Report of Earnings and Financial Statements for theNine Months Ended December 31, 2018 (Consolidated)(Prepared pursuant to Japanese GAAP)
January 31, 2019
Listed company’s name:

Kawasaki Heavy Industries, Ltd.

Listed on:
Stock code:
URL:
Representative:
Contact:
Tel:

1st sections of the TSE, and NSE
7012
https://www.khi.co.jp/
Yoshinori Kanehana, President
Tatsuo Hoshino, Senior Manager, Accounting Department+81 3-3435-2130

Scheduled dates:
Submission of quarterly securities filing:
Commencement of dividend payments:
Supplementary materials to quarterly earnings:
Quarterly earnings presentation:

February 7, 2019
Available
Conducted (for institutional investors, analysts and thepress)

1. Consolidated Financial Results for the Nine Months Ended December 31, 2018
(April 1, 2018 – December 31, 2018)(Amounts in millions of yen rounded down to the nearest million yen)

(1) Operating Results
Net sales(Percentage figures represent changes versus the year-ago period)
Net income attributable
Operating income
Recurring profit
to owners of parent
million yen%
million yen%
million yen%

million yen%
Nine Months Ended
1,094,583
0.2
36,849 (17.4)
December 31, 2018
Nine Months Ended
1,092,369
4.7
44,644
95.1
December 31, 2017
Note: Comprehensive income: Nine months ended December 31, 2018:
Nine months ended December 31, 2017:
Earnings per share

Earnings per share– diluted
yen

19,865(50.3)

11,385(21.5)

39,99973.8

14,520(19.2)

10,916 million yen
24,057 million yen(54.6)%-%

yen
Nine Months Ended
68.15
December 31, 2018
Nine Months Ended
86.92
December 31, 2017
Note: As the Company carried out a share consolidation with a 10:1 ratio of common shares with an effective
date of October 1, 2017, earnings per share has been calculated assuming this share consolidation was
carried out at the beginning of the fiscal year ended March 31, 2017.

1

(2) Financial Condition
Total assets

Net assets

million yen

million yen%

December 31, 2018

2,001,345

481,256

23.2

March 31, 2018

1,785,028

481,38626.1

Note: Shareholders’ equity:

Equity ratio

December 31, 2018: 464,615 million yen
March 31, 2018: 466,061 million yen

2. Dividends

Record date or term

End of firstquarteryen

End of second
quarteryen

Dividend per share
End of third
End of fiscal
quarter
year
yen
yen

Full year

yenYear ended
3.00
30.00
March 31, 2018Year ending
35.00
March 31, 2019Year ending March
35.00
70.00
31, 2019 (forecast)
Note: 1. Revisions to the most recently announced dividend forecast: None
2. The Company conducted a share consolidation with a 10:1 ratio of common shares, with an effective
date of October 1, 2017. The expected dividend per share for end of the fiscal year ended March 31, 2018
factoring in the impact of the share consolidation is shown. The total annual dividend for the end of the
fiscal year ended March 31, 2018 is denoted with the “-“ mark. Without the impact of the shareconsolidation factored in, the year-end dividend per share for the fiscal year ended March 31, 2018 wouldbe ¥3 per share, and the total annual dividend would be ¥6 per share.

3. Forecast of Consolidated Earnings for the Year Ending March 31, 2019
(April 1, 2018 – March 31, 2019)

Net sales

Full year

million yen%

1,620,000

2.9(Percentage figures represent changes versus the year-ago period)
Net income
Earnings per
Operating income
Recurring profit
attributable to owners
shareof parent
million yen%
million yen%
million yen%
yen
66,00018.0

Note: Revisions to the most recently announced earnings forecast: Yes

2

49,50014.5

31,0007.2

185.57

Notes1) Changes affecting the status of material subsidiaries (scope of consolidation): None2) Accounting procedures specific to preparation of quarterly consolidated financial statements: Yes*For further details, see “2. Consolidated Financial Statements (3) Notes on financial statements” onpage 15 in the Accompanying Materials.
3) Changes in accounting policies, changes in accounting estimates, and correction of errors(1) Changes in accounting policies in accord with revisions to accounting standards: None
(2) Changes in accounting policies other than (1): None
(3) Changes in accounting estimates: None
(4) Correction of errors: None
4) Number of shares issued and outstanding (common stock)(1) Number of shares issued as of period-end (including treasury stock)
December 31, 2018:
167,080,532 shares
March 31, 2018:
167,080,532 shares(2) Number of shares held in treasury as of period-end
December 31, 2018:
34,380 shares
March 31, 2018:
33,049 shares(3) Average number of shares during respective periods
Nine months ended December 31, 2018:
167,046,730 shares
Nine months ended December 31, 2017:
167,052,397 shares*As the Company carried out a share consolidation with a 10:1 ratio of common shares with an effective date ofOctober 1, 2017, the average number of shares during respective periods has been calculated assuming that
this share consolidation was carried out at the beginning of the fiscal year ended March 31, 2018.

