Annual Report 2007
Year ended March 31, 2007

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, refuse incinerators, industrial plants, steel structures, and a wide range of manufacturing equipment and systems. KHI also produces such world-famous consumer
products as Kawasaki-brand motorcycles and 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
Other
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
14
16
18
20
22
24
26
28
29
36
38
39
40
42
57
58
60
63
65

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:
P-X and C-X airplanes immediately after their rollout on July 4, 2007

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

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥1,322,487¥1,241,592$12,182,395

For the year:
Net sales ............................................................................................... ¥1,438,619
Operating income .................................................................................

69,142

41,79524,744

585,503

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

29,772

16,467

11,479252,113

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

45,86045,761

71,422

388,348

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

39,26941,72429,692

332,535

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

¥18.9

¥11.2

¥7.9

$0.16

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

17.2

9.4

6.8

0.15

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

5.0

3.0

2.5

0.04

Total assets ........................................................................................... ¥1,357,980¥1,284,085¥1,194,473$11,499,534

295,378

243,096

206,156

2,501,295

Orders received during the fiscal year.................................................... ¥1,592,688¥1,351,631¥1,301,845$13,487,069

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

1,310,444

1,254,409

12,407,105

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

At year-end:
Total net assets .....................................................................................
Orders received and outstanding:
1,465,155Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥118.09 to US$1, the approximate rateof exchange at March 31, 2007.

194.0

206.2

243.1

295.4

29.8

16.5

11.5

6.3

30

180.2

1,500

13.0

1,438.6

1,322.5(Billions of yen)

1,241.6

Total Net Assets(Billions of yen)

1,160.3

Net Income(Billions of yen)
1,239.6

Net Sales

03

04

05

06

07

300

25

1,200

20

200

900
15
600
10
300

100

5

0

0

03

04

05

06

07

0

03

04

05

06

07

Annual Report 2007

1

To Our Shareholders

Review of Fiscal 2007
During fiscal 2007, ended March 31, 2007, the Japanese
economy remained on a distinctly expansionary trend, driven by growth in private capital investment supported byexpansion in corporate earnings. Overseas also, economic
conditions were generally strong, especially in China,
despite a slowdown in some sectors in the United States.
Under these circumstances, the Kawasaki Heavy
Industries (KHI) Group continued aggressive marketing
activities and secured total orders amounting to¥1,592.7 billion, ¥241.1 billion, or 17.8%, higher than in
the previous fiscal year, mainly due to increased orders in
the Rolling Stock & Construction Machinery, Aerospace,
and Plant & Infrastructure Engineering segments. Net
Tadaharu Ohashi President

sales rose ¥116.1 billion, or 8.8%, to ¥1,438.6 billion,
with the Aerospace and Consumer Products & Machinery
segments reporting the strongest gains.
Operating income increased a robust ¥27.3 billion, or
65.4%, to ¥69.1 billion. This improvement resulted froma combination of the positive effect of a weaker yen
against the U.S. dollar, growth in the Rolling Stock &Construction Machinery and Consumer Products &Machinery segments, reduced losses in the Plant &Infrastructure Engineering segment, and other factors.
Similarly, net income advanced to ¥29.8 billion, representing a sharp ¥13.3 billion, or 80.8%, gain from theprevious fiscal year.
Our basic policy is to continue to pay stable cash dividends that are appropriate to our performance while2

Kawasaki Heavy Industries, Ltd.

Implementing Initiatives to Enhance
Corporate Value and Attain the Goals of the
New Medium-Term Business Plan “Global K”
paying careful attention to expanding retained earnings

ability and have added the ratio of recurring profit* toto strengthen and expand the KHI Group’s management

net sales as another integral management indicator.

base in preparation for future growth. In view of thisbasic policy, and after an overall consideration of performance and other factors, we proposed and received*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.

approval from shareholders to increase the annual cash
dividend ¥2 per share, to ¥5 per share for fiscal 2007.

Medium-Term Management Strategy

Basic Management Policies and Objectives

Under the KHI Group’s previous Medium-Term Business
Plan “K21,” the Group was successful in creating a sta-

As expressed in the Kawasaki Group’s New Medium-ble earnings base by aiming to create a high margin

Term Business Plan “Global K,” our new corporate vision

earnings structure based on a business portfolio capable

is “Enriching Lifestyles and Helping Safeguard theof coping with changes in the business environment andEnvironment: Global Kawasaki.” The Group endeavors tomoving to a sustainable growth path. To move to theincrease customer satisfaction and enhance its corporate

next stage in growth and development, we have pre-value by offering its customers superior products andpared a new Medium-Term Business Plan entitledservices that are differentiated by technology and brand“Global K,” which began in fiscal 2007, and will extend

power. The ultimate goal of the Group’s management

through fiscal 2011. With the previously mentioned cor-strategies is to meet the expectations, first and foremost,porate missions in mind, we are working to make theof our shareholders as well as our customers, employees,

leap to a highly profitable global enterprise based on theand the communities we serve.

three management concepts of “quality followed byquantity,” “selectivity and concentration,” and “stronger

Target Management Indicators

non-price competitiveness.”

The principal target management indicator we have

As part of these initiatives and to reinforce the profitabili-

adopted, with the aim of satisfying the expectations of

ty of the KHI Group, KHI has classified its principal busi-

investors for profitability, is before-tax return on invested

nesses into three areas: namely, “core businesses,”

capital (ROIC), defined as earnings before interest andwhich are expected to be the Group’s mainstay earnings

taxes (EBIT) divided by invested capital. As we work todrivers; a “developing business,” which we intend to

maximize ROIC, we are aiming to strengthen our financial

nurture as a new earnings driver; and “autonomous

position as well as expand profits. In addition, under ourbusinesses,” where we will establish positions as a strong

new Medium-Term Business Plan “Global K” announced

specialist. To further sharpen our resource allocationin September 2006, we are aiming to strengthen profit-

under our “selectivity and concentration” strategy, KHI

Annual Report 20073

has also classified and positioned its business units andtechnological capabilities, non-price competitiveness, andproduct categories into four categories: namely, “priority

marketing power; (b) taking appropriate measures tobusinesses,“ “developing businesses,” “businesses withmanage higher operating ratios; (c) improving cost-effec-

stable earnings,” and “businesses requiring structural

tiveness by lowering material and other costs; and (d)reform.” Further details of the Medium-Term Business

reducing fixed costs through more-efficient operations.

Plan “Global K” are discussed on pages 9 to 13.
(3) Improve Capital Efficiency

Issues to Be Addressed

We will work to increase free cash flow and reduce interest-bearing debt through (a) reducing working capital

The KHI Group has positioned the current year, fiscal

and (b) investing on a priority basis.

2008, as a crucial year in the implementation of “Global
K” because it believes there would be no exaggeration in

Turning next to our business segments, we are imple-

saying that how well we attain the objectives for the cur-menting the following management strategies.

rent year will largely determine how well we attain theobjectives of “Global K.” Accordingly, while adhering toFirst, for our four core businesses, in Rolling Stock, we

the management concepts of “quality followed by quan-

are working to strengthen our operational systems in ourtity,” “selectivity and concentration,” and “stronger

three major markets of North America, Japan, and thenon-price competitiveness,” we are concentrating on therest of Asia. In the Aerospace segment, we are moving

following three key objectives during this fiscal year.

forward with the development of the next maritime
patrol aircraft and the next transport aircraft under con-

(1) Continue Reforms to Establish

tracts from the Ministry of Defense in Japan (MOD) asa Sustainable Growth Cycle

well as the development and production of the Boeing

We will push through reforms aimed at creating a787. In the Gas Turbines & Machinery segment, we arestronger business base, including (a) increasing the effi-

expanding our capabilities for developing and manufac-

ciency of the development and production systems ofturing jet aircraft engines to meet expansion in demand

the KHI Group as a whole, (b) creating an even stronger

from private aircraft manufacturers as well as our devel-business structure that can deal effectively with fluctua-

opment and production capacity in the industrial gas

tions in foreign exchange rates, and (c) addressing vari-turbine field. In the Consumer Products & Machinery

ous issues related to personnel viewed as a management

segment, our area of highest priority will be motorcycles

resource.

for markets in the industrialized countries, and we arestrengthening our development and production systems(2) Increase Profitability

at the global level to expand the scale of this business,

Initiatives to improve profitability of individual businesses,

increase profitability, and improve product competitiveness.

products, and projects will include (a) strengthening

4

Kawasaki Heavy Industries, Ltd.

Secondly, in the Plant & Infrastructure Engineering seg-

its CSR Department to be the organizational focal point

ment, which has been subjected to drastic reforms overfor substantially strengthening initiatives related to inter-the past few years, we have begun to develop energy

nal controls, compliance, and CSR promotion as well as

and environment-related businesses. Two subsidiaries,

take thoroughgoing organizational initiatives relating toestablished in the segment in 2005 and 2006 as part ofcompliance.

reforms, merged into one stronger company—Kawasaki
Plant Systems, Ltd. in April 2007. The new company isAlong with these activities, the KHI Group will continue

aiming to develop and become the center of KHI’s fifth

to reform its corporate culture to place highest priority

core business—the Energy & Environmental Engineering

on information disclosure and transparency.

business. In addition, in this segment, we have drasticallystreamlined the steel structures business. We have

We of the KHI Group are steadily implementing initia-

recently decided to withdraw from the steel bridge andtives throughout all phases of our business operations tosluice gate units in the business and are moving forward

strengthen profitability and reform our business structurewith a sweeping review and reforms to strengthen our

to attain the prime objective of our new Medium-Term

LNG-related and other energy and environment-related

Business Plan “Global K.” We will remain committed to

growth units.

implementing these initiatives, with the goal of enhancing the enterprise value of the Group, and look forward

Complianceto the continuing support and cooperation of you, ourshareholders.

In conducting the business activities previously mentioned, one of the major assumptions is that management and staff maintain high standards of compliancewith applicable laws and regulations. Thus far, the KHI

June 2007

Group has taken “We will absolutely not engage in illegal activities” as the basic guideline for its business activities. To ensure compliance, the Group has preparedinternal rules and regulations regarding corporate ethics,
conducts compliance training activities for various levelsof management and staff, distributes various types ofTadaharu Ohashi

guidelines, has created autonomous inspection commit-

President

tees within each of its organizational units, and madeconcerted efforts to ensure all personnel are aware oflaws and regulations that must be observed. In addition
to these activities, in October 2006, the Group formed

Annual Report 2007

5

An Interview with Tadaharu Ohashi, President

Formulating Our “Global K” Medium-Term Business Plan
—Becoming a Global Corporation with Strong Earnings
Power in 2011

Q:

6

Kawasaki Heavy Industries, Ltd.

What is your appraisal of KHI’s performancein fiscal 2007?

Fiscal 2007, ended March 31, 2007, was thewe positioned our Aerospace and Consumer

last year of our “K21” Medium-Term Business

Products & Machinery segments as core busi-

Plan, which we began to implement in fiscal

nesses, and our Rolling Stock and Gas

2001. I am pleased to report that in the last

Turbines & Machinery segments, which we also

year of K21 we were able to report record lev-

positioned as developing businesses, reported

els of net sales and net income for the KHI

steady growth. In our Shipbuilding and Plant &Group. Under this plan, with its basic policy of

Infrastructure Engineering segments, which“quality followed by quantity,” we sought to

we positioned as businesses due for structural

return the Group to a sustainable growth path

reform, we proceeded with necessary realign-

and therefore exercised “selectivity and con-ments and reforms to strengthen their opera-

centration” and implemented “structural

tions. The structural reforms envisioned underreforms.” These initiatives made it possible forK21 have been virtually completed, and I

the Group to attain these results. Under K21,

believe we have arrived at a stage where wecan begin to draw up a new scenario for theirtion, and we came close to meeting our numer-

future. For the Group as a whole, we haveical target of a 9% or higher before-tax ROIC,

made progress toward reducing our interest-

reporting an ROIC of 8.7% for fiscal 2007.

bearing debt and improved our financial posi-

Q:

What issues do you believe Kawasaki faces?

As a result of the policies we implemented

businesses with low profitability and focus

as part of the K21 plan, we secured a stable

management resources on those businesses

earnings base, but the biggest managementthat are making high profits and have growthissue for the KHI Group remains how to raiseprospects. That way, we can strengthen the

profitability. As the world economy expands,

drivers of profitability and grow other busi-

many companies in other industries are enjoy-

nesses that will also be drivers going forward.

ing high levels of profitability, but comparedWith this in mind, in September 2006, weto them, we have to admit, the profitability ofbegan to implement our new Medium-Termthe KHI Group is still relatively low. We haveBusiness Plan, “Global K.”

to continue to make structural reforms in ourQ:

Please explain how you are positioning the Global K
Medium-Term Business Plan?

To put it briefly, Global K is the KHI Group’s

One of the key features of the Global K plan

new growth strategy. By adhering strictly tois that we first clarified the vision that we have

our three management concepts of “quality

for the KHI Group and what we want each offollowed by quantity,” “selectivity and con-our businesses to accomplish and look like 10

centration,” and “stronger non-price competi-

years from the time the plan was developed.

tiveness,” over the coming five years throughBased on this, we positioned the first five years

fiscal 2011, we are aiming to make the leap tounder the plan as a time for growing toward

become a highly profitable global enterprise.

our vision. Among the KHI Group’s various

Annual Report 2007

7

An Interview with Tadaharu Ohashi, President

businesses, motorcycles have a relatively shorthave a planning horizon of about 10 years

turnaround time between manufacturing andwhen we set strategic directions for thosesales. However, the businesses of the rest of

businesses. Also, under the Global K growth

the Group—including shipbuilding, rolling

strategy, we have to mobilize the energy ofstock, aircraft, and industrial plants—have

KHI people and build momentum to movelong lead times between the receipt of orders

toward our objectives. In this sense, we believe

and actual delivery. That means we have to

our corporate vision has a major role to play.

Q:

What is Kawasaki’s corporate vision
going forward?

Our new corporate vision is “Enriching

In recent years, the depletion of natural

Lifestyles and Helping Safeguard theresources and the trend toward global warm-

Environment: Global Kawasaki.” By offeringing have drawn growing attention as issues ofsophisticated technological capabilities andglobal proportions. On the other hand, rapid

superior products, mainly in the areas of land,

economic growth, especially in the emerging

ocean, and air transport systems as well as theindustrializing countries, is expected to contin-

energy and environmental fields, we aim toue, thus making the simultaneous attainment

become a leading, global company that worksof economic development and environmental

to enrich the livelihood of the people of thepreservation a common issue for nations

world and contributes to improvement in thearound the world. Developing new technolo-

earth’s environment.

gies and new products in fields where the KHI
Group is strong, including clean energy andother environment-related products as well as
various types of transportation systems featuring high environmental efficiency because of
their energy- and resource-saving properties,
will create many business opportunities for
KHI. At the same time, these products will
make important contributions to society as awhole. Accordingly, we must continue to perfect our technological capabilities and seize

8

Kawasaki Heavy Industries, Ltd.

new business opportunities, and then turn

Therefore, we believe the way for the KHI

these into new sources of revenues and earn-Group to survive and prosper in the 21st cen-ings. At the same time, by providing thesetury will be to continue to develop as a corpo-

technologies and products, we will fulfill

ration that contributes to society primarily

our mission in society as a basic industry.

through its business activities.

Q:

Could you please explain the details of Global K and yourmanagement policy of “selectivity and concentration?”

Under Global K, based on the results of theBusinesses” indicates, our four core businesses

K21 plan, we have repositioned the KHI

are Rolling Stock, Aerospace, Gas Turbines &Group’s businesses into three areas: “fourMachinery, and Consumer Products &core businesses,” a “developing business,”

Machinery. Going forward, we want theseand “autonomous businesses.” As the accom-

businesses to be operating globally as earnings

panying chart entitled “Positioning of KHI

drivers.

