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<TITLE>NEC CORPORATION</TITLE>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">As
filed with the Securities and Exchange Commission on September&nbsp;27, 2005
</DIV>


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>WASHINGTON, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 20-F</B>
</DIV>

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    <TD width="7%">&nbsp;</TD>
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    <TD width="5%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)<BR>
OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

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<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
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    <TD width="5%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF<BR>
THE SECURITIES EXCHANGE ACT OF 1934<BR>
<FONT style="font-size:10pt">For the fiscal year ended March&nbsp;31, 2005</FONT></B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF<BR>
THE SECURITIES EXCHANGE ACT OF 1934<BR>
<FONT style="font-size:10pt">For the transition period ________ to ________</FONT></B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>OR</B>
</DIV>
<DIV align="center">
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<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
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    <TD width="5%">&nbsp;</TD>
    <TD width="81%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF<BR>THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 19%"><B><B>Date of event requiring this shell company report </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Commission File No.&nbsp;0-12713
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>NIPPON DENKI KABUSHIKI KAISHA</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Exact name of Registrant as specified in its charter)</B></DIV>


<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>NEC CORPORATION</B>
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Translation of Registrant&#146;s name into English)</B></DIV>



<DIV align="center" style="font-size: 10pt; margin-top: 10pt">Japan
</DIV>

<DIV align="center" style="font-size: 10pt"><B>(Jurisdiction of incorporation or organization)</B></DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 12pt">7-1, Shiba 5-chome<BR>
Minato-ku, Tokyo 108-8001, Japan<BR>
81-3-3454-1111<BR>
<B>(Address of principal executive offices)</B></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(b) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities registered or to be registered pursuant to Section 12(g) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">American Depositary Shares<BR>
each representing one share of common stock of the Registrant</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">None</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate the number of outstanding shares of each of the issuer&#146;s classes of capital or common
stock as of the close of the period covered by the annual report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1,929,268,717 shares of common stock
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the Registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the Registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Yes&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark which financial statement item the Registrant has elected to follow:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;17&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Item&nbsp;18&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT></DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule&nbsp;12b-2 of the Exchange Act).&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Yes&nbsp;&nbsp;<FONT face="Wingdings">&#111;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT>
</DIV>


<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
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</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
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    <TD width="3%">&nbsp;</TD>
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</TR>
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<!-- Begin Table Body -->
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">Forward-Looking Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#102">ITEM 1.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Identity of Directors, Senior Management and Advisers</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#103">ITEM 2.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Offer Statistics and Expected Timetable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#104">ITEM 3.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Key Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#105">ITEM 4.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Information on the Company</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#106">ITEM 5.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Operating and Financial Review and Prospects</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#107">ITEM 6.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Directors, Senior Management and Employees</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#108">ITEM 7.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Major Shareholders and Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#109">ITEM 8.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#110">ITEM 9.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">The Offer and Listing</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#111">ITEM 10.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Additional Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#112">ITEM 11.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Quantitative and Qualitative Disclosures about Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#113">ITEM 12.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Description of Securities Other than Equity Securities</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#114">ITEM 13.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Defaults, Dividend Arrearages and Delinquencies</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#115">ITEM 14.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">Material Modifications to the Rights of Security Holders and Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#116">ITEM 15.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#117">ITEM 16A.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Audit Committee Financial Expert</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#118">ITEM 16B.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Code of Ethics</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#119">ITEM 16C.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Principal Accountant Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#120">ITEM 16D.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Exemptions from the Listing Standards for Audit Committees</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#121">ITEM 16E.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Purchases of Equity Securities by the Issuer and Affiliated Purchasers</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#122">ITEM 17.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#123">ITEM 18.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left" valign="top"><A href="#124">ITEM 19.</A></TD>
    <TD>&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">CONSOLIDATED FINANCIAL STATEMENTS</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD colspan="3"><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">EXHIBIT INDEX</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01003exv1.htm">EX-1 ARTICLES OF INCORPORATION, AS AMENDED TO DATE (ENGLISH TRANSLATION).</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01003exv12.htm">EX-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)).</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="k01003exv13.htm">EX-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).</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this Form 20-F, the &#147;Company,&#148; &#147;we,&#148; &#147;us,&#148; and &#147;our&#148; refer to NEC Corporation and, unless
the context indicates otherwise, its consolidated subsidiaries. The term &#147;NEC&#148; refers to NEC
Corporation excluding its subsidiaries and affiliated companies unless the context otherwise
indicates.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Forward-Looking Statements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This annual report contains forward-looking statements pertaining to our strategies, financial
targets, technology, products and services, and business performance. Written forward-looking
statements may appear in other documents that we file with the U.S. Securities and Exchange
Commission, or SEC, and in reports to shareholders and other communications. The U.S. Private
Securities Litigation Reform Act of 1995 contains a safe-harbor for forward-looking statements, on
which we rely in making these disclosures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of the forward-looking statements can be identified by the use of forward-looking words
such as &#147;believes,&#148; &#147;expects,&#148; &#147;may,&#148; &#147;will,&#148; &#147;should,&#148; &#147;seeks,&#148; &#147;intends,&#148; &#147;plans,&#148; &#147;estimates,&#148;
&#147;aims,&#148; or &#147;anticipates,&#148; or the negative of those words, or other comparable words or phrases.
You can also identify forward-looking statements by discussions of strategy, forecast, beliefs,
plans, targets, or intentions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward-looking statements necessarily depend on assumptions, data, or methods that may be
incorrect or imprecise and we may not be able to realize the results expected by them. You should
not place undue reliance on forward-looking statements, which reflect our analysis and expectations
only.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward-looking statements are not guarantees of future performance and involve inherent risks
and uncertainties. A number of important factors could cause our actual results to differ
materially from those in the forward-looking statements. Among the factors that could cause actual
results to differ materially from such statements include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>global economic conditions and general economic conditions in our markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fluctuating demand for, and competitive pricing pressure on, our products and services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to continue to win acceptance of our products and services in highly competitive markets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to expand into foreign markets, such as China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>regulatory change and uncertainty and potential legal liability relating to our business and operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our ability to restructure, or otherwise adjust, our operations to reflect changing market conditions; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>movement of currency exchange rates, particularly the rate between the yen and the U.S. dollar.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a discussion of factors that could cause actual results to differ, please see the
discussion under &#147;Item&nbsp;3.D. Key Information &#151; Risk Factors&#148; contained in this annual report and in
other information contained in our filings with the SEC. Any forward-looking statements speak only
as of the date on which they are made. New risks and uncertainties come up from time to time, and
it is impossible for us to predict these events or how they may affect us. We do not undertake any
obligation to update or revise any of the forward-looking statements, whether as a result of new
information, future events, or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We caution you that the statements made in this annual report are not an offer of securities
for sale. The securities may not be offered or sold in any jurisdiction in which registration is
required absent registration or an exemption from registration under the applicable securities
laws. For example, any public offering of securities to be made in the United States must be
registered under the U.S. Securities Act of 1933 and made by means of an English language
prospectus.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 3. KEY INFORMATION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. Selected Financial Data.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;You should read the selected consolidated financial data set forth below in conjunction with
&#147;Item&nbsp;5. Operating and Financial Review and Prospects&#148; and our consolidated financial statements
and the related notes included elsewhere in this annual report. These data are qualified in their
entirety by reference to all such information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The selected consolidated financial data as of and for the fiscal years ended March&nbsp;31, 2001,
2002, 2003, 2004, and 2005 have been derived from our audited consolidated financial statements.
Those financial statements were prepared in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>Year Ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen, except per share amounts)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Statement of
Operations Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,409,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,101,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,695,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,855,132</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before
income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(461,183</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,664</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision (benefit)
for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,308</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(178,173</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,111</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before
cumulative effect of
accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(309,425</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,864</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(312,020</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,864</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Per Share Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before
cumulative effect of
accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(187.06</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(188.63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.77</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before
cumulative effect of
accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(187.06</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(188.63</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.87</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other Financial Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures
<SUP style="font-size: 85%; vertical-align: text-top">(2) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">346,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,138</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and
development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">296,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,348</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>As of March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance Sheet Data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,823,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">5,010,883</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,103,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,044,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,940,685</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,642,538</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,005,610</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,737,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,368,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,260,564</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">915,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">564,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">358,444</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">711,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">794,274</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>For the fiscal year ended March&nbsp;31, 2005, the weighted average number
of our shares of common stock issued (less treasury stock) was
1,926,424,743 and 2,092,687,088 on a basic and diluted basis.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Capital expenditures are the total amount of additions to property, plant and equipment on an accrual basis of accounting.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Exchange Rate Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain our accounts in Japanese yen. The tables set forth below, for each period
indicated, the noon buying rate in New York City for cable transfers in Japanese yen as certified
for customs purposes by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00.
On September&nbsp;22, 2005, the noon buying rate was $1.00 equal to
&#165;111.63 and the inverse noon buying
rate was &#165;100 equal to $0.896.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="26"><B>Calendar Year 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>March</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>April</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>May</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>June</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>July</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>August</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1) </B></SUP></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yen exchange rate
per U.S.$</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Low</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">107.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">108.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">108.17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">110.91</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">113.42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">112.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">111.63</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">High</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109.37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109.66</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>From September 1 to September&nbsp;22.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18"><B>Year Ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Yen exchange rate per U.S.$
Average (of month-end rates)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">111.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">125.64</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">121.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">112.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">107.28</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Capitalization and Indebtedness.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>C. Reasons for the Offer and Use of Proceeds.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>D. Risk Factors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Investing in our securities involves a high degree of risk. You should carefully consider the
risks described below as well as all the other information in this annual report, including our
consolidated financial statements and related notes and &#147;Item&nbsp;5.D. Operating and Financial Review
and Prospects &#151; Trend Information&#148; and &#147;Item&nbsp;11. Quantitative and Qualitative Disclosures about
Market Risk.&#148;</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Our business, operating results, and financial condition could be materially adversely
affected by any of the factors discussed below. The trading price of our securities could decline
due to any of these factors. This annual report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including the risks faced by us
described below and elsewhere in this annual report. See &#147;Forward-Looking Statements.&#148;</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Risks Related to Our Industry</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We are subject to intense competition in many of the markets in which we operate, which may
subject us to intense price competition and could affect our sales.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to intense competition in many of the markets in which we operate from various
competitors ranging from large multinational corporations to relatively small, rapidly growing, and
highly specialized companies. The entrance of additional competitors into the markets in which we
operate increases the risk that our products and services will become subject to intense price
competition. If we are unsuccessful in responding to intensified competition, our sales may be
negatively affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our operating results may suffer if our production processes encounter problems or if we are
not able to match our production capacity to fluctuating levels of demand.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The computer, communications, semiconductor, and other markets in which we operate are
characterized by the introduction of products with short life cycles in a rapidly changing
technological environment. Production processes are highly complex, require advanced and costly
equipment, and must continuously be modified to improve yields and performance. Production
difficulties or inefficiencies can reduce yields or interrupt production. If production is
interrupted, we may not be able to shift production to other facilities quickly, and customers may
purchase products from other suppliers. The resulting shortage of manufacturing capacity for some
products could adversely affect our ability to compete. The resulting reductions in revenues and
damage to customer relationships could be significant. In addition, during downturns, customers
generally do not order products as far in advance of the scheduled shipment date as they do when
the industry is operating closer to capacity, making it difficult to forecast production levels and
revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The cyclical nature of the market for semiconductors, and the resulting periodic overcapacity,
may seriously harm our results of operations.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The market for semiconductors has a highly cyclical nature called a &#147;silicon cycle&#148; and has
suffered occasional downturns. Downturns have been characterized by diminished demand, excess
inventories, and accelerated erosion of prices. Although we operate our business while carefully
monitoring the cycle of the market, future downswings of the silicon cycle may nevertheless have
adverse effects on our operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cyclical nature of the semiconductor market is due partly to periods of production
overcapacity. In recent years, semiconductor companies, including specialist semiconductor
foundries, have added significant capacity primarily in Asia. As a consequence, semiconductor
production capacity may periodically exceed the demand for semiconductor products, exerting
downward pressure on selling prices and reducing our revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we fail to attract, hire, and retain skilled personnel, we may not be able to achieve our
business objectives.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Like all technology companies, we must compete for talented employees to develop our products,
services, and solutions in a market where the demand for such individuals exceeds the number of
qualified candidates. As a result, our human resources organization focuses significant efforts on
attracting and retaining individuals in key technology positions. If we experience a substantial
loss of, or an inability to attract, talented personnel, we may experience difficulty in meeting
our business objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Weak economic conditions in Japan and worldwide may harm our business.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are very dependent on the Japanese market. Sales to customers in Japan accounted for 76.0%
of our total net sales in the fiscal year ended March&nbsp;31, 2004 and 73.2% of our total net sales in
the fiscal year ended March&nbsp;31, 2005. Although the Japanese economy sustained steady growth in the
first half of the fiscal year ended March&nbsp;31, 2005, growth slowed as consumer spending became
sluggish in the second half. If this weakness in the Japanese economy continues to prevail, it
could have a significant impact on our financial results. Because all components of our budgeting
and forecasting depend upon estimates of growth in the markets that we serve, the prevailing
economic uncertainty makes it more difficult than usual to estimate our future income and required
expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend also on markets outside Japan. Our business and results of operations are therefore
also subject to negative economic developments in foreign economies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We face regulatory change and uncertainty, as well as potential legal liability, in many
countries in which we operate.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In many of the countries in which we operate, our business is subject to various risks
associated with unexpected regulatory changes, uncertainty in the application of laws and
governmental policies, and uncertainty relating to legal liabilities. Substantial changes in the
regulatory or legal environments in which we operate could adversely affect our business, operating
results, and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in Japanese and international telecommunications regulations and tariffs, including
those related to Internet-related businesses and technologies, could affect the sales of our
products or services, and this could adversely affect our business, operating results, and
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We endeavor to comply with laws and government policies, establishing self-management norms
and conducting daily inspections and environmental auditing in accordance with NEC&#146;s internal
environmental policies. Our operations, however, are subject to many environmental laws and
regulations governing, among other things, air emissions, wastewater discharges, the use and
handling of hazardous substances, waste disposal, product recycling, and soil and ground water
contamination. We face risks of environmental liability in our current, historical, and future
manufacturing activities. Costs associated with future additional and stricter environmental
compliance or remediation obligations could adversely affect our business, operating results, and
financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may be subject to product liability claims that could result in significant direct or
indirect costs to us.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is a risk that defects may occur in our products and services. Many of our products and
services are used in &#147;mission critical&#148; situations where the adverse consequences of failure would
be severe, exposing us in some cases to even greater risk. The occurrence of these defects could
make us liable for damages caused by these defects, including consequential damages. Negative
publicity concerning these problems could also discourage customers from purchasing our products
and services. Either situation could hurt our business, operating results, and financial
condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our operating and financing activities expose us to foreign currency exchange and interest
rate risks, which may adversely affect our revenues and profitability.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Despite measures undertaken by us to reduce, or hedge against, foreign currency exchange
risks, foreign exchange rate fluctuations may negatively impact our business, operating results,
and financial condition. Changes in exchange rates can affect the yen value of our equity
investments and monetary assets and liabilities arising from business transactions in foreign
currencies. They can also affect the costs and sales proceeds of products or services that are
denominated in foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are also exposed to risks of interest rate fluctuations. Despite measures undertaken by us
to hedge a portion of our exposure against interest rate fluctuations, such fluctuations may
increase our operational costs, reduce the value of our financial assets, or increase the value of
our liabilities.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>Risks Related to Our Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may not succeed in implementing our mid-term growth strategies.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate our business with our mid-term growth strategies implemented in October&nbsp;2003,
including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pursuing growth opportunities in the information technology, or IT,
solutions and services markets, particularly by leveraging our open
system capabilities, strengthening our consulting capabilities, and
enhancing our outsourcing and support services;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>increasing our focus on network solutions to capitalize on the
combined strengths of our communications networking products, our
systems integration, or SI, service capabilities, and our customer
base;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extending our leadership in mobile communications to global markets by building on our experience in the Japanese market;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>continuing to enhance our efficiency through cost and restructuring initiatives; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>further improving our financial position by reducing our total debt and improving our balance sheet.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we believe that our IT/Network Solutions business has great potential for growth,
there can be no assurances that it may grow as much as we expect. In addition, severe competition
from existing and new competitors may limit the benefits we are able to realize from our mid-term
growth strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we fail to keep pace with technological advances in our industry, or if we pursue
technologies that do not become commercially accepted, customers may not buy our products and
services, and our revenue and profitability may decline.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The markets for the products and services that we offer are characterized by rapidly changing
technology, evolving technical standards, changes in customer preferences, and the frequent
introduction of new products and services. The development and commercialization of new
technologies, and the introduction of new products and services will often make existing products
and services obsolete or unmarketable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we fail to keep up with rapid technological changes and changes in customers&#146; needs or
preferences, and to offer and support new products and services in response to such changes, our
business, operating results, and financial condition may be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The development process can be lengthy and costly, and requires us to commit a significant
amount of resources well in advance of sales. Technology and standards may change while we are in
the development stage, rendering our products obsolete or uncompetitive before their introduction.
Our products, some of which contain both hardware and software, may contain undetected errors that
may be discovered after their introduction and shipment. In addition, we may encounter
difficulties incorporating our technologies into our products in accordance with our customers&#146;
expectations, which in turn may negatively affect our customer relationships, reputation, and our
revenues.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Our revenues and profitability can fluctuate from period to period, and are often difficult to
predict for particular periods due to factors beyond our control.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our results of operations for any quarter or year are not necessarily indicative of results to
be expected in future periods. Our operating results have historically been, and are expected to
continue to be, subject to quarterly and yearly fluctuations as a result of a number of factors,
including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the introduction and market acceptance of new technologies, products, and services;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>variations in product costs, and the mix of products sold;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the size and timing of customer orders, which in turn will often depend upon the
success of our customers&#146; businesses or specific products or services;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the impact of acquired businesses and technologies;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>manufacturing capacity and lead times; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>fixed costs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are other trends and factors beyond our control which may affect our operations, and
make it difficult to predict operating results for a particular period. These include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse changes in the conditions in the markets for semiconductors, personal computers, mobile handsets, and
other products, and SI and other services that we offer;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>governmental decisions regarding the development and deployment of communications and technology
infrastructure, including the size and timing of governmental expenditures in these areas;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the size and timing of capital expenditures by our customers;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>inventory practices of our customers;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>conditions in the broader markets for IT and communications, and the Japanese or global economy generally;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in governmental regulation or intervention affecting communications, data networking, or the Internet;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse changes in the public and private equity and debt markets, and the ability of our customers and
suppliers to obtain financing or to fund capital expenditures; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>adverse changes in the credit quality of our customers and suppliers.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These trends and factors could have a material adverse effect on our business, operating results,
and financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may not succeed in executing our mid-term growth strategies outside of Japan.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our mid-term growth strategies include expanding our business in markets outside of Japan. In
many of these markets, we face barriers in the form of long-standing relationships between our
potential customers and their local suppliers, and protective regulations. In addition, pursuing
international growth opportunities may require us to make significant investments long before we
realize returns on the investments, if any. Increased investments may result in expenses growing
at a faster rate than revenues. Our overseas projects and investments, particularly in China,
could be adversely affected by:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>exchange controls;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in restrictions on foreign investment;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in export or import restrictions or changes in the tax system or rate of taxation; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>economic, social, and political risks.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the above factors, we may not succeed in expanding our business in international
markets, thereby adversely affecting our business growth prospects and results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we are unable to protect our intellectual property rights, our business and prospects may
be harmed.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We depend on our proprietary technology and our ability to obtain patents, licenses, and other
intellectual property rights covering our products, services, business models, and design and
manufacturing processes. The process of seeking patent protection can be long and expensive.
Although we have a large number of patents, our patents could be challenged, invalidated, or
circumvented. The fact that we hold many patents or other intellectual property rights does not
ensure that the rights granted under them will provide competitive advantages to us. For example,
the protection afforded by our intellectual property rights, such as patents, patent applications,
and copyrights, may be undercut by rapid changes in technologies in the industries in which we
operate. Similarly, there can be no assurance that claims allowed on any future
patents will be sufficiently broad to protect our technology. Effective patent, copyright, and
trade-secret protection may be unavailable or limited in some countries, and our trade secrets may
be vulnerable to disclosure or misappropriation by employees, contractors, and other persons.
Litigation, which could consume financial and management resources, may be necessary to enforce our
patents or other intellectual property rights or to defend against claims of infringement brought
against us.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we are unable to obtain certain intellectual property licenses owned by third parties, our
business could be adversely affected.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Many of our products are designed to include software or other intellectual property licenses
from third parties. Competitors&#146; protected technology may be unavailable to us, or be made
available to us only on unfavorable terms and conditions. If we are unable to obtain certain
intellectual property licenses owned by third parties on reasonable terms and conditions or at all,
our business could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We may become involved in costly and time-consuming legal proceedings, including intellectual
property litigation and infringement claims, that may substantially increase our costs and harm our
business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we are involved in various lawsuits and legal proceedings, including patent
and other intellectual property infringement claims. Due to the existence of a large number of
patents in our field and the rapid rate of issuance of new patents, it is difficult to determine in
advance whether a product or any of its components may infringe upon the patent rights of others.
Regardless of whether claims against us have merit, they may require significant resources to
defend against. If an infringement claim by a third party is successful, and the license for the
infringed technology or substitutable non-infringing technology cannot be obtained, our business
could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may also from time to time become involved in various lawsuits and legal proceedings other
than patent and other intellectual property infringement claims. We and several of our subsidiaries
are currently engaged in a lawsuit with GE Warranty Management, Inc. The lawsuit seeks
reimbursement of costs GE Warranty allegedly incurred in connection with warranty contracts that it
issued to purchasers of personal computers previously manufactured by our two subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC, Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., which was an
affiliated company of NEC accounted for by the equity method until August&nbsp;31, 2005, and NEC
Electronics America, Inc., a subsidiary of NEC, are currently subject to an investigation being
conducted by the U.S. Department of Justice into potential antitrust violations in the U.S. dynamic
random access memory, or DRAM, industry. Separately, Elpida Memory, Elpida Memory (USA), NEC
Electronics Corporation, and NEC Electronics America have been named in a number of class action
civil antitrust lawsuits seeking damages for alleged antitrust violations. NEC Electronics America
transferred substantially all of its DRAM business to Elpida Memory (USA)&nbsp;in March&nbsp;2001. Elpida
Memory (USA), however, did not assume the legal responsibilities or obligations relating to DRAM
produced or sold by NEC Electronics America prior to such transfer. Elpida Memory is also subject
to a similar investigation being conducted by the Director-General for Competition, Cartels Unit of
the European Commission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, NEC received from the Tokyo High Court a judgment to annul a decision by the Fair
Trade Commission of Japan, or the JFTC, to issue a cease and desist order with respect to NEC&#146;s
bids for automatic letter processing systems ordered by the Ministry of Posts and
Telecommunications (currently, Japan Post). The JFTC has filed an appeal with the Supreme Court of
Japan with respect to such judgment. NEC has also attended hearings on the JFTC&#146;s surcharge
payment orders against NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;These and other legal proceedings are subject to inherent uncertainties, and an adverse result
in these or other matters that may arise from time to time could have a material adverse effect on
our business, results of operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any legal proceedings which we are subject to could require the significant involvement of our
senior management, and may divert management attention from our business and operations. For more
information about current legal proceedings, see &#147;Item&nbsp;8.A. Financial Information &#151; Consolidated
Statements and Other Financial Information &#151; Legal Proceedings.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If our facilities were to experience catastrophic loss due to a natural disaster or other
unexpected events, our information systems or operations could be seriously harmed.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our facilities and buildings in Japan possess an aseismatic design and we inspect them
periodically in order to minimize the effects of earthquakes and other natural disasters. If any
of these facilities were to suffer catastrophic damage, it could disrupt our operations, delay
production and shipments, reduce revenue, and result in large losses and expenses to repair or
replace the facility. In addition, as network and information systems become more important to our
operating activities, network and information system shutdowns caused by unforeseen events such as
power outages, natural disasters, terrorist attack, hardware or software defects, computer viruses
and computer hacking pose increasing risks. Accordingly, although we continue to take precautions,
including the maintenance of backups, and other redundancies for major data centers, against such
unforeseen risks in the event that our network and information systems were to suffer a shutdown,
such events could also disrupt our operations, productions, shipments and revenue, and result in
large expenditures necessary to repair or replace such network information systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>The failure of our suppliers to deliver raw materials, components, equipment, or other
supplies as expected could hurt our business.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our manufacturing operations depend on obtaining deliveries of raw materials, components,
equipment, and other supplies in a timely manner. Because the products that we purchase are often
complex or specialized, it may be difficult for us to substitute one supplier for
another or one product for another. Some products are only available from a limited number of
suppliers or a single supplier. Although we believe that we currently possess adequate supplies of
the raw materials, components, equipment, and other supplies that we use, shortages in critical
materials could occur due to an interruption in supply or an increase in industry demand. Our
results of operations would be hurt if we could not obtain adequate delivery of these supplies in a
timely manner, or if we had to pay significantly more for them. In addition, the possibility of
defective raw materials, components, equipment, or other supplies could adversely affect the
reliability and reputation of our products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We rely on our strategic partners, and our business could suffer if our strategic partners
have problems, or our relationships with them change adversely.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into a number of long-term strategic alliances with leading industry
participants, both to develop new technologies and products, and to manufacture existing and new
products. If our strategic partners encounter financial or other business difficulties, or if
their strategic objectives change, they may no longer be willing or able to participate in these
strategic alliances. Our business and operating results could be adversely affected if we were
unable to continue one or more of our strategic alliances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Potential acquisitions and investments may require us to integrate new operations.</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we consider opportunities to expand our business through acquisitions and
investments. Any acquisition that we pursue exposes us to the risk that we might be unable to
integrate new businesses with our culture and strategies. We also cannot be certain that we will
be able to retain the customers of a business that we acquire or to retain its key employees.
Further, we may not be able to achieve the benefits that we expect from a particular acquisition.
Our business, operating results, and financial condition may suffer if we fail to coordinate our
resources effectively to manage both our existing businesses and any businesses we may acquire.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We conduct a substantial amount of business with the NTT group, which is comprised of Nippon
Telegraph and Telephone Corporation and its subsidiaries, including NTT DoCoMo, Inc and its
affiliates, and our business could suffer if it encounters business problems or decides to reduce
its business with us.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derived approximately 13.4% of our net sales in the fiscal year ended March&nbsp;31, 2005 from
the NTT group. If the NTT group were to reduce its level of capital expenditures or current
procurement, our business, operating results, and financial condition may be adversely affected.
In addition, although the NTT group does not engage in any material manufacturing at present, our
business may be adversely affected if it began to manufacture products that we supply or acquired
one of our competitors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>We are exposed to the risk that our customers, including those to whom we have provided vendor
financing, may encounter financial difficulties.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We sometimes provide vendor financing to our customers, or provide guarantees to banks or
trading companies that have provided vendor financing. In addition, many of our customers purchase
products and services from us on payment terms that provide for deferred payment. If our customers,
to whom we have extended or guaranteed vendor financing, or from whom we have substantial accounts
receivable, encounter financial difficulties, our business, operating results, and financial
condition could be adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If we were to determine that the discount rate used to measure benefit obligations should be
lowered further or if the value of the securities constituting plan assets decline, the current
amount of our outstanding pension benefit obligations would increase further.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with U.S. GAAP, unrecognized prior service cost and actuarial loss have been
amortized using the straight-line method over the average remaining service period of employees
expected to receive benefits under such plans. The amount of actuarial loss may change depending
on future changes in the discount rate or other factors such as the return on plan assets. If we
were to determine that the discount rate used to measure benefit obligations should be lowered
further, the current amount of our outstanding pension benefit obligations would increase further.
In addition, if the value of the securities constituting the plan assets decline in the future due
to deterioration in stock or bond prices, our unfunded pension benefit obligations could increase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>If personal information and confidential information in our possession is leaked or improperly
accessed and subsequently misused, our reputation and brand value may be adversely affected and we
may have to consume our financial resources to resolve the situation.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We possess a voluminous amount of personal information and confidential information in
connection with the operation of our business. Despite measures taken to protect the information,
if that information in our possession is leaked or improperly accessed and subsequently misused, it
could negatively affect our reputation, consume financial resources to resolve the situation, and
lower our brand value, thereby hurting our operating results.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 4. INFORMATION ON THE COMPANY.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. History and Development of the Company.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s legal and commercial name is <I>Nippon Denki Kabushiki Kaisha </I>in Japanese, or NEC
Corporation in English. NEC was incorporated on July&nbsp;17, 1899 as a joint stock corporation (
<I>kabushiki kaisha </I>) in Japan under the Commercial Code ( <I>shoho </I>) of Japan, or the Commercial Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s principal executive offices are located at 7-1, Shiba 5-chome, Minato-ku, Tokyo
108-8001, Japan. NEC&#146;s telephone number is &#043;81-3-3454-1111.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>History</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC was formed as a joint venture between Western Electric Company of the United States and
two Japanese individuals. Initially, NEC acted as a sales agent for telephone equipment
manufactured by Western Electric, but it soon commenced production of similar equipment in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1925, Western Electric&#146;s interests in its foreign affiliates, including NEC, were sold to
International Telephone &#038; Telegraph Corporation, or ITT. In 1932, the Sumitomo family holding
company acquired a substantial equity interest in NEC, which was sold to the public in 1948,
following the passage of Japanese anti-monopoly laws. ITT&#146;s shareholding in NEC was successively
reduced beginning 1958 and was completely disposed of during 1978.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We expanded our business lines to include the production of transmission equipment in 1929,
radio broadcast equipment in 1930, and radio communications equipment in 1932. In 1958, we started
mass production of transistors and, in the same year, we produced the NEAC 2201, the first
fully-transistorized commercial computer in the world.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We commenced research and development activities relating to ICs in 1960. During the 1960s, we
also entered the field of satellite communications and established our first post-war overseas
manufacturing subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the 1970s, we significantly increased our production of computers, semiconductors, and
other electron devices. We began integrating our computer and communications products as
significant further advances were achieved in technology and as we increased our allocation of
resources to research and development activities. Other important developments during this period
include the establishment of our position as a world leader in specific high technology markets,
such as satellite communication earth stations and certain semiconductor devices, the
diversification of our customer base, particularly in the Japanese private sector and overseas, and
the expansion of our manufacturing facilities, both in Japan and abroad.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the 1980s, we pursued a policy of globalization to conduct our diversified manufacturing
and sales operations closer to our customers. We added a total of 50 subsidiaries and affiliated
companies, 12 for manufacturing and 38 for marketing and other services during the 1980s in
overseas markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the 1990s, we expanded our global operations and increased efficiency, in order to
enhance our global competitiveness and to respond to rapid changes in market demand. We expanded
and upgraded some of our manufacturing facilities, promoted strategic alliances with major
companies and augmented our research and development activities in the United States and Europe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2000, we adopted an in-house company system under which we divided our businesses
into three in-house companies, NEC Solutions, NEC Networks, and NEC Electron Devices which were
responsible for providing IT, network, and electron devices solutions, respectively, in accordance
with the distinctive characteristics of each of those activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, we established NEC Electronics Corporation through a corporate spin-off. NEC
Electronics Corporation engages in research and development, manufacturing, sales and provision of
services relating to semiconductors, except for general-purpose DRAMs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2003, we reorganized our management structure from the in-house company system to the
business line system, and changed the names of the business segments from NEC Solutions, NEC
Networks, and NEC Electron Devices to the IT Solutions business, the Network Solutions business,
and the Electron Devices business, respectively. Subsequently, in October&nbsp;2003, we introduced our
mid-term growth strategies in order to build our global operations based on our competitive
position in the Japanese market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2004, to further strengthen our ability to respond to fast-changing markets, we
reorganized our business structure from nine business lines to a management system comprising
eleven Business Units, a Marketing Unit, a Research and Development Unit, and corporate staff.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004 and in June&nbsp;2005, NEC conducted tender offers and stock-for-stock exchanges,
respectively, for the shares of NEC Soft, Ltd. and NEC System Technologies, Ltd. in order to make
those companies wholly-owned subsidiaries and strengthen competencies in the software/services
area.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Capital Expenditures and Divestitures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth a breakdown of our annual capital expenditures (which represent
the additions to property, plant and
equipment on an accrual basis) during the three years ended March&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="70%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Millions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">26,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">11,888</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,658</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">176,028</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,914</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214,488</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,305</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217,793</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">178,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">173,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">217,793</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Capital expenditures during the fiscal year ended March&nbsp;31, 2005 increased by 25%, compared
with the fiscal year ended March&nbsp;31, 2004, to &#165;217.8&nbsp;billion. Major capital expenditures in the
fiscal year ended March&nbsp;31, 2005 included investment in semiconductor manufacturing facilities in
Japan. During the fiscal year ended March&nbsp;31, 2005, our IT Solutions business invested in equipment
to expand its BIGLOBE service and in research and development equipment relating to computer
manufacturing, particularly servers and storage systems. Our Network Solutions business invested in
equipment used to manufacture communications products and to carry out research and development for
third generation, or 3G, mobile communications systems, mobile handsets, and optical network
systems. Our Electron Devices business invested in equipment used for research and development and
system LSI manufacturing equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the beginning of our current fiscal year ending March&nbsp;31, 2006, we established a capital
expenditure budget for investments. We plan to make the following investments during the current
fiscal year:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the IT Solutions business, expansion of research and development
equipment and manufacturing equipment for computers, as well as
equipment to expand the BIGLOBE service;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the Network Solutions business, expansion of research and
development equipment and manufacturing equipment for 3G mobile
communications systems and mobile handsets; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="0%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the Electron Devices business, expansion of research and development equipment and manufacturing equipment for system LSIs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continuously monitor our capital expenditures and evaluate whether adjustments to our
budget are necessary in light of market conditions and other economic factors. We expect our
capital expenditures to be approximately &#165;160&nbsp;billion during the fiscal year ending March&nbsp;31, 2006,
most of which will be expended in Japan. We anticipate that most of the funds necessary for such
capital expenditures will be obtained both internally and externally, primarily from our short- and
long-term financings and cash provided by operating activities. For a detailed discussion of our
capital resources, see &#147;Item&nbsp;5.B. Operating and Financial Review and Prospects &#151; Liquidity and
Capital Resources.&#148;
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Business Overview.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a leading provider of advanced IT and networking solutions to business enterprises,
communications services providers, and government entities. Our understanding of our customers&#146;
needs, together with our industry expertise, technical capabilities, and broad product portfolio,
enable us to offer computing, communications, and device solutions that address their core
operational requirements. By focusing on high-growth market opportunities and building on our
expertise in broadband and mobile technologies, we seek to further strengthen our leadership
position as an innovative provider of computing and communications solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business is divided into the three principal segments: the IT Solutions business, the
Network Solutions business, and the Electron Devices business.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="0%">&nbsp;</TD>
    <TD>Through our <B>IT Solutions business</B>, we deliver highly reliable
computing solutions to business enterprises, governmental entities,
and individual customers by providing software, hardware, and the
services necessary to design, integrate, and operate these elements.
The products and services of this business include: systems
integration; outsourcing and support services; software; mainframes,
servers and workstations, supercomputers, and storage systems;
personal computers and peripheral products; and Internet-related
services. In the fiscal year ended March&nbsp;31, 2005, the IT Solutions
business contributed &#165;2,144.4&nbsp;billion in sales and realized a segment
profit of &#165;102.3&nbsp;billion.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="0%">&nbsp;</TD>
    <TD>Through our <B>Network Solutions business</B>, we design and provide
broadband network systems, mobile and wireless communications network
systems, mobile handsets, and broadcast and other systems, which
enable our customers, primarily network services providers, to build
and operate their networks with a high degree of service, quality, and
reliability, in a cost-effective manner. Working closely with our
customers, we design and deploy both wireline and wireless network
systems and products, including terminals. In the fiscal year ended
March&nbsp;31, 2005, the Network Solutions business contributed &#165;1,892.0
billion in sales and realized a segment profit of &#165;26.5&nbsp;billion.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="0%">&nbsp;</TD>
    <TD>Our <B>Electron Devices business </B>includes semiconductors, displays, and
other electronic components used in communications products, computing
and peripheral products, consumer electronics products, and automotive
and industrial products. In the fiscal year ended March&nbsp;31, 2005, the
Electron Devices business contributed &#165;868.7&nbsp;billion in sales and
realized a segment profit of &#165;37.2&nbsp;billion.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended March&nbsp;31, 2005, we had net sales of &#165;4,855.1&nbsp;billion, of which
approximately 73% were generated in Japan and the balance generated overseas. As of March&nbsp;31,
2005, we employed approximately 147,800 people worldwide and had manufacturing, sales, and research
and development consolidated subsidiaries in Japan and overseas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>IT Solutions Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our IT Solutions business delivers to business enterprises, government entities, and
individual customers highly reliable computing solutions including: systems integration;
outsourcing and support services; software; mainframes, servers and workstations, supercomputers,
and storage systems; personal computers and peripheral products; and Internet-related services.
Our IT Solutions business is focusing on systems integration and developing its software businesses
into solid earnings platforms by leveraging its strengths in open mission critical systems.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Systems Integration</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through our systems integration group, which has approximately 15,000 highly qualified systems
engineers, we provide our customers with end-to-end systems design, development, deployment, and
systems operation solutions. NTT DoCoMo&#146;s i-mode gateway system, &#147;CiRCUS,&#148; is a prime example of
the numerous large-scale projects undertaken by our systems integration business. Jointly
developed by NEC and NTT Data Corporation, CiRCUS provides e-mail services (25,000 mail/receive
transactions per second) and Web access services (50,000 Web accesses per second) from mobile
devices for over 40&nbsp;million i-mode subscribers. Our systems integration business consists of
consulting services and system design, development, and deployment services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Consulting Services</I>. We provide consulting services on systems architecture design and
technology planning, including the evaluation and selection of technologies and platforms, to our
customers so that they can meet their business and financial objectives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Systems Design, Development, and Deployment Services. </I>We design, develop, and deploy complex
software applications and hardware configurations that meet the specific requirements of our
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Outsourcing and Support Services</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer outsourcing services tailored to the diverse needs of each customer, such as
housing/hosting and application management services. We also offer maintenance and support services
to our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Software</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and provide software products primarily for use in the computers that we
manufacture. Software products include operating systems, middleware for the management of
large-scale open mission critical systems, and application software. We continue to develop the
capabilities of our middleware to enhance rapid, cost-effective integration of different systems,
protocols, and technologies. We use a combination of custom-designed and third-party software to
take advantage of the various products and technologies on the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mainframes, Servers and Workstations, Supercomputers, and Storage Systems</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and manufacture mainframe computers, UNIX servers and workstations, Intel-based
servers and workstations, supercomputers, storage systems, and other products for business
enterprises and government entities mainly in Japan. We are a leading supplier of mainframe
computers, Intel-based servers, and workstations in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mainframe Computers. </I>Our Parallel ACOS series of mainframe computers employ parallel
processing technology for use in mission critical systems. We focus on high performance products
that can also integrate easily with open servers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Servers and Workstations. </I>Our high-performance, high-scalability UNIX servers are used as
core servers in a wide variety of applications, from network management to operating critical
business systems. We develop and provide the Express 5800 series of Intel-based servers and
workstations which run a Microsoft Windows operating system and give customers access to a broad
range of applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Supercomputers. </I>Our SX-series of vector-processing supercomputers meet intensive, high-speed
processing requirements for specialized applications that require significant calculating power,
such as weather forecasting, structural analysis, and fluid dynamics. The SX-series is used by
research institutes, universities, and companies in Japan and overseas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Storage Systems. </I>We manufacture various types of storage systems, including disk array and
tape storage, among others. Our iStorage series of storage systems is designed to meet the
expanding demand for increased capacity, reliability, performance, and endurance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, our other products include terminals such as key telephone systems and
point-of-sale terminals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Personal Computers and Peripheral Products</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop, manufacture, and market personal computers and personal computer peripheral
products. We produce a wide range of personal computers, including desktop personal computers and
notebook personal computers, which target both corporate and individual customers. We offer
personal computers with wireless connectivity, multimedia functions, and advanced security
functions. We are a leading supplier of personal computers in Japan.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Internet-Related Services</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We offer a broad range of Internet-related services through the infrastructure of our BIGLOBE
service, which is a leading Internet service provider, or ISP, in Japan. Through BIGLOBE, we also
provide value-added services such as content services and e-commerce services throughout Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Network Solutions Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Network Solutions business includes broadband network systems, mobile and wireless
communications network systems, mobile handsets, and broadcast and other systems. Our Network
Solutions business is developing a global leadership position in the networking equipment market by
leveraging its solutions capabilities and applying its experience as a total system supplier.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Broadband Network Systems</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop, manufacture, and provide a wide range of wireline systems. We are the leading
provider of wireline network systems and services for both public and private networks in Japan.
We also provide these systems worldwide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Wavelength Division Multiplexing, or WDM, Systems. </I>We hold a leading position in WDM-based
optical network systems for both terrestrial and submarine applications. WDM transmits through a
single fiber beams of light with slightly different wavelengths, with each wavelength carrying its
own stream of information. This increases the amount of traffic that can travel over the existing
optical fiber cable infrastructure, allowing existing infrastructure to be used more efficiently.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Synchronous Digital Hierarchy, or SDH. </I>We develop and manufacture SDH products both for
terrestrial and submarine use. SDH systems refer to standards for the transmission of digital
signals over optical fiber. These standards helped to revolutionize the performance and cost of
telecommunications networks based on optical fiber.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Internet Protocol, or IP, Routers and Network Infrastructure Servers. </I>We design and
manufacture IP routers and network infrastructure servers enabling the development of highly
reliable IP networks. IP networks are playing a central role in communications systems. A wide
range of our IP routers have been adopted by both advanced network services providers and
enterprise users. We aim to build increasingly reliable networks by combining IP routers with
network infrastructure servers, offering a wide variety of services tailored to the needs of our
customers, including those related to voice over internet protocol, or VoIP, a technology used to
transmit voice conversations over a data network using IP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Network Access Systems. </I>We provide various kinds of network access systems. We develop and
manufacture x digital subscriber line, or xDSL, systems and other wired access systems, cable
television, or CATV, fiber-to-the-home, or FTTH, systems, and modems. xDSL is a technology that
allows more data to be sent over existing telephone lines. The system uses a modem technology that
converts the existing twisted-pair telephone lines into access paths for various high-speed
communications. CATV and FTTH systems, which transmit video and other signals through optic or
other cables, are technologies that allow long-distance, multi-channel transmission and reception
of video and other high-speed data.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Public Network Systems. </I>We provide public switching systems and asynchronous transfer
mode, or ATM, switching systems for Japanese and overseas telecommunications operators, and other
network systems mainly for network service providers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Enterprise Networking Systems. </I>Enterprise networking systems are private voice and data
integrated network systems. We provide a number of such products including internet protocol
private branch exchange, or IP-PBX, systems and VoIP servers which can support both wireline and
wireless VoIP telephone systems with various kinds of service applications, including call centers,
network monitoring, and security. We also provide networking solutions based on IP communication
technologies, which includes NEC&#146;s mobile handset with dual mode communication features accessible
to NTT DoCoMo&#146;s 3G mobile communication network as well as wireless LAN. This solution enables a
user, for example, to use one mobile handset to seamlessly access both his/her intranet
(interoffice communication network) while within the office premises, and connect to NTT DoCoMo&#146;s
3G mobile communication network outside the office premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mobile and Wireless Communications Network Systems</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and manufacture network systems and equipment for mobile communications, including
base stations, mobile switching systems, and network management systems. We are the leading
producer and system supplier of mobile communications systems that include wideband code division
multiple access, or W-CDMA, systems for 3G mobile communications services in Japan. Overseas,
with an alliance to develop, manufacture, and market W-CDMA systems, we and Siemens are leading
suppliers of such systems in the European 3G W-CDMA mobile network infrastructure market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also manufacture wireless communications systems, including terrestrial and satellite
microwave communications systems and wireless access systems, such as fixed wireless access, and
have sold these systems in more than 120 countries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Mobile Handsets</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We develop and manufacture mobile handsets in Japan, Europe, China, and other markets. In
Japan, we are one of the leading mobile handset suppliers for personal digital cellular, or PDC,
and W-CDMA. We provide models with advanced features such as electronic money, which enables users
to easily make electronic commerce transactions using mobile handsets equipped with a contact-less
IC chip. We also provide models with dual mode communication, such as 3G/wireless LAN, which
connects to enterprise IP networks as a part of our networking solutions, or 3G/GSMdual mode, which
can also be used outside Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide global system for mobile communications, or GSM, mobile handsets with high
value-added features, including built-in cameras and mobile Internet capability in Europe, China,
and other markets. For instance, in China, we have introduced over twenty mid- to high-end models
with unique features such as touch panel or hand-writable screens, MP3 music players, slim and
light-weight forms, and the world&#146;s first card-shaped camera-equipped mobile phones. In addition,
we have received orders for 3G mobile handsets from the Hutchison Whampoa group, which is expanding
3G mobile communications services in Europe and other areas. Our new models handsets provided to
the Hutchison Whampoa group have advanced functions such as video-phones.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Broadcast and Other Systems</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We produce broadcast equipment, including analog and digital, terrestrial and satellite
broadcast equipment, air traffic control equipment, and space electronic equipment, including
satellites and satellite transponders. Our industrial electronic systems include postal automation
systems. We also provide digital terrestrial total solutions from development consulting services
to installation of broadcasting infrastructure equipment. Utilizing our total solution services,
major TV stations in Tokyo, Osaka, and Nagoya launched digital terrestrial broadcasting services in
December&nbsp;2003.
</DIV>

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Electron Devices Business</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Electron Devices business includes semiconductors, displays, and other electronic
components used in communications products, computing and peripheral products, consumer electronics
products, and automotive and industrial products. We transferred our semiconductor business,
excluding our general-purpose DRAM business, to NEC Electronics Corporation, which was established
on November&nbsp;1, 2002, in order to strengthen our international competitiveness in this field. In
addition, on July&nbsp;24, 2003, NEC Electronics conducted an initial public offering and sold newly
issued shares of its common stock in a global offering. We transferred our general-purpose DRAM
business to Elpida Memory in 1999. On November&nbsp;15, 2004, Elpida Memory conducted an initial public
offering and sold newly issued shares of its common stock in a global offering. On August&nbsp;31,
2005, we sold 9.6&nbsp;million shares of Elpida Memory. After this sale, we currently hold 13.89% of
Elpida Memory, which ceased to be an affiliate company of NEC accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Semiconductors</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Communications. </I>Our system LSIs, display driver ICs, and system memories are used in a wide
range of wireline and wireless network communications applications, including broadband network
infrastructures, mobile communications base stations, and mobile handsets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Computing and Peripherals. </I>Our system LSIs, display driver ICs, and microcontrollers are used
in servers, workstations, supercomputers, storage systems, personal computers, and peripheral
products for personal computers, such as optical disk storage, including digital versatile disk, or
DVD, drives, printers, and interfaces.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Consumer Electronics. </I>We offer system LSIs and microcontrollers that are used in various
consumer electronics applications which include DVD recorders, digital cameras, digital TVs,
set-top boxes, and other audio-visual equipment. We also provide system LSIs for video game
consoles.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Automotive and Industrial Applications. </I>Our microcontrollers and other semiconductors are
used in automotive applications, such as engine management, control area network, or CAN, systems,
safety and comfort systems, car audio systems, and navigation systems. We also develop
semiconductor products for car multimedia entertainment systems. In addition, we provide products
for industrial applications such as industrial measurement and testing equipments and medical
equipments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Multi-Market IC. </I>We offer microcontrollers, gate arrays, and multipurpose system memories to
customers for use in a wide range of applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Discrete, Optical, and Microwave Devices. </I>We offer general-purpose discrete devices, optical
devices, and microwave devices which are used in a wide range of applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>DRAMs. </I>We transferred our DRAM business to Elpida Memory in order to accelerate the
development of new products, and reduce our exposure to increased market volatility. On August&nbsp;31,
2005, we sold 9.6&nbsp;million shares of Elpida Memory. After this sale, we currently hold 13.89% of
Elpida Memory, which ceased to be an affiliate company of NEC accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Displays</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>TFT Color LCDs. </I>We develop and produce a range of TFT color LCDs used mainly for industrial
and medical equipment displays, personal computer monitors, and displays for mobile phones. We
separated our color LCD business and transferred it to a subsidiary in April&nbsp;2003. In November
2003, we established a joint venture with SVA (Group) Co. Ltd., taking a minority interest. The
joint venture represents a new business model which provides us with royalty income from the
licensing of elemental technologies related to general purpose LCDs for personal computers and
monitors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Plasma Displays. </I>We were engaged in the development and manufacturing of plasma display
modules and monitors in NEC Plasma Display Corporation, which was established as a wholly-owned
subsidiary through a corporate separation (<I>kaisha bunkatsu</I>) in October&nbsp;2002. On September&nbsp;30,
2004, we transferred our plasma display business to Pioneer Corporation together with all the
shares we held in NEC Plasma Display Corporation and all the intellectual property rights on plasma
displays we held.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Electronic Components</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We design, manufacture, and produce electronic components such as batteries, capacitors, and
relays. Our lithium ion rechargeable batteries are mainly used in mobile phones. Our tantalum
capacitors, which are notable for their small size and high capacity, are used in a wide variety of
applications, including mobile phones, personal computers, and game consoles. In April&nbsp;2002, we
integrated our capacitor, relay, and rechargeable battery operations with Tokin Corporation, which
we renamed NEC TOKIN Corporation. In October&nbsp;2002, we transferred our printed wiring board
business to a joint venture which we formed with Toppan Printing Co., Ltd. In October&nbsp;2002, we
transferred our car electronics operations to an affiliate of Honda Motor Co., Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Seasonality</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our sales are generally seasonal in nature. They are higher in the second and fourth quarters
than in the first and third quarters of our fiscal year, which ends March&nbsp;31. This is partly a
result of the seasonal purchases of governmental entities in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Supplies</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our IT Solutions business utilizes and offers various software and hardware products procured
from third-party vendors as well as developed or manufactured internally. Our subsidiaries in
Japan provide software development and systems engineering services to NEC on a subcontracting
basis. We outsource part of our software development to software companies in Japan, and are
increasingly outsourcing to overseas subsidiaries and software companies to supplement our
resources in Japan. Hardware products of our IT Solutions business are mainly manufactured by our
subsidiaries in Japan. Some computer models and sub-assemblies are manufactured by our
subsidiaries outside Japan and by contract manufacturers both in and outside Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Network Solutions business manufactures the majority of our communications systems and
equipment through our Japanese subsidiaries. Certain models for the overseas markets are
manufactured by our overseas subsidiaries. We also use contract manufacturers in and outside of
Japan to supplement our production capacity and enhance our profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of our Electron Devices business&#146; products are manufactured by our subsidiaries or joint
venture manufacturing companies established with domestic and overseas partners. Some of our
electron devices are procured from silicon foundries and third-party vendors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal raw materials and components we use are ICs, including memories and logic ICs,
LCD panels, printed wiring boards, silicon, connectors, and capacitors. Certain raw materials and
components, such as silicon and memories, used in the manufacture of our products are purchased
with a view to maximizing the benefits of bulk purchasing and efficient stock control. Electronic
data interchange is widely used to negotiate and purchase raw materials and components to make the
procurement process more efficient. We use an Internet-based purchasing system to lower costs and
improve the efficiency of our procurement operations. This system permits internal sharing of
information concerning, among other things, suppliers, prices, and the quality of raw materials and
components. It also permits more frequent and speedy communications with suppliers. In addition,
we purchase certain raw materials and components to reduce product costs from overseas suppliers
through our international purchasing offices in the United States, the United Kingdom, and several
countries in Asia as well as in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We purchase raw materials and components from many Japanese and overseas suppliers, and we
believe that we are not dependent on any single third-party supply source for any raw materials or
components essential to any significant part of our business. We have not
experienced any difficulty in obtaining, on acceptable terms, any raw materials or components which
materially affected the operation of our business, and do not presently foresee any such
difficulty.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Customers, Sales, and Marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide our products and services to customers located in Japan and overseas, including the
United States, the Asia Pacific region, and Europe. The following table shows our net sales by
market and net sales by market as a percentage of total net sales for each of the three fiscal
years ended March&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Year Ended March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22"><B>(Millions of yen, except percentage data)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Sales by Market</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,644,673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,730,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">3,553,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(73</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Overseas</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,050,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,176,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,301,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,695,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,855,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>IT Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide systems integration directly to our key customers in Japan through our
industry-focused SI divisions, each of which has experience and know-how in its respective sectors.
Our subsidiaries also provide systems integration to a more diversified group of customers. We
provide Internet-related services directly to individuals as well as corporate customers.
Maintenance services are rendered by our subsidiaries. With respect to hardware, we sell the
majority of our personal computers through dealers and wholesalers. Mainframe computers, servers,
and workstations are sold to large enterprises and government entities directly by our sales force,
with the support of our engineering staff, and to a broader customer base indirectly by dealers.
We customize our systems and products according to customer specifications while, in the case of
orders for standard products, we supply such products from our inventory. Our customers include
leading companies in the manufacturing, distribution, banking, insurance, and other industries,
governmental and other public agencies, telecommunications operators, and educational institutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Network Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, we sell the majority of our communications systems and equipment directly to our
customers, with the remainder sold through dealers and wholesalers. Overseas sales of such
products are handled by our subsidiaries directly or through third-party trading companies,
depending on the form of contract for the project. Sales of larger communications systems are
generally made pursuant to the specifications of our customers. Our customers include Japanese and
overseas telecommunications operators, government entities, and other business enterprises
including broadcasting companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Electron Devices Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of the sales in Japan of our electron devices are made to customers through dealers.
Overseas sales of these products are effected through our overseas sales subsidiaries. The IT
Solutions business and the Network Solutions business use our electron devices for their products.
Users of these products include communications equipment makers, computer manufacturers, consumer
electronics manufacturers, the automobile industry, and other manufacturers of electronic products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Intellectual Property</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We hold a number of patents issued under Japanese and other laws and have a large number of
Japanese and foreign patent applications pending. We maintain many licenses to use Japanese and
foreign patents. In some cases, such licenses are included in technical assistance agreements with
licensors which cover a wide range of products and components, including computers, communications
products, and semiconductors. In addition, we own and have licenses to use certain copyrights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have granted licenses to, and entered into technical assistance agreements with, various
Japanese and foreign companies. In some instances, we have entered into cross-licenses of patents
with other parties.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we consider our various patents, copyrights, licenses, and technical assistance
agreements important to us, we do not believe our business, as a whole, is materially dependent on
any particular patent, group of related patents, copyright, license, or technical assistance
agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compete primarily in the markets for computing and communications applications as well as
electron devices. These markets are
highly competitive. We expect competition in the markets we serve to increase in the future as
existing competitors enhance and expand their product and service offerings and as new participants
enter these markets. Increased competition may result in price
reductions, reduced profitability, and loss of market share. We cannot make any assurances that we will be able to compete
successfully against existing or future competitors. Some of our customers and companies with
which we have strategic relationships also are, or may be in the future, our competitors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The size and number of our competitors vary across our product and service segments, as do the
resources allocated by our competitors to the markets we target. Our competitors may have greater
financial, personnel, and other resources than we have in a particular market or overall.
Competitors with greater financial resources may be able to offer lower prices, additional products
or services, or other incentives that we cannot match or offer. These competitors may be in a
stronger position to respond quickly to new technologies and may be able to undertake more
extensive marketing campaigns. They may also adopt more aggressive pricing policies and make more
attractive offers to potential customers, employees, and strategic partners. These competitors may
make strategic acquisitions or establish cooperative relationships among themselves or with third
parties to increase their ability to gain market share.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, some of our competitors are currently selling products that we have not begun to
sell. By entering the market for such products before us, our competitors may establish
significant market share which we may be unable to overcome when we enter the market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our management believes that we will be able to maintain and enhance our position in a world
market characterized by increasing demand and applications for Internet-related products and
services due to the following strengths:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our experience, expertise, and technical capabilities as a leading
provider of systems, components, services, and integrated solutions
for computing and communications application that are dedicated to
meeting our customers&#146; needs; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our technological achievements and market position, which are
reinforced by our continuing research and development programs and
marketing efforts.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Regulation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business activities are subject to various governmental regulations in the countries in
which we operate, including regulations relating to business/investment approvals, import and
export regulations including those related to national security considerations, tariffs, antitrust,
intellectual property, consumer and business taxation, exchange controls, environmental and
recycling requirements, and personal-information-protection-related laws and regulations. In
addition, we are subject to the Telecommunications Business Law of Japan, which relates mainly to
our BIGLOBE service. We also have a license for cable construction and other construction work in
Japan.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>C. Organizational Structure.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC and its subsidiaries and affiliated companies form a group of which NEC is the parent
company. As of March&nbsp;31, 2005, we had 225 consolidated subsidiaries and 58 affiliated companies
accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table gives details of our significant subsidiaries as of March&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proportion of Ownership</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name of Subsidiary</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Country of Incorporation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Interest (%)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Electronics Corporation <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">70.04</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Personal Products, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Saitama, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Fielding, Ltd. <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Access Technica, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC System Integration &#038; Construction, Ltd. <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Mobiling, Ltd. <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Nexsolutions, Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Soft, Ltd. <SUP style="font-size: 85%; vertical-align: text-top">(2) </SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Japan</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82.88</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Computers International B.V.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">The Netherlands</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96.49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Technologies Hong Kong Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">China</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Business Coordination Centre (Singapore) Pte. Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Singapore</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Electronics (America) Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">The U.S.A.</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Solutions (America), Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">The U.S.A.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Electronics (Europe) GmbH</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">Germany</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC (UK)&nbsp;Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">The U.K.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>Listed on the Tokyo Stock Exchange.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Delisted from the Tokyo Stock Exchange on May&nbsp;26, 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(3)</TD>
    <TD>&nbsp;</TD>
    <TD>Wholly-owned subsidiaries of NEC Electronics Corporation.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>D. Property, Plants, and Equipment.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, we have 35 manufacturing plants in Japan and 19 manufacturing plants in
Belgium, China including Hong Kong, France, Malaysia, Russia, Singapore, the United Kingdom, and
Vietnam. Our principal plants are located mainly in Japan. The approximate land space and floor
space of our principal plants as of March&nbsp;31, 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="15%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Principal Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Land Space</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Floor Space</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Thousands of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Thousands of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>square meters)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>square meters)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kawasaki, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tamagawa Plant <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment; semiconductors
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">192</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">331</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fuchu, Tokyo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fuchu Plant
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Computers and industrial electronic
systems; communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">220</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">222</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sagamihara, Kanagawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Sagamihara Plant <SUP style="font-size: 85%; vertical-align: text-top">(1) </SUP>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductors; electronic components
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">195</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">174</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Otsu, Shiga
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Kansai, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductors
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">170</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">151</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Abiko, Chiba
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Abiko Plant
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">300</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">126</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kumamoto, Kumamoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Kyushu, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductors
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">121</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">121</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tsuruoka, Yamagata
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Yamagata, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductors
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">90</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">98</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Otsuki, Yamanashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Yamanashi, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications devices; repeaters
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">49</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ichinoseki, Iwate
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Tohoku, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">66</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">48</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kakegawa, Shizuoka
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Access Technica, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">42</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">41</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kofu, Yamanashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Computertechno, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Computers
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">83</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">40</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yonezawa, Yamagata
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Personal Products, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Computers
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">50</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">30</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kodama, Saitama
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Saitama, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">39</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom">30</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Fukushima, Fukushima
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Wireless Network, Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">65</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">26</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hidaka, Saitama
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Network and Sensor Systems,
Ltd.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Communications equipment
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">22</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">10</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yokohama, Kanagawa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC TOSHIBA Space Systems, Ltd.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Space systems and sub-components</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right" valign="top">&#151;</TD>
    <TD nowrap valign="top"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">7</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">California, the
U.S.A.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Electronics (America) Inc.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Semiconductors
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">57</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">62</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Angers, France
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Computer International B.V.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Computers
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">40</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">36</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Livingston, the U.K.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">NEC Computer International B.V.
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Computers
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">45</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="top">12</TD>
    <TD nowrap valign="bottom">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="98"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>NEC Electronics Corporation leases from NEC and uses part of these plants as its facilities.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>&nbsp;</TD>
    <TD>Located within the site of Toshiba Corporation&#146;s Keihin Plant.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We generally consider the production capacity as well as the utilization rate of our plants to
be adequate for our requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We own most of the land and floor space for our manufacturing activities. Certain properties
are subject to mortgages or encumbrances in order to secure outstanding indebtedness. We lease our
corporate headquarters in Tokyo and a substantial portion of our sales and administrative offices
worldwide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to the above, our corporate research and development facilities, most of which we
own, occupy 51 thousand square meters of floor space. In December&nbsp;2003, we sold our Yokohama Plant
and leased the plant and the surrounding land. The lease expired on May&nbsp;31, 2005.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>The following discussion and analysis should be read in conjunction with &#147;Item&nbsp;3.A. Key
Information </I>&#151; <I>Selected Financial Data&#148; and our consolidated financial statements and notes to those
financial statements included elsewhere in this annual report.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>A. Operating Results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Business Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a leading provider of systems, components, services and integrated solutions for
computing and communications applications, as well as semiconductor solutions. We are focused
mainly on providing reliable solutions to meet complex customer requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Fundamental Management Policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IT and network technology have become indispensable to daily life, enterprises, and national
and local governments. Furthermore, convergence is occurring in a variety of segments, such as
optical networks and IP networks, mobile and fixed-line communications, broadcasting and
telecommunication services, and IT and network technology. A &#147;ubiquitous networked society,&#148; in
which various information and telecommunication devices enable the exchange of necessary
information anytime, anywhere, is being realized due to this convergence and advances in broadband
and mobile infrastructure, which provide high-speed, large-capacity networks and related services,
as well as accessibility via mobile information terminals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, in accordance with our corporate slogan of &#147;Empowered by Innovation,&#148; intend to enable
individuals to lead safer and more enjoyable and fulfilling lives, and for corporations to enhance
their competitiveness and management efficiency by utilizing IT and networks in this new society.
We seek to help people and society as a whole reach their fullest potential through continuing
innovation aimed at improving customer satisfaction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to our IT Solutions and Network Solutions businesses, we aim to provide solutions
that are valued by our customers and promote the realization of the ubiquitous networked society
through semiconductors and other aspects of our Electron Devices business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finally, we aim to help drive the sustainable growth of society and enterprises by fulfilling
our social responsibility as a good corporate citizen. In recognition of our responsibility to
shareholders, customers, employees and other stakeholders, we are further committed to maximizing
our corporate value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Revenues</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our revenues are derived from three principal segments: IT Solutions business, Network
Solutions business, and Electron Devices business (see Note 22 to our Consolidated Financial
Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth sales and profit (including intersegment sales and profit) by
segment for the fiscal year ended March&nbsp;31, 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">(Billions of</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap valign="top" align="center" colspan="2">%</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">yen)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap valign="top" align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,144.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">44.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,892.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">868.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(699.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,855.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment Profit:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unallocated corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aggregate segment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revenue of the IT Solutions business is derived from the provision of SI and outsourcing
services, Internet-related services, support services, as well as the sale of software and hardware
to a balanced mix of customers consisting mainly of enterprises and government agencies. Hardware
sales include personal computers, servers and storage systems. We have developed a number of highly
reliable, large-scale systems using open systems such as UNIX servers. In the fiscal year ended
March&nbsp;31, 2005, sales by the IT Solutions business were &#165;2,144.4&nbsp;billion, representing 44% of consolidated net sales. The main contributors to sales were the provision of SI
to enterprises and government agencies in Japan and the sale of personal computers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, for the fiscal year ended March&nbsp;31, 2005, segment profit in the IT Solutions
business was &#165;102.3&nbsp;billion, representing 78% of total segment profit of &#165;131.2&nbsp;billion. The major
contributor to segment profit was the SI area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revenue of the Network Solutions business is derived from the sale of fixed-line
communications systems, mobile communications network systems, mobile handsets, and broadcast and
other systems primarily to network services providers and other enterprises. We have technologies
to develop highly reliable computing systems, which technologies have been cultivated in the
telecommunications systems area targeting communications service providers, including fixed-line
and mobile communications systems. Moreover, we have established a leading position in Japan&#146;s
telecommunications system market based on our ability to deliver total solutions such as the
construction of platforms for new network services through combinations of IT. In the fiscal year
ended March&nbsp;31, 2005, sales in the Network Solutions business were &#165;1,892.0&nbsp;billion, representing
39% of consolidated net sales. The main contributors to sales were the construction and sale of
fixed-line communications systems and mobile handsets to communications service providers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, for the fiscal year ended March&nbsp;31, 2005, segment profit in the Network Solutions
business was &#165;26.5&nbsp;billion, representing 20% of total segment profit of &#165;131.2&nbsp;billion. While the
construction and sale of mobile communications systems, such as microwave communications equipment
and W-CDMA systems, made a significant contribution to segment profit, profit from the mobile
handset area declined mainly due to weak market conditions in Japan and higher development costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The revenue of the Electron Devices business is derived from the sale of semiconductors, color
liquid crystal displays, electronic components, and other electron devices. In the fiscal year
ended March&nbsp;31, 2005, sales by the Electron Devices business were &#165;868.7&nbsp;billion, representing 18%
of consolidated net sales. The main contributor to sales was semiconductors, particularly system
LSIs. The general-purpose DRAM business has been transferred to Elpida Memory.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Furthermore, for the fiscal year ended March&nbsp;31, 2005, segment profit in the Electron Devices
business was &#165;37.2&nbsp;billion, representing 28% of total segment profit of &#165;131.2&nbsp;billion. The
semiconductor area accounted for the majority of profit in this segment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Cost and Expenses</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost and expenses for our businesses primarily consist of cost of sales, research and
development, or R&#038;D, expenses and selling, general and administrative, or SG&#038;A, expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Cost of Sales</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cost of sales primarily consists of manufacturing overheads, including materials, personnel,
depreciation, and facility maintenance costs. We are promoting company-wide activities for reducing
material costs. We are also promoting restraint in increasing the number of employees in order to
maintain the current level of personnel costs. Depreciation costs depend mainly on capital
investments in the semiconductor area. We built a semiconductor production line for 300-mm wafers
during the fiscal year ended March&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Research and Development Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended March&nbsp;31, 2005, we recorded R&#038;D expenses of &#165;275.3&nbsp;billion mainly for
the development of leading-edge semiconductor products, as well as for R&#038;D activities in the
networking domain, including 3G mobile handsets, and in the integrated IT/Network domain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Selling, General and Administrative Expenses</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;SG&#038;A expenses primarily consist of sales commissions, sales promotion and advertising costs,
and personnel costs related to sales and general administration operations. We are attempting to
control increases in SG&#038;A expenses by improving the efficiency of general administration
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Medium- to Long-Term Business Strategy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Having positioned &#147;Integrated IT/Network Solutions&#148; and &#147;Semiconductor Solutions&#148; as our core
business domains, we strive to enhance our corporate value by pursuing business and technology
synergies between these domains while also allowing them to implement strategies in accordance with
the specific characteristics of their respective businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We formulated and began implementing a medium-term growth strategy in October&nbsp;2003. By
extending the innovative aspects of the Japanese market&#146;s globally preeminent broadband and mobile
infrastructure into overseas markets, we aim to create and capture new growth opportunities in the
upcoming, full scale ubiquitous networked society.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outline of Medium-Term Growth Strategy for Integrated IT/Network Domain:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Securing Reliable Profits and Stable Growth Focused on the Japanese Market</TD>
</TR>
</TABLE>
</DIV>


<DIV style="margin-top: 1pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Securing a reliable profit foundation based on SI services</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Expanding the Network Solutions business through integration with information
technology</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revitalizing the hardware product area</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Capturing New Growth Opportunities</TD>
</TR>
</TABLE>
</DIV>


<DIV style="margin-top: 1pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Global business expansion</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Strengthening preparations for the upcoming, full scale ubiquitous networked society
in Japan</TD>
</TR>

</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Combining NEC Group Core Competencies to Support Growth</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The rapidly changing business environment prompted by a downturn in the mobile handset market
in Japan and increasing capital requirements and complexity relating to new technology development
are among the recent developments that have to be addressed for us to sustain growth. On the other
hand, new business opportunities are also emerging from the shift to next-generation networks and
increasing demand for software/services in various areas. In response to these developments, we
announced measures in December&nbsp;2004 intended to resolve these management issues and promote our
medium-term growth strategy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Outline of New Measures
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Early Turnaround of Mobile Terminal Area</TD>
</TR>
</TABLE>
</DIV>


<DIV style="margin-top: 1pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Revise product development strategies</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Accelerate overseas business expansion, with a focus on China</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Accelerated Growth in the Integrated IT/Network Solutions Business</TD>
</TR>
</TABLE>
</DIV>


<DIV style="margin-top: 1pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Strengthen business in the software/services domain</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Expand the broadband solutions area</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Measures for the next-generation network infrastructure area</TD>
</TR>

