Taking Action.
Delivering Results.
Annual Report 2014 For the year ended March 31, 2014

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1
Corporate Data

Superior Durability and
Abundant Variation

Speed reducers are equipment that reduces the rotational speed of motors to optimal speeds while boosting torque. Using proprietary wave-shaped configuration,
SHI’s CYCLO® drive speed reducers are engineered for superior durability by dispersing impact loads through smooth rolling contact. Our broad product lineup of speed
reducers, ranging in size from compact models the size of yourhand to large models several meters wide, is able to meet
diverse customer needs.

Sumitomo Heavy Industries, Ltd. Annual Report 20141

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World-Class Ultra-Precise
High-Cycle Molding

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3
Corporate Data

By advancing its precision molding technologies, which had conquered the opticaldisc market, SHI is now able to consistently satisfy the complex requirements of thelight guiding plate market and other demanding markets. Our injection molding
machines have strong functionality, enabling high-quality and high-cycle productionof thin-wall molded products, such as food containers, while also boasting excellent
economical products that were recognized by the Japan Machinery Federation with
its Ministry of Economy, Trade andIndustry Minister’s Award for Excellencein Energy Efficient Equipment.

2

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Sumitomo Heavy Industries, Ltd. Annual Report 20143

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Corporate Data

World-Leading Biomass
Technology
Circulating fluidized-bed (CFB) boilers are able to efficiently incinerate low-grade, burnresistant fuels. This is particularly advantageous in biomass power generation, because CFB
boilers are able to effectively utilize worn tires, low-grade coal, and other fuels that had
been underutilized in the past,
while contributing to CO2 reduction. Over the past few years, SHI
has provided systems that benefit people and the environment,
including compact power generation facilities suitable for Feedin Tariff (FIT) demand, andsystems that can utilize a variety
of fuels in emerging countries.

4

Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 20145

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Contents

Financial Section

Corporate Data

Overview of Operating Highlights

2013
Apr.

• New organizational structure launched
Merged Presses business subsidiaries into parent company and launched the Industrial
Machinery Division
Logistics systems business was spun out into a conveyance and cargo handling machinery business subsidiary; Sumitomo Heavy Industries Material Handling Systems was launchedMay
Overview of Operating Highlights................................................................. 7

June

Financial Highlights ...................................................................................... 8
At a Glance ...................................................................................................10
To Our Shareholders, Customers, and Employees ......................................12

July

Presentation and Interview with the President .............................................14
Special Feature: Setting High Standards for Quality in Strategic Areas ......20
Review of Operations ...................................................................................24

Aug.

Machinery Components ................................................................................ 25
Precision Machinery ...................................................................................... 26
Construction Machinery ................................................................................ 28
Industrial Machinery ...................................................................................... 30
Ships ............................................................................................................. 32

Sept.

Environmental Facilities & Plants .................................................................. 33

Research and Development .........................................................................36

Oct.

Directors, Corporate Auditors, and Executive Officers ................................44

Financial Section ..........................................................................................49

Glossary .......................................................................................................90• Extreme ultraviolet imaging telescope loaded onto “Hisaki,”a spectroscopic planet observatory for the recognition of
atmospheric interaction (SPRINT-A)• Received approval for dosimetric release*, Japan’s first electron beam sterilization sterile pharmaceutical• Successfully developed a technology for processing organic effluent
at ambient temperatures with a methane fermentation treatment• Expanded the Company’s product series of compact gearmotors

Nov.

• Received FDA approval to the sale of the Company’s proton
therapy system for the treatment of cancer in the United States• Commenced sales of the SH200HB-6 hybrid hydraulic excavator

Independent Auditor’s Report ......................................................................87
Major Subsidiaries and Affiliates ..................................................................88• Announced details of the execution of joint development agreement concerning the manufacture of a pharmaceutical synthesis
device to help combat Alzheimer’s-type dementia• Acquired the patent for a proton beam therapy system irradiation device

Corporate Governance .................................................................................39

Environmental and Social Contribution Initiatives ........................................46• Released Japan’s first wheel-type asphalt finisher thatcomplies with interim Tier 4 emissions requirements* Dosimetric release: A method used in determining sterilization for sterile pharmaceuticals (antimicrobial agent)

Overview by Geographical Area ...................................................................35

Intellectual Property .....................................................................................38• Announced details of the merger of gear-reducer
related subsidiaries

Dec.

• Received orders for two continuous ship unloader units thatoffer world-leading loading and unloading performanceJan.

• Received the Chairman’s Award for Excellence in Energy
Efficient Equipment held by the Japan Machinery Federation
for the Company’s hydraulic excavators and sloped-ejection
type grit jet pump

Corporate Data .............................................................................................92

Click each item to go to
the top page for that category.
Cautionary Note Concerning Forward-Looking Statements
This annual report includes forward-looking statements regarding the future performance of Sumitomo Heavy Industries,
Ltd. These forward-looking statements are based on information currently available to the Company and determined subjectively. Future performance is not guaranteed and all information related to future performance contained herein is subject to changes in the business environment.

6

Sumitomo Heavy Industries, Ltd. Annual Report 2014

Feb.
Mar.

Sumitomo Heavy Industries, Ltd. Annual Report 20147

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Corporate Governance9

Contents

Financial Section

Corporate Data

Financial Highlights
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

FY2009FY2010Millions of yen
FY2011FY2012FY2013Thousands of
U.S. dollars(Note 1)FY2013¥516,165¥548,015¥624,100¥585,871¥615,271$5,973,501

69,04074,591

93,206

91,174

99,994

970,814

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

105,191

131,944

144,145

124,603

133,518

1,296,291

Construction Machinery

102,650

130,811

158,942

152,773

192,511

1,869,038

Industrial Machinery

85,63766,54480,68384,26478,793764,979

Ships

62,92759,496

58,11146,013

14,814

143,826

Environmental Facilities & Plants

81,88476,07080,11678,584

86,166

836,567

Others

8,835

8,558

8,898

8,460

9,475

91,98628,25445,80347,13531,28834,329333,291

861

4,874

4,238

2,767

5,876

57,046(2,603)

8,340

12,507

8,635

8,684

84,306

571

5,290

8,293

6,132

10,29999,992

Industrial Machinery

14,167

10,252

9,499

4,385

4,076

39,572

Ships

6,664

9,897

10,9352,366(2,992)(29,049)

Operating income
Machinery Components
Precision Machinery
Construction Machinery

Environmental Facilities & Plants

7,101

5,566

6

6,198

5,575

60,180

1,376

1,518

1,631

1,361

2,053

19,934

EBITDA (Note 4)

47,97963,74464,95549,57052,946

514,040

Net income

13,28027,926

19,492

5,865

17,891

173,699

Capital expenditures (Note 5)

24,465

14,292

19,682

29,88820,329197,369

R&D expenses

8,187

7,445

9,343

9,835

10,718104,055

OthersDepreciation and amortization

19,725

17,941

17,82018,282

18,617

180,749

Cash flows from operating activities

57,51336,521

23,3092,660

63,661

618,070

Cash flows from investing activities(13,954)(23,513)(22,672)(19,660)(27,622)(268,176)

Free cash flows (Note 6)

43,55913,008638(17,000)

36,039349,894

Cash flows from financing activities(26,686)(22,020)

19,879(11,428)(9,498)(92,212)

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥103=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2014.
2. From fiscal 2010, SHI adopted the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information (ASBJ Statement No. 17 of March 27, 2009).
In line with this adoption, SHI has changed its business segmentation from the period under review. Past figures are presented pro forma based on the new segmentation.
3. Effective from fiscal 2013, cyclotron accelerators, medical equipment, and LCD manufacturing machines, which had previously been classified in the Precision Machinery
segment, have been classified in the Industrial Machinery segment. Fiscal 2012 segment information has been revised in line with this change in product classification.
4. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
5. Capital expenditures are capitalized and recorded as assets.
6. Free cash flows = Cash flows from operating activities + Cash flows from investing activities

Net Sales

Operating Income andOperating Income Margin

Net Income and ROE(¥ Billion)(¥ Billion)(%)(¥ Billion)

(%)

700

50

10

30

12

25

10

20

8

Financial Position (at year-end):
Total assets
Interest-bearing debt
Total net assets

FY2009FY2010Millions of yen
FY2011FY2012FY2013Thousands of
U.S. dollars(Note 1)FY2013¥610,087
87,660254,153¥626,829
67,833
269,380¥691,841
96,522
282,145¥647,724
98,547
292,826¥724,182
107,433
331,059$7,030,890
1,043,038
3,214,166
U.S. dollars(Note 1)

Yen

Amounts per Share of Common Stock:
Net income (Note 7)
Stockholders’ equity
Cash dividends¥22.01404.73
4.00

Share Data:
Stock price at year-end¥45.87435.108.00¥31.75454.4310.00¥ 29.17532.287.00¥9.56
470.69
8.00

$0.28
5.17
0.07
U.S. dollars(Note 1)

Yen

¥563

¥543

¥460

¥419

¥381

$4.06
Thousands of
U.S. dollars(Note 1)Millions of yen

Market value¥339,720¥333,622

Financial Indexes:
ROIC (Note 8)
Operating income margin
EBITDA margin
Stockholders’ equity ratio
ROA (Return on assets)
ROE (Return on equity)
Interest-bearing debt ratio

4.8
5.5
9.3
40.0
2.1
5.6
14.4

7.8
8.4
11.6
42.6
4.5
10.9
10.8

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

¥93

¥83

¥282,309¥233,808¥256,964

4.9
5.3
8.5
44.6
0.9
2.1
15.2

4.8
5.6
8.6
45.1
2.5
5.8
14.8

¥94

¥103

$2,494,796

%

7.4
7.6
10.4
40.3
3.0
7.1
14.0
Yen

¥82

Notes: 7. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
(Operating income + Interest and dividends received) x 55% (= 1- Effective tax rate)
8. ROIC (Return on Invested Capital) =(Average of stockholders’ equity + Average of interest-bearing debt)

Total Assets andStockholders’ Equity Ratio

Interest-Bearing Debt andInterest-Bearing Debt Ratio

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

800

60

120

20

50
40

600

40

8

30

6

500
400
300

6

10

4

5

2

0

0

45

90

15

400

30

60

10

200
10

2

10

0

0

15

200

(FY)

09

10

11

12

13

(FY) 09

10

11

12

13

Operating Income (Left scale)Operating Income Margin (Right scale)8

Sumitomo Heavy Industries, Ltd. Annual Report 2014

(FY) 09

10

11

Net Income (Left scale)ROE (Right scale)

12

13

30

5

0
-10

0
0

30
20

4

20

100

15

600

(FY)

0
09

10

11

12

13

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

00(FY) 09

10

11

12

13

-20
(FY)

09

10

11

12

13

Interest-Bearing Debt (Left scale)Interest-Bearing Debt Ratio (Right scale)

Sumitomo Heavy Industries, Ltd. Annual Report 20149

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11

Contents

Financial Section

Corporate Data

At a Glance

OutlineMain Products

Net Sales and Operating Income (¥ Billion)
Net Sales (Left scale)

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

Machinery Components
Consolidated Net Sales

100.0
5.9

Billion yen

Consolidated Operating Income

Consolidated Net Sales

133.5
8.7

Billion yen

Consolidated Operating Income

Consolidated Net Sales

Consolidated Net Sales

14.0%

192.5
10.3

16.3%

2.4%

Billion yen

Consolidated Operating Income

12.8%

615.3

21.7%

Billion yen

Consolidated Net Sales

31.3%

Machinery Components
Precision Machinery
Construction Machinery
Industrial Machinery
Ships
Environmental Facilities & Plants
OthersBillion yen

Industrial Machinery

78.8
4.1

Billion yen

Consolidated Operating Income

Consolidated Net Sales

Billion yen

8

60

6

40

4

20

2

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

Plastic injection molding machines
Ion accelerators
Plasma coating systems for FPDs
(Flat panel displays)
Laser processing systems
Cryogenic equipment, XY stages
Transfer molding press machines
Precision forgings, Defense equipment

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

Hydraulic excavators
Mobile cranes
Road machinery

In accelerators, the SHI Group has global
top-class technology. In its steam turbine
operations, the SHI Group commands anoverwhelmingly dominant share of the
global biomass power generation market.
The Group is also the market leader inJapan for continuous ship unloaders.

Material handling systems
Turbines
Pumps
Forging machines
Logistics & handling systems
Cyclotrons for medical use

Consolidated Net Sales

Billion yen

Consolidated Operating Income

Billion yen

13

0

12
8

40

4

0

0
(FY)

09

10

11

12

13

-4

200

12

150

9

100

6

50

3
(FY)

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

12

80

09

10

11

12

13

0

100

15

80

12

60

9

40

6

20

3

0

09

10

11

12

13

80

0

12

60

9

40

6

20

3

0

0
(FY)

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

11

16

0

Ships

10

120

(FY)

The SHI Group specializes in midsized oiltankers. Considerable progress continues tobe made in enhancing design and production efficiency, and delivering unique products.

09

160

Billion yen

Environmental Facilities & Plants

10 Sumitomo Heavy Industries, Ltd. Annual Report 2014

80

0Consolidated Operating Income

86.2
6.2

10

Billion yen

Ships

14.8
-3.0

100

(FY)

Billion yen

Construction Machinery

1.5%

Power transmission and control equipment
Inverters

Billion yen

Precision Machinery

Note: Consolidated net sales and consolidated operating income are actual
figures for fiscal 2013.

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

Operating Income (Right scale)

09

10

11

12

13

-3

100

12

75

9

50

6

25

3

0
(FY)

09

10

11

12

13

0

Sumitomo Heavy Industries, Ltd. Annual Report 201411

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Corporate Data

To Our Shareholders, Customers, and Employees

Breaking free from stagnation, embarking
on a growth track
Management has been operating in a crisis mode in“globalization” and “innovation,” the core goals of

response to the slump in earnings that the Company has

Innovation 21, to be essential policy components of ourendured over the past few years. In order to break free fromgrowth strategies, and we will continue their implementa-

stagnation and set the Company firmly on a growth track,tion. We will also strengthen our focus on new growth

we believe the highest priority is building a corporate struc-areas, including energy-related operations. At the same

ture capable of producing strong revenues, and having

time, we will aspire to establish a solid management foun-firmly established our footing, a clear necessity, we are com-dation and will maintain a persistent commitment tomitted to the task of fostering a recovery in profitability.

improving operational quality in order to secure safety in theSpecifically, we have implemented strategies that include

workplace, improved levels of compliance, and enhanced

the introduction of new products in segments that fall

product quality.

under the category of mass-produced machinery, structural

The Company’s corporate mission is to contribute to thereform in the heavy machinery businesses, and measures todevelopment of society through the provision of first-classpromote an earnings recovery at overseas facilities where

products and services. Winning the enduring confidence of

there were still pending concerns.

customers worldwide is key to realizing sustainable growth

As a result of these measures, orders in all operatingand enhancing corporate value, and will, in turn, enable us

segments improved year on year in fiscal 2013, with total

to better meet the expectations of each and every stake-orders surpassing the ¥650 billion level for the first time

holder, including shareholders, customers, and employees as

since the global financial crisis. We truly believe that wewell as the local communities in which we operate. As ahave made great strides in turning the Company backgeneral machinery manufacturer, we must learn from ourtoward a growth track.

customers, the market, and from other companies within

Fiscal 2013 was the last year in our previous medium-term
management plan “Innovation 21,” but it was also the year
in which we devised our new medium-term management

the Group, and we believe it is the mission of the Group toprovide the market with the best possible products.
As we work toward accomplishing our goals, we kindly

plan that begins in fiscal 2014. The new medium-term

request the continued support and understanding ofmanagement plan, which we are calling “Medium-Termshareholders, customers, and employees.

Management Plan 2016,” sets targets and the desired direction for the Company over the next three years and factors
in a re-evaluation of the state of the Group, as well as acareful analysis and evaluation of the results and strategiesof the previous three years under the Innovation 21 plan.

Yoshinobu Nakamura
Chairman
Yoshinobu Nakamura
Chairman

The basic thinking for the new medium-term management(Left)

plan rests on three concepts: “steady growth,” “return
to higher levels of profitability” and “persistent efforts

Shunsuke Betsukawa

for operational quality improvements.” We believe

President and CEO

12 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Shunsuke Betsukawa
President and CEO(Right)Sumitomo Heavy Industries, Ltd. Annual Report 201413

PrintFinancial Highlights

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Corporate Governance15

Contents

Financial Section

Corporate Data

Presentation and Interview with the President

Review of Previous Medium-Term Management Plan “Innovation 21”

Innovation 21

FY2013 Targets

Results• Sales¥730 billion• Operating income¥73 billion• ROICKey Words

10% or more

• Globalization• Innovation

The globalization progressed as planned.
The implementation of innovation continued.

Investment Policy ¥100 billion(for 3 years)(Not including M&A)

Shunsuke Betsukawa
President and CEO

Necessary investments were implemented while
maintaining financial discipline.

Results for FY2013(Last year of Innovation 21)

Accumulated investment amount for 3 years(FY2011-2013)

Could not achieve the targets, however, orders
steadily increased to about ¥660 billion.
TargetOrders

Structural reforms were promoted and turnaround of
business trends achieved in spite of being affected by
the economic crisis in the Eurozone and China.

Capital investments were implemented primarily
at overseas bases. R&D investments sought tocreate first-class products.

Results

Plan¥100 billion

Results(Capital Investment) ¥42 billion—¥658.2 billion

Sales¥730 billion¥615.3 billion

Operating Income¥73 billion¥34.3 billion

Total ¥81 billion

10% or more

4.8%

* Not including M&A for Plan and Results

ROIC*(R&D) ¥39 billion* Return on invested capital

Providing first-class products and services that contributeto the growth and development of society
The SHI Group’s corporate mission is to contribute to the growth and development of society byproviding first-class products and services. Earning the enduring trust of customers worldwide is
key to realizing sustainable growth and enhancing our corporate value, and will, in turn, enable
us to better meet the expectations of shareholders, customers, employees, and local communities.

Fiscal 2013 Operating Results
Orders received exceeded ¥650 billion, providing
us with a stepping-stone for sustained growth.

American economy remained firm. From a net sales and operat-

In fiscal 2013, orders received saw a substantial increase,figures announced at the beginning of the year. I am confident

exceeding ¥650 billion for the first time since the global finan-that the positive flow-on effect of orders received in fiscal 2013

cial crisis. Looking at the factors that have underpinned thison net sales and operating income this fiscal year and beyond

growth, Japan’s economy enjoyed a positive upswing on thewill provide a solid stepping-stone for sustained growth.

back of corrections to the strong yen, while overseas the North

14 Sumitomo Heavy Industries, Ltd. Annual Report 2014

ing income perspective, results were also well above forecast

Our Previous “Innovation 21” Medium-Term Management Plan
Under the plan, we implemented measures inspiredby the twin goals of globalization and innovation
while expanding our global network.

the way we increase profitability by generating synergy effects

With a view toward firmly embracing globalization, the SHI

joint development of competitive products. In specific terms,

Group invested actively to expand its overseas business base.

we will increase our global market share and profitability in theOver the three-year period of the Innovation 21 plan, we pur-large-scale power transmission equipment business by strength-

sued a variety of initiatives, including the construction andening collaborative ties with Belgium-based Hansen Industrial

expansion of new and existing overseas production facilities,

Transmissions NV. In the plastic injection molding machine busi-

the optimal relocation of plants, and the acquisition of overseas

ness, we will reinforce our cooperative ties in such wide-ranging

companies. As of the end of the plan, we believe that we haveareas as global marketing and product development with thecompleted a full round of essential investments. Moving for-

Sumitomo (SHI) Demag Plastics Machinery Group (hereafterward, we will now focus on increasing the profitability of our“Demag Plastics Group”), of Germany. In this manner, we willoverseas network. Regrettably, we do maintain overseas subsid-

expand our share in growth fields and regions.

with those overseas companies that we have acquired, we arelooking to review our global sales network and promote theiaries that have fallen into the red. It is, therefore, vital that werealize an immediate positive turnaround. In similar fashion to

Sumitomo Heavy Industries, Ltd. Annual Report 201415

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17
Corporate Data

Presentation and Interview with the President

Objectives of the Medium-Term Management Plan 2016

“Medium-Term Management Plan 2016” Aiming for Steady Growth

Key Words

1. “Steady growth”

Globalization (Expansion)• Enhancement of competitiveness of Power Transmission & Controls business (overseas) and Plastic Machinery business• Enhancement of area marketing (Power Transmission & Controls business, Plastic Machinery business, and Construction Machinery business)• Development of human resources for global operations

Innovation (Change)• Creation of first-class products• Enhancement of project management capability• Focus on after-market business• Reform of sales process

Group Synergies(Ability to Connect)• Promotion of corporate group internal value chain• Differentiation through system control technology• Enhancement of collaboration within each business operation group(Power Transmission & Controls business, Plastic Machinery business,
and Construction Machinery business)

Focus on New Growth Fields• Reaching the top of the energy market niche and developing peripheral
fields• Long-term growth in medical field

2. “Return to higher levels of profitability”
3. “Persistent efforts for operational quality improvements”

Targets and Issues

4. Numerical targets• FY2016 financial targets
Net sales: ¥700 billion

Operating income margin: 7.5%

ROIC: 7% or more

Dividend payout ratio (three years): 30% targeted• Investment (three years) - Capital investment: ¥50 billion

R&D: ¥45 billion• Recruiting (three years) - 600 persons
FY2013

FY2016

Steady growth

Net Sales¥615.3 billion¥700 billion

Return to higher levels of
profitability

Operating
Income Margin

5.6%

7.5%

Persistent efforts for operational quality
improvements

Focus on product quality, compliance, and safety

Our New Medium-Term
Management Plan 2016

advantage. The SHI Group has continued to engage in productTargeting net sales of ¥700 billion and an operating
income margin of 7.5% in fiscal 2016, the final yearof the planinnovation activities that entail injecting highly competitive andIn fiscal 2016, the final year of our new Medium-Terminnovative products into priority markets in its bid to promote

Management Plan 2016, we will endeavor to achieve net sales

sustainable global growth and increase its earnings power. Asof ¥700 billion, operating income of ¥52.5 billion, and an ROIC

one example, we developed equipment for use in Boron Neutronof 7% or more. These numerical targets set an absolute mini-

Steady growthwhich we recognize hold the key.

Capture Therapy (BNCT), which continues to attract attention as

mum level of performance that the SHI Group must achieve.

The SHI Group will pursue steady growth in its efforts to secure

In power transmission and controla next-generation cancer treatment in the medical field, andWhile not quite the level of a truly high earnings company, thesenet sales of ¥700 billion in fiscal 2016. As a part of this growth,equipment and plastic injection

received our first order in fiscal 2012. This particular equipment

benchmarks provide a stepping-stone for improved growth andwe will adopt the key words “globalization” or “expansion,”molding

draws on the cyclotron accelerator technology that we have nur-

earnings. To achieve these numerical targets, each company“innovation” or “change,” and “Group synergies” or “ability tomachines,

tured over many years. Delivery and installation represented thewithin the SHI Group must definitively carry out its initiatives.

connect.” The principal businesses that will drive this growth are

we willworld's first practical application of BNCT equipment. In addi-

From an investment perspective, we plan to allocate ¥50 billion

power transmission and control equipment and plastic injectiontion, we brought to the market the SE-EV series, which achieves

to capital expenditure and ¥45 billion to R&D for a total ofmolding machines, which are the mainstay segments that fallconsiderable energy savings in the plastic injection molding¥95 billion over the next three years, and will take aggressive

into the category of mass-produced machinery. Through thesemachinery field. Moreover, we completed the development of asteps to investment in fields that are essential to growth.

businesses, which we have earmarked for global expansion, we

Promoting innovation
Innovation is an absolute prerequisite to securing competitive

Under the new Medium-Term Management Plan
2016, the SHI Group will pursue the three fundamental policies of “steady growth,” “return to higher levels of profitability,” and “persistent efforts for
operational quality improvements.”

will continue to develop highly competitive products that can excel on theworld stage while bolstering ourarea marketing activities based onan accurate grasp of each region’sand market’s specific attributes,

hybrid hydraulic excavator and commenced sales in fiscal 2013.

16 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 201417

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

SearchContents

Financial Section

19
Corporate Data

Presentation and Interview with the President“Medium-Term Management Plan 2016” Return to Higher Levels of Profitability

Target1

Applicable business operations

Leading business operation groups in the SHIGroup (Power Transmission & Controls business,
Operating income margin target of around 10%
Plastic Machinery business, Precision Equipment
business, Steam Turbine business, etc.)

Q
A

What are your thoughts on the degree to which the goals of the previous mediumterm management plan was achieved?
We successfully used the period of the plan to place the Group in a position where
it could enter a firm growth trajectory.

Regrettably, we were unable to achieve the goals set for fiscal 2013 under the Innovation 21 plan. Despite
signs that the global economy had staged a recovery following the shock that followed the collapse of
Lehman Brothers, the SHI Group was unable to secure major growth in earnings due to uncertainties that
continue to linger throughout its operating markets. These uncertainties were largely attributable to thenegative flow-on effects of the financial crisis in Europe and a slowdown in the rate of economic growth2

Focus on new growth fields

Energy and environment, medical (long-term)in China. Despite these difficult conditions, we undertook the capital and R&D investments that were considered necessary to growth and accordingly were successful in securing a substantial upswing in orders
received. We are confident that all preparatory steps have been completed and that we are poised toreenter a growth trajectory.

3

4• Operating income margin of 5% or higher• Self-reliance of each business operation• Rejection of deficit orders

Review on how business
operation should standAll business operations

Low profitability business operations and business
operations not on value chains in the GroupQ
A

What is the outlook for fiscal 2014?
We anticipate that conditions for orders received will remain firm especiallyin Japan.

