Mission

In 2007, the Kawasaki Group established the Kawasaki Group Mission
Statement to orient the Group as a whole. It incorporates the Kawasaki
Group's social mission for the 21st century, commonly shared values toincrease Kawasaki brand value, core principles to guide business activities,
and actions regularly expected of each individual employee.

φ6.63m Slurry Type Tunnel Boring Machine

Kawasaki Group Mission Statement
We respond to
our customers'
requirements

Group Mission
Kawasaki, working as
one for the goodof the planet
We pursue
originality andinnovation

We constantly
achieve newheights intechnology

1GlobalThe Kawasaki Group manufactures a variety of products overseas
and markets them around the globe through an extensive global
network. These products include motorcycles, rolling stock,aircraft, construction machinery, hydraulic equipment, ships
and marine machinery.

R160 subway train to MTA New York City Transit (NYC Transit)

2Overseas Production Bases
In 2002, we set up a rolling stock production base in Lincoln,
Nebraska, U.S.A. that is capable of handling the entire
production process, from train car body fabrication throughfinal assembly. Much earlier, in 1975, we had become thefirst Japanese company in the motorcycle/auto industry tocommence production in the U.S. It continues to exhibit thesame pioneering spirit as it pursues overseas operations inother segments.

Net Sales by Geographical Region in FY2012(Billions of yen)

The ratio of overseas
sales to consolidated

Other

net sales

56.5%

Japan

135.8
Asia

239.6

567.0

123.3
Europe237.9
United States3Energy
Solutions
Energy should be efficient, environment- and resourceconscious, and most certainly reliable. As a company whoserole includes the building of infrastructures worldwide,
The Kawasaki Group provides new value, with energy andthe environment, both present and future, integral to thedevelopment of safe and comfortable lifestyles.

Green Gas Engine●

World-best 49% electrical efficiency●

Minimum impact on environment
less than 200ppm (0.8g/kWh) @ 0%
O2 NOX emission

4

The Kawasaki Group provides customers with products and services thatuse energy efficiently, and thereby contributes to reduced emissions ofgreenhouse gases on a global scale.
The Kawasaki Group's Conceived Distributed Energy Systems
The Kawasaki Group strives to develop and promotewidespread use of technologies that facilitate efficient use ofenvironment-conscious clean energy.
We contribute to the highly efficient use of electricity andheat energy through such solutions as gas co-generation
systems, which generate power using gas turbines or gas
engines running on natural gas and effectively utilize theheat that is released during power generation to make steam
and hot water for room heating and hot water applications.
Other solutions include the Kawasaki Green Gas Engine,which boasts the world's highest electricity-generating
efficiency, and a green binary turbine, which uses waste heatto produce power.
In addition, we are working on technologies that provide
commercial facilities and general houses with clean electricity
made from renewable energy. Our emphasis is on power
generation systems using familiar renewable energy suchas wind and solar power; integrated solar combined cycle
systems; Gigacell®, a storage battery with the capacity tolevel out fluctuations in power supply when the weather,for example, affects output from renewable energy sources;
and micro hydropower systems, which generate power from
untapped hydroelectricity but have small energy output andhave yet to be utilized.
We have installed a combined cycle system at a new
facility at Kobe Works, as a demonstration model showcasing
the efficient application of renewable energy in on-site
offices and factories and reduced power consumption. This
will contribute to a smaller carbon footprint.

Commercial facilities

Schools
LRV

Energy demand
Factories

General houses

Energy supply
Wind power generator

Storage battery
Gigacell®
Biomass methane
fermentation system

Storage battery Gigacell®
Power plants

Electric Energy

Micro hydropower
generator

Waste energy
utilization facility

Solar cell
Solar-power combined
cycle generator

Gas turbine
co-generation system
Binary power
generator

Electricity + Thermal Energy
Gas engine

Woody biomass gasification power generationand heat supply system

5Founded in 1878, Kawasaki Heavy Industries, Ltd. (KHI), is a leading global comprehensive manufacturer of transportationequipment and industrial goods. With a broad technological base that encompasses mastery of the land, sea, and air, the KHI
Group manufactures ships, rolling stock, aircraft and jet engines, gas turbine power generators, environmental and industrial
plants, and a wide range of manufacturing equipment and systems. KHI also produces such world-famous consumer products as
Kawasaki-brand motorcycles and personal watercraft.

Contents
Consolidated Financial Highlights
An Interview with Satoshi Hasegawa, President

7
8

Review of Operations:
The KHI Group at a Glance
Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery

14
16
18
20
22
24
26
28

Corporate GovernanceDirectors, Corporate Auditors, and Executive Officers
Corporate Social Responsibility

30
36
38

Financial Section:
Six-Year Summary
Management’s Discussion & Analysis
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Independent Auditor's Report

43
44
48
50
51
52
54
88

Major Consolidated Subsidiaries and Affiliates
Network
Corporate Data

89
92
96

Forward-Looking Statements
Figures recorded in the business forecasts are forecasts that reflect the judgment of the Company based on the information available at thetime of release and include risks and uncertainties. Accordingly, the Company cautions investors not to make investment decisions solely on thebasis of these forecasts.
Actual business results may differ materially from these business forecasts due to various important factors resulting from changes in theexternal environment and internal environment. Important factors that may affect actual business results include, but are not limited to,
economic conditions, the yen exchange rate against the U.S. dollar and other currencies, the tax system, and laws and regulations.

6Consolidated Financial Highlights
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
Years ended March 31
Thousands of
U.S. dollars

Millions of yen

2012

2011

2010

2012

¥1,303,778¥1,226,949¥1,173,473$15,872,632

Operating income (loss)

57,484

42,628(1,316)

699,829

Net income (loss)

23,32325,965(10,860)

283,942

Net cash provided by operating activities

84,737

81,92930,1781,031,616

Capital expenditures

63,91955,33459,272

778,171

Net income (loss) per share—basic

¥13.9

¥15.5

¥(6.5)$0.16

Net income per share—diluted

13.8

15.3

–

0.16

Cash dividends

5.0

3.0

3.0

0.06

¥1,362,139¥1,354,278¥1,352,439$16,583,138

315,922

297,433

283,053

3,846,140

Orders received during the fiscal year

¥1,311,878¥1,270,652¥1,001,290$15,971,244

Order backlog at fiscal year-end

1,494,116

1,495,349

1,507,057

18,189,870

For the year:
Net sales

Per share (in yen and U.S. dollars):

At year-end:
Total assets
Total net assets
Orders received and outstanding:Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥82.14 to US$1, the approximate rate of exchange at
March 31, 2012.

Net Income (Loss)

Total Net Assets(Billions of yen)

11

12

1,400

1,000

1,000

50

08

09

10

11

12

0

08

09

10

11

12

1,699.2

10

11

12

200

200
0

600

1,533.7

1,311.8

1,270.6

1,540.6600

1,001.2100

1,610.8

315.9

150

1,494.110

1,400

1,495.3

09

200

297.4

11.7
0

-20

1,800

1,507.0

08

23.3

25.9

35.1

10

-10
0

1,800

(Billions of yen)

250

-10.8

1,303.7

1,226.9

1,173.4500

1,338.6

1,501.1

20

Order Backlog

300

30
1,000

Orders Received(Billions of yen)

350

40

283.0

1,500

(Billions of yen)

295.2

(Billions of yen)

319.0

Net Sales

08

09

10

11

12

0

08

09

7

An Interview with Satoshi Hasegawa, President

Fiscal 2012, ended March 31, 2012, marked a second straight year of major
increases in the KHI Group’s business results. This progress enabled the Group toachieve certain performance targets stated in its Medium-term Business Plan
2010 (FY2011-2013), MTBP2010, a year ahead of schedule. Moving forward, we
will continually strengthen policies and measures to "return to a growth path"and "strengthen the business foundation for future growth" and realize"Kawasaki Business Vision 2020."
In this interview, Satoshi Hasegawa, president of Kawasaki Heavy Industries, Ltd. (KHI), provides an overview of fiscal
2012 business results and discusses the business execution strategies for fiscal 2013, the last year of MTBP2010, andefforts to achieve "Kawasaki Business Vision 2020."

start, what is the operating
Q1 Toenvironment
like for the KHI Group andhow did the Group perform in fiscal 2012?
operating environment shows promising
A1 Thealbeit gradual signs of improvement, including
indications of recovery in the U.S. employment market
and a less ominous probability that Europe’s debt crisis
would wreak havoc in financial markets.
Although China’s economic growth appears to behitting a plateau, other emerging countries, particularly
India, Brazil and ASEAN, are achieving expansion andwill remain drivers of global economic growth.
In Japan, the operating environment is marked byrestoration work, which is moving into full swing in thearea devastated by the Great East Japan Earthquake,and by heightened interest nationally in an attainable

Summary of Financial Results(Billions of yen)

FY2011FY2012

ChangeOrders received

1,270.6

1,311.8

41.2

Net sales

1,226.9

1,303.7

76.8

42.6

57.4

14.8

3.4%

4.4%

1.0%

49.1

63.6

14.4

4.0%

4.8%

0.8%

Operating income
Ratio to sales
Recurring profit
Ratio to sales

8

Net income

25.9

23.3

-2.6

Ratio to sales

2.1%

1.7%

-0.4%

Exchange rate

¥86=US$1¥79=US$1

Business Vision

Kawasaki, working as one for the good of the planet(Enriching lifestyles and helping safeguard the environment: Global Kawasaki)

A company that provides products and services suited to the diverse needs of people around the world through advanced technological capabilities in three principal business sectors: Land, Sea, and Air Transportation Systems, Energy & Environmental Engineering, and Industrial Equipment
Transportation Systems

Energy & Environmental Engineering

Industrial Equipment

Shipbuilding, rolling stock, aircraft, aircraft
engine, ship machinery, motorcycle, etc.

Gigacells, industrial gas turbines, gas engines,
steam turbines, compressors, energy andenvironmental plant engineering, etc.

Industrial plants, tunneling equipment,
hydraulic equipment, robots, construction
machinery, crushers, etc.

Improvement of the global
environment

Reinforcement of the earnings
structure

A company that creates products thatincorporate the ultimate in low
environmental impact technologies
in each business sector

A company that establishes anearnings structure that makes
possible sustainable growthinvestment and provides stableshareholder returns

and sustainable energy policy for the future, which is
prompted by the post-disaster nuclear power plant
accident. With the necessary expertise to address theseissues, an increasingly larger role played by KHI is
expected in the execution of associated projects.
In fiscal 2012, on a consolidated basis, orders won
by the KHI Group rose ¥41.2 billion from the previous
fiscal year to a value of ¥1,311.8 billion, and net sales
climbed ¥76.8 billion to ¥1,303.7 billion. Operating
income grew ¥14.8 billion, to ¥57.4 billion, and recurring
profit* jumped ¥14.4 billion, to ¥63.6 billion. Net income
decreased ¥2.6 billion, to ¥23.3 billion, mainly becauseof partial reversal on deferred tax assets, following a
reduction in the corporate tax rate.
All told, despite yen appreciation exceeding theassumed rate used to calculate initial targets as well as
the profit-squeezing impact of the floods in Thailand on
operations, the KHI Group reached certain of its targets—
operating income of ¥52.0 billion and recurring profit of¥56.0 billion—set for the final year of MTBP2010. Hittingthese targets a year ahead of schedule under difficult
circumstances is highly commendable.
＊ Recurring profit is used in accounting standards generally accepted inJapan. It is the sum of operating income, net interest income (expense),
dividend income, and other non-operating and recurring income items.

led to the early achievement of theseQ2 Whattargets, and what is in store for fiscal 2013?
MTBP2010 performance targets ahead
A2 Achievingof schedule was mainly a reflection of the solid
improvements in productivity and profitability in all

Emphasis on CSR

Global business development
and emphasis on monozukuri(manufacturing)

A company trusted wherever it does
business around the world

A company that upgrades plants inJapan and actively pursues businessdevelopment overseas

Workplace environment development
A company whose employees havehopes and dreams and work withvigor and enthusiasm

Quantitative Vision (FY2021)
Consolidated net sales¥2 trillion
Ratio of recurring profit to sales

5.0% or higher
Net Sales by Business Sectors(Billions of yen)Transportation Systems
Energy & Environmental Engineering
Industrial Equipment
Ratio of recurring profit to sales

2,000.0

2,000

1,500

1,501.1

1,338.6

1,173.4

1,000

4.3%

08

1,226.9
4.0%

2.9%

1,303.7 1,380.0

0910(Actual)11

Existing businesses(220.0)10%Emerging countries(400.0)Developed countries(310.0)Japan (110.0)
5.0% Products Areas
5%

4.8%

1.2%

500

0

New products and new
businesses (600.0)

12

Breakdown ofgrowth inGroup net sales(2010 2021)

4.0%

13
(Forecast)

21(Vision)0%(Years ended/ending March 31)

business segments amid the inescapable pressure of
yen appreciation, along with well-received responses,
especially by the Precision Machinery, Plant &Infrastructure and Motorcycle & Engine segments, toexpanding demand in emerging markets, particularly
China, Brazil and ASEAN. Moving forward, we mustleverage these results across the Group to further

9

An Interview with Satoshi Hasegawa, President

reinforce consolidated profitability.
However, in fiscal 2013, which is the last year of
MTBP2010, we face a certain reality. Even though thebusiness plans for all business segments are essentiallycontinuations from fiscal 2012, we will have to factor in
the possibility of lower profits from the Ship & Offshore
Structure segment, which is plagued by persistently
lackluster conditions in the shipping market. In addition,
as China’s decelerating economic growth becomes
more pronounced, we cannot expect our business in
China, such as the Precision Machinery and Plant &Infrastructure segments, to deliver the sizable year-onyear increase that we have seen recently.
Although we dropped the assumed exchange rateto ¥80 to the U.S. dollar, from the ¥90 used at the startof MTBP2010, we will manage to achieve the original
targets—operating income of ¥52.0 billion and recurring
profit of ¥56.0 billion— in fiscal 2013. We will directconcerted efforts toward reaching these quantitative
targets.

Q3

A dividend of ¥5 per share is proposed
for fiscal 2013 as well as fiscal 2012. What
prompted the increase of ¥2 per share overfiscal 2011?

A3

Operating income and recurring profit in fiscal
2013 are likely to decrease below the levels
posted in fiscal 2012. But during the next medium-termbusiness plan that runs from fiscal 2014 through fiscal
2016, we anticipate strong demand for commercial
aircraft, commercial aircraft engines, industrial gas
turbines, gas engines, new energy-related businesses
and aerodynamics expertise—positive businessconditions that will generally pave the growth path
toward “Kawasaki Business Vision 2020,” with net salesof ¥2 trillion and recurring profit of ¥100.0 billion.
Confident in our future, we set the year-end dividendfor our 189th business year (fiscal 2012) at ¥5 per share.
The next medium-term business plan is being drafted
now, and we will disclose the details in due time.
led to the impairment loss in the Ship
Q4 What& Offshore Structure segment in fiscal 2012,
and, looking ahead, what is the business
operating policy in this segment?

to persistently sluggish conditions in
A4 Intheaddition
shipping market, prolonged yen appreciation
is eroding the price competitiveness of the Ship &10Offshore Structure segment. Consequently, we felt it
necessary to brace for a difficult road ahead and report
impairment losses of ¥13.4 billion for this segment infiscal 2012.
With global demand for natural gas trending
upward, we expect the marine development and gas
transport markets to grow, and efforts will be made tostrengthen the positions of Ship & Offshore Structure
domestic facilities, to become “mother factories”—that
is, manufacturing bases—for high-value-added products
to meet anticipated demand. The segment is alreadyinvolved in joint ventures in China, and a decision wasrecently made to participate in a joint project in Brazil
to construct drilling ships. These are the building blocksof an optimum global structure that will keep businessgoing, and this is the primary direction for businessactivities under the Ship & Offshore Structure segment.
impact of an economic slowdown in
Q5 TheChina is a concern. Moving forward, what
measures will be taken in the Precision
Machinery segment?

China’s construction machinery industry is a key
A5 market
for the Precision Machinery segment.
Growth in this market has reached a plateau but should
gradually recover its upward trend, and the segment
will continue to work to expand its business by boosting
capacity at its domestic core parts plant and reinforcing
its supply chain in China. Also, to meet wider market
potential in India, KHI initiated joint operations with India’s
Wipro Limited, and efforts are being directed into building
an enhanced structure that will enable the segment tocapitalize on higher demand in emerging markets.
is the Motorcycle & Engine segment
Q6 Howdoing in its effort to turn a profit?
The Motorcycle & Engine segment is likely to
A6 encounter persistently lackluster demand indeveloped countries for some time yet. But, a growing
demographic of high income earners in Brazil andin the ASEAN region is fueling steady sales of leisuremotorcycles bigger than the 250cc class. A similar trend
is seen in China as well, and the segment is accelerating
its efforts to establish a sales network for leisuremotorcycles to capitalize on ever-increasing demand.
Unfortunately, the segment was unable to return toa profit position in fiscal 2012 because the floods inThailand interrupted supply operations, mainly of parts.

However, the segment should certainly turn a profit fromfiscal 2013 onward.
is happening with new businesses andQ7 Whatproducts, that is, R&D activities?
MTBP2010 calls for efforts to “strengthen theA7 business foundation for future growth” aswell as to “return to a growth path” as priorities. The
development of new businesses and products is a key
strategy and progress is being made as planned, with anemphasis on the development of LNG-Fueled propulsion
ships, geothermal binary power generation systems,
waste processing facilities for use at cement kilns
combined with water processing facilities, automatedcell culture systems and the Gigacell ® for electrical
power systems.
The Group is also directing concerted effort into
the realization of a CO2-free hydrogen chain concept in
pursuit of both CO2 reduction and stable energy supply
in the future. As a first step, KHI aims to build a smallscale demonstration chain and is pursuing activities,
mainly R&D and feasibility studies on the concept whileworking with outside partners, including Japanese andAustralian government agencies and leading companies
that run hydrogen businesses.
Furthermore, anticipating growth in the futurefocused ocean energy market, KHI is tackling thedevelopment of a tidal power generation system. A
feasibility study prior to demonstration tests on the
coast of Japan’s island prefecture of Okinawa has alreadybeen started, and demonstration tests in Scotland arebeing planned.

higher future demand for hydraulic components forconstruction machinery in China, and to respond toincreased production of the component parts for the
Boeing 787 and mass production of component partsfor commercial aircraft jet engines, as well as to expand
production capacity for motorcycles in Thailand andIndonesia.

Q9 What is KHI’s response to energy concerns?
The nuclear power plant accident andA9 community rebuilding in the wake of last year’s

Great East Japan Earthquake brought underlying
concerns about power supply in Japan to the surface.
Against this backdrop, national interest in in-house
power generation and decentralized power supply hasreached a level so high that demand is actually palpable.
The KHI Group has a variety of products, including
a Green Gas Engine that boasts the world’s highest
electricity generating efficiency and a dual-fuel (oiland gas) Green Gas Turbine with a solid track record aswell as power generation machinery and equipmentusing natural—that is, renewable—energy, such as
wind power, solar power, micro hydropower andbiomass, and a storage battery—Gigacell®—that levels
out fluctuations in power supply. Furthermore, theapplication of microgrid technology to combine theseproducts into systems and packages could contribute
greatly to solutions for Japan’s energy issues. In addition,energy and environmental issues will become more
noticeable on a global level, paralleling growth inemerging markets, and Kawasaki-brand in-house power
generation and decentralized power will surely play awider role in infrastructures in emerging markets.

Consolidated Quantitative Forecast
FY2012

Tidal Power Generation System

Q8
Capital investment, on a construction basis,
A8 is set to rise, from ¥63.9 billion in fiscal 2012

What is the capital investment plan for fiscal
2013?

to ¥79.0 billion in fiscal 2013. Funds will be applied
primarily to reinforce production facilities to meet

Net sales(Billions of yen)

Reference

FY2013

FY20212,000.0

Original Forecast

Actual(Forecast)

1,360.0

1,303.7

1,380.0(Vision)Operating income
Ratio to sales

50.0

57.4

52.0

3.6%

4.4%

3.7%

Recurring profit
Ratio to sales

52.0

63.6

56.0

100.0

3.8%

4.8%

4.0%

5.0%

Before-tax ROIC

7.8%

7.4%

8.2%

¥83=US$1¥79=US$1¥80=US$1

Exchange rate

¥90=US$1

11

An Interview with Satoshi Hasegawa, President

brought about the establishment of
Q10 What
the Marketing Division in April 2012?
The Marketing Division was established thisA10 past April to facilitate the integration of diverse“intellectual assets” cultivated in each product categoryof the KHI Group into systems, with an emphasis on
infrastructure, such as energy and environment as wellas transportation business, and to promote the totalsolutions business in global markets.
In addition, access to the system engineering
capabilities of the Plant & Infrastructure segment isabsolutely essential to the solutions business. Therefore,
the Tokyo Head Office will relocate to Takeshiba,
scheduled for December 1, 2012 and the Plant &Infrastructure segment now at the Tokyo Office in Toyocho, will be integrated into the new Tokyo Head Office.
Through these moves, we will bring out the full effectof group-wide synergies and pave the way to wider
business content in the years ahead.

is the status of corporate governance
Q11 What
at KHI?
Headlines in Japan these days have madeA11 big news of accounting scandals, such as

investment losses being concealed by entire companies
and personal use of business resources by executives.
KHI maintains a statutory auditor system as set
forth in Japan's Companies Act, and corporate auditorswith the authority to audit business activities track theexecution of duties by directors to ensure objectivity
and neutrality in the management oversight function.
One of the two outside corporate auditors is anindependent auditor as required by the Tokyo Stock
Exchange for all listed companies, which ensures fairand impartial decision making with the interests ofgeneral shareholders in mind. To reinforce the oversightand monitoring function of the Board of Directors withrespect to management overall, the Company appoints
directors who do not have roles in the execution ofoperations, and the Chairman serves as the presiding
officer.
In addition, KHI maintains an internal company
system through which the seven business segments
serving different product markets are each responsible
for profits and business management. Company
presidents are responsible for the execution of businessactivities in their respective business segment, and also
provide reciprocal supervision of company managementfrom a corporate perspective as members of the Boardof Directors. As president of KHI, I strive to promoteinternal controls as chief executive of internal controls,
and with the internal auditing unit under my directcontrol, I check the effectiveness of the internal control
system itself.

KHI’s CO2-free Hydrogen Concept
Resource-producing
countries

Consumer countries
Industrial Use

Semiconductor and solar cell production,
oil refining and desulfurization, etc.

Transportation equipment

Low-cost hydrogen production
from unused resources, such as ...

Brown coal

CO2-free
H2

Gasification
CCS

Capture(Carbonanddioxide)
StorageLiquefiedhydrogentanks
Liquefaction& loadingElectrolysis
Renewable energy

Hydrogen Production

12

Hydrogen station,
fuel cell vehicles, etc.

Liquefiedhydrogen carriers

LiquefiedhydrogentrucksHydrogen Transport and Storage

Distributed generation

Hydrogen gas engines& gas turbines,
fuel cells, etc.

Power plants

Combined cycle power
plants, etc.

Hydrogen Use

is KHI’s emphasis in crisis management
Q12 Where
and CSR?
Great East Japan Earthquake last year was
A12 Thea wakeup call for KHI to reassess its business

continuity plan. We already had a Group structure for crisis
management in place to ensure the safety of employees andtheir families in the event of an emergency and to resume
production activities as quickly as possible if a situation
were to interrupt normal operations. In addition, we provide
society with products, such as helicopters for emergency relief
operations and standby power generators for nuclear power
plants, that must operate reliably for extended periods of time,
and the March 2011 disasters prompted us to immediately
undertake verification of the structure that ensures support
for these products. Of note, with the exception of one unitthat had not undergone a regular maintenance check, allstandby power generators delivered by KHI to customers
in the area of devastation functioned when commercial
power failed. Backed by field-proven performance, we are
pursuing CSR-based business activities, such as offering local
governments and corporations at home and abroad solutions
for establishing disaster-prevention bases equipped with inhouse power-generating facilities.

what would you like to emphasize
Q13 Lastly,
to KHI’s shareholders?
A13Group Mission:
Kawasaki, working as one for the good of the planet(Enriching lifestyles and helping safeguard the environment:
Global Kawasaki)
As the final year of MTBP2010, fiscal 2013 will be a crucial
year for the KHI Group to achieve its goal of “returning toa growth path.” In addition, we will move smoothly ahead
with efforts to “strengthen the business foundation for
future growth,” with an emphasis on investment and R&D
investment. We will do our utmost to realize the targets
stated in “Kawasaki Business Vision 2020” and to realize“Group Mission: Kawasaki, working as one for the good of
the planet (Enriching lifestyles and helping safeguard theenvironment: Global Kawasaki),” and the continuing support
and cooperation of our shareholders will be integral to our
success.

Power outages associated with the Great East Japan
Earthquake and operating status of
Kawasaki-brand standby gas turbine power generators
Operating Rate (Actual):

100% not maintained regularly.

*Excluding one unit that wasThis survey looked at power outages and rolling
blackouts associated with the disaster of March
11, 2011, and the aftershocks that followed. Areasin ■ on the map represent prefectures in which
Kawasaki-brand power generators were in
operation when commercial power systems failed.

Survey of Power Generators
Number of units
investigated3,092

Power outages

1,035

Number ofunits operating

1,034

No power
outages

2,057
Non-operating units

1

No scheduled
maintenance in effectPower Outage Prefectures
Aomori, Iwate, Akita, Miyagi,
Yamagata, Fukushima, Tochigi, Gunma,
Ibaraki, Saitama, Tokyo, Chiba,
Kanagawa, Yamanashi, and Shizuoka

13

Review of Operations
The KHI Group at a Glance
Composition ofConsolidated Net Sales of FY2012

Ship &
Offshore Structure

8.7%

P. 16
Rolling Stock

10.2%

P. 18
Aerospace

15.9%

P. 20
Gas Turbine &Machinery

14.9%

P. 22
Plant &
Infrastructure

P. 28
14

Electric train cars (including Shinkansen)
Electric and diesel locomotives
Passenger coaches
Integrated transit systems
Monorail cars
Platform screen doors
Gigacell ®(high-capacity, full sealed Ni-MH battery)P-1 patrol aircraft and C-2 transport aircraft
Component parts for the Boeing 787, 777, and767 commercial airplanes
Component parts for the Embraer 170 and 190 commercial
aircraft
CH-47, OH-1, and BK117 helicopters
MissilesElectronic equipment
Space equipment
Jet engines
Small and medium-sized gas turbine generators
Gas turbine co-generation systems
Gas turbines for naval vessels
Steam turbines for marine and industrial applications
Diesel engines and marine propulsion systems
Gas engines
Gas compression modules

Cement, chemical, and other industrial plants
Power plants
Municipal refuse incineration plants
LNG and LPG tanks
Shield machines and tunnel-boring machines
Crushing machines

18.0%

Motorcycles
All-terrain vehicles (ATVs)
Utility vehicles
Personal watercraft
General-purpose gasoline engines

P. 26
Precision
Machinery

LNG carriers
LPG carriersContainer ships
VLCCs and other types of tankers
Bulk carriers
High-speed vessels
Submarines
Maritime application equipment
Offshore structures

9.4%

P. 24
Motorcycle &EngineMain Products

13.4%
Hydraulic components (pumps, motors, and valves)
Hydraulic systems for industrial use
Hydraulic marine machinery
Industrial robots

Orders Received/
Order Backlog (Billions of yen)Orders Received

Operating Income(Loss) (Billions of yen)

Sales (Billions of yen)Order Backlog

150.0

100.0

75.0

4.0

0.0

12

12

7.8

11

0.0

10

3.0

10

11

12

12

0.0

11

12

12

14.1
8.2

10

0.0

7.9

12

0.0

122.8

7.5

89.0

65.0

107.5

100.0
119.2

15.0

119.9

11

Order Backlog

130.0

11

10

7.7

11

9.5

10

5.0

8.9

0.0

194.6

12

10.0

202.6

11

Orders Received

135.6

12

10

11

12

0.0

120.0

120.0

-15.0

0.0

10

11

12

-30.0

-27.0

235.2

12

234.4

235.2

11

203.0

234.4

203.0
10

-2.9

240.0

-4.9

240.0

10

11

12

Order Backlog

0.0

10

0.0

10

11

12

0.0

10

11

26.6

22.3

15.0

Industrial Robots business unit:
Transferred from the Consumer
Products & Machinery segmentto the Precision Machinery
segment
Changes in Segment Names
Effective April 2009:

Effective April 2010:

Hydraulic Machinery (previous)
Precision Machinery (current)
Effective October 2010:

3.4

12

100.0

175.0

174.5

11

30.0

82.7

148.9

84.9

100.0

200.0

140.3

Orders Received

Effective April 2010:
crushing machine business unit:
Transferred from the Rolling
Stock segment to the Plant &Infrastructure segment

Consumer Products & Machinery(previous)
Motorcycle & Engine (current)

Note: Since production in the Motorcycle & Engine segment is carried out mainly in anticipation of demand, figures for orders received and sales are the same, and figures for order backlog are not presented.

