ANNUAL REPORT2008

C r o s s i n g New Boundaries

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Profile 1
At a Glance

2

Financial Highlights

4

Top Message 6
		 To Our Shareholders, Customers and Employees
		 We strive to provide first-class products and		  make Sumitomo Heavy Industries a world-leading brandMedium-Term Management Plan 10
		 Previous Medium-Term Management Plan “Leap to Excellence 07”
		 New Medium-Term Management Plan “Global 21”

Special Feature 1:
Reactor Vessels: “Coke Drums” 12		 First-Class Products Contributing to Our Next Leap

Special Feature 2:
Construction Machinery: “Hydraulic Excavator” 14
		 Product Development Aimed at Customer Satisfaction
Review of Operations
Mass-Produced Machinery 16
Environmental Protection Facilities, Plants & Others 20
Ship, Steel Structure & Other Specialized Equipment 22
Industrial Machinery 24
Construction Machinery 26
Research and Development 28
Intellectual Property 30
Corporate Governance and Compliance 31
Measures for Environmental Preservation 33
Financial Section
Eleven-Year Summary 34
Management Discussion and Analysis of Financial Conditions and Operating Results 36
Business Risk 39
Financial Statements —Consolidated Balance Sheets 40
			—Consolidated Statements of Income 42

			—Consolidated Statement of Changes in Net Assets 43

			—Consolidated Statements of Cash Flows 46

			—Notes to Consolidated Financial Statements 48

			—Independent Auditors’ Report 65

Glossary 66
Network 68
Management 70
Corporate Data 71

measures for environmental
preservation

>

FY2010Target Sales: ¥850 billion
FY2007India(¥ Billion)
1086FY2006

4
2

China

0

FY 05

(¥ Billion)
50

06

FY2005

07

40

20
10

50%

FY2004

Europe30(¥ Billion)
50

¥661

40

billion

0

FY 05

06

07

30

46%

20

¥600

10
0

FY 05

06

billion

07

42%

¥551
<Overseas sales ratio>

38%<Net sales>¥521
billionNorth America(¥ Billion)
120
90

Other

60

(¥ Billion)
80

30
0

FY 05

60
40
20
0

FY 05

06

07

06

07

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Sumitomo Heavy Industries, Ltd. (the “Company”) and its Group companies (the “SHI Group”)
operate a range of businesses providing a spectrum of first-class products and services. Through a
growth strategy focusing on the development and provision of products and services that bring toour customers exceptional value, we are securing substantial global market shares and businessprofitability while pioneering new markets.

NET SALES

Mass-Produced Machinery
Mass-Produced
Machineryn Main Units

35.2%
Environmental Protection
Facilities, Plants & Others

Power transmission and controls,
plastics machinery, quantum
equipment, laser systems, cryogenic
equipment, mechatronics

n Growth / Profitability¥232.6 billion
Operating Income: ¥28.2 billion
Net Sales:

13.8%
Ship, Steel Structure &Other Specialized Equipment

11.6%

Industrial
Machinery

12.3%
Construction
Machinery

Environmental Protection Facilities, Plants & Othersn Main Units
Energy-related plants, water
treatment plants

n Growth / Profitability¥91.3 billion
Operating Income: ¥6.9 billion
Net Sales:

27.1%

Ship, Steel Structure & Other Specialized Equipment
Operating
IncomeMass-Produced
Machinery

36.3％
Environmental Protection
Facilities, Plants & Others

8.9％
Ship, Steel Structure &Other Specialized Equipmentn Main Units
Reactor vessels, ships

n Growth / Profitability¥76.4 billion
Operating Income: ¥14.1 billion
Net Sales:

Industrial Machineryn Main Units
Material handling systems, turbinesand pumps, forging presses andindustrial machinery

n Growth / Profitability¥81.2 billion
Operating Income: ¥12.1 billion
Net Sales:

18.2％
Industrial
Machinery

15.6％
Construction
Machinery

21.0％

Construction Machineryn Main Units
Hydraulic excavators and roadmachinery, mobile cranesn Growth / Profitability¥179.4 billion
Operating Income: ¥ 16.3 billion
Net Sales:

2 >

Power Transmission Equipment
Advantages

Plastics Machinery
Advantages

With its proprietary unbreakable gear teeth,
our flagship Cyclo®
speed reducer is characterized by a high impact load, durability
and efficiency. Boasting
the top domestic andsecond-largest global Cyclo speed reducer for precision control “F4C-D” seriesmarket shares as well asa wide spectrum of applications, this speed reducer is insusceptible
to market fluctuations®

Applications
Factory automation and material-handling machines, industrial
robots, various manufacturing equipment, water and sewage
treatment systems, amusement machines and other

Circulating Fluidized-Bed (CFB) Boilers
Advantages
We maintain a closetechnological alliancewith U.S.-based Foster
Wheeler Ltd., theworld leader in CFB
boilertechnologicalcapability and market
share. Compatible withsuch renewable energy CFB boiler
fuels as biomass-based
fuels and waste tires, CFB boilers are gaining increasing recognition as key systems for combating global warming andenabling the more efficient use of resources.

Applications

With
outstanding
strength in highprecision, high-cycleand other high-valueadded molding operations, our products arewithout peer in termsof performance. Thesemachines boast state- Fully electric controlled injection molding machine “SE-DU”
of-the-art quality recognized by customers and command the top domestic market
share. Through the acquisition of the Demag Plastics Group in
March 2008, we have reinforced our brand and marketing
power to sharpen our competitiveness in the global market.

Applications
Manufacture of parts used in cell phones, personal computersand other IT-related products, automotive components, PET
bottles and other beverage containers, optical disks and otherAframax Tankers
Advantages
Specializing in mediumsized tankers, we areprovidingcustomervalue-focused productsin the shipbuilding sector. Of particular note,our competitors in the
shipbuilding industry
also use our proprietary 105,000MTDW oil tanker
energy-saving products,
including propellers and ducts, taking advantage of the significant contribution that SHI products make to tanker operators’
cost cutting efforts in an era of expensive fuels.

Applications

Industrial power generation (private power generation)

Oil tankers

Large Cranes

Hydraulic Excavators

Advantages
Through optimal design, we have beenable to reduce theoverall weight of ourcranes. This improvement allows customers
to upgrade their crane
capacity without reinforcing the operating Goliath cranefoundations and thereby enables them to maintain unbroken operations and reduce
costs even as they upgrade capacity.

Applications
Shipyards, harbors, steelworks and other

Advantages
Having achieved superior fuel efficiency
through the optimal
combination of innovative hydraulic andengine systems, ournew hydraulic excavator became the firstpiece of construction SH200-5 LEGEST
machinery to win aprestigious Energy Conservation Grand Prize. Having also received
a Good Design Award for its functional beauty, this LEGEST®
excavator boasts economic viability and excellent usability.
®

Applications
Construction, engineering, scrapping, forestry and otherfinancial
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preservation				Millions of yen

Thousands of
U.S. dollars(Note 1)

FY2006

FY2007

FY2007¥551,339 ¥600,256
218,798
222,906
82,74079,397
67,372
69,49156,054
68,286
126,375
160,177
47,50564,22429,33828,844
4,277
4,494
(479)
6,714
5,847
9,527
8,533
14,396¥660,769
232,593
91,25076,393
81,163
179,370
77,79028,208
6,903
14,094
12,11816,286$6,607,689
2,325,925
912,499
763,934
811,629
1,793,704
777,895
282,078
69,031140,938
121,178
162,856250
10.7
74,87337,352181
11.8
91,57842,974

1,810
915,780429,738

Cash Flows (for the year):
Cash flows from operating activities.......................... ¥075,775 ¥045,451 ¥050,023 ¥056,789
Cash flows from investing activities...........................
(7,929)(6,087)(7,024)(12,461)
Free cash flows (Note 3)............................................
67,84639,36442,99944,328Cash flows from financing activities..........................
(56,666)(46,490)(48,812)(41,193)¥029,096(41,250)(12,154)(5,238)$0,290,960(412,500)(121,540)(52,385)

Financial Position (at year-end):
Total assets............................................................... ¥580,291
Interest-bearing debt................................................ 215,807
Stockholders' equity.................................................. 114,526
Total net assets (Note 4) ...........................................
—¥678,634
89,567—
246,371$6,786,341
895,674—
2,463,710

FY2003

FY2004

Summary of Income (for the year):Net sales................................................................... ¥482,765
Mass-produced machinery..................................... 184,489
Environmental protection facilities, plants & others.....
87,691
Ship, steel structure & other specialized equipment....
63,438Industrial machinery..............................................
45,988Construction machinery......................................... 101,158
Operating income.....................................................
40,231Mass-produced machinery.....................................
26,046
Environmental protection facilities, plants & others.....
4,567
Ship, steel structure & other specialized equipment....
1,547
Industrial machinery..............................................
2,908
Construction machinery.........................................
5,150¥521,310
205,091
87,93765,28854,008108,985
48,77330,415
7,094
478
4,834
5,961

Elimination............................................................
Operating Income Margin.........................................
EBITDA (Note 2)........................................................
Net income...............................................................

13
8.3
50,344
16,262(9)9.4
58,055
22,792¥569,771
169,228
137,157—

FY2005(10)
8.6
56,57729,742¥579,233
125,504
167,740—¥600,890
88,045—
206,010		
Yen

Amounts Per Share:
Net income (Note 5)..................................................
Stockholders' equity..................................................
Cash dividends..........................................................

¥027.01
190.25—¥037.80
227.903.00¥049.45279.02
5.00

U.S. dollars(Note 1)¥061.99338.957.00¥071.19392.80
10.00

12.5
34.1
6.2
24.0
14.7
12.2

13.9
34.9
6.3
22.4
13.2
14.0

$0.71
3.93
0.10

%

Financial Indexes:
EBITDA margin..........................................................
Stockholders' equity ratio..........................................
ROA (Return on assets).............................................
ROE (Return on equity).............................................
Interest-bearing debt ratio........................................
ROIC (Note 6)...........................................................

10.4
19.7
2.8
14.2
37.2
6.5

11.1
24.1
4.0
16.6
29.7
8.5

10.3
29.0
5.1
17.7
21.7
8.8

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥100=$1, the prevailing exchange rate on the Tokyo Foreign Exchange
Market as of March 31, 2008.
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.
(Operating income + Interest and dividend received) x 55% (= 1 - Effective tax rate)
6. ROIC (Return on Invested Capital) =			(Average of stockholders' equity + Average of interest-bearing debt)

4 >

Operating Income /Operating Income Margin

Net Sales

Net Income

ROA / ROE

YoY Change

Operating Income YoY Change+21.1%+15.1%+0.1 pts.

ResultOperating Income Margin YoY Change

ResultROE YoY Change+10.1%YoY Change+1.1 pts.

¥660.8 billion-1.6 pts.

¥43.0 billion(¥ Billion)(¥ Billion)
700

ROA YoY Change

(%)

90

15.0

(¥ Billion)
50

(%)
25.0

40

20.0

30

15.0

20

10.0

10

5.0

600

500

60

10.0

400

300

30

5.0

200

100

0
–10

0

FY 03

04

05

06

0.0
0

FY 03

07

Mass-produced machinery
Environmental protection facilities, plants & others
Ship, steel structure & other specialized equipment
Industrial machinery
Construction machinery

04

05

06

07

0.0

FY 03

04

05

06

07

FY 03

Mass-produced machinery
Environmental protection facilities, plants & others
Ship, steel structure & other specialized equipment
Industrial machinery
Construction machineryOperating income margin (Right scale)

ROA

04

05

06

07

ROE

Stockholders’ Equity Ratio /Interest-Bearing Debt

Interest-Bearing Debt Ratio

EBITDA YoY Change

Stockholders’ Equity Ratio YoY Change+0.8 pts.

YoY Change-1.5 pts.

-127.4%

EBITDA Margin YoY ChangeInterest-Bearing Debt YoY Change

ResultResult13.2%–¥12.2 billion

EBITDA / EBITDA Margin+22.3%+1.7%+1.4 pts.

(¥ Billion)
100

(%)
15.0

(¥ Billion)
250

(%)
50.0

80

12.0

200

40.0

Free Cash FlowsYoY Change

(%)
40.0

(¥ Billion)
75

60
30.0
45
60

9.0

150

30.0

20.0

40

6.0

100

30

20.0
15
10.0

20

3.0

50

10.0
0

0

0.0

FY 03
EBITDA

04

05

06

EBITDA margin (Right scale)

07

0

0.0

FY 03

04

05

06

Interest-bearing debt
Stockholders’ equity ratio (Right scale)

07

0.0

–15

FY 03

04

05

06

07

FY 03

04

05

06

07

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We strive to provide first-classproducts and make
Sumitomo Heavy Industries
a world-leading brand6 >

To Our Shareholders,Customers and Employees
We believe that our commitment to the “creation of value for customers,” which is aimed at ensuring their enduringconfidence, is key to sustainable development and enhanced enterprise value for the Sumitomo Heavy Industries (SHI)
Group. This, in turn, enables us to meet the expectations of shareholders, employees and local communities. Customer
satisfaction is gained through the supply of competitive high-quality products, and this satisfaction contributes to ourdevelopment. The ideal that we strive for is to be a company that continues to provide products acknowledged as
first-class in world markets in all business areas.
In our previous medium-term management plan “Leap to Excellence ’07” (fiscal 2005–2007), we sought stable
growth and expansion at a higher level, making a shift in emphasis from bottom-line management to top-line growth.
As a result, we attained record orders, sales and profits across the board. For “Global 21,” our new medium-term
management plan, we have formulated new strategies and set a long-term sales target of ¥1 trillion. SHI seeks to takeoff as a world-leading brand by continuing to grow and moving aggressively into overseas markets that offer exciting
business opportunities that enable us to achieve sustained growth and development.
Our raison d’être is the ability to provide first-class products. We deliver the very best quality products that ourcustomers require. We believe that if any of our businesses cannot gain a competitive edge, it is because the products
and services are unattractive and do not fulfill our customers’ requirements. We are working hard to strengthen our
key components business, develop new products and pioneer markets by consolidating businesses while striving to
improve quality and reduce costs through production reforms. Creating products that make our customers happy
leads to sales and earnings growth. Products for industries that in Japan have already matured are still in great demandin the rest of the world. The basic principle underlying our growth strategy is to provide first-class products where they
are needed in markets worldwide.

EBITDA / ROIC(¥ Billion)

EBITDA (Left scale)

100

(%)

ROIC (Right scale)

25

80

20

60

15

40

10

20

5

0

0

FY 97

98

99

00

01

02

03

04

EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
ROIC (Return on Invested Capital) =(Operating income + Interest and dividend received) x 55% (= 1 – Effective tax rate)(Average of stockholders’ equity + Average of interest-bearing debt)

05

06

07

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Summary of the Previous Medium-Term Management Plan
“Leap to Excellence ’07”: The Completed Medium-Term Management Plan (April 2005–March 2008)

We were able to reach our initial targets a year early in fiscal 2006 and attained revised, more ambitious targets in fiscal
2007 due to the tireless efforts of all Group employees. One of the goals of “Leap to Excellence ’07” was transformation
into a “knowledge-intensive company” that systematically provides its customers with first-class products. In fiscal 2007, thefinal year of the plan, we focused on the following priority measures and put into action programs to achieve our goals.
Results in Fiscal 2007
• Record figures across the board(orders, sales, operating income, net income)• Record orders and net income forthe fifth consecutive fiscal year

• Sales growth for the fifth consecutive fiscal year

• ROIC (after tax) of 14.0%

Strengthened Capability to Supply Markets with First-Class Products
The SHI Group continued to strengthen its capability to create and supply markets with first-class products that compete
successfully worldwide by aggressively marketing our most promising products and investing in R&D. We brought tomarket new power transmission and plastics machinery models during the year under review, and our cryocoolers andmedical-use cyclotrons were well received by customers. Moreover, in fiscal 2007 our highly acclaimed hydraulic excavator,
SH200-5 LEGEST®, became the first in the business to win two major awards—the Good Design Award and the Energy
Conservation Grand Prize presented by Japan’s Energy Conservation Center and the Ministry of Economy, Trade andIndustry. We also introduced customers to Aframax tankers designed to meet their shipping route-specific needs.
Strengthened Collaboration between Business Segments and Expanded Component BusinessIn the power transmission and controls segment, we strengthened the motion control and drive business by suggestingproducts that combine transmissions, motors and control technology to the industrial robot market, where excellent
positioning accuracy is a requirement. We also concentrated on growing the key components business, including
cryocoolers for medical and semiconductor production equipment, and precision positioning equipment for liquid
crystal display (LCD) and semiconductor manufacture.
Accelerated Overseas Expansion
The SHI Group seeks to extend its business worldwide with a view to business expansion. To this end, we are strengthening
our overseas network of sales and service bases. We acquired German plastics machinery manufacturer Demag ErgotechGmbH and its U.S. sales and service company Van Dorn Demag Corporation to establish a structure for accelerating
business expansion in regions such as Europe and the United States, where our presence had been limited. In the
medical-use cyclotron business, which had been centered in Japan, we increased sales in such growth markets as
China and India to accelerate overseas expansion.
Increased Production Capacity
Overseas, we provided a global supply chain centered on the Mass-Produced Machinery and Construction Machinery
segments, fortifying production bases in China, Vietnam and North America. In Japan, we invested in capacity expansion,
particularly in the Industrial Machinery and Ship, Steel Structure & Other Specialized Equipment segments to provide
a stable product supply structure.
Taking Steps to Reduce Global Warming
The SHI Group continued to reinforce its “green” logistics systems aimed at reducing global warming in fiscal 2005–2007
by restraining electric power consumption, using less paper, and cutting energy consumed by transportation.

8 >

We achieved a 7.6% cut in power consumption in fiscal 2007 compared with fiscal 2004, which translates into a
3.9% reduction of CO2 emissions.
Commitment to Internal Control
Over the last few years, the SHI Group has taken active steps to strengthen compliance and risk management. In fiscal
2007, we set up an internal control system that meets the requirements of a reporting structure as provided for in the
Financial Instruments and Exchange Law.

Sumitomo Heavy Industries as a World-Leading Company—Aiming for Sales of ¥1 trillion“Global 21”: The New Medium-Term Management Plan (April 2008–March 2011)

A healthy company never stops growing and evolving. With its sights set on a long-term goal of ¥1 trillion in sales by
2015, the SHI Group aims to transform itself into a world-leading company by continuing to grow and develop while
creating unrivaled technology and products as well as a resilient cost structure. We aim to be a knowledge-intensive
company that systematically provides its customers with first-class products. More than ever, we are committed todelivering the best products while strengthening our marketing, product development and manufacturing efficiency.
We are continuing to enhance the cross-divisional value chain that we developed under our previous medium-termplan “Leap to Excellence ’07” to bring even more first-class products to market.
The “Global 21” Medium-Term Management Plan
We are putting into action the following strategies in pursuit of a long-term sales target of ¥1 trillion in 2015. Having
fortified our balance sheet under our previous medium-term plans, we intend to pursue aggressive investment
in growth businesses while maintaining a sound financial base. Specifically, we plan capital expenditure of about¥100 billion and R&D spending of approximately ¥50 billion over the next three years.
1. Accelerating global expansion
We are aggressively expanding our business in overseas markets with substantial potential for growth, such as the
BRIC countries. We are focusing on refining established products to create globally competitive, first-class products,
strengthening sales networks and marketing, and expanding our production bases to upgrade our global supply chain
from the perspectives of cost-competitiveness and logistics.
2. Pushing ahead with innovation
We are improving our marketing and R&D processes to continue creating first-class products that compete successfullyin global markets to enhance our capabilities as a systematic knowledge-intensive company. Taking a long-term view,
we are actively recruiting and training human resources. We are also considering new M&A opportunities that allow
us to improve the quality of established businesses, achieve synergy effects and diversify into new business areas.
3. Seeking synergies through promotion of cross-divisional businesses
We have inherited from the previous medium-term plan the concepts of “Key Components,” including power transmission
and precision control components, “Appliances,” such as plastic injection molding machines and construction machinery,and “Total Systems,” which integrate various machinery and equipment. These concepts enable us to enhance thecross-divisional value chain and thereby strengthen our product capability while enhancing enterprise value.
		

ChairmanPresident and CEOfinancial
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Previous Medium-Term Management Plan “Leap to Excellence ’07”
(Fiscal 2005–2007)
All original targets met one year ahead of schedule; new, higher targets also met.
Fiscal 2007 Original Targets

Fiscal 2007

ROIC:

ROIC:

Above 10%

Actual Results
14%(ROIC > WACC)

Qualitative Targets

1. To be a “knowledge-intensive company” thatsystematically supplies markets with first-class products

Operating income:More than¥60 billion

Operating income: ¥77.8 billion

2. To promote cross-divisional businesses andpursue synergies

Interest-bearing
debt:

Less than¥150 billion

Interest-bearingdebt:

3. To strengthen and expand key component businesses¥89.6 billion

Under the medium-term management plan “Leap to Excellence ’07,” the SHI Group aimed to evolve into a company of global excellenceby steering expansion to bring top-line growth. We achieved our original targets one year ahead of schedule and concluded the three-year
plan, having greatly surpassed all numerical targets. Great progress was made in non-numerical targets as well, and we were able tobuild a strong foundation for the new medium-term management plan “Global 21,” that commenced in fiscal 2008.
Each division nominated products that embodied the “Leap to Excellence” spirit, and undertook aggressive development investment
and market launches. The results are substantial: we strengthened our power transmission and control equipment lineups as well as
our plastic injection molding machines businesses and won both the Energy Conservation Grand Prize and Good Design Award fora hydraulic excavator. Also, through the promotion of alliances between our businesses centering on our precision control technology,
an area of specialty, we launched the motion-control drive business.
� Net Sales / Investment

Net sales(¥ Billion)¥661 billion

700
600

� Operating Income / ROIC(¥ Billion)¥77.8 billion

Operating income

60
40

500

Investment¥327 billion

200(%) 15Interest-bearing debt

10

400
300
200

¥90 billion

100
0

14%

ROIC

5
0

FY99

00

01

02

03

04

05

06

07

FY99

00

01

02

03

04

05

06

07

Acquisition of Demag Plastics GroupIn March 2008, the SHI Group acquired injection molding machine production and sales companies Demag Ergotech GmbH ofGermany and Van Dorn Demag Corporation of the United States. With this acquisition, we strengthened our brand and sales prowessin the plastics machinery global market. We will work to quickly realize business synergies with these two companies and win theNo. 1 market position.
W Reinforcing brand and marketing powerin the global market
W Expanding sales in European and BRIC markets
W Attaining the world’s leading business scale

u

Japan

u

East Asia (incl. China)uAmericas

u

India

u

•Marketing power in Asia
•All-electric technologies•High-precision, high-speed models

Americas7%

Americas9%Europe
3%

Asia
6%

Japan
43%

Asia
45%

Demag

All-electric models
All-electric models for Asia
Hydraulic models
for Europe

Europe/Russia

SHI’s Strengths

Europe87%l Product Marketing by Geographic Region
SHI

Demag’s Strengths•Brand power and marketing channels in Europe and Russia•Hydraulic technologies

u

u
u

u
u

� Estimated FY08
Plastics Machinery
Sales Breakdown byGeographic Region

Japan
27%

Europe35%¥93billion

Asia
30%

8%
Americas10 >11

New Medium-Term Management Plan “Global 21”(Fiscal 2008–2010)
The SHI Group has dubbed its new three-year medium-term management plan, which commenced
in fiscal 2008, “Global 21.” Under this plan we aim to become “a Global SHI.”
Fiscal 2010

Financial Targets

Net sales:¥850 billion

Operating income:¥100 billion

ROIC:

above 10%Long-Term Vision

1. Reach net sales of ¥1 trillion by 2015
2. Reach top three market share in all businesses(ROIC > WACC)

We will work toward continued growth and business development. We have set a long-term sales target of ¥1 trillion and will reachthis through the building of a business foundation that leverages our global leading technology and resilient cost base and by
aggressively pursuing business in high growth potential overseas markets. Also, continuing on from the “Leap to Excellence ’07” plan,we will promote the further reinforcement of our cross-divisional value chain and the further creation of first-class products.

Keywords for Growth• Globalization: Create competitive products and strengthen the global supply chain• Innovation: Strengthen marketing and R&D processes and develop human resources
Intercorporate competition is moving fromthe domestic to the international sphere.
• Domestic market maturization• Entry into a period of global growth—Increasing business opportunities in newly emerging
nations such as the BRICs—

W Comprehensive sale of current strong productlineup on the global market—Use the Company’s current products to actively create
new markets and grow existing ones—
W Expand the considerable market for mass-produced

machinery and construction machinery
Rapid economic growth in newly emerging nations
is moving towards stable growth.
• The first half of the 21st century will be extremely
important for corporate growth—Establishment of a competitive edge in the global
marketplace——Fast-paced scale expansion—
W Establish continuous competitive edge byimproving first-class products—Enhance competitiveness through innovation—

Investment Policy• Capital expenditure of about ¥100 billion over the three years of the plan, research and development spending of approximately ¥50 billion• Development of global presence, creating first-class products� Investment in First-Class Products
Development of first-class products for the global market through enhanced competitiveness
Differentiation and establishment of competitive edge
through the “One-SHI” synergy model

Drive Control Technologies

Hydraulic excavators

Injection molding machines

Reduction gears

CFB boilers

CYCLO gear reducers
for precision control

Lifting magnets

Particle Accelerator
Technologies
Ion-implementation devices

Organizational
Cross-Sectional
Development
Cryopumps

Cyclotrons for PET
Steam turbines
for power
generation

Large-sized powertransmission units for turbines

Mechatronics /Components
Turbine blades

Controllers

Cryocoolers

Super-conductive magnet
for silicon monocrystal lifting

Cryogenic
Technologies

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Special Feature 1:

Reactor Vessels: “Coke Drums”
First-Class Products Contributing to Our Next Leap
Along with the rise in demand for oil in recent years, crude oil prices have increased sharply. Demand forcoking equipment is also rising, particularly for units with a large heavy oil conversion capacity as such
units are able to produce greater volumes of light oil. The SHI Group has captured a global top share of themarket for such equipment, drawing on its superior product quality and the high reliability is has gained
from its many years of technological experience.

