2004
ANNUAL REPORTFOUNDED IN 1878, KAWASAKI HEAVY INDUSTRIES, LTD. (KHI), IS A LEADING GLOBAL COMPREHENSIVE MANUFACTURER OF TRANSPORTATION EQUIPMENT AND
INDUSTRIAL GOODS. WITH A BROAD TECHNOLOGICAL BASE THAT ENCOMPASSESMASTERY OF THE LAND, SEA, AND AIR, THE KHI GROUP MANUFACTURES SHIPS,ROLLING STOCK, AIRCRAFT AND JET ENGINES, GAS TURBINE POWER GENERATORS,REFUSE INCINERATORS, INDUSTRIAL PLANTS, STEEL STRUCTURES, AND A WIDERANGE OF MANUFACTURING EQUIPMENT AND SYSTEMS. KHI ALSO PRODUCES
SUCH WORLD-FAMOUS CONSUMER PRODUCTS AS KAWASAKI-BRAND MOTORCYCLESAND JET SKI® WATERCRAFT.

Contents
Consolidated Financial Highlights................................................................ 1
To Our Shareholders ...................................................................................... 2
An Interview with the President ................................................................... 4
Review of Operations:
Shipbuilding................................................................................................. 10
Rolling Stock, Construction Machinery & Crushing Plant.................... 12
Aerospace .................................................................................................... 14
Gas Turbines & Machinery........................................................................ 16
Plant & Infrastructure Engineering .......................................................... 18
Consumer Products & Machinery............................................................ 20
Six-Year Summary ........................................................................................... 22
Management’s Discussion and Analysis ..................................................... 23
Consolidated Balance Sheets........................................................................ 28
Consolidated Statements of Income ............................................................ 30
Consolidated Statements of Shareholders’ Equity .................................... 31
Consolidated Statements of Cash Flows ..................................................... 32
Notes to the Consolidated Financial Statements ....................................... 34
Report of Independent Public Accountants ............................................... 49
Directors, Corporate Auditors, and Executive Officers ............................ 50
Major Consolidated Subsidiaries and Affiliates ......................................... 52
Network ............................................................................................................ 55
Kawasaki Corporate Data .............................................................................. 57

Cover: NINJA ZX-10R

Consolidated Financial Highlights
Years ended March 31

Thousands of
U.S. dollars

Millions of yen
2004

2003

2002

2004

¥1,239,598¥1,144,534$10,984,114

For the year:
Net sales................................................................................................... ¥1,160,252
Operating income ...................................................................................

22,25030,54331,311

210,641

Net income ..............................................................................................

6,333

13,022

6,282

59,955

Net cash provided by operating activities ..........................................

42,811

56,77060,793405,292

Capital expenditures ..............................................................................

41,50235,16533,132392,900

Per share (in yen and U.S. dollars):
Net income—basic .................................................................................

¥4.4

¥9.3

¥4.5

$0.04

Net income—diluted ..............................................................................

4.2

8.8

4.4

0.04

Cash dividends .......................................................................................

2.0

2.0

—

0.02

Total assets ............................................................................................. ¥1,156,904¥1,149,161¥1,255,075$10,952,419

190,175

174,585

167,7311,800,388

Orders received during the fiscal year ................................................ ¥1,226,728¥1,227,449¥1,034,771$11,613,443

Order backlog at fiscal year-end...........................................................

1,175,563

1,240,439

11,259,813

At year-end:
Total shareholders’ equity ....................................................................
Orders received and outstanding:
1,189,374

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥105.63 to $1.00, the approximate rateof exchange at March 31, 2004.

Net Sales

Net Income (Loss)(Billions of yen)(Billions of yen)

Total Shareholders’Equity(Billions of yen)

190.2

2002

174.6

2001

100

(10.3)

500

167.7

0

164.1

6.3

150

175.0

200

13.0

10
6.3

1,160.3

1,239.6

1,144.5

1,060.5

1,149.7

1,000

250

20

1,500

-10
(18.6)

50

0

-20

0

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

2000

2003

2004

1

To Our Shareholders

Steady Progress
toward Sharpening
the Focus of Our
Business Portfolio
and Creating a
Strong Earnings
Structure

Looking back over fiscal 2004, ended
March 31, 2004, there were some encouraging signs in the Japanese economy,
including an upward trend in privatesector capital investment and a recovery in stock prices. However, due torestraints and even cutbacks in government public works investment andweakness in personal consumption—owing to little improvement in household incomes—our business environment
overall remained lackluster.
The Kawasaki Heavy Industries (KHI)Group anticipated these harsh conditions and responded with an even moreforceful marketing effort. As a result,
we were successful in winning ordersof ¥1,226.7 billion, almost the samelevel as in fiscal 2003. By segment, wemade important gains in new orders in
the Aerospace segment, but orders in
the Plant & Infrastructure Engineering
segment posted a decline. Turning
to revenues, net sales amounted to¥1,160.3 billion, 6.4%, or ¥79.3 billion,
lower than for the previous fiscal year.
Here too, Aerospace reported a strong
performance, but Plant & Infrastructure
Engineering experienced a decline.
Although we continued to implement
aggressive measures to increase profitability, as a result of the decline in net
sales and the appreciation of the yen
against the U.S. dollar, operating income was down 27.2%, or ¥8.3 billion,to ¥22.3 billion, and net income declined
51.4%, or ¥6.7 billion, to ¥6.3 billion.

Masamoto Tazaki,
President and CEO

2

Our basic policy is to pay stable cash

In fiscal 2005, we are going to continue

reforms, under the leadership of thedividends to our shareholders, giving

to lower our break-even level throughnew management we have selected. We

due attention to increasing retained

cost reductions and other means. We

are wholeheartedly supporting NIPPI’s

earnings in order to strengthen andare also determined to increase ourrestructuring and are confident it will

expand our business foundation for

ability to compete on product attribut-

play a major contributing role in the

future growth. In view of the level of

es other than just price. To do this, weaircraft manufacturing and mainte-

net income, the market outlook, andare pressing forward with the develop-

nance activities of the KHI Group,

other factors, KHI proposed and received

ment of high-value-added products andassisting us in developing our position

approval from shareholders to keep

services backed by our top-level tech-in the aerospace business.

its cash dividend at ¥2 per share, as it

nological strengths and the Kawasaki

Also in fiscal 2004, the Plant &was last fiscal year.

brand. We are also adopting more flexi-

Infrastructure Engineering businessble foreign exchange hedging policies

returned to profitability, even thoughon its broad base of advanced tech-and increasing U.S. dollar-denominatedit still faces a severe operating environ-nologies to create new value in prod-sales more actively in order to help toment. We plan to continue structuralucts that work modern-day wonders

minimize the adverse impact on ourreforms to put these operations on a

on land, at sea, and in the air and con-performance caused by fluctuations

firmer footing.

tribute to the development of societies

in currency exchange rates.

KHI’s corporate philosophy is to draw

around the world. Under this philoso-

To sharpen the focus of our business

The markets we serve are undergoing rapid, and sometimes radical,

phy, KHI endeavors to increase customer

portfolio, we are working to increasechange. The KHI Group is committed

satisfaction by providing products andthe product competitiveness of ourto proceeding with structural reforms

services that are differentiated frommotorcycles and other offerings of ourin line with its medium-term businesscompetitors’ by technology and brandConsumer Products & Machinery busi-

plan, and we will do what is necessary

equity. Through these activities, KHI

ness. We are also committing corporate

to create a strong earnings structure.

is committed to raising its enterprise

resources on a priority basis to busi-

We take this opportunity to thank you,value and responding to the expecta-

nesses we expect will grow, including

our shareholders, for your continuing

tions of shareholders, customers,

the Aerospace, Rolling Stock, and Gas

confidence and support.

employees, and the communities

Turbines & Machinery businesses, withit serves.

the aim of strengthening earnings

With these core policies in mind, weJune 29, 2004

power.

have set a specific target of attaining

A major move in April 2003, the

9% or higher before-tax return on in-

beginning of fiscal 2004—intended tovested capital (ROIC) under our K21

prepare for the progress and expansion

medium-term business plan. To reachof new projects—was to make NIPPI

this goal, we are reforming KHI’s enter-

Corporation a wholly owned subsidiary

Masamoto Tazaki

prise structure, principally by transform-

through an exchange of shares. NIPPI is

President and CEO

ing our business model and sharpening

currently implementing management

the focus of our business portfolio tocreate a stronger earnings structure.

3

An Interview with the President

In fiscal 2004, ended March 31, 2004, KHI reported the first reductions in profitability since the formulation of the K21 medium-term
plan. What is your evaluation of KHI’s performance?

Q

The biggest factor affecting KHI’s performance in fiscal 2004

A

segment posted a profit for the first time in five years, main-

was the appreciation of the yen. On a weighted-average basis,

ly because of our restructuring measures. These included

the yen/dollar rate we used for converting sales figures into

a reduction in unprofitable projects and steps we took to

yen was ¥121 in fiscal 2003 but the yen appreciated by ¥8, tolower fixed costs, including the consolidation of the Noda

¥113 in fiscal 2004. A high percentage of our sales is denomi-

Works into the Harima Works.

nated in U.S. dollars, including motorcycles, ships, aircraft,

Our free cash flow was positive for the third consecutive

plants and equipment, as well as other items. The apprecia-

year, and we made progress toward improving our financial

tion of the yen in fiscal 2004 reduced operating income byposition. Interest-bearing debt fell below the ¥400 billion

about ¥10 billion. The policies for improving earnings thatlevel and stood at ¥399.5 billion as of March 31, 2004. The

we implemented during the fiscal year, including cost-cutting

net debt to equity ratio was still somewhat high, standing at

measures, recovered about half of this.

187%, but, over the last three fiscal years, we have cut our

By business segment, Shipbuilding reported an operatinginterest-bearing debt by about ¥100 billion. The goal of ourloss because of the depreciation of the dollar against themedium-term plan was to reduce debt below ¥420 billion,yen; on the other hand, the Plant & Infrastructure Engineering

so we met this target ahead of schedule.

What are you planning to do this year to get you closer to the goalsof the medium-term plan?

QA

As a result of the structural reform measures we have car-in each of our businesses, we want to strengthen our ability

ried out to date, we have a clearer picture of the future of

to compete on the basis of product attributes other thanbusinesses in our portfolio. In fiscal 2005, now in progress,

just price. We also are making steady progress toward low-

we are working to consolidate our positions in various

ering our break-even level and thereby are strengthening

fields to set the stage for future growth. As you know, we

our cost-competitiveness. All of these activities are aimed athave a policy of “Quality followed by Quantity.” Therefore,

giving us greater earnings power.

Could you review conditions in major businesses? We are particularly interested in the outlook for KHI’s core Aerospace and Consumer
Products businesses.

Q

4First, in the defense aerospace business, we are movingA

selected as the prime contractor for licensed manufacturing

straight ahead with the development of the next large-scaleof the airframe and engine of the EH101-based, next-genera-P-X and C-X aircraft for the Japan Defense Agency (JDA),

tion helicopter in Japan. In addition, in the commercial air-acting as the prime contractor. We have progressed to thecraft business, we are receiving a steady flow of orders fordetailed design stage now and currently have a target for

the aircraft we developed jointly with Embraer of Brazil. We

beginning trial flights of both aircraft in 2007. KHI was also

are also moving forward in discussions with The BoeingCompany for active participation in the 7E7 project. So, themake substantial improvements in profitability in the aero-

future looks bright indeed, because we have a number of new

space field by drawing on the know-how of all the members

projects ongoing, or about to start, in both defense andof the KHI Group to improve our cost-competitiveness.

commercial aircraft areas.

In the Consumer Products business, we have introduced

Although we have important management issues to address

new models successfully, and sales in the key markets ofat NIPPI, our subsidiary in the Aerospace business, we regard

Europe and North America are holding firm. The keys to

it as an important member of the KHI team because of its

success in this business will be to upgrade our new productmanufacturing and maintenance capabilities. We are imple-

development capabilities and make well-timed introduc-

menting NIPPI’s restructuring as quickly as we can and aretions of attractive models that capture the imaginations offully committed to strengthening our development, produc-motorcycle enthusiasts and other customers. By pursuingtion, and maintenance capabilities in the Aerospace busi-

this effectively, we will strengthen the Kawasaki brand andness as a whole. Another of our ongoing initiatives is tothe earnings base of the Consumer Products business.

How are the Rolling Stock and Gas Turbines & Machinery businesses, which you classify as “developing businesses,” performing?

Q
A

Our Rolling Stock business is on solid footing in the medium

50MW for an on-site power and heat producer. This 50MW

term because we have received orders for major projects,

plant makes use of two of our medium-sized L20A gas tur-including the Taiwan high-speed railway system, R160 sub-bines, which we newly developed in-house based on propri-

way cars for New York, and subway cars for Taipei. Our top

etary technology, and this is the first such installation on apriority is to complete these projects flawlessly and win thecommercial basis. We expect the delivery and installation

full confidence of our customers for KHI technology andof these units will build on our track record and provide a

quality. We are anticipating additional major projects asfoothold for further development of the gas turbine busi-

demand emerges in Chinese and other markets. We are in

ness. We are therefore going to mount an aggressive mar-the process of strengthening our capabilities for handlingketing effort, using our proposals that accurately matchlarge projects aimed at making the Rolling Stock businesscustomer needs, our cost-competitiveness over the full life

one of our core businesses not only in terms of scale ofcycle of these units, and our ability to provide after-sales

operations but also in terms of earnings in the near future.

service as competitive weapons, all of which are backed by

In the Gas Turbines & Machinery business, important

our in-house development strengths. We also have plans fordevelopments included the start-up in July of a KHI gas tur-marketing these units overseas in Europe and Asia, wherebine combined cycle power plant with a rated capacity ofdemand for energy is continuing to increase.

5How are structural reforms proceeding in KHI’s Plant &Infrastructure Engineering and Shipbuilding businesses?

Q
A

In the Plant & Infrastructure Engineering business, we areprofitable again by taking better advantage of the greater

following the strategies laid out in our medium-term busi-

management flexibility we have in setting labor and otherness plan, including exercising more selectivity in accepting

costs as a result of splitting off the Shipbuilding business,orders, and cutting fixed costs by reducing the number ofwhich was formerly an internal company, into a subsidiary.

personnel and consolidating our production facilities. We

This business has a 2.5-year backlog of orders, and we areare gradually beginning to see signs of improvements inaiming to create a stable earnings structure in the medium

profitability, even as the operating environment for thisterm by focusing on high-value-added vessels. These willbusiness remains challenging. Consequently, we intend toinclude LNG carriers—where demand is robust and there

continue making structural reforms this fiscal year.

is a trend toward larger vessels—and submarines. We also

The Shipbuilding business reported a loss in fiscal 2004

plan to draw on the capabilities of Nantong Cosco KHI Ship

because of the sudden depreciation of the dollar against

Engineering Co., Ltd., one of our joint ventures in China, tothe yen. Going forward, we intend to make this businessgive us an edge in international competition.

One of the ideas everyone hears a lot about these days is corporatesocial responsibility. What do you think about this trend?

Q
A

6

KHI’s corporate philosophy is to draw on its broad base ofenvironmental-related equipment. These include municipal

advanced technologies to create new value in products that

refuse incineration plants, sewage treatment plants, equip-

work modern-day wonders on land, at sea, and in the air

ment to reduce NOx and SOx emissions, and systems forand contribute to the development of societies around thecrushing and sorting bulky waste and other items. Moreworld, while meeting the expectations of its shareholders,

recently, we have taken a proactive stance to developing

customers, employees, and the communities it serves.

and supplying new systems for electric power generation

I believe this philosophy is a good statement of KHI’s basic

using refuse-derived fuel (RDF), refuse paper and plastic

social responsibilities.

fuel (RPF), biomass, and wind power. We plan to continue

First, we want to contribute to society through theaggressive development of new energy sources that place

products and services that we offer. Over the years,

less burden on the environment, energy conservation sys-

we have developed and supplied various kinds oftems, and recycling technologies. Along with theseactivities, KHI also manufactures products to upgrade suchthe use of resources by improving efficiency in production,

infrastructure as bridges, tunnel boring machines, and oth-getting better-and-better gas mileage, reducing emissions,ers. We deeply believe that our mission and our responsibil-

and developing products that not only give pleasure during

ity to society is to support the foundations for modern-day

their useful lifetimes but also can be recycled.

living through helping to improve social infrastructure

Beginning in fiscal 1995, we instituted our Environmental

and to use our technology to create safer, more livable

Protection Activities Plan on a three-year cycle. In fiscal

environments.

2004, we renamed this KHI’s Environmental Management

KHI is also a manufacturer of motorcycles and other

Activities Plan. We have refocused these activities to makeleisure-related products. Of course, we have to consider the

it clear that we are aiming for environmentally friendly man-three “bottom lines”—economic, social, and environmental—

agement of our operations to contribute to sustainable

in all products we produce, but especially in motorcycles

social development. Along with this, we also prepared Whatand other consumer products we believe it is essential to

Kawasaki Should Be in the Year 2010, which expresses our

optimize them. Although “Let the good times roll” is theenvironmental philosophy as part of a medium-term visionmotto of Kawasaki’s motorcycle business, we believe thefor the environment. We plan to continue to work to makepursuit of “good and happy times” also involves minimizing

this vision a reality.

Q
A

What measures are you implementing in terms of compliance?
We have already prepared internal rules and regulations

Guidebook to all employees and specifically requested all

regarding corporate ethics and have conducted programs

management and staff to keep in mind that observanceto give all management and staff a better awareness of theof corporate ethics in all our activities will protect andimportance of compliance matters. To strengthen our com-strengthen the Kawasaki brand. In our in-house training

pliance systems, in June 2003 we established a Complianceprograms, we also educate employees about the impor-

Committee that reports to our Corporate Ethics Committee.

tance of compliance. To make sure our compliance systems

Along with this, we instituted a system for compliance

continue to function effectively, we are providing compli-

reporting and consultation, which provides access to out-

ance training on a continuing basis.

side legal counselors. We have also issued a Compliance

Q
A

What are your views of corporate governance?
We introduced an executive officer system in fiscal 2002

surveillance of management from a Companywide perspec-and reduced the number of directors from 26, at that time,

tive. Since we have clarified the responsibilities of the exec-

to 11. At present, we have 32 executive officers appointed

utive officers and the directors, we are in a position to makeby the Board of Directors. The executive officers concen-

quick and accurate decisions at the overall corporate man-trate on the day-to-day conduct of KHI’s business activities

agement level and in the everyday conduct of businessas professionals in their respective fields. On the other hand,operations. Although the president, senior executive vicea relatively small number of directors are responsible forpresidents, and senior vice presidents are also executive

corporate strategy, management decision making, andofficers, we believe that management responsible for decision7

making on corporate strategy matters should be thoroughly

Our basic governance policy is to manage our operations

familiar with KHI’s business activities in order to pass cor-with a high degree of transparency for our shareholders,

rect judgments on matters at the working level.

customers, employees, and the communities we serve and,We chose the Board of Auditors governance model andthereby, conduct efficient and sound management while

have four corporate auditors, including two outside audi-

building good relationships with all stakeholders. We

tors. The auditors fulfill their management surveillance duties

believe basically that our corporate governance system

by attending not only meetings of the Board of Auditors butallows us to increase KHI’s corporate value. Going forward,

also meetings of the Board of Directors, executive officers,

we are committed to promoting timely disclosure and toand the Executive Management Committee. They are also

being accountable, while also working to enhance our sys-

responsible for detailed reviews of important documents. In

tems for management surveillance, auditing, and internal

addition, our Corporate Auditing Department is responsible

control.

for constantly checking, from a Companywide management
perspective, on whether operations are being conductedin accordance with relevant laws and internal rules.