Japan is expected to benefit from a period of ongoing economic recovery. This is largely attributable tocorrection to the strong yen that began during the previous fiscal year as well as an increase in capital
investment. Overseas, indications are that the U.S. economy will remain firm. Conditions in Europe andChina, however, are projected to be uncertain. Under these circumstances, the SHI Group is forecastingorders received to reach ¥650 billion, with net sales and operating income expected to come in at ¥650
billion and ¥37 billion, respectively. Results in the Construction Machinery segment are anticipated to fall
owing mainly to corrections following the strong domestic demand experienced in fiscal 2013. We believethat this downturn will be offset by contributions from other segments. As a result, we are projecting

further reinforce collaboration with Hansen Industrial

related field, growth in both sales and profits is anticipatedoverall increases in revenues and profits. While macroeconomic conditions remain unclear both in Japan

Transmissions NV and the Demag Plastics Group, respectively.

in the power generation boiler business, where continued

and overseas, we have set the aforementioned forecasts at the minimum level that we expect the GroupThe SHI Group will pay equal attention to the aftermarket busi-

expansion is anticipated. Meanwhile, the SHI Group has set anness, which includes the maintenance and repairs businesses,

absolute minimum operating income margin of 5% across allwhich remain a common issue throughout the entire Group. We

businesses of the Group and will work to promote a bottom-up

will also focus on energy-related markets as a new growth area

approach as a part of efforts to lift profitability.

that can support steady growth.

Return to higher levels of profitability

Persistent efforts for operational
quality improvements

The SHI Group has set the goal of improving its operating

The SHI Group will place the utmost emphasis on improving theincome margin to 7.5% by fiscal 2016, from its current level ofquality of its operations and to establish a robust operating plat-

5.6% in fiscal 2013. Within the Group itself, the ability to gen-form as a part of efforts to ensure product quality, compliance,

erate profits differs from business to business. This, in turn, gives

and on-site safety. In addition to all operating divisions taking

rise to discrepancies in operating income margin goals between

part in activities to upgrade operating quality, the Group Headwill achieve.

Q
A

Please tell us about the Company’s policy toward the return of profits
to shareholders.
Under the Medium-Term Management Plan 2016, we have declared our intention
to maintain a dividend payout ratio of 30%.

Under its Medium-Term Management Plan 2016, which covers the three-year period from fiscal 2014 to
fiscal 2016, the Company has set a dividend payout ratio target of 30%. Taking the Group’s earnings performance into consideration, the Company declared an annual dividend of ¥7 per share for a dividend
payout ratio of 24%. This was ¥1 per share lower than in fiscal 2012. In fiscal 2014, we are projecting anannual dividend of ¥9 per share for a dividend payout ratio of 29.1%.
As the first year of the Medium-Term Management Plan 2016, my mission is to place the Group firmly on

businesses. Speed reducers, plastic injection molding machines,

Office will bolster its support and check role and functions

a growth trajectory. Management will, therefore, continue to focus on improving earnings power and cash

steam turbines, cryogenic equipment, and related products will

toward operating divisions.

flows with a view to returning the Group to higher levels of profitability. Against this backdrop, we will

form the Group’s high-earning businesses with an operating

work toward securing a stable dividend payout ratio of 30%.

income margin target of around 10%. Turning to the energy-

18 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 201419

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Power Transmission & Control Equipment

Research and Development

Plastic Injection Molding Machines

Intellectual Property

Hydraulic Excavators

Corporate Governance

Environmental andSocial Contribution Initiatives

Search21

Contents

Financial Section

Corporate Data

Boilers

Special Feature

Setting High Standards for Quality in Strategic Areas
Here, we provide a brief explanation of the market conditions andstrategies for the four principal operating divisions that will drive
the SHI Group’s performance over the three-year period of theMedium-Term Management Plan 2016.

Power Transmission & Control Equipment

Plastic Injection Molding Machines

Strengthening Overseas Sales
and Networks
MARKET
ENVIRONMENTPower transmission and control equipment, which optimally control the revolution speedof motors, are integral components used across the industrial machinery sector as a whole.

Looking ahead, global demand for a wide range of applications is expected to expand. In particular,
demand from the natural resource and energy, logistics, food, factory automation, and industrial robot sectors in China, Southeast Asia, and North America, which are expected to experience economic growth, isPromote Global Expansion
Trends in Machinery
Component Segment
in Sales by Region(Fiscal 2010 to Fiscal 2013)(¥ Billion)

MARKET
ENVIRONMENT

Plastic injection molding machines, which assist in the melting of plastic materials (resins),

including electronic components, components for use in mobile phones, switches, plastic bottles, and medical instruments. Currently, IT device-related demand, including smartphones and tablet PCs, is firm in the
East Asia region. Moreover, we are seeing a recovery in automobile-related demand in North America,

100

projected to increase.

Sales Composition by Region

which are then poured into molds, help to make products that are essential to daily life,

Asia
19.0%

Other 4.9%

Southeast Asia, and Japan.
80

Fiscal 2013
STRATEGY

Demand in Japan, which accounts for around half of the Company’s power transmission

60
STRATEGYand control equipment sales, is experiencing stagnant growth with little expectation of amajor improvement in the future. As a result, we have worked aggressively to expand our overseas busi-

40

network. Moreover, we are implementing a raft of measures by product on an individual region basis.
Through these means, we plan to increase our operating income margin.

this manner, we are working to expand our business across global markets. By strengthening collaboration
with the Demag Plastics Group, we are bolstering sales of electric injection molding machines in Europe.

0
(FY)

10

11

12

Japan
Asia and Others
The Americas
Europe13

At the same time, we are upgrading and expanding our global sales and services network.

China

TARGET

Fiscal 2016

5.9% 9.1% ¥100 billion ¥110 billion
Operating income margin

20 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Europe22.1%

Germany-based Demag Plastics Group as a part of our overseas business expansion endeavors in 2008. In

TARGET

Fiscal 2013

China
22.6%

We now boast a top-class share of the market in Japan at over 20%. Meanwhile, we acquired the20large-scale power transmission equipment in Belgium in 2011. We are strengthening collaboration withthis company in a bid to reinforce the development of new products as well as our global sales and service

technologies over many years. The new SE-EV model offers a high level of precision, a highNorth
America
11.3%

cycle rate, and stable molding together while also ensuring substantial reductions in energy consumption.

ness bases through the new construction and expansion of production plants over the past few years. In
addition, we acquired Hansen Industrial Transmissions NV as a part of efforts to build a supply base for

The Company has continued to develop and modify fully electric injection molding machine

Japan
20.0%

Net sales

Fiscal 2013

Fiscal 2016

¥77.9 billion¥87.0 billion

Enhance productcompetitivenessand establish
a business withhigher profitability

Net sales

Sumitomo Heavy Industries, Ltd. Annual Report 201421

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Power Transmission & Control Equipment

Research and Development

Plastic Injection Molding Machines

Intellectual Property

Hydraulic Excavators

Corporate Governance

Environmental andSocial Contribution Initiatives

Search23

Contents

Financial Section

Corporate Data

Boilers

Special Feature

Setting High Standards for Quality in Strategic Areas

Hydraulic Excavators

Boilers

Differentiate the Group
from Competitors and Also
Expand Global Sales
MARKET
ENVIRONMENT

In fiscal 2013, demand in connection with disaster reconstruction- as well as exhaust gas
regulation-related products increased substantially in Japan. A downward correction to thissurge in demand is expected in fiscal 2014. Turning to overseas markets, China is anticipated to witness amild recovery going forward despite the drop in demand associated with slowing rates of economic growth

Maintain a Top Market Share in Japanand Establish the SHI Group as a
Leading Brand in Southeast Asia
Trends in Hydraulic Excavator
Shipments (Results and Plans)

2014. Thereafter, a moderate recovery is anticipated.

STRATEGYThe LEGEST® series of hydraulic excavators, manufactured and marketed by Sumitomo(S.H.I.) Construction Machinery Co., Ltd., has attracted wide-ranging acclaim for its fuelefficiency performance and high level of operability. This series has received a host of awards, including the“Grand Award for Energy Conservation” and the “Good Design Award.” In addition to further improving
fuel efficiency performance, the company launched a hybrid model as its latest addition to the series. In
this manner, Sumitomo (S.H.I.) Construction Machinery has positioned efforts to differentiate itself from

“CNHi”). Building on this arrangement, contracts were also executed in connection with the supply ofmajor components and the licensing of technologies. Moving forward, the SHI Group will bolster collaboration with CNHi while expanding global sales.

inherent shortage of electric power in emerging economies, including ASEAN, has driven up demand for
private power generation facilities that use low-grade coal and biomass fuels.

10,000

CFB Power Generation Facility
Delivery Performance (Market
Share in Japan)
Others 8%
Company C
9%Company B
14%

8,000
6,000
STRATEGY

4,000

The Group’s circulating fluidized-bed (CFB) boilers are a mainstay product of theEnvironmental Facilities & Plants segment. CFB boilers help realize high combustion efficien-

Company A
15%

Based onperformance fororders received
from 1980 to2014

Sumitomo
Heavy
Industries
54%

cy through the circulation and combustion of fuels and can also accommodate a wide variety of fuels,
including coal, biomass fuels, and waste tires. Thanks largely to the FIT scheme, orders for boilers used in

2,000

power generation facilities have been robust in recent years in Japan. Looking ahead, the SHI Group willbring to the market boilers that deliver even higher combustion efficiency in its bid to maintain its top share

0(FY) 10 11 12 13 14 15 16
Results
Japan
China

Plans

North America
EuropeOther overseas regionsof the market in Japan. Outside Japan, the Group will promote sales growth targeting low-grade coal andSources: 1. A variety of statistical data (MacCoy
Report, Platts Report, other): materials
prepared by the Company based on marketing information
2. Market share basis: 39 units (Outside
Japan: 16 units)biomass-based fuels focusing mainly on Indonesia, Malaysia, and Singapore. At the same time, energies will
be channeled toward establishing the SHI Group as a leading brand in Southeast Asian markets.

Note: South and Central America are included
in data for North America; Russia andthe CIS are included in data for Europe.

TARGET

Fiscal 2013This largely reflects the implementation of a fixed-price renewable energy Feed-in Tariff (FIT)

use wood-based biomass fuels from undergrowth in unused forests have emerged. Outside of Japan, the

12,000competitors in terms of product development capabilities at the heart of its business strategy. In overseas
markets, steps have been taken to continue OEM supply arrangements with CNH Industrial N.V. (hereafter

Activity is brisk in connection with plans to promote biomass power generation in Japan.

purchase scheme. In recent years, a substantial number of plans for small power generation facilities that

(Units)in recent years. Europe and the United States are projected to remain firm in the future. Countries inemerging regions, including ASEAN, are forecast to experience ongoing difficult market conditions in fiscal

MARKET
ENVIRONMENTTARGET

Fiscal 2016

¥140.8 billion¥150.0 billion 10.5 12.0%%

Net sales

22 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Fiscal 2013

Fiscal 2016

Maintain a top share of themarket in Japan

More than double the amountof CFB boiler sales in fiscal 2016
compared with fiscal 2013Market share in Japan

Sumitomo Heavy Industries, Ltd. Annual Report 201423

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

Environmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Machinery
Components

SearchShips

25

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Main Products

Major Applications/Markets

Power transmission andcontrol equipment, Inverters

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

Power Transmission & Controls, Inverters
Market Environment
In fiscal 2013, the domestic market was robust, as measures tostimulate the economy were effective and yen depreciation tookhold. Overseas markets were weak as rates of economic growthin emerging countries slowed, resulting in a slump in demand
for natural resource infrastructure.
In fiscal 2014, in the domestic market we are anticipating economic stimulus measures to continue with expectations toward
replacement demand for aging facilities. In overseas markets, weestimate a moderate recovery trend to materialize in business conditions. Worldwide demand for high-efficiency motors is on the rise,and new markets are expanding in such areas as robots, where
demand is increasing in emerging countries.

Fiscal 2013 Review and Topics
The SHI Group brought into the fold the North American andAustralian sales bases of Hansen Industrial Transmissions NV, which
was acquired in 2011. At the same time, the Group reinforced business ties with this company in China, Europe, and other markets.

As a result, we have put in place a more-efficient global marketing
structure for the gearbox unit business. In North America, we locallyintegrated the production of medium-sized orthogonal gearmotors,
demand for which has been expanding, and opened the doors to a
new large-scale distribution center that covers the entire North
American market, boosting our competitiveness in the region.

Fiscal 2014 Strategies and Initiatives
We plan to expand our lineup of energy-saving products with thelaunch in fiscal 2014 of models that comply with premium efficiency
motor regulations due to come into effect in Japan from April 2015.
In addition, we aim to expand our market shares further bystrengthening sales and service structures in each market, and by
optimizing the supply chain in each market for our global production bases, which have been the subject of aggressive investments
to date. The SHI Group plans to create local companies for its sales
bases in the fast-growing Southeast Asian region. In China, we arereorganizing assembly service bases and strengthening operations
with new facilities.

Fiscal 2013 Segment Results
The recovery of overseas markets as well as strong demand in thedomestic market for gearmotors designed for general machinery
resulted in improvements for both sales and orders.
As a result, the segment as a whole saw orders increase by 10%
Orders

Sales

Operating Income(¥ Billion)
120(¥ Billion)
120(¥ Billion)
8

(%)
8.0

90

90

6

6.0

60

60

4

4.0

30

30

2

2.0

0

(FY)

11

12

13

14 Forecast

0

(FY)

11

* Forecasts for fiscal 2014 have been adjusted in line with the reclassification of business segments.

24 Sumitomo Heavy Industries, Ltd. Annual Report 2014

compared with the previous fiscal year, to ¥98.5 billion, and sales
increase by 10% year on year, to ¥100.0 billion. The segment also
posted operating income of ¥5.9 billion, a 112% improvementcompared with the previous fiscal year.

1213

14 Forecast

0

(FY)

11

12

13

14 Forecast

0

Operating Income (Left Scale)Operating Income Margin (Right Scale)

Sumitomo Heavy Industries, Ltd. Annual Report 201425

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

SearchEnvironmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Ships

27

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Review of Operations

Fiscal 2013 Segment Results

Precision
Machinery

Main Products

Major Applications/Markets

Plastic injection molding
machines

Electronics, Electric equipment, Automobiles, Containers,
Medical equipment

Ion accelerators

Research

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

Semiconductors, LCDs

With respect to the plastics machinery business, strong market conditions in the electronic and electrical sectors primarily in Asia as
well as improved market conditions in Europe resulted in gains inboth sales and orders.
Other businesses in this segment posted mixed figures with strong
demand for cryogenic coolers. As a result, orders and sales were
essentially unchanged from levels recorded in the previous fiscal year.

Accounting for these factors, the segment as a whole saw orders
increase by 13% compared with the previous fiscal year, to ¥134.5
billion, and sales increase by 7% year on year, to ¥133.5 billion. In
addition, the segment posted operating income of ¥8.7 billion, a
1% increase compared with the previous fiscal year.

Orders

Sales

Operating Income(¥ Billion)
150(¥ Billion)
150(¥ Billion)
15

(%)
9.0

120

120

90

90

10

6.0

60

60

5

3.0

30

Cryogenic equipment

Medical equipment, Aerospace development, semiconductors

30

Precision forgings

Jet engines for airplanes, Turbines for power generation

0

Defense equipment

Defense(FY)

11

Plastics Machinery

12

13

14 Forecast

Precision Equipment and Others

0

(FY)

11

12

Plastics Machinery

13

14 Forecast

0

(FY)

Precision Equipment and Others* Businesses that include such products as cyclotron accelerators have been classified as a part of the Industrial Machinery segment from fiscal 2012.

Plastic Machinery

11

12

13

14 Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)

Precision Equipment and Others

Market Environment

developed and is marketing the SP500E, an all-electric injection

Market Environment

to improving both the productivity of image sensors as well as

In fiscal 2013, IT-related capital investment particularly in the areas

molding machine for large-volume production, to address the antici-

The market for cryogenic equipment, including cryocoolers forfunctionality and performance. In precision control components,of smartphones and tablet PCs in East Asia was robust. At the samepated surge in demand for PET preform systems. Moreover, steps

medical institutions and research facilities, is stable. Looking ahead,

we launched a series of large-capacity motor drivers.

time, automobile-related capital expenditure exhibited an upward

are being taken to expand sales of in-mold decorative molding

demand is anticipated to remain firm. While the market for semi-

trend in North America, Southeast Asia, and Japan. While operating

systems for use in food containers.

conductor- and IT-related electronics equipment continues to con-Fiscal 2014 Strategies and Initiatives

front difficult conditions, there are signs of a gradual recovery.

We anticipated continued stable demand for cryocoolers going

Under these circumstances, the environment for orders is improving.

forward. The SHI Group is committed to bolstering its marketing

conditions are expected to remain firm, the pace of IT-related investment, which has been sharp, is projected to show a slight decline.

0

Fiscal 2014 Strategies and Initiatives

systems and to pursue a variety of initiatives, including efforts to

IT-related markets are highly cyclical with significant peaks andFiscal 2013 Review and Topics

troughs in demand. On the one hand, the market as a whole is sub-Fiscal 2013 Review and Topics

cultivate new customers. In semiconductor as well as electronics

Orders received were robust during the first half of fiscal 2013 due

stantial, while, on the other hand, the outlook for market conditions

The order environment for cryocoolers used in magnetic resonanceequipment production equipment, the market for IT devices, includ-

mainly to active IT-related investment. The downturn in investment

is shrouded in uncertainty. To minimize the effects of fluctuating

imaging (MRI) equipment remains robust. During the fiscal year

ing smartphones, is expected to witness periodic abrupt change.

during the second half was not nearly as severe as anticipated. As ademand, it is vital that we develop and provide technologies that

under review, the Group launched its 4KGM cryocooler to wide

Against this backdrop, we will pay particular attention to demand

result, overall trends in orders received were moderate. In the area

match the largest possible number of industry fields. Working inmarket acclaim. This product is the industry’s first cryocooler to use

trends while focusing on expanding sales of related equipmentof new product development, the Group introduced the SE180EV-

partnership with the Demag Plastics Group, we will utilize our glob-

super-conductive magnets for cooling applications that complies

mainly in Asia. For products incorporated into core semiconductor

LGP, a new model in its SE-EV series, particularly suitable for theal sales service network to accelerate the pace of global market

with Europe’s RoHS Directive. In the market for semiconductor

units, including ion-implantation systems, we will strive to enhancemolding of thin light guide plates. This initiative is aimed at captur-

development. Moving forward, we will work to secure a firm

production equipment, the Group introduced its S-UHE ultra-high-quality and reliability while strengthening marketing activities

ing the growing demand for smartphones. In addition, the Groupfoothold in the molding machines industry.

energy, ion-implantation system, which contributes significantly

overseas.

Topics

Topics

SE180EV-LGP Thin Light Guide Plate Injection Molding Machine
As smartphones and tablets become larger and thinner, advances have been

Reaching Temperatures Close to Absolute Zerothrough the Ultra-Low Temperature 4KGM Cryocooler

rapidly made in technology to reduce the thickness of light guide plates used in

The ultra-low temperature 4KGM cryocooler uses the helium gas expansion and contraction

backlight units of LCD panels. As molded products become thinner, it becomes

cycle method to reach the extremely low temperature of -269ºC (4-degrees Kelvin) or close

more challenging to uniformly inject resin to the boundaries of mold cavities. This

to absolute zero. This product has won wide acclaim for its performance in superconducting

newly developed injection molding machine fulfills market demands for quality

magnet applications where liquid helium gas must be used. Among these superconducting

through improvements in injection compression molding technology with high-speed
injection, high responsiveness, and precise control of the mold clamping units.

26 Sumitomo Heavy Industries, Ltd. Annual Report 2014

SE180EV-LGP Thin Light Guide
Plate Injection Molding Machinemagnet applications, the Group’s 4KGM cryocooler has captured a global market share for
medical-use magnetic resonance imaging (MRI) equipment of more than 90%.

Ultra-Low Temperature
4KGM Cryocooler

Sumitomo Heavy Industries, Ltd. Annual Report 201427

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

SearchEnvironmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Ships

29

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Review of Operations

Fiscal 2013 Segment Results
The hydraulic excavator business posted increases in both orders
and sales due to the upturn in the Japanese market and the robust
level of demand from overseas markets.
Boosted by strong demand from North America, the construction
crane business also followed suit with an increase in both orders
and sales.

Construction
Machinery

As a result, the segment as a whole saw orders improve by 28%
compared with the previous fiscal year, to ¥193.3 billion, and sales
increase by 26% year on year, to ¥192.5 billion. In addition, thesegment posted operating income of ¥10.3 billion, a 68% increase
compared with the previous fiscal year.

Orders

Sales

Operating Income(¥ Billion)
200(¥ Billion)
200(¥ Billion)
12

(%)
8.0

150

150

9

6.0

100

100

6

4.0

50

3

2.0

Main Products

Major Applications/Markets

50

Hydraulic excavators

Construction, Civil engineering, Scrap, Forestry

0

Mobile cranes

Construction, Civil engineering

Road machinery

Roadway construction

(FY)

11

12

13

Hydraulic Excavators, Road Machinery

14 Forecast
Mobile Cranes

0

(FY)

11

12

13

14 Forecast

Hydraulic Excavators, Road Machinery

Hydraulic Excavators and Road Machinery
Sumitomo (S.H.I.) Construction Machinery Co., Ltd. (SCM)

Crane Business
Link-Belt Construction Equipment Company, L.P., LLLP

Market Environment

0

Mobile Cranes

(FY)

11

12

13

14 Forecast

0

Operating Income (Left Scale)Operating Income Margin (Right Scale)Market Environment

achieved a milestone with the shipment of the 500th 100-ton tele-

Demand in the market for hydraulic excavators expanded by aagain by the Japan Machinery Federation for its excellent fuel effi-

The North American crane market was steady in fiscal 2013, but

scopic truck crane.

strong 43% year on year in fiscal 2013, reflecting reconstruction

ciency with the Chairman’s Award for Excellence in Energy Efficient

market conditions worsened in the second half. The Latin American,

demand in regions affected by the Great East Japan Earthquake

Equipment. A hybrid model based on the SH200-6 has also won

Oceanian, and the Middle and Near East markets declined year on

Fiscal 2014 Strategies and Initiatives

disaster and tighter exhaust gas regulations in Japan. Overseas, mar-plaudits for major improvements in work performance as well as its

year.

Link-Belt strategies for fiscal 2014 will be focused on achieving akets were robust in Europe and the United States, while the world’s

even better fuel economy.

In new products, the SH200-6 hydraulic excavator was recognizedproduction schedule to meet customer demand, the further devel-

Fiscal 2013 Review and Topics

opment of international distributors in targeted markets, maintain-

ing conditions persisted in ASEAN countries. As a result, worldwide

Fiscal 2014 Strategies and Initiatives

Link-Belt recorded a slight sales increase in fiscal 2013. In Northing new product development time lines, and a renewed focus on

demand for hydraulic excavators was largely unchanged from theWe expect market conditions to be challenging in fiscal 2014, with

America, the mobile telescopic and crawler crane markets grew mod-Lean Sigma® activities. Link-Belt introduced a 150-ton rough terrain

previous fiscal year, at 240,000 vehicles.

a major reactive drop in demand likely in Japan and no signs of aestly in the first half and declined in the second half, with the full fis-crane and a 50-ton telescopic crawler crane in March 2014. The

largest market in China embarked on a recovery. However, challeng-

recovery in emerging markets. In this business environment, we will

cal year being flat compared with fiscal 2012. The Latin American,

North American market is anticipated to grow in the second half

Fiscal 2013 Review and Topics

focus on expanding sales of models compatible with new emissions

Oceanian, and the Middle and Near East markets declined and cou-of 2014. Link-Belt will continue to differentiate its products by

In Japan, SCM successfully tapped into post-quake reconstruction

regulations and cutting-edge hybrid models in Japan. We will alsopled with a stronger U.S. dollar resulted in a challenging sales envi-

delivering new models that meet and exceed the demands, anddemand and a surge in demand prior to the introduction of stricter

develop new products in line with market needs, and increase theronment in these regions. Link-Belt’s sales in these regions declined in

expectations of customers.

emissions regulations, securing record-setting sales volume and anumber of models offered overseas. We will also concentrate on

fiscal 2013. Link-Belt displayed four cranes at the 2013 Bauma inter-

10.5% share of the market in Japan. In the largest market of China, thegrowing sales overseas, such as by working to strengthen our

national trade show in Munich, Germany. The company alsoGroup achieved its target for sales volume, achieving record-high sales.

partnership with CNHi.

Topics

TopicsStrengthening Ties with CNHi

ATC-3210 All-Terrain Crane

For more than two decades, Sumitomo (S.H.I.) Construction Machinery Co., Ltd. has supplied

At the world’s largest construction machinery exposition, ConExpo 2014,

CASE-branded hydraulic excavators on an original equipment manufacturer (OEM) basis to CNH

Link-Belt Construction Equipment Company, L.P., LLLP unveiled the new ATC-

Industrial N.V. (CNHi). In addition to this arrangement, the two companies have recently reached

3210 all-terrain crane. Featuring the latest in technology, the ATC-3210 has

a technological licensing agreement that allows CNHi to produce hydraulic excavators at its own

been well received by customers for its excellent operability at construction sites

plants using Sumitomo Construction Machinery’s technologies. Their relationship will reach aand design for easy maneuverability on public roads.

new stage as both companies pursue synergies through this agreement with the aim ofprospering in the competitive world market for construction machinery.