</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Continuously Promote Structural Reforms</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, in the semiconductor solutions domain, we focus on system LSIs and respond to
customers&#146; needs with our own leading technologies. We will manage and develop our businesses with
the aim of becoming a partner that provides optimal solutions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through these and other measures, we aim to improve our financial results and return to a
growth trajectory.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Major Measures and Results of the Year under Review and Future Growth Initiatives</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business environment is changing significantly. In Japan, broadband and mobile networks
are gaining ground and there are increasing moves to shift to next-generation networks, such as the
construction of high-speed optical-fiber networks and the transition from existing voice
communications networks to IP networks. Furthermore, the construction of new service platforms at
communications service providers and global supply chains, as well as network utilization at
enterprises, are gaining momentum. In the mobile handset market in Japan, communications service
providers are implementing a full-scale transition to 3G mobile phone services. There is also
stronger demand for more sophisticated semiconductor solutions in step with increasingly
diversified customer needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While new business opportunities are expanding in this way, structural changes that have a
direct bearing on corporate profitability are also taking place. For hardware, the transition to
products based on industry-standard technologies is gaining ground as hardware prices decline.
Furthermore, in the SI area, customer requirements have become more sophisticated and complex, with
an increase in the construction of systems using the latest technologies as well as systems
requiring the development of intra- and inter-company networks. At the same time, as the scale of
development projects grows due to rapid changes in technology, pricing pressure continues due to
greater emphasis on investment returns on the part of customers and intensified competition.
Furthermore, hand in hand with advances in a variety of multi-functional products such as 3G mobile
phones, the importance of software installed in products in not just the IT domain but also the
network and semiconductor domains is rapidly increasing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In light of these rapid changes in our business environment, we positioned the fiscal year
ended March&nbsp;31, 2005 as the year to implement growth strategies. Accordingly, we took a range of
actions to strengthen business execution, implement concrete growth strategies and complete the
final stages of structural reforms of businesses of concern.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Firstly, to strengthen business execution, we worked to reinforce our operating base through
total process reforms. In the hardware field, production innovation activities were implemented
across the entire supply chain, extending to materials procurement, production and logistics. The
goal was to reduce the cost of sales by enhancing inventory turnover and productivity. Process
reforms such as the standardization of development processes were also promoted as part of measures
to speed up development and reduce costs from the development stage onward. Moreover, we continued
efforts to reduce the costs of materials purchased from outside suppliers. Through these and other
activities, we have achieved some positive results in the development and production of hardware.
In the fiscal year ended March&nbsp;31, 2005, these activities were expanded to include the fields of
software and systems development, where we worked to upgrade our earnings power with respect to
solutions that combine both hardware and software. In the SI area, profitability declined during the fiscal
year ended March&nbsp;31, 2004 due to certain unprofitable projects which were implemented to respond to
new technologies, realize new markets or customer development projects, and meet sophisticated and
complicated customer needs. In the fiscal year ended March&nbsp;31, 2005, profitability improved since
we attempted to reduce the number of unprofitable projects by utilizing know-how developed in
responding to new technologies in the previous fiscal year, enhancing implementation of pre-order
screening, and performing more efficient project management. Furthermore, in the field of mobile
handset development, efforts were made to reduce development costs by innovating development
processes. This came in response to a rapid increase in the scale of software development in step
with the proliferation of 3G mobile phone services and an increase in the number of handset models
under development. We have reorganized our operations in order to strengthen our responsiveness to
market conditions, so that we can steadily seize growth opportunities in the coming full-fledged
ubiquitous networked society.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to implementing concrete growth strategies, amid advancements in broadband and
mobile network environments, we have been providing an expanding range of Integrated IT/Network
solutions. One example of a service platform built for a communications service provider was the
construction of a backup center for NTT DoCoMo&#146;s i-mode gateway system CiRCUS. This backup system
supports the i-mode service, which is used by some 44&nbsp;million subscribers. It is one of the world&#146;s
largest mission-critical systems built on a open architecture that can provide services 24 hours a
day, 365&nbsp;days a year, without any interruptions. For backbone systems for enterprises, we have
developed and delivered a convergent fixed-line and mobile communications solution that directly
links internal telephone networks using 3G mobile handsets to business process systems. These
accomplishments were realized through the convergence of the strengths of both our IT and
networking technologies. In the mobile handset area, while working to expand overseas businesses
centered on China and based on leading-edge technologies developed in Japan, we took actions to
improve the efficiency of software development, which has been growing in step with increases in
functions and handset models. In the Electron Devices business, we have built a production line for
300-mm wafers in a move to strengthen our ability to deliver leading-edge products for which demand
is rapidly growing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to our efforts to focus on our key business, we sold our plasma display
operations. Elpida Memory, to which we transferred our general-purpose DRAM business, has secured
its own means of raising funds from the capital markets by listing on the Tokyo Stock Exchange in
November&nbsp;2004. (On August&nbsp;31, 2005, we sold 9.6&nbsp;million shares of Elpida Memory. After this sale,
we currently hold 13.89% of Elpida Memory, which ceased to be an affiliate company of NEC accounted
for by the equity method.)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of these measures, consolidated net sales for the fiscal year ended March&nbsp;31, 2005
were &#165;4,855.1&nbsp;billion, a decrease of 1.1% as compared with the previous fiscal year. Consolidated
income before income taxes for the fiscal year ended March&nbsp;31, 2005 were &#165;115.7&nbsp;billion, a decrease
of &#165;44.9&nbsp;billion as compared with the previous fiscal year. This is mainly due to the mobile
handsets area, which experienced decreased sales and increased development costs, and the
semiconductor area, which was negatively affected by inventory adjustments by customers. These
factors outweighed improved profitability in the areas of fixed-line communications systems and IT
Solutions.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Measures to be Taken in Fiscal Year Ending March&nbsp;31, 2006</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Aiming to respond to changes in our business environment, seize new business opportunities,
and drive further growth as the full-fledged ubiquitous networked society approaches, we have
positioned the fiscal year ending March&nbsp;31, 2006 as the year to revitalize the execution of growth
strategies. We will take action to cultivate new sources of earnings by creating new markets and
businesses on our own initiative, while continuing total process reforms to further enhance our
ability to generate earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Firstly, we will seek to quickly and precisely identify changes in market conditions by
closely following customer trends and will seek to provide integrated solutions that fulfill
customers&#146; needs. Furthermore, we will actively press ahead with the global development of our
integrated solutions area originating in Asia, including China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Secondly, in the area of software/services, in order to strengthen our core competencies,
which include our systems integration and software development capabilities, we have been
dynamically reorganizing our management resources in this area. As the first stage of this process,
NEC Soft, Ltd. and NEC System Technologies, Ltd. were made our wholly owned subsidiaries in June
2005. In a further step, we have converted ABeam Consulting Ltd. into a subsidiary as part of
efforts to strengthen consulting capabilities in the SI area. Through these and other initiatives,
we are working to reduce costs by continuing total process reforms, while maximizing our strengths
to meet customer needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Moreover, we will concentrate on developing hardware to drive further growth across the entire
SI area. Hardware products will include servers and storage devices that fulfill customers&#146; needs
by utilizing the most of world-leading broadband and mobile infrastructure available in Japan and
our core technologies, including those that offer high reliability and security, in IT and
networking areas.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Through these and other measures, we will promote our business expansion and improve our
profitability, while developing into a company of global excellence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In &#147;Item&nbsp;5. Operating and Financial Review and Prospects,&#148; we discuss our consolidated
financial statements, which have been prepared in conformity with accounting principles generally
accepted in the United States of America. The preparation of our financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date
of the financial statements, as well as the reported amounts of revenues and expenses for the
reporting period. Actual results could differ from estimated results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management believes that the estimates and assumptions used in applying the following critical
accounting policies affect our consolidated financial statements significantly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Marketable Securities and Other Investments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We classify our marketable equity securities and debt securities as available-for-sale. These
securities are reported at fair value, with unrealized gains and losses included in accumulated
other comprehensive income (loss), net of taxes. When a decline in the value related to the
marketable security is deemed to be other-than-temporary, we recognize impairment to the extent of
the decline. In determining if and when such a decline in value is other-than-temporary, we
evaluate market conditions, trends of earnings, the extent to which cost exceeds market value, the
duration of market declines, the ability and intent to hold the marketable securities and other key
measures. In the fiscal year ended March&nbsp;31, 2004, impairment losses did not have any material
effect due to a rebound in stock prices. Because stock prices remained steady in the fiscal year
ended March&nbsp;31, 2005, impairment losses did not have any material effect, nor did we book any
material unrealized losses. 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other investment securities are stated at cost and reviewed periodically for impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future adverse changes in market conditions or poor operating results of the companies whose
marketable securities are held by us could result in losses or an inability to recover the cost of
the marketable securities, thereby possibly requiring an impairment charge in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Pension and Severance Plans</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recognized costs and liabilities of pension and severance plans that are developed from
actuarial valuations. Changes in the related pension and severance costs and liabilities may occur
in the future due to changes in assumptions or in the number of employees covered. Inherent in
these valuations are key assumptions including the expected long-term rate of return on plan assets
and the discount rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 forecasts, taking into consideration the asset allocation policy. A 50-basis
point decrease in the expected long-term rate of return on pension assets would have resulted in an
increase of pension expense in the fiscal year ended March&nbsp;31, 2005 by approximately &#165;2.5&nbsp;billion.
We assumed that the expected long-term rate of return on pension assets was 4.0% in the fiscal year
ended March&nbsp;31, 2004 and 2.5% in the fiscal year ended March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Deferred Tax</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently have deferred tax assets resulting from net operating loss carryforwards, and
deductible temporary differences, both of which will reduce taxable income in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When there is uncertainty regarding realization of deferred tax assets, a valuation allowance
is recognized to reduce our deferred tax assets to an amount that is more likely than not to be
realized. In determining whether a valuation allowance is required, we consider:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp; future earnings potential determined based upon internal forecasts;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp; cumulative pre-tax income excluding special charges during the previous three years;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp; tax planning that is available;<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp; the extended period of the realization of temporary differences resulting from accrued
pension and severance costs, investments
in<BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; subsidiaries and other factors; and<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#149;&nbsp;&nbsp; the history of having had no significant loss carryforwards expire in the past.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe that we will be able to realize deferred tax assets based on loss carryforwards
through future income without additional tax planning. This conclusion is based on not only our
estimated future earnings potential, but also on our history of having had no significant loss
carryforwards expire in the past as well as improvements in business results since the fiscal year
ended March&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A significant portion of the deferred tax assets are related to accrued pension and severance
costs and investments. Temporary differences for accrued pension and severance costs will be
realized as they are funded or paid although there may be an extended period of realization.
Deferred tax assets related to investments will generally be realized by restructurings such as the
sale or liquidation of the investee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event that market conditions or results of operations improve significantly, and we
determine that realization of deferred tax assets in the future in excess of the net amount
recorded is more likely than not, an adjustment to the deferred tax assets would increase income in
the period in which such determination is made. Likewise, in the event of a deterioration in market
conditions or results of operations, in which we were to determine that it is not more likely than
not all or part of our net deferred tax assets, an adjustment to deferred tax assets would decrease
income in the period such determination was made.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Impairment of Long-Lived Assets</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In determining the fair value of the respective assets, we must make estimates and assumptions
regarding estimated future cash flows and other factors. If these estimates or assumptions change
in the future, we may be required to record impairment charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Goodwill and Other Intangible Assets</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill and intangible assets with indefinite lives are tested for impairment instead of
being amortized. We perform impairment tests of these assets annually, or more frequently if events
or circumstances indicate that assets might be impaired. Goodwill is tested for impairment by
comparing the fair value of a reporting unit with its carrying amount, including goodwill.
Intangible assets with indefinite lives are tested for impairment by comparing the fair values of
those assets with their carrying amounts. We perform an annual impairment test of goodwill in the
fourth quarter of each fiscal year, or whenever there are specific signs of impairment. We
performed an impairment test as of December&nbsp;31, 2004, and recognized no impairment of goodwill for
the fiscal year ended March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In performing impairment tests based on a discounted future cash flow approach, we must make
estimates and assumptions regarding estimated future cash flows and other factors. Although there
are inherent uncertainties, estimates and assumptions are consistent with our internal planning. If
these estimates or their related assumptions change in the future, we may be required to record an
impairment charge on each respective asset.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Effect of New Accounting Standards</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the Financial Accounting Standards Board, or FASB, issued the Statement of
Financial Accounting Standards, or SFAS, No.&nbsp;123 (revised 2004), or SFAS No.&nbsp;123 (R). SFAS No.&nbsp;123
(R)&nbsp;requires the fair-value recognition of all stock-based compensation for employees, including
grants of employee stock options. SFAS No.&nbsp;123 (R)&nbsp;will be effective at the beginning of the first
fiscal year beginning after June&nbsp;15, 2005. We are scheduled to adopt SFAS No.&nbsp;123 (R)&nbsp;effective on
April&nbsp;1, 2006, and have not determined what effect, if any, this new accounting standard will have
on our results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the FASB issued SFAS No.&nbsp;151, <I>Inventory Costs &#151; an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4, </I>or SFAS No.&nbsp;151. SFAS No.&nbsp;151 amends the guidance in ARB No.&nbsp;43, Chapter&nbsp;4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and rehandling costs be
recognized as current-period charges regardless of whether they meet the criterion of &#147;so abnormal&#148;
in ARB No.&nbsp;43. Additionally, SFAS No.&nbsp;151 requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of production facilities. SFAS No.&nbsp;151 will
be effective for fiscal years beginning after June&nbsp;15, 2005. We are scheduled to adopt SFAS No.&nbsp;151
effective on April&nbsp;1, 2006, and have not determined what effect, if any, this new accounting
standard will have on our results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, <I>Exchanges of Nonmonetary Assets&#151;an amendment
of APB Opinion No.&nbsp;29, </I>or SFAS No.&nbsp;153<I>. </I>SFAS No.&nbsp;153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b)&nbsp;of APB
Opinion No.&nbsp;29, Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No.&nbsp;153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No.&nbsp;153 will be effective for fiscal periods
beginning after June&nbsp;15, 2005. We are scheduled to adopt SFAS No.&nbsp;153 effective on April&nbsp;1, 2006,
and have not determined what effect, if any, this new accounting standard will have on our results
of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Results of Operations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth a summary of our results of operations for the fiscal years
ended March&nbsp;31, 2003, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(Billions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,695.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,906.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,855.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,453.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,623.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,646.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">296.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general, and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">852.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">802.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Fiscal Year Ended March&nbsp;31, 2005 Compared to Fiscal Year Ended March&nbsp;31, 2004</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal year ended March&nbsp;31, 2005, despite the escalating price of crude oil,
economic growth continued in many developed countries, including the U.S., and high growth was
sustained in Asian nations, including China, due to an increase in capital expenditures and other
factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There was sustained, steady growth in the Japanese economy in the first half of the fiscal
year ended March&nbsp;31, 2005 resulting from an increase in exports to Asia, focused mainly on China,
and higher capital expenditures. However, lackluster consumer spending in the second half led to a
slowdown in economic growth.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The electronics industry in Japan experienced increased demand for digital home electronics
products such as flat panel televisions and DVD recorders. IT services also grew moderately due to
a recovery in IT and network investments by enterprises in Japan. However, mobile handsets showed
sluggish growth due to high permeation in the Japanese market. Overseas, there was steady growth
principally due to demand for personal computers and mobile handsets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With respect to semiconductors and other electronic components, although there was an increase
in demand in both Japan and overseas markets in the first half due to brisk sales of digital home
electronics products, demand decreased in the second half due to inventory adjustments by
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net sales for the fiscal year ended March&nbsp;31, 2005 were &#165;4,855.1&nbsp;billion, a decrease of 1.1%
compared with the previous fiscal year. This was principally due to a significant decrease in
mobile handset sales, despite steady sales in the SI and fixed-line communications systems areas
supported by the recovery in IT and network investments by enterprises, and higher sales of mobile
communications systems in the mobile area.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes for the fiscal year ended March&nbsp;31, 2005 decreased &#165;44.9&nbsp;billion
from the previous fiscal year to &#165;115.7&nbsp;billion. This was mainly due to a decrease in mobile
handset sales and an increase in development costs for mobile handsets, and sluggish demand in the
semiconductor area, despite improvement in profitability in the SI and fixed-line communications
systems areas. Net income for the fiscal year ended March&nbsp;31, 2005 increased &#165;26.8&nbsp;billion compared
with the previous fiscal year to &#165;67.9&nbsp;billion. This was due to an improvement in equity in
earnings (losses)&nbsp;of affiliated companies mainly reflecting an improvement in income of affiliated
companies accounted for by the equity method, and a gain due to stock issuances of Elpida Memory
which completed an initial public offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the other hand, free cash flows (the sum of cash flows from operating activities and
investing activities) for the fiscal year ended March&nbsp;31, 2005 comprised cash inflows of &#165;42.0
billion. The balance of interest-bearing debt at March&nbsp;31, 2005 amounted to &#165;1,156.2&nbsp;billion, a
reduction of &#165;14.8&nbsp;billion as compared with the end of the previous fiscal year, as a result of the
implementation of continual reduction measures. Debt-equity ratio (a ratio obtained by dividing
interest-bearing debt by shareholders&#146; equity) at March&nbsp;31, 2005 was 1.46, an improvement of 0.19
points as compared with the end of the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the balance of interest-bearing debt (net), obtained by offsetting the balance of
interest-bearing debt with the balance of cash and cash equivalents, amounted to &#165;661.9&nbsp;billion at
March&nbsp;31, 2005, a reduction of &#165;12.3&nbsp;billion as compared with the end of the previous fiscal year.
Net debt-equity ratio (a ratio obtained by dividing interest-bearing debt (net)&nbsp;by shareholders&#146;
equity) was 0.83 at March&nbsp;31, 2005, an improvement of 0.12 points as compared with the end of the
previous fiscal year.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales. </I>In the fiscal year ended March&nbsp;31, 2005, our consolidated net sales decreased 1.1%,
or &#165;51.7&nbsp;billion, to &#165;4,855.1&nbsp;billion. The IT Solutions business reported higher sales, mainly due
to contributions from the areas of SI and software. The Network Solutions business also recorded
higher sales, but this was mainly a reflection of sales growth in mobile communications systems and
fixed-line communications systems outweighing the decrease in sales of mobile handsets. The
Electron Devices business posted lower sales due to the sale of the plasma display business and a
slowdown in the semiconductor market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By geographical location of customers, net sales to Japanese customers decreased 4.8%, or
&#165;177.3&nbsp;billion, to &#165;3,553.5&nbsp;billion. This was mainly due to a decrease in sales of
second-generation mobile handsets, which were strong in the previous fiscal year. Overseas sales
increased 10.7%, or &#165;125.6&nbsp;billion, to &#165;1,301.6&nbsp;billion, primarily due to steady sales of 2.5G
mobile handsets for overseas markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales denominated in foreign currencies in the fiscal year ended March&nbsp;31, 2005, principally
the U.S. dollar and Euro, were &#165;1,192.5&nbsp;billion, an increase of 9.2%, or &#165;100.3&nbsp;billion, compared
with the previous fiscal year. Consequently, foreign currency denominated sales represented 24.6%
of net sales. Fluctuations in exchange rates had a negligible effect on earnings due to a variety
of hedging measures to reduce fluctuation risks, such as forward exchange contracts and balancing
foreign-currency denominated sales and procurement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Subsidy Related to Transfer of Substitutional Portion of Employee Pension Fund Liabilities,
Net of Settlement Loss of &#165;12,607 Million. </I>In the fiscal year ended March&nbsp;31, 2003, NEC 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 its
contributory defined benefit pension plans, over which the Japanese government will take responsibility. Upon the final approval of the
Japanese government in the fiscal year ended March&nbsp;31, 2004 and the fiscal year ended March&nbsp;31,
2005, with the transfer to the Japanese government from the assets of the pension plans, NEC and
certain subsidiaries in Japan were relieved of all past obligations under the substitutional
portion of the plans. We 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 net gains of &#165;8.2&nbsp;billion in the fiscal year ended March&nbsp;31,
2004 and &#165;0.7&nbsp;billion in the fiscal year ended March&nbsp;31, 2005 (see Note 10 to our Consolidated
Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Sale of Investments in Securities, Net of Loss on Sale and Impairment. </I>We booked a
gain on sales of investments in securities, net of loss on sale and impairment, of &#165;43.4&nbsp;billion, a
year-on-year increase of &#165;29.3&nbsp;billion, mainly reflecting the recognition of gain on transfer of
marketable securities to the pension trust and sale of shares in affiliated companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of Sales. </I>Cost of sales in the fiscal year ended March&nbsp;31, 2005 increased &#165;23.8&nbsp;billion
to &#165;3,646.8&nbsp;billion over the previous fiscal year. As a percentage of net sales, cost of sales
increased 1.3&nbsp;percentage points to 75.1%. This mainly reflected intensified price competition in
overseas mobile handset markets and lackluster demand in the semiconductor area, despite efforts to
enhance profitability through stronger project management and process reforms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development Expenses. </I>R&#038;D expenses climbed &#165;18.7&nbsp;billion to &#165;275.3&nbsp;billion
compared with the previous fiscal year. This was mainly attributable to rising development costs to
respond to new technologies primarily in the Network Solutions business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses. </I>SG&#038;A expenses in the fiscal year ended March&nbsp;31,
2005 decreased &#165;50.2&nbsp;billion year on year to &#165;802.5&nbsp;billion. This decrease was mainly due to the
conversion of an affiliated company from a consolidated subsidiary to an affiliated company
accounted for by the equity method following the sale of part of our shareholding in the affiliated
company at the end of the previous fiscal year. As a percentage of net sales, SG&#038;A expenses
improved 0.9 of a percentage point to 16.5%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructuring Charges. </I>Restructuring charges decreased &#165;11.3&nbsp;billion from the previous fiscal
year to &#165;5.9&nbsp;billion. This was mainly a reflection of charges for the loss incurred for the
disposal and write-down of assets in the IT Solutions and Network Solutions business that were
booked in the previous fiscal year (see Note 19 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loss on Sale or Disposal of Fixed Assets, Net. </I>We booked a loss on sale or disposal of fixed
assets, net of &#165;14.4&nbsp;billion in the fiscal year ended March&nbsp;31, 2005, compared with a gain of &#165;7.3
billion in the previous fiscal year. The previous fiscal year&#146;s gain was mainly attributable to
gains on the sale of land and buildings associated with the realignment of operating facilities.
This fiscal year&#146;s loss was mainly due to the sale and disposal of some of our facilities for
facility-restoration purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Before Income Taxes. </I>Income before income taxes was &#165;115.7&nbsp;billion, a decrease of &#165;44.9
billion compared with the previous fiscal year. This mainly reflected decreasing sales and
increasing development costs of mobile handsets, and a downturn in demand in the semiconductor
area, despite enhanced profitability in the areas of SI and fixed-line communications systems
achieved through total process reforms and other means.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity in Earnings (Losses) of Affiliated Companies. </I>We recorded equity in earnings of
affiliated companies in the fiscal year ended March&nbsp;31, 2005 of &#165;32.6&nbsp;billion, an improvement of
&#165;50.4&nbsp;billion compared with the previous fiscal year. This mainly reflected improved financial
results of affiliated companies accounted for by the equity method as well as a gain of &#165;25.0
billion that resulted from stock issuances by Elpida Memory which completed an initial public
offering (see Note 3 to our Consolidated Financial Statements). As of August&nbsp;31, 2005, Elpida
Memory ceased to be an affiliate company of NEC accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Ta</I>x<I>es. </I>As of March&nbsp;31, 2005, we had deferred tax assets of &#165;506.1&nbsp;billion net of
valuation allowance of &#165;47.8&nbsp;billion and deferred tax liabilities of &#165;89.6&nbsp;billion. Major
differences between income before income taxes for financial reporting purposes and for income tax
purposes include utilization of operating loss carryforwards, and the nondeductibility of certain
expenses (see Note 11 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have filed a consolidated tax return for NEC and its domestic wholly-owned subsidiaries
since the fiscal year ended March&nbsp;31, 2003. Japanese income tax regulations permit the
carryforwards of tax losses in a Japanese entity as an offset against its taxable income during the
subsequent seven years. Operating loss carryforwards expire at the end of the seven-year period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our valuation allowance of &#165;47.8&nbsp;billion as of March&nbsp;31, 2005 reflected (i) &#165;12.0&nbsp;billion for
deferred tax assets arising from loss carryforwards of certain consolidated subsidiaries and (ii)
&#165;35.8&nbsp;billion mainly for deferred tax assets arising from tax deductible temporary differences
recorded by subsidiaries in a loss position. As of March&nbsp;31, 2005, our operating loss carryforwards
of &#165;183.7&nbsp;billion reflected (i) &#165;109.5&nbsp;billion related to foreign subsidiaries for which deferred
tax assets of &#165;7.8&nbsp;billion and valuation allowance of &#165;3.4&nbsp;billion were recorded and (ii) &#165;74.2
billion related to domestic companies for which deferred tax assets of &#165;36.6&nbsp;billion and valuation
allowance of &#165;8.6&nbsp;billion were recorded. In determining the amount of valuation allowance, we
consider all available evidence (see Critical Accounting Policies and Estimates).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income. </I>Despite the decrease in income before income taxes, due to the sharp improvement
in equity in earnings of affiliated companies, we recorded net income of &#165;67.9&nbsp;billion, an increase
of &#165;26.8&nbsp;billion from the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Comprehensive Income (Loss). </I>We recorded comprehensive income in the fiscal year ended March
31, 2005 of &#165;93.3&nbsp;billion. In addition to the recording of net income, this reflected other
comprehensive income of &#165;25.4&nbsp;billion due to a decrease in the minimum pension liability
adjustment, which reflected the transfer of substitutional portion of employee pension fund
liabilities (see Note 12 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividend</I>s<I>. </I>In addition to moving forward with the restructuring of our business, we need to
adopt a flexible policy in order to better respond to the rapidly changing business environment. In
light of these business requirements, we consider, among other factors, the following factors in
determining our cash dividends: the profits earned in the relevant fiscal period, the financial
outlook for the following fiscal periods, the dividend payout ratio, and the internal demand for
funds such as capital expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have declared an annual dividend of &#165;6 per share of common stock for the fiscal year ended
March&nbsp;31, 2005, including an interim dividend of &#165;3 per share of common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Capital Expenditures. </I>Capital expenditures increased 25.2% year on year to &#165;217.8&nbsp;billion,
mainly a reflection of new measures to reinforce production lines in the semiconductor area.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Review of Operations by Business Segment</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth sales and profit by segment for the fiscal years ended March
31, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Billions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,098.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,144.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,775.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,892.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">868.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">679.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(579.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(699.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,906.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,855.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment Profit:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unallocated corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aggregate segment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.9</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are primarily engaged in three business segments: IT Solutions business, Network Solutions
business, and Electron Devices business. In the fiscal year ended March&nbsp;31, 2005, our business
recorded sales of &#165;4,855.1&nbsp;billion, a decrease of &#165;51.7&nbsp;billion, or 1.1%, from the previous fiscal
year. Total segment profit was &#165;131.2&nbsp;billion, a decrease of &#165;51.5&nbsp;billion from the previous fiscal
year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a review of results of operations for each business segment for the fiscal
year ended March&nbsp;31, 2005. Sales and segment profit figures for each segment include intersegment
transactions (see Note 22 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>IT Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales</I>. As the Japanese economy headed toward recovery on the back of improved corporate
financial results, IT investment in Japan also gradually returned to a recovery track. On the other
hand, the amount of IT investment did not increase significantly since customers maintained their
emphasis on investment returns and intensified competition continued to push down prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In this environment, sales in the IT Solutions business were &#165;2,144.4&nbsp;billion, an increase of
2.2% from the previous fiscal year. Higher sales were recorded in the areas of SI and software. For
the public sector, we renewed existing systems and constructed systems mainly related to
e-government and mergers between local governments. For the private sector, demand was steady for a
variety of system construction projects, including for upgrades of enterprise supply chain
management systems, centered on certain manufacturing sectors taking a proactive approach to IT
investments. In new technology domains, we constructed open business process systems fully based on
Java technology in a progressive undertaking for the financial services sector, among other initiatives. Furthermore, we
expanded the construction of platforms for enterprises to share information on a global basis, as
well as for area in the integrated IT/Networks domain relating to IP, mobile, RFID using IC tags
and security.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On the other hand, sales in computer platforms decreased due to the absence of a large-scale
project like that found in the previous fiscal year, the shift to lower-priced products and
declining unit prices, despite higher shipments of open servers such as IA servers and optical disk
drives. In the personal solutions area, while the increase in shipments of personal computers for
the consumer market slowed due to lackluster market conditions in Japan, replacement demand for
personal computers at companies grew steadily.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit</I>. Segment profit amounted to &#165;102.3&nbsp;billion, an increase of &#165;10.5&nbsp;billion from
the previous fiscal year. This was primarily due to improved profitability in the SI area. In this
area, profitability had deteriorated in the second half of the previous fiscal year due to
unprofitable projects caused by an increase in projects using new technologies, including
introductions of digital terrestrial broadcasting systems and constructions of computing systems
fully based on Java technology and by more sophisticated and complicated customer requirements. In
response, while utilizing the know-how developed in responding to new technologies in the previous
fiscal year, we reinforced measures to improve profitability such as upgrading pre-order screening
and project management, and raising productivity in software development. As a result,
profitability improved because we managed to sharply reduce the number of unprofitable projects in
the fiscal year ended March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the areas of computer platforms and personal solutions, we made efforts to lower materials
costs and upgrade our supply chain amid difficult market conditions characterized by a sharp
decline in prices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Network Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales. </I>Sales in the Network Solutions business were &#165;1,892.0&nbsp;billion, an increase of 6.5%
compared with the previous fiscal year. Despite declining mobile handset sales, overall sales
growth was fueled by higher sales of mobile communications systems, as well as fixed-line
communications systems mainly in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For fixed-line communications systems, overall sales to the Japanese market steadily
increased. This market has seen rising demand for infrastructure construction projects for
communications service providers and broadcasters to offer new services. We have constructed a
service platform that enables NTT DoCoMo, Inc. to provide email and Web access services, among
other projects. An increasing number of companies are introducing VoIP systems that enable voice
communications using IP technology and shifting to broadband networks, which in turn has increased
security-related needs. As an example of one solution addressing these needs, we have made use of
3G FOMA mobile handsets to develop and deliver mobile office solutions for the construction of
local IP telephone networks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the area of mobile communications systems, sales increased due to vigorous investment in 3G
infrastructure worldwide and other factors. For the Japanese market, we recorded steady shipments
on the back of enhanced mobile-phone service areas, which were expanded to include building
interiors, underground floors, and other locations, as well as investments aimed at the launch of
fixed-rate packet communications services in June&nbsp;2004. For overseas markets, 3G infrastructure
investments have steadily begun, centered on European countries, supporting our brisk shipments.
Sales of base transceiver systems, including those for second-generation, or 2G, mobile
communications service providers, also increased.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For mobile handsets, we are working to aggressively expand into overseas markets, particularly
China, leveraging our technologies and know-how cultivated in our domestic mobile handset area. In
the fiscal year ended March&nbsp;31, 2005, we reported lower mobile handset shipments to the Japanese
market, due to slower growth in new subscribers reflecting the maturing mobile handset market as
well as lackluster replacement demand for new handsets. On the other hand, as the transition to 3G
services gained ground, we worked to bring attractive 3G terminals to market, such as terminals for
NTT DoCoMo, Inc. with embedded non-contact IC cards for shopping at retail outlets such as
convenience stores and making payments over the Internet, as well as terminals compatible with
overseas 3G/2G services. For the Chinese market, we sought to lay the groundwork for success by
realigning our network of local subsidiaries to focus on the mobile area and newly appointing a
local senior executive. By incorporating local resources, such as design agencies and electronics
manufacturing service companies, into a supply chain that extends from development to procurement,
production, sales and maintenance, we reduced development costs and fixed expenses while increasing
shipments. For other overseas businesses centered on European markets, performance remained on par
with the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit. </I>Segment profit was &#165;26.5&nbsp;billion, a decrease of &#165;41.4&nbsp;billion from the
previous fiscal year. This was mainly due to a decrease in sales and an increase in development
costs of mobile handsets despite an improvement of profitability in the fixed-line communications
systems area. In the area of fixed-line communications systems, profitability improved on the back
of higher shipments and the benefits of measures to shift to a more streamlined business structure,
including more focused product development and realignment of manufacturing facilities. In the area
of mobile communications systems, profit rose due to increased sales. On the other hand, in
addition to a decrease in mobile handset shipments in Japan, sharp increases in development costs
and expenses required to promote sales of 3G terminals overseas substantially reduced the
profitability of mobile handsets. The increase in development costs was mainly due to our efforts
to stabilize chipsets for 3G terminals for overseas markets, meet additional software requirements
associated with the higher functionality of mobile terminals, and undertake development on a larger
scale due to an increase in the number of handset models under development. To raise development
efficiency and restore profitability as early as possible, we developed a Linux-based development
platform, which can utilize a broad range of application software with outstanding functionality and general versatility. In
addition, we implemented development process reforms that included shifting to a development system
organized around functions instead of handset models.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Electron Devices Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales</I>. Sales of the Electron Devices business were &#165;868.7&nbsp;billion, a decrease of 6.8% from the
previous fiscal year. This decrease was primarily due to the transfer of the plasma display
business and the termination of the general-purpose DRAM foundry business. We have been
transferring development, production and sales of general-purpose DRAMs to Elpida Memory, and the
termination of the general-purpose DRAM foundry business marks the completion of this transfer of
general-purpose DRAM operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended March&nbsp;31, 2005, electron devices-related markets saw extremely
healthy demand in the first half of the year continuing from the previous fiscal year, underpinned
mainly by an upturn in demand for personal computers, the spread of 3G mobile handsets and brisk
sales of digital home electronics. In stark contrast, there was a sharp deterioration in demand
from the summer onward, as client equipment manufacturers implemented production adjustments and
reduced parts procurement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the semiconductor area, which comprises the majority of the Electron Devices business, we
recorded steady sales of semiconductors in the first half of the fiscal year ended March&nbsp;31, 2005,
mainly for use in digital home electronics, personal computers and peripherals, automobiles and
industrial machinery in step with growing demand for semiconductors. In the second half, however,
semiconductor sales decreased in all but the automobile and industrial machinery fields, reflecting
sluggish demand due to production adjustments by customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In displays, we transferred the low-margin plasma display business as part of structural
reforms of underperforming businesses. The color LCD area saw strong sales of color LCDs for
industrial use, a key area of focus. For general-purpose LCDs for personal computers and monitors,
NEC is generating royalties from the licensing of technologies to a joint venture established with
SVA (Group) Co., Ltd., a Chinese IT company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the area of electronic components and others, we reported steady sales, driven mainly by
core products such as capacitors, where we have a significant competitive edge.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit</I>. Segment profit amounted to &#165;37.2&nbsp;billion, a decrease of &#165;17.1&nbsp;billion from the
previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the areas of display and electronic components and others, profitability improved due to
structural reforms. In the semiconductor area, which represents the majority of segment profit for
the Electron Devices business, profitability was partly affected by a downturn in sales in the
second half due to lackluster demand. In this context, segment profit declined year on year as
measures aimed mainly at improving productivity and raising cost effectiveness were unable to
offset higher capital expenditures for the construction of a 300-mm wafer production line and
higher R&#038;D expenses. Moving forward, we aim to improve earnings over the medium term by leveraging
our earlier investments in facilities and product development.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Others</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales</I>. Sales of the &#147;Others&#148; segment, which consists of the manufacture and sale of
semiconductor manufacturing equipment and LCD projectors as well as information and network system
construction, were &#165;649.1&nbsp;billion, a decrease of 4.5% from the previous fiscal year. This was
mainly because Japan Aviation Electronics Industry, Ltd., which previously was our subsidiary,
became an affiliated company accounted for by the equity method due to the sales of a part of its
shares owned by NEC in March&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit</I>. Segment profit amounted to &#165;11.6&nbsp;billion, an increase of &#165;0.8&nbsp;billion from the
previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Fiscal Year Ended March&nbsp;31, 2004 Compared to Fiscal Year Ended March&nbsp;31, 2003</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the fiscal year ended March&nbsp;31, 2004, our consolidated net sales increased by 5%
year-on-year to &#165;4,906.8&nbsp;billion. Income before income taxes increased by &#165;99.1&nbsp;billion
year-on-year to &#165;160.5&nbsp;billion, mainly due to sales growth and improved profitability through our
restructuring efforts in the previous fiscal year, as well as a decrease in restructuring charges,
gain due to stock issuances by subsidiaries, including NEC Electronics Corporation, and gains on
the sales of operating facilities through the realignment of our operating organizations. We
returned to profitability in the fiscal year ended March&nbsp;31, 2004, posting net income of &#165;41.1
billion, compared to a net loss of &#165;24.6&nbsp;billion in the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales</I>. In the fiscal year ended March&nbsp;31, 2004, our net sales increased 5%, or &#165;211.8
billion, to &#165;4,906.8&nbsp;billion as compared with the previous fiscal year. This reflects an increase
in sales of mobile handsets, optical disc drives, and semiconductors mainly for use in mobile
handsets and digital consumer electronics.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;By geographical location of customers, net sales to Japanese customers increased 2% to
&#165;3,730.8&nbsp;billion. This increase was mainly attributable to an increase in the sales of
semiconductors for use in mobile handsets and digital consumer electronics. However, it was
partially offset by business realignment measures implemented in the previous fiscal year in
connection with our printed circuit board and car electronics businesses. Overseas sales increased
by 12% to &#165;1,176.0&nbsp;billion, mainly due to the full-fledged start of shipments of mobile
handsets mainly to European markets and the growth in the sales of optical disc drives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales denominated in foreign currencies in the fiscal year ended March&nbsp;31, 2004, principally,
the U.S. dollar and Euro, were &#165;1,092.2&nbsp;billion, a 10% increase compared with the previous fiscal
year. Consequently, foreign currency denominated sales represented 22% of net sales. Fluctuations
in exchange rates had a negligible effect on earnings, due to a variety of hedging measures to
reduce exchange rate risks such as forward exchange contracts and balancing foreign-currency
denominated sales and procurement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Subsidy Related to Transfer of Substitutional Portion of Employee Pension Fund Liabilities,
Net of Settlement Loss of &#165;138,063 Million. </I>In September&nbsp;2002, NEC and certain subsidiaries in
Japan received the approval of the Japanese government to eliminate future benefit obligations
related to the governmental welfare component, or the substitutional portion, of its contributory
defined benefit pension plans, over which the Japanese government will take responsibility. Upon
the final approval from the Japanese government on December&nbsp;1, 2003 and January&nbsp;1, 2004, with the
transfer to the Japanese government of certain assets of the pension plans on February&nbsp;16, 2004 and
March&nbsp;15, 2004, NEC and certain subsidiaries in Japan were relieved of all past obligations under
the substitutional portion. We accounted for the elimination of future benefits and relief from
past obligations resulting from the transfer of assets as in a single settlement transaction and
recognized a net gain of &#165;8.2&nbsp;billion. See Note 10 to our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Sale or Disposal of Fixed Assets, Net</I>. We have been improving our balance sheet by
realigning our asset portfolio to improve our financial strength through the sale of securities of
diminished significance and sales of property, plant and equipment accompanying the realignment of
our operating facilities. Gain on sale or disposal of fixed assets, net in the fiscal year ended
March&nbsp;31, 2004 was &#165;7.3&nbsp;billion compared with a loss of &#165;7.7&nbsp;billion in the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gains due to Stock Issuances by Subsidiaries</I>. In the fiscal year ended March&nbsp;31, 2004, we
recorded a gain of &#165;53.8&nbsp;billion due to stock issuances by subsidiaries, an increase of &#165;31.7
billion compared to &#165;22.1&nbsp;billion in the previous fiscal year. In the fiscal year ended March&nbsp;31,
2003, we recorded gains of &#165;20.8&nbsp;billion on the initial public offering of NEC Fielding, Ltd., a
consolidated subsidiary. In the fiscal year ended March&nbsp;31, 2004, the increase in gain due to stock
issuances by subsidiaries primarily reflected the initial public offerings by our consolidated
subsidiaries, NEC Electronics Corporation and NEC System Technologies, Ltd. See Note 18 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Sale of Investments in Securities, Net of Loss on Sale and Impairment. </I>Gain on sale of
investments in securities, net of loss on sale and impairment, in the fiscal year ended March&nbsp;31,
2004 was &#165;14.2&nbsp;billion, a decrease of &#165;19.2&nbsp;billion from &#165;33.4&nbsp;billion in the previous fiscal year.
This was mainly due to a decrease in the gain on sale of marketable securities and
other investments.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Cost of Sales</I>. Cost of sales in the fiscal year ended March&nbsp;31, 2004 increased by &#165;170.0
billion to &#165;3,623.0&nbsp;billion as compared with the previous fiscal year. As a percentage of net
sales, cost of sales increased 0.3&nbsp;percentage points to 73.8%. This increase, which partially
offset measures to reduce our costs, was mainly attributable to investments in new technologies,
including digital terrestrial broadcasting systems and JAVA-based application projects, and
investments intended to capture new customers and markets in connection with our IT Solutions
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development Expenses. </I>Research and development expenses decreased by 13% year on
year to &#165;256.7&nbsp;billion, representing 5.2% of net sales. This decrease mainly reflects measures to
decrease the number of research themes and other steps to more efficiently utilize research and
development expenses. See &#147; &#151; Research and Development, Patents and Licenses, etc.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses</I>. Selling, general and administrative expenses in
the fiscal year ended March&nbsp;31, 2004 increased by &#165;27.8&nbsp;billion year-on-year to &#165;852.7&nbsp;billion. As
a percentage of net sales, selling, general and administrative expenses decreased 0.2&nbsp;percentage
points to 17.4%. This decrease was mainly attributable to measures to reduce operating costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restructuring Charges. </I>Restructuring charges decreased by &#165;38.2&nbsp;billion to &#165;17.2&nbsp;billion. This
mainly included charges for workforce reductions and disposal of facilities. See Note 19 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Impairment of Goodwill. </I>We performed the annual impairment test of goodwill in the fourth
quarter of the year ended March&nbsp;31, 2004. Due to intense competition in the European personal
computer market, the forecast for the IT Solutions business in Europe was revised downward.
Primarily as a result of the revised forecast, we recognized an impairment of &#165;23.0&nbsp;billion in the
IT Solutions business. The fair value of that reporting unit was estimated using estimated
discounted net future cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income before Income Taxes</I>. We recorded income before income taxes in the fiscal year ended
March&nbsp;31, 2004 of &#165;160.5&nbsp;billion, an increase of &#165;99.1&nbsp;billion as compared with the previous fiscal
year. This increase was mainly due to a sharp improvement in profitability occasioned by increasing
sales of mobile handsets and the shift to high-value-added products in the semiconductor field, and
the benefits of structural reforms for the purpose of cost reductions. Another contributing factor
was a decrease of &#165;38.2&nbsp;billion in business restructuring expenses, as the structural reforms that
we planned for some of our unprofitable businesses neared completion. See Note 19 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity in Earnings (Losses) of Affiliated Companies</I>. We recorded equity in losses of
affiliated companies in the fiscal year ended March&nbsp;31, 2004 of &#165;17.8&nbsp;billion, an improvement of
&#165;2.7&nbsp;billion. This was mainly attributable to higher net incomes or lower net losses of affiliated
companies involved in manufacturing electronics, information network and measuring equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Provision (Benefit) for Income Tax</I>. At March&nbsp;31, 2004, we had deferred tax assets of &#165;552.6
billion net of valuation allowance of &#165;30.9&nbsp;billion and deferred tax liabilities of &#165;130.9&nbsp;billion.
Major differences between income before income taxes for financial reporting purposes and for
income tax purposes include the utilization of operating loss carryforwards, and the
non-deductibility of certain expenses. See Note 11 to our consolidated financial statements for a
more detailed explanation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, consolidated tax returns were not permitted until the fiscal year ended March&nbsp;31,
2002. Accordingly, NEC and its domestic subsidiaries have filed separate tax returns. For the
fiscal year ended March&nbsp;31, 2003, we were permitted to file and filed a consolidated tax return in
Japan. Japanese income tax regulations permit the carryforwards of tax losses in a Japanese entity
as an offset against its taxable income during the subsequent seven years. Operating loss
carryforwards expire at the end of the seven-year period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our valuation allowance of &#165;30.9&nbsp;billion at March&nbsp;31, 2004 reflected (i) &#165;7.2&nbsp;billion for
deferred tax assets arising from loss carryforwards of certain consolidated subsidiaries and (ii)
&#165;23.7&nbsp;billion mainly for deferred tax assets arising from tax-deductible temporary differences
recorded by subsidiaries in a loss position. At March&nbsp;31, 2004, our operating loss carryforwards of
&#165;191.8&nbsp;billion reflected (i) &#165;110.0&nbsp;billion related to foreign subsidiaries for which deferred tax
assets of &#165;36.9&nbsp;billion and valuation allowance of &#165;4.0&nbsp;billion were recorded and (ii) &#165;81.9
billion related to domestic companies for which deferred tax assets of &#165;46.8&nbsp;billion and valuation
allowance of &#165;3.2&nbsp;billion were recorded. In determining the amount of valuation allowance, we
consider all available evidence. See &#147; &#151; Critical Accounting Policies and Estimates.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Income</I>. Due to the previously mentioned sharp improvement in income before income taxes,
we recorded net income of &#165;41.1&nbsp;billion, turning around the previous fiscal year&#146;s net loss of
&#165;24.6&nbsp;billion. Net income per share was &#165;23.67.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Comprehensive Income (Loss)</I>. We recorded comprehensive income in the fiscal year ended March
31, 2004 of &#165;177.7&nbsp;billion. This reflected the recording of other comprehensive income of &#165;136.6
billion as well as a turnaround in net income. We booked a gain of &#165;116.1&nbsp;billion from the minimum
pension liability adjustment, due mainly to a reduction in pension liabilities from the transfer of
substitutional portion of employee pension fund liabilities, despite the adverse effect of a
reduction in the discount rate for calculating pension benefit obligations. We recorded an
unrealized gain of &#165;38.3&nbsp;billion on marketable securities due to improving market conditions.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Segment Analysis</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth sales and profit by segment for the fiscal years ended March
31, 2003 and 2004:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Billions of yen)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,082.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">2,098.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,576.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,775.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">661.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">679.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(579.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(579.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,677.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,906.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,695.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,906.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment Profit (Loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unallocated corporate expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38.5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40.4</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aggregate segment profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before cumulative effect of accounting change</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41.1</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our electronics business is composed of the IT Solutions business, the Network Solutions
business and the Electron Devices business. Effective from the fiscal year ended March&nbsp;31, 2004,
the leasing business was excluded from our business segments following the conversion of NEC
Leasing, Ltd. into an affiliated company accounted for by the equity method, resulting from the
sale of a portion of our ownership interest in this company in March&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our electronics business recorded sales of &#165;4,906.8&nbsp;billion in the fiscal year ended March&nbsp;31,
2004, an increase of &#165;229.3&nbsp;billion, or 5%, from the previous fiscal year. Total segment profit for
the electronics business in the fiscal year ended March&nbsp;31, 2004 was &#165;182.7&nbsp;billion, an increase of
&#165;68.4&nbsp;billion from the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating results of each segment in the electronics business are presented below. Sales and
segment profit figures for each segment include inter-segment transactions. See Note 22 to our
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>IT Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales </I>. The IT Solutions business recorded sales in the fiscal year ended March&nbsp;31, 2004 of
&#165;2,098.9&nbsp;billion, an increase of 1% year-on-year. Despite continuing lackluster demand for IT
investment in the domestic market, sales of systems integration increased, mainly due to steady
demand from the public sector and steady growth in businesses targeting private-sector demand. On
the other hand, sales of software decreased, partly reflecting the absence of the previous fiscal
year&#146;s large volume orders. In the field of computer platforms, such as servers, sales increased
due to expanded sales volume of optical disc drives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit </I>. Segment profit in the fiscal year ended March&nbsp;31, 2004 was &#165;91.8&nbsp;billion, a
decrease of &#165;14.0&nbsp;billion as compared with the previous fiscal year. Segment profit as a percentage
of sales, decreased from 5.1% to 4.4%. Despite a sharp improvement in the profitability of personal
computers due to the results of structural reforms implemented to date, profitability in the SI
field decreased mainly on account of investments in new technologies, including digital terrestrial
broadcasting systems and JAVA-based application projects, and investments intended to develop new
markets and customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Network Solutions Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales. </I>Sales in the Network Solutions business in the fiscal year ended March&nbsp;31, 2004
increased 13% year-on-year to &#165;1,775.7&nbsp;billion, mainly due to strong sales of mobile handsets.
Sales in the fixed-line communications systems field decreased due to the downsizing of
unprofitable overseas businesses, partially offset by steady demand for investments in IP-based
networks in the domestic enterprises market. Mobile handset sales increased, mainly due to higher
domestic mobile handset shipments and the full-fledged commencement of mobile handset shipments to
overseas markets mainly in Europe.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit. </I>Segment profit in the fiscal year ended March&nbsp;31, 2004 improved by &#165;33.6
billion to &#165;67.9&nbsp;billion. This improvement mainly reflected an increase in shipments in mobile
handsets and improved profitability, particularly in the fixed-line communications systems field,
as a result of structural reforms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Electron Devices Business</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales</I>. Sales in the Electron Devices business in the fiscal year ended March&nbsp;31, 2004 were
&#165;932.2&nbsp;billion, almost unchanged from the fiscal year ended March&nbsp;31, 2003. In the semiconductor
field, sales of semiconductors increased as a whole reflecting brisk sales of semiconductors mainly
for use in digital consumer electronics and mobile handsets, despite the decrease in sales due to
the transfer of DRAM production to Elpida Memory, which is an affiliated company accounted for by
the equity method. In the display field, sales increased due to rapid growth in the plasma display
market, despite the downsizing of the production of unprofitable color LCD products. Sales of
electronic components and others decreased due to business restructuring measures implemented in
the fiscal year ended March&nbsp;31, 2003 in operations such as the printed circuit board and the car
electronics, despite strong sales in the electronic components business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit (Loss)</I>. Segment profit improved by &#165;56.6&nbsp;billion to &#165;54.3&nbsp;billion from the
previous year&#146;s loss. This improvement mainly reflected the shift to high-value-added products,
improvement in productivity, and reduction in materials costs in the semiconductor field, and
improved profitability due to the results of structural reforms in the display field and the
electronic components and others field.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B><I>Others</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales</I>. The others segment includes the manufacture and sale of semiconductor manufacturing
equipment, avionics equipment, and LCD projectors as well as information and network system
construction services. Sales in this segment were &#165;679.9&nbsp;billion, an increase of &#165;18.2&nbsp;billion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Segment Profit</I>. Segment profit decreased by &#165;4.1&nbsp;billion to &#165;10.7&nbsp;billion.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>B. Liquidity and Capital Resources.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Basic Liquidity Management Policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our basic liquidity management policy is to maintain the sum of cash and cash equivalents and
committed credit facilities with financial institutions at a level equivalent to approximately 2
months of net sales. Committed credit facilities mean facilities committed by financial
institutions under which loans will be made on a request basis to the extent of agreed amount under
certain terms and conditions. Cash and cash equivalents, together with committed credit facilities
established with financial institutions, were &#165;994.3&nbsp;billion at March&nbsp;31, 2005. This included cash
and cash equivalents of &#165;494.3&nbsp;billion and the unused portion of &#165;500.0&nbsp;billion of total long-term
and short-term committed credit facilities of &#165;520.0&nbsp;billion. This is equivalent to roughly 2.5
times average monthly sales in the fiscal year ended March&nbsp;31, 2005. This level mainly reflected
our policy of retaining a more-than-adequate supply of cash and cash equivalents largely to cope
with any rapidly arising capital-expenditure needs in the semiconductor business, and ensuring
flexible financial strategies. To this end, we retain committed credit facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents are mainly denominated in yen as well as other denominations that
include U.S. dollars and Euros.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain credit facilities that we believe are sufficient to meet our short- and long-term
funding needs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With regard to short-term financing, we rely primarily on commercial paper, or CP, in Japan to
provide short-term financing for operating purposes. We have a &#165;550.0&nbsp;billion CP program. To
prepare for unexpected short-term funding needs or instability in fund procurement through the
issue of CP, we maintain committed credit facilities of &#165;420.0&nbsp;billion to ensure that funds may be
borrowed from financial institutions at all times. Of this amount, &#165;100.0&nbsp;billion represents a
committed credit facility with a contract period effective from March&nbsp;2003 through March&nbsp;2006 that
enables us to obtain short-term loans. This committed credit facility contains a clause that will
revoke the facility in the event that our rating (given by Rating and Investment Information, Inc.)
is downgraded by 5 notches, from A at present to BB&#043; or lower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With regard to long-term financing, we have a &#165;300.0&nbsp;billion straight bond issuance program in
Japan. In addition to the above, NEC and our U.K. financial subsidiary also jointly have a
medium-term note, or MTN, program with a program limit of $2,000&nbsp;million to flexibly meet medium-
and long-term funding needs worldwide.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended March&nbsp;31, 2005, we established a committed credit facility of &#165;100.0
billion to ensure that we can meet long-term funding requirements that may arise in the near
future. During the contracted period over the next three years, this credit facility will give us a
framework for flexibly taking out long-term loans with terms of up to eight years. This long-term
committed credit facility contains a clause that will revoke the facility in the event that our
rating (given by Rating and Investment Information, Inc.) is downgraded by 5 notches, from A at
present to BB&#043; or lower.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the fiscal year ended March&nbsp;31, 2005, we did not procure funds through the issuance of new
shares or bonds. However, during the same fiscal year, NEC Electronics Corporation, which is a
consolidated subsidiary, issued bonds with stock acquisition rights to procure &#165;110.0&nbsp;billion.
These funds will be used to finance flexible investments in new facilities in support of sales and
earnings growth over the medium and long terms, and will be used for the partial repayment of
interest-bearing debt, and to provide working capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our basic policy regarding the structure of liabilities on our balance sheets is to maintain a
balanced mix of fund procurement from debt and capital market instruments, while securing adequate
long-term funds, from the standpoint of satisfying funding requirements in a stable manner.
</DIV>
<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px" valign="bottom">
    <TD nowrap align="left" colspan="9" style="border-bottom: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">As of March 31</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Long-term fund procurement*1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69%</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">68%</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Use of capital market instruments*2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">70%</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">74%</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD colspan="9" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">*1 Long-term fund procurement is calculated by dividing the sum of bonds and long-term debt by
interest-bearing debt.<BR>
*2 Use of capital market instruments is calculated by dividing bonds and CPs by interest-bearing
debt.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, long-term fund procurement accounted for 68% of total funds procured,
while the use of capital market instruments accounted for 74% of total funding. Short-term
borrowings include loans from banks and insurance companies, and the average interest rate for the
fiscal year ended March&nbsp;31, 2005 was 0.49%. Long-term debt includes secured or unsecured
floating-interest loans from banks and insurance companies, straight bonds and convertible bonds
with fixed interest rates. There are no limitations on the use of these funds.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cash Flows</B>
</DIV>

<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10">(Billions of yen)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net Cash Provided by (Used in):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">247.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">328.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">164.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(122.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(262.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102.8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash
equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(33.4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">152.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(2.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents at the end of the fiscal year ended March&nbsp;31, 2005 were &#165;494.3
billion, a decrease of &#165;2.5&nbsp;billion from the previous fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities in the fiscal year ended March&nbsp;31, 2005 was &#165;164.6
billion, &#165;163.9&nbsp;billion less than in the previous fiscal year. This mainly reflected an increase in
the payments of notes and accounts payable, primarily in line with increased procurement of raw
materials from overseas suppliers requiring shorter payment periods. Depreciation fell &#165;12.2
billion to &#165;166.5&nbsp;billion, primarily reflecting the leasing of facilities and the sale of property,
plant and equipment accompanying the realignment of our network of operating bases, despite an
increase of &#165;43.8&nbsp;billion in capital expenditures.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities in the fiscal year ended March&nbsp;31, 2005 was &#165;122.5
billion, &#165;53.4&nbsp;billion higher than in the previous fiscal year, due mainly to tender offers made
for shares of NEC Soft, Ltd. and NEC System Technologies, Ltd. in the fiscal year ended March&nbsp;31,
2005, as well as an investment in ABeam Consulting, Ltd. This increase also reflected the absence
of the previous fiscal year&#146;s net proceeds from the sale of shares in affiliates in connection with
the listing of subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities was &#165;50.3&nbsp;billion. The main uses of cash were for the
redemption of bonds and dividends paid, which were partly offset by proceeds from the issuance of
bonds with stock acquisition rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, note and accounts receivable, trade, was &#165;916.6&nbsp;billion while notes and
accounts payable, trade, was &#165;847.6&nbsp;billion. Accounts receivable turnover, the ratio of notes and
accounts receivable, trade, to average daily net sales, was 69&nbsp;days. Accounts payable turnover, the
ratio of notes and accounts payable, trade, to average daily cost of sales, was 85&nbsp;days. For the
purpose of diversifying fund procurement methods and streamlining our balance sheets, NEC has
several securitization programs under which certain trade receivables are sold without recourse to
special purpose entities (see Note 16 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our main future funding requirements are working capital, capital expenditures and debt
repayments. We believe that long- and short-term credit facilities and cash flows from operating
activities are sufficient to meet these funding requirements in the fiscal year ending March&nbsp;31,
2006. However, in the event that cash flows from operating activities fall below projections, we
may be required to take out additional borrowings or issue shares or other securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Ratings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, NEC&#146;s short-term credit rating was a-1 (Rating and Investment
Information, Inc.), P-2 (Moody&#146;s Investors Service) and A-2 (Standard and Poor&#146;s Rating Services)
and our long-term credit ratings were A (Rating and Investment Information, Inc.), Baa1 (Moody&#146;s
Investors Service) and BBB (Standard and Poor&#146;s Rating Services). In December&nbsp;2004, our long-term
credit rating from Moody&#146;s Investors Service was raised from Baa2 to Baa1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Cash Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We centralize the management of funds worldwide through the use of cash management systems, or
CMS, in Japan and overseas. These systems facilitate the efficient use of funds and reduction of
interest-bearing debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, NEC centrally manages funding shortfalls and surpluses at major domestic
consolidated subsidiaries using a CMS, and is responsible for operating the system and carrying out
fund raising activities. Overseas, several financial subsidiaries covering the regions under their
charge operate CMS, managing cash at consolidated subsidiaries in a similar manner as in Japan.
Cash surpluses at overseas financial subsidiaries are centralized in NEC to coordinate the
allocation of resources on a global scale.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC Electronics Corporation and its consolidated subsidiaries separately operate their own CMS
so as to efficiently use funds throughout the group in Japan and overseas.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Assets, Liabilities, and Shareholders&#146; Equity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets at the end of fiscal year ended March&nbsp;31, 2005 were &#165;3,940.7&nbsp;billion, a decrease
of &#165;103.7&nbsp;billion from the previous fiscal year-end. This mainly reflected decreases in property,
plant and equipment primarily due to the transfer of operations and sale of fixed assets, as well
as lower current assets from a decline in inventories due to strengthening company-wide project
management and the promotion of production innovation activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current assets at the end of fiscal year ended March&nbsp;31, 2005 were &#165;2,081.6&nbsp;billion, a
decrease of &#165;48.2&nbsp;billion compared with the previous fiscal year-end. Notes and accounts
receivable, trade, net of the allowance for doubtful notes and accounts, increased &#165;61.0&nbsp;billion to
&#165;901.7&nbsp;billion mainly due to a decrease in sales of the trade receivables based on our
securitization programs compared with the previous fiscal year-end. Inventories decreased &#165;41.1
billion to &#165;528.9&nbsp;billion, due to production innovation measures and stronger project management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Investments and long-term receivables decreased by &#165;27.9&nbsp;billion to &#165;423.4&nbsp;billion. This
mainly reflected a decline of &#165;42.4&nbsp;billion in marketable securities due to the transfer of
marketable securities to the pension trust and sale of marketable securities, partly offset by an
increase of &#165;22.4&nbsp;billion in investments in affiliated companies accounted for by the equity method
in step with an improvement in equity in earnings (losses)&nbsp;of affiliated companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment was &#165;726.4&nbsp;billion, decreased by &#165;43.8&nbsp;billion from the previous
fiscal year-end. The main reasons for the decrease were the sale of the plasma display business and
the sale of semiconductor-related equipment to Hiroshima Elpida Memory, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets were &#165;709.3&nbsp;billion, an increase of &#165;16.3&nbsp;billion from the previous fiscal
year-end. This was mainly attributable to an increase of &#165;35.9&nbsp;billion in goodwill reflecting
tender offers for shares in NEC Soft, Ltd. and NEC System Technologies, Ltd. and an investment in
ABeam Consulting Ltd., partly offset by a decrease of &#165;14.8&nbsp;billion in long-term deferred tax
assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current and long-term liabilities as of the end of fiscal year ended March&nbsp;31, 2005 decreased
by &#165;189.3&nbsp;billion to &#165;2,922.2&nbsp;billion. Of this amount, interest-bearing debt, the sum of short-term
borrowings, the current portion of long-term debt and long-term debt, decreased by &#165;14.8&nbsp;billion
from the end of the previous fiscal year to &#165;1,156.2&nbsp;billion. This reflected continuous efforts to
reduce interest-bearing debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued pension and severance costs decreased by &#165;99.7&nbsp;billion to &#165;425.2&nbsp;billion as compared
with the end of the previous fiscal year. This was primarily due to transfer of marketable
securities to the pension trust and a decrease in unrecognized benefit obligations mainly through
the transfer of the substitutional portion of employee pension fund liabilities at certain
consolidated subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, shareholders&#146; equity had increased &#165;82.8&nbsp;billion to &#165;794.3&nbsp;billion. This
mainly mirrored net income of &#165;67.9&nbsp;billion, along with an improvement of &#165;25.4&nbsp;billion in
accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss)&nbsp;is the
sum of foreign currency translation adjustments, minimum pension liability adjustments, unrealized
gains (losses)&nbsp;on marketable securities and unrealized gains (losses)&nbsp;on derivative financial
instruments. The improvement in accumulated other comprehensive income (loss)&nbsp;was mainly due to an
improvement of &#165;28.9&nbsp;billion in the minimum pension liability adjustment as compared with the end
of the previous fiscal year, due mainly to the recording of pension and severance cost, in addition
to the transfer of the substitutional portion of employee pension fund liabilities at certain
consolidated subsidiaries. As a result, the shareholders&#146; equity ratio at the end of fiscal year
ended March&nbsp;31, 2005 increased to 20.2% from 17.6% at the end of the previous fiscal year.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>C. Research and Development, Patents and Licenses, etc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the establishment of our first research laboratory in 1939, we have consistently
recognized that our R&#038;D activities are a critical component of our success. We will therefore
continue to devote significant financial, personnel and other resources to R&#038;D efforts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R&#038;D expenses for the fiscal years ended 2003, 2004 and 2005 are shown in the table below:
</DIV>
<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000">Year ended March 31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2005</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10">(Billions of yen)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">R&#038;D expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">296.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">256.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">275.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">As a percentage of net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.3%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.2%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">5.7%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R&#038;D expenses in the fiscal year ended March&nbsp;31, 2005 increased 7% year on year. R&#038;D expenses
in the fiscal year ended March&nbsp;31, 2005 at the IT Solutions business, the Network Solutions
business and the Electron Devices business and others were &#165;46.2&nbsp;billion, &#165;84.1&nbsp;billion, &#165;113.5
billion, and &#165;31.5&nbsp;billion, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct R&#038;D activities at the research and development division and at the individual
business units, which collaborate closely with each other.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business units conduct product and technology development at their own respective
divisions. The activities of each of these business units are closely related to their operating
activities and targeted markets. The research and development division collaborates closely with
each of these business units in product and technology development activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The research and development division conducts medium and long-term R&#038;D activities to develop
fundamental technologies that will form the basis for our future operations, in addition to new
technologies that will significantly expand the operations of each business unit. These activities
take place in various specialized laboratories located in Japan, the United States of America,
Europe and China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct R&#038;D activities in the areas of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Solutions and computer platform focused on e-commerce application platforms and
mission-critical systems</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Broadband network systems and network solutions focused on mobile communications systems
such as mobile handsets and third and fourth-generation mobile communications systems</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Integrated IT and network systems and its platform</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Semiconductor devices, particularly system LSIs</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fundamental research in technologies needed to create new businesses, such as
nanotechnology, biology and IT convergence technologies, and quantum IT</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;R&#038;D highlights during the fiscal year ended March&nbsp;31, 2005 include the following examples:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Development of Software to Prevent Leaking of Information by Company Insiders</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As the importance of effective information security countermeasures against information
leakage, cyber-attacks and other similar issues has been increasing, especially due to the
enactment of the Personal Information Protection Act of Japan, which became fully effective from
April&nbsp;1, 2005, NEC has developed software products to prevent information leakage by company
insiders. The main functions of nearly all existing information security countermeasure products
are limited to access control and encryption of customer information and other confidential data.
NEC&#146;s new software has a function that prevents intentional leakage of information by a company&#146;s
insiders. The new software controls the removal of confidential data filed on a particular server,
and it can further reduce the risk of information leakage by combining this function with
encryption technologies or a function to monitor and trace operational records for data that is
allowed to be transferred. NEC intends to continue developing these software products to enhance
the level of sophistication and enable them to work cooperatively with integrated management
systems for various software applications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Development of Linux OS based Software Platform for 3G Mobile Phones</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC, Panasonic Mobile Communications Co., Ltd. and NTT DoCoMo, Inc. have jointly developed a
Linux OS based software platform for 3G mobile phones. In the future, in addition to the functions
such as videophone and music playback, 3G mobile phones are expected to be equipped with additional
functions such as receivers for terrestrial digital TV broadcasting. While application software is
necessary to realize those functions, the development volume of the application software is
increasing, as a result that mobile phones&#146; features are getting richer. A software platform,
which enables the fundamental parts of such application software to be shared, is effective in
developing such application software efficiently. Since the newly-developed software platform is
based on Linux OS, which is a feature-rich and versatile open source software, NEC believes that
development costs for application software can be reduced by using the software platform. Further,
the stable operational environment of this application software promotes the development of
versatile application software.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Development of Mobile Phone Application Processor with Parallel Processing Capabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC and NEC Electronics Corporation, a subsidiary of NEC, have jointly developed an
application processor for mobile phones with three internal CPU (central processing unit) cores.
Since application software for feature-rich, multi-function mobile phones are expected to be
increasingly complex and plentiful, it is important to improve the processing capability of the
application processor necessary for operating such application software. Although to date most
application processors for mobile phones have used a single CPU, such processors had higher
power-consumption levels as a result of their higher processing capabilities, which in turn reduced
a mobile phone&#146;s talk time and standby time. Through the development of software which enables
parallel processing of multiple CPUs, the newly-developed application processor can successfully
operate on three CPUs in parallel. This application processor enables the allocation of tasks to
the most appropriate CPU for each utilized application software, and the efficient operation of
such CPUs enable mobile phones using such application software to simultaneously offer both
multiple high-performance features and low power consumption.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Development of a Device that Converts Optical Signals to Electronic Signals within a LSI Chip
at High Modulation Speed</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since the total amount of data processed by electronic devices is increasing, the development
of a high-speed photodiode (light detector) enabling mass-volume signal transmission between
electronic circuits within a LSI chip is in progress. NEC has realized a key technology that
enables high-speed operation of silicon-based photodiode. Although silicon-based photodiode can be
manufactured at relatively low cost, a high-speed operation with more than 1GHz modulation has been
difficult. On the other hand, when germanium or other materials are used to increase operation
speed, its manufacturing process becomes more complex, resulting in higher cost. In NEC&#146;s novel
photodiode featuring new key-technology, high-speed operation at 20GHz becomes possible even when
using a silicon device, which has the same speed as a photodiode utilizing germanium. Using this
technology, electronic devices are expected to feature increased speed and performance at a lower
cost.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>D. Trend Information.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See the discussion in &#147;A. Operating Results&#151; Major Measures and Results of the Year under
Review and Future Growth Initiatives&#148; and &#147;Results of Operations.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>E. Off-Balance Sheet Arrangements.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into various arrangements not reflected on our balance sheets that have or are
reasonably likely to have a current or future effect on our financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital resources. These
include guarantees, securitization of receivables, and variable interest entities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Guarantees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our guarantees are provided in the ordinary course of business. We underwrite these guarantees
considering the economic, liquidity and credit risk of the counterparty. We have guaranteed certain
loans of our employees and affiliated companies, as well as financial arrangements for customers.
Certain of these guarantees were secured by guarantees issued to us by other parties. We have
issued residual value guarantees in connection with various operating leases. As of March&nbsp;31, 2005,
maximum potential future payments and collateral related to guarantees were &#165;64.4&nbsp;billion and &#165;1.1
billion, respectively. We do not expect these guarantees to have a material adverse effect on our
financial position or results of operations (see Note 21 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Securitization of receivables</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have several securitization programs under which certain trade receivables are sold,
without recourse, to special purpose entities, or SPEs. Simultaneously, the SPEs sell an interest
in those receivables to large financial institutions. In certain securitizations, we have retained
a subordinated interest. Under a certain securitization program in Japan, we sell on an ongoing
basis all applicable trade receivables, and retain all amounts in excess of our financing needs. As
a result, the balance of retained interests varies regardless of the risk of credit loss on the
trade receivables (see Note 16 to our Consolidated Financial Statements).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Variable interest entities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use several special purpose entities through which we lease equipment to overseas
customers. The entities are considered variable interest entities in accordance with FASB
Interpretation No.&nbsp;46 (revised 2003). Although we provide financial support, including guarantees,
to these entities and holds significant variable interests in them, we are not the primary
beneficiary. Total assets held by the entities at March&nbsp;31, 2005 were &#165;75.9&nbsp;billion. Our maximum
exposure to loss would be &#165;4.4&nbsp;billion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>F. Tabular Disclosure of Contractual Obligations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The status of contractual obligations as of March&nbsp;31, 2005, was as follows.
</DIV>
<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000">Payments due by period</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Total</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Less than 1 year</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">1-3 years</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">3-5 years</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">5&#043; years</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="18">(Billions of yen)</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt
excluding capital
leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;903.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;127.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;305.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;241.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">230.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,068.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;166.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;357.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;272.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">272.6</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Commitments for contractual obligations on the purchase of property, plant and equipment were
&#165;20.2&nbsp;billion and will be paid within approximately one year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The balance of guarantees, excluding guarantees for employees (maximum guarantee period: 19
years) was &#165;44.5&nbsp;billion. Guarantees with periods less than 1&nbsp;year, 1 to 3&nbsp;years, 3 to 5&nbsp;years and
5&nbsp;years or more were &#165;14.4&nbsp;billion, &#165;5.1&nbsp;billion, &#165;23.2&nbsp;billion and &#165;1.8&nbsp;billion, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>G. Safe Harbor.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See discussion under &#147;Forward-Looking Statements.&#148;
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>A. Directors and Senior Management.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Set forth below are the members of the board of directors and corporate auditors of NEC as of
June&nbsp;22, 2005, together with their respective dates of birth, positions, and remaining length of
term of office as director or corporate auditor. All members of the board mentioned below, except
for Toshio Morikawa, Advisor to Sumitomo Mitsui Banking Corporation, Koichi Kimura, Advisor to
Daiwa Institute of Research Ltd., and Akira Uehara, President of Taisho Pharmaceutical Co., Ltd.,
are also corporate officers of NEC.
</DIV>
<DIV align="left">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date of Birth</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Term Expires</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hajime Sasaki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">April&nbsp;6, 1936
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board (Representative Director)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Akinobu Kanasugi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">April&nbsp;17, 1941
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Member of the Board (Representative Director)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kaoru Yano
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;23, 1944
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Executive Vice President and Member of the Board
(Representative Director)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshiro Kawamura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;7, 1942
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Executive Vice President and Member of the Board
(Representative Director)</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kazuhiko Kobayashi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;30, 1943
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kazumasa Fujie
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;18, 1944
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shunichi Suzuki
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;20, 1945
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Executive Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tsutomu Nakamura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;12, 1948
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Konosuke Kashima
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January&nbsp;30, 1946
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Yasuo Matoi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;26, 1944
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Iwao Fuchigami
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;4, 1946
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Saburo Takizawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;27, 1948
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Senior Vice President and Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Toshio Morikawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;3, 1933
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Koichi Kimura
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">January&nbsp;6, 1936
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Akira Uehara
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">April&nbsp;5, 1941
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2006
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shigeo Matsumoto
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;29, 1940
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2008
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hiroshi Takakuta
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July&nbsp;30, 1942
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2009
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tsuneo Kabe
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">March&nbsp;9, 1927
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2008
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shinichi Yokoyama
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">September&nbsp;10, 1942
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2007
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Muneo Shigematsu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February&nbsp;9, 1941
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June&nbsp;2008
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Corporate Auditor</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Board members and corporate auditors may be contacted through NEC&#146;s headquarters: c/o NEC
Corporation, 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a brief biography of each of NEC&#146;s board members, most of whom are also
corporate officers, and corporate auditors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hajime Sasaki </I>has been the Chairman of the Board since March&nbsp;1999. Mr.&nbsp;Sasaki served as Senior
Executive Vice President from June&nbsp;1996 until March&nbsp;1999 and has been a member of the board since
June&nbsp;1988.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Akinobu Kanasugi </I>became the President in March&nbsp;2003<I>. </I>Mr.&nbsp;Kanasugi served as Executive Vice
President from June&nbsp;2000 to March&nbsp;2003 and as Company President of NEC Solutions from April&nbsp;2000 to
April&nbsp;2003. He has been a member of the board since June&nbsp;1995.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Kaoru Yano </I>has been a Senior Executive Vice President since June&nbsp;2004. Mr.&nbsp;Yano has been a
member of the board since June&nbsp;1995 and served as Executive Vice President from October&nbsp;2002 to
June&nbsp;2004. He was also the Company President of NEC Networks from April&nbsp;2002 to April&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Toshiro Kawamura </I>has been a Senior Executive Vice President and member of the board since June
2004. Mr.&nbsp;Kawamura was a member of the board from June&nbsp;1996 to April&nbsp;2000. He served as Senior Vice
President from April&nbsp;2000 to June&nbsp;2001, as Senior Vice President and a member of the board from
June&nbsp;2001 to April&nbsp;2003, and as Executive Vice President and member of the board from April&nbsp;2003 to
June&nbsp;2004. He was also the Company Deputy President of NEC Solutions from June&nbsp;2001 to April&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Kazuhiko Kobayashi </I>has been an Executive Vice President since April&nbsp;2005 and a member of the
board since June&nbsp;2004. After resigning from the board of directors when NEC reduced the number of
board members by approximately half in April&nbsp;2000, Mr.&nbsp;Kobayashi served as Senior Vice President
until July&nbsp;2003, as Executive Vice President until June&nbsp;2004, and then as Senior Vice President
until April&nbsp;2005. He also served as Company Deputy President of NEC Solutions from April&nbsp;2002 until
April&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Kazumasa Fujie </I>has been an Executive Vice President since April&nbsp;2005 and a member of the board
since June&nbsp;2003. After resigning from the board of directors when NEC reduced the number of board
members by approximately half in April&nbsp;2000, Mr.&nbsp;Fujie served as Senior Vice President until April
2005. He also served as Company Deputy President of NEC Networks from April&nbsp;2002 until April&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Shunichi Suzuki </I>has been an Executive Vice President since April&nbsp;2005 and a member of the
board since June&nbsp;2002. Mr.&nbsp;Suzuki served as Associate Senior Vice President from April&nbsp;2000 until
June&nbsp;2002, and then as Senior Vice President until April&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tsutomu Nakamura </I>has been a Senior Vice President and member of the board since June&nbsp;2002. Mr.
Nakamura served as Associate Senior Vice President from June&nbsp;2000 until April&nbsp;2002 and then served
as Senior Vice President until June&nbsp;2002. He also served as Company Deputy President of NEC
Networks from April&nbsp;2002 until April&nbsp;2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Konosuke Kashima </I>has been a Senior Vice President and member of the board since June&nbsp;2004. Mr.
Kashima served as Senior Vice President from October&nbsp;2002 until June&nbsp;2004, when he was elected to
his current position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Yasuo Matoi </I>has been a Senior Vice President and member of the board since June&nbsp;2004. Mr.
Matoi served as Senior Vice President from April&nbsp;2004 until June&nbsp;2004, when he was elected to his
current position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Iwao Fuchigami </I>has been a Senior Vice President and member of the board since June&nbsp;2004. Mr.
Fuchigami served as Senior Vice President from April&nbsp;2004 until June&nbsp;2004, when he was elected to
his current position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Saburo Takizawa </I>has been a Senior Vice President and member of the board since June&nbsp;2004. Mr.
Takizawa served as Senior Vice President from April&nbsp;2004 until June&nbsp;2004, when he was elected to
his current position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Toshio Morikawa </I>has been a member of the board since June&nbsp;2000. Mr.&nbsp;Morikawa was the Chairman
of the Board of The Sumitomo Bank, Ltd. from June&nbsp;1997 to March&nbsp;2001, and currently is an Advisor
(<I>Meiyo Komon</I>) to Sumitomo Mitsui Banking Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Koichi Kimura </I>has been a member of the board since June&nbsp;2001. Mr.&nbsp;Kimura served as Vice
Chairman of Daiwa Institute of Research Ltd. from October&nbsp;1998 until June&nbsp;2000, and currently is an
Advisor to Daiwa Institute of Research Ltd.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Akira Uehara </I>has been a member of the board since June&nbsp;2002. Mr.&nbsp;Uehara has been the President
of Taisho Pharmaceutical Co., Ltd. since June&nbsp;1982.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Shigeo Matsumoto </I>has been a corporate auditor since June&nbsp;2004. Mr.&nbsp;Matsumoto was a member of
the board from June&nbsp;1991 until June&nbsp;2004. Mr.&nbsp;Matsumoto served as an Executive Vice President from
June&nbsp;1999 until June&nbsp;2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Hiroshi Takakuta </I>was elected to his current position as Corporate Auditor in June&nbsp;2005. Mr.
Takakuta served as Executive Vice President from July&nbsp;2003 until April&nbsp;2005 and then as Advisor
until June&nbsp;2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tsuneo Kabe </I>has been a corporate auditor since June&nbsp;2001. Mr.&nbsp;Kabe was appointed as a justice
of the Supreme Court of Japan from May&nbsp;1990 until he retired in March&nbsp;1997. Mr.&nbsp;Kabe is currently
an attorney at law of Ishizawa, K&#244; &#038; Sato.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Shinichi Yokoyama </I>has been a corporate auditor since June&nbsp;2003. Mr.&nbsp;Yokoyama served as
President and as President and Chief Executive Officer of Sumitomo Life Insurance Company,
respectively, from July&nbsp;2001 to April&nbsp;2002 and from April&nbsp;2002 to the present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Muneo Shigematsu </I>has been a corporate auditor since June&nbsp;2004. Mr.&nbsp;Shigematsu served as a
member of the board and Executive Vice President of The Seiyu, Ltd. from October&nbsp;2002 to March&nbsp;2004
and as a member of the board and Nominating Committee of The Seiyu, Ltd. from March&nbsp;2004 to the
present.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No family relationship exists among any of NEC&#146;s board members, corporate officers, and
corporate auditors. We do not have any arrangement or understanding with major shareholders,
customers, suppliers, or others pursuant to which any member of NEC&#146;s board was elected to his
position at NEC.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>B. Compensation.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the fiscal year ended March&nbsp;31, 2005, NEC and its subsidiaries paid NEC&#146;s board members an
aggregate compensation, including bonuses and retirement payments, of &#165;925&nbsp;million and NEC&#146;s
corporate auditors an aggregate compensation of &#165;87&nbsp;million. None of the board members or corporate
auditors received any benefits in kind.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with applicable Japanese laws and customary Japanese business practices,
retiring board members and corporate auditors of NEC receive lump-sum retirement payments, which
are subject to approval of ordinary general meeting of shareholders. NEC does not set aside
reserves for such retirement payments. For the fiscal year ended March&nbsp;31, 2005, NEC paid &#165;326
million in retirement payments to retiring board members and corporate auditors of NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For information on NEC&#146;s stock option plans, see &#147; E. Share Ownership &#151; Stock Option Plan.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>C. Board Practices.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Term</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of NEC&#146;s board members and corporate auditors are elected by a general meeting of
shareholders. The regular term of office of a board member is one year. The regular term of office
of corporate auditors is four years. Board members and corporate auditors may serve any number of
consecutive terms. There is no regular term of office for corporate officers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For additional information on terms, see &#147; A. Directors and Senior Management <I>. </I>&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Board of Directors and Corporate Auditors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s articles of incorporation provide for a board of directors of not more than 20 members,
and for not more than five corporate auditors. Board members and corporate auditors may be removed
from office at any time by a resolution of a general meeting of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2000, NEC introduced a new corporate officer system in order to facilitate efficient
and more responsive decision-making and draw clearer lines of responsibility, and NEC reduced the
number of NEC&#146;s board members by approximately half. Accordingly, in June&nbsp;2005, the maximum number
of directors as provided for in NEC&#146;s articles of incorporation was reduced from 40 to 20.
Currently, NEC has 15 board members.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate officers have the responsibility to manage NEC&#146;s business operations. The board
members oversee the corporate officers and set fundamental strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors has the ultimate responsibility for the administration of NEC&#146;s
affairs. The board of directors designates by resolution, from among its members, representative
directors who generally have the authority to individually represent NEC in the conduct of its
affairs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, board members must refrain from engaging in any business that is in
competition with NEC unless approved by a board resolution, and no board member may vote on a
proposal, arrangement, or contract in which that board member is deemed to be materially
interested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Commercial Code nor NEC&#146;s articles of incorporation contain provisions relating to
the retirement age of NEC&#146;s board members and corporate auditors, or to a requirement of NEC&#146;s
board members and corporate auditors to hold any shares of NEC&#146;s capital stock. In accordance with
Japanese practice, when a board member or corporate auditor retires, a proposal to pay a retirement
allowance is submitted to a general meeting of shareholders for approval. The amount of the
retirement allowance generally reflects the position of the board member or corporate auditor, as
the case may be, at the time of his or her retirement, length of service as a board member or
corporate auditor, as the case may be, and contribution to NEC&#146;s operations. NEC has a retirement
plan for NEC&#146;s board members, corporate auditors, and employees. There are no service contracts
between any of NEC board member and NEC or any of its subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code requires a resolution of the board of directors for a company to acquire
or dispose of material assets, to borrow substantial amounts of money, to employ or discharge
important employees such as corporate officers, and to establish, change, or abolish material
corporate organizations such as a branch office.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the Commercial Code and NEC&#146;s articles of incorporation, NEC has entered into a
liability limitation agreement with outside directors which limits the maximum amount of their
liability for damages arising from actions stipulated in Item&nbsp;5 of Paragraph&nbsp;1, Article&nbsp;266 of the
Commercial Code to the higher of either a fixed amount which is not less than &#165;15,000,000 or the
amount stipulated by the Commercial Code, provided that such directors acted in good faith and
without gross negligence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Corporate auditors are not required to be and are not certified public accountants. At least
one corporate auditor must be a person who has not been a board member or employee of NEC or any of
its subsidiaries during the five-year period prior to his or her election as a corporate auditor.
After the conclusion of the ordinary general meeting of shareholders to be held with respect to the
first fiscal year ending on or after May&nbsp;1, 2005, at least half of NEC&#146;s corporate auditors must be
persons who have not been board members or employees of NEC or any of its subsidiaries. A corporate
auditor may not simultaneously be a board member or an employee of NEC or any of its subsidiaries.
Corporate auditors have the statutory duty to examine NEC&#146;s consolidated and non-consolidated
financial statements and the business reports which are made available by the board of directors at
the general meetings of shareholders and, based on such examination, to report their opinions to
shareholders. They also have the statutory duty to supervise the administration by the board
members of NEC&#146;s affairs. Corporate auditors are obligated to attend the meetings of the board of
directors but are not entitled to vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate auditors constitute the board of corporate auditors. Under the Commercial Code
and the Law Concerning Special Measures to the Commercial Code with Respect to Audit, etc. of
Corporations of Japan, the board of corporate auditors has a statutory duty to prepare
and submit its audit report to the board of directors each year. A corporate auditor may note an
opinion in the audit report if his or her opinion differs from the opinion expressed in the audit
report. The board of corporate auditors is empowered to establish audit principles, the method of
examination by corporate auditors of NEC&#146;s affairs and financial position, and other matters
concerning the performance of the duties of corporate auditors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For additional information on terms, see &#147; A. Directors and Senior Management <I>. </I>&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <I>Exemption from the NASDAQ Rules</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to home country practices exemptions granted by the National Association of
Securities Dealers Automated Quotations, or the NASDAQ, NEC is permitted to follow the following
corporate governance practices complying with Japanese laws, regulations and stock exchange rules
in lieu of NASDAQ Corporate Governance Rules, or the NASDAQ Rules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Independent Directors</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Rule 4350(c) requires a majority of the board of directors of NEC to be comprised of
independent directors and additionally requires the independent directors to have regularly
scheduled meetings at which only independent directors are present. Under the Commercial Code and
related legislation, there is no position which is the exact equivalent of an &#147;independent&#148;
director within the meaning given by the NASDAQ Rules. Instead, the Commercial Code sets forth the
legal concept of &#147;outside&#148; directors. Under the Commercial Code, an &#147;outside&#148; director is defined
as a director who does not engage in the execution of business operations of the company and who
(i)&nbsp;has never been a director responsible for the execution of business operations, a corporate
executive officer, a company manager, or other employee of the company or any of its subsidiaries,
and (ii)&nbsp;is not a director responsible for the execution of business operations or corporate
executive officer of any subsidiary of the company, and (iii)&nbsp;is not a company manager or other
employee of the company or any of its subsidiaries. Under Japanese law, a director&#146;s status as an
&#147;outside&#148; director is unaffected by the director&#146;s compensation, his or her affiliation with
business partners, or the board&#146;s affirmative determination of independence. Conversely, under
Japanese law, a director who has previously served as a director responsible for the execution of
business operations, corporate executive officer, or other employee of the company or its
subsidiaries is not an &#147;outside&#148; director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, the Commercial Code and related legislation do not require Japanese companies with
boards of corporate auditors such as NEC to have any independent directors on its board of
directors. Although not required under the Commercial Code, NEC currently has two &#147;outside&#148;
directors but they do not have separate executive sessions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rule&nbsp;4350(c)(3) requires that compensation of the chief executive officer and other executive
officers must be determined, or recommended to the board, either by a majority of the independent
directors or an independent compensation committee. Additionally, Rule&nbsp;4350(c)(4) requires
director nominees to be selected, or recommended for the board&#146;s selection, either by a majority of
the independent directors or an independent nominations committee. As discussed above, NEC has two
&#147;outside&#148; directors but they do not serve on any separate compensation committee or nominations
committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <U>Conflicts of Interest </U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Rule 4350(h) requires that each issuer conduct an appropriate review of all related
party transactions for potential conflict of interest situations on an ongoing basis, and that all
such transactions be approved by the company&#146;s audit committee or another body independent from the
board of directors. Unlike the NASDAQ Rules, the Commercial Code requires the full board of
directors to approve (1)&nbsp;all transactions that a director, on his or her own behalf or on behalf of
a third party, enters into with NEC, (2)&nbsp;guarantees by NEC of obligations of a director and (3)&nbsp;all
transactions with any person other than directors with respect to which there is a conflict of
interest between NEC and any director. In addition, under the Commercial Code, no director may vote
on a resolution at a meeting of the board of directors if that director has a special interest in
that resolution, including, but not limited to, resolutions with respect to transactions with NEC
referred to in the immediately preceding sentence. Under the Commercial Code, the quorum for
meetings of the board of directors of NEC is a majority of all directors then in office, and the
approval of a majority of all directors present at the meeting is required. The number of directors
who are not entitled to vote at a meeting by reason of having a special interest in the subject
resolution shall be excluded from the number of directors then in office and present at the meeting
for such purpose. The Commercial Code does not require related party transactions, other than those
with directors referred to above, to be approved by the board of directors or any independent body
at or outside of NEC.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>D. Employees.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, we had approximately 147,800 employees on a consolidated basis,
approximately 74% of whom were located in Japan and 26% outside Japan. Approximate numbers of
employees by each segment are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="40%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of Employees</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">IT Solutions Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">50,900</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Network Solutions Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">28,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electron Devices Business.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">46,800</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">21,700</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had approximately 145,800 employees and approximately 143,300 employees as of March&nbsp;31,
2003 and March&nbsp;31, 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since 1952, NEC has had a comprehensive labor contract with NEC Workers&#146; Union covering, in
general, conditions of employment other than salary, wages, bonuses, and retirement benefits. This
contract, which provides that all of NEC&#146;s employees except management and other specified
personnel must become union members, has been renegotiated from time to time and the present
agreement extends until March&nbsp;31, 2006. The employees of NEC&#146;s consolidated subsidiaries are
covered by separate labor contracts. We believe that our labor-management relations are good.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp; <B>E. Share Ownership.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Share Ownership</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, NEC&#146;s board members, most of whom are also corporate officers, and
corporate auditors together owned 162,183 shares of NEC common stock, representing 0.01% of the
total issued shares. None of NEC&#146;s board members or corporate auditors is the beneficial owner of
more than 1% of shares of NEC common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <B>Stock Option Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;29, 2000, NEC&#146;s shareholders
approved a stock option plan for board members, corporate officers, and specified upper-level
employees, under which no more than 320,000 shares of NEC common stock may be purchased for an
aggregate price not exceeding &#165;1,200&nbsp;million. NEC will hold shares purchased under the 2000 stock
option plan and reserve them for transfer to NEC&#146;s board members, corporate officers, and specified
upper-level employees upon the exercise of their options. The aggregate number of shares to be
transferred to board members and corporate officers of NEC upon the exercise of their outstanding
options under the 2000 stock option plan as of March&nbsp;31, 2005 is 91,000 shares. The exercise price
of the options is currently &#165;3,294 per share, subject to adjustment if there is a stock split or
consolidation of shares or if new shares are issued at a price less than the market price. The
options can be exercised from July&nbsp;1, 2002 to June&nbsp;30, 2006. The options lapse automatically upon
the optionholder&#146;s death and generally expire one year after the termination of the optionholder&#146;s
service with NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;21, 2001, NEC&#146;s shareholders
approved a second stock option plan with terms and conditions substantially the same as those of
the 2000 stock option plan. The aggregate number of shares of common stock of NEC to be transferred
to board members and corporate officers of NEC upon the exercise of their outstanding options under
the 2001 stock option plan as of March&nbsp;31, 2005 is 111,000 shares. The exercise price per share of
the options is currently &#165;1,818 per share. The options can be exercised from July&nbsp;1, 2003 to June
30, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;20, 2002, NEC&#146;s shareholders
approved a third stock option plan, under which NEC may issue stock acquisition rights to board
members, corporate officers, and certain upper-level employees of NEC and certain executives of
NEC&#146;s subsidiaries in Japan pursuant to Articles 280-20 and 280-21 of the Commercial Code. Holders
of the stock acquisition rights are entitled to acquire 1,000 shares of common stock of NEC per
right upon the exercise of the stock acquisition rights. Under the 2002 stock option plan, 358
stock acquisition rights were issued. The aggregate number of shares to be issued or transferred to
board members and corporate officers of NEC upon the exercise of their outstanding stock
acquisition rights under the 2002 stock option plan as of March&nbsp;31, 2005 is 192,000 shares. The
exercise price of the rights is currently &#165;888 per share, subject to adjustment if there is a stock
split or consolidation of shares or if new shares are issued at a price that is less than the
market price. The rights can be exercised from July&nbsp;1, 2004 to June&nbsp;30, 2008. The rights expire one
year after their holder ceases to be a board member, corporate officer, or employee of NEC or its
subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;19, 2003, NEC&#146;s shareholders
approved a fourth stock option plan with terms and conditions substantially the same as those of
the 2002 stock option plan. Under the 2003 stock option plan, 313 stock acquisition rights were
issued. The aggregate number of shares of NEC common stock to be issued or transferred to board
members and corporate officers of NEC upon the exercise of their outstanding rights under the 2003
stock option plan as of March&nbsp;31, 2005 is 183,000 shares. The exercise price of the rights is
currently &#165;769 per share. The rights can be exercised from July&nbsp;1, 2005 to June&nbsp;30, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;22, 2004, NEC&#146;s shareholders
approved a fifth stock option plan with terms and conditions substantially the same as those of the
2002 stock option plan. Under the 2004 stock option plan, 289 stock acquisition rights were issued.
The aggregate number of shares of NEC common stock to be issued or transferred to board members and
corporate officers of NEC upon the exercise of their outstanding rights under the 2004 stock option
plan as of March&nbsp;31, 2005 is 166,000 shares. The exercise price of the rights is currently &#165;801 per
share. The rights can be exercised from July&nbsp;1, 2006 to June&nbsp;30, 2010.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At the ordinary general meeting of shareholders held on June&nbsp;22, 2005, NEC&#146;s shareholders
approved a sixth stock option plan with terms and conditions substantially the same as those of the
2002 stock option plan. Under the 2005 stock option plan, 300 stock acquisition rights were
issued. The exercise price of the rights is currently &#165;637 per share. The rights can be exercised
from July&nbsp;1, 2007 to June&nbsp;30, 2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC does not have any other arrangements for involving its employees in the capital of NEC,
including any arrangement that involves the issue or grant of options, shares, or securities of
NEC.
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. Major Shareholders.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, NEC had 242,141 registered shareholders. NEC&#146;s shareholders do not have
different voting rights. The ten largest shareholders of NEC&#146;s common stock appearing on its
register of shareholders at that date were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of Shares of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Shareholder</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock Held</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock Held</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan Trustee Services Bank, Ltd. (Trust Account)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,608,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.06</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Master Trust Bank of Japan, Ltd. (Trust Account)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,971,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Chase Manhattan Bank, N.A., London</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,926,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The State Street Bank and Trust Company 505103</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,705,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Nippon Life Insurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,122,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sumitomo Life Insurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Chase Manhattan Bank, N.A., London, SL Omnibus
Account</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,476,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC Employee Shareholding Association</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,953,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">The Dai-ichi Mutual Life Insurance Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,569,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan Trustee Services Bank, Ltd. (The Sumitomo
Trust &#038; Banking Co., Ltd. Retrust Account/Sumitomo
Corporation Employee Pension Trust Account)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,299,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.21</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459,632,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">23.83</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC received from Capital Guardian Trust Company, Capital International, Inc., Capital
International Limited, Capital International S.A., and Capital Research and Management Company,
copies of reports concerning the bulk holding of shares of common stock (see &#147;Item&nbsp;10.B. Key
Information &#151; Memorandum and Articles of Association &#151; Common Stock &#151; Reporting of Substantial
Shareholders&#148;) indicating that, as of December&nbsp;31, 2004, these companies jointly held 82,429,016
shares, or 4.27% of the total outstanding shares. NEC is unable to confirm their shareholdings
because they did not appear on its register of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC received from Morgan Stanley Japan Limited, Morgan Stanley &#038; Co. Incorporated, Morgan
Stanley &#038; Co. International Limited, MSDW Equity Finance Services I (Cayman) Ltd., Morgan Stanley
Capital (Luxembourg) SA, MSDW Equity Financing Services (Luxembourg) S.a.r.l, Morgan Stanley
Investment Management Limited, Morgan Stanley Asset &#038; Investment Trust Management Co., Limited,
Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc., Van Kampen
Asset Management and Van Kampen Funds Inc., copies of reports concerning the bulk holding of shares
of common stock (see &#147;Item&nbsp;10.B. Key Information &#151; Memorandum and Articles of Association &#151; Common
Stock &#151; Reporting of Substantial Shareholders&#148;) indicating that, as of March&nbsp;31, 2005, these
companies jointly held 128,755,536 shares, or 6.67% of the total outstanding shares. NEC is unable
to confirm their shareholdings because they did not appear on its register of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of March&nbsp;31, 2005, the percentage of shares of common stock held by The Chase Manhattan
Bank, N.A., London decreased by 6.24&nbsp;percentage points as compared with March&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The record of ownership and distribution of shares of NEC&#146;s common stock appearing on the
register of shareholders as of March&nbsp;31, 2005, was as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shareholders</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Held</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares Held</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese financial institutions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">259</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">575,344,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">29.82</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese securities companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,505,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other Japanese corporations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,918,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign institutions and individuals<SUP style="font-size: 85%; vertical-align: text-top">&nbsp;(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">607,217,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31.47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese individuals and others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">633,281,977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">242,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,929,268,717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="99"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>197,605,609 shares, or 10.24%, of NEC&#146;s issued common stock was owned
by 114 U.S. shareholders of record, one of whom is the ADR
depositary&#146;s nominee holding 20,804,146 shares, or 1.08%, of NEC&#146;s
issued common stock.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Related Party Transactions.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since April&nbsp;1, 2003, none of NEC&#146;s board members or corporate auditors, and none of the close
members of their respective families, has had any transactions or has any presently proposed
transactions which are material or any transactions that are unusual in their nature or
conditions, involving goods, services, or tangible or intangible assets, to which NEC is a party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the ordinary course of business and at an arm&#146;s length basis, NEC purchases from and sells
to its affiliated companies accounted for by the equity method, certain materials, supplies and
services. Such affiliated companies include ALAXALA Networks Corporation, Anritsu Corporation, CEN
solutions corporation, DAIKIN INFORMATION SYSTEMS CO., LTD., Elpida Memory, Inc.(*), HimeginSoft
Co., Ltd., Japan Aviation Electronics Industry, Limited, NEC Leasing, Ltd., NEC Personal Systems
Minami-Kyusyu, Ltd., NEC TOPPAN CIRCUIT SOLUTIONS, INC., PERNEC Corporation Berhad, Sanwa Computer
Co., Ltd., SINCERE Corporation, Techno Mind Corporation and TOYO COMMUNICATION EQUIPMENT CO., LTD.
For the fiscal year ended March&nbsp;31, 2005, NEC recorded total sales of approximately &#165;237.5&nbsp;billion
to, and total purchases of approximately &#165;115.1&nbsp;billion from, these affiliated companies. As of
March&nbsp;31, 2005, NEC had trade receivables of approximately &#165;37.2&nbsp;billion owed by, and trade
payables of approximately &#165;88.7&nbsp;billion owed to, these affiliated companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC does not consider the amounts involved in the above transactions to be material to its
business. In addition to purchase and sales, NEC has entered into a number of contractual
arrangements with its affiliated companies to govern their relationship in various areas, including
competition, intellectual property, research, property lease, and administrative services. Please
refer to Note 3 to our consolidated financial statements for a more detailed explanation regarding
NEC&#146;s transactions with these affiliated companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Since April&nbsp;1, 2003, no loans or guarantees of any kind have been made by NEC to its directors
or corporate auditors, or close members of their families. NEC has guaranteed the repayment of
loans owed by an affiliated company accounted for by the equity method, Shanghai SVA NEC Liquid
Crystal Display Co., Ltd. As of March&nbsp;31, 2005, the total outstanding principal amount guaranteed
by NEC for the affiliated company was &#165;9.8&nbsp;billion.
</DIV>



<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(*) As of August&nbsp;31, 2005, Elpida Memory is no longer an affiliated company of NEC accounted for by
the equity method.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>C. Interests of Experts and Counsel.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 8. FINANCIAL INFORMATION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. Consolidated Statements and Other Financial Information.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See our consolidated financial statements beginning on page F-1.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Legal Proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We and certain of our subsidiaries are currently engaged in a lawsuit with GE Warranty
Management, Inc., or GE Warranty, in the Court of Appeal of the State of California, Second
Appellate District. The lawsuit concerns a claim for declaratory relief that two of our
subsidiaries initiated against GE Warranty in December&nbsp;2001 and a cross claim by GE Warranty
against us and our two subsidiaries. In its cross complaint, GE Warranty sought reimbursement of
costs it allegedly incurred in connection with warranty contracts that it issued to purchasers of
computers previously manufactured by our two subsidiaries, punitive damages, and attorneys&#146; fees.
On October&nbsp;3, 2003, the trial court judged that GE Warranty could not pursue any claim for damages
against us or our subsidiaries, either in its own right or as subrogee of the service contract
owners. On November&nbsp;7, 2003, GE Warranty appealed the judgment to the Court of Appeal of the State
of California, Second Appellate District. However, the lawsuit was stayed as of March&nbsp;9, 2004,
after PB Electronics, Inc., one of the cross-complainants, filed for bankruptcy in the U.S.
Bankruptcy Court for the Northern District of California on March&nbsp;3, 2004. Subsequently, by order
of the Bankruptcy Court, entered on May&nbsp;16, 2005, the automatic stay against GE Warranty proceeding
against PB Electronics, Inc. in its appeal was lifted. The Court of Appeal has been notified of
the Bankruptcy Court&#146;s ruling, and it is anticipated that the March&nbsp;9, 2004 stay will be lifted and
the Court of Appeal will order the appeal to proceed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., and NEC Electronics
America, Inc., an indirect U.S. subsidiary of ours, received grand jury subpoenas from the U.S.
District Court for the Northern District of California on June&nbsp;19, 2002 and May&nbsp;30, 2003,
respectively, seeking information in connection with an investigation being conducted by the U.S.
Department of Justice into potential antitrust violations in the DRAM industry. We understand that
many of the companies in the U.S. DRAM industry have received similar subpoenas in connection with
this investigation and that some of those companies have entered into plea agreements or, under the
Corporate Leniency Policy, are cooperating with the U.S. Department of Justice. NEC Electronics
America transferred substantially all of its DRAM business to Elpida Memory (USA)&nbsp;in March&nbsp;2001.
Elpida Memory (USA), however, did not assume the legal responsibilities or obligations relating to
DRAMs produced or sold by NEC Electronics America prior to such transfer. On August&nbsp;31, 2005, we
sold 9.6&nbsp;million shares of Elpida Memory. As a result of this sale, we currently hold 13.89% of Elpida
Memory, which has now ceased to be an affiliate company of NEC accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Immediately
following the announcement of the U.S. investigation, Elpida Memory (USA),
Elpida Memory, and other DRAM manufacturers subject to the same investigation were named in
approximately twenty federal and state class action civil antitrust lawsuits seeking treble damages
in unspecified amounts and an injunction against the allegedly unlawful conduct. Each of these
civil cases purports to be on behalf of a class of individuals and entities who directly or
indirectly purchased DRAM during the specified time periods. General discovery is just commencing,
as a court-imposed stay on all discovery previously in place has only recently been lifted. All the
federal class action cases have been or will be transferred to the U.S. District Court for the
Northern District of California (San Francisco) for consolidated pre-trial proceedings. All of the
class action lawsuits filed against Elpida Memory (USA)&nbsp;and/or Elpida Memory under California state
law have been or will be consolidated for pre-trial purposes before the Superior Court for the City
and County of San Francisco. On October&nbsp;1, 2003, counsel for the plaintiffs in the federal
antitrust cases filed a consolidated amended class action complaint against the defendants in the
various cases, asserting essentially the same claims alleged in the various prior complaints
against the previously named defendants. At that time, NEC Electronics America was added as a new
defendant in those proceedings. Likewise, on or about October&nbsp;15, 2003, counsel for the plaintiffs
in the state court antitrust cases filed a consolidated amended class action complaint against the
previously named defendants. At that time, as in the federal antitrust cases, NEC Electronics
America was named as a new defendant in those proceedings. On December&nbsp;10, 2004, counsel for the
plaintiffs in the San Francisco federal court cases filed a second consolidated amended class
action complaint against the previously named defendants alleging that the unlawful conduct began
on or about July&nbsp;1, 1999. On January&nbsp;21, 2005, counsel for plaintiffs in the San Francisco state
court antitrust cases filed a second consolidated amended class action complaint against the
previously named defendants alleging likewise that the conspiracy
began at least as early as July&nbsp;1, 1999, continuing thereafter up to and including the date of the filing of the complaint. On
June&nbsp;30, 2005, counsel for plaintiffs in the San Francisco federal court cases filed a third
consolidated amended complaint against the previously named defendants alleging that the unlawful
conduct began on or about April&nbsp;1, 1999. Between
August&nbsp;2004 and September&nbsp;2005, to the best of our
knowledge, over 40 class action litigations where Elpida Memory (USA), Elpida Memory, NEC
Electronics America, and/or NEC Electronics Corporation were named defendants were filed in one or
more federal or state courts in the states of Arizona, Florida, Hawaii, Iowa, Kansas, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee,
Vermont, Virginia, West Virginia, Wisconsin, as well as in the District of Columbia and the Commonwealth of
Puerto Rico. The claims in those cases are generally
similar to those being asserted in the U.S. District Court for the
Northern District of California (San Francisco) or the Superior Court for the City and County of San Francisco.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2003, Elpida Memory received a request for information by the Director-General for
Competition, Cartels Unit of the European Commission and is subject to a similar investigation into
the European DRAM market. In May&nbsp;2004, the Canadian Competition Bureau advised Elpida Memory (USA)
that it and its affiliated parties are among the targets of a formal inquiry into alleged
violations of the Canadian Competition Act in the DRAM industry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Liabilities related to legal proceedings are recorded when it is probable that a liability has
been incurred and the associated amount can be reasonably estimated. Although no rulings have been
issued in these investigations and related civil proceedings at this time, we have provided an
accrual for a reasonably estimable amount for the fiscal year ended March&nbsp;31, 2005 in connection
with the U.S. Department of Justice&#146;s investigation. As we are unable to predict the outcome of
these investigations and related civil proceedings, the costs that we may incur in connection with
the investigations or the related civil proceedings, or the impact the final resolutions of the
investigations or the related civil proceedings might have on our operations or financial
condition, such accrued amount would be subject to change in the future based on new developments
or changes in circumstances.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Fair Trade Commission of Japan, or JFTC, initiated hearing procedures on surcharge payment
orders against NEC and another Japanese company on July&nbsp;14, 2004, in accordance with the Act
Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade, or the Antimonopoly
Law. The surcharge payment orders were issued on June&nbsp;14, 2004 with respect to NEC&#146;s and another
Japanese company&#146;s bids for automatic letter processing systems ordered by the Ministry of Posts
and Telecommunications (currently, Japan Post), and thereafter NEC and another Japanese company
immediately requested the JFTC to initiate the hearing procedures on such surcharge payment orders.
On April&nbsp;23, 2004, in a separate procedure under the Antimonopoly Law, the Tokyo High Court issued
a judgment to annul a JFTC decision made on June&nbsp;27, 2003 which stated that NEC and another
Japanese company restricted competition, contrary to the public interest, in the sale of automatic
letter processing systems. The JFTC is currently requesting an appeal to the Supreme Court of Japan
with respect to such judgment. We are unable to predict the outcomes of the hearing procedures on
the surcharge payment orders or the JFTC&#146;s request for appeal to the Supreme Court of Japan, the
costs that we may incur in connection with the hearing procedures or the JFTC&#146;s request for appeal,
or the impact the final resolutions of the hearing procedures or the JFTC&#146;s request for appeal
might have on our operations or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other than as disclosed above, we are not or have not been involved in any legal or
arbitration proceedings which may have, in the opinion of our management, a significant effect on
our financial position, nor are we aware that any such proceedings are pending or threatened.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Dividend Policy</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have paid cash dividends on shares of our common stock on a semi-annual basis each year
since 1951 except for the fiscal year ended March&nbsp;31, 2003, when we recorded a non-consolidated net
loss primarily due to the devaluation of our investments in affiliated companies and securities. We
have paid interim dividends of &#165;3 per share of common stock for the six months ended September&nbsp;30,
2004 and year-end cash dividends of &#165;3 per share of common stock for the fiscal year ended March
31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The declaration and payment of dividends require the approval of our board of directors and,
in the case of year-end dividends, shareholders, and will depend on our results of operations,
financial condition, other cash requirements, and other factors deemed relevant by the board of
directors and shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Significant Changes.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No significant changes have occurred since the date of the annual financial statements
included in this annual report.
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 9. THE OFFER AND LISTING.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. Offer and Listing Details.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table shows, for the periods indicated, the reported intra-day high and low sale
prices for shares of NEC&#146;s common stock on the Tokyo Stock Exchange and the reported intra-day high
and low sales prices for NEC&#146;s American Depositary Shares, or ADSs, on the Nasdaq National Market
System:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Tokyo Stock Exchange</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>NASDAQ</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Price Per Share Of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Price Per ADS</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Yen)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Dollars)</B>&nbsp;<SUP style="font-size: 85%; vertical-align: text-top"><B>(1)(2)</B></SUP></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>HIGH</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LOW</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>HIGH</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LOW</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ended March&nbsp;31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,158</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ended March&nbsp;31, 2004:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.80</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">951</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">716</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">745</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ended March&nbsp;31, 2005:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">717</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending March&nbsp;31, 2006:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second
quarter (through September&nbsp;22)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Month of:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">633</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.61</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">April&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">671</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.22</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">May&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.69</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.38</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">July&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">559</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">

<TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;2005 (through September&nbsp;22)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.15</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>




<DIV style="margin-top: 3pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="1%"></TD>
    <TD width="99"></TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>NEC&#146;s ADS to common stock ratio was changed from 1:5 to 1:1 effective May&nbsp;25, 2001.
Accordingly, the prices of ADSs presented in the table above prior to the change have
been restated to reflect the current ratio of 1:1.</TD>
</TR>
<TR valign="top">
    <TD nowrap align="left">(2)</TD>
    <TD>All fractional figures of the prices of ADS are rounded to the nearest two decimal points.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Plan of Distribution.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>C. Markets.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary market for our shares of common stock is the Tokyo Stock Exchange. In Japan, our
shares of common stock are also listed and traded on the Osaka Securities Exchange, the Nagoya
Stock Exchange, the Sapporo Securities Exchange, and the Fukuoka Stock Exchange. Outside Japan, our
shares of common stock are listed on the Official List and traded on the London Stock Exchange&#146;s
market for listed securities, and listed and traded on the Official Market of the Stock Market of
Euronext Amsterdam, the SWX Swiss Exchange in the form of Swiss bearer depositary receipts, and the
Frankfurt Stock Exchange in the form of global bearer certificates. In addition, ADSs, each
representing one share of common stock, are quoted on the Nasdaq National Market under the symbol
&#147;NIPNY.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>D. Selling Shareholders.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>E. Dilution.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>F. Expenses of the Issue.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 10. ADDITIONAL INFORMATION.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>A. Share Capital.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;<B>B. Memorandum and Articles of Association.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Organization</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC is a joint stock corporation (<I>kabushiki kaisha</I>) incorporated in Japan under the Commercial
Code. It is registered in the Commercial Register (<I>shogyo tokibo</I>) maintained by the Minato Branch
Office of the Tokyo Legal Affairs Bureau.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Corporate Purpose of NEC</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;2 of NEC&#146;s articles of incorporation provides that the corporate purposes of NEC are
to carry on the following businesses:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To manufacture, sell or otherwise dispose of, telecommunications
equipment, machinery and instruments, electronic computers and other
electronics application equipment, machinery and instruments, electrical
equipment, machinery and instruments, and all kinds of equipment,
machinery, instruments and systems related to electricity;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To manufacture, sell or otherwise dispose of, nuclear energy machinery
and instruments, aircraft machinery and instruments, medical machinery
and instruments, measuring instruments, and all equipment, machinery,
instruments and systems other than those mentioned in item 1 above;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To manufacture, sell or otherwise dispose of, electron tubes,
semiconductor devices, integrated circuits and all parts and materials
for use in or in connection with any equipment, machinery and
instruments mentioned in any of the preceding items;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">4.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To provide telecommunications, data base, and other information services;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">5.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To provide mail order, money collection, travel agency, non-life
insurance agency, life insurance agency, broadcasting, and security
services by means of the Internet and other networks;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">6.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To contract for construction work;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">7.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To engage in any and all activities requisite to the promotion,
handling, and carrying out of the businesses mentioned in any of the
preceding items; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">8.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To invest in businesses mentioned in any of the preceding items which
businesses are under the administration of others.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Board of Directors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of directors has the ultimate responsibility for the administration of NEC&#146;s
affairs. The board of directors designates by resolution, from among its members, representative
directors who generally have the authority to individually represent NEC in the conduct of its
affairs. Corporate officers have the responsibility to manage NEC&#146;s business operations. The board
members oversee the corporate officers and set fundamental strategies. Under the Commercial Code,
board members of NEC must refrain from engaging in any business competing with NEC unless approved
by a board resolution, and no board member may vote on a proposal, arrangement or contract in which
that board member is deemed to be materially interested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Neither the Commercial Code nor NEC&#146;s articles of incorporation contain special provisions as
to the borrowing power exercisable by a board member. See also the discussion under &#147;Item&nbsp;6.C.
Directors, Senior Management and Employees &#151; Board Practices.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Common Stock</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as otherwise stated, set forth below is information relating to NEC&#146;s common stock,
including brief summaries of the relevant provisions of NEC&#146;s articles of incorporation and share
handling regulations, as currently in effect, and of the Commercial Code and related legislation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A bill to modernize and make overall amendments to the Commercial Code by replacing the
current provisions with regard to corporations with a new version of the company law known as the
New Company Law was promulgated on July&nbsp;26, 2005. The New Company Law will come into effect within
one year and half after its promulgation, and currently, it is expected that it will take effect in
May&nbsp;2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, generally, shares may be transferred only by delivering share
certificates. In order to assert shareholders&#146; rights against NEC, a shareholder must have its name
and address registered on NEC&#146;s register of shareholders, in accordance with NEC&#146;s share handling
regulations. The registered beneficial holder of deposited shares underlying the ADSs is the
depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert
shareholders&#146; rights against NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares may choose, at its discretion, to participate in the central clearing
system for share certificates under the Law Concerning Central Clearing of Share Certificates and
Other Securities of Japan. Participating shareholders must deposit certificates representing all of
the shares to be included in this clearing system with Japan Securities Depository Center, Inc., or
JASDEC. If a holder is not a participating institution in JASDEC, it must participate through a
participating institution, such as a securities company or bank having a clearing account with
JASDEC. All shares deposited with JASDEC will be registered in the name of JASDEC on NEC&#146;s register
of shareholders. Each participating shareholder will in turn be registered on NEC&#146;s register of
beneficial shareholders and be treated in the same way as shareholders registered on NEC&#146;s register
of shareholders. For the purpose of transferring deposited shares, delivery of share certificates
is not required. Entry of the share transfer in the books maintained by JASDEC for participating
institutions, or in the book maintained by a participating institution for its customers, has the
same effect as delivery of share certificates. The registered beneficial shareholders may exercise
the rights attached to the shares, such as voting rights, and will receive dividends, if any, and
notices to shareholders directly from NEC. The shares held by a person as a registered shareholder
and those held by the same person as a registered beneficial shareholder are aggregated for these
purposes. Beneficial shareholders may at any time withdraw their shares from deposit and receive
share certificates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A new law to establish a new central clearing system for shares of listed companies and to
eliminate the issuance and use of certificates for such shares was promulgated in June&nbsp;2004 and the
relevant part of the law will come into effect within five years of the date of the promulgation.
On the effective date, a new central clearing system will be established and the shares of all
Japanese companies listed on any Japanese stock exchange, including the shares of common stock of
NEC, will be subject to the new central clearing system. On the same day, all existing share
certificates will become null and void and the companies are not required to withdraw those share
certificates from shareholders. The transfer of such shares will be effected through entry in the
books maintained under the new central clearing system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Authorized Capital</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Article&nbsp;5 of NEC&#146;s articles of incorporation provides that the total number of shares
authorized to be issued by NEC is 7,500,000,000 shares. As of March&nbsp;31, 2005, 1,929,268,717 shares
of common stock were issued.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All shares of NEC&#146;s capital stock have no par value.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Dividends</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150; General</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s articles of incorporation provide that the accounts shall be closed on March&nbsp;31 of each
year. Year-end cash dividends, if any, shall be paid to shareholders, beneficial shareholders, and
pledgees of record as of the end of such day. After the close of the fiscal period, the board of
directors prepares, among other things, a proposed allocation of profits for year-end dividends and
other purposes. This proposal is submitted to NEC&#146;s board of corporate auditors and to NEC&#146;s
independent certified public accountants, and then submitted for approval to the ordinary general
meeting of shareholders. This meeting is to be held in June each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the New Company Law, subject to certain limitations on the distributable surplus as
described below, dividends, if any, may be paid to shareholders, beneficial shareholders, and
pledgees of record as of a record date as set forth by NEC&#146;s articles of incorporation or as
determined by the board of directors from time to time. Dividends shall be paid by way of
distribution of surplus. Dividends may be distributed in cash or in kind. In distributing
dividends, NEC may determine the kind of assets to be distributed, the book value of such assets,
matters regarding allocation of such assets, and the effective date of such dividends, by a
resolution of a general meeting of shareholders. However, NEC may generally determine such matters
by a resolution of the board of directors if (a)&nbsp;NEC&#146;s articles of incorporation so provide, (b)
the term of its directors is set to be until the conclusion of the ordinary general meeting of
shareholders held with respect to the last closing of accounts within one year after the election
of such director, and (c)&nbsp;certain requirements regarding the financial statements and certain
documents of NEC as set forth in an ordinance of the Ministry of Justice are met; provided,
however, that when NEC is to make in-kind dividends without giving shareholders the right to
request payment of cash dividends in lieu of in-kind dividends, it shall determine such matters by
a Special Shareholders Resolution (as defined in &#147;&#151;Voting Rights&#148;). When NEC makes payment of
dividends, it shall allocate such dividends in proportion to the number of shares of any specific
class held by each shareholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150; Interim cash dividends</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition to year-end cash dividends, the board of directors may by its resolution declare
an interim cash dividend pursuant to Article&nbsp;293-5 of the Commercial Code to shareholders,
beneficial shareholders, and pledgees. This interim dividend is paid to those who are registered
in NEC&#146;s register of shareholders or beneficial shareholders as of the end of each September&nbsp;30,
without prior shareholders&#146; approval, but subject to the limitations described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the New Company Law, notwithstanding the necessity of obtaining approval of general
meeting of shareholders in general under the New Company Law as described above, NEC is allowed to
make payment of interim dividends during a fiscal year by way of distribution of surplus by
resolution of the board of directors; provided, however, that such payment of interim dividends
shall be limited to cash dividends and also limited to once per fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150;Legal reserve</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code provides that a company may not make any distribution of profits by way of
year-end dividends or interim dividends for any fiscal period unless it has set aside in its legal
reserve an amount equal to at least 10% of the amount paid by way of appropriation of retained
earnings for such fiscal period or equal to 10% of the amount of such interim dividends until the
aggregate amount of additional paid-in capital and legal reserve is 25% of its stated capital.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The New Company Law provides that when a joint stock company like NEC makes distribution of
surplus, it shall set aside in its legal reserve an amount equal to 10% of the amount of the
surplus to be decreased as a result of such distribution of surplus in accordance with the
provisions set forth in an ordinance of the Ministry of Justice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150; Distributable amount</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, NEC is permitted to distribute profits by way of year-end dividends
out of the excess of NEC&#146;s net assets, as it appears on NEC&#146;s non-consolidated balance sheet at the
last closing of NEC&#146;s accounts, over the aggregate of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD>its stated capital;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD>its additional paid-in capital;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD>its accumulated legal reserve;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD>the legal reserve to be set aside in respect of the fiscal period concerned; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(v)</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the case of interim dividends, NEC is permitted to distribute profits out of the excess of
the net assets, as it appears on NEC&#146;s non-consolidated balance sheet at the last closing of NEC&#146;s
accounts, over the aggregate of the amounts stated in (i)&nbsp;through (iv)&nbsp;above plus:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(a)</TD>
    <TD>the legal reserve to be set aside in respect of such interim dividends;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(b)</TD>
    <TD>any subsequent payment made by appropriation of retained earnings;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(c)</TD>
    <TD>any subsequent transfer of retained earnings to stated capital;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(d)</TD>
    <TD>if NEC has been authorized, pursuant to a resolution adopted at an ordinary general
meeting of shareholders or by NEC&#146;s board of directors, to acquire NEC&#146;s shares (see &#147; &#151;
Acquisition by NEC of Its Own Common Stock&#148;), the total amount of the purchase price of
those shares authorized by the resolution that may be paid by NEC; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(e)</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice;</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">provided that (x)&nbsp;if NEC reduces the amount of NEC&#146;s stated capital, additional paid-in capital, or
accumulated legal reserve after the end of the last closing of NEC&#146;s accounts, the amount so
reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and
(y)&nbsp;other amounts, as provided for by an ordinance of the Ministry of Justice, will be added to the
amount permitted to be distributed. Interim dividends may not be paid where there is a risk that at
the end of the fiscal year there might not be any excess of net assets over the aggregate of the
amounts referred to in (i)&nbsp;through (iv)&nbsp;above.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the New Company Law, NEC is permitted to make distribution of surplus to the extent that
the aggregate book value of the assets to be distributed to shareholders does not exceed the
Distributable Amount (as defined below) as at the effective date of such distribution of surplus.
Under the New Company Law, the Distributable Amount would include amounts incurred as a result of
certain events occurring after the end of NEC&#146;s last fiscal year. In addition, under the New
Company Law, NEC will be permitted to prepare extraordinary financial statements, or Extraordinary
Financial Statements, as of a certain date during the fiscal year immediately after NEC&#146;s last
fiscal year, or the Extraordinary Account Settlement Date, which must be audited by corporate
auditors and accounting auditors and approved by NEC&#146;s board of directors and, in certain cases,
the general meeting of shareholders of NEC. Once the Extraordinary Financial Statements are so
audited and approved, NEC can make adjustments to the Distributable Amount by adding net income or
by deducting loss for the period after the end of NEC&#146;s last fiscal year until the Extraordinary
Account Settlement Date.
</DIV>


</DIV>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The amount of surplus at any given time shall be the amount of NEC&#146;s assets and the book value
of NEC&#146;s treasury stock after subtracting the amounts of the following items (1)&nbsp;through (4)&nbsp;as
they appear on NEC&#146;s non-consolidated balance sheet as at the end of NEC&#146;s last fiscal year, and
after reflecting the changes in NEC&#146;s surplus after the end of NEC&#146;s last fiscal year, by adding
the amounts of the following items (5), (6)&nbsp;and (7)&nbsp;and/or subtracting the amounts of the following
items (8), (9)&nbsp;and (10):
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>its liabilities;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>its stated capital;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>its additional paid-in capital and accumulated legal reserve;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock after subtracting the book value thereof;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC decreased its stated capital after the end of the last fiscal year) the amount of
decrease in its stated capital (excluding the amount transferred to the additional paid-in
capital or legal reserve);</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC decreased its additional paid-in capital or legal reserve after the end of the last
fiscal year) the amount of decrease in its additional paid-in capital or legal reserve
(excluding the amount transferred to the stated capital);</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC cancelled its treasury stock after the end of the last fiscal year) the book value
of its treasury stock so cancelled;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC distributed surplus to shareholders after the end of the last fiscal year) the
assets distributed to shareholders by way of such distribution of surplus; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Distributable Amount of NEC at any given time shall be the aggregate amount of (a)&nbsp;the
surplus, (b) (if NEC prepares Extraordinary Financial Statements) the amount of profit as recorded
for the period after the end of NEC&#146;s last fiscal year until the Extraordinary Account Settlement
Date as provided for in an ordinance of the Ministry of Justice and (c) (if NEC prepares
Extraordinary Financial Statements) the transfer price of its treasury stock in the same period,
after subtracting the amounts of the following items:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the book value of its treasury stock;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC prepares Extraordinary Financial Statements) the losses as recorded for the period
after the end of NEC&#146;s last fiscal year until the Extraordinary Account Settlement Date as
provided for in an ordinance of the Ministry of Justice; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150; Ex-dividend date and prescription</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In Japan, the &#147;ex-dividend&#148; date and the record date for dividends precede the date of
determination of the amount of the dividend to be paid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under NEC&#146;s articles of incorporation, NEC does not have to pay any dividends which are left
unclaimed for a period of three years after the date on which they first became payable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividends
&#150; Liabilities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, if NEC makes interim dividends and at the end of the fiscal year
there is no excess of net assets over the aggregate of the amounts referred to in (i)&nbsp;through (v)
in &#147;<I>&#151; </I>Dividends <I>&#151; </I>Distributable amount&#148; above, directors who have made such interim dividends shall
be jointly and severally liable to NEC for the smaller of the amount of such deficit or such
dividends unless such directors prove that they did not fail to exercise due care in determining
such interim dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the New Company Law, in cases where the distribution of surplus was made, if the
aggregate amount of the following items (1), (2)&nbsp;and (3)&nbsp;as at the end of the relevant fiscal year
exceeds the amount of surplus, the directors who have distributed such dividends, shall be liable
to NEC for the smaller of such amount in excess or the amount of money or book value of such
distributed surplus unless such directors prove that they did not fail to exercise due care in
determining such distribution:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the book value of NEC&#146;s treasury stock;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock after the end of NEC&#146;s last fiscal year;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other amounts as provided for by an ordinance of the Ministry of Justice.</TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, the directors shall not be liable to NEC for the distributions of surplus made
pursuant to the resolution of the ordinary general meeting of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Stock Splits</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC may at any time split shares in issue into a greater number of shares by resolution of the
board of directors, and may amend its articles of incorporation to increase the number of the
authorized shares to be issued to allow the stock split pursuant to a resolution of the board of
directors rather than a Special Shareholders Resolution (as defined in &#147;<I>&#151; </I>Voting Rights&#148;) which is
otherwise required for amending the articles of incorporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of a stock split, generally, shareholders will not be required to exchange share
certificates for new share certificates, but certificates representing the additional shares
resulting from the stock split will be issued to shareholders. When a stock split is to be made,
NEC must give public notice of the stock split, specifying the record date therefor, at least two
weeks prior to such record date. In addition, promptly after the stock split takes effect, NEC must
give notice to each shareholder specifying the number of shares to which such shareholder is
entitled by virtue of the stock split. After the New Company Law becomes effective, no such notice
to each shareholder is required.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Consolidation of Shares</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC may at any time consolidate shares in issue into a smaller number of shares by a Special
Shareholders Resolution (as defined in &#147; &#151; Voting Rights&#148;). When a consolidation of shares is to be
made, NEC must give public notice and notice to each shareholder that, within a period of not less
than one month specified in the notice, share certificates must be submitted to NEC for exchange.
NEC must disclose the reason for the consolidation of shares at the general meeting of
shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>General Meetings of Shareholders</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s ordinary general meeting of shareholders is held every June in Tokyo, Japan. The record
date for an ordinary general meeting of shareholders is March&nbsp;31 of each year. In addition, NEC may
hold an extraordinary general meeting of shareholders whenever necessary by giving at least two
weeks&#146; advance notice to shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notice of convocation of a general meeting of shareholders setting forth the place, time, and
purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a
non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two
weeks prior to the date set for the meeting. Such notice may be given to shareholders by electronic
means, subject to the consent by the relevant shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any shareholder or group of shareholders holding at least 3% (or, when the New Company Law
becomes effective and in the event that NEC&#146;s articles of incorporations provide for a percentage
lower than 3%, such percentage) of the total number of voting rights for a period of six months
(or, when the New Company Law becomes effective and in the event that NEC&#146;s articles of
incorporations provide for a period shorter than six months, such period) or more may require the
convocation of a general meeting of shareholders for a particular purpose. Unless such general
meeting of shareholders is convened promptly or a convocation notice of a meeting which is to be
held not later than eight weeks (or, when the New Company Law becomes effective and in the event
that NEC&#146;s articles of incorporations provide for a period shorter than eight weeks, such period)
from the day of such demand is dispatched, the requiring shareholder may, upon obtaining a court
approval, convene such general meeting of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any shareholder or group of shareholders holding at least 300 (or, when the New Company Law
becomes effective and in the event that NEC&#146;s articles of incorporations provide for a number less
than 300, such number) voting rights or 1% (or, when the New Company Law becomes effective and in
the event that NEC&#146;s articles of incorporations provide for a percentage lower than 1%, such
percentage) of the total number of voting rights for a period of six months (or, when the New
Company Law becomes effective and in the event that NEC&#146;s articles of incorporations provide for a
period shorter than six months, such period) or more may propose a matter to be considered at a
general meeting of shareholders by submitting a written request to a representative director at
least eight weeks (or, when the New Company Law becomes effective and in the event that NEC&#146;s
articles of incorporations provide for a period shorter than eight weeks, such period) prior to the
date set for such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Voting Rights</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;So long as NEC maintains the unit share system (currently 1,000 shares constitute one unit), a
holder of shares constituting one or more units is entitled to one vote for each such unit of
shares, subject to the limitations on votes set forth in the following two sentences. See &#147; &#151; Unit
Share System.&#148; A corporate shareholder, more than one-quarter of whose total voting rights are
directly or indirectly owned by NEC (or when the New Company Law becomes effective, management of
which is being controlled in substance by NEC as provided for by an ordinance of the Ministry of
Justice), may not exercise its voting rights with respect to shares of NEC&#146;s common stock that it
owns. In addition, NEC may not exercise voting rights with respect to its treasury shares. If NEC
eliminates from its articles of incorporation the provisions relating to the unit of shares,
holders of common stock will have one vote for each share held by them. Except as otherwise
provided by law or by NEC&#146;s articles of incorporation, a resolution can be adopted at a general
meeting of shareholders by a majority of the number of voting rights of all the shareholders
represented at the meeting. The Commercial Code (or when the New Company Law becomes effective, the
New Company Law) and NEC&#146;s articles of incorporation provide, however, that the quorum for the
election of board members and corporate auditors shall not be less than one-third of the total
number of voting rights of all the shareholders. NEC&#146;s shareholders are not entitled to cumulative
voting in the election of board members. Shareholders may cast their vote in writing and may also
exercise their voting rights through proxies, provided that the proxies are also shareholders
holding voting rights. Pursuant to the Commercial Code (or when the New Company Law becomes
effective, the New Company Law) and a resolution of the board of directors, NEC&#146;s shareholders may
also exercise their voting rights by electronic means.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Commercial Code (or when the New Company Law becomes effective, the New Company Law) and
NEC&#146;s articles of incorporation provide that in order to amend the articles of incorporation and in
certain other instances, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD>acquisition of its own shares from specific persons;<BR></TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD>consolidation of shares;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD>any offering of new shares at a &#147;specially favorable&#148; price (or any offering of stock
acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock
acquisition rights at &#147;specially favorable&#148; conditions) to any persons other than
shareholders;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(4)</TD>
    <TD>the removal of a board member or corporate auditor (when the New Company Law becomes
effective, the removal of a board member who is elected by cumulative voting);</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(5)</TD>
    <TD>the exemption of liability of a board member or corporate auditor with certain
exceptions;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(6)</TD>
    <TD>a reduction of stated capital (when the New Company Law becomes effective, with certain
exceptions in which a shareholders&#146; resolution is not required);</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(7)</TD>
    <TD>(when the New Company Law becomes effective ) a distribution of surplus other than
dividends which meets certain requirements;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(8)</TD>
    <TD>dissolution, merger, or consolidation with certain exceptions in which a shareholders&#146;
resolution is not required;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(9)</TD>
    <TD>the transfer of the whole or a material part of the business;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(10)</TD>
    <TD>the taking over of the whole of the business of any other corporation with certain
exceptions in which a shareholders&#146; resolution is not required;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(11)</TD>
    <TD>share exchange or share transfer for the purpose of establishing 100% parent-subsidiary
relationships with certain exceptions in which a shareholders&#146; resolution is not required;
or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="1%" nowrap align="left">(12)</TD>
    <TD>separating of the corporation into two or more corporations with certain exceptions in
which a shareholders&#146; resolution is not required,</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the quorum shall be one-third of the total voting rights of all the shareholders and the
approval by at least two-thirds (or, when the New Company Law becomes effective and in the event
that NEC&#146;s articles of incorporations provide for a percentage more than two-thirds, such
percentage) of the voting rights of all the shareholders represented at the meeting is required (in
addition, when the New Company Law becomes effective and in the event that NEC&#146;s articles of
incorporation provide that the approval by certain number of shareholders is required, such
approval is also required), or a Special Shareholders Resolution.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Exemptions from the Listing Standards for Quorum and Shareholder Approval</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to home country practice exemptions granted by the NASDAQ, NEC is permitted to follow
the following corporate governance practices complying with Japanese laws, regulations and stock
exchange rules in lieu of the NASDAQ Rules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Rule 4350(f) requires each issuer to provide for a quorum as specified in its by-laws
for any meeting of the holders of common stock, which shall in no case be less than 33 1/3% of the
outstanding shares of a company&#146;s common voting stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consistent with the Commercial Code and generally accepted business practices in Japan, NEC&#146;s
articles of incorporation provide that except as otherwise provided by law or by its articles of
incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of
votes of all the shareholders represented at the meeting with no quorum requirement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NASDAQ Rule 4350(i) requires each issuer to obtain shareholder approval prior to the issuance
of certain designated securities. However, under the Commercial Code, as provided in item (3)
above, regardless of the purpose of the issuance, shareholder approval is required only in the
cases of issuance of shares at a &#147;specially favorable&#148; price or of stock acquisition rights or
bonds with stock acquisition rights at &#147;specially favorable&#148; conditions, except where such shares,
stock acquisition rights or bonds with stock acquisition rights are granted to all of its
shareholders on a pro rata basis. Such shareholder approval must be obtained by a Special
Shareholders Resolution. Accordingly, so far as the issue price or exercise conditions are not
specially favorable, shareholder approval is not required under the Commercial Code for the matters
specified in NASDAQ Rule&nbsp;4350(i). NEC&#146;s practices taken in connection with such matters are
consistent with the Commercial Code.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Issue of Additional Shares and Preemptive Rights</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of NEC&#146;s shares of common stock have no preemptive rights under its articles of
incorporation. Authorized but unissued shares may be issued at such times and upon such terms as
the board of directors determines, subject to the limitations as to the offering of new shares at a
&#147;specially favorable&#148; price mentioned under &#147; &#151;
Voting Rights . &#148; The board of directors may,
however, determine that shareholders shall be given subscription rights regarding a particular
issue of new shares, in which case such rights must be given on uniform terms to all shareholders
as at a record date of which not less than two weeks&#146; prior public notice must be given. Each of
the shareholders to whom such rights are given must also be given notice of the expiry thereof at
least two weeks prior to the date on which such rights expire.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Rights to subscribe for new shares may be made generally transferable by the board of
directors. Whether NEC will make subscription rights generally transferable in future rights
offerings will depend upon the circumstances at the time of such offerings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to certain requirements, NEC may issue stock acquisition rights by a resolution of the
board of directors. Holders of stock acquisition rights may exercise their rights to acquire a
certain number of shares within the exercise period as prescribed in the terms of their stock
acquisition rights. Upon exercise of stock acquisition rights, NEC will be obliged to issue the
relevant number of new shares or alternatively to transfer the necessary number of treasury shares
held by it.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In cases where a particular issue of new shares or stock acquisition rights (i)&nbsp;violates laws
and regulations or NEC&#146;s articles of incorporation, or (ii)&nbsp;will be performed in a manner
materially unfair, and shareholders may suffer disadvantages therefrom, such shareholder may file
an injunction to enjoin such issue with a court of law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Liquidation Rights</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event of NEC&#146;s liquidation, the assets remaining after payment of all debts and
liquidation expenses and taxes will be distributed among the shareholders in proportion to the
respective number of shares held.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Liability to Further Calls or Assessments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of NEC&#146;s presently issued shares of common stock are fully paid and non-assessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Transfer Agent</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Sumitomo Trust &#038; Banking Co., Ltd. is the transfer agent for NEC&#146;s shares of common stock.
As such transfer agent, it keeps NEC&#146;s register of shareholders and beneficial shareholders in its
office at 4-4, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan, and transfers record
ownership upon presentation of the certificates representing the transferred shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Record Date</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;March&nbsp;31 is the record date for NEC&#146;s year-end dividends, if declared. So long as NEC
maintains the unit share system, the shareholders and beneficial shareholders who are registered as
the holders of one or more whole units of shares in NEC&#146;s register of shareholders and/or
beneficial shareholders at the end of each March&nbsp;31 are also entitled to exercise shareholders&#146;
rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on
that March&nbsp;31. September&nbsp;30 is the record date for interim dividends, if declared. In addition, NEC
may set a record date for determining the shareholders and beneficial shareholders entitled to
other rights and for other purposes by giving at least two weeks&#146; prior notice.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The price of shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the
third business day prior to a record date for the purpose of dividends or rights offerings. If the
record date is not a business day, this occurs on the fourth business day prior to a record date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Acquisition by NEC of Its Own Common Stock</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC may acquire its own shares: (a)&nbsp;through the stock exchanges on which NEC&#146;s shares are
listed or by way of tender offer, pursuant to an ordinary resolution at an ordinary general meeting
of shareholders or a resolution of the board of directors; (b)&nbsp;by purchase from a specific person
other than a subsidiary of NEC, pursuant to a Special Shareholders Resolution at an ordinary
general meeting of shareholders; or (c)&nbsp;by purchase from a subsidiary of NEC, pursuant to a
resolution of the board of directors. Under the New Company Law, not only ordinary general meetings
of shareholders but also extraordinary general meetings of shareholders will be able to approve the
acquisition by NEC of its own shares in the cases of (a)&nbsp;and (b)&nbsp;above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If NEC purchases its shares pursuant to a resolution of NEC&#146;s board of directors in the case
of (a)&nbsp;above, then NEC must report to its shareholders the reason for the purchase and the kind and
number of shares and the aggregate purchase price of such shares at the following ordinary general
meeting of shareholders that is held after such purchase of shares. When NEC acquires shares from a
specific party other than a subsidiary of NEC, any shareholder may make a request directly to NEC
in writing not later than five days prior to the date set for the relevant general meeting of
shareholders to include him/her as the seller of his/her shares in the proposed purchase. However,
under the New Company Law, the acquisition of its own shares at a price not exceeding the then
market price to be provided under an ordinance of the Ministry of Justice will not trigger the
right of any shareholder to include him/her as the seller of his/her shares in such proposed
purchase.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any such acquisition of shares must satisfy specified requirements, including the requirement
that, in cases where the acquisition is made pursuant to a resolution at an ordinary general
meeting of shareholders, the total amount of the purchase price may not exceed the sum of the
amount of retained earnings available for year-end dividend payment after taking into account any
reduction of the stated capital, additional paid-in capital or legal reserve (if the reduction of
the stated capital, additional paid-in capital, or legal reserve is authorized at the same ordinary
general meeting of shareholders), less the sum of the amount to be paid by way of appropriation of
retained earnings and any transfer of retained earnings to stated capital with respect to the
relevant fiscal year pursuant to a resolution of the same ordinary general meeting of shareholders.
If NEC purchases its shares pursuant to a resolution of the board of directors, the total amount of
the purchase price may not exceed the amount of retained earnings available for interim dividends
payment less the amount of any interim dividend that NEC actually paid. However, if it is
anticipated that the net assets on the non-consolidated balance sheet as at the end of the relevant
fiscal year will be less than the aggregate amount of the stated capital, additional paid-in
capital, and other items as described in (i)&nbsp;through (v)&nbsp;in &#147; &#151; Dividends <I>&#151; </I>Distributable amount,&#148;
NEC may not acquire such shares. Under the New Company Law, the restriction on the source of funds
for the acquisition by NEC of its own shares will be integrated into those for the distribution of
surplus to the shareholders. See &#147; &#151; Dividends.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares acquired by NEC may be held by NEC for any period or may be cancelled by a resolution
of the board of directors. NEC may also transfer to any person the shares held by it, subject to a
resolution of the board of directors, and subject also to other requirements similar to those
applicable to the issuance of new shares, as described in &#147; &#151; Issue of Additional Shares and
Preemptive Rights . &#147;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC may also utilize its treasury shares (x)&nbsp;for the purpose of transfer to any person upon
exercise of stock acquisition rights or (y)&nbsp;for the purpose of acquiring another company by way of
merger, share exchange, or corporate split through exchange of treasury stock for shares or assets
of the acquired company.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Unit Share System</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s articles of incorporation provide that 1,000 shares constitute one unit. Although the
number of shares constituting a unit is specified in NEC&#146;s articles of incorporation, any amendment
to NEC&#146;s articles of incorporation reducing (but not increasing) the number of shares constituting
a unit or eliminating the provisions for the unit of shares may be made by a resolution of the
board of directors rather than by a Special Shareholders Resolution, which is otherwise required
for amending the articles of incorporation. The number of shares constituting one unit, however,
cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the unit share system, shareholders shall have one voting right for each unit of shares
that they hold. Any number of shares less than a full unit will carry no voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless NEC&#146;s shareholders amend the articles of incorporation by a Special Shareholders
Resolution to eliminate the provision not to issue share certificates for less than a unit of
shares, a share certificate for any number of shares less than a unit will in general not be
issued. As the transfer of shares normally requires the delivery of the share certificates
therefor, any fraction of a unit for which no share certificates are issued is not transferable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder of shares constituting less than a full unit will be able to require NEC to purchase
those shares at their market value in accordance with the provisions of NEC&#146;s share handling
regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC&#146;s articles of incorporation provide that a holder of shares constituting less than one
unit may request that NEC sell to such holder such amount of shares which will, when added together
with the shares constituting less than one unit, constitute one unit of shares, in accordance with
the provisions of NEC&#146;s share handling regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A holder who owns ADRs evidencing less than 1,000 ADSs will indirectly own less than a whole
unit. Because a transfer of ADRs does not require a change in the ownership of the underlying
shares, holders of ADRs evidencing ADSs that constitute less than one unit of common stock are not
affected by such restrictions in their ability to transfer such ADRs. However, a transfer of less
than one unit of the underlying shares is normally impractical under the unit share system. Thus
under the deposit agreement relating to the ADRs, the right of ADR holders to surrender their ADRs
and withdraw the underlying shares for sale in Japan may only be exercised with whole units of
common stock. Under the unit share system, holders of less than a unit have the right to require
NEC to purchase their shares or sell shares held by NEC to such holders as described above.
However, holders of ADRs evidencing ADSs that represent amounts other than integral multiples of
whole units are unable to withdraw the underlying shares representing less than one unit.
Therefore, they are unable, as a practical matter, to exercise the right to require NEC to purchase
such underlying shares or sell shares held by NEC to such holders. As a result, access to the
Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for
dispositions of shares in lots of less than one unit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Sale by NEC of Shares Held by Shareholders Whose Location is Unknown</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC is not required to send a notice to a shareholder if notices to such shareholder fail to
arrive for a continuous period of five or more years at the registered address of such shareholder
in NEC&#146;s register of shareholders or at the address otherwise notified to NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, NEC may sell or otherwise dispose of the shares held by a shareholder whose
location is unknown. Generally, if (a)&nbsp;notices to a shareholder fail to arrive for a continuous
period of five or more years at the shareholder&#146;s registered address in NEC&#146;s register of
shareholders or at the address otherwise notified to NEC and (b)&nbsp;the shareholder fails to receive
dividends on the shares for a continuous period of five or more years at the address registered in
NEC&#146;s register of shareholders or at the address otherwise notified to NEC, NEC may sell or
otherwise dispose of the shareholder&#146;s shares at the then market price by a resolution of the board
of directors after giving at least three months&#146; prior public and individual notice, and hold or
deposit the proceeds of such sale or disposal for the shareholder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Reporting of Substantial Shareholders</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Securities and Exchange Law of Japan and its related regulations require any person,
regardless of residence, who has become, beneficially and solely or jointly, a holder of more than
5% of the total issued share of capital stock of a company that is listed on any Japanese stock
exchange, or whose shares are traded on an over-the-counter market in Japan, to file a report with
the Director of the competent Local Finance Bureau of the Ministry of Finance within five business
days. With certain exceptions, a similar report must also be filed in respect of any subsequent
change of 1% or more in the holding or of any change in material matters set out in any
previously-filed reports. For this purpose, shares issuable to such person upon conversion of
convertible securities or exercise of share subscription warrants or stock acquisition rights are
taken into account in determining both the number of shares held by the holder and the issuer&#146;s
total issued shares of capital stock. Copies of each report must also be furnished to the issuer of
the shares and to all Japanese stock exchanges on which the shares are listed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Others</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except for the general limitations under Japanese anti-trust and anti-monopoly regulations
against holding of shares of capital stock of a Japanese corporation which leads or may lead to a
restraint of trade or monopoly, and except for general limitations under the Commercial Code or
NEC&#146;s articles of incorporation on the rights of shareholders applicable regardless of residence or
nationality, there is no limitation under Japanese laws and regulations applicable to NEC or under
its articles of incorporation on the rights of non-resident or foreign shareholders to hold the
shares of common stock of NEC or to exercise voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There is no provision in NEC&#146;s articles of incorporation that would have an effect of
delaying, deferring or preventing a change in control of NEC and that would operate only with
respect to merger, consolidation, acquisition or corporate restructuring involving NEC.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>C. Material Contracts.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All contracts entered into by us during the two-year period preceding the date of this annual
report were entered into in the ordinary course of business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>D. Exchange Controls.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet order and
ministerial ordinances, or the Foreign Exchange Regulations, govern the acquisition and holding of
shares of NEC&#146;s capital stock by &#147;exchange non-residents&#148; and by &#147;foreign investors.&#148; The Foreign
Exchange Regulations currently in effect do not, however, affect transactions between exchange
non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchange non-residents are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD>individuals who do not reside in Japan; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD>corporations whose principal offices are located outside of Japan.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, branches and other offices of non-resident corporations that are located within
Japan are regarded as residents of Japan. Conversely, branches and other offices of Japanese
corporations located outside Japan are regarded as exchange non-residents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreign investors are:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD>individuals who are exchange non-residents;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD>corporations that are organized under the laws of foreign countries or
whose principal offices are located outside of Japan; and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD>corporation (1)&nbsp;of which 50% or more of their shares are held by
individuals who are exchange non-residents and/or corporations (a)
that are organized under the law of foreign countries or (b)&nbsp;whose
principal offices are located outside of Japan or (2)&nbsp;a majority of
whose officers, or officers having the power of representation, are
individuals who are exchange non-residents.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, the acquisition of shares of a Japanese company, such as the shares of NEC&#146;s
common stock, by an exchange non-resident from a resident of Japan is not subject to any prior
filing requirements. In certain limited circumstances, however, the Minister of Finance may require
prior approval of an acquisition of this type. While prior approval, as described above, is not
required in general, in the case where a resident of Japan transfers shares of a Japanese company,
such as the shares of NEC&#146;s common stock, to an exchange non-resident, the resident of Japan who
transfers the shares for consideration exceeding &#165;100&nbsp;million is required to report the transfer to
the Minister of Finance within 20&nbsp;days from the date of the transfer, unless the transfer was made
through a bank, securities company or financial futures trader licensed under Japanese law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock
exchange, such as the shares of NEC&#146;s common stock, and, as a result of the acquisition, the
foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or
more of the issued shares of the relevant company, the foreign investor must file a report of the
acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over
that Japanese company within 15&nbsp;days from and including the date of the acquisition, except where
the offering of the company&#146;s shares was made overseas. In limited circumstances, such as where the
foreign investor is in a country that is not listed on an exemption schedule in the Foreign
Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of
Finance and any other competent Ministers, who may then modify or prohibit the proposed
acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan
of shares of NEC&#146;s common stock held by non-residents of Japan may generally be converted into any
foreign currency and repatriated abroad.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>E. Taxation.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion below is intended for general information only and does not constitute a
complete analysis of all tax consequences relating to the ownership of shares of common stock of
NEC or ADSs. Prospective purchasers of the shares of common stock of NEC or ADSs should consult
their own tax advisors concerning the tax consequences of their particular situations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a general summary of the principal U.S. federal income and Japanese national
tax consequences of the acquisition, ownership and disposition of the shares of common stock of NEC
or ADSs. This summary does not address any aspects of U.S. federal tax law other than income
taxation, and does not discuss any aspects of Japanese tax law other than such income taxation as
limited to national taxes and inheritance and gift taxation. Investors are urged to consult their
tax advisors regarding the U.S. federal, state and local and Japanese and other tax consequences of
acquiring, owning and disposing of the shares of common stock of NEC or ADSs. Also, this summary
does not purport to address all the material tax consequences that may be relevant to the holders
of the shares of common stock of NEC or ADSs, and does not take into account the specific
circumstances of any particular investors, some of which (such as tax-exempt entities, banks,
insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings, regulated investment companies, real estate
investment trusts, partnerships and other pass-through entities, investors liable for alternative
minimum tax, investors that own or are treated as owning 10% or more of NEC&#146;s voting stock,
investors that hold the shares of common stock of NEC or ADSs as part of a straddle, hedge,
conversion or constructive sale transaction or other integrated transaction, and U.S. Holders (as
defined below) whose functional currency is not the U.S. dollar) may be subject to special tax
rules. This summary is based on the tax laws and regulations of Japan, the U.S. Internal Revenue
Code of 1986, as amended, or the Code, and the Treasury Regulations thereunder, judicial decisions,
published rulings, and administrative pronouncements, all as in effect on the date hereof, as well
as on the current income tax convention between the United States and Japan, or the Treaty, all of
which are subject to change (possibly with retroactive effect), and/or to differing
interpretations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, this summary is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement, and in any related agreement, will be
performed under its terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of this discussion, a &#147;U.S. Holder&#148; is any beneficial owner of the shares of
common stock of NEC or ADSs that is for U.S. federal income tax purposes:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an individual citizen or resident of the United States,</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) organized in or under the laws of the United States or any political subdivision
thereof,</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate the income of which is subject to U.S. federal income tax without regard to
its source, or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust (A)&nbsp;the administration of which is subject to the primary supervision of a
U.S. court and that has one or more U.S. persons who have the authority to control all
substantial decisions of the trust; or (B)&nbsp;that has validly elected to be treated as a
U.S. person for U.S. federal income tax purposes under applicable Treasury Regulations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If a partnership or other pass-through entity holds shares of common stock or ADSs, the tax
treatment of a partner in or owner of the partnership or pass-through entity will generally depend
upon the status of the partner or owner and the activities of the entity. We urge partners and
owners of partnerships or other pass-through entities holding shares of common stock or ADSs to
consult their own tax advisors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An &#147;Eligible U.S. Holder&#148; is a U.S. Holder that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is a resident of the United States for purposes of the Treaty,</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>does not maintain a permanent establishment in Japan (a)&nbsp;with which the shares of
common stock of NEC or ADSs are effectively connected or (b)&nbsp;of which the shares of common
stock of NEC or ADSs form part of the business property, and</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is eligible for benefits under the Treaty with respect to income and gain derived in
connection with the shares of common stock of NEC or ADSs.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A &#147;Non-U.S. Holder&#148; is any beneficial owner of the shares of common stock of NEC or ADSs that
is not a U.S. Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In general, for purposes of the Treaty and for U.S. federal income and Japanese income tax
purposes, owners of ADRs evidencing ADSs will be treated as the owners of the shares of common
stock of NEC represented by those ADSs, and exchanges of the shares of common stock of NEC for
ADSs, and exchanges of ADSs for the shares of common stock of NEC, will not be subject to U.S.
federal income or Japanese income tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Japanese Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the principal Japanese tax consequences (limited to national
taxes) to holders of the shares of common stock of NEC and of ADRs evidencing ADSs representing the
shares of common stock of NEC who are either individuals who are not residents of Japan or
non-Japanese corporations, without a permanent establishment in Japan, or non-resident Holders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese
withholding tax on dividends paid by Japanese corporations. Stock splits in themselves are not
subject to Japanese income tax.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate
of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of
Japanese withholding tax applicable to dividends paid by Japanese corporations to individuals who
are non-residents of Japan or non-Japanese corporations is 20%. With respect to dividends paid on
listed shares issued by a Japanese corporation (such as the shares of common stock of NEC) to any
corporate or individual shareholders (including those shareholders who are non-Japanese
corporations or Japanese non-resident individuals, such as non-resident Holders), except for any
individual shareholder who holds 5% or more of the total issued shares of the relevant Japanese
corporation, the aforementioned 20% withholding tax rate is reduced to (i)&nbsp;7% for dividends due and
payable on or before March&nbsp;31, 2008, and (ii)&nbsp;15% for dividends due and payable on or after April
1, 2008. At the date of this annual report, Japan has income tax treaties, conventions or
agreements whereby the above-mentioned withholding tax rate is reduced, in most cases to 15% for
portfolio investors with, among other countries, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, and the U.K.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on
dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a portfolio investor is
generally limited to 10% of the gross amount actually distributed, and dividends paid by a Japanese
corporation to an Eligible U.S. Holder that is a pension fund is exempt from Japanese taxation by
way of withholding or otherwise unless such dividends are derived from the carrying on of a
business, directly or indirectly, by such pension fund.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by
NEC to any particular non-resident Holder is lower than the withholding tax rate otherwise
applicable under Japanese tax law or any particular non-resident Holder is exempt from Japanese
income tax with respect to such dividends under the income tax treaty applicable to such particular
non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption
from Japanese withholding tax on payment of dividends on the shares of common stock by NEC is
required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese
Income Tax on Dividends in advance through NEC to the relevant tax authority before the payment of
dividends. A standing proxy for non-resident Holders of a Japanese corporation may provide this
application service. With respect to ADSs, this reduced rate or exemption is applicable if the
depositary or its agent submits two application forms (one before payment of dividends, the other
within eight months after NEC&#146;s fiscal year-end or semi-fiscal year-end). To claim this reduced
rate or exemption, any relevant non-resident Holder of ADSs will be required to file a proof of
taxpayer status, residence and beneficial ownership (as applicable) and to provide other
information or documents as may be required by the depositary. A non-resident Holder who is
entitled, under an applicable income tax treaty, to a reduced treaty rate lower than the
withholding tax rate otherwise applicable under Japanese tax law or an exemption from the
withholding tax, but failed to submit the required application in advance will be entitled to claim
the refund of withholding taxes withheld in excess of the rate under an applicable tax treaty (if
such non-resident Holder is entitled to a reduced treaty rate under the applicable income tax
treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled to an
exemption under the applicable income tax treaty) from the relevant Japanese tax authority.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gains derived from the sale of the shares of common stock of NEC or ADSs outside Japan by a
non-resident Holder holding such shares of common stock of NEC or ADSs as portfolio investors are,
in general, not subject to Japanese income or corporation tax. Eligible U.S. Holders are not
subject to Japanese income or corporation tax with respect to such gains under the Treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Japanese inheritance and gift taxes at progressive rates may be payable by an individual who
has acquired the shares of common stock of NEC or ADSs as a legatee, heir or donee even though
neither the individual nor the deceased nor donor is a Japanese resident.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of the shares of common stock of NEC or ADSs should consult their tax advisors
regarding the effect of these taxes and, in the case of U.S. Holders, the possible application of
the Estate and Gift Tax Treaty between the U.S. and Japan.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>United States Federal Income Tax</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following sets forth a summary of U.S. federal income tax consequences of the acquisition,
ownership, and disposition of shares of common stock or ADSs by a U.S. Holder. We have not
requested, and will not request, a ruling from the U.S. Internal Revenue Service, or the IRS, with
respect to any of the U.S. federal income tax consequences described below, and, as a result, there
can be no assurance that the IRS will not disagree with or will not challenge any of the
conclusions we have reached and described herein. The following description is not a complete
analysis or description of all potential U.S. federal income tax consequences to a particular U.S.
Holder. It does not address any estate or gift tax consequences or any tax consequences under any
state, local, foreign or other tax law of an investment in shares or ADSs other than as provided in
&#147;&#151;Japanese Taxation.&#148; This description addresses only shares or ADSs held as capital assets within
the meaning of Section&nbsp;1221 of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As noted above, if the obligations of the depositary are performed in accordance with the
terms of the deposit agreement relating to the ADRs, owners of ADRs evidencing ADSs will be treated
as the owners of the shares of common stock represented by those ADSs. The U.S. Department of
Treasury, or the U.S. Treasury, has expressed concerns that parties to whom ADSs are pre-released
may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S.
Holders of ADSs. Accordingly, the discussion on the creditability of Japanese taxes described
below could be affected by future actions that may be taken by the U.S. Treasury.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Special adverse U.S. federal income tax rules apply if a U.S. Holder holds shares or ADSs of a
company that is treated as a &#147;passive foreign investment company,&#148; a &#147;foreign personal holding
company&#148; (for 2004 and earlier years) or a &#147;controlled foreign corporation&#148; for any
taxable year during which the U.S. Holder held shares or ADSs. We believe that we are not and will
not become a &#147;passive foreign investment company,&#148; a &#147;foreign personal holding company&#148; (for 2004
and earlier years) or a &#147;controlled foreign corporation&#148; for U.S. federal income tax purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We urge potential holders to consult their own tax advisors with respect to the particular
consequences to them under U.S. federal, state, local and applicable foreign tax laws of the
acquisition, ownership and disposition of shares of common stock or ADSs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Dividends</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;U.S. Holders must include in gross income the gross amount of any distributions received with
respect to shares or ADSs (before reduction for Japanese withholding taxes) to the extent paid out
of NEC&#146;s current or accumulated earnings and profits (as determined for U.S. federal income tax
purposes) as ordinary income in their gross income. The amount of distribution of property other
than cash will be the fair market value of such property on the date of the distribution.
Dividends received by a U.S. Holder will not be eligible for the &#147;dividends-received deduction&#148;
allowed to U.S. corporations in respect to dividends received from other U.S. corporations. To the
extent that an amount received by a U.S. Holder exceeds such Holder&#146;s allocable share of our
current and accumulated earnings and profits, such excess will be applied first to reduce such U.S.
Holder&#146;s tax basis in its shares, thereby increasing the amount of gain or decreasing the amount of
loss recognized on a subsequent disposition of the shares. Then, to the extent such distribution
exceeds such U.S. Holder&#146;s tax basis, such excess will be treated as capital gain. The amount of
the dividend will be the U.S. dollar value of the Japanese yen payments received, determined at the
spot Japanese yen/U.S. dollar rate on the date the dividend is received by the depositary in the
case of U.S. Holders of ADSs, or by the shareholder in the case of U.S. Holders of shares of common
stock, regardless of whether the dividend payment is in fact converted into U.S. dollars at that
time. If the Japanese yen received as a dividend are not converted into U.S. dollars on the date
of receipt, a U.S. Holder will have a basis in such Japanese yen equal to their U.S. dollar value
on the date of receipt, and any foreign currency gains or losses resulting from the conversion of
the Japanese yen will generally be treated as U.S. source ordinary income or loss.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to certain limitations, the Japanese tax withheld will be creditable against the U.S.
Holder&#146;s U.S. federal income tax liability. See &#147;&#151;Japanese Taxation&#148; for a discussion of how to
obtain the reduced withholding tax rate. For foreign tax credit limitation purposes, the dividend
will be income from sources without the United States. The limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income. For this purpose,
dividends we pay will constitute &#147;passive income&#148; or, in the case of certain U.S. Holders,
&#147;financial services income&#148; for taxable years beginning before January&nbsp;1, 2007. For taxable years
beginning after December&nbsp;31, 2006, dividends generally will be &#147;passive category income&#148; or
&#147;general category income&#148; for purposes of computing the foreign tax credit allowable to a U.S.
Holder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Jobs and Growth Tax Relief Reconciliation Act of 2003, or the Act, affects the taxation of
dividends. The Act eliminates the tax rate difference between &#147;qualified dividends&#148; and capital
gains for U.S. individual investors. Qualified dividends include dividends received from both
domestic corporations and &#147;qualified foreign corporations.&#148; Qualified foreign corporations include
those corporations eligible for the benefits of a comprehensive income tax treaty with the United
States; both the Prior Treaty and the New Treaty are such treaties. Therefore, we believe that NEC
is a qualified foreign corporation and that dividends received by U.S. investors with respect to
shares of common stock or ADSs of NEC will be qualified dividends. Note that these provisions do
not affect dividends received by non-U.S. investors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Taxation of Capital Gains</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon a sale or other disposition of shares of common stock or ADSs, a U.S. Holder will
recognize gain or loss in an amount equal to the difference between the U.S. dollar value of the
amount realized and the U.S. Holder&#146;s tax basis (determined in U.S. dollars) in such shares of
common stock or ADSs. Generally, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the U.S. Holder&#146;s holding period for such shares of common stock
or ADSs exceeds one year. A U.S. Holder&#146;s adjusted tax basis in its shares or ADSs will generally
be the cost to the holder of such shares of common stock or ADSs. Any gain or loss realized by a
U.S. Holder upon a disposition of shares of common stock or ADSs will be income or loss from
sources within the U.S. for foreign tax credit limitation purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B><I>Information Reporting and Backup Withholding</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid on shares of common stock or ADSs to a U.S. Holder, or proceeds from a U.S.
Holder&#146;s sale, exchange or other disposition of shares of common stock or ADSs, may be subject to
information reporting requirements. Those dividends or proceeds from sale or disposition may also
be subject to backup withholding unless the U.S. Holder:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is a corporation or comes within certain other categories or exempt recipients, and, when required, demonstrates this fact; or</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provides a correct taxpayer identification number on a properly completed Form W-9 or substitute form, certifies that the
U.S. Holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup
withholding rules.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any amount withheld under these rules will be creditable against the U.S. Holder&#146;s U.S.
federal income tax liability or refundable to the extent that it exceeds such liability if the U.S.
Holder provides the required information to the IRS. If a U.S. holder is required to and does not
provide a correct taxpayer identification number, the U.S. Holder may be subject to penalties
imposed by the IRS.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the normal course of our business, we are exposed to risks from fluctuations in foreign
currency exchange rates, interest rates, and the prices of our marketable securities. In order to
reduce risks in fluctuations in foreign currency exchange rates and interest rates, we enter into
various kinds of financial instruments. As discussed below, we hedge elements of our exposure in
fluctuations in foreign currency exchange rates and interest rates through the use of derivative
financial instruments. Changes in exchange rates or interest rates cause the value of these
instruments to decrease or increase or our obligations to be more or less costly to settle. Any
gains or losses on derivatives will offset losses or gains on the asset or liability being hedged.
We do not, however, own any financial instruments for trading purposes. The counterparties to our
derivative transactions are major financial institutions. We establish credit lines with such
financial institutions after carefully reviewing certain factors, including their credit quality,
and manage our monthly balance with each institution.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A. Foreign Currency Exchange Rate Risk and Interest Rate Risk.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We apply sensitivity analyses to evaluate risks resulting from fluctuations in foreign
currency exchange rates and interest rates. We assume a specific change during a particular fiscal
year in foreign currency exchange rates or interest rates, as the case may be, and determine the
effect that such change will have on the fair value of our assets and liabilities, such as cash and
cash equivalents, marketable and investment securities, loans, short-term borrowings, long-term
debt, and derivative financial instruments. We estimate the market value of fluctuations in foreign
currency exchange rates or interest rates, as the case may be, by calculating the present value of
the future cash flows affected by such fluctuations, using a discount rate based on the foreign
currency exchange rates or interest rates, as the case may be, as of the last day of our fiscal
year. Thus, the profit or loss resulting from fluctuations in foreign currency exchange rates or
interest rates is the difference between the market value of such fluctuations and the actual fair
value of our assets and liabilities as of the last day of our fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not included in the following results of our sensitivity analyses the effect of our
hedging activity with respect to our accounts receivable and accounts payable denominated in
foreign currencies. Therefore, they do not reflect the full effect of our hedging activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Foreign Currency Exchange Rate Risks</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We enter into certain derivative financial instruments, primarily forward exchange contracts
and currency swap agreements, in order to reduce the adverse impact of fluctuations in foreign
currency exchange rates on our monetary assets and liabilities that are denominated in foreign
currencies. Such instruments are used to hedge the effects of fluctuations in the U.S. dollar, the
euro, and other currencies against the Japanese yen. Assuming that all other conditions remained
the same, if foreign currency exchange rates of the Japanese yen as of March&nbsp;31, 2004 or March&nbsp;31,
2005 appreciated against foreign currencies by 10%, then the fair value of our derivative financial
instruments would have increased by &#165;6.5&nbsp;billion or &#165;9.3&nbsp;billion, respectively. On the other hand,
assuming that all other conditions remained the same, if foreign currency exchange rates of the
Japanese yen as of March&nbsp;31, 2004 or March&nbsp;31, 2005 depreciated against foreign currencies by 10%,
then the fair value of our derivative financial instruments would have decreased by &#165;6.3&nbsp;billion or
&#165;9.1&nbsp;billion, respectively. The main reason for the change in our risk exposures as of March&nbsp;31,
2004 and March&nbsp;31, 2005 was an increase in the sale of forward exchange contracts during the
current fiscal year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Interest Rate Risks</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We enter into certain derivative financial instruments, primarily interest rate swaps, in
order to reduce the adverse impact of fluctuations in interest rates on our financial assets and
liabilities, primarily long-term debt. Assuming that all other conditions remained the same, if
interest rates as of March&nbsp;31, 2004 or March&nbsp;31, 2005 decreased by 10%, then the fair value of our
derivative financial instruments would have decreased by &#165;0.2&nbsp;billion or &#165;0.2&nbsp;billion,
respectively. On the other hand, if interest rates as of March&nbsp;31, 2004 or March&nbsp;31, 2005 increased
by 10%, the fair value of our derivative financial instruments would have increased by &#165;0.2&nbsp;billion
or &#165;0.2&nbsp;billion, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B. Equity Price Risks</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our marketable securities are classified as available-for-sale securities. We do not
own any marketable securities for trading purposes. The following table sets forth the maturity
dates, costs, and fair values of the debt securities and the costs and fair values of equity
securities in our investment portfolio as of March&nbsp;31, 2004 and 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>As of March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(Millions of Yen)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Debt securities (by maturity dates):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less than 1&nbsp;year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">3,033</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">3,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1 to 2&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">146,944</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,577</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">83,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">149,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">58,363</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">107,612</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 15. CONTROLS AND PROCEDURES.</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on their evaluation as of March&nbsp;31, 2005, NEC&#146;s principal executive
officer and principal financial officer have concluded that NEC&#146;s disclosure controls
and procedures (as defined in Rules&nbsp;13a-15(e) and 15d-15(e) under the U.S. Securities
Exchange Act of 1934) are effective. There were no changes in NEC&#146;s internal control
over financial reporting that occurred during the fiscal year ended March&nbsp;31, 2005
that has materially affected, or is reasonably likely to materially affect, NEC&#146;s
internal control over financial reporting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We, however, have conducted a review of financial reporting practices at two of
our indirect U.S. subsidiaries, NEC Business Network Solutions, Inc. (&#147;BNS&#148;), and
Corporate Network Group (&#147;CNG&#148;), a business unit of NEC America, Inc., the operations
of which were combined in April&nbsp;2004 (collectively, &#147;BNS/CNG&#148;). The review related
to the financial results of BNS/CNG reported for the nine quarters commencing January
1, 2002 and ending March&nbsp;31, 2004. As a part of that review, we retained independent
counsel, which in turn retained independent forensic accountants, to conduct an
independent investigation of BNS&#146; financial reporting practices and subsequently
included certain accounting practices of CNG. The issues identified do not affect
our previously reported consolidated financial results for the fiscal years ended
March&nbsp;31, 2002, 2003 and 2004. The independent investigation, which was completed in
July&nbsp;2005, did identify the following: although the findings of the initial internal
investigation conducted in 2003-04 by NEC America&#146;s internal audit group correctly
identified certain improprieties with respect to BNS accounting practices, the
quality and independence of the internal audit process was flawed; management and
employees of BNS/CNG failed to be responsive to independent auditors inquiries as
part of BNS/CNG audit process; and certain improper accounting practices at BNS/CNG
were found to have been widespread and systematic within BNS/CNG over the nine
quarters in question.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In response to the findings by independent counsel, we implemented a series of
remedial measures, and took other actions, in response to the financial reporting
practices at BNS/CNG and, with the assistance of augmented compliance staff, are
continuing to assess whether further measures are necessary or appropriate at the
BNS/CNG level.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although the independent investigation had a limited scope focused primarily on
the reporting practices at BNS/CNG, it raised concerns with the NEC group budget and
planning process and other possible sources of pressure on financial reporting. In
light of that, we elected to further strengthen our oversight of reporting practices
throughout the NEC group. We have been evaluating, and are planning to take, certain
measures, including a review of internal policies and procedures and an enhancement
of internal audit processes. In recent weeks, we have taken some initial actions,
including delivery of messages from top management emphasizing to all NEC personnel
the importance of strict compliance with the internal policies and procedures as well
as legal and regulatory requirements applicable to financial reporting and stressing
ethical conduct by all NEC personnel.
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of corporate auditors has determined that Mr.&nbsp;Muneo Shigematsu qualifies as an
&#147;audit committee financial expert&#148; as defined under the rules of the SEC. Mr.&nbsp;Shigematsu was a
former member of the board of directors of Sumitomo Corporation, and was in charge of preparing its
U.S.-GAAP financial statements. He is now a member of the board of directors of The Seiyu, Ltd.,
and was elected as one of our corporate auditors at an ordinary general meeting of shareholders
held in June&nbsp;2004. Mr.&nbsp;Shigematsu meets the standards of independence as set forth in the
Commercial Code and under the rules of the SEC and NASDAQ.
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16B. CODE OF ETHICS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a code of ethics, the &#147;NEC Group Code of Conduct,&#148; which is applicable to all
of our officers and employees. We have posted the Code of Conduct on our website at
http://www.nec.co.jp/csr/en/management/code.html.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>A. Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of corporate auditors, consisting of five members, of which three are outside
corporate auditors, is responsible for the oversight of NEC&#146;s independent auditors&#146; work. The board
of corporate auditors established Pre-Approval Policy and Procedures for Audit and Non-Audit
Services, or the Policy and Procedures, effective as of June&nbsp;27, 2003. The Policy and Procedures
govern the board of corporate auditors&#146; practices for retaining NEC&#146;s external auditors for audit and
non-audit services. Non-audit services include audit-related services, tax services and other
services, as described below under &#147; &#151; Fees and Services of Ernst &#038; Young ShinNihon.&#148; NEC and its
subsidiaries, controlled directly or indirectly, must follow the Policy and Procedures when
engaging NEC&#146;s independent accountants for U.S. securities law reporting purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Policy and Procedures, certain audit- and non-audit services relating to NEC and its
subsidiaries have been pre-approved by the board of corporate auditors. If any proposed services
has not already received pre-approval or exceed the pre-approved cost level which the board of
corporate auditors has established, specific pre-approval by the board of corporate auditors will
be required. Any services not subject to specific pre-approval that are rendered by the independent
auditors will be reported to the board of corporate auditors by NEC&#146;s Corporate Controller Division
on a monthly basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of corporate auditors may delegate pre-approval authority to one or more of its
members in accordance with applicable SEC rules. The member or the members to whom such authority
is delegated shall report to the board of corporate auditors any pre-approval decisions at the next
scheduled meeting of the board of corporate auditors. The board of corporate auditors nevertheless
does not delegate its responsibilities to pre-approve services performed by the independent
auditors to the management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, the board of corporate auditors has specified certain services as prohibited
non-audit services that may not be provided by the independent auditors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Policy and Procedures categorize audit and non-audit services into audit services,
audit-related services, tax services, and all other services and stipulate the procedures that must
be complied with as follows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Audit Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit services include statutory audits or financial audits, including: quarterly reviews for
NEC and its subsidiaries; services associated with registration statements, periodic reports, and
other documents filed with the Financial Services Agency of Japan, or the FSA, the SEC, or other
similar agencies, or other documents in connection with securities offerings, and assistance in
responding to SEC comment letters; attestation of management reports on internal controls; and
consultations by NEC&#146;s and its subsidiaries&#146; management as to the accounting or disclosure
treatment of transactions or events and/or the actual or potential impact of final or proposed
rules, standards or interpretations by the FSA, the SEC, the U.S. Financial Accounting Standards
Board, or other regulatory or standard setting bodies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The annual audit service engagement fees paid by NEC are subject to specific pre-approval by
the board of corporate auditors. The board of corporate auditors will approve, if necessary, any
changes in fees resulting from changes in audit scope, company structure, or other matters. The
annual audit services engagement fees paid by NEC&#146;s subsidiaries will not be subject to the
specific pre-approval of the board of corporate auditors unless such fees exceed the amount
specified by the board of corporate auditors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Audit-related Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Audit-related services include assurance and related services that are reasonably related to
the performance of the audit or review of NEC&#146;s or its subsidiaries&#146; consolidated and
non-consolidated financial statements, or that are traditionally performed by the independent
auditors. The board of corporate auditors has pre-approved certain audit-related services in
accordance with specified fee levels established by the board of corporate auditors. All other
audit-related services that are not covered by the Policy and Procedures or that exceed the
specified fee levels will be subject to specific pre-approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Tax Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax services include tax compliance, tax planning, and tax advice. The board of corporate
auditors has pre-approved certain tax services in accordance with specified fee levels established
by the board of corporate auditors. All tax services involving large and complex transactions not
covered by the Policy and Procedures are subject to specific pre-approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The board of corporate auditors will not permit the retention of the independent auditors in
connection with a transaction initially recommended by the independent auditors for the purpose of
tax avoidance or tax treatment which is not supported under domestic or foreign tax laws or
regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>All Other Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other services include those permissible non-audit services that the board of corporate
auditors believes are routine and recurring services. The board of corporate auditors has
pre-approved certain other services in accordance with specified fee levels established by the
board of corporate auditors. All other services that are not covered by the Policy and Procedures
or that exceed the specified fee levels are subject to specific pre-approval.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No services were provided for which pre-approval was not obtained but subsequently approved
pursuant to paragraph (c)(7)(i)(C) of Rule&nbsp;2-01 of Regulation&nbsp;S-X.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>B. Fees and Services of Ernst &#038; Young ShinNihon</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table discloses the aggregate fees billed by Ernst &#038; Young ShinNihon for each of
the last two fiscal years.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="60%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(Millions of yen)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">882</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-related fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All other fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">1,145</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD align="right">1,181</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit fees </I>consist of fees billed for the annual audit services including quarterly reviews
for our financial statements and services that are associated with registration statements filed
with the SEC or other similar agencies, or other documents in connection with securities offerings
(e.g., comfort letters and consents), and consultations as to the accounting or disclosure
treatment of transactions or events.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Audit-related fees </I>consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial statements such as
due diligence services, employee benefit plan audits, consultation concerning financial accounting
and reporting standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Tax fees </I>include fees billed for tax compliance services, including the review of tax returns
and claims for refunds, tax planning services and tax advice services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>All other fees </I>consist of fees billed for other services not included in the above categories.
</DIV>
<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NEC is exempted from the NASDAQ Rules relating to audit committees. NASDAQ Rule
4350(d)(2)(A)(i) requires NEC to have, and certify that it has and will continue to have, an audit
committee of at least three members, each of whom must be independent. In compliance with the
Commercial Code, NEC has elected to structure its corporate governance system as a company with
corporate auditors. Accordingly, NEC is not required to have and does not have any specified
committees. Under the Commercial Code, corporate auditors are not required to be certified public
accountants. Corporate auditors have the statutory duty to examine NEC&#146;s consolidated and
non-consolidated financial statements and the business reports which are made available by the
board of directors for reporting or approval purposes at the general meetings of shareholders and,
based on such examination, to report their opinions to shareholders. They also have the statutory
duty to supervise the administration by the board members of NEC&#146;s affairs. Corporate auditors are
obligated to attend the meetings of the board of directors but are not entitled to vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The corporate auditors constitute the board of corporate auditors. Under the Commercial Code,
the board of corporate auditors has a statutory duty to prepare and submit its audit report to the
board of directors each year. A corporate auditor may note an opinion in the audit report if his
or her opinion differs from the opinion expressed in the audit report. The board of corporate
auditors is empowered to establish audit principles, the method of examination by corporate
auditors of a company&#146;s affairs and financial position, and other matters concerning the
performance of the duties of corporate auditors. Under the Japanese Commercial Code, boards of
corporate auditors consist solely of corporate auditors and corporate auditors may not be directors
of the company. Accordingly, no member of the board of corporate auditors is an &#147;outside&#148;
director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unlike the NASDAQ Rules, under the Commercial Code, at least one of the corporate auditors of
NEC must be an &#147;outside corporate auditor,&#148; which is a person who was not a director, executive
officer, company manager, or any other employee of NEC or any of its subsidiaries during the
five-year period prior to such person&#146;s election as corporate auditor. After the conclusion of the
ordinary general meeting of shareholders to be held with respect to the first fiscal year ending on
and after May&nbsp;1, 2005, at least half of the corporate auditors will be required to be persons who
have not been a director, executive officer, company manager, or any other employee of NEC or any
of its subsidiaries at any time prior to their election as corporate auditors. Corporate auditors
may not at the same time be directors, company managers, or any other employees of NEC or any of
its subsidiaries, or executive officers of any of NEC&#146;s subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, NEC&#146;s board of corporate auditors has adopted, in lieu of an Audit Committee
charter as required by NASDAQ Rule&nbsp;4350(d)(1), rules for the
board of corporate auditors that comply
with applicable Japanese law.
</DIV>

<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information related to purchases made by NEC of its
equity securities.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(a) Total Number of</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(b) Average Price</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(c) Total Number of</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(d) Maximum Number</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Shares (or Units)</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Paid per Share</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Shares (or Units)</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(or Approximate</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Purchased</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">(or Units)</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Purchased as Part</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Dollar Value) of</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">Period</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">of Publicly</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Shares (or Units)</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Announced Plans</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">That May Yet Be</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">or Programs</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Purchased Under the</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="3">Plans or Programs</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">April&nbsp;1, 2004 &#150; April&nbsp;30, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,765&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">879.70&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">May&nbsp;1, 2004 &#150; May&nbsp;31, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,922&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">818.06&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">June&nbsp;1, 2004 &#150; June&nbsp;30, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,885&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">762.84&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">July&nbsp;1, 2004 &#150; July&nbsp;31, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,251&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">729.75&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">August&nbsp;1, 2004 &#150; August&nbsp;31, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,455&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">690.50&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">September&nbsp;1, 2004 &#150; September&nbsp;30, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,056&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">699.80&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">October&nbsp;1, 2004 &#150; October&nbsp;31, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,568&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645.12&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">November&nbsp;1, 2004 &#150; November&nbsp;30, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,150&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">583.50&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;1, 2004 &#150; December&nbsp;31, 2004</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,190&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">622.04&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;1, 2005 &#150; January&nbsp;31, 2005</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,824&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">615.42&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;1, 2005 &#150; February&nbsp;28, 2005</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,679&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">618.58&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">March&nbsp;1, 2005 &#150; March&nbsp;31, 2005</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,817&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">660.65&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-left: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000; border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="1%" style="border-left: 1px solid #000000">&nbsp;</TD>
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">475,562&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">664.96&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD width="1%" style="border-right: 1px solid #000000">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD width="1%" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD colspan="3" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD width="1%" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Commercial Code, a holder of shares constituting less than one full unit may require
NEC to purchase such shares at their market value (See &#147;Item&nbsp;10. B. Memorandum and Articles of
Association &#151; Common stock &#151; Unit share system&#148;).
</DIV>
<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 17. FINANCIAL STATEMENTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 18. FINANCIAL STATEMENTS.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;See our consolidated financial statements beginning on page F-1.
</DIV>
<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>ITEM 19. EXHIBITS.</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="94%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B></TD>
</TR>
<TR style="font-size: 3pt">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Incorporation, as
amended to date (English translation).<BR>Rules of the Board of Directors, as amended to date (English translation).</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;&nbsp;8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company (see &#147;Item&nbsp;4.C. Information on the Company &#151; Organizational Structure&#148;).</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certifications required by Rule&nbsp;13a-14(a) (17 CFR 240.13a-14(a)) or Rule&nbsp;15d-14(a) (17 CFR 240.15d-14(a)).</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certifications required by Rule&nbsp;13a-14(b) (17 CFR 240.13a-14(b)) or Rule&nbsp;15d-14(b) (17 CFR 240.15d-14(b))
and Section&nbsp;1350 of Chapter&nbsp;63 of Title 18 of the United States Code (18 U.S.C. 1350).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="127"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Signature</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom" style="font-size:1px">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="62%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">NEC CORPORATION</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ AKINOBU KANASUGI</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Name:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Akinobu Kanasugi</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Title:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President and Member of the Board</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Date:
September&nbsp;27, 2005
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Index to Consolidated Financial Statements
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated Balance Sheets at March&nbsp;31, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3, F-4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated Statements of Operations, Comprehensive Income (Loss)
and Retained Earnings for the years ended March&nbsp;31, 2003, 2004, and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated Statements of Cash Flows for the years ended
March&nbsp;31, 2003, 2004, and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Notes to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7 - F-64</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Financial Statements Schedules for the years ended March&nbsp;31, 2003, 2004 and
2005:<BR>II &#150; Valuation and Qualifying Accounts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-65</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All other schedules are omitted because they are not applicable or the required information is
shown in
the financial statements or the notes thereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial statements of majority-owned subsidiaries not consolidated and of 50&nbsp;percent or less
owned persons accounted for by the equity method have been omitted because the registrant&#146;s and its
other subsidiaries&#146; proportionate share of the income from continuing operations before income
taxes, and total assets of each such company is less than 20&nbsp;percent of the respective consolidated
amounts, and the investment in and advances to each company is less than 20&nbsp;percent of consolidated
total assets, except for the followings:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated Financial Statements of Elpida Memory, Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">at March&nbsp;31, 2004 and 2005 and Years ended March&nbsp;31, 2003, 2004 and 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-66</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Report of Independent Registered Public Accounting Firm
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board of Directors and Shareholders<BR>
NEC Corporation (Nippon Denki Kabushiki Kaisha)

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of NEC Corporation (the &#147;Company&#148;) as
of March&nbsp;31, 2004 and 2005, and the related consolidated statements of operations, comprehensive
income (loss)&nbsp;and retained earnings and cash flows for each of the three years in the period ended
March&nbsp;31, 2005, all expressed in Japanese yen. Our audits also included the financial statement
schedule listed in the Index at Item&nbsp;18 (a). These financial statements and schedule are the
responsibility of the Company&#146;s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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. We
were not engaged to perform an audit of the Company&#146;s internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company&#146;s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of NEC Corporation at March&nbsp;31, 2004 and 2005, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended March&nbsp;31, 2005, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As discussed in Note 2 to the consolidated financial statements, in fiscal 2004, the Company
changed its method of accounting for consolidation of variable interest entities.
</DIV>


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">/s/ Ernst &#038; Young ShinNihon
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tokyo, Japan<BR>
April&nbsp;25, 2005,<BR>
except for Note 23, as to which the date is June&nbsp;22, 2005

</DIV>

<P align="center" style="font-size: 10pt">F-2
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Balance Sheets
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5"><I>&nbsp;&nbsp;(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">496,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>494,284</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Notes receivable, trade <I>(Note 16)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,356</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable, trade <I>(Note 16)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">848,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>900,227</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Allowance for doubtful notes and accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(14,887</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories <I>(Note 5)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>528,923</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred tax assets <I>(Note 11)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>106,755</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,757</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>49,904</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,129,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,081,562</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments and long-term receivables:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketable securities <I>(Note 4)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>107,612</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investments and advances:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Affiliated companies <I>(Note 3)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>187,011</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other <I>(Note 4)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>120,544</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Long-term receivables, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,274</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">451,373</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>423,441</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment <I>(Notes 9 and 20)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>96,565</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">819,443</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>779,811</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,756,485</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,720,698</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>42,789</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,714,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,639,863</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,944,294</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,913,441</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">770,214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>726,422</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred tax assets <I>(Note 11)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">414,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>399,313</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Goodwill <I>(Notes 6 and 7)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,993</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>56,934</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">License fees and other intangibles <I>(Notes 6 and 7)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,436</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>42,912</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other <I>(Note 8)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222,487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>210,101</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">692,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>709,260</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,044,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>3,940,685</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="7">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Short-term borrowings <I>(Note 9)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;</TD>
    <TD align="right">98,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;&nbsp;&nbsp;</B></TD>
    <TD align="right"><B>227,615</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current portion of long-term debt <I>(Notes 9 and 20)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">266,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>137,354</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Notes payable, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>30,065</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">890,926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>817,519</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, other and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">272,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>284,798</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,906</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>138,403</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,742,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,661,660</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Long-term debt <I>(Notes 9 and 20)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">806,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>791,238</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued pension and severance costs <I>(Note 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">524,898</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>425,174</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>44,152</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,368,921</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,260,564</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority shareholders&#146; equity in consolidated subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">221,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>224,187</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingent liabilities <I>(Notes 20 and 21)</I>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity <I>(Note 12)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:60px; text-indent:-15px">Authorized&nbsp;&nbsp;&#150; 3,200,000,000 shares
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Issued 2004 &#150; 1,929,268,717 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">337,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:98px; text-indent:-15px">2005 &#150; 1,929,268,717 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>337,820</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">454,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>455,683</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>128,204</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(149,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(124,396</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">714,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>797,311</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock, at cost:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2004 &#150;2,677,439 shares, 2005 &#150;3,067,755 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,037</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">711,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>794,274</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;&nbsp;&nbsp;</TD>
    <TD align="right">4,044,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;&nbsp;&nbsp;</B></TD>
    <TD align="right"><B>3,940,685</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>See notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Operations, Comprehensive Income (Loss)<BR>
and Retained Earnings
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>&nbsp;&nbsp;&nbsp;(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and other income:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,695,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>4,855,132</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Subsidy related to transfer of substitutional portion
of employee pension fund liabilities, net of
settlement loss of &#165;138,063&nbsp;million and &#165;12,607
million for the years ended March&nbsp;31, 2004 and 2005,
respectively. <I>(Note 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>663</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale or disposal of fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest and dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,396</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain due to stock issuances by subsidiaries <I>(Note 18)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,808</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on sale of investments in securities, net of
loss on sale and impairment <I>(Note 4)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>43,446</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,768,978</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,006,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,908,637</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,453,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,622,965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,646,770</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">296,241</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>275,348</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Selling, general and administrative <I>(Note 17)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">824,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">852,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>802,505</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Restructuring charges <I>(Note 19)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,407</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,854</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Impairment of goodwill <I>(Note 7)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on sale or disposal of fixed assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,713</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,403</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,632</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net foreign exchange loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,386</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,639</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,075</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,707,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,845,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,792,973</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>115,664</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes <I>(Note 11)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>73,111</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interest, equity in earnings
(losses)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>42,553</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest in income of consolidated subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,280</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before equity in earnings (losses)&nbsp;of
affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,114</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,273</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in earnings (losses)&nbsp;of affiliated companies
<I>(Note 3)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,444</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17,760</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>32,591</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67,864</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive income (loss), net of tax
<I>(Note 12)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,655</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,844</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,812</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Minimum pension liability adjustment <I>(Note 10)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132,190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,874</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Unrealized gains (losses)&nbsp;on marketable
securities <I>(Note 4)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,217</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,316</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Unrealized gains (losses)&nbsp;on derivative financial
instruments <I>(Note 15)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(180,980</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,401</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(205,538</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">177,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>93,265</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retained earnings:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">66,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">41,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>71,901</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>67,864</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Dividends <I>(Note 23)</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(11,561</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">41,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">71,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>128,204</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per share <I>(Note 14)</I>:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">23.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>34.77</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31.87</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.00</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>See notes to consolidated financial statements.</I>
</DIV>



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Cash Flows
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from operating activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>67,864</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)&nbsp;to net cash
provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>166,484</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>38,977</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Gain) loss on property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,035</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,129</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Realized gain on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,432</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(25,498</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain due to stock issuances by subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,136</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(53,808</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Provision for pension and severance costs, less payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(638</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,842</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(20,930</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity in (earnings)&nbsp;losses of affiliated companies,
net of dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(31,580</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minority interest in income of consolidated subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,338</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,280</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in notes and accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,340</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,870</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35,862</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>56,289</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase (decrease)&nbsp;in notes and accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(109,387</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(114,239</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase (decrease)&nbsp;in other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(68,717</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(16,650</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>33,303</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">247,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>164,559</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from investing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sales of fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,423</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>89,422</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions to fixed assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(210,261</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(230,522</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(261,384</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sales and redemption of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,493</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29,754</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,277</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,112</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net proceeds from sales of affiliates&#146; stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">71,810</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>48,042</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investments in affiliates, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(26,109</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(55,594</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Disbursements for long-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,620</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,649</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,173</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments received on long-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,894</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase in other investment securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,810</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,375</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,649</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,379</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,253</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,586</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(69,115</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(122,547</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from financing activities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175,516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>146,264</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repayments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(333,889</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(301,425</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(306,452</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;in short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(114,075</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(115,712</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>122,682</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,291</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,432</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(14,060</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from stock issuances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from stock issuances by subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,923</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(933</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,300</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(262,749</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(102,773</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(50,266</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash
equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,595</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,159</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,775</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,427</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,479</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">344,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>496,763</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">344,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">496,763</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>494,284</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosures of cash flow information:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid during the year for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">31,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">24,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>19,696</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>47,716</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>See notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">F-6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">March&nbsp;31, 2005
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Nature of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Corporation and its consolidated subsidiaries (the &#147;Company&#148;) is a provider of systems,
components, services, and integrated solutions for computing and communication applications. The
Company&#146;s principal operations consist of IT Solutions business, Network Solutions business, and
Electron Devices business based on customers and markets served.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 corporates and individual customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Network Solutions business is primarily engaged in the development, design, manufacture, sale and
network integration for communications systems and equipment mainly for network service providers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Electron Devices business is primarily engaged in the development, design, manufacture and sale of
semiconductors and other electron devices for equipment manufacturers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Significant accounting policies, after reflecting adjustments for the above, are as follows:
</DIV>


<P align="center" style="font-size: 10pt">F-7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Basis of consolidation and investments in affiliated companies</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements include the accounts of NEC Corporation and its 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&nbsp;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&nbsp;31.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Financial Accounting Standards Board (&#147;FASB&#148;) issued FASB Interpretation No.&nbsp;46 as revised,
(&#147;Interpretation No.&nbsp;46&#148;), <I>Consolidation of Variable Interest Entities </I>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.&nbsp;46 requires the
consolidation of variable interest entities in which the Company absorbs a majority of the entity&#146;s
expected losses, receives a majority of the entity&#146;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.&nbsp;46 for the Company&#146;s variable interests in all variable
interest entities as of March&nbsp;31, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments in 50% or less 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cash equivalents</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All highly liquid investments with a maturity at their date of acquisition of three months or less
are considered to be cash equivalents.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Foreign currency translation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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)&nbsp;classified as part of shareholders&#146; equity.
</DIV>


