NSD BR'07_1012

Transcription

1 Business Report 2007 Year ended March 31, 2007 NSD CO., LTD.

2 PROFILE For almost 40 years since its foundation in 1969, NSD CO., LTD. and its group companies (NSD Group) have grown as one of the leading system integrators in Japan, offering a variety of services such as systems and software for our customers in various industries. This has led to our outstanding reputation, as well as the customer confidence in NSD, which has deepened through many years of business relationships. NSD s strength lies in the fact that it has long-term relationships with many customers. That kind of loyalty has been a foundation of the company since its establishment. In order to offer solutions for our customers issues and live up to the expectations and confidence that customers have in us, we place particular emphasis on human resource development and strengthening of technologies and skills to pursue even better quality. Relentlessly pursuing cutting-edge technologies to create a comfortable life through information technology : The aspiration for technological innovation to create more convenient and user-friendly products has been in our DNA since the company s founding. On December 1, 2006, we consolidated our head office functions in Tokyo for quicker, more efficient operation and management, and established a system for even higher-quality services and solutions, which marked a start for our new growth. We will continue to place importance on customer communication and apply our very best technologies, services and know-how so as to offer creative proposals for customers and enhance their corporate value. In so doing we aspire to maintain our position as a company that customers can always turn to as a business partner to work with them to address to their issues. CONTENTS 01 To Our Investors 02 NSD NSD Group at a Glance 04 Topics 06 Consolidated Selected Financial Data 07 Management s Discussion and Analysis 15 Consolidated Balance Sheets 17 Consolidated Statements of Income 18 Consolidated Statements of Retained Earnings 19 Consolidated Statements of Changes in Net Assets 20 Consolidated Statements of Cash Flows 22 Non-Consolidated Selected Financial Data 24 NSD Group Directory 25 Board of Directors, Auditors and Executive Officers 25 Corporate Data

3 TO OUR INVESTORS Let us first extend to our shareholders and investors our sincere gratitude for the great support you have provided to NSD. Aiming to mark new record high profits and to attain return on equity at 10% and consolidated operating income to net sales at 17%, the NSD Group has worked hard to further our value-added management and increase the corporate value. As a result, as for the consolidated business performance for the year ended March 2007, we are pleased to announce the result that has attained growth both in sales and profit and achieved a new record high profit. In addition, we successfully achieved the targets by marking the return on equity at 13.1% and consolidated operating income to net sales at 18.2%. We have raised the payment of dividends per share by 20 yen to 50 yen for the fourth consecutive year, in order to express our appreciation for your patronage. With the objective of offering an environment with higher stock liquidity for easier investment, we executed a two-for-one stock split with the effective date of April 1, The NSD Group will continue to strive for further improvement in business results and business development for higher corporate value. We thank you for your continued support and cooperation, as always. September 2007 Ichiro Okinaka, President & CEO Business Report

4 NSD GROUP AT A GLANCE The NSD Group is comprised of seven subsidiaries and one affiliated company in addition to NSD, and is engaged in system solution services and staffing services. System Solution Services Division With its principal focus on information services (software development and facilities management) and software products, this mainstay business division accounts for 95.2% of our total net sales. The core activities of this business division are primarily related to software development. 88.3% Information Services Segment Software Development In our information services segment there was strong, brisk demand for system investment in various industries such as the finance sector and service sector. Accordingly, along with increasing orders we received steadily, we could successfully make steadfast improvement in the terms and conditions of orders. Also, relentlessly enhanced project management practices, which we continued to work for, reinforced internal training, including the acquisition of PMP (an international qualification for project management), and efforts for higher productivity and profitability served to curtail low-profit projects and thus improve the profitability of each project. Facilities Management We have won contracts with top-tier companies across a variety of industrial sectors in order to run and manage their entire computer-related facilities. With our extensive experience in managing mainframe computers, UNIX, Windows servers and a multitude of hardware and operational systems, we offer facilities management services on a 24-hour/365-day basis. The expertise we have gained in the sphere of facilities management over many years is also our core asset to be used in the running of systems support, help desk and outsourcing businesses. Furthermore, our systems support, like our sales activity, is tailored to better meet the needs of customers so as to be performed in conjunction with software development. 2 Business Report 2007

5 6.9% Software Products Segment The NSD Group steps up sales of software products, particularly for security management, against a backdrop of growing social needs for security issues such as the strengthening of compliance and response to J-SOX. The Group also promotes the sales of total system offerings combined with software development. 4.8% Staffing Services Division Our staffing services business, which is operated by NSD Business Service Co., Ltd., one of our subsidiaries, accompanies the dispatch of personnel to a wide range of companies outside the NSD Group, and also to NSD, particularly the sections engaged in information services. We will develop our business with the motto to deliver expert technologies with customer loyalty and speed, which fits the age of ubiquitous technology. Clients As of September 2007 N S D System Solution Services Subcontract software development Subcontract software development Subcontract staffing services, etc. Subcontract software development Consolidated subsidiary NSD AMERICA INC. Consolidated subsidiaries Shareholders Relation Service, Inc. NI Consulting Co., Ltd. Consolidated subsidiary NSD Business Service Co., Ltd. Subcontract data entry Consolidated subsidiary D Access Co., Ltd. Consolidated subsidiary FSK Co., Ltd. Software development and software products Consolidated subsidiary InterWorld Corporation Japan K.K. Software development Software development and consulting services for software development, etc. Staffing services Data entry Software products Note: NSD affiliate : Fukushimaken Chuo Keisan Center Co., Ltd. is not included due to its insignificance. Business Report