Positioning of KHI Businesses
Rolling Stock“Global Kawasaki”

Aerospace
Gas Turbines & Machinery
Consumer Products & Machinery

Four Core Businesses
Rolling Stock, Aerospace, Gas Turbines & Machinery, andConsumer Products & Machinery
Should be operating globally as earnings drivers of the KHI Group

Developing Business
Energy & Environmental Engineering(Redirecting the Plant & Infrastructure Engineering business toward energy-related
and environmental-related activities to achieve further growth and development)

Energy & Environmental Engineering

Industrial Robots, Shipbuilding,and Industrial Hydraulic ProductsShould be nurtured as a new earnings driver of the Group by implementing
various measures, including redirection of businesses and M&A

Autonomous Businesses
Industrial Robots, Shipbuilding, and Industrial Hydraulic ProductsShould establish a position as a specialist in each business field and securestable earnings

Annual Report 20079

Our “developing business” is Energy &should be expanded aggressively have been

Environmental Engineering, where consider-grouped under “priority businesses.” Thoseable future demand is expected as enterprises

business units and products that we should

around the world tackle the issues of securing

aggressively invest in and strengthen theirefficient energy sources that are compatiblecompetitiveness have been grouped underwith environmental maintenance and preser-“developing businesses.” We will, therefore,vation. We intend to develop this businessactively devote corporate resources to theseby redirecting our Plant & Infrastucture

units and products; this will include making

Engineering segment and implementing

capital investments, devoting expenditures tovarious measures, including business

R&D, and allocating personnel, with the goal

reorganizations and M&A.

of capturing future growth in these areas.

Finally, our “autonomous businesses,” that weOn the other hand, for those businesses

expect to secure stable earnings as specialists

where future market prospects are unclear

in their respective fields are Industrial Robots,and profitability is low, we must continue to

Shipbuilding, and Industrial Hydraulicimplement drastic measures. Units and prod-

Products.

ucts grouped in this “businesses requiring
structural reform” category are mainly those

We have also analyzed individual businessactivities related to Japanese public-sector

units and products for their relationships withinvestment that have experienced a prolonged

business domains, product competitiveness,

period of stagnation in demand.

market growth potential, and other attributesand decided on their appropriate positioning

We have recently decided to withdraw fromwithin our business portfolio.

the steel bridge and sluice gate manufacturingbusinesses, but certain other businesses are

As a result of this analysis, we have clarified

being examined from the points of view of

the individual businesses we should expand

their strategic value for the KHI Group andunder Global K, as shown in the accompany-

medium-term profitability. Conclusions on

ing chart, entitled “Positioning of Business

whether to revitalize these businesses or cut

Units/Products.” Business units and products

back and withdraw from them will be madethat will continue to be drivers of revenues

during the fiscal year now in progress.

and profits for the KHI Group and, therefore,

10

Kawasaki Heavy Industries, Ltd.

Positioning of Business Units/Products
Priority Businesses

Developing Businesses

Businesses with Stable Earnings

Will drive sustainablegrowth. Expand earnings
through focused investments

Strengthen competitivenessthrough focused investments

Achieve consistent returns

Rolling Stock

Railcars for overseas markets

Railway systems
Gigacell®-powered LRVs

Railcars for Japanese market

Aerospace

Defense aircraft
Commercial aircraft

Convert P-X and C-X tocommercial aviation use
Commercial helicopters

Guidance systems

Gas Turbines& Machinery

Engines for commercial aircraft

Gas turbine power generation systems
Gas engines

Engines for defense sector(for aircraft and ships)
Steam turbines for marine andindustrial applications
Aerodynamic machinery

Consumer Products& Machinery

Motorcycles for industrialized markets

Businesses Requiring
Structural Reform

General-purpose gasoline engines

Energy &Environmental
Engineering

Gigacells®
Biomass power generation systems
Treatment of harmful substances
LNG tanks
Energy and environment
related facilities

Industrial Robots

Industrial robots

Policies will be decided going forward
and focus will be on public-sector
investment-related areas in Japan.

Industrial plants

Shipbuilding

Merchant vessels (production in China)

Naval vessels
Merchant vessels(production in Kobe and Sakaide)

Industrial
Hydraulic Products

For construction machinery

For industrial equipment and ships

Note: Meanings of terms highlighted in red, which indicate new products under development, are as follows: (a) Gigacells®: Nickel-metal hydride batteries, (b) LRV: Light rail vehicle, tram car withsuper-low floor, (c) P-X: Next maritime patrol aircraft, (d) C-X: Next transport aircraft

Q:

Please tell us what will be the highest priority
policies under Global K.

The first priority will be strengthening ourintellectual property. Especially regarding

technological capabilities. Under Global K, we

technology development capabilities, our policy

will return to the basic understanding thatwill be to expand the number of personnel

technological capabilities are the source ofand investments in R&D, with the goals of

profits and take steps to strengthen our tech-speeding up the development of new products

nology development capabilities as well as

and improving the capabilities, performance,

our production technology and strategy forand the quality of products.

Annual Report 200711

Another priority will be improving non-priceincluding energy, transportation equipmentcompetitiveness. We must instill market-cen-and systems, and environmental preservation.

tric thinking and behavior into all our business
operations to effectively identify potential mar-

In our management systems, while drawing

ket needs and transform this into non-priceon the advantages of the internal company

competitiveness.

system, including the efficiency and flexibilityof management and the clear definition of

In addition, as the Japanese market becomes

responsibility, we will work to strengthen the

more mature, the world market is viewed as

strategy formulation functions and Group con-certain to expand, driven especially by growth

trol functions of the headquarters. We willin Brazil, Russia, India, and China (the BRICs).

seek to harmonize the “local optimum”

For this reason, we must accelerate our drivesought by business units with the “global opti-

to go global in every aspect of our activities,

mum” desired by the KHI Group, with theincluding sales, manufacturing, and procure-objective of increasing the cohesiveness of thement, and building closer ties of cooperation

Group as a whole.

with partner companies.
Along with these initiatives, we will endeavor
Moreover, we will adopt policies to aggressive-

to improve our internal control, compliance,

ly create and nurture new products and new

and risk management systems, while working

businesses in areas where there are many

toward greater transparency in management.

opportunities for technological progress,

Q:

Could you please give us the key points of yourcapital policy? Also, what is your view regarding
an appropriate level of cash dividends?

As I said at the beginning of this interview, weTargets we have set as goals in the Global K

strengthened KHI’s financial position underplan are to (1) lower the debt to equity ratio to

the K21 plan. Granted, but that will not beless than 100%, and (2) increase our ratio ofenough. We have to strengthen it further intotal net assets to total assets to 30% or more.

order to secure a solid management base.

12

Kawasaki Heavy Industries, Ltd.

Turning next to cash dividends, after due con-common share, but going forward, we wouldsideration of the plan for our financial position

like to gradually increase dividends as our ear-as mentioned previously, we are consideringning power grows, as measured by how well

a dividend payout ratio of 30% on a consolid-

we attain the numerical and business goals

ated basis for the medium-to-long term. Forof our medium-term plan.

fiscal 2007, we paid a dividend of ¥5 per

Q:

In closing, do you have a special message
for KHI shareholders?

Under Global K, we have set goals for fiscal

The current fiscal year, ending March 31,

2011 of ¥100 billion in operating income, ¥90

2008, will be a pivotal year for reaching ourbillion in recurring profit, a before-tax ROIC of

objectives by fiscal 2011. In July 2007, we

14%, and a ratio of recurring profit to net

rolled out two major projects that will have asales of 5.8%. However, compared to the KHI

major impact on the future of the AerospaceGroup’s real capabilities and potential, thesesegment. These were, first, the C-X next trans-

goals are not really very high. This is because

port aircraft and the P-X next maritime patrol

these figures are interim objectives that result-aircraft for Japan’s MOD and, second, theed from our analysis of what each of our busi-

Boeing 787 project. These projects are symbols

nesses should look like in the future, whatof our step-by-step implementation of ourpolicies we have to adopt to move our busi-

growth scenario. We are fully committed tonesses in that direction, and the management

moving forward with the steady implementa-

resources that will be necessary. Personally, I

tion of Global K and the realization of ourbelieve that if we implement Global K steadily,

corporate vision. Accordingly, we greatly

we can reach its goals naturally and without

appreciate the continuing support of share-straining. If possible, we would like to exceed

holders and other stakeholders.

these targets.

Annual Report 200713

Review of Operations

Shipbuilding
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

VLCC ASIAN PROGRESS IV

LNG carrier ENERGY PROGRESS

14

Kawasaki Heavy Industries, Ltd.

263,707

289,227

313,987

135,600

155,832

128,323

123,756

110,926

193,705

120,000

173,304

7.6%

108,849(Millions of yen)

109,697

Order Backlog(Millions of yen)
87,081

Orders Received(Millions of yen)
94,939Sales
105,458

Percentage of Net Sales

03

04

05

06

07

350,000

200,000

300,000

100,000
150,000

250,000

80,000200,000
60,000100,000
150,000

40,000100,000

50,00020,00050,000

0

0

03

04

05

06

07

Business Results
Due to brisk shipping markets, especially in bulk carriers,
global order volume for newbuildings attained a record
high in the fiscal year ended March 31, 2007, and newbuilding prices were also high. As a result of securing
orders for three LNG carriers, two LPG carriers, and eightbulk carriers (13 vessels in all), total orders increased ¥7.3
billion from the level of the previous fiscal year, or 5.7%,
to ¥135.6 billion. However, sales in fiscal 2007 slipped¥0.8 billion, or 0.8%, to ¥108.8 billion.
The segment reported an operating loss of ¥2.2 billion, a¥0.5 billion, or 31.6% deterioration compared with thatin fiscal 2006, as a result of higher procurement costs forsteel and other materials. In newbuilding activity, three
LNG carriers, two VLCCs, and eight bulk carriers (13vessels in all) were delivered in fiscal 2007.

Outlook
Kawasaki Shipbuilding Corporation, which is the corecompany of this segment, has an extensive track recordin building gas carriers and submarines, which require
advanced design and construction technologies, and theirproducts’ performance and quality have been winninghigh praise from our customers.
Since the delivery in 1981 of the first LNG carrier everbuilt in Japan, we have established ourselves as a pioneerin this field. Our present wide-ranging lineup for conventional cargo tank system LNG carriers extends from smaller carriers with cargo tank capacities of 19,000m3 tolarger carriers up to 153,000m3, and also we have

0

03

04

05

06

07

developed and included in our lineup a pressure build-up
type LNG carrier for short-distance and small-volumetransportation. LNG is drawing attention as a clean sourceof energy, and demand for LNG is growing rapidly worldwide. Since demand to build LNG carriers is also expected
to stay robust, we will continue to press forward with ourtechnical R&D initiatives in this field to support further
growth in our LNG carrier business.
Nantong COSCO KHI Ship Engineering Co., Ltd. (NACKS),
which Kawasaki Shipbuilding Corporation established asa joint venture with China Ocean Shipping (Group)
Company in 1996, delivered in fiscal 2007 one pure carcarrier with a capacity for 5,000 vehicles, four bulk carriers, and three VLCCs (eight vessels in all). NACKS has
already become one of the leading shipbuilding companies in China. In response to burgeoning demand forshipbuilding driven by the rapid growth of the Chinese
economy, NACKS is proceeding with the construction of
a second shipbuilding dock as a part of its second expansionary phase. The new dock is expected to go into operation from 2008 and to boost earnings substantially.
Kawasaki Shipbuilding Corporation and its group of companies, including NACKS, are working to enhance theirtechnologies related to ship design, manufacturing, andquality assurance to reinforce their ability to compete
globally in terms of both quality and costs and thereby
ensure their sustainable development into the future.

Annual Report 200715

Rolling Stock & Construction Machinery
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

Subway cars for the Department of Rapid Transit System of Taipei City

Series E233 electric train cars for the East Japan Railway Company

16

Kawasaki Heavy Industries, Ltd.

300,837

346,310434,419

269,120

203,165

178,369

153,399

176,693
300,000

294,017200,000

273,563

12.8%

184,283(Millions of yen)

168,306

Order Backlog(Millions of yen)
171,731

Orders Received(Millions of yen)
120,597

Sales
164,774

Percentage of Net Sales

03

04

05

06

07

500,000

400,000

150,000
200,000

300,000
100,000
200,000
100,000
50,000100,000

0

0

03

04

05

06

07

Business Results
In fiscal 2007, demand for rolling stock, this segment’s
core business, was firm in North America, Japan, andelsewhere in Asia, while steady demand for construction
machinery continued in the U.S. market. Both domesticorders for rolling stock and orders for commuter traincars from North America drove growth in order value.
Overall, orders received for the segment jumped ¥66.0
billion, or 32.5%, to ¥269.1 billion.
Even though domestic deliveries of rolling stock werevirtually unchanged from those of fiscal 2006, sales
increased ¥16.0 billion, or 9.5%, from the previous fiscal
year, to ¥184.3 billion, thanks to growth in sales of subway cars for overseas customers and of construction
machinery in North America. Attendant with the growthin segment sales, operating income rose ¥4.4 billion, or
49.6%, from the previous fiscal year, to ¥13.2 billion.

Outlook
Orders from overseas have been robust in recent years
at the rolling stock business, and the segment’s threeplants in Japan and the United States remain in highoperation.
The segment benefited in fiscal 2007 from a series of large
orders, including an order for 300 commuter train carsfrom Metro-North Commuter Railroad in the United States
and a package order of the electrical and mechanical systems in 138 subway cars from the Department of Rapid
Transit System of the Taipei City Government. Moreover,as the segment also received orders in Japan for the next-

0

03

04

05

06

07

generation Shinkansen bullet train, the plants are expected to be in high and stable operation for the coming
years.
The segment is moving forward with the developmentof the next-generation light rail vehicle (LRV) that is
powered by a KHI-developed onboard nickel-metal hydride
Gigacell® battery, enabling operation without a constant
supply of electricity from overhead lines. Trial running inpractice with a used tram car powered by Gigacell® batteries was successfully completed in 2006, and we will soon
manufacture our new LRV, dubbed SWIMO. This LRV willfeature a low floor and a barrier-free configuration.
Demand for rail transportation is expanding globally as
it is seen as an environmentally friendly body of masstransit, and we expect demand for rolling stock to expand
in North America, China, India, and elsewhere in the
future. We also think the domestic market for rollingstock will stay firm, propelled mostly by replacement
demand. Backed by these positive conditions, we aim tobe among the best rolling stock manufacturers in theworld. To do this, we are developing our production
network among the segment’s three plants, and are working
to advance our world-leading record in quality assurance
and in high-speed rail cars and other technologies.
In the construction machinery business, we are concentrating on enhancing our energy-saving and environmentally friendly products, led by the V2 series of wheel
loaders, and on expanding our operations in the UnitedStates, the Middle East, Africa, and elsewhere overseas.

Annual Report 2007

17

Aerospace
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

P-X, the next maritime patrol aircraft for the Japan’s Ministry of Defense

C-X, the next transport aircraft for MOD

18

Kawasaki Heavy Industries, Ltd.

287,441

301,599

286,699

255,613229,257

214,702216,201

163,023300,000

260,321300,000

208,41018.7%

269,108(Millions of yen)

218,533

Order Backlog(Millions of yen)
188,255

Orders Received(Millions of yen)
173,783

Sales
154,848

Percentage of Net Sales

03

04

05

06

07

350,000
300,000

200,000

250,000

200,000

200,000
150,000
100,000

100,00000

100,000
50,000

03

04

05

06

07

Business Results
Orders in the Aerospace segment rose ¥26.4 billion, or
11.5%, to ¥255.6 billion, on the strength of increased
demand from the private sector, especially with regard toorders for component parts for the Boeing 777 commercial aircraft.
This segment’s sales rose ¥50.6 billion, or 23.1%, to¥269.1 billion, as a result of increased revenues from thedevelopment of the P-X, the next maritime patrol aircraft, and the C-X, the next transport aircraft, for the
Ministry of Defense (MOD); and deliveries of component
parts for the Boeing 777 commercial aircraft. Attendantwith the growth in sales, operating income rose ¥3.7 billion, or 38.1%, to ¥13.4 billion.

Outlook
Two major projects that are important to the future of
the Aerospace segment, one for the MOD and one forthe private sector, are approaching the final stage ofdevelopment.
In our defense business, we held a rolling-out ceremony
at Gifu Works in July for the P-X and C-X test flightplanes that had just been completed. As the prime contractor, KHI has spearheaded the simultaneous domestic
development of the P-X and C-X planes, a MOD projectthat started in 2001 and is one of the largest aviation
development endeavors in Japan’s history. Both of theseplanes are to make their first flights in 2007, and weplan to deliver them to the MOD in 2008.

