Annual Report 2005

Annual Report 2005

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

Contents
Consolidated Financial Highlights
To Our Shareholders
An Interview with Tadaharu Ohashi, President
Review of Operations:
Shipbuilding
Rolling Stock, Construction Machinery & Crushing Plant
Aerospace
Gas Turbines & Machinery
Plant & Infrastructure Engineering
Consumer Products & Machinery
Other
Six-Year Summary
Management’s Discussion and Analysis
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Independent Public Accountants
Directors, Corporate Auditors, and Executive Officers
Major Consolidated Subsidiaries and Affiliates
Network
Corporate Data

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59

Cover: 700T train for the Taiwan High
Speed Rail Corporation

Consolidated Financial Highlights
Years Ended March 31

Thousands of
U.S. dollars

Millions of yen
2005

2004

2003

2005

¥1,160,252¥1,239,598$11,559,371

For the year:
Net sales ............................................................................................ ¥1,241,592
Operating income ...............................................................................

24,744

22,25030,543

230,370

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

11,4796,333

13,022

106,871

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

71,42242,811

56,770664,947

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

29,692

41,50235,165

276,436

Net income—basic .............................................................................

¥7.9

¥4.4

¥9.3

$0.07

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

6.8

4.2

8.8

0.06

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

2.5

2.0

2.0

0.02

Total assets ........................................................................................ ¥1,194,473¥1,156,904¥1,149,161$11,120,687

201,465

190,175

174,585

1,875,663

Orders received during the fiscal year ................................................. ¥1,301,845¥1,226,728¥1,227,449$12,120,333

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

1,189,374

1,175,563

11,678,698

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

At year-end:
Total shareholders’ equity...................................................................
Orders received and outstanding:
1,254,409

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥107.41 to $1.00, the approximate
rate of exchange at March 31, 2005.

Net Income (Loss) (Billions of yen)

201.5

190.2

150

0

174.6

200
167.7

6.3

5

11.5

13.0

250

10
6.3

1,241.6

1,160.3

1,239.6

1,144.51,000

15

1,060.5

1,500

Total Shareholders’ Equity (Billions of yen)

164.1

Net Sales (Billions of yen)

100
–5
–10
0

(10.3)

500

50

–15
01

02

03

04

05

0
01

02

03

04

05

01

02

03

04

05

Annual Report 2005 •1

To Our Shareholders

Performance in Fiscal 2005
Fiscal 2005, ended March 31, 2005, brought somesigns of improvement in the operating environment,
including expansion in private capital investment inJapan. However, the operating environment continued to be challenging, as the yen appreciatedfurther against the U.S. dollar and prices of raw
materials––including steel, in particular––climbed
to new highs.
The Kawasaki Heavy Industries (KHI) Group
confronted these challenges aggressively and was
successful in winning orders of ¥1,301.8 billion, up¥75.1 billion, or 6.1%, from the previous fiscal year.
By segment, orders in the Plant & Infrastructure
Engineering segment decreased, but increases inorders in the Rolling Stock, Construction Machinery& Crushing Plant segment and the Gas Turbines &Machinery segment more than offset the decrease.
Turning to revenues, net sales expanded fully 7.0%,
or ¥81.3 billion, to ¥1,241.6 billion, mainly due toincreased sales in the Rolling Stock, Construction
Machinery & Crushing Plant segment. Continuing
our initiatives of the previous fiscal year, we put
Masamoto Tazaki
Chairman (left)

special emphasis on areas geared to increasing
profitability throughout our operations. These

Tadaharu Ohashi
President

Companywide activities, combined with a major

Boosting Corporate Value throughKey Transformations in Our Business2 • Kawasaki Heavy Industries, Ltd.

increase in the profitability of our Consumer

as earnings before interest and taxes (EBIT) divided

Products & Machinery segment, contributed direct-

by invested capital. To meet this target, we are

ly to marked gains in profitability. Operating incomechanging our business structure to adapt to be-increased 11.2%, or ¥2.5 billion, over the previous

come aligned with the operating environment andfiscal year, to ¥24.7 billion. Net income advanced acreate a stronger earnings base, with the objective

sharp 81.3%, or ¥5.1 billion, to ¥11.5 billion.

of attaining sustained growth.

Our fundamental stance is to pay our shareholders

As part of these activities, we are allocating ourstable cash dividends appropriate to our earnings

corporate resources selectively and focusing on

performance, while paying careful attention to

our areas of greatest strength. We are focusing

increasing retained earnings with a view toward

our resources especially on the Aerospace andstrengthening our business foundation for future

Consumer Products & Machinery businesses,

growth. In view of the large gain in net income forwhich we have positioned as our core businesses,

the fiscal year, trends in the market environment,

as well as on our Rolling Stock and Gas Turbines &and other factors, KHI proposed and received

Machinery businesses, which we have positioned

approval from shareholders to increase its annual

as “developing businesses.” Our aim is to grow andcash dividend ¥0.5, to ¥2.5 per share.

develop these businesses to become mainstay
earnings generators. On the other hand, we have

Medium-Term Management
Strategies

designated our Shipbuilding business, which confronts intense international competition, and ourPlant & Infrastructure Engineering business, which

The KHI Group defines its corporate mission as

also must deal with a challenging environment

drawing fully on its broad base of advanced tech-

because of the lackluster market for public works

nologies to create new value by offering products

investment as well as other adverse circumstances,that almost literally work modern-day wonders on

as areas for structural reform and are working toland, at sea, and in the air, while remaining true toimprove their earnings performance.

its corporate philosophy of contributing to thedevelopment of societies around the world.

For all our activities, we have set a management

Through these activities, we work to enhance cus-policy of “Quality Followed by Quantity.” We are

tomer satisfaction by offering our customers superi-

working to differentiate our products and services

or products and services that are differentiated byon the bases of technology and brand power andtheir technology and brand power. Our ultimate

to reform our business model to expand thegoal is to meet the expectations, first and foremost,scope of our services to cover the full life cycleof our shareholders as well as our customers,of our products.

employees, and the communities we serve byimplementing management policies that increase

To meet our earnings objectives, we are on a

KHI’s corporate value.

priority basis investing resources in our core anddeveloping businesses. For example, we are making

Adopting these core strategies, we have set a spe-

major capital investments for future growth in ourcific target of attaining a 9% or higher before-tax

Aerospace business, which is engaged in the joint

return on invested capital (ROIC). We define ROIC

development and production program of the Boeing

Annual Report 2005 •3

To Our Shareholders

787, and in our Gas Turbines & Machinery business,transparency toward and mutually productive rela-which is participating in the joint development andtionships with all our stakeholders, including share-production program of the Rolls Royce TRENT

holders, employees, and communities.

1000 engines, which will power the 787.
KHI has adopted the corporate auditor governanceIn addition, in our Rolling Stock business, we aremodel, with a Board of Auditors (including outside

making progress in strengthening our operations

auditors) responsible for auditing and supervisingoutside Japan. Following the Taiwan high-speed

the activities of the Board of Directors, whose prin-train project, we have won orders for new railway

cipal responsibilities are to formulate corporatecars to accelerate the speed of the existing rail net-strategy and supervise the conduct of operations.

work in China. We also established a joint design

To respond quickly to changes in the operatingand engineering company with CSR Sifang

environment, KHI has also introduced the executive

Locomotive and Rolling Stock Co., Ltd., a rolling

officer system, which provides for the selection bystock company based in China, and other companies.

the Board of Directors of executive officers, whohave the primary responsibility for conducting the

To enhance both the competitiveness and profit-

day-to-day operations of the Company.

ability of our industrial plant business, which is confronting severe competition, declining profitability,

Under KHI’s governance system, the basic

and major foreign exchange risks, in April 2005

objectives and policies of the Company that makethese operations were set up as a wholly owned

up its corporate plans are decided by the Board of

subsidiary, Kawasaki Plant Systems, Ltd. As a

Directors. The decisions of the Board of Directors

stand-alone company, Kawasaki Plant Systems will

are transmitted to all the members of the Executive

exercise selectivity and focus in the allocation of its

Officer Committee, and the board follows up on the

resources, concentrating on product areas where it

implementation of the corporate plans on a regular

has competitive superiority. What is more, withbasis. Additionally, for major management issues,

greater independence, this company will have more

the Executive Management Committee, which

flexibility and will be positioned to move faster andincludes the representative directors and othermore responsively in managing its activities.

members of management, acts as an advisoryboard to the president. This committee takes up

In our businesses that have a higher percentage

major issues in detail and, when appropriate, givesof sales to the public sector in Japan, such as steel

advice to the Board of Directors.

structures, we intend to deal with the issue of shrinking government budgets for public works by lowering

In performing their corporate governance role, thethe break-even level of these activities through cutting

members of the Board of Auditors attend meetings

fixed costs and implementing other measures.

of the Board of Directors, the Executive Officer
Committee, and the Executive Management

Corporate GovernanceCommittee. To properly fulfill their roles as corporate governors, the auditors also review important

Our basic stance regarding corporate governancedocuments, meet regularly with the representative

is to work toward increasing the corporate value of

directors, and conduct examinations of thethe KHI Group by managing our activities efficient-Company’s operations and the condition of its

ly and soundly while maintaining a high level ofassets as well as take other actions they deem

4 • Kawasaki Heavy Industries, Ltd.

appropriate. The outside auditors on the Board of

employee is key to protecting and building the

Auditors have no transactions or other relationships

value of the Kawasaki brand.”that represent conflicts of interest, and they performtheir duties as neutral and objective third parties. In

Looking to Fiscal 2006

addition, the Auditing Department is responsible forinternal auditing and is constantly checking, from a

We believe difficult operating conditions will contin-

Groupwide management perspective, on whether

ue through fiscal 2006, ending March 31, 2006.

operations are being conducted in accordance with

Issues requiring attention will include the weakness

relevant laws and internal rules. This department

in public works investment in Japan, increases inalso works to improve the efficacy of internal con-raw materials prices, and trends in the value of thetrol systems. The members of the Board of

yen against the U.S. dollar and other currencies.

Auditors and the Auditing Department meet on a

Despite the issues we face, we are committed tomonthly basis to exchange information and sharetaking further decisive steps toward increasing ourtheir views on the results of audits and items thatearnings power through the establishment of an

have been selected for attention.

even stronger base for our operations. During fiscal
2006, we intend to continue structural reform underCompliance

our medium-term business plan and work for thefurther enhancement of our corporate value. We

To promote compliance with all relevant legal provi-

would like to take this opportunity to express oursions and business practices, we have preparedthanks to you, our shareholders, for your continuinginternal rules and regulations regarding corporate

support and cooperation.

ethics and conduct programs to heighten theawareness among all staff members of the importance of compliance matters. Specific activities

July 2005

include regular meetings of the Corporate Ethics
Committee, which is chaired by the president
and attended by the members of the Board ofAuditors. In addition, we have formed a Compliance
Committee under the Corporate Ethics Committee
and instituted a system for compliance reportingand consultation that provides access to outside

Masamoto Tazaki

legal counselors. This system allows all employees

Chairmanto receive advice and provide information related tocompliance issues without being concerned about
possible internal pressures. All employees havereceived their own copy of the Company’s
Compliance Guidebook. During training sessions
and on other occasions, we seek to raise awareness throughout the Group about the crucial nature

Tadaharu Ohashi

of compliance by emphasizing to all our staff “thatPresident

ethical behavior on the part of each and every

Annual Report 2005 •5

An Interview with Tadaharu Ohashi, President

The goal for the time being is attaining the objectives of the medium-termbusiness plan and strengthening the Kawasaki brand.
First, what are your management objectives for the near future?
In summary, I want KHI to become a company that has truly dynamic earnings power and I want tocontinue to build the Kawasaki brand.
Almost 50% of KHI Group sales are accounted for by overseas customers; however, we need toincrease international awareness of all our products, not just motorcycles and railcars. Also, we need tointernationalize more than just our products. We have to improve the awareness of the Kawasaki brandamong all international audiences so that we will be more highly evaluated by overseas investors.
Under the leadership of Mr. Tazaki, the previous president of KHI, we have been implementing
Companywide structural reforms aimed at “moving back to a sustainable growth path.” Now that weare close to our goals, continuity in management policies and strategy is extremely important. For thetime being, putting our maximum energy into attaining the goals of our current medium-term plan in thefiscal year ending March 31, 2007, is of utmost importance. Consummating the series of structuralreforms now in progress is essential for winning the trust of shareholders and other stakeholders in thevalue of the Kawasaki brand. I am convinced that completing these reforms will lead to the rebirth of KHI
as a global enterprise that can prosper in the 21st century.

6 • Kawasaki Heavy Industries, Ltd.

Aiming to Becomea Global, 21st Century Enterprise
Mr. Tadaharu Ohashi became the 13th president of KHI on June 28, 2005.
He responded to a number of questions we posed regarding his management
objectives and the issues Kawasaki faces today.

Pursuing profit-focused management: Aiming for further evolution of the“Quality Followed by Quantity” concept
What are the issues you believe KHI should be addressing?
The biggest management issue we need to address is profitability.
Comprehensive manufacturers of heavy machinery and equipment like KHI are positioned as basic
industries in Japan and the rest of the world because they provide products to build social infrastructure. Their performance is strongly affected by the economic environment and conditions. When theeconomy deteriorates, they are the first to feel the effects, and they tend to be the last to show improvement when conditions recover. In order for us to continue to be a basic industry, we have tounderstand these special features of our businesses, secure profits, and reinvest for future profits.
Therefore, more than in the past, we have to focus on increasing the profitability of our businesses
and raising product margins to improve our profitability.

What measures will you have to take to increase profitability?
In addition to the goal set under the medium-term business plan of 9% before-tax ROIC, it is necessary
to set goals for the ratio of recurring profit* to sales for each of our in-house companies and subsidiaries.
We will also have to encourage the strong commitment of all staff to do their best, make maximum useof our know-how, and adopt every measure we can to reach these goals. Also, with a view to ensuring
sufficient capital investment for the future and paying a return to shareholders, we must secure a ratioof recurring profit to net sales of at least 5%, which is the average for Japanese manufacturing industries,
or more for the KHI Group as a whole.
Annual Report 2005 •7

Specific measures to reach this goal will include a review of profitability by business and by productwhile decisively and cool-headedly achieving selectivity and focus in the allocation of our resources. We
will also have to review the roles and functions of our subsidiaries and clarify their business objectives.
Also, it will be necessary for each of our in-house companies, business centers, and business units tohave something that sets them apart as “the only one” in some sense. That may include having the top
market share, a product lineup that is far ahead of the competition, unique products, or a unique technology. I will also be concerned that everyone maintain the firm conviction that “technology generates
earnings.” This is true in two senses. First, strengthening product development technology will enable
us to increase product value. Second, improving our production technology will help us lower costs.
*Recurring profit is used in accounting standards generally accepted in Japan. It is the sum of operating income, net interest income(expenses), dividend income, and other non-operating but recurring items. In fiscal 2005, the KHI Group’s recurring profit was ¥21.0
billion and its ratio to net sales was 1.7%.

Assuring the quality of management: The importance of compliance andcorporate social responsibility
Could you please give us your views regarding the importance of compliance and corporate social
responsibility?
There are individual differences in the awareness of compliance issues and corporate social responsibility
among the various levels of KHI staff, from management to key middle managers and employees. In
addition, I believe there may be differences in awareness among staff depending on the environments ofthe departments where they have worked. These differences in awareness may prove to be unexpectedstumbling blocks for some staff members because they may inadvertently become involved in unethicalbehavior. Therefore, in addition to strengthening and managing our systems and rules regarding compliance, I would like to continue educational programs and other activities for every single member of management and staff focusing on this very basic idea—that is, we must remember that breaking the law
and engaging in corporate activities that ignore social rules are unacceptable. At any rate, compliancewith laws and regulations must take precedence over all other considerations at all times.

8 • Kawasaki Heavy Industries, Ltd.

