research and development costs
Research and development costs are charged to income as incurred.

(k) Retirement benefits
Accrued employees’ retirement benefits are provided mainly at an amount calculated based on the retirement benefit obligation and the fair valueof the pension plan assets at the balance sheet dates, as adjusted for the unrecognized net retirement benefit obligation at transition,
unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation is attributed to each period by thestraight-line method over the estimated years of service of the eligible employees. Actuarial gain or loss is amortized in the subsequent year that it
occurs by the straight-line method over the average remaining years of service of the employees. Prior service cost is amortized beginning theyear it is incurred by the straight-line method over the average remaining years of service of the employees.
In addition, directors and corporate auditors are entitled, in most circumstances, to lump-sum severance payments based on current rates ofpay, length of service and certain other factors at certain subsidiaries. Provision for retirement benefits for these directors and corporate auditors
are made at estimated amounts based on their internal rules.
In the year ended March 31, 2008, the Company abolished the retirement benefit plan to directors and corporate auditors in accordance with aresolution of the general shareholders’ meeting held on June 26, 2007. The remaining provision for directors and corporate auditors will be paid at
the time of termination or retirement. The remaining balance was reclassified as other long-term liabilities at March 31, 2008.

(l) Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets andliabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.

(m) Derivative financial instruments
Derivatives are recorded at their fair value with any changes in unrealized gain or loss charged or credited to income, except for those which meetthe criteria for deferral hedge accounting under which unrealized gain or loss, net of the applicable income taxes, is directly included in the net
assets.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(n) Revenue recognition
Revenues from construction contracts of the Company and the domestic consolidated subsidiaries are recognized by the completed-contract
method except for network integration and telecommunications engineering with contracted amounts exceeding ¥100 million, which arerecognized by the percentage-of-completion method. Revenues from construction work of the foreign consolidated subsidiaries are generally
recognized by the percentage-of-completion method.

(o) Directors’ bonus
Directors’ bonuses are charged to income as incurred.

3 U.S. DOLLAR AMOUNTS
The translation of yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made, as a matterof arithmetic computation only, at ¥100.19 = U.S.$1.00, the approximate rate of exchange on March 31, 2008. The translation should not be construed
as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at that or any other rate.

4 INVESTMENT SECURITIESa) The components of unrealized gain or loss on marketable securities classified as other securities at March 31, 2008 and 2007 were summarized
as follows:

March 31, 2008

Acquisition
cost

Millions of yen
Carrying
value

Unrealized
gain or loss

Thousands of U.S. dollars
Acquisition
Carrying
Unrealized
cost
value
gain or loss

Securities whose carrying value exceeds their acquisition cost:
Equity securities ........................................................................
Subtotal .................................................................................

¥80
80

¥ 99
99

¥19
19

$798
798

$ 988
988

$190
190

Securities whose acquisition cost exceeds their carrying value:
Equity securities ........................................................................
Subtotal .................................................................................
Total .......................................................................................

12
12
¥92

12
12
¥112

—
—
¥19

120
120
$918

120
120
$1,118——$190

Acquisition
cost

Millions of yen
Carrying
value

Securities whose carrying value exceeds their acquisition cost:
Equity securities ........................................................................
Subtotal .................................................................................

¥112
112

¥191
191

¥78
78

Securities whose acquisition cost exceeds their carrying value:
Equity securities ........................................................................
Subtotal .................................................................................
Total .......................................................................................

—
—
¥112

—
—
¥191

—
—
¥78

March 31, 2007

Unrealized
gain or loss

NEC Networks & System Integration Corporation

31b) Sales of securities classified as other securities for the years ended March 31, 2008 and 2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008
Proceeds from sales.................................................................................................................................
Gains on sales ..........................................................................................................................................
Losses on sales ........................................................................................................................................

