The Items Published on the Internet Website
Concerning the Notice of the 197th Ordinary
General Meeting of Shareholders–1–

6. System to ensure that Directors’ execution of duties complies withlaws and regulations and the Articles of Incorporation, othersystems to ensure proper execution of business and overview ofoperation status of such systems
At the Board of Directors Meeting of May 24, 2006, the Company made a resolution
regarding the basic policies on the establishment of internal control systems pursuant to
the Companies Act and confirmed the status of established internal control systems.
Henceforth, whenever there are organizational changes or changes to company rules,
resolutions are made at Board of Directors meetings with regard to the revision of thebasic policies. The details of resolutions regarding the basic policies as of the end of the
fiscal year under review and an overview of the operation status of internal control
systems for the fiscal year under review are as follows:
I. Basic policy for developing internal control systems
In an effort to embody KHI’s management philosophy, which is indicated in theGroup Mission (missions and roles which must be carried out) “Kawasaki, working as
one for the good of the planet” (Enriching lifestyles and helping safeguard theenvironment: Global Kawasaki), “Kawasaki Value,” “The Kawasaki Group Management
Principles” and “The Kawasaki Group Action Guidelines,” the KHI Group develops andmaintains internal control systems to ensure formation of proper organizational
structures, development of company rules and regulations, dissemination of
information and proper execution of operations. KHI strives to improve its internal
controls by constantly reviewing them, and in doing so improves the efficiency andlawfulness of company systems which contribute to the Group’s sound and sustained
growth.
More specifically, a resolution was made at the Board of Directors Meeting with respect
to the Company’s efforts to establish the following internal control systems and to
streamline, maintain, and improve them based on this basic policy.
1. Necessary systems to ensure proper execution of business of theCompany(1) Systems to ensure that execution of duties by the Company’s
Directors and employees are compliant with laws and regulations andthe Articles of Incorporation(i) We thoroughly ensure compliance with laws and regulations and the Articles
of Incorporation and other KHI Group’s regulations and policies by
establishing ethical standards to serve as the basis for decisions in taking
an action as the “The Kawasaki Group Code of Conduct” (hereinafter, the“Code of Conduct”) and ensuring that Directors and Audit & Supervisory
Board Members (hereinafter, “Officers”) and Executive Officers andemployees are thoroughly familiar with the Code of Conduct.
(ii) In order to achieve objectives such as effective and efficient business
operations, reliable financial reporting, compliance with laws andregulations and safeguarding of assets, and secure the appropriateness ofbusiness operations, we establish a system to promote internal control, with
President as the chief internal control officer and General Managers of eachdivision as the managers in charge of internal control, and manage theinternal control systems in a unified way based on the roles andresponsibilities given to Officers, Executive Officers and employees,
respectively.
(iii) We deliberate and make decisions on policies and measures, under thegovernance of President, for the Corporate CSR Committee and the CSR
Committee (consisting of Officers and other employees) to comply with the“Code of Conduct” and to take thoroughgoing compliance initiatives. We–2–

continue to improve understanding and awareness of compliance throughongoing education and training activities for various types of legal
compliance and also monitor operational status.
(iv) We work to enhance compliance systems by establishing the whistleblowing
system to report information regarding compliance breaches.
(v) Executive Officers who are delegated to execute business operations within
an appropriate scope are appointed at Board of Directors meetings.
Meanwhile by appointing outside directors (independent officers stipulated
in the Regulations of the Tokyo Stock Exchange) who are not likely to haveany conflicts of interest with any general shareholder, the Company
enhances the supervisory and monitoring functions of the Board of Directors
for overall management. In addition, by appointing Outside Audit &Supervisory Board Members (independent officers stipulated in theRegulations of the Tokyo Stock Exchange) who are not likely to have any
conflicts of interest with any general shareholder, the Company ensures theobjectivity and neutrality of the management monitoring function by the
Audit & Supervisory Board, and enhances the monitoring function.
(vi) The Internal Audit Department carries out KHI’s business audits andevaluation/assessment of internal controls over financial reporting to ensure
the proper execution of duties and the reliability of financial reporting.
(2) Systems for storage and management of information related to
execution of duties by the Company’s Directors(i) Information pertaining to execution of duties by Directors (meeting minutes,
decision making records and appurtenant materials, account books, accountslips and other information) shall be appropriately stored and managed inaccordance with applicable internal regulations. The information shall bemade accessible at any time to Directors, Executive Officers and employees
nominated thereby.
(ii) Confidential information and personal information shall be appropriately
stored and managed in accordance with internal regulations andenforcement thereof shall be ensured through such measures as businessaudits.
(3) Regulations for management of risk of loss of the Company and othersystems(i) With President as the chief executive of risk management, Executive Officer
in charge of risk management as chief risk officer and General Managers ofeach division as risk managers, we establish a risk management system tocomprehensively identify the potential risks and prevent or minimize risks
or losses caused by such risks.
(ii) With respect to risks pertaining to management strategies, risk analysis andconsideration of countermeasures shall be conducted in advance by theconcerned divisions in accordance with applicable internal regulations. Then,deliberations and decision making regarding those risks shall be carried out
at Board of Directors meetings. In particular, we implement risk
management individually for major projects that have a significant impact
on business operations.
(iii) As a measure to be taken when a risk becomes evident, we set forth codesof conduct in the event of emergencies, and also appoint persons in chargeof crisis management at each place of business to establish the system,
which is designed to minimize losses.
(iv) When a material risk becomes evident, reports are immediately given to
President, who is the chief executive of risk management, in accordancewith the reporting route specified in advance.
–3–

