20-F/A

As filed with the Securities and Exchange Commission on October 1, 2004

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F/A

Amendment No. 1

o   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934

x   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2004

o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period           to          

Commission File No. 0-12713

NIPPON DENKI KABUSHIKI KAISHA

(Exact name of Registrant as specified in its charter)

NEC CORPORATION

(Translation of Registrant’s name into English)

Japan
(Jurisdiction of incorporation or organization)

7-1, Shiba 5-chome
Minato-ku, Tokyo 108-8001, Japan
81-3-3454-1111
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

American Depositary Shares
each representing one share of common stock of the Registrant

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

1,929,268,717 shares of common stock

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 o Item 18 x

TABLE OF CONTENTS

	Page
Explanatory Note		3
ITEM 18. Financial Statements		4
CONSOLIDATED FINANCIAL STATEMENTS		F-1
EXHIBIT INDEX
EX-12 Certifications required by Rule 13a-14(a)
EX-13 Certifications required by Rule 13a-14(b)

2

Explanatory Note

     NEC Corporation is filing this Form 20-F/A to correct the following inadvertent typographical errors found in its consolidated financial statements filed as Item 18 of its Form 20-F for the fiscal year ended March 31, 2004: (i) “Report of Independent Auditor” listed in “Index to Consolidated Financial Statements” on page F-1 should have been shown as “Report of Independent Registered Public Accounting Firm”, (ii) Net sales for the fiscal year ended March 31, 2004 on page F-5 should have been shown as ¥4,906,821 and not ¥4,695,035, (iii) “the company” in the fifth sentence under the heading “Goodwill and other intangibles” on page F-10 should have been shown as “the Company”, (iv) “9,454” in the fourth sentence in the fourth paragraph under the heading “10. Income Taxes” on page F-33 should have been shown as “¥9,454”, (v) “Report of Independent Auditor” listed in the “Contents” section of the consolidated financial statements for Elpida Memory, Inc. should have been shown as “Report of Independent Registered Public Accounting Firm”, (vi) the “Accounts receivable, other Related party” line item and amounts and the “Other” line item and amounts, which were set forth under “Accounts receivable, other Related party” and together with “Accounts receivable, other Related party” were reported as part of the consolidated balance sheets of Elpida Memory, Inc. on page 2 of the consolidated financial statements for Elpida Memory, Inc., should have been shown as follows:

	March 31
	2003		2004
	(Millions of yen)
Accounts receivable, other:
Related party	¥	6,098	¥	262
Other		1,938		6,168

and (vii) the “Non-cash investing transaction Property, plant and equipment acquired under capital leases” line item and amounts reported as part of the consolidated statements of cash flows of Elpida Memory, Inc. on page 6 of the consolidated financial statements for Elpida Memory, Inc. should have been shown as follows:

	Year ended March 31
	2002		2003		2004
	(Millions of yen)
Non-cash investing transaction
Property, plant and equipment acquired under capital leases	¥	317	¥	4,821	¥	64,400

     With the exceptions of the foregoing corrections, no other changes have been made to the Form 20-F for the fiscal year ended March 31, 2004.

3

ITEM 18. FINANCIAL STATEMENTS.

     See our consolidated financial statements beginning on page F-1.

4

Signature

          The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

NEC CORPORATION
By:	/s/ AKINOBU KANASUGI
Name:	Akinobu Kanasugi
Title:	President and Member of the Board

Date: October 1, 2004

NEC Corporation

Index to Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets at March 31, 2003 and 2004		F-3, F-4
Consolidated Statements of Operations, Comprehensive Income (Loss) and Retained Earnings for the years ended March 31, 2002, 2003, and 2004		F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2002, 2003, and 2004		F-6
Notes to Consolidated Financial Statements		F-7 - F-59
Financial Statements Schedules for the years ended March 31, 2002, 2003 and 2004:
II – Valuation and Qualifying Accounts		F-60

   All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

   Financial statements of majority-owned subsidiaries not consolidated and of 50 percent or less owned persons accounted for by the equity method have been omitted because the registrant’s and its other subsidiaries’ proportionate share of the income from continuing operations before income taxes, and total assets of each such company is less than 20 percent of the respective consolidated amounts, and the investment in and advances to each company is less than 20 percent of consolidated total assets, except for the followings:

Consolidated Financial Statements of Elpida Memory, Inc. at March 31, 2003 and 2004 and Years ended March 31, 2002, 2003 and 2004 F-61

F - 1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
NEC Corporation (Nippon Denki Kabushiki Kaisha)

We have audited the accompanying consolidated balance sheets of NEC Corporation (the “Company”) as of March 31, 2003 and 2004, and the related consolidated statements of operations, comprehensive income (loss) and retained earnings and cash flows for each of the three years in the period ended March 31, 2004, all expressed in Japanese yen. Our audits also included the financial statement schedule listed in the Index at Item 18 (a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of NEC Corporation at March 31, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended March 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, in fiscal 2003 the Company changed its method of accounting for goodwill and, in fiscal 2004, the Company changed its method of accounting for consolidation of variable interest entities.

/s/ Ernst & Young ShinNihon            

Tokyo, Japan
April 27, 2004, except for Note 24, as to which the date is June 22, 2004

F - 2

NEC Corporation

Consolidated Balance Sheets

	March 31
	2003			2004
	(Millions of yen)
Assets
Current assets:
Cash and cash equivalents	¥	344,345		¥	496,763
Notes receivable, trade (Notes 8 and 16)		13,692			17,759
Accounts receivable, trade (Notes 8 and 16)		840,844			848,165
Allowance for doubtful notes and accounts		(32,551	)		(25,219	)
Inventories (Note 5)		553,820			570,026
Deferred tax assets (Note 10)		124,577			138,505
Prepaid expenses and other current assets (Note 8)		75,315			83,757
Total current assets		1,920,042			2,129,756
Investments and long-term receivables:
Marketable securities (Notes 4 and 8)		116,093			149,989
Investments and advances (Note 3):
Affiliated companies		160,028			164,620
Other		156,906			126,921
Long-term receivables, trade		33,073			9,843
		466,100			451,373
Property, plant and equipment (Notes 8 and 21):
Land		108,021			99,254
Buildings		878,399			819,443
Machinery and equipment		1,885,513			1,756,485
Construction in progress		29,260			39,326
		2,901,193			2,714,508
Accumulated depreciation		(2,062,852	)		(1,944,294	)
		838,341			770,214
Other assets:
Deferred tax assets (Note 10)		565,201			414,083
Goodwill (Note 6)		46,474			20,993
License fees and other intangibles (Note 6)		37,737			35,436
Other (Note 7)		229,405			222,487
		878,817			692,999
	¥	4,103,300		¥	4,044,342

F - 3

	March 31
	2003			2004
	(Millions of yen)
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings (Note 8)	¥	212,350		¥	98,052
Current portion of long-term debt (Notes 8 and 11)		270,956			266,450
Notes payable, trade		39,709			39,540
Accounts payable, trade		835,309			890,926
Accounts payable, other and accrued expenses		237,743			272,283
Accrued income taxes		39,708			39,488
Other current liabilities		138,449			135,848
Total current liabilities		1,774,224			1,742,587
Long-term liabilities:
Long-term debt (Note 8)		1,003,787			806,517
Accrued pension and severance costs (Note 9)		705,551			524,898
Other		27,881			37,506
		1,737,219			1,368,921
Minority shareholders’ equity in consolidated subsidiaries		135,613			221,374
Preferred securities issued by a subsidiary (Notes 2 and 11)		97,800			—
Commitments and contingent liabilities (Note 22)
Shareholders’ equity (Note 12):
Common stock:
Authorized – 3,200,000,000 shares
Issued 2003 – 1,656,268,189 shares		244,726
2004 – 1,929,268,717 shares					337,820
Additional paid-in capital		361,820			454,333
Retained earnings		41,567			71,901
Accumulated other comprehensive income (loss)		(286,417	)		(149,797	)
		361,696			714,257
Treasury stock, at cost:
2003 –3,680,034 shares, 2004 –2,677,439 shares		(3,252	)		(2,797	)
		358,444			711,460
	¥	4,103,300		¥	4,044,342

See notes to consolidated financial statements

F - 4

NEC Corporation

Consolidated Statements of Operations, Comprehensive Income (Loss)
and Retained Earnings

	Year ended March 31
	2002			2003			2004
	(Millions of yen)
Sales and other income:
Net sales	¥	5,101,022		¥	4,695,035		¥	4,906,821
Interest, gain on securities sold, dividends and other (Notes 4, 20 and 21)		103,637			131,461			96,507
Gain due to stock issuances by subsidiaries (Note 19)		6,753			22,136			53,808
Subsidy related to transfer of substitutional portion of employee pension fund liabilities, net of settlement loss of ¥138,063 million (Note 9)		—			—			8,174
		5,211,412			4,848,632			5,065,310
Costs and expenses:
Cost of sales		3,919,268			3,453,010			3,622,965
Selling, general and administrative (Notes 17 and 18)		1,237,276			1,121,136			1,109,332
Interest		46,673			30,218			27,510
Impairment of goodwill (Note 6)		—			—			23,028
Other (Note 20)		469,378			182,772			121,929
		5,672,595			4,787,136			4,904,764
Income (loss) before income taxes		(461,183	)		61,496			160,546
Provision (benefit) for income taxes (Note 10)		(178,173	)		58,714			85,870
Income (loss) before minority interest, equity in earnings (losses) of affiliated companies and cumulative effect of accounting change		(283,010	)		2,782			74,676
Minority interest in income of consolidated subsidiaries		2,574			6,896			15,838
Income (loss) before equity in earnings (losses) of affiliated companies and cumulative effect of accounting change		(285,584	)		(4,114	)		58,838
Equity in earnings (losses) of affiliated companies (Note 3)		(23,841	)		(20,444	)		(17,760	)
Income (loss) before cumulative effect of accounting change		(309,425	)		(24,558	)		41,078
Cumulative effect of accounting change, net of tax (Note 2)		(2,595	)		—			—
Net income (loss)		(312,020	)		(24,558	)		41,078
Comprehensive income (loss):
Other comprehensive income (loss), net of tax (Note 12):
Foreign currency translation adjustments		13,451			(3,655	)		(18,844	)
Minimum pension liability adjustment (Note 9)		(37,834	)		(132,190	)		116,123
Unrealized gains (losses) on marketable securities (Note 4)		463			(45,217	)		38,286
Unrealized gains (losses) on derivative financial instruments (Note 15)		692			82			1,055
Cumulative effect of accounting change (Note 2)		(3,606	)		—			—
Other comprehensive income (loss)		(26,834	)		(180,980	)		136,620
Comprehensive income (loss)	¥	(338,854	)	¥	(205,538	)	¥	177,698
Retained earnings:
Balance at beginning of year	¥	388,079		¥	66,125		¥	41,567
Net income (loss)		(312,020	)		(24,558	)		41,078
Dividends (Note 24)		(9,934	)		—			(10,744	)
Balance at end of year	¥	66,125		¥	41,567		¥	71,901

	2002			2003			2004
				(Yen)
Per share (Note 14):
Basic:
Income (loss) before cumulative effect of accounting change	¥	(187.06	)	¥	(14.85	)	¥	23.67
Net income (loss)		(188.63	)		(14.85	)		23.67
Diluted:
Income (loss) before cumulative effect of accounting change		(187.06	)		(14.85	)		21.93
Net income (loss)		(188.63	)		(14.85	)		21.93
Cash dividends per share		6.00			—			6.00

See notes to consolidated financial statements.

F - 5

NEC Corporation

Consolidated Statements of Cash Flows

	Year ended March 31
	2002			2003			2004
	(Millions of yen)
Cash flows from operating activities
Net income (loss)	¥	(312,020	)	¥	(24,558	)	¥	41,078
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		234,738			195,594			178,714
Impairment of goodwill		—			—			23,028
Deferred income taxes		(222,423	)		7,688			22,351
(Gain) loss on property, plant and equipment		146,430			14,264			(7,035	)
Realized (gain) loss on marketable securities		62,139			(260	)		(16,432	)
Gain due to stock issuances by subsidiaries		(6,753	)		(22,136	)		(53,808	)
Provision for pension and severance costs, less payments		56			(638	)		14,842
Equity in (earnings) losses of affiliated companies, net of dividends		28,030			22,006			18,494
Minority interest in income of consolidated subsidiaries		2,574			4,396			13,338
(Increase) decrease in notes and accounts receivable		169,628			116,340			(18,419	)
(Increase) decrease in inventories		216,062			79,343			(35,862	)
Increase (decrease) in notes and accounts payable		(178,878	)		(109,387	)		106,270
Increase (decrease) in other current liabilities		(60,747	)		(68,717	)		36,688
Other, net		57,801			33,568			5,218
Net cash provided by operating activities		136,637			247,503			328,465
Cash flows from investing activities
Proceeds from sales of fixed assets		56,094			99,722			60,423
Additions to fixed assets		(295,585	)		(210,261	)		(230,522	)
Proceeds from sales and redemption of marketable securities		33,659			71,919			54,493
Purchase of marketable securities		(2,482	)		(2,277	)		(2,355	)
Net proceeds from sales of affiliates’ stock		38,438			58,901			71,810
Investments in affiliates, net of cash acquired		(31,046	)		(14,457	)		(26,109	)
Disbursements for long-term loans		(11,842	)		(43,620	)		(5,649	)
Payments received on long-term loans		18,714			42,333			16,548
Increase in other investment securities		(6,408	)		(14,810	)		(5,375	)
Other, net		(3,078	)		964			(2,379	)
Net cash used in investing activities		(203,536	)		(11,586	)		(69,115	)
Cash flows from financing activities
Proceeds from long-term debt		257,240			175,516			28,984
Repayments of long-term debt		(398,479	)		(333,889	)		(301,425	)
Increase (decrease) in short-term borrowings		104,232			(114,075	)		(115,712	)
Dividends paid		(15,948	)		(7,291	)		(7,432	)
Proceeds from stock issuances		—			—			184,836
Proceeds from stock issuances by subsidiaries		12,448			17,923			107,140
Proceeds from preferred securities issued by a subsidiary		97,000			—			—
Other, net		(839	)		(933	)		836
Net cash provided by (used in) financing activities		55,654			(262,749	)		(102,773	)
Effect of exchange rate changes on cash and cash equivalents		2,182			(6,595	)		(4,159	)
Net increase (decrease) in cash and cash equivalents		(9,063	)		(33,427	)		152,418
Cash and cash equivalents at beginning of year		386,835			377,772			344,345
Cash and cash equivalents at end of year	¥	377,772		¥	344,345		¥	496,763
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	¥	47,852		¥	31,271		¥	24,843
Income taxes		51,795			46,635			63,739
Supplemental information of noncash financing activities
Conversion of convertible debt into shares of common stock	¥	18		¥	—		¥	—

See notes to consolidated financial statements.

F - 6

NEC Corporation

Notes to Consolidated Financial Statements

March 31, 2004

1. Nature of Operations

NEC Corporation and its consolidated subsidiaries (the “Company”) is a provider of systems, components, services, and integrated solutions for computing and communication applications. The Company’s principal operations consist of IT Solutions business, Network Solutions business, and Electron Devices business based on customers and markets served.

IT Solutions business is primarily engaged in the provision of systems integration, Internet-related services and software, as well as the development, design, manufacture and sale of computer systems, mainly for corporate and individual customers.

Network Solutions business is primarily engaged in the development, design, manufacture, sale and network integration for communication systems and equipment mainly for network service providers.

Electron Devices business is primarily engaged in the development, design, manufacture and sale of semiconductors and other electron devices for equipment manufacturers.

The Company’s principal manufacturing facilities are located in Japan, the United States of America, Europe, and Asia, and its products are marketed by the Company throughout the world.

2. Significant Accounting Policies

NEC Corporation and its Japanese subsidiaries maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries in which such subsidiaries are domiciled. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America. These adjustments were not recorded in the statutory books of account.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated.

F - 7

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Significant accounting policies, after reflecting adjustments for the above, are as follows:

Basis of consolidation and investments in affiliated companies

The consolidated financial statements include the accounts of NEC Corporation, subsidiaries in which it has a controlling financial interest and the variable interest entities for which it is the primary beneficiary. All significant intercompany transactions and accounts are eliminated. For purposes of financial reporting, certain foreign subsidiaries have a December 31 fiscal year end. Therefore, the Company recognizes the results of operations and financial position of such subsidiaries on a basis of a three month lag. There have been no significant transactions with such subsidiaries during the periods from January 1 to March 31.

The Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 as revised, (“Interpretation No.46”), Consolidation of Variable Interest Entities that addresses how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate that entity. Interpretation No. 46 requires the consolidation of variable interest entities in which the Company absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. The Company adopted the provisions of Interpretation No. 46 for the Company’s variable interests in all variable interest entities as of March 31, 2004.

Investments in 20 — 50 % owned companies over which the Company does not have control, but has the ability to exercise significant influence, are accounted for by the equity method.

The reorganization of various affiliated companies during the year ended March 31, 2002 resulted in the Company acquiring a controlling financial interest in NEC Leasing Ltd. (“NEL”), and its consolidation. In March 2003, the Company sold a part of its ownership interest in NEL, which resulted in a decrease in the Company’s ownership in NEL to 39.5%. As a result, the operating results of NEL were consolidated through the date of sale, and recognized on an equity basis thereafter.

Cash equivalents

All highly liquid investments with a maturity at their date of acquisition of three months or less are considered to be cash equivalents.

