Consolidated Financial Statements for the First Quarter of Fiscal Year ending March 31, 2018

31/Jul/2017
These financial statements have been prepared in accordance with accounting principals generally accepted in Japan.

NEC Networks & System Integration Corporation

Stock exchange listing: Tokyo
Code number:
1973

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

1. Consolidated Results for the First Quarter (April 1, 2017 to June 30, 2017)of Fiscal Year ending March 31, 2018

(Rounded down to the nearest million yen.)(1) Net Sales and Income

3 months ended
June 2017
3 months ended
June 2016

Net sales(¥ million)

Year-on-yearchange (%)

OperatingincomeYear-on-yearchange (%)

Ordinary
incomeYear-on-yearchange (%)

53,147

0.9

-688

—

-729

—

52,649

-7.7

-456

—

-517

—

Net income
attributable
Net income
Year-on-year
to owners ofper sharechange (%)
the parent(¥)(¥ million)

Net income
per share(diluted) (¥)

3 months ended-626—-12.63—June 2017
3 months ended-534—-10.77—
June 2016c.f. Comprehensive income: 1Q/FY Mar 2018: ¥-446 million ( - %); 1Q/FY Mar 2017: ¥-450 million (-%)
(2) Financial Position
Owner's
Net assets
equity ratio
per share (¥)(%)
30/Jun/2017
182,281
94,41450.6
1,859.00
31/Mar/2017
197,469
96,67447.9
1,906.03
c.f. Owner's equity: 30/Jun/2017: ¥92,275 million; 31/Mar/2017: ¥94,611 million
Total assets(¥ million)

Net assets(¥ million)

2. Dividends
1stquarter
FY ended Mar. 2017—

Dividends per share (¥)
3rd
InterimYear-endquarter
36.00

—

36.00

※
※
FY ending Mar.
※
—
37.00
—
37.00
2018
Note: Revisions to projected dividends for the quarter under review: no

Full year
72.00
74.00

※

※ Forecasts

3. Financial Forecasts for Fiscal Year ending March 31, 2018 (April 1, 2017 to March 31, 2018)
Net sales
6 months ending
Sep. 2017
FY ending Mar. 2018

(Percentages represent change compared to the previous corresponding period.)
Net income attributable to Net income
Operating income
Ordinary income
owners of the parent
per share(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥)(¥ million)(%)

120,000

1.0

2,000

15.9

2,000

7.9

1,100

8.7

22.16

270,000

4.7

10,5005.3

10,500

5.3

6,700

2.3

134.98

Note: Revisions to projected results for the quarter under review: no
Cautionary Statement
Forecasts of results mentioned in this document are future estimates and are thus inclusive of risks and uncertain factors since they are not based on
definite facts. Please be aware that a variety of factors could cause actual results to differ significantly from those projected. The major factors affecting
actual results include the economic climate and social trends surrounding the business of this Company’s group, consumer trends vis-a-vis systems
and services provided by this Company’s group, as well as pressure to lower prices and ability to cope with the market in response to intensifiedcompetition.
Factors affecting results are not limited to the ones mentioned above.

4. Business Results(1) Business Results for the 1Q for the Fiscal Year Ending March 31, 2018
During the 1Q for the fiscal year ending March 31, 2018 (the period from April 1, 2017 to June30, 2017), the Japanese economy continued to experience a moderate recovery, supported by
the effects of various policies amid a recovery of capital spending and an improvement ofcorporate earnings and employment.
In the fields of information and communication technology (ICT), in which NEC Networks &System Integration Corporation (“the Company”) operates, differences were observed in eachfield under these economic conditions.
First, in the corporate market, while corporate managers continued to hold critical views on
the effects of investment, there was healthy investment for enhancing business management
and competitiveness, including investment in work style innovation.
In the telecom carrier business, restraints on capital spending for network infrastructure havebottomed out.
In the central and local governments as well as the public interest market, a sense of firmness
in investments implemented under the concept of safety and security and for the improvementof urban infrastructure remained unchanged. In addition, following the revision of the Feed-In
Tariff (FIT) Act, demand for the construction of solar power generation plants has become brisk.
Meanwhile, there was weakness in the public sector, where the competitive environment
worsened.
Meanwhile, overseas, particularly in Asia, there is a demand for the construction of suchinfrastructure as mobile communications networks.
In this market environment, the Group stepped up its initiatives for business related to thework style reform, including "EmpoweredOffice (*)," in response to the growing momentum ofwork style reforms. Particularly for telecommuting, the needs for which have emerged recently,
based on the results of an internal field trial conducted from 2015, preparation for a fullcompany-wide introduction from July 2017 was made together with active promotion for sales
expansion. In addition, the Group bolstered its overseas business, in particular offering boththe know-how it has developed through its extensive track record with domestic telecom
carriers and its high quality construction to overseas telecom carriers. Meanwhile, in projects
for the construction of large solar power generation plants , orders for which were received
during the previous fiscal year, construction proceeded steadily under the company-wide
project management system.

