Sumitomo Heavy Industries
Annual Report 2012

http://www.shi.co.jp

Building Up Our Global Strength
Sumitomo Heavy Industries
Annual Report 2012
For the year ended March 31, 2012

Printed in Japan O051E121

SHI12ARcv̲E0807.indd 1

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2 At a Glance
4 Financial Highlights
6 To Our Shareholders, Customers and Employees
8 Interview with the President
13 Special Feature: Building Up Our Global Strength
Diversified Businesses Underpin Strong Earnings BaseD Power Transmission and Control Equipment

F Plastic Injection Molding Machines

H Medical Equipment

J Hydraulic Excavators

14
Pursuing Group Synergies
while Accelerating Global
Business Development

SHI12ARcv̲E0807.indd 2

16
Toward Becoming the
Leading Global Brand in
the High-End Zone

18
Globally Expanding LeadingEdge Cancer Treatment andDiagnostic Equipment

20
Addressing Infrastructure
Development Demand in
Newly Emerging Countries

12/08/28 19:08

21 Review of Operations
K Machinery Components

L Precision Machinery

N Construction Machinery

P Industrial Machinery

R Ships

S Environmental Facilities & Plants

31 Overview by Geographical Area
32 Research and Development
34 Intellectual Property
35 Corporate GovernanceCorporate Auditors and
40 Directors,
Executive Officers

43 Financial Section
76 Major Subsidiaries and Affiliates
78 Glossary
80 Corporate Dataand
41 Environmental
Social Contribution Initiatives
Cautionary Note Concerning Forward-Looking Statements
This annual report includes forward-looking statements regarding the future performance of Sumitomo Heavy Industries, Ltd. These forward-looking statements are based on
information currently available to the Company and determined subjectively. Future performance is not guaranteed and all information related to future performance contained
herein is subject to changes in the business environment.

Sumitomo Heavy Industries, Ltd.

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At a Glance

Diversified Businesses Underpin
Strong Earnings BaseThe SHI Group is pursuing business development across a wide spectrum of fields, ranging from leading-edge precision machinery and components through a broad variety of industrial machinery to ships and large-scale plants. The Group consistently offers first-class products andservices that maximize customer value in each of these business fields while striving to secure high market shares and profitability. At thesame time, we are strengthening inter-segment R&D collaboration in an effort to promote the development of innovative products.

Machinery Components
Sales

Precision MachineryOperating income

Sales

Construction MachineryOperating income

Sales

Operating income

93.2 4.2

144.1 12.5

158.9 8.3

The SHI Group’s power transmission and control
equipment continues to attract wide acclaim for its
high durability and performance thanks to its
unique mechanism. In addition to a dominantmarket position in Japan, the SHI Group boasts
one of the top sales records in the global market.

Particularly strong in high-precision and high-cycle
molding, the SHI Group is a leading Japanese manufacturer of plastic injection molding machines.
The Group also boasts cutting-edge technologies incyclotrons for medical use as well as semiconductorand LCD manufacturing equipment.

The SHI Group’s hydraulic excavators enjoy a solid
reputation for their outstanding fuel efficiency andmaneuverability. Building on this acclaim, theGroup is expanding its market share in Japan andoverseas. Turning to the North American market,
the SHI Group is steadily establishing its Link-Belt
brand of mobile construction cranes.

Main Products

Main Products

Main Products

Power transmission and control equipment
Inverters

Plastic injection molding machines
Cyclotrons for medical use, Ion accelerators
Plasma coating system for FPDs (Flat Panel Displays)
Laser processing systems
Cryogenic equipment, XY stages
Transfer molding press machines
Precision forgings, Defense equipment

Hydraulic excavators
Mobile cranes
Road machinery

Sales and Operating Income

Sales and Operating Income

Billion yen

Billion yen

Sales and Operating Income

Billion yen(¥ Billion)

Billion yen

Billion yen(¥ Billion)

100

15

160

20

80

12

120

15

60

9

80

10

40

6

40

5

20

3

0

0

0
(FY)

-5

0
07

08

09

10

(FY)

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)2 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 2

07

08

09

10

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)Billion yen(¥ Billion)

200

20

150

15

100

10

50

5

0
(FY)

0
07

08

09

10

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)

Annual Report 201212/08/28 18:44

1.4%

3.5%

0.0%

쐽 Machinery Components
쐽 Precision Machinery

12.8%

14.9%

쐽 Ships23.1%

쐽 Others

20.2%

25.5%

17.6%

Industrial Machinery

Ships

Operating income¥47.1 billion

26.5%

쐽 Environmental Facilities & Plants

12.9%

Sales

Consolidated
Operating Income

23.1%

쐽 Industrial Machinery

9.3%¥624.1 billion

9.0%

쐽 Construction Machinery

Consolidated Net Sales

Sales

Environmental Facilities & Plants

Operating income

Sales

Operating income

80.7 9.5

58.1 10.9

80.1 0.0

In its steam turbine operations, the SHI Group
commands an overwhelmingly dominant shareof the global biomass power generation market.
The Group is also the market leader in Japan forcontinuous ship unloaders.

The SHI Group specializes in midsized oil tankers.
The Group continues to lead the industry in profitability through a process of ongoing production
innovation.

The SHI Group’s proven track record in circulating
fluidized-bed (CFB) boilers underpins its leading
share of the market in Japan. SHI also maintains
the world’s leading share of the market for cokedrums, which are used in oil refining.

Main Products

Main Products

Main Products

Forging machines
Material handling systems
Logistics & handling systems
Turbines
Pumps

Ships

Power generation systems
Industrial wastewater treatment systems
Water and sewage treatment systems
Landfill leachate treatment system
Air pollution control plants
Chemical process equipment & plants
Pressure vessels, mixing vessels
Steel structures, food processing machinery

Billion yen

Billion yen

Sales and Operating Income

Billion yen(¥ Billion)

100

20

80

16

60

12

40

8

20

4

0
(FY)

0
07

08

09

10

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)Billion yen

Sales and Operating Income(¥ Billion)

Billion yen

Billion yen

Sales and Operating Income

70

14

120

15.0

60

12

100

12.5

50

10

80

10.0

40

8
60

7.5

30

6

20

4

40

5.0

10

2

20

2.5

0

0
(FY)

0
(FY)

07

08

09

10

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)

0.0
07

08

09

10

11

쏋 Sales (Left scale) 쏋 Operating Income (Right scale)

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 3(¥ Billion)

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Financial Highlights
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 1)Millions of yen

FY2007

FY2008FY2009FY2010FY2011FY2011¥660,769¥642,918¥516,165¥548,015¥624,100$7,610,976

96,522

91,876

69,04074,591

93,205

1,136,662

Summary of Income (for the year):Net sales
Machinery Components
Precision Machinery

136,071

135,351

105,191

131,944

144,145

1,757,863

Construction Machinery

179,370

159,154

102,650

130,811

158,942

1,938,312

Industrial Machinery

81,16384,31085,63766,54480,683

983,938

Ships

53,781

56,02862,92759,496

58,111

708,667

Environmental Facilities & Plants

100,682

106,479

81,88476,07080,116

977,024

Others

13,181

9,720

8,835

8,558

8,898

108,510574,813

Operating income

77,79056,94028,25445,80347,135

Machinery Components

12,579

7,033

861

4,874

4,238

51,684

Precision Machinery

15,6475,307(2,603)

8,340

12,507

152,527

Construction Machinery

16,286

7,543

571

5,290

8,293

101,139

Industrial Machinery

13,93013,585

14,167

10,252

9,499

115,838

Ships

9,969

9,098

6,664

9,897

10,935

133,352

Environmental Facilities & Plants

7,526

13,040

7,101

5,566

6

75

Others

1,710

1,131

1,376

1,518

1,632

19,88891,57875,26047,97963,74464,955792,130

EBITDA (Note 3)
Net income

42,974

13,64913,28027,926

19,492

237,707

Capital expenditure

28,18031,75324,465

14,292

19,682240,024

R&D expenses

9,908

10,047

8,187

7,445

9,343

113,939

Depreciation and amortization

13,78818,32019,725

17,941

17,820217,317

Cash flows from operating activities

29,096

34,67657,51336,521

23,309284,253

Cash flows from investing activities(41,250)(35,924)(13,954)(23,513)(22,672)(276,475)

Free cash flows (Note 4)(12,154)(1,248)43,55913,008637

7,778

Cash flows from financing activities(5,238)15,625(26,686)(22,020)

19,879242,423

Notes:
1. The U.S. dollar amounts have been translated, for convenience only, at ¥82=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2012.
2. From fiscal 2010, SHI adopted the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information (ASBJ Statement No. 17 of March 27, 2009). In line with thisadoption, SHI has changed its business segmentation from the period under review. Past figures are presented pro forma based on the new segmentation.
3. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
4. Free cash flows = Cash flows from operating activities + Cash flows from investing activities

Net Sales

Operating Income andOperating Income Margin(¥ Billion)(¥ Billion)(%)(¥ Billion)

(%)

700

80

16

50

25

600

70

14
40

20

60

12

50

10

30

15

40

8

30

6

20

10

20

4
10

5

10

2

500

Net Income and ROE

400

300

200

100

0

(FY)

07

08

09

10

11

0

(FY)

07

08

09

10

11

쎱 Operating Income (Left scale)Operating Income Margin (Right scale)

4 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 4

0

0

(FY)

07

08

09

10

11

0

쎱 Net Income (Left scale)ROE (Right scale)

Annual Report 201212/08/28 18:44

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

FY2007

FY2008FY2009FY2010FY2011FY2011

Financial Position (at year-end):
Total assets¥678,634¥657,436¥610,087¥626,829¥691,841$8,437,089

Interest-bearing debt

89,567110,339

87,66067,83396,522

1,177,097

Total net assets

246,371

238,697

254,153

269,380

282,145

3,440,797

Amounts per Share of Common Stock:

U.S. dollars(Note 1)Yen

Net income (Note 5)¥ 71.19¥ 22.62¥ 22.01¥ 45.87¥ 31.75

Stockholders’ equity

392.80378.78404.73435.10454.43

5.54

Cash dividends

10.00

6.00

4.00

8.00

10.00

0.12

Share Data:$0.39

U.S. dollars(Note 1)

Yen

Stock price at year-end

¥644

¥325

¥563

¥543

¥460

$5.61
Thousands of
U.S. dollars(Note 1)Millions of yen

Market value¥388,707¥196,127¥339,720

Financial Indexes:¥333,622¥282,309

7.4$3,442,793%

ROIC (Note 6)

14.0

9.6

4.8

7.8

Operating income margin

11.8

8.9

5.5

8.4

7.6

EBITDA margin

13.9

11.7

9.3

11.6

10.4

Stockholders’ equity ratio

34.9

34.8

40.0

42.6

40.3

ROA (Return on assets)

6.7

2.0

2.1

4.5

3.0

ROE (Return on equity)

19.5

5.9

5.6

10.9

7.1

Interest-bearing debt ratio

13.2

16.8

14.4

10.8

14.0

¥93

¥83

¥82

Yen

US$/Yen exchange rate (at year-end)

¥100

¥98

Notes:
5. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
6. ROIC (Return on Invested Capital) = (Operating income + Interest and dividends received) x 55% (= 1- Effective tax rate)(Average of stockholders’ equity + Average of interest-bearing debt)

Total Assets andStockholders’ Equity Ratio

Interest-Bearing Debt andInterest-Bearing Debt Ratio

Free Cash Flows(¥ Billion)(%)(¥ Billion)(%)(¥ Billion)

800

60

150

25

50

120

20

600

45

40

400

30
90

15

60

10

30

5

20

30

200

10

0

15

-10

0

(FY)

07

08

09

10

11

쎱 Total Assets (Left scale)
Stockholders’ Equity Ratio (Right scale)

0

0

(FY)

07

08

09

10

11

0

-20

(FY)

08

09

10

11

Interest-Bearing Debt Ratio (Right scale)

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 5

07

쎱 Interest-Bearing Debt (Left scale)

Annual Report 2012 | 5

12/08/28 18:44

To Our Shareholders, Customers and Employees

Left:

Yoshio Hinoh
ChairmanRight:

Yoshinobu Nakamura
President and CEO

6 | Sumitomo Heavy Industries, Ltd.

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Annual Report 201212/08/28 18:44

Promoting Globalization as We Strive to Becomea “Strong and Powerful SHI”
During fiscal 2011, ended March 31, 2012, the Japanese econ-customers around the world with the aim of transitioning fromomy continued to confront extremely harsh conditions. In addi-

a well-established corporate entity in Japan to a world-leadingtion to the damage to facilities and equipment caused by thebrand. While responding to changes in the structure of theearthquake disaster, corporate-sector production activities weremarket and enhancing our overall competitiveness, we are striv-

severely impacted by such factors as shortfalls in the supply of

ing to become a “Strong and Powerful SHI” that is capable ofcomponents and electric power as well as unprecedented

generating sustainable growth and flexibly adapting to every

appreciation in the value of the yen. Outside Japan, operating

possible operating condition.

environments offered little in the way of certainty and stability.

The corporate mission of the SHI Group remains to contrib-

This was largely attributable to the slowdown in growth rates in

ute to the development of society through the provision of first-

China on the back of policy initiatives implemented to tighten

class products and services. Winning the enduring confidencemonetary conditions, the effects of flooding in Thailand andof customers worldwide is key to realizing sustainable growth

the disruption to public-sector finance and financial markets inand enhancing corporate value, and will, in turn, enable us toEurope. Under these circumstances, the SHI Group made thebetter meet the expectations of shareholders, customers andearthquake recovery efforts of clients a top priority and worked

employees as well as the local communities in which we oper-

diligently to normalize production activities.

ate. In recent years, society has also taken up a growing interest

Moreover, the Group launched its “Innovation 21” medium-in the corporate governance and compliance endeavors of theterm management plan in April 2011 and implemented

corporate sector. The SHI Group has been stepping up its

measures aimed at improving market competitiveness. Whileefforts to augment and strengthen its activities in the corporate

net income fell below the level reported in the previous fiscal

governance and compliance fields. To this end, SHI has appoint-

year, these efforts helped to lift orders received, net sales,

ed an external director as well as corporate auditors andoperating income and ordinary income on a year-on-year basis.

promotes internal control systems to establish an efficient andDespite this upswing compared with the previous fiscal year,

transparent management structure. Moving forward, the SHI

the Group’s overall performance fell short of the first-year

Group is committed to further reinforcing corporate governancetargets established under “Innovation 21.” This less than satis-

and compliance as a part of its overall efforts to enhancefactory performance can be attributed to such external factors

corporate value.

as the unprecedented strength of the yen and deceleration in

As we work toward achieving our established goals, we

economic growth. Notwithstanding these factors, fiscal 2011

kindly request the continued support and understanding ofsaw the Group left with a number of outstanding issues.

shareholders, customers and employees.

Looking ahead, we will enhance and streamline our manufacturing bases, including the expanded plant in China and other
newly established overseas plants, so as to firmly position theGroup on a growth trajectory.
Keeping in mind the keywords “Globalization” andYoshio Hinoh
Chairman“Innovation,” which form the basis of “Innovation 21,” the SHIGroup is promoting global growth strategies. Today’s global
economy is being driven by countries, that, although separate
entities, are working together to move forward. At the sametime, corporate management is being forced to undergo
substantial change. Against this backdrop, the SHI Group isproactively expanding into global markets and reaching out toYoshinobu Nakamura
President and CEO

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 7

Annual Report 2012 | 7

12/08/28 18:44

Interview with the President

Fiscal 2011 Results“Innovation 21” Medium-Term Management Plan

Q.
A.

Q.

Please provide us with an update on
progress after completing the first yearof “Innovation 21.”A.

While we were unable to reach our performance targets for the first year of our
medium-term management plan, we havemade steady progress in implementing“globalization” and “innovation” measures.

How would you evaluate the Group’s
performance in fiscal 2011?
We were successful in terms of increasedorders received and net sales despite a harsh
operating environment.

In fiscal 2011, both orders and net sales surpassed levels
recorded in the previous fiscal year. While the SHI Group registered slight increases in operating income and ordinary income,net income fell by a substantial margin owing to such extraor-

First Year Financial Results

dinary losses as a loss in connection with defects found in the

Against the backdrop painted earlier, the SHI Group wasconstruction of a plant and a loss on valuation of investment

unable to achieve its first year medium-term management plan

securities.

targets. Turning to orders received, the Group performed solid-

Amid an economic environment that continues to reelly in Europe and the United States, where there are indications

under the weight of such difficulties as the downturn in pro-of market recovery, particularly in segments falling into the cat-duction activity as a result of the earthquake disaster andegory of mass-produced machinery. Entering the second half,

appreciation in the value of the yen, I rate positively our ability

however, we were unable to avoid the impacts of fluctuations

to again record a year-on-year increase in revenue. However,in foreign currency exchange rates and the downturn in theour performance fell short of targets established at the begin-economy. As a result, we failed to reach the target set forning of the period, especially from the profit perspective, withorders. Sales were buoyed by an order backlog in heavy

operating income and ordinary income well below planned lev-machinery-related businesses bringing us close to the estab-els. Looking at operating income by business segment, earn-

lished target. From a profit perspective, however, operatingings fell year on year in both Machinery Components andincome fell well short of the mark. We put this down to a busi-

Industry Machinery due mainly to ongoing appreciation in theness structure that is highly sensitive to such external factors asvalue of the yen. In addition, the provision of an allowance formovements in foreign currency exchange rates and will takemodifications made in connection with defects found in theurgent steps to implement necessary countermeasures.

construction of a plant in the Environmental Facilities & Plants
Executing “Globalization” and “Innovation” Measuressegment resulted in a substantial deterioration in profits.
While acknowledging the impacts of such external factors

We have made steady progress in implementing measures

as the greater than expected strength of the yen and theaccording to plan based on the keywords “globalization” anddownturn in the economy, many issues need to be urgently“innovation.” In order to accelerate business development inaddressed, not the least of which is profitability.

newly emerging markets, we constructed and commenced

Trends in Fiscal 2011 Quarterly Results
OrdersNet Sales(¥ Billion)(¥ Billion)

200

200

150.5

쏋 Others
쏋 Environmental Facilities& Plants
쏋 Ships쏋 Industrial Machinery쏋 Construction Machinery쏋 Precision Machinery쏋 Machinery Components

144.5

쏋 Others
쏋 Environmental Facilities& Plants
쏋 Ships쏋 Industrial Machinery쏋 Construction Machinery쏋 Precision Machinery쏋 Machinery Components

50

(FY)

11/1Q

8 | Sumitomo Heavy Industries, Ltd.

11/2Q

11/3Q

11/4Q

141.2

137.9

150

125.2

100

0

SHI12AR̲E0820.indd 8

156.2

151.1

150

188.8

100

50

0

(FY)

11/1Q

11/2Q

11/3Q

11/4Q

Annual Report 201212/08/28 18:44

Yoshinobu Nakamura

President and CEO

operations at a new hydraulic excavator plant in Indonesia andfiscal year. From the perspective of innovation, we recognize

a new gearbox plant in Brazil. In addition, we are expanding

the critical need to comprehensively reshape the competitive

existing plants in China and Vietnam to boost capacity.

structure of each business. To this end, we have identified theMoreover, in each business we are strengthening collaborationphrase “Innovation of Half and Double,” and are implementing

with related overseas subsidiaries and are upgrading anda variety of initiatives, including efforts to increase production

expanding our global network. As a result, our overseas sales

efficiency and accelerate product development to address

ratio in fiscal 2011 was 53%, up from 51% in the previous

numerous outstanding issues, such as the need to reinforce
our business structure.

Overseas Sales
Industrial
Machinery 6%

Environmental
Facilities & Plants 3%
Machinery Components
11%

Ships 21%¥277.4 bn

Environmental
Facilities & Plants
4%

Precision Machinery
22%

There are numerous hurdles to be overcome, not the least of
Machinery Components
14%

Ships 17%

which is wildly fluctuating global economic conditions, toremain competitive on the world stage. Against this backdrop,¥327.8 bn
53%*

51%*
Construction Machinery 36%

Toward a “Strong and Powerful SHI”

Precision
Machinery21%

we will strengthen our corporate structure and raise our competitiveness as we strive to become a “Strong and Powerful
SHI” that is capable of generating sustainable growth in every*Overseas sales ratio

Construction Machinery 37%

possible environment.

Industrial Machinery 7%

FY2010 Result

FY2011 Result

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 9

Annual Report 2012 | 9

12/08/28 18:44

Overview of the “Innovation 21” Medium-Term Management Plan
(Plan Period: April 1, 2011 to March 31, 2014)

Basic Policy

Net Sales and Invested Capital

The SHI Group’s Medium-Term Management Plan,“Innovation 21,” covers the three-year period from fiscal
2011 to fiscal 2013. Under this new plan, the SHI Group(¥ Billion)
1,000¥730.0 bn

aims to realize a “Strong and Powerful SHI.” This “Strong
and Powerful SHI” must be capable of sustaining growth(FY13 target)
get
ett)

¥630.0 bn

750(FY11 estimate)

Net salesby reinforcing its competitive advantages and flexibly
adjusting to changes in operating conditions.

¥624.1 bn
500(FY11 results)

Invested capitalWith regard to quantitative targets for fiscal 2013,
ending March 31, 2014, the SHI Group is aiming for net

250¥375.4 bn

Interest-bearing debt

sales totaling ¥730.0 billion, operating income totaling¥96.5 bn¥73.0 billion and return on invested capital (ROIC) of

0

98 99

00

01

02

03

04

05

06

07

08

09

10

11

13 (FY)12

10% or more. In order to achieve these targets, we will(1) enhance and effectively employ our global network,(2) develop and release into the market innovative prod-

Operating Income

ucts (product innovation), and (3) promote innovation in
manufacturing and sales while enhancing business execu-(¥ Billion)
100¥73.0 bntion capabilities (process innovation). Guided by the corporate slogan “Innovation of Half and Double,” the SHI(FY13 target)
75

position of competitive advantage in global markets.

¥54.0 bn

Total operating incomeof profitable businesses

Group will rebuild its corporate structure and establish a(FY11 estimate)50¥47.1 bn

Total operating income
25

Outline of “Innovation 21”

Financial targets(for Fiscal 2013)

Net sales¥730.0 billion

Operating income¥73.0 billion

ROIC(FY11 results)

10% or more

0

Total operating income of deficit-generating businesses
-25

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13 (FY)“Strong and Powerful SHI”

Corporate concept

Redesign the Group’s competitive corporate
structure and establish superiority to work
towards sustained growth and an improved
earning capacity

Keywords for growth“Globalization” and “Innovation”

Investment policy¥150.0 billion over three years

Long-term target

Achieve net sales totaling ¥1 trillion

ROIC
(%)
15

10% or more
(FY13 target)

8.7%
10

(FY11 estimate)

7.4%(FY11 result)
50

10 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 10

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13 (FY)

Annual Report 201212/08/28 18:44

Upgrading and Expanding Global Bases in the Power Transmission and Control Equipment, Plastics Machineryand Hydraulic Excavator Businesses
China

EuropeAugust 2010
 Area management company established(Shanghai, China)
January 2011
 Investment company established(Shanghai, China)
2011/2012 Gearbox and hydraulic excavator manufacturing
plant expanded (Tangshan, China)

March 2011
 Hansen Industrial Transmissions NV acquired(Belgium)
March 2008
 The Demag Plastics Group acquired (Germany) Power Transmission and Control Equipment Plastics Machinery Hydraulic Excavators

Q.
A.

Southeast Asia

North America

May 2010
 LBX Company, LLC made a wholly owned
subsidiary (United States)

South America

December 2010
July 2010
 Regional headquarters established (Indonesia)
 Regional headquarters established (Brazil)
September 2011
November 2011
 Hydraulic excavator manufacturing plant Gearbox manufacturing plant commenced
commenced operations (Indonesia)
operations (Brazil)
April 2011
 Sales branch for hydraulic excavators commenced
operations (Indonesia)
2008
 Speed reducer motor manufacturing plant
expanded (Vietnam)

Taking into account results after the first year,
will you make any changes in the plan?
In principle, we are not contemplating any
change in the overall direction of our strategies. Outside of Japan, we will work to
expand activities in segments that fall underthe mass-produced machinery category.

we acquired last year. These efforts will dovetail with our goalof expanding our global market share. In plastics machinery,
we will further strengthen our relationship with the Demag
Plastics Group in Germany to boost our share in growth fields
and regions. In hydraulic excavators, while increasing production capacity in Japan, China and Indonesia, we will endeavor
to lift our market share in the growth markets of Southeast
Asia as well as North America and South America.

We do not intend to change our policy of pursuing expansion
in segments that fall under the category of mass-produced
machinery, including Machinery Components, Construction
Machinery and Precision Machinery. In each of these businesses, we will actively pursue opportunities in overseas markets
and reach out to customers around the world. We will put inplace a local production structure while upgrading, expanding
and bolstering collaboration with our global network. Through

Q.
A.

There were no new shipbuilding orders infiscal 2011. Please tell us about your policies
in this business going forward.
We will assign the minimum number of personnel required to carry the business forward.

these means, we will strive to expand business.
The SHI Group has continued to adopt a patient policy. Rather

Q.
A.

than pursue orders to the point where the business incurs a

Can you provide us with specific details of
initiatives?
While expanding overseas output, we willbolster global collaboration and promotebusiness expansion.

loss, we have reduced the pace of construction and sought toweather the difficult operating environment until market conditions recover. The downturn in the freight shipping and shipbuilding markets, however, shows no sign of abating and weforesee little opportunity to secure orders that are capable ofturning a profit. Under these circumstances, we will further

In power transmission and control equipment, we will quickly

slow the pace of construction and keep personnel assigned torealize full operations at our Tangshan Plant in China as well as

the shipbuilding business to the absolute minimum. Every

our new plant in Brazil. At the same time, we will bolster

possible step will be taken to avoid any incidence of loss

collaboration with Hansen Industrial Transmissions NV, which

and we will endeavor to quickly capture new orders.
Sumitomo Heavy Industries, Ltd.

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(¥ Billion, unless otherwise stated)

Fiscal 2012
Performance Forecasts

FY12 1H (Forecast)

Orders
Net sales
Operating income
Operating income margin (%)
Ordinary income
Ordinary income margin (%)
Extraordinary gains or losses
Net income
Profit margin (%)
Dividends (¥)

FY12 2H (Forecast)

290.0
300.0
17.0
5.7%
15.0
5.0%
(0.5)
8.0
2.7%
4

310.0
330.0
28.0
8.5%
26.0
7.9%
(1.5)
15.5
4.7%
6

Payout ratio (%)
ROIC (after tax) (%)
Exchange rate (¥ to US$1.00)

FY12 (Forecast)

FY11 (Result)

600.0
630.0
45.0
7.1%
41.0
6.5%
(2.0)
23.5
3.7%
10
26.1%
6.1%
80

571.3
624.1
47.1
7.6%
44.6
7.1%
(6.4)
19.5
3.1%
10
31.5%
7.4%
85

Outlook for Fiscal 2012

maintain internal reserves at the level required to ensureQ.
A.

long-term and stable business development.

What is your outlook for fiscal 2012?

For fiscal 2011, in line with the aforementioned policy
and reflecting the Group’s earnings performance, the Company

We forecast order and sales increases insegments that fall into the category ofmass-produced machinery.

