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TRANSCRIPT
AN
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NEC Sumisei Bldg, 29-11, Shiba 5-chome, Minatoku, Tokyo 108-0014, JapanTel. +81 (0)3-5476-5625
www.necap.co.jp ANNUAL REPORT 2009 Year ended March 31, 2009
Cert no. SA-COC-1442
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NEC Leasing, Ltd. was established in 1978 as a leasing company providing sales finance on behalf of NEC
Corporation. Since then, it has played a role in ushering in the information and communications technolo-
gies (ICT) age through financing, especially leases.
With a changing operating environment, including new accounting standards for lease transactions and
amendments to the tax system, NEC Leasing decided to transform its leasing-centered business structure to
create a path for continued growth. To provide solutions that fully respond to our customers’ capital needs,
we aim to become a boutique offering specialized solutions.
NEC Leasing changed its name to NEC Capital Solutions, which better reflects this goal, on November 30,
2008, the 30th anniversary of its founding. We take this opportunity to redouble our focus on achieving
continued growth.
On November 30, 2008, NEC Leasing, Ltd. changed its name to NEC Capital Solutions Limited.
Nov. 1978
Mar. 1996
Founded as NEC Leasing, Ltd., an NEC sales finance company
Performing assets (based on purchase prices) exceed 1 trillion yen
History
Contents
3 Financial Highlights
4 Message from the President
5 Interview with the President
7 Business at a Glance
8 Progress of the Third Medium-Term Business Plan
13 Corporate Social Responsibility
1
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Feb. 2005
Mar. 2006
Nov. 2008
Listed on the Second Section of the Tokyo Stock Exchange
Listed on the First Section of the Tokyo Stock Exchange
Changed name to NEC Capital Solutions Limited
The statements in this annual report with respect to the Company’s cur-rent plans, strategies and decisions are forward-looking statements. Such forward-looking statements are based on management’s assumptions and decisions in the light of information currently available. Since these forward-looking statements involve risks and uncertainties, actual results could differ materially from them. Therefore, we caution that you should not place undue reliance on them.
Forward-Looking Statements
Redefinition of the business domains
Prioritybusiness fields
The Finance Solutions domain employs asset finance methods and develops structured finance related to large projects in the NEC
Group’s supply chain from a non-bank standpoint.
The Asset Solutions domain delivers an array of asset solutions that leverage our manufacturer-affiliated advantage, centering on
the core ICT asset remarketing and services associated with ICT equipment operation.
The Vendor Solutions domain pursues maximum efficiency and promotes conversion of existing business models in the sales
finance business in collaboration with vendors centering on the NEC Group’s sales finance.
Finance Solutions Domain
Asset Solutions Domain
Vendor Solutions Domain
16 Introduction of Officers: Directors and Corporate Auditors
17 Financial Section
38 Corporate Information / Stock Information
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In the fiscal year ended March 31, 2009, consolidated revenues declined to 261.0 billion yen, while operating
income fell to 3.6 billion yen. The Company recorded a net loss of 3.8 billion yen. The decline in operating
income was primarily attributable to recording of a loss on the write-down of securities. Another factor con-
tributing to the decline in operating income was a fall in lease transactions associated with the change in the
accounting standard for lease transactions and tax system amendments applied from April 2008 onward, as
well as a decrease in capital spending prompted by the business downturn. A significant increase in the bad-
debt loss also contributed to the decline in operating income. The Company recorded a net loss because a loss
on the write-down of securities amounting to 9.5 billion yen was recorded as an extraordinary loss.
Note: From the fiscal year ended March 31, 2008, the Company has prepared consolidated financial statements. Therefore, the above, figures prior to the fiscal year ended March 31, 2008 are non-consolidated financial results.
Financial Highlights
0 50,000 100,000 150,000 200,000 250,000 300,000
(million yen)
262,247
265,310
265,739
264,116
260,995
06
05
07
08
09
-4,000 -2,000 0 2,000 4,000 6,000
(million yen)
06
05
07
08
09 △3,806
4,888
5,302
4,074
3,946
0 2,000 4,000 6,000 8,000 10,000
(million yen)
0 2,000 4,000 6,000 8,000 10,000
(million yen)
06
05
07
08
09
8,419
9,048
7,032
3,615
06
05
07
08
09
8,4188,3869,0489,0267,0317,0325,9835,9133,6153,360
5,983
Revenues
Net income (loss)
Operating income
260,995 million yen (1.2% decrease year on year)
3,615 million yen (39.6% decrease year on year)
3,806 million yen (net income 3,946 million yen in the fiscal year ended March 31, 2008)
176.75 yen
44.00 yen
Revenues
NEC Capital Solutions Year ended March 31, 2009
Operating income
Net loss
Net loss per share
Cash dividends per share
1.2%
decrease year on year
1.4%
Operating income to net sales
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Message from the President
Hidetaka Itahashi, President
I became president of NEC Capital Solutions on April 1. As the new representative
of the Company, I will report our financial results for the fiscal year under review
to our shareholders, before setting out my goals and describing my management
policy as the new president.
As stated above, the Company posted a net loss. However, we regard the loss as
a temporary phenomenon and will pay an annual dividend of 44 yen, as in the
previous fiscal year. To improve corporate performance and return profits to share-
holders as soon as possible, we will focus on increasing profits steadily.
We look forward to the continued support of our shareholders.
The fiscal year started under unfavorable conditions for the Company, with the
application of the new accounting standard for lease transactions in April 2008,
followed by a sharp business downturn triggered by the subprime mortgage cri-
sis. Despite these difficult conditions, the Company came close to achieving its ini-
tial targets in the first half of the fiscal year.
However, with the sharp downturn in the economy following the financial crisis
in September, the operating environment for the Company worsened rapidly from
October onward. The Company’s performance was subsequently influenced, as
bad debts rose up beyond expectations and lease transactions declined with rapid
cutbacks in capital expenditure. We regret to report the posting of a substantial
net loss, reflecting the loss from the write-down of securities in addition to the
challenges described above.
Despite the difficult situation, we executed the initiatives that we believe have
important implications for future growth in our Finance Solutions and Asset
Solutions businesses. These are the core areas of focus under the Third Medium-
Term Business Plan.
In the Asset Solutions domain, the Company established Reboot Technology
Services Limited, which primarily engages in the export of used ICT equipment,
jointly with Macquarie Asset Finance Japan Limited, the Japanese arm of a leading
Australian financial institution. Reboot Technology Services launched operations
last November. Although it started in difficult circumstances in view of the busi-
ness downturn and the appreciation of the yen, it is making steady progress as
the linchpin of the Asset Solutions domain.
In the Finance Solutions business, we began to develop asset-based lending
and other finance operations unique to the Company. We formed a business and
capital alliance with RISA Partners, Inc., a Tokyo Stock Exchange listed company
specializing in corporate turnaround and investment operations, to help acceler-
ate the finance business.
We will continue to pursue the above initiatives in the fiscal year ending March
31, 2010, so that we will be able to report specific results.
Message from the New President
Report on Shareholder Returns
Overview of the Fiscal Year Ended March 31, 2009
Hidetaka Itahashi, former director & executive officer, became president on April 1, 2009. Under his new leadership, the Company will aim to achieve sustainable growth in its operations.
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You became president of the Company after working for Sumitomo Bank and Mazda Auto Leasing. What are your impressions of NEC Capital Solutions?
A: My first impression was that NEC Capital Solutions is a
leasing company in the NEC Group that promotes sales for
the Group and that it has strength in vendor leasing, and
has been developed based on the traditions of the NEC
Group. Indeed, leasing sales account for 92% of its total
revenues. However, the Company has been diversifying its
businesses in recent years. Since listing in 2005, the
Company has expanded its portfolio to improve sharehold-
er value. We can say that NEC Capital Solutions is a new
company pursuing progressive initiatives for growth that
reflect changes in the business environment, including a
new lease accounting standard and amendments to the
tax system. The direction of the Company is made clear in
the Third Medium-Term Business Plan that we developed in
March 2008.
I have worked for a bank and leasing companies and
have had extensive experience both in Japan and abroad,
including experience in the development and planning of
new products, the launching of new companies, adminis-
tration, and management. I look forward to calling on this
expertise and knowledge in managing NEC Capital
Solutions.
Interview with the President
Q1
Aiming to develop a company with growth potential,primarily through the initiatives in the Medium-Term Business Plan that are designed to enable a period of rapid growth
Hidetaka Itahashi, President
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A: With the sharp business downturn from September
2008, the operating environment has changed markedly
from the time when the Third Medium-Term Business Plan
was developed. We may therefore review the timing for
achieving the plan and the numerical targets, but the goals
of the plan—reforming the business structure and improv-
ing profitability—will remain unchanged.
Specifically, we will step up cooperation with RISA
Partners, Inc., based on the alliance we formed in February
2009, in the Finance Solutions domain. We will use RISA
Partners’ network of regional banks and expertise in
investing in companies and credits, combining these with
our own strong customer base and expertise in finance, to
create growth for both companies. To develop specific ini-
tiatives from the business alliance, we have set up the
Cooperation Promotion Committee. I hope we will be able
to report results at a relatively early stage.
In the Asset Solutions domain, we will pursue our busi-
ness with Reboot Technology Services, established last year,
as the core component, taking into account the service
focus of the NEC Group.
In the Vendor Solutions domain, we will improve effi-
ciency and will apply the expertise that has been cultivated
in Finance Solutions and Asset Solutions.
A: The Third Medium-Term Business Plan has a clear con-
cept. We will assess the Company’s identity and strengths,
and based on this assessment, we will redefine its business
domains and will provide customers with solutions incor-
porating specialized functions in these redefined domains.
I have inherited this approach. My role is to steer the
Company toward the goals set out in the plan. As it grows,
the Company will be able to make an even greater contri-
bution to the overall NEC Group in terms of both revenue
and operations.
One year after the development of the plan, and follow-
ing the change in corporate name on November 30, 2008,
the awareness of the Company by officers and employees
has changed, along with the way the Company is evaluat-
ed. We have taken steps toward our goals over the past
year through M&A and human resources management. In
years to go, we will break down the roadmap to achieving
our goals and will develop specific plans. In doing so, I
believe that each officer and employee will be able to be
more clearly aware of the steps toward the goals, and this
in turn will lead to total rather than partial optimization.
To ensure the goals are achieved, we need to consider
further M&A and alliances with other companies as the
quickest way to plug any functional gaps.
A: I expect that our business will continue to face difficult
circumstances in the fiscal year ending March 31, 2010, as
it did in the fiscal year ended March 31, 2009. Despite
these conditions, however, we will strive to build a compa-
ny with growth potential, seeking rapid progress so that
we can meet the expectations of our shareholders.
Aiming to develop a company with growth potential,primarily through the initiatives in the Medium-Term Business Plan that are designed to enable a period of rapid growth
What is your management policy?Q2
Finally, could you share your goals with our shareholders?Q4
What is your policy for the fiscal year ending March 31, 2010, in the course of the Third Medium-Term Business Plan?
Q3
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Business at a Glance For the year ended March 31, 2009
Revenues of our other business include fees for structured
finance, sales of off-lease equipment in our leasing business,
and the collection of maintenance fees and accounts
receivable management on behalf of clients to meet their
needs for operational efficiency and outsourcing.
Our loan business consists of installment sales and business
loans.