28 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Mikio Ide, president of Sumitomo (S.H.I.)
Construction Machinery Co., Ltd. (at right),
shaking hands with Richard J. Tobin, CEOof CNH Industrial N.V. (at left)

ATC-3210 All-Terrain Crane

Sumitomo Heavy Industries, Ltd. Annual Report 201429

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

SearchEnvironmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Ships

31

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Review of Operations

Fiscal 2013 Segment Results
equipment trended positively. However, sales fell year on year due
to the low balance of orders carried forward from previous periods.
Based on the aforementioned, the segment as a whole saworders increase by 6% compared with the previous fiscal year, tofinish at ¥84.5 billion, and sales fall by 6% year on year, to ¥78.8
billion. In addition, the segment posted operating income of ¥4.1
billion, a 7% decrease compared with the previous fiscal year.

In the turbine and pump business, orders increased compared withthe previous fiscal year due to strong conditions in the domestic
biomass-fueled power generation facilities market. However, sales
fell year on year mainly due to a low balance of orders carriedforward from previous periods.
The material handling system business also saw an increase inorders compared with the previous fiscal year as both the domestic
and overseas markets for power generation facilities-related

Industrial
Machinery

Orders

Sales

Operating Income(¥ Billion)
100(¥ Billion)
10.0

(%)
12.0

Main Products

Major Applications/Markets(¥ Billion)
100

Material handling systems

Iron and steel, Electric power, Shipbuilding, Port logistics

75

75

Power generation

7.5

9.0

Turbines
Pumps

Oil and gas refinery facilities and equipment

50

50

5.0

6.0

Forging presses

Automobiles, Iron and steel, Non-ferrous metals

25

25

2.5

3.0

Logistics systems

Logistics

Cyclotrons for medical use

Medical equipment

0

(FY)

11

12

13

14 Forecast

0

(FY)

11

12

13

14 Forecast

0

(FY)

11

12

13

14 Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)* Businesses that include such products as cyclotron accelerators have been added to this segment from fiscal 2012.

Forging Presses and Medical Equipment

Material Handling Systems
Sumitomo Heavy Industries Material Handling
Systems Co., Ltd.

Market Environment

Market Environment

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

Market conditions, in general, continued to stall due to a variety

competitiveness and reliability. During the fiscal year under review,

The forging press market is expected to benefit from a pickup in

Conditions in the steel industry have firmed up. In addition toof factors, including political risks throughout Asia and thewe received an order for an oil refining project in Vietnam.

capital facility investment. This largely reflects the increase in auto-

expectations of a pickup in renewal demand, this positive environ-scaling down of monetary easing measures in the United States.

mobile production in North America, China, and Southeast Asia.

ment is largely attributable to a favorable turnaround in the ship-

Meanwhile, corrections to the yen’s appreciation triggered signs of

Fiscal 2014 Strategies and Initiatives

The market for cancer diagnosis and treatment equipment is alsobuilding market on the back of corrections to the strong yen and

an improvement in product prices and the competitive environment.

Despite the absence of vigorous activity, the market is expected toshowing signs of growth in Japan, elsewhere in Asia, Europe, andmoves to expand existing thermal power plant facilities. Against thisTurning to the domestic market, conditions in Japan were energizedexperience moderate growth. Turbine operations are projected to

the United States.

backdrop, material handling systems operations in Japan are soundby the Feed-in-Tariff (FIT) scheme for renewable energy resources.

remain active. In addition to the FIT market in Japan, this positive

Market Environment

with signs of growth overseas particularly in Asia. Demand for auto-

In pumps, the Group’s products were well received due to their

outlook is attributable to forecast order growth on the back of

Fiscal 2013 Review and Topics

mated parking systems is also on the rise especially for office build-

Fiscal 2013 Review and Topics

robust relationships with customers in overseas private power

The Group’s large forging presses that boast a rich history of provenings in metropolitan areas.

In its turbine operations, the SHI Group experienced an active FIT

generation markets. In pumps, we will adopt a selective approachmarket. As a result, orders increased on the back of successful efforts

toward projects with a view to improving profitability.

results continue to attract widespread acclaim. In addition to threeorders for its FPA series of presses, the Group was successful in

Fiscal 2013 Review and Topics

to bolster marketing in Japan. Orders for the Group’s high perfor-

securing successive orders for its FPX series both in Japan and over-

The SHI Group secured orders in its material handling systems busi-

mance steam turbines introduced in fiscal 2011 grew from threeseas. Medical equipment-related results were also firm. This wasness for continuous ship unloaders for electric power generation use

units in fiscal 2012 to eight units in fiscal 2013.

mainly due to sound orders in Japan and overseas for the Group's

in Japan and overseas as well as various cranes for shipyards incyclotrons for positron emission tomography (PET) applications asJapan. Orders were also received for factory automation (FA) equip-

well as one order in and outside Japan for a proton therapy system.

ment used in highly functional films as well as battery plants.
Buoyed by large-scale redevelopment projects in major urban areas,

Fiscal 2014 Strategies and Initiatives

orders for automated parking systems have exceeded expectations.

In forging presses, the SHI Group will leverage its local overseas
bases and work to expand orders for new equipment. At the same

Fiscal 2014 Strategies and Initiatives

time, we will promote our services business in a bid to address a

In its material handling systems business, the SHI Group will contin-

wide range of needs. Turning to medical equipment, we will contin-

ue to secure orders from mainly the electric power generation, steel,ue to expand sales in Japan and overseas while focusing on after-and shipbuilding markets. In our logistics facilities business, we will

markets.

take steps to further expand activities in existing markets whiledeveloping opportunities in Asia. In addition to increasing our market share in automated parking systems, we will further strengthen

0

TopicsOrder Received for Continuous Ship Unloader Units
that Boast the World’s Highest Rated Capacity
In October 2013, Sumitomo Heavy Industries Material Handling Systems Co., Ltd., received
an order for the delivery of two continuous ship unloader units. These bucket elevatortype units are designated to unload coal in Taiwan at the world’s highest rated capacity of
2,200 t/h. Since delivering its first unit in 1976, the company has supplied numerous units
mainly to electric power companies and steelworks. This order reflects the high acclaimthat this product continues to attract from customers for its outstanding efficiency,
environmental responsiveness, and market-leading features.

Continuous Ship Unloader(picture of the same type of unit
already in operation)

our logistics and services businesses.

30 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 201431

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

Environmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Ships

Search33

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Review of Operations

Ships

Main Products

Major Applications/Markets

Ships

Marine transportation

Environmental
Facilities& Plants

Ships
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
Market Environment
Changes in the shipping market attributable to such factors as theshale revolution are triggering demand for new tonnage. At thesame time, corrections of the strong yen are helping to improve costcompetitiveness. As a result, signs of an upswing in orders received
are beginning to emerge. Under these circumstances, shipyards inJapan are building up orders through high-quality products that
actively adopt the latest energy-saving technologies. Meanwhile, aperiod of excess tonnage is projected to continue for the immediate
future, reflecting large volume orders for ships by overseas investors.

Fiscal 2013 Review and Topics
Only one vessel was delivered during the fiscal year under review,
down four vessels compared with the previous fiscal year. This waslargely attributable to efforts aimed at rebuilding Sumitomo Heavy
Industries Marine & Engineering’s human resources and manufacturing systems. Turning to orders received, the company undertook
activities designed to improve productivity, including the applicationof the Toyota Production (Kanban) System. At the same time,

Main Products

Major Applications/Markets

Power generation systems

Electric utilities, Paper manufacturing, Steelmaking,
CementIndustrial wastewater treatment
systems

Food processing plants, Steelmaking, Paper and pulp,
Chemicals, Electricity and electronics, Machinery

Water and sewage treatment systems, Landfill
leachate treatment systems

Government agencies

Air pollution control plants

Electric utilities, Iron and steel industry

Chemical processing equipment & plants

Petrochemical plants

Pressure vessels, Mixing vessels

Oil refining, Petrochemical industries

Steel structures

Iron and steel industry

Food processing machinery

Food processing industry

Energy Plants

Sumitomo Heavy Industries Marine & Engineering enhanced its
cost-competitiveness by taking full advantage of the positive turnaround in foreign currency exchange rates. As a result, the company
received orders for five new Aframax tankers, which offer improved
energy-saving performance and cargo loading capacity. Activities
and results in fiscal 2013 have laid a solid foundation for further
improvements from fiscal 2014 and beyond.

Fiscal 2014 Strategies and Initiatives
In fiscal 2014, the shipbuilding market is expected to witness acontinued return by overseas customers seeking high-quality vessels
to shipyards in Japan. Looking at marine transportation, trade movements are expected to witness major changes due to a variety offactors, including the shale revolution and expansion of the Panama
Canal. Sumitomo Heavy Industries Marine & Engineering will accelerate the pace at which it develops energy-saving vessels in a bid toquickly adapt to changing market needs. By also focusing on activities
aimed at boosting orders received, the company will look to position
fiscal 2014 as a year in which to take a significant leap forward.

Market Environment

boilers, including five newly developed standardized compact CFB

For the domestic electric generation market in Japan, it is becoming

boilers. Concerning biomass fuel power generation in Japan espe-

active and popular for the electric developers to apply the Feed-incially for wood-based fuel, the needs have become diversified. We

Tariff (FIT) system by utilizing biomass fuels, such as waste forest

reflect our rich experience through our past various supplies of CFB

trimmings and/or palm kernel shells (PKS) imported from Malaysia

boilers and will promote the comprehensive utilization of wood-and Indonesia. The new investment plan to generate electricity bybased biomass resources to contribute to society to reduce CO2

designated independent power producers (or new power develop-

emissions.

ers) also becomes active and practicable. In overseas markets, there
is a big demand for additional power generation mainly from

Fiscal 2014 Strategies and Initiatives

emerging countries in Southeast Asia. We can see the movement in

For the domestic market, we are not only focused on CFB boiler

the ASEAN region to study the potentiality to utilize renewablesales for biomass fuel combustion that complies with the FIT scheme

energy power plants.

but also focused on the market for co-combustion between coaland biomass fuels. For overseas markets, we aim to expand sales of

Fiscal 2013 Review and Topics

CFB boilers that are suitable for low-grade coal combustion. Our

We increased the number of orders for circulating fluidized-bed

main target areas will be Indonesia, Malaysia, and Singapore.

(CFB) boilers in fiscal 2013. We received a total order for seven CFB

Fiscal 2013 Segment Results
As market conditions in the Ship segment continue to recover, five newship orders were received during the fiscal year under review, representing an increase of four ship orders compared with the previous fiscal year.
However, in terms of sales, only one vessel was handed over during the
fiscal year under review, four below the total from the previous fiscal year.

As a result, the segment as a whole saw orders increase by 159%
compared with the previous fiscal year, to ¥31.7 billion, and sales fall by
68% year on year, to ¥14.8 billion. In addition, the segment posted an
operating loss of ¥3.0 billion.

Implementing Structural Reforms

Orders

Sales

Operating Income(¥ Billion)
40(¥ Billion)
60(¥ Billion)
12.0

(%)
30

30

45

3.0

20

20

30

1.5

10

0

0

10

15

-1.5

-10

0

(FY)

11

12

13

14 Forecast

0

(FY)

11

12

13

14 Forecast

-3.0

(FY)

11

12

Topics13

14 Forecast-20

The SHI Group implemented two structural reforms in July 2014. One initiative
was to transfer the service-related business associated with SHI's power
generation plant business to a subsidiary. The second initiative involved thesuccession of distillation equipment and extraction equipment activities
between subsidiaries. By promoting the efficient distribution of businesses
within the Group’s organization, SHI is facilitating efforts to expand thebusiness scale of each business and to pursue synergy effects.

Small Circulating Fluidized-Bed (CFB) Boiler

Operating Income (Left Scale)Operating Income Margin (Right Scale)

32 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 201433

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Machinery Components

Precision Machinery

Construction Machinery

Environmental andSocial Contribution Initiatives

Corporate GovernanceIndustrial Machinery

Ships

Search35

Contents

Financial Section

Corporate Data

Environmental Facilities & Plants

Overview by Geographical Area
Review of Operations

Fiscal 2013 Segment Results
The energy plant business saw an increase in both orders and sales
compared with the previous fiscal year mainly due to the high levelof activity in the domestic biomass-fueled power generation boiler
market. The water treatment plant business also saw an increase inboth orders and sales as a result of buoyant market conditions for
products in this sector.

As a result, the segment as a whole saw orders increase by 14%
compared with the previous fiscal year, to ¥104.2 billion, and sales
increase by 10% year on year, to ¥86.2 billion. In addition, the segment posted operating income of ¥6.2 billion, an increase of 11%
compared with the previous fiscal year.

Orders

Sales

Operating Income(¥ Billion)
120(¥ Billion)
100(¥ Billion)
10.0

(%)
10.0

90

75

7.5

7.5

60

50

5.0

5.0

30

25

2.5
0

0

(FY)

11

12

13

14 Forecast

0

(FY)

11

12

13

14 Forecast

(FY)

11

12

13

14 Forecast

Fiscal 2013 Results
In fiscal 2013, the U.S. economy continued its recovery, but growth slowed in China, India, and other emerging markets.
Also, recovery in Europe has continued to be weak. As a result, overall macroeconomic conditions that the SHI Group
faced were unsteady. Amid this environment, effectively using and improving our global network, fiscal 2013 overseas
sales totaled ¥319.1 billion (a ¥10.3 billion increase year on year). The ratio of overseas sales in total sales was 51.8% (0.9
percentage point lower year on year).
Overseas Sales

Overseas Segment Sales Ratio(¥ Billion)

(%)

350

70

2.5

300

60

0

250

50

Operating Income (Left Scale)Operating Income Margin (Right Scale)

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

200

40

150

30

100

20

50

10

0

10

(FY)

11

Overseas Sales (Left scale)Market Environment
While the business for private-sector customers is in an upward
trend, market conditions remain difficult due to the large numberof competitors. By industry, the electronics sector is shrinking. On
a positive note, the food and chemicals sectors are experiencing
growth. In facilities-related activities, emphasis is being placed onproviding new value in a variety of areas, including energy efficiency
and CO2 reduction. Against this backdrop, investment is being
channeled increasingly toward streamlining operations.
Turning to the public sector, conditions are showing a low levelof stability due mainly to an upswing in penetration rates, resulting
in a decline in new installations. The market is also showing signsof intense competition owing to the financial difficulties of local
government authorities, the priority measures of local companies,
and other factors.

Fiscal 2013 Review and Topics
In the business for private-sector customers, manufacturers, ourmainstay customer base, adopted increasingly tight investment
policies. Despite these difficult conditions, the SHI Group secured
large-scale orders by bolstering ties with internal and external
partners. Turning to customers in the public sector, the number oftenders based on comprehensive assessment methods increased.

Against this backdrop, we placed particular emphasis on marketing
our unit-type products for wastewater treatment facilities.
In addition, we launched our sloped-ejection type Grit Jet Pump
“Sumijetter II,” which boasts outstanding energy-saving features.
This product received the Chairman’s Award at the 2013 Excellencein Energy Efficient Equipment Ceremony held by the Japan
Machinery Federation.

Fiscal 2014 Strategies and Initiatives
In the business for private-sector customers, the SHI Group will
work to cultivate new customers while drawing on the strengths of
its inherent technologies, including anaerobic water treatment processing systems and methods for separating solids and liquids, and
the Group will endeavor to create new products. In the business for
public-sector customers, we will focus on expanding sales of mainstay unit-type equipment for use in major cities. In addition, we willreinforce our abilities to address large-scale design to construction
project needs.
In promoting overseas sales, we will engage in marketing activities
with the aim of securing orders mainly from Japanese companies inSoutheast Asia with a particular emphasis on Indonesia. We will also
pursue a variety of initiatives, including efforts to bolster our local
production structure mainly through our local subsidiary in China.

12

Japan

319.1

Construction
MachineryPrecision
Machinery

Billion yen

41%

China

(¥ Billion)(¥ Billion)

300

300

250

250

250

200

200

150

150

150

100

100

100

50

50

50

300

0

(FY)

10

11

12

SHI, in collaboration with the National Institute for Environmental Studies, successfully

Industrial Machinery

running costs and smaller amounts of excess activated sludge, the methane fermentation

17%

Overseas
Segment Sales

The Americas

Area Sales Ratio: 46%
Sales: 284.6 billion yen(¥ Billion)

Environmental Facilities & Plants

it will become the world's first case example. While boasting such major benefits as low

8%

26%

Sales by Geographical Area (Note 1)

Successfully Developing Groundbreaking Wastewater Treatment Technologies

methane fermentation method. When this technology is out into practical implementation,

5%

Machinery Components

Industrial Machinery

013

Environmental Facilities & Plants

Overseas Sales Ratio (Right scale)

Topicsdeveloped a technology for processing organic effluent at ambient temperatures utilizing a

Ships 4%

13

0Area Sales Ratio: 19%
Sales: 118.6 billion yen

(FY)

10

11

Machinery Components

130Area Sales Ratio: 10%
Sales: 63.3 billion yen

(FY)

10

EuropeAsia and Others(¥ Billion)(¥ Billion)

300

300

250

250

200

200

150

Area Sales Ratio: 7%
Sales: 45.7 billion yen

Construction Machinery
Precision Machinery

12

200

100
50

11

12

13

Area Sales Ratio: 13%
Sales: 78.7 billion yen

150
100
50

method could not be applied at ambient temperatures. Every effort is being made topromote development with an eye to quickly securing practical application.

0

(FY)

10

11

12

13

0

(FY)

10

11

12

13

Notes: 1. Sales by geographical area do not include Ships segment sales.
2. Businesses that include such products as cyclotron accelerators have been moved from Precision Machinery to Industrial Machinery from fiscal 2013.

34 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries, Ltd. Annual Report 201435

PrintTo Our Shareholders,Customers, and Employees

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Search37

Contents

Financial Section

Corporate Data

Research and Development

R&D Strategy

Major R&D Results by Business Segment

In components for control systems, the Group turned its(5) Ships
We developed a mid-sized tanker designed to be highly profitablelarge-power motor drivers into a series.

Based on a vertically integrated synergistic value chain model, the(1) Machinery Components

SHI Group is actively engaged in the development of technologies

Boasting significantly reduced energy consumption, the GroupIn 4KGM cryocoolers, we launched the industry’s first European

and products. Under the banner of “Innovation 21,” the Group’s

released a premium efficiency gearmotor compliant with IE3, the

RoHS-compliant model used for applications that include coolingresponsive to market changes typified by the shale revolution.

previous medium-term management plan, the Group as a wholeinternational efficiency standard for motors.

superconducting magnets.

(6) Environmental Facilities & Plants

In semiconductor manufacturing equipment, the Group released

for customers, adaptable to future environmental regulations, andIn our industrial wastewater treatment activities, we demonstrated

has worked on project activities for innovative green products with

(2) Precision Machinery

the aim of enhancing the competitive edge of the Group’s products

In plastic injection molding machines, the Group released thethe S-UHE (ultra-high-energy) ion-implantation system that contrib-

the effectiveness of an anaerobic wastewater treatment system

and minimizing its burden on the environment. In the fiscal 2013

all-electric SP500E PET molding machine for bottle preforms thatutes to increase in productivity and improvements in the production

through the long-term stability treatment of wastewater discharged

Excellence in Energy Efficient Equipment Awards Ceremony held byrealizes high quality as well as stability/energy-saving performanceof high-performance image sensors.

from synthetic chemical plants, which contain highly concentrated

the Japan Machinery Federation, the Group’s hydraulic excavators

during fast cycle molding. In addition, the Group released the(3) Construction Machinery

alcohol and other materials.

and unit-type equipment for the sewage treatment system market

SE180EV-C360LGP specialized ultra-thin light guide plate molding

In construction machinery, we released in the Japanese market the

In food processing machinery, the Group released a high-received the coveted Chairman’s Award.

machine suitable for next-generation smartphone models.

SH200HB active hybrid excavator that improves productivity whiletemperature, high-pressure extractor targeting the beverage

maintaining fuel efficiency.

market.

In road machinery, the Group launched in the Japanese market

R&D Expenses

HA60W-8 and HA60C-8 models installed with engines that comply(7) Technology Research Center(¥ Billion)(%)

with Japan’s provisional Tier 4 emissions requirements.

The Technology Research Center engages in R&D primarily on

12

2.0

(4) Industrial Machinery

the SHI Group’s platform technologies. As an example, theIn medical equipment, the Group developed and acquired medical

development of multi-scale, multi-physics simulators using

device approval for its compact gantry system for proton therapy,

the Renormalization Molecular Dynamics method contributes towhich enables 360-degree rotation and irradiation of proton beams

the differentiation of SHI products based on physical principles.

9

1.5

6

1.0

3

0.5

0

09

(FY)

10

11

R&D Expenses (Left Scale)12

to the patient from discretionary angles.
In steam turbines, the Group released high-performance steam
turbines.

013

Ratio of R&D Expenses to Net Sales (Right Scale)

Premium Efficiency Gearmotor

Business Portfolio and Value Chain of SHI Group

Value Chain of Markets

Transport &Material Handling

Environment &EnergyMaterial
Processing

Automotive

Liquid Crystal & IT & Digital Appliances
Semiconductor

Water treatment facilities
CFB boilers for IPPs
Ships

Lifestyle and Consumer
Medical, Bioscience,
Physics & Chemistry

Wafer modification
Heavy Machinery
Business Group

Precision Equipment
Business Group

Proton therapy systems

Logistics & handling systems

Material handling systems

PET systems

Ships

Rotating Gantry Irradiation System

Hybrid Excavator SH200 HB

Plastics machinery, laser processing systems & laser annealing systems

Equipment

Forklifts
Pressure & mixing vessels
Construction machinery

Forging presses

Construction
machinerySurface grinding machines

Coating systems
Transfer molding machines
Ion-implantation systems
Superconducting magnets

Turbines & pumps

XY stages
Key Components &Basic Technologies

Value Chain of SHI Group

Total Systems

Services

Social & Industrial Infrastructure

Lifting magnets

Steel rolls

Cryopumps

Blades
Cryocoolers
Gear Reducer & Component
Business Group

Gearmotors

36 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Actuators

Control modules

Ultra-high-Energy Ion-Implantation Equipment S-UHE

Aframax Tanker

Sumitomo Heavy Industries, Ltd. Annual Report 201437

PrintTo Our Shareholders,Customers, and Employees

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Presentation andInterview with the President

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Intellectual Property

SearchEnvironmental andSocial Contribution Initiatives

Corporate Governance

39

Contents

Financial Section

Corporate Data

Corporate Governance

The SHI Group is oriented toward growth driven by distinc-

intellectual property evaluation in the design review (DR) process,The SHI Group believes that the essence of corporate gover-

Corporate Governance System

tive technologies. As such, intellectual property is an issue of

we are striving to make our product capabilities more robust.

nance lies in the establishment of a system that enables

SHI has adopted the corporate auditor system and, within thisefficient and transparent management. Sound corporate gov-

framework, has introduced an executive officer system to separate

the utmost importance and the wellspring of the Group’s
competitive advantage. The principal focus of our efforts is(2) Intellectual Property Evaluation Activities

ernance helps the Group achieve higher enterprise value andthe business execution and supervision functions of corporate

directed at the three elements of intellectual property activi-

The SHI Group evaluates the strength of individual patents held by

win the trust of all its stakeholders, including shareholders,management.

ty, namely, ensuring that rights to intellectual property are

the Group and strategically manages the processes for improving

customers, employees, and local communities as a whole.

secured, utilizing exclusive rights, and respecting other com-this strength. In addition to enhancing the quality of the Group’s

panies’ rights. In this way, we devote our Groupwide energies

intellectual property portfolio, such evaluation and management

Reinforcement of Corporate Governanceauditors. The Board of Corporate Auditors, including two external

to the active creation, management, and protection of theprocesses enable the Group to keep reinforcing the competitive

SHI has been working continually over a long period to strengthen

corporate auditors, and the Board of Directors, including one exter-

Group’s invaluable “property."superiority of its products through the appropriate maintenanceits corporate governance function. Specifically, the Company

nal director, collaborate with executive officers in charge of internalof its intellectual property.

adopted an executive officer system in 1999, appointed an external

auditing and internal control. In this manner, a system has been

director in 2002, and shortened the terms of office of directors

established to audit and supervise the execution of duties by the

Promotion Structure

The Company has a Board of Directors, comprising 10 directors,
and a Board of Corporate Auditors, comprising four corporate

To link the senior management of the SHI Group divisions directly(3) Accelerating Overseas Patent Applications

from two years to one in 2007. These and other measures reflect

Company’s management. The Company believes that this systemwith intellectual property activities, the Group has appointed Chief

In tandem with the globalization of the business activities of the

SHI’s ongoing efforts to reinvigorate the Board of Directors, ensure

will ensure that the corporate governance function is exercised toIntellectual Property Officers (CIPOs) to the same rank as the gener-

SHI Group, we have been calling on all operating divisions andthat business is executed in a timely manner, and secure the objec-

its fullest extent. Moving forward, the Company will take steps toal managers of technology and development departments, a posi-other relevant divisions to actively work to file patent applications

tivity and transparency of the Company’s management.

further reinforce the corporate governance function.

tion immediately below and reporting directly to officers in charge

overseas. As a result, 1,616, or 34.4%, of the Group’s total ofof groups or divisional businesses. The CIPOs prepare optimal intel-

4,694 patents were held overseas as of April 2014. In recent years,

ing the management, regularly hold meetings attended by the cor-

The Board of Directors deliberates not only on matters stipulated

lectual property strategies for each division, make all members of

the Group has been increasing patent applications, particularly inporate auditors of Group companies to reinforce the audit function

under the Japanese Corporate Law, but also on important manage-

those divisions thoroughly acquainted with these strategies, andChina, South Korea, and Taiwan.

covering the entire SHI Group. To address globalization, thement issues in a preemptive manner. Also, the Company’s Articles

Company also conducts annual onsite audits at its overseas

of Incorporation stipulate that the Company must have no more

subsidiaries.

than 12 directors.

create the mechanisms to put those strategies into practice. In
addition, the Intellectual Property Department participates fully in

SHI Group’s Overseas Patent Applications

reform activities implemented by the CIPOs.