Coke Drums
Crude oil is distilled into gas, light oil and heavy oil. Demand for light oil
has expanded in recent years. Applications for heavy oil are limited, and
it is usually transformed into light oil, which has higher added value.
There are several processes used for this transformation. Coke drums
are reactor vessels used in delayed coking, a thermal cracking processthat is widely used as it is the most efficient. In this process, heavy oil isheated to 500ºC and separated into gas and coke inside a coke drum.
The amalgamated coke is then finely fragmented and discharged fromthe bottom of the drum.

Safety valve nozzle

Product output
nozzleUpper lid

Shell

Skirt

Base plate
Coke output slot

Conical bottom
sectionFeedstock
introduction nozzle

Coke drum basic structure

12 >13

Petroleum gas
fractionGas
refractionGaswashing

LPG
Naphtha

Boiling
point
Benzine fraction
30°C
35–180°C

240–360°C

Hydrodesulfurization

Diesel fraction

Residual oil(at standard pressure)

Hydrodesulfurization

Distillation atstandard pressure

Fluid catalytic
cracking

Heat cracking

Jet fuel
Kerosene
DieselHeavy oilHydrocracking

Reduced-pressure
distillation

Gasoline� Heavy oil processing
Coke Drum

MixingGreaterthan
350°C

Kerosene fraction

Hydrodesulfurization

Reforming

170–250°C

Hydrodesulfurization

Coke

Lubricantrefining

Lubricants

Asphalt
manufacture

Asphalt

Heavy oil processing as part of oil refining

Increasing Coke Drum Demand

Using two drums, the filling and thermal cracking reaction,
as well as the fragmenting and discharge of amalgamated cokeis achieved by passing the crude oil from one drum to another
Left: Thermal cracking reaction with heavy oil heated to 500°C
Right: Fragmentation and discharge of amalgamated coke using
a high-pressure water jet

As crude oil prices continue to rise, the merits of transforming
heavy oil, which is limited in its application, into light oil are
steadily growing. Moreover, coke drums are becoming more
profitable due to the increased processing of tar sands and crude
oil with high heavy oil content into light oil as well as due to thehigh price of crude.
The cost-competitiveness of coke produced by coking for use
as a fuel is also on the rise. Depending on the production process,coke can also be converted into high-purity carbon material, forwhich demand is high.
Due to these factors, the demand for coke drums for use in
the delayed coking process is growing due to their ability to
produce both coke, a raw material, and light oil, a product.

How coke drums work

The Added-Value Features of Coke Drums
Heat-resistant steel (chrome/molybdenum steel) makes coke drums able to withstand temperatures of around 500ºC and the pressureaccompanying the rise in temperature. In addition, the interior of the drum comprises clad steel plates fitted with stainless steel for
corrosion prevention.
The heat treating of heat-resistant steel in welding requires high-level skills and experience. Also, in welding the interior side of theclad steel plates, special treatment is needed to compensate for the stripping of the stainless steel by the welding process itself (using
welding techniques to build up melted inconel material). We have these expert skills and are able to create high-quality products.
Because the plate used to build the shell is thin relative to the diameter of the drum, the drum can easily become warped during
manufacture. However, our proprietary technologies afford us high assembly precision.
The combination of our manufacturing technologies, plant capacity and continued improvement in functionality has helped us
create added-value products and win customers’ trust.

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Special Feature 2:

Construction Machinery: “Hydraulic Excavator”
Product Development Aimed at Customer Satisfaction
Double-Award Winning SH200-5 LEGEST®
In fiscal 2007, the SHI Group’s new hydraulic excavator, SH200-5 LEGEST®, has won the Energy Conservation
Grand Prize, which has been promoted mainly by the Ministry of Economy, Trade and Industry of Japan.
Named LEGEST, connoting the words “Legerity” (agility) and “Strong,” our new hydraulic excavator became
the first piece of construction machinery to win the prestigious award.
Having also won a Good Design Award, the SH200-5 LEGEST® has achieved the prodigious feat of becoming
a double-award winning product.

LEGEST®’s Double-Award Winning Performance
The presentation of the Energy Conservation Grand Prize reflects a recognition of not only the versatility and high-standard functions
that the revolutionary hydraulic excavator boasts but also the achievement of a 20% improvement in fuel efficiency and enhanced
power output, both of which have been realized through the Company’s development of a new hydraulic and engine system.
Under the Energy Conservation Award system, private corporations nominate their energy-saving equipment and systems, whichthen undergo stringent evaluation and screening processes conducted by the Awards Committee. Consisting of academic experts andother specialists, this committee makes final judgments on award winners. Reflecting increasing calls for technologies that help preventthe further advance of global warming, a total of 19 products were presented with the authoritative award. In the past, the award has
been presented for a hybrid car, a tilted-drum washing machine, a non-chlorofluorocarbon (CFC) refrigerator and a number of otherproducts demonstrating high energy-saving performance.
The SH200-5 LEGEST®’s winning of the Good Design Award is testament to the high evaluation its functional design has received.
Incorporating an impressive arm and boom design with a state-of-the-art arrangement of hoses and other devices, an improved forward
field of vision, seating flexibly adjustable to the operator’s physique regardless of gender and size, and an operator-friendly control
system, the SH200-5 LEGEST®’s functional design delivers exceptional comfort and enhanced productivity in excavator operations.
* LEGEST is a registered trademark of Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

14 >15

Advanced Systems for Higher Fuel Efficiency+
New Engine System SPACE 5*

New Hydraulic System SIH:S**

20% Improvement in Fuel Efficiency
The new SPACE 5 engine system and the new SIH:S hydraulic system have been key to achieving a 20% improvement in energy
efficiency of the SH200-5 LEGEST®.
The SPACE 5 system boasts superior engine performance as well as environmental performance that satisfies the standards defined
under the Act on Regulation, etc., of Emissions from Non-road Special Motor Vehicles (Act No. 51 of 2005). To maximize cooling, the
SPACE 5 system’s engine and fan both operate at a constant low speed, which, in turn, yields a 10% reduction in fuel consumption.
Free of the redundant hydraulic circuits typically found on conventional excavators, the SIH:S hydraulic system enables high-versatility
arm movements that prove effective for operations requiring either extra precision or speed and dynamism. Based on our proprietary
technologies and showing a clear break from common notions of productivity and fuel consumption, SIH:S is an innovative hydraulicsystem for next-generation excavators. An electronic system controls hydraulic loss to further reduce fuel consumption 10%.
* SPACE: Sumitomo Powerful and Clean Engine System** SIH:S: Sumitomo Intelligent Hydraulic System

Excellent Energy-Saving Performance
Statistics show that the annual crude-oil equivalent consumption of energy through automobile usage totals approximately 44.09 million
kiloliters in Japan. Similar statistics show that the annual crude oil-equivalent consumption of energy by construction machinery
amounts to 4.00 million kiloliters, approximately one-tenth the energy consumption of automobiles. The figure for construction
machinery is actually greater than that for household-use refrigerators, which totals 2.94 million kiloliters, and hydraulic excavators areoften regarded as a synonym for construction machinery in Japan.
Under normal operating conditions, a hydraulic excavator that is about the same size as the SH200-5 LEGEST® consumes 4.08 kilolitersof diesel oil per year. It is estimated that a total 100,000 hydraulic excavators of this size are in operation in Japan today. Based on thesefigures, the annual consumption of diesel oil by such hydraulic excavators is roughly estimated to be 4.08 million kiloliters, equivalent
to 20.4 million barrels of crude oil. The SHI Group’s development of the new fuel-efficient hydraulic excavator centered on the conceptof helping reduce diesel oil consumption without affecting productivity.
Hydraulic excavators are the most widely used type of fuel-consuming industrial machinery. In this category, calls are rapidly
increasing worldwide for the application of technologies that achieve higher fuel efficiency. With hydraulic excavator-related
technologies dominating the world’s industrial sphere, the SHI Group’s proprietary technological innovations, which have found theirculmination in the SH200-5 LEGEST®, will bring a fuel-saving effect on a global scale.
� Comparison of Energy-Saving Effect between
SH200-5 LEGEST® (New Model) and SH200-3 LEGEST® (Previous Model)
Time Frame: 1 Month

New Model

Old Model

Workload

Fuel Used� Energy-Saving Effect
One-Year Period Service Life (8 Yrs)

Fuel Cost

675ℓ x 12 months

Fuel Cut¥
4,233 loads

3,400 liters
Down 675 liters

2,725 liters

64,800 liters¥¥510,000Cost Cut¥1,215,000 ¥9,720,000

Down ¥101,250¥
4,233 loads¥¥

8,100 liters¥¥¥408,750

CO2 Cut

23.5 tons

188.0 tons

* Premises for comparison: Excavator with 0.8m3 bucket; 10-ton truck with load capacity of 6.0m3; Performing a 90-degree swing-and-dump maneuver from 2m
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Mass-Produced Machinery

PARAMAX® speed reducer
9000 series

Ultrahigh-speed all-electricSuper-conductive magnet for
injection molding machine “SE-HP” silicon monocrystal lifting

Cryopump system SICERA®

Control units

Markets■ Business Environment
Capital investment in industrial machinery is increasing overseas,
particularly in emerging countries, and overseas demand remainedrobust, especially for large-scale power transmission equipment.
Despite sluggish overall demand in the plastic injection molding
machine market, the SHI Group managed to increase its market
share in the precision high-cycle molding category. In the market
for medical equipment, demand has been expanding steadily
overseas, particularly in East Asian countries. In general, theMain Products
Power Transmission Equipment
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
Forklift Trucks
Precision Forgings & Castings
Defense Equipment

Major Units
Sumitomo Heavy Industries Mechatronics, Ltd.
SEN Corporation, an SHI and Axcelis Company
Sumitomo NACCO Materials Handling Co., Ltd.
Sumitomo Machinery Corporation of America
Sumitomo (SHI) Cyclo Drive Germany, GmbHSHI Plastics Machinery, Inc. of America
Sumitomo (SHI) Cryogenics of America, Inc.
SHI Manufacturing & Services (Philippines) Inc.

operating environment for this segment has remained favorable.

Performance■ Review and Analysis of Results for Fiscal 2007
The power transmission and control business saw expansion in

the electronic component industry. Results for other businesses

both orders received and sales, with results buoyed by growing

in this segment showed some improvements across the board

overseas demand, particularly for large-scale machines used byover fiscal 2006. As a result, total segment orders rose 5% year

the natural resource and infrastructure industries. In the plastics

on year, to ¥247.4 billion and sales climbed 4% to ¥232.6 billion.

machinery business, orders received and sales remained flat year

Operating income dipped 5% to ¥28.2 billion.

on year in the automotive industry while slightly improving in
Orders(¥ Billion)

Power transmission
and controls

Plastics
machinery

Sales
Others(¥ Billion)

Power transmission
and controls

Plastics
machinery

Operating Income
Others(¥ Billion)

300

300

30

(%)
15.0

240

240

24

12.0

180

Forecast

180

Forecast

18

120

120

12

60

60

6

FY05

06

07

08

FY05

06

07

08

Forecast

9.0

Operating income
Operating income
margin(Right scale)

6.0
3.0

FY05

06

07

08

Forecast■ Outlook for Fiscal 2008
Market prices for industrial machinery, notably in the automotive

Europe and the Americas. In the IT and other cutting-edge

field, are expected to stay at a favorable level overseas. In thetechnology fields, we expect to enjoy the benefit of new capital

plastics machinery business, the March 2008 acquisition of theinvestment driven by spending aimed at increasing production

Demag Plastics Group has high potential to yield synergistic

capacity. In the medical equipment field, demand is likely toeffects that will empower the SHI Group to expand sales in Asia,

grow in the emerging economies of Asia.

16 >17

Power Transmission and Controls

Plastics Machinery

Business Performance for Fiscal 2007
With an economic upturn promoting active capital investment,
orders and sales showed steady growth in Japan. Overseas,
we enjoyed a surge in orders in China, North America andSoutheast Asia, all of which saw robust demand from thenatural resource- and infrastructure-related sectors.
By product, orders for large gearboxes for the coal and cement
industries continued to expand, while those for small- to mediumsized gearmotors grew across a broad array of sectors, including
factory automation and material handling machines for the
distribution and logistics industry. Precision speed reducer units
attracted a number of orders, particularly for applications inmachine tools overseas.

Business Performance for Fiscal 2007
Despite a slight decline compared with fiscal 2006, during thereporting term domestic manufacturers’ shipments of injection
molding machines remained strong, reaching approximately
17,500 units. With demand in Europe also vigorous, market
growth in such countries as Vietnam, India and Brazil is becoming
increasingly apparent.
Under these market conditions, we acquired a 100% equity
share in Germany-based Demag Ergotech GmbH and U.S.-based
Van Dorn Demag Corporation, both of which manufacture andsell injection molding machines, in March 2008. The aim ofthese acquisitions was to accelerate the implementation of ourglobal strategy.
In addition, we promoted activities to reinforce the competitiveness of our products in growing industries. Specifically, we
released a new “SE-HP” series ultrahigh-speed all-electric injection
molding machine used for the manufacture of light-guiding
panels, a major component of liquid crystal displays (LCDs). We
also expanded our lineup of double-shot injection molding
machines, which significantly contribute to improved productivity
in the manufacture of automobile and cell phone components.

Strategies for Fiscal 2008
Domestic demand is growing sluggish, while emerging economies
and resource-rich countries worldwide are increasingly directing
investments toward infrastructure development. Bolstering ourmarketing capabilities with a focus on these countries, we areworking toward the creation of value for customers.
Specifically, we are focusing on providing advanced solutions
employing our medium-sized to large gearboxes. In small- to
medium-sized gear motors, we are boosting efforts to improvethe market recognition and share of our new products withenhanced competitiveness, such as PREST® NEO (photo A). In
addition, we are strengthening our development capabilities
for precision speed reducer units to meet ever-advancing
customer needs.
Furthermore, we are implementing initiatives to enable theconsistent supply of products. These initiatives include the upgrading of production capacity at our plant for motors andsmall-sized gear motors in Vietnam and the construction of a new
gearbox plant in Tangshan, Hobei Province, China, as well as the
expansion of our precision speed reducer unit plant in Germany.

Strategies for Fiscal 2008
In Europe and the United States, injection molding companies
are expected to accelerate their shift from hydraulic to all-electric
systems. In these regions, we will aggressively seek to expand
sales of our all-electric injection molding machines (photo B) bytaking advantage of the Demag Plastics Group’s marketing andservicing network. In India and South America, where the markets
for our products are forecast to grow further, we will reinforce
our marketing structures. As these various markets continue on
the course of globalization, we will keep sharpening both our
product and marketing competitiveness to become the global
leader in the plastic injection molding machinery industry.

A

PREST® NEO

B

Fully electric controlled injection molding machine “SE-DU”

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Quantum Equipment

Cryogenic Equipment

Business Performance for Fiscal 2007
Fiscal 2007 was the second consecutive year of record orders
for the Quantum Equipment Division.
We enjoyed a significant increase in orders for specialty
magnets used for single crystal silicon ingot manufacturing
equipment due to aggressive investment undertaken in relevant
sectors, both in Japan and overseas.
Demand for small cyclotrons for use in position emission
tomography (PET)* (photo C) remained firm in China. In addition,
we secured orders for small cyclotrons in India and Southeast
Asia, becoming the first Japanese manufacturer to do so.

Business Performance for Fiscal 2007
Cryopumps (ultra-high vacuum pumps) and chiller units used insemiconductor fabrication and inspection equipment saw sales
weaken, negatively affected by the overall semiconductor market
undergoing a period of investment cutbacks. However, due to
steady sales of 4KGM cryocoolers* (photo D)—a mainstay life
science product used in magnetic resonance imaging (MRI) andnuclear magnetic resonance (NMR) systems—this businessachieved year-on-year growth in both revenues and profits.
Our cryopumps are gaining increasing market recognition for
their excellent energy-saving performance and eco-friendliness.
This is attributable to the unique control technologies incorporated
into their development.

* PET (position emission tomography) is a highly effective screening test forcancer. The cyclotrons are used to produce the diagnostic agent.

Strategies for Fiscal 2008
In small cyclotrons for use with PET—an area in which we area pioneer among Japanese makers in winning orders from
customers in India and Southeast Asia—we will bolster ourmarketing activities to reestablish their brand image in Japanand other Asian countries.
The photovoltaic product market is continually expanding
on a global scale. In such an environment, we will strive to win
increased orders for equipment capable of manufacturing larger
panels with higher power generation efficiency.
We expect to achieve continued growth in our business
related to specialty magnets for single crystal silicon ingot
manufacturing equipment, a field that is increasingly attracting
investment in Japan and abroad.

* 4KGM cryocoolers can cool materials to 4 degrees Kelvin (i.e., 4 degrees
above absolute zero), or minus 269 degrees Celsius.

Strategies for Fiscal 2008
The operating environment surrounding this business is forecast
to remain severe. With the exception of limited large-scale investment mainly in Asia, activity within the semiconductor market isanticipated to soften. Furthermore, downward pressure on
worldwide medical expenses is projected to negatively impact
the healthcare market despite growth in emerging economies.
We will continue to expand our cryogenic business by accurately seizing investment opportunities. To this end, we willkeep upgrading our cryopumps while strengthening our global
marketing activities. At the same time, we will work to further
the fundamental technologies applied to components of ourflagship cryocoolers, thereby attaining overwhelming productcompetitiveness in terms of reliability, quality and cost.

C

PET radio-tracer production system “HM-12S”

D

4KGM cryocooler

18 >19

Mechatronics
Business Performance for Fiscal 2007
In the liquid crystal display (LCD) market—this division’s principal
market—the supply-demand balance worsened during thereporting term. This unfavorable situation drove market players
to limit their capital investment, which fell below the fiscal 2006
level, leading to a year-on-year decrease in orders and sales.
Despite these conditions, we continued to steadily expand
operations in new and existing markets and to pursue new
product development. Specifically, we further diversified ourbusiness portfolio, which had been focused mainly on specialty
high-end products, to include mid-range products, thereby extending our operations beyond Japan and into overseas markets
and accelerating the development of control components basedon our extensive control platforms. These measures have started
to yield tangible results. In addition, we recorded steady sales ofcontrol components to other appliance-related business units
within the Group.
Strategies for Fiscal 2008
The former Electro-Mechanical Division was joined with thecurrent Mechatronics Division in April 2008 with the aim of reinforcing organizational strengths and thus enabling further
expansion and growth in line with the new “Global 21” mediumterm management plan. Leveraging the synergies yielded bythis vertical integration and flexibly and effectively allocating
our human resources, we will enhance our business functions.
The semiconductor and FPD markets are forecast to sustain
stable growth in fiscal 2008. Underlying this favorable forecast
are improving market conditions fueled by surging demand forlarge-screen FPDs as the number of terrestrial digital broadcasting
viewers expands and growth is seen in replacement demand for
personal computers and mobile terminals, which are increasingly
providing ever-more-advanced functions.

Precision positioning stage SL series “SL-500G”

We seek to attain synergies between our mechatronics
technology, which fuses mechanical and electric control systems,
and the former Electro-Mechanical Division’s expertise in laser
processing and other systems. Such synergies will facilitatebusiness expansion in new and existing markets as well as new
product development.

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Environmental Protection Facilities, Plants & Others

CFB boiler

Smi-thickener

Markets■ Business Environment
This segment serves customers in both the public and private

for private-sector customers, and we have solid indications that

sectors. As public-sector demand continues to contract, we arethis will grow into a promising new business area.

transforming the structure of this business to focus on theMain Products
Power Generation Systems
Industrial Wastewater Treatment
Systems
Water and Sewage Treatment
Systems
Landfill Leachate Treatment
SystemAir Pollution Control Plants
Chemical Process Equipment& Plants
Food Machinery
Softwareprivate sector. Demand from the private sector centers on thesegment’s main product line, CFB boilers, as the drive to reduce
CO2 emissions gathers momentum. Accordingly, sales of suchproducts are trending favorably, especially in overseas markets.
In the water-related environmental sector, we are concentrating
greater marketing efforts on our wastewater treatment facilities

Major Units
Sumitomo Heavy Industries Environment Co., Ltd.
Sumiju Environmental Engineering, Inc.
Sumiju Plant Engineering Co., Ltd.
Nihon Spindle Mfg. Co., Ltd.
Izumi Food Machinery Co., Ltd.
Lightwell Co., Ltd.

Performance■ Review and Analysis of Results for Fiscal 2007
Orders received in the energy plant business dropped year on

from the public sector to the private sector. However, sales inyear mainly due to slowing domestic investment in industrial

this business were stagnant, impacted by decreased orders in the

power-generation boilers. In contrast, sales showed healthyprevious fiscal year. As a result, orders received by this segment

growth, positively affected by increased orders in fiscal 2006.

as a whole increased 2% to ¥91.8 billion while sales leapt 15%

The water treatment plant business expanded steadily thanks

to ¥91.2 billion. Operating income surged 49% to ¥6.9 billion.

to successful business restructuring aimed at shifting our focus
Orders(¥ Billion)

Environmental protection
facilities, plants

Sales
Others(¥ Billion)

Environmental protection
facilities, plants

Operating Income
Others(¥ Billion)

125

125

10

(%)
10.0

100

100

8

8.0

Forecast

Forecast

75

75

6

6.0

50

50

4

4.0

25

25

2

FY05

06

07

08

Forecast

FY05

06

07

08

Operating income
Operating income
margin(Right scale)

2.0

FY05

06

07

08

Forecast■ Outlook for Fiscal 2008
Rapidly rising concern over the need to protect the global envi-

regard to our water-treatment business, we are steadily advanc-ronment is causing constant growth in the market for biomass-ing our business restructuring to enhance our focus on therelated products, and the Company’s energy plant business,

private sector. In this way, we aim to stabilize and reinforce ourcentered on biomass boilers for electric power generation, isearnings power.

expected to enjoy a continuously strong inflow of orders. With

20 >21

Energy-Related Plants

Water Treatment Plants
Sumitomo Heavy Industries Environment Co., Ltd.

Business Performance for Fiscal 2007
The entire world is experiencing increases in the cost of fuel for
power generation due to the recent surge in crude oil prices
while witnessing global efforts to reduce CO2 emissions in stepwith a growing consensus that global warming must be prevented.
These conditions are heightening calls for the accelerated shift
to cheaper, environment-friendly renewable energy. In thisenvironment, our CFB boiler (photo A) is attracting worldwide
attention for its superior multi-fuel combustion technology thatenables the co-combustion of non-fossil fuels, coal and renewable energy. Accordingly, inquiries are increasing for boilers
compatible with new energy sources, particularly in North
America and Asia. Further supporting this trend is the adoption
in many countries worldwide of environmental regulations,such as the Kyoto Protocol and Renewable Portfolio Standardsof the United States, which generally mandate that renewableenergy sources be used to provide an increasing share of electricity generated. Our market trend-focused activities are steadily
yielding tangible results, reinforcing our overseas marketing
capabilities and empowering us to effectively implement our
region-specific product strategies.
Strategies for Fiscal 2008
Because the domestic chemical industry is seeing an accelerating
shift to alternative fuels, we expect the industry to become an
important segment for us. In the United States as well, theconstruction of thermal power plants that can run on fuels otherthan fossil fuels, with the aim of promoting RPS compliance, ispicking up. In Southeast Asia, demand is booming for small
power plants that use residual agricultural substances fromplantations as fuel. In this region’s promising markets, we are
aggressively working to expand sales of our CFB boilers
compatible with renewable energy fuels.

Business Performance for Fiscal 2007
Following a spin-off of the SHI Group’s water treatment business, Sumitomo Heavy Industries Environment was incorporated
on January 1, 2007. Having achieved steady business growthsince then, we were able to record better-than-planned orders
and profits in both the private and public sectors in fiscal 2007.
In the private sector, we received a number of orders fromplayers in the steel, food and other industries where SHI boasts
strengths. In the public sector, we secured orders through thefull-fledged marketing of our flagship component equipment.
Strategies for Fiscal 2008
Amid growing uncertainties in the business environment, we
aim to stabilize our business and improve profitability throughthe effective implementation of sector-specific initiatives. Our
first initiative in the private sector calls for increasing orders by
expanding existing market shares, penetrating the electric andelectronics industries and improving product performance. Our
second initiative involves the strengthening of our product-innovation capabilities and the accelerated development of new
products and technologies. The third private-sector initiative
entails the reinforcement of our services to better contribute to
the improved performance of customers’ facilities. In the public
sector, we will further boost component equipment marketing—one of our core profit drivers.
The MICRUS® superfine-bubble membrane tube diffuser(photo B) is one of our mainstay products. Boasting excellent
energy-saving performance, high durability and superior maintainability while being economical to install, the MICRUS® diffuserhas been granted a public technical certificate by the Japan
Institute of Wastewater Engineering Technology. MICRUS® is a
registered trademark of Sumitomo Heavy Industries Environment.

