NEC Corporation

Financial Review

In fiscal 1995, ended March 31, 1995, despite a continued slump in private-sector capital investment, higher personal consumption propelled a moderate recovery in the Japanese economy. In the domestic electronics industry, the markets for mobile communications equipment and PCs continued to grow. Overseas, the United States and most Asian countries enjoyed economic expansion and European countries began to show signs of recovery, resulting in increased demand for electron devices and information and communications equipment.

Amid this environment, we focused on attaining further growth in our C&C operations, which comprise the communications, computers, and electron devices areas. Specifically, we worked to develop new products that better meet customer needs and strengthened our global production operations and marketing and service structure. In addition, we enhanced operating efficiency by promoting cost reduction and the effective allocation of personnel.

Operating Results


Consolidated net sales for the fiscal year totaled 3,769.4 billion yen ($43,326 million), an increase of 5 percent from the previous period. Sales in C&C operations rose 5 percent, to 3,591.0 billion yen ($41,276 million), representing 95 percent of net sales.

In C&C operations, sales of communications systems and equipment rose 6 percent, to 1,027.1 billion yen ($11,806 million), primarily owing to an increase in domestic sales of mobile communications terminals. Despite a rise in sales of PCs, lackluster sales of small business computers and mainframe computers, attributable to market trends toward open systems and downsizing, held sales of computers and industrial electronic systems to 1,789.4 billion yen ($20,568 million), approximately the same level as in the previous fiscal year. Sales of electron devices climbed 18 percent, to 774.5 billion yen ($8,902 million), mainly because of robust sales of memory devices and color LCDs both in Japan and overseas.

Notwithstanding higher sales of communications equipment and electron devices, slightly lower sales of computers held domestic sales growth to 2 percent, to 2,763.9 billion yen ($31,769 million). Overseas sales rose 15 percent, to 1,005.4 billion yen ($11,557 million), with all sectors--particularly electron devices--performing well.

Net Income

Income before income taxes rose 198 percent, to 74.7 billion yen ($859 million), while net income soared 435 percent, to 35.3 billion yen ($406 million). These significant improvements were primarily attributable to such factors as the strong performance of electron devices both in Japan and overseas and improved operating efficiency and overall cost reduction.

As a result, net income per share of common stock was 22.92 yen ($0.263), and net income per American Depositary Share was 115 yen ($1.32).


In fiscal 1995, cash dividends per share were maintained at 10.00 yen ($0.115), including an interim cash dividend of 5.00 yen ($0.057) paid in December 1994.

Investment Programs

Research and Development Expenses

Seeking to attain further advances in our C&C operations, we are actively engaged in the R&D of leading-edge technologies. During the fiscal year, R&D expenses increased 2 percent, to 266.0 billion yen ($3,058 million), and amounted to 7 percent of net sales.

Capital Expenditures

In view of strong demand for semiconductors and color LCDs, we actively invested in facilities for the production of those products. Capital expenditures totaled 300.2 billion yen ($3,451 million), 30 percent above the restrained level of fiscal 1994.


Financial Position

At fiscal year-end, total assets stood at 4,151.3 billion yen ($47,716 million), an increase of 111.5 billion yen ($1,282 million) from the previous fiscal year-end. Although notes and accounts receivable, trade, declined as a result of improvement in receivable turnover, current assets grew 31.8 billion yen ($366 million) from the end of the previous fiscal year, due mainly to higher inventories in preparation for anticipated strong sales in fiscal 1996. Other factors contributing to the rise in total assets included an increase of 34.0 billion yen ($390 million) in property, plant and equipment due to higher semiconductor- and LCD-related capital investment and an increase of 30.1 billion yen ($346 million) in long-term marketable securities.

Total liabilities rose 102.6 billion yen ($1,180 million) from the previous year. Major factors contributing to this rise were an increase in notes and accounts payable, trade, due to greater purchases of materials because of higher sales; an increase of 74.2 billion yen ($852 million) in current liabilities; and an increase in long-term debt because of the issuance of convertible bonds.

The ratio of shareholders' equity to total assets fell 0.4 percentage point, to 19.0 percent.

Cash Flows

Net cash provided by operating activities rose 39.5 billion yen ($455 million) from the previous period, to 283.4 billion yen ($3,257 million). The increase was caused primarily by the period's decrease in notes and accounts receivable, trade; a rise in notes and accounts payable, trade; and marked improvement in net income, which together served to offset an increase in inventories.

Net cash used in investing activities climbed 14.7 billion yen ($170 million), to 253.7 billion yen ($2,916 million).

Net cash provided by financing activities rose 14.3 billion yen ($164 million), to 27.3 billion yen ($314 million), primarily because of the issuance of convertible bonds and increased short-term borrowings, which offset bond redemption payments.

As a result, cash and cash equivalents rose 54.5 billion yen ($627 million) during the year under review, to 446.0 billion yen ($5,127 million).

Consolidated Subsidiaries

During fiscal 1995, eight subsidiaries were newly consolidated and three subsidiaries were eliminated through a merger and reductions of our ownership share. This brought the total number of consolidated subsidiaries to 127. The newly consolidated companies comprised three domestic companies, including NEC Livex Ltd., and five overseas companies, among them the NEC Research Institute, Inc.

Segment Information (Unaudited)

The following segment information is prepared in accordance with the regulations under the Securities and Exchange Law of Japan.

Industry Segment Information

NEC's principal business is C&C operations, which comprise communications systems and equipment, computers and industrial electronic systems, and electron devices. In fiscal 1994 and 1995, C&C operations represented more than 90 percent of both consolidated net sales and operating profit.

Geographic Segment Information

                                                              In millions of yen
                                             Japan         Overseas      Eliminations    Consolidated
 Net sales
  Unaffiliated customers..................Y3,026,732      Y  742,625      Y    -----      Y3,769,357
  Intersegment............................   424,952          69,620        (494,572)          -----
    Total................................. 3,451,684         812,245        (494,572)      3,769,357
 Operating expenses....................... 3,358,479         752,921        (497,812)      3,613,588
  Operating profit........................Y   93,205      Y   59,324      Y    3,240      Y  155,769
 Net sales
  Unaffiliated customers..................Y2,994,008      Y  585,779      Y    -----      Y3,579,787
  Intersegment............................   341,553          26,690        (368,243)          -----
    Total.................................Y3,335,561      Y  612,469      Y (368,243)     Y3,579,787

Sales by Market

                       In millions of yen             Percent change          Percentage of net sales
                -------------------------------   ------------------------   ------------------------
                   1993       1994       1995      1993     1994     1995     1993     1994     1995
Domestic.......Y2,714,194 Y2,708,653 Y2,763,937     -9%       0%       2%      77%      76%      73%
Overseas.......   800,785    871,134  1,005,420      1        9       15       23       24       27
    Total......Y3,514,979 Y3,579,787 Y3,769,357     -7%       2%       5%     100%     100%     100%
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