200.0

Effective April 2009:
construction machinery business
unit:
Transferred from the Rolling
Stock segment to the “Other”
segment

Rolling Stock & Construction
Machinery (previous)
Rolling Stock (current)

Orders Received

0.0

Attendant on the spin-off of theconstruction machinery business
unit as a separate company, thechange of industry segmentation
for internal reporting of thecrushing machine business
unit and the Industrial Robots
business unit, and reorganizationof the Shipbuilding segment,
industry segments, and/or
segment names have beenchanged as follows.
Changes in Industry Segments

4.0

200.0

10

11

5.1
0.0

8.0

191.3

227.2

100.0
187.5

200.0

0.0

3.9
-1.0

151.8

113.5
12

Order Backlog

200.0

226.2
355,517

11

5.0

3.7
0.0

400.0

10

10

206.5

327.2

206.7

100.0

171.3

200.0

0.0

10

12

Changes in Industry Segments
and Segment Names

Order Backlog

200.0

Orders Received

11

8.1

12

11

10

8.7

11

10

-4.0

10.0

132.6

10

400.0

0.0

12

131.1

66.0

75.0
187.1

200.0
66.2

150.0

Orders Received

11

0.0

Order Backlog

400.0

0.0

10

118.4

0.0

196.8

Orders Received

12

150.0

11

188.8

10

39.9

78.9

0.0

16.1

1.5

200.0

Shipbuilding (previous)
Ship & Offshore Structure(current)

12

15

Review of Operations

Ship &
Offshore Structure

Submarine KENRYU

We will strengthen our ability to fulfill
its leadership role in marine transport
and achieve sustainable growth.

LNG carrier ENERGY HORIZON

16

Business Results

Financial Highlights

The operating environment remained challenging for the Ship & Offshore
Structure segment, as the newbuilding market has been sluggish, mainly
due to a drop in ship prices as a result of lower shipbuilding demand, which
was caused by lingering lackluster conditions in the shipping market and awidening gap in supply and demand. The situation was exacerbated evenmore, by an aggressive push for orders by South Korean shipyards based on
the South Korean Won's depreciation against the Yen's appreciation, and thedifference in the price of steel materials between domestic and international
markets. Consequently, in fiscal 2012 the segment posted orders received
worth ¥39.9 billion, down ¥39.0 billion from the previous fiscal year.
Sales also decreased, coming in at ¥113.5 billion, or ¥4.8 billion lessthan in fiscal 2011, when the segment still managed to record sales of large
vessels. However, on the profit front, the segment returned to the black with
operating income of ¥3.9 billion, up ¥4.9 billion from the previous fiscal year,
reflecting such factors as a decrease in provision for losses on construction
contracts.
In newbuilding activity, the segment delivered 15 vessels in fiscal 2012:
one large LNG (liquefied natural gas) carrier; one small LNG carrier: one LPG(liquefied petroleum gas) carrier; 11 bulk carriers and one submarine.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

151.8
118.4

113.5
80.0

10

12

11

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

5.0

Operating income (loss)

6%

2.5

Ratio of operating
income (loss) to
sales

3%

0.0

-1.0

-5.0
3.9

1.5

-3%

-2.5
-5.0
10
-7.5

0%

11
(Actual)

12

-6%
13
(Forecast*) -9%*As of April 26, 2012

Analysis and Outlook
Despite deteriorating profitability on newbuilding
construction due to yen appreciation, the segment returned
to an operating income position, largely supported bylower costs of marine materials due to easing supply-anddemand conditions and by a decrease in provision forlosses on construction contracts. Nevertheless, the segment
booked impairment loss on fixed assets after assessing
recoverability of operating assets at the Sakaide Works,
where the profitability outlook has worsened.
In overseas operations, which KHI considers a key pillarof its business, Nantong COSCO KHI Ship Engineering Co.,
Ltd. (NACKS), established by KHI and China Ocean Shipping(Group) Company in 1995 as a 50:50 joint venture, has beenin operation for more than 15 years and has become oneof the leading shipbuilding companies in China. NACKS
continues to deliver favorable business results. At Dalian
COSCO KHI Shipbuilding Engineering Co., Ltd. (DACKS),
following KHI’s recent acquisition of a 34% stake in a
subsidiary of the COSCO Group, KHI will make the most of
this direct investment to operate DACKS as a joint venture
and will strive to expand the company’s operations while
enhancing competitiveness.
A challenging business environment has persisted
for some time now, highlighted by lackluster shippingand shipbuilding market conditions and the impact of yen
appreciation on operations. But by focusing on submarines,

LNG and LPG carriers for which demand is expected togrow, the Ship & Offshore Structure segment will prevent
achievements from slipping in fiscal 2013 and onward,
and strive to return to a net income position. In addition,with its R&D emphasis on themes such as energy-saving,environmental load-reducing solutions to issues of priority
on a global scale, the segment will accelerate efforts todevelop new propulsion systems for LNG carriers as wellas LNG-Fueled propulsion ships, and also work toward
establishing a presence in offshore development-related
sectors.
Furthermore, KHI recently decided on a new direction
by participating in a joint project in Brazil to construct a
new shipyard and drilling ships for Petrobras (Petróleo
Brasileiro S.A.), and will utilize this opportunity to cultivate
this operation as its third overseas hub through investmentof capital and transfer of technology.
The Ship & Offshore Structure segment will make thebest effort to achieve continuous growth in its businesses
through steady implementation of measures and strategies
outlined in MTBP2010.

17

Review of Operations

OEDO LINE Series 12-600

Rolling Stock

We are emphasizing technologies and quality of the highest
standard worldwide with projects from high-speed trains tolight rail transit.

Land Transport Authority of Singapore Contract 151A Trains for North-South / East-West Lines18

Business Results

Financial Highlights

Domestic orders for the Rolling Stock segment in fiscal 2012 camefrom the Japan Railways (JR) companies, public railway companies andprivate ones, and included freight cars, locomotives and train cars for
new transportation systems. Overseas orders included commuter traincars for the New York Metropolitan Transportation Authority’s MetroNorth Railroad and for subway train cars for Singapore’s Mass Rapid
Transit system. All told, orders received amounted to a value of ¥66.0
billion, down ¥121.0 billion from the previous fiscal year, when there
were more large-scale orders for overseas customers.
Despite a drop in sales to customers in Japan, sales to customers
in the rest of Asia and in North America rose supporting a ¥1.5
billion increase in segment sales, to ¥132.6 billion. Operating income
retreated ¥3.0 billion, to ¥5.1 billion, mainly owing to the impact of yen
appreciation as well as provision for losses on construction contracts.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

150.0

10

131.1

132.6

130.0

11

12

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

15.0

10%

Operating income
Ratio of operating income to sales

10.0
5%
5.0

0.0

8.7

8.1

10

11
(Actual)

5.1

6.0

12

13
(Forecast*)0%*As of April 26, 2012

Analysis and Outlook
Despite the impact of declining profits on exported projects in

expansion of urban transport systems in cities all over Asia,

fiscal 2012, due to yen appreciation, the Rolling Stock segment

and a new section for the new Dedicated Freight Corridor in

was able to post ¥5.1 billion in operating income based on

India. Accordingly, the rolling stock business should benefit

contributions from projects, such as the full-scale production

from long-term expansion in demand. As a business unit, KHI’sof the Shinkansen bullet train for JR companies and subway

Rolling Stock segment is Japan’s largest manufacturer of rollinglines in Taiwan and Singapore, as well as keeping fixed costs

stock, and with a four-point production structure consisting

low. Seeking to reach the ¥6.0 billion mark in fiscal 2013 andof two facilities in Japan—Hyogo and Harima—and two in thesustain the growth pattern thereafter, this segment will steadily

United States—Lincoln, Nebraska and Yonkers, New York—

execute large-scale projects at home and abroad, exemplified

the segment is well-positioned to respond vigorously to theby the Shinkansen project for JR companies as well as New

aforementioned demand and secure balanced growth from its

York City Transit’s subway project and the subway project

three primary markets—Japan, the United States and Asia.

in Taiwan, which will drive volume production. In addition,

The Rolling Stock segment has set its sights on

the segment will enhance and promote the Environmentally

establishing a world-class presence in rolling stock system

Friendly Advanced Commuter & Express (efACE) train alreadymanufacturing with technologies and quality of the highest

being offered and increase our competitive edge and will

standard worldwide to execute an extensive range of projects,

strengthen supply chain management with the introduction of

from high-speed trains to light rail transit (LRT). The segment

a logistics improvement program.

will strive to realize its objective through product line

In recent years, increasingly brisk infrastructure

expansion using aggressive new product development, such as

investment in both emerging countries and in developed

efSET ® (Environmentally Friendly Super Express Train), a new

countries, against a backdrop highlighting environmental
concerns, economic stimuli and job creation, have prompted

high-speed train for overseas markets, and K-Star Express®, a
new high-speed interurban commuter train for the U.S. market,

the planning of many projects, including construction ofand through activities on railway system projects that spotlighthigh-speed railways and upgrades of existing networks to

the new market in orders for full turnkey E&M (Electrical andfacilitate faster speeds and to modernize, as well as new or

Mechanical) systems and the reliable execution of large-scale

expanded urban transport systems. Some projects include

overseas projects.

high-speed rail projects in North America, construction and19

Review of Operations

AerospaceXP-1 next-generation patrol aircraft

We have successfully secured orders for the mass
production of C-2 transport aircraft and thedevelopment of UH-X. Also, the mass productionof component parts for the Boeing 787 is
expected to increase.

Boeing 787 Dreamliner

20

Business Results

Financial Highlights

Orders received in the Aerospace segment climbed ¥120.5 billion, to¥327.2 billion, reflecting orders for mass production of the P-1 nextgeneration patrol aircraft and the C-2 next-generation transport aircraft
for Japan’s Ministry of Defense (MOD), and also reflecting higher
commercial aircraft orders, including component parts for the Boeing
777 and 787.
Sales rose ¥9.7 billion, to ¥206.5 billion, mainly owing to an increasein sales of component parts for the Boeing 777 and 787.
Despite the impact of yen appreciation, operating income jumped¥4.7 billion, to ¥7.8 billion, primarily because of higher sales and cost
reduction activities.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

250.0
188.8

10

196.8

206.5

11

12

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

10.0

5%

Operating income
Ratio of operating income
to sales

5.0

3.7
0

10

7.8

9.0

12

13
(Forecast*)

3.0
11(Actual)0%*As of April 26, 2012

Analysis and Outlook
Fiscal 2012 was notable in that the Aerospace segment

higher capacity preparations, such as hiring more workers

successfully secured extremely important orders from MOD,and installing more equipment. A production increase fornamely, mass production of the C-2 transport aircraft andcomponent parts for the Boeing 777 is also expected, whichdevelopment of the UH-X, a new utility helicopter. From ashould contribute to increased sales in the commercial

profit perspective, prolonged yen appreciation has created aaircraft business.

very difficult operating environment, but efforts throughout

In the commercial helicopter business, the use of

the segment to curb costs led to a year-on-year improvement

helicopters for emergency medical service in remote areas

in profit. On the foreign exchange front, the yen is likely toor on islands, or in the event of road traffic congestion, isremain at high levels, but the segment will strive to promote

gaining widespread appeal and should generate demandfurther cost reduction to yield higher profits.

for BK117 helicopters. The Aerospace segment will actively

In the defense aircraft business, KHI expects the
C-2 transport aircraft, for which the segment secured a

promote sales.
As outlined above, exchange rates are a major cause

production order in fiscal 2012, to become a core product inof performance fluctuation. Nevertheless, sales among

the future. The segment is prepared to implement a full-scalebusinesses in the Aerospace segment are charting an upward

production of this aircraft, along the same lines as that for

path, with the prospect of growth in profits.

the P-1 patrol aircraft, which is already being mass produced.
In addition, the segment will utilize experience acquired
through development and mass production of the OH-1 lightobservation helicopter to move development of the new
UH-X utility helicopter forward, while striving to expand thehelicopter business.
In the commercial aircraft business, the first deliveryof the Boeing 787 from Boeing to an airline company took
place in September 2011. On expectations that demand formass production of component parts for the Boeing 787
will increase, the segment is moving steadily ahead with21

Review of Operations

30MW-Class Green Gas Turbine L30A

Gas Turbine &Machinery

KHI intends to expand its global business ofindustrial gas turbines and gas engines by taking
advantage of in-house capabilities, enabling it topropose total solutions.
Kawasaki Green Gas Engine

22

Business Results

Financial Highlights

Orders in the Gas Turbine & Machinery segment reached ¥227.2 billion,up ¥39.6 billion, owing to an increase in orders for component parts forcommercial aircraft jet engine and construction of Kawasaki Green Gas
Engine-equipped power plant.
Sales decreased ¥8.0 billion, to ¥194.6 billion, mainly due to a dropin sales of marine diesel engines and gas compression modules.
Operating income declined ¥1.7 billion, to ¥7.7 billion, largely
because of lower sales and the impact of yen appreciation.
The operating environment remains challenging, not only becauseof delayed recovery of the global economy but also because of the
prolonged yen appreciation against the U.S. dollar and the euro. The
Gas Turbine & Machinery segment will continue working towardhigher profitability by further cost reduction efforts and by promoting
approaches to attract more orders.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

191.3

10

202.6

194.6

11

12

210.0

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

15.0

8%

Operating income
Ratio of operating income to sales

10.0

8.9

9.5

6%

8.0

7.7

5.0

0.0

4%
2%

10

11
(Actual)1213(Forecast*)0%*As of April 26, 2012

Analysis and Outlook
The Gas Turbine & Machinery segment has a wide range of

have both increased. KHI intends to expand its global businessproducts mainly for the energy and transportation equipment

by taking advantage of in-house development capabilities,

sectors that offer potential for growth. Therefore, the segment

enabling it to propose total solutions covering after-service

continues to invest in R&D and production systems andand maintenance. Another promising field is oil and gas, wherestrengthen marketing capabilities. In addition, the segment

recent offshore development activity has spurred demand foris making every possible effort to assist in the reconstruction

natural gas compression modules used on offshore platforms

activities in areas affected by the Great East Japan Earthquake,and for propulsion systems installed on offshore support vessels.

with a particular emphasis on power generation equipment.

In the transportation equipment sector, demand for

In the energy sector, co-generation has become ancommercial aircraft is showing signs of recovery after aincreasingly popular choice because it supports global

temporary downturn. In response, KHI is pushing ahead on mass

environmental protection and energy-saving strategies. The

production of the Trent 1000 engine for the Boeing 787 andMarch 2011 disasters in Japan served to highlight the merits

pursuing development of the Trent XWB engine for the Airbus

of distributed power sources still further. Given heightened

A350XWB. In addition, the decision has been made to take partinterest, demand for gas turbine power generators and gas

in a project to develop and produce of the PW1100G-JM engine

engines can be expected to grow.

that will power the Airbus A320neo aircraft, and design work on

As Japan's top manufacturer of small to medium-sized

the component parts KHI is responsible for is progressing.

gas turbine power generators, KHI plays a significant role in

Meanwhile, in the marine field, KHI will strengthen

standby power generator market for anti-disaster measures.

development of propulsion systems that will contribute to theOn the other hand, regarding gas engines in fiscal 2012, KHI

reduction of NOx emissions, in the anticipation of future growthreceived an order for construction of Japan’s first 110MW

in this market sector.

gas engine-equipped power plant. It features a gas engine

The Gas Turbine & Machinery segment offers a diverse

developed in-house and boasts the world’s highest electricrange of products over and above those described on this pagegenerating efficiency—49%. In Japan, this gas engine offers a

and all will continue to meet the expectations of stakeholders by

solution to the pressing domestic issue of electricity shortages,

widely applying our knowhow to land, sea and air applications.

while overseas, it addresses rising demand for electricity due
to economic development. Consequently, inquiries and orders

23

Review of Operations

Plant & Infrastructure

We will strive to establish a stable revenue base by
sharpening our advantage in product categories which
contribute to energy and environmental policy.

Cement plant for But Son Cement Joint Stock Company

SINGAPORE DOWNTOWN LINE STAGE2 C915 φ6.63m Slurry Type Tunnel Boring Machine24

Business Results

Financial Highlights

Orders received in the Plant & Infrastructure segment were on a parwith the previous fiscal year, settling at ¥119.2 billion. Orders included
municipal refuse incineration plants and LNG tanks for customers inJapan and boilers for the floating LNG facility overseas.
Sales rose ¥33.7 billion from the previous fiscal year, to ¥122.8
billion, largely because of an increase in sales based on the percentageof-completion method, paralleling progress on construction of several
plants overseas.
Operating income climbed ¥5.8 billion from the previous fiscal
year, to ¥14.1 billion, reflecting a favorable turnaround in profit
accompanying higher sales and brisk progress on projects already onorder.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

122.8

107.5

130.0

89.0

10

11

12

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

15.0

15%

Operating income
Ratio of operating
income to sales

10%

10.0

14.1
5.0

0.0

7.9

8.2

10

11
(Actual)

12

10.0

13
(Forecast*)

5%0%*As of April 26, 2012

Analysis and Outlook
In fiscal 2012, orders hovered at the level recorded infiscal results among exporting companies and restrictions

the previous fiscal year, but sales and operating incomeon power supply will probably hold the pace of recovery inshowed dramatic year-on-year increases. As always, thebusiness conditions to a gradual improvement. Overseas, as

segment adhered to the motto “management prioritizing

well, capital investment needs are strong, mainly to ensure

the soundness of business structures over quantitative

stable supply of LNG, but yen appreciation has stalled at an

expansion,” and meticulous efforts to lower the break-even

unprecedented level and economic uncertainty in Europe

point were rewarded.

and China hinder corporate spending plans for the immediate

The most noteworthy news of the year was an order

future. Under these conditions, the Plant & Infrastructurefrom Technip for seven boiler units to be installed on Shell’ssegment will strive to establish a stable revenue base byfloating LNG facility. The order is a testament to the provensharpening its competitive advantage in product categories

track record KHI has built on delivery of boilers for land

which contribute to energy and environmental policy andand marine use as well as on highly respected technologicalsteadily capturing orders for high-value-added projects.

capabilities that ensure reliable boiler operation even in

Key business activities overseas will highlight expansion

the harsh environment of the open sea. The floating LNG

of joint operations with the CONCH Group, which includes

market holds immense promise, and for KHI to take part in

Anhui Conch Cement Company Limited, one of China’s

the world’s first LNG terminal of this kind carries significant

biggest cement makers, and involvement in the manufacture

weight. The project is extremely challenging due to shortand marketing of waste heat recovery power generation

lead times and also in terms of technology, but all efforts will

systems for cement plants and high-efficiency verticalbe made to ensure quality, cost efficiency and on-schedulemills as well as a waste gasification system that can bedelivery and thereby solidify KHI’s position in the floating

integrated with cement kilns. In fiscal 2013, the lineup may be

LNG facility market as a boiler manufacturer.

augmented with consumables, such as cast parts for cement

In fiscal 2013, sales are likely to stay at a high level,

plants, and equipment essential to the operation of cement

owing to the booking of sales on large-scale projects alreadyplants. KHI will continue to fully demonstrate synergisticon order, but the order outlook will not necessarily remain

excellence with the CONCH Group and contribute to energy-

favorable. In Japan, domestic demand is supposed to get asaving, environment-protecting activities in China throughboost from disaster reconstruction measures, but sluggish

the provision of products.

25

Review of Operations

Ninja ZX-14R

Motorcycle & Engine

We will introduce competitive new models inexisting markets and in emerging markets tobuild wider demand and cultivate new demand.
26

VERSYS 1000

Business Results

Financial Highlights

Sales by the Motorcycle & Engine segment rose ¥0.7 billion, to ¥235.2
billion, hovering around the level posted in the previous fiscal year.
The main reason segment sales did not decrease, despite the impactof the floods in Thailand on production and sales and a drop in salesof motorcycles to the European market, is due to higher sales ofmotorcycles in emerging markets, particularly Southeast Asia andBrazil. Meanwhile, amid unabated yen appreciation and having toaddress the consequences of the floods in Thailand, the segment was
unable to return to a profit position and incurred an operating loss of¥2.9 billion. However, the segment was able to improve its loss position,
shrinking the loss by ¥2.0 billion year-on-year, thanks to progress on
cost reduction and expanded sales in emerging markets.
Total worldwide unit sales of motorcycles, ATVs (all-terrain vehicles),utility vehicles and personal watercraft reached 501,000 units, up
30,000 units from the previous fiscal year. By region, sales in Japan held
steady at 14,000 units; sales in North America reached 121,000 units, up
3,000 units; sales in Europe settled at 57,000 units, down 10,000 units;
and sales in emerging countries and other regions hit 309,000 units, up
37,000 units.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

203.0

10

234.4

235.2

11

12

260.0

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

30.0

Operating income (loss)

15%

Ratio of operating income (loss) to sales

10%

15.0
0.0

-27.0

-4.9

-2.9

0%
-5%

-15.0
-30.0

5%

5.0

-10%
11

10

(Actual)1213(Forecast*)-15%*As of April 26, 2012

Analysis and Outlook
Since the collapse of Lehman Brothers in 2008, the Company

segment will introduce a competitive new model and strive

has done its utmost to improve its business structure.

to polish brand image in the markets of developed countries,

Measures have been implemented to deal with the rapidly

especially in North America and Europe. This will underpin

shrinking market scale in developed countries, that is,efforts to at least maintain but most likely expand sales ofin North America and Europe, amid unprecedented yen

motorcycles, ATVs, utility vehicles and personal watercraft onappreciation.

a combined unit basis and to boost profitability. Emerging

In fiscal 2012, with the markets of North America andmarkets, as well, will see new models. In existing markets,

Europe still sluggish and the yen still strong, the segment

especially Southeast Asia and Brazil, this will help build wider

vigorously promoted earnings structural reforms, such as

demand, while in new territory, including India, these models

applying additional cost-cutting and fixed cost reductions

will help cultivate demand. Additionally, the segment will

to lower the breakeven point and improving profitability inactively respond to increased production needs, including

emerging markets. Through these efforts, the segment has

new factory construction in Indonesia and factory expansion

established a business structure capable of turning a profit

in Thailand.

even in today’s foreign exchange environment. Focusing

Using the success of structural reforms undertaken toon actions in the core motorcycle business, the segment

date as a platform for growth in fiscal 2013, the segment will

aggressively introduced new models in developed countries,

aim to achieve further improvement in business activities

mainly in North America and Europe, premised upon an

in developed markets and strive to take profitability inimproved cost structure that can withstand the stress of

emerging markets to another level, which should not only

the current foreign exchange environment, and worked tolead to a profit position at year-end but also build a solid

maintain and then enhance market presence. In emerging

foundation for growth into the future.

markets, such as Southeast Asia and Brazil, where the leisuremotorcycle market is growing at a tremendous rate, robust
marketing activity was rewarded with a greater number ofunits sold.
In fiscal 2013, the difficult business environment is likely
to continue in developed countries. Against this backdrop, the27

Review of Operations

Precision MachineryWe will enhance profitability through the reinforcementof the production structure from a medium to long-term
perspective.

BX series BX 200L

Hydraulic components for large-sized excavators (K5V200DPH, M5X250, KMX32NA, Pilot valve)28

Business Results

Financial Highlights

The consolidated value of orders in the Precision Machinery segment
grew ¥25.6 billion over the previous fiscal year, to ¥174.5 billion,
thanks in large part to more orders for hydraulic components from theconstruction machinery market.
Sales reached ¥175.0 billion, up ¥34.7 billion, reflecting an increasein sales of hydraulic components for construction machinery and higher
sales of painting robots.
Operating income rose ¥4.3 billion, to ¥26.6 billion, mainly becauseof higher sales.

Net Sales
Years Ended/Ending March 31 (Billions of yen)

200.0

175.0
140.3
82.7

10

11

12

13
(Forecast*)(Actual)Years Ended/Ending March 31 (Billions of yen)

20%

Operating income

30.0

Ratio of operating income to sales

15%

20.0

22.3

10.0

10%

26.6

27.0

3.4
0.0

10

11

12

(Actual)13(Forecast*)

5%0%*As of April 26, 2012

Analysis and Outlook
Taking advantage of the opportunity afforded by the Octoberemphasis will be on preparations to reinforce the production2010 reintegration of Kawasaki Precision Machinery Ltd.,

structure from a medium- to long-term perspective. At thewhich is involved in the hydraulic machinery business, KHI

same time, it is important to seize the opportunity now whencreated the Precision Machinery segment with a Hydraulicthe market is in a temporary lull to pursue additional cost-

Machinery business unit and an Industrial Robots businesscutting options through review/recheck of the production

unit.

structure, which will underpin enhanced profitability.
In the Hydraulic Machinery business unit, the first half ofIn the Industrial Robots business unit, demand fromfiscal 2012 was characterized by rapidly accelerating demand

emerging markets, particularly China, expanded, and markets

from the makers of excavators in China, reflecting brisk

in developed countries began to recover. This led to an

expansion in demand for infrastructure in that country. The

increase in consolidated sales compared with the previous

number of customer orders ballooned to a level that greatly

fiscal year. The market outlook is for continued expansion

exceeded KHI’s production capacity. In the second half, thein emerging markets, complemented by a growing need for

optimistic production plans of Chinese excavator makers

automation even in developed countries in such sectors as

seemed to fade, and the expanding supply-and-demand gap

the food industry (picking & placing robot) where automation

was eliminated.

has not made obvious inroads so far. Demand for industrial

The downturn in the Chinese market may persist
longer than initially forecasted. But the Chinese hydraulicrobots could therefore sustain a steady recovery.
Under these conditions, the Industrial Robots businessexcavator market is already the largest in the world, and withunit will strive to sharpen cost competitiveness and enhanceconstruction of housing for low-income families and energy-

technology proposal capabilities while reinforcing its

and transportation-related infrastructure projects still likely

approach to customers in expanding emerging markets,

to go forward, the outlook for continued growth over theand thereby boost market shares. Another area of focus ismedium- to long-term remains unchanged.

future-oriented development, such as the new technology

Under these conditions, the Hydraulic Machinery

to facilitate the coexistence of humans and robots. Suchbusiness unit must prioritize efforts to meet stable ordertechnology has the potential to significantly magnify demand

demand if it is to sustain a high share of the market serving

for industrial robots.

excavator makers in China. As planned, in fiscal 2013, the29Corporate Governancekind of corporate governance system
Q1 Whathas Kawasaki Heavy Industries, Ltd. (KHI),of the Board of Directors, which consists of 13
directors (authorized number: 18 directors). The
Company has four corporate auditors and a Board ofAuditors. In addition to the Board of Directors, theCompany has a Management Committee and an
Executive Officers Committee, both of which arecomposed of representative directors and managing
executive officers, while the Executive Officers
Committee also includes executive officers.
The Company appoints individuals to upper
management positions that are not directly involvedin the execution of operations. With regard tocorporate auditors, the Company appoints twooutside corporate auditors with no business
relationships or other vested interests in the
Company. One of these outside corporate auditors is
an independent auditor as required by the Tokyo
Stock Exchange for all listed companies. To ensure thereliability of financial reports, the Company appoints

embraced?

corporate governance system mainly
A1 KHI’s
consists of directors and auditors, with

content appropriate for the activities that the Group
undertakes, and efforts are made to further improve
the system. The basic premise regarding corporate
governance for the Group as a whole emphasizes
highly transparent management practices and theformation of solid relationships with all stakeholders,
including shareholders, customers, employees andthe community, while raising corporate value througheffective and sound business activities.

