Intelligence Adds Value,
Added Value Generates Growth

Annual Report 2005
Year Ended March 31, 2005

PROFILE

NEC Networks & System Integration Corporation has been at the forefront of the systems integration business in Japan
since its establishment in 1953. As the use of telecommunications and information networks has expanded, we haveadhered to our motto of "Customers First" in providing innovative solutions from consultation and design to softwaredevelopment, system implementation and equipment supply.
To reflect the evolution of our business activities and operating environment, we changed the Company name from NEC
System Integration & Construction, Ltd. to NEC Networks & System Integration Corporation on October 1, 2005.
Company strengths include a sales network covering all of Japan, world-class systems engineering, systems integrationand software development capabilities and some 200 maintenance locations throughout Japan. In addition, we havesystem construction and facility engineering operations in more than 150 countries and territories around the world.
As technologies and markets continue to change rapidly, we are using our expertise to promote business activities
aimed at being the best partner for our customers, thereby increasing earnings and shareholder value.

CONTENTS
1 . . . . . . . . . . . . . . . . . . .Financial Highlights
2 . . . . . . . . . . . . . . . . . . .To Our Shareholders
7 . . . . . . . . . . . . . . . . . . .Management’s Discussion & Analysis of Operations
8 . . . . . . . . . . . . . . . . . . .Six-Year Summary of Selected Financial Data
9 . . . . . . . . . . . . . . . . . . .Management’s Discussion & Analysis of Financial Condition
12 . . . . . . . . . . . . . . . . . . .Financial Section
26 . . . . . . . . . . . . . . . . . . .Directors and Corporate Auditors / Network
27 . . . . . . . . . . . . . . . . . . .Investor Information

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 historical facts. Rather, they represent theassumptions and beliefs of NEC Networks & System
Integration Corporation management based on
information currently available. NEC Networks &System Integration Corporation therefore wishes tocaution readers that actual results may differ
materially from expectations, and that forwardlooking statements are subject to a number of risks
or uncertainties.

1

FINANCIAL HIGHLIGHTSNEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
Years ended March 31

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

Millions of yen(except per share amounts)

2005

2004

2003

2005

For the year:
Net sales......................................................................
Operating income.........................................................
Net income...................................................................

¥198,625
4,812
1,222

¥194,012
4,419
500¥202,419
5,675
1,512

$1,849,567
44,80911,379At year-end:
Total assets..................................................................
Shareholders’ equity ....................................................

¥123,935
51,704¥118,416
50,971¥116,289
51,822$1,154,065
481,460

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

¥ 28.24
12.00¥ 10.87
10.00¥ 33.93
10.00$

Ratios (%):
Operating income to net sales ......................................
Net income to net sales................................................
Return on shareholders’ equity (ROE) ...........................

2.4
0.6
2.4

2.3
0.3
1.0

2.8
0.7
2.9

0.26
0.11

Note: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107.39 = U.S.$1.00, the approximate Tokyo foreignexchange market rate as of March 31, 2005.

Net Sales by Customer

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

Total Assets
and Shareholders’ Equity(Millions of yen / %)(Millions of yen)

250,000

10,000150,000

200,000

8,000

150,000

6,000

5120,000
4
90,0003
100,000

60,0004,000
250,000

0

2,000

2001

■ Overseas■ Public sector

2002

2003

2004

2005

■ Telecommunications■ Other companies

0

1

2001

2002

2003

2004

■ Operating income● Operating income to net sales

2005

0

30,00002001 2002 2003 2004 2005

■ Total assets■ Shareholders’ equity

2

TO OUR SHAREHOLDERS

During the fiscal year ended March 31, 2005,
NEC Networks & System Integration Corporation(formerly NEC System Integration &Construction, Ltd.) worked to strengthen sales
and solutions activities, and undertook reformsof its business structure, including cost-cutting
measures. As a result, the Company met its
numerical targets and achieved year-on-yearincreases in both sales and income.
These results are a reflection of our quick
Yukihiko Baba
President

response to rapid technological innovation andconstant change in the field of network
integration, our main area of business. We willcontinue working to meet the expectations ofshareholders by increasing the Company’s
corporate value.

The Company’s Name Change and Establishment of abusiness, and aiming to further develop and grow as a

Corporate Philosophy

systems integrator, the Company changed its name on

NEC Networks & System Integration Corporation (“theOctober 1, 2005 from NEC System Integration & Construction,

Company;” formerly NEC System Integration & Construction,

Ltd. to NEC Networks & System Integration Corporation.

Ltd.) was founded in 1953 as a builder of communication

The NEC Networks & System Integration Group will

network infrastructure, and has completed numerous projects

continue to be driven by its corporate DNA in respondingin Japan as well as in other countries and regions.

quickly to the rapidly changing business environment andResponding quickly to the rapid technological innovation andviewing change as opportunity. We will work to further raise

the changing business environment driven by the shift toour corporate value as an innovative business group.

Internet protocol (IP) in networks in recent years, theConcurrent with the name change, we also establishedCompany has worked to develop its business and expand its

our Group corporate philosophy aimed at ensuring that every-

operations, and has grown to become one of Japan’s leading

one in the Group shares the same commitment to society,systems integrators.

mission and purpose, as well as promoting the Group’s future

To reflect this transformation in the nature of ourdevelopment.

3

NEC Networks & System Integration Group Corporate Philosophy
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

Overview of the Year Ended March 31, 2005

In the business environment of NEC Networks & Systempercent year-on-year to ¥207,460 million. Consolidated net
sales increased 2.4 percent to ¥198,625 million, supported byIntegration Corporation during the past fiscal year, thedomestic demand, including increased sales to telecommuni-

national government’s “e-Japan Project” did not generate thecations carriers and other private-sector companies. This

expected level of investment. Among private-sector compa-

offset a decrease in national and local government-relatednies, customers showed greater interest in the expansion ofsales, which reflected a similar trend in orders. Operating

their information network systems, including rebuilding

income increased 8.9 percent to ¥4,812 million, while extra-

networks and using outsourcing services as measures toordinary loss related to amortization of net retirement benefit

reduce costs and raise efficiency, and the reinforcement of

obligation at transition and provision for retirement benefits

network security measures. However, negotiations leading tofor directors and corporate auditors totaled ¥2,187 million. As

order placement tended to be prolonged as customers

a result, net income increased 144.4 percent to ¥1,222

carefully assessed the investment benefits.

million.

In these conditions, the NEC Networks & System

The Company increased cash dividends per share byIntegration Group focused on reinforcing sales and solutions¥2.00 from the previous fiscal year to ¥12.00 per share, in

activities with comprehensive services to optimally meetview of steady business results. For the year ending Marchcustomer needs. We worked to quickly and seamlessly31, 2006, management expects to increase annual dividends

coordinate the Group’s strengths—a sales network covering

to ¥14.00 per share to return profits to the shareholders who

all of Japan, systems engineering, systems integration andhave supported the Company.

software development capabilities, and some 200 maintenance locations throughout Japan. We also constructedsystems based on broadband networks and Voice over
Internet Protocol (VoIP) systems, offered maintenance andoutsourcing services, and strengthened in-house development of original products.
As a result, consolidated orders received increased 5.8

Progress in Business Innovation

Our main business of system integration is projected tocontinue on an expansion trend over the long term.
In this business environment, the NEC Networks & System
Integration Group is shifting to a high-value-added businessstructure, and has set consolidated medium-term manage-

4

ment targets for the year ending March 2009 to acceleratetechnology to reinforce our competitiveness. In addition, we

this process. Our numerical targets are net sales of ¥260

will boost our cost competitiveness by implementing further

billion and operating income of ¥9.6 billion in the year ending

cost-cutting measures.

March 2009. Our fundamental policies for medium-termtargets are (1) securing steady growth and appropriate profits,and (2) moving to the next level as a systems integrator.

