NKK CORPORATION: Annual Report 1998
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Financial Review

In fiscal 1997, ended March 31, 1998, the Japanese economy remained stagnant, affected by a decline in consumer spending and housing investment caused in part by the hike in the national consumption tax in April 1997 and general financial instability. The business environment was troubled further by the financial difficulties in many Asian countries. The Japanese economy, as a result, experienced the first negative growth since fiscal 1974, the year of the first oil crisis.

NON-CONSOLIDATED RESULTS

Profit and Loss

Steel Division

The Steel Division suffered from a continuing decline in demand caused by the languishing domestic economy. On the other hand, exports grew over the previous year with strong sales in the United States. As a result of efforts to increase export sales despite the fall in domestic shipments, NKK's steel shipments during fiscal 1997 increased from the previous year to 10.15 million tons. The Steel Division reported net sales of ¥728.2 billion, approximately the same level as in the previous year. Although earnings were reduced because of losses from a blast-furnace outage at the Keihin Works, the division's operating income was at nearly the same level as in the preceding year, ¥43.1 billion, due to comprehensive cost-cutting efforts.

Engineering Division

The operating environment of the Engineering Division further deteriorated as demand from both the public and private sectors declined in Japan, as well as the financial and economic crises in the Asian regions. The division received orders in fiscal 1997 amounting to ¥346.6 billion. Net sales, mostly from urban gas pipelines, municipal waste disposal plants and bulk carriers, fell 17% from the previous year to ¥383.8 billion, due to the decreasing number of large-scale projects. Operating income for the division also dropped sharply to ¥8.7 billion, in spite of strenuous efforts to reduce costs. The division's order backlog at the year-end was ¥426.9 billion.

Overall Results

In overall results, non-consolidated net sales were ¥1,112.0 billion, decreased by 6% from the previous year. Operating income was ¥51.8 billion, decreased by 18% from the previous year, earned ¥43.1 billion by the Steel Division and ¥8.7 billion by the Engineering Division. In addition, considering net financing costs and other expenses such as loss on disposal of the facilities for restructuring and loss on the blast-furnace outage, net income was also held down by 32% to ¥11.1 billion.

Financial Structure

NKK's management aims to maintain a financial position to provide operational flexibility and cost competitiveness. Total assets increased ¥68.1 billion over the previous fiscal year. This was primarily the result of an increase in cash balance against the recent Japanese financial credit instability, and in account receivables by a change of the financing method from the sales of account receivables to commercial paper to reduce net financing costs. Total short- and long-term borrowings and debt increased by ¥154.0 billion. One main reason for this increase was the above change, and the other was the shortened payment terms of account payables related to imported raw materials to avoid the higher interest rates in U.S. dollars.

Cash Flows

Net cash used in the operating activities amounted to ¥1.6 billion, a decrease of ¥102.3 billion from the previous year, mainly because of the increases in account receivables and inventories. Net cash used in investment activities, mainly for capital expenditures, was ¥108.1 billion, an increase of ¥51.6 billion over the previous year due to reduced sales of securities. Net cash provided by financing activities was ¥138.1 billion, mainly due to increases in short-term borrowings and commercial paper.

Dividends

In spite of the severe operational environment, NKK met shareholders' expectations by paying a cash dividend of ¥1.5 per share of common stock at the end of the fiscal year, for an annual dividend of ¥3 when combined with the interim dividend.

CONSOLIDATED RESULTS

In addition to the above, our consolidated net sales, reflecting the addition of a newly consolidated subsidiary, were up 3% from fiscal 1996, to ¥1,934.3 billion. However, affected by the unfavorable results of the subsidiary, operating income declined to ¥76.5 billion, and net income also declined to ¥14.2 billion from the previous year.


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