RNS Number:3842K
NEC Corporation
25 April 2003
April 24, 2003
Full Year Consolidated Financial Results for the Fiscal Year Ended March 31, 2003
Consolidated Financial Results
Fiscal Year Ended March Fiscal Year Ended March Increase
31, 2003 31, 2002 (Decrease)
In billions of yen In billions of yen %
Net sales 4,695.0 5,101.0 (8.0)
Operating income (loss) 120.8 (55.5) -
Income (loss) before income taxes 61.4 (461.1) -
Loss before cumulative effect of (24.5) (309.4) -
accounting change
Net loss (24.5) (312.0) -
yen yen yen
Per share of common stock:
Loss before cumulative effect of
accounting change:
Basic: (14.85) (187.06) -
Diluted: (14.85) (187.06) -
Net loss :
Basic: (14.85) (188.63) -
Diluted: (14.85) (188.63) -
In billions of yen In billions of yen %
Total assets: 4,103.3 5,010.8 (18.1)
Number of employee: 145,807 141,909 -
(Notes)
1. The consolidated financial statements of NEC are prepared in accordance with
accounting principles generally accepted in the United States, or U.S. GAAP
2. Number of consolidated subsidiaries and affiliated companies accounted for by
the equity method:
Fiscal year ended March Fiscal year ended March
31, 2003 31, 2002
Consolidated subsidiaries 183 169
Affiliated companies accounted for by the 17 13
equity method
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Background to the Financial Results for the Fiscal Year Ended March 31, 2003
1. Fundamental Management Policy
In the fiscal year ended March 31, 2003, the severity of the market conditions
remained severe due mainly to weak communications infrastructure equipment
market and the slowdown in the domestic information technology ("IT")
investment, triggered by the global effect of the long-term IT recession of the
U.S. Nevertheless, we are in an age where corporate, countries and local
government are implementing systems built on an Internet-based infrastructure.
Moreover, the spread of Internet broadband services combined with higher
performance personal computers ("PCs") and servers are enabling data to be
distributed and processed in great volumes. This in turn makes it possible for
consumer electronics products, cars, game machines and other consumer devices to
connect each other through the Internet, and for mobile handsets to transmit and
receive high-quality moving and video, as well as precise positioning data. In
addition, it also becomes possible to track a product with ultra-small chip and
wireless functions, creating a ubiquitous computing environment where people and
things can be interconnected constantly. In this environment, NEC aims to
provide a new level of integrated solutions combining IT and network
technologies.
2. Mid- to Long-Term Business Strategy
In April 2000, NEC began its first phase of structural reforms and introduced
the in-house company system consisting of three in-house companies, each
operating in accordance with its own unique criteria to provide solutions in the
fields of IT, networks and electron devices. As a result of the structural
reforms, NEC achieved, among other things, the elimination of "back-scratching"
among its internal business units, conversion to solution-oriented operations,
business restructuring, integration and reorganization of NEC's affiliated
companies and the enhancement of corporate governance. During these three years,
however, the external environment underwent serious changes stemming from
intensified international price competition due to the rise of Chinese
corporations, the development of network technology, the development of
integrated technologies in IT and network, and changes in the competitive
structure of the semiconductor industry.
NEC responded to these business environmental changes by launching its second
phase of structural reforms in May 2002. Recognizing the differences of customer
needs in its fields of operation and the different approaches required to gain a
competitive edge in these fields, NEC divided its business domain into two main
areas: IT-Network Integrated Solutions and Semiconductor Solutions. The aim of
this second phase is to realize a significant increase in the corporate value of
the NEC group by concentrating management resources in each field of business.
1. IT-Network Integrated Solutions
On April 1, 2003, former NEC Solutions and NEC Networks shifted from an in-house
company structure to a structure based on nine business lines to promote open
and flat operations and enhance IT-Network Integrated Solutions. The Domestic
Sales Business line is responsible for sales in the rapidly growing IT-Network
Integrated Solutions market. An executive officer has been appointed to
implement an effective integrated solutions system and enhance the development
of software and hardware in the area of IT-Network fusion technology.
2. Semiconductor Solutions
On November 1, 2002, NEC separated its semiconductor business (except
general-purpose DRAMs) to the newly established NEC Electronics Corporation
("NEC Electronics"). As a semiconductor solution specialist, NEC Electronics is
aiming to satisfy customer needs through its differentiated technologies,
focusing particularly on system LSIs. The purpose of this corporate separation
has been to maximize the corporate value as a semiconductor solution specialist
and to build a global company with a solid financial base by implementing the
fund raising that suits the investment-intensive characteristics of the
business. As strategic partners, NEC and NEC Electronics aim to capitalize on
their synergies as strategic partners on both business and technical level.
3. Growth Strategy
NEC is currently grappling with the challenge of how to increase its shareholder
equity. The bursting of the IT bubble left IT related companies across the globe
recording huge losses. NEC was no exception; however, by decisively implementing
structural reforms to eliminate the negative business practices of the past, NEC
has been able to endure through the downturn, reinvigorate business, and make a
return to business profitability. Nevertheless, factors such as restructuring
costs, stock market downturn, and loss in weight of pension trusts assets have
contributed to reducing NEC's shareholder equity.
To recover and increase shareholder equity, it is firstly imperative for NEC to
increase the profits obtained from ordinary business activities. Therefore, NEC
intends to revitalize its business structure and to carry forward with its new
business strategy for growth, to realize such strategy, and to implement
innovative management ideas.
First, measures for business revitalization include continued enhancement of
innovations in production and supply-chain-management, as well as improved
profitability and financial condition through further reductions in materials
costs and reduction of assets. These measures will help to establish a healthy
business from which profits can be obtained even under deflationary economic
conditions, thus restoring business productivity.
Next, the new emphasis on strategy for growth is based on two main concepts, the
first of which is providing services that integrate the IT solution and network
solution. Overlaps in the fields of IT and network have appeared due to the
increasingly sophisticated use of information systems and diversification of
communications services. NEC will strive to maximize its strength in both of
these fields to generate new demand. Furthermore, NEC also aims to offer total
solutions by providing hardware and software building network infrastructure,
and developing and operating business application software.
