Annual Report 2010
Year Ended March 31, 2010

Profile
NEC Networks & System Integration Corporation (“the Company”) was established in
1953 as a builder of communication network infrastructure. Today, the Company is working
to expand its business realm and increase shareholder value as a system integrator with
its principal segments of Network Integration/Support Services and Telecommunications
Engineering.
The NEC Networks & System Integration Group (“the Group”) is made up of corecompanies in the network solutions business of the NEC Group. As such, the Group will
work in unison to fulfill its corporate philosophy and management guidelines. Whilestrengthening its capabilities in national sales development, system creation, construction
technology and support services, the Group will promote further corporate innovation, amid
a rapidly changing operating environment.

Foundation(1953~1957)

Business Expansion(1958~1979)

Installation ofswitchingequipment and its
maintenanceBeing a Network System Integrator(1980~2000)
24 hours a day, 365 days a year nationwide
maintenance service in Japan

Data communications
Software development

Focus on communication business

Full-scale overseas operations

LAN/WAN business

Established as
Nippon ElectricInstallation Co., Ltd.

Began business ofoutsourced softwaredevelopment

Net sales surpassed¥100 billion
Listed on the Tokyo
Stock Exchange,
First Section

Name changed to
NEC System
Integration &Construction, Ltd.

Began overseas
operations

Net sales surpassed¥200 billion

Listed on the Tokyo
Stock Exchange,
Second Section

Began data
communications
construction

1997
1953 1954

1958

1977

1980

1983

1989

1992

CONTENTS
Business Overview

2

Consolidated Financial Highlights

4

Aim to increase the corporate value of our customers.

Interview with the President

6

Contribute to shareholders, customers and communities
through sound management.

Segment Information

8

Topics10

Corporate Governance12

Act as a good, environmentally conscious corporate citizen.

Directors and Corporate Auditors

16

Aim to create a workplace in which employees can fully
exercise their capabilities.

Corporate Social Responsibility (CSR) 17

NEC Networks & System Integration GroupManagement Guidelines

Maintain a commitment to the highest levels of quality andsafety.

Further Business
Expansion (2001~)
Network and IT solutions businessOutsourcing services
M&A
Name changed to NEC Networks & System
Integration Corporation
TNSi1 became a Group company
NTWX became a Group company(Merged in April 2007)
2

Six-Year Summary of
Selected Financial Data

18

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

20

Consolidated Balance Sheets

22

Consolidated Statementsof Income24

Consolidated Statements of
Changes in Net Assets

25

Consolidated Statements ofCash Flows

27

Notes to Consolidated
Financial Statements

28

Independent Auditors’ Report

48

Global Network

50

Investor Information

51

Nichiwa Co., Ltd.
became a Group
company

2008
2006
2005

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

Head office (Bunkyo-ku, Tokyo)
since October 2010

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 nothistorical 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 to caution readers that actual
results may differ materially from expectations,and that forward-looking statements are
subject to a number of risks or uncertainties.

NEC Networks & System Integration Corporation

1

Business Overview
NEC Networks & System Integration Corporation
provides leading-edge, high-quality network integrationand support services that meet the diverse network
system needs of customers in Japan and overseas.
NEC Networks & System Integration Corporation was established in 1953 primarily
as a builder of communications infrastructure. Today, as a top-class system integrator inJapan’s network business field, the Company conducts business not only domesticallybut globally, in regions such as Southeast Asia, South America and the Middle East.
The Company provides leading-edge, high-quality network integration andsupport services for customers of various industries in Japan and overseas, as wellas telecommunications engineering including building large-scale communications
infrastructure and related facilities. As one of very few comprehensive system integrators
in Japan, it is in a very unique position.
In addition, the Company sets itself apart by providing one-stop services encompassing
planning, consulting, design, construction, maintenance, network operation andmonitoring, and outsourcing for every network system it supplies to customers.
These services enable the Company to respond to customers’ diverse network
system needs and are a factor behind the deep trust it has established with them.
Consolidated Net Sales by Customer (Year ended March 31, 2010)

Overseas

6%

NEC Group (Communication
system development, etc.)15%¥ 217.7
billonEnterprises

37%

Government

20%

Telecommunications carriers

22%

2

NEC Networks & System Integration Corporation

Enterprises

Telecommunications Carriers

Government

Overseas

Customers

Telecommunications
Engineering

Network Integration

We offer a wide rangeof network systems
to various customers,
including IP telephony,thin client and NGNrelated systems.

Planning/Consulting

Designing

We build network
infrastructure andinstall electrical and air
conditioning systems.

Proposal
System Design

Procurement
Installation
Implementation

System Integration

Project Management

One-stop Support
Operation/Maintenance/Outsourcing

Support Services

We provide quick,reliable, one-stop
customer support
services, 24 hours aday, 365 days a year.

NEC Networks & System Integration Corporation3

Consolidated Financial Highlights(for the period from April 1, 2009 to March 31, 2010)

Orders received¥222.0 billion

Orders decreased 9% year on year, to ¥222.0 billion on a consolidated
basis, influenced by the effects of investment controls implemented in
the private sector, particularly in the enterprises and telecommunications
carriers sectors. However, we enjoyed a significant increase in orders
from central and local governments, which continued to invest actively
in projects for regional informatization, and in the sophistication andbroader application of firefighting and disaster prevention systems.
Orders also grew steadily for cloud computing1 related operations,such as the integration of data centers.

