NEC Corporation

15. Leasing Arrangements

(1) Leasing 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 accounting principles generally accepted in the United States of America. 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 Y19,528 million for the year ended March 31, 1996 and Y23,800 million ($191,935 thousand) for the year ended March 31, 1997, and is expected to be reduced by Y16,711 million ($134,766 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 increased by Y7,486 million for the year ended March 31, 1995.

At March 31, 1997, the company invested in computer equipment to be leased to others as described above, amounting to Y80,733 million ($651,073 thousand) less accumulated depreciation of Y44,218 million ($356,597 thousand). Future minimum lease payments from noncancelable leases as of March 31, 1997 are Y8,158 million ($65,790 thousand) in 1998 and Y750 million ($6,048 thousand) in 1999.

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

The company leases certain facilities and equipment for its own use. Rental expenses under operating leases were as follows:


                                                                                              In thousands of

                                                        In millions of yen                      U.S. dollars

                                              -------------------------------------------    -----------------

Year ended March 31                               1995            1996            1997            1997


Rental expenses under operating leases         Y 122,058       Y 111,049       Y 120,056       $ 968,194


 Future minimum rental payments are as follows:


                                                        In thousands of

Year ending March 31             In millions of yen      U.S. dollars


        1998                         Y 16,189             $ 130,556

        1999                           13,759               110,960

        2000                           12,625               101,815

        2001                            7,311                58,960

        2002                            6,327                51,024

        2003 and thereafter            17,094               137,855


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