* Installment sales
Our installment sales business involves purchasing equipment
on behalf of customers who require funds for capital expen-
ditures and equipment acquisition, and then selling the
equipment to them on installment plans. This business com-
plements our Leasing Business.
* Business loans
We extend business loans principally to NEC Group compa-
nies and their business partners for the purpose of providing
programs to liquidate receivables. We also provide customers
with loans through structured finance for capital investment.
Our leasing business is a core operation of the Company. It
consists of leasing and small ticket leasing.
* Leasing
We lease equipment to customers who require funds for
capital expenditures under a long-term lease contract.
We lease a broad range of equipment. Since promoting
NEC sales is central to our mission as a financing company,
ICT products account for a high percentage of our leases.
NEC capital Solutions offers leases that combine ICT
equipment and related services, including maintenance
lease and vendor-collaborating programs. To diversify the
lineup of our business, we are also emphasizing non-ICT
equipment leases.
* Small ticket leasing
Small ticket leasing is a business that provides distributors,
who conclude a sales promotion agreement with NEC
Capital Solutions, with programs to provide finance of up
to five million yen per user under a lease agreement.
Segment sales declined 3.6%, to ¥16.5
billion, reflecting the sale of a large amount
of equipment whose lease term expired and
the setup of structured finance in the previous
fiscal year. Gross profit fell 29.7%, to ¥2.6
billion, attributable to the posting of a loss
from the write-down of securities.
Loan business contracts executed rose 0.5%,
to ¥311.3 billion. While contracts executed
for installment sales declined 20.3%, partly in
reaction to large items in the previous fiscal
year, business loans rose 1.7%.
As a result of the steady expansion of the
business portfolio, including corporate financ-
ing, segment sales increased 22.2%, to ¥3.4
billion, and gross profit climbed 24.8%, to
¥2.6 billion.
Leasing business contracts executed declined
9.4% year on year, to ¥208.0 billion. This
result reflected a 19.3% contraction in the
private sector, strongly influenced by the
change in the lease accounting standard and
the business downturn, which offset a 4.7%
rise in operations for the public sector attrib-
utable to large contracts.
Segment sales fell 1.3% year on year, to
¥241.1 billion, because of a decline in con-
tracts executed. However, gross profit jumped
15.8%, to ¥15.1 billion, thanks to a rise in re-
leasing and the effect of the change in the
lease accounting standard.
Other Business
Loan Business
Leasing Business
Business in brief
Business in brief
Business in briefConsolidated Revenue Composition
Consolidated Revenue Composition
Consolidated Revenue Composition Operating review
Operating review
Operating review
92%
1%
7%
92%
1%
7%
92%
1%
7%
7
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Progress of the Third Medium-Term Business Plan
The Company announced the Third Medium-Term Business Plan (for the year ended March 31, 2009 through the year ending March 31, 2011) in March 2008. The plan is designed to transform the Company through structural reforms into a unique enterprise embodying the NEC brand more appropriately, proposing solutions to customer needs for business resources (such as their capital requirements).To this end, the plan first reviews the Company’s identity and strengths and redefines its business domains.
Redefinition of the business domains
Priority business fields
The Finance Solutions domain employs asset finance methods and develops structured finance related to large projects in the
NEC Group’s supply chain from a non-bank standpoint.
The Asset Solutions domain delivers an array of asset solutions that leverage our manufacturer-affiliated advantage, centering on the
core ICT asset remarketing and services associated with ICT equip-ment operation.
The Vendor Solutions domain pursues maximum efficiency and promotes conversion of existing business models in the sales finance business in
collaboration with vendors centering on the NEC Group’s sales finance.
Finance Solutions Domain
Asset Solutions Domain
Vendor Solutions Domain
Management Strategy Three-year target values:
Business Portfolio Strategy
Strategy for Strengthening Management Functions
Initiatives to Bolster Governance and CSR
We will develop operations in three business domains, add-
ing Finance Solutions and Asset Solutions to the existing
Vendor Solutions.
We will strengthen management functions, making them
the basis for effectively pursuing our business portfolio
strategy.
We will bolster corporate governance and corporate social
responsibility (CSR), as essential components of corporate
activities.
Consolidated ROE
Consolidated ROA
Ordinary income ratio in key business areas
The year ended
March 20086.5% 0.8% 38%
The year ending
March 2011
12% or
higher
1.6% or
higher
50% or
higher
8
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Business Portfolio Strategy
Initiatives to Bolster Governance and CSR
Strategy for Strengthening Management Functions
In the Finance Solutions domain, we became fully involved in the finance business, including ABL. In
promoting ABL, we went through a process of trial and error in the initial phase. Thanks to this pro-
cess, however, we were able to accumulate expertise and experience in every step, from financing
through collection. We believe that was a key step to expanding the business.
To accelerate growth in the Finance Solutions domain, we formed a capital and business alliance
with RISA Partners, Inc.
In the Asset Solutions domain, we established Reboot Technology Services Limited, which has
launched operations with a focus on the export of used ICT equipment. With the commencement of
operations at Reboot Technology Services, we have been able to refine the way we set the residual
values of ICT equipment at the end of the lease term. We are considering taking the next step in the
fiscal year ending March 2010 by offering an outsourcing service combining rental and ICT equip-
ment-related services.
To bolster governance, we are dealing with operational risks that are not covered by the Japanese
version of the SOX Act, in addition to compliance with the act. We are identifying operational risks,
preparing a risk map, and discussing our response to the risks at the Compliance & RM (Risk
Management) Committee. In the Waku-waku Children’s Pond Project (a voluntary project supported
by the Company, where biotopes are built in elementary schools and associated education is provid-
ed there primarily by employees of the Company), we built biotopes in five schools in Tokyo and
Kitakyushu in the fiscal year under review in close cooperation with local governments. We integrat-
ed the Environmental Management Division into the Corporate Social Responsibility Promotion
Division on April 2, 2009 to unify and bolster CSR activities.
As part of Company-wide business process reengineering, we have launched a project for a full-
scale rebuilding of the mission-critical system. The new system will move away from the conven-
tional program structure centered on leasing and will deal with a wide range of operations,
including those in new domains—Finance Solutions and Asset Solutions—that are set out in the
Third Medium-Term Business Plan. We intend to improve operational efficiency, including opera-
bility, and aim to bolster business administration functions. The project progressed steadily in the
fiscal year under review. We are now moving on from the requirements definition phase to the
next phase. We will continue the development, considering also compliance with International
Financial Reporting Standards (IFRS). To bolster human resources, we established the Human
Resource Division, tasked with developing a more sophisticated and specialized workforce, on
April 2, 2009.
The following is a report on the progress of each strategy in the fiscal year under review:
9
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Reboot Technology Services Limited, which sells used ICT equipment and provides related services, was
established jointly with Macquarie Asset Finance Japan Limited, an affiliate of the Macquarie Group, a
major Australian financial institution, on April 28, 2008. Reboot Technology Services commenced
operations last November, after completing preparations including staff training and system
development. It has begun exporting used ICT equipment to India and Singapore.
Reboot Technology Services combines the expertise and network of customers of Macquarie, which
has already developed similar operations overseas, and the Company’s strong flow of ICT equipment
expired lease periods.
Since ICT equipment tends to become obsolete quickly and there is no established market for used
ICT equipment in Japan, equipment returned after the expiry of the lease term has often been discarded.
However, the joint venture has enabled us to refine the way in which we set residual values for ICT
equipment after the expiry of the lease term. We can also deal with environmental issues and the legal
matters more appropriately by handling used equipment within the Group.
We regard the joint venture as the lynchpin of the development of operations in the Asset Solutions
domain. We will examine our strategies in this field, looking at expanding purchases of used ICT
equipment and outsourcing all ICT equipment-related services, including rental. Since Reboot
Technology Services has only recently been established, it did not contribute to results for the fiscal year
under review. We are, however, committed to building its operations so that it contributes to the
Company’s earnings in the near future.
Establishment of Reboot Technology Services
Progress of the Third Medium-Term Business Plan
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Finance Solutions Domain
Assets Solutions Domain
Vendor Solutions Domain
Business domains of NEC Capital Solutions Business domains of RISA Partners
Segments
Domains
Principal Investment
Business
Corporateinvestment
Loan assetinvestment
Real estateinvestment
Solutions fund
Regional corporaterevitalization funds
Real estateco-investment
Corporateadvisory
Loan assetadvisory
Real estateadvisory
Fund Business
Corporate
Loan asset
Real estate
Investment BankingBusiness
Business domains of RISA in which the Company can collaborateBolstering financial
functions
Through cross-selling in which the companies make their respective functions available to each other’s networks, they will expand business opportunities and will bolster their operating bases.
NEC Capital Solutions
Function Debt (lending) functions Equity (capital contribution) functions
The supply chain of NEC involving government offices,
major companies, and the IT industry
A network of partner financial institutions nationwide
Network
RISA Partners
The Company formed a business and capital alliance with RISA Partners, Inc. (hereinafter “RISA Partners”) in
February 2009. The purpose of the alliance is to accelerate and strengthen the development of the Finance
Solutions domain, which is positioned as a key area of focus in the Third Medium-Term Business Plan. RISA
Partners and the Company will jointly develop a broad array of businesses.
The two companies will combine their complementary networks and functions and strive to build a new,
competitive business model in the market of finance solutions for companies.
Purpose of Business and Capital Alliance with RISA Partners
Business domains
Complementary relationship based on functions and networks
11
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In the capital alliance, the Company underwrote the entire capi-
tal increase through a private placement by RISA Partners (total
of 4 billion yen) in the form of preferred shares with rights to
convert them into shares of common stock. The Company com-
pleted the payment on March 23, 2009. If the Company exer-
cises the conversion rights, it will acquire about 26% of the vot-
ing rights of RISA Partners, and RISA Partners will become an
equity method affiliate of the Company. Both companies will
consider the timing for converting the preferred shares into
shares of common stock, while assessing the progress of coop-
eration between them.
The alliance, we believe, enables the two companies—which
have quite different corporate cultures—to grow further. That’s
because RISA Partners, which has entrepreneurial qualities and
strengths in corporate turnaround and investment, and the
Company, which has been built in the tradition of the NEC
Group and has an established supply chain, inspire each other
and possess complementary strengths. To preserve the strengths
of RISA Partners, we are not looking to increase the equity stake
held by the Company.
The two companies set up a joint Cooperation Promotion
Committee of officers and employees on March 31, 2009. The
committee has begun discussing specific issues. We are not
considering cooperation in real estate, since the two companies’
businesses in that sector are unlikely to yield synergies. The
Company believes that RISA Partners’ expertise and ability to
structure investment in companies and loan assets which are its
principal strengths, will be helpful in bolstering the Company’s
financing function.
We have sought to appropriately control risks associated with
the investment. We carried out extensive due diligence prior to
making the investment. In addition, the preferred shares have
put options allowing us to sell the preferred shares to RISA
Partners at the acquisition price irrespective of changes in the
market value of RISA Partners’ stock.
What type of company is RISA Partners?
RISA Partners is an entrepreneurial company
established in 1998. It was listed on Tokyo
Stock Exchange Mothers in 2004 and on the
First Section of the Tokyo Stock Exchange
in 2005. RISA Partners has developed a
unique business model consisting of three
business segments—Principal Investment
Business, Fund Business, and Investment
Banking Business—and three business
domains—corporate, loan asset, and real
estate. RISA Partners is building a business
model as a Japanese-style investment bank.
