LAC Co., Ltd. (3857)

LAC Co., Ltd. (3857) Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared Research Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. An IT services company strong in information security and large system development

Contents Executive summary... 3 Key financial data... 4 Recent updates... 5 Highlights... 5 Trends and outlook... 6 Quarterly trends... 6 Full-year (FY03/16) outlook... 10 Strategy... 12 Business... 14 Business description... 14 Earnings overview by segment... 17 Profitability analysis... 26 Strengths and weaknesses... 30 Market and value chain... 31 Historical performance... 35 Balance sheet... 46 Cash flow statement... 48 News and topics... 50 Other information... 53 History... 53 Major shareholders... 54 Top management... 54 Employees... 54 Dividend payout... 55 Company profile... 56 http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 2/57

Executive summary IT services: strong in security solutions and large system development LAC Co., Ltd. is an IT services company focusing on security solutions and developing large systems. In October 2007, LAC was formed as a holding company following the merger of the former LAC (a security developer) and A&I System Co., Ltd. (a developer of big backbone systems for financial companies). LAC provides IT security services consulting, managed security monitoring, and system development. It also sells IT system products and maintenance services. The company has two business segments: Security Solutions Services and System Integration Services. Japan s IT service industry has at least 10 companies with annual sales topping JPY100bn. NTT Data Corporation (TSE1: 9613) is the largest, with sales of more than JPY1tn. LAC, with annual sales of about JPY30bn, ranks between 25th and 30th in Japan s IT industry. The former LAC began providing information security services in 1995. LAC s tech knowledge and brand recognition helped it become Japan s second-largest internet security services provider after Trend Micro Inc. (TSE1: 4704) (based on the consolidated sales of listed companies offering internet security services as a core business). Trends and outlook For FY03/16, LAC forecasts consolidated sales of JPY35.8bn (+8.9% YoY), operating profit of JPY2.3bn (-1.2% YoY), recurring profit of JPY2.3bn (-0.6% YoY), and net income of JPY1.3bn (+5.1% YoY). Japan s IT industry expects to benefit from the recovery in corporate earnings. The company expects an increase in demand for services that add security features to cloud, mobile, and big-data technologies. LAC forecasts increasing sales for both its Security Solutions Services and System Integration Services segments as a result. The company on May 12 released a medium-term management plan that covers a period between FY03/16 through FY03/18. The management plan, called TRY2021 Stage 1, calls for FY03/18 sales of at least JPY50bn and a return on equity of 15% or more during the three-year period. The company also wants to move its stock listing from JASDAQ to the First Section of the Tokyo Stock Exchange by FY03/18. Strengths and weaknesses LAC s strengths: stable customer base leading to steady sales; technological expertise gained from operating Japan s biggest security operation center (the Japan Security Operation Center, or JSOC); a long track record as a brand trusted by major clients. Weaknesses: limited scale amid increasingly complex industry; lack of personnel experienced in IT security; and low profits from product sales. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 3/57

Key financial data Income Statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 21,899 32,538 32,215 33,413 31,596 32,577 33,087 32,850 35,770 YoY - 48.6% -1.0% 3.7% -5.4% 3.1% 1.6% -0.7% 8.9% Gross Profit 6,159 6,857 6,543 7,034 7,032 6,938 6,920 7,305 YoY - 11.3% -4.6% 7.5% 0.0% -1.3% -0.3% 5.6% GPM 28.1% 21.1% 20.3% 21.1% 22.3% 21.3% 20.9% 22.2% Operating Profit 1,771 906 675 1,490 1,895 1,998 2,100 2,329 2,300 YoY - -48.9% -25.5% 120.8% 27.2% 5.4% 5.1% 10.9% -1.2% OPM 8.1% 2.8% 2.1% 4.5% 6.0% 6.1% 6.3% 7.1% 6.4% Recurring Profit 1,706 706 407 1,301 1,673 1,850 1,991 2,264 2,250 YoY - -58.6% -42.3% 219.3% 28.6% 10.6% 7.6% 13.7% -0.6% RPM 7.8% 2.2% 1.3% 3.9% 5.3% 5.7% 6.0% 6.9% 6.3% Net Income 897 240-413 851 661 913 1,007 1,256 1,320 YoY - -73.2% -271.9% -306.1% -22.4% 38.2% 10.4% 24.6% 5.1% Net Margin 4.1% 0.7% -1.3% 2.5% 2.1% 2.8% 3.0% 3.8% 3.7% Per Share Data Number of Shares ('000) 26,683 26,683 26,683 26,683 26,683 26,683 26,683 26,683 - EPS 33 9.12-18.57 25.73 22.20 35.04 39.70 49.48 52.02 Dividend Per Share 6 9.00 10.00 10.00 10.00 12.00 13.00 16.00 16.00 Book Value Per Share 216 210.46 182.71 203.50 214.74 243.10 275.15 307.73 Balance Sheet (JPYmn) Cash and Equivalents 2,723 2,463 2,376 2,985 3,003 3,560 3,713 4,803 Total Current Assets 7,387 11,534 11,087 10,564 10,825 12,269 10,556 12,573 Tangible Fixed Assets, net 924 1,095 950 1,242 1,169 1,027 882 1,291 Other Fixed Assets 1,606 3,937 5,098 3,547 2,900 1,888 1,658 1,301 Intangible Assets 1,546 5,612 4,915 4,790 4,505 4,067 3,263 2,460 Total Assets 11,463 22,177 22,050 20,143 19,400 19,251 16,360 17,625 Accounts Payable 1,099 2,642 3,274 1,931 2,053 2,055 1,501 1,579 Short-Term Debt 1,964 5,154 2,577 1,821 2,270 2,331 2,156 2,017 Total Current Liabilities 4,136 10,259 9,143 7,594 8,247 9,116 7,389 9,689 Long-Term Debt 1,502 6,293 6,079 4,782 4,304 3,773 1,817 - Total Fixed Liabilities 1,538 6,370 6,157 5,304 4,644 3,941 1,977 116 Total Liabilities 5,673 16,629 15,300 12,898 12,890 13,056 9,366 9,805 Net Assets 5,789 5,549 6,750 7,245 6,509 6,195 6,995 7,821 Interest-Bearing Debt 3,466 11,447 8,656 6,603 6,574 6,104 3,973 2,017 Cash Flow Statement (JPYmn) Operating Cash Flow 1,975 978 2,493 2,245 2,356 3,082 3,003 3,736 Investment Cash Flow -48-8,642-1,249 963-841 -437-272 -289 Financing Cash Flow -190 7,413-1,337-2,586-1,492-2,123-2,591-2,385 Financial Ratios ROA - 4.2% 1.8% 6.2% 8.5% 9.6% 11.2% 13.3% ROE - 4.3% -6.7% 12.2% 9.6% 14.4% 15.3% 17.0% Equity Ratio 50.2% 25.0% 30.6% 35.9% 33.5% 32.0% 42.7% 44.3% Figures may differ from company materials due to differences in rounding methods. LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 4/57

Recent updates Highlights On August 4, 2015, LAC Co., Ltd. announced Q1 FY03/16 results; see the results section for details. On June 30, 2015, we updated our report on the company after interviews with company management. On June 5, 2015, the company announced it won the Japan s Managed Security Service Provider of the Year Award awarded by US research firm Frost & Sullivan (link to press release). On May 18, 2015, the company announced the progress of the establishment of joint venture Japan Current Co., Ltd. The company announced the establishment of this joint venture with P.R.O. Co., Ltd. on April 23, 2015, but certain details were unconfirmed. The company has now finalized these details, including the date of establishment (May 25, 2015). Japan Current will be a consolidated subsidiary of LAC, but the company does not expect any material impact on earnings results for FY03/16 from this action. On May 12, 2015, the company announced earnings results for full-year FY03/15 and released a medium-term management plan through FY03/18. For corporate releases and developments more than three months old, see the News and topics section. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 5/57

Trends and outlook Quarterly trends Quarterly Performance FY03/15 FY03/16 FY03/16 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY 1H Est. Sales 7,321 7,838 8,096 9,595 7,932 48.5% 16,345 YoY 3.2% 3.5% -8.5% 0.3% 8.4% 7.8% Gross Profit 1,530 1,620 1,889 2,265 1,518 YoY 16.3% 14.0% -1.6% 0.1% -0.8% GPM 20.9% 20.7% 23.3% 23.6% 19.1% SG&A Expenses 1,171 1,285 1,166 1,354 1,359 YoY -1.2% 10.3% -5.3% 9.3% 16.1% SG&A-to-sales 16.0% 16.4% 14.4% 14.1% 17.1% Operating Profit 359 335 723 911 159 31.2% 510 YoY 175.8% 30.7% 5.1% -11.1% -55.8% -26.6% OPM 4.9% 4.3% 8.9% 9.5% 2.0% 3.1% Recurring Profit 340 323 719 883 90 19.2% 470 YoY 250.6% 41.0% 9.3% -12.4% -73.4% -29.1% RPM 4.6% 4.1% 8.9% 9.2% 1.1% 2.9% Net income 71 160 491 534-20 230 YoY - 94.0% 35.9% -5.1% -0.2% Net Margin 1.0% 2.0% 6.1% 5.6% 1.4% Cumulative Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 % of FY FY Est. Sales 7,321 15,158 23,255 32,850 7,932 22.2% 35,770 YoY 3.2% 3.4% -1.1% -0.7% 8.4% 8.9% Gross Profit 1,530 3,150 5,040 7,305 1,518 YoY 16.3% 15.1% 8.2% 5.6% -0.8% GPM 20.9% 20.8% 21.7% 22.2% 19.1% SG&A Expenses 1,171 2,456 3,622 4,976 1,359 YoY -1.2% 4.5% 1.1% 3.2% 16.1% SG&A-to-sales 16.0% 16.2% 15.6% 15.1% 17.1% Operating Profit 359 695 1,418 2,329 159 6.9% 2,300 YoY 175.8% 79.6% 31.9% 10.9% -55.8% -1.2% OPM 4.9% 4.6% 6.1% 7.1% 2.0% 6.4% Recurring Profit 340 663 1,381 2,264 90 4.0% 2,250 YoY 250.6% 103.4% 40.5% 13.7% -73.4% -0.6% RPM 4.6% 4.4% 5.9% 6.9% 1.1% 6.3% Net income 71 230 721 1,256-20 1,320 YoY - 178.1% 62.4% 24.6% 5.1% Net Margin 1.0% 1.5% 3.1% 3.8% 3.7% Source: Shared Reserch based on company data Figures may differ from company materials due to differences in rounding methods. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 6/57

Segment earnings Quarterly Performance by Segment FY03/14 FY03/15 FY03/16 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Sales Security Solutions Services 1,188 1,433 1,530 2,074 1,490 1,874 1,774 2,501 1,537 Security Consulting Services 289 412 515 688 336 488 432 668 337 Security Assessment Services 178 241 247 476 181 282 255 576 230 Security Monitoring Services 539 589 554 648 626 752 676 799 651 Security Product Sales 33 42 62 109 161 178 223 225 117 Security Maintenance Services 147 150 150 154 185 173 188 233 199 System Integration Services 5,899 6,145 7,323 7,494 5,829 5,964 6,324 7,093 6,395 Development Services 2,923 3,094 3,164 3,976 3,159 3,484 3,536 4,037 3,665 Hardware and Software Sales 948 1,060 2,119 1,021 803 635 798 982 893 IT Maintenance Services 1,895 1,834 1,907 2,307 1,702 1,670 1,726 1,755 1,590 Solutions Services 133 156 134 189 164 175 263 320 245 Reseller Operations - - - - - - - - - Hardware and Software Sales - - - - - - - - - IT Maintenance Services - - - - - - - - - Solutions Services - - - - - - - - - Total 7,091 7,575 8,853 9,568 7,321 7,838 8,096 9,595 7,932 Cumulative Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Sales Security Solutions Services 1,188 2,621 4,151 6,225 1,490 3,364 5,138 7,639 1,537 Security Consulting Services 289 701 1,216 1,904 336 824 1,256 1,924 337 Security Assessment Services 178 419 666 1,142 181 463 718 1,294 230 Security Monitoring Services 539 1,128 1,682 2,330 626 1,378 2,054 2,853 651 Security Product Sales 33 75 137 246 161 339 562 787 117 Security Maintenance Services 147 297 447 601 185 358 546 779 199 System Integration Services 5,899 12,044 19,367 26,861 5,829 11,793 18,117 25,210 6,395 Development Services 2,923 6,017 9,181 13,157 3,159 6,643 10,179 14,216 3,665 Hardware and Software Sales 948 2,008 4,127 5,148 803 1,438 2,236 3,218 893 IT Maintenance Services 1,895 3,729 5,636 7,943 1,702 3,372 5,098 6,853 1,590 Solutions Services 133 289 423 612 164 339 602 922 245 Reseller Operations - - - - - - - - - Hardware and Software Sales - - - - - - - - - IT Maintenance Services - - - - - - - - - Solutions Services - - - - - - - - - Total 7,091 14,666 23,519 33,087 7,321 15,158 23,255 32,850 7,932 Operating Profit Security Solutions Services 133 476 847 1,516 240 677 1,081 1,880 166 System Integration Services 407 710 1,462 2,268 553 977 1,728 2,370 566 Subtotal 540 1,186 2,308 3,784 793 1,654 2,809 4,250 732 Adjustments -410-800 -1,233-1,684-434 -960-1,392-1,921-573 Total 130 387 1,075 2,100 359 695 1,418 2,329 159 Source: Shared Reserch based on company data Figures may differ from company materials due to differences in rounding methods. Quarterly earnings: Sales tend to be higher in Q3 and Q4. Since fixed costs are steady, earnings for the first two quarters (especially Q1) tend to be lower. Q1 FY03/16 results Industry environment The IT service industry environment remained favorable as the ongoing recovery in the economy and the resulting growth in corporate earnings encouraged companies to continue spending on IT, especially in the area of data security, which has become an increasing important issue. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 7/57