Orders received
254.5

245.3

'08

'09

Net income'10

Net sales(Billions of yen)

249.1

217.7

¥217.7 billion

Net sales fell 13% year on year, to ¥217.7 billion on a consolidated
basis, influenced by investment controls implemented in the private
sector, particularly in enterprises and telecommunications carriers
sectors. A significant increase in orders from central and local
governments fell short of making contributions to consolidated net
sales for the fiscal year under review. EmpoweredOffice 2, however,boosted net sales to corporate customers at a year-on-year rate of 18%,
assisted by stepped-up proposals for reducing costs and streamlining
management.

Operating income

222.0(Years ended March 31)

258.2

Net sales(Billions of yen)

¥9.9 billion¥5.8 billion

Consolidated operating income and net income amounted to¥9.9 billion and ¥5.8 billion, respectively. Operating income fell year
on year, because of a drop in net sales. However, the Company andits consolidated subsidiaries improved the operating margin from theprevious year by accelerating management innovation across theboard, including working style and operational process innovation
aimed at cutting common costs. Consequently, the Company and theGroup achieved record net income.

'08

'09

'10

(Years ended March 31)

Operating income(Billions of yen)

11.0

10.7

'08

9.9

'09

'10

(Years ended March 31)

Net income(Billions of yen)

5.2
4.4

'08

'09
(Years ended March 31)

4

NEC Networks & System Integration Corporation

5.8

'10

Point of account settlement for the fiscal year
Orders grew year on year in the fourth quarter, with expanding operations in priority areas
Operating conditions for the Group
Quarterly trends for orders received (year-on-year changes)
remained difficult during the fiscal year.
However, in the fourth quarter of the（％）
70
year, the Group was able to increase
Orders received from central and local governments
orders for the first time in six quarters.
30
This owed to stronger solutions
proposals, such as ideas for reducing
20
First year-on-yearincreasecosts, streamlining operations, andin six quarters
10
increasing environmental friendliness,made to corporate customers, as well0
as to the strengthening of support
Total orders received-10
services in areas including the new fieldof cloud computing. We were also able-20
to substantially increase orders for local
Orders received from general enterprises
government projects, such as projects
-30
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
involving regional informatization, with
2009/ 3
2010/ 3
initiatives designed to boost our ability tomeet project requirements. Considering
market changes as opportunities for growth, the Company will aggressively expand its operations in an attempt to achieve
improvements over these results.

Owner’s equity ratio3

Dividends( % () % )

42.3
42.3

'08'08

46.6
46.6

( Yen
( Yen
) )

50.1
50.1
20 20

'09'09'10'10(As(Asof Marchof March31)31)The owner’s equity ratio came to 50.1% at theend of the fiscal year. The current ratio also improved
15% from the end of the previous fiscal year, to234%. As these figures show, we became financiallystronger. We aim to sustain a sound financial footing,balancing our investment for growth with our financial
position.

'08'08

2525

22 22

'09'09'10'10(Years(Years
ended
ended
March
March
31)31)To thank shareholders for their support, theCompany paid ¥3 per share as a special dividend forthe fiscal year, as consolidated net income reacheda record-high level. As a result, the Company’s yearend dividend and annual dividend for the year cameto ¥14 per share and ¥25 per share, respectively.

Notes:
1. Cloud computing
Cloud computing is a service that uses networks to make available information and communications technology (ICT) resources, including operational
applications and other types of software and ICT infrastructure, such as servers, storage systems and networks, which companies and government
offices would formerly develop and manage within their own facilities.
2. EmpoweredOffice
EmpoweredOffice is the Company’s office innovation solution. It combines the Company’s strengths in ICT and facility installation to enable more
intellectual and creative styles of work through process reforms. It also proposes new methods and places of work that allow customers to fulfill theirsocial responsibilities, such as security enhancement and eco-friendliness.
3. Owner’s equity ratio = owner’s equity / total assets x 100
Current ratio = current assets / current liabilities x 100

NEC Networks & System Integration Corporation

5

Interview with the President

Aiming tofurther our growthwith aggressive
management

Q

A

6

How do you evaluate the Company’s
results for fiscal year ended March 2010
(from April 1, 2009 to March 31, 2010)?

Market conditions for the Group remained
severe in this fiscal year due to factors suchas investment controls by enterprises andtelecommunications
carriers.
From
thebeginning, we positioned this fiscal
Our sales declined under severe
year as a period for strengthening
ouroperatingfoundations
withoperating conditions, but we improved
an emphasis on profitability, andour profitability and achieved record net
accelerated management innovation
income. We succeeded in strengthening activities that had been in progress. In
our operating foundations for the future. this fiscal year, we focused in particularon strengthening our management
capabilities. We advanced reforms in our working
styles, including the conversion to paperless
operations, and cut our selling, general andadministrative expenses with comprehensive

NEC Networks & System Integration Corporationcost management, in addition to improving our costrate. With these initiatives, we achieved a record net
income of ¥5.8 billion. Operating conditions weremore difficult than we had anticipated, but I believethat we were able to build solid foundations for our
future business growth.
Based on these results, we paid ¥3 per share as
special year-end dividends to show our appreciation
to shareholders. We plan to increase our earnings
capacity further and improve shareholder returns in
the future.