In that sense, we think RISA Partners is an
ideal partner for the Company, which does
not seek to be a comprehensive finance
company but rather aspires to turn itself into
a boutique focusing on specialized functions.
We also view the two companies as partners
that can help each other achieve long-term
growth.
Progress of the Third Medium-Term Business Plan
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Corporate Social Responsibility
The greatest burden placed on the environment by the leas-
ing industry is the disposal of waste associated with off-lease
equipment. NEC Capital Solutions minimizes this waste
through re-leasing or disposal for value. Waste equipment
unsuitable for disposal for value is discarded in accordance
with the 3R (reduce, reuse, recycle) system to achieve the
zero landfill target.
As financial markets around the world are confronting a
crisis of a severity not seen in decades, Green New Deal poli-
cies, in which environment and energy policies are pillars of
economic stimulus measures, have emerged as a global
trend.
Initiatives to build a low-carbon and recycling-oriented sys-
tem are accelerating in Japan. NEC Capital Solutions is focus-
ing on activities such as eco-finance (financing for operations
associated with the environment and energy) and the effec-
tive use of off-lease equipment (re-leasing and the reuse of
personal computers) with customers and society to build a
low-carbon, recycling-oriented social system.
We have adopted a unique environmental accounting system
that focuses on “Eco Finance,” one of our businesses, while
complying with the guidelines set out by the Ministry of the
Environment. Among our activities, we check the economic
benefits of our businesses to the environment and corporate
profit to clarify the costs and benefits of environmental pro-
tection.
Donating off-lease PCs to elementary, junior high and
high schools
NEC Capital Solutions has been donating a portion of the
off-lease personal computers returned from customers to the
Used PC Donation Program established by the ICT Education
Consortium to encourage the reuse of PCs in schools. NEC
Capital Solutions believes that by effectively reusing its off-
lease equipment under the program, it can help reduce the
burden on the environment and build a recycling society.
Support for the Waku-waku Children’s Pond Project
In cooperation with Asaza Fund, a non-profit organization,
and local governments (Sumida-ku, Tokyo and Kitakyushu,
Fukuoka), NEC Capital Solutions is supporting the Waku-
waku Children’s Pond Project, where volunteers—many of
whom are employees of the Company—build biotopes and
provide a series of programs, including the maintenance and
management of the biotopes for the children of interested
elementary schools. Through first-hand experience of
observing frogs, insects and other creatures in the biotope,
the children will develop insight into the mechanisms of nat-
ural eco-systems from small “recycling societies.” The pro-
gram serves to enhance the environmental awareness of the
To encourage environmental management, we employ an
environmental management system based on the PDCA
(plan-do-check-act) cycle centering on ISO14001. As part of
our environmental risk management, we also check off-lease
equipment in accordance with the Waste Management Law,
and investigate and check soil contamination at office build-
ings, asbestos, and other potential issues.
Environmental management initiatives
Environmental accounting
Environmental management
Environmental initiatives
Environmental and Community Commitments
NEC Capital Solutions is developing specific environmental
initiatives in offices and has defined long-term goals that it
aims to achieve by fiscal 2050 based on fiscal 1999 stan-
dards. Our environmental items cover CO2 emissions, energy
and resource conservation, industrial and general waste dis-
charge volumes, green purchase rate, and other issues.
Our environmental management activities employ a unique
method for assessing not only environmental aspects, but
also profitability, sociality, feasibility and continuous improve-
ment, enabling us to assess our business activities. To achieve
the targets set out in our environmental management policy,
each section in NEC Capital Solutions sets annual environ-
mental management goals and the Environmental
Management Committee, which is held four times a year, fol-
lows up the PDCA cycle. This enables us to reduce the bur-
den we place on the environment and helps customers and
the community to do the same.
13
010_7014401372108.indd 13 2009/08/14 9:39:22
July 2008 Received a mecc (Minato Eco-conscious Consortium) prize in the environmental division
Dec. 2008 Received a special award in the environmental rating system of the Development Bank of Japan (DBJ)
Dec. 2008Ranked second in the Financial Category of the 12th Environmental Management Survey published by the
Nihon Keizai Shimbun
Dec. 2008Rated in the environmental rating system of the Promotion of Environmentally Conscious Management
program of DBJ
External assessment of NEC Capital Solutions in fiscal 2008
younger generation.
A total of 20 employees of the Company participated in
the project as volunteers in fiscal 2008 and built biotopes for
four schools in Tokyo and one school in Kitakyushu.
Social contribution-oriented shareholder special
benefit plan
NEC Capital Solutions operates a social contribution-oriented
shareholder special benefit plan that donates an amount,
equivalent to the special benefit, to the Green Fund man-
aged by the National Afforestation Promotion Organization
when a shareholder declines to receive a shareholder special
benefit as a taken of our thanks to our shareholders.
Participation in the NEC Make-a-Difference Drive
The NEC Group is working on the local community contribu-
tion-oriented “NEC Make-a-Difference Drive,” where
employees take part in bolstering the value of NEC.
Employees of NEC Capital Solutions also take part in the
Drive by donating blood, tidying up neighborhoods through
litter collection, and providing support for education and
medical treatment for children in developing countries.
To make clear the responsibility for managing the Company
and executing business actions, and to make swift decisions,
we have an executive officer system. Executive officers have
executive responsibility for their duties, while the Board of
Directors supervises and monitors the action of executive offi-
cers. NEC Capital Solutions has separated the supervisory
function of directors and the executive function of its officers
and has clearly defined the command structure, administra-
tive authority, and responsibilities of executive officers and
department heads, and the functions and positions of the
Board of Directors, Management Conference, Business
Execution Conference, and committees for the appropriate
Corporate governance system
Corporate Governance
14
010_7014401372108.indd 14 2009/08/14 9:39:22d010_sp_7014401372108.indd 13-14 2009/08/18 20:22:43
Corporate Social Responsibility
and efficient performance of their duties.
The Auditing Division undertakes internal audits of all
operations from the viewpoint of appropriateness, effective-
ness, and compliance. Corporate Auditors attend meetings
of the Board of Directors and other important internal meet-
ings, and audit the actions of directors, executive officers,
and other employees through direct hearings about their
actions.
The Board of Corporate Auditors, the Auditing Division,
and accounting auditors cooperate to enhance the transpar-
ence and soundness of management of the Company as well
as to audit the actions taken by the Company.
To facilitate its CSR activities, the Company established the
CSR Promotion Committee and the CSR Promotion Division.
The former is headed by the President and consists primarily
of Board members who discuss CSR activities from the per-
spective of the overall Company. The latter examines specific
CSR initiatives.
We have set up the Information Security Committee and pre-
pared basic policies on information security to maintain and
improve information security throughout the Company. In
addition, we properly store and manage documents related
to important meetings and business execution pursuant to
our internal rules.
We hold ISO27001 certification, the international standard
for information security management systems, to ensure and
maintain the confidentiality of our information assets.
Our Code of Conduct stipulates that employees shall have no
relations with anti-social forces that threaten the order and
security of civil society, and that all employees shall be reso-
lute in their stand against such forces.
Under the leadership of the President, we are developing an
internal control system based on the Basic Policy on Internal
Control System under the Companies Act. The internal con-
trol system is constantly reviewed and strengthened so that
we can build and develop an efficient and legitimate compli-
ance management control system.
The Company has also established the Compliance & RM
System for CSR promotion
Information management system
Basic concept for excluding anti-social forces
Internal control system
Corporate Governance
Election/Dismissal/Supervision
Corporate AuditorsBoard of Corporate Auditors
Election/Dismissal Election/Dismissal Election/Dismissal
General Shareholders’ Meeting
Audit
Executive Officers
Management CommitteeAccounting Auditor
Auditing Division
Sales / Staff Division
President
DirectorsBoard of Directors
Internal Audit
Cooperation
Cooperation
Accounting
Cooperation
Audit
Committee chaired by the President to bolster internal audit-
ing, develop and revise internal regulations and systems, and
provide various types of compliance training. The Company is
also practicing comprehensive compliance, developing infor-
mation security, and concentrating on the effective perfor-
mance of its duties. To ensure the reliability of financial
reporting (as set out in the so-called J-SOX Act) under the
Financial Instruments and Exchange Act, the Company is
refining its financial reporting system to ensure that its finan-
cial reporting is reliable and appropriate.
We have also established an internal whistle-blowing sys-
tem that reports violations by employees and directors of
laws and regulations, the Articles of Incorporation, and other
rules of the Company. The system sustains and strengthens
self-correcting processes.
15
010_7014401372108.indd 15 2009/08/14 9:39:22
Introduction of Officers: Directors and Corporate Auditorsas of June 23, 2009
From left: Hidetaka Itahashi, Shigeho Tanaka
President Hidetaka Itahashi
Members of the Board Shigeho Tanaka
Shigehiko YamamotoDirector, Executive Partners, Inc.
Manabu KinoshitaAssociate Senior Vice President, NEC Corporation
Hirofumi DomyoChief Manager, Corporate Finance Division, NEC Corporation
Corporate Auditors Hiromi Urita
Toshio Matsushita
Naotaka MinamiChief Manager, Corporate Auditing Bureau, NEC Corporation
Shunji YoshinagaGeneral Manager, Controller Department, IT Services Planning Division, NEC Corporation
16
010_7014401372108.indd 16 2009/08/14 9:39:23d010_sp_7014401372108.indd 15-16 2009/08/18 20:22:43
Contents
Financia l Sect ion
18 5-Year Summary
19 Operating and Financial Review
21 Consolidated Balance Sheets
23 Consolidated Statements of Operations
24 Consolidated Statements of Changes in Net Assets
25 Consolidated Statements of Cash Flows
26 Notes to Consolidated Financial Statements
36 Report of Independent Auditors
17
010_7014401372108.indd 17 2009/08/14 9:39:23
Consolidated Financial Data
Millions of YenThousands of U.S. Dollars
2009 2008 2007 2006 2005 2009
For the year:
Revenues ¥ 260,995 ¥ 264,116 – – – $ 2,636,313
(Loss) Income before income taxes (6,172) 6,043 – – – (62,345)
Net (loss) income (3,806) 3,946 – – – (38,445)
At year-end:
Total assets ¥ 754,126 ¥ 780,334 – – – $ 7,617,433
Total net assets 56,388 62,012 – – – 569,576
(Yen) (U.S. Dollars)
Per share data:
Basic net (loss) income ¥ (176.75) ¥ 183.25 – – – $ (1.79)
Cash dividends 44.00 44.00 – – – 0.44
Key indicators:
Price earnings ratio – 7.14% – – – –
Number of employees 500 465 – – – –
1. The U.S. dollar amounts represent translation of Japanese yen, for convenience only, at the rate of ¥99=U.S.$1.00 in effect on March 31, 2009.2. The Company has prepared consolidated financial statements from the fiscal year ended March 31, 2008.