The Company maintains a statutory auditor system forcorporate governance and appoints an independent
auditor. The Chairman serves as the presiding officer

Corporate Governance Structure
Meeting of Shareholders
Resolutions on
appointment

Board of Directors

Resolutions on appointment
Monitoring

Resolutions on appointment

Board of Auditors
Financial Auditors

Under the direct control of the president
Supervising

Cross-sectional
cooperation

Auditing Department(internal audits)
Auditing

Business Operation StructureManagement Committee
Major Project Committee
Executive Officers Committee
Head Office/Companies

Affiliated Companies

30

Auditing, investigationinternal corporate auditors who have considerable
knowledge of finance and accounting.
The Board of Directors appoints executive
officers to conduct business operations. Basicobjectives and policies for the execution of operations
under the management plan are decided on by the
Board of Directors, which promptly issues directives
for implementation to all executive officers. The
Executive Officers Committee ensures that theobjectives and policies are implemented. The
Management Committee, which consists ofrepresentative directors and managing executive
officers, and the Board of Directors periodically follow
up on the implementation status of the management
plan.
The Company clearly defines the management
responsibility of directors by means of incentivebased compensation that reflects businessperformance and a one-year term of office fordirectors.
The Management Committee thoroughly
discusses important management issues and confers
with the Board of Directors concerning prescribedmatters. As a rule, the Management Committee meets
three times a month to discuss management policy,
management strategy, important management issues,and other matters from the perspective of theconsolidated management.

are the internal control systems in
Q2 Whatplace?
internal control systems are described
A2 KHI’s
below. The Company reviews these systems

as necessary, in light of changes in its operating
environment and other factors. The status of internal
control system operation is assessed at the end ofeach fiscal year to ensure that systems are being
applied as intended.

i) System to ensure that the execution of		 duties by directors and employees comply
		 with laws and the Company’s Articles of		Incorporation		ii) System related to the storage and			 maintenance of information pertaining to the			 execution of duties by directors
		iii) System of rules and regulations related to			 managing the risk of losses		iv) System to ensure that the execution of duties
			 by directors are effectively executedb) Internal control systems governing the corporate
group
		i)
			
			
			

System to ensure the appropriateness ofbusiness activities undertaken as a corporategroup, which encompasses the Company andits subsidiariesc) Internal control systems to ensure that corporate
auditors conduct audits appropriately				i) System pertaining to employees who are			 asked to assist auditors in their auditing			 activities
		ii) System pertaining to the independence of			 employees who are asked to assist in			 corporate audits from the influence of			 directors
		iii) System for directors and employees to report			 to the Board of Auditors or individual
			 corporate auditors, and other systems for			 reporting to corporate auditors
		iv) Other systems to ensure that corporate			 auditors undertake audits effectivelyd) Basic premise and status of measures to eliminate
dealings with anti-social forcesa) Internal control systems governing directors andemployees

31Corporate Governancemeasures are taken to ensure
Q3 Whateffectiveness of the auditing function?
of the four corporate auditors are from
A3 Twooutside the Company, which serves to reinforce

objectivity. In addition, various approaches, including
cooperation between the Company’s independent
auditor and the internal auditing unit promote
effective execution of the auditing function.

Internal Auditing
The Auditing Department, an internal auditing unit
with a staff of 12 (as of March 31, 2012), strives toimprove internal control functions by such means as
the periodic conducting of audits to confirm whether
operations are executed appropriately in accordancewith laws, regulations and the Company’s internal
rules in all of the Group’s management activities. Also,
the corporate auditors and the Auditing Department
share information on the results and findings of theirrespective audits.
Statutory Auditing
Concerning statutory auditing, corporate auditors
attend executive-level meetings, such as those of theBoard of Directors and the Management Committee,
examine important documents, and pursue various
activities, including investigations into the status ofbusiness operations and financial assets throughregular meetings with representative directors,
through business audits of KHI’s divisions and throughaudits of subsidiaries. In addition, two outside
corporate auditors ensure the objectivity andneutrality of the management oversight function, andfull-time corporate auditors and outside corporate
auditors share information in an effort to further
enhance the management oversight function.
Of note, newly appointed corporate auditor Yuji
Murakami brings considerable knowledge concerning
finance and accounting to his new position, owing to
the 38 years he has spent in the accounting unit andthe internal auditing unit of the KHI Group between
1975 and 2012, where he was involved in such tasks as
settlement procedures, preparation of financial
statements and execution of internal audits.

32

Independent Auditor
The Company’s independent auditor, KPMG AZSA LLC,
audits the financial statements. The corporate auditors
and the Board of Auditors receive an outline of theaudit plan and a report on important audit items fromthe independent auditor, and the Board of Auditors
explains the Company’s auditing plan to the
independent auditor.
The corporate auditors and the Board of Auditors
periodically receive reports on the results of
independent auditing and strive to keep lines ofcommunication open with the independent auditor byexchanging information and opinions. Also, thecorporate auditors take part in the audits performedby the independent auditor as necessary and receive
reports from the independent auditor concerning
audits as appropriate.

is the status of outside corporate
Q4 Whatauditors?
Company has two outside corporate
A4 Theauditors whose fair and independent opinions
serve to enhance auditing functions.

The Company has two outside corporate auditors.
Kenzo Doi, one of the outside corporate auditors,
has no vested interest in the Company other than aretainer agreement between the Company and Kobe
Kyobashi Law Office, where he serves as arepresentative. Mr. Doi holds shares in the Company
through the Company’s Officers’ Shareholder
Association, but he has not acquired the Company’s
shares through any other means. The Company draws
on Mr. Doi’s extensive knowledge and diverse
experience as an attorney and welcomes his fair andindependent opinions to enhance the auditing
function.
Michio Oka, the other outside corporate auditor,
also contributes to an enhanced auditing function
through extensive knowledge and diverse experience
as a corporate officer and through his fair andindependent opinions. Although Mr. Oka used toserve as a corporate officer of Kawasaki Kisen Kaisha,Ltd., and its affiliated companies, there is essentiallyno capital relationship between Kawasaki Kisen and
the KHI Group, and Kawasaki Kisen accounts for an
insignificant portion of the KHI Group’s net sales, so
Mr. Oka has no vested interest in the Company.
In accordance with Article 427, Paragraph 1, ofJapan’s Companies Act and Article 43 of theCompany’s Articles of Incorporation, the Company hasentered into contracts with the outside corporate
auditors that limit the scope of liability for the outside
corporate auditors to ¥10 million or the amountstipulated in Article 425, Paragraph 1, of Japan’sCompanies Act (an amount equal to two years’compensation paid to the corporate auditors),
whichever is higher.

is compensation set for directors andQ5 How
corporate auditors?
Company has a compensation system for
A5 Thedirectors and corporate auditors that matches

remuneration to corporate performance and stays
within the limits approved by shareholders.

KHI seeks to achieve sustainable increases incorporate performance and corporate value and to
attract and retain human resources with excellent
skills. Therefore, the Company maintains acompensation system for directors and corporate
auditors that matches remuneration to the duties
performed. Compensation for directors is based on apolicy that links remuneration to corporate
performance. Amounts are discussed by the Board of
Directors, with the president having final say.
Note that the aforementioned directors’compensation as well as compensation for corporate
auditors are set and applied within the limits
approved by shareholders at the General
Shareholders’ Meeting.
The total amount of compensation, the total
amount of compensation by type, and the number ofcorporate officers eligible for compensation are
shown in the table below.

Category

Total amount of
Number ofcompensation
Total amount ofcorporateby typecompensation
officers(Millions of yen)eligible for(Millions of yen)compensation
Annualcompensation

Directors

666

666

12

Corporate auditors

70

70

2

Outside corporate officers

17

17

2

(excluding outside directors)(excluding outside corporate auditors)

Note: The Company abolished retirement benefits and does not pay bonuses
or offer stock options to directors, corporate auditors, or outside
corporate officers.

Q6 Describe the compliance framework.
part of efforts to enhance overall CSR
A6 Asactivities
within the Group, KHI maintains aframework for raising compliance awareness.

Specifically, the Compliance Guidebook is distributed
to employees throughout the Group, and access toenriched compliance education through e-learningand other means enable employees to acquire a
newfound appreciation for compliance. In addition, ascheme is in place that allows employees to obtainadvice discreetly through the Compliance Reporting
and Consultation System, which utilizes the expertiseof an outside attorney.

33

Corporate GovernanceEnterprise Risk Management System

The KHI Group has established a group-wide enterprise risk
management system to identify risk and to ensure an overall levelof effectiveness with regard to managing risk. This enables theGroup to effectively deal with critical risks that have an impact onmanagement, thereby enhancing risk management as set forth in
the Kawasaki Group Management Principles. Under the enterpriserisk management system, from fiscal 2011 the KHI Group is
implementing risk assessment following a risk management
process—screening and evaluating risk, identifying major risk anddetermining risk treatment, and formulating, executing, andmonitoring risk-hedging policy—to pinpoint any major risks having
a significant impact on business according to enterprise risk criteria,
and is controlling such risks with reasonable and appropriate
methods from the perspective of enterprise management.

Business Risk
(1) Political and Economic Conditions
The KHI Group conducts its business activities not only in Japan but
also elsewhere in North America, Asia, Europe, and other areas, andis affected by political and economic conditions in each of theseregions. For example, trends in personal consumption may have an
impact on the sales of the Motorcycle & Engine segment, while
trends in private-sector capital investment and public works
investment may affect the orders of the Gas Turbine & Machineryand the Plant & Infrastructure segments. Moreover, conditions inshipping markets and demand for passenger air travel may affectthe orders and sales of the Ship & Offshore Structure, Aerospace,
and Gas Turbine & Machinery segments.
Furthermore, disputes, political turmoil, and other factors may
affect the Company’s overseas projects.
(2) Fluctuations in Foreign Exchange Rates
Overseas sales accounted for 56.5% of consolidated net sales infiscal 2012, and the Group has a substantial volume of transactions
denominated in U.S. dollars, euros, and other currencies. With
respect to transactions denominated in foreign currencies, theGroup strives to reduce foreign exchange risk by such means asincreasing the proportion of overall costs denominated in foreign
currencies and engages in hedging techniques such as flexible
forward contracts, taking into account trends in foreign exchange
rates. Nevertheless, the majority of the Group’s manufacturing
facilities are located in Japan, and sales to overseas markets are
subject to foreign exchange fluctuation risk.
(3) Large-Scale Natural Disasters
To minimize losses arising from natural disasters such as typhoons,
earthquakes, floods, and pandemics, the KHI Group takes aproactive approach that includes drafting business continuity plans,establishing emergency contact systems, performing periodic
inspections and training. However, such factors as injuries andproperty damage caused by natural disasters, as well as
slower-than-usual distribution of materials, could affect the34

business activities of the KHI Group, especially factory-based
production activities. In addition, losses caused by natural
disasters would not be fully covered by casualty insurance orother means of compensation.
(4) Securing Human Resources
In all workplaces, retirement is creating a shortage of
personnel with excellent capabilities cultivated over many
years, which might impede the business activities of the KHI
Group and hinder its ability to remain competitive.
Consequently, the KHI Group strives to attract top-caliber
individuals through aggressive hiring activities each year andemphasizes the transfer of technologies and techniquesfrom one generation of employee to another as well as skill
development. Nevertheless, if the KHI Group is unable toretain a sufficient number of employees, its business results
may be adversely affected.
(5) Intellectual Property
The KHI Group strives to ensure appropriate protection ofsuch intellectual property as utility model rights and patentrights in possession. However, because intellectual property
in possession is so extensive, the KHI Group might not beable to completely prevent third parties from infringing
upon its intellectual property rights. In addition, if any
products or technologies of the KHI Group were to infringe
upon the intellectual property rights of other companies andthe Group were subsequently sued for damages, such legal
action could have an effect on the business results of theGroup.
(6) Information Leaks
In the course of business, the KHI Group acquires
confidential information about its business partners as wellas confidential information related to operating activities,
such as designs and technologies. To safeguard thisinformation, the KHI Group has established management
systems and training programs and has created information
security systems to prevent information leaks. However, inthe event confidential information were to leak out, due toincidents such as computer viruses that attack the KHI
Group’s systems, unauthorized access, or theft, the businessresults of the KHI Group might be affected.
(7) Laws and Regulations
The Group conducts its business activities in compliance withthe laws, regulations, and other controls in the countries andregions where it operates. However, if its responses to therevisions to the laws and regulations are not correctly
implemented, the KHI Group might be assessed fines or
penalties for violating the law, which could lead to losses,
and lose order opportunities due to administrative
disposition. Moreover, such events may tarnish thereputation of the KHI Group, which could impact business results.
(8) Environmental Protection
The KHI Group has many manufacturing facilities, and some
operations use hazardous substances subject to environmental
restrictions. The management of such hazardous substances
requires due diligence and efforts to prevent harmful outflow. The
KHI Group strives to undertake such efforts, and countermeasures
have been formulated to minimize impact from the diffusion of
hazardous substances. Nevertheless, were such a situation to occur,
the reputation of the KHI Group would undoubtedly be tarnishedand the affected facility would suffer from a prompt work
stoppage, with the KHI Group potentially subject to compensatory
damages. Such events could impact business results.
(9) Order Agreements
For the KHI Group, most projects are for products based on
individual agreements with the customers. Major projects,
including construction projects with big contract amounts, go
through a thorough internal examination, with risk analysis and risktreatment by the Major Project Committee before the orderagreements. However, unforeseen changing political or economic
circumstances, costs ballooning due to changes in design or
confusion at the production stage, such events could have an
impact on the business results of the KHI Group.

or cultural differences, and complex labor relations, in
product destinations and countries and regions where
production and projects are undertaken, and suchcircumstances could affect the business results of the KHI
Group.
(13) Procurement of Materials
The KHI Group procures raw materials, parts, and equipmentfrom many suppliers. To sustain stable procurement, the KHI
Group relies on careful tracking of market trends, especiallyfor raw materials and parts, and while striving to ensure that
suppliers adhere to strict quality control, it avoids overuse ofany particular supplier and uses multiple suppliers forrequired materials. However, if procurement of specialty raw
materials and parts available through limited suppliers wereto stall, the situation could hinder the production activitiesof the KHI Group. In addition, skyrocketing prices on raw
materials, parts, and other procured items could affect thebusiness results of the KHI Group.

(10) Quality Assurance
The KHI Group strives to comply with laws and regulations on
product quality and safety and also strives to enhance productreliability through quality assurance and product and equipment
safety risk assessment. However, if accidents, complaints, or recalls
attributed to product quality were to occur, costs of a considerable
amount might arise due to compensation for losses, litigation
expenses, and other payments, and this could have an effect on thebusiness results of the KHI Group. Furthermore, compensation
amounts paid by the Company would not be fully covered byproduct liability insurance.
(11) Research and Development
The KHI Group’s research and development (R&D) activities require
a considerable amount of effort in terms of research and funding.
Consequently, if commercialization opportunities are lost owing todelays in the R&D plan, or if commercialization is not realized
because of failure to meet market needs, or if commercialization is
executed but does not generate sufficient success, the businessresults of the KHI Group could be affected.
(12) Country Risk
The KHI Group not only exports products and services but also
carries out production at sites overseas and is involved inconstruction projects, such as plants, in locations overseas. Smooth
execution of operations may be prevented by various
circumstances, including political unrest, trade sanctions, religious

35

Directors, Corporate Auditors, and Executive Officers
DIRECTORSTadaharu Ohashi

Masashi Segawa*

Mitsutoshi Takao*

Nobumitsu Kambayashi* Kyohei Matsuoka*
SeniorVice President

SeniorVice President

Hiroshi Takata*

Shigeru Murayama*

Joji Iki*

Masahiko Hirohata

Eiji Inoue*

Yoshinori Kanehana

Kenzo Doi**

Michio Oka**

Chairman

SeniorVice President

Satoshi Hasegawa*President

SeniorVice President

Senior Executive
Vice President

SeniorVice President

SeniorVice President

Senior Executive
Vice President

SeniorVice President

Makoto Sonoda*
SeniorVice President

SeniorVice President

CORPORATE AUDITORS

Tatsuyoshi Ogushi

Yuji Murakami*Representative Director**Outside Coporate Auditor

36

EXECUTIVE OFFICERS

President

Managing Executive Officer

Satoshi Hasegawa

Minoru Makimura

Senior Executive Vice Presidents

Executive Officers

Masashi Segawa

Takeshi Sugawara
Tamaki Miyatake
Shuichi Yamanaka
Shinsuke Tanaka
Masatoshi Yamaguchi
Naomi Sera
Yoshizumi Hashimoto
Masahiro Ibi
Takafumi Shibahara
Nobuyoshi Kobayashi
Minoru Akioka
Yukinobu Kono
Masafumi Nakagawa
Mitsuo Kadoya
Hiroshi Hidaka
Hideki Sasaki
Atsuhiko Yamanaka
Akio Murakami
Kaoru Kawabe
Kazuo Hida
Makoto Ogawara
Yugo Nakagami
Hirokazu Komaki
Shiro Nakabayashi
Munenori Ishikawa
Toshiyuki Kuyama
Shigehiko Kiyama
Kenji Tomida

Mitsutoshi Takao
Senior Vice Presidents

Nobumitsu Kambayashi
President,
Ship & Offshore Structure Company

Kyohei Matsuoka
President,
Rolling Stock Company

Hiroshi Takata
President,
Motorcycle & Engine Company

Shigeru Murayama
President,
Aerospace Company

Makoto Sonoda
President,
Precision Machinery Company

Joji Iki
President,
Gas Turbine & Machinery Company

Masahiko Hirohata
General Manager,
Corporate Planning Division

Eiji Inoue
President,
Plant & Infrastructure Company

Yoshinori Kanehana
General Manager,
Marketing Division(As of June 27, 2012)37

Corporate Social Responsibility

KHI Group CSR
The Kawasaki Heavy Industries, Ltd. (KHI) Group’s mission is “Kawasaki, working as one for the good of the planet: (Enriching
lifestyles and helping safeguard the environment: Global Kawasaki)." Each and every employee puts this statement into practiceas he or she goes about individually assigned daily business activities. To this we added a broader view of CSR and action goals, as
we seek to realize the Group Mission at ever-higher levels.

■ Group Mission and CSR
Basic Concept
The KHI Group’s CSR activities are an ongoing effort to realize the Group Mission at increasingly higher levels. We know that contributing
to the future of human society and the global environment will raise the value of the Kawasaki brand, and we promote activities in thefive themes described below to realize our goal.
Five Themes(1) BusinessWe will use our integrated technological expertiseto create value that points the way to the future.

(2) Management

We will always act with integrity and good faith tomerit society’s trust.

(3) Employees

We will all create a workplace where everyone
wants to continue working.

(4) Environment

We will pursue manufacturing that makes the
Earth smile.

(5) Social contribution

We will expand the circle of contribution that links
us to society and the future.

Realization of
the Group
Mission at everhigher levels

Kawasaki Values• We respond to our customers' requirements• We constantly achieve new heights in technology• We pursue originality and innovation

The Kawasaki Group Management Principles

We respond to
our customers'
requirements.

1. Trust : As an integrated technology leader, the Kawasaki Group is committed to providing
high-performance products and services of superior safety and quality. By doing so, we will
win the trust of our customers and the community.
2. Harmonious coexistence : The importance of corporate social responsibility (CSR)
permeates all aspects of our business. This stance reflects the Kawasaki Group's corporate
ideal of harmonious coexistence with the environment, society as a whole, local communities
and individuals.
3. People : The Kawasaki Group's corporate culture is built on integrity, vitality, organizational
strength and mutual respect for people through all levels of the Group. We nurture a global
team for a global era.
4. Strategy : The Kawasaki Group pursues continuous enhancement of profitability andcorporate value based on three guiding principles-selectively focusing resources on strategic
businesses; emphasizing quality over quantity; and employing prudent risk management.

Group Mission"Kawasaki, working
as one for the goodof the planet"
We pursue
originality andinnovation.

We constantly
achieve new heights
in technology.

The Kawasaki Group Code of Conduct
1. Always look at the bigger picture. Think and act from a long-term, global perspective.
2. Meet difficult challenges head-on. Aim high and never be afraid to try something new.
3. Be driven by your aspirations and goals. Work toward success by always dedicating yourself
to your tasks.
4. Earn the trust of the community through high ethical standards and the example you set forothers.
5. Keep striving for self-improvement. Act on your own initiative as a confident professional.
6. Be a part of Team Kawasaki. Share your pride and sense of fulfillment in a job well done.

■ Creating the Group’s CSR Framework
The Group’s CSR activities fall into five themes.
Categories are established for each theme and action goals are set for each one of these.
Various social expectations are placed upon companies. We collected and consolidated feedback from different sources, including
requests from customers, points in CSR surveys conducted by third-party organizations, and ISO 26000 core subjects, and then selected
specific CSR issues that we, as a corporate group, should address. These issues have been positioned as items of focused activity during
the MTBP2010 (FY2011-2013) that will enable the KHI Group to achieve its ideal.
The divisions assigned to these items self-assess the current status of their efforts and draft action plans highlighting measures tocompensate for shortcomings and to reinforce existing strengths. This PDCA (Plan-Do-Check-Act) cycle is repeated.
However, the social expectations placed on companies gradually change as the years go by, and the scope of issues that must be
addressed starts to expand. Fiscal 2013 will be a year of preparation for the new medium-term business plan that will begin in fiscal
2014. During fiscal 2013, we will review our CSR issues and be ready to implement activities over the term of the new plan that perfectlyreflect the changing times.

38

T

Support for Victims of the Floods (Thailand)
Kawasaki Motors Enterprise (Thailand) Co., Ltd. (KMT), the local
manufacturing and marketing base for Kawasaki-brand motorcycles
in Thailand, was not directly affected by the severe floods thatinundated Thailand in autumn of 2011. But the KHI Group supported
relief and recovery efforts with cash and 10 Kawasaki MULE™ utility
vehicles—a total donation value of ¥30 million.
A total of 40 Kawasaki motorcycle-riding volunteers took
advantage of the mobility afforded by motorcycles to expedite relief
efforts to the people affected by this disaster. In addition toproviding spare parts, oil, gasoline and other motorcycle-relatednecessities at no cost, KMT dispatched three repair specialists to thearea to support the volunteers riding through the flooded region.
For customers affected by the floods, KMT undertook free
motorcycle repairs and offered discounts on spare parts.

Volunteer riders

O

P

I

C

S

Consideration Given to Culture and Traditions of
Employees (Indonesia)
Various considerations are extended to Muslim employees at PT.
Kawasaki Motor Indonesia (KMI), the local manufacturing andmarketing base for Kawasaki-brand motorcycles in Indonesia.
• Onsite mushola (prayer room for Muslims)• Female employees allowed to wear a headscarf during
working hours• No dishes made with pork served in the cafeteria• Office hours for employees in administrative and marketing
divisions start 30 minutes earlier during Ramadan• Halal bi halal* event held after Ramadan
But not all people in Indonesia are Muslim. Since the constitution
guarantees religious freedom, there are minorities of Christians andHindus, as well. The Company therefore
extends considerations to employees of theChristian and Hindu faiths as well, and holds
events, such as Christmas celebrations for
Christian employees. Thus KMI strives to
Scarf-clad female employee
execute business activities that respect the
local religions, culture and customs of the land.

Mushola (prayer room)

Halal bi halal* Halal bi halal : A gathering held after the holiday (Eid Al-Fitr ) to mark the end of Ramadan.

■ Group CSR Themes: Categories and Action Goals
ThemesCategories

Action Goals

Overall

CSR Overall

Realize the Group Mission (KHI’s duty to society) at a higher level.

Product Development

Draw on comprehensive Group capabilities and apply sophisticated technologies to the development of highperformance, high-quality products.

Product Liability

Provide products and services that are reliable and safe from a customer's perspective.

Customer Satisfaction

Provide products and services that meet customer needs and leave a great impression.

Corporate GovernancePursue sound, transparent management, enable each business segment to operate independently, and demonstrate
the combined strengths of the Group.

Compliance

Build an organization that is open and self-regulating to underpin a corporate culture with credibility.

Risk Management

Pinpoint major risks that threaten the achievement of business targets and establish a system capable of providing themost appropriate responses.

Information Security

Institute reliable information security measures and maintain the safety and security of information.

Information Disclosure,
IR Activities

Provide timely, accurate corporate information and further enrich the contents of disclosure.

Business

Management

Employees

Environment
SocialContribution

Business Partners

Coexist with business partners and maintain fair partnerships while promoting collaboration in CSR activities.

Occupational Safety and
HealthCreate a safe, pleasant working environment where employees can perform their jobs in good health and in a positive
state of mind.

Human Resources
Development

Consistently cultivate the skills of employees, refine acquired talents, and raise the value of personnel assets to thehighest level.

Human Rights

Respect the diversity of employees and strive to create a workplace that embraces wide-ranging values and abilities
and utilizes them.

Labor

Endeavor to create a workplace that provides motivation and satisfaction and one in which employees are treatedfairly and appropriately.

Global Environment

Strive to realize a low-carbon society, a recycling-oriented society, and a society that coexists with nature.

Local Communities andJapanese Society

Coexist and cooperate with local communities and help nurture new generations that will develop future dreamtechnologies.

International Community

Respect the myriad cultures of countries around the world and contribute to their vibrancy by cultivating technology
and human resources in these countries.

39

Corporate Social Responsibility

2020 Environmental Vision
In 2010, the Kawasaki Heavy Industries, Ltd. (KHI) Group established 2020 Environmental Vision, which defines what the Group should bein 2020 from an environmental perspective under Group Mission: “Kawasaki, working as one for the good of the planet : (Enriching
lifestyles and helping safeguard the environment: Global Kawasaki).”Taking into account the environmental trends in Japan and abroad, we will pursue the 2020 Environmental Vision on the basis of fourbasic guidelines. These are “the establishment of EMS (environmental management system),” which will provide a foundation for threesocial aims namely, “realization of a low-carbon society,” “realization of a recycling-oriented society,” and “realization of a society coexistingwith nature.” We are committed to working from these guidelines to contribute to the formation of a sustainable society.

Environmental Philosophy
The KHI Group has undertaken business with the advancement of a society and the nation through “manufacturing” as our foundation,and has sought to develop a global enterprise in “key industries related to land, sea, and air.” In doing so, we have worked toward
resolution of global environmental problems by seeking the “realization of a low-carbon society,” the “realization of a recycling-oriented
society,” and the “realization of a society coexisting with nature.” We will contribute to “the sustainable development of a society” throughbusiness activities that are in harmony with the environment and through the KHI Group’s own products and services that show
consideration for the global environment.

Three Points of Entry onto the Path Toward Realization of a Sustainable Society
Contribute to the prevention of global warming through our products and manufacturing that use
energy without waste

Low-carbon
society(1) We are reducing greenhouse gas emissions in accordance with the national targets for 2020.
(2) We are providing customers with products and services that use energy effectively, thereby reducing
greenhouse gas emissions on a global scale.
(3) We are promoting energy conservation in production and distribution processes, further reducing
greenhouse gas emissions.

Engage in manufacturing that uses resources without waste in order to reduce and fully utilize limited
resources

Recyclingoriented
society(1) We promote design of our products that makes effective use of resources and improves weight reduction,
durability and recyclability in our products.
(2) We promote 3R activities (reduce, reuse, and recycle) in production, and have achieved zero waste emissionin all of our plants.
(3) We have completed the proper disposal of all PCB waste and equipment containing PCBs.