(iii) Strengthening Market ResponsivenessIn addition to strengthening our sales force throughWhile we will continue to focus on network integration

measures such as adding sales staff, we are focusing on

support services, we will endeavor to introduce our own origi-

cultivating new markets by introducing original products andnal systems and services, which have particularly high added

services developed in-house. To promote these businesses

value, and develop niche products in order to broaden ourand meet demand in expanding markets, we will work tobusiness domain and expand into new markets.

increase market share through tie-ups and collaborative

As concrete measures to realize this, we are undertaking

business arrangements with other companies.

business innovations with an emphasis on five areas:(i) Expanding high-value-added businesses(ii) Improving our competitiveness in the telecommunications construction businesses(iv) Improving Profitability through Comprehensive Cost
Reductions
We are reducing material costs through concurrent(iii) Strengthening market responsivenessengineering and competitive purchasing, and are also(iv) Increasing profitability through comprehensive cost

reinforcing measures for standardization and innovation in

reductions(v) Cultivating professional human resources

construction technology. In addition, we are promoting more
efficient allocation of expenses and improving personnel
efficiency to strengthen our cost competitiveness.

(i) Expanding High-Value-Added Businesses
In the field of network integration, we are strengthening(v) Cultivating Professional Human Resources

our system building technologies and our ability to offer

We are working to develop professional human resources

solutions that extend to proposals for customer businesswith strong planning, system building and consulting skills andmodels. In the field of support service, we are expanding our

the ability to create a high level of customer satisfaction. In

outsourcing service as well as our maintenance service,addition, we are fostering a learning culture in which employ-

which provides consistently high-quality customer support

ees themselves work to hone their sensitivity to changes in thenationwide through our Customer Support Center, 24 hours abusiness environment, raise their awareness of problems andday, 365 days a year.

improve the skills needed to perform their jobs.

(ii) Improving our Competitiveness in the

On June 1, 2005, NEC Networks & System Integration

Telecommunications Construction Businesses

Corporation acquired all of the shares of TOYO NETWORK

We aim to increase the trust of customers by improving

SYSTEMS CO., LTD., which was separated from Toyo

construction quality and through innovations in construction

Communication Equipment Co., Ltd., and is primarily engaged(Continued on pg. 6)

5
TO OUR SHAREHOLDERS

Acquisition of TOYO NETWORK SYSTEMS CO., LTD.

Outline of Businesses Transferred from Toyo Communication Equipment Co., Ltd.
Businesses TransferredElectronic Equipment(Toyocom Network Systems)

Otherssales,
Approx. ¥11 billion (Non-consolidated
year ended March 2004)

35.2%• Money Handling Equipment Business
Manufacture and sale of automated ticket machines, money
processing equipment, etc.

63.9%

• Public Systems Business

Crystal Devices(Toyocom Device)

Manufacture and sale of power line communication (PLC) 1
equipment, coarse wave division multiplexing (CWDM) 2 equipment,
insulation monitoring equipment, etc.

* Names in parentheses are Toyo Communication Equipment
internal company names.

1. PLC (Power Line Communication):

2. CWDM (Coarse Wave Division Multiplexing):

High-speed communication system using electrical wiring in
the home or distribution lines.
Because it uses existing wiring, PLC enables inexpensive
LANs or access lines for homes and businesses.

A low-density wave division multiplexing (WDM) system that multiplexes and simultaneouslytransmits multiple optical signals with different wavelengths on one fiber. Compared to dense wave
division multiplexing (DWDM), which can multiplex many wavelengths, CWDM is designed for lowcost, short-distance transmission, and is suitable for construction of fiber optic networks in regionswith complex geography and urban areas.

Outline of Newly Acquired Company• Company name: TOYO NETWORK SYSTEMS CO., LTD.

484, Tsukagoshi 3-chome, Saiwai-ku, Kawasaki-shi, Kanagawa• Representative: Hiroshi Saito, President and Representative Director• Paid-in capital: ¥400 million (100% owned by NEC Networks & System Integration Corp.)• Employees:
Approximately 280• Subsidiary:
TOYO ALPHANET CO., LTD. (Maintenance business related to TNS; about 80 employees)• Address:

We Aim to Generate Synergies from the Two Companies to Expand Our Operations.

Technological Synergy Systems

Synergy in Sales & Support Services

Integration(Our company)• Use of our domestic sales network of about 50 locations• Use of our domestic service network of about 200 locations

Hardware technology(TNS)

Examples of Systems Using TNS Products
Intranet construction using a Power Line
Carrier (PLC) system

A system incorporating money handling equipment(Station surveillance system)
Small station (unmanned)

Wireless LAN
Bluetooth, etc.

Fare adjustment
machineTicket machines

IP phoneAccess
point

PC
PBX

ServerUse of electrical wiring(existing wiring) in buildings
Publicnetwork

ServerPrinter

PLC
modem

Mobilecarrier

IP phone

Surveillance camera

Router

ISP/
Internet

Revenue management,
operation management,
equipment control,
remote surveillance
RouterOptical IP network
Small station

Surveillance station

6
TO OUR SHAREHOLDERS

in the electronic equipment business (network systems andvalues and comprehensive standards of conduct throughout

money handling equipment). This acquisition will allow us to

the Group, and established the new Group Corporate Behavior

expand into new businesses in the area of network integration

Charter and Group Code of Corporate Behavior. We plan tosupport services. In addition, it creates synergy for both

update these in October 2005 to reflect the establishment ofcompanies in their technological, sales and maintenanceour corporate philosophy and management policies.

capabilities, and will support expansion of earnings andIn regard to risks associated with decision-making for

further business development throughout the Group.

management strategies, the Executive Committee analyzes
risks proactively and considers measures to address them.

Enhancing and Promoting Corporate Governance and

For risks related to business execution, specialized staff

Compliancedepartments have been set up to establish risk management

We have now optimized the number of directors to six tosystems in cooperation with the relevant divisions. In Julyfacilitate quick response to changes in the operating environ-

2005, we established the Compliance Promotion Department

ment. We have created a management structure that enables

to strengthen and promote compliance at the company-wide

quick decision-making, and work to ensure managementlevel.

transparency and soundness by practicing timely, appropriate

All employees of the Group will focus on the point of

disclosure. NEC Networks & System Integration Corporation

contact with customers, based on the motto “Customers

has also adopted the executive officer system to clearlyFirst,” maintaining a constant awareness of and quickly

separate supervision and execution. Moving to enhance

responding to customer needs, and promoting business activ-

management functions, we also formed the Executive

ities aimed at being the best partner for our customers. We

Committee, consisting of executive officers at the managing

ask for your continued steadfast support.

director level and higher, to discuss policies pertaining to key
management and operating issues, and the Business

October 2005

Execution Committee, which consists primarily of executive
officers and division managers, to monitor the progress of andreport on key matters concerning business execution.
Corporate auditors attend meetings of the Board of Directors

Yukihiko Baba

and other important meetings, thus contributing to a robust

President

system for scrutinizing the directors’ execution of their
responsibilities.
The Group has also established the Corporate Behavior
Subcommittee to provide a thorough basis for ethics and legal
compliance in corporate activities. In January 2005, wecompletely revised the existing Corporate Behavior Charterand the Code of Corporate Behavior to promote common

7

MANAGEMENT’S DISCUSSION & ANALYSIS OF OPERATIONSThe Group has changed its segment presentation beginning with the fiscal year ended March 31, 2005.
Results for the year ended March 2004 have been restated to permit year-on-year comparison.

Network integration /Support service

Telecommunications
engineering

Device sales

Segment orders received increased 8.4
percent, or ¥7,016 million, compared to theprevious fiscal year to ¥90,080 million. Orders
received increased primarily because of anincrease in private-sector projects for new
network systems in areas such as VoIP
systems to raise efficiency and reduce costs,
as well as for the upgrading of existing
systems. In addition, network systemconstruction for telecommunication companies
also increased. Segment sales increased 8.2
percent, or ¥6,501 million, compared to theprevious fiscal year to ¥85,786 million,
primarily for the same reasons that orders
received increased.

Segment orders received increased 4.9
percent, or ¥3,558 million, compared to theprevious fiscal year to ¥75,703 million. Orders
from telecommunication companies forconstruction of backbone networks increased.
Moreover, orders for large-scale backbone
network construction projects increased frombroadcasting companies, particularly fromcable television companies. Despite the solidincrease in orders received, segment sales
decreased 11.8 percent, or ¥9,449 million,
compared to the previous fiscal year to¥70,404 million. The Group will record sales
from large-scale projects ordered during thepast fiscal year in future fiscal years. As aresult, their contribution to sales in the pastfiscal year was minimal. Sales in connection
with the construction of local governmentrelated public networks decreased
substantially.