18
5-Year Summary
011_7014401372108.indd 18 2009/08/07 20:39:55d010_sp_7014401372108.indd 17-18 2009/08/18 20:22:44
600
0
200
300
400
500
100
2007 2008 2009
Billion yen
■ Leasing business■ Other business
■ Loan business
217.7 229.6
309.7
541.7
469.2
248.5
3.0
2.4
311.3
521.4
208.0
2.2
300
0
100
150
200
250
50
2007 2008 2009
Billion yen
■ Information and communication equipment■ Office equipment ■ Others
172.5169.1
36.9
229.6217.7
14.0
31.2
166.1
17.324.5
208.0
23.6
700
600
Billion yen
0
200
300
400
500
100
2007 2008 2009
■ Leasing business ■ Loan business
567.5
682.8
115.3
570.1
709.3
139.2
515.4
662.7
147.3
1. Business ResultsUncertainty surrounding the Japanese economy increased in the fiscal year under review. Falling stock prices and the appreciation of the yen were among the contributing factors reflecting the intensifying economic instability caused by the global financial crisis. In the leasing industry, capital outlays for lease equipment have continued to decline on a year-on-year basis in recent years. Moreover, more and more companies, especially large companies, are opting to avoid leasing in the wake of changes in accounting and taxation systems. In the circumstances, the Company changed its corporate name from NEC Leasing, Ltd. to NEC Capital Solutions Limited to make a new start on its 30th anniversary, November 30, 2008. The Company is determined to remake itself as a capital solutions company that operates in areas beyond leasing and financing. In its Third Medium-Term Business Plan, the Company plans to develop competitive operations in the Asset Solutions and Finance Solutions domains, in addition to its core leasing business in the Vendor Solutions domain. In the Asset Solutions domain, the Company established and began operating Reboot Technology Services Limited, an equity method affiliate and a joint venture engaging in the export of used personal computers, with Macquarie Asset Finance Japan Limited in April 2008. In the Finance Solutions domain, the Company concluded a business and capital alliance agreement with RISA Partners, Inc. in February 2009. The Company and RISA Partners, Inc. have been considering specific initiatives in a Cooperation Promotion Committee, which we jointly established. With the Company focused on capital solutions backed by the power of the NEC Group, the Company will provide solutions for issues ranging from the introduction of personal computers to management-level challenges. On a consolidated basis, net sales declined 1.2% year on year, to ¥260,995 million ($2,636,313 thousand), in the fiscal year under review. Because of a valuation loss from derivatives transactions in addition to increases in funding costs and bad debt charges, operating income fell 39.6%, to ¥3,615 million ($36,517 thousand). A net loss of ¥3,806 million ($38,445 thousand) was recorded, reflecting a loss on valuation of
Contracts executedby business
Leasing business contractsexecuted by equipment
Operating assetsby business
investments in securities in addition to a fall in ordinary income and other factors. Although the results declined in the face of valuation losses associated with unexpectedly severe fluctuations in financial markets, the Company developed the structures of its core operations described above, and believes that it has made steady progress in executing its strategies for the future. A description of outcomes by business segment is provided below: Costs associated with a loss on the disposition of leased assets caused by bankruptcy of lessees and other factors are reclassified in selling, general, and administrative expenses from the fiscal year ended March 2009. To make comparisons easier, ¥1,783 million ($18,010 thousand) was transferred from costs in the other business for the previous fiscal year to selling, general, and administrative expenses in the leasing business. This is reflected in the following comment.
(i) Leasing BusinessContracts executed in the leasing business declined 9.4% year on year, to ¥208.0 billion ($2,100,965 thousand). Although net sales declined 1.3% year on year, operating income rose 22.9%, to ¥5,128 million ($51,799 thousand), with an increase in related costs, especially funding costs and selling, general, and administrative expenses, such as bad debts, more than offset by a 14.5% rise in re-leasing and a gross profit rise associated with the change in the lease accounting standard.
(ii) Loan BusinessNet sales in the loan business rose 22.2% year on year, to ¥3,387 million ($34,207 thousand), reflecting the steady expansion of the business portfolio in the finance business, including corporate finance. However, an operating loss of ¥768 million ($7,763 thousand) was recorded, attributable to a rise in bad debt costs associated with a significant increase in the number of large-scale bankruptcies from the previous fiscal year.
(iii) Other BusinessNet sales in the other business fell 3.6% year on year, to ¥16,534 million ($167,018 thousand), since revenues from
Note: Figures for the fiscal year ended March 2007 are non-consolidated financial results.
19
Operating and Financial Review
011_7014401372108.indd 19 2009/08/07 20:39:56
large-scale of asset sales and structured finance were recorded in the previous year. Operating income dropped 66.6% year on year, to ¥662 million ($6,690 thousand), primarily reflecting a loss on the valuation from derivatives transactions of ¥2,998 million ($30,286 thousand).
2. Forecasts for Fiscal Year Ending March 31, 2010
The Company expects that the outlook for the Japanese economy in the fiscal year ending March 2010 will continue to be challenging, given worsening stock market conditions and the cooling of consumption in association with the global financial market turbulence that occurred in the fiscal year. In the leasing industry, the Company is concerned that the effects of customers electing not to lease because of the application of a new lease accounting standard from this year and changes to the taxation system will continue. As a consequence, the outlook is inevitably for an even more severe operating environment. Responding to these circumstances, the Company is developing initiatives for the following goals in the three core businesses set out in the Third Medium-Term Business Plan: (1) In the Finance Solutions domain, the Company will establish new, competitive business models in corporate finance and corporate turnarounds, where RISA Partners has strengths, calling on RISA Partners’ network of financial institutions, (2) In the Asset Solutions domain, the Company will take advantage of the expertise in asset management and the worldwide sales network of Reboot Technology Services, and (3) In the Vendor Solutions domain, the Company will speedily build a new system for promoting cooperation with NEC Corporation. NEC Capital Solutions aims to become a company that will provide value-added solutions for customers by expanding its business portfolio steadily and making the most of the value of the NEC brand, the Company’s core competence. As a result of these initiatives, the Company forecasts net sales of ¥243.0 billion and net income of ¥3.6 billion on a consolidated basis for the fiscal year ending March 31, 2010.
3. Assets, Liabilities, and Net Assets Total assets and net assets as of March 31, 2009, were ¥754,126 million ($7,617,433 thousand) and ¥56,388 million ($569,576 thousand), respectively. The capital adequacy ratio was 7.5%. Operating assets in the loan business rose 5.8% year on year, to ¥147,290 million ($1,487,780 thousand), with loan assets, including loans to companies, increasing 5.6%, to ¥113,838 million ($1,149,881 thousand), and installment sales climbing 6.3%, to ¥33,452 million ($337,899 thousand), owing to the expansion of the finance business. Operating assets in the leasing business declined 9.6%, to ¥515,376 million ($5,205,827 thousand), with an increase in operating lease assets more than offset by a fall in finance lease assets in association with the liquidation of receivables. Total operating assets fell 6.6% to ¥662,667 million ($6,693,606 thousand).
4. Cash Flow StatusCash and cash equivalents at the end of the fiscal year under review increased by ¥11,801 million ($119,205 thousand) year on year, to ¥25,003 million ($252,558 thousand). The following is a description of cash flows and significant factors:
(Cash Flows from Operating Activities)Net cash provided by operating activities was ¥51,393 million ($519,123 thousand). The major factors were a decrease in lease receivables and investment in leases of ¥60,725 million ($613,385 thousand) and an increase in loans receivables of ¥6,030 million ($60,913 thousand).
(Cash Flows from Investing Activities)Net cash used in investing activities was ¥22,313 million ($225,379 thousand), primarily reflecting purchases of investment securities of ¥23,354 million ($235,901 thousand).
(Cash Flows from Financing Activities)Net cash used in financing activities was ¥13,985 million ($141,265 thousand). The principal factors were an increase in short-term borrowings of ¥18,711 million ($188,999 thousand).
300
0
100
150
200
250
50
2007 2008 2009
Billion yen
■ Leasing business■ Other business
■ Loan business
247.4 244.2
17.1264.1
265.7
16.41.9 2.8
241.1
16.5261.0
3.4
700
0
200
300
400
500
600
100
2007 2008 2009
Billion yen
■ Securitization■ Long-term loans ■ Short-term loans
■ Bonds ■ CP
37.0
206.0
629.1
384.2
0.6
1.3 15.010.0
34.0
230.0
664.6
400.1
0.5
168.0
647.5
410.8
43.81.4
1.2
0
0.4
0.6
0.8
1.0
0.2
2007 2008 2009
%
Cost of funding ratio (%)= Cost of funding ÷ average balance ofinterest-bearing debts
1.01
0.77
1.21
Revenue by business Interest-bearing debts Cost of funding ratio
Note: Figures for the fiscal year ended March 2007 are non-consolidated financial results.
20
011_7014401372108.indd 20 2009/08/07 20:39:56d010_sp_7014401372108.indd 19-20 2009/08/18 20:22:44
AssetsMillions of Yen
Thousands of U.S. Dollars (Note 1)
2009 2008 2009
■ Current assets:
Cash and cash equivalents ¥ 25,003 ¥ 13,202 $ 252,558
Leases receivable and investment in leases (Notes 6, 10) 507,787 – 5,129,161
Accounts receivable:
Installment sales 33,452 31,459 337,899
Loans (Notes 6, 13) 113,838 107,808 1,149,881
Leases 23,704 23,707 239,438
Other 4 3 38
Allowance for doubtful accounts (6,764) (1,624) (68,322)
Securities (Note 4) 6,263 – 63,261
Deferred tax assets (Note 7) 1,586 1,357 16,019
Other 3,857 5,247 38,956
Total current assets 708,730 181,159 7,158,889
■ Investments and other assets:
Investment securities (Note 4) 23,501 19,875 237,381
Deferred tax assets (Note 7) 7,043 2,688 71,140
Other 6,629 8,664 66,958
Allowance for doubtful accounts (3,920) (1,874) (39,591)
Total investments and other assets 33,253 29,353 335,888
■ Property and equipment, net :
Leased assets 8,491 381,097 85,766
Allowance for loss on disposal of leased property and equipment – (2,842) –
Assets held for own use 472 444 4,769
Property and equipment, net 8,963 378,699 90,535
■ Intangible assets:
Computer programs leased to customers 14 187,236 145
Other 3,166 3,887 31,976
Total intangible assets 3,180 191,123 32,121
Total assets ¥ 754,126 ¥ 780,334 $ 7,617,433
NEC Capital Solutions LimitedMarch 31, 2009 and 2008
21
Consolidated Balance Sheets
011_7014401372108.indd 21 2009/08/07 20:39:56
Liabilities and net assetsMillions of Yen
Thousands of U.S. Dollars (Note 1)
2009 2008 2009
■ Current liabilities:
Short-term borrowings (Note 5) ¥ 211,792 ¥ 230,483 $ 2,139,313
Current portion of long-term debt (Notes 5, 6) 98,514 137,138 995,093
Notes and accounts payable – trade (Note 13) 21,733 28,841 219,528
Accrued income taxes 32 1,569 326
Deposits received 4,999 5,239 50,491
Other 16,104 14,459 162,668
Total current liabilities 353,174 417,729 3,567,419
■ Long-term liabilities:
Long-term debt (Notes 5, 6) 337,237 296,956 3,406,431
Accrued retirement benefits (Note 9) 1,100 789 11,106
Other 6,227 2,848 62,901
Total long-term liabilities 344,564 300,593 3,480,438
Total liabilities 697,738 718,322 7,047,857
■ Net assets :
Shareholders’ equity
Common stock 3,777 3,777 38,150
Authorized: 86,000,000 shares
Issued: 21,533,400 shares
Capital surplus (Note 12) 4,648 4,648 46,950
Retained earnings (Note 12) 48,007 52,760 484,920
Treasury stock, at cost 301 shares in 2009 and 150 shares in 2008 (1) (0) (5)
Total shareholders’ equity 56,431 61,185 570,015
Valuation and translation adjustments
Net unrealized gain on marketable securities 145 621 1,460
Deferred (losses) gains on hedging derivatives (188) 206 (1,899)
Foreign currency translation adjustments (0) – (0)
Total valuation and translation adjustments (43) 827 (439)
Total net assets 56,388 62,012 569,576
Total liabilities and net assets ¥ 754,126 ¥ 780,334 $ 7,617,433
The accompanying notes are an integral part of these statements.