2007

¥24
12
—

2008

¥96
63
—

$240
120
—

c) The components of non-marketable securities classified as other securities at March 31, 2008 and 2007 were summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008
Other securities:
Unlisted securities ...............................................................................................................................
Investments in limited partnerships ..................................................................................................
Total .................................................................................................................................................

2007

¥222
110
¥332

¥284
210
¥495

2008

$2,216
1,098$3,314

5 INVENTORIESInventories at March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

Work in process........................................................................................................................................
Purchased goods, materials and supplies .............................................................................................
Total .................................................................................................................................................

2008

2007

2008

¥ 9,0542,752¥11,806¥11,397
3,692¥15,090$ 90,368
27,468$117,836

6 SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans and long-term debt are unsecured. The weighted average interest rates of short-term bank loans for the years ended March
31, 2008 and 2007 were approximately 1.1% and 0.9%, respectively.
The weighted average interest rates of long-term debt for the years ended March 31, 2008 and 2007 were approximately 1.0%. The annual
maturities of the long-term debt at March 31, 2008 are as follows:Year ending March 31,

2011 .....................................................................................................................................................
2013 .....................................................................................................................................................
Total ................................................................................................................................................

Millions of yen

Thousands of
U.S. dollars¥2,0003,000¥5,000$19,962
29,943$49,905

As of March 31, 2008 and 2007, the Group has executed a ¥11,000 million ($109,791 thousand) committed borrowing facility with threedomestic banks. As of March 31, 2008 and 2007, no amount was drawn from this facility.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7 INCOME TAXES
Income taxes applicable to the Company and its domestic subsidiaries comprise corporation, enterprise and inhabitants’ taxes, which, in theaggregate, resulted in a statutory tax rate of approximately 40.7% for 2008 and 2007. Income taxes of the foreign subsidiaries are based generally
on the tax rates applicable in their countries of incorporation.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2008 and 2007 differ from thestatutory tax rate for the following reasons:Statutory tax rate ........................................................................................................................................................................
Effect of:
Expenses not deductible for tax purposes...........................................................................................................................
Dividend income not taxable for tax purposes ...................................................................................................................
Inhabitant tax per capita levy................................................................................................................................................
Increase in valuation allowance............................................................................................................................................
Other, net ................................................................................................................................................................................
Effective tax rates .......................................................................................................................................................................

2008

2007

40.7%

40.7%

1.7
(0.0)
1.2
6.2
0.2
50.0%

2.9
(0.2)
1.3
8.2
(1.3)
51.6%

The significant components of deferred tax assets and liabilities as of March 31, 2008 and 2007 were as follows:
Millions of yen

Thousands of
U.S. dollars

2008

2007

2008

Deferred tax assets:
Accrued bonuses .................................................................................................................................
Social security on employee bonuses ...............................................................................................
Allowance for doubtful receivables ...................................................................................................
Accrued enterprise tax ........................................................................................................................
Percentage-of-completion method ....................................................................................................
Loss on revaluation of inventories.....................................................................................................
Unrealized profit on inventories.........................................................................................................
Accrued losses on sales contracts .....................................................................................................
Depreciation .........................................................................................................................................
Software ...............................................................................................................................................
Accrued retirement benefits ...............................................................................................................
Stock dividends....................................................................................................................................
Impairment loss on investment securities ........................................................................................
Impairment loss on securities ............................................................................................................
Loss on restructuring of subsidiaries.................................................................................................
Other .....................................................................................................................................................
Subtotal .......................................................................................................................................
Valuation allowance ............................................................................................................................
Total .............................................................................................................................................

