ANNUAL REPORT
2003

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 theland, sea, and air, the KHI Group manufactures ships, rolling stock, aircraft
and jet engines, gas turbine power generators, refuse incinerators, industrial plants, steel structures, and a wide range of manufacturing equipment
and systems. KHI also produces such world-famous consumer products as
Kawasaki-brand motorcycles and Jet Ski® watercraft.
Contents
Consolidated Financial Highlights..............................................................1
To Our Shareholders....................................................................................2
Progress toward Objectives of Medium-Term Business Plan K21........6
Review of Operations:
Shipbuilding...............................................................................................8
Rolling Stock, Construction Machinery & Crushing Plant ...............10
Aerospace ................................................................................................12
Gas Turbines & Machinery....................................................................14
Plant & Infrastructure Engineering ......................................................16
Consumer Products & Machinery........................................................18
Six-Year Summary.......................................................................................20
Management’s Discussion and Analysis .................................................21
Consolidated Balance Sheets....................................................................26
Consolidated Statements of Operations .................................................28
Consolidated Statements of Shareholders’ Equity................................29
Consolidated Statements of Cash Flows .................................................30
Notes to the Consolidated Financial Statements...................................32
Report of Independent Public Accountants ...........................................47
Directors, Corporate Auditors, and Executive Officers........................48
Major Consolidated Subsidiaries and Affiliates .....................................50
Network ........................................................................................................53
Kawasaki Corporate Data ..........................................................................55
Cover: BK117 C-2 type helicopter

Consolidated Financial Highlights
Years ended March 31

Thousands of
U.S. dollars

Millions of yen
2003

2002

2001

2003

¥1,144,534¥1,060,479$10,312,795

For the year:
Net sales................................................................................................... ¥1,239,598
Operating income ...................................................................................

30,54331,311

4,460

254,101

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

13,022

6,282(10,320)

108,336

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

56,77060,7399,236

472,296

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

35,16533,132

32,687

292,554

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

¥9.3

¥4.5

¥(7.4)$0.08

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

8.8

4.4

—

0.07

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

2.0

—

—

0.02

Total assets ............................................................................................. ¥1,149,161¥1,255,075¥1,247,472$ 9,560,408

174,585

167,731

164,081

1,452,454

Orders received during the fiscal year ................................................ ¥1,227,449¥1,034,771¥1,273,686$10,211,722

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

1,240,439

1,320,894

9,780,058

At year-end:
Total shareholders’ equity ....................................................................
Orders received and outstanding:
1,175,563

Note: All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at ¥120.20 to $1.00, the approximate rateof exchange at March 31, 2003.

Net Sales

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

Total Shareholders’Equity(Billions of yen)

167.7

2001

2002

174.6

164.1

500

175.0

150

100

(10.3)

0

200
199.6

13.0
6.3

10

(6.1)

1,239.6

1,144.5

1,060.5

1,149.7

1,202.2

1,000

250

20

1,500

-10
(18.6)

50

0

-20

0

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

1999

2000

2003

1

To Our Shareholders

succeeding in these efforts is the contrast between KHI’s performance and
the Japanese economy as a whole.
Conditions in Japan in fiscal 2003 wereamong the most challenging in memory. Progress toward recovery was slackat best, as national and regional governments in Japan continued to restrain
public works investment and the banking sector continued to struggle undermountains of bad debts. Unemployment
remained high, and virtually zero
growth in household incomes continued to dampen consumer confidence
and spending. Corporations remained
cautious and private-sector capital investment showed no signs of recovery.
Undaunted by these conditions, we

Masamoto Tazaki,
President and CEO

stepped up our marketing activities
and succeeded in raising our order
Gains in Sales andintake to ¥1,227.4 billion, a strong gain

Stability in Earningsof ¥192.7 billion, or 18.6%, from the pre-Fiscal 2003, ended March 31, 2003—thevious fiscal year. Especially strong

third year of our K21 medium-term

gains were reported in the Rollingbusiness plan—gave us clear evidence

Stock, Construction Machinery &that our corporate revival program has

Crushing Plant and Plant & Infrastruc-been effective in reversing declining

ture Engineering business segments,

performance and putting us back onwhich received large-scale orders.

the path to recovery. After three yearsof losses beginning with results for fis-

lion, a gain of 8.3%, or ¥95.1 billion.

cal 1999, we reported a return to prof-

Strong increases were reported

itability in fiscal 2002 and are now

in the Shipbuilding; Rolling Stock,pleased to announce the resumption

Construction Machinery & Crushingof cash dividends for fiscal 2003.

Plant; and Consumer Products &Our initiatives under K21 have aimed

Machinery segments.

at building a strong Kawasaki Heavy

As a result of various measures to

Industries (KHI) Group that can per-build stable earnings power, operating

form well even under challenging

income amounted to ¥30.5 billion,

conditions. One confirmation we are2

Net sales expanded to ¥1,239.6 bil-

a slight decline of 2.5%, or ¥0.8 billion,

this philosophy, KHI endeavors toincrease earnings power, and enhancing

from the previous year. Net income

increase customer satisfaction by pro-the effectiveness of our managementrose ¥6.7 billion, or 107.3%, to ¥13.0 bil-viding products and services that aresystems.

lion, including gains from the sale ofdifferentiated from competitors by

fixed assets of ¥3.3 billion and restruc-technology and brand equity. Throughties, we are taking the initiative in dis-turing expenses of ¥3.2 billion related

these activities, KHI is committed toclosing information on our activities

to the consolidation of factories for theraising its enterprise value andand working to increase the transparen-steel structure business.

responding to the expectations of

cy of our operations. To respond swiftlyshareholders, customers, employees,

to changes in the operating environ-and the communities it serves.

ment, we adopted an internal company

Free cash flow was a positive ¥29.9
billion, while cash used in financing
activities amounted to ¥59.6 billion, as

To implement these basic manage-

Through our investor relations activi-

system and an executive officer system

we took steps to reduce outstanding

ment policies, KHI issued its K21

in April 2001. These organizational

debt. As a result of these cash flows,

Medium-Term Business Plan inchanges resulted in the delegation of

the balance of cash and cash equiva-

November 2000. The objectives of thisgreater authority and strengthened ourlents at the end of the year declined

plan are to establish high-margin busi-

strategic decision-making capabilities¥29.9 billion, to ¥59.8 billion.

ness operations by reforming KHI’s

and functions for the surveillance ofenterprise structure to adapt moremanagement. Now, all corporate audi-

dividends to our shareholders, giving

quickly and accurately to changes intors attend meetings of the Board ofdue attention to increasing retained

the operating environment and return

Directors and the Board of Executive

earnings in order to strengthen andto a sustainable growth path. This plan

Officers. They have also examined the

expand our business foundation forsets a before-tax return on invested

scope of their audit supervision to

future growth. As we have now posted

capital (ROIC) of 9% or more as a spe-

include documents they view as im-

a profit for two consecutive years andcific target. Thus far, we have set fiscal

portant and not just those specified

in view of the level of net income, the2005 as the target for reaching this goal.

in the Commercial Code of Japan.

market outlook, and other factors, KHI

However, in view of major changes in

Beginning in June 2003, we strength-

proposed and received approval fromthe operating environment, including

ened our compliance functions by insti-

shareholders for the resumption of

the prolonged recessionary conditions

tuting a compliance reporting andcash dividend payments of ¥2 per sharein Japan, unexpectedly large reductions

consultation system that allows top

for fiscal 2003.

in government public works spending,management to identify internal prob-

the lackluster state of the aircraft

lems quickly and take necessary steps

Management Policies

industry, and delays in major orders,to find solutions. We have provided all

and Objectives

we have decided to change the target

employees with a guidebook on compli-

KHI’s corporate philosophy is to draw

date to fiscal 2007. Even as this will beance and developed plans to conduct

on its broad base of advanced tech-

two years behind the original schedule,

necessary training as well as provide

nologies to create new value in prod-

we plan to continue to implement theguidance to make all staff members

ucts that work modern-day wonders

business reform strategies we haveaware of compliance issues. We haveon land, at sea, and in the air andfollowed to date, including sharpening

also created a consultation center

contribute to the development of

the focus of our business portfolio,

where employees can obtain advice

societies around the world. Undertransforming our business model toand make direct reports on compliance

Our basic policy is to pay stable cash

3

matters. Reports from employees are

our core and developing businesses

well as joint procurement of parts, andconsidered by the Corporate Ethicsof Aerospace, Consumer Products &working jointly with Suzuki Motor on

Committee, which is headed by the CEO

Machinery, Rolling Stock, and Gas

product development.

and includes other top management,

Turbines & Machinery.

and by the Compliance Committee.

KHI’s Rolling Stock business is expe-

When appropriate, these committees

Performance andriencing rising demand, especially fromtake action to make further investiga-

Strategies by Businessoverseas, and, in response, is strength-

tions and solve compliance problems.

In the Aerospace business, the Japan

ening its overseas operations, including

Defense Agency (JDA) awarded KHI thethe construction and start-up of a com-

Outlook and Strategies

position of prime contractor for devel-

prehensive manufacturing plant forfor Fiscal 2004

oping two next-generation large air-rolling stock in the United States. Also,

For the foreseeable future, we arecraft—the P-X, the successor to thein Japan, the business is augmenting its

assuming that challenging operating

P-3C anti-submarine warfare patrol air-capabilities in the production of bogies

conditions will prevail in Japan andplane, and the C-X transport aircraft.

and parts, maintenance, as well as

overseas. As a result, we are committed

Currently, KHI is working to expand its

other peripheral areas while working

to continuing to implement structuraldevelopment systems and prepare air-

to increase profitability.

business reforms and take steps tocraft production facilities with a view

improve profitability with the overrid-

to the medium-to-long term.

ing objective of increasing enterpriseIn April 2003, KHI made NIPPI

value by maintaining stability in earn-

Corporation—a manufacturer of air-developed lineup of gas turbine genera-ings power and sustainable growth.

craft parts and systems—a wholly

tors, which now includes units withDuring fiscal 2004, we will carry on

owned subsidiary through an exchange

capacity up to 20MW. We project thatwith ongoing programs to strengthenof shares. Going forward, we will fullythese generators will meet growing

product competitiveness by making

integrate NIPPI into our aerospacedemand for distributed power sourc-

further cost reductions and enhance-

operations and work to increase theing, which is expected to increase alongments in product quality. Under ourefficiency of our development andwith the deregulation of the electric

policy of “Quality followed by Quantity,”

production activities.

power sector. At present, we are work-

we intend to strengthen profitability byoffering products and services differen-4

In the Gas Turbines & Machinery
business, KHI completed its solely

ing to expand these operations to inIn the Consumer Products & Machin-clude service and maintenance, drawing

tiated by technology and brand equity

ery business, KHI is strengthening its

on our in-house development strengths

and through further renewing our busi-

development capabilities to enhancefor these generators. Going forward, we

ness model. We also plan to proceed

the competitiveness of its products

will step up our marketing activities forwith structural business reforms andand actively introducing new models.

distributed power sources in Japan andaim to bolster our secure earnings base.

We are also working to strengthen ourare making preparations for aggressive

To give an even sharper focus to ouralliance with Suzuki Motor Corporation

marketing of gas turbine generators inbusiness portfolio, we plan to devote

in a program of activities to increase

overseas markets.

corporate resources to growth

profitability. These include mutual

businesses on a priority basis. The

OEM supply arrangements in theareas for greatest attention will include

motorcycle area, standardization asWe made the decision to set up our
shipbuilding and industrial hydraulicequipment businesses as wholly owned
subsidiaries and, in October 2002,
established Kawasaki Shipbuilding
Corporation and Kawasaki Precision
Machinery Ltd. The objectives of thisrealignment were to gain greater flexibility and increase efficiency in these
operations. We expect these companies
to become more competitive understrong, independent management
systems and contribute to increasing

reviewing our production systems forthe profitability of the KHI Groupsteel structures in light of the shrinkage

as a whole.

in the market and plan to close theNoda Works, which fabricates steel

Also, in the crushing machinery busi-

structures, and consolidate these oper-

ness, we formed Earth Technica Co.,

ations in our Harima Works, as of theLtd., a joint venture with Kobe Steel,end of September 2003.

Ltd., in April 2003 by consolidating
both companies’ sales and design

The KHI Group is steadily implement-

departments in this field. The new com-

ing measures under its K21 medium-pany is engaged in marketing activities

term plan to improve its ability to deal

to expand orders, and we are proceed-

effectively with changes in the operat-

ing with discussions for the eventual

ing environment. The goals of ourmerging of our crushing machinery

strategies are achieving sustainable

manufacturing departments with thosegrowth and increasing the Group’sof Kobe Steel to increase efficiency.

enterprise value. Our results for fiscal
2003 show that we are making progress

Our Plant & Infrastructure Engineer-

toward these goals. We therefore looking business, including our steel struc-forward to the continuing advice andtures business, continues to confront a

support of our shareholders.

demanding operating environment mainly
due to the slump in private-sector capital investment and cutbacks in public

June 27, 2003

works investment in Japan. We aretaking steps to lower fixed costs by
reducing the number of personnel andcutting other expenses to lower theMasamoto Tazaki

breakeven point in this segment.

President and CEO

As part of these measures, we are5Progress toward Objectives of Medium-Term Business Plan K21(Fiscal 2001 to fiscal 2007)

KHI prepared K21 in November 2000. Under this plan, KHI is working to create a high-margin business portfolio by restructuring its activities to adapt tochanges in the operating environment and move onto a sustainable growthpath. The basic financial objective of K21 is to attain a 9% or higher beforetax ROIC.
Due to extreme changes in the operating environment, KHI has moved
the date for meeting the goals of K21 from the initial date of fiscal 2005 andnow aims to attain its goals by fiscal 2007. To meet the objectives of K21,
KHI is implementing the following policies to reform the structure of its
business activities:• Exercising selectivity and concentration in allocating its resources to sharpen the focus of its business portfolio,• Transforming its business model to increase earnings power, and• Enhancing the effectiveness of its management systems.

