Report of Earnings and Financial Statements
for the Fiscal Year Ended March 31, 2014 (Consolidated)(Prepared pursuant to Japanese GAAP)
April 25, 2014
Listed company’s name:

Kawasaki Heavy Industries, Ltd.

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

1st sections of the TSE, and NSE
7012
http://www.khi.co.jp/
Shigeru Murayama, President
Ryoji Mori, Senior Manager, Accounting Department+81 3-3435-2130

Scheduled dates:
Ordinary general meeting of shareholders
Commencement date of dividend payments
Submission of financial statements:

June 26, 2014
June 27, 2014
June 26, 2014

Supplementary materials to financial results
Earnings presentation:

Available
Conducted (for institutional investors and analysts)

1. Consolidated Financial Results for the Fiscal Year Ended March 31, 2014
(April 1, 2013 – March 31, 2014)(Amounts in millions of yen rounded down to the nearest million yen)

(1) Operating Results
Years ended March 31(Millions of yen ) (Percentage figures indicate change compared with the previous fiscal year )Net sales

Operating income

Recurring profit

Net income

%
%
%
2014
1,385,482
7.4
72,35172.0
60,60554.1
38,6012013
1,288,881(1.1)
42,062 (26.8)
39,328 (38.1)
30,864
Note: Comprehensive income Fiscal year ended March 31, 2014: ¥ 68,705 million 56.0%
Fiscal year ended March 31, 2013: ¥ 44,039 million 79.2%

%
25.0
32.3

Years ended March 31
Earnings per share
Return on equity Return on assets– diluted
Yen
Yen
%
%
2014
23.09
11.0
4.0
2013
18.46
9.5
2.7
For reference: Equity in income of non consolidated subsidiaries and affiliates
Fiscal year ended March 31, 2014: ¥ 7,016 million
Fiscal year ended March 31, 2013: ¥ 8,530 million
Earnings per share

Operating income
to net sales
%
5.2
3.2

(2) Financial Condition
March 31

(Millions of yen )Total assets

Net assets

Equity ratio

Net assets per share

%

Yen

2014

1,554,430

376,68623.3

217.162013

1,466,290

349,88123.0

202.32

For reference: Shareholders’ equity

March 31, 2014:
March 31, 2013:1¥ 363,041 million¥ 338,240 million

(3) Cash Flow Position
Years ended March 31
Cash flows fromoperating activities

Cash flows frominvesting activities

Cash flows fromfinancing activities(Millions of yen)
Cash and cash equivalents
at end of year2014

151,721(77,559)(62,505)

45,431

2013

28,101(81,160)

57,671

36,971

2. Dividends
Years ended/ending March 31
Dividend per share

Recorddate orterm

Total
dividends
paid
Full year(annual)Yen
million yen

Payout ratio(consolidated)

Dividends /Net assets(consolidated)

%

%

1Q

2Q

3Q

Year-end

Yen

Yen

Yen

Yen

2013

-

0.00

-

5.00

5.00

8,358

27.0

2.5

2014

-

0.00

-

6.00

6.00

10,030

25.9

2.7

2015
(forecast)

-

3.00

-

4.00

7.00

28.5

3. Forecast of Consolidated Earnings for the Fiscal Year Ending March 31, 2015
(April 1, 2014 – March 31, 2015)(Millions of yen)(Percentage figures indicate change compared with the previous fiscal year)
Earnings
Net sales
Operating income
Recurring profit
Net income
per share
%
%
%
%
Yen
For six months
endingSeptember 30,
2014
Full year

650,000

9.2

22,000(18.0)

14,000(38.5)

8,500(34.6)

5.08

1,490,000

7.5

73,0000.8

66,0008.9

41,0006.2

24.52*Notes(1) Changes affecting the status of material subsidiaries (scope of consolidation): None
*This refers to additions and removals of material subsidiaries to and from the consolidated groupduring the period. For further details, see “Changes in basis of preparation of financial statements”
on page 24 in the Accompanying Materials.
(2) Changes in accounting policies, changes in accounting estimates, and correction of errors(ⅰ) Changes in accounting policies in accord with revisions to accounting standards: None(ⅱ) Changes in accounting policies other than (ⅰ): Yes(ⅲ) Changes in accounting estimates: Yes(ⅳ) Correction of errors: None
* The above changes correspond to Article 14-7 in the “Ordinance on Terminology, Forms andPreparation Methods of Consolidated Financial Statements”. For further details, see “Changes inaccounting policies, changes in accounting estimates, and correction of errors” on page 24 in the
Accompanying Materials.
(3) Number of shares issued and outstanding (common stock)(ⅰ) Number of shares issued as of period-end (including treasury stock)
March 31, 2014:
1,671,892,659 shares
March 31, 2013:
1,671,892,659 shares(ⅱ) Number of shares held in treasury as of period-end
March 31, 2014:
141,710 shares
March 31, 2013:
100,116 shares

2

(ⅲ) Average number of shares during respective periods
March 31, 2014:
1,671,770,272 shares
March 31, 2013:
1,671,803,541 shares
For reference: Overview of Non-Consolidated Financial Results(1) Operating Results
Years ended March 31(Millions of yen ) (Percentage figures indicate change compared with the previous fiscal year)

Net sales
2014
2013

1,011,603
983,921

Operating income
%
2.8
(1.9)

Earnings per share
2014
2013

Yen
19.20
10.26

36,108
12,573%187.1(49.8)

Recurring profit%
84.7(48.8)

35,905
19,433

Net income
32,09917,158

%
87.0
49.3

Earnings per share– diluted
Yen-(2) Financial Condition
March 31

(Millions of yen)
Total assets

Net assets

Equity ratio

Net assets per share

%

Yen

2014

1,243,533

273,19321.9

163.412013

1,195,116

258,47921.6

154.61

Note: Shareholders’ equity

March 31, 2014: ¥ 273,193 million
March 31, 2013: ¥ 258,479 million* Review Status
This report is exempt from the review of accounts conducted pursuant to Japan’s Financial Instruments
and Exchange Act. As of this report’s publication, the review of the financial results had not been
completed.
*Appropriate Use of Financial Forecasts and Other Important Matters
Forward-Looking Statements
These materials contain earnings forecast and other forward-looking statements based on information
available to the company at the time of disclosure and the company makes no assurances as to the actual
results and/or other outcomes, which may differ from those expressed or implied herein due to various
factors. For assumptions underlying earnings forecasts and other information regarding the use of suchforecasts, refer to “(iii) Consolidated Earnings Outlook” on page 8 in section “(1) Consolidated Operating
Results” of “1. Qualitative Information and Financial Statements” in the Accompanying Materials.
How to Obtain Supplementary Briefing Material on Financial Results and Details of the Financial
Results Briefing
The Company plans to conduct a briefing for institutional investors and analysts on Friday April 25, 2014,
and to post the briefing material on financial results to be used for the briefing on TDnet and theCompany’s website simultaneously with the announcement of financial results.

3

Accompanying Materials – Contents
1. Qualitative Information and Financial Statements

5(1) Consolidated operating results

5(2) Consolidated financial position

9(3) Dividend policy and dividends for the fiscal years through March 31, 2014 and 201510(4) Business and other risks

10

2. Status of Group11

3. Management Strategy

11(1) Basic management strategy

11(2) Target management metrics

11(3) Medium- to long-term management strategy

11(4) Management priorities

12

4. Consolidated Financial Statements

16(1) Consolidated balance sheets

16(2) Consolidated statements of income and comprehensive income

18

Consolidated statements of income

18

Consolidated statements of comprehensive income19(3) Consolidated statement of changes in net assets

20(4) Consolidated statements of cash flows

23(5) Notes on financial statements

24

Notes on the going-concern assumption

24

Basis of preparation of financial statements

24

Changes in basis of preparation of financial statements

24

Changes in accounting policies, changes in accounting estimates, and correction of errors

24

Additional information

27

Consolidated balance sheets

27

Consolidated Statements of Income

27

Segment information and others

28

Per share data

33

Material subsequent events

34

5. Others

35(1) Corporate officer changes

35(2) Consolidated orders and sales(3) Supplementary information on earnings forecasts for the fiscal year ending March 31, 2015

35

4

36

1. Qualitative Information and Financial Statements(1) Consolidated operating results(i) Overview of consolidated operating results
In fiscal 2013 (the year ended March 31, 2014), the global economy recovered moderately,spearheaded by developed economies, in the wake of US economic recovery and improvement inEuropean economies. Emerging market economies, by contrast, downshifted from their historical
growth trend, largely due to weakness in domestic demand. The global economy as a whole isexpected to continue growing at a modest pace for the time being, with developed economies, led by
the US, offsetting weakness in emerging market economies. However, a number of downside risks
pose concern, including the impact of tapering of US monetary easing, the European debt crisis's
future course and rising geopolitical tensions.
The Japanese economy recovered moderately, bolstered by fiscal and monetary stimulus policies.
Another driver of the economic recovery was a pickup in personal consumption stemming from ademand rush ahead of April's consumption tax increase. The Japanese economy is expected toremain in a recovery trend against a backdrop of improvement in employment conditions and theincome environment and expansion of public investment. However, weakness in overseas economies
and the impact of a reflexive contraction in demand in the wake of the demand rush preceding theconsumption tax increase pose concern as downside risks to the Japanese economy.
Amid such an economic environment, the Group's overall orders received increased in fiscal 2013
despite decreased orders in certain segments. The increase in overall orders was chiefly attributable
to the Motorcycle & Engine, Precision Machinery, and Ship & Offshore Structure segments. Overallsales likewise increased, as increased sales in segments such as Motorcycle & Engine and Aerospace
offset sales declines in other segments, including Plant & Infrastructure and Ship & Offshore
Structure. Operating income increased substantially. Segments that contributed to the increase
include Motorcycle & Engine, Aerospace, and Rolling Stock.
The Group’s consolidated orders received increased by ¥85.8 billion year on year to ¥1,455.4
billion. Consolidated net sales totaled ¥1,385.4 billion, a ¥96.6 billion year-on-year increase, andconsolidated operating income increased by ¥30.2 billion year on year to ¥72.3 billion. As a result of
operating income growth, consolidated recurring profit increased by ¥21.2 billion year on year to¥60.6 billion even as foreign exchange gains and losses netted to a loss versus a net gain in the
year-earlier period. Consolidated net income increased by ¥7.7 billion year on year to ¥38.6 billion.