22
011_7014401372108.indd 22 2009/08/07 20:39:56d010_sp_7014401372108.indd 21-22 2009/08/18 20:22:45
Millions of Yen
Thousands of U.S. Dollars (Note 1)
2009 2008 2009
■ Revenues:
Leases ¥ 241,074 ¥ 244,195 $ 2,435,088
Loans and installment sales 3,387 2,771 34,207
Other 16,534 17,150 167,018
Total revenues 260,995 264,116 2,636,313
■ Costs:
Leases 219,019 225,456 2,212,314
Interest expense 7,918 6,532 79,982
Other 13,785 15,472 139,243
Total costs 240,722 247,460 2,431,539
Gross profit 20,273 16,656 204,774
Selling, general, and administrative expenses 16,658 10,673 168,257
Operating income 3,615 5,983 36,517
■ Other income (expenses):
Interest and dividend income 36 31 360
Interest expense (104) (87) (1,053)
Loss on valuation of investments in securities (9,533) (65) (96,293)
Other, net (186) 181 (1,876)
(Loss) Income before income taxes (6,172) 6,043 (62,345)
■ Income taxes (Note 7):
Current 1,628 3,186 16,442
Deferred (3,994) (1,089) (40,342)
(2,366) 2,097 (23,900)
Net (loss) income ¥ (3,806) ¥ 3,946 $ (38,445)
Yen U.S. Dollars (Note 1)
2009 2008 2009
■ Amounts per share:
Basic net (loss) income ¥ (176.75) ¥ 183.25 $ (1.79)
Cash dividends applicable to the year 44.00 44.00 0.44
The accompanying notes are an integral part of these statements.
NEC Capital Solutions LimitedYears ended March 31, 2009 and 2008
23
Consolidated Statements of Operations
011_7014401372108.indd 23 2009/08/07 20:39:56
Millions of Yen
Shareholders’ Equity Valuation and translation adjustments
Total net assets
Number of shares issued (Thousands of
shares)
Common stock Capital surplus Retained earnings
Treasury stock
Net unrealized gain on
marketable securities
Deferred (losses) gains on hedging
derivatives
Foreign currency
translation adjustments
Balance at March 31, 2007 21,533 ¥ 3,777 ¥ 4,648 ¥ 49,762 ¥ (0) ¥ 1,115 ¥ 15 ¥ — ¥ 59,317Net income 3,946 3,946Cash dividends (948) (948)Other, net (494) 191 (303)
Balance at March 31, 2008 21,533 3,777 4,648 52,760 (0) 621 206 — 62,012Net loss (3,806) (3,806)Cash dividends (947) (947)Other, net (1) (476) (394) (0) (871)
Balance at March 31, 2009 21,533 ¥ 3,777 ¥ 4,648 ¥ 48,007 ¥ (1) ¥ 145 ¥ (188) ¥ (0) ¥ 56,388
Thousands of U.S. Dollars (Note 1)
Shareholders’ Equity Valuation and translation adjustments
Total net assetsCommon stock Capital surplus Retained
earningsTreasury
stock
Net unrealized gain on
marketable securities
Deferred (losses) gains on hedging
derivatives
Foreign currency
translation adjustments
Balance at March 31, 2008 $ 38,150 $ 46,950 $ 532,935 $ (4) $ 6,271 $ 2,083 $ — $ 626,385Net loss (38,445) (38,445)Cash dividends (9,570) (9,570)Other, net (1) (4,811) (3,982) (0) (8,794)
Balance at March 31, 2009 $ 38,150 $ 46,950 $ 484,920 $ (5) $ 1,460 $ (1,899) $ (0) $ 569,576
The accompanying notes are an integral part of these statements.
NEC Capital Solutions LimitedYears ended March 31, 2009 and 2008
24
Consolidated Statements of Changes in Net Assets
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Millions of YenThousands of
U.S. Dollars (Note 1)
2009 2008 2009
■ Cash flows from operating activities:
(Loss) Income before income taxes ¥ (6,172) ¥ 6,043 $ (62,345)Adjustments to reconcile income before income taxes
to net cash provided by (used in) operating activities:Depreciation and amortization 2,735 215,768 27,626Increase in allowance for losses on disposal of leased property — 1,125 —Increase in allowance for doubtful accounts 3,933 356 39,731(Gain) Loss on sales/disposal of leased assets (617) 4,335 (6,236)Gain on sales of investment in securities — (196) —Loss on valuation of investments in securities 9,533 65 96,293Proceeds from sales of leased assets 744 7,137 7,520Interest and dividend income (35) (29) (354)Interest expense 8,022 6,620 81,035Exchange gain (702) — (7,089)Loss on valuation of derivatives 2,998 — 30,286Equity in losses of affiliated companies 85 — 861Increase in installment sales receivable (1,993) (5,690) (20,133)Decrease in lease receivables and investment in leases 60,725 — 613,385Increase in loans receivable (6,030) (18,322) (60,913)Purchases of leased assets (6,965) (228,257) (70,351)Other, net (4,629) 8,520 (46,766)
Subtotal 61,632 (2,525) 622,550Interest and dividend income received 649 457 6,559Interest paid (7,846) (7,055) (79,254)Income taxes paid (3,042) (2,790) (30,732)
Net cash provided by (used in) operating activities 51,393 (11,913) 519,123
■ Cash flows from investing activities:
Purchases of assets held for own use (858) (949) (8,669)Purchases of investment securities (23,354) (16,661) (235,901)Proceeds from redemption of investment securities 2,105 — 21,260Other (206) 386 (2,069)Net cash used in investing activities (22,313) (17,224) (225,379)
■ Cash flows from financing activities:
(Decrease) Increase in short-term borrowings, net (18,711) 23,891 (188,999)Increase in long-term debt/bonds 195,390 74,115 1,973,631Repayment of long-term debt/bonds (189,716) (72,514) (1,916,326)Issuance of bond — 10,000 —Purchases of treasury stock (1) — (1)Cash dividends paid (947) (948) (9,570)Net cash (used in) provided by financing activities (13,985) 34,544 (141,265)
Foreign currency translation adjustments on cash and cash equivalents (3,294) — (33,274)Net increase in cash and cash equivalents 11,801 5,407 119,205Cash and cash equivalents at beginning of year 13,202 7,795 133,353Cash and cash equivalents at end of year ¥ 25,003 ¥ 13,202 $ 252,558
The accompanying notes are an integral part of these statements.
NEC Capital Solutions LimitedYears ended March 31, 2009 and 2008
25
Consolidated Statements of Cash Flows
011_7014401372108.indd 25 2009/08/07 20:39:56
1. Basis of PresentationNEC Capital Solutions Limited (the ”Company”) maintains its
books of account in accordance with the provisions set forth in
the Corporation Law of Japan (the ”Law”), and the Financial
Instruments and Exchange Law of Japan (formerly, the
Securities and Exchange Law of Japan) and in conformity with
accounting principles generally accepted in Japan (”Japanese
GAAP”), which are different in certain respects as to the
application and disclosure requirements of International
Financial Reporting Standards. The accompanying consolidated
financial statements have been compiled from the consolidated
financial statements that were filed with the Director of the
Kanto Local Finance Bureau as required by the Financial
Instruments and Exchange Law of Japan. In preparing the
accompanying consolidated financial statements, certain
reclassifications and rearrangements have been made to the
consolidated financial statements issued domestically in order to
present them in a format that is more familiar to readers
outside Japan.
The translation of Japanese yen amounts into U.S. dollar
amounts is included solely for convenience, as a matter of
arithmetic computation only, at ¥99 = U.S.$1.00, the
approximate rate of exchange in effect on March 31, 2009. This
translation should not be construed as a representation that
Japanese yen amounts have been, could have been, or could in
the future be, converted into U.S. dollar amounts at this or any
other rate.
2. Summary of Significant Accounting Policies
a) ConsolidationThe consolidated financial statements include the accounts of
the following consolidated subsidiaries for the year ended
March 31, 2009:
Consolidated subsidiaries ... NL Asset Service, Ltd.
TEAM Cignus Limited
Investment in affiliated company, Reboot Technology
Services Limited, is accounted for by the equity method.
The consolidated subsidiaries close their books at March 31,
2009, the same financial year as the Company.
All significant intercompany balances and transactions have
been eliminated in consolidation.
b) Revenue recognitionLeases:
Revenues from finance lease contracts with customers and
corresponding costs are recognized at the time the payments
under the leases are due as stipulated in the lease contracts
without regard to the actual collection of such payments.
Installment sales:
Operating revenues from installment sales and the related costs
are recognized at the time of the contracts, and income on
such contracts is deferred and allocated over the contract
periods as the related installment receivables become due.
c) Allocation of interest expenseInterest expense on borrowings is allocated to operating
expenses and other expenses based on the balances of the
respective assets relating to operating and other activities.
Interest expense classified as an operating expense is recorded
net of the corresponding interest income from deposits.
d) Allowance for doubtful accountsAllowance for doubtful accounts is recorded to provide for
provable losses on bad debts based on historical experience for
those receivables other than specific doubtful accounts, and
based on an estimate of the uncollectible amounts after a
review of the collectibility for the specific doubtful receivables.
e) Cash and cash equivalentsCash and cash equivalents consist of callable cash deposits at
banks and short-term investments with original maturities of
three months or less that are readily convertible into cash with
only an insignificant risk of any change in their value.
f) Investment in securitiesInvestment in securities are classified into two categories and
accounted for as follows:
1. Held-to-maturity securities
Held-to-maturity securities are stated at amortized cost.
2. Available-for-sale securities
Marketable available-for-sale securities are reported at fair
value, with any unrealized gain or loss, net of the applicable
taxes, reported as a separate component of net assets. The
cost of securities sold is determined by the moving-average
method. Non-marketable available-for-sale securities are
stated at cost determined by the moving-average method.
g) Property and equipment Property and equipment are stated at cost less accumulated
depreciation. Depreciation of assets held for own use is
computed by the declining-balance method over the respective
useful lives of the assets that range from five to six years.
Property and equipment leased to customers are depreciated
over the term of the lease using the straight-line method.
h) Computer softwareCosts related to software purchased for internal use are
amortized by the straight-line method over an estimated useful
life of five years.
