Annual Report 2013

For the year ended March 31, 2013

Harnessing Our Growth Drivers

Cutting-edge technologies
in the non-invasive treatmentof cancer
The SHI Group has the world’s most advanced accelerator technology, which is attracting wide attention in the
medical field for its use of proton beam therapy and positron emission tomography (PET) radio tracer production
systems. The Group continues to work on the development of next-generation cancer treatment equipment,
including boron neutron capture therapy (BNCT), which utilizes neutrons for cancer treatment. In this manner,
the Group consistently stands at the forefront of leading-edge technology development. The Group is exploringa future that makes the ever impossible possible by consistently developing the most advanced technologies.

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

1

Harnessing Our Growth Drivers

Biomass technologies that
help solve global energy issues
The SHI Group has a proven track record in circulating fluidized-bed (CFB) boilers, which are also efficient in
combusting flame retardant fuels. These boilers are distinguished by their ability to effectively use fuels, including waste tires and low-grade coal, which had proven difficult to apply in the past. Particularly potent in the fieldof biomass power generation, the Group's CFB boilers contribute to the reduction of carbon dioxide (CO2) emissions. In the previous year, the Group was successful in developing and installing the first compact power generation system, thereby demonstrating its ability to reduce the amount of investment and cut back on delivery
periods. Looking ahead, the Group will continue to propose systems that take into consideration human andenvironmental concerns.

2

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Sumitomo Heavy Industries, Ltd.

Annual Report 20133

Harnessing Our Growth Drivers

Striking the perfect balance
between world-class engine
performance and economic
viability
The LEGEST® hydraulic excavator, manufactured and marketed by Sumitomo (S.H.I.) Construction
Machinery Co., Ltd., a subsidiary company in the SHI Group, was awarded the “Grand Award for Energy
Conservation,” sponsored by Japan’s Ministry of Economy, Trade and Industry in 2008. This was the first timethat the award was bestowed on construction machinery. In the ensuing period, ongoing steps have been taken
to modify the excavator drawing on feedback from customers. In this manner, every effort is being made to
strike the perfect balance between world-class engine performance and economic viability. Equipped with amonitor that provides a 270° wide field of view from the cab seat, LEGEST® offers superior safety.

4

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

5

Contents
7

Overview of Operating Highlights

8

Financial Highlights

10

At a Glance

12

To Our Shareholders, Customers and Employees

14Interview with the President

21

Special Feature: Harnessing Our Growth Drivers

26

22

Our Workmanship in Manufacturing Supports Manufacturing

24

Technologies of the Future

Review of Operations
27

Machinery Components

28

Precision Machinery

30

Construction Machinery32

Industrial Machinery

34

Ships

35

Environmental Facilities & Plants

37

Overview by Geographical Area

38

Research and Development

40Intellectual Property

41

Corporate Governance46

Directors, Corporate Auditors and Executive Officers

48

Environmental and Social Contribution Initiatives

51

Financial Section

85

Independent Auditor’s Report

86

Major Subsidiaries and Affiliates

88

Glossary

90

Corporate Data

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 anddetermined subjectively. Future performance is not guaranteed and all information related to future performancecontained herein is subject to changes in the business environment.

6

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Overview of Operating Highlights

2012
Received an order for the world’s largest
waste-tire fuel CFB boiler from South Korea

Apr.

Announced the commencementof sales of a new hydraulicexcavator model

May
June
First in Japan to obtain authorization from Japan’s
Ministry of Health, Labour and Welfare for theelectron beam sterilization of disinfectants

First in the world to commence clinical trialsof BNCT using the Company’s cyclotron
accelerator

July

Established a steam turbine local subsidiary in Thailand

Aug.

Delivery of a new next-generation servo press

Sept.

First in Japan to acquire biomass power generation
facility feed-in tariffs (FIT) scheme certification

Oct.
Received the Minister’s Prize from Japan’s Ministry of
Economy, Trade and Industry at the “Excellence inEnergy-Conserving Equipment Annual Awards” in recognition of the Company’s injection molding machines

Nov.
Added a new model for small-sized speed
reducer use to its lineup of motors

Dec.
Jan.

Announced details of changes torepresentative directors

Feb.

Announced details of the merger by absorption of a
subsidiary company engaged in the press machinery
business and the decision to divest the Company’s
Logistics and Parking System Division
Received an order for a coal fired power plantin Indonesia, the first order of this type of
facility in Indonesia

Refunded overbilled amounts to Japan’s
Ministry of Defense

First in the world to receive an order for the Company’s
BNCT system from a private-sector medical facility

Mar.
Sumitomo Heavy Industries, Ltd.

Annual Report 20137

Financial Highlights
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

FY2008FY2009Millions of yen
FY2010FY2011FY2012Thousands of
U.S. dollars(Note 1)FY2012$6,232,655

Summary of Income (for the year):Net sales¥642,918¥516,165¥548,015¥624,100¥585,871

Machinery Components

91,876

69,04074,591

93,20591,174

969,932

Precision Machinery

135,351

105,191

131,944

144,145

139,218

1,481,043

Construction Machinery

159,154

102,650

130,811

158,942

152,773

1,625,247

Industrial Machinery

84,31085,63766,54480,68369,649740,949

Ships

56,02862,92759,496

58,11146,013

489,496

Environmental Facilities & Plants

106,479

81,88476,07080,11678,584

835,996

9,720

8,835

8,558

8,898

8,460

90,002

56,94028,25445,80347,13531,288332,849

7,033

861

4,874

4,238

2,767

29,435

Precision Machinery

5,307(2,603)

8,340

12,507

7,664

81,538Construction Machinery

7,543

571

5,290

8,293

6,132

65,229Industrial Machinery

13,585

14,167

10,252

9,499

5,358

56,996

Ships

9,098

6,664

9,897

10,9352,366

25,172

Environmental Facilities & Plants

13,040

7,101

5,566

6

5,575

59,312OthersOperating income
Machinery Components

1,131

1,376

1,518

1,632

1,361

14,483

EBITDA (Note 3)

Others75,26047,97963,74464,95549,570527,339

Net income

13,64913,28027,926

19,492

5,865

62,392

Capital expenditures (Note 4)

31,75324,465

14,292

19,682

29,888317,961

R&D expenses

10,047

8,187

7,445

9,343

9,835

104,626

Depreciation and amortization

18,32019,725

17,941

17,82018,282

194,490

Cash flows from operating activities

34,67657,51336,521

23,3092,660

28,298Cash flows from investing activities(35,924)(13,954)(23,513)(22,672)(19,660)(209,154)

Free cash flows (Note 5)(1,248)43,55913,008638(17,000)(180,856)

Cash flows from financing activities

15,625(26,686)(22,020)

19,879(11,428)(121,579)

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥94=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2013.
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. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
4. Capital expenditures are capitalized and recorded as assets.
5. Free cash flows = Cash flows from operating activities + Cash flows from investing activities

Net Sales

Operating Income andOperating Income Margin(¥ Billion)
700(¥ Billion)
60

(%)
12

(¥ Billion)
30

(%)
12

50

10

25

10

40

8

20

8

30

6

15

6

20

4

10

4

10

2

5

2

0

0

600

Net Income and ROE

500
400
300
200
100
0

0
(FY)

08

09

10

11

12

(FY) 08

09

10

11

12

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

0(FY) 08

09

10

Net Income (Left scale)ROE (Right scale)1112

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

FY2008FY2009Millions of yen
FY2010FY2011FY2012Thousands of
U.S. dollars(Note 1)FY2012¥657,436
110,339
238,697¥610,087
87,660254,153¥626,829
67,833
269,380¥691,841
96,522
282,145¥647,724
98,547
292,826$6,890,679
1,048,368
3,115,172
U.S. dollars(Note 1)

Yen

Amounts per Share of Common Stock:
Net income (Note 6)
Stockholders' equity
Cash dividends¥22.62378.786.00

Share Data:
Stock price at year-end¥22.01404.734.00¥45.87435.108.00¥31.75454.4310.00¥9.56
470.69
8.00

$0.10
5.01
0.09
U.S. dollars(Note 1)

Yen

¥325

¥563

¥543

¥460

¥381

$4.05
Thousands of
U.S. dollars(Note 1)Millions of yen

Market value¥196,127¥339,720

Financial Indexes:
ROIC (Note 7)
Operating income margin
EBITDA margin
Stockholders' equity ratio
ROA (Return on assets)
ROE (Return on equity)
Interest-bearing debt ratio

9.6
8.9
11.7
34.8
2.0
5.9
16.8

4.8
5.5
9.3
40.0
2.1
5.6
14.4

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

¥98

¥93

¥333,622¥282,309¥233,808

7.4
7.6
10.4
40.3
3.0
7.1
14.0

4.9
5.3
8.5
44.6
0.9
2.1
15.2

¥82

¥94

$2,487,320

%

7.8
8.4
11.6
42.6
4.5
10.9
10.8
Yen

¥83

Notes: 6. 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)
7. ROIC (Return on Invested Capital) =(Average of stockholders’ equity + Average of interest-bearing debt)

Total Assets andStockholders’ Equity Ratio(¥ Billion)
800

(%)
60

Interest-Bearing Debt andInterest-Bearing Debt Ratio

Free Cash Flows(¥ Billion)
120(¥ Billion)
50

(%)
20

40
600

45

90

15

400

30

60

10

30
20
10

15

200

5

30

0
-10

0

0
(FY) 08

09

10

11

12

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

00(FY) 08

09

10

11

12

-20
(FY)

08

09

10

11

12

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

Sumitomo Heavy Industries, Ltd.

Annual Report 20139

At a Glance
Diversified Businesses Underpin
Strong Earnings Base

Machinery Components
Consolidated Net Sales

The 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.

91.2
2.8

Billion yen

Consolidated Operating Income

Billion yen

Precision Machinery
Consolidated Net Sales

139.2
7.7

Note: Consolidated net sales and consolidated operating income are actual figures
for fiscal 2012.

Billion yen

Consolidated Operating Income

1.4%
13.4%

15.6%

Construction Machinery

7.8%

Consolidated Net Sales

Consolidated Net Sales

585.9 Billion yen

Billion yen

152.8
6.1

23.8%

11.9%

Billion yen

Consolidated Operating Income

26.1%

Billion yen

Industrial Machinery
Consolidated Net Sales

69.6
5.4

4.2%
8.9%
17.9%

Consolidated
Operating Income

24.6%

31.3 Billion yen

7.7%
17.3%

Billion yen

Consolidated Operating Income

Billion yen

Ships
Consolidated Net Sales

19.5%

46.0
2.4

Billion yen

Consolidated Operating Income

Environmental Facilities & Plants

Machinery Components

Consolidated Net Sales

Precision Machinery
Construction Machinery
Industrial Machinery

Environmental Facilities & Plants
OthersSumitomo Heavy Industries, Ltd.

78.6
5.6

Billion yen

Consolidated Operating Income

Ships

10

Billion yen

Annual Report 2013

Billion yen

Main Products

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

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.

Power transmission and control equipment
Inverters

100

10

80

8

60

6

40

4

20

2

0

0
(FY)

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 cyclotrons for medical use as well as semiconductor and LCD manufacturing equipment.

Operating Income (Right scale)

08

09

10

11

12

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

160

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

160

10.0

120

7.5

80

5.0

40

2.5

In its steam turbine operations, the SHIGroup commands an overwhelmingly dominant share of the global biomass power
generation market. The Group is also themarket leader in Japan for continuous shipunloaders.

Forging machines
Material handling systems
Logistics & handling systems
Turbines
Pumps

16

120

12

80

8

40

4

0

0

-40

-4
(FY)

08

09

10

11

12

0

0
(FY)

08

09

10

11

12

100

15

80

12

60

9

40

6

20

3

0

0
(FY)

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

Ships

08

09

10

11

12

80

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.

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

08

09

10

11

12

120

16

90

12

60

8

30

4

0

0
(FY)

08

09

10

11

Sumitomo Heavy Industries, Ltd.

12

Annual Report 201311

To Our Shareholders, Customers and Employees

Yoshinobu Nakamura
Chairman(Left)

Shunsuke Betsukawa
President and CEO(Right)12

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Fiscal 2013 is the year we will stagea turnaround, breaking free from stagnant
growth and embarking on a new beginning.
As of April 1, 2013, Yoshinobu Nakamura, the former President

which we will stage a turnaround, breaking free from stagnant

and CEO, was appointed Chairman, and Shunsuke Betsukawa,growth and embarking on a new beginning. We will focus onformerly a Senior Executive Vice President, was handed the reins

solidifying our footing through sound management and by taking aas the new President of Sumitomo Heavy Industries, Ltd. In June,

hard look at reality. The Group aims to create a foundation that

we also made some changes to our team of directors. As a newleads to the next stage of growth while addressing issues to restore

management team, we are united in our commitment to overcom-

profitability, such as earnings improvement at overseas businessing the severe business environment and setting the course forbases, the restructuring of heavy machinery businesses, and thereturning the SHI Group to a growth trajectory.

launching of new products in segments that fall under the category

Toward the conclusion of fiscal 2012, ended March 31, 2013,
the outlook for the Japanese economy began to brighten some-of mass-produced machinery.
The SHI Group’s corporate mission is to contribute to thewhat with a long-awaited correction to the strong yen and aadvancement of society by providing first-class products and ser-rebound in share prices. That said, the Japanese economy as avices to its customers. Winning the enduring confidence of custom-

whole remained on an uncertain path. Overseas, there were someers worldwide is key to realizing sustainable growth and enhancing

signs that the U.S. economy was strengthening, but growth in thecorporate value, and will, in turn, enable us to better meet the

Chinese economy, which had been the driver of global economic

expectations of shareholders, customers, and employees as well as

expansion, had stalled with no recovery in sight. In Europe, econo-

the local communities in which we operate. In recent years, society

mies were destabilized by disarray in public finance and financial

has also taken up a growing interest in the corporate governancemarkets. Under these severe economic conditions, we regret toand compliance endeavors of the corporate sector. The Group hasreport that not only were we unable to achieve our initial consoli-

been stepping up its efforts to augment and strengthen its activi-

dated earnings forecasts for the fiscal year, we also posted year-on-

ties in the corporate governance and compliance fields. To this end,

year declines in both net sales and income.

the Group has appointed an external director as well as corporate

Management is still in crisis mode in view of current conditions

auditors and administers internal control systems to establish an

facing the SHI Group. We expect lackluster demand to persist, as

efficient and highly transparent management structure. Moving

our customers’ appetite for capital investment remains weak due

forward, the Group is committed to further reinforcing corporate

to the uncertain economic outlook in Japan. Overseas conditions

governance and compliance as a part of its overall efforts toare both uncertain and unstable. On the earnings front, our invest-

enhance corporate value.

ments in overseas expansion in recent years, mainly to develop seg-

As we work toward achieving our established goals, we kindly

ments falling into the category of mass-produced machinery, haverequest the continued support and understanding of shareholders,not contributed much to profits, and this has dented the profitabili-

customers, and employees.

ty of the Group. Although we have steered the right course in the
globalization of our operations, guided by current the medium-term management plan “Innovation 21,” we must now workurgently to improve earnings at overseas business bases by quickly

Yoshinobu Nakamura

turning a profit on these investments.

ChairmanFiscal 2013 will be an important year for us, as we finish thecurrent medium-term management plan and formulate the next
medium-term management plan. Our highest priority is to establish
a corporate structure that is able to generate steady profits andaShunsuke Betsukawa

put the SHI Group back on a growth trajectory from the next fiscal

President and CEO

year. Accordingly, we have designated fiscal 2013 as the year in

Sumitomo Heavy Industries, Ltd.

Annual Report 201313

Interview with the President

Providing products and services that contributeto the advancement of society
The SHI Group’s corporate mission is to contribute to the advancement of society by providing
first-class products and services to its customers. Winning the enduring conﬁdence of customers
worldwide is key to realizing sustainable growth and enhancing corporate value, and will, in
turn, enable us to better meet the expectations of shareholders, customers, employees, andlocal communities.

Shunsuke Betsukawa
President and CEO

14

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Appointment as President

Q On being appointed President, what are your aspirations?
earnings have been sluggish for several years.
A BusinessI want fiscal 2013 to be the year we turn things around.
On April 1, 2013, I assumed the roles of President and CEO, taking over thereins from the former president, Yoshinobu Nakamura.
Mr. Nakamura’s main propositions during his tenure as President and CEO
were “Globalization” and “Innovation,” and he exhibited immense leadership as he guided the SHI Group toward a growth track. I have a tremendous amount of respect for his accomplishments during his time in charge.
As I take over, I am bracing myself as there are many things that need to
be done.
Under the current three-year “Innovation 21” medium-term management
plan that commenced in fiscal 2011, we have taken the necessary steps to
implement a growth strategy for the global market, such as constructing

A Personal
History of
Shunsuke Betsukawa
President and CEO
Shunsuke Betsukawa joined SHI

new plants and expanding existing plants overseas for segments that fall inin 1978. After gaining experience

the category of mass-produced machinery as well as carrying out mergers

in the Planning & Control

and acquisitions for our European operations. Although our strategies are

Department of several businesses

moving in the right direction, these overseas investments have yet to con-and in the Corporate Planning
Department at the Head Office, hetribute to profits, and this is one factor that has undermined the profitabili-

became the General Manager of

ty of the Group. In addition, earnings have deteriorated in heavy machinery

the Corporate Administration

businesses as a result of weak demand. We have marked fiscal 2013, my first

Department in the Corporateyear as President, as the year we turn this situation around and stimulate

Finance, Accounting and
Administration Group in July 2001.

earnings growth. To this end, the Group will concentrate on solidifying its

He has worked tirelessly to over-footing through sound management as the next step to achieving new

haul poor-performing businesses,

growth. We will address issues to restore profitability, such as earnings

while collaborating with each
operating division to come up withimprovement at overseas business bases, the restructuring of heavy machin-plans to rebuild their businesses.

ery businesses, and the launching of new products. Finally, we will formu-

Thereafter, while implementing

late the next medium-term management plan to plot the path towardreforms and restructuring, hegrowth for the Group from the next fiscal year onward.

instilled a mind-set of emphasizing
business profitability among
employees throughout the SHI

Performance in Fiscal 2012

Q What is your evaluation of results for fiscal 2012?
A We regret to report that both sales and income decreased.

Group. His hobby is reading books.
The creed that he lives by ismodesty (For more details
about his personal history,
see page 46).

Macroeconomic conditions in fiscal 2012 were unstable and uncertain
both inside and outside Japan. In Japan, demand was weak on account of
subdued capital investment by corporations adversely affected by the appreciation of the yen against foreign currencies. Overseas, growth in China
remained flat, and conditions in Europe were unstable as a consequence of
disarray in public finance and financial markets. Under these economic conditions, the SHI Group realized it was falling short of its initial projections forconsolidated earnings and announced downward revisions to its forecasts
for fiscal 2012. In the end, we regrettably recorded year-on-year declines
in sales and profits. We attribute this poor performance to a weakened
business structure that is vulnerable to external factors, including foreign
Sumitomo Heavy Industries, Ltd.

Annual Report 201315

Interview with the President
currency markets and economic conditions. We are moving quickly to put
this situation behind us. In addition, in fiscal 2012, SHI posted a loss related
to the defense equipment business as an extraordinary loss for the repayment of overbilled contracts to Japan’s Ministry of Defense. The Group takes
this matter very seriously and is making every effort to ensure that this kindof incident does not recur by further strengthening compliance.

The “Innovation 21” Medium-Term Management Plan

Q Can you give us a progress report on current conditions?
SHI Group has been executing measures based
A The
on “Globalization” and “Innovation” strategies.
Expanding the Global Network
Based on our policy of “Globalization,” the SHI Group has been investing
aggressively in overseas business base expansion over the past few years.
The necessary investments have been made for the most part, and we are
now focusing on expanding production volumes, improving productivity,and enhancing quality at the newly constructed or expanded manufacturing plants overseas. Based on the concept of local production and local
consumption, we aim to locally sell products that are made locally, and conclude with robust after-sales services. At the same time, we will augment
our global network by strengthening ties among overseas business bases. In
the large-sized speed reducer business, for example, we aim to expand ourshare of the world market through stronger affiliations between our plants
in Japan, the Tangshan Plant in China, a new plant in Brazil, and Hansen
Industrial Transmissions NV, which was recently acquired in Belgium. In theinjection molding machines business, we aim to expand market share in
growing fields and regions by generating synergies through stronger ties
between our plant in Japan and the Demag Plastics Group of Germany interms of global marketing and product development. In the hydraulic excavator business, we are optimizing our global supply structure in a bid togain a larger share of potential growth markets through closer ties between
our plant in Japan, the Tangshan Plant in China, and our plant in Indonesia.