Segment orders received increased 1.9
percent, or ¥762 million, compared to theprevious fiscal year to ¥41,676 million. Strong
orders from the financial industry for
information terminals and equipment inresponse to the introduction of new currency
in the previous fiscal year decreased in theyear ended March 2005, but orders from theservice industry for new systems increased.
Moreover, sales of equipment in cooperation
with telecommunication companies increased.
Segment sales increased 21.7 percent, or¥7,561 million, compared to the previous
fiscal year to ¥42,434 million. Sales increased
to the financial industry for information
terminals and equipment in response to theintroduction of new currency in the previous
fiscal year. Sales also increased to the service
industry, particularly for the development of
new systems.

Composition of Net Sales by Business Segment

Net Sales by Business Segment(Year ended March 31, 2005)(Millions of yen)
250,000

Device sales

200,000

21.4%
43.2%
35.4%
Telecommunications
engineering

150,000

Network integration /Support service

100,000■ Information and network integration■ Intelligent building and facility engineering■ Operation and maintenance

50,0000■ Network integration / Support service■ Telecommunications engineering■ Device sales
2001

2002

2003

2004

2005

8

SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATANEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
For years ended March 31

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

Millions of yen(except per share figures)

2005

2004

2003

2002

2001

2000

2005

Orders ................................................................... ¥ 207,460¥196,123¥203,038¥223,337¥231,893¥210,709$1,931,837

Net sales ...............................................................

198,625

194,012202,419230,064

220,096

208,526

1,849,567

Network integration / Support service ...............

85,786

79,285————

798,827

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

70,40479,853————

655,592

Device sales .....................................................

42,43434,873————395,139

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

—

126,617

138,997

165,557

156,873

146,158—

Intelligent building and facility engineering ........

—

23,46522,55927,02826,13328,125—

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

—

43,92940,86337,47837,08934,242—

Selling, general and administrative expenses ........

16,921

17,263

17,41816,994

16,90918,085

157,566

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

4,812

4,419

5,675

4,526

8,745

5,562

44,809Net income ............................................................

1,222

500

1,512

617

3,018

1,292

11,379

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

2,133

1,120

755

1,506

686

1,010

19,862

Depreciation and amortization ...............................

1,712

1,455

1,464

1,099

1,033

1,001

15,942

Research and development costs ..........................

428

290

58

57

52

131

3,985

Total assets ........................................................... ¥ 123,935¥118,416¥116,289¥136,172¥148,964¥130,094$1,154,065

50,971

51,822

51,134

51,10747,765

481,460

For the year:

At year-end:
Shareholders’ equity ..............................................

51,704Per share of common stock (yen and U.S. dollars):
Net income2 (basic) ................................................ ¥

28.24

¥

10.87

¥

33.93

¥

14.33

¥

70.40

¥

30.27

$

0.26

Shareholders’ equity (BPS) ....................................

1,231.28

1,213.62

1,202.58

1,187.31

1,186.95

1,118.95

11.47

Cash flows (CFPS) .................................................

69.0

45.00

67.95

39.86

94.49

53.73

0.643

Cash dividends ......................................................

12.00

10.00

10.00

12.50

12.50

10.00

0.11

Operating income to net sales ...............................

2.4

2.3

2.8

2.0

4.0

2.7

Return on shareholders’ equity (ROE) .....................

2.4

1.0

2.9

1.2

6.1

2.7

Return on assets (ROA) ..........................................

1.0

0.4

1.2

0.4

2.2

1.0

Shareholders’ equity ratio ......................................

41.7

43.0

44.6

37.6

34.3

36.7

Ratios and return indicators (%):

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107.39 = U.S.$1.00, the approximate
Tokyo foreign exchange market rate as of March 31, 2005.
2. A new accounting standard for amounts per share became effective April 1, 2002. See Note 13 of Notes to Consolidated Financial Statements(page 23) for details.

9

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION

NEC Networks & System Integration Corporation (“theCompany;” formerly NEC System Integration & Construction,Ltd.) and its 10 consolidated subsidiaries (together, “theGroup”) provide comprehensive systems, primarily in thearea of network integration. Operations also include network
maintenance, operation and monitoring services.

Operating Income
Gross profit increased 0.2 percent year-on-year to ¥21,733 million
due to the increase in net sales. The gross margin decreased to 10.9
percent from 11.2 percent for the previous fiscal year. A primary reason
for the decrease was reduced profitability in businesses such as
equipment sales due to factors including the impact of strategic projects
the Group took on at lower margins amid increasing competition. Selling,
general and administrative expenses decreased 2.0 percent compared to

Review of Consolidated Operations
Net Sales
Moderate economic recovery continued during the fiscal year ended

the previous fiscal year to ¥16,921 million because the Group reduced thenumber of employees and personnel expenses.
As a result, operating income increased 8.9 percent year-on-year to

March 31, 2005. However, operating conditions remained unsettled¥4,812 million due mainly to higher net sales and gross profit, and was 2.4

because of underlying factors including rising crude oil and raw material

percent of net sales, compared to 2.3 percent for the previous fiscal year.

prices and issues such as a growing trend toward falling prices andinventory adjustment in information-related sectors.
Given these conditions, the Group worked to strengthen its ability to

Operating Income(Millions of yen)
10,0008,745

propose and sell comprehensive solutions and services that optimally
8,000

meet customer needs. The Group enhanced its comprehensive domestic
sales capabilities, system engineering capabilities, systems integration

5,675

6,000

capabilities and software development capabilities. The Group also
improved its ability to coordinate rapid, well-organized maintenance

4,526

4,419

4,812

4,000

services from approximately 200 locations nationwide. In addition, theGroup enhanced its ability to construct the foundation for systems such asbroadband networks and VoIP systems, deliver maintenance andoutsourcing services, and develop original network-related products.

2,000

0

2001

2002

2003

2004

2005

As a result, on a consolidated basis orders received increased 5.8
percent compared to the previous fiscal year to ¥207,460 million. While

Research and Development Costs

orders decreased, mainly from national and regional government agencies,

Research and development costs, which are included in selling,in the private sector orders from telecommunication companies and cablegeneral and administrative expenses and manufacturing costs, totaled

television providers for construction of backbone networks increased due¥428 million for the year ended March 2005, compared to ¥290 million

to expansion in the communication services they provide. In addition,

for the previous fiscal year. The Group conducts ongoing research andorders from the private sector for network and system construction weredevelopment in two main fields. One field involves information andfirm as a result of the Group’s sales and proposal activities.

communications technologies, drawing on the Group’s many years of

Net sales increased 2.4 percent compared to the previous fiscal year toexperience in serving telecommunication companies. The other field is¥198,625 million. As in the case of orders received, net sales fromproduct and service solutions for diversifying market needs created by thenational and regional government agencies decreased, while domestic

rapid shift to IP networks, broadband access and high-value-added

demand supported increased sales from customers including

systems integration technologies.

telecommunication companies and the private sector. Domestic sales
increased 2.8 percent to ¥185,071 million, while overseas sales decreased

Other Income (Expenses)

3.2 percent to ¥13,554 million. NEC Networks & System Integration

Net other expenses totaled ¥2,248 million, compared to ¥3,055

Corporation is a majority-owned subsidiary of NEC Corporation (NEC).

million for the previous fiscal year. Other income decreased ¥318 million

Consolidated net sales included sales to NEC totaling ¥56,510 million.

from the previous fiscal year to ¥221 million. Gain on sale of investment

Sales to NEC accounted for 28.5 percent of net sales, compared to 28.2

securities totaled ¥98 million, a decrease of ¥104 million compared to thepercent for the previous fiscal year.

previous fiscal year, and interest and dividend income decreased to ¥123

10

million. Other factors included the absence of gain on sale of land that
totaled ¥200 million in the previous fiscal year.

¥12.00 per share from ¥10.00 for the previous fiscal year.
The Company’s fundamental policy for deploying internal capital

Other expenses decreased ¥1,125 million compared to the previous

reserves is to invest strategically in growth sectors, new businesses andfiscal year to ¥2,468 million. As in the previous fiscal year, amortization ofenhanced competitiveness based on careful assessment of developments

net retirement benefit obligation at transition totaled ¥2,138 million.

in the IT market.