F - 8

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Foreign currency translation

Foreign currency transactions are translated at the applicable rates of exchange prevailing at the transaction dates. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rate of exchange prevailing at that date. Exchange differences are charged or credited to income.

Assets and liabilities of foreign consolidated subsidiaries and affiliated companies accounted for by the equity method are translated into yen at applicable year-end rates of exchange and all revenue and expense accounts are translated at average rates of exchange prevailing during the year. The resulting translation adjustments are accumulated and included in accumulated other comprehensive income (loss) classified as part of shareholders’ equity.

Allowance for doubtful notes and accounts

An allowance for doubtful notes and accounts is provided based on credit loss history and an evaluation of any specific doubtful notes and accounts.

Marketable securities and other investments

The Company classifies its marketable equity securities and debt securities as available-for-sale which are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive income (loss), net of taxes. When a decline in value of the marketable security is deemed to be other-than-temporary, the Company recognizes an impairment loss to the extent of the decline. In determining if and when such a decline in value is other-than-temporary, the Company evaluates market conditions, trends of earnings, and other key measures. Realized gains or losses on the sale of marketable securities are based on the average cost of a particular security held at the time of sale.

Other investment securities are stated at cost and reviewed periodically for impairment.

Inventories

Inventories are stated at the lower of cost or market.

Finished products made to customer specifications are stated at accumulated production costs. Mass-produced standard products are principally costed on a first-in, first-out basis.

Work in process made to customer specifications is stated at accumulated production costs of job orders. Work in process of mass-produced standard products is stated on an average cost basis. The cost of semifinished components is principally determined on a first-in, first-out basis.

Raw materials and purchased components are principally stated on a first-in, first-out basis and, for certain subsidiaries, on an average cost basis.

F - 9

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Inventories (continued)

The Company identifies slow moving and obsolete inventory, and writes down such inventory to its estimated market value based on assumptions about future demand and market conditions.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost. Depreciation is computed principally using the declining-balance method at rates based on the following estimated useful lives of the assets: buildings, 7 to 50 years, machinery and equipment, 2 to 22 years. Maintenance and repairs, including minor renewals and betterments, are charged to income as incurred.

Leased assets meeting certain criteria are capitalized and amortized principally using the declining-balance method over the lease term.

Assets leased to others under operating leases are stated at cost and depreciated using the straight-line method over their estimated useful lives.

Goodwill and other intangibles

Effective April 1, 2002, the Company adopted the Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 prohibits the amortization of goodwill, and requires that goodwill be tested for impairment annually or more frequently if events or circumstances indicate it might be impaired. Such tests include comparing the fair value of a reporting unit with its carrying amount, including goodwill. In accordance with SFAS No. 142, the Company performed the transitional impairment tests of goodwill at April 1, 2002 and determined that its goodwill was not impaired. The Company performs an-annual impairment test in the fourth quarter of each fiscal year or more often. Prior to the adoption of SFAS No. 142, goodwill which arose from business combinations completed before July 1, 2001, was amortized on a straight-line basis over the period of expected benefit which did not exceed 10 years. Goodwill, which arose from business combinations completed after June 30, 2001, is stated at cost, and no amortization has been recorded.

Intangible assets with finite lives consist primarily of license fees and patents, and are amortized on a straight-line basis over the contractual periods, which are principally 5 years.

F - 10

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Impairment of long-lived assets

Long-lived assets to be held and used, including intangible assets with finite lives, are evaluated for impairment using an estimate of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the estimate of undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded based on the fair value of the assets.

Long-lived assets to be disposed of by sale are evaluated at the lower of carrying amount or fair value less cost to sell.

Software costs

The Company capitalizes costs incurred for development of computer software that will be sold, leased or otherwise marketed after technological feasibility has been established. Capitalized software costs are amortized on a product-by-product basis using the ratio that current revenues bear to the total of current and anticipated future revenues over periods ranging up to 3 years. Unamortized capitalized software costs determined to be in excess of the net realizable value are written off.

Certain costs incurred to develop or obtain internal use computer software are capitalized, and amortized on a straight-line basis principally over 5 years.

Income taxes

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities, using the enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Deferred tax assets are also recognized for the estimated future tax benefits attributable to operating loss carryforwards. Valuation allowances are established to reduce deferred tax assets to their net realizable value if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Issuance of stock by a subsidiary

When a subsidiary issues stock to unrelated third parties, the Company’s ownership interest in the subsidiary decreases. In the event the price per share is more or less than the Company’s average carrying amount per share, the Company adjusts the carrying amount of its investment in the subsidiary and recognizes gains or losses in the year in which the change in ownership interest occurs.

F - 11

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Stock-based compensation

At March 31, 2004, the Company has stock-based compensation plans, which are described more fully in Note 13. The Company accounts for those plans under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net income (loss) and net income (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.

	Year ended March 31
	2002			2003			2004
	(Millions of yen)
Net income (loss), as reported	¥	(312,020	)	¥	(24,558	)	¥	41,078
Add: Stock-based compensation expense included in reported net income, net of related tax effects		—			—			27
Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax effects		(139	)		(94	)		(346	)
Pro forma net income (loss)	¥	(312,159	)	¥	(24,652	)	¥	40,759

	(Yen)
Net income (loss) per share:
Basic – as reported	¥	(188.63	)	¥	(14.85	)	¥	23.67
Basic – pro forma		(188.71	)		(14.91	)		23.49
Diluted – as reported		(188.63	)		(14.85	)		21.93
Diluted – pro forma		(188.71	)		(14.91	)		21.77

Net income per share

Basic net income per share (“EPS”) is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS assumes the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock unless their inclusion would have antidilutive effect.

F - 12

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Revenue recognition

The Company recognizes revenue for transactions using the following criteria. 1) When persuasive evidence of an arrangement exists, 2) delivery has occurred or services have been rendered, 3) the price to the buyer is fixed or determinable, and 4) collectibility is reasonable assured.

Revenue from sales of products is recognized when the customer has taken title to the product and the risk and rewards of ownership have been substantively transferred. Under the terms and conditions, this may occur at the time of shipment or when customer acceptance occurs. The Company recognizes revenue from sales of mass produced standard products such as electron devices, mobile terminals and computers upon shipment and revenue from sales of products requiring installation such as servers, workstations, communications systems and broadcasting systems upon customer acceptance. In certain circumstances, software is preinstalled into UNIX servers, mainframe computers etc., before the product is delivered. The Company recognizes the revenue of the software at the same time as the Company recognizes the revenue for the product. The customers generally do not have the right of return.

The Company sells program products consisting of packaged software such as operating system or middleware used in computer systems. Revenue from this software is recognized upon customer acceptance.

Systems integration is sold to corporations and governments. Systems integration requires the integration of software produced or customized to meet specific requirements of the customer and the computer hardware being acquired. Revenue from system integration is recognized upon customer acceptance.

Revenue from maintenance is recognized over the contract term or when maintenance is provided, depending on the type of maintenance.

The Company recognizes as revenue fees charged to members as revenue monthly for Internet services of “BIGLOBE.”

F - 13

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Revenue recognition (continued)

The Company enters into multiple element arrangements with customers which may include any combination of products and services. If a multiple element arrangement exists, the Company determines whether revenues should be recognized using separate units of accounting. The Company allocates revenue to each item based on its relative fair value if such item meets all of the following criteria as a separate unit of accounting: 1) the delivered item(s) has value to customer on a standalone basis, 2) there is objective and reliable evidence of fair value of the undelivered item(s), and 3) if the arrangement includes a general right of return relative to a delivered item, whether delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company. If these criteria are not met, revenue for the arrangement is recognized when such criteria are met or all items have been completed and the arrangement is accepted by the customer. In certain circumstances, in which there is objective and reliable evidence of the fair values of the undelivered items in an arrangement but no such evidence for the delivered items, the amount of consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. The revenue recognized for delivered items is limited to the amount that is not contingent upon the future delivery of additional items or meeting other specified performance conditions.

Revenues from the sale of equipment under sales-type leases are recognized at the inception of the lease. Income on sales-type leases and direct-financing leases is recognized to produce a constant periodic rate of return on the net investment in the lease. Leases not qualifying as a sales-type lease or direct-financing lease are accounted for as operating leases and related revenues are recognized over the lease term.

Cash consideration given by the Company to a customer or a reseller of the Company’s products is accounted for as a reduction of revenue unless the Company receives, or will receive, an identifiable benefit in exchange for the consideration and can reasonably estimate the fair value of the benefit identified.

Derivative financial instruments

Effective on April 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. Adoption of SFAS No. 133 on April 1, 2001 resulted in a loss from the cumulative effect of an accounting change of ¥2,595 million and a reduction in accumulated other comprehensive income (loss) of ¥3,606 million.

F - 14

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Derivative financial instruments (continued)

As a result of adoption of SFAS No. 133, the Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in shareholders’ equity as a component of other comprehensive income (loss) depending on whether the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in the fair value of derivative financial instruments accounted for as a fair value hedge are recorded in income along with the portion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in the fair value of derivative financial instruments accounted for as a cash flow hedge, to the extent they are effective as a hedge, are recorded in other comprehensive income (loss), net of tax. Changes in the fair value of derivative financial instruments not qualifying as a hedge are reported in income.

Securitization of receivables

The company has several securitization programs under which certain trade receivables are sold, without recourse, to Special Purpose Entities (“SPEs”). Simultaneously, the SPEs sell an interest in those receivables to a large financial institution. In certain securitizations, the Company has retained subordinated interests. When the Company sells the trade receivables in a securitization transaction, the carrying value of the trade receivables is allocated to the portion retained and the portion sold, based on their relative fair value at the sale date. Gain or loss on the sale of the trade receivables is calculated based on the allocated carrying value of the trade receivables sold. Retained interests are initially recorded at the allocated carrying value of the trade receivables based on their fair value and are periodically reviewed for impairment. The Company generally estimates fair value based on the present value of future expected cash flows using certain assumptions; credit losses and discount rates commensurate with the risks involved.

Guarantees

Effective on January 1, 2003, the Company adopted the FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. As a result of adopting Interpretation No. 45, the Company recognizes, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee for guarantees issued or modified after December 31, 2002.

F - 15

NEC Corporation

Notes to Consolidated Financial Statements (continued)

2. Significant Accounting Policies (continued)

Variable interest entities

The Company uses several special purpose entities from December 1995, through which the Company leases equipment to overseas customers. The entities are considered variable interest entities as the Company provides financial support, including guarantees, to the entities, and holds a significant variable interests in the entities. Total assets held by the entities at March 31, 2004 were ¥49,092 million. The Company’s maximum exposure to loss would be ¥5,898 million.

The Company also uses several special purpose entities, through which the Company invests in and makes loans to third parties. The entities are considered variable interest entities as the Company provides financial support, including guarantees, to the entities, and holds a majority of the variable interests in the entities. Total assets held by the entities at March 31, 2004 were ¥6,408 million.

As a result of adopting Interpretation No.46 on March 31, 2004, the Company deconsolidated NEC Business Trust, and the Unsecured Subordinated Debentures due 2021 of NEC Corporation, issued to NEC Business Trust, were recorded as current portion of long-term debt on the consolidated balance sheet instead of NEC Trust Originated Preferred Securities, issued to outside investors, similar to minority interest (refer to Notes 11 and 24).

Reclassifications

Certain amounts in the consolidated financial statements for the years ended March 31, 2002 and 2003 have been reclassified to conform to the 2004 presentation.

3. Investments in Affiliated Companies

Investments in affiliated companies accounted for by the equity method together with a percentage of the Company’s ownership of voting shares at March 31, 2004 are: Nippon Electric Glass Co., Ltd. (35.3%); ANRITSU CORPORATION (21.9%); Japan Aviation Electronics Industry, Ltd. (“JAE”) (39.3%); Toyo Communication Equipment Co., Ltd. (21.1%); NEC Leasing, Ltd. (“NEL”) (39.5%); Elpida Memory, Inc. (50.0%); NEC-Mitsubishi Electric Visual Systems Corporation (50.0%) and 37 other companies.

The Company’s ownership interest in NEL decreased to 39.5% during March 2003 and, accordingly, NEL was deconsolidated and accounted for by the equity method.

The Company’s ownership interest in JAE decreased to 39.3% during March 2004 and, accordingly, JAE was deconsolidated and accounted for by the equity method.

F - 16

NEC Corporation

Notes to Consolidated Financial Statements (continued)

3. Investments in Affiliated Companies (continued)

Summarized financial information relating to affiliated companies accounted for by the equity method is as follows:

	March 31
	2003		2004
	(Millions of yen)
Current assets	¥	805,476	¥	1,086,242
Other assets, including property, plant and equipment		899,310		1,049,930
Total assets	¥	1,704,786	¥	2,136,172
Current liabilities	¥	652,559	¥	892,601
Long-term liabilities		570,740		726,050
Shareholders’ equity		481,487		517,521
Total liabilities and shareholders’ equity	¥	1,704,786	¥	2,136,172

	Year ended March 31
	2002			2003			2004
	(Millions of yen)
Sales and operating revenue	¥	1,002,208		¥	851,613		¥	845,541
Gross profit		179,108			153,149			151,251
Net loss		(57,505	)		(49,284	)		(28,225	)

Of the 44 affiliated companies at March 31, 2004 (17 companies at March 31, 2003) accounted for by the equity method, the stocks of 4 companies (3 companies at March 31, 2003) carried at ¥97,123 million and ¥103,726 million at March 31, 2003 and 2004, respectively, had quoted market values of an aggregate of ¥87,661 million and ¥206,955 million at March 31, 2003 and 2004, respectively.

The balances and transactions with affiliated companies accounted for by the equity method are shown below:

	March 31
	2003		2004
	(Millions of yen)
Receivables, trade	¥	12,865	¥	35,426
Payables, trade		13,652		77,897

F - 17

NEC Corporation

Notes to Consolidated Financial Statements (continued)

3. Investments in Affiliated Companies (continued)

	Year ended March 31
	2002		2003		2004
			(Millions of yen)
Sales	¥	72,384	¥	70,070	¥	240,956
Purchases		57,597		54,118		106,856

Dividends received from affiliated companies accounted for by the equity method for the years ended March 31, 2002, 2003 and 2004 totaled ¥2,049 million, ¥1,651 million and ¥563 million, respectively.

4. Marketable Securities

The following is a summary of marketable securities by major security type:

	March 31, 2003
			Gross		Gross
			unrealized		unrealized
			holding		holding
	Cost		gains		losses		Fair value
	(Millions of yen)
Available-for-sale:
Equity securities	¥	111,192	¥	19,364	¥	18,573	¥	111,983
Debt securities		4,231		28		149		4,110
	¥	115,423	¥	19,392	¥	18,722	¥	116,093

	March 31, 2004
			Gross		Gross
			unrealized		unrealized
			holding		holding
	Cost		gains		losses		Fair value
	(Millions of yen)
Available-for-sale:
Equity securities	¥	80,083	¥	67,946	¥	1,085	¥	146,944
Debt securities		3,043		2		—		3,045
	¥	83,126	¥	67,948	¥	1,085	¥	149,989

Available-for-sale debt securities at March 31, 2004 mature within 2 year period.

F - 18

NEC Corporation

Notes to Consolidated Financial Statements (continued)

4. Marketable Securities (continued)

Proceeds from sales of available-for-sale securities were ¥21,017 million, ¥71,919 million and ¥54,493 million for the years ended March 31, 2002, 2003 and 2004, respectively. Gross realized gains were ¥8,435 million, ¥32,174 million and ¥18,497 million for the years ended March 31, 2002, 2003 and 2004, respectively, and gross realized losses, including writedowns, were ¥70,574 million, ¥31,914 million and ¥2,065 million for the years ended March 31, 2002, 2003 and 2004, respectively.

5. Inventories

Inventories at March 31, 2003 and 2004 consisted of the following:

	March 31
	2003			2004
	(Millions of yen)
Finished products	¥	171,945		¥	189,986
Work in process and semifinished components		285,463			285,281
Less – advance payments received		(29,670	)		(22,588	)
Raw materials and purchased components		126,082			117,347
	¥	553,820		¥	570,026

6. Goodwill and Other Intangibles

The changes in the carrying amount of goodwill by reportable segment for the years ended March 31, 2003 and 2004 were as follows:

	IT			Network			Electron
	Solutions			Solutions			Devices
	business			business			business			Total
	(Millions of yen)
Balance at April 1, 2002	¥	32,031		¥	9,259		¥	—		¥	41,290
Goodwill acquired during year		—			—			6,233			6,233
Sale of a business unit		(222	)		—			—			(222	)
Effect of foreign currency translation adjustments		—			(827	)		—			(827	)
Balance at March 31, 2003		31,809			8,432			6,233			46,474
Impairment of goodwill		(23,028	)		—			—			(23,028	)
Sale of a business unit		—			—			(1,435	)		(1,435	)
Effect of foreign currency translation adjustments		—			(1,018	)		—			(1,018	)
Balance at March 31, 2004	¥	8,781		¥	7,414		¥	4,798		¥	20,993

F - 19

NEC Corporation

Notes to Consolidated Financial Statements (continued)

6. Goodwill and Other Intangibles (continued)

The Company performed the annual impairment test of goodwill in the fourth quarter of the year ended March 31, 2004. Due to an increase in competition in the European personal computer market, the earnings forecast for IT Solutions business in Europe was revised. As a result, the Company recognized an impairment of ¥23,028 million in the IT Solutions business. The fair value of that reporting unit was estimated using estimated discounted net future cash flows.