A

CFB boiler

B

Superfine-bubble membrane tube dffuser MICRUS®

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Ship, Steel Structure & Other Specialized Equipment

Coke drum

105,200MTDW oil tanker

Markets■ Business Environment
Amid rising demand for oil, the market for petroleum refinery

for new shipbuilding is projected to remain strong for theconstruction is showing increased vigor. Against a backdrop offoreseeable future.

high oil prices, petroleum companies are taking an aggressive
stance on investment in the construction of new refineries andthe expansion of existing facilities. Orders for ships are flowing
in at a brisk pace due to the active shipping market. Demand

Main Products
Bridge & Steel Structures
Pressure Vessels
Mixing Vessels
Mixing Reactors
Coke Oven Machines
Ships
Marine Structures
Marine Equipment

Major Units
Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.
SHI Mechanical & Equipment, Inc.
SHI Examination & Inspection, Ltd.

Performance■ Review and Analysis of Results for Fiscal 2007
In the shipbuilding business, we bolstered our marketing activities

other specialized equipment business trended favorably, remain-in line with our differentiation and concentration strategies focus-

ing on par with the strong performance in fiscal 2006. As aing on Aframax tankers and maintaining the backlog of existing

result, although segment orders as a whole declined 25% fromorders at an appropriate level. These strategies have borne fruit,

the previous term to ¥90.7 billion, sales jumped 10% to ¥76.4

enabling us to win orders for eight tankers. On the sales side,billion. Operating income soared 115% to ¥14.1 billion.

the Company delivered seven tankers. Our steel structure andOrders(¥ Billion)

Ship & marine

Steel structure &other specialized equipment

Sales(¥ Billion)

Ship & marine

Steel structure &other specialized equipment

Operating Income(¥ Billion)

125

125

16

(%)
20.0

100

100

12

15.0

75

75

50

Forecast

25

8

50

Forecast

25

FY05

06

07

08

Forecast

06

07

08

Operating income
margin(Right scale)

5.0

4

0.0

0

FY05

10.0

Operating income

FY05

06

07

08

Forecast■ Outlook for Fiscal 2008
Demand for oil continues to grow; consequently, investment insteady inflow of inquiries. As for ships, we have decided to

new petroleum refining facilities is likely to maintain a favorable

restrict our order acceptance to medium-sized Aframax tankers,

pace for some time to come. Reactor vessels for use in refining

and, in view of the strong demand for freight shipping, we

heavy oil are a specialty of the SHI Group, which expects a

expect ship prices to remain high.

22 >23

Reactor Vessels

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

Business Performance for Fiscal 2007
Crude oil prices continued to soar during the reporting term,
gaining momentum and breaking the $100 per barrel ceiling. In
this volatile environment, our petroleum coke drums (photo A)
for extracting gasoline and related liquids from heavy oil
continued to enjoy healthy orders. In addition, oil refineries
worldwide are upping their treatment capacity by installing
multiple and larger equipment. This trend has driven up prices
on an individual order basis. Looking ahead, we are shaping ourstrategies to reflect customer needs and enhancing our production capabilities, including our large equipment manufacturing
capacity. Through these initiatives, we aim to make anotherleap forward.
Strategies for Fiscal 2008
Buoyed by rising oil demand attributable to economic growth inemerging countries, the petroleum coke drum market is expected to continue to expand amid sustained high crude oil prices
and the likelihood of an increase in heavy crude oil production.
Accordingly, we expect to enjoy a favorable operating environment with robust orders during fiscal 2008. Saudi Arabia andother oil-producing countries are increasingly channeling theirconsiderable capital resources into not only crude oil exportingrelated areas but also oil refineries. In response, we are developing differentiated products with improved durability and othersuperior characteristics, aiming to win orders for large-scale
projects involving petroleum coke drums. At the same time, weare looking to stimulate replacement demand and to cultivate
new needs focusing mainly on longstanding users.
* For coke drum details, please refer to the special feature section on page 12.

Business Performance for Fiscal 2007
Advanced countries experienced ballooning economic uncertainties due to the subprime loan crisis in the United States,
soaring crude oil prices and the persistent decline in the valueof the dollar. The marine transport market, however, enjoyedfavorable conditions overall thanks to global logistics expansion,
driven primarily by economic growth in the BRICs. Despite stagnation in the tanker market, the bulker and containership markets
remained robust. As a result, new shipbuilding orders worldwide in 2007 reached 165 million tons, topping 2006’s all-time
record by 65%.
In this environment, we have concentrated on the mediumsized tanker market in order to differentiate ourselves fromcompetitors. Our Aframax tankers (photo B) have surpassed
customer expectations to win the very highest acclaim. We tookorders for eight of these tankers, which is on par with our annual
Aframax building capacity, and delivered seven.
Strategies for Fiscal 2008
The global economy is expected to suffer from a credit crunch
brought on by subprime loan problems and a continuous rise in
the prices of such natural resources as crude oil, coal and ironore. Nevertheless, we expect the marine transport market toremain firm due to the steady economic growth of the BRICs
and oil-producing countries. The robust marine transport market
is expected to support strong conditions in the shipbuilding
market. In response, we will continue to develop and launch
excellent ships that maximize each customer’s value. At thesame time, we will take steps to further improve our performance in fiscal 2008 through the improvement of productquality and production innovation.

A

Coke drumB

105,000MTDW oil tanker

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Industrial MachineryA

Goliath crane

B

Multistage steam turbine (Model: C11)

C

Vertically suspended multistage pump
(Model: CZ)

D3,500t forging press

Markets■ Business Environment
Supported by the strength of economies around the world,of automotive components is growing. Overall, the businessdemand for heavy machinery is brisk. Our sales of material han-environment for this segment is favorable.

dling systems have benefited from Japanese shipyards’ vigorous
investment in production facilities expansion as well as continued
high-capacity utilization. In steam turbines for power generation,
investment in new power plants is particularly brisk in India.
Also, global demand for metal forging presses from makers

Main Products
Logistics & Handling Systems
Automated Parking Systems
Forging Machines
Material Handling Systems
Turbines
Pumps

Major Units
Sumitomo Heavy Industries Engineering & Services
Co., Ltd.
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
Shin Nippon Machinery Co., Ltd.
SHI Machinery Service Hong Kong Ltd.

Performance■ Review and Analysis of Results for Fiscal 2007
Both orders received and sales expanded in our material handlingcountries and aggressive investment to upgrade oil refining

systems business. These favorable results were attributable tofacilities in oil-producing countries. Given such market condi-

our effective initiatives to increase orders for large cranes fromtions, the Company strengthened overseas marketing activities

domestic shipbuilding and steel companies, as well as to ourand was rewarded with increased orders received. As a result,strategic capital investment to enhance our production capacity.

segment orders improved 6% year on year to ¥98.8 billion, while

The turbine and pump market is gaining momentum, fueledsales surged 19% to ¥81.2 billion. Operating income expanded

by tight supply-demand conditions for electricity in emerging

28% to ¥12.1 billion.

Orders

Sales

Operating Income(¥ Billion)(¥ Billion)(¥ Billion)

100

100

12.5

Forecast

80

80

Forecast

(%)
15.0

10.0

Forecast

12.0

60

60

7.5

9.0

40

40

5.0

6.0

20

20

2.5

FY05

06

07

08

FY05

06

07

08

Operating income
Operating income
margin(Right scale)

3.0

FY05

06

07

08

Forecast■ Outlook for Fiscal 2008
Against a backdrop of vigorous capital investment by shipbuilders

generation and in petroleum plants, and the market scale as aand steelmakers, demand for material handling systems is expect-whole is projected to expand. We anticipate continued brisk

ed to remain strong. Sales of turbines and pumps will benefit

orders for forging presses in view of the strong business situationfrom growing demand for equipment used in biomass powerof the automotive industry.

24 >25

Material Handling Systems
Sumitomo Heavy Industries Engineering & Services Co., Ltd.

Business Performance for Fiscal 2007
Shipbuilders—a primary market for the material handlingmachinery and systems business unit—remained active,
stepping up capital investment. Aimed at increasing the
productivity of docking facilities, this investment mainly
concentrated on the construction of larger ship blocks and therenewal of facilities. Thanks to our customer needs-focusedmarketing, we won substantial orders for Goliath cranes(photo A) and jib cranes. This effective marketing approachalso bore fruit in Taiwan, the Philippines and China.
Steel manufacturers also expanded their capital investment
to upgrade productivity and capacity, particularly in the area ofhigh-grade and special steel production. As a result, we received
many orders for overhead traveling and other cranes.
Strategies for Fiscal 2008
We expect capital investment in the shipbuilding and steel
industries to slow due to the persistent surge in raw material
prices. In line with our basic stance of “seeking the leading
position in customer services with first-class products andlifecycle solutions,” we will aggressively expand our marketing
activities in Japan and the East Asian region and work to create
added value for customers, aiming to steadily increase orders
for our products and services.
At the same time, we will establish new platforms andmodules to achieve a more flexible supply chain, thereby
sharpening our quality, cost and delivery (QCD) competitivenessin the face of an ever-fluctuating procurement environment.
Meanwhile, we will strengthen the competitiveness of ouroverhead traveling and other cranes to become the QCD leader
in this market sector.

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

Business Performance for Fiscal 2007
We enjoyed healthy orders for turbines (photo B) overseas,
especially in Asia, North America and South America. Behind
this trend was the increased demand for electric power in theemerging economies of the aforementioned regions, an increased
drive for investment in power generating projects using biomass
and other renewable energy and flourishing waste heat recovery
cogeneration businesses in developed countries.
Orders for pumps (photo C) were also robust, particularly in
the Middle East and Southeast Asia, on the back of growing
demand for petrochemical products in emerging countries andhigh oil prices. Specifically, accelerated capital investment in
upstream heavy oil reformers and downstream ethylene
production facilities drove up pump orders.
Strategies for Fiscal 2008
We expect our turbine and pump businesses to remain favorable.
In emerging countries, the construction of decentralized andindependent generation plants is expected to speed up, which
will consequently benefit our turbine business. Oil and gas refinery

construction, along with the expansion of existing facilities, isforecast to boom, particularly in the Middle East and Africa.
This is expected to contribute to pump business profitability.
We will focus on expanding our sales volume in the global
market by enhancing the competitiveness of our products andreinforcing our overseas sales network. Through these initiatives,
we will aim to achieve further growth.
Our operations are subject to a myriad of risks, including a
possible surge in the prices of plant construction materials, delay
in delivery times or any appreciation of the yen. To better prepare
for these risks, we are stepping up activities to gather market
information, cut costs and shorten lead times by strengthening
our marketing/sales capabilities and improving our productivity.

Forging Presses and Industrial Machinery
Sumitomo Heavy Industries Techno-Fort Co., Ltd.

Business Performance for Fiscal 2007
Domestic automobile production remained strong in fiscal 2007,
supported by robust export demand. Reflecting these favorable
conditions, we recorded a large volume of orders for new forging
presses (photo D) as well as for automation and other modifications to existing forging lines from automakers and forging
companies.
In the shipbuilding industry, which continued to enjoy
significant activity, we also won an order for a large-scale
hydraulic press.
The domestic steel industry continued to operate at full
capacity to meet healthy demand from domestic manufacturers
and for exports to Asia. In this strong market, we received
orders for the renewal of large-scale rolling mills as well as formodifications to existing production lines.
Strategies for Fiscal 2008
The domestic automobile and steel industries are facing increasingly difficult operating conditions due to the negative impactof the economic slowdown in North America, soaring crude oil
prices and advancing environmental problems. However, bothindustries are expected to overcome current difficulties and go
on to achieve further expansion through aggressive penetration
into emerging economies and countries with ample natural
resources and the application of sophisticated technologies.
Meanwhile, major forgers overseas are expected to bolster theircapital investment in order to meet strong demand fromautomakers and energy industry players.
Taking full advantage of market conditions, we will continue
to provide detailed marketing services to our domestic customers
while placing greater emphasis on reinforcing our team ofoverseas marketing professionals. In strengthening our overallmarketing capabilities in the press business, we will moreproactively approach customers both in Japan and abroad. In
addition, we will pay closer attention to customer satisfaction in
our industrial machinery business. We aim to achieve unparalleledcustomer satisfaction by leveraging our technologies and expertise,
which have been nurtured through our long history of providing
services to modify and upgrade customers’ existing facilities.

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Construction Machinery
B➋

A

Hydraulic excavator SH200-5 LEGEST®

New mobile cranes RTC-80130 and HTC-3140

Markets■ Business Environment
This segment is fielding a large number of inquiries, particularly

in North America in plant and expressway construction has led

from Europe and China, as a result of strong demand for building

to strong growth in orders for mobile cranes.

construction. Our launch of a new-model hydraulic excavator
that conforms to Phase III exhaust gas emission regulations has
been a significant factor in boosting our earnings. Brisk activity

Main Products
Hydraulic Excavators
Mobile Cranes
Road Machinery

Major Units
Sutmitomo (S.H.I.) Construction Machinery Co., Ltd.
Link-Belt Construction Equipment Company
LBX Company, LLC

Performance■ Review and Analysis of Results for Fiscal 2007
In the hydraulic excavator business, we bolstered our production

business achieved substantial increases in both orders received

capacity to capitalize on increased global demand and developedand sales. Behind this growth were effective launches of ourand launched a series of new-model hydraulic excavators. These

new-model mobile cranes and enhanced capacity at our U.S.

activities resulted in increased orders and sales. Particularly notableproduction bases. As a result, orders received by the segment

were robust sales in Europe and China that more than offset a

as a whole rose 12% year on year to ¥187.7 billion, while sales

slump in North America. Amid continually strong demand forjumped 12% to ¥179.4 billion. Operating income leaped 13%

infrastructure development in North America, our mobile craneto ¥16.3 billion.

Orders(¥ Billion)

Sales

Excavator, road
construction machinery

Mobile crane(¥ Billion)

Excavator, road
construction machineryOperating Income
Mobile crane(¥ Billion)

200

200

20

160

160

16

(%)
10.0
Forecast

8.0

12

6.0

80

80

8

4.0

40

40

4

120

Forecast

FY05

06

07

08

120

Forecast

FY05

06

07

08

Operating income
Operating income
margin(Right scale)

2.0

FY05

06

07

08

Forecast■ Outlook for Fiscal 2008
In the current term, business in this segment is likely to remain

production capacity and launching new models in response tofavorable overseas. We plan to concentrate our marketing efforts

the rising level of demand, with the aim of realizing higher salesin Europe and East Asia on hydraulic excavators and in Northand a stable earnings structure.

America on mobile cranes. We will be investing in increased

26 >27

Hydraulic Excavators and Road Machinery

Crane Business

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

Link-Belt Construction Equipment Company

Business Performance for Fiscal 2007
Global demand for hydraulic excavators expanded more than
20% year on year, with a significant drop in the North American
construction machinery market being offset by substantial growthin the emerging economies of China and certain European
countries. Given this environment, we undertook capital investment to increase our Chiba Works’ annual production capacity
to 10,000 units. This investment proved successful—we produced
a record number of units and, consequently, both revenues andprofits improved.
Of particular note during fiscal 2007, we won the prestigious
Energy Conservation Grand Prize, which is bestowed jointly by
Japan’s Ministry of Economy, Trade and Industry and the Energy
Conservation Center as well as a Good Design Award for our
new hydraulic excavator, SH200-5 LEGEST® (photo A). Theseawards reflect the recognition the SH200-5 LEGEST® has enjoyedin domestic and overseas markets for its economic viability andfunctional design.
With regard to our road machinery business, we are sustaining a high market share and steadily increasing the number of
new vehicles sold.
Strategies for Fiscal 2008
We expect global demand for hydraulic excavators and roadmachinery to expand further, with China and other emerging
economies as core drivers. Making the most of the favorable
conditions, we will boost the Chiba Works’ annual production
capacity to 12,000 units. In China, which is forecast to show
further demand expansion, we will construct our first overseas
hydraulic excavator production base. Production at this base inTangshan, Hebei Province, is scheduled to commence in February
2009. In addition, we will establish a subsidiary in India. Coordinating sales and after-sales services, this new overseas arm will
aim to establish our sales network in that country, boost sales
and upgrade our field engineering capability.
At the same time, we intend to enhance the lineup of our
LEGEST® series hydraulic excavators, the latest model of which
has been well received by the market, while undertaking thesimultaneous global release of a new asphalt finisher capable ofpaving a road nine meters wide in a single pass.
* For SH200-5 LEGEST® hydraulic excavator details, please refer to the special
feature section on page 14.

Business Performance for Fiscal 2007
The North American mobile telescopic and crawler crane markets
continued to grow at double-digit rates during the year, withoverall market demand continuing to exceed supply. Link-Belt
benefited from strong demand, recording an approximate 20%
increase in sales compared with the same period in fiscal 2006.
As part of its long-term strategy of global expansion, Link-Belt
worked to increase sales outside of North America. The decline
in the U.S. housing market and subsequent financial credit crisis
began to negatively impact the smaller tonnage classes of themobile telescopic truck crane market in the second half of thereporting term; however, Link-Belt is not active in this market,
and its operations in the smaller rough terrain crane market
were unaffected.
In June 2007, Link-Belt announced that it would invest $24
million in the expansion of its Lexington facility. Scheduled forcompletion in late 2008, this expansion will add 90,000 square
feet of manufacturing space for boom production, assemblyand painting.
Strategies for Fiscal 2008
Link-Belt’s continuing goal is to be the leader in customer service
and satisfaction. In this endeavor, it is backed by its unsurpassed
ability to introduce new models (photo B) that not only meetbut exceed customer requirements and expectations. Three
new models in its lineup were introduced to high acclaim at
Con-Expo, the largest construction equipment show in North
America, in March 2008.
The fiscal 2008 outlook for the North American crane market
is for continued growth in the markets for crawler cranes andmobile telescopic cranes, particularly in the rough terrain cranemarket. In contrast, the market for the smaller tonnage classesof mobile telescopic truck cranes is expected to soften further.
Against this backdrop, the ability to increase selling prices tooffset the impact of rising commodity prices and the weak U.S.
dollar remains a concern as the U.S. economy weakens.
Link-Belt will continue to pursue strategic initiatives, including the expansion of its presence in the global market and thestrengthening of partnerships with its North American distributor network through increased product offerings and service
support as well as the promotion of the Lean Sigma® program,which is aimed at improving product QCD. Through the Lean
Sigma® program, Link-Belt has made significant improvements in
manufacturing and its approach to the design of new products.

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1. R&D Strategy
The SHI Group adheres to a basic R&D policy of developing first-class productsthat provide value to its customers and delivering them to markets.
Promoting R&D from a Groupwide perspective, SHI is concentrating
investments in growth areas and continues to enhance the portfolio of its
proprietary products.
Our leading-edge R&D Center undertakes a spectrum of activities, frombasic technology development through new product creation. In addition,
we are leveraging synergies generated through cross-divisional collaboration
to maximize the value of our R&D outcomes.
The Group plans to invest approximately ¥50.0 billion in R&D over three-year
period from fiscal 2008 through fiscal 2010.
Sales of new products accounted for approximately 30% of total sales on a
non-consolidated basis, indicating our R&D efficiency to be almost on par withfiscal 2006. We will continue to create new products to further improve efficiency.
� Proportion of New Products in Total Sales

� Research and Development Expenses

12(¥ Billion)

(%)

10

1.5
8

1.0

6

4
0.5
2
0.0

0

FY 03

04

05

06

07

� R&D Expenses by Business Segment (FY07)

Construction
Machinery(%) 50Mass-Produced
Machinery

Industrial
Machinery

40
30

Ship, Steel Structure &Other Specialized Equipment

20

Environmental Protecton
Facilities, Plants & Others

10
0

FY03

04

05

06

07

2. Main R&D Milestones(1) Growth Areas
Semiconductor and Liquid Crystal Production Equipment and Information Technology-Related Equipment
The Group provides a number of products in these categories, which demonstrate high potential for further growth.
Based on in-house developed cryogenic technology, our newly developed SICERA® cryopump system* is now poisedfor use in such applications as semiconductor fabrication equipment, the operation of which requires a clean, ultrahighvacuum environment. Semiconductor manufacturers also use precision positioning stages capable of nano-level
positioning. In this category, we launched the simple-to-use and yet highly functional new SA and SL series precision
positioning stages under the XY Stage brand in fiscal 2007. In the area of semiconductor molding systems, we provide
the distinctive COMP series of compression molding technologies. Recent R&D achievements include the developmentof a molding machine boasting a four-fold improvement in productivity compared with current machines.
In the FPD production equipment business, we developed a new large-capacity, multipurpose, separable gantry
stage. Our clean transportation equipment, which is used to transport high-performance film for LCD manufacturinglines, is capable of automatically delivering and retrieving film rolls from and to production equipment and automatedguided vehicles (AGVs). This automatic function was made possible by proprietary SHI technology that has won acclaim
throughout the industry.
In businesses related to general IT, automotive IT and cell phones, our wide range of competitive plastic injection
molding machines are providing solutions for a myriad of customer needs. Including all-electric machines, which enablehigh-speed, high-precision molding, and large-capacity plasticizing modules, which allow for the configuration of compact
molding facilities, as well as optimal control systems, our products are serving as the vehicle by which we are disseminating
the benefits of cutting-edge technologies.
* SICERA is a registered trademark of Sumitomo Heavy Industries, Ltd.

2.0

Research and development expenses
Ratio of R&D expenses to net sales(Right scale)28 >29
Medical Equipment
In the business of positron emission tomography (PET) for cancer diagnostics, we provide cyclotron systems and radiopharmaceutical synthesis equipment, both of which are used for synthesizing clinical agents. Also, in the field of proton
therapy, which is attracting increased attention as a highly sophisticated medical treatment option, we have developed
a proton therapy system capable of advanced three-dimensional irradiation. We are accelerating efforts to realize thissystem’s practical application.

Actuators
In our core competence of motion control and drive products, we are developing precision speed reducers for industrial
robot applications. In particular, we have released precision speed reducers for the basic axis of industrial robots.
Compatible with various types of robots, these speed reducers also have machine tool applications. In the motor business,
we are advancing the development of direct-drive (DD) servo motors, which boast superior power efficiency. Having
completed the development of large-diameter, hollow-shaft, high-torque DD servo motors, these products are ready forpractical applications on machine tools. Concerning speed reducers for industrial applications—one of our core products—
we have positioned our competitive Cyclo® speed reducer* as the mainstay of our operations. In addition, we areenhancing our lineup of small right-angle gearmotors and small parallel-shaft gearmotors. Our ultimate goal is to create
highly reliable, user-friendly products that contribute to noise reduction and improved productivity.
* Cyclo and Cyclo speed reducer are registered trademarks of Sumitomo Heavy Industries, Ltd.

Construction Machinery
Capitalizing on the robust global demand for building construction, we provide a diverse range of construction machinery,
including hydraulic excavators, mobile construction cranes and road-paving equipment. With a design that brings
together IT systems, user- and environment-friendly features and energy-saving performance, in fiscal 2007 our new
SH200-5 LEGEST® hydraulic excavator* won the prestigious Energy Conservation Grand Prize, which is bestowed jointly
by Japan’s Ministry of Economy, Trade and Industry and the Energy Conservation Center. This award was granted inrecognition of the high evaluation the excavator received for its economic viability and fuel efficiency, which shows a
20% improvement compared with conventional excavators.
* LEGEST is a registered trademark of Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

(2) Other Businesses
In the energy and environmental plant business, we are exploring new technologies that enable our circulating fluidized-bed(CFB) boilers to use such recycled fuels as waste tires and biomass fuels. To accurately accommodate varying customer
needs, we operate a large-scale combustion test furnace at the Niihama Factory within our Ehime Works. The extensive
testing carried out at this facility ensures the reliability of our equipment design.
In the shipbuilding department, we continue to develop high-efficiency hull forms and enery-saving devices. We are also
developing environment-friendly, medium-sized tankers that provide exceptional value and enhanced safety for customers.
SHI’s R&D activities also cover such other businesses areas as forging presses, large cranes for material handling,industrial power-generation turbines, automated parking systems, water treatment equipment and laser systems. In
every field, we continuously strive to create innovative and distinctive products.

Semiconductor encapsulation machine
COMP-3

AGV

Energy-conserving propelling device

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Intellectual Property
As the Sumitomo Heavy Industries Group is oriented towards growth driven by distinctive proprietary technologies, intellectual
property is the most important of the cornerstones of the Group brand and the wellspring of the Group’s competitive advantage.
Throughout Sumitomo Heavy Industries, the core company of the Group, we devote our energies to the active protection, management,
and creation of this Group “property.” The principal focus of our efforts is directed at the four elements of intellectual property
activity, namely: utilizing exclusive rights; respecting other companies’ rights; ensuring that rights to intellectual property are secured;and ensuring that such rights are utilized with optimum timing and all due speed.