The second concept is global business expansion. One measure to achieve this
concept is to strengthen the IT solution business in four global regions:
Europe, China/Taiwan, Asia/Pacific, and North America, and implement a flat
business management in each region. Another pillar of global expansion is the
mobile terminal area of the Network Solutions business. Based on a solid
domestic foundation, NEC will actively introduce its products in overseas
market, focusing particularly in Europe and China.
NEC intends to adopt innovative management practices to realize the foregoing
concepts of strategy for growth. By creating a new management structure based on
its business units, NEC aims to achieve open and flat operations that
concentrate on the market and customers, making it possible to satisfy the
increased market demands accompanying development of fusion of IT and network
technologies. NEC's overall aim is to create a corporate spiritual climate where
the guiding principles are market and customer oriented, and where customer
satisfaction is the byword in all activities. Through these measures, NEC will
achieve global excellence.
4. Basic Policy and Implementation Status of Plan Regarding Corporate Governance
NEC believes that strong corporate governance is vital in maximizing its
corporate value, which embodies the company's value for its shareholders,
customers, and employees. Recognizing this, NEC aims to strengthen its corporate
governance as follows, in accordance with the three principles: (i) transparency
and integrity of management, (ii) clear accountability, and (iii) timely and
fair disclosure.
1. Separation of supervision and execution
To achieve fast decision-making and clearly delineate business responsibilities,
NEC established an executive officer system in April 2000, and at the same time,
reduced the number of board members from 37 to 19 (14 as of March 31, 2003).
2. Addition of outside members to board of directors
To strengthen the supervisory function of the board of directors, to raise the
management integrity, and to make the decision-making process more transparent,
NEC plans to increase the number of independent board members to approximately
five, with the aim of creating a board structure in which one third of the
members are outside board members. One outside board member assumed office in
fiscal 2002, bringing the total of outside board members as of March 31, 2003 to
three.
3. Auditing system
The corporate auditors are appointed at the shareholders meeting and
independently audit the legitimacy of the duties carried out by the directors.
The board of corporate auditors consists of two full-time corporate auditors and
two outside auditors (as of March 31, 2003).
4. Management advisory committee
In January 2001, the Management Advisory Committee was established as an
advisory organization for top management. The committee consists of 11 members:
five from outside, and six board members (as of March 31, 2003). The committee
was held four times in fiscal 2003 to discuss the mid-term management strategy
of NEC and other management matters.
5. Compensation committee
In January 2001, the Compensation Committee was established to debate the
appropriateness of remuneration, bonuses and stock options provided to the
directors and executive officers. The Compensation Committee consists of five
members, including two outside members (as of March 31, 2003). The Compensation
Committee was held twice in fiscal 2003 to discuss revisions to directors'
compensation levels and the compensation system.
6. Disclosure of quarterly financial results
With a view to emphasizing timely and fair disclosure, NEC started publishing
business results on a quarterly basis from fiscal 2002, and endeavors to
announce its financial results as soon as possible following the close of each
reporting period.
5. Business Results
1. Overview of the fiscal year ended March 31, 2003 and outlook for the
fiscal year ending March 31, 2004
Although the world economy showed signs of a modest recovery especially in the
U.S. and Asia during the first half ended September 30, 2002, uncertainty
intensified in the second half ended March 31, 2003 due mainly to the
aggravation of the situation in Iraq. Regarding Japans economy, exports mainly
to the U.S. and Asia expanded in the first half, and personal consumption made
relatively steady progress, leading the economy towards recovery. However, in
the second half, concerns over the slowdown of business conditions increased, as
shown by the fact that the favorable trend of exports began to slow down, the
stock prices fell as uncertainty grew regarding the future of the world economy
due to the disruptive situation in Iraq, and personal consumption slowed down.
In the electronics industry, although demand for systems integration (SI)
services and digital consumer products grew steadily, demand for PC and
communication equipment remained flat and the general weakness in the market
continued.
Moreover, the business environment surrounding NEC changed dramatically
including advancement of technology integration in the fields of IT and network,
the competitive structure of the semiconductor industry, the intense price
competition stemming from the rise of new Chinese companies and the development
of horizontal international specialization system through providers of
electronic manufacturing services (EMS).
Consolidated financial results
Consolidated net sales for the fiscal year ended March 31, 2003 decreased by 8%,
to 4,695.0 billion yen, as compared with the previous fiscal year due mainly to
decrease in sales for network infrastructure equipment and mobile terminals.
Despite the decrease in consolidated net sales, as a result of restructuring
measures implemented in the previous fiscal year that reduced fixed expenses and
costs, NEC recorded a consolidated operating income of 120.8 billion yen (an
increase of 176.4 billion yen as compared with the previous fiscal year). Income
before income taxes was 61.4 billion yen (an improvement of 522.6 billion yen as
compared with the previous fiscal year). NEC incurred consolidated net loss of
24.5 billion yen despite its 287.4 billion yen improvement as compared with the
previous fiscal year. This was mainly due to the equity in losses of affiliated
companies resulting from weak operating results of semiconductor companies and
the write down of deferred income tax assets resulting from the introduction of
a corporate activity tax (gaikei hyojun kazei).
Regarding the fiscal year ending March 31, 2004, although NEC anticipates
continuing difficult conditions for the telecommunications infrastructure
business, advancing forward with its mobile handset business planned in overseas
markets, NEC is aiming to slightly increase its consolidated net sales over the
fiscal year ended March 31, 2003 to 4,800.0 billion yen. Due to strong
achievements in company-wide restructuring and reductions in material costs, NEC
plans an operating income of 45.0 billion yen for the first half ending
September 30, 2003 and 180.0 billion yen for the second half ending March 31,
2004 respectively. Regarding consolidated net income, NEC plans a net income of
3 billion yen for the first half and 30.0 billion yen for the second half
respectively.