Q

What are your business policies
for the future?

prevention systems.
Developing new business fields will be
I’ll take an “aggressive management”
another pillar. Proposing new solutions,
including those for saving energy andapproach for expanding our existing
making offices more resource efficient
operations further and increasing
through “EmpoweredOffice,” our office
our ability to offer a positive response innovation solutions, is one example of thisactivity. In the field of cloud computing, wein new business fields.
plan to accelerate our original initiatives,
including the provision of new services from
Sales conditions remained difficult, but we saw
customer perspectives.
signs of recovery in this fiscal year. For example,
We also need aggressive and strategicorders surpassed net sales for the first time ininvestment to accelerate growth. We will invest
four fiscal years. In the coming fiscal year ending
aggressively in growth, for instance by forming
March 2011, we anticipate corporate investment
alliances with other companies and making corporate
expansion with the business recovery, in additionacquisitions, based on our increasingly solid
to sustained active investment in local information
financial footing. We are planning to move our head
network projects by local governments. The use of
office to the Iidabashi area (in Bunkyo-ku, Tokyo) in
ICT services known as cloud computing will reach
October 2010. With the relocation of our office to afull scale, too. We expect investment in the networksite closer to our customers, we will transform thefield will shift to and focus on infrastructure for
entire company into EmpoweredOffice, engage
these businesses as services.
in more vigorous sales activities using the new
Such market changes represent greathead office as our showroom, and streamline ouropportunities for the Group. I am determined tooperations.
manage the Group aggressively for growth.
With these initiatives, we aim to achieve target
One of the pillars of this management approach
net sales of ¥300 billion and a target operating profit
is expanding existing operations. I plan to enhancemargin of 6% in fiscal year ending March 2013, andour competitiveness and achieve greater operational
to transform ourselves into the top networks system
depth. To give an example, I’m planning to increase
integrator in Japan.
our market share by strengthening our nationwide
June 2010
business organization and, at the same time, linking
expanded market share with subsequent support
Masahiko Yamamoto
operations in social infrastructure fields, which
President
encompass local information network projects andthe broader application of firefighting and disasterA

NEC Networks & System Integration Corporation

7

Segment Information

Overview of results by business segment(for the period from April 1, 2009 to March 31, 2010)

The Company leads the networks system integration business with strength in thecapacity to offer consistent services to customers in a broad range of fields, from in-house
ICT to public and social infrastructures. In the roughly 60 years since its establishment, theCompany has proposed optimum solutions to
Others ¥11.2 billion
diverse customers, including central and local
5%
governments, telecommunications carriers, andother enterprises, calling on the technologies
and business expertise it has developed throughTelecommunications
its support experience and achievements.
Engineering
Network Integration
In recent years, the Company has integrated¥60.8 billion
ICT and facility installation capabilities, two
Net sales28%¥72.9 billion
for 2010/ 3
areas of proven strength, to provide office reform
34%¥217.7
solutions complete with office space designs tobillionits corporate customers.
In addition, the Company is contributing
Support Services
to national projects, including operation and¥72.7 billion
management of a satellite reception system at
33%
the Showa Base in Antarctica.

Network Integration
Principal businesses
Provision of consistent network development
services in response to needs that range from planningand consultation, system design, to system integration
relating to ICT system.

Fiscal year review
Net sales for the segment declined 16% year on year,
influenced by investment controls in the private sector. However,EmpoweredOffice achieved a steady increase in net sales. Cloud
operations, such as data center integration, also showed an
uptrend. As these developments suggest, the segment achieved
results in priority fields that could lead to improvements in the
coming years.

Net sales
87.0

'08

(Billions of yen)

87.2

72.9

'09

'10

(Years ended March 31)

8

NEC Networks & System Integration Corporation

Net sales(Billions of yen)Support Services
Principal businesses
Operation and monitoring of ICT systems, provisionof troubleshooting services, and provision of networkand outsourcing services that make practical use ofcompany data centers

Net sales
87.0

'08

(Billions of yen)

87.2

72.9

'09

'10

(Years ended March 31)

Fiscal year review
Net sales for the segment fell 7% year on year, due mainly
to decreased network operations for the NEC Group. However,net sales to other enterprise customers rose steadily as a resultof service quality improvement through service infrastructure
reinforcement, including the consolidation of parts centers thatmake maintenance parts arrangements, and the bolstering of
proposal capabilities with an eye on cloud computing.

Net sales
76.5(Billions of yen)

77.8

Net sales
87.0

'08

72.7
(Billions of yen)

87.2

72.9

'09

'10

(Years ended March 31)

'08
'09
'10
Net sales(Billions of yen)
(Years ended March 31)

70.3

Telecommunications Engineering
Principal businesses
Construction work for highly public projects, such as
digital terrestrial broadcasting facilities and official radio
systems for disaster prevention and relief, installation workfor cellular base and CATV stations, and construction
work for satisfying office requirements, including power
supplies and air conditioners

Fiscal year review
The segment continued to secure infrastructure construction
work for central and local government projects designed toachieve local information network and other objectives, with
its improved capability to meet project requirements. However,net sales for the segment plunged 11% year on year, reflecting
factors such as a fall in base station investment by mobile
communications service providers.