6 TOPICS NSD s Shareholders Benefit Service Guppy ( Guppy is available at our subsidiary, SRS.) Addressing the issues of how to attract more individual shareholders and how to encourage them to become long-term shareholders, NSD concluded that shareholders would be pleased with unique benefits, which would then increase the number of new shareholders. Therefore, we developed our original system to issue points to shareholders based on the number of shares held and years of shareholdings, so that they could use the points to exchange for goods freely over a website. The Shareholders Benefit Service System over the Internet, which NSD launched during the term starting in September 2006, has thankfully earned much support from our shareholders. NSD is deemed to have no original goods to give to the shareholders, but the product of NSD is the Shareholders Benefit Service System over the Internet itself. We believe that shareholders will be able to gain a deeper understanding of us by using the system we ve developed. The Shareholders Benefit Service System over the Internet is a result of NSD s challenge to address the issue of how we can attract more individual shareholders and encourage them to become long-term shareholders. Taking the opportunity to receive many opinions and impressions from our shareholders, we have improved the service as a channel to contact shareholders instead of just a vehicle for shopping with the accumulated points. Now, the service is commercialized as a product called Shareholders Benefit Service Guppy, which our corporate customers can introduce for themselves. Shareholders Benefit Service Guppy is available at our subsidiary, Shareholders Relation Service, Inc. (SRS), which launched its business on August 1, 2007 with the mission of planning of shareholders benefit services and IR services for individual shareholders. Shareholders Benefit Service Guppy has attracted much attention from many companies as a communication service system to connect a company with its shareholders, which well represents the age of the Internet, and was developed through the full use of technologies and know-how accumulated at NSD regarding system development. 4 Business Report 2007

7 Business Report

8 CONSOLIDATED SELECTED FINANCIAL DATA Years ended March 31, 2007, 2006, 2005, 2004 and 2003 Millions of yen Thousands of U.S. dollars (Except per share amounts) (Except per share amounts) FOR THE YEAR Net sales... 41,502 39,082 36,028 36,002 36,705 $351,565 System Solution Services Division... 39,527 37,052 34,566 34,933 35, , (95.2) (94.8) (95.9) (97.0) (97.8) Information Services... 36,675 34,394 31,209 32,103 33, , (88.3) (88.0) (86.6) (89.2) (90.8) Software Products... 2,852 2,658 3,356 2,830 2,570 24, (6.9) (6.8) (9.3) (7.8) (7.0) Staffing Services Division... 1,975 2,030 1,462 1, , (4.8) (5.2) (4.1) (3.0) (2.2) Operating income... 7,578 6,323 4,228 3,611 4,891 64,193 Ordinary income... 7,757 6,426 4,287 3,690 4,935 65,715 Net income... 4,939 3,375 2,316 3,018 2,149 41,839 Per share (in yen and U.S. dollars) Net income $ 1.69 Net assets... 1, , , , , Cash dividend AT YEAR-END Shareholder equity... 38,175 36,969 33,166 31,442 29,499 $323,381 Total assets... 44,644 45,267 40,697 39,848 40, ,182 Number of employees... 3,632 3,739 3,504 3,370 3,339 Ratio to net sales (%) Gross profit SG & A expenses Operating income Ordinary income Net income Return on equity (%) Shareholder equity ratio (%) Price/earnings ratio (times) Thousands of yen U.S. dollars Net sales per employee... 11,426 10,452 10,282 10,683 10,993 $96,797 Net income per employee... 1, ,519 Notes: 1. Gain on the return of a substitutional portion of the Employees Pension Fund, equivalent to 2,502 million, is accounted for as an extraordinary gain for the year ended March 31, The U.S. dollar amounts are converted at the rate of =U.S.$ Figures in parentheses are percentages of total net sales. 4. As of April 1, 2007, we executed a stock split from 1 common share to 2 common shares. 5. As for shareholder equity, data until the term ended March 2006 used "total shareholder equity" and data from the term ended March 2007 uses "net assets less minority interests." Note: The U.S. dollar amounts are converted at the rate of =U.S.$ Business Report 2007

9 MANAGEMENT S DISCUSSION AND ANALYSIS SUMMARY OF BUSINESSES During the current fiscal year, along with steady economic growth, the business environment developed favorably in the information services industry, but meanwhile a shortage of system engineers became a serious issue. Under these circumstances the NSD Group promoted further highvalue-added management and worked to increase its corporate value, aiming to achieve a new record high profit and return on equity (ROE) at 10% and consolidated operating income to net sales at 17%. To begin with, in addition to great progress in receiving orders and improvement in the terms and conditions of orders, low-profitability projects were further limited by improving project management abilities which the Group has strengthened, and we achieved quality enhancement and profit growth. Next, as for the business structure, three companies that became our subsidiaries as of December 1, 2005 Nittetsu Butsuryu Computer System Corp., Nittetsu Butsuryu Computer System Himeji Co., and Nippon Steel Logistics Computer System Oita were absorbed by NSD as of April 1, 2006 to consolidate and reorganize the software development business, which is our main business. Moreover, the head office functions were consolidated to the Tokyo Head Office as of December 1, 2006 for quicker, more efficient operation and management and to establish the system to offer even higher-quality services and solutions. As a result of the efforts described above, the NSD Group posted in the year ended March 2007 for consolidated performance, net sales of 41,502 million yen (an increase of 6.2% from the previous fiscal year), operating income of 7,578 million yen, an increase of 19.8%, ordinary income of 7,757 million yen, an increase of 20.7%, and net income of 4,939 million yen, an increase of 46.3% to achieve a new record high profit. Also, the Group successfully achieved its targets with the return on equity (ROE) at 13.1% and operating income to net sales at 18.2%. Operating income Millions of yen Ordinary income Millions of yen Net income Millions of yen Business Report