Intellectual Property
To link the senior management of operating divisions and development divisions directly with intellectual property activity, theCompany has appointed chief intellectual property officers (CIPO) with the same rank as the general managers of technology anddevelopment divisions, ranking immediately below and reporting directly to the officers in charge of group or divisional business.
The CIPOs prepare optimal intellectual property strategies for each operating and development division, make all members of thosedivisions thoroughly acquainted with them and create the mechanisms to translate those strategies into reality. In addition, theIntellectual Property Division, which reports directly to the President, participates fully in reform activities implemented by the CIPOs.

Management Structure
1. Intellectual Property Inspection Activities
We have formed an Inspection Committee composed principally of CIPOs and use mechanisms for the regular evaluation of inventive
proposals. In this way, we foster the efficient and systematic filing of patent applications ultimately intended for commercialization.

2. Special Cross-Departmental Meetings
At our training center, we hold two-day gatherings for staff involved in planning, marketing, technology and intellectual property,
primarily the CIPOs. The members concentrate on formulating the priority domains for inventive activity and on devising measures
to respond to other companies’ patents in line with our business strategies. This kind of support structure that cuts across ourorganization is effective in stimulating activities for the creation and use of intellectual property that tend to atrophy if confined toindividual sections.

3. Emphasis on Overseas Patent Applications
In tandem with the internationalization of the business activities of the Sumitomo Heavy Industries Group, we have been calling on
all operating divisions and other relevant divisions to take active steps to file patent applications overseas. As a result, as of April
2008 as many as 1,250, or 35.4%, of the total of 3,528 patents held by Sumitomo Heavy Industries were held overseas. It isnoteworthy that during the past five years we have increased the number of overseas patent applications under the Patent
Cooperation Treaty (PCT). We have been stepping up the use of these PCT applications because of the advantages they offer interms of cost savings, higher efficiency and greater rapidity. For example, they eliminate certain duplications in the examination
procedures that are conducted by each individual country. Also, the date of filing within Japan is also deemed to be the date offiling in other designated countries if certain conditions are satisfied.

� CIPO System

� Overseas Patent Applications by SHIPresident(Number)

Sumitomo
Precision
Mechatronics
Construction
Equipment

Quantum
Equipment

Plastics
MachineryPower
Researh andTransmission& Controls Development

250
Intellectual
Property

200
150

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

PL

100
50
0
FY 03

CIPO: Chief Intellectual
Property Officer
PL: Patent Leader
SPL: Sub-Patent Leader

SPL(Several)

SPL(Several)

SPL(Several)

04

China

Korea

Taiwan

PCT

05

06

Others*PCT indicates states that are party to the Patent
Cooperation Treaty07

30 >31

Corporate Governance and Compliance
Our Definition of Corporate Governance
The SHI Group believes that the essence of corporate governance lies in the establishment of a system that enables efficient andtransparent management. Sound corporate governance helps the Company achieve higher enterprise value and win the trust of allits stakeholders, including shareholders, customers, employees and the community as a whole.

1. The Current State of Corporate Governance at SHI

The Company employs the conventional Japanese management system, known as the “corporate auditor system,” and, within thisgovernance framework, it has introduced an executive officer system. We ensure a proper separation of executive functions carriedout by executive officers and supervisory functions performed by the Board of Directors.
The Company’s Board of Directors consists of 10 directors, including one external director. The Board of Directors works tomaintain, and, when necessary, improve the transparency of the Company’s management and to fulfill its function of supervising
the Company’s business on a daily basis. In addition to its mandatory duty of stipulating the Company’s rules for matters designatedunder Japan’s Corporation Law, the Board of Directors also discusses important management issues and matters that are of bothan urgent and long-term nature. The Company’s Articles of Incorporation specify that the Board of Directors shall consist of no
more than 12 directors.
The Company’s Executive Officers Committee consists of 15 executive officers, including seven concurrently appointed as directorsof the Company. This committee supervises the progress of business performance on a consolidated basis and ensures that Group
companies are effectively implementing the management policies formulated by the Board of Directors.
The Company has also established the Management Strategy Committee, which is composed of executive officers who are stationed at the Company’s Head Office. Acting as an advisory body to the Company’s president, this committee deliberates on important matters, including those to be submitted to the Board of Directors for further deliberation, and reports directly to thepresident on conclusions of its deliberations.
The Board of Corporate Auditors, which comprises four corporate auditors including two external corporate auditors, is responsible
for monitoring the execution of duties by the Company’s directors and executive officers from the perspectives of legal and ethicalappropriateness. In addition, comprising corporate auditors of the Company and of the Group’s subsidiaries and affiliates, theGroup Corporate Auditing Committee meets regularly to allow the members to exchange information, which, in turn, facilitatesefficient and effective auditing on a Groupwide scale. The external corporate auditors are chosen from among lawyers and certified
public accountants and tasked with reinforcing the system for ensuring strict compliance within the Group and monitoring thewhole range of accounting procedures.
Furthermore, we have established the Corporate Auditor’s Department under the direct control of the Board of Corporate Auditors.
This department serves as a secretariat body to assist the Board of Corporate Auditors.
We have formed a Directors Recommendation Committee responsible for selecting candidates for new members of the Boardof Directors. This committee also selects candidates for directors with specific responsibility for particular business operations andrepresentative directors.

2. The Company’s Internal Control System and Basic Internal Control Policies

The Company has formulated the following policies to ensure that business operations are conducted in an appropriate manner.
(1) Objectives
The Company regards a properly functioning internal control system as an indispensable precondition for the improvement of theGroup’s enterprise value and the sustainable expansion of its business scale and operational reach. The basic principles relating to
the Company’s internal control system, including the administration of the system, are described below.
(2) Basic Principles
A. Systems for ensuring compliance with laws, regulations and the Articles of Incorporation in the directors’ execution of duties
i. The Board of Directors shall formulate basic policies regarding an internal control system, which, in turn, shall underpin the
Company’s corporate governance while continuously verifying and improving the system for higher effectiveness.
ii. The Board of Directors shall include external directors who can introduce a more objective, third-party perspective on mattersunder deliberation.
iii. The corporate auditors shall monitor the directors’ execution of duties relating to the establishment and administration of theinternal control system.
B. Systems for ensuring the effective execution of duties
i. System for managing information relating to the directors’ execution of duties
		 Information relating to the directors’ execution of duties shall be recorded and stored in a safe place in accordance with the
document and electronic file safekeeping standards and the confidential information handling regulations formulated by theCompany. Such documents and electronic files shall be available for perusal at any time by any director(s) or corporate auditor(s).
ii. Guidelines and system for managing risks
		 a. The Company shall promote effective risk management based on a Groupwide internal control system.
		 b. Individual business units shall formulate their own guidelines for handling environment-related, legal, disaster-related,
IT-related, export control-related and other risks. In addition, they shall take a professional approach in their risk management,
providing employee education and training programs and through other means.
		 c. In accordance with the Company’s Emergency Reporting Procedures, staff involved in an emergency shall immediately reportto the top management and take appropriate countermeasures.
iii. Systems for ensuring the directors’ efficient execution of duties
		 a. In accordance with the Company’s executive officer system, along with relevant in-house organizational and authoritytransfer guidelines, authorities on certain management matters shall be transferred to executive officers. Executive officers,in turn, shall efficiently execute their duties.
		 b. At monthly Executive Officers Committee meetings, responsible executive officers shall report on progress made under theapplicable medium-term management plan and annual budget, both approved by the Board of Directors. In this way, thecommittee shall always work to be comprehensively aware of the precise status of Groupwide business operations.

financial
Medium-term
specialreview of		Top Message
contents
at a glancehighlights
management planfeaturesoperations									research &development

intellectual
property

corporate
governance/compliancemeasures for environmental
preservation

		 c. Established as an advisory body to the president, the Management Strategy Committee shall strive to facilitate swift andeffective decision-making for important management matters through multifaceted examinations and deliberations.
iv. Systems for ensuring compliance with laws, regulations and the Articles of Incorporation in the execution of duties by the
executive officers and general employees
		 a. The Ethics Committee, chaired by the president, formulates the Company’s basic compliance policies. At the same time, theInternal Control Group shall work to ensure the effective administration and implementation of the policies throughcollaboration with internal control sections within every department of the Company.
		 b. Copies of the Company’s Ethics Regulations and Compliance Manual shall be distributed to all directors, executive officers
and general employees, while special seminars shall be held regularly to keep all staff up to date with requirements related
to ethical practices and legal compliance. When necessary, directors, executive officers and managerial employees shallsubmit agreements in writing to observe specific compliance requirements.
		 c. The Company shall maintain a resolute stance against individuals and organizations that pose threats to order and securityof civil society and engage in no relations whatsoever with these individuals and organizations.
		 d. Through the proactive use of an in-house whistle-blower hotline, all members of the Company shall report any suspectedillegal, non-compliant or unethical acts and help the management to identify problems at an early stage.
v. Systems for ensuring appropriate Groupwide operations
		 a. Pursuant to the Group Management Principles, the Company shall strive to become a corporate group capable of constantly
improving corporate governance and operational efficiency.
		 b. The Board of Directors shall be responsible for the resolution and implementation of the Company’s medium-term management
plans and annual budgets. In addition, responsible executive officers shall report to the Executive Officers Committee and othermeetings on the implementation status for the plans and budgets to facilitate the effective monitoring of Groupwide operations.
		 c. Established at all principal Group companies, internal control sections shall work to ensure appropriate Groupwide operations
through the promotion of activities to reinforce internal control. At the same time, the Internal Control Group shall coordinate
the internal control sections’ activities to achieve effective Groupwide internal control.
		 d. The Company shall have the authority of appointing directors and/or corporate auditors at its principal Group companies
while working to constantly strengthen its Groupwide auditing system through audit by its Internal Control Group.
		 e. In accordance with the Company’s Emergency Reporting Procedures, staff involved in an emergency at Group companies
shall immediately report to the Company’s top management and take appropriate countermeasures.
C. Matters relating to the Company’s corporate auditor audit system
i. Matters relating to corporate auditors’ assistants
		 The Company shall operate the Corporate Auditors’ Department in charge of assisting the corporate auditors’ execution ofduties.
ii. System for securing the independence of corporate auditors’ assistants from the Company’s directors
		 Corporate auditors, directors and executive officers shall conduct deliberations prior to making decisions on personnel transfersand evaluations for the Corporate Auditor’s Department.
iii. System for assisting corporate auditors in their execution of duties
		 a. Corporate auditors shall attend important meetings of the Board of Directors, the Executive Officers Committee and otherorganizations to closely monitor the execution of duty by directors and executive officers. In addition, they shall be allowed
to peruse internal memos and other important documents related to business operations.
		 b. Directors, executive officers and general employees shall, in a timely manner, report to corporate auditors any acts within
the Group that go against laws, regulations and/or the Articles of Incorporation, any incidence of an event that may resultin significant loss for the Company or any other materially irregular matters.
iv. Other systems for ensuring effective audits by corporate auditors
		 a. Directors and executive officers shall contribute to efficient and effective audit operations conducted by corporate auditors,
who closely collaborate with the Company’s Internal Control Group, internal control sections and corporate auditors at
Group companies, as well as with the independent auditor.
		 b. Boards of corporate auditors at Group companies shall immediately report to the Company’s corporate auditors any acts
within the Group that go against laws, regulations and/or the Articles of Incorporation, any incidence of an event that may
result in significant loss for the Company and other materially irregular matters.
(3) Revisions to the Above Policies
The basic internal control policies described above shall be revised on an as-required basis only after the approval of the Company’s
Board of Directors.
SHI’s Corporate Governance System
General Meeting of Shareholders
Audit

Board of Directors

Corporate Auditors/
Board of Corporate Auditors

SupervisionCorporate Auditor’s Dept.

Audit
President andChief Executive Officer

Internal Control GroupInternal Control

Internal Audit Dept.

Internal Auditing

Management Strategy
Committee
Executive Officers Committee

Operational Divisions

Group Management Council
Subsidiaries/Affiliates

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

Audit

Independent Auditor

Ethics Committee
Directors Recommendation
Committee
Compensation Committee

32 >33

Measures for Environmental Preservation
To contribute to regional development, a better environment and safety is paramount to the SHI Group. The Group as a whole isseriously tackling the issue of environmental preservation, based on our understanding that the protection of the global and regional
environment and the promotion of a recycling economy are part of the social responsibilities of an enterprise. Especially since fiscal
2005, we have pursued activities that to help prevent further global warming. Defined as the first phase of a never-ending project,these Group-wide measures include the reduction of electricity consumption and paper usage and the active utilization of “green”
logistics systems. From fiscal 2008, the Group will work to reduce CO2 emissions, identified as a new focus, in accordance with new
medium-term environmental objectives consistent with the new “Global 21” plan.

Environmental Management
Management Organization: The Environmental Management Department within the General Affairs Group looks into various
matters related to environmental management activities within the Company and the Group. Each of the Works and the Group
companies outside of the regions covered by the Works has created and is operating environmental management systems in compliancewith ISO14001, the international standard for environmental management systems, in line with the environmental policies establishedby each president or plant manager. Elements listed as having a potential impact on the environment are assessed, and environmental
management programs and targets for activities are being set up based on the assessment results.

Reducing Environmental Load
The Group is working on initiatives to contribute to the prevention of global warming. To help reduce CO2 emissions, which are themajor cause of global warming, the Group set a goal for fiscal 2007 of cutting electricity consumption by 10% from the fiscal 2004
level. For fiscal 2007, we achieved a reduction in electricity consumption of 7.6% from the fiscal 2004 level while reducing CO2
emissions by 15.7% from the fiscal 1990 level. In fiscal 2008, we aim to further reduce CO2 emissions from our operations by cuttingback the use of city gas and heavy oil and substituting other types of energy with electricity. We have also set higher targets andtaken initiatives for the reduction of paper usage and the promotion of green logistics. In addition, to prevent environmental pollution,
we are working on initiatives to reduce emissions of organic chlorine compounds and volatile organic compounds (VOCs).
Activities Geared to a Recycling-Based Society: We aim to reduce the generation of substances that are a burden on theenvironment in two steps: first, by cutting overall waste from our business activities, and second, by reducing waste disposal. Waste
is being managed in three categories, namely: waste for disposal, i.e. for landfills or incineration; recycling of waste as resource
materials, which enables reuse; and valuable resources, which are reused or placed on a route for reuse in the Company. Provided
below are figures on the amount of waste the Sumitomo Heavy Industries Group produced and disposed of in fiscal 2007. Thesefigures show that there has been a significant reduction in the waste produced and disposed of compared to fiscal 2001 levels.
Volume of waste produced in FY 2007

33,881 tons

(up 10% from the FY2001 level)

Volume of waste disposed of in FY 2007

1,931 tons

(down 78% from the FY2001 level)

Developing Environment-Friendly Products
It is one of the missions of manufacturers to help preserve the quality of the environment in a broader sense through their products
and services, in addition to reducing the burden on the environment caused by emissions. The Group helps its customers to reduce
the environmental burden of their activities and reduce their operating costs, while also contributing to the realization of a society
capable of sustainable development, through the reduction in the size and weight of its products, the development and supply of
products that help conserve energy, and the construction and operation of environmental facilities, including our recycling plazas
and biomass power-generation facilities.
Environmental Accounting: Environmental accounting—complying with the Environmental Accounting Guidelines establishedby the Ministry of the Environment—has been implemented to clarify the money spent and amounts invested by the Company inenvironmental activities and to achieve greater efficiency in environmental preservation. The total amount of environmental
preservation costs for fiscal 2007 was about ¥5.0 billion, of which approximately ¥2.92 billion was spent on capital investments infacilities and equipment to decrease the volume of materials with a heavy environmental burden and to save energy. Expenses forenvironmental preservation have increased with each passing year. For the reporting term, total environmental preservation costs
and capital investments increased ¥2.1 billion and ¥1.67 billion, respectively, over the previous year.
l Format of Voluntary Environmental Preservation Costs(¥ Million)
Investment
Amounts

Cost

Appropriate measures for water quality, air quality, noise, vibration, chemical substances, waste, etc.
Reduction of energy use and resource usage and recycling

2,563

679

(1)-1 Preventing pollution

Improvement and management of discharge treatment facilities, measures for dust collection and against VOCs, examination of trace PCB content, measurementof water quality and emitted gases

1,469

379

(1)-2 Environmental preservation

Monitoring of electricity demand, investment in energy conservation, temperature management(1)-3 Resource recycling

Recycling of industrial waste, provision of waste disposal sites, recycling of thinners, collection, transport, treatment and disposal of waste

970
123

117
183

(2) Upstream and downstream
manufacturing processes

Use of low-sulfur heavy oil, “green purchasing” of office goods

861(3) Environmental management

Maintenance and management for ISO14001 certification, staff training (general, specific, examiner, in-house supervisor), periodical inspection, expansion of green
areas, maintenance and management of green areas

11

130

(4) R&D

Incineration and gasification of household garbage and industrial waste, development of emitted gas treatment systems, development of ash-melting furnace systems,
development of water supply and sewerage facilities, development of methods of reducing noise from Cyclo® speed reducers, development of new tube heat exchangers

259

697

0

546
(¥ Million)

Category

Breakdown(1) Costs in manufacturing field

Major Measures and Their Effects(5) Compensation for environmental damage Maintenance and management

Item

Description

Amount2,919

Total investments for the term

Improvement of discharge treatment facilities, development of dust collection systems, installation of VOC treatment facilities, investment in energy conservation

Total R&D costs for the term

Incineration and gasification of household garbage and industrial waste, development of emitted gas treatment systems, development of ash-melting furnace systems,
development of water supply and sewerage facilities, development of methods of reducing noise from Cyclo® speed reducers, development of new tube heat exchangers

956

Amount of sales of valuable articles
related to (1)-3

Metal scrap left over after the effective use of remnant materials

484Eleven-Year Summary

Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

Summary of Income (for the year):Net sales.....................................................................................
Cost of sales...............................................................................
Selling, general and administrative expenses...............................
Research and development expenses..........................................
Operating income
EBITDA (Note 2)..........................................................................
Net income (loss)........................................................................
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..............................
Financial Position (at year-end):
Total assets.................................................................................
Total current assets.....................................................................
Property, plant and equipment....................................................
Interest-bearing debt..................................................................
Net interest-bearing debt............................................................
Stockholders’ equity....................................................................
Total net assets (Note 4)..............................................................
Amounts per Share of Common Stock:
Net income (loss) (Note 5)...........................................................
Stockholders’ equity....................................................................
Cash dividends............................................................................

FY1997

FY1998FY1999FY2000¥ 556,786
460,254
75,743
8,121
20,78935,1284,613¥ 554,488
464,286
80,572
8,983
9,630
23,800(12,298)¥ 566,668
473,798
80,162
12,206
12,70926,910(6,328)¥ 513,753
434,544
71,724
8,688
7,485
20,402(28,612)¥516(4,198)(3,682)(1,933)35,403¥ 11,348(9,050)2,298
19,70957,410¥ 39,117(1,969)37,148(48,765)
45,173¥ (16,957)
29,56012,603(21,403)36,496¥ 748,017
566,559
128,757
365,923
330,520
78,909—¥ 723,673
542,689
124,757
387,199
329,789
72,975—¥ 657,149
474,059
128,784
341,912298,61764,829—¥ 579,772
394,252
119,135
324,324
287,609
30,049
—

¥

¥

¥

¥

7.83
134.043.00(20.88)123.96—(10.74)110.12
3.00(48.60)
51.04—

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).............................................................................

3.7
6.3
1.5
0.6
5.8
10.5
48.9
4.6
2.8

1.7
4.3
1.6
(1.7)
(16.9)
10.1
53.5
5.3
1.6

2.2
4.7
2.2
(1.0)
(9.8)
9.9
52.0
5.3
1.9

1.5
4.0
1.7
(4.9)
(95.2)
5.2
55.9
10.8
1.3

Investment in Plant and Equipment, and Others:
Capital expenditures...................................................................
Depreciation and amortization....................................................
Number of employees.................................................................

¥ 16,208
15,805
14,357¥ 14,763
14,17013,840¥ 12,606
14,201
13,748¥ 14,305
12,916
12,411

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥100=$1, the prevailing exchange rate on the Tokyo
		 Foreign Exchange Market as of March 31, 2008.
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.
(Operating income + Interest and dividend received) x 55% (= 1 – Effective tax rate)
6. ROIC (Return on Invested Capital) =			(Average of stockholders’ equity + Average of interest-bearing debt)

34 > 35

Millions of yen

Thousands of
U.S. dollars(Note 1)

FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2007¥ 517,138
430,399
72,564
6,777
14,17526,0781,650¥ 481,289
400,460
63,616
5,800
17,21329,3222,688¥ 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
68,9307,441
47,50556,57729,742¥ 600,256
464,071
71,961
8,599
64,22474,87337,352¥ 660,769
505,366
77,613
9,858
77,79091,57842,974$ 6,607,689
5,053,659
776,135
98,580777,895
915,780429,738¥ 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¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879$ 290,960(412,500)(121,540)(52,385)
298,787¥ 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—¥ 600,890
332,509268,381
88,04539,890—206,010¥ 678,634
381,946
296,688
89,56759,311—
246,371$ 6,786,341
3,819,462
2,966,879
895,674
593,110—2,463,710

Yen

U.S. dollars(Note 1)¥2.80
148.63—¥4.57
151.86—¥27.01
190.25—¥37.80
227.90
3.00

¥

49.45
279.02
5.00

¥

61.99
338.95
7.00

¥

71.19
392.80
10.00

$

0.71
3.92
0.10

%

2.7
5.0
1.3
0.3
1.9
13.8
46.4
3.4
2.3

3.6
6.1
1.2
0.5
3.0
15.2
46.5
3.1
2.6

8.3
10.4
1.3
2.8
14.2
19.7
37.2
1.9
6.5

9.4
11.1
1.2
4.0
16.6
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.1
17.7
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.2
24.0
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.3
22.4
34.9
13.2
0.4
14.0

Millions of yen¥ 15,549
11,902
12,457¥ 14,406
12,118
11,777¥ 10,562
10,112
11,282

¥

8,175
9,282
11,149¥ 10,285
9,072
11,319¥ 17,257
10,64912,561¥ 28,180
13,78814,408

Thousands of
U.S. dollars(Note 1)

$ 281,797
137,885

Management Discussion and Analysis of Financial Conditions and1. Discussion and analysis of operating results
for this fiscal year (consolidated basis)(i) Sales
Sales were 660.8 billion yen, up 60.5 billion yen from theprevious fiscal year. This increase was the result of theincreases in sales in all segments including an increase insales of 19.2 billion yen for the construction machinerygroup and of 12.9 billion yen for the industrial machinerygroup.
Referring to sales by region, domestic sales were 329.0 billion yen, up 4.8 billion yen from the previous fiscal year due
to increases in sales in the forging machines business andthe material handling systems business, both businesses
being included in the industrial machinery group. Sales inNorth America were 120.4 billion yen, up 8.1 billion yen
from the previous fiscal year due to an increase in sales in
the crane business included in the construction machinerygroup. Sales in Asia were 108.4 billion yen, up 24.6 billion
yen from the previous fiscal year due to an increase in sales
in the excavator business included in the construction
machinery group. Sales in other regions were 103.0 billion
yen, up 23.0 billion yen from the previous fiscal year due toan increase in sales in Central and South America in the
new shipbuilding included in the steel structures and otherspecialized equipment group.

(ii) Cost of sales
Cost of sales was 505.4 billion yen, up 41.3 billion yen fromthe previous fiscal year due to the increase in sales. The costof sales ratio was 76.5%, an improvement of 0.8 points
from the previous fiscal year due to improvements in theratios of the ships, steel structures and other specialized
equipment group and the industrial machinery group.
(iii) Selling, general and administrative expenses
Selling, general and administrative expenses were 77.6 billion yen, up 5.7 billion yen from the previous fiscal year. The
main increases were recorded under the items of labor costs
and research and development costs.
(iv) Non-operating profit and loss
Non-operating profit and loss recorded a loss of 2.3 billion
yen, a deterioration of 3.4 billion yen from the previous fiscal year. Non-operating income decreased by 1.7 billion yen
from the previous fiscal year due to a decrease in equity inearnings of unconsolidated subsidiaries and affiliated companies to 2.4 billion yen, down 2.1 billion yen from the previous fiscal year and other factors. On the other hand, nonoperating expenses increased by 1.8 billion yen from theprevious fiscal year due to an increase in exchange loss to
1.6 billion yen, up 1.0 billion from the previous fiscal year
and other factors.

