NKK CORPORATION: Annual Report 1998
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Financial Review


      The Japanese economy remained weak in fiscal 1998, which ended March 31, 1999. Private sector demand was down, due to low consumer spending and capital investment, and the situation was further worsened by asset deflation, instability in the financial system and low corporate earnings. As a result, the Japanese economy suffered a second consecutive year of negative growth.

NON-CONSOLIDATED RESULTS

Profit and Loss

Steel Division

      In the steel industry, domestic demand in the construction and manufacturing industries fell sharply. Exports fell unavoidably in the second half, a result of antidumping cases in the U.S., leading to the smallest crude steel output in Japan within the past 27 years.

      NKK, faced with these extremely difficult conditions, saw its steel shipments fall from the previous year to 9.69 million tons. The Steel Division's net sales dropped 10% to ¥658.1 billion, reflecting a decline in the market demand for steel products. The division's operating income decreased significantly from the preceding year to ¥2.2 billion. Although comprehensive costreduction efforts were made to achieve further savings of energy and resources, as well as reduce the workforce, these measures were not enough to offset decreases in selling prices and shipping levels.

Engineering Division

      The Engineering Division's operating environment continued to deteriorate in the face of the prolonged economic stagnation and intensified competition. Net sales, mostly from urban gas pipelines, municipal waste disposal plants and oil tankers, decreased 7% to ¥355.4 billion due to reductions in over-seas and large-scale projects. Despite continuing cost-reduction efforts, an operating loss of ¥4.6 billion was incurred as a result of reduced profitability due to decreased sales prices.

Overall Results

     Overall, non-consolidated net sales fell 9% to ¥1,013.6 billion. The twin decline in profits in the steel and engineering divisions resulted in a ¥2.4 billion operating loss. A ¥54.4 billion special credit resulted from the sale of fixed assets when a welfare-related business unit was spun off as a separate company. Special losses were attributed to the liquidation of subsidiary TOA STEEL CO., LTD. (¥60.1 billion) and the reorganization of electronic devices business operations, as well as severance costs for early termination of employment. The net loss was ¥50.3 billion after deferred tax credits.

Financial Structure

     Total assets decreased ¥2.5 billion to ¥1,953.3 billion. Debt increased ¥111.1 billion to ¥1,094.1 billion. The primary reason for this was advance fund-raising to provide the money required in fiscal 1999 for severance costs incurred by the company's early retirement program.

Cash Flows

     Net cash provided by operating activities was ¥112.7 billion, an increase of ¥114.4 billion over the previous year. The main reasons were a decline in account receivables and an increase in cash revenues because of the compression of inventory assets. Net cash used in investment activities was ¥193.5 billion. This money was spent mainly on the relining of the Fukuyama No. 2 blast furnace and on the liquidation of subsidiary TOA STEEL CO., LTD. The result was an ¥85.4 billion increase over last year in expenditures on the investment balance. Net cash provided by financing activities was ¥92.1 billion, a decrease of ¥45.9 billion compared to the previous year, primarily because of cash outlays resulting from an increase in repayments of indebtedness.

Dividends

     The overall deterioration of business resulted in a deficit in retained earnings. Therefore, the company regrettably announced that a cash dividend would not be paid for the fiscal year that ended on March 31, 1999.

CONSOLIDATED RESULTS

     In addition, consolidated net sales at NKK fell 6% from fiscal 1997 to ¥1,808.7 billion. An operating loss of ¥4.1 billion was incurred and a net loss of ¥108.5 billion after deferred tax credits.


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