Outline of “Innovation 21”

Innovation
Innovation is essential for creating competitive advantages. The SHI Groupseeks to improve earnings power and achieve sustainable growth on a glob-

Financial targets(for Fiscal 2013)

al basis by launching innovative products that are competitive in priority

Corporate concept

Key words for growth“Globalization” and “Innovation”

Investment policy¥150.0 billion over three years

Long-term target

Achieve net sales totaling ¥1 trillion

innovative products and bringing them to market. Take, for example, thesystem, a technology that has been garnering attention as a next-generation therapeutic treatment for cancer in the medical field (For more details,
see page 29.). This marked the first time in the world that a cyclotron accelerator was used in a BNCT system, made possible by SHI’s accelerator technologies accumulated over many years. In other areas, the Group hasconcentrated on the development of “Green Products” that contribute to16

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

¥730.0 billion¥73.0 billion
10% or more

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

markets. We refer to “product innovation” as the process of developing
order we received in fiscal 2012 for a boron neutron capture therapy (BNCT)Net sales
Operating income
ROIC

Harnessing Our Growth Drivers
Establishment of Gear Speed Reducer Plant
in Brazil
In July 2010, SHI established a new speed reducer plant in Brazilthat began operations in November 2011. The plant manufactures
medium- and large-sized speed reducers for customers in the SouthAmerican area. We expect demand to grow for these products, which
are used in large cranes, cement mills, power generators, and elevators, as infrastructure investment is likely to expand in the region.
Over the past few years, we have invested in extending the global
reach of the speed reducer business, expanding our plants in China
and Vietnam in addition to acquiring Hansen Industrial Transmissions
NV. We aim to expand sales by leveraging this expanded global
network of bases.

Equipment Order Received forWorld’s Largest Boilers That Burn Tire Scrap
In June 2012, SHI received an equipment order from a South Korean company for a boiler that uses waste tires as fuel. The facility’s use of inexpensive tire scrap and low-grade coal not only keeps power generation costs
down, but also contributes to the preservation of the global environment.
The Company won the order in recognition of its technologies and extensive
track record in supplying equipment for burning waste such as biomass. The
facility will have the largest capacities in the world to incinerate tire scrap.
We anticipate growing interest in this product amid heightening concerns
for environmental preservation around the world.

New Hydraulic Excavators Offer Overwhelming
Economic Performance
In September 2012, SHI introduced a new model of hydraulic excavatorsthat complies with Tier 4 emissions regulations in Japan. The older basemodel has been awarded the Grand Prize for Energy Conservation from the
Ministry of Economy, Trade and Industry of Japan—a first for construction
machinery—and the market has highly praised its fuel efficiency and economic performance. The newer model offers 10% better fuel efficiency witha next-generation clean engine and a new hydraulic system. It is a globally
strategic model with strong functionality also in terms of operability andsafety.

Sumitomo Heavy Industries, Ltd.

Annual Report 201317

Interview with the President
the preservation of the global environment, and continues to develop
products for energy conservation and the renewable energy field. We refer
to “process innovation” as innovation activities at each stage of design,
manufacturing, sales, and services, which are undertaken Groupwide
in an aim to reduce costs and improve the capacity of our organizations.

Q Has there been any change in plans?
have not changed our basic strategy. We aim for
A We
sustainable growth on a global basis.
Fiscal 2013 is the final year of current medium-term management plan
“Innovation 21.” Although the SHI Group did not progress as far as it hadoriginally anticipated toward its numerical targets, we believe the fundamental concepts of “Globalization” and “Innovation” are still relevant. The
Group is staying true to its plans for expanding overseas, mainly in segments
under the category of mass-produced machinery. We will aggressively
expand business for our customers and international markets. Our new
medium-term management plan, which begins in the next fiscal year, willreflect the achievements we made under “Innovation 21” and changes inthe economic environment. We aim to establish global competitive advantages for the Group and enable sustainable growth.

Shipbuilding Business
management policies are in place to reverse
Q Whatthe slide in earnings at the shipbuilding business?
plan to endure the challenging conditions
A We
with a bare-minimum production structure.
The operating environment has not improved at all for the shipbuilding
business, with deterioration in market conditions, China expanding its supply capacity, and South Korea becoming more competitive. SHI has decided
on a policy of enduring these conditions until the market improves, slowing
down the pace of shipbuilding, and refusing any loss-making orders in themeantime. Based on this policy, SHI only accepted an order for one Aframax
tanker in fiscal 2012, and reduced personnel to the level where only three
ships are constructed annually, the bare minimum to keep the businessgoing. In the marine transportation market, the overcapacity in tankers,
SHI’s core business, has been on a downtrend, and tanker prices have been
on a gentle uptrend thanks to yen depreciation. However, we think moretime is needed for a full-scale recovery in prices to materialize, and look
for severe business conditions to persist. For the shipbuilding business, we
forecast an operating loss in fiscal 2013, owing to the shrinking backlogof orders for ships and declining capacity utilization. We will continue
to follow our policy in running the business, but will not resign ourselves
to more losses. We will examine our options and decide on a definite planfor the future direction of the business during fiscal 2013.

18

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Harnessing Our Growth Drivers
Plastic Injection Molding Machines Honoredwith Award for Energy Conservation
In February 2013, the SE-EV series of full-electric injection molding
machines won the 33rd Annual Most Energy-Efficient MachineAward from the Minister of Economy, Trade and Industry. The
machines cut energy consumption by 25% and reduced waste grease
volume by 50% over older models, with the use of a newly developed mechanism for the movable mold part and upgrades to thecontrol system. The machines are also easier to maintain and offer
improved operability, thereby contributing to better work efficiency.

Organizational Reforms: Two Business Integrations
In April 2013, the SHI Group underwent two major organizational reforms to reinforce operations.
The first reform was the absorption of a subsidiary that handles forging presses into the parent
company and integrating it with operations that focus on medical equipment. Its know-how gainedin large-scale machinery will be applied to the design and installation of large-scale precision equipment, such as cancer treatment systems. The second reform involved spinning off the material
handing business, which includes automated warehouses, and integrating it with a subsidiary that
handles large cranes. We expect to see synergies from the combination of software technologies,
such as automation programs, and hardware technologies for large-scale equipment.

Quantum Equipment Division
Engineering, manufacture, and sales of medical equipment,
accelerators, etc.
Industrial Equipment Division
Integrated as a new business division
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
Engineering, manufacture, and sales of press machinery,
and industrial machinery, etc.

Logistics & Parking System (LPS) Division
Engineering, manufacture, and sales of automated warehouses,
automated parking systems, etc.
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
Integrated as a new company
Sumitomo Heavy Industries Engineering and Services Co., Ltd.
Engineering, manufacture, and sales of large cranes,material handling systems, etc.
Division
Subsidiary

Sumitomo Heavy Industries, Ltd.

Annual Report 201319

Interview with the President

Outlook for Fiscal 2013

Q Please discuss your outlook for fiscal 2013.
A

We project a moderate recovery in economic conditions.
We expect an increase in business at segments fallingunder the category of mass-produced machinery.

We expect the Japanese economy to recover on the back of monetaryeasing and government measures to stimulate the economy, based on theassumption that yen depreciation will lead to an increase in exports andcapital investment. Overseas, we think uncertainties about the European
economy will prevail, but the U.S. economy has shown signs of a strong
recovery and the Chinese economy looks likely to enter a mild recovery after
a period of stagnant growth. Based on this outlook, the SHI Group estimates order receipts will reach ¥610.0 billion, net sales will reach ¥600.0 billion, and operating income will reach ¥30.0 billion. On a year-on-yearcomparison, we expect order receipts and net sales to increase owing to arecovery in market conditions for mainly segments falling under the category of mass-produced machinery. However, we expect operating income todecrease slightly compared with the previous fiscal year, as losses look likely
in the Ships segment due to a sharp drop in net sales. Although economic
conditions inside and outside Japan are still uncertain, we regard the aforementioned earnings estimates as the bare minimum that should beachieved.

Returning Profits to Shareholders
explain SHI’s policy on returning profits
Q Pleaseto shareholders.

A

SHI adheres to a policy of paying performance-linked cash
dividends for each period while working to constantly
increase returns.

SHI pays out cash dividends based on profits for each period and continually
strives to increase shareholder returns. The determination of dividends takes
into consideration a full range of factors, including the need to accumulate
and maintain internal reserves at the level required to ensure long-termand stable business development. For fiscal 2012, in line with the aforementioned policy and reflecting the Group’s earnings performance, theCompany declared an annual per-share cash dividend of ¥8, down ¥2 compared with fiscal 2011. For fiscal 2013, SHI plans to pay an annual per-share
cash dividend of ¥6, down ¥2 compared with the previous fiscal year, butdeems this level is commensurate with its present circumstances.
For fiscal 2013, our management policy is to solidify our footing throughsound management. We will make every effort to improve earnings capacity and cash flow through business restructuring, and work hard to restore
the level of dividends as quickly as possible.

20

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Special
Feature：Harnessing Our Growth Drivers

Sumitomo Heavy Industries, Ltd.

Annual Report 201321

Harnessing Our Growth Drivers

Our Workmanship in Manufacturing
Supports Manufacturing~Manufacturing Excellence Supporting Global Industries~
Conditions in the Global Manufacturing Industry and Increasingly Sophisticated Needs
The manufacturing industries in the United Kingdom, which
pioneered the industrial revolution and industrialized theworld, and in the United States, which eclipsed the United
Kingdom in terms of resources and market size, now accountfor only about 10% of their GDP. In turn, Asia has become
the epicenter of the manufacturing industry, with China rising to become the world’s largest producer of goods, and theIndustrial Production Index

manufacturing industries of South Korea, Indonesia, and(Index)other Asian countries achieving a noteworthy presence. The
emergence of these countries has expanded consumer mar-

200
180

kets and globalized competition, making it more difficult forcompanies to survive by only pursuing volume as in the past.
The manufacturing industry as a whole is now expected todeliver higher-quality products more efficiently and withlower impact on the environment.

China
RussiaUnited States

India
Indonesia
United Kingdom

South Korea
Brazil
Japan

160
140
120

Time and time again, the SHI Group has come through withthe products required by its customers and played a key rolein supporting the global manufacturers that have prospered

80

through fierce competition. The Group will continue to sup-(Year) 2004

port manufacturing in a broad range of industry around theworld, responding to the latest, constantly advancing needsof its customers with insight and innovation.

22

100

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

2005

2006

2007

2008

2009

2010

2011

Note: Index data presents the balance of industrial production in 2005 for each country as
100.
Source: Excerpt from materials issued by the United Nations. Data prepared by the
NATIONAL BUREAU OF STATISTICS, CHINA in the case of China

A History of Reliability:
CYCLO® Drive Speed Reducer
Speed reducers are equipment that reduces the rotational speed of
motors to optimal speeds while boosting torque. They are used in a wide
variety of machinery, including robots, factory conveyor lines, pumps, andagitators. Most typical speed reducers use gears, and each tooth of thegear is subject to strong forces that can cause abrasion and fractures of
the teeth. Using proprietary wave-shaped configuration, SHI’s CYCLO®
Drive is engineered so that impact loads are dispersed and absorbed bymany teeth of a gear at once, making them more compact, one of theirbest features. Since its release more than 70 years ago, CYCLO® Drive has
driven growth in the market from an undisputed position of excellence.

EEfficient Unloaders for Ship Unloading Operations in Ports
LLarge cranes are used to unload cargo from ships docked in port. Cranes used to moveccoal, iron ore, and similar bulk cargo are called unloaders. SHI has been a pioneer in
unloaders, always standing on the front line of workmanship in their manufacturing.
u
Our continuous unloaders boast a maximum capacity of 3,500 tons per hour usOusing anefficient system of continuously rotating buckets toeunload cargo. The Company continues to advance itsuunloaders by proactively integrating new technologies,s,such as inverter control systems that help conserve enerergy and overload protection systems that reduce frictionnand prolong the useful life of the unloader.

Injection Molding Machines with Zero Defects,
Zero Loss, and Zero Faults
Injection molding machines are irreplaceable in the production of plastic products. Our Zero-molding® concept looks at taking the efficiency of producing
molded products to the extreme by solving problems on the production floor. It
improves filling balance while enabling low-pressure filling, eliminates molding
defects, prolongs the useful life of molds by eliminating unnecessary moldclamping force, and lightens workloads with a simple control interface. In recognition of these achievements, our plastic injection molding machines havebeen honored with the Most Energy-Efficient Machine Award from the
Minister of Economy, Trade and Industry. Our cutting-edge precision molding
technologies have contributed to technological innovation in various fields.

Sumitomo Heavy Industries, Ltd.

Annual Report 201323

Harnessing Our Growth Drivers

Technologies of the Future~Opening the Way to Future Technologies~
Helping to Solve World Problems
There are an almost endless number of world problems waiting

manufacturing, will play a crucial role in being able to achieve

to be solved. We believe it is our mission to take on some ofabundant lifestyles and a sustainable society at the same time.

these world problems, such as addressing the ageing of society

At the SHI Group, we are working to help solve the challenge

in advanced countries, such as Japan, and environmental prob-of building a sustainable society by supporting society withlems, such as global warming, that are linked to manufactur-a broad array of cutting-edge technologies in the fields

ing. Scientific advancement, such as in medicine andof medicine, the environment, and aerospace, among others.

Worldwide CO2 Emissions*

Elderly Population Percentages and Projections(people 65 and older)

South Africa 347(%)

Australia 383
Brazil 388
Indonesia 411
Mexico 417
Saudi Arabia 446
Islamic Republicof Iran 509
Canada 537
Republic of Korea 563
Japan 1,143

40

Others6,327

Total
of emissions
from each country

30,276
millions of
tons
RussianFederation
1,581 India
1,626

China
7,259

35
30
25

The UnitedStates ofAmerica
5,369

EU
2,972

20

Japan
Republic of Korea
Singapore
EuropeSwedenChina
The United States of America
World Average

15
10
5
0

Sources: Based on data from Ministry of the Environment and International Energy Agency(IEA)’s 2012 edition of CO2 Emissions from Fuel Combustion* Emission units are in millions of tons of CO2 attributed to energy usage and are rounded
down, so their totals may not add up to 100%.

24

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

(Year)

1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: Prepared from United Nations materials

Steam Turbines Contributing to Society and
the Global Environment
Steam turbines convert high-temperature and high-pressure steam generated by boilers into rotational energy as the steam pushes the turbine blades. The slightest misalignment or damage can spell adisastrous end to the life of a turbine spinning at high speeds underharsh conditions. An unparalleled level of attention to detail is essential in the manufacture of steam turbines. Over the past few years, SHI’s
steam turbines have been recognized for their reliability throughout
Southeast Asia, leading to several deliveries to biomass power generation facilities. In addition, we expect demand to increase for moreefficient power generation systems that incorporate gas turbines.

Proton Cancer Therapy Systems Advancethe Field of Medicine
Contrary to x-rays, proton beams can release a large amount of energy at a
specific position inside a human body, and then dissipate. Our proton cancer
therapy systems take advantage of this characteristic of proton beams to only
treat cancerous areas without harming healthy cells. The system consists of acyclotron accelerator that accelerates the protons, a beam transmitter that sends
the accelerated protons to the operating room, and gantry irradiation equipment that irradiates protons from a discretionary angle. This kind of system
requires technologies and know-how for precisely manipulating large-scale structures. SHI has continued to diligently advance its proton cancer therapy systems
since the first delivery was approved as medical equipment in Japan in 1998.

Unraveling the Mysteries of Outer Space with Cryocoolers
Cryocoolers are able to reach temperatures close to absolute zero (-273 degrees C). SHI is theworld’s leading maker of cryocoolers. Cryocoolers are used in some unusual applications, such aslarge-scale radio telescopes like the ALMA (Atacama Large Millimeter/submillimeter Array) telescope installation. To increase the reception capabilities of radio telescopes, sensors must becooled to extremely low temperatures, and thermal noise generated by variations in temperaturemust be reduced as much as possible. Even one internal wire can be a heat source in the world of
ultra-low temperatures. For the ALMA telescope installation, the Company has taken steps toimprove the structure of cooling equipment and systems to optimize cooling performanceand through a trial-and-error process to reduce noise. These efforts have helped clear
the stringent specification requirements of the ALMA telescope installation. This
accomplishment truly showcases the unique technologies developed by the Company.

Sumitomo Heavy Industries, Ltd.

Annual Report 201325

Review of Operations

26

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Review of Operations

Machinery
Components

Main Products

Major Applications/Markets

Power transmission
and control equipment, Inverters

Factory automation machinery, Industrial robots, Machine tools, Conveying andlogistics 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
General instability continued to mark the business environment
throughout fiscal 2012. This was largely attributable to appreciationin the value of the yen, the issue of fiscal reconstruction in Europe anda slowdown in the rates of economic growth in emerging countries
including China. Looking at fiscal 2013, such factors as economic stimulus measures in Japan and continued weakness in the value of the yen
are expected to have a positive effect. At the same time, demand particularly in the area of infrastructure investment is projected to be firm.
This will include resource infrastructure-related investment by developed countries in such fields as shale gas, energy resource developmentby newly emerging nations and activities in connection with environmental measures. Taking into consideration these circumstances together with the forecast positive turnaround through the Euro region fromthe second half of 2013, expectations toward the future are high.

Fiscal 2012 Review and Topics
Based on the anticipatory investment including factory construction
undertaken in newly emerging economies, the SHI Group focused on
expanding sales in such countries as Vietnam, China and Brazil. At thesame time, energies were channeled toward boosting global sales aswell as marketing activities in resource-rich countries with a particularemphasis on Australia and South Africa. This was especially the casegiven the effects of acquisition of Hansen Industrial Transmissions NV.
In addition, steps were taken to further reinforce the Group’s businessdevelopment activities in an effort to maximize the benefits to accrue
from a global network of bases that boast factory capabilities. In specific terms, the Group relocated to a new factory in Mexico in March
2012, which entailed increased production capacity. Moreover, a newsales base was established in Guatemala. From a new product perspective, we launched the SCC series of crane hoist gearbox units.

Fiscal 2013 Strategies and Initiatives
The SHI Group plans to optimize its supply chain that links manufacturing bases and the Group’s global marketing network in an effort toensure the stable supply of products and actively bolster its sales andafter-sales service systems. Furthermore, we will work to ensure thetimely supply of our abundant existing and new products that havebeen boosted by the addition of Hansen Industrial Transmissions NV inorder to accurately address the increasingly diverse needs of the global
market. Harnessing our comprehensive capabilities, we will endeavor tosecure a leading market share. Turning to conditions in Japan, we willtake the necessary steps to comply with high efficiency motor standards
and regulations while making every effort to further bolster our costcompetitiveness.

Fiscal 2012 Segment Results
The downturn in European markets and poor sales of gearboxes tothe resources and energy sectors resulted in a decline in both sales
and orders.

As a result, total segment orders were ¥89.2 billion, a 6% decrease
compared with the previous fiscal year. Sales were ¥91.2 billion, down
2% year on year, and operating income was ¥2.8 billion, a drop of 35%.

Orders

Sales

Operating Income(¥ Billion)
100(¥ Billion)
100(¥ Billion)
8

80

80

60

60

40

40

20

20

0

0
(FY)

10

11

12

13 Forecast

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

6

6.0

4

4.0

2

2.0

0

0
(FY)

10

11

12

13 Forecast

(%)
8.0

(FY)

10

11

12

Sumitomo Heavy Industries, Ltd.