10 BUSINESS OUTLOOK BY DIVISION System Solution Services Division In our information services segment (software development and facilities management), due to continuing strong demand for system investment in various industries such as the finance sector and services sector, we succeeded in obtaining favorable orders and conditions. Also, enhanced project management practices, which we continued to work for, reinforced internal training (including the acquisition of PMP, an international qualification for project management), along with efforts for higher productivity and profitability, served to curtail low-profit projects and thus improved the profitability of each project. As a result, total consolidated net sales in the information services segment amounted to 36,675 million yen, a substantial increase of 6.6% compared with the previous fiscal year. In our software products segment, against a backdrop of growing social needs for security issues such as the strengthening of compliance and response to J-SOX, the NSD Group promoted sales mainly on software products for security management. As a result, total consolidated net sales of the segment came to 2,852 million yen, an increase of 7.3% from the previous fiscal year. As a result of the above efforts, the total consolidated net sales of the division were 39,527 million yen, an increase of 6.7% from the previous fiscal year, accounting for 95.2% of total sales, an increase of 0.4%. Staffing Services Division In our staffing services division, there were strong and continuous manpower outsourcing needs reflecting the economic growth, but amid intensifying competition among staffing services companies it has become a serious issue to secure human resources. As a result the total consolidated net sales of the division came to 1,975 million yen, a decrease of 2.7% from the previous fiscal year, accounting for 4.8% of total net sales, a decrease of 0.4%. 8 Business Report 2007

11 FINANCIAL POSITION Assets The final balance of total assets was 44,644 million yen, a decrease of 622 million yen (1.4%) from the previous fiscal year-end. Current assets were 23,500 million yen, a decrease of 1,087 million yen (4.4%), while fixed assets were 21,144 million yen, an increase of 464 million yen (2.2%), from the previous fiscal year-end. The decrease in current assets is mainly attributable to the decrease in cash and cash equivalents of 1,851 million yen due to investment in fixed assets to acquire a dormitory, despite the increase in accounts receivable-trade of 829 million yen due to an increase in net sales. Property, plant and equipment increased by 2,308 million yen (21.5%) from the previous fiscal year-end to 13,028 million yen. This mainly came from the acquisition of land and building for a dormitory. Liabilities The final balance of total liabilities resulted in 6,314 million yen, a decrease of 1,847 million yen (22.6%) from the previous fiscal yearend. Current liabilities decreased 497 million yen (8.9%) to 5,121 million yen meanwhile long-term liabilities decreased 1,350 million yen (53.1%) to 1,193 million yen. The decrease in current liabilities is mainly attributable to the decrease in short-term loans of 294 million yen and the decrease in accrued income taxes of 284 million yen. The decrease in long-term liabilities mainly came from the decrease in allowance for retirement benefits of 1,087 million yen primarily due to introduction of a retirement benefit trust, as well as a 310-million-yen decrease in deferred tax liabilities. Net assets Net assets increased by 1,224 million yen (3.3%) from the previous year to 38,330 million yen. This is mainly attributable to the increase in retained earnings of 3,914 million yen, despite the decrease in difference in valuation of other securities of 471 million yen due to decline of stock price in listed shares, as well as the decrease that reflected the increase in treasury stock of 1,220 million yen and land revaluation difference of 1,002 million yen due to the reversal of deferred tax assets resulting from land revaluation. Total assets Millions of yen Interest-bearing debt Millions of yen Business Report

12 ANALYSIS OF OPERATING RESULTS Net sales Consolidated net sales for the current fiscal year increased by 6.2% from the previous fiscal year to 41,502 million yen, against a backdrop of diverse and growing demand in the information services segment, which contributed to the receipt of favorable orders. Operating income Operating income increased 1,254 million yen from the previous fiscal year, reaching 7,578 million yen. This is mainly because of the growth in sales, improvement in order terms and conditions, and enhanced project management practices, all of which improved profitability to increase the gross profit by 1,207 million yen. The increase is also attributable to a 47-million-yen decrease in selling, general and administrative expenses due to the decreased obligation for depreciation and amortization. Ordinary income Ordinary income increased 1,330 million yen from the previous fiscal year to 7,757 million yen, mainly due to the 50-million-yen increase in housing rent received, particularly due to the partial lease of the Osaka Branch Office building as non-operating income in addition to increase in operating income, and a 19-million-yen increase in interest income. Extraordinary gains and losses Extraordinary gains decreased by 106 million yen from the previous fiscal year to 178 million yen, mainly due to the decrease in gain on sale of investment securities, despite the increase in gain on the sale of fixed assets in 125 million yen resulting from sale of a dormitory in Minoh, Osaka. Extraordinary losses also decreased by 457 million yen from the previous fiscal year to 116 million yen, which was mainly due to decreases in impairment loss and loss on sale of fixed assets, in spite of increase in relocation costs for the Nagoya Branch Office of 48 million yen. Net income Net income increased substantially by 1,563 million yen (46.3%) from the previous fiscal year to 4,939 million yen. The significantly larger increase rate compared to that of net sales and others is attributable to reduced tax payment which is due to liquidation of IDJ, Inc., a former consolidated subsidiary. Return on equity 10 Business Report 2007