- Consolidated -
Comparison with
the fiscal year ended
March 31, 2003:
Net sales 4,800.0 billion yen +2%
Operating income 180.0 billion yen Increased by 59.2 billion yen
Income before income taxes 120.0 billion yen Increased by 58.6 billion yen
Net income 30.0 billion yen Increased by 54.5 billion yen
- Non-consolidated -
Comparison with
the fiscal year ended
March 31, 2003:
Net sales 2,400.0 billion yen -14%
Ordinary income 35.0 billion yen Increased by 28.9 billion yen
Net income 15.0 billion yen Increased by 29.9 billion yen
2. Results by operating segments (including inter-segment transactions and
profit/ loss figures)
Sales and segment profit or loss of NEC's main segments were as follows (figures
in brackets denote increase or decrease from the previous fiscal year):
IT Solutions Business
Sales: 2,082.6 billion yen (-6%)
Segment profit: 105.8 billion yen (+30.4 billion yen)
Sales for the IT Solutions business for the fiscal year ended March 31, 2003
were 2,082.6 billion yen, a decrease of 6% as compared with the previous fiscal
year. Sales of main product areas were as follows:
In the area of SI services/software, sales increased by 4% to 541.7 billion yen
over the previous fiscal year. This was mainly due to steady growth in sales for
SI services for governments and public offices, and the electrical power and
broadcast media industries that were tackling the provision of broadband
services and digitalization of broadcasting. In the area of Internet services/
support services, sales increased by 4% to 350.3 billion yen over the previous
fiscal year due mainly to growth in sales for BIGLOBE's value-added services. In
the area of hardware, sales of servers, storage products and workstations
decreased by 18% to 363.1 billion yen over the previous fiscal year, primarily
due to decreased sales volumes as compared with the previous fiscal year in
which NEC had large scale orders.
Segment profit of IT Solutions business increased by 30.4 billion yen to 105.8
billion yen as compared with the previous fiscal year, due mainly to improved
profitability resulting from structural reforms of the PC business, and
increased sales for SI services/software.
Network Solutions Business
Sales: 1,576.3 billion yen (-20%)
Segment profit: 34.2 billion yen (-19.1 billion yen)
Sales for Network Solutions business decreased by 20% to 1,576.3 billion yen
compared to the previous fiscal year.
Regarding sales by main product areas, sales for network infrastructure
decreased by 23% to 893.9 billion yen as compared with the previous fiscal year
due to continuing weakness in the global telecommunications market. Sales for
mobile terminals decreased by 24% to 439.2 billion yen compared to the previous
fiscal year when domestic shipments were favorable. With respect to sales in the
remaining business areas, an increase in shipments for domestic airborne signal
digital broadcasting equipment resulted in an increase in sales of 13% to 243.2
billion yen as compared with the previous fiscal year.
Despite a decrease in overall sales and an adverse business environment, segment
profit of Network Solutions business was 34.2 billion yen, a decrease of 19.1
billion yen as compared with the previous fiscal year. The reduced sales were
partially offset by a reduction of fixed expenses and costs, resulting from
restructuring measures which NEC had been implementing since the previous fiscal
year.
Electron Devices Business
Sales: 936.7 billion yen (+11%)
Segment loss: 2.2 billion yen (improved by 145.8 billion yen)
Sales for Electron Devices business for the fiscal year ended March 31, 2003
were 936.7 billion, an 11% increase as compared with the previous fiscal year.
Regarding sales by main product areas, sales for semiconductors increased by 10%
to 706.7 billion yen as compared with the previous fiscal year due to the steady
growth especially in semiconductors for consumer electronic products, mobile
handsets and automobiles. In the area of displays, although shipments increased
for plasma display panels, (i) the reduction in business for color liquid
crystal displays ("LCDs") for commodity PCs where there was rapid price decline
and poor profitability and (ii) the shift to LCDs used in industrial
applications resulted in sales of 97.9 billion yen, a 4 % decrease compared to
the previous fiscal year. Sales for electronic components and others increased
by 34% to 132.1 billion yen as compared with the previous fiscal year, mainly
due to the new consolidation of NEC Tokin Corporation as a result of business
integration of the NEC's electronic components businesses into NEC Tokin
Corporation.
Segment loss of Electron Devices business was 2.2 billion yen, an improvement of
145.8 billion yen as compared with the previous fiscal year. This was due to (i)
the restructuring measures that reduced fixed expenses, (ii) the strengthening
of the profit base by withdrawal from certain unprofitable product lines and
shifting to high value-added products, and (iii) an increase in shipments of
semiconductors and plasma display panels.
6. Financial Condition
Net cash provided by operating activities for the fiscal year ended March 31,
2003 was 247.5 billion yen. Despite the consolidated net loss of 24.5 billion
yen, this result was achieved through reductions in inventories and accounts
receivable by further promotion of asset efficiency. This result was an
improvement of 110.8 billion yen as compared with the previous fiscal year,
mainly due to a large decrease in the consolidated net loss. Net cash used in
investment activities was 11.5 billion yen, a decrease of 191.9 billion as
compared with the previous fiscal year. This was principally due to a decrease
in expenditures relating to the purchase of fixed assets as a result of
selective and focused capital expenditures, and an increase in proceeds from the
sale of marketable securities fading in importance of holding.
As a result, the free cash flows (the total of cash flows from operating
activities and cash flows from investing activities) were cash in flow of 235.9
billion yen, an improvement of 302.8 billion yen as compared with the previous
fiscal year.
Net cash used in financing activities was 262.7 billion yen due to the
redemption of corporate bonds and a decrease in commercial paper. Cash and cash
equivalents amounted to 344.3 billion yen, a decrease of 33.4 billion yen as
compared with the end of the previous fiscal year.
The balance of interest-bearing debt amounted to 1,487.0 billion yen, a decrease
of 772.6 billion yen as compared with the end of the previous fiscal year mainly
due to the fact that free cash flows were improved and that NEC Leasing, Ltd.
became NEC's affiliated company accounted for by the equity method. Debt equity
ratio was 4.15 times (an increase of 0.15 points as compared with the end of the
previous fiscal year) mainly due to a decrease in shareholders' equity due to an
increase in the amount of minimum pension liability adjustment resulting from
the change in discount rate.