5

Consolidated operating performance in the fiscal year ended March 31, 2014, is summarized bysegment below.
(ii) Segment information
Segment net sales, operating income, and orders received(billions of yen)

Fiscal year ended March 31

2014 (A)2013 (B)

Orders received

Change (A – B)

Fiscal year ended March 31

Net

OperatingNet

OperatingNet

Operating

2014

2013

Changesales

incomesales

incomesales

income(A)(B)(A – B)

Ship & Offshore
Structure

80.8

(2.0)

90.3

4.1

(9.4)

(6.1)

117.8

105.7

12.1

Rolling Stock

147.9

7.5

129.9

2.2

17.9

5.3

133.0

124.4

8.6

Aerospace

280.7

26.2

239.1

14.8

41.5

11.4

286.3

283.4

2.8

189.2

10.4

207.0

7.0

(17.7)

3.4

222.0

255.5

(33.5)

103.8

6.3

115.8

9.7

(11.9)

(3.4)

103.9

113.6

(9.6)

322.2

16.1

251.8

2.3

70.3

13.7

322.2

251.8

70.3

Machinery

123.2

10.4

130.4

8.4

(7.1)

1.9

127.2

109.7

17.5

Other

137.2

4.4

124.2

1.2

13.0

3.2

142.6

125.1

17.4

-

(7.2)

-

(8.0)

-

0.8

-

-

-

1,385.4

72.3

1,288.8

42.0

96.6

30.2

1,455.4

1,369.5

85.8

Gas Turbine &Machinery
Plant &
Infrastructure
Motorcycle &EnginePrecision

Adjustments
Total

Note: 1. Net sales include only sales to external customers.
2. A change in the accounting treatment of aircraft engine components reduced the Gas Turbine & Machinery
segment's sales and orders received for the fiscal year ended March 31, 2014, by ¥37.4 billion and ¥56.8
billion, respectively, relative to what they would have been in the absence of the change. The change had noeffect on income.
3. The Motorcycle & Engine segment’s orders received are equal to its net sales as production is based mainlyon estimated demand.

Ship & Offshore Structure
Consolidated orders received increased by ¥12.1 billion year on year to ¥117.8 billion. The Groupbooked nine newbuild orders, including orders for liquefied gas (LNG and LPG) carriers and a large
offshore service vessel.
Consolidated net sales decreased by ¥9.4 billion year on year to ¥80.8 billion as an increase inconstruction of liquefied gas carriers failed to offset a decrease in construction of bulk carriers andother vessels.
The segment incurred a consolidated operating loss of ¥2.0 billion, a ¥6.1 billion downturn fromthe previous fiscal year's consolidated operating income. The deterioration in profitability waschiefly attributable to higher steel prices and a new provision for losses on construction contracts.
6Rolling Stock
Consolidated orders received grew ¥8.6 billion to ¥133.0 billion, largely due to orders forcommuter car by the Long Island Rail Road and Metro-North Railroad and orders for subway car by
the Washington Metropolitan Area Transit Authority and Sapporo City Transportation Bureau.
Consolidated net sales increased by ¥17.9 billion year on year to ¥147.9 billion, largely due to thegrowth in overseas sales to customers in North America and Singapore.
Consolidated operating income increased by ¥5.3 billion year on year to ¥7.5 billion, largely by
cost reduction and yen depreciation.
Aerospace
Consolidated orders grew by ¥2.8 billion year on year to ¥286.3 billion. The increase wasattributable to the growth in orders for components for Boeing 787.
Consolidated net sales increased by ¥41.5 billion year on year to ¥280.7 billion, largely due to thegrowth in sales of component parts for Boeing777 and 787 coupled with the growth in sales toJapan’s Ministry of Defense.
Consolidated operating income showed a sharp increase of ¥11.4 billion increase year on year to¥26.2 billion, largely by virtue of sales growth and yen depreciation.
Gas Turbine & Machinery
Consolidated orders received decreased by ¥33.5 billion year on year to ¥222.0 billion. Adjusted tofactor out a change in accounting treatment of aircraft engine components that detracted from orders
received by ¥56.8 billion, consolidated orders received increased by ¥23.3 billion year on year. The
increase was mainly attributable to increased orders for gas engines and aircraft engine components.
Consolidated net sales decreased by ¥17.7 billion year on year to ¥189.2 billion, but when
adjusted to factor out said change in accounting treatment, which detracted from sales by ¥37.4
billion, consolidated net sales increased by ¥19.7 billion year on year. Major year-on-year changes insales included decreases in sales of marine gas turbines and marine diesel engines and increases insales of aircraft engine components and gas engines.
Consolidated operating income increased by ¥3.4 billion year on year to ¥10.4 billion, largely as aresult of the increase in sales adjusted to factor out the effect of the change in accounting treatmentof aircraft engine components.
Plant & Infrastructure
Consolidated orders received decreased by ¥9.6 billion year on year to ¥103.9 billion despiteorders received on LNG tanks for CPC Corporation, Taiwan's Taichung LNG Terminal Expansion
Project.
Consolidated net sales decreased by ¥11.9 billion year on year to ¥103.8 billion despite anincrease in environmental infrastructure contracts. The sales decline was chiefly attributable to alower sales for conveyance equipment and large overseas contracts.
7

Consolidated operating income declined by ¥3.4 billion year on year to ¥6.3 billion, largely due tothe sales decline coupled with shrinkage in profit margins.
Motorcycle & Engine
Consolidated net sales rose by ¥70.3 billion year on year to ¥322.2 billion, boosted by motorcycle
sales growth in the US and emerging-market economies, particularly Indonesia and Thailand.
Consolidated operating income showed a sharp increase of ¥13.7 billion increase year on year to¥16.1 billion, largely by virtue of sales growth and improved profitability.
Precision Machinery
Consolidated orders received increased by ¥17.5 billion year on year to ¥127.2 billion, largely byvirtue of the growth in orders for cleaning robots for semiconductor manufacturing equipment andindustrial robots for the automotive industry.
Consolidated net sales declined by ¥7.1 billion year on year to ¥123.2 billion, as growth in sales ofcleaning robots for semiconductor manufacturing equipment and industrial robots for the automotive
industry were insufficient to offset declines in sales of other products, particularly hydraulicequipment.
Consolidated operating income increased by ¥1.9 billion year on year to ¥10.4 billion, largely as aresult of growth in sales of cleaning robots for semiconductor manufacturing equipment andindustrial robots for the automotive industry and yen depreciation.
Other Operations
Consolidated net sales increased by ¥13.0 billion year on year to ¥137.2 billion.
Consolidated operating income increased by ¥3.2 billion year on year to ¥4.4 billion.