(Applications)

Major Activities and Achievements

800

rate auditors have a risk of conflict of interest with the Company’s

700

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

500

We have formed an Inspection Committee composed principally

is listed.

400of CIPOs and established mechanisms for the regular evaluation of• Board of Directors

SHI ensures that neither its external director nor external corpo-

600(1) Intellectual Property Inspection Activities

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

300

inventive proposals and decisions regarding substantive examination

SHI’s Corporate Governance System

200

requests and rights maintenance. In this way, we foster the efficient100

and systematic management of patent applications ultimately

0

intended for commercialization. Furthermore, by incorporating

General Meeting of Shareholders
09

(FY)
China

10

South Korea

Taiwan

11

12

PCT*

Others13* Overseas patent applications under the Patent Cooperation Treaty (PCT)CIPO System

Ethics Committee

Board of Directors

Audit

Corporate Auditors/
Board of Corporate Auditors

Directors Recommendation Committee
Supervision

President

Sumitomo(S.H.I.)
Construction
Machinery

Mechatronics

Precision
Equipment

Industrial
Equipment

Plastics
Machinery

Power
Transmission& Controls

Technology
ResearchCenterIntellectual
Property
Dept.

Corporate Auditor’s Dept.

President and Chief Executive Officer
Internal Control Dept.

Audit

Management Strategy Committee
Internal Control
Internal Auditing

Executive & Operating Officers
Committee

Internal Audit Dept.
CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

Independent Auditor

Audit

Compensation Committee

Operational Divisions

Subsidiaries and Affiliates

Audit

CIPO: Chief Intellectual Property Officer
Sub-CIPO: Acting CIPO (Group Leader)

38 Sumitomo Heavy Industries, Ltd. Annual Report 2014

PL: Patent Leader

PL

Corporate Auditors/Board of Corporate
Auditors at Subsidiaries and Affiliates

Sumitomo Heavy Industries, Ltd. Annual Report 201439

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Environmental andSocial Contribution Initiatives

Corporate GovernanceIntellectual Property

Search41

Contents

Financial Section

Corporate Data

Corporate Governance• Executive & Operating Officers Committee• Directors Recommendation Committee

and the Executive & Operating Officers Committee as well as other

Internal Control Systemand the Compensation Committee

important meetings. In addition, corporate auditors are allowed to

The SHI Group considers the internal control system to be an

The Executive & Operating Officers Committee comprises executive
officers, who execute the Company’s business, as well as operating

The Directors Recommendation Committee makes recommenda-

access principal internal memos and other important documents

important management foundation for increasing its enterprise

officers. The Committee meets once a month to manage consoli-tions to the Board of Directors with regard to candidates for new

relating to business execution. The Company has appointed KPMG

value and ensuring its sustainable development. The Board ofdated business results and to ensure the implementation ofmembers of the Board of Directors and representative directors.

AZSA LLC as its independent auditor, has entered into an audit

Directors decides the basic policy for the development of the inter-management policies.

Meanwhile, director remuneration is determined by thecontract, and undergoes rigorous audits. Corporate auditors, thenal control system, which is the foundation of corporate gover-• Management Strategy Committee

Compensation Committee. Three of the current seven members

Board of Corporate Auditors, the Internal Audit Department, andnance. The Board appropriately verifies the effectiveness of the

The Company has also established the Management Strategyof the Compensation Committee have been externally appointed.

the independent auditor closely collaborate with each other andinternal control system and undertakes constant enhancement andCommittee, comprising executive officers assigned to theMore specifically, as an advisory body to the Board of Directors, theexchange information about audit results, thereby developing

improvement. The Company appoints external directors to bringCompany’s Head Office, as an advisory body to the president. This

Compensation Committee determines a level of director remunera-

and implementing an efficient audit system.

an outside perspective to the decisions of the Board of Directors.

Committee deliberates on important matters, including those to betion that reflects the Company’s business performance while ensur-

submitted to the Board of Directors, and, consequently, reports

ing transparency and ethical appropriateness in remuneration

Compensation of Directors and Corporate Auditors

tion of duties by the Company’s directors with respect to the devel-

deliberation results to the Company’s president.

decision processes.

The maximum amount of compensation paid to directors shall not

opment and administration of the internal control system. Also, theexceed ¥40 million per month pursuant to the resolution of SHI’s

Company works to strengthen its internal control over financial

Ordinary General Meeting of Shareholders ratified in June 2006.

reporting. With the organization in charge conducting audits ofdirectors and executive officers from the perspectives of legality

Internal Auditing, Auditing by Corporate Auditors,
Independent Audits

The Company has adopted a director compensation scheme thatthe status of internal control system administration, the Company

and appropriateness. At the same time, corporate auditors of the

The Company has established the Internal Audit Department (withis linked to SHI’s operating results. Individual director remunerationis striving to secure the reliability of its financial reporting.

Company and its subsidiaries and affiliates jointly hold regulara full-time staff of eight) as an internal auditing organization thatis determined by the Board of Directors on advice from themeetings to exchange audit-related information and reinforce

reports directly to the president. The Internal Audit Department

Compensation Committee regarding applicable standards thatCompliance Activities

auditing functions covering the entire SHI Group. The Company

periodically conducts audits of business execution at the Company’s

reflect SHI’s performance. The maximum amount of compensation

The Ethics Committee, chaired by the president, formulates thehas appointed a lawyer and a certified public accountant as its

internal organizations and at subsidiaries and affiliates in Japan andpaid to corporate auditors shall not exceed ¥7.5 million per monthCompany’s basic compliance policy. The Internal Control Group

external corporate auditors to reinforce the overall system foroverseas, provides advice on operational improvements, and fol-pursuant to the June 2005 resolution of SHI’s Ordinary General

undertakes the rigorous implementation of the policy throughchecking compliance and corporate accounting. Also, thelows up on the implementation of improvements. The department

Meeting of Shareholders. Remuneration paid to individual corpo-a Groupwide internal control system. In addition, the Company

Company has established the Corporate Auditor’s Department as

undertakes the reinforcement of the internal control functions inrate auditors is determined through a process of deliberation

distributes the Ethics Regulations and Compliance Manual to alla staff organization to support the Board of Corporate Auditors.

coordination with self-audits conducted by the operational divi-among corporate auditors. As of the close of the Company’s

employees and undertakes regular ethics and compliance educa-

sions. Corporate auditors perform their duties in line with the audit

Ordinary General Meeting of Shareholders held in June 2005, SHI

tion. When necessary, the Company collects written agreements

plans and policies formulated by the Board of Corporate Auditors.

terminated its directors’ retirement allowance system. In addition,from directors, executive officers, and all managers concerning

To audit the execution of duties by the Company’s directors andthe Company has not adopted a stock option system.

individual compliance items. Moreover, each year on an anonymous• Corporate Auditors and the Board of Corporate Auditors
The Company’s corporate auditors audit the execution of duties by

Corporate auditors conduct audits to ensure the appropriate execu-

executive officers, they attend meetings of the Board of Directors
Classification

External Director and External Corporate Auditors

Amount by Type of Number ofAmount ofCompensation
Eligible
Compensation(Millions of Yen)
Officers(Millions of Yen)
Basic Compensation (Persons)

As mentioned previously, the Company has appointed one external director and two external corporate auditors. SHI ensures that all of its
outside officers have no risk of conflicts of interest with the Company’s general shareholders and has reported them as independent officers
to the Financial Instruments Exchanges on which the Company is listed. Meanwhile, Susumu Takahashi was appointed an external directorof Sumitomo Heavy Industries, Ltd. during the Company’s 118th Ordinary General Meeting of Shareholders held on June 27, 2014, to takeover the position held by his predecessor Toshiaki Kakimoto.
Title

Name

Reason for appointment

Attendance at meetings of the Board of Directors

External
Director

Susumu Takahashi

Based on his substantial economic and management knowledge as well as his vast experience,
Mr. Takahashi is expected to provide comments of a beneficial nature while pointing out various issues in a frank and objective manner to the Company’s management. Acknowledging
that Mr. Takahashi is not in a position to be considerably controlled by, or to considerably control the management of the Company, he was appointed an external director with the expectation of maintaining appropriate independence.

Appointed as an external director on June 27,
2014.

External
Corporate
AuditorHideo Kojima

Based on his wealth of experience and knowledge as a long-standing certified public accountant, Mr. Kojima provides comments of a beneficial nature to the Company while pointing out
various issues in a frank and objective manner.

Mr. Kojima attended 14 of 15 Board of Directors
meetings and all 16 Board of Corporate Auditors
meetings during fiscal 2013.

External
Corporate
Auditor

Takeo Wakae

Based on his long-standing knowledge and wealth of experience as a lawyer, Mr. Wakae provided comments of a beneficial nature to the Company while pointing out various issues in a
frank and objective manner.

Mr. Wakae attended all 15 Board of Directors
meetings and all 16 Board of Corporate Auditors
meetings during fiscal 2013.

There are no vested interests of note between the aforementioned external director and external corporate auditors and the Company.
While SHI does not maintain specific criteria or policies with respect to the independence of external directors and external corporate auditors appointed by the Company, reference is made to the determination standards concerning the independence of officers issued by various
securities exchanges.

40 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Directors(excluding external
director)basis, SHI conducts surveys encompassing all employees in an effort
to assess and confirm levels of compliance awareness and understanding. The Company maintains a resolute stance against organizations or individuals that pose a threat to public order and safety
and engages in no relations whatsoever with such organizations

414

414

11

or individuals. The Company has established an ethics hotline (anin-house whistleblower system) as a point of contact to report matters that violate or may violate laws, ordinances, or corporate eth-Corporate
auditors(excluding external
corporate auditors)

68

External officers

19

68

2

ics, promotes the use of the hotline, and endeavors to discoverproblems at an early stage. The Company conducts audits of theexecution of duties by the Company’s executive officers and by

19

3

Notes: 1. There were nine directors, two corporate auditors, and three external
officers as of March 31, 2014. Included in the figures presented in thetable above are the officer number and compensation amounts paid forthe period between April 2013 and June 2013 to two directors who
retired as of the close of the Company’s 117th Ordinary General
Meeting of Shareholders held on June 27, 2013. (Accordingly, theaggregate number of eligible officers for the business term under review
was 11 directors (excluding the external director), two corporate auditors (excluding external corporate auditors) and three external officers.)
2. No officer received compensation of ¥100 million or more for theperiod. Accordingly, details of compensation paid to individual officers
have been omitted.
3. In addition to the above, the amount of ¥2 million was paid as generalemployee salaries to one general employee who held the concurrent
position of director.

staff under the direct control of the executive officers through theorganization in charge and ensures that their execution of duties
complies with laws, ordinances, and the Articles of Incorporation.

Sumitomo Heavy Industries, Ltd. Annual Report 201441

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

Search43

Contents

Financial Section

Corporate Data

Corporate GovernanceRisk Management

Messages from the External Director and Corporate Auditors

The Company engages in risk management using the Groupwide
internal control system. The Company takes a specialized approach

Susumu Takahashi While the basic tenets of corporate governance, which underpin efforts toto minimize risk. Through this approach, the business units inExternal Director

provide stakeholders with an appropriate return by enhancing corporate value
through highly transparent management, remain unchanged from era to era, I
would posit that the specific mechanisms by which corporate governance isimplemented evolve with changing times and circumstances. The underlying
strength of Japan's corporate sector has attracted wide acclaim for its ability
to withstand a prolonged period of deflation. Having passed through this difficult tunnel, and against the backdrop of globalization, companies are now
being asked to further bolster their operating capabilities in a bid to take thenext steps forward.
As an external director, I am committed to supporting the Company in its
efforts to reinforce corporate governance and strengthen its management andbusiness capabilities. To this end, I will provide management with recommendations and advice based on my research into economic activities in Japan andoverseas, financial markets and corporate management as well as my experience in public policy proposals.

Hideo Kojima

Recently, listed companies have been required to further strengthen their corporate governance. External corporate auditors designated as independent
corporate auditors have an important role to play in helping these companies
fulfill this requirement.
SHI has continued to engage in the ongoing reinforcement of its corporate
governance. With the aim of further enhancing corporate governance, my primary role as a certified public accountant and an external corporate auditor is,
as I understand it, to verify the comprehensiveness and help improve the overall quality of the Company’s financial reporting and compliance with businessaccounting standards. In addition, and in line with the Group's businessglobalization, it will become increasingly important to secure compliancethroughout the Group's domestic and overseas operations, set up and confirm
the proper operation of an internal control system, and to enhance the qualityof its financial reporting on a consolidated basis. Therefore, I will do myutmost to assist the Group in its efforts to bolster corporate governance froma global perspective.

charge prepare regulations governing individual risks—such asenvironmental, legal, disaster, IT, and export control risk—whileproviding education and guidance and conducting audits. In theevent of an emergency, in accordance with the Company’s
Emergency Reporting Procedures, the involved employees immediately report to executive management and take appropriate
measures.

Information Disclosure and IR Activities
SHI strives diligently to ensure the timely disclosure of relevant
Financial results briefing held in May 2014

information. At the same time, the Company actively promotes
dialogue with shareholders and investors. In this regard, SHI
recognizes dialogue as an appropriate means to ensure a deeper

Takeover Defense Measures

understanding of the Company and to further enhance its

SHI believes that—from the standpoint of increasing enterpriseenterprise value.

value and ensuring the common interests of the shareholders—

The president provides briefings on the Company’s interim andthe nature of persons who control decisions on the Company’s

full fiscal year results for the benefit of institutional investors andfinancial and business policies should be ultimately decided by the

analysts. Telephone conferences are also conducted on a quarterlyshareholders. Some large-scale purchases of shares, in light of theirbasis by the officer responsible for investor relations. Moreover, top

purpose or post-purchase management policy, pose the risk of clear

management calls on institutional investors and analysts in Japan

impairment of enterprise value or the common interests of share-

and overseas. Furthermore, over 300 interviews and meetings withholders. Some large-scale purchases—such as those conductedinvestors and analysts were held during fiscal 2013.

without the sufficient provision of information reasonably necessary

External Corporate
Auditorfor the shareholders to judge the purchase details—can be expect-

Fiscal 2013 IR Activity Results

ed to have a major impact on enterprise value or the common
interests of the shareholders. The Company considers persons

Activities forAnalysts/
Institutional
Investors

IR Materials
Posted on the
Company’s
Website• Financial results briefings (interim/full fiscal year)• Quarterly financial results telephone conferences• Individual visits to overseas institutional investors(North America: 1; Europe: 1)• Participation in conferences for institutional investors
sponsored by securities companies (eleven times)• Individual IR interviews• Plant tour for analysts/institutional investors (1)• Convocation notice (Japanese/English)• Securities report/quarterly securities report• Corporate governance report• Summary of consolidated financial report/timely
disclosure materials (Japanese/English)• Handout for financial results briefings(Japanese/English)• Webcast of financial results briefing(Audio only, Japanese/English (translated version))• Interim report (To our shareholders)• Annual report (Japanese/English)

42 Sumitomo Heavy Industries, Ltd. Annual Report 2014

who seek to make such purchases of the Company’s shares to beinappropriate as persons who control decisions on the Company’s
financial and business policies and has a basic policy on large-scale
share purchases of devising measures, as far as is necessary andreasonable, to secure and increase the Company’s enterprise value
and the common interests of the shareholders. In accordance withthis basic policy, as part of measures to prevent inappropriate
parties from controlling the Company’s decisions on financial andbusiness policies, SHI adopted the Countermeasures to Large-Scale
Acquisitions of the Company’s Shares (Takeover Defense Measures)
following approval of the Ordinary General Meeting of
Shareholders held in June 2008. At the Ordinary General Meetingof Shareholders held in June 2014, the continuation of the
Takeover Defense Measures was approved after making necessarychanges.

Takeo Wakae

External Corporate
AuditorI am now in my third year as a corporate auditor of Sumitomo Heavy
Industries, Ltd. While a major goal of any company is to consistently enhanceenterprise value, the odd misstep regarding compliance and periodic events
that occur in the conduct of business while accommodating a host of vested
interests may result in decisions that appear contrary to improving a company’s worth. In cases such as these, acting in a manner that protects the interests of general shareholders may prove difficult. As an external corporate
auditor, I see myself as a spokesperson for general shareholders. Accordingly,
I will see to it that proper consideration is given to protecting the interestsof all parties in the Company's execution of its business.

Sumitomo Heavy Industries, Ltd. Annual Report 201443

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Environmental andSocial Contribution Initiatives

Corporate GovernanceSearch45

Contents

Financial Section

Corporate Data

Directors, Corporate Auditors, and Executive Officers(As of June 27, 2014)

Board of Directors

Yoshinobu Nakamura
Representative Director, Chairman of the Board
Apr. 1975
Feb. 2001
Jun. 2002
Jun. 2003
Jun. 2004
Oct. 2004
Jun. 2005
Apr. 2006
Apr. 2007
Apr. 2013

Joined the Company
General Manager of Laser Business Center
Senior Vice President
General Manager of Precision Equipment Group
Executive Vice President
General Manager of Mechatronics Div.
Director
General Manager of Electro-Mechanical Systems Div.
Representative Director, President and CEO
Representative Director, Chairman of the Board(current)

Shunsuke Betsukawa

Shinji Nishimura

Representative Director, President and CEO

Representative Director, Senior Executive Vice President

Apr. 1978
Jul. 2001
Apr. 2007
Apr. 2009
Jun. 2009
Apr. 2010
Apr. 2011
Apr. 2012
Apr. 2013

Joined the Company
General Manager of Corporate Administration Dept. of
Finance & Accounting Div.
Senior Vice President, General Manager of Finance &Accounting Div.
General Manager of Corporate Planning &Development Dept.
Director
Executive Vice President
Representative Director, CFO,
General Manager of Export Administration Dept.
Senior Executive Vice President
Representative Director, President and CEO (current)

Apr. 1974
Feb. 2001
Jun. 2002
Apr. 2003

Apr. 2005

Jun. 2005
Apr. 2006
Apr. 2007

Joined the Company
General Manager of Ship and Steel Structure Group
Senior Vice President
Vice President, General Manager of Ship & MarineDiv., Representative Director and President of
Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.
Senior Vice President,
General Manager of Corporate Planning &Development Dept.
Director
Executive Vice President
Representative Director (current), Senior Executive Vice
President (current), General Manager of Power
Transmission & Controls Group (current)

Yoshiyuki Tomita

Kazuto Kaneshige

Mikio Ide

Director, Senior Vice President

Director, Senior Vice President

Director

Apr. 1981
May 2009
Apr. 2011

Jun. 2012
Apr. 2014

Joined the Company
General Manager of Technology Development Centerof Corporate Technology Operations Group
Vice President, General Manager of Technology
Research Center of Corporate Technology Operations
Group
Director (current)
Senior Vice President (current), General Manager ofCorporate Technology Operations Group (current)

Apr. 1977
Feb. 2009
Jun. 2010
Apr. 2012
Apr. 2012
Apr. 2013
Jun. 2014

Joined the Company
General Manager of Industrial Machinery Center
Director of Sumitomo Heavy Industries Techno-Fort
Co., Ltd.
Representative Director, President and CEO of
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
Senior Vice President (current)
General Manager of Industrial Equipment Div. (current)
Director (current)

Apr. 1973
Apr. 2001
Jun. 2003
Jun. 2005
Apr. 2010

Apr. 2011

Joined the Company
Director of Sumitomo (S.H.I.) Construction MachineryCo., Ltd.
Vice President
Director (current)
Senior Executive Vice President,
Director and Senior Executive Vice President of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
Representative Director, President and CEO of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
(current)

Corporate Auditors
Yukio Kinoshita
Kazumi Fujita

Standing Corporate Auditor
Standing Corporate Auditor

Hideo Kojima
Takeo Wakae

External Corporate Auditor
External Corporate Auditor

Executive Officers

Yuji Takaishi

Akio Yoshikawa

Toshiharu Tanaka

Representative Director, Executive Vice President

Director, Senior Vice President

Director, Senior Vice President

Apr. 1977
Jul. 2000
Apr. 2005
Apr. 2007
Jun. 2007
Apr. 2010
Apr. 2012
Apr. 2013
Apr. 2014

Joined the Company
Acting General Manager of Niihama Works
General Manager of Human Resources Dept.
Senior Vice President
Director
Executive Vice President (current), General Manager of
Plastics Machinery Div.
General Manager of Corporate Planning &Development Dept.
Representative Director (current), General Manager ofExport Administration Dept. (current)
General Manager of Corporate Planning &Development Div. (current)

44 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Apr. 1974
Jun. 2008
Apr. 2011

Apr. 2012
Apr. 2013

Jun. 2013

Joined the Company
Director of Sumitomo (S.H.I.) Construction MachineryCo., Ltd.
Director and Executive Vice President of Sumitomo(S.H.I.), Construction Machinery Co., Ltd. (current),
General Manager of China Business Div. (current)
Vice President
Senior Vice President (current), China Head
Representative (current), Chairman of Sumitomo
Heavy Industries (China), Ltd. (current), Chairman of
Sumitomo Heavy Industries (Shanghai) Management,
Ltd. (current)
Director (current)

Apr. 1983
Apr. 2011
Jun. 2012
Apr. 2013
Jun. 2013
Apr. 2014

Joined the Company
General Manager of Precision Equipment Div.
General Manager of Tanashi Works
Senior Vice President (current)
Director (current)
Deputy General Manager & General Manager of
Global Business, Support Dept. of Power Transmission& Controls Group (current)

Susumu Takahashi
External Director
Feb. 2004

Counselor of The Japan Research Institute, Limited

Aug. 2007 Vice Chairman of The Japan Research Institute, Limited
Jun. 2011 Chairman of The Japan Research Institute, Limited
Jun. 2014(current)
Director of the Company (current)

Shunsuke Betsukawa
Shinji Nishimura
Katsuhiko Taniguchi
Yuji Takaishi

President and CEO
Senior Executive Vice President

General Manager, Power Transmission & Controls Group

Executive Vice President

General Manager, Corporate Quality Dept.

Executive Vice President

Katsuhide Yokota

General Manager, Corporate Planning & Development Div.,
General Manager, Export Administration Dept.

Executive Vice President

Chuck Martz

Representative Director and President,
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.,
General Manager, Ehime Works

Executive Vice President

Hitoshi Ushiyama

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

Senior Vice President

Kazuto Kaneshige
Tetsuya Okamura
Akio Yoshikawa

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

Senior Vice President

General Manager, Industrial Equipment Div.

Senior Vice President

CEO, Sumitomo (SHI) Demag Plastics Machinery GmbH

Senior Vice President

Nobutaka Miyawaki

China Head Representative,
Chairman, Sumitomo Heavy Industries (China), Ltd.,
Chairman, Sumitomo Heavy Industries (Shanghai) Management, Ltd.
Director and Executive Vice President, Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.

Senior Vice President

Toshiharu Tanaka

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

Senior Vice President

Yoshiyuki Tomita
Hideo Suzuki
Yukio Kumata
Isao Kohno

Deputy General Manager, General Manager of Global BusinessSupport Dept., Power Transmission & Controls Group

Senior Vice President

General Manager, Corporate Technology Operations Group

Shinji Shimomura

Senior Vice President

General Manager, Finance & Accounting Div.

Vice President

Deputy General Manager, Corporate Technology Operations Group

Vice President

Deputy General Manager, General Manager of Geared Motor Dept.,
Power Transmission & Controls Group

Vice President

Executive Vice President, Sumitomo (S.H.I.) Construction MachineryCo., Ltd.

Sumitomo Heavy Industries, Ltd. Annual Report 201445

PrintTo Our Shareholders,Customers, and Employees

Financial Highlights

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

SearchEnvironmental andSocial Contribution Initiatives

Corporate Governance47

Contents

Financial Section

Corporate Data

Environmental and Social Contribution Initiatives

Basic Approach to Environmental Issues

Environmental Initiatives

In FY2013, we were able to control emissions to per unit ofoutput far exceeding the target, with a 37% reduction over
FY2004 levels and a 44% reduction over FY1990 levels.

Zero Emissions
The SHI Group has defined factories at which the amount of

The Group is expanding its production scale across factories

waste disposed of as landfill as a percentage of total waste (thelocated overseas. At the same time, the Group has taken steps

zero emissions rate) is less than 0.5% as zero emissions facto-

to establish CO2 emission reduction targets on an individual fac-

The Sumitomo Heavy Industries Group contributes to implementing sustainable develop-

ries. We have been promoting this program since FY2005, andtory basis since FY2011. Accordingly, each factory is undertak-ment of society by holding fast to the “Sumitomo Business Spirit.”

as a result in FY2013 we achieved zero emissions at all sevening a host of initiatives aimed at achieving the established CO2

works and all sites at all eight Group companies. We were also

emission reduction targets. In FY2013, the Group achieved allable to achieve a zero emissions rate of 0.004% for the Grouptargets across its network of overseas factories. Total emissions

as a whole, greatly exceeding the target. Recycling by separat-

amounted to 73,173 tons of CO2 against a target of 78,841

ing waste is crucial in achieving zero emissions.

tons of CO2.

Sumitomo Heavy Industries Group Environmental Philosophy

The Sumitomo Heavy Industries Group is taking action across the Group to protect the
global environment.

Going forward, we will conduct thoroughgoing waste sepaCO2 emissions (Domestic)

Environmental Policy

Environmental Management

ration so that we can maintain zero emissions status, and we

In order to implement the sustainable development of society,We have established an Environmental Management

will aim to make our plants friendly to the global environment.

we must respond to global environment issues and reduce theDepartment in the General Administration Group, which draws

burden on the environment posed by various aspects of corpo-

up the medium-term environmental plan (the current fourthsions at its overseas factories since FY2011 and continues torate activity. To do so, the Group is promoting autonomous andmedium-term environmental plan runs from FY2014 topromote measures aimed at reducing the generation of waste

6

proactive initiatives to protect the environment.