The following table represents income (loss) before cumulative effect of accounting change, net income (loss), income (loss) before cumulative effect of accounting change per share and net income (loss) per share for the years ended March 31, 2002, 2003 and 2004, adjusted to exclude amortization of goodwill:

	Year ended March 31
	2002				2003			2004
				(Millions of yen)
Reported income (loss) before cumulative effect of accounting change	¥	(309,425	)		¥	(24,558	)	¥	41,078
Add back: Goodwill amortization		8,360				—			—
Adjusted income (loss) before cumulative effect of accounting change	¥	(301,065	)		¥	(24,558	)	¥	41,078
Reported net income (loss)	¥	(312,020	)		¥	(24,558	)	¥	41,078
Add back: Goodwill amortization		8,360				—			—
Adjusted net income (loss)	¥	(303,660	)		¥	(24,558	)	¥	41,078

F - 20

NEC Corporation

Notes to Consolidated Financial Statements (continued)

6. Goodwill and Other Intangibles (continued)

	Year ended March 31
	2002			2003			2004
				(Yen)
Per share:
Basic:
Reported income (loss) before cumulative effect of accounting change	¥	(187.06	)	¥	(14.85	)	¥	23.67
Add back: Goodwill amortization		5.05			—			—
Adjusted income (loss) before cumulative effect of accounting change	¥	(182.01	)	¥	(14.85	)	¥	23.67
Reported net income (loss)	¥	(188.63	)	¥	(14.85	)	¥	23.67
Add back: Goodwill amortization		5.05			—			—
Adjusted net income (loss)	¥	(183.58	)	¥	(14.85	)	¥	23.67
Diluted:
Reported income (loss) before cumulative effect of accounting change	¥	(187.06	)	¥	(14.85	)	¥	21.93
Add back: Goodwill amortization		5.05			—			—
Adjusted income (loss) before cumulative effect of accounting change	¥	(182.01	)	¥	(14.85	)	¥	21.93
Reported net income (loss)	¥	(188.63	)	¥	(14.85	)	¥	21.93
Add back: Goodwill amortization		5.05			—			—
Adjusted net income (loss)	¥	(183.58	)	¥	(14.85	)	¥	21.93

Intangibles other than goodwill subject to amortization at March 31, 2003 and 2004 consisted of the following:

	March 31
	2003					2004
	Gross					Gross
	carrying		Accumulated			carrying		Accumulated
	amount		amortization			amount		amortization
	(Millions of yen)
License fees	¥	51,743	¥	(26,448	)	¥	51,482	¥	(25,479	)
Patents		7,470		(4,293	)		7,521		(4,612	)
Others		8,796		(4,036	)		9,877		(5,073	)
	¥	68,009	¥	(34,777	)	¥	68,880	¥	(35,164	)

F - 21

NEC Corporation

Notes to Consolidated Financial Statements (continued)

6. Goodwill and Other Intangibles (continued)

The aggregate amortization expense for the years ended March 31, 2002, 2003 and 2004 was ¥13,667 million, ¥13,302 million and ¥15,775 million, respectively. The estimated amortization expense for the next five years is as follows:

Year ending March 31:	(Millions of yen)
2005	¥	10,898
2006		7,547
2007		5,593
2008		3,891
2009		1,945

Intangibles other than goodwill with indefinite useful lives at March 31, 2003 and 2004 were insignificant.

7. Software Costs

Software costs, included in other assets, other, at March 31, 2003 and 2004 consisted of the following:

	March 31
	2003		2004
	(Millions of yen)
Capitalized software held for sale	¥	24,932	¥	27,691
Internal use software		96,531		102,616
	¥	121,463	¥	130,307

Accumulated amortization of capitalized software held for sale at March 31, 2003 and 2004 was ¥69,806 million and ¥96,505 million, respectively. Amortization expense of capitalized software held for sale for the years ended March 31, 2002, 2003 and 2004 was ¥39,398 million, ¥35,188 million and ¥31,123 million, respectively.

Accumulated amortization of internal use software at March 31, 2003 and 2004 was ¥71,856 million and ¥87,161 million , respectively. Amortization expense of internal use software for the years ended March 31, 2002, 2003 and 2004 was ¥27,708 million, ¥29,196 million and ¥32,879 million, respectively.

F - 22

NEC Corporation

Notes to Consolidated Financial Statements (continued)

8. Short-Term Borrowings and Long-Term Debt

Short-term borrowings at March 31, 2003 and 2004 were as follows:

	March 31
	2003		2004
	(Millions of yen)
Loans, principally from banks, including bank overdrafts (average interest rate of 0.92% in 2003 and 1.20 % in 2004):
Secured	¥	764	¥	518
Unsecured		211,586		97,534
	¥	212,350	¥	98,052

At March 31, 2004, the Company had unused lines of credit for short-term financing aggregating ¥472,900 million subject to commitment fees on the unused portion ranging from 0.125 % to 0.25 % and ¥ 165,171 million with no commitment fees. A line of credit for ¥ 100,000 million has a term extending through March 31, 2006. The remainder of ¥ 538,071 million is renewed annually.

F - 23

NEC Corporation

Notes to Consolidated Financial Statements (continued)

8. Short-Term Borrowings and Long-Term Debt (continued)

Long-term debt at March 31, 2003 and 2004 was as follows:

	March 31
	2003			2004
	(Millions of yen)
Loans, principally from banks and insurance companies, due 2003 to 2011 with average interest rate of 1.18% at March 31, 2003 and due 2004 to 2011 with average interest rate of 1.37% at March 31, 2004:
Secured	¥	20,760		¥	13,703
Unsecured		306,992			196,848
6.05% unsecured yen bonds due 2007		10,000			10,000
Unsecured yen debentures, due 2003 to 2010 with interest rates of 1.55% to 3.3% at March 31, 2003 and due 2004 to 2010 with interest rates of 1.7% to 3.3% at March 31, 2004		455,800			405,800
1.9% unsecured yen convertible debentures due 2004, convertible currently at ¥1,893.00 for one common share, redeemable before due date		118,506			—
1.0% unsecured yen convertible debentures due 2011, convertible currently at ¥1,326.00 for one common share, redeemable before due date		97,906			97,906
Zero coupon unsecured yen convertible debentures due 2007, convertible currently at ¥3,092.70 for one common share, redeemable before due date		100,000			100,000
Zero coupon unsecured yen convertible debentures due 2010, convertible currently at ¥1,664.10 for one common share, redeemable before due date		100,000			100,000
Unsecured subordinated yen debentures due 2021 (refer to Notes 11 and 24.)		—			100,001
Medium-term notes issued by consolidated subsidiaries, due 2003 to 2004 with interest rates of 0.25% to 0.3% at March 31, 2003		3,050			—
Long-term capital lease obligations, due 2003 to 2012 with interest rates of 1.43% to 9.2% at March 31, 2003 and due 2004 to 2012 with interest rates of 1.35% to 8.99% at March 31, 2004		51,752			45,482
Other		8,297			1,787
		1,273,063			1,071,527
Unamortized premium		1,680			1,440
		1,274,743			1,072,967
Less – portion due within one year		(270,956	)		(266,450	)
	¥	1,003,787		¥	806,517

F - 24

NEC Corporation

Notes to Consolidated Financial Statements (continued)

8. Short-Term Borrowings and Long-Term Debt (continued)

The following were pledged as security for short-term borrowings and long-term debt at March 31, 2004:

	(Millions of yen)
Notes and accounts receivable	¥	165
Other current assets		1,500
Marketable securities		726
Property, plant and equipment (net book value)		45,986

At March 31, 2004, an aggregate of 166,262 thousand shares of common stock would have been issuable upon conversion of all convertible debt of NEC Corporation.

The conversion prices of the convertible debentures are subject to adjustment if there is a share split or consolidation of shares, or in certain circumstances, if new shares are issued at a price less than the current quoted market price. During the year ended March 31, 2004, NEC Corporation issued shares of common stock at a price less than the current quoted market price and as a result, the conversion prices of convertible debentures were adjusted under terms of the convertible debentures.

A subsidiary is required to repay certain medium-term loans, the balance of which was ¥70,000 million at March 31, 2004, if its net assets fall below ¥150,000 million , operating cash flow would be negative for two consecutive half year periods, or NEC Corporation’s ownership interest drops below 50% or the subsidiary no longer is a consolidated subsidiary of NEC Corporation.

The Company has agreements with lending banks to the effect that, with respect to all present or future loans with such banks, the Company shall provide collateral (including sums on deposit with such banks) or guarantors immediately upon the bank’s request and that any collateral furnished, pursuant to such agreements or otherwise, will be applicable to all indebtedness to such banks.

Certain of the loan agreements provide, among other things, that the Company submit to the lenders (upon their request) for approval its proposed appropriation of income (including dividends) before such appropriation can be submitted to the shareholders for approval.

Annual maturities on long-term debt during the next five years are as follows:

Year ending March 31:	(Millions of yen)
2005	¥	266,450
2006		177,549
2007		173,074
2008		107,473
2009		106,725

F - 25

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans

NEC Corporation and its subsidiaries in Japan have severance indemnity plans and non-contributory defined benefit funded pension plans, or only severance indemnity plans, covering substantially all of their employees who meet specified eligibility requirements. Under the plans, employees whose service with the Company is terminated are, under most circumstances, entitled to lump-sum severance indemnities and/or pension payments, determined by reference to their current base rate of pay, length of service, job classification, performance, conditions under which the termination occurs and interest crediting rate calculated based on market interest rate. The funding policy is to make contributions that can be deducted for Japanese income tax purposes.

NEC Corporation and certain subsidiaries in Japan also had contributory defined benefit pension plans covering substantially all of their employees, including a governmental welfare pension benefit plan, which would otherwise be provided by the Japanese government. Among these, in September, 2002, NEC Corporation and certain subsidiaries in Japan received the approval of the Japanese government to eliminate future benefit obligations related to the governmental welfare component, or substitutional portion, of the Company’s contributory defined benefit pension plans, over which the Japanese government will take responsibility. Upon the final approval from the Japanese government on December 1, 2003 and January 1, 2004, with the transfer to the Japanese government from the assets of the pension plans on February 16, 2004 and March 15, 2004, NEC Corporation and certain subsidiaries in Japan were relieved of all past obligations under the substitutional portion of the plans. The Company accounted for the elimination of future benefits and relief of past obligations with the transfer of assets as the culmination of a series of steps in a single settlement transaction and recognized a net gain of ¥8,174 million through these transactions.

Details of the net gain related to transfer of substitutional portion of employee pension fund liabilities, is as follows:

	Year ended
	March 31,2004
	(Millions of yen)
Subsidy from government	¥	146,237
Settlement loss:
Derecognition of accrued salary progression		45,467
Recognition of unrealized actuarial loss		(183,530	)
Net gain	¥	8,174

Effective August 1, 2003, NEC Corporation and a certain subsidiary in Japan amended their severance indemnity plans by introducing a “point-based benefits system,” under which benefits are calculated based on accumulated points allocated to employees each year according to their job classification and their performance. This amendment resulted in a decrease in the Company’s benefit obligation.

F - 26

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans (continued)

Effective March 1, 2004, NEC Corporation and certain subsidiaries in Japan amended their defined benefit pension plans, and a cash balance pension plan was established. Under a cash balance pension plan, each participant has an account which is credited yearly based on the current base rate of pay, their job classification and interest crediting rate calculated based on a market interest rate. This amendment resulted in a decrease in the Company’s benefit obligation.

The contributions to the contributory and the non-contributory pension plans are placed into trusteed pension funds (the “Funds”).

Most subsidiaries outside Japan have various retirement plans which are primarily defined contribution plans covering substantially all of their employees. The funding policy for the defined contribution plans is to annually contribute an amount equal to a certain percentage of the participants’ annual salary.

F - 27

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans (continued)

March 31 is the measurement date for the determination of the Company’s benefit obligation. Reconciliations of beginning and ending balances of the benefit obligations and the fair value of the plan assets are as follows:

	March 31
	2003			2004
	(Millions of yen)
Change in benefit obligations:
Benefit obligations at beginning of year	¥	1,396,135		¥	1,566,477
Service cost		53,418			46,060
Interest cost		49,418			45,829
Actuarial loss		141,169			41,817
Benefits paid		(83,845	)		(73,994	)
Transfer of substitutional portion		—			(491,533	)
Plan amendment		—			(77,749	)
Acquisitions/divestitures, net		10,182			(23,449	)
Benefit obligations at end of year		1,566,477			1,033,458
Change in plan assets:
Fair value of plan assets at beginning of year		799,432			716,027
Actual return (loss) on plan assets		(97,184	)		73,309
Employer’s contributions		41,410			39,192
Employees’ contributions		11,535			5,726
Benefits paid		(39,766	)		(29,683	)
Transfer of substitutional portion		—			(299,829	)
Acquisitions/divestitures, net		600			(5,758	)
Fair value of plan assets at end of year		716,027			498,984
Funded status		(850,450	)		(534,474	)
Unrecognized prior service cost*		(88,404	)		(159,164	)
Unrecognized actuarial loss *		710,773			471,746
Unrecognized net obligation at April 1, 1989 being recognized over 17 years		9,505			6,458
Net amounts recognized	¥	(218,576	)	¥	(215,434	)
Amounts recognized in the consolidated balance sheets consist of:
Accrued pension and severance costs	¥	(705,551	)	¥	(524,898	)
Accumulated other comprehensive income, pretax		486,975			309,464
Net amounts recognized	¥	(218,576	)	¥	(215,434	)

* Unrecognized prior service cost and actuarial loss are amortized on the straight-line method over the average remaining service period of employees expected to receive benefits under the plan, which is currently 16 years.

F - 28

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans (continued)

The accumulated benefit obligation for all defined benefit pension plan was ¥1,421,578 million and ¥1,023,882 million as of March 31, 2003 and 2004, respectively.

The weighted-average assumptions used to determine benefit obligation at March 31, 2003 and 2004 were as follows:

	March 31
	2003	2004
Discount rate	3.0%	2.5%
Rate of increase in future compensation level	1.7% - 3.8%	1.7% - 3.8%

As a result of change in the discount rate at March 31, 2004, benefit obligations increased by ¥70,804 million.

The weighted-average assumptions used to determine net pension and severance cost for the years ended March 31, 2002, 2003 and 2004 were as follows:

	Year ended March 31
	2002	2003	2004
Discount rate	3.5%	3.5%	3.0%
Rate of increase in future compensation level	1.7% - 3.8%	1.7% - 3.8%	1.7% - 3.8%
Expected long-term rate of return on plan assets	4.0%	4.0%	4.0%

The basis for determining the expected long-term rate of return on plan assets is a combination of historical returns and prospective return assumptions derived from a combination of research and industry forecast, taking into consideration the asset allocation policy as described later. The Company has determined to change expected long- term rate of return on plan assets to 2.5% for calculation of net pension and severance cost for the year ending March 31, 2005.

The asset allocations for the pension plan at March 31, 2003 and 2004 and target asset allocation for the year ended March 31, 2004 are as follows:

	March 31						Target
							asset
	2003			2004			allocation
Asset category:
Equity securities		38	%		32	%		30	%
Debt securities		35	%		40	%		45	%
Short-term investment		27	%		28	%		25	%

F - 29

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans (continued)

The Company’s objective is to secure the required long-term total returns, while taking allowable risks, to ensure the payment of pension benefits, lump sum benefits at death, and other lump sum benefits to participants and annuitants, etc. in the future. The Funds seeks to achieve the long-term investment returns that exceed the expected interest rate, which is required for plans adopted by NEC Corporation and its subsidiaries.

To achieve the investment objective of the plan assets, the Funds shall strive to select appropriate assets for the eligible investment, establish the asset allocation policy which is the optimum combination of assets for the future in consideration of the expected rate of return and risk, etc. thereof, and maintain the asset allocation through rebalancing, etc. Such asset allocation policy is established from a medium-to-long term view of three to five years. The asset allocation policy is reviewed as necessary where the conditions thereof changed from the time of establishment of the asset allocation policy.

The company expects to contribute approximately ¥44,000 million to its pension plans in fiscal year ending March 31, 2005.

