Kawasaki Heavy Industries, Inc
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Profile Founded in 1878, Kawasaki Heavy Industries, Ltd. (KHI) is a leading comprehensive manufacturer of transportation equipment and industrial goods in the world. With a broad technological base that encompasses land, sea and air, KHI manufacturers ships, rolling stock, aircraft and jet engines, refuse incinerators, industrial plants, steel structures and various manufacturing equipment and systems. KHI also produces such world-famous consumer products as Kawasaki brand motorcycles and Jet Ski® personal watercraft. Contents Financial Highlights 1 To Our Shareholders 2 Outline of Kawasaki Global Operations 5 Transportation Equipment 6 Sh i p s 6 Rolling Stock 8 Consumer Products 10 Ae r o s p a c e 12 Industrial Equipment 14 Machinery, Environment & Power Plants 14 Plant Engineering & Steel Structures 16 Composites of Consolidated Sales 18 Financial Review 20 Supplementary Information on Non-Consolidated Results 22 Consolidated Balance Sheets 24 Consolidated Statements of Income 26 Consolidated Statements of Shareholders' Equity 27 Consolidated Statements of Cash Flows 28 Notes to the Consolidated Financial Statements 29 Report of Independent Public Accountants 40 Cover: Six-Year Summary 41 XOH-1 No.2, a prototype of OH-1 light Board of Directors 42 observation helicopter. A total of four XOH-1s Consolidated Subsidiaries 44 were delivered to the Japan Defense Agency Ne t w o r k 47 between May and August 1997. Kawasaki Corporate Data 49 Received the Howard Hughes Award. Financial Highlights Kawasaki Heavy Industries, Ltd. and consolidated subsidiaries Years ended March 31, 1998, 1997 and 1996 Thousands of Millions of yen U.S. dollars 19 9 8 19 9 7 19 9 6 19 9 8 For the year: Net sales ¥1 , 2 9 7 , 2 1 2 ¥1 , 2 2 4 , 2 5 9 ¥1 , 0 8 6 , 2 4 4 $9 , 8 1 9 , 9 2 4 Net income 18 , 5 5 6 22 , 5 7 2 16 , 4 6 2 14 0 , 4 6 9 Capital expenditure 42 , 9 2 8 35 , 1 3 0 39 , 3 1 9 32 4 , 9 6 6 Depreciation and amortization 32 , 4 1 6 31 , 2 4 5 30 , 8 2 3 24 5 , 3 9 0 At year-end: Total assets 1, 2 2 2 , 9 0 6 1, 3 0 3 , 1 6 8 1, 2 5 2 , 3 7 1 9, 2 5 7 , 4 2 6 Total shareholders’ equity 20 9 , 0 4 0 19 7 , 1 6 1 16 2 , 9 8 4 1, 5 8 2 , 4 3 7 Interest-bearing debt 43 7 , 3 8 7 44 7 , 2 1 0 44 1 , 4 3 7 3,311,029 Per share amounts (yen and U.S. dollars): Net income ¥1 3 . 3 ¥1 6 . 4 ¥1 2 . 2 $0 . 1 0 Cash dividends 6.0 7.0 5.5 0. 0 5 Note: The U.S. dollar amounts represent arithmetical results of translating Japanese yen to dollars on the basis of ¥132.10=$1, the rate prevailing as of March 31, 1998. These translations are solely for the convenience of the readers. NET SALES NET INCOME TOTAL SHAREHOLDERS’ EQUITY (Billions of yen) (Billions of yen) (Billions of yen) 1,400 25 250 1,200 20 200 1,000 15 150 800 600 10 100 400 5 50 200 0 0 0 94 95 96 97 98 94 95 96 97 98 94 95 96 97 98 1 To Our Shareholders We are pleased to report on the business results of In keeping with the Company's policy of stable Kawasaki Heavy Industries, Ltd. (the “Company”) and dividends, the total cash dividend for fiscal 1998 was its consolidated subsidiaries (collectively, with the ¥6.0 per share. Company, “KHI”) for the fiscal year ended March 31, In line with the recent international movement toward 1998 (“fiscal 1998”). the standardization of accounting policies, KHI made a major change in its accounting policy for recognition of OPERATING RESULTS revenue deriving from large-scale and long-term During fiscal 1998, the stagnation of the Japanese construction contracts by substituting the percentage-of- economy became more pronounced. Public-sector completion method for the completed-contract method. investment declined, as did consumer spending, with KHI believes that this change increases transparency and worries continuing over the Japanese financial system more accurately represents operational performance. and other aspects of the economy. Overseas, the picture was mixed. While the U.S. economy continued OUTLOOK its expansion and the major European economies In Japan, we anticipate a long-term slump in personal enjoyed modest growth, Asian countries such as consumption and declines in both public and private Thailand, Indonesia and South Korea suffered severe investment. These factors will put further downward downturns. pressure on wholesale prices and raise the In spite of the adverse management environment, unemployment level. Adding in the problem of non- KHI was successful in developing overall operations. performing loans held by Japanese financial An increase in net sales was accounted for primarily by institutions, we foresee a worsening of the present higher sales in the Transportation Equipment and recession. We are hopeful that the government will take Aerospace