The economic environment in fiscal 2012 is expected to benefit

declared an annual per-share cash dividend of ¥10, up¥2 compared with fiscal 2010. For fiscal 2012, SHI plans tomaintain this level and pay an annual per-share cash dividendof ¥10, which includes an interim cash dividend of ¥4.
By taking sure-footed steps to implement initiatives underfrom ongoing growth in newly emerging countries and a

the “Innovation 21” Plan, SHI will secure additional businessrecovery in market conditions in developed countries. There

growth, thereby maximizing its corporate value. Throughremains little room for complacency, however, given the pro-increases in profit distribution, the Company will continue

longed impacts of such factors as the financial crisis in Europe,

to meet the expectations of its shareholders.

a slowing of the growth rate in China and persistent appreciation in the value of the yen. Under these circumstances, the SHIGroup expects to record new orders totaling ¥600.0 billion, net
sales of ¥630.0 billion and operating income of ¥45.0 billion.

Dividends per Share and Payout Ratio

These forecasts are based on our assumption that orders andDividends per Share (Left scale)sales in segments that fall into the category of mass-produced
machinery will increase on the back of a recovery in overseas

Payout Ratio (Right scale)

(Yen)

(%)

12

40

9

30

6

20

3

10

markets. The ship and heavy machinery-related markets are notprojected to improve. Accordingly, we anticipate continued difficult operating conditions in these fields.

Returning Profits to Shareholders

Q.
A.

What is SHI’s policy on distributing profits
to shareholders?

0

(FY)

07

08

09

10

11

12 Forecast

0

SHI adheres to a policy of paying performancelinked cash dividends for each period whileworking to constantly increase returns.

SHI pays out cash dividends based on profits for each period
and continually strives to increase shareholder return. The
determination of dividends takes into consideration a fullrange of factors, including the need to accumulate and
12 | Sumitomo Heavy Industries, Ltd.

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Special Feature

P. 14
POWER TRANSMISSION AND
CONTROL EQUIPMENT

Pursuing Group Synergies
while Accelerating Global
Business Development

P. 16
PLASTIC INJECTION MOLDING MACHINES

Toward Becoming the
Leading Global Brand in
the High-End Zone

P. 18
MEDICAL EQUIPMENT

Globally Expanding LeadingEdge Cancer Treatment andDiagnostic Equipment

Gearing Up
for Global Strength
P. 20

HYDRAULIC EXCAVATORS

Addressing Infrastructure
Development Demand in
Newly Emerging Countries

Building Up Our Global Strength
Under the “Innovation 21,” medium-term
management plan, the SHI Group is actively
promoting growth in the business fields of powertransmission and control equipment, plastic
injection molding machines, medical equipment
and hydraulic excavators. In this special featuresection, the people in charge of operations inthese fields discuss the characteristic features ofour principal products as well as our businessstrategies going forward.
Sumitomo Heavy Industries, Ltd.

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POWER TRANSMISSION AND CONTROL EQUIPMENT

Pursuing Group Synergies
while Accelerating Global
Business Development
Harnessing Collective Strengths to Secure theWorld’s Leading Market Share

Shinji Nishimura
Representative Director
Senior Executive Vice President
General Manager, Power Transmission & Controls Group

Maintaining a Top Market Share in Japan while Boasting World-Class Sales Results

Small-sized speed reducers/gearboxes

What is a speed reducer?

Principal applications:
Small-sized conveying machinery, foodprocessing machinery

Many of the motors used to drive industrial machinery rotate too fast and lack enough torque.
Therefore, additional equipment is employed to optimize rotary speed while raising torque as
appropriate for different machinery and applications. The most commonly used type of additional equipment are speed reducers, which are combinations of sets of gears. Speed reducers
play a key role in modern industry and can be found in a wide range of machinery, including
conveyors, cranes and industrial robots.
The history of the power transmission and control equipment businessHyponic Gearmotor®

The SHI Group can trace the production of speed reducers as well as electric motors back to
1911, when it began manufacturing direct-current motors for Besshi Copper Mine. In 1938,

Medium-sized speed reducers/gearboxes

SHI signed a technical collaboration agreement with CYCLO Getriebebau Lorenz Braren KG of

Principal applications:
Conveying machinery, steelmaking machinery,
chemical processing machinery, water
treatment-related machinery

Germany (currently Sumitomo (SHI) Cyclo Drive Germany GmbH) and the following year commenced production of CYCLO® speed reducer, which remains a mainstay product today. Over
its history, the SHI Group has remained at the forefront of the speed reducer industry sector
while introducing a wide variety of products, and the Group continues to lead through thepromotion of global-scale manufacturing and marketing activities. The SHI Group’s strengths
lie in a broad product lineup that encompasses speed reducers in every size from small to large
as well as for precision control and electric motors and inverters. In addition, the Group boasts
a comprehensive customer support network of sales offices in over 250 locations in 50 countries worldwide. Currently, the SHI Group maintains the top share of the market in Japan and

CYCLO® speed reducer

registers world-class sales results.
Speed reducer applications
In the section that follows, we provide select examples of major speed reducer applications by size.
Smaller speed reducers are mainly used in compact conveying machinery such as light-loadconveyors as well as food processing machinery. To address the food safety and hygiene

Large-sized speed reducers/gearboxes
Principal applications:
Cranes, chemical processing machinery,steelmaking machinery, mining machinery

requirements essential in food processing machinery, the SHI Group developed and released a
specifically designed speed reducer.
The CYCLO® speed reducer is the flagship model of medium-sized speed reducers. Unlike
common or involute gears, the CYCLO® speed reducer’s gear plates are uniquely curved toachieve smooth, rotating contact in a proprietary wave-shaped configuration. Along with its
high gear-meshing ratio, which gives it toughness, the defining features of this product arehigh efficiency, long life, compactness, light weight and a high reduction ratio. The CYCLO®
speed reducer is used across a wide range of applications, including conveying, steelmaking,chemical processing and water treatment-related machinery.
14 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 14

PARAMAX® speed reducer

Annual Report 201212/08/28 18:44

For larger gearboxes, the greater concern is durability as they are used to drive bigger
types of industrial machinery. PARAMAX® speed reducers employ a pressure angle of 25
degrees making it possible to design gearboxes with a high load tolerance in addition to highshock load resistance. The principal applications are in cranes as well as chemical processing,steelmaking and mining-related machinery.
In addition to the aforementioned speed reducers and gearboxes, the SHI Group offers
speed reducers for precision control. Such speed reducers, which are required to have excellent rigidity, are in high demand for use in industrial robots, machine tools and factory automation machinery, where precise positioning accuracy is at a premium. The Group continues
to address market needs with an abundant product lineup.

Tangshan Plant

Cultivating the Growing Markets of China and South America throughLocal Production
As a part of its global business development activities, SHI entered the North American
market in the 1960s. Working through Sumitomo (SHI) Cyclo Drive Germany GmbH, theCompany was quick to expand its sales network throughout Europe as well. In recent years,
the SHI Group has focused on business development in newly emerging countries, which
continue to exhibit remarkable growth. For more than a decade, the Group has expanded its
operations and stepped up the local production of small- and medium-sized speed reducers in
China through its plant in Tianjin City. In 2009, the SHI Group commenced production of
medium- and large-sized gearboxes at the plant in Tangshan, Hebei Province, that continues
to progress steadily. More recently, in November 2011, the Group brought online a new plant
for medium- and large-sized gearboxes in Brazil. By ensuring the stable supply of products
through local production and sales growth, the SHI Group will endeavor to expand its business in South America, which is projected to enjoy sound economic growth.
Promoting Cooperation with Hansen Industrial Transmissions NV
In March 2011, SHI acquired equity in Belgium-based Hansen Industrial Transmissions NV(HIT), making the company a wholly owned subsidiary. With its production base near
Antwerp serving as its center of operations, HIT maintains six assembly bases worldwide. In

Brazil Plant

addition to Europe, the company boasts powerful sales channels in such resource-rich countries as South Africa and Australia, which both exhibit significant growth potential. SHI has
received gearbox-related technological support from the former parent company of HIT.
Building on this relationship, SHI expects to quickly generate synergies by working with HIT in
product development. Together with this new subsidiary, the SHI Group has put in place afull-fledged global-scale cooperative framework from both the product and sales perspectives. Moving forward, the companies will work in unison to promote business expansion.
Area of Focus

Power Transmission and Control

Looking at sales trends in the power transmission and control equipment business by geo-

Equipment Sales by Geographical Areagraphical area, growth in Japan has stalled while results overseas continue to expand. Given
the forecasts of ongoing robust infrastructure investment in such newly emerging countries(¥ Billion)
100

and regions as China, Central America, South America and Southeast Asia, steadfastly capturing demand in each of these areas is of vital importance. To bring to market products thatgenuinely meet needs in a timely fashion, the SHI Group will strengthen its marketing func-

80

60

tion in each area while promoting timely product development. From a manufacturing perspective, considerable weight has been placed in recent years on channeling investment
toward the construction of new plants and expansion of production facilities in wide-ranging

40

20

locations including China, Vietnam and Brazil. Through these means, every effort has been
made to augment global production capacity. In Europe, the Group secured a manufacturingbase for the production of large-sized gearboxes through the acquisition of HIT. In addition to
taking full advantage of these plants going forward, the Group will focus on optimizing its
supply chain and to ensure smooth collaborative ties between each manufacturing base andglobal sales network. The SHI Group will work diligently to build a robust business structureand secure the world’s leading market share.

0 (FY) 08







09

11

EuropeAmericas
China
Asia and Others
Japan

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 15

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PLASTIC INJECTION MOLDING MACHINES

Toward Becoming the
Leading Global Brand in
the High-End Zone
Providing First-Class Products that Seamlessly Fuse
Wide-Ranging Technologies

Kazuo Hiraoka
General Manager, Plastics Machinery Division

Maintaining a Leading Share in Japan

Sales of Plastic Injection Moldingof the Full-Electric Injection Molding Machine Market

Machines by Geographical Area

The history of the injection molding machine business(Fiscal 2011)
Others 3%

Injection molding machines are used to process plastic products. Plastic materials (resins) aremelted and poured into molds where they are allowed to harden into specific shapes.
A wide variety of products essential to everyday life from electronic components, compoOther Asia 20%

nents for use in mobile phones, lenses, all types of switches, optical disks and such medical

Japan 24%

instruments as syringes as well as PET bottles are manufactured using plastic injection molding machines.

China 20%

The SHI Group entered into a technological alliance with Netstal-Maschinen AG of

North America 8%
Europe 25%

Switzerland in 1966 (alliance terminated in 1992). In the ensuing period, the Group has
accumulated substantial expertise and know-how in injection molding technologies. In 1998,
the SHI Group opted for the full-electric system over the conventional hydraulic system andbegan releasing full-electric injection molding machines in earnest. Boasting significant
expertise in high-precision, high-cycle molding, the Group was successful in meeting themarket needs. As a result, deliveries of full-electric injection molding machines grew steadily,
particularly to the IT industry. From 2003, the use of electronics by the automotive industry
surged dramatically, enabling the SHI Group to secure a top, greater than 20% share of thedomestic market. Moving forward, the Group is gradually expanding its market share.
Examples of molded items:

High-precision opticalcomponents

Mobile phone connectors

Cups

Plates

LensesFull model change of full-electric injection molding machines
Since introducing full-electric injection molding machines to the market in 1998, the SHIGroup has prioritized the continuous development of innovative full-electric injection molding technologies, releasing a succession of new models. In October 2011, the Group completed full model changes across its lineup of full-electric plastic injection molding machines,
introducing the new SE-EV series. The SE-EV series is designed to draw out the maximum
potential of the innovative Zero-molding® system, which adheres to the concepts of zero

Tail lamps

defects, zero loss and zero faults. In this context, the SE-EV series helps realize highprecision, high-cycle and stable molding. Moreover, the Group conducted a thorough16 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 16

Annual Report 201212/08/28 18:44

review focusing on mechanical efficiency. These efforts havehelped to cut energy consumption approximately 20% compared with the previous model. In the future, the Group will
work to expand orders, especially for this new series, while
applying its accumulated technologies to other models.
Bringing to the market large-size light guide plate

Full-electric plastic injection

injection molding machines

molding machine “SE100EV”

The SHI Group released the CL9000U light guide plate injection molding machine for large
40-inch LCD panels in 2011. Light guide plates are used for the back lighting of LCDs insuch wide-ranging items as smartphones, tablet PCs and LCD TVs. Light guide plates arethin plastic plates with a fine surface pattern that distributes light from light sources evenly
over the entire surface of the plate. In producing large light guide plates, advanced molding
technologies are necessary to form thin, distortion-free plates as well as to create the finepatterning across the entire surface.
Cooperating with the Germany-Based Demag Plastics Group and Accelerating
Business Development across Global Markets
In March 2008, SHI acquired Germany-based Demag Ergotech GmbH (currently Sumitomo(SHI) Demag Plastics Machinery GmbH, hereinafter “Demag Plastics Group”), making it aconsolidated subsidiary. At the time, the SHI Group’s overseas sales ratio in this field wasaround 60%, with the majority of sales concentrated in Asia, mainly China. Recognizing theneed to expand sales in regions other than Asia in order to boost its overseas sales, SHI
viewed the acquisition of Demag Plastics Group as a potential major turning point in its
efforts to develop business across global markets. Demag Plastics Group was established inGermany in 1922 and is a manufacturer of injection molding machines that enjoy substantial brand recognition. The company maintains manufacturing bases in Germany and China
and sales bases extending mainly from Europe, including East Europe and Russia, to North
America, South America and Asia. Hydraulic systems remain the mainstream technology ininjection molding machines in Europe with full-electric systems accounting for around 20%of the total market. On this basis, there is ample room for sales growth in full-electricmachinery. Moving forward, the SHI Group will introduce its full-electric machine technologies, an area of particular strength, through Demag Plastics Group and expand its injection

Sumitomo (SHI) Demag Plastics Machinery GmbHmolding machine business focusing on Europe.

(Demag Plastics Group)

Full-electric plastic injection molding machine“IntElect 220-1100” manufactured by
Demag Plastics Group

Toward Becoming the Leading Global Brand in the High-End Zone
Sales of SHI Group’s full-electric injection molding machines are mainly directed to IT-related
markets, where high-precision components are required, and other high-end fields. Building
on recent demand growth for smartphones, PCs and related devices, the need for suchitems as connectors, lenses and light guide plates is expected to climb. In addition, demandfor high-precision molding components remains firm from such fields as automobiles, medical instruments and containers. Concentrating on high-end markets in which the SHI Groupcan best leverage its molding technologies, the Group will collaborate with Demag Plastics
Group and harness the collective strengths of product and services to become the leading
global brand in the high-end zone.
Sumitomo Heavy Industries, Ltd.

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MEDICAL EQUIPMENT

Globally Expanding
Leading-Edge Cancer
Treatment and Diagnostic
Equipment
Offering Surgery-Free,
Patient-Friendly Cancer Treatment

Yukio Kumata
Senior Vice President
General Manager, Quantum Equipment Division

Strengthening Overseas Sales of Proton Therapy Systems
What is a proton therapy system?
Proton therapy is a type of radiation therapy that helps eradicate cancer cells by bombarding
affected tissue with a proton beam. Proton therapy treatment continues to attract attention
from around the world as a nonsurgical treatment method that imposes a much smaller
burden on the body. By focusing on cancer cells, proton therapy systems minimize damage
to surrounding normal cells, making treatment only minimally invasive. This pinpoint therapy
method boasts clear advantages over conventional X-ray radiation treatment, including limited side effects. Moreover, by eliminating the need for hospitalization, this method enables
outpatient treatment and patients are able to go about their daily routines at work andWorld’s largest-scale proton therapy system equipped

home as well as socialize with little or no impediment.

with four treatment rooms

Development history
The SHI Group’s proton therapy systems utilize a cyclotron, a type of circular particle accelerator, to accelerate protons and thereby generate proton beams. SHI’s cyclotron is the culmi-

Vertically arranged compact proton

nation of decades of technology development dating back to the Company’s founding andtherapy system

its involvement in the lifting magnet business. During the 1960s, SHI commenced researchin the magnetic, cyclotron accelerator and related fields. This research and development,
focusing mainly on cyclotron accelerators, has now been carried out for more than four
decades. This dedication has fostered the SHI Group’s current robust proton therapy
system business.
Market launches
The SHI Group delivered Japan’s first, and the world’s second, commercial proton therapy
system for hospital installation at the Hospital East facility of the National Cancer Center in
1997. Since treatments commenced in 2001, this system has built up an impressive treatment track record that now extends over a decade. The Group received its first overseas
order in 2008 for the delivery of the world’s largest such system to a facility in Taiwan. Morerecently in 2010, an order received in Japan involved the delivery of the world’s first system
to position the cyclotron and rotating gantry in a vertical configuration in order to conserve
space. In addition to greater compactness, this latest system could offer reduced investment
costs. Also in 2010, the Group received an order from a hospital in South Korea. Moving
forward, the SHI Group is steadily accumulating results both in Japan and overseas.
Pencil beam scanning irradiation method
In 2011, SHI obtained authorization from Japan’s Ministry of Health, Labour and Welfare to
manufacture and distribute medical equipment for proton therapy cancer treatment facilities that use the pencil beam scanning irradiation method. This new irradiation method
18 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 18

Rotating gantry irradiation equipment

Annual Report 201212/08/28 18:44

(Number)
10864Number of Proton Therapy System

2

Orders Received Worldwide(Source: In-house SHI records)

0 (FY)

94

95

96

97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

utilizes a narrow beam approximately 10mm in diameter. In comparison with the traditional* Broad beam irradiation method: A method ofbroad beam irradiation method,* this scanning irradiation method can be tuned to precisely

irradiation that uses a large-diameter proton beam

match the size and shape of a targeted tumor making it possible to treat tumors with moregenerated by a proton beam generator. The beam
is shaped to match the targeted tumor using acomplex shapes. Equipped with a high-precision diagnostic imaging system for accuratepatient positioning and a highly flexible and precise robotically controlled couch, this innova-

beam shaping device made specifically for individual patients, referred to as a collimator or a bolus.

tive method delivers optimal patient treatment.
Future market trends
Interest in proton therapy systems for the treatment of cancer has continued to rise overrecent years. Between 2000 and 2005, the number of orders worldwide was limited to one or
two each year. Recently, this has blossomed to around 10 orders annually. Numerous plans
are also taking shape for the widespread introduction of proton therapy systems in a varietyof countries and regions, including Japan, North America, Europe and Asia. While several
manufacturers in Japan, Europe and the United States provide proton therapy systems, Japanboasts an abundance of proton beam treatment facilities and plays a leading role in driving
the field forward. As a pioneer in proton therapy systems, the SHI Group engages in thedevelopment of products that match customer needs and strives actively to fulfill market
expectations.
Projected Growth in the Overseas Market for the PET Medication Production System
The use of Positron Emission Tomography (PET) as a diagnostic imaging method in the early
detection of cancer cells is gaining in popularity around the world. Under this method, anagent containing a positron rich substance that emits radiation is introduced to the body. The
positrons gravitate toward tumors and the images produced allow the early discovery of eventhe smallest of cancer cells.
The SHI Group is the only manufacturer in Japan capable of offering a PET medication
production system. Its system includes a compact cyclotron for manufacturing radioactive
isotopes (RI), medication synthesis equipment and the automated medication administering
equipment needed to produce the radiation agents used in PET diagnosis. The Group also
provides a full range of support services from training personnel at medical facilities in the useof the equipment through to the dispatch of equipment operators. The SHI Group accordingly boasts a top market share in Japan and maintains an impressive track record of delivery.
Overseas, the Group continues to record equally impressive results with systems delivered toover 40 facilities mainly in China. Looking ahead, the SHI Group will pursue business development in newly emerging markets.
The Flow of PET Diagnosis and SHI’s Products

Inquiry

Consultation

Medication
administration

Rest

Imaging

Automated medication
administering equipment

Completion

Medication
synthesis

Cyclotron(RI production)
Compact cyclotron for PET “HM-12S”

Medication synthesis equipment

Sumitomo Heavy Industries, Ltd.

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Annual Report 2012 | 19

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HYDRAULIC EXCAVATORS

PET
Addressing
Infrastructure
Development Demand in
Newly Emerging Countries
Strengthening the Group’s Overseas Production
Capabilities

Mikio Ide
Director, Sumitomo Heavy Industries, Ltd.
Representative Director and President, Sumitomo(S.H.I.) Construction Machinery Co., Ltd.

Boosting the Group’s Production Capacity at Plants in China and Indonesia

Breakdown of Hydraulic Excavators

In 2004, the SHI Group established a company in China to oversee its sales and service opera-

Sold* by Geographical Area

tions and bolster its business development capabilities in that country’s market. Thereafter,(Fiscal 2011)

recognizing the need to establish a local manufacturing plant to support further sales expan-

Others13%

sion, the Group constructed a plant in Tangshan City, Hebei Province, that came fully online inJapan 18%

June 2009. Since then, the SHI Group has invested capital as needed for expansion, bringing
the plant’s production capacity to 3,000 units per year in fiscal 2011.
The SHI Group also constructed a plant in Indonesia, that commenced operations in

China 39%

North America
23%

September 2011 with a production capacity of 1,000 units per year. Indonesia is a major market and accounts for approximately half of Southeast Asian construction machinery demand.
Looking ahead, this market is expected to enjoy continued growth on the back of expansion* Unit shipment basis

Europe 7%

in demand for natural resources and ongoing robust social infrastructure development. In
addition, in 2011 the Group established a local company to oversee its sales and service operations in Indonesia with an eye toward expanding its business throughout Southeast Asia.
Promoting a Three-Plant Integrated Management System
The SHI Group manufactures hydraulic excavators in Chiba in Japan, Tangshan in China and inIndonesia. Moving forward, the Group will continue to bolster its overseas production structure
while unifying its production and sales activities to further expand business. Addressing theeffects of worldwide economic instability on regional demand as well as the need to improve
production efficiency, the SHI Group will promote a three-plant integrated management systemfrom the viewpoint of total optimization. Our integrated management systems will encompass
the joint procurement of components as well as production technology collaboration.
Expanding Sales Based on the Group’s Fuel Efficiency Performance
The SHI Group concentrates mainly on mid-sized hydraulic excavators. The approximately
20% higher fuel efficiency compared with previous models that the LEGEST® series offers is
attracting interest not only in Japan but overseas, as is its improved maneuverability. Recently,
we have developed a new hybrid technology for the LEGEST® HYBRID excavator with lifting
magnet models. This technology uses an electric motor directly attached to the engine tocharge a capacitor (storage battery) and thus store excess electric power. Using the stored
power during swinging maneuvers and magnetizing, this system offers a further 10% to
30% reduction in fuel consumption compared with the previous models.
The SHI Group is actively engaged in the research and development of products that comply with exhaust gas emission regulations. The Group has undertaken a full model change,
introducing engines that meet provisional requirements under Tier 4 emissions regulations,Hybrid hydraulic excavator LEGEST® HYBRID liftingwith mainstay models released in Europe and the United States. Looking ahead, the Groupmagnet model

will continue to develop and release in a timely fashion products that address market needs.
20 | Sumitomo Heavy Industries, Ltd.

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Review of Operations

Machinery Components
Main Products

Major Applications/Markets

Power transmission andcontrol equipment,

Factory automation machinery, Industrial robots,
Machine tools, Conveying and logistics machinery,
Steel and iron making machinery, Chemical processing
machinery, Material handling machinery, Mining
machinery, Food processing machinery,
Water treatment plants, Elevators and escalators

Inverters

Fiscal 2011 Segment Results
Operating performance improved for almost all components comparedfiscal year, leading to increases in orders and sales. As a result, total

with the previous fiscal year, reflecting our appropriate responses tosegment orders were ¥95.1 billion, a 25% year-on-year increase, sales

market expansion in emerging countries and the favorable effects ofwere ¥93.2 billion, a 25% rise, and operating income was ¥4.2 billion,

the acquisition of Hansen Industrial Transmissions NV in the previous

a 13% decrease.

Orders

Sales

Operating Income Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)(¥ Billion)

(%)

100

100

8

10.0

80

80

6

7.5

60

60
4

5.0

40

40

20

20

2

2.5

0

(FY)

09

10

11

12 Forecast

0

(FY)

09

10

11

12 Forecast

0

(FY)

09

10

11

12 Forecast

0.0

POWER TRANSMISSION AND
CONTROL EQUIPMENT, INVERTERS
Market Environment
Market conditions both in Japan and overseas are difficult. This
harsh operating environment is mainly attributable to the continued high value of the yen in the second half of fiscal 2011,
and the impact of the financial crisis in Europe. On the domestic front, capital investment continues to stagnate, reflecting
the shift of production overseas by Japan’s corporate sector.
On a positive note, however, reconstruction demand related tothe earthquake disaster is expected to pick up in the second

PARAMAX® speed reducer

half of fiscal 2012. Overseas, economic instability across mostdeveloped countries remains a concern. In contrast, mainly insteps were taken to launch full-fledged collaborative opera-

emerging countries activity in the resources, environment,

tions with Belgium-based Hansen Industrial Transmissions NV

infrastructure and related fields has been and is forecast to(HIT), which was included in SHI’s scope of consolidation as aremain firm.

wholly owned subsidiary in March 2011.

Fiscal 2011 Review and Topics

Fiscal 2012 Strategies and Initiatives

In an effort to address the healthy demand being seen princi-

The SHI Group plans to expand overseas sales, focusing mainly

pally in emerging countries, the SHI Group kicked off opera-

on medium- and large-sized gearboxes, which are expected totions at a new plant in Brazil in November 2011. Earlier thatenjoy particularly firm demand in emerging markets. Throughyear, in August, the Group had finished the expansion of its

the expanded Tangshan Plant in China and the newly con-Tangshan Plant in China, boosting production capacity. In addi-

structed plant in Brazil, we will leverage the merits of local pro-tion, among a host of other initiatives the SHI Group released

duction for local consumption. In Japan, we will take definitive

new models in the Bevel BUDDYBOX series of right-angle-

steps to address growing reconstruction demand while further

shaft gear motors with built-in CYCLO® speed reducers andenhancing cost-competitiveness.

®

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 21

Annual Report 2012 | 21

12/08/28 18:44

Precision Machinery
Main Products

Major Applications/Markets

Plastic injection molding machines

Electronics, Electric equipment, Automobiles,
Containers, Medical equipment

Cyclotrons for medical use,
Ion accelerators

Medical equipment, Research

Plasma coating system for flat panel
displays (FPDs), Laser processing
systems, XY stages, Transfer molding
press machines

Semiconductors, LCDs

Cryogenic equipment

Medical equipment, Aerospace development

Precision forgings

Jet engines for airplanes,
Turbines for power generation

Defense equipment

DefensePLASTICS MACHINERY

injection molding machine. The new SE-EV series, which
improves on the widely acclaimed SE-DUZ series, offers a high-Market Environment

er level of precision, molding stability and energy-saving per-

The economic outlook for developed countries, including thoseformance. Through the release of new products, the SHIof Europe, and investment trends in developing countries

Group is helping to significantly improve molding productivity.

remains uncertain. Nevertheless, investment in IT-related facilities, including smartphone and tablet PC factories, mainly

Fiscal 2012 Strategies and Initiatives

in Asia is expected to remain firm. Overall market conditions

Building on its lineup of full-electric injection molding

are expected to remain roughly on par with the previous

machines, the SHI Group will upgrade and expand its productfiscal year.

offerings to best meet customers’ needs in each product field.
Every effort will also be made to further enhance functionality.