Another recent trend is for corporations, investors, and other interested parties to be much more concerned about the value of corporate brands. How do you evaluate the Kawasaki brand?

Q

8

KHI is unique among companies throughout the world inAbusinesses as we continue to expand them globally. I

having a product portfolio that comprises land, sea, andbelieve we are beginning to build brand equity even for non-

air transport equipment, including rolling stock, ships, andconsumer products, such as industrial robots, construction

aircraft, various types of industrial plants, and industrial

machinery, and gas turbines, as they earn a reputation forequipment, as well as consumer products as represented

being high-quality, strong, and durable. Going forward, we

by motorcycles.

want to strengthen this brand image.

Kawasaki-brand motorcycles have an image around theAt the same time, some of the things lending even stronger

world for being big, high-tech, and strong, but they are also

support to our favorable image as a manufacturer of motor-

known for being durable and long-lasting. We are probably

cycles are our broad portfolio of land, sea, and air transport

the only company in the world that has a brand image likeequipment and our rich accumulation of technology. There-

this among people all over the globe while also being a man-fore, we believe it is important to continue to develop andufacturer of transportation equipment and industrial plants.

build motorcycles that fit the Kawasaki brand image while

Therefore, we would like to capitalize on this brand advan-

also strengthening that image from all angles by continuing

tage we have developed in motorcycles in our otherto hone and improve our technologies in all businesses.

In conclusion, is there something you would like to stress especiallyto readers?

Q
A

We are hard at work and doing everything we can to reachpeople and goods are bound to rise along with the trend

the objectives of our medium-term business plan. These

toward globalization and growth in developing countries

include reaching a numerical target of 9% or higher before-

and regions. Another source of opportunities will be thetax ROIC in fiscal 2007, ending March 31, 2007; building a

massive latent demand for many kinds of products andstrong earnings structure by transforming our businessservices to upgrade social infrastructure.

portfolio to better cope with changes in the operating envi-

We have many social responsibilities we must fulfill. We

ronment; and moving onto a sustainable growth path. Right

must improve profitability in tandem with protecting thenow, we are obliged to deal with difficult operating condi-

natural environment, maintaining safety, developing newtions, including lackluster demand for government public-

technologies, anticipating new developments and respond-

works investment in Japan and increases in the prices ofing quickly, improving efficiency, and meeting compliancesteel and other raw materials. Even under these tough con-and corporate governance standards. We are aware that

ditions, we are moving forward with programs to make sus-

our stakeholders have high expectations of what we cantainable growth possible, including structural reforms

and must do in these areas. In the days ahead, we will bebased on our management policy of “Quality followed bykeenly aware of our social missions and manage our activi-

Quantity” and measures to increase profitability.

ties to meet stakeholder expectations. We look forward to

From a longer-term perspective, we believe business
opportunities for KHI as a manufacturer of land, sea, and air

the support and advice of you, our stakeholders, as ourpartners in this enterprise.

transport equipment will expand, because movements of9

Review of Operations
Shipbuilding

MAIN PRODUCTS• LNG carriers• Bulk carriers• LPG carriers• High-speed vessels• Container ships• Submarines• VLCCs (Very Large Crude Carriers) and other types of tankers• Maritime application equipment

Energy Frontier, a 145,000 m3-class
LNG carrier

Two 800t Goliath cranes can lift and put
into place an entire LNG tank

Sales

Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

50,0000

10

100,000

193,705

194,275

173,304

150,000

50,000002000 2001 2002 2003 2004

176,987

123,756

110,926

106,106

100,000

30,000

2004

117,518

94,939105,458

92,47878,73460,00091,891

8.2%
90,000200,000

150,000

130,824

120,000

64,417

Percentage of
Net Sales

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

BUSINESS RESULTS

The world shipbuilding market was brisk during the fiscal year, boosted by strong conditions inthe shipping markets, accompanying growth in the Chinese economy and other factors. Alongwith these trends, newbuilding prices began to improve, but the recovery was insufficient.
Despite these business conditions, we secured orders for 20 vessels—three LNG carriers, thirteen bulk carriers, three VLCCs, and one submarine. As a consequence, total orders for this segment rose ¥12.8 billion, or 11.6%, to ¥123.8 billion. Sales for the fiscal year, however, declined
10.0%, or ¥10.5 billion, to ¥94.9 billion, reflecting decreased sales of newbuildings. Due to astrong yen and a provision for losses on construction contracts, operating profitability fell ¥3.8
billion, from operating income of ¥1.4 billion in the previous fiscal year to an operating loss of¥2.4 billion. We delivered 12 vessels during the fiscal year—two LNG carriers, five LPG carriers,
four bulk carriers, and one submarine.
OUTLOOK

Growth in the volume of oceangoing cargoes is expected to remain high in the coming years
because of expansion in shipments to and from China and rising worldwide transport requirements for fuels. In the medium term, demand for newbuildings, for LNG carriers and other kindsof ships, is forecast to remain on an upward trend. Nevertheless, the outlook is for continuing
substantial overcapacity and tough competition in the world’s shipbuilding industry as new
shipyards in China come onstream in addition to existing capacity in Japan and Korea. Under
this severe environment, we will develop our shipbuilding business in areas where we can utilize our high technology and our rich experience and expertise, such as our main products ofgas carriers and submarines.
Examples of the results of our strategic focus include the development and introduction of a
new LNG carrier with a cargo tank capacity of 145,000 m3. The high performance of this new carrier, especially in the aspects of economy and safety, has been appreciated by customers, and,as of March 31, 2004, we had a backlog of orders for seven. Based on the favorable response
from customers, we are already hard at work on research and development for even larger
LNG carriers.
Similarly, for LPG carriers and other vessels, we have successfully developed a new bow
shape, the SEA-ARROW (Sharp Entrance Angle as an Arrow), that enhances the propulsion performance of medium-speed vessels. The SEA-ARROW represents a major breakthrough because
it cuts wave resistance of medium-speed vessels by half and can run at the same speed with
between 6% and 10% lower main engine horsepower. In light of its excellent propulsion performance, the SEA-ARROW was awarded a prize for energy conservation in Japan.

11Rolling Stock, Construction Machinery & Crushing Plant

MAIN PRODUCTS• Electric train cars (including for Shinkansen bullet trains)• Monorail cars

• Electric and diesel locomotives• Platform screen doors• Passenger coaches• Wheel loaders• Integrated transit systems• Crushing machinery

High-speed 700T train car for Taiwan
High Speed Rail Corporation

Wheel loader 135ZV

Sales

Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

50,00050,000200,000

294,017

273,563

272,642296,242150,000
82,584

100,000

250,000
153,399

150,000

120,597

121,780

129,591

121,463150,000

176,693

192,884

164,774

10.4%

100,000

300,000

200,000

219,064

200,000

139,807

Percentage of
Net Sales

100,000
50,000

0

2004

12

0

0

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

BUSINESS RESULTS

North America and Asia continued to be robust growth markets for rolling stock during the fiscal year. We received orders from overseas for subway cars for Taipei and New York. Domestically, however, orders for various types of rolling stock plunged. Consequently, total orders inthis segment declined ¥23.3 billion, or 13.2%, to ¥153.4 billion. Sales were down ¥44.2 billion, or
26.8%, to ¥120.6 billion, due to decreased deliveries of subway cars to New York. Owing to thedecline in sales, operating income decreased ¥1.2 billion, or 21.3%, to ¥4.3 billion.
OUTLOOK

An important milestone during the year was the rollout ceremony at our Hyogo Works in
January 2004 for the first 700T train manufactured for Taiwan High Speed Rail Corporation(THSRC). KHI is the prime contractor for manufacturing 700T trains, which were developed
based on Series 700 Shinkansen trains, and made the first shipments to Taiwan in May 2004.
Currently, we are working intensively to complete production and delivery for this project. We
are forecasting sustained vigorous growth in demand for rolling stock, which is the principal
product in this segment. The primary growth markets will continue to be North America, where
railways have been positively reevaluated as a safe, environmentally friendly mode of transportation, and Asia, where spending on social infrastructure continues to be high. Looking
forward, we are positioning the domestic market—which is the base for our rolling stock
operations—North America, and Asia as the three geographic areas for maximum emphasis.
Our objective is to further nurture and develop our rolling stock operations into one of KHI’s
core businesses.
In the construction machinery business, we completed full model changes for our wheel loaders in fiscal 2004. Our new AUTHENT V series has already won a reputation for its powerful drivetrain, and we are working to enhance its performance capabilities and adaptability to work
environments. We plan to focus primarily on developing overseas markets for these units, concentrating on North America, where demand is recovering, and growth markets in the Middle
East, Africa, and elsewhere.
In our crushing machinery business, we completed the largest refuse paper and plastic fuelproduction plant in Japan, and it went into operation in summer 2003. In the environmental
field, a number of laws have been passed in Japan to promote recycling, and these are beginning to stimulate demand in related areas. These include demand for equipment to sort, crush,and perform other operations for recycling of waste plastics, end-of-life automobiles, construction materials, and other items. Looking ahead, our strategy will be to develop crushing machinery into a core environmental business.

13

Aerospace

MAIN PRODUCTS• CH-47, OH-1, and BK117 helicopters• Missiles• Component parts for Boeing 777 and 767 passenger airplanes• Electronic equipment• Component parts for Embraer 170 and 190 regional jet aircraft• Space equipment

Embraer 170 regional jet aircraft

Next-generation helicopter to be used
for airborne mine countermeasuresand transport

Sales

Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

100,000

150,000

208,410200,000

195,447

260,321250,000

203,688

216,201
163,023

150,000

151,641

173,783

154,848

161,072

200,000

161,939

100,000

136,343

150,000

172,32215.0%

300,000

250,000

176,996

200,000

146,025

Percentage of
Net Sales

100,000
50,00050,000

0

2004

14

50,000002000 2001 2002 2003 2004

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

BUSINESS RESULTS

Orders from the JDA for the development of the P-X, next maritime patrol aircraft and the C-X,
next transport aircraft—for which KHI is the prime contractor—expanded substantially, whileorders received from customers in the commercial aircraft sector decreased during the fiscal
year, as orders from The Boeing Company declined. On balance, total orders for this segment
increased ¥53.2 billion, or 32.6%, to ¥216.2 billion. Sales rose ¥18.9 billion, or 12.2%, to ¥173.8 billion, as revenues were received from the JDA under contracts for development of the P-X and
C-X aircraft, and NIPPI, a newly consolidated subsidiary, was included in the segment’s performance in fiscal 2004. However, because of adverse movements in exchange rates, operating
income declined ¥1.9 billion, or 30.4%, to ¥4.2 billion.
OUTLOOK

Development of the P-X and C-X aircraft for the JDA, which is a project of the utmost importancefor KHI, is proceeding smoothly and is in the detailed design stage. As the prime contractor for
development of these aircraft, which is the first project of its kind in Japan—where two aircraft
are being developed at the same time and will share parts and components—we are devoting
the full range of our resources to ensuring that the new aircraft satisfy all requirements for
performance, quality, cost, and development schedule. Among other projects for the JDA, KHI
received the order as prime contractor for licensed manufacturing in Japan of the airframe andengine of the next-generation helicopter to be used for airborne mine countermeasures, transport, and Antarctic support operations. This helicopter will be based on the EH101, a mediumsized helicopter developed in Europe. Although Japan’s defense budget is expected to remain
at current levels for the time being, we expect growth in our business in this field due to theseprojects. We are devoting maximum effort to making these projects a success to consolidate
our position for future aerospace operations.
In the commercial aircraft business, the mainstay of our operations is principally businesswith Boeing for B777 and B767 aircraft. However, demand has declined because of the aftereffects of the terrorist attacks in the United States and more intense competition with Airbus
S.A.S. Under these circumstances, we plan to expand our operations through active participation in promising new commercial aircraft projects, and, at present, we are proceeding with discussions for participating in the 7E7 project, the new aircraft project that Boeing has recently
decided to undertake.
Also in the commercial aircraft business, we are engaged in a joint development and production project with Embraer of Brazil for the new Embraer 170, 175, 190, and 195 regional jet aircraft. In February 2004, the Embraer 170 received a type certificate, and deliveries to airlines
started in March 2004. In October 2003, we commenced shipments of major wing sections forthe first Embraer 190 models from our aircraft assembly subsidiary Kawasaki Aeronáutica do
Brasil Indústria Ltda., located in the suburbs of São Paulo. The Embraer 190 completed its firstsuccessful flight in March 2004, and the delivery of the first units to customers is scheduled for2005.

Embraer 170 regional jet aircraft15

Gas Turbines & Machinery

MAIN PRODUCTS• Jet engines• Steam turbines for marine and industrial applications• Small and medium-sized gas turbine generators• Diesel engines and marine propulsion systems• Gas turbine cogeneration systems• Aerodynamic machinery• Gas turbines for naval vessels

Combined cycle power plant utilizing L20A gas turbine generators
for the Chiba Mihama Power Generation Project(Millions of yen)

200,000
132,989

129,987

100,000

119,607

136,468

145,651

124,136

100,000

127,740

150,000

150,766

11.8%

133,467

150,000

150,000

100,000

174,249

200,000

160,874

Order Backlog(Millions of yen)

191,947

Orders Received(Millions of yen)

199,833

Sales

140,248

Percentage of
Net Sales

140,327

Marine steam turbine (UA-type)50,00050,00050,000

0

2004

16

0

0

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

Note: The industrial hydraulic equipment business, which was formerly included in the Gas Turbines & Machinery segment, was reclassified into the Other segment at the
beginning of fiscal 2004. The prior year amounts have been reclassified to conform to the 2004 presentation.

BUSINESS RESULTS

Demand for industrial gas turbine generators continued to be weak in Japan, our principal market for these products, during the fiscal year. This was due to the impact of restraints on government public-works spending, insufficient recovery of private-sector capital investment, andreductions in electric power rates, which adversely affected the cost-competitiveness of gas
turbines. In the market for aircraft jet engines, demand from the defense sector was strong andthere were signs of recovery in the commercial airline industry, which brought an increase indemand for spare parts. However, demand for engines for newly manufactured aircraft remainedin a slump. In the machinery business, demand for engines and propulsion systems for ships
continued to be robust because of strong conditions in the shipbuilding market and increased
demand for LNG. As a result of these market conditions, this segment reported orders of ¥130.0
billion, a decrease of ¥3.0 billion, or 2.3%, from the previous fiscal year. Sales were down ¥14.3
billion, or 9.5%, and amounted to ¥136.5 billion, as deliveries of component parts for commercial aircraft jet engines rose but revenues from industrial gas turbine generators and steam turbine engines for ships declined. Operating income declined ¥0.7 billion, or 13.9%, to ¥4.5 billion.
OUTLOOK

We have recently supplied a combined cycle power plant on a full turnkey basis for an on-site
power and heat producer in Japan. The 50MW plant makes use of two L20As, 20MW-class gas
turbine generators newly developed based on our proprietary technology, and this is the firstsuch installation on a commercial basis. The L20A is a state-of-the-art, high-efficiency gas turbine generator, utilizing cutting-edge computational fluid dynamics analysis, materials, andother technologies on top of our technologies and experience accumulated over more than
30 years in this field. We now have a lineup of KHI-developed gas turbines with a rated power
output ranging from 150kW to 18,000kW, and, to date, we have delivered more than 7,000 units
for emergency use and cogeneration systems.
Looking ahead, we expect demand for gas turbine generators to expand due to their environmental friendliness and high overall heat efficiency. In the domestic market, we want to use thefirst order for L20A units as a springboard, and, taking full advantage of our in-house development prowess, we plan to bolster our capabilities for providing total life-cycle support for our
products, including service and maintenance. Overseas, we are taking initiatives to further
develop our business activities through our sales alliance with Cummins, Inc., of the UnitedStates, our local subsidiary, and other interests. In addition, we are placing a high priority
on strengthening our operating position and marketing activities for gas turbines in the restof Asia, especially China, where significant growth is anticipated.
In our machinery business, another core area in this segment, we introduced an improved
model of the Kawasaki MAN B&W MC large-scale diesel engine for ships, featuring electronic
control systems, and received the first order for these last year. Successive orders for theseengines were secured due to the high appraisal of their superior maneuverability and environmental compatibility. In addition to large-scale diesel engines and propulsion systems for ships,
we plan to strengthen our position in the fields where demand is brisk: LNG-related products
such as steam turbine engines for LNG carriers, gas compression modules, and steam turbines
for power generators.

17

Plant & Infrastructure Engineering

MAIN PRODUCTS• Steelmaking, cement, chemical, and other industrial plants• LNG and LPG tanks• Power plants• Shield machines and tunnel boring machines• Municipal refuse incineration plants• Wind power generation systems• Bridges

Japan’s first offshore wind power generation
system, for Setana-cho, Hokkaido

Combined cycle power plant supplied to
CGT Fortaleza S.A. in Brazil

Sales

Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

100,000
50,00018

273,837

327,911

347,496

403,612002000 2001 2002 2003 2004

200,000

100,000

50,0000

2004

300,000
156,145

100,000

208,268

150,000

400,000

160,143

200,000

254,330

219,092

220,605

250,000
191,412150,000

181,174

200,000

245,64216.5%

500,000

300,000

327,442250,000

209,574

Percentage of
Net Sales

2000 2001 2002 2003 2004

2000 2001 2002 2003 2004

BUSINESS RESULTS

Orders for industrial plants expanded, mainly in overseas markets. Nevertheless, domesticorders for municipal refuse incineration plants declined sharply, and those for steel structures
also fell owing to restraints on public-sector investment. As a result, in comparison with theprevious fiscal year, when we won numerous major orders, total orders were down ¥52.1 billion, or 25.0%, to ¥156.1 billion. Sales for the fiscal year decreased ¥27.7 billion, or 12.6%, to¥191.4 billion, as an increase in revenues from construction of overseas steel and cement plants
as well as other facilities was offset by a decline in sales of municipal refuse incineration plants
in the domestic market. Operating profitability, however, improved ¥5.4 billion, from an operating loss of ¥4.2 billion in the previous fiscal year to operating income of ¥1.2 billion, due to fewer
unprofitable contracts and a reduction in fixed costs as a result of the closure of the Noda Works.
OUTLOOK

Due to the scarcity of natural resources in Japan, society’s needs for new technologies for
power generation—such as those using wind power, solar energy, biomass, and waste—are rising. These technologies are expected to contribute to reducing emissions of greenhouse gases
and making a sustainable society a reality. Since the beginning of 2004, we have marked two
major milestones in this area. We completed two wind power generation systems—a 1,200kW
rated output system that is the first in Japan to be located offshore and a 16,000kW system that
employs turbines with Japan’s largest single-unit power output, of 2,000kW. Also, in the biomass
field, we have not only developed power generation systems that use livestock waste but arealso actively engaged in developing other new sources of energy. These include the development of technologies for small-scale distributed heat and power systems that use mainly woodfiber biomass, such as sawmill waste, unused forest cuttings, and waste from construction
materials manufacturing, as sources of energy.
Moreover, demand continues to be strong for electric power plants to alleviate chronic
power shortages accompanying economic growth in Latin America, Southeast Asia, China, andelsewhere. We are hard at work to make use of our strengths in technology for heat recovery
boilers, which are a key component in combined cycle power plants. We are seeking to expand
the scope of our business activities in this field not only into the overall construction of combined cycle power plants but also into equipment used in these power plants, industrial boilers,
and thermal power plants. In addition to these activities, we are working aggressively to meetthe increase in demand, principally in Asia, for industrial plants and shield machines needed for
upgrading the infrastructure.
In this segment, demand for municipal refuse incineration plants and steel structures remained
stagnant in their major market, Japan, because of the cutbacks in public-works investment. To
deal with these conditions, in the steel structures business we closed our Noda Works at theend of September 2003 and shifted all related production activities to the Harima Works. We
plan to proceed with measures to significantly improve operating efficiency and reform thestructure of our business portfolio by reallocating our corporate resources to growth businesses.