¥ 2,004
235
114
369
77
2,504
23
190
369
343
6,756
146
301
—
116
1,725
15,278(1,632)
13,646¥ 1,754
201
59
233
125
2,204
21
74
133
551
6,089
146
—
247
199
1,149
13,193(1,031)
12,162$ 20,002
2,346
1,138
3,683
769
24,993
230
1,896
3,683
3,423
67,432
1,457
3,004
—
1,158
17,217
152,490(16,289)
136,201

Deferred tax liabilities:
Advanced depreciation of property and equipment.........................................................................
Reserve for special depreciation ........................................................................................................
Unrealized holding gain on other securities .....................................................................................
Deferred gains on hedges...................................................................................................................
Other .....................................................................................................................................................
Total .............................................................................................................................................
Net deferred tax assets............................................................................................................................

(0)
(61)
(8)
(35)
(0)
(105)
¥13,540

(1)
(89)
(29)
—
(0)
(119)
¥12,042

(0)
(609)
(80)
(349)
(0)
(1,048)$135,143

NEC Networks & System Integration Corporation

33

8 RETIREMENT BENEFIT PLANS
The Company and certain consolidated subsidiaries have defined benefit plans, (i.e., Welfare Pension Fund Plans (“WPFP”) and lump-sum
payment plans), covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined byreference to their basic rates of pay, length of service, and the conditions under which termination occurs.
In March 2008, the Company revised its defined benefit plan attributable to employees’ future services, and on April 1, 2008, converted a partof its defined benefit plan into a defined contribution plan for certain future pension benefits.
The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets asof March 31, 2008 and 2007 for the Company’s and the consolidated subsidiaries’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation ....................................................................................................................
Plan assets at fair value ...........................................................................................................................
Unfunded retirement benefit obligation ................................................................................................
Unrecognized actuarial loss ....................................................................................................................
Unrecognized prior service benefit ........................................................................................................
Net amount recognized in the consolidated balance sheets ...........................................................
Prepaid employees’ retirement benefits ................................................................................................
Accrued employees’ retirement benefits ...............................................................................................

2008

2007

2008

¥(35,476)
16,176(19,299)
8,949(6,310)(16,660)—¥(16,660)¥(37,646)
20,165(17,481)6,776(5,335)(16,039)(261)¥(16,300)$(354,087)
161,453(192,624)
89,320(62,980)(166,284)—$(166,284)

The components of retirement benefit expenses for the years ended March 31, 2008 and 2007 are outlined as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost ..............................................................................................................................................
Interest cost ..............................................................................................................................................
Expected return on plan assets...............................................................................................................
Amortization of actuarial loss .................................................................................................................
Amortization of prior service benefit......................................................................................................
Total ......................................................................................................................................................
Loss on partial termination of an employees’ retirement benefit plan ...............................................
...............................................................................................................................................................

2008

2007

2008

¥1,811
888
(435)
567
(373)
2,459
1,041
¥3,501¥1,770
924
(449)
629
(395)
2,480
—
¥2,480$18,076
8,863(4,342)
5,659(3,723)24,543
10,390$34,944

When the Company merged with NEC Telenetworx, Ltd., the Company partially terminated its retirement benefit plan and loss on terminationof the retirement benefit plan was recognized by specifying the plan asset amount transferred from NEC corporate pension fund.
The assumptions used in accounting for the above plans were as follows:
Discount rate ...............................................................................................................................................................................
Expected rate of return on plan assets .....................................................................................................................................

34

2008

2007

2.5%
2.5~3.5%

2.5%
2.5~3.5%

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9 SHAREHOLDERS’ EQUITYOn May 1, 2006, a corporation law (the "Corporation Law") became effective, which reformed and replaced the Commercial Code of Japan withvarious revisions that would, for the most part, be applicable to events or transactions which occur on or after May 1, 2006 and for the fiscal years
ending on or after May 1, 2006. The Corporation Law provides that an amount equal to 10% of distributions from retained earnings paid by theCompany and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriations are required when the total amount of theadditional paid-in capital and the legal reserve equals 25% of their respective stated capital. The Corporation Law also provides that additional paidin capital and legal reserve are available for appropriations by the resolution of the shareholders. The legal reserve amounted to ¥546 million($5,450 thousand) as of both March 31, 2008 and 2007.
Cash dividends charged to retained earnings for the years ended March 31, 2008 and 2007 represent dividends paid out during those years.
The amount available for dividends is based on the amount recorded in the Company’s non-consolidated books of account in accordance with the
Corporation Law.