13 CASH FLOWS Cash flows from operating activities The cash increase resulting from operating activities during the current fiscal year was 3,786 million yen or 34.5%, compared with the previous fiscal year. This increase is mainly attributable to income before income taxes (7,820 million yen) and depreciation and amortization (632 million yen), in spite of a decrease in allowance for retirement benefits (1,087 million yen) and increase in trade receivables (829 million yen). Cash flows from investing activities The cash decrease resulting from investing activities during the current fiscal year was 3,323 million yen or 481.2%, compared with the previous fiscal year. This decrease is mainly attributable to purchase of property, plant and equipment (3,175 million yen) and investment securities (599 million yen). Cash flows from financing activities The cash decrease resulting from financing activities during the current fiscal year was 2,327 million yen or 98.9%, compared with the previous fiscal year. This decrease is mainly attributable to disbursements for the cash dividend paid (741 million yen) and for purchase of treasury stock (2,122 million yen), despite proceeds from the sale of treasury stock (886 million yen). Cash flows 3,786 Millions of yen Cash flows from operating activities (3,323) Cash flows from investing activities (2,327) Cash flows from financing activities (1,863) Net increase in cash and cash equivalents Business Report

14 POLICIES ON PROFIT DISTRIBUTION The NSD Group places the top priority of the management goal of returning profits to shareholders, and strives to return profits to meet shareholder expectations. Also, in order to strengthen the growth power and increase corporate value, we retain some profits to further reinforce the existing businesses and make investments in future growth areas (including new businesses), and in domestic and international M&As and business alliance deals. As for dividends from retained earnings for the current term, with the desire to respond to our shareholders' steady support, we raised the payment of dividends per share by 20 yen to 50 yen for a year, which was the fourth consecutive increase and resolved in the meeting of the Board. In addition, we acquired 500,000 treasury stocks on the market (at an acquisition price of 2,111 million yen). Meanwhile, with the objective of offering an environment with higher stock liquidity for easier investment, we executed a two-for-one stock split with the effective date of April 1, The dividends for the next term are scheduled to be 25 yen per share for a year. Dividend per share Yen Transition of Share price Yen The company executed a two-for-one stock split on April 1, Share prices before the split are converted to those reflecting the split for comparison. Values for FY2007 are actual values from April 1 through the end of August. 12 Business Report 2007

15 TARGET MANAGEMENT INDEXES The NSD Group strives for high-value-added management for higher corporate value, and therefore considers improvement in return on equity (ROE) and operating income to net sales as the important management indexes. Setting our target to maintain return on equity (ROE) at 13% in the previous term and operating income to net sales at 18% or to exceed these targets, we will continue to devote ourselves to our business. ISSUES TO BE RESOLVED Further efforts for improvement in productivity and quality In order to retain customer confidence while offering a better system, we will reinforce our measures for higher productivity and quality. As one of these measures, a special dedicated position was established after an organizational change in April 2007 to promote improvement in organizational productivity. Enforcing the shift to fixed-price business models In order to enhance the value added to system development and attain further growth, we will accelerate our promotion to shift to fixed-price business models. Securing human resources Our strongest assets are our excellent human resources. We will proactively promote measures to employ more new workers, minimize turnover and secure good cooperating companies. Consideration and facilitation of M&A In addition to securing system engineers, in order to expand the business scale and business domains for further growth, we will consider and seek opportunities of M&A. Business Report

16 BUSINESS AND OTHER RISKS The risks that may have impact on business results and financial status of the NSD Group are as shown below: (1) Risks inherent in software development Mindful of the risks inherent in the development of software, business results of the NSD Group may change due to shift in trends in system investment resulting from changes in the economic environment, contractual results of large projects, progress and profitability of individual projects, and alliances with cooperating companies. We address such risks by continued and enhanced project management practices, as well as thorough and enhanced risk management. (2) Risks inherent in information security and intellectual property rights There is a possibility of incurring situations with loss in social confidence, risk of litigation or risk of liability for damages due to the leakage of information assets proprietary to clients, including personal and/or confidential information, entrusted to the Group s care, or by infringement of intellectual property rights. For such risks, we have already taken various measures such as guidance and education through a variety of committees such as the Compliance Committee and the Information Security Committee, the promotion of company-wide initiatives, and security measures to prevent outside leakage. However, we will strengthen and ensure further risk management practices. (3) Risks inherent in human resources According to the increases in system investment in various industries along with the economic expansion, it has been our urgent issue to secure and develop system engineers. However, any failure to secure and retain human resources, as a consequence of an unexpected contingency, might affect the performance of the NSD Group in the future. The NSD Group aggressively implements recruitment activities every year to employ excellent new talents, and places similar emphasis on education and training so that new recruits will be substantial members of the workforce in the short term and enhance the capability levels of our system engineers. In addition, we proactively promote measures to organize partnership with cooperating companies to secure resources on their parts as well. Through all these activities, we address the risks inherent in human resources. 14 Business Report 2007