segments, which more than offset a measures to improve the general economy, but it is decrease in sales of the Industrial Equipment segment difficult to make predictions in this area. that resulted from a decline in public-sector Overseas, there are some fears that the U.S. investment. economy may be overheating, although it continues to KHI's net sales for fiscal 1998 totaled ¥1,297.2 billion, perform well. The economies of Europe are in a an increase of 6% over fiscal 1997. recovery phase, and the imminent currency unification Despite vigorous company-wide measures to may act as a further spur. In Asia, the confusion that improve profitability, the profit for fiscal 1998 was less arose from currency instability and the consequent than that for fiscal 1997. A drop in operating income economic stagnation will continue for some time. was caused substantially by the lower profitability of large-scale contracts for rolling stock with U.S. customers and the above-mentioned decrease in sales of Industrial Equipment. Operating income was ¥51.1 billion. Net income was ¥18.6 billion. 2 Toshio Kamei Dr. Hiroshi Ohba President Chairman and CEO ACTIVE RESPONSE Creating and Expanding New Business Fields With increased trade liberalization, the world economy We are now creating and nurturing the operations that is rapidly becoming borderless, a development that will form the nucleus of our business in the coming means intensified price competition on a global scale. In century. Toward that end, we will proceed priority the face of this extremely severe situation, KHI is investment of corporate resources in fields where we energetically promoting its corporate policies with a anticipate significant growth. We will also plan view to ensuring its prosperity as a global enterprise in development strategies that harmonize precisely with the next century. market needs, while achieving a fusion of planning, sales and technology. We are also promoting effective technological development. In the fields of electric 3 power generation, environmental recycling, and further reduction in overall production costs. Another transportation, where our objective is to create new goal is an increase in the efficiency of the back office operations, we want to combine technology and know- and administrative functions. how on a company-wide basis to achieve a quick and Globalization of Operations steady expansion of our business activities. Another priority is further globalization in operational Comprehensive Systems Engineering Enterprise development. In order to strengthen its international We are determined to promote our development as a competitiveness, KHI will adopt a multi-faceted comprehensive systems engineering enterprise. There approach to overseas markets, including business is a growing trend on the part of our clients in Japan expansion in new international markets, overseas and overseas toward proposals for en-bloc system production and procurement, and tie-ups with overseas orders. In responding to these proposals, we must co m p a n i e s . incorporate related products within a systems In fiscal 1997, in China, we entered into joint engineering structure so that the whole is greater than ventures for the production of marine hydraulic the sum of the parts. machinery in Wunan and for the creation of a In the environmental field, we are promoting total shipbuilding operation in Nantong. We followed up system operations comprising pulverization, these moves with the startup of a joint venture on incineration, power generation, exhaust-gas processing, Hainan Island for the production of engines for ash melting, and recycling. In the transportation field, motorcycles and a venture for steel structures in we are pursuing total traffic control systems which Shanghai. In Southeast Asia, KHI assumed control of the include track, signals, maintenance depots and total motorcycle manufacturing and sales operations of a operational control systems as well as rolling stock. company in Thailand, establishing a new company over which KHI has operational control. Big Reduction in Costs In the United States, we received an order for 400 We are making strong efforts to reduce costs at least in next-generation subway cars from the New York City line with the decline in market prices. In addition to Transit Authority. Production of the cars will be conventional cost-reduction measures, we must undertaken concurrently at the Hyogo Works in Japan reassess our design philosophy from the ground up, and the Yonkers Plant in the United States. Delivery is and that involves a change in conceptual thinking. scheduled for the year 2000. Based on a full analysis of what our customers truly need, we will design products that eliminate waste and increase efficiency at minimum cost.