68.4

Net sales
76.5

'08

60.8
(Billions of yen)

77.8

72.7

'09

'10

(Years ended March 31)

'08

'09

'10

(Years ended March 31)

Net sales
70.3

'08

(Billions of yen)

68.4

'09

60.8

'10

(Years ended March 31)

NEC Networks & System Integration Corporation

9

Topics
600

Contributing to local communities nationwide byadvancing local information network projects
0

Initiatives to establish ICT infrastructures for local information
network are being made in concert nationwide, to make ourcommunities safe, reassuring, and lively.
Television broadcasts in Japan are scheduled to make a fulltransition to digital terrestrial broadcasting in July 2011. The Japanese
government has been mapping out policies for achieving goals
such as the elimination of interregional information disparities andbroadband service extension to all Japanese households.
In this operating environment, the Company is taking responsibility
for optical cable installation for CATV and other services essential
for local information network, and offering a broad array of services
that make use of ICT to households, administrative organs, medical
institutions and other parties.
The Company aims to expand its operations and further its
contributions to local communities, with steps that include thedevelopment and provision of new services that take advantage ofestablished ICT infrastructures.

Net sales target to central andlocal governments(Billions of yen)

56.0
43.6

'10

'11 (target)(Years ended March 31)

We are offering community-based services throughout Japan.
Provision of administrative services and information
Alert service for disaster and other information

System for
information provision

IP notification broadcasting system
Weather observation system

Local community systems

Digital terrestrial broadcasting service andinstallation of on-campus LAN facilities

10

NEC Networks & System Integration Corporation

Environmental solutions are making pleasant
lifestyles possible
The Company is proactively approaching environmental operations to create an affluent society that pays
careful consideration to the global environment.
The Company is aiming to reduce the burden on the environment imposed by society as a whole byoffering eco-friendly services to its customers, in addition to its own actions for the environment.
Example initiative – “environmental solutions”

Offering total support to energy-saving steps customers take in their offices
Measures for saving energy became an urgent task for companies following the introduction of the amended
Law Concerning the Rational Use of Energy in April 2010 and other developments.
The Company is offering total support to customers adopting life cycle management to save energy, ranging
from an analysis of present energy consumption to planning and execution of energy-saving measures.
Operational design for an improvement plan

Diagnostic report

Diagnosis
monitoring
Air conditioner analysis
and simulation

Comprehensive
servicesManagement

Printout service
for notifications

Planning for saving energy
and execution of measures

Power consumption
visualization

Energy saving in
office space

Effectivenessmonitoring

Visualization of energy
consumption (display of power
consumption and CO 2 emissions
on monitors and other devices)
Energy saving in office space(renewal of lighting, airconditioning and other facilities
using optimal products)
Easy production of documents(support for cumbersome
production of document to besubmitted)

Graph showing CO 2 emissions

Helping to create the society of the futurewith the proliferation of fast electric car chargers
Electric cars are becoming increasingly popular, based on a vision of a lowcarbon society. Their mileage is limited, however, and this requires the installation of
fast chargers nationwide.
The Company is working to build the fast charger infrastructure so that all residents
of Japan can use electric cars with peace of mind.
Case study

Fast charger

Lemongas Co., Ltd.

Retailer and wholesaler of LP gas and seller of LP gas instruments

Comprehensive customer support provided in areas ranging from installation of fast chargers totheir operation and maintenance
Lemongas Co., Ltd. is a company that supplies liquefied petroleum (LP) gas, a clean, safe anddisaster-resistant type of energy, to approximately 300,000 households in areas centering on theTokyo metropolitan area and Shizuoka Prefecture. The Company supplied Lemongas with fast
chargers to help the customer open Lemon Town Hachioji, a place for recreation and relaxation
for the citizens of Hachioji City, Tokyo, equipped with cutting-edge energy-saving machines andequipment, in April 2010.
Lemongas is planning to install more fast chargers at its LP gas sales bases in Hachioji and other areas,
based on an idea currently being considered, namely launching a car-sharing service* using electric cars.
The Company will continue to support Lemongas and will contribute to efforts to enrich local
communities.

Lemon Town Hachioji*Car-sharing service: A new way of using cars in which two or more registered members share one vehicle.

NEC Networks & System Integration Corporation

11

Corporate Governance

The Company believes that the cornerstone of corporate governance is ensuring
management soundness and transparency by establishing a management system that enables
quick decision-making to respond promptly to changes in the operating environment, and bypracticing timely, appropriate disclosure. To that end, the Company has adopted a Board of
Corporate Auditors system and has established a corporate governance system in which theBoard of Directors and Board of Corporate Auditors play key roles.
The Company has also adopted an executive officer system to clearly demarcate
the supervisory function and the business execution function. To enhance managementtransparency, the Company has outside directors and outside corporate auditors and seeks
to achieve sound management by encouraging cooperation among corporate auditors, theInternal Auditing Division, and independent auditors.

I. Description of
Corporate Organs(1) Board of Directors

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

(2) Executive Officers, Executive Committee, and Business
Execution Committee
Based on an executive officer system, the Company also formed the Executive
Committee, consisting of executive officers at senior vice president level and higher andcorporate auditors, to discuss policies pertaining to key management and operating
issues, and the Business Execution Committee, which consists primarily of executive
officers and general managers, to monitor the progress of and report on significant
matters concerning business execution.

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

12

NEC Networks & System Integration Corporation

(4) Internal Auditing Division
The Internal Auditing Division, consisting of nine members, has been established
as an internal audit unit independent from the business execution division. It examines
through internal audits whether business execution is being conducted legally andproperly according to relevant laws, regulations and Company rules.

(5) Independent Auditors
The Company has an audit contract with KPMG AZSA & Co. as its independent
auditors to audit its accounts. KPMG AZSA & Co. expresses its views on the financial
statements as an auditor from an independent viewpoint.
The Company has established a basic policy forthe development of internal control systems, as shown
below, under Article 362, Paragraph 4, Item 6 of theCompany Law and Article 100, Paragraphs 1 and 3of the Enforcement Regulations of the Company Law.
The Company maintains the appropriate executionof operations under the basic policy, laws andregulations, and internal regulations.