FY2016), and environmental goals on an annual basis, andfor disposal, that is, the volume of nonrecyclable industrial

4

In 1992, we established the Environmental Committee todevelops environmental management across the Group, includ-

waste to be discarded as landfill. In FY2013, the Group2

promote environmental protection and compliance in local

ing personnel training. In 2011, we assigned an environmental

achieved a zero emissions rate, the rate of the volume of waste

communities. In September 1997, we established the

manager to Shanghai, China, to promote environmental activity

for disposal to the total volume of waste, across all of its over-

Sumitomo Heavy Industries Environmental Policy in order tomonitoring and support throughout China.

seas factories of 3.9% against a target of 10%.

The Group has put in place the target of achieving zero emis-

drive home the message of environmental management. In

General Manager of General Administration Group

Group Environmental Policy in November 1999, expanding

Consideration of
the impact on
the environment
aroundthe facilities

Works

Prevention ofenvironmental
pollution

Saving energy
Saving resources
Promotingrecycling
Waste
reduction

46 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Environmental
Committee
members

Divisions

Environmental
Committee
members

Environmental
Committee
membersGroup
Companies
outside Japan
Environmental
Committee
members• Evaluation by the General Manager, General Administration Group (Once per year)• Executive Board Conference (Four times per year)• Environmental audit (Once per year)• Sumitomo Heavy Industries Group Environmental Management Conference(Twice per year)• Environment and Energy Conservation Conference for Prevention of Global
Warming (Four to six times per year)• Special Patrol for Energy Conservation (According to level of goal attainment)

06

07

08

09

10

11

12

13

tion over FY2005 levels with a reduction of 57%.
Looking ahead, the SHI Group will continue to engage in

0.25
0

Group
Companies
within Japan05

process. In FY2013, we exceeded the target of a 43% reduc(Target)

0.50

Environmental Audit
Team

(FY)

warming such as reducing CO2 emissions in the papermaking

Environmental Management Department

including overseas facilities.

0and, at the same time, it is linked to activities to prevent global

1.00
0.75

environmental management across the Group as a whole,

Achievement

Reducing paper usage is part of activities to save resources,(%)

the SHI Group, we established the Sumitomo Heavy Industries

Target8

Activities to Reduce Paper Usage

Zero emissions rate (Domestic)

President and CEO

addition, in order to clarify the basic policy of activities across(10,000t-CO2)

10

(FY)

paper usage reduction activities.
09

10

11

12

13

Paper usage(Million sheets)

Reducing CO2 Emissions
The SHI Group started to take action in FY2005 with the first

100

80

medium-term environmental plan to reduce CO2 emissions

60

by 10% from FY2004 levels by FY2007. As of FY2014, we

40

launched the fourth medium-term environmental plan aiming

20

to further reduce CO2 emissions by 32% from the FY2004 level0

by FY2016. Compared to the benchmark year of FY1990 for

TargetAchievement

(FY)

06

07

08

09

10

11

12

13

the Kyoto Protocol, the target is to achieve a 39% reduction.

Sumitomo Heavy Industries, Ltd. Annual Report 201447

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Contents

Financial Section

Corporate Data

Environmental and Social Contribution Initiatives

Financial Section
Social Contribution Activities

Overseas Activities• The Philippines

Local Community Cleanup Activities

SHI Designing & Manufacturing, Inc., in the Philippines, has been

The SHI Group conducts regular cleanup activities of areas neigh-engaging in social service activities two or three times every year

boring its works. We also take part in cleanup activities organizedsince 2009. An executive committee has organized badminton

by local governments and volunteer groups. For example, themeets and bingo games to raise funds. The company then donatesGroup participates in cleanup activities in the vicinity of its Ehimea matching amount to the executive committee, and it is used toWorks as well as the annual “Refresh Setouchi” Inland Sea cleanup

support social service activities. In addition, steps are taken to visit

activities at Takasu Beach. Takasu Beach is the only natural sandelementary schools in the mountains, where cleanup activities andbeach that remains in Saijo City, and protecting the environment

classes are undertaken. While providing games and stationery as

there is seen to be in everyone’s interest. This campaign, launchedpresents, the company also promotes a variety of activities, including

in 1993, marked its 20th anniversary last year, and it was a major

tree planting.

event among the city’s volunteer campaigns. Moreover, the Group’s

50

Eleven-Year Summary

52

Management’s Discussion and Analysis ofFinancial Conditions and Operating Results

55

Business Risks

56

Consolidated Balance Sheets

58

Consolidated Statements of Income

59

Consolidated Statements ofComprehensive Income

60

Consolidated Statements of
Changes in Net Assets

62

Consolidated Statements of Cash Flows

64

Notes to Consolidated Financial Statements

87

Independent Auditor’s Report

Nagoya Works and the Niihama Plant participate in the Adopt
Program* supervised by local municipalities. Through these activities,
we are actively engaging in efforts to clean up surrounding areas.

Giving books as presents

Cleanup (Niihama Plant)
Families cleaning up
Takasu Beach in Saijo City
* Adopt Program
It is a volunteer campaign in which residents designate a public facility, such asa park or a footpath, to take care of on their own responsibility. They thenpick up trash, water the plants, and weed it as if it were their own, so thatpeople will be able to enjoy using that facility.

Tree planting• Germany
Sumitomo (SHI) Demag Plastics Machinery GmbH in Germany
held a family day and invited employees’ families to visit their

Cooperation with Welfare Facilities

plant. Attended by many employee families, the event was a great

The Yokosuka Works provides a Yokosuka municipal welfare sup-success, and the president received many messages of thanks.

port center with cut ends of electrical wire generated during ship-

Japanese resident staff members and their families also cooperated

building and empty cans from business offices and dormitories. At

by setting up a typical Japanese festival game of fishing for water

the facility, the insulation is stripped off to remove the core wire,balloons while organizing other events. These amusements are notand aluminum cans are crushed together in a compactor. The

generally found in Germany, and the other participants greatly

materials are then sold and the proceeds are applied toward facility

enjoyed this contact, which had considerable appeal as an oppor-

operating costs. The Nagoya Works cooperated with a welfare

tunity to interact and develop cultural exchange.

Click each item to go to
the top page for that category.

facility located in Obu City by regularly placing cookies and bread
baked at the facility on sale in the employees’ dining hall.

Scenes from thefamily day

Work under way at the KagamidaEn in Yokosuka

48 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Selling cookies and bread from the
Akebi-En in Obu

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Contents

Financial Section

Corporate Data

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

FY2008FY2009FY2010FY2011FY2012FY2013Thousands of
U.S. dollars (Note 1)
FY2013

FY2003

FY2004

FY2005

FY2006

Millions of yen
FY2007

Summary of Income (for the year):Net sales
Cost of sales
Selling, general and administrative expenses
R&D expenses
Operating income
EBITDA (Note 2)
Net income¥482,765
378,422
64,112
6,263
40,231
50,344
16,262¥521,310
407,51265,025
6,317
48,77358,055
22,792¥551,339
434,904
68,9307,434
47,50556,57729,742¥600,256
464,071
71,961
8,581
64,22474,87337,352¥660,769
505,366
77,613
9,908
77,79091,57842,974¥642,918
503,072
82,906
10,04756,94075,26013,649¥516,165
412,751
75,1608,187
28,25447,97913,280¥548,015
426,479
75,7337,445
45,80363,74427,926¥624,100
490,878
86,087
9,343
47,13564,955
19,492¥585,871
465,30989,274
9,835
31,28849,5705,865¥615,271
483,105
97,837
10,71834,32952,946
17,891$5,973,501
4,690,334
949,876
104,055
333,291
514,040
173,699

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

¥ 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¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700¥ 23,309(22,672)
638
19,87972,376¥

2,660(19,660)(17,000)(11,428)
46,476¥ 63,661(27,622)36,039(9,498)76,418$ 618,070(268,176)
349,894(92,212)
741,921

Financial Position (at year-end):
Total assets
Total current assets
Total non-current assets
Interest-bearing debt
Net interest-bearing debt
Stockholders’ equity
Total net assets (Note 4)¥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¥657,436
380,293
277,143
110,339
65,654—
238,697¥610,087
339,780
270,308
87,66025,149—254,153¥626,829
365,342
261,487
67,833
15,347—269,380¥691,841
429,046
262,795
96,522
23,149—282,145¥647,724
386,628
261,096
98,54750,732—292,826¥724,182
434,954289,228
107,433
39,607—331,059$7,030,890
4,222,852
2,808,038
1,043,040
384,539—3,214,166

Yen

Amounts per Share of Common Stock:
Net income (Note 5)
Stockholders’ equity
Cash dividends

¥

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

U.S. dollars (Note 1)

¥

22.62
378.78
6.00

¥

22.01
404.73
4.00

¥

45.87
435.10
8.00

¥

31.75
454.43
10.00

¥

9.56
470.69
8.00

¥

29.17
532.28
7.00

$

0.28
5.17
0.07

%

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)

8.3
10.4
1.3
2.8
16.0
19.7
37.2
1.9
6.5

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.3
20.1
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8

8.4
11.6
1.4
4.5
10.9
42.6
10.8
0.3
7.8

7.6
10.4
1.5
3.0
7.1
40.3
14.0
0.3
7.4

5.3
8.5
1.7
0.9
2.1
44.6
15.2
0.3
4.9

5.6
8.6
1.7
2.5
5.8
45.1
14.8
0.3
4.8
Thousands of
U.S. dollars (Note 1)

Millions of yen

Investment in Plant and Equipment, and Others:
Capital expenditures (Note 7)
Depreciation and amortization
Number of employees¥ 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¥ 31,753
18,32014,984¥ 24,465
19,725
15,463¥ 14,292
17,941
17,025¥ 19,682
17,82018,139¥ 29,888
18,282
18,245¥ 20,329
18,617
17,936$197,369
180,749

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥103=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as ofMarch 31, 2014.
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 dividends received) x 55% (= 1– Effective tax rate)
6. ROIC (Return on Invested Capital) =(Average of stockholders’ equity + Average of interest-bearing debt)
7. Capital expenditures are capitalized and recorded as assets.

50 Sumitomo Heavy Industries, Ltd. Annual Report 2014

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PrintTo Our Shareholders,Customers, and Employees

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53

Contents

Financial Section

Corporate DataManagement’s Discussion and Analysisof Financial Conditions and Operating Results

1. Overview of the Business Environment
and Performance in Fiscal 2013
During the consolidated fiscal year under review, the overall
Japanese economy showed signs of recovery due to factors
such as the weaker Japanese yen and the increase in publicas well as private-sector capital investments. On the other hand,the overall direction of the global economy outside of Japanremained unclear as the firm U.S. economy was outweighed by
the slowdown in the rates of growth of such emerging markets
as China and India, which had continued to drive global economic expansion, and the delayed recovery of the Eurozone.
Set against this economic backdrop, the Sumitomo Heavy
Industries Group (hereinafter referred to as the “Group”) positioned the fiscal year under review as the Group’s turnaroundyear and implemented organizational reforms across all business divisions. In addition, it focused on improving productquality further in order to strengthen its foundation for future
expansion. As a result of these efforts, the figures for orders,sales, operating income, and net income for the fiscal year
under review exceeded those of the previous fiscal year.
2. Analysis of Operating Results(1) Orders
Orders received during fiscal 2013 increased ¥107.5 billion
compared with the previous fiscal year, to ¥658.2 billion. The
Group’s performance was up year on year across all businesssegments surpassing the ¥650.0 billion milestone for the firsttime since prior to the Lehman Brothers shock.

(2) Net Sales
Net sales climbed ¥29.4 billion, to ¥615.3 billion. With the
exceptions of the Industrial Machinery as well as the Ships
segments, net sales improved across all of the Group’s businessactivities. Overseas sales grew ¥10.3 billion, to ¥319.1 billion.
The ratio of overseas sales to total consolidated net sales
edged down 0.8 of a percentage point, to 51.9%.
(3) Cost of Sales
In line with the increase in net sales, the cost of sales climbed¥17.8 billion, to ¥483.1 billion. The cost of sales ratio declined
0.9 of a percentage point compared with the previous fiscal
year, to 78.5%.
(4) Selling, General and Administrative (SG&A) Expenses
SG&A expenses grew ¥8.6 billion year on year, to ¥97.8 billion.
This was largely attributable to increases in salaries as well as
research and development costs and reflected provisions madeto the allowance for business losses. The SG&A expense ratio
was 15.9%, 0.7 of a percentage point higher than the previous
fiscal year.
(5) Operating Income
Operating income increased ¥3.0 billion compared with theprevious fiscal year, to ¥34.3 billion. With the exceptions of
the Industrial Machinery and Ships segments, all other businesssegments experienced an upswing in earnings. In each case,the principal factor was the increase in net sales. While orders
received in the Industrial Machinery segment improved, net
sales declined and earnings edged down as a result of the limited orders received balance. In the Ships segment, one newvessel was delivered. Earnings fell dramatically, however, owing
mainly to the loss on operations. Taking each of the aforementioned factors into consideration, the operating income margin
improved 0.3 of a percentage point, to 5.6%.
(6) Other Income and Expenses
Other income and expenses amounted to net expenses of ¥1.3
billion. This represented a year-on-year deterioration of ¥1.0 billion. Other income declined ¥0.3 billion, to ¥6.3 billion, reflecting the downturn in dividend income. Other expenses, on theother hand, climbed ¥0.7 billion, to ¥7.6 billion, primarily as aresult of the increase in interest expense.
(7) Extraordinary Gains and Losses
Extraordinary gains and losses amounted to net losses of ¥1.7
billion, an improvement of ¥18.5 billion, compared with theprevious fiscal year. There were no extraordinary gains for theperiod under review. Extraordinary losses declined ¥20.7 billion
year on year, to ¥1.7 billion. This mainly reflected the drop in
impairment losses on fixed assets of ¥15.7 billion.
(8) Income Taxes (Total Income Taxes, Local Inhabitant Tax,Business Tax, and Deferred Income Taxes)
Income taxes increased ¥8.9 billion, to ¥13.5 billion. The effective tax rate was 43.13%.
(9) Minority Interests in Net Income
Minority interests in net loss came to ¥0.1 billion. This wascompared with minority interests in net income of ¥0.3 billion
in the previous fiscal year.

Net Sales

Cost of Sales Ratio,
SG&A Expenses Ratio

Breakdown of Variation in Operating Income(Fiscal 2012–Fiscal 2013)

Operating Income,Operating Income Margin

Net Income,Net Income Margin, ROE(¥ Billion)
800

(%)
100

(¥ Billion)(¥ Billion)
50

(%)
15

(¥ Billion)
30

(%)
12

40

12

25

10

30

9

20

8

+5.1

+1.5

600

31.3
60

400

+1.8

Currency
exchangerate
fluctuations

Sales
administrative
costs, etc.

(5.4)

Impact ofdecreased
Incomein ship
business

34.3

40

200

20

0

0
(FY) 09

10

11

12

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

13

(FY)

09

10

Cost of Sales Ratio
SG&A Expenses Ratio

Others52 Sumitomo Heavy Industries, Ltd. Annual Report 2014

11

12

13

(FY)

2012

2013

6

15

6

10

3

10

4

0

0

5

2

-10

-3

10

11

12

13

Machinery Components
Precision Machinery
Construction Machinery(Left scale)Industrial Machinery Ships
Environmental Facilities & Plants
OthersOperating Income Margin (Right scale)(¥ Billion)
800

Capital Expenditures,
Depreciation and Amortization(Times)1.6(¥ Billion)
35

700

1.4

600

1.2

500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

5

0

0

30
25
20

20

(FY) 09

3. Discussion and Analysis of Financial Condition
as of the Fiscal 2013 Year-End(1) Assets, Liabilities, and Net Assets
As of March 31, 2014, total assets stood at ¥724.2 billion,up ¥76.5 billion, compared with the balance as of March 31,
2013. Major upward movement included increases in cash
and time deposits of ¥20.0 billion, ¥8.7 billion in notes andaccounts receivable, ¥5.0 billion in inventories, and ¥9.6 billion
in property, plant and equipment.
Total liabilities as of the end of the consolidated fiscal year
under review stood at ¥393.1 billion, an increase of ¥38.2 billion, compared with the end of the previous consolidated fiscal
year. Major movements included increases in interest-bearing
debt of ¥8.9 billion and notes and accounts payable of ¥10.6
billion. Net interest-bearing debt—the amounts of interestbearing debt less cash and time deposits—declined ¥11.1 billion compared with the balance as of the end of the previous
fiscal year, to ¥39.6 billion. The ratio of net interest-bearing
debt to total assets decreased 2.3 percentage points, to 5.5%.

Total Assets, Total Asset
Turnover

Sales increase80(10) Net Income
Net income grew ¥12.0 billion compared with the previous
fiscal year, to ¥17.9 billion. As a result, net income per sharecame to ¥29.17, compared with ¥9.56 in fiscal 2012. In addition, ROIC was 4.8%, down 0.1 of a percentage point.
For an overview of operating results by business segment,
please refer to the Review of Operations section of this reporton pages 24 to 34.

0

0
(FY)

09

10

11

12

13

Net Income (Left scale)
Net Income Margin (Right scale)ROE (Right scale)0(FY) 09

10

11

12

13

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

15
10

(FY)

09

10

11

12

13

Capital Expenditures
Depreciation and Amortization

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Financial Section

Corporate Data

Business Risks
Management’s Discussion and Analysis of Financial Conditions and Operating Results

Net assets as of the end of the consolidated fiscal year underreview stood at ¥331.1 billion, an increase of ¥38.2 billion
compared with the end of the previous consolidated fiscal year.
Retained earnings and foreign currency translation adjustments
increased by ¥13.5 billion and ¥21.5 billion, respectively.
Consequently, the stockholders’ equity ratio for the consolidated fiscal year under review improved by 0.5 of a percentage
point, compared with the end of the previous consolidated
fiscal year to finish at 45.1%.
(2) Cash Flows
The SHI Group uses internal funds and funds procured throughdebt financing as working capital and to fund capital spending.
Net cash provided by operating activities was ¥63.7 billion
for the consolidated fiscal year under review. The main sourcesof cash inflow were the ¥31.3 billion in income before income
taxes and minority interests and the ¥10.2 billion decrease ininventories. The main source of cash outflow was income taxes
paid amounting to ¥9.7 billion.
Cash flow used in investing activities totaled ¥27.6 billion forthe consolidated fiscal year under review. This was mainly due
to the ¥19.0 billion used for the acquisition of property, plantand equipment, and the ¥12.6 billion used for the payment ofloans receivable. These outflows were more than the ¥1.7 billion cash inflow from the sale of investment securities.
Net cash used in financing activities was ¥9.5 billion for the
consolidated fiscal year under review. This was mainly due tothe ¥10.0 billion net decrease in commercial paper, the ¥4.3
billion in cash dividends paid, and the ¥7.1 billion used to borrow funds. Accounting for each of the aforementioned activities, free cash flows came to a positive amount of ¥36.0 billion,
compared with the negative amount of ¥17.0 billion for theprevious fiscal year.
As a result, cash and cash equivalents as of March 31, 2014
stood at ¥76.4 billion, an increase of ¥29.9 billion, comparedwith the previous fiscal year-end.
(3) Capital Expenditures and Depreciation
and Amortization
In the fiscal year under review, the SHI Group undertook
capital expenditures for the purpose of strengthening thecost-competitiveness of its production bases.
Capital expenditures for fiscal 2013 totaled ¥20.3 billion,
down ¥9.6 billion, compared with the previous fiscal year.
Depreciation and amortization was ¥18.6 billion, up ¥0.3 billion
year on year. Capital expenditures by segment are describedas follows.
a. Machinery Components
With the restoration and fortification of its global supply chain
as a key priority, the Group focused mainly on strengthening
the cost-competitiveness of its production bases, particularly

54 Sumitomo Heavy Industries, Ltd. Annual Report 2014

in North America and Japan. Capital expenditures in the
Machinery Components segment in fiscal 2013 amounted
to ¥3.3 billion.
b. Precision Machinery
The Group placed considerable weight on bolstering production
capacity as well as productivity. On this basis, the Group undertook capital expenditures to enhance the cost-competitivenessof production bases mainly in Japan. Capital expenditures in
the Precision Machinery segment totaled ¥4.6 billion.
c. Construction Machinery
Emphasis was placed on the global supply chain in addition
to strengthening the competitiveness of production bases.
Concentrating on its bases in Southeast Asia, capital expenditures in the Construction Machinery segment for fiscal 2013
were ¥9.4 billion.
d. Industrial Machinery
In its Industrial Machinery activities, the Group undertook toincrease production capacity and improve productivity. To thisend, a total of ¥1.0 billion was directed toward the renewal ofexisting facilities.
e. Ships
To increase production capacity and improve productivity in
the Ships segment, the Group channeled a total of ¥0.5 billion
toward the renewal of existing facilities.
f. Environmental Facilities & Plants
In the Environmental Facilities & Plants segment, the Group
undertook capital expenditures totaling ¥0.8 billion aimed
primarily at bolstering production capacity and improving
productivity by renewing existing facilities.
4. Policy on the Distribution of Profits
Regarding the distribution of profits, the SHI Group adheres
to a basic policy of paying dividends commensurate with net
income earned during the period while striving to increase dividend amounts. At the same time, the Group works to maintainretained earnings at a level sufficient to ensuring sustainablebusiness growth over the long term. With due consideration
given to this basic policy, the Group decided to target a
dividend payout ratio of 30% under its new medium-term
management plan.
For the fiscal year under review, and based on the basic
policy of maintaining the continuous and stable payment ofdividends, the Company decided to pay out an annual dividendof ¥7 per share (including an interim dividend of ¥3 per share).
This represents a ¥1 per share decrease compared with fiscal
2012. On this basis, the payout ratio for fiscal 2013 was 24.0%.

Risks that could adversely affect the business performanceor financial position of the SHI Group are as follows. All statements below regarding future events represent judgments
made by the management of the Group as of March 31, 2014.
1. Macroeconomic Factors
Demand for capital equipment, which accounts for more thanhalf of the Group sales, may be influenced by economic trends
in both Japan and various overseas markets where the Groupsells its products. Any contraction in demand triggered by aslump in the major markets for our products in Japan, the restof Asia, North America, Europe, and other countries and regions
could have an adverse impact on the business performance or
financial position of the Group.
2. Exchange-Rate Fluctuations
The Group’s business includes the production and marketing ofproducts in countries all around the world. Yen translations areapplied in the consolidated financial statements for transactions(involving overseas sales, expenses, assets, and liabilities) undertaken in local currencies. Due to exchange-rate effects, theGroup may be adversely impacted by transaction values after
yen translation even if there is no such change in local currency
terms. For the fiscal year under review, the ratio of overseas
sales to total sales was 52%. To minimize the impact of
exchange-rate fluctuations on our business performance, theGroup uses forward exchange contracts to hedge against risk.
However, it is not possible to eliminate all risk using this method.
For this reason, the Group could suffer an adverse impact on its
business performance from exchange-rate fluctuations.
3. Overseas Businesses
The Group conducts its business on a global scale, with afocus on the Machinery Components, Precision Machinery,
and Construction Machinery segments for markets in North
America, Asia, and Europe. To meet expanding overseas
demand, the Group is upgrading its marketing networks andproduction facilities. However, wherever we operate, markets
are subject to political change and unpredictable legal and regulatory changes. Such changes could have an adverse impact
on the performance of our overseas businesses.
4. Product Quality
The Group manufactures a wide range of products in line withvery strict quality control standards. However, total defect elimination is impossible, and we cannot rule out having to undertake repair work under guarantee at our own expense in theevent of product flaws. The Group has taken out insurance tocover product-defect liabilities, but cannot guarantee that thesepolicies will cover the full sums of compensation that may
become payable in liability settlements. Repairs performed
under guarantee and product compensation payments cangenerate significant costs for the Group, and this can adversely

affect the business performance and financial position of
the Group.
5. 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, 2013was ¥19.6 billion, a decline of 22%. If land values continue tofall, or conditions are such that the Group is not expected torecover the book values of its assets or asset groups, we may
have to recognize impairment losses on fixed assets, which
could adversely affect the business performance and financial
position of the Group.
6. Individual Order Agreements
In the vast majority of cases, the SHI Group commences the
manufacture of a product after concluding individual orderagreements with customers. In the case of important construction and other projects where the contract amount is substantial, order deliberations are undertaken across multiple levels
before the execution of an order agreement. However, cost
overruns attributable to design, processing, and other issues
that result from unforeseeable changes in economic conditions,
any incidence of litigation, or the payment of penalties relating
to a failure to meet predetermined product performance anddelivery standards may result in a deterioration in earnings. In
the event of an order cancellation at the request of a customer,
the SHI Group could suffer an adverse impact on its businessperformance if it is unable to recoup related costs in full.
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 havetaken every measure to prevent environmental pollution, butcannot rule out responsibility for instances of environmental pollution due to unforeseen events. Should the Group be responsible for an incidence of environmental pollution, significant costs
could ensue, negatively affecting the business performanceand financial position of the Group.
8. Natural and Other Disasters
The Group has in place inspection, training, and communications mechanisms for minimizing the occurrence and fallout
from such disasters as fires, earthquakes, typhoons, and otherwind and flood damage. However, the Group’s business activities could be adversely affected if such disasters cause material
damage to our operations or injury to our staff. We cannot
guarantee that casualty insurance would be sufficient to cover
all damages from such events.