<P align="center" style="font-size: 10pt">F-8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Allowance for doubtful notes and accounts</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">An allowance for doubtful notes and accounts is provided based on credit loss history and an
evaluation of any specific doubtful notes and accounts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Marketable securities and other investments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Other investment securities are stated at cost and reviewed periodically for impairment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Inventories</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are stated at the lower of cost or market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Raw materials and purchased components are principally stated on a first-in, first-out basis and,
for certain subsidiaries, on an average cost basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<P align="center" style="font-size: 10pt">F-9
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Property, plant and equipment and depreciation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;years, machinery and equipment, 2 to 22&nbsp;years. Maintenance and repairs,
including minor renewals and betterments, are charged to income as incurred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Leased assets meeting certain criteria are capitalized and amortized principally using the
declining-balance method over the lease term.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Assets leased to others under operating leases are stated at cost and depreciated using the
straight-line method over their estimated useful lives.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Goodwill and other intangibles</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Goodwill and intangible assets with indefinite lives are not amortized, but instead tested for
impairment annually or more frequently if events or circumstances indicate it might be impaired.
Goodwill is tested for impairment by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. Intangible assets with indefinite lives are tested for impairment by
comparing the fair values of those assets with their carrying amounts. The Company performs
an-annual impairment test in the fourth quarter of each fiscal year, or more often if events or
circumstances indicate that assets might be impaired.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 6
years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Impairment of long-lived assets</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-lived assets to be disposed of by sale are evaluated at the lower of carrying amount or fair
value less cost to sell.
</DIV>


<P align="center" style="font-size: 10pt">F-10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Software costs</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 principally over 3&nbsp;years. Unamortized
capitalized software costs determined to be in excess of the net realizable value are written off.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain costs incurred to develop or obtain internal use computer software are capitalized, and
amortized on a straight-line basis over periods ranging up to 5&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Income taxes</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax basis of the 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Issuance of stock by a subsidiary or an affiliated company</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">When a subsidiary or an affiliated company issue stock to unrelated third parties, the Company&#146;s
ownership interest in the subsidiary or affiliated company decreases. In the event the price per
share is more or less than the Company&#146;s average carrying amount per share, the Company adjusts the
carrying amount of its investment in the subsidiary or affiliated company and recognizes a gain or
loss in the year in which the change in ownership interest occurs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Stock-based compensation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, 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 (&#147;APB&#148;) Opinion No.&nbsp;25, <I>Accounting for Stock Issued to Employees</I>,
and related Interpretations. The following table illustrates the effect on net income (loss)&nbsp;and
net income (loss)&nbsp;per share if the Company had applied the fair value recognition provisions of the
Statement of Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;123, <I>Accounting for Stock-Based
Compensation</I>, to stock-based compensation.
</DIV>


<P align="center" style="font-size: 10pt">F-11
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Stock-based
compensation (continued)</I></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss), as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;&#165;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&#165;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;<B>&#165;</B></TD>
    <TD align="right"><B>67,864</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of participating
convertible securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(890</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Stock-based compensation
expense included in reported
net income, net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>238</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effects</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(346</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,129</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;&#165;</TD>
    <TD align="right">(24,652</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&#165;</TD>
    <TD align="right">40,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;<B>&#165;</B></TD>
    <TD align="right"><B>66,083</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="right" colspan="3"><I>(Yen)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">23.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>34.77</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34.30</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted &#150; as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31.87</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted &#150; pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.91</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31.44</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net income per share</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Basic net income per share (&#147;EPS&#148;) 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 an
antidilutive effect.
</DIV>


<P align="center" style="font-size: 10pt">F-12
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Revenue recognition</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company recognizes revenue for transactions when the following criteria have been met. 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 reasonably
assured.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 delivery 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 delivery 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 related to the
software at the same time as the Company recognizes the revenue for the product. Customers
generally do not have the right of return.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company sells program products consisting of packaged software such as an operating system or
middleware used in computer systems. Revenue related to the software is recognized upon customer
acceptance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 systems integration is recognized upon customer
acceptance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue from maintenance is recognized over the contract term or when maintenance is provided,
depending on the type of maintenance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company recognizes as service revenue for the Internet services of &#147;BIGLOBE&#148; as the services
are provided, which is generally on a monthly basis.
</DIV>


<P align="center" style="font-size: 10pt">F-13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Revenue recognition (continued)</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Cash consideration given by the Company to a customer or a reseller of the Company&#146;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.
</DIV>


<P align="center" style="font-size: 10pt">F-14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Derivative financial instruments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146; equity as a component of other comprehensive income
(loss)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Securitization of receivables</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has several securitization programs under which certain trade receivables are sold,
without recourse, to Special Purpose Entities (&#148;SPEs&#148;). Simultaneously, the SPEs sell an interest
in those receivables to large financial institutions. 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Guarantees</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effective on January&nbsp;1, 2003, the Company adopted the FASB Interpretation No.&nbsp;45, <I>Guarantor&#146;s
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others</I>. As a result of adopting Interpretation No.&nbsp;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&nbsp;31, 2002.
</DIV>


<P align="center" style="font-size: 10pt">F-15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Variable interest entities</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has used several special purpose entities since December&nbsp;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 significant variable interests in the entities. Total assets held by the entities at March
31, 2005 were &#165;75,900&nbsp;million. The Company&#146;s maximum exposure to loss would be &#165;4,377&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>New accounting standards</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123 (revised 2004), <I>Share-Based Payment </I>(&#147;SFAS No.
123(R)&#148;). This statement requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on fair values. SFAS No.
123(R) is effective at the beginning of the first fiscal year beginning after June&nbsp;15, 2005. The
Company will adopt SFAS No.&nbsp;123(R) effective April&nbsp;1, 2006 and has not determined what effect, if
any, it will have on the Company&#146;s results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2004, the FASB issued SFAS No.&nbsp;151, <I>Inventory Costs &#150; an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4</I>. SFAS No.&nbsp;151 amends the guidance in Accounting Research Bulletins (&#147;ARB&#148;) No.&nbsp;43,
Chapter&nbsp;4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new
rule requires that items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current period charges regardless of whether they meet the
criterion of &#148;so abnormal&#148; as stated in ARB No.&nbsp;43. Additionally, SFAS No.&nbsp;151 requires that the
allocation of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. SFAS No.&nbsp;151 is effective for fiscal years beginning after June&nbsp;15,
2005. The Company will adopt SFAS No.&nbsp;151 effective on April&nbsp;1, 2006 and has not determined what
effect, if any, it will have on the Company&#146;s results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, <I>Exchanges of Nonmonetary Assets &#150; an amendment of
APB Opinion No.&nbsp;29</I>. SFAS No.&nbsp;153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No.&nbsp;29,
<I>Accounting for Nonmonetary Transactions</I>, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS No.&nbsp;153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No.&nbsp;153 is effective for the fiscal periods beginning after June&nbsp;15, 2005.
The Company will adopt SFAS No.&nbsp;153 effective on April&nbsp;1, 2006 and has not determined what effect,
if any, it will have on the Company&#146;s results of operations and financial position.
</DIV>


<P align="center" style="font-size: 10pt">F-16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Reclassifications</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain amounts in the consolidated financial statements for the years ended March&nbsp;31, 2003 and
2004 have been reclassified to conform to the 2005 presentation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Investments in Affiliated Companies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments in affiliated companies accounted for by the equity method together with a percentage
of the Company&#146;s ownership of common stock shares at March&nbsp;31, 2005 are: Nippon Electric Glass
Co., Ltd. (24.4%); ANRITSU CORPORATION (21.7%); Japan Aviation Electronics Industry, Ltd. (&#147;JAE&#148;)
(39.3%); Toyo Communication Equipment Co., Ltd. (20.6%); NEC Leasing, Ltd. (&#147;NEL&#148;) (37.7%); Elpida
Memory, Inc. (&#147;Elpida&#148;) (25.0%) . In addition, the Company has interests in 52 other companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s ownership interest in NEL decreased to 39.5% during March&nbsp;2003 and, accordingly, NEL
was deconsolidated and accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;s ownership interest in JAE decreased to 39.3% during March&nbsp;2004 and, accordingly, JAE
was deconsolidated and accounted for by the equity method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On November&nbsp;15, 2004, Elpida, which researches, develops, manufactures, and
sells DRAM, sold 31,850,000 shares of common stock at &#165;3,325 per share to third
parties in a global offering receiving total consideration of &#165;105,901&nbsp;million.
Simultaneously, certain classes of non-voting common stock were converted to
common stock. As a result, the Company&#146;s ownership interest in Elpida decreased
from 50.0% to 25.0%. However, because of the issuance of new shares of common
stock and the conversion, the Company was required to increase the carrying
amount of its investment in Elpida by &#165;25,023&nbsp;million and recognized a gain for
that amount. In connection with this transaction certain deferred tax assets
were reversed and deferred tax expense of &#165;10,134&nbsp;million was
recognized.
</DIV>



<P align="center" style="font-size: 10pt">F-17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments in Affiliated Companies (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEL, which performs leasing business, sold 3,300,000 shares of common stock at &#165;2,074 per share to
third parties in a public offering on February&nbsp;10, 2005, receiving total consideration of &#165;6,843
million. After the NEL&#146;s public offering, the Company acquired 1,000,000 shares of NEL. As a
result of the series of transactions, the Company&#146;s ownership interest in NEL decreased from 39.0%
to 37.7%. Because the issuance price per share of common stock sold by NEL was less than the
Company&#146;s average carrying amount per share, the Company was required to decrease the carrying
amount of its investment in NEL by &#165;461&nbsp;million, including the effect of acquiring addition shares,
and recognized a loss for that amount. The Company recorded a deferred tax benefit of &#165;187&nbsp;million
on such loss.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Summarized financial information relating to affiliated companies accounted for by the equity
method is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,086,242</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,143,479</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets, including property, plant
and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,049,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,217,977</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">2,136,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2,361,456</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>



<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">892,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>725,095</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">726,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>873,385</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">517,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>762,976</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">2,136,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2,361,456</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales and operating
revenue</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">851,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;845,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,078,316</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>261,040</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(49,284</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>30,805</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments in Affiliated Companies (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Of the 58 affiliated companies at March&nbsp;31, 2005 (44 companies at March&nbsp;31, 2004) accounted for by
the equity method, the stock of 6 companies (4 companies at March&nbsp;31,
2004) carried at &#165;103,726&nbsp;million and &#165;148,948&nbsp;million at March&nbsp;31, 2004 and 2005, respectively,
had quoted market values aggregating &#165;206,955&nbsp;million and &#165;301,671&nbsp;million at March&nbsp;31, 2004 and
2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The balances and transactions with affiliated companies accounted for by the equity method are
shown below:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Receivables, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">35,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>37,205</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payables, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,897</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>88,720</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>&nbsp;&nbsp;&nbsp;&nbsp;(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">70,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">240,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>237,547</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">106,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>115,089</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Dividends received from affiliated companies accounted for by the equity method for the years ended
March&nbsp;31, 2003, 2004 and 2005 totaled &#165;1,651 million, &#165;563&nbsp;million and &#165;1,429&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In September&nbsp;2004 NEC Hiroshima, Ltd. sold certain property, plant and equipment to
Hiroshima Elpida Memory, Inc. for &#165; 33,549&nbsp;million.
</DIV>


<P align="center" style="font-size: 10pt">F-19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable Securities and Other Investments</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a summary of marketable securities by major security type:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>March 31, 2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B>&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross</B>&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>gains</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">80,083</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;67,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">146,944</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,045</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">83,126</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;67,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,085</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">149,989</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

</DIV>



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>March 31, 2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Gross</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>holding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Cost</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>gains</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>losses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Available-for-sale:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>58,333</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;50,519</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;1,275</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>107,577</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>30</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>58,363</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;50,524</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;1,275</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>107,612</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->


<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Available-for-sale debt securities at March&nbsp;31, 2005 mature within 2&nbsp;year period.
</DIV>


<P align="center" style="font-size: 10pt">F-20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable Securities and Other Investments (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Proceeds from sales of available-for-sale securities were &#165;71,919&nbsp;million, &#165;54,493&nbsp;million and
&#165;29,754&nbsp;million for the years ended March&nbsp;31, 2003, 2004 and 2005, respectively. Gross realized
gains were &#165;32,174&nbsp;million, &#165;18,497&nbsp;million and &#165;27,114&nbsp;million for the years ended March&nbsp;31, 2003,
2004 and 2005, respectively, and gross realized losses, including writedowns, were &#165;31,914&nbsp;million,
&#165;2,065&nbsp;million and &#165;1,616&nbsp;million for the years ended March&nbsp;31, 2003, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Impairment losses of marketable securities for the years ended March&nbsp;31, 2003, 2004 and 2005 were
&#165;27,474&nbsp;million, &#165;1,203&nbsp;million and &#165;1,499&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Investments in equity securities, included in investments and advances-other, with an aggregate
carrying amount of &#165;112,223&nbsp;million and &#165;101,779&nbsp;million at March&nbsp;31, 2004 and 2005, respectively,
consisted of numerous investments in securities of non-public companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Impairment losses of these investments for the years ended March&nbsp;31, 2003, 2004 and 2005 were
&#165;6,959&nbsp;million, &#165;10,812&nbsp;million and &#165;2,611&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company did not identify any events or changes in circumstances that may have had a significant
adverse effect on the fair value of certain investments with an aggregate cost of &#165;93,186&nbsp;million
at March&nbsp;31, 2005. Accordingly, the Company did not disclose the fair value of such investments.
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>5.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Inventories</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories at March&nbsp;31, 2004 and 2005 consisted of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">189,986</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>175,182</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work in process and semifinished components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">285,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>245,872</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; advance payments received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,588</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(13,324</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials and purchased components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>121,193</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">570,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>528,923</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-21
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Acquisitions</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;10, 2004 and January&nbsp;31, 2005, the Company invested &#165;10,251&nbsp;million and &#165;6,429&nbsp;million
respectively, to acquire a 50.1% in ABeam Consulting Ltd. (&#147;ABeam&#148;) which provides business
performance consulting services in the areas of strategy, Business Process Reengineering (&#147;BPR&#148;),
information technology, and outsourcing. In conjunction with this purchase, the Company entered
into an agreement with ABeam and minority shareholders to increase its ownership interest in ABeam
up to 100% by 2010. The agreement provides a purchase price to acquire the remaining 49.9% in ABeam
which is based on the financial performance of ABeam. At March&nbsp;31, 2005, the Company estimates its
minimum and maximum aggregate of payments are approximately &#165;5,800&nbsp;million and &#165;16,600&nbsp;million
respectively for the 49.9% of investment in ABeam.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The acquisition of ABeam has been accounted for by the purchase method of accounting. The cost of
the acquisition was allocated to assets acquired and liabilities assumed based on estimates of
their respective fair value at the date of acquisition. Fair values of assets acquired and
liabilities assumed were determined by internal studies and independent third party appraisals.
Factors that contributed to a purchase price resulting in the recognition of goodwill included the
Company&#146;s expectation to expand its reach in Asia such as strategic consulting and Enterprise
Resource Planning (&#147;ERP&#148;) package related services by obtaining highly specialized know-how from
ABeam.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effects of the transactions on the consolidated balance sheet at December&nbsp;31, 2004 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="50%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions
of</I>&nbsp;&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>At December 31, 2004:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;&nbsp;<I>yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">21,642</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant, and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets other than goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,658</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,465</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,151</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,124</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,862</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,773</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,635</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,809</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">16,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 3px double #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The &#165;12,465&nbsp;million of goodwill was assigned to the IT Solutions business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The results of ABeam&#146;s operations have been included in the consolidated financial statements since
January&nbsp;1, 2005.
</DIV>


<P align="center" style="font-size: 10pt">F-22
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Acquisitions (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On January&nbsp;28, 2005, the Company acquired 21.30% and 14.34% of the outstanding common shares of NEC
Soft, Ltd. (&#147;NEC SOFT&#148;) and NEC System Technologies, Ltd. (&#147;NECST&#148;) for &#165;27,374&nbsp;million and &#165;14,807
million, respectively through two separate tender offers. The aggregate of acquisition cost was
&#165;42,181&nbsp;million. As a result of the tender offers, the Company&#146;s ownership interest in NEC SOFT and
NECST increased to 82.88% and 81.01%, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">These acquisitions were accounted for by the purchase method of accounting. The cost of the
acquisition was allocated to assets acquired and liabilities assumed based on estimates of their
respective fair value at the date of acquisition. Fair values of assets acquired and liabilities
assumed were determined by internal studies and independent third party appraisals. Factors that
contributed to a purchase price resulting in the recognition of goodwill included the Company&#146;s
expectation to strengthen its systems integration competence and software development competence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Effects of the transactions on the consolidated balance sheet at December&nbsp;31, 2004 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="50%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>At December 31, 2004:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets other than goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,491</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,366</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,857</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,630</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquired minority interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,954</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 1px solid #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">42,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD style="border-top: 3px double #000000"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The &#165;23,366&nbsp;million of goodwill was assigned to the IT Solutions business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Because NEC SOFT and NECST were consolidated subsidiaries, the Company&#146;s consolidated statements of
operations included the operation results of those subsidiaries for the full year. After January&nbsp;1,
2005, minority interests relating to these subsidiaries have been recognized in the Company&#146;s
consolidated financial statements based on ownership interest after the tender offers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On February&nbsp;28, 2005, the Company entered into stock-for-stock exchange agreements with NEC SOFT
and NECST. The exchange will be implemented on June&nbsp;1, 2005, and therefore NEC SOFT and NECST will
become wholly-owned subsidiaries of the Company. Under the terms of the agreements, the Company
will issue 66,654,021 shares of common stock. The conversion ratios are 5.14 and 6.75 of the
Company&#146;s common stock for each share of NEC SOFT and NECST, respectively. The Company estimates
the aggregate of acquisition cost for stock-for-stock exchange will be approximately &#165;45,000
million.
</DIV>



<P align="center" style="font-size: 10pt">F-23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Goodwill and Other Intangibles</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The changes in the carrying amount of goodwill by reportable segment for the years ended March&nbsp;31,
2004 and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Network</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Electron</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>IT Solutions</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Solutions</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Devices</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>business</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>business</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>business</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at April&nbsp;1, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">31,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">8,432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">46,474</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,028</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,028</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sale of a business unit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,435</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,435</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of foreign
currency translation
adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,018</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,018</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at March&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,993</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px"><B>Goodwill acquired during
year (refer to Note 6)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,831</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,831</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Sale of a business unit</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Effect of foreign
currency translation
adjustments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>119</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>119</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Balance at March&nbsp;31, 2005</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>44,612</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>7,533</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>4,789</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>56,934</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 &#165;23,028&nbsp;million in the IT Solutions business for the year ended March&nbsp;31, 2004. The
fair value of that reporting unit was determined using estimated discounted net future cash flows.
</DIV>


<P align="center" style="font-size: 10pt">F-24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Goodwill and Other Intangibles (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Intangibles other than goodwill subject to amortization at March&nbsp;31, 2004 and 2005 consisted of the
following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="35%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">License fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">51,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(25,479</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>55,868</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(28,978</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,612</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,924</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,920</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,877</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,073</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,905</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9,388</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">68,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(35,164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>81,697</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(43,286</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The aggregate amortization expense for the years ended March&nbsp;31, 2003, 2004 and 2005 was
&#165;13,302&nbsp;million, &#165;15,775&nbsp;million and &#165;17,524&nbsp;million, respectively. The estimated amortization
expense for the next five years is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ending March 31:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2006</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">12,493</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">2007</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,350</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2008</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,791</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">2009</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,600</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2010</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,210</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Intangibles other than goodwill with indefinite useful lives at March&nbsp;31, 2004 and 2005 were &#165;1,720
million and &#165;4,501&nbsp;million, respectively. Intangibles other than goodwill with indefinite useful
lives at March&nbsp;31, 2005 consist of principally trademarks.
</DIV>


<P align="center" style="font-size: 10pt">F-25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Software Costs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Software costs, included in other assets, other, at March&nbsp;31, 2004 and 2005 consisted of the
following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capitalized software held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">27,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>23,048</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Internal use software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>113,577</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">130,307</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>136,625</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accumulated amortization of capitalized software held for sale at March&nbsp;31, 2004 and 2005 was
&#165;96,505&nbsp;million and &#165;110,238&nbsp;million, respectively. Amortization expense of capitalized software
held for sale for the years ended March&nbsp;31, 2003, 2004 and 2005 was &#165;35,188&nbsp;million, &#165;31,123
million and &#165;24,580&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accumulated amortization of internal use software at March&nbsp;31, 2004 and 2005 was &#165;87,161&nbsp;million
and &#165;101,054&nbsp;million, respectively. Amortization expense of internal use software for the years
ended March&nbsp;31, 2003, 2004 and 2005 was &#165;29,196&nbsp;million, &#165;32,879&nbsp;million and &#165;34,718&nbsp;million,
respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Short-Term Borrowings and Long-Term Debt</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Short-term borrowings at March&nbsp;31, 2004 and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loans, principally from banks, including
bank overdrafts (average interest rate of
1.20% in 2004 and 0.49% in 2005):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Secured</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">518</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,671</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unsecured</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>225,944</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">98,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>227,615</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, the Company had unused lines of credit for short-term financing aggregating
&#165;541,646&nbsp;million subject to commitment fees on the unused portion ranging from 0.10% to 0.25% and
&#165;153,421&nbsp;million with no commitment fees. A line of credit for &#165;100,000&nbsp;million has a term
extending through March&nbsp;31, 2006. The remainder of &#165;595,067&nbsp;million is renewed annually. The
Company had unused lines of &#165;416,000&nbsp;million commercial paper (&#147;CP&#148;) in Japan and unused lines of
&#165;300,000&nbsp;million straight bond issuances program in Japan and unused lines of $2,000&nbsp;million
medium-term note (&#147;MTN&#148;) program.
</DIV>


<P align="center" style="font-size: 10pt">F-26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Short-Term Borrowings and Long-Term Debt (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-term debt at March&nbsp;31, 2004 and 2005 was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loans, principally from banks and insurance
companies, due 2004 to 2011 with average
interest rate of 1.37% at March&nbsp;31, 2004 and
due 2005 to 2011 with average interest rate of
1.49% at March&nbsp;31, 2005:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Secured</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">13,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>8,762</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unsecured</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196,848</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>166,133</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">6.05% unsecured yen bonds due 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unsecured yen debentures, due 2004 to 2010
with interest rates of 1.7% to 3.3% at March
31, 2004 and due 2005 to 2010 with interest
rates of 1.9% to 3.3% at March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">405,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>307,500</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.0% unsecured yen convertible debentures due
2011, convertible currently at &#165;1,326.00 for
one common share, redeemable before due date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>97,906</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zero coupon unsecured yen convertible
debentures due 2007, convertible currently at
&#165;3,092.70 for one common share, redeemable
before due date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>100,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zero coupon unsecured yen convertible
debentures due 2010, convertible currently at
&#165;1,664.10 for one common share, redeemable
before due date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>100,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unsecured subordinated yen debentures due 2021*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,001</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Zero coupon convertible debentures issued by a
consolidated subsidiary, due 2011 convertible
currently at &#165;9,860 for one common share,
redeemable before due date</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term capital lease obligations, due 2004
to 2012 with interest rates of 1.35% to 8.99%
at March&nbsp;31, 2004 and due 2005 to 2014 with
interest rates of 1.48% to 8.09% at March&nbsp;31,
2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,482</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>24,789</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,787</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,302</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,071,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>927,392</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unamortized premium</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,200</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,072,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>928,592</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; portion due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(266,450</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(137,354</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">806,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>791,238</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV style="font-size: 12pt">&nbsp;
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD align="left" colspan="3">*Unsecured subordinated yen debentures due 2021 were redeemed
on June&nbsp;21, 2004.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Short-Term Borrowings and Long-Term Debt (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following were pledged as security for short-term borrowings and long-term debt at March&nbsp;31,
2005:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment (net book value)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">40,882</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, an aggregate of 166,262 thousand shares of common stock would have been issuable
upon conversion of all convertible debt of NEC Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Some subsidiaries are required to repay certain medium-term loans, the balance of which were
&#165;57,104&nbsp;million at March&nbsp;31, 2005, if its net assets fall below certain amounts, their operating
loss, ordinary loss or net loss would be recognized for certain consecutive fiscal year periods,
the subsidiaries no longer are consolidated subsidiaries of NEC Corporation, or certain other debt
covenant conditions have been met.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s request and that any collateral furnished,
pursuant to such agreements or otherwise, will be applicable to all indebtedness to such banks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Annual maturities on long-term debt during the next five years are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year ending March 31:</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2006</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">137,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">2007</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">184,103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2008</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">2009</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">115,945</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center" valign="top">2010</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">126,949</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 the
year ended March&nbsp;31, 2003, 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&#146;s contributory defined benefit pension
plans, over which the Japanese government will take responsibility. Upon the final approval from
the Japanese government, with the transfer to the Japanese government from the assets of the
pension plans in the years ended March&nbsp;31, 2004 and 2005, 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 &#165;8,174&nbsp;million and &#165;663&nbsp;million through these transactions for the years
ended March&nbsp;31, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Details of the net gain related to transfer of substitutional portion of employee pension fund
liabilities, are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Subsidy from government</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">146,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>13,270</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlement loss:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Derecognition of accrued
salary progression</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,710</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Recognition of unrealized
actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(183,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(14,317</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net gain</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">8,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>663</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since year ended March&nbsp;31, 2004, NEC Corporation and certain subsidiaries in Japan have amended
their severance indemnity plans by introducing a &#147;point-based benefits system,&#148; 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&#146;s benefit obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Since year ended March&nbsp;31, 2004, NEC Corporation and certain subsidiaries in Japan have 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&#146;s benefit
obligation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The contributions to the contributory and the non-contributory pension plans are placed into
trusteed pension funds (the &#147;Funds&#148;).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146; annual salary.
</DIV>


<P align="center" style="font-size: 10pt">F-30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">March&nbsp;31 is the measurement date for the determination of the Company&#146;s benefit obligation.
Reconciliations of beginning and ending balances of the benefit obligations and the fair value of
the plan assets are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in benefit obligations:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit obligations at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,566,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,033,458</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>44,999</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,503</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,154</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefits paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(73,994</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(67,367</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Transfer of substitutional portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(491,533</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(31,564</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Plan amendment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(77,749</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,707</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisitions/divestitures, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,449</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,577</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit obligations at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,033,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,010,053</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in plan assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fair value of plan assets at beginning
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">716,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>498,984</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Actual return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>23,972</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Employer&#146;s contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,192</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>91,961</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Employees&#146; contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>216</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefits paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(29,683</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(29,146</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Transfer of substitutional portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(299,829</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(16,584</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Acquisitions/divestitures, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,758</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,215</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fair value of plan assets at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>571,618</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Funded status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(534,474</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(438,435</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized prior service cost<SUP style="font-size: 85%; vertical-align: text-top">*</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(159,164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(155,760</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized actuarial loss <SUP style="font-size: 85%; vertical-align: text-top">*</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">471,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>419,447</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized net obligation at April&nbsp;1,
1989 being recognized over 17&nbsp;years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,458</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,411</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net amounts recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(215,434</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(171,337</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amounts recognized in the consolidated
balance sheets consist of:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued pension and severance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(524,898</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(425,174</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive income,
pretax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">309,464</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>253,837</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net amounts recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(215,434</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(171,337</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV style="font-size: 12pt">&nbsp;
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="0%"></TD>
    <TD width="0%"></TD>
    <TD width="100"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 100%; vertical-align: text-top">*</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>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&nbsp;years.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-31
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accumulated benefit obligation for all defined benefit pension plan was &#165;1,023,882&nbsp;million and
&#165;996,792&nbsp;million as of March&nbsp;31, 2004 and 2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average assumptions used to determine benefit obligation at March&nbsp;31, 2004 and 2005
were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">2.5%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center"><B>2.5%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rate of increase in future compensation level</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" colspan="3">1.7% - 3.8%</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1.7% - 3.8%</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average assumptions used to determine net pension and severance cost for the years
ended March&nbsp;31, 2003, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="34%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.5%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.0%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>2.5%</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Rate of increase in future compensation level</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="left" nowrap>1.7% -<BR> 3.8%</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD align="left" nowrap>1.7% -<BR>3.8%</TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap><B>&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD nowrap align="center"><B>1.7% -<BR> 3.8%</B></TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected long-term rate of return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.0%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.0%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>2.5%</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The asset allocations for the pension plan at March&nbsp;31, 2004 and 2005 and target asset allocation
for the year ended March&nbsp;31, 2005 are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Target</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>asset</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>allocation</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Asset category:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">32%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center"><B>44%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">42%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Debt securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">40%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center"><B>38%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">42%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">28%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center"><B>18%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">16%</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-32
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To achieve the investment objective of the plan assets, the Funds 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 3 to 5&nbsp;years. The asset allocation policy is
reviewed as necessary where the conditions thereof changed from the time of establishment of the
asset allocation policy.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Components of net pension and severance cost for all defined benefit plans including both the
Company&#146;s and the employees&#146; contributory portion of such plans for the years ended March&nbsp;31, 2003,
2004 and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">53,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">46,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;44,999</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,503</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,090</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(27,897</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(12,234</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of unrecognized
prior service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,112</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,928</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(11,411</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of actuarial loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,960</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31,655</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of unrecognized
net obligation at April&nbsp;1,
1989 being recognized over 17
years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,047</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlement loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,607</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net pension and severance
cost for all defined benefit
plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">96,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">242,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;94,166</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Pension and Severance Plans (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">The total cost for all defined benefit and defined contribution plans was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net pension and severance cost for
all defined benefit plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">96,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">242,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>94,166</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employees&#146; contributions to the
contributory defined benefit
pension plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,535</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(216</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost for defined contribution plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,064</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,297</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,535</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total cost for all defined benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">and defined contribution plans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">85,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">237,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>96,485</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects to contribute approximately &#165;42,000&nbsp;million to its pension plans in fiscal
year ending March&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a schedule by year of approximate benefits expected to be paid, which reflect
expected future services, as appropriate:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ending March 31:</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">65,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011 &#150; 2015</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">373,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Income Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of income before income taxes and the provision for income taxes comprised the
following components:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">NEC Corporation and
domestic subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;80,969</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">163,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>93,777</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,473</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,099</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>21,887</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;61,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">160,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>115,664</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">NEC Corporation and
domestic
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;46,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;56,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;30,251</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,895</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,883</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,519</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34,134</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">NEC Corporation and
domestic
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37,182</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(335</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,795</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>38,977</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;58,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;85,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;73,111</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 40.5% for the year ended March&nbsp;31, 2005 and 42.0%
for the years ended March&nbsp;31, 2003 and 2004, respectively. A reconciliation between the reported
total income tax provision and the amount computed by multiplying the income before income taxes by
the statutory tax rate is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;25,828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;67,429</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>46,844</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Increase (decrease)&nbsp;in taxes resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,892</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-deductible expenses for tax purposes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,780</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">International tax rate differences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,026</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,604</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,774</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Effect of change in statutory tax rate
on deferred tax balances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-deductible goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax on undistributed earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,027</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,170</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,059</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,342</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;58,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;85,870</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>73,111</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-35
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Income Taxes (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The significant components of deferred tax assets and liabilities at March&nbsp;31, 2004 and 2005 were
as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Intercompany profit between
consolidated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">20,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>21,334</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Investments and advances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>195,213</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued bonus</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,427</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued pension and severance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>179,255</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Operating lease</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,451</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,802</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Operating loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>44,406</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,528</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>44,269</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,438</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>102,761</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">714,390</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>643,467</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Less &#150; valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(30,940</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(47,832</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">683,450</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>595,635</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="4" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">29,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>21,549</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax deductible reserve</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,464</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Tax on undistributed earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,257</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>34,297</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">130,862</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>89,567</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="4" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has filed a consolidated tax return for NEC Corporation and its domestic
wholly-owned subsidiaries since the fiscal year ended March&nbsp;31, 2003. 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&nbsp;31, 2003, 2004 and 2005 were a decrease of &#165;7,021
million, increases of &#165;10,732&nbsp;million and &#165;16,892&nbsp;million, respectively. The benefits of pre tax
operating loss carryforwards for the years ended March&nbsp;31, 2003, 2004 and 2005 were &#165;19,432
million, &#165;46,846&nbsp;million and &#165;63,143&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, the Company had operating loss carryforwards amounting to &#165;183,666&nbsp;million of
which &#165;74,152&nbsp;million relates to domestic companies and will expire during the period from 2006
through 2012. The remainder of &#165;109,514&nbsp;million relates to foreign subsidiaries and, except for
&#165;66,284&nbsp;million with no expiration date, will expire through 2025.
</DIV>


<P align="center" style="font-size: 10pt">F-36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Income Taxes (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Shareholders&#146; Equity</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Changes in common stock, additional paid-in capital, accumulated other comprehensive income (loss)
and treasury stock are shown below:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">244,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">244,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>337,820</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Offering of common stock, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,094</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion of convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">244,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">337,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>337,820</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">361,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">361,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>454,333</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Offering of common stock, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,081</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock offering cost, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(791</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion of convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(27</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain (loss)&nbsp;on sale of treasury stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(19</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Equity transactions by consolidated
subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,396</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">361,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">454,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>455,683</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated other comprehensive income
(loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(105,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(286,417</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(149,797</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive income (loss),
net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(180,980</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,401</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(286,417</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(149,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(124,396</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Treasury stock, at cost:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(2,319</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(3,252</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(2,797</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net change resulting
from purchase and sales of
fractional shares of less than &#147;One
Unit&#148; as defined by the Japanese
Commercial Code</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(933</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(240</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(3,252</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(2,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(3,037</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">F-37
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Shareholders&#146; Equity (continued)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>Common stock and additional paid-in capital</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>During the year ended March&nbsp;31, 2004, NEC Corporation completed a global offering of
273,000,000 shares of common stock. The offering price of &#165;711 was reduced to an issue price
of &#165;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 &#165;186,175&nbsp;million,
were allocated &#165;93,094&nbsp;million to common stock and remaining amount of &#165;93,081&nbsp;million to
additional paid-in capital after the stock offering costs of &#165;791&nbsp;million, net of tax were
deducted in accordance with the Japanese Commercial Code.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>Issuance of common stock in connection with conversions of convertible debt for the year ended
March&nbsp;31, 2004 was 528 shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>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 &#147;stock dividend&#148; paid out of profits that, under the
Japanese Commercial Code before April&nbsp;1, 1991, must be approved by the shareholders. The
cumulative amount of the fair value of these shares at the time of issuance was &#165;258,755
million. In accounting for the free distribution of shares, the Japanese Commercial Code
before April&nbsp;1, 1991 permitted the Board of Directors to authorize either (1)&nbsp;a transfer
from additional paid-in capital to the common stock account or (2)&nbsp;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&#146; equity.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>12.</B></TD>
    <TD width="3%">&nbsp;</TD>
    <TD><B>Shareholders&#146; Equity (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>Retained earnings</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>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&nbsp;31, 2004 and 2005 was &#165;39,046&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>The amount of retained earnings available for dividends is based on NEC Corporation&#146;s
retained earnings determined in accordance with generally accepted accounting principles
and the Commercial Code in Japan.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>Retained earnings at March&nbsp;31, 2005 included the Company&#146;s equity in undistributed earnings of
affiliated companies accounted for by the equity method in the amount of &#165;63,566&nbsp;million.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-39
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>12.</B></TD>
    <TD width="3%">&nbsp;</TD>
    <TD><B>Shareholders&#146; Equity (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(3)</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>Other comprehensive income (loss)</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 5%">Change in accumulated other comprehensive income (loss)&nbsp;is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,597</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">2,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(15,902</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,655</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,844</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,812</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">2,942</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(15,902</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(14,090</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minimum pension liability adjustment:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(150,256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(282,446</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(166,323</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132,190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,874</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(282,446</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(166,323</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(137,449</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 3pt"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gains (losses)&nbsp;on marketable
securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">41,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(4,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>34,205</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,217</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(5,316</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(4,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">34,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>28,889</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="font-size: 3pt"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gains (losses)&nbsp;on derivative
financial instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(2,914</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(2,832</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(1,777</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,055</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(2,832</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(1,777</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(1,746</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total accumulated other comprehensive
income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(105,437</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(286,417</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(149,797</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(180,980</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,620</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,401</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(286,417</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(149,797</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(124,396</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-40
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Shareholders&#146; Equity (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(3)&nbsp;Other comprehensive income (loss) (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax effect allocated to each component of other comprehensive income (loss)&nbsp;is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before-tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Tax (expense)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net-of-tax</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>or benefit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2003:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign currency translation
adjustments arising during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(3,992</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(3,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for losses realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">337</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">337</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minimum pension liability adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(227,913</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,723</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132,190</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on marketable
securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Unrealized holding losses arising
during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(76,758</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,066</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for gains realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(260</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on derivative
financial instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Net changes in fair value of
derivative financial instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,350</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(783</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for losses realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(626</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">865</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(308,445</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">127,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(180,980</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2004:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign currency translation
adjustments arising during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(19,750</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(19,750</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for losses realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">906</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minimum pension liability adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">190,678</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(74,555</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,123</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on marketable
securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Unrealized holding gains arising
during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,770</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47,817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for gains realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,432</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,901</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,531</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on derivative
financial instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Net changes in fair value of
derivative financial instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">425</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for losses realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">238,809</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(102,189</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">136,620</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-41
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Shareholders&#146; Equity (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(3)&nbsp;Other comprehensive income (loss) (continued)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Before-tax</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Tax (expense)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Net-of-tax</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>or benefit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>2005:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign currency translation
adjustments arising during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,812</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,812</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Minimum pension liability adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>51,403</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(22,529</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>28,874</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on marketable
securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Unrealized holding gains arising
during period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,232</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,644</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,588</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for gains realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(25,498</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>16,594</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,904</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains (losses)&nbsp;on derivative
financial instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Net changes in fair value of
derivative financial instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(767</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>235</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(532</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Less: reclassification adjustments
for losses realized in net income
(loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>946</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(383</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>563</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>34,128</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(8,727</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>25,401</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-42
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Stock-Based Compensation Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(1)&nbsp;NEC Corporation
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Corporation has several stock option plans (the &#147;Plans&#148;) 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&#146;s death and generally expire one year after termination of service.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;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.&nbsp;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.&nbsp;123, resulting from such modifications.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The stock option activity is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="23" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted-</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>average</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>exercise</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>price</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at
beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">608,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;2,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">966,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,140,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;1,448</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">358,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>289,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>801</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(139,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,395</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(195,000</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,136</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjusted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(46</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">966,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,140,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,448</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,234,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;1,187</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 0px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at end
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">301,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>632,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,571</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-43
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Stock-Based Compensation Plan (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">(1) NEC Corporation (continued)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes information for options outstanding and exercisable at March&nbsp;31,
2005:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Exercisable</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-<br>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Exercise price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>average</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>range</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>life</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Years)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">

<TD align="left"><DIV style="margin-left:30px; text-indent:-15px"><b>&#165;</b>
<B>769 - &nbsp;&nbsp;&nbsp;999</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>960,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>4.18</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;&nbsp;&nbsp;&nbsp;823&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>358,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;&nbsp;&nbsp;&nbsp;888&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:30px; text-indent:-15px"><B>1,000 - 1,999</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>154,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>2.25</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,818&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>154,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,818&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:30px; text-indent:-15px"><B>2,000 - 3,294</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>120,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>1.25</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,294&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>120,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,294&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="1" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:30px; text-indent:-15px"><b>&#165;</b> <B>769 - 3,294</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,234,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"><B>3.65</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;1,187&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>632,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;1,571&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="1" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="1" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average fair value per option at the date of grant during the years ended March
31, 2003, 2004 and 2005 was &#165;261, &#165;294 and &#165;247, respectively. The fair value of options granted
is estimated using the Black-Scholes option pricing model with the following weighted-average
assumptions:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="90%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.45%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.54%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.59%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">4 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">4 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right"><B>4 years</B></TD>
    <TD>&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">47.90%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">50.20%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>48.70%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.95%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.73%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.78%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-44
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock-Based Compensation Plan (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>NEC Electronics Corporation</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Electronics Corporation (&#147;NECEL&#148;), a consolidated subsidiary, has several stock option 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 of NECEL at the approximate market
value at the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The options will be vested after two years from the date of grant under the condition that option
holders will be in service to NECEL at the date of exercising the option, and that NECEL achieved
certain target. The options are exercisable over a period of two years commencing two years after
the date of grant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The terms of the options are subject to adjustment if there is a share split or consolidation of
shares. The plans provide that options generally lapse automatically at termination of service
before the exercise date and generally remain exercisable for one year after termination of service
during the exercise period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The stock option activity is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Number
of <br>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise
<br>price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Number
of <br>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise
<br>price</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>&nbsp;</b></TD>

<TD align="right">&#165;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>313,500</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;8,990</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>70,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,044</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(11,000</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,990</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(70,000</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,044</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">313,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>&nbsp;</b></TD>
    <TD align="right">&#165;8,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>302,500</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><b>&nbsp;</b></TD>
    <TD align="right"><B>&#165;8,990</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average remaining contractual life for options outstanding at March&nbsp;31, 2005 is 2.5
years. The weighted-average fair value per option at the date of grant during the years ended March
31, 2004 and 2005 was &#165;3,150 and &#165;1,885, respectively.
</DIV>


<P align="center" style="font-size: 10pt">F-45
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock-Based Compensation Plan (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>NEC Electronics Corporation (continued)</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The fair value of options granted is estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.56%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.34%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">3 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right"><B>3 years</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">52.30%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>46.80%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.22%</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>0.31%</B></TD>
    <TD nowrap><B>&nbsp;</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-46
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>14.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Net Income (Loss) Per Share</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A reconciliation of the numerators and the denominators of the basic and diluted per share
computations for net income (loss)&nbsp;is as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="12"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>67,864</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of participating convertible
securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(890</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;available to common
shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">41,078</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>66,974</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>583</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Convertible debt issued by subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(823</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(44</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(24,558</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">42,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>66,690</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>

    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Number of shares)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average number of
shares of common stock
outstanding for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,653,389,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,735,345,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,926,424,743</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222,921,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>166,262,345</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average number of
shares of diluted common
stock outstanding for the
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,653,389,121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,958,285,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,092,687,088</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>

</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)&nbsp;per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">23.67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>34.77</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14.85</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.93</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>31.87</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-47
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>14.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Net Income (Loss) Per Share (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Number of shares)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Convertible debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">220,562,540</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">966,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;827,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,234,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On May&nbsp;27, 2004, &#165;110,000&nbsp;million Zero Coupon Convertible bonds of NEC Electronics Corporation
(&#147;NECEL&#148;) (the &#147;Bonds&#148;) were issued in the denomination of &#165;10&nbsp;million each with a stock
acquisition right exercisable on and after June&nbsp;10, 2004 up to, and including, May&nbsp;24, 2011 under
certain conditions stipulated in the contract. The Bonds will be repaid in full at maturity on May
27, 2011 at their principal amount. The initial conversion price is &#165;9,860 per share which is
subject to adjustment in the event of a share split, consolidation of shares, and issuance of
shares with a price less than current market price per share. On or after May&nbsp;27, 2008, and prior
to maturity, the Bonds may be redeemed at their principal amount by NECEL under certain conditions
stipulated in the contract. The contingently convertible shares are included in diluted earnings
per share for the year ended March&nbsp;31, 2005.
</DIV>



<P align="center" style="font-size: 10pt">F-48
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>15.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Financial Instruments</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fair value of financial instruments
</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Carrying</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Estimated</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">amount</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">fair value</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term receivables, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">9,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">10,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>8,274</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>8,637</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26,118</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26,118</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, including
current portion and
excluding capital lease
obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,027,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,050,976</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(903,803</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(903,520</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Forward exchange contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,818</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,818</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest rate and
currency swap agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,598</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(9,598</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,113</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,113</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Currency option contracts:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Written</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Purchased</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>517</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>517</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-49
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>15.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Financial Instruments (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Fair value of financial instruments (continued)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The fair value of financial instruments at March&nbsp;31, 2004 and 2005 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. 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Derivative financial instruments</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&#146;s policies prohibit holding or issuing
derivative financial instruments for trading purposes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&#146;s operating activities. The forward exchange contracts
are not designated as hedging instruments under SFAS No.&nbsp;133,
<I>Accounting for Derivative Instruments and Hedging Activities, </I>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-50
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>15.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Financial Instruments (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Derivative financial instruments (continued)</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Fair Value Hedging Strategy</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The interest rate swap agreements utilized by the Company effectively
modify the Company&#146;s fixed-rate debt to a floating rate for the next 3
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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Cash Flow Hedging Strategy</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 4&nbsp;years. Approximately 10% of the Company&#146;s outstanding
short-term debt was designated as the hedged items to interest rate
swap agreements at March&nbsp;31, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>At March&nbsp;31, 2005, the Company expects to reclassify &#165;560&nbsp;million of
net losses on derivative financial instruments from accumulated other
comprehensive income (loss)&nbsp;to earnings during the next twelve months
due to the payment of variable interest associated with the
floating-rate debt.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For the years ended March&nbsp;31, 2003, 2004 and 2005, 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The counterparties to the Company&#146;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.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-51
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>16.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Securitization of Receivables</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company has several securitization programs under which certain trade receivables, including
investment in leases through the date of sale of the Company&#146;s ownership interest in NEL in March
2003, are sold, without recourse, to special purpose entities (&#147;SPEs&#148;). Simultaneously, the SPEs
sell an interest in those receivables to large financial institutions. In certain securitizations,
the Company has retained subordinated interests.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s financing needs.
As a result, the balance of retained interests varies regardless of the risk of credit loss on the
trade receivables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;31, 2003, 2004 and 2005, the Company has recorded losses of &#165;465&nbsp;million,
&#165;924&nbsp;million and &#165;1,027&nbsp;million related to the securitization transactions. Fair value of retained
interests at March&nbsp;31, 2005 is &#165;39,453&nbsp;million. Expected credit loss and discount rate used in
measuring the retained interests related to the securitization transactions completed during the
year ended March&nbsp;31, 2003, 2004 and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected credit loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">0.0</TD>
    <TD align="left" nowrap>% -</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">0.0</TD>
    <TD nowrap>% -</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>0.0</B></TD>
    <TD nowrap><B>% -</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="left">0.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="left">0.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="left"><B>0.6</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">0.35</TD>
    <TD nowrap>% -</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">0.34</TD>
    <TD nowrap>% -</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>0.34</B></TD>
    <TD nowrap><B>% -</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.94</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">3.30</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="left"><B>3.30</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, adverse changes of 10% and 20% to the key economic assumptions for the fair
value of retained interests would have no material impact on the carrying value of retained
interests due to a low level of expected credit losses and the short-term maturities of the trade
receivables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A summary of cash flows received from SPEs for all securitization activities that occurred in the
years ended March&nbsp;31, 2003, 2004 and 2005 was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from new securitization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,485,588</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">1,425,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>1,269,859</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows received on retained interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">433,638</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">467,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>414,357</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-52
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>16.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Securitization of Receivables (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of securitized financial assets and other assets managed together at March&nbsp;31, 2004
and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes and accounts receivable, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">993,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,036,619</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Delinquent amounts over 120&nbsp;days or more</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,876</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net credit losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>8,876</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprised of:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Assets held in portfolio</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">865,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>916,583</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Assets securitized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127,365</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>120,036</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>17.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Advertising Costs</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company expenses advertising costs as incurred. Advertising expenses amounted to &#165;24,310
million, &#165;23,452&nbsp;million and &#165;26,533&nbsp;million for the years ended March&nbsp;31, 2003, 2004 and 2005,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Stock Issuances by Subsidiaries</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Fielding, Ltd. (&#147;Fielding&#148;), 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 &#165;4,256 per share to third parties in a public
offering on September&nbsp;18, 2002, receiving total consideration of &#165;15,747&nbsp;million. At the same
time, the Company sold 3,700,000 shares of Fielding&#146;s common stock to third parties at the same
price through the market, and recognized a gain of &#165;12,441&nbsp;million on this transaction. As a
result of Fielding&#146;s public offering, the Company&#146;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&#146;s average carrying amount per share, the Company was required to increase
the carrying amount of its investment in Fielding by &#165;8,349&nbsp;million and recognized a gain for that
amount. The Company provided a deferred tax of &#165;3,381&nbsp;million on such gain.
</DIV>

<P align="center" style="font-size: 10pt">F-53
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>18.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock Issuances by Subsidiaries (continued)</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A certain other consolidated subsidiary issued new shares of common stock to third parties during
the year ended March&nbsp;31, 2003, receiving aggregate consideration of &#165;2,176&nbsp;million. As a result of
the issuance of new shares, the Company&#146;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&#146;s average carrying amount per share, the Company was required
to increase the carrying amounts of its investments in the consolidated subsidiary by &#165;1,346
million and recognized a gain for that amount. The Company provided deferred tax of &#165;545&nbsp;million
on such gain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Electronics Corporation (&#147;NECEL&#148;), a consolidated subsidiary which researches, develops,
manufactures, and sells semiconductors (except general purpose DRAM), sold 23,500,000 shares of
common stock at &#165;3,990 per share to third parties in a public offering on July&nbsp;24, 2003 receiving
total consideration of &#165;93,765&nbsp;million. At the same time, the Company sold 13,500,000 shares of
NECEL&#146;s common stock to third parties at the same price through the market, and recognized a gain
of &#165;16,122&nbsp;million on this transaction. As a result of NECEL&#146;s public offering, the Company&#146;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&#146;s average carrying amount per
share, the Company was required to increase the carrying amount of its investment in NECEL by
&#165;20,618&nbsp;million and recognized a gain for that amount. The Company provided deferred tax of &#165;8,350
million on such gain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC System Technologies Ltd. (&#147;NECST&#148;), a consolidated subsidiary which develops software, sold
3,500,000 shares of common stock at &#165;3,780 per share to third parties in a public offering on
September&nbsp;12, 2003, receiving total consideration of &#165;13,230&nbsp;million. At the same time, the
Company sold 3,680,000 shares of NECST&#146;s common stock to third parties at the same price through
the market, and recognized a gain of &#165;10,313&nbsp;million on this transaction. As a result of NECST&#146;s
public offering, the Company&#146;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&#146;s average carrying amount per share, the Company was required to increase the carrying
amount of its investment in NECST by &#165;6,658&nbsp;million and recognized a gain for that amount. The
Company provided deferred tax of &#165;2,697&nbsp;million on such gain.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A certain other consolidated subsidiary issued new shares of common stock to third parties during
the year ended March&nbsp;31, 2004, receiving aggregate consideration of &#165;1,025&nbsp;million. As a result of
the issuance of new shares, the Company&#146;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&#146;s average carrying amount per share, the Company was required
to increase the carrying amounts of its investments in the consolidated subsidiary by &#165;97&nbsp;million
and recognized a gain for that amount. The Company provided deferred tax of &#165;41&nbsp;million on such
gain.
</DIV>

<P align="center" style="font-size: 10pt">F-54
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>19.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Restructuring Charges</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;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 &#165;55,407&nbsp;million. These charges primarily consisted of loss on
disposal and write-down of assets of &#165;23,435&nbsp;million, personnel costs of &#165;19,481&nbsp;million for
reduction of approximately 5,400 employees, which excludes employees who left through normal
attrition, and others of &#165;12,491&nbsp;million. Prior to March&nbsp;31, 2003, the Company had paid personnel
costs of &#165;19,052&nbsp;million. At March&nbsp;31, 2003, unpaid termination benefits approximated &#165;429
million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;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 &#165;17,162&nbsp;million. The charge consisted of losses on disposal and write-down
of assets of &#165;6,691&nbsp;million, personnel costs of &#165;7,302&nbsp;million for the reduction of approximately
1,000 employees, which excludes employees who left through normal attrition, and others of &#165;3,169
million. The charge for the IT Solutions business consisted of losses on disposal and write-down
of assets of &#165;2,535&nbsp;million, personnel costs of &#165;1,520&nbsp;million for the reduction of employees, and
others of &#165;638&nbsp;million. The charge for the Network Solutions business consisted of losses on
disposal and write-down of assets of &#165;4,156&nbsp;million, personnel costs of &#165;2,393&nbsp;million for the
reduction of employees, and others of &#165;2,531&nbsp;million. The charge for the Others primarily
consisted of personnel costs of &#165;3,389&nbsp;million for the reduction of employees. Most of these
restructuring activities were completed in the year ended March&nbsp;31, 2004 and a part of the
activities were completed in the year ended March&nbsp;31, 2005. Prior to March&nbsp;31, 2004, the Company
had paid personnel costs of &#165;6,789&nbsp;million and other costs of &#165;2,639&nbsp;million. At March&nbsp;31, 2004,
unpaid termination benefits and unpaid other associated costs approximated &#165;1,472&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;31, 2005, the Company implemented restructuring activities in the area
of systems integration and personal solutions, and therefore, the Company incurred a restructuring
charge of &#165;5,854&nbsp;million. The charge for the IT Solution business consisted of personnel costs for
the reduction of approximately 600 employees, which excludes employees who left through normal
attrition. Prior to March&nbsp;31, 2005, the Company had paid personnel costs of &#165;3,759&nbsp;million and
other costs of &#165;530&nbsp;million. At March&nbsp;31, 2005, unpaid termination benefits approximated &#165;3,037
million.
</DIV>

<P align="center" style="font-size: 10pt">F-55
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>20.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Leasing Arrangements</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Equipment leasing</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The cost of equipment under operating leases at March&nbsp;31, 2004 and 2005 was &#165;35,256&nbsp;million
and &#165;32,180&nbsp;million, respectively, and was included in machinery and equipment. Accumulated
depreciation on equipment under operating leases at March&nbsp;31, 2004 and 2005 was &#165;26,522
million and &#165;20,199&nbsp;million, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Future minimum lease payments from non-cancelable operating leases at March&nbsp;31, 2005 are
&#165;1,776&nbsp;million and &#165;124&nbsp;million for the years ending March&nbsp;31, 2006 and 2007, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease of facilities and equipment</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 &#165;78,897&nbsp;million and
&#165;55,170&nbsp;million at March&nbsp;31, 2004 and 2005, respectively. Accumulated depreciation of the
leased assets at March&nbsp;31, 2004 and 2005 was &#165;47,877&nbsp;million and &#165;35,616&nbsp;million,
respectively. At March&nbsp;31, 2005, approximately 50% of the capital lease transactions were with
NEC Leasing, Ltd.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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&nbsp;31, 2005:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>

    <TD nowrap align="center" colspan="4"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending March&nbsp;31:</B></DIV></TD>

    <TD nowrap align="center" colspan="4"><I>yen)</I></TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">11,307</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,922</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,502</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,529</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2011 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,874</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; amount representing interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">(1,085</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Present value of net minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,789</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; current obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,365</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term lease obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">14,424</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-56
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>20.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Leasing Arrangements (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lease of facilities and equipment (continued)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the year ended March&nbsp;31, 2003, the Company sold certain land, buildings, facilities and
equipment for &#165;22,582&nbsp;million, and leased them back from the purchaser over periods of 12.5
years. The resulting leases were classified as operating leases.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Rental expense under operating leases, including the assets subject to sale-leaseback
transactions discussed above, were &#165;130,151&nbsp;million, &#165;142,334&nbsp;million and &#165;121,957
million for the years ended March&nbsp;31, 2003, 2004 and 2005, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Future minimum rental payments under non-cancelable operating leases are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Millions of</I></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Year ending March&nbsp;31:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;28,976</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,556</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,383</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,772</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2011 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,381</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>21.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingent Liabilities</B></TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Commitments outstanding at March&nbsp;31, 2005 for the purchase of property, plant and equipment are &#165;
20,165&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Maximum potential future payments, term and collateral of guarantees at March&nbsp;31, 2005 are
summarized as follows:
</DIV>

<P align="center" style="font-size: 10pt">F-57
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>21.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Commitments and Contingent Liabilities (continued)</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Maximum potential</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>future payments</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Term</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Collateral</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Years)</I></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of</I></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD nowrap align="center" colspan="3"><I>yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Affiliated company
bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">14,853</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1- 8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Employee mortgage loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1-19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer financial
arrangements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1- 12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,087</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lease &#150; residual value
guarantees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">1- 6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;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&#146;s financial position or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;31, 2005 would not have a material effect on the Company&#146;s financial position or results
of operation, except for the following:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">NEC Corporation, Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., an affiliated
company accounted for by the equity method, and NEC Electronics America, Inc., an indirect U.S.
subsidiary of NEC Corporation, are currently subject to an investigation being conducted by the
U.S. Department of Justice into potential antitrust violations in the U.S. dynamic random access
memory industry. Separately, Elpida Memory, Inc., Elpida Memory (USA), Inc., NEC Electronics
Corporation and NEC Electronics America, Inc. have been named in a number of class action civil
antitrust lawsuits seeking damages for alleged antitrust violations. Elpida Memory, Inc. is also
subject to a similar investigation being conducted by the Director-General for Competition, Cartels
Unit of the European Commission. Although no rulings have been issued in these investigations and
related civil proceedings at this time, the Company has provided an accrual for reasonably
estimable amount for the fiscal year ended March&nbsp;31, 2005 in connection with the U.S. Department of
Justice&#146;s investigation.
</DIV>

<P align="center" style="font-size: 10pt">F-58
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>22.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business segments</TD>
</TR>
<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has the following reportable segments: IT Solutions
business, Network Solutions business and Electron Devices business.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 &#147;BIGLOBE.&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Network Solutions business develops, designs, manufactures and markets mobile Internet
solution systems including 3rd generation (&#147;3G&#148;) 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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 electronic
components such as capacitors, relays and lithium ion rechargeable battery.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In March&nbsp;2003, the Company sold a part of its interest in NEC Leasing Ltd. (&#147;NEL&#148;), resulting
in its deconsolidation. Operating results for NEL which has been a separate reportable
segment are shown through the date of disposition.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-59
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>22.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business segments (continued)</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sales</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">IT Solutions business:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">External customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,911,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,925,223</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,820,680</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>323,758</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,082,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,098,892</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,144,438</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Network Solutions business:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">External customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,473,225</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,678,955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,802,606</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103,108</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>89,371</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,576,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,775,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,891,977</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electron Devices business:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">External customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">842,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">829,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>807,686</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>60,984</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936,719</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>868,670</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Others:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">External customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">437,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">472,685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>424,160</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>224,968</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">661,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">679,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>649,128</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(579,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(579,853</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(699,081</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,677,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,855,132</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasing business:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">External customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Intersegment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,690</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,695,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>4,855,132</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-60
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>22.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business segments (continued)</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Segment profit or loss</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Segment profit (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">105,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">91,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>102,310</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Network Solutions
business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>26,468</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,282</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37,178</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11,555</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>177,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,559</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,977</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Unallocated corporate
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(38,486</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40,392</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(49,316</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">114,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>131,172</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,590</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">120,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>131,172</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net other income and
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,393</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,152</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(15,508</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated income before
income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">61,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">160,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>115,664</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Assets</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">989,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">957,492</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>1,009,675</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Network Solutions
business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,011,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,015,899</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,056,245</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,109,312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,089,228</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,055,277</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">667,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">620,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>581,696</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,778,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,683,283</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,702,893</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241,212</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(161,680</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(191,207</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Corporate assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">566,143</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">522,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>428,999</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,103,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,044,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>3,940,685</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-61
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>22.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Business segments (continued)</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Other significant items</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="12"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">33,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">30,322</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>26,154</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,217</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22,106</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">107,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>95,496</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,686</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">180,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,621</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>154,442</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,042</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>166,484</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">195,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">178,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>166,484</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capital expenditures for
segment assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">IT Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">26,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">10,077</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>11,888</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Network Solutions business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>14,658</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Electron Devices business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">111,447</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>176,028</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,047</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11,914</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>214,488</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Corporate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,529</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,305</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Electronics business total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178,434</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>217,793</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Leasing business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">-</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Consolidated total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">178,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">173,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>217,793</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 7%">Intersegment transfers are made at arm&#146;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.
</DIV>

<P align="center" style="font-size: 10pt">F-62
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>22.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Segment Information (continued)</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Geographic information
</TD>

</TR>




<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>
<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>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 for the years ended
March&nbsp;31, 2003, 2004 and 2005 and long-lived assets at March&nbsp;31, 2003,
2004 and 2005 were as follows. Although the disclosure of geographic
profit 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.</TD>
</TR>



</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">3,879,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">3,889,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>3,777,408</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">All foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">815,581</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,016,967</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,077,724</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,695,035</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,906,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>4,855,132</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Geographic profit:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">118,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">169,773</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;112,114</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">All foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,612</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>19,058</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">120,889</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">182,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B></B></TD>
    <TD align="right"><B>&#165;131,172</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-lived assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,014,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;964,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;919,724</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">All foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">63,916</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>59,711</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,105,483</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,028,137</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;979,435</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>There are no sales or long-lived assets in foreign countries which are individually
material. Transfers between geographic areas are made at arm&#146;s-length prices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Major customers</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Sales to one customer accounted for approximately 13.9%, 16.3% and
13.4% of consolidated sales for the years ended March&nbsp;31, 2003, 2004
and 2005, respectively.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-63
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>23. Subsequent Events</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On February&nbsp;28, 2005, the Company entered into stock-for-stock exchange agreements with NEC SOFT
and NECST. The exchange was implemented on June&nbsp;1, 2005, and therefore NEC SOFT and NECST will
become wholly-owned subsidiaries of the Company.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The shareholders, at June&nbsp;22, 2005 Ordinary general Meeting of Shareholders, approved the payment
of a cash dividend of &#165;3 per share, aggregating &#165;5,780&nbsp;million, for the year ended March&nbsp;31,2005,
which has been reflected in the consolidated financial statements.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-64
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="right" style="font-size: 10pt; margin-top: 12pt">SCHEDULE II
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">NEC Corporation
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Valuation and Qualifying Accounts
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Charged to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Bad debts</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>beginning of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>costs and</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>written</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Balance at end</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>period</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>expenses</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>off</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>of period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="16"><B>(Millions of yen)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended March&nbsp;31, 2003:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for doubtful notes and accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">32,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">4,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">3,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">32,551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended March&nbsp;31, 2004:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for doubtful notes and accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">32,551</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&#165;</TD>
    <TD align="right">(2,067</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">5,265</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">25,219</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Year ended March&nbsp;31, 2005:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Allowance for doubtful notes and accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">25,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&#165;</TD>
    <TD align="right">(1,468</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">8,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#165;</TD>
    <TD align="right">14,887</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-65
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Consolidated Financial Statements</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt"><B>Elpida Memory, Inc.</B>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B><I>At March&nbsp;31, 2004 and 2005 and<BR>
Years ended March&nbsp;31, 2003, 2004 and 2005</I></B>
</DIV>


<P align="center" style="font-size: 10pt">F-66
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Financial Statements
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">At March&nbsp;31, 2004 and 2005 and<BR>
Years ended March&nbsp;31, 2003, 2004 and 2005
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Contents</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#500">Report
of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#501">Consolidated
Balance Sheets</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#502">Consolidated
Statements of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#503">Consolidated
Statements of Changes in Shareholders&#146; Equity</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#504">Consolidated
Statements of Cash Flows</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">

<TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#505">Notes
to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="500"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Report of Independent Registered Public Accounting Firm
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Board of Directors and Shareholders<BR>
Elpida Memory, Inc.

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated statements of operations, changes in shareholders&#146;
equity and cash flows of Elpida Memory, Inc. (the &#147;Company&#148;) for the year ended March&nbsp;31, 2003, all
expressed in Japanese yen. These financial statements are the responsibility of the Company&#146;s
management. Our responsibility is to express an opinion on these financial statements based on our
audit.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated results of operations and cash flows of Elpida Memory, Inc. for
the year ended March&nbsp;31, 2003 in conformity with U.S. generally accepted accounting principles.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="75%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="24%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Ernst &#038; Young ShinNihon</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Tokyo, Japan<BR>
May&nbsp;30, 2003

</DIV>
<DIV align="left" style="font-size: 10pt; margin-left: 3%; margin-top: 0pt">Except for Note 2, as to which the date is<BR>
March&nbsp;24, 2004
</DIV>



<P align="center" style="font-size: 10pt">1
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>

<DIV align="left">
<A name="501"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Balance Sheets
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">110,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>189,798</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable, trade:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,753</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>11,413</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>25,356</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts receivable, other:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>192</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,168</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,734</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(31</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>32,795</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,546</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>268,803</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment at cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>261,273</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,485</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(48,135</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>213,138</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,052</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">License fees and other intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>4,632</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Software costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,508</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>513</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>12,705</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">300,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>494,646</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="65%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
   <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Liabilities and shareholders&#146; equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current portion of obligation under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>30,143</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,520</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, trade:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>19,891</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,908</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, other:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,127</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>17,290</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,611</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13,965</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">504</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>696</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued expenses and other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,332</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,839</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>115,252</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Obligation under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>46,330</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>138,573</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable, other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,917</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accrued retirement benefits for employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>82</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,008</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,984</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>188,910</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingent liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Authorized: 2004 and 2005 &#150; 200,000,000 shares
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Issued:&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp; 2004 &#150; 28,400,000 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>







<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:126px; text-indent:-15px">2005 &#150; 91,984,400 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>133,555</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Class&nbsp;A stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Authorized and issued 2004 &#150;17,600,000 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Class&nbsp;B stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Authorized and issued 2004 and 2005 &#150;
4,480,000 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,600</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Class&nbsp;C stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Authorized and issued 2004 &#150; 8,698,000 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Class&nbsp;D stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Authorized and issued 2004 &#150; 5,436,400 shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>127,438</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(80,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(74,858</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>


<TR valign="bottom">

    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(708</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,251</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>190,484</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom">

    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">300,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>494,646</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See notes to consolidated financial statements.</I>
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="left">
<A name="502"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Operations
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->

<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Unaudited)</B></TD>

</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">67,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">103,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>207,028</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>156,620</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22,051</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Selling, general and
administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,428</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">128,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>197,099</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,890</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,041</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>9,929</B></TD>
    <TD>&nbsp;</TD>
</TR>


<TR>
    <TD>&nbsp;</TD>
</TR>



<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>115</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(190</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(759</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,079</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange gains (losses)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(504</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Governmental grants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>145</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expense), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(361</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>



<TR>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,780</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,245</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision for income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,270</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(536</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>734</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>

<TR>
 <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:15px; text-indent:-15px">Per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(943.69</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(503.13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right"><B>&#165;72.21</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">

    <TD><DIV style="margin-left:60px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>71.03</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>See notes to consolidated financial statements.</I>
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>

<DIV align="left">
<A name="503"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Consolidated Statements of Changes in Shareholders&#146; Equity
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="22" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&#165;</TD>
    <TD align="right">36,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">43,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>53,279</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,609</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion from class stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>39,667</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">43,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">53,279</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>133,555</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Class&nbsp;A stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>22,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion to Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(22,000</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">22,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Class&nbsp;B stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,600</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">5,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,600</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Class&nbsp;C stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>10,872</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion to Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(10,872</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">10,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Class&nbsp;D stock:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>6,795</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Conversion to Common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,795</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additional paid-in capital:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">29,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>61,681</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Issuance of stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>65,292</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock issuance costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(206</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(596</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,061</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">29,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">61,681</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>127,438</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated deficit:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(32,137</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(54,591</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(80,369</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><B>&#165;5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(54,591</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(80,369</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(74,858</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated other
comprehensive income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(708</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign currency
translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(212</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized gains on
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unrealized losses on
derivative financial
instruments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(574</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(149</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(565</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(565</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(543</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(543</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Comprehensive loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(22,603</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(26,343</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right"><B>&#165;4,968</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(708</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(1,251</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>See notes to consolidated financial statements.</I>
</DIV>



<P align="center" style="font-size: 10pt">5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="left">
<A name="504"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Consolidated Statements of Cash Flows
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>(Unaudited)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>(Unaudited)</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from operating activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)&nbsp;to net cash provided
by (used in) operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,829</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,061</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Loss on sales and disposal of property, plant and equipment,
net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(537</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Provision for retirement benefits for employee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>82</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Changes in operating assets and liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">(Increase) decrease in accounts receivable, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,601</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(9,493</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">(Increase) decrease in accounts receivable, other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,496</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Increase in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,225</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,804</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(8,334</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Increase in prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(65</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(132</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(1,261</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Increase (decrease)&nbsp;in accounts payable, trade</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,151</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,208</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Increase (decrease)&nbsp;in accounts payable, other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(124</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,620</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Increase (decrease)&nbsp;in accrued expenses and other current
liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(247</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(4,986</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(630</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,301</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(182</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,601</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32,148</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>22,051</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from investing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sales of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>195</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions to property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45,342</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47,749</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(152,114</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Addition to license fees and other intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(231</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,927</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Additions to software costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,154</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,912</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,539</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,049</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(570</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(130</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47,308</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(50,256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(160,564</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cash flows from financing activities</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase (decrease)&nbsp;in short-term borrowings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,769</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110,688</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repayments of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(6,307</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from sale and leaseback transaction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,667</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Repayments of lease obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(241</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,280</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(26,013</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distribution to shareholders</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(810</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>105,305</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of Class&nbsp;A stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of Class&nbsp;B stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,135</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of Class&nbsp;C stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of Class&nbsp;D stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>217,571</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(205</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>185</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,982</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>79,243</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>110,555</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">110,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>189,798</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Supplemental disclosures of cash flow information:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash paid during the year for:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">193</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>3,004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">644</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,096</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-cash investing transaction:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Property, plant and equipment acquired under capital leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">64,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>40,667</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>See notes to consolidated financial statements.</I>
</DIV>



<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="left">
<A name="505"></A>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">March&nbsp;31, 2005
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The data in the following footnotes as of and for the years ended March&nbsp;31, 2004 and 2005 is
unaudited.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Elpida Memory, Inc. (&#147;Elpida&#148;) was established in December&nbsp;1999 as a joint venture owned 50% each
by NEC Corporation (&#147;NEC&#148;) and HITACHI, Ltd. (&#147;HITACHI&#148;). Elpida Memory, Inc. and its subsidiaries
(the &#147;Company&#148;) develop, design, manufacture and sell dynamic random access memories (&#147;DRAMs&#148;). In
November&nbsp;2004, common stock of Elpida Memory, Inc. was listed on the first section of Tokyo Stock
Exchange and, accordingly NEC&#146;s and HITACHI&#146;s ownership interest each decreased to 25%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 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 and reclassifications were not recorded in the statutory books of
account.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Use of estimates</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Consolidation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The consolidated financial statements of the Company include the accounts of Elpida and its
subsidiaries. All significant intercompany balances and transactions are eliminated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Cash equivalents</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All highly liquid investments with a maturity at their date of acquisition of three months or less
are considered to be cash equivalents.
</DIV>


<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Foreign currency translation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company&#146;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)&nbsp;classified as part of shareholders&#146;
equity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Allowance for doubtful accounts</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">An allowance for doubtful accounts is provided based on credit loss history and an evaluation of
any specific doubtful accounts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Marketable securities</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company classifies its marketable equity 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Inventories</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories are stated at the lower of cost or market.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The cost
of finished products, semifinished components and raw materials is determined by the
first-in, first-out basis, and work in process is determined by the average method.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The cost of supplies is determined individually.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>


<P align="center" style="font-size: 10pt">8
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Property, plant and equipment and depreciation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Leased assets meeting certain criteria are capitalized and amortized on a straight line basis over
the lease term.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Impairment of long-lived assets</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-lived assets to be disposed of by sale are evaluated at the lower of carrying amount or fair
value less cost to sell.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>License fees and other intangibles</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Software costs</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain costs incurred to develop or obtain internal use computer software are capitalized and are
amortized on a straight-line basis principally over 5&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Income taxes</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>



<P align="center" style="font-size: 10pt">9
</DIV>


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Stock-based compensation</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, 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 (&#147;APB&#148;) Opinion No.&nbsp;25, <I>Accounting for Stock Issued to Employees</I>, and
related Interpretations. The following table illustrates the effect on net income (loss)&nbsp;and net
income (loss)&nbsp;per share if the Company had applied the fair value recognition provisions of SFAS
No.&nbsp;123, <I>Accounting for Stock-Based Compensation</I>, to stock-based compensation.
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="12"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss), as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: Stock-based compensation
expense included in reported
net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,061</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deduct: Total stock-based
compensation expense determined
under fair value based method
for all awards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(2,919</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Pro forma net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>3,653</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss), per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic-as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(18,873.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(503.13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>72.21</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Basic-pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(18,873.73</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(503.13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>47.87</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted-as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>71.03</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Diluted-pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>47.87</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Net income per share</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Basic net income per share (&#147;EPS&#148;) 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.
</DIV>


<P align="center" style="font-size: 10pt">10
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Revenue recognition</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Revenue from sales of products is recognized when the products are shipped.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Derivative financial instruments</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146; equity as a component of other comprehensive income
(loss)&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>New accounting standard</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On December&nbsp;16, 2004, the FASB issued No.&nbsp;123 (revised 2004), Share-based Payment (&#147;SFAS No.
123(R)&#148;). This statement requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on fair values. SFAS No.
123(R) is effective at the beginning of the first fiscal year beginning after June&nbsp;15, 2005. The
Company will adopt SFAS No.&nbsp;123(R) effective April&nbsp;1, 2006, and has not determined what effect, if
any, it will have on the Company&#146;s results of operations and financial position.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In November&nbsp;2004, the FASB issued SFAS No.&nbsp;151, Inventory Costs &#150; an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4 (&#147;SFAS No.&nbsp;151&#148;). SFAS No.&nbsp;151 amends the guidance in ARB No.&nbsp;43, Chapter&nbsp;4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and rehandling costs be
recognized as current period charges regardless of whether they meet the criterion of &#147;so abnormal&#148;
as stated in ARB No.&nbsp;43. Additionally, SFAS No.&nbsp;151 requires that the allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No.&nbsp;151 is effective on April&nbsp;1, 2006 and has not determined what effect, if any,
it will have on the Company&#146;s results of operations and financial position.
</DIV>


<P align="center" style="font-size: 10pt">11
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>1. Significant Accounting Policies (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>New accounting standard (continued)</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In
December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, Exchanges of Nonmonetary Assets &#150; an amendment of
APB Opinion No.&nbsp;29 (&#147;SFAS No.&nbsp;153&#148;). SFAS No.&nbsp;153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No.&nbsp;29, Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No.&nbsp;153 specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No.&nbsp;153 is effective for the fiscal periods
beginning after June&nbsp;15, 2005. The Company will adapt SFAS No.&nbsp;153 effective on April&nbsp;1, 2006 and
has not determined what effect, if any, it will have on the Company&#146;s results of operations and
financial position.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Reclassification</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain amounts in the consolidated financial statements for the years ended March&nbsp;31, 2003 and
2004 have been reclassified to conform to the 2005 presentation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Reorganization</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Prior to March&nbsp;24, 2004, the Company owned a 20% interest in Elpida Memory (U.S.A.) Inc., (&#147;Elpida
(U.S.A.)&#148;) 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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;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 as of March&nbsp;31,
2003 have been restated to give effect to the combination.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Summarized results of operations of Elpida (U.S.A.) for the year ended March&nbsp;31, 2004 are as
follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="90%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">33,277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,437</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">864</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>2. Reorganization (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Following is a reconciliation of the amounts of net sales and net income previously reported for
the year ended March&nbsp;31, 2003 with restated amounts:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="91%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>March 31, 2003</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As previously reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">63,235</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Elpida (U.S.A)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,734</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Elimination of intercompany transactions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,590</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As restated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">67,379</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As previously reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,621</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Elpida (U.S.A)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Elimination of intercompany transaction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(271</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">As restated</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Prior to March&nbsp;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.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>3. Marketable securities</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following is a summary of marketable securities:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="93%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>

    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>March 31</B>&nbsp;<B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Acquisition</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Unrealized</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" >&nbsp;</TD>
<TD></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Description</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>cost</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>holding gains</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Fair value</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity security</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;2,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="center">&#165;3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&#165;2,052</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>4. Inventories</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Inventories at March&nbsp;31, 2004 and 2005 consisted of the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">6,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>14,679</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work in process and semifinished components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,130</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials and Supplies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,873</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,986</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">24,437</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>32,795</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Property, Plant and Equipment</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Depreciable lives</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buildings and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3 &#150; 60 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#165;</TD>
    <TD align="right" valign="top">16,312</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>&#165;</B></TD>
    <TD align="right" valign="top"><B>29,539</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2 &#150; &nbsp; 7 years</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">109,371</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top"><B>185,216</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tools</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2 &#150; 15 years</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4,021</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top"><B>9,133</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">10,063</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top"><B>33,433</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&#150;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top"><B>3,952</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD nowrap colspan="3" align="right" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&#165;</TD>
    <TD align="right" valign="top">139,767</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top"><B>&#165;</B></TD>
    <TD align="right" valign="top"><B>261,273</B></TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" valign="top" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. License Fees and Other Intangibles</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">License fees and other intangibles subject to amortization at March&nbsp;31, 2004 and 2005 consisted of
the following:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Gross carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>amortization</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="16"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">License fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;1,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;658</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;4,805</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;1,533</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,742</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,382</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;5,125</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;2,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;8,547</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&nbsp;</B></TD>
    <TD align="right"><B>&#165;3,915</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">14
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>6. License Fees and Other Intangibles (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The estimated amortization expense for the next five years is follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Year ending March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;</TD>
    <TD align="right">&#165;1,102&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,046&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">966&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">371&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>7. Software Costs</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Accumulated depreciation of internal use software at March&nbsp;31, 2004 and 2005 was &#165;2,182&nbsp;million and
&#165; 3,801 million, respectively. Depreciation expense for internal use software for the years ended
March&nbsp;31, 2003, 2004 and 2005 was &#165;620&nbsp;million, &#165;1,287&nbsp;million and &#165; 1,615&nbsp;million, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Short-Term Borrowings and Long-term Debt</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Short-term borrowings principally consist of short-term bank loans. The weighted average interest
rate per annum on short-tem borrowings outstanding at March&nbsp;31, 2004 was 1.1%.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Long-term debt at March&nbsp;31, 2004 and 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Borrowings from banks and financial institutions,
due 2004 to 2007 with average interest rate of 0.9%
at March&nbsp;31, 2004 and due 2005 to 2009 with
average interest rate of 1.5% at March&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">42,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>77,093</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">0.24% unsecured yen bonds due June&nbsp;2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>10,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">1.45% unsecured yen bonds due March&nbsp;2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>55,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">2.03% unsecured yen bonds due March&nbsp;2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>15,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>157,093</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; portion due within one year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>18,520</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">46,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>138,573</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>8. Short-Term Borrowings and Long-Term Debt (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At
March&nbsp;31, 2005, &#165;37,093&nbsp;million out of the Company&#146;s borrowing arrangements
have restrictive debt covenants. Failure to comply with those covenants would require the
repayment of borrowing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain of the Company&#146;s borrowing arrangements have restrictive debt covenants. The restrictive
covenants would require that the Company has at least &#165;146.5&nbsp;billion of the net assets, &#165;40&nbsp;billion
of the cash and cash equivalents, and the net debt equity ratio exceeding 1.2 times, or maintain a
certain level of the profit. The Company was in compliance with such the debt covenants at March
31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Annual maturities of long-term debt during the next five years are summarized as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Year ending March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;18,520&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,192&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,181&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,400&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:15px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,800&nbsp;&nbsp;&nbsp;&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company maintains credit lines of &#165;50,000&nbsp;million with five banks. At March&nbsp;31, 2005, the
unused line of credit was &#165;50,000&nbsp;million. These programs have certain debt covenants which
require the Company to maintain certain levels of net assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, the Company maintains long-term debt commitments of &#165;50,000&nbsp;million with twenty nine
financial institutions. At March&nbsp;31, 2005, the unused commitments were &#165;50,000&nbsp;million. These
programs require the Company to maintain certain level of net assets.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Pension and Severance Plans</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;31, 2005, Elpida and its domestic consolidated subsidiary established
retirement benefit plan. The plans consist of a defined benefit pension plan, a lump-sum indemnity
plan and a defined contribution plan. Transfers of benefit obligations and plan assets were based
on PBO of the employees transferred. Certain foreign consolidated subsidiaries have defined
contribution plans and lump-sum indemnity plans.
</DIV>


<P align="center" style="font-size: 10pt">16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Reconciliation of beginning and ending balances of the benefit obligation and the fair value of the
plan assets at March&nbsp;31, 2005 were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in benefit obligation:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit obligations at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Transfer from affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,666</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit obligations at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,961</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in plan assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fair value of plan assets at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Actual return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Employer&#146;s contributions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">177</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Benefit paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Transfer from affiliates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,309</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Fair value of plan assets at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fund status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(477</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized prior service cost *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">353</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrecognized actuarial loss *</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net amounts recognized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(74</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>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 15 years.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition to the above-mentioned accrued retirement benefits for employees, additional accruals
of &#165;8&nbsp;million were recorded for certain foreign consolidated subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The assumptions used to determine benefit obligation at March&nbsp;31, 2005 was follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->

<TR valign="bottom">
    <TD><DIV style="margin-left:35px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:35px; text-indent:-15px">Rate of increase in future compensation level</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right" nowrap>1.0 &#150; 7.0</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The assumptions used to determine net pension and severance cost for the year ended March&nbsp;31, 2005
was follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:35px; text-indent:-15px">Discount rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.1</TD>
    <TD nowrap>%</TD>
</TR>


<TR valign="bottom">
    <TD><DIV style="margin-left:35px; text-indent:-15px">Rate of increase in future compensation level</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right" nowrap>1.0 &#150; 7.0</TD>
    <TD nowrap>%</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:35px; text-indent:-15px">Expected long-term rate of return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">2.5</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>9. Pension and Severance Plans (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The assets allocation for the pension plan at March&nbsp;31, 2005 is 100% to short-term deposits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The composition of retirement benefit expenses for the year ended March&nbsp;31, 2005 was as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Service cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;286</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest cost</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected return on plan assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(60</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of prior service costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Retirement benefit expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">252</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Contribution for defined contribution plan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">&#165;328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Income Taxes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The components of income (loss)&nbsp;before income taxes and the provision (benefit)&nbsp;for income taxes
comprised the following components:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Elpida and domestic subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(23,256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(26,831</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2,290</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,964</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,955</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,780</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(23,867</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6,245</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Provision (benefit)&nbsp;for income taxes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Elpida and domestic subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>13</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">965</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,257</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">268</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">976</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,270</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Elpida and domestic subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,063</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(556</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Foreign subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>20</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(536</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Income Taxes (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 42.1% for the years ended March&nbsp;31, 2003 and 2004 and 40.8%
for the year ended March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Significant components of reconciling items between the statutory tax rate and the effective tax
rate are as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="70%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Statutory tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">42.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>40.8</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Permanent difference on stock
compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>6.9</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Valuation allowances</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(47.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(32.6</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3.3</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effective tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3.1</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>11.8</B></TD>
    <TD nowrap><B>%</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">New legislation was enacted in March&nbsp;2003 changed the aggregate statutory tax rate from 42.1% to
40.8% effective for fiscal years beginning after March&nbsp;31, 2004. The effect of this tax rate
change was not material.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The significant components of deferred tax assets and liabilities at March&nbsp;31, 2004 and 2005 were
as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><I>(Millions of yen)</I></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net operating loss carryforwards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">33,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>29,487</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">505</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,144</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,369</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>35,000</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Less: valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(33,963</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(31,928</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,954</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,396</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(40</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,997</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(3,436</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&#165;</TD>
    <TD align="right">(907</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>&#165;</B></TD>
    <TD align="right"><B>(364</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>10. Income Taxes (continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The valuation allowance shown above reflects the Company&#146;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&nbsp;31, 2003, 2004, 2005 was an increase of &#165;9,421&nbsp;million, an increase of &#165;11,216
million and a decrease of &#165;2,035&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, the Company had operating loss carryforwards of approximately &#165; 72,303&nbsp;million
of which &#165; 71,273&nbsp;million relates to Elpida and its domestic subsidiary and will expire during the
period from 2006 through 2012. The reminder of &#165; 1,030&nbsp;million relates to its foreign
subsidiaries, which has no expiration date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Shareholders&#146; Equity</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Common stock and additional paid-in capital</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">During the year ended March&nbsp;31, 2005, Elpida completed global offering of 29,150,000 shares of
Common stock. The offering price of &#165;3,500 was reduced to an issue price of &#165;3,325 and accordingly,
the difference between the offering and issue price was recognized as an underwriting fee. The net
proceeds from stock offering of &#165;96,924&nbsp;million, were allocated &#165;37,166&nbsp;million to Common stock and
remaining amount of &#165;59,758&nbsp;million to additional paid-in capital after the stock offering costs of
&#165;597&nbsp;million, net of tax were deducted in accordance with the Japanese Commercial Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In addition, the company issued 2,700,000 shares of Common stock upon the exercise of an
over-allotment option. The net proceeds of &#165;8,977&nbsp;million were allocated &#165;3,443&nbsp;million to Common
stock and remaining amount of &#165;5,534&nbsp;million to additional paid-in capital.
</DIV>





<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Shareholders&#146; Equity (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Classes of stock</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Class&nbsp;A voting stock was converted into 17,600,000 shares of the common stock on May&nbsp;24, 2004.
Prior to the conversion, each share was convertible into one share of common stock of Elpida.
Dividends on Class&nbsp;A stock were subordinated to dividends on common stock of Elpida.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Class&nbsp;B stock was non-voting and had certain veto rights pursuant to the articles of incorporation,
which expired on November&nbsp;15, 2004 on the initial listing of shares of the Elpida&#146;s common stock on
the Tokyo Stock Exchange. Subsequent to March&nbsp;31, 2005, Class&nbsp;B shareholder converted their shares
into common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Class&nbsp;C stock was converted into 8,698,000 shares of Common stock on November&nbsp;15, 2004. Class&nbsp;C
shareholders had no voting privileges. Annual or interim dividends, if any, were <I>pari passu </I>among
Common, Class&nbsp;B and Class&nbsp;D shareholders. Class&nbsp;C shareholders had certain liquidation
preferences.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Class&nbsp;D stock was converted into 5,436,400 shares of Common stock on November&nbsp;15, 2004. Class&nbsp;D
shareholders had no voting privileges. Annual or interim dividends, if any, were <I>pari passu </I>among
Common, Class&nbsp;B and Class&nbsp;C shareholders. Class&nbsp;D shareholders had certain liquidation
preferences.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Retained earnings</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s
retained earnings determined in accordance with generally accepted accounting principles and the
Commercial Code in Japan.
</DIV>



<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>11. Shareholders&#146; Equity (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Other comprehensive income (loss)</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company does not recognize a tax effect on foreign currency translation adjustments because the
investment in subsidiaries is essentially permanent in duration.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Change in accumulated other comprehensive income (loss)&nbsp;for the years ended March&nbsp;31, 2004 and 2005
were as follows:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="85%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(355</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(212</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>29</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(355</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(326</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain on investment securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized losses on derivative financial instruments:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(353</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(574</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(927</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total accumulated other comprehensive income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(143</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(708</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Change in the current period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(565</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(543</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Balance at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(708</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>(1,251</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">22
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>