(v) In particular, in anticipation of the occurrence of disasters, including
largescale earthquakes and pandemic diseases, we predetermine important
operations to which priority should be given to ensure the continuation or
recovery of the operations in order to minimize the impact on KHI’s business.
We also formulate a business continuity plan to shorten the length of time
until recovery.
(4) Systems to ensure efficient execution of duties by the Company’s
Directors(i) Based on the role and objectives of the corporate group consisting of theCompany and its subsidiaries (hereinafter, the “KHI Group”) as articulated
in the Kawasaki Group Mission Statement, we share final goals for the futureby setting forth a long-term vision for the whole group and each businessdivision.
(ii) To attain the goals set forth in the long-term vision, we have formulated
specific action plans, including the Medium-Term Business Plan and ShortTerm Business Plan, and have determined goals for each organization,
Director, Executive Officer and employee. Furthermore, by conducting
regular reviews of these respective plans and goals, we aim to secure asystem that enables more appropriate and efficient execution of business
operations.
(iii) We have stipulated matters such as division of roles and approval authority
in internal regulations. We have also appointed Executive Officers based ona resolution passed at Board of Directors meetings to clarify the Systems
for Execution of Business Operations. As a result of establishing thesesystems, we aim to efficiently execute business operations in each businessand function area.
(iv) Upon exercise of authority delegated to President in internal regulations, weensure appropriateness and efficiency of executing business operations bymaking discussions at the Management Committee, which acts as anadvisory organ for President, due to its significance and others. Furthermore,
we have established the Executive Officers Committee as a place for
ensuring familiarity and exchange of opinions, etc. of management policies
and plans for Executive Officers to build a common understanding inbusiness management of the KHI Group.
(v) According to the in-house company system, each business division makes
decisions on its own under delegated authority and responsibility, andexecutes flexible business operations to adapt to changes in theenvironment. We have also established the Company Management
Committee in each Company, and it is led by the Company President who
assumes the ultimate responsibility for execution of duties of company’sbusiness operations.
2. Necessary systems to ensure proper execution of business of KHI GroupWe ensure proper execution of business of the KHI Group through efforts toestablish the following systems according to business contents, size, region andsignificance of each subsidiary.
(1) Systems to ensure that execution of duties by Directors andemployees of KHI Group is compliant with laws and regulations the
Articles of Incorporation(i) The Company governs internal controls of Group Companies from theperspective of the parent company and establishes a system to ensure theappropriateness of business operations. It does so by achieving objectives
regarding matters such as the effectiveness and efficiency of business
operations, reliability of financial reporting, compliance with laws and–4–regulations and safeguarding of assets as a whole group.
(ii) The Company establishes a system to have the Corporate CSR Committee
deliberate strategies and policies and measures concerning the “Code of
Conduct” and compliance as the entire KHI Group, and check operational
status.
(iii) The Company implements controls as shareholders of Group Companies
through the execution of voting rights at the General Meeting of
Shareholders, and also carries out management supervision and monitoringover the operation thereof by dispatching part-time Directors or part-time
Audit & Supervisory Board Members who are not engaged in the executionof business operations of Group Companies, or both (hereinafter, “Part-Time
Officer”), to Group Companies, on an as-needed basis. In addition, we
secure appropriate Group business management systems by establishing adepartment which presides over subsidiaries’ operation.
(iv) The Internal Audit Department ensures the appropriateness of operations
and reliability of financial reports through business audits and assessmentof internal controls over financial reporting at Group Companies.
(2) Systems with regard to reporting to the Company on execution ofduties by directors of Group Companies(i) The Company receives reports regarding the status of execution of duties
by directors of Group Companies through a Part-Time Officer who isdispatched thereto.
(ii) Group Companies regularly report on the status of business operation as amanagement report and have discussions in advance with the relevant
department of the Company with regard to important matters subject todecision-making on corporate management in accordance with applicableinternal regulations.
(3) Regulations for management of risk of loss of Group Companies andother systems(i) The Company promotes group-wide risk management, striving to preventor minimize risk or losses caused by such risk.
(ii) As a measure to be taken when a risk becomes evident at Group Companies,
the Company instructs Group Companies to formulate crisis handlingmeasures and policies to establish the crisis management system.
(iii) When a material risk becomes evident, reports are immediately given to theCompany, in accordance with the reporting route specified in advance.
(4) Systems to ensure efficient execution of duties by Directors of Group
Companies(i) With respect to the management at each Company of the KHI Group, while
respecting the autonomy thereof, the Company establishes a system inwhich execution of duties is ensured in a fair and efficient manner by sharing
the basic philosophy and vision indicated in the “Kawasaki Group Mission
Statement,” long-term vision, the Medium-Term Business Plan, and so forth,and clarifying group-wide final goals.
(ii) The Company instructs Group Companies to develop Approval Standards toensure efficient execution of business.

–5–3. Necessary matters for the Company’s Audit & Supervisory Board
Members to execute duties(1) Policies regarding employees in cases where the Company’s Audit &Supervisory Board Member requests appointment of employees toassist with his/her duties
We allocate the required employee according to the Audit & Supervisory
Board Members’ requests.
(2) Policies regarding independence of employees who assist with theduties of the Company’s Audit & Supervisory Board Members from theCompany’s Directors and matters regarding ensuring efficiency indirections given to employees who assist with the duties of theCompany’s Audit & Supervisory Board Members
The employee who assists with the duties of the Audit & Supervisory Board
Member shall follow the Audit & Supervisory Board Member’s directions andorders. For personnel transfer, personnel performance evaluation anddisciplinary punishment, prior consent of the Audit & Supervisory Board isrequired.
(3) Systems for the Company’s Directors and employees to report to theCompany’s Audit & Supervisory Board Members and systems for
Directors, Audit & Supervisory Board Members and employees ofGroup Companies and those who receive reports from the said
Directors, Audit & Supervisory Board Members and employees ofGroup Companies to give reports to the Company’s Audit &Supervisory Board Members(i) The Company’s Audit & Supervisory Board Members attend Board of
Directors meetings, the Management Committees, Executive Officers
Committees and companywide meetings, including the Corporate CSR
Committee and the Corporate Risk Management Committee. At thesemeetings, the Company’s Directors, Executive Officers and employees shallprovide the Company’s Audit & Supervisory Board with reports concerning
important matters about group management and business operations,
including matters regarding compliance, risk management and internal
controls, and the status of execution of duties.
(ii) The Company’s Directors, Executive Officers and employees shallimmediately report to the Company’s Audit & Supervisory Board when
discovering that there is a risk of the KHI Group suffering significant damage.
(iii) Directors, Audit & Supervisory Board Members and employees of Group
Companies shall immediately report to the relevant department of theCompany when discovering that there is a risk of the KHI Group sufferingsignificant damage. Upon receiving reports, the said department shall report
the details to the Company’s Audit & Supervisory Board.
(iv) The Company’s Executive Officers and employees shall, in accordance withapplicable internal regulations, report to the Company’s Audit & Supervisory
Board regarding the execution of business operations of the KHI Group by
circulation of internal memos.
(v) The Company’s Auditing Department and Accounting Auditors from time totime report to, and exchange information with the Company’s Audit &Supervisory Board regarding the status of audits on the KHI Group.