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Contents

Financial Section

Corporate Data

Consolidated Balance Sheets
March 31, 2014 and 2013

Thousands of
U.S. dollars (Note 1)
2014

Millions of yen
ASSETS

2014

2013

Current assets:¥ 67,826¥ 47,814$ 658,501

Notes receivable

12,724

14,152

123,536

Accounts receivable

169,237

159,147

1,643,073(1,217)(1,117)(11,815)

10,000—97,087

Cash and time deposits (Notes 2, 4 and 11)
Trade receivables (Note 11):

Allowance for doubtful accounts
Short-term investment (Notes 11 and 12)
Inventories:
Finished products

63,81966,877

619,598

Work in process

49,144

44,791

477,131

Raw materials and supplies

31,28627,548

303,750

Deferred tax assets (Note 5)

13,201

12,191

128,162

Other current assets (Note 13)

18,934

15,225

183,829434,954

386,628

4,222,852

Land (Note 4)

109,265

108,033

1,060,825

Buildings and structure (Note 4)

125,920

120,784

1,222,524

Machinery and equipment

143,501

127,337

1,393,212

Construction in progress

2,884

2,614

28,000

Other tangible fixed assets

36,486

34,847354,237

418,056

393,615

4,058,798

Accumulated depreciation(197,772)(182,963)(1,920,115)

220,284

210,652

2,138,683

Total current assets

Property, plant and equipment:

Net property, plant and equipment

Intangible assets

8,648

7,765

83,959Investments, long-term loans and other assets:
Investments in unconsolidated subsidiaries and affiliated companies

10,918

9,717

105,998

Investment securities (Notes 11 and 12)

15,827

15,471

153,659

Long-term loans receivable (Note 11)

13,78651

133,842

Deferred tax assets (Note 5)

10,118

11,83898,233

Other assets

11,133

7,419

108,093

Allowance for doubtful accounts(1,486)(1,817)(14,429)

60,29642,679585,396¥724,182¥647,724$7,030,890

Total investments and other assets
Total assets (Note 9)

2014

2013

Thousands of
U.S. dollars (Note 1)
2014¥ 52,817
26,855—¥ 48,032
1,245
10,000$ 512,783
260,733—

25,623
98,58830,493
6,903
6,780
1,691
1,936
—
37,444
289,130

26,37987,196
20,937
3,014
5,115
2,017
—
161
38,919243,015

248,764
957,164
296,046
67,01565,821
16,414
18,793—
363,550
2,807,083

27,761—
36
461
40,037
24,608
11,090103,993

39,27039,16948——
24,6088,788
111,883

269,524—
348
4,478
388,709
238,913
107,669
1,009,641

30,87230,872299,725

Millions of yen
LIABILITIES AND NET ASSETS

Current liabilities:
Short-term bank loans (Notes 4 and 11)Long-term debts due within one year (Notes 4 and 11)
Commercial paper (Note 4)
Trade payables (Note 11):
Notes payable
Accounts payable
Advance receipt on contracts
Income taxes payable
Allowance for warranty
Allowance for losses on construction contracts
Allowance for losses on business
Allowance for losses on business transfer
Other current liabilities (Notes 4, 5 and 13)
Total current liabilities
Long-term liabilities:
Long-term debts (Notes 4 and 11)
Employees' severance and retirement benefits (Note 14)
Allowance for losses on product liabilities
Allowance for losses on business transfer
Liability for retirement benefits (Note 14)
Deferred tax liabilities on revaluation difference on land
Other long-term liabilities (Notes 4 and 5)
Total long-term liabilities
Contingent liabilities (Note 7)
Net assets (Note 6):
Stockholders’ equity:
Common stock:
Number of shares authorized 1,800,000 thousand shares
Number of shares issued:
614,527 thousand shares in 2014
614,527 thousand shares in 2013
Capital surplus
Retained earnings
Treasury stock at cost: 1,248 thousand shares in 2014
858 thousand shares in 2013
Total stockholders’ equity

23,789221,101

23,789207,580

230,960
2,146,608(632)
275,130(455)
261,786(6,131)
2,671,162

Accumulated other comprehensive income:Unrealized gains on securities, net of income taxes
Unrealized losses on hedging derivatives, net of income taxes
Adjustment on pension obligations of consolidated foreign subsidiaries
Accumulated adjustments for retirement benefit (Note 14)
Revaluation difference on land
Foreign currency translation adjustments
Total accumulated other comprehensive income

3,753
(379)
—
(2,336)38,272
11,99351,303

2,694(562)(3,808)—38,197(9,458)27,06336,442(3,681)—(22,681)371,578
116,436
498,094

4,626
331,059¥724,182

3,977
292,826¥647,724

44,9103,214,166$7,030,890

Minority interests
Total net assets
Total liabilities and net assets
See accompanying notes.

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Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Years ended March 31, 2014 and 2013

Years ended March 31, 2014 and 2013

2014

2013

Thousands of
U.S. dollars (Note 1)
2014¥615,271¥585,871$5,973,501

Millions of yen

Net sales (Note 9)
Costs and expenses:

483,105

465,3094,690,334

Selling, general and administrative expenses

97,837

89,274

949,876

Total

580,942554,583

5,640,210

34,32931,288333,291

Interest and dividend income

1,350

2,377

13,109Interest expense(2,637)(2,097)(25,599)

Equity in earnings of affiliated companies

1,201

578

11,664

998

1,347

9,685

(1,690)(17,392)(16,411)

Gain on sales of investment securities

—

1,343

—

Reversal of provision for loss on litigation

—

802

—

Loss on defense equipment business—(4,986)—(2,242)(2,496)(21,764)

31,30910,764

303,975

Current

12,976

10,553125,986

Deferred526(5,959)5,107

13,502

4,594

131,093

17,807

6,170

172,882

Other—net
Income before income taxes and minority interests

Corporate Data

2014

2013

Thousands of
U.S. dollars (Note 1)
2014¥17,807¥ 6,170$172,882

1,049

426

10,184

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

168

(811)

1,631

Adjustment on pension obligationsof consolidated foreign subsidiaries

858

(234)

8,332

22,303

10,234

216,534

25

(1)

246

24,4039,614

236,927¥42,210¥15,784$409,809¥41,442¥15,068$402,354

768

716

7,455

Income before minority interests
Unrealized gains on securities, net of income taxes

Share of other comprehensive income of affiliates
accounted for using equity method

Other income (expenses):

Impairment losses on fixed assets (Note 3)

Financial Section

Millions of yen

Foreign currency translation adjustments

Foreign exchange gain, net

59

Contents

Other comprehensive income:

Cost of sales

Operating income (Note 9)

SearchTotal other comprehensive income (Note 8)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Minority interests
See accompanying notes.

Income taxes (Note 5):

Total
Income before minority interests
Minority interests in net income
Net income

84¥ 17,891

¥

(305)

817

5,865

$ 173,699

Yen
2014

U.S. dollars (Note 1)
2014

2013

Amounts per share of common stock:
Net income
Diluted net income
Cash dividends applicable to the year (Note 15)¥29.17

¥9.56

$0.28

—

—

—

7.00

8.00

0.07

See accompanying notes.

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Financial Section

Corporate Data

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2014 and 2013

Millions of yen
Accumulated other comprehensive income

Stockholders’ equity

Net assets at April 1, 2012
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Increase of consolidated subsidiaries with change
in scope of consolidation
Increase due to merger
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2013

Number of sharesof common stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789¥201,433(6,137)
5,865
(6)
5,184

Treasurystock
at cost¥(445)

(26)
16

1,123
118

—
614,527—¥30,872—¥23,789

6,147¥207,580

Sub-total¥255,649(6,137)
5,865
(26)
10
5,184

Unrealized gains
on securities, netof income taxes¥2,267

Unrealized gains
Adjustment on(losses) on hedging pension obligations
derivatives, net ofof consolidated
income taxes
foreign subsidiaries¥ 277

Accumulated
adjustments
for retirement
benefit¥(3,573)¥—

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Sub-total

Minority
interests¥43,381¥(19,113)¥23,239¥3,257

1,123
118

(10)
¥(455)

6,137¥261,786

Total¥282,145(6,137)
5,865
(26)
10
5,184
1,123
118

427
427
¥2,694(839)(839)¥(562)(235)(235)¥(3,808)¥———(5,184)(5,184)¥38,197

9,655
9,655
¥ (9,458)

3,824
3,824
¥27,063720
720¥3,977

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Sub-total

Minority
interests

4,544
10,681¥292,826

Millions of yen
Accumulated other comprehensive income

Stockholders’ equity

Net assets at April 1, 2013
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2014

Number of sharesof common stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789¥207,580(4,295)
17,8910(75)—
614,527—¥30,872—¥23,789

13,521¥221,101

Treasurystock
at cost¥(455)

(181)
4

(177)
¥(632)

Sub-total¥261,786(4,295)
17,891
(181)
4
(75)

13,344¥275,130

Unrealized gains
on securities, netof income taxes

Unrealized gains
Adjustment on(losses) on hedging pension obligations
derivatives, net ofof consolidated
income taxes
foreign subsidiaries

Accumulated
adjustments
for retirement
benefitTotal¥2,694¥(562)¥(3,808)¥—¥38,197¥ (9,458)¥27,063¥3,977¥292,826(4,295)
17,891
(181)
4
(75)

1,059
1,059
¥3,753183
183¥(379)

3,808
3,808
¥
—

(2,336)(2,336)¥(2,336)75
75¥38,272

21,451
21,451¥11,993

24,24024,240¥51,303649
649¥4,62624,88938,233¥331,059

Thousands of U.S. dollars (Note 1)
Stockholders’ equity

Net assets at April 1, 2013
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2014

Accumulated other comprehensive income

Number of sharesof common stock(Thousands)

Commonstock

614,527$299,725$230,960 $2,015,344 $(4,422) $2,541,607(41,697)(41,697)
173,699
173,699(1,752)(1,752)
(6)
43
37
(732)
(732)

—
614,527—$299,725—
131,264$230,960 $2,146,608

CapitalsurplusRetainedearnings

Treasurystock
at costSub-total(1,709)129,555$(6,131) $2,671,162

Unrealized gains
on securities, netof income taxes

Unrealized gains
Adjustment on(losses) on hedging pension obligations
derivatives, net ofof consolidated
income taxes
foreign subsidiaries

Accumulated
adjustments
for retirement
benefit

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Sub-total

Minority
interests

Total$26,156$(5,453)$(36,966)$—$370,845$(91,829)$262,753$38,612$2,842,972(41,697)
173,699(1,752)37(732)

10,286
10,286$36,442

1,772
1,772
$(3,681)

36,96636,966$—(22,681)(22,681)$(22,681)

733
733$371,578

208,265
208,265$116,436

235,341
235,341$498,094

6,298
6,298
$44,910

241,639
371,194$3,214,166

See accompanying notes.

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Financial Section

Corporate Data

Consolidated Statements of Cash Flows
Years ended March 31, 2014 and 2013

Millions of yen
2014

2013

Thousands of
U.S. dollars (Note 1)
2014

Cash flows from operating activities:
Income before income taxes and minority interests

2014

2013

Cash flows from investing activities:¥31,309¥10,764$303,975

Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:

Net (increase) decrease in time deposits

18,282

180,749

Impairment losses on fixed assets

1,690

17,392

16,411Gain on sales of investment securities(459)(1,343)(4,458)

Reversal of provision for loss on litigation

—

(802)

—

Loss on disposal of property, plant and equipment

252

329

2,446

Increase in employees’ severance and retirement benefits

—

1,560

—

Decrease in liability for retirement benefits

(108)

—

(1,048)

Increase (decrease) in allowance

2,638(2,643)25,608Interest and dividend income(1,350)(2,377)(13,109)

Interest expenses

2,637

2,097

25,599Changes in operating assets and liabilities:
6,091

6,025

59,132

Decrease in inventories

10,177

12,702

98,810

Increase (decrease) in notes and accounts payable

2,306(44,837)

22,388Other—net

729

4,356

7,079

Sub-total

74,52921,505723,582

Interest and dividend received

1,398

2,240

13,571

Interest paid

(2,595)(2,038)(25,190)

Income taxes paid

(9,671)(19,047)(93,893)¥63,661¥ 2,660$618,070

¥

(212)

$

2,240
16,961(19,050)(22,052)(184,947)

Proceeds from sale of property, plant and equipment

1,407

1,570

13,665Net decrease in short-term loans receivable

1,385

441

13,444(12,624)(6)(122,562)

(718)

(763)

(6,977)(27,622)(19,660)(268,176)

Net increase (decrease) in short-term bank loans(5,736)

16,393(55,687)

Net increase (decrease) in commercial paper(10,000)

10,000(97,087)

Proceeds from long-term debts

15,032

15,416145,945

Repayments of long-term debts(2,236)(44,427)(21,706)

4

10

37

(180)

(27)

(1,752)(4,307)(6,120)(41,815)

(260)

(426)

(2,529)Payments of long-term loans receivable
Other—net
Net cash used in investing activities
Cash flows from financing activities:

Proceeds from sale of treasury stock

Decrease in notes and accounts receivable

231

1,362

Acquisition of property, plant and equipment
18,617¥

1,747

Proceeds from sale of securities

Depreciation and amortization

Net cash provided by operating activities

Thousands of
U.S. dollars (Note 1)
2014

Millions of yen

Purchases of treasury stock
Cash dividends paid
Cash dividends paid to minority stockholders
Repayments of finance lease obligations(1,815)(2,247)(17,618)

Net cash used in financing activities(9,498)(11,428)(92,212)

Effect of exchange rate changes on cash and cash equivalents

3,401

2,073

33,021

Net increase (decrease) in cash and cash equivalents

29,942(26,355)

290,703

Cash and cash equivalents at beginning of year

46,476

72,376451,218—455—¥76,418¥46,476$741,921

Increase in cash and cash equivalents due to change
in scope of consolidation
Cash and cash equivalents at end of year (Note 2)
See accompanying notes.

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Financial Section

Corporate Data

Notes to Consolidated Financial Statements

1. Significant accounting
policies

Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordancewith the provisions set forth in the Japanese Financial Instruments 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 Reporting Standards.
The accounts of foreign consolidated subsidiaries are prepared in accordance with either
International Financial Reporting Standards or U.S. generally accepted accounting principles,with adjustments for the specified five items as applicable.
The accompanying consolidated financial statements for Sumitomo Heavy Industries, Ltd.
(SHI) and subsidiaries (collectively, the Company) have been reformatted and translated into
English (with certain expanded descriptions) from the ones prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of
Finance as required by the Financial Instruments and Exchange Law. Certain supplementary
information included in the statutory Japanese language consolidated financial statements
is not presented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely for theconvenience of readers outside Japan, using the prevailing exchange rate at March 31, 2014,
which was ¥103 to U.S. $1. The convenience translations should not be construed as representations of what the Japanese yen amounts have been, could have been, or could in the
future be when converted into U.S. dollars at this or any other rate of exchange.

(B) Lease assets
Property and equipment held under finance lease arrangements, which are not subject tothe ownership transfer from a lessor to a lessee, are depreciated on a straight-line basis overthe lease term except for certain immaterial arrangements or ones commenced prior to
March 31, 2008, which are accounted for as operating leases.

SoftwareCosts of software obtained for internal use are amortized using the straight-line method overthe estimated useful lives (5 years).

Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts for estimated losses inherent in
its receivable portfolio. The required allowance is determined based on historical losses forgeneral accounts receivables. For accounts receivable considered at risk (bankruptcy, companies under reorganization plan), the required allowance is determined based on certain specific factors such as current market conditions, customers’ financial condition, the amountof receivables in dispute, current receivables aging, and current payment patterns on an
individual basis.

Principles of consolidation

Allowance for warranty

The consolidated financial statements include the accounts of SHI and its significant subsidiaries. All significant inter-company balances and transactions are eliminated in consolidation.
Investments in significant affiliated companies are accounted for using the equity method of
accounting.

Allowance for warranty is provided for the estimated future warranty costs associated withrepair work after delivery of products. These estimates are derived from historical data andtrends of product reliability, and costs of repairing and replacing defective products.

Marketable and investment securities
Held-to-maturity debt securities are stated at amortized cost, adjusted for the amortizationor accretion of premiums or discounts. Available-for-sale securities with fair values are stated
at fair value. Unrealized holding gains and losses, net of applicable income taxes, on available-for-sale securities are excluded from earnings and reported as a separate component ofaccumulated other comprehensive income until realized. Realized gains and losses from thesale of such securities are computed using the moving-average method. Investment securities
in unconsolidated subsidiaries and affiliated companies that are not subject to the equity
method of accounting, are stated at cost based on the moving-average method. Unlisted
available-for-sale securities are stated at cost based on the moving-average method.

Allowance for losses on construction contracts
Allowance for losses on construction contracts is provided when the current estimates of total
contract revenue and contract cost indicate substantial losses, and such losses are reasonably
estimated.

Allowance for losses on business
Allowance for losses on business is provided for the estimated future expenses that are
expected to be incurred associated with maintenance of the transaction agreement between
an affiliated company and its sales agents.

Allowance for losses on business transfer

Inventories

Allowance for losses on business transfer is provided for the estimated future expenses due tothe transfer of resort development business.

Finished products, raw materials and supplies are stated at the lower of cost (determinedprimarily by the weighted average method) or market. Work-in-process is stated at the lowerof cost (determined primarily by specific identification method) or market.

Allowance for losses on product liabilities

Property, plant, and equipment(A) Tangible fixed assets (excluding lease assets)
Tangible assets are stated at cost and depreciated primarily by declining-balance method
for SHI and its domestic consolidated subsidiaries except for buildings acquired after April 1,
1998, which are depreciated primarily using a straight-line method. Tangible assets of SHI’s
overseas consolidated subsidiaries are also depreciated primarily by a straight-line method.

64 Sumitomo Heavy Industries, Ltd. Annual Report 2014

The estimated useful lives of tangible assets are as follows:– Buildings and structure
10 to 50 years– Machinery and equipment 5 to 12 years

Allowance for losses on product liabilities is provided at an estimated amount of productliabilities to be incurred in relation to crane business of foreign subsidiaries.

Retirement benefits
In calculating the retirement benefit obligation, the straight-line method is used to attributethe expected benefit attributable to the respective fiscal years.
Prior service costs are amortized using the straight-line method over a period within the
average remaining service life of active employees.

Sumitomo Heavy Industries, Ltd. Annual Report 201465

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The actuarial difference is amortized using the straight-line method over a period within
the average remaining service life of active employees commencing from the following yearof the incurrence.

Derivatives and hedge accounting
The Company recognizes all derivative instruments as either assets or liabilities in the
consolidated balance sheet at their respective fair values, and changes in the fair values arerecognized as gains or losses. For derivatives designated in hedging relationship, the related
gains or losses are deferred until the hedged items affect earnings.
For forward foreign exchange contracts that meet certain hedging criteria, they areaccounted for as follows:
When a forward foreign exchange contract is executed to hedge an existing foreign
currency receivable or payable,
1. The difference, between the Yen amount of the hedged foreign currency receivable orpayable translated using the spot rate at the inception date of the contract and the carrying value of the receivable or payable is recognized in the consolidated statement ofincome in the period which includes the inception date, and
2. The discount or premium on the contract (that is, the difference between the Yen amountof the contract using the contracted forward rate and the amount using the spot rate at
the inception date of the contract) is recognized over the term of the contract.
When forward foreign exchange contracts are executed to hedge a future transaction in
a foreign currency, the future transaction will be recorded using the contracted forward rate,
and no gains or losses will be recognized.
For interest rate swap contracts that meet certain hedging criteria, the net amount to be
paid or received is added to or deducted from the interest on the liabilities for which theswap contracts were executed.
For currency option contracts that are executed to hedge future transactions in foreign
currencies, the future transaction will be recorded using the contracted forward rate, andno gains or losses on the currency option contracts are recognized.

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

Contents

Financial Section

67
Corporate Data

Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recoveredor settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
SHI files a Japanese consolidated tax return with certain domestic consolidated subsidiaries.

Foreign currency translation and transactions
All asset and liability accounts of foreign subsidiaries and affiliated companies are translated
into Yen at the applicable balance sheet date exchange rates of each foreign subsidiary,
except for common stock, capital surplus and retained earnings, which are translated athistorical rates. Revenues, costs, and expenses are translated into Yen at average exchange
rates for the year.
Transactions in foreign currencies are translated at the exchange rate in effect at the timeof the transaction. Any assets and liabilities denominated in foreign currencies are translated
into Yen using the year-end exchange rate. Gains and losses resulting from transactions inforeign currencies are included in the consolidated statements of income.

Amounts per share
The computation of net income per share of common stock is based on a weighted-average
number of shares of common stock outstanding during each fiscal year.
The diluted net income per share is not presented as the Company does not have any
outstanding convertible bonds or bonds with share subscription rights.
Cash dividends per share have been presented on an accrual basis and include the year-end
cash dividend resolved at the shareholders’ meeting held after the end of the fiscal year, but
applicable to the year-end.

Revenue recognition on construction contracts

Reclassifications

The percentage-of-completion method is applied to construction contracts when outcomeof individual contracts is reliably estimated. The completed-contract method is applied tothe other construction contracts.

Certain amounts in the consolidated financial statements for the year ended March 31, 2013
have been reclassified to conform to the 2014 presentation.

Amortization of goodwill
Goodwill, and negative goodwill which was generated on or before March 31, 2010, areequally amortized over 5 years. In case the amount of goodwill or negative goodwill isinsignificant, it is amortized in full as generated.

Revaluation difference on land
The Company revaluated land held for business use as of March 31, 2002 in accordance with
Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land effective March
31, 1998.
The current market value of the land as of March 31, 2014 has declined by ¥19,589 million($190,183 thousand) as compared to the carrying value.

Research and development costs
Research and development costs are expensed when incurred. Research and development
costs included in manufacturing cost and selling, general and administrative expenses were
¥10,718 million ($104,055 thousand) and ¥10,001 million for the years ended March 31,
2014 and 2013, respectively.

66 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Research and Development

SearchChange in accounting policies
New accounting standards for Retirement Benefits
In the fiscal year ended March 31, 2014, SHI and its consolidated domestic subsidiaries
adopted “Accounting Standard for Retirement Benefits (ASBJ Statement No. 26, May 17,
2012 (hereinafter, the “Statement No. 26”)) and Guidance on Accounting Standard for
Retirement Benefits (ASBJ Guidance No. 25, May 17, 2012 (hereinafter, the “Guidance
No. 25”)) except the article 35 of the Statement No. 26 and the article 67 of the Guidance
No. 25 and actuarial gains and losses and past service costs that are yet to be recognizedhave been recognized and the difference between retirement benefit obligations and plan
assets has been recognized as a liability for retirement benefits.
In accordance with the article 37 of the Statement No. 26, the effect of the change inaccounting policies arising from initial application has been recognized in accumulated
adjustments for retirement benefit in accumulated other comprehensive income.
As a result of the adoption of these standards, a liability for retirement benefits in theamount of ¥40,037 million ($388,709 thousand) has been recognized and accumulated othercomprehensive income has increased by ¥613 million ($5,953 thousand), at the end of thecurrent fiscal year.

Sumitomo Heavy Industries, Ltd. Annual Report 201467

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Review of Operations

In addition, the balance of “adjustment on pension obligations of consolidated foreignsubsidiaries”, which used to be separately presented, has been reclassified to and combinedwith the “accumulated adjustments for retirement benefit” on the Company’s consolidatedbalance sheets effective from the current fiscal year.

Research and Development

Intellectual Property

2. Cash and cash equivalents

SearchEnvironmental andSocial Contribution Initiatives

Corporate Governance

Financial Section(B) Accounting Standard for Business Combinations (ASBJ Statement No. 21,
September 13, 2013), Accounting Standard for Consolidated Financial Statements(ASBJ Statement No. 22, September 13, 2013), Accounting Standard for Business
Divestitures (ASBJ Statement No. 7, September 13, 2013), Accounting Standard
for Earnings Per Share (ASBJ Statement No. 2, September 13, 2013), Guidance on
Accounting Standard for Business Combinations and Business Divestitures (ASBJ
Guidance No. 10, September 13, 2013), Guidance on Accounting Standard for
Earnings Per Share (ASBJ Guidance No. 4, September 13, 2013)(1) Summary
These accounting standards and guidance have been amended mainly focusing on(a) accounting treatment for changes in equity of parent company which maintains controls on its subsidiary before and after additional purchase or part of disposal of investment in subsidiary, (b) accounting treatment of acquisition related costs, (c) presentationof net income and change from minority interests to non-controlling shareholders’ interestand (d) provisional accounting treatment.
(2) Effective dates
They will be effective for the beginning of annual periods on or after March 31, 2016.
Provisional accounting treatment is effective from the beginning of annual periods ending
on or after March 31, 2016.
(3) Effect of application of the standard
SHI and its subsidiaries are currently in the process of determining the effects of these newstandards on the consolidated financial statements.

Millions of yen

Cash and time deposits
Time deposits with maturities over three months
Restricted deposits
Securities (cash equivalents)
Cash and cash equivalents

3. Impairment losses
on fixed assets

Thousands of
U.S. dollars

2014

2013

2014

¥67,826(1,248)(160)
10,000¥76,418¥47,814(1,201)(137)—¥46,476$658,501(12,109)(1,558)97,087$741,921(A) The Company recognized the following impairment losses in the year ended
March 31, 2014.

Use

Type of assets

Business assets, etc.

Buildings, etc.

Idle, etc.

Buildings, etc.

Location

Nishitokyo, Tokyo
Metropolis, etc.
Yokosuka,
Kanagawa Pref, etc.

Total

Millions of yen

Thousands of
U.S. dollars

2014

2014

¥1,210$11,755480¥1,6904,656$16,411

Reason for recognition of impairment losses
Due to the significant adverse change in the business environment, an impairment analysis
was required. As a result of the cash flow analysis, it was determined that the carrying valuesof the related fixed assets were not recoverable, resulting in the impairment for the year
ended March 31, 2014.

Grouping of assets
Each division is considered an asset group since the asset group is the lowest level at whichcash flows can be identified that are largely independent of the cash flows of other asset
groups. A temporarily idle asset is also considered an asset group.

