Annual Report 2008
Year ended March 31, 2008

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

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

1
2
6
12
14
16
18
20
22
24
26
27
34
36
37
38
40
55
56
58
61
63

Forward-Looking Statements
Forecasts regarding the Company’s plans and strategies contained in thispublication were prepared based on information available at the time theforecasts were prepared. The Company’s actual performance may differ
from the forecasted figures due to a range of factors.
Cover:
The facility shown on the cover recovers the heat from gas emitted bycement plants and uses it to generate electricity. In the case of a standard
cement plant (with two 5,000 ton kilns), such electric power generation
facilities can reduce the consumption of electricity for the plant as a whole
by about 30%, thus contributing to energy conservation. In addition, sincesuch facilities generate power without the use of fuel, they can substantially reduce the burden on the natural environment, including cuttingback CO2 emissions.

Consolidated Financial Highlights

ANNUAL REPORT 2008

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
Years ended March 31

Thousands of
U.S. dollars

Millions of yen
2008

2007

2006

2008

¥1,438,619¥1,322,487$14,981,008

For the year:
Net sales ......................................................................................... ¥1,501,097
Operating income ...........................................................................

76,91069,142

41,795

767,565

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

35,141

29,772

16,467350,709

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

75,76645,85945,761

756,148

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

50,53839,26941,724504,371

Earnings per share—basic................................................................

¥21.1

¥18.9

¥11.2

$0.21

Earnings per share—diluted.............................................................

20.6

17.2

9.4

0.21

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

5.0

5.0

3.0

0.05

Total assets ..................................................................................... ¥1,378,770¥1,357,980¥1,284,085$13,760,180

319,038

295,378

243,096

3,184,012

Orders received during the fiscal year .............................................. ¥1,610,757¥1,592,688¥1,351,631$16,075,419

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

1,465,155

1,310,444

15,306,018

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

At year-end:
Total net assets ...............................................................................
Orders received and outstanding:
1,533,663

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥100.20 to US$1, the approximate
rate of exchange at March 31, 2008.

Net Sales

Net Income

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

11.5

10

0

05

06

07

08

05

50

0

04

04

100

6.3

400

16.5

150

206.2

200
20

319.0

250

295.4

300

243.1

35.1

30

29.8

1,501.1

1,438.6

350

194.0

800

1,160.3

1,200

1,322.540

1,241.6

1,600

0

04

05

06

07

08

06

07

08

1

To Our Shareholders

KAWASAKI HEAVY INDUSTRIES, LTD.

Our Mission:
Creating New Value for a Brighter
Future and a Better Environment

Review of Fiscal 2008
During fiscal 2008, ended March 31, 2008, the Japanese
economy experienced a generally firm performance inthe first half of the year, despite some destabilizing
factors. In the second half, however, the uncertainty
increased as a result of the marked increase in prices ofraw materials and consumer goods that accompanied
the rise in crude oil prices, the decline in stock market
Tadaharu Ohashi, President

prices, the appreciation of the yen against the U.S. dollar, and other factors. Overseas also, economic conditions were generally stable during the first half of theyear, but, in the second half, while economic conditions
continued to be strong in China and other countries, anumber of factors brought instability to the economic
environment. These included the contraction of credit
and the deceleration of economic growth in the UnitedStates and certain countries in Europe, accompanying
the emergence of the subprime loan crisis in the UnitedStates and other factors.

2

ANNUAL REPORT 2008
Amid these economic conditions, orders won by theBased on this statement, our basic management policies

Kawasaki Heavy Industries (KHI) Group amounted to

are to work to increase customer satisfaction by offering¥1,610.8 billion, ¥18.1 billion, or 1.1%, higher than insuperior products and services that are differentiated by

the previous fiscal year, mainly due to the receipt of atechnology and the Kawasaki brand, increase the corpo-

substantial number of orders for bulk carriers in therate value of the KHI Group, and meet the expectations

Shipbuilding segment. Net sales rose to a record high forof our shareholders as well as customers, employees, andthe third consecutive year, driven particularly by expan-

the community.

sion in sales of the Shipbuilding and Consumer Products& Machinery segments, and amounted to ¥1,501.1 bil-Target Management Indicators

lion, ¥62.5 billion, or 4.3%, higher than in the previous
fiscal year.

With the aim of satisfying the expectations of investors
for profitability, the principal management target indica-

Operating income increased ¥7.8 billion, or 11.2%, over

tor we have adopted is before-tax return on invested

the previous fiscal year, to ¥76.9 billion, boosted by thecapital (ROIC), defined as earnings before interest anddecline in the value of the yen against the U.S. dollar intaxes (EBIT) divided by invested capital. As we work to

the first half of the fiscal year and the return to profit-

maximize ROIC, we are aiming to strengthen our finan-

ability of the Shipbuilding and Plant & Infrastructure

cial position as well as expand profits. Moreover, underEngineering segments. Net income expanded ¥5.4 bil-

our Medium-Term Business Plan “Global K,” we arelion, or 18.0%, to ¥35.1 billion. Both operating income

working to strengthen profitability and have added theand net income figures were at record high levels for theratio of recurring profit* to net sales as another key

second consecutive year.

management indicator.

Our basic dividend policy is to continue to pay stable* Recurring profit is used in accounting standards generally accepted inJapan. It is the sum of operating income, net interest income (expenses),
dividend income, and other non-operating and recurring items.

cash dividends that are appropriate to our performance
while paying careful attention to expanding retained
earnings to strengthen and expand the KHI Group’s

Medium-Term Management Strategy

management base to prepare for future growth. Basedon this policy, and after an overall appraisal of perform-

The KHI Group is currently implementing its Medium-

ance and other factors, we proposed and received

Term Business Plan entitled “Global K,” which began inapproval from shareholders to pay an annual cash divi-fiscal 2007, and will continue through the end of fiscal

dend of ¥5.0 per share for fiscal 2008.

2011. When preparing Global K, we expressed our visionof what the KHI Group should become over the next 10

Management Policies and Objectives

years in the phrase, “Enriching lifestyles and helping
safeguard the natural environment: Global Kawasaki.”

Last year, we issued a new Kawasaki Group Mission

We selected three management concepts: namely,

Statement:“quality followed by quantity,” “selectivity and concentration,” and “creation of new value” to guide our activ-“Kawasaki, working as one for the good of the planet—ities and are now aiming to make the leap to a highly>We are the Kawasaki Group, a global technology

profitable global enterprise focusing on land, sea, and air

leader with diverse integrated strengths.

transportation systems on the one hand and the energy>We create new value—for a better environment andand environmental engineering fields on the other.

a brighter future for generations to come.”

3KAWASAKI HEAVY INDUSTRIES, LTD.
Thus far, we have made steady progress toward the>In the Rolling Stock & Construction Machinery seg-

objectives of our Global K plan, but the operating envi-

ment, which is continuing to receive high levels ofronment in recent months has become quite challenging.

orders in North America and in other areas, we are

Factors accounting for this have included the deteriora-

strengthening our business operating systems in thetion of economic conditions in Japan, Europe, and thethree major markets of Japan, North America, andUnited States; soaring prices of raw materials; increased

Asia outside Japan.

subcontracting costs; the shortage of skilled and experi->Within the Aerospace segment, we are moving for-enced labor; and the appreciation of the yen against theward steadily with the conduct of major projects,

U.S. dollar.

including making preparations to begin the fullscale production of the XP-1 next maritime patrol

To cope with these changes in the currents of the times,

aircraft, completing the development of the C-X

we of the KHI Group have committed ourselves to imple-

next transport aircraft, and expanding production

menting the following three initiatives:of the Boeing 787.
>In the Gas Turbines & Machinery segment, we are>Improving procurement systems to deal with rising

expanding sales of existing products, including jetmaterial prices,

engines for commercial aircraft and industrial gas>Dealing with the appreciation of the yen by increas-

turbines, for which demand continues to be strong.

ing the number of contracts denominated in yen

We are also moving forward with the development

and transactions in multiple currencies, increasingof new products within these existing product cate-

U.S. dollar denominated costs by enhancing overseas

gories, while actively working to expand businessproduction, and making effective use of currency

activities in new product areas, such as high-efficien-

hedging and other techniques, andcy gas engines.

>Coping with the deceleration of the world economy>In the Consumer Products & Machinery segment,by reducing fixed costs, developing new markets,

motorcycles for the industrialized markets, a major,

and implementing flexible sales strategies.

high-priority business in the segment, are facing
tough market conditions because of the effects of

To prepare the way for the next stages of growth in thethe subprime loan crisis and other factors. We are

medium-to-long term, we are conducting an interim

taking steps to improve the profitability and productreview of the Global K plan. In this review, we are examin-competitiveness of our motorcycles for those mar-ing carefully the strategy, implementation measures, thekets, while endeavoring to strengthen our develop-

allocation of resources, and other related issues for eachment and production systems at the global level.

business and product in light of market trends and competitiveness. Through this steady business management

Next, in our Plant & Infrastructure Engineering segment,

approach, we are aiming for the KHI Group as a whole toin fiscal 2008, we completed the drastic reforms that wereach its medium-term objectives by fiscal 2011.

have been implementing in recent years. Going forward,
under the new business structure for this segment, with

The strategies for individual businesses under the Global

Kawasaki Plant Systems, Ltd., as its core, we have adopt-

K plan are as follows. First, in the Rolling Stock &ed policies to accelerate the development of the energy

Construction Machinery, Aerospace, Gas Turbines &and environmental engineering businesses as cited in our

Machinery, and Consumer Products & Machinery seg-

Global K plan.

ments, which are the earnings base of the KHI Group,
we are working to maintain and expand our earning

In addition, we are steadily strengthening our earnings

power by implementing the following measures.

base and expanding the business operations of the
Shipbuilding segment operated by Kawasaki Shipbuilding

4

ANNUAL REPORT 2008
Corporation and the Hydraulic Machinery segment con-

Exchange Law in Japan, we established a specialist unit

ducted by Kawasaki Precision Machinery Ltd. Looking

for the KHI Group as a whole in the CSR Department,

ahead, the KHI Group will provide support for thesewith the goal of ensuring the appropriateness of finan-

subsidiaries and implement the following measures.

cial reporting. We also took measures to put in order
KHI’s Company rules and regulations relating to internal>In the Shipbuilding segment: Strengthen optimal

control systems.

production systems for the Kawasaki Shipbuilding
Group, including its operations in China

Going forward, we will continue to take thoroughgoing>In the Hydraulic Machinery segment: Invest manage-organizational initiatives to promote compliance andment resources flexibly and strengthen its global

enhance internal controls and, along with these initia-

operating system with bases in five geographic

tives, work to create a corporate culture that places high-regions: Japan, the United States, Europe, China,

est priority at all times on information disclosure andand Korea.

transparency.

In our industrial robots and construction machinery

The KHI Group will work to increase its enterprise value bybusinesses, we will aim to increase the value of thesestrengthening profitability throughout its business opera-

business operations by implementing the original strategy

tions and placing strong emphasis on compliance andof these businesses to establish a position as a specialist

internal controls, with the aim of building further trust inin their respective markets and draw fully on their

the Kawasaki brand. We look forward to the continuing

autonomy within the context of Group management.

support and cooperation of you, our shareholders.

Compliance and Internal Controls
June 2008
To conduct the business activities previously mentioned
successfully, I must emphasize that compliance withapplicable laws and regulations will be a major precondition. We of the KHI Group have taken “We will absolutely not engage in illegal activities” as our basic guideline
for our business activities. To promote compliance, ourTadaharu Ohashi

CSR Department has taken a leadership role in preparing

President

internal rules and regulations regarding corporate ethics
and in conducting compliance training activities for various levels of management and staff, distributing various
types of guidebooks, and creating autonomous inspection committees within each of our organizational units.
In addition, based on our Group mission, as set forthin the Kawasaki Mission Statement, we will aim tostrengthen our corporate systems to make them more
efficient and ensure KHI’s adherence to relevant laws
and work to maintain and improve KHI’s internal control
systems. During fiscal 2008, in view of the implementation, beginning with fiscal 2009, of internal control
reporting systems based on the Financial Products &5

An Interview with Tadaharu Ohashi, President

KAWASAKI HEAVY INDUSTRIES, LTD.

Q:

How would you evaluate KHI’s results
for fiscal 2008?

had turned a profit; this improvement in profitability
gave clear evidence of the success of our structuralreforms.

Fiscal 2008, ended March 31, 2008, was thesecond year under our Global K Medium-Term

Also during fiscal 2008, in line with the priority

Business Plan. As in the previous fiscal year, net

policies set under the Global K plan, we conductedsales and net income set new records for the KHI

an overall review of subsidiaries and affiliates, andGroup. The positive factors in the business environ-made it clear that we would promote the develop-

ment more than offset the negative influences.

ment of the energy and environmental engineering

Positive factors included the decline in the value ofbusinesses. In addition, to clarify and further devel-

the yen in the first half of the fiscal year and growth

op our corporate vision under Global K, we pre-in newly emerging economies, such as China. On

pared our Kawasaki Mission Statement. In this sense

the other hand, negative influences included risingalso, I believe fiscal 2008 was a year of important

costs, such as—first and foremost—the increase inaccomplishments.

material prices and the continued decline in publicworks projects in Japan.
Under Global K, we have made steady progressover the past two years toward strengthening the
KHI Group’s earnings base by making reforms in orwithdrawing from unprofitable business and boosting the profitability of individual businesses. The
Shipbuilding segment and Plant & Infrastructure
Engineering segment reported profits for fiscal

Q:

You are confronting some major challenges in the operating environment,
including the sharp increase in prices ofcrude oil and steel materials as well as
the decline in the value of the U.S. dollar. Will these issues have an effect onprogress under the Global K MediumTerm Business Plan?

2008, thus bringing all KHI Group operating seg-

6

ments into the black. The Plant & Infrastructure

You are correct. Certainly around late last year,

Engineering segment especially reported a sharp

economic conditions around the world began to

improvement in operating income, to ¥10.8 billion.

weaken rapidly, and the operating environment

This was the first time in four years the segment

took a turn for the worse because of developments,

ANNUAL REPORT 2008

We have completed our structural reforms.
We are now steadily moving toward thenext stage in our growth.

such as the decline in the value of the U.S. dollar

Sales and Profit Trends of the KHI GroupYears ending March 31(Billions of yen)
120

(Billions of yen)
2,000

Net sales (right scale)Operating income (left scale)
Recurring profit (left scale)and the increase in raw material prices. The net sales
and profit of the KHI Group have risen steadily since
fiscal 2005, but there is a strong possibility that thisyear, fiscal 2009, we may reach a temporary plateau
in performance. Accordingly, we are working hard100

to cut material costs and outsource expenses,
1,500

increase the percentage of costs denominated in
U.S. dollars, and reduce fixed costs. Despite this,80

however, it is our judgment that even now the KHI
Group as a whole is still on the medium-to-long
60

1,000

term growth trend set under the Global K plan.
At present, we are conducting an interim review
of Global K, as we scheduled when we initially40

launched the plan. Our appraisal is that, even now,500

provided the yen remains at ¥105 to the U.S. dollar,
we are still on track to meet our profit targets for

20

fiscal 2011. Those are ¥100 billion in operating
income and ¥90 billion in recurring profit. In fiscal
00(Billions of yen)

Net sales

2005
actual

2006
actual¥1,241.6 ¥1,322.5

2007
actual

2008
actual2007 and fiscal 2008, the first two years under
Global K, we completed the KHI Group’s structural

2009
projection

2011
projection¥1,438.6 ¥1,501.1 ¥1,460.0¥1,560.0

we will make major strides forward toward our goalof becoming “a highly profitable global enterprise.”

Operating income

24.7

41.8

69.1

76.9

55.0

100.0

Recurring profit

21.0

30.9

49.1

64.0

55.0

90.0

Ratio of recurring
profit* to net sales

1.7%

2.3%

3.4%

4.3%

3.8%

5.8%

Before-tax ROIC

4.8%

5.1%

8.7%

11.2%

9.4%

14.0%

Foreign exchange rate** ¥108/US$ ¥112/US$ ¥117/US$ ¥115/US$ ¥100/US$¥105/US$* Recurring profit: See page 3.
**Exchange rates are calculated on a sales weighted average basis.

reforms, and we have entered a new stage when

7

KAWASAKI HEAVY INDUSTRIES, LTD.

Q:

What are your strategies for your corebusinesses and how are they faring atpresent?

aircraft is proceeding to ready them for their firstflights. At present, we are building a new plant in
Nagoya to handle increased production related to
the Boeing 787, and, for the time being, major capi-

Among our four core businesses, in the Rolling

tal investments and R&D expenditures will be neces-

Stock field, we are implementing a medium- tosary. Upon the completion of development work,

long-term strategy with emphasis on overseas mar-however, we want to move smoothly into volume

kets. Although demand for rolling stock in Japanproduction and make these activities a principal

has emerged, including cars for the Shinkansen andsource of earnings for the KHI Group going forward.

other lines, demand is especially strong in overseas
markets, including the advanced and the newly

We are working toward the steady expansion of

emerging economies. To meet demand from theour energy-related and transportation-related activi-

production side, we have retooled a portion of ourties within the Gas Turbines & Machinery segment.

Harima Works to manufacture rolling stock. That

Performance of gas turbine electric power genera-brings our total number of production bases aroundtors for emergency and regular use continues to be

the world to four. The first three are the Hyogo

favorable, and, at present, we are aiming for earlyWorks, our main rolling stock plant, and two

firm orders for our ultralow NOx emission gas

plants in the United States in Lincoln, Nebraska,

engine, which we developed in fiscal 2007. Thisand Yonkers, New York. Right now, we are also

engine is the most efficient of its kind in the world,

investing to double capacity at the Lincoln plant,

and is smoothly undergoing testing. Also, inand the new facilities are scheduled to go into

response to the increase in orders for the V2500 jet

operation shortly.

engine, we are expanding production, while continuing preparations for volume production of the

8

In the Aerospace segment, activity in three major

TRENT 1000 jet engine, which will power thedeveloping projects, the XP-1 and C-X large-scale

Boeing 787. In addition, as a result of strong condi-

defense aircraft and the Boeing 787, is approachingtions in the shipping market, orders for ship equip-

the final stages. Of these three, we are scheduled

ment are continuing to be strong. In fiscal 2008, weto begin deliveries of the XP-1 at the end of August

expanded production capacity for jet engine pro-this year. Development work on the other two

duction at our Kobe Works, and, during the current

ANNUAL REPORT 2008

fiscal year, we are investing in additional capacity

continue to grow in these areas. The KHI Group hasfor marine equipment and systems at our Harimaa broad range of technologies to respond to theWorks and Kobe Works.

needs of customers in these businesses, and, therefore, under Global K, we are making effective inputs

In the Consumer Products & Machinery segment,of management resources into the energy and envi-

the operating environment has become challenging

ronmental engineering businesses to develop thesein our core motorcycle business because of theactivities into powerful pillars of KHI Group opera-

downturn in the U.S. economy, adverse foreign cur-tions. At present, the core of these business activi-

rency movements, and other factors. In the industri-ties is Kawasaki Plant Systems (K Plant), and we arealized nations, which are the core markets for theseworking to strengthen its business activities. Also,

motorcycles, we are working to create an even

we believe that a cross-divisional business concept isstronger brand image that equates the Kawasaki

conceivable. For example, in the natural gas-related

brand with high performance. To this end, we arebusiness, systems span a range of activities. These

strengthening our development and design capabil-

begin with activities requiring machinery for trans-

ities. Also, we are adopting a strict front-loading

porting gas from offshore platforms located in theapproach in our development activities, and, invicinity of undersea gas fields to land bases, vessels

Southeast Asia, working to reduce costs byfor transporting gas, storage tanks, and power-

strengthening our production and procurement.

generation systems. With our technology and comprehensive Group capabilities, we are positioned to
expand our activities in the energy area all along theQ:

What management directions are you
planning to take in the energy andenvironmental engineering businesses,
which you are strengthening to build asa new earnings base?

supply chain. We believe it will also be importantto forge future-oriented business concepts froma long-term perspective.

