year ended 31 march 2003 - hitachizosen.co.jp · absorbed hec corporation. we will aggressively...

ANNUAL REPORT 2003Year ended 31 March 2003

Hitachi Zosen Corporation’s comprehensive technologies have allowed it to swiftly identifysocial needs and become a leading global enterprise. Together with its 143 subsidiaries aroundthe world, Hitachi Zosen has expanded beyond its traditional base in heavy industrialmachinery to provide an array of services and information systems as part of a drive to becomea technology and business innovator. To support this transformation, in October 2002 theCompany span off its shipbuilding and offshore structure operations and began using “Hitz” asits corporate brand.

Hitachi Zosen pursues technological advances in such fields as environmental systemsand industrial plants, steel structures, construction machinery and logistics systems, industrialmachinery and prime movers, and electronics and information systems.

Hitachi Zosen’s mission is to provide solutions that contribute to economic developmentand rising living standards around the world and operate in harmony with local communitiesand the environment.

CONTENTS

1 Financial Highlights2 A Message from the Management 4 Hitz-Advance—Our Medium-Term Management Plan 6 Review of Operations

12 Financial Section37 Board of Directors and Executive Officers37 Corporate Data38 Corporate Directory

PROFILE

FINANCIAL HIGHLIGHTSHitachi Zosen Corporation and Consolidated Subsidiaries

2001

2000

1999

2003

2002

462,202

475,360

517,383

395,239

439,109

Net Sales (Millions of yen)

Net Income (Loss) (Millions of yen)

Shareholders, Equity (Millions of yen)

Total Assets (Millions of yen)

2,909

2,374

(27,294)

(35,062)

3,460

59,472

55,405

59,500

27,499

61,852

661,368

668,847

718,497

470,504

638,812

2001

2000

1999

2003

2002

2001

2000

1999

2003

2002

2001

2000

1999

2003

2002

1

Net sales..........................................Net income (loss)...........................Net income (loss) per share ..........

¥439,1093,460

¥ 3.45

1999

Millions except for per share amounts and numbers of employeesYears ended 31st March,

¥517,383 (27,294)

¥ (27.23)

2000

¥475,3602,374

¥ 2.37

2001

¥462,2022,909

¥ 2.90

2002

¥395,239

(35,062)

¥ (69.81)

2003

$3,288

(292)

$(0.58)

2003

Total assets .....................................Shareholders’ equity ......................

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

¥638,81261,852

10,403

¥718,49759,500

11,054

¥668,84755,405

10,867

¥661,36859,472

10,723

¥470,504

27,499

8,014

$3,914

229

1999As of 31st March,

2000 2001 2002 2003 2003

Notes: 1. U.S. dollar amounts in this annual report are translated from yen, for convenience only, at the rate of

¥120.20=U.S.$1.00. (See Note 1 of the Notes to the Consolidated Financial Statements.)

2. The computation of net income per share is based on the weighted average number of shares outstanding during

each period.

A MESSAGE FROM THE MANAGEMENT

Overview

In fiscal year, ended March 31, 2003, the

Japanese economy failed to fully recover

and generally languished. Private sector

capital investment remained lackluster

despite some signs of a turnaround as cor-

porate earnings improved. Public sector

spending was mostly at a low ebb. Other

negative factors included cloudy prospects

for the global economy and low share

prices in Japan.

Our operating environment was again

extremely adverse owing to shrinking pri-

vate sector capital investment and public

spending demand and chronically intense

price competition.

On October 1, 2002, we span off our

shipbuilding business to form Universal

Shipbuilding Corporation. To mark this

major transformation in our operations,

we began using “Hitz” as our new corpo-

rate brand.

Against this backdrop, we strove

companywide under Hitz-Advance, our

medium-term management plan, to bol-

ster the competitiveness of our products

and step up marketing to secure more

orders. As a result of these efforts, we

were able to keep consolidated sales

generally at the levels of the previous fis-

cal year. In conjunction with the spin-off

of our shipbuilding business, however,

the application of the equity method

from the second half of the term to ship-

building and offshore structures lowered

net sales to ¥395,239 million (U.S.$3,288

million), while operating income was

also down, to ¥12,424 million (U.S.$103

million).

We posted a net loss of ¥35,062 million

(U.S.$292 million). This reflected extraor-

dinary losses from spending we made on

new structural reforms designed to stabi-

lize operations. The goal was to accelerate

the implementation of initiatives that can

help us overcome the currently tough

operating conditions by building a solid

financial position and business founda-

tions. We decided to waive the issue of

cash dividends in light of the loss.

Since our capital fell to well below lev-

els needed to cover the losses, we held an

extraordinary meeting of shareholders on

January 16, 2003, where it was proposed

and approved to reduce capital by 50%

and consolidate every two shares into

one. A shortage of capital appropriation of

the earned surplus, stemming from the

capital reduction, was approved at the

annual general shareholders’ meeting and

was eliminated.

Outlook

We will endeavor to optimize our Group

operating structure by pursuing Group

management. We will accelerate structural

reforms to concentrate on the Group’s

strengths and thereby speed up product

development and expand solutions busi-

nesses. On top of that, we aim to reinforce

core operations through mergers and

acquisitions, alliances, and collaboration,

2

Junichiro Kojima, Chairman Takenao Shigefuji, President

while broadening strategic

areas to build sounder man-

agement foundations.

It will also be a top priority

to step up efforts to lower

both variable and fixed costs

and draw on technological

innovation initiatives to sup-

port our strategy of offering

industry-leading products,

thus enhancing revenues and

earnings.

We also aim to reinforce

the Group’s capital manage-

ment by increasing free cash

flow through more aggressive

operations based on our

efforts to solidify our product

strategy and by instituting a

cash management system. In

addition, we will work to slash

interest-bearing debt and write off losses

to improve our overall financial position.

For fiscal year ending March 31, 2004,

we target consolidated net sales of ¥330

billion, ordinary income of ¥11 billion, and

net income of ¥6.5 billion.

We will do our best to make Hitz

Hitachi Zosen truly profitable and valuable

and implement effective policies more

quickly so we can enhance our revenues

and earnings, solidify our management

foundations, and build even more enter-

prise value.

We ask for the ongoing support and

encouragement of our shareholders, cus-

tomers, and business partners for our

management policies.

June 2003

Junichiro Kojima, Chairman Takenao Shigefuji, President

3

In April 2002, we launched Hitz-Advance, a

management plan covering fiscal 2003 through

2007. This initiative is guiding our exit from

heavy industry through its foundations and

progress policies, and is outlined below.

We are striving to accelerate the implemen-

tation of policies and reach our ordinary

income goals under Hitz-Advance while

endeavoring to cut interest-bearing debt more

than initially planned and more ahead as a revi-

talized Hitachi Zosen.

(1) Implementation Plansi. Revenues and earnings structure reforms

To ensure a fast turnaround, we will build a busi-

ness structure that provides ordinary income

exceeding ¥5 billion from at least ¥200 billion in

parent sales.

ii. Progress policies

We will move away from heavy engineering and

accelerate structural reforms so we can draw on our

technologies to provide comprehensive products

and services.

iii. Strengthening our financial position

We aim to divest assets and strengthen Group asset

management to reduce interest-bearing debt, thus

enhancing our financial position.

(2) Revenues and Earnings Structure

Reforms

We are overhauling our revenues and earn-

ings structure so we can achieve the desired

ordinary income.

We will set up a business structure that

allows us to generate at least ¥5 billion in ordi-

nary income from revenues as low as ¥200 billion.

i. Rationalization plans

In fiscal 2004, we will reduce the number of employ-

ees while cutting bonuses and salaries, thus reduc-

ing personnel costs 17%, or ¥3.1 billion.

In fiscal 2004, we will step up efforts to slash

other fixed costs on a nonconsolidated basis by

¥2.9 billion, or 21%, from a year earlier.

ii. Lowering spending by streamlining our

multilayered cost structure

We will review the multilayered cost structure

comprising our affiliates, partners, and subcon-

tractors, to dramatically cut expenses. A good

example of this is our absorption of HEC Corpora-

tion, through which we will create an integrated

system, for environmental business design, con-

struction, and after-sales service, thus adding ¥2

billion to earnings. On top of that, we will reorga-

nize or shut down other affiliates. We plan to

reduce the number of affiliates by one-third from

the current 158.

iii.Steel Structures and Construction Machinery

Operations

The Sakai Works will take over the bridge, water

gate, and marine structure operations of our

Mukaishima Works. We will withdraw from the

unprofitable culture and leisure business and

strengthen our disaster-prevention and ocean

operations. Through these efforts, Steel Structures

and Construction Machinery operations should be

able to post profits from parent sales of around ¥35

billion.

iv. Progressively reforming our electronics and

information systems businesses

We will accelerate progress in our information

industry-related operations by reorganizing and

consolidating related Group businesses, structures,

and personnel, while concentrating management

resources at affiliates.

4

Hitz-ADVANCE—OUR MEDIUM-TERMMANAGEMENT PLAN

(3) Progress Policies

We will execute the following basic strategies

so we can post ¥440 billion in consolidated

orders and ¥280 billion in nonconsolidated

orders by fiscal 2007.

i. Environmental businesses

We will harness our ample expertise, trackrecord, and leading-edge technologies in buildinga structure that integrates everything fromdesign through after-sales service at theabsorbed HEC Corporation. We will aggressivelyexpand solutions businesses that center on pri-vate finance initiative-based commissions andafter-sales service operations and maintenance.We will accelerate the deployment of differentiat-ed strategies in solid waste treatment, in whichwe enjoy a top market share, in such water busi-ness-related areas as sewage and sludge treat-ment, which we plan to take over from NiigataEngineering. We thereby seek to become a top —and balanced — manufacturer in comprehensiveenvironmental services.

ii. Strategic businesses

We will expand the following businesses to become

eventual pillars of operations:

Electromachinery business, covering such areas

as flat panel displays, semiconductors, and opto-

electronics

Information industry-related businesses

a) Computer-aided design and manufacturing,

product lifecycle management, global position-

ing and geographic information systems, out-

sourcing, and other business solutions

b) Electronic boards, simulations, and other sys-

tems fabrication businesses

c) Electronic commerce operations, most notably

our travel reservation site

Energy-related businesses (augmenting the

Group’s engineering, information technology, and

services capabilities with core products and tech-

nologies that are more efficiency and cleaner)

Industrial machinery business (making plastics

machinery that handles recycling while respond-

ing to diversification in food and pharmaceuticals

machinery)

Cultivating disaster prevention and ocean busi-

nesses

(4) Strengthening Our Financial Position

We will step up the centralized management of

Group assets following our transfer of assets to

Universal Shipbuilding Corporation and press

on with the divestment of shares and unused

property. We will thus lower interest-bearing

debt from ¥298.8 billion as of the end of March

2002, to ¥170.0 billion by the end of March

2007.