19Consumer Products & Machinery

MAIN PRODUCTS• Motorcycles• Brush cutters• ATVs (All-Terrain Vehicles)• Transmissions• Jet Ski® watercraft• Industrial robots• General-purpose gasoline enginesNINJA ZX-10R

VULCAN2000

Percentage of
Net Sales

Sales
Orders Received(Millions of yen)

(Millions of yen)
400,000

120,000

318,325

281,207275,903

200,000

277,176

300,000

318,02527.4%

100,000

20

60,00030,0000

2004

90,00002000 2001 2002 2003 2004

2000

2001

2002

2003

BUSINESS RESULTS

Total sales of motorcycles, ATVs, utility vehicles, and Jet Ski® watercraft worldwide amounted
to 468,000 units, 9,000 units, or 1.9%, less than for the previous fiscal year. By region, we sold
48,000 units in Japan, 4,000 units, or 9.1%, more than in the previous fiscal year; in Europe,
79,000 units were sold, 6,000 units, or 8.2%, more than in the prior year; and in North America,
unit sales declined 25,000 units, or 11.6%, to 191,000 units. On a value basis, sales rose ¥0.3 billion, or 0.1%, to ¥318.3 billion. As a result of unfavorable movements in the yen-dollar exchange
rate and increases in sales promotion costs, operating income was down ¥6.2 billion, or 45.9%,
to ¥7.3 billion.
NEW MODELS

Some of the major new models we took pride in introducing during the fiscal year under review
were as follows.
In the motorcycle business, we introduced the NINJA ZX-10R, which became our top-of-theline Super Sports model, with the highest power-to-weight ratio in its class. We also madeimprovements in the NINJA ZX-6RR, a 600cc-class race replica model, which was a hit in theEuropean and U.S. markets. Another newcomer, combining magnificent quick-response riding
performance with aggressive styling, was the Z750, a medium-displacement class Naked model.
In the cruiser category, we introduced the VULCAN2000, with a hitherto-unheard-of 2,000cc Vtwin engine, and the 1,600cc VULCAN1600 MEAN STREAK, which is an upgraded version of the
VULCAN1500 MEAN STREAK. Another new motocross model, the KX250F, which we developed
jointly with Suzuki Motor Corp., is equipped with KAWASAKI’s first four-stroke engine. In the
Jet Ski® watercraft field, we introduced the new top-of-the-line Jet Ski STX-15F, which comes witha 1,500cc four-stroke engine and combines top-quality riding performance with low noise andgas emission levels.
OUTLOOKFor fiscal 2005, ending March 31, 2005, we are looking for total unit sales of motorcycles, ATVs,
utility vehicles, and Jet Ski® watercraft at about the same level as in fiscal 2004. Our strategic
agenda calls for stepping up our product development capabilities and strengthening ourenvironmental compatibility initiatives. New KAWASAKI models will focus on three keyword
themes: “Challenging,” “Unconventional,” and “Hard Core.”

TopicsIn the industrial robot field, we have developed and commercialized a revolutionary breakthrough welding method—Friction Spot Joining (FSJ)—to replacealuminum spot welding. Unlike existing welding techniques, the method
requires no welding material and can produce high-quality joinings of basematerials, such as aluminum alloy and magnesium alloy. FSJ employs an innovative technology for stirring base materials with a pin-shaped tool, thenmelding the softened base materials to form a high-quality joint. This method
has great potential for automobile assembly and other applications.
FSJ industrial robot21

Six-Year Summary
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
Years ended March 31

Millions of yen
2004

2003

2002

2001

2000

1999

Net sales.......................................................... ¥1,160,252¥1,239,598¥1,144,534¥1,060,479¥1,149,698¥1,202,189

Cost of sales....................................................

998,416

1,069,341

977,875

924,522

1,008,860

1,045,143

Gross profit.....................................................

161,836

170,257

166,659

135,957

140,838

157,046

administrative expenses ...........................

139,586

139,714135,348

131,497

139,587

135,380

Operating income ..........................................

22,25030,54331,311

4,460

1,251

21,666

Net income (loss)...........................................

6,333

13,022

6,282(10,320)(18,632)(6,132)

Capital expenditures .....................................

41,50235,16533,132

32,687

39,68542,143

Depreciation and amortization ....................

32,59031,59531,99833,30335,081

34,607

R&D expenses.................................................

14,741

15,494

16,54917,54819,905

18,615Working capital .............................................. ¥ 121,941¥ 137,771¥ 150,114¥ 148,577¥ 188,403¥ 161,712

Operating results:

Selling, general and

Financial position at year-end:
Net property, plant and equipment.............

248,922234,352

241,517

241,893245,278

244,866

Total assets.....................................................

1,156,904

1,149,161

1,255,075

1,247,472

1,206,806

1,204,857

Long-term debt, less current portion..........

210,819

226,936

248,170

270,605

264,048

208,763

Total shareholders’ equity ...........................

190,175

174,585

167,731

164,081

174,955

199,637

¥

¥

¥

4.5

¥ (7.4)¥ (13.4)¥ (4.4)

4.4

—

—

—

Per share amounts ( yen):
Net income (loss)—basic..............................
Net income—diluted......................................

4.4
4.2

9.3
8.8

Cash dividends...............................................

2.0

2.0

—

—

—

6.0

Shareholders’ equity .....................................

131.8

125.6

120.6

118.0

125.8

143.6

Other data:
Number of shares issued (millions) ............

1,443

1,391

1,391

1,391

1,391

1,391

Number of employees ...................................

29,30628,64228,93629,162

29,772

26,486

Orders received ............................................. ¥1,226,728¥1,227,449¥1,034,771¥1,273,686¥1,071,104

N.A.

Order backlog.................................................

1,175,563

1,240,439

1,320,894

1,072,645

N.A.

1,189,374

The Company began to disclose its orders received and order backlog on a consolidated basis in fiscal 2000.

22

Management’s Discussion and Analysis

OVERVIEW

income was down 27.2%, or ¥8.3 billion, toSimilarly, sales of the Plant &During fiscal 2004, ended March 31, 2004,¥22.3 billion. Non-operating income andInfrastructure Engineering segment

there were signs of improvement in the

expenses included gains on the sale ofdeclined ¥27.7 billion because of lower

Japanese economy, including an upward

stock of subsidiaries and losses on thesales of environment-related products

trend in private-sector capital investment

closure of a plant in connection with theand systems in Japan as well as otherand a recovery in stock prices. However,restructuring of the steel structure busi-

factors.

the business environment overall

ness. As a result of these factors, net

Overseas sales posted a decline ofremained lackluster due to restraints andincome declined 51.4%, or ¥6.7 billion,

2.3%, or ¥12.5 billion, to ¥522.9 billion.

reductions in government capital spend-

to ¥6.3 billion.

This was due to a decline in sales to theing and continued stagnation in personal

Regarding our financial position, free

North American market that exceeded theconsumption because of little improve-

cash flow was positive for the third con-rise in sales in Europe and Asia. The ratio

ment in household incomes.

secutive year. KHI used this additionalof overseas sales to overall net sales rose

Confronting this environment,

cash flow to make further repayments

1.9 percentage points, from 43.2% in the

Kawasaki Heavy Industries, Ltd. (theof interest-bearing debt and thereby

previous fiscal year to 45.1% for the fiscal“Company”), and its consolidated sub-improve its debt to equity ratio.

year under review.

sidiaries (referred to in this section as KHI
The following sections provide furtheror the “Group”) undertook an active mar-

RESULTS OF OPERATIONS

keting program. As a result, new orders in

Net Salesdetails on performance by industry seg-

the Aerospace segment increased, but,

As previously mentioned, consolidated

ment. Operating income or loss includes

because of a decline in orders received in

net sales were down 6.4%, or ¥79.3 billion,intersegment transactions. Please notethe Plant & Infrastructure Engineering

to ¥1,160.3 billion.

that sales of the industrial hydraulicsegment and other factors, total orders

By industry segment, sales of theequipment business, which were included

amounted to ¥1,226.7 billion, approxi-

Aerospace segment rose ¥18.9 billion as

in the Gas Turbines & Machinery segment

mately the same level as for the previous

a result of the expansion of sales to thethrough the end of the previous fiscal

fiscal year. Consolidated net sales, how-Japan Defense Agency (JDA) and the con-year, were reclassified in the Other seg-

ever, were down 6.4%, or ¥79.3 billion, tosolidation of NIPPI Corporation. On thement for the fiscal year under review.

¥1,160.3 billion. KHI continued to imple-

other hand, sales of the Rolling Stock,

Data for previous years shown in thisment policies to improve profitability

Construction Machinery & Crushing Plant

annual report has been restated to reflect

aggressively, but, as a result of the de-segment were down ¥44.2 billion, due tothis change.

cline in net sales and the appreciation of

decreased deliveries of subway cars to

the yen against the U.S. dollar, operating

the New York City Transit Authority.

Net Sales

Sales by Segment

Net Income (Loss)(Billions of yen)(%)(Billions of yen)

20

1,500
10.7

8.2
13.0

10
6.3

5
27.4

6.3

10.4
1,160.3

1,144.5

1,060.5

1,149.7

0
15.0

600

(10.3)

900

1,239.6

15
1,200

-5

16.5

11.8

-15

(18.6)

-10
300

-20

0

2000

2001

2002

2003

2000

2004

2001

2002

2003

2004

Shipbuilding
Rolling Stock, Construction
Machinery & Crushing Plant
Aerospace
Gas Turbines & Machinery
Plant & Infrastructure Engineering
Consumer Products & Machinery
Other

23

Shipbuilding

Aerospacebillion, to ¥130.0 billion. Sales decreased

This segment won orders for 20 ships,

Orders received in this segment ex-

9.5%, or ¥14.3 billion, to ¥136.5 billion,

namely, three LNG carriers; thirteen bulk

panded 32.6%, or ¥53.2 billion, to ¥216.2

despite increases in sales of components

carriers; three VLCCs; and one subma-

billion, owing to a substantial increase infor private-sector aircraft engines, as

rine. Therefore, orders rose 11.6%, ororders from the JDA for the development

deliveries of industrial gas turbine gen-¥12.8 billion, to ¥123.8 billion. As a resultof the P-X, next maritime patrol aircraft

erators and steam turbine engines forof a decline in sales of newbuildings, how-and the C-X, next transport aircraft, forships decreased. Operating income was

ever, sales for the fiscal year were down

which KHI is the prime contractor. Orders

down 13.9%, or ¥0.7 billion, to ¥4.5 billion.

10.0%, or ¥10.5 billion, to ¥94.9 billion.

from this source more than offset the de-

Owing to adverse movements in exchangecline in orders received from customers

Plant & Infrastructure Engineering

rates and a provision for losses on con-in the commercial aircraft sector. Sales ofOrders were down 25.0%, or ¥52.1 billion,

struction contracts, operating profita-

this segment rose 12.2%, or ¥18.9 billion,to ¥156.1 billion. Major orders from over-bility deteriorated ¥3.8 billion, fromto ¥173.8 billion, as sales under the con-seas during the fiscal year included those

operating income of ¥1.4 billion in the

tract with the JDA for development of thefor a ferronickel smelting plant inprior fiscal year to an operating loss ofpreviously mentioned aircraft expanded

Indonesia, conversion of a gas turbine¥2.4 billion.

and NIPPI, a newly consolidated subsid-

power plant to combined cycle for deliv-

iary, was included in the segment’s per-ery in the Bahamas, and shield machines

Rolling Stock, Construction Machinery

formance in the fiscal year under review.

for Singapore. Major domestic orders& Crushing Plant

However, because of adverse movements

included those for coal-fired boilers andOrders received in this segment declined

in exchange rates, lower margins on prod-

steel bridges for expressways. Sales

13.2%, or ¥23.3 billion, to ¥153.4 billion.

ucts supplied to the private sector, anddeclined ¥27.7 billion, or 12.6%, to ¥191.4

While additional orders were received

other factors, operating income declined

billion, as deliveries overseas of steelmak-

from overseas for subway cars for Taipei

30.4%, or ¥1.9 billion, to ¥4.2 billion.

ing, cement, and other industrial plants
expanded and wind power generationand for New York, new orders from domestic sources dropped sharply. Sales were

Gas Turbines & Machinery

systems were delivered to domestic com-

down 26.8%, or ¥44.2 billion, to ¥120.6 bil-

Orders won during the fiscal year include

panies but sales of municipal refuse incin-

lion, as deliveries of New York subway

those for components for private-sector

eration plants in the domestic market

cars declined. As a result of the decline

aircraft engines, including the V2500 anddecreased. Operating income amounted

in sales, operating income dropped 21.3%,

Trent, steam turbine engines for ships,

to ¥1.2 billion, an improvement of ¥5.4 bil-or ¥1.2 billion, to ¥4.3 billion.

and other products. As a consequence,lion from an operating loss of ¥4.2 billion

total orders were down 2.3%, or ¥3.0

in the previous fiscal year, mainly due to

Net Income (Loss)
per Share

Working Capital

Total Assets(Billions of yen)(Billions of yen)

(Yen)

1,156.9

2002

1,149.2

1,255.1

1,206.8

2001

2003

2004

50
(13.4)

300

0

0

-15

2000

24

1,247.5

-6

900

600

(7.4)

-3

121.9

100

0

-12

1,200
137.8

4.4

4.5

3

150

148.6

6

150.1

9.3

9

188.4

12

-9

1,500

200

15

2001

2002

2003

2004

2000

2001

2002

2003

2004

2000

a decline in the volume of unprofitable

The following sections summarize perfor-

consequence of higher sales promotion

contracts and lower fixed costs as a result

mance by geographic segment.

costs and other factors, operating incomeof the closure of a plant.

Japan

was ¥0.6 billion, about the same as for the

As a consequence of lower sales by

previous fiscal year.

Consumer Products & Machinery

the Company, which accounts for the

Due to higher sales in the European mar-largest part of sales in Japan, sales of thisAsia

ket and lower sales in North America, seg-geographic segment declined 3.3%, orSales in Asia rose 3.4%, or ¥0.7 billion,

ment sales were up 0.1%, or ¥0.3 billion,¥29.9 billion, to ¥877.2 billion. Operatingto ¥19.8 billion, while operating income

to ¥318.3 billion. As a result of the weak-

income was down 19.9%, or ¥5.2 billion,

decreased 27.9%, or ¥0.2 billion, to ¥0.6

ening of the dollar and increases in sales

to ¥20.9 billion, because of unfavorable

billion.

promotion costs, operating income declined

movements in exchange rates and other

45.9%, or ¥6.2 billion, to ¥7.3 billion.

factors.

Other Areas
Sales increased 21.4%, or ¥0.9 billion,

Other

North America

to ¥5.1 billion, while operating income

Sales of this segment amounted to ¥124.7

Sales in North America decreased 25.8%,

declined ¥0.3 billion from the previous

billion, and operating income was ¥3.2

or ¥65.0 billion, to ¥187.2 billion, due toyear to an operating loss of ¥0.2 billion.

billion, both approximately the same as

fewer deliveries of subway cars to the

The principal countries in this segment

for the previous fiscal year. The change

New York City Transit Authority by theare Australia and Brazil.

in status of Kawasaki Safety Service

Company’s rolling stock manufacturing

Industries, Ltd., from a consolidated sub-and sales subsidiary in the United States

Costs, Expenses, and Earnings

sidiary to an affiliate accounted for by theand decreased sales of consumer prod-

Cost of sales was 6.6% lower than inequity method in the second half of theucts by sales subsidiaries. As a result of

the previous fiscal year, amounting tofiscal year, accompanying the sale of alower sales, operating income declined¥998.4 billion; the margin of decline wasportion of KHI’s holdings in that compa-¥4.0 billion from the previous year to anslightly higher than the drop in net

ny, had an adverse impact on the seg-

operating loss of ¥0.4 billion.

sales of 6.4%. As a result, gross profit
decreased 4.9%, to ¥161.8 billion, but thement’s financial results. However, thiswas offset by the strong performance ofEuropegross profit margin increased slightly

sales of the industrial hydraulic equip-

Sales of this segment rose 24.6%, or ¥14.0

from 13.7% in the previous fiscal year toment business to the Chinese market.

billion, to ¥71.0 billion, buoyed by higher

13.9% in the fiscal year under review.

revenues of the Company’s consumer

Selling, general and administrative

product sales subsidiary in Europe. As a

(SG&A) expenses declined slightly fromTotal Shareholders’EquityTotal Shareholders’Equity per Share

(Billions of yen)

(Yen)

(%)

10

200

250

Return on Equity

150
2

3.5

3.8

131.8

125.6

120.6

0
-2

100

(6.1)

100

118.0

4
125.8

190.2

174.6

167.7

164.1

175.0

150

7.6

8
6

200

-4
50
-8
-10

0

0

2000

2001

2002

2003

2004

(9.9)

-6

50

2000

2001

2002

2003

2004

2000

2001

2002

2003

2004

25

the previous year and amounted to ¥139.6

billion. Because of these and other factors,

Liabilities declined 0.6%, to ¥962.9

billion. The decline in sales and the fac-

income before income taxes and minority

billion. Of this total, current liabilities

tors stated below, however, had a majorinterests declined 34.7% from the previ-declined ¥12.7 billion, while long-term lia-

impact on operating income, which

ous year, to ¥11.2 billion.

bilities rose ¥6.5 billion. One of the mostdeclined 27.2%, to ¥22.3 billion. Due to a

The ratio of the provision for income

important developments in the current

stronger yen, operating income in thetaxes to income before income taxes roseand long-term liabilities accounts was the

Shipbuilding segment declined ¥3.8

after falling to 22.2% in the previous fiscal

decline in short-term and long-term bor-

billion, and operating income in theyear, to 41.9%, the same level as the statu-

rowings, which contributed to an overall

Consumer Products & Machinery seg-

tory tax rate. The main reasons for thedrop in interest-bearing debt of 6.7%, or

ment was down ¥6.2 billion because oflower effective tax rate in the previous fis-¥28.7 billion, to ¥399.5 billion. On thethe high yen and higher sales promotion

cal year were nontaxable revenues andother hand, as indicated in the balancecosts. These adverse impacts were partly

the recognition of the tax effect of unreal-

sheets, the employees’ retirement andoffset by the decline in the volume ofized intercompany profit in the previous

severance benefit reserve rose ¥22.4 bil-less profitable projects in the Plant &year. Because of the absence of these fac-lion. Please note that because the decline

Infrastructure Engineering segment andtors in fiscal 2004, the effective tax rate

in current assets was virtually the samethe reduction in fixed costs owing to thereturned to the statutory rate. As a conse-as the drop in current liabilities, the cur-closure and consolidation of the Noda

quence, after deduction of minority inter-

rent ratio remained almost unchanged at

Works also in the segment. These two fac-

ests in net income of consolidated

118.0%, compared with 120.0% at thetors had a ¥5.5 billion positive impact on

subsidiaries, net income for the fiscal

previous year-end.

operating income. As a result, the operat-

year under review was ¥6.3 billion, 51.4%

Shareholders’ equity advanced 8.9%, toing income margin on sales declined 0.6

lower than for the previous fiscal year.