0

03

04

05

06

07

In the commercial aircraft field, the first Boeing 787
Dreamliner was rolled out in July. The state-of-the-art airplane, for which Boeing has already secured orders formore than 500 planes, has many advanced design features and incorporates cutting-edge production technologies. The 787 will make its maiden flight this year,
and Boeing expects it to go into actual service in 2008.
As a partner in both the development and production of
the 787 Dreamliner, KHI is responsible for the forward
section of the composite one-piece-structure fuselage,
which is the world’s first in a commercial aircraft, as wellas other key components. Kawasaki opened a dedicatedfacility at Nagoya Works 1 for the production of key
components for the 787 Dreamliner last year. This facility’s efficient production line allows for an integrated
manufacturing process from composite parts fabrication
to assembly of the forward fuselage.
Up-front capital expenditures and development expenses
to see through the new projects mentioned above willprobably weigh on the Aerospace segment’s performance in the immediate future, but we expect the progression of these projects together with increasing
demand for commercial aircraft, supported by global
economic expansion, to drive strong growth in thissegment over the longer term.
Our successful execution of these two major development projects and the creation of a production structure
for both MOD-commissioned and commercial aircraft
have enabled us to reinforce our operational foundation
for the long term and put us on a clear path for future
growth.

Annual Report 200719

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• Aerodynamic machinery

25 MW combined cycle power plant with L20A gas turbine
for Daihatsu Co., Ltd.

Trent 1000 engine (Photo courtesy of Rolls-Royce plc)

20

Kawasaki Heavy Industries, Ltd.

200,000

150,000

150,000

100,000

100,000

50,00050,000216,886

200,000

195,108

250,000

163,440

204,847

188,068

162,700

250,000

140,327

150,000

129,987

183,309200,000

160,874

12.7%

132,989(Millions of yen)

161,431

Order Backlog(Millions of yen)
141,366

Orders Received(Millions of yen)
136,468

Sales
150,766

Percentage of Net Sales

03

04

05

06

07

100,000

50,000

0

0

03

04

05

06

07

Business Results
Orders received by this segment rose ¥16.8 billion, or
8.9%, from the previous fiscal year, to ¥204.8 billion,
for the fiscal year under review, owing to orders for gas
turbine power generation systems, components for commercial aircraft engines, and natural gas compression
modules. The segment posted a sales gain of ¥21.9 billion, or 13.6%, rising to ¥183.3 billion, reflecting growthin sales of gas turbine power generation systems, diesel
engines for ships, and components for commercial aircraft engines. Attendant with the increase in sales,
operating income climbed ¥3.0 billion, or 44.6%, to¥9.8 billion.

OutlookAs a core business of KHI, the Gas Turbines & Machinery
segment is aggressively developing the energy and transportation equipment businesses.
In the energy field, we are focusing on product categories where growth can be expected due to increasing
global demand for energy as the world economy
expands. These include power generation related systems, such as gas turbine power generators and steam
turbines and gas compression modules for oil and natural gas related applications.
Since gas turbines are environment-friendly with overallhigh thermal efficiency, gas turbines are considered an
important source of energy for tackling global issues,
such as global warming and other adverse effects on thenatural environment.

0

03

04

05

06

07

As Japan’s top manufacturer of small and medium-sizedgas turbines, KHI has accumulated extensive experience
as a supplier of gas turbines through its supply of emergency generators, standby and cogeneration systems,
and its strong lineup of in-house developed gas turbines(led by the leading-edge L20A, which is highly efficientand incorporates advanced low-emission technology)
extending from 150kW to 20MW class models.
Also, KHI has developed an 8MW class gas engine that
achieves the world’s best power generation efficiency of
48% in its class and an emission rate among the lowest
ever. We intend to build a demonstration plant for thisgas engine and commence order campaigns before theend of 2007.
In the transportation equipment field, KHI is focusing on
the areas of marine propulsion systems and civil aircraft
engine systems, where orders are rapidly increasing. In
the development of the state-of-the-art TRENT 1000
jet engine for the Boeing 787 aircraft in which KHI isparticipating as a risk and revenue sharing partner with
Rolls-Royce, the development program is proceedingsmoothly, aimed at obtaining type certification in thelatter half of 2007. In the commercial aircraft engine
field, we plan to construct a new plant at Seishin Works,
which is located in Kobe, in anticipation of sustained
growth in demand for engines applied to commercial
aircraft models, along with increased demand for the
TRENT 1000 engines. We plan to strengthen this business by actively participating in international new engine
development programs and through other endeavors
as well.

Annual Report 200721

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• Wind power generation systems

120MW combined cycle power plant for China

Municipal incineration plant for Kishiwada City Kaizuka City Clean Center

22

Kawasaki Heavy Industries, Ltd.

150,000

100,000

100,000

50,00050,000150,221

97,332

126,403

03

172,255

150,000

144,147

200,000

273,837

200,000

210,160

250,000

156,145

122,062250,000

327,9118.5%

208,268(Millions of yen)

164,506

Order Backlog(Millions of yen)
191,012

Orders Received(Millions of yen)
191,412

Sales
219,092

Percentage of Net Sales

04

05

06

07

400,000

300,000

200,0000

100,000

0

03

04

05

06

07

Business Results
Orders in this segment increased a substantial ¥52.9 billion, or 54.3%, from the previous fiscal year, to ¥150.2
billion. This was primarily due to overseas orders for
cement plants, ferronickel refining plants, and tunnel
boring machines.
Sales were down ¥42.4 billion, or 25.8%, to ¥122.1 billion, despite deliveries of industrial plants, wind power
generation systems, and shield machines. The operating
loss at the segment narrowed ¥6.1 billion, or 71.4%, to¥2.4 billion, due to a better performance in the industrial
plant business.

OutlookThe merger of Kawasaki Environmental Engineering Ltd.
(KEE) with Kawasaki Plant Systems, Ltd. (K Plant) in April
2007 created the new Kawasaki Plant Systems, Ltd.,
which is now the segment’s core company. In the KHI
Group’s Medium-Term Business Plan “Global K” thatwas formulated in September 2006, we expressed ourintention to develop energy and environmental engineering into a new business pillar. Our aim is to grow into a
top engineering company with leading-edge capabilities
in devising plans and proposals for clients by applying
our superior proprietary technologies in clean energyrelated and environmental facilities-related fields.

0

03

04

05

06

07

and aims to bolster its ability to compete as a business byimproving the efficiency of its marketing and organizational structure. At the same time, the new K Plant will
respond aggressively to budding demand in Japan andoverseas for environmental and energy-related plants
and industrial infrastructure-related facilities that promoteenergy and resource conservation.
On the other hand, the reduction to public works spending in Japan has hurt the steel structures business, and,in response, the segment continues to restructure its
operations. It has consolidated production that had been
spread among four domestic plants at Harima Works anddecided in June 2007 to exit the steel bridge and sluicegate businesses. The steel structures business will focus
management resources on expanding sales of shieldmachines and on clean energy-related fields, such as
LNG tanks, a category in which demand continues togrow worldwide. The segment is also working tostrengthen its earnings base by utilizing Harima Works,
which is one of Japan’s leading facilities in the manufacture of large steel structures, as a production facility forthe entire Group.

The merger of K Plant and KEE are in accordance withthe policies of the “Global K” plan. The new K Plant will
integrate and strengthen the broad array of technologies
and products its two progenitors built up over the years,

Annual Report 200723

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

NX540: Wafer handler

1400GTR

24

Kawasaki Heavy Industries, Ltd.

Jet Ski Ultra 250X

SalesPercentage of Net Sales

318,325

338,450

366,960

403,70228.1%

318,025(Millions of yen)

03

04

05

06

07

500,000

400,000

300,000

200,000

100,000

0

Business Results
Sales by this segment in the fiscal year under review rose
¥36.7 billion, or 10.0%, to ¥403.7 billion, boosted byhigher sales of motorcycles targeted at such advanced
economies as the United States and Europe as well as
increased revenues from sales of industrial robots to automotive-related and semiconductor-related manufacturers.
Worldwide sales of motorcycles, ATVs (all-terrain vehicles), utility vehicles, and personal watercraft amounted
to 502,000 units, down 26,000 units, or 4.9%, from thelevel of the previous fiscal year. By geographical area,
sales in Japan amounted to 21,000 units, down 5,000
units, or 19.2%. Sales in North America, however, rose
14,000 units, or 5.8%, to 254,000 units, and sales in
Europe were up 9,000 units, or 10.2%, to 97,000 units.
Sales in all other areas were down 44,000 units, or
25.3%, to 130,000 units. Operating income expanded¥7.7 billion, or 38.5%, to ¥27.6 billion.

New Models
A number of new models were introduced in fiscal 2007,
including those discussed below.
In Kawasaki motorcycles, we added the 1400GTR to our
lineup of sport tourers that have become increasingly
popular in the European market over the past few years
and launched the all-new Ninja ZX-6R, an improved
middleweight displacement supersport motorcycle that
underwent a complete model change for top-level circuit
performance. Plus, we rolled out the newly redesigned
Z1000 and Z750, two sports models that have won highacclaim in the European market. In the cruiser category,
we introduced the Vulcan 900 Custom, which combines
beautiful styling with a distinctive wheel design. In theoff-road category, the newly introduced KLX450R for
enduro racing is based on the high-performance KX450F
motocross bike. In the personal watercraft series, welaunched the Jet Ski® Ultra 250X, the first-ever Kawasakimodel with a Roots-type supercharger, as the premierhigh-performance model in our lineup.

OutlookThe segment is forecasting growth in the total number ofmotorcycles, ATVs, utility vehicles, and personal watercraft sold, principally in North America and Europe, in
fiscal 2008. In motorcycles, the core product of thissegment, we will continue to introduce new models targeted at economically advanced markets that capture theessence of the Kawasaki riding experience and will seek
to harness the momentum created by these models toreinforce the Kawasaki brand’s image for high performance and high product quality. To further strengthen our
R&D capabilities, the segment will strive to enhance our
global development network, which extends beyond
Japan to encompass North America, Thailand, and otherlocations, while also bolstering our manufacturing andprocurement functions in Asia in an effort to create a
low-cost production and procurement structure.
In the industrial robot area, the segment’s policy is toprioritize the investment of corporate resources into the
key strategic businesses of robots used on auto assemblylines and robots used in semiconductor production.
The segment also seeks to establish marketing offices
and service centers in China as part of a push to expand
its sales and service networks in the BRIC economies.
Since demand is likely to remain strong, the segment
plans to build a new factory with the aim of raising bothits production capacity and productivity.

Annual Report 200725

OtherMain Products• Industrial hydraulic products

Hydraulic products for construction machinery use

New core parts shop at KPM’s main plant in Kobe, Japan

26

Kawasaki Heavy Industries, Ltd.

100,000

50,00050,000173,585

138,526

125,389

40,909100,000

34,053150,000

28,824150,000

27,167200,000

128,915

117,525

200,000

31,501

11.6%

167,306(Millions of yen)

133,054

Order Backlog(Millions of yen)
123,697

Orders Received(Millions of yen)
124,728

Sales
126,635

Percentage of Net Sales

03

04

05

06

07

50,00040,00030,00020,0000

10,000

0

0

03

04

05

06

07

Business Results
Sales in the Other segment rose ¥34.3 billion, or 25.7%,
to ¥167.3 billion, boosted by continued robust sales ofhydraulic machinery to customers in China. Operating
income expanded ¥3.0 billion, or 44.7%, to ¥9.6 billion.

Outlook
Kawasaki Precision Machinery Ltd. (KPM), which manufactures and sells hydraulic machinery, the core productof this segment, has worked to upgrade its manufacturing and marketing systems in Japan and overseas inrecent years so as to respond to growing demandfor construction machinery and ship machinery parts,
especially in Asia.
In China, where sales of equipment used in construction
machinery remains strong, Kawasaki Precision Machinery(China) Ltd., a recently established manufacturing company, commenced operations from August 2006.
In South Korea, demand for ship machinery parts
remains firm thanks to an active market for shipbuilding.
To meet this demand, KPM’s subsidiary Flutek, Ltd.
established a new plant to manufacture steering gear
units for marine use at the Uiryeong Plant site. This new
facility began operating in earnest from 2006, taking its
place as a production base for steering gear units alongside KPM’s headquarters plant in Kobe, Japan.

03

04

05

06

07

operations in July. KPM is working to bolster the production capacity and to upgrade the engineering, quality
assurance, and product development capabilities at theheadquarters plant so as to expand its role as the linchpin
of KPM’s production network.
The market for hydraulic machinery is expected to keep
growing rapidly, supported by global economic expansion. Against this backdrop, KPM is striving to reinforce
its global production network with five centers.
Anchored by the Kobe headquarters plant, this network
comprises Kawasaki Precision Machinery (U.K.) Limited,a manufacturing and sales subsidiary with a trackrecord that goes back many years; Kawasaki Precision
Machinery (U.S.A.), Inc., a sales subsidiary set up in
January 2006; Flutek in South Korea; and KPM (China).
Through this system, KPM is better positioned to raiseoverall customer satisfaction levels by responding swiftlyand precisely to customer needs around the world andby upgrading after-sales service. At the same time, we
aim to move into the ranks of the top global hydraulicmachinery makers by pioneering new market categories
and by developing new products that are geared to market needs for lower environmental impact, greater energy efficiency, and lower operating noise levels.

A new factory making core parts for hydraulic machinery
was completed in April 2007 on the site of the Kobe
headquarters plant, and this new facility commenced

Annual Report 200727

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

Millions of yen
2007

2006

2005

2004

2003

2002

Operating results:
Net sales ............................................................. ¥1,438,619 ¥1,322,487 ¥1,241,592 ¥1,160,252 ¥1,239,598 ¥1,144,534
Cost of sales .......................................................

1,213,524

1,148,547

1,088,219

998,416

1,069,341

977,875

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

225,095

173,940

153,373

161,836

170,257

166,659

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

155,953

132,145

128,629

139,586

139,714135,348

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

69,142

41,79524,744

22,25030,54331,311

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

29,772

16,467

11,4796,333

13,022

6,282

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

39,26941,72429,692

41,50235,16533,132

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

30,27930,551

31,55532,59031,59531,998R&D expenses .....................................................

33,81927,04013,183

14,741

15,494

16,549Financial position at year-end:
Working capital .................................................. ¥ 155,412 ¥ 113,240 ¥ 138,523 ¥ 121,941 ¥ 137,771 ¥ 150,114
Net property, plant and equipment .....................

253,819

246,219

243,166

248,922234,352

241,517

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

1,357,980

1,284,085

1,194,473

1,156,904

1,149,161

1,255,075

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

165,754

157,057

207,279

210,819

226,936

248,170

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

295,378

243,096

206,156

194,030

180,176

172,914

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

¥ 18.9¥ 11.2¥¥¥¥

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

17.2

9.4

6.8

4.2

8.8

4.4

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

5.0

3.0

2.5

2.0

2.0

—

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

178.0

156.1

142.8

134.4

129.6

124.3

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

1,660

1,558

1,443

1,443

1,391

1,391

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

29,211

28,922

28,682

29,30628,64228,936Per share amounts ( yen):
7.9

4.4

9.3

4.5

Other data:

Orders received ................................................... ¥1,592,688 ¥1,351,631 ¥1,301,845 ¥1,226,728 ¥1,227,449 ¥1,034,771
Order backlog .....................................................

28

Kawasaki Heavy Industries, Ltd.