These quarterly financial results are outside the scope of quarterly review conducted by acertified public accountant or an audit corporation.
Appropriate Use of Financial Forecasts and Other Important Matters
Forward-Looking Statements
These materials contain various forward-looking statements and other forecasts regarding performanceand other matters. Such statements are based on information available at the time of their preparation, anddo not mean that the Company promises to achieve these figures. Actual results may differ from thoseexpressed or implied by forward-looking statements due to a range of factors. For assumptions underlying
earnings forecasts and other information regarding the use of such forecasts, refer to “1. Qualitative
Information and Financial Statements (3) Consolidated earnings outlook” on page 11 in the
Accompanying Materials.
How to Obtain Supplementary Briefing Material on Quarterly Financial Results and Details of theQuarterly Financial Results Briefing
The Company plans to conduct a briefing on conference call for institutional investors, analysts and thepress on Thursday January 31, 2019, and to post the briefing material on quarterly financial results to be
used for the briefing on TDnet and the Company’s website simultaneously with the announcement offinancial results.

3

Accompanying Materials – Contents
1. Qualitative Information and Financial Statements

5(1) Consolidated operating results

5(2) Consolidated financial position

10(3) Consolidated earnings outlook

11

2. Consolidated Financial Statements

12(1) Consolidated balance sheets

12(2) Consolidated statements of income and comprehensive income

14(3) Notes on financial statements

15(Notes on the going-concern assumption)

15(Notes on significant changes in the amount of shareholders’ equity)

15(Accounting procedures specific to preparation of quarterly consolidated financial statements)

15(Related to consolidated balance sheets)

15(Related to consolidated statements of income)15(Segment information)

17

3. Other19(1) Claim for damages in overseas LNG tank construction work
4. Supplementary Information

1919(1) Consolidated cash flow statements (condensed)

19(2) Supplementary information on earnings forecasts for the fiscal year ending March 31, 2019194

1. Qualitative Information and Financial Statements(1) Consolidated operating results
In the first nine months of the fiscal year ending March 31, 2019, the global economy is relatively
lacking in vigor overall due to the economic slowdown in emerging countries and resource-richcountries, along with other factors, despite the ongoing modest growth centered on the U.S., where
the real economy remains strong. In addition, uncertainty about future prospects for the real
economy has increased because of concerns about a downturn in corporate earnings stemming from
U.S.-China trade friction as well as other factors including an increasing possibility of a U.K. split
from the EU without an agreement. There is a continued need for such risks with the potential todrag down the global economy to be watched sufficiently closely.
The Japanese economy has been recovering modestly, due to the modest increasing of capital
investment, the improvement in corporate earnings, and other factors. Although overall modest
growth is expected to continue, it is necessary to continue to closely watch foreign exchange rates
since the economic policies of the U.S. and other countries or other factors may trigger a swing to
yen appreciation.
Amid such an operating environment, the Group’s orders received in the first nine months of the
fiscal year ending March 31, 2019, increased versus the previous fiscal year, mainly in the Ship &Offshore Structure segment and the Energy System & Plant Engineering segment. Net sales
remained unchanged overall compared with the same period of the previous fiscal year, due toincreasing in the Precision Machinery & Robot and other segments, despite decrease in the
Aerospace Systems segment and the Rolling Stock segment. Operating income decreased overall,due to the deterioration in the Rolling Stock and the Aerospace Systems and other segments, despite
improvement in the Ship & Offshore Structure segment. Recurring profit decreased due to thedecrease of operating income, the payments for the in-service issues of commercial aircraft jetengines and other factors. Net income attributable to owners of parent decreased as a result of thedecrease of recurring profit.
As a result, the Group’s consolidated orders received increased ¥79.9 billion versus the same
period of the previous fiscal year to ¥1081.9 billion, consolidated net sales increased ¥2.2 billion
year on year to ¥1094.5 billion, consolidated operating income decreased ¥7.7 billion year on year to¥36.8 billion, consolidated recurring profit fell by ¥20.1 billion year on year to ¥19.8 billion, and net
income attributable to owners of parent decreased ¥3.1 billion year on year to ¥11.3 billion.