<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>12. Stock-Based Compensation Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;23, 2004, the Company established a stock option plan (the &#147;Plan&#148;) 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 from November&nbsp;2005 through March&nbsp;2011.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The stock option activity for the year ended March&nbsp;31, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="62%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted-</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>exercise price</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at beginning
of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">&#150;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,230,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2,500&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,230,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,230,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">2,500&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,230,000</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>2,500&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exercisable at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#150;&nbsp;&nbsp;&nbsp;&nbsp;</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average remaining contractual life for options outstanding at March&nbsp;31, 2005 is
six years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The weighted-average fair value per share at the date of grant during the year ended March&nbsp;31, 2004
was &#165; 2,259. The fair value of options granted is estimated using the Black-Scholes option pricing
model with the following weighted-average assumptions:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.50</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">4.79 years</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">72.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Shipping and Handling Costs</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Shipping and handling costs are included in selling, general and administrative expenses. Shipping
and handling costs for the years ended March&nbsp;31, 2003, 2004 and 2005 was &#165;743&nbsp;million, &#165;776&nbsp;million
and &#165;1,208&nbsp;million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. Income (Loss) Per Share</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A reconciliation of numerators and denominators of the basic and diluted per share computations for
net income (loss)&nbsp;is as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(22,454</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">(25,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>5,511</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Number of shares)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average number of
shares of common stock
outstanding for the year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,234,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>76,324,947</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Stock option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>1,260,122</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted-average number of
shares of diluted common
stock outstanding for the
year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,234,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>77,585,069</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Net income (loss):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(943.69</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">(503.13</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>72.21</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>71.03</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">On March&nbsp;19, 2004, the Company completed a twenty-for one stock split. The above per share
amounts for the year ended March&nbsp;31, 2003 and 2004 have been adjusted to reflect the stock split.
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Financial Instruments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Fair value of financial instruments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;31, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Carrying</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Estimated</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>fair value</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="14"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt,
including current
portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">52,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">52,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>157,093</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>157,671</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Derivatives:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Forward exchange
contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>17,609</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>17,609</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest rate
swap agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(353</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(927</B></TD>
    <TD nowrap><B>)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right"><B>(927</B></TD>
    <TD nowrap><B>)</B></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Derivative instruments</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s policies prohibit
holding or issuing derivative instruments for trading purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&#146;s operating activities. The forward exchange contracts are not
designated as hedging instruments under SFAS No.&nbsp;133, <I>Accounting for Derivative Instruments and
Hedging Activities, </I>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.
</DIV>

<P align="center" style="font-size: 10pt">25
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Financial Instruments (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Cash Flow Hedging Strategy</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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 7&nbsp;years. Approximately 38.2% of the
Company&#146;s outstanding long-term debt was designated as the hedged items to interest rate swap
agreements at March&nbsp;31, 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, the Company expects to reclassify &#165;508&nbsp;million of net losses on derivative
financial instruments from accumulated other comprehensive income (loss)&nbsp;to earnings during the
next 12&nbsp;months due to the payment of variable interest associated with the floating rate debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the year ended March&nbsp;31, 2005, 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.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The counter parties to the Company&#146;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.
</DIV>

<P align="center" style="font-size: 10pt">26
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Leasing Arrangements</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company conducts certain operations in leased facilities and also leases a portion of its data
processing and other equipment from affiliates for a period up to 8&nbsp;years. Rental expense under
operating leases for the years ended March&nbsp;31, 2003, 2004 and 2005 was &#165;2,744&nbsp;million, &#165;14,261
million and &#165;21,146&nbsp;million, respectively. The rental expense under operating leases for the year
ended March&nbsp;31, 2003 included the rental expense of &#165;162&nbsp;million with NEC&#146;s affiliates and &#165;29
million with HITACHI&#146;s affiliate. The rental expense under operating leases for the year ended
March&nbsp;31, 2004 included the rental expense of &#165;9,900&nbsp;million with NEC&#146;s affiliates and &#165;29&nbsp;million
with HITACHI&#146;s affiliate. The rental expense under operating leases for the year ended March&nbsp;31,
2005 included the rental expense of &#165;8,045&nbsp;million with NEC&#146;s affiliates and of &#165;251&nbsp;million with
HITACHI&#146;s affiliate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">At March&nbsp;31, 2005, the Company had operating leases with minimum rental commitments in succeeding
years as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="50%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="20%">&nbsp;</TD>
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ending March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:50px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="center" valign="top">&#165;12,689&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:50px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8,089&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:50px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,088&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="left"><DIV style="margin-left:50px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>

<TD align="right" valign="top">51&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="left"><DIV style="margin-left:50px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>

<TD align="right" valign="top">4&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Certain facilities and equipment are leased under long-term agreements and accounted for as capital
lease. 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&nbsp;31, 2004 and 2005 was
&#165;72,040&nbsp;million and &#165;113,139&nbsp;million, respectively. The related accumulated depreciation at March
31, 2004 and 2005 was &#165;9,165&nbsp;million and &#165;30,345&nbsp;million, respectively. At March&nbsp;31, 2004 and
2005, approximately 16 % and 35% of the capital lease transactions were with HITACHI&#146;s affiliate,
respectively.
</DIV>

<P align="center" style="font-size: 10pt">27
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Leasing Arrangements (continued)</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">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&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Year ending March 31</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">&#165;31,892</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;25,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;12,418</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;8,064</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;1,630</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;79,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; amount representing interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;&nbsp;3,479</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Present value of net minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;76,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less &#150; current obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">&nbsp;&nbsp;30,143</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="3" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term lease obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="center">&#165;46,330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="3" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. Commitment and Contingent Liabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Commitments outstanding at March&nbsp;31, 2005 for the purchase of property, plant and equipment
approximated &#165;35,000&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company entered into a long-term purchase agreement for natural gas with Hiroshima Gas Co.,
Ltd. Based on the agreement, the Company is committed to purchase minimum volumes each year. The
Company&#146;s total commitment based on current prices is approximately &#165;54&nbsp;billion for the period from
April&nbsp;1, 2005 through March&nbsp;31, 2015. Prices are reset annually.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Elpida (U.S.A.) is under investigation by the Antitrust Division of the United States Department of
Justice (the DOJ) into possible antitrust violations in the DRAM industry and a number of purported
class action lawsuits alleging antitrust violations. Elpida has also received a request for
information from European Commission relating to its investigation into the compatibility of
certain practices in the European DRAM market with the EC competition rules, to which Elpida has
duly responded. Although the DRAM industry investigation has been continuing, the Company provided
approximately &#165;1.9&nbsp;billion related to the DOJ investigation.
</DIV>

<P align="center" style="font-size: 10pt">28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Segment Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Business Segment</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Company is engaged in the development, design, manufacture and sale of semiconductor products
and focuses on DRAM products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Geographical Segment Information</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sales, which are attributed to geographic areas based on the country location of Elpida Memory,
Inc. or subsidiary that transacted the sale with the external customer for the years ended March
31, 2003, 2004 and 2005 and long-lived assets at March&nbsp;31, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">33,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">66,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>85,312</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">All foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,455</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,305</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>121,716</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">67,379</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&#165;</TD>
    <TD align="right">103,031</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right"><B>&#165;</B></TD>
    <TD align="right"><B>207,028</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>

    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 1px solid #000000"><B>March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-lived assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">131,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>223,161</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">All foreign countries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">212</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>564</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">131,829</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>223,725</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:45px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
   <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Major customers</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the year ended March&nbsp;31, 2003, the two largest customers made up 14% and 11% of total sales.
For the year ended March&nbsp;31, 2004, the two largest customers made up 11% and 10% of total sales,
respectively. For the year ended March&nbsp;31, 2005, the two largest customers each made up 12% of
total sales.
</DIV>

<P align="center" style="font-size: 10pt">29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Elpida Memory, Inc.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 6pt">Notes to Consolidated Financial Statements (continued)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Related Party Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table summarizes related party transactions for the years ended March&nbsp;31, 2003, 2004
and 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">NEC and its affiliates:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">1,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">11,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>20,753</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of products and
semifinished components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,027</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,995</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>53,057</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Manufacturing overhead costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,850</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Selling, general and
administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>5,692</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of tangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,616</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>37,294</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">License fees and other intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>2,610</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>530</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #000000"><B>Year ended March 31</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><I>(Millions of yen)</I></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">HITACHI and its affiliates:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">4,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#165;</TD>
    <TD align="right">11,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>&#165;</B></TD>
    <TD align="right"><B>24,990</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of products and
semifinished components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>53,617</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Manufacturing overhead costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">214</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>717</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Selling, general and
administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,345</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>7,296</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>158</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of tangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,968</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>3,274</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">License fees and other intangibles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>503</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Purchase of software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#150;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><B>142</B></TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">30
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">EXHIBIT INDEX
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="91%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Description</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Articles of Incorporation, as
amended to date (English translation).<BR>
Rules of the Board of Directors, as amended to date (English translation).</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subsidiaries of the Company (see &#147;Item&nbsp;4.C. Information on the Company&#151;Organizational Structure&#148;).</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certifications required by Rule&nbsp;13a-14(a) (17 CFR 240.13a-14(a)) or Rule&nbsp;15d-14(a) (17 CFR 240.15d-14(a)).</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Certifications required by Rule&nbsp;13a-14(b) (17 CFR 240.13a-14(b)) or Rule&nbsp;15d-14(b) (17 CFR 240.15d-14(b))
and Section&nbsp;1350 of Chapter&nbsp;63 of Title 18 of the United States Code (18 U.S.C. 1350).</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