(iii) Consolidated earnings outlook
The Group's operating environment is generally improving despite an uncertain outlook for
emerging market economies. In fiscal 2014 (the year ending March 31, 2015), the Group plans tomake further progress in implementing ROIC management, realize a leaner corporate structure,steadily invest in future growth sectors, and endeavor to enduringly enhance its corporate value.
For fiscal 2014, the Company forecasts consolidated net sales of ¥1,490 billion, a year-on-yearincrease of ¥100 billion expected to be concentrated mainly in the Aerospace and Gas Turbine &Machinery segments.
In terms of earnings, the Company forecasts consolidated operating income of ¥73 billion,
recurring profit of ¥66 billion, net income of ¥41 billion, and ROIC of 8.6%. The Company plans toachieve these forecasts by increasing capital efficiency through ROIC management while
maintaining ongoing strenuous efforts to improve earnings across all operations through such means
as cutting fixed and overhead expenses and boosting productivity.
The Company’s earnings forecasts assume exchange rates of ¥100 to the US dollar and ¥135 to theeuro.
8(2) Consolidated financial position(i) Financial condition(A) Assets
At March 31, 2014, consolidated assets totaled ¥1,554.4 billion, a 6.0% increase from March 31,
2013. Of this total, current assets accounted for ¥1,005.7 billion, a 1.0% year-on-year decrease
chiefly attributable to a decrease in trade receivables. Fixed assets totaled ¥548.6 billion at March 31,
2014, a 22.0% increase from the previous fiscal year, mainly as a result of capital investments that
added to holdings of property, plant and equipment.
(B) Liabilities
Consolidated liabilities increased 5.5% year on year to ¥1,177.7 billion at March 31, 2014, despite
decreases in both long- and short-term debt. The increase was mainly attributable to recognition ofpreviously unrecognized retirement and severance benefit liabilities.
(C) Net assets
Consolidated net assets at March 31, 2014, totaled ¥376.6 billion, a 7.7% increase from March 31,
2013. While dividend payments and the aforementioned recognition of previously unrecognizedretirement and severance benefit liabilities detracted from consolidated net assets, these factors weremore than offset by net income and improvement in foreign currency translation adjustments due toyen depreciation.
(ii) Cash flows(A) Cash flows from operating activities
Operating activities provided net cash of ¥151.7 billion, a ¥123.6 billion increase from the previous
fiscal year. Major sources of operating cash flow included depreciation expense of ¥37.8 billion, a¥25.9 billion increase in advances from customers, a ¥20.0 billion increase in trade payables, and a¥17.7 billion decrease in trade receivables. Major uses of operating cash flow included tax paymentsof ¥18.3 billion.
(B) Cash flows from investing activities
Investing activities used net cash of ¥77.5 billion, ¥3.6 billion less than in the previous fiscal year,
mainly to acquire property, plant and equipment.
(C) Cash flows from financing activities
Financing activities used net cash of ¥62.5 billion, a ¥120.1 billion swing from the previous fiscal
year's net cash inflow from financing activities. The cash outflow was mainly due to debt
repayments.

9(iii) Cash flow ratios
Fiscal year ended March 31:
2010
2011
2012
2013
2014
Equity ratio (%)
20.4
21.3
22.4
23.0
23.3
Market-value equity ratio (%)
31.8
45.1
31.0
33.6
40.8
Debt-to-cash-flow ratio (%)
1,421.2
523.7
480.5
1,724.6
293.0Interest-coverage ratio (times)
5.5
17.2
19.0
6.7
36.0
Notes:
1. Ratios are calculated as follows.
Ratio of shareholders’ equity to total assets: Shareholders’ equity / Total assets
Market-value equity ratio: Market capitalization / Total assets
Debt-to-cash-flow ratio: Interest-bearing debt / Cash flow from operating activities
Interest-coverage ratio: Cash flow from operating activities / Interest paid
2. All ratios are calculated using consolidated-basis financial data.
3. Market capitalization is calculated by multiplying the closing price of the company’s stock by
the number of shares issued and outstanding (excluding treasury stock) at the end of the fiscal
year.
4. The figure for cash flow from operating activities is taken from cash flow from operating
activities on the consolidated statement of cash flows.
5. Interest-bearing debt is all interest-bearing debt listed under liabilities on the consolidatedbalance sheet. Interest paid is the figure for “Cash paid for interest” on the consolidated
statement of cash flows.

(3) Dividend policy and dividends for the fiscal years 2014 and 2015
As a basic policy, the Company aims to meet shareholders' expectations by endeavoring toenhance its corporate value, paying dividends commensurate with earnings, and internally retaining
funds sufficient to continue returning the fruits of its operations to stakeholders, conducting R&D
and making forward-looking capital investments as a supplier of key societal infrastructure.
The Company has a basic policy of distributing surplus retained earnings as dividends twice a year,
once after the fiscal second quarter and once after fiscal year-end. Interim dividends are authorized
by the Board of Directors; year-end dividends are authorized at general meetings of shareholders.
After comprehensively considering its earnings forecast, the sufficiency of its retained earnings,
and other relevant factors in light of said policies, the Company intends to pay a dividend of ¥6 pershare (¥0 interim dividend, ¥6 year-end dividend) for fiscal 2013. After paying the dividend, theCompany plans to use residual internally retained funds to repay debt and invest in operations.
The Company's Articles of Incorporation authorize the Company to pay interim dividends as
defined in Article 454(5) of the Companies Act.
For fiscal 2014, the Company plans to pay dividends of ¥7 per share (¥3 interim dividend plus ¥4
year-end dividend).

(4) Business and other risks
No risks other than those disclosed under the heading “Business and Other Risks” in the Company’s
most recent full-year statutory financial report (filed June 26, 2013) have surfaced since said filing.
Updated risk disclosures are therefore omitted here.

102. Status of Group
There have been no material changes in the “Chart of Operations (Nature of Operations)” and the“Status of Affiliated Companies” in the Company’s most recent full-year statutory financial report(filed June 26, 2013). Updated disclosure of them is therefore omitted here.

3. Management Strategy(1) Basic management strategy
The Group has embraced a mission of creating new value conducive to formation of an affluent,
beautiful society in harmony with the global environment through utilization of its broad array ofsophisticated technological capabilities in accord with its Group Mission Statement, "Kawasaki,
working as one for the good of the planet." To concretely fulfill this Group Mission, the Group
formulated Kawasaki Business Vision 2020 (2020 Vision) and designated "Land, Sea and Air
Transport Systems," "Energy & Environmental Engineering," and "Industrial Equipment" as its
principal business sectors. With its innovative, leading-edge technological capabilities, the Groupaims to help customers and society realize their potential by nimbly providing products and services
that meet the diverse needs of people throughout the world.
As a basic policy, the Group aims to meet shareholders' expectations by endeavoring to enhance
its corporate value, paying dividends commensurate with earnings, and internally retaining funds
sufficient to continue returning the fruits of its operations to stakeholders, conducting R&D andmaking forward-looking capital investments as a supplier of key societal infrastructure.
(2) Target management metrics
In the ultimate aim of enhancing its corporate value, the Group has adopted profit targets(operating income, recurring profit, and net income) and ROIC (return on invested capital: earnings
before interest and taxes (EBIT) ÷ invested capital), a measure of capital efficiency, as its target
metrics of operating performance.
The Group aims to maximize its corporate value into the future by achieving ROIC in excess of its
weighted-average cost of capital (WACC). Additionally, the Group will endeavor to optimize its
business portfolio by using ROIC as a performance metric for each of its business units (BU), thesmallest unit into which its operations are classified.
(3) Medium- to long-term management strategy
In April 2013, the Group unveiled the new medium-term business plan, Medium-Term Business
Plan 2013 (MTBP 2013), for fiscal 2013 through 2015. Under MTBP 2013, the Group is
endeavoring to expand its business foundations, secure a future revenue base, and solidify its
management system in the aim of achieving MTBP 2013's fiscal 2015 performance targets: net salesof ¥1,600 billion, operating income of ¥90 billion, recurring profit of ¥85 billion, and ROIC of atleast 11% (before taxes).
Regarding Kawasaki Business Vision 2020 (2020 Vision), the Group will rededicate itself to the11core principle of "quality over quantity" in accord with its Management Principles by focusing on
expanding profits and improving investment efficiency instead of placing priority on expanding thescale of its sales, and endeavoring to realize these aims.
In conjunction with the appointment of a new management team in June 2013, the Group has
placed enhancement of corporate value at the heart of its management strategy and decided tointensify its commitment to ROIC management. Corporate value is the total present value of theGroup's future earnings. In enhancing corporate value, the Group will place priority on perpetuallyearning profits in excess of its cost of invested capital for the Group as a whole while concentrating
its management resources in businesses with promising medium- to long-term growth prospects.
In fiscal 2014, the middle year of MTBP 2013's three-year term, the Group will pursue thefollowing priorities with all of its might to better ensure achievement of MTBP 2013's targets.
(4) Management priorities
1. Enhance corporate value
As a specific means of enhancing corporate value, the Group has adopted ROIC management in
the aim of making business segments' current status and future growth potential more visible at the
BU level and resolving ROIC-based financial issues and issues related to strengthening corecompetencies in each BU. In formulating its fiscal 2014 business plan, the Group identified issues tobe resolved and hurdles to be cleared for the future growth of every BU, comprehensively taking
into account factors such as the business environment, growth potential, and core competencies in
addition to financial issues. In particular, the Group will provide company-wide support to BUs thatneed to improve ROIC, maximally capitalizing on the benefits of Group management, in the aim ofstructurally transforming them into BUs that contribute to corporate value "without strain, without
risk and without delay."
2. Pursue synergies
In strengthening BUs' core competencies, the Group believes that BUs can mutually improve theircore competencies to a greater degree by pursuing not only intra-BU initiatives but also synergies
that transcend boundaries between BUs or internal companies. Accordingly, the Group has adopted a
new priority of building a framework for combining multiple BUs' core competencies acrossorganizational boundaries to expeditiously realize new products and new businesses in accord with
MTBP 2013's targets. Additionally, to increase synergies at the company-wide level, the Group will
strengthen cross-functional activities, mainly in the headquarters' Corporate Technology andMarketing Divisions, and endeavor to recruit, cultivate and strengthen engineering talent that will
support the Group's technological capabilities.
3. Create spare investment capacity
Although the Group reduced interest-bearing debt to its target level at fiscal 2013-end, it will
endeavor to further reduce debt and achieve its ROIC target by fiscal 2015, and continue to improve
free cash flow by undertaking specific initiatives based on the individual BUs' cash conversion cycle12