5

Consolidated operating performance in the nine months of the fiscal year is summarized bysegment below.
Segment Information
Segment net sales, operating income, and orders received (billion yen)
Nine months ended December 31

Orders received

2018 (B)

Nine months ended

2017 (A)Change (B – A)

December 31
Net

OperatingNet

OperatingNet

Operating

2017

2018

Changesales

incomesales

incomesales

income(A)(B)(B – A)

Aerospace Systems

347.2

26.6

328.1

21.2

(19.1)

(5.3)

325.8

280.5

(45.3)

Energy System & Plant Engineering

165.2

2.5

168.8

4.5

3.6

1.9

179.8

201.6

21.7

Precision Machinery & Robot

136.3

14.7

154.2

14.9

17.9

0.1

144.7

157.3

12.6

Ship & Offshore Structure

69.9

(4.3)

63.0

2.8

(6.9)

7.1

(2.4)

65.2

67.7

Rolling Stock

99.8

2.3

86.0

(6.4)

(13.7)

(8.8)

79.7

79.6

(0.0)

Motorcycle & Engine

214.9

3.2

226.2

(0.0)

11.3

(3.2)

214.9

226.2

11.3

Other

58.7

2.3

67.8

2.4

9.1

0.0

59.2

71.1

11.9

-

(2.9)

-

(2.6)

-

0.2

-

-

-

1,092.3

44.6

1,094.5

36.8

2.2

(7.7)

1,002.0

1,081.9

79.9

Adjustments
Total

Notes: 1. Net sales include only sales to external customers.
2. The Motorcycle & Engine segment’s orders received are equal to its net sales as production is based mainlyon estimated demand.
3. The Company has reviewed the method of business segment classification from the first three months of the
fiscal year ending March 31, 2019 and has changed its reportable segments from the previous Ship &Offshore Structure, Rolling Stock, Aerospace, Gas Turbine & Machinery, Plant & Infrastructure, Motorcycle& Engine, Precision Machinery, and Other Operations to Aerospace Systems, Energy System & Plant
Engineering, Precision Machinery & Robot, Ship & Offshore Structure, Rolling Stock, Motorcycle &Engine, and Other Operations .
Consolidated segment information for the first nine months of the fiscal year ended March 31, 2018 has
been prepared using the revised segment classification method.

6

Aerospace Systems
Concerning the business environment surrounding the Aerospace Systems segment, there is acertain level of demand from the Ministry of Defense in Japan amid the tight defense budget, while
demand for commercial aircraft airframes and jet engines is increasing in conjunction with the rise in
the number of air passengers.
Amid such an operating environment, consolidated orders decreased ¥45.3 billion year on year to¥280.5 billion due to the decrease of demand for component parts for the Ministry of Defense andcommercial aircraft, despite increase of demand for the component part for commercial aircraft jetengines.
Consolidated net sales decreased ¥19.1 billion year on year to ¥328.1 billion due to decrease of
demand of component parts for the Ministry of Defense and commercial aircraft, despite increase of
demand of component parts for commercial aircraft jet engines.
Consolidated operating income fell by ¥5.3 billion year on year to ¥21.2 billion due to factors
including an increase in amortization of new program development costs of component parts forcommercial aircraft jet engines.
Energy System & Plant Engineering
Regarding the business environment surrounding the Energy System & Plant Engineering
segment, in addition to the recovery in resources development and oil and natural gas-related
investment overseas, there is still demand for energy infrastructure maintenance in Asia. Besides,
demand for distributed power sources is increasing due to stronger interest in investment to theenvironment and energy conservation, among other factors. In Japan, there is ongoing demand for
replacing aging facilities for refuse incineration plants and industrial machinery. Meanwhile, in theenergy and environmental field, although there is large potential demand for distributed powersources in Japan, investment plans are slightly delayed in light of the liberalization of electricity.
Amid such an operating environment, consolidated orders received increased ¥21.7 billion year on
year to ¥201.6 billion, due to the order received of a Combined Cycle Power Plant (CCPP) for theJapanese market among other factors.
Consolidated net sales were ¥168.8 billion on par with the same period of the previous fiscal year
ended March 31, 2018 due to increase in construction work volume in the Energy System segment
and the other factors, despite the decline in construction work volume on a chemical plant foroverseas market.
Consolidated operating income was ¥4.5 billion, ¥1.9 billion increase compared to the previous
year, due to the profitability improvement in the Energy System segment and the other factors.