Earnings overview In Q1 FY03/16, LAC saw sales rise 8.4% YoY to JPY7.9bn. Although demand for IT maintenance services was generally weak, demand for other services was strong at System Integration Services segment as well as at the Security Solutions Services segment, and both segments saw positive top-line growth during the quarter. Notwithstanding, operating profit dropped 55.8% to JPY158mn, as personnel costs rose following a round of remedial pay increases and other expenses rose in conjunction with the development of new businesses and advances into new markets. Further depressed by losses at equity-method subsidiaries, recurring profit fell 73.4% to JPY90mn. At the net income level, LAC reported a loss of JPY20mn (versus a year-earlier profit of JPY70mn), as earnings were further depressed by the acquisition-related costs during the quarter and the inability to use deferred tax assets to cover the losses at certain subsidiaries that have been recognized for tax purposes. Although higher personnel costs and spending to grow new and existing business prevented top-line growth from flowing through to the bottom line, both sales and earnings appear to have finished ahead of plan. Security Solutions Services Security Solutions Services Performance (JPYmn) Q1 FY03/15 Q1 FY03/16 YoY Sales 1,490 1,537 3.1% Security Consulting Services 336 337 0.5% Security Assessment Services 181 230 27.4% Security Monitoring Services 626 651 3.9% Security Product Sales 161 117-27.0% Security Maintenance Services 185 199 7.3% Segment Profit 240 166-31.1% Segment Profit Margin 16.1% 10.8% The Security Solutions Services segment logged Q1 sales of JPY1.5bn (+3.1% YoY) and operating profit of JPY166mn (-31.1%). Although top-line revenues increased as demand for professional security services grew following cyber-attacks targeting personal data, earnings finished the quarter down, hurt by remedial pay hikes and new hiring pushed personnel costs higher, expenses related to the acquisition of NetAgent, spending on enhanced security monitoring equipment and other investments that was planned for the quarter and carried out despite the resulting drop in earnings. Within the Security Solutions Services segment, Security Consulting Services saw revenues rise 0.5% YoY to JPY337mn, as cyber-attacks targeting personal data spurred demand for a variety of data security services including consulting, training, and in-house consultants. Combining its existing service offerings with its technical expertise, the company moved to a new service model that provides monitoring services for databases to prevent unauthorized data leaks. Security Assessment Services saw revenues rise 27.4% YoY to JPY230mn, as orders from both new and repeat projects increased amid growing demand for comprehensive audits of Web applications and platforms. Security Monitoring Services saw revenues rise 3.9% YoY to JPY651mn, underpinned by growth in new orders and a steady migration of existing customers to the company's new data monitoring service aimed http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 8/57

at preventing data leaks. Revenues from equipment installation services rose, though the change in the network environment of some customers resulted in fewer installations of security monitoring equipment. Security Product sales were down 27.0% YoY to JPY177mn. The sharp decline reflects difficult comparisons with a year earlier, when sales of equipment for private security operation centers (PSOCs) were running especially high. Orders received during the quarter were actually up versus a year earlier. Security Maintenance Services saw revenues rise 7.3% YoY to JPY199mn, with growth in work orders from both new and existing customers. System Integration Services System Integration Services Performance (JPYmn) Q1 FY03/15 Q1 FY03/16 YoY Sales 5,829 6,395 9.7% Development Services 3,159 3,665 16.0% Hardware and Software Sales 803 893 11.2% IT Maintenance Services 1,702 1,590-6.6% Solutions Services 164 245 49.1% Segment Profit 553 566 2.3% Segment Profit Margin 9.5% 8.9% The System Integration Services segment logged Q1 sales of JPY6.4bn (+9.7% YoY) and operating profit of JPY566mn (+2.3% YoY). The operating environment remained favorable as the ongoing growth in corporate earnings encouraged companies to continue spending on IT, though demand for IT maintenance services was generally weak. System Development Services saw a rising order flow from mainstay customers in the finance industrial as well as from public sector institutions and companies outside the finance industry. Operating profit growth lagged the top-line but was still positive, as the top-line growth was still enough to offset the decline in margins on hardware and software sales as well as the increase in personnel costs stemming from remedial pay hikes, which had been included in the company's original budget. Within the System Integration Services segment, System Development Services saw revenues rise 16.0% YoY to JPY3.6bn. Orders for next-generation backbone systems from major banks was the primary driver of the growth in orders from financial institutions, but LAC also won more orders from outside of the finance industry following the big project for a public sector institution that it began work on last fiscal year. Hardware and Software sales rose 11.2% YoY to JPY893mn. After being hit hard by the company's decision last year to change in suppliers for a number of its major product lines, orders have started to show some signs of improvement. IT Maintenance Service saw revenues decline 6.6% YoY to JP1.6bn, hurt by the drop in hardware and software sales last fiscal year and by delays in work orders on several current projects. Solution Services saw revenues jump 49.1% YoY to JPY245mn. In addition to strong growth in new orders for systems work from local governments, the company also saw a jump in orders for its new solutions service offerings, especially for its new Application Performance Management (APM) solutions services. For details on previous quarterly and annual results, see the Historical performance section. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 9/57

Full-year (FY03/16) outlook FY03/16 Forecasts FY03/14 FY03/15 FY03/16 (JPYmn) FY Act. 1H Act. 2H Act. FY Act. 1H Est. 2H Est. FY Est. Sales 33,087 15,158 17,692 32,850 16,345 19,425 35,770 YoY 1.6% 3.4% -4.0% -0.7% 7.8% 9.8% 8.9% CoGS 26,167 12,008 13,537 25,545 Gross Profit 6,920 3,150 4,155 7,305 GPM 20.9% 20.8% 23.5% 22.2% SG&A Expenses 4,820 2,456 2,521 4,976 SG&A-to-sales 14.6% 16.2% 14.2% 15.1% Operating Profit 2,100 695 1,634 2,329 510 1,790 2,300 YoY 5.1% 79.6% -4.6% 10.9% -26.6% 9.6% -1.2% OPM 6.3% 4.6% 9.2% 7.1% 3.1% 9.2% 6.4% Recurring Profit 1,991 663 1,602 2,264 470 1,780 2,250 YoY 7.6% 103.4% -3.8% 13.7% -29.1% 11.1% -0.6% RPM 6.0% 4.4% 9.1% 6.9% 2.9% 9.2% 6.3% Net Income 1,007 230 1,025 1,256 230 1,090 1,320 YoY 10.4% 178.1% 10.9% 24.6% -0.2% 6.3% 5.1% Net Margin 3.0% 1.5% 5.8% 3.8% 1.4% 5.6% 3.7% Figures may differ from company materials due to differences in rounding methods. Outlook for FY03/16 For FY03/16, LAC forecasts consolidated sales of JPY35.8bn (+8.9% YoY), operating profit of JPY2.3bn (-1.2% YoY), recurring profit of JPY2.3bn (-0.6% YoY), and net income of JPY1.3bn (+5.1% YoY). The company also plans to raise it FY03/16 dividend by JPY3.00 YoY to JPY16.00 (payout ratio 32.3%, DOE 5.5%). Japan s IT industry expects to benefit from the recovery in corporate earnings. The company expects an increase in demand for services that add security features to cloud, mobile, and big-data technologies. LAC forecasts increasing sales for both its Security Solutions Services and System Integration Services segments as a result. The roughly JPY3bn YoY sales increase apparently breaks down to about a JPY2.0bn gain from existing businesses and a JPY1.0bn gain from new businesses. Among exiting businesses, the company expects solid growth from its security business. Meanwhile, as hardware sales turned sluggish during the previous year, hardware maintenance sales are expected to decline. That said, it expects to offset this decline with an increase in hardware sales towards the renewal period. The anticipated JPY1.0bn increase in sales from new businesses is due to contributions from sales of APM from Dynatrace (exclusive distribution contract signed in spring 2015) and products from recently consolidated subsidiary Netagent. LAC has released a medium-term management plan that covers a three-year period starting FY03/16. In the initial year, the company will expand its existing operations as demand for online security rises and as major banks continue to increase their IT investments. LAC will also aggressively invest in new businesses to create new products and services. Therefore, the firm expects operating profit on par with the previous year due to an increase in internal and external personnel cost for product R&D, in addition to investments for creating new growth drivers for business expansion. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 10/57

Segment Performance and Targets Sales Operating Profit OPM (JPYmn) FY03/14 FY03/15 FY03/16 YoY FY03/14 FY03/15 FY03/16 FY03/16 YoY FY03/14 FY03/15 Est. Est. Est. Security Solutions Services 7,639 7,640 9,045 18.4% 1,515 1,880 2,255 20.0% 19.8% 24.6% 24.9% Security Consulting Services 1,904 1,924 1,805-6.2% - - - - - - - Security Assessment Services 1,142 1,294 1,340 3.6% - - - - - - - Security Monitoring Services 2,330 2,853 3,410 19.5% - - - - - - - Security Product Sales 246 787 1,715 117.9% - - - - - - - Security Maintenance Services 601 779 775-0.5% - - - - - - - System Integration Services 25,210 25,210 26,725 6.0% 2,267 2,370 2,422 2.2% 9.0% 9.4% 9.1% Development Services 13,157 14,216 14,730 3.6% - - - - - - - Hardware and Software Sales 5,148 3,218 4,475 39.1% - - - - - - - IT Maintenance Services 7,943 6,853 5,865-14.4% - - - - - - - Solutions Services 612 922 1,655 79.5% - - - - - - - Shared Expenses, Adjustments -141 - - - -1,683-1,921-2,378 - - - - Total 32,850 32,850 35,770 8.9% 2,100 2,329 2,300-1.2% 6.4% 7.1% 6.4% Historical forecast accuracy Initial CE vs. Results FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 (JPYmn) Parent Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales (Initial CE) 21,900 22,000 42,700 33,000 33,500 35,000 34,000 34,300 Sales (Results) 21,899 32,538 32,215 33,413 31,596 32,577 33,087 32,850 Initial CE vs. Results 0.0% 47.9% -24.6% 1.3% -5.7% -6.9% -2.7% -4.2% Operating Profit (Initial CE) 1,530 1,860 1,730 1,120 1,500 1,990 2,100 2,100 Operating Profit (Results) 1,771 906 675 1,490 1,895 1,998 2,100 2,329 Initial CE vs. Results 15.8% -51.3% -61.0% 33.0% 26.3% 0.4% 0.0% 10.9% Recurring Profit (Initial CE) 1,450 1,810 1,400 900 1,235 1,740 1,950 2,010 Recurring Profit (Results) 1,706 706 407 1,301 1,673 1,850 1,991 2,264 Initial CE vs. Results 17.6% -61.0% -70.9% 44.6% 35.4% 6.3% 2.1% 12.7% Net Profit (Initial CE) 700 910 870 450 470 870 1,000 1,070 Net Profit (Results) 897 240-413 851 661 913 1,007 1,256 Initial CE vs. Results 28.2% -73.6% -147.5% 89.1% 40.6% 4.9% 0.7% 17.3% http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 11/57

Strategy The company on May 12, 2015 released TRY 2021 Stage 1, a medium-term management plan that covers a three-year period from FY03/16 through FY03/18. The first three years are positioned as three years of acceleration, during which investments will be made to prepare for the next growth stage, followed by three years of rapid progress, during which the company aims for even further growth. LAC expects that the IT business environment will undergo major transformation by 2020, when Tokyo will host Olympic Games. Japan s economy will probably reach its peak at that time. However, the company, in comping the medium-term management plan, has taken into consideration what is likely to unfold afterward. TRY 2021 Stage 1 will be crucial for the company as it seeks to enter the next stage of business expansion. The medium-term management plan calls for the following goals: Sales: JPY50bn or more Sales of at least JPY50bn for FY03/18 ROE: 15% or more Return on equity of at least 15% during the period from FY03/16 through FY03/18 Stock listing on the TSE First Section The company, which is traded on the JASDAQ market, wants to move its listing to the First Section of the Tokyo Stock Exchange by FY03/18. This will mark the company s next stage of development. According to the company, the only management targets it discloses are sales and ROE, as it wants to avoid becoming constrained by numerical targets to the point that development is delayed or set back. It is considering detailed numerical targets at each phase, while continuing to take on new challenges. Its target of reaching JPY50bn in sales (1.5x FY03/15) over next three years looks challenging. That said, striving to achieve this target is expected to force all employees to find the best way forward. Also, the target of ROE exceeding 15% means the company aims to maintain good ROE levels even while pursing acquisition opportunities. According to the company, preparations for moving shares to the Tokyo Stock Exchange First Section are already underway. As such, its financial position is being enhanced to facilitate this listing. The medium-term management plan also puts forth three themes: of Challenge (take on new challenges with an eye on the future), Polish (expand existing businesses), and Foundation (enrich the company s foundation). The company has also raised the important points for each theme to promote structural reforms and realize future growth. Challenge (take on new challenges to increase future possibilities) The meaning of Challenge is to serve as the driving force for changing stages such as business reforms, strategic policies, and the launching of new businesses. LAC wants to strengthen its organizational foundation to expand businesses. For this purpose, the company will expand hiring and employee training. Human resources management is key to this endeavor. The company will at the same time gain further trust in the industry and enhance its name recognition. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 12/57

Priority Items in Challenge Develop New Businesses (visible challenges) Full-fledged Development of APM Business Develop LAC-brand Security Products In April 2015, the company entered into an exclusive distribution contract (Japan) with US-based Dynatrace LLC, the No. 1 APM solutions company in the world. APM (Application Performance Management) refers to overall management of applications for the smooth operation of various systems. According to the company, performance management is a valued part of business management in the US and the market is growing. LAC plans to capture a share of the Japanese market, which is likewise expected to grow, through its partnership with Dynatrace. The International Criminal Police Organization (INTERPOL) is using the LAC Falcon, an engine developed by LAC for analyzing correlations between cyber-attacks. LAC plans to further improve performance to raise the attractiveness of this product. The company also plans to develop new products by partnering with Netagent (information security company with particular focus on information leak prevention), which it made a subsidiary April 2015. In May 2015, LAC established a JV with P.R.O. Co., Ltd. (PRO), a company that builds smartphone-based websites and EC sites. LAC plans to provide various solutions services to meet diverse customer needs, starting Develop O2O Solutions with O2O, by combining its expertise cultivate through experience, a long track record, and its research in the information security development field with PRO s planning / development skills and advertising base. Create New Markets (medium/long-term strategy) Create Data Use Regulation Market In January 2015, LAC and Benesse Holdings, Inc. (TSE1: 9783) established a joint special-function company to operate and maintain the Benesse group s core information systems the foundations for the Benesse group s operations. The two partners plan to use this JV to realize a high level of security and operational efficiency. LAC is aiming for future horizontal development of business models realized through this JV. LAC is currently preparing systems to provide support for security in various overseas regions where major Japanese firms are setting up operations. Even when delivering high-quality Japanese products to markets Create Overseas Security Market overseas, there is often a mismatch between the selling price and the price overseas customers are willing to pay. So the firm will initially consider providing support to Japanese firms overseas. It has even dispatched personnel to Singapore and is collecting information. Research Advanced Technologies (strategy for the future) LAC s internal Cyber GRID Japan is conducting advanced research in the security field. The company sees a Research Intelligence Information Bases need to take into consideration security needs for a broader range of products amid growth of new networks linking home appliances and various other products. For this reason, LAC is participating in the Secure Drone Research Advanced Technologies for IoT Age Consortium with the aim of building secure cloud services and environments for the safe operation of drones (unmanned aircraft). The firm intends to pursue research in various fields with security as the key word. Polish (further enhance advantages of existing businesses) The meaning of Polish is to future develop business in order to meet needs and more intense competition, and to have the capacity to support new challenges. LAC will solidify its existing businesses. For this, the company will maintain its efforts to improve customer satisfaction through continuous self-assessment and improvement. The company will expand its existing market share, make operations more efficient, and create a powerful operational base. Priority Items in Polish Develop New Businesses (visible challenges) Expand existing services Raise customer/partner satisfaction Streamline service/business Increase delivery scale, full-fledge development of LAC Falcon, strengthen marketing functions Conduct satisfaction surveys, adopt PDCA cycle, strengthen cooperation/relationships with strategic partners Automate some security services, shift to mobile/cloud services Foundation (enrich the company s foundation to support business growth) The meaning of Foundation refers to raising the level of maturation for company functions such as corporate culture / working environments and financial / business systems. The company will tackle new challenges in order to keep growing. The company will invest in new businesses and create demand that does not currently exist. The focus is on new operations, new markets, and new technologies. Priority Items in Foundation Develop New Businesses (visible challenges) Human resource development / strategic personnel Further enhancement of management base Improve creditworthiness, name recognition Develop highly skilled human resources, realize competitive compensation system, maintain strengths compatible with increased job mobility Bolster risk management, move shares to main market (Tokyo Stock Exchange First Section), maintain a healthy financial base Bolster brand power, enhance PR functions, continuously conduct education / CSR activities http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 13/57