17 CONSOLIDATED BALANCE SHEETS Years ended March 31, 2007 and 2006 Millions of yen Thousands of U.S. dollars ASSETS Current assets: Cash and time deposits... 13,150 15,001 $111,397 Notes and accounts receivable trade... 9,080 8,251 76,925 Inventories ,317 Deferred tax assets current ,871 Other ,748 Allowance for doubtful accounts... (21) (18) (185) Total current assets... 23,500 24, ,071 Fixed assets: Property, plant and equipment: Buildings and structures... 6,544 6,269 55,439 Land... 6,046 4,012 51,224 Other ,702 Total property, plant and equipment... 13,028 10, ,364 Intangible assets: Software ,526 Goodwill ,344 Consolidation adjustment account Other Total intangible assets ,043 Investments and other assets: Investment securities... 6,128 6,401 51,916 Lease and guarantee deposits... 1,040 1,020 8,812 Deferred tax assets noncurrent ,018 Revaluation-related deferred tax assets... 1,363 Other ,369 Allowance for doubtful accounts... (48) (50) (411) Total investments and other assets... 7,638 9,324 64,703 Total fixed assets... 21,144 20, ,111 Total assets... 44,644 45,267 $378,182 Notes: The U.S. dollar amounts are converted at the rate of =U.S.$1.00. Business Report

18 CONSOLIDATED BALANCE SHEETS Years ended March 31, 2007 and 2006 Millions of yen Thousands of U.S. dollars LIABILITIES Current liabilities: Accounts payable... 1,228 1,151 $ 10,409 Short-term loans Accrued income taxes... 1,649 1,933 13,971 Accrued bonuses to employees ,307 Accrued bonuses for directors Allowance for shareholders' benefits Other... 1,521 1,506 12,886 Total current liablities... 5,121 5,618 43,380 Long-term liabilities: Long-term debt Allowance for retirement benefits ,712 5,295 Allowance for retirement benefits for directors Deferred tax liabilities ,914 Deferred tax liabilities for revaluation Long-term accounts payable ,597 Other ,247 Total long-term liabilities... 1,193 2,543 10,108 Total liabilities... 6,314 8,161 53,488 Minority interests: Minority interests SHAREHOLDER EQUITY Common stock... 7,205 Capital surplus... 6,922 Retained earnings... 24,448 Land revaluation difference... (1,986) Difference in valuation of other securities... 2,030 Foreign currency translation adjustments... (60) Treasury stock... (1,591) Total shareholder equity... 36,969 Total liabilities, minority interests... 45,267 and shareholder equity NET ASSETS Shareholder equity: Common stock... 7,205 61,041 Capital surplus... 6,906 58,502 Retained earnings... 28, ,265 Treasury stock... (2,811) (23,819) Total shareholder equity... 39, ,988 Valuation and translation differences: Difference in valuation of other securities... 1,558 13,204 Land revaluation difference... (2,988) (25,316) Foreign currency translation adjustments... (58) (495) Total valuation and translation differences... (1,488) (12,607) Minority interests ,313 Total net assets... 38, ,694 Total liabilities and net assets... 44,644 $378,182 Notes: The U.S. dollar amounts are converted at the rate of =U.S.$ Business Report 2007

19 CONSOLIDATED STATEMENTS OF INCOME Years ended March 31, 2007 and 2006 Millions of yen Thousands of U.S. dollars Net sales... 41,502 39,082 $351,565 Cost of sales... 30,370 29, ,267 Gross profit... 11,131 9,924 94,298 SG & A expenses... 3,553 3,601 30,105 Operating income... 7,578 6,323 64,193 Non-operating income: Interest income Dividend income Housing rent received Other Total non-operating income ,621 Non-operating expenses: Interest expenses Commission of commitment line setting Other Total non-operating expenses Ordinary income... 7,757 6,426 65,715 Extraordinary gains: Gain on sale of fixed assets ,106 Gain on sale of investment securities Termination of contracts Gain on reversal of allowance for doubtful accounts Reversal from allowance for retirement benefits for directors Other Total extraordinary gains ,516 Extraordinary losses: Loss on sale of fixed assets Loss on retirement of fixed assets Loss on sale of investment securities Loss from devaluation of investment securities Loss on office relocation Impairment loss on fixed assets Other Total extraordinary losses Income before income taxes... 7,820 6,137 66,246 Income, inhabitant and enterprise taxes... 2,545 2,758 21,561 Income taxes adjustment (23) 2,633 Minority interests Net income... 4,939 3,375 $ 41,839 Notes: The U.S. dollar amounts are converted at the rate of =U.S.$1.00. Business Report