II. Development ofInternal Control
Systems

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

Elect/Dismiss

Elect/Dismiss

Management/Supervision
Board of Directors(Directors)

Audit

Board of Corporate Auditors(Corporate Auditors)

Supervise

Cooperate

Audit
Cooperate

Business Execution
Executive Committee

Executive Officers

Business Execution Committee

Internal Auditing Division

Independent
Auditors

Cooperate

Management Quality
Improvement Committee
Audit
Cooperate

Staff, Management Units and Business Units
Corporate Ethics and Thorough ComplianceBusiness Behavior Committee

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

NEC Networks & System Integration Corporation

13

III. Situation of
Outside Directors
and Outside
Corporate Auditors

Of the Company’s eight directors, two are outside
directors. The Company believes this number isappropriate for giving advice and participating indecision making from fair and objective standpoints,
strengthening the Company’s corporate governance.

Outside Director Takayuki Matsui is a professor
at the Graduate School of Professional Accountancy
of Aoyama Gakuin University. The Company has
Mr. Matsui use his expert knowledge in businessadministration, including internal control, to ensure transparency in the managementof the Company and to strengthen corporate governance. Mr. Matsui attended all 13
meetings of the Board of Directors held in FY2009 ended March 31, 2010. He has
been designated as an independent director defined in Rule 436-2, Paragraph 1 of
the Securities Listing Regulations of the Tokyo Stock Exchange.
Outside Director Noboru Wakita is engaged in the network solution business of NEC
Corporation and uses his extensive experience and knowledge for the managementof the Company. Mr. Wakita attended all ten meetings of the Board of Directors held
in FY2009 after his appointment on June 23, 2009.
Of the Company’s four corporate auditors, three are outside corporate auditors.
We believe this number is appropriate for auditing the directors’ execution of theirduties from fair and objective standpoints, to strengthen the Company’s corporate
governance.
Outside Corporate Auditor Harutame Umezawa is qualified as a lawyer and has
considerable knowledge in finance and accounting. Using his professional knowledge
and viewpoint about the law, Mr. Umezawa audits the directors’ performance of theirduties from a fair and objective standpoint of an outsider. He attended all 13 meetingsof the Board of Directors and all 13 meetings of the Board of Corporate Auditors held
in FY2009. Mr. Umezawa has been designated as an independent director definedin Rule 436-2, Paragraph 1 of the Securities Listing Regulations of the Tokyo Stock
Exchange.
Outside Corporate Auditor Takao Kaneko has been engaged in accounting
and auditing for many years and has considerable knowledge about finance andaccounting. Taking advantage of his extensive experience and knowledge relating tointernal control, Mr. Kaneko primarily audits the legality of business execution from afair and objective standpoint. He became an outside corporate auditor at the ordinary
general meeting of shareholders held on June 23, 2010.

14

NEC Networks & System Integration Corporation

Outside Corporate Auditor Yasuo Totsuka is dealing with procurement in NEC
Corporation. Making full use of his extensive experience and knowledge relating tointernal control, Mr. Totsuka chiefly audits the legality of business execution from a fairand objective standpoint. He attended nine of ten meetings of the Board of Directors
and all ten meetings of the Board of Corporate Auditors held in FY2009, after his
appointment on June 23, 2009.
There are no special interests between the Company and its outside directors or
outside corporate auditors.
The outside directors and outside corporate auditors regularly exchange informationand consult with the Internal Auditing Division and staff departments, receiving reports
on business execution at meetings of the Board of Directors and on other occasions.
The outside corporate auditors cooperate with the independent auditors,
exchanging information and consulting with them regularly at meetings of the Boardof Corporate Auditors and on other occasions.

IV. Internal Audits andAudits by Auditors

The Internal Auditing Division cooperates with thecorporate auditors. The division reports the resultsof audits carried out under an audit plan for eachfiscal year to the corporate auditors once a year andexchanges opinions with them as necessary.

The corporate auditors, the Internal Auditing Division, and the independent auditors
cooperate with each other, exchanging opinions as necessary for statutory audits.

NEC Networks & System Integration Corporation

15

Directors and Corporate Auditors(As of June 23, 2010 )(From left) Mr. Kanehako, Mr. Hara, Mr. Yamamoto, Mr. Konno, Mr. Fujita, Mr. Iijima

Directors
President:
Masahiko Yamamoto

Senior Vice Presidents and Membersof the Board:
Yasuo Iijima
Koshiro Konno
Atsushi Fujita
Akinori Kanehako
Takahiko Hara

Members of the Board:
Takayuki Matsui 1, 3
Noboru Wakita 1

Corporate Auditors
Takao Kaneko (full-time) 2
Yasuo Hayashi (full-time)
Harutame Umezawa 2, 3
Yasuo Totsuka 2

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

16

NEC Networks & System Integration Corporation

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

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

Initiatives for Customers

Strengthen Risk Management
and Compliance

Include Everyone in Systems
and Services

Earn Customer Trust

Build Reliable Information andCommunications Infrastructure

Address Global Warming andEnvironmental Preservation

Provide Multifaceted Security

Improve Working Conditions and Develop Human Resources Globally

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

Quality Initiatives, Environmental
Activities, Information Security andProtecting Personal Information
Toward Greater Customer Satisfaction andSustainable Development

Quality Initiatives
The Company constantly pursues the highest
levels of quality and safety through measures suchas customer satisfaction and quality management
activities, including activities based on ISO 9001
certification. The Company provides customers
with high quality, safe and secure systems with thelatest technology.