Components of net pension and severance cost for all defined benefit plans including both the Company’s and the employees’ contributory portion of such plans for the years ended March 31, 2002, 2003 and 2004 were as follows:

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Service cost	¥	65,131		¥	53,418		¥	46,060
Interest cost		47,107			49,418			45,829
Expected return on plan assets		(32,558	)		(32,090	)		(27,897	)
Amortization of unrecognized prior service cost		(6,113	)		(6,112	)		(6,928	)
Amortization of actuarial loss		24,955			28,705			43,960
Amortization of unrecognized net obligation at April 1, 1989 being recognized over 17 years		3,047			3,047			3,047
Settlement loss		—			—			138,063
Net pension and severance cost for all defined benefit plans	¥	101,569		¥	96,386		¥	242,134

F - 30

NEC Corporation

Notes to Consolidated Financial Statements (continued)

9. Pension and Severance Plans (continued)

     The total cost for all defined benefit and defined contribution plans was as follows:

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Net pension and severance cost for all defined benefit plans	¥	101,569		¥	96,386		¥	242,134
Employees’ contributions to the contributory defined benefit pension plans		(16,245	)		(11,535	)		(5,726	)
Cost for defined contribution plans		3,620			1,064			1,297
Total cost for all defined benefit and defined contribution plans	¥	88,944		¥	85,915		¥	237,705

10. Income Taxes

The components of income (loss) before income taxes and the provision (benefit) for income taxes comprised the following components:

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Income (loss) before income taxes:
NEC Corporation and domestic subsidiaries	¥	(258,858	)	¥	80,969		¥	163,645
Foreign subsidiaries		(202,325	)		(19,473	)		(3,099	)
	¥	(461,183	)	¥	61,496		¥	160,546
Provision (benefit) for income taxes:
Current:
NEC Corporation and domestic subsidiaries	¥	42,831		¥	46,549		¥	56,624
Foreign subsidiaries		1,419			4,477			6,895
		44,250			51,026			63,519
Deferred:
NEC Corporation and domestic subsidiaries		(192,870	)		148			22,686
Foreign subsidiaries		(29,553	)		7,540			(335	)
		(222,423	)		7,688			22,351
	¥	(178,173	)	¥	58,714		¥	85,870

The Company is subject to a number of different income taxes which, in the aggregate, result in a statutory tax rate in Japan of approximately 42.0% for the years ended March 31, 2002, 2003 and 2004. The Japanese government enacted a change in March 2003 and, accordingly, the statutory tax rate was reduced to 40.5% effective April 1, 2004. A reconciliation between the reported total income tax provision (benefit) and the amount computed by multiplying the income (loss) before income taxes by the statutory tax rate is as follows:

F - 31

NEC Corporation

Notes to Consolidated Financial Statements (continued)

10. Income Taxes (continued)

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Expected tax provision (benefit)	¥	(193,697	)	¥	25,828		¥	67,429
Increase (decrease) in taxes resulting from:
Tax benefit on prior losses of subsidiaries		(15,864	)		—			—
Changes in valuation allowance		(5,156	)		(6,582	)		10,568
Non-deductible expenses for tax purposes		1,889			2,168			2,377
International tax rate differences		1,402			(3,026	)		(5,604	)
Effect of change in statutory tax rate on deferred tax balances		—			16,282			4,197
Non-deductible goodwill		6,875			—			9,132
Tax on undistributed earnings		12,391			19,874			7,830
Other		13,987			4,170			(10,059	)
Income tax provision (benefit)	¥	(178,173	)	¥	58,714		¥	85,870

The significant components of deferred tax assets and liabilities at March 31, 2003 and 2004 were as follows:

	March 31
	2003			2004
	(Millions of yen)
Deferred tax assets:
Intercompany profit between consolidated companies	¥	17,242		¥	20,176
Investments and advances		186,381			203,867
Accrued bonus		34,916			43,336
Accrued pension and severance costs		257,981			203,905
Operating lease		18,615			15,451
Operating loss carryforwards		135,749			83,689
Depreciation		38,678			43,528
Other		99,470			100,438
		789,032			714,390
Less – valuation allowance		(20,208	)		(30,940	)
Total	¥	768,824		¥	683,450
Deferred tax liabilities:
Marketable securities	¥	3,221		¥	29,236
Tax deductible reserve		26,501			25,282
Tax on undistributed earnings		18,602			36,567
Other		30,722			39,777
Total	¥	79,046		¥	130,862

F - 32

NEC Corporation

Notes to Consolidated Financial Statements (continued)

10. Income Taxes (continued)

In Japan, consolidated tax returns were not permitted until the year ended March 31, 2002; accordingly, NEC Corporation and its domestic subsidiaries have filed separate tax returns. For the year ended March 31, 2003, the Company was permitted to and filed a consolidated tax return in Japan. The valuation allowance is primarily related to deferred tax assets of certain consolidated subsidiaries with operating loss carryforwards for which there is uncertainty regarding realization. The net changes in the total valuation allowance for the years ended March 31, 2002, 2003 and 2004 were decreases of ¥9,454 million, ¥7,021 million and an increase of ¥10,732 million, respectively. The benefits of operating loss carryforwards for the years ended March 31, 2003 and 2004 were ¥19,432 million and ¥46,846 million, respectively.

At March 31, 2004, the Company had operating loss carryforwards amounting to ¥191,828 million of which ¥81,872 million relates to domestic companies and will expire during the period from 2005 through 2009. The remainder of ¥109,956 million relates to foreign subsidiaries and, except for ¥57,177 million with no expiration date, will expire through 2024.

Realization of the net deferred tax assets is dependent on the Company generating sufficient taxable income prior to expiration of the operating loss carryforwards or the Company executing certain available tax strategies. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized.

11. Preferred Securities issued by a subsidiary

In December 2001, NEC Business Trust (“NBT”) issued 200,000 shares of NEC Trust Originated Preferred Securities (“TOPrS”) to the public at an issuance price of ¥485,000 per share, 97% of face value. NBT is a business trust established in the United States of America. NBT invested the proceeds of such issuance into interest — bearing (at a rate equivalent to the TOPrS dividend rate) Unsecured Subordinated Debentures due 2021 of NEC Corporation (“Subordinated Debentures”).

Prior to the adoption of Interpretation No. 46, NBT had been consolidated by the Company because the Company owned 100% of the common securities of NBT and accordingly had a controlling interest. The Subordinated Debentures, issued to NBT, were eliminated in consolidation, and TOPrS, issued to outside investors, had been presented as a single line item on the consolidated balance sheet similar to minority interest.

As a result of adopting Interpretation No. 46 on March 31, 2004, the Company deconsolidated NBT because the Company has no variable interest. Accordingly, TOPrS were no longer reflected on the consolidated balance sheet and instead the Subordinated Debentures issued to NBT, were recorded in current portion of long-term debt on the consolidated balance sheet (refer to Note 24).

F - 33

NEC Corporation

Notes to Consolidated Financial Statements (continued)

12. Shareholders’ Equity

Changes in common stock, additional paid-in capital, accumulated other comprehensive income (loss) and treasury stock are shown below:

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Common stock:
Balance at beginning of year	¥	244,717		¥	244,726		¥	244,726
Offering of common stock, net		—			—			93,094
Conversion of convertible debt		9			—			—
Balance at end of year	¥	244,726		¥	244,726		¥	337,820
Additional paid-in capital:
Balance at beginning of year	¥	361,813		¥	361,820		¥	361,820
Offering of common stock, net		—			—			93,081
Stock offering cost, net of tax		—			—			(791	)
Conversion of convertible debt		9			—			—
Stock-based compensation		—			—			27
Gain (Loss) on sale of treasury stock		(2	)		—			196
Balance at end of year	¥	361,820		¥	361,820		¥	454,333
Accumulated other comprehensive income (loss):
Balance at beginning of year	¥	(78,603	)	¥	(105,437	)	¥	(286,417	)
Other comprehensive income (loss), net of tax		(26,834	)		(180,980	)		136,620
Balance at end of year	¥	(105,437	)	¥	(286,417	)	¥	(149,797	)
Treasury stock, at cost:
Balance at beginning of year	¥	(970	)	¥	(2,319	)	¥	(3,252	)
Net change resulting from purchase and sales of fractional shares of less than “One Unit” as defined by the Japanese Commercial Code		(816	)		(933	)		455
Purchase of shares for stock option plan		(533	)		—			—
Balance at end of year	¥	(2,319	)	¥	(3,252	)	¥	(2,797	)

(1) Common stock and additional paid-in capital

During the year ended March 31, 2004, NEC Corporation completed a global offering of 273,000,000 shares of common stock. The offering price of ¥711 was reduced to an issue price of ¥681.96 and accordingly, the difference between the offering and issue price was recognized as an underwriting fee. The net proceeds from stock offering of ¥186,175 million, were allocated ¥93,094 million to common stock and remaining amount of ¥93,081 million to additional paid-in capital after the stock offering costs of ¥791 million, net of tax were deducted in accordance with the Japanese Commercial Code.

Issuances of common stock in connection with conversions of convertible debt for the years ended March 31, 2002 and 2004 were 8,754 shares and 528 shares, respectively.

F - 34

NEC Corporation

Notes to Consolidated Financial statements (continued)

12. Shareholders’ Equity (continued)

(1)	Common stock and additional paid-in capital (continued)
	Under the Japanese Commercial Code, the entire amount of the issue price of shares is required to be accounted for in the common stock account although a company in Japan may, by a resolution of its Board of Directors, account for an amount not exceeding one-half of the issue price of the shares as additional paid-in capital.
	On October 1, 2001, an amendment (“Amendment”) to the Japanese Commercial Code became effective. The Amendment eliminated the stated par value of the Company’s outstanding shares which resulted in all outstanding shares having no par value as of October 1, 2001. The Amendment also provided that shares issued after September 30, 2001 would have no par value. Before the Amendment, the Company’s shares had a par value of ¥50 per share.
	Prior to 1985, NEC Corporation made, based on the resolution of the Board of Directors, a free distribution of 233,182,146 shares of common stock to shareholders, which was clearly distinguished from a “stock dividend” paid out of profits that, under the Japanese Commercial Code before April 1, 1991, must be approved by the shareholders. The cumulative amount of the fair value of these shares at the time of issuance was ¥258,755 million. In accounting for the free distribution of shares, the Japanese Commercial Code before April 1, 1991 permitted the Board of Directors to authorize either (1) a transfer from additional paid-in capital to the common stock account or (2) no entry if free shares were distributed from the portion of previously issued shares accounted for as excess of par value in the common stock account. Had NEC Corporation accounted for these free share distributions in the manner used by United States companies, that amount would have been transferred from retained earnings to appropriate capital accounts. Such transfer, however, would have had no effect on total shareholders’ equity.
(2)	Retained earnings
	The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends and other distributions from retained earnings paid by NEC Corporation and its Japanese subsidiaries be appropriated as a legal reserve. No further appropriation is required when the total amount of additional paid-in capital and the legal reserve equals 25% of the stated capital. The Japanese Commercial Code also provides that to the extent that the sum of the additional paid-in capital and the legal reserve exceed 25% of the stated capital, the amount of the excess (if any) is available for appropriations by the resolution of the shareholders. Legal reserve included in retained earnings at March 31, 2003 and 2004 was ¥39,046 million.

F- 35

NEC Corporation

Notes to Consolidated Financial statements (continued)

12. Shareholders’ Equity (continued)

(2)	Retained earnings (continued)
	The amount of retained earnings available for dividends is based on NEC Corporation’s retained earnings determined in accordance with generally accepted accounting principles and the Commercial Code in Japan.
	Retained earnings at March 31, 2004 included the Company’s equity in undistributed earnings of affiliated companies accounted for by the equity method in the amount of ¥61,824 million.
(3)	Other comprehensive income (loss)
	Change in accumulated other comprehensive income (loss) is as follows:

	Year ended March 31
	2002			2003			2004
	(Millions of yen)
Foreign currency translation adjustments:
Balance at beginning of year	¥	(6,854	)	¥	6,597		¥	2,942
Change in the current period		13,451			(3,655	)		(18,844	)
Balance at end of year	¥	6,597		¥	2,942		¥	(15,902	)
Minimum pension liability adjustment:
Balance at beginning of year	¥	(112,422	)	¥	(150,256	)	¥	(282,446	)
Change in the current period		(37,834	)		(132,190	)		116,123
Balance at end of year	¥	(150,256	)	¥	(282,446	)	¥	(166,323	)
Unrealized gains (losses) on marketable securities:
Balance at beginning of year	¥	40,673		¥	41,136		¥	(4,081	)
Change in the current period		463			(45,217	)		38,286
Balance at end of year	¥	41,136		¥	(4,081	)	¥	34,205
Unrealized gains (losses) on derivative financial instruments:
Balance at beginning of year	¥	—		¥	(2,914	)	¥	(2,832	)
Cumulative effect of accounting change		(3,606	)		—			—
Change in the current period		692			82			1,055
Balance at end of year	¥	(2,914	)	¥	(2,832	)	¥	(1,777	)
Total accumulated other comprehensive income (loss):
Balance at beginning of year	¥	(78,603	)	¥	(105,437	)	¥	(286,417	)
Cumulative effect of accounting change		(3,606	)		—			—
Change in the current period		(23,228	)		(180,980	)		136,620
Balance at end of year	¥	(105,437	)	¥	(286,417	)	¥	(149,797	)

F- 36

NEC Corporation

Notes to Consolidated Financial statements (continued)

12. Shareholders’ Equity (continued)

(3)	Other comprehensive income (loss) (continued)
	Tax effect allocated to each component of other comprehensive income (loss) is as follows:

	Year ended March 31
	Before-tax			Tax (expense)			Net-of-tax
	amount			or benefit			amount
				(Millions of yen)
2002:
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during period	¥	15,414		¥	—		¥	15,414
Less: reclassification adjustments for gains realized in net income (loss)		(1,963	)		—			(1,963	)
Minimum pension liability adjustment		(65,231	)		27,397			(37,834	)
Unrealized gains (losses) on marketable securities:
Unrealized holding losses arising during period		(62,788	)		27,210			(35,578	)
Less: reclassification adjustments for losses realized in net income (loss)		62,139			(26,098	)		36,041
Unrealized gains (losses) on derivative financial instruments:
Cumulative effect of accounting change		(6,217	)		2,611			(3,606	)
Net changes in fair value of derivative financial instruments		(420	)		176			(244	)
Less: reclassification adjustments for losses realized in net income (loss)		1,613			(677	)		936
Other comprehensive income (loss)	¥	(57,453	)	¥	30,619		¥	(26,834	)
2003:
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during period	¥	(3,992	)	¥	—		¥	(3,992	)
Less: reclassification adjustments for losses realized in net income (loss)		337			—			337
Minimum pension liability adjustment		(227,913	)		95,723			(132,190	)
Unrealized gains (losses) on marketable securities:
Unrealized holding losses arising during period		(76,758	)		31,692			(45,066	)
Less: reclassification adjustments for gains realized in net income (loss)		(260	)		109			(151	)
Unrealized gains (losses) on derivative financial instruments:
Net changes in fair value of derivative financial instruments		(1,350	)		567			(783	)
Less: reclassification adjustments for losses realized in net income (loss)		1,491			(626	)		865
Other comprehensive income (loss)	¥	(308,445	)	¥	127,465		¥	(180,980	)

F- 37

NEC Corporation

Notes to Consolidated Financial statements (continued)

12. Shareholders’ Equity (continued)

(3) Other comprehensive income (loss) (continued)

	Year ended March 31
	Before-tax			Tax (expense)			Net-of-tax
	amount			or benefit			amount
				(Millions of yen)
2004:
Foreign currency translation adjustments:
Foreign currency translation adjustments arising during period	¥	(19,750	)	¥	—		¥	(19,750	)
Less: reclassification adjustments for losses realized in net income (loss)		906			—			906
Minimum pension liability adjustment		190,678			(74,555	)		116,123
Unrealized gains(losses) on marketable securities:
Unrealized holding gains arising during period		81,587			(33,770	)		47,817
Less: reclassification adjustments for gains realized in net income (loss)		(16,432	)		6,901			(9,531	)
Unrealized gains (losses) on derivative financial instruments:
Net changes in fair value of derivative financial instruments		733			(308	)		425
Less: reclassification adjustments for losses realized in net income (loss)		1,087			(457	)		630
Other comprehensive income (loss)	¥	238,809		¥	(102,189	)	¥	136,620

13. Stock-Based Compensation Plan

(1) NEC Corporation

NEC Corporation has several stock option plans (the “Plans”) approved by the shareholders under which options were granted to directors, corporate officers and certain upper-level employees to purchase shares of common stock at the approximate market value at the date of grant. The options were fully vested when granted, and are exercisable over a period of four years commencing two years after the date of grant. The Plans provide that options lapse automatically upon the option holder’s death and generally expire one year after termination of service.

The terms of the options are subject to adjustment if there is a share split or consolidation of shares, or in certain circumstances, if new shares are issued at a price less than the current quoted market price. As a result, the Plans are accounted for as variable plans.

During the year ended March 31,2004, NEC Corporation issued shares of common stock at a price less than the current quoted market price and as a result, the exercise prices of the outstanding stock options were adjusted under terms of the Plans. Under SFAS No. 123, the effects of the adjustments are considered to be modifications of the terms of the outstanding options. Accordingly, the pro forma disclosure in Note 2 includes stock-based compensation cost for the incremental fair value, under SFAS No. 123, resulting from such modifications.

F- 38

NEC Corporation

Notes to Consolidated Financial statements (continued)

13. Stock-Based Compensation Plan (continued)

The stock option activity is as follows:

	Year ended March 31
	2002				2003				2004
			Weighted				Weighted					Weighted
			-average				-average					-average
	Number of		exercise		Number of		exercise		Number of			exercise
	shares		price		shares		price		shares			price
			(Yen)				(Yen)					(Yen)
Outstanding at beginning of year		301,000	¥	3,400		608,000	¥	2,630		966,000		¥	1,995
Granted		307,000		1,876		358,000		916		313,000			793
Expired		—		—		—		—		(139,000	)		3,395
Adjusted		—		—		—		—		—			(46	)
Outstanding at end of year		608,000		2,630		966,000		1,995		1,140,000			1,448
Exercisable at end of year		—		—		301,000		3,400		469,000			2,328

The following table summarizes information for options outstanding and exercisable at March 31, 2004:

				Outstanding						Exercisable
						Weighted
						-average		Weighted				Weighted
						remaining		-average				-average
				Number of		contractual		exercise		Number of		exercise
Exercise price range				shares		life		price		shares		price
(Yen)						(Years)		(Yen)				(Yen)
¥	769	—	999		671,000		4.72	¥	833		—	¥	—
	1,000	—	1,999		307,000		3.25		1,818		307,000		1,818
	2,000	—	3,294		162,000		2.25		3,294		162,000		3,294
¥	769	—	3,294		1,140,000		3.97		1,448		469,000		2,328

The weighted-average fair value per option at the date of grant during the years ended March 31, 2002, 2003 and 2004 was ¥451, ¥261 and ¥294, respectively. The fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year ended March 31
	2002			2003			2004
Risk-free interest rate		0.43	%		0.45	%		0.54	%
Expected life	4 years			4 years			4 years
Expected volatility		42.60	%		47.90	%		50.20	%
Expected dividend		0.56	%		0.95	%		0.73	%

F- 39

NEC Corporation

Notes to Consolidated Financial statements (continued)

13. Stock-Based Compensation Plan (continued)

(2) NEC Electronics Corporation

NEC Electronics Corporation (“NECEL”), a consolidated subsidiary, has a stock option plan approved by the shareholder under which options were granted to directors, corporate officers and certain upper-level employees to purchase shares of common stock of NECEL at the approximate market value at the date of grant. The options are vested after two years from the date of grant, and are exercisable over a period of two years.