Recently, there has been a trend in society to evaluate corporations according to a wider range of criteria. Society looks to companies to provide superior products and services while maintaining soundness
and transparency in management. In addition, society evaluates companies on their initiatives related tothe environment, the provision of employment opportunities, their sense of ethics, and other criteria.
Meeting these social expectations is our duty, and, as a basic industry, another extremely importantmission expected of the KHI Group is to foster the development of human resources and successors
to current management and staff who can contribute to society in the years to come.
I think attaining quality assurance in management is necessary for the management team of KHI.
Complying with laws and regulations, maintaining corporate social responsibility, and pursuing fair andproper disclosure to ensure transparency of management are all important components of “quality
assurance.” Based on this idea, in conducting our business activities, we must give careful attention toevaluating risks and the chances of success, then set goals, make a strong commitment, and finallymake appropriate reports on whether we attain our goals.

In conclusion, do you have a special message for KHI shareholders?
KHI came into being in the late 19th century and continued to expand throughout the 20th century.
Now, as a company existing in the 21st century, it must meet the challenge of sustainable development. In recent years, people have said that most businesses have a life expectancy of 30 to 50 years.
There are only a small number of companies with a history of more than 100 years. If we look backover KHI’s long history and examine individual businesses, we find that, over time, KHI has entered new
businesses, while other businesses and products have disappeared. Thus, we can say that in responseto the demands of the times as well as social and economic conditions, KHI has selected certain businesses within its operations, while the KHI Group as a whole has continued to exist. From a historicalperspective, KHI has been a collection of internal venture businesses, and I believe this is evidence thatunless we continue to change by reviewing our business portfolio, sustainable growth will not be possible.
Based on this historical perspective on KHI, I am convinced that we must continue to pursue “selectivity
and focus in the use of our resources,” “structural reforms,” and “quality assurance in management.”
This will be essential for KHI to evolve into a truly global company in the 21st century, as economic
borders disappear and companies lose their national identities.

Annual Report 2005 •9

Review of Operations

S H I P B U I L D I N GBusiness Results

Percentage of Net Sales
7.0%

Thanks to a booming world shipping market, demand for newbuildings during
fiscal 2005 was robust, and newbuilding ship prices somewhat recovered.
Within this business environment, we secured orders for 15 vessels—five LNG
carriers, two LPG carriers, five bulk carriers, and three very large crude carriers(VLCCs). As a result, total orders for this segment rose ¥32.1 billion, or 25.9%,
to ¥155.8 billion. Sales for the fiscal year, however, dropped ¥7.9 billion, or8.3%, to ¥87.1 billion, because of decreased sales of newbuildings. An operating income of ¥1.0 billion was reported for this segment, compared with an

Sales (Millions of yen)operating loss of ¥2.4 billion in fiscal 2004. We delivered 11 vessels during the
94,93992,478fiscal year—three LNG carriers, three LPG carriers, and five bulk carriers.
87,08160,00078,73490,000105,458

120,000

30,000

Profile & Outlook
The operations of this segment are run by Kawasaki Shipbuilding Corporation,
which has an extensive record of accomplishments and expertise in the ship-

0
01

02

03

04

05

building industry and has won a strong reputation for its high technology andreliability. We have a wide lineup of high-performance vessels that meet theOrders Received (Millions of yen)need for the marine transport of raw materials, energy, and finished products to

200,000

50,000123,756

110,926

106,106

117,518

100,000

155,832

support the expansion of the world economy. Our Kobe Shipyard constructs
150,000

submarines and bulk carriers, while the Sakaide Shipyard constructs LNG carriers, VLCCs, and other large vessels. We have also established Nantong Cosco
KHI Ship Engineering Co., Ltd. (NACKS), a joint venture shipyard in Nantong
City, Jiangsu Province, in China.

0
01

02

03

04

05

The role of oceangoing transportation is expected to continue to expand in theyears ahead, supported by growth in the volume of China’s trade and increas-

Order Backlog (Millions of yen)ing demand for energy transportation, especially LNG, on a global scale.

300,000

193,705

194,275

173,304

100,000

176,987

200,000

263,707

Kawasaki Shipbuilding is continuing to develop its technology for the design,

0
01

02

03

04

10 • Kawasaki Heavy Industries, Ltd.

05

manufacture, and quality assurance of its activities, with the aim of sustaining
its development into the future.

Shipbuilding

LPG carrier ALRARLNG carrier ENERGY ADVANCE

Large-scale bulk carrier CAPE RIVIERA

Annual Report 2005 •11

Review of Operations

R O L L I N G S T O C K , C O N S T R U C T I O N
M A C H I N E R Y & C R U S H I N G P L A N T
Business Results

Percentage of Net Sales

The operating environment for this segment in Japan was lackluster, but mar-13.8%

ket conditions overseas were strong. In the segment’s principal business ofmanufacturing rolling stock, demand was strong in North America and Asia
outside of Japan, especially in China. In our construction machinery businessalso, demand was firm in the U.S. market. Therefore, while orders in thedomestic market fell from the previous fiscal year, orders for rolling stock toaccelerate the speed of existing rail transport lines in China and other overseas
orders expanded substantially. As a consequence, total orders rose ¥25.0 bil-

Sales (Millions of yen)lion, or 16.3%, to ¥178.4 billion. Sales also expanded, up ¥51.1 billion, or 42.4%,

121,780

100,000

171,731

129,591

150,000

to ¥171.7 billion, boosted by a sharp rise in exports, accounted for principallyby the delivery of train cars for the Taiwan High Speed Rail Corporation.
Operating income climbed ¥3.4 billion, or 79.4%, to ¥7.8 billion.

120,597

164,774

200,000

Profile & Outlook

50,000

0
01

02

03

04

05

transport vehicles ranging from cars for Shinkansen bullet trains to express

Orders Received (Millions of yen)trains, commuter trains, subways, monorail systems, and new transit systems.

100,000

178,369

153,399

176,693

192,884

200,000

150,000

The rolling stock business in this segment meets a wide range of needs for railstock facility in the United States covering the full process from production of
the car body through final assembly, with an annual capacity of 200 cars,
enable us to respond to demand throughout the world.

82,58450,000The capabilities of our manufacturing centers, which include the only rolling

In our construction machinery business, we have worked to develop and

0
01

02

03

04

05

commercialize a series of products to meet various needs for infrastructuredevelopment. These include wheel loaders, hydraulic compactors, mining

Order Backlog (Millions of yen)equipment, and snowplows. We are expanding sales of our products from Japan
300,837

294,017

273,563

272,642240,000

296,242

320,000

to the rest of the world, including elsewhere in Asia, the Americas, and Europe.
In our rolling stock business, as in our construction machinery business, we

160,000

anticipate that demand will remain strong in overseas markets. As we havereceived a continuing stream of major orders for rolling stock from overseas

80,000

customers, our international presence has grown. We intend to aggressively
0
01

02

03

04

05

expand our overseas operations in this segment, particularly in the rollingstock business.
Note: Effective April 1, 2005, the crushing plant business included in this segment was fully consolidated
to EarthTechnica Co., Ltd., a 50/50 joint venture owned by Kobe Steel, Ltd., and KHI.

12 • Kawasaki Heavy Industries, Ltd.

Rolling Stock, Construction Machinery & Crushing Plant

Ship-towing locomotive supplied to Autoridad Del Canal De Panama

700T train for the Taiwan High Speed Rail Corporation

Series 8000 subway cars for the Sapporo City
Transportation Bureau

Annual Report 2005 •13

Review of Operations

A E R O S P A C EBusiness Results

Percentage of Net Sales

Orders in the Aerospace segment overall in fiscal 2005 declined ¥1.5 billion, or

15.2%

0.7%, to ¥214.7 billion. Although orders from the Japan Defense Agency (JDA)
decreased, commercial aircraft orders received from the Boeing Company
posted an increase. Sales expanded ¥14.5 billion, or 8.3%, to ¥188.3 billion,
as work proceeded on the JDA contracts for the development of the P-X, thenext maritime patrol aircraft, and the C-X, the next transport aircraft. Operating
income rose ¥1.8 billion, or 43.4%, to ¥6.1 billion, mainly due to the increasein sales.
Sales (Millions of yen)
188,255

173,783

154,848

100,000

136,343

150,000

161,072

200,000

Profile & Outlook
A leader in Japan’s aircraft industry, our Aerospace segment is engaged in manufacturing and providing maintenance services for a wide range of aircraft.
These activities include a key role as the prime contractor in the JDA project for

50,000the development of the P-X and the C-X as well as the production of the KE101,
0an airborne mine countermeasures and transport helicopter and Antarctic trans01

02

03

04

05

Japan. Going forward, government defense budgets are expected to show aOrders Received (Millions of yen)declining trend. Therefore, our strategy will be to win orders in this field by
214,702

163,023

151,641

100,000

161,939200,000

216,201

250,000

150,000

port support helicopter, and the OH-1, an observation helicopter developed inproposing the modernization of our major products as well as development ofderivative and successor products for various aircraft. We also plan to develop
new businesses by strengthening our technologies for system integration anddeveloping other distinctive technologies.

50,000In the commercial aircraft field, the Aerospace segment has also participated in

0
01

02

03

04

05

777 with Boeing and the Embraer 170 with Empresa Brasileira de Aeronáutica

Order Backlog (Millions of yen)

S.A. (Embraer) of Brazil. The segment’s broad range of activities has also includ-

320,000

208,410

195,447

203,688

287,441

260,321ed the development of the BK117 helicopter, which was the first helicopter to be

240,000

160,000

joint development and production programs for such passenger airplanes as thedesigned and manufactured in Japan. In addition, we have signed an agreement
to participate in the joint development and production program of the 787
Dreamliner, Boeing’s next-generation aircraft. We are currently making preparations for its production.

80,0000

Our strategy is to establish a long-standing management foundation for our
01

02

03

04

05

Aerospace business. We are therefore committed to implementing these major
projects flawlessly.

14 • Kawasaki Heavy Industries, Ltd.

Aerospace

BK117 C-2 helicopter provided to the Kawasaki Fire Department Rescue Squad

The P-X next maritime patrol aircraft

The C-X next transport aircraft

Annual Report 2005 •15

Review of Operations

G A S

T U R B I N E S&

M A C H I N E R Y

Business Results

Percentage of Net Sales

Orders won by the Gas Turbines & Machinery segment rose ¥32.7 billion, or

11.4%

25.2%, to ¥162.7 billion, as demand for component parts of engines for commercial aircraft and for steam turbines for marine vessels remained strong.
Sales expanded ¥4.9 billion, or 3.6%, to ¥141.4 billion, supported by deliveriesof diesel engines for ships and aerodynamic machinery. Operating income,however, fell ¥1.9 billion, or 40.9%, to ¥2.7 billion, due to the start-up costs fora new type of gas turbine.
Sales (Millions of yen)

Profile & Outlook
141,366

150,766

145,651

100,000

124,136

150,000

136,468

200,000

ment, including gas turbines for power generation and for stand-by power supply, as well as co-generation systems. Applying our proprietary technology, we

50,000have developed and introduced the L20A, a 20MW-class gas turbine power
generator. We are drawing on our in-house development capabilities to present

0
01

02

03

04

05

proposals to our customers for comprehensive services, including after-service
and maintenance. Our plans call for expanding sales of this business segment inOrders Received (Millions of yen)international markets.

129,987

132,989

133,467

140,248

150,000

162,700

200,000

100,000

In the industrial gas turbine business, we manufacture a wide range of equip-

In the aircraft engine business, we have participated actively in various international joint development and manufacturing programs, including the V2500
and TRENT as well as in Japan’s national projects for the development of jet
engines. In 2004, we made the decision to participate in the joint development

50,000and production program of the TRENT 1000 with Rolls Royce, which will power

0
01

02

03

04

05

the Boeing 787 now under development. We plan to undertake aggressive capital
investments in this area and devote our fullest efforts to the commercialization of

100,000

163,440

140,327

this new engine.

160,874

150,000

191,947

200,000

199,833

Order Backlog (Millions of yen)

The machinery business is another core area in this segment, and its activities
cover a broad range, including manufacturing steam turbine engines for LNG carriers and diesel engines as well as other marine propulsion systems. Land-based
machinery includes steam turbines for power generation, natural gas compres-50,000sion modules, wind tunnel machinery, and tunnel ventilation equipment. Our poli0
01

02

03

04

05

cy will be to continue to substantially strengthen these activities, focusing on thedevelopment and manufacture of ship engines, where demand is especiallyrobust, reflecting strong orders for new ships from shipping companies.

16 • Kawasaki Heavy Industries, Ltd.

Gas Turbines & Machinery

L20A gas turbine power generator

Marine steam turbine (UA-type)

Trisonic wind tunnel(Photograph courtesy of the Technical Research and Development
Institute, Japan Defense Agency)

Annual Report 2005 •17

Review of Operations

P L A N T & I N F R A S T R U C T U R E
E N G I N E E R I N GBusiness Results

Percentage of Net Sales

Orders in the Plant & Infrastructure Engineering segment decreased ¥29.7 billion, or 19.0%, to ¥126.4 billion, because of the combination of lackluster conditions in the domestic market due to restraints on public works spending andthe drop in overseas demand following the receipt of major orders in the previous fiscal year. Sales were down ¥0.4 billion, or 0.2%, to ¥191.0 billion, reflecting a decline in sales of steel structures as a result of the restraints on public
works spending in Japan, which was partially offset by the delivery of various
types of plants to customers overseas. Operating income moved from ¥1.2
billion in the previous fiscal year to an operating loss of ¥14.5 billion for the
fiscal year under review because of increases in unprofitable contracts in theindustrial plant business.

15.4%

Sales (Millions of yen)

191,012

191,412

219,092

150,000

181,174

200,000

220,605

250,000

The segment’s industrial plant business includes full turnkey services––fromplanning to design, construction, and test operations––for cement, chemical,
electric power, and other types of industrial plants. Activities also include thedevelopment and manufacture of major component equipment for these plants.

100,000
50,000
0
01

02

03

04

05

The environmental plant business of this segment is active in supplying a broad
range of plants and facilities to treat industrial waste and domestic refuse,including municipal refuse incineration plants, gasification and melting systems,
and sewage and sludge incineration plants.

Orders Received (Millions of yen)

126,403

156,145

100,000

208,268

160,143

254,330

300,000

200,000

0
01

02

03

04

05

Order Backlog (Millions of yen)

100,000

210,160

273,837

200,000

327,911

347,496

300,000

403,612500,000
400,000

Profile & Outlook

0
01

02

03

04

18 • Kawasaki Heavy Industries, Ltd.

05

Building on its wealth of experience and sophisticated technology, the steel
structures business of this segment manufactures a broad spectrum of items,
such as bridges and water gates; storage tanks for LNG, LPG, and others; shieldmachines needed for boring tunnels; rocket assembly and launch complexes; aswell as airport-related facilities.
Conditions in the markets served by this segment remain severe. In the industrial plant area, competition is intense throughout the world, while in the environmental plant and steel structures businesses, investment by the public
sector in Japan continues to be lackluster. Accordingly, we are concentrating
our corporate resources in growth sectors, which include environmental preservation and recycling facilities in overseas markets, while also working to
improve the efficiency of our business operations. As part of these activities,
on April 1, 2005, we set up our industrial plant business as a wholly owned
subsidiary, Kawasaki Plant Systems, to provide for greater flexibility andefficiency in management.

Plant & Infrastructure Engineering

Coal-fired power plant for internal power requirements at the Memuro
plant of Nippon Beet Sugar Manufacturing Co., Ltd.