Environmental Activities
The Company states in its Charter of Corporate
Behavior that it will “contribute to society as anenvironment-conscious corporate citizen.” In 1999,
the Company received ISO 14001 certification forenvironmental management. Since then it has worked
to reduce waste disposal volume, achieved 100

percent use of recycled paper for copy paper in theyear ended March 31, 2002, improved the recycling
rate, changed to small lots for lead soldering foron-site use, and introduced low-pollution vehicles.
Moreover, in recent years, the Company has
implemented green procurement to meet chemical
substance regulations (the European RoHS directive
and others), and conducted energy conservationand emissions trading aimed at preventing global
warming.

Information Security and Protecting
Personal Information
The Company has established a personal
information protection policy. Moreover, theCompany understands that personal information
is an important information asset, and maintains
a compliance program (a personal information
management system) that conforms to JIS Q
15001: 2006. In this way, every employee works toproperly protect personal information. In addition,
the Company established the Basic Policy on
Information Security and the Basic Rules on
Information Security, and conducts activities tomaintain and enhance information security. Basedon the policy and rules, the Company strengthens
security measures for internal information systems
and promotes educational activities for Group
employees and others, while strictly controllingsecurity at data centers and other locations that
handle important customer information, throughoperations based on ISO/IEC 27001, an international
standard for information security systems.
ISO 9001: 2000
Certificate Number: JQA-0471

ISO 14001: 2004
Certificate Number: JQA-EM0640

ISO/IEC 27001: 2005
Certificate Number: IC03J0025
Organization: SI & Services Operations Unit Office Solutions Division
Certificate Number: JQA-IMO190
Organization: SI & Services Operations Unit Outsourcing Service Division
Certificate Number: JQA-IMO351
Organization: SI & Services Operations Unit Service Infrastructure Division

ISO/IEC20000-1:2005
Certificate Number: JQA-IT0037
Organization: SI & Services Operations Unit Outsourcing Service Division /Service Infrastructure Division

Privacy Mark
Certificate Number: 21000053(02)NEC Networks & System Integration Corporation17

Six-Year Summary of Selected Financial Data

NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31
Thousands of
U.S. dollars 1

Millions of yen
2010

2009

2008

2007

2006

2005

2010

For the year:
Orders¥ 222,046   ¥ 245,257 ¥ 254,512 ¥ 253,577 ¥ 223,383 ¥ 207,460 $ 2,386,565

Net sales

217,727  

249,070258,212

254,641

213,672

198,625

2 ,340,144

Selling, general and administrative expenses

23,070  

24,501

24,82425,41320,502

16,921

247,958

Operating income

9,867  

10,968

10,743

7,849

6,056

4,812

106,051

Net income

5,806  

5,154

4,412

3,476

2,609

1,222

62,403

Capital expenditures

1,928

2,529

2,611

2,371

1,804

2,829

20,722

Depreciation and amortization

2,244  

2,270

2,130

2,203

1,966

1,712

24,119

119  

290

419

595

455

428

1,279

Research and development costs
At year-end:
Total assets¥ 146,915   ¥ 147,462   ¥ 154,171   ¥ 148,797   ¥ 134,911   ¥ 123,935   $ 1,579,052  

Shareholders’ equity

74,043  

69,33465,251

61,69254,01751,704

795,819

Total net assets

74,221  

69,34066,132

62,201

54,625—

797,732

Interest-bearing debt

5,000  

5,121

5,652

5,531

8,800

8,163

32,244116.74   ¥103.61   ¥

88.67   ¥70.72   ¥60.56   ¥28.24   $1,255  Per share of common stock (yen and U.S. dollars) :Net income¥

Net assets (BPS)

1,479.62  

1,381.92

1,311.71

1,233.52

1,285.92

1,231.28

Cash flow (CFPS)

160.0

147.8

130.1

114.8

108.2

69.0

Cash dividends applicable to the year

25.00  

22.00

20.00

14.00

14.00

12.00

4.5  

4.4

4.2

3.1

2.8

2.4

6.9  

7.4

6.9

5.5

4.6

3.9

8.2  

7.7

7.0

6.0

4.9

2.4

46.6

42.3

41.3

40.0

41.7

15,903269

Ratios and return indicators:
Operating income to net sales (%)
Return on assets (ROA) (%)
Return on equity (ROE) (%)

2

3

Shareholders’ equity (Net worth) ratio (%)

50.1  

Current ratio (times) 4

2.35  

2.18

1.97

1.93

1.86

1.77

Debt to equity ratio (times) 5

0.07  

0.07

0.09

0.09

0.16

0.16
4,199

Number of employees
Net sales per employee (thousands of yen) 6
Net income per employee (thousands of yen)¥
7

5,998  

5,906

5,817

6,407

4,897

36,580   ¥

42,493 ¥42,247 ¥45,053 ¥46,982 ¥ 46,864 $

975

879

722

615

574

288

393,164
10,479Notes:
1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥93.04 = U.S.$1.00, the approximate Tokyo foreign exchange
market rate as of March 31, 2010.
2. Return on assets: Ordinary income / Average total assets during the term
3. Return on equity: Net income / Average net assets during the term
4. Current ratio: Current assets / Current liabilities
5. Debt to equity ratio: Interest-bearing debt / Net assets
6. Net sales per employee: Net sales / Average number of employees during the term
7. Net income per employee: Net income / Average number of employees during the term