</BODY>
</HTML>
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NEC CORPORATION
Table of Contents
As
filed with the Securities and Exchange Commission on September 27, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2005
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ________ to ________
OR
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
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
þ
No
o
Indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17
o
Item 18
þ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).     Yes
o
No
þ
TABLE OF CONTENTS
Forward-Looking Statements
ITEM 1.
Identity of Directors, Senior Management and Advisers
ITEM 2.
Offer Statistics and Expected Timetable
ITEM 3.
Key Information
ITEM 4.
Information on the Company
ITEM 5.
Operating and Financial Review and Prospects
ITEM 6.
Directors, Senior Management and Employees
ITEM 7.
Major Shareholders and Related Party Transactions
ITEM 8.
Financial Information
ITEM 9.
The Offer and Listing
ITEM 10.
Additional Information
ITEM 11.
Quantitative and Qualitative Disclosures about Market Risk
ITEM 12.
Description of Securities Other than Equity Securities
ITEM 13.
Defaults, Dividend Arrearages and Delinquencies
ITEM 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
ITEM 15.
Controls and Procedures
ITEM 16A.
Audit Committee Financial Expert
ITEM 16B.
Code of Ethics
ITEM 16C.
Principal Accountant Fees and Services
ITEM 16D.
Exemptions from the Listing Standards for Audit Committees
ITEM 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
ITEM 17.
Financial Statements
ITEM 18.
Financial Statements
ITEM 19.
Exhibits
CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT INDEX
EX-1 ARTICLES OF INCORPORATION, AS AMENDED TO DATE (ENGLISH TRANSLATION).
EX-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)).
EX-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).
In this Form 20-F, the "Company," "we," "us," and "our" refer to NEC Corporation and, unless
the context indicates otherwise, its consolidated subsidiaries. The term "NEC" refers to NEC
Corporation excluding its subsidiaries and affiliated companies unless the context otherwise
indicates.
Table of Contents
Forward-Looking Statements
This annual report contains forward-looking statements pertaining to our strategies, financial
targets, technology, products and services, and business performance. Written forward-looking
statements may appear in other documents that we file with the U.S. Securities and Exchange
Commission, or SEC, and in reports to shareholders and other communications. The U.S. Private
Securities Litigation Reform Act of 1995 contains a safe-harbor for forward-looking statements, on
which we rely in making these disclosures.
Some of the forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "estimates,"
"aims," or "anticipates," or the negative of those words, or other comparable words or phrases.
You can also identify forward-looking statements by discussions of strategy, forecast, beliefs,
plans, targets, or intentions.
Forward-looking statements necessarily depend on assumptions, data, or methods that may be
incorrect or imprecise and we may not be able to realize the results expected by them. You should
not place undue reliance on forward-looking statements, which reflect our analysis and expectations
only.
Forward-looking statements are not guarantees of future performance and involve inherent risks
and uncertainties. A number of important factors could cause our actual results to differ
materially from those in the forward-looking statements. Among the factors that could cause actual
results to differ materially from such statements include:
•
global economic conditions and general economic conditions in our markets;
•
fluctuating demand for, and competitive pricing pressure on, our products and services;
•
our ability to continue to win acceptance of our products and services in highly competitive markets;
•
our ability to expand into foreign markets, such as China;
•
regulatory change and uncertainty and potential legal liability relating to our business and operations;
•
our ability to restructure, or otherwise adjust, our operations to reflect changing market conditions; and
•
movement of currency exchange rates, particularly the rate between the yen and the U.S. dollar.
For a discussion of factors that could cause actual results to differ, please see the
discussion under "Item 3.D. Key Information — Risk Factors" contained in this annual report and in
other information contained in our filings with the SEC. Any forward-looking statements speak only
as of the date on which they are made. New risks and uncertainties come up from time to time, and
it is impossible for us to predict these events or how they may affect us. We do not undertake any
obligation to update or revise any of the forward-looking statements, whether as a result of new
information, future events, or otherwise.
We caution you that the statements made in this annual report are not an offer of securities
for sale. The securities may not be offered or sold in any jurisdiction in which registration is
required absent registration or an exemption from registration under the applicable securities
laws. For example, any public offering of securities to be made in the United States must be
registered under the U.S. Securities Act of 1933 and made by means of an English language
prospectus.
Table of Contents
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.
Not applicable.
ITEM 3. KEY INFORMATION.
A. Selected Financial Data.
You should read the selected consolidated financial data set forth below in conjunction with
"Item 5. Operating and Financial Review and Prospects" and our consolidated financial statements
and the related notes included elsewhere in this annual report. These data are qualified in their
entirety by reference to all such information.
The selected consolidated financial data as of and for the fiscal years ended March 31, 2001,
2002, 2003, 2004, and 2005 have been derived from our audited consolidated financial statements.
Those financial statements were prepared in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP.
Year Ended March 31
2001
2002
2003
2004
2005
(Millions of yen, except per share amounts)
Statement of
Operations Data:
Net sales
¥
5,409,736
¥
5,101,022
¥
4,695,035
¥
4,906,821
¥
4,855,132
Income (loss) before
income taxes
92,323
(461,183
)
61,496
160,546
115,664
Provision (benefit)
for income taxes
56,308
(178,173
)
58,714
85,870
73,111
Income (loss) before
cumulative effect of
accounting change
56,603
(309,425
)
(24,558
)
41,078
67,864
Net income (loss)
56,603
(312,020
)
(24,558
)
41,078
67,864
Per Share Data:
Basic
(1)
Income (loss) before
cumulative effect of
accounting change
34.55
(187.06
)
(14.85
)
23.67
34.77
Net income (loss)
34.55
(188.63
)
(14.85
)
23.67
34.77
Diluted
(1)
Income (loss) before
cumulative effect of
accounting change
32.17
(187.06
)
(14.85
)
21.93
31.87
Net income (loss)
32.17
(188.63
)
(14.85
)
21.93
31.87
Cash dividends
11.00
6.00
—
6.00
6.00
Other Financial Data:
Capital expenditures
(2)
346,491
200,067
178,734
173,957
217,793
Depreciation
250,138
234,738
195,594
178,714
166,484
Research and
development expenses
344,957
333,632
296,241
256,668
275,348
Table of Contents
As of March 31
2001
2002
2003
2004
2005
(Millions of yen)
Balance Sheet Data:
Total assets
¥
4,823,624
¥
5,010,883
¥
4,103,300
¥
4,044,342
¥
3,940,685
Long-term liabilities
1,642,538
2,005,610
1,737,219
1,368,921
1,260,564
Shareholders' equity
915,036
564,915
358,444
711,460
794,274
(1)
For the fiscal year ended March 31, 2005, the weighted average number
of our shares of common stock issued (less treasury stock) was
1,926,424,743 and 2,092,687,088 on a basic and diluted basis.
(2)
Capital expenditures are the total amount of additions to property, plant and equipment on an accrual basis of accounting.
Exchange Rate Information
We maintain our accounts in Japanese yen. The tables set forth below, for each period
indicated, the noon buying rate in New York City for cable transfers in Japanese yen as certified
for customs purposes by the Federal Reserve Bank of New York, expressed in Japanese yen per $1.00.
On September 22, 2005, the noon buying rate was $1.00 equal to
¥111.63 and the inverse noon buying
rate was ¥100 equal to $0.896.
Calendar Year 2005
March
April
May
June
July
August
September
(1)
Yen exchange rate
per U.S.$
Low
¥
107.49
¥
108.67
¥
108.17
¥
110.91
¥
113.42
¥
112.12
¥
111.63
High
103.87
104.64
104.41
106.64
110.47
109.37
109.66
(1)
From September 1 to September 22.
Year Ended March 31
2001
2002
2003
2004
2005
Yen exchange rate per U.S.$
Average (of month-end rates)
¥
111.65
¥
125.64
¥
121.10
¥
112.75
¥
107.28
B. Capitalization and Indebtedness.
Not applicable.
C. Reasons for the Offer and Use of Proceeds.
Not applicable.
D. Risk Factors.
Investing in our securities involves a high degree of risk. You should carefully consider the
risks described below as well as all the other information in this annual report, including our
consolidated financial statements and related notes and "Item 5.D. Operating and Financial Review
and Prospects — Trend Information" and "Item 11. Quantitative and Qualitative Disclosures about
Market Risk."
Our business, operating results, and financial condition could be materially adversely
affected by any of the factors discussed below. The trading price of our securities could decline
due to any of these factors. This annual report also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including the risks faced by us
described below and elsewhere in this annual report. See "Forward-Looking Statements."
Risks Related to Our Industry
We are subject to intense competition in many of the markets in which we operate, which may
subject us to intense price competition and could affect our sales.
We are subject to intense competition in many of the markets in which we operate from various
competitors ranging from large multinational corporations to relatively small, rapidly growing, and
highly specialized companies. The entrance of additional competitors into the markets in which we
operate increases the risk that our products and services will become subject to intense price
competition. If we are unsuccessful in responding to intensified competition, our sales may be
negatively affected.
Our operating results may suffer if our production processes encounter problems or if we are
not able to match our production capacity to fluctuating levels of demand.
The computer, communications, semiconductor, and other markets in which we operate are
characterized by the introduction of products with short life cycles in a rapidly changing
technological environment. Production processes are highly complex, require advanced and costly
equipment, and must continuously be modified to improve yields and performance. Production
difficulties or inefficiencies can reduce yields or interrupt production. If production is
interrupted, we may not be able to shift production to other facilities quickly, and customers may
purchase products from other suppliers. The resulting shortage of manufacturing capacity for some
products could adversely affect our ability to compete. The resulting reductions in revenues and
damage to customer relationships could be significant. In addition, during downturns, customers
generally do not order products as far in advance of the scheduled shipment date as they do when
the industry is operating closer to capacity, making it difficult to forecast production levels and
revenues.
The cyclical nature of the market for semiconductors, and the resulting periodic overcapacity,
may seriously harm our results of operations.
The market for semiconductors has a highly cyclical nature called a "silicon cycle" and has
suffered occasional downturns. Downturns have been characterized by diminished demand, excess
inventories, and accelerated erosion of prices. Although we operate our business while carefully
monitoring the cycle of the market, future downswings of the silicon cycle may nevertheless have
adverse effects on our operating results.
The cyclical nature of the semiconductor market is due partly to periods of production
overcapacity. In recent years, semiconductor companies, including specialist semiconductor
foundries, have added significant capacity primarily in Asia. As a consequence, semiconductor
production capacity may periodically exceed the demand for semiconductor products, exerting
downward pressure on selling prices and reducing our revenues.
If we fail to attract, hire, and retain skilled personnel, we may not be able to achieve our
business objectives.
Like all technology companies, we must compete for talented employees to develop our products,
services, and solutions in a market where the demand for such individuals exceeds the number of
qualified candidates. As a result, our human resources organization focuses significant efforts on
attracting and retaining individuals in key technology positions. If we experience a substantial
loss of, or an inability to attract, talented personnel, we may experience difficulty in meeting
our business objectives.
Weak economic conditions in Japan and worldwide may harm our business.
We are very dependent on the Japanese market. Sales to customers in Japan accounted for 76.0%
of our total net sales in the fiscal year ended March 31, 2004 and 73.2% of our total net sales in
the fiscal year ended March 31, 2005. Although the Japanese economy sustained steady growth in the
first half of the fiscal year ended March 31, 2005, growth slowed as consumer spending became
sluggish in the second half. If this weakness in the Japanese economy continues to prevail, it
could have a significant impact on our financial results. Because all components of our budgeting
and forecasting depend upon estimates of growth in the markets that we serve, the prevailing
economic uncertainty makes it more difficult than usual to estimate our future income and required
expenditures.
We depend also on markets outside Japan. Our business and results of operations are therefore
also subject to negative economic developments in foreign economies.
We face regulatory change and uncertainty, as well as potential legal liability, in many
countries in which we operate.
In many of the countries in which we operate, our business is subject to various risks
associated with unexpected regulatory changes, uncertainty in the application of laws and
governmental policies, and uncertainty relating to legal liabilities. Substantial changes in the
regulatory or legal environments in which we operate could adversely affect our business, operating
results, and financial condition.
Changes in Japanese and international telecommunications regulations and tariffs, including
those related to Internet-related businesses and technologies, could affect the sales of our
products or services, and this could adversely affect our business, operating results, and
financial condition.
We endeavor to comply with laws and government policies, establishing self-management norms
and conducting daily inspections and environmental auditing in accordance with NEC's internal
environmental policies. Our operations, however, are subject to many environmental laws and
regulations governing, among other things, air emissions, wastewater discharges, the use and
handling of hazardous substances, waste disposal, product recycling, and soil and ground water
contamination. We face risks of environmental liability in our current, historical, and future
manufacturing activities. Costs associated with future additional and stricter environmental
compliance or remediation obligations could adversely affect our business, operating results, and
financial condition.
We may be subject to product liability claims that could result in significant direct or
indirect costs to us.
There is a risk that defects may occur in our products and services. Many of our products and
services are used in "mission critical" situations where the adverse consequences of failure would
be severe, exposing us in some cases to even greater risk. The occurrence of these defects could
make us liable for damages caused by these defects, including consequential damages. Negative
publicity concerning these problems could also discourage customers from purchasing our products
and services. Either situation could hurt our business, operating results, and financial
condition.
Our operating and financing activities expose us to foreign currency exchange and interest
rate risks, which may adversely affect our revenues and profitability.
Despite measures undertaken by us to reduce, or hedge against, foreign currency exchange
risks, foreign exchange rate fluctuations may negatively impact our business, operating results,
and financial condition. Changes in exchange rates can affect the yen value of our equity
investments and monetary assets and liabilities arising from business transactions in foreign
currencies. They can also affect the costs and sales proceeds of products or services that are
denominated in foreign currencies.
We are also exposed to risks of interest rate fluctuations. Despite measures undertaken by us
to hedge a portion of our exposure against interest rate fluctuations, such fluctuations may
increase our operational costs, reduce the value of our financial assets, or increase the value of
our liabilities.
Table of Contents
Risks Related to Our Business
We may not succeed in implementing our mid-term growth strategies.
We operate our business with our mid-term growth strategies implemented in October 2003,
including:
•
pursuing growth opportunities in the information technology, or IT,
solutions and services markets, particularly by leveraging our open
system capabilities, strengthening our consulting capabilities, and
enhancing our outsourcing and support services;
•
increasing our focus on network solutions to capitalize on the
combined strengths of our communications networking products, our
systems integration, or SI, service capabilities, and our customer
base;
•
extending our leadership in mobile communications to global markets by building on our experience in the Japanese market;
•
continuing to enhance our efficiency through cost and restructuring initiatives; and
•
further improving our financial position by reducing our total debt and improving our balance sheet.
Although we believe that our IT/Network Solutions business has great potential for growth,
there can be no assurances that it may grow as much as we expect. In addition, severe competition
from existing and new competitors may limit the benefits we are able to realize from our mid-term
growth strategies.
If we fail to keep pace with technological advances in our industry, or if we pursue
technologies that do not become commercially accepted, customers may not buy our products and
services, and our revenue and profitability may decline.
The markets for the products and services that we offer are characterized by rapidly changing
technology, evolving technical standards, changes in customer preferences, and the frequent
introduction of new products and services. The development and commercialization of new
technologies, and the introduction of new products and services will often make existing products
and services obsolete or unmarketable.
If we fail to keep up with rapid technological changes and changes in customers' needs or
preferences, and to offer and support new products and services in response to such changes, our
business, operating results, and financial condition may be adversely affected.
The development process can be lengthy and costly, and requires us to commit a significant
amount of resources well in advance of sales. Technology and standards may change while we are in
the development stage, rendering our products obsolete or uncompetitive before their introduction.
Our products, some of which contain both hardware and software, may contain undetected errors that
may be discovered after their introduction and shipment. In addition, we may encounter
difficulties incorporating our technologies into our products in accordance with our customers'
expectations, which in turn may negatively affect our customer relationships, reputation, and our
revenues.
Our revenues and profitability can fluctuate from period to period, and are often difficult to
predict for particular periods due to factors beyond our control.
Our results of operations for any quarter or year are not necessarily indicative of results to
be expected in future periods. Our operating results have historically been, and are expected to
continue to be, subject to quarterly and yearly fluctuations as a result of a number of factors,
including:
•
the introduction and market acceptance of new technologies, products, and services;
•
variations in product costs, and the mix of products sold;
•
the size and timing of customer orders, which in turn will often depend upon the
success of our customers' businesses or specific products or services;
•
the impact of acquired businesses and technologies;
•
manufacturing capacity and lead times; and
•
fixed costs.
There are other trends and factors beyond our control which may affect our operations, and
make it difficult to predict operating results for a particular period. These include:
•
adverse changes in the conditions in the markets for semiconductors, personal computers, mobile handsets, and
other products, and SI and other services that we offer;
•
governmental decisions regarding the development and deployment of communications and technology
infrastructure, including the size and timing of governmental expenditures in these areas;
•
the size and timing of capital expenditures by our customers;
•
inventory practices of our customers;
•
conditions in the broader markets for IT and communications, and the Japanese or global economy generally;
•
changes in governmental regulation or intervention affecting communications, data networking, or the Internet;
•
adverse changes in the public and private equity and debt markets, and the ability of our customers and
suppliers to obtain financing or to fund capital expenditures; and
•
adverse changes in the credit quality of our customers and suppliers.
These trends and factors could have a material adverse effect on our business, operating results,
and financial condition.
We may not succeed in executing our mid-term growth strategies outside of Japan.
Our mid-term growth strategies include expanding our business in markets outside of Japan. In
many of these markets, we face barriers in the form of long-standing relationships between our
potential customers and their local suppliers, and protective regulations. In addition, pursuing
international growth opportunities may require us to make significant investments long before we
realize returns on the investments, if any. Increased investments may result in expenses growing
at a faster rate than revenues. Our overseas projects and investments, particularly in China,
could be adversely affected by:
•
exchange controls;
•
changes in restrictions on foreign investment;
•
changes in export or import restrictions or changes in the tax system or rate of taxation; and
•
economic, social, and political risks.
Due to the above factors, we may not succeed in expanding our business in international
markets, thereby adversely affecting our business growth prospects and results of operations.
If we are unable to protect our intellectual property rights, our business and prospects may
be harmed.
We depend on our proprietary technology and our ability to obtain patents, licenses, and other
intellectual property rights covering our products, services, business models, and design and
manufacturing processes. The process of seeking patent protection can be long and expensive.
Although we have a large number of patents, our patents could be challenged, invalidated, or
circumvented. The fact that we hold many patents or other intellectual property rights does not
ensure that the rights granted under them will provide competitive advantages to us. For example,
the protection afforded by our intellectual property rights, such as patents, patent applications,
and copyrights, may be undercut by rapid changes in technologies in the industries in which we
operate. Similarly, there can be no assurance that claims allowed on any future
patents will be sufficiently broad to protect our technology. Effective patent, copyright, and
trade-secret protection may be unavailable or limited in some countries, and our trade secrets may
be vulnerable to disclosure or misappropriation by employees, contractors, and other persons.
Litigation, which could consume financial and management resources, may be necessary to enforce our
patents or other intellectual property rights or to defend against claims of infringement brought
against us.
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If we are unable to obtain certain intellectual property licenses owned by third parties, our
business could be adversely affected.
Many of our products are designed to include software or other intellectual property licenses
from third parties. Competitors' protected technology may be unavailable to us, or be made
available to us only on unfavorable terms and conditions. If we are unable to obtain certain
intellectual property licenses owned by third parties on reasonable terms and conditions or at all,
our business could be adversely affected.
We may become involved in costly and time-consuming legal proceedings, including intellectual
property litigation and infringement claims, that may substantially increase our costs and harm our
business.
From time to time, we are involved in various lawsuits and legal proceedings, including patent
and other intellectual property infringement claims. Due to the existence of a large number of
patents in our field and the rapid rate of issuance of new patents, it is difficult to determine in
advance whether a product or any of its components may infringe upon the patent rights of others.
Regardless of whether claims against us have merit, they may require significant resources to
defend against. If an infringement claim by a third party is successful, and the license for the
infringed technology or substitutable non-infringing technology cannot be obtained, our business
could be adversely affected.
We may also from time to time become involved in various lawsuits and legal proceedings other
than patent and other intellectual property infringement claims. We and several of our subsidiaries
are currently engaged in a lawsuit with GE Warranty Management, Inc. The lawsuit seeks
reimbursement of costs GE Warranty allegedly incurred in connection with warranty contracts that it
issued to purchasers of personal computers previously manufactured by our two subsidiaries.
NEC, Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., which was an
affiliated company of NEC accounted for by the equity method until August 31, 2005, and NEC
Electronics America, Inc., a subsidiary of NEC, are currently subject to an investigation being
conducted by the U.S. Department of Justice into potential antitrust violations in the U.S. dynamic
random access memory, or DRAM, industry. Separately, Elpida Memory, Elpida Memory (USA), NEC
Electronics Corporation, and NEC Electronics America have been named in a number of class action
civil antitrust lawsuits seeking damages for alleged antitrust violations. NEC Electronics America
transferred substantially all of its DRAM business to Elpida Memory (USA) in March 2001. Elpida
Memory (USA), however, did not assume the legal responsibilities or obligations relating to DRAM
produced or sold by NEC Electronics America prior to such transfer. Elpida Memory is also subject
to a similar investigation being conducted by the Director-General for Competition, Cartels Unit of
the European Commission.
In Japan, NEC received from the Tokyo High Court a judgment to annul a decision by the Fair
Trade Commission of Japan, or the JFTC, to issue a cease and desist order with respect to NEC's
bids for automatic letter processing systems ordered by the Ministry of Posts and
Telecommunications (currently, Japan Post). The JFTC has filed an appeal with the Supreme Court of
Japan with respect to such judgment. NEC has also attended hearings on the JFTC's surcharge
payment orders against NEC.
These and other legal proceedings are subject to inherent uncertainties, and an adverse result
in these or other matters that may arise from time to time could have a material adverse effect on
our business, results of operations or financial condition.
Any legal proceedings which we are subject to could require the significant involvement of our
senior management, and may divert management attention from our business and operations. For more
information about current legal proceedings, see "Item 8.A. Financial Information — Consolidated
Statements and Other Financial Information — Legal Proceedings."
If our facilities were to experience catastrophic loss due to a natural disaster or other
unexpected events, our information systems or operations could be seriously harmed.
Our facilities and buildings in Japan possess an aseismatic design and we inspect them
periodically in order to minimize the effects of earthquakes and other natural disasters. If any
of these facilities were to suffer catastrophic damage, it could disrupt our operations, delay
production and shipments, reduce revenue, and result in large losses and expenses to repair or
replace the facility. In addition, as network and information systems become more important to our
operating activities, network and information system shutdowns caused by unforeseen events such as
power outages, natural disasters, terrorist attack, hardware or software defects, computer viruses
and computer hacking pose increasing risks. Accordingly, although we continue to take precautions,
including the maintenance of backups, and other redundancies for major data centers, against such
unforeseen risks in the event that our network and information systems were to suffer a shutdown,
such events could also disrupt our operations, productions, shipments and revenue, and result in
large expenditures necessary to repair or replace such network information systems.
The failure of our suppliers to deliver raw materials, components, equipment, or other
supplies as expected could hurt our business.
Our manufacturing operations depend on obtaining deliveries of raw materials, components,
equipment, and other supplies in a timely manner. Because the products that we purchase are often
complex or specialized, it may be difficult for us to substitute one supplier for
another or one product for another. Some products are only available from a limited number of
suppliers or a single supplier. Although we believe that we currently possess adequate supplies of
the raw materials, components, equipment, and other supplies that we use, shortages in critical
materials could occur due to an interruption in supply or an increase in industry demand. Our
results of operations would be hurt if we could not obtain adequate delivery of these supplies in a
timely manner, or if we had to pay significantly more for them. In addition, the possibility of
defective raw materials, components, equipment, or other supplies could adversely affect the
reliability and reputation of our products.
We rely on our strategic partners, and our business could suffer if our strategic partners
have problems, or our relationships with them change adversely.
We have entered into a number of long-term strategic alliances with leading industry
participants, both to develop new technologies and products, and to manufacture existing and new
products. If our strategic partners encounter financial or other business difficulties, or if
their strategic objectives change, they may no longer be willing or able to participate in these
strategic alliances. Our business and operating results could be adversely affected if we were
unable to continue one or more of our strategic alliances.
Potential acquisitions and investments may require us to integrate new operations.
From time to time, we consider opportunities to expand our business through acquisitions and
investments. Any acquisition that we pursue exposes us to the risk that we might be unable to
integrate new businesses with our culture and strategies. We also cannot be certain that we will
be able to retain the customers of a business that we acquire or to retain its key employees.
Further, we may not be able to achieve the benefits that we expect from a particular acquisition.
Our business, operating results, and financial condition may suffer if we fail to coordinate our
resources effectively to manage both our existing businesses and any businesses we may acquire.
We conduct a substantial amount of business with the NTT group, which is comprised of Nippon
Telegraph and Telephone Corporation and its subsidiaries, including NTT DoCoMo, Inc and its
affiliates, and our business could suffer if it encounters business problems or decides to reduce
its business with us.
We derived approximately 13.4% of our net sales in the fiscal year ended March 31, 2005 from
the NTT group. If the NTT group were to reduce its level of capital expenditures or current
procurement, our business, operating results, and financial condition may be adversely affected.
In addition, although the NTT group does not engage in any material manufacturing at present, our
business may be adversely affected if it began to manufacture products that we supply or acquired
one of our competitors.
We are exposed to the risk that our customers, including those to whom we have provided vendor
financing, may encounter financial difficulties.
We sometimes provide vendor financing to our customers, or provide guarantees to banks or
trading companies that have provided vendor financing. In addition, many of our customers purchase
products and services from us on payment terms that provide for deferred payment. If our customers,
to whom we have extended or guaranteed vendor financing, or from whom we have substantial accounts
receivable, encounter financial difficulties, our business, operating results, and financial
condition could be adversely affected.
If we were to determine that the discount rate used to measure benefit obligations should be
lowered further or if the value of the securities constituting plan assets decline, the current
amount of our outstanding pension benefit obligations would increase further.
In accordance with U.S. GAAP, unrecognized prior service cost and actuarial loss have been
amortized using the straight-line method over the average remaining service period of employees
expected to receive benefits under such plans. The amount of actuarial loss may change depending
on future changes in the discount rate or other factors such as the return on plan assets. If we
were to determine that the discount rate used to measure benefit obligations should be lowered
further, the current amount of our outstanding pension benefit obligations would increase further.
In addition, if the value of the securities constituting the plan assets decline in the future due
to deterioration in stock or bond prices, our unfunded pension benefit obligations could increase.
If personal information and confidential information in our possession is leaked or improperly
accessed and subsequently misused, our reputation and brand value may be adversely affected and we
may have to consume our financial resources to resolve the situation.
We possess a voluminous amount of personal information and confidential information in
connection with the operation of our business. Despite measures taken to protect the information,
if that information in our possession is leaked or improperly accessed and subsequently misused, it
could negatively affect our reputation, consume financial resources to resolve the situation, and
lower our brand value, thereby hurting our operating results.
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ITEM 4. INFORMATION ON THE COMPANY.
A. History and Development of the Company.
NEC's legal and commercial name is
Nippon Denki Kabushiki Kaisha
in Japanese, or NEC
Corporation in English. NEC was incorporated on July 17, 1899 as a joint stock corporation (
kabushiki kaisha
) in Japan under the Commercial Code (
shoho
) of Japan, or the Commercial Code.
NEC's principal executive offices are located at 7-1, Shiba 5-chome, Minato-ku, Tokyo
108-8001, Japan. NEC's telephone number is +81-3-3454-1111.
History
NEC was formed as a joint venture between Western Electric Company of the United States and
two Japanese individuals. Initially, NEC acted as a sales agent for telephone equipment
manufactured by Western Electric, but it soon commenced production of similar equipment in Japan.
In 1925, Western Electric's interests in its foreign affiliates, including NEC, were sold to
International Telephone & Telegraph Corporation, or ITT. In 1932, the Sumitomo family holding
company acquired a substantial equity interest in NEC, which was sold to the public in 1948,
following the passage of Japanese anti-monopoly laws. ITT's shareholding in NEC was successively
reduced beginning 1958 and was completely disposed of during 1978.
We expanded our business lines to include the production of transmission equipment in 1929,
radio broadcast equipment in 1930, and radio communications equipment in 1932. In 1958, we started
mass production of transistors and, in the same year, we produced the NEAC 2201, the first
fully-transistorized commercial computer in the world.
We commenced research and development activities relating to ICs in 1960. During the 1960s, we
also entered the field of satellite communications and established our first post-war overseas
manufacturing subsidiary.
In the 1970s, we significantly increased our production of computers, semiconductors, and
other electron devices. We began integrating our computer and communications products as
significant further advances were achieved in technology and as we increased our allocation of
resources to research and development activities. Other important developments during this period
include the establishment of our position as a world leader in specific high technology markets,
such as satellite communication earth stations and certain semiconductor devices, the
diversification of our customer base, particularly in the Japanese private sector and overseas, and
the expansion of our manufacturing facilities, both in Japan and abroad.
In the 1980s, we pursued a policy of globalization to conduct our diversified manufacturing
and sales operations closer to our customers. We added a total of 50 subsidiaries and affiliated
companies, 12 for manufacturing and 38 for marketing and other services during the 1980s in
overseas markets.
During the 1990s, we expanded our global operations and increased efficiency, in order to
enhance our global competitiveness and to respond to rapid changes in market demand. We expanded
and upgraded some of our manufacturing facilities, promoted strategic alliances with major
companies and augmented our research and development activities in the United States and Europe.
In April 2000, we adopted an in-house company system under which we divided our businesses
into three in-house companies, NEC Solutions, NEC Networks, and NEC Electron Devices which were
responsible for providing IT, network, and electron devices solutions, respectively, in accordance
with the distinctive characteristics of each of those activities.
In November 2002, we established NEC Electronics Corporation through a corporate spin-off. NEC
Electronics Corporation engages in research and development, manufacturing, sales and provision of
services relating to semiconductors, except for general-purpose DRAMs.
In April 2003, we reorganized our management structure from the in-house company system to the
business line system, and changed the names of the business segments from NEC Solutions, NEC
Networks, and NEC Electron Devices to the IT Solutions business, the Network Solutions business,
and the Electron Devices business, respectively. Subsequently, in October 2003, we introduced our
mid-term growth strategies in order to build our global operations based on our competitive
position in the Japanese market.
In April 2004, to further strengthen our ability to respond to fast-changing markets, we
reorganized our business structure from nine business lines to a management system comprising
eleven Business Units, a Marketing Unit, a Research and Development Unit, and corporate staff.
In December 2004 and in June 2005, NEC conducted tender offers and stock-for-stock exchanges,
respectively, for the shares of NEC Soft, Ltd. and NEC System Technologies, Ltd. in order to make
those companies wholly-owned subsidiaries and strengthen competencies in the software/services
area.
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Capital Expenditures and Divestitures
The following table sets forth a breakdown of our annual capital expenditures (which represent
the additions to property, plant and
equipment on an accrual basis) during the three years ended March 31, 2005:
Year ended March 31
2003
2004
2005
(Millions of yen)
IT Solutions business
¥
26,754
¥
10,077
¥
11,888
Network Solutions business
13,735
12,128
14,658
Electron Devices business
111,447
124,176
176,028
Others
15,691
22,047
11,914
Total
167,627
168,428
214,488
Corporate
10,807
5,529
3,305
Electronics business total
178,434
173,957
217,793
Leasing business
300
—
—
Consolidated total
¥
178,734
¥
173,957
¥
217,793
Capital expenditures during the fiscal year ended March 31, 2005 increased by 25%, compared
with the fiscal year ended March 31, 2004, to ¥217.8 billion. Major capital expenditures in the
fiscal year ended March 31, 2005 included investment in semiconductor manufacturing facilities in
Japan. During the fiscal year ended March 31, 2005, our IT Solutions business invested in equipment
to expand its BIGLOBE service and in research and development equipment relating to computer
manufacturing, particularly servers and storage systems. Our Network Solutions business invested in
equipment used to manufacture communications products and to carry out research and development for
third generation, or 3G, mobile communications systems, mobile handsets, and optical network
systems. Our Electron Devices business invested in equipment used for research and development and
system LSI manufacturing equipment.
In the beginning of our current fiscal year ending March 31, 2006, we established a capital
expenditure budget for investments. We plan to make the following investments during the current
fiscal year:
•
in the IT Solutions business, expansion of research and development
equipment and manufacturing equipment for computers, as well as
equipment to expand the BIGLOBE service;
•
in the Network Solutions business, expansion of research and
development equipment and manufacturing equipment for 3G mobile
communications systems and mobile handsets; and
•
in the Electron Devices business, expansion of research and development equipment and manufacturing equipment for system LSIs.
We continuously monitor our capital expenditures and evaluate whether adjustments to our
budget are necessary in light of market conditions and other economic factors. We expect our
capital expenditures to be approximately ¥160 billion during the fiscal year ending March 31, 2006,
most of which will be expended in Japan. We anticipate that most of the funds necessary for such
capital expenditures will be obtained both internally and externally, primarily from our short- and
long-term financings and cash provided by operating activities. For a detailed discussion of our
capital resources, see "Item 5.B. Operating and Financial Review and Prospects — Liquidity and
Capital Resources."
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B. Business Overview.
We are a leading provider of advanced IT and networking solutions to business enterprises,
communications services providers, and government entities. Our understanding of our customers'
needs, together with our industry expertise, technical capabilities, and broad product portfolio,
enable us to offer computing, communications, and device solutions that address their core
operational requirements. By focusing on high-growth market opportunities and building on our
expertise in broadband and mobile technologies, we seek to further strengthen our leadership
position as an innovative provider of computing and communications solutions.
Our business is divided into the three principal segments: the IT Solutions business, the
Network Solutions business, and the Electron Devices business.
•
Through our
IT Solutions business
, we deliver highly reliable
computing solutions to business enterprises, governmental entities,
and individual customers by providing software, hardware, and the
services necessary to design, integrate, and operate these elements.
The products and services of this business include: systems
integration; outsourcing and support services; software; mainframes,
servers and workstations, supercomputers, and storage systems;
personal computers and peripheral products; and Internet-related
services. In the fiscal year ended March 31, 2005, the IT Solutions
business contributed ¥2,144.4 billion in sales and realized a segment
profit of ¥102.3 billion.
•
Through our
Network Solutions business
, we design and provide
broadband network systems, mobile and wireless communications network
systems, mobile handsets, and broadcast and other systems, which
enable our customers, primarily network services providers, to build
and operate their networks with a high degree of service, quality, and
reliability, in a cost-effective manner. Working closely with our
customers, we design and deploy both wireline and wireless network
systems and products, including terminals. In the fiscal year ended
March 31, 2005, the Network Solutions business contributed ¥1,892.0
billion in sales and realized a segment profit of ¥26.5 billion.
•
Our
Electron Devices business
includes semiconductors, displays, and
other electronic components used in communications products, computing
and peripheral products, consumer electronics products, and automotive
and industrial products. In the fiscal year ended March 31, 2005, the
Electron Devices business contributed ¥868.7 billion in sales and
realized a segment profit of ¥37.2 billion.
In the fiscal year ended March 31, 2005, we had net sales of ¥4,855.1 billion, of which
approximately 73% were generated in Japan and the balance generated overseas. As of March 31,
2005, we employed approximately 147,800 people worldwide and had manufacturing, sales, and research
and development consolidated subsidiaries in Japan and overseas.
IT Solutions Business
Our IT Solutions business delivers to business enterprises, government entities, and
individual customers highly reliable computing solutions including: systems integration;
outsourcing and support services; software; mainframes, servers and workstations, supercomputers,
and storage systems; personal computers and peripheral products; and Internet-related services.
Our IT Solutions business is focusing on systems integration and developing its software businesses
into solid earnings platforms by leveraging its strengths in open mission critical systems.
Systems Integration
Through our systems integration group, which has approximately 15,000 highly qualified systems
engineers, we provide our customers with end-to-end systems design, development, deployment, and
systems operation solutions. NTT DoCoMo's i-mode gateway system, "CiRCUS," is a prime example of
the numerous large-scale projects undertaken by our systems integration business. Jointly
developed by NEC and NTT Data Corporation, CiRCUS provides e-mail services (25,000 mail/receive
transactions per second) and Web access services (50,000 Web accesses per second) from mobile
devices for over 40 million i-mode subscribers. Our systems integration business consists of
consulting services and system design, development, and deployment services.
Consulting Services
. We provide consulting services on systems architecture design and
technology planning, including the evaluation and selection of technologies and platforms, to our
customers so that they can meet their business and financial objectives.
Systems Design, Development, and Deployment Services.
We design, develop, and deploy complex
software applications and hardware configurations that meet the specific requirements of our
customers.
Outsourcing and Support Services
We offer outsourcing services tailored to the diverse needs of each customer, such as
housing/hosting and application management services. We also offer maintenance and support services
to our customers.
Software
We develop and provide software products primarily for use in the computers that we
manufacture. Software products include operating systems, middleware for the management of
large-scale open mission critical systems, and application software. We continue to develop the
capabilities of our middleware to enhance rapid, cost-effective integration of different systems,
protocols, and technologies. We use a combination of custom-designed and third-party software to
take advantage of the various products and technologies on the market.
Mainframes, Servers and Workstations, Supercomputers, and Storage Systems
We develop and manufacture mainframe computers, UNIX servers and workstations, Intel-based
servers and workstations, supercomputers, storage systems, and other products for business
enterprises and government entities mainly in Japan. We are a leading supplier of mainframe
computers, Intel-based servers, and workstations in Japan.
Mainframe Computers.
Our Parallel ACOS series of mainframe computers employ parallel
processing technology for use in mission critical systems. We focus on high performance products
that can also integrate easily with open servers.
Servers and Workstations.
Our high-performance, high-scalability UNIX servers are used as
core servers in a wide variety of applications, from network management to operating critical
business systems. We develop and provide the Express 5800 series of Intel-based servers and
workstations which run a Microsoft Windows operating system and give customers access to a broad
range of applications.
Supercomputers.
Our SX-series of vector-processing supercomputers meet intensive, high-speed
processing requirements for specialized applications that require significant calculating power,
such as weather forecasting, structural analysis, and fluid dynamics. The SX-series is used by
research institutes, universities, and companies in Japan and overseas.
Storage Systems.
We manufacture various types of storage systems, including disk array and
tape storage, among others. Our iStorage series of storage systems is designed to meet the
expanding demand for increased capacity, reliability, performance, and endurance.
In addition, our other products include terminals such as key telephone systems and
point-of-sale terminals.
Personal Computers and Peripheral Products
We develop, manufacture, and market personal computers and personal computer peripheral
products. We produce a wide range of personal computers, including desktop personal computers and
notebook personal computers, which target both corporate and individual customers. We offer
personal computers with wireless connectivity, multimedia functions, and advanced security
functions. We are a leading supplier of personal computers in Japan.
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Internet-Related Services
We offer a broad range of Internet-related services through the infrastructure of our BIGLOBE
service, which is a leading Internet service provider, or ISP, in Japan. Through BIGLOBE, we also
provide value-added services such as content services and e-commerce services throughout Japan.
Network Solutions Business
Our Network Solutions business includes broadband network systems, mobile and wireless
communications network systems, mobile handsets, and broadcast and other systems. Our Network
Solutions business is developing a global leadership position in the networking equipment market by
leveraging its solutions capabilities and applying its experience as a total system supplier.
Broadband Network Systems
We develop, manufacture, and provide a wide range of wireline systems. We are the leading
provider of wireline network systems and services for both public and private networks in Japan.
We also provide these systems worldwide.
Wavelength Division Multiplexing, or WDM, Systems.
We hold a leading position in WDM-based
optical network systems for both terrestrial and submarine applications. WDM transmits through a
single fiber beams of light with slightly different wavelengths, with each wavelength carrying its
own stream of information. This increases the amount of traffic that can travel over the existing
optical fiber cable infrastructure, allowing existing infrastructure to be used more efficiently.
Synchronous Digital Hierarchy, or SDH.
We develop and manufacture SDH products both for
terrestrial and submarine use. SDH systems refer to standards for the transmission of digital
signals over optical fiber. These standards helped to revolutionize the performance and cost of
telecommunications networks based on optical fiber.
Internet Protocol, or IP, Routers and Network Infrastructure Servers.
We design and
manufacture IP routers and network infrastructure servers enabling the development of highly
reliable IP networks. IP networks are playing a central role in communications systems. A wide
range of our IP routers have been adopted by both advanced network services providers and
enterprise users. We aim to build increasingly reliable networks by combining IP routers with
network infrastructure servers, offering a wide variety of services tailored to the needs of our
customers, including those related to voice over internet protocol, or VoIP, a technology used to
transmit voice conversations over a data network using IP.
Network Access Systems.
We provide various kinds of network access systems. We develop and
manufacture x digital subscriber line, or xDSL, systems and other wired access systems, cable
television, or CATV, fiber-to-the-home, or FTTH, systems, and modems. xDSL is a technology that
allows more data to be sent over existing telephone lines. The system uses a modem technology that
converts the existing twisted-pair telephone lines into access paths for various high-speed
communications. CATV and FTTH systems, which transmit video and other signals through optic or
other cables, are technologies that allow long-distance, multi-channel transmission and reception
of video and other high-speed data.
Other Public Network Systems.
We provide public switching systems and asynchronous transfer
mode, or ATM, switching systems for Japanese and overseas telecommunications operators, and other
network systems mainly for network service providers.
Enterprise Networking Systems.
Enterprise networking systems are private voice and data
integrated network systems. We provide a number of such products including internet protocol
private branch exchange, or IP-PBX, systems and VoIP servers which can support both wireline and
wireless VoIP telephone systems with various kinds of service applications, including call centers,
network monitoring, and security. We also provide networking solutions based on IP communication
technologies, which includes NEC's mobile handset with dual mode communication features accessible
to NTT DoCoMo's 3G mobile communication network as well as wireless LAN. This solution enables a
user, for example, to use one mobile handset to seamlessly access both his/her intranet
(interoffice communication network) while within the office premises, and connect to NTT DoCoMo's
3G mobile communication network outside the office premises.
Mobile and Wireless Communications Network Systems
We develop and manufacture network systems and equipment for mobile communications, including
base stations, mobile switching systems, and network management systems. We are the leading
producer and system supplier of mobile communications systems that include wideband code division
multiple access, or W-CDMA, systems for 3G mobile communications services in Japan. Overseas,
with an alliance to develop, manufacture, and market W-CDMA systems, we and Siemens are leading
suppliers of such systems in the European 3G W-CDMA mobile network infrastructure market.
We also manufacture wireless communications systems, including terrestrial and satellite
microwave communications systems and wireless access systems, such as fixed wireless access, and
have sold these systems in more than 120 countries.
Mobile Handsets
We develop and manufacture mobile handsets in Japan, Europe, China, and other markets. In
Japan, we are one of the leading mobile handset suppliers for personal digital cellular, or PDC,
and W-CDMA. We provide models with advanced features such as electronic money, which enables users
to easily make electronic commerce transactions using mobile handsets equipped with a contact-less
IC chip. We also provide models with dual mode communication, such as 3G/wireless LAN, which
connects to enterprise IP networks as a part of our networking solutions, or 3G/GSMdual mode, which
can also be used outside Japan.
We provide global system for mobile communications, or GSM, mobile handsets with high
value-added features, including built-in cameras and mobile Internet capability in Europe, China,
and other markets. For instance, in China, we have introduced over twenty mid- to high-end models
with unique features such as touch panel or hand-writable screens, MP3 music players, slim and
light-weight forms, and the world's first card-shaped camera-equipped mobile phones. In addition,
we have received orders for 3G mobile handsets from the Hutchison Whampoa group, which is expanding
3G mobile communications services in Europe and other areas. Our new models handsets provided to
the Hutchison Whampoa group have advanced functions such as video-phones.
Broadcast and Other Systems
We produce broadcast equipment, including analog and digital, terrestrial and satellite
broadcast equipment, air traffic control equipment, and space electronic equipment, including
satellites and satellite transponders. Our industrial electronic systems include postal automation
systems. We also provide digital terrestrial total solutions from development consulting services
to installation of broadcasting infrastructure equipment. Utilizing our total solution services,
major TV stations in Tokyo, Osaka, and Nagoya launched digital terrestrial broadcasting services in
December 2003.
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Electron Devices Business
Our Electron Devices business includes semiconductors, displays, and other electronic
components used in communications products, computing and peripheral products, consumer electronics
products, and automotive and industrial products. We transferred our semiconductor business,
excluding our general-purpose DRAM business, to NEC Electronics Corporation, which was established
on November 1, 2002, in order to strengthen our international competitiveness in this field. In
addition, on July 24, 2003, NEC Electronics conducted an initial public offering and sold newly
issued shares of its common stock in a global offering. We transferred our general-purpose DRAM
business to Elpida Memory in 1999. On November 15, 2004, Elpida Memory conducted an initial public
offering and sold newly issued shares of its common stock in a global offering. On August 31,
2005, we sold 9.6 million shares of Elpida Memory. After this sale, we currently hold 13.89% of
Elpida Memory, which ceased to be an affiliate company of NEC accounted for by the equity method.
Semiconductors
Communications.
Our system LSIs, display driver ICs, and system memories are used in a wide
range of wireline and wireless network communications applications, including broadband network
infrastructures, mobile communications base stations, and mobile handsets.
Computing and Peripherals.
Our system LSIs, display driver ICs, and microcontrollers are used
in servers, workstations, supercomputers, storage systems, personal computers, and peripheral
products for personal computers, such as optical disk storage, including digital versatile disk, or
DVD, drives, printers, and interfaces.
Consumer Electronics.
We offer system LSIs and microcontrollers that are used in various
consumer electronics applications which include DVD recorders, digital cameras, digital TVs,
set-top boxes, and other audio-visual equipment. We also provide system LSIs for video game
consoles.
Automotive and Industrial Applications.
Our microcontrollers and other semiconductors are
used in automotive applications, such as engine management, control area network, or CAN, systems,
safety and comfort systems, car audio systems, and navigation systems. We also develop
semiconductor products for car multimedia entertainment systems. In addition, we provide products
for industrial applications such as industrial measurement and testing equipments and medical
equipments.
Multi-Market IC.
We offer microcontrollers, gate arrays, and multipurpose system memories to
customers for use in a wide range of applications.
Discrete, Optical, and Microwave Devices.
We offer general-purpose discrete devices, optical
devices, and microwave devices which are used in a wide range of applications.
DRAMs.
We transferred our DRAM business to Elpida Memory in order to accelerate the
development of new products, and reduce our exposure to increased market volatility. On August 31,
2005, we sold 9.6 million shares of Elpida Memory. After this sale, we currently hold 13.89% of
Elpida Memory, which ceased to be an affiliate company of NEC accounted for by the equity method.
Displays
TFT Color LCDs.
We develop and produce a range of TFT color LCDs used mainly for industrial
and medical equipment displays, personal computer monitors, and displays for mobile phones. We
separated our color LCD business and transferred it to a subsidiary in April 2003. In November
2003, we established a joint venture with SVA (Group) Co. Ltd., taking a minority interest. The
joint venture represents a new business model which provides us with royalty income from the
licensing of elemental technologies related to general purpose LCDs for personal computers and
monitors.
Plasma Displays.
We were engaged in the development and manufacturing of plasma display
modules and monitors in NEC Plasma Display Corporation, which was established as a wholly-owned
subsidiary through a corporate separation (
kaisha bunkatsu
) in October 2002. On September 30,
2004, we transferred our plasma display business to Pioneer Corporation together with all the
shares we held in NEC Plasma Display Corporation and all the intellectual property rights on plasma
displays we held.
Electronic Components
We design, manufacture, and produce electronic components such as batteries, capacitors, and
relays. Our lithium ion rechargeable batteries are mainly used in mobile phones. Our tantalum
capacitors, which are notable for their small size and high capacity, are used in a wide variety of
applications, including mobile phones, personal computers, and game consoles. In April 2002, we
integrated our capacitor, relay, and rechargeable battery operations with Tokin Corporation, which
we renamed NEC TOKIN Corporation. In October 2002, we transferred our printed wiring board
business to a joint venture which we formed with Toppan Printing Co., Ltd. In October 2002, we
transferred our car electronics operations to an affiliate of Honda Motor Co., Ltd.
Seasonality
Our sales are generally seasonal in nature. They are higher in the second and fourth quarters
than in the first and third quarters of our fiscal year, which ends March 31. This is partly a
result of the seasonal purchases of governmental entities in Japan.
Supplies
Our IT Solutions business utilizes and offers various software and hardware products procured
from third-party vendors as well as developed or manufactured internally. Our subsidiaries in
Japan provide software development and systems engineering services to NEC on a subcontracting
basis. We outsource part of our software development to software companies in Japan, and are
increasingly outsourcing to overseas subsidiaries and software companies to supplement our
resources in Japan. Hardware products of our IT Solutions business are mainly manufactured by our
subsidiaries in Japan. Some computer models and sub-assemblies are manufactured by our
subsidiaries outside Japan and by contract manufacturers both in and outside Japan.
Our Network Solutions business manufactures the majority of our communications systems and
equipment through our Japanese subsidiaries. Certain models for the overseas markets are
manufactured by our overseas subsidiaries. We also use contract manufacturers in and outside of
Japan to supplement our production capacity and enhance our profitability.
Most of our Electron Devices business' products are manufactured by our subsidiaries or joint
venture manufacturing companies established with domestic and overseas partners. Some of our
electron devices are procured from silicon foundries and third-party vendors.
The principal raw materials and components we use are ICs, including memories and logic ICs,
LCD panels, printed wiring boards, silicon, connectors, and capacitors. Certain raw materials and
components, such as silicon and memories, used in the manufacture of our products are purchased
with a view to maximizing the benefits of bulk purchasing and efficient stock control. Electronic
data interchange is widely used to negotiate and purchase raw materials and components to make the
procurement process more efficient. We use an Internet-based purchasing system to lower costs and
improve the efficiency of our procurement operations. This system permits internal sharing of
information concerning, among other things, suppliers, prices, and the quality of raw materials and
components. It also permits more frequent and speedy communications with suppliers. In addition,
we purchase certain raw materials and components to reduce product costs from overseas suppliers
through our international purchasing offices in the United States, the United Kingdom, and several
countries in Asia as well as in Japan.
We purchase raw materials and components from many Japanese and overseas suppliers, and we
believe that we are not dependent on any single third-party supply source for any raw materials or
components essential to any significant part of our business. We have not
experienced any difficulty in obtaining, on acceptable terms, any raw materials or components which
materially affected the operation of our business, and do not presently foresee any such
difficulty.
Table of Contents
Customers, Sales, and Marketing
We provide our products and services to customers located in Japan and overseas, including the
United States, the Asia Pacific region, and Europe. The following table shows our net sales by
market and net sales by market as a percentage of total net sales for each of the three fiscal
years ended March 31, 2005:
Year Ended March 31
2003
2004
2005
(Millions of yen, except percentage data)
Net Sales by Market
Japan
¥
3,644,673
(78
%)
¥
3,730,809
(76
%)
¥
3,553,502
(73
%)
Overseas
1,050,362
(22
%)
1,176,012
(24
%)
1,301,630
(27
%)
Total
¥
4,695,035
¥
4,906,821
¥
4,855,132
IT Solutions Business
We provide systems integration directly to our key customers in Japan through our
industry-focused SI divisions, each of which has experience and know-how in its respective sectors.
Our subsidiaries also provide systems integration to a more diversified group of customers. We
provide Internet-related services directly to individuals as well as corporate customers.
Maintenance services are rendered by our subsidiaries. With respect to hardware, we sell the
majority of our personal computers through dealers and wholesalers. Mainframe computers, servers,
and workstations are sold to large enterprises and government entities directly by our sales force,
with the support of our engineering staff, and to a broader customer base indirectly by dealers.
We customize our systems and products according to customer specifications while, in the case of
orders for standard products, we supply such products from our inventory. Our customers include
leading companies in the manufacturing, distribution, banking, insurance, and other industries,
governmental and other public agencies, telecommunications operators, and educational institutions.
Network Solutions Business
In Japan, we sell the majority of our communications systems and equipment directly to our
customers, with the remainder sold through dealers and wholesalers. Overseas sales of such
products are handled by our subsidiaries directly or through third-party trading companies,
depending on the form of contract for the project. Sales of larger communications systems are
generally made pursuant to the specifications of our customers. Our customers include Japanese and
overseas telecommunications operators, government entities, and other business enterprises
including broadcasting companies.
Electron Devices Business
Most of the sales in Japan of our electron devices are made to customers through dealers.
Overseas sales of these products are effected through our overseas sales subsidiaries. The IT
Solutions business and the Network Solutions business use our electron devices for their products.
Users of these products include communications equipment makers, computer manufacturers, consumer
electronics manufacturers, the automobile industry, and other manufacturers of electronic products.
Intellectual Property
We hold a number of patents issued under Japanese and other laws and have a large number of
Japanese and foreign patent applications pending. We maintain many licenses to use Japanese and
foreign patents. In some cases, such licenses are included in technical assistance agreements with
licensors which cover a wide range of products and components, including computers, communications
products, and semiconductors. In addition, we own and have licenses to use certain copyrights.
We have granted licenses to, and entered into technical assistance agreements with, various
Japanese and foreign companies. In some instances, we have entered into cross-licenses of patents
with other parties.
Although we consider our various patents, copyrights, licenses, and technical assistance
agreements important to us, we do not believe our business, as a whole, is materially dependent on
any particular patent, group of related patents, copyright, license, or technical assistance
agreement.
Competition
We compete primarily in the markets for computing and communications applications as well as
electron devices. These markets are
highly competitive. We expect competition in the markets we serve to increase in the future as
existing competitors enhance and expand their product and service offerings and as new participants
enter these markets. Increased competition may result in price
reductions, reduced profitability, and loss of market share. We cannot make any assurances that we will be able to compete
successfully against existing or future competitors. Some of our customers and companies with
which we have strategic relationships also are, or may be in the future, our competitors.
The size and number of our competitors vary across our product and service segments, as do the
resources allocated by our competitors to the markets we target. Our competitors may have greater
financial, personnel, and other resources than we have in a particular market or overall.
Competitors with greater financial resources may be able to offer lower prices, additional products
or services, or other incentives that we cannot match or offer. These competitors may be in a
stronger position to respond quickly to new technologies and may be able to undertake more
extensive marketing campaigns. They may also adopt more aggressive pricing policies and make more
attractive offers to potential customers, employees, and strategic partners. These competitors may
make strategic acquisitions or establish cooperative relationships among themselves or with third
parties to increase their ability to gain market share.
Furthermore, some of our competitors are currently selling products that we have not begun to
sell. By entering the market for such products before us, our competitors may establish
significant market share which we may be unable to overcome when we enter the market.
Our management believes that we will be able to maintain and enhance our position in a world
market characterized by increasing demand and applications for Internet-related products and
services due to the following strengths:
•
Our experience, expertise, and technical capabilities as a leading
provider of systems, components, services, and integrated solutions
for computing and communications application that are dedicated to
meeting our customers' needs; and
•
Our technological achievements and market position, which are
reinforced by our continuing research and development programs and
marketing efforts.
Regulation
Our business activities are subject to various governmental regulations in the countries in
which we operate, including regulations relating to business/investment approvals, import and
export regulations including those related to national security considerations, tariffs, antitrust,
intellectual property, consumer and business taxation, exchange controls, environmental and
recycling requirements, and personal-information-protection-related laws and regulations. In
addition, we are subject to the Telecommunications Business Law of Japan, which relates mainly to
our BIGLOBE service. We also have a license for cable construction and other construction work in
Japan.
Table of Contents
C. Organizational Structure.
NEC and its subsidiaries and affiliated companies form a group of which NEC is the parent
company. As of March 31, 2005, we had 225 consolidated subsidiaries and 58 affiliated companies
accounted for by the equity method.
The following table gives details of our significant subsidiaries as of March 31, 2005:
Proportion of Ownership
Name of Subsidiary
Country of Incorporation
Interest (%)
NEC Electronics Corporation
(1)
Japan
70.04
%
NEC Personal Products, Ltd.
Japan
100.00
NEC Saitama, Ltd.
Japan
100.00
NEC Fielding, Ltd.
(1)
Japan
67.10
NEC Access Technica, Ltd.
Japan
100.00
NEC System Integration & Construction, Ltd.
(1)
Japan
42.42
NEC Mobiling, Ltd.
(1)
Japan
51.00
NEC Nexsolutions, Ltd.
Japan
100.00
NEC Soft, Ltd.
(2)
Japan
82.88
NEC Computers International B.V.
The Netherlands
96.49
NEC Technologies Hong Kong Limited
China
100.00
NEC Business Coordination Centre (Singapore) Pte. Ltd.
Singapore
100.00
NEC Electronics (America) Inc.
The U.S.A.
100.00
(3)
NEC Solutions (America), Inc.
The U.S.A.
100.00
NEC Electronics (Europe) GmbH
Germany
100.00
(3)
NEC (UK) Ltd.
The U.K.
100.00
(1)
Listed on the Tokyo Stock Exchange.
(2)
Delisted from the Tokyo Stock Exchange on May 26, 2005.
(3)
Wholly-owned subsidiaries of NEC Electronics Corporation.
D. Property, Plants, and Equipment.
As of March 31, 2005, we have 35 manufacturing plants in Japan and 19 manufacturing plants in
Belgium, China including Hong Kong, France, Malaysia, Russia, Singapore, the United Kingdom, and
Vietnam. Our principal plants are located mainly in Japan. The approximate land space and floor
space of our principal plants as of March 31, 2005 were as follows:
Location
Description
Principal Products
Land Space
Floor Space
(Thousands of
(Thousands of
square meters)
square meters)
Kawasaki, Kanagawa
Tamagawa Plant
(1)
Communications equipment; semiconductors
192
331
Fuchu, Tokyo
Fuchu Plant
Computers and industrial electronic
systems; communications equipment
220
222
Sagamihara, Kanagawa
Sagamihara Plant
(1)
Semiconductors; electronic components
195
174
Otsu, Shiga
NEC Kansai, Ltd.
Semiconductors
170
151
Abiko, Chiba
Abiko Plant
Communications equipment
300
126
Kumamoto, Kumamoto
NEC Kyushu, Ltd.
Semiconductors
121
121
Tsuruoka, Yamagata
NEC Yamagata, Ltd.
Semiconductors
90
98
Otsuki, Yamanashi
NEC Yamanashi, Ltd.
Communications devices; repeaters
48
49
Ichinoseki, Iwate
NEC Tohoku, Ltd.
Communications equipment
66
48
Kakegawa, Shizuoka
NEC Access Technica, Ltd.
Communications equipment
42
41
Kofu, Yamanashi
NEC Computertechno, Ltd.
Computers
83
40
Yonezawa, Yamagata
NEC Personal Products, Ltd.
Computers
50
30
Kodama, Saitama
NEC Saitama, Ltd.
Communications equipment
39
30
Fukushima, Fukushima
NEC Wireless Network, Ltd.
Communications equipment
65
26
Hidaka, Saitama
NEC Network and Sensor Systems,
Ltd.
Communications equipment
22
10
Yokohama, Kanagawa
NEC TOSHIBA Space Systems, Ltd.
Space systems and sub-components
—
(2)
7
California, the
U.S.A.
NEC Electronics (America) Inc.
Semiconductors
57
62
Angers, France
NEC Computer International B.V.
Computers
40
36
Livingston, the U.K.
NEC Computer International B.V.
Computers
45
12
(1)
NEC Electronics Corporation leases from NEC and uses part of these plants as its facilities.
(2)
Located within the site of Toshiba Corporation's Keihin Plant.
We generally consider the production capacity as well as the utilization rate of our plants to
be adequate for our requirements.
We own most of the land and floor space for our manufacturing activities. Certain properties
are subject to mortgages or encumbrances in order to secure outstanding indebtedness. We lease our
corporate headquarters in Tokyo and a substantial portion of our sales and administrative offices
worldwide.
In addition to the above, our corporate research and development facilities, most of which we
own, occupy 51 thousand square meters of floor space. In December 2003, we sold our Yokohama Plant
and leased the plant and the surrounding land. The lease expired on May 31, 2005.
Table of Contents
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
The following discussion and analysis should be read in conjunction with "Item 3.A. Key
Information
—
Selected Financial Data" and our consolidated financial statements and notes to those
financial statements included elsewhere in this annual report.
A. Operating Results.
Business Overview
We are a leading provider of systems, components, services and integrated solutions for
computing and communications applications, as well as semiconductor solutions. We are focused
mainly on providing reliable solutions to meet complex customer requirements.
Fundamental Management Policy
IT and network technology have become indispensable to daily life, enterprises, and national
and local governments. Furthermore, convergence is occurring in a variety of segments, such as
optical networks and IP networks, mobile and fixed-line communications, broadcasting and
telecommunication services, and IT and network technology. A "ubiquitous networked society," in
which various information and telecommunication devices enable the exchange of necessary
information anytime, anywhere, is being realized due to this convergence and advances in broadband
and mobile infrastructure, which provide high-speed, large-capacity networks and related services,
as well as accessibility via mobile information terminals.
We, in accordance with our corporate slogan of "Empowered by Innovation," intend to enable
individuals to lead safer and more enjoyable and fulfilling lives, and for corporations to enhance
their competitiveness and management efficiency by utilizing IT and networks in this new society.
We seek to help people and society as a whole reach their fullest potential through continuing
innovation aimed at improving customer satisfaction.
In addition to our IT Solutions and Network Solutions businesses, we aim to provide solutions
that are valued by our customers and promote the realization of the ubiquitous networked society
through semiconductors and other aspects of our Electron Devices business.
Finally, we aim to help drive the sustainable growth of society and enterprises by fulfilling
our social responsibility as a good corporate citizen. In recognition of our responsibility to
shareholders, customers, employees and other stakeholders, we are further committed to maximizing
our corporate value.
Revenues
Our revenues are derived from three principal segments: IT Solutions business, Network
Solutions business, and Electron Devices business (see Note 22 to our Consolidated Financial
Statements).
The following table sets forth sales and profit (including intersegment sales and profit) by
segment for the fiscal year ended March 31, 2005:
(Billions of
%
yen)
Sales:
IT Solutions business
¥
2,144.4
44.2
%
Network Solutions business
1,892.0
39.0
Electron Devices business
868.7
17.9
Others
649.1
13.4
Eliminations
(699.1
)
(14.5
)
Net sales
4,855.1
100.0
Segment Profit:
IT Solutions business
102.3
78.0
Network Solutions business
26.5
20.2
Electron Devices business
37.2
28.3
Others
11.6
8.8
Eliminations
2.9
2.3
Unallocated corporate expenses
(49.3
)
(37.6
)
Aggregate segment profit
131.2
100.0
The revenue of the IT Solutions business is derived from the provision of SI and outsourcing
services, Internet-related services, support services, as well as the sale of software and hardware
to a balanced mix of customers consisting mainly of enterprises and government agencies. Hardware
sales include personal computers, servers and storage systems. We have developed a number of highly
reliable, large-scale systems using open systems such as UNIX servers. In the fiscal year ended
March 31, 2005, sales by the IT Solutions business were ¥2,144.4 billion, representing 44% of consolidated net sales. The main contributors to sales were the provision of SI
to enterprises and government agencies in Japan and the sale of personal computers.
Furthermore, for the fiscal year ended March 31, 2005, segment profit in the IT Solutions
business was ¥102.3 billion, representing 78% of total segment profit of ¥131.2 billion. The major
contributor to segment profit was the SI area.
The revenue of the Network Solutions business is derived from the sale of fixed-line
communications systems, mobile communications network systems, mobile handsets, and broadcast and
other systems primarily to network services providers and other enterprises. We have technologies
to develop highly reliable computing systems, which technologies have been cultivated in the
telecommunications systems area targeting communications service providers, including fixed-line
and mobile communications systems. Moreover, we have established a leading position in Japan's
telecommunications system market based on our ability to deliver total solutions such as the
construction of platforms for new network services through combinations of IT. In the fiscal year
ended March 31, 2005, sales in the Network Solutions business were ¥1,892.0 billion, representing
39% of consolidated net sales. The main contributors to sales were the construction and sale of
fixed-line communications systems and mobile handsets to communications service providers.
Furthermore, for the fiscal year ended March 31, 2005, segment profit in the Network Solutions
business was ¥26.5 billion, representing 20% of total segment profit of ¥131.2 billion. While the
construction and sale of mobile communications systems, such as microwave communications equipment
and W-CDMA systems, made a significant contribution to segment profit, profit from the mobile
handset area declined mainly due to weak market conditions in Japan and higher development costs.
The revenue of the Electron Devices business is derived from the sale of semiconductors, color
liquid crystal displays, electronic components, and other electron devices. In the fiscal year
ended March 31, 2005, sales by the Electron Devices business were ¥868.7 billion, representing 18%
of consolidated net sales. The main contributor to sales was semiconductors, particularly system
LSIs. The general-purpose DRAM business has been transferred to Elpida Memory.
Furthermore, for the fiscal year ended March 31, 2005, segment profit in the Electron Devices
business was ¥37.2 billion, representing 28% of total segment profit of ¥131.2 billion. The
semiconductor area accounted for the majority of profit in this segment.
Cost and Expenses
Cost and expenses for our businesses primarily consist of cost of sales, research and
development, or R&D, expenses and selling, general and administrative, or SG&A, expenses.
Cost of Sales
Cost of sales primarily consists of manufacturing overheads, including materials, personnel,
depreciation, and facility maintenance costs. We are promoting company-wide activities for reducing
material costs. We are also promoting restraint in increasing the number of employees in order to
maintain the current level of personnel costs. Depreciation costs depend mainly on capital
investments in the semiconductor area. We built a semiconductor production line for 300-mm wafers
during the fiscal year ended March 31, 2005.
Table of Contents
Research and Development Expenses
In the fiscal year ended March 31, 2005, we recorded R&D expenses of ¥275.3 billion mainly for
the development of leading-edge semiconductor products, as well as for R&D activities in the
networking domain, including 3G mobile handsets, and in the integrated IT/Network domain.
Selling, General and Administrative Expenses
SG&A expenses primarily consist of sales commissions, sales promotion and advertising costs,
and personnel costs related to sales and general administration operations. We are attempting to
control increases in SG&A expenses by improving the efficiency of general administration
operations.
Medium- to Long-Term Business Strategy
Having positioned "Integrated IT/Network Solutions" and "Semiconductor Solutions" as our core
business domains, we strive to enhance our corporate value by pursuing business and technology
synergies between these domains while also allowing them to implement strategies in accordance with
the specific characteristics of their respective businesses.
We formulated and began implementing a medium-term growth strategy in October 2003. By
extending the innovative aspects of the Japanese market's globally preeminent broadband and mobile
infrastructure into overseas markets, we aim to create and capture new growth opportunities in the
upcoming, full scale ubiquitous networked society.
Outline of Medium-Term Growth Strategy for Integrated IT/Network Domain:
1.
Securing Reliable Profits and Stable Growth Focused on the Japanese Market
(1)
Securing a reliable profit foundation based on SI services
(2)
Expanding the Network Solutions business through integration with information
technology
(3)
Revitalizing the hardware product area
2.
Capturing New Growth Opportunities
(1)
Global business expansion
(2)
Strengthening preparations for the upcoming, full scale ubiquitous networked society
in Japan
3.
Combining NEC Group Core Competencies to Support Growth
The rapidly changing business environment prompted by a downturn in the mobile handset market
in Japan and increasing capital requirements and complexity relating to new technology development
are among the recent developments that have to be addressed for us to sustain growth. On the other
hand, new business opportunities are also emerging from the shift to next-generation networks and
increasing demand for software/services in various areas. In response to these developments, we
announced measures in December 2004 intended to resolve these management issues and promote our
medium-term growth strategy.
Outline of New Measures
1.
Early Turnaround of Mobile Terminal Area
(1)
Revise product development strategies
(2)
Accelerate overseas business expansion, with a focus on China
2.
Accelerated Growth in the Integrated IT/Network Solutions Business
(1)
Strengthen business in the software/services domain
(2)
Expand the broadband solutions area
(3)
Measures for the next-generation network infrastructure area
3.
Continuously Promote Structural Reforms
In addition, in the semiconductor solutions domain, we focus on system LSIs and respond to
customers' needs with our own leading technologies. We will manage and develop our businesses with
the aim of becoming a partner that provides optimal solutions.
Through these and other measures, we aim to improve our financial results and return to a
growth trajectory.
Major Measures and Results of the Year under Review and Future Growth Initiatives
Our business environment is changing significantly. In Japan, broadband and mobile networks
are gaining ground and there are increasing moves to shift to next-generation networks, such as the
construction of high-speed optical-fiber networks and the transition from existing voice
communications networks to IP networks. Furthermore, the construction of new service platforms at
communications service providers and global supply chains, as well as network utilization at
enterprises, are gaining momentum. In the mobile handset market in Japan, communications service
providers are implementing a full-scale transition to 3G mobile phone services. There is also
stronger demand for more sophisticated semiconductor solutions in step with increasingly
diversified customer needs.
While new business opportunities are expanding in this way, structural changes that have a
direct bearing on corporate profitability are also taking place. For hardware, the transition to
products based on industry-standard technologies is gaining ground as hardware prices decline.
Furthermore, in the SI area, customer requirements have become more sophisticated and complex, with
an increase in the construction of systems using the latest technologies as well as systems
requiring the development of intra- and inter-company networks. At the same time, as the scale of
development projects grows due to rapid changes in technology, pricing pressure continues due to
greater emphasis on investment returns on the part of customers and intensified competition.
Furthermore, hand in hand with advances in a variety of multi-functional products such as 3G mobile
phones, the importance of software installed in products in not just the IT domain but also the
network and semiconductor domains is rapidly increasing.
In light of these rapid changes in our business environment, we positioned the fiscal year
ended March 31, 2005 as the year to implement growth strategies. Accordingly, we took a range of
actions to strengthen business execution, implement concrete growth strategies and complete the
final stages of structural reforms of businesses of concern.
Firstly, to strengthen business execution, we worked to reinforce our operating base through
total process reforms. In the hardware field, production innovation activities were implemented
across the entire supply chain, extending to materials procurement, production and logistics. The
goal was to reduce the cost of sales by enhancing inventory turnover and productivity. Process
reforms such as the standardization of development processes were also promoted as part of measures
to speed up development and reduce costs from the development stage onward. Moreover, we continued
efforts to reduce the costs of materials purchased from outside suppliers. Through these and other
activities, we have achieved some positive results in the development and production of hardware.
In the fiscal year ended March 31, 2005, these activities were expanded to include the fields of
software and systems development, where we worked to upgrade our earnings power with respect to
solutions that combine both hardware and software. In the SI area, profitability declined during the fiscal
year ended March 31, 2004 due to certain unprofitable projects which were implemented to respond to
new technologies, realize new markets or customer development projects, and meet sophisticated and
complicated customer needs. In the fiscal year ended March 31, 2005, profitability improved since
we attempted to reduce the number of unprofitable projects by utilizing know-how developed in
responding to new technologies in the previous fiscal year, enhancing implementation of pre-order
screening, and performing more efficient project management. Furthermore, in the field of mobile
handset development, efforts were made to reduce development costs by innovating development
processes. This came in response to a rapid increase in the scale of software development in step
with the proliferation of 3G mobile phone services and an increase in the number of handset models
under development. We have reorganized our operations in order to strengthen our responsiveness to
market conditions, so that we can steadily seize growth opportunities in the coming full-fledged
ubiquitous networked society.
With respect to implementing concrete growth strategies, amid advancements in broadband and
mobile network environments, we have been providing an expanding range of Integrated IT/Network
solutions. One example of a service platform built for a communications service provider was the
construction of a backup center for NTT DoCoMo's i-mode gateway system CiRCUS. This backup system
supports the i-mode service, which is used by some 44 million subscribers. It is one of the world's
largest mission-critical systems built on a open architecture that can provide services 24 hours a
day, 365 days a year, without any interruptions. For backbone systems for enterprises, we have
developed and delivered a convergent fixed-line and mobile communications solution that directly
links internal telephone networks using 3G mobile handsets to business process systems. These
accomplishments were realized through the convergence of the strengths of both our IT and
networking technologies. In the mobile handset area, while working to expand overseas businesses
centered on China and based on leading-edge technologies developed in Japan, we took actions to
improve the efficiency of software development, which has been growing in step with increases in
functions and handset models. In the Electron Devices business, we have built a production line for
300-mm wafers in a move to strengthen our ability to deliver leading-edge products for which demand
is rapidly growing.
With respect to our efforts to focus on our key business, we sold our plasma display
operations. Elpida Memory, to which we transferred our general-purpose DRAM business, has secured
its own means of raising funds from the capital markets by listing on the Tokyo Stock Exchange in
November 2004. (On August 31, 2005, we sold 9.6 million shares of Elpida Memory. After this sale,
we currently hold 13.89% of Elpida Memory, which ceased to be an affiliate company of NEC accounted
for by the equity method.)
As a result of these measures, consolidated net sales for the fiscal year ended March 31, 2005
were ¥4,855.1 billion, a decrease of 1.1% as compared with the previous fiscal year. Consolidated
income before income taxes for the fiscal year ended March 31, 2005 were ¥115.7 billion, a decrease
of ¥44.9 billion as compared with the previous fiscal year. This is mainly due to the mobile
handsets area, which experienced decreased sales and increased development costs, and the
semiconductor area, which was negatively affected by inventory adjustments by customers. These
factors outweighed improved profitability in the areas of fixed-line communications systems and IT
Solutions.
Table of Contents
Measures to be Taken in Fiscal Year Ending March 31, 2006
Aiming to respond to changes in our business environment, seize new business opportunities,
and drive further growth as the full-fledged ubiquitous networked society approaches, we have
positioned the fiscal year ending March 31, 2006 as the year to revitalize the execution of growth
strategies. We will take action to cultivate new sources of earnings by creating new markets and
businesses on our own initiative, while continuing total process reforms to further enhance our
ability to generate earnings.
Firstly, we will seek to quickly and precisely identify changes in market conditions by
closely following customer trends and will seek to provide integrated solutions that fulfill
customers' needs. Furthermore, we will actively press ahead with the global development of our
integrated solutions area originating in Asia, including China.
Secondly, in the area of software/services, in order to strengthen our core competencies,
which include our systems integration and software development capabilities, we have been
dynamically reorganizing our management resources in this area. As the first stage of this process,
NEC Soft, Ltd. and NEC System Technologies, Ltd. were made our wholly owned subsidiaries in June
2005. In a further step, we have converted ABeam Consulting Ltd. into a subsidiary as part of
efforts to strengthen consulting capabilities in the SI area. Through these and other initiatives,
we are working to reduce costs by continuing total process reforms, while maximizing our strengths
to meet customer needs.
Moreover, we will concentrate on developing hardware to drive further growth across the entire
SI area. Hardware products will include servers and storage devices that fulfill customers' needs
by utilizing the most of world-leading broadband and mobile infrastructure available in Japan and
our core technologies, including those that offer high reliability and security, in IT and
networking areas.
Through these and other measures, we will promote our business expansion and improve our
profitability, while developing into a company of global excellence.
Critical Accounting Policies and Estimates
In "Item 5. Operating and Financial Review and Prospects," we discuss our consolidated
financial statements, which have been prepared in conformity with accounting principles generally
accepted in the United States of America. The preparation of our financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the balance sheet date
of the financial statements, as well as the reported amounts of revenues and expenses for the
reporting period. Actual results could differ from estimated results.
Management believes that the estimates and assumptions used in applying the following critical
accounting policies affect our consolidated financial statements significantly.
Marketable Securities and Other Investments
We classify our marketable equity securities and debt securities as available-for-sale. These
securities are reported at fair value, with unrealized gains and losses included in accumulated
other comprehensive income (loss), net of taxes. When a decline in the value related to the
marketable security is deemed to be other-than-temporary, we recognize impairment to the extent of
the decline. In determining if and when such a decline in value is other-than-temporary, we
evaluate market conditions, trends of earnings, the extent to which cost exceeds market value, the
duration of market declines, the ability and intent to hold the marketable securities and other key
measures. In the fiscal year ended March 31, 2004, impairment losses did not have any material
effect due to a rebound in stock prices. Because stock prices remained steady in the fiscal year
ended March 31, 2005, impairment losses did not have any material effect, nor did we book any
material unrealized losses. 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.
Future adverse changes in market conditions or poor operating results of the companies whose
marketable securities are held by us could result in losses or an inability to recover the cost of
the marketable securities, thereby possibly requiring an impairment charge in the future.
Pension and Severance Plans
We recognized costs and liabilities of pension and severance plans that are developed from
actuarial valuations. Changes in the related pension and severance costs and liabilities may occur
in the future due to changes in assumptions or in the number of employees covered. Inherent in
these valuations are key assumptions including the expected long-term rate of return on plan assets
and the discount rate.
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 forecasts, taking into consideration the asset allocation policy. A 50-basis
point decrease in the expected long-term rate of return on pension assets would have resulted in an
increase of pension expense in the fiscal year ended March 31, 2005 by approximately ¥2.5 billion.
We assumed that the expected long-term rate of return on pension assets was 4.0% in the fiscal year
ended March 31, 2004 and 2.5% in the fiscal year ended March 31, 2005.
Deferred Tax
We currently have deferred tax assets resulting from net operating loss carryforwards, and
deductible temporary differences, both of which will reduce taxable income in the future.
When there is uncertainty regarding realization of deferred tax assets, a valuation allowance
is recognized to reduce our deferred tax assets to an amount that is more likely than not to be
realized. In determining whether a valuation allowance is required, we consider:
•   future earnings potential determined based upon internal forecasts;
•   cumulative pre-tax income excluding special charges during the previous three years;
•   tax planning that is available;
•   the extended period of the realization of temporary differences resulting from accrued
pension and severance costs, investments
in
subsidiaries and other factors; and
•   the history of having had no significant loss carryforwards expire in the past.
We believe that we will be able to realize deferred tax assets based on loss carryforwards
through future income without additional tax planning. This conclusion is based on not only our
estimated future earnings potential, but also on our history of having had no significant loss
carryforwards expire in the past as well as improvements in business results since the fiscal year
ended March 31, 2003.
A significant portion of the deferred tax assets are related to accrued pension and severance
costs and investments. Temporary differences for accrued pension and severance costs will be
realized as they are funded or paid although there may be an extended period of realization.
Deferred tax assets related to investments will generally be realized by restructurings such as the
sale or liquidation of the investee.
In the event that market conditions or results of operations improve significantly, and we
determine that realization of deferred tax assets in the future in excess of the net amount
recorded is more likely than not, an adjustment to the deferred tax assets would increase income in
the period in which such determination is made. Likewise, in the event of a deterioration in market
conditions or results of operations, in which we were to determine that it is not more likely than
not all or part of our net deferred tax assets, an adjustment to deferred tax assets would decrease
income in the period such determination was made.
Table of Contents
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.
In determining the fair value of the respective assets, we must make estimates and assumptions
regarding estimated future cash flows and other factors. If these estimates or assumptions change
in the future, we may be required to record impairment charges.
Goodwill and Other Intangible Assets
Goodwill and intangible assets with indefinite lives are tested for impairment instead of
being amortized. We perform impairment tests of these assets annually, or more frequently if events
or circumstances indicate that assets might be impaired. Goodwill is tested for impairment by
comparing the fair value of a reporting unit with its carrying amount, including goodwill.
Intangible assets with indefinite lives are tested for impairment by comparing the fair values of
those assets with their carrying amounts. We perform an annual impairment test of goodwill in the
fourth quarter of each fiscal year, or whenever there are specific signs of impairment. We
performed an impairment test as of December 31, 2004, and recognized no impairment of goodwill for
the fiscal year ended March 31, 2005.
In performing impairment tests based on a discounted future cash flow approach, we must make
estimates and assumptions regarding estimated future cash flows and other factors. Although there
are inherent uncertainties, estimates and assumptions are consistent with our internal planning. If
these estimates or their related assumptions change in the future, we may be required to record an
impairment charge on each respective asset.
Effect of New Accounting Standards
In December 2004, the Financial Accounting Standards Board, or FASB, issued the Statement of
Financial Accounting Standards, or SFAS, No. 123 (revised 2004), or SFAS No. 123 (R). SFAS No. 123
(R) requires the fair-value recognition of all stock-based compensation for employees, including
grants of employee stock options. SFAS No. 123 (R) will be effective at the beginning of the first
fiscal year beginning after June 15, 2005. We are scheduled to adopt SFAS No. 123 (R) effective on
April 1, 2006, and have not determined what effect, if any, this new accounting standard will have
on our results of operations and financial position.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs — an amendment of ARB No. 43,
Chapter 4,
or SFAS No. 151. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and rehandling costs be
recognized as current-period charges regardless of whether they meet the criterion of "so abnormal"
in ARB No. 43. Additionally, SFAS No. 151 requires that allocation of fixed production overheads to
the costs of conversion be based on the normal capacity of production facilities. SFAS No. 151 will
be effective for fiscal years beginning after June 15, 2005. We are scheduled to adopt SFAS No. 151
effective on April 1, 2006, and have not determined what effect, if any, this new accounting
standard will have on our results of operations and financial position.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets—an amendment
of APB Opinion No. 29,
or SFAS No. 153
.
SFAS No. 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph 21 (b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 will be effective for fiscal periods
beginning after June 15, 2005. We are scheduled to adopt SFAS No. 153 effective on April 1, 2006,
and have not determined what effect, if any, this new accounting standard will have on our results
of operations and financial position.
Results of Operations
The following table sets forth a summary of our results of operations for the fiscal years
ended March 31, 2003, 2004 and 2005:
Year ended March 31
2003
2004
2005
(Billions of yen)
Net sales
¥
4,695.0
¥
4,906.8
¥
4,855.1
Cost of sales
3,453.0
3,623.0
3,646.8
Research and development
296.2
256.7
275.3
Selling, general, and administrative expenses
824.9
852.7
802.5
Income before income taxes
61.5
160.5
115.7
Net income (loss)
(24.6
)
41.1
67.9
Fiscal Year Ended March 31, 2005 Compared to Fiscal Year Ended March 31, 2004
During the fiscal year ended March 31, 2005, despite the escalating price of crude oil,
economic growth continued in many developed countries, including the U.S., and high growth was
sustained in Asian nations, including China, due to an increase in capital expenditures and other
factors.
There was sustained, steady growth in the Japanese economy in the first half of the fiscal
year ended March 31, 2005 resulting from an increase in exports to Asia, focused mainly on China,
and higher capital expenditures. However, lackluster consumer spending in the second half led to a
slowdown in economic growth.
The electronics industry in Japan experienced increased demand for digital home electronics
products such as flat panel televisions and DVD recorders. IT services also grew moderately due to
a recovery in IT and network investments by enterprises in Japan. However, mobile handsets showed
sluggish growth due to high permeation in the Japanese market. Overseas, there was steady growth
principally due to demand for personal computers and mobile handsets.
With respect to semiconductors and other electronic components, although there was an increase
in demand in both Japan and overseas markets in the first half due to brisk sales of digital home
electronics products, demand decreased in the second half due to inventory adjustments by
customers.
Net sales for the fiscal year ended March 31, 2005 were ¥4,855.1 billion, a decrease of 1.1%
compared with the previous fiscal year. This was principally due to a significant decrease in
mobile handset sales, despite steady sales in the SI and fixed-line communications systems areas
supported by the recovery in IT and network investments by enterprises, and higher sales of mobile
communications systems in the mobile area.
Income before income taxes for the fiscal year ended March 31, 2005 decreased ¥44.9 billion
from the previous fiscal year to ¥115.7 billion. This was mainly due to a decrease in mobile
handset sales and an increase in development costs for mobile handsets, and sluggish demand in the
semiconductor area, despite improvement in profitability in the SI and fixed-line communications
systems areas. Net income for the fiscal year ended March 31, 2005 increased ¥26.8 billion compared
with the previous fiscal year to ¥67.9 billion. This was due to an improvement in equity in
earnings (losses) of affiliated companies mainly reflecting an improvement in income of affiliated
companies accounted for by the equity method, and a gain due to stock issuances of Elpida Memory
which completed an initial public offering.
On the other hand, free cash flows (the sum of cash flows from operating activities and
investing activities) for the fiscal year ended March 31, 2005 comprised cash inflows of ¥42.0
billion. The balance of interest-bearing debt at March 31, 2005 amounted to ¥1,156.2 billion, a
reduction of ¥14.8 billion as compared with the end of the previous fiscal year, as a result of the
implementation of continual reduction measures. Debt-equity ratio (a ratio obtained by dividing
interest-bearing debt by shareholders' equity) at March 31, 2005 was 1.46, an improvement of 0.19
points as compared with the end of the previous fiscal year.
In addition, the balance of interest-bearing debt (net), obtained by offsetting the balance of
interest-bearing debt with the balance of cash and cash equivalents, amounted to ¥661.9 billion at
March 31, 2005, a reduction of ¥12.3 billion as compared with the end of the previous fiscal year.
Net debt-equity ratio (a ratio obtained by dividing interest-bearing debt (net) by shareholders'
equity) was 0.83 at March 31, 2005, an improvement of 0.12 points as compared with the end of the
previous fiscal year.
Table of Contents
Net Sales.
In the fiscal year ended March 31, 2005, our consolidated net sales decreased 1.1%,
or ¥51.7 billion, to ¥4,855.1 billion. The IT Solutions business reported higher sales, mainly due
to contributions from the areas of SI and software. The Network Solutions business also recorded
higher sales, but this was mainly a reflection of sales growth in mobile communications systems and
fixed-line communications systems outweighing the decrease in sales of mobile handsets. The
Electron Devices business posted lower sales due to the sale of the plasma display business and a
slowdown in the semiconductor market.
By geographical location of customers, net sales to Japanese customers decreased 4.8%, or
¥177.3 billion, to ¥3,553.5 billion. This was mainly due to a decrease in sales of
second-generation mobile handsets, which were strong in the previous fiscal year. Overseas sales
increased 10.7%, or ¥125.6 billion, to ¥1,301.6 billion, primarily due to steady sales of 2.5G
mobile handsets for overseas markets.
Sales denominated in foreign currencies in the fiscal year ended March 31, 2005, principally
the U.S. dollar and Euro, were ¥1,192.5 billion, an increase of 9.2%, or ¥100.3 billion, compared
with the previous fiscal year. Consequently, foreign currency denominated sales represented 24.6%
of net sales. Fluctuations in exchange rates had a negligible effect on earnings due to a variety
of hedging measures to reduce fluctuation risks, such as forward exchange contracts and balancing
foreign-currency denominated sales and procurement.
Subsidy Related to Transfer of Substitutional Portion of Employee Pension Fund Liabilities,
Net of Settlement Loss of ¥12,607 Million.
In the fiscal year ended March 31, 2003, NEC 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 its
contributory defined benefit pension plans, over which the Japanese government will take responsibility. Upon the final approval of the
Japanese government in the fiscal year ended March 31, 2004 and the fiscal year ended March 31,
2005, with the transfer to the Japanese government from the assets of the pension plans, NEC and
certain subsidiaries in Japan were relieved of all past obligations under the substitutional
portion of the plans. We 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 net gains of ¥8.2 billion in the fiscal year ended March 31,
2004 and ¥0.7 billion in the fiscal year ended March 31, 2005 (see Note 10 to our Consolidated
Financial Statements).
Gain on Sale of Investments in Securities, Net of Loss on Sale and Impairment.
We booked a
gain on sales of investments in securities, net of loss on sale and impairment, of ¥43.4 billion, a
year-on-year increase of ¥29.3 billion, mainly reflecting the recognition of gain on transfer of
marketable securities to the pension trust and sale of shares in affiliated companies.
Cost of Sales.
Cost of sales in the fiscal year ended March 31, 2005 increased ¥23.8 billion
to ¥3,646.8 billion over the previous fiscal year. As a percentage of net sales, cost of sales
increased 1.3 percentage points to 75.1%. This mainly reflected intensified price competition in
overseas mobile handset markets and lackluster demand in the semiconductor area, despite efforts to
enhance profitability through stronger project management and process reforms.
Research and Development Expenses.
R&D expenses climbed ¥18.7 billion to ¥275.3 billion
compared with the previous fiscal year. This was mainly attributable to rising development costs to
respond to new technologies primarily in the Network Solutions business.
Selling, General and Administrative Expenses.
SG&A expenses in the fiscal year ended March 31,
2005 decreased ¥50.2 billion year on year to ¥802.5 billion. This decrease was mainly due to the
conversion of an affiliated company from a consolidated subsidiary to an affiliated company
accounted for by the equity method following the sale of part of our shareholding in the affiliated
company at the end of the previous fiscal year. As a percentage of net sales, SG&A expenses
improved 0.9 of a percentage point to 16.5%.
Restructuring Charges.
Restructuring charges decreased ¥11.3 billion from the previous fiscal
year to ¥5.9 billion. This was mainly a reflection of charges for the loss incurred for the
disposal and write-down of assets in the IT Solutions and Network Solutions business that were
booked in the previous fiscal year (see Note 19 to our Consolidated Financial Statements).
Loss on Sale or Disposal of Fixed Assets, Net.
We booked a loss on sale or disposal of fixed
assets, net of ¥14.4 billion in the fiscal year ended March 31, 2005, compared with a gain of ¥7.3
billion in the previous fiscal year. The previous fiscal year's gain was mainly attributable to
gains on the sale of land and buildings associated with the realignment of operating facilities.
This fiscal year's loss was mainly due to the sale and disposal of some of our facilities for
facility-restoration purposes.
Income Before Income Taxes.
Income before income taxes was ¥115.7 billion, a decrease of ¥44.9
billion compared with the previous fiscal year. This mainly reflected decreasing sales and
increasing development costs of mobile handsets, and a downturn in demand in the semiconductor
area, despite enhanced profitability in the areas of SI and fixed-line communications systems
achieved through total process reforms and other means.
Equity in Earnings (Losses) of Affiliated Companies.
We recorded equity in earnings of
affiliated companies in the fiscal year ended March 31, 2005 of ¥32.6 billion, an improvement of
¥50.4 billion compared with the previous fiscal year. This mainly reflected improved financial
results of affiliated companies accounted for by the equity method as well as a gain of ¥25.0
billion that resulted from stock issuances by Elpida Memory which completed an initial public
offering (see Note 3 to our Consolidated Financial Statements). As of August 31, 2005, Elpida
Memory ceased to be an affiliate company of NEC accounted for by the equity method.
Income Ta
x
es.
As of March 31, 2005, we had deferred tax assets of ¥506.1 billion net of
valuation allowance of ¥47.8 billion and deferred tax liabilities of ¥89.6 billion. Major
differences between income before income taxes for financial reporting purposes and for income tax
purposes include utilization of operating loss carryforwards, and the nondeductibility of certain
expenses (see Note 11 to our Consolidated Financial Statements).
We have filed a consolidated tax return for NEC and its domestic wholly-owned subsidiaries
since the fiscal year ended March 31, 2003. Japanese income tax regulations permit the
carryforwards of tax losses in a Japanese entity as an offset against its taxable income during the
subsequent seven years. Operating loss carryforwards expire at the end of the seven-year period.
Our valuation allowance of ¥47.8 billion as of March 31, 2005 reflected (i) ¥12.0 billion for
deferred tax assets arising from loss carryforwards of certain consolidated subsidiaries and (ii)
¥35.8 billion mainly for deferred tax assets arising from tax deductible temporary differences
recorded by subsidiaries in a loss position. As of March 31, 2005, our operating loss carryforwards
of ¥183.7 billion reflected (i) ¥109.5 billion related to foreign subsidiaries for which deferred
tax assets of ¥7.8 billion and valuation allowance of ¥3.4 billion were recorded and (ii) ¥74.2
billion related to domestic companies for which deferred tax assets of ¥36.6 billion and valuation
allowance of ¥8.6 billion were recorded. In determining the amount of valuation allowance, we
consider all available evidence (see Critical Accounting Policies and Estimates).
Net Income.
Despite the decrease in income before income taxes, due to the sharp improvement
in equity in earnings of affiliated companies, we recorded net income of ¥67.9 billion, an increase
of ¥26.8 billion from the previous fiscal year.
Comprehensive Income (Loss).
We recorded comprehensive income in the fiscal year ended March
31, 2005 of ¥93.3 billion. In addition to the recording of net income, this reflected other
comprehensive income of ¥25.4 billion due to a decrease in the minimum pension liability
adjustment, which reflected the transfer of substitutional portion of employee pension fund
liabilities (see Note 12 to our Consolidated Financial Statements).
Dividend
s
.
In addition to moving forward with the restructuring of our business, we need to
adopt a flexible policy in order to better respond to the rapidly changing business environment. In
light of these business requirements, we consider, among other factors, the following factors in
determining our cash dividends: the profits earned in the relevant fiscal period, the financial
outlook for the following fiscal periods, the dividend payout ratio, and the internal demand for
funds such as capital expenditures.
We have declared an annual dividend of ¥6 per share of common stock for the fiscal year ended
March 31, 2005, including an interim dividend of ¥3 per share of common stock.
Capital Expenditures.
Capital expenditures increased 25.2% year on year to ¥217.8 billion,
mainly a reflection of new measures to reinforce production lines in the semiconductor area.
Table of Contents
Review of Operations by Business Segment
The following table sets forth sales and profit by segment for the fiscal years ended March
31, 2004 and 2005:
Year ended March 31
2004
2005
(Billions of yen)
Sales:
IT Solutions business
¥
2,098.9
¥
2,144.4
Network Solutions business
1,775.7
1,892.0
Electron Devices business
932.2
868.7
Others
679.9
649.1
Eliminations
(579.9
)
(699.1
)
Net sales
4,906.8
4,855.1
Segment Profit:
IT Solutions business
91.8
102.3
Network Solutions business
67.9
26.5
Electron Devices business
54.3
37.2
Others
10.7
11.6
Eliminations
(1.6
)
3.0
Unallocated corporate expenses
(40.4
)
(49.3
)
Aggregate segment profit
182.7
131.2
Income before income taxes
160.5
115.7
Net income
41.1
67.9
We are primarily engaged in three business segments: IT Solutions business, Network Solutions
business, and Electron Devices business. In the fiscal year ended March 31, 2005, our business
recorded sales of ¥4,855.1 billion, a decrease of ¥51.7 billion, or 1.1%, from the previous fiscal
year. Total segment profit was ¥131.2 billion, a decrease of ¥51.5 billion from the previous fiscal
year.
The following is a review of results of operations for each business segment for the fiscal
year ended March 31, 2005. Sales and segment profit figures for each segment include intersegment
transactions (see Note 22 to our Consolidated Financial Statements).
IT Solutions Business
Sales
. As the Japanese economy headed toward recovery on the back of improved corporate
financial results, IT investment in Japan also gradually returned to a recovery track. On the other
hand, the amount of IT investment did not increase significantly since customers maintained their
emphasis on investment returns and intensified competition continued to push down prices.
In this environment, sales in the IT Solutions business were ¥2,144.4 billion, an increase of
2.2% from the previous fiscal year. Higher sales were recorded in the areas of SI and software. For
the public sector, we renewed existing systems and constructed systems mainly related to
e-government and mergers between local governments. For the private sector, demand was steady for a
variety of system construction projects, including for upgrades of enterprise supply chain
management systems, centered on certain manufacturing sectors taking a proactive approach to IT
investments. In new technology domains, we constructed open business process systems fully based on
Java technology in a progressive undertaking for the financial services sector, among other initiatives. Furthermore, we
expanded the construction of platforms for enterprises to share information on a global basis, as
well as for area in the integrated IT/Networks domain relating to IP, mobile, RFID using IC tags
and security.
On the other hand, sales in computer platforms decreased due to the absence of a large-scale
project like that found in the previous fiscal year, the shift to lower-priced products and
declining unit prices, despite higher shipments of open servers such as IA servers and optical disk
drives. In the personal solutions area, while the increase in shipments of personal computers for
the consumer market slowed due to lackluster market conditions in Japan, replacement demand for
personal computers at companies grew steadily.
Segment Profit
. Segment profit amounted to ¥102.3 billion, an increase of ¥10.5 billion from
the previous fiscal year. This was primarily due to improved profitability in the SI area. In this
area, profitability had deteriorated in the second half of the previous fiscal year due to
unprofitable projects caused by an increase in projects using new technologies, including
introductions of digital terrestrial broadcasting systems and constructions of computing systems
fully based on Java technology and by more sophisticated and complicated customer requirements. In
response, while utilizing the know-how developed in responding to new technologies in the previous
fiscal year, we reinforced measures to improve profitability such as upgrading pre-order screening
and project management, and raising productivity in software development. As a result,
profitability improved because we managed to sharply reduce the number of unprofitable projects in
the fiscal year ended March 31, 2005.
In the areas of computer platforms and personal solutions, we made efforts to lower materials
costs and upgrade our supply chain amid difficult market conditions characterized by a sharp
decline in prices.
Network Solutions Business
Sales.
Sales in the Network Solutions business were ¥1,892.0 billion, an increase of 6.5%
compared with the previous fiscal year. Despite declining mobile handset sales, overall sales
growth was fueled by higher sales of mobile communications systems, as well as fixed-line
communications systems mainly in Japan.
For fixed-line communications systems, overall sales to the Japanese market steadily
increased. This market has seen rising demand for infrastructure construction projects for
communications service providers and broadcasters to offer new services. We have constructed a
service platform that enables NTT DoCoMo, Inc. to provide email and Web access services, among
other projects. An increasing number of companies are introducing VoIP systems that enable voice
communications using IP technology and shifting to broadband networks, which in turn has increased
security-related needs. As an example of one solution addressing these needs, we have made use of
3G FOMA mobile handsets to develop and deliver mobile office solutions for the construction of
local IP telephone networks.
In the area of mobile communications systems, sales increased due to vigorous investment in 3G
infrastructure worldwide and other factors. For the Japanese market, we recorded steady shipments
on the back of enhanced mobile-phone service areas, which were expanded to include building
interiors, underground floors, and other locations, as well as investments aimed at the launch of
fixed-rate packet communications services in June 2004. For overseas markets, 3G infrastructure
investments have steadily begun, centered on European countries, supporting our brisk shipments.
Sales of base transceiver systems, including those for second-generation, or 2G, mobile
communications service providers, also increased.
For mobile handsets, we are working to aggressively expand into overseas markets, particularly
China, leveraging our technologies and know-how cultivated in our domestic mobile handset area. In
the fiscal year ended March 31, 2005, we reported lower mobile handset shipments to the Japanese
market, due to slower growth in new subscribers reflecting the maturing mobile handset market as
well as lackluster replacement demand for new handsets. On the other hand, as the transition to 3G
services gained ground, we worked to bring attractive 3G terminals to market, such as terminals for
NTT DoCoMo, Inc. with embedded non-contact IC cards for shopping at retail outlets such as
convenience stores and making payments over the Internet, as well as terminals compatible with
overseas 3G/2G services. For the Chinese market, we sought to lay the groundwork for success by
realigning our network of local subsidiaries to focus on the mobile area and newly appointing a
local senior executive. By incorporating local resources, such as design agencies and electronics
manufacturing service companies, into a supply chain that extends from development to procurement,
production, sales and maintenance, we reduced development costs and fixed expenses while increasing
shipments. For other overseas businesses centered on European markets, performance remained on par
with the previous fiscal year.
Segment Profit.
Segment profit was ¥26.5 billion, a decrease of ¥41.4 billion from the
previous fiscal year. This was mainly due to a decrease in sales and an increase in development
costs of mobile handsets despite an improvement of profitability in the fixed-line communications
systems area. In the area of fixed-line communications systems, profitability improved on the back
of higher shipments and the benefits of measures to shift to a more streamlined business structure,
including more focused product development and realignment of manufacturing facilities. In the area
of mobile communications systems, profit rose due to increased sales. On the other hand, in
addition to a decrease in mobile handset shipments in Japan, sharp increases in development costs
and expenses required to promote sales of 3G terminals overseas substantially reduced the
profitability of mobile handsets. The increase in development costs was mainly due to our efforts
to stabilize chipsets for 3G terminals for overseas markets, meet additional software requirements
associated with the higher functionality of mobile terminals, and undertake development on a larger
scale due to an increase in the number of handset models under development. To raise development
efficiency and restore profitability as early as possible, we developed a Linux-based development
platform, which can utilize a broad range of application software with outstanding functionality and general versatility. In
addition, we implemented development process reforms that included shifting to a development system
organized around functions instead of handset models.
Table of Contents
Electron Devices Business
Sales
. Sales of the Electron Devices business were ¥868.7 billion, a decrease of 6.8% from the
previous fiscal year. This decrease was primarily due to the transfer of the plasma display
business and the termination of the general-purpose DRAM foundry business. We have been
transferring development, production and sales of general-purpose DRAMs to Elpida Memory, and the
termination of the general-purpose DRAM foundry business marks the completion of this transfer of
general-purpose DRAM operations.
In the fiscal year ended March 31, 2005, electron devices-related markets saw extremely
healthy demand in the first half of the year continuing from the previous fiscal year, underpinned
mainly by an upturn in demand for personal computers, the spread of 3G mobile handsets and brisk
sales of digital home electronics. In stark contrast, there was a sharp deterioration in demand
from the summer onward, as client equipment manufacturers implemented production adjustments and
reduced parts procurement.
In the semiconductor area, which comprises the majority of the Electron Devices business, we
recorded steady sales of semiconductors in the first half of the fiscal year ended March 31, 2005,
mainly for use in digital home electronics, personal computers and peripherals, automobiles and
industrial machinery in step with growing demand for semiconductors. In the second half, however,
semiconductor sales decreased in all but the automobile and industrial machinery fields, reflecting
sluggish demand due to production adjustments by customers.
In displays, we transferred the low-margin plasma display business as part of structural
reforms of underperforming businesses. The color LCD area saw strong sales of color LCDs for
industrial use, a key area of focus. For general-purpose LCDs for personal computers and monitors,
NEC is generating royalties from the licensing of technologies to a joint venture established with
SVA (Group) Co., Ltd., a Chinese IT company.
In the area of electronic components and others, we reported steady sales, driven mainly by
core products such as capacitors, where we have a significant competitive edge.
Segment Profit
. Segment profit amounted to ¥37.2 billion, a decrease of ¥17.1 billion from the
previous fiscal year.
In the areas of display and electronic components and others, profitability improved due to
structural reforms. In the semiconductor area, which represents the majority of segment profit for
the Electron Devices business, profitability was partly affected by a downturn in sales in the
second half due to lackluster demand. In this context, segment profit declined year on year as
measures aimed mainly at improving productivity and raising cost effectiveness were unable to
offset higher capital expenditures for the construction of a 300-mm wafer production line and
higher R&D expenses. Moving forward, we aim to improve earnings over the medium term by leveraging
our earlier investments in facilities and product development.
Others
Sales
. Sales of the "Others" segment, which consists of the manufacture and sale of
semiconductor manufacturing equipment and LCD projectors as well as information and network system
construction, were ¥649.1 billion, a decrease of 4.5% from the previous fiscal year. This was
mainly because Japan Aviation Electronics Industry, Ltd., which previously was our subsidiary,
became an affiliated company accounted for by the equity method due to the sales of a part of its
shares owned by NEC in March 2004.
Segment Profit
. Segment profit amounted to ¥11.6 billion, an increase of ¥0.8 billion from the
previous fiscal year.
Fiscal Year Ended March 31, 2004 Compared to Fiscal Year Ended March 31, 2003
For the fiscal year ended March 31, 2004, our consolidated net sales increased by 5%
year-on-year to ¥4,906.8 billion. Income before income taxes increased by ¥99.1 billion
year-on-year to ¥160.5 billion, mainly due to sales growth and improved profitability through our
restructuring efforts in the previous fiscal year, as well as a decrease in restructuring charges,
gain due to stock issuances by subsidiaries, including NEC Electronics Corporation, and gains on
the sales of operating facilities through the realignment of our operating organizations. We
returned to profitability in the fiscal year ended March 31, 2004, posting net income of ¥41.1
billion, compared to a net loss of ¥24.6 billion in the previous fiscal year.
Net Sales
. In the fiscal year ended March 31, 2004, our net sales increased 5%, or ¥211.8
billion, to ¥4,906.8 billion as compared with the previous fiscal year. This reflects an increase
in sales of mobile handsets, optical disc drives, and semiconductors mainly for use in mobile
handsets and digital consumer electronics.
By geographical location of customers, net sales to Japanese customers increased 2% to
¥3,730.8 billion. This increase was mainly attributable to an increase in the sales of
semiconductors for use in mobile handsets and digital consumer electronics. However, it was
partially offset by business realignment measures implemented in the previous fiscal year in
connection with our printed circuit board and car electronics businesses. Overseas sales increased
by 12% to ¥1,176.0 billion, mainly due to the full-fledged start of shipments of mobile
handsets mainly to European markets and the growth in the sales of optical disc drives.
Sales denominated in foreign currencies in the fiscal year ended March 31, 2004, principally,
the U.S. dollar and Euro, were ¥1,092.2 billion, a 10% increase compared with the previous fiscal
year. Consequently, foreign currency denominated sales represented 22% of net sales. Fluctuations
in exchange rates had a negligible effect on earnings, due to a variety of hedging measures to
reduce exchange rate risks such as forward exchange contracts and balancing foreign-currency
denominated sales and procurement.
Subsidy Related to Transfer of Substitutional Portion of Employee Pension Fund Liabilities,
Net of Settlement Loss of ¥138,063 Million.
In September 2002, NEC and certain subsidiaries in
Japan received the approval of the Japanese government to eliminate future benefit obligations