Each Index
Fiscal Year 2001 Fiscal Year 2002 Fiscal Year 2003
Shareholders' equity 19.0% 11.3% 8.7%
ratio
Shareholders' equity 68.6% 35.5% 15.7%
ratio on market value
basis
Redemption years 5.1 years 14.4 years 7.6 years
Interest coverage ratio 5.6 2.9 8.2
Calculation methods for each of the above indices:
Shareholders' equity ratio:
Shareholders' equity at the end of each period / total assets at the end of
each period
Shareholders' equity ratio on market value basis:
Aggregated market value of shares at the end of each fiscal year / total
assets at the end of each period
Redemption years:
Interest-bearing debt / cash flows from operating activities
* Interest-bearing debt = (Interest-bearing debt at the beginning of the
fiscal year + Interest-bearing debt at the end of the fiscal year) /2
Interest coverage ratio:
Cash flows from operating activities / interest paid
The indices above were calculated based on consolidated financial figures.
(Note 1.)
On April 1, 2001, NEC adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an amendment of FASB
statement No. 133." These statements require an entity to recognize all
derivatives as either assets or liabilities in the balance sheet and to measure
those instruments at fair value. The cumulative effect from the adoption of
these standards is disclosed as "cumulative effect of accounting change, net of
tax" in the condensed consolidated statements of operations.
(Note 2.)
For the third quarter of the fiscal year ended March 31, 2003, as a result of
the establishment of NEC Electronics Corporation by corporate separation, NEC
Electron Devices no longer exists as NEC's in-house company. Therefore, the
segment name was changed from NEC Electron Devices to Electron Devices business.
The business structure of Electron Devices business is the same as that of the
former NEC Electron Devices. Additionally, from April 1, 2003, in line with the
termination of the in-house company system, the segment names of NEC Solutions
and NEC Networks have been changed as below.
Previous segment name New segment name
NEC Solutions IT Solutions business
NEC Networks Network Solutions business
*The business structure of each segment remains the same as the former in-house
company structure.
Operating income (loss) set forth above is a measure commonly used by companies
reporting in accordance with accounting principles generally accepted in Japan.
Management believes this measure is useful to investors in comparing NEC's
results of operations to other Japanese companies. This measure, however, should
not be construed as an alternative to "income (loss) before income taxes" or
"net income (loss)" as determined in accordance with U.S. GAAP. Please refer to
the condensed consolidated statement of operations for the calculation of the
operating income (loss).
***
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Millions of yen, millions of U.S. dollars)
Fiscal (% of net Fiscal (% of net Increase Fiscal
2003 sales) 2002 sales) (decrease) 2003
JPY JPY
Net sales 4,695,035 (100.0) 5,101,022 (100.0) (JPY 405,987) $39,788
Cost of sales 3,453,010 (73.5) 3,919,268 (76.8) (466,258) 29,263
Selling, general and administrative expenses 1,121,136 (23.9) 1,237,276 (24.3) (116,140) 9,501
Operating income (loss) 120,889 (2.6) (55,522) (-1.1) 176,411 1,024
Non-operating income 153,597 (3.3) 110,390 (2.2) 43,207 1,302
Interest and dividends 18,396 15,754 2,642 156
Other 135,201 94,636 40,565 1,146
Non-operating expenses 212,990 (4.6) 516,051 (10.1) (303,061) 1,805
Interest 30,218 46,673 (16,455) 256
Other 182,772 469,378 (286,606) 1,549
Income (loss) before income taxes 61,496 (1.3) (461,183) (-9.0) 522,679 521
Provision (benefit) for income taxes 58,714 (1.3) (178,173) (-3.5) 236,887 498
Minority interest in income of consolidated 6,896 (0.1) 2,574 (0.1) 4,322 58
subsidiaries
Equity in losses of affiliated companies (20,444) (-0.4) (23,841) (-0.5) 3,397 (173)
Loss before cumulative effect of accounting (24,558) (-0.5) (309,425) (-6.1) 284,867 (208)
change,net of tax
Cumulative effect of accounting change, net - - (2,595) (0.0) 2,595 -
of tax
Net loss (JPY 24,558) (-0.5) (JPY 312,020) (-6.1) JPY 287,462 $(208)
(Note)
US dollar amounts are translated from yen, for convenience only, at the rate of
US$1 = 118 yen.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of yen, millions of U.S.dollars)
March 31, March 31, Increase March 31,
2003 2002 (decrease) 2003
Current assets JPY 1,920,042 JPY 2,405,036 (JPY 484,994) $16,271
Cash and cash equivalents 344,345 377,772 (33,427) 2,918
Notes and accounts receivable, trade 821,985 905,069 (83,084) 6,966
Current portion of investment in leases - 251,947 (251,947) -
Inventories 553,820 650,043 (96,223) 4,693
Other current assets 199,892 220,205 (20,313) 1,694
Long-term assets 2,183,258 2,605,847 (422,589) 18,503
Long-term receivables, trade 33,073 45,073 (12,000) 280
Investments and advances 433,027 576,005 (142,978) 3,670
Investment in leases - 254,814 (254,814) -
Property, plant and equipment 838,341 959,577 (121,236) 7,105
Other assets 878,817 770,378 108,439 7,448
Total assets JPY 4,103,300 JPY 5,010,883 (JPY 907,583) $34,774
Current liabilities JPY 1,774,224 JPY 2,210,341 (JPY 436,117) $15,036
Short-term borrowings and current portion of long-term 483,306 760,827 (277,521) 4,096
debt
Notes and accounts payable, trade 875,018 938,955 (63,937) 7,415
Other current liabilities 415,900 510,559 (94,659) 3,525
Long-term liabilities 1,737,219 2,005,610 (268,391) 14,722
Long-term debt 1,003,787 1,498,878 (495,091) 8,507
Accrued pension and severance costs 705,551 467,561 237,990 5,979
Other 27,881 39,171 (11,290) 236
Minority shareholders' equity in consolidated 135,613 132,817 2,796 1,149
subsidiaries
Preferred securities issued by a subsidiary 97,800 97,200 600 829
Common stock 244,726 244,726 - 2,074
Additional paid-in capital 358,568 359,501 (933) 3,039
Retained earnings 41,567 66,125 (24,558) 352