The stock option activity is as follows:

	Year ended March 31, 2004
				Weighted-average
	Number of shares			exercise price
				(Yen)
Outstanding at beginning of year		—		¥	—
Granted		316,500			8,990
Forfeited		(3,000	)		8,990
Outstanding at end of year		313,500			8,990
Exercisable at end of year		—			—

The weighted-average remaining contractual life for options outstanding at March 31, 2004 is 3.5 years.

The weighted-average fair value per option at the date of grant during the year ended March 31, 2004 was ¥3,150. The fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year ended
	March 31, 2004
Risk-free interest rate		0.56	%
Expected life	3 years
Expected volatility		52.30	%
Expected dividend		0.22	%

F- 40

NEC Corporation

Notes to Consolidated Financial statements (continued)

14. Net Income (Loss) Per Share

A reconciliation of the numerators and the denominators of the basic and diluted per share computations for income (loss) before cumulative effect of accounting change, cumulative effect of accounting change, net of tax and net income (loss) is as follows:

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Income (loss) before cumulative effect of accounting change available to common shareholders	¥	(309,425	)	¥	(24,558	)	¥	41,078
Effect of dilutive securities:
Convertible debt		—			—			1,874
Diluted income (loss) before cumulative effect of accounting change	¥	(309,425	)	¥	(24,558	)	¥	42,952
Cumulative effect of accounting change, net of tax	¥	(2,595	)	¥	—		¥	—
Net income (loss) available to common shareholders	¥	(312,020	)	¥	(24,558	)	¥	41,078
Effect of dilutive securities:
Convertible debt		—			—			1,874
Diluted net income (loss)	¥	(312,020	)	¥	(24,558	)	¥	42,952

	Year ended March 31
	2002		2003		2004
			(Number of shares)
Weighted-average number of shares of common stock outstanding for the year		1,654,131,607		1,653,389,121		1,735,345,608
Effect of dilutive securities:
Convertible debt		—		—		222,921,899
Stock options		—		—		18,016
Weighted-average number of shares of diluted common stock outstanding for the year		1,654,131,607		1,653,389,121		1,958,285,523

F- 41

NEC Corporation

Notes to Consolidated Financial statements (continued)

14. Net Income (Loss) Per Share (continued)

	Year ended March 31
	2002			2003			2004
	(Yen)
Per share:
Basic:
Income (loss) before cumulative effect of accounting change	¥	(187.06	)	¥	(14.85	)	¥	23.67
Cumulative effect of accounting change, net of tax		(1.57	)		—			—
Net income (loss)		(188.63	)		(14.85	)		23.67
Diluted:
Income (loss) before cumulative effect of accounting change		(187.06	)		(14.85	)		21.93
Cumulative effect of accounting change, net of tax		(1.57	)		—			—
Net income (loss)		(188.63	)		(14.85	)		21.93

Securities that could potentially dilute basic EPS in the future that were not included in the fully diluted computation because they would have been antidilutive were as follows:

	Year ended March 31
	2002		2003		2004
	(Number of shares)
Convertible debt		220,562,540		220,562,540		—
Stock options		608,000		966,000		827,000

15. Financial Instruments

(1) Fair value of financial instruments

The carrying amounts of cash and cash equivalents, notes and accounts receivable, trade, notes and accounts payable, trade, short-term borrowings, accounts payable, other and accrued expenses, accrued income taxes and other current assets and liabilities approximated fair value because of their short-term maturities. The carrying amounts and estimated fair values of marketable securities are disclosed in Note 4. The carrying amounts and estimated fair values of the other financial instruments are summarized as follows:

F- 42

NEC Corporation

Notes to Consolidated Financial statements (continued)

15. Financial Instruments (continued)

(1) Fair value of financial instruments (continued)

	March 31
	2003						2004
	Carrying			Estimated			Carrying			Estimated
	amount			fair value			amount			fair value
				(Millions of yen)
Long-term receivables, trade	¥	33,073		¥	33,519		¥	9,843		¥	10,323
Long-term loans		35,496			36,080			24,628			24,627
Long-term debt, including current portion and excluding capital lease obligations		(1,222,991	)		(1,230,554	)		(1,027,485	)		(1,050,976	)
Derivatives:
Forward exchange contracts		(458	)		(458	)		916			916
Interest rate and currency swap agreements		(10,479	)		(10,479	)		(9,598	)		(9,598	)
Currency option contracts:
Written		—			—			(86	)		(86	)
Purchased		—			—			955			955

The fair value of financial instruments at March 31, 2003 and 2004 are determined by using a variety of methods and assumptions such as reference to various markets and other data as appropriate. For long-term receivables, trade and long-term loans included in investments and advances-other, fair value is estimated using estimated discounted future cash flows. For long-term debt, fair value is estimated using market quotes, or where market quotes are not available, using estimated discounted future cash flows. Investments in equity securities, included in investments and advances-other, with an aggregate carrying amount of ¥ 121,410 million and ¥112,223 million at March 31, 2003 and 2004, respectively, consisted of numerous investments in securities of non-public companies. It is not practicable to reasonably estimate the fair value of these investments. The fair value of forward exchange contracts is estimated by obtaining quotes for futures contracts with similar maturities, the fair value of interest rate and currency swap agreements is estimated based on estimated discounted net future cash flows, and the fair value of currency option contracts is estimated using pricing models based upon current market interest and foreign exchange rates and volatilities.

F- 43

NEC Corporation

Notes to Consolidated Financial statements (continued)

15. Financial Instruments (continued)

(2)	Derivative financial instruments
	The Company utilizes derivative financial instruments to manage fluctuations in foreign currency exchange rates and interest rates. The Company has policies and procedures for risk management and the approval, reporting and monitoring of derivative financial instruments. The Company’s policies prohibit holding or issuing derivative financial instruments for trading purposes.
	Forward exchange contracts have been entered into to offset the adverse impact of fluctuations in foreign currency exchange rates on assets and liabilities denominated in foreign currencies arising from the Company’s operating activities. The forward exchange contracts are not designated as hedging instruments under SFAS No. 133, and changes in fair value of forward exchange contracts are recognized in income as offsets to the remeasurement of the assets and liabilities denominated in foreign currencies. The related receivable or payable is included in other current assets or other current liabilities.
	The Company has entered into interest rate swap agreements to manage interest rate risk exposure associated with underlying debt. The Company has also entered into currency swap agreements and currency option contracts together with interest rate swap agreements to manage both foreign currency and interest rate risk exposures associated with certain underlying debt. Certain interest rate swap agreements are designated as either a fair value hedge or a cash flow hedge depending on the interest rate characteristics of the underlying debt as discussed below.
	Fair Value Hedging Strategy
	The interest rate swap agreements utilized by the Company effectively modify the Company’s fixed-rate debt to a floating-rate for the next 4 years. These agreements involve the receipt of fixed rate amounts in exchange for floating-rate interest payments over the life of the agreements without an exchange of the underlying principal amount.
	Cash Flow Hedging Strategy
	The interest rate swap agreements utilized by the Company effectively convert a portion of its floating-rate debt to a fixed-rate basis for the next 5 years. Approximately 10% of the Company’s outstanding short-term debt was designated as the hedged items to interest rate swap agreements at March 31, 2004.
	At March 31, 2004, the Company expects to reclassify ¥563 million of net losses on derivative financial instruments from accumulated other comprehensive income (loss) to earnings during the next twelve months due to the payment of variable interest associated with the floating-rate debt.

F- 44

NEC Corporation

Notes to Consolidated Financial statements (continued)

15. Financial Instruments (continued)

(2)	Derivative financial instruments (continued)
	For the years ended March 31, 2003 and 2004, there were no significant gains or losses on derivative financial instruments or portions thereof that were either ineffective as hedges, excluded from the assessment of hedge effectiveness, or where the underlying risk did not occur.
	The counterparties to the Company’s derivative transactions are major financial institutions. As a normal business risk, the Company is exposed to credit loss in the event of nonperformance by the counterparties, however, the Company does not anticipate nonperformance by the counterparties to these agreements, and no material losses are expected.

16. Securitization of Receivables

The Company has several securitization programs under which certain trade receivables, including investment in leases through the date of sale of the Company’s ownership interest in NEL in March 2003, are sold, without recourse, to special purpose entities (“SPEs”). Simultaneously, the SPEs sell an interest in those receivables to a large financial institution. In certain securitizations, the Company has retained subordinated interests.

Under a certain securitization program in Japan, the Company sells on an ongoing basis all applicable trade receivables, and retains all amounts in excess of the Company’s financing needs. As a result, the balance of retained interests varies regardless of the risk of credit loss on the trade receivables.

The Company services, administers and collects the securitized trade receivables on behalf of the SPEs and the costs and fees of servicing, administrating and collecting are not significant. For the years ended March 31, 2002, 2003 and 2004, the Company has recorded losses of ¥871 million, ¥465 million and ¥924 million related to the securitization transactions. Fair value of retained interests at March 31, 2004 is ¥36,440 million, and expected credit loss and discount rate used in measuring the retained interests related to the securitization transactions completed during the year ended March 31, 2004 were principally 0.0% to 0.5% and 0.34 % to 3.30%, respectively.

At March 31, 2004, adverse changes of 10% and 20% to the key economic assumptions on the fair value of retained interests have no material impact on carrying value of retained interests due to a low level of expected credit losses and the short-term maturities of the trade receivables.

A summary of cash flows received from SPEs for all securitization activities that occurred in the years ended March 31, 2002, 2003 and 2004 was as follows:

F- 45

NEC Corporation

Notes to Consolidated Financial statements (continued)

16. Securitization of Receivables (continued)

	Year ended March 31
	2002		2003		2004
			(Millions of yen)
Proceeds from new securitization	¥	1,467,985	¥	1,485,588	¥	1,425,043
Cash flows received on retained interests		240,355		433,638		467,893

The components of securitized financial assets and other assets managed together at March 31, 2003 and 2004 were as follows:

	March 31
	2003			2004
	(Millions of yen)
Notes and accounts receivable, trade	¥	971,605		¥	993,289
Less: assets securitized		(117,069	)		(127,365	)
Assets held in portfolio	¥	854,536		¥	865,924

At March 31, 2003 and 2004, delinquent amounts from notes and accounts receivable, trade including assets securitized, and net credit losses were insignificant.

17. Research and Development Expenses

Research and development expenses included in selling, general and administrative expenses were ¥333,632 million, ¥296,241 million and ¥256,668 million for the years ended March 31, 2002, 2003 and 2004, respectively.

18. Advertising Costs

The Company expenses advertising costs as incurred. Advertising expenses amounted to ¥27,709 million, ¥24,310 million and ¥23,452 million for the years ended March 31, 2002, 2003 and 2004, respectively.

F- 46

NEC Corporation

Notes to Consolidated Financial statements (continued)

19. Stock Issuances by Subsidiaries

NEC Mobiling, Ltd. (“Mobiling”), a consolidated subsidiary which distributes mobile phones and develops software for mobile and wireless communications network systems, sold 2,250,000 shares of common stock at ¥1,692 per share to third parties in a public offering on February 22, 2002, receiving total consideration of ¥3,807 million. At the same time, the Company sold 2,250,000 shares of Mobiling’s common stock to third parties at the same price through the market, and recognized a gain of ¥1,828 million on this transaction. As a result of Mobiling’s public offering, the Company’s ownership interest in Mobiling decreased from 97.72% to 67.11%. However, because the issuance price per share of common stock sold by Mobiling was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amount of its investment in Mobiling by ¥1,226 million and recognized a gain for that amount. The Company provided a deferred tax of ¥515 million on such gain.

Certain other consolidated subsidiaries issued new shares of common stock to third parties during the year ended March 31, 2002, receiving aggregate consideration of ¥5,864 million. As a result of the issuance of new shares, the Company’s ownership interest in the consolidated subsidiaries decreased; however, because the issuance price per share of common stock issued by the consolidated subsidiaries was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amounts of its investments in the consolidated subsidiaries by ¥3,699 million and recognized gains for that amount. The Company provided deferred tax of ¥1,516 million on such gains.

NEC Fielding, Ltd. (“Fielding”), a consolidated subsidiary which principally provides maintenance services for computers and computer peripheral products, including sales of computer peripheral products, sold 3,700,000 shares of common stock at ¥4,256 per share to third parties in a public offering on September 18, 2002, receiving total consideration of ¥15,747 million. At the same time, the Company sold 3,700,000 shares of Fielding’s common stock to third parties at the same price through the market, and recognized a gain of ¥12,441 million on this transaction. As a result of Fielding’s public offering, the Company’s ownership interest in Fielding decreased from 93.34% to 67.11%. However, because the issuance price per share of common stock sold by Fielding was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amount of its investment in Fielding by ¥8,349 million and recognized a gain for that amount. The Company provided a deferred tax of ¥3,381 million on such gain.

A certain other consolidated subsidiary issued new shares of common stock to third parties during the year ended March 31, 2003, receiving aggregate consideration of ¥2,176 million. As a result of the issuance of new shares, the Company’s ownership interest in the consolidated subsidiary decreased; however, because the issuance price per share of common stock issued by the consolidated subsidiary was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amounts of its investments in the consolidated subsidiary by ¥1,346 million and recognized a gain for that amount. The Company provided deferred tax of ¥545 million on such gain.

F- 47

NEC Corporation

Notes to Consolidated Financial statements (continued)

19. Stock Issuances by Subsidiaries (continued)

NEC Electronics Corporation (“NECEL”), a consolidated subsidiary which researches, develops, manufactures, and sells semiconductors (except general purpose DRAM), sold 23,500,000 shares of common stock at ¥3,990 per share to third parties in a public offering on July 24, 2003 receiving total consideration of ¥93,765 million. At the same time, the Company sold 13,500,000 shares of NECEL’s common stock to third parties at the same price through the market, and recognized a gain of ¥16,122 million on this transaction. As a result of NECEL’s public offering, the Company’s ownership interest in NECEL decreased from 100.00% to 70.04%. However, because the issuance price per share of common stock sold by NECEL was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amount of its investment in NECEL by ¥20,618 million and recognized a gain for that amount. The Company provided deferred tax of ¥8,350 million on such gain.

NEC System Technology Ltd. (“NECST”), a consolidated subsidiary which develops software, sold 3,500,000 shares of common stock at ¥3,780 per share to third parties in a public offering on September 12, 2003, receiving total consideration of ¥13,230 million. At the same time, the Company sold 3,680,000 shares of NECST’s common stock to third parties at the same price through the market, and recognized a gain of ¥10,313 million on this transaction. As a result of NECST’s public offering, the Company’s ownership interest in NECST decreased from 95.34% to 66.67%. However, because the issuance price per share of common stock sold by NECST was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amount of its investment in NECST by ¥6,658 million and recognized a gain for that amount. The Company provided deferred tax of ¥2,697 million on such gain.

A certain other consolidated subsidiary issued new shares of common stock to third parties during the year ended March 31, 2004, receiving aggregate consideration of ¥1,025 million. As a result of the issuance of new shares, the Company’s ownership interest in the consolidated subsidiary decreased; however, because the issuance price per share of common stock issued by the consolidated subsidiary was more than the Company’s average carrying amount per share, the Company was required to adjust the carrying amounts of its investments in the consolidated subsidiary by ¥97 million and recognized a gain for that amount. The Company provided deferred tax of ¥41 million on such gain.

F- 48

NEC Corporation

Notes to Consolidated Financial statements (continued)

20. Other Income and Expenses

The principal components of other income and expenses for the years ended March 31, 2002, 2003 and 2004 were as follows:

	Year ended March 31
	2002		2003		2004
			(Millions of yen)
Interest, gain on securities sold, dividends and other:
Interest and dividend income	¥	15,754	¥	18,396	¥	15,987
Gain on sale of investments in securities		32,900		68,619		27,727
Gain on sale of property, plant and equipment		12,063		9,346		25,925
Other		42,920		35,100		26,868
	¥	103,637	¥	131,461	¥	96,507
Other expenses:
Net foreign exchange loss	¥	11,132	¥	14,359	¥	15,611
Restructuring charges		285,914		55,407		17,162
Amortization of goodwill		8,360		—		—
Loss on sale or disposal of property, plant and equipment		17,423		17,059		18,656
Loss on sale or impairment of marketable securities and other investments		85,640		35,208		13,549
Other		60,909		60,739		56,951
	¥	469,378	¥	182,772	¥	121,929

Impairment losses of marketable securities, included in loss on sale or impairment of marketable securities and other investments, for the years ended March 31, 2002, 2003 and 2004 were ¥56,547 million, ¥27,474 million and ¥1,203 million, respectively.