The worldwide markets for the energy and environmental engineering businesses are expanding
robustly, and, going forward, we expect demand to

9

AbcdeKAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007

Q:

What is the outlook for the three
KHI Group companies Kawasaki
Shipbuilding Corporation, Kawasaki
Plant Systems, and Kawasaki Precision
Machinery?

energy demand. K Plant’s joint venture in China
with the CONCH Group, which is engaged insupplying waste heat recovery power generation
systems for cement plants, is reporting robust
expansion. Our policy will be to expand this businessfurther. As I said a moment ago, K Plant is the core

Conditions in the shipbuilding business are highly

company in the energy and environmental engineer-favorable around the world. Kawasaki Shipbuilding

ing areas, which KHI is working to strengthen under

Corporation is continuing to strengthen in its tech-

its Global K medium-term plan. Through these activ-

nology for high-value-added vessels, principally gas

ities, we are drawing on various energy-saving tech-carriers and submarines, while also strengthening

nologies and environmental technologies to develop

the cost-competitiveness of its joint venture in

K Plant’s activities globally while contributing to

China, Nantong COSCO KHI Ship Engineering Co.,

environmental preservation around the world.

Ltd. (NACKS). In line with these policies, Kawasaki
Shipbuilding Corporation has redesigned the layout

Kawasaki Precision Machinery is reporting steadyof both its Kobe and Sakaide shipyards for greater

growth, principally in its core business of hydraulicefficiency. Also in May 2008, NACKS began opera-

equipment for power shovels, and the importancetions at its No. 2 dock that was under constructionof its businesses within the KHI Group is growing.

as part of that company’s second-phase expansion

This company is working to upgrade its production

program and ship construction has begun. Its addi-

and sales centers around the world, which include

tional capacity through this program will makeproduction bases in Japan, Europe, China, andpossible business expansion and improvement in

Korea and a marketing center in the United States.

earnings power.

Through these activities, KPM is working to significantly raise its presence among manufacturers in the10

K Plant, which is responsible for KHI’s Plant &world’s hydraulic shovel market, while also aiming

Infrastructure Engineering segment, is also reporting

to enter new markets through the development

a strong performance as a result of strict policies ofof combined electro-hydraulics technologies. To

the selective acceptance of orders and thoroughgo-

respond its increasing work volume, Kawasaki

ing risk management and worldwide expansion in

Precision Machinery built a new plant on theAbcdeANNUAL REPORT 2008

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007

grounds of its Kobe headquarters plant, but is

Looking ahead, we will give close attention to ourscheduling further additions to its production facili-

financial position and will use every means at ourties this fiscal year.

disposal to keep the D/E ratio below 100% andincrease our return on capital. After the KHI Groupattains the objectives of Global K, to continue to

Q:

The KHI Group is making substantial
capital investments. How is this
impacting your financial position?

grow, it will be necessary to make aggressive
investments in R&D and capital. Accordingly, we
intend to make the investments that are neededin the medium-to-long term.

Strengthening the KHI Group’s financial position
has been an issue for some time, but as performance has improved in recent years, we have madesteady progress toward reducing interest-bearing
debt. At the end of fiscal 2008, interest-bearing

Q:

In closing, do you have a special
message you would like to giveto KHI shareholders?

debt stood at ¥276.4 billion, and the debt-to-equity(D/E) ratio was 82%. Under our medium-term plan,

As I mentioned previously, the KHI Group has

the target is to reduce the D/E ratio to 100% orcompleted its structural reforms and is now poised

less, but along with the increase in capital invest-

to move toward the next stage in its growth. Thisments for business expansion going forward, thefiscal year will be the midpoint in our Global K plan

outlook is for an increase in interest-bearing debt.

and will be a crucial time for confirming where westand as well as take the necessary measures to

We are planning to increase capital investments thissecure growth going forward. The deterioration in

fiscal year by a multiple of two over the previous fis-the operating environment is a major cause for con-cal year, to ¥110 billion. Under Global K, we werecern, but in the medium-to-long term, my judg-

planning on total investments over five years ofment is that the growth potential and power of the¥300 billion, but because of the need to increase

KHI Group is steadily increasing. We are committed

production to meet demand, we believe, at present,

to continuing to exert our fullest efforts to reachthat the total amount of capital investments will

the goals of Global K and look forward to theexceed ¥350 billion.

support and cooperation of our shareholders.

11Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.
Main Products• LNG carriers• LPG carriers• Container ships• VLCCs (Very Large Crude Carriers) and other types of tankers• Bulk carriers• High-speed vessels• Submarines• Maritime application equipment

Shipbuilding

LNG carrier CELESTINE RIVER

Submarine MOCHISHIO

12

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

100,000
30,00050,0000

07

100,000

05

06

07

08

Business Results
Due to strong conditions in world shipping markets, global
order volume for bulk carriers remained at a high level andnewbuilding prices were also high during fiscal 2008. Amid
this operating environment, the Shipbuilding segment securedorders for 28 vessels: namely, two LNG carriers, three LPG carriers, 22 bulk carriers, and one submarine. As a consequence,
total orders received increased ¥115.7 billion, or 85.3%, to¥251.3 billion.
Sales reported in fiscal 2008 rose ¥32.5 billion, or 29.9%,
to ¥141.4 billion.
The segment reported an operating income of ¥3.3 billion,
which represented a ¥5.5 billion improvement from the ¥2.2
billion operating loss reported in fiscal 2007. This rise in operating income was due to higher sales and an improvement in
operating margins.
In newbuilding activity, the segment delivered 11 vessels in all:namely, two LNG carriers, two LPG carriers, one VLCC, fivebulk carriers, and one submarine.

Outlook
Kawasaki Shipbuilding Corporation, which is the core company of this segment, has an extensive track record in building
gas carriers and submarines, which require advanced designand construction technologies. Its vessels continue to win highmarks from customers for their performance and quality.

414,176

313,98706

200,000

004

300,000

193,705

150,000

400,000

289,227

251,331200,000

135,600

109,697

108,849

250,000

155,832

60,00094,93990,00087,081

120,000

500,000

263,707300,000

128,323

150,000

141,397

9.4%

Sales

123,756

Percentage of Net Sales

0

04

05

08

04

05

06

07

08

from small carriers with cargo tank capacities of 19,000m3 tolarger carriers of more than 150,000m3. We have also developed and offer in our lineup a pressure build-up type LNG
carrier for short-distance and small-volume transportation. In
addition, in fiscal 2008, we developed a large-scale LNG carrier
with a cargo tank capacity of 177,000m3 and received twoorders for this new vessel. Looking ahead, to respond to
customer needs, we will draw on cutting-edge technologies
to develop new-type LNG carriers.
Nantong COSCO KHI Ship Engineering Co., Ltd. (NACKS),
which Kawasaki Shipbuilding Corporation established as a
joint venture with China Ocean Shipping (Group) Company,
has now marked the 13th year of operations since its founding and has become one of the leading shipbuilding companies in China. To respond to burgeoning demand for theconstruction of large-scale vessels in China and elsewhere,
NACKS began construction work on its second expansionary
phase in 2005. As part of this phase, NACKS began operations at its second shipbuilding dock in May 2008, and theconstruction of new vessels in this facility has commenced.
In addition to the building of the second dock, NACKS has
expanded and strengthened its capacity for internal fabrication, assembly, and painting in each of its facilities. Also,
NACKS is working to expand its capacity substantially byextending the length of its outfitting quay.
Kawasaki Shipbuilding Corporation and its group of companies, including NACKS, are endeavoring to enhance their technologies related to ship design, manufacturing, and quality
assurance to reinforce their ability to compete globally in termsof both quality and costs and thus sustain their development
into the future.

Following the delivery in 1981 of the first LNG carrier built inJapan, we have established ourselves as a pioneer in this field.
We offer a wide-ranging lineup of LNG carriers, extending

13

Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.

Rolling Stock &Construction Machinery

Series 10000 subway cars for the Traffic Bureau of Yokohama City

Wheel loader Authent 115ZV-2

14

Main Products• Electric train cars (including for Shinkansen bullet trains)• Electric and diesel locomotives• Passenger coaches• Integrated transit systems• Monorail cars
• Platform screen doors• Wheel loaders

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

269,120

434,41905

346,31004

431,377

200,000

300,837

300,000

294,017

100,000

50,000400,000

183,254200,000

203,165

171,739

500,000

178,369

100,000

120,597

150,000

184,283

300,000

168,306

200,000

171,731

11.4%

Sales

153,399

Percentage of Net Sales

07

08

100,000

0

0

04

05

06

07

08

Business Results
During fiscal 2008, demand for rolling stock remained strongin North America, Japan, and elsewhere in Asia. In Japan,
orders were received from the Japan Railways Group for
Shinkansen trains, commuter train cars, locomotives, freightcars, and other rolling stock. Orders were also obtained fromboth public and private railway companies for subway cars,
commuter train cars, and other rolling stock. Additional orders
from overseas customers included those from the New York
City Transit Authority and other sources. However, in comparison to the previous fiscal year, when major orders wereobtained from overseas customers, orders during the fiscal
year under review declined ¥85.9 billion, or 31.9%, from ayear earlier, to ¥183.3 billion.
Even though deliveries of rolling stock to the Japan Railways
Group expanded during fiscal 2008, deliveries to overseas
customers declined. As a consequence, overall sales of thissegment declined ¥12.5 billion, or 6.8%, to ¥171.7 billion.
Sales of construction machinery were at approximately thesame level as in the previous year, despite declines in sales
in North America, as exports to other areas expanded. Alongwith the overall decline in sales of this segment, operating
income decreased ¥6.0 billion, or 45.5%, to ¥7.2 billion.

0

04

05

06

07

08

06

As Japan’s largest manufacturer of rolling stock, KHI is working aggressively to meet this rising demand and is working to
expand and upgrade its production systems, which are locatedin Hyogo and Harima in Japan and in Lincoln, Nebraska, andYonkers, New York, in the United States. Of special note is thesegment’s Lincoln plant, which originally went into operation
as a fully integrated rolling stock production facility in 2002. At
present, work on a new facility that will double the production
capacity of the Lincoln plant is under way and is scheduled forcompletion in the near future. In Japan, along with the Hyogo
Works, which is the “mother factory” for Kawasaki’s worldwide rolling stock operations, the Harima Works has recently
begun manufacturing a portion of Kawasaki’s rolling stock
output.
In new product development, Kawasaki completed its nextgeneration light rail vehicle (LRV), dubbed SWIMO, in fall2007, and work is currently under way to introduce this leading-edge LRV to the market. SWIMO is powered by KHI-developed onboard nickel-metal hydride Gigacell® batteries and iscapable of running for more than 10 kilometers without a supply of electricity from overhead lines. The SWIMO has featuresthat are friendly to human beings and the natural environment, including a spacious, barrier-free configuration with alow floor. SWIMO also has a regenerative electric power system that achieves substantial energy conservation by accumulating the power generated when the LRV’s brakes are used.

OutlookIn recent years in the industrialized countries, there has beena pronounced “modal shift” to the use of railways as the principal means for mass transportation because of the lower
burden on the natural environment. In addition, the numberof new projects for the construction of urban transport andinterurban transport systems has increased in the newly industrializing countries. Expansion in demand for rolling stock is
expected to continue on a global basis in the long term.

In the construction machinery business, adjustments in the
U.S. market are expected to continue, but high rates ofgrowth are expected to prevail in the markets of the Middle
East, Asia outside Japan, Eastern Europe, Russia, and elsewhere. Activities are in progress to upgrade Kawasaki’s global
sales and service systems for construction machinery, focusing
on the ZV 2-Series wheel loader, and to significantly enhance
the presence of the Kawasaki brand through supplying
advanced products that are environment-friendly and incorporate energy-saving features.

15

Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.
Main Products• CH-47, OH-1, and BK117 helicopters• Component parts for the Boeing 777 and 767 passenger airplanes• Component parts for the Embraer 170 and 190 jet aircraft• Missiles• Electronic equipment• Space equipment

Aerospace

XP-1, the next maritime patrol aircraft

Boeing 787 Dreamliner

16

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

100,000

100,000

286,699

301,599

150,000

248,332

200,000

287,441

250,000

260,321

255,613300,000

202,506

229,257

200,000

350,000

214,702

188,255

173,783

200,000

237,349

300,000

269,108

300,000

218,533

15.8%

Sales

216,201

Percentage of Net Sales

100,000
50,000

0

0

04

05

06

07

08

Business Results
Orders received in the Aerospace segment were ¥53.1 billion,
or 20.8%, lower than for the previous fiscal year and amounted to ¥202.5 billion. Although the segment continued toreceive orders for component parts for the Boeing 787 and
Boeing 777, orders for aircraft from Japan’s Ministry of
Defense (MOD) declined from the prior year.
This segment’s sales declined ¥31.8 billion, or 11.8%, to¥237.3 billion, owing to lower sales to the MOD. Along withthe decline in sales, operating income receded ¥2.5 billion,or 18.8%, to ¥10.9 billion.

Outlook
KHI is the prime contractor for the development of the MOD’s
large-scale XP-1 and C-X aircraft, which have been ongoingsince 2001. KHI has acted as the core company and spearheaded the simultaneous development of these two aircraft
types. These are the largest aircraft projects being implemented currently in Japan. Since the maiden flight of the first XP-1,
the next maritime patrol aircraft, in September 2007, development has proceeded smoothly, and the first XP-1 is scheduled
to be delivered to the MOD in August 2008. The first flight of
the C-X, the next transport aircraft, will take place shortly, andthe first C-X will be delivered to the MOD during the current
fiscal year.

0

04

05

06

07

08

04

05

06

07

08

piece-structure fuselage, which is the world’s first to be used
in a commercial aircraft, as well as other key components.
The Boeing 787 is scheduled to go into service next year, and,to date, orders have been received for approximately 900 aircraft. Accordingly, to be prepared for the commencement offull-scale production, KHI is currently building another new,dedicated facility on the south side of its Nagoya Works 1,
which will be the second such dedicated facility for producing
key 787 components following the facility completed at the
Nagoya Works 1 in 2006.
Accompanying progress on these two major development
projects in the Aerospace segment, one for defense aircraft
and the other for commercial aircraft, up-front capital expenditures and development expenses are expected to run ahead ofrevenue streams. However, both projects are extremely important and will have a major impact on the future of KHI’s aerospace business. KHI is committed to successfully executing
these two projects and the creation of a production structure
and capabilities for both MOD-commissioned and commercial
aircraft that will reinforce its operational foundation for thelong term and put KHI solidly on the road to future growth.

In the commercial aircraft field, development work on Boeing’s
cutting-edge 787 Dreamliner passenger aircraft, which features advanced design and employs revolutionary production
technology, is drawing to a climax. KHI is a partner corporationin the development and production of the 787 Dreamliner andis responsible for the forward section of the composite, one-17

Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.

Gas Turbines & Machinery

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

15.9 MW gas turbine cogeneration system for MC Shiohama Energy Service Corporation

Kawasaki Green Gas Engine

18

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

100,000

50,000

0

05

06

07

08

Business Results
Orders received by this segment increased ¥22.6 billion, or
11.0%, from the previous year, to ¥227.4 billion, due toorders for helicopter engines for Japan’s Ministry of Defense(MOD), gas turbine power generation systems for customers
in Japan and overseas, and land-use steam turbine systems.
Other orders included components for commercial aircraft
engines, including the V2500 and TRENT, diesel engines, andpropulsion systems for ships.
Sales of this segment expanded ¥2.2 billion, or 1.2%, to¥185.5 billion. Although sales of steam turbines for ships
declined, sales of components for commercial aircraft engines
and natural gas compression modules increased. Operating
income rose ¥3.6 billion, or 36.1%, to ¥13.4 billion, as a resultof higher sales of commercial aircraft engine components andother products.

Outlook
The Gas Turbines & Machinery segment has a wide range of
products for the energy and transportation equipment field, andboth of these markets are increasing along with growth in the
global economy. In response to increasing demand, we constructed a new plant at the Seishin Works and are rearranging
the Harima Works to strengthen its production capabilities.

245,962

216,886

50,000004

195,108

227,422150,000

163,440

100,000

50,000200,000

140,327

150,000

188,068

200,000

204,847

250,000

162,700

141,366

100,000

136,468

150,000

185,486

250,000

183,309200,000

161,431

12.4%

Sales

129,987

Percentage of Net Sales

0

04

05

06

07

08

04

05

06

07

08

Also, in the oil and gas field, KHI has extensive experience as aworld-leading manufacturer of natural gas compression modules for offshore platforms. Along with the rise in demand fornatural gas, needs for these gas compression modules are
increasing as a key component for gas field development.
Moreover, the Kawasaki Green Gas Engine, which was developed in 2007 and has a power-generating capacity of 8MW,
is currently undergoing successful operational testing. In thesetests, this engine has steadily performed at the world’s best
electric generation efficiency level of 48.5% on grid-connected
operations, and has shown a top-level environmental performance.
In the transportation equipment field, strong growth in thecommercial aircraft market is driving the increase in demandfor commercial aircraft engine components, including theV2500, which powers the Airbus A320 aircraft. In addition, weare making preparations for the volume production of TRENT
1000 components, a new commercial aircraft engine powering
the Boeing 787. We expanded production capacity at the
Seishin Works in Kobe to respond to sustained growth indemand for engines.
In the field of ship propulsion systems also, reflecting strong
shipping market conditions, the segment is reporting a strong
flow of new orders, and, therefore, has been rearranging theHarima Works in order to start the manufacturing of theseproducts.

In the energy field, demand for environment-friendly gas turbine generators with high overall efficiency is increasing worldwide. As Japan’s largest manufacturer of small to medium-sizedgas turbine power generators, KHI intends to expand its global
market share through offering comprehensive solutions for its
customers, including after-sales services and maintenance,along with a strong lineup of in-house developed gas turbines.

19Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.

Plant & Infrastructure
Engineering

Main Products• Cement, chemical, and other industrial plants• Power plants• Municipal refuse incineration plants• LNG and LPG tanks• Shield machines and tunnel boring machines

Waste heat recovery power generation system for cement plants for China

Coke oven gas recovery power plant for Brazil

20

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

0

0

04

05

06

07

08

Business Results
During fiscal 2008, orders were received for various types ofindustrial plants, including a boiler turbine power plant andcement waste heat power plants, as well as orders for shieldmachines. However, as a result of the receipt of large-scaleorders, including cement plants in the previous fiscal year,
orders for the year under review declined ¥44.2 billion, or
29.4%, from the previous fiscal year, to ¥106.0 billion.
Sales, however, rose ¥20.5 billion, or 16.8%, to ¥142.5 billion, because of higher revenues from an LNG base and, inoverseas markets, from sales of cement and fertilizer plants.
As a result of the increase in sales and reduction in the number of unprofitable projects, the operating income of thissegment improved ¥13.2 billion, from an operating loss of¥2.4 billion in the previous fiscal year to operating incomeof ¥10.8 billion during the fiscal year under review.

Outlook
Along with the growing seriousness of environmental issues
and economic expansion in the BRICs and other countries,
global demand is expanding for infrastructure equipmentthat contributes to environment preservation, energy saving,
and conservation of resources. Kawasaki Plant Systems, Ltd.
(K Plant), which is responsible for this business segment, isaggressively working to further develop its business activities
to meet these needs by drawing on its accumulated technologies to supply energy-related, industrial infrastructure,and environment preservation systems and equipment.

