Financial Review FINANCIAL HIGHLIGHTS MANAGEMENT PERSPECTIVE TOPICS REVIEW OF OPERATIONS FINANCIAL SECTION CORPORATE DATA Net Sales Sales Breakdown Net Sales Operating Income Cost, Expenses, and Earnings 21 (¥ billion) (For fiscal 2001) (¥ billion) In fiscal 2001, ended March 31, 2001, despite the yen’s appreciation and continuing deflationary pressures, Daikin’s efforts to increase sales by expanding its market share in its core businesses of air conditioning and fluorochemicals and by creating new markets resulted in substantial increases in sales volumes, both domestically and overseas. Overall net sales for the term increased 14.9% compared with the previous term, to ¥531,908 million. Looking at sales by business sector, in air conditioning and cryogenics operations, sales volumes increased substantially both domestically and overseas due to the Company’s efforts to enhance price competitiveness through thorough cost reduction, introduce unique products, and strengthen its worldwide sales branches. Despite tum- bling retail prices in Japan and the yen’s strength against the euro and the Australian dollar, sales leaped 16.6%, to ¥401,192 million.  In chemicals, demand for fluoroplastics expanded substantially in the semiconduc- tor industry in Japan and the United States and demand was also strong for FEP for use in LAN cables. In chemical products, although sales of fluoroalcohol decreased significantly due to CD-R inventory adjustments and partial conversion to other agents, sales of oil- and water-repellent finishes grew considerably in Asia and Europe and sales of semiconductor etching agents also increased in Asia. As a result, net sales increased 17.4%, to ¥96,188 million.  In oil hydraulics, as a result of a significant recovery in demand for machine tools— the division’s core products—as well as further increases in demand for multi-level car- parking systems, sales of hydraulic devices for industrial machinery increased 13.6%, to ¥19,726 million. In defense-related operations, net sales declined 24.3%, to ¥14,802 million, due to the partial carryover of ammunitions shipments to Japan’s Self Defense Agency because of an accident that occurred at the manufacturing plant of one of Daikin’s subcontractors in August 2000. As a result, overall sales in other busi- nesses declined 6.4%, to ¥34,528 million. During fiscal 2001, cost of sales amounted to ¥356,325 million, and the cost of sales ratio was 67.0%, an improvement of 0.7 percentage point. This was the result of the Years Ended March 31,  2001 2000 1999 1998 1997 Gross profit (net sales less cost of sales)  as a % of net sales.............................................. 33.0 32.3 31.2 30.0 29.5 Operating income as a % of net sales ..................... 7.5 5.6 5.0 4.7 4.8 Interest coverage (operating income  plus interest and dividend income  divided by interest expense) (times)...................... 7.8 5.6 3.6 3.5 3.4 Net income as a % of net sales .............................. 3.7 2.3 1.3 1.2 1.5 ’97 ’98 ’99 ’00 ’01 452.7 462.5 464.3 463.1 531.9 Chemicals 18.1% Oil Hydraulics 3.7% Defense 2.8% Air Conditioning 75.4% ’97 ’98 ’99 ’00 ’01 21.7 21.6 23.0 25.9 39.8