13 Forecast

Annual Report 201327

Review of Operations

Precision
Machinery

Main Products

Major Applications/Markets

Plastic injection molding machines

Electronics, Electric equipment, Automobiles, Containers,
Medical equipment

Cyclotrons for medical use,
Ion accelerators

Medical equipment, Research

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

Semiconductors, LCDs

Cryogenic equipment

Medical equipment, Aerospace development

Precision forgings

Jet engines for airplanes, Turbines for power generation

Defense equipment

Defensemolding machines which were released in 2012 won Japan’s Minister

Plastic Machineryof Economy, Trade and Industry Award in the category of Most Energy-Market Environment

Efficient Machine. The SE-EV series is the result of a natural progression

Both the economic environment in Europe and the status of growthin the evolution undergone by the SE-DUZ series of products, whichinvestment in emerging countries remain shrouded in uncertainty. On a

attracted wide acclaim. This new lineup achieves precise and stablebrighter note, automobile-related capital expenditure continues unabat-moldings at an even higher level while significantly contributing to

ed predominantly in North America and Southeast Asia. IT-related capi-

improvements in the productivity of molded products.

tal investments particularly in the areas of smartphones and tablet PCs
in East Asia are projected to fuel ongoing demand. Taking each of the

Fiscal 2013 Strategies and Initiatives

aforementioned factors into consideration, market trends are expected

The SHI Group will build on its base of full-electric injection molding

to remain in line with those experienced during the previous fiscal year.

machines to provide a full lineup of products that best fit the needs ofcustomers in each field. At the same time, we will work to enhance

Fiscal 2012 Review and Topics

functionality. Working in partnership with the Demag Plastics Group in

Orders received were robust during the first half of fiscal 2012 due

Germany, acquired in 2008, we will utilize our global sales service net-mainly to the upswing in reconstruction demand following the floods

work to accelerate the pace of global market development includingin Thailand. In contrast, orders received fell substantially below expecta-

Europe, the United States and Asia. We will strengthen both producttions for the second half. This was largely attributable to the dramaticcompetitiveness and marketing capabilities with an eye firmly placed ondrop in demand in Europe and China reflecting sluggish economic

securing the top position within the injection molding machine industry.

conditions throughout Europe and the overall negative impact ofanti-Japanese demonstrations in China. During the fiscal year underreview, the Group’s new model SE-EV series of full-electric injection

Product Topics
Zero-molding® Innovation
In the field of precision molding, micro-unit precision is required and even slight
distortions may be unacceptable. The SE-EV series of products enable molding witha smaller amount of clamping force by controlling the injection screw andeliminating burrs and short shots, while detecting the optimal mold clamping force.
Moreover, postural change at the time of clamping has been reduced by more than
75% compared with existing models through continuous modifications to theclamping mechanism, dispersion of the reaction force from molded components,
and improving movable systems.

28

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Full-electric injection
molding machinesFiscal 2012 Segment Results
With respect to the plastics machinery business, weak sales to the electronic and electrical sectors in Japan and other parts of Asia resulted ina decline in both orders and sales.
Orders and sales in other businesses in this segment also declined ascompared to the previous fiscal year. This was largely attributable tosluggish trends in electronics-related product fields.
Orders(¥ Billion)
150

As a result, total segment orders were ¥134.4 billion, down 7% year
on year. Sales came to ¥139.2 billion, a decrease of 3% compared withthe previous fiscal year, and operating income fell 39%, to ¥7.7 billion.

Sales
Plastics Machinery

Precision Equipment and Others(¥ Billion)
150

Operating Income
Plastics Machinery

Precision Equipment and Others(¥ Billion)
12.5

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

(%)
10.0

120

120

10.0

8.0

90

90

7.5

6.0

60

60

5.0

4.0

30

30

2.5

2.0

0
(FY)
10
10
11
12
13 Forecast(FY)* Forecasts for fiscal 2013 have been adjusted in line with the reclassification of business segments.
0

0

0
11

Precision Equipment and Others

12

13 Forecast

(FY)

10

11

12

13 Forecast

4KGM cryocooler. During the fiscal year under review, we upgradedand expanded our lineup of laser system drills in our semiconductor-

Market Environment

and electronics-related equipment activities as a part of efforts to

The semiconductor and IT-related electronics equipment markets incultivate new markets.

Japan continue to confront sluggish conditions. In contrast, the market
for cryocoolers generally sold to medical institutions and laboratories

Fiscal 2013 Strategies and Initiatives

is stable with expectations that demand will continue going forward.

The cryocoolers market is forecast to remain stable. Moving forward,

Cancer diagnostic and treatment equipment are exhibiting robust trends

we will strengthen our marketing structure and take steps to cultivate

overseas including in Asia, Europe, and the United States. Following

new demand. In the field of semiconductor- and electronics-related

a reorganization of SHI’s business, this equipment will be incorporated

manufacturing equipment, the IT device market, which includes smart-

into the Industrial Machinery segment from fiscal 2013.

phones, is expected to periodically experience dramatic fluctuation. We
will maintain a keen eye of demand trends and work to expand sales

Fiscal 2012 Review and Topics

of related equipment focusing mainly on Asia. Turning to products

The SHI Group received an order for its BNCT next-generation cancer

that fall into the category of such core semiconductor components

treatment system from a private hospital. The Group’s BNCT system is

as ion-implantation systems, we will strive to enhance quality stability

the first in the world to employ a cyclotron accelerator and showcases

while bolstering marketing activities overseas. The Group will also pay

the Group’s outstanding technological capabilities. At the same time,

careful attention to new energy fields including photovoltaic and sec-

we have also received a substantial number of inquiries regarding ourondary cells, which are expected to experience growth, and work

proton therapy systems. In addition to firm trends in orders received for

to cultivate new markets.

cryocoolers used in magnetic resonance imaging (MRI) equipment, theGroup marked another milestone with the release of a new model

Product Topics
Irradiating with a thermal neutron
ray induces boron fission

World’s First Accelerator Based Boron Neutron
Capture Therapy (BNCT) System Ordered for a Hospital
BNCT is a therapy that selectively destroys only those cancer cells
that have been injected with boron by applying a minute amountof neutrons in the boron-injected cancer cells. Conventional BNCT
therapies use neutrons taken from experimental reactors, but the Group
has successfully developed a BNCT accelerator that has allowed it to conduct the world's first clinicalexperiments using an accelerator. With the accelerator, therapy equipment can now be installed ingeneral hospitals.

Cancer cells that have been injectedwith boron are selectively destroyed

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

29

Review of Operations

Construction
Machinery

Main Products

Major Applications/Markets

Hydraulic excavators

Construction, Civil engineering, Scrap, Forestry

Mobile cranes

Construction, Civil engineering

Road machinery

Roadway construction

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

measures were put in place to manufacture components for shipment
to Japan. In similar fashion, energies were channeled toward expanding
sales in Thailand and Malaysia in the ASEAN region to ensure the ongo-

Market Environment

ing operation of the Indonesia Plant amid a downturn in domestic

Trends in the markets for hydraulic excavators in Japan and North

demand from the second half.

America were firm throughout fiscal 2012. In China, the world’s largest

Turning to new products, SCM announced details of nine newmarket for such equipment, however, growth was sluggish with an eco-models of hydraulic excavators that comply with Japan’s interim Tier

nomic slowdown. Also, the Indonesia market slowed down in the sec-

4 emissions requirements. In addition to realizing a 10% improvement

ond half. Taking into consideration moves to expand facilities at thein fuel efficiency compared with existing models, the new lineup main-Tangshan Plant in China, and production adjustments at the Indonesia

tains the established reputation for safety with the Field View Monitor

plant, efforts to develop SHI’s global business through its three core

(FVM®), which provides a 270° wide field of view, a standard feature.

plant structure were hindered by the severe operating environment.

Through these means, we are bolstering the competitiveness of our
products.

Fiscal 2012 Review and Topics
In the hydraulic excavator business, results benefited from such positive

Fiscal 2013 Strategies and Initiatives

factors as reconstruction demand in Japan following the earthquake

In Japan where reconstruction demand is forecast to remain firm, we

disaster and an increase in shipments to North America. In contrast,

will expand sales by releasing hybrid excavators that harness the lead-the volume of units sold in China, the world’s largest market, was cut

ing-edge technologies and bolstering our lineup of products that comply

in half compared with the previous fiscal year. Shipments from thewith interim Tier 4 emissions requirements. Outside Japan, we will focus

Group’s network of three plants also declined around 15% year on

on further developing our business in the North American and ASEAN

year. In an effort to offset the drop in production at the China plant,

markets, which remain firm, on the strengths of our productProduct Topics
Hybrid Excavator
Sumitomo (S.H.I.) Construction Machinery Co., Ltd. will begin sales of hybrid
hydraulic excavators in the autumn of 2013. Power generated by deceleration inswinging maneuvers is converted to electricity and used to support engine output.
This system offers a further 10% reduction in fuel consumption compared with thealready stellar fuel performance of our base model. Moreover, we have attached abucket that is one-size larger than other models in the same class and have also
dramatically raised its work efficiency.
Hybrid excavator

30

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Fiscal 2012 Segment Results
Although market conditions in Japan were firm, the worsening conditions in the Chinese market resulted in both a decline in sales andorders in the hydraulic excavator business.
On the other hand, the mobile crane business posted improved figures for both orders and sales on the back of sound market conditionsin North America.

As a result, total segment orders were ¥151.2 billion, a 7% year-onyear decrease, sales were ¥152.8 billion, down 4%, and operating
income was ¥6.1 billion, a decline of 26%.

Operating Income (Left scale)

Sales

Orders(¥ Billion)
180

Excavators, Road Machinery

Mobile Cranes

Operating Income(¥ Billion)
180

Excavators, Road Machinery

Mobile Cranes(¥ Billion)
9.0

Operating Income Margin(Right scale)

(%)
6.0

150

150

7.5

5.0

120

120

6.0

4.0

90

90

4.5

3.0

60

60

3.0

2.0

30

30

1.5

1.0

0
(FY)

10

11

12

13 Forecast

0

0

0
(FY)

10

11

12

13 Forecast

(FY)

10

11

12

13 Forecast

development capabilities while keeping a keen eye on the status of mar-all market segments increasing. The Latin American market continued

ket recovery in China. In addition, we will look to enter overseas asphalt

to grow and Link-Belt increased sales into this region in fiscal 2012.

paver markets in our construction machinery business activities.

Link-Belt increased international sales in line with long-term strategic
goals. Link-Belt introduced two new models at CraneFest held onsite
in September 2012, a new 80 ton rough terrain crane and a new 200

Mobile Cranes
Link-Belt Construction Equipment Company, L.P., LLLP

ton lattice crawler crane. Link-Belt continued the Lean Sigma® initiatives

Market Environment

Fiscal 2013 Strategies and Initiatives

The North American crane market continued to recover in fiscal 2012.

The sales orders and backlog have continued to increase as demand in

Link-Belt was positively impacted by the continued strong activity incertain market segments has continued to grow. Link-Belt strategies foroil and gas exploration and dealers increasing their rental fleets. The

fiscal 2013 will be focused on increasing production to meet customer

Latin American and Far East markets provided additional sales anddemand, the continued implementation of Tier 4 engines to meet EPA

the Oceania market remained strong.

requirements, further expansion in the international markets, maintain-

and the development of new products to support future sales.

ing new product development timelines and continued support of the

Fiscal 2012 Review and Topics

Lean Sigma® activities. The continuing strength of Link-Belt is the intro-

Link-Belt recorded a 30% increase in sales in fiscal 2012 as a result of

duction of new models that meet and exceed the requirements andthe continued improvement in the North American crane market andexpectations of the customers.

increased sales into the Latin America and Far East markets. The North
American mobile telescopic and crawler crane markets increased
approximately 41% following a 73% increase in fiscal 2011, with

Product Topics
50th Anniversary of Technical Alliance with Link-Belt
SHI and Link-Belt Construction Equipment Company formed a technical alliance in
1963, and this year marks its 50th anniversary. Link-Belt became an affiliate of SHI in
1986, and we have shared a long history together. Chuck Martz, the chairman of LinkBelt, is not just involved in one business, but helps produce synergistic effects throughout our business. He was appointed as the first non-Japanese executive officer of theCompany in 2009. The Company will work hard to build excellent relationships of asimilar nature with other companies with which we have recently partnered.
Rough terrain crane

Sumitomo Heavy Industries, Ltd.

Annual Report 201331

Review of Operations

Main Products

Industrial
Machinery

Major Applications/Markets

Material handling systems

Iron and steel, Electric power, Shipbuilding, Port logistics

Turbines

Power generation

Pumps

Oil and gas refinery facilities and equipment

Forging presses

Automobiles, Iron and steel, Non-ferrous metals

Logistics system

Logistics

Forging Presses and Industrial Machinery
Market Environment

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

The volume of automobile sales is increasing particularly in Southeast
Asia. At the same time, there are clear indications of a recovery inMarket Environment

North America. In each of these regions, a succession of automobile

Against the backdrop of a downturn in the value of the yen and amanufacturers is making plans to increase local production. On thissteady increase in stock prices, there are indications that a portion ofbasis, expectations of new capital investment in forging presses

the materials handling systems market is entering a period of recovery.

are high.

Taking these factors into consideration, an upswing in capital investment is expected to emerge. The logistics facility market in Japan is

Fiscal 2012 Review and Topics

forecast to remain firm while demand in Asia is projected to expand.

The FPR series, which is distinguished by its compact size, and sold

Despite persistently harsh conditions in the automated parking systems

to the overseas bases of Japanese companies, continues to be wellmarket, positive signs of a turnaround are beginning to appear.

received. Buoyed by this solid reputation, orders grew. Acknowledging
the high level of technology, orders were also received for the FPW

Fiscal 2012 Review and Topics

series from local overseas companies. Moreover, the servo-driven press

The SHI Group incurred the cancellation and postponement of certainFPS series and large forging press FPA series continued to attract robust

projects in its materials handling systems business. On a more positive

demand.

note, the Group secured orders for such products as continuous
unloaders for the coal used to generate electric power and ladle cranes

Fiscal 2013 Strategies and Initiatives

for the electric furnace industry. Orders were also received for factory

The SHI Group reorganized its press marketing activities into domestic

automation (FA) equipment used in film as well as battery plants andand overseas operations. In addition to integrating the former

large-scale distribution centers for mail-order businesses. Trends in

Quantum Equipment Division, which mainly handles medical equip-

automated parking systems were robust with orders received exceeding

ment, these operations are now undertaken by the Industrial

plans.

Equipment Division. In our domestic marketing operations, we provide
optimal products for use as equipment at the overseas business bases

Fiscal 2013 Strategies and Initiativesof Japanese companies. In this manner, we take steps to expand sales

In its materials handling systems business, the SHI Group will engage

mainly in Southeast Asia and North America. In our overseas marketingin marketing activities that help strengthen ties with existing customers

operations, we will work to promote sales in North America and China

and cultivate new customers. In this manner, the Group will look toby responding to the needs of local companies in a timely manner

expand the volume of orders received. At the same time, every effort

while utilizing the overseas business bases of new business divisions.

will be made to bolster proposals in the services business in order toTurning to medical equipment, we will focus on advancing sales ofincrease the Group’s market share. In our logistics facilities business inleading-edge cancer therapy equipment mainly overseas.

Japan, we will take steps to further expand activities in the lithium-ion
battery and other robust growth industries. In both our logistics facility

32

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Fiscal 2012 Segment Results
In the turbine and pump business, orders fell compared with the previous
fiscal year mainly because of worsening market conditions in Southeast
Asia. However, sales increased year on year, mainly because orders outstanding from previous periods were carried forward.

The material handling systems posted a decline in both orders and sales as
demand from the domestic steel and shipbuilding sectors remained weak.
As a result, total segment orders were ¥63.6 billion, a 9% year-on-year
decrease. Sales declined 14%, to ¥69.6 billion, and operating income
dropped 44%, to ¥5.4 billion.

Orders

Sales

Operating Income(¥ Billion)
80(¥ Billion)
80(¥ Billion)
12

60

60

40

40

20

20

0
(FY)

10

11

12

13 Forecast

10

Operating Income (Left scale) (%)
18.0
Operating Income Margin(Right scale)
15.0

8

12.0

6

9.0

4

6.0

2

3.0
0

0

0
(FY)

10

11

12

13 Forecast

(FY)

10

11

12

13 Forecast* Forecasts for fiscal 2013 have been adjusted in line with the reclassification of business segments.

and automated parking system endeavors, we will work to upgrade thethe Group won an order for a local sugar refinery project. Taking fullfunctions of existing equipment while reinforcing the services business.

advantage of the market launch of high-efficiency long blade turbines in

Outside Japan, we will move to expand sales in the priority regions of2011, we also secured our first order from a plywood company in Chile.

East and Southeast Asia.

In pumps, the Group’s track record and quality services provided byengineers in the United States attracted wide acclaim. This led to an oil
refinery project order in New Zealand from a U.S.-based EPC company.

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

Fiscal 2013 Strategies and Initiatives
Activities in newly emerging country markets are expected to feel theMarket Environment

weight of prolonged economic stagnation in Europe. In turbine opera-

Newly emerging regions such as Southeast Asia are showing signs oftions, on the other hand, we will focus on securing orders in Southeast

slowdown in their rates of economic expansion due mainly to cutbacks

Asian markets by expanding the range of long-blade models that lever-in investment activity on the back of the financial crisis in Europe. On aage our key technology development capabilities and realize increased

positive note, there are indications of an increase in new investment inefficiency.

Japan owing to the implementation of a fixed-price renewable energy
feed-in tariffs (FIT) purchase scheme.

We will strengthen our marketing research in pumps to cultivate
markets and customers. At the same time, we will further enhance
our marketing prowess.

Fiscal 2012 Review and Topics
In its turbine operations, the SHI Group established a local subsidiary inThailand in July 2012. Thanks largely to the support of this subsidiary,

Product Topics
Servo-Driven Presses
Servomotor-driven forging presses are controlled by a servomotor with the motor movement directly driving the dies. As the pressing rate and slide motion are controllable,moldability is dramatically improved. Moreover, the press combines a main slide alongwith a hydraulic servo double-acting unit that operates the upper and lower dies
respectively, thus enabling higher precision stamping. SHI has delivered a cold forging
servo press with a pressing capacity of 1,200 tons, the world’s largest class.
Servo-driven presses

Sumitomo Heavy Industries, Ltd.

Annual Report 201333

Review of Operations

Ships

Main Products

Major Applications/Markets

Ships

Marine transportation

positive results of the fiscal year under review. In addition, we positioned fiscal 2012 as an important year in which we built robust personnel and manufacturing systems that are capable of overcoming any
difficult period starting from fiscal 2013.

Ships
Sumitomo Heavy Industries Marine &Engineering Co., Ltd.
Market Environment
While the tonnage of new ships completed decreased after the peak in
2011, the demolition of aged ships which are of poor fuel efficiency
and no longer conform to regulations and market requirements, isbeing accelerated. Despite these trends, however, it seems to take moretime to solve the current over-tonnage conditions. In the meantime,
benefiting from depreciation of the yen from the second half of theprevious fiscal year, which has enhanced price competitiveness, theJapanese shipyards, with outstanding technologies, are making efforts
to overcome this difficult situation by developing new energy-saving
products complying with new environmental requirements.

Fiscal 2013 Strategies and Initiatives
In fiscal 2013, the market for the Japanese shipyards is expected to be
more positive. This is largely attributable to the further depreciation of
the yen and customers’ expectations for high-quality, energy-saving vessels, etc. Moreover, it is anticipated that the transportation of crude oiland petroleum products may change due to such factors as the shalegas revolution in the United States. Looking ahead, the SHI Group will
overcome severe market conditions by focusing on the development of
new products which accommodate the changes in market conditions
and by strengthening sales activities to secure orders.

Fiscal 2012 Review and Topics
The SHI Group secured an order for one new ship—the newly developed Aframax tanker with improved fuel efficiency. Impacted by aslowdown in construction, the number of ships delivered was five,down by two vessels compared with the previous fiscal year. On theother hand, improvements in productivity through various activities
such as the Toyota Production System (TPS) have contributed to the

Fiscal 2012 Segment Results
Although market conditions remained weak in the Ships segment asthey were a year ago, during the fiscal year under review, the numberof new ship orders received increased to one, compared with no orders
in the previous fiscal year. Furthermore, in terms of sales, five vessels

were delivered, two fewer than the previous fiscal year’s total.
As a result, total segment orders were ¥12.3 billion, an 82% increase
year on year. Sales were ¥46.0 billion, down 21%, and operating
income decreased 78%, to ¥2.4 billion.

Orders

Sales

Operating Income(¥ Billion)
20(¥ Billion)
60(¥ Billion)
12

50

9

45

40

6

30

30

3

15

20

0

0

10

-3

-15

Operating Income (Left scale)Operating Income Margin (Right scale) (%)
60

15

10

5

0

0
(FY)

34

10

11

Sumitomo Heavy Industries, Ltd.