The Mihara Bridge, located over the Ishikari River in
Ebetsu City, Hokkaido, Japan

Municipal refuse incineration plant for Kobe City

Annual Report 2005 •19

Review of OperationsC O N S U M E R

P R O D U C T S&

M A C H I N E R Y

Business Results

Percentage of Net Sales

Sales grew ¥20.1 billion, or 6.3%, to ¥338.5 billion, because of firm sales of

27.3%

motorcycles in North America, Europe, and Asia as well as higher sales ofindustrial robots. Worldwide sales of motorcycles, ATVs (all-terrain vehicles),utility vehicles, and Jet Ski® watercraft amounted to 541,000 units, 73,000
units, or 15.6%, higher than for the previous fiscal year. By geographical area,
sales in Japan totaled 36,000 units, 12,000 units, or 25.0%, fewer than in theprevious year. Sales in North America, however, rose 26,000 units, or 13.6%,
to 217,000 units, while sales in Europe amounted to 79,000 units, virtually

Sales (Millions of yen)unchanged from the previous year. Sales in all other areas were up 59,000

400,000
338,450

318,325

281,207275,903

200,000

318,025

units, or 39.3%, to 209,000 units. Operating income posted a marked increase
300,000of ¥9.5 billion, or 130.4%, to ¥16.7 billion, due to the fact that the adverse
impact of a stronger yen was more than offset by an increase in sales and adecrease in sales promotion costs.

100,000

Profile & Outlook

0
01

02

03

04

05

This segment is mainly engaged in the manufacture and sale of products for
consumers. The product lineup ranges from leisure vehicles––such as motorcycles, ATVs, and Jet Ski® watercraft––to utility vehicles and general-purpose
gasoline engines. Kawasaki-brand motorcycles, such as the top-of-the-line
NINJA ZX-10R and NINJA ZX-6R supersports models, are known throughout
the world for their individuality and top-level performance and have won the
overwhelming support of motorcycle riders. Our strategic plans going forward
call for continuing to build Kawasaki’s brand image even further, based on
outstanding products such as these, and steadily expanding sales throughout
the world.
In our industrial robot business, we trace our record of accomplishments backto 1969, when KHI became the first company in Japan to build and market
industrial robots. Since that time, we have created robots to perform all kindsof tasks required by industrial customers, from assembly and handling towelding, painting, and semiconductor manufacturing. We are committed toresponding accurately to more and more diverse customer needs and intend tocontinue to hold a leading position in the robot industry based on our superior
technology and the reliability of our products.

20 • Kawasaki Heavy Industries, Ltd.

Consumer Products & Machinery

Brute Force 750 4x4i

ZX165U industrial robot

NINJA ZX-6R

Annual Report 2005 •21

Review of Operations

O T H E R

Business Results

Percentage of Net Sales

Sales in the Other segment slipped ¥1.0 billion, or 0.8%, to ¥123.7 billion.

9.9%

Operating income amounted to ¥5.0 billion, up ¥1.8 billion, or 54.4%, from theprevious fiscal year, boosted in part by robust sales of hydraulic machinery tocustomers in China.

Profile & Outlook
Principal companies in this segment include Kawasaki Precision Machinery

Sales (Millions of yen)Ltd. (KPM), which mainly manufactures hydraulic machinery for installation
123,697

124,728

126,635in construction machinery; Kawaju Shoji Co., Ltd., a trading company; and121,741

100,000

134,598

150,000

Kawasaki Life Corporation, which engages in administration of Company welfare facilities, real estate sales, insurance agency services, and other businessactivities.

50,000KPM occupies a central position in this segment and manufactures a wide line-

0
01

02

03

04

05

up of products, including hydraulic pumps, motors, valves, hydraulic equipment for industrial machinery, and hydraulic machinery for ships, including

Orders Received (Millions of yen)deck machinery, electric steering gears, and fishing machinery. KPM’s principal

150,000
125,389

128,915

117,525

119,623

130,864

100,000

business is supplying hydraulic products for construction machinery. We anticipate that demand for this type of equipment, especially from China, will continue to expand in the long term. KPM has a top-notch R&D team and testing
equipment and is constantly engaged in developing new technologies and

50,000products, increasing the quality of its product lineup, and working to ensure thereliability of product supply.

0
01

02

03

04

05

Order Backlog (Millions of yen)

28,824

27,16720,00031,501

30,00038,63240,00040,53250,00010,000
0
01

02

03

04

22 • Kawasaki Heavy Industries, Ltd.

05

OtherStabilizer equipment for ultra-miniature cameras

Hydraulic equipment for construction machinery use

Annual Report 2005 •23

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

Millions of yen
2005

2004

2003

2002

2001

2000

Operating results:
Net sales ......................................................... ¥1,241,592 ¥1,160,252 ¥1,239,598 ¥1,144,534 ¥1,060,479 ¥1,149,698
Cost of sales ...................................................

1,088,219

998,416

1,069,341

977,875

924,522

1,008,860

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

153,373

161,836

170,257

166,659

135,957

140,838

Selling, general andadministrative expenses ..............................

128,629

139,586

139,714135,348

131,497

139,587

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

24,744

22,25030,54331,311

4,460

1,251

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

11,4796,333

13,022

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

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

29,692

41,50235,16533,132

32,687

39,685

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

31,55532,59031,59531,99833,30335,081R&D expenses .................................................

13,183

14,741

15,494

16,54917,54819,905

Financial position at year-end:
Working capital ................................................ ¥ 138,523 ¥ 121,941 ¥ 137,771 ¥ 150,114 ¥ 148,577 ¥ 188,403
Net property, plant and equipment ..................

243,166

248,922234,352

241,517

241,893245,278

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

1,194,473

1,156,904

1,149,161

1,255,075

1,247,472

1,206,806

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

207,279

210,819

226,936

248,170

270,605

264,048

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

201,465

190,175

174,585

167,731

164,081

174,955

¥

¥

¥

¥

Per share amounts ( yen):
4.5¥ (7.4)¥ (13.4)

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

Net income (loss)—basic .................................

7.9
6.8

4.4
4.2

9.3
8.8

4.4

—

—

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

2.5

2.0

2.0

—

—

—

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

139.7

131.8

125.6

120.6

118.0

125.8

Number of shares issued (millions) ...................

1,443

1,443

1,391

1,391

1,391

1,391

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

28,682

29,30628,64228,93629,162

29,772Other data:

Orders received ............................................... ¥1,301,845 ¥1,226,728 ¥1,227,449 ¥1,034,771 ¥1,273,686 ¥1,071,104
Order backlog .................................................

24 • Kawasaki Heavy Industries, Ltd.

1,254,409

1,189,374

1,175,563

1,240,439

1,320,894

1,072,645

Management’s Discussion and Analysis

OVERVIEW
During fiscal 2005, ended March 31, 2005, conditions in
the Japanese economy continued to be generally lackluster,
despite certain signs of improvement, including increases in private capital investment and rising stock prices. Notwithstanding
these brighter developments, the government continued torestrain and reduce its public works investment and personal
consumption remained relatively weak because of slow growth
in incomes.
Amid this operating environment, Kawasaki Heavy
Industries, Ltd. (the “Company”), and its consolidated subsidiaries (referred to in this section as KHI or the “Group”)
undertook an active program of marketing activities. As aresult, although orders in the Plant & Infrastructure Engineering
segment declined, orders in the Rolling Stock, Construction
Machinery & Crushing Plant segment and the Gas Turbines &Machinery segment rose, resulting in an overall gain of 6.1%, or¥75.1 billion, in orders, to ¥1,301.8 billion. In addition, consolidated net sales expanded 7.0%, or ¥81.3 billion, to ¥1,241.6
billion, mainly because of growth in sales of the Rolling Stock,
Construction Machinery & Crushing Plant segment. Profitwise,
as a result of continued aggressive activities to improve profitability on a Companywide basis, operating income climbed
11.2%, or ¥2.5 billion, to ¥24.7 billion. As a result of these andother factors, net income expanded 81.3%, or ¥5.1 billion, to¥11.5 billion.
Turning to our financial position, free cash flow was positive for the fourth consecutive year. KHI used this cash flow tomake further repayments of interest-bearing debt and thereby
improve its debt/equity ratio.

Net Sales (Billions of yen)

RESULTS OF OPERATIONSNet Sales
As previously mentioned, consolidated net sales grew 7.0%,
or ¥81.3 billion, to ¥1,241.6 billion.
The principal factors accounting for this increase in net
sales were (a) an expansion in sales in the Rolling Stock,
Construction Machinery & Crushing Plant segment of ¥51.1
billion, as a result of the increase in deliveries of railcars to the
Taiwan High Speed Rail Corporation, (b) a rise in sales of ¥14.5
billion in the Aerospace segment because of the increase inrevenues for the development of the next maritime patrol aircraft and the next transport aircraft of the Japan Defense
Agency (JDA), and (c) an increase in sales of motorcycles andindustrial robots in the Consumer Products & Machinery segment amounting to ¥20.1 billion.
Overseas sales rose 17.4%, or ¥91.1 billion, to ¥613.9 billion. Although sales in North America and Europe declined, thiswas more than offset by an increase of 86.6%, or ¥79.6 billion,
in sales in Asia outside Japan and an increase of 28.7%, or¥23.5 billion, in other areas. The ratio of overseas sales to overall net sales rose 4.3 percentage points, from 45.1% in theprevious fiscal year to 49.4% for the fiscal year under review.
The following sections provide further details on performance by industry segment. Operating income or loss includes
intersegment transactions. Please note that sales of the industrial hydraulic equipment business, which were included in theGas Turbines & Machinery segment through the end of fiscal
2003, were reclassified in the Other segment beginning in fiscal
2004. Data for previous years shown in this annual report has
been restated to reflect this change.

Sales by Segment (%)

Net Income (Loss) (Billions of yen)
15

15.4

11.4

01

02

03

04

05

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

6.3

0
–5
–10

0

6.3

5

27.3
15.2

500

11.5

10

13.8

(10.3)

1,241.6

1,160.3

1,239.6

1,144.5

1,000

1,060.5

9.9 7.0

13.0

1,500

–15
01

02

03

04

Annual Report 2005 •05

25

ShipbuildingThis segment won orders for 15 vessels, namely five LNG carriers, two LPG carriers, five bulk carriers, and three VLCCs. In
value terms, this represented a substantial increase over theorders for 20 ships, namely three LNG carriers, 13 bulk carriers, three VLCCs, and one submarine, received in the previous
fiscal year. As a result, orders for the fiscal year under review
were up 25.9%, or ¥32.1 billion, from the previous fiscal year,to ¥155.8 billion. Sales, however, declined 8.3%, or ¥7.9 billion,to ¥87.1 billion, because of a decline in sales of newbuildings.
In addition, operating income for the fiscal year under review
was ¥1.0 billion, improved from an operating loss of ¥2.4 billion
for the previous fiscal year.

next maritime patrol aircraft and next transport aircraft. Alongwith the increase in sales, operating income expanded 43.4%,
or ¥1.8 billion, to ¥6.1 billion.

Rolling Stock, Construction Machinery & Crushing Plant
Orders received in this segment rose 16.3%, or ¥25.0 billion, to¥178.4 billion, despite a decrease in orders for rolling stock inJapan, as the result of substantial increases in orders for rollingstock to accelerate the speed of existing railways in China andother orders from overseas. Sales were up 42.4%, or ¥51.1 billion, to ¥171.7 billion, principally because of a major increase indeliveries of high-speed railcars to the Taiwan High Speed Rail
Corporation. Operating income expanded a sharp 79.4%, or¥3.4 billion, to ¥7.8 billion.

Plant & Infrastructure Engineering
Orders were down a marked 19.0%, or ¥29.7 billion, to ¥126.4
billion, because of weakness in domestic demand accompanying continued restraints on public works investment and theabsence of major orders for industrial plants and electric power
plants from overseas customers, which were included in theprevious fiscal year’s orders. Sales, however, were down amuch smaller 0.2%, or ¥0.4 billion, to ¥191.0 billion. Althoughsales of steel structures declined in Japan because of restraints
on public works investment, sales for cement, chemical, andother industrial plants for overseas customers increased. The
segment reported an operating loss of ¥14.5 billion, a substantial deterioration from operating income of ¥1.2 billion for theprevious fiscal year, because of major cost overruns in theindustrial plant business caused by delays in deliveries, theemergence of additional requirements, and other costs.

Gas Turbines & Machinery
Brisk orders for steam turbine engines for ships and components for private-sector aircraft engines continued during the
fiscal year. As a result, total orders were up 25.2%, or ¥32.7
billion, to ¥162.7 billion. Sales rose 3.6%, or ¥4.9 billion, to¥141.4 billion, reflecting increases in deliveries of diesel engines
for ships and aerodynamic machinery. Operating income
declined 40.9%, or ¥1.9 billion, to ¥2.7 billion, however, mainly
due to start-up costs for a new type of gas turbine.

Aerospace
Total orders received in this segment declined 0.7%, or ¥1.5
billion, to ¥214.7 billion. Orders from the JDA declined, following
the receipt of an order for the development of the next maritime
patrol aircraft and the next transport aircraft in the previous fiscal
year. However, most of this decline was offset by increases inorders from the commercial aircraft sector, principally component parts for passenger aircraft of the Boeing Company. Salesof this segment rose 8.3%, or ¥14.5 billion, to ¥188.3 billion,
owing to an increase in sales for the development of the JDA’s

Working Capital (Billions of yen)

1,194.5

1,000

1,156.9

50

138.5

–5

121.9

100

137.8

0

150.1

4.4

4.5

150

148.6

7.9

9.3

5

1,149.2

1,500

200

1,255.1

10

Total Assets (Billions of yen)

1,247.5

Net Income (Loss) per Share (Yen)Consumer Products & Machinery
Sales in this segment rose 6.3%, or ¥20.1 billion, to ¥338.5 billion, due to robust motorcycle sales in North America, Europe,and Asia combined with increased sales of industrial robots.

(7.4)

500

–10

0
01

02

03

04

26 • Kawasaki Heavy Industries, Ltd.

05

0
01

02

03

04

05

01

02

03

04

05

Despite adverse movement in the foreign currency exchange
rate against the US dollar, operating income reported a hefty
130.4% rise, or ¥9.5 billion, to ¥16.7 billion, boosted largely byhigher sales and lower sales promotion costs.

EuropeSales in this segment expanded 10.0%, or ¥7.1 billion, to¥78.0 billion, buoyed by strong performance of motorcycle
sales. Operating income declined 34.7%, or ¥0.2 billion, to¥0.4 billion.

Other
Sales of this segment declined 0.8%, or ¥1.0 billion, to ¥123.7
billion. Operating income jumped 54.4%, or ¥1.8 billion, to ¥5.0
billion, buoyed by strong sales of the hydraulic machinery business in China and the positive effects of lower fixed costs.

Asia
Sales in Asia rose a sharp 27.3%, or ¥5.4 billion, to ¥25.1
billion, because of strong performance of motorcycle sales,
principally in the Indonesian market. Operating income moved
up a strong 194.3%, or ¥1.2 billion, to ¥1.9 billion.

The following sections summarize performance by geographic
segment.

Other Areas
Sales expanded 4.6%, or ¥0.2 billion, to ¥5.3 billion, but theoperating loss of ¥0.2 billion reported in the previous fiscal year
deteriorated ¥0.2 billion, to an operating loss of ¥0.4 billion. The
principal countries in this segment are Australia and Brazil.

Japan
As a consequence of higher sales by the Company, which
accounts for the largest part of sales in Japan, sales of thisgeographic segment rose 6.7%, or ¥59.0 billion, to ¥936.2 billion, primarily because of substantial increases in sales of the
Rolling Stock, Construction Machinery & Crushing Plant segment to overseas customers. Operating income increased
0.7%, or ¥0.1 billion, to ¥21.0 billion. Although operating
income improved in the Shipbuilding and the Rolling Stock,
Construction Machinery & Crushing Plant segments, this was
restrained by major cost overruns reported in the Plant &Infrastructure Engineering segment owing to delays in deliveries,
the emergence of additional requirements, and other costs.