(5) Consolidated Operating Targets

•

•

•

5

•

•

Orders

Net sales

Ordinary income

Net income

Interest-bearing debt

FY2003

390

400

8

–35

230

FY2004

370

330

11

6.5

207

FY2005

400

370

15

10

190

FY2006

420

380

17

7

185

FY2007

440

410

20

9

170

(Billions of yen)

(Interest-bearing debt was ¥298.8 billion at the end of

March 2002)

Performance Overview

In fiscal 2003, private sector capital investment

in Japan showed some improvement owing to

stronger corporate earnings. Operating condi-

tions were tough overall, however, as this recov-

ery in spending lacked momentum, while public

sector investment was generally at a low ebb.

Against this backdrop, the Company

endeavored under Hitz-Advance, its medium-

term management plan, to make its products

more competitive and step up marketing to

secure more orders. Nonetheless, orders fell

18.9%, to ¥348,289 million (U.S.$2,898 mil-

lion), because of large drops in Shipbuilding

and Offshore Structures following the spinoff

of shipbuilding operations. On the positive

side, orders rose for the core Environmental

Systems and Industrial Plants business. A drop

in revenues from Ship-

building and Offshore

Structures overshad-

owed gains in Environ-

mental Systems and

Industrial Plants and in

Steel Structures, Con-

struction Machinery and

Logistics Systems, caus-

ing net sales to decrease

10.0%, to ¥395,239 mil-

lion (U.S.$3,288 million).

Despite intensive cost-

cutting and reductions in

fixed expenditure, oper-

ating income declined

18.1%, to ¥12,424 million

(U.S.$103 million).

In Environmental

Systems and Industrial

Plants, sales were down

1.8%, to ¥162,739 million (U.S.$1,354 million).

This was because aggressive marketing was not

sufficient to overcome a large decline in

demand for core municipal refuse incineration

plants and ongoing sluggishness in related pub-

lic sector spending. Operating income from this

segment plunged 30.7%, to ¥5,117 million

(U.S.$43 million). This was due to stiff price

competition domestically and the deteriorating

profitability of consolidated affiliates.

Sales of Shipbuilding and Offshore Struc-

tures plummeted 41.2%, to ¥78,043 million

(U.S.$649 million), owing to the spinoff of

shipbuilding operations. Operating income

dropped 26.5%, to ¥6,174 million (U.S.$51

million).

In Steel Structures, Construction Machin-

ery and Logistics Systems, sales were up

0

100

200

300

400

500

¥billion

106.0

55.8

144.5

123.1

35.7

143.3

68.1

101.1

FY2002 FY2003

¥429.4 billion

¥348.2 billion

312.5 billion∗

Shipbuilding and Offshore Structures Business Spun off to become equity method affiliate

Environmental BusinessesParent revenues up 17% but consolidated results flat

Strategic Businesses Overall rise of 22%

Other Businesses (Including shipbuilding operations not spun off)

Increase 2.0%

FY 2003 Consolidated Orders Resulting from Policy Initiatives

306.3 billion∗

∗These numbers represent order for fiscal 2002 and 2003 after factoring out Shipbuilding and Offshore Structures

6

REVIEW OF OPERATIONS

reconstructing a municipal incineration plant

for the Clean Association of Tokyo 23. We also

won orders from Fukuoka Prefecture for a

refuse-derived fuel (RDF) production plant and

Recycling Plazas. In Taiwan we secured orders

for a municipal refuse incineration plant.

Thanks to the acquisition of water and sludge

businesses from Niigata Engineering Co., Ltd.,

we won orders for water and sludge treatment

facilities from the Japan Sewage Works Agency

and other municipalities.

Major completions and deliveries during

the year focused on the first gasification melt-

ing furnace for Sakurai in Nara Prefecture,

followed by an RDF gasification melting fur-

nace in Ishikawa Prefecture, and a gasifica-

tion furnace in Nagasaki Prefecture, for which

we expect more demand in future. We also

handed over a large municipal refuse inciner-

atior in Tochigi Prefecture and advanced gas

treatment systems to other municipalities

during the term.

In the private finance initiative or solution

business, we reinforced our management

technology to secure contracts for long-term

operation and management of an RDF gasifi-

cation melting furnace plants from the

Ishikawa North RDF Treatment Association

26.8%, to ¥52,190 million (U.S.$434 million).

This was despite a very difficult order environ-

ment stemming from lackluster spending in

the public sector and in related parts of the

private sector. We posted an operating loss of

¥1,806 million (U.S.$15 million) for this seg-

ment, compared with ¥2,160 million in fiscal

2002. Shrinking public sector spending

demand resulted in this being the sole loss-

making segment during the term. The Compa-

ny is pursuing a restructuring to ensure that

the segment can generate profits from its cur-

rent sales scale, centering its efforts on steel

structures.

Sales of Machinery and Prime Movers were

off 5.1%, to ¥58,019 (U.S.$483 million), owing

to low investment in related parts of the public

sector. Operating income surged 32.9%, how-

ever, to ¥1,277 million (U.S.$11 million), on the

strength of rigorous cost-cutting.

In other businesses, sales jumped 12.4%, to

¥51,795 million (U.S.$431 million), while oper-

ating income rocketed 183.9%, to ¥1,641 mil-

lion (U.S.$14 million). These results benefited

from growth in the Internet business, headed

by the travel reservation site of MYTRIP NET

Co., Ltd., and successes in the precision posi-

tioning information business, which harnesses

global positioning systems.

Environmental Systems and Industrial

Plants

In fiscal 2003, orders for environmental plants

and equipment remained severe due to slow

demand for major municipal refuse incinera-

tion and sluggish environment-related public

spending.

Under such circumstances, we received

several new orders. They included one to

7

Melting Furnance Plant for Sakurai in Nara, Japan

and for an RDF production plant from Okunoto

Clean Association.

We won an order from Kyoto City to

construct a plant that produces biodiesel

fuel — an environmentally friendly alterna-

tive — from waste cooking oil. Biodiesel fuel

substantially reduces not only particle and

sulfuric oxide emissions and soot but also

cuts the consumption of diesel fuel, thereby

containing carbon dioxide emissions. Hitachi

Zosen will develop and commercialize envi-

ronmental plants and equipment that curb

carbon dioxide emissions responsible for

global warming, in keeping with the goal of

the Third Session of the Conference of the

Parties to the United Nations Framework

Convention on Climate Change (COP3), held

in Kyoto in 1997.

In the industrial plant business, we received

an equipment and device order for a desalina-

tion plant in Algeria. In Japan and abroad, we

secured and completed orders for LNG Plants

and denitrification process facilities.

Steel Structures, Construction

Machinery and Logistics Systems

We experienced extremely adverse operating

conditions in the year under review, reflecting

dramatically lower public spending, particularly

on bridges and water gates.

During the term, we won an order from the

Japan Highway Public Corporation for the steel

superstructure of the Fujikawa Viaduct to be

constructed on the Second Tomei Expressway.

The Metropolitan Expressway Public Corpora-

tion ordered a superstructure and pier for the

Honmoku junction. The Kawasaki Metropolitan

Government ordered a superstructure for

maintenance of its Daishi Bashi Bridge. Deliver-

ies included the superstructure of the Minami

hanna Highway Viaduct for the Osaka Prefec-

tural Road Public Corporation. We delivered

the steel superstructure of the Sakae Bridge to

the Japan Highway Public Corporation. We

delivered furnaces to the thermal power sta-

tions of electric power companies. We secured

and completed additional orders from the Min-

istry of Land, Infrastructure and Transport,

expressway public corporation, local govern-

ment offices, electric power companies, and

general contractors for bridges, hydraulic gates,

marine engineering structures, and architectur-

al structures.

In construction machinery and logistics,

both public and private sector capital invest-

ment were low throughout the year, so the

8

RDF Gasification Melting Furnance for Ishikawa, Japan

Chitose Bridge for Osaka


Orders for prime movers were relatively

solid, reflecting higher demand for retail gener-

ating facilities. We received and filled orders for

generating facilities in Japan, including for gas

engine generating facilities and variable heat

and power gas turbine generators. We received

orders from domestic shipyards for next-gener-

ation electronically controlled diesel engines

that lower nitrous oxide emissions, reduce fuel

consumption, and improve operability. We also

won many orders from local and foreign ship-

yards for diesel engines.

Precision Machinery Business

Launching Flat Panel Display Manufacturing

We have established the Electromachinery

Office as a strategic base for our precision

machinery operations. In addition, we made

Fuji Daiichi Seisakusho Co., Ltd., a wholly

owned subsidiary. That company boasts out-

standing technologies and knowhow in the flat

panel displays field as a specialist manufacturer

of vacuum equipment.

We integrated that company’s techno-

logies with those of Hitach Zosen Metal

Works Co., Ltd., V TEX Corporation, and

Takei Electric Industries Co., Ltd. We formed

a capital alliance with the latter player,

whose strength is in precision information

technology facilities. We thus launched

operating environment was again severe.

Nonetheless, the shield tunneling machine mar-

ket remained relatively favorable. We received

and completed several orders from domestic

and overseas construction firms during the

term for tunneling machines, including from

Singapore and Taiwan for subway construc-

tion. In addition,

we received orders

for and delivered

multi-story parking

systems, and logis-

tics and conveyor

systems to local

governmental of-

fices and general

contractors.

Machinery and Prime Movers

Machinery orders were hampered by unfavor-

able operating conditions, as related private

sector capital investment was again sluggish.

Against this background, we received and

completed orders in Japan and overseas for

presses for automakers, filling systems from

domestic food and pharmaceutical companies,

plastic extruding systems from chemicals

corporations, and waste plastic recycling

facilities from steelmakers.

9

Tunneling Machine

Waste Plastic Recycling Facilities

Gas Engine Cogeneration Facilities

engineering oper-

ations in flat panel

display equipment

production, in-

cluding for or-

ganic electrolumi-

nescent displays,

and in peripheral

equipment.

New Businesses

In light of the spin-off of our shipbuilding

operations, we are pursing strategic growth in

several fields to complement our core environ-

mental systems business. These areas as infor-

mation, energy, and precision and industrial

machinery.

In the energy field, we have continued to

supply electricity to electric power companies.

We have delivered emergency gas engine

cogeneration facilities in Japan. These facilities

offer high generating efficiency and are

designed for use as backup power sources for

office buildings. We have also built a structure

that allows us to serve the full range of generat-

ing capacity needs, with a lineup that encom-

passes gas turbines and diesel and gas engine

generating facilities. On top of that, we are

broadening our capabilities in the natural ener-

gy generating business, which covers wind

power and other facilities.

We will continue to expand our energy ser-

vices business, making proposals that best suit

customer needs and providing consultation on

ways to conserve energy.