Before-tax ROIC(%)
10

ROIC goal for
fiscal 2007: 9% or higher

9.0

8
6

4.3

4.6

2002

2003

4
2
0

(1.7)
(0.8)

-2

2000

2001

2004

2005

2006

2007

Before-tax ROIC: the ratio of EBIT (earnings before interest and taxes)
to the sum of interest-bearing debt and total
shareholders’ equity

Selectivity and concentration• Allocating corporate resources on a priority basis• Nurturing and strengthening pillars of KHI’s profitability• Making use of KHI’s record of accomplishments, brand equity, and technological strengths

Core businesses

Aerospace

2000

2001

November 2001: Designated by JDA as prime
contractor for developing next-generation aircraft
P-X and C-X

2002

2003

2004
2005
2006
2007
6

Developing businesses

Consumer Products& Machinery

Rolling Stock

September 2000: Kawasaki Motors Europe N.V.
established as unified sales company for consumer products in Europe

December 2000: Order for the Taiwan high-speed
railway system received by Japanese consortium,
KHI a key member

March 2001: Sales and service activities in Japanfor industrial robots shifted to Kawasaki Machine
Systems, Ltd. (KMS)
August 2001: Alliance concluded with Suzuki
Motor for motorcycles

April 2001: Alliance concluded with Hitachi foroverseas railway system business

April 2002: Full-scale operations at new comprehensive rolling stock factory in Lincoln, Nebraska
startedMay 2002: New factory opened at Hyogo Works to
manufacture rolling stock related parts
December 2002: Order for R160 subway cars for
the New York City Transit Authority jointly
received by KHI and Alstorm of France

April 2003: NIPPI Corporation made wholly
owned subsidiary through exchange of shares
April 2003: Factory in Brazil opened to assemble
major wing section for Embraer 195 regional jet
aircraftMeasures to Enhance the Effectiveness of Management Systems
1. Introduction of internal company system (April 2001)
2. Introduction of executive officer system (April 2001)
3. Reorganization of Corporate Headquarters (April 2001)(Clear separation of strategic functions and service
functions)
4. Use of ROIC to evaluate company performance and measures to link performance and compensation(Implemented for management-level personnel in April
2002, based on performance in fiscal 2002; Companywide
implementation in April 2003)

Measures to Transform Business Model
1. Shifting from primarily accepting orders to proposing
solutions applicable to a wide range of customers with theaims of achieving greater standardization and maximizing
added value
2. Making the transition to a business model that enables
KHI to provide satisfaction to customers throughout thelife cycles of the products it supplies
3. Making optimal use of corporate resources by realizing
cross-divisional synergies
4. Differentiating products and services through the application of IT• Lower breakeven points to be able to show a profit even under intense competition• Strengthening business foundations by seeking alliances, setting up subsidiaries, or consolidation

Businesses for structural reformGas Turbines& Machinery
December 2000: Alliance with Mitsui Engineering& Shipbuilding (MES) for diesel engines for ships
concluded

Shipbuilding

Plant & Infrastructure
Engineering

September 2000: Operating allianceconcluded with Ishikawajima-Harima
Heavy Industries and MES in thefields of shipbuilding and marine
equipment
March 2001: Chiba Works andSodegaura Works for steel structures closed

February 2001: L20A high-efficiency gas turbine
generator with a 20MW-class capacity developed
in-house
March 2001: Sales and service activities in Japanfor gas turbine generators shifted to KMS

December 2002: Alliance concluded with U.S.
company Cummins for sales of KHI’s industrial
gas turbine generators in the United States

Other initiatives

February 2002: Allianceconcluded with Kayaba
Industry in the fields ofhydraulic equipment andsystems

October 2002: Kawasaki Shipbuilding Corporation established

October 2002: Kawasaki
Precision Machinery Ltd.
establishedMarch 2003: Basic agreement
signed regarding consolidation ofsteelmaking plant engineeringbusiness with JP Steel Plantech
September 2003: Noda Works forsteel structures to be closed

April 2003: Joint-venture
Earth Technica establishedwith Kobe Steel to housemarketing and design divisions of the crushingmachinery business7

Shipbuilding

LPG carrier CRYSTAL MARINE, the first ship applying our new design SEA-ARROW (Sharp Entrance
Angle Bow as an Arrow), which significantly reduces
the bow wave resistance and enhances the ship’s
propulsive performance
Construction of LNG carriers in progress at Sakaide
Shipyard. In July 2003, two newly introduced 800t
Goliath cranes lifted and conveyed an entire LNG
tank into the cargo hold for the first time in Japan.

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

Sales

Orders Received(Millions of yen)

(Millions of yen)

60,000

8

2001

2002

2003

173,304

194,275

176,987

110,926

106,106

50,00000

2000

150,000

100,000

30,0000

2003

90,00060,00030,000117,518

105,458

92,47878,734

91,891

8.5%
90,000(Millions of yen)
200,000

120,000

130,824

120,000

Order Backlog

64,417

Percentage of Net Sales

2000

2001

2002

2003

2000

2001

2002

2003

Business Results

going to focus our activities on gas carriers and submarines—

During the fiscal year, the world shipbuilding market was

the types of ships where we have technological and costhighly competitive, and prices continued to slip because

advantages over competitors. In both these areas, we haveof overcapacity worldwide. In the latter half of the fiscal

sophisticated, proprietary technologies and rich shipbuild-

year, newbuilding ship prices rose for some types of vessels

ing experience. As a case in point, we have developed, andbecause of improvement in the shipping markets and otherintroduced with the full confidence that comes from ex-factors, but the recovery was insufficient overall. Even inperience, a new LNG carrier, with a cargo tank capacity ofthis tough environment, however, we won orders for a total

145,000 m3. Customers have expressed favorable reactionsof 12 vessels—four LPG carriers, three LNG carriers, andtoward this new LNG carrier, and, as of March 31, 2003, wefive bulk carriers. Total orders for this segment amounted

had a backlog of orders for seven. Demand for LNG, whichto ¥110.9 billion, which was ¥4.8 billion, or 4.5%, above theis drawing attention as an environmentally clean source ofprevious fiscal year. Net sales were up ¥13.0 billion, or

energy, will likely continue to rise. Demand for newbuilding

14.0%, to ¥105.5 billion, reflecting increased sales of new-

LNG carriers is also expected to remain strong as growth inbuildings. Operating income was adversely influenced by

the volume of LNG carried on oceangoing vessels continues.

exchange rate movements and other developments andTo meet rising demand, we have made upgrades in the dedi-amounted to ¥1.4 billion, representing a decline of ¥4.1 bil-cated LNG carrier fabrication facilities at our Sakaidelion, or 74.6% from the prior fiscal year. A total of 12 vessels

Works, our principal factory for commercial vessels.

were delivered during fiscal 2003, which consisted of four
LPG carriers, two container ships, and six bulk carriers.

Going forward, we will continue placing the highest priority on increasing customer satisfaction with the lifetime
value of vessels manufactured by Kawasaki S.C. We will

Outlookmake efforts to further improve our established world-class

In October 2002, KHI’s shipbuilding operations were set

technology, which is backed by solid accumulated experi-

up as a wholly owned subsidiary, Kawasaki Shipbuilding

ence in shipbuilding, and, while continuing our programs to

Corporation (Kawasaki S.C.). Kawasaki S.C. aims to trans-enhance quality and performance, we plan to step up ourform its management capabilities to flexibly respond tomarketing activities to win new orders and attain our man-changes in the operating environment and create dynamic

agement objectives.

and efficient operational systems.
Operating conditions in the shipbuilding business are
forecast to continue to pose challenges. We are therefore

9Rolling Stock, Construction Machinery & Crushing Plant

Series 683 Express Train for West Japan Railway
Company
30t-class dump truck KUT300

Main Products & Businesses• Electric train cars (including for Shinkansen bullet trains)• Monorail cars

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

Sales

Orders Received(Millions of yen)

(Millions of yen)

(Millions of yen)

273,563

200,000

272,642

50,00050,000250,000

150,000
82,584

100,000

176,693150,000
139,807

164,774
121,780

129,591

121,463150,000

296,242300,000

200,000

13.3%

100,000

Order Backlog

219,064

200,000

192,884

Percentage of Net Sales

2002

2003

100,000
50,000

0

2003

10

0

0

2000

2001

2002

2003

2000

2001

2002

2003

2000

2001

Business Results

activities. In Japan, we are also working to expand

Demand for rolling stock in North America and Southeastand strengthen our bogie business and our parts andAsia continued strongly during the fiscal year. KHI received

maintenance services to increase their contributions tolarge-scale orders in these regions, including orders for R160

performance.

next-generation subway cars to be delivered to the New

Demand for construction machinery in Japan is currently

York City Transit Authority (NYCT) and track construction

flat. Overseas, the U.S. market is shrinking, but demand isfrom Taiwan High Speed Rail Corporation. In Japan, we won

expected to continue to be strong in the Middle East anda higher volume of orders than in the previous fiscal year

Africa. Currently, we are in the process of making full modelfrom Japan Railway companies and other railways. As achanges in our wheel loaders, and we are introducing a

consequence, orders in this segment amounted to ¥176.7

series of new, environmentally friendlier models featuringbillion, a significant gain of ¥94.1 billion, or 114.0%, fromsubstantially reduced exhaust emissions of harmful sub-the previous fiscal year. Net sales were up ¥43.0 billion, or

stances and lower noise output. Our strategy for con-35.3%, to ¥164.8 billion, reflecting an increase in the delivery

struction machinery will be to significantly improve theof subway cars for the NYCT and rolling stock for public

competitiveness of our products and draw on this com-and private railways in Japan. Operating income expanded

petitive edge to expand our market position globally.

¥5.0 billion, or 1,080.6%, to ¥5.5 billion.

KHI’s crushing machinery business operations are conducted primarily in Japan. Slackness in demand is expected

Outlook

to continue in this area, mainly because of cutbacks in pub-

The prospects for the three main businesses of this segment—

lic works investment by national and regional governments.

rolling stock, construction machinery, and crushing

In the environmental field, however, a number of laws aremachinery—are as follows.

being passed to promote recycling, and signs are emerging

In the rolling stock area, which is the largest businessthat these will likely stimulate private-sector demand. In

within this segment, demand in Japan is expected to be

April 2003, KHI and Kobe Steel established Earth Technica

stable, and, in North America and Southeast Asia, robust

as a 50-50 joint venture and merged the marketing anddemand is expected to continue. KHI began full-scale oper-

design departments of their crushing machinery businesses

ations at its new rolling stock plant in Lincoln, Nebraska,

into this new company. Discussions regarding the combina-

in April 2002, thus completing its network of three rollingtion of KHI’s and Kobe Steel’s crushing machinery manufac-

stock manufacturing facilities in Japan and North America.

turing operations are continuing. Our strategy in thisTo win increased orders from North America and Asia,

business will be to allocate resources to develop environ-

we are working to strengthen our marketing systems.

ment-related uses of crushing machinery and use Earth

Domestically, our strategy is to further upgrade our tech-Technica as a vehicle for improving the efficiency

nological capabilities and quality as well as respond flexiblyof these operations.

and meticulously to customer needs in our marketing11

Aerospace

T-4 intermediate jet trainer, the last T-4, the 212th
production, delivered to the Japan Defense Agency
BK117 C-2 type helicopter

Main Products & Businesses• T-4 intermediate jet trainers• Missiles• CH-47, OH-1, and BK117 helicopters• Electronic equipment• Component parts for Boeing 777 and 767 passenger airplanes• Space equipment• Component parts for Embraer 170 regional jet aircraft

Sales

Orders Received(Millions of yen)

(Millions of yen)

100,000

100,000

208,410150,000

195,447

200,000

203,688

163,023

151,641

150,000

161,939

154,848

161,072

136,343

150,000(Millions of yen)
250,000

200,000

172,32212.5%

Order Backlog

176,996

200,000

146,025

Percentage of Net Sales

100,000
50,00050,00050,000

0

2003

12

0

0

2000

2001

2002

2003

2000

2001

2002

2003

2000

2001

2002

2003

Business Results

smooth start of production. KHI is therefore placing the

KHI received the order as prime contractor for developing

highest priority on this project and moving forward with

the next-generation P-X and C-X aircraft from the JDA, in thestrict supervision of development activities and costs.

defense sector, and, as a result of this and other develop-

In the commercial aircraft business, mainly business withments, orders for the fiscal year rose ¥11.4 billion, or 7.5%,

Boeing, demand has declined because of the adverse effects

to ¥163.0 billion. Owing to the P-X and C-X orders, sales toof the slump in the airline industry following the terrorist

the JDA expanded, as development work on these new air-attacks in the United States, the Iraq conflict, and thecraft began. However, because of the weakness in the demand

spread of SARS.

for commercial aircraft following the terrorist attacks in the

KHI is also engaged in a joint development and produc-

United States, sales to private-sector aircraft companies,

tion project with Embraer of Brazil for the new Embraer

principally component parts of B767 and B777 aircraft to170, 190, and 195 regional jet aircraft. We are in charge of

The Boeing Company, have declined. Accordingly, net sales

the major wing sections, but, because this project is still infor the Aerospace segment amounted to ¥154.8 billion, rep-

the early stages, investment in development is still runningresenting a decline of ¥6.2 billion, or 3.9%, from the previ-

ahead of revenues. The plant for the final assembly of major

ous fiscal year. Operating income declined ¥7.8 billion, or

wing sections for the Embraer 195, located in the suburbs of

56.0%, to ¥6.1 billion, because of the decline in net sales

São Paulo, has been completed, and an opening ceremony

and unfavorable movements in exchange rates.

was held in April 2003. The plant will begin full-scale operations in the near future.

OutlookIn view of these circumstances, we believe conditions inJapan’s defense budget is expected to remain at current lev-the commercial aircraft business will continue to present

els for the time being. However, as a result of KHI’s receipt

challenges but, in the long term, high rates of growth willof the order as prime contractor for developing the P-X andresume. Our interim strategies are to enhance the efficiency

C-X from the JDA, development work on these two aircraftof our aerospace operations and systematically build a

is under way, and, as it proceeds, KHI is looking for growthstrong foundation for the future.

in its defense-related revenues. This project is of the utmost

In April 2003, KHI made NIPPI a wholly owned subsidiary

importance for KHI in developing the foundation for its

through an exchange of shares. We plan to work with NIPPI

future aerospace operations. As the prime contractor forto substantially increase the efficiency of development, pro-the joint development of these two aircraft, which is theduction, and maintenance operations in all aspects of KHI’s

first project of its kind in Japan, KHI is fully aware of theaerospace activities.

importance of completing development and making a

Embraer 170 regional jet aircraft13

Gas Turbines & Machinery

GPC07D cogeneration system
Natural gas compression module

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

Sales

Orders Received(Millions of yen)

(Millions of yen)

(Millions of yen)

150,000

204,819

157,802

158,662200,000

170,262

100,000

167,812

181,043

171,586

152,307

153,681

100,000

150,000

213,228250,000

200,000

14.6%
150,000

Order Backlog

188,074

200,000

145,157

Percentage of Net Sales

100,000
50,00050,000

0

2003

14

50,000

0

0

2000

2001

2002

2003

2000

2001

2002

2003

2000

2001

2002

2003

Business Results

previous fiscal year. With the introduction of the L20A, a

In fiscal 2003, demand for gas turbines in Japan declined

20MW-class gas turbine power generator, which was devel-

along with cutbacks in telecommunications and IT invest-

oped with KHI’s proprietary technology, we have completedment, lower demand for new office building equipment ina KHI-made lineup of gas turbine power generators up tourban areas, and the negative impact of reduced electric

20MW. We plan to continue to draw on our in-house devel-

power rates on demand for distributed power sources. In

opment strengths and enhance our business by extending

the market for commercial aircraft jet engines, worldwide

our maintenance and other services to provide total life

demand remained sluggish in the aftermath of the terrorist

cycle support for our products.

attacks in the United States. In contrast, in the machinery

Overseas, in December 2002, KHI signed a distribution

business, demand for steam turbine engines for oceangoing

agreement with Cummins Power Generation, a businessvessels was vibrant, owing to rising demand for LNG carri-

unit of Cummins, Inc., of the United States, to promote KHI’s

ers. Amid this environment, the Gas Turbines & Machineryindustrial gas turbine generators in North America. In ad-

segment won orders of ¥157.8 billion, virtually the same asdition, recently we delivered a cogeneration system tofor the previous fiscal year. Net sales climbed ¥9.5 billion,

Putrajaya, the new administrative city of Malaysia, after it

or 5.5%, to ¥181.0 billion, bolstered by increased deliveries

was packaged in Malaysia jointly by our local subsidiaryof marine steam turbine engines for ships and higher sales

and a Malaysian dealer. Our strategy will be to continueof industrial hydraulic equipment. Operating income also

to aggressively develop business activities in over-increased ¥0.7 billion, or 12.0%, to ¥6.1 billion.

seas markets.
In our machinery business, we plan to increase sales by

Outlook

expanding our core products: large-scale diesel engines

Gas turbine power generators are environmentally friendly

and propulsion systems for ships, equipment used in theand offer high overall thermal efficiency, including heat andexpanding LNG-related field such as steam turbine engines

electricity that are likely to make them a superior choice forfor LNG carriers and offshore gas compression modules,

energy supply in the 21st century. As demand for use ofand steam turbines for power generators, includingthese generators as distributed power sources rises, steady

top-pressure recovery turbine plants for blast furnaces.

growth in demand for these units is expected in the long

Our industrial hydraulic equipment activities were

term in Japan and overseas. Therefore, we are actively

set up as a wholly owned subsidiary, Kawasaki Precision

working to further the development of our gas turbine

Machinery Ltd., in October 2002. This new organizational

power generator business with an eye to the medium- toarrangement is expected to offer greater flexibility inlong-term prospects for this business area despite ourmanaging these operations, and the new company will

anticipation that conditions in the domestic market forwork to enhance the efficiency of its activities.

gas turbines in fiscal 2004 will be similar to those in the15

Plant & Infrastructure Engineering

Refuse-derived fuel power generation plant for
Omuta Recycle Power Co., Ltd.
Refuse paper & plastic fuel power generation
plant for Yoshinaga Plant, Daishowa Paper Mfg.
Co., Ltd.