Net Sales

Selling,General and Administrative
Expenses, SG&A Expenses Ratio(¥ Million)(¥ Million)(%)(¥ Million)

800,000

80,00020

10,000600,000

60,000

15

R&D Expenses

8,000

6,000
400,000

10

40,0004,000

200,000

5

20,000

2,000

0

FY

04

05

06

Mass-produced machinery
Environmental protection facilities, plants & others
Ship, steel structure & other specialized equipment
Industrial machinery
Construction machinery

07

FY

0

0

0

03

03

04

05

06

Selling, general and administrative expenses
SG& A expenses ratio (Right scale)

07

FY

03

04

05

06

07

36 > 37

Operating Results(v) Special gains and losses
Special gains and losses recorded a loss of 3.0 billion yen, adeterioration of 0.6 billion yen from the previous fiscal year.
Special gains were 0.7 billion yen, down 1.0 billion yen fromthe previous fiscal year due to a decrease in the gain on thesale of securities by 0.7 billion yen from the previous fiscal
year and other factors. Special losses were 3.6 billion yen, adecrease of 0.5 billion yen from the previous fiscal year
although a settlement expense of 1.2 billion yen wasrecorded.
(vi) Income taxes (the total of income tax, local inhabitant tax, business tax and deferred income tax)
Income tax was 28.8 billion yen, up 3.8 billion yen from theprevious fiscal year due to an increase in income before
income taxes of each consolidated company.
(vii) Minority interests
Minority interests were 0.7 billion yen, up 0.1 billion yen
from the previous fiscal year reflecting the favorable operational results of each consolidated company.
(viii) Net income
Net income was 43.0 billion yen, up 5.6 billion yen from theprevious fiscal year.

Operating Income,Operation Income Margin

2. Discussion and analysis of financial conditions
for this fiscal year (consolidated basis)(i) Capital resources and liquidity
The Company Group has allocated funds through debt andinternal financing for the working capital and capital spending. As for the debt financing, the total amount of interestbearing debts as of the end of this fiscal year was 89.6 billion yen, up 1.5 billion yen from the end of the previous
fiscal year. In addition, the Company Group has introduced
the CMS (Cash Management System) to centralize thefinancing operation for subsidiaries and affiliated companies in the Company, thereby promoting efficient management and use of funds in the Company Group as a whole.
Cash and deposits as of the end of this fiscal year were 30.3
billion yen, which was at a level where the efficiency ofmanagement and use of funds was enhanced and at thesame time appropriate liquidity was secured. In addition,
the Company has entered into commitment line agreements totaling 43.0 billion yen with multiple financial institutions including domestic and overseas financial institutions and thereby has secured very ample liquidity.
In order to secure stable provision of necessary funding, theCompany Group has adopted the current basic policy tomaintain well-balanced long-term financing. Under thisbasic policy, the ratio of long-term interest-bearing debt
among the interest-bearing debt as of the end of this fiscal
year was 61%, an increase of 3 points from the end of theprevious fiscal year.

Net Income,Net Income Margin, ROE

Total Assets,
Total Assets Turnover(¥ Million)(%)(¥ Million)(%)(¥ Million)(Time)

90,00015

50,00025

800,000

1.00

40,00020600,000

0.75

400,000

0.50

200,000

0.25

60,00010

30,00030,00015

520,00010

010,0005

0–1,000

FY

0

0

03

04

05

06

Mass-produced machinery
Environmental protection facilities, plants & others
Ship, steel structure & other specialized equipment
Industrial machinery
Construction machineryOperating income margin (Right scale)

07

FY

03

04

Net income
Net income margin (Right scale)ROE (Right scale)

05

06

07

0

0

FY

03

04

Total assets
Total assets turnover (Right scale)

05

06

07

(ii) Conditions of assets, liabilities and net assets
Net assets were 678.6 billion yen, up 77.7 billion from theprevious fiscal year due to the fact that Nihon Spindle Manufacturing Co., Ltd. and Demag Plastics Group were madeCompany subsidiaries, respectively. Cash and deposits were30.3 billion yen, down 17.9 billion yen from the previous
fiscal year, which was the result of promoting the collectionof receivables. Notes and accounts receivable were 185.9
billion yen, up 27.5 billion yen from the previous fiscal year,
reflecting the increase in sales. Property, plant and equipment were 204.5 billion yen, up 19.3 billion yen from theprevious fiscal year, which was the result of promoting capital spending. Investment securities were 53.9 billion yen,down 6.9 billion yen from the previous fiscal year reflecting
a decrease in the market value thereof.

Notes and accounts payable were 167.0 billion yen, up 16.1
billion yen from the previous fiscal year. Interest-bearing
debt was 89.6 billion yen, up 1.5 billion yen from the previous fiscal year, which was the result of advancing the repayment of interest-bearing debt to improve financial strengthand at the same time conducting active capital spending.
Advance payments received on contracts were 48.6 billion
yen, up 8.1 billion yen from the previous fiscal year due toan increase in such items recorded for the ships businessand other increases.
Net assets were 246.4 billion yen, up 40.4 billion yen fromthe previous fiscal year due to capitalizing net income of
43.0 billion yen. As a result, shareholders’ equity ratio as ofthe end of this fiscal year was 34.9%, an improvement of
0.9 points from the previous fiscal year.

Business Risk
Risks that could adversely affect the business performanceor financial position of the Group are as follows.
All statements below regarding future events represent
judgments made by the management of the Group as ofMarch 31, 2008.
1. Macroeconomic Factors
Demand for capital equipment, which accounts for morethan half of Group sales, may be influenced by economic
trends in both Japan and various overseas markets where
the Group sells its products. Any contraction in demand
triggered by a slump in the major markets for our products
in Japan, the rest of East Asia, North America and Europe
could have an adverse impact on the business performanceor financial position of the Group.
2. Exchange-Rate Fluctuation
The Group’s business includes the production and marketing of products in countries all around the world. Yen translations are applied in the consolidated financial statements
for transactions (involving overseas sales, expenses, assets
and liabilities) undertaken in local currencies. Due toexchange rate effects, the Group may suffer adverse impact
on transaction values after yen translation even if there isno such change in local currency terms. As of March 31,
2008, the Group had an order backlog, chiefly in its shipbuilding business, of US$1.2 billion. To minimize the impact
of exchange-rate fluctuations on our business performance,
the Company uses forward exchange contracts to hedge
against risk. However, it is not possible to eliminate all risk
using this method. For this reason, the Company could suffer adverse impact on its business performance fromexchange-rate fluctuations.
3. Raw Materials Price Rises and Availability
Prices surges for such raw materials as steel, non-ferrous
metals and crude oil on a global scale are significantly
affecting the Group’s manufacturing costs. The Company iscontinuously working to reduce costs while passing unavoidable cost rises on to its product prices. However, the potential for ongoing expansion in raw material prices may negatively affect the Company’s business performance. In
addition, the Company is working to procure stable supplies of raw materials through close cooperation with its
suppliers. Nevertheless, further worsening in the raw materials supply-demand balance, as well as potential disruptions
in raw material supplies, could adversely affect the Company’s business performance.
4. Overseas Businesses
The Group conducts its business on a global scale, with afocus on mass-produced machinery and construction
machinery for markets in North America, Asia and Europe.
To meet expanding overseas demand, the Company is

38 > 39

upgrading its marketing networks and production facilities.
However, wherever we operate, markets are subject topolitical change and unpredictable legal and regulatorychange. This could have adverse impact on the businessperformance of our overseas units.
5. Product Quality
The Group manufactures a wide range of products in linewith very strict quality control standards. However, total
defect elimination is impossible, and we cannot rule out
having to undertake repair work under guarantee at ourown expense in the event of product flaws. The Group hastaken out insurance to cover product-defect liability, but wecannot guarantee that these policies will cover the full sumsof compensation that may become payable in liability settlements. Repairs performed under guarantee and productcompensation payments can generate significant costs for
the Group, and this can adversely affect the business performance and financial position of the Group.
6. Impact of Impairment Accounting
Based on the Law Concerning Revaluation of Land (Ordinance No. 34, 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. The difference between the market and book values of the revalued
land as of March 31, 2008 was ¥21.8 billion, a decline of
21%. If land values continue to fall, we may have to recognize impairment losses on fixed assets. Such a situation
could adversely affect the business performance and financial position of the Group.
7. Environmental Protection Measures
Under the Group’s environmental policy, we take a range ofmeasures to reduce our environmental footprint such as
avoiding environmental risk factors and minimizing waste.
We have taken every measure to prevent environmental
pollution, but cannot rule out responsibility for instances ofenvironmental pollution due to unforeseen events. Should
we be responsible for an incidence of environmental pollution, significant costs could be generated, negatively affecting the business performance and financial position of theGroup.
8. Natural and Other Disasters
The Group has in place inspection, training and communications mechanisms for minimizing the occurrence and fallout of disasters such as fires, earthquakes, typhoons andother wind and flooding damage. However, the Group’sbusiness activities could be adversely affected if such disasters cause material damage to our operations or injury to
our staff. We cannot guarantee that our casualty insurance
would be sufficient to cover all such events.

Financial Statements—Consolidated Balance Sheets

March 31, 2008 and 2007

				
Millions of yen

ASSETS

Thousands of
U.S. dollars(Note 1)

2008

2007

2008

¥  30,256¥  48,155$   302,560

Notes receivable ................................................................

15,58817,553

155,884

Accounts receivable............................................................

170,324

140,823

1,703,239

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

(836)

(776)

(8,359)Inventories (Note 3)................................................................

130,450

100,519

1,304,501

Deferred tax assets (Note 6)...................................................

8,501

10,34285,007

Prepaid expenses and other current assets.............................

27,663

15,893

276,630

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

381,946

332,5093,819,462

Land (Note 5).........................................................................

116,536

111,468

1,165,361

Buildings and structure (Note 5).............................................

125,272

116,568

1,252,715

Machinery and equipment (Note 5)........................................

126,042

114,186

1,260,424

Construction in progress........................................................

5,407

3,714

54,065373,257

345,936

3,732,565

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

(168,803)(160,791)(1,688,025)

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

204,454

185,145

2,044,540

27,297

26,714272,971

securities (Note 11)...............................................................

26,706

34,115

267,064

Deferred tax assets (Note 6)...................................................

10,346

7,288

103,463

Other assets...........................................................................

29,445

16,712

294,446

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

(1,560)(1,593)(15,605)

Total Investments, long-term loans and other assets............

92,234

83,236922,339¥ 678,634¥ 600,890$ 6,786,341

Current assets:
Cash and deposits (Notes 2 and 5).........................................
Trade receivables (Note 5):

Property, plant and equipment:

Investments, long-term loans and other assets:
Investments in unconsolidated subsidiaries
and affiliated companies.......................................................
Long-term loans receivable and Investment

See accompanying notes.

40 > 41

				Millions of yen

LIABILITIES AND NET ASSETS

Current liabilities:
Short-term bank loans (Note 5)..............................................
Long-term debt due within one year (Note 5).........................
Commercial paper (Note 5)....................................................
Trade payable:
Notes payable.....................................................................
Accounts payable...............................................................
Advance payments received on contracts...............................
Accrued income taxes............................................................
Allowance for loss on reorganization of business...................
Allowance for loss on business transfer..................................
Accrued expenses and other current liabilities (Note 6)...........
Total current liabilities.........................................................
Long-term liabilities:
Long-term debt due after one year (Note 5)...........................
Employees’ severance and retirement benefits (Note 13)........
Allowance for loss on product liability ...................................
Deferred tax liabilities on revaluation difference on land.........
Other long-term liabilities (Note 6).........................................
Total long-term liabilities.....................................................

Thousands of
U.S. dollars(Note 1)

2008

2007

2008

¥ 16,932
2,724
18,000¥ 21,711
14,28515,000$  169,318
27,244
180,000

49,297
117,711
48,60014,523—
161
42,233
310,181

53,51597,35940,502
15,264596
161
38,820297,213492,973
1,177,107
486,001
145,231—1,607
422,330
3,101,811

51,911
32,748285
32,306
4,832
122,082

37,04924,110262
32,306
3,940
97,667519,114
327,4812,854
323,059
48,312
1,220,820

30,87230,872308,720

20,524142,053

20,518104,950205,240
1,420,530(1,425)
192,024(996)
155,344(14,250)
1,920,240

4,224

11,19542,240Contingent liabilities (Note 8)
Net assets (Note 7):
Common stock:.....................................................................
Number of shares authorized 1,200,000 thousand shares
Number of shares issued 605,726 thousand shares
Capital surplus.......................................................................
Retained earnings..................................................................
Treasury stock at cost, 2,144,702 shares in 2008 and1,832,402 shares in 2007....................................................
Total owners’ equity...........................................................
Unrealized gains on securities, net of income taxes................
Unrealized gains (losses) on hedging derivatives,
net of income taxes..............................................................
Adjustment regarding pension obligationsof consolidated overseas subsidiaries....................................
Revaluation difference on land...............................................
Foreign currency translation adjustments...............................
Total valuation and translation adjustments.........................

2,459(1,652)

24,590(999)
40,477(1,101)45,060(772)
40,411
166
49,347(9,990)404,770(11,010)450,600

Minority interests...................................................................
Total net assets...................................................................
Total liabilities and net assets...........................................

9,287
246,371¥678,634

1,318
206,010¥600,890

92,8702,463,710$6,786,341

Consolidated Statements of Income

Years ended March 31, 2008 and 2007

				
Millions of yen

Net sales (Note 9).................................................................
Costs and expenses (Note 9):
Cost of sales.......................................................................
Selling, general and administrative expenses.......................
Operating income (Note 9)..................................................
Other income (expenses):
IncomeInterest and dividend income...........................................
Equity in net income of unconsolidated subsidiaries andaffiliated companies.......................................................
Other—net......................................................................
Expenses
Interest expense..............................................................
Loss on disposal of property, plant, equipment................
Other—net......................................................................
Special gains (losses):
Gains
Gain on sale of securities.................................................
Gain on business transfer................................................
LossesSettlement expense.........................................................
Amortization of unrecognized net transition
obligation of severance and retirement benefit
of newly consolidated subsidiary ...................................
Head office relocation expenses.......................................
Impairment losses of fixed assets (Note 4)........................
Loss from reorganization of business ..............................
Loss on business transfer.................................................
Loss on breach of antimonopoly law................................
Income before income taxes and minority interests..............
Income taxes (Note 6):
Current...............................................................................
Deferred.............................................................................
Total................................................................................
Minority interests in net income........................................
Net income..........................................................................

Thousands of
U.S. dollars(Note 1)

2008

2007

2008

¥660,769¥600,256$6,607,689

505,366
77,613582,979
77,790464,071
71,961
536,032
64,224

5,053,659
776,135
5,829,794
777,895

1,190

866

11,904

2,436
2,920

4,584
2,775

24,362
29,204(1,194)(853)(6,820)(1,666)(1,012)(4,429)(11,944)(8,532)(68,195)

689
—

1,398
294

6,886
—

(1,204)—(12,040)

(980)
(759)
(700)
—
—
—

—
—
(208)
(1,870)(1,270)(746)(9,803)(7,590)(6,999)———72,51562,940725,148

28,870(58)
28,812(729)¥ 42,974

26,463(1,493)
24,970(618)¥ 37,352

288,705(583)
288,122(7,288)$ 429,738

		YenAmounts per share of common stock:
Net income.........................................................................
Diluted net income.............................................................
Cash dividends applicable to the year.................................
See accompanying notes.

U.S. dollars(Note 1)

2008

2007

¥71.19—¥10.00¥61.99—¥ 7.00

2008

$0.71
—
$0.10

Consolidated Statement of Changes in Net Assets

42 > 43

Year ended March 31, 2007

Millions of yen
Owners’ Equity
Number of sharesof common stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Stockholders’ equity at March 31, 2006
as previously reported .............................................
602,626¥30,872¥16,808¥ 68,848¥(544)
Reclassification due to adoption of new
accounting standards at April 1, 2006.....................
Net assets at April 1, 2006.........................................
602,626¥30,872¥16,808¥ 68,848¥(544)
Dividends (*Note)..................................................... 				(1,503)		
Dividends................................................................. 				(2,104)		
Net income............................................................... 				37,352		
Acquisition of treasury stock..................................... 					(457)Disposal of treasury stock......................................... 			
182		
78
Increase due to transfer of revaluation differenceon land................................................................... 				1,731		Stock exchange with consolidated subsidiaries..........
3,100		3,521		
(73)Increase from increase of consolidated subsidiaries
with change in scope of consolidation..................... 				
633		Correction of capital allotment after merger ofparent company and consolidated subsidiaries........ 			
7(7)		
Changes in items other than owners’ equity
in the period (net)...................................................
Total changes in the period.......................................
3,100
—
3,710
36,102(452)
Balance at March 31, 2007.........................................
605,726¥30,872¥20,518¥104,950¥(996)

Sub-total¥115,984¥115,984(1,503)(2,104)37,352
(457)
260
1,731
3,448
633
—

39,360¥155,344

Millions of yen
Valuation and translation adjustments
Unrealized
holdinggains
on othersecurities

Gains/
Lossesondeferredhedge

Adjustmentof pension
obligationof overseas
subsidiaries

Revaluationdifferenceon land

Foreignexchangetranslation
adjustments

Subtotal

Minority
interests

Stockholders’ equity at March 31, 2006
as previously reported ......................................
¥10,269——¥42,142¥(654)¥51,757—
Reclassification due to adoption of new
accounting standards at April 1, 2006................... 							¥3,752
Net assets at April 1, 2006......................................
¥10,269——¥42,142¥(654)¥51,757¥3,752
Dividends (*Note)..................................................... 								Dividends................................................................. 								Net income............................................................... 								Acquisition of treasury stock..................................... 								Disposal of treasury stock......................................... 								Increase due to transfer of revaluation differenceon land................................................................... 								Stock exchange with consolidated subsidiaries.......... 								Increase from increase of consolidated subsidiaries
with change in scope of consolidation................... 								Correction of capital allotment after merger ofparent company and consolidated subsidiaries........ 								Changes in items other than owners’ equity
in the period (net)...................................................
926(1,652)(772)(1,731)820(2,409)(2,434)
Total changes in the period . ....................................
926(1,652)(772)(1,731)820(2,409)(2,434)
Balance at March 31, 2007.........................................
¥11,195¥(1,652)¥(772)¥40,411¥ 165¥49,347¥1,318*Note: The dividends were made with the approval of the general stockholders’ meeting held on June 29, 2006.
See accompanying notes.

Total¥167,741¥3,752¥171,493(1,503)(2,104)37,352
(457)
260
1,731
3,448
634
—
(4,843)34,517¥206,010

Consolidated Statement of Changes in Net Assets

Year ended March 31, 2008

Millions of yen
Owners’ Equity
Number of sharesof common stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net assets at March 31, 2007.....................................
605,726¥30,872¥20,518¥104,950¥ (996)
Dividends ................................................................ 				(5,132) 		
Net income............................................................... 				42,974		
Acquisition of treasury stock..................................... 					(442)Disposal of treasury stock......................................... 			
6		
13
Decrease due to transfer ofrevaluation difference on land................................. 				(66)		
Cumulative effect of application of FIN No. 48
to U.S. subsidiaries (*Note)...................................... 				(202)		Increase from increase of consolidated subsidiaries
with change in scope of consolidation..................... 				
67		Decrease due to exclusion of consolidated
subsidiaries from the scope of consolidation............ 				(449)		Decrease due to exclusion of equity method
affiliates from the scope of consolidation ............... 				(90)		
Increase due to merger ............................................ 				1		Changes in items other than owners’
equity in the period (net)......................................... 						Total changes in the period.......................................
——
6
37,103(429)
Balance at March 31, 2008.........................................
605,726¥30,872¥20,524¥142,053¥(1,425)

Sub-total¥155,344(5,132)
42,974
(442)
19
(66)
(202)
67
(449)
(90)
1
—
36,680¥192,024

Millions of yen
Valuation and translation adjustments
Unrealized
holdinggains
on othersecurities

Gains/
Lossesondeferredhedge

Adjustmentof pension
obligationof overseas
subsidiaries

Revaluationdifferenceon land

Foreignexchangetranslation
adjustments

Subtotal

Minority
interests

Net assets at March 31, 2007.....................................
¥11,195¥(1,652)¥(772)¥40,411 ¥ 166¥49,348¥1,318Dividends................................................................. 								Net income............................................................... 								Acquisition of treasury stock..................................... 								Disposal of treasury stock......................................... 								Decrease due to transfer ofrevaluation difference on land................................. 								Cumulative effect of application of FIN No. 48
to U.S. subsidiaries (*Note)...................................... 								Increase from increase of consolidated subsidiaries
with change in scope of consolidation..................... 								Decrease due to exclusion of consolidated
subsidiaries from the scope of consolidation............ 								Decrease due to exclusion of equity method
affiliates from the scope of consolidation ............... 								Increase due to merger............................................. 								Changes in items other than owners’
equity in the period (net).........................................
(6,971)
4,111(227)
66 (1,267)(4,288)
7,969
Total changes in the period . ....................................
(6,971)
4,111(227)
66 (1,267)(4,288)
7,969
Balance at March 31, 2008.........................................
¥ 4,224¥ 2,459¥(999)¥40,477 ¥(1,101)¥45,060¥9,287*Note: This amount reflects the effect of application of FIN No. 48 “Accounting for Uncertainty in Income Taxes” to U.S. subsidiaries.
See accompanying notes.

Total¥206,010(5,132)
42,974
(442)
19
(66)
(202)
67
(449)
(90)
1
3,681
40,361¥246,371

44 > 45

Thousands of U.S. dollars (Note 1)
Owners’ Equity
Number of sharesof common stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Net assets at March 31, 2007.....................................
605,726$308,720$205,180$1,049,500$ (9,960)
Dividends ................................................................ 				(51,320)		
Net income............................................................... 				429,740 		
Acquisition of treasury stock..................................... 					(4,420)
Disposal of treasury stock......................................... 			
60		
130
Decrease due to transfer ofrevaluation difference on land.................................
			(660)		Cumulative effect of application of FIN No. 48
to U.S. subsidiaries (*Note)...................................... 				(2,020)		
Increase from increase of consolidated subsidiaries
with change in scope of consolidation..................... 				
670		Decrease due to exclusion of consolidated
subsidiaries from the scope of consolidation............ 				(4,490)		
Decrease due to exclusion of equity method
affiliates from the scope of consolidation ............... 				(900)		Increase due to merger ............................................ 				
10		Changes in items other than owners’
equity in the period (net).........................................
Total changes in the period.......................................
——
60
371,030(4,290)
Balance at March 31, 2008.........................................
605,726$308,720$205,240$1,420,530$(14,250)

Sub-total$1,553,440(51,320)
429,740(4,420)190(660)(2,020)670(4,490)(900)
10366,800$1,920,240

Thousands of U.S. dollars (Note 1)
Valuation and translation adjustments
Unrealized
holdinggains
on othersecurities

Gains/
Lossesondeferredhedge

Adjustmentof pension
obligationof overseas
subsidiaries

Revaluationdifferenceon land

Foreignexchangetranslation
adjustments

Subtotal

Minority
interests

Total

Net assets at March 31, 2007..................................... $111,950 $(16,520) $(7,720)$404,110 $ 1,660 $493,480 $13,190 $2,060,100
Dividends................................................................. 								(51,320)
Net income............................................................... 								429,740
Acquisition of treasury stock..................................... 								(4,420)
Disposal of treasury stock......................................... 								(190)Decrease due to transfer ofrevaluation difference on land................................. 								(660)Cumulative effect of application of FIN No. 48
to U.S. subsidiaries (*Note)...................................... 								(2,020)
Increase from increase of consolidated subsidiaries
with change in scope of consolidation..................... 								
670Decrease due to exclusion of consolidated
subsidiaries from the scope of consolidation............ 								(4,490)Decrease due to exclusion of equity method
affiliates from the scope of consolidation ............... 								(900)Increase due to merger............................................. 								10Changes in items other than owners’
equity in the period (net).........................................
(69,700)
41,110(2,270)660(12,670)(42,870)
79,68036,810Total changes in the period . ....................................
(69,700)
41,110(2,270)660(12,670)(42,870)
79,680403,610
Balance at March 31, 2008......................................... $ 42,240 $ 24,590$(9,990)$404,770 $(11,010) $450,600 $92,870 $2,463,710*Note: This amount reflects the effect of application of FIN No.48 “Accounting for Uncertainty in Income Taxes” to U.S. subsidiaries.
See accompanying notes.

Consolidated Statements of Cash Flows

Years ended March 31, 2008 and 2007

				
Millions of yen

Thousands of
U.S. dollars(Note 1)

2008

2007

2008

¥ 72,515¥ 62,940$ 725,148

13,788

10,649137,885

Cash flows from operating activities:
Income before income taxes and minority interests................
Adjustments to reconcile net income before income
taxes to net cash provided by operating activities:
Depreciation.......................................................................
Impairment losses of fixed assets........................................

700

208

6,999

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

(197)

(227)

(1,975)

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

103

68

1,028

Loss on disposal of property, plant and equipment..............

853

1,012

8,534

Gain on sale of investment securities..................................

(689)(1,398)(6,886)

Loss on sale of investment securities...................................

—

3

—

Loss from write-down of investment securities....................

84

136

835

Loss from reorganization of business..................................

—

1,870

—

Gain on business transfer....................................................

—

(294)

—

Loss on business transfer....................................................

—

1,270

—

Loss on breach of antimonopoly law...................................

—

746

—

Settlement expense............................................................

1,204

—

12,040of newly consolidated subsidiaries.....................................

980

—

9,803

Head office relocation expenses..........................................