in related organizational units. Such interest-bearing debt reduction's primary objective is to create
spare investment capacity in pursuit of future growth. Accordingly, the Group's policy of continuing
to invest in requisite human resources, plant and equipment, and R&D while focusing on investment
efficiency remains unchanged in fiscal 2014.
4. Strengthen risk management
The Group is endeavoring to strengthen risk management with respect to large-scale capital
investments, R&D, and involvement in major projects and new development programs. Specifically,
the Group is implementing measures to identify various risks in advance and minimize them.
Meanwhile, in terms of incoming orders, the Group is stepping up initiatives such as front-loading tomeet customers' diverse specifications. When formulating growth strategies, the Group places
priority on ex ante management of large-scale risks and sound management decision-making.
One of the biggest risks to the Group's earnings power is exchange rate volatility. The Group
believes that the fundamental key to managing currency risk is operationally taking action tostrengthen core competencies enough to withstand exchange rate volatility, strengthen global
production operations, and exhaustively cut costs. The Group is endeavoring to strengthen its ability
to weather exchange rate volatility on an ongoing basis.
5. Strengthen corporate governance
The Group has adopted an internal company system. Its profit level has been steadily rising as aresult of internal companies autonomously running their businesses on their own authority andresponsibility. Going forward, the Group will maintain a policy of maximally pursuing the benefitsof an internal company system. However, with interest-bearing debt progressively increasing inrecent years, managing management resources on a company-wide level has become an urgent issue.
To better manage management resources on a company-wide level, the Group must further pursue asuitable corporate governance regime, including optimal organization of corporate headquarters andinternal companies.
In making management decisions, the Group aims to be a "refreshing business group" in whichunrestrained discussion is valued and all personnel faithfully act in accord with policies set throughsuch discussion. Additionally, the Group will unremittingly endeavor to actively engage in dialogue
with capital markets and improve management transparency and objectivity for the benefit ofshareholders and investors.
6. Augment CSR activities
For CSR as a whole, the Group is pursuing action goals it has set for each of its CSR themes. It isalso conducting activities to actively solicit outside opinions through such means as dialogues withexperts and feedback from external evaluations. In terms of compliance, the Group has prescribed
regulations regarding corporate ethics and endeavors to ensure that its workforce is fully aware ofapplicable laws through such means as distribution of guidebooks in addition to e-learning and tiered
education programs. The Group will further step up such initiatives. In the environmental realm, theGroup plans to strengthen its environmental management based on its Eighth Environmental
13

Management Activities Plan. As measures to reduce CO2 emissions and energy consumption, theGroup plans to expand successful energy visualization systems from its model plan to other businesslocations. Additionally, the Group is endeavoring to improve employees' work-life balance, mostnotably through childcare support policies, and build a workplace environment where diversity isrespected, through such means as globalizing human resources, designing barrier-free workplaces,
and increasing employment of disabled individuals by establishing a special subsidiary. Goingforward, the Group will further deepen coordination between business operations and CSR activities,
conduct CSR activities on a Group-wide basis, including overseas, and cooperate more with
suppliers and customers in terms of CSR.
Individual business segments’ priorities are as follows.
(i) Ship & Offshore Structure: Increase orders received for liquefied gas (LNG and LPG) carriers ;commercialize new sector including offshore vessels and LNG-fueled ships, etc.; expand Chinese
operations and launch operations in Brazil; and strengthen the foundations of the naval shipping
business(ii) Rolling Stock: Improve competitiveness by developing leading-edge technologies and products,
including new rolling stock, that meet customers' needs; strengthen project management
capabilities to accommodate growth in overseas projects; and build an optimal global businessmodel that includes overseas production, overseas supply chains, and utilization of partnerships(iii) Aerospace: Establish a mass production system for C-2 transport and P-1 fixed-wing patrolaircraft, including repair services and parts resupply, and apply it to derivative aircraft;accommodate growth in Boeing 787 component production and apply to derivative aircraft
including Boeing 777-X(iv) Gas Turbine & Machinery: Develop an energy solutions business based on high-efficiency
industrial gas turbines and gas engines; meet domestic demand for dispersed power sources andcultivate overseas markets; and develop new models of jet engines for civilian aircraft andimprove jet engine production efficiency(v) Plant & Infrastructure: Improve competitiveness in the energy and environmental engineering
sector by upgrading existing products; expand overseas operations, mainly in emerging-market
and resource-producing economies, by rapidly commercializing new products and technologies,
and strengthening overseas partnerships; and strengthen engineering capability by cultivating
human resources.
(vi) Motorcycle & Engine: Build a premium brand; improve cost-competitiveness by optimizing
production operations and expanding supply chains globally; expand sales in emerging markets
in which the segment is already active (e.g., Southeast Asia, Brazil); cultivate new markets, anddevelop advanced technologies for environmental compliance(vii) Precision Machinery: Maintain high share of market for hydraulic components for excavatorsand expand presence in global market for construction machinery other than excavators; improvecost-competitiveness in the robot sector, and expand robot sales in emerging markets
14

(viii) Other: Strengthen development capabilities, expand global market share and increase earnings
through an alliance with Hitachi Construction Machinery Co., Ltd. in the construction machinery
business
Notes:
These materials contain earnings forecast and other forward-looking statements based on information
available to the company at the time of disclosure and the company makes no assurances as to the actual
results and/or other outcomes.

15

4. Consolidated Financial Statements(1) Consolidated balance sheets
March 31

Millions of yen

AssetsCurrent assets
Cash on hand and in banks
Trade receivables
Merchandise and finished products
Work in process
Raw materials and supplies
Deferred tax assets
Other current assets
Allowance for doubtful receivables
Total current assets
Fixed assets
Net property, plant and equipment
Buildings and structures,
Machinery and equipment,
Land
Leased assets,
Construction in progress
Other,
Total property, plant and equipment
Intangible assets
Investments and other assets
Investments in securities
Long-term loans
Deferred tax assets
Other
Allowance for doubtful receivables
Total investments and other assets
Total fixed assets
Total assets

16

2013

2014

38,525432,649
61,446
311,107
87,55137,64850,671(2,785)
1,016,813

47,949415,664
56,673
302,511
98,84833,04654,165(3,104)
1,005,754

124,206
86,14162,318111
19,19813,815
305,792
19,446

144,147
99,76862,866
1,987
29,33045,810383,912
17,262

22,729409
36,42865,605(936)
124,236
449,476
1,466,290

14,167424
52,71180,906(710)
147,500
548,675
1,554,430

Liabilities
Current liabilities
Trade payables
Electronically recorded obligations-operating
Short-term debt
Lease obligations, current
Income taxes payable
Deferred tax liabilities
Accrued bonuses
Provision for product warranties
Provision for losses on construction contracts
Advances from customers
Current portion of bonds
Commercial paper
Asset retirement obligations
Other
Total current liabilities

281,062
213,510
347
3,756
1,793
20,0606,148
18,719108,213
10,0006,000
133
112,793
782,540

252,10753,923
190,757404
10,100442
22,118
10,535
13,560137,59849
103,818
795,415

Long-term liabilities
Bonds payable
Long-term debt
Lease obligations
Deferred tax liabilities
Provision for loss on damages suit
Provision for environmental measures
Employees’ retirement and severance benefits
Net defined benefit liability
Asset retirement obligations
Other
Total long-term liabilities
Total liabilities

70,000184,362
433
5,511
569
4,512
62,300551
5,626
333,868
1,116,409

110,000
141,343
2,139
6,630
395
3,669
97,048487
20,614382,328
1,177,744

Total shareholders’ equity

104,484
54,393
198,528(27)
357,379

104,484
54,393
217,449(43)
376,284

Accumulated other comprehensive income
Net unrealized gains (losses) on securities, net of tax
Deferred gains (losses) on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets

4,524(5,998)(17,665)(19,139)
11,641
349,881
1,466,290

2,652(3,803)
6,416(18,509)(13,243)
13,645
376,686
1,554,430

Net assets
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
Treasury stock17

(2) Consolidated statements of income and comprehensive income
Consolidated statements of income
Millions of yen

Years ended March 31
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Salaries and benefits
Advertising expenses
R&D expenses
Provision for doubtful accounts
Other
Total selling, general and administrative expenses
Operating income
Non-operating income
Interest income
Dividend income
Gain on sales of securities
Equity in income of non-consolidated subsidiaries and affiliates
Other
Total non-operating income
Non-operating expenses
Interest expense
Foreign exchange losses
Other
Total non-operating expenses
Recurring profit
Extraordinary income
Gain on contribution of securities to retirement benefit trust
Gain on transfer of benefit obligation relating to employees’
pension fundTotal extraordinary income
Extraordinary losses
Loss on disaster
Loss on impairment of fixed assets
Loss on environmental measures
Total extraordinary losses
Income before income taxes and minority interests
Income taxes
Current
Deferred
Total income taxes
Income before minority interests
Minority interests in net income of consolidated subsidiaries
Net income