172,255

135,288

210,160

100,000

144,147

273,837

150,221

126,403

50,000200,000

106,046

50,000100,000

300,000

97,332

142,547

164,506

100,000

150,000

122,062150,000

200,000

191,412200,000

191,012

9.5%

Sales

156,145

Percentage of Net Sales

0

04

05

06

07

08

04

05

06

07

08

procurement, and sales of waste heat recovery power generation systems for cement plants. Following the establishment of
ACK, in 2007, K Plant established Anhui Conch Kawasaki
Energy Conservation Equipment Manufacturing Co., Ltd.
(CKM), which is engaged in the manufacturing of PH boiler
parts that are employed in waste heat power plants. Also, in
April 2008, to expand the environmental and energy efficientequipment businesses, K Plant made the decision to commence the manufacturing and sales of environmental preservation related products within CKM. These products will
include cement plant components, such as high-efficiency
vertical mills, AQC boilers for waste heat recovery power generation systems, waste gasification systems, and sewage treatment systems. Going forward, K Plant will strengthen its
partnership ties with the Anhui Conch Group, the parent company of Anhui Conch Cement Company Limited, which is thelargest cement company in China and the fourth largest in theworld, to expand its position in the environmental preservationand energy conservation fields in China.
Under its current Global K medium-term business plan, theKHI Group is endeavoring to strengthen its position in theenergy and environmental engineering business, where major
growth in demand is anticipated in the years to come, withK Plant as the core company. K Plant is aiming to become thetop engineering company in the fields of clean energy andenvironmental preservation by fusing a broad range of technologies, stepping up activities focusing on the developmentof new technologies and products, and improving its businesssystems in the areas of design, marketing, procurement, andother fields.

In China, especially, in 2006, K Plant established Anhui Conch
Kawasaki Engineering Co., Ltd. (ACK), as a joint venture with
the Auhui Conch Group. ACK is engaged in the design,

21Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.

Consumer Products& Machinery

Main Products• Motorcycles• ATVs• Utility vehicles• Personal watercraft• General-purpose gasoline engines• Industrial robots

Ninja ZX-10R

Teryx 750 4x4MX500N

22

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

250,000

200,000

0

0

04

05

06

07

08

Business Results
Sales by this segment in the fiscal year under review increased¥30.3 billion, or 7.5%, to ¥434.0 billion. Although sales ofmotorcycles in the United States declined, this decrease wasoffset by higher sales in Europe. In the industrial robots business, while sales to the semiconductor industry weakened,strong sales to the automobile industry continued. Despite
increased sales in this segment, operating income decreased¥7.9 billion, or 28.6%, to ¥19.7 billion, because of the impact ofincreases in materials prices combined with higher depreciation
and amortization and sales promotional expenses.
Worldwide sales of motorcycles, ATVs, utility vehicles, and personal watercraft amounted to 519,000 units, 17,000 units, or
3.4% higher than in the previous fiscal year. By geographicalregion, sales in Japan amounted to 20,000 units, 1,000 units,
or 4.8% lower than in the previous year. Sales in North
America declined 24,000 units, or 9.4%, to 230,000 units.
However, sales in Europe rose 21,000 units, or 21.6%, to118,000 units, and sales in other regions expanded 21,000
units, or 16.2%, to 151,000 units.

New Models

210,160

273,837

100,000

50,000172,255

100,000

200,000

144,147

100,000

300,000

150,221150,000

126,403366,960

400,000

97,332200,000

338,450

300,000

318,325

400,000

433,963

500,000

403,702

28.9%

Sales

156,145

Percentage of Net Sales

0

04

05

06

07

08

04

05

06

07

08

introduced were the newly redesigned dual-purpose KLX250,
which is becoming more eco-friendly and boasts improved
off-road performance, and the D-TRACKER X, which offers
nimble on-road handling as a motard model. In the ATV
category, we restyled the flagship Brute Force 750 4x4i
and installed an electronic fuel injection system. Among utility
vehicles, we introduced the new Teryx 750 4x4 series forrecreational use.
* ABS: Anti-lock Braking System

OutlookIn the current fiscal year, we are forecasting that total worldwide sales in unit terms of motorcycles, ATVs, utility vehicles,
and personal watercraft will rise over the previous fiscal year.
Although sales to the U.S. market are expected to decline thisfiscal year as a result of the economic downturn in that country, this decrease will be more than compensated for by higher
sales in Southeast Asia. In the motorcycle business, we areworking to increase our development and design capabilities
and will launch models that will further strengthen the imageof the Kawasaki brand for high performance and high quality.
In the industrial robot business, we are placing top priority on
allocating corporate resources for R&D and other activities todevelop robots for automobile assembly and painting shops
as well as for semiconductor manufacturing processes.

New models introduced in fiscal 2008 were as follows. In the
Kawasaki motorcycle line, we made a full model change inthe flagship ZZR1400 ABS* model, which now meets stricter
exhaust emission regulations and features improved driving
performance, and in the Ninja ZX-10R large displacement
supersport motorcycle. Model changes in the Ninja ZX-10R
were based on technical feedback from a wide range of racing
activities. We also introduced the Ninja 250R in the Japanese,
U.S., and European markets, which is equipped with a full
fairing and is both easy to ride and sporty. Other models

23

Review of Operations

KAWASAKI HEAVY INDUSTRIES, LTD.
Main Products• Industrial hydraulic products

Hydraulic Machinery

Hydraulic products for construction machinery use

Kawasaki Precision Machinery (China) Ltd.

24

ANNUAL REPORT 2008
Orders Received

Order Backlog(Millions of yen)

(Millions of yen)

(Millions of yen)

20,000

0

05

0

04

05

06

07

08

29,31721,0100405

14,74104

10,0009,900

40,00020,00050,18160,00036,06536,871

20,00033,51240,00046,26060,00010,70680,00092,33580,00030,00072,918100,000

84,028100,000

66,649

5.6%

Sales

35,396Percentage of Net Sales

0

06

07

08

06

07

08

Note: The hydraulic machinery business was formerly included in KHI’s Other business segment; however, in view of its growing importance in the
KHI Group’s sales and activities, the results of this business have been reported separately beginning with the fiscal year under review. Datafor previous years have been reclassified and adjusted according to the new segment reporting format, and comparisons with the previous
year have been based on the reclassified and adjusted data.

Business Results
Orders in the Hydraulic Machinery segment increased ¥19.4
billion, or 26.6% over the previous fiscal year, to ¥92.3 billion,
mainly because of a larger volume of orders from the construction machinery industry.
Sales expanded ¥17.4 billion, or 26.1%, to ¥84.0 billion, supported by brisk sales of hydraulic products for construction
machinery, and operating income rose ¥3.1 billion, or 50.4%,
to ¥9.1 billion.

OutlookThe market for construction machinery is expanding worldwide along with activities to improve the social infrastructurein the BRICs and the VISTA* countries, the next group of
emerging industrializing economies. Kawasaki Precision
Machinery Ltd. (KPM) is the core company in this segment,
and to respond to rising demand for hydraulic machinery foruse in construction machinery, KPM is continuing to strengthen its production and marketing systems and capabilities.

In addition, Kawasaki Precision Machinery (China) Ltd. (KPM
(China)) is expanding its plant for the production of hydraulicequipment for construction machinery, and the new facilities
went into operation in July 2008. Established in August 2006,
KPM (China) has engaged in the assembly of knockdown setsof hydraulic pumps, and the new facilities are now engaging
in the assembly of knockdown sets of hydraulic motors andreduction gears.
KPM is currently working to strengthen its international network of five manufacturing and marketing facilities, which
comprises KPM’s headquarters plant and the facilities ofKawasaki Precision Machinery (U.K.) Limited; Kawasaki
Precision Machinery (U.S.A.), Inc.; Flutek, Ltd. (in Korea); andKPM (China). KPM is focusing especially on increasing overallcustomer satisfaction by developing and supplying highquality, high-performance products, responding quickly
and accurately to customer needs, and providing strong
after-sales services.

* VISTA stands for Vietnam, Indonesia, South Africa, Turkey, and Argentina.

First, in the previous year, KPM built a new plant for the production of core parts on the grounds of its headquarters plantin Kobe, Japan, and is currently moving forward with construction on a new plant for manufacturing hydraulic pumps forconstruction machinery. This new plant is scheduled to begin
operations in June 2009, and, at that time, KPM’s headquarters plant will be renovated to increase production capacityfor various types of hydraulic equipment.

25

Six-Year
Abcde Summary

KAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of MarchYears
ended 31,
March
2008
31and 2007

Millions of yen
2008

2007

2006

2005

2004

2003

Operating results:
Net sales ....................................................... ¥1,501,097 ¥1,438,619 ¥1,322,487 ¥1,241,592 ¥1,160,252 ¥1,239,598
Cost of sales .................................................

1,262,032

1,213,524

1,148,547

1,088,219

998,416

1,069,341

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

239,065

225,095

173,940

153,373

161,836

170,257

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

162,155

155,953

132,145

128,629

139,586

139,714

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

76,91069,142

41,79524,744

22,25030,543

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

35,141

29,772

16,467

11,4796,333

13,022

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

50,53839,26941,72429,692

41,50235,165

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

37,45530,27930,551

31,55532,59031,595R&D expenses ...............................................

36,22833,81927,04013,183

14,741

15,494

Financial position at year-end:
Working capital ............................................. ¥ 157,741 ¥ 155,412 ¥ 113,240 ¥ 138,523 ¥ 121,941 ¥ 137,771
Net property, plant and equipment ...............

259,927

253,819

246,219

243,166

248,922234,352

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

1,378,770

1,357,980

1,284,085

1,194,473

1,156,904

1,149,161

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

138,766

165,754

157,057

207,279

210,819

226,936

Total net assets .............................................

319,038

295,378

243,096

206,156

194,030

180,176

Earnings per share—basic .............................

¥ 21.1¥ 18.9¥ 11.2¥¥¥

Earnings per share—diluted ..........................

20.6

17.2

9.4

6.8

4.2

8.8

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

5.0

5.0

3.0

2.5

2.0

2.0

Net assets .....................................................

191.1

178.0

156.1

142.8

134.4

129.6

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

1,670

1,660

1,558

1,443

1,443

1,391

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

30,56329,211

28,922

28,682

29,30628,642Per share amounts ( yen):
7.9

4.4

9.3

Other data:

Orders received ............................................. ¥1,610,757 ¥1,592,688 ¥1,351,631 ¥1,301,845 ¥1,226,728 ¥1,227,449
Order backlog ...............................................

26

1,533,663

1,465,155

1,310,444

1,254,409

1,189,374

1,175,563

Management’s
Discussion and Analysis
Abcde

ANNUAL REPORT 2008

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007

OVERVIEW

return to profitability of the Shipbuilding and Plant &Infrastructure Engineering segments.

During fiscal 2008, ended March 31, 2008, the Japanese
economy continued to show a generally solid performance
during the first half of the fiscal year, despite some uncertainties; however, in the second half of the fiscal year, the substantially greater rise in prices of raw materials and consumer
goods accompanying the run-up in oil prices, declines in stock
markets, the appreciation of the yen against the U.S. dollar,
and other factors resulted in a feeling of lack of transparency
regarding future trends. In overseas economies also, conditionsin the first half of the fiscal year were generally steady.
However, entering the latter half, while the economies ofChina and certain other countries reported favorable performances, the subprime loan issue in the United States and otherproblems led to growing causes for concern, including a credit
crunch in some parts of Europe and North America and aslowdown in growth.
Amid this economic environment, the Kawasaki Heavy
Industries (KHI) Group reported an increase in orders on aconsolidated basis of ¥18.1 billion, or 1.1%, over the previous
fiscal year, to ¥1,610.8 billion. This rise was led by the receipt
of a substantial number of orders for bulk carriers in the
Shipbuilding segment and other items. Turning to revenues,
consolidated net sales rose ¥62.5 billion, or 4.3%, to ¥1,501.1
billion, driven by higher sales in the Shipbuilding and Consumer
Products & Machinery segments as well as other areas.
Profitwise, consolidated operating income advanced¥7.8 billion, or 11.2%, to ¥76.9 billion, and net income grew
¥5.4 billion, or 18.0%, to ¥35.1 billion. This improvement in
profitability was due mainly to the appreciation of the U.S.
dollar against the yen in the first half of the fiscal year and the

Net Sales
As mentioned, consolidated net sales rose ¥62.5 billion, or4.3%, to ¥1,501.1 billion.
The principal factors accounting for this increase were(a) a rise in sales in the Shipbuilding segment of ¥32.5 billion
owing to a gain in sales of such big-ticket items as LNG carriersand (b) an increase in revenues in the Consumer Products &Machinery segment of ¥30.3 billion, as sales of motorcycles
to Europe expanded.
Overseas sales posted a gain of ¥44.8 billion, or 5.8%,
to ¥822.6 billion. By region, sales in North America expanded¥22.0 billion, or 6.5%; sales in Europe rose ¥34.2 billion, or
28.6%; sales in Asia outside Japan decreased ¥24.2 billion, or
13.0%; and sales in other areas increased ¥12.8 billion, or9.5%. The ratio of overseas sales to consolidated net sales rose
0.7 percentage point, from 54.0% in the previous fiscal year
to 54.7% for the fiscal year under review.
The following sections provide additional details regarding
performance by industry segment. Operating income or loss
includes intersegment transactions.
Please note that the Hydraulic Machinery business,
which was previously included in the Other segment, hasbeen shown as a separate industry segment, the Hydraulic
Machinery segment, beginning with the fiscal year underreview because of the growing importance of its activities
within the KHI Group. Data for previous years shown in thisNet Sales

Sales by Segment

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

40

28.9

15.8

9.5

20

12.4
10

6.3

400

30

29.8

11.4

35.1

9.4

16.5

7.0
5.6

11.5

1,501.1

1,438.6

1,322.5

1,160.3

1,200

1,241.6

1,600

800

RESULTS OF OPERATIONS

0

0

04

05

06

07

08

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

04

05

06

07

08

27

KAWASAKI HEAVY INDUSTRIES, LTD.
level with the previous fiscal year, in spite of lower sales inNorth America, as exports to other areas increased. Operating
income for the segment decreased ¥6.0 billion, or 45.5%, to¥7.2 billion, accompanying the decline in sales.

annual report have been restated to reflect this change inindustry segments.
ShipbuildingThis segment obtained orders for 28 vessels: namely, two LNG
carriers, three LPG carriers, 22 bulk carriers, and one submarine. In value terms, orders rose ¥115.7 billion, or 85.3%, to¥251.3 billion.
Consolidated sales expanded ¥32.5 billion, or 29.9%, to¥141.4 billion. Owing to the increase in sales and improvement in profitability, operating income posted an improvementof ¥5.5 billion, moving from a loss of ¥2.2 billion in the previous fiscal year to a profit of ¥3.3 billion for the fiscal year underreview.

Aerospace
Orders of this segment on a consolidated basis decreased¥53.1 billion, or 20.8%, to ¥202.5 billion. Although additional
orders were received for component parts for the Boeing 787
and 777 aircraft, orders from Japan’s Ministry of Defense(MOD) were below the previous year.
Sales of this segment declined ¥31.8 billion, or 11.8%, to¥237.3 billion, as a consequence of lower sales to the MOD.
Operating income decreased ¥2.5 billion, or 18.8%, to ¥10.9
billion, accompanying the decline in sales.

Rolling Stock & Construction Machinery
Consolidated orders in this segment declined ¥85.9 billion, or
31.9%, to ¥183.3 billion. The segment received orders from(a) the Japan Railways Group for Shinkansen trains, commuter
train cars, locomotives, freight cars, and other rolling stock;(b) public and private railways in Japan for subway cars, commuter train cars, and other rolling stock; and (c) additional
orders from overseas customers, including subway cars fromthe New York City Transit Authority and other sources.
However, these remained below the previous year, whenorders were received for major overseas projects.
Regarding sales, although deliveries of rolling stock to
the JR Group companies increased, deliveries to overseas
customers declined. As a consequence, sales were down
¥12.5 billion, or 6.8%, to ¥171.7 billion. Sales of construction
machinery, which are included in this segment, were virtually

Gas Turbines & Machinery
Orders obtained by this segment expanded ¥22.6 billion, or
11.0%, to ¥227.4 billion. These included orders for helicopter engines for Japan’s MOD, gas turbine power generation
systems for customers in Japan and overseas, and land-use
turbine systems. Other orders were for components forcommercial aircraft engines, including the V2500 and TRENT,
diesel engines for ships, and propulsion systems for ships.
Consolidated sales of this segment expanded ¥2.2 billion,
or 1.2%, to ¥185.5 billion. While sales of steam turbines forships declined, sales of components for commercial aircraft
engines and natural gas compression modules increased, leading to an overall increase in sales of this segment. Operating
income grew ¥3.6 billion, or 36.1%, to ¥13.4 billion, due
mainly to higher sales of commercial aircraft engine components.

Net Income per Share

Working Capital

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

1,358.0

1,378.8

1,194.5

05

1,284.1

1,156.9

04

07

08

7.9

500
50

4.4

5

1,000

113.2

11.2

100
10

155.4

150

138.5

15

121.9

18.9

20

1,500

157.7

200

21.1

25

0

0

04

28

05

06

07

08

0

04

05

06

07

08

06

ANNUAL REPORT 2008
Hydraulic Machinery
Orders of this segment on a consolidated basis rose ¥19.4 billion, or 26.6%, to ¥92.3 billion, mainly due to increasedorders from the construction machinery industry. Consolidated
sales were up ¥17.4 billion, or 26.1%, to ¥84.0 billion, reflecting continued high levels of demand for products used in the
manufacturing of construction machinery. Operating income
expanded ¥3.1 billion, or 50.4%, to ¥9.1 billion.

Plant & Infrastructure Engineering
Orders won by this segment were down ¥44.2 billion, or
29.4%, to ¥106.0 billion. These included orders for a boiler
turbine power plant and cement waste heat power plants, aswell as orders for shield machines. However, as a consequenceof the placement of large-scale orders, including those forcement plants in the previous fiscal year, orders for the year
under review were below those of the prior year.
Nevertheless, sales rose ¥20.5 billion, or 16.8%, to ¥142.5
billion, because of higher revenues from an LNG base and, inoverseas markets, from sales of cement and fertilizer plants.
As a result of the increase in sales and reduction in thenumber of unprofitable projects, operating income posted an
improvement of ¥13.2 billion, moving from an operating lossof ¥2.4 billion in the previous fiscal year to operating incomeof ¥10.8 billion during the fiscal year under review.

Other
Orders on a consolidated basis moved up ¥13.2 billion, or
13.1%, to ¥113.9 billion. Consolidated sales grew ¥3.9 billion,
or 3.9%, to ¥104.6 billion. Operating income decreased ¥1.2
billion, or 33.6%, to ¥2.4 billion.
The following sections summarize performance by geographic
segment.

Consumer Products & Machinery
Sales of this segment increased ¥30.3 billion, or 7.5%, to¥434.0 billion. Although sales of motorcycles in the UnitedStates declined, this decrease was offset by higher sales in
Europe. In the industrial robots business, while sales to thesemiconductor industry weakened, strong sales to the automobile industry continued. Despite increased sales in thissegment, operating income decreased ¥7.9 billion, or 28.6%,
to ¥19.7 billion, because of the impact of increases in materials prices combined with higher depreciation and amortizationand sales promotional expenses.
Please note that since production in this segment is carried out mainly in anticipation of demand, figures for orders
and sales are the same.