759

—

7,591

1,960

(329)

19,596

Amortization of unrecognized net transition
obligation of severance and retirement benefit

Increase (decrease) in employee’ severance andretirement benefits............................................................
Equity in earnings of unconsolidated subsidiaries
and affiliated companies....................................................

(2,436)(4,584)(24,362)(Increase) decrease in allowance.........................................

(171)

616

(1,707)

Interest and dividend income..............................................

(1,190)(866)(11,900)

Interest expenses................................................................

1,194

1,666

11,944(Increase) decrease in notes and accounts receivable.............

(9,522)

10,394(95,225)

Increase in inventories.........................................................

(21,758)(7,213)(217,582)

Increase in notes and accounts payable...............................

5,755

7,106

57,548Changes in operating assets and liabilities:

Decrease in deposits received..............................................

—(4,119)—Other—net.........................................................................

(6,242)(3,049)(62,418)

Sub-total.........................................................................

57,69076,605576,896

Interest and dividend received.............................................

2,499

1,617

24,991

Interest expenses................................................................

(1,303)(1,535)(13,032)

Payment for income taxes...................................................

(29,790)(19,898)(297,895)

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

¥ 29,096¥ 56,789$ 290,960

46 > 47

				Millions of yen

Thousands of
U.S. dollars(Note 1)

2008

2008

2007

Cash flows from investing activities:
Net increase (decrease) in time deposits..............................

¥

140

¥

(10)

$

1,399

(5,283)(5,577)(52,826)(11,944)—(119,444)

Proceeds from sale of securities..........................................

769

4,017

7,692

Payment for purchase of investment in affiliated company....

(3,465)—(34,650)

Receipt due to stock exchange of affiliate (Note 2)..............

1,390

—

13,899Payments for securities.......................................................
Payment for purchase of consolidated subsidiaries
with change in scope of consolidation (Note 2)..................

Payments for purchases of property, plant and equipment....

(24,243)(16,657)(242,433)

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

1,429

1,769

14,286

Payments for long-term loans receivable.............................

(68)

(43)

(680)

Collection of long-term loans receivable.............................

77

148

774

Proceeds from business transfer (Note 2)............................

—

5,895

—

Other—net.........................................................................

(52)(2,003)(517)

Net cash used in investing activities.....................................

(41,250)(12,461)(412,500)

Net decrease in short-term loans.........................................

(5,742)(6,516)(57,425)

Net increase (decrease) in commercial paper.......................

3,000(5,000)30,000Cash flows from financing activities:

Proceeds from long-term debt............................................

17,5004,500

175,000

Payments for long-term debt..............................................

(14,443)(30,482)(144,427)

Proceeds from sale of treasury stock...................................

19

379

193

Disbursement for acquisition of treasury stock....................

(442)

(454)

(4,421)

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

(5,115)(3,607)(51,153)

Payment of dividends for minority stockholders..................

(15)

(13)

(152)

Net cash used in financing activities....................................

(5,238)(41,193)(52,385)

Effect of exchange rate changes on cash andcash equivalents.................................................................

(143)

259

(1,427)

Net (decrease) increase in cash and cash equivalents.......

(17,535)

3,394(175,352)

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

47,52343,644475,233

Increase due to new consolidated company.....................

161

485

1,607

Decrease from the change in consolidation scope...........

(292)

—

(2,923)

Increase due to merger of non consolidated subsidiary toa consolidated subsidiary .................................................

22

—

222

Cash and cash equivalents at the end of year (Note 2).....

¥ 29,879¥ 47,523$ 298,787

See accompanying notes.

Notes to Consolidated Financial Statements
1. Significant accounting policies
Basis of presenting consolidated financial statements
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese Financial Instrument and Exchange Law (formerly Securities and Exchange Law) and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which
are different in certain respects as to application and disclosure requirements of International Financial ReportingStandards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated
financial statements have been restructured and translated
into English with certain expanded disclosure from the consolidated financial statements of Sumitomo Heavy Industries, Ltd. (“the Company”) prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Financial Instrument and Exchange Law. Some supplementary
information included in the statutory Japanese language
consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S.
dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate at March 31,
2008, which was ¥100 to U.S.$1. The convenience translations should not be construed as representations that theJapanese yen amounts have been, could have been, or
could in the future be, converted into U.S. dollars at this or
any other rate of exchange.
Principles of consolidation
The consolidated financial statements include the accountsof the Company and its consolidated subsidiaries (“theCompanies”). All significant inter-company balance andtransaction have been eliminated in consolidation.
Investments in unconsolidated subsidiaries and significant affiliated companies are accounted for by the equity
method. Significant consolidation difference between theinvestment cost and net assets at the date of acquisition areamortized over 5 years. In case of amounts being insignificant, such amounts are charged or credited to income as
incurred.
In the elimination of investments in subsidiaries, theassets and liabilities of the subsidiaries, including the portion attributable to minority shareholders, are recorded

based on the fair value at the time the Company acquired
control of the respective subsidiaries.
Consolidated statements of cash flows
In preparing the consolidated statements of cash flows,
cash on hand, readily available deposits and short-term
highly liquid investments with maturity not exceeding threemonths at the time of purchase are considered to be cash
and cash equivalents.
Marketable and investment securities
Held-to-maturity debt securities are stated at amortizedcost. Available-for-sale securities with fair market values arestated at fair market value. (Unrealized gains and unrealized
losses on these securities are reported, net of applicable
income taxes, as a separate component of the net assets,
Realized gains on sale of such securities are computed using
the moving-average method.) Equity securities issued bysubsidiaries and affiliated companies, which are not consolidated or accounted for using the equity method, are statedat moving-average cost. Unlisted available-for-sale securities
are stated at cost based on the moving-average method.
Inventories
Work in process is stated principally at cost based on thespecific identification method. Finished products, semi-finished products, raw materials and supplies are stated principally at cost based on the average method.
Some subsidiaries of construction machinery segment
adopted the lower of cost or market method based on thespecific identification method for the valuation of certain
finished products.
Depreciatiopd Amortization
Tangible assets: Buildings acquired between April 1, 1998
and March 31, 2007 are depreciated using the former
straight-line method. Buildings acquired after April 1, 2007
are depreciated primarily by using the revised straight-line
method. Other tangible assets acquired on or before March
31, 2007 are depreciated primarily by using the former
declining-balance method and those acquired after April 1,
2007 are depreciated primarily by using the revised declining-balance method.
Following the amendments of the Corporation Tax Law
of Japan, the method of depreciation applied to the tangible
assets acquired by the Company and domestic consolidated
subsidiary after April 1, 2007 was changed. Due to thischange, the gross profit was ¥681 million ($6,805 thousand) less, the operating income and income before income
taxes and minority interests were ¥681 million ($6,805

48 > 49

thousand) less respectively compare to the figures if theaccounting prior to the change had been applied.
Also, due to the amendment of the Corporation Tax Law
of Japan, effective April 1, 2007, when tangible fixed assets
acquired by the Company and consolidated subsidiaries
before March 31 2007 are depreciated to their allowable
depreciation limits, amounts of such depreciation limits arerecognized as depreciation expense equally over five years
commencing from the year immediately after the year inwhich the allowable depreciation limits have been reached.
This resulted in a decrease in the gross profit in theamount of ¥689 million ($6,891 thousand) and a decreasein the operating income and income before income taxes
and minority interests in the amount of ¥689 million ($6,891
thousand), respectively.
Allowance for doubtful receivables
The Company and consolidated subsidiaries provide a general allowance for doubtful receivables. Calculation of thisallowance is based on historical collection losses incurred in
the past. Additionally, for accounts receivable considered atrisk (bankruptcy, companies under rehabilitation plan), an
allowance is booked based on an estimation of the uncollectible amount, on a case-by-case basis.
Revaluation difference on land
The Company revaluated land used for business operations
on march 31, 2002 in accordance with Enforcement Ordinance for the Law Concerning Revaluation Reserve for Landeffective March 31, 1998. As a result of the revaluation, theland, which previously had a book value of ¥32,412 million,
was revaluated at ¥109,349 million, which is determined primarily based on real estate tax value. The Company recorded¥44,585 million as revaluation reserve for land in net assets
section, after reflecting deferred income tax effects of¥32,352 million which were recorded as long-term liabilities.
The current value of the land on March 31, 2008 fell
¥21,798 million ($217,983 thousand) in comparison withthe book value of the land after revaluation.
Employees’ severance and retirement benefits
In order to provide for retirement benefits to be paid to
employees, the amount considered to have accrued as at
the end of the term is stated based on the estimatedamount of retirement benefit obligations and pension plan
assets as at the end of the term.
The prior service cost will be recognized in expenses as
incurred by the Company, and will be recognized in
expenses in equal amounts over a period within the averageremaining service year of employees (mainly 12 years) byconsolidated subsidiaries.
The actuarial gains (losses) will be recognized in expenses
in equal amounts over a period within the average remaining service year of employees (mainly 12 years) commencing with the next year of the accrual.
Retirement benefits for directors, corporate auditorsand executive officers (collectively, “officers”)
The Company and certain of the Company’s consolidated
subsidiaries resolved to abolish their retirement benefit
plans for directors, corporate auditors and executive officers(collectively, “officers”), and provided liabilities for such
benefits at the amounts corresponding to the considerations for the service period until the plan abolishment.
The company reclassified this liability to other non-current liabilities pursuant to “Auditing Treatment Relating toReserve Defined under the Special Tax measurement Law,
Reserve Defined under the Special Law and Reserve for
Director and Corporate Auditor Retirement Benefits” (TheJapanese Institute of Certifies Public Accountants (JICPA)
Auditing and Assurance Practice Committee Report No. 42
revised on April 13, 2007). The amount for 2007 (¥896 million), which was presented separately as Allowance forretirement benefits for directors, corporate auditors andexecutive officers in the consolidated balance sheet, hasbeen reclassified and included in Other non-current liabilities to conform to the 2008 presentation.
Allowance for warranty
In order to provide for expenditure for repair work to be
performed free of charge after delivery of products, thisamount is stated based on the past experience of such
repair work actually performed.
Allowance for losses on construction contract
With regard to construction contracts that have not yet beendelivered and are with high probability of generating substantial losses at the end of the fiscal year, and where it ispossible to reasonably estimate the amount of such losses,
the estimated amount of losses to be incurred in the future isprovided as allowance for losses on construction contract.
Allowance for losses from business reorganization
Allowance for losses from business reorganization is provided at an estimated amount to be incurred in the futurewith regard to reorganization of an overseas subsidiary.

Allowance for losses from business transfer
Allowance for losses from business transfer is provided at
an estimated amount to be incurred in the future in connection with the resort development business transferred in
2007.
Allowance for losses from product liabilities
Allowance for losses from product liabilities is provided at
an estimated amount of product liabilities to be incurred
related to the crane business of overseas subsidiaries.
Accounting Standard for Statement of Changes in Net
Assets
Effective from the year ended March 31, 2007, companies
are required to adopt the new accounting standard,“Accounting Standard for Statement of Changes in Net
Assets” (Statement No. 6 issued by the Accounting Standards Board of Japan on December 27, 2005), and theimplementation guidance for the accounting standard forstatement of changes in net assets (the Financial Accounting Standard Implementation Guidance No. 9 issued by the
Accounting Standards Board of Japan on December 27,2005), (collectively, “the New Accounting Standards”).
Sales
Sales are principally recognized on a delivery basis except
those for long-term (over 1 year) contracts of ¥1 billion or
more, which are recognized, based on the percentage-ofcompletion method.
Software costs
The Companies amortize costs of software for its own use
using the straight-line method over the estimated useful life
(5 years).
Research and development costs
Research and development costs included in production
cost, and selling, general and administrative expenses were
¥9,960 million ($99,600 thousand) and ¥8,599 million forthe years ended March 31, 2008 and 2007, respectively.
Income taxes
The Companies recognize tax effects of temporary differences between the financial statement basis and the tax
basis of assets and liabilities.
The Company and some of the consolidated subsidiaries
adopted the Japanese tax regulations allowing the Company to file a consolidated tax return.

Foreign currency translation
Receivables and payables in foreign currencies are translated
into Yen at year-end rates.
All asset and liability accounts of foreign subsidiaries andaffiliates are translated into Yen at balance sheet date ratesof each foreign subsidiaries, except for common stock andcapital surplus, which are translated at historical rates.
Income and expense accounts are translated at balance
sheet date rates. The adjustment resulting foreign currencytranslation is reported in net assets.
Information for Certain leases as Lessee
The Company and consolidated domestic subsidiaries
account for finance leases which do not transfer ownershipof leased assets to lessees as operating leases.
Matters Related to Amortization of Goodwill
Goodwill is amortized based on the straight-line method
over the 5-year period that the effect of investment is
expected to appear.
However, where goodwill is in a small amount, all suchamount is amortized at the time of generation.
Derivatives and hedge accounting
Derivative financial instruments are stated at fair value andchanges in the fair value are recognized as gains or losses
except for hedging purposes. When derivatives meet thehedging criteria, the Companies defer recognition of gains
or losses resulting from changes in fair value of derivatives
until the related losses or gains on the hedged items arerecognized.
However, if forward foreign exchange contracts meetcertain hedging criteria, the Company accounts for as
follows;
When a forward foreign exchange contract is executedto hedge an existing foreign currency receivable or payable,a) T he difference, if any between the Yen amount of thehedged foreign currency receivable or payable translatedusing the spot rate at the inception date of the contract
and the book value of the receivable or payable is recognized in the income statement in the period which
includes the inception date, andb) The discount or premium on the contract (that is, the difference between the Yen amount of the contract using
the contracted forward rate and that using the spot rate
at the inception date of the contract) is recognized over
the term of the contract.
When a forward foreign exchange contract is executedto hedge a future transaction in a foreign currency, thefuture transaction will be recorded using the contracted for-

50 > 51

ward rate, and no gains or losses will be recognized.
When interest rate swap contracts meet certain hedging
criteria, the net amount to be paid or received is added toor deducted from the interest on the assets or liabilities forwhich the swap contract was executed.
When currency option contract is executed to hedge afuture transaction in a foreign currency, the future transaction will be recorded using the contracted forward rate,
and no gains or losses on the currency option contract arerecognized.
Amounts per share
The computation of net income per share of common stockis based on the weighted-average number of shares ofcommon stock outstanding during each fiscal year.
The diluted net income per share is not presented,
because the Company does not have any outstanding convertible bonds or bonds with warrant.
Year-end cash dividend will be determined at shareholders’ meeting held after the end of fiscal year.
Reclassifications
Certain amounts in the consolidated financial statements
for the year ended March 31, 2007 have been reclassified
to conform to the 2008 presentation.
Change in accounting policies(a) Accounting standard for presentation of net assets
in the balance sheet
Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new
accounting standard, “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Statement No.5
issued by the Accounting Standards Board of Japan on
December 9, 2005), and the implementation guidance forthe accounting standard for presentation of net assets inthe balance sheet (the Financial Accounting Standard Implementation Guidance No. 8 issued by the Accounting Standards Board of Japan on December 9, 2005), (collectively,“the New Accounting Standards”).
The consolidated balance sheet as of March 31, 2008
and 2007 are prepared in accordance with the New
Accounting Standards comprises three sections, which are
the assets, liabilities and net assets sections.
(b) A ccounting Standard for Business Combinations
and Accounting Standard for Business Divestitures
From the year ended March 31, 2007, the Company
adopted “accounting standards concerning business combination” (issued by the business accounting deliberation

council on October 31, 2003), “Accounting standards concerning business separation, etc., ”(ASBJ statement No.7
December 27, 2005) and “the accounting standards implementation Guide concerning business combination andbushiness separation, etc.” (ASBJ statement implementation guide No. 10, finally amended on December 22,2006).
There were no effects on the consolidated statements ofincome for the year ended March 31, 2007.
Business combinations(A) Nihon Spindle Manufacturing Co., Ltd. became aconsolidated subsidiary resulting from its stock
exchange transaction.
1. General information
On October 1, 2007, Nihon Spindle Manufacturing Co.,
Ltd., an affiliate of the Company (“Nihon Spindle”),
entered into a stock exchange agreement with Izumi
Food Machinery Co., Ltd. (“Izumi Food”) and SNM Fastener Co., Ltd. (“SNM” and on October 1, 2007, thiscompany changed the name of SFK Fastener Co., Ltd),
both of which are wholly owned subsidiaries of theCompany.
In line with the stock exchange agreement executedby Nihon Spindle, the Company acquired additional
16.2% of the voting rights in Nihon Spindle. As a result,
the Company owns more than 40% of voting rights of
Nihon Spindle. Since the Company satisfies certain otherconditions evidencing the existence of control overNihon Spindle, Nihon Spindle has become a consolidated subsidiary of the Company.
2. Business of the entity combined
Nihon Spindle manufactures and sells environmental
equip­ment, air-conditioning equipment, industrial equip­
ment and construction materials.
3. Overview of the transaction including its purpose
Through this stock exchange agreement, Nihon Spindle
acquired Izumi Food and SNM as its wholly owned subsidiaries. These acquisitions will enable Nihon Spindle toaccelerate the completion of its growth strategies andexpand the scope of its operations while benefiting thetwo acquired companies through synergistic effects.
Also, as a result of the stock exchange, Nihon Spindle
has been made a subsidiary of the Company, and thiswill allow the Company to implement its growth strategies in a more effective manner.

4. The ratio for the stock exchange
Stock exchange ratio

Nihon Spindle....................................................... 1.0
Izumi Food........................................................... 3.2
SNM..................................................................... 2,000
Notes: 1. Ratio for the stock exchange
3.2 share of Izumi Food and 2,000 share of SNM were
exchanged for one share of the common stock of Nihon
Spindle.
		

2. Method of calculation and basis of calculation by a thirdparty institution
Nihon Spindle requested Nomura Securities Co., Ltd.
(“Nomura Securities”) to calculate the ratio for the stock
exchange, while Izumi Food and SNM engaged Sumitomo
Mitsui Banking Corporation (“SMBC”). Nomura Securities
conducted an analysis with respect to Nihon Spindle,
based on the historical stock price analysis method, thediscounted cash flow (DCF) method and the comparable
company analysis method. Nomura Securities also conducted an analysis on Izumi Food and SNM using the DCF
method and the comparable company analysis method.
Izumi Food and SNM are not publicly listed companies. Therefore, the results of the historical stock priceanalysis of Nihon Spindle and the comparable company
analysis of Izumi Food and SNM were considered andexamined prior to the actual application of the historicalstock price analysis method.
SMBC conducted an analysis of Nihon Spindle basedon the historical stock price analysis method, the DCF
method and the net assets at fair value method. SMBC
also conducted an analysis with regard to Izumi Food and
SNM, based on the comparable company analysis
method, the DCF method and the net assets at fair value
method.
With reference to proposals submitted by the aforementioned third-party institutions on the stock exchange
ratio and with due consideration given to their own
financial standing, performances and stock price trends,
Nihon Spindle, Izumi Food and SNM agreed and madedecisions on the stock exchange ratio at their individualboard of directors meetings held on May 8, 2007.

5. Number of shares delivered and estimated value
Number of shares delivered
to Nihon Spindle.............................. 10,380,000 shares
Estimated value................................. 3,332 million yen
The estimated value was calculated based on the average share price over a reasonable period prior to thedate of agreement and public announcement of themain terms and conditions of the stock exchange, multiplied by the number of shares planned to be delivered.

6. Results of operations of Nippon Spindle for the following period are included in the consolidated financial statements
October 1, 2007 to March 31, 2008
7. Acquisition costs
Acquisition priceNihon Spindle stocks.......................... 3,332 million yen
Acquisition costs................................. 3,332 million yen
8. Goodwill(1) Amount of goodwil.........................(313) million yen(2) Reason that the goodwill arose
The goodwill was recognized as a difference between
Nihon Spindle’s net asset and the value of acquired
Nihon Spindle’s share.
(3) Amortization of goodwill
Goodwill is fully amortized when generated.
(B) Demag Ergotech GmbH and two other Demag Plastics Group companies (“Demag Group”) became
wholly owned subsidiaries of the Company.
1. General information
The Company acquired Demag Group on March 3,
2008, making Demag Group a wholly owned subsidiary.
The legal form of the transaction is a purchase ofstock (100% of the voting rights).
2. Business of the entities combined
Demag Ergotech GmbH (“Demag Ergotech”) and twoother Demag Group companies manufacture, sell andprovide services relating to plastics machinery.
3. Overview of the transaction including its purpose
By making Demag Ergotech and two other DemagGroup companies its wholly owned subsidiaries, theCompany aims to accelerate and bolster its plastics
machinery business in the global market.
Following the Company’s acquisition of the DemagGroup’s shares, Demag Ergotech and two other DemagGroup companies have become the Company’s wholly
owned subsidiaries.

52 > 53

4. Acquired companies’ financial results for 2008
As Demag Group companies were deemed to have beenacquired on March 31, 2008, the financial results of theacquired companies’ operation are not included in the
Company’s consolidated financial statements for theyear ended March 31, 2008.

The stock exchange was implemented as a simplified
stock exchange under Article 796 Paragraph 3 of the
Corporate Law, and the Company acquired additional
50.8% of the voting rights of SEISA Gear, including
4.8% of indirect ownership. As a result of the stock
exchange, the Company owns 100% of SEISA Gear.

5. Acquisition costs

4. The ratio for the stock exchange

Acquisition price................................ 12,083 million yen
Actual expenses in connection
with the acquisition.........................
696 million yen
Acquisition costs................................ 12,779 million yen
6. Goodwill(1) Amount of goodwill .....................6,663 million yen(2) Reason that the goodwill arose
The goodwill arose from the difference between thepurchase price, which had been agreed in considerationof the valuation by a third party institution, and the net
assets measured at fair value as of the date ofacquisition.
(3) Amortization of goodwill
Goodwill is amortized using the straight-line method
over a five-year period.
(C) Stock exchange
1.General information
As of October 1, 2006, the Company executed a stock
exchange with SEISA Gear, Ltd. (“SEISA Gear”), a consolidated subsidiary of the Company, with SEISA Gear
being the acquired company of the transaction. The
stock exchange was recognized as a transaction withminority shareholders.
2. Business of the entity combined
Business of SEISA Gear is manufacture and sales of gear,
gear transmission, various reduction gears and various
coupling.
3. Overview of the transaction including its purpose
With the stock exchange, SEISA Gear expects to construct a system for utilization of the technology andhuman resources of the Company in order to achieve
current targets of the enhanced competitiveness of
products that respond to the diversified customers’
needs and global sales development.

Stock exchange ratio

The Company......................................................... 1.0
SEISA Gear............................................................. 0.36
Notes: 1. Share exchange ratio
0.36 share of the common stock of the Company wasprovided in exchange for one share of the common stockof SEISA Gear. However, no shares of the Company havebeen allotted to the shares of the common stock of SEISA
Gear owned by the Company (8,200,000 shares).
		

2. Method of calculation and basis of calculation by a third
party institution
The Company and SEISA Gear asked Daiwa Securities
SMBC Co. Ltd. and Nomura Securities Co., Ltd. respectively, to calculate the stock exchange ratio. Daiwa Securities SMBC Co. Ltd. conducted an analysis with respect toboth the Company and SEISA Gear, based on the market
share-value method as well as the discount cash flow
method, and determined the stock exchange ratio bycomprehensively considering the results of these analyses.
Nomura Securitie Co., Ltd. conducted an analysis of theCompany based on the market share-value averagemethod and an analysis of SEISA Gear based on the market stock value average method, the comparison withsimilar companies method and the discount cash flow
method. And then, Nomura Securities Co., Ltd. determined the stock exchange ratio by comprehensively considering the results of the analyses. Based on the above
results, the Company and SEISA Gears determined thestock exchange ratio as indicated above throughdiscussions.

5. Number of shares delivered and estimated value
Number of shares delivered
to SEISA Gear................................... 3,100,809 shares
Evaluation.......................................... 3,805 million yen
This amount is the estimated issue price that was calculated based on the average share price during a reasonable period before the main terms and conditions of thestock exchange had been agreed on and announced tothe public, multiplied by the number of shares planned
to be delivered.

6. Goodwill(1) Amount of goodwill.......................1,310 million yen(2) Reason that the goodwill arose
The goodwill represents the difference between thevalue of the shares delivered to shareholders, excluding
the Company’s consolidated subsidiary, and the amountof the equity held by minority shareholders.

Refer to the Note of Business combination (B), the company acquired Demag Group.
The following table summarizes the assets and liabilities
of Demag Group at acquisition date as well as the stockacquisition price and net expense.
Demag Ergotech GmbH and two other Demag Group
companies (as of March 3, 2008)
Millions of yen(3) Amortization of goodwill
Goodwill will be amortized evenly in 5 years.
		
2. Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months orless. Those are readily convertible to known amounts ofcash and have negligible risk of changes in value.
Cash and cash equivalents as of March 31, 2008 and2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Cash and deposits......................
Time deposits with maturities
over three months...................
Collateral deposits.....................

¥30,256¥48,155$302,560

(32)
(345)

(288)
(344)

(320)
(3,453)

Cash and cash equivalents.........

¥29,879¥47,523$298,787

2008
Current assets................................................. ¥ 17,041
Non-current assets..........................................
5,369

Thousands of
U.S. dollars

2008$ 170,405
53,695

Goodwill generated........................................