Fiscal 2011 Review and Topics

In partnership with Germany-based Demag Plastics Group,

Orders received from the European market were robust duringacquired in 2008, we will harness our global sales and service

the first half of fiscal 2011. In the second half of the fiscal year,

network to accelerate development in such worldwide markets

the SHI Group received additional orders, mainly reflecting

as Europe, the United States and Asia. Bolstering both productreconstruction demand following the floods in Thailand. In

and marketing capabilities, the SHI Group will seek to domi-

October 2011, the Group released new models of its full-electricnate the global plastic injection molding machine market.

Full-electric plastic injection molding machine“SE100EV”

22 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 22

Annual Report 201212/08/28 18:44

Fiscal 2011 Segment Results
Both orders and sales of plastics machinery increased principally due toresult, total segment orders were ¥143.9 billion, down 4% year overa recovery in the European markets. Declines in orders were seen inyear although sales were up 9% to ¥144.1 billion and operating income

other areas mainly due to weak performance in the medical equipment

increased 50% to ¥12.5 billion.

and other electronics-related products fields. However, sales increased
partly due to favorable orders received in the previous fiscal year. As a

OrdersSales

 Plastics Machinery Precision Equipment and Others

Operating Income

 Plastics Machinery Precision Equipment and Others Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)

200

200

15

15.0

150

150

10

10.0

100

100

5

5.0

50

50

0

0.0

0

(FY)

09

10

11

12 Forecast0(¥ Billion)

(FY)

09

10

11

12 Forecast

-5

(FY)

(%)

09

10

11

12 Forecast-5.0

PRECISION EQUIPMENT AND OTHERS
Market Environment
Overall market conditions are firm. Medical equipment-related
activities are being buoyed by robust trends in cancer diagnosis
and treatment equipment in Asia, Europe and the UnitedStates. Along with growing awareness of QOL* issues inrecent years, there has been a growing interest among hospitals, universities and research facilities in acquiring new equipment. The semiconductor- and electronics-related equipment
fields are beginning to show signs of recovery, supported bydemand for smartphones and tablet PCs, particularly in Asia.
* QOL: Quality of Life. In medicine, it is becoming ever more important to

Cryogenic equipment

respect patients’ values and improve their QOL during and after
medical procedures.

Fiscal 2011 Review and Topics
In medical equipment and related fields, orders were robust forcryogenic equipment. Around the world, SHI’s cryogenic equipment is considered essential equipment for magnetic reso-

improving as demand for such IT devices as smartphones isnance imaging (MRI) scanners and thus enjoys stable demand.

expected to continue rising. Under these circumstances, theOverseas inquiries for proton therapy systems are also brisk.

SHI Group will look to expand sales of related equipment, par-Overall orders for semiconductor- and electronic-related equip-

ticularly in Asia. In such new energy fields as photovoltaic solar

ment fell short of projections due to deteriorating market con-and secondary cells, where growth is expected, the SHI Groupditions despite a temporary pickup in reconstruction demand

will endeavor to cultivate new markets.

following the earthquake disaster.
Fiscal 2012 Strategies and Initiatives
The SHI Group will focus on bolstering its sales and marketing
structure overseas and work to increase the order volume for
medical equipment and related fields. As for semiconductorand electronics-related equipment, market conditions are

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 23

Annual Report 2012 | 23

12/08/28 18:44

Construction Machinery
Main Products

Major Applications/Markets

Hydraulic excavators

Construction, Civil engineering, Scrap, Forestry

Mobile cranes

Construction, Civil engineering

Road machinery

Roadway construction

Turning to specific products, steps were taken to release

HYDRAULIC EXCAVATORS AND ROAD MACHINERY
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

machinery equipped with a Field View Monitor (FVM®) system

Market Environmentthat enhances safety during machinery operation. The FVM®

Demand for hydraulic excavators is feeling the effects of asystem utilizes proprietary technology that combines the images

slowdown in China, the world’s largest market for such equip-

from three cameras mounted on a hydraulic excavator to pro-ment. A considerable amount of time is expected to passvide a 270° wide field of view that wraps around the back of

before there is a full-fledged recovery in market conditions. In

cab where the driver sits. Through such innovations, the Group

Japan, demand increased on the back of reconstruction efforts

is working diligently to enhance the safety of its products.

following the earthquake disaster. Together with signs of apositive turnaround in North America, the market is benefit-

Fiscal 2012 Strategies and Initiatives

ting from firm demand in Southeast Asian markets.

On the domestic front, reconstruction demand following theearthquake disaster is expected to provide ongoing forward

Fiscal 2011 Review and Topics

momentum. Overseas, however, numerous factors cloud future

The operating environment in fiscal 2011 was harsh, withprospects. In addition to the slowing of economic growth inrestrictions on electric power use at the Group’s Chiba Works

China, the financial crisis in Europe and prolonged high valua-following the Great East Japan Earthquake, difficulties in pro-tion of the yen are expected to negatively impact conditions.

curing principal components, a sudden slowdown in growth inAgainst this backdrop, the Group is maintaining a policy ofChina’s economy, and profitability deterioration in export mar-expanding the overall sales volume supported by its plants inkets due to the persistently high yen rate. The Group

Japan, China and Indonesia. Moreover, the SHI Group willaddressed these factors head on, resolving procurement prob-

work toward the market launch of new hydraulic excavators

lems, taking steps to ensure continuous full production at its

that comply with Japan’s Tier 4 emissions requirements as well

Chiba Works, capturing reconstruction demand in Japan, andas sales growth backed by its product innovation capabilities.

recording an upswing in shipments to North America. As a

In road machinery, emphasis will be placed on entering theresult, the SHI Group reported record high sales of hydraulicoverseas asphalt paver market.

excavators and road machinery. Overseas, moves were made to
expand facilities at the Group’s Tangshan Plant in China, bringing annual output to 3,000 units. Construction of a new plantin Indonesia was completed and the facility came online in
September 2011, bringing the SHI Group’s production networkin this sector to three plants located in Japan, China andIndonesia.

24 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 24

New hydraulic excavator plant

Hydraulic excavators manufactured

in Indonesia

at the plant in Indonesia

Annual Report 201212/08/28 18:44

Fiscal 2011 Segment Results
Increases in both orders and sales of hydraulic excavators were seenorders were ¥162.4 billion, a 15% year-on-year increase, sales were

despite some disruption in supply chains caused by the Great East Japan¥158.9 billion, up 22%, and operating income was ¥8.3 billion,

Earthquake. In mobile construction cranes, orders and sales also rose

a 57% rise.

due to recovery in the North American market. As a result, total segment

Orders

Sales

Operating Income Excavators, Road Machinery Mobile Cranes

 Excavators, Road Machinery Mobile Cranes

 Operating Income (Left scale)(¥ Billion)(¥ Billion)(¥ Billion)

200

200

15

10.0

160

160

12

8.0

120

120

9

6.0

80

80

6

4.0

40

40

3

2.0

0

0

0

(FY)

09

10

11

12 Forecast

(FY)

09

10

Operating Income Margin (Right scale)

11

12 Forecast

(FY)

(%)

09

10

11

12 Forecast

0.0

MOBILE CRANES
Link-Belt Construction Equipment Company,
L.P., LLLP

Tier 4 engines to meet EPA requirements, further expansion inMarket Environment

lines and continuing to support Lean Sigma® activities.

international markets, minimizing the impact of inflationary
pricing pressure, maintaining new product development time-

The North American crane market’s low point was in 2010; in
2011, it began to recover. Link-Belt was positively impacted by
the growth in oil and gas exploration and dealers continuing
efforts to replenish their rental fleets. The Latin American andOceanian markets continued to grow in 2011, while those of
the Near East began to show some signs of recovery.
Fiscal 2011 Review and Topics
Link-Belt recorded a 42% increase in sales in 2011 as a resultof the improvement in the North American crane market andincreased sales into the growing Latin American markets while
beginning to penetrate the Oceanian markets through theestablishment of a dealer in Australia. Link-Belt thus increased
international sales in line with long-term strategic goals. LinkBelt introduced three new models at Con-Expo, the largest
construction equipment show in North America, in March of

All terrain crane “ATC-3275”®

2011. Link-Belt continued the Lean Sigma initiatives and thedevelopment of new products to support future sales.
Fiscal 2012 Strategies and Initiatives
Sales orders and the order backlog have continued to increase
as demand in certain market segments has continued to grow.
Link-Belt strategies for 2012 will be focused on increasing
production to meet customer demand, implementation of

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 25

Annual Report 2012 | 25

12/08/28 18:44

Industrial Machinery
Main Products

Major Applications/Markets

Material handling systems

Iron and steel, Electric power, Shipbuilding,Port logistics

Turbines

Power generation

Pumps

Oil and gas refinery facilities and equipment

Forging presses

Automobiles, Iron and steel, Non-ferrous metals

Logistics system

Logistics

for goliath and ladle cranes, respectively, as well as with overseas shipbuilding companies for jib cranes.
Fiscal 2012 Strategies and Initiatives
In Japan, the SHI Group will work to further expand its market
share by providing first-class products and services in a timely
manner. Outside of Japan, we will vigorously focus our business development energies on the markets of East andSoutheast Asia. Building on our first-class products and customer support solutions, we will endeavor to establish a virtuous circle that includes our service and maintenance as well as
Continuous ship unloader

product businesses.

MATERIAL HANDLING SYSTEMS
Sumitomo Heavy Industries Engineering andServices Co., Ltd.
Market Environment
In Japan, the business environment continues to be harsh due
to such factors as the slowdown in domestic economic growth
rates and further appreciation of the yen. On a brighter note,
there are expectations of a partial pickup on the back ofrenewal-related demand for aging facilities and a rise in investment aimed at improving production efficiency. Overseas,
capital investment is forecast to increase in the energy andSteam turbine for power generationmaterials fields, particularly in newly emerging regions, including East and Southeast Asia.

TURBINES AND PUMPS
Shin Nippon Machinery Co., Ltd.

Fiscal 2011 Review and Topics

Market Environment

The SHI Group continued to support the reconstruction efforts

In line with newly emerging countries’ growing domesticof customers affected by the Great East Japan Earthquake in ademand, activities with respect to natural resource- and infra-

timely manner. At the same time, the Group extended its reachstructure development-related capital investment plans has

to principal customer segments in Japan and overseas. During

been accelerating. On the other hand, the European debt crisis

the fiscal year under review, we placed considerable weight on

has led to the postponement and cancellation of much invest-

addressing renewal-related demand as certain customers took

ment around the world. At the same time, the difficult condi-

steps to replace aging plant and equipment. Accordingly, wetions are being exacerbated by the persistent appreciation of

concluded contracts in Japan with shipbuilders and steelworks

the yen, which is spurring intense price competition.

26 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 26

Annual Report 201212/08/28 18:44

Fiscal 2011 Segment Results
In turbines and pumps, orders decreased partly due to several customers

total segment orders were ¥69.6 billion, a 5% year-on-year decreasescaling back capital investment; however, sales improved thanks to awhile sales rose 21% to ¥80.7 billion and operating income decreased

backlog of orders from the previous fiscal year. Material handling sys-

7% to ¥9.5 billion.

tems performed firmly, reflecting our focus on disaster-relief and restoration work, which led to increases in both orders and sales. As a result,

Orders

Sales

Operating Income Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)

100

100

80

80

60

60

40

40

20

20

0

(FY)

09

10

11

12 Forecast0(¥ Billion)

(FY)

09

10

11

12 Forecast

(%)

16

20.0

12

15.0

8

10.0

4

5.0

0

(FY)

09

10

11

12 Forecast

0.0

Fiscal 2011 Review and Topics

machinery, expectations remain particularly positive for after-

In turbine operations, the SHI Group has achieved considerable

market projects that entail quality upgrades, extensions in the

success in Thailand by adopting a sales and marketing

useful life of facilities and energy conservation.

approach that is deeply rooted in the local market. As a result,Fiscal 2011 Review and Topics

the Group won orders from a sugar refinery project. In North

Orders for the compact FPR series forging press were robust.

America, owing to a weak financing market, prospects for new

With emphasis on medium-scale models, strong orders extend-

projects were generally poor. Despite the difficult conditions,ed through to large-scale forging presses. The SHI Group was

the SHI Group secured orders for biomass-based fuel genera-

also successful in attracting orders from new customers. Intion turbines. In pumps, orders slumped due to the cooling ofsteelmaking machinery, the Group was commissioned to restore

the market attributable to political unrest in the Middle East

facilities affected by the earthquake disaster. We are proud toand the economic crisis in Europe. Nevertheless, the SHI Group

contribute in some small manner to reconstruction efforts.

received orders from an EPC*1 company in South Korea as well

Fiscal 2012 Strategies and Initiatives

as gas and oil refinery project orders from EPC companies in

In tune with an increase in automobile production unit vol-Europe and the United States.

umes in Asia, demand for closed die forgings is forecast to

Fiscal 2012 Strategies and Initiatives

expand. In forging presses, orders from Japanese companies

The SHI Group will focus on securing orders for power genera-

entering Asian markets are expected to increase substantially.

2tion turbines for GTCC* use and for sugar refinery factories by

We are confident that we are also making progress in our sales

taking full advantage of the market launch of high-efficiency

expansion endeavors targeting overseas customers.

long blade turbines and the establishment of a local subsidiary

Complementing these initiatives, the SHI Group will promotein Thailand. Regarding pumps, we will work to expand orders

strategies aimed at expanding sales of FPS series servo-driven

by enhancing our high-temperature, high-pressure pump prod-presses. We will concentrate on winning orders for aftermarket

uct line while extending our business into the European andprojects in our steelmaking machinery operations.

U.S. EPC fields.
*1 EPC stands for engineering, procurement and construction. EPC companies
primarily undertake plant engineering projects.
*2 GTCC or gas turbine combined cycle power generation entails the combination of gas and steam turbines to improve generation efficiency.

FORGING PRESSES AND INDUSTRIAL MACHINERY
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
Market Environment
In forging presses, investment in facilities is projected to pickup due mainly to an increase in demand for closed die forgings
Hot forging press

for the automobile industries, especially in Asia. In steelmaking
Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 27

Annual Report 2012 | 27

12/08/28 18:44

ShipsMain Products

Major Applications/Markets

Ships

Marine transportation

Fiscal 2011 Segment Results
With market conditions continuing to follow the previous fiscal year’s

total segment orders were ¥6.7 billion, a 54% year-on-year decrease,sluggish pattern, we received no new orders during fiscal 2011 after thesales were ¥58.1 billion, down 2%, and operating income increased

receipt of two new ship orders in fiscal 2010. Sales declined, with seven

10% to ¥10.9 billion.

deliveries of ships, one less than in the previous fiscal year. As a result,
Orders

Sales

Operating Income Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)

20

80

12

20.0

15

60

9

15.0

10

40

6

10.0

5

20

3

5.0

0

(FY)

09

10

11

12 Forecast0(¥ Billion)

(FY)

09

10

11

12 Forecast

0

(FY)

(%)

09

10

11

12 Forecast

0.0

in Japan to survive, industry participants must deliver higher
levels of productivity at a reduced cost while differentiating
their products by incorporating environmental andother concerns.
Fiscal 2011 Review and Topics
Regrettably, there were no new shipbuilding orders received
during the fiscal year ended March 31, 2012. Amid growing
demand for energy-saving, less environmentally damaging vessels, the SHI Group released its new Aframax tanker and otherships, all of which are designed to help realize substantial ener-

Aframax tanker RICH DUKE II

gy savings. The adoption of the Toyota Production System

SHIPS
Sumitomo Heavy Industries Marine &Engineering Co., Ltd.

improved productivity, driving up earnings and enabling theMarket Environment

Fiscal 2012 Strategies and Initiatives

The volume of new shipbuilding orders remains lackluster with

In fiscal 2012, conditions in the new shipbuilding market are

little or no sign of recovery. This is largely attributable to finan-

expected to remain harsh. With the growing trend toward

cial instability triggered by the debt crisis in Europe and pro-refining crude oil at the point of origin, there are indications

longed stagnation in the freight shipping market. Exacerbatingthat oil trading is undergoing a structural change. Faced withdifficult conditions is the downward pressure placed on ship-

the need to bolster orders received, the SHI Group will endeav-building market prices by low-priced orders coming out of theor to steer a course through the difficulties of this transitory

shipyards in China. Shipbuilders in Japan are also being buffet-

period by broadening the scope of its product groups and tak-ed by the appreciation of the yen. For the shipbuilding industry

ing heed of changing conditions.

28 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 28

SHI Group to post record-high profits backed by sales of seven
new ships, down one from fiscal 2010.

Annual Report 201212/08/28 18:44

Environmental Facilities & Plants
Main Products

Major Applications/Markets

Power generation systems

Power generation

Industrial wastewater treatment
systems

Food processing plants,
Petrochemical plants

Water and sewage treatment systems,
Landfill leachate treatment system

Government agencies

Air pollution control plants

Electric utilities, Iron and steel industry

Chemical processing equipment & plants

Petrochemical plants

Pressure vessels, Mixing vessels

Oil refining, Petrochemical industries

Steel structures

Iron and steel industry

Food processing machinery

Food processing industry

Fiscal 2011 Review and Topics
The SHI Group received one order in Japan and another overseas for its mainstay circulating fluidized-bed (CFB) boiler. The
domestic order was from a power generation facility that primarily employs a newly developed compact CFB boiler that isitself expected to evolve into a flagship product. The new boiler is expected to facilitate the use of wood-based biomass
fuels that utilize forestry waste and other materials at thispower generation facility. The overseas order reflects the highesteem in which SHI’s products and technologies are held.
Fiscal 2012 Strategies and Initiatives
Circulating fluidized-bed (CFB) boiler

In Japan, the SHI Group will focus on acquiring orders related
to biomass power generation projects in response to govern-

ENERGY-RELATED PLANTS

ment policy initiatives promoting the adoption of renewableenergy sources. The favorable market conditions created byMarket Environment

these and initiatives aimed at augmenting private power gen-

Although the market in Japan continues to be harsh, there are

eration systems are further buoyed by an FIT scheme* andsigns of a recovery supported by efforts to promote the use ofmeasures by the Forestry Agency to accelerate the use ofwood-based biomass fuels that utilize forestry waste and otherwood-based biomass fuels. At the same time, the SHI Groupmaterials and an increase in new investment in biomass power-

will bolster its service and maintenance business centered on

generation facilities that reflects the comprehensive implemen-customer satisfaction enhancement activities. Specifically, wetation of a fixed-price renewable energy purchase scheme

will work to identify potential projects, such as for facility

from July 1, 2012. In addition, demand is projected to improve

repair and modification as well as for extending the usefulas private industrial power generation operators look to renew

lives of existing facilities. Overseas, following on the opening

and increase the capacity of their facilities in light of expectedof a sales base in Indonesia, the SHI Group will establish aelectric power supply shortfalls. Overseas, legislation mandat-

marketing office in Malaysia. The Group will channel its ener-

ing the introduction and use of renewable energy together

gies toward expanding sales of CFB boilers that use low-gradewith investment in power generation infrastructure and pri-coal and biomass-based fuels in Southeast Asia.

vate industrial power generation is forecast to propel demand.

* FIT stands for feed-in tariffs. Under the FIT scheme for government subsidization related to renewable energy sources, selling prices for renewable energy
generated by energy users are set by law.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 29

Annual Report 2012 | 29

12/08/28 18:44

Fiscal 2011 Segment Results
In energy-related plants, overall market conditions were stagnant

In water treatment plants, both orders and sales increased due to firm

despite a boost from several overseas projects involving boiler systems

conditions in the water treatment system market and our proactive

for industrial power generation. Consequently, orders were flat andresponse to reconstruction-related demand. As a result, total segment

sales decreased compared with the previous fiscal year. Profitability

orders were ¥85 billion, a 20% year-on-year increase, sales were ¥80.1

deteriorated, partly due to defects found in the construction of a plant.

billion, up 5%, and operating income was ¥0.0 billion.

OrdersSales

 Environmental Facilities, Plants

 Steel Structures

Operating Income

 Environmental Facilities, Plants

 Steel Structures

 Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)(¥ Billion)

(%)

100

100

8

12.0

6

9.0

4

6.0

2

3.0

80

80

60

60

40

40

20

20

0

(FY)

09

10

11

12 Forecast

0

(FY)

09

WATER AND WASTEWATER TREATMENT PLANTS
Sumitomo Heavy Industries Environment Co., Ltd.

1011

12 Forecast

0

(FY)

09

10

11

12 Forecast

0.0

Fiscal 2012 Strategies and Initiatives
The SHI Group will continue to implement initiatives aimed atfurther stabilizing its business foundation while placing equalMarket Environment

emphasis on measures that contribute to growth. In the private

Japan’s private-sector water treatment facility market contin-

sector, the Group will continue to promote sales and provide

ued to face harsh conditions due to prolonged economic stag-high-value-added products with the aim of expanding its

nation. In the public sector, overall market conditions havemarket share in the steel industry, where SHI boasts particularremained flat over the past several years, although fiscal 2011

strengths, and boost sales of activated sludge reduction sys-

saw a temporary surge in demand attributable to reconstruc-tems to the electronic component industry. In addition, amid ation activity. In particular, the inflow of new plant construction

general increase in capital investment in connection with theinquiries from the private sector continues to decline. On a

aging of facilities and energy saving measures, we will bolster

more positive note, investments aimed at renewing and repair-

our services businesses that help customers enhance the per-ing aging facilities as well as promoting improved energy effi-

formance of existing facilities and equipment while reinforcing

ciency and reductions in operating costs increased. Similarly, therelationships with internal and external partners. In the public

direction of public-sector activities reflects a growing awarenesssector, as the adoption of energy-saving equipment gainsof the need for energy conservation and cost savings.

momentum, we will aggressively market clearly differentiatedTurning to fiscal 2012, the upswing in reports on shortfalls

products, including the MICRAS® superfine-bubble membranein the supply of electric power and potential hikes in electricity

tube diffuser, agitators and the grit jet pump system

rates would suggest that customers will increasingly favor

SUMIJETTER® for grit chamber facilities. Furthermore, the SHI

energy conservation initiatives.

Group will establish a local subsidiary in China in fiscal 2012 inorder to expand local sales.

Fiscal 2011 Review and Topics
Despite an extremely difficult operating environment, the volume of orders received from both the private and public sectors surpassed levels recorded in the previous fiscal year. The
increase was largely thanks to efforts to bolster networks withinternal and external partners from the private sector as well as
the receipt of a large-scale wastewater treatment facility orderfrom a pulp manufacturer. In public-sector activities, the SHIGroup captured four major project orders and reconstructionrelated demand. From a profit perspective, the SHI Group
recorded an increase in earnings owing to the positive turnaround in profit margins on an individual project basis.
30 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 30

Sumi-Sludge® activated sludge treatment system

Annual Report 201212/08/28 18:44

Overview by Geographical Area

Fiscal 2011 Results
The SHI Group took proactive steps to capture demand in growth markets. Buoyed by the success of these endeavors, the Group saw
increased sales of items that fall into the category of mass-produced machinery, including Machinery Components, Precision Machinery andConstruction Machinery. As a result, overseas sales amounted to ¥327.8 billion, a year-on-year increase of 18.2%. The ratio of overseas sales
to total sales was 52.5%, up 1.9 percentage points compared with the previous fiscal year.
Overseas Sales
Overseas Sales Ratio (Right scale)

Overseas Sales (Left scale)(¥ Billion)

(%)

350

70

300

60

250

50

200

40

150

30

100

2
20

50

10

0

(FY)

01

02

03

Sales by Geographical Area

04

05

06

07

09

08

Japan

10

0

11

The Americas(¥ Billion)(¥ Billion)

320

120

240

90

160

60

80

30

Environmental Facilities & Plants
Industrial Machinery
Construction Machinery
Precision Machinery
Machinery Components

0

0

(FY)

China*

08

09

10

11

Europe(FY)(¥ Billion)(¥ Billion)(¥ Billion)

50

100

80

40

80

60

30

60

40

20

40

20

10

20

0

09

10

11

(FY)

10

11

09

10

11

0

0

08

09

Asia and Others

100

(FY)

08

08

09

10

11

(FY)

08

*Excluding Taiwan and Hong Kong

Note: Sales by geographical area do not include Ships segment sales.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 31

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Research and Development

R&D Expenses

R&D Strategy

R&D Expenses (Left scale)

The SHI Group made “globalization” and “innovation” the keywords for growth under “Innovation 21,” its medium-term man-

Ratio of R&D Expenses to Net Sales (Right scale)(¥ Billion)

(%)

12

2.0

9

1.5

6

1.0

3

0.5

agement plan covering the three-year period ending March 31,
2014. Placing priority on reinforcing our global competitivenessand developing first-class innovative products, we are aggressively promoting R&D based on a vertically integrated synergistic
value chain model. Specifically, we are strengthening our fundamental technologies and developing groundbreaking components to enhance the value of our equipment and systems.

0

(FY)

07

08

09

10

11

0.0

Major R&D Results by Business Segment
1. Machinery Components
In power transmission equipment, the Group introduced newvariations, including a compact model, to its right-angle-shaft
gear motor with built-in CYCLO® speed reducers.
2. Precision Machinery
In plastics machinery, we introduced full-model changes across
our lineup of full-electric plastic injection molding machines.
Focusing on our Zero-molding® system, which adheres to theconcepts of zero defects, zero loss and zero faults, we have
Right-angle-shaft gear motor

made successful efforts to enhance accuracy, reduce energy“Bevel BUDDYBOX®”

Business Portfolio and Value Chain of SHI Group
Social & Industrial Infrastructure

Services

Transport &Material Handling

Value Chain of Markets
Material Processing

Environment & Energy

Total Systems

Water treatment facilities

Automotive

Heavy Machinery
Business GroupCFB Boilers for IPP

Lifestyle and Consumer

Liquid Crystal &Semiconductor

Medical, Bioscience,
Physics & Chemistry

IT & Digital Appliances

Wafer modification

Precision Equipment
Business Group

Proton therapy systems

Ships

Logistics & handling systems

Material handling systems

PET systems

Ships

Equipment

Value Chain of SHI Group

Plastics machinery, laser processing system & laser annealing system
Forklifts
Coating system

Pressure vessels
Hydraulic excavator

Transfer molding machines

Forging presses
Construction
machinerySurface grinding machines

Ion implantation system
Superconducting magnets

Turbines & pumps

XY stages
Steel rolls

Key Components &Basic Technologies

Lifting magnets
Blades

Cryocoolers
Gear Reducer & Component Business Group
Gear motors

32 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 32

Cryopumps

Actuators

Control modules

Annual Report 201212/08/28 18:44

consumption and improve operability. We have also released an

In turbines, we introduced a new long-blade model that

injection molding machine for making the light guide plates

enhances internal efficiency.

used in large LCD panels.

5. Ships

In quantum equipment, SHI obtained authorization fromIn ships, we took steps to apply advanced energy-saving tech-Japan’s Ministry of Health, Labour and Welfare to manufacture

nologies to hull forms and propulsion systems while developing

and distribute a proton therapy cancer treatment facility thata main engine system that complies with anticipated environ-features the pencil beam scanning irradiation method.

mental regulations and a new hull equipped with a ballast

In laser annealing systems, we expanded applications to in-water treatment system. In the area of production technology

clude the manufacture of energy-saving semiconductor devices.

development, the Group continues to focus on shortening leadIn precision positioning equipment, we introduced a com-times and improving the quality of its ships.

pact precision positioning stage for the wafer inspection equip-

6. Environmental Facilities & Plants

ment market.