NEC Capital Solutions LimitedYear ended March 31, 2009
26
Notes to Consolidated Financial Statements
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i) Accounting for derivativesThe Company utilizes derivative financial instruments principally
in order to mitigate the risk of fluctuation in interest rates on
borrowings. The Company has established entity level controls
that include policies and procedures for risk assessment in
accordance with the Company’s rules for interest-rate swap
transactions. Under these rules, the Company conducts
transactions within a certain range and places limits on the
applicable assets and liabilities based on the actual demand. In
addition, the Company also assesses the effectiveness of the
hedging and verifies the approval, reporting and monitoring of
all transactions involving derivatives. The Company does not
hold or issue derivative financial instruments for trading
purposes. Derivatives are carried at fair value with any changes
in unrealized gain or loss credited or charged to operations,
except for those that meet the criteria for deferral hedge
accounting under which unrealized gain or loss is deferred as a
separate component of net assets.
j) Retirement benefit plan Employees’ retirement benefits:
The Company has a defined-benefit corporate pension plan,
which is essentially a defined-benefit plan with guaranteed
benefits and a defined-contribution pension plan, as well as a
severance indemnity plan covering virtually all employees other
than directors and corporate auditors. Under the terms of these
plans, eligible employees upon retirement are entitled to lump-
sum severance payments or annuity pension payments based
on their level of compensation upon termination and their years
of service with the Company. To provide a portion of the lump-
sum benefits or annuity payments, the Company participates in
the NEC corporate pension fund established for NEC group
companies in accordance with the Welfare Pension Insurance
Law.
Accrued retirement benefits have been provided for
employees’ retirement benefits, based on an estimate of the
projected benefit obligation and the pension plan assets at the
end of the year.
k) Income taxesIncome taxes are calculated based on taxable income and
charged to income on an accrual basis. Deferred income tax
assets and liabilities are recognized for the temporary
differences between the financial reporting and the tax bases of
the assets and liabilities that will result in taxable or deductible
amounts in the future. Calculations of deferred tax assets and
liabilities are based on the enacted tax laws.
l) Per share dataBasic net income per share is calculated by dividing the net
income available to shareholders of common stock by the
weighted-average number of shares of common stock
outstanding during the year.
Diluted net income per share has not been disclosed because
no potentially dilutive shares were outstanding.
Cash dividends per share presented in the accompanying
statements of income, including the dividends to be paid
subsequent to the end of the year, are stated as applicable to
the respective years.
3. Change in Accounting PoliciesThe Company had previously accounted for finance lease
transactions without the transfer of ownership in a manner
similar to the accounting of ordinary rental transactions.
Starting from the current fiscal year, however, the Company
adopted the Accounting Standard for Lease Transactions
(Accounting Standards Board of Japan Standard No. 13 as
amended on March 30, 2007) and the Guidance on Accounting
Standard for Lease Transactions (Accounting Standards Board of
Japan Guidance No. 16 as amended on March 30, 2007) and
accounts for finance lease transactions without the transfer of
ownership in a manner similar to the accounting of ordinary
sale or purchase transactions.
With respect to finance lease transactions without a transfer
of ownership that commenced on or before March 31, 2008,
the Company, as lessor, reclassified the appropriate book value
of the leased assets (net of accumulated depreciation) to the
investment in leases in the accompanying balance sheet. The
Company allocates the equivalent of unearned interest income
on the investment in leases over the remaining lease period
from the beginning of the current fiscal year based on a
straight-line method.
On the other hand, as lessee, the Company continues to
apply the accounting treatment that is similar to the accounting
for ordinary rental transactions.
As a result, compared with the results that would have been
recorded had the previous accounting method continued to be
used, ¥504,394 million ($5,094,895 thousand) was recorded in
current assets instead of fixed assets for the current fiscal year.
Also, operating income increased by ¥1,666 million ($16,828
thousand), and the loss before income taxes decreased by the
same amount.
The effect of the application of the accounting standard on
segment information is described in the Segment Information
section.
Allowance for loss on disposal of leased property and
equipment was transferred to allowance for doubtful accounts
as a result of the application of Accounting Standard for Lease
Transaction.
27
Notes to Consolidated Financial Statements
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4. Investment in SecuritiesInvestment in securities at March 31, 2009 and 2008 consisted
of the following:
Millions of Yen Thousands of U.S. Dollars
2009 2008 2009Current:
Available-for-sale securities ¥ 2,527 — $ 25,528
Held-to-maturity securities 793 — 8,008
Non-marketable available-for-sale securities 2,943 — 29,725
Total ¥ 6,263 — $ 63,261
Non-current:
Available-for-sale securities ¥ 4,036 ¥ 1,760 $ 40,772
Held-to-maturity securities 2,006 15,000 20,251
Non-marketable available-for-sale securities 17,459 3,115 176,358
Total ¥ 23,501 ¥ 19,875 $ 237,381
Change of purpose of holding of bonds
During the current fiscal year, the Company reclassified
certain bonds held to maturity of ¥1,590 million ($16,065
thousand) as available-for-sale securities, since the credit risk of
the bonds could no longer be considered low.
Impairment of securities
During the current fiscal year, the Company recognized an
impairment loss of ¥9,377 million ($94,724 thousand) on
securities (held-to-maturity securities). If the market value of a
security at the end of the fiscal year declines 50% or more from
the amortized cost, an impairment loss will be recognized. If the
market value of a security at the end of the fiscal year falls 30%
to 50% from the amortized cost, the Company will recognize
an impairment loss that it considers necessary, considering the
recoverability of the market value.
The acquisition cost and aggregate fair value of available-for-
sale securities with readily determinable market value at March
31, 2009, and 2008 were as follows:
March 31, 2009
Acquisition cost
Unrealized gain
Unrealized loss Fair value
Millions of Yen
Available-for-sale securities:
Current
Debt securities ¥ 2,506 ¥ 23 ¥ 2 ¥ 2,527
Non-current
Equity securities 712 303 16 999
Debt securities 3,027 10 — 3,037
Total ¥ 6,245 ¥ 336 ¥ 18 ¥ 6,563
March 31, 2008
Acquisition cost
Unrealized gain
Unrealized loss Fair value
Millions of Yen
Available-for-sale securities:
Equity securities ¥ 712 ¥ 1,049 ¥ 1 ¥ 1,760
March 31, 2009
Acquisition cost
Unrealized gain
Unrealized loss Fair value
Thousands of U.S. Dollars
Available-for-sale securities:
Current
Debt securities $ 25,317 $ 231 $ 20 $ 25,528
Non-current
Equity securities 7,198 3,060 160 10,098
Debt securities 30,571 103 — 30,674
Total $ 63,086 $ 3,394 $ 180 $ 66,300
Held-to-maturity securities with readily determinable market
value at March 31, 2009 and 2008 were as follows:
March 31, 2009
Carrying amount
Unrealized gain
Unrealized loss Fair value
Millions of Yen
Held-to-maturity securities:
Current
Debt securities ¥ 793 — ¥ 12 ¥ 781
Non-current
Debt securities 2,006 — 561 1,445
Total ¥ 2,799 — ¥ 573 ¥ 2,226
March 31, 2008
Carrying amount
Unrealized gain
Unrealized loss Fair value
Millions of Yen
Held-to-maturity securities:
Debt securities ¥ 15,000 — ¥ 3,006 ¥ 11,994
March 31, 2009
Carrying amount
Unrealized gain
Unrealized loss Fair value
Thousands of U.S. Dollars
Held-to-maturity securities:
Current
Debt securities $ 8,008 — $ 125 $ 7,883
Non-current
Debt securities 20,251 — 5,665 14,586
Total $ 28,259 — $ 5,790 $ 22,469
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Non-marketable securities whose fair value was not readily
determinable at March 31, 2009 and 2008 were as follows:
Carrying valueMillions of Yen Thousands of
U.S. dollars
2009 2008 2009Non-marketable securities:
Equity securities ¥ 6,520 ¥ 2,675 $ 65,860
Available-for-sale securities 2,943 — 29,725
Other 10,939 440 110,498
Total ¥ 20,402 ¥ 3,115 $ 206,083
5. Short-Term Borrowings and Long-Term Debt
Short-term borrowings at March 31, 2009 and 2008 were as
follows:
Millions of Yen Thousands of U.S. Dollars
Weighted-average interest
rate
2009 2008 2009 2009Short-term loans from banks ¥ 43,792 ¥ 483 $ 442,343 1.30%
Commercial paper 168,000 230,000 1,696,970 0.70%
Total ¥ 211,792 ¥ 230,483 ¥ 2,139,313 —
Long-term debt at March 31, 2009 and 2008 consisted of
the following:
Millions of Yen Thousands of U.S. Dollars
Weighted-average interest
rate
2009 2008 2009 2009Long-term loans, principally from banks ¥ 410,751 ¥ 400,094 $ 4,148,999 1.13%
Payables under securitized lease receivables 15,000 — 151,515 1.34%
Unsecured bonds 10,000 34,000 101,010 1.90%
Total 435,751 434,094 4,401,524 —
Less current portion 98,514 137,138 995,093 —
¥ 337,237 ¥ 296,956 $ 3,406,431 —
The aggregate annual maturities of long-term debt
subsequent to March 31, 2009 are summarized as follows:
Year ending March 31, Millions of Yen Thousands of U.S. Dollars
2010 ¥ 98,514 $ 995,093
2011 88,686 895,821
2012 108,585 1,096,812
2013 60,255 608,637
2014 55,543 561,041
2015 and thereafter 24,168 244,120
¥ 435,751 $ 4,401,524
No assets were pledged as collateral for secured debt at
March 31, 2009.
At March 31, 2009, the Company had overdraft facilities or
line-of-credit agreements with 32 financial institutions that
were set up in order to procure working capital effectively. The
unused committed lines of credit under such agreements at
March 31, 2009, totaled ¥182,300 million ($1,841,414
thousand).
6. Commitment and Others(1) Loan commitment for lender’s sideAs of March 31, 2009, the Company had the following
balances:
Millions of Yen Thousands of U.S. Dollars
Loan commitment agreements as of March 31, 2009 ¥ 7,302 $ 73,764
The loans provided under these credit facilities as of March 31, 2009 4,218 42,614
Aggregated balance of loan commitments available for customers of the company ¥ 3,084 $ 31,150
(2) Securitization of Lease ReceivablesUnder the Business Asset Securitization Law, the Company sold
its lease receivables as a means for funding for its operations
and recorded relevant liabilities as included in current portion of
long-term debt and long-term debt on the accompanying
balance sheet. The year end balance of the relevant transferred
lease receivables is as follow:
Millions of Yen Thousands of U.S. Dollars
Transferred lease receivable for funding ¥ 19,836 $ 200,364
(3) Sale-and-Leaseback TransactionThe Company sold its leased assets and has leased back those
assets from a buyer-lessor. The Company accounts for the sale-
and-leaseback transaction as a financing transaction. The year-
end balances of sold-and-leasedback assets and relevant unpaid
liabilities are as follows:
Millions of Yen Thousands of U.S. Dollars
Current assets
Lease receivable and investment in leases ¥ 23,665 $ 239,043
Long-term liabilities
Long-term debt 831 8,394
7. Income TaxesThe Company is subject to Japanese national and local income
taxes that, in the aggregate, resulted in a statutory tax rate of
approximately 40.5% for the years ended March 31, 2009 and
2008.