Business Business description IT services strong in security and large-scale system development LAC Co., Ltd. s strong suits are IT security solutions and developing large-scale IT systems. It was established in October 2007 as a holding company following the merger of the former LAC (a security solutions firm) and A&I System Co., Ltd. (a systems developer). The former LAC operated Japan Security Operation Center (JSOC), Japan s biggest network security monitoring center, while A&I System handled large-scale backbone systems for financial companies, personnel service firms, and information service companies. In August 2008, the company established IT Crew Co., Ltd. and took over the operations of NIWS Co. HQ Ltd. and NIWS, which had filed for bankruptcy protection. These operations became LAC s now-defunct Reseller Operations segment (selling information system products and providing system engineering and maintenance services). No. 2 in IT security, mid-ranked in IT industry In Japan s IT service industry, there are at least 10 companies that have annual sales exceeding JPY100bn. NTT Data Corporation (TSE1: 9613) is the largest with sales of more than JPY1tn. LAC, which has about JPY30bn in annual sales, ranks between 25th and 30th. The company that became LAC began providing IT security services in 1995, making it an industry forerunner. LAC s security technology and trusted brand name has made it Japan s second-biggest provider of internet security services after Trend Micro Inc. (TSE1: 4704) (based on the consolidated sales of listed companies offering internet security services as a core business). LAC provides IT security services, such as consulting and operation monitoring, as well as system development. It sells IT system products and maintenance. The company has two business segments: Security Solutions Services and System Integration Services. Reorganizes business into two segments to maximize synergy Previously, the company had three segments: Security Solutions Services, System Integration Services, and Reseller Operations. The company eliminated the Reseller segment in Q1 FY03/15, reorganizing its segments into Security Solutions Services and System Integration Services in a bid to make IT solution operations a pillar of its business. Security Solutions Services has taken over operations of the previous LAC. System Integration Services was created from A&I System. These segments create synergy by promoting employee interactions and setting cross-selling targets. Security Solution drives growth; System Integration provides steady sales stream The company s earnings deteriorated due to weak corporate IT investments after the global financial crisis of 2008, but began to recover in FY03/11. In the IT industry, information security is considered a growth area. Therefore, LAC positions the Security Solutions Services segment as a growth driver. The company gets the majority of its profit from the System Integration Services segment. The company expects a steady stream of sales from this segment, which mostly caters to financial companies, since 60% of segment sales comes from contract renewals. LAC will strengthen cooperation between the two segments as it seeks to distinguish itself from rivals and enjoy stable growth. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 14/57

LAC business model: benefitting from cooperation between segments Red text indicates System Integration Services; black text indicates Security Solutions Services. Consolidated operating profit and OPM (JPYmn) 2,500 9.0% 8.0% 2,000 1,500 1,000 500 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 0.0% Operating Profit OPM (right axis) http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 15/57

Changes to segments Old Segments New Segments Security Solutions Services Security Solutions Services Security Consulting Services Security Consulting Services Security Assessment Services Security Assessment Services Security Monitoring Services Security Monitoring Services System Integration Services Security Product Sales Development Services Security Maintenance Services Reseller Operations System Integration Services Hardware and Software Sales Security Products SI Products Development Services Hardware and Software Sales IT Maintenance Services Security Product Maintenance SI Product Maintenance IT Maintenance Services Solutions Services Solutions Services http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 16/57

Earnings overview by segment In FY03/15 the company reorganized its business into two segments from the previous three. The two segments after this consolidation are Security Solutions Services and System Integration Services. In FY03/15, Security Solutions Services accounted to 23% of all sales (19% in FY03/14, retroactively adjusted) and System Integration Services accounted for 77% of sales (81% in FY03/14). The break down in terms of profit was 44% for Security Solutions Services (40%) and 56% for System Integration Services (60%). System Integration Services makes the bigger contribution in terms of both sales and profits. However, profit margins are much bigger for the Security Solutions Services. LAC reorganized its operations into the Security Solutions Services segment and System Integration Services segment in Q1 FY03/15. The company has not announced detailed segment data because FY03/15 is the new fiscal year under the reorganized segmentation. This section discusses the company s earnings based on its previous segmentation. Sales composition by segment 100% 80% 41% 49% 51% 46% 45% 44% 60% 71% 81% 77% 40% 43% 37% 34% 40% 39% 40% 20% 0% 29% 15% 14% 14% 14% 16% 16% 19% 23% FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Reseller Operations System Integration Services Security Solutions Services Profit composition by segment 100% 11% 2% 12% 11% 12% 80% 30% 60% 67% 57% 71% 59% 55% 50% 60% 56% 40% 48% 20% 33% 32% 27% 21% 29% 35% 38% 40% 44% 0% FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 Reseller Operations System Integration Services Security Solutions Services http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 17/57

Profit margin composition by segment 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Reseller Operations System Integration Services Security Solutions Services LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. That said, earnings based on the reorganized segments started from end-fy03/15. As such, this report provides figures for FY03/15 based on the reorganized segments, as well as figures for FY03/14 based both on the previous segmentation and retroactively adjusted for the new two-segment arrangement. Security Solutions Services Growth driver with a low sales composition ratio and high contribution to profit Security Solutions Services Old Segments New Segments (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 Orders 6,226 5,442 5,194 4,656 4,999 5,278 5,641 - - YoY - -12.6% -4.6% -10.4% 7.4% 5.6% 6.9% - - Outstanding Orders 1,141 1,600 2,366 2,264 2,081 1,684 1,948 - - YoY - 40.2% 47.9% -4.3% -8.1% -19.1% 15.6% - - Sales 6,247 5,025 4,454 4,795 4,519 5,153 5,338 6,226 7,640 YoY - -19.6% -11.4% 7.7% -5.7% 14.0% 3.6% - 22.7% Operating Profit 1,024 660 556 710 1,071 1,327 1,432 1,516 1,880 YoY - -35.6% -15.8% 27.8% 50.8% 23.9% 7.9% - 24.0% OPM 16.4% 13.1% 12.5% 14.8% 23.7% 25.8% 26.8% 24.3% 24.6% % of Total Sales 29% 15% 14% 14% 14% 16% 16% 19% 23% Operating Profit 33% 32% 27% 21% 29% 35% 38% 40% 44% Employees 224 298 322 332 302 318 346 - - Sales per Employee 27.9 16.9 13.8 14.4 15.0 16.2 15.4 - - OP per Employee 4.6 2.2 1.7 2.1 3.5 4.2 4.1 - - Segment Assets 1,794 2,152 3,122 3,120 3,112 2,681 2,421 2,834 3,761 http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 18/57

Security Solutions Services provides information security services, such as consulting and operation monitoring, to help clients manage risk. In FY03/15 the segment comprised 23% and 44% of the company s overall sales and operating profit, respectively. (Under the new segmentation, it comprised 19% and 40% of sales and operating profit in FY03/14.) This segment may be broken down into Security Consulting Services, Security Assessment Services, and Security Monitoring Services. Under the new segmentation implemented in FY03/15, Security Product Sales and Security Maintenance Services have been added to this segment. The company entered cyber security early. The company s clients include Japanese government agencies and some of Japan s largest corporations, which require advanced security protection. This segment s sales and profitability, which temporarily declined after the economy stalled and IT investments fell, are now rising again amid growing demand for cyber security. This segment is the more profitable one, contributing more to company s overall operating profit despite a low sales composition ratio. LAC labels the security business as a growth driver. Recognizing LAC s outstanding track record and business strategy as a security service provider in the Japanese market, leading US research firm Frost & Sullivan awarded the company its 2015 Frost & Sullivan Japan Managed Security Service Provider of the Year Award. The award is based on evaluations made in terms of market share, growth rate, business strategy, and cutting-edge innovations in the cyber security business. It is given to companies that drive the most excellent cyber security services. This marked the first time it was awarded to a company in Japan. In explaining its selection of LAC for this award, Frost & Sullivan said the company is the market leader in Japan s managed security services market, with a strong and stable performance. It noted that with a solid track record of more than 20 years, LAC has built a strong position in the market, earned respect and commendations from the Japanese government, government agencies as well as private companies, and Educational Institutions. It also pointed out that LAC is highly-regarded in the industry and plays a vital role as a Security Advisor to various government agencies. Such an award from a research firm in the US, one of the most advanced nations in the security field, should help underscore the technical prowess of LAC. Security Solutions Services Sales Breakdown Sales YoY Composition (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/15 FY03/12 FY03/13 FY03/14 FY03/15 segments segments New segments segmentsnts segments segments segments New segments segments Old Old New New Old Old New Security Solutions Services 4,481 5,146 6,225 7,639 22.7% 100% 100% 100% 100% Security Consulting Services 1,725 2,103 1,904 1,924 1.1% 38% 41% 31% 25% Security Assessment Services 877 946 1,142 1,294 13.3% 20% 18% 18% 17% Security Monitoring Services 1,879 2,097 2,330 2,853 22.4% 42% 41% 37% 37% Security Product Sales - - 246 787 219.9% - - 4% 10% Security Maintenance Services - - 601 779 29.6% - - 10% 10% Figures may differ from company materials due to differences in rounding methods. Security consulting service: 25% of segment sales in FY03/15 (31% in FY03/14) This service may be divided into security consulting, emergency response/data leak investigation, and security training. Security consulting comprises 70 80% of sales. Emergency response/data leak investigation (Service name: Cyber 119), and security training services together generate between JPY200mn and JPY300mn in annual sales. These services could spark orders in other areas. They do not contribute much to sales but help the company maintain its competitiveness and brand equity. Security consulting In this service, the company develops IT security measures for clients; provides risk assessments; creates, adopts, operates information security policies; and audits information security measures. LAC dispatches http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 19/57

employees to be stationed at clients offices if needed. This service covers a variety of projects, with each project bringing in between about JPY1mn to JPY50mn. The most common price range is between JPY2mn and JPY3mn. There are probably about 600 projects a year. Small-scale projects take about a week to complete, but large contracts may require as many as three years. Therefore, sales are recognized based on percentage of completion. Emergency response/data leak investigation In this service, the company provides emergency response operations to security threats (Cyber 119), helps clients recover data, examines for data leaks, and analyzes data leaks caused by unauthorized access and viruses. Cyber 119 is an emergency response service in which LAC s information security experts quickly deal with client requests. According to the company, the center handles five to ten cases at any given time. LAC flagged that cybercrime has become more sophisticated in recent years. The number of attacks more than quadrupled during the past five years. As a result, the company has been receiving more inquiries about the service. Cyber 119 handled more than 300 cases in 2013. The company charges about JPY1mn per case. LAC stated that the company handles about 70 80% of big IT crime incidents reported in the media. Cyber 119: number of cases (left) and types of cybercrime (right) 300 250 200 150 100 10% 17% 6% 4% 38% Unauthorized Access Data Theft Malware Others Spam E-mail Unauthorized ID Use 50 25% 0 2008 2009 2010 2011 2012 2013 Security training At many companies, cyber security is handled by designated teams. However, they still need to purchase security products and services because of the complexity of cyber security. LAC Security Academy, staffed with instructors with specialized skills, provides training to employees in various departments of client companies, not just to IT security staff. This strengthens defenses company-wide. Security Assessment Services: 17% of segment sales in FY03/15 (18% a year earlier) In this service, the company provides diagnosis of security risks involving web applications, servers, network equipment, and databases. For example, the company examines clients websites to identify flaws. The company provides detailed analysis of security vulnerabilities and provides solutions. According to LAC, a typical project from the start of the examination to the submission of reports takes one to four weeks. The company handles 700 800 cases annually, with each project bringing in sales of between JPY1mn and JPY2mn. The company employs about 20 employees in Japan and 30 overseas for this service. The company is having difficulty handling orders due to a shortage of workers with the necessary specialized skills. As a result, despite the large market, the company is not seeking new customers. About 80% of clients are repeat customers, with the rest taking the initiative to search out the company. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 20/57

Security Monitoring Services: 37% of segment sales in FY03/15 (37% a year earlier) In this service, the company operates the Japan Security Operation Center (JSOC), the biggest security monitoring center in Japan established in 2002. JSOC provides network monitoring to protect clients (including government agencies and some of Japan s largest companies) against potential security threats. This service also helps clients build secure servers by providing them with products and services to keep security updated. This is the mainstay service in the company s Security Solutions Services segment. Network monitoring is conducted through monitoring censors installed at clients offices. Each monitoring censor generates sales of between JPY1mn and JPY2mn a year. The company employs about 100 employees for this service, with about 850 clients and 1,450 censors (September 30, 2014). This business generates steady earnings, as the service is based on a one-year contract which most clients renew to avoid the cost of switching services. The company contacts clients through their IT departments, and installs monitoring equipment when clients update their systems. LAC began providing network security services in 1995, when the internet was still in its infancy, making it one of the first Japanese companies to realize the potential in this area. In 2002, the company established the Japan Security Operation Center (JSOC), one of the largest Japanese security operation centers. JSOC counts government agencies and major corporations among its clients. This places the company at the forefront of the information security industry and, according to the company, it has been called upon to propose national security measures to government agencies. JSOC brings together various security technologies to offer services that LAC considers to be some of the most advanced in its industry, and it boasts results on par with leading domestic information security providers. Security Product Sales and Security Maintenance Services In FY03/15, Security Product Sales accounted for 10% of segment sales (4% in FY03/14), while Security Maintenance Services also accounted for 10% of segment sales (10% in FY03/14). Security Product Sales and Security Maintenance Services were moved to this segment from the Reseller Operations segment with the FY03/15 segment reorganization. Security Product Sales handles the sales associated with Security Solutions Services. Also, Security Maintenance Services is partially responsible for the maintenance of security-related services, with a focus on products sold by the company. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 21/57

System Integration Services LAC s biggest operations with steady sales; 60% of sales from contract renewals System Integration Services Old Segments New Segments (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 Orders 16,052 13,934 11,630 10,808 10,814 12,788 13,479 - - YoY - -13.2% -16.5% -7.1% 0.1% 18.3% 5.4% - - Outstanding Orders 2,569 2,470 2,145 1,538 1,764 2,433 2,755 - - YoY - -3.8% -13.2% -28.3% 14.7% 37.9% 13.2% - - Sales 15,653 14,201 12,009 11,603 13,068 12,726 13,227 27,002 25,456 YoY - -9.3% -15.4% -3.4% 12.6% -2.6% 3.9% - -5.7% Operating Profit 2,080 1,173 1,431 1,627 2,126 2,085 1,882 2,268 2,370 YoY - -43.6% 22.0% 13.7% 30.7% -1.9% -9.7% - 4.5% OPM 13.3% 8.3% 11.9% 14.0% 16.3% 16.4% 14.2% 8.4% 9.3% % of Total Sales 71% 43% 37% 34% 40% 39% 40% 81% 77% Operating Profit 67% 57% 71% 48% 59% 55% 50% 60% 56% Employees 755 842 833 774 738 713 700 - - Sales per Employee 20.7 16.9 14.4 15.0 17.7 17.8 18.9 - - OP per Employee 2.8 1.4 1.7 2.1 2.9 2.9 2.7 - - Segment Assets 5,863 6,072 5,035 5,712 3,176 3,314 3,062 7,872 7,479 This segment handles system development for clients and provides system Solutions Services. For FY03/15, this segment contributed 77% and 56% of consolidated sales and operating profit, respectively (under the new segmentation, sales and operating profit composition ratios were 81% and 60%, respectively, for FY03/14). The profit margin for this segment is lower than that for Security Solutions Services, but it contributes most to overall profits. Development services is the core of this segment. SI Product Sales Hardware and Software Sales, IT Maintenance Services, and Solutions Services were added under the new segmentation. The result: sales and profit contributions increased. This segment was built on operations of the former A&I System. LAC s system integration operations have also been integrated into this segment. AI System, established in May 1987 by the former ABC (now FUJISOFT Inc. [TSE1: 9749]) and IBM Japan, Ltd., was a participant in major commercial banks online infrastructure development projects, as well as projects undertaken by the National Tax Agency, the Bank of Japan, the former Ministry of Posts and Telecommunications, and other public institutions. Thus, this segment has experience in backbone systems of financial institutions and government agencies. Examples of the projects currently handled by this segment include ATM systems, online banking systems, and e-commerce websites for apparel retailers. Mostly catering to financial services, the segment generates 60% of its sales from contract renewals. This segment will strengthen its cooperation with the other segment. LAC sees this segment as a steady growth driver. System Integration Services Sales Breakdown Sales YoY Composition FY03/13 FY03/15 FY03/13 FY03/12 FY03/14 FY03/15 FY03/12 FY03/14 FY03/15 segments segments segments segmentsnts segments segments segments segments segments Old Old New New New Old Old New New System Integration Services 12,560 12,684 26,861 25,210 0-6.1% 100% 100% 100% 100% Development Services 12,560 12,684 13,157 14,216 0 8.0% 100% 100% 49% 56% Hardware and Software Sales - - 5,148 3,218 0-37.5% - - 19% 13% IT Maintenance Services - - 7,943 6,853 0-13.7% - - 30% 27% Solutions Services - - 612 922 0 50.7% - - 2% 4% Figures may differ from company materials due to differences in rounding methods. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 22/57