–6–(4) System to ensure that those who give reports described in thepreceding Item (3) will not be treated disadvantageously for reasonof having made such report
The Company stipulates a provision regarding the prohibition of unfair andunfavorable treatment of those who give reports described in the preceding
Item (3). The Company also instructs Group Companies to stipulate aprovision of the same contents in their company regulations.
(5) Policies on prepaid expenses for the execution of the duties of theCompany’s Audit & Supervisory Board Members, or expenses forprocedures for repayment and the execution of other relevant duties,
or on debt processing
When Audit & Supervisory Board Members request the Company to makeprepayment on execution of duties pursuant to the Companies Act, theCompany shall promptly proceed with payment of appropriate expenses anddebt settlement, except where the expense or debt whose payment isrequested is deemed unnecessary to execute their duties.
(6) Other systems to ensure the effective conduct of audits by theCompany’s Audit & Supervisory Board Members(i) Directors and Audit & Supervisory Board Members regularly hold meetings
to ensure mutual understanding, and Audit & Supervisory Board Members
also attend important meetings such as Board of Directors meeting andManagement Committee meeting, and directly express their opinion
regarding execution of duties by Directors.
(ii) The Company’s Directors and Group Companies’ Directors promotecollaboration between the Company’s Audit & Supervisory Board Members,
the Company’s Internal Audit Department and Group Companies’ Audit &Supervisory Board Members, and cooperate to establish systems whichenable greater effectiveness in the conduct of audits.
(iii) The Company and Group Companies obtain the consent of the Audit &Supervisory Board Members or approval of the Audit & Supervisory Boardof the relevant company with regard to proposals for the election of Audit &Supervisory Board Members and their remuneration, and so forth, of therelevant company, in accordance with laws and regulations and the Articles
of Incorporation.
(iv) Of Audit & Supervisory Board Members appointed by the Company, one ormore shall have substantial knowledge about finance and accounting.
4. System regarding expulsion of anti-social forces
Our Group resolutely rejects any unreasonable demands from anti-social forces,
and specifies in the “Code of Conduct” that it shall not have any relations with
anti-social forces and shall ensure that all Officers, Executive Officers andemployees are thoroughly aware of the matters contained in it.
Furthermore, with respect to internal systems, we have established adepartment in the headquarters which is responsible for overseeing handling of
expulsion of anti-social forces, established close cooperation with external
specialized organizations such as the police force, and in collaboration with theconcerned departments, we systematically handle unreasonable requests fromanti-social forces.

–7–II. Overview of the operation status of internal control systems
An overview of the operation status of internal control systems for the fiscal year
under review is as follows. The said operating status is assessed at the end of every
fiscal period and the assessment results are reported to the Board of Directors
meeting.
1. Efforts on internal control systems in general(i) We have specified the “Code of Conduct” as ethical standards to serve as thebasis for decisions when the KHI Group’s Officers and employees take anaction, and ensure thorough dissemination of the Code of Conduct byimplementing initiatives such as distributing the booklet to employees,
posting the Code of Conduct on the intranet and providing various training
programs.
(ii) The Internal Audit Department carries out evaluation/assessment of internal
controls over business audits and financial reporting for the KHI Group to
ensure effectiveness and efficiency of business operations and reliability offinancial reporting.
2. Efforts on compliance(i) We establish the Corporate CSR Committee, which is responsible fordeliberating and making decisions on policies and measures to promotecompliance at a group-wide level and monitoring the compliance status
thereof. The said committee also plays the leading role in the establishmentof related internal regulations, preparation and distribution of the “Compliance
Guidebook” (hereinafter, the “Guidebook”), provision of various training
programs, and operation of the whistle-blowing system. In addition, weestablish the CSR Committee, which performs compliance activities for eachbusiness division, and implement appropriate measures for each businessenvironment.
(ii) We specify that we shall have no relations with anti-social forces in the Codeof Conduct, and ensure that all employees shall be aware of the matters by
distributing the Guidebook containing specific examples of prohibited acts,
and promoting awareness in the workplace.
3. Efforts on risk management(i) We build a risk management system on a companywide level based on the
Risk Management Regulations. We also prepare a manual to explain theprocedures of specific risk management practices and exhaustively grasp theassumed risks on a scale common to the Group to prevent and minimize risk
or losses caused by such risk. In addition, we hold Risk Management
Committee meetings on an as-needed basis at both the companywide leveland divisional level to report and deliberate on determination of material risks,
designation of risks to be addressed, results of risk monitoring and otherimportant matters.
(ii) For major projects that have a significant impact on business operations, ahead office division conducts risk assessment and considers risk control
measures before accepting orders. In addition, while spotting any sign ofdeterioration earlier through progress monitoring control of projects
underway and working to prevent profitability deterioration, and so forth, we
also evaluate the profitability after completion, conduct factor analysis on
projects that have significantly deteriorated and do the mean level
development of other projects to bring stronger risk management.
(iii) In anticipation of the occurrence of large-scale disasters and pandemic
diseases, we proactively formulate a business continuity plan for each–8–business division, and conduct annual assessment and review thereof. We alsoestablish and build a system to minimize losses in case we suffer damage indisasters.
During the fiscal period under review, we reviewed estimates of damage by
disasters in major areas in Japan, performed disaster prevention drills and
BCP drills, and conducted safety confirmation drills for all the employees. In
response to the spread of COVID-19 infection, we are taking appropriate
infection prevention measures based on the action guidelines and business
continuity plans in the event of emergencies.
4. Efforts to ensure efficient execution of duties(i) Based on the companywide policies and strategies determined with reference
to the contents of the Kawasaki Group Mission Statement, which stipulates
the KHI Group’s role and objectives, we determine the ideal way to be in eachbusiness area as well as the medium-term business plan and the short-termbusiness plan to clearly show our final goals and share them. In addition, eachorganization as well as Directors, Executive Officers and employees strive to
execute business more appropriately and efficiently by setting their own
objective to achieve these goals.
(ii) We articulate division of roles and approval authority to enhance efficiency of
execution of duties in each business and function area. We also give various
types of guidance to Group Companies to enhance efficiency of execution ofduties.
(iii) We strive to thoroughly deliberate important management policies,
management strategies and other matters at Board of Directors meetings andManagement Committee meetings and form a common understanding among
Directors to ensure that Directors efficiently execute duties.
5. Efforts on management of Group Companies(i) We exert group-wide efforts to work on compliance and risk management andsuccessively develop these systems to overseas Group Companies. In orderto ensure further dissemination and familiarization, we will establish andoperate the systems according to business contents, size, region andsignificance of each Group Company.
(ii) We carry out management supervision and monitoring over the operation ofGroup Companies by dispatching Part-Time Officers to Group Companies toattend Board of Directors meetings thereof. We regularly receive reports on
the status of business operation from Group Companies and the responsible
department of the Company and the relevant Group Companies havediscussions in advance with regard to important matters subject to decision
making on corporate management of the Group Companies in accordancewith applicable internal regulations.
6. Efforts on ensuring appropriateness of audits performed by theCompany’s Audit & Supervisory Board Members(i) We assign two employees who are dedicated to assist with the duties of Audit& Supervisory Board Members. For personnel transfer, personnel performance
evaluation and disciplinary punishment of these employees, we obtain priorconsent of the Audit & Supervisory Board.
(ii) Audit & Supervisory Board Members attend the Company’s important
meetings. Directors, Executive Officers and employees provide the Company’s
Audit & Supervisory Board with reports concerning important matters about
corporate management and business operations as well as the status ofexecution of duties through the said meetings, and report to the Company’s
Audit & Supervisory Board regarding the execution of business operations by–9–

circulation of internal memos.
(iii) We establish regulations that prohibit unfair and unfavorable treatment of
those who cooperate with Audit & Supervisory Board Members to perform
audits and give reports to Audit & Supervisory Board Members pursuant to
the “Basic Policy for the Establishment of Internal Control System.” In addition,
Group Companies are also proceeding with establishment of structures andsystems according to region, size, function and others of each Group Company,
including development of regulations.
(iv) The Auditing Department and Accounting Auditor regularly hold liaison
meetings or discussions with Audit & Supervisory Board Members to exchange
information and opinions with him/her so as to ensure close communication.
(v) We establish regulations regarding requests for prepaid expenses incurred forthe execution of the duties of Audit & Supervisory Board Members, and soforth.