related to the governmental welfare component, or the substitutional portion, of its 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 of certain assets of the pension plans on February 16, 2004 and
March 15, 2004, NEC and certain subsidiaries in Japan were relieved of all past obligations under
the substitutional portion. We accounted for the elimination of future benefits and relief from
past obligations resulting from the transfer of assets as in a single settlement transaction and
recognized a net gain of ¥8.2 billion. See Note 10 to our consolidated financial statements.
Gain on Sale or Disposal of Fixed Assets, Net
. We have been improving our balance sheet by
realigning our asset portfolio to improve our financial strength through the sale of securities of
diminished significance and sales of property, plant and equipment accompanying the realignment of
our operating facilities. Gain on sale or disposal of fixed assets, net in the fiscal year ended
March 31, 2004 was ¥7.3 billion compared with a loss of ¥7.7 billion in the previous fiscal year.
Gains due to Stock Issuances by Subsidiaries
. In the fiscal year ended March 31, 2004, we
recorded a gain of ¥53.8 billion due to stock issuances by subsidiaries, an increase of ¥31.7
billion compared to ¥22.1 billion in the previous fiscal year. In the fiscal year ended March 31,
2003, we recorded gains of ¥20.8 billion on the initial public offering of NEC Fielding, Ltd., a
consolidated subsidiary. In the fiscal year ended March 31, 2004, the increase in gain due to stock
issuances by subsidiaries primarily reflected the initial public offerings by our consolidated
subsidiaries, NEC Electronics Corporation and NEC System Technologies, Ltd. See Note 18 to our
consolidated financial statements.
Gain on Sale of Investments in Securities, Net of Loss on Sale and Impairment.
Gain on sale of
investments in securities, net of loss on sale and impairment, in the fiscal year ended March 31,
2004 was ¥14.2 billion, a decrease of ¥19.2 billion from ¥33.4 billion in the previous fiscal year.
This was mainly due to a decrease in the gain on sale of marketable securities and
other investments.
Table of Contents
Cost of Sales
. Cost of sales in the fiscal year ended March 31, 2004 increased by ¥170.0
billion to ¥3,623.0 billion as compared with the previous fiscal year. As a percentage of net
sales, cost of sales increased 0.3 percentage points to 73.8%. This increase, which partially
offset measures to reduce our costs, was mainly attributable to investments in new technologies,
including digital terrestrial broadcasting systems and JAVA-based application projects, and
investments intended to capture new customers and markets in connection with our IT Solutions
business.
Research and Development Expenses.
Research and development expenses decreased by 13% year on
year to ¥256.7 billion, representing 5.2% of net sales. This decrease mainly reflects measures to
decrease the number of research themes and other steps to more efficiently utilize research and
development expenses. See " — Research and Development, Patents and Licenses, etc."
Selling, General and Administrative Expenses
. Selling, general and administrative expenses in
the fiscal year ended March 31, 2004 increased by ¥27.8 billion year-on-year to ¥852.7 billion. As
a percentage of net sales, selling, general and administrative expenses decreased 0.2 percentage
points to 17.4%. This decrease was mainly attributable to measures to reduce operating costs.
Restructuring Charges.
Restructuring charges decreased by ¥38.2 billion to ¥17.2 billion. This
mainly included charges for workforce reductions and disposal of facilities. See Note 19 to our
consolidated financial statements.
Impairment of Goodwill.
We performed the annual impairment test of goodwill in the fourth
quarter of the year ended March 31, 2004. Due to intense competition in the European personal
computer market, the forecast for the IT Solutions business in Europe was revised downward.
Primarily as a result of the revised forecast, we recognized an impairment of ¥23.0 billion in the
IT Solutions business. The fair value of that reporting unit was estimated using estimated
discounted net future cash flows.
Income before Income Taxes
. We recorded income before income taxes in the fiscal year ended
March 31, 2004 of ¥160.5 billion, an increase of ¥99.1 billion as compared with the previous fiscal
year. This increase was mainly due to a sharp improvement in profitability occasioned by increasing
sales of mobile handsets and the shift to high-value-added products in the semiconductor field, and
the benefits of structural reforms for the purpose of cost reductions. Another contributing factor
was a decrease of ¥38.2 billion in business restructuring expenses, as the structural reforms that
we planned for some of our unprofitable businesses neared completion. See Note 19 to our
consolidated financial statements.
Equity in Earnings (Losses) of Affiliated Companies
. We recorded equity in losses of
affiliated companies in the fiscal year ended March 31, 2004 of ¥17.8 billion, an improvement of
¥2.7 billion. This was mainly attributable to higher net incomes or lower net losses of affiliated
companies involved in manufacturing electronics, information network and measuring equipment.
Provision (Benefit) for Income Tax
. At March 31, 2004, we had deferred tax assets of ¥552.6
billion net of valuation allowance of ¥30.9 billion and deferred tax liabilities of ¥130.9 billion.
Major differences between income before income taxes for financial reporting purposes and for
income tax purposes include the utilization of operating loss carryforwards, and the
non-deductibility of certain expenses. See Note 11 to our consolidated financial statements for a
more detailed explanation.
In Japan, consolidated tax returns were not permitted until the fiscal year ended March 31,
2002. Accordingly, NEC and its domestic subsidiaries have filed separate tax returns. For the
fiscal year ended March 31, 2003, we were permitted to file and filed a consolidated tax return in
Japan. Japanese income tax regulations permit the carryforwards of tax losses in a Japanese entity
as an offset against its taxable income during the subsequent seven years. Operating loss
carryforwards expire at the end of the seven-year period.
Our valuation allowance of ¥30.9 billion at March 31, 2004 reflected (i) ¥7.2 billion for
deferred tax assets arising from loss carryforwards of certain consolidated subsidiaries and (ii)
¥23.7 billion mainly for deferred tax assets arising from tax-deductible temporary differences
recorded by subsidiaries in a loss position. At March 31, 2004, our operating loss carryforwards of
¥191.8 billion reflected (i) ¥110.0 billion related to foreign subsidiaries for which deferred tax
assets of ¥36.9 billion and valuation allowance of ¥4.0 billion were recorded and (ii) ¥81.9
billion related to domestic companies for which deferred tax assets of ¥46.8 billion and valuation
allowance of ¥3.2 billion were recorded. In determining the amount of valuation allowance, we
consider all available evidence. See " — Critical Accounting Policies and Estimates."
Net Income
. Due to the previously mentioned sharp improvement in income before income taxes,
we recorded net income of ¥41.1 billion, turning around the previous fiscal year's net loss of
¥24.6 billion. Net income per share was ¥23.67.
Comprehensive Income (Loss)
. We recorded comprehensive income in the fiscal year ended March
31, 2004 of ¥177.7 billion. This reflected the recording of other comprehensive income of ¥136.6
billion as well as a turnaround in net income. We booked a gain of ¥116.1 billion from the minimum
pension liability adjustment, due mainly to a reduction in pension liabilities from the transfer of
substitutional portion of employee pension fund liabilities, despite the adverse effect of a
reduction in the discount rate for calculating pension benefit obligations. We recorded an
unrealized gain of ¥38.3 billion on marketable securities due to improving market conditions.
Table of Contents
Segment Analysis
The following table sets forth sales and profit by segment for the fiscal years ended March
31, 2003 and 2004:
Year ended March 31
2003
2004
(Billions of yen)
Sales:
IT Solutions business
¥
2,082.6
¥
2,098.9
Network Solutions business
1,576.3
1,775.7
Electron Devices business
936.7
932.2
Others
661.7
679.9
Eliminations
(579.8
)
(579.9
)
Electronics business total
4,677.5
4,906.8
Leasing business
38.2
—
Eliminations
(20.7
)
—
Net sales
4,695.0
4,906.8
Segment Profit (Loss):
IT Solutions business
105.8
91.8
Network Solutions business
34.3
67.9
Electron Devices business
(2.3
)
54.3
Others
14.8
10.7
Eliminations
0.2
(1.6
)
Unallocated corporate expenses
(38.5
)
(40.4
)
Electronics business total
114.3
182.7
Leasing business
8.2
—
Eliminations
(1.6
)
—
Aggregate segment profit
120.9
182.7
Income before income taxes
61.5
160.5
Income (loss) before cumulative effect of accounting change
(24.6
)
41.1
Net income (loss)
(24.6
)
41.1
Our electronics business is composed of the IT Solutions business, the Network Solutions
business and the Electron Devices business. Effective from the fiscal year ended March 31, 2004,
the leasing business was excluded from our business segments following the conversion of NEC
Leasing, Ltd. into an affiliated company accounted for by the equity method, resulting from the
sale of a portion of our ownership interest in this company in March 2003.
Our electronics business recorded sales of ¥4,906.8 billion in the fiscal year ended March 31,
2004, an increase of ¥229.3 billion, or 5%, from the previous fiscal year. Total segment profit for
the electronics business in the fiscal year ended March 31, 2004 was ¥182.7 billion, an increase of
¥68.4 billion from the previous fiscal year.
Operating results of each segment in the electronics business are presented below. Sales and
segment profit figures for each segment include inter-segment transactions. See Note 22 to our
consolidated financial statements.
IT Solutions Business
Sales
. The IT Solutions business recorded sales in the fiscal year ended March 31, 2004 of
¥2,098.9 billion, an increase of 1% year-on-year. Despite continuing lackluster demand for IT
investment in the domestic market, sales of systems integration increased, mainly due to steady
demand from the public sector and steady growth in businesses targeting private-sector demand. On
the other hand, sales of software decreased, partly reflecting the absence of the previous fiscal
year's large volume orders. In the field of computer platforms, such as servers, sales increased
due to expanded sales volume of optical disc drives.
Segment Profit
. Segment profit in the fiscal year ended March 31, 2004 was ¥91.8 billion, a
decrease of ¥14.0 billion as compared with the previous fiscal year. Segment profit as a percentage
of sales, decreased from 5.1% to 4.4%. Despite a sharp improvement in the profitability of personal
computers due to the results of structural reforms implemented to date, profitability in the SI
field decreased mainly on account of investments in new technologies, including digital terrestrial
broadcasting systems and JAVA-based application projects, and investments intended to develop new
markets and customers.
Network Solutions Business
Sales.
Sales in the Network Solutions business in the fiscal year ended March 31, 2004
increased 13% year-on-year to ¥1,775.7 billion, mainly due to strong sales of mobile handsets.
Sales in the fixed-line communications systems field decreased due to the downsizing of
unprofitable overseas businesses, partially offset by steady demand for investments in IP-based
networks in the domestic enterprises market. Mobile handset sales increased, mainly due to higher
domestic mobile handset shipments and the full-fledged commencement of mobile handset shipments to
overseas markets mainly in Europe.
Segment Profit.
Segment profit in the fiscal year ended March 31, 2004 improved by ¥33.6
billion to ¥67.9 billion. This improvement mainly reflected an increase in shipments in mobile
handsets and improved profitability, particularly in the fixed-line communications systems field,
as a result of structural reforms.
Electron Devices Business
Sales
. Sales in the Electron Devices business in the fiscal year ended March 31, 2004 were
¥932.2 billion, almost unchanged from the fiscal year ended March 31, 2003. In the semiconductor
field, sales of semiconductors increased as a whole reflecting brisk sales of semiconductors mainly
for use in digital consumer electronics and mobile handsets, despite the decrease in sales due to
the transfer of DRAM production to Elpida Memory, which is an affiliated company accounted for by
the equity method. In the display field, sales increased due to rapid growth in the plasma display
market, despite the downsizing of the production of unprofitable color LCD products. Sales of
electronic components and others decreased due to business restructuring measures implemented in
the fiscal year ended March 31, 2003 in operations such as the printed circuit board and the car
electronics, despite strong sales in the electronic components business.
Segment Profit (Loss)
. Segment profit improved by ¥56.6 billion to ¥54.3 billion from the
previous year's loss. This improvement mainly reflected the shift to high-value-added products,
improvement in productivity, and reduction in materials costs in the semiconductor field, and
improved profitability due to the results of structural reforms in the display field and the
electronic components and others field.
Others
Sales
. The others segment includes the manufacture and sale of semiconductor manufacturing
equipment, avionics equipment, and LCD projectors as well as information and network system
construction services. Sales in this segment were ¥679.9 billion, an increase of ¥18.2 billion.
Segment Profit
. Segment profit decreased by ¥4.1 billion to ¥10.7 billion.
Table of Contents
B. Liquidity and Capital Resources.
Basic Liquidity Management Policy
Our basic liquidity management policy is to maintain the sum of cash and cash equivalents and
committed credit facilities with financial institutions at a level equivalent to approximately 2
months of net sales. Committed credit facilities mean facilities committed by financial
institutions under which loans will be made on a request basis to the extent of agreed amount under
certain terms and conditions. Cash and cash equivalents, together with committed credit facilities
established with financial institutions, were ¥994.3 billion at March 31, 2005. This included cash
and cash equivalents of ¥494.3 billion and the unused portion of ¥500.0 billion of total long-term
and short-term committed credit facilities of ¥520.0 billion. This is equivalent to roughly 2.5
times average monthly sales in the fiscal year ended March 31, 2005. This level mainly reflected
our policy of retaining a more-than-adequate supply of cash and cash equivalents largely to cope
with any rapidly arising capital-expenditure needs in the semiconductor business, and ensuring
flexible financial strategies. To this end, we retain committed credit facilities.
Cash and cash equivalents are mainly denominated in yen as well as other denominations that
include U.S. dollars and Euros.
Capital Resources
We maintain credit facilities that we believe are sufficient to meet our short- and long-term
funding needs.
With regard to short-term financing, we rely primarily on commercial paper, or CP, in Japan to
provide short-term financing for operating purposes. We have a ¥550.0 billion CP program. To
prepare for unexpected short-term funding needs or instability in fund procurement through the
issue of CP, we maintain committed credit facilities of ¥420.0 billion to ensure that funds may be
borrowed from financial institutions at all times. Of this amount, ¥100.0 billion represents a
committed credit facility with a contract period effective from March 2003 through March 2006 that
enables us to obtain short-term loans. This committed credit facility contains a clause that will
revoke the facility in the event that our rating (given by Rating and Investment Information, Inc.)
is downgraded by 5 notches, from A at present to BB+ or lower.
With regard to long-term financing, we have a ¥300.0 billion straight bond issuance program in
Japan. In addition to the above, NEC and our U.K. financial subsidiary also jointly have a
medium-term note, or MTN, program with a program limit of $2,000 million to flexibly meet medium-
and long-term funding needs worldwide.
In the fiscal year ended March 31, 2005, we established a committed credit facility of ¥100.0
billion to ensure that we can meet long-term funding requirements that may arise in the near
future. During the contracted period over the next three years, this credit facility will give us a
framework for flexibly taking out long-term loans with terms of up to eight years. This long-term
committed credit facility contains a clause that will revoke the facility in the event that our
rating (given by Rating and Investment Information, Inc.) is downgraded by 5 notches, from A at
present to BB+ or lower.
In the fiscal year ended March 31, 2005, we did not procure funds through the issuance of new
shares or bonds. However, during the same fiscal year, NEC Electronics Corporation, which is a
consolidated subsidiary, issued bonds with stock acquisition rights to procure ¥110.0 billion.
These funds will be used to finance flexible investments in new facilities in support of sales and
earnings growth over the medium and long terms, and will be used for the partial repayment of
interest-bearing debt, and to provide working capital.
Our basic policy regarding the structure of liabilities on our balance sheets is to maintain a
balanced mix of fund procurement from debt and capital market instruments, while securing adequate
long-term funds, from the standpoint of satisfying funding requirements in a stable manner.
As of March 31
2004
2005
Long-term fund procurement*1
69%
68%
Use of capital market instruments*2
70%
74%
*1 Long-term fund procurement is calculated by dividing the sum of bonds and long-term debt by
interest-bearing debt.
*2 Use of capital market instruments is calculated by dividing bonds and CPs by interest-bearing
debt.
As of March 31, 2005, long-term fund procurement accounted for 68% of total funds procured,
while the use of capital market instruments accounted for 74% of total funding. Short-term
borrowings include loans from banks and insurance companies, and the average interest rate for the
fiscal year ended March 31, 2005 was 0.49%. Long-term debt includes secured or unsecured
floating-interest loans from banks and insurance companies, straight bonds and convertible bonds
with fixed interest rates. There are no limitations on the use of these funds.
Table of Contents
Cash Flows
Year ended March 31
2003
2004
2005
(Billions of yen)
Net Cash Provided by (Used in):
Operating activities
¥
247.5
¥
328.5
¥
164.6
Investing activities
(11.6
)
(69.1
)
(122.5
)
Financing activities
(262.7
)
(102.8
)
(50.3
)
Effect of exchange rate changes on cash and cash
equivalents
(6.6
)
(4.2
)
5.7
Net increase (decrease) in cash and cash equivalents
¥
(33.4
)
¥
152.4
¥
(2.5
)
Cash and cash equivalents at the end of the fiscal year ended March 31, 2005 were ¥494.3
billion, a decrease of ¥2.5 billion from the previous fiscal year.
Net cash provided by operating activities in the fiscal year ended March 31, 2005 was ¥164.6
billion, ¥163.9 billion less than in the previous fiscal year. This mainly reflected an increase in
the payments of notes and accounts payable, primarily in line with increased procurement of raw
materials from overseas suppliers requiring shorter payment periods. Depreciation fell ¥12.2
billion to ¥166.5 billion, primarily reflecting the leasing of facilities and the sale of property,
plant and equipment accompanying the realignment of our network of operating bases, despite an
increase of ¥43.8 billion in capital expenditures.
Net cash used in investing activities in the fiscal year ended March 31, 2005 was ¥122.5
billion, ¥53.4 billion higher than in the previous fiscal year, due mainly to tender offers made
for shares of NEC Soft, Ltd. and NEC System Technologies, Ltd. in the fiscal year ended March 31,
2005, as well as an investment in ABeam Consulting, Ltd. This increase also reflected the absence
of the previous fiscal year's net proceeds from the sale of shares in affiliates in connection with
the listing of subsidiaries.
Net cash used in financing activities was ¥50.3 billion. The main uses of cash were for the
redemption of bonds and dividends paid, which were partly offset by proceeds from the issuance of
bonds with stock acquisition rights.
As of March 31, 2005, note and accounts receivable, trade, was ¥916.6 billion while notes and
accounts payable, trade, was ¥847.6 billion. Accounts receivable turnover, the ratio of notes and
accounts receivable, trade, to average daily net sales, was 69 days. Accounts payable turnover, the
ratio of notes and accounts payable, trade, to average daily cost of sales, was 85 days. For the
purpose of diversifying fund procurement methods and streamlining our balance sheets, NEC has
several securitization programs under which certain trade receivables are sold without recourse to
special purpose entities (see Note 16 to our Consolidated Financial Statements).
Our main future funding requirements are working capital, capital expenditures and debt
repayments. We believe that long- and short-term credit facilities and cash flows from operating
activities are sufficient to meet these funding requirements in the fiscal year ending March 31,
2006. However, in the event that cash flows from operating activities fall below projections, we
may be required to take out additional borrowings or issue shares or other securities.
Ratings
As of March 31, 2005, NEC's short-term credit rating was a-1 (Rating and Investment
Information, Inc.), P-2 (Moody's Investors Service) and A-2 (Standard and Poor's Rating Services)
and our long-term credit ratings were A (Rating and Investment Information, Inc.), Baa1 (Moody's
Investors Service) and BBB (Standard and Poor's Rating Services). In December 2004, our long-term
credit rating from Moody's Investors Service was raised from Baa2 to Baa1.
Cash Management
We centralize the management of funds worldwide through the use of cash management systems, or
CMS, in Japan and overseas. These systems facilitate the efficient use of funds and reduction of
interest-bearing debt.
In Japan, NEC centrally manages funding shortfalls and surpluses at major domestic
consolidated subsidiaries using a CMS, and is responsible for operating the system and carrying out
fund raising activities. Overseas, several financial subsidiaries covering the regions under their
charge operate CMS, managing cash at consolidated subsidiaries in a similar manner as in Japan.
Cash surpluses at overseas financial subsidiaries are centralized in NEC to coordinate the
allocation of resources on a global scale.
NEC Electronics Corporation and its consolidated subsidiaries separately operate their own CMS
so as to efficiently use funds throughout the group in Japan and overseas.
Table of Contents
Assets, Liabilities, and Shareholders' Equity
Total assets at the end of fiscal year ended March 31, 2005 were ¥3,940.7 billion, a decrease
of ¥103.7 billion from the previous fiscal year-end. This mainly reflected decreases in property,
plant and equipment primarily due to the transfer of operations and sale of fixed assets, as well
as lower current assets from a decline in inventories due to strengthening company-wide project
management and the promotion of production innovation activities.
Current assets at the end of fiscal year ended March 31, 2005 were ¥2,081.6 billion, a
decrease of ¥48.2 billion compared with the previous fiscal year-end. Notes and accounts
receivable, trade, net of the allowance for doubtful notes and accounts, increased ¥61.0 billion to
¥901.7 billion mainly due to a decrease in sales of the trade receivables based on our
securitization programs compared with the previous fiscal year-end. Inventories decreased ¥41.1
billion to ¥528.9 billion, due to production innovation measures and stronger project management.
Investments and long-term receivables decreased by ¥27.9 billion to ¥423.4 billion. This
mainly reflected a decline of ¥42.4 billion in marketable securities due to the transfer of
marketable securities to the pension trust and sale of marketable securities, partly offset by an
increase of ¥22.4 billion in investments in affiliated companies accounted for by the equity method
in step with an improvement in equity in earnings (losses) of affiliated companies.
Property, plant and equipment was ¥726.4 billion, decreased by ¥43.8 billion from the previous
fiscal year-end. The main reasons for the decrease were the sale of the plasma display business and
the sale of semiconductor-related equipment to Hiroshima Elpida Memory, Inc.
Other assets were ¥709.3 billion, an increase of ¥16.3 billion from the previous fiscal
year-end. This was mainly attributable to an increase of ¥35.9 billion in goodwill reflecting
tender offers for shares in NEC Soft, Ltd. and NEC System Technologies, Ltd. and an investment in
ABeam Consulting Ltd., partly offset by a decrease of ¥14.8 billion in long-term deferred tax
assets.
Current and long-term liabilities as of the end of fiscal year ended March 31, 2005 decreased
by ¥189.3 billion to ¥2,922.2 billion. Of this amount, interest-bearing debt, the sum of short-term
borrowings, the current portion of long-term debt and long-term debt, decreased by ¥14.8 billion
from the end of the previous fiscal year to ¥1,156.2 billion. This reflected continuous efforts to
reduce interest-bearing debt.
Accrued pension and severance costs decreased by ¥99.7 billion to ¥425.2 billion as compared
with the end of the previous fiscal year. This was primarily due to transfer of marketable
securities to the pension trust and a decrease in unrecognized benefit obligations mainly through
the transfer of the substitutional portion of employee pension fund liabilities at certain
consolidated subsidiaries.
As of March 31, 2005, shareholders' equity had increased ¥82.8 billion to ¥794.3 billion. This
mainly mirrored net income of ¥67.9 billion, along with an improvement of ¥25.4 billion in
accumulated other comprehensive income (loss). Accumulated other comprehensive income (loss) is the
sum of foreign currency translation adjustments, minimum pension liability adjustments, unrealized
gains (losses) on marketable securities and unrealized gains (losses) on derivative financial
instruments. The improvement in accumulated other comprehensive income (loss) was mainly due to an
improvement of ¥28.9 billion in the minimum pension liability adjustment as compared with the end
of the previous fiscal year, due mainly to the recording of pension and severance cost, in addition
to the transfer of the substitutional portion of employee pension fund liabilities at certain
consolidated subsidiaries. As a result, the shareholders' equity ratio at the end of fiscal year
ended March 31, 2005 increased to 20.2% from 17.6% at the end of the previous fiscal year.
Table of Contents
C. Research and Development, Patents and Licenses, etc.
Since the establishment of our first research laboratory in 1939, we have consistently
recognized that our R&D activities are a critical component of our success. We will therefore
continue to devote significant financial, personnel and other resources to R&D efforts.
R&D expenses for the fiscal years ended 2003, 2004 and 2005 are shown in the table below:
Year ended March 31
2003
2004
2005
(Billions of yen)
R&D expenses
¥
296.2
¥
256.7
¥
275.3
As a percentage of net sales
6.3%
5.2%
5.7%
R&D expenses in the fiscal year ended March 31, 2005 increased 7% year on year. R&D expenses
in the fiscal year ended March 31, 2005 at the IT Solutions business, the Network Solutions
business and the Electron Devices business and others were ¥46.2 billion, ¥84.1 billion, ¥113.5
billion, and ¥31.5 billion, respectively.
We conduct R&D activities at the research and development division and at the individual
business units, which collaborate closely with each other.
Our business units conduct product and technology development at their own respective
divisions. The activities of each of these business units are closely related to their operating
activities and targeted markets. The research and development division collaborates closely with
each of these business units in product and technology development activities.
The research and development division conducts medium and long-term R&D activities to develop
fundamental technologies that will form the basis for our future operations, in addition to new
technologies that will significantly expand the operations of each business unit. These activities
take place in various specialized laboratories located in Japan, the United States of America,
Europe and China.
We conduct R&D activities in the areas of:
•
Solutions and computer platform focused on e-commerce application platforms and
mission-critical systems
•
Broadband network systems and network solutions focused on mobile communications systems
such as mobile handsets and third and fourth-generation mobile communications systems
•
Integrated IT and network systems and its platform
•
Semiconductor devices, particularly system LSIs
•
Fundamental research in technologies needed to create new businesses, such as
nanotechnology, biology and IT convergence technologies, and quantum IT
R&D highlights during the fiscal year ended March 31, 2005 include the following examples:
Development of Software to Prevent Leaking of Information by Company Insiders
As the importance of effective information security countermeasures against information
leakage, cyber-attacks and other similar issues has been increasing, especially due to the
enactment of the Personal Information Protection Act of Japan, which became fully effective from
April 1, 2005, NEC has developed software products to prevent information leakage by company
insiders. The main functions of nearly all existing information security countermeasure products
are limited to access control and encryption of customer information and other confidential data.
NEC's new software has a function that prevents intentional leakage of information by a company's
insiders. The new software controls the removal of confidential data filed on a particular server,
and it can further reduce the risk of information leakage by combining this function with
encryption technologies or a function to monitor and trace operational records for data that is
allowed to be transferred. NEC intends to continue developing these software products to enhance
the level of sophistication and enable them to work cooperatively with integrated management
systems for various software applications.
Development of Linux OS based Software Platform for 3G Mobile Phones
NEC, Panasonic Mobile Communications Co., Ltd. and NTT DoCoMo, Inc. have jointly developed a
Linux OS based software platform for 3G mobile phones. In the future, in addition to the functions
such as videophone and music playback, 3G mobile phones are expected to be equipped with additional
functions such as receivers for terrestrial digital TV broadcasting. While application software is
necessary to realize those functions, the development volume of the application software is
increasing, as a result that mobile phones' features are getting richer. A software platform,
which enables the fundamental parts of such application software to be shared, is effective in
developing such application software efficiently. Since the newly-developed software platform is
based on Linux OS, which is a feature-rich and versatile open source software, NEC believes that
development costs for application software can be reduced by using the software platform. Further,
the stable operational environment of this application software promotes the development of
versatile application software.
Development of Mobile Phone Application Processor with Parallel Processing Capabilities
NEC and NEC Electronics Corporation, a subsidiary of NEC, have jointly developed an
application processor for mobile phones with three internal CPU (central processing unit) cores.
Since application software for feature-rich, multi-function mobile phones are expected to be
increasingly complex and plentiful, it is important to improve the processing capability of the
application processor necessary for operating such application software. Although to date most
application processors for mobile phones have used a single CPU, such processors had higher
power-consumption levels as a result of their higher processing capabilities, which in turn reduced
a mobile phone's talk time and standby time. Through the development of software which enables
parallel processing of multiple CPUs, the newly-developed application processor can successfully
operate on three CPUs in parallel. This application processor enables the allocation of tasks to
the most appropriate CPU for each utilized application software, and the efficient operation of
such CPUs enable mobile phones using such application software to simultaneously offer both
multiple high-performance features and low power consumption.
Development of a Device that Converts Optical Signals to Electronic Signals within a LSI Chip
at High Modulation Speed
Since the total amount of data processed by electronic devices is increasing, the development
of a high-speed photodiode (light detector) enabling mass-volume signal transmission between
electronic circuits within a LSI chip is in progress. NEC has realized a key technology that
enables high-speed operation of silicon-based photodiode. Although silicon-based photodiode can be
manufactured at relatively low cost, a high-speed operation with more than 1GHz modulation has been
difficult. On the other hand, when germanium or other materials are used to increase operation
speed, its manufacturing process becomes more complex, resulting in higher cost. In NEC's novel
photodiode featuring new key-technology, high-speed operation at 20GHz becomes possible even when
using a silicon device, which has the same speed as a photodiode utilizing germanium. Using this
technology, electronic devices are expected to feature increased speed and performance at a lower
cost.
Table of Contents
D. Trend Information.
See the discussion in "A. Operating Results— Major Measures and Results of the Year under
Review and Future Growth Initiatives" and "Results of Operations."
E. Off-Balance Sheet Arrangements.
We have entered into various arrangements not reflected on our balance sheets that have or are
reasonably likely to have a current or future effect on our financial condition, revenue or
expenses, results of operations, liquidity, capital expenditures or capital resources. These
include guarantees, securitization of receivables, and variable interest entities.
Guarantees
Our guarantees are provided in the ordinary course of business. We underwrite these guarantees
considering the economic, liquidity and credit risk of the counterparty. We have guaranteed certain
loans of our employees and affiliated companies, as well as financial arrangements for customers.
Certain of these guarantees were secured by guarantees issued to us by other parties. We have
issued residual value guarantees in connection with various operating leases. As of March 31, 2005,
maximum potential future payments and collateral related to guarantees were ¥64.4 billion and ¥1.1
billion, respectively. We do not expect these guarantees to have a material adverse effect on our
financial position or results of operations (see Note 21 to our Consolidated Financial Statements).
Securitization of receivables
We have several securitization programs under which certain trade receivables are sold,
without recourse, to special purpose entities, or SPEs. Simultaneously, the SPEs sell an interest
in those receivables to large financial institutions. In certain securitizations, we have retained
a subordinated interest. Under a certain securitization program in Japan, we sell on an ongoing
basis all applicable trade receivables, and retain all amounts in excess of our financing needs. As
a result, the balance of retained interests varies regardless of the risk of credit loss on the
trade receivables (see Note 16 to our Consolidated Financial Statements).
Variable interest entities
We use several special purpose entities through which we lease equipment to overseas
customers. The entities are considered variable interest entities in accordance with FASB
Interpretation No. 46 (revised 2003). Although we provide financial support, including guarantees,
to these entities and holds significant variable interests in them, we are not the primary
beneficiary. Total assets held by the entities at March 31, 2005 were ¥75.9 billion. Our maximum
exposure to loss would be ¥4.4 billion.
F. Tabular Disclosure of Contractual Obligations.
The status of contractual obligations as of March 31, 2005, was as follows.
Payments due by period
Total
Less than 1 year
1-3 years
3-5 years
5+ years
(Billions of yen)
Long-term debt
excluding capital
leases
¥903.8
¥127.0
¥305.1
¥241.5
¥
230.2
Capital leases
24.8
10.4
13.0
1.4
0
Operating leases
139.7
29.0
38.9
29.4
42.4
Total
¥
1,068.3
¥166.4
¥357.0
¥272.3
¥
272.6
Commitments for contractual obligations on the purchase of property, plant and equipment were
¥20.2 billion and will be paid within approximately one year.
The balance of guarantees, excluding guarantees for employees (maximum guarantee period: 19
years) was ¥44.5 billion. Guarantees with periods less than 1 year, 1 to 3 years, 3 to 5 years and
5 years or more were ¥14.4 billion, ¥5.1 billion, ¥23.2 billion and ¥1.8 billion, respectively.
G. Safe Harbor.
See discussion under "Forward-Looking Statements."
Table of Contents
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
A. Directors and Senior Management.
Set forth below are the members of the board of directors and corporate auditors of NEC as of
June 22, 2005, together with their respective dates of birth, positions, and remaining length of
term of office as director or corporate auditor. All members of the board mentioned below, except
for Toshio Morikawa, Advisor to Sumitomo Mitsui Banking Corporation, Koichi Kimura, Advisor to
Daiwa Institute of Research Ltd., and Akira Uehara, President of Taisho Pharmaceutical Co., Ltd.,
are also corporate officers of NEC.
Name
Date of Birth
Term Expires
Position
Hajime Sasaki
April 6, 1936
June 2006
Chairman of the Board (Representative Director)
Akinobu Kanasugi
April 17, 1941
June 2006
President and Member of the Board (Representative Director)
Kaoru Yano
February 23, 1944
June 2006
Senior Executive Vice President and Member of the Board
(Representative Director)
Toshiro Kawamura
July 7, 1942
June 2006
Senior Executive Vice President and Member of the Board
(Representative Director)
Kazuhiko Kobayashi
December 30, 1943
June 2006
Executive Vice President and Member of the Board
Kazumasa Fujie
July 18, 1944
June 2006
Executive Vice President and Member of the Board
Shunichi Suzuki
February 20, 1945
June 2006
Executive Vice President and Member of the Board
Tsutomu Nakamura
June 12, 1948
June 2006
Senior Vice President and Member of the Board
Konosuke Kashima
January 30, 1946
June 2006
Senior Vice President and Member of the Board
Yasuo Matoi
December 26, 1944
June 2006
Senior Vice President and Member of the Board
Iwao Fuchigami
March 4, 1946
June 2006
Senior Vice President and Member of the Board
Saburo Takizawa
February 27, 1948
June 2006
Senior Vice President and Member of the Board
Toshio Morikawa
March 3, 1933
June 2006
Member of the Board
Koichi Kimura
January 6, 1936
June 2006
Member of the Board
Akira Uehara
April 5, 1941
June 2006
Member of the Board
Shigeo Matsumoto
December 29, 1940
June 2008
Corporate Auditor
Hiroshi Takakuta
July 30, 1942
June 2009
Corporate Auditor
Tsuneo Kabe
March 9, 1927
June 2008
Corporate Auditor
Shinichi Yokoyama
September 10, 1942
June 2007
Corporate Auditor
Muneo Shigematsu
February 9, 1941
June 2008
Corporate Auditor
Board members and corporate auditors may be contacted through NEC's headquarters: c/o NEC
Corporation, 7-1, Shiba 5-chome, Minato-ku, Tokyo 108-8001, Japan.
The following is a brief biography of each of NEC's board members, most of whom are also
corporate officers, and corporate auditors.
Hajime Sasaki
has been the Chairman of the Board since March 1999. Mr. Sasaki served as Senior
Executive Vice President from June 1996 until March 1999 and has been a member of the board since
June 1988.
Akinobu Kanasugi
became the President in March 2003
.
Mr. Kanasugi served as Executive Vice
President from June 2000 to March 2003 and as Company President of NEC Solutions from April 2000 to
April 2003. He has been a member of the board since June 1995.
Kaoru Yano
has been a Senior Executive Vice President since June 2004. Mr. Yano has been a
member of the board since June 1995 and served as Executive Vice President from October 2002 to
June 2004. He was also the Company President of NEC Networks from April 2002 to April 2003.
Toshiro Kawamura
has been a Senior Executive Vice President and member of the board since June
2004. Mr. Kawamura was a member of the board from June 1996 to April 2000. He served as Senior Vice
President from April 2000 to June 2001, as Senior Vice President and a member of the board from
June 2001 to April 2003, and as Executive Vice President and member of the board from April 2003 to
June 2004. He was also the Company Deputy President of NEC Solutions from June 2001 to April 2003.
Kazuhiko Kobayashi
has been an Executive Vice President since April 2005 and a member of the
board since June 2004. After resigning from the board of directors when NEC reduced the number of
board members by approximately half in April 2000, Mr. Kobayashi served as Senior Vice President
until July 2003, as Executive Vice President until June 2004, and then as Senior Vice President
until April 2005. He also served as Company Deputy President of NEC Solutions from April 2002 until
April 2003.
Kazumasa Fujie
has been an Executive Vice President since April 2005 and a member of the board
since June 2003. After resigning from the board of directors when NEC reduced the number of board
members by approximately half in April 2000, Mr. Fujie served as Senior Vice President until April
2005. He also served as Company Deputy President of NEC Networks from April 2002 until April 2003.
Shunichi Suzuki
has been an Executive Vice President since April 2005 and a member of the
board since June 2002. Mr. Suzuki served as Associate Senior Vice President from April 2000 until
June 2002, and then as Senior Vice President until April 2005.
Tsutomu Nakamura
has been a Senior Vice President and member of the board since June 2002. Mr.
Nakamura served as Associate Senior Vice President from June 2000 until April 2002 and then served
as Senior Vice President until June 2002. He also served as Company Deputy President of NEC
Networks from April 2002 until April 2003.
Konosuke Kashima
has been a Senior Vice President and member of the board since June 2004. Mr.
Kashima served as Senior Vice President from October 2002 until June 2004, when he was elected to
his current position.
Yasuo Matoi
has been a Senior Vice President and member of the board since June 2004. Mr.
Matoi served as Senior Vice President from April 2004 until June 2004, when he was elected to his
current position.
Iwao Fuchigami
has been a Senior Vice President and member of the board since June 2004. Mr.
Fuchigami served as Senior Vice President from April 2004 until June 2004, when he was elected to
his current position.
Saburo Takizawa
has been a Senior Vice President and member of the board since June 2004. Mr.
Takizawa served as Senior Vice President from April 2004 until June 2004, when he was elected to
his current position.
Toshio Morikawa
has been a member of the board since June 2000. Mr. Morikawa was the Chairman
of the Board of The Sumitomo Bank, Ltd. from June 1997 to March 2001, and currently is an Advisor
(
Meiyo Komon
) to Sumitomo Mitsui Banking Corporation.
Koichi Kimura
has been a member of the board since June 2001. Mr. Kimura served as Vice
Chairman of Daiwa Institute of Research Ltd. from October 1998 until June 2000, and currently is an
Advisor to Daiwa Institute of Research Ltd.
Akira Uehara
has been a member of the board since June 2002. Mr. Uehara has been the President
of Taisho Pharmaceutical Co., Ltd. since June 1982.
Shigeo Matsumoto
has been a corporate auditor since June 2004. Mr. Matsumoto was a member of
the board from June 1991 until June 2004. Mr. Matsumoto served as an Executive Vice President from
June 1999 until June 2004.
Hiroshi Takakuta
was elected to his current position as Corporate Auditor in June 2005. Mr.
Takakuta served as Executive Vice President from July 2003 until April 2005 and then as Advisor
until June 2005.
Tsuneo Kabe
has been a corporate auditor since June 2001. Mr. Kabe was appointed as a justice
of the Supreme Court of Japan from May 1990 until he retired in March 1997. Mr. Kabe is currently
an attorney at law of Ishizawa, Kô & Sato.
Shinichi Yokoyama
has been a corporate auditor since June 2003. Mr. Yokoyama served as
President and as President and Chief Executive Officer of Sumitomo Life Insurance Company,
respectively, from July 2001 to April 2002 and from April 2002 to the present.
Muneo Shigematsu
has been a corporate auditor since June 2004. Mr. Shigematsu served as a
member of the board and Executive Vice President of The Seiyu, Ltd. from October 2002 to March 2004
and as a member of the board and Nominating Committee of The Seiyu, Ltd. from March 2004 to the
present.
No family relationship exists among any of NEC's board members, corporate officers, and
corporate auditors. We do not have any arrangement or understanding with major shareholders,
customers, suppliers, or others pursuant to which any member of NEC's board was elected to his
position at NEC.
Table of Contents
B. Compensation.
For the fiscal year ended March 31, 2005, NEC and its subsidiaries paid NEC's board members an
aggregate compensation, including bonuses and retirement payments, of ¥925 million and NEC's
corporate auditors an aggregate compensation of ¥87 million. None of the board members or corporate
auditors received any benefits in kind.
In accordance with applicable Japanese laws and customary Japanese business practices,
retiring board members and corporate auditors of NEC receive lump-sum retirement payments, which
are subject to approval of ordinary general meeting of shareholders. NEC does not set aside
reserves for such retirement payments. For the fiscal year ended March 31, 2005, NEC paid ¥326
million in retirement payments to retiring board members and corporate auditors of NEC.
For information on NEC's stock option plans, see " E. Share Ownership — Stock Option Plan."
C. Board Practices.
Term
All of NEC's board members and corporate auditors are elected by a general meeting of
shareholders. The regular term of office of a board member is one year. The regular term of office
of corporate auditors is four years. Board members and corporate auditors may serve any number of
consecutive terms. There is no regular term of office for corporate officers.
For additional information on terms, see " A. Directors and Senior Management
.
"
Board of Directors and Corporate Auditors
NEC's articles of incorporation provide for a board of directors of not more than 20 members,
and for not more than five corporate auditors. Board members and corporate auditors may be removed
from office at any time by a resolution of a general meeting of shareholders.
In April 2000, NEC introduced a new corporate officer system in order to facilitate efficient
and more responsive decision-making and draw clearer lines of responsibility, and NEC reduced the
number of NEC's board members by approximately half. Accordingly, in June 2005, the maximum number
of directors as provided for in NEC's articles of incorporation was reduced from 40 to 20.
Currently, NEC has 15 board members.
Corporate officers have the responsibility to manage NEC's business operations. The board
members oversee the corporate officers and set fundamental strategies.
The board of directors has the ultimate responsibility for the administration of NEC's
affairs. The board of directors designates by resolution, from among its members, representative
directors who generally have the authority to individually represent NEC in the conduct of its
affairs.
Under the Commercial Code, board members must refrain from engaging in any business that is in
competition with NEC unless approved by a board resolution, and no board member may vote on a
proposal, arrangement, or contract in which that board member is deemed to be materially
interested.
Neither the Commercial Code nor NEC's articles of incorporation contain provisions relating to
the retirement age of NEC's board members and corporate auditors, or to a requirement of NEC's
board members and corporate auditors to hold any shares of NEC's capital stock. In accordance with
Japanese practice, when a board member or corporate auditor retires, a proposal to pay a retirement
allowance is submitted to a general meeting of shareholders for approval. The amount of the
retirement allowance generally reflects the position of the board member or corporate auditor, as
the case may be, at the time of his or her retirement, length of service as a board member or
corporate auditor, as the case may be, and contribution to NEC's operations. NEC has a retirement
plan for NEC's board members, corporate auditors, and employees. There are no service contracts
between any of NEC board member and NEC or any of its subsidiaries.
The Commercial Code requires a resolution of the board of directors for a company to acquire
or dispose of material assets, to borrow substantial amounts of money, to employ or discharge
important employees such as corporate officers, and to establish, change, or abolish material
corporate organizations such as a branch office.
Pursuant to the Commercial Code and NEC's articles of incorporation, NEC has entered into a
liability limitation agreement with outside directors which limits the maximum amount of their
liability for damages arising from actions stipulated in Item 5 of Paragraph 1, Article 266 of the
Commercial Code to the higher of either a fixed amount which is not less than ¥15,000,000 or the
amount stipulated by the Commercial Code, provided that such directors acted in good faith and
without gross negligence.
Corporate auditors are not required to be and are not certified public accountants. At least
one corporate auditor must be a person who has not been a board member or employee of NEC or any of
its subsidiaries during the five-year period prior to his or her election as a corporate auditor.
After the conclusion of the ordinary general meeting of shareholders to be held with respect to the
first fiscal year ending on or after May 1, 2005, at least half of NEC's corporate auditors must be
persons who have not been board members or employees of NEC or any of its subsidiaries. A corporate
auditor may not simultaneously be a board member or an employee of NEC or any of its subsidiaries.
Corporate auditors have the statutory duty to examine NEC's consolidated and non-consolidated
financial statements and the business reports which are made available by the board of directors at
the general meetings of shareholders and, based on such examination, to report their opinions to
shareholders. They also have the statutory duty to supervise the administration by the board
members of NEC's affairs. Corporate auditors are obligated to attend the meetings of the board of
directors but are not entitled to vote.
The corporate auditors constitute the board of corporate auditors. Under the Commercial Code
and the Law Concerning Special Measures to the Commercial Code with Respect to Audit, etc. of
Corporations of Japan, the board of corporate auditors has a statutory duty to prepare
and submit its audit report to the board of directors each year. A corporate auditor may note an
opinion in the audit report if his or her opinion differs from the opinion expressed in the audit
report. The board of corporate auditors is empowered to establish audit principles, the method of
examination by corporate auditors of NEC's affairs and financial position, and other matters
concerning the performance of the duties of corporate auditors.
For additional information on terms, see " A. Directors and Senior Management
.
"
Exemption from the NASDAQ Rules
Pursuant to home country practices exemptions granted by the National Association of
Securities Dealers Automated Quotations, or the NASDAQ, NEC is permitted to follow the following
corporate governance practices complying with Japanese laws, regulations and stock exchange rules
in lieu of NASDAQ Corporate Governance Rules, or the NASDAQ Rules.
Independent Directors
NASDAQ Rule 4350(c) requires a majority of the board of directors of NEC to be comprised of
independent directors and additionally requires the independent directors to have regularly
scheduled meetings at which only independent directors are present. Under the Commercial Code and
related legislation, there is no position which is the exact equivalent of an "independent"
director within the meaning given by the NASDAQ Rules. Instead, the Commercial Code sets forth the
legal concept of "outside" directors. Under the Commercial Code, an "outside" director is defined
as a director who does not engage in the execution of business operations of the company and who
(i) has never been a director responsible for the execution of business operations, a corporate
executive officer, a company manager, or other employee of the company or any of its subsidiaries,
and (ii) is not a director responsible for the execution of business operations or corporate
executive officer of any subsidiary of the company, and (iii) is not a company manager or other
employee of the company or any of its subsidiaries. Under Japanese law, a director's status as an
"outside" director is unaffected by the director's compensation, his or her affiliation with
business partners, or the board's affirmative determination of independence. Conversely, under
Japanese law, a director who has previously served as a director responsible for the execution of
business operations, corporate executive officer, or other employee of the company or its
subsidiaries is not an "outside" director.
Further, the Commercial Code and related legislation do not require Japanese companies with
boards of corporate auditors such as NEC to have any independent directors on its board of
directors. Although not required under the Commercial Code, NEC currently has two "outside"
directors but they do not have separate executive sessions.
Rule 4350(c)(3) requires that compensation of the chief executive officer and other executive
officers must be determined, or recommended to the board, either by a majority of the independent
directors or an independent compensation committee. Additionally, Rule 4350(c)(4) requires
director nominees to be selected, or recommended for the board's selection, either by a majority of
the independent directors or an independent nominations committee. As discussed above, NEC has two
"outside" directors but they do not serve on any separate compensation committee or nominations
committee.
Conflicts of Interest
NASDAQ Rule 4350(h) requires that each issuer conduct an appropriate review of all related
party transactions for potential conflict of interest situations on an ongoing basis, and that all
such transactions be approved by the company's audit committee or another body independent from the
board of directors. Unlike the NASDAQ Rules, the Commercial Code requires the full board of
directors to approve (1) all transactions that a director, on his or her own behalf or on behalf of
a third party, enters into with NEC, (2) guarantees by NEC of obligations of a director and (3) all
transactions with any person other than directors with respect to which there is a conflict of
interest between NEC and any director. In addition, under the Commercial Code, no director may vote
on a resolution at a meeting of the board of directors if that director has a special interest in
that resolution, including, but not limited to, resolutions with respect to transactions with NEC
referred to in the immediately preceding sentence. Under the Commercial Code, the quorum for
meetings of the board of directors of NEC is a majority of all directors then in office, and the
approval of a majority of all directors present at the meeting is required. The number of directors
who are not entitled to vote at a meeting by reason of having a special interest in the subject
resolution shall be excluded from the number of directors then in office and present at the meeting
for such purpose. The Commercial Code does not require related party transactions, other than those
with directors referred to above, to be approved by the board of directors or any independent body
at or outside of NEC.
Table of Contents
D. Employees.
As of March 31, 2005, we had approximately 147,800 employees on a consolidated basis,
approximately 74% of whom were located in Japan and 26% outside Japan. Approximate numbers of
employees by each segment are as follows:
Number of Employees
IT Solutions Business
50,900
Network Solutions Business
28,400
Electron Devices Business.
46,800
Others
21,700
We had approximately 145,800 employees and approximately 143,300 employees as of March 31,
2003 and March 31, 2004, respectively.
Since 1952, NEC has had a comprehensive labor contract with NEC Workers' Union covering, in
general, conditions of employment other than salary, wages, bonuses, and retirement benefits. This
contract, which provides that all of NEC's employees except management and other specified
personnel must become union members, has been renegotiated from time to time and the present
agreement extends until March 31, 2006. The employees of NEC's consolidated subsidiaries are
covered by separate labor contracts. We believe that our labor-management relations are good.
E. Share Ownership.
Share Ownership
As of March 31, 2005, NEC's board members, most of whom are also corporate officers, and
corporate auditors together owned 162,183 shares of NEC common stock, representing 0.01% of the
total issued shares. None of NEC's board members or corporate auditors is the beneficial owner of
more than 1% of shares of NEC common stock.
Stock Option Plan
At the ordinary general meeting of shareholders held on June 29, 2000, NEC's shareholders
approved a stock option plan for board members, corporate officers, and specified upper-level
employees, under which no more than 320,000 shares of NEC common stock may be purchased for an
aggregate price not exceeding ¥1,200 million. NEC will hold shares purchased under the 2000 stock
option plan and reserve them for transfer to NEC's board members, corporate officers, and specified
upper-level employees upon the exercise of their options. The aggregate number of shares to be
transferred to board members and corporate officers of NEC upon the exercise of their outstanding
options under the 2000 stock option plan as of March 31, 2005 is 91,000 shares. The exercise price
of the options is currently ¥3,294 per share, subject to adjustment if there is a stock split or
consolidation of shares or if new shares are issued at a price less than the market price. The
options can be exercised from July 1, 2002 to June 30, 2006. The options lapse automatically upon
the optionholder's death and generally expire one year after the termination of the optionholder's
service with NEC.
At the ordinary general meeting of shareholders held on June 21, 2001, NEC's shareholders
approved a second stock option plan with terms and conditions substantially the same as those of
the 2000 stock option plan. The aggregate number of shares of common stock of NEC to be transferred
to board members and corporate officers of NEC upon the exercise of their outstanding options under
the 2001 stock option plan as of March 31, 2005 is 111,000 shares. The exercise price per share of
the options is currently ¥1,818 per share. The options can be exercised from July 1, 2003 to June
30, 2007.
At the ordinary general meeting of shareholders held on June 20, 2002, NEC's shareholders
approved a third stock option plan, under which NEC may issue stock acquisition rights to board
members, corporate officers, and certain upper-level employees of NEC and certain executives of
NEC's subsidiaries in Japan pursuant to Articles 280-20 and 280-21 of the Commercial Code. Holders
of the stock acquisition rights are entitled to acquire 1,000 shares of common stock of NEC per
right upon the exercise of the stock acquisition rights. Under the 2002 stock option plan, 358
stock acquisition rights were issued. The aggregate number of shares to be issued or transferred to
board members and corporate officers of NEC upon the exercise of their outstanding stock
acquisition rights under the 2002 stock option plan as of March 31, 2005 is 192,000 shares. The
exercise price of the rights is currently ¥888 per share, subject to adjustment if there is a stock
split or consolidation of shares or if new shares are issued at a price that is less than the
market price. The rights can be exercised from July 1, 2004 to June 30, 2008. The rights expire one
year after their holder ceases to be a board member, corporate officer, or employee of NEC or its
subsidiaries.
At the ordinary general meeting of shareholders held on June 19, 2003, NEC's shareholders
approved a fourth stock option plan with terms and conditions substantially the same as those of
the 2002 stock option plan. Under the 2003 stock option plan, 313 stock acquisition rights were
issued. The aggregate number of shares of NEC common stock to be issued or transferred to board
members and corporate officers of NEC upon the exercise of their outstanding rights under the 2003
stock option plan as of March 31, 2005 is 183,000 shares. The exercise price of the rights is
currently ¥769 per share. The rights can be exercised from July 1, 2005 to June 30, 2009.
At the ordinary general meeting of shareholders held on June 22, 2004, NEC's shareholders
approved a fifth stock option plan with terms and conditions substantially the same as those of the
2002 stock option plan. Under the 2004 stock option plan, 289 stock acquisition rights were issued.
The aggregate number of shares of NEC common stock to be issued or transferred to board members and
corporate officers of NEC upon the exercise of their outstanding rights under the 2004 stock option
plan as of March 31, 2005 is 166,000 shares. The exercise price of the rights is currently ¥801 per
share. The rights can be exercised from July 1, 2006 to June 30, 2010.
At the ordinary general meeting of shareholders held on June 22, 2005, NEC's shareholders
approved a sixth stock option plan with terms and conditions substantially the same as those of the
2002 stock option plan. Under the 2005 stock option plan, 300 stock acquisition rights were
issued. The exercise price of the rights is currently ¥637 per share. The rights can be exercised
from July 1, 2007 to June 30, 2011.
NEC does not have any other arrangements for involving its employees in the capital of NEC,
including any arrangement that involves the issue or grant of options, shares, or securities of
NEC.
Table of Contents
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
A. Major Shareholders.
As of March 31, 2005, NEC had 242,141 registered shareholders. NEC's shareholders do not have
different voting rights. The ten largest shareholders of NEC's common stock appearing on its
register of shareholders at that date were as follows:
Number of Shares of
Percentage of Shares of
Shareholder
Common Stock Held
Common Stock Held
Japan Trustee Services Bank, Ltd. (Trust Account)
97,608,000
5.06
%
The Master Trust Bank of Japan, Ltd. (Trust Account)
81,971,000
4.25
The Chase Manhattan Bank, N.A., London
47,926,591
2.48
The State Street Bank and Trust Company 505103
47,705,899
2.47
Nippon Life Insurance Company
41,122,675
2.13
Sumitomo Life Insurance Company
41,000,000
2.13
The Chase Manhattan Bank, N.A., London, SL Omnibus
Account
28,476,247
1.48
NEC Employee Shareholding Association
25,953,978
1.35
The Dai-ichi Mutual Life Insurance Company
24,569,000
1.27
Japan Trustee Services Bank, Ltd. (The Sumitomo
Trust & Banking Co., Ltd. Retrust Account/Sumitomo
Corporation Employee Pension Trust Account)
23,299,000
1.21
Total
459,632,390
23.83
%
NEC received from Capital Guardian Trust Company, Capital International, Inc., Capital
International Limited, Capital International S.A., and Capital Research and Management Company,
copies of reports concerning the bulk holding of shares of common stock (see "Item 10.B. Key
Information — Memorandum and Articles of Association — Common Stock — Reporting of Substantial
Shareholders") indicating that, as of December 31, 2004, these companies jointly held 82,429,016
shares, or 4.27% of the total outstanding shares. NEC is unable to confirm their shareholdings
because they did not appear on its register of shareholders.
NEC received from Morgan Stanley Japan Limited, Morgan Stanley & Co. Incorporated, Morgan
Stanley & Co. International Limited, MSDW Equity Finance Services I (Cayman) Ltd., Morgan Stanley
Capital (Luxembourg) SA, MSDW Equity Financing Services (Luxembourg) S.a.r.l, Morgan Stanley
Investment Management Limited, Morgan Stanley Asset & Investment Trust Management Co., Limited,
Morgan Stanley Investment Management Inc., Morgan Stanley Investment Advisors Inc., Van Kampen
Asset Management and Van Kampen Funds Inc., copies of reports concerning the bulk holding of shares
of common stock (see "Item 10.B. Key Information — Memorandum and Articles of Association — Common
Stock — Reporting of Substantial Shareholders") indicating that, as of March 31, 2005, these
companies jointly held 128,755,536 shares, or 6.67% of the total outstanding shares. NEC is unable
to confirm their shareholdings because they did not appear on its register of shareholders.
As of March 31, 2005, the percentage of shares of common stock held by The Chase Manhattan
Bank, N.A., London decreased by 6.24 percentage points as compared with March 31, 2004.
The record of ownership and distribution of shares of NEC's common stock appearing on the
register of shareholders as of March 31, 2005, was as follows:
Number of
Number of Shares
Percentage of
Shareholders
Held
Shares Held
Japanese financial institutions
259
575,344,631
29.82
%
Japanese securities companies
128
28,505,874
1.48
Other Japanese corporations
2,517
84,918,806
4.40
Foreign institutions and individuals
(1)
737
607,217,429
31.47
Japanese individuals and others
238,500
633,281,977
32.83
Total
242,141
1,929,268,717
100.00
%
(1)
197,605,609 shares, or 10.24%, of NEC's issued common stock was owned
by 114 U.S. shareholders of record, one of whom is the ADR
depositary's nominee holding 20,804,146 shares, or 1.08%, of NEC's
issued common stock.
B. Related Party Transactions.
Since April 1, 2003, none of NEC's board members or corporate auditors, and none of the close
members of their respective families, has had any transactions or has any presently proposed
transactions which are material or any transactions that are unusual in their nature or
conditions, involving goods, services, or tangible or intangible assets, to which NEC is a party.
In the ordinary course of business and at an arm's length basis, NEC purchases from and sells
to its affiliated companies accounted for by the equity method, certain materials, supplies and
services. Such affiliated companies include ALAXALA Networks Corporation, Anritsu Corporation, CEN
solutions corporation, DAIKIN INFORMATION SYSTEMS CO., LTD., Elpida Memory, Inc.(*), HimeginSoft
Co., Ltd., Japan Aviation Electronics Industry, Limited, NEC Leasing, Ltd., NEC Personal Systems
Minami-Kyusyu, Ltd., NEC TOPPAN CIRCUIT SOLUTIONS, INC., PERNEC Corporation Berhad, Sanwa Computer
Co., Ltd., SINCERE Corporation, Techno Mind Corporation and TOYO COMMUNICATION EQUIPMENT CO., LTD.
For the fiscal year ended March 31, 2005, NEC recorded total sales of approximately ¥237.5 billion
to, and total purchases of approximately ¥115.1 billion from, these affiliated companies. As of
March 31, 2005, NEC had trade receivables of approximately ¥37.2 billion owed by, and trade
payables of approximately ¥88.7 billion owed to, these affiliated companies.
NEC does not consider the amounts involved in the above transactions to be material to its
business. In addition to purchase and sales, NEC has entered into a number of contractual
arrangements with its affiliated companies to govern their relationship in various areas, including
competition, intellectual property, research, property lease, and administrative services. Please
refer to Note 3 to our consolidated financial statements for a more detailed explanation regarding
NEC's transactions with these affiliated companies.
Since April 1, 2003, no loans or guarantees of any kind have been made by NEC to its directors
or corporate auditors, or close members of their families. NEC has guaranteed the repayment of
loans owed by an affiliated company accounted for by the equity method, Shanghai SVA NEC Liquid
Crystal Display Co., Ltd. As of March 31, 2005, the total outstanding principal amount guaranteed
by NEC for the affiliated company was ¥9.8 billion.
(*) As of August 31, 2005, Elpida Memory is no longer an affiliated company of NEC accounted for by
the equity method.
C. Interests of Experts and Counsel.
Not applicable.
Table of Contents
ITEM 8. FINANCIAL INFORMATION.
A. Consolidated Statements and Other Financial Information.
See our consolidated financial statements beginning on page F-1.
Legal Proceedings
We and certain of our subsidiaries are currently engaged in a lawsuit with GE Warranty
Management, Inc., or GE Warranty, in the Court of Appeal of the State of California, Second
Appellate District. The lawsuit concerns a claim for declaratory relief that two of our
subsidiaries initiated against GE Warranty in December 2001 and a cross claim by GE Warranty
against us and our two subsidiaries. In its cross complaint, GE Warranty sought reimbursement of
costs it allegedly incurred in connection with warranty contracts that it issued to purchasers of
computers previously manufactured by our two subsidiaries, punitive damages, and attorneys' fees.
On October 3, 2003, the trial court judged that GE Warranty could not pursue any claim for damages
against us or our subsidiaries, either in its own right or as subrogee of the service contract
owners. On November 7, 2003, GE Warranty appealed the judgment to the Court of Appeal of the State
of California, Second Appellate District. However, the lawsuit was stayed as of March 9, 2004,
after PB Electronics, Inc., one of the cross-complainants, filed for bankruptcy in the U.S.
Bankruptcy Court for the Northern District of California on March 3, 2004. Subsequently, by order
of the Bankruptcy Court, entered on May 16, 2005, the automatic stay against GE Warranty proceeding
against PB Electronics, Inc. in its appeal was lifted. The Court of Appeal has been notified of
the Bankruptcy Court's ruling, and it is anticipated that the March 9, 2004 stay will be lifted and
the Court of Appeal will order the appeal to proceed.
Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., and NEC Electronics
America, Inc., an indirect U.S. subsidiary of ours, received grand jury subpoenas from the U.S.
District Court for the Northern District of California on June 19, 2002 and May 30, 2003,
respectively, seeking information in connection with an investigation being conducted by the U.S.
Department of Justice into potential antitrust violations in the DRAM industry. We understand that
many of the companies in the U.S. DRAM industry have received similar subpoenas in connection with
this investigation and that some of those companies have entered into plea agreements or, under the
Corporate Leniency Policy, are cooperating with the U.S. Department of Justice. NEC Electronics
America transferred substantially all of its DRAM business to Elpida Memory (USA) in March 2001.
Elpida Memory (USA), however, did not assume the legal responsibilities or obligations relating to
DRAMs produced or sold by NEC Electronics America prior to such transfer. On August 31, 2005, we
sold 9.6 million shares of Elpida Memory. As a result of this sale, we currently hold 13.89% of Elpida
Memory, which has now ceased to be an affiliate company of NEC accounted for by the equity method.
Immediately
following the announcement of the U.S. investigation, Elpida Memory (USA),
Elpida Memory, and other DRAM manufacturers subject to the same investigation were named in
approximately twenty federal and state class action civil antitrust lawsuits seeking treble damages
in unspecified amounts and an injunction against the allegedly unlawful conduct. Each of these
civil cases purports to be on behalf of a class of individuals and entities who directly or
indirectly purchased DRAM during the specified time periods. General discovery is just commencing,
as a court-imposed stay on all discovery previously in place has only recently been lifted. All the
federal class action cases have been or will be transferred to the U.S. District Court for the
Northern District of California (San Francisco) for consolidated pre-trial proceedings. All of the
class action lawsuits filed against Elpida Memory (USA) and/or Elpida Memory under California state
law have been or will be consolidated for pre-trial purposes before the Superior Court for the City
and County of San Francisco. On October 1, 2003, counsel for the plaintiffs in the federal
antitrust cases filed a consolidated amended class action complaint against the defendants in the
various cases, asserting essentially the same claims alleged in the various prior complaints
against the previously named defendants. At that time, NEC Electronics America was added as a new
defendant in those proceedings. Likewise, on or about October 15, 2003, counsel for the plaintiffs
in the state court antitrust cases filed a consolidated amended class action complaint against the
previously named defendants. At that time, as in the federal antitrust cases, NEC Electronics
America was named as a new defendant in those proceedings. On December 10, 2004, counsel for the
plaintiffs in the San Francisco federal court cases filed a second consolidated amended class
action complaint against the previously named defendants alleging that the unlawful conduct began
on or about July 1, 1999. On January 21, 2005, counsel for plaintiffs in the San Francisco state
court antitrust cases filed a second consolidated amended class action complaint against the
previously named defendants alleging likewise that the conspiracy
began at least as early as July 1, 1999, continuing thereafter up to and including the date of the filing of the complaint. On
June 30, 2005, counsel for plaintiffs in the San Francisco federal court cases filed a third
consolidated amended complaint against the previously named defendants alleging that the unlawful
conduct began on or about April 1, 1999. Between
August 2004 and September 2005, to the best of our
knowledge, over 40 class action litigations where Elpida Memory (USA), Elpida Memory, NEC
Electronics America, and/or NEC Electronics Corporation were named defendants were filed in one or
more federal or state courts in the states of Arizona, Florida, Hawaii, Iowa, Kansas, Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, New York, North Carolina, North Dakota, Ohio, Pennsylvania, South Dakota, Tennessee,
Vermont, Virginia, West Virginia, Wisconsin, as well as in the District of Columbia and the Commonwealth of
Puerto Rico. The claims in those cases are generally
similar to those being asserted in the U.S. District Court for the
Northern District of California (San Francisco) or the Superior Court for the City and County of San Francisco.
In April 2003, Elpida Memory received a request for information by the Director-General for
Competition, Cartels Unit of the European Commission and is subject to a similar investigation into
the European DRAM market. In May 2004, the Canadian Competition Bureau advised Elpida Memory (USA)
that it and its affiliated parties are among the targets of a formal inquiry into alleged
violations of the Canadian Competition Act in the DRAM industry.
Liabilities related to legal proceedings are recorded when it is probable that a liability has
been incurred and the associated amount can be reasonably estimated. Although no rulings have been
issued in these investigations and related civil proceedings at this time, we have provided an
accrual for a reasonably estimable amount for the fiscal year ended March 31, 2005 in connection
with the U.S. Department of Justice's investigation. As we are unable to predict the outcome of
these investigations and related civil proceedings, the costs that we may incur in connection with
the investigations or the related civil proceedings, or the impact the final resolutions of the
investigations or the related civil proceedings might have on our operations or financial
condition, such accrued amount would be subject to change in the future based on new developments
or changes in circumstances.
The Fair Trade Commission of Japan, or JFTC, initiated hearing procedures on surcharge payment
orders against NEC and another Japanese company on July 14, 2004, in accordance with the Act
Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade, or the Antimonopoly
Law. The surcharge payment orders were issued on June 14, 2004 with respect to NEC's and another
Japanese company's bids for automatic letter processing systems ordered by the Ministry of Posts
and Telecommunications (currently, Japan Post), and thereafter NEC and another Japanese company
immediately requested the JFTC to initiate the hearing procedures on such surcharge payment orders.
On April 23, 2004, in a separate procedure under the Antimonopoly Law, the Tokyo High Court issued
a judgment to annul a JFTC decision made on June 27, 2003 which stated that NEC and another
Japanese company restricted competition, contrary to the public interest, in the sale of automatic
letter processing systems. The JFTC is currently requesting an appeal to the Supreme Court of Japan
with respect to such judgment. We are unable to predict the outcomes of the hearing procedures on
the surcharge payment orders or the JFTC's request for appeal to the Supreme Court of Japan, the
costs that we may incur in connection with the hearing procedures or the JFTC's request for appeal,
or the impact the final resolutions of the hearing procedures or the JFTC's request for appeal
might have on our operations or financial condition.
Other than as disclosed above, we are not or have not been involved in any legal or
arbitration proceedings which may have, in the opinion of our management, a significant effect on
our financial position, nor are we aware that any such proceedings are pending or threatened.
Dividend Policy
We have paid cash dividends on shares of our common stock on a semi-annual basis each year
since 1951 except for the fiscal year ended March 31, 2003, when we recorded a non-consolidated net
loss primarily due to the devaluation of our investments in affiliated companies and securities. We
have paid interim dividends of ¥3 per share of common stock for the six months ended September 30,
2004 and year-end cash dividends of ¥3 per share of common stock for the fiscal year ended March
31, 2005.
The declaration and payment of dividends require the approval of our board of directors and,
in the case of year-end dividends, shareholders, and will depend on our results of operations,
financial condition, other cash requirements, and other factors deemed relevant by the board of
directors and shareholders.
B. Significant Changes.
No significant changes have occurred since the date of the annual financial statements
included in this annual report.
Table of Contents
ITEM 9. THE OFFER AND LISTING.
A. Offer and Listing Details.
The following table shows, for the periods indicated, the reported intra-day high and low sale
prices for shares of NEC's common stock on the Tokyo Stock Exchange and the reported intra-day high
and low sales prices for NEC's American Depositary Shares, or ADSs, on the Nasdaq National Market
System:
Tokyo Stock Exchange
NASDAQ
Price Per Share Of
Common Stock
Price Per ADS
(Yen)
(Dollars)
(1)(2)
HIGH
LOW
HIGH
LOW
Year ended March 31:
2001
3,450
1,520
32.40
12.50
2002
2,390
846
19.73
6.30
2003
1,158
390
8.70
3.20
2004
1,030
333
9.46
2.80
2005
937
555
8.65
5.31
Year ended March 31, 2004:
First quarter
609
333
5.12
2.80
Second quarter
951
613
8.24
5.40
Third quarter
1030
716
9.46
6.50
Fourth quarter
903
745
8.50
7.09
Year ended March 31, 2005:
First quarter
937
717
8.87
6.35
Second quarter
776
638
7.20
5.74
Third quarter
681
555
6.30
5.31
Fourth quarter
688
578
6.61
5.50
Year ending March 31, 2006:
First quarter
671
568
6.22
5.31
Second
quarter (through September 22)
630
559
5.67
5.04
Month of:
March 2005
688
633
6.61
5.83
April 2005
671
572
6.22
5.31
May 2005
608
568
5.67
5.26
June 2005
619
594
5.69
5.38
July 2005
606
573
5.43
5.05
August 2005
597
559
5.39
5.04
September 2005 (through September 22)
630
580
5.67
5.15
(1)
NEC's ADS to common stock ratio was changed from 1:5 to 1:1 effective May 25, 2001.
Accordingly, the prices of ADSs presented in the table above prior to the change have
been restated to reflect the current ratio of 1:1.
(2)
All fractional figures of the prices of ADS are rounded to the nearest two decimal points.
B. Plan of Distribution.
Not applicable.
C. Markets.
The primary market for our shares of common stock is the Tokyo Stock Exchange. In Japan, our
shares of common stock are also listed and traded on the Osaka Securities Exchange, the Nagoya
Stock Exchange, the Sapporo Securities Exchange, and the Fukuoka Stock Exchange. Outside Japan, our
shares of common stock are listed on the Official List and traded on the London Stock Exchange's
market for listed securities, and listed and traded on the Official Market of the Stock Market of
Euronext Amsterdam, the SWX Swiss Exchange in the form of Swiss bearer depositary receipts, and the
Frankfurt Stock Exchange in the form of global bearer certificates. In addition, ADSs, each
representing one share of common stock, are quoted on the Nasdaq National Market under the symbol
"NIPNY."
D. Selling Shareholders.
Not applicable.
E. Dilution.
Not applicable.
F. Expenses of the Issue.
Not applicable.
Table of Contents
ITEM 10. ADDITIONAL INFORMATION.
A. Share Capital.
Not applicable.
B. Memorandum and Articles of Association.
Organization
NEC is a joint stock corporation (
kabushiki kaisha
) incorporated in Japan under the Commercial
Code. It is registered in the Commercial Register (
shogyo tokibo
) maintained by the Minato Branch
Office of the Tokyo Legal Affairs Bureau.
Corporate Purpose of NEC
Article 2 of NEC's articles of incorporation provides that the corporate purposes of NEC are
to carry on the following businesses:
1.
To manufacture, sell or otherwise dispose of, telecommunications
equipment, machinery and instruments, electronic computers and other
electronics application equipment, machinery and instruments, electrical
equipment, machinery and instruments, and all kinds of equipment,
machinery, instruments and systems related to electricity;
2.
To manufacture, sell or otherwise dispose of, nuclear energy machinery
and instruments, aircraft machinery and instruments, medical machinery
and instruments, measuring instruments, and all equipment, machinery,
instruments and systems other than those mentioned in item 1 above;
3.
To manufacture, sell or otherwise dispose of, electron tubes,
semiconductor devices, integrated circuits and all parts and materials
for use in or in connection with any equipment, machinery and
instruments mentioned in any of the preceding items;
4.
To provide telecommunications, data base, and other information services;
5.
To provide mail order, money collection, travel agency, non-life
insurance agency, life insurance agency, broadcasting, and security
services by means of the Internet and other networks;
6.
To contract for construction work;
7.
To engage in any and all activities requisite to the promotion,
handling, and carrying out of the businesses mentioned in any of the
preceding items; and
8.
To invest in businesses mentioned in any of the preceding items which
businesses are under the administration of others.
Board of Directors
The board of directors has the ultimate responsibility for the administration of NEC's
affairs. The board of directors designates by resolution, from among its members, representative
directors who generally have the authority to individually represent NEC in the conduct of its
affairs. Corporate officers have the responsibility to manage NEC's business operations. The board
members oversee the corporate officers and set fundamental strategies. Under the Commercial Code,
board members of NEC must refrain from engaging in any business competing with NEC unless approved
by a board resolution, and no board member may vote on a proposal, arrangement or contract in which
that board member is deemed to be materially interested.
Neither the Commercial Code nor NEC's articles of incorporation contain special provisions as
to the borrowing power exercisable by a board member. See also the discussion under "Item 6.C.
Directors, Senior Management and Employees — Board Practices."
Common Stock
General
Except as otherwise stated, set forth below is information relating to NEC's common stock,
including brief summaries of the relevant provisions of NEC's articles of incorporation and share
handling regulations, as currently in effect, and of the Commercial Code and related legislation.
A bill to modernize and make overall amendments to the Commercial Code by replacing the
current provisions with regard to corporations with a new version of the company law known as the
New Company Law was promulgated on July 26, 2005. The New Company Law will come into effect within
one year and half after its promulgation, and currently, it is expected that it will take effect in
May 2006.
Under the Commercial Code, generally, shares may be transferred only by delivering share
certificates. In order to assert shareholders' rights against NEC, a shareholder must have its name
and address registered on NEC's register of shareholders, in accordance with NEC's share handling
regulations. The registered beneficial holder of deposited shares underlying the ADSs is the
depositary for the ADSs. Accordingly, holders of ADSs will not be able to directly assert
shareholders' rights against NEC.
A holder of shares may choose, at its discretion, to participate in the central clearing
system for share certificates under the Law Concerning Central Clearing of Share Certificates and
Other Securities of Japan. Participating shareholders must deposit certificates representing all of
the shares to be included in this clearing system with Japan Securities Depository Center, Inc., or
JASDEC. If a holder is not a participating institution in JASDEC, it must participate through a
participating institution, such as a securities company or bank having a clearing account with
JASDEC. All shares deposited with JASDEC will be registered in the name of JASDEC on NEC's register
of shareholders. Each participating shareholder will in turn be registered on NEC's register of
beneficial shareholders and be treated in the same way as shareholders registered on NEC's register
of shareholders. For the purpose of transferring deposited shares, delivery of share certificates
is not required. Entry of the share transfer in the books maintained by JASDEC for participating
institutions, or in the book maintained by a participating institution for its customers, has the
same effect as delivery of share certificates. The registered beneficial shareholders may exercise
the rights attached to the shares, such as voting rights, and will receive dividends, if any, and
notices to shareholders directly from NEC. The shares held by a person as a registered shareholder
and those held by the same person as a registered beneficial shareholder are aggregated for these
purposes. Beneficial shareholders may at any time withdraw their shares from deposit and receive
share certificates.
A new law to establish a new central clearing system for shares of listed companies and to
eliminate the issuance and use of certificates for such shares was promulgated in June 2004 and the
relevant part of the law will come into effect within five years of the date of the promulgation.
On the effective date, a new central clearing system will be established and the shares of all
Japanese companies listed on any Japanese stock exchange, including the shares of common stock of
NEC, will be subject to the new central clearing system. On the same day, all existing share
certificates will become null and void and the companies are not required to withdraw those share
certificates from shareholders. The transfer of such shares will be effected through entry in the
books maintained under the new central clearing system.
Authorized Capital
Article 5 of NEC's articles of incorporation provides that the total number of shares
authorized to be issued by NEC is 7,500,000,000 shares. As of March 31, 2005, 1,929,268,717 shares
of common stock were issued.
All shares of NEC's capital stock have no par value.
Table of Contents
Dividends
Dividends
– General
NEC's articles of incorporation provide that the accounts shall be closed on March 31 of each
year. Year-end cash dividends, if any, shall be paid to shareholders, beneficial shareholders, and
pledgees of record as of the end of such day. After the close of the fiscal period, the board of
directors prepares, among other things, a proposed allocation of profits for year-end dividends and
other purposes. This proposal is submitted to NEC's board of corporate auditors and to NEC's
independent certified public accountants, and then submitted for approval to the ordinary general
meeting of shareholders. This meeting is to be held in June each year.
Under the New Company Law, subject to certain limitations on the distributable surplus as
described below, dividends, if any, may be paid to shareholders, beneficial shareholders, and
pledgees of record as of a record date as set forth by NEC's articles of incorporation or as
determined by the board of directors from time to time. Dividends shall be paid by way of
distribution of surplus. Dividends may be distributed in cash or in kind. In distributing
dividends, NEC may determine the kind of assets to be distributed, the book value of such assets,
matters regarding allocation of such assets, and the effective date of such dividends, by a
resolution of a general meeting of shareholders. However, NEC may generally determine such matters
by a resolution of the board of directors if (a) NEC's articles of incorporation so provide, (b)
the term of its directors is set to be until the conclusion of the ordinary general meeting of
shareholders held with respect to the last closing of accounts within one year after the election
of such director, and (c) certain requirements regarding the financial statements and certain
documents of NEC as set forth in an ordinance of the Ministry of Justice are met; provided,
however, that when NEC is to make in-kind dividends without giving shareholders the right to
request payment of cash dividends in lieu of in-kind dividends, it shall determine such matters by
a Special Shareholders Resolution (as defined in "—Voting Rights"). When NEC makes payment of
dividends, it shall allocate such dividends in proportion to the number of shares of any specific
class held by each shareholder.
Dividends
– Interim cash dividends
In addition to year-end cash dividends, the board of directors may by its resolution declare
an interim cash dividend pursuant to Article 293-5 of the Commercial Code to shareholders,
beneficial shareholders, and pledgees. This interim dividend is paid to those who are registered
in NEC's register of shareholders or beneficial shareholders as of the end of each September 30,
without prior shareholders' approval, but subject to the limitations described below.
Under the New Company Law, notwithstanding the necessity of obtaining approval of general
meeting of shareholders in general under the New Company Law as described above, NEC is allowed to
make payment of interim dividends during a fiscal year by way of distribution of surplus by
resolution of the board of directors; provided, however, that such payment of interim dividends
shall be limited to cash dividends and also limited to once per fiscal year.
Dividends
–Legal reserve
The Commercial Code provides that a company may not make any distribution of profits by way of
year-end dividends or interim dividends for any fiscal period unless it has set aside in its legal
reserve an amount equal to at least 10% of the amount paid by way of appropriation of retained
earnings for such fiscal period or equal to 10% of the amount of such interim dividends until the
aggregate amount of additional paid-in capital and legal reserve is 25% of its stated capital.
The New Company Law provides that when a joint stock company like NEC makes distribution of
surplus, it shall set aside in its legal reserve an amount equal to 10% of the amount of the
surplus to be decreased as a result of such distribution of surplus in accordance with the
provisions set forth in an ordinance of the Ministry of Justice.
Dividends
– Distributable amount
Under the Commercial Code, NEC is permitted to distribute profits by way of year-end dividends
out of the excess of NEC's net assets, as it appears on NEC's non-consolidated balance sheet at the
last closing of NEC's accounts, over the aggregate of:
(i)
its stated capital;
(ii)
its additional paid-in capital;
(iii)
its accumulated legal reserve;
(iv)
the legal reserve to be set aside in respect of the fiscal period concerned; and
(v)
other amounts as provided for by an ordinance of the Ministry of Justice.
In the case of interim dividends, NEC is permitted to distribute profits out of the excess of
the net assets, as it appears on NEC's non-consolidated balance sheet at the last closing of NEC's
accounts, over the aggregate of the amounts stated in (i) through (iv) above plus:
(a)
the legal reserve to be set aside in respect of such interim dividends;
(b)
any subsequent payment made by appropriation of retained earnings;
(c)
any subsequent transfer of retained earnings to stated capital;
(d)
if NEC has been authorized, pursuant to a resolution adopted at an ordinary general
meeting of shareholders or by NEC's board of directors, to acquire NEC's shares (see " —
Acquisition by NEC of Its Own Common Stock"), the total amount of the purchase price of
those shares authorized by the resolution that may be paid by NEC; and
(e)
other amounts as provided for by an ordinance of the Ministry of Justice;
provided that (x) if NEC reduces the amount of NEC's stated capital, additional paid-in capital, or
accumulated legal reserve after the end of the last closing of NEC's accounts, the amount so
reduced, less the amount paid to shareholders upon such reduction and certain other amounts, and
(y) other amounts, as provided for by an ordinance of the Ministry of Justice, will be added to the
amount permitted to be distributed. Interim dividends may not be paid where there is a risk that at
the end of the fiscal year there might not be any excess of net assets over the aggregate of the
amounts referred to in (i) through (iv) above.
Under the New Company Law, NEC is permitted to make distribution of surplus to the extent that
the aggregate book value of the assets to be distributed to shareholders does not exceed the
Distributable Amount (as defined below) as at the effective date of such distribution of surplus.
Under the New Company Law, the Distributable Amount would include amounts incurred as a result of
certain events occurring after the end of NEC's last fiscal year. In addition, under the New
Company Law, NEC will be permitted to prepare extraordinary financial statements, or Extraordinary
Financial Statements, as of a certain date during the fiscal year immediately after NEC's last
fiscal year, or the Extraordinary Account Settlement Date, which must be audited by corporate
auditors and accounting auditors and approved by NEC's board of directors and, in certain cases,
the general meeting of shareholders of NEC. Once the Extraordinary Financial Statements are so
audited and approved, NEC can make adjustments to the Distributable Amount by adding net income or
by deducting loss for the period after the end of NEC's last fiscal year until the Extraordinary
Account Settlement Date.
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The amount of surplus at any given time shall be the amount of NEC's assets and the book value
of NEC's treasury stock after subtracting the amounts of the following items (1) through (4) as
they appear on NEC's non-consolidated balance sheet as at the end of NEC's last fiscal year, and
after reflecting the changes in NEC's surplus after the end of NEC's last fiscal year, by adding
the amounts of the following items (5), (6) and (7) and/or subtracting the amounts of the following
items (8), (9) and (10):
(1)
its liabilities;
(2)
its stated capital;
(3)
its additional paid-in capital and accumulated legal reserve;
(4)
other amounts as provided for by an ordinance of the Ministry of Justice;
(5)
(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock after subtracting the book value thereof;
(6)
(if NEC decreased its stated capital after the end of the last fiscal year) the amount of
decrease in its stated capital (excluding the amount transferred to the additional paid-in
capital or legal reserve);
(7)
(if NEC decreased its additional paid-in capital or legal reserve after the end of the last
fiscal year) the amount of decrease in its additional paid-in capital or legal reserve
(excluding the amount transferred to the stated capital);
(8)
(if NEC cancelled its treasury stock after the end of the last fiscal year) the book value
of its treasury stock so cancelled;
(9)
(if NEC distributed surplus to shareholders after the end of the last fiscal year) the
assets distributed to shareholders by way of such distribution of surplus; and
(10)
other amounts as provided for by an ordinance of the Ministry of Justice.
The Distributable Amount of NEC at any given time shall be the aggregate amount of (a) the
surplus, (b) (if NEC prepares Extraordinary Financial Statements) the amount of profit as recorded
for the period after the end of NEC's last fiscal year until the Extraordinary Account Settlement
Date as provided for in an ordinance of the Ministry of Justice and (c) (if NEC prepares
Extraordinary Financial Statements) the transfer price of its treasury stock in the same period,
after subtracting the amounts of the following items:
(1)
the book value of its treasury stock;
(2)
(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock;
(3)
(if NEC prepares Extraordinary Financial Statements) the losses as recorded for the period
after the end of NEC's last fiscal year until the Extraordinary Account Settlement Date as
provided for in an ordinance of the Ministry of Justice; and
(4)
other amounts as provided for by an ordinance of the Ministry of Justice.
Dividends
– Ex-dividend date and prescription
In Japan, the "ex-dividend" date and the record date for dividends precede the date of
determination of the amount of the dividend to be paid.
Under NEC's articles of incorporation, NEC does not have to pay any dividends which are left
unclaimed for a period of three years after the date on which they first became payable.
Dividends
– Liabilities
Under the Commercial Code, if NEC makes interim dividends and at the end of the fiscal year
there is no excess of net assets over the aggregate of the amounts referred to in (i) through (v)
in "
—
Dividends
—
Distributable amount" above, directors who have made such interim dividends shall
be jointly and severally liable to NEC for the smaller of the amount of such deficit or such
dividends unless such directors prove that they did not fail to exercise due care in determining
such interim dividends.
Under the New Company Law, in cases where the distribution of surplus was made, if the
aggregate amount of the following items (1), (2) and (3) as at the end of the relevant fiscal year
exceeds the amount of surplus, the directors who have distributed such dividends, shall be liable
to NEC for the smaller of such amount in excess or the amount of money or book value of such
distributed surplus unless such directors prove that they did not fail to exercise due care in
determining such distribution:
(1)
the book value of NEC's treasury stock;
(2)
(if NEC transferred its treasury stock after the end of the last fiscal year) the transfer
price of its treasury stock after the end of NEC's last fiscal year;
(3)
other amounts as provided for by an ordinance of the Ministry of Justice.
However, the directors shall not be liable to NEC for the distributions of surplus made
pursuant to the resolution of the ordinary general meeting of shareholders.
Stock Splits
NEC may at any time split shares in issue into a greater number of shares by resolution of the
board of directors, and may amend its articles of incorporation to increase the number of the
authorized shares to be issued to allow the stock split pursuant to a resolution of the board of
directors rather than a Special Shareholders Resolution (as defined in "
—
Voting Rights") which is
otherwise required for amending the articles of incorporation.
In the event of a stock split, generally, shareholders will not be required to exchange share
certificates for new share certificates, but certificates representing the additional shares
resulting from the stock split will be issued to shareholders. When a stock split is to be made,
NEC must give public notice of the stock split, specifying the record date therefor, at least two
weeks prior to such record date. In addition, promptly after the stock split takes effect, NEC must
give notice to each shareholder specifying the number of shares to which such shareholder is
entitled by virtue of the stock split. After the New Company Law becomes effective, no such notice
to each shareholder is required.
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Consolidation of Shares
NEC may at any time consolidate shares in issue into a smaller number of shares by a Special
Shareholders Resolution (as defined in " — Voting Rights"). When a consolidation of shares is to be
made, NEC must give public notice and notice to each shareholder that, within a period of not less
than one month specified in the notice, share certificates must be submitted to NEC for exchange.
NEC must disclose the reason for the consolidation of shares at the general meeting of
shareholders.
General Meetings of Shareholders
NEC's ordinary general meeting of shareholders is held every June in Tokyo, Japan. The record
date for an ordinary general meeting of shareholders is March 31 of each year. In addition, NEC may
hold an extraordinary general meeting of shareholders whenever necessary by giving at least two
weeks' advance notice to shareholders.
Notice of convocation of a general meeting of shareholders setting forth the place, time, and
purpose thereof, must be mailed to each shareholder having voting rights (or, in the case of a
non-resident shareholder, to his or her standing proxy or mailing address in Japan) at least two
weeks prior to the date set for the meeting. Such notice may be given to shareholders by electronic
means, subject to the consent by the relevant shareholders.
Any shareholder or group of shareholders holding at least 3% (or, when the New Company Law
becomes effective and in the event that NEC's articles of incorporations provide for a percentage
lower than 3%, such percentage) of the total number of voting rights for a period of six months
(or, when the New Company Law becomes effective and in the event that NEC's articles of
incorporations provide for a period shorter than six months, such period) or more may require the
convocation of a general meeting of shareholders for a particular purpose. Unless such general
meeting of shareholders is convened promptly or a convocation notice of a meeting which is to be
held not later than eight weeks (or, when the New Company Law becomes effective and in the event
that NEC's articles of incorporations provide for a period shorter than eight weeks, such period)
from the day of such demand is dispatched, the requiring shareholder may, upon obtaining a court
approval, convene such general meeting of shareholders.
Any shareholder or group of shareholders holding at least 300 (or, when the New Company Law
becomes effective and in the event that NEC's articles of incorporations provide for a number less
than 300, such number) voting rights or 1% (or, when the New Company Law becomes effective and in
the event that NEC's articles of incorporations provide for a percentage lower than 1%, such
percentage) of the total number of voting rights for a period of six months (or, when the New
Company Law becomes effective and in the event that NEC's articles of incorporations provide for a
period shorter than six months, such period) or more may propose a matter to be considered at a
general meeting of shareholders by submitting a written request to a representative director at
least eight weeks (or, when the New Company Law becomes effective and in the event that NEC's
articles of incorporations provide for a period shorter than eight weeks, such period) prior to the
date set for such meeting.
Voting Rights
So long as NEC maintains the unit share system (currently 1,000 shares constitute one unit), a
holder of shares constituting one or more units is entitled to one vote for each such unit of
shares, subject to the limitations on votes set forth in the following two sentences. See " — Unit
Share System." A corporate shareholder, more than one-quarter of whose total voting rights are
directly or indirectly owned by NEC (or when the New Company Law becomes effective, management of
which is being controlled in substance by NEC as provided for by an ordinance of the Ministry of
Justice), may not exercise its voting rights with respect to shares of NEC's common stock that it
owns. In addition, NEC may not exercise voting rights with respect to its treasury shares. If NEC
eliminates from its articles of incorporation the provisions relating to the unit of shares,
holders of common stock will have one vote for each share held by them. Except as otherwise
provided by law or by NEC's articles of incorporation, a resolution can be adopted at a general
meeting of shareholders by a majority of the number of voting rights of all the shareholders
represented at the meeting. The Commercial Code (or when the New Company Law becomes effective, the
New Company Law) and NEC's articles of incorporation provide, however, that the quorum for the
election of board members and corporate auditors shall not be less than one-third of the total
number of voting rights of all the shareholders. NEC's shareholders are not entitled to cumulative
voting in the election of board members. Shareholders may cast their vote in writing and may also
exercise their voting rights through proxies, provided that the proxies are also shareholders
holding voting rights. Pursuant to the Commercial Code (or when the New Company Law becomes
effective, the New Company Law) and a resolution of the board of directors, NEC's shareholders may
also exercise their voting rights by electronic means.
The Commercial Code (or when the New Company Law becomes effective, the New Company Law) and
NEC's articles of incorporation provide that in order to amend the articles of incorporation and in
certain other instances, including:
(1)
acquisition of its own shares from specific persons;
(2)
consolidation of shares;
(3)
any offering of new shares at a "specially favorable" price (or any offering of stock
acquisition rights to subscribe for or acquire shares of capital stock, or bonds with stock
acquisition rights at "specially favorable" conditions) to any persons other than
shareholders;
(4)
the removal of a board member or corporate auditor (when the New Company Law becomes
effective, the removal of a board member who is elected by cumulative voting);
(5)
the exemption of liability of a board member or corporate auditor with certain
exceptions;
(6)
a reduction of stated capital (when the New Company Law becomes effective, with certain
exceptions in which a shareholders' resolution is not required);
(7)
(when the New Company Law becomes effective ) a distribution of surplus other than
dividends which meets certain requirements;
(8)
dissolution, merger, or consolidation with certain exceptions in which a shareholders'
resolution is not required;
(9)
the transfer of the whole or a material part of the business;
(10)
the taking over of the whole of the business of any other corporation with certain
exceptions in which a shareholders' resolution is not required;
(11)
share exchange or share transfer for the purpose of establishing 100% parent-subsidiary
relationships with certain exceptions in which a shareholders' resolution is not required;
or
(12)
separating of the corporation into two or more corporations with certain exceptions in
which a shareholders' resolution is not required,
the quorum shall be one-third of the total voting rights of all the shareholders and the
approval by at least two-thirds (or, when the New Company Law becomes effective and in the event
that NEC's articles of incorporations provide for a percentage more than two-thirds, such
percentage) of the voting rights of all the shareholders represented at the meeting is required (in
addition, when the New Company Law becomes effective and in the event that NEC's articles of
incorporation provide that the approval by certain number of shareholders is required, such
approval is also required), or a Special Shareholders Resolution.
Exemptions from the Listing Standards for Quorum and Shareholder Approval
Pursuant to home country practice exemptions granted by the NASDAQ, NEC is permitted to follow
the following corporate governance practices complying with Japanese laws, regulations and stock
exchange rules in lieu of the NASDAQ Rules.
NASDAQ Rule 4350(f) requires each issuer to provide for a quorum as specified in its by-laws
for any meeting of the holders of common stock, which shall in no case be less than 33 1/3% of the
outstanding shares of a company's common voting stock.
Consistent with the Commercial Code and generally accepted business practices in Japan, NEC's
articles of incorporation provide that except as otherwise provided by law or by its articles of
incorporation, a resolution can be adopted at a general meeting of shareholders by a majority of
votes of all the shareholders represented at the meeting with no quorum requirement.
NASDAQ Rule 4350(i) requires each issuer to obtain shareholder approval prior to the issuance
of certain designated securities. However, under the Commercial Code, as provided in item (3)
above, regardless of the purpose of the issuance, shareholder approval is required only in the
cases of issuance of shares at a "specially favorable" price or of stock acquisition rights or
bonds with stock acquisition rights at "specially favorable" conditions, except where such shares,
stock acquisition rights or bonds with stock acquisition rights are granted to all of its
shareholders on a pro rata basis. Such shareholder approval must be obtained by a Special
Shareholders Resolution. Accordingly, so far as the issue price or exercise conditions are not
specially favorable, shareholder approval is not required under the Commercial Code for the matters
specified in NASDAQ Rule 4350(i). NEC's practices taken in connection with such matters are
consistent with the Commercial Code.
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Issue of Additional Shares and Preemptive Rights
Holders of NEC's shares of common stock have no preemptive rights under its articles of
incorporation. Authorized but unissued shares may be issued at such times and upon such terms as
the board of directors determines, subject to the limitations as to the offering of new shares at a
"specially favorable" price mentioned under " —
Voting Rights . " The board of directors may,
however, determine that shareholders shall be given subscription rights regarding a particular
issue of new shares, in which case such rights must be given on uniform terms to all shareholders
as at a record date of which not less than two weeks' prior public notice must be given. Each of
the shareholders to whom such rights are given must also be given notice of the expiry thereof at
least two weeks prior to the date on which such rights expire.
Rights to subscribe for new shares may be made generally transferable by the board of
directors. Whether NEC will make subscription rights generally transferable in future rights
offerings will depend upon the circumstances at the time of such offerings.
Subject to certain requirements, NEC may issue stock acquisition rights by a resolution of the
board of directors. Holders of stock acquisition rights may exercise their rights to acquire a
certain number of shares within the exercise period as prescribed in the terms of their stock
acquisition rights. Upon exercise of stock acquisition rights, NEC will be obliged to issue the
relevant number of new shares or alternatively to transfer the necessary number of treasury shares
held by it.
In cases where a particular issue of new shares or stock acquisition rights (i) violates laws
and regulations or NEC's articles of incorporation, or (ii) will be performed in a manner
materially unfair, and shareholders may suffer disadvantages therefrom, such shareholder may file
an injunction to enjoin such issue with a court of law.
Liquidation Rights
In the event of NEC's liquidation, the assets remaining after payment of all debts and
liquidation expenses and taxes will be distributed among the shareholders in proportion to the
respective number of shares held.
Liability to Further Calls or Assessments
All of NEC's presently issued shares of common stock are fully paid and non-assessable.
Transfer Agent
The Sumitomo Trust & Banking Co., Ltd. is the transfer agent for NEC's shares of common stock.
As such transfer agent, it keeps NEC's register of shareholders and beneficial shareholders in its
office at 4-4, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8233, Japan, and transfers record
ownership upon presentation of the certificates representing the transferred shares.
Record Date
March 31 is the record date for NEC's year-end dividends, if declared. So long as NEC
maintains the unit share system, the shareholders and beneficial shareholders who are registered as
the holders of one or more whole units of shares in NEC's register of shareholders and/or
beneficial shareholders at the end of each March 31 are also entitled to exercise shareholders'
rights at the ordinary general meeting of shareholders with respect to the fiscal year ending on
that March 31. September 30 is the record date for interim dividends, if declared. In addition, NEC
may set a record date for determining the shareholders and beneficial shareholders entitled to
other rights and for other purposes by giving at least two weeks' prior notice.
The price of shares generally goes ex-dividend or ex-rights on Japanese stock exchanges on the
third business day prior to a record date for the purpose of dividends or rights offerings. If the
record date is not a business day, this occurs on the fourth business day prior to a record date.
Acquisition by NEC of Its Own Common Stock
NEC may acquire its own shares: (a) through the stock exchanges on which NEC's shares are
listed or by way of tender offer, pursuant to an ordinary resolution at an ordinary general meeting
of shareholders or a resolution of the board of directors; (b) by purchase from a specific person
other than a subsidiary of NEC, pursuant to a Special Shareholders Resolution at an ordinary
general meeting of shareholders; or (c) by purchase from a subsidiary of NEC, pursuant to a
resolution of the board of directors. Under the New Company Law, not only ordinary general meetings
of shareholders but also extraordinary general meetings of shareholders will be able to approve the
acquisition by NEC of its own shares in the cases of (a) and (b) above.
If NEC purchases its shares pursuant to a resolution of NEC's board of directors in the case
of (a) above, then NEC must report to its shareholders the reason for the purchase and the kind and
number of shares and the aggregate purchase price of such shares at the following ordinary general
meeting of shareholders that is held after such purchase of shares. When NEC acquires shares from a
specific party other than a subsidiary of NEC, any shareholder may make a request directly to NEC
in writing not later than five days prior to the date set for the relevant general meeting of
shareholders to include him/her as the seller of his/her shares in the proposed purchase. However,
under the New Company Law, the acquisition of its own shares at a price not exceeding the then
market price to be provided under an ordinance of the Ministry of Justice will not trigger the
right of any shareholder to include him/her as the seller of his/her shares in such proposed
purchase.
Any such acquisition of shares must satisfy specified requirements, including the requirement
that, in cases where the acquisition is made pursuant to a resolution at an ordinary general
meeting of shareholders, the total amount of the purchase price may not exceed the sum of the
amount of retained earnings available for year-end dividend payment after taking into account any
reduction of the stated capital, additional paid-in capital or legal reserve (if the reduction of
the stated capital, additional paid-in capital, or legal reserve is authorized at the same ordinary
general meeting of shareholders), less the sum of the amount to be paid by way of appropriation of
retained earnings and any transfer of retained earnings to stated capital with respect to the
relevant fiscal year pursuant to a resolution of the same ordinary general meeting of shareholders.
If NEC purchases its shares pursuant to a resolution of the board of directors, the total amount of
the purchase price may not exceed the amount of retained earnings available for interim dividends
payment less the amount of any interim dividend that NEC actually paid. However, if it is
anticipated that the net assets on the non-consolidated balance sheet as at the end of the relevant
fiscal year will be less than the aggregate amount of the stated capital, additional paid-in
capital, and other items as described in (i) through (v) in " — Dividends
—
Distributable amount,"
NEC may not acquire such shares. Under the New Company Law, the restriction on the source of funds
for the acquisition by NEC of its own shares will be integrated into those for the distribution of
surplus to the shareholders. See " — Dividends."
Shares acquired by NEC may be held by NEC for any period or may be cancelled by a resolution
of the board of directors. NEC may also transfer to any person the shares held by it, subject to a
resolution of the board of directors, and subject also to other requirements similar to those
applicable to the issuance of new shares, as described in " — Issue of Additional Shares and
Preemptive Rights . "
NEC may also utilize its treasury shares (x) for the purpose of transfer to any person upon
exercise of stock acquisition rights or (y) for the purpose of acquiring another company by way of
merger, share exchange, or corporate split through exchange of treasury stock for shares or assets
of the acquired company.
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Unit Share System
NEC's articles of incorporation provide that 1,000 shares constitute one unit. Although the
number of shares constituting a unit is specified in NEC's articles of incorporation, any amendment
to NEC's articles of incorporation reducing (but not increasing) the number of shares constituting
a unit or eliminating the provisions for the unit of shares may be made by a resolution of the
board of directors rather than by a Special Shareholders Resolution, which is otherwise required
for amending the articles of incorporation. The number of shares constituting one unit, however,
cannot exceed 1,000 or one two-hundredth (1/200) of all issued shares.
Under the unit share system, shareholders shall have one voting right for each unit of shares
that they hold. Any number of shares less than a full unit will carry no voting rights.
Unless NEC's shareholders amend the articles of incorporation by a Special Shareholders
Resolution to eliminate the provision not to issue share certificates for less than a unit of
shares, a share certificate for any number of shares less than a unit will in general not be
issued. As the transfer of shares normally requires the delivery of the share certificates
therefor, any fraction of a unit for which no share certificates are issued is not transferable.
A holder of shares constituting less than a full unit will be able to require NEC to purchase
those shares at their market value in accordance with the provisions of NEC's share handling
regulations.
NEC's articles of incorporation provide that a holder of shares constituting less than one
unit may request that NEC sell to such holder such amount of shares which will, when added together
with the shares constituting less than one unit, constitute one unit of shares, in accordance with
the provisions of NEC's share handling regulations.
A holder who owns ADRs evidencing less than 1,000 ADSs will indirectly own less than a whole
unit. Because a transfer of ADRs does not require a change in the ownership of the underlying
shares, holders of ADRs evidencing ADSs that constitute less than one unit of common stock are not
affected by such restrictions in their ability to transfer such ADRs. However, a transfer of less
than one unit of the underlying shares is normally impractical under the unit share system. Thus
under the deposit agreement relating to the ADRs, the right of ADR holders to surrender their ADRs
and withdraw the underlying shares for sale in Japan may only be exercised with whole units of
common stock. Under the unit share system, holders of less than a unit have the right to require
NEC to purchase their shares or sell shares held by NEC to such holders as described above.
However, holders of ADRs evidencing ADSs that represent amounts other than integral multiples of
whole units are unable to withdraw the underlying shares representing less than one unit.
Therefore, they are unable, as a practical matter, to exercise the right to require NEC to purchase
such underlying shares or sell shares held by NEC to such holders. As a result, access to the
Japanese markets by holders of ADRs through the withdrawal mechanism will not be available for
dispositions of shares in lots of less than one unit.
Sale by NEC of Shares Held by Shareholders Whose Location is Unknown
NEC is not required to send a notice to a shareholder if notices to such shareholder fail to
arrive for a continuous period of five or more years at the registered address of such shareholder
in NEC's register of shareholders or at the address otherwise notified to NEC.
In addition, NEC may sell or otherwise dispose of the shares held by a shareholder whose
location is unknown. Generally, if (a) notices to a shareholder fail to arrive for a continuous
period of five or more years at the shareholder's registered address in NEC's register of
shareholders or at the address otherwise notified to NEC and (b) the shareholder fails to receive
dividends on the shares for a continuous period of five or more years at the address registered in
NEC's register of shareholders or at the address otherwise notified to NEC, NEC may sell or
otherwise dispose of the shareholder's shares at the then market price by a resolution of the board
of directors after giving at least three months' prior public and individual notice, and hold or
deposit the proceeds of such sale or disposal for the shareholder.
Reporting of Substantial Shareholders
The Securities and Exchange Law of Japan and its related regulations require any person,
regardless of residence, who has become, beneficially and solely or jointly, a holder of more than
5% of the total issued share of capital stock of a company that is listed on any Japanese stock
exchange, or whose shares are traded on an over-the-counter market in Japan, to file a report with
the Director of the competent Local Finance Bureau of the Ministry of Finance within five business
days. With certain exceptions, a similar report must also be filed in respect of any subsequent
change of 1% or more in the holding or of any change in material matters set out in any
previously-filed reports. For this purpose, shares issuable to such person upon conversion of
convertible securities or exercise of share subscription warrants or stock acquisition rights are
taken into account in determining both the number of shares held by the holder and the issuer's
total issued shares of capital stock. Copies of each report must also be furnished to the issuer of
the shares and to all Japanese stock exchanges on which the shares are listed.
Others
Except for the general limitations under Japanese anti-trust and anti-monopoly regulations
against holding of shares of capital stock of a Japanese corporation which leads or may lead to a
restraint of trade or monopoly, and except for general limitations under the Commercial Code or
NEC's articles of incorporation on the rights of shareholders applicable regardless of residence or
nationality, there is no limitation under Japanese laws and regulations applicable to NEC or under
its articles of incorporation on the rights of non-resident or foreign shareholders to hold the
shares of common stock of NEC or to exercise voting rights.
There is no provision in NEC's articles of incorporation that would have an effect of
delaying, deferring or preventing a change in control of NEC and that would operate only with
respect to merger, consolidation, acquisition or corporate restructuring involving NEC.
C. Material Contracts.
All contracts entered into by us during the two-year period preceding the date of this annual
report were entered into in the ordinary course of business.
D. Exchange Controls.
The Foreign Exchange and Foreign Trade Law of Japan and its related cabinet order and
ministerial ordinances, or the Foreign Exchange Regulations, govern the acquisition and holding of
shares of NEC's capital stock by "exchange non-residents" and by "foreign investors." The Foreign
Exchange Regulations currently in effect do not, however, affect transactions between exchange
non-residents to purchase or sell shares outside Japan using currencies other than Japanese yen.
Exchange non-residents are:
•
individuals who do not reside in Japan; and
•
corporations whose principal offices are located outside of Japan.
Generally, branches and other offices of non-resident corporations that are located within
Japan are regarded as residents of Japan. Conversely, branches and other offices of Japanese
corporations located outside Japan are regarded as exchange non-residents.
Foreign investors are:
•
individuals who are exchange non-residents;
•
corporations that are organized under the laws of foreign countries or
whose principal offices are located outside of Japan; and
•
corporation (1) of which 50% or more of their shares are held by
individuals who are exchange non-residents and/or corporations (a)
that are organized under the law of foreign countries or (b) whose
principal offices are located outside of Japan or (2) a majority of
whose officers, or officers having the power of representation, are
individuals who are exchange non-residents.
In general, the acquisition of shares of a Japanese company, such as the shares of NEC's
common stock, by an exchange non-resident from a resident of Japan is not subject to any prior
filing requirements. In certain limited circumstances, however, the Minister of Finance may require
prior approval of an acquisition of this type. While prior approval, as described above, is not
required in general, in the case where a resident of Japan transfers shares of a Japanese company,
such as the shares of NEC's common stock, to an exchange non-resident, the resident of Japan who
transfers the shares for consideration exceeding ¥100 million is required to report the transfer to
the Minister of Finance within 20 days from the date of the transfer, unless the transfer was made
through a bank, securities company or financial futures trader licensed under Japanese law.
If a foreign investor acquires shares of a Japanese company that is listed on a Japanese stock
exchange, such as the shares of NEC's common stock, and, as a result of the acquisition, the
foreign investor, in combination with any existing holdings, directly or indirectly holds 10% or
more of the issued shares of the relevant company, the foreign investor must file a report of the
acquisition with the Minister of Finance and any other competent Ministers having jurisdiction over
that Japanese company within 15 days from and including the date of the acquisition, except where
the offering of the company's shares was made overseas. In limited circumstances, such as where the
foreign investor is in a country that is not listed on an exemption schedule in the Foreign
Exchange Regulations, a prior notification of the acquisition must be filed with the Minister of
Finance and any other competent Ministers, who may then modify or prohibit the proposed
acquisition.
Under the Foreign Exchange Regulations, dividends paid on and the proceeds from sales in Japan
of shares of NEC's common stock held by non-residents of Japan may generally be converted into any
foreign currency and repatriated abroad.
Table of Contents
E. Taxation.
The discussion below is intended for general information only and does not constitute a
complete analysis of all tax consequences relating to the ownership of shares of common stock of
NEC or ADSs. Prospective purchasers of the shares of common stock of NEC or ADSs should consult
their own tax advisors concerning the tax consequences of their particular situations.
The following is a general summary of the principal U.S. federal income and Japanese national
tax consequences of the acquisition, ownership and disposition of the shares of common stock of NEC
or ADSs. This summary does not address any aspects of U.S. federal tax law other than income
taxation, and does not discuss any aspects of Japanese tax law other than such income taxation as
limited to national taxes and inheritance and gift taxation. Investors are urged to consult their
tax advisors regarding the U.S. federal, state and local and Japanese and other tax consequences of
acquiring, owning and disposing of the shares of common stock of NEC or ADSs. Also, this summary
does not purport to address all the material tax consequences that may be relevant to the holders
of the shares of common stock of NEC or ADSs, and does not take into account the specific
circumstances of any particular investors, some of which (such as tax-exempt entities, banks,
insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market
method of accounting for their securities holdings, regulated investment companies, real estate
investment trusts, partnerships and other pass-through entities, investors liable for alternative
minimum tax, investors that own or are treated as owning 10% or more of NEC's voting stock,
investors that hold the shares of common stock of NEC or ADSs as part of a straddle, hedge,
conversion or constructive sale transaction or other integrated transaction, and U.S. Holders (as
defined below) whose functional currency is not the U.S. dollar) may be subject to special tax
rules. This summary is based on the tax laws and regulations of Japan, the U.S. Internal Revenue
Code of 1986, as amended, or the Code, and the Treasury Regulations thereunder, judicial decisions,
published rulings, and administrative pronouncements, all as in effect on the date hereof, as well
as on the current income tax convention between the United States and Japan, or the Treaty, all of
which are subject to change (possibly with retroactive effect), and/or to differing
interpretations.
In addition, this summary is based in part upon the representations of the depositary and the
assumption that each obligation in the deposit agreement, and in any related agreement, will be
performed under its terms.
For purposes of this discussion, a "U.S. Holder" is any beneficial owner of the shares of
common stock of NEC or ADSs that is for U.S. federal income tax purposes:
(1)
an individual citizen or resident of the United States,
(2)
a corporation (or other entity taxable as a corporation for U.S. federal income tax
purposes) organized in or under the laws of the United States or any political subdivision
thereof,
(3)
an estate the income of which is subject to U.S. federal income tax without regard to
its source, or
(4)
a trust (A) the administration of which is subject to the primary supervision of a
U.S. court and that has one or more U.S. persons who have the authority to control all
substantial decisions of the trust; or (B) that has validly elected to be treated as a
U.S. person for U.S. federal income tax purposes under applicable Treasury Regulations.
If a partnership or other pass-through entity holds shares of common stock or ADSs, the tax
treatment of a partner in or owner of the partnership or pass-through entity will generally depend
upon the status of the partner or owner and the activities of the entity. We urge partners and
owners of partnerships or other pass-through entities holding shares of common stock or ADSs to
consult their own tax advisors.
An "Eligible U.S. Holder" is a U.S. Holder that:
(1)
is a resident of the United States for purposes of the Treaty,
(2)
does not maintain a permanent establishment in Japan (a) with which the shares of
common stock of NEC or ADSs are effectively connected or (b) of which the shares of common
stock of NEC or ADSs form part of the business property, and
(3)
is eligible for benefits under the Treaty with respect to income and gain derived in
connection with the shares of common stock of NEC or ADSs.
A "Non-U.S. Holder" is any beneficial owner of the shares of common stock of NEC or ADSs that
is not a U.S. Holder.
In general, for purposes of the Treaty and for U.S. federal income and Japanese income tax
purposes, owners of ADRs evidencing ADSs will be treated as the owners of the shares of common
stock of NEC represented by those ADSs, and exchanges of the shares of common stock of NEC for