Technology Development

In April 2003, the Technology Headquarters

integrated the Quality Assurance Group and

the Environmental Protection Group of the

Technology Department to center its quality

and environmental efforts on the requirements

of the International Standards Organization. At

the same time, the Technical Research Institute

shifted the Information Technology Research

Office from the Products and Systems Center

to the Basic Technology Center to form the

Controls and Information Technology Research

Office. The latter move created a structure in

which we can support business groups and

Group companies and help them accelerate

product development through the greater use

of control and information technologies in

keeping with our strategies.

To aid research and development as we

accelerate the deployment of Hitz-Advance, we

are reinforcing our Technological Revolution 21

initiative, which centers around our Technology

Strategy Office. In other words, we are priori-

tizing development designed for near-term

results at our business groups. We are harness-

ing our leading position in comprehensive

environmental businesses to emphasize indus-

try-leading business development and efforts to

strengthen our capabilities in energy and

resources development. Our main focuses in

marine and disaster-prevention are disaster

prevention and infrastructural development.

We concentrate on precision information tech-

nology areas in our industrial and precision

operations. In the information field, we are pur-

suing development related to global positioning

systems and solutions. We are also concentrat-

ing on development related to nanotechnology

and other new areas in preparation for the sec-

ond half of Hitz-Advance.

The Development Project Office is working

with the New Business Development Office to

10

OLED Manufacturing System


To pursue growth in one strategic area,

industrial and precision machinery, we took

over Takei Electric Industries Co., Ltd. That

company is an outstanding manufacturer of

precision facilities for CD, DVD, flat panel

display, semiconductor, and mechatronics

equipment.

We also acquired Fuji Daiichi Seisakusho

Co., Ltd. That company makes multiplayer

deposition equipment for organic electrolumi-

nescent displays and has a strong track record

in technologies from the production of vacuum

equipment for semiconductors and flexible dis-

play panels.

In information technology, a subsidiary com-

pany, MYTRIP NET Co., Ltd., serves more than

2,570,000 members through its hotel accommo-

dations site, giving it a No. 1 market share.

To expand our business in next-generation

global positioning systems, we established Nip-

pon GPS Solutions Corporation. That sub-

sidiary has received an order from the Geo-

graphical Survey Institute to upgrade 270 of its

base stations. Nippon GPS Solutions has a man-

date to work on all 1,200 of the institute’s base

stations.

We will step up efforts to reorganize and

integrate Group companies and concentrate

resources as part of a focus on consolidated

Group management.

At the same time we

will transform our-

selves from merely

being a manufacturing

entity to become an

enterprise that pro-

vides products and

solutions.

swiftly commercialize hydrogen production

equipment, flat panel display glass recycling

equipment, and other products. It is also work-

ing to quickly incubate and transfer an informa-

tion technology-related polishing machine, car-

bon nanosheet application equipment, and

other offerings to business groups.

Hitachi Zosen Group Firms

At the close of fiscal 2003, the Hitachi Zosen

Group comprised 143 companies, of which eight

were listed in Japan. These companies engage in

an array of operations.

Highlights of the Year

In October 2002, we merged our core ship-

building operations with those of NKK Corpora-

tion to form Universal Shipbuilding, which

boasts ¥150 billion in sales.

In the shield tunneling machine business,

we established an integrated production com-

pany, Geological Technology & Machinery Co.,

Ltd. with Hitachi Construction Machinery Co.,

Ltd. We took over the water and sludge pro-

cessing operations of Niigata Engineering and

absorbed HEC Corporation to strengthen our

capabilities in environmental systems.

We have implemented strategic mergers and

acquisitions to expand our business as part of a

drive to overhaul operations and become a total

solutions-based, high-value-added enterprise

11

NetServ 2000 High-PrecisionServer Type RKT-use GPS Receiver

Conductive Carbon Nanotubes Sheet

2003 2003

FINANCIAL SECTION

CONSOLIDATED BALANCE SHEETSHitachi Zosen Corporation and Consolidated SubsidiariesAt 31st March, 2002 and 2003

ASSETS

Current assets:

Cash and cash equivalents (Note 12):Cash and time deposits ..............................................................................Marketable securities (Note 3) .................................................................

Receivables:Trade notes and accounts:

Non-consolidated subsidiaries and affiliates ......................................Other ......................................................................................................

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

Inventories (Note 4) ........................................................................................Deferred tax assets (Note 16) ........................................................................Prepaid expenses and other current assets ..................................................

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

Investments and other non-current assets:

Investments in non-consolidated subsidiaries andaffiliates (Note 3)..........................................................................................

Investments in securities (Notes 3 and 5) ....................................................Long-term loans receivable ............................................................................Deferred tax assets (Note 16) ........................................................................Other investments and non-current assets ...................................................Allowance for doubtful receivables ................................................................

Total investments and other non-current assets ...............................

Property, plant and equipment, at cost (Note 5):

Land ..................................................................................................................Buildings and structures .................................................................................Machinery and equipment ..............................................................................Construction in progress.................................................................................

Less accumulated depreciation ......................................................................Property, plant and equipment, net .........................................................

Intangible assets ...............................................................................................Total assets .........................................................................................................

¥ 93,7421,284

95,026

1,781152,084

4,682(806)

157,741

105,8428,253

13,842380,704

13,55122,597

1,00710,57013,593(5,827)55,491

106,646104,321123,823

242335,032

(137,734)197,298

5,319¥638,812

See the accompanying Notes to the Consolidated Financial Statements.

2002

Thousands ofU.S. dollars

(Note 1)Millions of yen

¥ 62,333

824

63,157

7,597

109,382

5,915

(933)

121,961

72,697

9,173

8,792

275,780

31,609

20,178

866

8,617

12,621

(6,435)

67,456

65,370

62,873

84,844

1,490

214,577

(92,714)

121,863

5,405

¥470,504

$ 518,578

6,855

525,433

63,203

910,000

49,210

(7,762)

1,014,651

604,800

76,314

73,145

2,294,343

262,970

167,870

7,205

71,689

105,000

(53,536)

561,198

543,843

523,070

705,857

12,396

1,785,166

(771,331)

1,013,835

44,967

$3,914,343

12

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term loans (Note 5) ..............................................................................Current portion of long-term debt (Note 5) .................................................Notes and accounts payable:

Non-consolidated subsidiaries and affiliates ............................................Other .................................................................................................................Advances received on work in progress ........................................................Accrued income taxes .....................................................................................Reserve for product warranty.........................................................................Reserve for losses on work in progress .........................................................Accrued expenses ...........................................................................................Other current liabilities ...................................................................................

Total current liabilities .........................................................................Long-term liabilities:

Long-term debt, less current portion (Note 5) ............................................Employees’ retirement benefits (Note 15) ...................................................Deferred tax liabilities (Note 16) ...................................................................Deferred tax liabilities for land revaluation (Note 7) ...................................Other non-current liabilities ...........................................................................

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

Minority interests in consolidated subsidiaries ......................................

Contingent liabilities (Note 6)

Shareholders’ equity:

Common stockAuthorised—2,340,000,000 shares at 31st March, 2002

—2,000,000,000 shares at 31st March, 2003Issued —1,002,152,579 shares at 31st March, 2002

— 504,219,737 shares at 31st March, 2003 ........................Capital surplus ................................................................................................Retained earnings (deficit) ............................................................................Land revaluation excess (Note 7) ..................................................................Net unrealised holding gains on securities....................................................Foreign currency translation adjustments ....................................................Treasury stock, at cost 603,921 shares in 2003 ............................................

Total shareholders’ equity......................................................................Total liabilities, minority interests and shareholders’ equity .............

¥117,61251,618

7,21497,07447,724

1,9021,1906,700

62,64711,521

405,202

129,60816,123

1071,069

11,618158,525563,727

13,233

50,2959,0621,982

614485

(582)(4)

61,852¥638,812

¥ 85,724

40,050

6,112

73,509

34,228

1,306

2,239

—

52,746

19,502

315,416

95,285

9,871

—

1,036

10,113

116,305

431,721

11,284

25,306

28,090

(25,749)

391

164

(663)

(40)

27,499

¥470,504

$ 713,178

333,195

50,848

611,556

284,759

10,865

18,627

—

438,819

162,246

2,624,093

792,721

82,121

—

8,619

84,135

967,596

3,591,689

93,877

210,533

233,694

(214,218)

3,253

1,364

(5,516)

(333)

228,777

$3,914,343

13

2003 20032002



¥ 3.45

CONSOLIDATED STATEMENTS OF INCOMEHitachi Zosen Corporation and Consolidated SubsidiariesFor the Years Ended 31st March, 2002 and 2003

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

Gross profit ......................................................................................................Selling, general and administrative expenses ..........................................

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

Other income (expenses):

Interest and dividend income ........................................................................Interest expense ..............................................................................................Foreign exchange loss ....................................................................................Equity in net income (loss) of non-consolidated subsidiaries

and affiliates .................................................................................................Gain on sale of property..................................................................................Gain on sale of investments in an affiliate .....................................................Special payments for retirement benefits (Note 8) .....................................Loss on devaluation of investments in securities (Note 9) .........................Restructuring losses (Note 11) ......................................................................Loss on sale of investments in subsidiaries ..................................................Loss on devaluation of unused land (Note 10) ............................................Other, net .........................................................................................................Total other income (expenses) .....................................................................

Income (Loss) before income taxes and minority interests ................Income taxes-current (Note 16)...................................................................Income taxes-deferred (Note 16) ................................................................

Income (Loss) before minority interests ..................................................Minority interests in net loss (income) of consolidated subsidiaries .......

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

¥439,109378,325

60,78445,61515,169

1,317(5,145)(1,563)

478—

3,216(1,322)(1,729)

(682)——

(2,201)(7,631)

7,5383,834

1743,530

(70)

¥ 3,460


¥395,239

342,063

53,176

40,752

12,424

1,313

(4,436)

(1,453)

(1,153)

5,372

—

(17,128)

(1,777)

(8,269)

(11,242)

(6,210)

507

(44,476)

(32,052)

2,012

1,758

(35,822)

760

¥ (35,062)

$3,288,178

2,845,782

442,396

339,035

103,361

10,923

(36,905)

(12,088)

(9,592)

44,692

—

(142,496)

(14,784)

(68,794)

(93,527)

(51,664)

4,218

(370,017)

(266,656)

16,739

14,625

(298,020)

6,323

$ (291,697)

Net income (loss) per share ..........................................................................

U.S. dollars(Note 1)Yen

¥ (69.81) $ (0.58)

14

2003 20032002



CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYHitachi Zosen Corporation and Consolidated SubsidiariesFor the Years Ended 31st March, 2002 and 2003

Common stock:

Balance at beginning of year ............................................................................Increase due to merger of a consolidated subsidiary.....................................Transfer to capital surplus and retained earnings (deficit) ..........................Balance at end of year.......................................................................................