a) Dividends paid during the year ended March 31, 2008
The following was approved by the Board of Directors held on May 15, 2007.
(a) Total dividends(b) Cash dividends per common share(c) Record date(d) Effective date¥348 million ($3,473 thousand)¥7 ($0.07)
March 31, 2007
June 5, 2007

The following was approved by the Board of Directors held on November 14, 2007.
(a) Total dividends(b) Cash dividends per common share(c) Record date(d) Effective date

¥497 million ($4,961 thousand)¥10 ($0.10)
September 30, 2007
December 4, 2007b) Dividends to be paid after March 31, 2008 but the record date for the payment belongs to the year ended March 31, 2008
The following was approved by the Board of Directors held on May 30, 2008.
(a) Total dividends(b) Dividend source(c) Cash dividends per common share(d) Record date(e) Effective date

¥497 million ($4,961 thousand)
Retained earnings¥10 ($0.10)
March 31, 2008
June 9, 2008

10 CONTINGENT LIABILITIESAt March 31, 2008, the Company was contingently liable as guarantor of indebtedness of the Company’s employees in the aggregate amount of¥160 million ($1,597 thousand).

NEC Networks & System Integration Corporation35

11 LEASESa) Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased property as of March
31, 2008 and 2007, which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to thefinance leases currently accounted for as operating leases:
Thousands of
U.S. dollars

Millions of yen

Acquisition costs:
Machinery and vehicles ......................................................................................................................
Furniture and fixtures..........................................................................................................................
Software ...............................................................................................................................................
Accumulated depreciation:
Machinery and vehicles ......................................................................................................................
Furniture and fixtures..........................................................................................................................
Software ...............................................................................................................................................
Net book value:
Machinery and vehicles ......................................................................................................................
Furniture and fixtures..........................................................................................................................
Software ...............................................................................................................................................

2008

2007

2008

¥ 125
4,789
498
¥5,413

¥ 18
3,952
473
¥4,444$ 1,248
47,7994,970$54,027

¥ 66
2,806
226
¥3,100

¥ 11
1,857
206
¥2,075$ 659
28,0072,256$30,941

¥ 58
1,983
271
¥2,313

¥
7
2,095
266
¥2,369$ 579
19,792
2,705$23,086

Lease payments relating to finance leases accounted for as operating leases amounted to ¥1,289 million ($12,866 thousand) and ¥1,043
million for the years ended March 31, 2008 and 2007, respectively. The depreciation expense of the leased assets computed by the straight-line
method over the respective lease terms and the interest expense portion included in the lease payments amounted to ¥1,200 million ($11,977
thousand) and ¥84 million ($838 thousand), respectively, for the year ended March 31, 2008 and ¥970 million and ¥76 million, respectively, for theyear ended March 31, 2007.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2008 and 2007 for finance leases accounted
for as operating leases are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Due within one year.................................................................................................................................
Due over one year....................................................................................................................................
Total ......................................................................................................................................................

2008

2007

2008

¥1,0381,299¥2,338¥ 908
1,520¥2,428$10,360
12,965$23,336b) Operating leases
Future minimum operating lease payments subsequent to March 31, 2008 and 2007 for non-cancelable operating leases are summarized asfollows:
Thousands of
U.S. dollars

Millions of yen

Due within one year.................................................................................................................................
Due over one year....................................................................................................................................
Total ......................................................................................................................................................

2008

2007

2008

¥211
371
¥583

¥7
2
¥9

$2,106
3,703$5,81912 RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses amounted to ¥419 million ($4,182 thousand) and ¥595
million for the years ended March 31, 2008 and 2007, respectively.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13 AMOUNTS PER SHAREYen

Net income ...............................................................................................................................................
Net assets .................................................................................................................................................

