NEC Corporation

Financial Review

Operating Results


In fiscal 1997, ended March 31, 1997, consolidated net sales advanced 13 percent, to Y4,948.4 billion ($39,907 million). Of this total, sales in C&C operations--which comprise communications systems and equipment, computers and industrial electronic systems, and electron devices--amounted to Y4,728.3 billion ($38,131 million), a 13 percent increase over the previous fiscal year. Sales in other operations rose 13 percent, to Y220.2 billion ($1,776 million).
In C&C operations, sales of communications systems and equipment soared 37 percent, to Y1,686.6 billion ($13,602 million), with domestic sales of mobile communications systems and handsets and transmission systems leading this growth. In computers and industrial electronic systems, higher domestic sales of PCs and PC servers resulted in total sales of Y2,078.5 billion ($16,762 million), an increase of 7 percent over the previous fiscal year. However, despite gains in sales of ASICs, microcomputers, and TFT color LCDs, the impact of deteriorating memory prices in the world market caused sales of electron devices to fall 7 percent, to Y963.2 billion ($7,768 million).
Domestic sales increased 21 percent in fiscal 1997, to Y3,842.8 billion ($30,991 million), fostered by the strength of communications systems and equipment as well as computers. Overseas, lapsing memory prices and the transfer of NEC's overseas PC operations to Packard Bell NEC, Inc., an affiliated company accounted for by the equity method, resulted in a sales decrease of 9 percent, to Y1,105.6 billion ($8,916 million).

Net Income

Income before income taxes fell 20 percent, to Y121.2 billion ($978 million). This was largely the result of the negative effects on the profitability of semiconductor subsidiaries brought about by falling memory prices, despite the profit realized through the sale of marketable securities and land. However, net income increased 19 percent over the previous fiscal year, to Y91.6 billion ($739 million). This was prompted mainly by the tax benefits resulting from the devaluation of shares of a wholly owned subsidiary, NEC Home Electronics, Ltd.
As a result, net income per share of common stock was Y51.78 ($0.418), and net income per American Depositary Share was Y259 ($2.09).


In fiscal 1997, cash dividends per share remained at Y11.00 ($0.089), which included an interim dividend of Y5.50 ($0.044) per share paid in December 1996.

Investment Programs

R&D Expenses

In further advancing our C&C operations, we are actively engaged in the R&D of leading-edge technologies. During the fiscal year under review, R&D expenses increased 17 percent, to Y348.5 billion ($2,811 million), and accounted for 7 percent of net sales.

Capital Expenditures

During fiscal 1997, we invested primarily in facilities for the manufacture of semiconductors and TFT color LCDs in view of strong demand for such products. Capital expenditures climbed 8 percent, to Y433.0 billion ($3,492 million).


Financial Position

At fiscal year-end, total assets were Y4,799.2 billion ($38,703 million), a Y116.0 billion ($936 million) increase from the previous fiscal year-end. Although a drop in inventories led to a decrease in current assets, total assets grew as a result of a rise in property, plant and equipment to enhance production capacity and an increase in long-term receivables and investments with additional investment in Packard Bell NEC. However, due to strong sales growth and higher efficiency in asset management, NEC's asset turnover rate improved 0.04 point, to 1.04.
Total liabilities fell Y23.7 billion ($191 million), as notes and accounts payable, trade, and employees' savings deposits decreased. These factors outweighed gains in short-term borrowings, current portion of long-term debt, and long-term debt.
As a result, the shareholders' equity ratio improved 2.1 percentage points over the previous fiscal year-end, to 20.9 percent.

Cash Flows

Net cash provided by operating activities increased Y18.0 billion ($145 million) compared with the previous fiscal year, to Y301.8 billion ($2,434 million). Although notes and accounts payable and employees' savings deposits dropped, decreases in notes and accounts receivable and inventories led to the increase.
Net cash used in investing activities climbed Y111.7 billion ($901 million), to Y467.7 billion ($3,772 million), due mainly to a leap in property, plant and equipment as well as a gain in investments in affiliated companies.
Net cash provided by financing activities skyrocketed Y129.1 billion ($1,041 million), to Y130.0 billion ($1,048 million), primarily because of a rise in proceeds from long-term debt and an increase in short-term borrowings.
As a result, cash and cash equivalents at end of year fell Y30.5 billion ($246 million), to Y350.5 billion ($2,827 million).

Consolidated Subsidiaries

At the end of fiscal 1997, the number of consolidated subsidiaries stood at 128, an increase of one over the previous fiscal year-end. A domestic subsidiary, NEC Computer Systems, Ltd., and an overseas subsidiary, Shougang NEC Electronics Co., Ltd., were added, while a subsidiary was eliminated in the wake of a merger.

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 1996 and 1997, 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....Y4,078,220      Y  870,217    Y     ---         Y4,948,437
  Intersegment..............   446,772         183,173     (629,945)               ---
    Total................... 4,524,992       1,053,390     (629,945)         4,948,437
 Operating expenses......... 4,340,619       1,049,666     (625,629)         4,764,656
 Operating profit...........Y  184,373      Y    3,724    Y  (4,316)        Y  183,781
 Assets.....................Y4,159,919      Y  758,485    Y(119,239)        Y4,799,165
 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

Sales by Market
                       In millions of yen            Percent change       Percentage of net sales
             ------------------------------------  --------------------  -------------------------
                  1995        1996        1997      1995   1996   1997      1995    1996    1997
Domestic.....Y2,763,937   Y3,186,913   Y3,842,839     2%    15%    21%       73%     72%     78%
Overseas..... 1,005,420    1,210,279    1,105,598    15     20     -9        27      28      22
    Total....Y3,769,357   Y4,397,192   Y4,948,437     5%    17%    13%      100%    100%    100%
Copyright NEC Corporation. All rights reserved.