1,465,155

1,310,444

1,254,409

1,189,374

1,175,563

1,240,439

Management’s Discussion and Analysis

OVERVIEWRESULTS OF OPERATIONS

During fiscal 2007, ended March 31, 2007, the Japanese economy remained on a clear upward trend, propelled by increases inprivate capital investment supported by growth in corporate earnings. Overseas as well, despite slowdowns in some sectors of the
U.S. economy, economic trends as a whole continued to be generally strong, with the Chinese and other economies reporting
robust economic conditions.
Amid this economic environment, as a consequence of theimplementation of aggressive marketing activities, the Kawasaki
Heavy Industries (KHI) Group reported an increase in consolidated
orders of ¥241.1 billion, or 17.8% over the previous fiscal year, to¥1,592.7 billion. Important developments contributing to thisincrease included the receipt of major orders for the U.S. market
in the Rolling Stock & Construction Machinery segment, an
increase in orders for key components of the Boeing 777 passenger aircraft in the Aerospace segment, and major industrial plantorders in the Plant & Infrastructure Engineering segment. Turning
to revenues, consolidated net sales rose ¥116.1 billion, or 8.8%,
to ¥1,438.6 billion mainly due to increased sales in the Aerospace
and Consumer Products & Machinery segments.
Profitwise, consolidated operating income advanced ¥27.3
billion, or 65.4%, to ¥69.1 billion, and net income climbed ¥13.3
billion, or 80.8%, to ¥29.8 billion. Factors accounting for thesegains in profitability included the positive effect of a weaker yen
against the U.S. dollar, growth in the Rolling Stock & Construction
Machinery as well as Consumer Products & Machinery segments,
a reduction in the loss reported by the Plant & Infrastructure
Engineering segment, and other factors.

Net Sales
As mentioned, consolidated net sales expanded ¥116.1 billion,
or 8.8%, to ¥1,438.6 billion.
The principal factors accounting for this increase were (a) arise in sales in the Aerospace segment of ¥50.6 billion as a resultof the increase in revenues from the development of the next
maritime patrol aircraft and the next transport aircraft of Japan’s
Ministry of Defense (MOD) and a gain in sales of component partsfor Boeing 777 aircraft and (b) an increase in sales of ¥36.7 billion
in the Consumer Products & Machinery segment owing to higher
sales of motorcycles in the North American and European markets
and growth in sales of industrial robots to the automobile andsemiconductor-related industries.
Overseas sales rose ¥81.9 billion, or 11.8%, to ¥777.7 billion.
By region, sales in North America increased ¥54.6 billion, or
19.4%; sales in Europe were up ¥10.3 billion, or 9.5%; sales in
Asia outside Japan decreased ¥11.4 billion, or 5.8%; and sales inother areas grew ¥28.4 billion, or 26.5%. The ratio of overseas
sales to consolidated net sales rose 1.4 percentage points, from
52.6% in the previous fiscal year to 54.0% for the fiscal year
under review.
The following paragraphs provide further details on performance by industry segment. Operating income or loss includes
intersegment transactions.
As reported in the previous fiscal year’s annual report, thename of the former Rolling Stock, Construction Machinery &Crushing Plant segment was changed to the Rolling Stock &

29.8

03

04

05

06

07

30

12.8
1,200

28.1
18.7

900

16.5

7.6

11.5

11.6

6.3

1,500

13.0

1,438.6

1,322.5(Billions of yen)

1,241.6

Net Income(%)

1,160.3

Sales by Segment(Billions of yen)
1,239.6

Net Sales

25
20
15

8.5

600

12.7
10

300

5
0

0

03

04

05

06

07

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

Annual Report 200729

Construction Machinery segment following the transfer of thecrushing plant business to EarthTechnica Co., Ltd., an affiliate
accounted for by the equity method, beginning in fiscal 2006.
The industrial hydraulic equipment business, which was includedin the Gas Turbines & Machinery segment through the end of
fiscal 2003, was reclassified in the Other segment beginning infiscal 2004. Data for the previous years shown in this annual
report have been restated to reflect these changes.

companies were at virtually the same level as for the previous
fiscal year, major increases were reported in deliveries overseas,
including subway cars for New York City and Taipei, and construction machinery to customers in North America. As a consequenceof favorable sales performance and other factors, operating
income rose a sharp ¥4.4 billion, or 49.6%, to ¥13.2 billion.
Aerospace
Orders obtained by this segment were up ¥26.4 billion, or 11.5%
over the previous fiscal year, to ¥255.6 billion. Driving forces
behind this growth included the portion of orders for the fiscal
year under review in connection with Japan’s MOD project, forwhich KHI is the prime contractor, for the development of the
MOD’s next maritime patrol aircraft and the next transport aircraft
as well as orders for CH-47 large transport helicopters, OH-1
observation helicopters, and CH-101 helicopters for Antarctictransportation. Among orders from the private sector, anothermajor factor was orders for supplying component parts for the
Boeing 777 commercial aircraft.
Sales of this segment expanded ¥50.6 billion, or 23.1%, to¥269.1 billion, boosted by revenues from the MOD’s next maritime patrol aircraft and next transport aircraft as well as component parts for the Boeing 777. Operating income rose ¥3.7 billion,or 38.1%, to ¥13.4 billion.

ShipbuildingThis segment obtained orders for 13 vessels: namely, three LNG
carriers, two LPG carriers, and eight bulk carriers. In value terms,
this represented an increase of ¥7.3 billion, or 5.7%, to ¥135.6
billion. Sales, however, slipped ¥0.8 billion, or 0.8%, to ¥108.8
billion. Owing to the higher procurement costs of materials andother factors, the segment reported an operating loss of ¥2.2 billion, representing a deterioration of ¥0.5 billion, or 31.6%, fromthe operating loss in the previous fiscal year.
Rolling Stock & Construction Machinery
Total orders received in this segment rose ¥66.0 billion, or 32.5%,
to ¥269.1 billion, supported by orders from domestic and overseas
customers. Domestic orders included Shinkansen trains, commuterand suburban train cars, locomotives, and freight cars from theJapan Railways Group as well as orders for electric train cars fromother public and private railways. Orders from overseas customers
rose, reflecting a major order from Metro-North Commuter
Railroad, the New York-based railway company, and other factors.
Sales of this segment increased ¥16.0 billion, or 9.5%,
to ¥184.3 billion. Although deliveries of rolling stock to the JR

Gas Turbines & Machinery
Orders obtained by this segment expanded ¥16.8 billion, or
8.9%, to ¥204.8 billion. Principal items supporting this growth
included helicopter engines and a Stirling engine module forsubmarines for the MOD, gas turbine power generation systems

1,284.1

155.4

113.2

138.5

1,358.0150

1,194.5

15

1,156.9200

1,149.2

20

121.9

137.8

18.9

11.2

(Billions of yen)

7.9

Total Assets(Billions of yen)
4.4

Working Capital

(Yen)
9.3

Net Income per Share

03

04

05

06

07

1,500

1,000
10

100

5

50

500

0

30

0

0

03

04

05

06

Kawasaki Heavy Industries, Ltd.

07

03

04

05

06

07

and natural gas compression modules for the private sector. Other
items contributing to orders included components for commercial
aircraft engines, including the V2500 and TRENT, and side thrusters.
Sales expanded ¥21.9 billion, or 13.6%, to ¥183.3 billion, asa result of growth in revenues from gas turbine power generation
systems, diesel engines for ships, and components for commercial
aircraft engines. Operating income grew ¥3.0 billion, or 44.6%,
to ¥9.8 billion, along with the expansion in sales.

Other
Sales of the Other segment advanced ¥34.3 billion, or 25.7%, to¥167.3 billion, as revenues of the hydraulic machinery business in
China continued to show strong performance. Operating income
also expanded, by ¥3.0 billion, or 44.7%, to ¥9.6 billion.

Plant & Infrastructure Engineering
Orders won by this segment were up ¥52.9 billion, or 54.3%, to¥150.2 billion. Contributing to this expansion were orders for
cement plants, a ferronickel plant, and tunnel boring machinesfrom overseas customers.
Sales declined ¥42.4 billion, or 25.8%, to ¥122.1 billion,
despite the completion of a municipal refuse incineration plant andwind power generation systems in Japan as well as flue gas desulfurization systems, cement waste heat power plants, shield machines,
and other items to customers overseas. The operating loss of thesegment amounted to ¥2.4 billion, representing an improvementof ¥6.1 billion, or 71.4%, from the previous fiscal year.

Japan
Sales in Japan rose ¥56.7 billion, or 5.8%, to ¥1,043.0 billion,
principally owing to higher revenues of the parent company in the
Aerospace business. Operating income expanded ¥24.2 billion, or
58.6%, to ¥65.4 billion, led by increases in operating income of
the Aerospace and Gas Turbines & Machinery segments andreductions in the operating loss of the Plant & Infrastructure
Engineering business.

Consumer Products & Machinery
Sales in this segment expanded ¥36.7 billion, or 10.0%, to¥403.7 billion, reflecting higher sales of motorcycles to the UnitedStates, Europe, and other industrialized countries and growth insales of industrial robots to the automobile and semiconductorrelated industries. Operating income increased ¥7.7 billion, or
38.5%, to ¥27.6 billion.

The following sections summarize performance by geographic
segment.

North America
As a result of the robust performance of motorcycles in theConsumer Products & Machinery business and higher revenues
from construction machinery, sales of this geographic segment
expanded ¥38.8 billion, or 17.4%, to ¥261.3 billion. Operating
income moved up ¥0.3 billion, or 22.9%, to ¥1.7 billion.
EuropeOwing to strong sales of motorcycles in the region and otherfactors, sales in Europe rose ¥18.0 billion, or 22.3%, to ¥98.8
billion, and operating income climbed ¥0.8 billion, or 52.2%,
to ¥2.4 billion.

3.4

5.7

7.3

11.1

178.0

156.1

142.8

134.4

7.4

300

129.6

295.4

243.1

(%)

206.2

Return on Equity

(Yen)

180.2

Net Assets per Share

(Billions of yen)
194.0

Total Net Assets

03

04

05

06

07

15

200

150
10

200
100

5

100
50

0

0

0

03

04

05

06

07

03

04

05

06

07

Annual Report 2007

31

Asia
Sales in this region declined ¥2.1 billion, or 8.5%, to ¥22.7 billion,
because of lower revenues from motorcycles in Indonesia andother factors. Operating income decreased ¥0.8 billion, or 52.1%,
to ¥0.7 billion.
Other Areas
Sales in other areas increased ¥4.7 billion, or 58.0%, to ¥12.8
billion. Operating income was ¥0.2 billion, compared with anoperating loss of ¥0.6 billion in the previous fiscal year.
Cost, Expenses, and Earnings
The cost of sales rose ¥65.0 billion, or 5.7%, amounting to¥1,213.5 billion, because of the impact of higher raw materials
costs. However, growth in sales was a substantial 8.8%, and, asa result, gross profit increased ¥51.2 billion, or 29.4%, to ¥225.1
billion, and the gross profit margin rose 2.4 percentage points,from 13.2% in the previous fiscal year to 15.6% in the fiscal year
under review.
Selling, general and administrative (SG&A) expenses rose
¥23.8 billion, or 18.0%, to ¥156.0 billion. The principal causeof this increase was the change in the accounting treatmentof expenses related to R&D for product improvements of theConsumer Products & Machinery segment. These expenses wereformerly included in cost of sales, but beginning with the fiscal
year under review these expenses were included in SG&A expenses. As a result of this change in accounting treatment, SG&A
expenses were ¥18.0 billion higher than they would have beenotherwise.
Operating income rose ¥27.3 billion, or 65.4%, to ¥69.1 billion. The principal reasons for the increase in operating income
were (a) the positive effect of a weaker yen against the U.S.
dollar, (b) higher operating income in the Rolling Stock &Construction Machinery and Consumer Products & Machinery
segments as a result of their respective increase in segment
sales, (c) a decline in the size of losses reported in the Plant &Infrastructure Engineering segment, and (d) the implementationof across-the-board measures to improve profitability, including
reduction in production and fixed costs. As a result of these various factors, the ratio of operating income to net sales increased
1.6 percentage points, from 3.2% in the previous fiscal year to
4.8% for the fiscal year under review.
Other income (expenses) for fiscal 2007 amounted to expenses of ¥23.9 billion versus ¥18.5 billion for the previous fiscal year.
The principal reason for this was an increase in other, net fromexpenses of ¥16.1 billion in the previous year to ¥23.7 billion
in expenses for the fiscal year under review. The causes ofthis increase in other, net were (a) a foreign exchange loss of

32

Kawasaki Heavy Industries, Ltd.

¥13.4 billion versus a loss of ¥8.9 billion for the prior year, (b) aloss of ¥2.4 billion on a damages suit, and (c) a loss of ¥1.4 billion on a breach of the Antimonopoly Act. Also, the gain on thecontribution of securities to the pension trust of ¥12.9 billion
reported in the previous fiscal year and the loss of ¥15.8 billion
due to the restructuring of the commercial aircraft manufacturingbusiness in the prior year were absent in the year under review.
Despite this rise in other expenses, income before income
taxes and minority interests rose ¥22.0 billion, or 94.3%, to¥45.3 billion. The ratio of net current and deferred income taxes
to income before income taxes was 33.8% versus 27.1% for theprevious fiscal year and considerably lower than the statutory tax
rate of 40.5%. This difference was mainly due to an 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 ¥13.3 billion,
or 80.8%, to ¥29.8 billion. Accordingly, the ratio of net income to
net sales rose 0.9 percentage point, from 1.2% for the prior fiscal
year to 2.1%. ROE (calculated using average total net assets)
increased 3.8 percentage points, rising from 7.3% to 11.1%.
Capital expenditures for the fiscal year amounted to ¥39.3
billion, compared with ¥41.7 billion in the previous fiscal year, andR&D expenses were ¥33.8 billion, versus ¥27.0 billion in the prioryear.

FINANCIAL CONDITION
Total assets at the end of the fiscal year were ¥73.9 billion, or
5.8%, higher than for the end of the previous fiscal year andamounted to ¥1,358.0 billion. The principal factor contributing tothis increase was a rise in current assets of ¥46.0 billion (mainly
due to higher accounts receivable and inventories) accompanying
the expansion in the scale of the Company’s business activities
owing to such major projects as the development of the next
maritime patrol aircraft and the next transport aircraft of Japan’sMOD, delivery of component parts for Boeing 777 aircraft, andmajor orders for rolling stock from overseas customers. Net property, plant and equipment rose ¥7.6 billion due to active capital
investment. Deferred tax, intangible, and other assets wereat approximately the same levels as at the end of the previous
fiscal year.
Liabilities increased ¥21.6 billion, or 2.1%, to ¥1,062.6 billion.
Within this total, current liabilities were up ¥3.8 billion and longterm liabilities increased ¥17.8 billion. Among current liabilities,
trade payables rose ¥2.6 billion. This increase accompanied the
expansion in the scale of the Company’s business activities, reflecting such major projects as the development of the next maritime
patrol aircraft and the next transport aircraft of Japan’s MOD,delivery of component parts for Boeing 777 aircraft, investments inequipment for the future production of component parts for
Boeing 787 aircraft, and major orders for rolling stock from overseas customers. Among liabilities, interest-bearing debt decreased¥15.6 billion, or 4.9%, to ¥304.2 billion, reflecting the improvement in the Company’s cash management, the exercise of bonds
with warrants issued by the Company, and other factors. Because
the increase in current assets of ¥46.0 billion was larger than theincrease in current liabilities of ¥3.8 billion, the current ratio
improved to 119.3% at the end of the fiscal year under review,compared with 114.1% at the end of the previous fiscal year.
Regarding net assets, effective from the year ended March
31, 2007, the Company has adopted the “Accounting Standards
for Presentation of Net Assets on the Balance Sheet” and the“Implementation Guidance on Accounting Standards for
Presentation of Net Assets on the Balance Sheet” and accordingly
has restated the relevant financial data in the shareholders’ equity
and minority interests sections for the previous fiscal year to allow
for comparisons. Net assets (Please refer to Note 9 on pages 48
and 49 for further information.) rose ¥52.3 billion, or 21.5%, to¥295.4 billion. The principal factors accounting for this increase
were a rise in retained earnings of ¥25.0 billion, reflecting theincrease in net income for the year under review and increases of¥11.1 billion each in common stock and capital surplus. The higher levels of common stock and capital surplus were due to theissue exercise of bonds with warrants issued by the Company.
As a result of a higher percentage increase in net assets thanin total assets, the equity ratio rose 2.9 percentage points, from
18.9% to 21.8%. Also, the net debt/equity ratio (after the deduction of cash on hand and in banks from interest-bearing debt) fell
substantially from 116.1% to 89.7% at the end of the year underreview.