As a result, the Group posted the following consolidated results for the fiscal year underreview:

Net sales¥53,147 million ¥497million

increase year on year

Operating income (loss)(¥688 million) ¥232million

decrease year on year

Ordinary income (loss)(¥729 million) ¥212million

decrease year on year

Net income (loss) attributable to(¥626 million) ¥ 92million

decrease year on year

owners of the parent＜Reference＞
Orders received¥64,291 million ¥3,448million increase year on year

Net sales increased 0.9% year on year, to ¥53,147 million. This was caused by thecontribution to sales of projects for the construction of large solar power generation plants
orders for which were received during the previous fiscal year, and an increase in sales in the
key areas under the medium-term business strategy (announced in May 2016), including thearea related to the work style reform. These factors offset a decrease in sales to government
and public offices in the Social Infrastructures business. Orders received increased 5.7% year
on year, to ¥64,291 million, due mainly to a strong performance with corporations and anincrease in orders from government and public offices, as well as the bottoming out of restraints
on capital spending among telecom carriers.
On the profit front, operating income and ordinary income declined ¥232 million and ¥212
million year on year, to losses of ¥688 million and ¥729 million, respectively, chiefly reflecting
a deteriorating cost of sales ratio and higher general, selling and administrative expenses in
the Social Infrastructures business, despite an improvement in the Enterprise Networks andthe Carrier Networks businesses owing to a net sales increase and more efficient costs. As aresult, net income attributable to owners of the parent decreased ¥92 million year on year, toa loss of ¥626 million.

Operating results by business segment were as follows:（Million yen）

Net sales by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

Other

Total

1Q Fiscal 2018.3

23,897

13,602

14,5601,086

53,147

1Q Fiscal 2017.3

23,253

13,10914,794

1,492

52,649

Increase or decrease

644

493

(234)

(406)

497

Ratio of increase/decrease

2.8

3.8

(1.6)

(27.2)

0.9(%)（Million yen）

Reference: Orders received by business segment
Enterprise

CarrierSocialNetworks

Networks

Infrastructures

Other

Total

1Q Fiscal 2018.3

26,383

15,39821,326

1,182

64,291

1Q Fiscal 2017.3

25,72414,143

19,867

1,107

60,843

659

1,255

1,459

74

3,448

2.6

8.9

7.3

6.8

5.7

Increase or decrease
Ratio of increase/decrease(%)

1. Enterprise Networks businessNet sales increased 2.8% year on year, to ¥23,897 million, reflecting solid sales of
EmpoweredOffice, a solution for office innovation, as ICT investment for work style reform
remained firm.
2. Carrier Networks businessNet sales increased 3.8% year on year, to ¥13,602 million, reflecting the bottoming outof restraints on capital spending among telecom carriers.
3. Social Infrastructures businessNet sales dropped 1.6% year on year, to ¥14,560 million, with the contribution to salesof projects for the construction of large solar power generation plants, orders for whichwere received during the previous fiscal year, offset by a drop in sales to the government
and public offices.
*EmpoweredOffice:EmpoweredOffice is our office innovation solution. It combines our strengths in ICT and
facility installation to enable more intellectual and creative styles of work through process
reforms. It also proposes new methods and places of work that enable customers to fulfill
their social responsibilities, such as the strengthening of security and environmental
responsiveness.

<Outline of Business Segments>
Business Segment

Descriptions of Main Businesses
Service integration of ICT solutions, mainly for the enterprises market
Total office solutions based on ICT with securities or environmental

Enterprise Networks

solutionsand related operation/monitoring services, as well as outsourcing
services using our own contact centers and data centers
Service integration mainly for telecom carriers’ ICT platforms (frommobile communications base stations to core networks), including
systems integration, installation, and related services such as

Carrier Networks

operations and monitoring.
Systems integration of large-scale, wide-area, carrier-grade ICT
platforms and data centers and related operations, monitoring services
Development, manufacturing, sales and systems integration of network
equipment and other equipment.
Service integration of ICT infrastructure for governments and public
utilities (broadcasters, electric power companies, etc.), such as systems

Social Infrastructure

integration, installation, operation, and monitoring, and operations inmarkets other than the Tokyo, Nagoya, and Osaka areas. Overseas
subsidiaries

OthersSales of purchased equipment(2) Outlook for the Fiscal Year Ending March 31, 2018
The Japanese economy is expected to show a moderate recovery, reflecting the effect ofgovernment measures and improvements in employment and income conditions. However, thedomestic economy continues to face downward pressure due to such factors as the sharp
appreciation of the yen and concerns over a downturn in overseas economies.
In this economic environment, the consolidated forecast for the fiscal year ending March 31,2018 remains unchanged from the plans on a company-wide basis, without any change from theinitial forecast.