20 CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Year ended March 31, 2006 Millions of yen Thousands of U.S. dollars CAPITAL SURPLUS Capital surplus at beginning of the year... 6,868 $ 58,182 Increase in capital surplus: Gain from disposal of treasury stock Increase in capital surplus due to merger of consolidated subsidiaries Capital surplus at end of the year... 6,922 58,642 RETAINED EARNINGS Retained earnings at beginning of the year... 21, ,630 Increase in retained earnings:... 3,375 28,591 Net income... 3,375 28,591 Decrease in retained earnings: ,116 Cash dividend ,231 Bonuses to directors Decrease in retained earnings due to merger of consolidated subsidiaries Reversal of land revaluation Retained earnings at end of the year... 24,448 $207,106 Notes: The U.S. dollar amounts are converted at the rate of =U.S.$ Business Report 2007

21 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Year ended March 31, 2007 The current consolidated fiscal year (from April 1, 2006 to March 31, 2007) Millions of yen Shareholder equity Total Common Capital Retaind Treasury shareholder stock surplus earnings stock equity Balance as of March 31, ,205 6,922 24,448 (1,591) 36,985 Changes during the period Dividend from surplus*... (741) (741) Bonuses for directors due to appreciation of earnings*... (61) (61) Net income... 4,939 4,939 Acquisition of treasury stock... (2,122) (2,122) Disposal of treasury stock... (16) Reversal of land revaluation... (221) (221) Changes in non-shareholder equity items during this term (net amount)... Total changes duriing the period... (16) 3,914 (1,220) 2,677 Balance as of March 31, ,205 6,906 28,363 (2,811) 39,663 Millions of yen Valuation and translation differences Difference in Foreign Total valuation Land currency valuation and Total of other revaluation translation translation Minority net securities difference adjustments differences interests assets Balance as of March 31, ,030 (1,986) (60) (16) ,105 Changes during the period Dividend from surplus*... (741) Bonuses for directors due to appreciation of earnings*... (61) Net income... 4,939 Acquisition of treasury stock... (2,122) Disposal of treasury stock Reversal of land revaluation... (221) Changes in non-shareholder equity items during this term (net amount)... (471) (1,002) 1 (1,472) 19 (1,452) Total changes duriing the period... (471) (1,002) 1 (1,472) 19 1,224 Balance as of March 31, ,558 (2,988) (58) (1,488) ,330 *These items were approved at the ordinary general meeting of shareholders. Notes: The U.S. dollar amounts are converted at the rate of =U.S.$1.00. Business Report

22 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended March 31, 2007 and 2006 Millions of yen Thousands of U.S. dollars Cash flows from operating activities: Income before income taxes... 7,820 6,137 $ 66,246 Depreciation and amortization ,361 Amortization of consolidation adjustment account Amortization of goodwill Increase (Decrease) in allowance for doubtful accounts... 2 (0) 25 Decrease in accrued bonuses to employees... (105) (63) (898) Increase in accrued bonuses for directors Increase in allowance for shareholders benefits Increase (Decrease) in allowance for retirement benefits... (1,087) 200 (9,213) Decrease in allowance for retirement benefits for directors... (18) (101) (153) Loss from devaluation of Investment securities Gain on sale of investment securities... (21) (225) (183) Loss on sale of investment securities Gain on sale of fixed assets... (130) (4) (1,106) Loss on sale of fixed assets Loss on retirement of fixed assets Impairment loss on fixed assets Interest and dividend income... (68) (51) (579) Interest expenses (Increase) Decrease in trade receivables... (829) 488 (7,023) (Increase) Decrease in inventories... (92) 451 (784) Decrease in other current assets Decrease in other investments Increase (Decrease) in trade payable (488) 653 Increase (Decrease) in accrued consumption taxes.. (56) 19 (482) Increase in other current liabilities ,185 Bonuses to directors... (61) (58) (521) Other ,054 Subtotal... 6,547 7,771 55,467 Interest and dividend received Interest paid... (0) (7) (5) Return of income taxes received Income taxes paid... (2,841) (2,033) (24,071) Net cash flows provided by operating activities... 3,786 5,781 $ 32, Business Report 2007

23 Millions of yen Thousands of U.S. dollars Cash flows from investing activities: Increase in time deposits... (11) (60) $ (96) Decrease in time deposits... 0 Purchase of property, plant and equipment... (3,175) (162) (26,896) Proceeds from sale of property, plant and equipment ,371 Purchase of intangible assets... (140) (110) (1,191) Purchase of investment securities... (599) (689) (5,079) Proceeds from sale of investment securities Purchase of stock of subsidiaries affecting the scope of consolidation... (116) Payment for lease and guarantee deposits... (134) (1,143) Proceeds from repayment of lease and guarantee deposits ,194 Proceeds from sale of golf club memberships Other... (34) 33 (289) Net cash flows used in investing activities... (3,323) (571) (28,151) Cash flows from financing activities: Net decrease in short-term loans... (250) (130) (2,118) Repayment of long-term debt... (98) (390) (833) Cash dividend paid... (741) (617) (6,285) Purchase of treasury stock... (2,122) (395) (17,983) Sale of treasury stock ,506 Other... (0) (2) Net cash flows used in financing activities... (2,327) (1,169) (19,715) Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents... (1,863) 4,056 (15,783) Cash and cash equivalents at beginning of the year... 14,765 10, ,078 Cash and cash equivalents at end of the year... 12,902 14,765 $109,294 Notes: The U.S. dollar amounts are converted at the rate of =U.S.$1.00. Business Report