7Precision Machinery & Robot
With respect to the business environment surrounding the Precision Machinery & Robot segment,
the construction machinery market is brisk, centered on robust demand for vigorous excavators in
China, and the construction machinery manufacturers, which are our customers, are competing toincrease production each other. Demand in the robot market was solid in Japan, North America, andEurope, but it has become clear that the Chinese market is contracting due to semiconductor
manufacturers’ efforts to curb capital investment as well as the impact of the trade war between the
U.S. and China.
Amid such an operating environment, consolidated orders received increased ¥12.6 billion year on
year to ¥157.3 billion, due to the increase in hydraulic components for construction machinery,
despite the decrease in various industrial robots.
Consolidated net sales was ¥154.2 billion, a ¥17.9 billion increase compared to the same period of
the previous fiscal year ended March 31, 2018, due to the increase in hydraulic components forconstruction machinery, despite the decrease in various industrial robots.
Consolidated operating income was ¥14.9 billion, roughly the same level as the year-earlier period,
due to the increase in SG&A expenses and other factors, despite the increase in net sales.
Ship & Offshore StructureWith respect to the business environment surrounding the Ship & Offshore Structure segment,
while new-build vessel prices are recovering after bottoming out and demand for gas-fueled vessels
has been increasing in conjunction with the tightening of environmental regulations, competition
remains intense due to factors including the pushing back of demand for LNG carriers because of thedelay in LNG development projects and the continuation of policies by the South Korean
governments to support their domestic shipbuilding industries.
Amid such an operating environment, consolidated orders received increased ¥67.7 billion year on
year to ¥65.2 billion due to receiving the order of submarine for the Ministry of Defense.
Consolidated net sales fell ¥6.9 billion year on year to ¥63.0 billion, due to a change in the sales
mix between LNG carriers and LPG carriers, and other factors.
Consolidated operating income was ¥2.8 billion, a ¥7.1 billion improvement from the same periodof the previous fiscal year due to improvement of shipbuilding cost and other factors, despite
decrease of sales.

8Rolling Stock
With respect to the business environment surrounding the Rolling Stock segment, there continues
to be stable demand in Japan for the replacement of aging railcars. In North America, demand for
new and replacement railcars have been increasing in the New York area, which is our core market,
and the other areas. Meanwhile, in Asia, demand in emerging markets is increasing in tandem with
the Japanese government’s efforts to promote infrastructure-related exports.
amid this business environment, consolidated orders received was ¥79.6 billion on par with thesame period of the previous fiscal year ended March 31, 2018 due to the received order for new andreplacement railcars for the U.S. and other factors.
Consolidated net sales decreased ¥13.7 billion year on year to ¥86.0 billion, due to the decrease ofsales for overseas market in the U.S., Asia and other countries and other factors.
Consolidated operating income decreased ¥8.8 billion year on year to ¥6.4 billion of the operating
loss due to a deterioration of profitability in orders for the U.S.
Motorcycle & Engine
Regarding the business environment surrounding the Motorcycle & Engine segment, the modest
growth in motorcycle markets mainly in Europe is continuing, and the decline in demand for
motorcycles in emerging countries is signaling a bottoming out. With respect to utility vehicles, themarket continues to grow stably mainly in North America, and the general-purpose engine market isalso growing steadily.
Amid such an operating environment, consolidated net sales increased ¥11.3 billion year on yearto ¥226.2 billion, due to the increase in motorcycles and vehicles for developed countries.
Consolidated operating income deteriorated ¥3.2 billion year on year, resulting in an operating
loss of ¥0.0 billion, as, despite the increase in sales, there was a temporary increase in SG&A andsales promotion expenses, a rise in prices of steel and other materials in the U.S., the impact of
weakness of currencies in emerging countries and other factors.
Other Operations
Consolidated net sales increased ¥9.1 billion year on year to ¥67.8 billion.
Consolidated net operating income was ¥2.4 billion on per with the same period in the previous
fiscal year.