Net sales¥270 billion

4.7% increase year on year

Operating income¥10.5 billion

5.3% increase year on year

Ordinary income¥10.5 billion

5.3% increase year on year

Net income attributable¥6.7 billion

2.3% increase year on year

to owners of the parent

5. Consolidated Financial Statements(1) Consolidated Balance Sheets
As ofMarch 31, 2017
AssetsCurrent assets
Cash and cash equivalents
Notes and accounts receivable
Purchased goods,materials and supplies
Work in process
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets
Liabilities
Current liabilities
Notes and accounts payable
Short-term bank loans
Current installments of long-term debt
Accruedncome taxes
Accrued bunuses to directors and corporate auditors
Accrued warranty on products
Accrued losses on sales contracts
Other current liabilities
Total current liabilities
Long-term liabilities
Long-term debt
Liabilities for retirement benefits
Other liabilities
Total long-term liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders' equity
Accumulated other comprehensive income
Net unrealized holding gain on other securities
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets(Millions of yen)
As ofJune 30, 2017

59,64891,152
2,679
5,815
9,796
(92)
168,999

74,494
59,868
2,978
6,494
10,292(84)
154,043

10,71910,438

1,689
2,871
4,561

1,625
3,234
4,859

13,240(51)
13,18828,469197,469

12,991(51)
12,94028,238
182,281

36,474
4,069
171
2,964
67
123
645
18,981
63,49826,229
3,514
171
346
20
113
759
19,29650,452

4,014
31,206
2,075
37,296
100,795

3,971
31,386
2,056
37,41487,867

13,122
16,652
70,622(272)
100,124

13,122
16,655
68,209(273)
97,71335(394)(5,154)(5,513)
2,062
96,674
197,46945(428)(5,054)(5,437)2,138
94,414
182,281(2) Consolidated Statements of Income and Comprehensive Income(Consolidated Statements of Income)(Millions of yen)
1Q, FY March 2017
1Q, FY March 2018
(3 months ended June 2016) (3 months ended June 2017)

Net sales

52,64953,147

Cost of sales

44,98745,517Gross profit

7,661

7,629

Selling, general and administrative expenses

8,118

8,318

Operating income (loss)

(456)

(688)

Interest income

94Exchage gain

－

26

Other

93

58

Total non-operating income

102

88

Interest expenses

21

27

Foreign exchange losses

35－

Business reconstruction expenses for subsiriar

1831

Non-operating income

Non-operating expenses

Other

87

70

Total non-operating expenses

163

129

(517)

(729)

Closing of affiliates cost

59－

Total extraordinary losses

59

－

(576)

(729)

Income taxes

(98)

(200)

Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to owners of theparent

(478)

(529)

55

97

(534)

(626)

Ordinary income (loss)
Extraordinary losses

Income (loss) before income taxes(Millions of yen)

(Millions of yen)

1Q, FY March 2017
1Q, FY March 2018
(3 months ended June 2016) (3 months ended June 2017)
Net income (loss)

(478)

(529)

Other comprehensive income
Net unrealized holding loss on other securities

(6)

10

Foreign currency translation adjustments

(149)

(26)

Adjustments for retirement benefit

184

99

Total other comprehensive income

28

83

(450)

(446)

(465)

(550)

15

103

Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of the parent
Non-controlling interests

(3) Consolidated Statements of Cash Flows

Cash flows from operating activities
Net income (loss) before income taxes
Depreciation and amortization
Amortization of goodwill
Increase (decrease) in asset for retirement benefit
Increase (decrease) in liability for retirement
Increase (decrease) in accrued bonuses to directors
andIncrease (decrease) in accurued warranty on
Increase (decrease) in accurued losses on sales
contracts
Interest and dividend income
Interest expense(Increase) decrease in notes and accounts(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividend income received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property and equipment
Proceeds from sale of property and equipment
Purchase of intangibles
Purchase of investment securities
Loans receivable madeCollection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities
Net increase (decrease) in short-term bank loans
Repayments of long-term debt
Dividends paid to shareholders
Dividends paid to minority shareholders of
Other, net
Net cash provided by 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 period
Cash and cash equivalents at end of period(Millions of yen)
1Q, FY March 2017
1Q, FY March 2018
(3 months ended June 2016) (3 months ended June 2017)
(576)
714
63
(16)
114

(729)
686
63
100
341

(82)
(18)

(47)
(9)

182
(15)
21
38,385(2,226)(14,232)(1,241)956
22,02715(18)(3,486)
18,538114(10)
27
31,235(979)(10,233)(556)
718
20,72210(25)(2,451)
18,256

(440)
－
(91)
(1)
(1)
1
(27)
(561)

(327)
4
(586)
(1)
(0)
1
(0)
(911)

415
(42)
(1,725)(11)(125)(1,488)(549)(42)(1,773)(13)(108)(2,487)(32)
16,45643,88960,346(10)
14,84559,64874,494

(4) Segment Information
Business Segment Information
First quarter of fiscal March 2018 (3 months ended June 2017)
Enterprise
Networks
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

(Millions of yen)

Carrier
Networks

23,89723,897
1,551

13,602
13,602648

SocialInfrastructures
14,56014,560(907)

Others

1,086
1,086
33

Adjustments(2,014)First quarter of fiscal March 2017 (3 months ended June 2016)
Enterprise
Networks
Sales(1) Sales to third parties(2) Intersegment sales
Total
Operating income and loss

23,25323,253
1,515

Total

53,14753,147(688)(Millions of yen)

Carrier Networks

SocialInfrastructures

13,10913,109157

14,794
14,794(51)

Others

1,492
1,492
51

Adjustments(2,129)Total

52,64952,649(456)