– 10 –

Consolidated Statement of Changes in Net Assets(From April 1, 2019 to March 31, 2020)(Unit: Millions of yen)
Shareholders’ equity

Balance at the beginning of
the period

Common stock

Capital surplus

104,484

54,542

Cumulative effects ofchanges in accounting
policies
Restated balance

Retained earnings Treasury shares

324,606(130)(4,948)104,484

54,542

319,657

Total
shareholders’equity483,502(4,948)(130)478,554

Changes of items during
the period
Cash dividends(11,693)(11,693)

Net income attributableto owners of the parent

18,662

18,662

Treasury stock
purchased

(3)

(3)

0

0

Treasury stock disposed(0)

Transfer of loss on
disposal of treasury
stock

0

(0)





6,968

(3)

6,965

104,484

54,542

326,626(133)

485,520－

Net changes of items
other than shareholders’equityTotal changes of items
during the period
Balance at the end of theperiod– 11 –

Accumulated other comprehensive income

Balance at the beginning of
the period

Valuationdifferenceonavailablefor-salesecurities

Deferred
gains orlosses onhedges

2,682

(227)

Total
Foreign
Remeasureaccumulated Non-controlling Total net
currency
ments ofinterests
assetsothertranslation
definedcomprehensive
adjustment benefit plansincome(4,556)(5,014)

Cumulative effects ofchanges in accounting
policies
Restated balance(7,115)

15,874


2,682

(227)

(4,556)(5,014)(7,115)492,261(4,948)15,874

487,312

Changes of items during
the period
Cash dividends(11,693)

Net income attributableto owners of parent

18,662

Treasury stock purchased(3)

Treasury stock disposed

0

Transfer of loss on
disposal of treasury stock

Net changes of items
other than shareholders’equity(1,046)(44)(6,754)(14,931)(22,776)

60(22,716)

Total changes of items
during the period(1,046)(44)(6,754)(14,931)(22,776)

60(15,750)

Balance at the end of theperiod

1,636

(272)

(11,311)(19,946)(29,892)

15,934

471,562– 12 –

Notes to the Consolidated Financial Statements(Notes to the basis for preparation of consolidated financial statements)
1. Scope of consolidation(1) Number of consolidated subsidiaries and names of
96 in total
principal consolidated subsidiaries(Domestic) Kawasaki Trading Co., Ltd., Kawasaki Machine Systems, Ltd., NIPPICorporation, Kawasaki Motors Corporation Japan, Kawasaki ThermalEngineering Co., Ltd., EarthTechnica Co., Ltd.
(Overseas) Kawasaki Motors Corp., U.S.A., Kawasaki Motors Manufacturing Corp.,
U.S.A., Kawasaki Motors Europe N.V., Kawasaki Motors Enterprise(Thailand) Co., Ltd., Kawasaki Rail Car, Inc., Kawasaki Motors (Phils.)
Corporation, Kawasaki Precision Machinery (Suzhou) Ltd., Kawasaki
Precision Machinery Trading (Shanghai) Co., Ltd., Kawasaki Robotics(USA) Inc.
Two newly established subsidiaries have been included in the scope of
consolidation.
(2) Names of principal non-consolidated subsidiaries, etc.
Green Park Chiba Shin-Minato and other companies(Reason for exclusion from scope of consolidation)
The non-consolidated subsidiaries were excluded from the scope of consolidation
because they are small in size, and its accounts, such as total assets, net sales, net
income (for the Company’s equity interest) and retained earnings (for theCompany’s equity interest), have no significant effects on the Company’s
consolidated financial statements.
2. Application of the equity method(1) Number of affiliates which are subject to application
17 in totalof the equity method
Name of principal company
Nantong COSCO KHI Ship Engineering Co.,Ltd.
(2) Non-consolidated subsidiaries not subject to application of the equity method(Green Park Chiba Shin-Minato and other companies) and affiliates(Commercial Airplane Co., Ltd. and other companies) are excluded from thescope of application of the equity method, because they only have minimal
effects on the Company’s consolidated financial statements with respect to net
income (for the Company’s equity interest) and retained earnings (for theCompany’s equity interest), and they have no significance as a whole.

– 13 –

3. Significant accounting policies(1) Standards and methods for evaluation of significant assets(i) Marketable securities
a. Bonds held to maturity
Amortized cost method (straight-line method) is principally applied.
b. Other marketable securities
Securities with market valueMarket value method based on the market value as of the accountclosing date (with all valuation differences charged to net assets and thecost of sale computed mainly by the moving-average method) is applied.
Securities without market value
The cost method based on the moving-average method is principally
applied.
(ii) Inventories
Stated at cost principally using the specific identification method, the movingaverage method and the first-in first-out method (balance sheet amounts are
determined based on the method of lowering the book value in accordancewith the deterioration of profitability).
(iii) Derivatives
Stated at market value.
(2) Depreciation and amortization method for significant depreciable assets(i) Net property, plant and equipment (other than leased assets)
The straight-line method is principally applied.
(ii) Intangible assets (other than leased assets)
The straight-line method is applied.
Software for internal use is amortized by the straight-line method over theinternally estimated useful lives (within 5 years).
(iii) Leased assets
The leased assets involved in finance lease transactions that involve transferof ownership
The same method as that applied to property, plant and equipment isapplied.
Finance lease transactions not involving the transfer of ownership
The straight-line method is used with the useful life equal to the lease termand zero residual value.
In addition, out of the finance lease transactions that do not transfer
ownership, lease transactions whose lease transaction commencement date
was on or prior to March 31, 2008 are accounted for on a basis similar toordinary rental transactions.
(3) Accounting standards for significant provisions(i) Allowance for doubtful accounts
In order to provide for losses due to doubtful accounts from bad debts
including trade receivables and loan receivables, allowance for doubtfulreceivables is provided based on the historical default rate of normal
receivables and with reference to the collectability of receivables fromcompanies in financial difficulty.
(ii) Provision for bonuses
To cover bonus payments to employees, provision for bonuses is provided
in the amount for the consolidated fiscal year based on the estimated amountof payment.