24 NON-CONSOLIDATED SELECTED FINANCIAL DATA Years ended March 31, 2007, 2006, 2005, 2004 and 2003 Millions of yen (Except per share amounts) Thousands of U.S. dollars (Except per share amounts) FOR THE YEAR Net sales... 36,507 34,090 30,559 30,912 32,567 $309,258 Operating income... 6,863 6,068 4,385 4,042 5,035 58,141 Ordinary income... 7,161 6,238 4,533 4,138 5,106 60,667 Net income... 4,108 3,451 2,200 3,342 2,436 34,804 Per share (in yen and U.S. dollars) Net income $ 1.40 Net assets... 1, , , , , Cash dividend AT YEAR-END Net assets... 37,949 37,569 33,682 32,079 29,737 $321,467 Total assets... 43,418 44,503 39,715 38,364 39, ,800 Number of shares outstanding (in thousands)... 25,586 25,586 25,586 25,586 25, Ratio to net sales (%) Gross profit SG & A expenses Operating income Ordinary income Net income Return on assets (%) Return on equity (%) Payout ratio (%) Dividend to equity (%) Interest coverage ratio (times) Thousands of yen U.S. dollars Net sales per employee... 14,756 14,335 13,403 13,769 15,175 $125,003 Net income per employee... 1,661 1, ,489 1,135 14,068 Notes: 1. Gain on the return of a substitutional portion of the Employees Pension Fund, equivalent to 2,337 million, is accounted for as an extraordinary gain for the year ended March The U.S. dollar amounts are converted at the rate of =U.S.$ As of April 1, 2007, we executed a stock split from 1 common share to 2 common shares. Notes: 1.The U.S. dollar amounts are converted at the rate of =U.S.$ An interest coverage ratio for the year ended March 31, 2006 and March 31, 2007 is not included, as there were no interest expenses. Net sales Millions of yen Operating income, Ordinary income and Net income Millions of yen Net sales by division Millions of yen Software products Facilities management Software development Net sales by user industry Other Public Services ransportation Construction Telecommunication Commercials Manufacturing Financial Institutions Services 22 Business Report 2007

25 Millions of yen Thousands of U.S. dollars FOR THE YEAR Net sales by division: Software Development... 32,150 29,249 24,999 25,985 27,722 $272, (88.1) (85.8) (81.8) (84.1) (85.1) Facilities Management... 1,791 2,455 2,640 2,713 2,792 15, (4.9) (7.2) (8.6) (8.8) (8.6) Software Products... 2,565 2,385 2,919 2,212 2,052 21, (7.0) (7.0) (9.6) (7.1) (6.3) Total... 36,507 34,090 30,559 30,912 32, , (100.0) (100.0) (100.0) (100.0) (100.0) Net sales by user industry (%): Services Financial Institutions Manufacturing Commercials Construction Transportation Telecommunication Public Services Other Total Number of employees at year-end... 2,474 2,378 2,280 2,245 2,146 Number of recruits for the next year Notes: 1. The U.S. dollar amounts are converted at the rate of =U.S.$ Figures in parentheses are percentages of total net sales. 3. Figures of net sales by user industry are percentages of sales exclusive of Software products. 4. In the preparation of net sales by user industry type in business reports for the year ended March 31, 2004 and earlier, secondary orders had also been categorized by user industry type. From the year ended March 31, 2005, however, only companies from which we have received orders have been categorized by user industry type. (The figures for the year ended March 31, 2004 and earlier are accounted for using the same standard as for the year ended March 31, 2005.) 5. As there were errors in some of the figures for net sales by user industry, in the areas of services business and telecommunication business, the ratios making up the business report for the year ended March 31, 2006 have been adjusted. (The figures for the year ended March 31, 2005 and earlier are accounted for using the same standard as for the year ended March 31, 2006.) Millions of yen Thousands of U.S. dollars FOR THE YEAR Cost of sales: Personnel costs... 16,134 15,091 13,577 13,590 13,058 $136, (66.0) (65.8) (65.2) (62.0) (57.0) Subcontracting costs: Software Development... 5,241 4,217 3,719 4,099 5,507 44, [16.3] [14.4] [14.9] [15.8] [19.9] Facilities Management... 1,468 2,012 2,063 2,042 1,988 12, [82.0] [82.0] [78.2] [75.3] [71.2] Total... 6,710 6,229 5,783 6,142 7,495 56, (27.4) (27.2) (27.7) (28.0) (32.7) Rental costs and others... 1,621 1,606 1,477 2,195 2,363 13, (6.6) (7.0) (7.1) (10.0) (10.3) Cost of information services... 24,436 23,305 20,470 22,328 22, ,999 Cost of products sold... 1,993 1,762 2,335 1,723 1,622 16,891 Total... 26,430 25,068 22,806 24,051 24, ,890 SG & A expenses: Personnel costs... 1,607 1,308 1,754 1,497 1,685 $ 13,619 Educational and recruiting costs Rental costs ,935 Depreciation, amortization and others... 1,259 1,302 1, ,357 Total... 3,214 2,954 3,367 2,818 3,138 27,235 Capital expenditure... 3, ,357 1,794 $ 27,384 Depreciation and amortization ,272 Notes: 1. The U.S. dollar amounts are converted at the rate of =U.S.$ Figures in parentheses are percentages of costs incurred from information services for the years shown above. 3. Figures in square brackets are percentages of net sales by division incurred. 4. In business reports for the year ended March 31, 2005 and earlier, allowance for retirement benefits within SG&A expenses were included in the figure for depreciation, amortization and other costs, but from the year ended March 31, 2006, business reports have been adjusted to include them in personnel costs. (The figures for the year ended March 31, 2005 and earlier are accounted for using the same standard as for the year ended March 31, 2006.) Business Report