6,663

66,630Current liabilities.............................................
Non-current liabilities......................................

(10,860)(5,434)(108,604)(54,340)

Acquisition cost of stock................................. ¥ 12,779
Cash and cash equivalents..............................
(293)$ 127,786(2,925)(542)(5,417)

Net payment for acquisition of shares ofsubsidiary resulting in change in scope of
consolidation................................................ ¥ 11,944$ 119,444

Amount to be paid.........................................

The Company sold all shares of a consolidated subsidiaryin the year ended March 31, 2007. The following tablesummarizes assets and liabilities of the subsidiary.
SHI Resort Development, Ltd. (as of September 20th,
2006)
Millions of yen

Refer to the Note of Business combination (A), the company acquired additional voting rights of an affiliate Nihon
Spindle, which became a consolidated subsidiary as aresult.
The following table summarizes the assets and liabilities
of Nihon Spindle at acquisition date as well as the stockacquisition price and related expense.
Nihon Spindle Manufacturing Co., Ltd. (as of October 1, 2007)
Millions of yen

Thousands of
U.S. dollars

2008

2008

Current assets................................................. ¥ 9,544
Non-current assets .........................................
8,442$ 95,443
84,424

Goodwill generated........................................

(313)(3,129)Current liabilities.............................................
Non-current liabilities......................................

(5,202)(2,710)(52,021)(27,103)

Acquisition cost of stock................................. ¥—Cash and cash equivalents..............................
1,390
Receipt of funds of the subsidiarythrough the stock exchange.......................... ¥ 1,390$—
13,899$ 13,899

2007
Current assets.......................................................................

¥ 323

Non-current assets................................................................

2,798

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

¥3,121

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

3,853

Non-current liabilities............................................................

459

Total liabilities...................................................................

¥4,312

54 > 55

The proceeds from sale of the shares of SHI Resort
Development, Ltd. are included in the proceeds from transfer of resort development business as described below.
Decrease of assets and liabilities caused by business
transfer.
The following table summarizes the decreases in assets
and liabilities, and the proceeds from transfer of resort
development business.
Millions of yen

2007
Current assets.......................................................................

¥ 1,481

Non-current assets................................................................

6,303

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

(340)

Non-current liabilities............................................................

(459)

Loss on business transfer.......................................................

(1,270)Consideration of business transfer........................................

¥ 5,715

Cash and cash equivalents of SHI Resort Development, Ltd.
as of the deconsolidation date............................................

(135)

Net transfer of resort development business..........................

¥ 5,580

The following table summarizes the decrease in assets andthe proceeds from transfer of sliding gate business.
Millions of yen

2007
Current assets.......................................................................

¥ 21

Gain on business transfer......................................................

294

Consideration of business transfer........................................

¥315

Cash and cash equivalents....................................................

—Net transfer of resort development business..........................

¥315

3. Inventories
Inventories as of March 31, 2008 and 2007 were as
follows:
Millions of yen

Thousands of
U.S. dollars

2008

2007

2008

Finished products andsemi-finished products.............

¥ 39,716¥ 31,348$ 397,164

Work in process.........................

70,74953,915

707,491

Raw materials and supplies........

19,985

15,256

199,846

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

¥130,450¥100,519$1,304,501

4. Impairment losses of fixed assets
The Company and certain consolidated domestic subsidiaryrecognized the following impairment losses in the year
ended March 31, 2008 and 2007.
Millions of Thousands ofyen
U.S. dollars

2008
Application Category

Location

2008

2008

Business
Property

Land, etc.

Shinoyama, Hyogo-pref.

¥459$4,585Idle

Equipment

Yokosuka,
Kanagawa-pref.

174

1,735

Idle

Building, etc. Chiba, Chiba-pref.

51

512

Idle

Machinery

16

167

¥700

$6,999

Tadaoka, Osaka-pref.

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

Millions of
yen

2007
Application Category

Location

2007

Business
Property

Building and structures

Miyakonojo,
Miyazaki-pref.

¥183

Idle

Machinery anddelivery equipment

Yokosuka,
Kanagawa-pref.

25

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

¥208

Reason for recording impairment loss
Due to the decrease in profitability and changes in businessplan, it is not expected that invested money can berecovered.
Method of grouping of assets
Asset grouping is determined for each operation group
basically. Idle assets that are not expected to be used in the
future are evaluated by each item.
Method of calculation of recoverable amountThe recoverable amount is based on the net sale price; it iscalculated by deducting costs related to sale from the saleprice.

5. Bank loans, commercial paper
and long-term debt
Bank loans at March 31, 2008 and 2007 consisted of shortterm loans, bearing interest principally at 1.13% and 1.05%
per annum, respectively.
At March 31, 2008 and 2007 commercial paper principally bore an average annual interest rate of 0.66%. Longterm debt at March 31, 2008 and 2007 was follows:
Millions of yen

2008
1.0 % domestic bonds due inMarch 2010.............................

¥10,000

2007¥10,000

2008$100,000

Secured..................................

2,759

3,486

27,590Unsecured..............................

41,876

37,849418,768¥54,635¥51,335$546,358

Amount due within one year.....

2,724

14,28527,244

Amount due after one year........

51,91137,049519,114Annual maturities of long-term debt as of March 31, 2008
were as follows:
Millions of yen

Thousands of
U.S. dollars

2008

2008

2009..............................................................

¥ 2,724$ 27,244

2010..............................................................

11,189111,888

2011..............................................................

10,428104,278

2012..............................................................

4,095

40,9542013..............................................................

18,800188,0002014 and thereafter........................................

7,399

73,994

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Loans principally from banks
and insurance companies due
serially through March 2015
with interest ranging from
1.07% to 2.20% in 2008........

Year ending March 31

With the aim of ensuring its ability to raise operating funds
in a timely manner, the Company has agreements with 12banks for revolving lines of credit and with four banks for
global commitment lines.
At March 31, 2008 and 2007, assets pledged as collateral for loans, long-term loans from banks and insurancecompanies and domestic mortgage bonds were as follows:

2008

2008

2007

Cash and deposits...................... ¥368

Trade receivables........................

—

112

—

Buildings and structure..............

2,488

2,127

24,885

Machinery and vehicletransportation tool...................

362

451

3,615

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

36,46436,535364,644

Other plant and equipment........

155

143

1,552

Total...................................... ¥ 39,837¥39,712$ 398,373

¥

344

$

3,677

The Company has agreements with twelve banks forrevolving lines of credit and four global commitment lines
for timely operating-fund raising in the aggregate.
At March 31, 2008 and 2007, bank loans unexecutedbalance etc. related to revolving lines of credit are as
follows:
Millions of yen

Limit loan revolving line of credit
and global commitment lines.....

Thousands of
U.S. dollars

2008

2007

2008

¥46,019¥26,809$460,190

The amount of loan...................

3,046

3,129

30,457Net unused................................

¥42,973¥23,680$429,733

6. Income Tax
The Companies are subject to a number of income taxes,
which, in the aggregate indicate a statutory tax rate inJapan of approximately 41% for the years ended March 31,
2008 and 2007.
Since the effective tax rate for consolidated financial
statement purposes for the year ended March 31, 2008 and2007 differed from the statutory tax rate by less than 5%,
disclosure of reconciliation between these tax rates isomitted.

56 > 57

Significant components of deferred tax assets and liabilities as of March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

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

¥ 3,724¥ 3,403$ 37,241

Allowance for doubtful accounts....

776

1,553

7,765

Allowance for warranty...............
Allowance for employees’
severance and retirement
benefit......................................
Profit/loss from deferred hedge...

2,112

1,937

21,122

15,652—

15,066
1,134

156,521—

Unrealized profit on inventories....

1,599

1,299

15,991

Devaluation of marketablesecurities and investments.........

1,639

1,549

16,390

Excess depreciation.....................

1,067

829

10,665

Operating losses carry forward....

3,025

2,840

30,245

Deferred tax assets:

Others........................................

6,824

4,123

68,235

Total deferred tax assets..............

36,41833,733364,175

Less-valuation allowance.............

(7,516)(5,966)(75,160)

Deferred tax assets-net............... ¥ 28,902¥ 27,767$ 289,015

Deferred tax liabilities:
Excess tax depreciation reserve....

(97)

(135)

(968)

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

(1,441)(5,918)(14,411)Difference on revaluation of assets
and liabilities of subsidiaries.........

(4,115)(1,849)(41,154)

Accelerated depreciation.............

(471)

(335)

(4,709)Retained earnings in consolidated
subsidiaries overseas...................

(4,170)(2,782)(41,696)

Others........................................

(2,237)(31)(22,372)

Deferred tax liabilities.................. ¥(12,531)¥(11,050)$(125,310)¥ 16,371¥ 16,717$ 163,705

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

7. Net assets
The Japanese Corporate Law (“the Law”) became effective
on May 1, 2006, replacing the Japanese Commercial Code(“the Code”). The Law is generally applicable to events andtransactions occurring after April 30, 2006 and for fiscal
years ending after that date.
Under Japanese laws and regulations, the entire amount
paid for new shares is required to be designated as common stock. However, a company may, by a resolution of theBoard 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.
Under the Law, in cases where a dividend distribution of
surplus is made, the smaller of an amount equal to 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-capitalor legal earnings reserve. Legal earnings reserve is included
in retained earnings in the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside
an amount equal to at least 10% of the aggregate amountof cash dividends and other cash appropriations as legal
earnings reserve until the total of legal earnings reserve andadditional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional
paid-in capital could be used to eliminate or reduce a deficit
by a resolution of the shareholders' meeting or could becapitalized by a resolution of the Board of Directors. Under
the Law, both of these appropriations generally require aresolution of the shareholders' meeting.
Additional paid-in capital and legal earnings reserve may
not be distributed as dividends. Under the Code, however,on condition that the total amount of legal earnings reserve
and additional paid-in capital remained equal to or exceeded
25% of common stock, they were available for distribution
by resolution of the shareholders’ meeting. Under the Law,
all additional paid-in-capital and all legal earnings reserve
may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available fordividends.
The maximum amount that the Company can distributeas dividends is calculated based on the non-consolidated
financial statements of the Company in accordance withJapanese laws and regulations. The maximum amount thatthe company can distribute as dividends at March 31.2008
amounted to ¥38,924 million ($389,243 thousand).
The shareholders expect to approve cash dividends
amounting to ¥3,018 million ($30,179 thousand) on June27, 2008. Such appropriations have not been accrued in
the consolidated financial statements as of March 31, 2008.
The appropriations are recognized in the period in which
they are approved by the shareholders.
8. Contingent liabilities
Certain consolidated domestic subsidiary is contingently liable as endorsers of trade notes receivable discounted withbanks in the amount of ¥3,827 million ($38,270 thousand)and ¥3,201 million at March 31, 2008 and 2007. In addition, at the same date the Company and certain consolidated subsidiaries are contingently liable as guarantors ofbank loans or other borrowings by unconsolidated subsidiaries, affiliated companies and employees in the amount of¥8,193 million ($81,934 thousand) and ¥6,114 million,
respectively (net of guarantees by co-guarantors).

9. Segment information(A) The Companies’ primary business activities include (1) mass-produced machinery, (2) environmental protection facilities,
plants & others, (3) ship, steel structure & other specialized equipment, (4) industrial machinery, and (5) construction
machinery.
A summary of net sales, costs and expenses, and operating income by segment of business activities for the years ended
March 31, 2008 and 2007, and a summary of identifiable assets, depreciation expenses and capital expenditures by segment of business activities for the years ended March 31, 2008 and 2007 are presented below:
Millions of yen

2008

Environmental
protection
facilities,
Mass-produced
plants &machineryothers

Ship, steel
structure &otherspecialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated

I Sales and operating income
Sales:
Outside customers....................................................

¥232,593¥91,250¥ 76,393¥81,163¥179,370—¥660,769

Inter-segment...........................................................

2,887

2,428

1,282

362

7

¥

(6,966)—

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

235,479

93,67977,675

81,525

179,377(6,966)

660,769

Costs and expenses...................................................

207,272

86,77563,582

69,407163,091(7,147)582,980

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

¥ 28,208¥ 6,903¥ 14,094¥12,118¥ 16,286¥

181¥ 77,790

II Identifiable assets.......................................................

¥290,189¥69,296¥105,624¥61,033¥137,097¥15,395¥678,634

Depreciation expenses..............................................

7,392

1,056

2,061

1,355

1,924

—

13,788

Impairment losses of fixed assets...............................

632

68

—

—

—

—

700

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

13,911

2,305

5,521

2,577

3,866

—

28,180Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated

Millions of yen

2007

Environmental
protection
facilities,
Mass-produced
plants &machineryothers

Ship, steel
structure &otherspecialized
equipment

I Sales and operating income
Sales:
Outside customers....................................................

¥222,906¥79,397¥69,491¥68,286¥160,177

Inter-segment...........................................................

2,160

2,490

511

423

31

¥

—

¥600,256(5,615)—

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

225,066

81,88870,002

68,709160,208(5,615)600,256

Costs and expenses...................................................

196,222

77,39363,28759,182

145,812(5,865)536,032

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

¥ 28,844¥ 4,495¥ 6,715¥ 9,527¥ 14,396¥250¥ 64,224

II Identifiable assets.......................................................

¥239,031¥59,213¥88,760¥50,451¥123,991¥ 39,444¥600,890

Depreciation expenses..............................................

5,601

892

1,250

1,240

1,666

—

10,649Impairment losses of fixed assets...............................

—

—

—

25

183

—

208

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

9,188

1,124

1,606

2,497

2,842

—

17,257

58 >59

Thousands of U.S. dollars

2008

Environmental
protection
facilities,
Mass-produced
plants &machineryothers

Ship, steel
structure &otherspecialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated$

I Sales and operating income
Sales:
Outside customers.................................................... $2,325,925$912,499$ 763,934$811,629$1,793,704—$6,607,692

Inter-segment...........................................................

28,86824,27912,8223,620

65(69,654)—

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

2,354,793

936,778

776,756

815,249

1,793,770(69,654)

6,607,692

Costs and expenses...................................................

2,072,715

867,747

635,819

694,071

1,630,914(71,469)

5,829,797

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

$ 282,078$ 69,031$ 140,938$121,178$ 162,856$ 1,814$ 777,895

II Identifiable assets....................................................... $2,901,892$692,955$1,056,245$610,330$1,370,971$153,948$6,786,341

Depreciation expenses..............................................

73,924

10,562

20,613

13,546

19,240—137,885

Impairment losses of fixed assets...............................

6,322

677

—

—

—

—

6,999

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

139,108

23,04955,21025,77038,660—281,797

Identifiable assets under the elimination and/or corporate column primarily are consisted of cash and time deposits and marketable securities.

Change in distribution method for costs and expenses
Prior to 2008, the Company distributed expenses associatedwith administrative divisions to applicable segments only tothe segments of which business units belong to company.
To reflect the administrative divisions’ greater involvementwith the Company’s consolidated group companies due toincreased business spin-offs, the Company decided to makea distribution of a portion of costs and expenses associatedwith administrative divisions into all segments.
In accordance with this change, certain figures included
under segment information differ from what they would
have been had the previous distribution method been
applied. Thus, in the Mass-produced machinery segment, a¥1,348 million ($13,482 thousand) decrease in costs andexpenses resulted in an increase of the same amount in
operating income; in the Environmental protection facilities,
plants & others segment, a ¥480 million ($4,804 thousand)decrease in costs and expenses resulted in an increase of
the same amount in operating income; in the Ship, steel
structure & other specialized equipment segment, a ¥265
million ($2,650 thousand) increase in costs and expenses
resulted in a decrease of the same amount in operating
income; in the Industrial machinery segment, a ¥310 million($3,097 thousand) increase in costs and expenses resulted
in a decrease of the same amount in operating income; andin the Construction machinery segment, a ¥1,254 million($12,540 thousand) increase in costs and expenses resulted
in a decrease of the same amount in operating income.

Change in segment affiliation for the year ended
March 31, 2007
Japan Electron Beam Irradiation Service Co., Ltd. and SHI
Examination and Inspection Ltd. have been transferred to
the Mass-produced Machinery segment from 2007 due tochanges in organizational management of the Company.
The two companies had formerly been grouped into theEnvironmental Protection Facilities, Plants and Others segment and the Ship, Steel Structures and Other Specialized
Equipment segment, respectively.
Compared to previous method, these changes haveresulted in the following increase for the Mass-produced
Machinery segment and decreases in the Environment Protection Facilities, Plants and Others segment, and the Ship,
Steel Structures and Other Specialized Equipment segment.
Mass-produced Machinery segment: Increase of ¥1,960
million in sales, ¥1,423 million in operating expenses, ¥537
million in operating profit, ¥1,717 million in assets, ¥152
million in depreciation expenses, and ¥572 million in capital
expenditures.
Environmental Protection Facilities, Plants and Others
segment: Decrease of ¥745 million in sales, ¥593 million in
operating expenses, ¥152 million in operating profit, ¥403
million in assets, ¥19 million in depreciation expenses, and¥72 million in capital expenditures.
Ship, Steel Structures and Other Specialized Equipment
segment: Decrease of ¥2,407 million in sales, ¥1,881 million in operating expenses, ¥526 million in operating profit,¥1,628 million in assets, ¥133 million in depreciation
expenses, and ¥500 million in capital expenditures.

(B) Information by geographic area for the years ended March 31, 2008 and 2007 is as follows:
Millions of yen

2008

Japan

North America

Other areas

Elimination and/or
corporate

Consolidated

I Sales and operating income
Sales:
Outside customers.......................................................

¥537,268¥78,963¥44,538¥—¥660,769

Inter-segment..............................................................

40,351

1,233

13,710(55,294)—

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

577,61980,19658,248(55,294)

660,769

Costs and expenses......................................................

513,355

70,68453,664(54,723)582,980

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

¥ 64,264¥ 9,512¥ 4,584¥(570)¥ 77,790

II Identifiable assets..........................................................

¥533,320¥51,359¥81,426¥ 12,529¥678,634

Millions of yen

2007

Japan

North America

Other areas¥71,264¥34,815

Elimination and/or
corporate

Consolidated

I Sales and operating income
Sales:
Outside customers.......................................................

¥494,178¥—¥600,256

Inter-segment..............................................................

31,671

745

12,330(44,746)—

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

525,849

72,00847,145(44,746)

600,256

Costs and expenses......................................................

472,246

64,054

44,200(44,468)

536,032

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

¥ 53,603¥ 7,954¥ 2,945¥(278)¥ 64,224

II Identifiable assets..........................................................

¥481,001¥43,137¥33,645¥ 43,107¥600,890

Thousands of U.S. dollars

2008

Elimination and/or
corporate

Japan

North America

Other areas

Consolidated

Outside customers.......................................................

$5,372,681$789,627$445,384$—$6,607,689

Inter-segment..............................................................

403,507

12,329137,096(552,932)—

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

5,776,188

801,956

582,480(552,932)

6,607,689

Costs and expenses......................................................

5,133,549

706,836536,642(547,230)

5,829,794

I Sales and operating income
Sales:

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

$ 642,639$ 95,120$ 45,838$ (5,702)$ 777,895

II Identifiable assets..........................................................

$5,333,204$513,593$814,265$ 125,279$6,786,341

Notes: 1. Identifiable assets under the elimination and/or corporate column primarily consisted of cash, time deposits and marketable securities.
2. Other areas include mostly the United Kingdom, Germany, Singapore and China.

(C) Overseas sales of the Companies for the years ended March 31, 2008 and 2007 were as follows:
Millions of yen

2008
Overseas Sales.................................................................

To North America

To Asia

To other areas

Total¥120,380¥108,441¥102,989¥331,810

18.2%

16.4%

15.6%

660,769

Consolidated Sales...........................................................
Overseas sales account for consolidated sales...................

50.2%

60 > 61

Millions of yen

2007
Overseas Sales.................................................................

To North America

To Asia

To other areas

Total¥112,282¥83,811¥80,027

18.7%

14.0%

13.3%

¥276,120

Consolidated Sales...........................................................
Overseas sales account for consolidated sales...................

600,256
46.0%

Thousands of U.S. dollars

2008
Overseas Sales.................................................................

To North America

To Asia

To other areas

Total$1,203,801$1,084,414$1,029,887$3,318,102
6,607,689

Consolidated Sales...........................................................
Overseas sales account for consolidated sales...................

18.2%

16.4%

15.6%

50.2%

Notes: 1. Other areas include mostly the United Kingdom and Germany.
2. Overseas sales consist of export sales by the Company and certain consolidated domestic subsidiaries as well as sales by overseas consolidated subsidiaries.

(D) The effect of the change on segment information
Method of depreciation of depreciable assets
As described in “1. Property, plant and equipment anddepreciation,” the Company and consolidated domestic
subsidiaries changed the depreciation method and amountsof scrap values for certain fixed assets pursuant to theamendment of the Corporation Tax Law effective April 1,
2007.
Under this new depreciation method, in the Mass-produced machinery segment, a ¥802 million ($8,018 thousand) increase in costs and expenses resulted in a decreaseof the same amount in operating income; in the Environmental protection facilities, plants & others segment, a ¥76
million ($764 thousand) increase in costs and expenses
resulted in a decrease of the same amount in operating
income; in the Ship, steel structure & other specialized
equipment segment, a ¥247 million ($2,471 thousand)increase in costs and expenses resulted in a decrease of thesame amount in operating income; in the Industrial machinery segment, a ¥83 million ($825 thousand) increase incosts and expenses resulted in a ¥83 million ($825 thousand) decrease in operating income; and in the Construction machinery segment, a ¥162 million ($1,624 thousand)increase in costs and expenses resulted in a decrease of thesame amount in operating income. In addition, in the geographic area of Japan, a ¥1,370 million ($13,702 thousand)increase in costs and expenses resulted in a decrease of thesame amount in operating income.
10. Information for certain leases
The summary of assumed amounts of acquisition cost,
accumulated depreciation and net book value with respect
to finance leases accounted for in the same manner as

operating leases as of March 31, 2008 and 2007 is asfollows:(A) Lessees
Millions of yen

2008

Accumulated
Acquisition Accumulated impairment
cost
depreciationloss

Net book
value

Machinery andequipment......................

¥27,221¥16,405¥10,816¥—

Others..............................

474

213

—

261

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

¥27,695¥11,029¥—¥16,666

2007

Accumulated
Acquisition Accumulated impairment
cost
depreciationloss

Net book
value

Machinery andequipment......................

¥29,131¥10,376¥143¥18,612

Others..............................

331

183

—

148

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

¥29,462¥10,559¥143¥18,760

Millions of yen

Thousands of U.S. dollars

2008

Accumulated
Acquisition Accumulated impairment
cost
depreciation
loss

Machinery andequipment...................... $272,210 $108,156
Others..............................

4,741

2,135

Total................................. $276,951 $110,291

Net bookvalue$— $164,054
—

2,606

$— $166,660

Total lease payments for finance leases which do nottransfer ownership to lessees amounted to ¥4,543 million($45,429 thousand) and ¥4,559 million for the years ended
March 31, 2008 and 2007, respectively.

Future lease payments as of March 31, 2008 and 2007,
inclusive of interest under such leases were as follows:
Millions of yen

Due within one year...................

Future lease payments as of March 31, 2008 and 2007,
inclusive of interest under such leases were as follows:

Thousands of
U.S. dollars

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

¥ 5,534¥ 5,127$ 55,341

Due within one year...................

2008

2007

2008

¥16

¥14

$156

Due after one year.....................

11,132

13,776111,319

Due after one year.....................

25

28

252

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

¥16,666¥18,903$166,660

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

¥41

¥42

$408

Also, future lease payments under operating leases as ofMarch 31, 2008 and 2007 were as follows:
Millions of yen

Also, future lease payments under operating leases as ofMarch 31, 2008 and 2007, were as follows:

Thousands of
U.S. dollars

Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

2008

2007

2008

Future lease payments...............

¥3,218¥860$32,183

Future lease payments...............

¥815¥1,362$8,147

Including due within one year....

813

665

8,129

Including due within one year....

248

275

2,481

(B) Lessors
Millions of yen

2008

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery andequipment......................

¥74

¥48

¥26

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

¥74

¥48

¥26

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery andequipment......................

¥102

¥70

¥32

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

¥102

¥70

¥32

Thousands of U.S. dollars
Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery andequipment......................

$740

$477

$263

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

$740

$477

$263

2008

2008

2007

2008

¥

¥

$

Held-to-maturity debt securities:
10

10

100

Available-for-sale securities:
Non-listed equity securities.....

2,442

2,394

24,421Others...................................

1,011

1,011

10,109Total..........................................

¥3,463¥3,415$34,630(B) Acquisition costs and book values of securities with fairvalue as of March 31, 2008 and 2007 were as follows:
Millions of yen
Available-for-sale securities

Thousands of
U.S. dollars

2008

2007

2008

¥17,390¥13,339$173,905

Equity securities
Acquisition cost.....................

Total lease payments for finance leases which do nottransfer ownership to lessees amounted to ¥8 million ($81
thousand) and ¥21 million for the years ended March 31,
2008 and 2007, respectively.

Thousands of
U.S. dollars

Millions of yen

Non-listed corporate bonds....