In its water treatment business targeting private-sector custom-

In cooling machinery, we released a long-life, low-vibration

ers, the Group is working to take advantage of the latent prop-

separated valve unit-type pulse tube cryocooler for use in physi-

erties of microorganisms and exploit them in new products. In

cal and chemical research fields

the water and sewage business, our energy-saving, unit-type

In semiconductor production equipment, we introduced anultra-high energy ion-implantation device for high-sensitivity
image sensors.

equipment acquired public technical certification for use inhelping prevent of global warming.
In energy and environmental plants, the Group is bolstering

3. Construction Machinery

initiatives aimed at expanding sales of CFB boilers in South-

In hydraulic excavators, the Group fully updated its engines toeast Asia.

comply with interim Tier 4 emissions requirement in Europe andIn mixing and dispersing equipment, we added new func-

the United States. In addition, we released models with a Field

tions for lithium-ion secondary cells to substantially improve

View Monitor (FVM®) system option to support safe operation.

productivity.

Moreover, we continue to conduct research into hybrid technologies, building on the success of LEGEST® HYBRID, which has
been certified as low-carbon construction machinery.
4. Industrial Machinery
In logistics and automated parking systems, the Group bolstered its automated guided vehicle (AGV) lineup for roll storage and transport systems while introducing additional
functions.
In forging presses, the Group released a servo-driven, multiaction forging press that addresses future trends in the automotive industry.
FVM® system monitor

Planar XY stage “SA&SL Series” forsemiconductor and printed circuit board exposure and inspection processes

FPS Series servo-driven forging press

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 33

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Intellectual Property

The SHI Group is oriented towards growth driven by distinctive

review (DR) process, we are striving to make our product capa-

technologies. As such, intellectual property is an issue of the utmost

bilities more robust.

importance and the wellspring of the Group’s competitive advantage. The principal focus of our efforts is directed at the three ele-

2. Intellectual Property Evaluation Activities

ments of intellectual property activity, namely, ensuring that rights

The SHI Group evaluates the strength of individual patents held

to intellectual property are secured, utilizing exclusive rights andby the Group and strategically manages the processes forrespecting other companies’ rights. In this way, we devote our

improving this strength. In addition to enhancing the quality ofGroupwide energies to the active creation, management and

the Group’s intellectual property portfolio, such evaluation andprotection of SHI Group’s invaluable “property.”

management processes enable the Group to keep reinforcing
the competitive superiority of its products through the appropriate maintenance of its intellectual property.

Promotion Structure
To link the senior management of SHI Group divisions directly

3. Accelerating Overseas Patent Applications

with intellectual property activities, the Group has appointed

In tandem with the globalization of the business activities ofchief intellectual property officers (CIPOs) to the same rank as

the SHI Group, we have been calling on all operating divisions

the general managers of technology and development divisions,and other relevant divisions to actively work to file patent appli-

a position immediately below and reporting directly to officers

cations overseas. As a result, as of April 2012, as many as

in charge of groups or divisional businesses.

1,350, or 33.4%, of the total 4,040 patents held by the Group
were held overseas. In recent years, the Group has been

The CIPOs prepare optimal intellectual property strategies
for each division, make all members of those divisions thor-

increasing patent applications, particularly in China, Southoughly acquainted with these strategies and create the mecha-

Korea and Taiwan.

nisms to put those strategies into practice. In addition, the
SHI Group’s Overseas Patent Applications

Intellectual Property Department participates fully in reform(Application)

activities implemented by the CIPOs.

420

Major Activities and Achievements

360

1. Intellectual Property Inspection Activities

300

We have formed an Inspection Committee composed principal-

240

ly of CIPOs and established mechanisms for the regular evalua-

Otherstion of inventive proposals and decisions regarding substantive

PCT*

examination requests and rights maintenance. In this way, we

TaiwanSouth Korea

foster the efficient and systematic management of patent appli-

120
60

China

cations ultimately intended for commercialization. Furthermore,0by incorporating intellectual property evaluation in the design

CIPO System

180

(FY)

07

08

09

10

11

* Overseas patent applications under the Patent Cooperation Treaty (PCT)

President

Sumitomo (S.H.I.)
Construction
Machinery

Mechatronics

Precision Equipment

Quantum Equipment

Plastics Machinery

Power Transmission& Controls

Technology
Research Center

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

CIPO: Chief Intellectual Property Officer

PL: Patent Leader

Intellectual Property
Department

PL

Sub-CIPO: Acting CIPO (Group Leader)

34 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 34

Annual Report 201212/08/28 18:44

Corporate Governance

The SHI Group believes that the essence of corporate governanceCorporate Governance Systemlies in the establishment of a system that enables efficient andSHI has adopted the corporate auditor system and, within thistransparent management. Sound corporate governance helps theframework, has introduced an executive officer system to sepa-

Group achieve higher enterprise value and win the trust of all its

rate the business execution and supervision functions of corpo-

stakeholders, including shareholders, customers, employees andrate management.
The Company has a Board of Directors, comprising 10 direc-

the community as a whole.

tors, and a Board of Corporate Auditors, comprising four
corporate auditors. The Board of Corporate Auditors, including
Reinforcement of Corporate Governancetwo external corporate auditors, and the Board of Directors,

SHI has been working continually over a long period toincluding one external director, collaborate with executive offi-

strengthen its corporate governance function. Specifically, thecers in charge of internal auditing and internal control. In thisCompany adopted an executive officer system in 1999,

manner, a system has been established to audit and supervise

appointed an external director in 2002 and shortened the terms

the execution of duties by the Company’s management. SHIof office of directors from two years to one in 2007. These andbelieves that this system will ensure that the corporate gover-other measures reflect SHI’s ongoing efforts to reinvigorate thenance function is exercised to its fullest extent. Moving for-Board of Directors, ensure that business is executed in a timely

ward, the Company will take steps to further reinforce themanner and secure the objectivity and transparency of thecorporate governance function.

Company’s management.

• Board of Directors

Moreover, corporate auditors, who take on role of oversee-

The Board of Directors deliberates not only on matters stipulat-

ing the management, regularly hold meetings attended by theed under the Japanese Corporate Law, but also on important

corporate auditors of Group companies to reinforce the audit

management issues in a preemptive manner. Also, thefunction covering the entire SHI Group. To address globaliza-

Company’s Articles of Incorporation stipulate that the Company

tion, the Company also conducts annual onsite audits at its

must have no more than 12 directors.

overseas subsidiaries.

• Executive & Operating Officers Committee

SHI ensures that neither its external director nor external

The Executive & Operating Officers Committee comprises 19

corporate auditors have a risk of conflict of interest with theexecutive officers, who execute the Company’s business, includ-Company’s general shareholders and has reported them as

ing six who concurrently serve as directors of the Company, as

independent officers to the Financial Instruments Exchanges onwell as 13 operating officers. The Committee meets once awhich the Company is listed.

month to manage consolidated business results and to ensure
the implementation of management policies.

SHI’s Corporate Governance System
General Meeting of Shareholders

Audit

Board of Directors

Ethics Committee
Directors Recommendation Committee

Corporate Auditors/
Board of Corporate Auditors

Supervision

Audit

Corporate Auditor’s Dept.

President and Chief Executive Officer

Audit

Internal Control GroupInternal Control

Management Strategy Committee

Internal Audit Dept.

Internal Auditing

Executive & Operating Officers Committee

Operational Divisions

Independent Auditor

Compensation Committee

Subsidiaries and Affiliates

Audit
Corporate Auditors/Board of Corporate
Auditors at Subsidiaries and Affiliates

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 35

Annual Report 2012 | 35

12/08/28 18:44

• Management Strategy Committee

perform their duties in line with the audit plans and policies

The Company has also established the Management Strategy

formulated by the Board of Corporate Auditors. To audit theCommittee, comprising executive officers assigned to the

execution of duties by the Company’s directors and executive

Company’s Head Office, as an advisory body to the president.

officers, they attend meetings of the Board of Directors and theThis Committee deliberates on important matters, including

Executive & Operating Officers Committee as well as other

those to be submitted to the Board of Directors, and, conse-

important meetings. In addition, corporate auditors are allowed

quently, reports deliberation results to the Company’s president.

to access principal internal memos and other important docu-• Corporate Auditors and the Board of Corporate Auditors

ments relating to business execution. The Company has

The Company’s corporate auditors audit the execution of duties

appointed KPMG AZSA LLC as its independent auditor, hasby directors and executive officers from the perspectives ofentered into an audit contract and undergoes rigorous audits.

legality and appropriateness. At the same time, corporate audi-

Corporate auditors, the Board of Corporate Auditors, Internal

tors of the Company and its subsidiaries and affiliates jointly

Audit Department and independent auditor closely collaborate

hold regular meetings to exchange audit-related information

with each other and exchange information about audit results,

and reinforce auditing functions covering the entire SHI Group.

thereby developing and implementing an efficient audit system.

The Company has appointed a lawyer and a certified public
accountant as its external corporate auditors to reinforce theExternal Director and External Corporate Auditors

overall system for checking compliance and corporate account-

As discussed above, the Company has appointed one external

ing. Also, the Company has established the Corporate Auditor’s

director and two external corporate auditors. SHI ensures that

Department as a staff organization to support the Board of

all of its outside officers have no risk of conflicts of interest with

Corporate Auditors.

the Company’s general shareholders and has reported them as
independent officers to the Financial Instruments Exchanges on

Directors Recommendation Committee andthe Compensation Committee

which the Company is listed.
External director Toshiaki Kakimoto attended all 15 Board of

The Directors Recommendation Committee makes recommen-

Directors meetings during fiscal 2011. Based on his long-stand-dations to the Board of Directors with regard to candidates foring knowledge and wealth of experience as an economist, Mr.

new members of the Board of Directors and representative

Kakimoto provided comments of a beneficial nature to thedirectors. Meanwhile, director remuneration is determined byCompany while pointing out various issues in a frank andthe Compensation Committee. Three of the current sevenobjective manner. Mr. Kakimoto has acquired shares of themembers of the Compensation Committee have been external-

Company through the officers’ shareholding association. SHI

ly appointed. More specifically, as an advisory body to the Board

has deemed that this shareholding does not impact Mr.

of Directors, the Compensation Committee determines a level

Kakimoto’s independence as an external director.

of director remuneration that reflects the Company’s business

External corporate auditor Hideo Kojima attended all 11

performance while ensuring transparency and ethical appropri-

Board of Directors meetings and all 11 Board of Corporate

ateness in remuneration decision processes.

Auditors meetings following his appointment as a corporate
auditor on June 29, 2011. Based on his long-standing knowl-

Internal Auditing, Auditing by Corporate Auditors,edge and wealth of experience as a certified public accountant,

Independent Audits

Mr. Kojima provided comments of a beneficial nature to the

The Company has established the Internal Audit Department

Company while pointing out various issues in a frank and(with a full-time staff of nine) as an internal auditing organiza-

objective manner. Mr. Kojima is originally from Ernst & Youngtion that reports directly to the president. The Internal Audit

ShinNihon LLC, with whom SHI maintains transactional

Department periodically conducts audits of business execution

relationships. Taking into consideration the amounts and nature

at the Company’s internal organizations and at subsidiaries andof these transactions, SHI has deemed that this relationshipaffiliates in Japan and overseas, provides advice on operational

does not impact Mr. Kojima’s independence as an external

improvements and follows up on the implementation of

corporate auditor.

improvements. The Department undertakes the reinforcement

At the Ordinary General Meeting of Shareholders held onof the internal control functions in coordination with self-audits

June 28, 2012, the appointment of Takeo Wakae as one of the

conducted by the operational divisions. Corporate auditors

Company’s external corporate auditors was approved. SHI

36 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 36

Annual Report 201212/08/28 18:44

Compensation Paid to Directors andCorporate Auditors(fiscal 2011)

Classification

Amount ofCompensation(Millions of Yen)

Amount by Type ofCompensation(Millions of Yen)
Basic Compensation

Number of Eligible
Officers(Persons)

Directors

expects Mr. Wakae will offer invaluable and candid opinions
and advice on the Company’s management from an objective
perspective based on his long-standing knowledge and wealthof experience as a lawyer.
There are no vested interests of note between the aforementioned external director and external corporate auditors
and the Company. While SHI does not maintain specific criteria
or policies with respect to the independence of external directors and external corporate auditors appointed by theCompany, reference is made to the determination standards
concerning the independence of officers issued by various
securities exchanges.
Compensation of Directors and Corporate Auditors
The maximum amount of compensation paid to directors shallnot exceed ¥40 million per month pursuant to the resolution of

447

447

10

(excluding external
corporate auditors)

67

67

4

External officers

19

19

4

(excluding external
director)

Corporate auditors

Notes:
1. There were nine directors, two corporate auditors and three external officers
as of March 31, 2012.
Included in the figures presented in the table above are the officer number
and compensation amounts paid for the period between April 2011 and June
2011 to one director, two corporate auditors and one external corporate auditor, who retired as of the close of the Company’s 115th Ordinary General
Meeting of Shareholders held on June 29, 2011. (Accordingly, the aggregate
number of eligible officers for the business term under review were 10 directors (excluding the external director), four corporate auditors (excluding external corporate auditors) and four external officers.)
2. No officer received compensation of ¥100 million or more for the period.
Accordingly, details of compensation paid to individual officers have been
omitted.
3. In addition to the above, the amount of ¥20 million was paid as generalemployee salaries to two general employees who hold the concurrent positionof director.

SHI’s Ordinary General Meeting of Shareholders ratified in June
2006. The Company has adopted a director compensation

strengthen its internal control over financial reporting. With thescheme that is linked to SHI’s operating results. Individual direc-

organization in charge conducting audits of the status of inter-tor remuneration is determined by the Board of Directors on

nal control system administration, the Company is striving toadvice from the Compensation Committee regarding applicablesecure the reliability of its financial reporting.

standards that reflect SHI’s performance.
The maximum amount of compensation paid to corporate

Compliance Activities

auditors shall not exceed ¥7.5 million per month pursuant to

The Ethics Committee, chaired by the president, formulates thethe June 2005 resolution of SHI’s Ordinary General Meeting ofCompany’s basic compliance policy. The Internal Control Group

Shareholders. Remuneration paid to individual corporate audi-

undertakes the rigorous implementation of the policy throughtors is determined through a process of deliberation amonga Groupwide internal control system. In addition, the Company

corporate auditors.

distributes the Ethics Regulations and Compliance Manual to all

As of the close of the Company’s Ordinary General Meeting

employees and undertakes regular ethics and complianceof Shareholders held in June 2005, SHI terminated its director’s

education. When necessary, the Company collects written

retirement allowance system. In addition, the Company has notagreements from directors, executive officers and all managers

adopted a stock option system.

concerning individual compliance items. Moreover, each year
on an anonymous basis SHI conducts surveys encompassing all

Internal Control System

employees in an effort to assess and confirm levels of compli-

The SHI Group considers the internal control system to be anance awareness and understanding. The Company maintains aimportant management foundation for increasing its enterprise

resolute stance against organizations or individuals that pose avalue and ensuring its sustainable development. The Board of

threat to public order and safety and engages in no relations

Directors decides the basic policy for the development of thewhatsoever with such organizations or individuals. Theinternal control system, which is the foundation of corporate

Company has established an ethics hotline (an in-house whistle-

governance. The Board appropriately verifies the effectivenessblower system) as a point of contact to report matters thatof the internal control system and undertakes constantviolate or may violate laws, ordinances or corporate ethics,

enhancement and improvement. The Company appoints exter-

promotes the use of the hotline and endeavors to discover

nal directors to bring an outside perspective to the decisions ofproblems at an early stage. The Company conducts audits of

the Board of Directors. Corporate auditors conduct audits tothe execution of duties by the Company’s executive officers

ensure the appropriate execution of duties by the Company’s

and by staff under the direct control of the executive officers

directors with respect to the development and administration

through the organization in charge and ensures that theirof the internal control system. Also, the Company works to
Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 37

Annual Report 2012 | 37

12/08/28 18:44

execution of duties complies with laws, ordinances and the
Articles of Incorporation.
Risk Management
The Company engages in risk management using theGroupwide internal control system. The Company takes a specialized approach to minimize risk. Through this approach, thebusiness units in charge prepare regulations governing individu-

Financial results briefing held on May 2012

The president provides briefings on the Company’s interim

al risks—such as environmental, legal, disaster, IT and export

and full fiscal year results for the benefit of institutional investors

control risk—while providing education and guidance and con-and analysts. Telephone conferences are also conducted on

ducting audits. In the event of emergency, in accordance witha quarterly basis by the officer responsible for investor relations.

the Company’s Emergency Reporting Procedures, the involved

Moreover, top management calls on institutional investors andemployees immediately report to executive management andanalysts in Japan and overseas. Furthermore, over 300 inter-take appropriate measures.

views and meetings with investors and analysts were held during fiscal 2011.

Information Disclosure and IR Activities
SHI strives diligently to ensure the timely disclosure of relevant

Takeover Defense Measuresinformation. At the same time, the Company actively promotes

SHI believes that—from the standpoint of increasing enterprisedialogue with shareholders and investors. In this regard, SHI

value and ensuring the common interests of the shareholders—

recognizes dialogue as an appropriate means to ensure a deep-

the nature of persons who control decisions on the Company’s

er understanding of the Company and to further enhance its

financial and business policies should be ultimately decided byenterprise value.

the shareholders. Some large-scale purchases of shares,in light of their purpose or post-purchase management policy,
pose the risk of clear impairment of enterprise value or thecommon interests of shareholders. Some large-scale purchas-

Fiscal 2011 IR Activity Results

es—such as those conducted without the sufficient provision of

Analysts/Institutional Investors• Financial results briefings (interim/full fiscal year)• Quarterly financial results telephone conferences• Individual visits to overseas institutional investors(North America: 1; Europe: 1; Asia: 1)

information reasonably necessary for the shareholders to judge
the purchase details—can be expected to have a major impact
on enterprise value or the common interests of the shareholders. The Company considers persons who seek to make such

• Participation in conferences for institutional investors sponsored by
securities companies (six times)

purchases of the Company’s shares to be inappropriate as• Individual IR interviews

business policies and has a basic policy on large-scale share pur-

• Business briefing (twice)chases of devising measures, as far as is necessary and reason-

persons who control decisions on the Company’s financial andable, to secure and increase the Company’s enterprise value
IR Materials Posted on the Company’s Homepage

and the common interests of the shareholders.
In accordance with this basic policy, as part of measures to• Convocation notice (Japanese/English)• Securities report/quarterly securities reportprevent inappropriate parties from controlling the Company’s• Corporate governance report

decisions on financial and business policies, SHI adopted the• Summary of consolidated financial report/timely disclosure materials

Countermeasures to Large-Scale Acquisitions of the Company’s• Handout for financial results briefings

Shares (Takeover Defense Measures) following approval of the• Webcast of financial results briefing

Ordinary General Meeting of Shareholders held in June 2008.

(Audio only, Japanese/English (translation))

At the Ordinary General Meeting of Shareholders held in June

• Interim report (To our shareholders)2011 the continuation of the Takeover Defense Measures was• Annual report (Japanese/English)

approved after making necessary changes.

38 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 38

Annual Report 201212/08/28 18:44

Corporate compliance and corporate governance have continued to attract

Messages from the External
Director andCorporate Auditors

the interest of society in recent years. Under these circumstances, SHI’s
strengths are underpinned by its effective corporate governance system,
which has been realized through the clear separation of its executive function from its supervisory function. What is more, supported by the strategic

TOSHIAKI KAKIMOTOHIDEO KOJIMATAKEO WAKAE

implementation of its internal control system and compliance activities,
SHI has established a highly effective, transparent corporate management system.
As an external director, I am committed to providing proposals and

TOSHIAKI KAKIMOTO
External Director

advice from the broad, third-party perspective that I have long nurtured
through research on macroeconomics and various issues concerning corporate management. In this way, I would like to play a part in SHI’s working
to accelerate globalization and strengthen its corporate governance,
thereby contributing to the Group’s additional growth and enterprisevalue maximization.
Listed companies have in recent years been required to further strengthen
their corporate governance. External corporate auditors designated as independent corporate auditors have an important role to play in helping thesecompanies fulfill this requirement.
SHI has continued to engage in the ongoing reinforcement of its corporate governance. Being a certified public accountant and an external corporate auditor of SHI, I understand my primary role to be the verification of
the comprehensiveness of the Company’s financial reporting and compliance with business accounting standards.

HIDEO KOJIMA
External Corporate Auditor

Simultaneously, I must help the Company improve said comprehensiveness. Also, in line with the Company’s business globalization, it will become
more important than ever before to secure compliance throughout theGroup’s domestic and overseas operations and to enhance the quality of its
financial reporting on a consolidated basis. Therefore, I will do my utmost
to enable SHI to bolster corporate governance from a global perspective.
Over the past few years, we have entered an era in which it has become
increasingly vital for companies to establish a robust corporate governancesystem. In addition to shareholders in their position as owners, the activities
of joint-stock companies have the potential to significantly impact a wide
range of interested parties, including employees, consumers, business partners, group companies and creditors as well as local residents and society
at large. In this context, it is therefore imperative that joint-stock companies
fulfill a broad variety of compliance and social responsibility requirementsin the conduct of their business activities.

TAKEO WAKAE
External Corporate Auditor

Corporate governance not only entails efforts aimed at preventing
improprieties, but also maintaining a balance with endeavors designed toboost earnings capabilities. While the Board of Directors plays an importantrole in pursuing these dual themes, external corporate auditors have theadded significant responsibility of ensuring that management is appropriately monitored. As an external corporate auditor, I will maintain strict
independence in carrying out my audit duties.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 39

Annual Report 2012 | 39

12/08/28 18:44

Directors, Corporate Auditors and Executive Officers(As of June 28, 2012)

Board of Directors

Yoshio Hinoh

Yoshinobu Nakamura

Shinji Nishimura

Shunsuke Betsukawa

Yuji Takaishi

Representative Director,
Chairman

Representative Director,
President and CEO

Representative Director,
Senior Executive Vice President

Representative Director,
Senior Executive Vice President
and CFO

Director,
Executive Vice President

Hitoshi Kashimoto

Yoshiyuki Tomita

Kensuke Shimizu

Mikio Ide

Toshiaki Kakimoto

Director,
Executive Vice President

Director,
Executive Officer

Director

Director

External Director

Corporate Auditors
Yukio Kinoshita
Standing Auditor

Yuji Takaishi

Kazumi Fujita

Executive Vice President
General Manager, Corporate Planning &Development Dept.

Senior Vice President
General Manager, Internal Control Dept.

Yukio Kumata

Shigeru Toyosumi

Hitoshi Kashimoto

Standing Auditor

Senior Vice President
General Manager, Quantum Equipment Div.

External Corporate Auditor

Executive Vice President
General Manager, Ship & Marine Div.
Representative Director and President, Sumitomo
Heavy Industries Marine & Engineering Co., Ltd.

Takeo Wakae

Osamu Sekiya

External Corporate Auditor

Senior Vice President
Representative Director and President, Sumitomo Heavy
Industries Techno-Fort Co., Ltd.

Executive Vice President
General Manager, Energy & Environment Group

Tetsuya Okamura

Katsuhide Yokota

Senior Vice President
CEO, Sumitomo (SHI) Demag Plastics Machinery GmbH

Hideo Kojima

Executive Officers
Yoshinobu Nakamura
President and CEO

Shinji Nishimura
Senior Executive Vice President
General Manager, Power Transmission & Controls Group

Shunsuke Betsukawa
Senior Executive Vice President and CFO
General Manager, Export Administration Dept.

Katsuhiko Taniguchi
Executive Vice President
General Manager, Corporate Technology Operations Group
General Manager, Information Systems Development Group40 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 40

Executive Vice President
Representative Director and President, Sumitomo
Heavy Industries Engineering and Services Co., Ltd.
General Manager, Ehime Works

Kazuto Kaneshige

Akihiro Morita
Executive Officer
Deputy General Manager, Quantum Equipment Div.

Chuck Martz

Yoshiyuki Tomita

Senior Vice President
Chairman and CEO, Link-Belt Construction
Equipment Company, L.P., LLLP

Executive Officer
General Manager, Technology Research Center,
Corporate Technology Operations Group

Junjiro Nogami

Akio Yoshikawa

Senior Vice President
General Manager, Kansai Office
General Manager, Corporate Marketing Dept.

Executive Officer
Deputy President, Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.

Hitoshi Ushiyama

Isao Kohno

Senior Vice President
Representative Director and President, Sumitomo
Heavy Industries Environment Co., Ltd.

Executive Officer
Deputy General Manager, Power Transmission &Controls Group

Annual Report 201212/08/28 18:44

Environmental and Social Contribution Initiatives

The SHI Group recognizes that activities aimed at protecting theEfforts to Prevent Global Warming

global and local environment while building a recycling-oriented
society are important to its corporate mission. In line with thisAchieving Groupwide Zero Emissions in Fiscal 2011

recognition, the Company established the SHI Environmental Policy

The SHI Group works to prevent the further advance of global

in 1997. This was followed by the 1999 formulation of the SHI

warming as one aspect of the overarching goal of preserving

Group Environmental Policy. Under this Groupwide policy, all SHIGroup companies are working together to promote environmental
initiatives and management.