Main Products & Businesses• Steelmaking, cement, chemical, and other industrial plants• Bridges• Power plants• LNG and LPG tanks• Municipal refuse incineration plants• Shield machines and tunnel boring machines

Sales

Orders Received(Millions of yen)

(Millions of yen)

100,000
50,000

16

0

0

2000

2001

2002

2003

403,612

100,000

50,0000

2003

200,000

327,911

100,000

300,000

347,496

150,000

400,000
208,268

200,000

160,143

219,092

250,000

254,330

150,000

220,605

181,174

200,000(Millions of yen)
500,000

300,000
245,64217.7%

Order Backlog

327,442250,000

209,574

Percentage of Net Sales

2000

2001

2002

2003

2000

2001

2002

2003

Business Results

The impact of cutbacks in public works investment has

The domestic markets for industrial plants and electric

had an especially strong impact on KHI’s steel structures

power facilities remained slack during fiscal 2003, but over-business, and a review of production systems is under way.

seas there were signs of recovery, principally in Southeast

Following the closure of the Chiba Works and Sodegaura

Asia, the Middle East, and Latin America. In the environ-Works in fiscal 2001, KHI decided to close the Noda Works

mental plant and steel structures businesses, demandat the end of September 2003 and shift all production activi-

remained lackluster in Japan, which is this business’s princi-ties for steel structures to the Harima Works. Also, in thepal market. In these conditions, KHI won a number of major

steelmaking plant engineering business, an agreement wasorders, including municipal refuse incineration plants, anreached to consolidate all of KHI’s operations in JP Steelammonia and fertilizer plant in Iran, and baggage-handling

Plantech Co. (JSP), and, as the first step, the sales depart-systems for the new airport in Bangkok, Thailand. As ament was shifted to JSP in April 2003. Going forward, we areresult, orders of this segment amounted to ¥208.3 billion,

scheduled to decide the details of consolidating the engi-

an increase of ¥48.1 billion, or 30.1%, from the previous fis-neering division of KHI with JSP by April 2004.

cal year. Sales of the electric power plant business rose

In the domestic market, the Renewables Portfolio

owing to the boost provided by a combined cycle power

Standard Law went into effect in April 2003, and, due to theplant for Brazil, but, as a result of a drop in sales of refusecombination of movements to strengthen the legal basis forincineration plants in the environmental plant business, net

requiring producers to accept greater responsibility andsales of this segment declined ¥1.5 billion, or 0.7%, to ¥219.1

the growing awareness of environmental issues, signs ofbillion. Although strong efforts were made to ensure prof-

growing demand in the new energy and environmental

itability in the severe operating environment, a number offields are emerging. These include rising interest in wind

low-margin projects remained, resulting in an increase inpower generation, photovoltaic systems, power-generating

operating loss of ¥3.6 billion to a loss of ¥4.2 billion.

systems using biomass as a source of energy, and generating power from waste materials. Overseas, we expect that

Outlook

the rising trend in demand for electric power plants andThis segment will continue to face a challenging environ-cement plants will continue. The strategy of the segment

ment as a result of stagnation in private-sector capitalwill be to increase efficiency through thoroughgoing struc-investment and reductions in public works investment. In

tural reforms combined with expansion of activities in busi-

response, initiatives are continuing to reduce fixed costs bynesses where growth is anticipated.

lowering head count and other costs with the aim of lowering the segment’s breakeven point.

17

Consumer Products & Machinery

Z1000

KFX700 V Force
Percentage of Net Sales

Sales(Millions of yen)

• Motorcycles
400,000• ATVs (All-Terrain Vehicles)• Brush cutters
200,000• Transmissions

281,207300,000

2000

2001

2002

318,025

25.6%• General-purpose gasoline engines

275,903• Jet Ski® watercraft

277,176

Main Products & Businesses• Industrial robots
100,000

0

2003

18

2003

Business Results

Outlook

Total unit sales for motorcycles, ATVs, personal watercraft,

To increase product competitiveness in this segment, weand other consumer products in both the domestic andare bolstering our marketing activities and strengthening

U.S. markets were buoyant during the first half of the fiscal

our new product development systems. We are also work-year under review, but growth slackened in the second.

ing to improve our cost-competitiveness, and, through ourMotorcycle sales in Europe showed a further slight decline

tie-up with Suzuki Motor, we are working to substantiallyfollowing on the decrease in fiscal 2001. Demand for indus-

improve profitability by engaging in mutual OEM supply

trial robots from the automotive industry overseas wasarrangements for motorcycles and ATVs, using common

firm. Under these conditions, Kawasaki’s sales of motorcy-

components, and conducting joint procurement operations.

cles, ATVs, and industrial robots in the U.S. market expanded, and sales in Europe and Japan recovered. As a result,net sales of the segment amounted to ¥318.0 billion, representing a ¥36.8 billion, or 13.1%, gain over the previous fiscal year. Operating income posted a rise of ¥8.2 billion, or
158.7%, to ¥13.4 billion, owing to a combination of higher
sales, lower costs, and reduced sales promotion expenses
for new-model motorcycles.

New Models

Motor Sports

We take pride in the principal new models introduced in fiscal

In April 2003, Kawasaki returned to the MotoGP class of the FIM

2003. In the motorcycle business, we renewed the Ninja ZX-6R(Fédération Internationale de Motocyclisme) Road Racing

600cc Super Sports model which is currently popular in the U.S.

World Championship, the world’s top international road-racing

and European markets and introduced the Super Naked Z1000,

series, with a lime-green factory machine, the Ninja ZX-RR.

which, although a naked model (a basic model with a choice ofaero- and other parts), comes close to superbike sports performance. Also, in the cruiser category, we began to market the
VULCAN1600 CLASSIC, which, with a displacement of 1,600cc, isthe largest in our motorcycle lineup. In the domestic market, we
introduced a minibike, the KSR110. Among ATVs, we brought
out the KFX700 V FORCE sports model with a V-twin 700cc engine,which is the most powerful we have introduced thus far, featuring a more comfortable ride because of its continuously variable transmission. In the Jet Ski ® watercraft field, we introduced
a new high-performance model, the Jet Ski STX-12F, with a newly
developed 1,200cc four-stroke engine on board that achieves
high power output together with low noise and gas emission
levels. In the industrial robot area, we began marketing of the
M Series, which has three models capable of lifting a maximumof 500kg, and the KF Series for explosion-proof painting robots,
which consists of six models.
19

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

Millions of yen
2003

2002

2001

2000

1999

1998

¥1,144,534¥1,060,479¥1,149,698¥1,202,189¥1,297,212

Operating results:
Net sales.......................................................... ¥1,239,598
Cost of sales....................................................

1,069,341

977,875

924,522

1,008,860

1,045,143

1,114,693

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

170,257

166,659

135,957

140,838

157,046

182,519

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

139,714135,348

131,497

139,587

135,380

131,440

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

30,54331,311

4,460

1,251

21,66651,079Net income (loss)...........................................

13,022

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

18,556

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

35,16533,132

32,687

39,68542,14335,030Depreciation and amortization ....................

31,59531,99833,30335,081

34,60732,416R&D expenses.................................................

15,494

16,54917,54819,905

18,61517,800Working capital .............................................. ¥ 137,771¥ 150,114¥ 148,577¥ 188,403¥ 161,712¥ 162,084

Selling, general and

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

243,352

241,517

241,893245,278

244,866

242,435

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

1,149,161

1,255,075

1,247,472

1,206,806

1,204,857

1,222,906

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

226,936

248,170

270,605

264,048

208,763

198,135

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

174,585

167,731

164,081

174,955

199,637

209,040¥¥

4.5¥ (7.4)¥ (13.4)¥ (4.4)¥ 13.3

4.4

—

—

—

12.0

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

9.3
8.8

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

2.0

—

—

—

6.0

6.0

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

125.6

120.6

118.0

125.8

143.6

150.3

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

1,391

1,391

1,391

1,391

1,391

1,391

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

28,64228,93629,162

29,772

26,486

26,102

Orders received .............................................

1,227,449

1,034,771

1,273,686

1,071,104

N.A.

N.A.

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

1,175,563

1,240,439

1,320,894

1,072,645

N.A.

N.A.

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

20

Management’s Discussion and Analysis

OVERVIEW

sales increased 8.3%, or ¥95.1 billion, tosales of the Shipbuilding; Rolling Stock,

During fiscal 2003, ended March 31,¥1,239.6 billion, owing to expansion inConstruction Machinery & Crushing

2003, the performance of the Japanesesales in the Shipbuilding; Rolling Stock,

Plant; and Consumer Products &economy was lackluster, owing to a

Construction Machinery & Crushing

Machinery segments contributed espe-

range of factors, including continued

Plant; and Consumer Products &cially to this gain in net sales. Overseas

restraints on public works spending

Machinery segments. Turning to prof-sales posted a gain of 7.9%, or ¥39.3 bil-and little progress toward recovery,

itability, as a result of various measureslion, to ¥535.3 billion, because of robustin part because of the persistence of

to build a stable earnings base, operat-

performance in the United States andnonperforming loan problems in theing income amounted to ¥30.5 billion, aEurope. The ratio of overseas sales tobanking sector. Other circumstancesslight decline of 2.5%, or ¥0.8 billion

overall net sales fell 0.1 percentage

contributing to weak economic perfor-

from the previous year. Net income

point, to 43.2%.

mance included stagnation in consumerrose ¥6.7 billion, or 107.3%, to ¥13.0 bil-spending, caused by a high rate of unem-

lion, including gains from the sale of

The following paragraphs provide

ployment and virtually zero growth in

fixed assets of ¥3.3 billion and restruc-additional details on performance byincomes, and the absence of recovery

turing expenses of ¥3.2 billion related

business segment. Operating income

in private-sector capital investment.

to consolidation of factories for theor loss includes intersegment

steel structures business.

transactions.

Amid these economic conditions,
Kawasaki Heavy Industries, Ltd. (theRegarding financial position, free cash

“Company”), and its consolidated sub-flow was positive for the fiscal year for

Shipbuilding

sidiaries (collectively, the “Group”)

the second consecutive year, and KHI

As a result of winning orders for 12

implemented an aggressive marketingused this additional cash flow to repay

ships, namely four LPG carriers, threeprogram, and new orders expanded

a portion of its interest-bearing debt and

LNG carriers, and five bulk carriers,

18.6%, or ¥192.7 billion, to ¥1,227.4 bil-

thereby improve its debt-to-equity ratio.

new orders amounted to ¥110.9 billion,

lion, led principally by the Rolling

an increase of 4.5%, or ¥4.8 billion, over

Stock, Construction Machinery &RESULTS OF OPERATIONS

Crushing Plant segment and the Plant

Net Sales& Infrastructure Engineering segment,

As mentioned previously, consolidatedor ¥13.0 billion, to ¥105.5 billion, as

both of which received large-scale

net sales were up 8.3%, or ¥95.1 billion,

a consequence of higher sales of new-orders. Moreover, consolidated net

to ¥1,239.6 billion. Expansion in thebuildings. However, operating income

the previous fiscal year.
Sales in this segment climbed 14.0%,

Net Sales

Sales by Segment(Billions of yen)(%)

Net Income (Loss)(Billions of yen)
20

1,500
7.8

8.5

1,239.6

10
6.3

5
25.6

-5

(10.3)

0
12.5

600

(6.1)

1,144.5

1,060.5

1,149.7

1,202.2

900

13.3

13.0

15
1,200

17.7

14.6

(18.6)

-10
300

-15
-20

0

1999

2000

2001

2002

1999

2003

2000

2001

2002

2003

Shipbuilding
Rolling Stock, Construction
Machinery & Crushing Plant
Aerospace
Gas Turbines & Machinery
Plant & Infrastructure Engineering
Consumer Products & Machinery
Others21

was down 74.6%, or ¥4.1 billion, to ¥1.4

Aerospacemedium-sized gas turbine electric powerbillion, mainly because of the adverse

As a result of the receipt of the man-generators, steam turbine engines

impact of movements in foreign

date from the Japan Defense Agency

for ships, and components for private-exchange rates.

(JDA) to be the prime contractor for

sector aircraft engines, including thedeveloping the P-X and C-X aircraft andV2500 and Trent. As a consequence,

Rolling Stock, Construction

other developments, new orders roseorders were down 0.5%, or ¥0.9 billion,

Machinery & Crushing Plant

7.5%, or ¥11.4 billion, to ¥163.0 billion.

to ¥157.8 billion.

Orders received leaped 114.0%, or

Overall sales of the segment, how-

Sales expanded 5.5%, or ¥9.5 billion,¥94.1 billion, to ¥176.7 billion. This sub-ever, slipped 3.9%, or ¥6.2 billion, toto ¥181.0 billion, owing to deliveries ofstantial rise was due to a combination of¥154.8 billion. This was due to a drop

steam turbine engines for ships andincreases in orders obtained for rollingin orders for aircraft components fromhigher sales in the hydraulic machinery

stock from Japan Railway companies

Boeing because of the continuing lower

business. Operating income posted

and other domestic railway enterprises

demand for these products stemminga gain of 12.0%, or ¥0.7 billion, toand the receipt of major orders fromfrom the terrorist attacks in the United¥6.1 billion.

overseas, principally orders for R160

States. This decline more than offset

next-generation subway cars from thethe increase in sales to the JDA in

Plant & Infrastructure Engineering

New York City Transit Authority (NYCT)

connection with the commencement

Orders climbed 30.1%, or ¥48.1 billion,

and orders for track construction fromof development of the P-X and C-X.

to ¥208.3 billion, boosted by large-

Taiwan High Speed Rail Corporation.