Accumulated other comprehensive income (loss) (286,417) (105,437) (180,980) (2,427)
Total shareholders' equity 358,444 564,915 (206,471) 3,038
Total liabilities and shareholders' equity JPY 4,103,300 JPY 5,010,883 (JPY 907,583) $34,774
CONDENSED CONSOLIDATED BALANCE SHEETS ( SUPPLEMENTARY INFORMATION ) (UNAUDITED)
(Millions of yen, millions of U.S.dollars)
March 31, March 31, Increase March 31,
2003 2002 (decrease) 2003
Current assets JPY 1,920,042 JPY 2,125,329 (JPY 205,287) $16,271
Cash and cash equivalents 344,345 348,021 (3,676) 2,918
Notes and accounts receivable, trade 821,985 938,179 (116,194) 6,966
Inventories 553,820 650,043 (96,223) 4,693
Other current assets 199,892 189,086 10,806 1,694
Long-term assets 2,183,258 2,338,542 (155,284) 18,503
Long-term receivables, trade 33,073 45,950 (12,877) 280
Investments and advances 433,027 595,007 (161,980) 3,670
Property, plant and equipment 838,341 939,470 (101,129) 7,105
Other assets 878,817 758,115 120,702 7,448
Total assets JPY 4,103,300 JPY 4,463,871 (JPY 360,571) $34,774
Current liabilities JPY 1,774,224 JPY 2,061,102 (JPY 286,878) $15,036
Short-term borrowings and current portion of long-term 483,306 577,105 (93,799) 4,096
debt
Notes and accounts payable, trade 875,018 985,326 (110,308) 7,415
Other current liabilities 415,900 498,671 (82,771) 3,525
Long-term liabilities 1,737,219 1,623,442 113,777 14,722
Long-term debt 1,003,787 1,119,634 (115,847) 8,507
Accrued pension and severance costs 705,551 466,475 239,076 5,979
Other 27,881 37,333 (9,452) 236
Minority shareholders' equity in consolidated 135,613 117,212 18,401 1,149
subsidiaries
Preferred securities issued by a subsidiary 97,800 97,200 600 829
Common stock 244,726 244,726 - 2,074
Additional paid-in capital 358,568 359,501 (933) 3,039
Retained earnings 41,567 66,125 (24,558) 352
Accumulated other comprehensive income (loss) (286,417) (105,437) (180,980) (2,427)
Total shareholders' equity 358,444 564,915 (206,471) 3,038
Total liabilities and shareholders' equity JPY 4,103,300 JPY 4,463,871 (JPY 360,571) $34,774
(Note)
In the condensed consolidated balance sheets at the end of March 31, 2002 on
this page, the investment in a leasing subsidiary is accounted for by the equity
method.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of yen, millions of U.S.dollars)
Fiscal Fiscal 2002 Increase Fiscal
2003 (decrease) 2003
I. Cash flows from operating activities:
Net loss (JPY 24,558) (JPY 312,020) JPY 287,462 $(208)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 195,594 234,738 (39,144) 1,658
Equity in losses of affiliated companies, net of dividends 22,006 28,030 (6,024) 186
Decrease in notes and accounts receivable 116,340 169,628 (53,288) 986
Decrease in inventories 79,343 216,062 (136,719) 672
Decrease in notes and accounts payable (109,387) (178,878) 69,491 (927)
Other, net (31,835) (20,923) (10,912) (270)
Net cash provided by operating activities 247,503 136,637 110,866 2,097
II. Cash flows from investing activities:
Proceeds from sales of fixed assets 99,722 56,094 43,628 845
Additions to fixed assets (210,261) (295,585) 85,324 (1,782)
Proceeds from sales of marketable securities 71,919 21,017 50,902 609
Purchase of marketable securities (2,277) (2,482) 205 (19)
Other, net 29,311 17,420 11,891 249
Net cash used in investing activities (11,586) (203,536) 191,950 (98)
Free cash flows (I + II) 235,917 (66,899) 302,816 1,999
III. Cash flows from financing activities:
Net repayment of bonds and borrowings (272,448) (37,007) (235,441) (2,309)
Proceeds from preferred securities issued by a subsidiary - 97,000 (97,000) -
Dividends paid (7,291) (15,948) 8,657 (62)
Other, net 16,990 11,609 5,381 144
Net cash provided by (used in) financing activities (262,749) 55,654 (318,403) (2,227)
Effect of exchange rate changes on cash and cash equivalents (6,595) 2,182 (8,777) (55)
Net decrease in cash and cash equivalents (33,427) (9,063) (24,364) (283)
Cash and cash equivalents at beginning of year 377,772 386,835 (9,063) 3,201
Cash and cash equivalents at end of year JPY 344,345 JPY 377,772 (JPY 33,427) $2,918
SEGMENT INFORMATION
1.Operating Segment Information
(1) Net Sales (Including internal sales to other segments)
(Millions of yen, millions of U.S. dollars)
Fiscal 2003 (% of total) % change Fiscal 2002 (% of total) Fiscal
2003
IT Solutions business JPY 2,082,624 (44.4) -5.7 JPY 2,209,093 (43.3) $17,649
Network Solutions business 1,576,333 (33.6) -19.5 1,957,169 (38.4) 13,359
Electron Devices business 936,719 (20.0) +11.1 842,878 (16.5) 7,938
Others 661,694 (14.0) +4.2 634,778 (12.4) 5,608
Eliminations (579,867) (-12.4) - (589,132) (-11.5) (4,915)
Electronics business total 4,677,503 (99.6) -7.5 5,054,786 (99.1) 39,639
Leasing business 38,222 (0.8) -46.7 71,759 (1.4) 324
Eliminations (20,690) (-0.4) - (25,523) (-0.5) (175)
Consolidated total JPY 4,695,035 (100.0) -8.0 JPY 5,101,022 (100.0) $39,788
(2) Segment Profit or Loss
(Millions of yen, millions of U.S. dollars)
Fiscal 2003 (% of profit on Increase Fiscal 2002 (% of profit on Fiscal
sales) (decrease) sales) 2003
IT Solutions business JPY 105,815 (5.1) JPY 30,425 JPY 75,390 (3.4) $897
Network Solutions business 34,284 (2.2) (19,163) 53,447 (2.7) 291
Electron Devices business (2,282) (-0.2) 145,877 (148,159) (-17.6) (19)
Others 14,838 (2.2) 11,850 2,988 (0.5) 125
Eliminations 156 - 3,513 (3,357) - 1
Unallocated corporate expenses* (38,486) - 1,264 (39,750) - (326)
Electronics business total 114,325 (2.4) 173,766 (59,441) (-1.2) 969
Leasing business 8,154 (21.3) 1,848 6,306 (8.8) 69
Eliminations (1,590) - 797 (2,387) - (14)
120,889 (2.6) 176,411 (55,522) (-1.1) 1,024
Other income 153,597 43,207 110,390 1,302
Other expenses (212,990) 303,061 (516,051) (1,805)
Consolidated income(loss) before JPY 61,496 JPY 522,679 (JPY 461,183) $521
income taxes
(Notes)
* Corporate expenses include general corporate expenses and research and
development expenses at NEC Corporation which are not allocated to any operating
segment.
