| Financial Statements For the Fiscal Year Ended March 31, 2000 |
| May 18, 2000 |
| Note: Nissho Iwai Corporation and its consolidated domestic subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Japanese Commercial Code and the Securities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan. The following statement is translated into English for the convenience of readers outside Japan. |
| Management Policy |
| Operating Environment and Progress on Medium-Term Management Plan 2002 |
| During the fiscal year ended March 31, 2000, the operating
environment for Nissho Iwai Corporation (the"Company") began
to recover in Japan and overseas. The Japanese economy staged a moderate recovery on the back of robust private capital investment centered on information technology (IT) in the second half of the term. Calm returned to financial markets due to the Bank of Japan's easy money policy and a rise in stock prices. However, subdued prospects for an improvement in employment and weak consumer spending continued to hinder the domestic economy. In the United States, productivity gains from IT investment sustained the prolonged economic expansion. The European economy was strong overall, buoyed by growth in the economies of principal countries, despite a weakening of the new euro currency. In Asia, countries adversely affected by currency and financial crises, especially South Korea and Thailand, began to show a strong recovery. Trade with China was brisk due to talks of the country joining the World Trade Organization (WTO) before the end of 2000. In this operating environment, the Company's three-year Medium-Term Management Plan 2002 was approved at the Board of Directors meeting on August 6, 1999. The Medium-Term Management Plan 2002 aims to strengthen the earnings structure by concentrating resources in strategic core businesses and withdrawing from low-margin transactions with low capital efficiency, and rebuild the balance sheet by streamlining assets and reducing interest-bearing debt, while strengthening capital financing capabilities. The plan incorporates the following measures: improve the financial position of the Company by streamlining assets, reform the earnings structure by concentrating resources on strategic core businesses, refine the cost structure through reorganization, merge and liquidate Group companies to strengthen consolidated management, bolster risk management, and strengthen corporate governance. To improve the financial position of the Company, the Company has streamlined assets by carefully selecting investment projects, withdrawing from low-margin transactions and improving settlement conditions. As a result, consolidated assets were reduced \579.7 billion and interest-bearing debt was reduced \465.0 billion, surpassing initial expectations and making substantial progress toward decreasing each by \1,200 billion in three years. To reform the earnings structure, the Company has decided to implement an internal Division Company System, a new management organization effective from April 1, 2000, that focuses on the five core businesses of information industries and aerospace, plant and projects, steel products and raw materials, energy, and consumer products. To refine the cost structure through reorganization, the Company focused efforts on drastically reducing selling, general and administrative expenses and implemented in advance a plan to reduce the number of employees by 2002. As a result, the workforce totaled 3,467 employees* as of March 31, 2000, compared with the target of 3,236 employees by March 31, 2002, and costs were reduced approximately \9.3 billion on a consolidated basis. *The workforce totaled 3,187 employees as of April 1, 2000, already exceeding the 2002 target. To strengthen consolidated management, the Company eliminated 41 low-performing subsidiaries through mergers and liquidations, enhancing the financial position of the Group. To bolster risk management, the Company established a new Risk Management Department and reviewed the established standards for assessing maximum risk by country, improving risk management for the Group. To strengthen corporate governance, we established a management structure that accelerates decision making by sharply reducing the number of directors and introducing an Executive Officer system. |
| Issues Facing the Company |
| In the second year of the Medium-Term Management Plan
2002, the Company is concentrating efforts on the following issues to
accelerate plan implementation and for the early realization of the three-year
plan's objectives. The first priority entails the establishment of nine internal companies to accelerate decision making and raise the level of accountability by establishing optimal organizational structures, personnel systems and operational guidelines in each of the five core business fields. The ultimate goals are to boost asset and capital efficiency and increase shareholder value. The new management system comprises the following nine companies: Plant & Project Company, Industrial System & Automotive Company, Aerospace, Marine & Rolling Stock Company, Metals Company, Energy Company, Chemicals Company, Housing Materials & General Merchandise Company, Consumer Products Company, and Construction & Urban Development Company. The companies are structured as autonomous entities with "virtual capital" and operate with independent budgets and accounting systems. Performance targets take into account the cost of capital. ITX Corporation, spun-off from the former Information Business Division on reflection of the makeup of the information industry, fulfills a role in the Company's response to the IT revolution. Amid restructuring in various industries, the Company aims to improve the enterprise value of each company by increasing the position in their respective fields through capital investments from and tie-ups with strategic partners. In an operating environment where business is shifting toward a new paradigm brought about by rapid advancements in IT represented by the Internet, the second priority facing the Company is to enter the e-commerce market, which holds promise for high returns in every business field. With substantial know-how in markets, logistics, risk management, finance and settlement accumulated through traditional trading, the Company aims to aggressively advance into services essential after the conclusion of contracts in the e-commerce market, and to create electronic marketplaces on the Internet for specific product fields. The third priority is to further bolster consolidated management by nurturing and strengthening Group companies while at the same time merging and liquidating inefficient Group companies. |
| Policy on Distribution of Profits |
| The Company considers the redistribution of profits to
shareholders one of its most important corporate policies. The Company
distributes profits to shareholders according to business results, emphasizing
stable dividends while aiming to increase profitability by improving management
efficiency and to strengthen its financial position. Dividends for the fiscal year under review, however, remain suspended to conserve internal reserves and build a stronger financial structure. Despite forecasts for a recovery in business performance for the current fiscal year, management has not reached a decision regarding dividends at this point. |
| Performance |
| Net sales (total trading transactions) decreased \1,377.6
billion, or 15.9%, to \7,281.3 billion, owing to reforms in the earnings
structure resulting from withdrawing from low-margin transactions with
low capital efficiency and concentrating resources on strategic core businesses.
By trade category, exports fell 19.4% to \957.3 billion compared with the previous fiscal year due to a reduction in machinery exports. Imports dropped 35.9% to \1,324.5 billion with declines in machinery, energy and metal imports. Offshore transactions were down 9.8% to \1,785.1 billion owing to a fall in energy transactions. Domestic transactions decreased 6.1% to \3,214.4 billion, reflecting a decline in transactions for general merchandise and housing materials. By commodity category, transactions in construction and urban development increased 21.8% and chemical products rose 11.0%. These increases were offset by decreases of 30.6% in energy, 21.2% in consumer products, 18.4% in machinery and information, 14.7% in general merchandise and housing materials, and 12.4% in metals. Gross trading profit edged down \5.2 billion, or 1.9%, to \267.7 billion. The gross trading profit ratio, however, improved 0.53 percentage point to 3.68%. After deducting selling, general and administrative expenses, operating income increased \4.1 billion, or 9.1%, to \49.1 billion. Recurring profit, reflecting the increase in operating income, climbed \8.1 billion, or 33.6%, to \32.1 billion. A net extraordinary loss of \13.9 billion was posted during the fiscal year under review. To promote restructuring and further strengthen the Company's financial position, extraordinary losses totaling \107.9 billion were recorded, including a \34.6 billion provision for overseas doubtful receivables, a \30.7 billion charge on the sale and revaluation of investment securities, and \20.6 billion for restructuring Group companies. Extraordinary profits of \94.0 billion from gains on the sale of investment securities were registered. As a result, income before income taxes was \18.2 billion. After income taxes of \8.0 billion, net income amounted to \10.2 billion. |
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| Management Policy Consolidated Financial Statements Non-Consolidated Financial Statements |
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