Development services For FY03/15, this segment contributed 56% of segment sales (49% in FY03/14) In this service, the company designs and develops backbone systems for computers, as well as customized development and maintenance of application systems. This department also creates websites and smartphone applications for online banking, shopping and part-time recruitment. Key clients include those that require reliable large-scale systems (banks, insurers, brokerages, government agencies) and recruitment companies. Development of mainframe platforms requires knowledge of a range of operating systems, including those for mainframe computers, as well as experience with development, operations, and maintenance. Hardware/Software Sales and IT Maintenance Services In FY03/15, Hardware/Software Sales accounted for 13% of segment sales (19% in FY03/14), while IT Maintenance Services accounted for 27% of segment sales (30% in FY03/14). Hardware/Software Sales and IT Maintenance Services were moved to this segment from the Reseller Operations segment with the FY03/15 reorganization of segments. Hardware/Software Sales is responsible for the sales of a wide range of information system products (hardware and software) related to servers and storage that are the foundations of systems supporting IT utilization. Meanwhile, IT Maintenance Services provides maintenance services for SI-related products (hardware and software) sold by the company. In addition, it provides a host of services from network base design and construction (including IT equipment installation) to equipment introduction and operation. Solution Services: accounted for 4% of segment sales in FY03/15 (2% in FY03/14). This service was moved to this segment from the Reseller Operations segment with the FY03/15 reorganization of segments. With a wealth of experience with Internet and intranet environments, this service provides various solutions services utilizing the latest IT technologies. It also provides various outsourcing services starting with data center cloud services. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 23/57

Reseller Operations (reference) Low-margin products not very profitable; absorbed by other segments in FY03/15 Reseller Operations Old Segments New Segments (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 Orders - 19,686 15,825 18,837 15,829 14,168 13,621 - - YoY - - -19.6% 19.0% -16.0% -10.5% -3.9% - - Outstanding Orders - 6,164 6,158 7,756 7,761 7,145 6,214 - - YoY - - -0.1% 26.0% 0.1% -7.9% -13.0% - - Sales - 13,522 15,843 17,373 14,745 14,786 14,658 0 0 YoY - - 17.2% 9.7% -15.1% 0.3% -0.9% - - Operating Profit - 231 40 1,020 435 407 470 0 0 YoY - - -82.5% 2428.7% -57.4% -6.5% 15.4% - - OPM - 1.7% 0.3% 5.9% 3.0% 2.8% 3.2% - - % of Total Sales - 41% 49% 51% 46% 45% 44% 0% 0% Operating Profit - 11% 2% 30% 12% 11% 12% 0% 0% Employees - 246 230 214 259 310 292 - - Sales per Employee - 55.0 68.9 81.2 56.9 47.7 50.2 - - OP per Employee - 0.9 0.2 4.8 1.7 1.3 1.6 - - Segment Assets - 12,077 12,293 10,667 8,728 6,984 5,235 0 0 This previous segment, absorbed by the other two, used to sell products related to information systems and provided system engineering and maintenance services. The segment began as IT Crew Co., Ltd., which was established in August 2008 to take over businesses of NIWS Co. HQ Ltd. and NIWS after they filed for bankruptcy protection. For FY03/14, the segment contributed 44% to consolidated sales and 12% to operating profit. Despite a high sales composition ratio, profitability contribution was low because it relied heavily on equipment sales. The segment provided Hardware and Software Services, as well as IT Maintenance Services and Solutions Services. However, the market for the segment s products was shrinking, so the company abolished this segment in FY03/15, transferring operations to the Security Solutions Services and System Integration Services segments. Reseller Operations Sales Breakdown Sales YoY % of Total (JPYmn) FY03/12 FY03/13 FY03/14 FY03/13 FY03/14 FY03/12 FY03/13 FY03/14 Reseller Operations 14,551 14,746 14,551 1.3% -1.3% 100% 100% 100% Hardware and Software Sales 7,650 6,515 5,394-14.8% -17.2% 53% 44% 37% IT Maintenance Services 6,274 7,585 8,544 20.9% 12.6% 43% 51% 59% Solutions Services 626 645 612 3.0% -5.1% 4% 4% 4% Figures may differ from company materials due to differences in rounding methods. Hardware and Software Sales: 37% of segment sales in FY03/14 The company sold hardware and software products to meet diverse client needs, such as servers, storage devices, and products related to Security Solutions Services. With the FY03/15 reorganization of segments, this section was split into two sections, with that handling sales of security-related products transferred to Security Solutions Services and that handling the sales of SI-related products transferred to Systems Integration Services. IT Maintenance Services: 59% of segment sales in FY03/14 In these services, the company provided maintenance for products sold by the segment (hardware and software). It also offered a wide range of other services, such as the designing and building of network http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 24/57

systems involving IT equipment construction work, and equipment installation and operation. With the FY03/15 reorganization of segments, this section was split into two sections, with that handling sales of security-related products transferred to Security Solutions Services and that handling the sales of SI-related products transferred to Systems Integration Services. Solutions Services: 4% of segment sales in FY03/14 In these services, the company used to provide Solutions Services for internet and intranet operations. The department also operated a data center offering cloud and outsourcing services. This section was moved to Systems Integration Services with the FY03/15 reorganization of segments. Major group companies (as of the end of March 2014) The company s subsidiaries are Cyber Security LAC Co., Ltd. (stake: 90.5%), LAC CHINA CORPORATION CO., LTD. (wholly owned; defunct), Software Service Inc. (wholly owned), Axis Co., Ltd. (wholly owned), and INetRely Corporation (wholly owned). For FY03/14, the parent company s contributions to group sales and operating profit were about 91% and 87%, respectively. Key subsidiaries Business SegmenSubsidiary, Businesses LAC China Corporation Co., Ltd. (website vulnerability assessment, collection and dissemination of information on vulnerabilities; defunct) Security Solutions S Cyber Security LAC Co., Ltd. (website vulnerability assessment, collection and dissemination of information on vulnerabilities) System Integration Software Service Inc. (services related to information systems) Axis Co., Ltd. (operation, maintenance of data centers) Reseller Operations INetRely Corporation (creates and manages IT system products) Source: Company securities resport http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 25/57

Profitability analysis Profitability, SG&A Breakdown FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 (JPYmn) Parent Cons. Cons. Cons. Cons. Cons. Cons. Cons. Sales 21,899 32,538 32,215 33,413 31,596 32,577 33,087 32,850 YoY - 48.6% -1.0% 3.7% -5.4% 3.1% 1.6% -0.7% Security Solutions Services 6,247 5,025 4,454 4,795 4,519 5,153 5,338 7,640 YoY - -19.6% -11.4% 7.7% -5.7% 14.0% 3.6% 22.7% System Integration Services 15,653 14,201 12,009 11,603 13,068 12,726 13,227 25,456 YoY - -9.3% -15.4% -3.4% 12.6% -2.6% 3.9% -5.7% Reseller Operations 0 13,522 15,843 17,373 14,745 14,786 14,658 - YoY - - 17.2% 9.7% -15.1% 0.3% -0.9% - CoGS 15,740 25,682 25,672 26,380 24,563 25,639 26,167 25,545 YoY - 63.2% 0.0% 2.8% -6.9% 4.4% 2.1% -2.4% Gross Profit 6,159 6,857 6,543 7,034 7,032 6,938 6,920 7,305 YoY - 11.3% -4.6% 7.5% 0.0% -1.3% -0.3% 5.6% SG&A Expenses 4,388 5,951 5,869 5,544 5,137 4,940 4,820 4,976 YoY - 35.6% -1.4% -5.5% -7.3% -3.8% -2.4% 3.2% Salaries, Allowances and Bonuses 1,680 2,609 2,525 2,269 2,042 2,144 2,091 - YoY - 55.3% -3.2% -10.1% -10.0% 5.0% -2.5% - Retirement Benefits 31 94 128 118 117 101 88 - Rent 452 715 828 727 692 595 582 - Goodwill Amortization 0 599 752 746 654 460 459 - Others 2,224 1,933 1,634 1,683 1,633 1,639 1,600 - Operating Profit 1,771 906 675 1,490 1,895 1,998 2,100 2,329 YoY - -48.9% -25.5% 120.8% 27.2% 5.4% 5.1% 10.9% R&D Expenses (included in manufacturing/sg&a) 91 82 41 48 47 49 51 0 Vs. Sales CoGS 71.9% 78.9% 79.7% 78.9% 77.7% 78.7% 79.1% 77.8% Gross Profit 28.1% 21.1% 20.3% 21.1% 22.3% 21.3% 20.9% 22.2% SG&A Expenses 20.0% 18.3% 18.2% 16.6% 16.3% 15.2% 14.6% 15.1% Operating Profit 8.1% 2.8% 2.1% 4.5% 6.0% 6.1% 6.3% 7.1% LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. Note: Segment sales are before internal eliminations. Note: From FY03/15, there was a change in segmentation. The Dealer segment was split and merged into the other two segments. Segment YoY in FY03/15 is compared using retrospectively adjusted figures. Improving OPM by controlling SG&A costs LAC in August 2008 bought the operations of NIWS Co. HQ Ltd. and NIWS, which filed for bankruptcy protection, and began its Reseller Operations segment to sell information system related products and provide system engineering and maintenance services. As a result, sales for FY03/09 increased 48.6% YoY. However, the overall CoGS to sales ratio surged after the acquisition of the Reseller business, and gross profit margin declined in FY03/09. Operating profit margin also fell due to goodwill expenses that pushed up SG&A costs. Soon after LAC took over the Reseller business, the global financial crisis hit in September 2008. The crisis significantly affected the company s earnings results, owing to the considerable pain it inflicted on LAC s main clients financial institutions. The CoGS to sales ratio has mostly stabilized since FY03/10, despite sales being affected by sluggish corporate IT investments amid deteriorating business sentiment. LAC s services are labor-intensive, so labor costs have a big impact on earnings. More than half of those http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 26/57

involved in the company s System Development Services in the System Integration Services segment are independent contractors, and the number of contractors are adjusted based on sales. LAC cut costs by consolidating administrative sections and relocating and consolidation of subsidiaries offices. As a result, SG&A expenses, such as salaries, bonuses, and rents, have been falling. The ratio of SG&A to sales is also improving. As a result, operating profit margin, which hit bottom during FY03/10, is now rising. Comparison with competitors LAC, Asgent, Cresco Performance Old Segments New Segments (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 Sales Security Solutions Services 6,247 5,025 4,454 4,795 4,519 5,153 5,338 6,226 7,640 Asgent 3,663 3,488 3,988 4,015 4,009 3,537 3,343 3,343 2,958 System Integration Services 15,653 14,201 12,009 11,603 13,068 12,726 13,227 27,002 25,456 Cresco 13,557 13,990 13,151 15,722 17,272 19,032 22,028 22,028 25,064 Reseller Operations - 13,522 15,843 17,373 14,745 14,786 14,658 - - LAC (consolidated) 21,899 32,538 32,215 33,413 31,596 32,577 33,087 33,087 32,850 Operating Profit (Segment Profit) Security Solutions Services 644 482 369 445 828 1,040 1,162 1,200 1,436 Asgent 145 243 437 396 213 227 11 11-158 System Integration Services 1,127 671 928 985 1,424 1,376 1,211 900 892 Cresco 680 660 272 824 1,031 1,243 1,430 1,430 2,013 Reseller Operations - -247-623 59-357 -417-273 - - LAC (consolidated) 1,771 906 675 1,490 1,895 1,998 2,100 2,100 2,329 Operating Profit Margin Security Solutions Services 10.3% 9.6% 8.3% 9.3% 18.3% 20.2% 21.8% 19.3% 18.8% Asgent 4.0% 7.0% 11.0% 9.9% 5.3% 6.4% 0.3% 0.3% -5.3% System Integration Services 7.2% 4.7% 7.7% 8.5% 10.9% 10.8% 9.2% 3.3% 3.5% Cresco 5.0% 4.7% 2.1% 5.2% 6.0% 6.5% 6.5% 6.5% 8.0% Reseller Operations - -1.8% -3.9% 0.3% -2.4% -2.8% -1.9% - - LAC (consolidated) 8.1% 2.8% 2.1% 4.5% 6.0% 6.1% 6.3% 6.3% 7.1%, Asgent, Inc., Cresco, Ltd. Company-wide expenses have been deducted from segment profits in proportion to sales. LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. The IT service industry encompasses a variety of business areas, with companies pursuing diverse operations; thus it is difficult to identify companies similar to LAC. It would be more appropriate to conduct segment-by-segment analysis. The size and scope of the company s Security Solutions Services segment (FY03/15 sales of JPY7.6bn) may be comparable with Asgent, Inc. (JASDAQ: 4288), which has annual sales of about JPY3.0bn. The System Integration Services segment (sales of JPY25.5bn) could be compared with CRESCO, LTD. (TSE1: 4674), which has annual sales of JPY25bn. Asgent posted an operating loss in FY03/15 on business launch delays. That said, LAC s Security Solutions Services segment operating margin was higher than Asgent s even before this drop into the red. Meanwhile, LAC s System Integration Services segment has maintained a higher margin than CRESCO (company with similar business), but this margin has trended lower since the reorganization of segments due to the addition of products with low profit margins to the segment. Even though the firm is aggressively investing in new fields, it is booking consolidated operating profit higher than that for CRESCO. Asgent saw its operating profit fall sharply in FY03/14 because it increased its advertising spending to facilitate becoming a system service company. LAC s Security Solutions Services segment operating margin was higher than Asgent s even before its profit began to decline. The profitability of LAC s System Integration Services segment is also better than CRESCO s. However, despite increased sales, LAC s http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 27/57

profitability declined after the new segmentation due to products with low profit margins being added to the segment. The Security Solutions Services segment is built on advanced security technologies and brand recognition. About 60% of sales generated by the System Integration Services segment come from contract renewals, mostly of financial institutions. Thus, the company expects steady income streams. According to LAC, the Security Solutions Services segment is a driver for growth, although a rapid sales increase may be challenging. On the other hand, the System Integration Services segment provides a stable source of income. The combination of the Security Solutions Services segment, which is expected to grow, and the System Integration Services segment, which generates dependable sales, sets the company apart from competitors. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 28/57