9(2) Consolidated financial position(i) Assets
Total assets at December 31, 2018, were ¥2,001.3 billion, ¥216.3 billion increase from March 31,
2018. Current assets increased ¥219.5 billion year on year to ¥1,335.3 billion, due to increasing ofworks in process and so on. Fixed assets decreased ¥3.2 billion year on year to ¥665.9 billion, due
to decrease of deferred tax assets and other factors.
(ii) Liabilities
Liabilities increased ¥216.4 billion year on year to ¥1,520.0 billion due to the increasing ofinterest bearing liabilities and other factors.
Interest bearing liabilities increased ¥265.3 billion year on year to ¥711.9 billion.
(iii) Net assets
Consolidated net assets declined ¥0.1 billion year-on-year to ¥481.2 billion, due to factors
including the increase from the posting of net income attributable to owners of parent and thedecline due to dividend payments.

10(3) Consolidated earnings outlook
Regarding the earnings forecasts for the fiscal year ending March 31, 2019, the Company has
lowered its forecast for consolidated net sales by ¥25.0 billion from the previously announced(October 30) figure to ¥1,620.0 billion, based on expected declines in the Aerospace Systems
segment, the Rolling Stock segment, and other segments.
The forecasts for consolidated operating income, consolidated recurring profit, and net income
attributable to owners of parent were left unchanged from the previously announced values.
The outlook for orders received was lowered by ¥20.0 billion from the previously announced
figure to ¥1,590.0 billion, due to expected declines in the Ship & Offshore Structure segment as wellas the Precision Machinery & Robot segment and other factors. ROIC is forecast to be 5.9%, while
ROE is expected to be 6.5%.
The Company’s earnings forecasts assume exchange rates of ¥110 to the U.S. dollar and ¥125 tothe euro.

Note regarding consolidated earnings outlook
The above earnings outlook is based on information available at the time of preparation, andincludes risks and uncertainties. We therefore discourage making investment decisions depending
solely on this outlook. Please note that actual earnings may differ materially from this outlook, due
to a variety of important factors stemming from changes in the external environment and/or theCompany’s internal environment. Important factors that impact actual operating performance include,
but are not limited to, the economic situation surrounding the Company’s scope of business, foreignexchange rates, in particular the yen/dollar exchange rate, tax codes and other regulatory
system-related issues.

112. Consolidated Financial Statements(1) Consolidated balance sheets
Million yen
As of
As of
March 31, 2018
December 31, 2018
AssetsCurrent assets
Cash on hand and in banks
Trade receivables
Merchandise and finished products
Work in process
Raw materials and supplies
Other
Allowance for doubtful receivables

70,632
470,11062,385
326,459
115,893
72,542(2,247)
1,115,776

50,161
563,358
89,216426,291
123,530
86,450(3,636)
1,335,372

Total current assets
Fixed assets
Net property, plant and equipment
Buildings and structures
Other
Total property, plant and equipment
Intangible assets
Investments and other assets
Other
Allowance for doubtful receivables
Total investments and other assets
Total fixed assets
Total assets

186,623
293,173
479,797
16,178

195,879
287,487
483,367
16,241

176,961(3,685)173,276
669,252
1,785,028

169,826(3,462)
166,363
665,9722,001,345

Liabilities
Current liabilities
Trade payables
Electronically recorded obligations - operating
Short-term debt
Income taxes payable
Accrued bonuses
Provision for product warranties
Provision for losses on construction contracts
Advances from customers
Other
Total current liabilities

245,398
117,772
108,978
6,042
19,90313,00018,258194,306
145,737
869,398

222,911
122,291
232,777
4,720
10,659
11,631
20,190179,084
254,217
1,058,484

130,000
185,685
86,836140,000
177,31290,185-(*1) 8,061

31,721
434,244
1,303,642

46,044
461,6031,520,088

Long-term liabilities
Bonds payable
Long-term debt
Net defined benefit liability
Provision for the in-service issues of commercial aircraft jetengines
Other
Total long-term liabilities
Total liabilities

12

Net assets
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
Treasury stock
Total shareholders’ equity

104,484
54,573308,010(124)
466,944

104,484
54,542308,538(128)
467,437

104,484
54,573308,010(124)
466,944

Accumulated other comprehensive income
Net unrealized gains on securities, net of tax
Deferred gains on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total net assets and liabilities

