NEC Corporation

Financial Review

In fiscal 1996, ended March 31, 1996, the Japanese economy had a sluggish start, due mainly to the rapid appreciation of the yen. In the second half of the fiscal year, however, the yen weakened, the Japanese government implemented economic stimulus measures, and private-sector capital investment and personal consumption increased, resulting in a mild recovery. Overseas, economic growth slowed in the United States and Europe, while the economies of Asia continued to expand at a relatively fast pace. The domestic electronics industry benefited from healthy demand for such products as mobile communications systems and equipment, PCs, and semiconductors, centered on memory devices. Demand for electron devices remained buoyant worldwide.

Amid this environment, we endeavored to achieve further expansion in our C&C operations--which comprise communications systems and equipment, computers and industrial electronic systems, and electron devices--by developing products that accurately meet customer needs. At the same time, we worked to upgrade our manufacturing, marketing, and service structures in Japan and overseas. Moreover, we enhanced operating efficiency by such means as the promotion of overall cost reduction and the effective allocation of personnel.

Operating Results


Consolidated net sales for the fiscal year amounted to 4,397.2 billion yen ($41,095 million), an increase of 17 percent from the previous fiscal year. Sales in C&C operations also rose 17 percent, to 4,202.9 billion yen ($39,279 million). Sales in other operations grew 9 percent, to 194.3 billion yen ($1,816 million).

In C&C operations, sales of communications systems and equipment climbed 19 percent, to 1,227.0 billion yen ($11,467 million), due mainly to an increase in domestic sales of mobile communications systems and equipment. In computers and industrial electronic systems, such factors as higher domestic sales of PCs resulted in total sales in this area of 1,942.9 billion yen ($18,158 million), an increase of 9 percent from the previous fiscal year. Sales of electron devices jumped 33 percent, to 1,033.0 billion yen ($9,654 million), thanks primarily to the continued buoyancy of domestic and overseas sales of memory devices.

Domestic sales rose in all business areas, climbing 15 percent overall, to 3,186.9 billion yen ($29,784 million). Overseas, although sales of communications systems and equipment declined from the previous fiscal year, those of computers and electron devices grew, resulting in an overall increase of 20 percent in overseas sales, to 1,210.3 billion yen ($11,311 million).

Net Income

Income before income taxes climbed 103 percent, to 151.3 billion yen ($1,414 million), while net income soared 119 percent, to 77.2 billion yen ($721 million). The principal factors behind these increases were strong sales of electron devices in both domestic and overseas markets and declines in the ratios of cost of sales and selling, general and administrative expenses to net sales, which resulted from Companywide efforts to curb costs and expenses.

As a result, net income per share of common stock was 45.21 yen ($0.423), and net income per American Depositary Share was 226 yen ($2.11).


In fiscal 1996, cash dividends per share were raised 10 percent, to 11.00 yen ($0.103), which included an interim dividend of 5.00 yen ($0.047) per share paid in December 1995.

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 12 percent, to 298.7 billion yen ($2,792 million), and amounted to 7 percent of net sales.

Capital Expenditures

In response to robust demand for memory devices and other semiconductors, we actively invested in facilities for the manufacture of such products. Capital expenditures rose 34 percent from the previous year, to 402.0 billion yen ($3,757 million).


Financial Position

At fiscal year-end, total assets stood at 4,683.1 billion yen ($43,767 million), a rise of 531.8 billion yen ($4,970 million) from the previous fiscal year-end. Despite a decline in cash and cash equivalents, total current assets grew 347.5 billion yen ($3,247 million), due mainly to a 215.1 billion yen ($2,011 million) increase in notes and accounts receivable, trade, as a result of higher sales and a rise of 173.6 billion yen ($1,622 million) in inventories in preparation for anticipated strong sales in fiscal 1997. In addition, net property, plant and equipment increased 126.0 billion yen ($1,178 million) due to higher semiconductor-related capital investment.

Total liabilities rose 440.0 billion yen ($4,112 million) from the previous fiscal year-end. Major factors contributing to this rise were a 326.1 billion yen ($3,047 million) increase in notes and accounts payable, trade, due to greater purchases of materials, and a rise of 37.0 billion yen ($346 million) in long-term debt.

The ratio of shareholders' equity to total assets edged down 0.2 percentage point, to 18.8 percent.

Cash Flows

Net cash provided by operating activities amounted to 283.8 billion yen ($2,652 million), virtually unchanged from the previous fiscal year. Notes and accounts receivable, trade increased, as a result of higher sales, and inventories rose, offsetting an expansion in notes and accounts payable, trade and the improvement in net income.

Net cash used in investing activities climbed 102.2 billion yen ($955 million), to 356.0 billion yen ($3,327 million), due primarily to the increase in property, plant and equipment and investments in affiliated companies.

Net cash provided by financing activities declined 26.4 billion yen ($247 million), to 0.9 billion yen ($8 million), caused mainly by a decrease in funds procured through long-term debt and short-term borrowings.

As a result, cash and cash equivalents declined 65.0 billion yen ($608 million), to 381.0 billion yen ($3,561 million), at fiscal year-end.

Consolidated Subsidiaries

At the end of the year under review, the number of consolidated subsidiaries was 127, the same as at the previous fiscal year-end.

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 1995 and 1996, C&C operations represented more than 90 percent of consolidated net sales, operating profit and assets.

Geographic Segment Information

                                                              In millions of yen
                                             Japan         Overseas      Eliminations    Consolidated
 Net sales
  Unaffiliated customers..................Y3,435,563      Y  961,629      Y    -----      Y4,397,192
  Intersegment............................   471,135         108,724        (579,859)          -----
    Total................................. 3,906,698       1,070,353        (579,859)      4,397,192
  Operating expenses...................... 3,776,257         951,425        (578,292)      4,149,390
  Operating profit........................Y  130,441      Y  118,928      Y   (1,567)     Y  247,802
  Assets..................................Y4,306,232      Y  674,804      Y (297,916)     Y4,683,120
 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

Sales by Market

                       In millions of yen             Percent change          Percentage of net sales
                -------------------------------   ------------------------   ------------------------
                   1994       1995       1996      1994     1995     1996     1994     1995     1996
Domestic.......Y2,708,653 Y2,763,937 Y3,186,913      0%       2%      15%      76%      73%      72%
Overseas.......   871,134  1,005,420  1,210,279      9       15       20       24       27       28
    Total......Y3,579,787 Y3,769,357 Y4,397,192      2%       5%      17%     100%     100%     100%
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