However, loss on return of the substitutional portion of the welfare pension
fund plan that totaled ¥640 million in the previous fiscal year did not recur.

Financial Policy

In addition, bad debt loss that totaled ¥311 million in the previous fiscal

The Group is working to raise efficiency and implement structural

year and provision for doubtful receivables that totaled ¥251 million in thereforms by strengthening innovation in business operations company-

previous fiscal year did not recur. The Group began amortizing net

wide. A key emphasis in this drive is the further enhancement of theretirement benefit obligation at transition as part of other expenses during

Group’s financial position. The Group also seeks to enhance its financial

the year ended March 31, 2001, and the fiscal year ended March 31, 2005

structure by optimizing the balance of interest-bearing debt and reducing

was the fifth and last year of this amortization process.

financial costs, which contributes to raising the Group’s corporate value.

Income before Income Taxes and Minority Interests and Net
IncomeLiquidity and Financial Position
Cash Flow

Income before income taxes and minority interests increased 88.0

Net cash provided by operating activities was ¥1,032 million, a ¥1,753

percent year-on-year to ¥2,563 million, and income taxes net of deferrals

million decrease from ¥2,785 million for the previous fiscal year. Although

increased 59.0 percent to ¥1,294 million. As a result, net income

inventories and trade notes and accounts payable improved over theincreased 144.4 percent year-on-year to ¥1,222 million. Net income perprevious fiscal year, an increase in trade notes and accounts receivableshare increased to ¥28.24 from ¥10.87 for the previous fiscal year.

resulted in the year-on-year decrease in net cash provided by operations.
Net cash used in investing activities totaled ¥2,394 million, a ¥1,441

Net Income and Net Income Per Share*(Millions of yen / Yen)
3,500
3,000

factor was payment for purchases of equipment for use in operations.
3,018

Net cash provided by financing activities totaled ¥2,110 million, a

80

70.40
2,500
2,000

1,512

1,500

1,222

617

70

¥3,328 million differential from net cash used in financing activities totaling

60¥1,218 million in the previous fiscal year. With due consideration of funding

50

costs, the Group reduced sales of notes and accounts receivable in stages

40

and replaced this cash flow with short-term bank loans.

30

1,000

33.93

500
0

million increase from ¥952 million for the previous fiscal year. The main

14.33
2001

2002

500 28.24
10.87

2003

2004

As a result of the above activities, cash and cash equivalents as of March

20 ■ Net income
Net income per share
10
See Note 13 of Notes to Consolidated
Financial Statements (page 23).
0

*

2005

31, 2005 increased ¥739 million from a year earlier to ¥10,202 million.

Cash Flow Highlights(Millions of yen)
Years ended March 31

2005

2004

2003

Dividend Policy

Net cash provided by operating activities

1,032

2,785

6,668

The Company considers increasing shareholder returns a management

Net cash used in investing activities(2,394)(952)(1,256)

Net cash provided by (used in) financing activities 2,110(1,218)(11,917)priority, and is working to raise corporate value by strengthening its
operating foundation, enhancing its financial structure and increasing
earnings capabilities. The Company’s basic policy is to distribute dividends
that are appropriate in terms of overall consideration of financial conditions
and consolidated performance and that live up to shareholders’

Financial Position
Assets
As of March 31, 2005, total assets were ¥123,935 million, an increase

expectations. Based on this policy, the Company maintained stableof 4.7 percent, or ¥5,519 million, from a year earlier. Return on average

performance and therefore increased the year-end dividend by ¥2.00 per

total assets (ROA) improved to 1.0 percent from 0.4 percent for theshare to increase total cash dividends for the year ended March 2005 toprevious fiscal year.

11
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION

Current assets as of March 31, 2005 totaled ¥102,537 million, an
increase of 5.3 percent, or ¥5,203 million, from a year earlier. The¥1,190 million, to ¥13,584 million, due to an increase in accrued
employees’ retirement benefits.
Interest-bearing debt as of March 31, 2005, which consisted of short-primary reason was an increase of ¥9,552 million in notes and accounts
receivable compared to the previous fiscal year-end, which more thanterm bank loans, increased ¥2,539 million from a year earlier to ¥8,163

offset a decrease of ¥2,876 million in inventories compared to themillion. With due consideration of funding costs, the Group reduced sales ofprevious fiscal year-end.

notes and accounts receivable in stages and replaced this cash flow with

Property and equipment, net decreased 11.3 percent from a year

short-term bank loans.
For reference: The interest coverage ratio (cash flow from operating

earlier, or ¥946 million, to ¥9,283 million, due to payment for purchases

activities divided by interest expense) decreased from 20.2 percent in theof equipment for use in operations.

previous fiscal year to 11.2 percent.

Total Assets and Shareholders’ Equity Ratio(Millions of yen / %)160,000

Shareholders’ Equity

148,964
136,172

140,000

116,289 118,416 123,935

120,000

44.6
100,000

43.0

As of March 31, 2005, shareholders’ equity totaled ¥51,704 million,50

an increase of 1.4 percent, or ¥733 million, compared to the previous
40

41.7

fiscal year-end. The increase was primarily the result of the ¥724 million

37.6
80,000increase in retained earnings. The ratio of shareholders’ equity to total

30

34.3

assets decreased 1.3 percentage points to 41.7 percent. Return on

60,00020

average total shareholders’ equity (ROE) was 2.4 percent, compared to

40,0001.0 percent for the previous fiscal year.

10
20,000■ Total assets

0

2001

2002

2003

2004

2005

0

Shareholders’ equity ratio

Return on Shareholders’ Equity (ROE) and Return on Assets (ROA)
(%)
7

6.1

Liabilities

6

As of March 31, 2005, total liabilities were ¥71,687 million, an increase5of 7.1 percent, or ¥4,760 million from a year earlier. Current liabilities
4

increased 6.5 percent, or ¥3,570 million, from a year earlier to ¥58,103
million. The primary factor was increases in notes and accounts payable and3

short-term bank loans totaling ¥6,380 million.

2

As a result, working capital increased to ¥44,434 million from ¥42,801

2.9
2.4

2.2
1.2
1.2
1

0.4

million a year earlier, and the current ratio was unchanged at 1.8 times.
0Long-term liabilities increased 9.6 percent from a year earlier, orInterest-Bearing Debt and Debt-to-Equity Ratio(Millions of yen / %)20,00018,000

2001

2002

2003

1.0
0.4

1.0

2004

2005

ROE
ROA

Outlook for the Fiscal Year Ending March 31, 2006
The outlook for the current fiscal year is uncertain. While Japan’s

17,307

economy is likely to remain at its current level, issues such as rising crude50

16,000oil and raw material prices and global conditions will exert a significant

14,00012,00040

33.9

impact on results. The Group therefore projects that orders received will
increase 6.0 percent year-on-year to ¥220,000 million, net sales will30

10,000

8,163
8,000

5,811

11.4

2,000
0

will decrease 0.3 percent year-on-year to ¥4,800 million and net income
15.8

4,000

10.8

increase 5.7 percent year-on-year to ¥210,000 million, operating income
20

5,617 5,624

6,000

11.0

will increase 50.6 percent year-on-year to ¥1,840 million.

10■ Interest-bearing debt

2001

2002

2003

2004

2005

0

Debt-to-equity ratio

Note: The above projections include projections for the equipment
business transferred to the Group from Toyo Communication Equipment
Co., Ltd. in June 2005.

12

CONSOLIDATED BALANCE SHEETSNEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
As of March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 3)

Millions of yen

Assets

2005

2004

2005

Cash and cash equivalents ....................................................................................

¥ 10,202¥ 9,463

Short-term investments (Note 4) ............................................................................

10

32

93

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

72,53462,982

675,426

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

(1,186)(1,093)(11,044)

Inventories (Note 5)................................................................................................

16,23919,115

151,215

Deferred income taxes (Note 7)..............................................................................

2,416

2,562

22,497

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

2,321

4,270

21,613

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

102,537

97,334

954,810Land ......................................................................................................................

2,681

2,681

24,965

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

6,787

6,774

63,200Machinery and vehicles .........................................................................................

49

54

456

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

6,780

4,838

63,134

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

271

551

2,524

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

(7,287)(6,563)(67,855)

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

9,283

8,337

86,442

Investment securities (Note 4)................................................................................