– 14 –

(iii) Provision for construction warranties
A provision is recorded for expenditures for warranties concerning
construction contracts based on past experience or on estimations ofindividual cases.
(iv) Provision for loss on construction contracts
A provision for an estimated amount of losses is recorded for the next fiscal
year and thereafter concerning construction works which are anticipated toincur significant losses and which allow reasonable estimation of the loss
incurred at the end of the consolidated fiscal year under review among those
construction works that have not been delivered as of the end of the fiscal
year.
(v) Provision for the in service issues of commercial aircraft jet engines
A provision for the amount expected to be covered by the Company withregard to costs associated with significant in-service issues arising in theRolls-Royce Trent 1000 engine program for Boeing 787, in which the Company
has participated as a risk and revenue sharing partner (RRSP).
(vi) Provision for sales promotion expenses
A provision is recorded for sales rebates, etc. that are anticipated to be
disbursed for the next consolidated fiscal year based on past experience oron estimations of individual cases, concerning dealer inventories at the endof the consolidated fiscal year under review.
(4) Method of accounting treatment for retirement benefits(i) Allocation of expected retirement benefit payments
In calculation of retirement benefit obligations, the benefit formula basis isused to allocate expected retirement benefit payments to the period as of theend of the consolidated fiscal year.
(ii) Method of accounting treatment for actuarial differences and prior service cost
The prior service cost is amortized using the straight-line method overcertain years (mainly 10 years) within the average remaining service periodof the employees when the costs incurred in each year.
Actuarial differences are amortized from the year following the year in which
the differences are recognized using the straight-line method over the
average remaining years of service of the employees (mainly 10 years).
(iii) Method of accounting treatment for unrecognized actuarial gains and losses,
and unrecognized past service costs
Unrecognized actuarial gains and losses, and unrecognized past service
cost, net of applicable taxes, are recorded in “Accumulated adjustment for
retirement benefits” of “Accumulated other comprehensive income” in “Netassets.”(iv) Simplified accounting method used by small companies
Certain consolidated subsidiaries apply a simplified accounting method inwhich the calculation of liabilities for retirement benefits and retirement
benefit expenses is carried out by using a method in which the retirement
benefit obligations are deemed to be the amount of retirement benefits to be
paid in cases where all eligible employees retired at the fiscal year-end date.
(5) Standards for the recognition of significant revenues and expenses
Recognition of net sales of completed construction contracts and cost of sales ofcompleted construction contracts
a. Construction activities whose outcome from the completed portion as of theend of the consolidated fiscal year are deemed to be definite
Percentage-of-completion method (the cost-to-cost method is principallyused to estimate the percentage of completion) is applied.
– 15 –

b. Other construction activities
Completed-contract method is applied.
(6) Standards for the translation of major assets or liabilities denominated in foreign
currencies
Receivables and payables denominated in foreign currencies are translated into
yen at the foreign exchange spot rate on the date of the balance sheet, anddifferences arising from the translation are calculated as gains or losses. The
Company translates assets and liabilities of foreign consolidated subsidiaries into
yen at the foreign exchange spot rate on the date of the balance sheet of each of
those subsidiaries. Revenues and expenses are translated using the average
foreign exchange rate of the statement of income’s period. Translation
adjustments are included in “Foreign currency translation adjustments” and “Noncontrolling interests” in “Net assets.”(7) Method of significant hedge accounting(i) Method of hedge accounting
Deferred hedge accounting is applied.
(ii) Hedging instruments and hedged items
Hedging instrument
Hedged items
Receivables and payables (including
Forward exchange contracts, currency
forecast transactions) denominated in
options
foreign currency
Interest rate swaps, currency swaps
Borrowings(iii) Hedging policy
Hedging is conducted as a measure against the risk of foreign currency
variation and interest rate variation based on company rules of respective
subsidiaries.
(iv) Method of assessing hedging effectivenessHedging effectiveness is evaluated based on fluctuation amounts of hedged
items and hedging instruments by comparing the cumulative changes ofmarket fluctuations between the hedged item with the hedging instrument
during the period between the start of the transaction to the point at which
effectiveness is assessed.
(8) Method and period for amortization of goodwill
Goodwill equivalent is equally amortized over the estimated effective periodof the investment. However, goodwill is amortized in lump-sum in the fiscal year
when incurred if the amount is minimal.
(9) Other significant matters for preparing the consolidated financial statements(i) Accounting treatment for consumption taxes
The tax-exclusion method is applied for the consumption tax and the local
consumption tax.
(ii) Application of the consolidated taxation system
The consolidated taxation system is applied.
(iii) Application of tax effect accounting for the transition from the consolidated
taxation system to the group tax sharing system (changes in presentation
method)Regarding the items related to the transition to the Group Tax Sharing
System newly established in the “Act for Partial Amendment of the Income Tax
Act” (Act No.8, 2020) and the review of the non-consolidated taxation system
in line with the transition, the Company and some domestic consolidated– 16 –

subsidiaries have not applied the provisions of paragraph 44 of the“Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No.28,
February 16, 2018), pursuant to paragraph 3 of the “Treatment of Tax EffectAccounting for the Transition from the Consolidated Taxation System to theGroup Tax Sharing System” (PITF No.39, March 31, 2020). The amounts ofdeferred tax assets and deferred tax liabilities are recorded in accordance withthe tax act prior to the amendment.
(Changes in accounting policies)
The consolidated subsidiaries adopting US GAAP have applied ASC Topic 606 “Revenue
from Contracts with Customers” from the current fiscal year.
In applying this standard, revenue is recognized upon the transfer of promised goods orservices to customers in an amount that reflects the consideration an entity expects toreceive in exchange for those goods or services. In accordance with the transitional
measure provided in this standard, the Group retrospectively recognized the cumulative
effect of initially applying this standard at the date of initial application as an adjustment
to the opening balance of retained earnings of the current fiscal year.
As a result, retained earnings at the beginning of the current fiscal year decreased by¥4,948 million while profit before income taxes and earnings per share were ¥3,442
million and ¥15.22 higher, respectively, than the case where the previous accounting
standard had been applied. The impact on net assets per share is insignificant.
(Changes in presentation methods)
Consolidated Balance Sheet
Effective from the consolidated fiscal year under review, “Provision for sales promotion
expenses,” which was included in “Other” under “Current liabilities” for the previous
consolidated fiscal year, is presented separately as a result of an increase in its
quantitative materiality.
Consolidated Statement of Income
Effective from the consolidated fiscal year under review, “Penalty income” and “Insurance
claim income,” which were included in “Other” under “Non-operating income” for theprevious consolidated fiscal year, are presented separately as a result of an increase in
their quantitative materiality. On the other hand, “Gain on sales of securities” which waspresented separately under “Non-operating income” for the previous consolidated fiscal
year, is included in “Other” under “non-operating income” effective from the consolidated
fiscal year under review as a result of a decrease in its quantitative materiality.
(Notes to Consolidated Balance Sheet)
1. The amounts presented are rounded down to the nearest unit.
2. Accumulated depreciation of property, plant and equipment
3. Assets pledged as collateral and Liabilities relating to collateral(1)
Assets pledged as collateral
Buildings and structures, net
Investment securities
Other
Total
(2)

Liabilities relating to collateral
Short-term borrowings
Long-term borrowings
Notes and accounts payable - trade
Total– 17 –¥872,337 million¥82 million¥47 million¥80 million¥209 million¥2 million¥8 million¥3 million¥14 million

4.