During the year ended March 31, 2002, the Company implemented plans to reorganize and restructure the manufacturing operations of IT Solutions business, Network Solutions business and Electron Devices business. This included the closure or consolidation of plants, a downsizing of the workforce and an exiting or termination of certain product lines. In addition, an impairment loss was recognized for certain machinery, equipment and intangible assets related to the aforementioned businesses and product lines. As a result of the above restructuring, the Company incurred a restructuring charge of ¥285,914 million for fiscal 2002. The restructuring charge consisted of losses of ¥202,940 million on disposal and impairment related to buildings, machinery and equipment, and on disposal and write-down related to inventories, personnel costs of ¥46,686 million for the reduction of approximately 13,000 employees, which excludes employees who left through normal attrition, and others of ¥36,288 million. The impairment loss for buildings and machinery and equipment was ¥108,778 million, and the impairment loss for intangible assets was ¥10,488 million. Prior to March 31, 2002, the Company had paid personnel costs of ¥43,752 million. At March 31, 2002, unpaid termination benefits approximated ¥2,934 million.

F- 49

NEC Corporation

Notes to Consolidated Financial Statements (continued)

20. Other Income and Expenses (continued)

During the year ended March 31, 2003, the Company implemented restructuring activities including workforce reductions and rationalization of production facilities in IT Solutions business, Network Solutions business and Electron Devices business. As a result, the Company incurred restructuring charges of ¥55,407 million. These charges primarily consisted of loss on disposal and write-down of assets of ¥23,435 million, personnel costs of ¥19,481 million for reduction of approximately 5,400 employees, which excludes employees who left through normal attrition, and others of ¥12,491 million. Prior to March 31, 2003, the Company had paid personnel costs of ¥19,052 million. At March 31, 2003, unpaid termination benefits approximated ¥429 million.

During the year ended March 31, 2004, the Company implemented restructuring activities in the area of systems integration, computer platforms, broadband, mobile, and others. The area of computer platforms and others primarily implemented workforce reductions. The area of systems integration and broadband primarily implemented disposal of facilities. The area of mobile primarily implemented workforce reductions and disposal of facilities. As a result, the Company incurred a restructuring charge of ¥17,162 million. The charge consisted of losses on disposal and write-down of assets of ¥6,691 million, personnel costs of ¥7,302 million for the reduction of approximately 1,000 employees, which excludes employees who left through normal attrition, and others of ¥3,169 million. The charge for the IT Solutions business consisted of losses on disposal and write-down of assets of ¥2,535 million, personnel costs of ¥1,520 million for the reduction of employees, and others of ¥638 million. The charge for the Network Solutions business consisted of losses on disposal and write-down of assets of ¥4,156 million, personnel costs of ¥2,393 million for the reduction of employees, and others of ¥2,531 million. The charge for the Others primarily consisted of personnel costs of ¥3,389 million for the reduction of employees. Most of these restructuring activities were completed in the year ended March 31, 2004 and a part of the activities are expected to complete in the year ending March 31, 2005. Prior to March 31, 2004, the Company had paid personnel costs of ¥6,789 million and other costs of ¥2,639 million. At March 31, 2004, unpaid termination benefits and unpaid other associated costs approximated ¥1,472 million.

21. Leasing Arrangements

(1)

Equipment leasing

The Company sells computer equipment to an affiliated financing company which in turn leases the equipment to certain government and governmental agencies under operating leases and has agreed to repurchase that equipment from the affiliated financing company at prescribed amounts at the expiration of the lease. The Company accounts for these transactions as assets owned and leased to others under operating leases.

F- 50

NEC Corporation

Notes to Consolidated Financial Statements (continued)

21.	Leasing Arrangements (continued)
(1)	Equipment leasing (continued)
	The cost of equipment under operating leases at March 31, 2003 and 2004 was ¥41,389 million and ¥35,256 million, respectively, and was included in machinery and equipment. Accumulated depreciation on equipment under operating leases at March 31, 2003 and 2004 was ¥32,784 million and ¥26,522 million, respectively.
	For the year ended March 31, 2002, the Company had lease transactions as a lessor for equipment under finance and operating lease arrangements with terms principally from 3 to 6 years.
	Future minimum lease payments from non-cancelable operating leases at March 31, 2004 are ¥2,566 million and ¥239 million for the years ending March 31, 2005 and 2006, respectively.
(2)	Lease of facilities and equipment
	The Company leases certain facilities and equipment for its own use. The gross amount of leased assets under capital leases included in machinery and equipment was ¥75,432 million and ¥78,897 million at March 31, 2003 and 2004, respectively. Accumulated depreciation of the leased assets at March 31, 2003 and 2004 was ¥29,881 million and ¥47,877 million, respectively. At March 31, 2004, approximately 50% of the capital lease transactions were with NEL.
	The following is a schedule by year of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments at March 31, 2004:

Year ending March 31:	(Millions of yen)
2005	¥	15,956
2006		13,102
2007		9,500
2008		6,290
2009		1,315
2010 and thereafter		2,118
Total minimum lease payments		48,281
Less – amount representing interest		(2,799	)
Present value of net minimum lease payments		45,482
Less – current obligation		(13,991	)
Long-term lease obligation	¥	31,491

F- 51

NEC Corporation

Notes to Consolidated Financial Statements (continued)

21.	Leasing Arrangements (continued)
(2)	Lease of facilities and equipment (continued)
	During the year ended March 31, 2003, the Company sold certain land, buildings, facilities and equipment for ¥22,582 million, and leased them back from the purchaser over periods of 12.5 years. The resulting leases were classified as operating leases. Rental expense under operating leases, including the assets subject to sale-leaseback transactions discussed above, were ¥111,975 million, ¥130,151 million and ¥142,334 million for the years ended March 31, 2002, 2003 and 2004, respectively.
	Future minimum rental payments are as follows:

Year ending March 31:	(Millions of yen)
2005	¥	33,255
2006		24,767
2007		13,441
2008		9,104
2009		8,170
2010 and thereafter		44,746

22.  Commitments and Contingent Liabilities

Commitments outstanding at March 31, 2004 for the purchase of property, plant and equipment are ¥ 55,721 million.

The Company has guaranteed certain loans and financial arrangements. Should the guaranteed parties fail to make payments, the Company would be required to make such payments under these guarantees. The term of the guarantees is equal to the term of the related loans and the related financial arrangements. Certain of these guarantees were secured by guarantees issued to the Company by other parties.

In connection with various operating leases, the Company has issued residual value guarantees, which provide that if the Company does not purchase the leased property from the lessor at the end of the lease term, the Company would be liable to the lessor for an amount equal to the shortage, if any, between the proceeds from the sale of the property and an agreed value.

F- 52

NEC Corporation

Notes to Consolidated Financial Statements (continued)

22. Commitments and Contingent Liabilities (continued)

Maximum potential future payments, term and collateral of guarantees at March 31, 2004 were summarized as follows:

	Maximum
	potential
	future
	payments		Term		Collateral
	(Millions of yen)		(Years)		(Millions of yen)
Affiliated company bank loans	¥	29,877		1-9	¥	—
Employee mortgage loans		25,926		1-20		—
Customer financial arrangements		26,065		1-10		6,485
Lease – residual value guarantees		10,413		1-7		—
Other		5,600		5		—

The Company’s guarantees are provided in the ordinary course of business. The Company underwrites these guarantees considering economic, liquidity and credit risk of the counterparty. In the opinion of management, these guarantees are not expected to have a material adverse effect on the Company’s financial position or results of operations.

The Company conducts business activity on a global scale. Such business activities, from time to time, may involve legal actions, claims or other disputes. Although there are various matters pending at any one time, management is of the opinion that settlement of all such matters pending at March 31, 2004 would not have a material effect on the Company’s financial position or results of operation.

F- 53

NEC Corporation

Notes to Consolidated Financial Statements (continued)

23.	Segment Information
(1)	Business segments
	The Company has the following reportable segments: IT Solutions business, Network Solutions business and Electron Devices business. IT Solutions business develops, designs, manufactures and markets computer systems which include systems integration including outsourcing, software such as operating systems and middleware, computer platforms such as servers, workstations and storage systems, and personal solutions such as personal computers and Internet services “BIGLOBE.” Network Solutions business develops, designs, manufactures and markets mobile Internet solution systems including 3rd generation (“3G”) mobile communication systems and mobile handsets, broadband Internet solution systems including access systems such as ADSL, IP switches and VoIP systems, and social infrastructure systems including broadcast systems, satellite equipment and network management systems. Electron Devices business provides electron device solutions for the Internet industry, and develops, designs, manufactures, and markets semiconductors such as system LSIs, general purpose semiconductors, system memories, displays such as color LCDs and plasma display panels, and electronic components such as capacitors and relays. Included under Others are businesses which develop, design, manufacture and market manufacturing equipment for semiconductors and LCD projectors, and provide construction services for information and network systems.

F- 54

NEC Corporation

Notes to Consolidated Financial Statements (continued)

23.	Segment Information (continued)
(1)	Business segments (continued)
	In March 2003, the Company sold a part of its interest in NEC Leasing Ltd. (“NEL”), resulting in its deconsolidation. Operating results for NEL which has been a separate reportable segment are shown through the date of disposition.

a. Sales

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Sales:
IT Solutions business:
External customers	¥	2,053,510		¥	1,911,304		¥	1,925,223
Intersegment		155,583			171,320			173,669
Total		2,209,093			2,082,624			2,098,892
Network Solutions business:
External customers		1,866,654			1,473,225			1,678,955
Intersegment		90,515			103,108			96,769
Total		1,957,169			1,576,333			1,775,724
Electron Devices business:
External customers		694,587			842,484			829,958
Intersegment		148,291			94,235			102,215
Total		842,878			936,719			932,173
Others:
External customers		423,932			437,245			472,685
Intersegment		210,846			224,449			207,200
Total		634,778			661,694			679,885
Eliminations		(589,132	)		(579,867	)		(579,853	)
Electronics business total		5,054,786			4,677,503			4,906,821
Leasing business:
External customers		62,339			30,777			—
Intersegment		9,420			7,445			—
Total		71,759			38,222			—
Eliminations		(25,523	)		(20,690	)		—
Consolidated total	¥	5,101,022		¥	4,695,035		¥	4,906,821

F- 55

NEC Corporation

Notes to Consolidated Financial Statements (continued)

23.	Segment Information (continued)
(1)	Business segments (continued)

b. Segment profit or loss

	Year ended March 31
	2002			2003			2004
				(Millions of yen)
Segment profit (loss):
IT Solutions business	¥	75,390		¥	105,815		¥	91,782
Network Solutions business		53,447			34,284			67,869
Electron Devices business		(148,159	)		(2,282	)		54,287
Others		2,988			14,838			10,711
Total		(16,334	)		152,655			224,649
Eliminations		(3,357	)		156			(1,559	)
Unallocated corporate expenses		(39,750	)		(38,486	)		(40,392	)
Electronics business total		(59,441	)		114,325			182,698
Leasing business		6,306			8,154			—
Eliminations		(2,387	)		(1,590	)		—
		(55,522	)		120,889			182,698
Other income		110,390			153,597			150,315
Other expenses		(516,051	)		(212,990	)		(172,467	)
Consolidated income (loss) before income taxes	¥	(461,183	)	¥	61,496		¥	160,546

c. Assets

	March 31
	2002			2003			2004
				(Millions of yen)
Total assets:
IT Solutions business	¥	1,031,523		¥	989,385		¥	957,492
Network Solutions business		1,181,781			1,011,997			1,015,899
Electron Devices business		1,046,265			1,109,312			1,089,228
Others		779,106			667,675			587,753
Total		4,038,675			3,778,369			3,650,372
Eliminations		(233,477	)		(241,212	)		(183,418	)
Corporate assets		658,673			566,143			577,388
Electronics business total		4,463,871			4,103,300			4,044,342
Leasing business		662,143			–			—
Eliminations		(115,131	)		–			—
Consolidated total	¥	5,010,883		¥	4,103,300		¥	4,044,342

Others at March 31, 2002 include the investment in NEL accounted for by the equity method, although NEL was consolidated as of March 31, 2002.

F- 56

NEC Corporation

Notes to Consolidated Financial Statements (continued)

23.	Segment Information (continued)
(1)	Business segments (continued)

d. Other significant items

	Year ended March 31
	2002		2003		2004
			(Millions of yen)
Depreciation:
IT Solutions business	¥	32,719	¥	33,195	¥	30,322
Network Solutions business		35,760		30,675		26,217
Electron Devices business		135,737		107,983		93,948
Others		11,390		8,503		15,134
Total		215,606		180,356		165,621
Corporate		17,526		14,168		13,093
Electronics business total		233,132		194,524		178,714
Leasing business		1,606		1,070		—
Consolidated total	¥	234,738	¥	195,594	¥	178,714
Capital expenditures for segment assets:
IT Solutions business	¥	34,576	¥	26,754	¥	10,077
Network Solutions business		46,689		13,735		12,128
Electron Devices business		96,558		111,447		124,176
Others		6,726		15,691		22,047
Total		184,549		167,627		168,428
Corporate		13,953		10,807		5,529
Electronics business total		198,502		178,434		173,957
Leasing business		1,565		300		—
Consolidated total	¥	200,067	¥	178,734	¥	173,957

Intersegment transfers are made at arm’s-length prices. Corporate expenses include general corporate expenses and research and development expenses at NEC Corporation which are not allocated to any reportable segment. Corporate assets consist primarily of cash and cash equivalents, buildings and deferred tax assets maintained for general corporate purposes. The capital expenditures represent the additions to property, plant and equipment of each segment.

F- 57

NEC Corporation

Notes to Consolidated Financial Statements (continued)

23.	Segment Information (continued)
(2)	Geographic information
	Sales, which are attributed to geographic areas based on the country location of NEC Corporation or subsidiary that transacted the sale with the external customer, geographic profit (loss) for the years ended March 31, 2002, 2003 and 2004 and long-lived assets at March 31, 2002, 2003 and 2004 were as follows. Although the disclosure of geographic profit (loss) is not required under accounting principles generally accepted in the United States of America, the Company discloses this information as supplemental information due to the disclosure requirements of the Japanese Securities and Exchange Law.

	Year ended March 31
	2002			2003		2004
				(Millions of yen)
Net sales:
Japan	¥	4,230,278		¥	3,879,454	¥	3,889,854
All foreign countries		870,744			815,581		1,016,967
Total	¥	5,101,022		¥	4,695,035	¥	4,906,821
Geographic profit (loss):
Japan	¥	(16,854	)	¥	118,277	¥	169,773
All foreign countries		(38,668	)		2,612		12,925
Total	¥	(55,522	)	¥	120,889	¥	182,698

	March 31
	2002		2003		2004
			(Millions of yen)
Long-lived assets:
Japan	¥	1,132,400	¥	1,014,995	¥	964,221
All foreign countries		113,854		90,488		63,916
Total	¥	1,246,254	¥	1,105,483	¥	1,028,137

There are no sales or long-lived assets in foreign countries which are individually material. Transfers between geographic areas are made at arm’s-length prices.

(3)	Major customers
	Sales to one customer accounted for approximately 16.0%, 13.9% and 16.3% of consolidated sales for the years ended March 31, 2002, 2003 and 2004, respectively.

F- 58

NEC Corporation

Notes to Consolidated Financial Statements (continued)

24. Subsequent Events

On May 27, 2004, NECEL issued convertible bonds of ¥110,000,000,000 (the “Bonds”) including an additional ¥10,000,000,000 principal amount pursuant to the over-allotment option, at an offer price of 102.5%. The Bonds were issued in denomination of ¥10,000,000 with a stock acquisition right exercisable on and after June 10, 2004 up to May 24, 2011. The initial conversion price is ¥9,860 per share, subject to adjustment in certain events such as a stock split or consolidation of stock.

As a result of the resolution at a meeting of the Board of Directors on April 22, 2004, the Company redeemed in whole its Unsecured Subordinated Debentures due 2021 on June 21, 2004 in accordance with the terms and conditions thereof. The redemption price was ¥100,001 million and dividends of ¥1,271 million were paid to the redemption date.

The shareholders, at June 22, 2004 Ordinary General Meetings of Shareholders, approved the payment of a cash dividend of ¥3 per share, aggregating ¥5,781 million, for the year ended March 31, 2004, which has been reflected in the consolidated financial statements.

F- 59

SCHEDULE II

NEC Corporation

Valuation and Qualifying Accounts

	Balance at		Charged to
	beginning of		costs and						Balance at end
	period		expenses			Deductions			of period
	(Millions of yen)
Year ended March 31, 2002:
Allowance for doubtful notes and accounts	¥	27,199	¥	7,968		¥	2,992	(1)	¥	32,175
Year ended March 31, 2003:
Allowance for doubtful notes and accounts	¥	32,175	¥	4,040		¥	3,664	(1)	¥	32,551
Year ended March 31, 2004:
Allowance for doubtful notes and accounts	¥	32,551	¥	(2,067	)	¥	5,265	(1)	¥	25,219

Note

(1) Principally accounts written off, translation adjustments and reversal of allowance for doubtful notes and accounts.

F- 60

Consolidated Financial Statements

Elpida Memory, Inc.