U.S. dollars

2008

2007

2008

¥ 88.67
1,311.71¥ 70.72
1,233.52$ 0.8913.09

Net income per share is computed based on the net income available for distribution to shareholders of common stock and the weightedaverage number of shares of common stock outstanding during the year. There is no equity instruments issued that has dilutive effect on earnings
per share.
Amounts per share of net assets are computed based on net assets available for distribution to the shareholders and the number of shares ofcommon stock outstanding at the year end.

14 DERIVATIVESThe Company has entered into foreign exchange forward contracts with major Japanese banks in order to manage certain risks arising fromadverse fluctuations in foreign currency exchange rates.
At March 31, 2008 and 2007, the disclosure of fair value information for derivatives has been omitted since all derivatives have beenaccounted for as hedges.

15 RELATED PARTY TRANSACTIONSThe Company is a majority-owned subsidiary of NEC Corporation (“NEC”). Consolidated net sales included those to NEC in amounts of ¥97,046
million ($968,620 thousand) and ¥56,422 million for the years ended March 31, 2008 and 2007, respectively. In addition, the Company purchased
communications equipment and other from NEC in amounts of ¥45,734 million ($456,473 thousand) and ¥42,544 million during the years ended
March 31, 2008 and 2007, respectively.
The terms of the transactions referred to above were negotiated and determined on an arm’s-length basis.

16 SEGMENT INFORMATIONThe Company and its consolidated subsidiaries are primarily engaged in the manufacture and sale of products in Japan and foreign countries inthree major segments: the Network integration/Support services segment, the Telecommunications engineering segment, and the Product sales
segment.
Business segments
The business segment information for the Company and its consolidated subsidiaries for the years ended March 31, 2008 and 2007 is summarized
as follows:
Millions of yen

Year ended March 31, 2008

Network
integration /Supportservices

Telecommunications
engineering

Product
sales

Total

I. Sales:(1) Sales to third parties ............................................
(2) Intersegment sales ...............................................
Total sales...................................................................
Operating expenses ...................................................
Operating income ......................................................

¥163,418—
163,418
152,416¥ 11,002¥70,339—
70,33966,142¥ 4,197¥24,454—
24,45423,561¥ 892¥258,212—
258,212242,120¥ 16,091

¥

—
—
—
5,348
¥ (5,348)¥258,212—
258,212
247,469¥ 10,743

II. Assets, depreciation expenses, capital expenditures:
Assets..........................................................................
Depreciation expenses ..............................................
Capital expenditures ..................................................

¥ 76,084877
1,121¥32,731
29
81¥ 7,309——¥116,125
907
1,203¥38,046
1,223
1,580

¥154,171
2,131
2,783

Eliminations
or corporate

Consolidated

NEC Networks & System Integration Corporation

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Thousands of U.S. dollars

Year ended March 31, 2008

Network
integration /Supportservices

Telecommunications
engineering

Product
sales

Total

I. Sales:(1) Sales to third parties ............................................
(2) Intersegment sales ...............................................
Total sales...................................................................
Operating expenses ...................................................
Operating income ......................................................

$1,631,081—
1,631,081
1,521,270$ 109,811$702,056—
702,056
660,166$ 41,890$244,076—
244,076
235,163$ 8,903$2,577,223—
2,577,223
2,416,608$ 160,605— $2,577,223——— 2,577,223
53,379 2,469,997$ (53,379) $ 107,226

II. Assets, depreciation expenses, capital expenditures:
Assets.......................................................................... $ 759,397
Depreciation expenses ..............................................
8,753
Capital expenditures ..................................................
11,189$326,689
289
808$ 72,951——$1,159,048
9,053
12,007$379,738 $1,538,786
12,207
21,27015,77027,777

Eliminations
or corporate

Consolidated$

Millions of yen

Year ended March 31, 2007

Network
integration /Supportservices

Telecommunications
engineering

Product
sales

Total

I. Sales:(1) Sales to third parties ............................................
(2) Intersegment sales ...............................................
Total sales...................................................................
Operating expenses ...................................................
Operating income ......................................................