3,526
403
719
(5,532)(883)
15,324
481,386
1,785,028

2,380
42(2,069)(3,175)(2,821)
16,641
481,256
2,001,345

3,526
403
719
(5,532)(883)
15,324
481,386
1,785,02813

(2) Consolidated statements of income and comprehensive income
Consolidated statements of income
Million yen
Nine months ended
December 31, 2017
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Salaries and benefits
R&D expenses
Other
Total selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Equity in income of non-consolidated subsidiaries and affiliates
Other
Total non-operating income
Non-operating expenses
Interest expense
Foreign exchange losses
Payments for the in-service issues of commercial aircraft jetengines
Payments for contract adjustment for commercial aircraft jetengines
Other
Total non-operating expenses
Recurring profit
Extraordinary loss
Losses from the termination of a shipbuilding contract for an
offshore service vessel
Total extraordinary loss
Income before income taxes
Income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent

Nine months ended
December 31, 2018

1,092,369
904,289
188,079

1,094,583
910,113
184,469

38,661
31,06973,704143,435
44,64440,32533,42773,867
147,620
36,849

523
259
3,097
2,400
6,280

648
263
1,014
2,585
4,512

2,014
17

2,505
4,620

-

(*1) 9,745(*2) 2,505

-

6,388
10,92539,9994,625
21,496
19,865(*3) 12,833-

12,83327,166
10,85016,315
1,794
14,52019,865
6,721
13,144
1,758
11,385

Consolidated statements of comprehensive income
Million yen
Nine months ended
December 31, 2017
Net income
Other comprehensive income
Net unrealized gains (losses) on securities
Deferred gains (losses) on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Share of other comprehensive income of associates accounted
for using equity method
Total other comprehensive income
Comprehensive Income attributable to:
Owners of parent
Non-controlling interests

14

Nine months ended
December 31, 201816,315

13,144

1,117
135
2,422
3,225

(1,182)
(387)
313
2,363

841

(3,332)

7,742
24,05722,0502,007(2,227)
10,9169,446
1,469

(3) Notes on financial statements

Notes on the going-concern assumption
Not applicable
Notes on significant changes in the amount of shareholders’ equity
Not applicable
Accounting procedures specific to preparation of quarterly consolidated financial statements(Calculation of tax expense)
The Company calculates tax expense by rationally estimating its effective tax rate after applicationof tax effect accounting to pretax net income for the fiscal year which includes the third quarter
under review, and multiplying quarterly pretax net income by said estimated effective tax rate. If
unable to use the estimated effective tax rate, the Company calculates tax expense by multiplying thestatutory effective tax rate by quarterly pretax net income adjusted to reflect material differences
other than temporary differences.
Income taxes are reported inclusive of income tax adjustments.

Related to consolidated balance sheets(*1) The provision for the in-service issues of commercial aircraft jet engines
We participate as a risk and revenue sharing partner on the Rolls-Royce Trent 1000 engine program,which has been impacted by the challenge of managing significant in-service issues. Rolls-Roycecontinues to work hard to remedy this situation and has made further substantial progress on theimplementation of long-term solutions and mitigation of the near-term impact on customers.
In the FY2018 2nd quarterly financial results, we have made a provision of the abnormal cost related
to in-service issues which we would cover as a member of this program.

Related to consolidated statements of income(*1) The payments for the in-service issues of commercial aircraft jet engines
We participate as a risk and revenue sharing partner on the Rolls-Royce Trent 1000 engine program,which has been impacted by the challenge of managing significant in-service issues. Rolls-Roycecontinues to work hard to remedy this situation and has made further substantial progress on theimplementation of long-term solutions and mitigation of the near-term impact on customers.
In the FY2018 2nd quarterly financial results, we have made a provision of the abnormal cost related
to in-service issues which we would cover as a member of this program. The provision was included
within the non-operating expenses.