Calculation of recoverable amountThe recoverable amount is generally determined based on a net selling price of each asset,
which is calculated by deducting the related selling expenses from the selling price.
(B) The Company recognized the following impairment losses in the year ended
March 31, 2013.
Millions of yen
Use

Type of assets

Ships business assets, etc.

Lands and buildings, etc.

Idle, etc.

Lands and buildings, etc.

Total

68 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Corporate Data

Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less. Those are readily convertible to known amounts of cash andhave negligible risk of changes in value.
Cash and cash equivalents as of March 31, 2014 and 2013 consist of the following:

Impending application of newly issued accounting standards, etc.
(A) Accounting standard for Retirement Benefits (ASBJ Statement No. 26, May 17,2012) and Guidance on Accounting Standard for Retirement Benefits (ASBJ
Guidance No. 25, May 17, 2012)(1) Summary
These accounting standard and guidance have been amended from the viewpoint of
improvements to financial reporting and international convergence, mainly focusing on(a) how actuarial gains and losses and past service costs should be accounted for, (b) how
retirement benefit obligations and current service costs should be determined and (c)enhancement of disclosures.
(2) Effective dates
Amendments relating to determination of retirement benefit obligations and current
service costs are effective from the beginning of annual periods ending on or after March
31, 2015.
(3) Effect of application of the standard
SHI and its consolidated domestic subsidiaries are currently in the process of determining
the effects of these new standards on the consolidated financial statements.

69

Contents

Location

Yokosuka,
Kanagawa Pref, etc.
Kurashiki,
Okayama Pref, etc.

2013

¥16,441951¥17,392

Sumitomo Heavy Industries, Ltd. Annual Report 201469

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Presentation andInterview with the President

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Review of Operations

Research and Development

Intellectual Property

Reason for recognition of impairment losses

Corporate Governance

Environmental andSocial Contribution Initiatives

SearchFinancial Section

Corporate Data

As of March 31, 2014 and 2013, assets pledged as collateral for long-term loans frombanks and contingent liabilities are as follows:

Due to the significant adverse change in the business environment, an impairment analysis
was required. As a result of the cash flow analysis, it was determined that the carrying valuesof the related fixed assets were not recoverable, resulting in the impairment for the year
ended March 31, 2013.

Millions of yen

Cash and time deposits
Buildings and structure
Land
Total

Grouping of assets
Each division is considered an asset group since the asset group is the lowest level at whichcash flows can be identified that are largely independent of the cash flows of other asset
groups. A temporarily idle asset is also considered an asset group.

The recoverable amount is generally determined based on a net selling price of each asset,
which is calculated by deducting the related selling expenses from the selling price.

2014

2013

2014

¥ 160
1,036
166
¥1,362

¥ 122
849
131
¥1,102$ 1,558
10,055
1,608$13,221

Millions of yen

Bank loans as of March 31, 2014 and 2013 consist of short-term loans, bearing averageinterest at 3.11% and 2.12% per annum, respectively.
There was no balance of the commercial paper as of March 31, 2014. Commercial paper
as of March 31, 2013 bore interest principally at 0.11% per annum.
The amounts of lease obligation under finance leases include the imputed interest expense
portion.
Long-term debts and lease obligations as of March 31, 2014 and 2013 consist of thefollowing:
Millions of yen

0.9% domestic bonds due in December 2014
Loans principally from banks and insurancecompanies due serially through October 2018with interest ranging from 0.47% to 6.40%
in FY2013
SecuredUnsecured
Lease obligations
Amount due within one year
Amount due after one year

Thousands of
U.S. dollars

2014

2013

2014

¥10,000¥10,000$ 97,087

206
44,4105,796¥60,412
28,20632,206

199
30,316
5,609¥46,124
2,599
43,5252,004
431,166
56,263$586,520
273,846
312,674

Millions of yen

Thousands of
U.S. dollars

2014

2014

¥28,206
15,947
6,988
2,286
6,774
211
¥60,412$273,846
154,809
67,84422,197
65,771
2,053$586,520

Long-term debts and lease obligations are due as follows:

Years ending March 31
2015
2016
2017
2018
2019
2020 and thereafter
Total

70 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Thousands of
U.S. dollars

The Company has agreements for revolving lines of credit with twelve banks and for global
commitment lines with four banks to efficiently raise working capital.
As of March 31, 2014 and 2013, unused revolving lines of credit and global commitment
lines are as follows:

Calculation of recoverable amount

4. Bank loans, commercial
paper, lease obligations andlong-term debts

71

Contents

Limit of revolving lines of credit andglobal commitment lines
Used
Unused

5. Income Taxes

Thousands of
U.S. dollars

2014

2013

2014

¥52,461
1,469¥50,992¥51,041
2,275¥48,766$509,328
14,263$495,065

SHI and its consolidated domestic companies are subject to corporate, inhabitants’ and enterprise taxes, which, in the aggregate show a statutory tax rate in Japan of approximately 38%
for the years ended March 31, 2014 and 2013, respectively.
The following table summarizes significant differences between the statutory tax rate
and the effective tax rate for consolidated financial statement purposes for the years ended
March 31, 2014 and 2013.
Statutory tax rate
Non deductible expenses for tax purpose such as meals
and entertainment, etc.
Per capita inhabitant tax
Non taxable income such as dividend income
Tax credit
Valuation allowance
Equity in earnings of affiliates
Undistributed earnings in consolidated overseas subsidiaries
Different tax rates applied to consolidated overseas subsidiaries
Income taxes for prior periods
Others
Effective tax rate

2014

2013

38.01%

38.01%

1.07
0.56(0.92)(2.40)
1.49(1.46)
2.25
2.81
1.21

2.89
2.01
(6.77)(5.51)
9.64(2.04)
4.05(3.18)(2.06)

0.51

5.64

43.13%

42.68%

Sumitomo Heavy Industries, Ltd. Annual Report 201471

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Main components of deferred tax assets and liabilities as of March 31, 2014 and 2013 arepresented below:

Intellectual Property

2014

2013

2014

¥ 3,104
1,179
2,214

¥ 3,231763
1,819$ 30,131
11,446
21,496—
15,261
1,547

16,442—
1,377—
148,166
15,019

973
845
3,373
5,407
3,425
138
8,239
45,705(13,004)¥ 32,701

1,173
755
3,111
4,569
3,288
249
7,983
44,760(12,600)¥32,160

9,445
8,206
32,74952,491
33,252
1,335
79,997443,733(126,249)$ 317,484

(81)

(85)

(788)

(3,313)(2,610)(3,313)(2,069)(32,166)(25,340)(3,070)(1,377)(589)¥(11,040)¥ 21,661(2,366)(862)(456)¥ (9,151)¥23,009(29,809)(13,373)(5,707)$(107,183)$ 210,301

Corporate Governance

Environmental andSocial Contribution Initiatives

Contents

Financial Section

73
Corporate Data

6. Net assets

Under the 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 the Boardof Directors, designate an amount not exceeding one-half of the price of the new shares asadditional paid-in capital, which is included in capital surplus.
Under the Japanese Corporate Law (“the Law”), in case where a dividend distributionof surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, ifany, of 25% of common stock over the total of additional paid-in-capital and legal earnings
reserve must be set aside as additional paid-in-capital or legal earnings reserve. Legal earnings
reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Law, generally legal earnings reserve and additional paid-in-capital could be used
to eliminate or reduce a deficit by a 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 potentiallyavailable for dividends.
The maximum amount allowed to be distributed as dividend is determined based on
the entity’s non-consolidated financial statements in accordance with the Japanese laws
and regulations.
At the general shareholders’ meeting held on June 27, 2014, the shareholders resolved
cash dividend amounting to ¥2,453 million ($23,817 thousand). Such appropriations havenot been accrued in the accompanying consolidated financial statements as of March 31,
2014 and will be recorded in the period in which they are resolved.

7. Contingent liabilities

SHI and certain consolidated domestic subsidiaries are contingently liable as endorsers of
trade notes receivable discounted with banks in the amounts of ¥4,895 million ($47,524
thousand) and ¥2,277 million as of March 31, 2014 and 2013, respectively. In addition, SHI
and certain consolidated subsidiaries are contingently liable as guarantors for bank loans orother borrowings obtained by unconsolidated subsidiaries, affiliated companies and employees in the amounts of ¥34,033 million ($330,414 thousand) and ¥37,684 million as ofMarch 31, 2014 and 2013, respectively.

Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Accrued bonuses
Allowance for doubtful accounts
Allowance for warranty
Allowance for employees’ severance
and retirement benefit
Liability for retirement benefits
Unrealized profit on inventories
Devaluation of marketable securities
and investments into affiliated companies
Depreciation
Net operating loss carryforward
Loss on valuation of inventories
Impairment losses on fixed assets
Unrealized gains or losses on hedging derivatives
OthersTotal deferred tax assets
Less—valuation allowance
Deferred tax assets—net
Deferred tax liabilities:
Tax depreciation reserve
Difference on revaluation of assets and liabilities
of subsidiaries
Accelerated depreciation
Undistributed earnings in consolidated
overseas subsidiaries
Net unrealized holding gains on securities
OthersDeferred tax liabilities
Net deferred tax assets

Research and Development

Search(Revision of statutory tax rate)
Following the promulgation on March 31, 2014 of “Act for Partial Revision of the Income Tax
Act, etc.” (Act No. 10 of 2014), The Special Reconstruction Corporation Tax will be abolished
for the fiscal year beginning on or after April 1, 2014.
Also, following the promulgation on March 31, 2014 of “Act for Partial Revision of the
Local Tax Act, etc.” (Act No. 4 of 2014) and “Local Corporation Tax Act” (Act No. 11, 2014),
The Local Corporation Tax will be imposed for the fiscal year beginning on or after October
1, 2014.
In line with these changes, the effective statutory tax rate used to measure deferred tax
assets and liabilities related to temporary difference expected to be recovered or settled after
April 1, 2014 will be changed from 38.01% to 35.64%.
As a result of these changes, net deferred tax assets (after offsetting deferred tax liabilities)
were decreased by ¥498 million ($4,834 thousand), as of March 31, 2014, and the deferredincome tax expense was increased by ¥481 million ($4,669 thousand) for the year ended
March 31, 2014.

72 Sumitomo Heavy Industries, Ltd. Annual Report 2014

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8. Statement of comprehensive
incomePresentation andInterview with the President

Special Feature

Review of Operations

Amounts reclassified to net income in the current fiscal period that were recognized in othercomprehensive income in the current or previous period and related tax effects for each component of other comprehensive income in the years ended March 31, 2014 and 2013 are
as follows:
Millions of yen

Unrealized gains on securities, net of income taxes
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Unrealized gains (losses) on hedging derivatives,
net of income taxes
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Adjustment regarding pension obligations ofconsolidated foreign subsidiaries
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Foreign currency translation adjustment
Increase (decrease) during the year
Share of other comprehensive income of affiliates
accounted for using equity method
Increase (decrease) during the year
Reclassification adjustments
Sub-total, net of tax
Total other comprehensive income

Thousands of
U.S. dollars

2014

2013

2014

¥ 2,039
(457)
1,582
(533)
1,049

¥ 1,494(1,072)422
4426$ 19,801(4,440)15,361(5,177)
10,184(1,494)
1,769
275
(107)
168

(1,527)291(1,236)425(811)(14,504)
17,1702,666(1,035)
1,631

797
497
1,294
(436)
858

(682)
290
(392)
158
(234)

7,734
4,827
12,561(4,229)8,332

22,303

10,234

216,534

20
5
25¥24,403(4)
3(1)¥ 9,614199
47
246$236,927

9. Segment information(A) Segment information
The Company’s major operations comprise (1) machinery components segment, (2) precision machinery segment, (3) construction
machinery segment, (4) industrial machinery segment, (5) ships segment, (6) environmental facilities and plants segment. The
method of the accounting of the reportable operating segments is generally the same as explained in the Note 1. “Significant
accounting policies”. Inter-segment sales are based on current market price.
Due to the reorganization, some businesses which were previously categorized under the precision machinery segment are
categorized under the industrial machinery segment from the year ended March 31, 2014. Amounts in the segment information
for the year ended March 31, 2013 have been reclassified based on new segmentation.

74 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Research and Development

Intellectual Property

Corporate GovernanceSearchEnvironmental andSocial Contribution Initiatives

75

Contents

Financial Section

Corporate Data

A summary of net sales, profits or losses, assets and other items by operating segments for the years ended March 31, 2014
and 2013 are as follows:
Millions of yen
Reportable segment
Machinerycomponents

2014
Net sales:
Outside customers¥ 99,994
Inter-segment
1,726
Total
101,720
Segment income¥ 5,876
Segment assets¥113,972
Other items:
Depreciation¥ 4,510
Impairment losses on fixed assets
17
Investments in equity method affiliates—
Increase in property, plant andequipment, and intangible assets
3,344

Precisionmachinery

Ships

Environmental
facilities
and plants

Total

Other

¥78,793760
79,553¥ 4,076¥65,672¥14,814151
14,965¥ (2,992)¥48,608¥86,166372
86,538¥ 6,198¥63,603¥605,796
4,114
609,910¥ 32,141¥617,267¥ 9,475
2,957
12,432¥ 2,053¥54,906¥¥ 1,711
—
3,261

¥

¥

866
—
—

¥ 18,288
922
9,746

¥

¥

774

19,588Construction
machinery

Industrial
machinery¥133,518 ¥192,511
1,077
28
134,595 192,539¥ 8,684 ¥ 10,299¥124,893 ¥200,519¥ 4,518 ¥ 6,376
571
13
1,461
5,024
4,564

9,435

986

307
321
—
485

329
305
—

Adjustment Consolidated— ¥615,271(7,071)—(7,071) 615,271¥ 135 ¥ 34,329¥52,009 ¥724,182

741

—
463
—

¥ 18,617
1,690
9,746

—

20,329Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥135 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥52,009 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥463 million) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.
Millions of yen
Reportable segment
Machinerycomponents

2013
Net sales:
Outside customers¥ 91,174Inter-segment
2,113
Total
93,287
Segment income¥ 2,767
Segment assets¥106,582
Other items:
Depreciation¥ 4,272
Impairment losses on fixed assets
369
Investments in equity method affiliates—
Increase in property, plant andequipment, and intangible assets
7,395

Precisionmachinery

Ships

Environmental
facilities
and plants

Total

Other

¥84,264914
85,178¥ 4,385¥62,683¥46,013
86
46,099¥ 2,366¥52,848¥78,583
501
79,084¥ 5,575¥61,533¥577,410
4,631
582,041¥ 29,860¥563,530¥ 8,461
2,872
11,333¥ 1,362¥49,006¥¥ 1,865—
3,182¥ 1,663
16,441
—

¥

913
—
—

¥ 17,930
16,846
8,585

¥

¥

1,721

692

743

29,527

Construction
machinery

Industrial
machinery¥124,603 ¥152,773
994
23
125,597 152,796¥ 8,635 ¥ 6,132¥121,698 ¥158,186¥ 4,691 ¥ 4,526
7
29
1,450
3,953
5,993

12,983

352
58
—
361

Adjustment Consolidated— ¥585,871(7,503)—(7,503) 585,871¥
66 ¥ 31,288¥35,188 ¥647,724—
488—¥ 18,282
17,392
8,585—

29,888Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥66 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥35,188 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥488 million) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

Sumitomo Heavy Industries, Ltd. Annual Report 201475

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

Thousands of U.S. dollars

MachineryPrecision

Construction

components machinery
machinery
2014
Net sales:
Outside customers$ 970,814 $1,296,291 $1,869,038
Inter-segment
16,75810,458
264
Total
987,572 1,306,749 1,869,302
Segment income$ 57,046 $ 84,306 $ 99,992
Segment assets$1,106,524 $1,212,550 $1,946,785
Other items:
Depreciation$ 43,783 $ 43,860 $ 61,916
Impairment losses on fixed assets
164
5,550
126
Investments in equity method affiliates—
14,181
48,785
Increase in property, plant and
32,46844,30991,603equipment, and intangible assets

Industrial
machinery

Ships

Total

Other

Adjustment Consolidated$764,979
7,380
772,359$ 39,572$637,591$143,826 $836,567 $5,881,515 $ 91,986
1,470
3,607
39,93728,714145,296
840,174 5,921,452 120,700$ (29,049) $ 60,180 $ 312,047 $ 19,934$471,923 $617,504 $5,992,877 $533,068$$ 16,614—
31,657$ 2,981
3,113
—

$

9,574

4,707

$ 8,404 $ 177,558 $ 3,191
—
8,953
2,966
—
94,623—
7,512

190,173— $5,973,501(68,651)—(68,651) 5,973,501$ 1,310 $ 333,291$504,945 $7,030,890

7,196— $ 180,749
4,492
16,411—
94,623—

197,369

Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income ($1,310 thousand) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets ($504,945 thousand) primarily represents of the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($4,492 thousand) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

(B) Related information

Financial Section

Corporate Data

2013
Machinery and equipment
Other tangible fixed assets
Total

Acquisition cost

Accumulated depreciation

Carrying value¥4,565648¥5,213¥3,298544¥3,842¥1,267104¥1,371

2014
Machinery and equipment
Other tangible fixed assets
Total

Acquisition cost

Accumulated depreciation

Carrying value$29,048
2,039$31,087$24,003
1,414$25,417$5,045625$5,670Thousands of U.S. dollars

Total lease payments for finance leases, which are not subject to the ownership transferfrom a lessor to a lessee, amounted to ¥413 million ($4,005 thousand) and ¥762 million
for the years ended March 31, 2014 and 2013, respectively.
Future lease payments (including interest) under finance leases as of March 31, 2014 and2013 are as follows:
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2014

2013

2014

¥492
92
¥584

¥ 792
579
¥1,371$4,774896$5,670Also, future lease payments under non-cancelable operating leases as of March 31, 2014
and 2013 are as follows:

Information by geographical area
1. Net sales
Millions of yen

Japan
U.S.A.
China
Other areas
Total

Thousands of
U.S. dollars

2014

2013

2014

¥296,195
90,534
63,192
165,350¥615,271¥277,075
73,22749,517
186,052¥585,871$2,875,680
878,972
613,510
1,605,339$5,973,501* Net sales are classified into the country or the region based on customers’ locations.

2. Property, plant and equipment
Millions of yen

Japan
Other areas
Total

10. Leases

77

Contents

Millions of yen

Reportable segment
Environmental
facilities
and plants

SearchThousands of
U.S. dollars

2014

2013

2014

¥158,071
62,213¥220,284¥157,953
52,699¥210,652$1,534,670
604,013$2,138,683

Millions of yen

Due within one year
Due after one year
Total

2014

2013

2014

¥1,2752,010¥3,285¥1,107
1,144¥2,251$12,375
19,519$31,894(B) As lessor
The Company has some finance leases for its certain assets, which have been accounted forin the same manner as operating leases. The information of gross amount of such assets andthe related accumulated depreciation as well as their carrying value is not disclosed due toimmateriality.
Total lease payments receivable under finance leases, which are not subject to the ownership transfer from a lessor to a lessee, for the years ended March 31, 2014 and 2013 are notdisclosed because the amounts are not material.
Future lease receivables under finance leases as of March 31, 2014 and 2013 are notdisclosed due to immateriality.
Also, future lease receivables under non-cancelable operating leases as of March 31, 2014
and 2013 are as follows:(A) As lessee
The Company has various finance leases for its machinery and other assets, which have beenaccounted for in the same manner as operating leases. The information of gross amount ofsuch assets and the related accumulated depreciation as well as their carrying value as ofMarch 31, 2014 and 2013 is as follows:

Thousands of
U.S. dollars

Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2014

2013

2014

¥ 39
206
¥245

¥ 46
234
¥280

$ 374
2,008
$2,382Millions of yen

2014
Machinery and equipment
Other tangible fixed assets
Total

76 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Acquisition cost

Accumulated depreciation

Carrying value¥2,992210¥3,202¥2,472146¥2,618

¥520
64
¥584
Sumitomo Heavy Industries, Ltd. Annual Report 201477

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

11. Financial instruments

Presentation andInterview with the President

Special Feature

Review of Operations(A) Qualitative information on financial instruments
1. Utilization policy of financial instruments
The Company obtains the required funds for its operation and investment primarily frombank loans and bond issuances. The Company limits its investment portfolio for temporary
excess funds to short-term financial assets that carry little risk. The derivative instruments
are utilized only to mitigate the risks described below and no speculative transactions are
permitted under the Company’s policy.
2. Financial instruments and related risks
Trade receivables and long-term loans receivable are exposed to the credit risk in relation
to customers and trading partners. Trade receivables denominated in foreign currencies are
exposed to the foreign exchange rate fluctuation risk. The Company mitigates such risks
through entering into forward exchange contracts and option contracts, and maintains theratio of the exposure within a certain range. The hedge ratio and unhedged balances are
regularly reported to the Board of Directors.
The Company is exposed to the market price fluctuation risk in relation to investment
securities that are held by the Company primarily for maintaining business relationship.
Most trade payables are due within one year. Although part of them is denominated inforeign currencies and exposed to foreign exchange rate fluctuation risk, such exposure
is naturally mitigated as there is constantly corresponding balance of accounts receivables
denominated in the same foreign currencies.
Loans, commercial papers, and corporate bonds are primarily used for obtaining the fundrequired for operation and investment. For part of long-term bank loans, the Company enters
into an interest rate swap contract for each individual loan as hedging instruments. Loansdenominated in foreign currencies are exposed to the foreign exchange rate fluctuation risk.
3. Risk management for financial instruments:(1) Credit risk
The Company reviews credit status of customers before accepting orders to mitigate their
credit risk exposure. In accordance with a credit management policy, each business unit monitors collection and balance of receivables for each customer to minimize uncollectible amounts.
For derivatives and deposits, the Company enters into contracts only with highly rated
financial institutions.
(2) Market risk
In relation to amounts of net of trade receivables and trade payables denominated in foreign
currencies, the Company executes the hedge transaction to mitigate the exchange rate fluctuation risk in accordance with a market risk management policy. The status of the hedging
activities is reported to the Board of Directors every month. Major consolidated subsidiaries
also manage the foreign exchange rate fluctuation risk in the same manner.
Loan-related interest payable is also monitored and reported to the Board of Directors
regularly. To mitigate the interest-rate fluctuation risk, interest-rate swaps are used.
In relation to investment securities, the current fair market value and the financial conditionof the issuers are monitored regularly. The Company continuously reevaluates the investment
portfolio in consideration of relationship with counterparties.
The Company’s derivative transactions are executed solely for the purpose of hedging risks
concerning exchange rate and interest rate fluctuations as explained above. The Company
reconciles outstanding balances with the contract counterparties on a monthly basis.
(3) Liquidity risk
The Company has implemented a cash management system among major consolidated
subsidiaries whereby SHI centralizes management of available funds within the consolidated
group companies. The Company timely formulates and updates the fund management plan
based on reports from business units and major subsidiaries, and monitors the liquidity risk.

78 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Research and Development

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

Search79

Contents

Financial Section

Corporate Data

(B) Fair values of financial instruments
The following table presents the carrying amounts and fair values of the Company’s financial
instruments recorded on the consolidated balance sheets as of March 31, 2014 and 2013.
Certain financial instruments are excluded from the following table as the fair value information is not available.
Millions of yen

2014
Cash and time deposits
Trade receivables
Short-term investment
and investment securities
Long-term loans receivable
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value

Difference¥ 67,826
181,961¥ 67,826
180,952¥—(1,009)23,41913,786286,992
124,21152,817
10,00044,616
231,644(285)

23,41914,920287,117
124,21152,817
10,00045,116
232,144
(578)

—
1,134
125
—
—
—
500
500
(293)

2013
Cash and time deposits
Trade receivables
Investment securities
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value

Difference¥ 47,814
173,299
13,066234,179
113,575
48,032
10,00030,515202,122(1,289)¥ 47,814
172,728
13,066
233,608
113,575
48,032
10,01230,749202,368(1,771)

¥ —
(571)
—
(571)
—
—
12
234
246
(482)

2014
Cash and time deposits
Trade receivables
Short-term investment
and investment securities
Long-term loans receivable
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value$ 658,501
1,766,609$ 658,501
1,756,817$

227,372
133,8422,786,324
1,205,928
512,783
97,087433,1702,248,968(2,771)

227,372
144,854
2,787,544
1,205,928
512,783
97,087438,0212,253,819(5,610)—11,012
1,220
—
—
—
4,851
4,851
(2,839)Millions of yen

Thousands of U.S. dollars
Difference—(9,792)

1. Cash and time deposits
The carrying amounts approximate the fair values because of the short-term maturity of these
instruments.

2. Trade receivables
The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

Sumitomo Heavy Industries, Ltd. Annual Report 201479

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

3. Short-term investment and investment securities

Corporate Governance

Environmental andSocial Contribution Initiatives

Search81

Contents

Financial Section

Corporate Data

The aggregate maturities of long-term bank loans and corporate bonds subsequent toMarch 31, 2014 and 2013 are as follows:

Short-term investment represents the certificate deposit with the short-term maturity, whichis recorded at its carrying amount as it approximates the fair value. Investment securities
represent the equity securities, and the market prices are used to estimate fair values.

Millions of yen

4. Long-term loans receivable2014
Long-term bank loans
Corporate bonds

The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years¥16,856
10,000¥13,980—¥5,918—¥1,549—¥6,313—¥——

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years¥1,245—¥15,025
10,000¥11,651—¥1,038—¥1,538—¥18—

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years$163,646
97,087$135,732—$57,459—$15,043—$61,290—$——

Millions of yen

5. Trade payables and short-term bank loans
The carrying amounts approximate the fair values because of short-term settlement of these
instruments.