Operating income fell 56.0%, or ¥7.8 bil-scale orders such as municipal refuse

lion, to ¥6.1 billion, because of theincineration plants, an ammonia andto ¥164.8 billion, mainly as a result of

decline in sales and the adverse effects

fertilizer plant from Iran, and the bag-deliveries of rolling stock to privateof movements in foreign exchange rates.

gage-handling systems for the newSales climbed 35.3%, or ¥43.0 billion,

and public railways in Japan and sub-airport in Bangkok, Thailand.

way cars to the NYCT. Operating

Gas Turbines & Machinery

income rebounded 1,080.6%, or ¥5.0 bil-

Orders won during the fiscal year

were down 0.7%, or ¥1.5 billion, tolion, to ¥5.5 billion.

included those for helicopter engines¥219.1 billion. Sales of municipal refuse

and marine diesel engines from theincineration plants to local governments

JDA as well as orders from customers

in Japan declined, but the segment

in Japan and overseas for small toreported revenues from a combined

Net Income (Loss)
per Share

Sales for the segment as a whole

Working Capital

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

(Yen)

2001

2002

1,149.2

1,255.1

2000

1,247.5

137.8

150.1

1999

50
300

(13.4)

-9
-12

0

0

-15

1999

22

1,206.8

-6

900

600

(7.4)

-3

1,200

100

(4.4)

0

4.5

3

150

148.6

6

188.4

9.3

9

161.7

12

1,204.9

1,500

200

15

2000

2001

2002

2003

1999

2000

2001

2002

2003

2003

cycle power plant delivered to Brazil.

The following paragraphs summarize

operating loss of ¥3.3 billion in the

Although strong efforts were made toperformance by geographic segment.

previous fiscal year.

ating environment, a number of low-

Japan

Asia

margin projects remained, resulting inSales in Japan amounted to ¥907.2 bil-

Although sales in Asia declined ¥1.4 bil-an increase in operating loss of ¥3.6 bil-lion, ¥38.4 billion, or 4.4%, higher thanlion, or 6.8%, to ¥19.1 billion, sales oflion to a loss of ¥4.2 billion.

for the previous fiscal year, as a result

motorcycles, the region’s main busi-

of increases mainly in the rolling stock

ness, remained brisk. Operating income

Consumer Products & Machinery

division of the Company. Operatingwas ¥0.9 billion, up ¥0.2 billion or 32.8%

Sales of this segment moved up 13.1%,

income declined ¥5.3 billion, or 17.0%,

from the previous fiscal year.

or ¥36.8 billion, to ¥318.0 billion, as

to ¥26.0 billion.

ensure profitability in the severe oper-

Other Areas

sales of motorcycles, ATVs, and industrial robots increased in the U.S.

North America

Sales increased ¥0.5 billion, or 14.7%, toand recovered in Europe and Japan.

Sales in North America expanded ¥47.7¥4.2 billion, as compared to the previ-

Operating income posted a robust gain

billion, or 23.3%, to ¥252.2 billion, sup-ous fiscal year. Operating income climbedof 158.7%, or ¥8.2 billion, to ¥13.4 bil-

ported by higher revenue of the rolling

59.7%, to ¥0.1 billion. The principal

lion, owing to a combination of higher

stock manufacturing subsidiary andcountry in this segment is Australia.

sales, lower costs, and reduced sales

sales subsidiaries for consumer prod-

promotion expenses mainly for new

ucts. Operating income was ¥3.6 billion,

Costs, Expenses, and Earnings

model motorcycles.

¥1.5 billion, or 29.1%, lower than for the

Cost of sales was 9.4% higher than inprevious fiscal year.

the previous fiscal year, amounting to¥1,069.3 billion. As a consequence,

Other
Orders in this segment fell 1.8%, or ¥1.7

Europegross profit increased 2.2%, to ¥170.3

billion, to ¥92.7 billion. Sales edged up

Owing to the robust performance of abillion, and the gross profit margin fell

0.6%, or ¥0.6 billion, to ¥96.4 billion,

consumer product sales subsidiary in

0.9 percentage point from 14.6% in theand operating income increased 12.7%,

Europe, sales of this geographic seg-previous fiscal year to 13.7% in the fis-or ¥0.2 billion, to ¥1.9 billion.

ment rose ¥9.8 billion, or 20.9%, tocal year under review.

¥56.9 billion. Operating income was¥0.6 billion, compared with an

Total Shareholders’EquityTotal Shareholders’Equity per Share

(Billions of yen)

(Yen)

(%)

10

200

250

Return on Equity

7.6

8
6

(6.1)

0
-2

100

3.8

2
(3.0)

125.6

120.6

118.0

100

4
125.8

143.6

174.6

167.7

164.1

150

150
175.0

199.6

200

-4
50
(9.9)

-6

50

-8
-10

0

0

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

1999

2000

2001

2002

2003

23

Selling, general and administrative

The ratio of the provision for income
taxes to income before income taxes

Total assets at the end of the fiscal year

somewhat faster rate of climb than in

dropped substantially from 57.8% inwere down 8.4%, or ¥105.9 billion fromgross profit—to ¥139.7 billion. As athe previous fiscal year to 22.3%, signif-

the previous fiscal year-end,to ¥1,149.2

consequence, operating income fell a

icantly lower than the statutory tax

billion. The drop in current assets, whichslight 2.5%, or ¥30.5 billion. The operat-

rate of approximately 41.9%. The prin-amounted to ¥74.7 billion, accounted

ing income margin declined 0.2 per-cipal factors accounting for this diver-for about 70% of this decline and was

centage point, from 2.7% in thegence were nontaxable revenues anddue primarily to lower cash on handprevious fiscal year to 2.5%.

the recognition of the tax effect of unre-

and in banks and inventories. The de-Other income and expenses for fiscal

alized intercompany profit in the previ-

crease in property, plant and equip-

2003 amounted to expenses of ¥13.3 bil-ous year. These items alone resulted inment was a relatively small ¥7.2 billion,

lion, an improvement of ¥2.0 billion

a reduction of the effective tax rate to

but the decline in investments in secu-

from expenses of ¥15.3 billion in the

17.0%. As a result of these various fac-rities was ¥29.1 billion and was the sec-

previous fiscal year. Reasons for thetors, after deduction of minority inter-ond largest factor accounting for the

improvement included the absence ofests, net income amounted to ¥13.0

decrease in assets.

write-downs of securities amounting tobillion, representing an increase of

On the other hand, liabilities were

¥3.9 billion reported for the previous

107.3%, or more than twice the level

down 10.5%, or ¥113.2 billion, to ¥969.0

fiscal year, a gain from the establish-of the previous fiscal year. As a conse-

billion. Of this total decrease, thement of an employee severance benefit

quence, the ratio of net income to net

decline in current liabilities was ¥62.4

trust of ¥1.9 billion, a decline of ¥1.9 bil-sales moved up 0.6 percentage point,billion and the drop in long-term liabili-

lion in foreign exchange losses, and anfrom 0.5% to 1.1%. ROE improved 3.8

ties amounted to ¥50.8 billion. One of

improvement of ¥1.7 billion in net inter-

percentage points, from 3.8% to 7.6%.

the most important developments inest expense. Factors adversely affecting

the current and long-term liability

other income and expenses were a

Capital expenditures for the fiscal year

accounts was the decrease in short-decline of ¥3.3 billion in gain on sales ofamounted to ¥35.2 billion, compared

and long-term borrowings and bonds,

property, plant and equipment andwith ¥33.1 billion for the previous fiscal

which amounted to an overall drop in

newly posted business restructuring

year, and R&D expenses were ¥15.5 bil-interest-bearing debt of 12.8%, or ¥63.1

expenses of ¥3.2 billion. Therefore,

lion, versus ¥16.5 billion for the priorbillion, to ¥428.2 billion. Among other

other income and expenses posted anyear, both including expenses for im-

liability accounts the employees’ retire-

improvement of ¥2.0 billion compared

provements in products of the Con-

ment and severance benefit reservewith the previous fiscal year. As a con-sumer Products & Machinery segment.

declined ¥25.4 billion.

sequence, income before income taxes
and minority interests showed a gain of
7.7%, to ¥17.2 billion.

24

Financial Condition(SG&A) expenses were up 3.2%—a

Please note that because the decline

hand, because the decline in trade

Dividends

in current assets virtually matched thereceivables was a greater decrease in

The Company’s policy is to pay stable

drop in current liabilities, the current

the previous year and owing to lower

cash dividends to its shareholders, giv-

ratio remained fundamentally the same

trade payables and advances received

ing due attention to increasing retained

at 120.0%.

than in the prior fiscal year, net cash

earnings in order to strengthen andShareholders’ equity rose 4.1%, or

provided by operating activities was

expand its business foundation for¥6.9 billion, to ¥174.6 billion. Although¥4.0 billion lower than in fiscal 2002.

future growth.

the deduction for foreign currency

Net cash used in investing activities

In accordance with this policy, as thetranslation adjustments was ¥3.8 billion

amounted to ¥26.8 billion, versus ¥28.1

Company reported net income for fiscal

higher than in the previous fiscal year,

billion for fiscal 2002. Acquisition of

2003—a second consecutive year—and

this was offset by the increase inproperty, plant and equipment

after taking into account the level of net

retained earnings, reflecting the net

accounted for the largest portion ofincome and the operating environment,

income for the year.

these cash outlays. Free cash flow,

management proposed and received

which is the net amount of cash fromapproval from shareholders for the

decline in total assets and the increase

operating and investing activities,

resumption of cash dividend payments

in shareholders’ equity, the sharehold-amounted to an inflow of ¥29.9 billionof ¥2 per share for fiscal 2003.

ers’ equity ratio moved up 1.8 percent-for fiscal 2003.

As a result of the combination of theage points, from 13.4% to 15.2%. The

Net cash used in financing activities

debt-to-equity ratio declined signifi-

amounted to ¥59.6 billion, comparedcantly from 292.9% at the prior fiscal

with ¥18.6 billion in fiscal 2002. Most of

year-end to 245.3% at fiscal 2003

this increase in outlay was due to theyear-end.

repayment of long- and short-term
debt. Although ¥34.1 billion in proceeds

Cash Flows

from long-term debt was reported for

During fiscal 2003, net cash provided

fiscal 2003, the net decrease in short-by operating activities amounted toterm borrowings plus the repayment of¥56.8 billion. Income before income

long-term debt amounted to ¥93.6 bil-taxes and minority interests expanded,lion.

as noted previously, and depreciation

As a result of these cash flows, cash

was at virtually the same level as forand cash equivalents at the end of fis-the previous fiscal year. In addition, thecal 2003 amounted to ¥59.8 billion, rep-decline in inventories contributed sig-

resenting a decline of ¥29.9 billion

nificantly to net cash provided byduring of the year.

operating activities, but, on the other25

Consolidated Balance Sheets
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
As of March 31, 2003 and 2002

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

ASSETS

2003

2002

2003

Current assets:
Cash on hand and in banks....................................................................................... ¥61,185¥91,344$ 509,027

Receivables (Note 5):
Trade........................................................................................................................

380,545389,987

3,165,932

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

17,69812,821

147,238

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

(5,176)(5,893)(43,062)

393,067

396,915

3,270,108

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

342,387

372,269

2,848,478

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

18,423

16,994

153,270

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

12,90025,149107,320

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

827,962

902,6716,888,203

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

52,146

81,222433,827

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

3,830

3,965

31,864

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

14,812

15,361

123,227

Investments and long-term loans:

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

(5,044)(5,150)(41,963)

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

65,744

95,398546,955

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

53,43054,116444,509

Buildings......................................................................................................................

257,088

251,165

2,138,835

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

444,124

460,128

3,694,875

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

6,468

8,744

53,811

761,110774,153

6,332,030

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

(526,758)(532,636)(4,382,346)

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

234,352

241,517

1,949,684

10,765

4,917

89,559Intangible and other assets:
Deferred tax assets (Note 12) ...................................................................................
Intangible and other assets.......................................................................................

26

10,338

10,57286,007

21,103

15,489175,566

Total assets................................................................................................................. ¥1,149,161¥1,255,075$9,560,408

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

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

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2003

2002

2003

¥ 243,113$1,674,276

Current liabilities:
Short-term borrowings and current portionof long-term debt (Note 5) ...................................................................................... ¥ 201,248
Trade payables (Note 5)............................................................................................

294,769

325,664

2,452,321

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

100,829

111,423

838,844

Accrued income taxes (Note 12)..............................................................................

7,560

3,347

62,895

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

19,54018,954

162,562

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

2,303

2,479

19,160

Provision for restructuring charges (Note 2 (q)) ..................................................

2,260

—

18,802

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

832

80

6,922

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

284

321

2,363

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

60,56647,176

503,877

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

690,191

752,557

5,742,022

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

226,936

248,170

1,887,987

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

41,35066,770344,010and severance benefits............................................................................................

1,018

1,042

8,469

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

2,825

4,338

23,502Other............................................................................................................................

6,665

9,284

55,450Total long-term liabilities ......................................................................................

278,794

329,604

2,319,418

5,591

5,183

46,514

1,390,595,964 shares in 2002 ..................................................................

81,42781,427

677,429

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

24,683

24,682

205,349

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

77,06964,110641,173

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

3,671

5,925

30,541

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

(12,225)(8,407)(101,705)

Long-term liabilities:

Directors’ and statutory auditors’ retirement

Contingent liabilities (Note 8)
Minority interests..............................................................................................................
Shareholders’ equity (Note 9):
Common stock:
Authorized—3,360,000,000 shares
Issued—1,390,597,636 shares in 2003

Treasury stock—233,954 shares in 2003
25,623 shares in 2002 ................................................................

(40)

(6)

(333)

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

174,585

167,731

1,452,454

Total liabilities, minority interests and shareholders’ equity.......................... ¥1,149,161¥1,255,075$9,560,408
27

Consolidated Statements of Operations
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2003, 2002 and 2001

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

Net sales .................................................................................................. ¥1,239,598

2002

2001

2003

¥1,144,534¥1,060,479$10,312,795

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

1,069,341

977,875

924,522

8,896,348

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

170,257

166,659

135,957

1,416,447

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

139,714135,348

131,497

1,162,346

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

30,54331,311

4,460

254,101

4,684

4,798

4,480

38,968subsidiaries and affiliates............................................................

(467)

379

(1,586)(3,885)Interest expense .............................................................................

(10,291)(12,146)(12,779)(85,616)

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

(7,241)(8,348)(12,981)(60,240)

17,22815,994(18,406)

143,328

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

(11,395)(6,114)(5,609)(94,800)

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

7,555(3,131)

13,30962,853of consolidated subsidiaries .............................................................

(366)

(467)

386

(3,045)

Net income (loss) ................................................................................... ¥13,022Other income (expenses):
Interest and dividend income.......................................................
Equity in income (loss) of non-consolidated

Income (loss) before income taxes
and minority interests .............................................................
Income taxes (Note 12):

Minority interests in net loss ( income)
¥

6,282

¥

(10,320)$

108,336

U.S. dollars(Note 1)Yen

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

¥9.3

¥4.5

¥(7.4)$0.08)Net income—diluted ......................................................................

8.8

4.4

—

0.07)

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

2.0

—

—

0.02

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

28

Consolidated Statements of Shareholders’ Equity
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2003, 2002 and 2001

Thousands

Balance at March 31, 2000 .....................................................
Net loss for the year .......................................................
Adjustment for changes of interests in affiliates
accounted for by the equity method .........................
Adjustments from translation of foreign currency
financial statements............................................................
Adoption of new accounting standard
for financial instruments .............................................
Treasury stock ................................................................
Bonuses to directors and statutory auditors .............
Balance at March 31, 2001 .....................................................
Net income for the year .................................................
Adjustment for changes of interests in affiliates
accounted for by the equity method .........................
Adjustments from translation of foreign currency
financial statements............................................................
Decrease in net unrealized gains on securities .........
Treasury stock purchased ............................................
Bonuses to directors and statutory auditors .............
Balance at March 31, 2002 .....................................................
Net income for the year .................................................
Adjustments from translation of foreign currency
financial statements............................................................
Decrease in net unrealized gains on securities .........
Treasury stock purchased ............................................
Conversion of convertible bonds .................................
Bonuses to directors and statutory auditors .............
Balance at March 31, 2003 ...................................................

