During the consolidated accounting period under review, there were signs of improvement in the Japanese economy due to the government's economic policies and the general recovery in Southeast Asia. However, recovery in private-sector demand continues to lack strength as personal consumption remains depressed. Consumers are reluctant to spend as employment and income conditions worsen. The environment in which Kobe Steel is operating therefore remains difficult.

  Against this backdrop, Kobe Steel was unable to prevent net sales for fiscal 1999, ended March 31, 2000, from declining 53 billion yen, to 1,252.5 billion yen. Sales in the Company's Electronics and Information Sector increased, and there was a positive effect on overall sales in the Real Estate Sector associated with the introduction in the period under review of new consolidated accounting standards. However, sales volumes and prices in the Iron and Steel Sector, the Aluminum and Copper Sector, and the Machinery Sector contracted, offsetting gains made in other sectors.

  Operating income leapt 65.3% in comparison with the previous period, to 82.7 billion yen, as the Company's semiconductor-related businesses recovered dramatically and a comprehensive cost-cutting program took effect. Accordingly, the Company's operating margin improved to 6.6%, from 3.8% in the prior year.

  Sales in the Iron and Steel Sector were down 4.8%, to 499.1 billion yen. On the other hand, operating income improved 11.2%, to 42.9 billion yen, due to a reduction in raw material prices, an increase in steel sales volume and the beneficial effects of the Company's rationalization and cost- reduction programs.

  Aluminum and Copper Sector sales declined 11.8%, to 251.5 billion yen, although operating income rose significantly-33.9%-to 10.2 billion yen, as a result of higher production and sales volumes and reductions in costs.

  In the Machinery Sector, sales decreased marginally, to 338.9 billion yen, a fall of 4.9%. However, operating income was down 92.8%, to 0.5 billion yen, as there was a pronounced decline in profits in the Company's engineering-related business that outweighed a more modest rise in profitability in construction machinery.

  In the Electronics and Information Sector, sales climbed 17.1%, to 87.8 billion yen, and the sector returned to profitability again, posting operating income of 7.5 billion yen, in comparison with an operating loss of 11.9 billion yen, a 19.4 billion yen improvement over the previous fiscal period, as quantities of semiconductors shipped rose and costs were pared.

  In the Real Estate Sector, sales leapt 106.0%, to 43.9 billion yen, and operating income soared 358.2%, to 19.7 billion yen, as property sales associated with urban development schemes rose and new accounting standards increased the scope of the Company's consolidated accounts.

  Net other expenses totaled 129.0 billion yen and loss before income taxes amounted to 46.3 billion yen. Adjustments for income tax and minority interests resulted in a net loss of 53.1 billion yen.

The Company's operating, investing, and financing activities during the year resulted in cash and cash equivalents increasing on a consolidated basis 33.7%, or 40.9 billion yen, over the previous fiscal period, to 162.2 billion yen. Although there were net outflows of cash used in investing activities and financing activities, net cash provided by operating activities totaled 212.6 billion yen, and there was an increase in cash due to an increase in the number of consolidated subsidiaries due to the introduction of new accounting procedures.

  Net cash provided by operating activities amounted to 212.6 billion yen. Although the Company registered a net loss before income taxes of 46.3 billion yen, there was a decrease in inventories of 56.3 billion yen and a decrease in notes and accounts receivable of 36.3 billion yen as the Company made continued efforts to concentrate its total assets, as well as depreciation of assets of 117.7 billion yen.

  Net cash used in investing activities amounted to 108.4 billion yen, as the Company allocated 135.1 billion yen for the purchase of plant and equipment and other assets, mainly in connection with the refurbishment of the No.8 wire rod mill at the Kakogawa Works and the No.7 wire rod mill at the Kobe Works.

  Net cash used in financing activities amounted to 83.7 billion yen, as the Company repaid corporate bonds amounting to 93.1 billion yen.

  Total assets at the end of fiscal 1999 amounted to 2,124.8 billion yen, a 6.4% decrease from the end of the previous fiscal year. Total stockholders' equity at fiscal year-end was 271.5 billion yen, down 17.0% from the end of fiscal 1998. As a result, the net worth ratio was 12.8%.