Contribute to reduced environmental impact and conservation of ecosystems through manufacturingthat is in harmony with the global environment

Societycoexistingwith nature(1) We provide customers with products and services that prevent air pollution and water pollution in order toimprove the environment and preserve the ecosystem.
(2) We are reducing the use of chemical substances in our products and in our manufacturing activities.
(3) We are cooperating with local communities in local forest conservation programs and other such activities
to protect the ecosystem.

Building a Foundation for Environmental Management
Building a foundation for environmental management that will support the realization of the 2020 Environmental Vision(1) All of KHI’s consolidated subsidiaries in Japan and abroad have created EMS at each site and environmental management throughout
the KHI Group.
(2) We observe environmental laws and regulations and conduct periodic follow-ups of compliance status.
(3) We disseminate environmental information inside and outside the KHI Group, and engage in interactive dialogue while conducting
environment conservation activities.

40

The 7th Environmental Management Activities Plan (FY2011–2013)
Our 2020 Environmental Vision, which establishes goals for the KHI Group’s environmental management for the year 2020, addresses the“realization of a low-carbon society,” ”realization of a recycling-oriented society,” and “realization of a society coexisting with nature” asnew points of entry in our commitment to the Group Mission through business activities that are in harmony with the environment andthrough KHI Group’s own products and services that show consideration for the environment.
The 7th Environmental Management Activities Plan (FY2011-2013) serves as a starting point for our implementation of environmental
management that properly discerns and balances different forms of business. The substance of the plan is divided into four topics: “therealization of a low-carbon society,” “the realization of a recycling-oriented society,” and “the realization of a society coexisting with nature”
as well as “the establishment of EMS” to serve as a foundation for environmental management. We maintain company-wide objectives inall of these, and are taking action accordingly.

Realization of a low-carbon
society

We are aiming to achieve our company-wide FY2013 objective for greenhouse gases, which isto reduce the average basic unit of emissions (meaning CO2 emissions/sales) for FY2009-2013
by 10% compared with the level of FY2008. This objective represents a specific initiative tocounter global warming.

Realization of a recycling-oriented
society

We focus on promoting resource conservation and 3R activities, as measures for reducing waste
emission.

Realization of a society coexistingwith nature

We have engaged in measures to reduce chemical substances, and make environmental
contributions through our products and technology, and the like.

Establishment of EMS

We have committed ourselves to promoting the establishment of EMS in all consolidated
subsidiaries in Japan and overseas.

Examples of Measures Taken to Realize a Sustainable Society
Low-carbon society
Utilize renewable energy
We have installed photovoltaic power
generation equipment in 11 main
domestic plants and are promoting
the use of green power.

Reduce CO² and energy
consumption
We are further eliminating wasteful use ofenergy, by encouraging practices such as
cutting standby power for machine tools
and turning off unnecessary lighting, at all
the plants and offices.

Recycling-oriented society
Promote the 3Rs
Old discarded Jet SkiR are collected,
dismantled and processed through the FRP
Boat Recycling System, and the reusable
materials are used as recycled resources.

Separate and sort the collectedwaste
We carefully separate and sort various
industrial waste generated at ourfactories to facilitate material andthermal recycling efforts.

Society coexisting with nature
Coexist with the environment

Forest conservation activities

We have completed the eco-friendly newbuilding at Kobe Works, which featuresnatural lighting, photovoltaic power
generation, wind power, rooftop greeneryand high-performance double-glazed
windows.

We participate in forest conservation
activities, such as "the corporate
reforestation project" promoted by Hyogo
Prefecture, to coexist with local
communities and protect biodiversity.

41

Financial Section

Six-Year Summary .............................................................................................................. 43
Management’s Discussion & Analysis.......................................................................... 44
Consolidated Balance Sheets.......................................................................................... 48
Consolidated Statements of Operations and Comprehensive Income ........... 50
Consolidated Statements of Changes in Net Assets .............................................. 51
Consolidated Statements of Cash Flows .................................................................... 52
Notes to the Consolidated Financial Statements .................................................... 54
Independent Auditor's Report ....................................................................................... 88

42

Six-Year Summary
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES
Years ended March 31

Millions of yen

2012

2011

2010

2009

2008

2007

Net sales¥1,303,778¥1,226,949¥1,173,473¥1,338,597¥1,501,097¥1,438,619

Cost of sales

1,088,918

1,037,079

1,023,610

1,146,944

1,262,032

1,213,524

Gross profit

214,860

189,870

149,863

191,653

239,065

225,095

Selling, general and administrative expenses

157,375

147,242

151,179

162,940

162,155

155,953

Operating income (loss)

57,484

42,628(1,316)28,71376,91069,142

Net income (loss)

23,32325,965(10,860)

11,72835,141

29,772

Capital expenditures

63,91955,33459,27282,45050,53839,269Depreciation and amortization

48,90150,276

51,42344,33437,45530,279R&D expenses

39,94037,09038,057

38,25636,22833,819¥ 271,183¥ 247,992¥ 238,755¥ 165,791¥ 157,741¥ 155,412

274,750

275,780

284,408

284,118

259,927

253,819

1,362,139

1,354,278

1,352,439

1,399,771

1,378,770

1,357,980

Long-term debt, less current portion

259,243

254,447

270,110

181,933

138,766

165,754

Total net assets

315,922

297,433

283,053295,246

319,038

295,378

Operating results:

Financial position at year-end:
Working capital
Net property, plant and equipment
Total assets

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

¥

13.9

¥

15.5

¥

(6.5)

¥

7.0

¥

21.1

¥

18.9

Net income per share —diluted

13.8

15.3

–

6.9

20.6

17.2

Cash dividends

5.0

3.0

3.0

3.0

5.0

5.0

183.0

173.0

166.1

174.1

187.7

175.0

Number of shares issued (millions)

1,671

1,670

1,670

1,670

1,670

1,660

Number of employees (persons)33,26732,70632,29732,26630,56329,211

Orders received¥1,311,878¥1,270,652¥1,001,290¥1,540,590¥1,610,757¥1,592,688

Order backlog

1,494,116

1,495,349

1,507,057

1,699,163

1,533,663

1,465,155

Net assets

Other data:

43

Management’s Discussion & Analysis

performances by the Precision Machinery, Plant & Infrastructure
and Aerospace segments in particular, compensated for decreases
in the Gas Turbine & Machinery and Ship & Offshore Structure
segments. On the profit front, the Rolling Stock and Gas Turbine& Machinery segments faltered, but the Plant & Infrastructureand Ship & Offshore Structure segments achieved good results,
delivering a significant boost that reinforced profitability overall.
Consequently, on a consolidated basis, orders won by the KHI
Group in fiscal 2012 rose ¥41.2 billion from the previous fiscal year,
to a value of ¥1,311.8 billion, and net sales climbed ¥76.8 billion,to ¥1,303.7 billion. Operating income grew ¥14.8 billion, to ¥57.4
billion, and recurring profit jumped ¥14.4 billion, to ¥63.6 billion.
Net income decreased ¥2.6 billion, to ¥23.3 billion, reflecting apartial reversal of deferred tax assets, following a reduction in thecorporate tax rate.

OVERVIEW
In fiscal 2012, ended March 31, 2012, the Japanese economy began
to show signs of gradual recovery, despite the ongoing possibilityof a slowdown. The concerns were prompted by the disruption to
supply chains after the Great East Japan Earthquake and persistent
yen appreciation at historically high levels, and compounded bysuch factors as the impact of the floods in Thailand on corporate
activities. Moving forward, with demand related to disasterreconstruction activity reaching a peak and an attainable andsustainable energy policy for the future attracting greater attention,
the Kawasaki Heavy Industries, Ltd. (KHI) Group must take on arole that will become increasingly larger in the execution of various
basic infrastructure projects.
Globally, the prolonged European sovereign debt crisis isa continuing cause for concern that overshadows an improving
employment situation in the United States. Against this backdrop,
China still enjoys high growth despite an impending deceleration,and demand for infrastructure development remains firm inemerging markets, especially Brazil and parts of Asia. It is markets
such as these that will be drivers of growth and thus keep the
global economy on a gradual uptrend overall. Of note, concerns
about energy, water and waste treatment in particular, havebecome critical issues accompanying growth in emerging markets,and the ability of the KHI Group to contribute solutions to theseissues is fueling expansion of its business sphere worldwide.
In this operating environment, a few business segments of
the KHI Group showed either lower sales or lower income year on
year, but overall results were favorable, with higher sales and higher
income compared with the previous fiscal year. The value of orders
increased overall, as contributions from the Aerospace, Gas Turbine& Machinery and Precision Machinery segments offset shrinking
order value in the Rolling Stock, Ship & Offshore Structure andPlant & Infrastructure segments. Sales also grew overall, as solid

RESULTS OF OPERATIONSNet Sales
As noted above, consolidated net sales increased ¥76.8 billion to¥1,303.7 billion.
The principal factors accounting for this increase werea) a ¥34.7 billion increase in sales by the Precision Machinery
segment, reflecting solid demand for hydraulic components for theconstruction machinery in emerging countries; b) a ¥33.7 billion
gain in sales by the Plant & Infrastructure segment, owing to anincrease in sales in overseas markets; and c) a ¥9.7 billion increase insales by the Aerospace segment, pegged to an increase in sales ofcomponent parts for the Boeing 777 and 787.
Overseas sales expanded to ¥736.7 billion. By region, sales inUnited States represented ¥237.9 billion; sales in Europe accountedfor ¥123.3 billion; sales in Asia outside Japan contributed ¥239.6
billion; and sales in other areas added ¥135.8 billion. The ratio ofoverseas sales to consolidated net sales edged up 2.0 percentage

Net Sales

Sales by Industry Segment

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

9.5

10.2

13.4

44

11

1,303.7

12

10
0Ship & Offshore Structure

Plant & Infrastructure

Rolling Stock

Motorcycle & Engine

Aerospace

Precision Machinery

Gas Turbine & Machinery

Other

-10
-20

11

12

-10.8

1,226.9

1,173.4

10

14.9

23.3

09

9.4

20

25.9

08

1,338.6

1,501.1
0

30

15.9

18.0

500

40

11.7

1,000

8.7

35.1

1,500

08

09

10

Gas Turbine & Machinery

points, to 56.5%, compared with 54.5% in the previous fiscal year.
The following sections provide additional detail regarding theconsolidated performance of each business segment. Please notethat operating income or loss includes intersegment transactions.

Orders in the Gas Turbine & Machinery segment reached¥227.2 billion, up ¥39.6 billion, owing to an increase in orders
for component parts for commercial aircraft jet engines andconstruction of Kawasaki Green Gas Engine-equipped power plants.
Sales decreased ¥8.0 billion, to ¥194.6 billion, mainly due to a dropin sales of marine diesel engines and gas compression modules.
Operating income declined ¥1.7 billion, to ¥7.7 billion, largely
because of lower sales.

Ship & Offshore Structure
The segment won contracts for eight vessels, including bulk carriers,
but in the end, the value of orders received fell ¥39.0 billion fromthe previous fiscal year, to ¥39.9 billion. Sales also decreased,coming in at ¥113.5 billion or ¥4.8 billion less than in fiscal 2011,
when the segment still managed to record sales of large vessels.
However, on the profit front, the segment returned to an operating
income position, rebounding ¥4.9 billion from the previous fiscal
year, to ¥3.9 billion, mainly due to a decrease in provision for losses
on construction contracts.

Plant & Infrastructure
Orders received in the Plant & Infrastructure segment were on apar with the previous fiscal year, settling at ¥119.2 billion. Orders
included municipal refuse incineration plants for customers inJapan. Sales rose ¥33.7 billion from the previous fiscal year, to¥122.8 billion, largely because of an increase in sales of plants forcustomers overseas. Operating income climbed ¥5.8 billion fromthe previous fiscal year, to ¥14.1 billion, reflecting higher sales.

Rolling Stock
Orders received reached ¥66.0 billion, down ¥121.0 billion from theprevious fiscal year, when there were more large-scale orders foroverseas customers. The decrease also reflects a delay in projects
expected to come in during fiscal 2012. While sales to customers
in Japan were down, sales to customers overseas were up, whichbuoyed segment sales to ¥132.6 billion, on a par with the previous
fiscal year. Operating income retreated ¥3.0 billion, to ¥5.1 billion,
mainly owing to the impact of yen appreciation and provision forlosses on construction contracts.

Motorcycle & Engine
Sales by the Motorcycle & Engine segment reached ¥235.2 billion,
hovering around the level posted in the previous fiscal year, as anincrease in sales of motorcycles to emerging markets offset a dropin sales of motorcycles to developed countries caused mainly by
yen appreciation. The segment was unable to return to a profit
position, due to the impact of such factors as the floods in Thailand
and yen appreciation, and incurred an operating loss of ¥2.9 billion.
However, the loss position shrank ¥2.0 billion year on year, reflecting
higher sales of motorcycles to emerging markets and cost-cutting
results, such as lower fixed costs.

Aerospace
Orders received climbed ¥120.5 billion, to ¥327.2 billion, boosted
mainly by orders from Japan’s Ministry of Defense (MOD). Sales rose
¥9.7 billion, to ¥206.5 billion, largely owing to an increase in salesof component parts for the Boeing 777 and 787. Operating income
jumped ¥4.7 billion, to ¥7.8 billion, primarily because of higher sales
and cost reduction activities.

Net Income (Loss) per Share

Working Capital

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

11

12

0

08

09

10

11

12

500

0

1,362.1

10

271.1

09

247.9

08

50

238.7

-6.5

-5
-10

165.8

100

0

1,000

150

157.7

15.5
7.0

5

13.9

200

21,1

10

1,354.2

15

1,500

1,352.4

250

1,399.8300

201,378.8

25

08

09

10

11

12

45

Management’s Discussion & Analysis

Precision Machinery

losses, which came in at ¥14.9 billion.
Income before income taxes and minority interests amounted
to ¥48.7 billion, up ¥10.1 billion from the previous fiscal year. The
significant year-on-year increase in operating income was the main
reason for this welcome result. After deducting minority interests
in net income of consolidated subsidiaries, the Company posted
net income of ¥23.3 billion, down ¥2.6 billion. The decrease reflects
the partial reversal of deferred tax assets following a reduction in
the corporate tax rate. The ratio of net income to net sales dipped
0.4 percentage point, to 1.7%, from 2.1% in the previous fiscal year.
ROE (calculated using average total shareholders’ equity) edged
down 1.3 percentage points, to 7.8%, from 9.1% a year ago.
Capital expenditures in fiscal 2012 came to ¥63.9 billion, up
from ¥55.3 billion in the previous fiscal year. R&D expenses were
¥39.9 billion, up from ¥37.0 billion a year ago.

Orders received in the Precision Machinery segment grew ¥25.6
billion over the previous fiscal year, to ¥174.5 billion, thanks inlarge part to more orders for hydraulic components from theconstruction machinery market. Sales reached ¥175.0 billion, up¥34.7 billion, reflecting an increase in sales of hydraulic components
for construction machinery and higher sales of painting robots.
Operating income rose ¥4.3 billion, to ¥26.6 billion, mainly becauseof higher sales.

Other
Sales in this segment were up ¥9.1 billion, to ¥123.2 billion.
Operating income jumped ¥1.2 billion, to ¥3.8 billion.

Cost Expenses and Earnings
Cost of sales increased ¥51.8 billion from the previous fiscal year,to ¥1,088.9 billion. As a result, gross profit was limited to a ¥24.9
billion improvement and settled at ¥214.8 billion, while the grossprofit margin edged up 1.0 percentage point to 16.4%, from 15.4%
in the previous fiscal year.
Selling, general and administrative expenses grew ¥10.1
billion, to ¥157.3 billion, primarily because of higher R&D expenses.
Operating income jumped ¥14.8 billion, to ¥57.4 billion. This
upward movement is largely due to particularly good performancesby the Precision Machinery, Plant & Infrastructure and Aerospacesegments, which more than compensated for performances
elsewhere that were adversely affected by yen appreciation. In
the end, the ratio of operating income to net sales inched up 1.0
percentage point, to 4.4%, from 3.4% in the previous fiscal year.
Other income (expenses) showed net expenses of ¥8.7 billion,
compared with net expenses of ¥4.0 billion in the previous fiscal
year. The principal reason for a continued net expense position
was higher “other expences, net,” which leveled off at ¥15.3 billion,
compared with ¥10.8 billion in the previous fiscal year. The main
component of this change was a ¥4.9 billion increase in impairment

FINANCIAL CONDITION
Total assets at March 31, 2012, stood at ¥1,362.1 billion, up ¥7.8
billion from the end of the previous fiscal year. Of this amount,current assets accounted for ¥967.1 billion, up ¥15.4 billion. The
upward change is mainly due to an increase in receivables–tradeaccompanying the booking of sales and an increase in inventories
associated with work in progress. Combined investments, net
property, plant and equipment, and intangible and other assets
came to ¥394.9 billion, down ¥7.6 billion from the previous fiscal
year, largely reflecting the booking of impairment losses on fixed
assets and the partial reversal of deferred tax assets.
Total liabilities stood at ¥1,046.2 billion, down ¥10.6 billion
from the end of the previous fiscal year. The change is primarily
due to a ¥21.9 billion decrease in interest-bearing liabilities, which
totaled ¥407.1 billion. Current liabilities accounted for ¥696.0 billion,
down ¥7.7 billion, and total long-term liabilities dropped ¥2.9 billion
year on year, to ¥350.2 billion.
Net assets rose ¥18.4 billion, to ¥315.9 billion, reflecting such

Total Net Assets

Net Assets per Share

Return on Equity(Billions of yen)

(Yen)

(%)

350

200

12
10

300
150

50

46

2

-2

08

09

10

11

12

0

7.8

9.1
-3.8

0

50
0

4

3.8

183.0

173.0

166.1

174.1

315.9

297.4

283.0

295.2

319.0

100

100

187.7

6

200
150

8

11.4

250

08

09

10

11

12

-4

08

09

10

11

12

events as the payment of dividends and the booking of net income.
The ratio of shareholders’ equity to total assets expanded 1.1
percentage points, to 22.4%, from 21.3% at the end of the previous
fiscal year. In addition, the net debt-to-equity ratio improved again,
moving 10.3%, from 132.1% to 121.8%, as of March 31, 2012.

CASH FLOWSNet cash provided by operating activities in fiscal 2012 amounted
to ¥84.7 billion, a net increase of ¥2.8 billion from fiscal 2011.
Principal cash inflow items were depreciation and amortization of¥48.9 billion, loss on impairment of fixed assets of ¥14.9 billion,
and an ¥18.9 billion increase in advances from customers. Principal
cash outflow items were an ¥18.7 billion increase in inventories and¥18.2 billion payment for income taxes.
Net cash used for investing activities amounted to ¥65.9
billion in fiscal 2012, up ¥13.0 billion from fiscal 2011. The cash
was applied primarily toward the acquisition of property, plant andequipment.
Free cash flow, which is the net amount of cash fromoperating and investing activities, showed a net inflow of ¥18.7
billion in fiscal 2012, down from net inflow of ¥28.9 billion in fiscal
2011.
Net cash used for financing activities amounted to ¥26.8
billion in fiscal 2012, up ¥7.9 billion from fiscal 2011. The cash wasapplied primarily to repay debt.
Given these changes in cash flows, cash and cash equivalents
at the end of the term settled at ¥33.2 billion, down ¥11.3 billion
from the beginning of the year.

MANAGEMENT OF LIQUIDITY RISK(THE RISK THAT THE COMPANY DEFAULTS)
The Company manages liquidity risk through the timely preparation
and updating of financial plans by the Finance Department, basedon information from each business segment. Managing liquidity
risk includes diversifying methods of financing, adjusting financial
periods of long- and short-term debt based on the prevailingfinancing environment, and securing commitment lines (maximum
financing amount of ¥54.0 billion) and issuing commercial paper(maximum issuing amount of ¥120.0 billion).

MANAGEMENT INDICATORS
Seeking a level of profitability that meets the expectations ofinvestors, the Company has adopted before-tax return on invested
capital (ROIC), a management indicator that measures how
efficiently the Company uses its capital. To strengthen its financial
position while striving to maximize ROIC, the Company willemphasize enhanced efficiency of invested capital. The Company
uses the following formula to calculate ROIC.
Before-tax ROIC: The ratio of EBIT (earnings before
interest and taxes) to the sum of interest-bearing debt and total
shareholders’ equity.
ROIC calculated using this formula edged up 1.4 percentage
points, from 6.0% in fiscal 2011 to 7.4% in fiscal 2012.

DIVIDENDS
The Company’s basic dividend policy is to sustain stable
cash dividends in line with performance, while giving carefulconsideration to retained earnings to strengthen and expand the
KHI Group’s business base in preparation for future growth.
The Company’s basic policy regarding cash dividends fromretained earnings is to pay dividends twice annually—an interim
dividend and a year-end dividend. The decision-making structureswith the final say on dividends are the Board of Directors for theinterim dividend and the General Meeting of Shareholders for the
year-end dividend.
Upon consideration of business performance, the level ofretained earnings and other factors, with these policies in mind,
the decision was made to pay an annual dividend of ¥5 per share(an interim dividend of ¥0 and a year-end dividend of ¥5) for fiscal
2012. This is an increase of ¥2 per share over the previous fiscal year.
Retained earnings after the dividend payout will be appropriatedfor investments in the Company’s businesses, the repayment ofborrowings and other uses.
Please note that the Company’s Articles of Incorporation
provides for the distribution of an interim dividend as stipulated in
Article 454, Paragraph 5, of Japan’s Companies Act.

47

Consolidated Balance Sheets
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESAt March 31, 2012 and 2011

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

2012

2012

2011

ASSETS
Current assets:
Cash on hand and in banks (Note 19)¥

34,316¥47,233$417,774

Receivables:
Trade (Note 8)

404,054401,753

4,919,089

Other

15,68017,526

190,893

Allowance for doubtful receivables(3,255)(2,829)(39,627)

416,479

416,450

5,070,355

Merchandise and finished products

53,55850,528652,033

Work in process

300,226

285,977

3,655,053

Raw materials and supplies

88,11388,817

1,072,717

441,897425,322

5,379,803

Deferred tax assets (Note 18)

33,00735,887

401,838

Other current assets

41,487

26,827505,077

Total current assets

967,186

951,719

11,774,847

Land

61,94264,107754,102

Buildings and structures

327,877

321,650

3,991,684

Machinery and equipment

537,959

517,5546,549,295

Construction in progress

11,782

12,651

143,438

939,560

915,962

11,438,519

Accumulated depreciation(664,810)(640,182)(8,093,620)

Net property, plant and equipment

274,750

275,780

3,344,899

53,25750,291

648,368

432

458

5,259

Deferred tax assets (Note 18)

37,61447,193457,925

Goodwill and other intangible assets

18,786

19,249228,707

Allowance for doubtful receivables

(940)

(986)

(11,443)

Other (Note 8)

11,054

10,574

134,576

Total investments and intangible and other assets

120,203

126,779

1,463,392¥1,362,139¥1,354,278$16,583,138

Inventories:

Property, plant and equipment (Note 8):

Investments and intangible and other assets:
Investments in securities (Notes 6, 7 and 8)
Long-term loans

Total assets

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

48

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

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term debt and current portionof long-term debt (Note 8)
Trade payables (Note 8)
Advances from customers
Income taxes payable (Note 18)
Accrued bonuses
Provision for product warranties
Provision for losses on construction contracts (Note 9)
Provision for restructuring charges
Provision for environmental measures
Deferred tax liabilities (Note 18)
Asset retirement obligations
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt, less current portion (Note 8)
Employees' retirement and severance benefits (Note 10)
Deferred tax liabilities (Note 18)
Provision for losses on legal proceedings (Note 29)
Provision for environmental measures
Asset retirement obligations
Other
Total long-term liabilities

2012

2011

2012

¥ 147,924
310,775
99,051
4,627
20,582
7,128
30,9771,465
150
73,324¥ 174,697
319,272
80,816
5,988
15,692
7,288
33,068
1,077
499
765
10
64,555$ 1,800,877
3,783,479
1,205,880
56,330250,572
86,778377,124
17,835
1,826
892,674

696,003703,727

8,473,375

259,243
75,052
4,060
910
3,282
611
7,056

254,447
80,556
3,990
5,868
3,333
440
4,484

3,156,111
913,708
49,427
11,07839,956
7,438
85,905350,214353,118

4,263,623

104,484
54,394
176,414104,340
54,251
158,615

1,272,023
662,210
2,147,723(22)
335,270(30)
317,176(267)
4,081,689

3,989
246
(33,451)(29,216)
9,868

3,876
(990)
(31,006)(28,120)
8,377

48,563
2,995(407,243)(355,685)
120,136

315,922

297,433

3,846,140¥1,362,139¥1,354,278$16,583,138

Contingent liabilities (Note 11)
Net assets (Note 12):
Shareholders' equity:
Common stock:
Authorized - 3,360,000,000 shares
Issued - 1,671,892,659 shares in 2012
- 1,670,646,460 shares in 2011
Capital surplus
Retained earnings
Treasury stock - 77,126 shares in 2012
- 100,288 shares in 2011
Total shareholders' equity
Accumulated other comprehensive income:Net unrealized gains on securities, net of tax
Deferred gains (losses) on hedges
Foreign currency translation adjustments
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets

49Consolidated Statements of Operations and Comprehensive Income
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESFor the years ended March 31, 2012, 2011 and 2010

Consolidated Statements of Operations

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

2012

2011

2010

2012

¥1,303,778
1,088,918
214,860
157,376
57,484¥1,226,949
1,037,079
189,870
147,242
42,628¥1,173,473
1,023,610
149,863
151,179(1,316)$15,872,632
13,256,855
2,615,777
1,915,948
699,829

2,331

2,306

3,615

28,378Interest expense
Other expenses, net (Note 15)
Income (loss) before income taxes and minority interests

8,567(4,282)(15,394)
48,706

9,205(4,677)(10,867)
38,595

6,522(5,399)(7,243)(3,821)

104,297(52,130)(187,411)
592,963

Income taxes (Note 18)
Current
DeferredIncome before minority interests
Minority interests in net income of consolidated subsidiaries
Net income (loss)(9,932)(12,899)
25,875(2,552)
23,323(14,340)
3,503
27,758(1,793)25,965(8,805)2,822(1,056)(10,860)(120,915)(157,038)
315,010(31,068)
283,942

Net sales
Cost of sales (Note 13)
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income (loss)
Other income (expenses):
Interest and dividend income
Equity in income of nonconsolidated
subsidiaries and affiliates¥

Consolidated Statements of Comprehensive Income¥¥

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

2012

2011

2010

¥25,875¥27,758

¥

106
1,281
(2,924)

Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Owners of the parent company
Minority interests

Income before minority interests
Other comprehensive income (loss):
Net unrealized gains (losses) on securities
Deferred gains (losses) on hedges
Foreign currency translation adjustments
Share of other comprehensive income of associates
accounted for using equity method

2012-$315,010(1,437)(480)(5,422)-

1,290
15,595(35,596)231(1,306)
24,569(2,167)(9,506)
18,252-

2,812(15,899)
299,11122,2282,341

16,506
1,746-

270,61128,500U.S. dollars(Note 1)Yen

Per share amounts (Note 20)
Net income per share - basic
Net income per share - diluted
Cash dividends

¥

13.9
13.8
5.0

¥

15.5
15.3
3.0

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

50$¥ (6.5)
3.0

$

0.16
0.16
0.06

Consolidated Statements of Changes in Net Assets
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESFor the years ended March 31, 2012, 2011 and 2010