Millions of yen

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

1,390,596—¥ 81,427—¥ 24,682—¥ 68,846(10,320)

—

—

—

(17)

—

—

—

—
—
—
1,390,596————
81,427——Net
unrealized
gains onsecurities

Foreigncurrencytranslation
adjustments

¥

¥

—
—

Treasury
stock

—
—

¥ —
—

—

—

—

—

—

(13,571)————
24,682———(57)
58,452
6,282

13,091——
13,091————(13,571)
—

—
—
—
—
—

—

—

(575)

—

—

—

—
—
—
—
1,390,596
—

—
—
—
—
81,427—————
24,682
—

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

5,164
—
—
—
(8,407)
—

—
—
(6)
—
(6)
—

—
—
—
2
—
1,390,598

—
—
—
—
—
¥81,427———
1—¥24,683

—
—
—
—
(63)
¥77,069—(2,254)———¥ 3,671(3,818)————¥(12,225)

—
—
(34)
—
—
¥(40)

Thousands of U.S. dollars (Note 1)

Balance at March 31, 2002 .............................................................................. $ 677,429
Net income for the year ..........................................................................
—
Adjustment from translation of foreign currency
financial statements................................................................................
—
Decrease in net unrealized gains on securities ...................................
—
Treasury stock purchased .....................................................................
—
Conversion of convertible bonds ..........................................................
—
Bonuses to directors and statutory auditors ......................................
—
Balance at March 31, 2003 ............................................................................ $677,429$ 205,345—$ 533,361
108,336$ 49,293—$ (69,942)—$ (50)————
4—$205,349

—
—
—
—
(524)
$641,173—(31,763)(18,752)
—
—
—
—
—
—
—
$30,541 $(101,705)

—
—
(283)
—
—
$(333)

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

29

Consolidated Statements of Cash Flows
Kawasaki Heavy Industries, Ltd. and Consolidated Subsidiaries
For the three years ended March 31, 2003, 2002 and 2001

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2002

2001

2003

¥15,994¥(18,406)$143,328

33,303262,854

Cash flows from operating activities:
Income (loss) before income taxes and minority interests....................... ¥17,228
Adjustments to reconcile net income (loss) before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization..................................................................

31,59531,998Provision for (reversal of) retirement and severance benefits ................

1,955

10,182(634)

16,264

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

(718)

1,794

(1,380)(5,973)752(6,517)

6,190

6,256

Provision for (reversal of provision for) losses
on construction contracts .......................................................................
Provision for restructuring charges .........................................................

2,260

—

—

18,802

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

1,156

—

—

9,617

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

910

3,904

5,714

7,571

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

—

649

—

—

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

(954)

(109)

(4,975)(7,937)

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

(2,053)(5,047)—(17,080)(1,902)——(15,824)

Gain on contribution of securities
to employee retirement benefit trust .....................................................
Interest and dividend income....................................................................

(4,684)(4,798)(4,480)(38,968)

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

10,291

12,146

12,77985,616

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

3,736

38,986(11,850)

31,081Inventories ...........................................................................................

24,835(18,809)(23,480)

206,614

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

8,956(3,972)(441)

74,509Trade payables .................................................................................... (26,738)(9,972)

9,092(222,446)

Advances received .............................................................................. (10,646)

6,970

17,384(88,569)

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

604

3,479

(3,995)

5,025

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

13,147(3,583)

1,977

109,376

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

(576)

(111)

520

(4,792)

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

69,15473,184

17,318575,324

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

Increase (decrease) in:

4,221

4,730

5,447

35,117

Cash paid for interest ..................................................................................... (10,120)(11,401)(11,636)(84,193)

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

(6,485)(5,720)(1,893)(53,952)

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

56,77060,793

9,236

472,296(Continues to next page)30

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

2003

2002

2003

2001

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

221

289

—

1,839

Acquisition of property, plant and equipment............................................ (31,349)(31,406)(32,967)(260,807)

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

8,428

10,677—

70,116

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

(2,208)(2,904)—(18,369)

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

40

133

—

333

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

(4,240)(6,595)—(35,274)

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

2,643

205

10,673

21,988Decrease (increase) in short-term loans receivable..................................

(179)

368

1,415

(1,489)Additions to long-term loans receivable ......................................................

(1,805)(2,086)(1,693)(15,017)

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

762

3,157

3,241

6,339

Payment for purchase of newly consolidated
subsidiaries’ stock ........................................................................................

——(2,375)—

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

860

93

973

7,155

Net cash used for investing activities........................................................... (26,827)(28,089)(20,733)(223,186)

Cash flows from financing activities:
Increase (decrease) in short-term borrowings ........................................... (53,048)

837

1,497

(441,331)

34,12912,93940,840283,935

Repayment of long-term debt ........................................................................ (40,579)(32,303)(38,689)(337,596)

—

—

(17)

Proceeds from long-term debt.......................................................................
Acquisition of treasury stock ........................................................................

(2)

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

(2)

(5)

(9)

(17)

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

(99)

(56)

(56)

(823)

Net cash provided by (used for) financing activities ................................. (59,601)(18,588)3,583(495,849)

(282)

449

966

(2,346)

Net increase (decrease) in cash and cash equivalents ...................................... (29,940)

14,565(6,948)(249,085)

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

89,77775,21282,160746,897

Cash and cash equivalents at end of year ........................................................... ¥59,837¥89,777¥ 75,212$497,812

Cash on hand and in banks in the balance sheets.................................. ¥61,185¥91,344¥ 77,048$509,027

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

(1,348)(1,567)(1,836)(11,215)

Total.......................................................................................................... ¥59,837¥89,777¥ 75,212$497,812

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

Supplemental information on cash flows:
Cash and cash equivalents:

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

31

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

32

1. Basis of presenting
consolidated
financial statements

Kawasaki Heavy Industries, Ltd. (the “Company”) and its consolidated domestic subsidiaries maintain their offical accounting records in Japanese yen, in accordance with the provisions set forth in the Japanese Commercial
Code and accounting principles and practices generally accepted in Japan (“Japanese GAAP”). The accounts ofoverseas subsidiaries are based on their accounting records maintained in conformity with generally accepted
accounting principles and practices prevailing in the respective countries of domicile. Certain accounting principles and practices generally accepted in Japan are different from International Accounting Standards and standards in other countries in certain respects as to application and disclosure requirements. Accordingly, theaccompanying consolidated financial statements are intended for use by those who are informed about
Japanese accounting principles and practices.
The accompanying consolidated financial statements have been restructured and translated into English(with some expanded descriptions and the inclusion of consolidated statements of shareholders’ equity) fromthe consolidated financial statements of the Company prepared in accordance with Japanese GAAP and filedwith 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 not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2003, which was ¥120.20 to US$1.00. The convenience translations should not be construed as representations that the Japanese yen amounts have been,
could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant
accounting
policies(a) Consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies (together the “Companies”), over which the Company has power of control through majority voting rightor existence of certain conditions the evidencing control by the Company. Investments in non-consolidated subsidiaries and affiliates, over which the Company has the ability to exercise significant influence over operating
and financial policies of the investees, are accounted for on the equity method.
The consolidated financial statements include the accounts of the Company and 104 (105 in 2002 and 2001)
subsidiaries.
For the year ended March 31, 2003, 3 (2 in 2002 and 4 in 2001) subsidiaries are excluded from the consolidation. The amounts of total assets, net sales, net income and retained earnings of these excluded subsidiaries, inthe aggregate, would not have had a material effect on the consolidated financial statements.
( b) Application of the equity method of accounting
For the year ended March 31, 2003, 15 (17 in 2002 and 18 in 2001) affiliates are accounted for by the equity
method.
For the year ended March 31, 2003, investments in 3 (2 in 2002 and 4 in 2001) non-consolidated subsidiaries
and 12 (13 in 2002 and 12 in 2001) affiliates are stated at cost without applying the equity method of accounting.
If the equity method had been applied for these investments, the amounts of net income and retained earningsof these excluded subsidiaries and affiliates would not have had a material effect on the consolidated financial
statements.
(c) Consolidated subsidiaries’ fiscal year-ends
Fiscal year-ends of 29 (31 in 2002 and 32 in 2001) consolidated subsidiaries are December 31. The Company consolidates such subsidiaries’ financial statements as of each subsidiary’s latest year-end. Unusual significant
transactions for the period between each subsidiary’s year-end and the Company’s year-end are adjusted on
consolidation.
(d) Elimination of inter-company transactions and accounts
All significant inter-company transactions and accounts and unrealized inter-company profits are eliminatedon consolidation, and the portion thereof attributable to minority interests is credited to minority interests.
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the
portion attributable to minority shareholders, are evaluated using the fair value at the time the Company
acquired control of the respective subsidiaries.
When the excess of cost over equity is considered significant, it is amortized by the straight-line method
over five years. Otherwise, it is charged to income in the year of acquisition or the year newly included inconsolidation.

(e) Foreign currency translation
Short-term receivables and payables denominated in foreign currencies are translated into Japanese yen at the
year-end rates. Prior to April 1, 2000, long-term receivables and payable denominated in foreign currencies weretranslated at historical rates.
Effective April 1, 2000, the Company and its consolidated subsidiaries adopted the revised accounting standard for foreign currency translation. Under the revised accounting standard, long-term receivables andpayables denominated in foreign currencies are also translated into Japanese yen at the year-end rate.
The effect on the consolidated statements of operations of adopting the revised accounting standard
was immaterial.
Balance sheets of consolidated overseas subsidiaries are translated into Japanese yen at the year-end rate
except for shareholders’ equity accounts, which are translated at the historical rates. Income statements of consolidated overseas subsidiaries are translated at average rates except for transactions with the Company, which
are translated at the rates used by the Company.
Due to the adoption of the revised accounting standard referred to above, the Company and its domestic subsidiaries report foreign currency translation adjustments in shareholders’ equity (and minority interests).
(f ) Appropriations of retained earnings
Appropriations of retained earnings are recorded in the fiscal year when the proposed appropriations areapproved.
(g ) Revenue recognition
Sales are principally recognized at the time of completion of the contracts. However, the percentage-of-completion
method is applied to long-term contracts exceeding ¥5,000 million.
( h) Cash and cash equivalents
In preparing the consolidated statements of cash flows, cash on hand, readily-available deposits and short-term
highly liquid investments with maturities not exceeding three months at the time of purchase are considered
to be cash and cash equivalents.
(i) Allowance for doubtful receivables
Effective April 1, 2000, the Company and its consolidated domestic subsidiaries adopted the new Japanese
accounting standard for financial instruments.
Upon applying the new accounting standard, possible losses from notes and accounts receivable, loans andother receivables are provided for based on past experience rate and the Companies’ estimates of losses oncollection.
As a result of adopting the new accounting standard for financial instruments, loss before income taxes andminority interests in 2001 increased ¥2,983 million compared with the amounts which would have been recognized under the previous method of accounting.
( j) Accrued bonuses
Accrued bonuses for employees are reasonably estimated.
( k) Inventories
Inventories are stated at cost, as determined principally by the specific identification cost method, the first-in,
first-out method or the moving-average method.
( l) Assets and liabilities arising from derivative transactions
Assets and liabilities arising from derivative transactions are stated at fair value.
( m) Investments in securities
Prior to April 1, 2000, securities of the Company and its consolidated subsidiaries were stated at movingaverage cost.
Effective April 1, 2000, the Company and its consolidated domestic subsidiaries adopted the new Japanese
accounting standard for financial instruments.
Upon applying the new accounting standard, the Company and its consolidated domestic subsidiaries examined the intent of holding each security and classified those securities as (a) debt securities intended to be held
to maturity (hereafter, “held-to-maturity debt securities”), (b) equity securities issued by subsidiaries and affiliated companies and (c) all other securities that are not classified in the above categories (hereafter, “availablefor-sale securities”). There were no trading securities at March 31, 2002 and 2003.

33

Held-to-maturity debt securities are stated mainly at amortized cost. Equity securities issued by subsidiaries andaffiliated companies which are not consolidated or accounted for using the equity method are stated at movingaverage cost. Available-for-sale securities with available fair market values are stated at fair market value. Unrealized
gains and unrealized losses on these securities are reported, net of applicable income taxes, as a separate component of shareholders’ equity. Realized gains and losses on sale of such securities are computed using movingaverage cost.
Other securities with no available fair market value are stated at moving-average cost.
If the market value of held-to-maturity debt securities, equity securities issued by non-consolidated subsidiaries and affiliated companies and available-for-sale securities declines significantly, such securities arestated at fair market value and the difference between fair market value and the carrying amount is recognized
as loss in the period of the decline. If the fair market value of equity securities issued by non-consolidated subsidiaries and affiliated companies, not subject to the equity method, is not readily available, such securities
should be written down to net asset value with a corresponding charge in the statements of operations in theevent 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.
As a result of adopting the new accounting standard for financial instruments, loss before income taxes andminority interests in 2001 increased ¥2,731 million compared with the amounts which would have been recognized under the previous method of accounting.
(n) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is computed principally by the declining-balancemethod over estimated useful lives.
(o) Intangible assets
Amortization of intangible assets is computed by the straight-line method.
(p) Provision for product warranty
Provision for product warranty is accrued in the amount reasonably estimated.
(q) Provision for restructuring charges
Provision for restructuring charges for the steel structures business is accrued in the amount reasonably estimated.
(r) Provision for losses on construction contracts
Provision for losses on uncompleted construction contracts at the fiscal year-end is made when substantial losses
are anticipated for the next fiscal year and later and such losses can be reasonably estimated.
(Change in accounting policy)
Effective for the year ended March 31, 2001, the Company changed its accounting policy for the provision forlosses on uncompleted construction contracts. Previously, it was applied only for the subsidiary in the UnitedStates based on U.S. GAAP.
The Company made this change in accounting policy following the preparation of its Medium-Term Business
Plan in November 2000 and as a result of a review of construction contracts at the end of the year, which led tothe judgment that factors of losses on construction contracts are increasing. In view of these circumstances,
this change was deemed prudent to increase the soundness of the Company’s financial position and substantially better reflect profitability.
As a result of this change, loss before income taxes and minority interests in 2001 increased ¥6,190 million
compared with the amounts which would have been recognized under the previous method of accounting.
(s) Bond issue expenses
Bond issue expenses are charged to income as incurred.
(t) Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
(u) Retirement and severance benefits
Employees who terminate their services with the Company and its domestic consolidated subsidiaries are generally entitled to lump-sum payments, the amounts of which are determined by reference to their current basic
rates of pay and length of service. At March 31, 2000, the Company and its domestic consolidated subsidiaries
provided for 40 percent of the amount which would be required to be paid if all eligible employees voluntarily
terminated their services at the balance sheet date.