12

13 Forecast

Annual Report 2013

-30

-6
(FY)

10

11

12

13 Forecast

(FY)

10

11

12

13 Forecast

Environmental
Facilities& Plants

Main Products

Major Applications/Markets

Power generation systems

Power generation, Paper manufacturing, Steelmaking

Industrial 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
Market Environment
Activity is relatively brisk in connection with plans to promote biomass
power generation in Japan. This reflects the implementation of a fixedprice renewable energy feed-in tariffs (FIT) purchase scheme and is
expected to boost the use of wood-based biomass fuels that utilize
forest waste and other residual materials. There are also signs thatindependent power producers (IPPs), who continue to pursue power
generating projects, the paper and pulp industry, steel industries andother business entities are expected to carry out investment plans.
Overseas, power generation demand throughout the ASEAN regionand other newly emerging nations is vigorous. An upswing in capital
investment is forecast in such areas as infrastructure development
where IPPs and other business entities are working to resolve the shortfall in power supply, industrial power generation facilities including
in-house power generation, and expenditure reflecting the growing
spread of renewable energy power generation as a result of the FIT
scheme and efforts to reduce CO2 emissions.

Fiscal 2012 Review and Topics
In power generation systems that employ the SHI Group’s mainstay circulating fluidized-bed (CFB) boilers, the Group received a total of fiveorders from Japan and overseas. The orders received in Japan convert
the newly developed core product of a compact 5MW as well as small-and medium-sized 25-50MW CFB boiler power generation systems.
The compact CFB boiler power generation system utilizes forestry waste
and other residual materials and is therefore contributing to the application of wood-based biomass resources. This first unit was the inaugural biomass power generation system to receive certification under the
FIT scheme in Japan. In addition, we received an order for two units
with a power generation capacity of 30MW each from PT ANTAM(Persero) Tbk in Indonesia. This order is a reflection of the high esteem
in which our products and technologies are held.

Fiscal 2013 Strategies and Initiatives
Buoyed by the impact of the FIT scheme on renewable energy activities
in Japan, we will continue to move aggressively into the biomass power
generation field and primarily in the area of CFB boilers. Outside Japan,
we will focus on expanding sales of CFB boilers that utilize low-grade
coal and biomass-based fuels throughout the ASEAN region with aparticular emphasis on Indonesia and Malaysia.

Water and Wastewater Treatment Plants
Sumitomo Heavy Industries Environment Co., Ltd.
Market Environment
Market conditions in Japan remain harsh due to prolonged market
stagnation in the private sector. By industry, SHI’s principal food

Product Topics
Compact CFB Boiler
Existing boiler models have a power generation capacity of 15MW and above and aretargeted for private industrial power generation use in medium-sized to large plantsthat require reasonable amounts of power. This model, with a power generation capacity of approximately 5MW, offers power generation wherever such power generation isrequired. The basic design has been standardized creating a modular structure, which
has in turn eliminated local welding and assembly work as much as possible. As aresult, the entire process and construction expenses have been reduced.

CFB boiler

Sumitomo Heavy Industries, Ltd.

Annual Report 201335

Review of Operations

Fiscal 2012 Segment Results
Orders increased in the energy plant business, mainly because of the highlevel of activity in the domestic biomass-fueled power generation boiler
market as well as the large-scale project for a private power generating
facility for a mine in Indonesia. On the other hand, sales fell mainly becauseof the low number of orders carried over from previous periods.

The water treatment plant business saw a decline in both orders andsales as overall market conditions remained weak. As a result, total segment orders were ¥91.4 billion, a 7% increase year on year, sales were
¥78.6 billion, down 2%, and operating income was ¥5.6 billion.

Orders

Sales

Operating Income(¥ Billion)
100(¥ Billion)
100(¥ Billion)
8

80

80

60

60

40

40

20

20

0
(FY)

10

11

12

13 Forecast

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

6

6.0

4

4.0

2

2.0

0

0

0
(FY)

10

market is relatively stable. Expectations are limited, however, insteel-related activities. The materials industry is forecast to boost
investments aimed at reducing costs. The electronic industrial
machinery sector is projected to enjoy a modest performancerecovery on the back of the weak yen. Turning to the public sector,
the scale of the market is showing signs of a slight contraction andthe prevailing conditions of an increase in the rate of sewage system penetration and a decline in the population. Investments
aimed at renewing aging facilities are playing a prominent role. At
the same time, expenditure designed to improve energy efficiency
and reduce operating costs is on the rise. Looking at overseas markets and especially Southeast Asia, expectations are high toward
investments by Japanese companies aimed at increasing the performance of wastewater treatment facilities and rationalization.

Fiscal 2012 Review and Topics
In the private sector, market conditions in the steel, paper andpulp, and electrical industries, mainstay areas in which the SHIGroup operates, were harsh particularly in the area of manufacturing. Against this backdrop, the Group took steps to bolster its networks with internal and external partners. These efforts bore fruitwith a large-scale order received from a steel company. In the public sector, orders declined in Japan on the back of a market correction following the surge in reconstruction demand following the1112

13 Forecast

(%)
8.0

(FY)

10

11

12

13 Forecast

earthquake disaster in 2011. Under these circumstances, we
focused on expanding sales of unit-type equipment and worked toenhance proposal capabilities with respect to general evaluation
systems, which are experiencing an upswing, as well as company
evaluation points.

Fiscal 2013 Strategies and Initiatives
Moving forward, the SHI Group will place particular weight on
reducing costs. Positioning the Toyota Production System (TPS) at
the heart of its activities, the Group will work to build in quality
and costs through such endeavors as upgrading construction methods, shortening onsite construction periods, and establishing new
pipework modules. In addition, we will emphasize innovation in
our production technologies and design operations while focusing
on such activities as the promotion of overseas procurement. We
will then move to strengthen product development capabilities. We
will integrate the development divisions that had previously beenclassified separately into private- and public-sector activities in a bid
to further accelerate the pace of development. In promoting overseas sales, we will work quickly to establish a base in China andcultivate new markets in line with the growing transfer of manufacturing facilities to Southeast Asia by Japanese companies.

Product Topics
Superfine-Bubble Membrane Tube Diffuser “MICRAS®”
Superfine-bubble membrane tube diffusers are used as aeration systems at sewage
treatment facilities that supply oxygen to microbes and purify water. MICRAS® efficiently supplies oxygen with superfine bubbles and can reduce power consumption.
Another key feature is its ease of maintenance and compact structure. Last year, wedelivered a unit for use in a sewage treatment plant in Tokyo with a capacity of
80,000 kiloliters per day. Please look forward to our development of products foruse in even larger treatment facilities.

36

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Superfine-bubble membrane tube diffuser “MICRAS®”Overview by Geographical Area

Fiscal 2012 Results
While there remains little room for complacency with respect to the SHI Group’s operating environment due to such factors as the ongoing
effects of the financial crisis in Europe, signs of an improvement are beginning to emerge on the back of a firm recovery trend in the U.S.
economy together with a modest pickup in economic growth in China. Despite these favorable factors, market conditions as a whole remain
weak. Turning to results in fiscal 2012, the Group posted overseas sales of ¥308.8 billion, a year-on-year decrease of ¥19.0 billion. The ratioof overseas sales to total sales was 52.7%, up 0.2 percentage points compared with the previous fiscal year.

Overseas Sales

Overseas Segment Sales Ratio(¥ Billion)

(%)

350

70

300

60

Environmental Facilities & Plants 5%
Machinery
Components

Ships

15%

14%

250

50

200

40

Industrial
MachineryOverseas
Segment Sales

150

30

8%

308.8

100

20

50

10

0

0
09

(FY)

10

Overseas Sales (Left scale)

11

Billion yen

Precision
Machinery

24%

Construction Machinery

35%

12

Overseas Sales Ratio (Right scale)

Sales by Geographical AreaJapan

The Americas

China(¥ Billion)(¥ Billion)(¥ Billion)

300

100

80

250

80

200

60

60

150

40
40

100

20

20

50
0

0
(FY)

09

10

11

12

0
(FY)

09

10

11

12

(FY)

09

10

11

12

EuropeAsia and Others(¥ Billion)(¥ Billion)

50

100

40

80

30

60

20

40

Construction Machinery

10

20

Precision Machinery

OthersEnvironmental Facilities & Plants

0

Industrial Machinery

Machinery Components

0
(FY)

09

10

11

12

(FY)

09

10

11

12

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

Sumitomo Heavy Industries, Ltd.

Annual Report 201337

Research and Development
R&D Strategy

Major R&D Results by Business Segment

The main thrust of our research and development strategy is to cre-(1) Machinery Components

ate first-class products through innovation. Based on a vertically

In power transmission equipment, the SHI Group introduced theintegrated synergistic value chain model, we develop fundamental

SCC series of crane drives that are lighter and able to lift heavier

technologies and groundbreaking components to enhance theloads. We also developed a new series of speed reducers for windvalue of our equipment and systems.

power generation featuring a compact construction with CYCLO®
speed reducers that are ideal for yaw drive systems.

R&D Expenses(2) Precision Machinery(¥ Billion)(%)

In plastics machinery, we have added a specialized machine for

12

2.0

highly precise optical lens molding with additional functions, suchas a high-precision clamp mechanism, to the “SE-EV” series of

9all-electric plastics injection molding machines. We have also

1.5

expanded the lineup of the “SR-Z” series of all-electric verticalrotary table type injection molding machines, well-suited for
6

1.0

insert-molding of metallic parts. In quantum equipment, the SHIGroup continued to work on the development of elemental tech-3

nologies for superconducting cyclotrons used in proton therapy sys-

0.5

tems for cancer treatment. In PET diagnostic systems, wedeveloped the MPS-200 cassette-type multi-purpose medication
0

0
08

(FY)

09

10

R&D Expenses (Left scale)11

12

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

Hoisting crane gear reducer

Business Portfolio and Value Chain of SHI Group

Services

Social & Industrial Infrastructure
Transport &Material Handling

Environment &EnergyMaterial
Processing

Automotive

Liquid Crystal & IT & Digital Appliances
Semiconductor

Total Systems

Heavy Machinery
Business Group

Precision Equipment
Business Group

Proton therapy systems

Logistics & handling systems

Material handling systems

PET systems

Ships
Plastics machinery, laser processing systems & laser annealing system
Forklifts
Equipment

Value Chain of SHI GroupCFB Boilers for IPP

Medical, Bioscience,
Physics & Chemistry

Wafer modification

Water treatment facilities

Ships

Lifestyle and Consumer

Value Chain of Markets

Coating system

Pressure vessels
Hydraulic excavators

Forging presses

Construction
machinerySurface grinding machines

Transfer molding machines
Ion implantation systems
Superconducting magnets

Turbines & pumps

Key Components &Basic Technologies

XY stages
Lifting magnets

Sumitomo Heavy Industries, Ltd.

Cryopumps

Blades
Cryocoolers
Gear Reducer & Component
Business Group

Gear motors

38

Steel rolls

Annual Report 2013

Actuators

Control modules

synthesizing system designed to aid in the development of new

such as first-stage full-circumference nozzles with the aim ofdrugs. In precision equipment, we implemented a full model

further increasing the efficiency of long-blade, high-efficiency mod-change for 4KGM cyrocoolers to upgrade their reliability and lifeels and expanding the range of applicable market segments.

span, and released them onto the market. In electronics equip-

In logistics and automated parking systems, the Group strength-

ment, we expanded the lineup of the SLR series of carbon dioxideened its lineup of roll storage and transport systems, and released

laser drilling systems for processing holes in PCBs with a new prod-

to market a matrix sorting-based system able to sort in multiple

uct designed for high-precision substrates and flexible circuit

directions. We also commercialized new versions of the Sumi Parkboards. In components for control systems, the Group turned its

automated parking system that accommodate plug-in hybrid

large-capacity motor drivers into a series, thereby expanding theelectric vehicles, electric vehicles and motorcycles.

range of applications for its products. In semiconductor manufac-(5) Ships

turing equipment, the Group is ready to launch the S-UHE

In ships, the Group has newly developed a mid-sized tanker withultra-high-energy ion implantation systems. The S-UHE is anhigh added value for the customer, such as remarkable energy-sav-enhanced version of the UHE system redesigned for single-wafer

ing performance and flexibility, also taking into consolidation forth-processing and allows users to produce high-performance image

coming environmental regulations.

sensors at a high yield rate.

(6) Environmental Facilities & Plants(3) Construction Machinery

In the industrial water and wastewater treatment business, theIn hydraulic excavators, the SHI Group focused on adding models

Group worked to increase the application of the anaerobic treat-that meet provisional requirements under Tier 4 emissions regula-ment of wastewater through the development of its advanced®

tions to the LEGEST series, and released mainstay models in thetechnologies. In the public business for water and sewage treat-

Japanese market. We are commercializing machinery with a Field

ment, joint research was undertaken with major municipal govern-

View Monitor (FVM®) system as standard safety equipment thatments into low-power grit jet pumps and low-pressure-loss typeenhances safety in the proximity of operating machinery. Moreover,superfine bubble aeration diffuser systems, taking one step closer

low fuel consumption and a powerful excavator with hybrid tech-to their promotion and demonstration for major municipalities. In

nology has been developed and is ready for the field performance

addition, we completed the on-site development of new vertical

test before commercialization.

aerators for oxidation ditch systems and began to focus on expand-(4) Industrial Machinery

ing sales in earnest.

In forging presses, order receipts were boosted by the development

In environmental facilities, we introduced dry booths for theof the FPR series of new presses that are more compact than older

production and research of rechargeable lithium-ion batteries. We

general-purpose presses.

also released the KG series of large-scale, open cooling towers with

In turbines, development continued on component technologies

Roll transport system

improved cooling performance.

FVM® system monitor

Cryogenic equipment
Aframax tanker

Sumitomo Heavy Industries, Ltd.

Annual Report 201339

Intellectual Property
The SHI Group is oriented towards growth driven by distinctive

2. Intellectual Property Evaluation Activities

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

The SHI Group evaluates the strength of individual patents held byutmost importance and the wellspring of the Group’s competitive

the Group and strategically manages the processes for improving

advantage. The principal focus of our efforts is directed at the three

this strength. In addition to enhancing the quality of the Group’s

elements of intellectual property activity, namely, ensuring that

intellectual property portfolio, such evaluation and management

rights to intellectual property are secured, utilizing exclusive rights

processes enable the Group to keep reinforcing the competitiveand respecting other companies’ rights. In this way, we devote

superiority of its products through the appropriate maintenanceour Groupwide energies to the active creation, management andof its intellectual property.

protection of the Group’s invaluable “property.”
3. Accelerating Overseas Patent Applications

Promotion Structure

In tandem with the globalization of the business activities of the

To link the senior management of the SHI Group divisions directly

SHI Group, we have been calling on all operating divisions andwith intellectual property activities, the Group has appointed chiefother relevant divisions to actively work to file patent applications

intellectual property officers (CIPOs) to the same rank as the gener-

overseas. As a result, 1,515, or 33.7%, of the Group's total ofal managers of technology and development divisions, a position

4,493 patents were held overseas as of April 2013. In recent years,

immediately below and reporting directly to officers in charge ofthe Group has been increasing patent applications, particularly ingroups or divisional businesses. The CIPOs prepare optimal intellec-

China, South Korea and Taiwan.

tual property strategies for each division, make all members of
those divisions thoroughly acquainted with these strategies and

SHI Group’s Overseas Patent Applications

create the mechanisms to put those strategies into practice. In(Applications)700

addition, the Intellectual Property Department participates fully600

in reform activities implemented by the CIPOs.

500

Major Activities and Achievements

400

1. Intellectual Property Inspection Activities

300

We have formed an Inspection Committee composed principally

200of CIPOs and established mechanisms for the regular evaluation of100

inventive proposals and decisions regarding substantive examination

0
08

(FY)

requests and rights maintenance. In this way, we foster the efficientChinaand systematic management of patent applications ultimately

09

South Korea

10
Taiwan

11

PCT*

12

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

intended for commercialization. Furthermore, by incorporating
intellectual property evaluation in the design review (DR) process,we are striving to make our product capabilities more robust.

CIPO System

President

Sumitomo(S.H.I.)
Construction
Machinery

Mechatronics

Precision
Equipment

Industrial
Equipment

Plastics
Machinery

Power
Transmission& Controls

Technology
ResearchCenter

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

CIPO: Chief Intellectual Property Officer
Sub-CIPO: Acting CIPO (Group Leader)40

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

PL: Patent Leader

PLIntellectual
Property
Department

Corporate Governance
The SHI Group believes that the essence of corporate gover-

Corporate Governance Systemnance 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

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

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

customers, employees and the community as a whole.

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

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

SHI has been working continually over a long period to strengthen

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

its corporate governance function. Specifically, the Company

nal director, collaborate with executive officers in charge of internal

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 fromestablished to audit and supervise the execution of duties by thetwo years to one in 2007. These and other measures reflect SHI’s

Company’s management. The Company believes that this system

ongoing efforts to reinvigorate the Board of Directors, ensure thatwill ensure that the corporate governance function is exercised tobusiness is executed in a timely manner and secure the objectivity

its fullest extent. Moving forward, the Company will take steps toand transparency of the Company’s management.

further reinforce the corporate governance function.

Moreover, corporate auditors, who take on the role of overseeing the management, regularly hold meetings attended by the cor-

• Board of Directors

porate auditors of Group companies to reinforce the audit function

The Board of Directors deliberates not only on matters stipulated

covering the entire SHI Group. To address globalization, theunder the Japanese Corporate Law, but also on important manage-Company also conducts annual onsite audits at its overseas

ment issues in a preemptive manner. Also, the Company’s Articles

subsidiaries.

of Incorporation stipulate that the Company must have no more

SHI ensures that neither its external director nor external corpo-

than 12 directors.

rate auditors have a risk of conflict 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.

SHI’s Corporate Governance System
General Meeting of Shareholders

Ethics Committee

Board of Directors
Audit

Corporate Auditors/
Board of Corporate Auditors

Directors Recommendation Committee
SupervisionCorporate Auditor’s Dept.

President and Chief Executive Officer

Internal Control Group

Audit

Management Strategy Committee
Internal Control
Internal Auditing

Independent Auditor

Audit

Compensation Committee

Executive & Operating Officers
Committee

Internal Audit Dept.
Operational Divisions

Subsidiaries and Affiliates

Audit

Corporate Auditors/Board of Corporate
Auditors at Subsidiaries and Affiliates

Sumitomo Heavy Industries, Ltd.

Annual Report 201341

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

Compensation Committee

The Executive & Operating Officers Committee comprises 18 executive officers, who execute the Company’s business, including six

The Directors Recommendation Committee makes recommenda-

who concurrently serve as directors of the Company, as well as

tions to the Board of Directors with regard to candidates for new

operating officers. The Committee meets once a month to manage

members of the Board of Directors and representative directors.

consolidated business results and to ensure the implementation of

Meanwhile, director remuneration is determined by the

management policies.

Compensation Committee. Three of the current seven membersof the Compensation Committee have been externally appointed.

• Management Strategy Committee

More specifically, as an advisory body to the Board of Directors, the

The Company has also established the Management Strategy

Compensation Committee determines a level of director remunera-

Committee, comprising executive officers assigned to thetion that reflects the Company’s business performance while ensur-

Company’s Head Office, as an advisory body to the president. Thising transparency and ethical appropriateness in remuneration

Committee deliberates on important matters, including those to be

decision processes.

submitted to the Board of Directors, and, consequently, reports
deliberation results to the Company’s president.

Internal Auditing, Auditing by Corporate Auditors,
Independent Audits• Corporate Auditors and the Board of Corporate Auditors

The Company has established the Internal Audit Department (withThe Company’s corporate auditors audit the execution of duties bya full-time staff of nine) as an internal auditing organization that

directors and executive officers from the perspectives of legality

reports directly to the president. The Internal Audit Department

and appropriateness. At the same time, corporate auditors of theperiodically conducts audits of business execution at the Company’s

Company and its subsidiaries and affiliates jointly hold regularinternal organizations and at subsidiaries and affiliates in Japan andmeetings to exchange audit-related information and reinforce

overseas, provides advice on operational improvements and follows

auditing functions covering the entire SHI Group. The Company

up on the implementation of improvements. The department

has appointed a lawyer and a certified public accountant as its

undertakes the reinforcement of the internal control functions inexternal corporate auditors to reinforce the overall system forcoordination with self-audits conducted by the operational divi-

checking compliance and corporate accounting. Also, thesions. Corporate auditors perform their duties in line with the audit

Company has established the Corporate Auditor’s Department asplans and policies formulated by the Board of Corporate Auditors.

a staff organization to support the Board of Corporate Auditors.