MANAGEMENT INDICATORSThe Company’s objective is to meet and exceed the expectationsof investors for profitability. The management indicator we haveselected is before-tax return on invested capital (ROIC), whichmeasures how efficiently the Company uses its capital. As it works
to maximize before-tax ROIC, the Company is working tostrengthen its financial position by implementing measures toexpand profit and simultaneously reduced invested capital.
Before-tax ROIC is computed by taking the ratio of earnings
before interest and taxes (EBIT) to the sum of interest-bearing
debt and total net assets.
Applying this formula, before-tax ROIC for the year underreview was 8.7%, 3.6 percentage points higher than the 5.1%
reported for the previous fiscal year.

In addition, under the New Medium-Term Business Plan
“Global K,” announced in September 2006, the Company is aiming 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 and is the sum of operating income, net
interest income (expense), dividend income, and other nonoperating and recurring items.
For the fiscal year under review, the Company’s ratio ofrecurring profit to net sales was 3.4%, 1.1 percentage points
higher than the 2.3% reported for the previous fiscal year.

CASH FLOWS
During fiscal 2007, net cash provided by operating activities was¥45.9 billion, approximately the same as for the previous fiscal
year, reflecting the income before income taxes and minority
interests of ¥45.3 billion and other factors.
Net cash used for investing activities amounted to ¥43.3
billion, compared with ¥36.5 billion in fiscal 2006, mainly due toacquisition of property, plant and equipment.
Free cash flow, which is the net amount of cash from operating and investing activities, amounted to an inflow of ¥2.5 billion,
compared with an inflow of ¥9.3 billion in the previous fiscal year.
Net cash used for financing activities amounted to ¥1.3 billion.
As a result of these cash flows, cash and cash equivalents at
the end of fiscal 2007 amounted to ¥39.2 billion, ¥1.7 billion
higher 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 for the interim period
and the end of the fiscal period. The entity making final decisions
on dividends is the meeting of the Board of Directors for the interim
dividend and the general meeting of shareholders for the yearend 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 make investments related to the Company’s businesses, the repayment ofborrowings, and for other uses.
Please note that the Company’s Articles of Incorporation provide for paying an interim dividend as stipulated in Article 454-5of the Japanese Corporate Law.
Annual Report 2007

33

BUSINESS RISKCORPORATE GOVERNANCE

External factors that may have an effect on the KHI Group’s
performance and financial position include the following:(1) Basic Stance toward Corporate Governance—Enhancing
Internal Control Systems
KHI has created a corporate governance structure appropriate forits operations, with members of the Board of Directors and auditors playing central roles, and is working to enhance and improve
its internal control systems. Specific aspects of this system are as
follows. Regarding the decision making and the conduct of operations of directors and employees, the scope of authority, responsibilities, and duties of directors and employees are clearly stated in
the Company’s internal rules. In addition, those responsible are
required to keep records of actual decisions made and the conduct of operations, and an auditing system has been establishedto check on whether the content and form of these decisions andconduct of operations are in accordance with the Company’s
internal rules. As a result, the basic stance of the KHI Group as awhole regarding corporate governance is to endeavor to increase
its corporate value through the highly transparent, efficient, andsound management of its operations as the Group works to buildsmooth relationships with all its stakeholders, including shareholders, customers, employees, and the community.

(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 the 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 the Plant &Infrastructure Engineering segments. Moreover, demand for passenger air travel and conditions in shipping markets may have an
impact on the Aerospace and Shipbuilding segments, respectively.
Disputes and political changes may affect the Company’s overseas
projects.
(2) Fluctuations in Foreign Exchange Rates
During fiscal 2007, overseas sales accounted for 54% of consolidated net sales. Accordingly, the Group has a substantial volumeof transactions denominated in U.S. dollars, euros, and other currencies. To reduce foreign exchange risk, the Group is working toincrease the ratio of the total cost of goods sold that is denominated in foreign currencies and, while taking into due accounttrends in foreign exchange rates, endeavors to take flexible measures to hedge the effect of exchange rate fluctuations throughthe use of forward contracts and other hedging techniques.
However, the majority of the Group’s manufacturing facilities arelocated in Japan, and its sales to overseas markets are, therefore,
subject to foreign exchange 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 Groupis subject to the risk of fluctuations in prices of raw materials.
(4) Government Regulations
The Group conducts its business activities in compliance withthe restrictions in effect, including laws and regulations, in the
countries and regions where it operates. However, the Group’s
operations may be affected if such restrictions are subject tounpredictable changes and if new restrictions are put into effect.

34

Kawasaki Heavy Industries, Ltd.

(2) KHI’s Corporate Governance Framework
1. Conduct of Operations
KHI has established a Board of Directors with ten members who
are responsible for formulating management strategy and supervising the conduct of operations. In addition, to create a 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 fullunderstanding at the meeting of the Group Executive Officer
Committee. Subsequently, the Management Committee, which iscomposed of representative directors and other members, and theBoard 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 designated matters are
decided by the Board of Directors. The Management Committee,
in principle, meets three times a month, and, in addition to dis-cussing management policy, management strategy, and importantmanagement issues from the perspective of the Group as awhole, the committee calls on the management personnel
responsible for major subsidiaries to attend the meetings, as
deemed necessary, and acts as an advisory body to the president
regarding the management of the Group on a consolidated basis.
2. Auditing Functions
KHI has formed a Board of Auditors with four members (two ofwhom are outside auditors), and, under the provisions of theJapanese Corporate Law, the Board of Auditors conducts examinations of business operations and audits the financial accounts.
Accordingly, the corporate auditors examine and monitor thestate of operations and Group assets through a number of activities. These include attending the meetings of the Board of
Directors and Management Committee, examining important documents, holding periodic meetings with the representative directors, and auditing KHI’s divisions and subsidiaries. In addition, thetwo outside corporate auditors on the Board of Auditors, whohave no transactions or other relationships that represent a conflict of interest, perform their surveillance duties as neutral andobjective third parties. The internal corporate auditors share information with the outside corporate auditors and work to enhancethe effectiveness of their management surveillance functions.
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 andthe Board of Auditors receive reports regarding the accounting
audit, including the outline of the audit plans of the independentaccounting 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 and the 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 from theaccounting 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 theoverall conduct of management activities within the KHI Groupand carries out audits on a continuing basis of whether operations
are being conducted appropriately and in compliance with laws
and internal rules as well as other matters while endeavoring to
upgrade internal control functions. In addition, to raise the levelof auditing activities, the corporate auditors and the Auditing
Department exchange information on a monthly basis and share
information regarding the results of their auditing activities anditems 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 Japanto take the initiative in promoting the self-assessment and verification of compliance. In addition, a Compliance Guidebook has
been prepared and distributed to employees, not only of the parent company but also to those of virtually all subsidiaries and affiliates in Japan, and measures are being implemented to conductvarious forms of compliance training, including “e-learning,”along with concerted efforts to raise the level of awareness ofcompliance matters within the Group. In addition to these initiatives, a Compliance Reporting and Consultation System has beencreated through an outside legal office to enable employees toreceive advice without being concerned about being observed byother 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

¥517

¥70

¥587

53

—

53

¥570

¥70

¥640

Annual Report 200735

Consolidated Balance Sheets
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2007 and 2006

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

ASSETS

2007

2006

2007

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

37,650$333,229

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

428,589

422,551

3,629,342

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

18,261

19,482

154,636

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

(4,273)(3,829)(36,184)..................................................................................................................................

442,577

438,204

3,747,794

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

427,934

383,017

3,623,795

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

32,69432,398276,857

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

19,362

24,630163,960

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

961,918

915,899

8,145,635

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

87,277

67,130739,072

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

1,402

1,422

11,872

Investments and long-term loans:

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

9,788

12,07082,886

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

(1,473)(3,865)(12,474)

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

96,99476,757

821,356

66,50365,732563,155

Property, plant and equipment (Note 6):
Land ..................................................................................................................
Buildings and structures .....................................................................................

282,988272,637

2,396,376

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

456,072

446,182

3,862,071

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

8,538

9,375

72,301..................................................................................................................................

814,101

793,926

6,893,903

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

(560,282)(547,707)(4,744,534)

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

253,819

246,219

2,149,369

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

27,72528,186

234,779

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

17,524

17,024

148,395..................................................................................................................................

45,24945,210383,174

Total assets ........................................................................................................ ¥1,357,980¥1,284,085$11,499,534

Deferred tax, intangible and other assets:

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

36

Kawasaki Heavy Industries, Ltd.

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

LIABILITIES, MINORITY INTERESTS AND NET ASSETS

2007

2006

2007

¥ 162,746$ 1,172,521

Current liabilities:
Short-term borrowings and current portionof long-term debt (Note 6) .............................................................................. ¥ 138,463
Trade payables (Note 6) .....................................................................................

412,501

409,9423,493,107

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

124,445

98,5901,053,815

Income tax payable (Note 12) ............................................................................

13,365

19,978113,176

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

17,811

15,198150,826

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

5,100

4,200

43,187

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

—

9,557

—

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

12,363

12,613

104,691

Provision for loss on damages suits ....................................................................

2,398

—

20,307

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

296

111

2,507

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

79,76469,724675,451

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

806,506

802,659

6,829,588

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

165,754

157,057

1,403,624

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

77,484

69,113

656,143

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

3,996

3,733

33,839Long-term liabilities:

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

8,862

8,427

75,045

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

256,096

238,330

2,168,651

103,188

92,085873,808

Contingent liabilities (Note 8)
Net assets (Note 9):
Common stock:
Authorized—3,360,000,000 shares
Issued—1,659,625,876 shares in 2007
—1,557,714,707 shares in 2006 ..........................................................
Capital surplus ...................................................................................................

53,17942,094450,326

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

125,799

100,776

1,065,281

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

19,342

14,097

163,790

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

(1,608)—(13,617)

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

(9,417)(11,426)(79,744)

Treasury stock—210,479 shares in 2007
—208,048 shares in 2006 ...........................................................

(55)

(38)

(466)

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

4,950

5,508

41,917

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

295,378

243,0962,501,295

Total liabilities and net assets ......................................................................... ¥1,357,980¥1,284,085$11,499,534

Annual Report 200737

Consolidated Statements of Income
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Thousands of
U.S. dollars(Note 1)Millions of yen
2007

2006

2005

2007

Net sales ......................................................................................... ¥1,438,619¥1,322,487¥1,241,592$12,182,395

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

1,213,524

1,148,547

1,088,219

10,276,264

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

225,095

173,940

153,373

1,906,131

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

155,953

132,145

128,629

1,320,628

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

69,142

41,79524,744

585,503

3,807

3,225

3,240

32,238

2,694

(197)

506

22,813

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

(6,650)(5,377)(6,296)(56,313)

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

(23,725)(16,146)(1,630)(200,906)

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

45,26823,30020,564383,335

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

(16,623)(24,148)(15,869)(140,766)

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

1,337

17,843

7,374

11,322

Income taxes (Note 12):

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

(210)

Net income ..................................................................................... ¥29,772(528)¥

16,467(590)¥

11,479(1,778)$252,113

U.S. dollars(Note 1)Yen

Per share amounts:
Earnings per share—basic ........................................................

¥18.9

¥11.2

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

17.2

9.4

6.8

0.15

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

5.0

3.0

2.5

0.04

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

38

Kawasaki Heavy Industries, Ltd.

¥7.9

$0.16

Consolidated Statements of Changes in Net Assets
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Thousands

Millions of yen

Number ofshares ofcommonstock

Gains/
losses on
hedgingitems

Foreigncurrencytranslation
adjustments¥¥(16,283) ¥ (92) ¥——Commonstock

CapitalsurplusRetainedearnings

Net
unrealized
gains onsecurities

Balance at March 31, 2004 ....................................... 1,443,394 ¥ 81,427
Net income for the year ....................................
——
Adjustments from translation of foreign
currency financial statements ..........................
——
Increase in net unrealized gains on securities .....
——
Treasury stock purchased, net ...........................
——Cash dividends ..................................................
——
Gain on sales of treasury stock ..........................
——
Bonuses to directors and statutory auditors .......
——
Decrease resulting from change of accounting ..
periods of consolidated subsidiaries ................
——
Other ................................................................
——
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¥31,388—¥ 80,469
11,479¥13,266
—

—
—
—
—
2
—

—
—
—
(2,885)
—
(38)

—
3,644
—
—
—
—

—
—
—
—
—
—

(560)
—
—
—
—
—

—
—
(31)
—
—
—

—
—
—
—
—
—

—
—
31,390
—

(222)
(99)
88,704
16,467——
16,910
—

—
—
—
—

—
—
(16,843)
—

—
—
(123)
—

—
—
—
—

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

—
—
—
—
—
—
—
—
—
—

5,417
—
—
—
—
—
—
—
(11,426)
—

—
—
85
—
—
—
—
—
(38)
—

—
—
—
—
—
—
—
—
—
—

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

—
5,245
—
—
—
—
—
—
¥19,342——

Treasurystock

Minority
interests

—
—

—
2,009
—
—
—
—
—
—
—
—
(17)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,608)——4,950¥(1,608) ¥ (9,417) ¥ (55) ¥4,950

Thousands of U.S. dollars (Note 1)

Commonstock

CapitalsurplusRetainedearnings

Net
unrealized
gains onsecurities

Gains/
losses on
hedgingitems

Foreigncurrencytranslation
adjustments

Treasury Minority
stock interests

Balance at March 31, 2006 ......................................................... $779,787 $356,457 $ 853,383 $119,375 $— $(96,757) $(322) $—Net income for the year ......................................................
——
252,113—————
Adjustments from translation of foreign
currency financial statements ............................................
—
—
—
—
—
17,013——
Increase in net unrealized gains on securities .......................
———
44,415————
Treasury stock purchased, net .............................................
—
—
—
—
—
—
(144)
—
Cash dividends ....................................................................
——(39,572)—————
Gain on sales of treasury stock ............................................
—
8
—
—
—
—
—
—
Bonuses to directors and statutory auditors .........................
—
—
(119)
—
—
—
—
—
Conversion of convertible bonds .........................................
94,021
93,861——————Other...................................................................................
—
—
(524)
— (13,617)—— 41,917
Balance at March 31, 2007 ....................................................... $873,808 $450,326 $1,065,281 $163,790 $(13,617) $(79,744) $(466) $41,917
The accompanying notes to the consolidated financial statements are an integral part of these statements.

Annual Report 200739

Consolidated Statements of Cash Flows
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2007, 2006 and 2005

Thousands of
U.S. dollars(Note 1)Millions of yen
2007

2006

2005

2007

¥23,300¥20,564$383,335

30,551

31,555

256,406

Cash flows from operating activities:
Income before income taxes and minority interests ...................................... ¥45,268
Adjustments to reconcile net income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization ................................................................

30,279Loss on impairment of fixed assets ..........................................................

—

3,008

—

—

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

8,460

17,092

8,779

71,640

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

(2,224)

(44)

(213)

(18,833)

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

(247)

5,660

1,841

(2,092)(9,557)

9,557—(80,930)

the commercial aircraft manufacturing business ....................................

—

6,259

—

—

Provision for loss on damages suit ...........................................................

2,398

—

—

20,307

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

1,025

1,738

2,141

8,680

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

(889)(4,501)(3,774)(7,528)Loss (gain) on sale of property, plant and equipment ...............................

1,414

960

(1,890)11,974Gain on contribution of securities to the pension trust ............................

—(12,901)——

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

(3,807)(3,225)(3,240)(32,238)

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

6,650

5,377

6,296

56,313(2,867)(14,250)(31,184)(24,278)

Inventories ...................................................................................... (40,608)(49,754)5,117(343,873)

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

5,157(1,247)(3,064)

43,670Trade payables ................................................................................

(1,248)55,29459,088(10,568)

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

25,285(13,821)(4,128)214,116

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

2,634

1,397

(396)

22,305

Provision for restructuring charges for the commercial
aircraft manufacturing business .............................................................
Loss on impairment of inventories for the restructuring of

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

Increase (decrease) in:

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

223

1,689

490

1,888

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

2,887

2,583

2,324

24,447

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

70,23364,72290,306594,741

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

5,393

3,129

4,555

45,669Cash paid for interest ..................................................................................