¥190.2 billion. Although the deduction forpercentage point, from 2.5% in the previ-

Accordingly, the ratio of net income toforeign currency translation adjustments

ous fiscal year to 1.9% in the fiscal year

net sales declined 0.6 percentage point,was ¥4.1 billion higher than at the previ-

under review.

from 1.1% in the previous year to 0.5% forous fiscal year-end, this was more than

the fiscal year under review. In addition,offset by increases in retained earnings

amounted to expenses of ¥11.0 billion, a

ROE was down 4.1 percentage points,(reflecting the net income for the year),¥2.3 billion improvement from expenses

from 7.6% to 3.5%.

capital surplus (reflecting the issuance of

Other income (expenses) for fiscal 2004of ¥13.3 billion for the previous year.

Capital expenditures for the fiscal year

unrealized gains on securities.

amounted to ¥41.5 million, compared withincluded a reduction in interest expense¥35.2 billion for the previous fiscal year,

As a result of the combination of virtu-

of ¥3.0 billion accompanying the reduc-and R&D expenses were ¥14.7 billion, ver-ally no change from the previous year intion in interest-bearing debt and ansus ¥15.5 billion for the prior year.

total assets and the increase in shareholders’ equity, the shareholders’ equity

improvement in equity in income of non-26

new shares for share exchanges), and net

Factors accounting for this improvement

consolidated subsidiaries and affiliates of

FINANCIAL CONDITION

ratio increased 1.2 percentage points,¥1.4 billion owing to the improvement in

Total assets at the end of the fiscal year

from 15.2% to 16.4% at year-end. The net

performance of affiliated companies inwere 0.7% higher than for the end of thedebt to equity ratio (after the deduction

Japan and China. On the other hand,previous fiscal year, and amounted toof cash on hand and in banks from inter-

KHI reported a decline of ¥2.1 billion in¥1,156.9 billion. By principal line item,

est-bearing debt) declined from 210.2% atincome from the sale of fixed assets, acurrent assets were down ¥28.5 billion,

the previous fiscal year-end to 187.4% forloss of ¥1.2 billion in connection with clo-

mainly because of lower cash on handthe end of the fiscal year under review.

sure of the Noda Works, and a loss of ¥0.8

and in banks, receivables, and invento-

billion on the reorganization of certain

ries. Net property, plant and equipment

MANAGEMENT INDICATORS

businesses. As a result, the net improve-rose ¥14.6 billion, while investments and

The Company’s objective is to exceed thement in other income (expenses) was ¥2.3

long-term loans increased ¥12.1 billion.

expectations of investors for profitability,and the management indicator chosenfrom cash on hand and in banks to reduce

sales of the Consumer Products &is before-tax return on invested capital

its interest-bearing debt. As a result, theMachinery segment, while trends in pri-

(ROIC), which measures how efficiently

net decrease in short-term borrowings

vate-sector capital investment and public

the Company uses its capital. As it works

was ¥16.3 billion and net repayment ofworks investment may have an influence

to maximize before-tax ROIC, the Com-

long-term debt was ¥16.3 billion.

on orders of the Plant & Infrastructurepany is implementing measures to expand

As a result of these cash flows, cash

profit and simultaneously reduce invest-

and cash equivalents at the end of fiscal

Machinery segments. In addition, demand

ed capital and thereby strengthen its

2004 amounted to ¥42.4 billion, ¥17.5

for passenger air travel and conditions

financial position. Before-tax ROIC is com-billion lower than at the beginning ofin shipping markets may have an impact

puted by taking the ratio of EBIT (earn-

the year.

on the Aerospace and Shipbuilding seg-

ings before interest and taxes) to the sum*The Company made NIPPI a wholly owned subsidiary through an exchange of shares in April 2003.
Prior to the acquisition, NIPPI had overcharged for
products and services provided under contracts
mainly to the JDA. In February 2004, NIPPI madereimbursements of ¥12.3 billion for the full valueof amounts overcharged.

ments, respectively. Disputes and politi-

of interest-bearing debt and total shareholders’ equity.
Using this formula, ROIC declined 1.5
percentage points, from 4.6% in the previ-

Engineering and the Gas Turbines &cal changes may affect the Group’s
overseas projects.
(2) Fluctuations in Foreign Exchange Rates
During fiscal 2004, overseas sales
accounted for 45.1% of consolidated

ous fiscal year to 3.1% for the year under
DIVIDENDS

Group sales. Accordingly, the Group has

The Company’s policy is to pay stablea substantial volume of transactions

CASH FLOWS

cash dividends to its shareholders, giving

denominated in U.S. dollars, euros, andDuring fiscal 2004, net cash provided by

due attention to increasing retained earn-other currencies. To reduce foreign

operating activities amounted to ¥42.8

ings to strengthen and expand its busi-

exchange risk, the Group is working tobillion. This figure represented a ¥14.0

ness foundation for future growth.

increase its ratio of total cost of goods

review.

billion decline in the pace of net cash gen-In accordance with this policy, as thesold that is denominated in foreign cur-erated by operations as compared to theCompany reported net income for fiscal

rencies and, while taking due account ofprevious fiscal year. The principal cause

2004, the third consecutive year, and,

trends in foreign exchange rates, endeav-

was the decline in income before income

after taking into account the level of net

ors to take flexible measures to hedge thetaxes and minority interests, the increase

income and the operating environment,

effect of exchange rate fluctuations

in tax payments, and reimbursement ofmanagement proposed and received

through the use of forward contracts andovercharges by NIPPI.*

approval from shareholders for the con-other techniques. However, the majority

tinuation of cash dividend payments ofof the Group’s manufacturing facilities are¥2 per share for fiscal 2004.

located in Japan, and its sales to overseas

Net cash used for investing activities
amounted to ¥25.9 billion, ¥1.0 billion

markets are, therefore, subject to foreign

less than that for the previous fiscal year.
Factors accounting for this included an

BUSINESS RISK

exchange fluctuation risk.

increase in the acquisition of intangible

External factors that may have an effect(3) Regulations

assets of ¥4.1 billion and a reduction in

on the KHI Group’s performance and

The Group conducts its business activi-

the acquisition of investments in securi-

financial position include the following:ties in compliance with the restrictions inties of ¥3.2 billion.

(1) Political and Economic Conditions

effect, including laws and regulations, in

The Group conducts its business activi-

the countries and regions where it oper-of cash from operating and investingties not only in Japan but also elsewhere

ates. However, the Group’s operations

activities, amounted to an inflow of ¥16.9

in Asia, North America, Europe, and othermay be affected if such restrictions arebillion for fiscal 2004.

Free cash flow, which is the net amountareas and is subject to the effects of polit-

subject to unpredictable changes and if

Net cash used for financing activities

ical and economic developments in these

new restrictions are put into effect.

amounted to ¥35.5 billion. KHI used its

regions. For example, trends in personal

inflow of free cash flow and withdrawals

consumption may have an impact on

27

Consolidated Balance Sheets
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen

ASSETS

2004

2004

2003

Current assets:
Cash on hand and in banks .................................................................................... ¥43,064¥

61,185$

407,687

Receivables:
Trade .....................................................................................................................

365,377

380,5453,459,027

Other .....................................................................................................................

18,155

17,698

171,874

Allowance for doubtful receivables...................................................................

(6,725)(5,176)(63,666)

376,807393,067

3,567,235

Inventories (Notes 3 and 5) ....................................................................................

335,064

342,387

3,172,053

Deferred tax assets (Note 13).................................................................................

19,42918,423

183,934

Other current assets ...............................................................................................

25,116

12,900237,774

Total current assets ............................................................................................

799,480

827,9627,568,683

Investments in securities (Notes 4 and 6) ............................................................

65,00852,146615,431

Long-term loans .......................................................................................................

3,478

3,830

32,926

Other (Note 5) ..........................................................................................................

13,453

14,812

127,360

Investments and long-term loans:

Allowance for doubtful receivables.......................................................................

(4,100)(5,044)(38,815)

Total investments and long-term loans ............................................................

77,83965,744

736,902Land...........................................................................................................................

68,72153,430650,582

Buildings and structures.........................................................................................

263,757

257,088

2,496,989

Machinery and equipment......................................................................................

440,132

444,124

4,166,733

Property, plant and equipment (Note 5):Construction in progress........................................................................................

8,285

6,468

78,434780,895

761,110

7,392,738

Accumulated depreciation .....................................................................................

(531,973)(526,758)(5,036,192)

Net property, plant and equipment...................................................................

248,922234,352

2,356,546

Deferred tax assets (Note 13).................................................................................

14,456

10,765

136,856

Intangible and other assets (Note 7).....................................................................

16,207

10,338

153,432

30,663

21,103

290,288

Total assets .............................................................................................................. ¥1,156,904¥1,149,161$10,952,419

Intangible and other assets:

The accompanying notes to the consolidated financial statements are an integral part of these statements.

28

Thousands of
U.S. dollars(Note 1)Millions of yen

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2004

2003

2004

¥ 201,248$ 1,785,970

Current liabilities:
Short-term borrowings and current portionof long-term debt (Note 5) .................................................................................... ¥ 188,652
Trade payables (Note 5) .........................................................................................

286,117294,7692,708,672

Advances from customers......................................................................................

110,900

100,829

1,049,891

Accrued income taxes (Note 13) ...........................................................................

12,491

7,560

118,252

Accrued bonuses .....................................................................................................

14,28919,540135,274

Provision for product warranty .............................................................................

2,156

2,303

20,411

Provision for restructuring charges......................................................................

—

2,260

—

Provision for losses on construction contracts ..................................................

5,018

832

47,505

Deferred tax liabilities (Note 13) ...........................................................................

188

284

1,780

Other current liabilities ..........................................................................................

57,72860,566

546,512

Total current liabilities .......................................................................................

677,539

690,191

6,414,267

Long-term debt, less current portion (Note 5) ....................................................

210,819

226,936

1,995,825

Employees’ retirement and severance benefits (Note 8) ...................................

63,75941,350603,607and severance benefits .........................................................................................

1,143

1,018

10,821

Deferred tax liabilities (Note 13) ...........................................................................

2,035

2,825

19,265

Other .........................................................................................................................

7,579

6,665

71,751

Total long-term liabilities....................................................................................

285,335

278,794

2,701,269

3,855

5,591

36,495

1,390,597,636 shares in 2003................................................................

81,42781,427

770,870

Capital surplus .........................................................................................................

31,38824,683

297,150

Long-term liabilities:

Directors’ and statutory auditors’ retirement

Contingent liabilities (Note 9)
Minority interests ...........................................................................................................
Shareholders’ equity (Note 10):
Common stock:
Authorized—3,360,000,000 shares
Issued—1,443,394,172 shares in 2004

Retained earnings ...................................................................................................

80,46977,069761,801

Net unrealized gains on securities ........................................................................

13,266

3,671

125,589

Foreign currency translation adjustments ...........................................................

(16,283)(12,225)(154,151)

Treasury stock—852,563 shares in 2004
367,394 shares in 2003 ..............................................................

(92)

(40)

(871)

Total shareholders’ equity .................................................................................

190,175

174,585

1,800,388

Total liabilities, minority interests and shareholders’ equity ....................... ¥1,156,904¥1,149,161$10,952,419

29

Consolidated Statements of Income
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2004, 2003 and 2002

Thousands of
U.S. dollars(Note 1)Millions of yen
2004

2003

2002

2004

Net sales .................................................................................................. ¥1,160,252¥1,239,598¥1,144,534$10,984,114

Cost of sales............................................................................................

998,416

1,069,341

977,875

9,452,012

Gross profit .....................................................................................

161,836

170,257

166,659

1,532,102

Selling, general and administrative expenses (Note 11)................

139,586

139,714135,348

1,321,461

Operating income...........................................................................

22,25030,54331,311

210,641

3,476

4,684

4,798

32,907

941

(467)

379

8,908

Interest expense .............................................................................

(7,274)(10,291)(12,146)(68,863)

Other, net (Note 12) .......................................................................

(8,151)(7,241)(8,348)(77,165)

11,242

17,22815,994

106,428

Current.............................................................................................

(16,604)(11,395)(6,114)(157,190)

Deferred...........................................................................................

11,8907,555(3,131)

112,563of consolidated subsidiaries .............................................................

(195)

(366)

(467)

(1,846)

Net income.............................................................................................. ¥6,333

Other income (expenses):
Interest and dividend income.......................................................
Equity in income (loss) of non-consolidated
subsidiaries and affiliates............................................................

Income before income taxes
and minority interests .............................................................
Income taxes (Note 13):

Minority interests in net income¥

13,022

¥

6,282

$

59,955

U.S. dollars(Note 1)Yen

Per share amounts (Note 2 (y), ( z)):Net income—basic .........................................................................

¥4.4

¥9.3

¥4.5

$0.04

Net income—diluted ......................................................................

4.2

8.8

4.4

0.04

Cash dividends ...............................................................................

2.0

2.0

—

0.02

The accompanying notes to the consolidated financial statements are an integral part of these statements.

30

Consolidated Statements of Shareholders’ Equity
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2004, 2003 and 2002

Thousands

Balance at March 31, 2001 .....................................................
Net income for the year .................................................
Adjustment for changes of interests in affiliates
accounted for by the equity method .........................
Adjustments from translation of foreign currency
financial statements............................................................
Decrease in net unrealized gains on securities .........
Treasury stock purchased ............................................
Bonuses to directors and statutory auditors .............
Balance at March 31, 2002 .....................................................
Net income for the year .................................................
Adjustments from translation of foreign currency
financial statements............................................................
Decrease in net unrealized gains on securities .........
Treasury stock purchased ............................................
Conversion of convertible bonds .................................
Bonuses to directors and statutory auditors .............
Balance at March 31, 2003 .....................................................
Net income for the year .................................................
Adjustments from translation of foreign currency
financial statements............................................................
Increase in net unrealized gains on securities ...........
Treasury stock purchased, net.....................................
Cash dividends................................................................
Issue of new shares ........................................................
Gain on sales of treasury stock.....................................
Bonuses to directors and statutory auditors .............
Other ................................................................................
Balance at March 31, 2004 ...................................................

Millions of yen

Number ofshares ofcommonstock

Retainedearnings

Net
unrealized
gains onsecurities

Foreigncurrencytranslation
adjustments

Commonstock

CapitalsurplusTreasurystock

1,390,596—¥ 81,427—¥ 24,682—¥ 58,452
6,282¥ 13,091—¥ (13,571)
—

¥ —
—

—

—

—

(575)

—

—

—

—
—
—
—
1,390,596
—

—
—
—
—
81,427—————
24,682
—

—
—
—
(49)
64,11013,022—(7,166)
—
—
5,925
—

5,164
—
—
—
(8,407)
—

—
—
(6)
—
(6)
—

—
—
—
2
—
1,390,598
—

—
—
—
—
—
81,427————
1—
24,683
—

—
—
—
—
(63)
77,0696,333—(2,254)
—
—
—
3,671
—

(3,818)————(12,225)
—

—
—
(34)
—
—
(40)
—

—
—
—
—
52,796———
1,443,394

—
—
—
—
—
—
—
—
¥81,427

—
—
—
—
6,704
1
—
—
¥31,388———(2,781)
—
—
(72)
(80)
¥80,469

—
9,595
—
—
—
—
—
—
¥13,266(4,058)
—
—
—
—
—
—
—
¥(16,283)

—
—
(52)
—
—
—
—
—
¥(92)

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2003 .............................................................................. $ 770,870
Net income for the year ..........................................................................
—
Adjustment from translation of foreign currency
financial statements................................................................................
—
Increase in net unrealized gains on securities.....................................
—
Treasury stock purchased, net..............................................................
—Cash dividends.........................................................................................
—
Issue of new shares .................................................................................
—
Gain on sales of treasury stock..............................................................
—
Bonuses to directors and statutory auditors ......................................
—
Other .........................................................................................................
—
Balance at March 31, 2004 ............................................................................ $770,870$ 233,674—$ 729,613
59,955$ 34,753 $ (115,734)——$(379)—————
63,4679——$297,150——(38,417)—90,836————(26,328)
—
—
—
—
—
—
—
—
(682)
—
—
(757)
—
—
$761,801 $125,589 $(154,151)

—
—
(492)
—
—
—
—
—
$(871)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

31

Consolidated Statements of Cash Flows
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2004, 2003 and 2002

Thousands of
U.S. dollars(Note 1)Millions of yen
2004

2003

2002

2004

¥17,228¥15,994$106,428

Cash flows from operating activities:
Income before income taxes and minority interests.................................. ¥11,242
Adjustments to reconcile net income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization..................................................................

32,59031,59531,998308,530

Provision for retirement and severance benefits ......................................

7,127

1,955

10,182

67,897

Provision for (reversal of) allowance for doubtful accounts ................

817

(718)

1,794

7,734

on construction contracts .......................................................................

4,256

752

(6,517)40,291

Provision for (reversal of) restructuring charges...................................

(2,260)2,260—(21,395)

Loss on disposal of inventories.................................................................

1,698

1,156

—

16,075

Write-downs of securities and others ......................................................

—

910

3,904

—

Write-downs of investments in subsidiaries and affiliates ....................

—

—

649

—

Gain on sale of marketable and investment securities ..........................

(1,036)

(954)

(109)

(9,808)Loss (gain) on sale of property, plant and equipment...........................

3,345(2,053)(5,047)

31,667

to employee retirement benefit trust .....................................................

—(1,902)——

Interest and dividend income....................................................................

(3,476)(4,684)(4,798)(32,907)

Interest expense ..........................................................................................

7,274

10,291

12,146

68,863

Provision for (reversal of provision for) losses

Gain on contribution of securities

Changes in assets and liabilities:
Decrease (increase) in:
Trade receivables................................................................................

8,777

3,736

38,986

83,092Inventories ...........................................................................................

9,990

24,835(18,809)

94,575

Other current assets...........................................................................

(8,857)

8,956(3,972)(83,849)

Increase (decrease) in:
Trade payables ....................................................................................