Millions of yen

2007

11. Securities(A) Book values of securities not stated at fair value as ofMarch 31, 2008 and 2007 were as follows:Book value.............................

23,10630,383231,066

Difference..............................

¥ 5,716¥17,044$ 57,161

62 > 63

(C) Total sales amount of available-for-sale securities sold in
the year ended March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen
Available-for-sale securities

2008

2007

2008

Sale of securities........................

¥771¥3,633$7,710Net gain.....................................

689

1,395

6,886

(D) Maturities of available-for-sale securities and held tomaturity securities as of March 31, 2008 and 2007 were as
follows:

Millions of yen

Within one
year

Over oneyear butwithin five
years

Over five
years butwithin ten
years

Over ten
years

Total

Bonds.................

¥—

¥10

¥—

¥—

¥10

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

¥—

¥10

¥—

¥—

¥10

Within one
year

Over oneyear butwithin five
years

Over five
years butwithin ten
years

Over ten
years

Total

Bonds.................

$—

$100

$—

$—

$100

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

$—

$100

$—

$—

$100

2007

Thousands of U.S. dollars

2008

Millions of yen

Within one
year

Over oneyear butwithin five
years

Over five
years butwithin ten
years

Over ten
years

Total

Bonds.................

¥—

¥10

¥—

¥—

¥10

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

¥—

¥10

¥—

¥—

¥10

2008

12. Derivatives information
The Companies enter into forward currency exchange contracts, interest rate swap contracts and currency option
contracts as derivative financial instruments. The Companies deal with forward currency exchange transactions tohedge exchange rate risk of monetary receivables and payables denominated in foreign currencies in order to minimize the risk of exchange rate fluctuations. Interest rate
swap transactions are made in order to minimize the risk ofinterest rate hike on borrowings. The Companies deal withinternational financial institutions with higher credit ratings
as counter-parties of transactions to avoid credit risk exposure. Details of transactions are reviewed and approved byresponsible officials of the Companies in accordance with
the Companies’ internal regulations, which include allowedtransactions and maximum amounts thereof. Counter-parties of derivative transactions are creditworthy financial
institutions, and the Companies believe that the risk ofdefault by the counter-parties is minimal.

(A) Forward foreign exchange contracts
The aggregate amounts contracted to be paid/received and the fair values of forward foreign exchange contracts in Japanese yen of the Companies at March 31, 2008 and 2007 were as follows:
Millions of yen

Thousands of U.S. dollars

2008

2007

2008

To sell foreign currencies.........................................................................................

¥5,785¥7,478$57,847

To buy foreign exchange options.............................................................................

205

—

2,050

To sell foreign exchange options.............................................................................

429

—

4,290

To sell foreign currencies.........................................................................................

5,466

7,544

54,655To buy foreign exchange options.............................................................................

(7)

—

(72)

Contracted amount to be paid/received:

Fair value:

To sell foreign exchange options.............................................................................

(0)

—

(2)

Net unrealized exchange gain (loss).............................................................................

¥ 312¥ (66)$ 3,118(B) Interest rate swap contracts
There were no interest rate swap contracts of the Companies at March 31, 2008 and 2007.

13. Information regarding retirement benefits(A) Projected benefit obligation on the balance sheet date consists of the following:
Millions of yen

Thousands of U.S. dollars

2008

2007

2008

(1) Projected benefit obligation...................................................................................

¥(77,050)¥(66,099)$(770,500)(2) Fair value of employee retirement benefit trust......................................................

41,32551,676413,246(3) Unfunded projected benefit obligation...................................................................

(35,725)(14,423)(357,254)(4) Unrecognized actuarial difference..........................................................................

2,761(10,006)

27,609(5) Unrecognized prior service cost..............................................................................

229

356

2,293

(6) Prepaid pension benefit expenses...........................................................................

(13)

(37)

(129)

(7) Allowance for severance and pension benefit.........................................................

(32,748)(24,110)(327,481)(B) Included in the statements of operation for the years ended March 31, 2008 and 2007 are the following severance andpension benefit expenses:
Millions of yen

Thousands of U.S. dollars

2008

2007

2008

(1) Service cost............................................................................................................

¥3,548¥3,440$35,480(2) Interest cost on projected benefit obligation..........................................................

1,760

1,522

17,602(3) Expected return on plan assets...............................................................................

(723)

(557)

(7,231)(4) Recognized actuarial difference..............................................................................

(572)

(96)

(5,720)(5) Recognized prior service cost.................................................................................

79

35

790

(6) Unrecognized net transition obligation .................................................................

980

—

9,803

(7) Severance and pension benefit expense.................................................................

5,072

4,344

50,724(C) Included in the statements of operation for the years ended March 31, 2008 and 2007 are the following assumptions forcalculating:
2008

2007

(1) Allocation of the estimated amount of all retirement
benefits to be paid at the future retirement date

Equally to each service year using theestimated number of total service years

Equally to each service year using theestimated number of total service years(2) Assumed discount rate

Mainly 2.0%

Mainly 2.0%

(3) Expected rate of return on plan assets

Mainly 0.0%
Mainly 0.0%
(Trust assets for retirement benefits: 0.0%) (Trust assets for retirement benefits: 0.0%)(4) Amortization period of actuarial differences

Mainly 12 years

Mainly 12 years(5) Amortization period of prior service cost

Mainly 12 years

Mainly 12 years

14. Subsequent events
There is no subsequent event that is necessary to describe.

Independent Auditors’ Report64 > 65

To the Board of Directors of Sumitomo Heavy Industries, Ltd.
We have audited the accompanying consolidated balance sheets of Sumitomo Heavy Industries, Ltd. and consolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements of income changes in net assets, cash
flows for the years then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sumitomo Heavy Industries, Ltd. and subsidiaries as of March 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles
generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
As discussed in Note 1 to the consolidated financial statements, effective April 1, 2006, the Company and its consolidated
domestic subsidiaries adopted new accounting standards for the presentation of net assets in the balance sheet.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2008 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.

Tokyo, Japan
June 20, 2008

Glossaryl 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 of 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 theJapanese market for this equipment.

PREST® NEO gear motors

RHYTAX® drivel Plastic injection molding machines
Plastic injection molding machines are used to pour melted plastic into molds. Of the two system types, hydraulic andelectromotive, the latter enables greater molding precision. SHI specializes in the precision, high-cycle molding
required for manufacturing optical discs and connectors and has the top share in Japan for these devices.

Fully electric controlled injection molding machine “SE-DU”

l Cyclotrons
A cyclotron is an accelerator for particles that it ionizes using magnetic force. SHI is the only manufacturer of thesedevices in Japan and has the top share of the domestic market for cyclotrons for positron emission tomography (PET)applications, which are highly effective in discovering and pinpointing cancer cells.

PET radio-tracer production system “HM-12S”

l Super-conductive magnet for silicon monocrystal lifting
Using a super-conductive magnet, this device generates a powerful magnetic field enabling the formation of large
silicon monocrystal ingots. The magnetic field facilitates precise control of the flow of liquid silicon.

Super-conductive magnet for silicon monocrystal liftingl Laser annealing system
Using a laser beam, this device crystallizes amorphous (noncrystal) silicone membrane. It is used in the manufacture ofliquid crystal panels and organic electroluminescent (EL) products.

DPSS laser annealing system “SWA-90GD”

l Cryopumps
This ultrahigh vacuum pump enables impurities to be removed from the air. It removes impurities at the molecularlevel by condensing and trapping gases and vapors on progressively colder surfaces. It can be used at the molecularlevel under very low temperature conditions and is a crucial element in the semiconductor manufacturing process.

Cryopump system SICERA®

l 4KGM cryocooler
This device is capable of cooling to a temperature of -269°C (4K). Used for the recondensation of helium gas(reliquification of evaporated helium), this product has the top share of the global market for magnetic resonanceimaging (MRI) medical applications.

4KGM cryocoolerl Precision positioning stages
Precision positioning stages set the vertical and horizontal positioning of substrates, wafers and other components inprecision processing. 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.
Precision positioning stage SL series “SL-500G”

66 > 67l Circulating fluidized-bed (CFB) boiler
Employing jets of air blown from below to evenly mix fuel particles at a high temperature, this CFB boiler is an efficient
combustors suitable for use with a wide variety of fuels. The CFB boiler can even burn such renewable energy fuels as
low-grade coal and biomass-based fuels.

CFB boilerl Superfine-bubble membrane tube diffuser
Superfine-bubble membrane tube diffusers are used for aeration systems at sewage treatment facilities. The use ofa high-quality silicon rubber membrane for the diffuser tubes contributes to the high performance and durability ofthe systems.

Superfine-bubble membrane tube diffuser MICRUS®

l Aframax tankers
Midsized oil tankers with deadweight freight capacity in the 80,000- to 120,000-MTDW class.

105,000MTDW oil tanker

l Continuous ship unloaders
Continuous ship unloaders are large harbor-installed hoists used for the continuous unloading of iron ore and otherbulk raw materials from cargo vessels at dock. SHI has the top share of this market in Japan.

Continuous ship unloader

l Goliath craneThis is a large portal-type crane installed mainly in shipyards. Our Goliath crane has a maximum lifting capacity of
1,200 tons and helps raise the efficiency of shipbuilding operations. SHI has the top share of the domestic market.

Goliath cranel Jib cranes
These are large cranes installed at harbors and shipyards and travel on rails. SHI has the top share of the domestic
marketJib cranel Rough terrain cranes
These are self-propelled cranes for construction sites. They are vehicle mounted and can be driven and operated fromthe cab driving seat.

Rough terrain cranel Crawler cranes
This is a self-propelled crane for construction sites. It travels on caterpillar tracks.

Lattice crawler craneNetwork[Domestic Network] Offices
Head Office
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan
Tel: 81-3-6737-2000
URL: http://www.shi.co.jp
Kansai Office
7-28, Kitahama 4-chome, Chuo-ku, Osaka-shi,
Osaka 541-0041, Japan
Tel: 81-6-6223-7111
Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi,
Tokyo 188-8585, Japan
Tel: 81-42-468-4104
Chiba Works731-1, Naganumahara-machi, Inage-ku, Chiba-shi,
Chiba 263-0001, Japan
Tel: 81-43-420-1355
Yokosuka Works
19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
Tel: 81-46-869-1842
Nagoya Works
1, Asahi-machi 6-chome, Obu-shi,
Aichi 474-8501, Japan
Tel: 81-562-48-5111
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
Ehime Works – Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan
Tel: 81-898-64-4811
Research and Development Center
19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Major Subsidiaries
Sumitomo Heavy Industries Environment Co.,Ltd.
25-9, Nishigotanda 7-chome, Shinagawa-ku,
Tokyo 141-0031, Japan
Principal business: Development, design, manufacture,sale and repair of water and sewage
treatment facilities for the private
sector and other industrial equipment
Tel: 81-3-6737-2700
URL: http://www.shiev.shi.co.jp
100% owned subsidiary

Sumitomo Heavy Industries Marine &Engineering Co., Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan
Principal business: Sales, design, production, repair
and reconstruction of vessels(excluding naval vessels) and marine
structures; marine engineering
Tel: 81-3-6737-2620
100% owned subsidiary
Sumitomo Heavy Industries Engineering &Services Co., Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan
Principal business: Design, production and distributionof general industrial machinery,
as well as remodeling, repairs,
inspection and maintenance
Tel: 81-3-6737-2640
URL: http://www.shi.co.jp/ses
100% owned subsidiary
Shin Nippon Machinery Co., Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan
Principal business: Steam turbines and pumps
Tel: 81-3-6737-2630
URL: http://www.snm.co.jp
100% owned subsidiary
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-0001, Japan
Principal business: Forging presses and otherindustrial machinery
Tel: 81-897-32-6300
URL: http://www.shi.co.jp/stf/
100% owned subsidiary
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6026, Japan
Principal business: Holding Company of Sumitomo(S.H.I.) Construction Machinery
Sales Co., Ltd. and Sumitomo(S.H.I.) Construction Machinery
Manufacturing Co., Ltd.
Tel: 81-3-6737-2600
URL: http://www.sumitomokenki.co.jp
100% owned subsidiary
Seisa Gear, Ltd.
16-1, Wakihama 4-chome, Kaizuka-shi,
Osaka 597-8555, Japan
Principal business: Power transmission equipment
Tel: 81-724-31-3021
URL: http://www.seisa.co.jp
53.5% owned subsidiary
Sumitomo Heavy Industries PTC Sales Co., Ltd.
2-2-900, Umeda 1-chome, Kita-ku, Osaka-shi,
Osaka 530-0001, Japan
Principal business: Power transmission equipment
Tel: 81-6-6346-0820
URL: http://www.sumiju.co.jp
100% owned subsidiary

SHI Plastics Machinery, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6026, Japan
Principal business: Plastics machinery
Tel: 81-3-6737-2587
100% owned subsidiary
SEN Corporation, an SHI and Axcelis Company
10-1, Yoga 4-chome, Setagaya-ku,
Tokyo 158-0097, Japan
Principal business: Semiconductor equipment,
especially ion implantation systems
Tel: 81-3-5491-7800
50% owned subsidiary
Sumitomo NACCO Materials Handling Co., Ltd.
75, Daitoh-cho 2-chome, Obu-shi,
Aichi 474-8555, Japan
Principal business: Forklift trucks and other materials
handling equipment
Tel: 81-562-48-5251
URL: http://www.sumitomonacco.co.jp
50% owned subsidiary
Sumiju Environmental Engineering, Inc.
9-11, Kitashinagawa 5-chome, Shinagawa-ku,
Tokyo 141-8686, Japan
Principal business: Operation and maintenance forenvironmental systems and plants
Tel: 81-3-5421-8484
100% owned subsidiary
Lightwell Co., Ltd.
18-10, Moto-Asakusa 3-chome, Taito-ku,
Tokyo 111-0041, Japan
Principal business: Software and related equipment
Tel: 81-3-5828-9230
URL: http://www.lightwell.co.jp
100% owned subsidiary
Izumi Food Machinery Co., Ltd.
2-18, Awaza 2-chome, Nishi-ku, Osaka-shi,
Osaka 550-0011, Japan
Principal business: Food processing machines andrelated equipment
Tel: 81-6-6543-3500
URL: http://www.izumifood.shi.co.jp
100% owned subsidiary
Nihon Spindle Mfg. Co., Ltd.
2-30, Shioe 4-chome, Amagasaki-shi,
Hyogo 661-8510, Japan
Principal business: Industrial machinery, environmental
protection equipment andbuilding materials
Tel: 81-6-6499-5551
URL: http://www.spindle.co.jp
40.6% owned subsidiary
Sumitomo Heavy Industries Himatex Co., Ltd.
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Principal business: Castings, rolls and bimetallic cylinders
Tel: 81-897-32-6484
URL: http://www.shiff.co.jp
100% owned subsidiary68 > 69[Overseas Network] Offices
Sumitomo Heavy Industries (Shanghai), Ltd.
26th Floor Raffles City (Office Tower)
268 Xizang Middle Road, Shanghai 200001, China
Tel: 86-21-6340-3993
100% owned subsidiary
Sumitomo Heavy Industries (Vietnam) Co., Ltd.
1-7, Thang Long Industrial Park, Dong Anh District,Hanoi, Vietnam
Principal business: Manufacture of motors for powertransmission equipment
Tel: 84-4-9550004
100% owned subsidiary

Major Subsidiaries
Sumitomo Machinery Corporation of America
4200 Holland Boulevard, Chesapeake,
Virginia 23323, U.S.A.
Principal business: Power transmission equipment
Tel: 1-757-485-3355
URL: http://www.smcyclo.com
100% owned subsidiary
Sumitomo (SHI) Cyclo Drive Germany, GmbH
Postfach 62 (PLZ85227), Cyclostrasse 92 D-85229
Markt Indersdorf, Germany
Principal business: Power transmission equipment
Tel: 49-8136-66-0
URL: http://www.sumitomodriveeurope.com
100% owned subsidiary
Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.
No. 36 Tuas South Street 3, Singapore 638031
Principal business: Power transmission equipment
Tel: 65-6863-2238
URL: http://www.sumitomodrive.com.sg
100% owned subsidiary
Sumitomo (SHI) Cyclo Drive China, Ltd.
No. 7 Sanjing Road,
Dongli Economic Development Zone, Tianjin, China
Principal business: Power transmission equipment
Tel: 86-22-2499-3501
URL: http://www.smcyclo.com.cn
100% owned subsidiary
SHI Plastics Machinery, Inc. of America
1266 Oakbrook Drive, Norcross,Georgia 30093, U.S.A.
Principal business: Holding company of Sumitomo(SHI) Plastics Machinery Mfg.
(USA), LLC and Sumitomo (SHI)
Plastics Machinery (America), LLC
Tel: 1-770-447-5430
URL: http://www.sumitomopm.com
100% owned subsidiary
SHI Plastics Machinery (Europe) B.V.
Breguetlaan 10A, 1438 BC OUDE MEER, Netherlands
Principal business: Plastics machinery
Tel: 31-20-65-33-111
URL: http://www.spm-europe.com
100% owned subsidiary

S.H.I. Plastics Machinery (S) Pte. Ltd.
67 Ayer Rajah Crescent #01-15 to 26,
Singapore 139950
Principal business: Plastics machinery
Tel: 65-6779-7544
URL: http://www.spm-singapore.com
100% owned subsidiary
SHI Plastics Machinery (Taiwan) Inc.
3F-1, No. 687, Sec. 5, Chung Shan North Road,
Taipei, Taiwan
Principal business: Plastics machinery
Tel: 886-2-2831-4500
URL: http://www.spm-northasia.com
100% owned subsidiary
SHI Plastics Machinery (Hong Kong) Ltd.
RM601, Telford House, 12-16 Wang Hoi Road,
Kowloon Bay, Hong Kong
Principal business: Plastics machinery
Tel: 852-2750-6630
URL: http://www.spm-northasia.com
100% owned subsidiary
SHI Plastics Machinery (Shanghai) Co., Ltd.
Dept. D, 2nd Fl., No. 188, He Dan Road,
Waigao Qiao FTZ, Pudong New Area,
Shanghai, 200020, China
Principal business: Plastics machinery
Tel: 86-21-6340-3488
URL: http://www.spm-northasia.com
100% owned subsidiary
SHI Plastics Machinery (Malaysia) Sdn. Bhd.
Lot AG 16, 17 & 18, PJ Industrial Park,
Jalan Kemajuan, Section 13, 46200 Petaling Jaya,
Selangor, D.E. Malaysia
Principal business: Plastics machinery
Tel: 60-3-7958-2079
49% owned subsidiary
Sumitomo (SHI) Cryogenics of America, Inc.
1833 Vultee St., Allentown,
Pennsylvania 18103-4783, U.S.A.
Principal business: Manufacturer of MRI magnet
cryocoolers, cryopumps andlaboratory cryostats for researchand development
Tel: 1-610-791-6700
URL: http://www.apdcryogenics.com
100% owned subsidiary
Sumitomo (SHI) Cryogenics of America, Inc.
Chicago Office
1500-C Higgins Road, Elk Grove Village,
Illinois 60007, U.S.A.
Principal business: Service and sales of cryocoolers
Tel: 1-847-290-5801
100% owned subsidiary

Sumitomo (SHI) Cryogenics of Europe, Ltd.
2 Eros House, Calleva Industrial Park, Aldermaston,Berkshire RG7 8LN, U.K.
Principal business: Manufacturer of MRI magnet
cryocoolers, cryopumps andlaboratory cryostats for researchand development
Tel: 44-011-8981-9373
100% owned subsidiary
Sumitomo (SHI) Cryogenics of Europe GmbH
Daimlerweg 5a D-64293, Darmstadt,
D-64287, Germany
Principal business: Service and sales of cryocoolers
Tel: 49-6151-860610
100% owned subsidiary
Link-Belt Construction Equipment Company
2651 Palumbo Drive, P.O. Box 13600,
Lexington, Kentucky 40583-3600, U.S.A.
Principal business: Mobile cranes
Tel: 1-859-263-5200
URL: http://www.linkbelt.com/
100% owned subsidiary
LBX Company, LLC
2004 Buck Lane, Lexington,
Kentucky 40511-1074, U.S.A.
Principal business: Construction machinery
Tel: 1-859-245-3900
URL: http://www.lbxco.com/
50% owned subsidiary
SHI Machinery Service Hong Kong Ltd.
Unit 2203, Level 22, Tower II, Metroplaza,No. 223 Hing Fong Road, Kwai Chung,
New Territories, Hong Kong
Principal business: Maintenance service forharbor cranes
Tel: 852-2521-8433
100% owned subsidiary
SHI Designing & Manufacturing Inc.
8th & 9th Floor Octagon Center, Sanmiguel Ave.,
Ortigas Center, Pasig City, Metro Manila, Philippines
Principal business: Plant engineering, machinery
design and software development
Tel: 63-2-636-1935
100% owned subsidiary
SHI Manufacturing & Services (Philippines) Inc.
Barangay Sta. Anastacia, Sto.Tomas,
Batangas, Philippines
Principal business: Manufacture of key components for
XY stages, cryocoolers, controllers
and metal injection molding
Tel: 63-43-405-6263
100% owned subsidiaryManagement

As of June 27, 2008

Board of Directors

Yoshio Hinoh*

Yoshinobu Nakamura* Yukio Kinoshita*

Shinji Nishimura*

Katsuhiko Taniguchi

ChairmanPresident and CEO

Senior Executive
Vice President and CFO

Senior Executive
Vice President

Executive Vice President

Eitaro Konii

Yuji Takaishi

Kensuke Shimizu

Mikio Ide

Toshiaki Kakimoto

Senior Vice President

Senior Vice President

Director

Vice President

Director*Director with Representative Rights

Corporate Auditors

Eitaro Konii

Osamu Sekiya

Eiichi Fujita

Standing Auditor

Senior Vice President
General Manager, Precision Equipment Group

Nobuo Kadota

Standing Auditor

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

Yoshio Kohra

AuditorYuji Takaishi

Seishiro Tsukada

AuditorSenior Vice President
General Manager, Personnel Group

Executive Officers
Yoshio Hinoh
Chairman

Yoshinobu Nakamura
President and CEO

Yukio Kinoshita
Senior Executive Vice President and CFO

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

Katsuhiko Taniguchi
Executive Vice President
General Manager, Plastics Machinery Div.

Kensuke Shimizu
CEO, Sumitomo (S.H.I.) Construction MachineryCo., Ltd.

Mikio Ide
Vice President

Toshiaki Kakimoto
Yasuhiko Seike
Executive Vice President
Regional General Manager, Kansai Office
General Manager, Corporate Marketing Dept.

Akihiko Yoshii
Executive Vice President
General Manager,
Corporate Technology Operation Group
General Manager, Research & Development Center

Shigeru Toyosumi
Senior Vice President
General Manager, Internal Control Group

Noboru Mimoto
Senior Vice President
General Manager, Energy & Environment Group

Shunsuke Betsukawa
Senior Vice President
General Manager, Corporate Finance,
Accounting & Administration Group

Shigeharu Yasunaga
Vice President
President and CEO, Shin Nippon Machinery Co., Ltd.

Hitoshi Kashimoto
Vice President
President and CEO, Sumitomo Heavy Industries
Marine & Engineering Co., Ltd.

70 > 71

Corporate Data
Head Office:

Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan
Tel. +81-3-6737-2331
URL http://www.shi.co.jp

Founded:1888

Incorporated:

November 1, 1934

Paid-in Capital:¥30,871,651,300

Number of Employees*:

14,408 (Consolidated)

Transfer Agent:

The Sumitomo Trust and Banking Co., Ltd.

Stock Exchange Listings:

Tokyo, Osaka

Shares Outstanding*:

605,726,394

2,848 (Non-consolidated)

Number of Shareholders*: 59,454
Major Shareholders*:

Name of shareholder

Percentage of voting rights

Japan Trustee Services Bank, Ltd. ...........................................................9.5%
The Master Trust Bank of Japan, Ltd. .....................................................8.9%
Trust & Custody Services Bank, Ltd. .......................................................4.4%
Sumitomo Life Insurance Company ........................................................3.9%
Sumitomo Mitsui Banking Corporation ..................................................2.5%
State Street Bank and Trust Company ....................................................2.2%
Investors Bank .......................................................................................2.0%
Chase Manhattan Bank .........................................................................1.8%
The Sumitomo Trust & Banking Co., Ltd. ...............................................1.7%
Nippon Life Insurance Company ............................................................1.7%* As of March 31, 2008

Breakdown of Shareholders as of March 31, 2008
Breakdown ofshareholders

Number of shares held
(unit 1,000)

Financial Institutions ............................................. 249,185
Securities Companies .............................................. 14,549
Individuals and Others ............................................ 85,205
Foreign Investors . ................................................. 197,790
Other Corporations . ............................................... 58,996
The “Other Corporations” category also includes treasury stock, government institutions
and local governments, and Japan Securities Depository Center, Inc.
Number of shares held are rounded down to the nearest 1,000.

9.74%

41.14%
32.65%
Financial institutions
Securities companies

14.06%
2.40%

Individuals and others
Foreign investors
Other corporations

Additional copies of this annual report and other information may be obtained at the above URL or by contacting:Corporate Communications Department, Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan Tel: +81-3-6737-2331

http://www.shi.co.jp

Printed in Japan O047 E 081