29
Notes to Consolidated Financial Statements
011_7014401372108.indd 29 2009/08/07 20:39:57
The tax effects of significant temporary differences that
resulted in deferred tax assets and liabilities at March 31, 2009
and 2008 were as follows:
Millions of Yen Thousands of U.S. Dollars
2009 2008 2009Deferred tax assets:
Property and equipment ¥ 906 ¥ 1,320 $ 9,151
Allowance for doubtful accounts 1,370 766 13,836
Accrued retirement benefits for employees 445 320 4,497
Accrued bonuses 230 215 2,327
Accrued business tax — 126 —
Loss on valuation of investments in securities 3,797 — 38,354
Other 1,979 1,858 19,987
Total deferred tax assets ¥ 8,727 ¥ 4,605 88,152
Deferred tax liabilities:
Net unrealized gain on other marketable securities (98) (420) (993)
Other — (140) —
Total deferred tax liabilities (98) (560) (993)
Net deferred tax assets ¥ 8,629 ¥ 4,045 $ 87,159
Reconciliation between the statutory income tax rate and
the effective income tax rate as a percentage of income before
income tax and minority interests is as follows:
2009 2008Statutory income tax rate — 40.5%
Expenses not deductible for tax purposes — 0.4
Per capita inhabitants tax — 0.2
Valuation of allowance — (6.1)
Other — (0.3)
Actual effective income tax rate — 34.7
The above information for 2009 is not required to be
disclosed because the difference between the statutory tax rate
and the Company’s effective tax rate for financial statement
purposes is less than five percent of the statutory tax rate.
8. Derivatives(1) Objectives of derivative instrumentsThe Company enters into derivative instruments including
interest rate swaps associated with its financing activities, and
credit default swaps and currency-linked derivatives that are
embedded in structured bonds associated with its investing
activities.
The Company’s operating assets are comprised principally of
those with fixed income such as investment in leased. However,
it primarily utilizes variable-rate debt obligations to raise its
funds. The variable-rate debt obligations expose the Company
to variability in cash flows as well as profit margin due to
change in interest rates. To manage the variability in cash flows
caused by interest rate changes, the Company enters into
interest rate swaps. The Company does not hold and issue
derivative instruments for trading purposes. The Company
accounts for the interest rate swaps by using the hedge
accounting, which is more fully discussed in Note 2. i).
Hedging instruments and hedged items are as follows:
Hedging instruments: interest rate swaps
Hedged items: variable-rate debt obligations
The Company evaluates risk of default as well as other
characteristics of derivative instruments embedded within its
structured bonds.
(2) Risks associated with derivative instrumentsThe Company’s derivative instruments generally involve
exposure to both market and credit risks. The Company
primarily uses pay-fixed, receive-variable interest rate swaps to
effectively change variable-rate debt obligations to fixed-rate
debt obligations. Through these swaps, market risks resulting
from mismatching at cash due under borrowings and cash
collected from lessees and other debtors are offset against the
effect of hedging derivative instruments. Due to the hedging
objectives, gains or losses from derivative instruments caused by
market risks will not significantly affect the Company’s
operating results. The Company does not expect an event of
non-performance by counterparties to derivative instruments
since the counterparties are internationally recognized financial
institutions with limited risk of default.
Credit default swaps and currency linked derivatives
embedded in structured bonds are exposed to market risks and
credit risks. The market risks include risks of decline in the
market value of the structured bonds as well as reduction in
future interest income to be received due to changes in foreign
exchange and credit default swaps markets. Credit risks include
risks that principal amounts of debt securities are not repaid
upon occurrence of credit events under the credit default swap
agreement. However, the Company monitors the credit default
swap market to assess and evaluate the likelihood of credit
events.
(3) Risk management policyThe Company enters into derivative instruments in accordance
with its internal policies. The policies include the objectives for
derivative instruments, risk management policies and
procedures (including authorization, responsibilities and
reporting). In addition, the Company maintains segregation of
duties by assigning different employees in the Finance Business
30
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Division with the authority to enter into derivative instruments
separate from employees responsible for bookkeeping.
Structured debt at fair value at March 31, 2009 and 2008
was as follows:
March 31, 2009
Amount of contract
Gain Loss Fair value
Millions of Yen
Credit default swap and others ¥ 7,000 — ¥ 3,350 ¥ 3,650
March 31, 2008
Amount of contract
Gain Loss Fair value
Millions of Yen
Credit default swap and others ¥ 7,000 — ¥ 352 ¥ 6,648
March 31, 2009
Amount of contract
Gain Loss Fair value
Thousands of U.S. Dollars
Credit default swap and others $ 70,707 — $ 33,836 $ 36,871
1. The fair value is determined based on quoted prices provided
by dealers and other financial institutions.
2. Credit default swaps are derivatives embedded in structured
debt.
3. The structured debt is carried at fair value, and any
unrealized losses are included in net income.
9. Accrued Retirement BenefitsThe Company has a defined-benefit corporate pension plan,
which consists of a defined-benefit plan with guaranteed
benefits and a defined-contribution pension plan, as well as a
severance indemnity plan covering virtually all employees other
than directors and corporate auditors. Under the terms of these
plans, eligible employees are entitled to lump-sum payments or
annuity payments based on their level of compensation upon
termination and their years of service with the Company.
In April 2007, the Company transferred part of the defined-
benefit pension plans to defined-contribution pension plans. No
past service liability was incurred as a result of the transfer to
defined-contribution pension plans.
Accrued retirement benefits for employees at March 31,
2009 and 2008 consisted of the following:
Millions of Yen Thousands of U.S. Dollars
2009 2008 2009Reconciliation
Projected benefit obligation ¥ (2,607) ¥ (2,509) $ (26,327)
Fair value of pension plan assets 1,152 1,439 11,634
Unfunded retirement benefit obligation (1,455) (1,070) (14,693)
Unrecognized actuarial loss 355 281 3,587
Accrued retirement benefits ¥ (1,100) ¥ (789) $ (11,106)
The components of net periodic benefit costs for the years
ended March 31, 2009 and 2008 were as follows:
Millions of Yen Thousands of U.S. Dollars
2009 2008 2009Components of net periodic retirement benefit expense:
Service cost ¥ 138 ¥ 127 $ 1,397
Interest cost 63 62 634
Expected return on pension plan assets (36) (41) (363)
Amortization of actuarial loss 281 57 2,840
Amortization of prior service cost — — —
Other 32 27 316
Net periodic retirement benefit expense ¥ 478 ¥ 232 $ 4,824
The major assumptions used in the calculation of the
projected benefit obligation were as follows:
2009 2008Method of attributing projected benefits to years of service
P o i n t b a s i s a n d straight-line method
P o i n t b a s i s a n d straight-line method
Discount rate at end of year 2.5% 2.5%
Expected rate of return on pension plan assets 2.5% 2.5%
Amortization of prior service cost Charged to income for the year
Charged to income for the year
Amortization of actuarial gain (loss) Charged to income for the following year
Charged to income for the following year
31
Notes to Consolidated Financial Statements
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10. Lease TransactionsInformation relating to finance leases of the Company as lessor
for the year ended March 31, 2009 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars
2009 2009a) Components of investment in leases
Lease payments receivables ¥ 504,696 $ 5,097,942
Estimation of residual value 11,848 119,680
Un-earned interest income (24,826) (250,775)
Investment in leases ¥ 491,718 $ 4,966,847
b) Collecting schedule of lease payments receivables after the fiscal year end
Leases receivable
Due within 1 year ¥ 3,973 $ 40,128
Due after 1 year through 2 years 3,884 39,236
Due after 2 year through 3 years 3,688 37,254
Due after 3 year through 4 years 3,368 34,020
Due after 4 year through 5 years 1,571 15,870
Due after 5 years 377 3,809
Investment in leases
Due within 1 year ¥ 178,276 $ 1,800,772
Due after 1 year through 2 years 136,979 1,383,627
Due after 2 year through 3 years 94,592 955,473
Due after 3 year through 4 years 57,813 583,971
Due after 4 year through 5 years 25,268 255,234
Due after 5 year 11,768 118,865
c) Finance leases that do not transfer ownership to the lessees
Compared with the results that would have been recorded had the Company applied the lease accounting standard retroactively to the starting date of these lease transactions, the loss before income taxes for the current fiscal year increased by ¥12,370 million ($124,951 thousand).
Finance leases that do not transfer ownership to the lessees
were accounted for in the same manner as operating leases.
Information relating to finance leases of the Company as
lessor for the year ended March 31, 2008 is summarized as
follows:
Millions of Yen
2008Acquisition cost of the leased assets ¥ 1,226,397
Accumulated depreciation 660,849
Net carrying amount ¥ 565,548
Future lease payments ¥ 575,403
Future lease payments due within one year 198,480
Rental revenues ¥ 229,566
Depreciation expense 166,578
Rental revenues attributable to interest income 17,743
Information relating to finance leases of the Company as lessee
which do not transfer ownership to the lessee for the years
ended March 31, 2009 and 2008 is summarized as follows:
Millions of Yen Thousands of U.S. Dollars
2009 2008 2009Acquisition cost of the leased assets ¥ 214 ¥ 218 $ 2,159
Accumulated depreciation 205 178 2,066
Net carrying amount ¥ 9 ¥ 40 $ 93
Future lease payments ¥ 10 ¥ 44 $ 105
Future lease payments due within one year 9 33 93
Lease payments ¥ 34 ¥ 47 $ 344
Depreciation expense 30 42 306
Lease payments attributable to interest expense 1 3 14
With respect to the finance lease transactions without the
transfer of ownership that commenced before March 31, 2008,
the Company continues to account for those transactions in a
manner similar to the accounting of ordinary rental
transactions.
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11. Segment Informationa) Business segments
2009Leasing Loans Other Total Elimination and/or
corporate Consolidated
Millions of Yen
Revenues
Revenues from customers ¥ 241,074 ¥ 3,387 ¥ 16,534 ¥ 260,995 ¥ — ¥ 260,995
Intersegment revenues — — — — — —
Total 241,074 3,387 16,534 260,995 — 260,995
Operating expenses 235,946 4,155 15,872 255,973 1,407 257,380
Operating income ¥ 5,128 ¥ (768) ¥ 662 ¥ 5,022 ¥ (1,407) ¥ 3,615
Assets ¥ 533,692 ¥ 148,284 ¥ 15,032 ¥ 697,008 ¥ 57,118 ¥ 754,126
Depreciation 2,210 266 149 2,625 110 2,735
Capital expenditures 7,793 127 72 7,992 52 8,044
2008Leasing Loans Other Total Elimination and/or
corporate Consolidated
Millions of yen
Revenues
Revenues from customers ¥ 244,195 ¥ 2,771 ¥ 17,150 ¥ 264,116 ¥ — ¥ 264,116
Intersegment revenues — — 0 0 (0) —
Total 244,195 2,771 17,150 264,116 (0) 264,116
Operating expenses 238,239 2,109 16,951 257,299 834 258,133
Operating income ¥ 5,956 ¥ 662 ¥ 199 ¥ 6,817 ¥ (834) ¥ 5,983
Assets ¥ 593,766 ¥ 142,263 ¥ 21,210 ¥ 757,239 ¥ 23,095 ¥ 780,334
Depreciation 215,291 175 202 215,668 100 215,768
Capital expenditures 230,224 140 161 230,525 80 230,605
2009Leasing Loans Other Total Elimination and/or
corporate Consolidated
Thousands of dollars
Revenues
Revenues from customers $ 2,435,088 $ 34,207 $ 167,018 $ 2,636,313 $ — $ 2,636,313
Intersegment revenues — — — — — —
Total 2,435,088 34,207 167,018 2,636,313 — 2,636,313
Operating expenses 2,383,289 41,970 160,328 2,585,587 14,209 2,599,796
Operating income $ 51,799 $ (7,763) $ 6,690 $ 50,726 $ (14,209) $ 36,517
Assets $ 5,390,831 $ 1,497,822 $ 151,833 $ 7,040,486 $ 576,947 $ 7,617,433
Depreciation 22,319 2,691 1,508 26,518 1,108 27,626
Capital expenditures 78,719 1,287 722 80,728 530 81,258
•Segment categories are defined according to lines of business.