(3) Net Sales to External Customers(Unaudited)
(Billions of yen, millions of U.S. dollars)
Fiscal 2003 % change Fiscal 2002 Fiscal 2003
IT Solutions business JPY 1,911.3 -6.9 JPY 2,053.5 $16,197
Domestic 1,647.7 -6.2 1,756.4 13,964
Overseas 263.5 -11.3 297.0 2,233
Network Solutions business 1,473.2 -21.1 1,866.6 12,485
Domestic 1,094.0 -18.2 1,337.9 9,271
Overseas 379.2 -28.3 528.7 3,214
Electron Devices business 842.4 +21.3 694.5 7,139
Domestic 527.3 +32.3 398.7 4,469
Overseas 315.1 +6.5 295.8 2,670
Others 437.2 +3.1 423.9 3,706
Domestic 344.7 -3.1 355.7 2,922
Overseas 92.4 +35.7 68.1 784
Electronics business total 4,664.2 -7.4 5,038.6 39,527
Domestic 3,613.8 -6.1 3,848.8 30,626
Overseas 1,050.3 -11.7 1,189.8 8,901
Leasing business 30.7 -50.6 62.3 261
Domestic 30.7 -50.6 62.3 261
Overseas - - - -
Consolidated total JPY 4,695.0 -8.0 JPY 5,101.0 $39,788
Domestic 3,644.6 -6.8 3,911.1 30,887
Overseas 1,050.3 -11.7 1,189.8 8,901
(4) Net Sales by Products and Services (Including internal sales to other segments)(Unaudited)
(Billions of yen, millions of U.S. dollars)
Fiscal 2003 % change Fiscal 2002 Fiscal 2003
IT Solutions business JPY 2,082.6 -5.7 JPY 2,209.0 $17,649
Systems Integration Services /Software 541.7 +4.1 520.3 4,591
Internet Services/Support Services 350.3 +4.3 336.0 2,969
Servers/Storage Products/Workstations 363.1 -18.1 443.5 3,077
Personal Products 683.4 -7.3 737.1 5,792
Other Hardware 144.1 -16.3 172.1 1,220
Network Solutions business JPY 1,576.3 -19.5 JPY 1,957.1 $13,359
Network Infrastructure 893.9 -23.4 1,167.6 7,575
Mobile Terminals 439.2 -23.5 573.8 3,722
Other 243.2 +12.7 215.7 2,062
Electron Devices business JPY 936.7 +11.1 JPY 842.8 $7,938
Semiconductors 706.7 +9.9 642.9 5,989
Displays 97.9 -3.5 101.5 830
Electronic Components 132.1 +34.2 98.4 1,119
2. Geographic Segment Information
(1) Net Sales
(Millions of yen, millions of U.S. dollars)
Fiscal 2003 (% of total) % change Fiscal 2002 (% of total) Fiscal 2003
Japan JPY 3,879,454 (82.6) (-8.3) JPY 4,230,278 (82.9) $32,877
Overseas 815,581 (17.4) (-6.3) 870,744 (17.1) 6,911
Consolidated JPY 4,695,035 (100.0) (-8.0) JPY 5,101,022 (100.0) $39,788
(2) Geographic Profit or Loss
Fiscal (% of profit on Increase Fiscal (% of profit on Fiscal
2003 sales) (decrease) 2002 sales) 2003
Japan JPY 118,277 (3.0) JPY 135,131 (JPY 16,854) (-0.4) $1,002
Overseas 2,612 (0.3) 41,280 (38,668) (-4.4) 22
120,889 (2.6) 176,411 (55,522) (-1.1) 1,024
Other income 153,597 43,207 110,390 1,302
Other expenses (212,990) 303,061 (516,051) (1,805)
Consolidated income(loss) before JPY 61,496 JPY 522,679 (JPY 461,183) $521
income taxes
3. Sales by Market (Unaudited)
Fiscal 2003 % change Fiscal 2002 Fiscal 2003
Japan JPY 3,644,673 (-6.8) JPY 3,911,173 $30,887
Overseas 1,050,362 (-11.7) 1,189,849 8,901
Consolidated JPY 4,695,035 (-8.0) JPY 5,101,022 $39,788
FINANCIAL INSTRUMENTS
(1) Fair value of derivative financial instruments
Contract or notional principal amounts, carrying amounts and estimated fair
value are summarized as follows:-
(Millions of yen)
March 31, 2003 March 31, 2002
Contract or Carrying Estimated Contract or Carrying Estimated
notional amounts amounts fair value notional amounts amounts fair value
Derivatives:
Forward exchange contracts:* JPY 21,902 (JPY 458) (JPY 458) (JPY 24,332) (JPY 1,352) (JPY 1,352)
Fiscal 2002
Purchase of foreign currency 78,705
the equivalent of yen
Sale of foreign currency the 54,373
equivalent of yen
Fiscal 2003
Purchase of foreign currency 45,571
the equivalent of yen
Sale of foreign currency the 67,473
equivalent of yen
Interest rate and currency 405,414 (10,479) (10,479) 1,082,486 (24,957) (24,957)
swap agreements
*Contract or notional amounts of forward exchange contracts are net amount of
"sale" minus "purchase".