(1,022)(26,738)(9,972)(9,675)

Advances received ..............................................................................

11,152(10,646)

6,970

105,576

Accrued bonuses ................................................................................

(5,707)

604

3,479

(54,028)

Other current liabilities......................................................................

(5,176)13,147(3,583)(49,001)

Other, net .....................................................................................................

604

(576)

(111)

5,718

Subtotal ....................................................................................................

71,383

69,15473,184

675,783

Cash received for interest and dividends ....................................................

3,395

4,221

4,730

32,141

Cash paid for interest .....................................................................................

(7,914)(10,120)(11,401)(74,922)

Cash paid for income taxes............................................................................ (11,718)(6,485)(5,720)(110,934)

Reimbursement of overcharged accounts receivable (Note 14) .............. (12,335)——(116,776)

56,77060,793405,292

Net cash provided by operating activities...............................................

42,811(Continues to next page)32

Thousands of
U.S. dollars(Note 1)Millions of yen(Continued from previous page)

2004

2003

2004

2002

Cash flows from investing activities:
Decrease in time deposits with maturities over three months.................

625

221

269

5,917

Acquisition of property, plant and equipment............................................ (32,558)(31,349)(31,406)(308,227)

Proceeds from sales of property, plant and equipment ............................

8,228

8,428

10,677

77,895Acquisition of intangible assets ....................................................................

(6,332)(2,208)(2,904)(59,945)

Proceeds from sales of intangible assets .....................................................

269

40

133

2,547

Acquisition of investments in securities......................................................

(1,029)(4,240)(6,595)(9,742)

Proceeds from sale of investments in securities ........................................

2,882

2,643

205

27,284

Decrease (increase) in short-term loans receivable...................................

835

(179)

368

7,905

Additions to long-term loans receivable ......................................................

(329)(1,805)(2,086)(3,115)

Proceeds from collection of long-term loans receivable ...........................

591

762

3,157

5,595

Other.................................................................................................................

950

860

93

8,993

Net cash used for investing activities........................................................... (25,868)(26,827)(28,089)(244,893)

Increase (decrease) in short-term borrowings ........................................... (16,320)(53,048)

837(154,502)

Proceeds from long-term debt.......................................................................

44,49934,12912,939421,272

Repayment of long-term debt ........................................................................ (60,829)

Cash flows from financing activities:(40,579)(32,303)(575,869)

Acquisition of treasury stock ........................................................................

(15)

(2)

—

(142)

Cash dividends paid .......................................................................................

(2,753)(2)(5)(26,062)

Cash dividends paid to minority interests ..................................................

(126)

(99)

(56)

(1,192)

Net cash used for financing activities .......................................................... (35,544)(59,601)(18,588)(336,495)

(191)

(282)

449

(1,808)Net increase (decrease) in cash and cash equivalents ...................................... (18,792)(29,940)

14,565(177,904)

Cash and cash equivalents at beginning of year.................................................

59,837

89,77775,212566,477

1,330

—

—

12,591

Cash and cash equivalents at end of year ........................................................... ¥42,375¥59,837¥89,777$401,164

Cash on hand and in banks in the balance sheets.................................. ¥43,064¥61,185¥91,344$407,687

Time deposits with maturities over three months .................................

(689)(1,348)(1,567)(6,523)

Total.......................................................................................................... ¥42,375¥59,837¥89,777$401,164

Effect of exchange rate changes............................................................................

Increase in cash and cash equivalents arisingfrom newly consolidated subsidiaries ...............................................................

Supplemental information on cash flows:
Cash and cash equivalents:

The accompanying notes to the consolidated financial statements are an integral part of these statements.

33

Notes to the Consolidated Financial Statements
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries

34

1. Basis of presenting
consolidated
financial statements

Kawasaki Heavy Industries, Ltd. (the “Company”) and its consolidated domestic subsidiaries maintain their official accounting and disclosure records in Japanese yen. The accompanying consolidated financial statements
have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law
and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan, which are different in certain respects as to application and disclosure requirements of International
Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity withgenerally accepted accounting principles prevailing in the respective countries of domicile. The accompanying
consolidated financial statements have been restructured and translated into English (with some expanded
descriptions and the inclusion of consolidated statements of shareholders’ equity) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate
Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2004, which was ¥105.63 to US$1. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could
have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant
accounting
policies(a) Consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies (together the “Companies”), over which the Company has power of control through majority voting rightor existence of certain conditions evidencing control by the Company.
The consolidated financial statements include the accounts of the Company and 101 (104 in 2003 and 105 in2002) subsidiaries.
For the year ended March 31, 2004, 5 (3 in 2003 and 2 in 2002) subsidiaries are excluded from the consolidation. The amounts of total assets, net sales, net income and retained earnings of these excluded subsidiaries, inthe aggregate, would not have had a material effect on the consolidated financial statements.
( b) Application of the equity method of accounting
Investments in non-consolidated subsidiaries and affiliates, over which the Company has the ability to exercise
significant influence over operating and financial policies of the investees, are accounted for on the equity
method.
For the year ended March 31, 2004, 16 (15 in 2003 and 17 in 2002) affiliates are accounted for by the equity
method.
For the year ended March 31, 2004, investments in 5 (3 in 2003 and 2 in 2002) non-consolidated subsidiaries
and 13 (12 in 2003 and 13 in 2002) affiliates are stated at cost without applying the equity method of accounting.
If the equity method had been applied for these investments, the amounts of net income and retained earningsof these excluded subsidiaries and affiliates would not have had a material effect on the consolidated financial
statements.
(c) Consolidated subsidiaries’ fiscal year-ends
Fiscal year-ends of 29 (29 in 2003 and 31 in 2002) consolidated subsidiaries are December 31. The Company
consolidates such subsidiaries’ financial statements as of each subsidiary’s latest year-end. Unusual significant
transactions for the period between each subsidiary’s year-end and the Company’s year-end are adjusted on
consolidation.
(d) Elimination of inter-company transactions and accounts
All significant inter-company transactions and accounts and unrealized inter-company profits are eliminatedon consolidation, and the portion thereof attributable to minority interests is credited to minority interests.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the
portion attributable to minority shareholders, are evaluated using the fair value at the time the Company
acquired control of the respective subsidiaries.
When the excess of cost over equity is considered significant, it is amortized over five years on a straight-line
basis. Otherwise, it is charged to income in the year of acquisition or the year newly included in consolidation.

(e) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the year-end rate.
Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the year-end rate
except for shareholders’ equity accounts, which are translated at the historical rates. Income statements of consolidated overseas subsidiaries are translated at average rates except for transactions with the Company, which
are translated at the rates used by the Company.
The Company and its domestic subsidiaries report foreign currency translation adjustments in shareholders’equity (and minority interests).
(f ) Appropriations of retained earnings
Appropriations of retained earnings are recorded in the fiscal year when the proposed appropriations areapproved.
(g ) Revenue recognition
Sale of products and construction contracts
Sales of products such as ships, railcars, airplanes, machinery, motorcycles etc. are principally recognizedwhen delivery has occurred. Contract revenue for construction of plants, machinery, bridges etc. is principally
recognized on a customer acceptance basis. When prices for components or contract amounts for nearly completed contracts are not finalized, sales and cost of sales are estimated. The percentage-of-completion method
is applied to long-term contracts such as for ships, airplanes, plants etc. exceeding ¥5,000 million. The stage ofcompletion is normally determined based on the proportion that costs incurred to date bear to the estimatedtotal costs of the contract. Expected losses on such contracts are also recognized on the percentage of completion basis. The completed-contract method is applied to long-term contracts not exceeding ¥5,000 million.
Service revenue
Service revenues are recognized when services have been rendered. Services include supervisory or installation
services for products such as railcars, machinery, plants, etc. When the prices of such services are individually
determined by the contracts and the collectability of the revenue is reasonably assured, such service revenue isrecognized on an accrual basis. Otherwise, such service revenue is recognized on a completion basis.
( h) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand, readily-available deposits and short-term
highly liquid investments with maturities not exceeding three months at the time of purchase are considered
to be cash and cash equivalents.
(i) Allowance for doubtful receivables
The allowance for possible losses from notes and accounts receivable, loans and other receivables is provided
for based on past experience rate and the Companies’ estimates of losses on collection.
( j) Accrued bonuses
Accrued bonuses for employees are reasonably estimated.
( k) Inventories
Inventories are stated at cost, as determined principally by the specific identification cost method, the first-in,
first-out method or the moving-average method.
( l) Assets and liabilities arising from derivative transactions
Assets and liabilities arising from derivative transactions are stated at fair value.
( m) Investments in securities
The Company and its consolidated domestic subsidiaries classify securities as (a) debt securities intended tobe held to maturity (hereafter, “held-to-maturity debt securities”), (b) equity securities issued by subsidiaries
and affiliated companies and (c) all other securities that are not classified in the above categories (hereafter,“available-for-sale securities”). There were no trading securities at March 31, 2003 and 2004.
Held-to-maturity debt securities are stated mainly at amortized cost. Equity securities issued by subsidiaries andaffiliated companies which are not consolidated or accounted for using the equity method are stated at movingaverage cost. Available-for-sale securities with available fair market values are stated at fair market value. Unrealized
gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Realized gains and losses on sale of such securities are computed using movingaverage cost.

35

Other securities with no available fair market value are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by non-consolidated subsidiaries and affiliated companies and available-for-sale securities declines significantly, such securities arestated at fair market value and the difference between fair market value and the carrying amount is recognized
as loss in the period of the decline. If the fair market value of equity securities issued by non-consolidated subsidiaries and affiliated companies, not subject to the equity method, is not readily available, such securities
should be written down to net asset value with a corresponding charge in the statements of income in the event
net asset value declines significantly. In these cases, such fair market value or the net asset value will be thecarrying amount of the securities at the beginning of the next year.
(n) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation (except buildings acquired after April 1998) is
computed on a declining-balance basis over estimated useful lives. Depreciation of buildings acquired after
April 1998 is computed on a straight-line basis over estimated useful lives.
(o) Intangible assets
Amortization of intangible assets is computed on a straight-line method over estimated useful lives.
(p) Accounting for the impairment of fixed assets
In the year ended March 31, 2004, the Company did not adopt early the new accounting standard for impairment of fixed assets (“Opinion Concerning Establishment of Accounting Standard for Impairment of Fixed
Assets” issued by the Business Accounting Deliberation Council on August 9, 2002) and the implementation
guidance for the accounting standard for impairment of fixed assets (the Financial Accounting Standard
Implementation Guidance No. 6 issued by the Accounting Standards Board of Japan on October 31, 2003). The
new accounting standard is required to be adopted in periods beginning on or after April 1, 2005, but the standard does not prohibit earlier adoption.
(q) Provision for product warranty
Provision for product warranty is based on past experience and separately provided when reasonably estimable.
(r) Provision for restructuring charges
Provision for restructuring charges for the steel structures business is accrued in the amount reasonably estimated.
(s) Provision for losses on construction contracts
Provision for losses on uncompleted construction contracts at the fiscal year-end is made when substantial losses
are anticipated for the next fiscal year and later and such losses can be reasonably estimated.
(t) Bond issue expenses
Bond issue expenses are charged to income as incurred.
(u) Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
(v) Retirement and severance benefits
Employees who terminate their services with the Company and its domestic consolidated subsidiaries are generally entitled to lump-sum payments, the amounts of which are determined by reference to their current basic
rates of pay and length of service.
The liabilities and expenses for retirement and severance benefits are determined based on the amounts actuarially calculated using certain assumptions. The Company and its domestic consolidated subsidiaries provided
the allowance for employees’ retirement and severance benefits based on the estimated amounts of projected
benefit obligation and fair value of plan assets (including retirement benefit trust).

36

The excess of the projected benefit obligation over the liabilities for retirement and severance benefits
recorded as of April 1, 2000 (the “net transition obligation”) is being recognized in expenses in equal amounts
primarily over 10 years commencing with the year ended March 31, 2001. Actuarial gains and losses and priorservice costs are recognized in expenses in equal amounts, within the average of the estimated remaining service lives of the employees, commencing with the following and the current period, respectively.
Employees of the Company’s overseas consolidated subsidiaries are generally covered by various pension
plans, accounted for in accordance with generally accepted accounting principles in the country of domicile.
The Company and its domestic consolidated subsidiaries provide for retirement and severance benefits for
directors and statutory auditors principally at 50 percent of the amount required if they retired at the balance
sheet date.
(w) Hedge accounting
The Company and its consolidated subsidiaries employ deferred hedge accounting. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and its consolidated subsidiaries
defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments until
the related losses or gains on the hedged items are recognized.
(x) Finance leases
For the Company and its domestic consolidated subsidiaries, finance leases which do not transfer ownershipand do not have bargain purchase provisions are accounted for in the same manner as operating leases inaccordance with Japanese GAAP.
(y) Net income per share
The computations of net income per share shown in the consolidated statements of income are based upon net
income available to common stockholders and weighted average number of shares outstanding during each period.
Diluted net income per share is computed based on the assumption that all dilutive convertible bonds wereconverted at the beginning of the year.
Effective April 1, 2002, the Company adopted the new accounting standard for earnings per share and related
guidance (Accounting Standards Board Statement No. 2, “Accounting Standard for Earnings Per Share,” andFinancial Standards Implementation Guidance No. 4, “Implementation Guidance for Accounting Standard for
Earnings Per Share,” issued by the Accounting Standards Board of Japan on September 25, 2002).
The effect on net income per share of the adoption of the new accounting standard was not material.
(z) Cash dividends
Per share amounts of cash dividends for each period represent dividends declared as applicable to the respective year.
(aa) Reclassifications
Certain prior year amounts have been reclassified to conform to 2004 presentation. These changes had no
impact on previously reported results of operations or shareholders’ equity.

3. Inventories

Inventories as of March 31, 2004 and 2003 are comprised as follows:
Millions of yen
2004
2003

Finished products ........................................................................................................... ¥ 57,291
Work in process .............................................................................................................. 233,508
Raw materials and supplies...........................................................................................
44,265
Total.................................................................................................................. ¥335,064¥ 56,566
242,459
43,362¥342,387

Thousands of
U.S. dollars
2004$ 542,374
2,210,622
419,057$3,172,053

37

4. Securities(a) Acquisition costs, book values (fair value) of available-for-sale securities with available fair values as ofMarch 31, 2004 and 2003 are as follows:
Thousands of
U.S. dollars

Millions of yen
2004
Book value
Difference

Difference¥13,753¥36,920¥23,167$219,322

1,320¥15,073

1,093¥38,013(227)¥22,940(2,149)$217,173

Millions of yen
2003
Acquisition cost
Book value

Difference

Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities .....................................................................
Other securities:
Equity securities .....................................................................
Total .............................................................................................

Securities with book values exceeding acquisition costs:
Equity securities .....................................................................
Other securities:
Equity securities .....................................................................
Total .............................................................................................

¥11,610¥19,637¥8,027

4,395¥16,005

3,134¥22,771(1,261)¥6,766(b) Book values of investments in securities with no available fair values as of March 31, 2004 and 2003 are as follows:

Held-to-maturity debt securities:
Non-listed securities ........................................................................................
Available-for-sale securities:
Equity securities...............................................................................................
Other ..................................................................................................................
Total .......................................................................................................................
Equity securities issued by non-consolidated subsidiaries
and affiliated companies:
Subsidiaries.......................................................................................................
Affiliated companies ........................................................................................
Total .......................................................................................................................

Millions of yen
2004
2003
Book value
Book value

Thousands of
U.S. dollars
2004
Book value

¥

$

28

¥

25

265

9,314
5,262
¥14,576

8,957
5,296
¥14,253

88,17549,816$137,991

¥

¥

$

9
3,211
¥ 3,220

18
7,538¥ 7,55685
30,399$ 30,484(c) Sales amounts of available-for-sale securities and related gains and losses for the years ended March 31, 2004,
2003 and 2002 are as follows:
Thousands of
U.S. dollars

Millions of yen

Equity securities ....................................................

Equity securities ....................................................
Others......................................................................
Total.........................................................................

Equity securities ....................................................

38

Sales amounts

Gains

Losses

2004
Sales amounts

Gains

Losses¥1,750¥930¥(245)$16,567$8,804$(2,319)

Millions of yen
2003
Sales amounts
Gains

Losses¥1,66960¥1,729

¥999
—
¥999

¥(140)(35)¥(175)

Millions of yen
2002
Sales amounts
Gains

Losses

¥349

¥141

¥(31)

5. Short-term borrowings and long-term
debt

Short-term borrowings and long-term debt as of March 31, 2004 and 2003 are comprised as follows:
Millions of yen
2004
2003

Short-term borrowings:
Short-term debt, principally bank loans, bearing averageinterest rates of 1.254 percent and 1.374 percent as ofMarch 31, 2004 and 2003, respectively .............................................................. ¥132,749
Current portion of long-term debt, bearing averageinterest rates of 1.310 percent and 1.696 percent as ofMarch 31, 2004 and 2003, respectively ..............................................................
55,903
Total short-term debt......................................................................................... ¥188,652
Long-term debt:
Loans from banks and other financial institutions, partly securedby mortgage or other collateral, due from 2004 to 2035,
bearing average interest rates of 1.505 percent and 1.657 percent
as of March 31, 2004 and 2003, respectively ..................................................... ¥108,436
Notes and bonds issued by the Company:
1.05 percent notes due 2003 ..........................................................................
—
1.94 percent notes due 2004 ..........................................................................
20,0001.50–1.67 percent notes due 2005 .................................................................
20,0001.87 percent notes due 2006 ..........................................................................
10,0002.00 percent notes due 2007 ..........................................................................
10,0002.51–2.775 percent notes due 2008 ...............................................................
20,0002.33 percent notes due 2009 ..........................................................................
10,0000.65–0.90 percent convertible bonds due 2003...........................................
—
0.75 percent convertible bonds due 2005....................................................
9,609
1.10 percent convertible bonds due 2006....................................................
17,1180.90 percent convertible bonds due 2008....................................................
7,520
1.00 percent convertible bonds due 2011....................................................
7,039
Zero coupon convertible bonds due 2010 ...................................................
25,000Notes and bonds issued by subsidiaries:
1.31 percent notes due 2006 ..........................................................................
2,000
266,722
Less portion due within one year .........................................................................
(55,903)
Total long-term debt........................................................................................... ¥210,819

Thousands of
U.S. dollars
2004¥150,932$1,256,736

50,316¥201,248

529,234$1,785,970¥116,887$1,026,565

10,00020,00020,00010,00010,00020,00010,00019,0799,609
17,118
7,520
7,039
—

—
189,340
189,340
94,67094,670189,340
94,670—90,968162,056
71,192
66,638236,675—
277,252(50,316)¥226,936

18,9352,525,059(529,234)$1,995,825

The convertible bonds due 2005 through 2011 as of March 31, 2004 were convertible into 139,027,218 sharesof common stock at the option of the holders at prices of ¥459 ($4.35), ¥598 ($5.66) or ¥182 ($1.72) per share.
The conversion prices are subject to adjustments under specified conditions.
As of March 31, 2004 and 2003, the following assets were pledged as collateral for short-term borrowings andlong-term debt:
Millions of yen
2004
2003

Inventories............................................................................................................................ ¥ 8,336
Land.......................................................................................................................................
3,695
Buildings ...............................................................................................................................
3,576
Machinery and equipment .................................................................................................
277
Other investments ...............................................................................................................
45
Total ...................................................................................................................... ¥15,929¥10,699
5,383
4,449
309
299
¥21,139

Thousands of
U.S. dollars
2004$ 78,917
34,98133,8542,622
426$150,800

As of March 31, 2004 and 2003, debt secured by the above pledged assets was as follows:
Millions of yen
2004
2003

Trade payables .................................................................................................................... ¥65
Short-term and long-term debt .......................................................................................... 23,656
Total ...................................................................................................................... ¥23,721¥ 173
29,172¥29,345

Thousands of
U.S. dollars
2004

$
615
223,952$224,567

39

The aggregate annual maturities of long-term debt as of March 31, 2004 are as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars¥ 55,903
49,19649,35633,26079,007¥266,722$ 529,234
465,739467,253
314,873
747,960$2,525,059

2005 .....................................................................................................................................................
2006 .....................................................................................................................................................
2007 .....................................................................................................................................................
2008 .....................................................................................................................................................
2009 and thereafter ...........................................................................................................................
Total ........................................................................................................................................

