Kawasaki’s Plant Engineering Business to Become a Subsidiary

 Tokyo, January 31, 2005 – The Board of Directors of Kawasaki Heavy Industries, Ltd. (KHI) decided at its meeting held today, to set up the Company’s plant engineering business as a wholly owned subsidiary, Kawasaki Plant Systems, Ltd. on April 1, 2005.

 On April 1, 2005, Kawasaki Plant Engineering Co., Ltd., already a wholly owned subsidiary of KHI, will merge with KHI’s plant engineering business and be renamed Kawasaki Plant Systems, Ltd. The new company will operate with a streamlined range of products that demonstrate high profitability and competitive leadership. Additionally, it will accelerate the process of achieving greater selectivity and focus in its operations by concentrating corporate resources in product development and marketing in the highly promising fields of environmental preservation and recycling. The new company will also pursue greater management agility and efficiency by capitalizing on its independent corporate organization.

 KHI’s plant engineering business has since the 1960s played a key role in the upgrading of social and industrial infrastructure around the world in such areas as steel, cement, chemicals, and electric power generation. In light of weakened earnings over the past few years due to heated price competition both in Japan and overseas, KHI has restructured its plant engineering business under its medium-term business plan established in November 2000. The set-up of Kawasaki Plant Systems is aimed at accelerating these policies, with the goals of enhancing the operating structure of the business in the face of a harsh market environment and rapidly establishing a stabler business base.

 KHI will provide management support—including business opportunities, technology, and funds—to the new company. Simultaneously, KHI will implement policies that fully demonstrate the collective strength of the KHI Group, with the aim of further increasing the corporate value of the Group as a whole.

Overview of New Company

(Note)
KHI will carry out the separation without submitting the scheme for approval at the General Meeting of Shareholders due to the fact that the separation will be effected in accordance with Article 12-6 of the Law on Special Measures for Industrial Revitalization and Article 374, Chapter 22, Paragraph 1 of the Commercial Code of Japan. Under this scheme, Kawasaki Plant Engineering Co., Ltd., the successor corporation, will newly issue 99,200 shares of common stock and allot all of them to KHI, the partitioning company, in exchange for acquiring KHI’s plant engineering business. KHI decided to adopt this scheme with the aim of reforming its plant engineering business more effectively and decisively by consolidating its operations with Kawasaki Plant Engineering. On the date of the separation (April 1, 2005), Kawasaki Plant Engineering’s name will be changed to Kawasaki Plant Systems, Ltd.