Segment Performance Old Segments New Segments (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/14 FY03/15 Orders Security Solutions Services 6,226 5,442 5,194 4,656 4,999 5,278 5,641 System Integration Services 16,052 13,934 11,630 10,808 10,814 12,788 13,479 Reseller Operations - 19,686 15,825 18,837 15,829 14,168 13,621 Total 22,278 39,063 32,649 34,301 31,642 32,234 32,741 Outstanding Orders Security Solutions Services 1,141 1,600 2,366 2,264 2,081 1,684 1,948 System Integration Services 2,569 2,470 2,145 1,538 1,764 2,433 2,755 Reseller Operations - 6,164 6,158 7,756 7,761 7,145 6,214 Total 3,710 10,235 10,669 11,558 11,606 11,263 10,917 Sales Security Solutions Services 6,247 5,025 4,454 4,795 4,519 5,153 5,338 6,226 7,640 System Integration Services 15,653 14,201 12,009 11,603 13,068 12,726 13,227 27,002 25,456 Reseller Operations 13,522 15,843 17,373 14,745 14,786 14,658 Adjustments -210-91 -357-736 -88-136 -141-246 Total 21,899 32,538 32,215 33,413 31,596 32,577 33,087 33,087 32,850 OP Security Solutions Services 1,024 660 556 710 1,071 1,327 1,432 1,516 1,880 System Integration Services 2,080 1,173 1,431 1,627 2,126 2,085 1,882 2,268 2,370 Reseller Operations 231 40 1,020 435 407 470 Adjustments -1,333-1,158-1,352-1,868-1,737-1,821-1,684-3,784-1,921 Total 1,771 906 675 1,490 1,895 1,998 2,100 0 2,329 OPM Security Solutions Services 16.4% 13.1% 12.5% 14.8% 23.7% 25.8% 26.8% 24.3% 24.6% System Integration Services 13.3% 8.3% 11.9% 14.0% 16.3% 16.4% 14.2% 8.4% 9.3% Reseller Operations 1.7% 0.3% 5.9% 3.0% 2.8% 3.2% Total 8.1% 2.8% 2.1% 4.5% 6.0% 6.1% 6.3% 0.0% 7.1% Depreciation (including goodwill/impairment losses) Security Solutions Services 159 99 90 113 185 255 344 System Integration Services 214 386 403 424 373 163 159 Reseller Operations 0 383 585 614 492 410 523 Adjustments 72 138 114 151 156 291 160 Total 445 1,006 1,193 1,301 1,206 1,120 1,187 EBITDA (OP plus depreciation costs) Security Solutions Services 1,184 758 646 823 1,256 1,583 1,777 System Integration Services 2,294 1,559 1,835 2,051 2,500 2,248 2,041 Reseller Operations 614 626 1,634 927 817 992 Company-wide -1,262-1,020-1,239-1,717-1,582-1,530-1,523 Total 2,216 1,911 1,868 2,791 3,101 3,118 3,287 EBITDA Margin Security Solutions Services 18.9% 15.1% 14.5% 17.2% 27.8% 30.7% 33.3% System Integration Services 14.7% 11.0% 15.3% 17.7% 19.1% 17.7% 15.4% Reseller Operations 4.5% 4.0% 9.4% 6.3% 5.5% 6.8% Total 10.1% 5.9% 5.8% 8.4% 9.8% 9.6% 9.9% Capital Outflows Security Solutions Services 114 139 228 773 519 305 49 System Integration Services 80 51 31 396 47 4 0 Reseller Operations 0 4,665 55 116 191 232 65 Adjustments 124 135 48 592 162 17 79 Total 318 4,990 362 1,878 918 558 193 Assets Security Solutions Services 1,794 2,152 3,122 3,120 3,112 2,681 2,421 2,834 3,761 System Integration Services 5,863 6,072 5,035 5,712 3,176 3,314 3,062 7,872 7,479 Reseller Operations 12,077 12,293 10,667 8,728 6,984 5,235 Adjustments 3,806 1,876 1,599 644 4,383 6,272 5,642 5,654 6,386 Total 11,463 22,177 22,050 20,143 19,400 19,251 16,360 16,360 17,625 Number of Employees Security Solutions Services 224 298 322 332 302 318 346 System Integration Services 755 842 833 774 738 713 700 Reseller Operations 246 230 214 259 310 292 Adjustments 221 215 194 183 167 153 153 Total 1,200 1,601 1,579 1,503 1,466 1,494 1,491 Sales Per Employee Security Solutions Services 27.9 16.9 13.8 14.4 15.0 16.2 15.4 System Integration Services 20.7 16.9 14.4 15.0 17.7 17.8 18.9 Reseller Operations - 55.0 68.9 81.2 56.9 47.7 50.2 Total 18.2 20.3 20.4 22.2 21.6 21.8 22.2 Operating Profit Per Employee Security Solutions Services 4.6 2.2 1.7 2.1 3.5 4.2 4.1 System Integration Services 2.8 1.4 1.7 2.1 2.9 2.9 2.7 Reseller Operations - 0.9 0.2 4.8 1.7 1.3 1.6 Adjustments -6.0-5.4-7.0-10.2-10.4-11.9-11.0 Total 1.5 0.6 0.4 1.0 1.3 1.3 1.4 LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 29/57

Strengths and weaknesses Strengths Stable customer base leading to steady sales: The company s core System Integration Services segment provides backbone systems that are essential for network operations. About 60% of segment sales come from contract renewals, providing the company with stable sales. Meanwhile, the Security Solutions Services segment generates about 40% of its sales from security monitoring operations, which have low cancelation rates. Japan Security Operation Center contributes technological expertise to fight cybercrime : LAC established the Japan Security Operation Center (JSOC), the biggest security monitoring center in the nation, in 2002. JSOC operates 24 hours a day, 365 days a year to protect clients networks from security threats. The center helps the company accumulate knowledge about increasingly sophisticated cybercrime and develop better technologies. Major clients boost brand recognition: LAC was a pioneer in Japan s information security industry. Early entry into the market allowed the company to count major financial institutions and government agencies requiring high levels of security protection among its clients. According to LAC, the company generates 40% of its consolidated sales from security Solutions Services to financial institutions and 20% from government agencies. About 70% of the clients in the company s System Integration Services segment are financial institutions who lend credibility to LAC. This boosts brand recognition. Weaknesses Small size in an industry that requires technological sophistication: The information security industry is growing, with more major system integrators seeking to enter. As cybercrime becomes more sophisticated, IT security providers must strengthen R&D to deal with potential threats. This could be challenging for LAC, which may not have the diverse resources of its larger rivals. For this reason, LAC has created the Cyber Grid Japan framework to collaborate with companies holding different strengths. Shortage of staff with experience in IT security: One of LAC s strengths is its expertise in cyber security. It is essential for the company to hire experienced employees to maintain its technological prowess and to further expand operations. However, there is a chronic shortage of workers in the IT industry, especially in the growing field of cyber security. To train employees on a regular basis LAC operates an in-house institution called LAC University which offers lectures and seminars on fighting cybercrime. Low profits on product sales: In 2008 LAC took over the low-margin Reseller Operations of NIWS Co. HQ Ltd., hoping that product sales to NIWS clients (financial institutions) would provide an opportunity to sell mainstay services. However, the market for these products has shrunk since the global financial crisis of 2008. The company mainly sells products to clients already using its services, so it abolished the Reseller segment and merged it with its service operations in a bid to improve margins on product sales. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 30/57

Market and value chain Overview of security solutions industry The Security Solutions Services segment comprised about 23% of consolidated sales as of FY03/15. However, this is a growing business area as many companies seek to strengthen their online defenses in response to a surge in IT attacks: Since 2011, there have been more serious IT attacks, including attempts to tamper with government websites, and important and confidential data has also been leaked from some of Japan s biggest companies. Awareness of information security has increased rapidly since 2011, according to a report on the domestic information security market released in June 2015 by the Japan Network Security Association (JNSA), a non-profit organization. According to this report, FY2013 is seen as the first year of a long-awaited upward trend in which record highs are set each year, after returning to pre-2008 financial crisis levels in FY2012, with the market scale in 2013 estimated at JPY777.0bn. This report also recognized FY 2013 as year of greater social awareness of the need for security measures with an increased focus on information management problems (personal data, privacy protection) and the problem of illegal money transfers through Internet banking. 2014 saw remarkable growth for network threat protection products (tools), security operation / management services, and insurance (services) with market scale projected to top JPY800.0bn for the first time. Furthermore, the market has continued to grow steadily in FY 2015, approaching a scale of JPY900.0bn. Per the JNSA report, the information security market stagnated in the face of a string of adverse circumstances the global financial crisis of 2008 and the slump in the global economy that followed, along with the 2011 Great East Japan Earthquake, the Thai floods of 2011, and the European debt crisis. But markets have picked up, and awareness of the increased threats to IT security is growing. According to the report, the outlook is thus promising for growth in the security solutions market. Per the JNSA report, the information security industry hit JPY730bn in FY 2012, beating the previous high set in FY 2008. The market went on to reach JPY766.1bn in FY 2013, with the information security, information security tools, and information security services markets all expanding to their highest levels ever. The rate of growth may slow in FY 2014 as the market comes to the end of an investment cycle, but JNSA expects the total information security market to approach JPY800bn, with growth in the tools and services markets. Domestic information security market FY 2011 (Act.) FY 2012 (Act.) FY 2013 (Act.) FY 2014 (Proj.) FY 2015 (Proj.) (JPYmn) Value % of Total Value % of Total YoY Value % of Total YoY Value % of Total YoY Value % of Total YoY Information security market total 694,036-731,364-5.4% 776,988-6.2% 822,560-5.9% 869,455-5.7% 47.3% * 47.4% * 5.5% 46.7% * 4.7% 46.9% * 6.4% 46.8% * 5.4% Information security services 328,475 346,457 362,849 386,176 406,889 100.0% 100.0% 100.0% 100.6% 100.0% 103.5% 100.0% 109.1% 100.0% Information security consulting 67,958 20.7% 70,165 20.3% 3.2% 72,731 20.2% 3.7% 76,331 20.5% 4.9% 80,147 21.5% 5.0% Secure system architecture 129,395 39.4% 138,889 40.1% 7.3% 144,875 40.2% 4.3% 151,375 40.6% 4.5% 158,944 42.6% 5.0% Security management services 98,417 30.0% 103,189 29.8% 4.8% 109,379 30.3% 6.0% 120,607 32.3% 10.3% 127,843 34.3% 6.0% Information security education 25,237 7.7% 26,574 7.7% 5.3% 26,979 7.5% 1.5% 27,979 7.5% 3.7% 29,378 7.9% 5.0% Information security insurance 7,468 2.3% 7,640 2.2% 2.3% 8,885 2.5% 16.3% 9,885 2.7% 11.3% 10,577 2.8% 7.0% 52.7% * 52.6% * 5.3% 53.3% * 7.6% 53.1% * 5.4% 53.2% * 6.0% Information security tools 365,562 384,907 414,139 436,383 462,566 - - - - - Source: Japan Network Security Association * Indicates % of total market value; other figures are the % of information security services. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 31/57

Overview of system integration industry System Integration Services segment comprised about 77% of consolidated sales as of FY03/15. This segment handles building information systems for clients. The primary business is system development. The market for custom information services and software grew during the 1990s and early 2000s as financial institutions and manufactures expanded their IT investments. However, investments slowed after corporate earnings deteriorated following the 2008 global financial crisis and 2011 Great East Japan Earthquake. However, investments started to increase in 2012 after the Japanese economy bottomed out. The size of the market has also begun to grow. Even so, the pace of growth in Japan may be moderate, as some manufacturers are hiring more companies overseas. Market for information services (custom software) (JPYbn) 7,500 6,000 4,500 3,000 1,500 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Custom software System integration Source: Specified Service Industry Dynamic Statistics Survey, Ministry of Economy, Trade and Industry System Integration Services: business process System integration is a labor intensive industry, so companies may not employ all the staff required for a project. In order to control personnel expenses the bulk of project expenses companies sometimes subcontract work. This means the system integration industry is like a pyramid, with the prime (original) contractor at the top. The system integration industry User (client) Order Delivery Prime contractor Second-tier contractor Second-tier contractor Third-tier contractor Third-tier contractor Third-tier contractor Third-tier contractor Fourth-tier contractor Fourth-tier contractor Source: Various The further down the pyramid a contractor is, the larger the proportion of profits taken by companies http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 32/57

above it, meaning it will be quoted lower rates for personnel the main source of sales. So in order to maximize profits, companies must move toward the top of the pyramid. They can do this by acquiring a competitive edge through scaling up their operations and accumulating expertise in-house. LAC tends to be the prime contractor or second-tier contractor (subcontractor) a profitable position that it has won by differentiating itself through its technical skill, particularly in security services and building backbone systems for financial institutions. System architecture projects Sales User (client) company Order Check client demands Explain progress Arrange the necessary personnel General manager Assistant manager Assistance Handling client demands and managing team schedules Application development team Server architecture team Network architecture team Operations architecture team Quality control team Major clients, competitors The Security Solutions Services segment has clients in various sectors because the universal need for cyber security. However, many of its clients are financial companies, government agencies, online businesses, and manufacturers. Clients in the System Integration Services segment include financial companies (banks, insurance, and brokerages), government agencies, recruitment firms, and distribution companies. According to LAC, it has competitors in varying business areas. LAC competes (and sometimes cooperates) with major companies such as NTT Data (TSE1: 9613) and Nomura Research Institute Inc. (TSE1: 4307). Major competitors in each segment Security Solutions Services: NRI Secure Technologies, Ltd. provides similar services. Other rivals include Mitsui Bussan Secure Directions, Inc., NTT DATA INTELLILINK Corporation, Symantec Japan, Inc., IBM Japan, Ltd., and auditing firms. Among publicly traded companies: NEC Corporation (TSE1: 6701), Asgent, Inc. (JASDAQ: 4288), and SecuAvail Inc. (JASDAQ: 3042). System Integration Services: CRESCO, LTD. (TSE1: 4674) is a competitor in terms of size of operations in the platform business. Among major companies that provide comprehensive services: NTT DATA Corporation (TSE1: 9613), Nomura Research Institute (TSE1: 4307), SCSK Corporation (TSE1: 9719). Product sales: JBCC. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 33/57

Contracts significant to operations LAC lists IBM Japan, Ltd. and KDDI Corp. (TSE1: 9433) in its securities report as companies with which it has business contracts that significantly impact earnings. A&I System, one of the companies from which LAC was created, was a system integrator in which IBM Japan held a stake. Reseller Operations, acquired from NIWS Co. HQ Ltd. in 2008, also maintained strong ties with IBM Japan in system sales. LAC listed IBM Japan in its FY03/14 securities report as a major client that contributed 12.9% of the company s consolidated sales (15.6% a year earlier). LAC also works with KDDI in the Security Solutions Services segment. In November 2007, KDDI acquired about 5% of LAC as part of a plan to form partnership in this area. In February 2008, KDDI began to sell KDDI Security Solutions by LAC. In December 2013, KDDI acquired an additional 26% stake in LAC indirectly by buying closely held Cosmos, which holds shares in LAC. In June 2014, KDDI adopted LAC s JSOC monitoring as an optional service for its wide area network systems. Contracts significant to operations Company Contract Details Duration IBM KDDI Source: Company securities report Basic contract on solution services (including a core partner contract covering global business services and global technology services) IBM Business Partner Contract (products) IBM Business Partner Contract (services) Contract on capital alliance Contract on business alliance LAC to sell or provide products and services to IBM Japan LAC to buy IBM Japan products LAC to use IBM Japan services Capital alliance with KDDI The terms of business alliance with KDDI From August 10, 2012 until terminated Jan. 1, 2004- Dec. 31, 2008 (automatically renewed every two years) Apr. 1, 2014- Dec. 31, 2015 (automatically renewed every two years) Dec. 9, 2013- Dec. 8, 2016 (automatically renewed every year) http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 34/57