¥161,473—
161,473
150,508¥ 10,964¥67,085—
67,08563,946¥ 3,139¥26,082—
26,08225,941¥ 140¥254,641—
254,641
240,397¥ 14,244

¥

—
—
—
6,394
¥ (6,394)¥254,641—
254,641
246,792¥ 7,849

II. Assets, depreciation expenses, capital expenditures:
Assets..........................................................................
Depreciation expenses ..............................................
Capital expenditures ..................................................

¥ 78,882
1,242
1,493

¥31,4486
34¥11,731——¥122,062
1,248
1,527

¥26,734956
840¥148,797
2,205
2,367

Eliminations
or corporate

Consolidated

Geographical segments
As net sales and total assets of the foreign operations constituted less than 10% of the consolidated totals for the years ended March 31, 2008
and 2007, the disclosure of geographical segment information has been omitted.
Overseas sales
As overseas sales constituted less than 10% of the consolidated net sales for the years ended March 31, 2008 and 2007, the disclosure ofoverseas sales information was omitted.

38

REPORT OF INDEPENDENT AUDITORSERNST & YOUNG SHINNIHON
Hibiya Kokusai Bldg.
2-2-3, Uchisaiwai-cho
Chiyoda-ku, Tokyo 100-0011
C.P.O Box 1196, Tokyo 100-8641

Tel : 03 3503 1100
Fax : 03 3503 1197

Report of Independent Auditors
The Board of Directors
NEC Networks & System Integration Corporation
We have audited the accompanying consolidated balance sheets of NEC Networks & System Integration
Corporation and consolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements
of income, changes in net assets, and cash flows for the years then ended, all expressed in yen. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of NEC Networks & System Integration Corporation and consolidated subsidiaries at March 31,
2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2008 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3.

June 25, 2008

NEC Networks & System Integration Corporation

39

GLOBAL NETWORK(As of March 31, 2008)

Head Office
1-39-9 Higashishinagawa, Shinagawa-ku, Tokyo 140-8620, Japan
Tel: +81-3-5463-1111
Fax: +81-3-5463-7781

Domestic Regional Offices
Hokkaido, Tohoku, Shinetsu, Kitakanto, Chiba, Kanagawa, Shizuoka, Chubu,
Hokuriku, Kansai, Keiji, Kobe, Chugoku, Shikoku, Kyushu, Okinawa

Subsidiaries and Affiliates
Toyo Networks & System
Integration Co., Ltd.1
Head office: Kanagawa, Japan
Established: May 2005
Capitalization3: ¥400 million
Voting rights: 100.00%
NEC Networks & System Integration
Engineering, Ltd.
Head office: Tokyo, Japan
Established: October 1992
Capitalization3: ¥50 million
Voting rights: 100.00%
NEC Networks & System Integration
Services, Ltd.
Head office: Tokyo, Japan
Established: July 1988
Capitalization3: ¥60 million
Voting rights: 100.00%
NESIC Ascerent, Ltd.
Head office: Tokyo, Japan
Established: September 1995
Capitalization3: ¥20 million
Voting rights: 100.00%

TOYO ALPHANET CO., LTD.
Head office: Kanagawa, Japan
Established: April 1981
Capitalization3: ¥20 million
Voting rights4: 100.00% (100.00%)

NESIC BRASIL S/A
Head office: São Paulo, Brazil
Established: November 1976
Capitalization3: ¥1,325 million
Voting rights: 87.44%

NESIC (Thailand) Ltd.
Head office: Bangkok, Thailand
Established: March 1991
Capitalization3: ¥79 million
Voting rights: 49.00%

