PRESIDENT'S MESSAGEoutbreak of BSE (bovine spongiform encephalitis),sales of foodstuffs and general products fell 8.8% to¥108.6 billion. Within our machinery, aerospace andelectronics business, lower demand for industrialmachinery and electronic devices contributed to anoverall decline in sales in this segment of 15.2% to¥110.6 billion. Due to lower spending on public-worksprojects, which resulted in lower sales of Terre Arméeproducts and reduced civil engineering revenues,sales in the construction and other sector slipped7.7% to ¥46.6 billion.Due to the fall in sales, gross profit decreased by¥15.5 billion, to ¥60.6 billion. Our efforts to reduceselling, general and administrative expenses bore fruit,however, and operating income rose by ¥77 million, to¥9.0 billion. Recurring income increased by ¥1.8 billion,to ¥6.4 billion.Extraordinary losses totaled ¥51.9 billion. This amountincluded charges for revaluation losses on productsand on land holdings, a loss on the disposal of sharesin affiliated companies, and a revaluation loss relatedto property and equipment. These losses were offsetto a significant extent by our receipt of ¥34.8 billionfrom Kawasaki Steel Corporation, to support ourrestructuring efforts. We recorded a net after-tax lossof ¥11.8 billion for the year.Partly due to the generous financial support ofKawasaki Steel Corporation, net cash provided byoperating activities amounted to ¥57.4 billion. As theresult of the sale of investment securities, net cashprovided by investing activities totaled ¥13.3 billion. Areduction in interest-bearing debt and other factorsincreased net cash used in financing activities, whichamounted to ¥59.5 billion. Cash and cash equivalentsat the end of the year increased to ¥43.7 billion.BUSINESS POLICY & MID-TERM STRATEGYIn the fiscal year ended March 2001, we introducednew accounting standards that committed us toaccount for off-balance-sheet losses of affiliates enbloc. In April 2001, we also embarked on a new threeyearbusiness plan, dubbed the "Second Step Plan."This focused on implementing structural reforms toboth our earnings and financial base. As a result ofthese efforts, in the year ended March <strong>2002</strong>, despitea harsh business environment, we achieved anincrease in consolidated recurring income, which rose¥1.8 billion to ¥6.4 billion. These results reflected agradual strengthening of profitability within our coreoperations, notably steel.In April 2001, our leading shareholder, Kawasaki SteelCorporation, entered into an agreement to merge itsoperations with those of NKK Corporation. FromSeptember <strong>2002</strong>, these two leading steelmanufacturers will merge to form the new JFE Group.Based on our sales expertise and highly competitive6
position as a leading steel trader, we will become thecore trading firm in the JFE Group, the principal salesagent for the products of the new company. Thismove will enhance our market position considerably,and we look forward to making our contribution to thedevelopment of the group.Prior to the inception of the JFE Group, our main taskhas been to fortify our financial position so that wehave a more solid business base from which to buildfollowing the merger. We have accelerated thedisposal of assets such as our real estate businessthat threaten to depress earnings from our healthybusinesses in the current straitened commercialenvironment. Our main aim has been to achievesignificant overall reductions in interest-bearingliabilities.Kawasaki Heavy Industries, Ltd., Kawasaki KisenKaisha, Ltd., and The Dai-Ichi Kangyo Bank, Ltd.*We will continue to work to boost our competitivenessat Kawasho. We have set fresh business performancetargets that represent a commitment to step up andaccelerate the Second Step Plan. Based on thesehigher goals, we will continue to strive to boostearnings and engineer further improvements in ourfinancial position. By achieving the New PerformanceTargets indicated on page 8, the Kawasho Group willbecome a much greater force, boasting a strongfinancial base and superior earnings power based onhigh-level trading capabilities within its steel business.In line with these moves, we evaluated assets atrealistic levels based on the premise of an early sale.We decided to write off any valuation and futurelosses against these businesses as a single chargefor the fiscal year ended March <strong>2002</strong>. Extraordinarylosses amounted to ¥51.9 billion, and were offset bya total of ¥34.5 billion by the donation from KawasakiSteel Corporation.Separately, we decided to issue new equity totaling¥10 billion via a third-party allotment to boost ourequity capital. The principal subscribers to this issuewere, among others, Kawasaki Steel Corporation,*The Dai-ichi Kangyo Bank, Ltd., The Industrial Bank of Japan, Ltd. andThe Fuji Bank, Ltd. implemented a corporate split and merged to becomeMizuho Bank, Ltd. and Mizuho Corporate Bank, Ltd. as of April 1, <strong>2002</strong>.7