To audit the execution of duties by the Company’s directors andExternal Director and External Corporate Auditors
The Company has appointed one external director and two external corporate auditors. SHI ensures that all of its outside officers have norisk 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.
Title

Name

Reason for appointment

Attendance at meetings of the Board of Directors

External
Director

Toshiaki Kakimoto

Based on his long-standing knowledge and wealth of experience as an economist, Mr.
Kakimoto provided comments of a beneficial nature to the Company while pointing out various
issues in a frank and objective manner. Mr. Kakimoto has acquired shares of the Company
through the officers’ shareholding association. SHI has deemed that this shareholding does not
impact Mr. Kakimoto’s independence as an external director.

Mr. Kakimoto attended all 16 Board of Directors
meetings during fiscal 2012.

External
Corporate
AuditorHideo Kojima

Based on his long-standing knowledge and wealth of experience as a certified public accountant, Mr. Kojima provided comments of a beneficial nature to the Company while pointing out
various issues in a frank and objective manner. Serving as chairperson of the Company’s internal investigation committee, Mr. Kojima oversaw efforts to ascertain the background and causes behind the overbilling of expenses to Japan’s Ministry of Defense while putting forward
recommendations to prevent any recurrence. Mr. Kojima is originally from Ernst & Young
ShinNihon LLC, with whom SHI maintains transactional relationships. Taking into consideration
the amounts and nature of these transactions, SHI has deemed that this relationship does not
impact Mr. Kojima’s independence as an external corporate auditor.

Mr. Kojima attended 15 of the 16 Board of
Directors meetings and all 18 Board of
Corporate Auditors meetings during fiscal 2012.

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 12 Board of Directors
meetings and all 11 Board of Corporate Auditors
meetings following his appointment as a corporate auditor on June 28, 2012.

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.

42

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

executive officers, they attend meetings of the Board of Directors

Internal Control Systemand the Executive & Operating Officers Committee as well as other

The SHI Group considers the internal control system to be an

important meetings. In addition, corporate auditors are allowed toimportant management foundation for increasing its enterpriseaccess principal internal memos and other important documents

value and ensuring its sustainable development. The Board ofrelating to business execution. The Company has appointed KPMG

Directors decides the basic policy for the development of the inter-

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

nal control system, which is the foundation of corporate gover-contract and undergoes rigorous audits. Corporate auditors, thenance. The Board appropriately verifies the effectiveness of theBoard of Corporate Auditors, Internal Audit Department andinternal control system and undertakes constant enhancement andindependent auditor closely collaborate with each other andimprovement. The Company appoints external directors to bringexchange information about audit results, thereby developing

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

and implementing an efficient audit system.

Corporate auditors conduct audits to ensure the appropriate execution of duties by the Company’s directors with respect to the devel-

Compensation of Directors and Corporate Auditors

opment and administration of the internal control system. Also, theThe maximum amount of compensation paid to directors shall not

Company works to strengthen its internal control over financial

exceed ¥40 million per month pursuant to the resolution of SHI’sreporting. With the organization in charge conducting audits ofOrdinary General Meeting of Shareholders ratified in June 2006.

the status of internal control system administration, the Company

The Company has adopted a director compensation scheme thatis striving to secure the reliability of its financial reporting.

is linked to SHI’s operating results. Individual director remuneration
is determined by the Board of Directors on advice from theCompliance Activities

Compensation Committee regarding applicable standards thatThe Ethics Committee, chaired by the president, formulates thereflect SHI’s performance. The maximum amount of compensation

Company’s basic compliance policy. The Internal Control Grouppaid to corporate auditors shall not exceed ¥7.5 million per monthundertakes the rigorous implementation of the policy throughpursuant to the June 2005 resolution of SHI’s Ordinary Generala Groupwide internal control system. In addition, the Company

Meeting of Shareholders. Remuneration paid to individual corpo-

distributes the Ethics Regulations and Compliance Manual to all

rate auditors is determined through a process of deliberation

employees and undertakes regular ethics and compliance educa-

among corporate auditors. As of the close of the Company’stion. When necessary, the Company collects written agreements

Ordinary General Meeting of Shareholders held in June 2005, SHI

from directors, executive officers and all managers concerning indi-

terminated its directors’ retirement allowance system. In addition,

vidual compliance items. Moreover, each year on an anonymous

the Company has not adopted a stock option system.

basis, SHI conducts surveys encompassing all employees in an effort

Classification

Directors(excluding external
director)

Amount ofCompensation(Millions of Yen)

Amount by Type of Number ofCompensation
Eligible(Millions of Yen)
Officers
Basic Compensation (Persons)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
or individuals. The Company has established an ethics hotline (an

454

454

10

in-house whistleblower system) as a point of contact to report matters that violate or may violate laws, ordinances or corporate ethics,
promotes the use of the hotline and endeavors to discover prob-

Corporate
auditors(excluding external
corporate auditors)

69

External officers

19

69

2

lems at an early stage. The Company conducts audits of theexecution of duties by the Company’s executive officers and bystaff under the direct control of the executive officers through the194organization in charge and ensures that their execution of duties
complies with laws, ordinances and the Articles of Incorporation.

Notes: 1. There were nine directors, two corporate auditors and three external
officers as of March 31, 2012. Included in the figures presented in thetable above are the officer number and compensation amounts paid forthe period between April 2012 and June 2012 to one director and one
external corporate auditor, who retired as of the close of the Company’s
116th Ordinary General Meeting of Shareholders held on June 28,
2012. (Accordingly, the aggregate number of eligible officers for thebusiness term under review was 10 directors (excluding the external
director), two corporate auditors (excluding external corporate auditors)
and four 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 ¥17 million was paid as generalemployee salaries to two general employees who hold the concurrent
position of director.

Sumitomo Heavy Industries, Ltd.

Annual Report 201343

Corporate GovernanceRisk Management
The Company engages in risk management using the Groupwide
internal control system. The Company takes a specialized approachto minimize risk. Through this approach, the business units incharge prepare regulations governing individual risks—such asenvironmental, legal, disaster, IT and export control risk—whileproviding education and guidance and conducting audits. In theevent of emergency, in accordance with the Company’s Emergency
Reporting Procedures, the involved employees immediately reportto executive management and take appropriate measures.

Information Disclosure and IR Activities
SHI strives diligently to ensure the timely disclosure of relevant
information. At the same time, the Company actively promotes
dialogue with shareholders and investors. In this regard, SHI

Financial results briefing held in May 2013

recognizes dialogue as an appropriate means to ensure a deeper
understanding of the Company and to further enhance its

Takeover Defense Measuresenterprise value.

SHI believes that—from the standpoint of increasing enterprise

The president provides briefings on the Company’s interim andvalue and ensuring the common interests of the shareholders—full fiscal year results for the benefit of institutional investors andthe nature of persons who control decisions on the Company’s

analysts. Telephone conferences are also conducted on a quarterly

financial and business policies should be ultimately decided by thebasis by the officer responsible for investor relations. Moreover, top

shareholders. Some large-scale purchases of shares, in light of their

management calls on institutional investors and analysts in Japanpurpose or post-purchase management policy, pose the risk of clear

and overseas. Furthermore, over 300 interviews and meetings with

impairment of enterprise value or the common interests of share-

investors and analysts were held during fiscal 2012.

holders. Some large-scale purchases—such as those conductedwithout the sufficient provision of information reasonably necessary

Fiscal 2012 IR Activity Results

for the shareholders to judge the purchase details—can be expected to have a major impact on enterprise value or the common

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 (nine 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• Handout for financial results briefings• Webcast of financial results briefing(Audio only, Japanese/English (translated version))• Interim report (To our shareholders)• Annual report (Japanese/English)

interests of the shareholders. The Company considers persons
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 2011 the continuation of the Takeover
Defense Measures was approved after making necessary changes.

44

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Messages from the External Director and Corporate Auditors
Toshiaki Kakimoto The SHI Group’s strengths are underpinned by its effective corporate goverExternal Director

nance system, which has been realized through the clear separation of its
executive function from its supervisory function. What is more, supported by
the strategic implementation of its internal control system and complianceactivities, the Group has established a highly effective, transparent corporate
management system.
As an external director, I am committed to providing proposals and advice
from the broad, third-party perspective that I have long nurtured throughresearch on macroeconomics and various issues concerning corporate management. In this way, I would like to play a part in the Group’s working toaccelerate globalization and strengthen its corporate governance, thereby
contributing to the Group’s additional growth and enterprise value maximization.

Hideo Kojima

Listed companies have, in recent years, been required to further strengthen
their corporate governance. External corporate auditors designated as independent corporate auditors have an important role to play in helping thesecompanies fulfill this requirement.
The SHI Group has continued to engage in the ongoing reinforcement of its
corporate governance. With the aim of further enhancing corporate governance, the primary role required of me, a certified public accountant and an
external corporate auditor of the Group, is, as I understand it, to verify thecomprehensiveness of the Group’s financial reporting and compliance withbusiness accounting standards.
Simultaneously, I must help the Group improve said comprehensiveness.
Also, in line with the Group’s business globalization, it will become more
important than ever before to secure compliance throughout the Group’s
domestic and overseas operations, set up an internal control system, andto enhance the quality of its financial reporting on a consolidated basis.
Therefore, I will do my utmost to enable the Group to bolster corporate governance from a global perspective.

External Corporate
Auditor

Takeo Wakae
External Corporate
AuditorThe activities of joint-stock companies are primarily for the purpose of continually increasing earnings and raising enterprise value. By doing this, it can contribute to the Company’s stakeholders, including shareholders and to society.
However, internal directors, when pursuing their work, are not always
expected to take the view of raising enterprise value and then act. Sometimes,
they can take a stance that is contrary to the view of shareholders and social
responsibility. As external directors with the view of raising enterprise value,
it is necessary to see this issue from multiple sides and then point them out.
In the future, I would like to see external directors adopt this approach.

Sumitomo Heavy Industries, Ltd.

Annual Report 201345

Directors, Corporate Auditors and Executive Officers (As of June 27, 2013)
Board of Directors

Yoshinobu Nakamura

Shunsuke Betsukawa

Shinji Nishimura

Representative Director, Chairman of the Board

Representative Director, President and CEO

Representative Director, Senior Executive Vice President

Apr. 1975

Apr. 1978

Apr. 1974

Feb. 2001
June 2002
June 2003
June 2004
Oct. 2004
June 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)

July 2001
Apr. 2007
Apr. 2009
June 2009
Apr. 2010
Apr. 2011
Apr. 2012
Apr. 2013

Feb. 2001
June 2002
Apr. 2003

Apr. 2005
June 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)

Yuji Takaishi

Akio Yoshikawa

Toshiharu Tanaka

Representative Director, Executive Vice President

Director, Senior Vice President

Director, Senior Vice President

Apr. 1977

Apr. 1974

Apr. 1983

July 2000
Apr. 2005
Apr. 2007
June 2007
Apr. 2010
Apr. 2012
Apr. 2013

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. (current)
Representative Director (current), General Manager
of Export Administration Dept. (current)

June 2008
Apr. 2011

Apr. 2012
Apr. 2013

June 2013

46

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)

Sumitomo Heavy Industries, Ltd.

Annual Report 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), Chairmanof Sumitomo Heavy Industries (Shanghai)Management, Ltd. (current)
Director (current)

Joined the Company
General Manager of Precision Equipment Div. (current)
June 2012 General Manager of Tanashi Works (current)
Apr. 2013 Executive Vice President (current)
June 2013 Director (current)
Apr. 2011

Yoshiyuki Tomita

Kensuke Shimizu

Mikio Ide

Director, Vice President

Director

Director

Apr. 1981

Apr. 1968

Joined the Company
May 2009 General Manager of Technology Development Centerof Corporate Technology Operations Group
Apr. 2011 Vice President (current), General Manager ofTechnology Research Center of Corporate Technology
Operations Group (current)
June 2012 Director (current)

Mar. 1999
June 1999
June 2000
June 2001
June 2002
Apr. 2005
Apr. 2006

Apr. 2011
Apr. 2013

Joined the Company
General Manager of Plastics Machinery Div.
Senior Vice President
General Manager of Chiba Works, Director of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
Executive Vice President
Director
Representative Director, Senior Executive Vice President
Director (current), Representative Director, President
and CEO of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
Representative Director and Chairman of Sumitomo(S.H.I.) Construction Machinery Co., Ltd.
Corporate Adviser of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd. (current)

Apr. 1973
Apr. 2001
June 2003
June 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
Shigeru Toyosumi

Standing Corporate Auditor
Standing Corporate Auditor

Hideo Kojima
Takeo Wakae

External Corporate Auditor
External Corporate Auditor

Executive Officers

Toshiaki Kakimoto
External Director
June 2000 Chairman of The Japan Research Institute, Limited
June 2004 Senior Fellow of The Japan Research Institute, Limited(current)
June 2005 Director of the Company (current)

Shunsuke Betsukawa
Shinji Nishimura
Katsuhiko Taniguchi

President and CEO
Senior Executive Vice President
Executive Vice President

Yuji Takaishi

Executive Vice President

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

Osamu Sekiya
Katsuhide Yokota

Executive Vice President
Executive Vice President

General Manager, Energy & Environment Group

Chuck Martz

Executive Vice President

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

Junjiro Nogami

Senior Vice President

General Manager, Kansai Office,General Manager, Corporate Marketing Dept.

Hitoshi Ushiyama

Senior Vice President

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

Kazumi Fujita
Kazuto Kaneshige
Tetsuya Okamura
Akio Yoshikawa

Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President

General Manager, Internal Control Dept.

Nobutaka Miyawaki

Senior Vice President

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

Toshiharu Tanaka

Senior Vice President

General Manager, Precision Equipment Group,
General Manager, Tanashi Works

Yukio Kumata
Yoshiyuki Tomita

Vice President
Vice President

Deputy General Manager, Industrial Equipment Div.

Isao Kohno

Vice President

Deputy General Manager, Power Transmission & Controls Group

General Manager, Power Transmission & Controls Group
General Manager, Corporate Technology Operations Group,
General Manager, Information Systems Development Group

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

General Manager, Industrial Equipment Div.
CEO, Sumitomo (SHI) Demag Plastics Machinery GmbH
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.

General Manager, Technology Research Center, Corporate
Technology Operations Group

Sumitomo Heavy Industries, Ltd.

Annual Report 201347

Environmental and Social Contribution Initiatives
Basic Approach to Environmental Issues

Sumitomo Heavy Industries Group Environmental Philosophy
The Sumitomo Heavy Industries Group contributes to implementing sustainable development of society by holding fast to the “Sumitomo Business Spirit.”
The Sumitomo Heavy Industries Group is taking action across the Group to protect the
global environment.

Environmental Policy

Environmental Management

In order to implement the sustainable development of society, we

We have established an Environmental Management Division in themust respond to global environment issues and reduce the burden

General Affairs Group, which draws up the medium-term environ-on the environment posed by various aspects of corporate activity.

mental plan (the current third medium-term environmental plan

To do so, the Group is promoting autonomous and proactive

runs from FY2011 to FY2013), environmental goals on an annual

initiatives to protect the environment. In 1992, we established thebasis, and develops environmental management across the Group

Environmental Committee to promote environmental protection

including personnel training. In 2011, we assigned an environmen-

and compliance in local communities. In September 1997, we

tal manager to Shanghai, China, to promote environmental activity

established the Sumitomo Heavy Industries Environmental Policy inmonitoring and support throughout China.

order to drive home the message of environmental management.
In addition, in order to clarify the basic policy of activities acrossthe SHI Group, we established the Sumitomo Heavy Industries
Group Environmental Policy in November 1999, expanding environmental management across the Group as a whole including overseas facilities.

Consideration of
the impact on
the environment
around the facilities

General Manager
of General
Administration Group

Prevention ofenvironmental
pollution

Saving energy
Saving resources
Promoting recycling

President
and CEO• Evaluation by the President (Once per year)• Report by the Executive Board (Four times
per year)• Environmental audit (Once per year)• Sumitomo Heavy Industries Group
Environmental Management Committee(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)

Environmental
Management
Division

Environmental Audit
Team

Works

DivisionsGroup
Companies
within Japan

Group
Companies
outside Japan

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Waste reduction

48

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

The Group is expanding its production scale across factories

Environmental Initiatives

located overseas. At the same time, the Group has taken steps toZero Emissions

establish CO2 emission reduction targets on an individual factory

The SHI Group has defined factories at which the amount of waste

basis since fiscal 2011. Accordingly, each factory is undertaking adisposed of as landfill as a percentage of total waste (the zero

host of initiatives aimed at achieving the established CO2 emission

emissions rate) is less than 0.5% as zero emissions factories. We

reduction targets. In fiscal 2012, the Group achieved all targets

have been promoting this program since FY2005, and as a result in

across its network of overseas factories. Total emissions amounted

FY2012 we achieved zero emissions at all seven works and all eight

to 68,180 tons of CO2 against a target of 69,170 tons of CO2.

Group companies. We were also able to achieve a zero emissions
rate of 0.01% for the Group as a whole, greatly exceeding the target. Recycling by separating waste is crucial in achieving zero emis-

CO2 emissions (Domestic)(10,000t-CO2)
10

sions. Going forward, we will conduct thoroughgoing waste
separation so that we can maintain zero emissions status, and wewill aim to make our plants friendly to the global environment.

6

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

4

sions at its overseas factories since fiscal 2011 and continues toTarget8

Achievement2

promote measures aimed at reducing the generation of waste for
disposal, that is, the volume of nonrecyclable industrial waste to be

0
(FY)

04

05

06

07

08

09

10

11

12

discarded as landfill. In fiscal 2012, the Group achieved a zero
emissions rate, the rate of the volume of waste for disposal to thetotal volume of waste, across all of its overseas factories of 2.2%

Activities to Reduce Paper Usageagainst a target of 11%.

Reducing paper usage is part of activities to save resources and at
the same time, it is linked to activities to prevent global warming

Zero emissions rate (Domestic)

such as reducing CO2 emissions in the papermaking process. In

(%)
2.5

FY2013, the SHI Group aims for a 45% reduction compared to

2.0tion over FY2005 levels with a reduction of 54%.

FY2005 levels. In FY2012 we exceeded the target of a 43% reduc-1.5

Paper usage
1.0(Target)0.5(Million sheets)
120
100

0
(FY)

08

09

10

11

12

80

TargetAchievement

60

Reducing CO2 Emissions
The SHI Group started to take action in FY2005 with the first medium-term environmental plan to reduce CO2 emissions by 10% from

40
20
0
(FY)

05

06

07

08

09

10

11

12

FY2004 levels by FY2007. As of FY2011, we launched the third
medium-term environmental plan aiming to further reduce CO2
emissions by 19% from the FY2004 level by FY2013.
Compared to the benchmark year of FY1990 for the Kyoto
Protocol, the target is to achieve a 28% reduction. In FY2012 wewere able to control emissions to per unit of output far exceeding
the target, with a 36% (21% per unit of output) reduction over
FY2004 levels and a 43% reduction over FY1990 levels.

Sumitomo Heavy Industries, Ltd.

Annual Report 201349

Environmental and Social Contribution Initiatives

Overseas Activities

Social Contribution 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 donates aGroup participates in cleanup activities in the vicinity of its Ehime

matching amount to the executive committee, and it is used to sup-Works as well as the annual “Refresh Setouchi” Inland Sea cleanup

port social service activities. In addition, steps are taken to visit ele-

activities at Takasu Beach. Takasu Beach is the only natural sandmentary 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 meeting this year, and it was a major

tree planting.

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

Tree planting

Fun in elementary school classes

Cleanup (Niihama Factory)
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.

Classroom scene• Germany
Sumitomo (SHI) Demag Plastics Machinery GmbH in Germany helda family day and invited employees’ families to visit their plant.

Cooperation with Welfare Facilities

Attended by many employee families, the event was a great suc-

The Yokosuka Works provides a Yokosuka municipal welfare sup-cess, 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.