North America
Sales in North America expanded ¥6.3 billion, or 2.4%, to¥267.6 billion, but operating income deteriorated from a profitof ¥1.7 billion in the previous fiscal year to an operating loss of¥0.5 billion during the fiscal year under review as a result of
the decline in motorcycle sales there and other factors.

Total Net Assets

Net Assets per Share

Return on Equity(Billions of yen)

(Yen)

(%)

11.4

191.1

178.0

08

7.3

156.1

07

8

5.7

100

142.8

319.0

150

134.4

243.1

194.0

200

206.2

250

295.4

300

11.1

12

200

350

4

100

50

3.4

150

Japan
Sales in Japan rose ¥15.5 billion, or 1.5%, to ¥1,058.5 billion,
driven especially by revenues from the Shipbuilding and Plant& Infrastructure Engineering segments. Operating income
increased ¥9.5 billion, or 14.5%, to ¥74.9 billion, also owing
mainly to improved profitability in the Shipbuilding and Plant &Infrastructure Engineering segments.

50
0

0

0

04

05

06

07

08

04

05

06

07

08

04

05

06

29

KAWASAKI HEAVY INDUSTRIES, LTD.
EuropeSales of motorcycles held strong in Europe, resulting in an
increase in sales of ¥32.8 billion, or 33.1%, to ¥131.6 billion,
and a rise in operating income of ¥2.1 billion, or 88.3%, to¥4.5 billion.
Asia
Consolidated sales in this region leaped ¥10.6 billion, or
46.7%, to ¥33.3 billion, and operating income posted astrong increase of ¥0.8 billion, or 107.7%, to ¥1.5 billion.
Other Areas
Sales in other areas declined ¥2.7 billion, or 21.0%, to ¥10.1
billion, and operating income amounted to ¥0.3 billion,
about the same as for the previous fiscal year.
Cost, Expenses, and Earnings
The cost of sales rose ¥48.5 billion, or 4.0%, to ¥1,262.0 billion, in part because of the rise in raw material prices, but therate of increase in cost of sales was lower than the 4.3%
increase in net sales. As a result, gross profit increased ¥14.0
billion, or 6.2%, to ¥239.1 billion, and the gross profit marginrose 0.3 percentage point from 15.6% in the previous year to
15.9% in the fiscal year under review.
Selling, general and administrative expenses rose ¥6.2 billion, or 4.0%, to ¥162.2 billion. Operating income increased¥7.8 billion, or 11.2%, to ¥76.9 billion. The principal factors
leading to this rise in operating income were (a) the return toprofitability in the Shipbuilding and Plant & Infrastructure
Engineering segments, (b) a weaker yen against the U.S. dollar, mainly in the first half of the fiscal year, and (c) the implementation of measures throughout the KHI Group to improve
profitability by reducing production and fixed costs and othermeans. As a result, the ratio of operating income to net salesrose 0.3 percentage point from 4.8% in the previous fiscal
year to 5.1% for the fiscal year under review.
Other income (expenses) for fiscal 2008 amounted to
expenses of ¥18.9 billion versus ¥23.9 billion for the previous
fiscal year. The principal factor accounting for this was anincrease in equity in income of non-consolidated subsidiaries
and affiliates, which rose from income of ¥2.7 billion in theprevious fiscal year to ¥7.6 billion for the fiscal year underreview, representing an increase of ¥4.9 billion.
As a result of the increase in operating income and thedecline in other expenses, income before income taxes andminority interests rose ¥12.8 billion, or 28.2%, to ¥58.1 billion. The ratio of net current and deferred income taxes toincome before income taxes and minority interests was30

37.9%, versus 33.8% for the previous year and lower than thestatutory tax rate of 40.5%. This difference was mainly due toan R&D tax credit for the year under review. As a result of
these factors, after the deduction of minority interests in net
income of consolidated subsidiaries, net income for the fiscal
year increased ¥5.4 billion, or 18.0%, to ¥35.1 billion. The
ratio of net income to net sales rose 0.2 percentage point,
from 2.1% for the prior fiscal year to 2.3% for the fiscal year
under review. ROE (calculated using average total net assets)
increased 0.3 percentage point, from 11.1% to 11.4%.
Capital expenditures for the fiscal year under review
amounted to ¥50.5 billion, compared with ¥39.3 billion in theprevious fiscal year, and R&D expenses were ¥36.2 billion,
versus ¥33.8 billion in the prior year.

FINANCIAL CONDITION
Total assets at the end of the fiscal year were ¥20.8 billion, or
1.5%, higher than at the end of the previous fiscal year andamounted to ¥1,378.8 billion. Of this total, current assets
were ¥20.4 billion, or 2.1%, higher than at the end of theprior year and amounted to ¥982.3 billion. The principal reason for the increase in current assets was a rise in inventories,
reflecting the Group’s high level of orders received. Amongother assets, investments and long-term loans were ¥17.3 billion lower than at the previous fiscal year-end, owing to thedrop in the value of investment securities, accompanying thegeneral decline in stock prices, and other factors. Net property,
plant and equipment post a gain of ¥6.1 billion over the previous year-end, reflecting the KHI Group’s active program ofcapital investments. Deferred tax, intangible and other assets
were up ¥11.6 billion year on year.
Liabilities decreased ¥2.9 billion, or 0.3%, to ¥1,059.7 billion. This overall balance of liabilities was influenced mainly by(a) an increase of ¥18.5 billion in trade payables and (b) adecline in borrowings, bonds outstanding, and other interestbearing debt of ¥27.8 billion, or 9.1%, to ¥276.4 billion.
Current liabilities were up ¥18.0 billion, or 2.2%, to¥824.5 billion and long-term liabilities decreased ¥20.9 billion,
or 8.2%, to ¥235.2 billion.
Net assets rose ¥23.7 billion, or 8.0%, over the previous
fiscal year-end, to ¥319.0 billion. The principal reason for thisincrease was the rise in retained earnings, reflecting the gain in
net income for the fiscal year.
The ratio of shareholders’ equity to total assets rose 1.3
percentage points from 21.4% to 22.7%. In addition, thedebt-to-equity ratio showed a further substantial decline from

ANNUAL REPORT 2008
104.7% at the end of the previous fiscal year to 86.7%. The
current ratio, which stood at 119.1% at the end of the prioryear, was 119.1% at the end of the fiscal year under review.

MANAGEMENT INDICATORSThe Company’s objective is to meet and exceed the expectations of investors for profitability. The management indicator
we have selected is before-tax return on invested capital (ROIC),
which measures how efficiently the Company uses its capital.
As it works to maximize before-tax ROIC, the Company isworking to strengthen its financial position by implementing
measures to expand profit and simultaneously reduce invested
capital. Before-tax ROIC is computed by calculating the ratio of
earnings before interest and taxes (EBIT) to the sum of interestbearing debt and total shareholders’ equity.
Applying this formula, before-tax ROIC for the year underreview was 11.2%, which was 2.5 percentage points higher
than the 8.7% figure for the prior year.
In addition, under the Group’s Medium-Term Business
Plan “Global K,” announced in September 2006, the Group isaiming to strengthen its earning power and has therefore also
adopted the ratio of recurring profit to net sales as a key management indicator. Recurring profit is used in accounting standards generally accepted in Japan. It is the sum of operating
income, net interest income (expenses), dividend income, andother non-operating and recurring items.
For the fiscal year under review, the Group’s ratio ofrecurring profit to net sales was 4.3%, which was 0.9 percentage point higher than the 3.4% reported for the prior year.

¥26.7 billion, versus an inflow of ¥2.5 billion in free cash flow
for the previous fiscal year.
Net cash used for financing activities amounted to ¥27.4
billion, which was ¥26.1 billion higher than in the previous
fiscal year. This increase was mainly due to redemption of
corporate bonds and payment of cash dividends.
As a result of these cash flows, cash and cash equivalents
at the end of fiscal 2008 amounted to ¥38.2 billion, whichwas ¥1.1 billion less than at the beginning of the fiscal year.

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 foundations
for future growth.
The Company’s basic policy regarding cash dividends fromretained earnings is to pay two dividends, one for the interim
period and the other at the end of the fiscal period. The entity
making final decisions on dividends is the meeting of theBoard of Directors for the interim dividend and the general
meeting of shareholders for the year-end dividend.
In view of the Company’s policy of paying stable cash dividends, the decision was made to pay a dividend of ¥5 pershare (an interim dividend of ¥0 and a year-end dividend of¥5). The remainder of retained earnings will be used to makeinvestments related to the Company’s businesses, the repayment of borrowings, and for other uses.
Please note that the Company’s Articles of Incorporation
provide for paying an interim dividend as stipulated in Article454-5 of the Japanese Corporate Law.

CASH FLOWS
BUSINESS RISK
During fiscal 2008, net cash provided by operating activitieswas ¥75.8 billion, ¥29.9 billion higher than during the previous fiscal year. Principal cash inflow items were income before
income taxes and minority interests of ¥58.1 billion, depreciation and amortization of ¥37.5 billion, and an increase in trade
payables of ¥26.9 billion. Among cash outflow items, theincrease in inventories amounted to ¥19.0 billion.
Net cash used for investing activities amounted to ¥49.1
billion, ¥5.8 billion higher than in the previous fiscal year. The
principal use of this cash was for acquisition of property, plantand equipment.
Free cash flow, which is the net amount of cash fromoperating and investing activities, amounted to an inflow ofExternal 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 Japan but
also elsewhere in Asia, North America, Europe, and other areasand is subject to the consequences of political and economic
developments in these regions. For example, trends in personal
consumption may have an impact on sales of the Consumer
Products & Machinery segment, while trends in private-sector
capital investment and public works investment may have an
influence on orders of the Gas Turbines & Machinery and the31KAWASAKI HEAVY INDUSTRIES, LTD.
Plant & Infrastructure Engineering segments. Moreover, demandfor passenger air travel and conditions in shipping markets may
have an impact on the Aerospace and Shipbuilding segments,
respectively. Disputes and political changes may have an effecton the Company’s overseas projects.
(2) Fluctuations in Foreign Exchange Rates
During fiscal 2008, overseas sales accounted for 54.7% ofconsolidated net sales. Accordingly, the Group has a substantial volume of transactions denominated in U.S. dollars, euros,and other currencies. To reduce foreign exchange risk, theGroup is working to increase the ratio of the total cost of
goods sold that is denominated in foreign currencies and,while taking into due account trends in foreign exchange
rates, endeavors to take flexible measures to hedge the effectof 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, andits sales to overseas markets are, therefore, subject to foreignexchange fluctuation risk.
(3) Fluctuations in Prices of Raw Materials
Since the Group has many projects that require considerable
time for completion, from the receipt of orders to final delivery,
fluctuations in the prices of steel and other raw materials may
have an impact on the profitability of such projects. Accordingly,
the Group is subject to the risk of fluctuations in prices ofraw materials.
(4) Government Regulations
The Group conducts its business activities in compliance withthe restrictions in effect, including laws and regulations, inthe countries and regions where it operates. However, theGroup’s operations may be affected if such restrictions are
subject to unpredictable changes and if new restrictions are
put into effect.

CORPORATE GOVERNANCE(1) Basic Stance toward Corporate Governance—
Enhancing Internal Control Systems
KHI has created a corporate governance structure appropriate
for its operations, with members of the Board of Directors andauditors playing central roles, and is working to enhance andimprove its internal control systems. Specific aspects of thissystem are as follows. Regarding the decision making and the
conduct of operations of directors and employees, the scope

32

of authority, responsibilities, and duties of directors andemployees are clearly stated in the Company’s internal rules.
In addition, those responsible are required to keep records ofactual decisions made and the conduct of operations, and anauditing system has been established to check on whether thecontent and form of these decisions and conduct of operations
are in accordance with the Company’s internal rules. As aresult, the basic stance of the KHI Group as a whole regarding
corporate governance is to endeavor to increase its corporate
value through the highly transparent, efficient, and soundmanagement of its operations as the Group works to buildsmooth relationships with all its stakeholders, including shareholders, customers, employees, and the community.
(2) KHI’s Corporate Governance Framework
1. Conduct of Operations
KHI has established a Board of Directors with nine members
who are responsible for formulating management strategy andsupervising the conduct of operations. In addition, to createa management system that can respond quickly to changes
in the operating environment, executive officers are appointed
by the Board of Directors to be responsible for the day-to-day
conduct of business operations.
The Board of Directors decides on the basic objectives andpolicies for the conduct of operations as it formulates management plans. These objectives and policies are then transmitted
to all the executive officers and reviewed in detail to ensure
full understanding at the meeting of the Group Executive
Officer Committee. Subsequently, the Management Committee,
which is composed of representative directors and management responsible for major subsidiaries, and the Board of
Directors follow up on the implementation of management
plans. To make the responsibility for management clear, thecompensation of directors is incentive-based, reflecting corporate performance, and directors must stand for re-election
annually. For major management issues, the Management
Committee discusses such issues in detail, and then designatedmatters are decided by the Board of Directors. The Management
Committee, in principle, meets three times a month, and discusses management policy, management strategy, importantmanagement issues, and other matters from the perspectiveof the Group as a whole.
2. Auditing Functions
KHI has formed a Board of Auditors with four members (twoof whom are outside auditors), and, under the provisions ofJapanese Corporate Law, the Board of Auditors conducts
examinations of business operations and audits the financial

ANNUAL REPORT 2008
accounts. Accordingly, the corporate auditors examine andmonitor the state of operations and Group assets through anumber of activities. These include attending the meetings ofthe Board of Directors and the Management Committee,
examining important documents, holding periodic meetings
with the representative directors, and auditing KHI’s divisions
and subsidiaries. In addition, the two outside corporate auditors on the Board of Auditors, who have no transactions orother relationships that represent a conflict of interest, perform their surveillance duties as neutral and objective third
parties. The internal corporate auditors share information
with the outside corporate auditors and work to enhance theeffectiveness of their management surveillance functions.
Please note that the contracts signed between the
Company and the outside corporate auditors, the scope of
whose authority is based on Article 427-1 of the JapaneseCorporate Law and Article 43 of KHI’s Articles of Incorporation,
provide for a limit on compensation to the outside auditors of
the higher of ¥10 million or the amount stipulated in Article
425-1 of the Corporate Law (the equivalent of two years’compensation paid to the corporate auditors).
Moreover, KHI has appointed KPMG AZSA & Co. as its
independent public accounting firm, and this firm conducts
audits of the Company’s financial statements. The corporate
auditors and the Board of Auditors receive reports regarding
the accounting audit, including the outline of the audit plansof the independent accounting firm, the items the accounting
firm selects for particular focus, and other matters. In addition, the Board of Auditors explains the Company’s auditing
plans to the independent public accounting firm. Reports on
the results of audits by the accounting firm are presented
periodically (twice annually), and the corporate auditors andthe accounting firm work closely together, exchanging information and opinions. As deemed necessary, the corporate
auditors attend the audits conducted by the independentaccounting firm and receive reports from time to time fromthe accounting firm.

Moreover, separately from the auditing activities previously mentioned, which are based on the Corporate Law, KHI’s
Auditing Department, which acts as the internal auditing unit,
monitors the overall conduct of management activities within
the KHI Group and carries out audits on a continuing basis ofwhether operations are being conducted appropriately and incompliance with laws and internal rules as well as other matters while endeavoring to upgrade internal control functions.
In addition, to raise the level of auditing activities, the corporate auditors and the Auditing Department exchange information on a monthly basis and share information regarding theresults of their auditing activities and items they have singled
out for attention.
3. Compliance Systems
Along with updating and improving internal regulations related to ethical matters, in addition to the CSR Committee, KHI
has formed compliance committees in each of its organizational units in Japan to take the initiative in promoting the selfassessment and verification of compliance. In addition, aCompliance Guidebook has been prepared and distributed to
employees, not only of the parent company but also to thoseof virtually all subsidiaries and affiliates in Japan, and measures
are being implemented to conduct various forms of compliance training, including “e-learning,” along with concerted
efforts to raise the level of awareness of compliance matterswithin the Group. In addition to these initiatives, a Compliance
Reporting and Consultation System has been created throughan outside legal office to enable employees to receive advice
without being concerned about being observed by other
employees.
(3) Compensation Paid to Directors
and Corporate Auditors
During the fiscal year under review, the amounts of compensation paid to the Company’s directors and corporate auditors
were as follows.

Amounts Paid (Millions of yen)Compensation based on the Articles of Incorporation anddecisions of the General Meeting of Shareholders
Retirement payments based on decisions of theGeneral Meeting of Shareholders
Total

Directors

Corporate Auditors

Total

¥605

¥74

¥679

23

—

23

¥628

¥74

¥702

33

Consolidated Balance Sheets

KAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007

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

ASSETS

2008

2007

2008

Current assets:
Cash on hand and in banks .......................................................................... ¥39,875¥39,351$

397,954

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

417,934

428,589

4,170,997

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

19,361

18,261

193,224

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

(4,140)(4,273)(41,317).............................................................................................................................

433,155

442,577

4,322,904

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

439,310

427,934

4,384,331

Deferred tax assets (Note 12) ........................................................................

25,25032,694

251,996

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

44,692

19,362446,029

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

982,282

961,918

9,803,214

Investments in securities (Notes 3 and 4) .......................................................

70,05287,277699,122Long-term loans ...........................................................................................

2,006

1,402

20,020Investments and long-term loans:

Other (Note 6) ..............................................................................................

8,962

9,788

89,440Allowance for doubtful receivables ...............................................................

(1,345)(1,473)(13,423)

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

79,67596,994795,159

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

64,45766,503643,283

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

293,150

282,9882,925,649

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

468,065

456,072

4,671,307

Property, plant and equipment (Note 6):

Construction in progress ...............................................................................

9,938

8,538

99,182.............................................................................................................................

835,610814,101

8,339,421

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

(575,683)(560,282)(5,745,339)

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

259,927

253,8192,594,082

Deferred tax assets (Note 12) ........................................................................

38,337

27,725

382,605

Intangible and other assets (Note 5) ..............................................................

18,54917,524

185,120.............................................................................................................................

56,88645,249567,725

Total assets ................................................................................................... ¥1,378,770¥1,357,980$13,760,180

Deferred tax, intangible and other assets:

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

34

ANNUAL REPORT 2008
Thousands of
U.S. dollars(Note 1)Millions of yen

LIABILITIES AND NET ASSETS

2008

2007

2008

¥ 138,463$ 1,374,062

Current liabilities:
Short-term borrowings and current portionof long-term debt (Note 6) .......................................................................... ¥ 137,681
Trade payables (Note 6) ................................................................................

431,000

412,501

4,301,397

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

124,679

124,445

1,244,301

Income taxes payable (Note 12) ....................................................................

16,836

13,365

168,024

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

19,263

17,811

192,246

Provision for product warranties ...................................................................

6,734

5,100

67,206

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

8,836

12,36388,184

Provision for losses on damages suit .............................................................

2,245

2,398

22,405

Deferred tax liabilities (Note 12) ....................................................................

270

296

2,695

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

76,997

79,764

768,432

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

824,541806,506

8,228,952

Long-term debt, less current portion (Note 6) ...............................................

138,766

165,754

1,384,890

Employees’ retirement and severance benefits (Note 7) .................................

81,92877,484

817,645

Deferred tax liabilities (Note 12) ....................................................................

5,433

3,996

54,222

Provision for environmental measures ...........................................................

2,168

—

21,636Long-term liabilities:

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

6,896

8,862

68,823

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

235,191

256,096

2,347,216

104,329

103,188

1,041,208

Contingent liabilities (Note 8)
Net assets (Note 9):
Common stock:
Authorized—3,360,000,000 shares
Issued—1,669,629,122 shares in 2008
—1,659,625,876 shares in 2007 .....................................................
Capital surplus ..............................................................................................