18

NEC Networks & System Integration Corporation

Net Sales

Operating Income(Millions of yen)

12,000300,000
254,641

250,000(Millions of yen)

258,212

249,070

200,000

8,000

150,000

6,000

100,000

4,000

50,000

2,000

0

'06

'07

'08

'09

10,968

'08

'09

9,867

10,000217,727

213,672

10,743

0

'10

7,849
6,056

'06

'07

(Years ended March 31)'10(Years ended March 31)

Net Income

Total Assets and Total Net Assets(Millions of yen)

5,806

6,000

(Millions of yen)

200,000

Total assets

Total net assets

5,154

5,000

4,412

4,000
3,000

150,000

134,911

154,171

148,797

147,462

146,9153,476

100,000

2,609

2,000

74,221

69,34066,132

62,201

54,62550,000
1,000
0

'06

'07

'08

'09

0

'10

'06

'07

(Years ended March 31)

'08

'09

'10

(As of March 31)

Operating Income to Net Sales

ROE and ROA
(%)

5.0
4.2

4.4

4.5

4.0
3.0

(%)

10.0
8.0

2.8

6.0
4.0

1.0

2.0

'06

'07

'08

'09

(Years ended March 31)'100

ROA (Return on assets)

7.7

7.0

3.1

2.0

0

ROE (Return on equity)

6.0
4.9
4.6

'06

6.9

8.2

7.4

6.9

'09

'10

5.5

'07

'08

(Years ended March 31)

All graphs are presented on a consolidated basis.

NEC Networks & System Integration Corporation19

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

NEC Networks & System Integration Corporation and Consolidated Subsidiaries
Years ended March 31
Thousands of
U.S. dollars

Millions of yen
2010
Orders by business segment

2008

2007

2006

2005

2010

¥ 222,046     ¥ 245,257 ¥ 254,512 ¥ 253,577 ¥ 223,383 ¥ 207,460 $ 2,386,565

Network integration/Support services

148,159  

164,451

164,765

164,634

118,41090,0801,592,423

Telecommunications engineering

62,580  

66,904

68,846

65,192

68,46275,703

672,614

Product sales

11,305  

13,90020,90023,75036,51041,676

121,507

Net sales by business segment

217,727  

249,070258,212

254,641

213,672

198,625

2,340,144

Network integration/Support services

145,646  

164,996

163,418

161,473

116,997

85,786

1,565,413

Telecommunications engineering

60,846

68,39770,33967,08563,76570,404

6,539,832

Product sales

11,233

15,67624,45426,08232,90942,434

120,733

Operating income by business segment

9,867

10,968

10,743

7,849

6,056

4,812

106,051

Network integration/Support services

12,183   

12,96011,002

10,964

6,684

5,785

130,944

Telecommunications engineering

2,689

3,206

4,197

3,139

3,510

3,434

28,902

603

586

892

140

35

(96)

6,481

Eliminations or corporate(5,607)  

(5,785)(5,348)(6,394)(4,173)(4,312)(60,264)

Orders by customer

222,046  

254,257

254,512

253,577

223,383

207,460

2,386,565

Government

52,537  

40,97442,87339,14031,14229,891

564,671

Telecommunications carriers

47,875  

54,34854,74957,17250,19843,534

514,564

NEC Group

32,69847,702

53,187

51,83536,486

33,773

351,440

Enterprises

75,743  

88,36486,52289,15989,46084,388814,091

Overseas

13,191  

13,867

17,177

16,267

16,096

15,873

141,778

Net sales by customer

27,727  

249,070258,212

254,641

213,672

198,625

298,012Government

43,637  

44,10541,76537,46828,71130,890469,013

Telecommunications carriers

47,997  

52,47856,47960,23647,70638,707515,875

NEC Group

33,262  

48,632

51,19552,65035,69734,015357,502

Enterprises

79,217  

87,52892,34188,64583,44481,458851,429

Overseas

13,611  

16,325

16,42915,64018,114

13,554

146,292

Net sales via NEC

77,187  

91,212

97,046

90,79758,22056,510829,61135.5  

36.6

37.6

35.7

27.2

28.5

Product sales

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

20

2009

NEC Networks & System Integration CorporationOrders by Business Segment

Net Sales by Business Segment(Millions of yen)

300,000
250,000

Network integration/Support services
Product sales

253,577

254,512(Millions of yen)

Telecommunications engineering

300,000

254641

245,257

223,383

222,046

250,000

200,000

200,000

150,000

150,000

100,000

100,000

50,00050,000

0

'06

'07

'08

'09

Network integration/Support services
Product sales'100258,212

Telecommunications engineering

249,070
217,727

213,672'06(Years ended March 31)

'07

'08

'09

Orders by Customer

Net Sales by Customer(Millions of yen)

(Millions of yen)

300,000
250,000

Overseas
NEC Group

Government
Enterprises

253,577

Telecommunications carriers

300,000

254,512223,383

245,257
222,046

250,000

200,000

200,000

150,000

150,000

100,000

100,000

50,00050,000

0

'06

'07

'08

'10

(Years ended March 31)

'09

'10

0

Overseas
NEC Group

Government
Enterprises

254,641

Telecommunications carriers

258,212

249,070
217,727

213,672'06(Years ended March 31)

'07

'08

'09

'10

(Years ended March 31)

Net Sales via NEC

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

100,000

90,797

97,046

91,212
77,18780,00060,000(%)

50

58,22040
30

40,00020

20,000

10

0

'06

'07

'08

'09

(Years ended March 31)

'10

0

35.7

37.6

36.6

35.5

'08

'09

'10

27.2

'06

'07

(Years ended March 31)

All graphs are presented on a consolidated basis.