Cost, Expenses, and Earnings
Cost of sales was 9.0% higher than in the previous fiscal year,
amounting to ¥1,088.2 billion, 2 percentage points higher than
the gain in net sales of 7.0%. As a result, gross profit decreased
5.2%, to ¥153.4 billion, and the gross profit margin declined
from 13.9% in the previous fiscal year to 12.4% in the fiscal
year under review.
Selling, general and administrative (SG&A) expenses, however, declined 7.8% from the previous fiscal year and amounted to ¥128.6 billion, thus covering the decline in the gross profit
margin. Operating income increased 11.2%, or ¥2.5 billion, andamounted to ¥24.7 billion, the first increase in three fiscal years.
The principal factors accounting for the improvement in operating income were as follows. The appreciation of the yen against
the U.S. dollar and the increase in raw materials prices placed
downward pressure on operating income, as did the substantial losses incurred due to major cost overruns in the Plant &North America
Sales in North America rose 5.1%, or ¥9.6 billion, to ¥196.8
billion, owing to robust sales of motorcycles in the Consumer
Products & Machinery segment. Operating income rose ¥1.6
billion, to ¥1.2 billion, compared with an operating loss of ¥0.4
billion in the previous fiscal year.

Total Shareholders’ Equity per Share (Yen)

3.5

5.9

5
3.8

139.7

131.8

125.6

120.6

100

118.0

201.5

190.2

174.6

167.7

164.1

200
150

10

150

250

Return on Equity (%)

7.6

Total Shareholders’ Equity (Billions of yen)

0

100
–5

0

–10

0
01

02

03

04

05

(6.1)

50
50

01

02

03

04

05

01

02

03

04

Annual Report 2005 •05

27

Infrastructure Engineering segment. However, these negative
factors were more than offset by higher profitability in the
Rolling Stock, Construction Machinery & Crushing Plant andthe Consumer Products & Machinery segments plus the positive impact of overall improvements in the earnings structure,including reductions in production costs and fixed costs. As aresult of this overall improvement, the ratio of operating income
to net sales increased one percentage point, to 2.0%.
Other income (expenses) for fiscal 2005 amounted to
expenses of ¥4.2 billion, an improvement of ¥6.8 billion fromthe expenses of ¥11.0 billion reported for the previous year.
Principal factors accounting for this improvement included anincrease in dividends received of ¥0.3 billion, lower interest
expenses accompanying the reduction in interest-bearing debtof ¥1.0 billion, an improvement in foreign exchange gains (losses) of ¥3.0 billion, an increase in gain on sales of marketablesecurities and investments of ¥2.9 billion, and an increase ingain on sales of property, plant and equipment of ¥1.7 billion,
mainly due to the sale of land formerly occupied by the Noda
Works. After deduction of a decline in interest received of ¥0.5
billion, a decline in equity in income of non-consolidated subsidiaries and affiliates of ¥0.4 billion, loss on reorganization of
crushing machinery business of ¥1.3 billion, additional costs ofplant construction of ¥1.8 billion, and other items, the net balance of other income (expenses) improved ¥6.8 billion from theprevious fiscal year. As a result, income before income taxes
and minority interests rose a marked 82.9% from the previous
fiscal year, to ¥20.6 billion.
The ratio of the provision for income taxes to income
before income taxes was 41.3% for the fiscal year underreview, virtually unchanged from the previous fiscal year andalmost the same level as the statutory tax rate of 40.5%. As
a result, after deduction of minority interests in net incomeof consolidated subsidiaries, net income for the fiscal year
increased 81.3% compared with the previous fiscal year, andamounted to ¥11.5 billion. Accordingly, the ratio of net income
to net sales rose 0.4 percentage point, from 0.5% in theprevious fiscal year to 0.9% in the fiscal year under review. In
addition, ROE increased 2.4 percentage points, rising from
3.5% to 5.9%.
Capital expenditures for the fiscal year amounted to ¥29.7
billion, compared with ¥41.5 billion in the previous fiscal year,
and R&D expenses were ¥13.2 billion, versus ¥14.7 billion in
the prior year.

28 • Kawasaki Heavy Industries, Ltd.

FINANCIAL CONDITION
Total assets at the end of the fiscal year were 3.2%, or ¥37.6
billion, higher than for the end of the previous fiscal year, andamounted to ¥1,194.5 billion. By principal line item, current
assets were up ¥37.5 billion, mainly due to an increase in tradereceivables. Investments and long-term loans rose ¥1.7 billion
owing to increases in investments in securities. Net property,
plant and equipment declined ¥5.8 billion, reflecting the decreasein capital expenditures. Intangible and other assets were up ¥4.1
billion mainly due to increases in deferred tax assets.
Liabilities increased 2.6%, or ¥25.4 billion, to ¥988.3 billion. Of this total, current liabilities rose ¥20.9 billion and longterm liabilities increased ¥4.5 billion. Among current liabilities,
trade payables were up ¥62.3 billion, and among long-term
liabilities, employees’ retirement and severance benefits
increased ¥8.8 billion. As a result of a decline in long-term
debt and short-term borrowings, interest-bearing liabilities
decreased 11.4%, or ¥45.6 billion, to ¥353.9 billion. Since theincrease in current assets and liabilities was virtually the same,the current ratio rose only slightly, to 119.8%, compared with
118.0% at the previous fiscal year-end.
Shareholders’ equity showed a gain of 5.9%, or ¥11.3 billion, to ¥201.5 billion. This was due to an increase in retained
earnings of ¥8.2 billion, reflecting the rise in net income, and again of ¥3.6 billion in net unrealized gains on securities.
As a consequence of a higher percentage increase inshareholders’ equity than in total assets, the shareholders’equity ratio rose 0.5 percentage point, from 16.4% at the endof the previous fiscal year to 16.9% at the end of the fiscal year
under review. Also, the net debt/equity ratio (after the deduction of cash on hand from interest-bearing debt) fell to 153.5%,
compared with 187.4% at the end of the previous fiscal year.
MANAGEMENT INDICATORSThe Company’s objective is to exceed the expectations ofinvestors for profitability and the management indicator chosen
is before-tax return on invested capital (ROIC), which measures
how efficiently the Company uses its capital. As it works tomaximize before-tax ROIC, the Company is implementing measures to expand profit and simultaneously reduce invested capital and thereby strengthen its financial position. Before-tax
ROIC is computed by taking the ratio of earnings before
interest and taxes (EBIT) to the sum of interest-bearing debt
and total shareholders’ equity.

Applying this formula, ROIC for the year under review was
4.8%, 1.7 percentage points higher than the 3.1% reported forthe previous fiscal year.
CASH FLOWS
During fiscal 2005, net cash provided by operating activitieswas ¥71.4 billion, ¥28.6 billion higher than for the previous fiscal year. The principal factors accounting for this increase werea substantial rise in income before income taxes and minority
interests, an increase in trade payables, and the absence of areimbursement of overcharged accounts receivable by subsidiary NIPPI Corporation, which was charged against net
cash in the previous fiscal year.*Net cash used for investing activities amounted to ¥17.7
billion, representing an ¥8.2 billion decline from ¥25.9 billion
reported in the previous fiscal year. This was the consequenceof a number of factors, including a reduction of ¥5.2 billion in
cash used for acquisition of property, plant and equipment, adecline of ¥2.6 billion in cash used for acquisition of intangible
assets, and a ¥2.5 billion increase in proceeds from sale ofinvestments in securities, all of which were partially offset by adecline of ¥3.0 billion in proceeds from sales of property, plantand equipment.
Free cash flow, which is the net amount of cash fromoperating and investing activities, amounted to an inflow of¥53.7 billion for fiscal 2005.
Net cash used for financing activities amounted to ¥51.8
billion. The Company used its inflow of free cash flow as theprincipal source of funds to reduce its interest-bearing debt. As
a result, the net decrease in short-term borrowings amounted
to a substantial ¥31.7 billion and net repayment of long-term
debt was ¥17.5 billion.
As a result of these cash flows, cash and cash equivalents
at the end of fiscal 2005 amounted to ¥44.4 billion, ¥2.0 billion
higher than at the beginning of the fiscal year.
* The Company made NIPPI a wholly owned subsidiary through an exchangeof shares in April 2003. Prior to the acquisition, NIPPI had overcharged for products and services provided under contracts mainly to the JDA. In February
2004, NIPPI made reimbursements of ¥12.3 billion for the full value of amounts
overcharged.

DIVIDENDS
The Company’s policy is to pay stable cash dividends to its
shareholders, giving due consideration to increasing retained
earnings to strengthen and expand its business foundation for
future growth.

Based on this policy, and after taking into account theCompany’s performance, level of retained earnings, and otherfactors, management proposed and received approval fromshareholders to increase the cash dividend payment by ¥0.5
per share, to ¥2.5 per share for fiscal 2005.
BUSINESS RISK
External factors that may have an effect on the KHI Group’s
performance and financial position include the following:(1) Political and Economic Conditions
The Group conducts its business activities not only in Japanbut also elsewhere in Asia, North America, Europe, and otherareas and is subject to the consequences of political and economic development in these regions. For example, trends inpersonal consumption may have an impact on sales of theConsumer Products & Machinery segment, while trends inprivate-sector capital investment and public works investment
may have an influence on orders of the Plant & Infrastructure
Engineering and the Gas Turbines & Machinery segments. In
addition, demand for passenger air travel and conditions inshipping markets may have an impact on the Aerospace andShipbuilding segments, respectively. Disputes and politicalchanges may affect the Group’s overseas projects.
(2) Fluctuations in Foreign Exchange Rates
During fiscal 2005, overseas sales accounted for 49% of consolidated net sales. Accordingly, the Group has a substantial
volume of transactions denominated in U.S. dollars, euros, andother currencies. To reduce foreign exchange risk, the Groupis working to increase its ratio of total cost of goods sold thatis denominated in foreign currencies and, while taking due
account of trends in foreign exchange rates, endeavors to takeflexible measures to hedge the effect of exchange rate fluctuations through the use of forward contracts and other hedging
techniques. However, the majority of the Group’s manufacturing
facilities are located in Japan, and its sales to overseas markets
are, therefore, subject to foreign exchange fluctuation risk.
(3) Government Regulations
The Group conducts its business activities in compliance withthe restrictions in effect, including laws and regulations, in the
countries and regions where it operates. However, the Group’s
operations may be affected if such restrictions are subject tounpredictable changes and if new restrictions are put into
effect.

Annual Report 2005 •29

Consolidated Balance Sheets
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2005 and 2004

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

ASSETS

2005

2004

2005

Current assets:
Cash on hand and in banks .............................................................................. ¥44,629¥43,064$

415,501

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

402,255

365,377

3,745,042

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

17,37818,155

161,792

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

(6,014)(6,725)(55,991)..................................................................................................................................

413,619

376,8073,850,843

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

332,333

335,0643,094,060

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

20,21919,429188,241

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

26,205

25,116

243,972

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

837,005

799,480

7,792,617

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

69,97265,008651,448

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

2,514

3,478

23,406

Investments and long-term loans:

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

11,741

13,453

109,310

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

(4,658)(4,100)(43,367)

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

79,56977,839740,797

Land .................................................................................................................

67,99868,721

633,070

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

269,407

263,757

2,508,212

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

443,594440,132

4,129,913

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

5,127

8,285

47,732..................................................................................................................................

786,126

780,895

7,318,927

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

(542,960)(531,973)(5,055,022)

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

243,166

248,9222,263,905

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

19,26014,456

179,313

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

15,473

16,207144,055..................................................................................................................................

34,73330,663323,368

Total assets ...................................................................................................... ¥1,194,473¥1,156,904$11,120,687

Intangible and other assets:

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

30• Kawasaki Heavy Industries, Ltd.

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

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2005

2004

2005

¥ 188,652$ 1,364,910

Current liabilities:
Short-term borrowings and current portionof long-term debt (Note 5) ............................................................................... ¥ 146,605
Trade payables (Note 5) ....................................................................................

348,389

286,1173,243,543

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

106,574

110,900

992,217

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

12,276

12,491

114,291

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

13,95814,289129,951

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

2,551

2,156

23,750

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

6,833

5,018

63,616

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

317

188

2,951

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

60,97957,728567,722

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

698,482

677,539

6,502,951

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

207,279

210,819

1,929,792

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

72,51763,759675,142

Long-term liabilities:

Directors’ and statutory auditors’ retirement
and severance benefits ...................................................................................

905

1,143

8,426

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

1,980

2,035

18,434

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

7,154

7,579

66,605

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

289,835

285,335

2,698,399

4,691

3,855

43,674

Issued—1,443,394,172 shares in 2004 ........................................................

81,42781,427758,095

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

31,39031,388292,245

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

88,70480,469825,845

Contingent liabilities (Note 9)
Minority interests ...................................................................................................
Shareholders’ equity (Note 10):
Common stock:
Authorized—3,360,000,000 shares
Issued—1,443,394,172 shares in 2005

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

16,91013,266

157,434

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

(16,843)(16,283)(156,811)

Treasury stock—852,563 shares in 2004 .........................................................

(123)

(92)

(1,145)

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

201,465

190,175

1,875,663

Total liabilities, minority interests and shareholders’ equity ............................ ¥1,194,473¥1,156,904$11,120,687

Treasury stock—1,035,104 shares in 2005

Annual report 2005 •31Consolidated Statements of Income
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2005, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

Net sales ........................................................................................ ¥1,241,592

2004

2003

2005

¥1,160,252¥1,239,598$11,559,371

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

1,088,219

998,416

1,069,341

10,131,450

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

153,373

161,836

170,257

1,427,921

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

128,629

139,586

139,714

1,197,551

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

24,744

22,25030,543

230,370

3,240

3,476

4,684

30,165

506

941

(467)

4,711

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

(6,296)(7,274)(10,291)(58,617)

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

(1,630)(8,151)(7,241)(15,176)

20,564

11,242

17,228

191,453

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

(15,869)(16,604)(11,395)(147,742)

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

7,374

11,8907,555

68,653of consolidated subsidiaries .....................................................

(590)

(195)

(366)

(5,493)

Net income .................................................................................... ¥11,479

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

Minority interests in net income
¥

6,333

¥

13,022$

106,871

U.S. dollars(Note 1)Yen

Per share amounts:
Net income—basic ..................................................................

¥7.9

¥4.4

¥9.3

$0.07

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

6.8

4.2

8.8

0.06

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

2.5

2.0

2.0

0.02

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

32• Kawasaki Heavy Industries, Ltd.