Capital surplus:

Balance at beginning of year ............................................................................Transfer from common stock ...........................................................................Balance at end of year.......................................................................................

Retained earnings (deficit):

Balance at beginning of year ............................................................................Net income (loss) ..........................................................................................Bonuses to directors and statutory auditors ..............................................Increase due to consolidation of additional subsidiaries ...........................Increase due to merger of consolidated subsidiaries .................................Decrease due to reversal of land revaluation .............................................Increase in companies accounted for by the equity method ....................Transfer from common stock .......................................................................Decrease due to merger of unconsolidated subsidiaries ...........................

Balance at end of year.......................................................................................

Land revaluation excess (Note 7):

Balance at beginning of year ............................................................................Reversal of land revaluation .............................................................................Balance at end of year ......................................................................................

Net unrealised holding gains on securities:

Balance at beginning of year ............................................................................Revaluation of securities..................................................................................Balance at end of year.......................................................................................

Foreign currency translation adjustments:

Balance at beginning of year ............................................................................Translation adjustments ...................................................................................Balance at end of year.......................................................................................

Treasury stock:

Balance at beginning of year ............................................................................Increase in treasury stock, net .....................................................................

Balance at end of year.......................................................................................

¥50,295——

¥50,295

¥ 9,062—

¥ 9,062

¥(1,482)3,460(108)

892

—21——

¥ 1,982

¥ 614—

¥ 614

¥ 39293

¥ 485

¥ 591(1,173)

¥ (582)

¥ (0)(4)

¥ (4)


¥ 50,295

317

(25,306)

¥ 25,306

¥ 9,062

19,028

¥28,090

¥ 1,982

(35,062)

(99)

78

1,207

(105)

—

6,277

(27)

¥(25,749)

¥ 614

(223)

¥ 391

¥ 485

(321)

¥ 164

¥ (582)

(81)

¥ (663)

¥ (4)

(36)

¥ (40)

$ 418,428

2,637

(210,532)

$ 210,533

$ 75,391

158,303

$ 233,694

$ 16,489

(291,697)

(824)

649

10,042

(873)

—

52,221

(225)

$(214,218)

$ 5,108

(1,855)

$ 3,253

$ 4,035

(2,671)

$ 1,364

$ (4,842)

(674)

$ (5,516)

$ (33)

(300)

$ (333)

15

2003 20032002



CONSOLIDATED STATEMENTS OF CASH FLOWSHitachi Zosen Corporation and Consolidated SubsidiariesFor the Years Ended 31st March, 2002 and 2003

Cash flows from operating activities:

Income (loss) before income taxes and minority interests ..............Depreciation ......................................................................................Provision for allowance for doubtful receivables ...........................Reserve for losses on work in progress ...........................................Provision for employees’ retirement benefits .................................Interest and dividend income ..........................................................Interest expense ................................................................................Equity in net loss (income) of non-consolidated subsidiaries and affiliates ................................................................

Loss (gain) on sale and disposal of fixed assets, net .....................Gain on sale of investments in securities ........................................Loss on devaluation of investments in securities ...........................Special payments for retirement benefits .......................................Loss on liquidation of subsidiaries and others ............................Loss on devaluation of land ........................................................Decrease (increase) in trade receivables ........................................Decrease in inventories .....................................................................Decrease in long-term receivables ...................................................Increase (decrease) in other current assets....................................Increase (decrease) in trade payables ............................................Increase (decrease) in accrued expenses .......................................Increase (decrease) in advances received.......................................Increase (decrease) in other current liabilities...............................Other ...................................................................................................

Sub-total ...................................................................................Interest and dividends received........................................................Interest paid .......................................................................................Retirement benefits paid ..................................................................Income taxes paid .............................................................................

Net cash and cash equivalentsprovided by (used in) operating activities .................

Cash flows from investing activities:Purchase of securities .......................................................................Proceeds from sales of securities......................................................Purchase of property, plant and equipment....................................Proceeds from sales of property, plant and equipment ................Purchase of intangible assets ............................................................Purchase of investments in securities .............................................Proceeds from sales of investments in securities ...........................Other ...................................................................................................

Net cash and cash equivalentsprovided by (used in) investing activities ...............

Cash flows from financing activities:Decrease in short-term loans and debt, net ....................................Proceeds from long-term debt ..........................................................Payment of long-term debt ..............................................................Redemption of bonds ......... ...............................................................Other....................................................................................................

Net cash and cash equivalents provided by (used in) financing activities ................

Effect of exchange rate changes on cash and cash equivalents......Net increase (decrease) in cash and cash equivalents......................Cash and cash equivalents at beginning of year..................................Cash and cash equivalents of

newly consolidated subsidiaries, at beginning of year .................Cash and cash equivalents at end of year (Note 12) .........................

¥ 7,53811,920

(425)—

(786)(1,317)5,145

(478)594

(3,125)1,7291,322

——

9,0303,0442,868

(3,282)(2,249)(5,657)4,4754,562

(1,326)33,582

1,756(5,427)(1,186)(5,149)

23,576

(1,611)1,983

(6,152)557

(2,072)(4,983)11,516

81

(681)

(9,772)25,237

(16,592)(19,999)

(203)

(21,329)30

1,59690,716

83¥92,395


16

2002

$(266,656)78,2116,156

(55,740)(51,797)(10,923)36,905

9,592(36,597)(1,448)14,784

142,49693,52751,664

300,150303,669

8,02811,281

(200,449)(75,782)

(111,938)51,68941,930

338,75211,231

(34,434)(197,579)

(21,888)

96,082

(7,097)11,631

(258,993)205,640(20,990)

(241,181)28,86038,952

(243,178)

(119,784)216,597

(130,890)(83,194)(3,278)

(120,549)

(732)

(268,377)

768,677

10,707

$511,007

¥(32,052)9,401

740(6,700)(6,226)(1,313)4,436

1,153(4,399)

(174)1,777

17,12811,2426,210

36,07836,501

9651,356

(24,094)(9,109)

(13,455)6,2135,040

40,7181,350

(4,139)(23,749)(2,631)

11,549

(853)1,398

(31,131)24,718(2,523)

(28,990)3,4694,682

(29,230)

(14,398)26,035

(15,733)(10,000)

(394)

(14,490)

(88)

(32,259)

92,395

1,287

¥61,423

2003 2003



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSHitachi Zosen Corporation and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements

Hitachi Zosen Corporation (the “Company”) and its consolidated domestic subsidiaries maintain their official accounting recordsin Japanese yen, and in accordance with the provisions set forth in the Japanese Commercial Code and accounting principles andpractices generally accepted in Japan (“Japanese GAAP”). The accounts of overseas subsidiaries are based on their accountingrecords maintained in conformity with generally accepted accounting principles and practices prevailing in the respectivecountries of domicile. Certain accounting principles and practices generally accepted in Japan are different from InternationalAccounting Standards and standards in other countries in certain respects as to application and disclosure requirements.Accordingly, the accompanying consolidated financial statements are intended for use by those who are informed about Japaneseaccounting principles and practices.

The accompanying financial statements have been restructured and translated into English (with some expanded descriptionsand the inclusion of consolidated statements of shareholders’ equity) from the consolidated financial statements of the Companyprepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance asrequired by the Securities and Exchange Law. Some supplementary information included in the statutory Japanese language con-solidated financial statements, but not required for fair presentation, is not presented in the accompanying consolidated financialstatements.

The translation of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers outsideJapan, using the prevailing exchange rate at 31st March, 2003, which was ¥120.20 to U.S.$1.00. The convenience translationsshould 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, over whichthe Company has power of control through majority voting rights or existence of certain conditions evidencing control by theCompany. Investments in non-consolidated subsidiaries and affiliates, over which the Company has ability to exercise significantinfluences over operating and financial policies of the investees, are accounted for on the equity method.

The consolidated financial statements consist of the accounts of the Company and its sixty-two (sixty-seven in 2002)significant subsidiaries that meet the control requirements for consolidation. Intercompany transactions and accounts have beeneliminated in the consolidation.

Investments in three (four in 2002) non-consolidated subsidiaries and eleven (seven in 2002) affiliates are accounted for bythe equity method.

The difference between cost and net assets of acquired subsidiaries and affiliates are primarily amortised using the straight-line method over 5 years.

The consolidated financial statements include the accounts of three consolidated subsidiaries, the fiscal year-end of which is31st December. Appropriate adjustments are made for significant transactions during the period from 31st December to the dateof the consolidated financial statements.

In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributableto minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respectivesubsidiaries.

b) Cash Flow Statements

In preparing the consolidated statements of cash flows, cash on hand, readily-available deposits and short-term highly liquidinvestments with maturities of not exceeding three months at the time of purchase are considered to be cash and cashequivalents.

c) Translation of Foreign Currencies

Foreign currency monetary assets and liabilities are translated into Japanese yen at the year-end rates.Financial statements of consolidated overseas subsidiaries are translated into Japanese yen using the exchange rates prevail-

ing at the end of each fiscal year, except for shareholders’ investment accounts for which the exchange rates in effect at the dateof transactions are used. The resulting foreign currency translation adjustments are accounted for as a separate component ofshareholders’ equity.

d) Revenue Recognition

The Company and its consolidated subsidiaries (the “Companies”) principally record revenues at the time of delivery using thecompleted contract method. However, the Company records revenues using the percentage of completion method for majorcontracts (¥5 billion or more) lasting over two years and certain consolidated subsidiaries record revenues using the percentageof completion method for large scale contracts lasting over one year.

17

e) Allowance for Doubtful Receivables

For receivables from insolvent customers, who are undergoing bankruptcy, other collection proceedings or in a similar financialcondition, the allowance for doubtful accounts is provided based on the evaluation of each customer’s financial condition and theestimation of recoverable amounts due to the existence of security interests or guarantees.

For other receivables, the allowance for doubtful receivables is provided based on the Companies’ actual rate of collectionlosses in the past.

f) Securities

Trading securities are stated at fair market value. Gains and losses realised on disposal and unrealised gains and losses frommarket value fluctuations are recognised as gains or losses in the period of the change. Held-to-maturity debt securities are statedat amortised cost. Equity securities issued by subsidiaries and affiliated companies which are not consolidated or accounted forby equity method are stated at moving-average cost. Available-for-sale securities with available fair market values are stated atfair market value. Unrealised gains and unrealised losses on these securities are reported, net of applicable income taxes, as aseparate component of shareholders’ equity. Realised gains and losses on sale of such securities are computed using moving-average cost. Securities with no available fair market value which are classified as available-for-sale-securities are stated atmoving-average cost.