(2) Marketable securities
The cost, fair value and net unrealized holding gains/losses for marketable
securities by major security type are summarized as follows:-
(Millions of yen)
March 31, 2003 March 31, 2002
Available-for-sale:
Equity securities
Cost JPY 111,192 JPY 177,855
Fair value 111,983 255,096
Net unrealized holding gains 791 77,241
Debt securities
Cost 4,231 8,348
Fair value 4,110 7,983
Net unrealized holding losses (121) (365)
(3) Investments in affiliated companies
The carrying amount and market value of stocks of affiliated companies accounted
for by the equity method which have quoted market values are summarized as
follows:-
(Millions of yen)
March 31, 2003 March 31, 2002
Carrying amount JPY 97,123 JPY 110,072
Market value 87,661 130,174
LEASING ARRANGEMENTS
(1) Leasing of computer equipment
For NEC's leasing business for computer and others, future minimum lease
payments from non-cancelable leases under operating leases at March 31, 2003 and
March 31, 2002 are as follows:-
(Millions of yen)
March 31, 2003 March 31, 2002
Within one year JPY 4,093 JPY 7,648
Over one year 199 431
(2) Lease of facilities and equipment for company's use
NEC leases certain facilities and equipment for its own use. Future minimum
rental payments under non-cancelable operating leases at March 31, 2003 and
March 31, 2002 are as follows:-
(Millions of yen)
March 31, 2003 March 31, 2002
Within one year JPY 40,875 JPY 48,888
Over one year 124,689 91,985
PENSION AND SEVERANCE PLANS
NEC Corporation and the 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
eligibility requirements of the retirement regulations. 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 current basic rate of pay, length of
service and conditions under which the termination occurs. The funding policy is
to make contributions that can be deducted for Japanese income tax purposes.
NEC Corporation and certain subsidiaries in Japan also have contributory defined
benefit pension plans, covering substantially all of their employees, including
the governmental welfare pension benefit plan (substitutional portion) which
would otherwise be provided by the Japanese government. The pension benefits are
determined based on years of service and the compensation amount as stipulated
in the regulations. The contributions to the contributory and the-contributory
pension plans are placed into trusted pension funds.
On April 1, 2002, the Defined Benefit Corporate Pension Law was enforced, and
some contributory defined benefit plans of NEC Corporation and certain
subsidiaries in Japan have received the approval of exemption from the
obligation for benefits related to future employee service under the
substitutional portion from the Japanese government. After approval, NEC
Corporation and certain subsidiaries in Japan make pension insurance payments
directly to the government instead of contributing to the plans for the
substitutional portion.
The weighted-average assumptions used in the accounting for the plans are as
follows:-
March 31, 2003 March 31, 2002
Discount rate 3.0% 3.5%
Rate of increase in future compensation level 1.7% - 3.8% 1.7% - 3.8%
Expected long-term rate of return on plan assets 4.0% 4.0%
NET LOSS PER SHARE
A reconciliation of the numerator and the denominators of the basic and diluted
per share computations for net loss is as follows:
(Millions of yen)
Fiscal 2003 Fiscal 2002
Net loss available to common shareholders (JPY 24,558) (JPY 312,020)
Effect of dilutive securities - -
Diluted net loss (JPY 24,558) (JPY 312,020)
(Number of shares)
Weighted-average number of shares of common stock 1,653,389,121 1,654,131,607
outstanding for the year
Effect of dilutive securities - -
Weighted-average number of shares of diluted common stock 1,653,389,121 1,654,131,607
outstanding for the year
Net Loss Per Share:
(Yen)
Basic (JPY 14.85) (JPY 188.63)
Diluted (14.85) (188.63)
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:
(Number of shares)
Convertible debt 220,562,540 220,562,540
Stock options 966,000 608,000
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Millions of yen, millions of U.S. dollars)
Three months ended March 31 2003 (% of net 2002 (% of net Increase 2003
sales) sales) (decrease)
Net sales JPY 1,452,870 (100.0) JPY 1,507,913 (100.0) (JPY 55,043) $12,312
Cost of sales 1,107,328 (76.2) 1,200,672 (79.6) (93,344) 9,384
Selling, general and administrative 274,638 (18.9) 303,854 (20.2) (29,216) 2,327
expenses
Operating income 70,904 (4.9) 3,387 (0.2) 67,517 601
Non-operating income 44,970 (3.1) 30,159 (2.0) 14,811 381
Interest and dividends 5,666 1,524 4,142 48
Other 39,304 28,635 10,669 333
Non-operating expenses 76,933 (5.3) 207,415 (13.7) (130,482) 652
Interest 6,107 7,891 (1,784) 52
Other 70,826 199,524 (128,698) 600
Income (loss) before income taxes 38,941 (2.7) (173,869) (-11.5) 212,810 330
Provision (benefit) for income taxes 49,241 (3.4) (57,476) (-3.8) 106,717 417
Minority interest in income of consolidated 6,378 (0.4) 3,545 (0.2) 2,833 54
subsidiaries
Equity in losses of affiliated companies (4,355) (-0.3) (7,117) (-0.5) 2,762 (37)
Net loss (JPY 21,033) (-1.4)(JPY 127,055) (-8.4) JPY 106,022 $(178)
SEGMENT INFORMATION (UNAUDITED)
Operating Segment Information
(1) Net Sales (Including internal sales to other segments)
(Millions of yen, millions of U.S. dollars)
Three months ended March 31 2003 (% of total) % change 2002 (% of total) 2003
IT Solutions business JPY 656,219 (45.2) -12.3 JPY 748,002 (49.6) $5,561
Network Solutions business 533,327 (36.7) +11.9 476,821 (31.6) 4,520
Electron Devices business 230,793 (15.9) +6.5 216,660 (14.4) 1,956
Others 211,290 (14.5) +4.0 203,082 (13.4) 1,790
Eliminations (182,588) (-12.6) - (152,959) (-10.1) (1,548)
Electronics business total 1,449,041 (99.7) -2.9 1,491,606 (98.9) 12,279
Leasing business 9,283 (0.6) -52.6 19,572 (1.3) 79
Eliminations (5,454) (-0.3) - (3,265) (-0.2) (46)
Consolidated total JPY 1,452,870 (100.0) -3.7 JPY 1,507,913 (100.0) $12,312
(2) Segment Profit or Loss
(Millions of yen, millions of U.S. dollars)
Three months ended March 31 2003 (% of profit on Increase 2002 (% of profit on 2003
sales) (decrease) sales)
IT Solutions business JPY 57,097 (8.7) JPY 8,724 JPY 48,373 (6.5) $484
Network Solutions business 14,647 (2.7) 16,696 (2,049) (-0.4) 124
Electron Devices business 3,123 (1.4) 40,598 (37,475) (-17.3) 27
Others 5,920 (2.8) (1,644) 7,564 (3.7) 51
Eliminations 982 - 2,719 (1,737) - 8
Unallocated corporate expenses* (13,449) - (1,002) (12,447) - (114)
Electronics business total 68,320 (4.7) 66,091 2,229 (0.1) 580
Leasing business 2,643 (28.5) 1,043 1,600 (8.2) 22
Eliminations (59) - 383 (442) - (1)
70,904 (4.9) 67,517 3,387 (0.2) 601
Other income 44,970 14,811 30,159 381
Other expenses (76,933) 130,482 (207,415) (652)
Consolidated income(loss) before JPY 38,941 JPY 212,810 (JPY 173,869) $330
income taxes
(Notes)
* Corporate expenses include general corporate expenses and research and
development expenses at NEC Corporation which are not allocated to any operating
segment.