1,029

1,046

9,582

Intangibles, net of allowance for amortization ........................................................

2,197

2,207

20,458Deferred income taxes (Note 7)..............................................................................

5,713

4,999

53,199Other assets ..........................................................................................................

3,173

4,491

29,547

Total investments and other assets................................................................

12,114

12,744

112,804

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

¥123,935¥118,416$1,154,065

Current assets:$

95,000Property and equipment:

Investments and other assets:

13

Thousands of
U.S. dollars (Note 3)

Millions of yen

Liabilities and shareholders’ equity

2005

2004

2005

Short-term bank loans (Note 6)..............................................................................

¥ 8,163¥ 5,624

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

37,58733,747350,005

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

5,261

7,475

48,990Accrued income taxes (Note 7) ..............................................................................

1,235

1,341

11,500

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

5,856

6,343

54,530Total current liabilities .......................................................................................

58,10354,533541,047

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

13,45012,361

125,244

Accrued retirement benefits for directors and corporate auditors (Note 2 ( j)) .........

78

—

726

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

55

33

512

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

13,584

12,394

126,492

Minority interests in consolidated subsidiaries ...........................................................

543

516

5,056

Issued — 43,069,207 shares ............................................................................

13,122

13,122

122,190

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

12,622

12,622

117,534

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

27,415

26,691

255,284

Current liabilities:$

76,013Long-term liabilities:

Shareholders’ equity (Notes 9 and 17):
Common stock, without par value:
Authorized — 100,000,000 shares

Unrealized holding gain on securities .....................................................................

88

81

819

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

(635)

(643)

(5,913)52,61351,874

489,925

Treasury stock, at cost...........................................................................................

(909)

(902)

(8,464)

Shareholders’ equity, net ...........................................................................................

51,70450,971

481,460¥123,935¥118,416$1,154,065

Contingent liabilities (Note 10)

Total liabilities and shareholders’ equity.................................................................
See notes to consolidated financial statements.

14

CONSOLIDATED STATEMENTS OF INCOME
NEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 3)

Millions of yen

2005

2004

2005

Net sales (Note 15) ....................................................................................................

¥198,625¥194,012$1,849,567

Cost of sales (Note 12) ..............................................................................................

176,891

172,329

1,647,183

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

21,733

21,682

202,375

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

16,921

17,263

157,566

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

4,812

4,419

44,809Interest and dividend income ..................................................................................

123

137

1,145

Interest expense .....................................................................................................

(92)

(121)

(857)

Provision for doubtful receivables............................................................................

(66)

(251)

(615)

Amortization of net retirement benefit obligation at transition ..................................

(2,138)(2,138)(19,909)

Bad debt loss ..........................................................................................................

—

(311)

—

Loss on return of the substitutional portion of the welfare pension fund plan ...........

—

(640)

—

Gain on sale of investment securities ......................................................................

98

202

913

Gain on sale of land ................................................................................................

—

200

—

Exchange loss.........................................................................................................

(71)

(13)

(661)

Provision for retirement benefits for directors and corporate auditors (Note 2 (j)) ....

(49)

—

(456)

Loss on investments in partnerships .......................................................................

(52)

(59)

(484)

Other, net................................................................................................................

(0)

(60)

(0)

(2,248)(3,055)(20,933)

2,563

1,363

23,866

Current ...................................................................................................................

1,868

2,498

17,395

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

(573)(1,684)(5,336)

1,294

814

12,050Minority interests......................................................................................................

46

48

428

Net income (Note 13) .................................................................................................

¥ 1,222

Other income (expenses):

Income before income taxes and minority interests...............................................
Income taxes (Note 7):

See notes to consolidated financial statements.

¥

500

$

11,379

15

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYNEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Millions of yen
Number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Unrealized
holding gain
on securities

Foreign currencytranslation
adjustment

Treasurystock

Balance at March 31, 2003 ...........................

43,069,207¥13,122¥12,622¥26,672¥36¥(614)¥ (17)

Bonuses to directors and statutory auditors ...

—

—

—

(51)

—

—

—

Cash dividends paid ..................................

—

—

—

(430)

—

—

—

Net income for the year
ended March 31, 2004 ..........................

—

—

—

500

—

—

—

Unrealized holding gain on securities.........

—

—

—

—

44

—

—

Foreign currency translation adjustments ...

—

—

—

—

—

(29)

—

Treasury stock ..........................................

—

—

—

—

—

—

(885)

Balance at March 31, 2004 ..........................

43,069,207¥13,122¥12,622¥26,691¥81¥(643)¥(902)Net gains on sales of treasury stock...............

—

—

0

—

—

—

—

Bonuses to directors and statutory auditors ...

—

—

—

(37)

—

—

—

Cash dividends paid ..................................

—

—

—

(419)

—

—

—

ended March 31, 2005 ..........................

—

—

—

1,222

—

—

—

Decrease of consolidated subsidiaries .......

—

—

—

(41)

—

—

—

Unrealized holding gain on securities.........

—

—

—

—

7

—

—

Foreign currency translation adjustments ...

—

—

—

—

—

8

—

Treasury stock ..........................................

—

—

—

—

—

—

(7)

Balance at March 31, 2005 ........................

43,069,207¥13,122¥12,622¥27,415¥88¥(635)¥(909)

Foreign currencytranslation
adjustment

Treasurystock$(5,988)$(8,399)

Net income for the year

Thousands of U.S. dollars (Note 3)
Unrealized
Retained
holding gain
earnings
on securities

Commonstock

Capitalsurplus

Balance at March 31, 2004 .................................................

$122,190$117,534

Net gains on sales of treasury stock ................................

—

0

—

—

—

—

Bonuses to directors and statutory auditors .....................

—

—

(345)

—

—

—

Cash dividends paid.........................................................

——(3,902)———

Net income for the year ended March 31, 2005 ...............

——

11,379———Decrease of consolidated subsidiaries .............................

—

—

(382)

—

—

—

Unrealized holding gain on securities...............................

—

—

—

65

—

—

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

—

—

—

—

74

—

Treasury stock.................................................................

—

—

—

—

—

(65)

Balance at March 31, 2005 ...............................................

$122,190$117,534$255,284$819$(5,913)$(8,464)

See notes to consolidated financial statements.

$248,543

$754

16

CONSOLIDATED STATEMENTS OF CASH FLOWSNEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 3)

Millions of yen

2005

2004

2005

¥ 2,563
1,712
(6)
(55)
1,090
78
(63)
92
(98)
(8)
(9,592)
2,859
3,849
435
2,858

¥ 1,363
1,455
5
9
2,565
—
(75)
121
(202)
(206)
2,705
(2,683)
(238)
144
4,964

$ 23,866
15,942(56)(512)
10,150
726
(587)
857
(913)
(74)
(89,319)
26,62335,841
4,051
26,613

Interest and dividends received..............................................................................
Interest paid ..........................................................................................................
Income taxes paid..................................................................................................
Net cash provided by operating activities ...........................................................

63(92)(1,796)
1,032

2
(137)
(2,044)
2,785

587
(857)
(16,724)
9,610

Investing activities
Sales of short-term investments ............................................................................
Purchases of property and equipment....................................................................
Sales of property and equipment ...........................................................................
Purchases of intangibles, net of allowance for amortization ...................................
Purchases of investment securities........................................................................
Sales of investment securities ...............................................................................
Loans receivable made ..........................................................................................
Collection of loans receivable.................................................................................
Other .....................................................................................................................
Net cash used in investing activities...............................................................

—(2,132)
22
(695)
(26)
154
(42)
39
285
(2,394)

5(1,112)
332
(497)
(109)
305
(49)
63
109
(952)

—
(19,853)205(6,472)
(242)
1,434
(391)
363
2,654
(22,293)

Financing activities
Net increase in short-term bank loans ...................................................................
Purchases of treasury stock, net ............................................................................
Proceeds from sales of treasury stock ...................................................................
Cash dividends paid...............................................................................................
Other .....................................................................................................................
Net cash provided by (used in) financing activities .........................................
Effect of exchange rate changes on cash and cash equivalents .................................
Net increase in cash and cash equivalents.................................................................
Cash and cash equivalents at beginning of the year...................................................
Decrease due to the exclusion of subsidiaries from consolidation ..............................
Cash and cash equivalents at end of the year ............................................................