Consolidated Statements of Shareholders’ Equity
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2005, 2004 and 2003

Thousands
Number ofshares ofcommonstockMillions of yen

Commonstock

Balance at March 31, 2002 ......................................... 1,390,596 ¥81,427
Net income for the year .......................................
——
Adjustments from translation of foreign
currency financial statements .................................
——
Decrease in net unrealized gains on securities .....
——
Treasury stock purchased ...................................
——
Conversion of convertible bonds .........................
2—
Bonuses to directors and statutory auditors ........
——
Balance at March 31, 2003 ......................................... 1,390,598 81,427
Net income for the year .......................................
——
Adjustments from translation of foreign
currency financial statements .................................
——
Increase in net unrealized gains on securities ......
——
Issue of new shares ............................................
52,796—
Treasury stock purchased, net ............................
——Cash dividends ...................................................
——
Gain on sales of treasury stock ...........................
——
Bonuses to directors and statutory auditors ........
——
Others .................................................................
——
Balance at March 31, 2004 ......................................... 1,443,394 81,427
Net income for the year .......................................
——
Adjustments from translation of foreign
currency financial statements .................................
——
Increase in net unrealized gains on securities ......
——
Treasury stock purchased, net ............................
——Cash dividends ...................................................
——
Gain on sales of treasury stock ...........................
——
Bonuses to directors and statutory auditors ........
——
Decrease resulting from change of accounting
periods of consolidated subsidiaries ..................
——
Others .................................................................
——
Balance at March 31, 2005 ...................................... 1,443,394 ¥81,427

CapitalsurplusRetainedearnings

Net
unrealized
gains onsecurities¥24,682—¥64,110
13,022¥ 5,925—¥ (8,407)
—

—
—
—
1
—
24,683
—

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

(3,818)————(12,225)
—

—
—
(34)
—
—
(40)
—

—
—
6,704
—
—
1
—
—
31,388—————(2,781)—(72)(80)
80,46911,479

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

—
—
—
(52)
—
—
—
—
(92)
—

—
—
—
—
2
—

—
—
—
(2,885)
—
(38)

—
3,644
—
—
—
—

(560)
—
—
—
—
—

—
—
(31)
—
—
—

(222)
—
(99)
—
¥88,704 ¥16,910——¥(16,843)——¥(123)

Foreigncurrencytranslation
adjustments

Treasurystock——¥31,390

Foreigncurrencytranslation
adjustments

Treasury
stock

¥

(6)
—

Thousands of U.S. dollars (Note 1)

Commonstock

CapitalsurplusRetainedearnings

Net
unrealized
gains onsecurities

Balance at March 31, 2004 .......................................................... $758,095 $292,226 $749,176 $123,508 $(151,597) $ (857)
Net income for the year ........................................................
—— 106,871———
Adjustments from translation of foreign
currency financial statements ................................................
————(5,214)—
Increase in net unrealized gains on securities ........................
———
33,926——
Treasury stock purchased, net .............................................
—
—
—
—
—
(288)
Cash dividends .....................................................................
—— (26,860)———
Gain on sales of treasury stock .............................................
—
19
—
—
—
—
Bonuses to directors and statutory auditors .........................
—
—
(354)
—
—
—
Decrease resulting from change of accounting
periods of consolidated subsidiaries ...................................
——(2,067)———
Others ..................................................................................
—
—
(921)
—
—
—
Balance at March 31, 2005 ....................................................... $758,095 $292,245 $825,845 $157,434 $(156,811) $(1,145)
The accompanying notes to the consolidated financial statements are an integral part of these statements.
Annual report 2005 •33

Consolidated Statements of Cash Flows
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2005, 2004 and 2003

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

2004

2003

2005

¥ 11,242¥ 17,228$ 191,453

Cash flows from operating activities:
Income before income taxes and minority interests ................................. ¥ 20,564
Adjustments to reconcile net income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization .............................................................

31,55532,59031,595

293,781

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

8,779

7,172

1,955

81,734

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

(213)

817

(718)

(1,983)

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

1,841

4,256

752

17,140

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

—(2,260)2,260—

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

2,141

1,698

1,156

19,933

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

—

—

910

—

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

(3,774)(1,036)(954)(35,136)

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

(1,890)3,345(2,053)(17,596)

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

——(1,902)—

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

(3,240)(3,476)(4,684)(30,165)Interest expense ..................................................................................

6,296

7,274

10,291

58,617

Trade receivables ........................................................................

(31,184)

8,777

3,736

(290,327)

Inventories ...................................................................................

5,117

9,990

24,83547,640

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

(3,064)(8,857)

8,956(28,526)

Gain on contribution of securities

Changes in assets and liabilities:
Decrease (increase) in:

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

59,088(1,022)(26,738)

550,116

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

(4,128)

11,152(10,646)(38,432)

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

(396)(5,707)604(3,687)

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

490(5,176)13,147

4,562

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

2,324

604

(576)

21,636

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

90,306

71,383

69,154

840,760

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

4,555

3,395

4,221

42,408Cash paid for interest ..............................................................................

(6,294)(7,914)(10,120)(58,598)

Cash paid for income taxes .....................................................................

(16,085)(11,718)(6,485)(149,754)

Additional payment of construction cost (Note 14) ...................................

(1,060)——(9,869)Reimbursement of overcharged accounts receivable (Note 15) ...............

—(12,335)——

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

71,42242,811

56,770664,947(Continues to next page)

34• Kawasaki Heavy Industries, Ltd.

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

2005

2004

2003

2005

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

447

625

221

4,162

Acquisition of property, plant and equipment ...........................................

(27,364)(32,558)(31,349)(254,762)

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

5,258

8,228

8,428

48,953Acquisition of intangible assets ................................................................

(3,774)(6,332)(2,208)(35,136)

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

320

269

40

2,979

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

(1,301)(1,029)(4,240)(12,112)

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

5,370

2,882

2,643

49,995Decrease (increase) in short-term loans receivable ..................................

1,465

835

(179)

13,639Additions to long-term loans receivable ...................................................

(290)

(329)

(1,805)(2,700)

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

1,339

591

762

12,466

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

816

950

860

7,597

Net cash used for investing activities .......................................................

(17,714)(25,868)(26,827)(164,919)(31,736)(16,320)(53,048)(295,466)

Cash flows from financing activities:
Decrease in short-term borrowings .........................................................
Proceeds from long-term debt ................................................................

57,73344,49934,129537,501

Repayment of long-term debt ..................................................................

(75,241)(60,829)(40,579)(700,503)

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

(36)

(15)

(2)

(335)

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

(2,844)(2,753)(2)(26,478)

Paid-in capital from minority interests ......................................................

361

—

—

3,361

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

(76)

(126)

(99)

(707)

Net cash used for financing activities .......................................................

(51,839)(35,544)(59,601)(482,627)

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

180

(191)

(282)

1,676

Net increase (decrease) in cash and cash equivalents .....................................

2,049(18,792)(29,940)

19,077

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

42,37559,837

89,777394,516

(39)

—

—

(363)

—

1,330

—

—

Cash and cash equivalents at end of year ....................................................... ¥ 44,385¥ 42,375¥ 59,837$ 413,230¥ 43,064¥ 61,185$ 415,501

(244)

(689)

(1,348)(2,271)

Total ................................................................................................ ¥ 44,385¥ 42,375¥ 59,837$ 413,230

Decrease in cash and cash equivalents by change ofconsolidation period of subsidiaries ...............................................................
Increase in cash and cash equivalents arisingfrom newly consolidated subsidiaries ............................................................

Supplemental information on cash flows:
Cash and cash equivalents:
Cash on hand and in banks in the balance sheets ............................... ¥ 44,629
Time deposits with maturities over three months .................................

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

Annual report 2005 •35

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 and disclosure records in Japanese yen. The accompanying consolidated financial statements
have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law
and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International Financial
Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity withgenerally accepted accounting principles prevailing in the respective countries of domicile. The accompanying
consolidated financial statements have been restructured and translated into English (with some expanded
descriptions and the inclusion of consolidated statements of shareholders’ equity) from the consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate
Local Finance Bureau of the Ministry of Finance as required by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March 31, 2005, which was ¥107.41 to US$1.
The convenience translations should not be construed as representations that the Japanese yen amounts havebeen, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant
accounting
policies(a) Consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies (together the “Companies”), over which the Company has power of control through majority voting rights
or existence of certain conditions evidencing control by the Company.
The consolidated financial statements include the accounts of the Company and 99 (101 in 2004 and 104 in2003) subsidiaries.
For the year ended March 31, 2005, 4 (5 in 2004 and 3 in 2003) subsidiaries are excluded from the consolidation. The amounts of total assets, net sales, net income and retained earnings of these excluded subsidiaries,
in the aggregate, would not have had a material effect on the consolidated financial statements.
( b) Application of the equity method of accounting
Investments in non-consolidated subsidiaries and affiliates, over which the Company has the ability to exercise
significant influence over operating and financial policies of the investees, are accounted for on the equity method.
For the year ended March 31, 2005, 16 (16 in 2004 and 15 in 2003) affiliates are accounted for by the equity
method.
For the year ended March 31, 2005, investments in 4 (5 in 2004 and 3 in 2003) non-consolidated subsidiaries
and 14 (13 in 2004 and 12 in 2003) affiliates are stated at cost without applying the equity method of accounting.
If the equity method had been applied for these investments, the amounts of net income and retained earningsof these excluded subsidiaries and affiliates would not have had a material effect on the consolidated financial
statements.
(c) Consolidated subsidiaries’ fiscal year-ends
Fiscal year-ends of 32 (29 in 2004 and 29 in 2003) consolidated subsidiaries are December 31.
As to 5 of these subsidiaries (Kawasaki Motors Japan Ltd., Kawasaki Motors Corp., U.S.A., Kawasaki Motors
Europe N.V., and two other subsidiaries), the Company consolidates their financial statements as of the consolidated balance sheet date, by changing their accounting period from the 12 months ended December 31 to the
12 months ended March 31 to improve transparency and quality of consolidated financial statements.
The other 27 consolidated subsidiaries are consolidated as of each subsidiary’s latest year-end. Unusualsignificant transactions for the period between each subsidiary’s year-end and the Company’s year-end are
adjusted on consolidation.
(d) Elimination of inter-company transactions and accounts
All significant inter-company transactions and accounts and unrealized inter-company profits are eliminated on
consolidation, and the portion thereof attributable to minority interests is credited to minority interests.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the
portion attributable to minority shareholders, are evaluated using the fair value at the time the Company acquired
control of the respective subsidiaries.

36• Kawasaki Heavy Industries, Ltd.

When the excess of cost over equity is considered significant, it is amortized over five years on a straight-line
basis. Otherwise, it is charged to income in the year of acquisition or the year newly included in consolidation.
(e) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the year-end rate.
Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the year-end rate
except for shareholders’ equity accounts, which are translated at the historical rates. Income statements ofconsolidated overseas subsidiaries are translated at average rates except for transactions with the Company,
which are translated at the rates used by the Company.
The Company and its domestic subsidiaries report foreign currency translation adjustments in shareholders’equity (and minority interests).
(f ) Appropriations of retained earnings
Appropriations of retained earnings are recorded in the fiscal year when the proposed appropriations are approved.
(g ) Revenue recognition
Sale of products and construction contracts
Sales of products such as ships, railcars, airplanes, machinery, motorcycles etc. are principally recognized when
delivery has occurred. Contract revenue for construction of plants, machinery, bridges etc. is principally recognized on a customer acceptance basis. When prices for components or contract amounts for nearly completed
contracts are not finalized, sales and cost of sales are estimated. The percentage-of-completion method is applied
to long-term contracts such as for ships, airplanes, plants etc. exceeding ¥3,000 million. The stage of completion is normally determined based on the proportion that costs incurred to date bear to the estimated total costsof the contract. Expected losses on such contracts are also recognized on the percentage-of-completion basis.
The completed-contract method is applied to long-term contracts not exceeding ¥3,000 million.
Effective April 1, 2004, the Company changed its accounting policy for the percentage-of-completion method
to be applied to long-term contracts exceeding ¥3,000 million. Previously, it had been applied to long-term
contracts exceeding ¥5,000 million.
The Company made this change in accounting policy for appropriate periodic accounting of profit and loss,
by expanding the range of application of the percentage-of-completion method.
As a result of this change, net sales increased ¥15,824 million ($147,323 thousand). Operating income
and income before income taxes and minority interests each increased ¥2,135 million ($19,877 thousand),compared with the amounts which would have been recognized under the previous method of accounting.
Service revenue
Service revenues are recognized when services have been rendered. Services include supervisory or installation
services for products such as railcars, machinery, plants, etc. When the prices of such services are individually
determined by the contracts and the collectability of the revenue is reasonably assured, such service revenue isrecognized on an accrual basis. Otherwise, such service revenue is recognized on a completion basis.
( h) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand, readily-available deposits and short-term
highly liquid investments with maturities not exceeding three months at the time of purchase are considered
to be cash and cash equivalents.
(i) Allowance for doubtful receivables
The allowance for possible losses from notes and accounts receivable, loans and other receivables is provided
for based on past experience rate and the Companies’ estimates of losses on collection.
( j) Accrued bonuses
Accrued bonuses for employees are reasonably estimated.
( k) Inventories
Inventories are stated at cost, as determined principally by the specific identification cost method, the first-in,
first-out method or the moving-average method.
( l) Assets and liabilities arising from derivative transactions
Assets and liabilities arising from derivative transactions are stated at fair value.
( m) Investments in securities
The Company and its consolidated domestic subsidiaries classify securities as (a) debt securities intended tobe held to maturity (hereafter, “held-to-maturity debt securities”), (b) equity securities issued by subsidiaries
and affiliated companies and (c) all other securities that are not classified in the above categories (hereafter,“available-for-sale securities”). There were no trading securities at March 31, 2005 and 2004.

Annual report 2005 •37

Held-to-maturity debt securities are stated 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 atmoving-average cost. Available-for-sale securities with available fair market values are stated at fair market
value. Unrealized gains and unrealized losses on these securities are reported, net of applicable income taxes,
as a separate component of shareholders’ equity. Realized gains and losses on sale of such securities arecomputed using moving-average cost.
Other securities with no available fair market value are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by non-consolidated subsidiaries and affiliated companies and available-for-sale securities declines significantly, such securities arestated at fair market value and the difference between fair market value and the carrying amount is recognized
as loss in the period of the decline. If the fair market value of equity securities issued by non-consolidated subsidiaries and affiliated companies, not subject to the equity method, is not readily available, such securities
should be written down to net asset value with a corresponding charge in the statements of income in the event
net asset value declines significantly. In these cases, such fair market value or the net asset value will be thecarrying amount of the securities at the beginning of the next year.
(n) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation (except buildings acquired after April 1998) is
computed on a declining-balance basis over estimated useful lives. Depreciation of buildings acquired after
April 1998 is computed on a straight-line basis over estimated useful lives.
(o) Intangible assets
Amortization of intangible assets that include software for the Company’s own use is computed on a straightline method over estimated useful lives.
(p) Accounting for impairment of fixed assets
In the year ended March 31, 2005, the Company did not adopt early the new accounting standard for impairment of fixed assets (“Opinion Concerning Establishment of Accounting Standard for Impairment of Fixed
Assets” issued by the Business Accounting Deliberation Council on August 9, 2002) and the implementation
guidance for the accounting standard for impairment of fixed assets (the Financial Accounting Standard
Implementation Guidance No. 6 issued by the Accounting Standards Board of Japan on October 31, 2003).
The new accounting standard is required to be adopted in periods beginning on or after April 1, 2005, but thestandard does not prohibit earlier adoption.
The Company does not believe that adoption of this new accounting standard will have a material impact on
its consolidated financial statements.
(q) Provision for product warranty
Provision for product warranty is based on past experience and separately provided when reasonably estimable.
(r) Provision for losses on construction contracts
The provision for losses on uncompleted construction contracts at the fiscal year-end is made when substantial
losses are anticipated for the next fiscal year and later and such losses can be reasonably estimated.
(s) Bond issue expenses
Bond issue expenses are charged to income as incurred.
(t) Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for loss carryforwards andthe expected future tax consequences of temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and the amounts used for income tax purposes.
(u) Retirement and severance benefits
Employees who terminate their services with the Company and its domestic consolidated subsidiaries are
generally entitled to lump-sum payments, the amounts of which are determined by reference to their current
basic rates of pay and length of service.
The liabilities and expenses for retirement and severance benefits are determined based on the amounts
actuarially calculated using certain assumptions. The Company and its domestic consolidated subsidiaries
provided the allowance for employees’ retirement and severance benefits based on the estimated amounts ofprojected benefit obligation and fair value of plan assets (including retirement benefit trust).
The excess of the projected benefit obligation over the liabilities for retirement and severance benefits recorded
as of April 1, 2000 (the “net transition obligation”) is being recognized in expenses in equal amounts primarily
over 10 years commencing with the year ended March 31, 2001. Actuarial gains and losses and prior service
costs are recognized in expenses in equal amounts, within the average of the estimated remaining service livesof the employees, commencing with the following and the current period, respectively.

38• Kawasaki Heavy Industries, Ltd.