2013
Long-term bank loans
Corporate bonds

6. Corporate bonds
The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

Thousands of U.S. dollars

7. Long-term bank loans

2014Long-term bank loans
Corporate bonds

The discounted cash flow method is used to estimate the fair values, based on marginal borrowing rates as discount rates.

8. Derivatives
The fair values of forward exchange contracts are based on quoted forward exchange rates.
The fair values of options, interest rate swaps and currency swaps are based on the quotes
from financial institutions.
The affiliate stocks, the unlisted stocks and the investment bonds in the following table are
not included in the above table because there is no fair value available.
Millions of yen

Affiliate stocks
Unlisted stocks
Investment bonds

Thousands of
U.S. dollars

2014

2013

2014

¥10,9182,403
5¥9,7172,394
11$105,998
23,321
53

The aggregate maturities of financial assets subsequent to March 31, 2014 and 2013 are
as follows:
Millions of yen

2014
Cash and time deposits
Trade receivables
Long-term loans receivable
Total

Within one year

¥ 67,826
178,044
3,149¥249,019

Over one year within five years

Over five years

¥

—
3,662
10,626¥14,288

¥ —
255
11
¥266

Millions of yen

2013
Cash and time deposits
Trade receivables
Total

Within one year

Over one year within five years

Over five years¥ 47,814
169,587¥217,401¥ —3,325¥3,325

¥ —
387
¥387

2014
Cash and time deposits
Trade receivables
Long-term loans receivable
Total

Within one year

Over one year within five years

80 Sumitomo Heavy Industries, Ltd. Annual Report 2014$—
35,557103,158$138,715(A) Carrying amounts of short-term investment and investment securities
not stated at fair values as of March 31, 2014 and 2013 are disclosed
in the Note 11. “Financial instruments”.
(B) Acquisition costs and carrying amounts of available-for-sale securities asof March 31, 2014 and 2013 are as follows:
Millions of yen

Available-for-sale securities
Equity securities Acquisition cost
Carrying amount
Difference
Other securities
Acquisition cost
Carrying amount
Difference

Thousands of
U.S. dollars

2014

2013

2014

¥ 8,260
13,419¥ 5,159¥10,000
10,000¥—¥ 9,489
13,066¥ 3,577¥——¥—$ 80,193
130,285$ 50,092$ 97,087
97,087$—(C) Total sales amount of available-for-sale securities and the related net
gain in the fiscal years ended March 31, 2014 and 2013 are as follows:
Millions of yen

Sale of securities
Net gainThousands of
U.S. dollars

2014

2013

2014

¥1,747459¥1,362
1,342$16,961
4,458(D) There were no available-for-sale securities with maturity and held-tomaturity securities as of March 31, 2014 and 2013.
(E) Impairment of securities

Thousands of U.S. dollars$ 658,501
1,728,574
30,577$2,417,652

12. Short-term investment
and investment securities

Over five years

$

—
2,478
107
$2,585

Impairment losses for securities were ¥2 million ($23 thousand) and ¥0 million for the years
ended March 31, 2014 and 2013, respectively.

Sumitomo Heavy Industries, Ltd. Annual Report 201481

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

13. Derivatives information

Presentation andInterview with the President

Special Feature

Review of Operations

Research and Development

Intellectual Property

¥

1
158
159

2014

2013

¥

102
14,967
(3)
(508)
(511)

¥

$

794
172,767

$

13
1,535
1,548

Interest rate swap contracts (special treatment) (Note)
Contract amounts:
Interest swap fixed rate to floating rate
Fair value:Interest swap fixed rate to floating rate

There is no currency swap contract for which no hedge accounting is applied as of March 31,
2013. The aggregate contracted amounts to be paid / received and the fair values of currency
swap contracts for which no hedge accounting is applied as of March 31, 2014 are as follows:
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥289
61

$2,802597(C) Forward foreign exchange contracts for which hedge accounting is applied
The aggregate contracted amounts and the fair values of forward foreign exchange contracts
for which hedge accounting is applied as of March 31, 2014 and 2013 are as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred hedge accounting
Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Alternative method (Note)
Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Net unrealized exchange gain (loss)

2014

2013

2014

¥ 1,037
21,224¥ 1,137
10,311$ 10,066
206,057

34
(541)

151
(932)

332
(5,247)

820
946

131
1,422

7,959
9,186

28
(122)
(601)

(3)
(252)
¥ (1,036)

272(1,188)$ (5,831)¥

Note: When certain conditions are met, foreign currency denominated receivables and payables are translated into
Japanese yen based on the fixed exchange rates provided by the respective forward contracts.

82 Sumitomo Heavy Industries, Ltd. Annual Report 2014

2014

2013

2014

¥21,398¥16,795$207,746

(198)

(224)

(1,923)

Note: When certain conditions are met, the net amount under an interest rate swap contract is added to or deductedfrom interest on liabilities for which the interest rate swap contract is executed.

14. Retirement benefits(A) Year ended March 31, 2013
SHI provides both a lump-sum severance payment plan and a defined contribution planfor employees. Most of its domestic consolidated subsidiaries also provide the same plans
for their employees. Some foreign consolidated subsidiaries sponsor a defined benefit planfor their employees.
Additionally, SHI provides a “Retirement Benefit Trust”.
1. Projected benefit obligation on the balance sheet date consists of the following:(B) Currency swap contracts for which no hedge accounting is applied

Currency swap contracts
Contracted amounts
Fair value

Thousands of
U.S. dollars

Thousands of
U.S. dollars

Millions of yen

82
17,795

Corporate Data

Millions of yen

The aggregate contracted amounts and the fair values of forward foreign exchange contracts
for which no hedge accounting is applied as of March 31, 2014 and 2013 are as follows:¥

Financial Section

The aggregate amounts of interest rate swap contracts for which hedge accounting is applied
as of March 31, 2014 and 2013 are as follows:(A) Forward foreign exchange contracts for which no hedge accounting is applied

2014

Environmental andSocial Contribution Initiatives

83

Contents(D) Interest rate swap contracts for which hedge accounting is applied

The Company enters into forward currency exchange contracts, currency option contracts,
interest rate swap contracts and currency swap contracts as derivative financial instruments.
The Company utilizes forward currency exchange transactions to hedge risk of fluctuation in aforeign currency exchange rate with respect to receivables and payables denominated in foreign
currencies. Interest rate swap transactions are utilized to minimize risk of increase in interest
rate on borrowings. The Company enters into such transactions only with international financial
institutions with higher credit ratings to avoid credit risk exposure. Details of transactions arereviewed and approved by the authorized individuals at the Company based on an internal
policy, which indicates acceptable transaction types and monetary limits for each transaction.

Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Net unrealized exchange gain (loss)

Corporate GovernanceSearchMillions of yen
2013(1) Projected benefit obligation(2) Fair value of employees retirement benefit plan assets(3) Unfunded projected benefit obligation(4) Unrecognized actuarial difference(5) Unrecognized prior service cost(6) Employees' severance and retirement benefit¥(76,588)
33,011(43,577)4,444(36)¥(39,169)

2. The following severance and pension benefit expenses are included in the statements of income for the year ended March 31, 2013:
Millions of yen
2013(1) Service cost(2) Interest cost on projected benefit obligation(3) Expected return on plan assets(4) Amortization of actuarial difference(5) Amortization of prior service cost(6) Severance and pension benefit expense¥3,062
1,471
(709)
1,743
118
¥5,685

3. Major actuarial assumptions used to determine pension obligations as of March 31,
2013 are as follows:
2013(1) Allocation of the estimated amount of all retirement
benefits to be paid at the future retirement date(2) Assumed discount rate(3) Expected rate of return on plan assets(4) Amortization period of prior service cost(5) Amortization period of actuarial differences

Equally to each service year using theestimated number of total service years
Mainly 1.5%
Mainly 0.0%
SHI: 1 year
Subsidiaries: Mainly 12 years
Mainly 12 years

Sumitomo Heavy Industries, Ltd. Annual Report 201483

PrintFinancial Highlights

To Our Shareholders,Customers, and Employees

Presentation andInterview with the President

Special Feature

Review of Operations(B) Year ended March 31, 2014

2. Defined benefit plans, except plan applied simplified method(1) Movement in retirement benefit obligations
Millions of yen

Thousands of
U.S. dollars

2014

2014

¥72,867
2,843
1,752(1,348)(4,789)(189)
6,368¥77,504$707,444
27,59817,014(13,084)(46,494)(1,834)
61,818$752,462

Millions of yen

Thousands of
U.S. dollars

2014

2014

¥32,291
972
4,664
894
(1,166)
2,662¥40,317$313,497
9,434
45,277
8,680(11,321)25,860$391,427(2) Movements in plan assets

Balance at April 1, 2013
Expected return on plan assets
Actuarial gain (loss)
Contributions paid by the employer
Benefits paid
Other
Balance at March 31, 2014

(3) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for
retirement benefits
Millions of yen

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Total net liability (asset) for retirement benefits at March 31, 2014
Liability for retirement benefits
Total net liability (asset) for retirement benefits at March 31, 201484 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Intellectual Property

Corporate Governance

Environmental andSocial Contribution Initiatives

85

Contents

Financial Section

Corporate Data

(4) Retirement benefit costs

1. Summary of defined benefit plans
SHI and most of its domestic consolidated subsidiaries provide both a lump-sum severance
payment plan and a defined contribution plan for employees. Some foreign consolidated
subsidiaries sponsor a defined benefit plan for their employees.
Additionally, SHI provides a “Retirement Benefit Trust”.
Liability for retirement benefits and retirement benefit costs are determined based ona simplified method for some lump-sum severance payment plans operated by respective
consolidated subsidiaries.

Balance at April 1, 2013
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Prior service costs
Other
Balance at March 31, 2014

Research and Development

SearchThousands of
U.S. dollars

2014

2014

¥58,682
40,31718,365
18,822
37,18737,187¥37,187$569,733
391,427
178,306
182,730
361,036
361,036$361,036

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial difference
Amortization of prior service cost
Other
Total retirement benefit costs for the fiscal year ended
March 31, 2014

Thousands of
U.S. dollars

2014

2014

¥2,843
1,752
(972)
1,942
78
(12)

$27,598
17,014(9,434)18,853757(121)¥5,631$54,667

Millions of yen

Thousands of
U.S. dollars(5) Accumulated adjustments for retirement benefit

Unrecognized prior service cost
Unrecognized actuarial difference
Total balance at March 31, 2014

2014

2014

¥ (303)(3,508)¥(3,811)$ (2,938)(34,064)$(37,002)(6) Plan assets(a) Plan assets comprise:
Equity securities
Cash and time deposits
Other
Total

80%
2%
18%
100%

Notes: Total plan assets include retirement benefit trust provided for SHI’s lump-sum severance payment plan, which
comprises 59% of the plan assets and amounts to ¥23,750 million ($230,583 thousand).

(b) Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories ofplan assets have been considered in determining the long-term expected rate of return.
(7) Actuarial assumptions
The principal actuarial assumptions at March 31, 2014 (expressed as weighted averages) are
as follows:2014

Mainly 1.5%
Mainly 0.0%

Assumed discount rateLong-term expected rate of return

3. Defined benefit plan applying the simplified method(1) Movement in liability for retirement benefits
Millions of yen

Balance at April 1, 2013
Service cost
Benefits paid
Contributions paid to plan
Other
Balance at March 31, 2014

Thousands of
U.S. dollars

2014

2014

¥3,001
402
(373)
(68)
(112)
¥2,850$29,137
3,899(3,621)(659)(1,083)$27,673

Sumitomo Heavy Industries, Ltd. Annual Report 201485

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87
Corporate Data

Independent Auditor’s Report(2) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for
retirement benefits
Millions of yen

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Total net liability (asset) for retirement benefits at March 31, 2014
Liability for retirement benefits
Total net liability (asset) for retirement benefits at March 31, 2014

Thousands of
U.S. dollars

2014

2014

¥ 830
(768)
62
2,788
2,850
2,850
¥2,850$ 8,054(7,453)
601
27,072
27,67327,673$27,673(3) Total retirement benefit costs based on the simplified method amounted to ¥402 million($3,899 thousand) for the year ended March 31, 2014.
4. Defined contribution plan
Contributions paid to defined contribution plan in SHI and consolidated subsidiaries
amounted to ¥597 million ($5,794 thousand) for the year ended March 31, 2014.

15. Subsequent events

Appropriations of retained earnings
The following appropriations of retained earnings, which have not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2014, wereapproved at the SHI’s general shareholders’ meeting held on June 27, 2014:
Millions of yen

Year-end cash dividends ¥4.00 ($0.04) per share

Thousands of
U.S. dollars

2014

2014

¥2,453$23,817

The approved dividend will be paid to the shareholders as of March 31, 2014.

16. Others

86 Sumitomo Heavy Industries, Ltd. Annual Report 2014

In connection with an order received from the city of Kyoto for the “Construction Work
(specifically only for plant equipment work) for the Kyoto City Incinerated Ash Melting Facility(Provisional Name)”, SHI received a cancellation notice from the city of Kyoto on August 5,
2013, which states that SHI was unable to deliver the said facility by the prefixed delivery
deadline. In addition, the city of Kyoto filed a damages lawsuit on March 20, 2014, with the
Kyoto District Court, claiming compensation for damages of ¥18,454 million ($179,165 thousand) against SHI by reason of the cancellation.
SHI had petitioned for arbitration to the Central Construction Work Disputes Committee inaccordance with the relevant provisions of the contract with the city of Kyoto that, in case ofany disputes, a resolution would be pursued via the mediation or arbitration of the Committeeof Construction Work Disputes under the Construction Business Act. However, the city of
Kyoto did not pursue an amicable solution via arbitration, thereby resulting in the filing of thelawsuit.
SHI is confident that the purported cancellation at a stage before the near completion of
the intended work is invalid and therefore that the city of Kyoto’s claim of compensation fordamages based on such cancellation is groundless. SHI intends to fully insist on the legitimacy
of its position regarding this lawsuit.

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Financial Section

Corporate Data

Major Subsidiaries and Affiliates(As of April 1, 2014)

Segment

Machinery
Components

Precision
MachineryBusiness
Power Transmission andControl Equipment

Company Name

Telephone Number

Segment

Construction
MachineryBusiness

Company Name

Telephone Number

Hydraulic Excavators

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

03-6737-2600

Road Machinery

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

03-6737-2610

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

61-3391000

0562-48-5115

LBX Company, LLC

1-859-245-3900

0724-31-3021

Sumitomo Heavy Industries (China) Financial Leasing, Ltd.

86-21-5204-9192

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY INDONESIA

62-21-5795-2254

Sumitomo (SHI) Cyclo Drive China, Ltd.

86-22-2499-3501

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY SOUTHEAST ASIA

62-21-8910-8688

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Mobile Cranes

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

1-859-263-5200

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-955-0010

Sumitomo (SHI) Cyclo Drive Germany GmbH49-8136-66-0

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.

65-6-591-7800

Material Handling Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

03-6737-2640

Sumitomo (SHI) Cyclo Drive Korea, Ltd.

82-2-730-0151

Forging Presses

Sumijiu Technocraft Co., Ltd.

0897-32-6306

Sumitomo Machinery Corporation of America

1-757-485-3355

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Sumitomo Industrias Pesadas do Brasil Ltda.

55-11-5585-3600

Forklift Trucks

Sumitomo NACCO Materials Handling Co., Ltd.

0562-48-5251

SM Cyclo of Canada, Ltd.

1-905-469-1050

Quantum Equipment
and Cyclotron Accelerators

Sumiju Examination & Inspection, Ltd.

0898-65-4868

Hansen Industrial Transmissions NV

32-3-450-12-11

SHI Accelerator Service Ltd.

03-5434-8468

Japan Electron Beam Irradiation Service Co., Ltd.

03-5434-8467

Sumiju Magnet (Kunshan) Co., Ltd.

86-512-5768-9200

Sumitomo Heavy Industries Modern, Ltd.

045-547-7711

Sumiju Platec Co., Ltd.

043-420-1558

Sumiju Logitech Co., Ltd.

043-420-1680

Izumi Seiki Co., Ltd.

0897-32-6232

Ningbo Sumiju Machinery, Ltd.

86-574-86805901

Sumitomo (SHI) Demag Plastics Machinery GmbH49-911-5061-717

Sumitomo (SHI) Demag Plastics Machinery North America, Inc.

1-770-447-5430

SHI Plastics Machinery (Hong Kong) Ltd.

852-2750-6630

S.H.I. Plastics Machinery (S) Pte. Ltd.

65-6-779-7544

Sumitomo (SHI) Cryogenics of America, Inc.

1-610-791-6700

Sumitomo (SHI) Cryogenics of Europe GmbH49-6151-860610

Sumitomo (SHI) Cryogenics of Europe, Ltd.

44-1256-853333

SHI Manufacturing & Services (Philippines), Inc.

63-43-405-6263

Precision Equipment andComponents

Sumitomo Heavy Industries Himatex Co., Ltd.

0897-32-6485

Sumiju Precision Forging Co., Ltd.

046-869-1659

LCD and Semiconductor
Equipment

Sumitomo Heavy Industries Mechatronics, Ltd.

03-6737-2531

SEN Corporation

03-6737-2690

Machine Tools

Sumitomo Heavy Industries Finetech, Ltd.

086-525-6280

Defense Equipment

Sumiju Business, Ltd.

042-468-4311

Sumiju Tokki Service Co., Ltd.

042-468-4451

Plastic Injection Molding
Machines

Cryogenic Equipment

88 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Sumitomo Heavy Industries Gearmotors Co., Ltd.

0562-88-3040

Sumitomo Heavy Industries, PTC Sales Co., Ltd.

03-6737-2580

Sumiju Tomida Machinery Co., Ltd.

0562-48-4167

Sumiju Technos, Ltd.
SEISA Gear, Ltd.

Industrial
Machinery

Ships

Ships

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

03-6737-2620

Environmental
Facilities & Plants

Energy-Related andEnvironmental Protection
Systems

Sumiju Plant Engineering Co., Ltd.

042-468-4007

Sumiju Environmental Technologies, Ltd.

03-6737-2820

Water Treatment Systems

Sumitomo Heavy Industries Environment Co., Ltd.

03-6737-2700

Sumiju Environmental Engineering, Inc.

03-5719-5020

Pressure Vessels, Chemical
Processing Equipment andPlantsSumitomo Heavy Industries Process Equipment Co., Ltd.

0898-64-6936

Nihon Spindle Mfg. Co., Ltd.

06-6499-5551

Food Processing Machinery

Izumi Food Machinery Co., Ltd.

06-6718-6150

OthersSales and Services,
PT. Sumitomo Heavy Industries Indonesia
Area Management Company

62-0-21-57951095

OthersSumitomo Heavy Industries Business Associates, Ltd.

03-6737-2342

Lightwell Co., Ltd.

03-5828-9230

Izumi Support Corporation

03-6737-2666

Sumitomo Heavy Industries (China), Ltd.

86-21-6219-8232

Sumitomo Heavy Industries (USA), Inc.

1-610-791-6782

Sumitomo Heavy Industries (Shanghai) Management, Ltd.

86-21-3462-7660

Sumitomo Heavy Industries, Ltd. Annual Report 201489

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Corporate Data

Glossary

Machinery Components

Industrial Machinery[Cryocoolers][Continuous ship unloaders]

Cryocoolers utilize a process under which

Continuous ship unloaders arehelium gas is compressed and expanded,[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

large harbor-installed hoists used

[Proton therapy system]enabling cooling to temperatures nearProton therapy is a type of radiation therapy that destroys cancer cells by

absolute zero (-273˚C).

bombarding affected areas with a proton beam. Allowing the minimallyhas many applications, including elevators, escalators, industrial robots, andinvasive treatment of cancer cells, proton therapy systems minimize damage

factory production lines. SHI produces a wide range of power transmission

to surrounding normal cells, thus reducing burden on the patient’s body.
4KGM cryogenic
equipment

and control devices, from micro-miniature devices with a motor capacity of
6 watts to very large devices of several thousand kilowatts. SHI has
the leading share of the Japanese market for this equipment.

[Laser drills]

Due to such features, these systems eliminate the need for hospitalization

for the continuous unloading ofiron ore and other bulk raw
materials from cargo vessels at
docks. SHI has the top share ofthis market in Japan.
Continuous ship unloader

and enable the outpatient treatment of cancer.

Ships

Laser drills employ laser beams to cut holes in insulating resin. Primarily
applied during printed circuit board manufacturing processes, theCompany’s laser drills boast the industry’s highest speeds with the potential[Aframax tankers]

to cut over 1,000 holes per second.

Aframax tankers are mid-sized oil tankers with dead weight freight capacity
in the 80,000 to 120,000MTDW class.

CYCLO®
speed reducer

Hyponic Gearmotor®

Precision Machinery

Laser drills

Rotating gantry
irradiation system[Cyclotrons]
A cyclotron is an accelerator for particles that it ionizes using magnetic[Plastic injection molding machines]

force. SHI is the only manufacturer of these devices in Japan and has the

Plastic injection molding machines are used to pour melted plastic into
enables greater molding precision. SHI specializes in the precision, high-cycle

Aframax tankers

top share of the domestic market for cyclotrons for positron emission tomo-

molds. Of the two system types, hydraulic and electromotive, the lattergraphy (PET) applications, which are highly effective in discovering andConstruction Machinery

pinpointing cancer cells.

molding required for manufacturing optical discs and connectors.

Environmental Facilities & Plants[Telescopic machinery]
Telescopic refers to a configuration that can both contract and expand much

[Circulating fluidized-bed (CFB) boilers]

like the term “telescope” in English. The telescopic boom crawler crane, forCompact cyclotron
for PET “HM-12S”

example, delivers a crane arm that can both extend and contract.

[Ion-implantation system]

fuels as low-grade coal and biomass-based fuels.

[Servo-driven presses]

To create the transistors and other components that comprise semiconduc-By generating pressure, forging presses apply a compression molding pro-tors, the necessary type/volume of elements required for such components

cess to materials. In addition to high intensity and high rigidity, forging

must be added to a flat silicon single-crystal substrate known as a wafer.

presses can be used in the manufacture of components with complex

Ion-implantation systems electrically ionize the elements and accelerate theresulting ions at high voltage for high-precision injection into the wafer.

temperature, this CFB boiler is an efficient combustor suitable for use witha wide variety of fuels. The CFB boiler can even burn such renewable energy

Telescopic machinery

Full-electric plastic injection
molding machine

Employing jets of air blown from below to evenly mix fuel particles at a highshapes. SHI boasts the world’s largest class pressing capacity.

Circulating fluidized-bed(CFB) boiler[Asphalt pavers]
Self-propelled machines used to spread asphalt when paving roads, SHI is[Grit pumping systems]

the market leader in asphalt pavers in Japan.

Grit lifters are typically used inside the grit chambers of wastewater treatment plants and other facilities. It is a device that uses pressurized water toremove and transfer thebuilt-up grit that has settled in the chamber.

Ultra-high-energy ionimplantation equipment
S-UHE
Asphalt paver “HA60W”

90 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Servo-driven presses

Jet-pump type grit pumping
system Sumijetter II

Sumitomo Heavy Industries, Ltd. Annual Report 201491

PrintTo Our Shareholders,Customers, and Employees

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Corporate Data
(As of March 31, 2014)

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

Transfer Agent: Sumitomo Mitsui Trust Bank, Limited
Stock Exchange Listing: Tokyo
Shares Outstanding: 614,527,405
Number of Shareholders: 48,685
Major Shareholders:Founded: 1888

Percentage of
total sharesissued andoutstanding

Incorporated: November 1, 1934
Paid-in Capital: ¥30,871,651,300
Number of Employees: 17,936 (Consolidated)
2,584 (Non-consolidated)
Domestic Offices:
Chubu Office
10-24, Higashi-sakura 1-chome, Higashi-ku, Nagoya-shi,
Aichi 461-0005, Japan
Tel: 81-52-971-3063
Kansai Office3-33, Nakanoshima 2-chome, Kita-ku, Osaka-shi,
Osaka 530-0005, Japan
Tel: 81-6-7635-3610

Name of shareholder

Japan Trustee Services Bank, Ltd. (Trust account)
The Master Trust Bank of Japan, Ltd. (Trust account)

Sumitomo Life Insurance Company
STATE STREET BANK AND TRUST COMPANY 505224
Sumitomo Mitsui Banking Corporation
Sumitomo Heavy Industries, Ltd. Kyoeikai
JAPAN RE FIDELTY

Japan Trustee Services Bank, Ltd. Sumitomo Mitsui
Trust Retirement Benefit Trust AccountTrust & Custody Services Bank, Ltd. (Trust account 9)

Kyushu Office
6-20, Nakasu 5-chome, Hakata-ku, Fukuoka-shi,
Fukuoka 810-0801, Japan
Tel: 81-92-283-1670

Sumitomo Corporation

Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi, Tokyo 188-8585, Japan
Tel: 81-42-468-4104

Breakdown of shareholders

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

1.3
1.3
1.2

Breakdown of Shareholders as of March 31, 2014:
Number of shares held (unit 1,000)

Financial Institutions
Securities Companies
Individuals and Others
Foreign Investors
Other Japanese Corporations

220,244
18,98998,391
236,21240,691The “Other Japanese Corporations” category also includes treasury stock, government institutions, and local governments.
The number of shares held is rounded down to the nearest 1,000.
Other Japanese Corporations 6.62%

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

6.9
6.4
3.5
3.2
2.5
2.0
1.4

Foreign Investors 38.44%

Financial Institutions 35.84%

Ehime Works–Niihama Factory
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Tel: 81-897-32-6211
Securities Companies 3.09%

Ehime Works–Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan
Tel: 81-898-64-4811
Technology Research Center
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Individuals and Others 16.01%

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

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

92 Sumitomo Heavy Industries, Ltd. Annual Report 2014

Research and Development

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Corporate Governance

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93
Corporate Data