6. Investments in
non-consolidated
subsidiaries andaffiliates

Investments in non-consolidated subsidiaries and affiliates as of March 31, 2004 and 2003 are ¥12,398 million($117,372 thousand) and ¥15,108 million, respectively.

7. Consolidation adjustments accounts

Consolidation adjustments accounts, included in Intangible and other assets, are as follows:
Millions of yen
2004
2003

Conslidation adjustments accounts...................................................................................... ¥2,296

8. Employees’
retirement andseverance benefits¥16

Thousands of
U.S. dollars
2004$21,736

The liabilities for employees’ retirement and severance benefits included in the liability section of the consolidated balance sheets as of March 31, 2004 and 2003 consist of the following:
Millions of yen
2004
2003

Projected benefit obligation .......................................................................................... ¥202,594
Unrecognized prior service costs.................................................................................
6,806
Unrecognized actuarial differences..............................................................................
(10,388)
Less fair value of pension assets ..................................................................................
(58,828)
Less unrecognized net transition obligation...............................................................
(76,903)
Prepaid pension cost......................................................................................................
478
Liability for retirement and severance benefits...................................................... ¥ 63,759¥181,281
2,188(25,553)(26,683)(90,353)470¥ 41,350

Thousands of
U.S. dollars
2004$1,917,959
64,432(98,343)(556,925)(728,041)
4,525$ 603,607

Retirement and severance benefit expenses in the consolidated statements of income for the years ended
March 31, 2004 and 2003 are comprised as follows:

2004

Service costs—benefits earned during the year ......................................... ¥ 9,091
Interest cost on projected benefit obligation ..............................................
5,862
Expected return on plan assets .....................................................................
(751)
Amortization of actuarial differences ...........................................................
2,780
Amortization of prior service costs ..............................................................
(783)
Amortization of net transition obligation..................................................... 13,342
Retirement and severance benefit expenses ........................................... ¥29,541

Millions of yen
2003

2002

Thousands of
U.S. dollars
2004¥ 9,697
5,708
(467)
2,042
(243)
13,181¥29,918¥ 9,443
6,167
(379)
407
—
13,059¥28,697$ 86,065
55,496(7,110)26,318(7,413)
126,309$279,665

For the year ended March 31, 2003, the discount rate and the rate of expected return on plan assets are primarily 3.0 and 9.0 percent (for consolidated overseas subsidiaries), respectively. The estimated amount of all
retirement benefits to be paid at future retirement dates is allocated equally to each service year using the estimated number of total service years. Actuarial gains and losses are recognized in expenses in equal amounts
over 10 to 15 years commencing with the following period. Prior service costs are recognized as an expense inequal amounts for 10 years.
For the year ended March 31, 2004, the discount rate is primarily 2.5 percent. The rates of expected return onplan assets (including retirement benefit trust) are over 0.0 to 3.5 percent (for the Company and consolidated
domestic subsidiaries) and 8.0 percent (for consolidated overseas subsidiaries). The estimated amount of all
retirement benefits to be paid at future retirement dates is allocated equally to each service year using the estimated number of total service years. Actuarial gains and losses are recognized in expenses in equal amounts
over 10 to 15 years commencing with the following period. Prior service costs are recognized in equal amounts
for over 10 to 15 years.

409. Contingent liabilities

Contingent liabilities as of March 31, 2004 and 2003 are as follows:
Millions of yen
2004
2003

As drawer of trade notes discounted................................................................................ ¥ 141
As endorser of trade notes.................................................................................................
18
As guarantor of indebtedness of employees, unconsolidated
subsidiaries and affiliates, and others ............................................................................ 25,470¥

Thousands of
U.S. dollars
2004

26
31

$

31,5261,335
170

241,125

10. Shareholders’equity(a) Capital surplus
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to be accounted
for as capital, although a company may, by resolution of its Board of Directors, account for an amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which is included in capital surplus.
The Commercial Code provides that an amount equal to at least 10 percent of cash dividends and other cash
appropriations shall be appropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserve and additional paid-in capital equals 25 percent of common stock. The total amount of legal earnings
reserve and additional paid-in capital of the Company has reached 25 percent of common stock, and therefore
the Company is not required to provide any more legal earnings reserve.
The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolution of the shareholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition thatthe total amount of legal earnings reserve and additional paid-in capital remains being equal to or exceeding 25
percent of common stock, they are available for distribution by the resolution of shareholders’ meeting. Legalearnings reserve is included in retained earnings in the accompanying financial statements.
( b) Dividends
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated
financial statements of the Company in accordance with the Commercial Code of Japan.
(c) Restrictions on dividends
Under the terms of indentures for certain convertible bonds due through 2006, cumulative cash dividend
payments by the Company are not to exceed an amount equivalent to accumulated net income of the Company earned during the years such securities are outstanding plus ¥10,000 million.

11. Research anddevelopment
expenses

Research and development expenses, included in selling, general and administrative expenses, are as follows:

2004

Research and development expenses .......................................................... ¥14,741

12. Other income(expenses):other, net

Millions of yen
2003

2002

Thousands of
U.S. dollars
2004¥15,494¥16,549$139,553

Other income (expenses): other, net in the consolidated statements of income is comprised as follows:

2004

Gain on sales of marketable securities
and investments in securities.................................................................... ¥ 918
Gain on sales of property, plant and equipment ......................................
1,150
Gain on sales of subsidiaries’ shares..........................................................
117
Foreign exchange loss, net........................................................................... (2,875)
Amortization of certain subsidiaries’ net transition obligationof retirement and severance benefits.......................................................
(205)
Loss on business reorganization ................................................................
(754)
Loss on factory closure ................................................................................ (1,206)
Gain on contribution of securities
to employees’ retirement benefit trust ....................................................
—
Restructuring charges ..................................................................................
—
Loss on disposal of inventories...................................................................
—
Loss on real estate development business................................................
—
Write-down of securities and other ............................................................
—
Other, net ....................................................................................................... (5,296)
Total................................................................................................ ¥(8,151)

Millions of yen
2003

¥

877
3,286
77
(2,453)

2002

Thousands of
U.S. dollars
2004

¥

$

109
6,543
—
(4,371)

8,691
10,8871,108(27,218)

(205)
—
—

(205)
—
—

(1,941)(7,138)(11,417)

1,902(3,182)(1,456)(923)—(5,164)¥(7,241)————(3,904)(6,520)¥(8,348)—————(50,137)$(77,165)“Loss on business reorganization” is mainly a result of severance payments caused by business transfer of aconsolidated subsidiary.

41

“Loss on factory closure” consists of loss from retirement, and dismantlement cost, of buildings in Noda
Works and profit on sale of its vacant lot.

13. Income taxes

Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax (national tax) and enterprise and inhabitants taxes (local taxes) which, in the aggregate, result in normal statutory tax rates of approximately 41.9 percent for the years ended March 31, 2004, 2003 and 2002.
The following table summarizes the significant differences between the statutory tax rate and effective tax
rates in the consolidated financial statements for the year ended March 31, 2003 (the differences for the year
ended March 31, 2004 are insignificant):
2003

Statutory tax rate ...................................................................................................................................................................... 41.9%
Dividends received from subsidiaries .............................................................................................................................. 9.2
Non-deductible expenses .................................................................................................................................................... 7.3
Recognizing the tax effect of unrealized intercompany profit in the prior year .......................................................... (15.6)
Non-taxable revenues........................................................................................................................................................... (9.3)
Valuation allowance for net operating loss carryforward of subsidiaries .................................................................... (7.5)
Other ...................................................................................................................................................................................... (3.8)
Effective tax rate ...................................................................................................................................................................... 122.2%

Significant components of deferred tax assets and liabilities as of March 31, 2004 and 2003 are as follows:
Millions of yen
2004
2003

Deferred tax assets:
Excess bonuses accrued................................................................................................. ¥ 6,181
Retirement benefits ......................................................................................................... 26,726
Allowance for doubtful receivables ..............................................................................
3,815
Inventories—intercompany profits...............................................................................
3,377
Fixed assets—intercompany profits .............................................................................
814
Depreciation .....................................................................................................................
1,057
Net operating loss carryforwards.................................................................................. 11,055
Write-down of marketable securities, investments
in securities and other ..................................................................................................
1,661
Other .................................................................................................................................
7,351
Gross deferred tax assets ........................................................................................... 62,037
Less valuation allowance............................................................................................
(9,321)
Total deferred tax assets ............................................................................................ 52,716
Deferred tax liabilities:
Deferral of gain on sale of fixed assets .........................................................................
5,522
Net unrealized gain on securities ..................................................................................
8,918
Unrealized gain on uncompleted contracts .................................................................
1,857
Other .................................................................................................................................
4,757
Total deferred tax liabilities ....................................................................................... 21,054
Net deferred tax assets ........................................................................................... ¥31,662

Thousands of
U.S. dollars
2004¥ 7,572
13,282
3,192
3,380
905
1,194
5,953

$ 58,516
253,015
36,117
31,970
7,706
10,007
104,658

1,264
11,11347,855(7,174)
40,681

15,72569,591
587,305(88,242)
499,063

5,110
2,999
1,247
5,246
14,602¥26,079

52,27784,427
17,58045,035
199,319$299,744

The aggregate statutory income tax rate used for calculation of deferred income tax assets and liabilities was
41.9 percent for the year ended March 31, 2002. Effective for years commencing on April 1, 2004 or later, according to the revised local tax law, income tax rates for enterprise taxes will be reduced as a result of introducing
the assessment by estimation on the basis of the size of business. Based on the change of income tax rates, forcalculation of deferred income tax assets and liabilities, the Company and consolidated domestic subsidiaries
used the aggregate statutory income tax rates of 41.9 percent and 40.5 percent for current items and noncurrent items, respectively, at March 31, 2003.
As a result of the change in the aggregate statutory income taxes rates at March 31, 2003, deferred income tax
assets decreased by ¥120 million, provision for deferred income taxes increased by ¥242 million and net unrealized gains on securities increased by ¥122 million compared with what would be reported using the currently
applicable tax rate of 41.9 percent.
At March 31, 2004, based on the change of income tax rates, for calculation of deferred income tax assets andliabilities, the Company and consolidated domestic subsidiaries used the aggregate statutory income tax rate of
40.5 percent both for current and noncurrent items.

4214. Reimbursementof overcharged
account receivables

Reimbursement of overcharged accounts receivable was made by NIPPI Corporation, a consolidated subsidiary,
under contracts mainly with the Japan Defense Agency.

15. Derivativetransactions

Since the Company and its consolidated subsidiaries operate internationally and have a substantial volume ofexport and import transactions, they enter into foreign currency exchange and option transactions in order tomanage risk of fluctuations in exchange rates in relation to foreign currency denominated assets, liabilities andfuture transactions.
The Company and its consolidated subsidiaries also enter into interest swap and option transactions to hedge
against future fluctuations in interest rates on borrowings, primarily to fix, cap or collar interest rates on variable rate debt.
The Company and its consolidated subsidiaries’ purpose for purchasing derivatives is to hedge against risksof fluctuations in currency exchange rates and interest rates rather than to be exposed to such risks throughdealing or speculation.
For derivative transactions that meet the conditions for hedge accounting, the Company and its consolidated
subsidiaries apply hedge accounting principles.
In order to minimize credit risk, the Company and its consolidated subsidiaries use only highly-rated international financial institutions as counterparties to derivative transactions.
The Company and its consolidated subsidiaries have established policies that restrict the use of derivative
instruments, including limits as to the purpose, nature, type and amount, and that require reporting and review
in order to control the use of derivatives and manage risk.
(a) Outstanding positions and recognized gains and losses at March 31, 2004 are as follows:

Contract
amountCurrency related contracts:
Foreign exchange contracts:
To sell ...................................................................................................... ¥86,961
To purchase............................................................................................
4,990
Option contracts:
To sell ......................................................................................................
To purchase............................................................................................
Total.............................................................................................................

5,511
5,335

Millions of yen
Marketvalue

Gain(loss)

Thousands of
U.S. dollars
Gain(loss)¥83,684
4,975¥3,277(15)$31,023
(142)

19
85

39
26
¥3,327369
246$31,496(b) Outstanding positions and recognized gains and losses at March 31, 2003 are as follows:
Contract amountCurrency related contracts:
Foreign exchange contracts:
To sell ...................................................................................................................
To purchase .........................................................................................................
Option contracts:
To sell ...................................................................................................................
To purchase .........................................................................................................
Total ..........................................................................................................................

Millions of yen
Market valueLoss¥82,555
4,926¥83,824
4,921¥ (969)
(5)

6,244
6,030

219
60

(124)
(34)
¥(1,132)43

16. Finance leases

Finance lease information, as required to be disclosed in Japan, for the respective years is as follows:(a) As lessee
The original cost of leased assets under non-capitalized finance leases and accumulated depreciation, assuming
it is calculated on the straight-line method over lease terms, as of March 31, 2004 and 2003 is as follows:
Millions of yen
2004
2003

Thousands of
U.S. dollars
2004

Property, plant and equipment.......................................................................................... ¥24,938
Accumulated depreciation ................................................................................................. (11,016)¥13,922¥21,952(8,683)¥13,269$236,089(104,289)$131,800

Intangible assets .................................................................................................................. ¥ 1,777
Accumulated amortization .................................................................................................
(943)
¥ 834

¥ 1,347
(553)
¥ 794

$ 16,822(8,927)$ 7,895

The present values of future minimum lease payments under non-capitalized finance leases as of March 31,
2004 and 2003 are as follows:
Millions of yen
2004
2003

Current portion...................................................................................................................... ¥ 4,525
Non-current portion .............................................................................................................. 11,100
Total ............................................................................................................................ ¥15,625¥ 4,079
10,201¥14,280

Thousands of
U.S. dollars
2004$ 42,838
105,084$147,922

Lease payments and “as if capitalized” depreciation and amortization and interest expense for non-capitalized
finance leases are as follows:

2004

Lease payments ..................................................................................................... ¥5,109
Depreciation and amortization............................................................................ 4,762
Interest....................................................................................................................
431

44

Millions of yen
2003

2002

Thousands of
U.S. dollars
2004¥4,386
4,087
342¥3,6593,419
224$48,367
45,082
4,080

(b) As lessor
The original cost of leased assets under finance leases and accumulated depreciation, as of March 31, 2004 and2003 is as follows:
Millions of yen
2004
2003

Thousands of
U.S. dollars
2004

Property, plant and equipment.............................................................................................. ¥1,703
Accumulated depreciation .....................................................................................................
(902)
¥ 801

¥1,870(927)¥ 943$16,122(8,539)$ 7,583

Intangible assets ...................................................................................................................... ¥Accumulated amortization .....................................................................................................
¥

¥ 140
(90)
¥ 50

$

92
(67)
25

$

871
(634)
237

The present values of future minimum lease payments to be received under finance leases as of March 31,
2004 and 2003 are as follows:
Millions of yen
2004
2003

Current portion ........................................................................................................................... ¥ 485
Non-current portion....................................................................................................................
935
Total .............................................................................................................................. ¥1,420

¥ 266
763
¥1,029Thousands of
U.S. dollars
2004$ 4,591
8,852$13,443

Lease payments received, depreciation and amortization and interest on finance leases are as follows:
Millions of yen
2004
2003
2002

Lease payments received .............................................................................................. ¥328
Depreciation and amortization ..................................................................................... 288
Interest .............................................................................................................................
41

17. Operating leases

¥312
272
41

¥251
208
35

$3,1052,726
388

The present values of future minimum lease payments under operating leases as of March 31, 2004 and 2003 are
as follows:
Millions of yen
2004
2003

Current portion ........................................................................................................................... ¥ 405
Non-current portion ................................................................................................................... 1,387
Total.............................................................................................................................. ¥1,792

18. Segment
information

Thousands of
U.S. dollars
2004

¥ 74
324
¥398

Thousands of
U.S. dollars
2004$ 3,834
13,131$16,965

Industry segments of the Company and its consolidated subsidiaries are classified based on its internal company system: 1) Shipbuilding, 2) Rolling Stock, Construction Machinery & Crushing Plant, 3) Aerospace, 4) Gas
Turbines & Machinery, 5) Plant & Infrastructure Engineering, 6) Consumer Products & Machinery, and 7) Other.
The Shipbuilding segment manufactures and sells ships, submarines and maritime application equipment.
Operations within the Rolling Stock, Construction Machinery & Crushing Plant segment include the production
and sale of rolling stock, construction machines and crushing plants. Products manufactured and sold by the
Aerospace segment include airplanes and helicopters. The Gas Turbines & Machinery segment manufacturesand sells gas turbines, airplane engines, prime movers and hydraulic components. Operations within the Plant &Infrastructure Engineering segment include the production and sale of boilers, chemical and steelmaking plants,
refuse incineration plants and steel bridges. Products manufactured and sold by the Consumer Products &Machinery segment include motorcycles, ATVs (All-Terrain Vehicles) and Jet Ski® watercraft. Operations within
the Other segment include the production and sale of hospital respiration & medical equipment. The operations
also involve trade, mediation of overseas sales and orders and other activities.
On April 1, 2003, the industrial hydraulic equipment business, which was formerly included in the Gas
Turbines & Machinery segment, was reclassified into the Other segment at the beginning of this period. The
prior year amounts have been reclassified to conform to the 2004 presentation.

45

(a) Information by industry segment

External
sales

Shipbuilding .......................................... ¥ 94,939
Rolling Stock, Construction
Machinery & Crushing Plant .............
120,597
Aerospace..............................................
173,783
Gas Turbines & Machinery .................
136,468
Plant & Infrastructure Engineering ....
191,412
Consumer Products & Machinery......
318,325
Other ......................................................
124,728
Total ................................................... 1,160,252
Eliminations and corporate ................
—
Consolidated total............................ ¥1,160,252

Shipbuilding ..........................................
Rolling Stock, Construction
Machinery & Crushing Plant .............
Aerospace..............................................
Gas Turbines & Machinery .................
Plant & Infrastructure Engineering ....
Consumer Products & Machinery......
Other ......................................................
Total ...................................................
Eliminations and corporate ................
Consolidated total............................