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

50

Sumitomo Heavy Industries, Ltd.

Selling cookies and bread from the
Akebi-En in Obu

Annual Report 2013

Financial Section

52

Eleven-Year Summary

54

Management’s Discussion and Analysis ofFinancial Conditions and Operating Results

57

Business Risks

58

Consolidated Balance Sheets

60

Consolidated Statements of Income

61

Consolidated Statements ofComprehensive Income

62

Consolidated Statements of
Changes in Net Assets

64

Consolidated Statements of Cash Flows

66

Notes to Consolidated Financial Statements

85

Independent Auditor’s Report

Sumitomo Heavy Industries, Ltd.

Annual Report 201351

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

FY2002

FY2003

FY2004

FY2005

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

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

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

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

¥

¥

¥

¥

Amounts per Share of Common Stock:
Net income (Note 5)
Stockholders’ equity
Cash dividends
Financial Indexes:
Operating income margin
EBITDA margin
R&D expenses ratio to net sales
Return on assets (ROA)
Return on equity (ROE)
Stockholders’ equity ratio
Interest-bearing debt ratio
D/E ratio (Times)
ROIC (Note 6)

Investment in Plant and Equipment, and Others:
Capital expenditures (Note 7)
Depreciation and amortization
Number of employees

4.57
151.86—27.01
190.25
—

3.6
6.1
1.2
0.4
3.0
15.2
46.5
3.1
2.6

8.3
10.4
1.3
2.8
16.0
19.7
37.2
1.9
6.5

¥ 14,406
12,118
11,777¥ 10,562
10,112
11,282¥37.80
227.903.00

49.45
279.02
5.00

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

8,175
9,282
11,149¥ 10,285
9,072
11,319Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥94=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March
31, 2013.
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.

52

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Millions of yen
FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012Thousands of
U.S. dollars (Note 1)
FY2012¥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$6,232,665
4,950,093
949,723
104,626
332,849
527,339
62,392¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700¥ 23,309(22,672)
638
19,87972,376¥$¥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

2,660(19,660)(17,000)(11,428)
46,476

Yen

¥

61.99
338.95
7.00

28,298(209,154)(180,856)(121,579)
494,420$6,890,679
4,113,060
2,777,619
1,048,368
539,705—
3,115,172
U.S. dollars (Note 1)

¥

71.19
392.80
10.00

¥

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

$

0.10
5.01
0.09

%

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
Thousands of
U.S. dollars (Note 1)

Millions of yen¥ 17,257
10,64912,561¥ 28,180
13,78814,408¥ 31,753
18,32014,984¥ 24,465
19,725
15,463¥ 14,292
17,941
17,025¥ 19,682
17,82018,139¥ 29,888
18,282
18,245$ 317,961
194,490

Sumitomo Heavy Industries, Ltd.

Annual Report 201353

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

1. Overview of the Business Environment
and Performance in Fiscal 2012
During the consolidated fiscal year under review, although
there were some bright signs, such as the weakening of theJapanese yen during the second half of the fiscal year and an
upswing in public investments, the economic outlook continued to remain uncertain, as it did one year ago. At the sametime, the overall global economy remained unstable as partial
signs of recovery in the U.S. market were out-staged by theslowdown of the Chinese economy, the driver of global economic growth, as well as disruptions to public-sector financeand financial markets in the Eurozone, which negatively
impacted the real economy.
Against this economic backdrop, the Sumitomo Heavy
Industries Group (hereinafter referred to as the “Group”)
strengthened its sales activities, decided to integrate various
parts of its organization to increase operational efficiency, andexecuted other initiatives that focused on increasing market
competitiveness. These initiatives were consistent with theGroup’s plans to set forth in its Innovation 21 Medium-Term
Management Plan and reflect the Group’s focus on such key
words as “Globalization” and “Innovation.” Despite these
efforts, and because of the impact of stagnant markets, theconsolidated fiscal year under review saw the Group post lower
than prior fiscal year figures for orders, net sales, operating
income, and net income.
2. Analysis of Operating Results(1) Orders
Orders received during fiscal 2012 declined ¥20.6 billion compared with the previous fiscal year, to ¥550.7 billion. Whileorder volumes were up year on year in the Ships as well as
Environmental Facilities & Plants segments, this overall decline

was largely attributable to lower year-on-year order volumes in
the Machinery Components, Precision Machinery, Construction
Machinery, and Industrial Machinery segments.
(2) Net Sales
Net sales decreased ¥38.2 billion, to ¥585.9 billion. The downturn in sales was consistent across all of the Group’s businesssegments. Overseas sales fell ¥19.0 billion, to ¥308.8 billion.
The ratio of overseas sales to total consolidated net sales
increased 0.2 of a percentage point, to 52.7%.
(3) Cost of Sales
In line with the decrease in net sales, cost of sales contracted¥25.6 billion, to ¥465.3 billion. The cost of sales ratio deteriorated 0.7 of a percentage point compared with the previous
fiscal year, to 79.4%. With the exceptions of the Construction
Machinery as well as Environmental Facilities & Plants segments, this deterioration in the cost of sales ratio was felt
across all business segments.
(4) Selling, General and Administrative (SG&A) Expenses
SG&A expenses edged up ¥3.2 billion year on year, to ¥89.3
billion. This was largely attributable to increases in salary as well
as research and development costs and reflected provisions
made to the allowance for doubtful receivables and losses on
bad debts. The SG&A expense ratio was 15.2%, 1.4 percentage points higher than the previous fiscal year.
(5) Operating Income
Operating income declined ¥15.8 billion compared with theprevious fiscal year, to ¥31.3 billion. With the exceptions of theEnvironmental Facilities & Plants segment, all other businesssegments suffered a downturn in operating income. In each

Net Sales

Cost of Sales Ratio,
SG&A Expenses Ratio

Breakdown of Variation in Operating Income(Fiscal 2011–Fiscal 2012)(¥ Billion)
800

(%)
100

(¥ Billion)

47.1
80
600
60
400
40

+1.3

(3.2)
Currency
Sales
exchange(1.4)
rate administrative (6.1)
costs,
Largefluctuations
Impact of
(3.8)
+6.0
etc.
scale
decreased
Deterioration Kyoto cancellation
sales
(8.6)
of costProject
Impact ofrate, etc.
decreased
Incomein ship
business

31.3

200
20

0

0
(FY)

54

08

09

10

11

12

(FY)

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

OthersSumitomo Heavy Industries, Ltd.

Annual Report 2013

08

09

10

Cost of Sales Ratio
SG&A Expenses Ratio

1112(FY) 20112012

case, the principal factor was the decrease in net sales.
Moreover, in the Machinery Components and Construction
Machinery segments, results were impacted by deterioration inoverseas earnings. At the same time, earnings saw a downturnin plastic machinery in the Precision Machinery segment as wellas the medical systems. Operating income in the Ships segment
fell substantially owing mainly to the delivery of low-priced vessels. Taking each of the aforementioned factors into consideration, the operating income margin declined 2.3 percentage
points, to 5.3%.
(6) Other Income and Expenses
Other income and expenses amounted to net expenses of¥0.3 billion. This represented a year-on-year improvementof ¥2.2 billion. Buoyed an increase in dividend income, otherincome climbed ¥2.9 billion, to ¥6.6 billion. Meanwhile, otherexpenses increased ¥0.7 billion, to ¥6.9 billion, due mainly tothe higher interest expense.

(8) Income Taxes (Total Income Taxes, Local Inhabitant Tax,Business Tax, and Deferred Income Taxes)
Income taxes decreased ¥13.1 billion, to ¥4.6 billion.
(9) Minority Interests in Net Income
Minority interests in net income came to ¥0.3 billion, down
¥0.7 billion year on year.
(10) Net Income
Net income contracted ¥13.6 billion compared with theprevious fiscal year, to ¥5.9 billion. As a result, net income
per share came to ¥9.56, compared with ¥31.75 in fiscal 2011.
In addition, ROIC was 4.9%, down 2.5 percentage points.
For an overview of operating results by business segment,
please refer to the Review of Operations section of this reporton pages 26 to 36.

(7) Extraordinary Gains and Losses
Extraordinary gains and losses amounted to net losses of ¥20.2
billion, up ¥13.8 billion, compared with the previous fiscal year.
Extraordinary gains totaled ¥2.1 billion, mainly representing thegain on sales of investment securities. In contrast, the prospectof generating future earnings in the Ships segment declined.
This largely reflected poor market conditions and the considerable amount of time required before realizing a positive turnaround. As a result, steps were taken to record impairment
losses on fixed assets in connection with new shipbuilding
activities during the fiscal year under review. Accounting forthe year-on-year increase in impairment losses of ¥16.7 billion,
extraordinary losses came to ¥22.4 billion, up ¥16.0 billion,
compared with the previous fiscal year.

3. Discussion and Analysis of Financial Condition
as of the Fiscal 2012 Year-End(1) Assets, Liabilities, and Net Assets
As of March 31, 2013, total assets stood at ¥647.7 billion,
down ¥44.1 billion, compared with the balance as of March
31, 2012. Although there was a ¥6.1 billion increase in investments and other assets, this was offset by decreases of ¥25.6
billion in cash and time deposits, ¥7.9 billion in notes andaccounts receivable, ¥4.7 billion in inventories, and ¥9.2 billion
in property, plant and equipment.
Total liabilities as of the end of the consolidated fiscal year
under review stood at ¥354.9 billion, a decrease of ¥54.8 billion, compared with the end of the previous consolidated fiscal
year. Although there was an increase of ¥2.0 billion in interest-bearing debt as a result of the Group issuing new commercial paper, there was a ¥40.3 billion decrease in notes andOperating Income,Operating Income Margin

Net Income,Net Income Margin, ROE

Total Assets, Total Asset
Turnover(¥ Billion)
60

(%)
18

(¥ Billion)
30

(%)
12

50

15

25

10

40

12
20

8

15

6

10

4

30

(¥ Billion)
800

Capital Expenditures,
Depreciation and Amortization(Times)
1.6

700

1.4

600

1.2

500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

5

0

0

9

20

3

0

0

-10

-3
(FY) 08

09

10

11

12

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

30
25
20
15

6

10

(¥ Billion)
35

5

2

0

0
(FY) 08

09

10

11

12

Net Income (Left scale)
Net Income Margin (Right scale)ROE (Right scale)0(FY) 08

09

10

11

12

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

10

(FY)

08

09

10

11

12

Capital Expenditures
Depreciation and Amortization

Sumitomo Heavy Industries, Ltd.

Annual Report 201355

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

accounts payable and a ¥3.0 billion decrease in deferred tax
liabilities. With regard to the latter, the decrease was due toa revaluation of the deferred tax liability amount, which wasnecessary as the impairment loss booked for the assets in the
Ships segment included land. Net interest-bearing debt—theamounts of interest-bearing debt less cash and time deposits—rose ¥27.6 billion compared with the balance as of the endof the previous fiscal year, to ¥50.7 billion. The ratio of net
interest-bearing debt to total assets increased 4.5 percentage
points, to 7.8%.
Net assets as of the end of the consolidated fiscal year underreview stood at ¥292.8 billion, an increase of ¥10.7 billion
compared with the end of the previous consolidated fiscal year.
Although there was a decrease of ¥5.2 billion pertaining to thedifference in the revaluation of land assets, retained earnings
and the foreign currency translation adjustments increased by¥6.1 billion and ¥9.7 billion, respectively.
Consequently, the stockholders’ equity ratio for the consolidated fiscal year under review improved by 4.3 percentage
points, compared with the end of the previous consolidated
fiscal year to finish at 44.6%.
(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 totaled ¥2.7 billion,
down ¥20.6 billion year on year. The major cash outflow was
the decrease in notes and accounts payable, which more thanoffset principal cash inflows of income before income taxes andminority interests, which contracted year on year, and decreases
in notes and accounts receivable as well as inventories.
Net cash used in investing activities totaled ¥19.7 billion for
the fiscal year under review, a decrease of ¥3.0 billion, compared with the previous fiscal year. The primary cash outflow
was payments for purchases of property, plant and equipment.
Net cash used in financing activities was ¥11.4 billion for the
fiscal year under review. This was compared with net cash
provided by financing activities of ¥19.9 billion in fiscal 2011.
The main cash outflow was cash dividends paid.
As a result, cash and cash equivalents as of March 31, 2013
stood at ¥46.5 billion, a decrease of ¥25.9 billion, comparedwith the previous fiscal year-end.
(3) Capital Expenditures and Depreciation
and Amortization
In the fiscal year under review, the SHI Group positioned efforts
to restore and fortify its global supply chain as a key priority
with capital expenditures accordingly undertaken. Capital
expenditures for fiscal 2012 totaled ¥29.9 billion, up ¥10.2 billion, compared with the previous fiscal year. Depreciation andamortization was ¥18.3 billion, up ¥0.5 billion year on year.
Capital expenditures by segment are described as follows.

56

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

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 inSouth America and Central America. Capital expenditures in
the Machinery Components segment in fiscal 2012 amounted
to ¥7.4 billion.
b. Precision Machinery
Continuing to make its global supply chain a key priority, theGroup placed considerable weight on bolstering production
bases in Japan as a part of efforts to enhance cost-competitiveness. Capital expenditures in the Precision Machinery segment
totaled ¥6.5 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 2012were ¥13.0 billion.
d. Industrial Machinery
In its Industrial Machinery activities, the Group undertook toincrease production capacity and improve productivity. To thisend, a total of ¥1.2 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 ¥0.7 billion
toward the renewal of existing facilities.
f. Environmental Facilities & Plants
In the Environmental Facilities & Plants segment, the Group
undertook capital expenditures totaling ¥0.7 billion aimed
primarily at bolstering production capacity and improving
productivity by renewing existing facilities.
In the fiscal year ending March 31, 2014, capital expenditures are projected to total ¥16.6 billion. Focus will be placedon the Machinery Components, Precision Machinery, andConstruction Machinery segments. Depreciation and amortization is forecast to total ¥17.4 billion.
4. Policy on the Distribution of Profits
The SHI Group adheres to a basic profit distribution policy of
paying dividends commensurate with net income earned during
the period while striving to increase dividend amounts. At thesame time, the Group works to maintain retained earnings at alevel sufficient to ensuring sustainable business growth over thelong term.
With due consideration given to this basic policy and thecontinuous payment of stable dividends, the Group decided to
pay out an annual dividend of ¥8 per share (including an interim dividend of ¥4 per share). This represents a ¥2 per sharedecrease compared with fiscal 2011. On this basis, the payout
ratio for fiscal 2012 was 83.7%.

Business Risks

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, 2013.
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 andregions 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 53%. 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 andregulatory 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 theGroup.
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, 2013 was¥19.5 billion, a decline of 22%. If land values continue to fall,or conditions are such that the Group is not expected to recover the book values of its assets or asset groups, we may have torecognize impairment losses on fixed assets, which could
adversely affect the business performance and financial positionof the Group.
6. Impact of Uncompleted Projects
In connection with an order received from the city of Kyoto forthe construction of an incinerated ash melting facility, certain
construction defects were uncovered at the test operatingstage. As a result, delivery has been delayed. Currently, theGroup is making every effort to put in place appropriate measures to secure formal handover. The Company recorded a loss
in an amount that could be reasonably estimated at this stage.
In the event that SHI is forced to incur additional construction
losses, the Group could suffer an adverse impact on the business performance or financial position.
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 businessperformance and 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.

Sumitomo Heavy Industries, Ltd.

Annual Report 201357

Consolidated Balance Sheets
March 31, 2013 and 2012

2013

2012

Thousands of
U.S. dollars (Note 1)
2013¥ 47,814¥ 73,373$ 508,663

Notes receivable

14,152

14,897

150,558

Accounts receivable

159,147

166,351

1,693,056(1,117)(855)(11,888)

Finished products

66,87751,326

711,459

Work in process

44,791

71,562476,502

Raw materials and supplies

27,54821,034

293,067

Deferred tax assets (Note 5)

12,191

12,196

129,692

Other current assets (Note 13)

15,225

19,162

161,951

386,628

429,046

4,113,060

Land (Note 4)

108,033

116,306

1,149,284

Buildings and structure (Note 4)

120,784

140,023

1,284,932

Machinery and equipment

127,337

127,582

1,354,648

Construction in progress

2,614

9,448

27,813

Millions of yen
ASSETS

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

Allowance for doubtful accounts
Inventories:

Total current assets

Property, plant and equipment:

Other tangible fixed assets

34,84734,949370,717393,615

428,308

4,187,394(182,963)(208,496)(1,946,414)

210,652

219,8122,240,980

7,765

6,374

82,604

Investments in unconsolidated subsidiaries and affiliated companies

9,717

9,138

103,374

Investment securities (Notes 11 and 12)

15,471

14,783

164,581Deferred tax assets (Note 5)

11,838

7,419

125,940

Accumulated depreciation
Net property, plant and equipment

Intangible assets

Investments and other assets:

Other assets

7,470

6,683

79,475

Allowance for doubtful accounts(1,817)(1,414)(19,335)

42,67936,609454,035¥647,724¥691,841$6,890,679

Total investments and other assets
Total assets (Note 9)58

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

2013

2012

Thousands of
U.S. dollars (Note 1)
2013¥ 48,032
1,245
10,000¥ 27,383
19,796—$ 510,97813,241
106,383

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

35,230118,61327,77011,329
5,106
4,984
161
38,089288,461

280,628
927,614
222,731
32,05954,416
21,4591,716
414,035
2,585,260

39,27039,16948
24,6088,788
111,883

49,34335,88454
27,651
8,303
121,235

417,766
416,687506
261,787
93,501
1,190,247

30,87230,872

328,422

23,789207,580

23,789201,433

253,073
2,208,303(455)
261,786(445)
255,649(4,845)2,784,953

2,694
(562)
(3,808)38,197(9,458)27,063

2,267
277(3,573)43,381(19,113)
23,23928,660(5,975)(40,505)
406,352(100,621)
287,911

3,977
292,826¥647,724

3,257
282,145¥691,841

42,3083,115,172$6,890,679

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 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
Deferred tax liabilities on revaluation difference on land
Other long-term liabilities (Note 4)
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 2013
614,527 thousand shares in 2012
Capital surplus
Retained earnings
Treasury stock at cost: 858 thousand shares in 2013
812 thousand shares in 2012
Total stockholders’ equity
Accumulated other comprehensive income:Unrealized gains on securities, net of income taxes
Unrealized gains (losses) on hedging derivatives, net of income taxes
Adjustment on pension obligations of consolidated foreign subsidiaries
Revaluation difference on land
Foreign currency translation adjustments
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

Annual Report 201359

Consolidated Statements of Income
Years ended March 31, 2013 and 2012

2013

2012

Thousands of
U.S. dollars (Note 1)
2013¥585,871¥624,100$6,232,665

Cost of sales

465,309490,878

4,950,093

Selling, general and administrative expenses

89,27486,087949,723

Total

554,583

576,965

5,899,816

31,28847,135332,849

Millions of yen

Net sales (Note 9)
Costs and expenses:

Operating income (Note 9)

Other income (expenses):
Interest and dividend income

2,377

953

25,283

Interest expense(2,097)(1,652)(22,308)

Foreign exchange gain, net

1,347

349

14,327

Gain on sales of investment securities

1,343

—

14,290

Reversal of provision for loss on litigation

802

—

8,531

Impairment losses on fixed assets (Note 3)(17,392)(688)(185,023)

Loss on defense equipment business(4,986)—(53,046)

Contract loss—

(2,863)—

Loss on valuation of investment securities (Note 12)—(2,166)—

Amortization of prior service costs (Note 14)

—

(706)

—

Other – net(1,918)(2,167)(20,394)

10,76438,195

114,509

Current

10,553

19,077112,264

Deferred(5,959)(1,395)(63,390)

Total

Income before income taxes and minority interests
Income taxes (Note 5):

4,594

17,682

48,874

Income before minority interests

6,170

20,51365,635

Minority interests in net income(305)(1,021)(3,243)

5,865¥ 19,492

Net income

¥

Yen
2013

$

62,392

U.S. dollars (Note 1)
2013

2012

Amounts per share of common stock:
Net income¥9.56

Diluted net income
Cash dividends applicable to the year (Note 15)
See accompanying notes.

60

Sumitomo Heavy Industries, Ltd.