SHI Group Environmental Policy

the quality of the environment. Through such efforts, theGroup is striving to garner the trust of society. One key
component of these endeavors entails the quest to achieve
zero emissions.
SHI Group’s Zero Emissions Rate(%)

• Consider the impact on the environment aroundthe facilities• Prevent environmental pollution• Reduce waste

18

16.2

15

12

• Save energy and resources and promote recycling
9

7.0
5.2

6

3

0

1.8

(FY)

05

06

07

08

0.6

0.4

0.5

0.05

09

10

11

11

(Target) (Result)

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 41

Annual Report 2012 | 41

12/08/28 18:44

Zero emissions activities encompass those that are designed
to minimize the generation of waste for disposal, that is, the

The Group commenced efforts to reduce CO2 emissions inearnest in fiscal 2005. Steps were taken to establish reduction

volume of nonrecyclable industrial waste to be discarded astargets, using CO2 emission levels recorded in fiscal 2004 as alandfill. There are no specific statutory or regulatory require-starting point and to carry out measures focusing mainly on

ments currently in place with respect to zero emissions. Each

reducing the amount of electric power consumed. In addition

company engages in activities in line with proprietary standards

to the use of natural light, the Group initiated a changeover toand goals.

highly-efficient mercury lamps and fluorescent lights. Among a

Drawing on precedents set by its industry peers, the SHI

host of other measures, the Group set air-conditioning thermo-Group has defined a zero emissions factory as one where thestats to more appropriate levels and introduced inverters

volume of waste for disposal generated is less than 0.5% of thetogether with compressor equipment while adopting a detailed

total produced. Based on this definition, the Group has actively

and careful approach toward identifying any and all issues withendeavored to achieve zero emissions since fiscal 2005. As arespect to production and peripheral activities that could be

result, SHI achieved zero emissions, with the ratio of volume of

improved. At the Group’s Yokosuka Works, steps were taken

waste for disposal to the total volume of waste across theto install 1,800 photovoltaic cells on the roof of the precision

Group dropping to 0.4% in fiscal 2010. Moreover, the Groupmachinery production facility. The use of sunlight as a green

was successful in substantially surpassing its established goal byenergy source has the dual benefits of eliminating greenhouserecording a ratio of 0.05% in fiscal 2011.

gas emissions while generating 270,000kWh of energy

Essential to achieving zero emissions is the sorting and recy-

per year.

cling of waste. Moving forward, the SHI Group will continue toThanks to the aforementioned activities, the SHI Group as

adhere strictly to a policy of zero emissions and to separate anda whole achieved a 27% reduction in CO2 emissions in fiscal

sort waste with the aim of ensuring plants that are friendly to2011 compared with levels recorded in fiscal 2004. This sub-the global environment.

stantially exceeded the predetermined target of 17% and also
represents a 35% reduction compared with levels recorded in

Achieving a 27% Cut in CO2 Emissions Compared withfiscal 1990. Accordingly, well ahead of schedule, the Group has

Levels Recorded in Fiscal 2004

achieved the government’s medium- to long-term reduction

The SHI Group works diligently to reduce its CO2 emissions ingoal of 25%.

order to prevent the further advance of global warming.
Corporate activities, production in particular, consume considerable amounts of energy, which, in turn, leads to the dischargeof CO2. In response, the SHI Group works to eliminate thewasteful use of energy and ensure efficient consumption.
SHI Group’s CO2 Emissions
Compared with fiscal 1990
Compared with fiscal 2004 -1.2% -2.6%-21% -36% -32% -26% -35%
-12% -29% -24% -17% -27%

(Thousands of tons)

100

80

Photovoltaic cell panel installed on the roof of the precision machinery production facili-

60

ty at SHI’s Yokosuka Works
40

20

0

Base year

(FY)

04

05

06

07

08

42 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 42

09

10

11

11

(Target)(Result)

Annual Report 201212/08/28 18:44

Financial Sectiond Eleven-Year Summaryf Management’s Discussion and Analysis ofFinancial Conditions and Operating Results

i Business Risks
j Consolidated Balance Sheetsl Consolidated Statements of Income
m Consolidated Statements of Comprehensive Income
n Consolidated Statements of Changes in Net Assets
p Consolidated Statements of Cash Flowsr Notes to Consolidated Financial Statements£ Independent Auditors’ Report

Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 43

Annual Report 2012 | 43

12/08/28 18:49

Eleven-Year Summary
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

M

FY2001

FY2002

FY2003

FY2004

FY2005

Summary of Income (for the year):Net sales
Cost of sales
Selling, general and administrative expenses
R&D expenses
Operating income
EBITDA (Note 2)
Net income¥517,138
430,399
72,564
6,777
14,17526,0781,650¥481,289
400,460
63,616
5,800
17,21329,322
2,688¥482,765
378,422
64,112
6,263
40,231
50,344
16,262¥521,310
407,51265,025
6,317
48,77358,055
22,792¥551,339
434,904
68,9307,434
47,50556,57729,742

Cash Flows (for the year):
Cash flows from operating activities
Cash flows from investing activities
Free cash flows (Note 3)
Cash flows from financing activities
Cash and cash equivalents at the end of year

¥ 38,808(3,343)35,465(32,785)
40,846¥ 29,499(1,074)28,425(22,116)
47,661¥ 75,775(7,929)67,846(56,666)
57,678¥ 45,451(6,087)39,364(46,490)
49,108¥ 50,023(7,024)42,999(48,812)
43,644

Financial Position (at year-end):
Total assets
Total current assets
Total non-current assets
Interest-bearing debt
Net interest-bearing debt
Stockholders’ equity
Total net assets (Note 4)¥634,904
371,049
199,758
294,552
254,40287,494—¥588,010
329,231
196,104
273,544
225,571
89,331—¥580,291
321,400
258,891
215,807
157,353
114,526—¥569,771
316,166
253,605
169,228
119,592
137,157—¥579,233
317,813
261,421
125,504
81,587
167,740
—

¥

¥

¥

¥

¥

Amounts per Share of Common Stock:
Net income (Note 5)
Stockholders’ equity
Cash dividends
Financial Indexes:
Operating income margin
EBITDA margin
R&D expenses ratio to net sales
Return on assets (ROA)
Return on equity (ROE)
Stockholders’ equity ratio
Interest-bearing debt ratio
D/E ratio (Times)
ROIC (Note 6)
Investment in Plant and Equipment,
and Others:
Capital expenditures
Depreciation and amortization
Number of employees

2.80
148.63—4.57
151.86—27.01
190.25
—

2.7
5.0
1.3
0.3
2.8
13.8
46.4
3.4
2.3

3.6
6.1
1.2
0.4
3.0
15.2
46.5
3.1
2.6

8.3
10.4
1.3
2.8
16.0
19.7
37.2
1.9
6.5

¥ 15,549
11,902
12,457¥ 14,406
12,118
11,777¥ 10,562
10,112
11,28237.80
227.903.00

49.45
279.02
5.00

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

8,175
9,282
11,149¥ 10,285
9,072
11,319M¥

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥82=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2012.
2. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
3. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
4. Net assets are presented following enforcement of the new Japanese Corporate Law in 2006. Net assets comprise stockholders’ equity as previously defined,
plus minority interests and share subscription rights.
5. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
6. ROIC (Return on Invested Capital) =44 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 44(Operating income + Interest and dividends received) x 55% (= 1– Effective tax rate)(Average of stockholders’ equity + Average of interest-bearing debt)

Annual Report 201212/08/28 18:49

Thousands of
U.S. dollars (Note 1)

Millions of yen

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2011¥600,256
464,071
71,961
8,581
64,22474,87337,352¥660,769
505,366
77,613
9,908
77,79091,57842,974¥642,918
503,072
82,906
10,04756,94075,26013,649¥516,165
412,751
75,1608,187
28,25447,97913,280¥548,015
426,479
75,7337,445
45,80363,74427,926¥624,100
490,878
86,087
9,343
47,13564,955
19,492$7,610,976
5,986,318
1,049,845
113,939
574,813792,130
237,707¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700¥ 23,309(22,672)637
19,87972,376$ 284,253(276,475)
7,778
242,423882,631¥600,890
332,509268,381
88,04539,890—206,010¥678,634
381,946
296,688
89,56759,311—
246,371¥657,436
380,293
277,143
110,339
65,654—
238,697¥610,087
339,780
270,308
87,66025,149—254,153¥626,829
365,342
261,487
67,833
15,347—269,380¥691,841
429,046
262,795
96,522
23,149—282,145$8,437,089
5,232,267
3,204,822
1,177,097
282,304—
3,440,797

¥

¥

¥

¥

¥

Yen

¥

U.S. dollars (Note 1)

61.99
338.957.00

71.19
392.8010.00

22.62
378.786.00

22.01
404.734.00

45.87
435.108.00

31.75
454.43
10.00

$

0.39
5.54
0.12

%

10.7
12.5
1.4
6.3
20.1
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8

8.4
11.6
1.4
4.5
10.9
42.6
10.8
0.3
7.8

7.6
10.4
1.5
3.0
7.1
40.3
14.0
0.3
7.4
Thousands of
U.S. dollars (Note 1)

Millions of yen¥ 17,257
10,64912,561¥ 28,180
13,78814,408¥ 31,753
18,32014,984¥ 24,465
19,725
15,463¥ 14,292
17,941
17,025¥ 19,682
17,82018,139Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 45$ 240,024
217,317

Annual Report 2012 | 45

12/08/28 18:49

Management’s Discussion and Analysis of Financial Conditions andOperating Results
1. Overview of the Business Environment and Performance in
Fiscal 2011

Machinery and Environmental Facilities & Plants segments exceeded levels recorded in fiscal 2010.

During fiscal 2011, ended March 31, 2012, tough overall conditions in
the Japanese economy continued as the effects of the Great East Japan(2) Net Sales

Earthquake significantly impacted manufacturing activity and the

Net sales grew ¥76.1 billion to ¥624.1 billion. With the exception of

unprecedented strength of the yen hampered exports. At the same time,

the Ships segment, sales improved year on year across all other businessconditions worldwide remained unstable as the implementation of infla-

segments.

tionary controls slowed the growth rate in China, whose economic

Overseas sales climbed ¥50.4 billion to ¥327.8 billion. The ratio ofexpansion has been driving the global economy. Furthermore, the floods

overseas to total consolidated net sales increased 1.9 percentage points

in Thailand and the disruption in public-sector finance and financial mar-to 52.5%.

kets in Europe impacted some aspects of the real economy.
Against this economic backdrop, the SHI Group made the earthquake(3) Cost of Sales

recovery efforts of clients a top priority and worked hard to normalize

In line with the increase in net sales, cost of sales expanded ¥64.4 bil-production activities that had been disrupted. Moreover, keeping in mind

lion to ¥490.9 billion. The cost of sales ratio increased 0.9 of a percent-the keywords “Globalization” and “Innovation”—the basis of theage point to 78.7%, reflecting deterioration in the Construction

Group’s Innovation 21 Medium-Term Management Plan—efforts wereMachinery and Industrial Machinery segments.

made to implement strategies that looked to improve market competitiveness. As a result, although net income fell compared with the previ-(4) Selling, General and Administrative (SG&A) Expenses

ous fiscal year, the fiscal year under review saw the Group post

SG&A expenses rose ¥10.4 billion year on year to ¥86.1 billion. This

improvements to prior-year figures for orders, sales and operating

was largely attributable to increases in salary and research and develop-

income.

ment costs. The SG&A expense ratio was 13.8%, unchanged from theprevious fiscal year.

2. Analysis of Operating Results(1) Orders(5) Operating Income

Orders received during fiscal 2011 rose ¥36.4 billion compared with the

Operating income edged up ¥1.3 billion compared with the previous

previous fiscal year to ¥571.3 billion. While order volumes were down

fiscal year to ¥47.1 billion. Segment operating income increased year

year on year in the Precision Machinery, Industrial Machinery and Ships

on year in the Precision Machinery and Construction Machinery seg-

segments, orders received in the Machinery Components, Construction

ments primarily due to increases in segment sales. Despite a decline in

Net Sales

Cost of Sales Ratio,
SG&A Expenses Ratio

Breakdown of Variation in Operating Income (Fiscal 2010–Fiscal 2011)(¥ Billion)(%)(¥ Billion)

800

100

45.8

+3.0
(3.8)
Exchange rate
fluctuations

80
600

+17.6
(10.4)
SG&A
expenses

60

Sales
increase(5.0)

Improvement
Costs related
in cost of
to+16.4
defects
sales ratio,
found in theetc.
constructionof a plant

45.8
47.1

+4.6

400
40

200
20

0

(FY) 07

08

09

10

11

0

(FY) 0708

09

 Machinery Components  Precision Machinery Construction Machinery  Industrial Machinery Ships  Environmental Facilities & Plants
 Others

Cost of Sales Ratio
SG&A Expenses Ratio

46 | Sumitomo Heavy Industries, Ltd.

Annual Report 2012

SHI12AR̲eFS̲0820-2.indd 46

10

11

(FY)

10

11

12/08/28 18:49

(8) Income Taxes (Total Income Taxes, Local Inhabitant Tax,

segment sales, the Ships segment secured an increase in earnings

Business Tax and Deferred Income Taxes)

owing to such factors as successful cost reduction efforts. The
Machinery Components and Industrial Machinery segments recorded a

Income taxes increased ¥1.6 billion to ¥17.7 billion, partly due to higher

downturn in earnings due largely to fluctuations in foreign currency

deferred income taxes in line with changes in income tax rates.

exchange rates. In the Environmental Facilities & Plants segment, earnings deteriorated dramatically. This was mainly attributable to the provi-(9) Minority Interests in Net Income

sion of an allowance for modifications made in connection with defects

Minority interests in net income declined ¥0.1 billion year on year tofound in the construction of a plant. Reflecting the aforementioned¥1.0 billion.

factors, the operating income margin declined 0.8 of a percentage(10) Net Income

point to 7.6%.

Net income contracted ¥8.4 billion year on year to ¥19.5 billion. As a result,(6) Other Income and Expenses

net income per share came to ¥31.75 compared with ¥45.87 in fiscal 2010.

Other income and expenses amounted to net expenses of ¥2.5 billion,

In addition, ROIC was 7.4%, down 0.4 of a percentage point.

a deterioration of ¥1.0 billion from the previous fiscal year. Other
income declined ¥0.3 billion year on year to ¥3.7 billion, largely reflect-

For an overview of operating results by business segment, please refer to

ing lower dividend income. Meanwhile, other expenses increased ¥0.7

the Review of Operations section of this report on pages 21 to 30.

billion to ¥6.2 billion owing mainly to the upswing in interest expense.
3. Discussion and Analysis of Financial Condition as of the Fiscal
2011 Year-End(7) Extraordinary Gains and Losses
Extraordinary gains and losses amount to net losses of ¥6.4 billion, a(1) Assets, Liabilities and Net Assets

negative turnaround of ¥7.3 billion compared with fiscal 2010. There

As of March 31, 2012, total assets stood at ¥691.8 billion, up ¥65.0

were no extraordinary gains in the fiscal year under review. Extraordinary

billion compared with the balance as of March 31, 2011. Decreases inlosses increased ¥3.8 billion year on year to ¥6.4 billion. Despite ainvestments, long-term loans and other assets of ¥4.3 billion were moredecrease of ¥0.7 billion in impairment losses on fixed assets, the climb inthan offset by increases in cash and time deposits, notes and accounts

extraordinary losses was primarily attributable to a contract loss of ¥2.9

receivable, inventories and property, plant and equipment of ¥20.9 bil-billion and loss on valuation of investment securities of ¥2.2 billion that

lion, ¥26.0 billion, ¥12.9 billion and ¥5.7 billion, respectively.
Total liabilities rose ¥52.2 billion to ¥409.7 billion. Deferred tax liabili-reflected a deterioration in the fair values of shares held.

ties on revaluation difference on land declined ¥4.2 billion, reflecting

Operating Income,Operating Income Margin

Net Income,Net Income Margin, ROE

Total Assets,
Total Asset Turnover

Capital Expenditures,
Depreciation and Amortization(%)(¥ Billion)(%)(¥ Billion)

80

20

50

25

800

2.0

40

60

15

40

20
600

1.5

30

40

10
400

1.0

20

200

0.5

10

30

20

15

20

10

10

5

5

0
-10

(Times)(¥ Billion)(¥ Billion)

0(FY) 07

08

09

10

11

 Machinery Components
 Precision Machinery Construction Machinery Industrial Machinery(Left scale) Ships
 Environmental Facilities & Plants
 Others
Operating Income Margin (Right scale)0(FY) 07

08

09

 Net Income (Left scale)
Net Income Margin (Right scale)ROE (Right scale)

10

11 0

0

(FY) 0708

09

 Total Assets (Left scale)
Total Asset Turnover (Right scale)10

11 0.00Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 47(FY) 07

08

09

10

11

 Capital Expenditures Depreciation and Amortization

Annual Report 2012 | 47

12/08/28 18:49

the decrease in effective income tax rates and other factors.

cost-competitiveness of its production bases, particularly in South andInterest-bearing debt increased ¥28.7 billion as SHI undertook new bor-

Central America. Capital expenditures in the Machinery Component

rowings. Notes and accounts payable also climbed ¥21.9 billion. Net

segment in fiscal 2011 amounted to ¥7.5 billion.

interest-bearing debt—the amounts of interest-bearing debt less cash
and time deposits—rose ¥7.8 billion compared with the balance as of theend of the previous fiscal year to ¥23.1 billion. The ratio of net interestbearing debt to total assets increased 0.9 of a percentage point to 3.3%.
Net assets rose ¥12.8 billion to ¥282.1 billion. While foreign currencytranslation adjustments and adjustment regarding pension obligations

b. Precision Machinery
Continuing to make its global supply chain a key priority, the SHI Group
placed considerable weight on bolstering production bases in Japan asa part of efforts to enhance cost-competitiveness. Capital expendituresin the Precision Machinery segment totaled ¥3.5 billion.

of consolidated foreign subsidiaries deteriorated a further ¥4.0 billionc. Construction Machineryand ¥1.6 billion, respectively, retained earnings climbed ¥13.4 billion.

As in the Machinery Components and Construction Machinery seg-

As a result, the stockholders’ equity ratio as of March 31, 2012, wasments, emphasis was placed on the global supply chain in addition to40.3%, down 2.3 percentage points compared with March 31, 2011.

strengthening the competitiveness of production bases. Concentrating
on its bases in Southeast Asia, capital expenditures in the Construction
Machinery segment for fiscal 2011 were ¥5.9 billion.

(2) Cash Flows
The SHI Group uses internal funds and funds procured through debt
financing as working capital and to fund capital spending.
Net cash provided by operating activities totaled ¥23.3 billion, down
¥13.2 billion year on year. Major cash outflows were an increase in notes
and accounts receivable, an increase in inventories and payment ford. Industrial Machinery
In its Industrial Machinery activities, the SHI Group undertook to increase
production capacity and improve productivity. To this end, a total of ¥0.8
billion was directed toward the renewal of existing facilities.

income taxes, which all rose. The principal cash inflow was an increase ine. Ships

notes and accounts payable, which was down from the previous fiscal year.

To increase production capacity and improve productivity in the Ships

Net cash used in investing activities amounted to ¥22.7 billion, down

segment, the SHI Group channeled a total of ¥0.9 billion toward the¥0.8 billion compared with fiscal 2010. The major cash outflow consisted of
payments for purchases of property, plant and equipment, which increased.
In contrast to the previous fiscal year, SHI did not record a payment for purchase of subsidiary with change in scope of consolidation in fiscal 2011.
Net cash provided by financing activities was ¥19.9 billion comparedwith net cash used in financing activities of ¥22.0 billion in the previous
fiscal year. This was largely attributable to such factors as the increasein proceeds from interest-bearing debt.
As a result, cash and cash equivalents as of March 31, 2012 stood at¥72.4 billion, up ¥20.7 billion compared with the balance as of March
31, 2011.

(3) Capital Expenditures and Depreciation and Amortization
In the fiscal year under review, the SHI Group positioned efforts torestore and fortify its global supply chain as a key priority with capital
expenditures accordingly undertaken. Capital expenditures for fiscal
2011 totaled ¥19.7 billion, up ¥5.4 billion compared with the previous
fiscal year. Depreciation and amortization was ¥17.8 billion, down ¥0.1
billion year on year.
Capital expenditures by segment are described as follows.

renewal of existing facilities.
f. Environmental Facilities & Plants
In the Environmental Facilities & Plants segment, the SHI Group undertook capital expenditures totaling ¥0.9 billion aimed primarily at
improving business efficiency and streamlining operations.

In the fiscal year ending March 31, 2013, capital expenditures areprojected to total ¥15.0 billion. Focus will be placed on the Machinery
Components, Precision Machinery and Construction Machinery segments. Depreciation and amortization is forecast to total ¥17.5 billion.

4. Policy on the Distribution of Profits
SHI adheres to a basic profit distribution policy of paying dividends
commensurate with net income earned during the period while striving
to increase dividend amounts. At the same time, the Company works
to maintain retained earnings at a level sufficient to ensuring sustainable business growth over the long term.
With due consideration given to this basic policy and the continuous payment of stable dividends, the Company decided to pay out anannual dividend of ¥10 per share (including an interim dividend of ¥4
per share). This represents a ¥2 per share increase compared with fiscal

a. Machinery Components
With the restoration and fortification of its global supply chain as2010. On this basis, the payout ratio for fiscal 2011 was 31.5%.

a key priority, the SHI group focused mainly on strengthening the
48 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 48

Annual Report 201212/08/28 18:49

Business Risks

Risks that could adversely affect the business performance or financial

5. Impact of Impairment Accounting

position of the SHI Group are as follows.

Based on the Law Concerning Revaluation of Land (Ordinance No. 34,

All statements below regarding future events represent judgments
made by the management of the Group as of March 31, 2012.

issued March 31, 1998) and the Law to Partially Modify the Law
Concerning Revaluation of Land (Ordinance No. 19, March 31, 2001),
the Company revalued land used by its businesses on March 31, 2002.

1. Macroeconomic Factors

The difference between the market and book values of the revalued

Demand for capital equipment, which accounts for more than half ofland as of March 31, 2012 was ¥23.5 billion, a decline of 24%. If landGroup sales, may be influenced by economic trends in both Japan andvalues continue to fall, or conditions are such that the Company is notvarious overseas markets where the Group sells its products. Any con-expected to recover the book values of its assets or asset groups, we

traction in demand triggered by a slump in the major markets for our

may have to recognize impairment losses on fixed assets, which could

products in Japan, the rest of East Asia, North America and Europe

adversely affect the business performance and financial position of the

could have an adverse impact on the business performance or financial

Group.

position of the Group.
6. Impact of Uncompleted Projects
2. Exchange-Rate Fluctuations

In connection with an order received from the city of Kyoto for the con-

The Group’s business includes the production and marketing of prod-

struction of an incinerated ash melting facility, certain construction

ucts in countries all around the world. Yen translations are applied in

defects were uncovered at the test operating stage. As a result, delivery

the consolidated financial statements for transactions (involving over-has been delayed. Currently, SHI is making every effort to put in placeseas sales, expenses, assets and liabilities) undertaken in local curren-

appropriate measures to secure formal handover. The Company record-cies. Due to exchange rate effects, the Group may be adversely

ed a loss in an amount that could be reasonably estimated at this stage.

impacted by transaction values after yen translation even if there is no

In the event that SHI is forced to incur additional construction losses,

such change in local currency terms. As of March 31, 2012, the Groupthe Group could suffer an adverse impact on the business performance

had an order backlog, chiefly in its shipbuilding business, of US$0.2 bil-or financial position.

lion. To minimize the impact of exchange-rate fluctuations on our business performance, the SHI Group uses forward exchange contracts to

7. Environmental Protection Measureshedge against risk. However, it is not possible to eliminate all risk using

Under the Group’s environmental policy, we take a range of measuresthis method. For this reason, the Group could suffer an adverse impact

to reduce our environmental footprint such as avoiding environmental

on its business performance from exchange-rate fluctuations.

risk factors and minimizing waste. We have taken every measure toprevent environmental pollution, but cannot rule out responsibility for

3. Overseas Businesses

instances of environmental pollution due to unforeseen events. Should

The Group conducts its business on a global scale, with a focus on the

the Company be responsible for an incidence of environmental pollu-

Machinery Components, Precision Machinery and Constructiontion, significant costs could ensue, negatively affecting the business

Machinery segments for markets in North America, Asia, and Europe.

performance and financial position of the Group.

To meet expanding overseas demand, the Group is upgrading its marketing networks and production facilities. However, wherever we oper-

8. Natural and Other Disasters

ate, markets are subject to political change and unpredictable legal and

The Group has in place inspection, training and communications mech-

regulatory changes. Such changes could have an adverse impact on theanisms for minimizing the occurrence and fallout from disasters such as

performance of our overseas businesses.

fires, earthquakes, typhoons and other wind and flood damage.
However, the Group’s business activities could be adversely affected if

4. Product Quality

such disasters cause material damage to our operations or injury to our

The Group manufactures a wide range of products in line with very

staff. We cannot guarantee that casualty insurance would be sufficient

strict quality control standards. However, total defect elimination is

to cover all damages from such events.

impossible, and we cannot rule out having to undertake repair work
under guarantee at our own expense in the event of product flaws. The

9. Electricity Shortage

Group has taken out insurance to cover product-defect liabilities, but

Shortages in the supply of electricity over the summer period whencannot guarantee that these policies will cover the full sums of com-demand is at its peak due to the suspension of operations at nuclear

pensation that may become payable in liability settlements. Repairs per-power generation stations in 2012 could prevent the SHI Group fromformed under guarantee and product compensation payments canundertaking its production operations as scheduled, particularly in thegenerate significant costs for the Group, and this can adversely affectKansai region. Therefore, this event may have an adverse effect on thethe business performance and financial position of the Group.

Group’s business performance.

Sumitomo Heavy Industries, Ltd.

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Consolidated Balance Sheets
March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS
Current assets:
Cash and time deposits (Notes 2, 5 and 12)

2012

2011

2012

¥ 73,373¥ 52,486$ 894,793

Trade receivables (Note 12):
Notes receivable

14,897

12,565

181,671

Accounts receivable

166,351

142,7022,028,674

(855)

(991)

(10,422)

Inventories (Note 3)

Allowance for doubtful accounts

143,922

131,035

1,755,148

Deferred tax assets (Note 6)

12,196

9,648

148,731

Prepaid expenses and other current assets (Note 2)

19,162

17,897

233,672

429,046

365,342

5,232,267

Land (Note 5)

116,306

117,157

1,418,369

Buildings and structure (Note 5)

140,023

139,776

1,707,601

Machinery and other tangible fixed assets (Note 5)

162,531

158,195

1,982,083

9,448

1,938

115,222428,308

417,066

5,223,275(208,496)(202,910)(2,542,637)

219,812214,156

2,680,638

Investments in unconsolidated subsidiaries and affiliated companies (Note 12)9,138

10,949111,436

Investment securities (Notes 12 and 13)

180,280

Total current assets

Property, plant and equipment:

Construction in progress
Accumulated depreciation
Net property, plant and equipment

Investments, long-term loans and other assets:
14,783

15,333Long-term loans receivable

63

67

764

Deferred tax assets (Note 6)

7,419

8,319

90,477

Other assets

12,994

14,135

158,465

Allowance for doubtful accounts(1,414)(1,472)(17,238)

42,983¥691,841

47,331¥626,829

524,184$8,437,089

Total investments, long-term loans and other assets
Total assets (Note 10)

50 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 50

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Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:

2012

2011

2012

¥ 27,383¥ 21,504$ 333,933

19,796

4,411

241,420

Notes payable

35,23026,772429,633

Accounts payable

Short-term bank loans (Notes 5 and 12)Long-term debts due within one year (Notes 5 and 12)
Trade payables (Note 12):

118,613105,179

1,446,501

Advance payments received on contracts

27,77033,295

338,662

Accrued income taxes

11,329

11,574

138,157

Allowance for warranty

5,106

5,196

62,266

Allowance for losses on construction contracts

4,984

1,040

60,786

Allowance for losses on business restructuring

7

412

80

Accrued expenses and other current liabilities (Notes 5 and 6)

38,24333,124

466,376

288,461

242,5073,517,814

Long-term debts (Notes 5 and 12)

49,343

41,918

601,744

Employees’ severance and retirement benefits (Note 15)35,884

31,380437,608

54

208

664

27,651

31,836337,212

Total current liabilities
Long-term liabilities:

Allowance for losses on product liabilities
Deferred tax liabilities on revaluation difference on land
Other long-term liabilities (Note 5)

8,303

9,600

101,250

121,235

114,942

1,478,478

Common stock:

30,87230,872

376,484

Number of shares authorized
1,800,000 thousand shares
Number of shares issued
614,527 thousand shares in 2012
614,527 thousand shares in 2011
Capital surplus

23,78923,789290,108

Retained earnings

201,433

188,047

2,456,503(445)
255,649(67)
242,641(5,428)3,117,667

2,267

982

27,651

277

960

3,374

(3,573)(1,978)(43,575)

Total long-term liabilities
Contingent liabilities (Note 8)
Net assets (Note 7):

Treasury stock at cost:

812 thousand shares in 2012
122 thousand shares in 2011

Total owners’ equity
Unrealized gains (losses) on securities, net of income taxes
Unrealized gains (losses) on hedging derivatives, net of income taxes
Adjustment regarding pension obligations of consolidated foreign subsidiaries
Revaluation difference on land

43,381

39,851

529,035

Foreign currency translation adjustments(19,113)(15,129)(233,080)

23,23924,686

283,405

Total accumulated other comprehensive income
Minority interests

3,257

2,053

39,725

Total net assets

282,145

269,380

3,440,797¥691,841¥626,829$8,437,089

Total liabilities and net assets
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 51

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Consolidated Statements of Income
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 10)

2012

2011

2012

¥624,100¥548,015$7,610,976

Costs and expenses:
Cost of sales

490,878

426,479

5,986,318

Selling, general and administrative expenses

86,08775,733

1,049,845

Total

576,965

502,2127,036,163

47,13545,803574,813

Operating income (Note 10)
Other income (expenses):
IncomeInterest and dividend income

953

1,515

11,624

2,777

2,474

33,866

Interest expense(1,652)(1,489)(20,152)

Other—net(4,595)(4,050)(56,022)

—

3,437

—

Contract loss

(2,863)(220)(34,920)

Loss on valuation of investment securities(2,166)—(26,419)

Other—net
Expenses

Extraordinary gains (losses):
Gains
Gain on negative goodwill
LossesAmortization of prior service costs (Note 15)

(706)

—

(8,607)

Impairment losses on fixed assets (Note 4)(688)(1,396)(8,385)

Loss on revision of retirement benefit plan (Note 15)

—

(503)

—

Effect of adoption of accounting standard for asset retirement obligations

—

(480)

—

38,19545,091

465,798

19,077

16,555

232,644

Income before income taxes and minority interests
Income taxes (Note 6):
Current
Deferred(1,395)(468)(17,007)

Total

17,682

16,087

215,637

Income before minority interests

20,51329,004

250,161

Minority interests in net income(1,021)(1,078)(12,454)¥ 19,492¥ 27,926$ 237,707

Net income

Yen

U.S. dollars (Note 1)

2012

2011

¥31.75¥45.872012

Amounts per share of common stock:
Net income
Diluted net income
Cash dividends applicable to the year (Note 16)

$0.39

—

—

—

10.00

8.00

0.12

See accompanying notes.