Thousands

Balance at March 31, 2009
Net loss for the year
Adjustments from translation offoreign currency financial statements
Increase in net unrealized gains
on securities, net of tax
Treasury stock purchased, net
Cash dividends
Loss on sales of treasury stock
Other
Balance at March 31, 2010
Net income for the year
Adjustments from translation offoreign currency financial statements
Decrease in net unrealized gains
on securities, net of tax
Treasury stock purchased, net
Cash dividends
Loss on sales of treasury stock
Conversion of convertible bonds
Other
Balance at March 31, 2011
Net income for the year
Adjustments from translation offoreign currency financial statements
Increase in net unrealized gains
on securities, net of tax
Treasury stock purchased, net
Cash dividends
Loss on sales of treasury stock
Conversion of convertible bonds
Increase (decrease) due to changes infiscal period of consolidated subsidiaries
Other
Balance at March 31, 2012

Millions of yen
Accumulated other comprehensive income

Shareholders' equity

Number ofshares ofcommonstock
1,669,629-

Commonstock¥104,329
-

-

-

-

1,669,629-¥104,329--

Net unrealized
Foreign
Total accumgains (losses) Deferredcurrency
ulated otheron securities, gains (losses) translation comprehensive Minority
Total
net of tax
on hedges adjustments
incomeinterests net assets¥ 3,140¥(264)¥ (24,851)¥ (21,975)¥ 4,805 ¥ 295,246(10,860)

Treasurystock¥(468)-

Total
shareholders'equity¥ 312,416(10,860)

-

-

-

-

-

1,048

1,048

-

1,048

(7)
¥54,275-(5,004)(720)¥ 137,689
25,965(107)23¥(552)-(107)(5,004)16(720)¥ 295,741
25,9652,165¥ 5,305-102¥(162)-¥ (23,803)
-

2,165
102
¥ (18,660)-

1,167¥ 5,972
-

2,165
(107)
(5,004)16549¥ 283,053
25,965

-

-

-

-

-

-

-

(7,203)(7,203)-(7,203)

-

-

-

-

-

-

(1,429)--(1,429)-(1,429)1,017
1,670,646-

11¥104,340-(5,003)
(0)
(24)
(17)
(19)
¥54,251 ¥ 158,615
23,323(15)
1536¥ (30)-(15)(5,003)1506(19)¥ 317,176
23,323¥ 3,876-(828)¥(990)-¥ (31,006)-(828)¥ (28,120)-

2,405¥ 8,377-(15)(5,003)1506
1,558¥ 297,433
23,323

-

-

-

-

-

-

-

-

(2,445)(2,445)-(2,445)

-

-

-

-

-

-

113

-

-

113

-

113

1,246

144

(0)
143

(5,011)
(3)
-

(6)
1
13

(6)
(5,011)
(2)
300

-

-

-

-

-

(6)
(5,011)
(2)
300

-

-

-

(510)

-

(510)

-

-

-

-

-

(510)

Capital Retained
surplus earnings¥54,282 ¥ 154,273(10,860)

-

-

-

-

-

-

-

1,236

-

1,236

1,491

2,727

1,671,892¥104,484¥54,394¥176,414¥ (22)¥335,270¥3,989¥ 246¥(33,451)¥(29,216)¥9,868¥315,922$ (342,342) $ 101,984 $ 3,621,049(Thousands of U.S. dollars)$ 660,469 $ 1,931,032$ (364)$ 3,861,407$ 47,187$(12,052)$ (377,477)

Net income for the year
Adjustments from translation offoreign currency financial statements
Increase in net unrealized gains
on securities, net of tax--

283,942-

283,942

-

-

-

-

-

283,942

-

-

-

-

-

-

-

(29,766)(29,766)-(29,766)

-

-

-

-

-

1,376

-

-

1,376

-

1,376

Treasury stock purchased, net
Cash dividends
Loss on sales of treasury stock
Conversion of convertible bonds
Increase (decrease) due to changes infiscal period of consolidated subsidiaries

1,753

(0)
1,741

(61,005)
(36)
-

(73)
12
158

(73)
(61,005)
(24)
3,652

-

-

-

-

-

(73)
(61,005)
(24)
3,652

-

-

(6,210)--(6,210)--15,047-

15,047

18,152(6,210)33,199$1,272,023 $662,210 $2,147,723$(267)$4,081,689$48,563$ 2,995$(407,243)

Balance at March 31, 2011

Other
Balance at March 31, 2012

$ 1,270,270(Note 1)$(355,685) $120,136 $3,846,140

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

51

Consolidated Statements of Cash FlowsKAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESFor the years ended March 31, 2012, 2011 and 2010

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

2012

2011

2010

2012

¥48,706¥38,595¥(3,821)$592,963

Cash flows from operating activities:
Income (loss) before income taxes and minority interests
Adjustments to reconcile net income (loss) before income taxes andminority interests to net cash provided by (used for) operating
activities:
Depreciation and amortization

48,90150,276

51,423595,337

Loss on impairment of fixed assets

14,921

9,923

3,132

181,653

Increase (decrease) in employees' retirement and severance benefits(5,257)(8,159)9,317(64,000)

Increase (decrease) in accrued bonuses

4,885

1,489

(38)

59,471

449

514

(615)

5,466

Increase (decrease) in allowance for doubtful receivables
Increase (decrease) in provision for product warranties
Increase (decrease) in provision for losses on construction contracts

(750)

794

(1,013)(9,130)(2,016)

15,349(2,916)(24,543)

Increase (decrease) in provision for restructuring charges(1,077)(5,249)6,326(13,111)

Increase (decrease) in provision for losses on legal proceedings(4,957)

(837)

4,461

(60,348)

Increase (decrease) in provision for environmental measures

(545)

(658)

510

(6,635)

Loss (gain) on disposal of inventories

(70)

1,336

1,992

(852)

Gain on sales of marketable securities and investments in securities

(591)

(0)

(1,739)(7,195)

Loss on valuation of securities

918

1,577

32

11,176

Loss on sales of property, plant, and equipment

1,177

552

784

14,329Equity in income of nonconsolidated subsidiaries and affiliates(8,567)(9,205)(6,522)(104,297)Interest and dividend income(2,331)(2,306)(3,615)(28,378)

Interest expense

4,282

4,677

5,399

52,130Changes in assets and liabilities:
Decrease (increase) in:(942)

14,910(3,792)(11,468)

Inventories(18,705)(17,775)

56,241(227,720)

Other current assets(2,139)8,590(2,966)(26,040)

Trade payables(7,332)

25,114(56,396)(89,262)

Advances from customers

18,973(15,552)(27,179)

230,983

Other current liabilities

8,708(17,156)

12,165106,014

Other, net

4,134

1,897

(406)

50,325

Subtotal

100,775

98,696

40,7641,226,868

6,656

6,407

7,698

81,032

Trade receivables

Increase (decrease) in:

Cash received for interest and dividends
Cash paid for interest(4,455)(4,762)(5,408)(54,236)

Cash paid for income taxes(18,239)(13,245)(12,876)(222,048)-(5,167)--84,737

81,92930,1781,031,616

Payment of levies
Net cash provided by operating activities52

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

2012

2011

2012

2010

Cash flows from investing activities:
1,446(2,138)21

17,604(61,126)(47,408)(61,198)(744,168)

535

616

993

6,513

(4,921)(4,886)(4,764)(59,909)

16

37

48

194

Acquisition of investments in securities

(47)

(350)

(123)

(572)

Proceeds from sales of investments in securities

663

12

1,913

8,071

(1,761)-(1,331)(21,439)(133)

Decrease (increase) in time deposits with maturities over three months
Acquisition of property, plant and equipment
Proceeds from sales of property, plant and equipment
Acquisition of intangible assets
Proceeds from sales of intangible assets

Acquisition of investments in subsidiaries or affiliates
Decrease (increase) in short-term loans

(11)

287

518

Additions to long-term loans

(70)

(40)

(65)

(852)

Proceeds from collection of long-term loans

89

102

115

1,083

(772)

826

596

(9,399)(65,959)(52,942)(63,277)(803,007)

Other
Net cash used for investing activities
Cash flows from financing activities:(569)(53,670)(21,463)(6,927)

Proceeds from long-term debt

39,96344,00094,793

486,523

Repayment of long-term debt

(59,887)(4,836)(31,518)(729,084)(97)

Increase (decrease) in short-term debt

Acquisition of treasury stock

(8)

(14)

(90)

Proceeds from stock issuance to minority shareholders

-

1,209

230

-

Cash dividends paid

(5,014)(5,000)(5,004)(61,042)

Cash dividends paid to minority shareholders(1,070)

(476)

(741)

(13,026)

(246)

(75)

(296)

(2,996)(26,831)(18,862)

35,911(326,649)

Effect of exchange rate changes(1,823)367(89)(22,194)

Net increase (decrease) in cash and cash equivalents(9,876)

10,492

2,723(120,234)

Cash and cash equivalents at beginning of year
Decrease in cash and cash equivalents due to changes in fiscal periodof consolidated subsidiaries

44,62934,13731,414543,328(1,508)--(18,359)

Cash and cash equivalents at end of year

¥33,245¥44,629¥34,137$404,735

Cash on hand and in banks in the balance sheets¥34,316¥47,233¥34,745$417,774

Time deposits with maturities over three months(1,071)(2,604)(608)(13,039)¥33,245¥44,629¥34,137$404,735

Other
Net cash provided by (used for) financing activities

Supplemental information on cash flows:
Cash and cash equivalents:

Total (Note 19)

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

53

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

1. Basis of presenting consolidated financial statements
Kawasaki Heavy Industries, Ltd. (the "Company") and its consolidated domestic subsidiaries maintain their official accounting anddisclosure records in Japanese yen. The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations and in conformity withaccounting principles generally accepted in Japan (Japanese GAAP), which are different in certain respects as to application and disclosure
requirements from International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally 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 changes in net assets fromthe 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 Financial Instruments and Exchange Law. Some supplementary information
included in the statutory Japanese language consolidated financial statements, but not required for fair presentation, is not presented in
the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2012, which was ¥82.14 to U.S. $1.00. The 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.
Effective from the year ended March 31, 2010, the Company has adopted a new implementation guidance, "Guidance on Determining a
Subsidiary and an Affiliate" (Financial Accounting Standard Implementation Guidance No. 22, issued by the Accounting Standards Board ofJapan (ASBJ) on May 13, 2008). This change did not have a material effect on net loss for the year ended March 31, 2010.

2. Significant accounting policies(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies over which theCompany has power of control through majority voting rights or the existence of certain other conditions evidencing control (together, the"Companies"). The consolidated financial statements include the accounts of the Company and 97 subsidiaries (96 in the years ended
March 31, 2011 and 97 in 2010). The aggregate amount of total assets, net sales, net income and retained earnings of the excluded
subsidiaries would not have had a material effect on the consolidated financial statements if they had been included in the consolidation.
(b) Application of the equity method of accounting
Investments in nonconsolidated subsidiaries and affiliates over which the Company has the ability to exercise significant influence over operating
and financial policies are accounted for by the equity method. For the year ended March 31, 2012, 14 affiliates (14 in 2011 and 14 in 2010) were
accounted for by the equity method. For the year ended March 31, 2012, investments in 14 affiliates (14 in 2011 and 14 in 2010) were stated atcost without applying the equity method of accounting. If the equity method had been applied for these investments, the net income andretained earnings of these excluded subsidiaries and affiliates would not have had a material effect on the consolidated financial statements.
(Adoption of accounting standards related to equity method accounting)
Effective from the fiscal year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted a new accounting standard,“Accounting Standard for Equity Method of Accounting for Investments” (Statement No. 16, issued by ASBJ on March 10, 2008) and “Practical
Issues on Unification of Accounting Policies Applied to Associates Accounted for Using the Equity Method” (ASBJ Practical Issues Task Force (PITF)
No. 24, issued by ASBJ on March 10, 2008). The impact of this change on net income was minor.

54

(c) Consolidated subsidiaries' fiscal year-end
The fiscal year-end of 30 consolidated subsidiaries (33 in 2011 and 31 in 2010) is December 31. These subsidiaries are consolidated as ofDecember 31, and significant transactions for the period between December 31 and March 31, the Company’s fiscal year-end, are adjusted
for on consolidation.
(d) Elimination of intercompany transactions and accounts
All significant intercompany transactions and accounts and unrealized intercompany profits are eliminated on consolidation, and the
portion attributable to minority interests is credited to minority interests. In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable to minority shareholders, are evaluated using the fair value at the time theCompany acquired control of the respective subsidiary.
(e) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at year-end rates. The balance sheets ofconsolidated overseas subsidiaries are translated into Japanese yen at year-end rates, except for shareholders’ equity accounts, which aretranslated at historical rates. The income statements of consolidated overseas subsidiaries are translated at average rates. The Company
and its domestic subsidiaries report foreign currency translation adjustments in net assets.
(f) Revenue recognition<Sales of products and construction contracts>
Effective from the year ended March 31, 2010, the Company and its consolidated subsidiaries have adopted a new accounting standard,"Accounting Standard for Construction Contracts” (Statement No. 15, issued by ASBJ on December 27, 2007) and the "Guidance on
Accounting Standard for Construction Contracts” (Financial Accounting Standard Implementation Guidance No. 18, issued by ASBJ on
December 27, 2007). The new accounting standards require that the percentage-of-completion method be applied for construction
contracts commenced on and after April 1, 2009, if the outcome of the construction activity is deemed certain during the course of theactivity. Otherwise, the completed-contract method should be applied. As a result of this change, sales were ¥32,214 million more,
operating loss and loss before income tax and minority interests ¥3,088 million less, and recurring profit ¥3,088 million more for the year
ended March 31, 2010 than the amounts that would have been recorded with the previous standard.
<Service revenues>
Service revenues are recognized when the services are rendered. Services include supervisory and installation services for products such asrail cars, machinery and plants. When the prices of such services are individually determined by the contract and the collectability of therevenue is reasonably assured, the service revenue is recognized on an accrual basis. Otherwise, the service revenue is recognized on acompletion basis.
Sales and cost of sales in finance leases transactions are mainly recognized when the Company receives the lease payments.
(g) Cash and cash equivalents
Cash on hand, readily available deposits and short-term highly liquid and low risk investments with maturities not exceeding three months
at the time of purchase are considered to be cash and cash equivalents in preparing the consolidated statements of cash flows.
(h) Allowance for doubtful receivables
An allowance for possible losses from notes and accounts receivable, loans and other receivables is provided based on past experience andthe Companies' estimates of losses on collection.
(i) Assets and liabilities arising from derivative transactions
Assets and liabilities arising from derivative transactions are stated at fair value.
( j) Inventories
Inventories are stated mainly at the historical cost computed using the specific identification cost method, the moving-average cost
method, or the first-in, first-out method. The ending balance of inventories is measured at the lower of cost or market.

55

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES(k) Investments in securities
The Company and its consolidated subsidiaries classify securities as (a) debt securities intended to be held to maturity (hereafter, "held-tomaturity debt securities"), (b) equity securities issued by subsidiaries and affiliated companies and (c) all other securities (hereafter,"available-for-sale securities"). There were no trading securities at March 31, 2012, 2011 or 2010. Held-to-maturity debt securities arestated mainly at amortized cost. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted
for using the equity method are stated at moving average cost. Available-for-sale securities with available fair market values are stated atfair market value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate
component of net assets. Realized gains and losses on the sale of such securities are computed using moving average cost. Other securities
with no available market value are stated at moving average cost.
If the market value of held-to-maturity debt securities, equity securities issued by nonconsolidated subsidiaries or affiliated companies oravailable-for-sale securities declines significantly, such securities are stated at market value, and the difference between market value andthe carrying amount is recognized as loss in the period of the decline. If the market value of equity securities issued by nonconsolidated
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,
the market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.
(l) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is mainly computed on a declining balance basis over the estimated useful lifeof the asset. Depreciation of buildings acquired after April 1998 in Japan is computed on a straight-line basis over the building’s estimateduseful life.
(m) Intangible assets
Amortization of intangible assets, including software for the Company’s own use, is computed by the straight-line method over the estimateduseful life of the asset.
Goodwill is amortized on a straight-line basis over the period the Company benefits from its use. If the amount is not significant, it is expensed
when incurred.
(n) Accrued bonuses
Accrued bonuses for employees are provided for based on the estimated amount of payment.
(o) Provision for product warranties
The provision for product warranties is based on past experience and provided separately when it can be reasonably estimated.
(p) Provision for losses on construction contracts
A provision for losses on construction contracts at the fiscal year-end is made when substantial losses are anticipated for the next fiscal year
and beyond and such losses can be reasonably estimated.
(q) Provision for restructuring charges
The provision for restructuring charges is based on the estimated charges for restructuring in the Motorcycle & Engine business in North
America.
(r) Provision for losses on legal proceedings
The Provision for losses on legal proceedings in which the company is a defendant in the suit is provided based on estimates of expectedcompensation and other associated expenses.
(s) Provision for environmental measures
The Company reserved an estimated amount to cover expenditures for environmental measures such as the disposal of PCB waste required
under the “Law Concerning Special Measures for Promotion of Appropriate Disposal of PCB (poly chlorinated biphenyl) Waste” and soil
improvement.

56

(t) Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for loss carryforwards and 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.
(u) Employees’ retirement and severance benefits
Employees who terminate their services with the Company and its consolidated domestic subsidiaries are generally entitled to lump-sum
payments, the amounts of which are determined by reference to basic rates of pay at the time of termination and length of service.
The liabilities and expenses for retirement and severance benefits are determined based on amounts actuarially calculated using certain
assumptions. The Company and its consolidated domestic subsidiaries provide the allowance for employees’ retirement and severance
benefits based on the estimated amounts of projected benefit obligation and the fair value of plan assets (including the retirement benefit
trust).
The excess of the projected benefit obligation over liabilities for retirement and severance benefits recorded as of April 1, 2000 (the "nettransition 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 prior service costs are recognized in expenses in equal amounts primarily over 10 years
commencing with the following period and the current period, respectively.
Employees of the Company's overseas consolidated subsidiaries are generally covered by various pension plans accounted for inaccordance with generally accepted accounting principles in the respective country of domicile.
Effective from the year ended March 31, 2010, the Company and its consolidated subsidiaries have adopted a new accounting standard,"Partial Amendments to Accounting Standard for Retirement Benefits (Part 3)" (Statement No. 19, issued by ASBJ on July 31, 2008). Thischange did not have any effect on net loss for the year ended March 31, 2010.
(v) 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 gain or loss resulting from a change
in the fair value of the derivative financial instrument until the related loss or gain on the hedged item is recognized.
(w) Finance leases
Leased assets under finance leases that transfer ownership of the lease assets to the lessee are amortized by the same method as that used
for property, plant and equipment or intangible assets. Lease assets under finance leases that do not transfer ownership to the lessee areamortized by the straight-line-method over the lease term with zero residual value.
(x) Net income per share
The computations of net income per share shown in the consolidated statements of operations are based upon net income available tocommon stockholders and the weighted average number of shares outstanding during each period. Diluted net income per share iscomputed based on the assumption that all dilutive convertible bonds were converted at the beginning of the year.
(y) Accounting for consumption taxes
National and local consumption taxes are accounted for based on the net amount.
(z) Application of consolidated tax reporting
Effective from the year ended March 31, 2012, the Company and wholly owned consolidated domestic subsidiaries have adopted aconsolidated tax return.

57

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

3. Changes in accounting policies(a) Application of Accounting Standard for Asset Retirement Obligations
Effective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted “Accounting Standard for
Asset Retirement Obligations” (Statement No. 18, issued by ASBJ on March 31, 2008) and the “Guidance on Accounting Standard for Asset
Retirement Obligations” (Guidance No. 21, issued by ASBJ on March 31, 2008). As a result of this change, operating income was ¥16 million
less and income before income taxes ¥313 million less than the amounts that would have been recorded without the change.
(b) Application of Accounting Standard for Business Combinations
Effective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted “Accounting Standard forBusiness Combinations” (Statement No. 21, issued by ASBJ on December 26, 2008), “Accounting Standard for Consolidated Financial
Statements” (Statement No. 22, issued by ASBJ on December 26, 2008), “Amendments to Accounting Standard for Research andDevelopment Costs” (Statement No. 23, issued by ASBJ on December 26, 2008), “Revised Accounting Standard for Business Divestitures”(Statement No. 7, issued by ASBJ on December 26, 2008), “Revised Accounting Standard for Equity Method of Accounting for Investments”(Statement No. 16, issued by ASBJ on December 26, 2008), and “Revised Guidance on Accounting Standard for Business Combinations andAccounting Standard for Business Divestitures” (Guidance No. 10, issued by ASBJ on December 26, 2008).

4. Change in presentation
Effective from the year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted the Cabinet Office Ordinance,
which partially amended the regulations on consolidated financial statements (Cabinet Office Ordinance No. 5, March 24, 2009), based on“Accounting Standard for Consolidated Financial Statements” (Statement No. 22, issued by ASBJ on December 26, 2006). As a result, in thefinancial statements for the year ended March 31, 2011, “Income before minority interests” was presented in the consolidated statementsof operations.

5. Additional information(a) Application of Accounting Standards for Accounting Changes and Error Corrections
The Company and its consolidated subsidiaries have adopted “Accounting Standard for Accounting Changes and Error Corrections”(Statement No. 24, issued by ASBJ on December 4, 2009) and “Guidance on Accounting Standard for Accounting Changes and Error
Corrections” (Guidance No. 24, issued by ASBJ on December 4, 2009) for accounting changes and prior period error corrections made on
or after April 1, 2011.
(b) Revision of accounting treatment for the liquidation of claims accompanying the application of Accounting Standards
Codification (ASC) Topic 860 Transfers and Servicing
Effective from the year ended March 31, 2011 and accompanying the adoption of ASC Topic 860 Transfers and Servicing, Kawasaki Motors
Corp., U.S.A. and other subsidiaries of the Company in the United States have revised their accounting treatment for transfers of financial
assets. As a result, the Consolidated Balance Sheets for the fiscal year ended March 31, 2011, includes U.S. $343 million (¥28,520 million) ofadditional Receivables: Trade and Short-term debt.
Since this change had no substantive impact on cash flow, the impact was excluded from the consolidated statements of cash flow for theyear ended Mach 31, 2011.
(c) Application of Accounting Standard for Presentation of Comprehensive Income
Effective from the fiscal year ended March 31, 2011, the Company and its consolidated subsidiaries have adopted “Accounting Standard for
Presentation of Comprehensive Income” (Statement No. 25, issued by ASBJ on June 30, 2010). However, amounts for “Accumulated othercomprehensive income” and “Total accumulated comprehensive income” in previous fiscal years are currently stated in the amounts for“Valuation difference on available-for-sale securities,” “Deferred gains or losses on hedges” and “Foreign currency translation adjustment.”

58

(d) Application of Disclosures about Fair Value of Investment and Rental Property
Effective from the year ended March 31, 2010, the Company and its consolidated subsidiaries have adopted a new accounting standard,"Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” (Statement No. 20, issued by ASBJ on November
28, 2008), and the "Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” (the FinanceAccounting Standard Implementation Guidance No. 23, issued by ASBJ on November 28, 2008). With the application of the new
accounting standards, there were no significant investments or rental properties for which the fair value was required to be disclosed forthe year ended March 31, 2010.

6. Securities(a) Book values and market values of held-to-maturity securities with available market values as of March 31, 2012 and 2011 were as
follows:
Millions of yen

Book valueMarket values not exceeding book values:
Bonds

¥

404

Market value¥ 376

Thousands of U.S. dollars

2012
Unrealized losses¥(28)

Unrealized losses
$

(340)

Millions of yen

Book valueMarket values exceeding book values:
Bonds

¥

406

2011
Market value¥ 394

Unrealized losses¥(12)(b) Acquisition costs and book values (market values) of available-for-sale securities with available market values as of March 31, 2012
and 2011 were as follows:
Millions of yen

Book value
Securities with book values exceeding acquisition costs:
Equity securities
Other securities:
Equity securities
Total¥13,362

Thousands of U.S. dollars

2012
Unrealized gains
Acquisition cost(losses)¥6,164¥7,198

Unrealized gains(losses)$87,630

2,660

3,485

(825)

(10,043)¥16,022¥9,649¥6,373$77,587

Millions of yen

2011

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

Book value

Acquisition cost

Unrealized gains(losses)¥ 13,606¥ 5,972¥ 7,634

2,527

3,642

(1,115)¥ 16,133¥ 9,614¥ 6,51959

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES(c) Sales amounts of available-for-sale securities and related realized gains and losses for the years ended March 31, 2012, 2011 and 2010
were as follows:
Millions of yen

Equity securities

Thousands of U.S. dollars

Sales amounts

Gains

Losses

¥ 611

¥ 593

¥

2012

Sales amounts

Gains

Losses$7,438$7,219$ (12)(1)Millions of yen

Sales amounts
Equity securities

¥

3

2011
Gains

Losses

¥

¥

1

(0)

Millions of yen

Equity securities

Sales amounts

2010
Gains

Losses¥ 1,913¥ 1,793¥ (52)(d) Investments in securities subject to impairment
Impairment loss on investments in securities is recognized when there has been a significant decline in the market value.
Investments in securities for which market value as of the end of the fiscal year has fallen to below 50% of the acquisition costs are deemed tohave no recovery potential and are to be fully impaired. Investments in securities for which market value has fallen to between 30% and 50%of the acquisition costs are deemed to be partially impaired by an amount that takes into consideration the likelihood of recovery and otherfactors. In the year ended March 31, 2012, the Company recognized an impairment loss on investments in securities in the amount of ¥918
million ($11,176 thousand), consisting of available-for-sale equity securities in the amount of ¥23 million ($280 thousand) and available-forsale investments in anonymous associations in the amount of ¥895 million ($10,896 thousand). In the years ended March 31, 2011 and 2010,
the Company recognized an impairment loss on investments in securities in the amount of ¥1,577 million and ¥32 million, respectively.

7. Investments in nonconsolidated subsidiaries and affiliates
Investments in nonconsolidated subsidiaries and affiliates as of March 31, 2012 and 2011 were ¥30,007 million ($365,315 thousand) and¥25,649 million, respectively.

8. Short-term debt and long-term debt
Short-term debt and long-term debt as of March 31, 2012 and 2011 comprised the following:
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

Short-term debt, principally bank loans, bearing average interest rates
of 0.81 percent and 0.78 percent as of March 31, 2012 and 2011,
respectively¥112,806¥114,497$1,373,339

Current portion of long-term debt, bearing average interest rates of 1.12
percent and 0.80 percent as of March 31, 2012 and 2011, respectively

34,763

59,958423,216

355

242

4,322

¥147,924¥174,697$1,800,877

Short-term debt:

Lease obligations, current
Total short-term debt

60

Long-term debt:
Loans from banks and other financial institutions, partly secured by
mortgage or other collateral, due from 2011 to 2035, bearing averageinterest rates of 0.90 percent and 0.65 percent as of March 31, 2012 and2011, respectively¥223,500¥233,277$2,720,965-

20,000-0.81 percent notes due in 2012

10,00010,000121,743

1.84 percent notes due in 2013

10,00010,000121,7430.72~1.22 percent notes due in 2015

20,00020,000243,487

0.58 percent notes due in 2016

10,000-121,743

1.06 percent notes due in 2017

10,00010,000121,743

1.41 percent notes due in 2021

10,000-121,7431.00 percent convertible bonds due in 2011

-

7,038

-

Zero coupon convertible bonds due in 2011

-

3,445

-

861

887

10,482

294,361

314,647

3,583,649(35,118)(60,200)(427,538)¥259,243¥254,447$3,156,111

Notes and bonds issued by the Company:
1.52~1.60 percent notes due in 2011

Long-term lease obligations

Less portion due within one year
Total long-term debt

As of March 31, 2012 and 2011, the following assets were pledged as collateral for short-term debt and long-term debt:
Millions of yen

Receivables: Trade

Thousands of U.S. dollars

2012

2011

2012

¥44,935¥40,453$547,054

3,981

4,222

48,466

Buildings and structures

6

6

73

418

420

5,089

Land
Investments in securities
Other

13

13

158

Total

¥49,353¥45,114$600,840

In addition to the items shown above, the Company had pledged (on a long-term basis) shares of an affiliate company eliminated from thescope of consolidation in the amount of ¥30 million ($365 thousand).