If the market value of held-to-maturity debt securities, equity securities issued by unconsolidated subsidiaries and affiliatedcompanies, and available-for-sale securities declines significantly, such securities are stated at fair market value and the differ-ence between fair market value and the carrying amount is recognised as loss in the period of the decline. If the fair marketvalue of equity securities issued by unconsolidated subsidiaries and affiliated companies, not on the equity method, is not readilyavailable, such securities should be written down to net asset value with a corresponding charge in the statement of operations inthe event net asset value declines significantly. In these cases, such fair market value or the net asset value will be the carryingamount of the securities at the beginning of the next year.

g) Derivatives and Hedge Accounting

Derivative financial instruments are stated at fair value and changes in the fair value are recognised as gains or losses unlessderivative financial instruments are used for hedging purposes.

(1) Hedge accountingThe Companies defer recognition of gains or losses resulting from changes in fair value of derivative financial instruments untilthe related losses or gains on the hedged items are recognised.

However, if interest rate swap contracts are used as hedges and meet certain hedging criteria, the net amount to be paid orreceived under the interest rate swap contracts is added to or deducted from the interest on the asset or liability for which theswap contract was executed.

(2) Hedging instruments and hedged itemsHedging instruments: Interest rate swap contractsHedged items: Interest on loans and bonds payable

Hedging instruments: Forward foreign currency exchange contractsHedged items: Trade receivables and expected trade receivables denominated in foreign currencies from

exports of products, trade payables denominated in foreign currencies from imports of materials

(3) Hedging policyThe Companies use derivative financial instruments to hedge future risks of interest rate fluctuations and future risks of foreign exchange fluctuations in accordance with their internal policies and procedures.

(4) Evaluation of hedge effectivenessThe Companies evaluate hedge effectiveness by comparing the cumulative changes in cash flows and foreign currencyexchange or the changes in fair value of hedged items and the corresponding changes in the hedging derivative instruments.

(5) Control over use of derivativesWhen the accounting sections of group companies use derivatives, they follow the group companies’ administration rules,which the Board of Directors of the Company have approved to control the risk of using derivatives.

18

h) Inventories

Work in progress is composed of the accumulated production cost of contracts. The accumulated production cost includes directproduction costs, factory and engineering overhead and other costs incurred.

Raw materials and supplies are stated at cost, which is generally determined by the specific identification method and themoving average method, but not to exceed market value.

Effective 1st April, 2001, the Company changed the method of determining the cost of raw materials and supplies from thespecific identification method and the weighted-average method to the specific identification method and the moving averagemethod. This change enables the Company to present appropriate costs by reflecting the effect on the operating results derivedfrom recent price fluctuations of raw materials and supplies.

The effect of this change in accounting method was not material.

i) Depreciation and Amortisation

Depreciation is computed, with minor exceptions, by the declining-balance method based over the estimated useful lives of theassets as stipulated by the Corporation Income Tax Law and the related regulations of Japan. Buildings, acquired after 31stMarch, 1998, are depreciated using the straight-line method. Amortisation is computed on the straight-line method for intangibleassets based over useful lives.

j) Software Costs

The Companies include internal use software in intangible assets and depreciate it using the straight-line method on estimateduseful life of five years.

k) Reserve for Product Warranty

The reserve for product warranty, which is based on experience of the past two years, is provided to cover possible warrantycosts incurred after delivery or completion of construction.

l) Reserve for Losses on Work in Progress

When orders are received for the construction of new products which are in new fields or require the application of new technolo-gies, the possibility of losses cannot be ascertained. If, after commencement of construction, a loss can reasonably be estimatedby comparing estimated completion costs with the contract price, a reserve for losses on work in progress is recorded.

m) Employees’ Severance and Retirement Benefits

The Companies provide two types of post-employment benefit plans, unfunded lump-sum payment plans and funded non-contributory pension plans, under which all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors.

The Companies provide for employees’ severance and retirement benefits based on the estimated amounts of projected benefit obligation and the fair value of the plan assets.

The excess of the projected benefit obligation over the total of the fair value of pension assets as of 1st April, 2000 and theliabilities for severance and retirement benefits recorded as of 1st April, 2000 (the “net transition obligation”) amounted to¥34,511 million. The net transition obligation is being recognised in expenses in equal amounts primarily over 15 yearscommencing with the year ended 31st March, 2001. Prior service costs are recognised in expenses in equal amounts within theaverage of the estimated remaining service lives of the employees, and actuarial gains and losses are recognised in expenses usingthe declining-balance method within the average of the estimated remaining service lives commencing with the following period.

n) Research and Development Expenses

Research and development expenses are charged to selling, general and administrative expenses and manufacturing costs asincurred. Research and development expenses amounted to ¥6,434 million and ¥5,420 million ($45,092 thousand) for the yearsended 31st March, 2002 and 2003, respectively.

o) Income Taxes

The provision for income taxes is based on income for financial statement purposes. Deferred income taxes are recognised fortemporary differences between financial and tax reporting purposes. Income taxes comprise corporation tax, enterprise tax, andprefectural and municipal inhabitants taxes.

p) Accounting for Leases

Finance leases which do not transfer ownership and do not have bargain purchase provisions are accounted for in the same manner as operating leases under Japanese GAAP.

19

20

q) Appropriation of Retained Earnings

The appropriation of retained earnings, which must be proposed and approved by an ordinary general meeting of shareholdersafter the end of the year, is recorded in the year approved. The appropriation of retained earnings of the Company, which isreflected in the accompanying consolidated financial statements for the year ended 31st March, 2003, was proposed andapproved at the ordinary general meeting of shareholders held on 27th June, 2002.

r) Effect of Bank Holiday on 31st March, 2002

As financial institutions in Japan were closed on 31st March, 2002, ¥1,025 million of trade notes receivable and ¥803 million oftrade notes payable maturing on 31st March, 2002 were settled on the following business day, 1st April, 2002, and accounted foraccordingly.

s) Accounting Standard for Treasury Stock and Reversal of Statutory Reserves

Effective 1st April, 2002, the Companies adopted the new accounting standard for treasury stock and reversal of statutoryreserves (Accounting Standards Board Statement No. 1, “Accounting Standard for Treasury Stock and Reversal of StatutoryReserves”, issued by the Accounting Standards Board of Japan on 21st February, 2002). The adoption of the new accountingstandard had no impact on net income.

t) Amounts per Share

Computations of net income per share of common stock are based upon the weighted average number of shares outstanding dur-ing each year. Convertible bonds were considered common stock equivalents but had no dilutive effect on the calculation of netincome per share.

Effective 1st April, 2002, the Companies adopted the new accounting standard for earnings per share and related guidance(Accounting Standards Board Statement No. 2, “Accounting Standard for Earnings Per Share” and Financial StandardsImplementation Guidance No. 4, “Implementation Guidance for Accounting Standard for Earnings Per Share”, issued by theAccounting Standards Board of Japan on 25th September, 2002).

Effective 20th February, 2003, the Company made a reverse stock split which reduced the total number of shares issued from1,008,439,475 shares to 504,219,737 shares according to the shareholders’ meeting of the Company on 16th January, 2003. If thenew accounting standard for earnings per share and related guidance were applied retroactively, earnings per share for the yearended 31st March, 2002 would have been reported as follows.

Net income per share— Basic .............................................................................................................................

2002 2002U.S. dollarsYen

¥6.91 $0.06

u) Shareholders’ Equity

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 ofthe new shares as additional paid-in capital, which is included in capital surplus.

Effective 1st October, 2001, the Commercial Code provides that an amount equal to at least 10% of cash dividends and othercash appropriations shall be appropriated and set aside as a legal earnings reserve until the total amount of legal earnings reserveand additional paid-in capital equals 25% of common stock. The total amount of legal earnings reserve and additional paid-in capitalof the Company has been reached to 25% of common stock, and therefore the Company is not required to provide legal earningsreserve any more. The legal earnings reserve and additional paid-in capital may be used to eliminate or reduce a deficit by resolutionof the shareholders’ meeting or may be capitalised by resolution of the Board of Directors. On condition that the total amount oflegal earnings reserve and additional paid-in capital remains being equal to or exceeding 25% of common stock, they are availablefor distribution by the resolution of shareholders’ meeting. Legal earnings reserve is included in retained earnings in the accompany-ing financial statements.

The shareholders’ meeting held on 16th January, 2003 approved the reduction of the Company’s capital from ¥50,612 million($421,065 thousand), 1,008,439,475 shares, to ¥25,306 million ($210,533 thousand), 504,219,737 shares.

The maximum amount that the Company can distribute as dividends is calculated based on the non-consolidated financial state-ments of the Company in accordance with the Commercial Code.

v) Reclassifications

Certain reclassifications have been made to previously reported fiscal 2002 amounts to conform to fiscal 2003 presentation. Thesereclassifications had no effect on previously reported net income or total shareholders’ equity.

21

Book value ....................................................................................................Amount for the year of net unrealised

losses included in the income statement................................................

¥256

7

¥230

7

$1,913

58

3. Securities

a) The following tables summarise acquisition costs, book values and fair values of securities with available fair values as of 31st March, 2002 and 2003:

(1) Trading securities:

Government bonds .................................................................................... ¥58¥55 ¥3DifferenceFair valueBook value

Millions of yenSecurities with available fair values exceeding book values:

Other securities:

Government bonds .................................................................................... ¥1,728¥1,736 ¥(8)DifferenceFair valueBook value

Millions of yen

Government bonds .................................................................................... ¥925¥878 ¥47

Securities with available fair values exceeding book values:

Other securities:

Government bonds ....................................................................................Other...........................................................................................................

Total .....................................................................................................

¥155

760

¥915

¥155

760

¥915

¥ 0

0

¥ 0

DifferenceFair valueBook value

Millions of yen


Millions of yen

(2) Held-to-maturity debt securities:

At 31st March, 2002

At 31st March, 2003

At 31st March, 2003

Government bonds .................................................................................... $7,695$7,304 $391


Thousands of U.S. dollarsSecurities with available fair values exceeding book values:

Other securities:

Government bonds ....................................................................................Other...........................................................................................................

Total .....................................................................................................

$1,289

6,323

$7,612

$1,289

6,323

$7,612

$ 0

0

$ 0


Thousands of U.S. dollars

2002 2003 2003

Thousands ofU.S. dollarsMillions of yen

22

At 31st March, 2003

(3) Available-for-sale securities:

At 31st March, 2002

¥6,1711,073

22¥7,266

¥4,7261,050

20¥5,796

¥1,44523

2¥1,470

Equity securities ..................................................................................Bonds ....................................................................................................Other .....................................................................................................

Total ................................................................................................

Securities with book values (fair values) exceeding acquisition costs:

DifferenceBook valueAcquisition cost

Millions of yen

¥2,249435347

¥3,031

¥2,803440507

¥3,750

¥(554)(5)

(160)¥(719)

Equity securities ..................................................................................Bonds ....................................................................................................Others ...................................................................................................