Annual Report 2013¥31.75

$0.10

—

—

—

8.00

10.00

0.09

Consolidated Statements of Comprehensive Income
Years ended March 31, 2013 and 2012

2013

2012

Thousands of
U.S. dollars (Note 1)2013¥ 6,170¥20,513$ 65,635

Unrealized gains on securities, net of income taxes

426

1,287

4,529

Unrealized losses on hedging derivatives, net of income taxes

(811)

(680)

(8,626)

Adjustment on pension obligationsof consolidated foreign subsidiaries(234)(1,596)(2,493)

—

3,918

—

10,234(3,967)

108,879

(1)

(3)

(10)

Millions of yen

Income before minority interests
Other comprehensive income:

Revaluation difference on land
Foreign currency translation adjustments
Share of other comprehensive income of affiliates
accounted for using equity method
Total other comprehensive income (Note 8)
Comprehensive income

9,614(1,041)

102,279¥15,784¥19,472$167,914¥15,068¥18,433$160,292

716

1,039

7,622

Comprehensive income attributable to:
Owners of the parent
Minority interests
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

Annual Report 201361

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2013 and 2012

Stockholders’ equity

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

Number of sharesof common stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789¥188,047(7,370)19,492(1)—
614,527—¥30,872—¥23,789

Treasurystock
at cost¥ (67)(383)
5

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

388

388

877

877

0

0

13,386¥201,433(378)¥(445)

13,008¥255,649

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
1,123
118

(10)
¥(455)

6,137¥261,786

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
See accompanying notes.

62

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Number of sharesof common stock(Thousands)

Commonstock

614,527$328,422

Treasurystock
at costSub-total$253,073 $2,142,907 $(4,735)(65,288)
62,392
(282)
(66)
172
55,148$2,719,667(65,288)
62,392(282)
10655,148

CapitalsurplusRetainedearnings

11,954
1,256—
614,527—$328,422—
65,396(110)$253,073 $2,208,303 $(4,845)

11,954
1,256

65,286$2,784,953

Millions of yen
Accumulated other comprehensive income
Unrealized gains on Unrealized gains (losses)
Adjustment on pension
securities, net ofon hedging derivatives, obligations of consolidated
income taxes
net of income taxes
foreign subsidiaries

¥ 982

¥960

¥(1,978)

Revaluationdifference onland

Foreign currencytranslation
adjustments

Sub-total

Minority
interests¥39,851¥(15,129)¥24,686¥2,053

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

1,285
1,285
¥2,267

(683)
(683)
¥277

(1,595)(1,595)¥(3,573)

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

1,204
1,204
¥3,257

Revaluationdifference onland

Foreign currencytranslation
adjustments

Sub-total

Minority
interests¥43,381¥(19,113)¥23,239¥3,257(243)
12,765¥282,145

Millions of yen
Accumulated other comprehensive income
Unrealized gains on
securities, net ofincome taxes¥2,267

Unrealized gains (losses)
Adjustment on pension
on hedging derivatives, obligations of consolidated
net of income taxes
foreign subsidiaries¥ 277¥(3,573)

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

4,544
10,681¥292,826

Revaluationdifference onland

Foreign currencytranslation
adjustments

Sub-total

Minority
interests$461,500$(203,325)$247,226$34,654

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Unrealized gains on
securities, net ofincome taxes$24,121

Unrealized gains (losses)
Adjustment on pension
on hedging derivatives, obligations of consolidated
net of income taxes
foreign subsidiaries$ 2,943$(38,012)

Total$3,001,547(65,288)
62,392(282)
10655,148
11,954
1,256

4,539
4,539
$28,660(8,918)(8,918)$(5,975)(2,493)(2,493)$(40,505)(55,148)(55,148)$406,352

102,704
102,704$(100,621)

40,68540,685$287,911

7,654
7,654
$42,308

Sumitomo Heavy Industries, Ltd.

48,339113,625$3,115,172

Annual Report 201363

Consolidated Statements of Cash Flows
Years ended March 31, 2013 and 2012

2013

2012

Thousands of
U.S. dollars (Note 1)
2013¥10,764¥38,195$114,509

Depreciation and amortization

18,282

17,820

194,490

Gain on sales of investment securities(1,343)—(14,290)(802)—(8,531)Millions of yen

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

Reversal of provision for loss on litigation
Impairment losses on fixed assets

17,392688

185,023

Contract loss

—

2,863

—

Loss on valuation of investment securities

—

2,166

—

Amortization of prior service costs

—

706

—

Loss on disposal of property, plant and equipment

329

345

3,501

Increase in employees’ severance and retirement benefits

1,560

2,619

16,595

Increase (decrease) in allowance(2,643)

199(28,114)

Interest and dividend income(2,377)(953)(25,283)

Interest expenses

2,097

1,652

22,308(Increase) decrease in notes and accounts receivable

6,025(30,305)

64,093(Increase) decrease in inventories

12,702(14,485)

135,133

Increase (decrease) in notes and accounts payable(44,837)

21,159(476,988)

Other—net

4,356

376

46,340Sub-total

Changes in operating assets and liabilities:

64

21,50543,045

228,786

Interest and dividend received

2,240

1,438

23,827

Interest paid

(2,038)(1,660)(21,685)

Income taxes paid

(19,047)(19,514)(202,630)

Net cash provided by operating activities¥ 2,660¥23,309$ 28,298

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Thousands of
U.S. dollars (Note 1)
2013

Millions of yen
2013

2012

Cash flows from investing activities:
Net increase in time deposits
Proceeds from sale of securities
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment

¥

(212)

¥

(201)

$

(2,256)

1,362

768

14,490(22,052)(24,227)(234,594)

1,570

1,486

16,700Net decrease in short-term loans receivable

441

305

4,687

Other—net

(769)

(803)

(8,181)(19,660)(22,672)(209,154)

Net increase in short-term bank loans

16,393

6,246

174,398

Net increase in commercial paper

10,000—106,383

Proceeds from long-term debts

15,41627,214

164,004

Repayments of long-term debts(44,427)(4,416)(472,652)

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

Proceeds from sale of treasury stock

10

5

106

Purchases of treasury stock

(27)

(383)

(282)

(6,120)(7,354)(65,103)

(426)

(49)

(4,532)

Repayments of finance lease obligations(2,247)(1,384)(23,901)

Net cash provided by (used in) financing activities(11,428)

19,879(121,579)

2,073

(649)

22,055

Net increase (decrease) in cash and cash equivalents(26,355)

19,867(280,380)

Cash and cash equivalents at beginning of year

72,37651,700769,954

455

809

4,846

¥46,476¥72,376$494,420

Cash dividends paid
Cash dividends paid to minority stockholders

Effect of exchange rate changes on cash and cash equivalents

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.

Sumitomo Heavy Industries, Ltd.

Annual Report 201365

Notes to Consolidated Financial Statements

1. Significant accounting
policies

Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan (“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 the convenience of readers outside Japan, using the prevailing exchange rate at March 31, 2013,
which was ¥94 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.

Principles of consolidation
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.

Marketable and investment securities
Held-to-maturity debt securities are stated at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Available-for-sale securities with fair values are stated atfair value. Unrealized holding gains and losses, net of applicable income taxes, on availablefor-sale securities are excluded from earnings and reported as a separate component of accumulated other comprehensive income until realized. Realized gains and losses from the sale ofsuch 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 availablefor-sale securities are stated at cost based on the moving-average method.

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

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.

66

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

The estimated useful lives of tangible assets are as follows:– Buildings and structure
10 to 50 years– Machinery and equipment 5 to 12 years(B) Lease assets
Property and equipment held under finance lease arrangements, which are not subject to theownership transfer from a lessor to a lessee, are depreciated on a straight-line basis over thelease 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 for general accounts receivables. For accounts receivable considered at risk (bankruptcy, companies
under reorganization plan), the required allowance is determined based on certain specificfactors such as current market conditions, customers’ financial condition, the amount ofreceivables in dispute, current receivables aging, and current payment patterns on an individual basis.

Allowance for warranty
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.

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

Employees’ severance and retirement benefits
In order to provide for retirement benefits to be paid to employees, the amount considered tohave been accrued at the end of the fiscal year is recorded based on the estimated amountsof retirement benefit obligations and pension plan assets at the end of the fiscal year.
Prior service costs are expensed as incurred for SHI or amortized using the straight-line
method over a period within the average remaining service life of the Company’s active
employees (mainly 12 years) for consolidated subsidiaries.
The actuarial gains (losses) are amortized using the straight-line method over a period within the average remaining service life of the Company’s active employees (mainly 12 years)
commencing from the following year of the incurrence.

Allowance for losses on product liabilities
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.

Sumitomo Heavy Industries, Ltd.

Annual Report 201367

Notes to Consolidated Financial Statements

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 or payable 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 of incomein 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.

Revenue recognition on construction contracts
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.

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, 2013 has declined by ¥19,515 million($207,608 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
¥10,001 million ($106,398 thousand) and ¥9,665 million for the years ended March 31,
2013 and 2012, respectively.

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

68

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

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
recovered or 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 affiliates are translated into Yenat the applicable balance sheet date exchange rates of each foreign subsidiary, except forcommon stock, capital surplus and retained earnings, which are translated at historical 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.

Reclassifications
Certain amounts in the consolidated financial statements for the year ended March 31, 2012
have been reclassified to conform to the 2013 presentation.

Change in accounting policies with amendment of respective law or regulation that are not distinguishable from change in accounting estimates
Change in depreciation method
From the year ended March 31, 2013, in accordance with the amendment in corporate tax
law, SHI and its domestic subsidiaries have changed its depreciation method for property,
plant and equipment. Assets acquired on or after April 1, 2012 are depreciated using themethod prescribed in amended corporate tax law. The effect of this change is insignificant
to the consolidated statements of income.

Impending application of newly issued accounting standards, etc.
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.

Sumitomo Heavy Industries, Ltd.

Annual Report 201369

Notes to Consolidated Financial Statements(2) Effective dates
They will be effective for the end of annual periods ending on or after March 31, 2014.
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.

2. Cash and cash equivalents

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, 2013 and 2012 consist of the following:
Millions of yen

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

3. Impairment losses
on fixed assets

Thousands of
U.S. dollars

2013

2012

2013

¥47,814(1,201)(137)¥46,476¥73,373(829)(168)¥72,376$508,663(12,782)(1,461)$494,420(A) The Company recognized the following impairment losses in the year ended March 31,
2013.

Use

Ships businessassets, etc.
Idle, etc.

Type of assets

Lands andbuildings, etc.
Lands andbuildings, etc.

Location

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

Total

Millions of yen

Thousands of
U.S. dollars

2013

2013

¥16,441$174,902

951¥17,392

10,121$185,023

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, 2013.

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.

70

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

(B) The Company recognized the following impairment losses in the year ended
March 31, 2012.
Millions of yen
Use

Common assets

Type of assets

Idle

Lands andbuildings, etc.
Lands and buildings

Business assets

Buildings, etc.

2012

Location

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

Total

¥229
254
205
¥688

Reason for recognition of impairment losses
Due to decline of profitability and related revision of the business plan for certain productlines, an impairment analysis was required. As a result of the cash flow analysis, it wasdetermined that the projected cash flows generated by the related assets were less thantheir carrying values, resulting in the impairment for the year ended March 31, 2012.

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.

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

Bank loans as of March 31, 2013 and 2012 consist of short-term loans, bearing averageinterest at 2.12% and 2.26% per annum, respectively.
Commercial paper as of March 31, 2013 bore interest principally at 0.11% per annum.
There was no balance of the commercial paper as of March 31, 2012.
The amounts of lease obligation under finance leases include the imputed interest expense
portion.
Long-term debts and lease obligations as of March 31, 2013 and 2012 consist of thefollowing:
Millions of yen

0.9% domestic bonds due in December 2014
Loans principally from banks and insurance companies
due serially through June 2018 with interest ranging
from 0.47% to 6.30% in FY2012
SecuredUnsecured
Lease obligations
Amount due within one year
Amount due after one year

Thousands of
U.S. dollars

2013

2012

2013

¥10,000¥10,000$106,383

199
30,316
5,609¥46,124
2,599
43,525

204
58,935
5,055¥74,194
21,19453,0002,113
322,51159,673$490,680
27,646
463,034

Sumitomo Heavy Industries, Ltd.

Annual Report 201371

Notes to Consolidated Financial Statements

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

Years ending March 31
2014
2015
2016
2017
2018
2019 and thereafter
Total

Thousands of
U.S. dollars

2013

2013

¥ 2,599
27,864
12,312
1,606
1,723
20

$ 27,646
296,427
130,976
17,084
18,332
215¥46,124$490,680

As of March 31, 2013 and 2012, assets pledged as collateral for long-term loans from banks
and contingent liabilities are as follows:
Millions of yen

Cash and time deposits
Buildings and structure
Land
Total

Thousands of
U.S. dollars

2013

2012

2013

¥ 122
849
131
¥1,102

¥ 168
746
115
¥1,029$ 1,295
9,040
1,393$11,728

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, 2013 and 2012, unused revolving lines of credit and global commitment
lines are as follows:
Millions of yen

Limit of revolving lines of credit andglobal commitment lines
Used
Unused

5. Income Tax

2013

2012

2013

¥51,041
2,275¥48,766¥48,730
4,980¥43,750$542,996
24,204$518,792

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%
and 41% for the years ended March 31, 2013 and 2012, respectively.
The following table summarizes significant differences between the statutory tax rate andthe effective tax rate for consolidated financial statement purposes for the years ended March
31, 2013 and 2012.
Statutory tax rate
Non deductible expenses for tax purpose such as meals andentertainment, etc.
Per capita inhabitant tax
Non taxable income such as dividend income
Tax rates difference
Valuation allowance
Equity in earnings (losses) of affiliates
Undistributed earnings in consolidated overseas subsidiaries
Others
Effective tax rate

72

Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars

Annual Report 2013

2013

2012

38.01%

40.69%

2.89
2.01(6.77)(5.87)
9.64(2.04)
4.05

0.82
0.55
(0.83)(3.86)
2.41
0.48(1.00)

0.76

7.03

42.68%

46.29%

Main components of deferred tax assets and liabilities as of March 31, 2013 and 2012 arepresented below:
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
Unrealized profit on inventories
Devaluation of marketable securities andinvestments 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
Unrealized gains or losses on hedging derivatives
OthersDeferred tax liabilities
Net deferred tax assets

6. Net assets

2013

2012

2013

¥ 3,231763
1,819¥ 3,390421
1,693$ 34,373
8,114
19,34816,442
1,377

15,456
1,379

174,917
14,651

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

1,388
981
3,144
2,089
172
—
9,449
39,562(12,461)¥27,101

12,4838,030
33,09348,60834,983
2,646
84,931
476,177(134,045)$342,132

(85)

(88)

(899)

(3,313)(2,069)(3,461)(1,994)(35,245)(22,013)(2,366)
(862)
—
(456)
¥ (9,151)¥23,009(1,930)
(784)
(252)
(243)
¥ (8,752)¥18,349(25,175)(9,175)—(4,849)$ (97,356)$244,776

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 distribution of
surplus is made, the smaller of an amount equal to 10% of the dividend or the excess, if any,of 25% of common 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 theentity’s non-consolidated financial statements in accordance with the Japanese laws andregulations.
Sumitomo Heavy Industries, Ltd.

Annual Report 201373

Notes to Consolidated Financial Statements

At the general shareholders’ meeting held on June 27, 2013, the shareholders resolved
cash dividend amounting to ¥2,455 million ($26,114 thousand). Such appropriations havenot been accrued in the accompanying consolidated financial statements as of March 31,
2013 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 ¥2,277 million ($24,221
thousand) and ¥5,261 million as of March 31, 2013 and 2012, 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 ¥37,684 million ($400,896 thousand) and ¥41,720 million as of March
31, 2013 and 2012, respectively.

8. Statement of comprehensive
incomeAmounts 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, 2013 and 2012 are as
follows:
Millions of yen

Unrealized gains (losses) 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
Revaluation difference on landTax (expense) or benefit
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

74

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Thousands of
U.S. dollars

2013

2012

2013

¥ 1,494(1,072)422
4426¥ (525)
2,050
1,525
(238)
1,287

$ 15,900(11,408)
4,492
37
4,529

(1,527)291(1,236)
425
(811)

548
(1,715)(1,167)487(680)(16,248)
3,097(13,151)4,525(8,626)

(682)
290
(392)
158
(234)

(2,636)193(2,443)847(1,596)(7,260)
3,085(4,175)
1,682(2,493)

—

3,918

—

10,234(3,967)

108,879(4)
3(1)¥ 9,614(3)—(3)¥(1,041)

(40)
30
(10)
$102,279

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 is based on current market price.
A summary of net sales, profits or losses, assets and other items by operating segments for the years ended March 31, 2013
and 2012 are as follows:
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 andplants

Total

Other

¥69,649
239
69,888¥ 5,358¥46,383¥46,013
86
46,099¥ 2,366¥52,848¥78,583
501
79,084¥ 5,575¥61,533¥577,410
4,695
582,105¥ 29,862¥563,604¥ 8,461
2,872
11,333¥ 1,361¥49,006¥¥ 1,419—
3,182¥ 1,663
16,441
—

¥

913
—
—

¥ 17,930
16,846
8,585

¥

¥

1,198

692

743

29,527

Construction
machinery

Industrial
machinery¥139,218 ¥152,773
1,733
23
140,951 152,796¥ 7,664 ¥ 6,132¥138,072 ¥158,186¥ 5,137 ¥ 4,526
7
29
1,450
3,953
6,516

12,983352
58—

Adjustment Consolidated— ¥585,871(7,567)—(7,567) 585,871¥
65 ¥ 31,288¥35,114 ¥647,724

361

—
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 (¥65 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥35,114 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.
Millions of yen
Reportable segment
Machinerycomponents

2012
Net sales:
Outside customers¥ 93,205
Inter-segment
2,311
Total
95,516
Segment income¥ 4,238
Segment assets¥104,660
Other items:
Depreciation¥ 3,750
Impairment losses on fixed assets
100
Investments in equity method affiliates—
Increase in property, plant andequipment, and intangible assets
7,517

Precisionmachinery

Ships

Environmental
facilities andplants

Total

Other

¥80,683321
81,004¥ 9,499¥59,344¥58,11190
58,201¥10,935¥79,266¥80,116607
80,723¥
6¥60,241¥615,202
4,763
619,965¥ 45,478¥591,524¥ 8,898
2,886
11,784¥ 1,632¥45,599¥¥ 1,536—
3,132¥ 2,081149—¥ 1,026——¥ 17,385
455
7,901

¥

¥

825

924

853

19,508Construction
machinery

Industrial
machinery¥144,145 ¥158,942
1,416
18
145,561 158,960¥ 12,507 ¥ 8,293¥144,860 ¥143,153¥ 5,063 ¥ 3,929
122
84
1,452
3,317
3,488

5,901

435
4
—

Adjustment Consolidated— ¥624,100(7,649)—(7,649) 624,100¥
25 ¥ 47,135¥54,718 ¥691,841

174

—
229
—

¥ 17,820
688
7,901

—

19,682

Notes: 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥25 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥54,718 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥229 million) is related to the Company’s corporate assets such as housing lots.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

Sumitomo Heavy Industries, Ltd.

Annual Report 201375

Notes to Consolidated Financial Statements

Thousands of U.S. dollars
Reportable segment
Machinerycomponents

Precisionmachinery

Construction
machinery

2013
Net sales:
Outside customers$ 969,932 $1,481,043 $1,625,247
Inter-segment
22,48018,437
243
Total
992,412 1,499,480 1,625,490
Segment income$ 29,435 $ 81,538 $ 65,229
Segment assets$1,133,846 $1,468,852 $1,682,830
Other items:
Depreciation$ 45,445 $ 54,648 $ 48,146
Impairment losses on fixed assets
3,933
75
304
Investments in equity method affiliates—
15,42942,043
Increase in property, plant and78,66569,321138,119
equipment, and intangible assets

Environmental
facilities andplantsIndustrial
machinery

Ships$740,949
2,539
743,488$ 56,996$493,437$489,496
915
490,411$ 25,172$562,216$835,996 $6,142,663 $ 90,002
5,325
49,93930,559841,321 6,192,602 120,561$ 59,312 $ 317,682 $ 14,483$654,609 $5,995,790 $521,343$$ 15,093—
33,855$ 17,691
174,902—$ 9,717 $ 190,740 $ 3,750—
179,214621—
91,327—$

12,749

7,357

7,903

Total

314,114

Other

3,847

Adjustment Consolidated— $6,232,665(80,498)—(80,498) 6,232,665$
684 $ 332,849$373,546 $6,890,679— $ 194,490
5,188
185,023—
91,327—

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 ($684 thousand) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets ($373,546 thousand) primarily represents of the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($5,188 thousand) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income has been reconciled with operating income in consolidated statements of income.