Historical performance FY03/15 results Industry environment Competition in the IT service industry escalated as users increasingly embraced cloud computing and mobile devices, and placed smaller orders for system development and related products. Still, Japan s big companies began investing more in IT, fuelled by a recovery in earnings. Demand for information security services remained solid. Earnings overview For FY03/15, sales were JPY32.9bn (-0.7% YoY). Sales of products and services increased at the Security Solutions Services segment, and so did those of development and solutions services in the System Integration Services segment. However, the Hardware and Software Sales and the IT Maintenance Services segments saw a decline in sales. Operating profit totaled JPY2.3bn (+10.9% YoY) and recurring profit also reached JPY2.3bn (+13.7% YoY). Strong sales of the company s mainstay services have offset an increase in expenses related to the development of new services, employee training, and the hiring of mid-career workers. Net income totaled JPY1.3mn (+24.6% YoY) because of an increase in recurring profit and a JPY159mn gain linked with the sale of investment securities even as the company posted a JPY131mn charge for the liquidation of an overseas subsidiary. The company on March 27, 2015 revised its earnings projections to reflect recent trends. As such, the earnings results were roughly in line with the revised projections. Sales came in at 95.8% the initial projection, operating profit at 110.9%, recurring profit at 112.7%, and net income at 117.3%. Security Solutions Services (SSS) segment sales were better than expected owing to strong demand for information security services. However, System Integration Services (SIS) segment sales undershot the initial forecast. Although development services for financial institutions, its main clients, and non-financial service companies were stronger than expected, hardware and software sales and IT maintenance services turned sluggish. As a result, consolidated sales overall came in below the initial projection. Both operating and recurring profits topped initial projections. In addition to the contribution from a significant sales increase in the Security Solutions Services segment, sales of high-margin development services in the Systems Integration Services segment were robust. Despite the booking of a JPY130mn special loss on the liquidation of an overseas subsidiary, operating profit still beat the initial projection on higher recurring profit and the booking of JPY159mn in extraordinary income from the sale of investment securities. The company changed its reporting segments in Q1 FY03/15. In the table below, Q3 FY03/14 figures have been adjusted so that they can be compared with those of Q3 FY03/15. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 35/57

Security Solutions Services Security Solutions Services Performance (JPYmn) FY FY03/14 FY FY03/15 YoY Sales 6,225 7,639 22.7% Security Consulting Services 1,904 1,924 1.1% Security Assessment Services 1,142 1,294 13.3% Security Monitoring Services 2,330 2,853 22.4% Security Product Sales 246 787 219.3% Security Maintenance Services 601 779 29.6% Segment Profit 1,516 1,880 24.0% Segment Profit Margin 24.4% 24.6% Sales were JPY7.6bn (+22.7% YoY), with operating profit of JPY1.8bn (+24.0% YoY). Security Consulting Services saw sales of JPY1.9bn (+1.1% YoY). Sales of some overseas projects declined. However, the company won more orders for emergency response services, training services, and for onsite consulting services, as well as consulting services designed to prevent information leaks. Sales at Security Diagnosis Services totaled JPY12.9bn (+13.3% YoY). The company won new clients and received additional orders from existing clients as demand for online security increased. Sales at Security Monitoring Services were JPY2.9bn (+22.4% YoY). Some contracts were canceled because of changes in clients network environment. However, the company received new service orders resulting from equipment installations. Demand for private security operation centers (PSOCs) also rose, as did demand for replacement of existing equipment. Sales at Security Product Sales reached JPY787mn (+219.3% YoY). The company increased sales of online banking software designed to prevent fraud. Sales of equipment for PSOCs and monitoring devices, including newly launched products, also rose. Security Maintenance Services had sales of JPY779mn (+29.6% YoY). The company received new orders, and many existing contracts were renewed. System Integration Services System Integration Services Performance (JPYmn) FY FY03/14 FY FY03/15 YoY Sales 26,861 25,210-6.1% Development Services 13,157 14,216 8.0% Hardware and Software Sales 5,148 3,218-37.5% IT Maintenance Services 7,943 6,853-13.7% Solutions Services 612 922 50.5% Segment Profit 2,268 2,370 4.5% Segment Profit Margin 8.4% 9.4% Sales were JPY25.2bn (-6.1% YoY), with operating profit of JPY2.4bn (+4.5% YoY) http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 36/57

Sales at System Development Services reached JPY14.2bn (+8.0% YoY). The company continued to win orders from major banks for new backbone systems, even though some orders originally planned for the 2H had already been executed during 1H. A big project for a public institution that began during FY03/14, as well as orders for non-financial companies, contributed to profits. Hardware and Software Sales had sales of JPY3.2bn (-37.5% YoY). Profitability improved as the company pursued sales of solution services. However, sales declined as clients turned to cloud services and placed smaller orders. Sales at IT Maintenance Services totaled JPY6.9bn (-13.7% YoY). Sales declined from a year earlier, when the company won a large order from a financial institution to replace network equipment. Some contracts were also canceled. Sales at Solutions Services were JPY922mn (+50.5% YoY) thanks to an increase in orders for system renewals from local governments and municipalities. Orders for new services, such as application performance diagnosis and SecureNet, also rose. Q3 FY03/15 results Industry environment Competition in the IT service industry escalated as users increasingly embraced cloud computing and mobile devices, and placed smaller orders for system development and related products. Still, Japan s big companies began investing more in IT, fuelled by a recovery in earnings. Demand for information security services remained solid. Earnings overview For cumulative Q3 FY03/15, sales were JPY23.3bn (-1.1% YoY). Sales of products and services increased at the Security Solutions Services segment, and so did those of development and solutions services in the System Integration Services segment. However, the Hardware and Software Sales and the IT Maintenance Services segments saw a decline in sales. Operating profit totaled JPY1.4bn (+31.9% YoY) and recurring profit also reached JPY1.4bn (+40.5% YoY). Strong sales of the company s mainstay services have offset an increase in expenses related to the development of new services, employee training, and the hiring of mid-career workers. Net income totaled JPY721mn (+62.4% YoY) because of an increase in recurring profit and a JPY78mn gain linked with the sale of investment securities even as the company posted a JPY131mn charge for the liquidation of an overseas subsidiary. LAC achieved 67.8% of its full-year sales target, lower than where it stood in Q3 FY03/14 (71.1%). Operating profit stood at 67.5% of the full-year target, against 51.2% in Q3 FY03/14. Hardware and software sales were down significantly, leading to sluggish sales growth and the possibility that full-year sales will fall short of the target. But these products have low-margins, so the company expects any impact on profits to be limited. Operating profit is on track to outperform the full-year target, as sales in the high-margin SSS segment, development service sales (SIS segment), and solution service sales (SIS segment) grew by more than expected. According to the company, parent-level operating profit may fall year-on-year in Q4 owing to a number of major orders in Q4 FY03/14. Still, operating profit appears likely to outperform the full-year target, as the robust performance in Q3 looks set to continue. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 37/57

On January 15, 2015, LAC and Benesse Holdings, Inc. (TSE1: 9433) agreed to establish a joint venture to operate and maintain the Benesse group s core information systems the foundations for the Benesse group s operations. The two companies announced their agreement on September 10, 2014. The joint venture will focus on operating and maintaining information systems that can utilize the Benesse group s data, including information on customers. This information is key to the Benesse group s operations, so the joint venture will use state-of-the-art IT technology and clearly defined levels of security to provide conditions that ensure physical and ethical security. The name of the joint venture is Benesse InfoShell Co., Ltd. Ownership is split 70:30 between Benesse Holdings and LAC. The new company is scheduled to begin operations on April 1, 2015. The company changed its reporting segments in Q1 FY03/15. In the table below, Q3 FY03/14 figures have been adjusted so that they can be compared with those of Q3 FY03/15. Security Solutions Services Security Solutions Services Performance (JPYmn) Cml. Q3 FY03/14 Cml. Q3 FY03/15 YoY Sales 4,151 5,138 23.8% Security Consulting Services 1,216 1,256 3.2% Security Assessment Services 666 718 7.8% Security Monitoring Services 1,682 2,054 22.1% Security Product Sales 137 562 308.2% Security Maintenance Services 447 546 22.0% Segment Profit 847 1,081 27.7% Segment Profit Margin 20.4% 21.0% 0.0% Sales were JPY5.1bn (+23.8% YoY), with operating profit of JPY1.1bn (+27.7% YoY). Security Consulting Services saw sales of JPY1.3bn (+3.2% YoY). Sales of some overseas projects declined. However, the company won more orders for emergency response services, training services, and for onsite consulting services, as well as consulting services designed to prevent information leaks. Sales at Security Diagnosis Services totaled JPY718mn (+7.8% YoY). The company won new clients and received additional orders from existing clients even though some projects were delayed until Q4. Sales at Security Monitoring Services were JPY2.1bn (+22.1% YoY). Some contracts were canceled because of changes in clients network environment. However, the company received new service orders resulting from equipment installations. Demand for private security operation centers (PSOCs) also rose, as did demand for replacement of existing equipment. Sales at Security Product Sales reached JPY562mn (+308.2% YoY). The company increased sales of online banking software designed to prevent fraud. Sales of equipment for PSOCs and monitoring devices, including newly launched products, also rose. Security Maintenance Services had sales of JPY546mn (+22.0% YoY). The company received new orders, and many existing contracts were renewed. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 38/57

System Integration Services System Integration Services Performance (JPYmn) Cml. Q3 FY03/14 Cml. Q3 FY03/15 YoY Sales 19,367 18,117-6.5% Development Services 9,181 10,179 10.9% Hardware and Software Sales 4,127 2,236-45.8% IT Maintenance Services 5,636 5,098-9.5% Solutions Services 423 602 42.5% Segment Profit 1,462 1,728 18.3% Segment Profit Margin 7.5% 9.5% Sales were JPY18.1bn (-6.5% YoY), with operating profit of JPY1.7bn (+18.3% YoY) Sales at System Development Services reached JPY10.2bn (+10.9% YoY). The company continued to win orders from major banks for new backbone systems, even though some orders originally planned for the 2H had already been executed during 1H. A big project for a public institution that began during FY03/14, as well as orders for non-financial companies, contributed to profits. Hardware and Software Sales had sales of JPY2.2bn (-45.8% YoY). Profitability improved as the company pursued sales of solution services. However, sales declined as competition escalated with more product options, and as clients turned to cloud services and placed smaller orders. Sales were also negatively affected after the company began to procure key products from a different supplier. Sales at IT Maintenance Services totaled JPY5.1bn (-9.5% YoY). Sales declined from a year earlier, when the company won a large order from a financial institution to replace network equipment. Some contracts were also canceled. Sales at Solutions Services were JPY602mn (+42.5% YoY) thanks to an increase in orders for system renewals from local governments and municipalities. Orders for new services, such as application performance diagnosis and SecureNet, also rose. Q2 FY03/15 results Market environment Competition in the IT service industry escalated as users increasingly embraced cloud computing and mobile devices, and placed smaller orders for system development and related products. Still, Japan s big companies began investing more in IT, fuelled by an earnings recovery. Demand for information security services remained solid. Earnings overview Sales for cumulative Q2 hit JPY15.2bn (+3.4% YoY). Hardware and Software Sales, and sales from IT Maintenance Services fell in the System Integration Services segment. However, sales from System Development Services in the same segment rose. The Security Solutions Services segment also posted higher sales. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 39/57

Expenses increased as the company bolstered product development and research capabilities, and hired more staff. But profitability improved as sales increased and the company avoided unprofitable projects. Operating profit and recurring profit totaled JPY694mn (+79.6% YoY) and JPY662mn (+103.4% YoY), respectively. The company took a JPY161mn charge linked to the closure of an overseas subsidiary. But as recurring profit rose, net income reached JPY230mn (+178.1% YoY). Forecast revision On October 27, 2014, the company revised its cumulative Q2 earnings forecasts because it won contracts for development services that had not been expected until Q3 or beyond. The company also postponed some SG&A spending. The earnings results that the company subsequently released were in line with this revised forecast. Operating profit exceeded an earlier projection by JPY155mn (an increase of 28.7% YoY). However, the company stuck to its full-year forecast. Major developments LAC began providing services jointly with KDDI Corp. (TSE1: 9433) in June 2014. The two companies also sought to create new businesses. At the same time, LAC agreed to form a joint venture with Benesse Holdings, Inc. (TSE1: 9783) with the goal of offering new Security Maintenance Services. The venture operates and maintains systems and data for Benesse, and its subsidiaries and affiliates. In addition, LAC began to provide new services, such as SecureNet Service, a security monitoring package for local governments, municipalities, and regional companies in Japan. The company also released a Homepage Security & Performance Assessment Pack to beef up website security and performance. Security Solutions Services Segment Security Solutions Services Performance FY03/14 FY03/15 (JPYmn) 1H 1H YoY Sales 2,621 3,364 28.3% Security Consulting Services 701 824 17.6% Security Assessment Services 419 463 10.5% Security Monitoring Services 1,128 1,378 22.2% Security Product Sales 75 339 350.0% Security Maintenance Services 297 358 20.3% Segment Profit 476 677 42.2% Segment Profit Margin 18.2% 20.1% Sales: JPY3.4bn (+28.3% YoY) Operating profit: JPY677mn (+42.2%) Sales from Security Consulting Services totaled JPY824mn (+17.6% YoY). Sales increased partly because the company got an order from a client with a large personal data leak. Demand for emergency services, training services, and onsite consulting services stayed strong. Sales from Security Assessment Services totaled JPY463mn (+10.5% YoY). The company won new http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 40/57

clients plus additional and repeat orders from existing customers. Sales from Security Monitoring Services totaled JPY1.4bn (+22.2% YoY). The company received increased service orders resulting from equipment installations, even though some contracts were canceled after certain clients reduced the number of monitoring devices in response to changes in their network environment. It also won more orders to build private security operation centers (PSOCs). Security Product Sales reached JPY339mn (+350% YoY) as demand for equipment for PSOCs and monitoring devices, including newly launched products, increased. Sales from Security Maintenance Services were JPY358mn (+20.3% YoY). The company won new orders and saw existing contracts renewed. System Integration Services Segment System Integration Services Performance FY03/14 FY03/15 (JPYmn) 1H 1H YoY Sales 12,044 11,793-2.1% Development Services 6,017 6,643 10.4% Hardware and Software Sales 2,008 1,438-28.4% IT Maintenance Services 3,729 3,372-9.6% Solutions Services 289 339 17.5% Segment Profit 710 977 37.6% Segment Profit Margin 5.9% 8.3% The System Integration Services segment had sales of JPY11.8bn (-2.1% YoY) and an operating profit of JPY977mn (+37.6%). Overall sales declined. However, the segment was profitable on increased sales from development services and tighter avoidance of unprofitable projects. Sales from System Development Services reached JPY6.6bn (+10.4% YoY). The company won more orders from major banks for new backbone systems. It also received some projects that had not been expected until 2H. A big project for a public institution that began during the previous fiscal year also contributed to profits. Hardware and Software Sales were JPY1.4bn (-28.4% YoY). Competition escalated with more product options, and as clients turned to cloud services and placed smaller orders. Sales of IT Maintenance Services hit JPY3.4bn (-9.6% YoY). Sales declined from a year earlier, when the company won a large order from a financial institution to replace network equipment. Some clients canceled their contracts. Sales at Solutions Services were JPY339mn (+17.5% YoY) due to an increase in orders for system renewals from local governments and municipalities in Japan. Orders for new services, such as application performance diagnosis, also rose. FY03/14 results Market environment In the information service industry, the size of each system-development project shrank and customers asked for price reductions for related products. However, major companies, such as financial service firms, began to increase their IT investments as their earnings improved. Demand for cyber security measures http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 41/57