18

2013

2014

1,288,881
1,085,469
203,412

1,385,482
1,140,293
245,189

43,0888,130
41,709114
68,305
161,349
42,062

46,662
10,63340,39810
75,132
172,837
72,351

876
765
1,424
8,530
5,980
17,576

919
397
1,187
7,016
2,669
12,190

4,151
9,919
6,239
20,31039,3283,991
14,785
5,159
23,93660,605

-

3,323

8,624

-

8,624

3,323

363
1,437
1,800
46,152

2,142
476
2,618
61,31010,5902,550
13,14033,011
2,147
30,864

15,902
4,409
20,311
40,9982,396
38,601

Consolidated statements of comprehensive income
Millions of yen

Years ended March 31
2013
Income before minority interests

2014

33,011

40,998541(1,852)

Deferred gains (losses) on hedges(6,381)

2,314

Foreign currency translation adjustments

11,712

11,996

Remeasurements of defined benefit plans

-

1,870

5,155

13,377

Total other comprehensive income

11,027

27,706Comprehensive Income attributable to:44,03968,705

Owners of the parent company

40,94064,908

Minority interests

3,099

3,797

Other comprehensive income
Net unrealized gains (losses) on securities

Share of other comprehensive income of associates accounted forusing equity method19

(3) Consolidated statements of changes in net assets
Millions of yen

Years ended March 31
2013
Shareholders’ equity
Common stock
Balance at end of previous year
Changes during the period

2014

104,484

Total changes during the period

104,484--

104,484

104,484

54,39354,393-0-054,39354,393

176,414-

198,528(11,523)

Restated Balance

176,414

187,005

Changes during the period
Cash dividend
Net income
Treasury stock disposed
Increase (decrease) by change of consolidation period of subsidiaries
Decrease resulting from increase in equity method affiliate(8,359)30,864
(0)
(204)
(185)

(8,358)38,601
201-

22,11430,444

198,528

217,449

(22)

(27)

(5)
0

(16)
0

Balance at end of year
Capital surplus
Balance at end of previous year
Changes during the period
Treasury stock disposed
Total changes during the period
Balance at end of year
Retained earnings
Balance at end of previous year
Cumulative effect of changes in accounting policies

Total changes during the period
Balance at end of year
Treasury stock
Balance at end of previous year
Changes during the period
Treasury stock purchased
Treasury stock disposed
Total changes during the period

(4)

(16)

(27)

(43)

335,270-

357,379(11,523)

Restated Balance

335,270

345,856

Changes during the period
Cash dividend
Net income
Treasury stock purchased
Treasury stock disposed
Increase (decrease) by change of consolidation period of subsidiaries
Decrease resulting from increase in equity method affiliate(8,359)30,864
(5)
0
(204)
(185)

(8,358)38,601
(16)
0
201
-

22,10930,428357,379

376,284

Balance at end of year
Total shareholders’ equity
Balance at end of previous year
Cumulative effect of changes in accounting policies

Total changes during the period
Balance at end of year20Comprehensive income
Net unrealized gain (loss) on securities
Balance at end of previous year
Changes during the period
Net changes in items other than shareholders’ equity
Total changes during the period

3,989

4,524

535

(1,871)535(1,871)

4,524

2,652

246

(5,998)Net changes in items other than shareholders’ equity(6,244)

2,195

Total changes during the period(6,244)

2,195(5,998)(3,803)(33,451)(17,665)

15,78524,081

Balance at end of year
Deferred gains (losses) on hedges
Balance at end of previous year
Changes during the period

Balance at end of year
Foreign currency translation adjustments
Balance at end of previous year
Changes during the period
Net changes in items other than shareholders’ equity
Total changes during the period

15,78524,081(17,665)

6,416

Balance at end of previous year--

Cumulative effect of changes in accounting policies-(20,410)

Restated Balance-(20,410)

-

1,900
1,900

-

(18,509)

Balance at end of previous year
Cumulative effect of changes in accounting policies(29,215)(19,139)-(20,410)

Restated Balance(29,215)(39,549)

Changes during the period
Net changes in items other than shareholders’ equity

10,07626,306

10,07626,306(19,139)(13,243)

9,868

11,641

1,772

2,004

Balance at end of year
Remeasurements of defined benefit plans

Changes during the period
Net changes in items other than shareholders’ equity
Total changes during the period
Balance at end of year
Total comprehensive income

Total changes during the period
Balance at end of year
Minority interests
Balance at end of previous year
Changes during the period
Net changes in items other than shareholders’ equity
Total changes during the period

1,772

2,004

Balance at end of year

11,641

13,645

Total net assets
Balance at end of previous year

315,922

349,881

Cumulative effect of changes in accounting policies
Restated Balance-(31,933)

315,922

317,947(8,359)30,864(8,358)38,601

(5)
0

(16)
0

(204)

201

Changes during the period
Cash dividend
Net income for the year (loss)
Treasury stock purchased
Treasury stock disposed
Increase (decrease) by change of consolidation period of subsidiaries

21

Decrease resulting from increase in equity method affiliate

(185)

-

Net changes in items other than shareholders’ equity

11,84828,310Total changes during the period
Balance at end of year22

33,95858,738349,881376,686

(4) Consolidated statements of cash flows
Millions of yen

Years ended March 31
Cash flows from operating activities
Income before income taxes and minority interests
Depreciation and amortization
Loss on impairment of fixed assets
Increase (decrease) in employees’ retirement and severance benefits
Increase (decrease) in net defined benefit liability
Increase (decrease) in accrued bonuses
Increase (decrease) in allowance for doubtful receivables
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for losses on construction contracts
Increase (decrease) in provision for losses on damages suit
Increase (decrease) in provision for environmental measures
Loss on disposal of inventories(Gain) loss on sale of marketable and investment securities(Gain) loss on valuation of securities(Gain) loss on sale of property, plant, and equipment
Equity in income non-consolidated subsidiaries and affiliates
Interest and dividend income
Interest expense(Increase) decrease in trade receivables(Increase) decrease in inventories(Increase) decrease in other current assets
Increase (decrease) in trade payables
Increase (decrease) in advances from customers
Increase (decrease) in other current liabilities
Other
Subtotal
Cash received for interest and dividends
Cash paid for interest
Cash paid for income taxes
Net cash provided by operating activities
Cash flows from investing activities
Decrease (increase) in time deposits with maturities over three months
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of intangible assets
Acquisition of investments in securities
Proceeds from sale of investments in securities
Acquisition of investments in subsidiaries of affiliate
Decrease (increase) in short-term loans receivable
Additions to long-term loans receivable
Proceeds from collection of long-term loans receivable
Payments for lease and guarantee deposits
Other
Net cash used for investing activities
Cash flows from financing activities
Increase (decrease) in short-term debt, net
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of bonds
Redemption of bonds payable
Acquisition of treasury stock
Proceeds from stock issuance to minority shareholders
Cash dividends paid
Cash dividends paid to minority shareholders
Other
Net cash used for financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase (decrease) in cash and cash equivalents by change of consolidation
period of subsidiaries
Cash and cash equivalents at end of period

23

2013

2014

46,152
48,385363(10,970)
(521)
(653)
(1,195)(12,617)
(340)
1,261
1,711
(1,424)55
1,032(8,530)(1,641)
4,151
10,601(10,711)
8,073(41,150)
5,670
4,015
(2,332)39,384
8,668(4,194)(15,756)
28,101

61,31037,838476(2,830)
1,839
(129)
4,117
(5,345)
(102)
(915)
1,339
(1,187)619
1,043(7,016)(1,317)
3,991
17,750(1,295)
1,349
20,05925,978
7,713
2,969
168,258
6,018(4,210)(18,345)
151,721(310)(65,517)348(4,898)
33
(571)
2,899
(12,339)
(11)
(44)
101
(1,152)
305(81,160)(584)(77,396)
2,212(2,778)
595
(610)
2,695
(2,063)
196
(64)
84
152
(77,559)

42,12944,327(28,837)
20,000(10,000)(4)217(8,351)(1,326)(482)
57,671(886)
3,726
33,245(64,139)
40,430(58,749)
40,000(10,000)(17)(8,363)(1,532)(132)(62,505)(4,001)
7,655
36,971-804

36,97145,431

(5) Notes on financial statements
Notes on the going-concern assumption
Not applicable
Basis of preparation of financial statements
Other than information disclosed under the heading “Changes in basis of preparation of financial
statements” below, no material changes have been made from the information disclosed in the
Company’s most recent full-year statutory financial report (filed June 26, 2013). An updated
disclosure is therefore omitted here.
Changes in basis of preparation of financial statements
1. Change in the scope of consolidation(1) Change in the scope of consolidation
Two companies were added as consolidated subsidiaries because they were newly establishedby the Company.
One company ceased to be consolidated subsidiaries as they were dissolved through absorption .
(2) Number of consolidated subsidiaries after change
96 companies
2. Change in application of the equity method(1) Non-consolidated subsidiaries which are accounted for under the equity method:None(2) Associated companies which are accounted for under the equity method(i) Change in associated companies which are accounted for under the equity method
One company was newly accounted for using the equity method as it was newly established by
the Group.
(ii) Number of associated companies accounted for under the equity method after change
18 companies
Changes in accounting policies, changes in accounting estimates, and correction of errors
Changes in accounting policies