(3) Net Sales to External Customers
(Billions of yen, millions of U.S. dollars)
Three months ended March 31 2003 % change 2002 2003
IT Solutions business JPY 600.3 -14.7 JPY 703.5 $5,087
Domestic 536.2 -15.5 634.6 4,544
Overseas 64.0 -6.9 68.8 543
Network Solutions business 502.1 +12.0 448.3 4,255
Domestic 375.7 +10.2 341.1 3,185
Overseas 126.3 +17.9 107.1 1,070
Electron Devices business 201.4 +5.3 191.3 1,707
Domestic 116.0 -0.7 116.9 983
Overseas 85.3 +14.7 74.4 724
Others 142.2 -3.8 147.8 1,206
Domestic 114.3 -10.2 127.2 969
Overseas 27.8 +35.5 20.5 237
Electronics business total 1,446.1 -3.0 1,491.0 12,255
Domestic 1,142.3 -6.4 1,220.0 9,681
Overseas 303.7 +12.1 271.0 2,574
Leasing business 6.7 -59.8 16.8 57
Domestic 6.7 -59.8 16.8 57
Overseas - - - -
Consolidated total JPY 1,452.8 -3.7 JPY 1,507.9 $12,312
Domestic 1,149.1 -7.1 1,236.8 9,738
Overseas 303.7 +12.1 271.0 2,574
(4) Net Sales by Products and Services (Including internal sales to other segments)
(Billions of yen, millions of U.S. dollars)
Three months ended March 31 2003 % change 2002 2003
IT Solutions business JPY 656.2 -12.3 JPY 748.0 $5,561
Systems Integration Services /Software 216.8 +2.7 211.0 1,837
Internet Services/Support Services 96.9 -5.3 102.3 821
Servers/Storage Products/Workstations 106.0 -44.0 189.2 898
Personal Products 178.5 -6.2 190.3 1,513
Other Hardware 58.1 +5.3 55.2 492
Network Solutions business JPY 533.3 +11.9 JPY 476.8 $4,520
Network Infrastructure 296.3 +2.2 289.9 2,511
Mobile Terminals 143.8 +49.5 96.2 1,219
Other 93.2 +2.8 90.7 790
Electron Devices business JPY 230.7 +6.5 JPY 216.6 $1,956
Semiconductors 176.0 +5.8 166.4 1,492
Displays 20.1 -28.5 28.1 170
Electronic Components 34.7 +57.0 22.1 294
CAUTIONARY STATEMENTS:
The statements in this press release with respect to the plans, strategies and
forecasts of NEC Corporation and its consolidated subsidiaries (collectively
"NEC") are forward-looking statements involving risks and uncertainties. NEC
cautions you in advance that actual results could differ materially from such
forward-looking statements due to several factors. The important factors that
could cause actual results to differ materially from such statements include,
but are not limited to, general economic conditions in NEC's markets, which are
primarily Japan, North America, Asia and Europe; demand for, and competitive
pricing pressure on, NEC's products and services in the marketplace; NEC's
ability to continue to win acceptance of its products and services in these
highly competitive markets; and movements in currency exchange rates,
particularly the rate between the yen and the U.S. dollar. Among other factors,
a worsening of the world economy resulting from the downturn in the IT and
telecommunications industries, a worsening of financial conditions in the world
markets, and a deterioration in the domestic and overseas stock markets, would
cause actual results to differ from the projected results forecast.
In cases where the information contained in this press release falls within the
definition of "Material Information" under Paragraph 2 of Article 166 of the
Securities and Exchange Law of Japan, if you (and directors or employees of your
company if the content of this press release comes to their knowledge in
connection with their duty) read this press release before the time of
"Publication" (which is defined under the Securities and Exchange Law of Japan
and its Enforcement Ordinance as twelve hours after its release; i.e.,
approximately 3:30 am on April 25, 2003 (JST)), you (and directors or employees
of your company if the content of this press release comes to their knowledge in
connection with their duties) may be prohibited from purchasing, selling, or
making other transactions of shares of stock or other securities of NEC before
the time of Publication.
--------------------------------------------------------------------------------
Media Contacts:
Chris Shimizu,
Daniel Mathieson
Corporate Communication Division
NEC Corporation
TEL: +81-3-3798-6511
This information is provided by RNS
The company news service from the London Stock Exchange
END
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