54,29153,179541,826

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

151,401

125,799

1,510,988

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

10,292

19,342

102,715

Gains/losses on hedging items ......................................................................

5,217(1,608)52,066

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

(11,878)(9,417)(118,543)

Treasury stock—1,324,199 shares in 2008
—210,479 shares in 2007 ......................................................

(460)

(55)

(4,591)

Minority interests ..........................................................................................

5,846

4,950

58,343

Total net assets .........................................................................................

319,038

295,378

3,184,012

Total liabilities and net assets .................................................................... ¥1,378,770¥1,357,980$13,760,18035Consolidated Statements of Income

KAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006

Thousands of
U.S. dollars(Note 1)Millions of yen
2008

2007

2006

2008

Net sales ..................................................................................... ¥1,501,097¥1,438,619¥1,322,487$14,981,008

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

1,262,032

1,213,524

1,148,547

12,595,130

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

239,065

225,095

173,940

2,385,878

Selling, general and administrative expenses (Note 10) ..........

162,155

155,953

132,145

1,618,313

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

76,91069,142

41,795

767,565

5,005

3,807

3,225

49,950

7,642

2,694

(197)

76,267

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

(7,980)(6,650)(5,377)(79,641)

Other, net (Note 11) ............................................................

(23,522)(23,725)(16,146)(234,750)

Income before income taxes and minority interests ..........

58,05545,26823,300579,391

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

(23,271)(16,623)(24,148)(232,246)

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

1,260

1,337

17,843

12,575

Income taxes (Note 12):

Minority interests in net incomeof consolidated subsidiaries ...................................................

(903)

Net income ................................................................................ ¥35,141(210)¥

29,772(528)¥

16,467(9,011)$

350,709

U.S. dollars(Note 1)Yen

Per share amounts (Note 15):
Earnings per share—basic ....................................................

¥21.1

¥18.9

Earnings per share—diluted .................................................

20.6

17.2

9.4

0.21

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

5.0

5.0

3.0

0.05

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

36

¥11.2

$0.21

Consolidated Statements of Changes in Net Assets

ANNUAL REPORT 2008

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006

Thousands
Number ofshares ofcommonstockMillions of yen
Netunrealized
gains onsecurities

Gains/
losses on
hedgingitems

Foreigncurrencytranslation
adjustments

Commonstock

CapitalsurplusRetainedearnings

Balance at March 31, 2005 ...................................... 1,443,394 ¥ 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, net ..........................
——Cash dividends .................................................
——
Gain on sales of treasury stock .........................
——
Bonuses to directors and statutory auditors ......
——
Conversion of convertible bonds ...................... 114,321
10,658Other (Note 13) ...............................................
——
Balance at March 31, 2006 ...................................... 1,557,715
92,085
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 ......
——
Conversion of convertible bonds ...................... 101,911
11,103
Other ...............................................................
——
Balance at March 31, 2007 ...................................... 1,659,626 103,188
Net income for the year ...................................
——
Adjustments from translation of foreign
currency financial statements .........................
——
Decrease in net unrealized gains on securities ...
——Treasury stock purchased, net ..........................
——Cash dividends .................................................
——
Gain on sales of treasury stock .........................
——
Conversion of convertible bonds ......................
10,003
1,141
Other (Note 13) ...............................................
——
Balance at March 31, 2008 .................................... 1,669,629 ¥104,329¥31,390—¥ 88,704 ¥16,910 ¥
16,467—— ¥(16,843)
—
—

—
—
—
—
46
—
10,658—42,094————(3,606)
—
(84)
—
(705)
100,776
29,772—(2,813)——————14,097
—

—
—
—
—
—
—
—
—
—
—

—
—
—
—
1
—
11,084—53,179————(4,673)
—
(14)
—
(62)
125,799
35,141

—
5,245
—
—
—
—
—
—
19,342
—

—
—
—
—
—
—
—
(1,608)(1,608)—Treasury Minority
stock
interests¥(123) ¥
—

—
—

5,417
—
—
—
—
—
—
—
(11,426)
—

—
—
85
—
—
—
—
—
(38)
—

—
—
—
—
—
—
—
—
—
—

2,009
—
—
—
—
—
—
—
(9,417)
—

—
—
(17)
—
—
—
—
—
(55)
—

—
—
—
—
—
—
—
4,950
4,950
—

—
—
—
—
(2,461)————(9,050)
—
—
—
—
—
—
—
—
—
(410)
—
—
(8,298)
—
—
—
—
—
(1)
—
—
—
—
—
—
1,113
—
—
—
—
—
—
—
(1,241)
—
6,825
—
5
896
¥54,291 ¥151,401 ¥10,292 ¥ 5,217 ¥(11,878) ¥(460) ¥5,846
Thousands of U.S. dollars (Note 1)

Commonstock

CapitalsurplusRetainedearnings

Net
unrealized
gains onsecurities

Gains/
losses on
hedgingitems

Foreigncurrencytranslation
adjustments

Treasurystock

Minority
interests

Balance at March 31, 2007 ....................................................... $1,029,820 $530,729 $1,255,479 $193,034 $(16,048) $ (93,982) $ (549) $49,401
Net income for the year ....................................................
——
350,709—————
Adjustments from translation of foreign
currency financial statements ..........................................
————— (24,561)——
Decrease in net unrealized gains on securities ...................
——— (90,319)————
Treasury stock purchased, net ...........................................
—
—
—
—
—
— (4,092)—
Cash dividends .................................................................
——(82,814)—————
Gain on sales of treasury stock ..........................................
—
(10)
—
—
—
—
—
—
Conversion of convertible bonds .......................................
11,388
11,107——————
Other (Note 13) ................................................................
——(12,386)— 68,114—
50 8,942
Balance at March 31, 2008 .................................................... $1,041,208 $541,826 $1,510,988 $102,715 $ 52,066 $(118,543) $(4,591) $58,343
The accompanying notes to the consolidated financial statements are an integral part of these statements.

37

Consolidated Statements of Cash FlowsKAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006

Thousands of
U.S. dollars(Note 1)Millions of yen
2008

2007

2006

2008

¥45,268¥23,300$579,391

30,27930,551

373,802

Cash flows from operating activities:
Income before income taxes and minority interests ................................. ¥58,055
Adjustments to reconcile net income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization ...........................................................

37,455

Loss on impairment of fixed assets .....................................................

2,764

—

3,008

27,585

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

7,124

8,460

17,092

71,098

Reversal of allowance for doubtful receivables ....................................

(406)(2,224)(44)(4,052)

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

(3,498)

(247)

5,660

(34,910)—(9,557)

9,557

—

—

—

6,259

—

Provision for restructuring charges on commercial
aircraft manufacturing business ........................................................
Loss on impairment of inventories for restructuring oncommercial aircraft manufacturing business .....................................
Provision for loss on damages suit ......................................................

(153)

2,398

—

(1,527)

Provision for environmental measures .................................................

2,168

—

—

21,637

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

1,350

1,025

1,738

13,473Gain on sale of marketable and investment securities .........................

(349)

(889)

(4,501)(3,483)

Loss on sale of property, plant, and equipment ..................................

1,397

1,414

960

13,942Gain on contribution of securities to the pension trust ........................

(1,376)—(12,901)(13,733)

Investment gain on equity method .....................................................

(7,642)——(76,267)Interest and dividend income ..............................................................

(5,005)(3,807)(3,225)(49,950)

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

7,980

6,650

5,377

79,641

Trade receivables ........................................................................ (11,102)(2,867)(14,250)(110,798)

Inventories ................................................................................. (19,046)(40,608)(49,754)(190,080)

Other current assets ................................................................... (10,723)

5,157(1,247)(107,016)

26,870(1,248)55,294

268,164

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

1,849

25,285(13,821)

18,453

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

1,451

2,634

1,397

14,481

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

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

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

7,758

223

1,689

77,425

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

(3,314)

2,887

2,583

(33,074)

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

93,607

70,23364,722934,202

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

9,608

5,393

3,129

95,888Cash paid for interest .............................................................................

(8,035)(6,438)(5,332)(80,190)

Cash paid for income taxes .................................................................... (19,414)(23,329)(16,581)(193,752)

Loss on cleaning of ground pollution ......................................................

—

—

(177)

—

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

75,76645,85945,761

756,148(Continues to next page)38

ANNUAL REPORT 2008
Thousands of
U.S. dollars(Note 1)Millions of yen(Continued from previous page)

2008

2007

2006

2008

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

(1,635)27

101(16,317)

Acquisition of property, plant and equipment ......................................... (45,598)(31,651)(34,657)(455,070)

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

469

2,301

2,232

4,680

Acquisition of intangible assets ...............................................................

(5,238)(3,625)(4,602)(52,275)

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

55

176

38

549

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

(1,183)(10,089)(5,765)(11,806)

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

5,731

1,589

6,871

57,195Decrease (increase) in short-term loans receivable ...................................

(278)

254

(429)

(2,774)

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

(990)

(88)

(895)

(9,880)

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

94

18

428

938

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

(517)(2,224)168(5,160)Net cash used for investing activities ....................................................... (49,090)(43,312)(36,510)(489,920)(9,958)7,391

130,729

Cash flows from financing activities:
Increase (decrease) in short-term borrowings ..........................................

13,099Proceeds from long-term debt ................................................................

3,328

62,061

24,65733,214

Repayment of long-term debt ................................................................ (34,817)(48,586)(44,987)(347,475)

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

(479)

(68)

(51)

(4,780)Cash dividends paid ...............................................................................

(8,262)(4,577)(3,622)(82,456)

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

(261)

(179)

(109)

(2,605)

Net cash used for financing activities ...................................................... (27,392)(1,307)(16,721)(273,373)

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

(501)

482

703

(5,000)Net increase (decrease) in cash and cash equivalents ......................................

(1,217)

1,722(6,767)(12,145)

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

39,22837,50644,385

391,496

158

—

—

1,577

—

—

(112)

—

Cash and cash equivalents at end of year ....................................................... ¥38,169¥39,228¥37,506$380,928

Increase in cash and cash equivalents due to changes
in fiscal period of consolidated subsidiaries ...................................................
Decrease in cash and cash equivalents arising fromexclusion of consolidated subsidiaries ...........................................................

Supplemental information on cash flows:
Cash and cash equivalents:
Cash on hand and in banks in the balance sheets ............................... ¥39,875¥39,351¥37,650$397,954(1,706)

(123)

(144)

(17,026)

Total .............................................................................................. ¥38,169¥39,228¥37,506$380,928

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

The accompanying notes to the consolidated financial statements are an integral part of these statements.
See Note 14 for significant non-cash transactions.

39Notes to the Consolidated Financial Statements

KAWASAKI HEAVY INDUSTRIES, LTD.

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries

40

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 Financial Instruments 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 from International Financial
Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting records maintained in conformity with generally accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements have been restructured and translated into English, with some expanded descriptions
and the inclusion of consolidated statements of changes in net assets, from the consolidated financial statementsof the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureauof the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at March 31, 2008, which was ¥100.20 to US$1.00.
The translations should not be construed as representations that the Japanese yen amounts have been, could havebeen 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 orthe existence of certain other conditions evidencing control.
The consolidated financial statements include the accounts of the Company and 95 (96 in 2007 and 96 in 2006)
subsidiaries.
For the year ended March 31, 2008, 3 subsidiaries (3 in 2007 and 5 in 2006) were excluded from the consolidation. The amount 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 if they were
included in the consolidation.
( b) Application of the equity method of accounting
Investments in nonconsolidated subsidiaries and affiliates over which the Company has the ability to exercise
significant influence over operating and financial policies are accounted for by the equity method.
For the year ended March 31, 2008, 18 affiliates (19 in 2007 and 19 in 2006) were accounted for by the equity
method.
For the year ended March 31, 2008, investments in 2 nonconsolidated subsidiaries (3 in 2007 and 5 and 2006)
and 14 affiliates (13 in 2007 and 15 in 2006), were stated at cost without applying the equity method of accounting. If the equity method had been applied for these investments, net income and retained earnings of theseexcluded subsidiaries and affiliates would not have had a material effect on the consolidated financial statements.
(c) Consolidated subsidiaries’ fiscal year-end
The fiscal year-end of 28 consolidated subsidiaries (29 in 2007 and 35 in 2006) is December 31.
These subsidiaries are consolidated as of December 31. Unusual significant transactions for the period between
December 31 and March 31, 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 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 controlof the respective subsidiary.
(e) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into Japanese yen at the year-end rate.
The 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 historical rates. The 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 net assets.
(f ) Appropriations of retained earnings
Appropriations of retained earnings are recorded in the fiscal year when the proposed appropriations areapproved.
(g ) Revenue recognition
Sale of products and construction contracts
Sales of products such as ships, rail cars, airplanes, machinery and motorcycles are principally recognized upondelivery. Contract revenue for construction of plants, machinery, bridges etc. is principally recognized on a customer

ANNUAL REPORT 2008
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 suchas those for ships, airplanes and plants exceeding ¥3,000 million. The stage of completion is normally determinedbased on the proportion of costs incurred to date to the estimated total costs of the contract. The completed
contract method is applied to long-term contracts not exceeding ¥3,000 million.
Service revenue
Service revenues are recognized when services have been rendered. Services include supervisory or installation services for products such as rail cars, machinery and plants. When the price of such services is individually determinedby the contract and the collectability of the revenue is reasonably assured, the service revenue is recognized on an
accrual basis. Otherwise, the service revenue is recognized on a completion basis.
( h) Cash and cash equivalents
Cash on hand, readily-available deposits and short-term highly liquid and low risk investments with maturities notexceeding three months at the time of purchase are considered to be cash and cash equivalents in preparing theconsolidated statements of cash flows.
(i) Allowance for doubtful receivables
The allowance for possible losses from notes and accounts receivable, loans and other receivables is provided basedon past experience and the Companies’ estimates of losses on collection.
( j) Inventories
Inventories are stated at cost, which is determined principally by the specific identification cost method; the first-in,
first-out method; or the moving average method.
( k) Assets and liabilities arising from derivative transactions
Assets and liabilities arising from derivative transactions are stated at fair value.
( l) Investments in securities
The Company and its consolidated domestic subsidiaries classify securities as (a) debt securities intended to be held
to maturity (hereafter, “held-to-maturity debt securities”), (b) equity securities issued by subsidiaries and affiliatedcompanies and (c) all other securities (hereafter, “available-for-sale securities”). There were no trading securities at
March 31, 2008 or 2007.
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 at moving 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 net assets. Realized gains and losses on the sale of such securities are computed 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 nonconsolidated subsidiaries
or affiliated companies or available-for-sale securities declines significantly, such securities are stated 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 nonconsolidated subsidiaries and affiliated companies not subject to the equity method is not readily available, such securities should be written down to net asset
value with a corresponding charge in the statements of income in the event net asset value declines significantly.
In these cases, such fair market value or the net asset value will be the carrying amount of the securities at the
beginning of the next year.
(m) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation, except for buildings acquired after April 1998 in
Japan, is mainly computed on a declining balance basis over the estimated useful life of the assets. Depreciationof buildings acquired after April 1998 in Japan is computed on a straight-line basis over the building’s estimateduseful life.
(n) Intangible assets
Amortization of intangible assets, including software for the Company’s own use, is computed by the straight-line
method over the estimated useful life of the assets.
Goodwill is amortized on a straight-line basis over the period its effect lasts. If the amount is not significant, it isexpensed when incurred.
(o) Impairment of fixed assets
Effective April 1, 2005, the Company and its domestic consolidated domestic subsidiaries adopted a new accounting standard for impairment of fixed assets (“Opinion on Establishment of Accounting Standard for Impairment of
Fixed Assets,” issued by the Business Accounting Deliberation Council on August 9, 2002) and the guidance on theaccounting standard for impairment of fixed assets (the “Financial Accounting Standard Guidance No. 6,” issued
by the Accounting Standards Board of Japan on October 31, 2003).
(p) Accrued bonuses
Accrued bonuses for employees are provided based on the estimated amount of payment.
(q) Provision for product warranty
The provision for product warranty is based on past experience and separately provided when able to be reasonably estimated.

41

KAWASAKI HEAVY INDUSTRIES, LTD.
(r) Provision for restructuring of the commercial aircraft manufacturing businessThis provision is for estimated charges as the Company has reached a basic agreement with respect to the partial
transfer of its manufacturing work on “EMBRAER 190” airplanes to Embraer—Empresa Brasileira de Aeronáutica
S.A., which is the Brazilian co-developer of the airplane.
(s) 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 beyond and such losses can be reasonably estimated.
(t) Provision for environmental measures
The “Law Concerning Special Measures against PCB (poly chlorinated biphenyl) waste” requires companies to
responsibly dispose of PCB waste. The Company reserved an amount for estimated expenses to treat PCB waste
in the year ended March 31, 2008.
(u) Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for loss carryforwards and the
expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes.
(v) Employees’ retirement and severance benefits
Employees who terminate their services with the Company and its consolidated domestic subsidiaries are generally
entitled to lump-sum payments, the amounts of which are determined by reference to basic rates of pay at thetime of termination and length of service.
The liabilities and expenses for retirement and severance benefits are determined based on amounts actuariallycalculated using certain assumptions. The Company and its consolidated domestic subsidiaries provided theallowance for employees’ retirement and severance benefits based on the estimated amounts of projected benefit
obligation and fair value of plan assets (including retirement benefit trust).
The excess of the projected benefit obligation over liabilities for retirement and severance benefits recorded asof 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 arerecognized in expenses in equal amounts within the average of the estimated remaining service years of theemployees commencing with the following and the current period, respectively.
Employees of the Company’s overseas consolidated subsidiaries are generally covered by various pension plansaccounted for in accordance with generally accepted accounting principles in the country of domicile.
(w) Accounting standard for presentation of net assets in the balance sheet
Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new
accounting standard, “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Statement No. 5
issued by the Accounting Standards Board of Japan on December 9, 2005), and the implementation guidance forthe accounting standard for presentation of net assets in the balance sheet (the Financial Accounting Standard
Implementation Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9, 2005),(collectively, “the New Accounting Standards”).
(x) Accounting standard for statement of changes in net assets
Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new
accounting standard, “Accounting Standard for Statement of Changes in Net Assets” (Statement No. 6 issued by
the Accounting Standards Board of Japan on December 27, 2005), and the implementation guidance for theaccounting standard for statement of changes in net assets (the Financial Accounting Standard Implementation
Guidance No. 9 issued by the Accounting Standards Board of Japan on December 27, 2005), (collectively, the“Additional New Accounting Standards”).
Accordingly, the Company prepared the statements of changes in net assets for the year ended March 31, 2007
in accordance with the Additional New Accounting Standards. Also, the Company voluntarily prepared the consolidated statement of changes in net assets for 2006 in accordance with the Additional New Accounting Standards.
(y) 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 the fair value of derivative financial instruments until
the related losses or gains on the hedged items are recognized.
(z) Finance leases
For the Company and its consolidated domestic subsidiaries, finance leases that do not transfer ownership anddo not have bargain purchase provisions are accounted for in the same manner as operating leases in accordancewith Japanese GAAP.
(aa) Earnings per share
The computations of earnings per share shown in the consolidated statements of income are based upon net income
available to common stockholders and the weighted average number of shares outstanding during each period.
Diluted earnings per share is computed based on the assumption that all dilutive convertible bonds were converted at the beginning of the year.
(bb) Cash dividends
Per share amounts of cash dividends for each period represent dividends declared as applicable to the respective year.