ADSs, and exchanges of ADSs for the shares of common stock of NEC, will not be subject to U.S.
federal income or Japanese income tax.
Japanese Taxation
The following is a summary of the principal Japanese tax consequences (limited to national
taxes) to holders of the shares of common stock of NEC and of ADRs evidencing ADSs representing the
shares of common stock of NEC who are either individuals who are not residents of Japan or
non-Japanese corporations, without a permanent establishment in Japan, or non-resident Holders.
Generally, a non-resident of Japan or a non-Japanese corporation is subject to Japanese
withholding tax on dividends paid by Japanese corporations. Stock splits in themselves are not
subject to Japanese income tax.
In the absence of an applicable tax treaty, convention or agreement reducing the maximum rate
of Japanese withholding tax or allowing exemption from Japanese withholding tax, the rate of
Japanese withholding tax applicable to dividends paid by Japanese corporations to individuals who
are non-residents of Japan or non-Japanese corporations is 20%. With respect to dividends paid on
listed shares issued by a Japanese corporation (such as the shares of common stock of NEC) to any
corporate or individual shareholders (including those shareholders who are non-Japanese
corporations or Japanese non-resident individuals, such as non-resident Holders), except for any
individual shareholder who holds 5% or more of the total issued shares of the relevant Japanese
corporation, the aforementioned 20% withholding tax rate is reduced to (i) 7% for dividends due and
payable on or before March 31, 2008, and (ii) 15% for dividends due and payable on or after April
1, 2008. At the date of this annual report, Japan has income tax treaties, conventions or
agreements whereby the above-mentioned withholding tax rate is reduced, in most cases to 15% for
portfolio investors with, among other countries, Australia, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Norway, Singapore,
Spain, Sweden, Switzerland, and the U.K.
Under the Treaty, the maximum rate of Japanese withholding tax which may be imposed on
dividends paid by a Japanese corporation to an Eligible U.S. Holder that is a portfolio investor is
generally limited to 10% of the gross amount actually distributed, and dividends paid by a Japanese
corporation to an Eligible U.S. Holder that is a pension fund is exempt from Japanese taxation by
way of withholding or otherwise unless such dividends are derived from the carrying on of a
business, directly or indirectly, by such pension fund.
If the maximum tax rate provided for in the income tax treaty applicable to dividends paid by
NEC to any particular non-resident Holder is lower than the withholding tax rate otherwise
applicable under Japanese tax law or any particular non-resident Holder is exempt from Japanese
income tax with respect to such dividends under the income tax treaty applicable to such particular
non-resident Holder, such non-resident Holder who is entitled to a reduced rate of or exemption
from Japanese withholding tax on payment of dividends on the shares of common stock by NEC is
required to submit an Application Form for Income Tax Convention Regarding Relief from Japanese
Income Tax on Dividends in advance through NEC to the relevant tax authority before the payment of
dividends. A standing proxy for non-resident Holders of a Japanese corporation may provide this
application service. With respect to ADSs, this reduced rate or exemption is applicable if the
depositary or its agent submits two application forms (one before payment of dividends, the other
within eight months after NEC's fiscal year-end or semi-fiscal year-end). To claim this reduced
rate or exemption, any relevant non-resident Holder of ADSs will be required to file a proof of
taxpayer status, residence and beneficial ownership (as applicable) and to provide other
information or documents as may be required by the depositary. A non-resident Holder who is
entitled, under an applicable income tax treaty, to a reduced treaty rate lower than the
withholding tax rate otherwise applicable under Japanese tax law or an exemption from the
withholding tax, but failed to submit the required application in advance will be entitled to claim
the refund of withholding taxes withheld in excess of the rate under an applicable tax treaty (if
such non-resident Holder is entitled to a reduced treaty rate under the applicable income tax
treaty) or the whole of the withholding tax withheld (if such non-resident Holder is entitled to an
exemption under the applicable income tax treaty) from the relevant Japanese tax authority.
Gains derived from the sale of the shares of common stock of NEC or ADSs outside Japan by a
non-resident Holder holding such shares of common stock of NEC or ADSs as portfolio investors are,
in general, not subject to Japanese income or corporation tax. Eligible U.S. Holders are not
subject to Japanese income or corporation tax with respect to such gains under the Treaty.
Japanese inheritance and gift taxes at progressive rates may be payable by an individual who
has acquired the shares of common stock of NEC or ADSs as a legatee, heir or donee even though
neither the individual nor the deceased nor donor is a Japanese resident.
Holders of the shares of common stock of NEC or ADSs should consult their tax advisors
regarding the effect of these taxes and, in the case of U.S. Holders, the possible application of
the Estate and Gift Tax Treaty between the U.S. and Japan.
Table of Contents
United States Federal Income Tax
The following sets forth a summary of U.S. federal income tax consequences of the acquisition,
ownership, and disposition of shares of common stock or ADSs by a U.S. Holder. We have not
requested, and will not request, a ruling from the U.S. Internal Revenue Service, or the IRS, with
respect to any of the U.S. federal income tax consequences described below, and, as a result, there
can be no assurance that the IRS will not disagree with or will not challenge any of the
conclusions we have reached and described herein. The following description is not a complete
analysis or description of all potential U.S. federal income tax consequences to a particular U.S.
Holder. It does not address any estate or gift tax consequences or any tax consequences under any
state, local, foreign or other tax law of an investment in shares or ADSs other than as provided in
"—Japanese Taxation." This description addresses only shares or ADSs held as capital assets within
the meaning of Section 1221 of the Code.
As noted above, if the obligations of the depositary are performed in accordance with the
terms of the deposit agreement relating to the ADRs, owners of ADRs evidencing ADSs will be treated
as the owners of the shares of common stock represented by those ADSs. The U.S. Department of
Treasury, or the U.S. Treasury, has expressed concerns that parties to whom ADSs are pre-released
may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S.
Holders of ADSs. Accordingly, the discussion on the creditability of Japanese taxes described
below could be affected by future actions that may be taken by the U.S. Treasury.
Special adverse U.S. federal income tax rules apply if a U.S. Holder holds shares or ADSs of a
company that is treated as a "passive foreign investment company," a "foreign personal holding
company" (for 2004 and earlier years) or a "controlled foreign corporation" for any
taxable year during which the U.S. Holder held shares or ADSs. We believe that we are not and will
not become a "passive foreign investment company," a "foreign personal holding company" (for 2004
and earlier years) or a "controlled foreign corporation" for U.S. federal income tax purposes.
We urge potential holders to consult their own tax advisors with respect to the particular
consequences to them under U.S. federal, state, local and applicable foreign tax laws of the
acquisition, ownership and disposition of shares of common stock or ADSs.
Taxation of Dividends
U.S. Holders must include in gross income the gross amount of any distributions received with
respect to shares or ADSs (before reduction for Japanese withholding taxes) to the extent paid out
of NEC's current or accumulated earnings and profits (as determined for U.S. federal income tax
purposes) as ordinary income in their gross income. The amount of distribution of property other
than cash will be the fair market value of such property on the date of the distribution.
Dividends received by a U.S. Holder will not be eligible for the "dividends-received deduction"
allowed to U.S. corporations in respect to dividends received from other U.S. corporations. To the
extent that an amount received by a U.S. Holder exceeds such Holder's allocable share of our
current and accumulated earnings and profits, such excess will be applied first to reduce such U.S.
Holder's tax basis in its shares, thereby increasing the amount of gain or decreasing the amount of
loss recognized on a subsequent disposition of the shares. Then, to the extent such distribution
exceeds such U.S. Holder's tax basis, such excess will be treated as capital gain. The amount of
the dividend will be the U.S. dollar value of the Japanese yen payments received, determined at the
spot Japanese yen/U.S. dollar rate on the date the dividend is received by the depositary in the
case of U.S. Holders of ADSs, or by the shareholder in the case of U.S. Holders of shares of common
stock, regardless of whether the dividend payment is in fact converted into U.S. dollars at that
time. If the Japanese yen received as a dividend are not converted into U.S. dollars on the date
of receipt, a U.S. Holder will have a basis in such Japanese yen equal to their U.S. dollar value
on the date of receipt, and any foreign currency gains or losses resulting from the conversion of
the Japanese yen will generally be treated as U.S. source ordinary income or loss.
Subject to certain limitations, the Japanese tax withheld will be creditable against the U.S.
Holder's U.S. federal income tax liability. See "—Japanese Taxation" for a discussion of how to
obtain the reduced withholding tax rate. For foreign tax credit limitation purposes, the dividend
will be income from sources without the United States. The limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income. For this purpose,
dividends we pay will constitute "passive income" or, in the case of certain U.S. Holders,
"financial services income" for taxable years beginning before January 1, 2007. For taxable years
beginning after December 31, 2006, dividends generally will be "passive category income" or
"general category income" for purposes of computing the foreign tax credit allowable to a U.S.
Holder.
The Jobs and Growth Tax Relief Reconciliation Act of 2003, or the Act, affects the taxation of
dividends. The Act eliminates the tax rate difference between "qualified dividends" and capital
gains for U.S. individual investors. Qualified dividends include dividends received from both
domestic corporations and "qualified foreign corporations." Qualified foreign corporations include
those corporations eligible for the benefits of a comprehensive income tax treaty with the United
States; both the Prior Treaty and the New Treaty are such treaties. Therefore, we believe that NEC
is a qualified foreign corporation and that dividends received by U.S. investors with respect to
shares of common stock or ADSs of NEC will be qualified dividends. Note that these provisions do
not affect dividends received by non-U.S. investors.
Taxation of Capital Gains
Upon a sale or other disposition of shares of common stock or ADSs, a U.S. Holder will
recognize gain or loss in an amount equal to the difference between the U.S. dollar value of the
amount realized and the U.S. Holder's tax basis (determined in U.S. dollars) in such shares of
common stock or ADSs. Generally, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if the U.S. Holder's holding period for such shares of common stock
or ADSs exceeds one year. A U.S. Holder's adjusted tax basis in its shares or ADSs will generally
be the cost to the holder of such shares of common stock or ADSs. Any gain or loss realized by a
U.S. Holder upon a disposition of shares of common stock or ADSs will be income or loss from
sources within the U.S. for foreign tax credit limitation purposes.
Information Reporting and Backup Withholding
Dividends paid on shares of common stock or ADSs to a U.S. Holder, or proceeds from a U.S.
Holder's sale, exchange or other disposition of shares of common stock or ADSs, may be subject to
information reporting requirements. Those dividends or proceeds from sale or disposition may also
be subject to backup withholding unless the U.S. Holder:
•
is a corporation or comes within certain other categories or exempt recipients, and, when required, demonstrates this fact; or
•
provides a correct taxpayer identification number on a properly completed Form W-9 or substitute form, certifies that the
U.S. Holder is not subject to backup withholding, and otherwise complies with applicable requirements of the backup
withholding rules.
Any amount withheld under these rules will be creditable against the U.S. Holder's U.S.
federal income tax liability or refundable to the extent that it exceeds such liability if the U.S.
Holder provides the required information to the IRS. If a U.S. holder is required to and does not
provide a correct taxpayer identification number, the U.S. Holder may be subject to penalties
imposed by the IRS.
Table of Contents
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of our business, we are exposed to risks from fluctuations in foreign
currency exchange rates, interest rates, and the prices of our marketable securities. In order to
reduce risks in fluctuations in foreign currency exchange rates and interest rates, we enter into
various kinds of financial instruments. As discussed below, we hedge elements of our exposure in
fluctuations in foreign currency exchange rates and interest rates through the use of derivative
financial instruments. Changes in exchange rates or interest rates cause the value of these
instruments to decrease or increase or our obligations to be more or less costly to settle. Any
gains or losses on derivatives will offset losses or gains on the asset or liability being hedged.
We do not, however, own any financial instruments for trading purposes. The counterparties to our
derivative transactions are major financial institutions. We establish credit lines with such
financial institutions after carefully reviewing certain factors, including their credit quality,
and manage our monthly balance with each institution.
A. Foreign Currency Exchange Rate Risk and Interest Rate Risk.
We apply sensitivity analyses to evaluate risks resulting from fluctuations in foreign
currency exchange rates and interest rates. We assume a specific change during a particular fiscal
year in foreign currency exchange rates or interest rates, as the case may be, and determine the
effect that such change will have on the fair value of our assets and liabilities, such as cash and
cash equivalents, marketable and investment securities, loans, short-term borrowings, long-term
debt, and derivative financial instruments. We estimate the market value of fluctuations in foreign
currency exchange rates or interest rates, as the case may be, by calculating the present value of
the future cash flows affected by such fluctuations, using a discount rate based on the foreign
currency exchange rates or interest rates, as the case may be, as of the last day of our fiscal
year. Thus, the profit or loss resulting from fluctuations in foreign currency exchange rates or
interest rates is the difference between the market value of such fluctuations and the actual fair
value of our assets and liabilities as of the last day of our fiscal year.
We have not included in the following results of our sensitivity analyses the effect of our
hedging activity with respect to our accounts receivable and accounts payable denominated in
foreign currencies. Therefore, they do not reflect the full effect of our hedging activities.
Foreign Currency Exchange Rate Risks
We enter into certain derivative financial instruments, primarily forward exchange contracts
and currency swap agreements, in order to reduce the adverse impact of fluctuations in foreign
currency exchange rates on our monetary assets and liabilities that are denominated in foreign
currencies. Such instruments are used to hedge the effects of fluctuations in the U.S. dollar, the
euro, and other currencies against the Japanese yen. Assuming that all other conditions remained
the same, if foreign currency exchange rates of the Japanese yen as of March 31, 2004 or March 31,
2005 appreciated against foreign currencies by 10%, then the fair value of our derivative financial
instruments would have increased by ¥6.5 billion or ¥9.3 billion, respectively. On the other hand,
assuming that all other conditions remained the same, if foreign currency exchange rates of the
Japanese yen as of March 31, 2004 or March 31, 2005 depreciated against foreign currencies by 10%,
then the fair value of our derivative financial instruments would have decreased by ¥6.3 billion or
¥9.1 billion, respectively. The main reason for the change in our risk exposures as of March 31,
2004 and March 31, 2005 was an increase in the sale of forward exchange contracts during the
current fiscal year.
Interest Rate Risks
We enter into certain derivative financial instruments, primarily interest rate swaps, in
order to reduce the adverse impact of fluctuations in interest rates on our financial assets and
liabilities, primarily long-term debt. Assuming that all other conditions remained the same, if
interest rates as of March 31, 2004 or March 31, 2005 decreased by 10%, then the fair value of our
derivative financial instruments would have decreased by ¥0.2 billion or ¥0.2 billion,
respectively. On the other hand, if interest rates as of March 31, 2004 or March 31, 2005 increased
by 10%, the fair value of our derivative financial instruments would have increased by ¥0.2 billion
or ¥0.2 billion, respectively.
B. Equity Price Risks
All of our marketable securities are classified as available-for-sale securities. We do not
own any marketable securities for trading purposes. The following table sets forth the maturity
dates, costs, and fair values of the debt securities and the costs and fair values of equity
securities in our investment portfolio as of March 31, 2004 and 2005.
As of March 31
2004
2005
Cost
Fair value
Cost
Fair value
(Millions of Yen)
Debt securities (by maturity dates):
Less than 1 year
¥
3,033
¥
3,035
¥
20
¥
20
1 to 2 years
10
10
10
15
Equity securities:
80,083
146,944
58,333
107,577
Total
¥
83,126
¥
149,989
¥
58,363
¥
107,612
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
Not applicable.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
Not applicable.
Table of Contents
ITEM 15. CONTROLS AND PROCEDURES.
Based on their evaluation as of March 31, 2005, NEC's principal executive
officer and principal financial officer have concluded that NEC's disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities
Exchange Act of 1934) are effective. There were no changes in NEC's internal control
over financial reporting that occurred during the fiscal year ended March 31, 2005
that has materially affected, or is reasonably likely to materially affect, NEC's
internal control over financial reporting.
We, however, have conducted a review of financial reporting practices at two of
our indirect U.S. subsidiaries, NEC Business Network Solutions, Inc. ("BNS"), and
Corporate Network Group ("CNG"), a business unit of NEC America, Inc., the operations
of which were combined in April 2004 (collectively, "BNS/CNG"). The review related
to the financial results of BNS/CNG reported for the nine quarters commencing January
1, 2002 and ending March 31, 2004. As a part of that review, we retained independent
counsel, which in turn retained independent forensic accountants, to conduct an
independent investigation of BNS' financial reporting practices and subsequently
included certain accounting practices of CNG. The issues identified do not affect
our previously reported consolidated financial results for the fiscal years ended
March 31, 2002, 2003 and 2004. The independent investigation, which was completed in
July 2005, did identify the following: although the findings of the initial internal
investigation conducted in 2003-04 by NEC America's internal audit group correctly
identified certain improprieties with respect to BNS accounting practices, the
quality and independence of the internal audit process was flawed; management and
employees of BNS/CNG failed to be responsive to independent auditors inquiries as
part of BNS/CNG audit process; and certain improper accounting practices at BNS/CNG
were found to have been widespread and systematic within BNS/CNG over the nine
quarters in question.
In response to the findings by independent counsel, we implemented a series of
remedial measures, and took other actions, in response to the financial reporting
practices at BNS/CNG and, with the assistance of augmented compliance staff, are
continuing to assess whether further measures are necessary or appropriate at the
BNS/CNG level.
Although the independent investigation had a limited scope focused primarily on
the reporting practices at BNS/CNG, it raised concerns with the NEC group budget and
planning process and other possible sources of pressure on financial reporting. In
light of that, we elected to further strengthen our oversight of reporting practices
throughout the NEC group. We have been evaluating, and are planning to take, certain
measures, including a review of internal policies and procedures and an enhancement
of internal audit processes. In recent weeks, we have taken some initial actions,
including delivery of messages from top management emphasizing to all NEC personnel
the importance of strict compliance with the internal policies and procedures as well
as legal and regulatory requirements applicable to financial reporting and stressing
ethical conduct by all NEC personnel.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.
The board of corporate auditors has determined that Mr. Muneo Shigematsu qualifies as an
"audit committee financial expert" as defined under the rules of the SEC. Mr. Shigematsu was a
former member of the board of directors of Sumitomo Corporation, and was in charge of preparing its
U.S.-GAAP financial statements. He is now a member of the board of directors of The Seiyu, Ltd.,
and was elected as one of our corporate auditors at an ordinary general meeting of shareholders
held in June 2004. Mr. Shigematsu meets the standards of independence as set forth in the
Commercial Code and under the rules of the SEC and NASDAQ.
ITEM 16B. CODE OF ETHICS.
We have adopted a code of ethics, the "NEC Group Code of Conduct," which is applicable to all
of our officers and employees. We have posted the Code of Conduct on our website at
http://www.nec.co.jp/csr/en/management/code.html.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
A. Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors.
The board of corporate auditors, consisting of five members, of which three are outside
corporate auditors, is responsible for the oversight of NEC's independent auditors' work. The board
of corporate auditors established Pre-Approval Policy and Procedures for Audit and Non-Audit
Services, or the Policy and Procedures, effective as of June 27, 2003. The Policy and Procedures
govern the board of corporate auditors' practices for retaining NEC's external auditors for audit and
non-audit services. Non-audit services include audit-related services, tax services and other
services, as described below under " — Fees and Services of Ernst & Young ShinNihon." NEC and its
subsidiaries, controlled directly or indirectly, must follow the Policy and Procedures when
engaging NEC's independent accountants for U.S. securities law reporting purposes.
Under the Policy and Procedures, certain audit- and non-audit services relating to NEC and its
subsidiaries have been pre-approved by the board of corporate auditors. If any proposed services
has not already received pre-approval or exceed the pre-approved cost level which the board of
corporate auditors has established, specific pre-approval by the board of corporate auditors will
be required. Any services not subject to specific pre-approval that are rendered by the independent
auditors will be reported to the board of corporate auditors by NEC's Corporate Controller Division
on a monthly basis.
The board of corporate auditors may delegate pre-approval authority to one or more of its
members in accordance with applicable SEC rules. The member or the members to whom such authority
is delegated shall report to the board of corporate auditors any pre-approval decisions at the next
scheduled meeting of the board of corporate auditors. The board of corporate auditors nevertheless
does not delegate its responsibilities to pre-approve services performed by the independent
auditors to the management.
In addition, the board of corporate auditors has specified certain services as prohibited
non-audit services that may not be provided by the independent auditors.
The Policy and Procedures categorize audit and non-audit services into audit services,
audit-related services, tax services, and all other services and stipulate the procedures that must
be complied with as follows.
Audit Services
Audit services include statutory audits or financial audits, including: quarterly reviews for
NEC and its subsidiaries; services associated with registration statements, periodic reports, and
other documents filed with the Financial Services Agency of Japan, or the FSA, the SEC, or other
similar agencies, or other documents in connection with securities offerings, and assistance in
responding to SEC comment letters; attestation of management reports on internal controls; and
consultations by NEC's and its subsidiaries' management as to the accounting or disclosure
treatment of transactions or events and/or the actual or potential impact of final or proposed
rules, standards or interpretations by the FSA, the SEC, the U.S. Financial Accounting Standards
Board, or other regulatory or standard setting bodies.
The annual audit service engagement fees paid by NEC are subject to specific pre-approval by
the board of corporate auditors. The board of corporate auditors will approve, if necessary, any
changes in fees resulting from changes in audit scope, company structure, or other matters. The
annual audit services engagement fees paid by NEC's subsidiaries will not be subject to the
specific pre-approval of the board of corporate auditors unless such fees exceed the amount
specified by the board of corporate auditors.
Audit-related Services
Audit-related services include assurance and related services that are reasonably related to
the performance of the audit or review of NEC's or its subsidiaries' consolidated and
non-consolidated financial statements, or that are traditionally performed by the independent
auditors. The board of corporate auditors has pre-approved certain audit-related services in
accordance with specified fee levels established by the board of corporate auditors. All other
audit-related services that are not covered by the Policy and Procedures or that exceed the
specified fee levels will be subject to specific pre-approval.
Tax Services
Tax services include tax compliance, tax planning, and tax advice. The board of corporate
auditors has pre-approved certain tax services in accordance with specified fee levels established
by the board of corporate auditors. All tax services involving large and complex transactions not
covered by the Policy and Procedures are subject to specific pre-approval.
The board of corporate auditors will not permit the retention of the independent auditors in
connection with a transaction initially recommended by the independent auditors for the purpose of
tax avoidance or tax treatment which is not supported under domestic or foreign tax laws or
regulations.
All Other Services
All other services include those permissible non-audit services that the board of corporate
auditors believes are routine and recurring services. The board of corporate auditors has
pre-approved certain other services in accordance with specified fee levels established by the
board of corporate auditors. All other services that are not covered by the Policy and Procedures
or that exceed the specified fee levels are subject to specific pre-approval.
No services were provided for which pre-approval was not obtained but subsequently approved
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Table of Contents
B. Fees and Services of Ernst & Young ShinNihon
The following table discloses the aggregate fees billed by Ernst & Young ShinNihon for each of
the last two fiscal years.
Year ended March 31
2004
2005
(Millions of yen)
Audit fees
¥
889
¥
882
Audit-related fees
27
68
Tax fees
184
221
All other fees
45
10
Total
¥
1,145
¥
1,181
Audit fees
consist of fees billed for the annual audit services including quarterly reviews
for our financial statements and services that are associated with registration statements filed
with the SEC or other similar agencies, or other documents in connection with securities offerings
(e.g., comfort letters and consents), and consultations as to the accounting or disclosure
treatment of transactions or events.
Audit-related fees
consist of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of our financial statements such as
due diligence services, employee benefit plan audits, consultation concerning financial accounting
and reporting standards.
Tax fees
include fees billed for tax compliance services, including the review of tax returns
and claims for refunds, tax planning services and tax advice services.
All other fees
consist of fees billed for other services not included in the above categories.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
NEC is exempted from the NASDAQ Rules relating to audit committees. NASDAQ Rule
4350(d)(2)(A)(i) requires NEC to have, and certify that it has and will continue to have, an audit
committee of at least three members, each of whom must be independent. In compliance with the
Commercial Code, NEC has elected to structure its corporate governance system as a company with
corporate auditors. Accordingly, NEC is not required to have and does not have any specified
committees. Under the Commercial Code, corporate auditors are not required to be certified public
accountants. Corporate auditors have the statutory duty to examine NEC's consolidated and
non-consolidated financial statements and the business reports which are made available by the
board of directors for reporting or approval purposes at the general meetings of shareholders and,
based on such examination, to report their opinions to shareholders. They also have the statutory
duty to supervise the administration by the board members of NEC's affairs. Corporate auditors are
obligated to attend the meetings of the board of directors but are not entitled to vote.
The corporate auditors constitute the board of corporate auditors. Under the Commercial Code,
the board of corporate auditors has a statutory duty to prepare and submit its audit report to the
board of directors each year. A corporate auditor may note an opinion in the audit report if his
or her opinion differs from the opinion expressed in the audit report. The board of corporate
auditors is empowered to establish audit principles, the method of examination by corporate
auditors of a company's affairs and financial position, and other matters concerning the
performance of the duties of corporate auditors. Under the Japanese Commercial Code, boards of
corporate auditors consist solely of corporate auditors and corporate auditors may not be directors
of the company. Accordingly, no member of the board of corporate auditors is an "outside"
director.
Unlike the NASDAQ Rules, under the Commercial Code, at least one of the corporate auditors of
NEC must be an "outside corporate auditor," which is a person who was not a director, executive
officer, company manager, or any other employee of NEC or any of its subsidiaries during the
five-year period prior to such person's election as corporate auditor. After the conclusion of the
ordinary general meeting of shareholders to be held with respect to the first fiscal year ending on
and after May 1, 2005, at least half of the corporate auditors will be required to be persons who
have not been a director, executive officer, company manager, or any other employee of NEC or any
of its subsidiaries at any time prior to their election as corporate auditors. Corporate auditors
may not at the same time be directors, company managers, or any other employees of NEC or any of
its subsidiaries, or executive officers of any of NEC's subsidiaries.
In addition, NEC's board of corporate auditors has adopted, in lieu of an Audit Committee
charter as required by NASDAQ Rule 4350(d)(1), rules for the
board of corporate auditors that comply
with applicable Japanese law.
Table of Contents
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
The following table sets forth certain information related to purchases made by NEC of its
equity securities.
(a) Total Number of
(b) Average Price
(c) Total Number of
(d) Maximum Number
Shares (or Units)
Paid per Share
Shares (or Units)
(or Approximate
Purchased
(or Units)
Purchased as Part
Dollar Value) of
Period
of Publicly
Shares (or Units)
Announced Plans
That May Yet Be
or Programs
Purchased Under the
Plans or Programs
April 1, 2004 – April 30, 2004
22,765
879.70
–
–
May 1, 2004 – May 31, 2004
9,922
818.06
–
–
June 1, 2004 – June 30, 2004
15,885
762.84
–
–
July 1, 2004 – July 31, 2004
54,251
729.75
–
–
August 1, 2004 – August 31, 2004
37,455
690.50
–
–
September 1, 2004 – September 30, 2004
34,056
699.80
–
–
October 1, 2004 – October 31, 2004
35,568
645.12
–
–
November 1, 2004 – November 30, 2004
52,150
583.50
–
–
December 1, 2004 – December 31, 2004
101,190
622.04
–
–
January 1, 2005 – January 31, 2005
49,824
615.42
–
–
February 1, 2005 – February 28, 2005
37,679
618.58
–
–
March 1, 2005 – March 31, 2005
24,817
660.65
–
–
Total
475,562
664.96
–
–
Under the Commercial Code, a holder of shares constituting less than one full unit may require
NEC to purchase such shares at their market value (See "Item 10. B. Memorandum and Articles of
Association — Common stock — Unit share system").
ITEM 17. FINANCIAL STATEMENTS.
Not applicable.
ITEM 18. FINANCIAL STATEMENTS.
See our consolidated financial statements beginning on page F-1.
ITEM 19. EXHIBITS.
Exhibit
Description
1
Articles of Incorporation, as
amended to date (English translation).
Rules of the Board of Directors, as amended to date (English translation).
8
Subsidiaries of the Company (see "Item 4.C. Information on the Company — Organizational Structure").
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).
Table of Contents
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:
September 27, 2005
NEC Corporation
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Balance Sheets at March 31, 2004 and 2005
F-3, F-4
Consolidated Statements of Operations, Comprehensive Income (Loss)
and Retained Earnings for the years ended March 31, 2003, 2004, and 2005
F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 2003, 2004, and 2005
F-6
Notes to Consolidated Financial Statements
F-7 - F-64
Financial Statements Schedules for the years ended March 31, 2003, 2004 and
2005:
II – Valuation and Qualifying Accounts
F-65
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, 2004 and 2005 and Years ended March 31, 2003, 2004 and 2005
F-66
F-1
Table of Contents
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, 2004 and 2005, 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, 2005, 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. We
were not engaged to perform an audit of the Company's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and 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, 2004 and 2005, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended March 31, 2005, 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 2004, the Company
changed its method of accounting for consolidation of variable interest entities.
/s/ Ernst & Young ShinNihon
Tokyo, Japan
April 25, 2005,
except for Note 23, as to which the date is June 22, 2005
F-2
Table of Contents
NEC Corporation
Consolidated Balance Sheets
March 31
2004
2005
(Millions of yen)
Assets
Current assets:
Cash and cash equivalents
¥
496,763
¥
494,284
Notes receivable, trade
(Note 16)
17,759
16,356
Accounts receivable, trade
(Note 16)
848,165
900,227
Allowance for doubtful notes and accounts
(25,219
)
(14,887
)
Inventories
(Note 5)
570,026
528,923
Deferred tax assets
(Note 11)
138,505
106,755
Prepaid expenses and other current assets
83,757
49,904
Total current assets
2,129,756
2,081,562
Investments and long-term receivables:
Marketable securities
(Note 4)
149,989
107,612
Investments and advances:
Affiliated companies
(Note 3)
164,620
187,011
Other
(Note 4)
126,921
120,544
Long-term receivables, trade
9,843
8,274
451,373
423,441
Property, plant and equipment
(Notes 9 and 20)
:
Land
99,254
96,565
Buildings
819,443
779,811
Machinery and equipment
1,756,485
1,720,698
Construction in progress
39,326
42,789
2,714,508
2,639,863
Accumulated depreciation
(1,944,294
)
(1,913,441
)
770,214
726,422
Other assets:
Deferred tax assets
(Note 11)
414,083
399,313
Goodwill
(Notes 6 and 7)
20,993
56,934
License fees and other intangibles
(Notes 6 and 7)
35,436
42,912
Other
(Note 8)
222,487
210,101
692,999
709,260
¥
4,044,342
¥
3,940,685
F-3
Table of Contents
March 31
2004
2005
(Millions of yen)
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings
(Note 9)
¥
98,052
¥
227,615
Current portion of long-term debt
(Notes 9 and 20)
266,450
137,354
Notes payable, trade
39,540
30,065
Accounts payable, trade
890,926
817,519
Accounts payable, other and accrued expenses
272,283
284,798
Accrued income taxes
39,488
25,906
Other current liabilities
135,848
138,403
Total current liabilities
1,742,587
1,661,660
Long-term liabilities:
Long-term debt
(Notes 9 and 20)
806,517
791,238
Accrued pension and severance costs
(Note 10)
524,898
425,174
Other
37,506
44,152
1,368,921
1,260,564
Minority shareholders' equity in consolidated subsidiaries
221,374
224,187
Commitments and contingent liabilities
(Notes 20 and 21)
Shareholders' equity
(Note 12)
:
Common stock:
Authorized  – 3,200,000,000 shares
Issued 2004 – 1,929,268,717 shares
337,820
2005 – 1,929,268,717 shares
337,820
Additional paid-in capital
454,333
455,683
Retained earnings
71,901
128,204
Accumulated other comprehensive income (loss)
(149,797
)
(124,396
)
714,257
797,311
Treasury stock, at cost:
2004 –2,677,439 shares, 2005 –3,067,755 shares
(2,797
)
(3,037
)
711,460
794,274
¥
4,044,342
¥
3,940,685
See notes to consolidated financial statements.
F-4
Table of Contents
NEC Corporation
Consolidated Statements of Operations, Comprehensive Income (Loss)
and Retained Earnings
Year ended March 31
2003
2004
2005
(Millions of yen)
Sales and other income:
Net sales
¥
4,695,035
¥
4,906,821
¥
4,855,132
Subsidy related to transfer of substitutional portion
of employee pension fund liabilities, net of
settlement loss of ¥138,063 million and ¥12,607
million for the years ended March 31, 2004 and 2005,
respectively.
(Note 10)
-
8,174
663
Gain on sale or disposal of fixed assets, net
-
7,269
-
Interest and dividends
18,396
15,987
9,396
Gain due to stock issuances by subsidiaries
(Note 18)
22,136
53,808
-
Gain on sale of investments in securities, net of
loss on sale and impairment
(Note 4)
33,411
14,178
43,446
4,768,978
5,006,237
4,908,637
Costs and expenses:
Cost of sales
3,453,010
3,622,965
3,646,770
Research and development expenses
296,241
256,668
275,348
Selling, general and administrative
(Note 17)
824,895
852,664
802,505
Restructuring charges
(Note 19)
55,407
17,162
5,854
Impairment of goodwill
(Note 7)
-
23,028
-
Loss on sale or disposal of fixed assets, net
7,713
-
14,403
Interest
30,218
27,510
18,632
Net foreign exchange loss
14,359
15,611
1,386
Other, net
25,639
30,083
28,075
4,707,482
4,845,691
4,792,973
Income before income taxes
61,496
160,546
115,664
Provision for income taxes
(Note 11)
58,714
85,870
73,111
Income before minority interest, equity in earnings
(losses) of affiliated companies
2,782
74,676
42,553
Minority interest in income of consolidated subsidiaries
6,896
15,838
7,280
Income (loss) before equity in earnings (losses) of
affiliated companies
(4,114
)
58,838
35,273
Equity in earnings (losses) of affiliated companies
(Note 3)
(20,444
)
(17,760
)
32,591
Net income (loss)
(24,558
)
41,078
67,864
Comprehensive income (loss):
Other comprehensive income (loss), net of tax
(Note 12)
:
Foreign currency translation adjustments
(3,655
)
(18,844
)
1,812
Minimum pension liability adjustment
(Note 10)
(132,190
)
116,123
28,874
Unrealized gains (losses) on marketable
securities
(Note 4)
(45,217
)
38,286
(5,316
)
Unrealized gains (losses) on derivative financial
instruments
(Note 15)
82
1,055
31
Other comprehensive income (loss)
(180,980
)
136,620
25,401
Comprehensive income (loss)
¥
(205,538
)
¥
177,698
¥
93,265
Retained earnings:
Balance at beginning of year
¥
66,125
¥
41,567
¥
71,901
Net income (loss)
(24,558
)
41,078
67,864
Dividends
(Note 23)
-
(10,744
)
(11,561
)
Balance at end of year
¥
41,567
¥
71,901
¥
128,204
Year ended March 31
2003
2004
2005
(yen)
Net income (loss) per share
(Note 14)
:
Basic
¥
(14.85
)
¥
23.67
¥
34.77
Diluted
(14.85
)
21.93
31.87
Cash dividends per share
-
6.00
6.00
See notes to consolidated financial statements.
F-5
Table of Contents
NEC Corporation
Consolidated Statements of Cash Flows
Year ended March 31
2003
2004
2005
(Millions of yen)
Cash flows from operating activities:
Net income (loss)
¥
(24,558
)
¥
41,078
¥
67,864
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation
195,594
178,714
166,484
Impairment of goodwill
-
23,028
-
Deferred income taxes
7,688
22,351
38,977
(Gain) loss on property, plant and equipment
14,264
(7,035
)
8,129
Realized gain on marketable securities
(260
)
(16,432
)
(25,498
)
Gain due to stock issuances by subsidiaries
(22,136
)
(53,808
)
-
Provision for pension and severance costs, less payments
(638
)
14,842
(20,930
)
Equity in (earnings) losses of affiliated companies,
net of dividends
22,006
18,494
(31,580
)
Minority interest in income of consolidated subsidiaries
4,396
13,338
7,280
(Increase) decrease in notes and accounts receivable
116,340
(18,419
)
(4,870
)
(Increase) decrease in inventories
79,343
(35,862
)
56,289
Increase (decrease) in notes and accounts payable
(109,387
)
106,270
(114,239
)
Increase (decrease) in other current liabilities
(68,717
)
36,688
(16,650
)
Other, net
33,568
5,218
33,303
Net cash provided by operating activities
247,503
328,465
164,559
Cash flows from investing activities:
Proceeds from sales of fixed assets
99,722
60,423
89,422
Additions to fixed assets
(210,261
)
(230,522
)
(261,384
)
Proceeds from sales and redemption of marketable securities
71,919
54,493
29,754
Purchase of marketable securities
(2,277
)
(2,355
)
(1,112
)
Net proceeds from sales of affiliates' stock
58,901
71,810
48,042
Investments in affiliates, net of cash acquired
(14,457
)
(26,109
)
(55,594
)
Disbursements for long-term loans
(43,620
)
(5,649
)
(4,173
)
Payments received on long-term loans
42,333
16,548
2,894
Increase in other investment securities
(14,810
)
(5,375
)
(5,649
)
Other, net
964
(2,379
)
35,253
Net cash used in investing activities
(11,586
)
(69,115
)
(122,547
)
Cash flows from financing activities:
Proceeds from long-term debt
175,516
28,984
146,264
Repayments of long-term debt
(333,889
)
(301,425
)
(306,452
)
Increase (decrease) in short-term borrowings
(114,075
)
(115,712
)
122,682
Dividends paid
(7,291
)
(7,432
)
(14,060
)
Proceeds from stock issuances
-
184,836
-
Proceeds from stock issuances by subsidiaries
17,923
107,140
-
Other, net
(933
)
836
1,300
Net cash used in financing activities
(262,749
)
(102,773
)
(50,266
)
Effect of exchange rate changes on cash and cash
equivalents
(6,595
)
(4,159
)
5,775
Net increase (decrease) in cash and cash equivalents
(33,427
)
152,418
(2,479
)
Cash and cash equivalents at beginning of year
377,772
344,345
496,763
Cash and cash equivalents at end of year
¥
344,345
¥
496,763
¥
494,284
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
¥
31,271
¥
24,843
¥
19,696
Income taxes
46,635
63,739
47,716
See notes to consolidated financial statements.
F-6
Table of Contents
NEC Corporation
Notes to Consolidated Financial Statements
March 31, 2005
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 corporates and individual customers.
Network Solutions business is primarily engaged in the development, design, manufacture, sale and
network integration for communications 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.
Significant accounting policies, after reflecting adjustments for the above, are as follows:
F-7
Table of Contents
2. Significant Accounting Policies (continued)
Basis of consolidation and investments in affiliated companies
The consolidated financial statements include the accounts of NEC Corporation and its 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 50% or less 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.
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 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.
F-8
Table of Contents
2. Significant Accounting Policies (continued)
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.
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.
F-9
Table of Contents
2. Significant Accounting Policies (continued)
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
Goodwill and intangible assets with indefinite lives are not amortized, but instead tested for
impairment annually or more frequently if events or circumstances indicate it might be impaired.
Goodwill is tested for impairment by comparing the fair value of a reporting unit with its carrying
amount, including goodwill. Intangible assets with indefinite lives are tested for impairment by
comparing the fair values of those assets with their carrying amounts. The Company performs
an-annual impairment test in the fourth quarter of each fiscal year, or more often if events or
circumstances indicate that assets might be impaired.
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 6
years.
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.
F-10
Table of Contents
2. Significant Accounting Policies (continued)
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 principally over 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 over periods ranging up to 5 years.
Income taxes
Deferred tax assets and liabilities are determined based on the difference between the financial
statement and tax basis of the 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 or an affiliated company
When a subsidiary or an affiliated company issue stock to unrelated third parties, the Company's
ownership interest in the subsidiary or affiliated company 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 or affiliated company and recognizes a gain or
loss in the year in which the change in ownership interest occurs.
Stock-based compensation
At March 31, 2005, 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 the
Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based
Compensation
, to stock-based compensation.
F-11
Table of Contents
2. Significant Accounting Policies (continued)
Stock-based
compensation (continued)
Year ended March 31
2003
2004
2005
(Millions of yen)
Net income (loss), as reported
¥
(24,558
)
¥
41,078
¥
67,864
Effect of participating
convertible securities
-
-
(890
)
Add: Stock-based compensation
expense included in reported
net income, net of related tax effects
-
27
238
Deduct: Total stock-based
compensation expense
determined under fair value
based method for all awards,
net of related tax effects
(94
)
(346
)
(1,129
)
Pro forma net income (loss)
¥
(24,652
)
¥
40,759
¥
66,083
(Yen)
Net income (loss) per share:
Basic – as reported
¥
(14.85
)
¥
23.67
¥
34.77
Basic – pro forma
(14.91
)
23.49
34.30
Diluted – as reported
(14.85
)
21.93
31.87
Diluted – pro forma
(14.91
)
21.77
31.44
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 an
antidilutive effect.
F-12
Table of Contents
2. Significant Accounting Policies (continued)
Revenue recognition
The Company recognizes revenue for transactions when the following criteria have been met. 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 reasonably
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 delivery 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 delivery 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 related to the
software at the same time as the Company recognizes the revenue for the product. Customers
generally do not have the right of return.
The Company sells program products consisting of packaged software such as an operating system or
middleware used in computer systems. Revenue related to the 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 systems 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 service revenue for the Internet services of "BIGLOBE" as the services
are provided, which is generally on a monthly basis.
F-13
Table of Contents
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.
F-14
Table of Contents
2. Significant Accounting Policies (continued)
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.
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 large financial institutions. 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
Table of Contents
2. Significant Accounting Policies (continued)
Variable interest entities
The Company has used several special purpose entities since 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 significant variable interests in the entities. Total assets held by the entities at March
31, 2005 were ¥75,900 million. The Company's maximum exposure to loss would be ¥4,377 million.
New accounting standards
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
Share-Based Payment
("SFAS No.
123(R)"). This statement requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on fair values. SFAS No.
123(R) is effective at the beginning of the first fiscal year beginning after June 15, 2005. The
Company will adopt SFAS No. 123(R) effective April 1, 2006 and has not determined what effect, if
any, it will have on the Company's results of operations and financial position.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs – an amendment of ARB No. 43,
Chapter 4
. SFAS No. 151 amends the guidance in Accounting Research Bulletins ("ARB") No. 43,
Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new
rule requires that items such as idle facility expense, excessive spoilage, double freight, and
rehandling costs be recognized as current period charges regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the
allocation of fixed production overheads to the costs of conversion be based on the normal capacity
of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15,
2005. The Company will adopt SFAS No. 151 effective on April 1, 2006 and has not determined what
effect, if any, it will have on the Company's results of operations and financial position.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets – an amendment of
APB Opinion No. 29
. SFAS No. 153 eliminates the exception from fair value measurement for
nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,
Accounting for Nonmonetary Transactions
, and replaces it with an exception for exchanges that do
not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005.
The Company will adopt SFAS No. 153 effective on April 1, 2006 and has not determined what effect,
if any, it will have on the Company's results of operations and financial position.
F-16
Table of Contents
2. Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the consolidated financial statements for the years ended March 31, 2003 and
2004 have been reclassified to conform to the 2005 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 common stock shares at March 31, 2005 are: Nippon Electric Glass
Co., Ltd. (24.4%); ANRITSU CORPORATION (21.7%); Japan Aviation Electronics Industry, Ltd. ("JAE")
(39.3%); Toyo Communication Equipment Co., Ltd. (20.6%); NEC Leasing, Ltd. ("NEL") (37.7%); Elpida
Memory, Inc. ("Elpida") (25.0%) . In addition, the Company has interests in 52 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.
On November 15, 2004, Elpida, which researches, develops, manufactures, and
sells DRAM, sold 31,850,000 shares of common stock at ¥3,325 per share to third
parties in a global offering receiving total consideration of ¥105,901 million.
Simultaneously, certain classes of non-voting common stock were converted to
common stock. As a result, the Company's ownership interest in Elpida decreased
from 50.0% to 25.0%. However, because of the issuance of new shares of common
stock and the conversion, the Company was required to increase the carrying
amount of its investment in Elpida by ¥25,023 million and recognized a gain for
that amount. In connection with this transaction certain deferred tax assets
were reversed and deferred tax expense of ¥10,134 million was
recognized.
F-17
Table of Contents
3.
Investments in Affiliated Companies (continued)
NEL, which performs leasing business, sold 3,300,000 shares of common stock at ¥2,074 per share to
third parties in a public offering on February 10, 2005, receiving total consideration of ¥6,843
million. After the NEL's public offering, the Company acquired 1,000,000 shares of NEL. As a
result of the series of transactions, the Company's ownership interest in NEL decreased from 39.0%
to 37.7%. Because the issuance price per share of common stock sold by NEL was less than the
Company's average carrying amount per share, the Company was required to decrease the carrying
amount of its investment in NEL by ¥461 million, including the effect of acquiring addition shares,
and recognized a loss for that amount. The Company recorded a deferred tax benefit of ¥187 million
on such loss.
Summarized financial information relating to affiliated companies accounted for by the equity
method is as follows:
March 31
2004
2005
(Millions of yen)
Current assets
¥
1,086,242
¥
1,143,479
Other assets, including property, plant
and equipment
1,049,930
1,217,977
Total assets
¥
2,136,172
¥
2,361,456
Current liabilities
¥
892,601
¥
725,095
Long-term liabilities
726,050
873,385
Shareholders' equity
517,521
762,976
Total liabilities and shareholders' equity
¥
2,136,172
¥
2,361,456
Year ended March 31
2003
2004
2005
(Millions of yen)
Sales and operating
revenue
¥
851,613
¥845,541
¥
1,078,316
Gross profit
153,149
151,251
261,040
Net income (loss)
(49,284
)
(28,225
)
30,805
F-18
Table of Contents
3.
Investments in Affiliated Companies (continued)
Of the 58 affiliated companies at March 31, 2005 (44 companies at March 31, 2004) accounted for by
the equity method, the stock of 6 companies (4 companies at March 31,
2004) carried at ¥103,726 million and ¥148,948 million at March 31, 2004 and 2005, respectively,
had quoted market values aggregating ¥206,955 million and ¥301,671 million at March 31, 2004 and
2005, respectively.
The balances and transactions with affiliated companies accounted for by the equity method are
shown below:
March 31
2004
2005
(Millions of yen)
Receivables, trade
¥
35,426
¥
37,205
Payables, trade
77,897
88,720
Year ended March 31
2003
2004
2005
(Millions of yen)
Sales
¥
70,070
¥
240,956
¥
237,547
Purchases
54,118
106,856
115,089
Dividends received from affiliated companies accounted for by the equity method for the years ended
March 31, 2003, 2004 and 2005 totaled ¥1,651 million, ¥563 million and ¥1,429 million, respectively.
In September 2004 NEC Hiroshima, Ltd. sold certain property, plant and equipment to
Hiroshima Elpida Memory, Inc. for ¥ 33,549 million.
F-19
Table of Contents
4.
Marketable Securities and Other Investments
The following is a summary of marketable securities by major security type:
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
March 31, 2005
Gross
Gross
unrealized
unrealized
holding
holding
Cost
gains
losses
Fair value
(Millions of yen)
Available-for-sale:
Equity securities
¥
58,333
¥50,519
¥1,275
¥
107,577
Debt securities
30
5
-
35
¥
58,363
¥50,524
¥1,275
¥
107,612
Available-for-sale debt securities at March 31, 2005 mature within 2 year period.
F-20
Table of Contents
4.
Marketable Securities and Other Investments (continued)
Proceeds from sales of available-for-sale securities were ¥71,919 million, ¥54,493 million and
¥29,754 million for the years ended March 31, 2003, 2004 and 2005, respectively. Gross realized
gains were ¥32,174 million, ¥18,497 million and ¥27,114 million for the years ended March 31, 2003,
2004 and 2005, respectively, and gross realized losses, including writedowns, were ¥31,914 million,
¥2,065 million and ¥1,616 million for the years ended March 31, 2003, 2004 and 2005, respectively.
Impairment losses of marketable securities for the years ended March 31, 2003, 2004 and 2005 were
¥27,474 million, ¥1,203 million and ¥1,499 million, respectively.
Investments in equity securities, included in investments and advances-other, with an aggregate
carrying amount of ¥112,223 million and ¥101,779 million at March 31, 2004 and 2005, respectively,
consisted of numerous investments in securities of non-public companies.
Impairment losses of these investments for the years ended March 31, 2003, 2004 and 2005 were
¥6,959 million, ¥10,812 million and ¥2,611 million, respectively.
The Company did not identify any events or changes in circumstances that may have had a significant
adverse effect on the fair value of certain investments with an aggregate cost of ¥93,186 million
at March 31, 2005. Accordingly, the Company did not disclose the fair value of such investments.
5.
Inventories
Inventories at March 31, 2004 and 2005 consisted of the following:
March 31
2004
2005
(Millions of yen)
Finished products
¥
189,986
¥
175,182
Work in process and semifinished components
285,281
245,872
Less – advance payments received
(22,588
)
(13,324
)
Raw materials and purchased components
117,347
121,193
¥
570,026
¥
528,923
F-21
Table of Contents
6.
Acquisitions
On December 10, 2004 and January 31, 2005, the Company invested ¥10,251 million and ¥6,429 million
respectively, to acquire a 50.1% in ABeam Consulting Ltd. ("ABeam") which provides business
performance consulting services in the areas of strategy, Business Process Reengineering ("BPR"),
information technology, and outsourcing. In conjunction with this purchase, the Company entered
into an agreement with ABeam and minority shareholders to increase its ownership interest in ABeam
up to 100% by 2010. The agreement provides a purchase price to acquire the remaining 49.9% in ABeam
which is based on the financial performance of ABeam. At March 31, 2005, the Company estimates its
minimum and maximum aggregate of payments are approximately ¥5,800 million and ¥16,600 million
respectively for the 49.9% of investment in ABeam.
The acquisition of ABeam has been accounted for by the purchase method of accounting. The cost of
the acquisition was allocated to assets acquired and liabilities assumed based on estimates of
their respective fair value at the date of acquisition. Fair values of assets acquired and
liabilities assumed were determined by internal studies and independent third party appraisals.
Factors that contributed to a purchase price resulting in the recognition of goodwill included the
Company's expectation to expand its reach in Asia such as strategic consulting and Enterprise
Resource Planning ("ERP") package related services by obtaining highly specialized know-how from
ABeam.
Effects of the transactions on the consolidated balance sheet at December 31, 2004 were as follows:
(Millions
of
At December 31, 2004:
yen)
Current assets
¥
21,642
Property, plant, and equipment
1,208
Intangible assets other than goodwill
2,658
Goodwill
12,465
Other assets
3,151
Total assets acquired
41,124
Current liabilities
(11,862
)
Long-term liabilities
(8,773
)
Total liabilities assumed
(20,635
)
Minority interest
(3,809
)
Net assets acquired
¥
16,680
The ¥12,465 million of goodwill was assigned to the IT Solutions business.
The results of ABeam's operations have been included in the consolidated financial statements since
January 1, 2005.
F-22
Table of Contents
6.
Acquisitions (continued)
On January 28, 2005, the Company acquired 21.30% and 14.34% of the outstanding common shares of NEC
Soft, Ltd. ("NEC SOFT") and NEC System Technologies, Ltd. ("NECST") for ¥27,374 million and ¥14,807
million, respectively through two separate tender offers. The aggregate of acquisition cost was
¥42,181 million. As a result of the tender offers, the Company's ownership interest in NEC SOFT and
NECST increased to 82.88% and 81.01%, respectively.
These acquisitions were accounted for by the purchase method of accounting. The cost of the
acquisition was allocated to assets acquired and liabilities assumed based on estimates of their
respective fair value at the date of acquisition. Fair values of assets acquired and liabilities
assumed were determined by internal studies and independent third party appraisals. Factors that
contributed to a purchase price resulting in the recognition of goodwill included the Company's
expectation to strengthen its systems integration competence and software development competence.
Effects of the transactions on the consolidated balance sheet at December 31, 2004 were as follows:
(Millions of
At December 31, 2004:
yen)
Intangible assets other than goodwill
¥
6,491
Goodwill
23,366
Total assets acquired
29,857
Long-term liabilities
(2,630
)
Acquired minority interest
14,954
Net assets acquired
¥
42,181
The ¥23,366 million of goodwill was assigned to the IT Solutions business.
Because NEC SOFT and NECST were consolidated subsidiaries, the Company's consolidated statements of
operations included the operation results of those subsidiaries for the full year. After January 1,
2005, minority interests relating to these subsidiaries have been recognized in the Company's
consolidated financial statements based on ownership interest after the tender offers.
On February 28, 2005, the Company entered into stock-for-stock exchange agreements with NEC SOFT
and NECST. The exchange will be implemented on June 1, 2005, and therefore NEC SOFT and NECST will
become wholly-owned subsidiaries of the Company. Under the terms of the agreements, the Company
will issue 66,654,021 shares of common stock. The conversion ratios are 5.14 and 6.75 of the
Company's common stock for each share of NEC SOFT and NECST, respectively. The Company estimates
the aggregate of acquisition cost for stock-for-stock exchange will be approximately ¥45,000
million.
F-23
Table of Contents
7. Goodwill and Other Intangibles
The changes in the carrying amount of goodwill by reportable segment for the years ended March 31,
2004 and 2005 were as follows:
Network
Electron
IT Solutions
Solutions
Devices
business
business
business
Total
(Millions of yen)
Balance at April 1, 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
Goodwill acquired during
year (refer to Note 6)
35,831
-
-
35,831
Sale of a business unit
-
-
(9
)
(9
)
Effect of foreign
currency translation
adjustments
-
119
-
119
Balance at March 31, 2005
¥
44,612
¥
7,533
¥
4,789
¥
56,934
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 for the year ended March 31, 2004. The
fair value of that reporting unit was determined using estimated discounted net future cash flows.
F-24
Table of Contents
7. Goodwill and Other Intangibles (continued)
Intangibles other than goodwill subject to amortization at March 31, 2004 and 2005 consisted of the
following:
March 31
2004
2005
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
(Millions of yen)
License fees
¥
51,482
¥
(25,479
)
¥
55,868
¥
(28,978
)
Patents
7,521
(4,612
)
6,924
(4,920
)
Others
9,877
(5,073
)
18,905
(9,388
)
¥
68,880
¥
(35,164
)
¥
81,697
¥
(43,286
)
The aggregate amortization expense for the years ended March 31, 2003, 2004 and 2005 was
¥13,302 million, ¥15,775 million and ¥17,524 million, respectively. The estimated amortization
expense for the next five years is as follows:
(Millions of
Year ending March 31:
yen)
2006
¥
12,493
2007
8,350
2008
6,791
2009
4,600
2010
3,210
Intangibles other than goodwill with indefinite useful lives at March 31, 2004 and 2005 were ¥1,720
million and ¥4,501 million, respectively. Intangibles other than goodwill with indefinite useful
lives at March 31, 2005 consist of principally trademarks.
F-25
Table of Contents
8. Software Costs
Software costs, included in other assets, other, at March 31, 2004 and 2005 consisted of the
following:
March 31
2004
2005
(Millions of yen)
Capitalized software held for sale
¥
27,691
¥
23,048
Internal use software
102,616
113,577
¥
130,307
¥
136,625
Accumulated amortization of capitalized software held for sale at March 31, 2004 and 2005 was
¥96,505 million and ¥110,238 million, respectively. Amortization expense of capitalized software
held for sale for the years ended March 31, 2003, 2004 and 2005 was ¥35,188 million, ¥31,123
million and ¥24,580 million, respectively.
Accumulated amortization of internal use software at March 31, 2004 and 2005 was ¥87,161 million
and ¥101,054 million, respectively. Amortization expense of internal use software for the years
ended March 31, 2003, 2004 and 2005 was ¥29,196 million, ¥32,879 million and ¥34,718 million,
respectively.
9. Short-Term Borrowings and Long-Term Debt
Short-term borrowings at March 31, 2004 and 2005 were as follows:
March 31
2004
2005
(Millions of yen)
Loans, principally from banks, including
bank overdrafts (average interest rate of
1.20% in 2004 and 0.49% in 2005):
Secured
¥
518
¥
1,671
Unsecured
97,534
225,944
¥
98,052
¥
227,615
At March 31, 2005, the Company had unused lines of credit for short-term financing aggregating
¥541,646 million subject to commitment fees on the unused portion ranging from 0.10% to 0.25% and
¥153,421 million with no commitment fees. A line of credit for ¥100,000 million has a term
extending through March 31, 2006. The remainder of ¥595,067 million is renewed annually. The
Company had unused lines of ¥416,000 million commercial paper ("CP") in Japan and unused lines of
¥300,000 million straight bond issuances program in Japan and unused lines of $2,000 million
medium-term note ("MTN") program.
F-26
Table of Contents
9. Short-Term Borrowings and Long-Term Debt (continued)
Long-term debt at March 31, 2004 and 2005 was as follows:
March 31
2004
2005
(Millions of yen)
Loans, principally from banks and insurance
companies, due 2004 to 2011 with average
interest rate of 1.37% at March 31, 2004 and
due 2005 to 2011 with average interest rate of
1.49% at March 31, 2005:
Secured
¥
13,703
¥
8,762
Unsecured
196,848
166,133
6.05% unsecured yen bonds due 2007
10,000
10,000
Unsecured yen debentures, due 2004 to 2010
with interest rates of 1.7% to 3.3% at March
31, 2004 and due 2005 to 2010 with interest
rates of 1.9% to 3.3% at March 31, 2005
405,800
307,500
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*
100,001
-
Zero coupon convertible debentures issued by a
consolidated subsidiary, due 2011 convertible
currently at ¥9,860 for one common share,
redeemable before due date
-
110,000
Long-term capital lease obligations, due 2004
to 2012 with interest rates of 1.35% to 8.99%
at March 31, 2004 and due 2005 to 2014 with
interest rates of 1.48% to 8.09% at March 31,
2005
45,482
24,789
Other
1,787
2,302
1,071,527
927,392
Unamortized premium
1,440
1,200
1,072,967
928,592
Less – portion due within one year
(266,450
)
(137,354
)
¥
806,517
¥
791,238
*Unsecured subordinated yen debentures due 2021 were redeemed
on June 21, 2004.
F-27
Table of Contents
9. 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,
2005:
(Millions of
yen)
Property, plant and equipment (net book value)
¥
40,882
At March 31, 2005, 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.
Some subsidiaries are required to repay certain medium-term loans, the balance of which were
¥57,104 million at March 31, 2005, if its net assets fall below certain amounts, their operating
loss, ordinary loss or net loss would be recognized for certain consecutive fiscal year periods,
the subsidiaries no longer are consolidated subsidiaries of NEC Corporation, or certain other debt
covenant conditions have been met.
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.
Annual maturities on long-term debt during the next five years are as follows:
(Millions of
Year ending March 31:
yen)
2006
¥
137,354
2007
184,103
2008
134,027
2009
115,945
2010
126,949
F-28
Table of Contents
10. 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 the
year ended March 31, 2003, 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, with the transfer to the Japanese government from the assets of the
pension plans in the years ended March 31, 2004 and 2005, 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 and ¥663 million through these transactions for the years
ended March 31, 2004 and 2005, respectively.
Details of the net gain related to transfer of substitutional portion of employee pension fund
liabilities, are as follows:
Year ended March 31
2004
2005
(Millions of yen)
Subsidy from government
¥
146,237
¥
13,270
Settlement loss:
Derecognition of accrued
salary progression
45,467
1,710
Recognition of unrealized
actuarial loss
(183,530
)
(14,317
)
Net gain
¥
8,174
¥
663
F-29
Table of Contents
10. Pension and Severance Plans (continued)
Since year ended March 31, 2004, NEC Corporation and certain subsidiaries in Japan have 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.
Since year ended March 31, 2004, NEC Corporation and certain subsidiaries in Japan have 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-30
Table of Contents
10. 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
2004
2005
(Millions of yen)
Change in benefit obligations:
Benefit obligations at beginning of year
¥
1,566,477
¥
1,033,458
Service cost
46,060
44,999
Interest cost
45,829
25,503
Actuarial loss
41,817
2,154
Benefits paid
(73,994
)
(67,367
)
Transfer of substitutional portion
(491,533
)
(31,564
)
Plan amendment
(77,749
)
(6,707
)
Acquisitions/divestitures, net
(23,449
)
9,577
Benefit obligations at end of year
1,033,458
1,010,053
Change in plan assets:
Fair value of plan assets at beginning
of year
716,027
498,984
Actual return on plan assets
73,309
23,972
Employer's contributions
39,192
91,961
Employees' contributions
5,726
216
Benefits paid
(29,683
)
(29,146
)
Transfer of substitutional portion
(299,829
)
(16,584
)
Acquisitions/divestitures, net
(5,758
)
2,215
Fair value of plan assets at end of year
498,984
571,618
Funded status
(534,474
)
(438,435
)
Unrecognized prior service cost
*
(159,164
)
(155,760
)
Unrecognized actuarial loss
*
471,746
419,447
Unrecognized net obligation at April 1,
1989 being recognized over 17 years
6,458
3,411
Net amounts recognized
¥
(215,434
)
¥
(171,337
)
Amounts recognized in the consolidated
balance sheets consist of:
Accrued pension and severance costs
¥
(524,898
)
¥
(425,174
)
Accumulated other comprehensive income,
pretax
309,464
253,837
Net amounts recognized
¥
(215,434
)
¥
(171,337
)
*
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-31
Table of Contents
10. Pension and Severance Plans (continued)
The accumulated benefit obligation for all defined benefit pension plan was ¥1,023,882 million and
¥996,792 million as of March 31, 2004 and 2005, respectively.
The weighted-average assumptions used to determine benefit obligation at March 31, 2004 and 2005
were as follows:
March 31
2004
2005
Discount rate
2.5%
2.5%
Rate of increase in future compensation level
1.7% - 3.8%
1.7% - 3.8%
The weighted-average assumptions used to determine net pension and severance cost for the years
ended March 31, 2003, 2004 and 2005 were as follows:
Year ended March 31
2003
2004
2005
Discount rate
3.5%
3.0%
2.5%
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%
2.5%
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 asset allocations for the pension plan at March 31, 2004 and 2005 and target asset allocation
for the year ended March 31, 2005 are as follows:
Target
March 31
asset
2004
2005
allocation
Asset category:
Equity securities
32%
44%
42%
Debt securities
40%
38%
42%
Short-term investment
28%
18%
16%
F-32
Table of Contents
10. 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 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 3 to 5 years. The asset allocation policy is
reviewed as necessary where the conditions thereof changed from the time of establishment of the
asset allocation policy.
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, 2003,
2004 and 2005 were as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Service cost
¥
53,418
¥
46,060
¥44,999
Interest cost
49,418
45,829
25,503
Expected return on plan assets
(32,090
)
(27,897
)
(12,234
)
Amortization of unrecognized
prior service cost
(6,112
)
(6,928
)
(11,411
)
Amortization of actuarial loss
28,705
43,960
31,655
Amortization of unrecognized
net obligation at April 1,
1989 being recognized over 17
years
3,047
3,047
3,047
Settlement loss
-
138,063
12,607
Net pension and severance
cost for all defined benefit
plans
¥
96,386
¥
242,134
¥94,166
F-33
Table of Contents
10. Pension and Severance Plans (continued)
The total cost for all defined benefit and defined contribution plans was as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Net pension and severance cost for
all defined benefit plans
¥
96,386
¥
242,134
¥
94,166
Employees' contributions to the
contributory defined benefit
pension plans
(11,535
)
(5,726
)
(216
)
Cost for defined contribution plans
1,064
1,297
2,535
Total cost for all defined benefit
and defined contribution plans
¥
85,915
¥
237,705
¥
96,485
The Company expects to contribute approximately ¥42,000 million to its pension plans in fiscal
year ending March 31, 2006.
The following is a schedule by year of approximate benefits expected to be paid, which reflect
expected future services, as appropriate:
(Millions of
Year ending March 31:
yen)
2006
¥
65,000
2007
69,000
2008
73,000
2009
76,000
2010
79,000
2011 – 2015
373,000
F-34
Table of Contents
11. Income Taxes
The components of income before income taxes and the provision for income taxes comprised the
following components:
Year ended March 31
2003
2004
2005
(Millions of yen)
Income before income taxes:
NEC Corporation and
domestic subsidiaries
¥80,969
¥
163,645
¥
93,777
Foreign subsidiaries
(19,473
)
(3,099
)
21,887
¥61,496
¥
160,546
¥
115,664
Provision for income taxes:
Current:
NEC Corporation and
domestic
subsidiaries
¥46,549
¥56,624
¥30,251
Foreign subsidiaries
4,477
6,895
3,883
51,026
63,519
34,134
Deferred:
NEC Corporation and
domestic
subsidiaries
148
22,686
37,182
Foreign subsidiaries
7,540
(335
)
1,795
7,688
22,351
38,977
¥58,714
¥85,870
¥73,111
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 40.5% for the year ended March 31, 2005 and 42.0%
for the years ended March 31, 2003 and 2004, respectively. A reconciliation between the reported
total income tax provision and the amount computed by multiplying the income before income taxes by
the statutory tax rate is as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Expected tax provision
¥25,828
¥67,429
¥
46,844
Increase (decrease) in taxes resulting from:
Changes in valuation allowance
(6,582
)
10,568
16,892
Non-deductible expenses for tax purposes
2,168
2,377
4,780
International tax rate differences
(3,026
)
(5,604
)
(1,774
)
Effect of change in statutory tax rate
on deferred tax balances
16,282
4,197
–
Non-deductible goodwill
–
9,132
–
Tax on undistributed earnings
19,874
7,830
5,027
Other
4,170
(10,059
)
1,342
Income tax provision
¥58,714
¥85,870
¥
73,111
F-35
Table of Contents
11. Income Taxes (continued)
The significant components of deferred tax assets and liabilities at March 31, 2004 and 2005 were
as follows:
March 31
2004
2005
(Millions of yen)
Deferred tax assets:
Intercompany profit between
consolidated companies
¥
20,176
¥
21,334
Investments and advances
203,867
195,213
Accrued bonus
43,336
40,427
Accrued pension and severance costs
203,905
179,255
Operating lease
15,451
15,802
Operating loss carryforwards
83,689
44,406
Depreciation
43,528
44,269
Other
100,438
102,761
714,390
643,467
Less – valuation allowance
(30,940
)
(47,832
)
Total
¥
683,450
¥
595,635
Deferred tax liabilities:
Marketable securities
¥
29,236
¥
21,549
Tax deductible reserve
25,282
5,464
Tax on undistributed earnings
36,567
28,257
Other
39,777
34,297
Total
¥
130,862
¥
89,567
The Company has filed a consolidated tax return for NEC Corporation and its domestic
wholly-owned subsidiaries since the fiscal year ended March 31, 2003. 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, 2003, 2004 and 2005 were a decrease of ¥7,021
million, increases of ¥10,732 million and ¥16,892 million, respectively. The benefits of pre tax
operating loss carryforwards for the years ended March 31, 2003, 2004 and 2005 were ¥19,432
million, ¥46,846 million and ¥63,143 million, respectively.
At March 31, 2005, the Company had operating loss carryforwards amounting to ¥183,666 million of
which ¥74,152 million relates to domestic companies and will expire during the period from 2006
through 2012. The remainder of ¥109,514 million relates to foreign subsidiaries and, except for
¥66,284 million with no expiration date, will expire through 2025.
F-36
Table of Contents
11. Income Taxes (continued)
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.
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
2003
2004
2005
(Millions of yen)
Common stock:
Balance at beginning of year
¥
244,726
¥
244,726
¥
337,820
Offering of common stock, net
-
93,094
-
Conversion of convertible debt
-
-
-
Balance at end of year
¥
244,726
¥
337,820
¥
337,820
Additional paid-in capital:
Balance at beginning of year
¥
361,820
¥
361,820
¥
454,333
Offering of common stock, net
-
93,081
-
Stock offering cost, net of tax
-
(791
)
-
Conversion of convertible debt
-
-
-
Stock-based compensation
-
27
(27
)
Gain (loss) on sale of treasury stock
-
196
(19
)
Equity transactions by consolidated
subsidiaries
-
-
1,396
Balance at end of year
¥
361,820
¥
454,333
¥
455,683
Accumulated other comprehensive income
(loss):
Balance at beginning of year
¥
(105,437
)
¥
(286,417
)
¥
(149,797
)
Other comprehensive income (loss),
net of tax
(180,980
)
136,620
25,401
Balance at end of year
¥
(286,417
)
¥
(149,797
)
¥
(124,396
)
Treasury stock, at cost:
Balance at beginning of year
¥
(2,319
)
¥
(3,252
)
¥
(2,797
)
Net change resulting
from purchase and sales of
fractional shares of less than "One
Unit" as defined by the Japanese
Commercial Code
(933
)
455
(240
)
Balance at end of year
¥
(3,252
)
¥
(2,797
)
¥
(3,037
)
F-37
Table of Contents
12. Shareholders' Equity (continued)
(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.
Issuance of common stock in connection with conversions of convertible debt for the year ended
March 31, 2004 was 528 shares.
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.
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.
F-38
Table of Contents
12.
Shareholders' Equity (continued)
(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, 2004 and 2005 was ¥39,046 million.
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, 2005 included the Company's equity in undistributed earnings of
affiliated companies accounted for by the equity method in the amount of ¥63,566 million.
F-39
Table of Contents
12.
Shareholders' Equity (continued)
(3)
Other comprehensive income (loss)
Change in accumulated other comprehensive income (loss) is as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Foreign currency translation adjustments:
Balance at beginning of year
¥
6,597
¥
2,942
¥
(15,902
)
Change in the current period
(3,655
)
(18,844
)
1,812
Balance at end of year
¥
2,942
¥
(15,902
)
¥
(14,090
)
Minimum pension liability adjustment:
Balance at beginning of year
¥
(150,256
)
¥
(282,446
)
¥
(166,323
)
Change in the current period
(132,190
)
116,123
28,874
Balance at end of year
¥
(282,446
)
¥
(166,323
)
¥
(137,449
)
Unrealized gains (losses) on marketable
securities:
Balance at beginning of year
¥
41,136
¥
(4,081
)
¥
34,205
Change in the current period
(45,217
)
38,286
(5,316
)
Balance at end of year
¥
(4,081
)
¥
34,205
¥
28,889
Unrealized gains (losses) on derivative
financial instruments:
Balance at beginning of year
¥
(2,914
)
¥
(2,832
)
¥
(1,777
)
Change in the current period
82
1,055
31
Balance at end of year
¥
(2,832
)
¥
(1,777
)
¥
(1,746
)
Total accumulated other comprehensive
income (loss):
Balance at beginning of year
¥
(105,437
)
¥
(286,417
)
¥
(149,797
)
Change in the current period
(180,980
)
136,620
25,401
Balance at end of year
¥
(286,417
)
¥
(149,797
)
¥
(124,396
)
F-40
Table of Contents
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)
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
)
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
F-41
Table of Contents
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)
2005:
Foreign currency translation adjustments:
Foreign currency translation
adjustments arising during period
¥
1,812
¥
-
¥
1,812
Minimum pension liability adjustment
51,403
(22,529
)
28,874
Unrealized gains (losses) on marketable
securities:
Unrealized holding gains arising
during period
6,232
(2,644
)
3,588
Less: reclassification adjustments
for gains realized in net income
(loss)
(25,498
)
16,594
(8,904
)
Unrealized gains (losses) on derivative
financial instruments:
Net changes in fair value of
derivative financial instruments
(767
)
235
(532
)
Less: reclassification adjustments
for losses realized in net income
(loss)
946
(383
)
563
Other comprehensive income (loss)
¥
34,128
¥
(8,727
)
¥
25,401
F-42
Table of Contents
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.
The stock option activity is as follows:
Year ended March 31
2003
2004
2005
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
608,000
¥2,630
966,000
¥1,995
1,140,000
¥1,448
Granted
358,000
916
313,000
793
289,000
801
Expired
–
–
(139,000
)
3,395
(195,000
)
2,136
Adjusted
–
–
–
(46
)
–
–
Outstanding at end
of year
966,000
¥1,995
1,140,000
¥1,448
1,234,000
¥1,187
Exercisable at end
of year
301,000
3,400
469,000
2,328
632,000
1,571
F-43
Table of Contents
13. Stock-Based Compensation Plan (continued)
(1) NEC Corporation (continued)
The following table summarizes information for options outstanding and exercisable at March 31,
2005:
Outstanding
Exercisable
Weighted-
average
remaining
Weighted-
Weighted-
Exercise price
Number of
contractual
average
Number of
average
range
shares
life
exercise price
shares
exercise price
(Yen)
(Years)
(Yen)
(Yen)
¥
769 -    999
960,000
4.18
¥   823
358,000
¥   888
1,000 - 1,999
154,000
2.25
1,818
154,000
1,818
2,000 - 3,294
120,000
1.25
3,294
120,000
3,294
¥
769 - 3,294
1,234,000
3.65
¥1,187
632,000
¥1,571
The weighted-average fair value per option at the date of grant during the years ended March
31, 2003, 2004 and 2005 was ¥261, ¥294 and ¥247, 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
2003
2004
2005
Risk-free interest rate
0.45%
0.54%
0.59%
Expected life
4 years
4 years
4 years
Expected volatility
47.90%
50.20%
48.70%
Expected dividend
0.95%
0.73%
0.78%
F-44
Table of Contents
13.
Stock-Based Compensation Plan (continued)
(2)
NEC Electronics Corporation
NEC Electronics Corporation ("NECEL"), a consolidated subsidiary, has several stock option 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 of NECEL at the approximate market
value at the date of grant.
The options will be vested after two years from the date of grant under the condition that option
holders will be in service to NECEL at the date of exercising the option, and that NECEL achieved
certain target. The options are exercisable over a period of two years commencing two years after
the date of grant.
The terms of the options are subject to adjustment if there is a share split or consolidation of
shares. The plans provide that options generally lapse automatically at termination of service
before the exercise date and generally remain exercisable for one year after termination of service
during the exercise period.
The stock option activity is as follows:
Year ended March 31
2004
2005
Weighted-
Weighted-
average
average
Number
of
shares
exercise
price
Number
of
shares
exercise
price
(Yen)
(Yen)
Outstanding at beginning of year
–
¥       –
313,500
¥8,990
Granted
316,500
8,990
70,000
7,044
Forfeited
(3,000
)
8,990
(11,000
)
8,990
Expired
–
–
(70,000
)
7,044
Outstanding at end of year
313,500
¥8,990
302,500
¥8,990
Exercisable at end of year
–
–
–
–
The weighted-average remaining contractual life for options outstanding at March 31, 2005 is 2.5
years. The weighted-average fair value per option at the date of grant during the years ended March
31, 2004 and 2005 was ¥3,150 and ¥1,885, respectively.
F-45
Table of Contents
13.
Stock-Based Compensation Plan (continued)
(2)
NEC Electronics Corporation (continued)
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
2005
Risk-free interest rate
0.56%
0.34%
Expected life
3 years
3 years
Expected volatility
52.30%
46.80%
Expected dividend
0.22%
0.31%
F-46
Table of Contents
14.
Net Income (Loss) Per Share
A reconciliation of the numerators and the denominators of the basic and diluted per share
computations for net income (loss) is as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Net income (loss)
¥
(24,558
)
¥
41,078
¥
67,864
Effect of participating convertible
securities
-
-
(890
)
Net income (loss) available to common
shareholders
¥
(24,558
)
¥
41,078
¥
66,974
Effect of dilutive securities:
Convertible debt
-
1,874
583
Convertible debt issued by subsidiaries
-
-
(823
)
Other
-
-
(44
)
Diluted net income (loss)
¥
(24,558
)
¥
42,952
¥
66,690
Year ended March 31
2003
2004
2005
(Number of shares)
Weighted-average number of
shares of common stock
outstanding for the year
1,653,389,121
1,735,345,608
1,926,424,743
Effect of dilutive securities:
Convertible debt
-
222,921,899
166,262,345
Stock options
-
18,016
-
Weighted-average number of
shares of diluted common
stock outstanding for the
year
1,653,389,121
1,958,285,523
2,092,687,088
Year ended March 31
2003
2004
2005
(Yen)
Net income (loss) per share:
Basic
¥
(14.85
)
¥
23.67
¥
34.77
Diluted
(14.85
)
21.93
31.87
F-47
Table of Contents
14.
Net Income (Loss) Per Share (continued)
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
2003
2004
2005
(Number of shares)
Convertible debt
220,562,540
-
-
Stock options
966,000
827,000
1,234,000
On May 27, 2004, ¥110,000 million Zero Coupon Convertible bonds of NEC Electronics Corporation
("NECEL") (the "Bonds") were issued in the denomination of ¥10 million each with a stock
acquisition right exercisable on and after June 10, 2004 up to, and including, May 24, 2011 under
certain conditions stipulated in the contract. The Bonds will be repaid in full at maturity on May
27, 2011 at their principal amount. The initial conversion price is ¥9,860 per share which is
subject to adjustment in the event of a share split, consolidation of shares, and issuance of
shares with a price less than current market price per share. On or after May 27, 2008, and prior
to maturity, the Bonds may be redeemed at their principal amount by NECEL under certain conditions
stipulated in the contract. The contingently convertible shares are included in diluted earnings
per share for the year ended March 31, 2005.
F-48
Table of Contents
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:
March 31
2004
2005
Carrying
Estimated
Carrying
Estimated
amount
fair value
amount
fair value
(Millions of yen)
Long-term receivables, trade
¥
9,843
¥
10,323
¥
8,274
¥
8,637
Long-term loans
24,628
24,627
26,118
26,118
Long-term debt, including
current portion and
excluding capital lease
obligations
(1,027,485
)
(1,050,976
)
(903,803
)
(903,520
)
Derivatives:
Forward exchange contracts
916
916
(1,818
)
(1,818
)
Interest rate and
currency swap agreements
(9,598
)
(9,598
)
(8,113
)
(8,113
)
Currency option contracts:
Written
(86
)
(86
)
(6
)
(6
)
Purchased
955
955
517
517
F-49
Table of Contents
15.
Financial Instruments (continued)
(1)
Fair value of financial instruments (continued)
The fair value of financial instruments at March 31, 2004 and 2005 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. 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.
(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,
Accounting for Derivative Instruments and Hedging Activities,
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.
F-50
Table of Contents
15.
Financial Instruments (continued)
(2)
Derivative financial instruments (continued)
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 3
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 4 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, 2005.
At March 31, 2005, the Company expects to reclassify ¥560 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.
For the years ended March 31, 2003, 2004 and 2005, 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.
F-51
Table of Contents
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 large financial institutions. 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, 2003, 2004 and 2005, the Company has recorded losses of ¥465 million,
¥924 million and ¥1,027 million related to the securitization transactions. Fair value of retained
interests at March 31, 2005 is ¥39,453 million. Expected credit loss and discount rate used in
measuring the retained interests related to the securitization transactions completed during the
year ended March 31, 2003, 2004 and 2005 were as follows:
Year ended March 31
2003
2004
2005
Expected credit loss
0.0
% -
0.0
% -
0.0
% -
0.9
%
0.5
%
0.6
%
Discount rate
0.35
% -
0.34
% -
0.34
% -
1.94
%
3.30
%
3.30
%
At March 31, 2005, adverse changes of 10% and 20% to the key economic assumptions for the fair
value of retained interests would have no material impact on the 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, 2003, 2004 and 2005 was as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Proceeds from new securitization
¥
1,485,588
¥
1,425,043
¥
1,269,859
Cash flows received on retained interests
433,638
467,893
414,357
F-52
Table of Contents
16.
Securitization of Receivables (continued)
The components of securitized financial assets and other assets managed together at March 31, 2004
and 2005 were as follows:
March 31
2004
2005
(Millions of yen)
Notes and accounts receivable, trade
¥
993,289
¥
1,036,619
Delinquent amounts over 120 days or more
23,205
18,876
Net credit losses
5,500
8,876
Comprised of:
Assets held in portfolio
865,924
916,583
Assets securitized
127,365
120,036
17.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses amounted to ¥24,310
million, ¥23,452 million and ¥26,533 million for the years ended March 31, 2003, 2004 and 2005,
respectively.
18. Stock Issuances by Subsidiaries
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 increase
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.
F-53
Table of Contents
18.
Stock Issuances by Subsidiaries (continued)
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 increase 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.
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 increase 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 Technologies 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 increase 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 increase 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-54
Table of Contents
19.
Restructuring Charges
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 were completed in the year ended 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.
During the year ended March 31, 2005, the Company implemented restructuring activities in the area
of systems integration and personal solutions, and therefore, the Company incurred a restructuring
charge of ¥5,854 million. The charge for the IT Solution business consisted of personnel costs for
the reduction of approximately 600 employees, which excludes employees who left through normal
attrition. Prior to March 31, 2005, the Company had paid personnel costs of ¥3,759 million and
other costs of ¥530 million. At March 31, 2005, unpaid termination benefits approximated ¥3,037
million.
F-55
Table of Contents
20.
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.
The cost of equipment under operating leases at March 31, 2004 and 2005 was ¥35,256 million
and ¥32,180 million, respectively, and was included in machinery and equipment. Accumulated
depreciation on equipment under operating leases at March 31, 2004 and 2005 was ¥26,522
million and ¥20,199 million, respectively.
Future minimum lease payments from non-cancelable operating leases at March 31, 2005 are
¥1,776 million and ¥124 million for the years ending March 31, 2006 and 2007, 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 ¥78,897 million and
¥55,170 million at March 31, 2004 and 2005, respectively. Accumulated depreciation of the
leased assets at March 31, 2004 and 2005 was ¥47,877 million and ¥35,616 million,
respectively. At March 31, 2005, approximately 50% of the capital lease transactions were with
NEC Leasing, Ltd.
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, 2005:
(Millions of
Year ending March 31:
yen)
2006
¥
11,307
2007
7,922
2008
4,502
2009
1,529
2010
536
2011 and thereafter
78
Total minimum lease payments
25,874
Less – amount representing interest
(1,085
)
Present value of net minimum lease payments
24,789
Less – current obligation
(10,365
)
Long-term lease obligation
¥
14,424
F-56
Table of Contents
20.
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 ¥130,151 million, ¥142,334 million and ¥121,957
million for the years ended March 31, 2003, 2004 and 2005, respectively.
Future minimum rental payments under non-cancelable operating leases are as follows:
(Millions of
Year ending March 31:
yen)
2006
¥28,976
2007
21,556
2008
17,383
2009
15,772
2010
13,663
2011 and thereafter
42,381
21.
Commitments and Contingent Liabilities
Commitments outstanding at March 31, 2005 for the purchase of property, plant and equipment are ¥
20,165 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.
Maximum potential future payments, term and collateral of guarantees at March 31, 2005 are
summarized as follows:
F-57
Table of Contents
21.
Commitments and Contingent Liabilities (continued)
Maximum potential
future payments
Term
Collateral
(Millions of yen)
(Years)
(Millions of
yen)
Affiliated company
bank loans
¥
14,853
1- 8
¥
-
Employee mortgage loans
19,886
1-19
-
Customer financial
arrangements
6,794
1- 12
1,087
Lease – residual value
guarantees
17,280
1- 6
-
Other
5,600
1
-
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, 2005 would not have a material effect on the Company's financial position or results
of operation, except for the following:
NEC Corporation, Elpida Memory (USA), Inc., a U.S. subsidiary of Elpida Memory, Inc., an affiliated
company accounted for by the equity method, and NEC Electronics America, Inc., an indirect U.S.
subsidiary of NEC Corporation, are currently subject to an investigation being conducted by the
U.S. Department of Justice into potential antitrust violations in the U.S. dynamic random access
memory industry. Separately, Elpida Memory, Inc., Elpida Memory (USA), Inc., NEC Electronics
Corporation and NEC Electronics America, Inc. have been named in a number of class action civil
antitrust lawsuits seeking damages for alleged antitrust violations. Elpida Memory, Inc. is also
subject to a similar investigation being conducted by the Director-General for Competition, Cartels
Unit of the European Commission. Although no rulings have been issued in these investigations and
related civil proceedings at this time, the Company has provided an accrual for reasonably
estimable amount for the fiscal year ended March 31, 2005 in connection with the U.S. Department of
Justice's investigation.
F-58
Table of Contents
22.
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 electronic
components such as capacitors, relays and lithium ion rechargeable battery.
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.
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.
F-59
Table of Contents
22.
Segment Information (continued)
(1)
Business segments (continued)
a.
Sales
Year ended March 31
2003
2004
2005
(Millions of yen)
Sales:
IT Solutions business:
External customers
¥
1,911,304
¥
1,925,223
¥
1,820,680
Intersegment
171,320
173,669
323,758
Total
2,082,624
2,098,892
2,144,438
Network Solutions business:
External customers
1,473,225
1,678,955
1,802,606
Intersegment
103,108
96,769
89,371
Total
1,576,333
1,775,724
1,891,977
Electron Devices business:
External customers
842,484
829,958
807,686
Intersegment
94,235
102,215
60,984
Total
936,719
932,173
868,670
Others:
External customers
437,245
472,685
424,160
Intersegment
224,449
207,200
224,968
Total
661,694
679,885
649,128
Eliminations
(579,867
)
(579,853
)
(699,081
)
Electronics business total
4,677,503
4,906,821
4,855,132
Leasing business:
External customers
30,777
-
-
Intersegment
7,445
-
-
Total
38,222
-
-
Eliminations
(20,690
)
-
-
Consolidated total
¥
4,695,035
¥
4,906,821
¥
4,855,132
F-60
Table of Contents
22.
Segment Information (continued)
(1)
Business segments (continued)
b.
Segment profit or loss
Year ended March 31
2003
2004
2005
(Millions of yen)
Segment profit (loss):
IT Solutions business
¥
105,815
¥
91,782
¥
102,310
Network Solutions
business
34,284
67,869
26,468
Electron Devices business
(2,282
)
54,287
37,178
Others
14,838
10,711
11,555
Total
152,655
224,649
177,511
Eliminations
156
(1,559
)
2,977
Unallocated corporate
expenses
(38,486
)
(40,392
)
(49,316
)
Electronics business total
114,325
182,698
131,172
Leasing business
8,154
-
-
Eliminations
(1,590
)
-
-
120,889
182,698
131,172
Net other income and
expenses
(59,393
)
(22,152
)
(15,508
)
Consolidated income before
income taxes
¥
61,496
¥
160,546
¥
115,664
c.
Assets
March 31
2003
2004
2005
(Millions of yen)
Total assets:
IT Solutions business
¥
989,385
¥
957,492
¥
1,009,675
Network Solutions
business
1,011,997
1,015,899
1,056,245
Electron Devices business
1,109,312
1,089,228
1,055,277
Others
667,675
620,664
581,696
Total
3,778,369
3,683,283
3,702,893
Eliminations
(241,212
)
(161,680
)
(191,207
)
Corporate assets
566,143
522,739
428,999
Consolidated total
¥
4,103,300
¥
4,044,342
¥
3,940,685
F-61
Table of Contents
22.
Segment Information (continued)
(1)
Business segments (continued)
d.
Other significant items
Year ended March 31
2003
2004
2005
(Millions of yen)
Depreciation:
IT Solutions business
¥
33,195
¥
30,322
¥
26,154
Network Solutions business
30,675
26,217
22,106
Electron Devices business
107,983
93,948
95,496
Others
8,503
15,134
10,686
Total
180,356
165,621
154,442
Corporate
14,168
13,093
12,042
Electronics business total
194,524
178,714
166,484
Leasing business
1,070
-
-
Consolidated total
¥
195,594
¥
178,714
¥
166,484
Capital expenditures for
segment assets:
IT Solutions business
¥
26,754
¥
10,077
¥
11,888
Network Solutions business
13,735
12,128
14,658
Electron Devices business
111,447
124,176
176,028
Others
15,691
22,047
11,914
Total
167,627
168,428
214,488
Corporate
10,807
5,529
3,305
Electronics business total
178,434
173,957
217,793
Leasing business
300
-
-
Consolidated total
¥
178,734
¥
173,957
¥
217,793
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-62
Table of Contents
22.
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 for the years ended
March 31, 2003, 2004 and 2005 and long-lived assets at March 31, 2003,
2004 and 2005 were as follows. Although the disclosure of geographic
profit 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
2003
2004
2005
(Millions of yen)
Net sales:
Japan
¥
3,879,454
¥
3,889,854
¥
3,777,408
All foreign countries
815,581
1,016,967
1,077,724
Total
¥
4,695,035
¥
4,906,821
¥
4,855,132
Geographic profit:
Japan
¥
118,277
¥
169,773
¥112,114
All foreign countries
2,612
12,925
19,058
Total
¥
120,889
¥
182,698
¥131,172
March 31
2003
2004
2005
(Millions of yen)
Long-lived assets:
Japan
¥
1,014,995
¥964,221
¥919,724
All foreign countries
90,488
63,916
59,711
Total
¥
1,105,483
¥
1,028,137
¥979,435
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 13.9%, 16.3% and
13.4% of consolidated sales for the years ended March 31, 2003, 2004
and 2005, respectively.
F-63
Table of Contents
23. Subsequent Events
On February 28, 2005, the Company entered into stock-for-stock exchange agreements with NEC SOFT
and NECST. The exchange was implemented on June 1, 2005, and therefore NEC SOFT and NECST will
become wholly-owned subsidiaries of the Company.
The shareholders, at June 22, 2005 Ordinary general Meeting of Shareholders, approved the payment
of a cash dividend of ¥3 per share, aggregating ¥5,780 million, for the year ended March 31,2005,
which has been reflected in the consolidated financial statements.
F-64
Table of Contents
SCHEDULE II
NEC Corporation
Valuation and Qualifying Accounts
Balance at
Charged to
Bad debts
beginning of
costs and
written
Balance at end
period
expenses
off
of period
(Millions of yen)
Year ended March 31, 2003:
Allowance for doubtful notes and accounts
¥
32,175
¥
4,040
¥
3,664
¥
32,551
Year ended March 31, 2004:
Allowance for doubtful notes and accounts
¥
32,551
¥
(2,067
)
¥
5,265
¥
25,219
Year ended March 31, 2005:
Allowance for doubtful notes and accounts
¥
25,219
¥
(1,468
)
¥
8,864
¥
14,887
F-65
Table of Contents
Consolidated Financial Statements
Elpida Memory, Inc.
At March 31, 2004 and 2005 and
Years ended March 31, 2003, 2004 and 2005
F-66
Table of Contents
Elpida Memory, Inc.
Consolidated Financial Statements
At March 31, 2004 and 2005 and
Years ended March 31, 2003, 2004 and 2005
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
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Elpida Memory, Inc.
We have audited the accompanying consolidated statements of operations, changes in shareholders'
equity and cash flows of Elpida Memory, Inc. (the "Company") for the year ended March 31, 2003, 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 results of operations and cash flows of Elpida Memory, Inc. for
the year ended March 31, 2003 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
Table of Contents
Elpida Memory, Inc.
Consolidated Balance Sheets
March 31
2004
2005
(Unaudited)
(Unaudited)
(Millions of yen)
Assets
Current assets:
Cash and cash equivalents
¥
110,555
¥
189,798
Accounts receivable, trade:
Related party
8,753
11,413
Other
18,053
25,356
Accounts receivable, other:
Related party
262
192
Other
6,168
7,734
Allowance for doubtful accounts
(32
)
(31
)
Inventories
24,437
32,795
Prepaid expenses and other current assets
350
1,546
Total current assets
168,546
268,803
Property, plant and equipment at cost
139,767
261,273
Accumulated depreciation
(15,485
)
(48,135
)
124,282
213,138
Marketable securities
–
2,052
License fees and other intangibles
2,669
4,632
Software costs
4,632
5,508
Other assets
324
513
7,625
12,705
¥
300,453
¥
494,646
2
Table of Contents
March 31
2004
2005
(Unaudited)
(Unaudited)
(Millions of yen)
Liabilities and shareholders' equity
Current liabilities:
Short-term borrowings
¥
6,739
¥
–
Current portion of obligation under capital leases
19,239
30,143
Current portion of long-term debt
6,216
18,520
Accounts payable, trade:
Related party
8,424
19,891
Other
16,127
7,908
Accounts payable, other:
Related party
8,127
17,290
Other
52,611
13,965
Accrued income taxes
504
696
Accrued expenses and other current liabilities
11,332
6,839
Total current liabilities
129,319
115,252
Long-term liabilities:
Obligation under capital leases
42,634
46,330
Long-term debt
46,184
138,573
Accounts payable, other
1,641
2,917
Accrued retirement benefits for employees
–
82
Other
1,525
1,008
91,984
188,910
Commitments and contingent liabilities
Shareholders' equity:
Common stock:
Authorized: 2004 and 2005 – 200,000,000 shares
Issued:    
    2004 – 28,400,000 shares
53,279
2005 – 91,984,400 shares
133,555
Class A stock:
Authorized and issued 2004 –17,600,000 shares
22,000
–
Class B stock:
Authorized and issued 2004 and 2005 –
4,480,000 shares
5,600
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
61,681
127,438
Accumulated deficit
(80,369
)
(74,858
)
Accumulated other comprehensive income (loss)
(708
)
(1,251
)
79,150
190,484
¥
300,453
¥
494,646
See notes to consolidated financial statements.
3
Table of Contents
Elpida Memory, Inc.
Consolidated Statements of Operations
Year ended March 31
2003
2004
2005
(Unaudited)
(Unaudited)
(Millions of yen)
Net sales
¥
67,379
¥
103,031
¥
207,028
Operating costs and expenses:
Cost of sales
59,441
99,030
156,620
Research and development
20,330
20,890
22,051
Selling, general and
administrative expenses
10,498
8,152
18,428
Total
90,269
128,072
197,099
Income (loss) from operations
(22,890
)
(25,041
)
9,929
Interest income
49
28
115
Interest expense
(190
)
(759
)
(3,079
)
Foreign exchange gains (losses)
1,152
256
(504
)
Governmental grants
–
1,800
145
Other income (expense), net
99
(151
)
(361
)
Income (loss) before income taxes
(21,780
)
(23,867
)
6,245
Provision for income taxes:
Current
268
976
1,270
Deferred
406
935
(536
)
674
1,911
734
Net income (loss)
¥
(22,454
)
¥
(25,778
)
¥
5,511
Year ended March 31
2003
2004
2005
(Yen)
Per share:
Basic:
Net income (loss)
¥
(943.69
)
¥
(503.13
)
¥72.21
Diluted:
Net income
–
–
71.03
See notes to consolidated financial statements.
4
Table of Contents
Elpida Memory, Inc.
Consolidated Statements of Changes in Shareholders' Equity
Year ended March 31
2003
2004
2005
(Unaudited)
(Unaudited)
(Millions of yen)
Common stock:
Balance at beginning of year
¥
36,278
¥
43,778
¥
53,279
Issuance of stock
7,500
9,501
40,609
Conversion from class stock
39,667
Balance at end of year
¥
43,778
¥
53,279
¥
133,555
Class A stock:
Balance at beginning of year
¥
–
¥
22,000
¥
22,000
Issuance of stock
22,000
–
–
Conversion to Common stock
–
–
(22,000
)
Balance at end of year
¥
22,000
¥
22,000
¥
–
Class B stock:
Balance at beginning of year
¥
–
¥
–
¥
5,600
Issuance of stock
–
5,600
–
Balance at end of year
¥
–
¥
5,600
¥
5,600
Class C stock:
Balance at beginning of year
¥
–
¥
–
¥
10,872
Issuance of stock
–
10,872
–
Conversion to Common stock
–
–
(10,872
)
Balance at end of year
¥
–
¥
10,872
¥
–
Class D stock:
Balance at beginning of year
¥
–
¥
–
¥
6,795
Issuance of stock
–
6,795
–
Conversion to Common stock
–
–
(6,795
)
Balance at end of year
¥
–
¥
6,795
¥
–
Additional paid-in capital:
Balance at beginning of year
¥
–
¥
29,294
¥
61,681
Issuance of stock
29,500
32,768
65,292
Stock issuance costs
(206
)
(381
)
(596
)
Stock based compensation
–
–
1,061
Balance at end of year
¥
29,294
¥
61,681
¥
127,438
Accumulated deficit:
Balance at beginning of year
¥
(32,137
)
¥
(54,591
)
¥
(80,369
)
Net income (loss)
(22,454
)
¥
(22,454
)
(25,778
)
¥
(25,778
)
5,511
¥5,511
Balance at end of year
¥
(54,591
)
¥
(80,369
)
¥
(74,858
)
Accumulated other
comprehensive income (loss):
Balance at beginning of year
¥
6
¥
(143
)
¥
(708
)
Foreign currency
translation adjustments
(149
)
(212
)
29
Unrealized gains on
marketable securities
–
–
2
Unrealized losses on
derivative financial
instruments
–
(353
)
(574
)
Other comprehensive loss
(149
)
(149
)
(565
)
(565
)
(543
)
(543
)
Comprehensive loss
¥
(22,603
)
¥
(26,343
)
¥4,968
Balance at end of year
¥
(143
)
¥
(708
)
¥
(1,251
)
See notes to consolidated financial statements.
5
Table of Contents
Elpida Memory, Inc.
Consolidated Statements of Cash Flows
Year ended March 31
2003
2004
2005
(Unaudited)
(Unaudited)
(Millions of yen)
Cash flows from operating activities
Net income (loss)
¥
(22,454
)
¥
(25,778
)
¥
5,511
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization
3,336
15,820
35,829
Stock compensation
–
–
1,061
Loss on sales and disposal of property, plant and equipment,
net
3
62
29
Deferred taxes
406
935
(537
)
Provision for retirement benefits for employee
–
–
82
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable, trade
9,980
(19,601
)
(9,493
)
(Increase) decrease in accounts receivable, other
(7,132
)
1,606
(1,496
)
Increase in inventories
(1,225
)
(16,804
)
(8,334
)
Increase in prepaid expenses and other current assets
(65
)
(132
)
(1,261
)
Increase (decrease) in accounts payable, trade
(3,151
)
2,269
3,208
Increase (decrease) in accounts payable, other
578
(124
)
2,620
Increase (decrease) in accrued expenses and other current
liabilities
(247
)
8,298
(4,986
)
Other, net
(630
)
1,301
(182
)
Net cash provided by (used in) operating activities
(20,601
)
(32,148
)
22,051
Cash flows from investing activities
Proceeds from sales of property, plant and equipment
17
206
195
Additions to property, plant and equipment
(45,342
)
(47,749
)
(152,114
)
Addition to license fees and other intangibles
–
(231
)
(3,927
)
Additions to software costs
(2,154
)
(1,912
)
(2,539
)
Purchase of marketable securities
–
–
(2,049
)
Other, net
171
(570
)
(130
)
Net cash used in investing activities
(47,308
)
(50,256
)
(160,564
)
Cash flows from financing activities
Net increase (decrease) in short-term borrowings
4,830
(5,333
)
(6,769
)
Proceeds from long-term debt
–
52,304
110,688
Repayments of long-term debt
–
–
(6,307
)
Proceeds from sale and leaseback transaction
4,677
84,555
40,667
Repayments of lease obligation
(241
)
(7,280
)
(26,013
)
Distribution to shareholders
–
(810
)
–
Proceeds from issuance of common stock
14,948
18,891
105,305
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
68,060
188,591
217,571
Effect of exchange rate changes on cash and cash equivalents
(11
)
(205
)
185
Net increase in cash and cash equivalents
140
105,982
79,243
Cash and cash equivalents at beginning of year
4,433
4,573
110,555
Cash and cash equivalents at end of year
¥
4,573
¥
110,555
¥
189,798
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest
¥
193
¥
742
¥
3,004
Income taxes
198
644
1,096
Non-cash investing transaction:
Property, plant and equipment acquired under capital leases
4,821
64,400
40,667
See notes to consolidated financial statements.
6
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements
March 31, 2005
The data in the following footnotes as of and for the years ended March 31, 2004 and 2005 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"). In
November 2004, common stock of Elpida Memory, Inc. was listed on the first section of Tokyo Stock
Exchange and, accordingly NEC's and HITACHI's ownership interest each decreased to 25%.
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 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 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 balances and transactions are eliminated.
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.
7
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
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.
Marketable securities
The Company classifies its marketable equity 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.
Inventories
Inventories are stated at the lower of cost or market.
The cost
of finished products, semifinished components and raw materials is determined by the
first-in, first-out basis, and work in process is determined by the average method.
The cost of supplies is determined individually.
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
Table of Contents
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
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Stock-based compensation
At March 31, 2005, 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 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
2003
2004
2005
(Millions of yen)
Net income (loss), as reported
¥
(22,454
)
¥
(25,778
)
¥
5,511
Add: Stock-based compensation
expense included in reported
net income
–
–
1,061
Deduct: Total stock-based
compensation expense determined
under fair value based method
for all awards
–
–
(2,919
)
Pro forma net income (loss)
¥
(22,454
)
¥
(25,778
)
¥
3,653
Year ended March 31
2003
2004
2005
(Yen)
Net income (loss), per share:
Basic-as reported
¥
(18,873.73
)
¥
(503.13
)
¥
72.21
Basic-pro forma
(18,873.73
)
(503.13
)
47.87
Diluted-as reported
–
–
71.03
Diluted-pro forma
–
–
47.87
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.
10
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
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.
New accounting standard
On December 16, 2004, the FASB issued No. 123 (revised 2004), Share-based Payment ("SFAS No.
123(R)"). This statement requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on fair values. SFAS No.
123(R) is effective at the beginning of the first fiscal year beginning after June 15, 2005. The
Company will adopt SFAS No. 123(R) effective April 1, 2006, and has not determined what effect, if
any, it will have on the Company's results of operations and financial position.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs – an amendment of ARB No. 43,
Chapter 4 ("SFAS No. 151"). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Among other provisions, the new rule requires that items
such as idle facility expense, excessive spoilage, double freight, and rehandling costs be
recognized as current period charges regardless of whether they meet the criterion of "so abnormal"
as stated in ARB No. 43. Additionally, SFAS No. 151 requires that the allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective on April 1, 2006 and has not determined what effect, if any,
it will have on the Company's results of operations and financial position.
11
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
New accounting standard (continued)
In
December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets – an amendment of
APB Opinion No. 29 ("SFAS No. 153"). SFAS No. 153 eliminates the exception from fair value
measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29, Accounting for Nonmonetary Transactions, and replaces it with an exception for
exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary
exchange has commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods
beginning after June 15, 2005. The Company will adapt SFAS No. 153 effective on April 1, 2006 and
has not determined what effect, if any, it will have on the Company's results of operations and
financial position.
Reclassification
Certain amounts in the consolidated financial statements for the years ended March 31, 2003 and
2004 have been reclassified to conform to the 2005 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 as of March 31,
2003 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
12
Table of Contents
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 year ended March 31, 2003 with restated amounts:
Year ended
March 31, 2003
(Millions of yen)
Net sales:
As previously reported
¥
63,235
Elpida (U.S.A)
23,734
Elimination of intercompany transactions
(19,590
)
As restated
¥
67,379
Net income (loss):
As previously reported
¥
(22,621
)
Elpida (U.S.A)
438
Elimination of intercompany transaction
(271
)
As restated
¥
(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. Marketable securities
The following is a summary of marketable securities:
March 31
2005
Acquisition
Unrealized
Description
cost
holding gains
Fair value
(Millions of yen)
Equity security
¥2,049
¥3
¥2,052
13
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
4. Inventories
Inventories at March 31, 2004 and 2005 consisted of the following:
March 31
2004
2005
(Millions of yen)
Finished products
¥
6,533
¥
14,679
Work in process and semifinished components
16,031
15,130
Raw materials and Supplies
1,873
2,986
¥
24,437
¥
32,795
5. Property, Plant and Equipment
March 31
Depreciable lives
2004
2005
(Millions of yen)
Buildings and improvements
3 – 60 years
¥
16,312
¥
29,539
Machinery and equipment
2 –   7 years
109,371
185,216
Tools
2 – 15 years
4,021
9,133
Construction in progress
10,063
33,433
Land
–
–
3,952
¥
139,767
¥
261,273
6. License Fees and Other Intangibles
License fees and other intangibles subject to amortization at March 31, 2004 and 2005 consisted of
the following:
March 31
2004
2005
Gross carrying
Accumulated
Gross carrying
Accumulated
amount
amortization
amount
amortization
(Millions of yen)
License fees
¥1,791
¥658
¥4,805
¥1,533
Other
3,334
1,798
3,742
2,382
¥5,125
¥2,456
¥8,547
¥3,915
14
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
6. License Fees and Other Intangibles (continued)
The estimated amortization expense for the next five years is follows:
Year ending March 31
(Millions of yen)
2006
¥1,102
2007
1,046
2008
966
2009
498
2010
371
7. Software Costs
Accumulated depreciation of internal use software at March 31, 2004 and 2005 was ¥2,182 million and
¥ 3,801 million, respectively. Depreciation expense for internal use software for the years ended
March 31, 2003, 2004 and 2005 was ¥620 million, ¥1,287 million and ¥ 1,615 million, respectively.
8. 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-tem borrowings outstanding at March 31, 2004 was 1.1%.
Long-term debt at March 31, 2004 and 2005 were as follows:
March 31
2004
2005
(Millions of yen)
Borrowings from banks and financial institutions,
due 2004 to 2007 with average interest rate of 0.9%
at March 31, 2004 and due 2005 to 2009 with
average interest rate of 1.5% at March 31, 2005
¥
42,400
¥
77,093
0.24% unsecured yen bonds due June 2006
10,000
10,000
1.45% unsecured yen bonds due March 2010
–
55,000
2.03% unsecured yen bonds due March 2012
–
15,000
52,400
157,093
Less – portion due within one year
6,216
18,520
¥
46,184
¥
138,573
15
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
8. Short-Term Borrowings and Long-Term Debt (continued)
At
March 31, 2005, ¥37,093 million out of the Company's borrowing arrangements
have restrictive debt covenants. Failure to comply with those covenants would require the
repayment of borrowing.
Certain of the Company's borrowing arrangements have restrictive debt covenants. The restrictive
covenants would require that the Company has at least ¥146.5 billion of the net assets, ¥40 billion
of the cash and cash equivalents, and the net debt equity ratio exceeding 1.2 times, or maintain a
certain level of the profit. The Company was in compliance with such the debt covenants at March
31, 2005.
Annual maturities of long-term debt during the next five years are summarized as follows:
Year ending March 31
(Millions of yen)
2006
¥18,520
2007
50,192
2008
13,181
2009
3,400
2010
56,800
The Company maintains credit lines of ¥50,000 million with five banks. At March 31, 2005, the
unused line of credit was ¥50,000 million. These programs have certain debt covenants which
require the Company to maintain certain levels of net assets.
In addition, the Company maintains long-term debt commitments of ¥50,000 million with twenty nine
financial institutions. At March 31, 2005, the unused commitments were ¥50,000 million. These
programs require the Company to maintain certain level of net assets.
9. Pension and Severance Plans
During the year ended March 31, 2005, Elpida and its domestic consolidated subsidiary established
retirement benefit plan. The plans consist of a defined benefit pension plan, a lump-sum indemnity
plan and a defined contribution plan. Transfers of benefit obligations and plan assets were based
on PBO of the employees transferred. Certain foreign consolidated subsidiaries have defined
contribution plans and lump-sum indemnity plans.
16
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pension and Severance Plans (continued)
Reconciliation of beginning and ending balances of the benefit obligation and the fair value of the
plan assets at March 31, 2005 were as follows:
(Millions of yen)
Change in benefit obligation:
Benefit obligations at beginning of year
¥
–
Service cost
286
Interest cost
15
Benefit paid
(6
)
Transfer from affiliates
2,666
Benefit obligations at end of year
2,961
Change in plan assets:
Fair value of plan assets at beginning of year
–
Actual return on plan assets
4
Employer's contributions
177
Benefit paid
(6
)
Transfer from affiliates
2,309
Fair value of plan assets at end of year
2,484
Fund status
(477
)
Unrecognized prior service cost *
353
Unrecognized actuarial loss *
50
Net amounts recognized
¥
(74
)
*
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 15 years.
In addition to the above-mentioned accrued retirement benefits for employees, additional accruals
of ¥8 million were recorded for certain foreign consolidated subsidiaries.
The assumptions used to determine benefit obligation at March 31, 2005 was follows:
Discount rate
2.1
%
Rate of increase in future compensation level
1.0 – 7.0
%
The assumptions used to determine net pension and severance cost for the year ended March 31, 2005
was follows:
Discount rate
2.1
%
Rate of increase in future compensation level
1.0 – 7.0
%
Expected long-term rate of return on plan assets
2.5
%
17
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
9. Pension and Severance Plans (continued)
The assets allocation for the pension plan at March 31, 2005 is 100% to short-term deposits.
The composition of retirement benefit expenses for the year ended March 31, 2005 was as follows:
(Millions of yen)
Service cost
¥286
Interest cost
15
Expected return on plan assets
(60
)
Amortization of prior service costs
11
Retirement benefit expenses
252
Contribution for defined contribution plan
76
Total
¥328
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
2003
2004
2005
(Millions of yen)
Income (loss) before income taxes:
Elpida and domestic subsidiary
¥
(23,256
)
¥
(26,831
)
¥
2,290
Foreign subsidiaries
1,476
2,964
3,955
(21,780
)
(23,867
)
6,245
Provision (benefit) for income taxes:
Current:
Elpida and domestic subsidiary
12
11
13
Foreign subsidiaries
256
965
1,257
268
976
1,270
Deferred:
Elpida and domestic subsidiary
–
1,063
(556
)
Foreign subsidiaries
406
(128
)
20
406
935
(536
)
¥
(22,454
)
¥
(25,778
)
¥
5,511
18
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
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 42.1% for the years ended March 31, 2003 and 2004 and 40.8%
for the year ended March 31, 2005.
Significant components of reconciling items between the statutory tax rate and the effective tax
rate are as follows:
Year ended March 31
2003
2004
2005
Statutory tax rate
42.1
%
42.1
%
40.8
%
Adjustments:
Permanent difference on stock
compensation
–
–
6.9
Valuation allowances
(43.3
)
(47.0
)
(32.6
)
Other
(1.9
)
(3.1
)
(3.3
)
Effective tax rate
(3.1
)%
(8.0
)%
11.8
%
New legislation was enacted in March 2003 changed the aggregate statutory tax rate from 42.1% to
40.8% effective for fiscal years beginning after March 31, 2004. The effect of this tax rate
change was not material.
The significant components of deferred tax assets and liabilities at March 31, 2004 and 2005 were
as follows:
March 31
2004
2005
(Millions of yen)
Deferred tax assets:
Net operating loss carryforwards
¥
33,774
¥
29,487
Depreciation
505
2,144
Other
774
3,369
35,053
35,000
Less: valuation allowance
(33,963
)
(31,928
)
Deferred tax liabilities:
Depreciation
(1,954
)
(3,396
)
Other
(43
)
(40
)
(1,997
)
(3,436
)
Net deferred tax liabilities
¥
(907
)
¥
(364
)
19
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
10. Income Taxes (continued)
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, 2003, 2004, 2005 was an increase of ¥9,421 million, an increase of ¥11,216
million and a decrease of ¥2,035 million, respectively.
At March 31, 2005, the Company had operating loss carryforwards of approximately ¥ 72,303 million
of which ¥ 71,273 million relates to Elpida and its domestic subsidiary and will expire during the
period from 2006 through 2012. The reminder of ¥ 1,030 million relates to its foreign
subsidiaries, which has no expiration date.
11. Shareholders' Equity
Common stock and additional paid-in capital
During the year ended March 31, 2005, Elpida completed global offering of 29,150,000 shares of
Common stock. The offering price of ¥3,500 was reduced to an issue price of ¥3,325 and accordingly,
the difference between the offering and issue price was recognized as an underwriting fee. The net
proceeds from stock offering of ¥96,924 million, were allocated ¥37,166 million to Common stock and
remaining amount of ¥59,758 million to additional paid-in capital after the stock offering costs of
¥597 million, net of tax were deducted in accordance with the Japanese Commercial Code.
In addition, the company issued 2,700,000 shares of Common stock upon the exercise of an
over-allotment option. The net proceeds of ¥8,977 million were allocated ¥3,443 million to Common
stock and remaining amount of ¥5,534 million to additional paid-in capital.
20
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
11. Shareholders' Equity (continued)
Classes of stock
Class A voting stock was converted into 17,600,000 shares of the common stock on May 24, 2004.
Prior to the conversion, each share was convertible into one share of common stock of Elpida.
Dividends on Class A stock were subordinated to dividends on common stock of Elpida.
Class B stock was non-voting and had certain veto rights pursuant to the articles of incorporation,
which expired on November 15, 2004 on the initial listing of shares of the Elpida's common stock on
the Tokyo Stock Exchange. Subsequent to March 31, 2005, Class B shareholder converted their shares
into common stock.
Class C stock was converted into 8,698,000 shares of Common stock on November 15, 2004. Class C
shareholders had no voting privileges. Annual or interim dividends, if any, were
pari passu
among
Common, Class B and Class D shareholders. Class C shareholders had certain liquidation
preferences.
Class D stock was converted into 5,436,400 shares of Common stock on November 15, 2004. Class D
shareholders had no voting privileges. Annual or interim dividends, if any, were
pari passu
among
Common, Class B and Class C shareholders. Class D shareholders had certain liquidation
preferences.
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.
21
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
11. Shareholders' Equity (continued)
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.
Change in accumulated other comprehensive income (loss) for the years ended March 31, 2004 and 2005
were as follows:
Year ended March 31
2004
2005
(Millions of yen)
Foreign currency translation adjustments:
Balance at beginning of year
¥
(143
)
¥
(355
)
Change in the current period
(212
)
29
Balance at end of year
¥
(355
)
¥
(326
)
Unrealized gain on investment securities:
Balance at beginning of year
¥
–
¥
–
Change in the current period
–
2
Balance at end of year
¥
–
¥
2
Unrealized losses on derivative financial instruments:
Balance at beginning of year
¥
–
¥
(353
)
Change in the current period
(353
)
(574
)
Balance at end of year
¥
(353
)
¥
(927
)
Total accumulated other comprehensive income (loss):
Balance at beginning of year
¥
(143
)
¥
(708
)
Change in the current period
(565
)
(543
)
Balance at end of year
¥
(708
)
¥
(1,251
)
22
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
12. 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 from November 2005 through March 2011.
The stock option activity for the year ended March 31, 2004 and 2005 were as follows:
2004
2005
Weighted-
Weighted-
Number of
average
Number of
average
shares
exercise price
shares
exercise price
(Yen)
(Yen)
Outstanding at beginning
of year
–
¥
–
3,230,000
¥
2,500
Granted
3,230,000
2,500
–
–
Outstanding at end of year
3,230,000
¥
2,500
3,230,000
¥
2,500
Exercisable at end of year
–
–
–
–
The weighted-average remaining contractual life for options outstanding at March 31, 2005 is
six years.
The weighted-average fair value per share at the date of grant during the year ended March 31, 2004
was ¥ 2,259. 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
0.50
%
Expected life
4.79 years
Expected volatility
72.2
%
Expected dividend
–
%
23
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
13. 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, 2003, 2004 and 2005 was ¥743 million, ¥776 million
and ¥1,208 million, respectively.
14. Income (Loss) Per Share
A reconciliation of numerators and denominators of the basic and diluted per share computations for
net income (loss) is as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Net income (loss)
¥
(22,454
)
¥
(25,778
)
¥
5,511
Effect of dilutive securities
–
–
–
Diluted net income (loss)
¥
(22,454
)
¥
(25,778
)
¥
5,511
Year ended March 31
2003
2004
2005
(Number of shares)
Weighted-average number of
shares of common stock
outstanding for the year
1,189,699
51,234,860
76,324,947
Effect of dilutive securities:
Stock option
–
–
1,260,122
Weighted-average number of
shares of diluted common
stock outstanding for the
year
1,189,699
51,234,860
77,585,069
Year ended March 31
2003
2004
2005
(Yen)
Per share:
Net income (loss):
Basic
¥
(943.69
)
¥
(503.13
)
¥
72.21
Diluted
–
–
71.03
On March 19, 2004, the Company completed a twenty-for one stock split. The above per share
amounts for the year ended March 31, 2003 and 2004 have been adjusted to reflect the stock split.
24
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
15. Financial Instruments
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, 2004 and 2005 were as follows:
March 31
2004
2005
Carrying
Estimated
Carrying
Estimated
amount
fair value
amount
fair value
(Millions of yen)
Long-term debt,
including current
portion
¥
52,400
¥
52,220
¥
157,093
¥
157,671
Derivatives:
Forward exchange
contracts
5,054
5,054
17,609
17,609
Interest rate
swap agreements
(353
)
(353
)
(927
)
(927
)
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.
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.
25
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
15. Financial Instruments (continued)
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 7 years. Approximately 38.2% of the
Company's outstanding long-term debt was designated as the hedged items to interest rate swap
agreements at March 31, 2005.
At March 31, 2005, the Company expects to reclassify ¥508 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, 2005, 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.
26
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
16. 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 a period up to 8 years. Rental expense under
operating leases for the years ended March 31, 2003, 2004 and 2005 was ¥2,744 million, ¥14,261
million and ¥21,146 million, respectively. 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 ¥29 million
with HITACHI's affiliate. The rental expense under operating leases for the year ended March 31,
2005 included the rental expense of ¥8,045 million with NEC's affiliates and of ¥251 million with
HITACHI's affiliate.
At March 31, 2005, the Company had operating leases with minimum rental commitments in succeeding
years as follows:
Year ending March 31
(Millions of yen)
2006
¥12,689
2007
8,089
2008
2,088
2009
51
2010
4
Certain facilities and equipment are leased under long-term agreements and accounted for as capital
lease. 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, 2004 and 2005 was
¥72,040 million and ¥113,139 million, respectively. The related accumulated depreciation at March
31, 2004 and 2005 was ¥9,165 million and ¥30,345 million, respectively. At March 31, 2004 and
2005, approximately 16 % and 35% of the capital lease transactions were with HITACHI's affiliate,
respectively.
27
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
16. Leasing Arrangements (continued)
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, 2005.
Year ending March 31
(Millions of yen)
2006
¥31,892
2007
25,948
2008
12,418
2009
8,064
2010
1,630
Total minimum lease payments
79,952
Less – amount representing interest
3,479
Present value of net minimum lease payments
76,473
Less – current obligation
30,143
Long-term lease obligation
¥46,330
17. Commitment and Contingent Liabilities
Commitments outstanding at March 31, 2005 for the purchase of property, plant and equipment
approximated ¥35,000 million.
The Company entered into a long-term purchase agreement for natural gas with Hiroshima Gas Co.,
Ltd. Based on the agreement, the Company is committed to purchase minimum volumes each year. The
Company's total commitment based on current prices is approximately ¥54 billion for the period from
April 1, 2005 through March 31, 2015. Prices are reset annually.
Elpida (U.S.A.) is under investigation by the Antitrust Division of the United States Department of
Justice (the DOJ) into possible antitrust violations in the DRAM industry and a number of purported
class action lawsuits alleging antitrust violations. Elpida has also received a request for
information from European Commission relating to its investigation into the compatibility of
certain practices in the European DRAM market with the EC competition rules, to which Elpida has
duly responded. Although the DRAM industry investigation has been continuing, the Company provided
approximately ¥1.9 billion related to the DOJ investigation.
28
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
18. Segment Information
Business Segment
The Company is engaged in the development, design, manufacture and sale of semiconductor products
and focuses on DRAM products.
Geographical Segment Information
Sales, which are attributed to geographic areas based on the country location of Elpida Memory,
Inc. or subsidiary that transacted the sale with the external customer for the years ended March
31, 2003, 2004 and 2005 and long-lived assets at March 31, 2004 and 2005 were as follows:
Year ended March 31
2003
2004
2005
(Millions of yen)
Net sales:
Japan
¥
33,924
¥
66,726
¥
85,312
All foreign countries
33,455
36,305
121,716
Total
¥
67,379
¥
103,031
¥
207,028
March 31
2004
2005
(Millions of yen)
Long-lived assets:
Japan
¥
131,617
¥
223,161
All foreign countries
212
564
Total
¥
131,829
¥
223,725
Major customers
For the year ended March 31, 2003, the two largest customers made up 14% and 11% of total sales.
For the year ended March 31, 2004, the two largest customers made up 11% and 10% of total sales,
respectively. For the year ended March 31, 2005, the two largest customers each made up 12% of
total sales.
29
Table of Contents
Elpida Memory, Inc.
Notes to Consolidated Financial Statements (continued)
19. Related Party Transactions
The following table summarizes related party transactions for the years ended March 31, 2003, 2004
and 2005.
Year ended March 31
2003
2004
2005
(Millions of yen)
NEC and its affiliates:
Sales
¥
1,524
¥
11,738
¥
20,753
Purchase of products and
semifinished components
36,027
41,995
53,057
Manufacturing overhead costs
–
19,560
5,850
Selling, general and
administrative expenses
14,927
9,271
5,692
Purchase of tangible assets
2,616
4,996
37,294
License fees and other intangibles
–
–
2,610
Purchase of software
1,732
141
530
Year ended March 31
2003
2004
2005
(Millions of yen)
HITACHI and its affiliates:
Sales
¥
4,700
¥
11,233
¥
24,990
Purchase of products and
semifinished components
22,409
54,445
53,617
Manufacturing overhead costs
–
214
717
Selling, general and
administrative expenses
4,345
7,393
7,296
Interest expense
–
–
158
Purchase of tangible assets
3,968
9,183
3,274
License fees and other intangibles
–
–
503
Purchase of software
–
100
142
30
Table of Contents
EXHIBIT INDEX
Exhibit
Description
1
Articles of Incorporation, as
amended to date (English translation).
Rules of the Board of Directors, as amended to date (English translation).
8
Subsidiaries of the Company (see "Item 4.C. Information on the Company—Organizational Structure").
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).