Total ...............................................................................................

Other securities:


Millions of yen

¥5,259

610

9

¥5,878

¥4,338

610

8

¥4,956

¥921

0

1

¥922


Total ................................................................................................



Millions of yen

¥2,322

291

215

¥2,828

¥3,010

305

346

¥3,661

¥(688)

(14)

(131)

¥(833)


Total ................................................................................................

Other securities:


Millions of yen

At 31st March, 2003

$43,752

5,075

75

$48,902

$36,090

5,075

66

$41,231

$7,662

0

9

$7,671


Total ................................................................................................




$19,318

2,421

1,789

$23,528

$25,042

2,537

2,879

$30,458

$(5,724)

(116)

(1,090)

$(6,930)


Total ................................................................................................

Other securities:



23

b) The following table summarises book values of securities with no available fair values as of 31st March, 2002 and 2003:

Available-for-sale securities:

Millions of yen

Book valueBook value

Non-listed equity securities ............................................................................Commercial papers ..........................................................................................Loan trusts .......................................................................................................

Non-listed preferred shares ............................................................................

2002 2003 2003


¥10,524399191

—

¥8,713

200

517

500

$72,488

1,664

4,301

4,160

Type

c) Available-for-sale securities with maturities and held-to-maturity debt securities mature as follows:

At 31st March, 2002

¥1,032———

¥1,032

Over ten years

Millions of yen

¥ ————

¥ —

Over five years butwithin ten years

¥ 515426814

30¥1,785

Over one year butwithin five years

¥ 15109104

—¥228

Within one yearBonds

Government bonds ..................................Corporate bonds ......................................Other bonds .............................................

Other ............................................................Total .......................................................

At 31st March, 2003

¥1,033

100

—

—

¥1,133

Over ten years

Millions of yen

¥ —

—

—

—

¥ —


¥ 15

400

1,116

—

¥1,531


¥ —

590

63

—

¥653


Government bonds ...................................Corporate bonds .......................................Other bonds ..............................................

Other .............................................................Total ........................................................

At 31st March, 2003

$8,594

832

—

—

$9,426

Over ten years


$ —

—

—

—

$ —


$ 125

3,328

9,284

—

$12,737


$ —

4,909

524

—

$5,433


Government bonds ....................................Corporate bonds ........................................Other bonds ...............................................

Other ..............................................................Total .........................................................

24

d) Total sales of available-for-sale securities in the year ended 31st March, 2002 amounted to ¥699 million and the related gains andlosses amounted to ¥68 million and ¥85 million, respectively.

Total sales of available-for-sale securities in the year ended 31st March, 2003 amounted to ¥2,775 million ($23,087 thousand)and the related gains and losses amounted to ¥520 million ($4,326 thousand) and ¥346 million ($2,879 thousand), respectively.

4. Inventories

Inventories at 31st March, 2002 and 2003 consisted of the following:

5. Short-term Loans and Long-term Debt

Short-term loans represent bank loans with interest rates ranging from 0.4 per cent. to 1.8 per cent. and from 0.4 per cent. to 2.8per cent., at 31st March, 2002 and 2003, respectively.

Long-term debt at 31st March, 2002 and 2003 consisted of the following:

Work in progress ...............................................................................................Raw materials and supplies ..............................................................................

Total .............................................................................................................

2002 2003 2003


¥102,6473,195

¥105,842

¥70,502

2,195

¥72,697

$586,539

18,261

$604,800

The following assets were pledged as collateral mainly for short-term debt, including current portion of long-term debt, of¥33,050 million at 31st March, 2002 and mainly for long-term debt, less current portion, of ¥20,995 million ($174,667 thousand) at31st March, 2003:

¥25,072

68,763

20,000

10,000

3,000

—

8,500

(40,050)

¥95,285

0.6 per cent. to 3.6 per cent. loans from banksand other financial institutions, due through 2012:

Secured (or partly secured)....................................................................Unsecured ................................................................................................

2.475 per cent. straight bonds due 2004 ...........................................................2.45 per cent. straight bonds due 2003 .............................................................Variable rate straight bonds due 2008...............................................................2.45 per cent. straight bonds due 2002 .............................................................2.55 per cent. straight bonds due 2003 .............................................................Less: current portion included in current liabilities .........................................

Total ..............................................................................................................

¥ 32,75296,97420,00010,000

3,00010,000

8,500(51,618)

¥129,608

$208,586

572,072

166,389

83,195

24,958

—

70,716

(333,195)

$792,721

2002 2003 2003


Investments in securities....................................................................................Property, plant and equipment (at net book value) .........................................

Total .............................................................................................................

¥ 1,03223,134

¥24,166

¥ 1,033

28,636

¥29,669

$ 8,594

238,236

$246,830

2002 2003 2003


25

2005..............................................................................................................................................2006..............................................................................................................................................2007..............................................................................................................................................2008..............................................................................................................................................2009 and thereafter ....................................................................................................................

Total ......................................................................................................................................

¥36,162

26,186

16,837

3,237

12,863

¥95,285

$300,849

217,854

140,075

26,930

107,013

$792,721


7. Land Revaluation Excess

Land for operations was revalued by consolidated subsidiaries in accordance with the Land Revaluation Law in the year ended31st March, 2000 and the revaluation amount is shown as a separate component of shareholders’ equity.

At 1st October, 2002, the Company merged with HEC Corporation which was a consolidated subsidiary, and succeeded to theland revaluation excess.

The market value of the land was ¥23 million and ¥52 million ($433 thousand) less than the book value following revaluationat 31st March, 2002 and 2003, respectively.

8. Special Payments for Retirement Benefits

Special payments for retirement benefits for the year ended 31st March, 2002 was the amount of additional payments for volun-tary retirees, and for the year ended 31st March, 2003 was the amount of special payments including additional payments forretirees who transferred to other subsidiaries and affiliates by the merging of the shipbuilding operations and the restructuring ofthe steel structures operations.

9. Loss on Devaluation of Investments in Securities

Loss on devaluation of investments in securities for the years ended 31st March, 2002 and 2003 resulted from the devaluation ofinvestments in securities and golf club memberships.

10. Loss on Devaluation of Unused Land

Since there has been a significant decline in the fair market value of unused land, the difference between fair market value andcarrying amount was recognised as a loss in the year ended 31st March, 2003.

11. Restructuring Losses

Restructuring losses for the year ended 31st March, 2002 resulted from disposal of slow- moving goods as a result of transferringa business.

Restructuring losses for the year ended 31st March, 2003 resulted from losses on entering into new business fields, retreatingfrom loss making division and disposal of slow- moving goods as a result of transferring a business.

Notes receivable discounted .............................................................................Notes receivable endorsed ................................................................................Guarantees of bank loans and other indebtedness ..........................................

Total .............................................................................................................

¥ 155

1,102

287

¥1,544

$ 1,289

9,168

2,388

$12,845

¥ 1791,271

764¥2,214

2002 2003 2003


6. Contingent Liabilities

Contingent liabilities at 31st March, 2002 and 2003 consisted of the following:

The aggregate annual maturities of long-term debt outstanding at 31st March, 2003 are as follows:

Year ending 31st March,

26

¥63,157

—

(911)

(823)

¥61,423

Cash and cash equivalents in the balance sheets ............................................Debt securities with forward contracts

included in other current assets ...................................................................Time deposits with maturities over three months...........................................Debt securities with maturities over three months .........................................Cash and cash equivalents in cash flow statements ........................................

¥95,026

1,712(3,260)(1,083)

¥92,395

$525,433

—

(7,579)

(6,847)

$511,007

Current assets ............................................................................................................................Fixed assets ................................................................................................................................

Total ......................................................................................................................................

Current liabilities ........................................................................................................................

¥ 1,63274,524

¥76,156

¥72,690

$ 13,577620,000

$633,577

$604,742

2002 2003 2003



12. Cash and Cash Equivalents

Cash and cash equivalents in the consolidated statements of cash flows, and in the consolidated balance sheets at 31st March,2002 and 2003 are reconciled as follows:

Assets and liabilities of consolidated subsidiaries sold to a third party on 30th September, 2002, are as follows:

13. Lease Information

a) Finance Leases as Lessee

The original lease obligations, the payments to date, and the payments remaining for assets which were leased from other partiesas of 31st March, 2002 and 2003 are as follows:

At 31st March, 2002

Machinery, equipment and vehicles .................................................................Software ............................................................................................................

Total ............................................................................................................

At 31st March, 2003

¥771

29

¥800

¥1,763

63

¥1,826

¥ 992

34

¥1,026

Paymentsremaining

Paymentsto date

Original leaseobligation

Millions of yen


Total ............................................................................................................

$6,414

241

$6,655

$14,667

524

$15,191

$8,253

283

$8,536

Paymentsremaining

Paymentsto date




Total ...........................................................................................................

¥ 77249

¥ 821

¥1,58274

¥1,656

¥ 81025

¥ 835

Paymentsremaining

Paymentsto date


Millions of yen

At 31st March, 2003

27

Lease payments for the above finance leases for the years ended 31st March, 2002 and 2003 were ¥328 million and ¥260 million ($2,163 thousand), respectively.

Depreciation equivalent for the years ended 31st March, 2002 and 2003 were ¥328 million and ¥260 million ($2,163 thou-sand), respectively.

Future minimum payments, including finance charges, for finance leases at 31st March, 2002 and 2003 are as follows:

Payments due within one year..........................................................................Payments due after one year ............................................................................

Total .............................................................................................................

¥ 270

756

¥1,026

¥ 232603

¥ 835

$2,246

6,290

$8,536

b) Operating Leases as Lessee

Future minimum payments for operating leases at 31st March, 2002 and 2003 are as follows:

2002 2003 2003



Total .............................................................................................................

¥ 5

5

¥10

¥5245

¥97

$42

42

$84

2002 2003 2003


c) Finance Leases as Lessor

The cost, accumulated depreciation, and remaining book value of assets which were leased to other parties as of 31st March,2002 and 2003 are as follows:


Total ............................................................................................................

At 31st March, 2002

¥ 509173

¥ 682

¥675240

¥915

¥ 16667

¥ 233

Remaining book value

AccumulateddepreciationCost

Millions of yen


Total ............................................................................................................

At 31st March, 2003

¥ 908

247

¥1,155

¥1,079

345

¥1,424

¥171

98

¥269



Millions of yen


Total ............................................................................................................

$7,554

2,055

$9,609

$ 8,977

2,870

$11,847

$1,423

815

$2,238



Thousands of U.S. dollarsAt 31st March, 2003

28


Total .............................................................................................................

¥179

170

¥349

¥156143

¥299

$1,489

1,414

$2,903

Lease payments for finance leases received for the years ended 31st March, 2002 and 2003 were ¥180 million and ¥211 million($1,755 thousand), respectively.