52 | Sumitomo Heavy Industries, Ltd.

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Consolidated Statements of Comprehensive Income
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

2012

2011

2012

¥20,513¥29,004$250,161

Unrealized gains (losses) on securities, net of income taxes

1,287(1,046)

15,693

Unrealized gains (losses) on hedging derivatives, net of income taxes

(680)

(120)

(8,298)(1,596)(224)(19,459)

Income before minority interests
Other comprehensive income:

Adjustment regarding pension obligations ofconsolidated foreign subsidiaries
Revaluation difference on land

3,918

—

47,781

Foreign currency translation adjustments(3,967)(5,970)(48,368)

Share of other comprehensive income of affiliates accounted
for using equity method
Other comprehensive income (Note 9)Comprehensive income

(3)

(43)

(42)

(1,041)(7,403)(12,693)¥19,472¥21,601$237,468¥18,433¥20,756$224,800

1,039

845

12,668Comprehensive income attributable to
Owners of the parent
Minority interests
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 53

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Consolidated Statements of Changes in Net Assets
Years ended March 31, 2012 and 2011

Owners’ equity
Number of shares ofcommon stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

605,726¥30,872¥20,503¥161,951(2,414)27,926

5(1)

Net assets at April 1, 2010
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer ofrevaluation difference on land
Increase by stock exchange
Increase of consolidated
subsidiaries with change
in scope of consolidation
Changes in items other thanowners’ equity in the period (net)Total changes in the period
Net assets at March 31, 2011

Treasurystock
at cost¥(1,494)

(164)
8

1,583

535
4,864

535
3,281
50
8,801
614,527—¥30,872

3,286¥23,789

26,096¥188,047

Sub-total¥211,832(2,414)27,926
(164)
12

50

¥

1,427
(67)

30,809¥242,641

Owners’ equity
Number of shares ofcommon stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789¥188,047(7,370)19,492

Net assets at April 1, 2011
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer ofrevaluation difference on land
Increase of consolidated
subsidiaries with change
in scope of consolidation
Decrease of consolidated
subsidiaries with change
in scope of consolidation
Changes in items other thanowners’ equity in the period (net)Total changes in the period
Net assets at March 31, 2012

Treasurystock
at cost(1)—
614,527—¥30,872—¥23,789¥ (67)(383)
5

Sub-total¥242,641(7,370)19,492
(383)
4

388

388

877

877

0

0

13,386¥201,433(378)¥(445)

13,008¥255,649

Owners’ equity
Number of shares ofcommon stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

614,527$376,484$290,108$2,293,260(89,881)
237,707

Net assets at April 1, 2011
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer ofrevaluation difference on land
Increase of consolidated
subsidiaries with change
in scope of consolidation
Decrease of consolidated
subsidiaries with change
in scope of consolidation
Changes in items other thanowners’ equity in the period (net)Total changes in the period
Net assets at March 31, 2012

Treasurystock
at cost(9)—614,527—$376,484—$290,108$ (819)(4,675)66

Sub-total$2,959,033(89,881)
237,707(4,675)
57

4,731

4,731

10,695

10,69500163,243$2,456,503(4,609)$(5,428)

158,634$3,117,667

See accompanying notes.

54 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 54

Annual Report 201212/08/28 18:49

Millions of yen
Unrealized gains(losses) on
securities, net ofincome taxes¥2,002

Accumulated other comprehensive income
Unrealized gains Adjustment regarding(losses) on hedging pension obligations
Revaluation
derivatives, net ofof consolidated
difference
income taxes
foreign subsidiaries
on land¥1,125¥(1,753)¥40,386

Foreign currencytranslation
adjustments

Sub-total

Minority
interests¥ (9,370)¥32,390¥9,931

Total¥254,153(2,414)27,926
(164)
12
535
4,864
50

(1,020)(1,020)
¥ 982

(165)
(165)
¥ 960

(225)
(225)
¥(1,978)

(535)
(535)
¥39,851(5,759)(5,759)¥(15,129)(7,704)(7,704)¥24,686(7,878)(7,878)¥2,053Foreign currencytranslation
adjustments

Sub-total

Minority
interests¥(15,129)¥24,686¥2,053(15,582)
15,227¥269,380

Millions of yen
Unrealized gains(losses) on
securities, net ofincome taxes¥ 982

Accumulated other comprehensive income
Unrealized gains Adjustment regarding(losses) on hedging pension obligations
Revaluation
derivatives, net ofof consolidated
difference
income taxes
foreign subsidiaries
on land¥ 960¥(1,978)¥39,851

Total¥269,380(7,370)19,492
(383)
4
388
877
0

1,285
1,285
¥2,267

(683)
(683)
¥ 277

(1,595)(1,595)¥(3,573)

3,530
3,530
¥43,381(3,984)(3,984)¥(19,113)(1,447)(1,447)¥23,239

1,204
1,204
¥3,257

Foreign currencytranslation
adjustments

Sub-total

Minority
interests$(184,499)$301,043$25,041(243)
12,765¥282,145

Thousands of U.S. dollars (Note 1)
Unrealized gains(losses) on
securities, net ofincome taxes$11,966

Accumulated other comprehensive income
Unrealized gains Adjustment regarding(losses) on hedging pension obligations
Revaluation
derivatives, net ofof consolidated
difference
income taxes
foreign subsidiaries
on land$11,706$(24,116)$485,986

Total$3,285,117(89,881)
237,707(4,675)57
4,731
10,6950

15,685
15,685$27,651(8,332)(8,332)$ 3,374(19,459)(19,459)$(43,575)

43,04943,049$529,035(48,581)(48,581)$(233,080)(17,638)(17,638)$283,405

14,684
14,684$39,725

Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 55(2,954)
155,680$3,440,797

Annual Report 2012 | 55

12/08/28 18:49

Consolidated Statements of Cash Flows
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

2012

2011

2012

¥38,195¥45,091$465,798

Depreciation

17,82017,941

217,313

Contract loss

2,863

220

34,920Loss on valuation of investment securities

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:

2,166

21

26,418

Amortization of prior service costs

706

—

8,607

Impairment losses on fixed assets

688

1,396

8,385

Gain on negative goodwill—(3,437)—

Loss on revision of retirement benefit plan

—

503

—

Effect of adoption of accounting standard for asset retirement obligations

—

480

—

Loss on disposal of property, plant and equipment

345

434

4,206

(Gain) loss on sale of investment securities

(270)

(78)

(3,291)

Increase (decrease) in employees’ severance and retirement benefits

2,619

(702)

31,933

Increase (decrease) in allowance

199

(818)

2,428

Interest and dividend income(953)(1,515)(11,624)

Interest expenses

1,652

1,489

20,152(Increase) decrease in notes and accounts receivable(30,305)(30,224)(369,576)(Increase) decrease in inventories(14,485)(6,280)(176,648)

Increase (decrease) in notes and accounts payable

Changes in operating assets and liabilities:

21,15926,420258,038

Other—net

646(1,646)

7,874

Sub-total

43,04549,295524,933

Interest and dividend received

1,438

1,014

17,542

Interest expenses(1,660)(1,508)(20,246)

Payment for income taxes(19,514)(12,280)(237,976)

Net cash provided by operating activities¥23,309¥36,521$284,253

56 | Sumitomo Heavy Industries, Ltd.

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Annual Report 201212/08/28 18:49

Thousands of
U.S. dollars (Note 1)

Millions of yen

2012

2011

2012

¥

¥

$ (2,447)

Cash flows from investing activities:
Net (increase) decrease in time deposits
Payment for purchase of subsidiary with change inscope of consolidation (Note 2)
Proceeds from sale of securities
Payments for purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment

(201)
—

(368)

(10,607)

—

768

457

9,370

(24,227)(14,393)(295,450)

1,486

1,511

18,127

Decrease (increase) in short-term loans receivable

305

(270)

3,725

Payments for long-term loans receivable

(19)

(9)

(226)

Collection of long-term loans receivable

21

20

259

Other—net

(805)

146

(9,833)(22,672)(23,513)(276,475)

Net increase (decrease) in short-term bank loans

6,246(7,260)76,174

Proceeds from long-term debts

27,214—

331,871

Payments for long-term debts(4,416)(10,697)(53,859)

5

60

57

Net cash used in investing activities
Cash flows from financing activities:

Proceeds from sale of treasury stock
Payments for purchases of treasury stock
Cash dividends paid
Payment of dividends for minority stockholders

(383)

(164)

(4,675)(7,354)(2,423)(89,677)

(49)

(347)

(592)

Repayments of finance lease obligations(1,384)(1,189)(16,876)

Net cash provided by (used in) financing activities

19,879(22,020)

242,423

(649)

(977)

(7,920)Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents

19,867(9,989)242,281

Cash and cash equivalents at beginning of year

51,70061,452

630,488

Increase due to new consolidated companies

809

237

9,864

Decrease due to exclusion of consolidated companies
Cash and cash equivalents at end of year (Note 2)

(0)

—

(2)

¥72,376¥51,700$882,631

See accompanying notes.

Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 57

Annual Report 2012 | 57

12/08/28 18:49

Notes to Consolidated Financial Statements

1. Significant accounting policies

Reporting Standards or U.S. generally accepted accounting principles.
In this case, adjustments for the following five items are required in the
consolidation process so that their impact on net income is accounted

Basis of presenting consolidated financial statements

for in accordance with Japanese GAAP unless the impact is not material.

The accompanying consolidated financial statements have been pre-1. Goodwill not subject to amortization

pared in accordance with the provisions set forth in the Japanese

2. Actuarial gains and losses of defined-benefit retirement plans recog-

Financial Instruments and Exchange Law and its related accounting regu-

nized outside profit or loss

lations, and in conformity with accounting principles generally accepted

3. Capitalized expenditures for research and development activities

in Japan (“Japanese GAAP”), which are different in certain respects as to4. Fair value measurement of investment properties, and revaluation of

application and disclosure requirements of International Financial
Reporting Standards.

property, plant and equipment and intangible assets
5. Accounting for net income attributable to minority interests

The accounts of foreign consolidated subsidiaries are prepared inaccordance with either International Financial Reporting Standards orMarketable and investment securities

U.S. generally accepted accounting principles, with adjustments for the

Held-to-maturity debt securities are stated at amortized cost, adjusted

specified five items as applicable.

for the amortization or accretion of premiums or discounts. Available-

The accompanying consolidated financial statements for Sumitomo

for-sale securities with fair values are stated at fair value. Unrealized

Heavy Industries, Ltd. (SHI) and subsidiaries (collectively, the Company)

holding gains and losses, net of applicable income taxes, on available-

have been reformatted and translated into English (with certain expand-for-sale securities are excluded from earnings and reported as a sepa-

ed descriptions) from the ones prepared in accordance with Japanese

rate component of accumulated other comprehensive income until

GAAP and filed with the appropriate Local Finance Bureau of therealized. Realized gains and losses from the sale of such securities are

Ministry of Finance as required by the Financial Instruments andcomputed using the moving-average method. Investment securities in

Exchange Law. Certain supplementary information included in the statu-

unconsolidated subsidiaries and affiliated companies that are not sub-tory Japanese language consolidated financial statements is not present-

ject to the equity method of accounting, are stated at cost based on

ed in the accompanying consolidated financial statements.

the moving-average method. Unlisted available-for-sale securities are

The translation of the Japanese yen amounts into U.S. dollars isstated at cost based on the moving-average method.

included solely for the convenience of readers outside Japan, using theprevailing exchange rate at March 31, 2012, which was ¥82 to U.S. $1.

Inventories

The convenience translations should not be construed as representations

Finished products, raw materials, and supplies are stated at the lower ofof what the Japanese yen amounts have been, could have been, or

cost (weighted average) or market. Work-in-process is stated at the

could in the future be when converted into U.S. dollars at this or any

lower of cost (specific identification) or market.

other rate of exchange.

Property, plant, and equipment
Principles of consolidation(A) Tangible fixed assets (excluding lease assets)

The consolidated financial statements include the accounts of SHI and its

Tangible assets are stated at cost. Buildings acquired between April 1,

significant subsidiaries. All significant inter-company balances and trans-

1998 and March 31, 2007 are depreciated using a straight-line method

actions are eliminated in consolidation. Investments in significant affiliat-

with residual value of 5%. Buildings acquired after April 1, 2007 are

ed companies are accounted for using the equity method of accounting.

depreciated primarily using a straight-line method with no residual

In the fiscal year ended March 31, 2009, the Company adopted

value. Other tangible fixed assets acquired on or before March 31,“Practical Solution on Unification of Accounting Policies Applied to2007 are depreciated primarily by declining-balance method with resid-

Foreign Subsidiaries for Consolidated Financial Statements” (“PITF

ual value of 5% and those acquired after April 1, 2007 are depreciatedNo. 18”). PITF No. 18 requires that accounting policies and procedures

by declining-balance method with no residual value.

applied by a parent company and its subsidiaries to similar transactions
and events under similar circumstances should, in principle, be unified(B) Lease assets

for the preparation of the consolidated financial statements. PITF No. 18,

Property and equipment held under finance lease arrangements, which

however, as a tentative measure, allows a parent company to prepare

are not subject to the ownership transfer from a lessor to a lessee, areconsolidated financial statements using foreign subsidiaries’ financial

depreciated on a straight-line basis over the lease term except forstatements prepared in accordance with either International Financial

58 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 58

Annual Report 201212/08/28 18:49

certain immaterial arrangements or ones commenced prior to March

Allowance for losses on product liabilities

31, 2008, which are accounted for as operating leases.

Allowance for losses on product liabilities is provided at an estimatedamount of product liabilities to be incurred in relation to crane business

Softwareof foreign subsidiaries.

Costs of software obtained for internal use are amortized using thestraight-line method over the estimated useful lives (5 years).

Derivatives and hedge accounting
The Company recognizes all derivative instruments as either assets or

Allowance for doubtful accounts

liabilities in the consolidated balance sheet at their respective fair val-

The Company provides an allowance for doubtful accounts for estimat-

ues, and changes in the fair values are recognized as gains or losses. For

ed losses inherent in its receivable portfolio. The required allowance isderivatives designated in hedging relationship, the related gains or loss-

determined based on historical losses for general accounts receivables.

es are deferred until the hedged item affects earnings.

For accounts receivable considered at risk (bankruptcy, companies
under reorganization plan), the required allowance is determined basedon certain specific factors such as current market conditions, customers’

For forward foreign exchange contracts that meet certain hedging
criteria, they are accounted for as follows:
When a forward foreign exchange contract is executed to hedge an

financial condition, the amount of receivables in dispute, current receiv-

existing foreign currency receivable or payable,

ables aging, and current payment patterns on an individual basis.

1. The difference, between the Yen amount of the hedged foreign currency receivable or payable translated using the spot rate at the

Allowance for warranty

inception date of the contract and the carrying value of the receiv-

Allowance for warranty is provided for the estimated future warranty

able or payable is recognized in the consolidated statement ofcosts associated with repair work after delivery of products. These esti-

income in the period which includes the inception date, andmates are derived from historical data and trends of product reliability

2. The discount or premium on the contract (that is, the difference

and costs of repairing and replacing defective products.

between the Yen amount of the contract using the contracted forward rate and the amount using the spot rate at the inception date

Allowance for losses on construction contractsof the contract) is recognized over the term of the contract.

Allowance for losses on construction contracts is provided when the

When forward foreign exchange contracts are executed to hedge acurrent estimates of total contract revenue and contract cost indicate

future transaction in a foreign currency, the future transaction will be

substantial losses, and such losses are reasonably estimated.

recorded using the contracted forward rate, and no gains or losses will
be recognized.

Allowance for losses on business restructuring

For interest rate swap contracts that meet certain hedging criteria,

Allowance for losses on business restructuring is provided at an estimat-

the net amount to be paid or received is added to or deducted from theed amount to be incurred in connection with the Company’s businessinterest on the liabilities for which the swap contracts were executed.

restructuring.

For currency option contracts that are executed to hedge futuretransactions in foreign currencies, the future transaction will be record-

Employees’ severance and retirement benefits

ed using the contracted forward rate, and no gains or losses on the

In order to provide for retirement benefits to be paid to employees, thecurrency option contracts are recognized.

amount considered to have been accrued at the end of the fiscal year isrecorded based on the estimated amounts of retirement benefit obliga-

Revenue recognition on construction contracts

tions and pension plan assets at the end of the fiscal year.

The percentage-of-completion method is applied to construction contracts

Prior service costs are expensed as incurred for SHI or amortizedusing the straight-line method over a period within the average remain-when outcome of individual contracts is reliably estimated. The completedcontract method is applied to the other construction contracts.

ing service life of the company’s active employees (mainly 12 years) for
consolidated subsidiaries.

Amortization of goodwill

The actuarial gains (losses) are amortized using the straight-line

Goodwill and negative goodwill that were generated on or before

method over a period within the average remaining service life of the

March 31, 2010, are equally amortized over 5 years. In case thecompany’s active employees (mainly 12 years) commencing from theamount of goodwill or negative goodwill is insignificant, it is amortizedfollowing year of the incurrence.

in full as generated. Negative goodwill generated after March 31, 2010
was fully amortized at the time of generation.
Sumitomo Heavy Industries, Ltd.

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The diluted net income per share is not presented as the Company

Revaluation difference on land
The Company revaluated land held for business use as of March 31,

does not have any outstanding convertible bonds or bonds with share

2002 in accordance with Enforcement Ordinance for the Law

subscription rights.

Concerning Revaluation Reserve for Land effective March 31, 1998.
The current market value of the land as of March 31, 2012 has been
declined by ¥23,456 million ($286,052 thousand) as compared to the

Cash dividends per share have been presented on an accrual basis andinclude the year-end cash dividend resolved at the shareholders’ meeting
held after the end of the fiscal year, but applicable to the year-end.

carrying value.

Reclassifications
Research and development costs

Certain amounts in the consolidated financial statements for the year

Research and development costs are expensed when incurred. Research

ended March 31, 2011 have been reclassified to conform to the 2012and development costs included in manufacturing cost and selling,presentation.

general and administrative expenses were ¥9,665 million ($117,871
thousand) and ¥8,228 million for the years ended March 31, 2012 andChange in accounting policies

2011, respectively.

(A) New accounting standards for Accounting Changes andIncome taxes

In the fiscal year ended March 31, 2012, the Company adopted

Deferred tax assets and liabilities are recognized for the future tax con-“Accounting Standard for Accounting Changes and Error Corrections”

sequences attributable to differences between the financial statement(Accounting Standards Board of Japan (“ASBJ”) Statement No. 24

carrying amounts of existing assets and liabilities, and their respective

issued on December 4, 2009) and “Guidance on Accounting Standard

tax bases and operating loss and tax credit carryforwards. Deferred tax

for Accounting Changes and Error Corrections” (ASBJ Guidance No. 24,

assets and liabilities are measured using enacted tax rates expected toissued on December 4, 2009) for accounting changes and corrections

be applied to taxable income in the years in which those temporary dif-of prior period errors which are made from the fiscal year beginning offerences are expected to be recovered or settled. The effect on deferred

April 1, 2011.

Error Corrections

tax assets and liabilities of a change in tax rates is recognized in incomein the period that includes the enactment date.
SHI files a Japanese consolidated tax return with certain domestic(B) New accounting standards for Presentation ofComprehensive Income
In the fiscal year ended March 31, 2011, the Company adopted

consolidated subsidiaries.

“Accounting Standard for Presentation of Comprehensive Income”

Foreign currency translation and transactions(ASBJ Statement No. 25 issued on June 30, 2010) and “Revised

All asset and liability accounts of foreign subsidiaries and affiliates are

Accounting Standard for Consolidated Financial Statements” (ASBJ

translated into Yen at the applicable balance sheet date exchange rates

Statement No. 22, revised on June 20, 2010).

of each foreign subsidiary, except for common stock, capital surplus

As a result of the adoption of these standards, the Company has pre-and retained earnings, which are translated at historical rates.

sented the consolidated statement of comprehensive income in the con-

Revenues, costs, and expenses are translated into Yen at averagesolidated financial statements for the fiscal year ended March 31, 2011.

exchange rates for the year.
Transactions in foreign currencies are translated at the exchange rate(C) New accounting standards for the Equity Methodin effect at the time of the transaction. Any assets and liabilities denom-

In the fiscal year ended March 31, 2011, the Company adopted

inated in foreign currencies are translated into Yen using the year-end“Accounting Standard for the Equity Method” (ASBJ Statement No. 16,

exchange rate. Gains and losses resulting from transactions in foreignissued on March 10, 2008) and “Practical Solution on Unification ofcurrencies are included in the consolidated statements of income.

Accounting Policies Applied to Associates Accounted for Using theEquity Method” (ASBJ PITF No. 24, issued on March 10, 2008). There isAmounts per shareno impact of this change on income before income taxes and minority

The computation of net income per share of common stock is based oninterests for the year ended March 31, 2011.

a weighted-average number of shares of common stock outstanding
during each fiscal year.

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(D) New accounting standards for Asset Retirement Obligations

However, the business environment has significantly changed andIn the fiscal year ended March 31, 2011, the Company adopted

market competition has become more intense as a result of the global“Accounting Standard for Asset Retirement Obligations” (ASBJ

economic downturn that began in the second half of 2008. In order toStatement No. 18, issued on March 31, 2008) and “Guidance on

cope with such changes, Nihon Spindle is constantly asked to further

Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance

expand its global presence and strengthen its product capabilities by its

No. 21, issued on March 31, 2008).

shareholders. With this in mind, Nihon Spindle developed a plan to

As a result, operating income for the year ended March 31, 2011actively utilize the technical development capabilities and global busi-

decreased by ¥24 million, and income before income taxes and minori-

ness network of the Company in order to set it on a growth trajectory.

ty interests each decreased by ¥504 million.

Through the conversion of Nihon Spindle into a wholly-owned subsidiary, SHI intends to maximize business synergies between the two(E) New accounting standards for Business Combinations

companies more quickly. This will help Nihon Spindle strengthen its

In the fiscal year ended March 31, 2011, the Company adopted

operating foundation, achieve long-term growth, and will ultimately“Accounting Standard for Business Combinations” (ASBJ Statement

improve the corporate value of the entire Company.

No. 21, issued on December 26, 2008), “Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No. 22, issued on

4. Acquisition costs
Millions of yen

December 26, 2008), “Partial Amendments to Accounting Standard for
Research and Development Costs” (ASBJ Statement No. 23, issued on
December 26, 2008), “Revised Accounting Standard for Business

Acquisition price¥4,864

Direct costs attributable to the acquisition

41

Acquisition costs

4,905

Divestitures” (ASBJ Statement No. 7, issued on December 26, 2008),“Revised Accounting Standard for Equity Method of Accounting forInvestments” (ASBJ Statement No. 16, issued on December 26, 2008)
and “Revised Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures”(ASBJ Guidance No. 10, issued on December 26, 2008).

Business combinations(A) Stock exchange with Nihon Spindle Manufacturing Co., Ltd.
1. General information
On October 1, 2010, SHI and its consolidated subsidiary, Nihon Spindle
Manufacturing Co,. Ltd. (Nihon Spindle), executed a stock exchange.
The legal form of the transaction is a stock exchange to convert
Nihon Spindle into a wholly-owned subsidiary of SHI. The stock
exchange was executed as a simplified stock exchange under Article
796 Paragraph 3 of the Corporate Law, and the Company acquired

5. The ratio for the stock exchange
Stock exchange ratio

SHI

1.0

Nihon Spindle

0.38

Notes: 1. Stock exchange ratio
0.38 share of the SHI’s common stock was allocated to shareholders of Nihon Spindle
in exchange for 1 share of the common stock of Nihon Spindle. However, no sharesof SHI were allocated to the shares of the common stock of Nihon Spindle owned by
SHI (19,494,180 shares).
2. The method of calculation and basis of calculation by a third party institution
Daiwa Securities Capital Markets Co., Ltd. calculated the stock exchange ratio.
Daiwa Securities Capital Markets Co., Ltd. performed an analysis with respect to SHI
and Nihon Spindle, based on the market share-value method together with the discounted cash flow method, and calculated the stock exchange ratio by considering
the results of these analyses. Meanwhile, Nomura Securities Co., Ltd. calculated theratio based on Nihon Spindle’s request and performed an analysis of SHI and Nihon
Spindle based on three methods; the market share-value average method, the comparison with similar companies method and the discounted cash flow method.
Nomura Securities Co., Ltd. calculated the stock exchange ratio by considering theresults of the analyses. Based on the above results, SHI and Nihon Spindle determined
the stock exchange ratio as explained.

additional 59.1% of the voting rights of Nihon Spindle, including 0.4%
of indirect ownership.

6. Number of stocks delivered and the assessed value
Number of stocks delivered to Nihon Spindle

2. Business of the entity
The business of Nihon Spindle is manufacturing and distribution ofenvironmental, air pollution control, industrial equipment and construc-

Assessed value

11,311,011 shares
4,864 millions of yen

SHI used its treasury stock as part of the stocks to be delivered forthe stock exchange.

tion materials.
7. Negative goodwill
3. Overview of the transaction and the purpose(1) Amount of negative goodwill

3,437 millions of yen

Since Nihon Spindle became a consolidated subsidiary of the Company
in October 2007, both companies have worked together to create business synergies.

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(2) Reason for the negative goodwill
The negative goodwill was recorded since the amount of minority inter-

2. Cash and cash equivalents

ests decreased by this stock exchange was higher than the costs of the
Cash and cash equivalents include all highly liquid investments, general-

additionally acquired common stock of Nihon Spindle.

ly with original maturities of three months or less. Those are readily(B) Acquisition of stocks of HANSEN INDUSTRIAL TRANSMISSIONS NV

convertible to known amounts of cash and have negligible risk of

1. General information

changes in value.
Cash and cash equivalents as of March 31, 2012 and 2011 consist of

On March 4, 2011, SHI acquired stocks of HANSEN INDUSTRIAL

the following:

TRANSMISSIONS NV (HIT), a group company of HANSEN
TRANSMISSIONS INTERNATIONAL NV in Belgium.
The legal form of the transaction is purchase of stock. As a result ofThousands of
U.S. dollars

Millions of yen

the transaction, the Company’s ownership of the voting rights

2012

2011

2012

¥73,373¥52,486$894,793

Time deposits with maturities
over three months

(829)

(659)

(10,108)

2. Business of the entity

Restricted deposits

(168)

(128)

(2,054)The business of HIT is manufacturing and distribution of industrial gear-

Investment securities(cash equivalents)

Cash and time deposits

increased to 100%.

boxes.