Guarantee obligations for bank loans of subsidiaries andaffiliates, etc. and employees¥22,515 million
5. With respect to some work in process, a trust beneficiary right has been establishedwith the expected trade receivables as a trust asset. Work in process related to thesaid trust asset amounts to ¥4,479 million.
6. In some overseas construction works for LNG tanks, the Company suffered damage(about ¥51.0 billion) due to a breach of contract because of non-fulfillment ofcontract by an overseas subcontractor. In this case, a petition for arbitration has
been filed with the ICC (The International Chamber of Commerce). We plan toresolve this case through arbitration in the future, and the expected amount ofrecovery from the arbitration has been recorded in “Other” under “Investments andother assets.”
7. In the consolidated fiscal year under review, the Company was notified that payment
to the Company could not be made for domestic gas-fired power generation facility
projects that it had constructed, but had not been delivered, due to credit concern
on the part of our counterpart. In the consolidated balance sheet, assets related tothis case are recorded in both trade receivables and work in process. The unpaid
amount to the Company is approximately ¥20.0 billion, and we are in the processof discussing the way to recover the unpaid amount including reselling it to a third
party.
(Notes to Consolidated Statement of Income)1. The amounts presented are rounded down to the nearest unit.
2. Payments for the in-service issues of commercial aircraft jet engines have beenrecorded in the amount expected to be covered by the Company with regard to costs
associated with significant in-service issues arising in the Rolls-Royce Trent 1000
engine program for Boeing 787, in which the Company has participated as a risk andrevenue sharing partner (RRSP).
3. “Loss on withdrawal from business” involves a loss associated with its withdrawal fromsome of the businesses of the Company’s Energy System & Plant Engineering
Company.
(Notes to Consolidated Statement of Changes in Net Assets)
1. The amounts presented are rounded down to the nearest unit.
2. Total number of shares issued as of end of the consolidated fiscal year under review
Ordinary share
167,080,532 shares
3. Dividends(1) Dividends
Resolution
General Meetingof Shareholders
on June 26, 2019
Board of Directors
Meeting on
October 31,2019Total dividend(millions ofyen)

Dividend pershare (yen)Record date

Effective date

5,846

35

March 31, 2019

June 27, 2019

5,846

35

September 30,
2019

December 2,
2019(2) Of the dividends whose record date belongs to the consolidated fiscal year underreview, those whose effective date will fall in the next consolidated fiscal year.
Not applicable.

– 18 –

(Notes to Financial Instruments)
1. Matters regarding financial instruments
KHI Group raises necessary funds, in light of its business plans; for long-termworking capital and capital expenditure funds the Group predominantly raises funds
through bank loans and issuance of corporate bonds, for short-term working capital itraises funds through bank loans and issuance of short-term bonds (electroniccommercial paper), and so forth. Temporary surplus funds are invested in highly
secure financial assets. We use derivatives to avoid risks described hereunder and do
not engage in speculative transactions.
Operating receivables, namely, notes and accounts receivable - trade are exposed
to counterparty credit risk. The currency exchange risk of the debts and credits inforeign currencies which arise from global business operations is hedged by using
foreign exchange forward contracts, and so forth in principle against the net amountof the debts and credits in the foreign currency. Investments securities are mainly
shares of corporations which we have business dealings with, and of these investments,
those shares that are listed are exposed to the risk of market price fluctuations.
Notes and accounts payable - trade and electronically recorded obligations operating, which are operating liabilities, have maturities of less than one year. Someof those are denominated in foreign currencies due to the import of materials, and soforth, and although they are exposed to the risk of currency fluctuation, most arewithin the limit of the balance of accounts receivable in the same foreign currency.
Debts payable that are composed of borrowings and bonds payable are raised for the
purpose of securing working capital and capital investments, and the longest maturity
from the date of balance sheet is about 20 years. Some of those instruments havefloating interest and are denominated in foreign currencies and are therefore exposedto the risk of interest rate and currency exchange fluctuations, however we hedge
those risks as required by using derivatives transactions (interest rate swap
transactions and currency swap transactions).
Derivative transactions are transactions which include exchange forward contracts
and currency options and currency swap transactions for the purpose of hedging
exchange fluctuation risks of the debts and credits in foreign currencies, and interest
rate swap transactions and so forth for the purpose of hedging interest fluctuation
risks of debts payable. Details of hedging instruments, hedged items, hedging policies,
assessment of hedging effectiveness of hedge accounting are stated in “3. Significant
accounting policies, (7) Method of significant hedge accounting” of “Notes to the basis
for preparation of consolidated financial statements” described above.
2. Matters concerning market value, etc. of financial instruments
The prices recorded in the consolidated balance sheet, market values and thedifference between those as of the end of this consolidated fiscal year are as follows.
(Unit: Millions of yen)

(1) Cash and deposits
Notes and accounts receivable(2)- trade(3) Investment securities
Notes and accounts payable (4)tradeElectronically recorded(5)
obligations - operating(6) Short-term borrowings

Price recorded in
the consolidatedbalance sheet (*)
106,108

Marketvalue (*)

Difference

106,108–

473,204

473,133

(71)

5,738

5,738

–

[261,159][261,159]–[110,526][110,526]–[166,188][166,188]–– 19 –

Current portion of bonds[20,000]
payable(8) Bonds payable[160,000](9) Long-term borrowings[188,859](10) Derivatives transactions[237](*) Figures which are posted as liabilities are shown in [ ].
(7)[20,000]–[160,427][188,235]
[237]

(427)
624
–

(Note 1) Matters concerning the method for calculating the market value of financial
instruments and marketable securities and derivatives transactions(1) Cash and deposits
These instruments can be settled within short term and the market value is roughly
equal to book value, therefore the fair market value is stated at book value.
(2) Notes and accounts receivable - trade
Trade receivables are grouped into a specified period, and are stated at market
value calculated by the discount rate, which takes into account the respective period
to maturity and credit risk.
(3) Investment securities
The market value for these securities is stated at the price listed on the exchange.
(4) Notes and accounts payable - trade, (5) Electronically recorded obligations operating, (6) Short-term borrowings, (7) Current portion of bonds payable
These instruments can be settled within short term and the market value is roughly
equal to book value, therefore the fair market value is stated at book value.
(8) Bonds payable
The fair market value of these instruments is stated at the market value.
(9) Long-term borrowings
The market value of long-term borrowings is determined by discounting the total ofprincipal and interest by the interest rate on similar new debt.
(10) Derivatives transactions
The market value of derivatives is stated at the forward exchange rate or the priceoffered by the trading financial institution.
(Note 2) Financial instruments whose market value is deemed extremely difficult toascertain
Shares of affiliates, investments in affiliates and unlisted stocks, and investments insilent partnerships (amount recorded in the consolidated balance sheet was ¥85,791
million) are not included in the table above, as it is deemed to be extremely difficult
to ascertain fair market value because those instruments have no market prices, and
it is not possible to estimate their future cash flows.
(Notes to Per Share Information)
1. Net assets per share¥ 2,727.59
2. Net income per share¥ 111.72(Other)(Damage caused to NIPPI Corporation by snowfall)
The heavy snowfall on February 15, 2014 caused a hangar roof in Atsugi Works of
NIPPI Corporation, which is KHI’s consolidated subsidiary, to collapse, causing
damage to aircrafts of the Japan Maritime Self-Defense Force that was undergoingregular maintenance. The Company and NIPPI Corporation pursued discussions on
handling of this matter with the Ministry of Defense. Nevertheless, in July 2017, theMinistry of Defense set off ¥1.9 billion against the Company’s right to charge to theministry (government), claiming that the ministry sustained losses of the sameamount. Since the Company cannot accept the claim of the Ministry of Defense andthe offsetting, the Company pressed the ministry for payment of ¥1.9 billion, which
was set off. However, the Ministry of Defense refused the payment, and therefore the– 20 –

Company filed a lawsuit seeking payment of the amount with the Tokyo District Courtin October 2017. In December 2019, a settlement was reached, with the Ministry of
Defense paying ¥1.9 billion in unpaid amount to the Company. This will not affect the
profit or loss of the KHI Group.