Adoption of new accounting standard for retirement benefits
Effective from the fiscal year ended March 31, 2014, the Company adopted the AccountingStandards Board of Japan's new Accounting Standard for Retirement Benefits (ASBJ Statement No.
26, May 17, 2012) and its accompanying implementation guidelines, “Guidance on AccountingStandard for Retirement Benefits” (ASBJ Guidance No. 25, May 17, 2012), both of which takeeffect from the start of the first fiscal year beginning on or after April 1, 2013. The Company has
switched to recognizing the excess of retirement benefit obligations over pension assets as retirement
and severance benefit liabilities and booked previously unrecognized actuarial losses andunrecognized prior service costs as retirement and severance benefit liabilities. Additionally, theCompany revised its method of calculating retirement benefit obligations and service costs andchanged its method of attributing projected retirement and severance benefit obligations toaccounting periods from a straight line basis to a benefit formula basis.
24

When recognizing a retirement benefit liability in the amount of the excess of retirement benefit
obligations over pension assets as of the start of the fiscal year ended March 31, 2014, the Company
debited accumulated other comprehensive income's cumulative adjustment for retirement benefits toreflect recognition of the liability in accord with the transitional measures provided in Paragraph 37of the Accounting Standard for Retirement Benefits. The Company also debited its retained earnings
account as of beginning of the fiscal year ended March 31, 2014, to reflect the effect of the change inits method of calculating retirement benefit obligations and service costs.
These debits reduced accumulated other comprehensive income and retained earnings as of the
beginning of the fiscal year ended March 31, 2014, by ¥20,410 million and ¥11,125 million,
respectively. The effect on income is minimal.

Treatment of FIA
When the Company's main partners sell jet engines to airlines, the airlines demand a type of
discount called fleet introductory assistance (FIA). The Company is charged a share of this FIA inproportion to its involvement in projects. The Company has previously included these FIA charges incost of sales. Effective from the fiscal year ended March 31, 2014, the Company has switched toreporting FIA charges as a deduction from sales.
After reassessing its FIA transactions in light of the Japanese Institute of Certified Public
Accountants' Accounting Practice Committee Research Report No. 13, "Research Report on
Revenue Recognition in Japan (Interim Report)," issued in July 2009, the Company decided that thisrevised treatment results in a more appropriate presentation of its operating performance.
The Company deducted FIA charges from sales in the fiscal year ended March 31, 2014, andbecause the impact of this accounting policy change on the consolidated financial statements as awhole is minimal, the Company did not apply the change retrospectively.
The change reduced both sales and cost of sales for the fiscal year ended March 31, 2014, by¥37,499 million, relative to what they would have been in the absence of the change, but it had noeffect on operating income, recurring profit, or income before income taxes and minority interests.
The impact of the change on segment results is disclosed below under "(2) Calculation methods
for sales, income (loss), assets, liabilities and other items by reportable segment" on page 29.

Treatment of specialized jigs and tools for civilian aircraft
The Company and some of its consolidated subsidiaries have reclassified jigs and tools used in the
Aerospace segment's civilian aircraft manufacturing operations from inventory (work in process) toproperty, plant and equipment as a result of a reassessment of these jigs and tools' balance sheet
classification in light of their growing size and functionality.
The Company and its applicable consolidated subsidiaries reclassified the jigs and tools as of theprevious fiscal year-end and carried the revised asset balances over as beginning balances of the
fiscal year ended March 31, 2014. Since the impact of the reclassification on the consolidated
financial statements as a whole is minimal, they did not apply the reclassification retrospectively.
25

The reclassification reduced work in process as of the beginning of the fiscal year ended March 31,
2014, by ¥26,781 million and increased property, plant and equipment and intangible assets by¥26,555 million and ¥226 million relative to what they would have been in the absence of thereclassification.
Previously, the specialized jigs and tools' book value was transferred from work in process to costof sales upon the sale of the aircraft components for which the jigs and tools were used. From now
on, the jigs and tools will be depreciated as fixed assets and their depreciation will be allocatedbetween cost of sales and work in process. The impact of this change on earnings is minimal.

Treatment of subsidies related to aircraft development
In developing aircraft and jet engines, the Company receives development-related subsidies
pursuant to the Aircraft Industry Promotion Act. The Company previously placed priority on thesubsidy transactions' legal form by recognizing the subsidies as revenue received in consideration fordevelopment deliverables, charging the revenues' corresponding development expenses to cost of
sales, and recognizing projected future obligations related to the subsidies as warranty obligations.
From the fiscal year ended March 31, 2014, the Company is placing more priority on the subsidy
transactions' economic substance and has revised its accounting treatment accordingly. Specifically,
the Company no longer recognizes the subsidies as revenue and, on its balance sheet, it now
recognizes projected future obligations as liabilities and capitalizes development expenses asinventory.
After reassessing the subsidy transactions by placing priority on their substance in light of theJapanese Institute of Certified Public Accountants' Accounting Practice Committee Research Report
No. 13, "Research Report on Revenue Recognition in Japan (Interim Report)", issued in July 2009,
the Company decided that this revised treatment results in a more appropriate presentation of its
operating performance and financial condition.
At March 31, 2014, the Company capitalized the development expenses as inventory andrecognized a liability as described above. Since the impact of these changes on the consolidated
financial statements as a whole is minimal, the Company did not apply the changes retrospectively.
The impact of the changes on earnings is minimal.
As a result, the work in process, accounts payable-other and long-term accounts payable-otherbalance at March 31, 2014 increased by ¥14,409 million, ¥1,160 million and ¥13,249 million,
respectively. The impact of the changes on earnings was minimal.

Changes in accounting policies which are difficult to distinguish from changes in accounting
estimates and changes in accounting estimates.
Changes in depreciation method and depreciable lives
The Company and its domestic consolidated subsidiaries have previously used the decliningbalance method to depreciate their property, plant and equipment (except for buildings (excluding26

fixtures) acquired on or after April 1, 1998, which have been depreciated by the straight line method).
Effective from the fiscal year ended March 31, 2014, they have switched to using the straight line
method for all property, plant and equipment.
In accord with Kawasaki Business Vision 2020, the Company and its consolidated subsidiaries
actively conduct overseas operations ranging from production to sales while treating their domestic
plants as development and production hubs where advanced technological capabilities areconcentrated. Given this configuration, overseas capital investment is expected to become even more
important than before.
As a result of the change in the depreciation method in response to such a change in the capital
investment environment, Group production facilities are expected to operate stably. The economic
benefits of capital investments will accordingly accrue evenly over time. The Company therefore
decided that switching to the straight line method of depreciation would more accurately reflect thestate of its operations from the standpoint of appropriately reporting quarterly and annual income
and losses.
Additionally, the Company and its domestic consolidated subsidiaries have previously depreciatedtheir machinery and tools based mainly on depreciable lives prescribed in the Corporation Tax Act.
In conjunction with the change in depreciation method, they have revised their machinery and tools'
depreciable lives effective from the fiscal year ended March 31, 2014. They did so based on acomprehensive reassessment of the machinery and tools' physical and economic lives, taking into
account various factors including product life spans and the risk of production process obsolescence.
As a result of these changes, consolidated operating income, recurring profit, and income before
income taxes and minority interests for the fiscal year ended March 31, 2014, were ¥13,602 million
higher than they would have been in the absence of the changes.
The impact of these changes on individual segments is disclosed below under "(2) Calculation
methods for sales, income (loss), assets, liabilities and other items by reportable segment" on page
29.
Additional Information
Not applicable
Consolidated balance sheets
Fiscal year ended March 31, 2014 (As of March 31, 2014)
Information is omitted here as its disclosure in this report is not of material importance.
Consolidated Statements of Income
Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)
1. Loss on impairment of fixed assets(1) Outline asset groups in which loss on impairment of fixed assets was recognized
Location

PurposeType

Wakamatsu-ku, Kitakyushu-city, Fukuoka

Operating property

Land, Buildings and structures,
etc.

27

(2) Method for asset grouping
Asset grouping is based on line of business, and principle assets held for lease and idle assets aretreated as independent asset groups.
(3) Reason for recognition of loss on impairment of fixed assets
The book values of some assets were written down to recoverable amounts due to diminishedexpectation of future use.

(4) Calculation of recoverable amount
Recoverable amounts are measured by net sales price or utility value. Net sales price isprincipally calculated based on assessment by a real estate appraiser or on fixed assets’tax-assessment values. Utility value is calculated based on expected future cash flows.