15

(*2) Payments for contract adjustment for commercial aircraft jet engines
The Company faces one-time expenses in connection with contracts with customers relating toengine programs in which the Company is participating. These expenses arose from the newrequirement to allocate a portion of the engines planned to be delivered to customers for use as spareengines for operational supports. Accordingly, the Company recorded these program expenses as
non-operating expenses.
(*3) Losses from the termination of a shipbuilding contract for an offshore service vessel
These are losses in conjunction with the termination of a shipbuilding contract for an offshore
service vessel (losses recognized on valuation of inventories and trade receivables, etc.)(Additional information)
Concerning the posting of losses in conjunction with the termination of a shipbuilding contract for
an offshore service vessel.
With the intention of entering the offshore development industry, which is a promising market overthe medium to long term, in November 2013 the Company entered into a shipbuilding agreement for
an offshore service vessel (hereinafter, “vessel”) with a subsidiary* of Island Offshore Shipholding
LP (hereinafter, “Island Offshore”). This was the first vessel of its type to be constructed by theCompany, and certain problems during the engineering stage arose along with an increase inmaterials costs and other issues.
Meanwhile, the stagnation in crude oil prices led to a very difficult business environment foroffshore service providers in general ever since the order for this vessel was received, and Island
Offshore negotiated financial restructuring with its banking partners since November 2016.
Given the above circumstances, the Company proceeded cautiously, including temporarilysuspending the construction of the vessel, while paying close attention to the progress of thefinancial restructuring of Island Offshore. During this time, the Company was holding discussions
with Island Offshore regarding the handling of the vessel. Based on the shared understanding that theenvironment surrounding the offshore service business remained challenging, and that uncertainty
about the future would not be eliminated, the Company and Island Offshore agreed to terminate the
shipbuilding agreement, and the Company therefore carried out the necessary accounting treatment.
*Island Navigator I KS (100% subsidiary company of Island Offshore Shipholding LP)

16

Segment information
1. Nine months ended December 31, 2017 (April 1, 2017 – December 31, 2017)(1) Sales and income (loss) by reportable segment
Million yen

Aerospace Systems
Energy System & Plant Engineering
Precision Machinery & Robot
Ship & Offshore structure
Rolling stock
Motorcycle & Engine
Other
Reportable segment total
Adjustments*1
Consolidated total
Notes: 1. Breakdown of adjustments:

External sales

Intersegment
sales

Total sales

Operatingincome (loss)

347,295
165,205
136,349
69,977
99,829214,960
58,7501,092,369
1,092,369

3,296
13,093
10,802
2,173
99
463
29,06258,991(58,991)-

350,591
178,298
147,152
72,151
99,929215,423
87,812
1,151,360(58,991)
1,092,369

26,646
2,538
14,793(4,374)
2,383
3,210
2,364
47,561(2,916)44,644

Million yen
IncomeAmountIntersegment transactions(42)
Corporate expenses*(2,874)
Total(2,916)*Corporate expenses mainly comprise general and administrative expenses not attributed to reportablesegments.
2. Segment income adjustments are based on operating income reported on the consolidated statements
of income for the corresponding period.

(2) Impairment loss on fixed assets and goodwill by reportable segment
Not applicable172. Nine months ended December 31, 2018 (April 1, 2018 – December 31, 2018)(1) Sales and income (loss) by reportable segment
Million yen

Aerospace Systems
Energy System & Plant Engineering
Precision Machinery & Robot
Ship & Offshore structure
Rolling stock
Motorcycle & Engine
Other
Reportable segment total
Adjustments*1
Consolidated total
Notes: 1. Breakdown of adjustments:

External sales

Intersegment
sales

Total sales

Operatingincome (loss)

328,137
168,844
154,282
63,06686,088226,298
67,865
1,094,583
1,094,583

8,536
14,285
11,7772,665
16496
29,03566,813(66,813)-336,674
183,129
166,059
65,732
86,105
226,795
96,9001,161,397(66,813)
1,094,583

21,295
4,534
14,942
2,803(6,452)(33)
2,456
39,545(2,696)36,849Million yen
AmountIncomeIntersegment transactions
Corporate expenses*(60)(2,635)

Total(2,696)* Corporate expenses mainly comprise general and administrative expenses not attributed to reportablesegments.
2. Segment income adjustments are based on operating income reported on the consolidated statements
of income for the corresponding period.

(2) Review of reportable segment
The Company has reviewed the method of business segment classification from the first threemonths of the fiscal year ending March 31, 2019 and has changed its reportable segments fromthe previous Ship & Offshore Structure, Rolling Stock, Aerospace, Gas Turbine & Machinery,
Plant & Infrastructure, Motorcycle & Engine, Precision Machinery, and Other Operations to
Aerospace Systems, Energy System & Plant Engineering, Precision Machinery & Robot, Ship &Offshore Structure, Rolling Stock, Motorcycle & Engine, and Other Operations.
Consolidated segment information for the first nine months of the fiscal year ended March 31,2018 has been prepared using the revised segment classification method.