(6,438)(5,332)(6,294)(54,518)

Cash paid for income taxes ......................................................................... (23,328)(16,581)(16,085)(197,544)

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

——(1,060)—Loss on cleaning of ground pollution ...........................................................

—

(177)

—

—

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

45,86045,761

71,422

388,348(Continues to next page)40

Kawasaki Heavy Industries, Ltd.

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

2007

2006

2005

2007

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

27

101

447

229

Acquisition of property, plant and equipment ............................................. (31,651)(34,657)(27,364)(268,024)

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

2,301

2,232

5,258

19,485Acquisition of intangible assets ...................................................................

(3,625)(4,602)(3,774)(30,697)

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

176

38

320

1,490

Acquisition of investments in securities ........................................................ (10,089)(5,765)(1,301)(85,435)

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

1,589

6,871

5,370

13,456

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

254

(429)

1,465

2,151

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

(88)

(895)

(290)

(745)

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

18

428

1,339

152

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

(2,224)

168

816(18,833)

Net cash used for investing activities ........................................................... (43,312)(36,510)(17,714)(366,771)

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

(9,958)

7,391(31,736)(84,326)

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

62,061

24,65757,733

525,540

Repayment of long-term debt ..................................................................... (48,586)(44,987)(75,241)(411,432)

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

(68)

(51)

(36)

(576)

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

(4,577)(3,622)(2,844)(38,759)

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

—

—

361

—

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

(178)

(109)

(76)

(1,506)

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

(1,306)(16,721)(51,839)(11,059)

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

482

703

180

4,081

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

1,724(6,767)2,049

14,599Cash and cash equivalents at beginning of year ..................................................

37,50644,38542,375

317,605

—

—

(39)

—

—

(112)

—

—

Cash and cash equivalents at end of year ............................................................ ¥39,230¥37,506¥44,385$332,204

Decrease in cash and cash equivalents by change ofconsolidation period of subsidiaries ...................................................................
Decrease in cash and cash equivalents arising fromexclusion of subsidiaries from consolidation ......................................................

Supplemental information on cash flows:
Cash and cash equivalents:
Cash on hand and in banks in the balance sheets .................................... ¥39,351¥37,650¥44,629$333,229

(121)

(144)

(244)

(1,025)

Total ................................................................................................... ¥39,230¥37,506¥44,385$332,204

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

The accompanying notes to the consolidated financial statements are an integral part of these statements.
See Note 15 for significant non-cash transactions.

Annual Report 200741

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

1. Basis of
Presenting
Consolidated
Financial
Statements

Kawasaki Heavy Industries, Ltd. (the “Company”) and its consolidated domestic subsidiaries maintain their official
accounting and disclosure records in Japanese yen. The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related
accounting regulations and in conformity with accounting principles generally accepted in Japan, which are different
in certain respects as to application and disclosure requirements 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 theinclusion of consolidated statements of changes in net assets, from the consolidated financial statements of theCompany prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the
Ministry of Finance as required by the Securities and Exchange Law. Some supplementary information included in
the statutory Japanese language consolidated financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollar amounts are included solely for the convenience ofreaders outside Japan, using the prevailing exchange rate at March 31, 2007, which was ¥118.09 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 conditions evidencing control.
The consolidated financial statements include the accounts of the Company and 96 (96 in 2006 and 99 in 2005)
subsidiaries.
For the year ended March 31, 2007, 3 subsidiaries (5 in 2006 and 4 in 2005) were excluded from the consolidation.
The amounts of total assets, net sales, net income and retained earnings of these excluded subsidiaries, in theaggregate, 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, 2007, 19 affiliates (19 in 2006 and 16 in 2005) are accounted for by the equity
method.
For the year ended March 31, 2007, investments in 3 nonconsolidated subsidiaries (5 in 2006 and 4 and 2005)
and 13 affiliates (15 in 2006 and 14 in 2005), are 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 these excluded
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 29 consolidated subsidiaries (35 in 2006 and 32 in 2005) 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 subsidiaries.
(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 are approved.

42

Kawasaki Heavy Industries, Ltd.

(g ) Revenue recognition
Sale of products and construction contracts
Sales of products such as ships, railcars or railroad cars, airplanes, machinery and motorcycles are principally recognized when delivery has occurred. Contract revenue for construction of plants, machinery, bridges etc. is principally
recognized on a customer acceptance basis. When prices for components or contract amounts for nearly completed
contracts are not finalized, sales and cost of sales are estimated. The percentage-of-completion method is applied tolong-term contracts such as those for ships, airplanes and plants exceeding ¥3,000 million. The stage of completion
is normally determined based 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 railcars, machinery and plants. When the prices of such services are individually determined by
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 forbased on past experience and the Companies’ estimates of losses on collection.
( j) Inventories
Inventories are stated at cost, as determined principally by the specific identification cost method, the first-in,
first-out method, or the moving average method.
( 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, 2007 and 2006.
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 averagecost. Available-for-sale securities with available fair market values are stated at fair market value. Unrealized gains andunrealized 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 oraffiliated companies and 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. Depreciation ofbuildings acquired after April 1998 in Japan is computed on a straight-line basis over estimated useful life.
(n) Intangible assets
Amortization of intangible assets, including software for the Company’s own use, is computed by the straight-line
method over estimated useful life of the assets.
Goodwill is amortized over 5 years on a straight-line basis. If the amount is not significant, it is expensed whenincurred.
(o) Impairment of fixed assets
Effective April 1, 2005, the Company and its domestic consolidated 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 the accounting

Annual Report 200743

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).
As a result of adopting the accounting standard and the guidance, income before income taxes and minority
interests was ¥3,008 million ($25,607 thousand) less than it would have been if the standard and guidance had notbeen adopted. Accumulated impairment losses are deducted from book values of related fixed assets.
(p) Accrued bonuses
Accrued bonuses for employees are provided based on the bonus scheme.
(q) Provision for product warranty
The provision for product warranty is based on past experience and separately provided when able to be reasonably
estimated.
(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 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) 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 forfinancial reporting purposes and the amounts used for income tax purposes.
(u) Employees’ retirement and severance benefits
Employees who terminate their services with the Company and its consolidated domestic subsidiaries are generally
entitled to lump-sum payments, the amounts of which are determined by reference to basic rates of pay at the timeof 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 the 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 are recognized in expenses in equal amounts, within the average of the estimated remaining service years of the employees,commencing with the following and the current period, respectively.
Employees of the Company’s overseas consolidated subsidiaries are generally covered by various pension plans,
accounted for in accordance with generally accepted accounting principles in the country of domicile.
With corporate separation of the crushing machinery business on April 1, 2005, the Company provided theallowance for retirement and severance benefits to fully amortize the net transition obligation for employees of thecrushing machinery business in the amount of ¥1,315 million ($12,243 thousand).
(v) 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”).
The consolidated balance sheet as of March 31, 2007 prepared in accordance with the New AccountingStandards comprises three sections, which are the assets, liabilities and net assets sections. Previously, the balance
sheet comprised the assets, liabilities, minority interests, as applicable, and the shareholders’ equity sections.
Under the New Accounting Standards, the following items are presented differently at March 31, 2007 comparedto March 31, 2006. The net assets section includes gains/losses on hedging items, net of taxes. Under the previous
presentation rules, gains/losses on hedging items were included in the assets or liabilities section without considering
the related income tax effects. Share subscription rights and minority interests are included in the net assets section
at March 31, 2007. Under the previous presentation rules, companies were required to present share subscription
rights and minority interests in the current liabilities section and between the non-current liabilities and the shareholders’ equity sections, respectively.
The consolidated balance sheet as of March 31, 2006 has been restated to conform to the 2007 presentation.
As a result, minority interests amounting to ¥5,508 million are included in the net assets sections as of March 31,
2006.

44

Kawasaki Heavy Industries, Ltd.

(w) 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.
Previously, consolidated statements of shareholders’ equity were prepared for the purpose of inclusion in the consolidated financial statements although such statements were not required under Japanese GAAP.
(x) Hedge accounting
The Company and its consolidated subsidiaries employ deferred hedge accounting. If derivative financial instruments
are used as hedges and meet certain hedging criteria, the Company and its consolidated subsidiaries defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments until the related losses
or gains on the hedged items are recognized.
(y) Finance leases
For the Company and its domestic consolidated subsidiaries, finance leases that do not transfer ownership and do
not have bargain purchase provisions are accounted for in the same manner as operating leases in accordance withJapanese GAAP.
(z) 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 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.
(aa) Cash dividends
Per share amounts of cash dividends for each period represent dividends declared as applicable to the respective year.
(bb) Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Also, as described in Notes 2 (v) and 2 (w), the consolidated balance sheet for 2006 has been adapted to conformto new presentation rules of 2007. Also, in lieu of the consolidated statement of shareholders’ equity for the year
ended March 31, 2006, which was prepared on a voluntary basis for inclusion in the 2006 consolidated financial
statements, the Company prepared the consolidated statement of changes in net assets for 2006 as well as for 2007.
These reclassifications had no impact on previously reported results of operations or retained earnings.

3. Securities(a) Acquisition costs and book values (fair values) of available-for-sale securities with available fair values as of March
31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

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

Difference¥49,127¥31,846$269,674

138¥49,265(49)¥31,797(414)$269,260

Millions of yen
2006

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

Acquisition
cost

Book value

Difference¥7,553¥31,378¥23,825

107¥7,66080¥31,458(27)¥23,798

Annual Report 200745

(b) Acquisition costs and book values of held-to-maturity debt securities with available fair values as of March 31, 2007
were as follows:
Thousands of
U.S. dollars

Millions of yen
2007

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

Acquisition
cost

Book value

Difference

Difference

¥302

¥297

¥(5)

$(42)

(c) Book values of investments in securities with no available fair values as of March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006
Book value
Book value

Held-to-maturity debt securities:
Non-listed securities ......................................................................... ¥—Available-for-sale securities:
Equity securities ...............................................................................
9,014
Other ...............................................................................................
6,686
Total .................................................................................................... ¥15,700¥

Thousands of
U.S. dollars
2007Book value

3

$

9,357
6,722
¥16,079—

76,331
56,618$132,949

See Note 4 for investments in nonconsolidated subsidiaries and affiliates.

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

Millions of yen
2007
Sales
amounts

Gains

LossesSalesamounts

Gains

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

¥880

¥(0)

$12,642$7,451$(0)Millions of yen
2006
Sales
amounts

Equity securities .......................................................... ¥6,319

Gains

Losses¥4,398¥(18)

Millions of yen
2005
Sales
amounts

Equity securities .......................................................... ¥5,341

Gains

Losses¥3,791¥(1)

4. Investments in
Nonconsolidated
Subsidiaries
and Affiliates

Investments in nonconsolidated subsidiaries and affiliates as of March 31, 2007 and 2006 were ¥22,009 million($186,375 thousand) and ¥19,291 million, respectively.

5. Goodwill

Goodwill included in intangible and other assets was as follows:
Millions of yen
2007
2006

¥212

46

Kawasaki Heavy Industries, Ltd.

¥1,085

Thousands of
U.S. dollars
2007$1,795

6. Short-Term
Borrowingsand Long-Term
Debt

Short-term borrowings and long-term debt as of March 31, 2007 and 2006 comprised the following:Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Short-term borrowings:
Short-term debt, principally bank loans, bearing averageinterest rates of 3.757 percent and 2.325 percent as ofMarch 31, 2007 and 2006, respectively ...........................................
Current portion of long-term debt, bearing averageinterest rates of 1.158 percent and 1.723 percent as ofMarch 31, 2007 and 2006, respectively ...........................................
Total short-term debt .....................................................................
Long-term debt:
Loans from banks and other financial institutions, partly securedby mortgage or other collateral, due from 2006 to 2035,
bearing average interest rates of 1.457 percent and 1.175 percent
as of March 31, 2007 and 2006, respectively ...................................
Notes and bonds issued by the Company:
1.87 percent notes due 2006 .....................................................
2.00 percent notes due 2007 .....................................................
2.51–2.775 percent notes due 2008 ..........................................
1.07–2.33 percent notes due 2009 ............................................
1.52–1.60 percent notes due 2011 .............................................
1.84 percent notes due 2013 .....................................................
1.10 percent convertible bonds due 2006 ..................................
0.90 percent convertible bonds due 2008 ..................................
1.00 percent convertible bonds due 2011 ..................................
Zero coupon convertible bonds due 2010* ................................
Zero coupon convertible bonds due 2011* ................................
Notes issued by subsidiaries:
1.31 percent notes due 2006 .....................................................
...................................................................................................................
Less portion due within one year ........................................................
Total long-term debt ......................................................................

¥106,520¥113,758$ 902,024

31,943¥138,463

48,988¥162,746

270,497$1,172,521¥ 96,871¥ 73,865$ 820,315—
10,00020,00020,00020,00010,000
—
7,518
7,039
612
5,657

10,00010,00020,00020,00010,000—17,118
7,520
7,039
5,868
22,635—84,681
169,362
169,362
169,362
84,681—
63,66459,607
5,182
47,905—
197,697(31,943)¥165,754

2,000
206,045(48,988)¥157,057—
1,674,121(270,497)$1,403,624*All the decreases in the zero coupon convertible bonds due 2010 and 2011 in the year ended March 31, 2007 resulted
from conversions.

The convertible bonds due 2008 through 2011 as of March 31, 2007 were convertible into shares of common
stock at the option of the holders at prices of ¥598 ($5.06), ¥182 ($1.54) or ¥232 ($1.96) per share. The conversion
prices are subject to adjustments under specified conditions.
As of March 31, 2007 and 2006, the following assets were pledged as collateral for short-term borrowings andlong-term debt:
Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Land .............................................................................................................. ¥1,255
Buildings ........................................................................................................ 2,321
Other investments ..........................................................................................
318
Total .............................................................................................. ¥3,894¥ 2,279
3,416
318¥6,013$10,627
19,654
2,693$32,974

As of March 31, 2007 and 2006, debt secured by the above pledged assets was as follows:
Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Trade payables ............................................................................................... ¥ 66
Short-term and long-term debt ...................................................................... 4,374
Total .............................................................................................. ¥4,440

¥ 58
7,680
¥7,738$ 558
37,040$37,598

The aggregate annual maturities of long-term debt as of March 31, 2007 were as follows:
Millions of yen

Thousands of
U.S. dollars

2008 .............................................................................................................................. ¥ 31,943
2009 ..............................................................................................................................
27,4732010 ..............................................................................................................................
31,8572011 ..............................................................................................................................
10,8032012 and thereafter .......................................................................................................
95,621
Total .................................................................................................................. ¥197,697$ 270,497
232,644269,769
91,481
809,730$1,674,121

Year ending March 31,

Annual Report 200747

7. Employees’
Retirement
and Severance
Benefits

The liabilities for employees’ retirement and severance benefits included in the liability section of the consolidatedbalance sheets as of March 31, 2007 and 2006 consisted of the following:Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Projected benefit obligation ...................................................................... ¥ 186,953 ¥ 190,774
Unrecognized prior service costs ................................................................
16,34718,366
Unrecognized actuarial differences ............................................................
26,39813,430Less fair value of pension assets ................................................................ (116,999) (105,083)
Less unrecognized net transition obligation ...............................................
(37,545)(50,101)
Prepaid pension cost .................................................................................
2,330
1,727
Liability for retirement and severance benefits ....................................... ¥ 77,484 ¥ 69,113$1,583,140
138,428
223,541(990,761)(317,935)
19,730$ 656,143

The amount of net transition obligation of retirement and severance benefits for employees of the crushingmachinery business was fully amortized in the year ended March 31, 2006.
Retirement and severance benefit expenses in the consolidated statements of income for the years ended March
31, 2007, 2006 and 2005 comprised the following:
2007

Service costs—benefits earned during the year ......................... ¥ 8,722
Interest cost on projected benefit obligation .............................
4,676
Expected return on plan assets .................................................
(974)
Amortization of actuarial differences ........................................
(782)
Amortization of prior service costs ............................................
(2,214)
Amortization of net transition obligation .................................. 12,516
Contribution to the defined contribution pension plans ...........
420
Retirement and severance benefit expenses .......................... ¥22,364

Millions of yen
2006

2005

Thousands of
U.S. dollars
2007¥ 8,548
4,512
(860)
1,664
(2,248)12,989367¥24,972¥ 8,742
4,854
(799)
1,932
(1,720)13,969273¥27,251$ 73,859
39,596(8,247)(6,622)(18,748)
105,986
3,556$189,380“Amortization of actuarial differences” and “Amortization of net transition obligation” in the year ended March
31, 2006 include full amortization of the net transition obligation of retirement and severance benefits for employees of the crushing machinery business.
Basic assumptions and information used to calculate the retirement and severance benefits were as follows:.................................................................................................................................