(5) Loss on impairment of fixed assets
A write-down of 476 million yen was recorded as loss on impairment of fixed assets inextraordinary losses. Amounts by asset type are listed below.
Land

381 million yen

Buildings and structures

63 million yen

Other

30 million yen
476 million yen

2. Loss on disaster was caused by a major snowstorm on February 15, 2014, as a result of which an
aircraft hangar's roof collapsed at consolidated subsidiary's NIPPI Corporation's Atsugi Plant. The
loss was largely attributable to destruction of fixed assets and inventory and expenses to tear down
the building.
Other than the notes on consolidated statements of income stated above, information is omitted
here as its disclosure in this report is not of material importance.

Information Omitted
Notes on the unapplied accounting policies, consolidated statements of comprehensive income,consolidated statements of changes in shareholders’ equity, the consolidated cash flow statements,
lease transactions, related-party transactions, tax-effect accounting, financial instruments, securities,
derivative transactions, retirement benefits, stock-based compensation, business combination, asset
retirement obligations, investment and rental property, and special purpose companies are omitted
here, as their disclosure in this report is not of material importance.
Segment information and others
1. Segment information(1) Overview of reportable segments
The Company’s reportable segments are components of the company about which separate
28

financial information is available. These segments are subject to periodic reviews by theCompany’s board of directors to decide how to allocate resources and assess performance. The
Company’s operations are divided into internal companies based on product categories. Certain
authority is delegated to each of the internal companies, based on which they conduct businesses
in Japan and overseas. The Company’s operations are therefore segmented based on each internal
company’s product categories. The Company’s eight reportable segments are the Ship & Offshore
Structure segment, the Rolling Stock segment, the Aerospace segment, the Gas Turbine &Machinery segment, the Plant & Infrastructure segment, the Motorcycle & Engine segment, thePrecision Machinery segment, and the Other segment.
Main segment businesses are listed below.
Industry segment
Ship & Offshore
Structure
Rolling Stock
Aerospace
Gas Turbines &Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other

Major products
Construction and sale of ships and other vessels, etc.
Production and sale of rolling stock, snow plows, etc.
Production and sale of aircraft, etc.
Production and sale of jet engines, general-purpose gas turbine
generators, prime movers, etc.
Production and sale of industrial equipment, boilers, environmental
equipment, steel structures, crushers, etc.
Production and sale of motorcycles, all-terrain vehicles (ATV), utility
vehicles, personal watercraft (“JET SKI”), general-purpose gasoline
engines, etc.
Production and sale of industrial hydraulic products, industrial robots, etc.
Production and sale of construction machinery, commercial activities,
sales/order agency and intermediary activities, administration of welfare
facilities, etc.

(2) Calculation methods for sales, income (loss), assets, liabilities and other items by reportable segment
Accounting methods applied for calculation of sales, income (loss), assets, liabilities, and otheritems by industry segment largely correspond to information presented under “Basis ofpreparation of financial statements” on page 24. Segment income is based on operating income.
Intersegment sales or transfers are based on market prices.

Treatment of FIA
As disclosed above under "4. (5) Changes in accounting policies, changes in accounting estimates,
and correction of errors” on page 24, airlines demand a type of discount called fleet introductory
assistance (FIA) when they purchase jet engines from Company's main partners, and the Company ischarged a share of this FIA in proportion to its involvement in projects. The Company previously
included these FIA charges in cost of sales but has switched to reporting them as a deduction fromsales effective from the fiscal year ended March 31, 2014.
This change reduced the Gas Turbine & machinery segment's sales for the fiscal year ended
March 31, 2014, by ¥37,499 million relative to what they would have been in the absence of thechange, but it had no impact on segment income.

29

Changes in depreciation method and depreciable lives
As disclosed above under "4. (5) Changes in accounting policies, changes in accounting estimates,
and correction of errors" on page 24, the Company and its domestic consolidated subsidiaries havepreviously used the declining balance method to depreciate their property, plant and equipment(except for buildings (excluding fixtures) acquired after March 31, 1998, which have been
depreciated by the straight line method), but they have now switched to using the straight line
method for all property, plant and equipment effective from the fiscal year ended March 31, 2014.
Additionally, the Company and its domestic consolidated subsidiaries have previously depreciatedtheir machinery and tools based mainly on depreciable lives prescribed in the Corporation Tax Act.
In conjunction with the change in depreciation method, they have revised their machinery and tools'
depreciable lives effective from the fiscal year ended March 31, 2014.
As a result of these changes, segment income for the fiscal year ended March 31, 2014, increasedby ¥628 million in the Rolling Stock segment, ¥3,626 million in the Aerospace segment, ¥1,966
million in the Gas Turbine & Machinery segment, ¥847 million in the Plant & Infrastructure segment,¥1,851 million in the Motorcycle & Engine segment, ¥2,607 million in the Precision Machinery
segment, and ¥1,446 million in the Other segment, and segment loss for the fiscal year ended March
31, 2014, improved by ¥626 million in the Ship & Offshore Structure segment,all relative to what
they would have been in the absence of the changes.
(3) Sales, income (loss), assets, liabilities, and other items by reportable segment
Fiscal year ended March 31, 2013 (April 1, 2012 – March 31, 2013)(Millions of yen)
Sales
Intersegment
External sales
sales ortransfer
Ship & Offshore
Structure

Rolling Stock
Aerospace
Gas Turbines& Machinery
Plant &
Infrastructure
Motorcycle &EnginePrecision
Machinery
Other
Operations
Total
Adjustments
Consolidated
total

Other items
Total

Segment
income(loss)

Segment
assetsDepreciation/amortization

Loss onimpairmentof fixed
assetsInvestment inIncrease inequityproperty, plant
methodand equipment
affiliates
and intangibles

90,343

1,999

92,342

4,162

112,612

1,363-

35,4341,780

129,973
239,172

2,887
2,289

132,861
241,461

2,215
14,827

163,527
311,659

3,536
10,769

-

98
-

2,807
17,170207,008

19,404

226,412

7,033

251,808

6,100

-

1,085

9,324

115,813

15,114130,928

9,772

115,470

1,861-

11,767

4,376

251,858757

252,615

2,397

271,548

10,480-994

14,865130,455

14,027

144,482

8,452

114,699

7,712

-

-

12,319124,256

32,872

157,128

1,270

144,209

2,426

363

2,521

2,149

1,288,881-

89,352(89,352)

1,378,234(89,352)

50,131(8,069)1,485,535(19,244)

44,250
4,135

363
-

51,902-64,795
13,8291,288,881-

1,288,881

42,062

1,466,290

48,385363

51,902

78,62430

Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)(Millions of yen)
Sales

Other items

Intersegment
External sales
sales ortransfer
Ship & Offshore
Structure

Rolling Stock
Aerospace
Gas Turbines& Machinery
Plant &
Infrastructure
Motorcycle &EnginePrecision
Machinery
Other
Operations
Total
Adjustments
Consolidated
total

Total

Segment
income(loss)

Segment
assetsDepreciation/amortization

Loss onimpairmentof fixed
assetsInvestment inIncrease inequityproperty, plant
methodand equipment
affiliates
and intangibles

80,863

1,776

82,640(2,006)

129,542755-

49,0891,532

147,951
280,737

5,821
2,537

153,772
283,274

7,572
26,254

159,363
348,608

2,630
9,937

-

125
-

5,490
25,699189,241

16,922

206,164

10,486279,356

3,155

-

1,424

8,300

103,898

15,639119,537

6,312

109,878

1,297

476

15,2342,424

322,248794

323,042

16,100252,933

10,241-

1,099

17,250123,276

13,567

136,844

10,415

124,989

4,435

-

6

7,734

137,264

33,016170,280

4,481

120,529

2,078

-

2,717

4,236

1,385,482-

90,075(90,075)

1,475,557(90,075)

79,616(7,264)

1,525,202
29,22734,531
3,306

476
-

69,697-

72,67015,055

1,385,482-

1,385,482

72,351

1,554,430

37,838476

69,69787,726(4) Reconciliation and main components of difference between total for reportable segments andamounts on the consolidated financial statements
Fiscal year ended March 31(Millions of yen)

Sales

2013

Total for reportable segments
Intersegment transactions
Net sales reported on the consolidated
financial statements

2014

1,378,234(89,352)

1,475,557(90,075)

1,288,881

1,385,482

Fiscal year ended March 31(Millions of yen)

Income2013

Total for reportable segments
Intersegment transactions
Corporate expenses*
Operating income (loss) on consolidated
financial statements

2014
50,131564(8,633)79,616(79)(7,185)42,062

72,351*Note: Corporate expenses mainly comprise general and administrative expenses not attributed toreportable segments.
Fiscal year ended March 31(Millions of yen)

Assets2013

Total for reportable segments
Corporate assets shared by all segments*
Intersegment transactions etc.
Total assets on consolidated financial
statements

2014

1,485,535
122,759(142,004)

1,525,202
129,822(100,595)

1,466,290

1,554,430*Note: Corporate assets shared by all segments mainly comprise fixed assets not attributed to reportablesegments.