26 NSD GROUP DIRECTORY As of September 1, 2007 Head Office 2-7-1, Nishi-shinjuku, Shinjuku-ku, Tokyo TEL: FAX: Osaka Branch Office 3-3-7, Koraibashi, Chuo-ku, Osaka-shi, Osaka TEL: FAX: Nagoya Branch Office 4-7-1, Meieki, Nakamura-ku, Nagoya-shi, Aichi TEL: FAX: Mito Office , Minami-machi, Mito-shi, Ibaraki TEL: FAX: Hamamatsu Office 110-5, Itaya-cho, Naka-ku, Hamamatsu-shi, Shizuoka TEL: FAX: Himeji Office 4-9-6, Seimon-dori, Hirohata-ku, Himeji-shi, Hyogo TEL: FAX: Okayama Office 2-1-3, Shimoishii, Okayama-shi, Okayama TEL: FAX: Fukuoka Office 1-4-1, Hakataekimae, Hakata-ku, Fukuoka-shi, Fukuoka TEL: FAX: CONSOLIDATED DOMESTIC SUBSIDIARIES NSD Business Service Co., Ltd , Nishi-shinjuku, Shinjuku-ku, Tokyo TEL: FAX: Shareholders Relation Service, Inc , Nishi-shinjuku, Shinjuku-ku, Tokyo TEL: FAX: NI Consulting Co., Ltd , Momoyamadai, Suita-shi, Osaka TEL: FAX: FSK Co., Ltd , Uchigomimaya-machi, Iwaki-shi, Fukushima TEL: FAX: D.Access Co., Ltd. 54-6, Omachi, Uchigotakasaka-machi, Iwaki-shi, Fukushima TEL: FAX: CONSOLIDATED OVERSEAS SUBSIDIARIES NSD AMERICA INC Cuernavaca Circulo, Mountain View, California 94040, U.S.A. TEL: FAX: Oita Office 17-19, Higashikasuga-machi, Oita-shi, Oita TEL: FAX: Business Report 2007

27 BOARD OF DIRECTORS, AUDITORS AND EXECUTIVE OFFICERS As of September 1, 2007 Chairman Isao Ogishi President & CEO Ichiro Okinaka Managing Director & Executive Officer Yoshikazu Imajo Director & Executive Officers Yukio Umehara Chiaki Ono Yoshikazu Nishiguchi Hiromasa Onizawa Hideshi Maekawa Full-time Corporate Auditors Hirotoshi Satake Hideo Ishigaki Outside Corporate Auditors Hideyuki Otawa Kunio Yamanaka Masayuki Koyama Executive Officers Atsushi Kurisaki Koushi Miyata Atsuo Tomura Keishi Matsuda Surao Oda Kyoko Gondo Tatsuya Ogata Kenji Takatori Takuhiro Nishimura Osamu Yamoto CORPORATE DATA As of March 31, 2007 Name of Company: NSD CO., LTD. Foundation: April 8, 1969 Capital: 7,205,864,914 yen Number of Shares: Authorized: 100,000,000 (Since April 1, 2007: 200,000,000) Outstanding: 025,586,080 (Since April 1, 2007: 51,172,160) Major Shareholders: Daido Life Insurance Company Japan Trustee Services Bank, Ltd. (Trust Account) IPC Co., Ltd. State Street Bank and Trust Company The Master Trust Bank of Japan, Ltd. (Trust Account) Number of Shareholders: 8,032 (As of March 31, 2006: 6,946) Stock Listing: Tokyo Stock Exchange, 1st Section Osaka Securities Exchange, 1st Section Number of Employees: Consolidated: 3,632 (As of March 31, 2006: 3,739) Non-consolidated: 2,474 (As of March 31, 2006: 2,378) Disclaimer This Business Report is intended to provide information about the business performance and strategy of NSD CO., LTD. and the NSD Group. It is not intended and should not be construed as an inducement to purchase or sell stock in NSD or NSD Group companies. Statements in this presentation that are not historical facts are forward-looking statements, based on the current beliefs, estimates and expectations of management. As these beliefs, estimates and expectations are subject to a number of risks, uncertainties, and assumptions, actual results may be materially different. NSD undertakes no obligation to update any forward-looking statements, and shall in no event be liable for any damages arising out of the use or interpretation of this material. Please refrain from copying, disseminating or distributing this material without the prior consent of NSD. Business Report

28 NSD CO., LTD. Head Office Daiichi Seimei Bldg., 2-7-1, Nishi-shinjuku, Shinjuku-ku, Tokyo , Japan TEL: FAX: Printed using soy ink on recycled paper Printed in Japan