2007

2006

2005

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%
8.0%
Amortization period for prior service costs ................................. 10 to 15 years 10 to 15 years 10 to 15 years
Amortization period for actuarial gains and losses ...................... 10 to 15 years 10 to 15 years 10 to 15 years
Amortization period for transition obligation .............................. mainly 10 years mainly 10 years mainly 10 years
Effective fiscal year 2005, the Company and certain of its consolidated subsidiaries partly introduced defined
contribution pension plans and cash balance pension plans.

8. Contingent
Liabilities

Contingent liabilities as of March 31, 2007 and 2006 were as follows:
Millions of yen
2007
2006

As drawer of trade notes discounted ............................................................ ¥—As guarantor of indebtedness of employees, unconsolidated
subsidiaries and affiliates and others .......................................................... 28,036

9. Net Assets

48

¥

84

23,903Thousands of
U.S. dollars
2007

$

—

237,412

As described in Note 2 (v), 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 amountnot exceeding one-half of the price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Law, in cases where 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.

Kawasaki Heavy Industries, Ltd.

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 reduce a
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 to or
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 capital surplus
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:
2007

Research and development expenses ....................................... ¥33,819

Millions of yen
2006

2005

Thousands of
U.S. dollars
2007¥27,040¥13,183$286,382

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 the financial statements.
As a result of this change, research and development expenses increased ¥14,417 million ($122,729 thousand)more than 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
new recording 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 in expenses having
research and development characteristics, such as the development of new techniques or adaptation of new materials, increased, the Company decided to include the expenses 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 less andselling and general administrative expenses the same amount more than what they would have been with theprevious 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:
2007

Gain on sales of marketable securities and investments
in securities ........................................................................... ¥884
Gain on sales of property, plant and equipment ......................
—
Gain on sales of subsidiaries’ shares ........................................
—
Foreign exchange gain (loss), net ............................................ (13,391)
Loss on disposal of inventories ................................................
—
Amortization of certain subsidiaries’ net transition obligationof retirement and severance benefits ....................................
—
Loss on reorganization of crushing machinery business ...........
—
Additional costs of plant construction .....................................
——
Gain on contribution of securities to the pension trust (a) ........
(2,398)Loss on damages suit (b) ..........................................................
(1,387)
Loss on breach of the Antimonopoly Act (c) ............................
Loss on the restructuring of the commercial aircraft—
manufacturing business (d) ....................................................
—
Loss on impairment of fixed assets (e) ......................................
—
Loss on cleaning of ground pollution (f) ...................................
Other, net ...............................................................................
(7,433)
Total ....................................................................... ¥(23,725)

Thousands of
U.S. dollars
2007

Millions of yen
2006

2005

¥ 4,380—
277(8,901)—¥ 3,774
2,865—
166(2,141)———
12,901
—
(731)

(205)
(1,315)(1,825)
—
—
—

—
—
—
—
(20,307)(11,745)(15,816)(3,008)(1,054)(4,039)¥(16,146)———(2,949)¥(1,630)———(62,943)$(200,906)

$

7,485
—
—
(113,396)—

Annual Report 200749

(a) “Gain on contribution of securities to the pension trust” resulted from additional contributions of investment
securities to the pension trust.
(b) “Loss on damages suit” is a provision for compensation in case the Company faces a payout of monetary damages.
(c) “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 sluice gates.
(d) Loss on the restructuring of the commercial aircraft manufacturing business
As the aerospace business has been receiving requests for sharp increases in 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 withrespect 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 lossof ¥15,816 million ($134,639 thousand) composed of expected charges for the transfer, a loss on impairment ofwork in process and expenses regarding a subsidiary named Kawasaki Aeronáutica do Brasil Indústria Ltda.,
which is expected to be liquidated.
The amount of loss comprised the following:
Expected charges for the transfer ..............................................................................
Loss on impairment of work in process ......................................................................
Expenses for liquidation of a subsidiary ......................................................................
Total ..........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥ 6,977
6,259
2,580¥15,816$ 59,394
53,282
21,963$134,639(e) Loss on impairment of fixed assets
Because 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 idling aretreated separately.
The recoverable amounts were determined by net sales value, and the net sales value was estimated byappraisal or property tax assessment.
The asset groups for which the Company and its subsidiaries recognized impairment losses for the year ended
March 31, 2007 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.

The amounts of impairment losses consisted of the following:
Millions of yen

Thousands of
U.S. dollars

¥ 618
1,086
1,304
¥3,008$ 5,261
9,245
11,101$25,607

Land ...........................................................................................................................
Golf course.................................................................................................................
Buildings, etc. .............................................................................................................
..................................................................................................................................

(f) “Loss on cleaning of ground pollution” was due to 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, result in normal statutory
tax rates of approximately 40.5 percent for the years ended March 31, 2007 and 2006.
The significant differences between the statutory and effective tax rates for the year ended March 31, 2007 and2006 were as follows:
Statutory tax rate ...................................................................................................................
Research and development tax credit .....................................................................................
Other.....................................................................................................................................
Effective tax rate ....................................................................................................................
For the year ended March 31, 2005 the differences were not significant.

50

Kawasaki Heavy Industries, Ltd.

2007

2006

40.5%
(6.7)
(0.1)
33.7%

40.5%
(11.5)(2.0)
27.0%

Significant components of deferred tax assets and liabilities as of March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Deferred tax assets:
Accrued bonuses ...................................................................................... ¥ 7,958
Retirement benefits .................................................................................. 49,380
Provision for losses on uncompleted contracts ..........................................
4,649
Allowance for doubtful receivables ...........................................................
904
Inventories—elimination of inter-company profits ....................................
4,811
Fixed assets—elimination of inter-company profits ...................................
571
Depreciation ............................................................................................
1,328
Net operating loss carryforwards ..............................................................
1,728
Unrealized loss of marketable securities, investments
in securities and other ............................................................................
1,912
Other ....................................................................................................... 23,195
Gross deferred tax assets ...................................................................... 96,436
Less valuation allowance ......................................................................
(9,397)
Total deferred tax assets ....................................................................... 87,039
Deferred tax liabilities:
Deferral of gain on sale of fixed assets .....................................................
5,505
Net unrealized gain on securities .............................................................. 12,682
Unrealized gain on uncompleted contracts ...............................................
429
Unrealized gain on contribution of securities to the pension trust .............
5,995
Other .......................................................................................................
6,301
Total deferred tax liabilities ................................................................... 30,912
Net deferred tax assets ..................................................................... ¥56,127¥ 6,943
45,169
—
1,706
4,536
732
1,195
10,246$ 67,389
418,155
39,368
7,655
40,740
4,835
11,245
14,632

2,977
19,18992,693(8,454)
84,23916,191
196,421816,631(79,575)
737,056

5,120
10,600
155
5,996
5,628
27,499¥56,740

46,616
107,392
3,632
50,76653,360261,766$475,290

13. Retained
Earnings(“Others”)

This decrease of 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.

14. Additional
Payment ofConstruction
Cost

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

15. 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, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Increase of common stock due to conversion ............................................... ¥11,102
Increase of capital surplus due to conversion ................................................ 11,083
Decrease in convertible bonds due to conversion .......................................... 22,236¥10,658
10,65821,497

Thousands of
U.S. dollars
2007$ 94,018
93,857
188,297

The sum of the increases of common stock and capital surplus differed from decrease in convertible bonds
because the Company provided the bondholders with treasury stock instead of issuing new shares.

16. Derivative
Transactions

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’ purpose for purchasing derivatives is to hedge against risks of fluctuations in currency exchange rates and interest rates rather than to be exposed to such risks through 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.

Annual Report 2007

51

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 tocontrol the use of derivatives and manage risk.
(a) Outstanding positions and recognized gains and losses at March 31, 2007 were as follows:
Contract
amountMillions of yen
Marketvalue

Gain(loss)

Thousands of
U.S. dollars
Gain(loss)

Currency related contracts:
Foreign exchange contracts:
To sell .............................................................................. ¥91,232
To purchase .....................................................................
5,478¥96,479
5,535¥(5,247)
57$(44,432)
482

126
0

(96)
(30)
¥(5,316)

(812)
(254)
$(45,016)

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

1,444
1,392

(b) Outstanding positions and recognized gains and losses at March 31, 2006 were as follows:
Contract
amountMillions of yen
Marketvalue

Gain(loss)

Currency related contracts:
Foreign exchange contracts:
To sell .............................................................................. ¥72,195
To purchase .....................................................................
897¥75,141935¥(2,946)
38

47
0

(18)
(29)
¥(2,955)

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

17. Finance Leases

1,379
1,350

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, 2007 and 2006 were as follows:
Millions of yen
2007
2006

Thousands of
U.S. dollars
2007

Property, plant and equipment .................................................................... ¥ 35,822
Accumulated depreciation .......................................................................... (12,388).................................................................................................................... ¥ 23,434¥ 27,670(12,079)¥ 15,591$ 303,344(104,903)$ 198,441

Intangible assets ......................................................................................... ¥ 1,362
Accumulated amortization ..........................................................................
(779).................................................................................................................... ¥583¥ 1,351
(936)
¥
415

$ 11,533(6,597)$ 4,936

The present values of future minimum lease payments under non-capitalized finance leases as of March 31, 2007
and 2006 were as follows:
Millions of yen
2007
2006

Current portion ............................................................................................ ¥ 5,345
Noncurrent portion ...................................................................................... 19,535
Total ................................................................................................ ¥24,880

52

Kawasaki Heavy Industries, Ltd.

¥ 4,454
12,446¥16,900

Thousands of
U.S. dollars
2007$ 45,262
165,424$210,686

Lease payments, “as if capitalized” depreciation and amortization and interest expense for non-capitalized financeleases were as follows:
2007

Lease payments ......................................................................... ¥5,349
Depreciation and amortization ................................................... 4,956
Interest ......................................................................................
444

Millions of yen
2006

2005

Thousands of
U.S. dollars
2007¥4,7894,469
325¥5,034
4,685
384$45,295
41,9673,759(b) As lessor
The original costs of leased assets under finance leases and accumulated depreciation as of March 31, 2007 and2006 were as follows:
Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Property, plant and equipment ....................................................................... ¥1,989
Accumulated depreciation .............................................................................
(918)....................................................................................................................... ¥1,071¥ 1,629(1,061)¥ 568$16,843(7,773)$ 9,070

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

¥

$

43
(23)
20

¥

65
(41)
24

$

364
(195)
169

The present values of future minimum lease payments to be received under finance leases as of March 31, 2007
and 2006 were as follows:
Thousands of
U.S. dollars
2007

Millions of yen
2007
2006

Current portion .............................................................................................. ¥ 519
Noncurrent portion ........................................................................................ 1,142
Total .............................................................................................. ¥1,661

¥ 428
730
¥1,158$ 4,394
9,671$14,065

Lease payments received, depreciation and amortization and interest on finance leases were as follows:
2007

Lease payments received ............................................................... ¥285
Depreciation and amortization ...................................................... 244
Interest .........................................................................................
32

18. Operating
LeasesMillions of yen
2006

2005

Thousands of
U.S. dollars
2007

¥295
263
27

¥311
265
30

$2,4132,066
270

The present values of future minimum lease payments under operating leases as of March 31, 2007 and 2006 wereas follows:
Millions of yen
2007
2006

Current portion ................................................................................................. ¥380
Non-current portion .......................................................................................... 400
Total ................................................................................................. ¥780

19. Segment
Information

¥ 454
718
¥1,172Thousands of
U.S. dollars
2007$3,217
3,388$6,605

Industry segments of the Company and its consolidated subsidiaries are classified based on its internal company
system: 1) Shipbuilding, 2) Rolling Stock & Construction Machinery, 3) Aerospace, 4) Gas Turbines & Machinery,5) Plant & Infrastructure Engineering, 6) Consumer Products & Machinery and 7) Other.
The Shipbuilding segment manufactures and sells ships, submarines and maritime application equipment. Operations
within the Rolling Stock & Construction Machinery segment include the production and sale of rolling stock & construction machines. Products manufactured and sold by the Aerospace segment include airplanes and helicopters. The Gas
Turbines & Machinery segment manufactures and sells gas turbines, airplane engines and prime movers. Operations
within the Plant & Infrastructure Engineering segment include the production and sale of boilers, chemical and cement
plants and refuse incineration plants. Products manufactured and sold by the Consumer Products & Machinery segment include motorcycles, ATVs (All-Terrain Vehicles) and personal watercraft. Operations within the Other segment
include the production and sale of hospital respiration and medical equipment and hydraulic components. The operations also involve trade, mediation of overseas sales and orders and other activities.

Annual Report 200753

(a) Information by industry segment

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
Other .........................................................
167,306
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
Other .........................................................
133,054
Total ....................................................... 1,322,487
Eliminations and corporate .........................
—
Consolidated total .................................. ¥1,322,487

External
sales

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

External
sales

Intersegment
sales

¥

Millions of yen
2007
OperatingOperatingexpenses
income (loss)

Total
sales

Total
assetsDepreciation
Capitaland amortization expenditures

1,861
500
1,687
14,41019,6709,184
42,304
89,616(89,616)¥—¥ 110,710 ¥ 112,958 ¥ (2,248)
184,783
171,613
13,170270,795
257,395
13,400197,719
187,882
9,837
141,732
144,163(2,431)
412,886
385,323
27,563
209,610
199,974
9,636
1,528,235
1,459,308
68,927(89,616)(89,831)215¥1,438,619 ¥1,369,477 ¥69,142

Intersegment
sales

Total
sales

Millions of yen
2006
OperatingOperatingexpenses
income (loss)

Total
assets¥ 1,428
917
2,013
16,937
20,972
6,759
46,75895,784(95,784)¥—¥ 111,125
169,223
220,546
178,368
185,478
373,719
179,812
1,418,271(95,784)¥1,322,487¥ 112,833 ¥ (1,708)
160,4198,804
210,845
9,701
171,564
6,804
193,972(8,494)353,819
19,900173,154
6,658
1,376,606
41,665(95,914)130¥1,280,692 ¥41,795¥ 105,210
179,478
268,871
140,900
135,448
280,972
168,334
1,279,213
4,872¥1,284,085

Total
sales

Millions of yen
2005
OperatingOperatingexpenses
income (loss)

Total
assets87,175 ¥ 1,031¥ 100,996¥ 2,359¥ 1,630

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

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

Intersegment
sales¥ 1,125

¥

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

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

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

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

Total
sales

Thousands of U.S. dollars
2007
OperatingOperatingexpenses
income (loss)

Total
assetsIntersegment
sales

88,206¥¥ 117,832
172,615
279,574
165,412
141,472
303,730
193,953
1,374,588(16,608)¥1,357,980¥ 2,169
2,660
5,291
3,076
1,816
10,5393,150
28,701
1,578¥30,279

Depreciation
Capitaland amortization expenditures¥ 2,700
2,350
5,295
2,804
1,859
11,0202,747
28,775
1,776¥30,551

Kawasaki Heavy Industries, Ltd.