NESIC PHILIPPINES, INC.
Head office: Manila, The Philippines
Established: April 1991
Capitalization3: ¥167 million
Voting rights: 100.00%

P. T. NESIC BUKAKAHead office: Jakarta, Indonesia
Established: May 1993
Capitalization3: ¥86 million
Voting rights: 60.00%

NESIC (GUANGZHOU) CO., LTD.
Head office: Guangzhou, China
Established: August 1998
Capitalization3: ¥115 million
Voting rights: 100.00%

Networks & System Integration
Saudi Arabia Co., Ltd.
Head office: Al-Khobar, Saudi Arabia
Established: April 2006
Capitalization3: ¥56 million
Voting rights: 100.00%
TNSi Europe GmbH2
Head office: Köln, Germany
Established: October 2005
Capitalization3: ¥6 million
Voting rights4: 100.00% (100.00%)

Notes:
1. On July 2, 2007, TOYO NETWORK SYSTEMS CO., LTD. changed its name to Toyo Networks & System Integration Co., Ltd.
2. On August 22, 2007, TNS Europe GmbH changed its name to TNSi Europe GmbH.
3. As of March 31, 2008
4. Figures in parentheses after the percentage of voting rights held represent percentages inclusive of indirectly held shares.
5. On April 1, 2008, the Company made Nichiwa Co., Ltd. a wholly owned subsidiary.

40

INVESTOR INFORMATION(As of March 31, 2008)

Corporate Name:
NEC Networks & System Integration
Corporation
Established:
November 26, 1953
Number of Employees:
4,228 (Non-consolidated)
5,817 (Consolidated)
URL:
http://www.nesic.co.jp/english/index.html
Listing:
The Tokyo Stock Exchange, First Section
Ticker Code:1973
Fiscal Year:
April 1 ー March 31
Annual meeting held in June
Common Stock Authorized:
100,000,000 shares
Issued:49,773,807 shares

Major Shareholders:Name of Shareholder

Number of
Shares Held(Thousands)

Percentage
of Total Shares
Outstanding

NEC Corporation

19,10638.57%

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

6,400

12.92

Japan Trustee Services Bank, Ltd. (Trust account)

6,142

12.40

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

1,314

2.65

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

1,219

2.46

Sumitomo Realty & Development Co., Ltd.

1,200

2.42

Goldman Sachs International

874

1.76

Japan Trustee Services Bank, Ltd. (Trust account 4)

727

1.47

Employees’ Stock Ownership Plan

726

1.47

Morgan Stanley and Co., Inc.

592

1.20

*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 theCompany to its retirement benefit trust. The percentage of material voting rights held by NEC
Corporation as of March 31, 2008 was 51.48%.

Composition of Shareholders:Number of Shareholders:
12,024
Transfer Agent:
The Sumitomo Trust and Banking Company,
Limited4 - 4, Marunouchi 1- chome, Chiyoda - ku,
Tokyo 100 - 8233, Japan
Independent Auditors:
Ernst & Young ShinNihon

Individuals and others

12.46%
Foreign investors, etc.

Financial institutions

14.12%

31.72%
Securities companies

0.52%

Other domestic companies

41.18%

Monthly Stock Data (Tokyo Stock Exchange)
(Yen)
2,000

Monthly Stock Price Range

1,500
1,000
High

500

High

Opening

Closing

Closing

Opening

Low

Blue : Opening Price > Closing PriceWhite : Closing Price > Opening Price

Low

0(Thousands of Shares)
12,000Monthly Trading Volume

10,000
8,000
6,000
4,000
2,000
0
2004

2005

2006

2007

2008

NEC Networks & System Integration Corporation41

1-39-9 Higashishinagawa, Shinagawa-ku, Tokyo 140-8620, Japan
http://www.nesic.co.jp

Printed in Japan with environmentallyfriendly soy ink on paper made fromcertified forest-conscious materials.