Employees of the Company’s overseas consolidated subsidiaries are generally covered by various pension
plans, accounted for in accordance with generally accepted accounting principles in the country of domicile.
With corporate separation of the crushing machinery business on April 1, 2005, the Company provided theallowance for retirement and severance benefits to fully amortize net transition obligation for employees ofcrushing machinery business in the amount of ¥1,315 million ($12,243 thousand).
The Company and its domestic consolidated subsidiaries provide for retirement and severance benefits for
directors and statutory auditors principally at 50 percent of the amount required if they retired at the balance
sheet date.
(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 gains or losses resulting from changes in fair value of derivative financial instruments until
the related losses or gains on the hedged items are recognized.
(w) Finance leases
For the Company and its domestic consolidated subsidiaries, finance leases that do not transfer ownershipand do not have bargain purchase provisions are accounted for in the same manner as operating leases inaccordance with Japanese GAAP.
(x) Net income per share
The computations of net income per share shown in the consolidated statements of income are based upon net
income available to common stockholders and weighted average number of shares outstanding during eachperiod.
Diluted net income per share is computed based on the assumption that all dilutive convertible bonds wereconverted at the beginning of the year.
Effective April 1, 2002, the Company adopted the new accounting standard for earnings per share and related
guidance (Accounting Standards Board Statement No. 2, “Accounting Standard for Earnings Per Share,” andFinancial Standards Implementation Guidance No. 4, “Implementation Guidance for Accounting Standard for
Earnings Per Share,” issued by the Accounting Standards Board of Japan on September 25, 2002).
The effect on net income per share of the adoption of the new accounting standard was not material.
(y) Cash dividends
Per share amounts of cash dividends for each period represent dividends declared as applicable to the respective year.
(z) Reclassifications
Certain prior year amounts have been reclassified to conform to the 2005 presentation. These changes had no
impact on previously reported results of operations or shareholders’ equity.

3. Inventories

Inventories as of March 31, 2005 and 2004 are comprised as follows:
Millions of yen
2005
2004

Finished products ......................................................................................... ¥ 58,716
Work in process ............................................................................................ 222,919
Raw materials and supplies ..........................................................................
50,698
Total ............................................................................................. ¥332,333

4. Securities¥ 57,291
233,508
44,265¥335,064

Thousands of
U.S. dollars
2005$ 546,653
2,075,403
472,004$3,094,060(a) Acquisition costs and book values (fair values) of available-for-sale securities with available fair values as ofMarch 31, 2005 and 2004 are as follows:
Thousands of
U.S. dollars

Millions of yen
2005
Acquisition
cost

Securities with book values exceeding acquisition costs:
Equity securities ................................................................. ¥13,200
Other securities:
Equity securities .................................................................
450
Total ...................................................................................... ¥13,650

Book value

Difference

Difference¥42,302¥29,102$270,943

355¥42,657(95)¥29,007(884)$270,059

Annual report 2005 •39Millions of yen
2004
Acquisition
cost

Securities with book values exceeding acquisition costs:
Equity securities ................................................................. ¥13,753
Other securities:
Equity securities .................................................................
1,320
Total ...................................................................................... ¥15,073

Book value

Difference¥36,920¥23,167

1,093¥38,013(227)¥22,940(b) Acquisition costs and book values of held-to-maturity debt securities with available fair values as of March 31,
2005 are as follows:
Thousands of
U.S. dollars

Millions of yen
2005

Securities with book values exceeding acquisition costs:
Bonds.................................................................................

Acquisition
cost

Book value

¥204

¥205

Difference

Difference¥1$9(c) Book values of investments in securities with no available fair values as of March 31, 2005 and 2004 are as follows:

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

Millions of yen
2005
2004
Book value
Book value

Thousands of
U.S. dollars
2005Book value

¥

$

3

¥

28

28

9,209
5,044
¥14,253

9,314
5,262
¥14,576

85,737
46,960$132,697

¥

¥

$

9
4,415
¥ 4,424

93,211¥ 3,220

84
41,104$ 41,188(d) Sales amounts of available-for-sale securities and related gains and losses for the years ended March 31,
2005, 2004 and 2003 were as follows:
Thousands of
U.S. dollars

Millions of yen
2005
Sales
amounts

Gains

LossesSalesamounts

Gains

LossesEquity securities .......................................................... ¥5,341¥3,791¥(1)$49,725$35,295$(9)Millions of yen
2004
Sales
amounts

Gains

LossesEquity securities .......................................................... ¥1,750¥930¥(245)

Millions of yen
2003
Sales
amounts

Gains

LossesEquity securities .......................................................... ¥1,669
Others ........................................................................
60
Total ................................................................... ¥1,729

¥999
—
¥999

¥(140)(35)¥(175)

40• Kawasaki Heavy Industries, Ltd.

5. Short-termborrowings andlong-term debt

Short-term borrowings and long-term debt as of March 31, 2005 and 2004 are comprised as follows:
Millions of yen
2005
2004

Short-term borrowings:
Short-term debt, principally bank loans, bearing averageinterest rates of 1.823 percent and 1.254 percent as ofMarch 31, 2005 and 2004, respectively ..............................................
Current portion of long-term debt, bearing averageinterest rates of 1.613 percent and 1.310 percent as ofMarch 31, 2005 and 2004, respectively ..............................................
Total short-term debt ........................................................................
Long-term debt:
Loans from banks and other financial institutions, partly securedby mortgage or other collateral, due from 2004 to 2035,
bearing average interest rates of 1.322 percent and 1.505 percent
as of March 31, 2005 and 2004, respectively .....................................
Notes and bonds issued by the Company:
1.94 percent notes due 2004 .......................................................
1.50–1.67 percent notes due 2005 ...............................................
1.87 percent notes due 2006 .......................................................
2.00 percent notes due 2007 .......................................................
2.51–2.775 percent notes due 2008 .............................................
1.07–2.33 percent notes due 2009 ...............................................
1.60 percent notes due 2011 ........................................................
0.75 percent convertible bonds due 2005 ....................................
1.10 percent convertible bonds due 2006 ....................................
0.90 percent convertible bonds due 2008 ....................................
1.00 percent convertible bonds due 2011 ....................................
Zero coupon convertible bonds due 2010 ....................................
Zero coupon convertible bonds due 2011 ....................................
Notes and bonds issued by subsidiaries:
1.31 percent notes due 2006 .......................................................
......................................................................................................................
Less portion due within one year ..........................................................
Total long-term debt .........................................................................

Thousands of
U.S. dollars
2005¥106,096¥132,749$ 987,766

40,509¥146,605

55,903¥188,652

377,144$1,364,910¥ 74,502¥108,436$ 693,623—
10,00010,00010,00020,00020,00010,0009,609
17,1187,520
7,039
25,00025,00020,00020,00010,00010,00020,00010,000—9,609
17,1187,520
7,039
25,000——93,101
93,101
93,101
186,202
186,20293,101
89,461
159,371
70,01265,534
232,753
232,753

2,000
247,788(40,509)¥207,279

2,000
266,722(55,903)¥210,819

18,6212,306,936(377,144)$1,929,792

The convertible bonds due 2005 through 2011 as of March 31, 2005 were convertible into 271,755,454
shares of common stock at the option of the holders at prices of ¥459 ($4.27), ¥598 ($5.57), ¥182 ($1.69) or¥232 ($2.16) per share. The conversion prices are subject to adjustments under specified conditions.
As of March 31, 2005 and 2004, the following assets were pledged as collateral for short-term borrowings
and long-term debt:
Millions of yen
2005
2004

Inventories ...................................................................................................... ¥ 8,861
Land ...............................................................................................................
2,774
Buildings .........................................................................................................
3,932
Machinery and equipment ...............................................................................
186
Other investments ...........................................................................................
45
Total ............................................................................................... ¥15,798¥ 8,336
3,695
3,576
277
45
¥15,929

Thousands of
U.S. dollars
2005$ 82,497
25,82636,607
1,732
419$147,081

As of March 31, 2005 and 2004, debt secured by the above pledged assets was as follows:
Millions of yen
2005
2004

Trade payables ............................................................................................... ¥ 105
Short-term and long-term debt ....................................................................... 19,890
Total ............................................................................................... ¥19,995¥

65
23,656¥23,721

Thousands of
U.S. dollars
2005

$
978
185,178$186,156

Annual report 2005 •41

The aggregate annual maturities of long-term debt as of March 31, 2005 are as follows:
Millions of yen

Thousands of
U.S. dollars

2006 .................................................................................................................................. ¥ 40,509
2007 ..................................................................................................................................
48,9692008 ..................................................................................................................................
31,9432009 ..................................................................................................................................
24,0182010 and thereafter ............................................................................................................ 102,349
Total ....................................................................................................................... ¥247,788$ 377,144
455,907297,393
223,610
952,882$2,306,936

Year ending March 31,

6. Investments in
non-consolidated
subsidiaries
and affiliates

Investments in non-consolidated subsidiaries and affiliates as of March 31, 2005 and 2004 are ¥12,857 million($119,700 thousand) and ¥12,398 million, respectively.

7. Consolidation
adjustments
account

Consolidation adjustments account, included in Intangible and other assets, is as follows:
Millions of yen
2005
2004

Consolidation adjustments account .................................................................. ¥1,702

8. Employees’
retirement andseverance benefits¥2,296

Thousands of
U.S. dollars
2005$15,846

The liabilities for employees’ retirement and severance benefits included in the liability section of the consolidatedbalance sheets as of March 31, 2005 and 2004 consist of the following:
Millions of yen
2005
2004

Projected benefit obligation ........................................................................... ¥185,116
Unrecognized prior service costs ..................................................................
20,529Unrecognized actuarial differences ...............................................................
(4,282)Less fair value of pension assets ...................................................................
(66,706)
Less unrecognized net transition obligation ...................................................
(62,953)
Prepaid pension cost ....................................................................................
813
Liability for retirement and severance benefits ........................................... ¥ 72,517¥202,594
6,806(10,388)(58,828)(76,903)478¥ 63,759

Thousands of
U.S. dollars
2005$1,723,452
191,128(39,866)(621,041)(586,100)
7,569$ 675,142

The amount of net transition obligation of retirement and severance benefits for employees of crushingmachinery business is fully amortized in 2005.
Retirement and severance benefit expenses in the consolidated statements of income for the years ended
March 31, 2005, 2004 and 2003 are comprised as follows:2005

Service costs—benefits earned during the year ......................... ¥ 8,742
Interest cost on projected benefit obligation ...............................
4,854
Expected return on plan assets .................................................
(799)
Amortization of actuarial differences ..........................................
1,932
Amortization of prior service costs .............................................
(1,720)
Amortization of net transition obligation ..................................... 13,969
Contribution to the defined contribution pension plans ..............
273
Retirement and severance benefit expenses .......................... ¥27,251

Millions of yen
2004

2003

Thousands of
U.S. dollars
2005¥ 9,091
5,862
(751)
2,780
(783)
13,342—¥29,541¥ 9,697
5,708
(467)
2,042
(243)
13,181—¥29,918$ 81,389
45,191(7,439)17,987(16,013)130,0532,542$253,710“Amortization of actuarial differences” and “Amortization of net transition obligation” include full amortization of the
net transition obligation of retirement and severance benefits for employees of the crushing machinery business.
For the years ended March 31, 2005 and 2004, the discount rate is primarily 2.5 percent. The rates of expected
return on plan assets (including retirement benefit trust) are over 0.0 to 3.5 percent (for the Company and consolidated domestic subsidiaries) and 8.0 percent (for consolidated overseas subsidiaries). For the year ended

42• Kawasaki Heavy Industries, Ltd.

March 31, 2003, the discount rate and the rate of expected return on plan assets are primarily 3.0 and 9.0 percent (for consolidated overseas subsidiaries), respectively. The estimated amount of all retirement benefits to
be paid at future retirement dates is allocated equally to each service year using the estimated number of total
service years. Actuarial gains and losses are recognized in expenses in equal amounts over 10 to 15 years commencing with the following period. Prior service costs are recognized in equal amounts for over 10 to 15 years.
Effective fiscal year 2004, the Company and certain of its consolidated subsidiaries partly introduced defined
contribution pension plans and cash balance pension plans.

9. Contingent liabilities

Contingent liabilities as of March 31, 2005 and 2004 are as follows:
Millions of yen
2005
2004

As drawer of trade notes discounted ................................................................. ¥85
As endorser of trade notes ................................................................................
75
As guarantor of indebtedness of employees, unconsolidated subsidiaries
and affiliates, and others ................................................................................. 21,256
As issuer of 1.67 percent notes due 2005 ......................................................... 10,000

¥

141
18
25,470—Thousands of
U.S. dollars
2005

$

791
698

197,896
93,101

Based on a debt assumption agreement with a financial institution, the Company has transferred the debt
repayment obligation for 1.67 percent notes due 2005 to such financial institution.

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

11. Research anddevelopment
expenses

Research and development expenses, included in selling, general and administrative expenses, are as follows:
2005

Research and development expenses ........................................... ¥13,183

Millions of yen
2004

2003

Thousands of
U.S. dollars
2005¥14,741¥15,494$122,735

Annual report 2005 •43

12. Other income(expenses):other, net

Other income (expenses): other, net in the consolidated statements of income is comprised as follows:
2005

Gain on sales of marketable securities and investments
in securities .................................................................................. ¥ 3,774
Gain on sales of property, plant and equipment ..............................
2,865
Foreign exchange gain (loss), net ....................................................
166
Loss on disposal of inventories ....................................................... (2,141)
Amortization of certain subsidiaries’ net transition obligationof retirement and severance benefits ............................................
(205)
Loss on reorganization of crushing machinery business ................. (1,315)
Additional costs of plant construction ............................................. (1,825)
Gain on sales of subsidiaries’ shares ..............................................
—
Loss on business reorganization .....................................................
—
Loss on factory closure ..................................................................
—
Gain on contribution of securities to employees’ retirement
benefit trust ..................................................................................
—
Restructuring charges ....................................................................
—
Loss on real estate development business .....................................
—
Other, net ....................................................................................... (2,949)
Total ............................................................................... ¥(1,630)

2003

Thousands of
U.S. dollars
2005

877
3,286
(2,453)(1,456)$ 35,136
26,674
1,545(19,933)

(205)
—
—
117
(754)
(1,206)

(205)
—
—
77
—
—

(1,909)(12,243)(16,991)
—
—
—

—
—
—
(3,594)¥(8,151)

1,902(3,182)(923)(5,164)¥(7,241)———(27,455)$(15,176)

Millions of yen
2004

¥

918
1,150
(2,875)(1,702)¥“Loss on reorganization of crushing machinery business” is mainly a full amortization of the net transition
obligation of retirement and severance benefits for employees of the crushing machinery business.
“Additional costs of plant construction” is the compensation mainly for delay of plant construction.

13. Income taxes

Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax (national tax) and enterprise and inhabitants taxes (local taxes) which, in the aggregate, result innormal statutory tax rates of approximately 40.5 percent for the years ended March 31, 2005 and 2004.
Significant components of deferred tax assets and liabilities as of March 31, 2005 and 2004 are as follows:
Millions of yen
2005
2004

Deferred tax assets:
Excess bonuses accrued .............................................................................. ¥ 6,081
Retirement benefits ....................................................................................... 34,255
Allowance for doubtful receivables ................................................................
3,458
Inventories—intercompany profits .................................................................
3,383
Fixed assets—intercompany profits ..................................................................
964
Depreciation ..................................................................................................
1,319
Net operating loss carryforwards ...................................................................
9,274
Write-down of marketable securities, investments in securities and other ......
1,275
Other .............................................................................................................
6,189
Gross deferred tax assets ......................................................................... 66,198
Less valuation allowance ...........................................................................
(7,166)
Total deferred tax assets ........................................................................... 59,032
Deferred tax liabilities:
Deferral of gain on sale of fixed assets ...........................................................
5,065
Net unrealized gain on securities ................................................................... 11,444
Unrealized gain on uncompleted contracts ....................................................
576
Other .............................................................................................................
4,765
Total deferred tax liabilities ........................................................................ 21,850
Net deferred tax assets ......................................................................... ¥37,182

44• Kawasaki Heavy Industries, Ltd.