•Business segments are classified as follows:
a) Leasing—leasing of office equipment and industrial
machinery, etc.
b) Loans—loans, factoring and installment sales, etc.
c) Other—sales of used equipment of off-leased or terminated
leasing contract and collection of maintenance fees, etc.
• Operating expenses that cannot be allocated to the above
segments and are included in elimination and/or corporate are
¥1,407 million ($14,209 thousand) for fiscal 2009 and ¥834
33
Notes to Consolidated Financial Statements
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12. Legal Reserve and Retained Earnings, and Dividends
Under the Law and regulations, the entire amount paid for new
shares is required to be designated as common stock. However,
a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price of the
new shares as additional paid-in capital, which is included in
capital surplus in the accompanying consolidated balance
sheets.
The Law provides that earnings in an amount equal to at
least 10 percent of appropriations of retained earnings to be
paid as dividends should be appropriated as a capital surplus or
a legal reserve until the total of capital surplus and legal reserve
equals 25 percent of stated common stock. Legal reserve is
included in retained earnings in the accompanying consolidated
balance sheets. In addition to transfer from capital surplus to
stated common stock, either capital surplus or legal reserve may
be available for dividends by resolution of the general meeting
of shareholders.
Under the Law, all additional paid-in capital and all legal
reserve may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available for
dividends.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with the Law.
13. Related Party TransactionsThe year ended March 31, 2009:
The Company procured equipment for lease transactions from
NEC Corporation who has 37.3% ownership share in the
Company at a transaction amount of ¥67,826 million
($685,111 thousand) and the outstanding balance of ¥14,840
million ($149,902 thousand) at the year end has been included
in ”Notes and accounts payable—trade.” The Company entered
into factoring contracts with NEC Corporation at a transaction
amount of ¥17,542 million ($177,192 thousand) and the
outstanding balance of ¥3,849 million ($38,879 thousand) at
the year end has been included in ”Accounts receivable—
loans.” The Company also entered into factoring contracts with
NEC Saitama, Ltd. and NEC Wireless Networks, Ltd. at
aggregate transaction amounts of ¥14,616 million ($147,636
thousand) and ¥8,131 million ($82,136 thousand), respectively,
and the outstanding balances at the year end have been
included in ”Accounts receivable—loans” of ¥3,251 million
($32,836 thousand) and ¥1,468 million ($14,830 thousand),
respectively.
The Company procured equipment for lease transactions
from a group company, NEC Nexsolutions, Ltd. at a transaction
amount of ¥9,010 million ($91,009 thousand) and the
outstanding balance of ¥1,738 million ($17,551 thousand) at
the year end has been was included in ”Notes and accounts
payable—trade.”
million for fiscal 2008, and a large portion of these expenses
consists of selling, general and administrative expenses used
for administrative departments.
• Assets for the whole company in elimination and/or corporate
as of March 31, 2009 and 2008 are ¥57,118 million
($576,947 thousand) and ¥23,095 million, respectively, and a
large portion of these assets consists of surplus funds (cash
and cash equivalents) and long-term investments (investment
securities).
• Capital expenditures include payments for long-term prepaid
expenses.
•Change in accounting method
As discussed in Note 3, effective from the year ended March
31, 2009, the Company adopted the Accounting Standard for
Lease Transactions (Accounting Standards Board of Japan
Standard No. 13 as amended on March 30, 2007) and the
Guidance on Accounting Standard for Lease Transactions
(Accounting Standards Board of Japan Guidance No. 16 as
amended on March 30, 2007). Compared with the results that
would have been recorded had the previous accounting
method continued to be used, operating income from the
leasing segment increased by ¥1,666 million ($16,828
thousand).
b) Geographical segmentsThe information on geographical segments is not required to be
disclosed because the amounts of domestic revenues and total
assets are more than 90% of the amounts of revenues and
total assets of all segments for the year ended March 31, 2009.
There was no foreign subsidiary or branch requiring the
geographical segment disclosure for the year ended March 31,
2008.
c) Revenues from foreign customersThe information on revenues from foreign customers is not
required to be disclosed because the amounts of revenues from
foreign customers are less than 10% of consolidated revenues
for the year ended March 31, 2009. There was no revenue from
foreign customers for the year ended March 31, 2008.
34
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(Additional Information)
Effective from the current fiscal year, the Company adopted the
Accounting Standard for Related Party Disclosures (Accounting
Standards Board of Japan Standard No. 11 issued on October
17, 2006) and the Guidance on Accounting Standard for
Related Party Disclosures (Accounting Standards Board of Japan
Standard Guidance No. 13 issued on October 17, 2006).
However, there was no change in scope of disclosure as a
result of this adoption.
The year ended March 31, 2008:
The Company procured equipment for lease transactions from
NEC Corporation who has 37.7% ownership share in the
Company at a transaction amount of ¥64,040 million and the
outstanding balance of ¥17,035 million at the year end has
been included in ”Notes and accounts payable—trade.” The
Company entered into factoring contracts with NEC
Corporation at transaction amount of ¥17,483 million and the
outstanding balance of ¥3,639 million at the year end has been
included in ”Accounts receivable—loans.” The Company also
entered into factoring contracts with NEC Saitama, Ltd., NEC
Personal Products, Ltd. and NEC Wireless Networks, Ltd. at
aggregate net investments of ¥11,043 million, ¥9,685 million,
and ¥9,081 million, respectively, and the outstanding balances
at the year end have been included in ”Accounts receivable—
loans” of ¥3,750 million, ¥1,756 million and ¥2,006 million,
respectively.
The Company procured equipment for lease transactions
from a group company, NEC Nexsolutions, Ltd. at transaction
amount of ¥8,633 million and the outstanding balance of
¥1,498 million at the year end has been was included in ”Notes
and accounts payable—trade.”
35
Notes to Consolidated Financial Statements
011_7014401372108.indd 35 2009/08/07 20:39:58
36
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37
011_7014401372108.indd 37 2009/08/07 20:39:59
NEC Leasing, Ltd. was established in 1978 as a leasing company providing sales finance on behalf of NEC
Corporation. Since then, it has played a role in ushering in the information and communications technolo-
gies (ICT) age through financing, especially leases.
With a changing operating environment, including new accounting standards for lease transactions and
amendments to the tax system, NEC Leasing decided to transform its leasing-centered business structure to
create a path for continued growth. To provide solutions that fully respond to our customers’ capital needs,
we aim to become a boutique offering specialized solutions.
NEC Leasing changed its name to NEC Capital Solutions, which better reflects this goal, on November 30,
2008, the 30th anniversary of its founding. We take this opportunity to redouble our focus on achieving
continued growth.
On November 30, 2008, NEC Leasing, Ltd. changed its name to NEC Capital Solutions Limited.
Nov. 1978
Mar. 1996
Founded as NEC Leasing, Ltd., an NEC sales finance company
Performing assets (based on purchase prices) exceed 1 trillion yen
History
Contents
3 Financial Highlights
4 Message from the President
5 Interview with the President
7 Business at a Glance
8 Progress of the Third Medium-Term Business Plan
13 Corporate Social Responsibility
1
090_7014401372108.indd 1 2009/08/14 9:42:50
Corporate data (as of April 1, 2009)
Operation Started November 30, 1978
Paid-in Capital ¥3,776 million
Representative Hidetaka Itahashi, President
Employees 511
Main Business •�Leasing�of�information�and�communi-cation�equipment,�office�equipment,�industrial�equipment�and�various�other�equipment
•�Installment�sales�and�factoring,�busi-ness�loans,�collection�agency services,�and�others
Main Banks Sumitomo�Mitsui�Banking�Corporation
The�Bank�of�Tokyo-Mitsubishi�UFJ,�Ltd.
The�Sumitomo�Trust�and�Banking�Co.,�Ltd.
Mizuho�Corporate�Bank,�Ltd.
The�Norinchukin�Bank,�and�others
IR information
http://www.necap.co.jp/english/index.htmlThe Company offers ample IR information to its
shareholders�and�investors�through�the�Company’s�
website.
The�website�discloses�useful�information�such�as�its�
management�policies,�financial�results,�share�
information and other information for the shareholders
and�investors�to�better�understand�the�Company.
Network (as of April 1, 2009)Head Office
Branches
Hokkaido�Branch Hokuriku�Branch
Tohoku�Branch Kansai�Branch
Nishitokyo�Branch Kyoto�Branch
Kanto�Branch Kobe�Branch
Niigata�Branch Chugoku�Branch
Chiba�Branch Shikoku�Branch
Kanagawa�Branch Kyushu�Branch
Shizuoka�Branch Kumamoto�Branch
Chubu�Branch Minamikyushu�Branch
Offices
Aomori�Office
Yamagata�Office
Hamamatsu�Office
Nagano�Office
Fukui�Office
Oita�Office
Nagasaki�Office
Miyazaki�Office
Stock information (as�of�March�31,�2009)
Number of shares authorized 86,000,000 shares
Number of shares issued 21,533,400 shares
Number of shares of one unit 100 shares
Number of shareholders 7,947
Principal shareholders (as�of�March�31,�2009)
Shareholders Number of shares(Thousands)
Voting rights(%)
NEC Corporation 8,110 37.66
Sumitomo�Mitsui�Finance�and�Leasing�Co.,�Ltd. 5,390 25.03
Japan�Trustee�Services�Bank,�Ltd. 1,021 4.74
The�Master�Trust�Bank�of�Japan,�Ltd. 838 3.89
GOLDMAN.�SACHS�&�CO.�REG 612 2.84
NORTHERN TRUST COMPANY (AFVC) SUB�A/C�AMERICAN�CLIENTS 312 1.45
Trust�&�Custody�Services�Bank,�Ltd. 230 1.07
The�Sumitomo�Trust�and�Banking�Co.,�Ltd. 200 0.93
SUMITOMO�LIFE�INSURANCE�COMPANY 200 0.93
Mitsui�Sumitomo�Life�Insurance�Compa-ny,�Limited 200 0.93
Share distribution by type of shareholder (as�of�March�31,�2009)
Other corporations
62.86%
Securities companies
0.13%
14.09%
11.79%
Individuals / private andother investors
11.13%
Financial institutions
Non-resident investors
Stock price and trading volume (From April 2008 to June 2009)
Stock price (Yen)
2,000
1,500
1,000
500
2,000
0
500
1,000
1,500
4 5 6 7 8 9 10 11 12 1 2 3 4 5 60
Trading volume (Thousands of shares)
2008 2009
38
Corporate Information/Stock Information
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AN
NU
AL
RE
PO
RT
20
09
NEC Sumisei Bldg, 29-11, Shiba 5-chome, Minatoku, Tokyo 108-0014, JapanTel. +81 (0)3-5476-5625
www.necap.co.jp ANNUAL REPORT 2009 Year ended March 31, 2009
Cert no. SA-COC-1442
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