Cash and cash equivalents

—

1

—

¥72,376¥51,700$882,631

3. Overview of the transaction and the purpose
SHI acquired additional voting rights of an affiliate, LBX COMPANY, LLC

To expand the overseas distribution channels, and increase sales ofin the year ended March 31, 2011. As a result, LBX COMPANY, LLC

industrial gearboxes in the Machinery Components business.

became a consolidated subsidiary.
The following table summarizes the assets and liabilities of LBX

4. Acquired company’s financial results for 2011
As the acquisition date is regarded to be on March 31, 2011, the results

COMPANY, LLC at the acquisition date and the stock acquisition price.

of operations of the acquired company before March 31, 2011 are notincluded in the Company’s consolidated financial statement for the year

LBX COMPANY, LLC (as of April 30, 2010)

ended March 31, 2011.

Millions of yen

2011

Current assets

5. Acquisition costs
Millions of yen

Acquisition price¥10,097

Direct costs attributable to the acquisition

436

Acquisition costs

10,533

Non-current assets

473

Goodwill generated

585

Current liabilities(1,259)Non-current liabilities(14)

Book value on an equity basis before acquisition(2,116)

Acquisition cost of stock¥ 2,727

6. Goodwill

Cash and cash equivalents(1) Amount of goodwill

Payment for purchase of subsidiary withchange in scope of consolidation

1,070 millions of yen¥ 5,058(119)¥ 2,608(2) Reason for the goodwill
The goodwill was recorded since the acquisition price agreed with theseller was higher than the net assets measured at fair value as of the

As explained in the Note of Business combinations (B), SHI acquired thestock of HIT, which became a consolidated subsidiary.
The following table summarizes the assets and liabilities of HIT anddate of the acquisition.

six other Hansen Group companies at the acquisition date and thestock acquisition price.

(3) Amortization of goodwill
Goodwill is amortized using the straight-line method over a five-year
period.

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HIT and six other Hansen Group companies (as of March 31, 2011)

Grouping of assets
Each division is considered an asset group since the asset group is theMillions of yen

2011

Current assets¥ 8,806

Non-current assets

5,278

Goodwill generated

1,070

Current liabilities(3,833)

Non-current liabilities(788)

lowest level at which cash flows can be identified that are largely independent of the cash flows of other asset groups. A temporarily idle
asset is also considered an asset group.

Calculation of recoverable amount

Acquisition cost of stock¥10,533

The recoverable amount is generally based on a net selling price; it isCash and cash equivalents(2,535)

calculated by deducting costs related to sale from the selling price.

Payment for purchase of subsidiary with change in scopeof consolidation¥ 7,998(B) The Company recognized the following impairment losses
in the year ended March 31, 2011.

3. Inventories

Millions of yen
Use

Inventories as of March 31, 2012 and 2011 consist of the following:
Millions of yen

Thousands of
U.S. dollars

Idle

Type of assets

Location

Lands and buildings,
Inage-ku Chiba, etc.
etc.

2011

¥1,251

Common assets Lands and buildings

Yokosuka, Kanagawa Pref.

91

2012

2011

2012

Idle

Niihama, Ehime Pref, etc.

39

Finished products¥ 51,326¥ 41,827$ 625,924

OtherWork in process

71,56270,802872,710Total

Raw materials and supplies
Total

21,034

18,406

256,514¥143,922¥131,035$1,755,148

Lands

—

15
¥1,396

Reason for recognition of impairment losses
Mainly due to a change in the welfare and benefit program, recoverability became questionable.

4. Impairment losses on fixed assets

Grouping of assets(A) The Company recognized the following impairment losses
in the year ended March 31, 2012.

Use

CommonassetsIdle

Business
assetsType of assets

Lands andbuildings, etc.
Lands andbuildings
Buildings,
etc.

Total

Millions of yen

Thousands of
U.S. dollars

2012

2012

Yokosuka,
Kanagawa Pref,
etc.

¥229

$2,794

Yokosuka,
Kanagawa Pref,
etc.

254

3,805

Location

Each division is considered an asset group since the asset group is thelowest level at which cash flows can be identified that are largely independent of the cash flows of other asset groups. A temporarily idle
asset is also considered an asset group.

Calculation of recoverable amountThe recoverable amount is generally based on a net selling price; it iscalculated by deducting costs related to sale from the selling price.

Kurashiki,
Okayama Pref, etc.

205

2,506

¥688

$8,385

Reason for recognition of impairment losses
Due to decline of profitability and related revision of the business planfor certain product lines, an impairment analysis was required. As aresult of the cash flow analysis, it was determined that the projectedcash flows generated by the related assets were less than their carrying
values, resulting in the impairment for the year ended March 31, 2012.

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The Company has agreements for revolving lines of credit with twelve

5. Bank loans and long-term debt

banks and for global commitment lines with four banks to efficiently
raise working capital.

Bank loans as of March 31, 2012 and 2011 consist of short-term loans,bearing average interest at 2.26% and 1.56% per annum, respectively.

As of March 31, 2012 and 2011, unused revolving lines of credit andglobal commitment lines are as follows:

The amounts of lease obligation under finance leases include theLong-term debt as of March 31, 2012 and 2011 consist of the following:Thousands of
U.S. dollars

Millions of yen

0.9 % domestic bonds due
in December 2014

Thousands of
U.S. dollars

Millions of yen

imputed interest expense portion.

2012

2011

2012

¥10,000¥10,000$121,951

Loans principally from banks andinsurance companies due seriallythrough March 2019 with interest
ranging from 0.53% to 6.86%
in FY2011

Limit of revolving lines of credit
and global commitment lines

2012

2011

2012

$594,270¥48,730¥49,304

Used

4,980

6,046

60,732

Unused¥43,750¥43,258$533,538

6. Income tax

Secured

204

595

2,486

SHI and the consolidated domestic companies are subject to corporate,

Unsecured

58,93535,735

718,727

inhabitants’ and enterprise taxes, which, in the aggregate show a statu-

Lease obligations

5,055

4,862

61,645¥74,194¥51,192$904,809

Amount due within one year

21,194

5,441

258,469

Amount due after one year

53,00045,751

646,340

tory tax rate in Japan of approximately 41% for the years ended March
31, 2012 and 2011.
The following table summarizes significant differences between thestatutory tax rate and the effective tax rate for consolidated financial
statement purposes for the years ended March 31, 2012 and 2011.

Long-term debt are due as follows:
Millions of yen

Thousands of
U.S. dollars

Statutory tax rate

2012

2011

40.69%

40.69%
0.60

2012

2012

Expenses not deducted for tax purposes

0.82

2013

¥21,194$258,469

Per capital inhabitant tax

0.55

0.47

2014

27,970341,100

Dividend income deductible for tax purposes(0.83)(1.49)

2015

22,896279,223

Tax credit(1.51)(1.43)

2016

660

8,044

Effect of revision of statutory tax rate

4.23

—

2017

1,416

17,262

Valuation allowance

2.89

—

58

711

Gain on negative goodwill—(3.10)¥74,194$904,809

Years ending March 31

2018 and thereafter
Total

Others
Effective tax rate

(0.55)(0.06)

46.29%

35.68%

As of March 31, 2012 and 2011, assets pledged as collateral for
short-term loans, long-term loans from banks and contingent liabilities
are as follows:
Thousands of
U.S. dollars

Millions of yen

2012

2011

Cash and time deposits¥ 168

Buildings and structure

746

¥

2012

129

$ 2,054

1,681

9,096

Machinery and other tangible
fixed assets

—

40

—

Land

115

34,387

1,403¥1,029¥36,237$12,553

Total

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Main components of deferred tax assets and liabilities as of March
31, 2012 and 2011 are presented below:

deferred tax liabilities) and deferred tax liabilities on revaluation differThousands of
U.S. dollars

Millions of yen

2012

2011

2012

ence on land were decreased by ¥1,456 million and ¥3,918 million,
respectively, as of March 31, 2012, and the deferred income tax
expense was increased by ¥1,614 million for the year then ended.

Deferred tax assets:
Accrued bonuses

As a result of these changes, net deferred tax assets (after offsetting¥ 3,390¥ 3,476

421

1,068

5,140

Allowance for warranty

1,693

1,829

20,644

Allowance for employees’
severance and retirement benefit

15,45615,110188,487

Unrealized profit on inventories

1,379

1,208

16,815

Devaluation of marketablesecurities and investments into
affiliated companies

1,388

1,029

16,923981

1,219

11,969Net operating loss carryforward

3,144

6,103

38,341

Loss on valuation of inventories

2,089

2,202

25,481

Allowance for doubtful accounts$ 41,339

7. Net assets
Under the Japanese laws and regulations, the entire amount paid for
new shares is required to be designated as common stock. However, aDepreciation

Otherscompany may, by a resolution of the Board of Directors, designate an
amount not exceeding one-half of the price of the new shares as additional paid-in capital, which is included in capital surplus in the accompanying consolidated balance sheets.

9,621

8,779

117,339

39,56242,023

482,478

Under the Japanese Corporate Law (“the Law”), in case where a divi-(12,461)(17,334)(151,969)

dend distribution of surplus is made, the smaller of an amount equal to¥27,101¥24,689$ 330,509

(88)

(103)

(1,072)Difference on revaluation of assets
and liabilities of subsidiaries(3,461)(3,800)(42,206)

Accelerated depreciation(1,994)(1,669)(24,321)

Retained earnings in consolidated
overseas subsidiaries(1,930)(1,550)(23,539)

Total deferred tax assets
Less—valuation allowance
Deferred tax assets—net
Deferred tax liabilities:
Tax depreciation reserve

10% of the dividend or the excess, if any, of 25% of common stockover the total of additional paid-in-capital and legal earnings reserve
must be set aside as additional paid-in-capital or legal earnings reserve.

Net unrealized holding gains
on securities

(784)

(595)

(9,563)

Deferred gain or loss on hedges

(252)

(693)

(3,068)Others

(243)

(360)

(2,967)

Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Law, generally legal earnings reserve and additional paidin capital could be used to eliminate or reduce a deficit by a resolutionof the shareholders’ meeting.
Under the Law, all additional paid-in-capital and all legal earnings

Deferred tax liabilities¥ (8,752)¥ (8,770)$(106,736)

reserve may be transferred to other capital surplus and retained earn-

Net deferred tax assets¥18,349¥15,919$ 223,773

ings, respectively, which are potentially available for dividends.
The maximum amount allowed to be distributed as dividend is deter-(Revision of statutory tax rate)

mined based on the entity’s non-consolidated financial statements inFollowing the promulgation on December 2, 2011 of “Act for Partial

accordance with the Japanese laws and regulations. The maximum

Revision of the Income Tax Act, etc. for the Purpose of Creating

amount that SHI is allowed to distribute as dividend at March 31, 2012

Taxation System Responding to Changing in Economic and Socialis ¥31,380 million ($382,690 thousand).

Structure” (Act No. 114 of 2011) and “Act on Special Measures for

At the general shareholders’ meeting held on June 28, 2012, theSecuring Financial Resources Necessary to Implement Measures forshareholders resolved cash dividend amounting to ¥3,682 million

Reconstruction Following the Great East Japan Earthquake” (Act No.

($44,906 thousand). Such appropriations have not been accrued in the

117 of 2011), the corporate tax rate will be changed and the Special

accompanying consolidated financial statements as of March 31, 2012

Reconstruction Corporation Tax will be imposed for the fiscal year

and will be recorded in the period in which they are resolved.

beginning on or after April 1, 2012.
In line with these changes, the effective statutory tax rate used tomeasure deferred tax assets and liabilities related to temporary differences expected to be recovered or settled during the fiscal years beginning on April 1, 2012 through March 31, 2015 will be changed from40.69% to 38.01%. Additionally, the effective statutory tax rate used
to measure deferred tax assets and liabilities related to temporary differences expected to be recovered or settled after April 1, 2015 will bechanged from 40.69% to 35.64%.
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8. Contingent liabilities

10. Segment information

Certain consolidated domestic subsidiaries are contingently liable as(A) Segment information

endorsers of trade notes receivable discounted with banks in the

In the fiscal year ended March 31, 2011, the Company adopted

amounts of ¥5,261 million ($64,157 thousand) and ¥2,488 million as“Accounting Standard for Disclosures about Segments of an Enterpriseof March 31, 2012 and 2011, respectively. In addition, SHI and certain

and Related information” (ASBJ Statement No. 17, issued on March 27,

consolidated subsidiaries are contingently liable as guarantors for bank2009) and “Guidance on Accounting Standard for Disclosures aboutloans or other borrowings obtained by unconsolidated subsidiaries,

Segments of an Enterprise and Related Information” (ASBJ PITF No. 20,

affiliated companies and employees in the amounts of ¥41,720 million

issued on March 21, 2009).

($508,779 thousand) and ¥25,397 million as of March 31, 2012 and2011, respectively (net of guarantees by co-guarantors).

The Company’s major operations comprise (1) machinery components segment, (2) precision machinery segment, (3) construction
machinery segment, (4) industrial machinery segment, (5) ships segment, (6) environmental facilities and plants segment. The method of

9. Statement of comprehensive income

the accounting of the reportable operating segments is generally thesame as explained in the Note 1. “Significant accounting policies”.

Amounts reclassified to net income in the current fiscal period that

Inter-segment sales is based on current market price.

were recognized in other comprehensive income in the current or previous period and related tax effects for each component of other comprehensive income in the year ended March 31, 2012 are as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2012

Unrealized gains (losses) on securities,
net of income taxes
Increase (decrease) during the year

¥ (525)$ (6,398)

Reclassification adjustments

2,050

24,992Sub-total, before tax

1,525

18,594Tax (expense) or benefit(238)(2,901)

Sub-total, net of tax

1,287

15,693

Unrealized gains (losses) on hedging
derivatives, net of income taxes
Increase (decrease) during the year

548

6,686

Reclassification adjustments(1,715)(20,918)

Sub-total, before tax(1,167)(14,232)

Tax (expense) or benefit

487

5,934

Sub-total, net of tax(680)(8,298)(2,636)(32,145)

Adjustment regarding pension obligations ofconsolidated foreign subsidiaries
Increase (decrease) during the year
Reclassification adjustments

193

2,352

Sub-total, before tax(2,443)(29,793)

Tax (expense) or benefit
Sub-total, net of tax

847

10,334(1,596)(19,459)

3,918

47,781(3,967)(48,368)

Revaluation difference on landTax (expense) or benefit
Foreign currency translation adjustment
Increase (decrease) during the year
Share of other comprehensive income ofaffiliates accounted for using equity method
Increase (decrease) during the year
Total other comprehensive income

66 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 66

(3)

(42)

¥(1,041)$(12,693)

Annual Report 201212/08/28 18:49

A summary of net sales, profits or losses, assets and other items by operating segments for the years ended March 31, 2012 and 2011 are as follows:
Millions of yen
Reportable segment

2012

Ships

Environmental
facilities
and plants

Total

Other

¥80,683¥58,111¥80,116¥615,202¥ 8,898

321

90

607

4,763

2,886

(7,649)—81,00458,20180,723619,965

11,784(7,649)624,100

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery¥ 93,205¥144,145¥158,942

2,311

1,416

18

95,516

145,561

158,960

Adjustment

Consolidated¥¥624,100

Net sales
Outside customers
Inter-segment
Total

—

Segment income

¥

4,238

¥ 12,507¥

8,293¥ 9,499¥10,935¥6¥ 45,478¥ 1,632¥

25¥ 47,135

Segment assets¥104,660¥144,860¥143,153¥59,344¥79,266¥60,241¥591,524¥45,599¥54,718¥691,841

¥

¥

¥

¥

¥

Other items
Depreciation

3,929¥ 1,536¥ 2,081¥ 1,026¥ 17,385—¥ 17,820

Impairment losses on fixed assets

100

122

84

—

149

—

455

4

229

688

Investments in equity method
affiliates

—

1,452

3,317

3,132

—

—

7,901

—

—

7,901

7,517

3,488

5,901

825

924

853

19,508174—

19,682Adjustment

Consolidated¥¥548,015

Increase in property, plant andequipment, and intangible assets

3,750

5,063

435

Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥25 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥54,718 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥229 million) is related to the Company’s corporate assets such as housing lots.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

Millions of yen
Reportable segment

2011

Ships

Environmental
facilities
and plants

Total

Other

¥66,544¥59,496¥76,070¥539,457¥ 8,558

137

74

794

3,983

2,190

(6,173)—

66,681

59,57076,864543,440

10,748(6,173)548,015

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery¥ 74,591¥131,945¥130,811

1,810

1,158

10

76,401

133,103130,821Net sales
Outside customers
Inter-segment
Total

4,874

¥

8,340

¥

—

Segment income

¥

5,290

¥10,252¥ 9,897¥ 5,566¥ 44,219¥ 1,518¥66¥ 45,803

Segment assets¥105,947¥138,404¥121,339¥49,921¥80,230¥52,246¥548,087¥39,466¥39,276¥626,829

¥

¥

¥

¥

¥

¥ 17,941

Other items
Depreciation

3,720¥ 1,706¥ 2,422¥ 1,037¥ 17,488

Gain on negative goodwill

—

—

—

—

—

3,437

3,437

—

—

3,437

Impairment losses on fixed assets

15

—

—

—

—

—

15

—

1,381

1,396

Investments in equity method
affiliates

—

1,407

3,164

3,704

—

—

8,275

—

—

8,275

3,848

2,976

4,442

869

1,106

712

13,953339—

14,292

Increase in property, plant andequipment, and intangible assets

3,298

5,305

453

—

Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥66 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥39,276 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥1,381 million) is related to the Company’s corporate assets such as housing lots.
3. Segment income has been reconciled with operating income in consolidated statements of income.

Sumitomo Heavy Industries, Ltd.

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Thousands of U.S. dollars
Reportable segment

2012

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery$1,136,662 $1,757,863 $1,938,312

Ships

Environmental
facilities
and plants

Total

Other

Adjustment

Consolidated$$7,610,976

Net sales
Outside customers$983,938$708,667$977,024$7,502,466$108,510

17,270

225

3,917

1,096

7,402

58,08035,195(93,275)—

1,164,832 1,775,133

1,938,537

987,855

709,763984,426

7,560,546

143,705(93,275)

7,610,976

Inter-segment

28,170

Total—

Segment income$

51,684 $ 152,527 $ 101,139$115,838$133,352$

75$ 554,615$ 19,888$

310$ 574,813

Segment assets$1,276,339 $1,766,576 $1,745,767$723,710$966,662$734,650$7,213,704$556,091$667,294$8,437,089

$

$

$

Other items
Depreciation

45,735 $61,739 $47,913$ 18,732$ 25,380$ 12,513$ 212,012—$ 217,313

1,214

1,487

1,025

—

1,826

—

5,552

39

2,794

8,385

—

17,71140,44938,199——96,359——96,35991,662

42,536

71,963

10,065

11,272

10,399237,8972,133—

240,030

Impairment losses on fixed assets
Investments in equity method
affiliates
Increase in property, plant andequipment, and intangible assets

5,301

Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income ($310 thousand) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets ($667,294 thousand) primarily represents of the Company’s cash, and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($2,794 thousand) is related to the Company’s corporate assets such as housing lots.
3. Segment income has been reconciled with operating income in consolidated statements of income.

(B) Related information

11. Leases

Information by geographical area
1. Net sales
Millions of yen

Japan

Thousands of
U.S. dollars

2012

2011

2012

¥296,335¥270,608$3,613,846(A) As lessee
The Company has various finance leases for its machinery and otherassets, which have been accounted for in the same manner as operat-

U.S.A.

65,19945,833795,106

ing leases. The information of gross amount of such assets and theChina

77,741

78,028948,067

related accumulated depreciation as well as their carrying value as of

Other areas

184,825

153,546

2,253,957

Total¥624,100¥548,015$7,610,976

March 31, 2012 and 2011 is as follows:
Millions of yen* Net sales are classified into the country or the region based on customers’ locations.

2012

Machinery and other tangible
fixed assets

2. Property, plant and equipment
Millions of yen

Japan

Thousands of
U.S. dollars

2012

2011

2012

¥175,482¥180,322$2,140,025

Other areas

44,33033,834

540,613

Total¥219,812¥214,156$2,680,638

68 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 68

Acquisition
cost

Accumulated
depreciation

Carrying
value¥2,528¥8,109¥5,582Others

122

110

11

Total

¥8,231¥5,692¥2,539Millions of yen

2011

Acquisition
cost

Accumulated
depreciation

Carryingvalue

Machinery and other tangible
fixed assets¥4,309¥11,627¥7,318Others

282

218

64

Total

¥11,909¥7,536¥4,373

Annual Report 201212/08/28 18:49

Thousands of U.S. dollars

2012

Acquisition
cost

Accumulated
depreciation

Carryingvalue

Machinery and other tangible
fixed assets$ 98,894$68,067$30,827

Others

1,485

1,346

139

Total

$100,379$69,413$30,966

12. Financial instruments(A) Qualitative information on financial instruments
1. Utilization policy of financial instruments
The Company obtains the required funds for its operation and investment primarily from bank loans and bond issuances. The Company lim-

Total lease payments for finance leases, which are not subject to theownership transfer from a lessor to a lessee, amounted to ¥1,225 million ($14,937 thousand) and ¥1,809 million for the years ended March

its its investment portfolio for temporary excess funds to short-term
financial assets that carry little risk. The derivative instruments are utilized only to mitigate the risks described below and no speculativetransactions are permitted under the Company’s policy.

31, 2012 and 2011, respectively.

Future lease payments (including interest) under finance leases as of

2. Financial instruments and related risks
Trade receivables are exposed to the credit risk in relation to customers

March 31, 2012 and 2011 are as follows:
Millions of yen

Thousands of
U.S. dollars

and trading partners. Trade receivables denominated in foreign currencies are exposed to the foreign exchange rate fluctuation risk. The

2012

2011

2012

Due within one year

¥1,210¥1,807$14,753

Due after one year

1,329

2,566

16,213

contracts and option contracts, and maintains the ratio of the exposure¥2,539¥4,373$30,966

within a certain range. The hedge ratio and unhedged balances are reg-

Total

Company mitigates such risks through entering into forward exchangeularly reported to the Board of Directors.
Also, future lease payments under non-cancelable operating leases as

The Company is exposed to the market price fluctuation risk in relation to investment securities that are held by the Company primarily forof March 31, 2012 and 2011 are as follows:
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

Future lease payments¥2,738¥2,238$33,391

Due within one year includedin above

1,081

1,105

13,181maintaining business relationship.
Most trade payables are due within one year. Although part of themis denominated in foreign currencies and exposed to foreign exchange
rate fluctuation risk, such exposure is naturally mitigated as there isconstantly corresponding balance of accounts receivables denominatedin the same foreign currencies.
Loans, commercial papers, and corporate bonds are primarily used(B) As lessor
The Company has some finance leases for its certain assets, which havefor obtaining the fund required for operation and investment. For partbeen accounted for in the same manner as operating leases. The infor-of long-term loans, the Company enters into an interest rate swap con-mation of gross amount of such assets and the related accumulated

tract for each individual loan as hedging instruments.

depreciation as well as their carrying value is not disclosed due toimmateriality.
Total lease payments receivable under finance leases, which are notsubject to the ownership transfer from a lessor to a lessee, for the years
ended March 31, 2012 and 2011 are not disclosed because theamounts are not material.
Future lease receivables under finance leases as of March 31, 2012
and 2011 are not disclosed due to immateriality.
Also, future lease receivables under noncancelable operating leases
as of March 31, 2012 and 2011 are as follows:
Millions of yen

Future lease receivables
Due within one year included in above

Thousands of
U.S. dollars

2012

2011

2012

¥340

¥591

$4,148

53

149

644

Sumitomo Heavy Industries, Ltd.

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3. Risk management for financial instruments:(B) Fair values of financial instruments(1) Credit risk

The following table presents the carrying amounts and fair values of the

The Company reviews credit status of customers before accepting

Company’s financial instruments recorded on the consolidated balanceorders to mitigate their credit exposure. In accordance with a credit

sheets as of March 31, 2012 and 2011. Certain financial instruments

management policy, each business unit monitors collection and balance

are excluded from the following table as the fair value information isof receivables for each customer to minimize uncollectible amounts.

not available.

For derivatives and deposits, the Company enters into contracts onlywith highly rated financial institutions.

Millions of yen
Carrying
amountFair value

Difference

Cash and time deposits¥ 73,373¥ 73,373¥

Trade receivables

181,248

181,1872012(2) Market risks
In relation to amounts of net of trade receivables and trade payables
denominated in foreign currencies, the Company executes the hedge

Investment securities
Assets total—(61)

12,596

12,596—267,217

267,156(61)—

Trade payables

153,843

153,843transaction to mitigate the exchange rate fluctuation risk in accordance

Short-term bank loans

27,38327,383—

with a market risk management policy. The status of the hedging activi-

Corporate bonds

10,000

9,941

(59)
116

ties is reported to the Board of Directors every month. Major consolidated subsidiaries also manage the foreign exchange rate fluctuation

Long-term debt
Liabilities Total
Derivatives

risk in a same manner.

59,13959,255

250,365

250,42257(735)(1,132)(397)

Millions of yen

Loan-related interest payable is also monitored and reported to theBoard of Directors regularly. To mitigate the interest-rate fluctuation
risk, interest-rate swaps are used.
In relation to investment securities, the current fair market value andthe financial condition of the issuers are monitored regularly. The

Carrying
amountFair value

Difference

Cash and time deposits¥ 52,486¥ 52,486¥

Trade receivables

155,267

155,066

2011

Investment securities
Assets total

—
(201)

13,036

13,036—

220,789

220,588(201)—

Company continuously reevaluates the investment portfolio in consider-

Trade payables

131,951

131,951

ation of relationship with counterparties.

Short-term bank loans

21,50421,504—

Corporate bonds

10,00010,02222

The Company’s derivative transactions are executed solely for the
purpose of hedging risks concerning exchange rate and interest rate
fluctuations as explained above. The Company reconciles outstanding

Long-term debt
Liabilities Total
Derivatives

36,32936,809480

199,784

200,286

502

1,095

(406)

1,501

balances with the contract counterparties on a monthly basis.

Thousands of U.S. dollars
Carrying
amountFair value

Cash and time deposits$ 894,793$ 894,793

Trade receivables

2,210,345

2,209,592

2012(3) Liquidity risks
The Company implemented a cash management system among major
consolidated subsidiaries whereby SHI centralizes management of available funds within the consolidated group companies. The Company
timely formulates and updates the fund management plan based onreports from business units and major subsidiaries, and monitors theliquidity risk.

Investment securities
Assets total
Trade payables

153,611

153,611—

3,258,749

3,257,996(753)—

1,876,133

1,876,133

333,933

333,933—

Corporate bonds

121,951

121,226

(725)
1,414

Long-term debt
Derivatives

SHI12AR̲eFS̲0820-2.indd 70

—
(753)

Short-term bank loans

Liabilities Total

70 | Sumitomo Heavy Industries, Ltd.