Thousands of
U.S. dollars
2005¥ 6,181
26,726
3,815
3,377
814
1,057
11,055
1,661
7,351
62,037(9,321)
52,716$ 56,615
318,918
32,194
31,496
8,975
12,28086,342
11,87057,621
616,311(66,716)
549,595

5,522
8,918
1,857
4,757
21,054¥31,662

47,156
106,545
5,363
44,362
203,426$346,16914. Additional
payment ofconstruction
cost

Additional payment of construction cost in the consolidated statements of cash flows was caused by the compensation mainly for delay of plant construction.

15. Reimbursementof overcharged
accounts
receivable

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

16. Derivativetransactions

Since the Company and its consolidated subsidiaries operate internationally and have a substantial volume ofexport and import transactions, they enter into foreign currency exchange and option transactions in order tomanage risk of fluctuations in exchange rates in relation to foreign currency denominated assets, liabilities andfuture transactions.
The Company and its consolidated subsidiaries also enter into interest swap and option transactions tohedge against future fluctuations in interest rates on borrowings, primarily to fix, cap or collar interest rates onvariable rate debt.
The Company and its consolidated subsidiaries’ purpose for purchasing derivatives is to hedge against risksof fluctuations in currency exchange rates and interest rates rather than to be exposed to such risks throughdealing or speculation.
For derivative transactions that meet the conditions for hedge accounting, the Company and its consolidated
subsidiaries apply hedge accounting principles. Derivative transactions that meet the conditions for hedge
accounting are excluded from the disclosure requirements.
In order to minimize credit risk, the Company and its consolidated subsidiaries use only highly-rated international financial institutions as counterparties to derivative transactions.
The Company and its consolidated subsidiaries have established policies that restrict the use of derivative
instruments, including limits as to the purpose, nature, type and amount, and that require reporting and review
in order to control the use of derivatives and manage risk.
(a) Outstanding positions and recognized gains and losses at March 31, 2005 are as follows:
Contract
amountMillions of yen
Marketvalue

Gain(loss)

Thousands of
U.S. dollars
Gain(loss)

Currency related contracts:
Foreign exchange contracts:
To sell .................................................................................... ¥79,799
To purchase ...........................................................................
1,542¥81,0131,554¥(1,214)
12$(11,303)
112

40
8

7
(39)
¥(1,234)65(363)$(11,489)

Option contracts:
To sell ....................................................................................
To purchase ...........................................................................
Total ...........................................................................................

2,425
2,340

Annual report 2005 •45

(b) Outstanding positions and recognized gains and losses at March 31, 2004 are as follows:
Contract
amountMillions of yen
Marketvalue

Gain(loss)

Currency related contracts:
Foreign exchange contracts:
To sell ................................................................................................................ ¥86,961
To purchase .......................................................................................................
4,990¥83,684
4,975¥3,277
(15)

19
85

39
26
¥3,327

Option contracts:
To sell ................................................................................................................
To purchase .......................................................................................................
Total .......................................................................................................................

17. Finance leases

5,511
5,335

Finance lease information, as required to be disclosed in Japan, for the respective years is as follows:(a) As lessee
The original costs of leased assets under non-capitalized finance leases and accumulated depreciation, assuming
they are calculated on the straight-line method over lease terms, as of March 31, 2005 and 2004 are as follows:
Millions of yen
2005
2004

Thousands of
U.S. dollars
2005

Property, plant and equipment ......................................................................... ¥ 25,149
Accumulated depreciation ................................................................................ (11,602)......................................................................................................................... ¥ 13,547¥ 24,938(11,016)¥ 13,922$ 234,140(108,016)$ 126,124Intangible assets .............................................................................................. ¥ 1,636
Accumulated amortization ................................................................................
(1,070)......................................................................................................................... ¥566¥ 1,777
(943)
¥
834

$ 15,231(9,961)$ 5,270

The present values of future minimum lease payments under non-capitalized finance leases as of March 31,
2005 and 2004 are as follows:
Millions of yen
2005
2004

Current portion .................................................................................................. ¥ 4,381
Non-current portion ........................................................................................... 10,693
Total ...................................................................................................... ¥15,074¥ 4,525
11,100¥15,625

Thousands of
U.S. dollars
2005$ 40,788
99,553$140,341

Lease payments and “as if capitalized” depreciation and amortization and interest expense for non-capitalized
finance leases are as follows:
2005

Lease payments .............................................................................. ¥5,034
Depreciation and amortization ......................................................... 4,685
Interest ............................................................................................
384

46• Kawasaki Heavy Industries, Ltd.

Millions of yen
2004

2003

Thousands of
U.S. dollars
2005¥5,1094,762
431¥4,386
4,087
342$46,867
43,6183,575

(b) As lessor
The original costs of leased assets under finance leases and accumulated depreciation, as of March 31, 2005
and 2004 are as follows:
Millions of yen
2005
2004

Thousands of
U.S. dollars
2005

Property, plant and equipment ............................................................................ ¥1,498
Accumulated depreciation ...................................................................................
(947)............................................................................................................................ ¥ 551¥1,703(902)¥ 801$13,947(8,817)$ 5,130

Intangible assets ................................................................................................. ¥ 102
Accumulated amortization ...................................................................................
(78)............................................................................................................................ ¥ 24

¥

$

¥

92
(67)
25

$

950
(727)
223

The present values of future minimum lease payments to be received under finance leases as of March 31,
2005 and 2004 are as follows:
Millions of yen
2005
2004

Current portion .................................................................................................... ¥ 470
Non-current portion .............................................................................................
727
Total .................................................................................................... ¥1,197

¥ 485
935
¥1,420Thousands of
U.S. dollars
2005$ 4,3766,768$11,144

Lease payments received, depreciation and amortization and interest on finance leases are as follows:
2005

Lease payments received ................................................................... ¥311
Depreciation and amortization ............................................................ 265
Interest ...............................................................................................
30

18. Operating leases

Millions of yen
2004

2003

Thousands of
U.S. dollars
2005

¥328
288
41

¥312
272
41

$2,8952,467
279

The present values of future minimum lease payments under operating leases as of March 31, 2005 and 2004
are as follows:
Millions of yen
2005
2004

Current portion .................................................................................................... ¥ 395
Non-current portion ............................................................................................. 1,024
Total .................................................................................................... ¥1,419

19. Segment
information

¥ 405
1,387
¥1,792Thousands of
U.S. dollars
2005$ 3,677
9,534$13,211

Industry segments of the Company and its consolidated subsidiaries are classified based on its internal company system: 1) Shipbuilding, 2) Rolling Stock, Construction Machinery & Crushing Plant, 3) Aerospace, 4) Gas
Turbines & Machinery, 5) Plant & Infrastructure Engineering, 6) Consumer Products & Machinery, and 7) Other.
The Shipbuilding segment manufactures and sells ships, submarines and maritime application equipment.
Operations within the Rolling Stock, Construction Machinery & Crushing Plant segment include the production
and sale of rolling stock, construction machines and crushing plants. Products manufactured and sold by the
Aerospace segment include airplanes and helicopters. The Gas Turbines & Machinery segment manufacturesand sells gas turbines, airplane engines and prime movers. Operations within the Plant & Infrastructure Engineering
segment include the production and sale of boilers, chemical and steelmaking plants, refuse incineration plants
and steel bridges. Products manufactured and sold by the Consumer Products & Machinery segment include
motorcycles, ATVs (All-Terrain Vehicles) and Jet Ski® watercraft. Operations within the Other segment include
the production and sale of hospital respiration & medical equipment and hydraulic components. The operations
also involve trade, mediation of overseas sales and orders and other activities.
On April 1, 2003, the industrial hydraulic equipment business, which was formerly included in the Gas
Turbines & Machinery segment, was reclassified into the Other segment at the beginning of this period. The
amounts in 2003 have been reclassified to conform to the 2005 and 2004 presentation.

Annual report 2005 •47

(a) Information by industry segment

External
sales

Shipbuilding .......................................... ¥ 87,081
Rolling Stock, Construction
Machinery & Crushing Plant ................
171,731
Aerospace ............................................
188,255
Gas Turbines & Machinery ....................
141,366
Plant & Infrastructure Engineering .........
191,012
Consumer Products & Machinery .........
338,450
Other ....................................................
123,697
Total ................................................. 1,241,592
Eliminations and corporate ....................
—
Consolidated total ............................. ¥1,241,592

External
sales

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

External
sales

Shipbuilding .......................................... ¥ 105,458
Rolling Stock, Construction
Machinery & Crushing Plant ................
164,774
Aerospace ............................................
154,848
Gas Turbines & Machinery ....................
150,766
Plant & Infrastructure Engineering .........
219,092
Consumer Products & Machinery .........
318,025
Other ....................................................
126,635
Total ................................................. 1,239,598
Eliminations and corporate ....................
—
Consolidated total ............................. ¥1,239,598

External
sales

Intersegment
sales

Total
sales

¥ 1,125

¥

1,445
1,960
19,75815,353
5,036
43,25487,931(87,931)¥—976¥ 2,359¥ 1,630

173,176
190,215
161,124
206,365
343,486
166,951
1,329,523(87,931)¥1,241,592

165,424
7,752
184,130
6,085
158,443
2,681
220,823(14,458)
326,784
16,702
161,939
5,012
1,304,718
24,805(87,870)(61)¥1,216,848 ¥ 24,744

157,419
223,010124,063
153,685
253,958
156,040
1,169,171
25,302¥1,194,473

2,437
5,221
2,971
1,942
11,8652,714
29,5092,046¥31,555

2,629
8,163
2,374
640
10,191
3,370
28,997695¥29,692

Total
sales

Millions of yen
2004
OperatingOperatingexpenses
income (loss)

Total
assets

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

95,915

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

87,175

Depreciation
Capitaland amortization expenditures¥ 100,996¥

88,206

Total
assets¥ 1,031

Intersegment
sales

¥

Millions of yen
2005
OperatingOperatingexpenses
income (loss)

Depreciation
Capitaland amortization expenditures

98,276¥ (2,361)¥

89,850¥ 2,442¥ 5,294

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

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

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

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

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

Millions of yen
2003
OperatingOperatingexpenses
income (loss)

Intersegment
sales

Total
sales

¥ 1,556¥ 107,014¥ 105,605¥ 1,409¥

95,661¥ 1,963¥ 2,551

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

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

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

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

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

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

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

Total
sales

Thousands of U.S. dollars
2005
OperatingOperatingexpenses
income (loss)

Total
assetsTotal
assets

Shipbuilding ........................................ $ 810,735 $ 10,474 $ 821,209 $ 811,610 $ 9,599 $ 940,285
Rolling Stock, Construction
Machinery & Crushing Plant ..............
1,598,836
13,453
1,612,289
1,540,117
72,172
1,465,590
Aerospace ..........................................
1,752,677
18,2481,770,925
1,714,272
56,653
2,076,250
Gas Turbines & Machinery ..................
1,316,134
183,949
1,500,083
1,475,123
24,9601,155,041
Plant & Infrastructure Engineering .......
1,778,345
142,938
1,921,283
2,055,889 (134,606)
1,430,826
Consumer Products & Machinery .......
3,151,010
46,886
3,197,896
3,042,398 155,498
2,364,379
Other ..................................................
1,151,634
402,700
1,554,334
1,507,672
46,662
1,452,751
Total ............................................... 11,559,371
818,648 12,378,019 12,147,081 230,938 10,885,122
Eliminations and corporate ..................
— (818,648)(818,648)(818,080)(568)
235,565
Consolidated total ........................... $11,559,371 $— $11,559,371 $11,329,001 $ 230,370 $11,120,687

Depreciation
Capitaland amortization expenditures

Depreciation
Capitaland amortization expenditures$ 21,962$ 15,176

22,68948,60827,66018,080110,465
25,268274,732
19,049$293,781

24,47675,99922,102
5,959
94,87931,375269,966
6,470$276,436

Effective April 1, 2004, the Company changed its accounting policy for the percentage-of-completion method to be applied to long-term
contracts exceeding ¥3,000 million. Previously, it had been applied to long-term contracts exceeding ¥5,000 million.

48• Kawasaki Heavy Industries, Ltd.

As a result of this change, in Aerospace, External sales and Total sales increased ¥3,635 million ($33,842
thousand) and Operating income increased ¥363 million ($3,380 thousand). In Plant & Infrastructure
Engineering, External sales and Total sales increased ¥12,189 million ($113,481 thousand) and Operating loss
decreased ¥1,772 million ($16,498 thousand).
(b) Information by geographic area

External
sales

Japan .......................................... ¥ 936,237
North America .............................
196,840
Europe .........................................
78,027
Asia .............................................
25,145
Other areas ..................................
5,343
Total ........................................ 1,241,592
Eliminations and corporate ...........
—
Consolidated total .................... ¥1,241,592

External
sales

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

External
sales

Japan .......................................... ¥ 907,167
North America .............................
252,178
Europe .........................................
56,940Asia .............................................
19,105
Other areas ..................................
4,208
Total ........................................ 1,239,598
Eliminations and corporate ...........
—
Consolidated total .................... ¥1,239,598

External
sales

Intersegment
sales¥ 208,048
15,212
3,835
15,89899
243,092(243,092)¥—

Intersegment
sales¥ 182,132
15,267
4,595
13,942
88
216,024(216,024)¥—

Intersegment
sales

Millions of yen
2005
Total
Operatingsales
expenses¥1,144,285
212,052
81,862
41,043
5,442
1,484,684(243,092)¥1,241,592¥1,123,267
210,805
81,44839,1715,818
1,460,509(243,661)¥1,216,848

Millions of yen
2004
Total
Operatingsales
expenses¥1,059,354
202,483
75,546
33,6985,195
1,376,276(216,024)¥1,160,252¥1,038,482
202,886
74,91233,062
5,345
1,354,687(216,685)¥1,138,002

Millions of yen
2003
Total
Operatingsales
expenses¥ 202,171
13,686
5,521
11,272
114
232,764(232,764)¥—¥1,109,338
265,864
62,46130,377
4,322
1,472,362(232,764)¥1,239,598¥1,083,291
262,249
61,851
29,4954,215
1,441,101(232,046)¥1,209,055

Intersegment
sales

Thousands of U.S. dollars
2005
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥21,018
1,247
414
1,872
(376)
24,175569¥24,744¥ 996,923
127,798
57,21820,252
3,664
1,205,855(11,382)¥1,194,473

Operatingincome (loss)

Total
assets¥20,872
(403)
634
636
(150)
21,589661¥22,250¥ 975,129
115,262
46,762
19,4202,846
1,159,419(2,515)¥1,156,904

Operatingincome (loss)

Total
assets¥26,047
3,615
610
882
107
31,261(718)¥30,543¥ 958,762
140,742
41,582
18,7682,764
1,162,618(13,457)¥1,149,161

Operatingincome (loss)

Total
assetsJapan ........................................ $ 8,716,479 $1,936,952 $10,653,431 $10,457,751 $195,680 $ 9,281,473
North America ...........................
1,832,604
141,626
1,974,230
1,962,620
11,6101,189,815
Europe .......................................
726,441
35,704
762,145758,290
3,855
532,706
Asia ...........................................
234,103
148,012382,115364,687
17,428
188,549
Other areas ................................
49,744922
50,66654,166(3,500)34,112
Total ...................................... 11,559,371
2,263,216 13,822,587 13,597,514
225,073 11,226,655
Eliminations and corporate .........
— (2,263,216) (2,263,216) (2,268,513)
5,297(105,968)
Consolidated total .................. $11,559,371 $— $11,559,371 $11,329,001 $230,370 $11,120,687

Effective April 1, 2004, the Company changed its accounting policy for the percentage-of-completion method
to be applied to long-term contracts exceeding ¥3,000 million. Previously, it had been applied to long-term
contracts exceeding ¥5,000 million.
As a result of this change, in Japan, External sales and Total sales increased ¥15,824 million ($147,323 thousand) and Operating income increased ¥2,135 million ($19,877 thousand).