31

Fiscal year ended March 31
Other items

Total for reportablesegments(Millions of yen)Amounts reported on
the consolidated
financial statements

Adjustments*

2013

2014

2013

Depreciation/amortization

44,25034,531

4,135

Increase in property, plantand equipment andintangibles

64,79572,67013,829

2014

2013

2014

3,306

48,38537,83815,05578,62487,726*Note: Adjustments are mainly due to fixed assets not attributed to reportable segments.

Related information
Fiscal year ended March 31, 2013 (April 1, 2012 – March 31, 2013)
1. Information by product and service
Information by product and service is omitted here as segmentation is equivalent to that used forreportable segments.
2. Information by geographic area(a) Net salesJapan
616,220

USA
272,531

Europe97,540Asia
202,704

Other areas
99,884(Millions of yen)Total
1,288,881

Note: Net sales are classified by country or region based on the location of customers.

(b) Property, plant and equipment(Millions of yen)Japan
259,212North
America
21,298Europe

Asia

2,618

Other areas

21,638

1,023

Total
305,792

3. Information by major clients
Clients
Ministry of Defense

Net sales
193,685(Millions of yen)
Related segments
Ship & Offshore Structure, Aerospace, Gas Turbines & Machinery

Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)
1. Information by product and service
Information by product and service is omitted here as segmentation is equivalent to that used forreportable segments.
2. Information by geographic area(a) Net salesJapan
605,328USA
326,337

Europe101,381Asia
240,221

Other areas
112,212

Note: Net sales are classified by country or region based on the location of customers.

32(Millions of yen)Total
1,385,482

(b) Property, plant and equipment(Millions of yen)Japan
324,502

North
America
26,059Europe

Asia

3,704

Other areas

28,363

1,281

Total
383,912

3. Information by major clients(Millions of yen)
Clients
Ministry of Defense

Net sales
197,640

Related segments
Ship & Offshore Structure, Aerospace, Gas Turbines & Machinery

Impairment loss on fixed assets by reportable segment
Fiscal year ended March 31, 2013 (April 1, 2012 – March 31, 2013)
Information is omitted here as it is equivalent to that stated in “1. Segment information”.
Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)
Information is omitted here as it is equivalent to that stated in “1. Segment information”.
Amortization amount for and unamortized balance of goodwill
Fiscal year ended March 31, 2013 (April 1, 2012 – March 31, 2013)
Information is omitted here as it is not of material importance.
Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)
Not applicable.
Gain on negative goodwill by reportable segment
Fiscal year ended March 31, 2013 (April 1, 2012 – March 31, 2013)
Not applicable.
Fiscal year ended March 31, 2014 (April 1, 2013 – March 31, 2014)
Not applicable.
Per share data
Years ended March 31

(Yen)
2013

2014

Net assets per share202.32

Net assets per share217.16

Earnings per share - basic

18.46

Earnings per share - basic

23.09

Notes:
1. Diluted net earnings per share is not stated because there are no potential shares.
2. Net assets per share were calculated based on the following:
March312013
349,881

Total net assets
Amounts excluded from total net assets

11,641

Of which: minority interest
Net assets attributable to the common shares
Number of common shares used to compute net assets per share(Thousands of shares)

33(Millions of yen)
2014
376,686(11,641)

13,645(13,645)

338,240

363,041

1,671,792

1,671,750

3. Net income/loss per share and net income per share (diluted) were calculated based on the following:
Years ended March 31
2013
Earnings per share - basic
Net income
Earnings not attributable to common shareholders
Net income allocated to the common shares
Average number of common shares outstanding (thousands of shares)

Material subsequent events
Not applicable

34(Millions of yen)
2014

30,86438,60130,86438,601

1,671,803

1,671,770

5. Others(1) Corporate officer changes
Refer to the Company’s press release on March 31, 2014, titled “New Directors and Corporate
Auditor to be Nominated.”(2) Consolidated orders and sales
Orders received
Years ended March 31(Millions of yen)2013（A）

2014（B）% of total

Change（B-A）% of total%

Ship & Offshore Structure
105,733
7.7
117,872
8.0
12,138
11.4
Rolling Stock
124,4419.0
133,049
9.1
8,607
6.9
Aerospace
283,48520.6
286,383
19.6
2,897
1.0
Gas Turbine & Machinery
255,553
18.6
222,013
15.2(33,539)(13.1)
Plant & Infrastructure
113,600
8.2
103,9127.1(9,688)(8.5)
Motorcycle & Engine
251,85818.3
322,248
22.1
70,39027.9
Precision Machinery
109,725
8.0
127,297
8.7
17,571
16.0
Other125,1889.1
142,684
9.8
17,495
13.9
Total
1,369,588
100.0
1,455,462
100.0
85,874
6.2
Note: The Motorcycle & Engine segment’s orders received are equal to its net sales as production is based mainlyon estimated demand.

Net sales
Years ended March 31(Millions of yen)2013（A）

2014（B）% of total

Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Total

90,343
129,973
239,172
207,008
115,813251,858
130,455
124,256
1,288,881

7.0
10.0
18.5
16.0
8.9
19.5
10.1
9.6
100.0

Change（B-A）% of total

80,863
147,951
280,737
189,241
103,898
322,248
123,276
137,264
1,385,482

5.8
10.6
20.2
13.6
7.4
23.2
8.8
9.9
100.0

%

(9,479)17,97841,564(17,767)(11,914)70,390(7,178)13,00796,600(10.4)
13.8
17.3
(8.5)
(10.2)
27.9
(5.5)
10.4
7.4

Order backlog
Years ended March 31
2013（A）

2014（B）% of total

Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Total

120,112359,980
432,729
237,410
171,486
21,571
26,7961,370,086

8.7
26.2
31.5
17.3
12.5
1.5
1.9
100.0

35

(Millions of yen)
Change（B-A）% of total

161,134
364,654450,581295,100
170,737
25,821
32,2341,500,264

10.7
24.3
30.0
19.6
11.3
1.7
2.1
100.0

%

41,021
4,673
17,851
57,689
(748)
4,249
5,438
130,177

34.1
1.2
4.1
24.2
(0.4)
19.7
20.2
9.5

(3) Supplementary information on earnings forecasts for the fiscal year ending March 31, 2015
1. Consolidated earnings outlook(Billions of yen)

Outlook for the fiscal year
ending March 31, 2015
(A)

Fiscal year ended
March 31, 2014(actual)(B)

Change (A – B)

Net sales
Operating income
Recurring profit
Net income

1,490.0
73.0
66.0
41.0

1,385.4
72.3
60.6
38.6

104.6
0.7
5.4
2.4

Orders received
Before-tax ROIC (%)
R&D expenses
Capital expenditures
Depreciation/amortization
Number of employees
at end of period*Number of employees outside

1,580.0
8.6%
46.0
91.0

1,455.4
8.1%
40.3
87.7

124.6
0.5%
5.7
3.3

47.0

37.8

9.2

35,10034,620480*8,900*9,089*189

of Japan included therein

Notes: 1. Outlook’s assumed foreign exchange rates: ¥100 = US$1, ¥135 = 1 euro

2. Before-tax ROIC = (income before income taxes + interest expense) / invested capital.
3. Capital expenditures represent the total of newly recorded property, plant and equipment andnewly recorded intangible assets. Depreciation/amortization represents depreciation/amortization
expenses for property, plant and equipment and intangible assets.

2. Outlook by reportable segment(a) Net sales and operating income (loss)(Billions of yen)

Fiscal year ended
March 31, 2014 (actual)(B)

Outlook for the fiscal year
ending March 31, 2015
(A)

Change (A – B)

Net sales

Operating
Income (loss)

Net sales

Operating
Income (loss)

Net sales

Operating
Income (loss)

Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Adjustments

85.0
135.0
320.0
230.0
120.0
320.0
140.0
140.0

80.8
147.9
280.7
189.2
103.8
322.2
123.2
137.2

1,490.0

(2.0)
7.5
26.2
10.4
6.3
16.1
10.4
4.4
(7.2)
72.3

4.2
(12.9)
39.3
40.8
16.2
(2.2)
16.8
2.8

Total

0
6.0
27.0
9.0
6.0
16.0
12.0
4.0
(7.0)
73.0

2.0
(1.5)
0.8
(1.4)
(0.3)
(0.1)
1.6
(0.4)
0.2
0.7

1,385.4

36

104.6

(b) Orders received(Billions of yen)

Outlook for the fiscal year
Fiscal year ended
ending March 31, 2015
March 31, 2014 (actual)(A)(B)
Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Total

150.0
180.0
290.0
230.0
130.0
320.0
140.0
140.0
1,580.0

117.8
133.0
286.3
222.0
103.9
322.2
127.2
142.6
1,455.4

Change (A – B)
32.2
47.0
3.7
8.0
26.1
(2.2)
12.8
(2.6)
124.6

(c) Before-tax ROIC(%)

Outlook for the fiscal year
Fiscal year ended
ending March 31, 2015
March 31, 2014 (actual)(A)(B)
Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Total

0.2
7.9
17.7
5.1
13.5
9.2
16.8
8.6

37

3.4
10.2
19.6
4.6
14.9
1.4
17.5
8.1

Change (A – B)
(3.2)
(2.3)
(1.9)
0.5
(1.4)
7.8
(0.7)
0.5