976

2,950
1,713
14,95812,882
3,982
42,03979,500(79,500)¥—¥

95,915

123,547
175,496
151,426
204,294322,307
166,767
1,239,752(79,500)¥1,160,252

¥

Total
assetsDepreciation
and amortization

Capitalexpenditures

98,276¥ (2,361)¥

89,850¥ 2,442¥ 5,294

119,225
171,252
146,890203,075
315,057
163,520
1,217,295(79,293)¥1,138,002

4,322
4,244
4,536
1,219
7,250
3,247
22,457(207)¥22,250

127,786
221,960
124,065
177,888
240,242
138,803
1,120,594
36,310¥1,156,904

2,612
4,959
2,962
2,019
12,422
2,709
30,1252,465¥32,590

3,393
9,030
2,955
1,105
15,016
2,053
38,846
2,656¥41,502

Total
assetsDepreciation
and amortization

Capitalexpenditures

Millions of yen
2003
OperatingOperatingexpenses
income (loss)

Intersegment
sales

Total
sales

¥ 105,458¥ 1,556¥ 107,014¥ 105,605¥ 1,409¥

95,661¥ 1,963¥ 2,551

164,774
154,848
150,766
219,092
318,025
126,635
1,239,598—¥1,239,598

3,157
2,372
13,26722,557
3,033
43,187
89,129(89,129)¥—

167,931
157,220
164,033
241,649
321,058
169,822
1,328,727(89,129)¥1,239,598

162,441
151,125
158,767
245,891
307,654
167,081
1,298,564(89,509)¥1,209,055

5,490
6,095
5,266
(4,242)
13,404
2,741
30,163
380¥30,543

117,276
166,223
132,024
191,520
260,360
164,453
1,127,517
21,644¥1,149,161

2,853
3,370
3,085
2,308
12,1903,395
29,164
2,431¥31,595

3,266
5,523
2,726
622
13,9272,215
30,8304,335¥35,165

Total
assetsDepreciation
and amortization

Capitalexpenditures¥

Intersegment
sales¥ 1,290¥

121,780
161,072
145,651
220,605
281,207
121,741
1,144,534—¥1,144,534

3,756
2,021
19,744
14,7683,590
43,955
89,124(89,124)¥—

125,536
163,093
165,395
235,373284,797
165,696
1,233,658(89,124)¥1,144,534

Shipbuilding........................................ $ 898,788
Rolling Stock, Construction
Machinery & Crushing Plant ..........
1,141,693
Aerospace ...........................................
1,645,205
Gas Turbines & Machinery ...............
1,291,944
Plant & Infrastructure Engineering..
1,812,099
Consumer Products & Machinery ...
3,013,585
Other ...................................................
1,180,800
Total ................................................ 10,984,114
Eliminations and corporate ..............
—
Consolidated total ......................... $10,984,114

Intersegment
sales

$

9,240

Millions of yen
2002
OperatingOperatingexpenses
income (loss)

Total
sales

92,478External
sales

46

¥

Total
sales

External
sales

External
sales

Shipbuilding ..........................................
Rolling Stock, Construction
Machinery & Crushing Plant .............
Aerospace..............................................
Gas Turbines & Machinery .................
Plant & Infrastructure Engineering ....
Consumer Products & Machinery......
Other ......................................................
Total ...................................................
Eliminations and corporate ................
Consolidated total............................

Intersegment
sales

Millions of yen
2004
OperatingOperatingexpenses
income (loss)

93,768

Total
sales

$

908,028 $¥88,213¥ 5,555¥

88,688¥ 1,941¥ 1,462

125,071
149,229
159,781
236,010279,615
164,190
1,202,109(88,886)¥1,113,223

465
13,864
5,614
(637)
5,182
1,506
31,549(238)¥31,311

141,332
150,934
139,688237,688
267,797
151,213
1,177,340
77,735¥1,255,075

2,898
3,425
3,078
2,665
11,553
4,050
29,6102,388¥31,998

6,925
2,571
4,118
815
12,874
3,073
31,8381,294¥33,132

Total
assetsDepreciation
and amortization

Capitalexpenditures

Thousands of U.S. dollars
2004
OperatingOperatingexpenses
income (loss)

930,380$ (22,352)$

850,611$ 23,118$ 50,118

27,9281,169,621
1,128,704
16,217
1,661,422
1,621,244
141,607
1,433,551
1,390,609
121,954
1,934,053
1,922,513
37,6983,051,283
2,982,647
397,983
1,578,783
1,548,044
752,627
11,736,741 11,524,141(752,627)(752,627)(750,668)$— $10,984,114 $10,773,473

40,91740,17842,942
11,54068,63630,739212,600(1,959)$210,641

1,209,751
2,101,297
1,174,524
1,684,067
2,274,373
1,314,049
10,608,672
343,747$10,952,419

24,72846,94728,041
19,114
117,599
25,647285,194
23,336$308,530

32,122
85,487
27,975
10,461
142,157
19,435
367,755
25,145$392,900

(b) Information by geographic area
Segment information by geographic area, as required to be disclosed in Japan, for the respective years
is as follows:

Intersegment
sales

Millions of yen
2004
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥182,132
15,267
4,595
13,942
88
216,024(216,024)¥—¥1,059,354 ¥1,038,482
202,483
202,886
75,54674,912
33,69833,062
5,195
5,345
1,376,276
1,354,687(216,024)(216,685)¥1,160,252 ¥1,138,002¥20,872
(403)
634
636
(150)
21,589661¥22,250¥ 975,129
115,262
46,762
19,4202,846
1,159,419(2,515)¥1,156,904

External
sales

Intersegment
sales

Millions of yen
2003
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥ 907,167
252,178
56,94019,105
4,208
1,239,598—¥1,239,598¥202,171
13,686
5,521
11,272
114
232,764(232,764)¥—¥26,047
3,615
610
882
107
31,261(718)¥30,543¥ 958,762
140,742
41,582
18,7682,764
1,162,618(13,457)¥1,149,161

Operatingincome (loss)

Total
assets¥31,383
5,097(3,340)664
67
33,871(2,560)¥31,311¥1,012,986
148,41238,57021,064
1,966
1,222,998
32,077¥1,255,075

External
sales

Japan..................................................... ¥ 877,222
North America .....................................
187,216Europe ..................................................
70,951
Asia .......................................................
19,756
Other areas ..........................................
5,107
Total.................................................. 1,160,252
Eliminations and corporate ...............
—
Consolidated total .......................... ¥1,160,252

Japan.....................................................
North America .....................................
Europe ..................................................
Asia .......................................................
Other areas ..........................................
Total..................................................
Eliminations and corporate ...............
Consolidated total ..........................

Japan.....................................................
North America .....................................
Europe ..................................................
Asia .......................................................
Other areas ..........................................
Total..................................................
Eliminations and corporate ...............
Consolidated total ..........................

External
sales

Intersegmentsales¥ 868,759
204,510
47,101
20,495
3,669
1,144,534—¥1,144,534¥186,659
12,933
3,849
10,106133
213,680(213,680)¥—

External
sales

Japan ................................................... $ 8,304,667
North America ...................................
1,772,375
Europe ................................................
671,694
Asia......................................................
187,030
Other areas ........................................
48,348
Total ................................................ 10,984,114
Eliminations and corporate ............
—
Consolidated total......................... $10,984,114

Intersegment
sales¥1,109,338
265,864
62,46130,377
4,322
1,472,362(232,764)¥1,239,598¥1,083,291
262,249
61,851
29,4954,215
1,441,101(232,046)¥1,209,055

Millions of yen
2002
Total
Operatingsales
expenses¥1,055,418
217,443
50,95030,6013,802
1,358,214(213,680)¥1,144,534¥1,024,035
212,346
54,29029,937
3,735
1,324,343(211,120)¥1,113,223

Thousands of U.S. dollars
2004
Total
Operatingsales
expenses$ 1,724,245 $10,028,912 $ 9,831,317
144,533
1,916,908
1,920,723
43,501
715,195
709,192
131,989
319,019
312,998
833
49,18150,602
2,045,101
13,029,215 12,824,832(2,045,101)(2,045,101) (2,051,359)$— $10,984,114 $10,773,473

Operatingincome (loss)

Total
assets$197,595 $ 9,231,554(3,815)
1,091,186
6,003
442,696
6,021
183,849(1,421)
26,943204,383
10,976,228
6,258(23,809)$210,641 $10,952,419

North America includes mainly the U.S.A. and Canada. Europe includes mainly the United Kingdom, Germany,
Netherlands, France, and Italy. Asia includes China, Indonesia, Philippines, and Thailand. Other areas include
mainly Australia, and Brazil.

47

(c) Corporate assets
Included in eliminations and corporate in (a) and (b) above under total assets are corporate assets of ¥115,811
million ($1,096,384 thousand), ¥108,725 million and ¥155,580 million at March 31, 2004, 2003 and 2002, respectively, which are mainly comprised of cash and time deposits of the Company and property, plant, equipment
and intangible assets of the Company’s Head Office.
(d) Overseas sales
Overseas sales consist of the total sales of the Company and its consolidated subsidiaries made outside ofJapan. Overseas sales information, as required to be disclosed in Japan, for the respective years is as follows:
Millionsof yen%Millionsof yenOverseassales% against
net sales

North America................................. ¥240,121
Europe .............................................. 109,026
Asia ...................................................
91,908Other areas ......................................
81,824
Total ............................................. ¥522,879

20.7%
9.4
7.9
7.1
45.1%

2004

%

Millionsof yen%Thousands of
U.S. dollars
2004

Overseassales% against
net sales

Overseassales% against
net sales

Overseassales¥303,682
92,15587,01452,494¥535,345

24.5%
7.4
7.0
4.3
43.2%

¥272,066
62,13995,832
65,988¥496,025

23.8%
5.4
8.4
5.7
43.3%

$2,273,227
1,032,150
870,094
774,628$4,950,099

2003

2002

North America includes mainly the U.S.A., and Canada. Europe includes mainly Norway, Germany,
Netherlands, France, and the United Kingdom. Asia includes Korea, Taiwan, China, and Indonesia. Other areas
include mainly Panama, Brazil, and Iran.

19. Additional
information

On April 1, 2003, NIPPI Corporation became a wholly owned subsidiary of the Company by exchange of shares.
The acquisition has been accounted for under the purchase method, with the excess of the purchase price overthe estimated fair value of the net assets acquired accounted for as consolidation adjustments accounts,
amounting to ¥2,974 million ($28,155 thousand).

20. Subsequent events(a) On June 29, 2004, the following appropriations of non-consolidated retained earnings were approved at theordinary meeting of shareholders of the Company:

Cash dividends (¥2 per share) ........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥2,885$27,312(b) On June 16, 2004, the Company issued ¥20,000 million notes in Japan due June 16, 2009 and June 16, 2011 inaccordance with the resolution made by the Board of Directors on May 12, 2004.

48

Report of Independent Public Accountants

To the Shareholders and the Board of Directors of Kawasaki Heavy Industries, Ltd.:We have audited the accompanying consolidated balance sheets of Kawasaki Heavy Industries, Ltd. and consolidated subsidiaries as ofMarch 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years
in the period ended March 31, 2004, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kawasaki Heavy Industries, Ltd. and subsidiaries as of March 31, 2004 and 2003, and the consolidated results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2004, in conformity with accounting principles generally acceptedin Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2004 are presented
solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation
has been made on the basis described in Note 1 to the consolidated financial statements.

KPMG AZSA & Co.
Kobe, Japan
June 29, 200449

Directors, Corporate Auditors, and Executive Officers

Senior Executive Vice President Tadashi Nishimura, President and CEO Masamoto Tazaki, Senior Executive Vice President Takehiko Saeki

50

DIRECTORS AND CORPORATE
AUDITORSEXECUTIVE OFFICERSDIRECTORS
President and CEO

President and CEO

Senior Executive Officer

Masamoto Tazaki

Masakazu Sato

Senior Executive Vice Presidents

Executive Officers

Tadashi Nishimura
Overall administration of marketingand sales

Yoshimitsu Kurosaki

Takehiko Saeki
Overall administration of technologicaldevelopment and production

Akiji Nakamura

Masamoto Tazaki*

Senior Executive Vice Presidents
Tadashi Nishimura*
Takehiko Saeki*

Senior Vice Presidents

Senior Vice Presidents

Mitsuaki Ikeda

Takuya Maeda
President
Plant & Infrastructure Engineering
Company

Masatoshi Tsurutani

Shinichi Morita
President
Consumer Products & Machinery
Company

Norio Tanaka

Shinichi Morita*

Takashi Yoshino*
Tadaharu Ohashi*
Akira Matsuzaki*
Chikashi Motoyama*

Director
Shuichi Tadokoro
President
Kawasaki Shipbuilding Corporation

CORPORATE AUDITORS
Yoshitsugu Wada
Tadao Ueda
Mitsugi Maeda**
Hiroshi Kawamoto*** Representative Director** Outside Auditor

Shigeru Hamada
Shuji Mihara

Takuya Maeda*

Masatoshi Terasaki*

Shoji Aoki

Masatoshi Terasaki
Senior Manager
Corporate Planning Department

Jiro Noguchi
Masaru Tomiie

Kouyu Itoga
Fumiaki Amae
Akio Watanabe
Kazuhiko Mishima

Takashi Yoshino
President
Gas Turbines & Machinery Company

Masatoshi Ohyama

Tadaharu Ohashi
President
Rolling Stock, Construction Machinery& Crushing Plant Company

Toshikazu Hayashi

Akira Matsuzaki
General Manager
Corporate Technology Division

Shinichi Tamba

Shuichi Nose
Tamio Nakano
Masashi Segawa
Hidetsugu Horikawa

Chikashi Motoyama
President
Aerospace Company(As of June 29, 2004)

51

Major Consolidated Subsidiaries and Affiliates

Name

Location

Paid-in Capital

Equity(Millions of yen,unless otherwise noted)(% ownership by
KHI Group)

Principal Businesses

SHIPBUILDING
Kawasaki Shipbuilding CorporationJapan

10,000100.00Design, manufacture, sale, and maintenance ofcommercial and naval vessels and marine application equipment

Akashi Ship Model Basin Co., Ltd.

Japan

490

100.00

Testing and development of ship models,
basic research on fluid dynamics

Kawaju Kobe Support Co., Ltd.

Japan

50

100.00Outsourcing for office support services

Nangtong Cosco KHI Ship Engineering Co., Ltd.†

China

US$80,000*

50.00

Manufacture and sale of ships

140

99.96

ROLLING STOCK, CONSTRUCTION MACHINERY & CRUSHING PLANT
Kawasaki Rolling Stock Component Co., Ltd.

Japan

Manufacture of rolling stock and high-pressure
vessels, overland and marine transportation, andtemporary staffing services

Kawasaki Rolling Stock Technology Co., Ltd.

Japan

135

99.16

Design and sale of rolling stock parts and highpressure containers; maintenance and consulting
for design engineering of rolling stock; construction of arcades

Kawasaki Machine Systems, Ltd.

Japan

743

100.00★❊Nichijo Manufacturing Co., Ltd.

Sale and repair of construction machinery,gas turbine generators, and industrial robots

Japan

120

50.04

Manufacture and sale of snow removal
equipment

Fukue Powtec Corporation

Japan

300

100.00

Manufacture and sale of pulverizing equipment,
principally granulators

Kawasaki Rail Car, Inc.

U.S.A.

US$60,600*

100.00Engineering, manufacture, sale, and after-sales
service of rolling stock in the United States

Kawasaki Construction Machinery Corp.

U.S.A.

US$8,000*

100.00of America

Manufacture and sale of construction
machinery in the United States

AEROSPACENIPPI Corporation

Japan

6,048

100.00

Manufacture, maintenance, and modification of aircraft and components; manufacture of rocket components, aerospace equipment, targeting systems,
nondestructive testing systems, and industrial fans

Kawasaki Helicopter System Ltd.

Japan

200

100.00Transportation of passengers or cargo by helicopter; maintenance and repair of helicoptersand flight training services; research, design,and construction of heliports

Nippi Kosan Co., Ltd.

Japan

120

100.00Design and supervision of building construction
work, sale of herbicidal soil, manufacturing andsale of rust-resistant packaging materials, andinsurance agency business

Kawasaki Aeronáutica do Brasil Indústria Ltda.

Brazil

R20,000*

100.00Assembly of major wing section for the
Embraer 195

GAS TURBINES & MACHINERY
Kawasaki Thermal Engineering Co., Ltd.

Japan

1,460

83.59

Manufacture, sale, and installation of generalpurpose boilers and air-conditioning equipment

Kawaju Akashi Engineering Co., Ltd.

Japan

60

100.00Design and manufacture of machinery, steering
equipment, inspection equipment, and tools;
maintenance of gas turbines

Wuhan Kawasaki Marine Machinery Co., Ltd.

China

1,100

55.00

Manufacture, sale, and after-sales serviceof Kawasaki-brand azimuth thrusters, sidethrusters, and other machinery

52

Name

Location

Paid-in Capital

Equity(Millions of yen,unless otherwise noted)(% ownership
by KHI Group)

Principal Businesses

PLANT & INFRASTRUCTURE ENGINEERING
Kawasaki Construction Co., Ltd.

Japan

350

100.00Installation of steel structures

Osaka Power Engineering Co., Ltd.

Japan

90

100.00Design, manufacture, installation, modification andrepair of environmental equipment, boilers, turbines, pollution prevention equipment, and crushing machinery

Kawasaki Engineering Co., Ltd.

Japan

100

100.00Design and construction of industrial plant equipment, manufacture and sale of pools and highpressure oxygen treatment equipment, printing
and copying of documents

Japan Gas Turbine K.K.†

Japan

1,500

40.00

Sale, assembly, site engineering support, repair,testing, pilot operation, installation, and arrangement of power generation equipment as well as
related service-based businesses

Shanghai Cosco Kawasaki Heavy Industries

China

US$29,800*

45.00

Manufacture and sale of steel structures

Kawasaki Motors Corporation Japan

Japan

560

100.00Distribution of motorcycles and Jet Ski® water-

Kawasaki Metal Industries, Ltd.

Japan

350

100.00

Steel Structure Co., Ltd.†CONSUMER PRODUCTS & MACHINERY
craft in Japan
Manufacture, processing, and assembly of various
steel products
Kawasaki Motors Manufacturing Corp., U.S.A.

U.S.A.

US$70,000*

100.00●

Manufacture of motorcycles, ATVs, Jet Ski®
watercraft, small gasoline engines, industrial
robots, and rolling stock

Kawasaki Motors Corp., U.S.A.

U.S.A.

US$65,900*

100.00Distribution of motorcycles, ATVs, Jet Ski®
watercraft, and small gasoline engines in the
United States

Kawasaki Motors Finance Corporation

U.S.A.

US$10,000*

100.00Inventory financing for dealers of Kawasaki

KM Receivables Corporation

U.S.A.

US$100100.00Management of account receivables of Kawasaki

Canadian Kawasaki Motors Inc.