42

ANNUAL REPORT 2008(cc) Accounting changes in method of depreciation
Effective from the year ended March 31, 2008, the Company and its consolidated domestic subsidiaries changed
the method of depreciation for fixed assets acquired after April 1, 2007 in accordance with the revised corporation
tax law in Japan.
As a result of this change, operating income and income before taxes and minority interests were ¥1,162 million($11,597 thousand) less than what they would have been without the change.
In addition, effective from the year ended March 31, 2008, the Company and its consolidated domestic subsidiaries started to depreciate the 5% residual value of fixed assets acquired before March 31, 2007 over 5 years
on a straight line basis to 1 yen from the year after the year when the book value of each asset reached 5% of
the acquisition cost, in accordance with the revised corporation tax law in Japan.
As a result of this change, operating income and income before taxes and minority interests were ¥2,761 million($27,555 thousand) less than they would have been without the change.
3. Securities(a) Acquisition costs and book values (fair values) of available-for-sale securities with available fair values as ofMarch 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen
2008
Acquisition
cost

Securities with book values exceeding acquisition costs:
Equity securities ............................................................. ¥15,982
Other securities:
Equity securities .............................................................
3,878
Total ................................................................................. ¥19,860

Book value

Difference

Difference¥33,990¥18,008$179,720

2,732¥36,722(1,146)¥16,862(11,437)$168,283

Millions of yen
2007
Acquisition
cost

Securities with book values exceeding acquisition costs:
Equity securities ................................................................ ¥17,281
Other securities:
Equity securities ................................................................
187
Total ..................................................................................... ¥17,468

Book value

Difference¥49,127¥31,846138¥49,265(49)¥31,797(b) Acquisition costs and book values of held-to-maturity debt securities with available fair values as of March 31,
2008 were as follows:
Thousands of
U.S. dollars

Millions of yen
2008
Acquisition
cost

Book value

Difference

Difference

¥301

¥303

¥2

$19

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

(c) Book values of investments in securities with no available fair values as of March 31, 2008 and 2007 wereas follows:

Held-to-maturity debt securities:
Public corporation bond ................................................................
Total ..................................................................................................
Available-for-sale securities:
Equity securities .............................................................................
Other ............................................................................................
Total ..................................................................................................

Millions of yen
2008
2007
Book value
Book value

Thousands of
U.S. dollars
2008Book value

¥
¥

$
$

2
2

¥ 8,445
1,717¥10,162¥¥——¥ 9,014
6,686¥15,700

19
19$ 84,281
17,136$101,417

See Note 4 for investments in nonconsolidated subsidiaries and affiliates.

43

KAWASAKI HEAVY INDUSTRIES, LTD.
(d) Sales amounts of available-for-sale securities and related gains and losses for the years ended March 31, 2008,2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of yen
2008

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

Sales
amounts

Gains

LossesSalesamounts

Gains

Losses

¥729

¥465

¥—

$7,275$4,640$—Millions of yen
2007
Sales
amounts

Gains

LossesEquity securities ....................................................... ¥1,493

¥880

¥(0)

Millions of yen
2006
Sales
amounts

Gains

LossesEquity securities ....................................................... ¥6,319¥4,398¥(18)

Investments in nonconsolidated subsidiaries and affiliates as of March 31, 2008 and 2007 were ¥22,862 million
4. Investments in
Nonconsolidated ($228,163 thousand) and ¥22,009 million, respectively.
Subsidiaries
and Affiliates

5. Goodwill

Goodwill included in intangible and other assets was as follows:
Millions of yen
2008
2007

¥41

6. Short-Term
Borrowingsand Long-Term
Debt

44

¥212

Thousands of
U.S. dollars
2008

$409

Short-term borrowings and long-term debt as of March 31, 2008 and 2007 comprised the following:
Millions of yen
2008
2007

Short-term borrowings:
Short-term debt, principally bank loans, bearing averageinterest rates of 2.904 percent and 3.757 percent as ofMarch 31, 2008 and 2007, respectively .........................................
Current portion of long-term debt, bearing averageinterest rates of 1.274 percent and 1.158 percent as ofMarch 31, 2008 and 2007, respectively .........................................
Total short-term debt ..................................................................
Long-term debt:
Loans from banks and other financial institutions, partly securedby mortgage or other collateral, due from 2007 to 2035,
bearing average interest rates of 1.487 percent and1.457 percent as of March 31, 2008 and 2007, respectively ..........
Notes and bonds issued by the Company:
2.00 percent notes due 2007 ..................................................
2.51–2.775 percent notes due 2008 ........................................
1.07–2.33 percent notes due 2009 ..........................................
1.52–1.60 percent notes due 2011...........................................
1.84 percent notes due 2013 ..................................................
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* ..............................
................................................................................................................
Less portion due within one year .....................................................
Total long-term debt ...................................................................

Thousands of
U.S. dollars
2008¥112,654¥106,520$1,124,292

25,027¥137,681

31,943¥138,463

249,770$1,374,062¥ 85,285¥ 96,871$ 851,147—
10,00020,00020,00010,000
7,518
7,038
477
3,475
163,793(25,027)¥138,766

10,00020,00020,00020,00010,000
7,518
7,039
612
5,657
197,697(31,943)¥165,754—
99,800199,600
199,600
99,80075,03070,2404,761
34,682
1,634,660(249,770)$1,384,890*As of March 31, 2008, all the decreases in the zero coupon convertible bonds due in 2010 and 2011 resulted fromconversions.

ANNUAL REPORT 2008
As of March 31, 2008, convertible bonds due from 2008 through 2011 were convertible into shares of common
stock at the option of the holder at prices of ¥598 ($5.97), ¥182 ($1.82) and ¥232 ($2.32) per share. The conversion prices are subject to adjustments under specified conditions.
As of March 31, 2008 and 2007, the following assets were pledged as collateral for short-term borrowings andlong-term debt:
Millions of yen
2008
2007

Land ............................................................................................................ ¥ 940
Buildings ..................................................................................................... 5,522
Other investments .......................................................................................
315
Total ........................................................................................... ¥6,777¥1,2552,321
318¥3,894

Thousands of
U.S. dollars
2008$ 9,381
55,1103,143$67,634

As of March 31, 2008 and 2007, debt secured by the above pledged assets was as follows:
Millions of yen
2008
2007

Trade payables ............................................................................................ ¥ 79
Short-term and long-term debt ................................................................... 2,698
Total ........................................................................................... ¥2,777

¥ 66
4,374
¥4,440Thousands of
U.S. dollars
2008

$ 788
26,926$27,714

The aggregate annual maturities of long-term debt as of March 31, 2008 were as follows:
Millions of yen

Thousands of
U.S. dollars

2009 ........................................................................................................................... ¥ 25,027
2010 ...........................................................................................................................
31,782
2011 ...........................................................................................................................
5,324
2012 ...........................................................................................................................
56,7492013 and thereafter ....................................................................................................
44,911
Total ................................................................................................................ ¥163,793$ 249,770
317,185
53,134566,357
448,214$1,634,660

Year ending March 31,

7. Employees’
Retirement
and Severance
Benefits

The liability for employees’ retirement and severance benefits included in the liability section of the consolidatedbalance sheets as of March 31, 2008 and 2007 consisted of the following:

Projected benefit obligation ....................................................................
Unrecognized prior service costs .............................................................
Unrecognized actuarial differences .........................................................
Less fair value of plan assets ...................................................................
Less unrecognized net transition obligation .............................................
Prepaid pension cost ...............................................................................
Liability for retirement and severance benefits .....................................

Millions of yen
2008
2007

Thousands of
U.S. dollars
2008¥182,766 ¥ 186,953
14,162
16,347
4,682
26,398(96,979) (116,999)(25,029)(37,545)
2,326
2,330
¥ 81,928 ¥ 77,484$1,824,012
141,337
46,726(967,854)(249,790)
23,214$ 817,645

Retirement and severance benefit expenses in the consolidated statements of income for the years ended March
31, 2008, 2007 and 2006 comprised the following:
2008

Service costs—benefits earned during the year ...................... ¥ 8,556
Interest cost on projected benefit obligation ..........................
4,625
Expected return on plan assets ..............................................
(945)
Amortization of prior service costs .........................................
(2,285)
Amortization of actuarial differences .....................................
(1,983)
Amortization of net transition obligation ............................... 12,514
Contribution to the defined contribution pension plans .........
483
Retirement and severance benefit expenses ....................... ¥20,965

Millions of yen
2007

2006

Thousands of
U.S. dollars
2008¥ 8,722
4,676(974)(2,214)(782)
12,516420¥22,364¥ 8,5484,512(860)(2,248)
1,664
12,989367¥24,972$ 85,389
46,157(9,431)(22,804)(19,790)
124,890
4,820$209,23145

KAWASAKI HEAVY INDUSTRIES, LTD.
Basic assumptions and information used to calculate the retirement and severance benefits were as follows:..............................................................................................................................

2008

2007

2006

Discount rate............................................................................ mainly 2.5%
mainly 2.5%
mainly 2.5%
Expected rate of return on plan assets(For the Company and consolidated domestic subsidiaries) ...
0.0 to 3.5%
0.0 to 3.5%
0.0 to 3.5%
(For consolidated overseas subsidiaries) ...............................
7.75%
7.75%
7.75%
Amortization period for prior service costs ............................... mainly 10 years 10 to 15 years 10 to 15 years
Amortization period for actuarial gains and losses ................... mainly 10 years 10 to 15 years 10 to 15 years
Amortization period for transition obligation ........................... mainly 10 years mainly 10 years mainly 10 years

8. Contingent
Liabilities

Contingent liabilities as of March 31, 2008 and 2007 were as follows:
Millions of yen
2008
2007

As guarantor of indebtedness of employees, nonconsolidated
subsidiaries, affiliates and others .............................................................. ¥38,393¥28,036

Thousands of
U.S. dollars
2008$383,163

9. Net Assets

As described in Note 2 (w), net assets comprises four subsections, which are owners’ equity, accumulated gains(losses) from valuation and translation adjustments, share subscription rights and minority interests.
The Japanese Corporate Law (“the Law”) became effective on May 1, 2006, replacing the Japanese Commercial
Code (“the Code”).
The Law is generally applicable to events and transactions occurring after April 30, 2006 and for fiscal years ending after that date. Under Japanese laws and regulations, the entire amount paid for new shares is required to be
designated as common stock. However, a company may, by a resolution of the Board of Directors, designate an
amount not exceeding one-half of the price of the new shares as additional paid-in capital, which is included incapital surplus.
Under the Law, if a dividend distribution of surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal earnings
reserve must be set aside as additional paid-in-capital or legal earnings reserve. Legal earnings reserve is included
in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside an amount equal to at least 10% of the aggregate
amount of cash dividends and other cash appropriations as legal earnings reserve until the total of legal earnings
reserve and additional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reducea deficit by a resolution of the shareholders’ meeting or could be capitalized by a resolution of the Board of
Directors. Under the Law, both of these appropriations generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code, however, on condition that the total amount of legal earnings reserve and additional paid-in capital remained equal toor exceeded 25% of common stock, they were available for distribution by resolution of the shareholders’ meeting. Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred to other capitalsurplus and retained earnings, respectively, which are potentially available for 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 Japanese laws and regulations.

10. Research andDevelopment
Expenses

Research and development expenses, included in selling, general and administrative expenses, were as follows:
2008

Research and development expenses ..................................... ¥36,228

Millions of yen
2007

2006

Thousands of
U.S. dollars
2008¥33,819¥27,040$361,556

Through the year ended March 31, 2005, expenses to develop new models in the consumer product andmachinery business had not been presented as research and development expenses. However, as the proportion of
the business in the Company grew, the Company decided to include such expenses in research and development
expenses commencing in the year ended March 31, 2006 to improve the usefulness and comparability of thefinancial statements.
As a result of this change, research and development expenses were ¥14,417 million ($122,729 thousand) morethan what they would have been under the previous method. Applied retroactively for the year ended March 31,
2005, research and development expenses would have been ¥26,460 million ($225,249 thousand) under the newrecording method.
Through the year ended March 31, 2006, expenses to develop new models in the consumer product andmachinery business were included in cost of sales as production costs. However, as expenditures having researchand development characteristics such as the development of new techniques or adaptation of new materials

46

ANNUAL REPORT 2008
increased, the Company decided to include the expenditures in selling and general administrative expenses fromthe year ended March 31, 2007 to improve the usefulness and comparability of financial statements. This change
has had little impact on net income. Moreover as a result of this change, cost of sales was ¥18,008 million lessand selling and general administrative expenses the same amount more than what they would have been withthe previous method.
In addition, the amount of the expenses included in cost of sales in the year ended March 31, 2006 was¥14,417 million.
11. Other Income(Expenses):
Other, Net

Other income (expenses): other, net in the consolidated statements of income comprised as follows:
2008

Gain on contribution of securities to the pension trust (a) ..... ¥ 1,375
Gain on sales of marketable securities and investments
in securities ........................................................................
465
Gain on sales of investments in affiliates ..............................
292
Gain on sales of subsidiaries’ shares .....................................
—
Foreign exchange loss, net ................................................... (11,549)
Loss on impairment of fixed assets (b) ..................................
(2,763)
Loss on damages suit (c) .......................................................
(2,245)
Loss on environmental measures (d) .....................................
(2,167)
Loss on sales of investments in affiliates ...............................
(408)
Loss on breach of the Antimonopoly Act (e) .........................
—
Loss on the restructuring the commercial aircraft
manufacturing business (f) .................................................
—
Loss on cleaning of ground pollution (g) ...............................
—
Loss on sales of subsidiaries’ shares ......................................
—
Other, net ............................................................................
(6,522)
Total .................................................................... ¥(23,522)

2006

Thousands of
U.S. dollars
2008—¥ 12,901$ 13,722

884——(13,391)—(2,398)——(1,387)

4,380
—
277
(8,901)(3,008)
—
—
—
(731)

4,640
2,914
—
(115,260)(27,574)(22,405)(21,626)(4,071)————(7,433)¥(23,725)(15,816)(1,054)(155)(4,039)¥(16,146)———(65,090)$(234,750)

Millions of yen
2007¥(a) “Gain on contribution of securities to the pension trust” resulted from additional contributions of investment
securities to the pension trust.
(b) Loss on impairment of fixed assets
Because the profitability or market prices of some asset groups declined, the Company and its consolidated
domestic subsidiaries reduced the book value of such assets to the recoverable amounts.
Assets are grouped mainly by units of business and significant assets for rent or those which are idle aretreated separately.
Recoverable amounts were determined by net sales value, and net sales value was estimated by appraisal orproperty tax assessment.
Asset groups for which the Company and its subsidiaries recognized impairment losses for the year ended
March 31, 2006 were as follows:
Function or status

Assets for golf links
Idle assets

Location

Type of asset

Tomakomai City, Hokkaido
Chuo-ku, Kobe City, etc.

Golf course and buildings, etc.
Land, etc.

Impairment losses for the year ended March 31, 2006 consisted of the following:
Millions of yen

Land ........................................................................................................................... ¥ 618
Golf course ................................................................................................................. 1,086
Buildings, etc. ............................................................................................................. 1,304................................................................................................................................... ¥3,008

Thousands of
U.S. dollars$ 5,261
9,245
11,101$25,607

Asset groups for which the Company and its subsidiaries recognized impairment losses for the year ended
March 31, 2008 were as follows:
Function or status

Operating property
Idle assets
Operating property

Location

Sodegaura City, Chiba
Sodegaura City, Chiba
Inami-cho, Kako-gun, Hyogo

Type of asset

Land
Land, etc.
Land

Impairment losses for the year ended March 31, 2008 consisted of the following:
Millions of yen

Land ........................................................................................................................... ¥2,277
Buildings, etc. .............................................................................................................
486................................................................................................................................... ¥2,763

Thousands of
U.S. dollars$22,725
4,850$27,575

47

KAWASAKI HEAVY INDUSTRIES, LTD.
(c) “Loss on damages suit” is a provision for compensation in case the Company faces a payout of monetarydamages.
(d) “Loss on environmental measures” is a provision for the disposal of PCB waste in accordance with the “Law
Concerning Special Measures against PCB waste”.
(e) “Loss on breach of the Antimonopoly Act” is due to assessments, etc. that the The Fair Trade Commission ofJapan imposed on the Company with regard to bids for steel bridges, tunnel ventilations and water gates.
(f) Loss on the restructuring the commercial aircraft manufacturing business
As the aerospace business has been receiving requests for sharp increases in the production of commercial
aircraft, including Boeing aircraft, the Company concluded it would be difficult to accept all of the requests.
As a result of our reassessment of our corporate resources in this business, the Company reached a basic agreement with respect to the partial transfer of its manufacturing work on “EMBRAER 190” airplanes to Embraer—
Empresa Brasileira de Aeronáutica S.A., which is our Brazilian co-developer of the airplane. This transfer gave
rise to a loss of ¥15,816 million ($134,639 thousand) composed of expected charges for the transfer, a loss
on impairment of work-in-process and expenses regarding a subsidiary named Kawasaki Aeronáutica Do Brasil
Industria Ltda., which is expected to be liquidated.
The amount of loss comprised the following:
Millions of yen

Thousands of
U.S. dollars

Expected charges for the transfer .............................................................................. ¥ 6,977
Loss on impairment of work-in-process .....................................................................
6,259
Expenses for liquidation of a subsidiary .....................................................................
2,580
Total ......................................................................................................... ¥15,816$ 59,394
53,282
21,963$134,639(g) “Loss on cleaning of ground pollution” arose from the ground pollution at the former Yachiyo works.

12. Income Taxes

Income taxes in Japan applicable to the Company and its consolidated domestic subsidiaries consist of corporationtax (national tax) and enterprise and inhabitants taxes (local taxes) which, in the aggregate, resulted in normal
statutory tax rate of approximately 40.5 percent for each of the years ended March 31, 2008 and 2007.
The significant differences between the statutory and effective tax rates for the years ended March 31, 2008
and 2007 were as follows:
Statutory tax rate..................................................................................................................
Research and development tax credit....................................................................................
Other....................................................................................................................................
Effective tax rate...................................................................................................................

2008

2007

40.5%
(3.4)
(0.8)
37.9%

40.5%
(6.7)
(0.1)
33.7%

Significant components of deferred tax assets and liabilities as of March 31, 2008 and 2007 were as follows:
Millions of yen
2008
2007

Deferred tax assets:
Accrued bonuses ................................................................................... ¥ 8,655
Retirement benefits ............................................................................... 44,835
Provision for losses on uncompleted contracts .......................................
3,285
Allowance for doubtful receivables ........................................................
894
Inventories—elimination of inter-company profits ..................................
6,246
Fixed assets—elimination of inter-company profits .................................
566
Depreciation ..........................................................................................
1,702
Net operating loss carryforwards ...........................................................
1,038
Unrealized loss of marketable securities, investments
in securities and other .........................................................................
1,599
Other .................................................................................................... 21,437
Gross deferred tax assets ................................................................... 90,257
Less valuation allowance ....................................................................
(7,825)
Total deferred tax assets .................................................................... 82,432
Deferred tax liabilities:
Deferral of gain on sale of fixed assets ...................................................
5,222
Net unrealized gain on securities ...........................................................
6,590
Unrealized gain on uncompleted contracts ............................................
—
Unrealized gain on contribution of securities to the pension trust ..........
6,552
Other ....................................................................................................
6,184
Total deferred tax liabilities ................................................................ 24,548
Net deferred tax assets .................................................................. ¥57,884

48

Thousands of
U.S. dollars
2008¥ 7,958
49,380
4,649
904
4,811
571
1,328
1,728

$ 86,377
447,455
32,784
8,922
62,335
5,648
16,986
10,3591,912
23,19596,436(9,397)87,03915,958
213,944
900,768(78,094)
822,674

5,505
12,682
429
5,995
6,301
30,912¥56,127

52,11565,768—65,38961,718244,990$577,684

ANNUAL REPORT 2008
13. Retained
Earnings(“Others”)(a) This decrease in retained earnings for the year ended March 31, 2006, mainly resulted from the cumulative
effect of a new accounting standard in the United Kingdom for the unrecognized pension liability of a subsidiary,
Kawasaki Precision Machinery (U.K.) Limited.
(b) The decrease in retained earnings for the year ended March 31, 2008, mainly resulted from the cumulative
effect of a new accounting standard in the United States for the unrecognized pension liability of subsidiaries,
Kawasaki Motors Manufacturing Corp., U.S.A. and Kawasaki Motors Corp., U.S.A.

