Income Analysis During fiscal 1998, ended March 31, 1999, the Japanese economy remained in a deep slump, although concerns about Japan's financial system eased. Private-sector demand was severely depressed, reflecting a sharp drop in capital investment and weak personal spending. Against this backdrop, sales volume and prices in the Iron and Steel Sector and Aluminum and Copper Sector decreased and Machinery Sector sales fell sharply. As a result, consolidated net sales were 1,305.5 billion yen, a 229.7 billion yen decrease from the previous fiscal year. Operating income fell 41.5%, to 50.0 billion yen. Despite an improvement in the semiconductor business and increased profits at the U.S.-based construction machinery subsidiary and a Southeast Asian-based aluminum subsidiary, the overall profitability of Kobe Steel and its consolidated subsidiaries declined. Accordingly, the operating margin decreased to 3.8%, from 5.6% in fiscal 1997. Sales in the Iron and Steel Sector decreased 12.6%, to 525.4 billion yen. Operating income in this sector fell 38.5%, to 36.9 billion yen, because of lower sales volume and prices. Aluminum and Copper Sector sales decreased 14.5%, to 286.0 billion yen. Operating income fell 54.5%, to 7.6 billion yen, owing to decreases in sales volume and rolling margins. The Machinery Sector, severely affected by weak demand for construction machinery and decreased orders for engineering services, posted sales of 398.0 billion yen, a 21.4% drop form the previous fiscal year. Operating income declined 56.6%, to 8.9 billion yen. In the Electronics and Information Sector, sales declined 9.7%, to 72.5 billion yen, with an operating loss of 9.3 billion yen, a 7.3 billion yen improvement over the previous fiscal year due to a slight rise in DRAM prices. Net other expenses totaled 110.3 billion yen and loss before income taxes was 60.2 billion yen. Adjustments for income taxes and minority interests resulted in a net loss of 38.9 billion yen. Analysis of Cash Flow and Financial Position The Company's operating, investing, and financing activities during the year resulted in a 13.3% net increase in cash and cash equivalents, to 115.5 billion yen. Net cash provided by operating activities totaled 80.5 billion yen, up from 47.9 billion yen in the previous year. During the fiscal year, the Company allocated 154.0 billion yen for the purchase of plant and equipment, and 14.2 billion yen for the purchase of marketable securities, investments, and other assets. Conversely, the Company recorded a 19.0 billion yen inflow from the sale of plant and equipment and a 12.8 billion yen inflow from the sale of marketable securities, investments, and other assets. As a result, net cash used in investing activities totaled 136.4 billion yen. Net cash provided by financing activities amounted to 69.5 billion yen, compared with 99.4 billion yen in the previous fiscal year. During the fiscal year, the Company procured 313.2 billion yen through the issuance of long-term debt and corporate bonds. On the other hand, the Company repaid 48.2 billion yen in short-term borrowings, repaid long-term debt and redeemed bonds worth 189.8 billion yen, and paid 5.6 billion yen in cash dividends for fiscal 1997. Total assets at the end of fiscal 1998 amounted to 2,270.3 billion yen, a 5.3% decrease from the end of the previous fiscal year. Total stockholders' equity at fiscal year-end was 327.1 billion yen, down 10.5% from the end of fiscal 1997. As a result, the net worth ratio was 14.4%.