Difference$

721,212722,626

3,053,229

3,053,918

689(8,960)(13,808)(4,848)Annual Report 201212/08/28 18:49

1. Cash and time deposits

The affiliate stocks, the unlisted stocks and the investment bonds in the

The carrying amounts approximate the fair values because of the short-following table are not included in “Investment Securities” above

term maturity of these instruments.

because there is no fair value available.
Thousands of
U.S. dollars

Millions of yen

2. Trade receivables

2012

2011

2012

The discounted cash flow method is used to estimate the fair values,

Affiliate stocks¥9,138¥10,949¥111,436

based on discount rates calculated as totals of appropriate baseline

Unlisted stocks

2,176

2,286

26,541

rates and credit risk spreads.

Investment bonds

11

11

129

3. Investment securities
The market prices are used to estimate the fair values.

The aggregate maturities of financial assets subsequent to March 31,
2012 and 2011 are as follows:
Millions of yen

4. Trade payables and short-term bank loans

Over one year
withinfive years

Overfive years

The carrying amounts approximate the fair values because of short-

2012

Withinone yearterm settlement of these instruments.

Cash and time deposits¥ 73,373

Trade receivables

174,604

6,549

95¥247,977¥6,549

¥95

Total

¥

—

¥ —

5. Corporate bonds
Millions of yen

The discounted cash flow method is used to estimate the fair values,
based on discount rates calculated as totals of appropriate baseline
rates and credit risk spreads.

6. Long-term debt

Over one year
withinfive years

Overfive years

2011

Withinone year

Cash and time deposits¥ 52,486

Trade receivables

148,6506,616

1¥201,136¥6,616

¥ 1

Total

¥

—

¥—

The discounted cash flow method is used to estimate the fair values,
based on marginal borrowing rates as discount rates.

Thousands of U.S. dollars
Withinone yearOver one year
withinfive years

Overfive years$$

7. Derivatives

2012

The fair values of forward exchange contracts are based on quoted for-Cash and time deposits$ 894,793

Trade receivables

2,129,318

79,8691,158$3,024,111$79,869$1,158

ward exchange rates. The fair values of options and interest rate swaps
are based on the quotes from financial institutions.

Total

Sumitomo Heavy Industries, Ltd.

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The aggregate maturities of long-term debt and corporate bonds subsequent to March 31, 2012 and 2011 are as follows:
Millions of yen

2012

Withinone yearOver one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Overfive years

Long-term debt

¥19,796¥26,044¥12,174¥35¥1,036¥54

Corporate bonds——

10,000———Millions of yen

2011

Withinone yearOver one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Overfive years

Long-term debt

¥4,411¥19,332¥1,032¥11,433¥34¥87

Corporate bonds

—

—

—

10,000——Thousands of U.S. dollars

2012

Withinone yearOver one year
within two years

Over two years
within three years

Long-term debt

$241,420$317,611$148,459

Corporate bonds——

121,951

Over three years
within four years

Over four years
within five years

Overfive years$429$12,633

$660

—

—

—

(D) There were no available-for-sale securities with maturity

13. Investment securities

and held-to-maturity securities as of March 31, 2012 and2011.

(A) Carrying amounts of investment securities not stated atfair values as of March 31, 2012 and 2011 are disclosed in“12. Financial instruments”.

(E) Impairment of securities
Impairment losses for securities were ¥2,085 million ($25,422 thousand)and ¥1 million for the years ended March 31, 2012 and 2011, respectively.

(B) Acquisition costs and carrying amounts of marketablesecurities as of March 31, 2012 and 2011 are as follows:
Thousands of
U.S. dollars

Millions of yen

Available-for-sale securities
Equity securities Acquisition cost

2012

2011

2012

¥ 9,441¥11,404$115,134

Carrying amount

12,596

13,036

153,611Difference¥ 3,155¥ 1,632$ 38,477

14. Derivatives information
The Company enters into forward currency exchange contracts, interest
rate swap contracts, and currency option contracts as derivative financial instruments. The Company utilizes forward currency exchange(C) Total sales amount of available-for-sale securities and therelated net gain in the fiscal years ended March 31, 2012transactions to hedge exchange rate risk with respect to receivables andpayables denominated in foreign currencies. Interest rate swap transactions are utilized to minimize risks of increase in interest rate on bor-and 2011 are as follows:
Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

Sale of securities

¥563

¥99

$6,868Net gain

251

79

3,059

rowings. The Company enters into such transactions only withinternational financial institutions with higher credit ratings to avoid
credit risk exposure. Details of transactions are reviewed and approvedby the authorized individuals at the Company based on an internal policy, which indicates acceptable transaction types and monetary limits foreach transaction.

72 | Sumitomo Heavy Industries, Ltd.

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(A) Forward foreign exchange contracts for which no hedge
accounting is applied(D) Interest rate swap contracts for which hedge accounting
is applied

The aggregate contracted amounts to be paid / received and the fair

The aggregate amounts of interest rate swap contracts for which hedge

values of forward foreign exchange contracts for which no hedge

accounting is applied as of March 31, 2012 and 2011 are as follows:
Thousands of
U.S. dollars

accounting is applied as of March 31, 2012 and 2011 are as follows:
Millions of yen
Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

Contracted amounts to be
paid/received:
To buy foreign currencies

¥

725

¥ 895

To sell foreign currencies

26,171

8,960$

319,158

8,836

To buy foreign exchange options

—

186

—

To sell foreign exchange options

—

—

—

To buy foreign currencies

(8)

(10)

(96)

To sell foreign currencies

Fair value:
(884)

8

(10,778)

To buy foreign exchange options

—

2

—

To sell foreign exchange options

—

—

—

0

$ (10,874)

Net unrealized exchange gain (loss)

¥

(892)

¥

2012

2011

2012

¥22,700¥22,821$276,829

(280)

(410)

(3,420)Interest rate swap contracts(special treatment) (Note)
Contraction amounts to be
paid/received:
Interest swap fixed rate to
floating rate
Fair value:Interest swap fixed rate to
floating rate

Note: When certain conditions are met, the net amount to be paid or received under an interest
rate swap contract is added to or deducted from interest on liabilities for which the interest rate contract is executed.

15. Employees’ severance and retirement benefits(B) Interest rate swap contracts for which no hedge accounting is applied

SHI provides both an unfunded retirement benefit plan and a defined

There are no interest rate swap contracts for which no hedge account-contribution plan for employees. Most of its domestic consolidated sub-ing is applied as of March 31, 2012 and 2011.

sidiaries also provide the same plans for their employees. Some foreign
consolidated subsidiaries sponsor a defined benefit plan for their(C) Forward foreign exchange contracts for which hedge

employees.

accounting is applied

Additionally, SHI provides a “Retirement Benefit Trust”.

The aggregate contracted amounts to be paid / received and the fairvalues of forward foreign exchange contracts for which hedge account-

Thousands of
U.S. dollars

Millions of yen

2012(A) Projected benefit obligation on the balance sheet dates
consists of the following:ing is applied as of March 31, 2012 and 2011 are as follows:

2011

Thousands of
U.S. dollars

Millions of yen

2012

2012

2011

2012

Deferred hedge accounting(1) Projected benefit obligation¥(68,944)¥(67,537)$(840,765)

Contracted amounts to be paid/
received:(2) Fair value of employees’
retirement benefit plan assets

28,80731,041

351,301(3) Unfunded projected benefit
obligation

To buy foreign currencies¥

587

To sell foreign currencies

18,326¥425$

23,313

7,162
223,485

Fair value:
To buy foreign currencies

19

To sell foreign currencies

138

17

228

1,484

1,687

Alternative method (Note)(40,137)(36,496)(489,464)(4) Unrecognized actuarial difference

4,237

5,041

51,665(5) Unrecognized prior service cost

16

75

191

¥(35,884)¥(31,380)$(437,608)(6) Employees’ severance andretirement benefit

Contracted amounts to be
paid/received:
To buy foreign currencies

138

163

1,677

To sell foreign currencies

1,131

10,41013,790(1,094)

Fair value:
To buy foreign currencies

(90)

(8)

To sell foreign currencies

(27)

12

40

¥ 1,505

Net unrealized exchange gain (loss)

¥

(334)
$

487

Note: When certain conditions are met, foreign currency denominated receivables and payables
are translated into Japanese yen based on the fixed exchange rates provided by therespective forward contracts.

Sumitomo Heavy Industries, Ltd.

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(B) The following severance and pension benefit expenses areincluded in the statements of income for the years ended

16. Subsequent events

March 31, 2012 and 2011:
Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

(1) Service cost

¥3,620¥3,105$44,140(2) Interest cost on projected benefit
obligation

1,678

1,790

20,468(3) Expected return on plan assets

(691)

(687)

(8,429)(4) Amortization of actuarial
difference

The following appropriations of retained earnings, which have not beenreflected in the accompanying consolidated financial statements for theyear ended March 31, 2012, were approved at a SHI’s general share-

1,364

1,282

787

67

9,600

(6) Severance and pension benefit
expense

6,758

5,557

82,419(7) Loss on revision of retirement
benefit plan (Note 2)

—

503

—

¥6,758holders’ meeting held on June 28, 2012:

16,640(5) Amortization of prior service
cost (Note 1)

Total(A) Appropriations of retained earnings¥6,060$82,419

Notes: 1. ¥706 million out of ¥787 million for the year ended March 31, 2012 represents the
one-time amortization of prior service cost generated due to the revision of SHI’s
unfunded retirement benefit plan.
2. Some consolidated subsidiaries terminated tax qualified retirement pension plans andtransitioned it to the defined contribution plan. Due to this transition, loss on revisionof retirement benefit plan was incurred for the year ended March 31, 2011.

Year-end cash dividends¥6.00 ($0.07) per share

Millions of yen

Thousands of
U.S. dollars

2012

2012

¥3,682$44,906

The approved dividend will be paid to the shareholders as of March
31, 2012.

(B) Regarding the probable payment to the Ministry of
DefenseIn May 2012, SHI received an inquiry about the cost calculation in the
Defense Equipment System Division (Tanashi factory) from the Ministry(C) Major actuarial assumptions used to determine pension
obligations as of March 31, 2012 and 2011 are as follows:of Defense. As a result of the internal investigation, it has come to ourattention that there are certain instances where the reported working
hours in the actual cost calculation were higher than they should have

2012

2011

Equally to eachservice year
using theestimated
number of total
service years

Equally to eachservice year
using theestimated
number of total
service years

Mainly 1.5%

Mainly 2.0%

Company is currently cooperating with the Ministry of Defense for their(3) Expected rate of return on plan assets Mainly 0.0%

Mainly 0.0%

investigation. Since the amount is not reasonably estimable and possi-(4) Amortization period ofprior service costSHI:
1 yearSubsidiaries:
Mainly 12 years

SHI:
1 yearSubsidiaries:
Mainly 12 years

Mainly 12 years

Mainly 12 years(1) Allocation of the estimated amountof all retirement benefits to be paid
at the future retirement date(2) Assumed discount rate(5) Amortization period of
actuarial differences

74 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 74

been at the Defense Equipment System Division and Sumiju Tokki
Service Co., Ltd., which is a SHI’s wholly-owned subsidiary.
In accordance with the terms and conditions in the related contracts
with the Ministry of Defense, the Company will probably be obligatedto make a certain payment to the Ministry of Defense in the future. The

ble timing of the payment is undetermined, the Company is unable toforesee the effect on its consolidated financial condition and operating
result at this stage.
On May 25, 2012, SHI and Sumiju Tokki Service Co., Ltd. were notified
by the Ministry of Defense of the suspension of the future transactions.

Annual Report 201212/08/28 18:49

Independent Auditors’ Report

To the Board of Directors of Sumitomo Heavy Industries, Ltd.:We have audited the accompanying consolidated financial statements of Sumitomo Heavy Industries, Ltd. (SHI) and its consolidated subsidiaries(collectively, the Company), which comprise the consolidated balance sheets as at March 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in net assets, and cash flows for the years then ended, and a summary of significant accounting
policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordancewith auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements and plan and perform theaudit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, while the objectiveof the financial statement audit is not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Sumitomo Heavy Industries, Ltd.
and its consolidated subsidiaries as at March 31, 2012 and 2011, and their financial performance and cash flows for the years then ended in accordance with accounting principles generally accepted in Japan.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 16 “Subsequent events” to the consolidated financial statements.
As described in the Note 16, SHI received an inquiry in May 2012 from the Ministry of Defense. As a result of the internal investigation, it turned outthat there were certain instances where the reported working hours in the actual cost calculation were higher than they should have been at the
Defense Equipment System Division and Sumiju Tokki Service Co., Ltd., which is a SHI’s wholly-owned subsidiary. In accordance with the terms and conditions in the related contracts with the Ministry of Defense, the Company will probably be obligated to make a certain payment to it in the future.
The Note 16 also discloses that the Company is currently cooperating with it for the investigation, and therefore, the amount is not reasonably estimable and the timing of the payment is undetermined.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2012 are presented solely
for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been
made on the basis described in Note 1 to the consolidated financial statements.

June 28, 2012
Tokyo, Japan
Sumitomo Heavy Industries, Ltd.

SHI12AR̲eFS̲0820-2.indd 75

Annual Report 2012 | 75

12/08/28 18:49

Major Subsidiaries and Affiliates(As of March 31, 2012)

Segment

Machinery
Components

Precision
MachineryBusiness
Power Transmission and Control
Equipment

Plastic Injection Molding Machines

Quantum Equipment and
Ion Accelerators

Cryogenic Equipment

Company Name
Sumitomo Heavy Industries Gearmotors Co., Ltd.
Sumitomo Heavy Industries, PTC Sales Co., Ltd.

03-6737-2580

Sumiju Tomida Machinery Co., Ltd.

0562-48-4167

Sumiju Technos, Ltd.

0562-48-5115

SEISA Gear, Ltd.

0724-31-3021

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

Sumitomo (SHI) Cyclo Drive China., Ltd.

86-22-2499-3501

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-955-0010

Sumitomo (SHI) Cyclo Drive Germany GmbH49-8136-66-0

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.

65-6-591-7800

Sumitomo (SHI) Cyclo Drive Korea, Ltd.

82-2-730-0151

Sumitomo Machinery Corporation of America

1-757-485-3355

Sumitomo Industrias Pesadas do Brasil Ltda.

55-11-5585-3600

SM Cyclo of Canada, Ltd.

1-905-469-1050

Hansen Industrial Transmissions NV

32-3-450-12-11

Sumitomo Heavy Industries Modern, Ltd.

045-547-7711

Sumiju Platec Co., Ltd.

043-420-1558

Sumiju Logitech Co., Ltd.

043-420-1680

Izumi Seiki Co., Ltd.

0897-32-6232

Ningbo Sumiju Machinery, Ltd.

86-574-86805901

Sumitomo (SHI) Demag Plastics Machinery GmbH49-911-5061-717

SHI Plastics Machinery, Inc. of America

1-770-447-5430

SHI Plastics Machinery (Hong Kong) Ltd.

852-2750-6630

S.H.I. Plastics Machinery (S) Pte. Ltd.

65-6-779-7544

Sumiju Examination & Inspection, Ltd.

0898-65-4868

SHI Accelerator Service Ltd.

03-5434-8468

Japan Electron Beam Irradiation Service Co., Ltd.

03-5434-8467

Sumiju Magnet (Kunshan) Co., Ltd.

86-512-5768-9200

Sumitomo (SHI) Cryogenics of America, Inc.

1-610-791-6700

Sumitomo (SHI) Cryogenics of Europe GmbH49-6151-860610

Sumitomo (SHI) Cryogenics of Europe, Ltd.

44-1256-853333

SHI Manufacturing & Services (Philippines), Inc.

63-43-405-6263

Precision Equipment and Components Sumitomo Heavy Industries Himatex Co., Ltd.

LCD and Semiconductor Equipment

Machine Tools
Defense Equipment

Forklift Trucks

76 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 76

Telephone Number
0562-88-3040

0897-32-6485

Sumiju Precision Forging Co., Ltd.

046-869-1659

Sumitomo Heavy Industries Mechatronics, Ltd.

03-6737-2531

SEN Corporation

03-6737-2690

Sumitomo Heavy Industries Finetech, Ltd.

086-525-6280

Sumiju Business, Ltd.

042-468-4311

Sumiju Tokki Service Co., Ltd.

042-468-4451

Sumitomo NACCO Materials Handling Co., Ltd.

0562-48-5251

Annual Report 201212/08/28 18:44

Segment

Construction
Machinery

Industrial Machinery

Business
Hydraulic Excavators

Company Name

Telephone Number

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

03-6737-2600

Sumitomo (S.H.I.) Construction Machinery Sales Co., Ltd.

03-6737-2610

Sumitomo (S.H.I.) Construction Machinery (Tangshan) Co., Ltd.

61-3391000

LBX Company, LLC

1-859-245-3900

Mobile Cranes

Link-Belt Construction Equipment Company, L.P., LLLP

1-859-263-5200

Material Handling Systems

Sumitomo Heavy Industries Engineering and Services Co., Ltd.

03-6737-2640

Forging Presses

Sumitomo Heavy Industries Techno-Fort Co., Ltd.

0897-32-6300

Sumijiu Technocraft Co., Ltd.

0897-32-6306

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Sales and Services,
Area Management Company

Sumitomo Heavy Industries (Shanghai) Management, Ltd.

86-21-3462-7660

Ships

Ships

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

03-6737-2620

Environmental
Facilities & Plants

Sumiju Plant Engineering Co., Ltd.
Energy-Related andEnvironmental Protection Systems Sumiju Environmental Technologies, Ltd.
Water Treatment Systems

OthersSumitomo Heavy Industries Environment Co., Ltd.

03-6737-2700

Sumiju Environmental Engineering, Inc.

03-5719-5020

Pressure Vessels, Chemical
Processing Equipment and Plants

Sumitomo Heavy Industries Process Equipment Co., Ltd.

0898-64-6936

Nihon Spindle Mfg. Co., Ltd.

06-6499-5551

Food Processing Machinery

Izumi Food Machinery Co., Ltd.

06-6718-6150

Sales and Services,
Area Management Company

PT. Sumitomo Heavy Industries Indonesia

62-0-21-57951095

OthersSumitomo Heavy Industries Business associates, Ltd.

03-6737-2342

Lightwell Co., Ltd.

03-5828-9230

Izumi Support Corporation

03-6737-2666

Sumitomo Heavy Industries (China), Ltd.

86-21-6219-8232

Sumitomo Heavy Industries (USA), Inc.

1-610-791-6782

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 77042-468-4007
03-6737-2820

Annual Report 2012 | 77

12/08/28 18:44

Glossary

Machinery Components

Cyclotrons

Power transmission and control equipment

Power transmission and control equipment raises torque as the rotary
speed of a motor is reduced to an optimum level. This kind of equipment has many applications, including elevators, escalators, industrial
robots and factory production lines. SHI produces a wide range ofA cyclotron is an accelerator for particles that it ionizes using magnetic
force. SHI is the only manufacturer of these devices in Japan and has
the top share of the domestic market for cyclotrons for positronemission tomography (PET) applications, which are highly effective in
discovering and pinpointing cancer cells.

power transmission and control devices, from micro-miniature devices
with a motor capacity of 6 watts to very large devices of several thousand kilowatts. SHI has the leading share of the Japanese market for
Compact cyclotron for PET “HM-12S”

this equipment.
Hyponic Gearmotor®

Ion-implantation devices

To create the transistors and other components that comprise semicon-

CYCLO® speed reducer

ductors, the necessary type/volume of elements required for such components must be added to a flat silicon single-crystal substrate known

Precision Machinery

as a wafer. Ion-implantation devices electrically ionize the elements andaccelerate the resulting ions at high voltage for high-precision injection

Plastic injection molding machines

Plastic injection molding machines are used to pour melted plastic

into the wafer.

into molds. Of the two system types, hydraulic and electromotive,
the latter enables greater molding precision. SHI specializes in the
precision, high-cycle molding required for manufacturing optical discs
and connectors.

Single-wafer, high-current
ion-implantation device “SHX-III/S”

Precision positioning stages
Full-electric plastic injection molding machine “SE75DUZ”

Precision positioning stages set the vertical and horizontal positioningof substrates, wafers and other components in precision processing.

Proton therapy system

Proton therapy is a type of radiation therapy that destroys cancer cellsby bombarding affected areas with a proton beam. Allowing the minimally invasive treatment of cancer cells, proton therapy systems minimize damage to surrounding normal cells, thus reducing burden on the

Because two axes are involved, they are also called XY stages. These
products are used for manufacturing and inspection processes for liquid
crystal panels and semiconductor wafers. SHI’s high-precision positioning stages are one of its particular strengths.

patient’s body. Due to such features, these systems eliminate the needfor hospitalization and enable the outpatient treatment of cancer.

Planar XY stage “SA&SL Series” forRotating gantry

semiconductor and printed circuit board

irradiation system

78 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 78

exposure and inspection processes

Annual Report 201212/08/28 18:44

Construction Machinery

Environmental Facilities & Plants

Crawler cranes

Circulating fluidized-bed (CFB) boiler

This is a self-propelled crane for construc-

Employing jets of air blown from below to evenly mix fuel particles at ation sites. It travels on caterpillar tracks.

high temperature, this CFB boiler is an efficient combustor suitable foruse with a wide variety offuels. The CFB boiler caneven burn such renewable

Lattice crawler crane “LS 218HSL”

energy fuels as low-grade
coal and biomass-based fuels.

Asphalt pavers
CFB boiler

Self-propelled machines used to spread asphalt when paving roads;
SHI is the market leader in asphalt pavers in Japan.
Rotary kiln

This rotary melting kiln is used for the combustion or melting of industrial waste materials. Through combustion or melting, these materials
are detoxified or recycled for metal recovery and slag-making. The cylinAsphalt paver “HA60W”

drical kiln is mounted, at aslight incline, horizontallyover a furnace and rotatedslowly when combusting orIndustrial Machinery

melting materials. Due tosuch architecture, industrial

Continuous ship unloaders

Continuous ship unloaders are large harbor-installed hoists used for thewaste materials can beprocessed efficiently.

continuous unloading of iron ore and other bulk raw materials fromcargo vessels at dock. SHI has the top share of this market in Japan.

Sumitomo - W+E rotary kiln

Superfine-bubble membrane tube diffusers

Superfine-bubble membrane tube diffusers are used for aeration systems at sewage treatment facilities. The use of a high-quality
silicon rubber membrane for theContinuous ship unloader

diffuser tubes contributes to thehigh performance and durabilityof the systems.

Superfine-bubble membrane tube diffuser

Ships“MICRAS®”

Aframax tankers, Suezmax tankers

Aframax tankers are midsized oil tankers with deadweight freight

Coke drums

capacity in the 80,000 to 120,000MTDW class; 150,000MTDW classThis equipment is used in oil refining to extract high-value-added

tankers are called Suezmax tankers.

light oil from heavy oil that is subjected to heat cracking after refining.
SHI has the world’s leading share in coke drums.

Aframax tanker

Coke drums

Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 79

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12/08/28 18:44

Corporate Data
(As of March 31, 2012)

Head Office: Sumitomo Heavy Industries, Ltd.

Transfer Agent: Sumitomo Mitsui Trust Bank, Limited

1-1, Osaki 2-chome, Shinagawa-ku,

Stock Exchange Listings: Tokyo, Osaka

Tokyo 141-6025, Japan
Tel: +81-3-6737-2331

Shares Outstanding: 614,527,405

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

Number of Shareholders: 55,713

Founded: 1888

Major Shareholders:

Incorporated: November 1, 1934
Percentage ofvoting rights

Name of shareholder

Paid-in Capital: ¥30,871,651,300
Number of Employees: 18,139 (Consolidated)

2,470 (Non-consolidated)Japan Trustee Services Bank, Ltd. (Trust account)

7.5%

The Master Trust Bank of Japan, Ltd. (Trust account)

7.0%Japan Trustee Services Bank, Ltd. (Trust account 9)

4.2%

Domestic Offices:

Sumitomo Life Insurance Company

3.5%

Chubu Office
10-24, Higashi-sakura 1-chome, Higashi-ku, Nagoya-shi, Aichi 461-0005, Japan
Tel: 81-52-971-3063

Sumitomo Mitsui Banking Corporation

2.5%

Sumitomo Heavy Industries, Ltd. Kyoeikai

1.8%State Street Bank and Trust Company 505103

1.6%

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku, Osaka-shi, Osaka 530-0005, Japan
Tel: 81-6-7635-3610

State Street Bank-West Pension Fund Clients-Exempt
Japan Trustee Services Bank, Ltd. Sumitomo Trust
Retirement Benefit Trust AccountBarclays Capital Securities Limited

1.4%

Kyushu Office
6-20, Nakasu 5-chome, Hakata-ku, Fukuoka-shi, Fukuoka 810-0801, Japan
Tel: 81-92-283-1670
Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi, Tokyo 188-8585, Japan
Tel: 81-42-468-4104

1.3%
1.2%

Breakdown of Shareholders as of March 31, 2012:
Breakdown of shareholders

Number of shares held
(unit 1,000)

Financial Institutions

249,894

Chiba Works731-1, Naganumahara-machi, Inage-ku, Chiba-shi, Chiba 263-0001, Japan
Tel: 81-43-420-1355

Securities Companies

22,597

Individuals and Others

92,962Foreign Investors

195,728

Yokosuka Works
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-1842

Other Japanese Corporations

53,347

Nagoya Works
1, Asahi-machi 6-chome, Obu-shi, Aichi 474-8501, Japan
Tel: 81-562-48-5111

Number of shares held are rounded down to the nearest 1,000.

The “Other Japanese Corporations” category also includes treasury stock, government
institutions and local governments.

Other Japanese Corporations 8.68%

Okayama Works
8230, Tamashima-Otoshima, Kurashiki-shi, Okayama 713-8501, Japan
Tel: 81-86-525-6101
Ehime Works—Niihama Factory
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Tel: 81-897-32-6211

ForeignInvestors

Financial
Institutions
40.66%

31.85%

Ehime Works—Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan
Tel: 81-898-64-4811

Securities Companies 3.68%

Technology Research Center
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Individuals and Others 15.13%

Additional copies of this annual report and other information may be obtained at the following URL or by contacting:Corporate Communications Department,
Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan
URL: http://www.shi.co.jp
80 | Sumitomo Heavy Industries, Ltd.

SHI12AR̲E0820.indd 80

Tel: +81-3-6737-2331

Annual Report 201212/08/28 18:45

2 At a Glance
4 Financial Highlights
6 To Our Shareholders, Customers and Employees
8 Interview with the President
13 Special Feature: Building Up Our Global Strength
Diversified Businesses Underpin Strong Earnings BaseD Power Transmission and Control Equipment

F Plastic Injection Molding Machines

H Medical Equipment

J Hydraulic Excavators

14
Pursuing Group Synergies
while Accelerating Global
Business Development

SHI12ARcv̲E0807.indd 2

16
Toward Becoming the
Leading Global Brand in
the High-End Zone

18
Globally Expanding LeadingEdge Cancer Treatment andDiagnostic Equipment

20
Addressing Infrastructure
Development Demand in
Newly Emerging Countries

12/08/28 19:08

Sumitomo Heavy Industries
Annual Report 2012

http://www.shi.co.jp

Building Up Our Global Strength
Sumitomo Heavy Industries
Annual Report 2012
For the year ended March 31, 2012

Printed in Japan O051E121

SHI12ARcv̲E0807.indd 1

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