14. Significant
NoncashTransactions

The increases in common stock and capital surplus and the decrease in convertible bonds due to conversion of
convertible bonds in the year ended March 31, 2008 and 2007 were as follows:
Millions of yen
2008
2007

Increase of common stock due to conversion ............................................... ¥1,141
Increase of capital surplus due to conversion ................................................ 1,113
Decrease in convertible bonds due to conversion ......................................... 2,318¥11,102
11,083
22,236

Thousands of
U.S. dollars
2008$11,387
11,10823,134The sum of the increases of common stock and capital surplus differed from the decrease in convertible bonds
because the Company provided the bondholders with treasury stock instead of issuing new shares.

15. Earnings
per Share

The basis of per share amount calculation for the year ended March 31, 2008, 2007 and 2006 were as follows:
2008

Basic earnings per share:
Net income ....................................................................... ¥35,141
Earnings not attributable to common shareholders ............
—Net income allocated to the common stocks ..................... 35,141

Millions of yen
2007

2006

Thousands of
U.S. dollars
2008¥29,772—
29,772¥16,468(9)16,459$350,709—
350,709

Number of shares in thousands

Weighted-average number of common stocks ...................

1,667

1,571

2008

Millions of yen
2007

2006

Thousands of
U.S. dollars
2008

¥186
(186)

¥250
(250)

$968
(968)

Diluted earnings per share:
Net income adjustment ............................................................ ¥97(Interest expense etc.) ............................................................... (97)1,469

Number of shares in thousands

Increased common stocks ......................................................... 45(Convertible bonds) .................................................................. (24)(Zero coupon convertible bonds) ............................................... (21)

16. Derivative
Transactions

167
(43)
(124)

299
(70)
(229)

Since the Company and its consolidated subsidiaries operate internationally and have a substantial volume of export
and import transactions, they enter into foreign currency exchange and option transactions in order to manage the risksof fluctuations in exchange rates in relation to foreign currency denominated assets, liabilities and future transactions.
The Company and its consolidated subsidiaries also enter into interest swap and option transactions to hedge against
future fluctuations in interest rates on borrowings, primarily to fix, cap or collar interest rates on variable rate debt.
The Company and its consolidated subsidiaries purchase derivatives to hedge against risks of fluctuations incurrency exchange rates and interest rates rather than for dealing 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 required to be disclosed.
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.

49

KAWASAKI HEAVY INDUSTRIES, LTD.
(a) Outstanding positions and recognized gains and losses at March 31, 2008 were as follows:
Contract
amountCurrency related contracts:
Foreign exchange contracts:
To sell ........................................................................... ¥91,794
To purchase ..................................................................
1,865
Option contracts:
To sell ...........................................................................
3,320
To purchase ..................................................................
3,040
Total .................................................................................

Millions of yen
Marketvalue

Gain(loss)

Thousands of
U.S. dollars
Gain(loss)¥85,3811,854¥6,413(11)$64,001
(109)

4
34

32
(2)
¥6,432319(20)$64,191(b) Outstanding positions and recognized gains and losses at March 31, 2007 were as follows:
Contract
amountCurrency related contracts:
Foreign exchange contracts:
To sell ........................................................................... ¥91,232
To purchase ..................................................................
5,478
Option contracts:
To sell ...........................................................................
1,444
To purchase ..................................................................
1,392
Total .................................................................................

17. Finance Leases

Millions of yen
Marketvalue

Gain(loss)¥96,479
5,535¥(5,247)
57

126
0

(96)
(30)
¥(5,316)

Finance lease information, as required to be disclosed in Japan, for the respective years was as follows:(a) As lessee
The original costs of leased assets under non-capitalized finance leases and accumulated depreciation, assuming it iscalculated by the straight-line method over the terms of the leases, as of March 31, 2008 and 2007 were as follows:
Millions of yen
2008
2007

Property, plant and equipment ..................................................................
Accumulated depreciation .........................................................................
..................................................................................................................
Intangible assets ........................................................................................
Accumulated amortization ........................................................................
..................................................................................................................

¥39,178(12,845)¥26,333¥ 1,110
(425)
¥ 685

¥35,822(12,388)¥23,434¥ 1,362
(779)
¥ 583

Thousands of
U.S. dollars
2008$390,997(128,193)$262,804$ 11,077(4,241)$ 6,836

The present values of future minimum lease payments under non-capitalized finance leases as of March 31,
2008 and 2007 were as follows:
Millions of yen
2008

Current portion ......................................................................................... ¥ 5,737
Noncurrent portion .................................................................................... 22,691
Total .............................................................................................. ¥28,428

Thousands of
U.S. dollars

2007

2008

¥ 5,345
19,535¥24,880$ 57,255
226,457$283,712

Lease payments, “as if capitalized” depreciation and amortization and interest expense for non-capitalized
finance leases were as follows:
2008

Lease payments ....................................................................... ¥6,028
Depreciation and amortization ................................................ 5,671
Interest ...................................................................................
644

50

Millions of yen
2007

2006

Thousands of
U.S. dollars
2008¥5,3494,956
444¥4,7894,469
325$60,159
56,596
6,427

ANNUAL REPORT 2008(b) As lessor
The original costs of leased assets under finance leases and accumulated depreciation as of March 31, 2008 and2007 were as follows:
Millions of yen
2008
2007

Thousands of
U.S. dollars
2008

Property, plant and equipment .................................................................... ¥2,250
Accumulated depreciation ...........................................................................
(827).................................................................................................................... ¥1,423¥1,989(918)¥1,071$22,454(8,253)$14,201

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

¥

$

88
(47)
41

¥

43
(23)
20

$

878
(469)
409

The present values of future minimum lease payments to be received under finance leases as of March 31, 2008
and 2007 were as follows:
Millions of yen
2008
2007

Current portion ........................................................................................... ¥ 638
Noncurrent portion ..................................................................................... 1,500
Total ........................................................................................... ¥2,138

Thousands of
U.S. dollars
2008

¥ 519
1,142
¥1,661$ 6,367
14,970$21,337

Lease payments received, depreciation and amortization and interest on finance leases were as follows:
2008

Lease payments received ............................................................ ¥379
Depreciation and amortization ................................................... 307
Interest .......................................................................................
65

18. Operating
LeasesMillions of yen
2007

2006

Thousands of
U.S. dollars
2008

¥285
244
32

¥295
263
27

$3,782
3,063
648

The present values of future minimum lease payments under operating leases as of March 31, 2008 and 2007
were as follows:
Millions of yen
2008
2007

Current portion .............................................................................................. ¥330
Non-current portion ....................................................................................... 143
Total .............................................................................................. ¥473

19. Segment
Information

¥380
400
¥780

Thousands of
U.S. dollars
2008$3,293
1,427$4,720(a) Information by industry segment
Industry segments of the Company and its consolidated subsidiaries are classified based on an internal company
system: 1) Shipbuilding, 2) Rolling Stock & Construction Machinery, 3) Aerospace, 4) Gas Turbines & Machinery,5) Plant & Infrastructure Engineering, 6) Consumer Products & Machinery, 7) Hydraulic Machinery and 8) Other.
The Shipbuilding segment manufactures and sells ships, submarines and maritime application equipment.
Operations within the Rolling Stock & Construction Machinery segment include the production and sale of rollingstock & construction machines. Products manufactured and sold by the Aerospace segment include airplanes andhelicopters. The Gas Turbines & Machinery segment manufactures and sells gas turbines, airplane engines andprime movers. Operations within the Plant & Infrastructure Engineering segment include the production and saleof boilers, chemical and cement plants and refuse incineration plants. Products manufactured and sold by theConsumer Products & Machinery segment include motorcycles, ATVs (All-Terrain Vehicles) and Jet Ski® watercrafts. Operations within the Hydraulic Machinery segment include the production and sale of hydraulic machines.
Operations within the Other segment include the production and sale of merchandise, etc. The operations also
involve trade, mediation of overseas sales and orders and other activities.
The Hydraulic Machinery segment, which had been included in “Other” until the year 2007, is presented
separately for the year 2008 as its materiality has increased.

51

KAWASAKI HEAVY INDUSTRIES, LTD.
The information for the years 2007 and 2006 below has been retroactively restated based on the new industry segment categories.

External
sales

Shipbuilding ............................................. ¥ 141,397
Rolling Stock & Construction Machinery ...
171,739
Aerospace ................................................
237,349
Gas Turbines & Machinery ........................
185,486
Plant & Infrastructure Engineering .............
142,547
Consumer Products & Machinery ..............
433,963
Hydraulic Machinery ..................................
84,028Other ........................................................
104,588
Total ..................................................... 1,501,097
Eliminations and corporate .......................
—
Consolidated total ................................ ¥1,501,097

External
sales

Shipbuilding ............................................. ¥ 108,849
Rolling Stock & Construction Machinery ...
184,283
Aerospace ................................................
269,108
Gas Turbines & Machinery ........................
183,309
Plant & Infrastructure Engineering .............
122,062
Consumer Products & Machinery ..............
403,702
Hydraulic Machinery ..................................
66,649Other ........................................................
100,657
Total ..................................................... 1,438,619
Eliminations and corporate .......................
—
Consolidated total ................................ ¥1,438,619

External
sales

Shipbuilding ............................................. ¥ 109,697
Rolling Stock & Construction Machinery ...
168,306
Aerospace ................................................
218,533
Gas Turbines & Machinery ........................
161,431
Plant & Infrastructure Engineering .............
164,506
Consumer Products & Machinery ..............
366,960
Hydraulic Machinery ..................................
46,260
Other ........................................................
86,794
Total ..................................................... 1,322,487
Eliminations and corporate .......................
—
Consolidated total ................................ ¥1,322,487

External
sales

Shipbuilding ............................................ $ 1,411,148
Rolling Stock & Construction Machinery ...
1,713,962
Aerospace ...............................................
2,368,752
Gas Turbines & Machinery .......................
1,851,158
Plant & Infrastructure Engineering ...........
1,422,625
Consumer Products & Machinery .............
4,330,968
Hydraulic Machinery.................................
838,603
Other ......................................................
1,043,792
Total ................................................... 14,981,008
Eliminations and corporate ......................
—
Consolidated total ............................... $14,981,008

52Intersegment
sales

Total
sales

Millions of yen
2008
OperatingOperatingexpenses
income (loss)¥

1,568 ¥ 142,965 ¥ 139,712 ¥ 3,253
727
172,466
165,293
7,173
1,644
238,993
228,117
10,876
16,940202,426
189,034
13,392
13,747156,294
145,455
10,8398,244
442,207422,537
19,6708,724
92,752
83,635
9,117
40,234
144,822
142,469
2,353
91,8281,592,925
1,516,252
76,673(91,828)(91,828)(92,065)237¥— ¥1,501,097 ¥1,424,187 ¥76,910

Intersegment
sales

Total
sales

Millions of yen
2007
OperatingOperatingexpenses
income (loss)¥

1,861 ¥ 110,710 ¥ 112,958 ¥ (2,248)
500
184,783
171,613
13,1701,687
270,795
257,395
13,40014,410197,719
187,882
9,837
19,670141,732
144,163(2,431)
9,184
412,886
385,323
27,563
8,598
75,247
69,185
6,062
40,434141,091
137,546
3,545
96,344
1,534,963
1,466,065
68,898(96,344)(96,344)(96,588)244¥— ¥1,438,619 ¥1,369,477 ¥69,142

Intersegment
sales

Total
sales

Millions of yen
2006
OperatingOperatingexpenses
income (loss)¥ 1,428 ¥ 111,125 ¥ 112,833 ¥ (1,708)
917
169,223
160,4198,804
2,013
220,546
210,845
9,701
16,937
178,368
171,564
6,804
20,972
185,478
193,972(8,494)
6,759
373,719
353,819
19,90011,51057,77053,546
4,224
42,278129,072
126,633
2,439
102,814
1,425,301
1,383,631
41,670(102,814)(102,814)(102,939)125¥— ¥1,322,487 ¥1,280,692 ¥41,795

Intersegment
sales

Total
sales

Thousands of U.S. dollars
2008
OperatingOperatingexpenses
income (loss)

Total
assetsDepreciation
Capitaland amortization expenditures¥ 134,577
161,585
281,517
188,133
132,174
315,30953,348164,445
1,431,088(52,318)¥1,378,770

Total
assets¥ 4,161
6,454
6,154
5,392
1,318
19,3674,801
1,674
49,321
1,217¥50,538

Depreciation
Capitaland amortization expenditures¥ 117,832
172,615
279,574
165,412
141,472
303,730
46,788
159,432
1,386,855(28,875)¥1,357,980

Total
assets¥ 2,169
2,660
5,291
3,076
1,816
10,5391,631
1,519
28,701
1,578¥30,279¥ 1,194
8,253
3,029
5,354
996
12,828
4,955
1,177
37,786
1,483¥39,269

Depreciation
Capitaland amortization expenditures¥ 105,210
179,478
268,871
140,900
135,448
280,972
32,145144,276
1,287,300(3,215)¥1,284,085

Total
assets¥ 2,459
3,579
6,232
3,765
1,926
13,5172,659
1,699
35,836
1,619¥37,455¥ 2,700
2,350
5,295
2,804
1,859
11,020957
1,794
28,7791,772¥30,551¥ 1,990
3,272
12,113
2,893
733
15,4802,959
1,268
40,708
1,016¥41,724

Depreciation
Capitaland amortization expenditures$ 15,649 $ 1,426,797 $ 1,394,331 $ 32,466 $ 1,343,084 $ 24,541
7,255
1,721,217
1,649,631
71,586
1,612,625
35,71916,407
2,385,159
2,276,617 108,542
2,809,551
62,196
169,0622,020,220
1,886,567 133,653
1,877,575
37,575
137,196
1,559,821
1,451,647 108,174
1,319,102
19,22282,275
4,413,243
4,216,936 196,307
3,146,796
134,900
87,066925,669
834,681
90,988532,415
26,537
401,537
1,445,329
1,421,845
23,484
1,641,167
16,955916,447 15,897,455 15,132,255 765,200 14,282,315
357,645(916,447)(916,447)(918,812)
2,365(522,135)
16,157$— $14,981,008 $14,213,443 $767,565 $13,760,180 $373,802$ 41,527
64,411
61,41753,812
13,154
193,283
47,914
16,708492,226
12,145$504,371

ANNUAL REPORT 2008(b) Information by geographic area

External
sales

Japan ......................................... ¥1,058,487
North America ............................
267,560
Europe .......................................
131,608
Asia ............................................
33,297
Other areas ................................
10,145
Total ...................................... 1,501,097
Eliminations and corporate .........
—
Consolidated total .................. ¥1,501,097

External
sales

Japan ......................................... ¥1,042,993
North America ............................
261,254
Europe .......................................
98,842
Asia ............................................
22,690
Other areas ................................
12,840Total ...................................... 1,438,619
Eliminations and corporate .........
—
Consolidated total .................. ¥1,438,619

External
sales

Japan ......................................... ¥ 986,266
North America ............................
222,477
Europe .......................................
80,818Asia ............................................
24,800
Other areas ................................
8,126
Total ...................................... 1,322,487
Eliminations and corporate .........
—
Consolidated total .................. ¥1,322,487

External
sales

Intersegment
sales

Millions of yen
2008
Total
Operatingsales
expenses

Operatingincome (loss)¥ 307,546 ¥1,366,033 ¥1,291,102 ¥74,931
25,202292,762
293,276(514)
5,321
136,929
132,449
4,480
24,75258,04956,597
1,452
247
10,392
10,119273
363,068
1,864,165
1,783,543
80,622(363,068)(363,068)(359,356)(3,712)¥— ¥1,501,097 ¥1,424,187 ¥76,910

Intersegment
sales

Millions of yen
2007
Total
Operatingsales
expenses

Operatingincome (loss)¥ 278,960 ¥1,321,953 ¥1,256,538 ¥65,415
18,017279,271
277,533
1,738
4,320
103,162
100,783
2,379
18,73741,42740,728699
187
13,027
12,808219
320,221
1,758,840
1,688,390
70,450(320,221)(320,221)(318,913)(1,308)¥— ¥1,438,619 ¥1,369,477 ¥69,142

Intersegment
sales

Millions of yen
2006
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥1,103,514
191,075
83,92837,917
3,335
1,419,769(40,999)¥1,378,770

Total
assets¥1,093,598
202,539
70,36026,081
2,869
1,395,447(37,467)¥1,357,980

Total
assets¥ 247,228 ¥1,233,494 ¥1,192,245 ¥41,249
16,588239,065
237,651
1,414
4,053
84,871
83,308
1,563
16,975
41,77540,315
1,460
141
8,267
8,893
(626)
284,985
1,607,472
1,562,412
45,060(284,985)(284,985)(281,720)(3,265)¥— ¥1,322,487 ¥1,280,692 ¥41,795¥1,074,688
159,169
63,25424,285
7,324
1,328,720(44,635)¥1,284,085

Thousands of U.S. dollars
2008
Total
Operatingsales
expenses

Total
assetsIntersegment
sales

Operatingincome (loss)

Japan ....................................... $10,563,743 $ 3,069,321 $13,633,064 $12,885,250 $747,814 $11,013,114
North America ..........................
2,670,259
251,517
2,921,776
2,926,906(5,130)1,906,936
Europe .....................................
1,313,453
53,104
1,366,557
1,321,846
44,711
837,605
Asia ..........................................
332,305
247,026
579,331564,840
14,491
378,413
Other areas ..............................
101,248
2,465
103,713
100,988
2,725
33,283
Total ..................................... 14,981,008 3,623,433 18,604,441 17,799,830 804,611 14,169,351
Eliminations and corporate .......
— (3,623,433) (3,623,433) (3,586,387) (37,046)(409,171)
Consolidated total ................ $14,981,008 $— $14,981,008 $14,213,443 $767,565 $13,760,180
North America includes mainly the U.S.A. and Canada. Europe includes mainly the Netherlands, the United
Kingdom and Germany. Asia includes Thailand, Indonesia, the Philippines and Korea. Other areas include mainly
Australia and Brazil.
(c) Corporate assets
Included in eliminations and corporate under total assets in (a) and (b) above are corporate assets of ¥115,076 million ($1,148,463 thousand), ¥124,152 million and ¥110,476 million at March 31, 2008, 2007 and 2006, respectively, which mainly comprised cash and time deposits of the Company and property, plant, equipment andintangible assets of the Company’s head office.

53

KAWASAKI HEAVY INDUSTRIES, LTD.
(d) Overseas sales
Overseas sales consist of the total sales of the Company and its consolidated subsidiaries made outside of Japan.
Overseas sales information for the years ended March 31, 2008, 2007 and 2006 were as follows:
Millionsof yen%2008
Overseas
Againstsales
net sales

North America ........................... ¥358,717 23.9%
Europe ...................................... 153,613 10.2
Asia ........................................... 161,906 10.7
Other areas ............................... 148,315 9.9
Total ...................................... ¥822,551 54.7%

Millionsof yen%2007
Overseas
Againstsales
net sales¥336,765
119,408
186,066
135,506¥777,745

23.4%
8.3
12.9
9.4
54.0%

Millionsof yen%2006
Overseas
Againstsales
net sales¥282,149
109,060
197,503
107,103¥695,815

21.3%
8.2
14.9
8.2
52.6%

Thousands of
U.S. dollars
2008
Overseassales$3,580,010
1,533,064
1,615,828
1,480,190$8,209,092

North America includes mainly the U.S.A. and Canada. Europe includes mainly the United Kingdom, France,
the Netherlands, Germany and Italy. Asia includes China, Korea, Taiwan, Vietnam and the Philippines. Other areas
include mainly Panama, Brazil, the Bahamas and Australia.