2,546
(7)
1
(418)
(12)
2,110
(6)
741
9,463
(3)
¥10,202

107
(885)
—
(429)
(10)
(1,218)
(16)
597
8,865
—
¥ 9,463

23,708(65)
9(3,892)(112)
19,648(56)
6,900
88,118(28)$ 95,000

Operating activities
Income before income taxes and minority interests................................................
Depreciation and amortization ...............................................................................
Amortization of excess of costs over net assets acquired .......................................
Provision for doubtful receivables ..........................................................................
Provision for accrued employees’ retirement benefits ............................................
Provision for retirement benefits for directors and corporate auditors.....................
Interest and dividend income .................................................................................
Interest expense ....................................................................................................
Gain on sales of investment securities ...................................................................
Gain on sales of property and equipment ...............................................................
Trade notes and accounts receivable .....................................................................
Inventories.............................................................................................................
Trade notes and accounts payable.........................................................................
Other .....................................................................................................................

See notes to consolidated financial statements.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NEC System Integration & Construction, Ltd. and Consolidated Subsidiaries
March 31, 2005

1. BASIS OF PREPARATION
NEC System Integration & Construction, Ltd. (the “Company”) and its domestic subsidiaries maintain their books of account inconformity with the financial accounting standards of Japan, and its foreign subsidiaries maintain their books of account in conformity
with those of their countries of domicile.
The accompanying consolidated financial statements have been compiled from the consolidated financial statements prepared by theCompany as required under the Securities and Exchange Law of Japan 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 ofInternational Financial Reporting Standards.
As permitted by the Securities and Exchange Law of Japan, amounts of less than one million yen have been omitted. As a result, thetotals shown in the accompanying consolidated financial statements (both in yen and U.S. dollars) do not necessarily agree with the sumof the individual amounts.
Certainly amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Basis of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The accompanying consolidated financial statements include the accounts of the Company and the significant companies controlled
directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating andfinancial policies have been included in the consolidated financial statements on an equity basis. All significant intercompany balances
and transactions have been eliminated in consolidation.
The excess of costs over underlying net assets at fair value at the respective dates of acquisition is amortized by the straight-line
method over a period of five years.
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 other assets and liabilities denominatedin foreign currencies are translated at their historical rates.
All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when suchtransactions 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 the balance sheet date. The components of shareholders’ equity are translated at their historical exchange rates. Translation
adjustments are presented as a component of shareholders’ equity and minority interests 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. Securities
Securities other than those of subsidiaries and affiliates are classified into three categories: trading, held-to-maturity or other securities.
Trading securities are carried at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classified
as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in shareholders’ equity. Non-marketable securities classified as other securities are carried at cost except forinvestments in limited partnerships that are accounted for by the equity method. Cost of securities sold is determined by the moving
average-method.
e. Inventories
Work in process is stated at cost determined on a specific project basis. Purchased goods, materials and supplies 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 theCompany and property and equipment of certain foreign subsidiaries on which depreciation is computed by the straight-line method,
based on the estimated useful lives of the respective assets. Significant renewals and improvements are capitalized at cost. Maintenanceand repairs are charged to income.
The useful lives of property and equipment are summarized as follows:
Buildings and structures 2 to 47 years
Machinery and vehicles
5 years
Furniture and fixtures
2 to 20 years
Intangible assets are amortized by the straight-line method over their estimated useful lives.

18

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
to ordinary receivables, plus an estimate of uncollectible amounts determined by reference to specific doubtful receivables from
customers which are experiencing financial difficulties.
h. Leases
Non-cancelable lease transactions are accounted for as operating leases (whether such leases are classified as operating or financeleases) except that lease agreements which stipulate the transfer of ownership of the leased assets to the lessee are accounted for as
finance leases.
i. Research and development costs
Research and development costs are charged to income as incurred.
j. Retirement benefits
Accrued employees’ retirement benefits are provided mainly at an amount calculated based on the retirement benefit obligation and thefair value of the pension plan assets at the balance sheet dates, as adjusted for the unrecognized net retirement benefit obligation attransition, unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation is attributed to eachperiod by the straight-line method over the estimated years of service of the eligible employees. The net retirement benefit obligation attransition is being amortized over a period of 5 years by the straight-line method. Actuarial gain or loss is being amortized in the year
following the year in which the gain or loss is recognized primarily by the straight-line method over the average remaining years of serviceof the employees. Prior service cost is being amortized as incurred by the straight-line method over the average remaining years ofservice of the employees.
See Note 8 for the method of accounting for the separation of the substitutional portion of the benefit obligation from the corporate
portion of the benefit obligation under Welfare Pension Fund Plan.
In addition, directors and corporate auditors are entitled, in most circumstances, to lump-sum severance payments based on current
rates of pay, length of service and certain other factors. Provision for retirement benefits for these directors and corporate auditors are
made at estimated amounts based on their internal rules.
Effective April 1, 2004, the Company and certain consolidated subsidiaries changed their method of accounting for retirement benefits
for directors and corporate auditors from a cash basis to an accrual basis in order to achieve a better matching of revenue and expenses.
The effect of this change was to decrease operating income and income before income taxes and minority interests for the year ended
March 31, 2005 by ¥29 million ($270 thousand) and ¥78 million ($726 thousand), respectively, as compared with the corresponding
amounts, which would have been reported if the previous method had been applied.
k. Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets
and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected toreverse.
l. Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a given financial period is made byresolution of the shareholders at a general meeting held subsequent to the close of such financial period and, therefore, the accounts forthe period do not reflect such appropriations. See Note 17.
m. Derivative financial instruments
Derivatives positions are carried at their fair value with any changes in unrealized gain or loss charged or credited to operations, except
for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as an asset or a liability.
Receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding foreign exchange
contract rates.
n. Revenue recognition
Revenues from construction contracts of the Company and the domestic consolidated subsidiaries are recognized by the completedcontract method except that those from construction work with contracted amounts exceeding ¥100 million are recognized by thepercentage-of-completion method. Revenues from construction work of the foreign consolidated subsidiaries are generally recognizedby the percentage-of-completion method.

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 matter of arithmetic computation only, at ¥107.39 = U.S.$1.00, the approximate rate of exchange on March 31, 2005. 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.

19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. SECURITIESa) The components of unrealized gain or loss on marketable securities classified as other securities at March 31, 2005 and 2004 weresummarized as follows:
Acquisition
cost

Millions of yen
Carrying
value

Unrealized
gain or loss

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

¥152
—
—
152

¥301
—
—
301

¥149
—
—
149

$1,415——1,415$2,803——
2,803$1,387——
1,387

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

—
—
—
—
¥152

—
—
—
—
¥301

—
—
—
—
¥149

—
—
—
—
$1,415————$2,803————$1,387

Acquisition
cost

Millions of yen
Carrying
value

Unrealized
gain or loss

¥147
—
—
147

¥284
—
—
284

¥137
—
—
137

—
—
—
—
¥147

—
—
—
—
¥284

—
—
—
—
¥137

March 31, 2005

March 31, 2004

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

Thousands of U.S. dollars
Acquisition
Carrying
Unrealized
cost
value
gain or lossb) Sales of securities classified as other securities for the years ended March 31, 2005 and 2004 are summarized as follows:
Millions of yen

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

Thousands of
U.S. dollars

2005

2004

2005

¥154
98
19

¥305
202
—

$1,434913
177c) The components of non-marketable securities classified as other securities at March 31, 2005 and 2004 were summarized as follows:
Millions of yen

Other securities:
Unlisted securities (except for OTC securities) .................................................................................
Investments in limited partnerships .................................................................................................
Total ...........................................................................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥373
354
¥727

¥373
389
¥762

$3,473
3,296$6,77020

5. INVENTORIESInventories at March 31, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2005

2004

2005

¥14,736
1,503¥16,239¥17,612
1,503¥19,115$137,219
13,996$151,215

6. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans are unsecured. The weighted-average interest rates of short-term bank loans for the years ended March 31, 2005
and 2004 were approximately 0.6% and 1.0%, respectively.