was solid. Earnings overview For FY03/14, sales fell in 1H. However, full-year sales reached JPY33.1bn (+1.6% YoY). Gross profit was JPY6.9bn (-0.3%) after the company booked depreciation expenses in connection with an overhaul of the security monitoring system and posted losses incurred at the System Integration Services. The company had operating profit of JPY2.1bn (+5.1% YoY), recurring profit of JPY2.0bn (+7.6%), and net income of JPY1.1bn (+10.4%). Operating profit, recurring profit, and net income hit a record in the absence of merger-related expenses that the company booked the year before. The company also reduced SG&A and other costs. Major developments KDDI Corp., which directly owns 5.29% of LAC, acquired shares in Cosmos, a closely held company and the largest shareholder of LAC, in December 2013. As a result, KDDI indirectly acquired an additional 25.8% stake in LAC. KDDI and LAC will strengthen their cooperation in information and communication technology services, particularly in the area of security services, and complement each other s strengths. IT attacks are becoming too complex for any single company to deal with alone. Therefore, LAC has created the Cyber Grid Japan framework to work with other companies and expand research capabilities. Under this framework, LAC formed alliances with Azbil Security Friday Co., Ltd. and Secure Brain Corporation. The company also began to provide new services using products supplied by FireEye, Inc. of the US. LAC also issues warnings concerning security threats, sponsors various security events, and conducts media interviews. Security Solutions Services Security Solutions Services Performance FY03/13 FY03/14 (JPYmn) FY Act. FY Act. YoY Sales 5,146 5,377 4.5% Security Consulting Services 2,103 1,904-9.4% Security Assessment Services 946 1,142 20.8% Security Monitoring Services 2,097 2,330 11.1% Segment Profit 1,327 1,432 7.9% Segment Profit Margin 25.8% 26.6% In the Security Solutions Services segment, sales and operating profit increased 4.5% and 7.9%, respectively. The company received more orders from both existing and new clients as demand for security measures increased. Increased sales offset depreciation and other expenses linked with a system renewal. Security Consulting Services saw sales of JPY1.9bn (-9.4% YoY). The company received more business from existing clients and the number of orders for emergency response services rose. However, profit fell because its overseas offices won fewer orders and because some operations in this segment were transferred to the other segment. Sales from Security Diagnosis Services totaled JPY1.1bn (+20.8% YoY). LAC received new orders from clients that had already hired the company for its emergency response services. Other existing clients placed additional orders. Sales from Security Monitoring Services were http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 42/57

JPY2.3bn (+11.1% YoY). There were some cancelations linked to changes in clients network environment. However, the company received new orders as demand for security measures against unauthorized access increased. System Integration Services System Integration Services Performance FY03/13 FY03/14 (JPYmn) FY Act. FY Act. YoY Sales 12,684 13,157 3.7% Development Services 12,684 13,157 3.7% Segment Profit 2,085 1,881-9.7% Segment Profit Margin 16.4% 14.3% Sales in the System Integration Services segment increased 3.7% but operating profit fell 9.7%. LAC received more orders in Q4 as clients increased IT investments. However, profit fell because the company did not cover losses stemming from a large-scale development project placed by a credit card company in Q2. Reseller Operations (now defunct) Reseller Operations Performance FY03/13 FY03/14 (JPYmn) FY Act. FY Act. YoY Sales 14,746 14,551-1.3% Hardware and Software Sales 6,515 5,394-17.2% IT Maintenance Services 7,585 8,544 12.6% Solutions Services 645 612-5.0% Segment Profit 407 469 15.4% Segment Profit Margin 2.8% 3.2% The Reseller segment posted a 1.3% decline in sales and a 15.4% increase in operating profit. Hardware and Software Sales fell. However sales from IT Maintenance Services (e.g., replacement of network equipment) lifted profits. Hardware and Software Sales totaled JPY5.4bn (-17.2% YoY). Sales declined because more users turned to cloud services and smaller equipment became more common, even though some clients in the financial industry and online service industry placed more orders. Sales from IT Maintenance Services totaled JPY8.5bn (+12.6% YoY). Clients fished for price cuts. However, the company benefited from orders from financial institutions to replace network equipment for customer branches. Sales from Solutions Services were JPY612mn (-5.0% YoY). In Japan, local governments and municipalities renewed their contracts, but the number of new orders did not rise. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 43/57

FY03/13 results Market environment As awareness of online threats grew, the information service industry benefitted from a recovery in demand from some clients (such as those in the financial industry), even though the size of each system-development project shrank and customers demanded price reductions. Earnings overview Sales hit JPY32.6bn (+3.1% YoY), with all segments enjoying higher sales. Operating profit was JPY2.0bn (+5.4%) and recurring profit JPY1.9bn (+10.6%), respectively, due to continued efforts to cut costs. Net income was JPY912mn (+38.2%) due to gains of JPY59mn in negative goodwill and JPY97mn related to a subsidiary s withdrawal from the voluntary portion of the national pension program. Thus, operating profit, recurring profit, and net income all reached a record high. Major topics LAC in April 2012 absorbed the three wholly owned subsidiaries that operated the company s primary businesses as part of an effort to become a strong company and adopt a centralized strategy in approaching potential clients. The company sought to focus on its core competence in providing services and strengthen internal coordination to provide one-stop solutions. The company also streamlined its administrative operations by reassigning workers and bought back and retired some Class-A preferred shares. Segment overview The company re-organized its segmentation along with the acquisition of subsidiaries on April 1, 2012. Under the new segmentation, Security Solutions Services had sales of JPY5.1bn (+14.8% YoY) and operating profit of JPY1.3bn (+23.9%). The company posted better-than-expected earnings because demand for security increased after a series of online attacks, including cases involving remotely controlled viruses, targeted emails, and website tampering. The System Integration Services segment had sales of JPY12.7bn (+1.0% YoY), with an operating profit of JPY2.1bn (-1.9%). Sales increased slightly because orders from credit-card companies and insurers, as well as platform-related orders from banks, rose. However, segment operating profit declined because demand for applications for the service industry and manufacturers, which tend to be more profitable, began to slow. The Reseller segment had sales of JPY14.7bn (+1.3% YoY) and operating profit of JPY407mn (-6.5%). Earnings were less than expected as Hardware and Software Sales were sluggish. However, overall sales rose slightly because of an increase in sales of an acquired subsidiary. FY03/12 results Market environment The information service industry faced a tough operating environment as clients became cautious about IT investments. However, capital investments associated with business continuity plans including http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 44/57

measures against online threats and natural disasters increased. Investments in cloud services, smartphones, and social networking services also expanded. Earnings overview The company posted sales of JPY31.6bn (-5.4% YoY). The Security Solutions Services segment posted a sales increase due to stronger demand for information security measures. However, the System Integration Services segment saw a decline in sales from System Development Services. Hardware and Software Sales and sales from Solutions Services also fell in the Reseller segment. The company quickened its efforts to streamline operations in preparation for a merger of the holding company with its three operational units, and reduced the group s SG&A expenses. As a result, operating profit and recurring profit reached JPY1.9bn (+27.2% YoY) and JPY1.7bn (+28.6%), respectively. Net profit totaled JPY660mn (-22.4%) after posting extraordinary losses of JPY47mn. Net income fell also because the company booked JPY122mn in tax adjustment expenses in connection with the liquidation of deferred income tax assets after the promulgation of a law designed to lower corporate tax rates. Major developments LAC re-examined the use of its management resources (people, goods, money, and information) toward the April 2012 merger with the goal of becoming a powerful company. The company put emphasis on its core competence by offering services that were more profitable and strengthened internal coordination to provide one-stop solutions. The company also streamlined its administrative operations by reassigning workers while expanding Shanghai LAC. In addition, the company bought back and retired some of its Class-A preferred shares to improve its finances. Segment overview System Integration Services had sales of JPY10.6bn (-7.2% YoY) and operating profit of JPY1.8bn (+10.5%). Sales from development services plunged because projects for banks were delayed and curtailed, even though orders from information service companies and manufacturers rose. Operating profit rose even as overall sales declined because the company received orders that were more profitable. The company also reduced its outsourcing expenses and procured more items internally. The Security Solutions Services segment posted sales of JPY5.2bn (+8.8% YoY), with an operating profit of JPY1.1bn (+55.6%). Sales from consulting operations, such as emergency response and training services, as well as from monitoring services, rose. Profit rose as a result. In the Reseller segment, sales were JPY15.8bn (-8.2% YoY) and operating profit was JPY830mn (-18.7%). The company received more orders from non-financial companies in the service industry. However, Hardware and Software Sales and sales from Solutions Services fell because expected orders from banks and government offices were delayed or canceled. Consequently, profit fell. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 45/57

Balance sheet Balance Sheet FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 (JPYmn) Parent Cons. Cons. Cons. Cons. Cons. Cons. Cons. Assets Cash and Equivalents 2,723 2,463 2,376 2,985 3,003 3,560 3,713 4,803 Accounts Receivable 3,623 5,939 6,058 4,909 4,854 5,013 3,950 4,492 Inventories 294 575 620 542 305 354 292 594 Prepaid Expenses - 1,449 1,603 1,754 2,066 2,508 2,063 2,167 Others 782 1,141 443 376 600 836 540 522 Allowance for Doubtful Accounts -35-33 -13-2 -2-2 -3-6 Current Assets 7,387 11,534 11,087 10,564 10,825 12,269 10,556 12,573 Tangible Fixed Assets 924 1,095 950 1,242 1,169 1,027 882 1,291 Software 463 540 595 956 1,383 1,473 1,141 876 Goodwill 1,075 5,064 4,312 3,560 2,906 2,447 1,988 1,530 Others 7 7 7 274 216 147 134 54 Intangible Fixed Assets 1,546 5,612 4,915 4,790 4,505 4,067 3,263 2,460 Investments and Other Assets 1,606 3,937 5,098 3,547 2,900 1,888 1,658 1,301 Total Fixed Assets 4,076 10,643 10,963 9,579 8,574 6,982 5,804 5,052 Total Assets 11,463 22,177 22,050 20,143 19,400 19,251 16,360 17,625 Liabilities Accounts Payable 1,099 2,642 3,274 1,931 2,053 2,055 1,501 1,579 Short-Term Debt 1,964 5,154 2,577 1,821 2,270 2,331 2,156 2,017 Others 1,072 2,463 3,292 3,842 3,924 4,730 3,732 6,093 Current Liabilities 4,136 10,259 9,143 7,594 8,247 9,116 7,389 9,689 Long-Term Debt 1,502 6,293 6,079 4,782 4,304 3,773 1,817 - Negative Goodwill - 9 7 5 3 1 - - Others 36 68 71 517 337 167 160 116 Long-Term Liabilities 1,538 6,370 6,157 5,304 4,644 3,941 1,977 116 有 利 子 負 債 ( 短 期 及 び 長 期 ) 3,466 11,447 8,656 6,603 6,574 6,104 3,973 2,017 Total Liabilities 5,673 16,629 15,300 12,898 12,890 13,056 9,366 9,805 Shareholders' Equity 5,884 5,703 6,922 7,283 6,552 6,147 6,824 7,747 Issued Capital 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Reserves 3,676 3,676 5,676 5,676 4,646 3,623 3,623 3,623 Retained Earnings 1,216 1,139 544 976 1,237 1,856 2,534 3,460 Treasury Stock -9-112 -299-368 -332-332 -333-333 Minority Interest 40 9 9 13 11 25 12 13 Others -135-163 -181-51 -53 22 159 61 Total Shareholders' Equity (Net Assets) 5,789 5,549 6,750 7,245 6,509 6,195 6,995 7,821 Working Capital 2,817 3,873 3,404 3,521 3,105 3,312 2,741 3,508 Interest-Bearing Debt 3,466 11,447 8,656 6,603 6,574 6,104 3,973 2,017 Net Debt 743 8,984 6,280 3,618 3,570 2,544 260-2,786 LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. Assets LAC s core business is to develop software and provide various IT services. Therefore, the company has more receivable and intangible fixed assets than tangible assets. The company has been tightly controlling accounts receivable as it seeks to improve its finances and manage funds efficiently. The company s intangible fixed assets include software and goodwill. The value of software is increasing along with the company s business expansion. The cost of goodwill surged in FY03/09, when the company acquired Reseller Operations. However, the company has been writing down goodwill thereafter, so the value of non-tangible assets is also declining. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 46/57

Liabilities The primary liability is long-term borrowing. The company sold unnecessary assets and is using funds more efficiently. As a result, the amount of interest-bearing debt, primarily from long-term borrowing, is declining. The company s net liabilities, which reached JPY9.0bn in FY03/09 after the acquisition of Reseller Operations, fell to JPY260mn in 2014. In FY03/15 the company reported JPY2.8bn in net cash. Net assets Net assets change depending on retained earnings and income from minority shareholdings. LAC saw a surge in net assets, except during FY03/12 and FY03/13, when the company bought back and retired preferred shares using its retained earnings. The company s capital-to-asset ratio has been rising, along with its net assets. The ratio reached 44.3% in FY03/15. Financial metrics FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 Shareholders' Equity (JPYmn) 5,749 5,540 6,741 7,232 6,499 6,169 6,982 7,808 Equity Ratio (%) 50.2 25.0 30.6 35.9 33.5 32.0 42.7 44.3 Equity Ratio (Market Value) (%) 59.3 27.5 22.9 27.6 66.7 95.4 80.2 136.9 ROE (%) - 4.3-6.7 12.2 9.6 14.4 15.3 17.0 ROA (%) - 4.2 1.8 6.2 8.5 9.6 11.2 13.3 Cash Conversion Cycle FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 Inventory Turnover - 59.1 43.0 45.4 58.0 77.9 81.1 57.7 Days in Inventory - 6.2 8.5 8.0 6.3 4.7 4.5 6.3 Accounts Receivable Turnover - 6.8 5.4 6.1 6.5 6.6 7.4 7.8 Days in Accounts Receivable - 53.6 68.0 59.9 56.4 55.3 49.4 46.9 Payables Turnover - 13.7 8.7 10.1 12.3 12.5 14.7 16.6 Days in Payables - 26.6 42.1 36.0 29.6 29.2 24.8 22.0 Cash Conversion Cycle (days) - 33.2 34.4 31.9 33.1 30.7 29.1 31.2 http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 47/57