As of March 31, 2012 and 2011, debt secured by the above pledged assets were as follows:
Millions of yen

2012
59

Thousands of U.S. dollars

2012

2011

Trade payables¥

Short-term and long-term debt

29,652

29,033360,993

Total¥29,711¥29,540$361,711

¥

507

$

718

61

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESThe aggregate annual maturities of long-term debt as of March 31, 2012 were as follows:Year ending March 31
2013
2014
2015
2016
2017 and thereafter
Total

Millions of yen

Thousands of U.S. dollars¥ 35,118
68,94685,77245,30559,220$ 427,538
839,372
1,044,217
551,558
720,964¥294,361$3,583,649

9. Provision for losses on construction contracts
Inventories for construction contracts with anticipated substantial losses and the provision for losses on construction contracts were notoffset. As of March 31, 2012 and 2011, the inventories for the construction contracts for which the provision for losses on construction
contracts was provided were ¥10,994 million ($133,844 thousand) and ¥12,493 million, respectively. These amounts were all included inwork in process.

10. Employees' retirement and severance benefits
Upon terminating employment, employees of the Company and its consolidated domestic subsidiaries are entitled, under mostcircumstances, to lump-sum indemnities. For an employee who voluntarily retires under normal circumstances, a minimum payment
amount is calculated based on the rate of pay at the time of retirement, length of service and conditions under which the employee retires.
The Company and certain consolidated subsidiaries have a defined contribution pension plan and a cash balance plan, and certain
consolidated foreign subsidiaries have a retirement pension system. The cash balance plan is linked to market interest rates and treated asa defined benefit pension plan. The plan assets of the company are generally held in a separately administered trust as a proportion of ageneral fund.
The liability for employees' retirement and severance benefits included in the long-term liability section of the consolidated balance sheets
as of March 31, 2012 and 2011 consisted of the following:
Millions of yen

Projected benefit obligation

2012

2011

2012

¥(177,268)¥(178,101)$(2,158,119)

Fair value of plan assets

63,74367,005776,028

Unrecognized prior service costs(5,857)(7,199)(71,305)

Unrecognized actuarial gains and losses

48,553

41,525591,100

Prepaid pension cost

(4,223)(3,786)(51,412)¥ (75,052)¥ (80,556)$ (913,708)

Liability for retirement and severance benefits

62

Thousands of U.S. dollars

Retirement and severance benefit expenses in the consolidated statements of operations for the years ended March 31, 2012, 2011 and2010 comprised the following:
Millions of yen

Thousands of U.S. dollars

2012

2011

2010

2012

Service costs - benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of prior service costs
Amortization of actuarial gains and losses
Amortization of net transition obligation
Contribution to the defined contribution pension plans¥ 8,882
3,675(1,061)(2,409)4,715
712¥ 9,338
3,821(1,046)(2,304)
3,849
667¥ 9,274
3,945(871)(2,265)
4,97812,342614$108,132
44,740(12,916)(29,327)
57,401
8,668

Retirement and severance benefit expenses¥14,514¥14,325¥28,017$176,698

Basic assumptions and information used to calculate retirement and severance benefits were as follows:
2012
Discount rate
Expected rate of return on plan assets(For the Company and consolidated domestic subsidiaries)(For consolidated overseas subsidiaries)
Amortization period for prior service costs
Amortization period for actuarial gains and losses
Amortization period for transition obligation

mainly2011
2.0%

3.0 to 3.5%
6.18 to 7.75%
mainly 10 years
mainly 10 years-

mainly2010
2.0%

3.0 to 3.5%
6.64 to 7.75%
mainly 10 years
mainly 10 years-

mainly2.0%

3.0 to 3.5%
5.67 to 7.75%
mainly 10 years
mainly 10 years
mainly 10 years

11. Contingent liabilities
Contingent liabilities as of March 31, 2012 and 2011 were as follows:
Millions of yen

As guarantor of indebtedness of employees, nonconsolidated
subsidiaries, affiliates and others

Thousands of U.S. dollars

2012

2011

2012

¥29,496¥33,409$359,094

12. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock. However, acompany may, by a resolution of the Board of Directors, designate an amount not exceeding one half of the price of the new shares asadditional paid-in capital, which is included in capital surplus. Under the Japanese Corporate Law (“the Law“), if a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of
additional paid-in capital and legal earnings reserve must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings
reserve is included in retained earnings in the accompanying consolidated balance sheets. Under the Law, legal earnings reserve andadditional paid-in capital can be used to eliminate or reduce a deficit, or capitalized by a resolution of the shareholders' meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Law, all additional paid-in capital andall legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available fordividends.

63

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESThe maximum amount that the Company can distribute as dividends is calculated based on the nonconsolidated financial statements of
the Company in accordance with Japanese laws and regulations.

13. Cost of sales
The ending balance of inventories was measured at the lower of cost or market. Gain on the valuation of inventories included in the cost of
sales for the year ended March 31, 2011 was ¥49 million. Loss on the valuation of inventories included in the cost of sales for the year
ended March 31, 2012 and 2010 was ¥1,246 million ($15,169 thousand) and ¥297 million, respectively.
Provision for losses on construction contracts included in the cost of sales for the years ended March 31, 2012, 2011 and 2010 were
¥14,980 million ($182,371 thousand), ¥20,948 million and ¥8,270 million, respectively.

14. Research and development expenses
Research and development expenses included in selling, general and administrative expenses and product costs were as follows:
Millions of yen

Research and development expenses

Thousands of U.S. dollars

2012

2011

2010

2012

¥39,940¥37,090¥38,057$486,242

15. "Other expenses, net" in "Other income (expenses)""Other expenses, net" in "Other income (expenses)" in the consolidated statements of operations for the years ended March 31, 2012, 2011
and 2010 comprised the following:
Millions of yen

2012
Foreign exchange gain, net
Reversal of provision for environmental measures (a)Reversal of allowance for doubtful receivables of affiliates(b)
Loss on impairment of fixed assets (c)Loss on valuation of securities
Provision for doubtful receivables of affiliates (d)Loss on adjustment for changes in accounting standard
for asset retirement obligations
Restructuring charges (e)Loss on legal proceedings (f)Loss on environmental measures (g)Loss on liquidation of subsidiary (h)Other, net
Total

64

¥

Thousands of U.S. dollars

2012

2011

2010

206
-

¥ 1,491-¥10,955
1,077

-

-

460

-

(14,921)(9,923)(3,132)(181,653)(918)-(1,577)
(325)

(32)
-

(11,176)
-

-

(291)

-

-

-

-

(7,648)(6,983)(1,489)

-

239

(242)

(399)
(52)

¥(15,394)¥(10,867)¥ (7,243)

$

2,507
-

2,911
$ (187,411)

( Change in presentation )In the year ended March 31, 2011, “Gain on sales of marketable securities and investment securities” was reported as a separate item.
However, owing to a decline in the materiality of this item, in the year ended March 31, 2012, it is reported as part of “Other, net.” To
reflect this change in presentation, amounts shown for the years ended March 31, 2011 and 2010 have been adjusted. As a result, “Gainon sales of marketable securities and investment securities” of ¥0 million and ¥1,739 million that were previously shown for the years
ended March 31, 2011 and 2010, respectively, within "Other expenses, net" in "Other income (expenses)" have been included in “Other,net.”(a) "Reversal of provision for environmental measures" is due to the re-estimation of expenses for the environmental measures.
(b) "Reversal of allowance for doubtful receivables for affiliates" is due to the collection on loans for Shanghai COSCO Kawasaki Heavy
Industries Steel Structure Co., Ltd., an affiliate of the Company.
(c) Loss on impairment of fixed assets
Owing to a decline in the profitability or the market prices of certain asset groups, the Company and its consolidated subsidiaries
reduced the book value of certain assets to the recoverable amounts. Assets are grouped mainly by units of business. However,significant assets for rent or those that are idle are treated separately. Recoverable amounts were determined by the net salable value
or value in use, and net salable value was estimated by appraisal or property tax assessment.

Asset groups for which the Company and its consolidated subsidiaries recognized impairment loss for the year ended March 31, 2012were as follows:
Function or status

Location

Type of assets

Operating property

Sakaide City, Kagawa

Operating property

Minato-ku and Koto-ku, Tokyo

Buildings and structures, machinery and equipment, etc.

Idle property

Kakamigahara City, Gifu

Buildings and structures, etc.

Idle property

Akashi City, Hyogo

Buildings and structures, etc.

Idle property

Takeda City, Oita

Land, etc.

Buildings.

Impairment loss for the year ended March 31, 2012 consisted of the following:
Millions of yen

Thousands of U.S. dollars

Buildings and structures
Machinery and equipment
Land
Other

¥ 7,091
4,315
2,587
928

$ 86,328
52,532
31,495
11,298

Total¥14,921$181,653

Asset groups for which the Company and its subsidiaries recognized impairment loss for the year ended March 31, 2011 were as follows:
Function or status

Location

Type of assets

Operating property

Akashi City, Hyogo

Buildings and structures, machinery and equipment, etc.

Operating property

Kobe City, Hyogo

Buildings and structures, machinery and equipment, etc.

65Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

Impairment loss for the year ended March 31, 2011 consisted of the following:
Millions of yen

Buildings and structures
Machinery and equipment
Other¥3,731
2,300
3,892

Total

¥9,923

Asset groups for which the Company and its subsidiaries recognized impairment loss for the year ended March 31, 2010 were as follows:
Function or status

Location

Type of assets

Operating property

Inami-cho, Kako-gun, Hyogo

Buildings and structures, machinery and equipment, etc.

Operating property

Yokkaichi City, Mie

Buildings and structures, machinery and equipment, etc.

Impairment loss for the year ended March 31, 2010 consisted of the following:
Millions of yen

Buildings and structures
Machinery and equipment
Other¥1,199
1,556
377

Total

¥3,132(d) “Provision for doubtful receivables of affiliates” is an allowance for doubtful receivables to Tonfang Kawasaki Air-Conditioning Co.,
Ltd., an affiliate of the Company.
(e) "Restructuring charges” is the sum of the estimated ¥6,327 million for the liquidation of excess inventories in the Motorcycle &Engine business in North America and ¥1,321 million for early retirement expenses of the subsidiaries of the business.
(f) "Loss on legal proceedings" is a provision for compensation in the event the Company is required to pay monetary damages inconnection with legal action.
(g) "Loss on environmental measures" is a provision for the disposal of PCB waste in accordance with the "Law Concerning Special
Measures for Promotion of Appropriate Disposal of PCB (polychlorinated biphenyl) Waste" and soil improvement.
(h) "Loss on liquidation of subsidiary" represents the expenses associated with the liquidation of Kawasaki Oita Manufacturing Co., Ltd.,a consolidated subsidiary of the Company.

66

16. Consolidated statement of comprehensive income
Amounts reclassified to net income (loss) in the current period that were recognized in other comprehensive income in the current or
previous periods and the tax effects for each component of other comprehensive income are as follows:
Millions of yen

Thousands of U.S. dollars

2012

2012

¥ (231)2$ (2,812)24

Tax (expense) or benefit

(229)
335

(2,788)
4,078

Subtotal, net of tax

106

1,290

2,351
(243)
(12)

28,621(2,958)(146)

Tax (expense) or benefit

2,096
(815)

25,517(9,922)

Subtotal, net of tax

1,281

15,595(2,924)(35,596)

231

2,812

¥(1,306)$(15,899)

Unrealized gains (losses) on securities
Increase (decrease) during the year
Reclassification adjustments
Subtotal, before tax

Deferred gains (losses) on hedges
Increase (decrease) during the year
Reclassification adjustments
Asset acquisition cost adjustments
Subtotal, before tax

Foreign currency translation adjustments
Increase (decrease) during the year
Share of other comprehensive income of associates accounted for using equity method
Increase (decrease) during the year
Total other comprehensive income

17. Dividends(a) Dividends paid
Year ended March 31, 2012
Resolution

Kind of shares

June 28, 2011
General Meeting of
Shareholders

Common stock

Total amount of dividends
paid

Dividends per share

Date of record

Effective date

¥5,011 million($61,005 thousand)¥ 3.0($0.03)

March 31, 2011

June 29, 2011

Year ended March 31, 2011
Resolution

Kind of shares

Total amount of dividends
paidJune 25, 2010
General Meeting of
Shareholders

Common stock¥5,003 million

Dividends per share

Date of record

Effective date

¥ 3.0

March 31, 2010

June 28, 201067

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES(b) Dividend payments for which the record date is the subject fiscal year, but have an effective date in the succeeding consolidated fiscal year
Year ended March 31, 2012
Resolution

Kind of shares

Source of dividends

June 27, 2012
General Meeting of
Shareholders

Commonstock

Retainedearnings

Total amount ofdividends paid

Dividends per share

Date of record

Effective date

¥ 5.0($0.06)

March 31, 2012

June 28, 2012

Total amount ofdividends paid

Dividends per share

Date of record

Effective date

¥5,011 million¥ 3.0

March 31, 2011

June 29, 2011

¥8,359 million($101,765
thousand)Year ended March 31, 2011

Resolution

Kind of shares

Source of dividends

June 28, 2011
General Meeting of
Shareholders

Commonstock

Retainedearnings

18. Income taxes
Income taxes in Japan applicable to the Company and its consolidated domestic subsidiaries consist of corporation tax (national tax) andenterprise and inhabitants taxes (local taxes), which, in the aggregate, resulted in a statutory tax rate of approximately 40.5 percent foreach of the years ended March 31, 2012 and 2011.
The significant differences between the statutory and effective tax rates for the years ended March 31, 2012 and 2011 are as follows:

Statutory tax rate
Valuation allowance
Equity in income of nonconsolidated subsidiaries and affiliates
Organization restructuring
Dividend from overseas consolidated subsidiaries

Changing tax rate
Other
Effective tax rate

68

2012

2011

40.5%

40.5%

2.1
(7.0)
1.7
12.7

(14.5)
(9.5)
7.3
7.9
-

(3.2)

(3.7)

46.8%

28.0%

Significant components of deferred tax assets and liabilities as of March 31, 2012 and 2011 were as follows:
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

¥ 8,579
36,163
900
654
373
9,874
801

¥ 7,049
43,104
675
182
448
6,058
6,950

$104,443
440,260
10,956
7,962
4,541
120,209
9,751

3,472
11,19625,946

4,224
11,301
28,76042,269136,303
315,879

Gross deferred tax assets

97,958

108,751

1,192,573

Less valuation allowance(16,759)(16,437)(204,030)

81,19992,314

988,543

4,914
1,993
9,198

5,610
2,363
6,016

59,82424,263111,980

Deferred tax assets:
Accrued bonuses
Retirement benefits
Allowance for doubtful receivables
Inventories – elimination of intercompany profits
Fixed assets – elimination of intercompany profits
Depreciation
Net operating loss carryforwards
Unrealized loss on marketable securities, investments in securities and other
Provision for losses on construction contracts
Other

Total deferred tax assets
Deferred tax liabilities:
Deferral of gain on sale of fixed assets
Net unrealized gain on securities
Other
Total deferred tax liabilities
Net deferred tax assets

16,105

13,989196,067¥65,094¥78,325$792,476(Impact of changes in tax rates)
The Law to Revise the Income Tax, etc. in Order to Construct a Tax System Addressing Changes in the Socio-Economic Structure (Law No.
114 of 2011) and The Law on Special Measures to Secure Financial Resources for Reconstruction Following the Great East Japan Earthquake(Law No. 117 of 2011) were promulgated on December 2, 2011, thereby mandating the reduction of the corporate tax rate and the levy ofa special reconstruction corporate tax for fiscal years commencing on and after April 1, 2012. Pursuant to these laws, the statutory effective
tax rate used in calculating deferred tax assets and deferred tax liabilities (limited to items eliminated on or after April 1, 2012) has been
reduced from the 40.5% previously used to 37.8% for items expected to be collected or paid in the period from April 1, 2012, to March 31,
2015, and to 35.5% for items expected to be collected or paid on or after April 1, 2015. As a result, deferred tax assets (net of deferred tax
liabilities) decreased ¥5,917 million ($72,035 thousand), and income taxes—deferred recorded in the year ended March 31, 2012, valuationdifference on available-for-sale securities, and deferred gains and losses on hedges increased by ¥6,188 million ($75,334 thousand), ¥252
million ($3,067 thousand) and ¥18 million ($219 thousand), respectively.

69

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

19. Cash and cash equivalents
Cash and cash equivalents reconciled to the accounts reported in the consolidated balance sheets in the years ended March 31, 2012, 2011
and 2010 were as follows:
Millions of yen

Thousands of U.S. dollars

2012

2011

2010

2012

Cash on hand and in banks:Time deposits with maturities over three months:¥34,316(1,071)¥47,233(2,604)¥34,745(608)$417,774(13,039)

Total¥33,245¥44,629¥34,137$404,735

20. Net income per share
Per share amounts for the years ended March 31, 2012, 2011 and 2010 are set forth in the table below. While there were residual securities,
a diluted net income per share for the year ended March 31, 2010 was not disclosed because the Company posted a net loss.
Millions of yen

Basic net income per share:
Net income (loss)
Net income (loss) allocated to common stockThousands of U.S. dollars

2012

2011

2010

2012

¥23,323
23,323¥25,965
25,965¥(10,860)(10,860)$ 283,942
283,942

Number of shares in millions

Weighted average number of shares of common stock

1,671

1,669

1,668

Millions of yen

Diluted net income per share
Net income adjustment(Interest expenses, etc.)

2012

2011

¥ 22
(22)

¥ 44
(44)

Thousands of U.S. dollars

2010
¥ –
(–)

Number of shares in millions

Increase in shares of common stocks(Convertible bonds)(Zero coupon convertible bonds)

70

13
(5)
(8)

28
(11)
(17)

–
(–)
(–)

2012
$ 267
(267)

21. Derivative transactions(a) Outstanding positions and recognized gains and losses at March 31, 2012 were as follows:(Derivative transactions to which the Company did not apply hedge accounting)Millions of yen

Currency related contracts:
Foreign exchange contracts:
To sell
To purchase
Option contracts:
To sell
To purchase
Total

Thousands of U.S. dollars

Contract
amountContract amountover 1 year

Fair
value

Gain
(loss)

Gain(loss)¥135,398441¥ -¥(3,023)(1)¥(3,022)(1)$(36,791)(12)

76,48044,720-(2,209)(87)(1,212)(848)(14,756)(10,323)¥257,039¥ -¥(5,320)¥(5,083)$(61,882)

Fair value is based on prices provided by financial institutions.
(Derivative transactions to which the Company applied hedge accounting)Millions of yen
Contract
amountContract amountover 1 year

Fair
value

Trade receivables
Trade payables¥ 88,798
45,608¥33,629
1,624¥ (334)1,027

Trade receivables
Trade payables

-

-

-

Trade receivables
Trade payables

1,388
1,388

-

19
(19)

¥137,182¥35,253¥ 693

Subject of hedge

Deferral hedge accounting:Foreign exchange contracts
To sell
To purchase
Option contracts
To sell
To purchase
Alternative method (*)
Foreign exchange contracts
To sell
To purchase
Total

Fair value is based on prices provided by financial institutions.
(*) For certain trade accounts receivable and payable denominated in foreign currencies for which foreign exchange forward contracts are used to hedge the risk offoreign currency fluctuation, the fair value of the derivative financial instrument is included in the fair value of "Trade receivables" and "Trade payables" as hedge items.

71Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

Thousands of U.S. dollars
Contract
amountContract amountover 1 year

Trade receivables
Trade payables$1,081,056$409,410$(4,066)555,247

19,771

12,502

Trade receivables
Trade payables

-

-

-

-

-

-

Trade receivables
Trade payables

16,89816,898

-

231
(231)

$1,670,099$429,181$ 8,436

Contract
amountContract amountover 1 year

Subject of hedge

Deferral hedge accounting:Foreign exchange contracts
To sell
To purchase
Option contracts
To sell
To purchase
Alternative method
Foreign exchange contracts
To sell
To purchase
Total

Fair
value

Millions of yen
Subject of hedge

Fair
value

Interest related contracts:
Interest swap
Deferral hedge accounting
Floating-rate receipt/fixed-rate payment
Special treatment (*)
Floating-rate receipt/fixed-rate payment
Interest rate and currency swaps treatedas single item (special treatment, hedge
accounting treatment)

Short-term debt and longterm debt

¥20,000¥15,000¥ (259)Long-term debt

15,00012,000-Long-term debt

2,688

2,688

-

¥37,688¥29,688¥ (259)Fair value is based on prices provided by financial institutions.
(*) As interest rate swaps subject to special treatment for interest rate swaps are accounted for as a single item with the underlying long-term debt, which comprises thehedged items, the fair value is included in that of the long-term debt.

Thousands of U.S. dollars
Contract
amountContract amountover 1 year

Fair
value

Short-term debt and longterm debt$243,487$182,615$(3,153)

Long-term debt

182,615

146,092-

Long-term debt

32,72432,724-$458,826$361,431$(3,153)

Subject of hedge

Interest related contracts:
Interest swap
Deferral hedge accounting
Floating-rate receipt/fixed-rate payment
Special treatment
Floating-rate receipt/fixed-rate payment
Interest rate and currency swaps treatedas single item (special treatment, hedge
accounting treatment)72

(b) Outstanding positions and recognized gains and losses at March 31, 2011 were as follows:(Derivative transactions to which the Company did not apply hedge accounting)Millions of yen
Contract
amountCurrency related contracts:
Foreign exchange contracts:
To sell
To purchase
Option contracts:
To sell
To purchase
Total

Contract amountover 1 year

Fair
value

Gain
(loss)¥ 48,551
1,247

¥ -

¥ 1,009(20)¥ 1,009(20)

67,22364,642-(1,334)
369

(315)
(171)

¥ 181,663

¥ -

¥

24

¥

503

Fair value is based on prices provided by financial institutions.
(Derivative transactions to which the Company applied hedge accounting)Millions of yen

Deferral hedge accounting:Foreign exchange contracts
To sell
To purchase
Option contracts
To sell
To purchase
Alternative method (*)
Foreign exchange contracts
To sell

Subject of hedge

Contract
amountContract amountover 1 year

Fair
value

Trade receivables
Trade payables¥22,301
32,510¥ 299
168¥ (636)(593)

Trade receivables
Trade payables

2,580
1,290

-

(20)
61

Trade receivables

Total

4,211

-

0

¥62,892¥ 467¥(1,188)

Fair value is based on prices provided by financial institutions.
(*) For certain trade accounts receivable and payable denominated in foreign currencies for which foreign exchange forward contracts are used to hedge the risk offoreign currency fluctuation, the fair value of the derivative financial instrument is included in the fair value of "Trade receivables" and "Trade payables" as hedge
items.
Millions of yen
Contract
amountContract amountover 1 year

Fair
value

Short-term debt and longterm debt

¥30,000¥20,000¥ (495)Long-term debt

15,00015,000–¥45,000¥35,000¥ (495)

Subject of hedge

Interest related contracts:
Interest swap
Deferral hedge accounting
Floating-rate receipt/fixed-rate payment
Special treatment (*)
Floating-rate receipt/fixed-rate payment

Fair value is based on prices provided by financial institutions.
(*) As interest rate swaps subject to special treatment for interest rate swaps are accounted for as a single item with the underlying long-term debt, which comprises
the hedged items, the fair value is included in that of the long-term debt.

73

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

22. Financial Instruments
Effective from the fiscal year ended March 31, 2010, the Company has adopted a revised accounting standard, “Accounting Standard for
Financial Instruments” (Statement No. 10, issued by ASBJ on March 10, 2008) and the “Guidance on Disclosures about Fair Value ofInvestments” (Financial Accounting Standard Implementation Guidance No. 19, issued by ASBJ on March 10, 2008). This change did nothave a material effect on net income (loss) for the fiscal years ended March 31, 2011 or 2010, but mandates more detailed disclosure of
information on financial instruments held by the Company than in prior years. Information for the fiscal years ended March 31, 2012 and2011, required pursuant to the aforementioned accounting standards is as follows.
(1) Matters related to the status of financial instruments(a) Policies on the use of financial instruments
The Company meets its long-term operating capital and capital expenditure requirements through bank loans and the issuance ofbonds and meets its short-term operating capital requirements through bank loans and the issuance of short-term bonds (electroniccommercial paper). Temporary surplus funds are managed in the form of financial assets that have a high level of safety. The Company
utilizes derivative financial instruments to hedge the risks described below and does not engage in speculative transactions as a matterof policy.
(b) Details of financial instruments and risks associated with those instruments
Trade receivables are exposed to the credit risk of customers. The Company operates internationally and has significant exposure to therisks of fluctuations in foreign exchange rates. However, this risk is hedged using forward exchange contracts, etc., against the net
position of foreign currency exposure. Investments in securities mainly comprise equity securities of companies with which theCompany conducts business and are held to maintain relationships with such business partners. With such securities, listed stocks are
exposed to market fluctuation risk.

Almost all trade payables are due within one year. A portion of trade payables are denominated in foreign currency—specifically thoserelated to payment for imported materials, etc.—and are exposed to the risk of foreign currency fluctuation. However, this risk is
mitigated principally by the position of trade payables denominated in foreign currency being less than the position of receivables inthe same currency. Loans payable, bonds payable and lease obligations under finance leases are mainly used to raise operating capitaland carry out capital expenditure and are due in a maximum of ten years from March 31, 2012 (nine and a half years from March 31,2011). A portion of these instruments is exposed to the risk of interest rate fluctuation. However, such risk is hedged using derivatives(interest swaps) as necessary.
In sum, derivatives comprise forward exchange and currency option contracts used to hedge foreign currency fluctuation risk onreceivables and payables in foreign currencies and interest swap contracts to hedge interest rate risk on debt. With regard to hedge
accounting, see Note 2, “Significant accounting policies- (v) Hedge accounting.”(c) Risk management system for financial instruments(i) Management of credit risk, including customer default risk
The Company’s sales management functions and those of its consolidated subsidiaries regularly evaluate the financial circumstancesof customers and monitor the due dates and balances by customer to identify and limit doubtful accounts.
With regard to derivative transactions, the Company enters into contracts with highly rated financial institutions to reducecounterparty risk. The amount presented in the balance sheet is the maximum credit risk at the fiscal year end of the financial
instruments that are exposed to credit risk.
(ii) Management of market risk (related to foreign currency exchange rates, interest rates, etc.)
The Company and certain of its consolidated subsidiaries hedge foreign currency fluctuation risk on receivables and payables inforeign currencies using forward exchange contracts, which are categorized by the type of currency and the monthly due date. In
principle, the net position of receivables less payables in foreign currency is hedged with forward exchange contracts. The Company

74and certain of its consolidated subsidiaries hedge interest rate risk on debt using interest swap contracts.
With regard to investments in securities, the Company reviews its holding policies through periodic analysis of market prices and thefinancial condition of the issuers, taking into consideration relationships with business partners.
With regard to derivatives, in accordance with rules for the provision of transaction authorization, the Company’s finance functions
and those of its consolidated subsidiaries manage transactions in accordance with an established set of fundamental policies, such as
those covering limitations on transaction amounts, under the authority of the director in charge of finance. Transactions are reported
to the director in charge of finance on a monthly basis. Consolidated subsidiaries manage derivatives in accordance with the same
rules as the Company.
(iii) Management of liquidity risk (risk of the Company being unable to meet its payment obligations by their due dates)
The Company manages liquidity risk through its finance department, maintaining and updating its finance plans based on reports
from each business division. Liquidity risk is managed through the diversification of financing methods, taking into consideration thefinancing environment and balancing long- and short-term financing requirements, securing commitment lines, etc.
(d) Supplemental information on the fair value of financial instruments
The fair value of financial instruments includes values based on market price and reasonably estimated values when market price is notavailable. However, as variables are inherent in these value calculations, the resulting values may differ if different assumptions are used.
With regard to the contract amounts, etc., of the derivatives described below in “(2) Fair values of financial instruments,” these amounts
do not represent the market risk associated with the corresponding derivative transactions themselves.