34

Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted the new accounting
standard for retirement and severance benefits. The liabilities and expenses for retirement and severance benefits are determined based on the amounts actuarially calculated using certain assumptions. The Company andits domestic consolidated subsidiaries provided the allowance for employees’ retirement and severance benefits based on the estimated amounts of projected benefit obligation and fair value plan assets (including retirement benefit trust).
The excess of the projected benefit obligation over the liabilities for retirement and severance benefits
recorded as of April 1, 2000 (the “net transition obligation”) amounted to ¥130,928 million, which 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 cost are recognized in expenses in equal amounts, within the average of the estimated remaining service lives of the employees, commencing with the following and the current
period, respectively. As a result of the adoption of the new accounting standard, in the year ended March 31,
2001, retirement and severance benefit expenses increased by ¥2,935 million, operating income decreased by¥1,215 million and loss before income taxes and minority interests increased by ¥2,793 million compared withwhat would have been recorded under the previous accounting standard.
Employees of the Company’s overseas consolidated subsidiaries are generally covered by various pension
plans, accounted for in accordance with generally accepted accounting principles in the country of domicile.
The Company and its domestic consolidated subsidiaries provide for retirement and severance benefits for
directors and statutory auditors principally at 50 percent of the amount required if they retired at the balance
sheet date.
(v) Hedge accounting
The Company and its consolidated subsidiaries employ deferred hedge accounting. If financial instruments areused 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 financial instruments until the related losses orgains on the hedged items are recognized.
(w) Finance leases
For the Company and its domestic consolidated subsidiaries, finance leases which do not transfer ownershipand do not have bargain purchase provisions are accounted for in the same manner as operating leases inaccordance with Japanese GAAP.
(x) Earnings per share
The computations of earnings per share shown in the consolidated statements of operations are based upon net
income available to common stock holders and weighted average number of shares outstanding during each period.
Diluted earnings per share are computed based on the assumption that all dilutive convertible bonds were converted at the beginning of the year.
Effective April 1, 2002, the Company adopted the new accounting standard for earnings per share and related
guidance (Accounting Standards Board Statement No. 2, “Accounting Standard for Earnings Per Share,” andFinancial Standards Implementation Guidance No. 4, “Implementation Guidance for Accounting Standard for
Earnings Per Share,” issued by the Accounting Standards Board of Japan on September 25, 2002).
The effect on earnings per share of the adoption of the new accounting standard was not material.
(y) Cash dividends
Per share amounts of cash dividends for each period represent dividends declared as applicable to the respective year.
(z) Reclassifications
Certain prior year amounts have been reclassified to conform to 2003 presentation. These changes had no
impact on previously reported results of operations or shareholders’ equity.

3. Inventories

Inventories as of March 31, 2003 and 2002 are comprised as follows:
Millions of yen
2003
2002

Finished products ........................................................................................................... ¥ 56,566
Work in process .............................................................................................................. 242,459
Raw materials and supplies...........................................................................................
43,362
Total.................................................................................................................. ¥342,387¥ 61,928
272,100
38,241¥372,269

Thousands of
U.S. dollars
2003$ 470,600
2,017,121
360,757$2,848,478

35

4. Securities(a) Acquisition costs, book values (fair value) of available-for-sale securities with available fair values as ofMarch 31, 2003 and 2002 are as follows:
Thousands of
U.S. dollars

Millions of yen
2003
Book value
Difference

Difference¥11,610¥19,637¥8,027$66,780

4,395¥16,005

3,134¥22,771(1,261)¥6,766(10,491)$56,289

Millions of yen
2002
Acquisition cost
Book value

Difference

Acquisition cost

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

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

¥21,403¥37,412¥16,00921,70695¥43,204

16,263
81¥53,756(5,443)(14)¥10,552(b) Book values of investments in securities with no available fair values as of March 31, 2003 and 2002 are as follows:

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

Millions of yen
2003
2002
Book value
Book value

Thousands of
U.S. dollars
2003
Book value

¥

$

25

¥

25

208

8,957
5,296
¥14,253

6,181
5,352
¥11,533

74,51744,060$118,557

¥

¥

$

18
7,538
¥ 7,556

93,440¥ 3,449150
62,712$ 62,862(c) Sales amounts of available-for-sale securities and related gains and losses for the year ended March 31, 2003
are as follows:
Thousands of
U.S. dollars

Millions of yen

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

36

Sales amounts

Gains

Losses

2003
Sales amounts

Gains

Losses¥1,69960¥1,729

¥999
—
¥999

¥(140)(35)¥(175)$13,885499$14,384$8,311—$8,311$(1,165)(291)$(1,456)

5. Short-term borrowings and long-term
debt

Short-term borrowings and long-term debt as of March 31, 2003 and 2002 are comprised as follows:
Millions of yen
2003
2002

Short-term borrowings:
Short-term debt, principally bank loans, bearing averageinterest rates of 1.374 percent and 1.561 percent as ofMarch 31, 2003 and 2002, respectively .............................................................. ¥150,932
Current portion of long-term debt, bearing averageinterest rates of 1.696 percent and 2.405 percent as ofMarch 31, 2003 and 2002, respectively ..............................................................
50,316
Total short-term debt......................................................................................... ¥201,248
Long-term debt:
Loans from banks and other financial institutions, partly securedby mortgage or other collateral, due from 2002 to 2035,
bearing average interest rates of 1.657 percent and 2.033 percent
as of March 31, 2003 and 2002, respectively ..................................................... ¥116,887
1.00 percent notes due 2002 ..................................................................................
—
1.05–2.00 percent notes due 2003 .........................................................................
10,0001.94 percent notes due 2004 ..................................................................................
20,0001.50–1.67 percent notes due 2005 .........................................................................
20,0001.87 percent notes due 2006 ..................................................................................
10,0002.00 percent notes due 2007 ..................................................................................
10,0002.51–2.775 percent notes due 2008 .......................................................................
20,0002.33 percent notes due 2009 ..................................................................................
10,0000.65–0.90 percent convertible bonds due 2003...................................................
19,0790.75 percent convertible bonds due 2005............................................................
9,609
1.10 percent convertible bonds due 2006............................................................
17,1180.90 percent convertible bonds due 2008............................................................
7,520
1.00 percent convertible bonds due 2011............................................................
7,039
277,252
Less portion due within one year .........................................................................
(50,316)
Total long-term debt........................................................................................... ¥226,936

Thousands of
U.S. dollars
2003¥206,147$1,255,674

36,966¥243,113

418,602$1,674,276¥104,770
10,00020,00020,00020,00010,00010,00020,00010,00019,0799,609
17,1187,521
7,039
285,136(36,966)¥248,170$ 972,437—
83,195
166,389
166,389
83,19583,195
166,389
83,195
158,727
79,942
142,41362,56258,5612,306,589(418,602)$1,887,987

The convertible bonds due 2003 through 2011 as of March 31, 2003 were convertible into 114,224,361 sharesof common stock at the option of the holders at prices of ¥459 ($3.82) or ¥598 ($4.98) per share. The conversion
prices are subject to adjustments under specified conditions.
As of March 31, 2003 and 2002, the following assets were pledged as collateral for short-term borrowings andlong-term debt:
Millions of yen
2003
2002

Trade receivables ................................................................................................................ ¥—Inventories............................................................................................................................ 10,699
Land.......................................................................................................................................
5,383
Buildings ...............................................................................................................................
4,449
Machinery and equipment .................................................................................................
309
Other investments ...............................................................................................................
299
Total ...................................................................................................................... ¥21,139¥ 481
11,651
5,830
6,485
357
288
¥25,092

Thousands of
U.S. dollars
2003

$

—
89,01044,78437,0132,571
2,487$175,865

As of March 31, 2003 and 2002, debt secured by the above pledged assets was as follows:
Millions of yen
2003
2002

Trade payables .................................................................................................................... ¥ 173
Short-term and long-term debt .......................................................................................... 29,172
Total ...................................................................................................................... ¥29,345¥
99
26,527¥26,626

Thousands of
U.S. dollars
2003$ 1,439
242,696$244,135

37

The aggregate annual maturities of long-term debt as of March 31, 2003 are as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars¥ 50,316
52,30844,59845,59784,433¥277,252$ 418,602
435,175
371,031379,343
702,438$2,306,589

2004 .....................................................................................................................................................
2005 .....................................................................................................................................................
2006 .....................................................................................................................................................
2007 .....................................................................................................................................................
2008 and thereafter ...........................................................................................................................
Total ........................................................................................................................................

6. Investments in
non-consolidated
subsidiaries andaffiliates

Investments in non-consolidated subsidiaries and affiliates as of March 31, 2003 and 2002 are ¥15,108 million($125,691 thousand) and ¥15,908 million, respectively.

7. Employees’
retirement andseverance benefits

The liability for employees’ retirement and severance benefits included in the liability section of the consolidated balance sheet as of March 31, 2003 and 2002 consist of the following:
Millions of yen
2003
2002

Projected benefit obligation .......................................................................................... ¥181,281
Unrecognized prior service costs.................................................................................
2,188
Unrecognized actuarial differences..............................................................................
(25,553)
Less fair value of pension assets ..................................................................................
(26,683)
Less unrecognized net transition obligation...............................................................
(90,353)
Prepaid pension cost......................................................................................................
470
Liability for retirement and severance benefits...................................................... ¥ 41,350¥192,451
2,518(20,058)(5,096)(103,439)
394¥ 66,770

Thousands of
U.S. dollars
2003$1,508,161
18,203(212,587)(221,988)(751,689)
3,910$ 344,010

Retirement and severance benefit expenses in the consolidated statements of operations for the years ended
March 31, 2003 and 2002 are comprised as follows:

2003

Service costs—benefits earned during the year ......................................... ¥ 9,697
Interest cost on projected benefit obligation ..............................................
5,708
Expected return on plan assets .....................................................................
(467)
Amortization of actuarial differences ...........................................................
2,042
Amortization of prior service costs ..............................................................
(243)
Amortization of net transition obligation..................................................... 13,181
Special additional retirement allowances ....................................................
—
Retirement and severance benefit expenses ........................................... ¥29,918

Millions of yen
2002

2001

Thousands of
U.S. dollars
2003¥ 9,443
6,167
(379)
407
—
13,059—¥28,697¥ 8,700
6,532
304
—
—
14,431
1,687¥31,046$ 80,674
47,488(3,885)
16,988(2,022)
109,659—$248,902

The discount rate and the rate of expected return on plan assets are primarily 3.0 and 9.0 percent (for consolidated overseas subsidiaries), respectively. The estimated amount of all retirement benefits to be paid at future
retirement dates is allocated equally to each service year using the estimated number of total service years.
Actuarial gains and losses are recognized in expenses in equal amounts over 10 to 15 years commencing withthe following period. Prior service costs are recognized as an expense in equal amounts for 10 years.
The Company has established an employees’ retirement benefit trust of ¥27,274 million ($226,910 thousand)in the year ended March 31, 2003. In this connection, the Company recognized a gain of ¥1,902 million ($15,824
thousand) on investment securities contributed to the employees’ retirement benefit trust for the year ended
March 31, 2003.

8. Contingent liabilities

Contingent liabilities as of March 31, 2003 and 2002 are as follows:
Millions of yen
2003
2002

As drawer of trade notes discounted................................................................................ ¥26
As endorser of trade notes.................................................................................................
31
As guarantor of indebtedness of employees, unconsolidated
subsidiaries and affiliates, and others ............................................................................ 31,526

38

¥

874
30
38,805

Thousands of
U.S. dollars
2003

$

216
258

262,280

9. Shareholders’ equity(a) Capital surplus
Under the Commercial Code of Japan, the entire amount of the issue price of shares is required to be accounted
for as capital, although a company may, by resolution of its Board of Directors, account for an amount not exceeding one-half of the issue price of the new shares as additional paid-in capital, which is included in capital surplus.
Effective October 1, 2001, the Commercial Code provides that an amount equal to at least 10 percent of cash
dividends and other cash appropriations shall be appropriated and set aside as a legal earnings reserve until the
total amount of legal earnings reserve and additional paid-in capital equals 25 percent of common stock. The total
amount of legal earnings reserve and additional paid-in capital of the Company has reached 25 percent of common stock, and therefore the Company is not required to provide any more legal earnings reserve. The legal
earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolution of theshareholders’ meeting or may be capitalized by resolution of the Board of Directors. On condition that the total
amount of legal earnings reserve and additional paid-in capital remains being equal to or exceeding 25 percentof common stock, they are available for distribution by the resolution of shareholders’ meeting. Legal earnings
reserve is included in retained earnings in the accompanying financial statements.
( b) Dividends
The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated
financial statements of the Company in accordance with the Commercial Code of Japan.
(c) Restrictions on dividends
Under the terms of indentures for certain convertible bonds due through 2006, cumulative cash dividend
payments by the Company are not to exceed an amount equivalent to accumulated net income of the Company earned during the years such securities are outstanding plus ¥10,000 million (for certain indentures¥10,100 million).

10. Research anddevelopment
expenses

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

2003

Research and development expenses .......................................................... ¥15,494

11. Other income(expenses):other, net

2001

Thousands of
U.S. dollars
2003¥16,549¥17,548$128,902

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

2003

Gain on sales of marketable securities
and investments in securities.................................................................... ¥ 877
Gain on sales of property, plant and equipment ......................................
3,286
Gain on contribution of securities
to employees’ retirement benefit trust ....................................................
1,902
Gain on sales of subsidiaries’ shares..........................................................
77
Restructuring charges .................................................................................. (3,182)
Foreign exchange gain (loss), net ............................................................... (2,453)
Loss on disposal of inventories................................................................... (1,456)
Loss on real estate development business................................................
(923)
Amortization of certain subsidiaries’ net transition obligationof retirement and severance benefits.......................................................
(205)
Write-downs of securities and others ........................................................
—
Provision for losses on construction contracts........................................
—
Other, net ....................................................................................................... (5,164)
Total................................................................................................ ¥(7,241)

12. Income taxes

Millions of yen
2002

2001

Thousands of
U.S. dollars
2003

109
6,543

¥ 4,975—$ 7,296
27,338———(4,371)————(3,470)3,097——

15,824641(26,473)(20,408)(12,113)(7,679)(205)(3,904)—(6,520)¥(8,348)(1,578)(5,714)(6,190)(4,101)¥(12,981)(1,705)——(42,961)$(60,240)

Millions of yen
2002¥

Income taxes in Japan applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax (national tax) and enterprise and inhabitants taxes (local taxes) which, in the aggregate, result in normal statutory tax rates of approximately 41.9 percent for the years ended March 31, 2003, 2002 and 2001.