Annual report 2005 •49

North America includes mainly the U.S.A. and Canada. Europe includes mainly Netherlands, the United
Kingdom and Germany. Asia includes Thailand, Indonesia, Philippines and Korea. Other areas include mainly
Australia and Brazil.
(c) Corporate assets
Included in eliminations and corporate in (a) and (b) above under total assets are corporate assets of ¥121,602
million ($1,132,129 thousand), ¥115,811 million and ¥108,725 million at March 31, 2005, 2004 and 2003,
respectively, which are mainly comprised of cash and time deposits of the Company and property, plant,
equipment and intangible assets of the Company’s Head Office.
(d) Overseas sales
Overseas sales consist of the total sales of the Company and its consolidated subsidiaries made outside ofJapan. Overseas sales information, as required to be disclosed in Japan, for the respective years is as follows:
Millionsof yen%2005
Overseas
Againstsales
net sales

North America ............................ ¥236,847
Europe ....................................... 100,362
Asia ............................................ 171,461
Other areas ................................ 105,274
Total ....................................... ¥613,944

19.0%
8.1
13.8
8.5
49.4%

Millionsof yen%2004
Overseas
Againstsales
net sales¥240,121
109,026
91,90881,824¥522,879

20.7%
9.4
7.9
7.1
45.1%

Millionsof yen%2003
Overseas
Againstsales
net sales¥303,682
92,15587,01452,494¥535,345

24.5%
7.4
7.0
4.3
43.2%

Thousands of
U.S. dollars
2005
Overseassales$2,205,074
934,382
1,596,322
980,114$5,715,892

Effective April 1, 2004, the Company changed its accounting policy for the percentage-of-completion method
to be applied to long-term contracts exceeding ¥3,000 million. Previously, it had been applied to long-term
contracts exceeding ¥5,000 million. This change had little effect on overseas sales.
North America includes mainly the U.S.A. and Canada. Europe includes mainly the United Kingdom,
Germany, Netherlands, Italy and France. Asia includes Taiwan, Indonesia, China, Korea and Philippines. Other
areas include mainly Panama, Iran and Liberia.

20. Additional
information

On April 1, 2003, NIPPI Corporation became a wholly-owned subsidiary of the Company by exchange ofshares. The acquisition has been accounted for under the purchase method, with the excess of the purchaseprice over the estimated fair value of the net assets acquired included in the consolidation adjustments accountin the amount of ¥2,974 million.
Effective April 1, 2004, the Company changed the accounting periods for consolidation of five subsidiaries(Kawasaki Motors Japan Ltd., Kawasaki Motors Corp., U.S.A., Kawasaki Motors Europe N.V., and two othersubsidiaries) from the 12 months ended December 31 to the 12 months ended March 31 to improve transparency and quality of consolidated financial statements.
The effect of this change was to decrease the Company’s retained earnings as of the beginning of this fiscal
year by ¥222 million ($2,067 thousand).

21. Subsequent
eventsOn June 28, 2005, the following appropriation of non-consolidated retained earnings was approved at theordinary meeting of shareholders of the Company:
Cash dividends (¥2.5 per share) ...........................................................................................

22. Other matters

Millions of yen

Thousands of
U.S. dollars¥3,606$33,572

The Fair Trade Commission of Japan, having investigated a bid rigging case concerning steel bridge construction projects ordered by the Ministry of Land, Infrastructure and Transport (MLIT) on October 5, 2004, considered that there was a violation of the Antimonopoly Act and filed an accusation with the Public Prosecutor
General against the Company on June 15, 2005, and the Tokyo High Public Prosecutor’s Office prosecuted theCompany on the same day. As a result, MLIT and other public organizations decided to exclude the Company
from their bidding process for a certain period.

50• Kawasaki Heavy Industries, Ltd.

Report of Independent Public Accountants

To the Shareholders and the Board of Directors of Kawasaki Heavy Industries, Ltd.:We have audited the accompanying consolidated balance sheets of Kawasaki Heavy Industries, Ltd. and consolidated subsidiaries as ofMarch 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three
years in the period ended March 31, 2005, expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Kawasaki Heavy Industries, Ltd. and subsidiaries as of March 31, 2005 and 2004, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended March 31, 2005, in conformity with accounting principles generally
accepted in Japan.

Without qualifying our opinion, we draw attention to Note 2. (g) to the consolidated financial statements, which states that effective April 1,
2004, the Company changed its accounting policy for the percentage-of-completion method to be applied to long-term contracts.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2005 arepresented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 1 to the consolidated financial statements.

KPMG AZSA & Co.
Kobe, Japan
June 28, 2005

Annual report 2005 •51

Directors, Corporate Auditors, and Executive Officers

DIRECTORSCORPORATE AUDITORS
Tadao Ueda
Akira TanoueHiroshi Kawamoto**
Kenzo Doi**

Masamoto Tazaki*

Tadaharu Ohashi*

ChairmanPresident

Masatoshi Terasaki*
Senior Executive Vice President

Shinichi Morita*

Takashi Yoshino*

Akira Matsuzaki*

Senior Vice President

Senior Vice President

Senior Vice President

Chikashi Motoyama*

Jiro Noguchi*

Masashi Segawa*Senior Vice President

Senior Vice President

Senior Vice President

52 • Kawasaki Heavy Industries, Ltd.

* Representative Director** Outside Auditor

EXECUTIVE OFFICERS
President

Executive Officers

Tadaharu Ohashi

Yoshimitsu Kurosaki
Shoji Aoki

Senior Executive Vice President

Shigeru Hamada

Masatoshi Terasaki

Shuji Mihara
Masatoshi Tsurutani

Senior Vice Presidents

Masaru Tomiie

Shinichi Morita

Norio Tanaka

President
Consumer Products & Machinery Company

Kouyu Itoga

Takashi Yoshino

Fumiaki Amae

President
Gas Turbines & Machinery Company

Kazuhiko Mishima

Akira Matsuzaki

Masatoshi Ohyama

General Manager
Corporate Technology Division

Shinichi Tamba

Chikashi Motoyama
President
Aerospace Company

Jiro Noguchi
Senior Manager
Corporate Planning Department

Shuichi Nose
Tamio Nakano
Hidetsugu Horikawa
Akira Hattori
Satoshi Hasegawa

Masashi Segawa
President
Rolling Stock & Construction Machinery Company

Yuichi Asano
Shinichi Suzuki
Toru Yamaguchi
Shigeru Murayama
Mitsutoshi Takao(As of June 28, 2005)

Annual Report 2005 •53

Major Consolidated Subsidiaries and Affiliates

Name

Location

Kawasaki Shipbuilding Corporation

Japan

Paid-in Capital

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

Principal Businesses

SHIPBUILDING
10,000100.00Design, manufacture, sale, and maintenanceof commercial and naval vessels and marine
application equipment

Nangtong Cosco KHI Ship Engineering Co., Ltd.†

China

US$80,000*

50.00

743

100.00

Manufacture and sale of ships

ROLLING STOCK, CONSTRUCTION MACHINERY & CRUSHING PLANT
Kawasaki Machine Systems, Ltd.

Japan

★❊
Nichijo Manufacturing Co., Ltd.

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

Japan

120

50.04

Manufacture and sale of snow removal
equipment

Fukue Powtec Corporation

Japan

300

100.00Kawasaki Rail Car, Inc.

U.S.A.

US$60,600*

100.00

Manufacture and sale of pulverizing equipment,
principally generators
Engineering, manufacture, sale, and after-sales
service of rolling stock in the United States

Kawasaki Construction Machinery Corp.

U.S.A.

US$8,000*

100.00of America

Manufacture and sale of construction
machinery in the United States

AEROSPACENIPPI Corporation

Japan

6,048

100.00

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

Kawasaki Helicopter System Ltd.

Japan

200

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

Nippi Kosan Co., Ltd.

Japan

120

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

Kawasaki Aeronáutica do Brasil Indústria Ltda.

Brazil

R30,000*

100.00

Japan

1,460

83.59

Assembly of major wing section for the Embraer 195

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

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

Kawasaki Gas Turbine Europe G.m.b.H.

Germany

A766*

100.00

Sales, packaging, installation, after-sales service,
and customer training related to gas turbine engines,
gas turbine generators, and related machinery

Wuhan Kawasaki Marine Machinery Co., Ltd.

China

1,100

55.00

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

54 • Kawasaki Heavy Industries, Ltd.

Name

Location

Paid-in Capital

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

Principal Businesses

PLANT & INFRASTRUCTURE ENGINEERING
Japan Gas Turbine K.K.†

Japan

1,500

40.00

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

Shanghai Cosco Kawasaki Heavy Industries

China

US$29,800*

45.00

Japan

560

100.00

Manufacture and sale of steel structures

Steel Structure Co., Ltd.†CONSUMER PRODUCTS & MACHINERY
Kawasaki Motors Corporation Japan

Distribution of motorcycles and Jet Ski® watercraft in Japan

Kawasaki Metal Industries, Ltd.

Japan

350

100.00

Manufacture, processing, and assembly of various

Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic

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

U.S.A.

US$70,000*

100.00

Manufacture of motorcycles, ATVs, Jet Ski® water-

steel productspresses and other hydraulic equipment●

craft, small gasoline engines, industrial robots, androlling stock

Kawasaki Motors Corp., U.S.A.

U.S.A.

US$65,900*

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

Kawasaki Motors Finance Corporation

U.S.A.

US$10,000*

100.00Inventory financing for dealers of Kawasaki
Motors Corp., U.S.A.

KM Receivables Corporation

U.S.A.

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

Canadian Kawasaki Motors Inc.

Canada

C$2,000*

100.00Kawasaki Motors Europe N.V.

Netherlands

A14,093*

100.00Distribution of motorcycles, ATVs, and Jet Ski®
watercraft in Canada
Sole distribution of motorcycles, ATVs, Jet Ski®
watercraft, and small gasoline engines in Europe

Kawasaki Motors Pty. Ltd.

Australia

A$2,000*

100.00Distribution of motorcycles, ATVs, and Jet Ski®

P.T. Kawasaki Motor Indonesia

Indonesia

US$20,000*

58.50

Manufacture and distribution of motorcycles

Kawasaki Motors (Phils.) Corporation

Philippines

P101,430*

50.001watercraft in Australia
in Indonesia
Manufacture and distribution of motorcycles in
the Philippines
Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Thailand

B1,900,000*

92.63

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

U.S.A.

US$1,000*

100.00

Manufacture and distribution of motorcycles
in Thailand
Sale and after-sales service of industrial robots
in the United States

Kawasaki Robotics (UK) Ltd.

U.K.

£917*

100.00Kawasaki Machine Systems Korea, Ltd.

Korea

W1,500**100.00

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

Annual Report 2005 •

55

Name

Location

Kawasaki Precision Machinery Ltd.

Japan

Paid-in Capital

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

Principal Businesses

OTHER
3,000

100.00Design, manufacture, sale, after-sales service, andmaintenance for hydraulic machinery and equipment,
electric-powered devices, and control systems

Kawaju Shoji Co., Ltd.

Japan

600

70.00

Kawasaki Life Corporation

Japan

400

100.00

Trading
Administration of Company welfare facilities; realestate sales, leasing, and construction; insurance
representation, administration and maintenance,leasing, and provision of loans

Kawasaki Precision Machinery (U.K.) Limited

U.K.

£5,000*100.00

Manufacture and sale of hydraulic products

Kawasaki Heavy Industries (U.K.) Ltd.

U.K.

£500*

100.00

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

Flutek, Ltd.

Korea

W1,310**50.38

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

JP Steel Plantech Co.†

Japan

1,995

24.81

Sales and engineering services of steelworks plant

Kawasaki Safety Service Industries, Ltd.†

Japan

1,708

34.45

Manufacture, sale, and installation of hospitaland equipment
respiration, fire-extinguishing, and medical
equipment
Kawasaki Setsubi Kogyo Co., Ltd.†

Japan

1,581

33.86

Design and installation of air-conditioning, heating/cooling, water supply/disposal, and sanitary facilities* Monetary unit in thousands** Monetary unit in millions†
Affiliate accounted for using equity method
Partially included in:● Rolling Stock, Construction Machinery & Crushing Plant★ Gas Turbines & Machinery❊ Consumer Products & Machinery(As of March 31, 2005)

56 • Kawasaki Heavy Industries, Ltd.

Network

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

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

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

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

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

Shanghai Office

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

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

Nagoya Works 2

Taipei Office7-4, Kanaoka, Tobishima-mura,Ama-gun, Aichi 490-1445, Japan
Phone: 81-567-55-0800
Fax: 81-567-55-0803

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

Nagoya Works 1

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

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

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

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

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

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

Bangkok Office
17th Floor, Ramaland Bldg.,
952 Rama 4 Road, Bangrak,
Bangkok 10500, Thailand
Phone: 66-2-632-9511
Fax: 66-2-632-9515

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

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

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

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

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

Kawasaki Plant Systems, Ltd.
Kobe Head Office
Kobe Crystal Tower,
1-3, Higashikawasaki-cho 1-chome, Chuo-ku,
Kobe, Hyogo 650-8680, Japan
Phone: 81-78-682-5200
Fax: 81-78-682-5574

Tokyo Head Office11-1, Minamisuna 2-chome, Koto-ku,
Tokyo 136-8588, Japan
Phone: 81-3-3615-5200
Fax: 81-3-5690-3159

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

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

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

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

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

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

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

Annual Report 2005 •57

Kawasaki Motors Corp., U.S.A.

Kawasaki Heavy Industries (Europe) B.V.

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

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

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

129 Rama 9 Road, Kwaeng Huaykwang,
Khet Huaykwang, Bangkok 10320, Thailand
Phone: 66-2-246-1510
Fax: 66-2-246-1517

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

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

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

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

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

Kawasaki do Brasil Indústriae 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

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

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

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

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

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

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

58 • Kawasaki Heavy Industries, Ltd.

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

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

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

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

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

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

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

Spain Branch
Calle Plomo 5-7,
Edificio SERTRAM 4,08038 Barcelona, Spain
Phone: 34-93-223-1460
Fax: 34-93-223-1469

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

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

Kawasaki Motors (Phils.) Corporation
Km. 23 East Service Road,
Bo. Cupang, Alabang, Muntinlupa,
Metro Manila 1771, The Philippines
Phone: 63-2-842-3140
Fax: 63-2-842-2730

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

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

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

Tiesse Robot S.p.A.
Via Isorella 32,
25010 Visano (Brescia), Italy
Phone: 39-30-9958621
Fax: 39-30-9958677

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

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

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

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

Kawasaki Heavy Industries (H.K.) Ltd.
Room 4211–16, Sun Hong Kai Centre,
30 Harbour Road, Wanchai, Hong Kong,
People’s Republic of China
Phone: 852-2522-3560
Fax: 852-2845-2905(As of August 1, 2005)

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:World Trade Center Bldg.,
4-1, Hamamatsu-cho 2-chome,
Minato-ku, Tokyo 105-6116, JapanFounded: 1878
Incorporated: 1896

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

Paid-in Capital: ¥81,427,090,720
Number of Shares Issued: 1,443,394,172
Number of Shareholders: 123,047

ADR 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 486 359 20 1 with each ADR representing fourordinary shares.

Number of Employees: 28,682
Stock Exchange Listings:
Tokyo, Osaka, Nagoya
Newspapers in Which Public Notices Are Made:
The Nihon Keizai Shimbun
The Kobe Shimbun

ADR Depository:
The Bank of New York
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-212-815-2042
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://www.bankofny.com/adr
KHI Web Site at: http://www.khi.co.jp(As of March 31, 2005)

Annual Report 2005 •59

Kawasaki Heavy Industries, Ltd.
Annual Report 2005

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