(2) Fair values of financial instruments
The book values, the fair values and the differences between these values as of March 31, 2012, were as follows (Financial instruments
for which the fair value was extremely difficult to determine were not included, as described in remark (ii)):
Millions of yen

Cash on hand and in banks
Trade receivables
Investments in securities
Total assets
Trade payables
Short-term debt and current portion of long-term debt
(excluding lease obligations)Long-term debt, less current portion (excluding leaseobligations)Thousands of U.S. dollars
Unrealized gains(losses)

Unrealized gains(losses)Book value

Fair value¥ 34,316
404,054
16,427¥ 34,316
403,847
16,399¥¥454,797¥454,562¥ (235)$ (2,860)

310,775

310,775--

147,568

147,568--

258,738

260,672

1,934

23,545

(207)
(28)

$

(2,520)(340)

Total liabilities¥ 717,081¥719,015¥ 1,934$ 23,545

Derivative transactions (*)¥ (4,886)¥ (4,886)

¥

$

-

-

(*) Derivative financial instruments are presented as net amounts. Negative amounts stated with parentheses ( ) indicate that the net amount is a liability.

75Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIESThe book values, fair values and the differences between these values as of March 31, 2011, were as follows (Financial instruments forwhich the fair value was extremely difficult to determine were not included, as described in remark (ii)):
Millions of yen

Cash on hand and in banks
Trade receivables
Investments in securities
Total assets
Trade payables
Short-term debt and current portion of long-term debt
(excluding lease obligations)Long-term debt, less current portion (excluding leaseobligations)

Unrealized gains(losses)Book value

Fair value¥ 47,233
401,753
16,540¥ 47,233
401,625
16,527¥¥465,526¥465,385¥ (141)

319,272

319,272-

174,455

174,455

-

(128)
(13)

253,801

255,377

1,576

Total liabilities¥747,528¥749,104¥ 1,576

Derivative transactions (*)¥ (1,660)¥ (1,660)¥-(*) Derivative financial instruments are presented as net amounts. Negative amounts stated with parentheses ( ) indicates that the net amount is aliability.

(i) Methods used to calculate the fair value of financial instruments and details of securities and derivative instruments<Assets>- Cash on hand and in banks
The fair value of cash on hand and in banks is stated at the relevant book value since the settlement periods are short and thefair values are substantially the same as the book values.
- Receivables
The fair value of receivables is stated at present value computed by applying a discount rate reflecting the settlement period
and the credit risk.
- Investments in securities
Equity securities are stated at the fair value, and bonds are stated at market price or the asking price of financial institutions.
See Note 2(k), “Investments in securities” for the detailed information by classification.
<Liabilities>- Trade payables, short-term debt and current portion of long-term debt
Since the settlement periods of these items are short and their fair values are substantially the same as their book values, therelevant book values are used.
- Long-term debt, less current portion
The fair value of bonds payable is calculated based on trading reference data. The fair value of long-term debt is calculated byapplying a discount rate to the total of principal and interest. That discount rate is based on the assumed interest rate if asimilar new loan was entered into.
<Derivatives>
See Note 21, "Derivative Transactions."

76

(ii) Financial instruments for which the fair value is extremely difficult to determine
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

Stocks of nonconsolidated subsidiaries and affiliates
Investments in affiliates¥ 7,122
6,917
23,090¥ 8,102
7,335
18,314$ 86,705
84,209281,106

Total¥37,129¥33,751$452,020

Unlisted equity securities and investments in partnerships

Since no market values are available for these items and since it is extremely difficult to determine their fair values, the items listed in
the table above are not included in investments in securities.

(iii) Planned redemption amounts after the balance sheet date for monetary receivables and investments in securities with maturity
dates as of March 31, 2012 and 2011 were as follows:
Millions of yen

2012
Within1 yearOver 1 year but
within 5 years

Cash on hand and in banks
Trade receivables
Investments in securities-Bonds¥ 34,316
368,419¥
35,635

300

104

Total

¥403,035¥35,739

Over 5 years but
within 10 years

¥

¥

Over
10 years

-

¥ -

-

-

-

¥ -

Thousands of U.S. dollars

2012
Within1 yearOver 1 year but
within 5 years

Over 5 years but
within 10 years

Cash on hand and in banks
Trade receivables
Investments in securities-Bonds$ 417,774
4,485,257$
433,832

3,652

1,266

-

Total

$4,906,683$435,098$ -Over
10 years

$ -

$

-

$

-

Millions of yen

2011
Within1 yearOver 1 year but
within 5 years¥

16,091

Over 5 years but
within 10 years

Cash on hand and in banks
Trade receivables
Investments in securities-Bonds¥ 47,233
385,662

¥

-

300

105

Total

¥432,895¥16,391

¥ 105

Over
10 years

-

¥

-

¥

-

(iv) Planned repayment amounts after the balance sheet date for bonds payable, convertible bonds and long-term debt
See Note 8, “Short-Term debt and Long-term debt.”

77

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

23. Finance leases
As discussed in Note 2(w), finance leases commenced prior to April 1, 2008 which do not transfer ownership of the leased assets to thelessee are accounted for as operating leases. Information regarding such leases, as required to be disclosed in Japan, is as follows:(a) Lessee
The original costs of leased assets under non-capitalized finance leases and the related accumulated depreciation and amortization,
assuming it was calculated by the straight-line method over the term of the respective lease, as of March 31, 2012 and 2011 were as
follows:

Millions of yen

Property, plant and equipment

Accumulated depreciation

Intangible assets
Accumulated amortization

Thousands of U.S. dollars

2012

2011

2012

¥31,691(19,888)¥35,520(20,072)$385,816(242,123)

11,803

15,448143,693

284
(238)
¥
46

543
(416)
¥ 127

3,457
(2,897)$560

The present values of future minimum lease payments under non-capitalized finance leases as of March 31, 2012 and 2011 were as follows:
Millions of yen

Current portion
Noncurrent portion
Total

Thousands of U.S. dollars

2012

2011

2012

¥ 3,150
9,081¥12,231¥ 4,156
11,413¥15,569$ 38,349
110,555$148,904

Lease payments, "as if capitalized" depreciation and amortization and interest expense for non-capitalized finance leases for the years
ended March 31, 2012, 2011 and 2010 were as follows:
Millions of yen

Lease payments
Depreciation and amortization
Interest

78

Thousands of U.S. dollars

2012

2011

2010

2012

¥4,911
4,531
388¥5,038
4,669
486¥6,033
5,642
590$59,788
55,161
4,723

(b) Lessor
The original costs of leased assets under finance leases and the related accumulated depreciation and amortization as of March 31,
2012 and 2011 were as follows:

Millions of yen

Property, plant and equipment

Accumulated depreciation

Intangible assets
Accumulated amortization

Thousands of U.S. dollars

2012

2011

2012

¥1,429(1,107)¥1,559(1,030)$17,396

322

529

3,920

45
(45)
¥
0

55
(48)
¥
7

547
(547)
$
0

(13,476)

The present values of future minimum lease payments to be received under finance leases as of March 31, 2012 and 2011 were as follows:
Millions of yen

Current portion
Noncurrent portion
Total

Thousands of U.S. dollars

2012

2011

2012

¥ 195
181
¥ 376

¥ 297
377
¥ 674

$2,3742,203$4,577

Lease payments received, depreciation and amortization and interest on finance leases for the years ended March 31, 2012, 2011 and 2010
were as follows:
Millions of yen

Lease payments received
Depreciation and amortization
InterestThousands of U.S. dollars

2012

2011

2010

2012

¥ 241
213
24

¥ 282
257
35

¥ 338
324
55

$2,9342,593
292

24. Operating leases
The present values of future minimum lease payments under operating leases as lessee as of March 31, 2012 and 2011 were as follows:
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

Current portion
Noncurrent portion

¥ -

$ -

Total

¥ -

¥ 295
¥ 295

-

-

$ -

79

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

25. Business combinations
Year ended March 31, 2011
(Transactions under common control)
Pursuant to resolutions passed by the Board of Directors on September 30, 2009, Kawasaki Shipbuilding Corporation, Kawasaki Precision
Machinery Ltd. (KPM), and Kawasaki Plant Systems, Ltd. (K Plant) were merged with the Company on October 1, 2010.
(a) Name and outline of business of constituent companies, date of business combination, legal form of business combination, name ofcompany after business combination and outline of transactions, including purpose of transactions(i) Name and outline of business of constituent companies
Company surviving in absorption-type merger
Name:

Kawasaki Heavy Industries, Ltd. (KHI)

Outline of business:

Production and sale of ships and vessels, rolling stock, construction machinery, crushers, aircraft, jet engines,
general-purpose gas turbine generators, motors and engines, various types of industrial plant and industrial
equipment, boilers, environmental equipment, steel structures, motorcycles, all-terrain vehicles (ATV), industrial
robots, and various industrial hydraulic productsCompany absorbed in absorption-type merger
Name:

Kawasaki Shipbuilding Corporation

Outline of business:

Design, production, sale and maintenance of ships, naval vessels, marine equipment, other transportationequipment, and accompanying equipment and parts

Name:

Kawasaki Precision Machinery Ltd. (KPM)

Outline of business:

Design, procurement, production, installation, maintenance, and sale of industrial hydraulic products, hydraulicsystems, electronic control equipment and systems, and accompanying devices, parts, and accessories

Name:

Kawasaki Plant Systems, Ltd. (K Plant)

Outline of business:

Design, production, installation, and sale of various types of plant machinery and equipment(ii) Date of business combination
October 1, 2010(iii) Legal form of business combination
The merger was an absorption-type merger whereby the Company (KHI) is the surviving entity and the three subsidiaries weredissolved.
(iv) Name of company after business combination
Kawasaki Heavy Industries, Ltd.
(v) Outline of transactions, including purpose of transactions
Guided by the mission statement it adopted in 2007, the Company is working to create new value that will contribute to a better
environment and brighter future by leveraging its advanced technological capability across a broad range of fields. Creating newvalue involves making existing products smarter through innovation and developing brand new products in totally new fields. To
achieve this, it is essential that KHI work quickly to efficiently integrate and maximize the entire KHI Group’s intellectual assets. For
these reasons, KHI decided to merge Kawasaki Shipbuilding, KPM and K Plant with the Company to facilitate maximum efficiency inleveraging the Group’s technological assets and human resources while removing any barriers that may have existed under asubsidiary structure.

80

In addition to the pursuit of greater competitiveness in existing businesses, the Kawasaki Business Vision 2020, formulated in April
2011, designates the development of new products and businesses as a key measure for accelerating sustained Group growth. The
Company will use this merger to draw together technological expertise and knowhow across conventional organizational andproduct boundaries to develop new products in the transportation systems, energy and environment and industrial equipment
sectors. The Company also intends to pursue research and development of core technologies in new business fields such as CO2-freehydrogen technologies and ocean energy.
By accelerating initiatives aimed at facilitating the Group-wide use and maximization of intellectual assets amassed by KHI Group
companies such as those related to sales expertise, technology, procurement, and human resources, the Company seeks to realize its
Group Mission Statement, “Kawasaki, working as one for the good of the planet (Enriching lifestyles and helping safeguard theenvironment: Global Kawasaki). ”(b) Outline of accounting procedure used
The merger was accounted for as a transaction under common control based on “Accounting Standard for Business Combinations”(Statement No. 21, issued by ASBJ on December 26, 2008) and the associated “Revised Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures” (Guidance No. 10, revised by ASBJ on December 26, 2008).

26. Segment information(a) Overview of reportable segments
The Company’s reportable segments are components of the Company for which separate financial information is available. Thesesegments are subject to periodic review by the Company’s Board of Directors to determine the allocation of resources and assess
performance. The Company’s operations are divided into internal companies based on product categories. Certain authority isdelegated to each of the internal companies based on whether they conduct businesses in Japan or overseas. The Company’s operations
are therefore segmented based on each internal company’s product categories. The Company’s eight reportable segments are the Ship
& Offshore Structure segment, the Rolling Stock segment, the Aerospace segment, the Gas Turbine & Machinery segment, the Plant &Infrastructure segment, the Motorcycle & Engine segment, the Precision Machinery segment and the Other segment.
In conjunction with its October 2010 organizational restructuring, the Group renamed its Shipbuilding segment the Ship & Offshore
Structure segment.
Main segment businesses are listed below
Business segment

Major products

Ship & Offshore Structure

Construction and sale of ships and other vessels, etc.

Rolling Stock

Production and sale of rolling stock, snow plows, etc.

Aerospace

Production and sale of aircraft, etc.

Gas Turbine & Machinery

Production and sale of jet engines, general-purpose gas turbine generators, prime movers, etc.

Plant & Infrastructure

Production and sale of industrial equipment, boilers, environmental equipment, steel structures,crushers, etc.

Motorcycle & Engine

Production and sale of motorcycles, personal watercraft, all-terrain vehicles (ATV), utility vehicles,
general-purpose gasoline engines, etc.

Precision Machinery

Production and sale of industrial hydraulic products, industrial robots, etc.

Other

Production and sale of construction machinery, commercial activities, sales/order agency andintermediary activities, administration of welfare facilities, etc.

(b) Calculation methods for sales, income (loss), assets, liabilities and other items by reportable segment
Accounting methods applied for the calculation of sales, income (loss), assets, liabilities, and other items by business segment largely
correspond to information presented under Note 2, “Significant accounting policies.” Segment income is based on operating income.
Intersegment sales and transfers are based on market prices.

81

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES(c) Sales, income (loss), assets, liabilities, and other items by reportable segment
Year ended March 31, 2012
Millions of yen
Sales
External
sales

Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Total
Adjustments
Consolidated total¥ 113,532
132,684
206,580
194,655
122,800
235,243
175,077
123,207¥1,303,778¥1,303,778

Intersegment
sales andtransfers

Other items

Total¥ 1,636 ¥ 115,168
2,105
134,789
1,846
208,426
20,438215,093
13,150135,950
1,033
236,276
14,245
189,322
35,281
158,488¥89,734 ¥1,393,512(89,734)(89,734)¥- ¥ 1,303,778

Segment
income(loss)

Segment
assets¥ 3,964 ¥ 102,102
5,154
157,487
7,815
295,668
7,775
223,649
14,118109,395(2,959)222,515
26,622
110,578
3,838
183,396¥66,327 ¥1,404,790(8,843)(42,651)¥57,484 ¥1,362,139

Depreciation/amortization

Impairment
loss¥ 3,819
3,693
9,633
6,680
1,703
11,1516,647
2,539¥45,865
3,036¥48,901¥13,55433
64
1,270¥14,921¥14,921

Investment in Increase inequityproperty, plant
method and equipment
affiliates and intangibles¥15,27892
576
10,171
967
2,412¥29,496¥29,496¥ 2,297
2,266
10,208
7,310
3,277
11,77016,221
3,384¥56,733
7,186¥63,919

Year ended March 31, 2011
Millions of yen
Sales
External
sales

Ship & Offshore Structure
Rolling Stock
Aerospace
Gas Turbine & Machinery
Plant & Infrastructure
Motorcycle & Engine
Precision Machinery
Other
Total
Adjustments
Consolidated total¥ 118,416
131,104
196,876
202,692
89,012
234,479
140,328
114,042¥1,226,949¥1,226,949

Intersegment
sales andtransfers

Other items

Total¥ 1,895 ¥ 120,311
2,079
133,183
1,811
198,687
20,783
223,475
12,017101,029
1,211
235,690
13,277
153,605
34,340148,382¥87,413 ¥1,314,362(87,413)(87,413)¥- ¥1,226,949

Segment
income(loss)

Segment
assetsDepreciation/amortization

Impairmentloss¥ (1,013) ¥ 115,800
8,173
151,2123,030
288,495
9,545
211,369
8,281
95,115(4,961)
216,559
22,31899,612
2,577
159,618¥47,950 ¥1,337,780(5,322)
16,498¥42,628 ¥1,354,278¥ 4,264
3,634
9,402
6,550
1,554
15,2944,872
2,477¥48,047
2,229¥50,276

¥

67
141
9,520
195
¥9,923¥9,923

Investment in Increase inequityproperty, plant
method and equipment
affiliates and intangibles¥13,125
123
61
8,603
946
2,308
¥25,166¥25,166

Year ended March 31, 2010
Millions of yen

External
sales

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

82¥ 151,893
150,071
188,892
191,379
107,580
203,084
82,71597,859¥1,173,473¥1,173,473

Sales

Other items

Intersegment
sales andtransfers

Investment in Increase inequityproperty, plant
Depreciation/
method and equipment
amortization
affiliates and intangibles

Total¥ 1,565 ¥ 153,458
1,755
151,826
2,005
190,897
22,765
214,144
11,122
118,702
1,550
204,634
10,261
92,97632,551
130,410¥83,574 ¥1,257,047(83,574)(83,574)¥- ¥1,173,473

Segment
income(loss)

Segment
assets¥ 1,550 ¥ 128,948
8,726
161,648
3,766
304,371
8,941
215,874
7,944
115,408(27,005)
219,150
3,415
75,066(1,078)
154,655¥ 6,259 ¥1,375,120(7,575)(22,681)¥(1,316) ¥1,352,439¥ 4,350
3,165
8,192
6,222
1,478
18,4834,683
3,066¥49,639
1,784¥51,423¥13,133
77
190
7,719
998
2,210
¥24,327¥24,327¥ 6,693
4,843
9,142
10,278
1,533
16,3353,052
5,553¥57,429
1,843¥59,272¥ 3,183
2,416
7,121
5,659
2,033
11,3409,822
8,017¥49,591
5,743¥55,334

Year ended March 31, 2012
Thousands of U.S. dollars
Sales
Depreciation/amortization

Impairment
loss

Investment in Increase inequityproperty, plant
method and equipment
affiliates and intangibles$ 1,382,177 $ 19,917 $ 1,402,094 $ 48,259 $ 1,243,024 $ 46,493
1,615,340
25,627 1,640,967
62,747
1,917,300
44,9592,514,974
22,474 2,537,448
95,1423,599,562 117,275
2,369,795
248,819 2,618,614
94,6552,722,778
81,324
1,495,009
160,092
1,655,101 171,877
1,331,811
20,732
2,863,927
12,576 2,876,503 (36,024)
2,708,972 135,756
2,131,446
173,423 2,304,869 324,105
1,346,214
80,922
1,499,964
429,523 1,929,487
46,7262,232,725
30,914$15,872,632 $1,092,451 $16,965,083 $807,487 $17,102,386 $558,375- (1,092,451) (1,092,451) (107,658)(519,248)
36,962$15,872,632 $- $15,872,632 $699,829 $16,583,138 $595,337$165,011
402
779
15,461$181,653$181,653$186,000
1,120
7,012
123,825
11,77329,364$359,094$359,094

External
sales

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

Other items

Intersegment
sales andtransfers

Total

Segment
income(loss)

Segment
assets$ 27,964
27,587124,276
88,99439,895
143,292
197,480
41,198$690,686
87,485$778,171(d) Reconciliation and the main components of differences between the total for reportable segments and amounts on the consolidated
financial statement for the years ended March 31, 2012, 2011 and 2010
Millions of yen

Thousands of U.S. dollars

2012

2011

2010

2012

Net sales
Total for reportable segments
Intersegment transactions¥1,393,512(89,734)¥ 1,314,362(87,413)¥ 1,257,047(83,574)$16,965,083(1,092,451)

Net sales reported on the consolidated financial
statements¥1,303,778¥1,226,949¥1,173,473$15,872,632

Millions of yen

IncomeTotal for reportable segments
Intersegment transactions

Corporate expenses (*)
Operating income (loss) on the consolidated
financial statements

Thousands of U.S. dollars

2012

2011

2010

2012

¥66,327(131)(8,712)¥47,950(3)(5,319)¥ 6,259
9(7,584)$807,487(1,594)(106,064)¥57,484¥42,628¥(1,316)$699,829(*) Corporate expenses mainly comprises general and administrative expenses not attributed to reportable segments.
Millions of yen

Thousands of U.S. dollars

2012

2011

2010

2012

Intersegment transactions¥1,404,790
112,985(155,636)¥1,337,780
141,029(124,531)¥1,375,120
114,487(137,168)$17,102,386
1,375,517(1,894,765)

Total assets on the consolidated financial
statements¥1,362,139¥1,354,278¥1,352,439$16,583,138

AssetsTotal for reportable segments
Corporate assets shared by all segments (*)(*) Corporate assets shared by all segments mainly comprise fixed assets not attributed to reportable segments.

83

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES

Millions of yen

Other items

Year ended March 31,
2012
2011
2010

Year ended March 31,
2012
2011
2010

Year ended March 31,
2012
2011
2010

Total for reportable segments

Adjustments (*)

Amounts reported on the consolidated
financial statements

Depreciation/amortization¥45,865¥48,047¥49,639¥3,036¥2,229¥1,784¥48,901¥50,276¥51,423

Increase in property, plant andequipment and intangibles

56,73349,591

57,429

7,186

5,743

1,843

63,91955,33459,272(*) Adjustment is mainly due to fixed assets not attributed to reportable segment.

Thousands of U.S. dollars

Year ended March 31,
2012

Year ended March 31,
2012

Year ended March 31,
2012

Total for reportable segments

Adjustments

Amounts reported on the consolidated
financial statements

Depreciation/amortization$558,375$36,962$595,337

Increase in property, plant andequipment and intangibles

690,686

87,485778,171

Other items(e) Related information(i) Sales by geographic region
Net sales in the years ended March 31, 2012, 2011 and 2010 were as follows:
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

Other areas¥ 567,044
237,941
123,317239,627
135,849¥ 558,126
236,572
87,162
224,685
120,404$ 6,903,384
2,896,774
1,501,303
2,917,300
1,653,871

Total¥1,303,778¥1,226,949$15,872,632

Japan
United States
EuropeAsia

Note: Geographic region classifications were revised from the fiscal year ended March 31, 2011, and a classification was added forJapan.
Millions of yen

2010
North America
EuropeAsia
Other areas¥226,859
93,035
141,577
100,124

Total¥561,595

Net sales are based on the clients’ location and classified according to nation or geography.

84

Property, plant and equipment
Millions of yen

Thousands of U.S. dollars

2012

2011

2012

Japan
North America
EuropeAsia
Other areas¥238,733
19,4502,104
13,610853¥241,132
20,611
2,304
10,945788$2,906,415
236,790
25,614
165,692
10,387

Total¥274,750¥275,780$3,344,898(ii) Information by major clients
Net sales

2012

2011

Related segments

179,786 million yen($2,188,755 thousand)

182,633 million yen

Ship & Offshore Structure, Aerospace, Gas
Turbine & Machinery, etc.

Clients

Ministry of Defense

27. Related party transactions(a) Related party transactions for the years ended March 31, 2012 and 2011 were as follows:Year ended March 31, 2012
Nonconsolidated subsidiaries andaffiliates of the Company
Type
Name
Location
Capital or investment
Business or position
Rate of ownership (%)
Description of relationship
Details of transactions
Amount of transactions
Account
Ending balance

Affiliate of the Company
Commercial Airplane Co., Ltd.
Chiyoda-ku, Tokyo¥10 million ($121 thousand)Sales of transportation machinery
Directly 40%
Order of the Company products
Sales of the Company products¥59,265 million ($721,512 thousand)
Trade receivables¥26,229 million ($319,320 thousand)Year ended March 31, 2011
Nonconsolidated subsidiaries andaffiliates of the Company

Type
Name
Location
Capital or investment
Business or position
Rate of ownership (%)
Description of relationship
Details of transactions
Amount of transactions
Account
Ending balance

Affiliate of the Company
Commercial Airplane Co., Ltd.
Chiyoda-ku, Tokyo¥10 million
Sales of transportation machinery
Directly 40%
Order of the Company products
Sales of the Company products¥33,982 million
Trade receivables¥13,741 million

85

Notes to the Consolidated Financial Statements
KAWASAKI HEAVY INDUSTRIES, LTD. AND CONSOLIDATED SUBSIDIARIES(b) A summary of the total financial information of all affiliates (14 companies) (14 in 2011), which was the basis for calculating the equity
in income of nonconsolidated affiliates, including that of Nantong COSCO KHI Ship Engineering Co., Ltd., which is a significant affiliate,
for the years ended March 31, 2012 and 2011 were as follows:
Millions of yen

Current assets
Fixed assets
Current liabilities
Long-term liabilities
Net assets
Net sales
Minority interests in net income of consolidated subsidiaries
Total net income

Thousands of U.S. dollars

2012

2011

2012

¥102,806
71,76084,48911,71078,367161,212
19,387
16,188¥106,381
70,227
93,208
12,174
71,225
166,935
25,20019,483$1,251,594
873,630
1,028,597
142,561
954,066
1,962,649
236,023
197,078

28. Subsequent events(a) Investment in Chinese shipbuilding company
The Company resolved to acquire a stake in Dalian COSCO Shipbuilding Industry Co., Ltd. (DACOS)*, a shipbuilding company based in
Dalian, China, and completed payment for this acquisition on April 12, 2012.
* Its name changed to Dalian COSCO KHI Ship Engineering CO., Ltd. (DACKS) on May 30, 2012.
1. Purpose
DACOS is a joint venture company established in the Lushun Economic Development Zone in Dalian. It was co-founded in 2007 by COSCO
Shipbuilding Industry Company (COSIC)—a wholly owned subsidiary of the COSCO Group, which is one of the largest shipping companies
in the world—and Nantong COSCO KHI Ship Engineering Co., Ltd. (NACKS), a 50-50 joint venture operated by the Company and COSIC.
DACOS is 70% owned by COSIC and 30% by NACKS. DACOS owns a 1.8 million square meter shipyard complete with two building docks,
and the ships built by DACOS have earned high marks from ship owners both in terms of timely delivery and quality.
Through this transaction, the Company acquired a 34% stake in DACOS from COSIC, which had been searching for a new partner withmore advanced shipbuilding technology to make DACOS more competitive and further expand its operations. After the share transfer,
DACOS is 36% owned by COSIC, 34% by the Company and 30% by NACKS.
By becoming a direct investor in DACOS, the Company aims to build a stronger cooperative relationship based on the successes of NACKS,
its first joint venture with COSIC. The Company will also work toward enhancing DACOS’ capacity to develop, design and build ships, while
improving its production and management system, to lay a firm foundation for DACOS’ long-term growth.
2. Overview of Dalian COSCO Shipbuilding Industry Co., Ltd. (DACOS)

86(1) Location:(2) Representative:(3) Foundation date:(4) Operation:(5) Capital:(6) Investment amount:

No. 1 Shunda Street, Lushun Economic Development Zone, Dalian, Liaoning, China
Xu Kai (Chairman and COSIC General Manager)
July 18, 2007
Design, manufacture, sales and maintenance of ships
2,620 million yuan
1,165 million yuan(7) Ownership after theinvestment:

COSCO Shipbuilding Industry Company (COSIC) 36%
Kawasaki Heavy Industries, Ltd. 34%
Nantong COSCO KHI Ship Engineering Co., Ltd. (NACKS) 30%*NACKS is a 50-50 joint venture co-founded by COSIC and the Company.