– 21 –

Non-consolidated Statement of Changes in Net Assets(From April 1, 2019 to March 31, 2020)(Unit: Millions of yen)
Shareholders’ equity
Retained earnings
Other retained earnings
Reserve for
Retainedtax purpose
Reserve for
earnings
reduction
specialbrought
entryofdepreciation
forwardnon-current
assetsCapital surplus

Balance at beginning of
the period
Changes of items during
the period
Cash dividends
Net income
Treasury stock
purchased
Treasury stock disposed
Transfer of loss on
disposal of treasury
stock
Reversal of reserve for
special depreciation
Reserve for advanced
depreciation of fixed
assets
Reversal of provision foradvanced depreciationof fixed assets
Net changes of items
other thanshareholders’ equity
Total changes of items
during the period
Balance at end of theperiodCommonstock

Legalcapitalsurplus

Othercapitalsurplus104,484

52,210



2,180

9,475

Net income
Treasury stock
purchased
Treasury stock disposed
Transfer of loss on
disposal of treasury
stock
Reversal of reserve for
special depreciation
Reserve for advanced
depreciation of fixed
assets
Reversal of provision foradvanced depreciationof fixed assets
Net changes of items
other than shareholders’equityTotal changes of items
during the period
Balance at end of theperiod155,722(130)(11,693)
10,8220

Total
shareholders’equity323,943(11,693)
10,822
(3)

(3)

0

0

(0)
(0)

–

437

–

692

(692)

–

(200)

200

–

(437)







(437)

491

(925)

(3)

(874)

104,484

52,210



1,742

9,967

154,796(133)

323,068

Valuation and translation adjustments
Valuation
Total valuationdifference on
Deferred gains or
and translation
available-for-sale losses on hedges
adjustments
securities
Balance at beginning of
the period
Changes of items during
the period
Cash dividends

Treasuryshares

1,891

(286)

1,604

Total
net assets

325,548(11,693)
10,822
(3)
0
–
–
–
––
(832)

(4)

(836)

(836)

(832)

(4)

(836)

(1,711)

1,059

(290)

768

323,836– 22 –

Notes to the Non-consolidated Financial Statements(Significant accounting policies)
1. Standards and methods for evaluation of assets(1) Standards and methods for evaluation of marketable securities(i) Shares of subsidiaries and affiliates
Cost using the moving-average method is applied.
(ii) Other marketable securities
Securities with market valueMarket value method based on the market value as of the account closing
date (with all valuation differences charged to net assets and the cost ofsale computed mainly by the moving-average method) is applied.
Securities without market value
The cost method based on the moving-average method is applied.
(2) Standards and methods for evaluation of inventories
Stated at cost using the specific identification method and the moving averagemethod (balance sheet amounts are determined based on the method oflowering the book value in accordance with the deterioration of profitability).
(3) Standards and methods for evaluation of derivatives
Stated at market value.
2. Method of depreciation of fixed assets(1) Net property, plant and equipment (other than leased assets)
The straight-line method is applied.
(2) Intangible assets (other than leased assets)
The straight-line method is applied.
Software for internal use is amortized by the straight-line method over theinternally estimated useful lives (within 5 years).
(3) Leased assets
The leased assets involved in finance lease transactions that involve transferof ownership
The same method as that applied to property, plant and equipment isapplied.
Finance lease transactions not involving the transfer of ownership
The straight-line method is used with the useful life equal to the lease termand zero residual value.
In addition, out of the finance lease transactions that do not transfer
ownership, lease transactions whose lease transaction commencement
date was on or prior to March 31, 2008 are accounted for on a basis similar
to ordinary rental transactions.
3. Standards of accounting for provisions(1) Allowance for doubtful accounts
In order to provide for losses due to doubtful accounts from bad debt including
trade receivables and loan receivables, allowance for doubtful receivables isprovided based on the historical default rate of normal receivables and withreference to the collectability of receivables from companies in financial difficulty.
(2) Provision for bonuses
To prepare for the bonus payments to employees, provision for bonuses isprovided in the amount based on the estimated amount of bonus payment.
(3) Provision for construction warranties
A provision is recorded for expenditures for warranties concerning construction
contracts based on past experience or on estimations of individual cases.
(4) Provision for loss on construction contracts
A provision for an estimated amount of losses is recorded for the next fiscal year
and thereafter concerning construction works which are anticipated to incur
significant losses and which allow reasonable estimation of the loss incurred at
the end of the fiscal year under review among those construction works that have– 23 –

not been delivered as of the end of the fiscal year.
(5) Provision for retirement benefits
Employees’ retirement and severance benefits is recorded based on the estimatedamount of retirement benefit obligations and plan assets as of the end of the fiscal
year under review (including the retirement benefit trust) in order to coveremployee retirement benefits.
(i) Allocation of expected retirement benefit payments
In calculation of retirement benefit obligations, the benefit formula basis isused to allocate expected retirement benefit payments to the period as of theend of the fiscal year.
(ii) Method of accounting treatment for actuarial differences and prior service cost
The prior service cost is amortized using the straight-line method over certain
years (10 years) within the average remaining service period of the employees
when the costs incurred in each year.
Actuarial differences are amortized from the year following the year in which
the differences are recognized using the straight-line method over the averageremaining years of service of the employees (10 years).
(6) Provision related to in-service issues regarding commercial aircraft jet engines
A provision for the amount expected to be covered by the Company with regard
to costs associated with significant in-service issues arising in the Rolls-Royce
Trent 1000 engine program for Boeing 787, in which the Company has participated
as a risk and revenue sharing partner (RRSP).
4. Standards for recognition of revenue and expenses
Recognition of net sales of completed construction contracts and cost of sales ofcompleted construction contracts(i) Construction activities whose outcome from the completed portion as of the endof the fiscal year are deemed to be definite
Percentage-of-completion method (the cost-to-cost method is principally used toestimate the percentage of completion) is applied.
(ii) Other construction activities
Completed-contract method is applied.
5. Other important matters forming the basis for preparing the non-consolidated
financial statements(1) Accounting treatment for hedges(i) Method of hedge accounting
Deferred hedge accounting is applied.
(ii) Hedging instruments and hedged items
Hedging instrument
Hedged items
Receivables and payables (including
Forward exchange contracts, currency
forecast transactions) denominated in
options
foreign currency
Interest rate swaps, currency swaps
Borrowings(iii) Hedging policy
Hedging is conducted as a measure against the risk of foreign currency
variation and interest rate variation based on company rules.
(iv) Method of assessing hedging effectivenessHedging effectiveness is evaluated based on fluctuation amounts of hedged
items and hedging instruments by comparing the cumulative changes ofmarket fluctuations between the hedged item with the hedging instrument
during the period between the start of the transaction to the point at which
effectiveness is assessed.
(2) Standards for the translation of assets or liabilities denominated in foreign
currencies
Receivables and payables denominated in foreign currencies are translated into
yen at the foreign exchange spot rate on the date of the balance sheet, anddifferences arising from the translation are calculated as gains or losses.
– 24 –