¥ 1,990
3,272
12,113
2,893
733
15,4804,227
40,708
1,016¥41,724

Depreciation
Capitaland amortization expenditures

Depreciation
Capitaland amortization expenditures

Shipbuilding .............................................. $ 921,746 $ 15,759 $ 937,505 $ 956,542 $ (19,037) $ 997,815 $ 18,367
Rolling Stock & Construction Machinery ...
1,560,530
4,234
1,564,764
1,453,239 111,525
1,461,724
22,525
Aerospace .................................................
2,278,838
14,2862,293,124
2,179,651 113,473
2,367,465
44,805
Gas Turbines & Machinery .........................
1,552,282
122,026
1,674,308
1,591,007
83,3011,400,728
26,048Plant & Infrastructure Engineering .............
1,033,635
166,568
1,200,203
1,220,789 (20,586)
1,198,002
15,378Consumer Products & Machinery ..............
3,418,596
77,771
3,496,367
3,262,960 233,407
2,572,021
89,245
Other ........................................................
1,416,768
358,235
1,775,003
1,693,404
81,5991,642,418
26,675
Total ..................................................... 12,182,395
758,879 12,941,274 12,357,592 583,682
11,640,173
243,043
Eliminations and corporate ........................
—(758,879)(758,879)(760,700)
1,821(140,639)
13,363
Consolidated total ................................. $12,182,395 $— $12,182,395 $11,596,892 $585,503 $11,499,534 $256,406

54¥ 1,194
8,253
3,029
5,354
996
12,8286,132
37,786
1,483¥39,269$ 10,111
69,88725,65045,3388,434
108,629
51,927
319,976
12,559$332,535

(b) Information by geographic area

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

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

External
sales

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)¥ 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

Intersegment
sales

Millions of yen
2005
Total
Operatingsales
expenses

Operatingincome (loss)

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

Total
assets¥1,074,688
159,169
63,25424,285
7,324
1,328,720(44,635)¥1,284,085

Total
assets¥ 208,048 ¥1,144,285 ¥1,123,267 ¥21,018
15,212
212,052
210,805
1,247
3,835
81,86281,448414
15,89841,04339,171
1,872
99
5,442
5,818
(376)
243,092
1,484,684
1,460,509
24,175(243,092)(243,092)(243,661)
569¥— ¥1,241,592 ¥1,216,848 ¥24,744¥ 996,923
127,798
57,21820,252
3,664
1,205,855(11,382)¥1,194,473

Thousands of U.S. dollars
2007
Total
Operatingsales
expenses

Total
assetsIntersegment
sales

Operatingincome (loss)

Japan .......................................... $ 8,832,187 $ 2,362,266 $11,194,453 $10,640,511 $553,942 $ 9,260,716
North America ............................
2,212,330
152,570
2,364,900
2,350,182
14,718
1,715,124Europe ........................................
837,006
36,582
873,588853,442
20,146595,817
Asia ............................................
192,142
158,667
350,809344,889
5,920
220,857
Other areas .................................
108,730
1,584
110,314
108,461
1,853
24,295
Total ....................................... 12,182,395 2,711,669 14,894,064 14,297,485 596,579 11,816,809
Eliminations and corporate ..........
— (2,711,669) (2,711,669) (2,700,593) (11,076)(317,275)
Consolidated total ................... $12,182,395 $— $12,182,395 $11,596,892 $585,503 $11,499,534
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 ¥124,152 million ($1,051,334 thousand), ¥110,476 million and ¥121,602 million at March 31, 2007, 2006 and 2005, respectively, which mainly comprised cash and time deposits of the Company and property, plant, equipment and intangible
assets of the Company’s head office.

Annual Report 200755

(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, 2007, 2006 and 2005 were as follows:
Millionsof yen%2007
Overseas
Againstsales
net sales

North America ............................. ¥336,765 23.4%
Europe ......................................... 119,408 8.3
Asia ............................................. 186,066 12.9
Other areas .................................. 135,506 9.4
Total ........................................ ¥777,745 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%

Millionsof yen%2005
Overseas
Againstsales
net sales¥236,847
100,362
171,461
105,274¥613,944

19.0%
8.1
13.8
8.5
49.4%

Thousands of
U.S. dollars
2007
Overseassales$2,851,766
1,011,161
1,575,629
1,147,481$6,586,037

North America includes mainly the U.S.A. and Canada. Europe includes mainly the United Kingdom, Germany,
the Netherlands, France and Italy. Asia includes China, Korea, and Taiwan. Other areas include mainly Panama,Brazil and the Bahamas.
20. Additional
Information(a) Effective April 1, 2004, the Company changed the accounting periods for consolidation of five subsidiaries(Kawasaki Motors Corporation Japan, Kawasaki Motors Corp., U.S.A., Kawasaki Motors Europe N.V., and twoother subsidiaries) from the 12 months ended December 31 to the 12 months ended March 31 to improve transparency and quality of the consolidated financial statements.
This change decreased the Company’s retained earnings as of the beginning of this fiscal year by ¥222 million
in the year ended March 31, 2005.
(b) 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 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 as of March 31, 2006.

21. Subsequent
Events(a) On June 27, 2007, the following appropriation of nonconsolidated retained earnings was approved at the ordinary
meeting of shareholders of the Company:
Cash dividends (¥5.0 per share) ...................................................................................

Millions of yen

Thousands of
U.S. dollars¥8,297$70,260(b) On August 31, 2005, the Company received a judgment from the Kyoto District Court requiring reimbursementof ¥1,144 million ($9,687 thousand) to Kyoto City in a suit brought by citizens of the city claiming that theCompany unfairly bid on a construction contract for a garbage incineration facility in Kyoto City which theCompany was awarded in 1996.
On September 12, 2005, the Company appealed the judgment to the Osaka High Court. On September 14,
2006, the appeal was rejected and the Company received a judgment requiring reimbursement of ¥1,831 million($15,505 thousand).
On September 26, 2006, the Company appealed the judgment to the Supreme Court. However, on April 24,
2007, the Supreme Court dismissed the final appeal.
In accordance with the judgment on May 2, 2007, the Company received a claim of ¥2,407 million ($20,383
thousand) for monetary damages, including a penalty for delay from Kyoto City and paid it out on May 8, 2007.
The payment of the damages was reported as “Loss on damages suit” for the year ended March 31, 2007.
22. Other Matters

56(a) On April 25, 2006, the Company received a judgment from the Fukuoka District Court requiring reimbursementof ¥2,088 million ($17,681 thousand) jointly with Hitachi Zousen Corporation and three other companies to
Fukuoka City in a suit brought by citizens of the city claiming that the Company unfairly bid on a construction
contract for a refuse incineration facility in Fukuoka City which Hitachi Zousen Corporation was awarded in 1996.
On May 9, 2006, the Company appealed the judgment to the Fukuoka High Court.
(b) On November 16, 2006, the Company received a judgment from the Kobe District Court requiring reimbursementof ¥1,364 million ($11,550 thousand) to Kobe City in a suit brought by citizens of the city claiming that theCompany unfairly bid on a construction contract for a refuse incineration facility in Kobe City which the Company
was awarded in 1995. On November 29, 2006, the Company appealed the judgment to the Osaka High Court.
(c) On November 16, 2006, the Company received a judgment from the Kobe District Court requiring reimbursement of ¥530 million ($4,488 thousand) jointly with Hitachi Zousen Corporation and four other companies in asuit brought by citizens of the city claiming that the Company unfairly bid on a construction contract for a refuse
incineration facility in Amagasaki City which Hitachi Zousen Corporation was awarded in 1996. On November 29,
2006, the Company appealed the judgment to the Osaka High Court.
(d) On June 27, 2006, the Company received a decision from the Japan Fair Trade Commission ordering correctionof unfair bids that the Company may have committed on construction contracts for refuse incineration facilities
from 1994 through 1998. On July 27, 2006, 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 anorder to pay penalties which the Fair Trade Commission imposed on March 28, 2007.

Kawasaki Heavy Industries, Ltd.

Annual Report 200757

Directors, Corporate Auditors, and Executive Officers

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

Masamoto Tazaki
ChairmanTadaharu Ohashi*
President

58

Masatoshi Terasaki*

Akira Matsuzaki*

Senior Executive Vice President

Senior Executive Vice President

Chikashi Motoyama*

Jiro Noguchi*

Masashi Segawa*Senior Vice President

Senior Vice President

Senior Vice President

Shinichi Tamba*

Shuji Mihara*

Satoshi Hasegawa*Senior Vice President

Senior Vice President

Senior Vice President

Kawasaki Heavy Industries, Ltd.

* Representative Director** Outside Auditor

EXECUTIVE OFFICERS
President

Executive Officers

Tadaharu Ohashi

Shigeru Hamada
Fumiaki Amae

Senior Executive Vice Presidents

Kazuhiko Mishima

Masatoshi Terasaki

Masatoshi Ohyama

Akira Matsuzaki

Shuichi Nose
Tamio Nakano

Senior Vice Presidents

Hidetsugu Horikawa

Chikashi Motoyama

Akira Hattori

President
Aerospace Company

Yuichi Asano

Jiro Noguchi

Shinichi Suzuki

Senior Manager
Corporate Planning Department

Toru Yamaguchi

Masashi Segawa

Shigeru Murayama

President
Rolling Stock Company

Mitsutoshi Takao

Shinichi Tamba
President
Consumer Products & Machinery Company

Shuji Mihara
Senior Manager
Personnel & Labor Administration Department

Satoshi Hasegawa
President
Gas Turbines & Machinery Company

Sosuke Kinouchi
Yoshio Kawamura
Kyohei Matsuoka
Seiji Yamashita
Takeshi Sugawara
Sumihiro Ueda
Wataru Kanamori(As of June 27, 2007)

Annual Report 2007

59

Major Consolidated Subsidiaries and Affiliates

Name

Location

Paid-in Capital

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

Principal Businesses

SHIPBUILDING
Kawasaki Shipbuilding CorporationJapan

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

83.71

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

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

Germany

A766*

100.00

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

Wuhan Kawasaki Marine Machinery Co., Ltd.

China

1,100

55.00

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

Tonfang Kawasaki Air-Conditioning Co., Ltd.†

China

US$9,673*

50.00

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

60

Kawasaki Heavy Industries, Ltd.

Name

Location

Paid-in Capital

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

Principal Businesses

PLANT & INFRASTRUCTURE ENGINEERING
Kawasaki Plant Systems, Ltd.

Japan

5,000

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

560

100.00and equipment
Steel Structure Co., Ltd.†CONSUMER PRODUCTS & MACHINERY
Kawasaki Motors Corporation Japan

Distribution of motorcycles and personal watercraft in Japan

Kawasaki Metal Industries, Ltd.

Japan

350

100.00

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

Canadian Kawasaki Motors Inc.

Canada

C$2,000*

100.00Distribution of motorcycles, ATVs, and personal

Kawasaki Motors Europe N.V.

Netherlands

A14,093*

100.00Motors Finance Corporationwatercraft 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$20,000*

58.50

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

Annual Report 2007

61

Name

Location

Paid-in Capital

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

Principal Businesses

100.00Design, manufacture, sale, after-sales service, and main-

OTHER
Kawasaki Precision Machinery Ltd.

Japan

3,000

tenance for hydraulic machinery and equipment, electricpowered devices, and control systems
Kawaju Shoji Co., Ltd.

Japan

600

70.00

Trading

Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic

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 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

Kawasaki Heavy Industries (U.K.) Ltd.

U.K.

£500*

100.00

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

Flutek, Ltd.

Korea

W1,310**50.38

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

Kawasaki Precision Machinery (China) Ltd.

China

500

100.00Assembly of hydraulic pumps and motors forconstruction machinery

Air Water Safety Service Inc.†

Japan

1,708

34.48

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

Kawasaki Setsubi Kogyo Co., Ltd.†

Japan

1,581

33.86

Design and installation of air-conditioning,heating/cooling, water supply/disposal, and sanitaryfacilities* 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, 2007)

62

Kawasaki Heavy Industries, Ltd.

Network

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

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

DOMESTIC WORKS
Gifu Works
1, Kawasaki-cho, Kakamigahara,
Gifu 504-8710, Japan
Phone: 81-58-382-5712
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

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

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

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

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

Kawasaki Rail Car, Inc.

Delhi Office

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

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

28140 Lakeview Drive,
Wixom, MI 48393, U.S.A.
Phone: 1-248-446-4100
Fax: 1-248-446-4200

Kawasaki Motors Corp., U.S.A.

Moscow Office9950 Jeronimo Road,
Irvine, CA 92618-2084, U.S.A.
Phone: 1-949-770-0400
Fax: 1-949-460-5600

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

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

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 Thermal Engineering Co., Ltd.

Kawasaki do Brasil Indústriae Comércio Ltda.

18-31, Higashinakajima 1-chome,
Higashiyodogawa-ku, Osaka 533-0033, Japan
Phone: 81-6-6325-0300
Fax: 81-6-6325-0301

Avenida Paulista, 542-6 Andar,
Bela Vista, 01310-000, São Paulo, S.P., Brazil
Phone: 55-11-3289-2388
Fax: 55-11-3289-2788

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

Annual Report 2007

63

Kawasaki Heavy Industries (U.K.) Ltd.

Sweden Branch

Wuhan Kawasaki Marine Machinery Co., Ltd.

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 Branch

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

Ernesettle 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

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

Kawasaki Motors Europe N.V.
Opaallaan 1210,
2132 LN Hoofddorp,
The Netherlands
Phone: 31-2356-70500
Fax: 31-2356-39884

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

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

Kawasaki Motors Racing B.V.

Nantong COSCO KHI Ship Engineering Co., Ltd.

Diamantlaan 14, 2132 WV Hoofddorp,
The Netherlands
Phone: 31-23-567-0500
Fax: 31-23-563-9884

117, Linjiang Road, Nantong City,
Jiangsu Province, People’s Republic of China
Phone: 86-513-350-0666
Fax: 86-513-351-4349

Kawasaki Machine Systems Korea, Ltd.

Tonfang Kawasaki Air-Conditioning Co., Ltd.

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

21-22F, B Building, Tsinghua Tongfang,
Hi-tech Plaza, No. 1 Wangzhuang Road,
Haidian District, Beijing, People’s Republic of China
Phone: 86-010-82378866
Fax: 86-010-62341080

Flutek, Ltd.

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

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

5198 Hutai Road, Baoshan District,
Shanghai 201907, People’s Republic of China
Phone: 86-21-5602-8888
Fax: 86-21-5602-5198

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

KHI (Dalian) Computer Technology Co., Ltd.

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

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 Gas Turbine Asia Sdn Bhd
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

U.K. Branch

KHI Design & Technical Service Inc.

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

20F, 6788 Ayala Avenue,
Olden Square, Makati,
Metro Manila, The Philippines
Phone: 63-2-810-9213
Fax: 63-2-816-1222

Germany Branch

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 (H.K.) 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

Kawasaki Heavy Industries (Singapore) Pte. Ltd.

Italy Branch

P.T. Kawasaki Motor Indonesia

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

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

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

Kawasaki Heavy Industries Consulting& Service (Shanghai) Company, Ltd.
13th Floor, HSBC Tower, 1000,
Lujiazui Ring Road, Pudong New Area,
Shanghai 200120, People’s Republic of China
Phone: 86-21-6841-3377
Fax: 86-21-6841-2266

Kawasaki Heavy Industries Machinery Trading(Shanghai) Co., Ltd.
Room 14D, New Hua Lian Mansion,
No. 755 Huai Hai Zhong Road, Shanghai 200020,
People’s Republic of China
Phone: 86-21-6472-2710
Fax: 86-21-6472-1213

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

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

64

Kawasaki Heavy Industries, Ltd.

(As of August 1, 2007)

Corporate Data

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

Transfer Agent:
The Chuo Mitsui Trust and Banking Company, Limited
33-1, Shiba 3-chome,
Minato-ku, Tokyo 105-8574, Japan
Handling Office:
The Chuo Mitsui Trust and Banking Company, Limited
Osaka Branch Office
2-21, Kitahama 2-chome,
Chuo-ku, Osaka 541-0041, Japan
Independent Auditors:
KPMG AZSA & Co.
Kobe Crystal Tower,
1-3, Higashikawasaki-cho 1-chome,
Chuo-ku, Kobe, Hyogo 650-0044, Japan

Paid-in Capital: ¥103,187,577,986
Number of Shares Issued: 1,659,625,876 shares
Number of Shareholders: 145,590

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

Number of Employees: 29,211
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 be madeelectronically. Provided, if the Corporation is unable to make an electronic publication of notice due to an accident or other unavoidable
reason, the notice shall be inserted in the Nihon Keizai Shimbun.

ADR Depository:
The Bank of New York
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-212-815-2042
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://adrbny.com
KHI Web Site at: http://www.khi.co.jp(As of March 31, 2007)

Annual Report 2007

65

Kawasaki Heavy Industries, Ltd. Annual Report 2007

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