At March 31, 2003 and 2004 and
Years ended March 31, 2002, 2003 and 2004

Elpida Memory, Inc.

Consolidated Financial Statements

At March 31, 2003 and 2004 and
Years ended March 31, 2002, 2003 and 2004

Contents

Report of Independent Registered Public Accounting Firm	1
Consolidated Balance Sheets	2
Consolidated Statements of Operations	4
Consolidated Statements of Changes in Shareholders’ Equity	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Elpida Memory, Inc.

We have audited the accompanying consolidated balance sheet of Elpida Memory, Inc. (the “Company”) as of March 31, 2003, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the year then ended, all expressed in Japanese yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Elpida Memory, Inc. at March 31, 2003, and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young ShinNihon

Tokyo, Japan
May 30, 2003
     Except for Note 2, as to which the date is
     March 24, 2004

1

Elpida Memory, Inc.

Consolidated Balance Sheets

	March 31
	2003			2004
				(Unaudited)
	(Millions of yen)
Assets
Current assets:
Cash and cash equivalents	¥	4,573		¥	110,555
Accounts receivable, trade:
Related party		1,255			8,753
Other		6,911			18,053
Accounts receivable, other:
Related party		6,098			262
Other		1,938			6,168
Allowance for doubtful accounts		(18	)		(32	)
Inventories		7,721			24,437
Prepaid expenses and other current assets		152			350
Total current assets		28,630			168,546
Property, plant and equipment at cost		64,122			139,767
Accumulated depreciation		(3,204	)		(15,485	)
		60,918			124,282
License fees and other intangibles		2,873			2,669
Software costs		3,868			4,632
Other assets		458			324
		7,199			7,625
	¥	96,747		¥	300,453

2

	March 31
	2003			2004
				(Unaudited)
	(Millions of yen)
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings	¥	12,102		¥	6,739
Current portion of obligation under capital leases		1,790			19,239
Current portion of long-term debt		—			6,216
Accounts payable, trade:
Related party		13,188			8,424
Other		9,795			16,127
Accounts payable, other:
Related party		3,048			8,127
Other		8,622			52,611
Accrued income taxes		215			504
Accrued expenses and other current liabilities		2,228			11,332
Total current liabilities		50,988			129,319
Long-term liabilities:
Obligation under capital leases		2,963			42,634
Long-term debt		—			46,184
Accounts payable, other		2,297			1,641
Other		161			1,525
		5,421			91,984
Commitments
Shareholders’ equity:
Common stock:
Authorized 2003 – 6,160,000 shares
2004 – 200,000,000 shares
Issued 2003 – 1,040,000 shares		43,778
2004 – 28,400,000 shares					53,279
Class A stock:
Authorized and issued 2003 – 880,000 shares		22,000
2004 –17,600,000 shares					22,000
Class B stock:
Authorized and issued 2004 – 4,480,000 shares		—			5,600
Class C stock:
Authorized and issued 2004 – 8,698,000 shares		—			10,872
Class D stock:
Authorized and issued 2004 – 5,436,400 shares		—			6,795
Additional paid-in capital		29,294			61,681
Accumulated deficit		(54,591	)		(80,369	)
Accumulated other comprehensive income (loss)		(143	)		(708	)
		40,338			79,150
	¥	96,747		¥	300,453

See notes to consolidated financial statements.

3

Elpida Memory, Inc.

Consolidated Statements of Operations

	Year ended March 31
	2002			2003			2004
	(Unaudited)						(Unaudited)
	(Millions of yen)
Net sales	¥	86,682		¥	67,379		¥	103,031
Operating costs and expenses:
Cost of sales		83,001			59,441			99,030
Research and development		22,533			20,330			20,890
Selling, general and administrative expenses		9,384			10,498			8,152
Impairment loss on goodwill		1,139			—			—
Total		116,057			90,269			128,072
Loss from operations		(29,375	)		(22,890	)		(25,041	)
Interest income		—			49			28
Interest expense		(299	)		(190	)		(759	)
Foreign exchange gains (losses)		(247	)		1,152			256
Governmental grants		—			—			1,800
Other income (expense), net		(1,110	)		99			(151	)
Loss before income taxes		(31,031	)		(21,780	)		(23,867	)
Provision for income taxes:
Current		113			268			976
Deferred		8			406			935
		121			674			1,911
Net loss	¥	(31,152	)	¥	(22,454	)	¥	(25,778	)

See notes to consolidated financial statements.

4

Elpida Memory, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

	Year ended March 31
	2002						2003						2004
	(Unaudited)												(Unaudited)
	(Millions of yen)
Common stock:
Balance at beginning of year	¥	1,523					¥	36,278					¥	43,778
Issuance of stock		35,000						7,500						9,501
Stock issuance costs		(245	)					—						—
Balance at end of year	¥	36,278					¥	43,778					¥	53,279
Class A stock:
Balance at beginning of year	¥	—					¥	—					¥	22,000
Issuance of stock		—						22,000						—
Balance at end of year	¥	—					¥	22,000					¥	22,000
Class B stock:
Balance at beginning of year	¥	—					¥	—					¥	—
Issuance of stock		—						—						5,600
Balance at end of year	¥	—					¥	—					¥	5,600
Class C stock:
Balance at beginning of year	¥	—					¥	—					¥	—
Issuance of stock		—						—						10,872
Balance at end of year	¥	—					¥	—					¥	10,872
Class D stock:
Balance at beginning of year	¥	—					¥	—					¥	—
Issuance of stock		—						—						6,795
Balance at end of year	¥	—					¥	—					¥	6,795
Additional paid-in capital:
Balance at beginning of year	¥	—					¥	—					¥	29,294
Issuance of stock		—						29,500						32,768
Stock issuance costs		—						(206	)					(381	)
Balance at end of year	¥	—					¥	29,294					¥	61,681
Accumulated deficit:
Balance at beginning of year	¥	(985	)				¥	(32,137	)				¥	(54,591	)
Net loss		(31,152	)	¥	(31,152	)		(22,454	)	¥	(22,454	)		(25,778	)	¥	(25,778	)
Balance at end of year	¥	(32,137	)				¥	(54,591	)				¥	(80,369	)
Accumulated other comprehensive income (loss):
Balance at beginning of year	¥	72					¥	6					¥	(143	)
Foreign currency translation adjustments					(66	)					(149	)					(212	)
Unrealized losses on derivative financial instruments					—						—						(353	)
Other comprehensive loss		(66	)		(66	)		(149	)		(149	)		(565	)		(565	)
Comprehensive loss				¥	(31,218	)				¥	(22,603	)				¥	(26,343	)
Balance at end of year	¥	6					¥	(143	)				¥	(708	)

See notes to consolidated financial statements.

5

Elpida Memory, Inc.

Consolidated Statements of Cash Flows

	Year ended March 31
	2002			2003			2004
	(Unaudited)						(Unaudited)
	(Millions of yen)
Cash flows from operating activities
Net loss	¥	(31,152	)	¥	(22,454	)	¥	(25,778	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		960			3,336			15,820
Loss on sales and disposal of property, plant and equipment, net					3			62
Deferred taxes		8			406			935
Write-off of goodwill		1,139			—			—
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, trade		140			9,980			(19,601	)
(Increase) decrease in accounts receivable, other		(685	)		(7,132	)		1,606
(Increase) decrease in inventories		7,347			(1,225	)		(16,804	)
(Increase) decrease in prepaid expenses and other current assets		970			(65	)		(132	)
Increase (decrease) in accounts payable, trade		(8,250	)		(3,151	)		2,269
Increase (decrease) in accounts payable, other		(255	)		578			(124	)
Increase (decrease) in accrued expenses and other current liabilities		(52	)		(247	)		8,298
Other, net		374			(630	)		1,301
Net cash used in operating activities		(29,456	)		(20,601	)		(32,148	)
Cash flows from investing activities
Proceeds from sales of property, plant and equipment		2			17			206
Additions to property, plant and equipment		(7,678	)		(45,342	)		(47,749	)
Addition to license fees and other intangibles		—			—			(231	)
Additions to software costs		(1,079	)		(2,154	)		(1,912	)
Other, net		—			171			(570	)
Net cash used in investing activities		(8,755	)		(47,308	)		(50,256	)
Cash flows from financing activities
Net increase (decrease) in short-term borrowings		6,483			4,830			(5,333	)
Proceeds from long-term debt		—			—			52,304
Proceeds from sale and leaseback transaction		317			4,677			84,555
Repayments of lease obligation		—			(241	)		(7,280	)
Distribution to shareholders		—			—			(810	)
Proceeds from issuance of common stock		34,755			14,948			18,891
Proceeds from issuance of Class A stock		—			43,846			—
Proceeds from issuance of Class B stock		—			—			11,135
Proceeds from issuance of Class C stock		—			—			21,618
Proceeds from issuance of Class D stock		—			—			13,511
Net cash provided by financing activities		41,555			68,060			188,591
Effect of exchange rate changes on cash and cash equivalents		(128	)		(11	)		(205	)
Net increase in cash and cash equivalents		3,216			140			105,982
Cash and cash equivalents at beginning of year		1,217			4,433			4,573
Cash and cash equivalents at end of year	¥	4,433		¥	4,573		¥	110,555
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	¥	332		¥	193		¥	742
Income taxes		63			198			644
Non-cash investing transaction
Property, plant and equipment acquired under capital leases		317			4,821			64,400

See notes to consolidated financial statements.

6

Elpida Memory, Inc.

Notes to Consolidated Financial Statements

March 31, 2004

The data in the following footnotes as of and for the years ended March 31, 2002 and 2004 is unaudited.

1. Significant Accounting Policies

Elpida Memory, Inc. (“Elpida”) was established in December 1999 as a joint venture owned 50% each by NEC Corporation (“NEC”) and HITACHI, Ltd. (“HITACHI”). Elpida Memory, Inc. and its subsidiaries (the “Company”) develop, design, manufacture and sell dynamic random access memories (“DRAMs”). The Company also purchases DRAM products and semifinished components from NEC, HITACHI and their affiliates.

Elpida and its domestic subsidiary maintain their records and prepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries and affiliated company in conformity with those of the countries in which such subsidiaries and affiliated company are domiciled. Certain adjustments and reclassifications have been incorporated in the accompanying consolidated financial statements to conform with accounting principles generally accepted in the United States of America. These adjustments and reclassifications were not recorded in the statutory books of account.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated.

Consolidation

The consolidated financial statements of the Company include the accounts of Elpida and its subsidiaries. All significant intercompany transactions and accounts are eliminated.

7

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

1. Significant Accounting Policies (continued)

Cash equivalents

All highly liquid investments with a maturity at their date of acquisition of three months or less are considered to be cash equivalents.

Foreign currency translation

Foreign currency transactions are measured at the applicable rates of exchange prevailing at the transaction dates. Assets and liabilities denominated in currencies other than the functional currency are remeasured at the applicable rates of exchange prevailing at the balance sheet date. Exchange differences are charged or credited to income.

The Company’s foreign subsidiaries use the local currencies as their functional currency. Accordingly, assets and liabilities of foreign subsidiaries are translated into yen at applicable year-end rates of exchange and all revenue and expense accounts are translated at average rates of exchange prevailing during the year. The resulting translation adjustments are accumulated and included in accumulated other comprehensive income (loss) classified as part of shareholders’ equity.

Allowance for doubtful accounts

An allowance for doubtful accounts is provided based on credit loss history and an evaluation of any specific doubtful accounts.

Inventories

Purchased products are stated at the lower of cost, which is determined on a moving average basis, or market.

Finished products, semifinished components, work in process and raw materials are stated at the lower of cost, which is determined on a first-in, first-out basis, or market.

The Company identifies slow moving and obsolete inventory, and writes down such inventory to its estimated market value based on assumptions about future demand and market conditions.

8

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

1. Significant Accounting Policies (continued)

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. Maintenance and repairs, including minor renewals and betterments, are charged to income as incurred.

Leased assets meeting certain criteria are capitalized and amortized on a straight line basis over the lease term.

Impairment of long-lived assets

Long-lived assets to be held and used, including license fees and other intangibles, are evaluated for impairment using an estimate of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If the estimate of undiscounted cash flows is less than the carrying amount of the assets, an impairment loss is recorded based on the fair value of the assets.

Long-lived assets to be disposed of by sale are evaluated at the lower of carrying amount or fair value less cost to sell.

License fees and other intangibles

Intangible assets with finite lives consist primarily of license fees, and are amortized on a straight-line basis over the contractual periods, which are principally 2 — 8 years.

Software costs

Certain costs incurred to develop or obtain internal use computer software are capitalized and are amortized on a straight-line basis principally over 5 years.

Income taxes

Deferred tax assets and liabilities are determined based on the financial statement and tax bases of assets and liabilities, using the enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Deferred tax assets are also recognized for the estimated future tax benefits attributable to operating loss carryforwards. Valuation allowances are established to reduce deferred tax assets to their net realizable value if it is more likely than not that some portion or all of the deferred tax assets will not be realized.

9

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

1. Significant Accounting Policies (continued)

Stock-based compensation

At March 31, 2004, the Company has a stock-based compensation plan, which is described more fully in Note 10. The Company accounts for that plan under the recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net loss if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based compensation.

	Year ended
	March 31, 2004
	(Millions of yen)
Net loss, as reported	¥	(25,778	)
Deduct: Total stock-based compensation expense determined under fair value based method for all awards		(4,861	)
Pro forma net loss	¥	(30,639	)

Revenue recognition

Revenue from sales of products is recognized when the products are shipped.

Derivative financial instruments

The Company recognizes all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding the derivative financial instruments. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in shareholders’ equity as a component of other comprehensive income (loss) depending on whether the derivative financial instruments qualify for hedge accounting, and if so, whether they qualify as a fair value hedge or a cash flow hedge. Changes in the fair value of derivative financial instruments accounted for as a fair value hedge are recorded in income along with the portion of the change in the fair value of the hedged item that relates to the hedged risk. Changes in the fair value of derivative financial instruments accounted for as a cash flow hedge, to the extent they are effective as a hedge, are recorded in other comprehensive income (loss), net of tax. Changes in the fair value of derivative financial instruments not qualifying as a hedge are reported in income.

10

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

1. Significant Accounting Policies (continued)

Reclassification

Certain amounts in the consolidated financial statements for the years ended March 31, 2002 and 2003 have been reclassified to conform to the 2004 presentation.

2. Reorganization

Prior to March 24, 2004, the Company owned a 20% interest in Elpida Memory (U.S.A.) Inc., (“Elpida (U.S.A.)”) and accounted for such investment using the equity method. NEC and HITACHI each owned a 40% interest in Elpida (U.S.A.) through their subsidiaries.

On March 24, 2004, NEC and Hitachi transferred their interests in Elpida (U.S.A.) to the Company. Because there was no effective change in ownership, this transfer was accounted for similar to a combination of entities under common control and therefore, all assets and liabilities of Elpida (U.S.A.) were recorded at their historical book value. The accompanying financial statements are based on the assumption that the companies were combined, and financial statements of prior years have been restated to give effect to the combination.

Summarized results of operations of Elpida (U.S.A.) for the year ended March 31, 2004 are as follows:

	(Millions of yen)
Net sales	¥	33,277
Income before income taxes		1,437
Net income		864

11

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

2. Reorganization (continued)

Following is a reconciliation of the amounts of net sales and net income previously reported for the years ended March 31, 2002, and 2003 with restated amounts

	Year ended March 31
	2002			2003
	(Millions of yen)
Net sales
As previously reported	¥	78,271		¥	63,235
Elpida (U.S.A)		34,328			23,734
Elimination of intercompany transactions		(25,917	)		(19,590	)
As restated	¥	86,682		¥	67,379
Net income (loss)
As previously reported	¥	(30,861	)	¥	(22,621	)
Elpida (U.S.A)		(638	)		438
Elimination of intercompany transaction		347			(271	)
As restated	¥	(31,152	)	¥	(22,454	)

Prior to March 24, 2004, Elpida and Elpida (U.S.A.), in the normal course of business, entered into certain transactions for the purchase and sale of DRAM products. These intercompany transactions have been eliminated in the accompanying consolidated financial statements.

3. Inventories

Inventories at March 31, 2003 and 2004 consisted of the following:

	March 31
	2003		2004
	(Millions of yen)
Finished products	¥	5,194	¥	6,533
Work in process and semifinished components		2,268		16,031
Raw materials and Supplies		259		1,873
	¥	7,721	¥	24,437

12

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

4. Property, Plant and Equipment

		March 31
	Depreciable Lives	2003		2004
		(Millions of yen)
Buildings and improvements	3–60 years	¥	15,081	¥	16,312
Machinery and equipment	2–7 years		44,909		109,371
Vehicle and tools	2–15 years		1,757		4,021
Construction in progress			2,375		10,063
		¥	64,122	¥	139,767

5. License Fees and Other Intangibles

License fees and other intangibles subject to amortization at March 31, 2003 and 2004 consisted of the following:

	March 31
	2003				2004
	Gross carrying		Accumulated		Gross carrying		Accumulated
	Amount		amortization		amount		amortization
	(Millions of yen)
License fees	¥	1,358	¥	—	¥	1,791	¥	658
Other		1,515		—		3,334		1,798
	¥	2,873	¥	—	¥	5,125	¥	2,456

The estimated amortization expense for the next five years is follows:

Year ending March 31:	(Millions of yen)
2005	¥1,087
2006	576
2007	523
2008	476
2009	7

6. Software Costs

Accumulated depreciation of internal use software at March 31, 2003 and 2004 was ¥1,035 million and ¥2,182 million, respectively. Depreciation expense for internal use software for the years ended March 31, 2002, 2003 and 2004 was ¥393 million, ¥620 million and ¥ 1,287 million, respectively.