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Global Network( As of October 1, 2010 )Head Office2-6-1 Koraku, Bunkyo-ku, Tokyo 112-8560, Japan
Tel: +81-3-6699-7000
Fax: +81-3-6699-7405

Major Domestic Regional Offices
Higashinihon, Nakanihon, Kansai, Nishinihon
Hokkaido, Tohoku, Shin-etsu, Kitakanto, Kanagawa, Chubu, Shizuoka, Hokuriku, Keiji, Kobe, Chugoku,
Shikoku, Kyushu

Subsidiaries and Affiliates
Toyo Networks & System
Integration Co., Ltd.
Head office: Kanagawa, Japan
Established: May 2005
Capitalization: ¥400 million
Voting rights: 100.00%
NEC Networks & System
Integration Engineering, Ltd.
Head office: Tokyo, Japan
Established: October 1992
Capitalization: ¥50 million
Voting rights: 100.00%
NEC Networks & System
Integration Services, Ltd.
Head office: Tokyo, Japan
Established: July 1988
Capitalization: ¥60 million
Voting rights: 100.00%
NESIC Ascerent, Ltd.
Head office: Tokyo, Japan
Established: June 1951
Capitalization: ¥20 million
Voting rights: 100.00%

TOYO ALPHANET CO., LTD.
Head office: Kanagawa, Japan
Established: April 1981
Capitalization: ¥20 million
Voting rights 1: 100.00% (100.00%)

P. T. NESIC BUKAKAHead office: Jakarta, Indonesia
Established: May 1993
Capitalization: ¥86 million
Voting rights: 80.00%

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

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

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

Networks & System Integration
Saudi Arabia Co., Ltd.
Head office: Al-Khobar,
Saudi Arabia
Established: April 2006
Capitalization: ¥56 million
Voting rights: 100.00%

NESIC (Thailand) Ltd.
Head office: Bangkok, Thailand
Established: March 1991
Capitalization: ¥79 million
Voting rights: 49.00%
NESIC PHILIPPINES, INC.
Head office: Manila,
The Philippines
Established: April 1991
Capitalization: ¥167 million
Voting rights: 100.00%

TNSi Europe GmbH
Head office: Köln, Germany
Established: October 2005
Capitalization: ¥6 million
Voting rights 1: 100.00% (100.00%)

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

50

NEC Networks & System Integration Corporation

Investor Information(As of March 31, 2010)

Corporate Name:
NEC Networks & System Integration
Corporation

Major Shareholders:Number of
Shares Held(Thousands)

Percentage ofTotal Shares
Outstanding 2

19,10638.42%

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

6,400

12.87%

Japan Trustee Services Bank, Ltd. (Trust account)

5,657

11.38%The Master Trust Bank of Japan, Ltd. (Trust account)

1,761

3.54%

Sumitomo Realty & Development Co., Ltd.

1,200

2.41%

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

755

1.52%

Employees’ Stock Ownership Plan

751

1.51%

Ticker Code:1973

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

549

1.10%

Fiscal Year:
April 1 - March 31
Annual meeting held in June

State Street Bank And Trust Company 505019

535

1.08%

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

520

1.05%

Name of Shareholder

NEC Corporation

Established:
November 26, 1953

1

Number of Employees:
4,282 (Non-consolidated) 		
5,998 (Consolidated)
URL:
http://www.nesic.co.jp/english/
Listing:
Tokyo Stock Exchange, First Section

Notes:
1. Shares held by Japan Trustee Services Bank, Ltd. (The Sumitomo Trust and Banking Company,
Limited beneficiary trust account, NEC Corporation retirement benefit trust account) give NEC
Corporation material voting rights because NEC Corporation has contributed shares of theCompany to its retirement benefit trust. The percentage of material voting rights held by NEC
Corporation as of March 31, 2010 was 51.44%.
2. The percentage of total shares outstanding is calculated based on the number of shares excluding
treasury stock (41,280 shares).

Common Stock Authorized:
100,000,000 shares
Issued:49,773,807 shares

Composition of Shareholders:Number of Shareholders:
10,637

Securities companies

Individuals and others

0.19%

Transfer Agent:
The Sumitomo Trust and Banking Company,
Limited3-1, Yaesu 2-chome, Chuo-ku, Tokyo
104-0028, Japan

11.64%

Financial institutions

Foreign investors, etc.

32.82%

14.25%
Other domestic
companies

Independent Auditors:
KPMG AZSA & Co.

41.10%

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

2000
1500
1000
500
0

High
OpeningHigh
Closing

Closing
Low

Opening
Low

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

Monthly Trading Volume
Thousand of shares

12,00010,000
8,000
6,000
4,000
2,000
0

2006

2007

2008

2009

2010

NEC Networks & System Integration Corporation51

2-6-1 Koraku, Bunkyo-ku, Tokyo 112-8560, Japan
http: //www.nesic.co.jp/english/

CAT.NO.110100300-TA-001
Printed in Japan