Canada

C$2,000*

100.00Kawasaki Motors Europe N.V.

Netherlands

A14,093*

100.00Motors Corp., U.S.A.
Motors Finance Corporation
Distribution of motorcycles, ATVs, and Jet Ski®
watercraft in Canada
Sole distribution of motorcycles, ATVs, Jet Ski®
watercraft, and small gasoline engines in Europe
Kawasaki Motors Pty. Ltd.

Australia

A$2,000*

100.00P.T. Kawasaki Motor Indonesia

Indonesia

US$10,000*

51.00

Distribution of motorcycles, ATVs, and Jet Ski®
watercraft in Australia
Manufacture and distribution of motorcycles
in Indonesia

Kawasaki Motors (Phils.) Corporation

Philippines

P101,430*

50.001

Manufacture and distribution of motorcycles

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Thailand

B1,900,000*

92.63

Manufacture and distribution of motorcycles

Kawasaki Robotics (U.S.A.), Inc.

U.S.A.

US$1,000*

100.00in the Philippinesin Thailand
Sale and after-sales service of industrial robots
in the United States
Kawasaki Robotics (UK) Ltd.

U.K.

£917*

100.00Kawasaki Machine Systems Korea, Ltd.

Korea

W1,500**100.00

Sale and after-sales service of industrial robots
in the U.K. and Ireland
Sale and after-sales service of industrial robots
and robot systems

53

Name

Location

Paid-in Capital

Equity(Millions of yen,unless otherwise noted)(% ownership by
KHI Group)

Principal Businesses

100.00Design, manufacture, sale, after-sales service, andOTHER
Kawasaki Precision Machinery Ltd.

Japan

3,000

maintenance for hydraulic machinery and equipment, electric-powered devices, and control systems
Kawaju Shoji Co., Ltd.

Japan

600

70.00

Trading

Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic

Kawaju Real Estate Co., Ltd.

Japan

320

100.00presses and other hydraulic equipment
Administration of Company welfare facilities;
real estate sales, leasing, and construction
Kawasaki Kosan Co., Ltd.

Japan

300

100.00Insurance representation, real estate leasing,administration and maintenance, leasing, andprovision of loans

Kawaju Tomakomai Kanko Kaihatsu Co., Ltd.

Japan

780

100.00Management of a golf course

Kawasaki Heavy Industries (U.S.A.), Inc.

U.S.A.

US$600*100.00

Product sales, mediation of orders, and provisionof various engineering support services in North
America

Kawasaki do Brasil Indústria e Comércio Ltda.

Brazil

R1,136*100.00

Sale of KHI products in Brazil and the rest ofCentral and South America; provision of orderintermediation and various engineering services

Kawasaki Precision Machinery (U.K.) Limited

U.K.

£5,000*100.00

Manufacture and sale of hydraulic products

Kawasaki Heavy Industries (U.K.) Ltd.

U.K.

£500*

100.00

Sale of KHI products in various countries in
Europe (principally the U.K.), the Middle East, andAfrica; provision of order intermediation services

Flutek, Ltd.

Korea

W1,310**50.40

Manufacture, sale, and after-sales service forpumps used in construction machinery

Kawasaki Safety Service Industries, Ltd.†

Japan

1,708

34.47

Manufacture, sale, and installation of hospital
respiration, fire-extinguishing, and medical
equipment

Kawasaki Setsubi Kogyo Co., Ltd.†

Japan

1,581

33.87

Design and installation of air-conditioning,heating/cooling, water supply/disposal, andsanitary facilities(As of March 31, 2004)* Monetary unit in thousands** Monetary unit in millions†
Affiliate accounted for using equity method
Partially included in:● Rolling Stock, Construction Machinery & Crushing Plant★ Gas Turbines & Machinery❊ Consumer Products & Machinery54

Network(As of August 1, 2004)

Kobe Head Office
Kobe Crystal Tower,
1-3, Higashikawasaki-cho 1-chome,
Chuo-ku, Kobe, Hyogo 650-8680, Japan
Phone: 81-78-371-9530
Fax: 81-78-371-9568

Tokyo Head OfficeWorld Trade Center Bldg.,
4-1, Hamamatsu-cho 2-chome,
Minato-ku, Tokyo 105-6116, Japan
Phone: 81-3-3435-2111
Fax: 81-3-3436-3037

DOMESTIC WORKS
Yachiyo Works
1780 Kamikoya, Yachiyo,
Chiba 276-0022, Japan
Phone: 81-47-483-1111
Fax: 81-47-482-3227

OVERSEAS OFFICES
Seoul Officec/o Kawasaki Machine Systems Korea, Ltd.
3rd Floor (307), Industrial Complex Support Bldg.,
637, Kojan-Dong, Namdong-Gu,
Incheon, 405-817, Korea
Phone: 82-32-821-6941
Fax: 82-32-821-6947

Beijing Office
Room No. 2602, China World Tower 1,
China World Trade Center,
No. 1, Jian Guo Men Wai Avenue,
Beijing 100004,
People’s Republic of China
Phone: 86-10-6505-1350
Fax: 86-10-6505-1351

Shanghai Office

1, Kawasaki-cho, Kakamigahara,
Gifu 504-8710, Japan
Phone: 81-583-82-5712
Fax: 81-583-82-2981

13th Floor, HSBC Tower,
101, Yin Cheng East Road,
Pudong New Area,
Shanghai 200120,
People’s Republic of China
Phone: 86-21-6841-3377
Fax: 86-21-6841-2266

Nagoya Works 1

Taipei Office

3-11, Oaza Kusunoki, Yatomi-cho,Ama-gun, Aichi 498-0066, Japan
Phone: 81-567-68-5117
Fax: 81-567-68-5090

15th Floor, Fu-key Bldg.,
99 Jen-Ai Road, Section 2,
Taipei, Taiwan
Phone: 886-2-2322-1752
Fax: 886-2-2322-5009

Gifu Works

Nagoya Works 2
7-4, Kanaoka, Tobishima-mura,Ama-gun, Aichi 490-1445, Japan
Phone: 81-567-55-0800
Fax: 81-567-55-0803

Kobe Works
1-1, Higashikawasaki-cho 3-chome,
Chuo-ku, Kobe, Hyogo 650-8670, Japan
Phone: 81-78-682-5001
Fax: 81-78-682-5500

Hyogo Works
1-18, Wadayama-dori 2-chome,
Hyogo-ku, Kobe, Hyogo 652-0884, Japan
Phone: 81-78-682-3111
Fax: 81-78-671-5784

Akashi Works
1-1, Kawasaki-cho, Akashi,
Hyogo 673-8666, Japan
Phone: 81-78-921-1301
Fax: 81-78-913-1366

Seishin Works
8-1, Takatsukadai 2-chome,
Nishi-ku, Kobe, Hyogo 651-2271, Japan
Phone: 81-78-992-1911
Fax: 81-78-992-1910

Banshu Works
2680, Oka, Inami-cho,Kako-gun, Hyogo 675-1113, Japan
Phone: 81-794-95-1211
Fax: 81-794-95-1226

Harima Works
8, Niijima, Harima-cho,Kako-gun, Hyogo 675-0155, Japan
Phone: 81-794-35-2131
Fax: 81-794-35-2132

Bangkok Office
17th Floor, Ramaland Bldg.,
952 Rama IV Road, Bangrak,
Bangkok 10500, Thailand
Phone: 66-2-632-9511
Fax: 66-2-632-9515

Kuala Lumpur Office
Letter Box No. 162,
6th Floor, UBN Tower,
10 Jalan P. Ramlee 50250,
Kuala Lumpur, Malaysia
Phone: 60-3-2070-5141
Fax: 60-3-2070-5148

Jakarta Office
12th Floor, Skyline Bldg.,
Jl. M.H. Thamrin 9,
Jakarta 10340, Indonesia
Phone: 62-21-314-0737
Fax: 62-21-314-1049

MAJOR SUBSIDIARIESAND AFFILIATES
Kawasaki Shipbuilding Corporation
1-1, Higashikawasaki-cho 3-chome, Chuo-ku,
Kobe, Hyogo 650-8670, Japan
Phone: 81-78-682-5501
Fax: 81-78-682-5514

Sakaide Shipyard
1, Kawasaki-cho, Sakaide,
Kagawa 762-8507, Japan
Phone: 81-877-46-1473
Fax: 81-877-46-7006

Kawasaki Precision Machinery Ltd.
234, Matsumoto, Hazentani-cho, Nishi-ku,
Kobe, Hyogo 651-2239, Japan
Phone: 81-78-991-1133
Fax: 81-78-991-3186

Kawasaki Thermal Engineering Co., Ltd.
18-31, Higashinakajima 1-chome,
Higashiyodogawa-ku, Osaka 533-0033, Japan
Phone: 81-6-6325-0300
Fax: 81-6-6325-0301

Kawasaki Safety Service Industries, Ltd.
2-16, Takatsukadai 3-chome, Nishi-ku,
Kobe, Hyogo 651-2271, Japan
Phone: 81-78-992-1400
Fax: 81-78-993-2076

NIPPI Corporation
3175 Showa-machi, Kanazawa-ku,
Yokohama, Kanagawa 236-8540, Japan
Phone: 81-45-773-5100
Fax: 81-45-773-5101

Kawasaki Heavy Industries (U.S.A.), Inc.
599 Lexington Avenue, Suite 3901,
New York, NY 10022, U.S.A.
Phone: 1-212-759-4950
Fax: 1-212-759-6421

Houston Branch
333 Clay Street, Suite 4310,
Houston, TX 77002-4103, U.S.A.
Phone: 1-713-654-8981
Fax: 1-713-654-8187

Kawasaki Rail Car, Inc.
29 Wells Avenue, Building #4,
Yonkers, NY 10701, U.S.A.
Phone: 1-914-376-4700
Fax: 1-914-376-4779

Kawasaki Robotics (U.S.A.), Inc.
28059 Center Oaks Court,
Wixom, MI 48393, U.S.A.
Phone: 1-248-305-7610
Fax: 1-248-305-7618

Kawasaki Motors Corp., U.S.A.
9950 Jeronimo Road,
Irvine, CA 92618-2084, U.S.A.
Phone: 1-949-770-0400
Fax: 1-949-460-5600

Grand Rapids Office5080 36th Street S.E.,
Grand Rapids, MI 49512, U.S.A.
Phone: 1-616-949-6500
Fax: 1-616-954-3031

55

Kawasaki Motors Manufacturing Corp., U.S.A.

Kawasaki Heavy Industries (Europe) B.V.

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

6600 Northwest 27th Street,
Lincoln, NE 68524, U.S.A.
Phone: 1-402-476-6600
Fax: 1-402-476-6672

7th Floor, Riverstaete,
Amsteldijk 166,
1079 LH Amsterdam,
The Netherlands
Phone: 31-20-6446869
Fax: 31-20-6425725

129 Rama IX Road, Kwaeng Huaykwang,
Khet Huaykwang, Bangkok 10320, Thailand
Phone: 66-2-246-1510
Fax: 66-2-246-1517

Maryville Plant
28147 Business Highway 71,
Maryville, MO 64468, U.S.A.
Phone: 1-660-582-5829
Fax: 1-660-582-5826

Kawasaki Construction Machinery Corp.
of America
2140 Barrett Park Drive, Suite 101,
Kennesaw, GA 30144, U.S.A.
Phone: 1-770-499-7000
Fax: 1-770-421-6842

Canadian Kawasaki Motors Inc.
25 Lesmill Road, Don Mills,
Toronto, ON M3B 2T3, Canada
Phone: 1-416-445-7775
Fax: 1-416-445-0391

Kawasaki do Brasil Indústria e Comércio Ltda.
Avenida Paulista, 542-6 Andar,
Bela Vista, 01310-000, São Paulo, S.P., Brazil
Phone: 55-11-289-2388
Fax: 55-11-289-2788

Kawasaki Aeronáutica do Brasil
Indústria Ltda.
Estrada Municipal de São Roque, km 05,
Prédio n° 8.000, Município Gavião Peixoto,São Paulo, Brazil
Phone: 55-16-3338-9804
Fax: 55-16-3338-9810

Kawasaki Heavy Industries (U.K.) Ltd.
4th Floor, 3 St. Helen’s Place,
London EC3A 6AB, U.K.
Phone: 44-20-7588-5222
Fax: 44-20-7588-5333

Kawasaki Precision Machinery (U.K.) Limited
Ernesettle Lane, Ernesettle, Plymouth,
Devon PL5 2SA, U.K.
Phone: 44-1752-364394
Fax: 44-1752-364816

Kawasaki Robotics (UK) Ltd.
Units 6 & 7, Easter Court,
Europa Boulevard, Westbrock,
Warrington WA5 5ZB, U.K.
Phone: 44-1925-713000
Fax: 44-1925-713001

Kawasaki Heavy Industries G.m.b.H.
5th Floor, Wehrhahn Center,
Oststrasse 10, 40211 Düsseldorf, Germany
Phone: 49-211-1792340
Fax: 49-211-161844

Kawasaki Gas Turbine Europe G.m.b.H.
Nehring Strasse 15,61352 Bad Homburg, Germany
Phone: 49-6172-7363-0
Fax: 49-6172-7363-55

Kawasaki Robotics G.m.b.H.
29 Sperberweg, 41468 Neuss, Germany
Phone: 49-2131-3426-0
Fax: 49-2131-3426-22

56

KHI Europe Finance B.V.
Hoekenrode 6,1102 BR Amsterdam,
The Netherlands
Phone: 31-20-6293800
Fax: 31-20-6294661

Kawasaki Motors Europe N.V.
Opaallaan 1210,
2132 LN Hoofddorp,
The Netherlands
Phone: 31-23-567-0500
Fax: 31-23-563-9884

U.K. Branch
1 Dukes Meadow,
Millboard Road, Bourne End,
Buckinghamshire SL8 5XF, U.K.
Phone: 44-1628-856600
Fax: 44-1628-856799

Germany Branch
Max-Planck-Strasse 26,
61381 Friedrichsdorf, Germany
Phone: 49-6172-7340
Fax: 49-6172-734160

France Branch
Parc d’Activités de la Clef de Saint-Pierre,
Rond-Point de l’Epine des Champs, Bâtiment 1,
78990 Elancourt Cedex, France
Phone: 33-1-30-69-0000
Fax: 33-1-30-69-5001

Italy Branch
Via Anna Kuliscioff,
35-20152 Milano, Italy
Phone: 39-02-41-2821
Fax: 39-02-48-37-0616

Sweden Branch
Häradsvägen 255,
Huddinge, Sweden
Phone: 46-8-464-0200
Fax: 46-8-464-0240

Kawasaki Machine Systems Korea, Ltd.
3rd Floor (307),
Industrial Complex Support Bldg.,
637, Kojan-Dong, Namdong-Gu,
Incheon, 405-817, Korea
Phone: 82-32-821-6941~5
Fax: 82-32-821-6947

Wuhan Kawasaki Marine Machinery Co., Ltd.
No. 43 Wudong Road,
Qingshan, Wuhan,People’s Republic of China
Phone: 86-27-86410132
Fax: 86-27-86410136

Kawasaki Heavy Industries (H.K.) Ltd.
Room 4211–16, Sun Hong Kai Centre,
30 Harbour Road, Wanchai, Hong Kong,
People’s Republic of China
Phone: 852-2522-3560
Fax: 852-2845-2905

KHI Design & Technical Service Inc.
6F The Island Plaza, 105 L.P. Leviste St.,
Salcedo Village, Makati, Metro Manila,
The Philippines
Phone: 63-2-810-9213
Fax: 63-2-816-1222

Kawasaki Motors (Phils.) Corporation
Km. 24 East Service Road,
Bo. Cupang, Alabang, Muntinlupa,
Metro Manila, The Philippines
Phone: 63-2-842-3140
Fax: 63-2-842-2730

Kawasaki Heavy Industries (Singapore) Pte. Ltd.
6 Battery Road, #18-04,
Singapore 049909
Phone: 65-62255133~4
Fax: 65-62249029

P.T. Kawasaki Motor Indonesia
JI. Perintis Kemerdekaan, Kelapa Gading,
Jakarta Utara 14250, Indonesia
Phone: 62-21-452-3322
Fax: 62-21-452-3566

Kawasaki Motors Pty. Ltd.
Unit Q, 10-16 South Street,
Rydalmere, N.S.W. 2116, Australia
Phone: 61-2-9684-2585
Fax: 61-2-9684-4580

Tiesse Robot S.p.A.
Via Isorella 24,
25010 Visano (Brescia), Italy
Phone: 39-30-9958621
Fax: 39-30-9958677

Nantong Cosco KHI Ship Engineering Co., Ltd.
117, Linjiang Road, Nantong City,
Jiangsu Province, People’s Republic of China
Phone: 86-513-350-0666
Fax: 86-513-351-4349

Shanghai Cosco Kawasaki Heavy Industries
Steel Structure Co., Ltd.
5198 Hutai Road, Baoshan District,
Shanghai, People’s Republic of China
Phone: 86-21-5602-8888
Fax: 86-21-5602-5198

KHITKAN Co., Ltd.
G.K. Land Industrial Park, Moo 4,
Tambon Pluak Daeng,
Amphur Pluak Daeng, Rayong Province 21140,
ThailandPhone: 66-38-955062~66
Fax: 66-38-955067

Kawasaki Corporate Data
(As of March 31, 2004)

Kawasaki Heavy Industries, Ltd.
Kobe Head Office:
Kobe Crystal Tower, 1-3,
Higashikawasaki-cho 1-chome,
Chuo-ku, Kobe, Hyogo 650-8680, JapanTokyo Head Office:World Trade Center Bldg.,
4-1, Hamamatsu-cho 2-chome,
Minato-ku, Tokyo 105-6116, JapanFounded: 1878
Incorporated: 1896

Transfer Agent:
The Chuo Mitsui Trust and Banking Company, Limited
33-1, Shiba 3-chome,
Minato-ku, Tokyo 105-8574, Japan
Handling Office:
The Chuo Mitsui Trust and Banking Company, Limited
Osaka Branch Office
2-21, Kitahama 2-chome,
Chuo-ku, Osaka 541-0041, Japan
Independent Auditors:
KPMG AZSA & Co.
Kobe Crystal Tower, 1-3,
Higashikawasaki-cho 1-chome,
Chuo-ku, Kobe, Hyogo 650-8680, Japan

Paid-in Capital: ¥81,427,090,720
Number of Shares Issued: 1,443,394,172 shares
Number of Shareholders: 132,897

ADR Facility:
KHI has a sponsored American Depository Receipt (ADR) facility.
ADRs are traded in the over-the-counter (OTC) market in the UnitedStates under CUSIP number 486 359 20 1 with each ADR representing
four ordinary shares.

Number of Employees: 29,306
Stock Exchange Listings:
Tokyo, Osaka, Nagoya
Newspapers in Which Public Notices Are Made:
The Nihon Keizai Shimbun
The Kobe Shimbun

ADR Depository:
The Bank of New York
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-212-815-2042
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://www.bankofny.com/adr
KHI Web Site at: http://www.khi.co.jp

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Printed in Japan
ISSN 0287 - 1793
This annual report is printed on recycled paper with soy ink by waterless printing.