(b) On June 27, 2012, the following appropriation of nonconsolidated retained earnings was approved at the ordinary meeting ofshareholders of the Company:
Millions of yen

Cash dividends (¥5.0 per share)¥8,35929. Other matters(a) Quarterly financial information
Millions of yen

1 Quarter

2 Quarter¥ 291,579¥ 584,990

stYear ended March 31, 2012

Net salesnd

3rd Quarter4 th Quarter

906,314¥ 1,303,778¥

Income (loss) before income taxes and minority interests

14,104

26,312

57,186

48,706

Net income (loss)

9,558

17,81333,67923,323yen

Net income (loss) per share - basic

¥

5.7

¥

10.6

¥

20.1

¥

13.9

Thousands of U.S. dollars

1st Quarter

2nd Quarter

3rd Quarter4 th Quarter$ 3,549,780$ 7,121,865$11,033,771$15,872,632

Income (loss) before income taxes and minority interests

171,706

320,331

696,201

592,963

Net income (loss)

116,362

216,861

410,019

283,942

Year ended March 31, 2012

Net sales

U.S. dollars

Net income (loss) per share - basic

$

0.06

$

0.12

$

0.24

$

0.16

(b) On November 16, 2006, the Company received a judgment from the Kobe District Court requiring reimbursement of ¥530 million
jointly with Hitachi Zosen Corporation and four other companies in a suit brought by citizens of Amagasaki City claiming that theCompany unfairly bid on a construction contract for a waste incineration facility in Amagasaki City that Hitachi Zosen Corporation wasawarded in 1996. On November 29, 2006, the Company appealed the judgment to the Osaka High Court and won the case on
November 30, 2007. On December 7, 2007, citizens of Amagasaki City, the complainants, appealed the judgment to the Supreme Court.
The Supreme Court reversed the Osaka High Court decision and remanded the case back to the Osaka High Court on April 28, 2009.
On July 23, 2010, the Company was ordered by the Osaka High Court to jointly reimburse, along with the other defendants, ¥335
million, an amount corresponding to 4% of the cost of the facilities (excluding the construction costs). On July 30, 2010, the plaintiffs
sought review of this decision by filing an appeal with the Supreme Court. However, on July 7, 2011, the Supreme Court issued adecision not to accept the application for appeal sought by the plaintiffs, thereby finalizing the outcome of this case.
(c) On December 8, 2009, the Company received a judgment from the Nagoya District Court requiring reimbursement of ¥1,215 million
jointly with JFE Engineering Corporation (former NKK) and three other companies in a suit brought by Ichinomiya City claiming that theCompany unfairly bid on a construction contract for a waste incineration facility in Ichinomiya City that JFE Engineering Corporation(former NKK) was awarded in 1994. The Company appealed the judgment to the Nagoya High Court on December 25, 2009. However,on August 27, 2010, the Nagoya District Court upheld its decision and granted the claim against the five defendants, including theCompany. This outcome was finalized since neither the plaintiffs nor the defendants appealed this decision.

87Independent Auditor's Report88Major Consolidated Subsidiaries and Affiliates

Name

Paid-in Capital

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

Principal Businesses

China

CNY1,462,200*

50.00

Manufacture and sale of ships

SHIP & OFFSHORE STRUCTURE
Nantong COSCO KHI
Ship Engineering Co., Ltd. †ROLLING STOCK

Alna Yusoki-Yohin Co., Ltd.

Japan

400

100.00

Manufacturing and sales of doors/window frames
for train cars and buses, signs for bus stops,
advertising materials, bus shelters, automobile
sign lights, various types of panels, and waiting
rooms

Nichijo Manufacturing Co., Ltd.

Japan

120

75.02

Manufacture and sale of snowplows

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

AEROSPACE

Japan

6,048

100.00

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

Kawasaki Thermal Engineering Co., Ltd.

Japan

1,460

83.53

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

Kawasaki Gas Turbine Asia Sdn. Bhd.

Malaysia

MYR5,000*

100.00Engine testing facility, etc.

Wuhan Kawasaki Marine Machinery Co., Ltd.

China

1,100

55.00

Manufacture, sale, and after-sales service ofKawasaki-brand azimuth thrusters, side thrusters,
and other machinery

Kawasaki Machine Systems, Ltd.

Japan

350

100.00

Sale and repair of gas turbine generators, andindustrial robots

Tonfang Kawasaki
Air-Conditioning Co., Ltd. †China

US$158,405*

50.00

Manufacture, sale, and maintenance of absorption
cooling and heating machinery and refrigerationequipment

NIPPI CorporationGAS TURBINE & MACHINERY89

Major Consolidated Subsidiaries and Affiliates

Name

Location

Paid-in Capital(Millions of yen,unless otherwise noted)

Equity(% ownership by
KHI Group)

Principal Businesses

PLANT & INFRASTRUCTURE
EarthTechnica Co., Ltd.

Japan

1,200

100.00Design, manufacture, and sale of crushers,
grinders, sorters, and other equipment

Fukae Powtec Corporation

Japan

300

100.00

Manufacture and sale of crushers and related
plantsJP Steel Plantech Co. †

Japan

1,995

24.81

Sale of and engineering services for steelworks
plants and equipment

Anhui Conch Kawasaki
Engineering Co., Ltd. †China

CNY100,000*

50.00

Design, equipment procurement, sales,
installation, technical instruction for trial
operation, and after-service for environmentallyfriendly, energy-efficient equipment

Anhui Conch Kawasaki
Equipment Manufacturing Co., Ltd. †China

CNY348,000*

50.00

Design, production, sales, maintenance, afterservice, and supply of spare parts for cement
plantsAnhui Conch Kawasaki Energy Conservation
Equipment Manufacturing Co., Ltd. †China

CNY60,000*

50.00

Research and development, production,equipment procurement and sales forenvironmentally friendly, energy-efficientequipment

Shanghai COSCO Kawasaki Heavy Industries
China Steel Structure Co., Ltd. †China

US$29,800*

45.00

Manufacture and sale of steel structures

Kawasaki Motors Corp., U.S.A.

U.S.A.

US$165,900*

100.00Distribution of motorcycles, ATVs, utility vehicles,
personal 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
Motors Corp., U.S.A.

KM Receivables Corporation

U.S.A.

US$100100.00Management of accounts receivable of Kawasaki
Motors Finance Corporation

Kawasaki Motors Pty. Ltd.

Australia

A$2,000*

100.00Distribution of motorcycles, ATVs, utility vehicles,
and personal watercraft, and small gasoline
engines in Australia

P.T. Kawasaki Motor Indonesia

Indonesia

US$40,000*

83.00

Manufacture and distribution of motorcycles inIndonesia

KHITKAN Co., Ltd.

Thailand

B182,000*

100.00

Manufacture and sale of parts for motorcycles inThailandKawasaki Motores Do Brasil Ltda.

Brazil

R16,742*100.00

Manufacture and sale of motorcycles, ATVs, utility
vehicles, and personal watercraft in Brazil

Kawasaki Motors Europe N.V.

Netherlands

EUR64,093*

100.00Sole distribution of motorcycles, ATVs, utility
vehicles, personal watercraft, and small gasoline
engines in Europe

Kawasaki Motors (Phils.) Corporation

Philippines

P101,430*

50.001

Manufacture and distribution of motorcycles in
the Philippines

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Thailand

B1,900,000*

100.00

Manufacture and distribution of motorcycles inThailandCanadian Kawasaki Motors Inc.

Canada

C$2,000*

100.00Distribution of motorcycles, ATVs, utility vehicles,
and personal watercraft in Canada

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

US$120,000*

100.00

Manufacture of ATVs, utility vehicles, personal
watercraft, small gasoline engines, and rolling stock

MOTORCYCLE & ENGINE

90

Name

Location

Paid-in Capital(Millions of yen,unless otherwise noted)

EquityPrincipal Businesses(% ownership
by KHI Group)

PRECISION MACHINERY
Assembly of hydraulic pumps and motors forconstruction machinery

Kawasaki Precision Machinery (Suzhou) Ltd.

China

1,500

100.00Kawasaki Precision Machinery (U.S.A.), Inc.

U.S.A.

US$5,000*

100.00Kawasaki Precision Machinery Trading(Shanghai) Co., Ltd.

China

400

100.00Kawasaki Precision Machinery (U.K.) Ltd.

U.K.

£5,000*100.00Kawasaki Chunhui Precision Machinery(Zhejiang) Ltd.

China

1,000

54.00

Manufacture and sale of hydraulic pumps forconstruction machinery

Wipro Kawasaki Precision Machinery
Private Limited

Indea

Rs. 500 **74.00

Manufacture, sale, and servicing of hydraulic pumps
for construction machinery

Flutek, Ltd.

Korea

W1,310**50.38

Manufacturing, sales, and repair of hydraulic products,
marine machinery, and other machinery

Kawasaki Robotics (UK) Ltd.

U.K.

£917*

100.00Kawasaki Robotics (Tianjin) Co., Ltd.

China

CNY13,174*

100.00Kawasaki Machine Systems Korea, Ltd.

Korea

W1,500**100.00Kawasaki Robotics (U.S.A.), Inc.

U.S.A.

US$1,000*

100.00KCM Corporation

Japan

4,825

65.99

KCMJ Corporation

Japan

300

100.00KCMA Corporation

U.S.A.

US$8,000*

100.00Kawasaki Trading Co., Ltd.

Japan

600

70.00

Kawasaki Life Corporation

Japan

400

100.00Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic presses
and other hydraulic equipment

100.00Design and supervision of building construction work,
sale of herbicidal soil, manufacturing and sale of rustresistant packaging materials, and insurance agency
business

Manufacture and sale of hydraulic products
Procurement and sale of hydraulic components andequipment, technical assistance, and quality assurance
services
Manufacture and sale of hydraulic products

Sale and after-sales service of industrial robots in the
U.K. and Ireland
Sale and after-sales service of industrial robots in China
Sale and after-sales service of industrial robots androbot systems
Sale and after-sales service of industrial robots in the
United States

OTHER

Nippi Kosan Co., Ltd.

Japan

120

Design, manufacture, sale, and maintenance ofconstruction machinery
Sale and repair of construction machinery
Manufacture and sale of construction machinery in the
United States
Sale of various industrial machinery, petroleum, steel,
air conditioning equipment, etc.
Administration of Company welfare facilities; realestate sales, leasing, and construction; insurance
representation, administration and maintenance,leasing, and provision of loans

Kawasaki do Brasil
Industria e Comercio Ltda.

Brazil

R1,136*100.00

Responsible for sales and acting as intermediary
in Brazil and the rest of Latin America for ordersof KHI products and for providing various types ofengineering business services

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

U.S.A.

US$600*100.00

Responsible for sales and acting as intermediary inNorth America for orders of KHI products and forproviding various types of engineering support

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, and Africa;
provision of order intermediation services* Monetary unit in thousands** Monetary unit in millions† Affiliate accounted for using equity method

Partially included in: ● Rolling Stock
Precision Machinery(As of March 31, 2012)91■

Network

■

JAPAN

4.

6 Nagoya Office
JR Central Towers, 1-4, Meieki 1-chome, Nakamura-ku,
Nagoya, Aichi 450-6041, Japan
Phone: 81-52-388-2211
Fax: 81-52-388-2210

1 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●

7 Osaka Office
Furukawa Osaka Bldg., 1-29, Dojimahama 2-chome, Kita-ku,
Osaka City, Osaka 530-0004, Japan
Phone: 81-6-6344-1271
Fax: 81-6-6348-8289

2 Tokyo Head Office (Note)
World 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

8 Hiroshima Office
Hiroshima Business Tower Bldg., 3-33, Hacchobori,Naka-ku, Hiroshima City, Hiroshima 730-0013, Japan
Phone: 81-82-222-3668
Fax: 81-82-222-2229

3 Tokyo Office (Note)
11-1, Minamisuna 2-chome,
Koto-ku, Tokyo 136-8588, Japan
Phone: 81-3-3615-5111
Fax: 81-3-3615-4883

9 Fukuoka Office
Hakata-ekimae Daiichi Seimei Bldg., 4-1, Hakataekimae
1-chome,Hakata-ku, Fukuoka City, Fukuoka 812-0011, Japan
Phone: 81-92-432-9550
Fax: 81-92-432-9566

4 Sapporo Office
8-3 Square Kita Bldg., 32, Kita 8-jo Nishi
3-chome, Kita-ku,
Sapporo, Hokkaido 060-0808, Japan
Phone: 81-11-727-3131
Fax: 81-11-727-3132

10 Okinawa Office
Kokuba Bldg., 21-1, Kumoji 3-chome, Naha,
Okinawa 900-0015, Japan
Phone: 81-98-867-0252
Fax: 81-98-864-2606

5 Sendai Office
Tokyo Tatemono Sendai Bldg., 6-35, Chuo
1-chome,Aoba-ku, Sendai, Miyagi 980-0021, Japan
Phone: 81-22-261-3611
Fax: 81-22-265-2736

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17 Nishi-Kobe Works
234, Matsumoto, Hazetani-cho,Nishi-ku, Kobe, Hyogo 651-2239, Japan
Phone: 81-78-991-1133
Fax: 81-78-991-3186

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19 Kakogawa Works
170, Yamanoue Mukohara, Hiraoka-cho,
Kakogawa, Hyogo 675-0112, Japan
Phone: 81-79-427-0292
Fax: 81-79-427-0556
20 Harima Works
8, Niijima, Harima-cho,Kako-gun, Hyogo 675-0155, Japan
Phone: 81-79-435-2131
Fax: 81-79-435-2132

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18 Akashi Works
1-1, Kawasaki-cho, Akashi,
Hyogo 673-8666, Japan
Phone: 81-78-921-1301
Fax: 81-78-924-8654

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22.

8.

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

11 Gifu Works
1, Kawasaki-cho, Kakamigahara,
Gifu 504-8710, Japan
Phone: 81-58-382-5712
Fax: 81-58-382-2981

21 Sakaide Works
1, Kawasaki-cho,
Sakaide, Kagawa 762-8507, Japan
Phone: 81-877-46-1111
Fax: 81-877-46-7006

12 Nagoya Works 1
3-11, Kusunoki, Yatomi,
Aichi 498-0066, Japan
Phone: 81-567-68-5117
Fax: 81-567-68-5090

22 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

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

23 KCM Corporation
2680, Oka, Inami-cho,Kako-gun, Hyogo 675-1113, Japan
Phone: 81-79-495-1211
Fax: 81-79-495-1226

14 Kobe Works
1-1, Higashikawasaki-cho 3-chome,
Chuo-ku, Kobe, Hyogo 650-8670, Japan
Phone: 81-78-682-5001
Fax: 81-78-682-5503

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

15 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

25 EarthTechnica Co., Ltd.
2-4, Kanda, Jimbocho, Chiyoda-ku,
Tokyo 101-0051, Japan
Phone: 81-3-3230-7151
Fax: 81-3-3230-7158(Note)
Tokyo Head Office and a portion of the Tokyo office will relocate to the following address effective December 1, 2012.
New address: 1-14-5, Kaigan, Minato-ku, Tokyo

92

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ASIA,
MIDDLE EAST
AND OCEANIA
1 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
2 Taipei Office
15th Floor, Fu-key Bldg.,
99 Jen-Ai Road, Section 2,
Taipei, Taiwan
Phone: 886-2-2322-1752
Fax: 886-2-2322-5009
3 Delhi Office
5th Floor, Meridien Commercial Tower,
8 Windsor Place, Janpath,
New Delhi, 100 001, India
Phone: 91-11-4358-3531
Fax: 91-11-4358-3532
4 Kawasaki Machine Systems Korea,Ltd.
69BL 1LT, 638, Gojan-Dong, Namdong-Gu,
Incheon, 405-817, Korea
Phone: 82-32-821-6941
Fax: 82-32-821-6947
5 Flutek, Ltd.
192-11 Shin Chon-Dong,
Changwon, Kyung Nam, 641-370, Korea
Phone: 82-55-570-5700
Fax: 82-55-574-5747
6 Dalian COSCO KHI Shipbuilding Engineering Co.,
Ltd.
No.20 Haiyan Road Dalian Lushun Economic
Development Zone, Dalian City Liaoning Province,
People's Republic of China
Phone: 86-411-3936-8115
Fax: 86-411-3936-8118
7 Kawasaki Robotics (Tianjin) Co., Ltd.
C-1-9, No. 41, 5th Avenue, TEDA,
Tianjin 300457,
People’s Republic of China
Phone: 86-22-5983-1888
Fax: 86-22-5983-1889
8 Nantong COSCO KHI Ship Engineering Co., Ltd.
117, Linjiang Road, Nantong City,
Jiangsu Province, People’s Republic of China
Phone: 86-513-8516-8888
Fax: 86-513-8351-4349
9 Anhui Conch Kawasaki Engineering Co.,
Ltd.
3F, Conch International Conference Center,
1007 South Jiuhua Road, Wuhu, Anhui 241136,
People’s Republic of China
Phone: 86-553-839-8606
Fax: 86-553-839-8676
10 Anhui Conch Kawasaki Energy Conservation
Equipment Manufacturing Co., Ltd.
1F, Conch International Conference Center,
1007 South Jiuhua Road, Wuhu, Anhui 241136,
People’s Republic of China
Phone: 86-553-839-8015
Fax: 86-553-839-9553

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22.
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24.
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11 Anhui Conch Kawasaki Equipment Manufacturing Co.,Ltd.
Huolonggang town, Yiijiang zone, Wuhu, Anhui 241138,
People’s Republic of China
Phone: 86-553-839-9692
Fax: 86-553-839-9560
12 Changzhou Kawasaki and Kwang Yang Engine Co.,
Ltd.
No. 380 Hang Jiang Road, Xinbei District,
Changzhou City, Jiangsu Province,
People’s Republic of China
Phone: 86-519-8308-9001
Fax: 86-519-8308-9029
13 Kawasaki Precision Machinery (Suzhou) Ltd.
668 Jianlin Road, New District, Suzhou, China
Phone: 86-512-6616-0365
Fax: 86-512-6616-0366

14 Kawasaki Precision Machinery Trading (Shanghai) Co.,
Ltd.
30F, Chong Hing Finance Center 288 Nanjing Road West,
Huangpu District, Shanghai 200003,
People’s Republic of China
Phone: 86-21-3366-3800
Fax: 86-21-3366-3808
15 Kawasaki Trading (Shanghai) Co., Ltd.
10F, Chong Hing Finance Center,
288 Nanjing Road West, Huangpu District,
Shanghai 200003, People’s Republic of China
Phone: 86-21-3366-3700
Fax: 86-21-3366-3701
16 Shanghai COSCO Kawasaki Heavy Industries
Steel Structure Co., Ltd.
No.3768 Panjing Road Baoshan District, Shanghai 201908,
People's Republic of China
Phone: 86-21-3119-0999
Fax: 86-21-3119-0538
17 Kawasaki Heavy Industries Consulting& Service (Shanghai) Company, Ltd.
10F, Chong Hing Finance Center,
288 Nanjing Road West, Huangpu District,
Shanghai 200003, People’s Republic of China
Phone: 86-21-3366-3200
Fax: 86-21-3366-3205
18 Kawasaki Chunhui Precision Machinery (Zhejiang)
Ltd.
No. 200 YaSha Road, Shangyu Economic Development
Zone,
Shansyu, Zhejiang, 312300,
People’s Republic of China
Phone: 86-575-8215-6999
Fax: 86-575-8215-8699
19 Wuhan Kawasaki Marine Machinery Co., Ltd.
No. 43 Wudong Road,
Qingshan, Wuhan, Hubei, People’s Republic of China
Phone: 86-27-8641-0132
Fax: 86-27-8641-0136
20 Kawasaki Heavy Industries (H.K.) Ltd.
Room 3710-14, Sun Hong Kai Center,
30 Harbour Road, Wanchai, Hong Kong
Phone: 852-2522-3560
Fax: 852-2845-2905

26.

21 KHI Design & Technical Service Inc.
20F 6788 Ayala Avenue,
Olden Square, Makati,
Metro Manila, The Philippines
Phone: 63-2-810-9213
Fax: 63-2-816-1222
22 Kawasaki Motors (Phils.) Corporation
Km. 24 East Service Road,
Bo. Cupang, Alabang, Muntinlupa City,
Metro Manila 1771, The Philippines
Phone: 63-2-842-3140
Fax: 63-2-842-2730

28. ■

28. ■

23 Kawasaki Motors Enterprise (Thailand) Co., Ltd.
119/10 Moo 4, Tam bon Pluak Daeng, Amphur Pluak Daeng, Rayong
21140, Thailand
Phone: 66-2-246-1510
Fax: 66-2-246-1517
24 Kawasaki Gas Turbine Asia Sdn Bhd
No. 40, Jalan Pemberita U1/49
Temasya Industrial Park, Glenmarie,
40150 Shah Alam, Selangore,
Malaysia
Phone: 60-3-5569-2882
Fax: 60-3-5569-3093
25 Kawasaki Heavy Industries (Singapore) Pte. Ltd.
6 Battery Road, #23-01, Singapore 049909
Phone: 65-6225-5133~4
Fax: 65-6224-9029
26 P.T. Kawasaki Motor Indonesia
JI. Perintis Kemerdekaan, Kelapa Gading,
Jakarta Utara 14250, Indonesia
Phone: 62-21-452-3322
Fax: 62-21-452-3566
27 Kawasaki Heavy Industries Middle East FZE
Dubai Airport Free Zone, Bldg. 6W Block-A,
Office No. 709, P.O. Box 54878, Dubai, U.A.E.
Phone: 971-4-214-6730
Fax: 971-4-214-6729
28 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■ Overseas Office■ Sales Office (subsidiary)■ Manufacturing Base (subsidiary)■ Sales/Manufacturing Base (affiliate accounted for using

equity method)93

Network

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AMERICA
1 Canadian Kawasaki Motors Inc.
101 Thermos Rd.,
Toronto, Ontario, M1L 4W8, Canada
Phone: 1-416-445-7775
Fax: 1-416-445-0391
2 Kawasaki Heavy Industries (U.S.A.), Inc.
60 East 42nd Street, Suite 2501,
New York, NY 10165, U.S.A.
Phone: 1-212-759-4950
Fax: 1-212-759-6421
3 Houston Branch
333 Clay Street, Suite 4310,
Houston, TX 77002-4109, U.S.A.
Phone: 1-713-654-8981
Fax: 1-713-654-8187
4 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
5 Kawasaki Robotics (U.S.A.), Inc.
28140 Lakeview Drive,
Wixom, MI 48393, U.S.A.
Phone: 1-248-446-4100
Fax: 1-248-446-4200
6 San Jose Office3081 N. 1st Street,
San Jose, CA 95134, U.S.A.
Phone: 1-408-432-0990
Fax: 1-408-432-0996
7 Kawasaki Precision Machinery (U.S.A.), Inc.
3838 Broadmoor Avenue SE,
Grand Rapids, MI 49512, U.S.A.
Phone: 1-616-975-3110
Fax: 1-616-975-3103
8 KCMA Corporation
2140 Barrett Park Drive, Suite 101,
Kennesaw, GA 30144, U.S.A.
Phone: 1-770-499-7000
Fax: 1-770-421-6842

94

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

14.
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10 Maryville Plant
28147 Business Highway 71,
Maryville, MO 64468, U.S.A.
Phone: 1-660-582-5829
Fax: 1-660-582-5826
11 Kawasaki Motors Corp., U.S.A.
9950 Jeronimo Road,
Irvine, CA 92618, U.S.A.
Phone: 1-949-770-0400
Fax: 1-949-460-5600
12 Grand Rapids Office5080 36th Street S.E.,
Grand Rapids, MI 49512, U.S.A.
Phone: 1-616-949-6500
Fax: 1-616-954-3031
13 Kawasaki do Brasil Indústria e Comércio Ltda.
Avenida Paulista, 542-6 Andar,
Bela Vista, 01310-000, São Paulo, S.P., Brazil
Phone: 55-11-3289-2388
Fax: 55-11-3289-2788
14 Kawasaki Motores do Brasil Ltda.
Rua das Arraias, 286, Colônia Antônio Aleixo, CEP 69008448 Manaus-AM, Brazil
Phone: 55-92-3305-5800
Fax: 55-92-3305-5810■ Sales Office (subsidiary)■ Manufacturing Base (subsidiary)13.
■EUROPE
1 Moscow Office
Office 432 (4F), Entrance 6,
Krasnopresnenskaya nab. 12,123610, Moscow, Russian Federation
Phone: 7-495-258-2115
Fax: 7-495-258-2116
2 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
3 Kawasaki Robotics G.m.b.H.
29 Sperberweg, 41468 Neuss, Germany
Phone: 49-2131-34260
Fax: 49-2131-3426-22
4 Kawasaki Heavy Industries (Europe) B.V.
7th Floor, Riverstaete,
Amsteldijk 166,
1079 LH Amsterdam,
The Netherlands
Phone: 31-20-6446869
Fax: 31-20-6425725

13 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
14 Kawasaki Robotics (UK) Ltd.
Unit 4 Easter Court, Europa Boulevard, Westbrook,
Warrington WA5 7ZB, U.K.
Phone: 44-1925-713000
Fax: 44-1925-713001
15 Kawasaki Precision Machinery (U.K.) Limited
Ernesettle Lane, Ernesettle, Plymouth,
Devon PL5 2SA, U.K.
Phone: 44-1752-364394
Fax: 44-1752-364816■ Overseas Office■ Sales Office (subsidiary)■ Manufacturing Base (subsidiary)

5 Kawasaki Motors Europe N.V.
Jacobus Spijkerdreef 1-3,
2132 PZ Hoofddorp,
The Netherlands
Phone: 31-23-567-0500
Fax: 31-23-563-9884
6 Sweden Branch
Haradsvagen 255S-14172,
Huddinge, Sweden
Phone: 46-8-464-0200
Fax: 46-8-464-0240
7 Germany Branch
Max-Planck-Strasse 26,
61381 Friedrichsdorf, F.R. Germany
Phone: 49-6172-7340
Fax: 49-6172-734160

6. ■
6. ■

8 Benelux Brancht Hofveld 6 C2, 1702 Groot-Bijgaarden,
RPR 0876.824.570-Arroundissement Brussels,
Belgium
Phone: 32-2-481-7820
Fax: 32-2-481-7829
9 U.K. Branch
1 Dukes Meadow,
Millboard Road, Bourne End,
Buckinghamshire SL8 5XF, U.K.
Phone: 44-1628-856600
Fax: 44-1628-856799
10 Italy Branch

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Via Meraviglia 31,
20020 Lainate, Italy
Phone: 39-02-93-28-521
Fax: 39-02-93-28-5284
11 France Branch
Parc d’activité de la clef de Saint Pierre,
Rond point de l’Epine des champs,
78996 Elancourt Cedex, France
Phone: 33-1-30-69-0000
Fax: 33-1-30-69-5001

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12 Spain Branch
Calle José Agustin Goytisolo,
29-31, 08908 L‘Hopitalet,de Llobregat (Barcelona), Spain
Phone: 34-93-264-26-00
Fax: 34-93-263-53-67(As of June 30, 2012)95

Corporate Data

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 (Note):
World Trade Center Bldg.,
4-1, Hamamatsu-cho 2-chome,
Minato-ku, Tokyo 105-6116, JapanFounded:1878

Incorporated:

1896

Paid-in Capital:¥104,484,658,872

Number of Shares Issued:

1,671,892,659 shares

Number of Shareholders:

153,843

Number of Employees:

33,267

Stock Exchange Listings:

Tokyo, Osaka, Nagoya

Method of Publication of Notices:
http://www.khi.co.jp
The method of publication of notices of the Corporation shallbe made electronically. Provided, if the Corporation is unable
to make an electronic publication of notice due to an accident
or other unavoidable reason, the notice shall be inserted in the
Nihon Keizai Shimbun.

Transfer Agent:
Sumitomo Mitsui Trust Bank, Limited
1-4-1, Marunouchi, Chiyoda-ku,
Tokyo 100-8233, Japan (As of April 1, 2012)
Handling Office:
Sumitomo Mitsui Trust Bank, Limited
Stock Transfer Agency Business Planning Department
4-5-33 Kitahama, Chuo-ku,
Osaka 540-8639, Japan (As of April 1, 2012)
Independent Auditors:
KPMG AZSA LLC
1-1, Kumoi-dori, 7 chome, Chuo-ku,
Kobe, Hyogo 651-0096, JapanADR Facility:
KHI has a sponsored American Depository Receipt (ADR)
facility. ADRs are traded in the over-the-counter (OTC) market
in the United States under CUSIP number 486359201, with each
ADR representing four ordinary shares.
ADR Depository:
The Bank of New York Mellon
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-201-680-6825
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://adrbnymellon.com

KHI Web Site at: http://www.khi.co.jp(Note)
Tokyo Head Office will relocate to the following address effective December 1, 2012.
New address: 1-14-5, Kaigan, Minato-ku, Tokyo(As of March 31, 2012)96