(3) Accounting treatment for retirement benefits
Accounting treatment for unrecognized actuarial gains or losses and unrecognized
past service cost for retirement benefits are different from accounting treatment
for them in the consolidated financial statements.
(4) Accounting treatment for consumption taxes
The tax-exclusion method is applied for the consumption tax and the local
consumption tax.
(5) Application of the consolidated taxation system
The consolidated taxation system is applied.
(6) Application of tax effect accounting for the transition from the consolidated
taxation system to the group tax sharing system
Regarding the items related to the transition to the Group Tax Sharing System
newly established in the “Act for Partial Amendment of the Income Tax Act” (ActNo.8, 2020) and the review of the non-consolidated taxation system in line withthe transition, the Company has not applied the provisions of paragraph 44 of the“Implementation Guidance on Tax Effect Accounting” (ASBJ Guidance No.28,
February 16, 2018), pursuant to paragraph 3 of the “Treatment of Tax EffectAccounting for the Transition from the Consolidated Taxation System to the GroupTax Sharing System” (PITF No.39, March 31, 2020). The amounts of deferred tax
assets and deferred tax liabilities are recorded in accordance with the tax act prior
to the amendment.
(Changes in presentation methods)
Statement of Income
Effective from the fiscal year under review, “Penalty income” which were included in“Other” under “Non-operating income” for the previous fiscal year, are presented
separately as a result of an increase in their quantitative materiality.
(Notes to Non-consolidated Balance Sheet)
1. The amounts presented are rounded down to the nearest unit.
2. Accumulated depreciation of property, plant and equipment
3. Monetary receivables from and payables to affiliates
Short-term monetary assets
Long-term monetary assets
Short-term monetary liabilities
4. Asset pledged as collateral and liability relating to collateral(1) Assets pledged as collateral
Investments in securities
Stock of affiliates
Buildings
Total¥660,461 million¥199,162 million¥465 million¥104,026 million¥14 million¥67 million¥82 million¥163 million(2) Liabilities relating to collateral
Short-term debt and current portion of long-term debt
¥2 million
Long-term debt, less current portion¥8 million
Total¥10 million
5. Guarantee liability for bank loans of subsidiaries and affiliates,¥29,592 million
etc. and employees
6. With respect to some work in process, a trust beneficiary right has been establishedwith the expected trade receivables as a trust asset. Work in process related to thesaid trust asset amounts to ¥4,479 million.

– 25 –

7.

8.

In some overseas construction works for LNG tanks, the Company suffered damage(about ¥51.0 billion) due to a breach of contract because of non-fulfillment ofcontract by an overseas subcontractor. In this case, a petition for arbitration has
been filed with the ICC (The International Chamber of Commerce). We plan toresolve this case through arbitration in the future, and the expected amount ofrecovery from the arbitration has been recorded in “Other” under “Investments andother assets.”
In the fiscal year under review, the Company was notified that payment to theCompany could not be made for domestic gas-fired power generation facility
projects that it had constructed, but had not been delivered, due to credit concern
on the part of our counterpart. In the non-consolidated balance sheet, assets related
to this case are recorded in both trade receivables and work in process. The unpaid
amount to the Company is approximately ¥20.0 billion, and we are in the processof discussing the way to recover the unpaid amount including reselling it to a third
party.

(Notes to Non-consolidated Statement of Income)1. The amounts presented are rounded down to the nearest unit.
2. Transactions with affiliates
Transaction from operating transactions
Net sales¥440,962 million
Purchases¥197,197 million
Transaction from non-operating transactions¥18,806 million
3. Payments for the in-service issues of commercial aircraft jet engines have beenrecorded in the amount expected to be covered by the Company with regard to costs
associated with significant in-service issues arising in the Rolls-Royce Trent 1000
engine program for Boeing 787, in which the Company has participated as a risk andrevenue sharing partner (RRSP).
4. “Loss on withdrawal from business” involves a loss associated with its withdrawal fromsome of the businesses of the Company’s Energy System & Plant Engineering
Company.
(Notes to Non-consolidated Statement of Changes in Net Assets)
1. The amounts presented are rounded down to the nearest unit.
2. Type of treasury shares and number of shares at the end of the current fiscal year
Ordinary share
36,587 shares(Notes to Tax Effect Accounting)Among other factors, the main contributing factor to deferred tax assets is thedisallowance of various provisions such as provision for retirement benefits and provision
for bonuses, and the main contributing factor to the deferred tax liabilities incurred isreserve for tax purpose reduction entry of non-current assets.
(Notes to Leased Fixed Assets)
Other than the fixed assets recorded on the balance sheet, certain manufacturing
facilities are used under finance lease contracts not involving the transfer of theownership of the leased property.
(Notes to Transactions with Interested Parties)
Not applicable.
(Notes to Per Share Information)
1. Net assets per share¥1,938.63
2. Net income per share¥64.78– 26 –

(Other)(Damage caused to NIPPI Corporation by snowfall)
The heavy snowfall on February 15, 2014 caused a hangar roof in Atsugi Works of
NIPPI Corporation, which is KHI’s consolidated subsidiary, to collapse, causing
damage to aircrafts of the Japan Maritime Self-Defense Force that was undergoingregular maintenance. The Company and NIPPI Corporation pursued discussions on
handling of this matter with the Ministry of Defense. Nevertheless, in July 2017, theMinistry of Defense set off ¥1.9 billion against the Company’s right to charge to theministry (government), claiming that the ministry sustained losses of the sameamount. Since the Company cannot accept the claim of the Ministry of Defense andthe offsetting, the Company pressed the ministry for payment of ¥1.9 billion, which
was set off. However, the Ministry of Defense refused the payment, and therefore theCompany filed a lawsuit seeking payment of the amount with the Tokyo District Courtin October 2017. In December 2019, a settlement was reached, with the Ministry of
Defense paying ¥1.9 billion in unpaid amount to the Company. This will not affect the
profit or loss of the Company.

– 27 –