Depreciation for the years ended 31st March, 2002 and 2003 were ¥134 million and ¥180 million ($1,498 thousand), respectively.

Future minimum payments to be received, including finance charges, for finance leases at 31st March, 2002 and 2003 are asfollows:

14. Derivative Transactions

The Company enters into forward foreign currency exchange, currency swap, currency option and interest swap transactions.Forward foreign currency exchange transactions are used to reduce the risk of fluctuations in future foreign currency

exchange rates with respect to the difference between the foreign trade order balances and the future payments for foreign procurement.

Interest swap transactions are used to avoid the risk of rising interest rates.

15. Retirement and Severance Benefits

The Companies provide two types of post-employment benefit plans, unfunded lump-sum payment plans and funded non-contributory pension plans, under which all eligible employees are entitled to benefits based on the level of wages and salaries at the time of retirement or termination, length of service and certain other factors. The Companies occasionally make additionalpayments to employees for special retirement benefits.

The following table sets forth the composition of the liabilities recorded in the balance sheets for the Companies’ retirementplans at 31st March, 2002 and 2003.

2002 2003 2003


Note: Some consolidated subsidiaries have adopted the allowed alternative treatment of the accounting standards for retire-ment benefits for small business entities.

Projected benefit obligation ...............................................................................Less fair value of pension assets ........................................................................Funded status:

Benefit obligation in excess of plan assets ....................................................Unrecognised net transition obligation .........................................................Unrecognised actuarial differences ...............................................................

Total ..........................................................................................................Deferred benefit expenses .................................................................................Retirement and severance benefits in the consolidated balance sheets..............

¥44,972

(11,634)

33,338

(18,676)

(5,087)

9,575

(296)

¥ 9,871

$374,143

(96,789)

277,354

(155,374)

(42,321)

79,659

(2,462)

$ 82,121

¥60,955(11,100)

49,855(29,762)

(4,189)15,904

(219)¥16,123

2002 2003 2003


29

Severance and pension costs of the Companies included the following components for the years ended 31st March,2002 and 2003.

Note: Contributions of employees to the funded pension plans are not included in service cost.For the years ended 31st March, 2002 and 2003 the Companies made additional payments for retirement benefits of ¥1,186 million and ¥667 million ($5,549 thousand), which were recognised in expenses, but which are not included in the above table.

The Companies wrote off net transition obligation amounting to ¥6,690 million ($55,657 thousand) and actuarial differences amounting to ¥621 million ($5,166 thousand) due to a large number of early retirements for the year ended 31st March, 2003.

Assumptions used in accounting for the retirement benefit plans for the years ended 31st March, 2002 and 2003, are asfollows:

Service cost—benefits earned during the year................................................Interest cost on projected benefit obligation ...................................................Expected return on plan assets ........................................................................Amortisation of net transition obligation..........................................................Amortisation of actuarial differences................................................................

Severance and retirement benefit expenses ................................................

¥12,636

1,401

(198)

8,607

1,413

¥23,859

$105,125

11,655

(1,647)

71,606

11,755

$198,494

¥3,9381,542(187)

2,44862

¥7,803

2002 2003 2003


straight–line method2.5% to 3.0%1.0% to 4.5%

5 to 14 years 15 years

straight–line method

2.5% to 3.0%

1.0% to 4.5%

5 to 12 years

15 years

Method of attributing benefits to periods of service:Discount rate:Long-term rate of return on fund assets:Amortisation period for actuarial differences

(residual average term of employees’ service):Amortisation period for net transition obligation:

2002 2003

16. Income Taxes

The Companies are subject to a number of income taxes which, in the aggregate, indicate a statutory rate in Japan of approxi-mately 41.8% for the years ended 31st March, 2002 and 2003.

The following table summarises the significant differences between the statutory tax rate and the Companies’ effective taxrate for financial statement purposes for the year ended 31st March, 2002.

Statutory tax rate ....................................................................................................................................................Non-deductible expenses........................................................................................................................................Non-taxable dividend income .................................................................................................................................Effect of a penalty tax and a tax refund ................................................................................................................Effect of an inability to recognise tax effects of temporary differences .............................................................Effect of the adjustment of unrealised gain ..........................................................................................................Prefectural and municipal inhabitants taxes ........................................................................................................Other ........................................................................................................................................................................Effective tax rate ....................................................................................................................................................

2002

41.8%8.8

(5.9)2.8

19.9(20.9)

2.64.1

53.2%

Note: Information for 2003 is not shown because a net loss was recorded.

30

The aggregate statutory income tax rate will be reduced for the years commencing on 1st April, 2004 or later due to therevised local tax law. At 31st March, 2003, the Company and consolidated domestic subsidiaries applied the reduced aggregatestatutory income tax rate of 40.5% for calculating deferred tax assets and liabilities that are expected to be recovered or settledin the years commencing on 1st April, 2004 or later. As a result, deferred taxes assets decreased by ¥192 million ($1,597 thou-sand), provision for deferred income taxes increased by ¥195 million ($1,622 thousand), net unrealised holding gains on securi-ties increased by ¥3 million ($25 thousand), and land revaluation excess increased by ¥17 million ($141 thousand) comparedwith what would be reported using the currently applicable tax rate of 41.8%.

Significant components of the Companies’ deferred tax assets and liabilities as of 31st March, 2002 and 2003 are as follows:

17. Segment Information

The Companies’ operations are classified into five business segments as follows:Operations in the environmental systems and plants segment include the production of refuse incineration plants and indus-

trial plants.Operations in the shipbuilding and offshore structures segment include the production of ships, ship repairs, and offshore

structures.Operations in the steel structures, construction machinery and logistics systems segment include bridge construction, struc-

tural steel for buildings, water gates, shield tunneling machines, robotics, mechatronics systems, and multi-storey car parkingsystems.

Deferred tax assets:Reserve for losses on work in progress ..................................................... Employees’ retirement benefits .................................................................Loss on work in progress ............................................................................Tax loss carry forwards ...............................................................................Allowance for doubtful receivables ............................................................Loss on devaluation of securities ...............................................................Research and development expenses.........................................................Loss on devaluation of real estate held for sale..........................................Other reserves..............................................................................................Other.. ...........................................................................................................Total deferred tax assets .............................................................................Valuation allowance ....................................................................................

Deferred tax assets, net.........................................................................Deferred tax liabilities:

Deferred gains on sales of real properties .................................................Net unrealised holding gains on securities .................................................Other ............................................................................................................

Total deferred tax liabilities .................................................................Net deferred tax assets ....................................................................................

¥ 2,8003,6991,1686,6941,520

837573262

2,1793,084

22,816(2,664)20,152

(988)(310)(138)

(1,436)¥18,716

¥ —

2,341

2,078

16,889

2,573

1,676

425

157

1,956

4,767

32,862

(14,782)

18,080

—

(155)

(135)

(290)

¥17,790

$ —

19,476

17,288

140,507

21,406

13,943

3,536

1,306

16,273

39,659

273,394

(122,978)

150,416

—

(1,290)

(1,123)

(2,413)

$148,003

Current assets ....................................................................................................Investments and non-current assets.................................................................Long-term liabilities ...........................................................................................

Net deferred tax assets..................................................................................

¥ 9,173

8,617

—

¥17,790

$ 76,314

71,689

—

$148,003

¥ 8,25310,570

(107)¥18,716

Net deferred tax assets are included in the consolidated balance sheets as follows:

2002 2003 2003


2002 2003 2003


31

Operations in the machinery and prime movers segment include the production of iron and steel manufacturing machinery,pressing machinery, diesel engines, turbines and boilers.

Operations in the other businesses segment include the production of electronic equipment and “Tochucha” a biotechnologyrelated drink.

Information by business segment of the Companies is as follows:

AssetsEnvironmental systems and plants .............................................................Shipbuilding and offshore structures .........................................................Steel structures, construction machinery and logistics systems...............Machinery and prime movers .....................................................................Other businesses .........................................................................................

Total .........................................................................................................Eliminations and corporate ........................................................................Consolidated ................................................................................................

¥141,908181,344

50,63281,76061,237

516,881121,931

¥638,812

$ 878,453

682,496

445,732

700,607

427,180

3,134,468

779,875

$3,914,343

¥105,590

82,036

53,577

84,213

51,347

376,763

93,741

¥470,504

Net salesEnvironmental systems and plants ...........................................................Shipbuilding and offshore structures ........................................................Steel structures, construction machinery and logistics systems .............Machinery and prime movers ....................................................................Other businesses ........................................................................................

Total .........................................................................................................Eliminations ................................................................................................Consolidated ...............................................................................................

¥165,717132,794

41,15261,15346,081

446,897(7,788)

¥439,109

¥162,739

78,043

52,190

58,019

51,795

402,786

(7,547)

¥395,239

$1,353,902

649,276

434,193

482,687

430,907

3,350,965

(62,787)

$3,288,178

Operating income (loss)Environmental systems and plants ............................................................Shipbuilding and offshore structures .........................................................Steel structures, construction machinery and logistics systems...............Machinery and prime movers .....................................................................Other businesses .........................................................................................

Total .........................................................................................................Eliminations and corporate .........................................................................Consolidated ................................................................................................

¥ 7,3798,401

(2,160)961578

15,15910

¥15,169

$ 42,571

51,364

(15,025)

10,624

13,652

103,186

175

$103,361

¥ 5,117

6,174

(1,806)

1,277

1,641

12,403

21

¥12,424

Cost and expensesEnvironmental systems and plants ............................................................Shipbuilding and offshore structures .........................................................Steel structures, construction machinery and logistics systems...............Machinery and prime movers .....................................................................Other businesses .........................................................................................

Total .........................................................................................................Eliminations and corporate .........................................................................Consolidated ................................................................................................

¥158,337124,392

43,31360,19345,503

431,738(7,798)

¥423,940

¥157,622

71,869

53,996

56,742

50,154

390,383

(7,568)

¥382,815

$1,311,331

597,912

449,218

472,063

417,255

3,247,779

(62,962)

$3,184,817

2002 2003 2003


32

Corporate amounts are mainly the common accounts of the head office, which cannot be allotted to each segment. Corporateassets, including mainly cash, time deposits and securities, at 31st March, 2002 and 2003 are ¥124,219 million and ¥95,231 mil-lion ($792,271 thousand), respectively.

Geographic segment information is not shown because domestic net sales, including export sales from Japan, for the yearsended 31st March, 2002 and 2003 and related assets at 31st March, 2002 and 2003 are more than 90% of the respective consoli-dated net sales and assets.

Overseas sales by region for the years ended 31st March, 2002 and 2003 are as follows:

DepreciationEnvironmental systems and plants ............................................................Shipbuilding and offshore structures..........................................................Steel structures, construction machinery and logistics systems...............Machinery and prime movers .....................................................................Other businesses .........................................................................................