39

The following table summarizes the significant differences between the statutory tax rate and effective tax
rates in the consolidated financial statements for the years ended March 31, 2003 and 2002:
2003

2002

Statutory tax rate .................................................................................................................................................... 41.9%

41.9%

Dividends received from subsidiaries ............................................................................................................. 9.2
Non-deductible expenses .................................................................................................................................. 7.3
Unrecognized for tax effect of intercompany profits .....................................................................................
—
Recognizing the tax effect of unrealized intercompany profit in the prior year ........................................ (15.6)
Non-taxable revenues......................................................................................................................................... (9.3)
Valuation allowance for net operating loss carryfoward of subsidiaries.................................................... (7.5)
Other .................................................................................................................................................................... (3.8)
Effective tax rate .................................................................................................................................................... 22.2%

5.3
7.0
4.6
—
(5.0)
—
4.0
57.8%

Significant components of deferred tax assets and liabilities as of March 31, 2003 and 2002 are as follows:
Millions of yen
2003
2002

Deferred tax assets:
Excess bonuses accrued................................................................................................. ¥ 7,572
Retirement benefits ......................................................................................................... 13,282
Allowance for doubtful receivables ..............................................................................
3,192
Fixed assets—inter-company profits ............................................................................
905
Depreciation .....................................................................................................................
1,194
Net operating loss carryforwards..................................................................................
5,953
Write-down of marketable securities, investments
in securities and others ................................................................................................
1,264
Other ................................................................................................................................. 14,493
Gross deferred tax assets ........................................................................................... 47,855
Less valuation allowance............................................................................................
(7,174)
Total deferred tax assets ............................................................................................ 40,681
Deferred tax liabilities:
Deferral of gain on sale of fixed assets .........................................................................
5,110
Net unrealized gain on securities ..................................................................................
2,999
Unrealized gain on uncompleted contracts .................................................................
1,247
Other .................................................................................................................................
5,246
Total deferred tax liabilities ....................................................................................... 14,602
Net deferred tax assets ........................................................................................... ¥26,079

Thousands of
U.S. dollars
2003¥ 5,749
6,202
3,441
1,013
1,099
13,013$ 62,995
110,499
26,556
7,529
9,933
49,5262,145
9,333
41,995(9,081)
32,914

10,516
120,574
398,128(59,684)
338,444

4,160
4,426
2,651
4,425
15,662¥17,252

42,512
24,95010,374
43,644
121,480$216,964

The aggregate statutory income tax rate used for calculation of deferred income tax assets and liabilities was
41.9 percent for the year ended March 31, 2002. Effective for years commencing on April 1, 2004 or later, according to the revised local tax law, income tax rates for enterprise taxes will be reduced as a result of introducing
the assessment by estimation on the basis of the size of business. Based on the change of income tax rates, forcalculation of deferred income tax assets and liabilities, the Company and consolidated domestic subsidiaries
used the aggregate statutory income tax rates of 41.9 percent and 40.5 percent for current items and noncurrent items, respectively, at March 31, 2003.
As a result of the change in the aggregate statutory income taxes rates, deferred income tax assets decreasedby ¥120 million ($998 thousand), provision for deferred income taxes increased by ¥242 million ($2,013 thousand) and net unrealized gains on securities increased by ¥122 million ($1,015 thousand) compared with what
would be reported using the currenctly applicable tax rate of 41.9 percent.

13. Derivativetransactions

40

Since the Company and its consolidated subsidiaries operate internationally and have a substantial volume ofexport and import transactions, they enter into foreign currency exchange and option transactions in order tomanage risk of fluctuations in exchange rates in relation to foreign currency denominated assets, liabilities andfuture transactions.
The Company and its consolidated subsidiaries also enter into interest swap and option transactions to hedge
against future fluctuations in interest rates on borrowings, primarily to fix, cap or collar interest rates on variable rate debt.
The Company and its consolidated subsidiaries’ purpose for purchasing derivatives is to hedge against risksof fluctuations in currency exchange rates and interest rates rather to than be exposed to such risks throughdealing or speculation.

For derivative transactions that meet the conditions for hedge accounting, the Company and its consolidated
subsidiaries apply hedge accounting principles.
In order to minimize credit risk, the Company and its consolidated subsidiaries use only highly-rated international financial institutions as counterparties to derivative transactions.
The Company and its consolidated subsidiaries have established policies that restrict the use of derivative
instruments, including limits as to the purpose, nature, type and amount, and that require reporting and review
in order to control the use of derivatives and manage risk.
(a) Outstanding positions and recognized gains and losses at March 31, 2003 are as follows:

Contract
amountCurrency related contracts:
Foreign exchange contracts:
To sell ...................................................................................................... ¥82,555
To purchase............................................................................................
4,926
Option contracts:
To sell ......................................................................................................
To purchase............................................................................................
Total.............................................................................................................

6,244
6,030

Thousands of
U.S. dollars

Millions of yen
Market
value

Loss

Loss

¥83,824
4,921¥ (969)(5)$(8,062)
(42)

219
60

(124)
(34)
¥(1,132)(1,032)283$(9,419)(b) Outstanding positions and recognized gains and losses at March 31, 2002 are as follows:
Contract amountCurrency related contracts:
Foreign exchange contracts:
To sell ...................................................................................................................
To purchase .........................................................................................................
Total ..........................................................................................................................
Interest rate related contracts:
Option contracts:
Collar purchase ...................................................................................................

14. Finance leases

Millions of yen
Market value¥65,291
7,982¥69,022
8,078¥10,000¥(65)

Gain (loss)¥(3,731)96¥(3,635)¥ (65)

Finance lease information, as required to be disclosed in Japan, for the respective years is as follows:(a) As lessee
The original cost of leased assets under non-capitalized finance leases and accumulated depreciation, assuming
it is calculated on the straight-line method over lease terms, as of March 31, 2003 and 2002 are as follows:
Millions of yen
2003
2002

Thousands of
U.S. dollars
2003

Property, plant and equipment.......................................................................................... ¥21,952
Accumulated depreciation .................................................................................................
(8,683)¥13,269¥15,232(7,626)¥ 7,606$182,629(72,238)$110,391

Intangible assets .................................................................................................................. ¥ 1,347
Accumulated amortization .................................................................................................
(553)
¥ 794

¥

$ 11,207(4,601)$ 6,606

939
(430)
¥ 509

The present values of future minimum lease payments under non-capitalized finance leases as of March 31,
2003 and 2002 are as follows:
Millions of yen
2003
2002

Current portion...................................................................................................................... ¥ 4,079
Non-current portion .............................................................................................................. 10,201
Total ............................................................................................................................ ¥14,280¥2,911
5,405¥8,316

Thousands of
U.S. dollars
2003$ 33,935
84,867$118,80241

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

2003

Millions of yen
2002

2001

Thousands of
U.S. dollars
2003¥3,6593,419
224¥3,5043,243
232$36,489
34,0022,845

Lease payments ..................................................................................................... ¥4,386
Depreciation and amortization............................................................................ 4,087
Interest....................................................................................................................
342(b) As lessor
The original cost of leased assets under finance leases and accumulated depreciation, as of March 31, 2003 and2002 are as follows:
Millions of yen
2003
2002

Thousands of
U.S. dollars
2003

Property, plant and equipment.............................................................................................. ¥1,870
Accumulated depreciation .....................................................................................................
(927)
¥ 943

¥1,435(775)¥ 660$15,557(7,712)$ 7,845

Intangible assets ...................................................................................................................... ¥ 140
Accumulated amortization .....................................................................................................
(90)
¥ 50

¥

$ 1,165
(749)
$ 416

¥

—
—
—

The present values of future minimum lease payments to be received under finance leases as of March 31,
2003 and 2002 are as follows:
Millions of yen
2003
2002

Current portion ........................................................................................................................... ¥ 266
Non-current portion....................................................................................................................
763
Total .............................................................................................................................. ¥1,029

Thousands of
U.S. dollars
2003

¥196
497
¥693

$2,213
6,348$8,561

Lease payments received, depreciation and amortization and interest on finance leases are as follows:
Millions of yen
2003
2002
2001

Lease payments received .............................................................................................. ¥312
Depreciation and amortization ..................................................................................... 272
Interest .............................................................................................................................
41

42

¥251
208
35

¥223
181
37

Thousands of
U.S. dollars
2003$2,5962,263
341

15. Operating leases

The present values of future minimum lease payments under operating leases as of March 31, 2003 and 2002 are
as follows:
Millions of yen
2003
2002

Current portion .............................................................................................................................. ¥ 74
Non-current portion....................................................................................................................... 324
Total......................................................................................................................................... ¥398

16. Segment
information

¥ 51
142
¥193

Thousands of
U.S. dollars
2003

$ 616
2,696
$3,312In April 2001, the Company introduced an internal company system and created six in-house companies.
Effective for the year ended March 31, 2002, industry segments of the Company and its consolidated subsidiaries are classified based on its internal company system: 1) Shipbuilding, 2) Rolling Stock, Construction
Machinery & Crushing Plant, 3) Aerospace, 4) Gas Turbines & Machinery, 5) Plant & Infrastructure Engineering,6) Consumer Products & Machinery, and 7) Other. Previously reported data have been restated accordingly.
The Shipbuilding segment manufactures and sells ships, submarines and maritime application equipment.
Operations within the Rolling Stock, Construction Machinery & Crushing Plant segment include the production
and sale of rolling stock, construction machines and crushing plant. Products manufactured and sold by the
Aerospace segment include airplanes and helicopters. The Gas Turbines & Machinery segment manufacturesand sells gas turbines, airplane engines, prime movers and hydraulic components. Operations within the Plant &Infrastructure Engineering segment include the production and sale of boilers, chemical and steelmaking plants,
refuse incineration plants and steel bridges. Products manufactured and sold by the Consumer Products &Machinery segment include motorcycles, ATVs (All-Terrain Vehicles) and Jet Ski® watercraft. Operations within
the Other segment include the production and sale of hospital respiration & medical equipment. The operations
also involve trade, mediation of overseas sales and orders and other activities.
(a) Information by industry segment

External
sales

Shipbuilding .......................................... ¥ 105,458
Rolling Stock, Construction
Machinery & Crushing Plant .............
164,774
Aerospace..............................................
154,848
Gas Turbines & Machinery .................
181,043
Plant & Infrastructure Engineering ....
219,092
Consumer Products & Machinery......
318,025
Other ......................................................
96,358
Total ................................................... 1,239,598
Eliminations ..........................................
—
Consolidated total............................ ¥1,239,598

Millions of yen
2003
OperatingOperatingexpenses
income (loss)

Intersegment
sales

Total
sales

Total
assetsDepreciation
and amortization

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

95,661¥ 1,963¥ 2,551

3,157
2,372
20,88022,557
3,033
39,77593,330(93,330)¥—

167,931
157,220
201,923
241,649
321,058
136,133
1,332,928(93,330)¥1,239,598

162,441
151,125
195,832
245,891
307,654
134,230
1,302,778(93,723)¥1,209,055

5,490
6,095
6,091
(4,242)
13,404
1,903
30,150393¥30,543

117,276
166,223
160,875
191,520
260,360
143,510
1,135,425
13,736¥1,149,161

2,853
3,370
3,945
2,308
12,1902,535
29,164
2,431¥31,595

3,266
5,523
3,264
622
13,927
1,677
30,8304,335¥35,165

43

External
sales

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

¥¥ 1,290¥

121,780
161,072
171,586
220,605
281,207
95,806
1,144,534—¥1,144,534

3,756
2,021
28,072
14,7683,590
39,96293,459(93,459)¥—

125,536
163,093
199,658
235,373284,797
135,768
1,237,993(93,459)¥1,144,534¥

Intersegment
sales

93,768¥ 1,104¥

129,591
136,343
152,307
181,174
275,903
106,427
1,060,479—¥1,060,479

1,975
2,602
26,711
26,9103,374
35,047
97,723(97,723)¥—

131,566
138,945
179,018
208,084
279,277
141,474
1,158,202(97,723)¥1,060,479

Shipbuilding........................................ $ 877,354
Rolling Stock, Construction
Machinery & Crushing Plant ..........
1,370,832
Aerospace ...........................................
1,288,253
Gas Turbines & Machinery ...............
1,506,181
Plant & Infrastructure Engineering..
1,822,729
Consumer Products & Machinery ...
2,645,799
Other ...................................................
801,647
Total ................................................ 10,312,795
Eliminations........................................
—
Consolidated total ......................... $10,312,795

Intersegment
sales$ 12,945¥

79,838

Total
sales

$

890,299 $Total
assetsDepreciation
and amortization

Capitalexpenditures

88,213¥ 5,555¥

88,688¥ 1,941¥ 1,462

125,071
149,229
194,218
236,010279,615
134,080
1,206,436(93,213)¥1,113,223

465
13,864
5,440
(637)
5,182
1,688
31,557(246)¥31,311

141,332
150,934
170,755
237,688
267,797
120,146
1,177,340
77,735¥1,255,075

2,898
3,425
4,255
2,665
11,553
2,873
29,6102,388¥31,998

6,925
2,571
4,598
815
12,874
2,593
31,8381,294¥33,132

Total
assetsDepreciation
and amortization

Capitalexpenditures

Millions of yen
2001
OperatingOperatingexpenses
income (loss)

Total
sales

78,734External
sales

44

Total
sales

92,478External
sales

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

Intersegment
sales

Millions of yen
2002
OperatingOperatingexpenses
income (loss)¥

81,569¥ (1,731)¥

98,536¥ 2,079¥ 1,211

131,303130,832
174,733
222,730
272,799
140,039
1,154,005(97,986)¥1,056,019

263
8,113
4,285
(14,646)
6,478
1,435
4,197
263
¥ 4,460

143,054
145,769
170,220238,275
259,885
122,808
1,178,547
68,925¥1,247,472

3,200
3,627
4,478
3,631
11,3052,854
31,1742,129¥33,303

3,137
3,015
4,528
1,429
14,1101,806
29,236
3,451¥32,687

Total
assetsDepreciation
and amortization

Capitalexpenditures

Thousands of U.S. dollars
2003
OperatingOperatingexpenses
income (loss)

878,577$ 11,722$ 795,849$ 16,331$ 21,223

26,265
1,397,097
1,351,423
19,734
1,307,987
1,257,280
173,710
1,679,891
1,629,218
187,6622,010,391
2,045,682
25,233
2,671,032
2,559,517
330,907
1,132,554
1,116,722
776,456
11,089,251 10,838,419(776,456)(776,456)(779,725)$— $10,312,795 $10,058,694

45,67450,70750,673(35,291)
111,515
15,832
250,832
3,269$254,101

975,674
1,382,887
1,338,394
1,593,344
2,166,057
1,193,927
9,446,132
114,276$9,560,408

23,73528,03732,82019,202
101,414
21,090242,629
20,225$262,854

27,17145,94827,155
5,175
115,865
13,952
256,489
36,065$292,554

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

Intersegment
sales

Millions of yen
2003
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥202,171
13,686
5,521
11,272
114
232,764(232,764)¥—¥1,109,338 ¥1,083,291
265,864
262,249
62,461
61,85130,37729,4954,322
4,215
1,472,362
1,441,101(232,764)(232,046)¥1,239,598 ¥1,209,055¥26,047
3,615
610
882
107
31,261(718)¥30,543¥ 958,762
140,742
41,582
18,7682,764
1,162,618(13,457)¥1,149,161

External
sales

Intersegment
sales

Millions of yen
2002
Total
Operatingsales
expenses

Operatingincome (loss)

Total
assets¥ 868,759
204,510
47,101
20,495
3,669
1,144,534—¥1,444,534¥186,659
12,933
3,849
10,106133
213,680(213,680)¥—¥31,383
5,097(3,340)664
67
33,871(2,560)¥31,311¥1,012,986
148,41238,57021,064
1,966
1,222,998
32,077¥1,255,075

Operatingincome (loss)

Total
assets¥3,166
3,254
(917)
38
89
5,630
(1,170)¥4,460¥1,097,447
137,89036,017
19,5681,809
1,292,731(45,259)¥1,247,472

External
sales

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

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

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

External
sales

Intersegment
sales¥ 824,213
176,071
38,573
17,791
3,831
1,060,479—¥1,060,479¥171,516
9,076
3,232
5,323
165
189,312(189,312)¥—

External
sales

Japan ................................................... $ 7,547,146
North America ...................................
2,097,987
Europe ................................................
473,711
Asia......................................................
158,943
Other areas ........................................
35,008
Total ................................................ 10,312,795
Eliminations and corporate ............
—
Consolidated total......................... $10,312,795

Intersegment
sales¥1,055,418
217,443
50,95030,6013,802
1,358,214(213,680)¥1,144,534¥1,024,035
212,346
54,29029,937
3,735
1,324,343(211,120)¥1,113,223

Millions of yen
2001
Total
Operatingsales
expenses¥ 995,729
185,147
41,805
23,114
3,996
1,249,791(189,312)¥1,060,479¥ 992,563
181,893
42,722
23,076
3,907
1,244,161(188,142)¥1,056,019

Thousands of U.S. dollars
2003
Total
Operatingsales
expenses$1,681,955 $ 9,229,101 $ 9,012,404
113,860
2,211,847
2,181,772
45,932519,643514,567
93,777
252,720
245,383949
35,95735,067
1,936,473
12,249,268 11,989,193(1,936,473)(1,936,473) (1,930,499)$— $10,312,795 $10,058,694

Operatingincome (loss)

Total
assets$216,697
30,075
5,076
7,337
890
260,075(5,974)$254,101$7,976,389
1,170,899
345,940
156,140
22,995
9,672,363(111,955)$9,560,408

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

45(c) Corporate assets
Included in eliminations and corporate in (a) and (b) above under total assets are corporate assets of ¥108,725
million ($904,531 thousand), ¥155,580 million and ¥80,928 million at March 31, 2003, 2002 and 2001, respectively,
which are mainly comprised of cash and time deposits of the Company and property, plant, equipment andintangible assets of the Company’s Head Office.
(d) Overseas sales
Overseas sales consist of the total sales of the Company and its consolidated subsidiaries made outside ofJapan. Overseas sales information, as required to be disclosed in Japan, for the respective years is as follows:
Millionsof yen%Millionsof yenOverseassales% against
net sales

North America................................. ¥303,682
Europe ..............................................
92,155Asia ...................................................
87,014
Other areas ......................................
52,494
Total ............................................. ¥535,345

24.5%
7.4
7.0
4.3
43.2%

2003

%

Millionsof yen%Thousands of
U.S. dollars
2003

Overseassales% against
net sales

Overseassales% against
net sales

Overseassales¥272,066
62,13995,832
65,988¥496,025

23.8%
5.4
8.4
5.7
43.3%

¥233,976
62,81576,80958,759¥432,359

22.1%
5.9
7.2
5.5
40.7%

$2,526,472
766,681
723,910436,722$4,453,785

2002

2001

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

17. Subsequent events(a) On June 27, 2003, the following appropriations of non-consolidated retained earnings were approved at theordinary meeting of shareholders of the Company:

Cash dividends (¥2 per share) ........................................................................................................
Directors’ and statutory auditors’ bonuses...................................................................................