(B) Related information
Information by geographical area
1. Net sales
Millions of yen

Japan
U.S.A.
Other areas
Total

Thousands of
U.S. dollars

2013

2012

2013

¥277,075
73,227
235,569¥585,871¥296,335
65,199262,566¥624,100$2,947,604
779,0082,506,053$6,232,665* 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

76

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Thousands of
U.S. dollars

2013

2012

2013

¥157,953
52,699¥210,652¥175,482
44,330¥219,812$1,680,358
560,622$2,240,980

317,96110. Leases(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, 2013 and 2012 is as follows:
Millions of yen

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

2012
Machinery and equipment
Other tangible fixed assets
Intangible assets
Total

Acquisition cost

Accumulated depreciation

Carrying value¥6,871
1,239
121¥8,231¥4,627955
110¥5,692¥2,244284
11¥2,5392013
Machinery and equipment
Other tangible fixed assets
Total

Acquisition cost

Accumulated depreciation

Carrying value$48,566
6,898$55,464$35,088
5,788$40,876$13,478
1,110$14,588

Millions of yen

Thousands 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 ¥762 million ($8,104 thousand) and ¥1,225 million
for the years ended March 31, 2013 and 2012, respectively.
Future lease payments (including interest) under finance leases as of March 31, 2013 and2012 are as follows:
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2013

2012

2013

¥ 792
579
¥1,371¥1,2101,329¥2,539$ 8,424
6,164$14,588

Also, future lease payments under non-cancelable operating leases as of March 31, 2013
and 2012 are as follows:
Millions of yen

Future lease payments
Due within one year included in above

Thousands of
U.S. dollars

2013

2012

2013

¥2,251
1,107¥2,738
1,081$23,950
11,781(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, 2013 and 2012 are notdisclosed because the amounts are not material.
Future lease receivables under finance leases as of March 31, 2013 and 2012 are notdisclosed due to immateriality.

Sumitomo Heavy Industries, Ltd.

Annual Report 201377

Notes to Consolidated Financial Statements

Also, future lease receivables under non-cancelable operating leases as of March 31, 2013
and 2012 are as follows:
Millions of yen

Future lease receivables
Due within one year included in above

11. Financial instruments

Thousands of
U.S. dollars

2013

2012

2013

¥280
46

¥340
53

$2,982494(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 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 the ratio 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 loans, the Company enters into
an interest rate swap contract for each individual loan as hedging instruments.
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.

78

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

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 implemented a cash management system among major consolidated subsidiaries whereby SHI centralizes management of available funds within the consolidated groupcompanies. The Company timely formulates and updates the fund management plan basedon reports from business units and major subsidiaries, and monitors the liquidity risk.

(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, 2013 and 2012.
Certain financial instruments are excluded from the following table as the fair value information is not available.
Millions of yen

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)

2012
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¥ 73,373
181,248
12,596267,217
153,843
27,383
10,00059,139250,365(735)¥ 73,373
181,187
12,596
267,156
153,843
27,383
9,941
59,255
250,422(1,132)

¥ —
(61)
—
(61)
—
—
(59)
116
57
(397)

Millions of yen

Sumitomo Heavy Industries, Ltd.

Annual Report 201379

Notes to Consolidated Financial Statements

Thousands of U.S. dollars

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$ 508,663
1,843,614
139,004
2,491,281
1,208,242
510,978
106,383
324,624
2,150,227(13,712)$ 508,663
1,837,528
139,004
2,485,195
1,208,242
510,978
106,514327,122
2,152,856(18,840)$—(6,086)—(6,086)
—
—
131
2,498
2,629
(5,128)

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.

3. Investment securities
The market prices are used to estimate the fair values.

4. Trade payables and short-term bank loans
The carrying amounts approximate the fair values because of short-term settlement of these
instruments.

5. 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.

6. Long-term bank loans
The discounted cash flow method is used to estimate the fair values, based on marginal
borrowing rates as discount rates.

7. Derivatives
The fair values of forward exchange contracts are based on quoted forward exchange rates.
The fair values of options and interest rate 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

80

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Thousands of
U.S. dollars

2013

2012

2013

¥9,7172,394
11¥9,1382,176
11$103,374
25,465
112

The aggregate maturities of financial assets subsequent to March 31, 2013 and 2012 are
as follows:
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
169,588¥217,402¥ —3,325¥3,325

¥ —
387
¥387

Within one year

Over one year within
five years¥ 73,373
174,604¥247,977¥ —6,549¥6,549Millions of yen

2012
Cash and time deposits
Trade receivables
Total

Over five years

¥—
95
¥95

Thousands of U.S. dollars

2013
Cash and time deposits
Trade receivables
Total

Within one year

Over one year within
five years

Over five years$ 508,663
1,804,123$2,312,786$—
35,376$35,376$ —4,115$4,115The aggregate maturities of long-term bank loans and corporate bonds subsequent toMarch 31, 2013 and 2012 are as follows:
Millions of yen

2013Long-term bank loans
Corporate bonds

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¥19,796—¥26,044—¥12,174
10,000¥35—¥1,036—¥54—

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years$13,241—$159,843
106,383$123,948—$11,042—$16,361—$189—

Millions of yen

2012Long-term bank loans
Corporate bonds

Thousands of U.S. dollars

2013Long-term bank loans
Corporate bonds

Sumitomo Heavy Industries, Ltd.

Annual Report 201381

Notes to Consolidated Financial Statements

12. Investment securities(A) Carrying amounts of investment securities not stated at fair values asof March 31, 2013 and 2012 are disclosed in the Note 11. “Financial
instruments”.
(B) Acquisition costs and carrying amounts of marketable securities as ofMarch 31, 2013 and 2012 are as follows:
Thousands of
U.S. dollars

Millions of yen

Available-for-sale securities
Equity securities Acquisition cost
Carrying amount
Difference

2013

2012

2013

¥ 9,489
13,066¥ 3,577¥ 9,441
12,596¥ 3,155$100,947
139,004$ 38,057(C) Total sales amount of available-for-sale securities and the related net
gain in the fiscal years ended March 31, 2013 and 2012 are as follows:
Thousands of
U.S. dollars

Millions of yen

Sale of securities
Net gain

2013

2012

2013

¥1,362
1,342

¥563
251

$14,490
14,279(D) There were no available-for-sale securities with maturity and held-tomaturity securities as of March 31, 2013 and 2012.
(E) Impairment of securities
Impairment losses for securities were ¥0 million ($1 thousand) and ¥2,085 million for theyears ended March 31, 2013 and 2012, respectively.

13. Derivatives information

The Company enters into forward currency exchange contracts, interest rate swap contracts,
and currency option contracts as derivative financial instruments. The Company utilizes forward currency exchange transactions to hedge risk of fluctuation in a foreign 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.

(A) Forward foreign exchange contracts for which no hedge accounting isappliedThe aggregate contracted amounts to be paid / received and the fair values of forward foreign exchange contracts for which no hedge accounting is applied as of March 31, 2013 and2012 are as follows:
Thousands of
U.S. dollars

Millions of yen
2013

Contracted amounts to be paid/received:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Net unrealized exchange gain (loss)

82

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

¥

¥

102
14,967
(3)
(508)
(511)

¥

¥

2012

2013

725
26,171$ 1,089
159,220

(8)
(884)
(892)

(33)
(5,402)$ (5,435)

(B) Interest rate swap contracts for which no hedge accounting is applied
There are no interest rate swap contracts for which no hedge accounting is applied as ofMarch 31, 2013 and 2012.

(C) Forward foreign exchange contracts for which hedge accounting
is applied
The aggregate contracted amounts to be paid / received and the fair values of forward
foreign exchange contracts for which hedge accounting is applied as of March 31, 2013
and 2012 are as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred hedge accounting
Contracted amounts to be paid/received:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Alternative method (Note)
Contracted amounts to be paid/received:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Net unrealized exchange gain (loss)

2013

2012

2013

¥ 1,137
10,311¥ 587
18,326$ 12,098
109,691

151
(932)

19
138

1,602
(9,911)

131
1,422

138
1,131

1,398
15,124(3)(252)¥ (1,036)

(90)
(27)
40

(30)
(2,679)$ (11,018)¥

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.

(D) Interest rate swap contracts for which hedge accounting is applied
The aggregate amounts of interest rate swap contracts for which hedge accounting is applied
as of March 31, 2013 and 2012 are as follows:
Thousands of
U.S. dollars

Millions of yen

Interest rate swap contracts (special treatment) (Note)
Contract amounts to be paid/received:
Interest swap fixed rate to floating rate
Fair value:Interest swap fixed rate to floating rate

2013

2012

2013

¥16,795¥22,700$178,666

(224)

(280)

(2,386)

Note: When certain conditions are met, the net amount to be paid or received under an interest rate swap contract
is added to or deducted from interest on liabilities for which the interest rate swap contract is executed.

14. Employees’ severance
and retirement benefits

SHI provides both an unfunded retirement benefit 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”.

Sumitomo Heavy Industries, Ltd.

Annual Report 201383

Notes to Consolidated Financial Statements(A) Projected benefit obligation on the balance sheet dates consists of thefollowing:Thousands of
U.S. dollars
2013

Millions of yen
2013
2012

(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)¥(68,944)$(814,769)

33,011(43,577)4,444(36)¥(39,169)

28,807(40,137)
4,237
16¥(35,884)

351,182(463,587)
47,280(380)$(416,687)(B) The following severance and pension benefit expenses are included in
the statements of income for the years ended March 31, 2013 and 2012:
Thousands of
U.S. dollars
2013

Millions of yen
2013
2012

(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 (Note)(6) Severance and pension benefit expense¥3,062
1,471
(709)
1,743
118
¥5,685¥3,620
1,678
(691)
1,364
787
¥6,758$32,587
15,644(7,541)
18,5401,251$60,481Note: ¥706 million out of ¥787 million for the year ended March 31, 2012 represents the one-time amortization of priorservice cost generated due to the revision of SHI’s unfunded retirement benefit plan.

(C) Major actuarial assumptions used to determine pension obligations
as of March 31, 2013 and 2012 are as follows:(1) Allocation of the estimatedamount of all retirement
benefits to be paid at the
future retirement date(2) Assumed discount rate(3) Expected rate of return onplan assets(4) Amortization period of priorservice cost(5) Amortization period of
actuarial differences

15. Subsequent events

2013

2012

Equally to each service year
using the estimated numberof total service years

Equally to each service year
using the estimated numberof total service years

Mainly 1.5%
Mainly 0.0%

Mainly 1.5%
Mainly 0.0%

SHI: 1 year
Subsidiaries: Mainly 12 years
Mainly 12 years

SHI: 1 year
Subsidiaries: Mainly 12 years
Mainly 12 years

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, 2013, wereapproved at the SHI’s general shareholders’ meeting held on June 27, 2013:
Millions of yen

Year-end cash dividends ¥4.00 ($0.04) per share

2013

2013

¥2,455$26,114

The approved dividend will be paid to the shareholders as of March 31, 2013.

84

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Thousands of
U.S. dollars

Independent Auditor’s Report

Sumitomo Heavy Industries, Ltd.

Annual Report 201385

Major Subsidiaries and Affiliates(As of April 1, 2013)

Segment

Machinery
Components

Precision
MachineryBusiness
Power Transmission andControl Equipment

Plastic Injection Molding
Machines

Telephone Number

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.

0562-48-5115

SEISA Gear, Ltd.

0724-31-3021

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

Sumitomo (SHI) Cyclo Drive China, Ltd.

86-22-2499-3501

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-955-0010

Sumitomo (SHI) Cyclo Drive Germany GmbH49-8136-66-0

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.

65-6-591-7800

Sumitomo (SHI) Cyclo Drive Korea, Ltd.

82-2-730-0151

Sumitomo Machinery Corporation of America

1-757-485-3355

Sumitomo Industrias Pesadas do Brasil Ltda.

55-11-5585-3600

SM Cyclo of Canada, Ltd.

1-905-469-1050

Hansen Industrial Transmissions NV

32-3-450-12-11

Sumitomo Heavy Industries Modern, Ltd.

045-547-7711

Sumiju Platec Co., Ltd.

043-420-1558

Sumiju Logitech Co., Ltd.

043-420-1680

Izumi Seiki Co., Ltd.

0897-32-6232

Ningbo Sumiju Machinery, Ltd.

86-574-86805901

Sumitomo (SHI) Demag Plastics Machinery GmbH49-911-5061-717

SHI Plastics Machinery, Inc. of America

1-770-447-5430

SHI Plastics Machinery (Hong Kong) Ltd.

852-2750-6630

S.H.I. Plastics Machinery (S) Pte. Ltd.

65-6-779-7544

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

Cryogenic Equipment

86

Company Name

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Segment

Construction
Machinery

Industrial
MachineryBusiness
Hydraulic Excavators

Company Name

Telephone Number

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

03-6737-2600

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

03-6737-2610

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

61-3391000

LBX Company, LLC

1-859-245-3900

Sumitomo Heavy Industries (China) Financial Leasing, Ltd.

86-21-5204-9192

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY INDONESIA

62-21-5795-2254

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY SOUTHEAST ASIA

62-21-8910-8688

Mobile Cranes

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

1-859-263-5200

Material Handling Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

03-6737-2640

Forging Presses

Sumijiu Technocraft Co., Ltd.

0897-32-6306

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Forklift Trucks

Sumitomo NACCO Materials Handling Co., Ltd.

0562-48-5251

Quantum Equipment
and Ion Accelerators

Sumiju Examination & Inspection, Ltd.

0898-65-4868

SHI Accelerator Service Ltd.

03-5434-8468

Japan Electron Beam Irradiation Service Co., Ltd.

03-5434-8467

Sumiju Magnet (Kunshan) Co., Ltd.

86-512-5768-9200

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

OthersSumitomo 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

Sales 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 201387

Glossary

Machinery Components[Cyclotrons]
A cyclotron is an accelerator for particles that it ionizes using magnetic
force. SHI is the only manufacturer of these devices in Japan and has the[Power transmission and control equipment]

top share of the domestic market for cyclotrons for positron emission tomo-

Power transmission and control equipment raises torque as the rotarygraphy (PET) applications, which are highly effective in discovering andspeed of a motor is reduced to an optimum level. This kind of equipment

pinpointing cancer cells.

has many applications, including elevators, escalators, industrial robots andfactory production lines. SHI produces a wide range of power transmission
and control devices, from micro-miniature devices with a motor capacity of
6 watts to very large devices of several thousand kilowatts. SHI has

Compact cyclotron
for PET “HM-12S”

the leading share of the Japanese market for this equipment.

CYCLO®
speed reducer[Ion-implantation devices]®

Hyponic Gearmotor

To create the transistors and other components that comprise semiconductors, the necessary type/volume of elements required for such components
must be added to a flat silicon single-crystal substrate known as a wafer.

Precision Machinery

Ion-implantation devices electrically ionize the elements and accelerate theresulting ions at high voltage for high-precision injection into the wafer.

[Plastic injection molding machines]
Plastic injection molding machines are used to pour melted plastic into
molds. Of the two system types, hydraulic and electromotive, the latterenables greater molding precision. SHI specializes in the precision, high-cycle
molding required for manufacturing optical discs and connectors.
Single-wafer, high-current
ion-implantation device“SHX-III/S”[Cryocoolers]
Cryocoolers utilize a process under which
Full-electric plastic injection
molding machine

helium gas is compressed and expanded,enabling cooling to temperatures nearabsolute zero (-273˚C).

[Proton therapy system]
Proton therapy is a type of radiation therapy that destroys cancer cells bybombarding affected areas with a proton beam. Allowing the minimally
Cryogenic equipment

invasive treatment of cancer cells, proton therapy systems minimize damage
to surrounding normal cells, thus reducing burden on the patient’s body.

[Laser drills]

Due to such features, these systems eliminate the need for hospitalization

Laser drills employ laser beams to cut holes in insulating resin. Primarily

and enable the outpatient treatment of cancer.

applied during printed circuit board manufacturing processes, theCompany’s laser drills boast the industry’s highest speeds with the potential
to cut over 1,000 holes per second.

Laser drills
Rotating gantry
irradiation system

88

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

Construction Machinery

Ships[Telescopic machinery][Aframax tankers]

Telescopic refers to a configuration that can both contract and expand much

Aframax tankers are mid-sized oil tankers with dead weight freight capacity

like the term “telescope” in English. The telescopic boom crawler crane, forin the 80,000 to 120,000MTDW class.

example, delivers a crane arm that can both extend and contract.
Telescopic machinery

Aframax tankers

Environmental Facilities & Plants[Asphalt pavers]
Self-propelled machines used to spread[Circulating fluidized-bed (CFB) boiler]

asphalt when paving roads; SHI is

Employing jets of air blown from below to evenly mix fuel particles at a highthe market leader in asphalt

temperature, this CFB boiler is an efficient combustor suitable for use withpavers in Japan.

a wide variety of fuels. The CFB boiler can even burn such renewable energy
fuels as low-grade coal and biomass-based fuels.

Asphalt paver “HA60W”

Industrial Machinery[Continuous ship unloaders]Circulating fluidized-bed(CFB) boiler

Continuous ship unloaders
are large harbor-installed
hoists used for the continu-[Superfine-bubble membrane tube diffusers]

ous unloading of iron ore

Superfine-bubble membrane tube diffusers are used for aeration systems

and other bulk raw materials

at sewage treatment facilities. The use of a high-quality silicon rubberfrom cargo vessels at dock.

membrane for the diffuser tubes contributes to the high performance

SHI has the top share of thisand durability of the systems.

market in Japan.
Continuous ship unloader[Ladle cranes]
Ladle cranes are generally used at steelworks to convey molten steel and hot
metals.

Superfine-bubble membranetube diffuser “MICRAS®”

Ladle cranes

Sumitomo Heavy Industries, Ltd.

Annual Report 201389

Corporate Data
(As of March 31, 2013)

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 Listings: Tokyo, Osaka
Shares Outstanding: 614,527,405
Number of Shareholders: 56,541

Founded: 1888

Major Shareholders:

Incorporated: November 1, 1934

Name of shareholder

Paid-in Capital: ¥30,871,651,300

The Master Trust Bank of Japan, Ltd. (Trust account)

Number of Employees: 18,245 (Consolidated)Japan Trustee Services Bank, Ltd. (Trust account)
Sumitomo Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust account 9)
Sumitomo Mitsui Banking Corporation
Sumitomo Heavy Industries, Ltd. Kyoeikai
SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS
Trust & Custody Services Bank, Ltd.

2,446 (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
Kyushu Office
6-20, Nakasu 5-chome, Hakata-ku, Fukuoka-shi,
Fukuoka 810-0801, Japan
Tel: 81-92-283-1670
Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi, Tokyo 188-8585, Japan
Tel: 81-42-468-4104
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

Percentage ofvoting rights(Equity investment trust account)

Japan Trustee Services Bank, Ltd. Sumitomo Mitsui
Trust Retirement Benefit Trust Account
STATE STREET BANK AND TRUST COMPANY 505224

7.3
7.1
3.6
2.7
2.6
2.0
1.7
1.4
1.4
1.3

Breakdown of Shareholders as of March 31, 2013:
Breakdown of shareholders

Number of shares held (unit 1,000)

Financial Institutions
Securities Companies
Individuals and Others
Foreign Investors
Other Japanese Corporations

242,490
18,166112,432
201,454
39,986The “Other Japanese Corporations” category also includes treasury stock, government institutions and local governments.
Number of shares held are rounded down to the nearest 1,000.
Other Japanese Corporations 6.51%

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

Foreign Investors 32.78%

Financial Institutions 39.45%

Ehime Works–Niihama Factory
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Tel: 81-897-32-6211

Securities Companies 2.96%

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 18.30%

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
90

Sumitomo Heavy Industries, Ltd.

Annual Report 2013

http://www.shi.co.jp

Printed in Japan

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