Total .........................................................................................................Eliminations and corporate ........................................................................Consolidated ................................................................................................

¥ 7484,397

7653,1252,258

11,293627

¥11,920

$ 7,920

18,777

5,383

22,180

18,627

72,887

5,324

$78,211

¥ 952

2,257

647

2,666

2,239

8,761

640

¥9,401

Capital expenditureEnvironmental systems and plants ............................................................Shipbuilding and offshore structures .........................................................Steel structures, construction machinery and logistics systems ..............Machinery and prime movers .....................................................................Other businesses .........................................................................................

Total .........................................................................................................Eliminations and corporate ........................................................................Consolidated ...............................................................................................

¥1,8313,405

416396

1,7997,847

377¥8,224

$ 29,035

158,278

33,261

26,805

25,408

272,787

7,188

$279,975

¥ 3,490

19,025

3,998

3,222

3,054

32,789

864

¥33,653

2002 2003 2003


Overseas sales include overseas subsidiaries’ sales to overseas third parties as well as the Company’s and domestic sub-sidiaries’ export sales to third parties.

Note: The main countries included in each segment are as follows:

Asia ....................................................................................................................Central and South America ..............................................................................Europe ...............................................................................................................Other ................................................................................................................

Total ..............................................................................................................

¥35,240

12,422

21,373

11,707

¥80,742

¥ 43,33241,72313,938

6,077¥105,070

$293,178

103,344

177,812

97,396

$671,730

2002 2003 2003


Asia Korea, China, Taiwan, Thailand, Singapore, Malaysia, Vietnam and IndonesiaCentral and South America Mexico, Panama and BrazilEurope England, France, Holland and NorwayOther America and Liberia

33

18. Related Party Transactions

The Company had no significant related party transactions in 2002.The Company and JFE Engineering Corporation (formerly NKK CORPORATION) merged shipbuilding operations into a new

company, Universal Shipbuilding Corporation, on 1st October, 2002.

Information on the transfer is as follows:

Sale of propertyProceeds of sale.....................................................................................................................Profit on sale .........................................................................................................................

Stock acquired ............................................................................................................................

¥23,7465,372

¥24,990

$197,55444,692

$207,903


34

To the Shareholders and Board of Directors of

Hitachi Zosen Corporation:

We have audited the accompanying consolidated balance sheets of Hitachi Zosen Corporation and subsidiaries as of

31st March, 2002 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash

flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the respon-

sibility 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 the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the consolidated financial position of Hitachi Zosen Corporation and subsidiaries as of 31st March, 2002 and 2003,

and the consolidated results of their operations and their cash flows for the years then ended, in conformity with

accounting principles generally accepted in Japan as described in Note 1 to the consolidated financial statements.

The consolidated financial statements as of and for the year ended 31st March, 2003 have been translated into

United States dollars solely for the convenience of the reader. We have recomputed the translation and, in our opin-

ion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars

on the basis set forth in Note 1 to the consolidated financial statements.

Osaka, Japan

27th June, 2003

Independent Auditors’ Report

BOARD OF DIRECTORS and EXECUTIVE OFFICERS (as of June 27, 2003)

Chairman

Junichiro Kojima

President

Takenao Shigefuji *

Senior Managing Directors

Minoru Furukawa *Hirotaka Nagai *Yutaka Yasumoto *

Managing Directors

Terukazu InoueMasaru Wakabayashi

Full-time Corporate Auditors

Jiro YagiHiromitsu Miyasaka

Corporate Auditors

Shosuke MoriYoshio Tanaka

Executive Officers

Katsuyuki YamadaAkira WadaKoichiro AnzaiAkihiko ImotoTadao MurakawaKenji KashiwabaraMotohiro FujiiKoya NishimotoMakoto KaiKenjiro HaraAkifumi Mitani

*Representative Director

CORPORATE DATA(On a nonconsolidated basis, as of March 31, 2003)

Hitachi Zosen Corporation

Date of Establishment

April 1, 1881

Paid-in Capital

¥25,305 million

Facilities

Domestic offices: 9 Overseas offices: 6Domestic works: 7

Number of Employees

2,051

Number of Shareholders

133,957

Number of Shares Issued

2,000,000,000

Major Shareholders

UFJ Bank, LimitedHitachi, Ltd.Mizuho Corporate Bank, Ltd.Nippon Life Insurance CompanyThe Tokio Marine and Fire Insurance Co., Ltd. Daido Life Insurance CompanyUFJ Trust Bank, LimitedThe Master Trust Bank of Japan, Ltd.

35

CORPORATE DIRECTORY

36

Head Office

7-89, Nanko-kita 1-chome, Suminoe-ku, Osaka 559-8559, JapanTelephone: +81-6-6569-0001Facsimile: +81-6-6569-0002

Tokyo Head Office

7th Floor, Palaceside Building, 1-1, Hitotsubashi 1-chome, Chiyoda-ku, Tokyo 100-8121, JapanTelephone: +81-3-3217-8409Facsimile: +81-3-3217-8552(Export business departments are situated in this office.)

URL http://www.hitachizosen.co.jp

Maizuru Works

1180, Amarube-shimo, Maizuru, Kyoto 625-8501, JapanTelephone: +81-773-62-8925Facsimile: +81-773-62-8708

Innoshima Works

2477-16, Habu-cho, Innoshima, Hiroshima 722-2393,JapanTelephone: +81-8452-2-1200Facsimile: +81-8452-2-0383

Mukaishima Works

14755, Mukaihigashi-cho, Onomichi, Hiroshima 722-0062, JapanTelephone: +81-848-44-1111Facsimile: +81-848-44-1518

Sakai Works

5-1, Chikko-shinmachi 1-cho, Sakai, Osaka 592-8331,JapanTelephone: +81-72-243-6801Facsimile: +81-72-243-6839

Kanagawa Works

4-1, Mizue-cho, Kawasaki-ku, Kawasaki, Kanagawa 210-9650, JapanTelephone: +81- 44-288-1149Facsimile: +81- 44-287-8904

Ariake Machinery Works

1, Ariake, Nagasu-machi, Tamana-gun, Kumamoto 869-0193, JapanTelephone: +81-968-78-2155Facsimile: +81-968-78-7031

Ibaraki Works

4, Omiyamachi Kogyo-danchi, Naka-gun, Ibaraki 319-2134, JapanTelephone: +81-2955-3-5730Facsimile: +81-2955-2-4797

Chikko District

(Industrial Machinery Division)

2-11, Funamachi 2-chome, Taisho-ku, Osaka 551-0022, JapanTelephone: +81-6-6555-9877Facsimile: +81-6-6555-0269

37

HITACHI ZOSEN U.S.A. LTD.

New York

767 Third Avenue, 17th Floor, New York, NY 10017, U.S.A.Telephone: +1-212-355-5650Facsimile: +1-212-308-4937

Chicago

1699 Wall Street, Suite 402, Mt. Prospect, IL 60056, U.S.A.Telephone: +1-847-427-8353Facsimile: +1-847-427-1856

Nashville

301 South Perimeter Park Drive, Suite 100, Nashville, TN 37211, U.S.A.Telephone: +1-615-781-4344Facsimile: +1-615-781-4361

Houston

10777 Westheimer Road, Suite 1075, Houston, TX 77042, U.S.A.Telephone: +1-713-532-9611Facsimile: +1-713-532-9533

Hitachi Zosen Engineering U.S.A. Ltd.

10777 Westheimer Road, Suite 1020, Houston, TX 77042, U.S.A.Telephone: +1-832-204-5700Facsimile: +1-832-204-5710

Hitz Holdings U.S.A. Inc

2711 Centerville Road, Suite 400, Wilminbton, Delaware 19808, U.S.A.Telephone: +212-355-5650 Facsimile: +212-308-4937

HITACHI ZOSEN ENGINEERING

SINGAPORE (PTE.) LTD.

Unit #23-04, The JTC Summit 8, Jurong, Town Hall Road, Singapore 609434Telephone: +65-6316-2771Facsimile: +65-6316-2773

HITACHI ZOSEN SERVICES

(MALAYSIA) SDN, BHD.

16, 3rd Floor, Jalan Tengku Ampuan Zabedah D 9/D,Section 9, 40100 Shah Alam, Selangor Darul Ehsan,MalaysiaTelephone: +60-3-5880-6723Facsimile: +60-3-5880-6724

ZHENJIANG ZHENGMAO HITACHI ZOSEN

MACHINERY CO., LTD.

250 Guantang Qiao Road, Zhenjiang Jiangsu,The People’s Republic of ChinaTelephone: +86-511-451-4032Facsimile: +86-511-451-4982

OVERSEAS OFFICES

Taipei Office

Room 902, Chia Hsin Building, 96 Sec. 2, Chung Shan N. Rd., Taipei 10449, TaiwanTelephone: +886-2-2568-2022/2023Facsimile: +886-2-2568-2030

Shanghai Office

14th Floor, HSBC TOWER, 101 Yin Cheng East Road, Pudong New Area, Shanghai 200120,The People’s Republic of ChinaTelephone: +86-21-6841-2525Facsimile: +86-21-6841-3939

Beijing Office

Room No. 1201, Beijing Fortune Building, 5, Dong San Huan Bei Lu, Chao Yang Qu, Beijing 100004,The People’s Republic of ChinaTelephone: +86-10-6590-8481/8482Facsimile: +86-10-6590-8483

Bangkok Office

7th Floor, Harindhorn Tower, 54 North Sathorn Road,Silom, Bangrak, Bangkok 10500, ThailandTelephone: +66-2-266-3162/3163Facsimile: +66-2-266-3166

Ho Chi Minh City Office

7th Floor, PDD Building, 162 Pasteur Street, District 1, Ho Chi Minh City, VietnamTelephone: +84-8-822-8636/8637Facsimile: +84-8-822-8635

Busan Office

Room 1104B, KE Building, 83-5, 4-Ka, Chungang-Dong,Chung-Ku, Busan 600-816, KoreaTelephone: +82-51-464-6796/6798/6783Facsimile: +82-51-464-6878

OVERSEAS SUBSIDIARIES

HITACHI ZOSEN EUROPE LTD.

London

6th Floor, 38 Finsbury Square, London EC2A 1LT, U.K.Telephone: +44-20-7628-3891Facsimile: +44-20-7628-1309

Gloucester

Apollo 8, Olympus Business Park, Quedgeley, Gloucester GL2 4NF, U.K.Telephone: +44-1452-724647Facsimile: +44-1452-724648

Printed in Japan

This annual report is made from 100% recycled paper and printed with soy ink.Trademark of American Soybean Association

URL http://www.hitachizosen.co.jp

year ended 31 march 2003 - hitachizosen.co.jp · absorbed hec corporation. we will aggressively...

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