(3) Impairment loss on fixed assets and goodwill by reportable segment
Not applicable183. Other(1) Claim for damages in overseas LNG tank construction work
On a certain overseas LNG tanks construction project, overall costs increased from initially
expected due to a breach of contract by the overseas subcontractor. In response, the Company has

claimed compensation for damages (approximately ¥46.0 billion) as of December 31, 2018,with respect to a portion of the damages incurred by the Company as a result of the breach ofcontract by the aforementioned subcontractor, and the Company is proceeding with procedures
to recover the claimed amount.
4. Supplementary information(1) Consolidated cash flow statements (condensed)
Million yen
Nine months ended
December 31, 2017
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Cash and cash equivalents at end of period

Nine months ended
December 31, 2018

(206,775)(66,461)
269,564
44,148(207,489)(67,409)
254,463
43,259(2) Supplementary information on consolidated earnings forecasts for the fiscal year
ending March 31, 2019(i) sales and operating income (loss)
Billion yen

Reportable segment

Outlook for the year ending March 31, 2019 (fiscal 2018)
Revised forecast
Forecast issued
Change(A)
October 30, 2018 (B)(A – B)

480.0

Operatingincome(loss)
35.5

490.0

Operatingincome(loss)
35.5

270.0

9.0

270.0

225.0

23.5

85.0
125.0
345.0
90.0

1.0
(14.0)
15.0
3.0
(7.0)
66.0

Net sales
Aerospace Systems
Energy System & Plant
Engineering
Precision Machinery &RobotShip & Offshore Structure
Rolling Stock
Motorcycle & Engine
Other
Adjustments
Total

1,620.0

Year ended
March 31, 2018
(Fiscal 2017) (actual)(10.0)

Operatingincome(loss)
-

8.0

-

230.0

24.0

85.0
135.0
345.0
90.0

1.0
(14.0)
16.0
3.0
(7.5)
66.0

Net sales

1,645.019

469.5

Operatingincome(loss)
30.8

1.0

251.6

7.6

(5.0)

(0.5)

198.9

21.6

(10.0)
-

(1.0)
0.5
-

95.6
141.7
331.6
85.0

(3.8)
(12.4)
15.2
2.9
(6.2)
55.9

Net sales(25.0)Net sales

1,574.2

(ii) Orders received

Reportable segment

Outlook for the year ending March 31, 2019 (fiscal 2018)
Revised forecast
Forecast issued
Change(A)
October 30, 2018 (B)(A – B)
415.0
405.0
10.0

Billion yen
Year ended
March 31, 2018
(Fiscal 2017) (actual)
498.9

Aerospace Systems
Energy System & Plant
300.0
300.0
Engineering
Precision Machinery &
235.0
245.0
(10.0)
Robot
Ship & Offshore Structure
80.0
100.0
(20.0)
Rolling Stock
130.0
130.0
Motorcycle & Engine
345.0
345.0
Adjustments
85.0
85.0
Total
1,590.0
1,610.0(20.0)
Note: The Motorcycle & Engine segment’s orders received are equal to its net sales as production is based mainly on
estimated demand.

223.6
207.1
4.7
257.1
331.6
84.8
1,608.0(iii) Before-tax ROIC

Reportable segment
Aerospace Systems
Energy System & Plant
Engineering
Precision Machinery &RobotShip & Offshore Structure
Rolling Stock
Motorcycle & Engine
Total

(%)
Year ended
March 31, 2018
(Fiscal 2017) (actual)

Outlook for the year ending March 31, 2019 (fiscal 2018)
Revised forecast
Forecast issued
Change(A)
October 30, 2018 (B)(A – B)

7.4

7.4

-

7.8

7.7

7.6

0.1

8.0

21.0

21.1

(0.1)

22.9

2.6
(22.2)
9.8
5.9

2.6(22.2)
11.3
5.9

(1.5)
-

(21.3)(26.2)
9.4
3.9

Notes: 1. Forecast’s assumed foreign exchange rates: ¥110 = US$1, ¥125= 1 euro
2. Before-tax ROIC = (income before income taxes + interest expense) / invested capital.

20