20. Additional
Information(a) Until for the year ended March 31, 2005, the Company and its consolidated domestic subsidiaries provided for
retirement and severance benefits for directors and statutory auditors principally at 50 percent of the amountrequired if they had retired at the balance sheet date. Effective April 1, 2005, the Company and its consolidated
domestic subsidiaries terminated this plan and changed its presentation from “Directors’ and statutory auditors’
retirement and severance benefits” to “Other” in “Long-term liabilities” in the consolidated balance sheet asof March 31, 2006.
(b) Effective April 1, 2007, the Company changed the accounting periods for consolidation of 2 subsidiaries(Kawasaki Robotics (USA) Inc. and Kawasaki Construction Machinery Corp. of America) from the 12 months
ended December 31 to the 12 months ended March 31 to improve transparency and quality of the consolidated financial statements.

21. Subsequent
EventsOn June 25, 2008, the following appropriation of nonconsolidated retained earnings was approved at the ordinary
meeting of shareholders of the Company:
Cash dividends (¥5.0 per share) .....................................................................................

22. Other Matters

54

Millions of yen

Thousands of
U.S. dollars¥8,341$83,244(a) On June 27, 2006, the Company received a decision from the Japan Fair Trade Commission ordering correction of
unfair bids that the Company may have committed on construction contracts for garbage incineration facilities from1994 through 1998. On July 27, 2007, the Company appealed the decision to the Tokyo High Court demanding
revocation of the decision. On April 17, 2007, the Company also sought an inquiry objecting to an order to pay
penalties of ¥5,163 million ($51,527 thousand) which the Fair Trade Commission imposed on March 28, 2007.
(b) On November 16, 2007, the Company received a judgment from the Kobe District Court requiring reimbursement of ¥1,364 million ($13,613 thousand) to Kobe City in a suit brought by citizens of the city claiming that
the Company unfairly bid on a construction contract for a garbage incineration facility in Kobe City which theCompany was awarded in 1995. On November 29, 2007, the Company appealed the judgment to the Osaka
High Court, but the Company received a judgment requiring reimbursement of ¥1,637 million ($16,337 thousand), which was equivalent to 6% of the order price to Kobe City on October 30, 2007. On November 10,
2007, the Company appealed the judgment to the Supreme Court.
In addition, the Company reserved an amount for the reimbursement and interest payment provision for losses
on damages suit in the year ended March 31, 2008.
(c) On April 25, 2007, the Company received a judgment from the Fukuoka District Court requiring reimbursementof ¥2,088 million ($20,838 thousand) jointly with Hitachi Zosen Corporation and 3 other companies to Fukuoka
City in a suit brought by citizens of the city claiming that the Company unfairly bid on a construction contract fora garbage incineration facility in Fukuoka City which Hitachi Zosen Corporation was awarded in 1996. On May 9,2007, the Company appealed the judgment to the Fukuoka High Court, but the Court dismissed the appeal on
November 30, 2007. On December 13, 2007, the Company appealed the judgment to the Supreme Court.
(d) On November 16, 2007, the Company received a judgment from the Kobe District Court requiring reimbursement of ¥530 million ($5,289 thousand) jointly with Hitachi Zosen Corporation and 4 other companies in a suitbrought by citizens of the city claiming that the Company unfairly bid on a construction contract for a garbage
incineration facility in Amagasaki City which Hitachi Zosen Corporation was awarded in 1996. On November
29, 2007, the Company appealed the judgment to the Osaka High Court and won the case on November 30,
2007. On December 7, 2007, the citizens of Amagasaki City, the complainants, appealed the judgment to theSupreme Court.

55

Directors, Corporate Auditors, and Executive Officers

KAWASAKI HEAVY INDUSTRIES, LTD.

DIRECTORSCORPORATE AUDITORS
Akira Tanoue
Nobuyuki Okazaki
Hiroshi Kawamoto**
Kenzo Doi**

Masamoto Tazaki
ChairmanTadaharu Ohashi*
President

Akira Matsuzaki*
Senior Executive Vice President

Chikashi Motoyama*

Masashi Segawa*Shinichi Tamba*

Senior Vice President

Senior Vice President

Senior Vice President

Shuji Mihara*

Satoshi Hasegawa*

Mitsutoshi Takao*

Senior Vice President

Senior Vice President

Senior Vice President

56* Representative Director** Outside Auditor

ANNUAL REPORT 2008
EXECUTIVE OFFICERS
President

Managing Executive Officers

Tadaharu Ohashi

Nobumitsu Kambayashi
Kyohei Matsuoka

Senior Executive Vice President

Shigeru Murayama

Akira Matsuzaki
General Manager
Corporate Technology Division

Executive Officers

Akira Hattori
Senior Vice Presidents

Yuichi Asano

Chikashi Motoyama

Toru Yamaguchi

President
Aerospace Company

Sosuke Kinouchi

Masashi Segawa
President
Rolling Stock Company

Shinichi Tamba
President
Consumer Products & Machinery Company

Yoshio Kawamura
Seiji Yamashita
Takeshi Sugawara
Sumihiro Ueda
Wataru Kanamori

Shuji Mihara
Senior Manager
Corporate Planning Department

Satoshi Hasegawa
President
Gas Turbines & Machinery Company

Takeshi Watanabe
Yasuo Murata
Minoru Makimura
Tamaki Miyatake

Mitsutoshi Takao

Shuichi Yamanaka

Senior Manager
Finance & Accounting Department

Masahiko Hirohata
Shinsuke Tanaka
Yutaka Shimomura(As of June 25, 2008)57

Major Consolidated Subsidiaries and Affiliates

KAWASAKI HEAVY INDUSTRIES, LTD.

Name

Location

Paid-in Capital

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

Principal Businesses

SHIPBUILDING
Kawasaki Shipbuilding CorporationJapan

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

Nantong COSCO KHI Ship Engineering Co., Ltd.†

China

CNY1,462,200*

50.00

Japan

743

100.00

Manufacture and sale of ships

ROLLING STOCK & CONSTRUCTION MACHINERY
Kawasaki Machine Systems, Ltd.
★❊
Alna Yusoki-Yohin Co., Ltd.

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

Japan

400

100.00

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

Nichijo Manufacturing Co., Ltd.

Japan

120

75.02

Manufacture and sale of snowplows

Kawasaki Rail Car, Inc.

U.S.A.

US$60,600*

100.00Engineering, manufacture, sale, and after-sales

Kawasaki Construction Machinery Corp.

U.S.A.

US$8,000*

100.00service of rolling stock in the United Statesof America
EarthTechnica Co., Ltd.†

Manufacture and sale of construction machineryin the United States

Japan

1,200

50.00

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

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

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

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

Japan

1,460

83.59

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

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

Tonfang Kawasaki Air-Conditioning Co., Ltd.†

China

US$9,673*

50.00

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

58

ANNUAL REPORT 2008
Name

Location

Paid-in Capital

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

Principal Businesses

PLANT & INFRASTRUCTURE ENGINEERING
Kawasaki Plant Systems, Ltd.

Japan

8,500

100.00Design, manufacture, installation, maintenance, andsale of various types of industrial plants

JP Steel Plantech Co.†

Japan

1,995

24.81

Sale of and engineering services for steelworks plants

Shanghai COSCO Kawasaki Heavy Industries

China

US$29,800*

45.00

Manufacture and sale of steel structures

Japan

350

100.00and equipment
Steel Structure Co., Ltd.†CONSUMER PRODUCTS & MACHINERY
Kawasaki Metal Industries, Ltd.

Manufacture, processing, and assembly of various
steel products

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

U.S.A.

US$70,000*

100.00●

Manufacture of motorcycles, ATVs, personal
watercraft, small gasoline engines, industrial robots,and rolling stock

Kawasaki Motors Corp., U.S.A.

U.S.A.

US$65,900*

100.00Distribution of motorcycles, ATVs, personal
watercraft, and small gasoline engines in the UnitedStatesKawasaki 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 personal
watercraft in Canada
Sole distribution of motorcycles, ATVs, personal
watercraft, and small gasoline engines in Europe

Kawasaki Motors Racing B.V.

Netherlands

A3,000*100.00Management, purchasing and storage of relatedmaterials, and back-office work of motoGP races

Kawasaki Motors Pty. Ltd.

Australia

A$2,000*

100.00Distribution of motorcycles, ATVs, and personal
watercraft in Australia

P.T. Kawasaki Motor Indonesia

Indonesia

US$40,000*

83.00

Kawasaki Motors (Phils.) Corporation

Philippines

P101,430*

50.001

Manufacture and distribution of motorcycles
in Indonesia
Manufacture and distribution of motorcycles in thePhilippines

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Thailand

B1,900,000*

100.00

Manufacture and distribution of motorcycles
in Thailand

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

U.S.A.

US$1,000*

100.00

Sale and after-sales service of industrial robots
in the United States

Kawasaki Robotics (UK) Ltd.

U.K.

£917*

100.00

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

Kawasaki Machine Systems Korea, Ltd.

Korea

W1,500**100.00

Sale and after-sales service of industrial robots androbot systems

Kawasaki Robotics (Tianjin) Co., Ltd.

China

CNY13,174*

100.00

Sale and after-sales service of industrial robots in
China

59

KAWASAKI HEAVY INDUSTRIES, LTD.
Name

Location

Paid-in Capital

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

Principal Businesses

HYDRAULIC MACHINERY
Kawasaki Precision Machinery Ltd.

Japan

3,000

100.00Design, manufacture, sale, after-sales service, and maintenance for hydraulic machinery and equipment, electricpowered devices, and control systems

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

U.S.A.

US$5,000*

100.00Kawasaki Precision Machinery (U.K.) Limited

U.K.

£5,000*100.00

Manufacture and sale of hydraulic products
Manufacture and sale of hydraulic products

Flutek, Ltd.

Korea

W1,310**50.38

Manufacturing, sales, and repair of hydraulic equip-

Kawasaki Precision Machinery (China) Ltd.

China

500

100.00ment, marine equipment, and other machinery
Assembly of hydraulic pumps and motors forconstruction machinery
OTHER
Kawajyu Shoji Co., Ltd.

Japan

600

70.00

Trading

Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic

Kawasaki Life Corporation

Japan

400

100.00presses and other hydraulic equipment
Administration of Company welfare facilities; realestate sales, leasing, and construction; insurance
representation, administration and maintenance,leasing, and provision of loans
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

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

U.S.A.

US$600*100.00

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

Kawasaki do Brasil Industria e Comercio Ltda.

Brazil

R1,136*100.00

Responsible for sales and acting as intermediary
in Brazil and the rest of Latin America for orders of
KHI products and for providing various types of engineering business services* Monetary unit in thousands** Monetary unit in millions†
Affiliate accounted for using equity method
Partially included in:● Rolling Stock & Construction Machinery★ Gas Turbines & Machinery❊ Consumer Products & Machinery(As of March 31, 2008)60

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: 81-58-382-5712
Fax: 81-58-382-2981

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

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

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

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: 81-78-924-8654

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

Kakogawa Works
170, Yamanoue Mukohara, Hiraoka-cho,
Kakogawa, Hyogo 675-0112, Japan
Phone: 81-79-427-0292
Fax: 81-79-427-0556

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

Harima Works
8, Niijima, Harima-cho,Kako-gun, Hyogo 675-0155, Japan
Phone: 81-79-435-2131
Fax: 81-79-435-2132

ANNUAL REPORT 2008
OVERSEAS OFFICES
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

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

Delhi Office
5th Floor, Meridien Commercial Tower,
8 Windsor Place, Janpath,
New Delhi, 110001 India
Phone: 91-11-4358-3531
Fax: 91-11-4358-3532

Moscow Office
6th Floor (605), Bolshoy
Ovchinnikovsky per.,
16 Moscow, 115184,
Russian Federation
Phone: 7-495-933-1953~54
Fax: 7-495-933-1955

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

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

Kawasaki Precision Machinery Ltd.
234, Matsumoto, Hazetani-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
1-1, Higashikawasaki-cho 3-chome, Chuo-ku,
Kobe, Hyogo 650-8670, 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

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.
60 East 42nd Street, Suite 2501,
New York, NY 10165, 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.
28140 Lakeview Drive,
Wixom, MI 48393, U.S.A.
Phone: 1-248-446-4100
Fax: 1-248-446-4200

San Jose Office3081 North 1st Street,
San Jose, CA 95134, U.S.A.
Phone: 1-408-432-0990
Fax: 1-408-432-0996

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

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

Kawasaki Precision Machinery (U.S.A.), Inc.
5080 36th Street S.E.,
Grand Rapids, MI 49512, U.S.A.
Phone: 1-616-949-6500
Fax: 1-616-975-3103

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

EarthTechnica Co., Ltd.
2-4, Kanda, Jimbocho, Chiyoda-ku,
Tokyo 101-0051, Japan
Phone: 81-3-3230-7155
Fax: 81-3-3230-7158

61

KAWASAKI HEAVY INDUSTRIES, LTD.
Kawasaki Heavy Industries (U.K.) Ltd.

Sweden Branch

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

Häradsvägen 255, S-14172
Huddinge, Sweden
Phone: 46-8-464-0200
Fax: 46-8-464-0240

Kawasaki Precision Machinery (U.K.) Limited

Spain BranchErnesettle Lane, Ernesettle, Plymouth,
Devon PL5 2SA, U.K.
Phone: 44-1752-364394
Fax: 44-1752-364816

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

Kawasaki Robotics (UK) Ltd.
Units 6 & 7, Easter Court,
Europa Boulevard, Westbrook,
Warrington WA5 7ZB, 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

Kawasaki Heavy Industries (Europe) B.V.
7th Floor, Riverstaete,
Amsteldijk 166,
1079 LH Amsterdam,
The Netherlands
Phone: 31-20-6446869
Fax: 31-20-6425725

Benelux Brancht Hofveld 6-C2,
1702 Groot-Bijgaarden,
Brussels, Belgium
Phone: 32-2-481-7820
Fax: 32-2-481-7829

Kawasaki Motors Racing B.V.
Diamantlaan 14, 2132 WV Hoofddorp,
The Netherlands
Phone: 31-23-567-0500
Fax: 31-23-563-9884

Kawasaki Machine Systems Korea, Ltd.
69BL 1LT, 638, Gojan-Dong, Namdong-Gu,
Incheon, 405-817, Korea
Phone: 82-32-821-6941
Fax: 82-32-821-6947

Flutek, Ltd.
192-11, Shinchon-dong,
Changwon, Kyungnam, 641-370, Korea
Phone: 82-55-286-5551
Fax: 82-55-286-5553

KHI Europe Finance B.V.

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Hoekenrode 6,1102 BR Amsterdam,
The Netherlands
Phone: 31-20-6293800
Fax: 31-20-6294661

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

Kawasaki Motors Europe N.V.

Lot 30, Jalan Pengacara U1/48 Temasya Industrial
Park, Glenmarie 40150 Shah Alam, Selangore,
Malaysia
Phone: 60-3-5569-2882
Fax: 60-3-5569-3093

Opaallaan 1210,
2132 LN Hoofddorp,
The Netherlands
Phone: 31-2356-70500
Fax: 31-2356-39884

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

Kawasaki Gas Turbine Asia Sdn Bhd

KHI Design & Technical Service Inc.
20F, 6788 Ayala Avenue,
Olden Square, Makati,
Metro Manila, The Philippines
Phone: 63-2-810-9213
Fax: 63-2-816-1222

Kawasaki Motors (Phils.) Corporation

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

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

France Branch

Kawasaki Heavy Industries (Singapore) Pte. Ltd.

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

6 Battery Road, #18-04,
Singapore 049909
Phone: 65-62255133~4
Fax: 65-62249029

Italy Branch

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

Via Luigi Meraviglia 31,
20020 Lainate, Italy
Phone: 39-02-9328521
Fax: 39-02-932852-84

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 3710-14, Sun Hong Kai Centre,
30 Harbour Road, Wanchai, Hong Kong,
People’s Republic of China
Phone: 852-2522-3560
Fax: 852-2845-2905

Kawasaki Precision Machinery (China) Ltd.
Yangshan Industrial Park, 9 Guanshan Rd.,
New District, Suzhou, People’s Republic of China
Phone: 86-512-66160365
Fax: 86-512-66160366

Nantong COSCO KHI Ship Engineering Co., Ltd.
117, Linjiang Road, Nantong City,
Jiangsu Province, People’s Republic of China
Phone: 86-513-8350-0666
Fax: 86-513-8351-4349

Tonfang Kawasaki Air-Conditioning Co., Ltd.
21-22F, B Building, Tsinghua Tongfang,
Hi-tech Plaza, No. 1 Wangzhuang Road,
Haidian District, Beijing, People’s Republic of China
Phone: 86-316-597-8866
Fax: 86-316-597-8098

Shanghai COSCO Kawasaki Heavy Industries
Steel Structure Co., Ltd.
5198 Hutai Road, Baoshan District,
Shanghai 201907, People’s Republic of China
Phone: 86-21-5602-8888
Fax: 86-21-5602-5198

KHI (Dalian) Computer Technology Co., Ltd.
Room 205, International Software Service Center,
Dalian Software Park, 18 Software Park Road,
Dalian, People’s Republic of China
Phone: 86-411-84748270
Fax: 86-411-84748275

Kawasaki Heavy Industries Consulting& Service (Shanghai) Company, Ltd.
10th Floor, Chong Hing Finance Center,
288 Nanjing Road West, Huangpu District,
Shanghai 200003, People’s Republic of China
Phone: 86-21-3366-3100
Fax: 86-21-3366-3108

Kawasaki Heavy Industries Machinery
Trading (Shanghai) Co., Ltd.
10th Floor, Chong Hing Finance Center,
288 Nanjing Road West, Huangpu District,
Shanghai 200003, People’s Republic of China
Phone: 86-21-3366-3200
Fax: 86-21-3366-3205

Kawasaki Robotics (Tianjin) Co., Ltd.
Hongtai Industrial Park, B-1, Taifeng Road 87,
Tianjin Economic-Technological Development Area,
People’s Republic of China
Phone: 86-22-5983-1888
Fax: 86-22-5983-1889

P.T. Kawasaki Motor Indonesia

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

62

Wuhan Kawasaki Marine Machinery Co.,Ltd.

(As of August 1, 2008)

Corporate Data

ANNUAL REPORT 2008

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

Paid-in Capital:¥104,328,628,664

Number of Shares Issued:

1,669,629,122 shares

Number of Shareholders:

179,607

Number of Employees:

30,563

Stock Exchange Listings:

Tokyo, Osaka, Nagoya

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

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 650-0044, JapanADR Facility:
KHI has a sponsored American Depository Receipt (ADR) facility. ADRs
are traded in the over-the-counter (OTC) market in the United States
under CUSIP number 486 359 20 1 with each ADR representing fourordinary shares.
ADR Depository:
The Bank of New York Mellon
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-866-680-6825
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://adrbnymellon.com
KHI Web Site at: http://www.khi.co.jp(As of March 31, 2008)63

AbcdeKawasaki Heavy Industries, Ltd. Annual Report 2008

Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007

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