7. INCOME TAXES
Income taxes applicable to the Company and its domestic subsidiaries comprise corporation, enterprise and inhabitants’ taxes, which, inthe aggregate, resulted in a statutory tax rate of approximately 40.7% for 2005 and 42.1% for 2004. Income taxes of the foreignsubsidiaries 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, 2005 and 2004 differ from thestatutory tax rate for the following reasons:Statutory tax rate ............................................................................................................................................................
Effect of:
Expenses not deductible for income tax purposes .......................................................................................................
Dividend income deductible for income tax purposes ..................................................................................................
Inhabitants tax per capita levy.....................................................................................................................................
Adjustment in deferred tax assets and liabilities due to the change in tax rates ...........................................................
Tax credit....................................................................................................................................................................
Other, net ...................................................................................................................................................................
Effective tax rates ...........................................................................................................................................................

2005

2004

40.7%

42.1%

5.3
(0.2)
3.1
—
(1.3)
2.9
50.5%

8.9
(0.7)
6.0
4.6
(7.6)
6.4
59.7%

The significant components of deferred tax assets and liabilities as of March 31, 2005 and 2004 were as follows:
Millions of yen

Deferred tax assets:
Accrued bonuses ........................................................................................................................
Allowance for doubtful receivables..............................................................................................
Accrued enterprise tax ................................................................................................................
Notes and accounts receivable....................................................................................................
Unrealized profit on inventories ...................................................................................................
Foreign tax credits ......................................................................................................................
Accrued retirement benefits ........................................................................................................
Other ..........................................................................................................................................
Sub-total.................................................................................................................................
Valuation allowance ....................................................................................................................
Total ..........................................................................................................................................
Deferred tax liabilities:
Advanced depreciation of property and equipment ......................................................................
Unrealized holding gain on securities ..........................................................................................
Other ..........................................................................................................................................
Net deferred tax assets ...................................................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥1,115
512
115
174
8
329
5,285
755
8,297
(103)
8,193

¥1,190
468
114
278
12
380
4,657
535
7,637
(17)
7,619

$10,383
4,768
1,071
1,620
74
3,064
49,213
7,030
77,260(959)
76,292

(1)
(60)
(1)
(63)
¥8,129

(1)
(55)
(1)
(58)
¥7,561

(9)
(559)
(9)
(587)
$75,696

21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 by reference to their basic rates of pay, length of service, and the conditions under which termination occurs.
The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance
sheets as of March 31, 2005 and 2004 for the Company’s and the consolidated subsidiaries’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligation...........................................................................................................
Plan assets at fair value ..................................................................................................................
Unfunded retirement benefit obligation........................................................................................
Unrecognized actuarial loss.............................................................................................................
Unrecognized prior service cost.......................................................................................................
Unrecognized net retirement benefit obligation at transition ............................................................
Accrued employees’ retirement benefits .....................................................................................

2005

2004

2005

¥(24,823)
9,925(14,897)
6,694(5,247)—¥(13,450)¥(30,512)
8,545(21,967)8,512(1,044)2,138¥(12,361)$(231,148)
92,420(138,719)
62,334(48,859)—$(125,244)

The components of retirement benefit expenses for the years ended March 31, 2005 and 2004 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 cost ....................................................................................................
Amortization of net retirement benefit obligation at transition ..........................................................
Subtotal ......................................................................................................................................
Loss on return of the substitutional portion of WPFP ........................................................................
Total ...............................................................................................................................................

2005

2004

2005

¥1,362
643
(213)
543
(341)
2,138
4,131
—
¥4,131¥1,344
823
(376)
425
(74)
2,138
4,280
640
¥4,921$12,683
5,988(1,983)
5,056(3,175)
19,90938,467—$38,467

Following the enactment of the Welfare Pension Insurance Law in Japan, on September 1, 2002 the Welfare Pension Fund, in which theCompany and its domestic consolidated subsidiaries participate obtained an approval from the Minister of Health, Labor and Welfare for
exemption from the future benefit obligation with respect to the portion of the Employees Pension Fund that the Company and its domestic
consolidated subsidiaries operate on behalf of the Government (the so-called substitutional portion).
In accordance with the transitional provision stipulated in “Practical Guidelines for Accounting for Retirement Benefits,” the Company
accounted for the separation of the substitutional portion of the benefit obligation from the corporate portion of the benefit obligation under
its WPFP as of the date of approval of its exemption assuming that the transfer to the Japanese government of the substitutional portion of
the benefit obligation and related pension plan assets had been completed as of that date. As a result, the Company recognized a gain of¥1,338 million for the year ended March 31, 2003. For the year ended March 31, 2004, the Company adjusted the previously recognizedgain by ¥640 million because of the actuarial loss incurred as attributable to the pension assets to be transferred to the government.
The assumptions used in accounting for the above plans were as follows:

Discount rate ..................................................................................................................................................................
Expected return on plan assets .......................................................................................................................................

2005

2004

2.5%
2.5%

2.5%
5.5%

9. SHAREHOLDERS’ EQUITY
In accordance with the Commercial Code of Japan (the “Code”), the Company has provided a legal reserve, which was included in retained
earnings. The Code provides that an amount equal to at least 10% of the amount to be disbursed as a distribution of earnings be
appropriated to the legal reserve until the total of such reserve and the capital surplus account equals 25% of the common stock account.
The legal reserve amounted to ¥546 million ($5,084 thousand) as of both March 31, 2005 and 2004.

22

10. CONTINGENT LIABILITIESAt March 31, 2005, the Company was contingently liable as guarantor of indebtedness of the Company’s employees in the aggregate
amount of ¥286 million ($2,663 thousand).

11. LEASESa) Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased property as ofMarch 31, 2005 and 2004, which would have been reflected in the consolidated balance sheets if finance lease accounting had been
applied to the finance leases currently accounted for as operating leases:
Thousands of
U.S. dollars

Millions of yen

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

2005

2004

2005

¥ 171
4,273
¥4,444¥ 219
4,331¥4,550$ 1,592
39,790$41,382¥ 66
2,091¥2,157¥ 94
2,064¥2,159$ 615
19,471$20,086

¥ 105
2,181
¥2,286¥ 124
2,267¥2,391$ 97820,309$21,287

Lease payments relating to finance leases accounted for as operating leases amounted to ¥968 million ($9,014 thousand) and ¥1,032
million for the years ended March 31, 2005 and 2004, respectively. The depreciation expense of the leased assets computed by thestraight-line method over the respective lease terms and the interest expense portion included in the lease payments amounted to ¥900
million ($8,381 thousand) and ¥64 million ($596 thousand), respectively, for the year ended March 31, 2005 and ¥944 million and ¥60
million, respectively, for the year ended March 31, 2004.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2005 and 2004 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 ...........................................................................................................................................

2005

2004

2005

¥ 752
1,535
¥2,288¥ 846
1,533¥2,379$ 7,003
14,294$21,306b) Operating leases
Future minimum operating lease payments subsequent to March 31, 2005 and 2004 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 ...........................................................................................................................................

2005

2004

2005

¥25
43
¥69

¥26
39
¥66

$233
400
$643

12. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses and manufacturing costs amounted to ¥428
million ($3,985 thousand) and ¥290 million for the years ended March 31, 2005 and 2004, respectively.

23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. AMOUNTS PER SHARE
Yen

U.S. dollars

2005

¥

28.24
12.00
1,231.28

Net income .....................................................................................................................................
Cash dividends applicable to the year..............................................................................................
Net assets ......................................................................................................................................

2004

2005

10.87
10.00
1,213.62$ 0.26
0.11
11.47

¥

Net income per share is computed based on the net income available for distribution to shareholders of common stock and theweighted-average number of shares of common stock outstanding during the year.
Amounts per share of net assets is computed based on net assets available for distribution to the shareholders and the number of sharesof common stock outstanding at the year end.
Cash dividends per share represent the cash dividends declared as applicable to the respective years together with the interim cash
dividends paid.

14. DERIVATIVESThe Company has entered into various derivative transactions in order to manage certain risks arising from adverse fluctuations in foreign
currency exchange rates and interest rates.
At March 31, 2005 and 2004, 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¥56,510 million ($526,213 thousand) and ¥54,640 million for the years ended March 31, 2005 and 2004, respectively. In addition, theCompany purchased communications equipment and other from NEC in amounts of ¥47,112 million ($438,700 thousand) and ¥43,735
million during the years ended March 31, 2005 and 2004, respectively.
The terms of the transactions referred to above were negotiated and determined on an arm’s-length basis.

