NEC Corporation

15. Leasing Arrangements

(1) Leasing business of computer equipment

In the normal course of business, the company sells certain equipment to an affiliated financing company which in turn leases the equipment to certain government and government agency customers under operating leases. The company also agrees to repurchase that equipment at prescribed amounts at the expiration of the lease. The company has previously accounted for these transactions as sales which is consistent with accounting practices in Japan. The estimated accrued losses arising from future repurchases of computers have been provided for. Effective December 1, 1995, the company began to account for these transactions as assets owned and leased to others under operating leases as required by U.S. generally accepted accounting principles. The company has not restated prior periods because the effect on earnings of applying the new accounting practice is not material. During a period of transition, which will continue for approximately three years, income before taxes was reduced by 19,528 million yen ($182,505 thousand) for the year ended March 31, 1996, and is expected to be reduced by 21,624 million yen ($202,093 thousand) for the year ending March 31, 1997 and 13,853 million yen ($129,467 thousand) for the year ending March 31, 1998 compared to income that would have been reported if the company had previously followed the new accounting practice. If the company had followed this new accounting practice in prior years, income before taxes would have been reduced by 11,729 million yen for the year ended March 31, 1994 and increased by 7,486 million yen for the year ended March 31, 1995.

(2) Lease of facilities and equipment for the company's use

The company leases primarily certain facilities and equipment for its own use. Rental expenses under operating leases for the years ended March 31, 1994, 1995 and 1996 aggregated approximately 123,975 million yen, 122,058 million yen and 111,049 million yen ($1,037,841 thousand), respectively. Future minimum rental payments at March 31, 1996 are: 12,482 million yen ($116,654 thousand) in 1997, 12,960 million yen ($121,121 thousand) in 1998, 10,626 million yen ($99,308 thousand) in 1999, 10,135 million yen ($94,720 thousand) in 2000, 7,668 million yen ($71,664 thousand) in 2001 and 18,635 million yen ($174,159 thousand) in 2002 and thereafter.

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