Cash flow statement Cash Flow Statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 (JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Operating Cash Flow (1) 1,975 978 2,493 2,245 2,356 3,082 3,003 3,736 Investment Cash Flow (2) -48-8,642-1,249 963-841 -437-272 -289 Free Cash Flow (1+2) 1,927-7,664 1,244 3,207 1,514 2,645 2,731 3,447 Financial Cash Flow -190 7,413-1,337-2,586-1,492-2,123-2,591-2,385 Depreciation and Amortization (A) 738 1,004 1,193 1,299 1,204 1,117 1,186 1,227 Capital Expenditures (B) -302-402 -317-830 -979-585 -293-697 Working Capital Changes (C) 2,817 1,055-469 116-415 207-571 767 Simple FCF (NI + A + B - C) -1,483-213 932 1,204 1,301 1,239 2,472 1,019 Figures may differ from company materials due to differences in rounding methods. LAC Holdings Co., Ltd. was established on October 1, 2007, but in the company s consolidated financial statements for FY03/08, the acquisition of A&I System Co., Ltd. is deemed to have occurred on April 1, 2007. The former LAC (Little earth Corporation Co., Ltd.) also changed its financial year end from December to March. As a result, FY03/08 covers a 15 month period from January 1, 2007 to March 31, 2008. Cash flow from operations Cash flow from operations includes net income before taxes and adjustments, depreciation costs, goodwill expenses, and corporate tax payments. The company has a low ratio of depreciation expenses. The ratio of tangible fixed assets against overall assets, which becomes the basis for depreciation write-downs, was 7.3% as of FY03/15. Ratio of depreciation expenses to sales: 2.3%. Cash flow from investment activities LAC s businesses mainly comprise software development and services. Therefore, the company s investment in tangible fixed assets is limited. Its spending was large in FY03/09 and FY03/10: In FY03/09, LAC spent JPY7.9bn to the acquire Reseller Operations of NIWS Co. HQ Ltd. and NIWS; In FY03/10, the company spent JPY800mn on real estate deposits and indemnity in connection with an office transfer. However, in FY03/11, the JPY800mn deposits and indemnity from the old office were returned post contract termination. Cash flow from financing activities LAC has been paying down debt. As a result, the company s cash flow from financing activities has been showing an outflow. However, it had a huge cash inflow in FY03/09 because its long-term borrowing increased by about JPY8.3bn in connection with the acquisition of Reseller Operations. During FY03/12 and FY03/13, the company spent more than JPY1bn a year to buy back its preferred shares. The company s interest-bearing liabilities have been significantly reduced. In FY03/15, the amount of interest-bearing liabilities was about a fifth of the FY03/09 peak. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 48/57

Cash flow metrics (JPYmn) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 Interest-Bearing Debt (Short- and Long-term) 3,466 11,447 8,656 6,603 6,574 6,104 3,973 2,017 Cash-flow-to-interest-bearing-debt ratio (%) 175.5 1,170.2 347.2 322.8 299.6 207.5 140.8 58.9 Interest Coverage Ratio (x) 51.4 7.0 13.2 15.2 19.9 30.7 49.9 117.3 http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 49/57

News and topics April 2015 On April 28, 2015, the company announced the acquisition of shares in Netagent Co., Ltd., making it a subsidiary. In line with an agreement signed on March 30, 2015, the company acquired 80.7% of shares outstanding in Netagent, making it a subsidiary. The company plans to acquire all shares outstanding in Netagent, and is negotiating the transfer of remaining shares with other shareholders. On April 27, 2015, the company announced that it would be providing the INTERPOL Digital Crime Centre with technology and an engineer. In April 2015, the International Criminal Police Organization (INTERPOL) launched full-fledged operations at the INTERPOL Global Complex for Innovation (IGCI), a new organization established in Singapore. LAC will provide the IGCI with LAC Falcon, an engine that LAC developed using proprietary technology to analyze correlation between cyber-attacks. The company also dispatched to IGCI the former head of the JSOC Center, who has 12 years of experience in combating cyber-attacks at JSOC, one of Japan s largest security monitoring centers. LAC participates in INTERPOL and NEC Corporation (TSE1: 6701) s cyber-security measures as a supporting member of NEC s cyber-security solution group. In order to support the important activities of the IGCI, the company plans to implement the following measures: Provide cyber-attack monitoring system LAC Falcon, and support data analysis; Dispatch one of LAC s top engineers to the IGCI. On April 23, 2015, the company announced that it had entered into a basic agreement with P.R.O. Co., Ltd. (PRO) to establish a joint venture. Aim of the establishment of the joint venture PRO builds websites and e-commerce sites with user interfaces designed from the user s point of view, and also offers smartphone services. It has a significant user base acquired by offering many games and services for smartphones, and it operates a unique ad distribution system. Recently, smartphone users are increasing faster than PC users, as conditions surrounding the internet undergo significant change. Companies are strategically leveraging owned media such as apps that combine online and smartphone functions in a bid to maximize revenues by strengthening advertising and branding. LAC and PRO have agreed to establish a joint venture in order to provide various solution services, including O2O (online to online) services tailored to users needs. In doing so, the two companies will utilize LAC s rich base of experience, its track record, and its research expertise in information security and system development, and PRO s planning and development capacity and advertising infrastructure. Overview of the joint venture Name: Business: Capital: Japan Current Co., Ltd. solutions, media production JPY300mn (Inc. paid-in capital of JPY150mn and capital reserves of JPY150mn) http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 50/57

Date of establishment: May 2015 (planned) Stake: LAC: 70%; PRO: 30% Start of operations: June 2015 (planned). This joint venture will be a LAC consolidated subsidiary. The company is analyzing the effect of this corporate action on earnings for FY03/16, and will disclose any relevant information as soon as possible. On April 9, 2015, the company announced an exclusive distribution contract (Japan) with US based Dynatrace LLC, to enter the IT infrastructure performance management market. Dynatrace LLC (Waltham, MA) is a leading company* that provides APM (Application Performance Management) solutions to support administrative systems and services. Over 5,800 companies worldwide use Dynatrace products. It was established as a spin-off of Compuware Corporation (US) on April 1, 2015 to focus on the sudden growth in the APM market. *According to a July 2014 presentation by Gartner, Inc. ("Market Share Analysis: Application Performance Monitoring, 2013."), Compuware Corporation (NASDAQ: CWPR) is the global APM market leader, with a market share of 12.1% in 2013. (http://investor.compuware.com/releasedetail.cfm?releaseid=857378) At LAC, the APM business began on April 1, 2015 with the establishment of the new Dynatrace department. This business will focus on domestic sales through agencies, agency support, marketing, user support, diagnosis of application performance for administrative and service use, and consulting services for various systems. Retail agencies that previously had reseller agreements with Compuware Japan will now work with LAC. LAC targets first-year sales of JPY500mn (including related services) from the Dynatrace department. March 2015 On March 30, 2015, the company announced the acquisition of shares in Netagent Co., Ltd., making it a subsidiary. The company entered into an agreement to purchases shares in Netagent held by Netagent s president and founder Takayuki Sugiura and his relatives (81.4% of shares outstanding). The company is also in negotiations to purchase shares from other shareholders in Netagent, and plans to acquire all outstanding shares. Netagent was founded in 2000 to provide network security. It sells proprietary products such as PacketBlackHole, which records all information flowing through a network, and One Point Wall, a firewall that analyzes and blocks particular communications. Netagent also offers measures to prevent information leakage and forensic investigation services. With the acquisition of Netagent, LAC intends to augment the Security Solutions Service (SSS) segment and increase productivity. The overall aim is to accelerate revenue growth by capitalizing on rising demand for security measures. Netagent also plans to grow earnings by leveraging LAC s management and business resources amid a robust market for information security services. Overview of the new subsidiary (Netagent Co., Ltd.) Paid-in capital: JPY68.2mn http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 51/57

Netagent: balance sheet and performance since FY02/12 (JPYmn) FY02/12 FY02/13 FY02/14 FY02/15 Est. Net assets 450 374 318 302 Total assets 570 462 437 427 Sales 544 424 385 398 Operating profit 0-129 -65-15 Recurring profit 3-130 -65-14 Net income 1-75 -56-15 EPS (JPY) 85-5,456-4,087-1,160 Overview of the acquisition Shares held before the acquisition: zero (zero ownership, zero voting units) Shares held after the acquisition: 12,180 (12,180 voting units) Acquisition price: undisclosed, per the terms of an agreement between the two parties. An independent expert has verified that the acquisition price is fair and appropriate. Future outlook The impact of this acquisition on FY03/15 earnings will be negligible, but the company expects it to contribute to earnings over the medium to long term. On March 27, 2015, the company announced revisions to its full-year FY03/15 earnings and dividend forecasts. Full-year FY03/15 forecast revisions (previous forecast in parentheses) Sales: JPY32.8bn (JPY34.3bn) Operating profit: JPY2.3bn (JPY2.1bn) Recurring profit: JPY2.2bn (JPY2.0bn) Net income: JPY1.3bn (JPY1.1bn) EPS: JPY49.66 (JPY42.17) Reasons for the revisions Sales in the Security Solutions Service (SSS) segment are expected to outperform initial forecasts due to strong demand for information security services. In the System Integration Services (SIS) segment, although development services for financial institutions, the company s main clients, and non-financial service companies may be stronger than expected, sluggish Hardware and Software sales and IT maintenance services may drag down segment sales. The company has revised down its full-year sales forecast as a result. Operating and recurring profits are expected to outperform initial forecasts due to significant contributions from higher sales in SSS and strong performance of the profitable development service sales in SIS. Net income is expected to outperform initial forecasts; although the company booked an extraordinary loss of JPY130mn in expenses from the liquidation of an overseas subsidiary, this may be offset by higher recurring profit and the booking of JPY159mn in extraordinary income from the sale of investment securities. Dividend forecasts revision Due to favorable earnings, the company has raised its FY03/15 year-end dividend by JPY3 to JPY11 (DOE 5.5%). Plus the JPY5 interim dividend, the full-year dividend will be JPY16. On March 19, 2015, the company announced the release of Cyber GRID View vol. 1, the English version of its Research Report on Advanced Persistent Threats in Japan released on December 16, 2014. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 52/57

Other information History LAC Holdings Co., Ltd. was established in October 2007 following the merger of LAC and A&I System Co., Ltd. Each had more than 20 years experience in the IT industry. In April 2012, LAC Holdings acquired LAC, A&I, and IT Crew Co., Ltd., and changed its name to LAC Co., Ltd. 1986 LAC established to provide computer System Development Services. 1987 A&I System Co., Ltd. established by ABC (now Fuji Soft Inc.) and IBM Japan, Ltd. 1995 LAC begins network security operations. 1997 A&I recognized by a system integrator by the Ministry of International Trade and Industry. 2000 LAC establishes a monitoring center to expand its services against unauthorized online access. LAC provides monitoring services against unauthorized access at the Kyushu, Okinawa summit. A&I lists shares on the Osaka Securities Exchange s Nasdaq Japan. 2001 LAC establishes Computer Security Laboratory to study security technology. A&I establishes an Internet data center. 2002 LAC upgrades its monitoring center and established the Japan Security Operation Center, which offers enhanced security management services. LAC lists shares on Jasdaq. 2005 LAC and A&I form an alliance in the information security business, as well as a capital alliance. October 2007 LAC and A&I merged under a holding company LAC Holdings Co., Ltd. (LACHD). LACHD lists on the Osaka Securities Exchange (Heracles) and the JASDAQ Securities Exchange (ticker: 3857). April 2008 LACHD reorganizes group operations. LAC begins to focus on Security Solutions Services. A&I acquires System Integration Services operations. July 2008 LACHD establishes IT Crew Co., Ltd. (ITC). LAC turns South Korean unit into Cyber Security LAC Co., Ltd. August 2008 ITC begins Reseller Operations. December 2009 LAC China Corp CO., LTD. (Shanghai LAC) established. May 2010 LACHD, group companies consolidate offices in Mori Tower in the Hirakawa-cho district. April 2012 LACHD absorbed LAC, A&I, and ITC. Changes its name to LAC. Listed shares on Tokyo Stock Exchange s JASDAQ Standard market after the merger between the TSE and the Osaka Securities Exchange. December 2013 Strengthens business and capital alliances with KDDI. June 2014 LAC shuts down Shanghai LAC (LAC China Corp Co., Ltd.). January 2015 Established JV with Benesse Holdings Inc. to undertake operation and maintenance of the Benesse Group s backbone information system. April 2015 Acquired and consolidated Neragent. April 2015 Signed exclusive distribution contract with US-based Dynatrace, leading APM company. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 53/57

Major shareholders Top Shareholders Amount Held Cosmos, Ltd. 25.82% KDDI Corporation 5.29% LAC Co., Ltd. 4.90% LAC Employees' Holding Co., Ltd. 3.45% Mitsubishi Corporation 3.26% Terukazu Mishiba 3.05% Japan Trustee Services Bank, Ltd. (trust account) 2.24% Trust & Custody Services Bank, Ltd. (securities investment trust account) 1.90% Trust & Custody Services Bank, Ltd. (pension trust account) 1.56% U-Shin, Ltd. 1.49% As of September 30, 2014 Cosmos, Ltd. is a wholly owned subsidiary of KDDI Corporation. Top management Teruhiko Takanashi, president and representative director (born 1951), graduated from Tokyo s Nihon Kogakuin and joined Nihon Computer Service Center, now T.D.I. Co., Ltd. (JASDAQ: 9638), in 1973. In 1986, Mr. Takanashi joined the former LAC as a founding member and became president in February 2007. In 2009, he became president of A&I System. When LAC was reorganized as a new company in 2012, Takanashi assumed his current position. LAC adopts an executive officer system to separate decision-making and supervisory functions from executive functions. The company had nine directors (two of them outside directors), eleven executive officers (six of them also serve as directors), and three auditors (two of them outside auditors), as of July 1, 2014. The board of directors holds meetings once a month and extraordinary meetings as necessary to approve management policies and adopt items required by law. The board also oversees business execution. The board of auditors, meanwhile, holds monthly meetings and extraordinary meetings as required. Auditors attend meetings of board of directors and other meetings to supervise management independently. The company s outside directors are Testuya Nishikawa, who held key posts within the National Police Agency, the Ministry of Defense, and the Cabinet Secretariat, and Koushiro Uezumi, a former IBM Japan official with managerial experience at INTAGE Inc., now INTAGE HOLDINGS Inc. (TSE1: 4326), and other companies. Employees LAC had 1,491 employees at the consolidated level at the end of March 2014. At the parent level, it had 1,151 workers. The following table shows changes in the number of employees at the consolidated level. http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 54/57

Number of employees (year-end) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 Security Solutions Services 224 298 322 332 302 318 346 System Integration Services 755 842 833 774 738 713 700 Reseller Operations 0 246 230 214 259 310 292 Company-wide 221 215 194 183 167 153 153 Total 1,200 1,601 1,579 1,503 1,466 1,494 1,491 In FY03/15, the company merged the Reseller Operations segment with the Security Solutions Services and System Integration Services segments. Dividend payout The company seeks to maintain stable dividend payments by taking into consideration investment and cash flow. It targets a dividend on equity ratio of 5%. Dividends (JPY) FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 DPS 6.0 9.0 10.0 10.0 10.0 12.0 13.0 16.0 Dividend on Equity Ratio (DOE) (%) 5.6 4.2 5.1 5.2 4.8 5.2 5.0 5.5 Payout Ratio (%) 18.2 98.7-38.9 45 34.3 32.7 32.3 http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 55/57

Company profile Company name LAC Co., Ltd Phone Head office Hirakawacho Mori Tower, 2-16-1 Hirakawacho, Chiyoda, Tokyo Listed on 03-6757-0100 Tokyo Stock Exchange JASDAQ Standard Established Exchange listing October 1, 2007 October 1, 2007 Website http://www.lac.co.jp/ IR Contact ir@lac.co.jp Financial year end March IR website http://www.lac.co.jp/ir/index.html http://www.sharedresearch.jp/ Copyright (C) Shared Research Inc. All Rights Reserved 56/57

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