13

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

7. Short-Term Borrowings and Long-term Debt

Short-term borrowings principally consist of short-term bank loans. The weighted average interest rate per annum on short-term borrowings outstanding at March 31, 2003 and 2004 was 1.08% and 1.1%, respectively.

Long-term debt at March 31, 2004 was as follows:

	(Millions of yen)
Borrowings from banks and financial institutions, due 2004 to 2007 with average interest rate of 0.9%	¥	42,400
0.24% unsecured yen bonds due June 2006		10,000
		52,400
Less – portion due within one year		6,216
	¥	46,184

Certain of the Company’s borrowing arrangements have restrictive debt covenants. The most restrictive covenant would require the Company to have at least ¥60,800 million of shareholders’ equity and maintain a certain level of income. Failure to comply with those covenants would require the repayment of ¥27,400 million of borrowing and prohibit enters into any new arrangements.

Annual maturities of long-term debt are summarized as follows:

Year ending March 31:	(Millions of yen)
2005	¥   6,216
2006	10,956
2007	35,228

The Company maintains bank overdraft provisions and credit lines of ¥49,500 million with five banks. At March 31, 2004, the unused line of credit was ¥44,500 million with commitment fees which are 0.25% to 0.3% of contract credit line or 0.3% to 0.5% of unused credit line per annum. These programs have certain covenants which require the Company to maintain certain levels of net assets, net income or liquidity.

14

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

8. Income Taxes

The Company is subject to a number of different income taxes which, in the aggregate, result in a normal statutory tax rate in Japan of approximately 42% for the years ended March 31, 2002, 2003 and 2004. Certain changes in the tax regulations enacted in March 2003 reduced the statutory tax rate to approximately 40%, effective April 1, 2004.

For the years ended March 31, 2002, 2003 and 2004, the significant reconciling item between the reported income tax expense and the amount of tax benefit computed by multiplying the loss before income taxes by the applicable normal statutory tax rate was the provision for a valuation allowance.

The significant components of deferred tax assets and liabilities at March 31, 2003 and 2004 were as follows:

	March 31
	2003			2004
	(Millions of yen)
Deferred tax assets:
Net operating loss carryforwards	¥	21,274		¥	33,774
Loss on inventory valuation		607			—
Other		884			1,279
		22,765			35,053
Less: valuation allowance		(22,747	)		(33,963	)
Deferred tax liabilities:
Depreciation		(10	)		(1,954	)
Other		—			(43	)
		(10	)		(1,997	)
Net deferred tax assets (liabilities)	¥	8		¥	(907	)

The valuation allowance shown above reflects the Company’s on going assessment regarding the realizability of deferred tax assets. While these assets are not assured of realization, the balance of the deferred tax assets is considered realizable based on future taxable income and existing taxable temporary differences. The net change in the total valuation allowance for the years ended March 31, 2002, 2003 and 2004 was an increase of ¥13,326 million, ¥9,421 million and ¥11,216 million, respectively.

At March 31, 2004, the Company had operating loss carryforwards of approximately ¥82,997 million of which ¥80,944 million relates to Elpida and its domestic subsidiary and will expire during the period from 2006 through 2011. The reminder of ¥2,053 million relates to its foreign subsidiaries and, except for ¥1,595 million with no expiration date, will expire through 2013.

15

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

9. Shareholders’ Equity

Classes of stock

Class A stock has voting rights. Each share is currently convertible into one share of common stock of Elpida at the option of holders on and after November 13, 2002. Dividends on Class A stock are subordinated to dividends on common stock of Elpida. When annual dividends or interim dividends per share of common stock are less than ¥10 per share or ¥5 per share, respectively, no dividend on Class A stock can be paid. When annual dividends or interim dividends are higher than such per share amounts, dividends on Class A stock would be paid with a limitation of ¥10 per share for annual dividends and ¥5 per share for interim dividends.

Class B stock is non-voting and has certain veto rights pursuant to the articles of incorporation, which expire on the effective date of an initial listing of shares of the Elpida’s common stock on the Tokyo Stock Exchange. Annual or interim dividends, if any, to Class B shareholders are pari passu with common, Class C and Class D shareholders. When Elpida makes a liquidation distribution out of residual assets, it shall make such distribution to Class B shareholders pari passu with common shareholders on a pro rata basis but subordinated to Class C and Class D shareholders. Under the articles of incorporation, Class B shareholders may convert their shares into common stock in whole or in part at any time, Class B shareholders have agreed to exercise their conversion right only after the listing date. Elpida’s board of directors may require holders of Class B stock to convert such shares to common stock on any date on or after the second anniversary of the listing date. The number of shares of common stock to be issued upon conversion shall be calculated by dividing ¥2,500 per share (subject to appropriate adjustment in the case of share split, share consolidation or similar event of Class B stock) by the Class B conversion price. The Class B conversion price is ¥2,500 and shall be adjusted appropriately when there is an issuance or a disposal of shares of new common stock or convertible stock at a consideration per share less than the current Class B conversion price.

Class C shareholders have no voting privileges. Annual or interim dividends, if any, are pari passu among Common, Class B and Class D shareholders. When Elpida makes a liquidation distribution out of residual assets, it shall make such distribution to Class C shareholders prior to the distribution to Common, Class A and Class B shareholders but after Class D shareholders. Class C stock shall be automatically converted into shares of common stock on the listing date. The method of calculating the number of shares of common stock to be issued upon conversion is the same as those for Class B stock described above.

16

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

9. Shareholders’ Equity (continued)

Classes of stock (continued)

Class D shareholders have no voting privileges. Annual or interim dividends, if any, are pari passu among common, Class B and Class C shareholders. When Elpida makes a liquidation distribution out of residual assets, it shall make such distribution to Class D shareholders prior to the distribution to common and all other classes shareholders. All shares of Class D stock shall be automatically converted into shares of common stock on the listing date. The method of calculating the number of shares of common stock to be issued upon conversion is the same as those for Class B stock described above.

Retained earnings

The Japanese Commercial Code provides that an amount equal to at least 10% of cash dividends and other distributions from retained earnings paid by Elpida be appropriated as a legal reserve. No further appropriation is required when the total amount of additional paid-in capital and the legal reserve equals 25% of the stated capital. The Japanese Commercial Code also provides that to the extent that the sum of the additional paid-in capital and the legal reserve exceed 25% of the stated capital, the amount of the excess (if any) is available for appropriations by the resolution of the shareholders. The amount of retained earnings available for dividends is based on Elpida’s retained earnings determined in accordance with generally accepted accounting principles and the Commercial Code in Japan.

Other comprehensive income (loss)

The Company does not recognize a tax effect on foreign currency translation adjustments because the investment in subsidiaries is essentially permanent in duration.

17

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

9. Shareholders’ Equity (continued)

Other comprehensive income (loss) (continued)

Change in accumulated other comprehensive income (loss) for the years ended March 31, 2003 and 2004 was as follows:

	Year ended March 31
	2003			2004
	(Millions of yen)
Foreign currency translation adjustments:
Balance at beginning of year	¥	6		¥	(143	)
Change in the current period		(149	)		(212	)
Balance at end of year	¥	(143	)	¥	(355	)
Unrealized losses on derivative financial instruments:
Balance at beginning of year	¥	—		¥	—
Change in the current period		—			(353	)
Balance at end of year	¥	—		¥	(353	)
Total accumulated other comprehensive income (loss):
Balance at beginning of year	¥	6		¥	(143	)
Change in the current period		(149	)		(565	)
Balance at end of year	¥	(143	)	¥	(708	)

10. Stock-Based Compensation Plan

On March 23, 2004, the Company established a stock option plan (the “Plan”) approved by the shareholders under which options were granted to directors, corporate officers, certain upper-level employees and corporate auditors of Elpida and a certain subsidiary to purchase shares of common stock of Elpida at the approximate market value at the date of grant. The options were vested at the date of grant, and are exercisable over a period of seven years.

The stock option activity for the year ended March 31, 2004 was as follows:

			Weighted-average
	Number of		exercise price
	shares		per share
			(Yen)
Outstanding at beginning of year		—	¥	—
Granted		3,230,000		2,500
Outstanding at end of year		3,230,000	¥	2,500
Exercisable at end of year		—	¥	—

18

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

10. Stock-Based Compensation Plan (continued)

The weighted-average remaining contractual life for options outstanding at March 31, 2004 is seven years.

The weighted-average fair value per share at the date of grant during the year ended March 31, 2004 was ¥1,505. The fair value of options granted is estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:

Risk-free interest rate		0.74	%
Expected life	4.81 years
Expected volatility		75.9	%
Expected dividend		—	%

11. Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses. Shipping and handling costs for the years ended March 31, 2002, 2003 and 2004 was ¥1,029 million, ¥743 million and ¥776 million, respectively.

12. Financial Instruments and Risk Concentration

Fair value of financial instruments

The carrying amounts of cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable, accrued income taxes, and other current assets and liabilities approximated fair value because of their short-term maturities. The carrying amount and estimated fair value of other financial instruments at March 31, 2003 and 2004 were as follows:

	March 31
	2003						2004
	Carrying			Estimated			Carrying			Estimated
	amount			fair value			amount			fair value
	(Millions of yen)
Long-term debt, including current portion	¥	—		¥	—		¥	52,400		¥	52,220
Derivatives:
Forward exchange contracts		(20	)		(20	)		5,054			5,054
Interest rate swap agreements		—			—			(353	)		(353	)

The fair value of forward exchange contracts is estimated by obtaining quotes for futures contract with similar maturities, the fair value of interest swap agreements is estimated based on estimated discounted net future cash flows.

19

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

12. Financial Instruments and Risk Concentration (continued)

Derivative instruments

The Company utilizes derivative instruments to manage fluctuation in foreign exchange rates and interest rates. The Company has policies and procedures for risk management and the approval, reporting and monitoring of derivative financial instruments. The Company’s policies prohibit holding or issuing derivative instruments for trading purposes.

Forward exchange contracts have been entered into to offset the adverse impact of fluctuations in foreign exchange rates on accounts receivable and accounts payable denominated in foreign currencies arising from the Company’s operating activities. The forward exchange contracts are not designated as hedging instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and changes in fair value of forward exchange contracts are recognized in income. The related receivable or payable is included in other current assets or other current liabilities.

Cash Flow Hedging Strategy

The Company has entered into interest rate swap agreements to manage the exposure to interest rate risk associated with its underlying debt. Certain interest rate swap agreements are designated as a cash flow hedge depending on the interest rate characteristics of the underlying debt.

The interest rate swap agreements utilized by the Company effectively convert a portion of its floating-rate debt to a fixed-rate basis for the next 3 years. Approximately 48% of the Company’s outstanding long-term debt was designated as the hedged items to interest rate swap agreements at March 31, 2004.

At March 31, 2004, the Company expects to reclassify ¥187 million of net losses on derivative financial instruments from accumulated other comprehensive income (loss) to earnings during the next 12 months due to the payment of variable interest associated with the floating rate debt.

For the year ended March 31, 2004, there were no significant gains or losses on derivative financial instruments or portions thereof that were either ineffective as hedges, excluded from assessment of hedge effectiveness, or where the underlying risk did not occur.

The counter parties to the Company’s forward exchange contracts are major financial institutions. As a normal business risk, the Company is exposed to credit loss in the event of nonperformance by the counter parties, however, the Company does not anticipate nonperformance by the counter parties to these agreements, and no material losses are expected.

20

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

12. Financial Instruments and Risk Concentration (continued)

Risk concentration

The Company was established as a joint venture company to unify the DRAM operations of NEC and HITACHI; therefore, the Company has only one line of business which results in concentrations of credit risk and market risk. Most customers of the Company are semiconductor distributors and their end users. Fluctuation of unit volumes and prices in DRAM market can significantly effect to the Company’s business.

For the year ended March 31, 2002, the three largest customers made up 10%, 8% and 6% of total sales. For the year ended March 31, 2003, the three largest customers made up 14%, 11% and 6% of total sales, respectively. For the year ended March 31, 2004, the three largest customers made up 11%, 10% and 6% of total sales, respectively.

13. Leasing Arrangements

The Company conducts certain operations in leased facilities and also leases a portion of its data processing and other equipment from affiliates for the period up to 8 years. Rental expense under operating leases for the years ended March 31, 2002, 2003 and 2004 was ¥3,324 million, ¥2,744 million and ¥14,261 million, respectively. The rental expense under operating leases for the year ended March 31, 2002 included the rental expense of ¥175 million with NEC’s affiliates and ¥56 million with HITACHI’s affiliate. The rental expense under operating leases for the year ended March 31, 2003 included the rental expense of ¥162 million with NEC’s affiliates and ¥29 million with HITACHI’s affiliate. The rental expense under operating leases for the year ended March 31, 2004 included the rental expense of ¥9,900 million with NEC’s affiliates and of ¥29 million with HITACHI’s affiliate.

At March 31, 2004, the Company had operating leases with minimum rental commitments in succeeding years as follows:

Year ending March 31:	(Millions of yen)
2005	¥14,898
2006	6,894
2007	5,928
2008	1,310
2009	46

21

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

13. Leasing Arrangements (continued)

Certain facilities and equipment are leased under long-term agreements. Certain leases contain renewal options for varying periods, and certain leases include options to purchase the leased property at the end of the lease term. Leases generally require the Company to pay for insurance, taxes and maintenance of the property. The gross amount of leased assets under capital leases included in machinery and equipment at March 31, 2003 and 2004 was ¥5,138 million and ¥72,040 million, respectively. The related accumulated depreciation at March 31, 2003 and 2004 was ¥284 million and ¥9,165 million, respectively. At March 31, 2003 and 2004, approximately 94 % and 16 % of the capital lease transactions were with HITACHI’s affiliate, respectively.

The following is a schedule by year of the future minimum lease payments under capital leases together with the present value of the net minimum lease payments at March 31, 2004.

Year ending March 31:	(Millions of yen)
2005	¥	20,731
2006		18,401
2007		13,601
2008		6,732
2009		5,881
2010 and thereafter		36
Total minimum lease payments		65,382
Less – amount representing interest		3,509
Present value of net minimum lease payments		61,873
Less – current obligation		19,239
Long-term lease obligation	¥	42,634

14. Commitment

Commitments outstanding at March 31, 2004 for the purchase of property, plant and equipment approximated ¥6,100 million.

22

Elpida Memory, Inc.

Notes to Consolidated Financial Statements (continued)

15. Related Party Transactions

The following table summarizes related party transactions for the years ended March 31, 2002, 2003 and 2004.

	Year ended March 31
	2002		2003		2004
	(Millions of yen)
NEC and its affiliates:
Sales	¥	2,845	¥	1,524	¥	11,738
Purchase of products and semifinished components		44,282		36,027		41,995
Manufacturing overhead costs		—		—		19,560
Selling, general and administrative expenses		15,173		14,927		9,271
Purchase of tangible assets		17,376		2,616		4,996
Purchase of software		490		1,732		141

	Year ended March 31
	2002		2003		2004
	(Millions of yen)
HITACHI and its affiliates:
Sales	¥	5,766	¥	4,700	¥	11,233
Purchase of products and semifinished components		24,078		22,409		54,445
Manufacturing overhead costs		—		—		214
Selling, general and administrative expenses		7,639		4,345		7,393
Purchase of tangible assets		209		3,968		9,183
Purchase of software		—		—		100

23

EXHIBIT INDEX

Exhibit	Description
12	Certifications required by Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-14(a) (17 CFR 240.15d-14(a)).
13	Certifications required by Rule 13a-14(b) (17 CFR 240.13a-14(b)) or Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350).

EX-12

EXHIBIT 12

CERTIFICATION

I, Akinobu Kanasugi, certify that:

1.	I have reviewed this amendment to annual report on Form 20-F of NEC Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.	The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls over financial reporting.

October 1, 2004

/s/ AKINOBU KANASUGI

Akinobu Kanasugi

President and Member of the Board

CERTIFICATION

I, Yasuo Matoi, certify that:

1.	I have reviewed this amendment to annual report on Form 20-F of NEC Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4.	The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls over financial reporting.

October 1, 2004

/s/ YASUO MATOI

Yasuo Matoi

Senior Vice President and Member of the Board

EX-13

EXHIBIT 13

NEC CORPORATION

CERTIFICATION REQUIRED BY
RULE 13a-14(b) OR RULE 15d-14(b)
AND 18 U.S.C. Section 1350

     In connection with the amendment to Annual Report of NEC Corporation (the “Company”) on Form 20-F for the fiscal year ended March 31, 2004 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Akinobu Kanasugi, President and Member of the Board of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350 that:

     1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ AKINOBU KANASUGI

Name: Akinobu Kanasugi

Title: President and Member of the Board

Dated:   October 1, 2004

NEC CORPORATION

CERTIFICATION REQUIRED BY
RULE 13a-14(b) OR RULE 15d-14(b)
AND 18 U.S.C. Section 1350

     In connection with the amendment to Annual Report of NEC Corporation (the “Company”) on Form 20-F for the fiscal year ended March 31, 2004 as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), I, Yasuo Matoi, Senior Vice President and Member of the Board of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350 that:

     1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ YASUO MATOI

Name: Yasuo Matoi

Title: Senior Vice President and Member of the Board

Dated: October 1, 2004