16. SEGMENT INFORMATION
In order to better manage its operating results by types of services, nature and business models, effective the year ended March 31, 2005,
the Company changed its business segmentation from the information and network integration segment, the intelligent building and facility
engineering segment and the operation and maintenance segment to the network integration support service segment, thetelecommunications engineering segment and the device sales segment.
To conform to the segmentation used in the year ended March 31, 2005, the segment information for the year ended March 31, 2004 has
been restated in accordance with the new segments.
Business segments
The business segment information for the Company and its consolidated subsidiaries for the years ended March 31, 2005 and 2004 issummarized as follows:
Millions of yen
Network
integration /Supportservice

Telecommunications
engineering

Device
sales

Total

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

¥85,786—
85,78680,000¥ 5,785¥70,404—
70,404
66,969¥ 3,434¥42,434—
42,43442,531¥ (96)¥198,625—
198,625
189,500¥ 9,124

¥

—
—
—
4,312
¥ (4,312)¥198,625—
198,625
193,813¥ 4,812

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

¥42,019696
1,886¥37,83530
39¥15,435——¥ 95,291
727
1,926¥28,643984
904¥123,935
1,712
2,830

Year ended March 31, 2005

Eliminations
or corporate

Consolidated

I. Sales:24

Thousands of U.S. dollars

Year ended March 31, 2005

Network
integration /Supportservice

Telecommunications
engineering

Device
sales

Total

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

$798,827—
798,827
744,948$ 53,869$655,592—
655,592
623,606$ 31,977$395,139—
395,139
396,042$ (894)$1,849,567—
1,849,567
1,764,596$ 84,961$———
40,153$ (40,153)$1,849,567—
1,849,567
1,804,758$ 44,809

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

$391,275
6,481
17,562$352,314279
363$143,728——$ 887,336
6,770
17,935$266,719
9,163
8,418

$1,154,065
15,942
26,353

Year ended March 31, 2004

Network
integration /Supportservice

Telecommunications
engineering

Device
sales

Total

Eliminations
or corporate

Consolidated

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

¥79,285—
79,28573,641¥ 5,644¥79,853—
79,85377,026¥ 2,826¥34,873—
34,87334,213¥ 659¥194,012—
194,012
184,881¥ 9,130

¥

—
—
—
4,710
¥ (4,710)¥194,012—
194,012
189,592¥ 4,419

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

¥33,497457
779¥37,05343
59¥20,092——¥ 90,643
500
838¥27,772955
779¥118,416
1,456
1,618

Eliminations
or corporate

Consolidated

Millions of yen

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,
2005 and 2004, 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, 2005 and 2004, the disclosure ofoverseas sales information was omitted.

17. SUBSEQUENT EVENTSa) In accordance with an agreement dated March 28, 2005 between the Company and Toyo Communication Equipment Co., Ltd. (“ToyoCommunication”), on June 1, 2005, the Company acquired all shares of Toyo Network Systems Co., Ltd. from Toyo Communication for¥3,410 million ($31,753 thousand).
b) The following appropriations of retained earnings of the Company, which have not been reflected in the accompanying consolidated
financial statements for the year ended March 31, 2005, were approved at a meeting of the shareholders held on June 29, 2005:

Cash dividends (¥7.00 = $0.065 per share).....................................................................................................................
Bonuses to directors and statutory auditors.....................................................................................................................

Millions of yen

Thousands of
U.S. dollars

¥293
37

$2,728345

25

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 System Integration & Construction, Ltd.
We have audited the accompanying consolidated balance sheets of NEC System Integration & Construction,
Ltd. and consolidated subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements
of income, shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial 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 theaccounting principles used and significant 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, theconsolidated financial position of NEC System Integration & Construction, Ltd. and consolidated subsidiaries
at March 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for theyears then ended in conformity with accounting principles generally accepted in Japan.
Supplemental Information
1. As described in Note 16, the Company changed its business segmentation effective the year ended March
31, 2005.
2. As described in Note 17, the Company acquired all shares of Toyo Network Systems Co., Ltd. on June 1,
2005.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2005 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 29, 2005

26

DIRECTORS AND CORPORATE AUDITORS / NETWORKDIRECTORS AND CORPORATE AUDITORS(As of June 29, 2005)

Directors:

Corporate Auditors:

President

Hitoshi Kinoshita (full-time)

Yukihiko Baba
Norikazu Tomioka (full-time)
Senior Executive Vice President and Member of the Board

Yasuo Matoi

Hideaki Kihara
Tetsujiro Arano
Senior Vice Presidents and Members of the Board

Sadao Harada
Yukio Yamazaki
Hiroshi Miwa
Member of the Board

Saburou Takizawa

NETWORK(As of October 1, 2005)

Head Office:Subsidiaries and Affiliates:

1-39-9 Higashishinagawa,Shinagawa-ku, Tokyo 140-8620,
Japan
Tel: +81-3-5463-1111
Fax: +81-3-5463-7781
http://www.nesic.co.jp

TOYO NETWORK SYSTEMS CO., LTD.

NESIC BRASIL S/A

Head Office: Kanagawa, Japan
Established : May 2005

Head Office: São Paulo, Brazil
Established : November 1976

NEC Networks & System Integration
Engineering, Ltd.

NESIC (Thailand) Ltd.

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

Head Office: Tokyo, Japan
Established : October 1992

NESIC PHILIPPINES INC.
NEC Networks & System Integration
Services, Ltd.
Head Office: Tokyo, Japan
Established : July 1988

NESIC Ascerent Company

Overseas Representative Offices:
Brazil, Thailand, Philippines,
Indonesia, China

Head Office: Bangkok, Thailand
Established : March 1991

Head Office: Tokyo, Japan
Established : September 1995

Head Office: Manila, The Philippines
Established : April 1991

P.T. NESIC BUKAKAHead Office: Jakarta, Indonesia
Established : May 1993

NESIC (GUANGZHOU) CO., LTD.
Head Office: Guangzhou, China
Established : August 1998

27

INVESTOR INFORMATION(As of March 31, 2005)

NEC System Integration & Construction, Ltd.
Established:

Issued:Transfer Agent:

November 26, 1953

43,069,207 shares

Number of Employees:

Number of Shareholders:

2,877 (non-consolidated)
4,328 (consolidated)

14,884The Sumitomo Trust and Banking Company,
Limited
4-4 Marunouchi 1-chome, Chiyoda-ku,
Tokyo 100-8233, Japan

Paid-in Capital:

Independent Auditor:

Fiscal Year:¥13,122 million

Ernst & Young ShinNihon

April 1 — March 31
Annual meeting held in June

Listing:

Common Stock Authorized:

The Tokyo Stock Exchange, First Section(Ticker Code: 1973)

100,000,000 shares

Distribution of Shareholders:Major Shareholders:

Percentage
of Total
SharesOutstanding

Treasury Stock 2.57%

Name of Shareholder

Number of
Shares Held(Thousands)

Foreign Investors 7.61%

NEC Corporation

11,29126.22%

6,400
3,903
3,144
1,200
1,107
1,049
887
513
395

14.86
9.06
7.30
2.79
2.57
2.44
2.06
1.19
0.92

Securities Companies 0.53%

Japan Trustee Services Bank, Ltd.
Individuals and Others 18.84%
Financial Institutions 40.90%(The Sumitomo Trust and Banking Company, Limited’s
re-trust [entrustment of trust assets] account,
NEC Corporation retirement benefit trust account)

Japan Trustee Services Bank, Ltd. (trust account)
The Master Trust Bank of Japan, Ltd. (trust account)
Sumitomo Realty & Development Co., Ltd.
NEC Networks & System Integration Corporation
Trust & Custody Services Bank, Ltd. (trust account A)
Employees’ Stock Ownership Plan
UBS AG London Asia Equities
Trust & Custody Services Bank, Ltd. (pension tokkin account)

Domestic Companies 29.55%

Monthly Stock Data (Tokyo Stock Exchange)
Monthly Stock Price Range

(Yen)
3,000

Common stock price range (¥)

2,500

Tokyo Price Index Close

2,000
1,500
1,000
500
0

Monthly Trading Volume(Thousands of Shares)
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2001

2002

2003

2004

2005

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

Printed in Japan with soy ink onrecycled paper.