46

Millions of yen

Thousands of
U.S. dollars¥2,781
30$23,134250

Report of Independent Public Accountants

To the Shareholders and the Board of Directors of Kawasaki Heavy Industries, Ltd.:We have audited the accompanying consolidated balance sheets of Kawasaki Heavy Industries, Ltd. and subsidiaries as of March 31, 2003
and 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2003, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kawasaki Heavy Industries, Ltd. and subsidiaries as of March 31, 2003 and 2002, and the consolidated results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2003, in conformity with accounting principles generally acceptedin Japan as described in Note 1 to the consolidated financial statements.
Without qualifying our opinion, we draw attention to the following:(1) As discussed in Notes 2 (e), (i), (m) and (u) to the consolidated financial statements, effective April 1, 2000, Kawasaki Heavy Industries,
Ltd. and domestic subsidiaries prospectively adopted the revised Japanese accounting standard for foreign currency translation and the
new Japanese accounting standards for financial instruments and retirement and severance benefits.
(2) As discussed in Note 2 (r) to the consolidated financial statements, effective for the year ended March 31, 2001, Kawasaki Heavy
Industries, Ltd. changed the method of accounting for the provision for losses on construction contracts.
(3) As discussed in Note 16 to the consolidated financial statements, effective for the year ended March 31, 2002, Kawasaki Heavy Industries,
Ltd. changed the method of presenting industry segmentation information.
The consolidated financial statements as of and for the year ended March 31, 2003 have been translated into United States dollars solely forthe convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed inJapanese yen have been translated into United States dollars on the basis set forth in Note 1 to the consolidated financial statements.

Asahi & Co.
Kobe, Japan
June 27, 2003

47

Directors, Corporate Auditors, and Executive Officers

Senior Executive Vice President Tadashi Nishimura, President and CEO Masamoto Tazaki, Senior Executive Vice President Takehiko Saeki48

DIRECTORS AND CORPORATE AUDITORSEXECUTIVE OFFICERSDIRECTORS
President and CEO

Senior Executive Officers

Masamoto Tazaki*

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

Senior Executive Vice Presidents

Director

Executive Officers

Shuichi Tadokoro(President
Kawasaki Shipbuilding Corporation)

Isao Shindo

Tadashi Nishimura*
Overall administration of marketingand sales
Takehiko Saeki*
Overall administration of production

Senior Vice Presidents
Takashi Sugoh*
President
Aerospace Company

Shiroh Ikeda
Masakazu Sato

Yoshimitsu Kurosaki
Shoji Aoki

CORPORATE AUDITORS

Akiji Nakamura

Tsunemitsu Nishio

Akira Matsuzaki

Yoshitsugu Wada

Chikashi Motoyama

Mitsugi Maeda**

Shigeru Hamada

Hiroshi Kawamoto**

Shuji Mihara

Takuya Maeda*
President
Plant & Infrastructure Engineering
Company

Mitsuaki Ikeda

Shinichi Morita*
President
Consumer Products & Machinery
Company

Masaru Tomiie

Mikihiko Nakayama*
General Manager
Corporate Technology Division

Fumiaki Amae

Masatoshi Tsurutani
Jiro Noguchi

Norio Tanaka
Kouyu Itoga

Akio Watanabe
Kazuhiko Mishima

Masatoshi Terasaki*
Senior Manager
Corporate Planning Department
Takashi Yoshino*
President
Gas Turbines & Machinery Company(As of June 27, 2003)* Representative Director and Executive Officer** Outside Auditor

49

Major Consolidated Subsidiaries and Affiliates

Name

Location

Paid-in Capital

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

Principal Businesses

SHIPBUILDING
Kawasaki Shipbuilding CorporationJapan

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

Akashi Ship Model Basin Co., Ltd.

Japan

490

100.00(owned by KSC)

Kawaju Kobe Support Co., Ltd.

Japan

50

100.00

Testing and development of ship models,
basic research on fluid dynamics
Outsourcing for office support services(owned by KSC)

Nangtong Cosco KHI Ship Engineering Co., Ltd.†

China

US$80,000*

50.00

Manufacture and sale of ships(owned by KSC)ROLLING STOCK, CONSTRUCTION MACHINERY & CRUSHING PLANT
Kawasaki Rolling Stock Component Co., Ltd.

Japan

140

99.96

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

Kawasaki Rolling Stock Technology Co., Ltd.

Japan

125

98.83

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

Kawasaki Rail Car, Inc.

U.S.A.

US$60,600*

100.00(owned by KMM)

Kawasaki Machine Systems, Ltd.

Japan

343

100.00★❊Nichijo Manufacturing Co., Ltd.

Engineering, manufacture, sale, and after-sales
service of rolling stock in the United States
Sale and repair of construction machinery,gas turbine generators, and industrial robots

Japan

120

50.04

Manufacture and sale of snow removal
equipment

Kawasaki Construction Machinery Corp.

U.S.A.

US$8,000*of America

100.00(owned by KMC)

Manufacture and sale of construction
machinery in the United States

AEROSPACE
Kawasaki Helicopter System Ltd.

Japan

200

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

Kawaju Gifu Engineering Co., Ltd.

Japan

70

100.00Design, manufacture, maintenance, and sale ofparts used in aircraft, ships, and other equipment
and tools

Kawaju Gifu Manufacturing Co., Ltd.

Japan

70

100.00

Processing and assembly of aircraft parts, maintenance and management of tools, repair andinspection of machinery, monitoring and adjustment of measuring instruments

Kawasaki Aeronáutica do Brasil Indústria Ltda.

Brazil

R10,000*

100.00Assembly of major wing section for the

NIPPI Corporation†

Japan

6,048

26.42

Manufacture, maintenance, and modification of air-Embraer 195
craft and components; manufacture of rocket components, aerospace equipment, targeting systems,
nondestructive testing systems, and industrial fans
GAS TURBINES & MACHINERY
Kawasaki Thermal Engineering Co., Ltd.

Japan

1,460

83.59

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

Kawasaki Precision Machinery Ltd.

Japan

3,000

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

Kawasaki Precision Machinery (U.K.) Limited

U.K.

£5,000*100.00

Manufacture and sale of hydraulic products(owned by KPM)

Wuhan Kawasaki Marine Machinery Co., Ltd.

China

1,100

55.00

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

50

Name

Location

Paid-in Capital

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

Principal Businesses

PLANT & INFRASTRUCTURE ENGINEERING
Kawasaki Construction Co., Ltd.

Japan

350

100.00Installation of steel structures

Osaka Power Engineering Co., Ltd.

Japan

90

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

Kawasaki Engineering Co., Ltd.

Japan

100

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

Japan Gas Turbine K.K.†

Japan

1,500

40.00

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

Shanghai Cosco Kawasaki Heavy Industries

China

US$29,800*

45.00

Manufacture and sale of steel structures

Kawasaki Motors Corporation Japan

Japan

560

100.00Distribution of motorcycles and Jet Ski® water-

Kawasaki Metal Industries, Ltd.

Japan

350

100.00

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

U.S.A.

US$70,000*

100.00●

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

Kawasaki Motors Corp., U.S.A.

U.S.A.

US$65,900*

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

Kawasaki Motors Finance Corporation

U.S.A.

US$10,000*

100.00(owned by KMC)

KM Receivables Corporation

U.S.A.

US$100100.00(owned by KMFC)

Canadian Kawasaki Motors Inc.

Canada

C$2,000*

100.00Kawasaki Motors Europe N.V.

Netherlands

A14,093*

100.00Inventory financing for dealers of Kawasaki
Motors Corp., U.S.A.
Management of account receivables of Kawasaki
Motors Finance Corporation
Distribution of motorcycles, ATVs, and Jet Ski®
watercraft in Canada
Sole distribution of motorcycles, ATVs, Jet Ski®
watercraft, and small gasoline engines in Europe

Kawasaki Motors Pty. Ltd.

Australia

A$2,000*

100.00P.T. Kawasaki Motor Indonesia

Indonesia

US$10,000*

51.00

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

Kawasaki Motors (Phils.) Corporation

Philippines

P101,430*

50.001

Manufacture and distribution of motorcycles

Kawasaki Motors Enterprise (Thailand) Co., Ltd.

Thailand

B1,900,000*

92.63

Manufacture and distribution of motorcycles

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

U.S.A.

US$1,000*

100.00in the Philippinesin Thailand(owned by KMC)

Kawasaki Robotics (UK) Ltd.

U.K.

£917*

100.00(owned by KMEU)

Kawasaki Machine Systems Korea, Ltd.

Korea

W1,500**100.00

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

51

Name

Location

Paid-in Capital

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

Principal Businesses

OTHER
Kawasaki Safety Service Industries, Ltd.

Japan

1,708

67.74

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

Kawasaki Hydromechanics Corporation

Japan

436

100.00

Manufacture, sale, and installation of hydraulic

Kawaju Shoji Co., Ltd.

Japan

600

70.00

Trading

Kawaju Real Estate Co., Ltd.

Japan

320

100.00Administration of Company welfare facilities;

Kawasaki Kosan Co., Ltd.

Japan

300

100.00presses and other hydraulic equipment

real estate sales, leasing, and construction
Insurance representation, real estate leasing,administration and maintenance, leasing, andprovision of loans
Kawasaki Foods Co., Ltd.

Japan

160

100.00Food supply to Company facilities, operationof dining facilities

Kawaju Tomakomai Kanko Kaihatsu Co., Ltd.

Japan

300

100.00Management of a golf course

Kawasaki do Brasil Indústria e Comércio Ltda.

Brazil

R1,136*100.00

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

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

U.S.A.

US$600*100.00

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

Kawasaki Heavy Industries (U.K.) Ltd.

U.K.

£500*

100.00

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

Kawasaki Setsubi Kogyo Co., Ltd.†

Japan

1,581

33.87

Design and installation of air-conditioning,heating/cooling, water supply/disposal, andsanitary facilities(As of March 31, 2003)* Monetary unit in thousands** Monetary unit in millions†
Affiliate accounted for using equity method
KMM: Kawasaki Motors Manufacturing Corp., U.S.A.
KMC: Kawasaki Motors Corp., U.S.A.
KMFC: Kawasaki Motors Finance Corporation
KMEU: Kawasaki Motors Europe N.V.
KSC: Kawasaki Shipbuilding Corporation
KPM: Kawasaki Precision Machinery Ltd.
Partially included in:● Rolling Stock, Construction Machinery & Crushing Plant★ Gas Turbines & Machinery❊ Consumer Products & Machinery52

Network(As of August 1, 2003)

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
Noda Works
118, Futatsuzuka, Noda,
Chiba 278-8585, Japan
Phone: 81-4-7124-1121
Fax: 81-4-7124-7645

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

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

Shanghai Office

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

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

Gifu Works

Taipei Office

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

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

Yachiyo Works

Nagoya Works 1
3-11, Oaza Kusunoki, Yatomi-cho,Ama-gun, 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: 81-78-682-5500

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

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

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

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

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

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

Jakarta Office
14th Floor, Skyline Bldg.,
Jl. M.H. Thamrin 9,
Jakarta 10340, Indonesia
Phone: 62-21-314-0737
Fax: 62-21-314-1049

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

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

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

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

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

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

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

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

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

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

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

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

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

53

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

Kawasaki Heavy Industries (Europe) B.V.

KHI Design & Technical Service Inc.

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

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

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

KHI Europe Finance B.V.

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

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

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

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

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

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

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

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

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

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

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

Kawasaki Robotics G.m.b.H.
29 Sperberweg, 41468 Neuss, Germany
Phone: 49-2131-34260
Fax: 49-2131-930973

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

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

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

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

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

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

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

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

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

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

Kawasaki Motors Enterprise (Thailand) Corp., Ltd.
129 Rama IX Road, Kwaeng Huakwang,
Khet Huaykwang, Bangkok 10320, Thailand
Phone: 66-2-246-1510
Fax: 66-2-246-1517

54

Kawasaki Motors (Phils.) Corporation

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

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

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

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

Robots International Limited
21, Archbishop Street,
Valetta, Malta
Phone: 356-320897
Fax: 356-346041

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

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

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

Kawasaki Motors Service Co., Ltd.
129 Rama IX Road, Kwaeng Huaykwang,
Khet Huaykwang, Bangkok 10320, Thailand
Phone: 66-2-246-1510

Kawasaki Corporate Data
(As of March 31, 2003)

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:
Asahi & Co.
Kobe Crystal Tower, 1-3,
Higashikawasaki-cho 1-chome,
Chuo-ku, Kobe, Hyogo 650-8680, Japan

Paid-in Capital: ¥81,427,090,720
Number of Shares Outstanding: 1,390,597,636 shares*
Number of Shareholders: 129,656

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

Number of Employees: 28,642
Stock Exchange Listings:
Tokyo, Osaka, Nagoya, Fukuoka, Sapporo**
Newspapers in Which Public Notices Are Made:
The Nihon Keizai Shimbun
The Kobe Shimbun

ADR Depository:
The Bank of New York
101 Barclay St., 22 West,
New York, NY 10286, U.S.A.
Phone: 1-212-815-2042
U.S. Toll Free: 888-269-2377(888-BNY-ADRS)
http://www.bankofny.com/adr
KHI Web Site at: http://www.khi.co.jp* Following the exchange of shares with NIPPI Corporation, conducted
on April 1, 2003, the number of KHI shares outstanding was 1,443,394,172.
** The Company delisted its shares from the Fukuoka Stock Exchange andSapporo Securities Exchange in May 2003.

55

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