Sumitomo Heavy Industries

Sumitomo Heavy Industries
Annual Report 2011
For the year ended March 31, 2011

Annual Report 2011

For the Future, For the Dream
http://www.shi.co.jp

Printed in Japan O050E111

1
2Powering Global Growth68

Financial Highlights

At a Glance
2 Increasing Our Global Presence
4 Enhancing Our Business Portfolio

To Our Shareholders, Customers andEmployees
China

10

Review of the “Global 21” Medium-Term
Management Plan

12
14
18

“Innovation 21” New Medium-Term
Management Plan

19

Interview with the President

Indonesia

20

Special Feature: The SHI Group’s
Strategies in Asia
Capturing Growth Markets

23

Review of Operations

33

Initiatives to Support the SHI Group’s
Sustainable Growth

M Machinery Components
N Precision Machinery
P Construction Machinery
R Industrial Machinery
T Ships
U Environmental Facilities & Plants

X Research and Development
Z Intellectual Property[ Corporate Governance` Directors, Corporate Auditors and Executive Officers
a Environmental and Social Contribution Initiatives

43
76
78
80

India

21

Thailand

21

Vietnam

22

Financial Section
Major Subsidiaries and Affiliates
Glossary
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 and determined subjectively. Future performance is not guaranteed and all information related to future performance contained
herein is subject to changes in the business environment.

Consolidatedn
N
Net Sales in Fiscal 2013

¥730.0
¥

bn

Japan

Powering Global Growth
The SHI Group successfully returned to a growth path by accurately capturing robust demand in rapidly growing
markets in China and other countries. Through the strategic implementation of the new “Innovation 21”
medium-term management plan, the Group is working to realize additional growth and greater profitability.
02

03

04

05

06

07

08

09

10

11

Target12

Restructurings’04’

Leap to Excellencec ’07

Global 21

Innovationn21(FY2002–2004)
Y
4(FY2005–2007)
Y
7(FY2008–2010)
FYY
0(FY2011–2013)
Y

2013

Overseas

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 1

At a Glance

Increasing
Our Global Presence
The SHI Group is expanding its global presence and today operates business bases in

Sales in Japan(¥ Billion)
320

240

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

160

80

25 countries across the world. We are bolstering our position in the global market bygrowing a worldwide customer base for the diverse range of products and services the

0

(FY)

08

09

10

Group offers. During fiscal 2010, ended March 31, 2011, the Group undertook aggressive
investments in growth markets, focusing on Asia and other emerging countries.

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

June 2010 (United States)
Mobile crane manufacturing plant
capacity expanded

September 2011 (Brazil)
Gearbox manufacturing plant

to be established
July 2010 (Brazil)
Regional headquarters established

North America
Sales in the Americas(¥ Billion)
120

South America

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

60

0

(FY)

쏋 Regional headquarters
쏹 Manufacturing base• Principal sales and service bases
Note: Sales in the graphs do not include Ships segment sales.

2 | Sumitomo Heavy Industries
Industries, Ltd.

Annual Report 2011

08

09

10

April 2009 (Japan)

July 2011 (Indonesia)

Semiconductor equipment manufacturer
and marketer SEN Corporation made awholly owned subsidiary

October 2010 (Japan)
Nihon Spindle Mfg. Co., Ltd.
made a wholly owned subsidiary

August 2010 (Shanghai, China)

Hydraulic excavator
manufacturing plant established

Area management company
established

December 2010 (Indonesia)
Sales branch for hydraulicexcavators established

January 2011 (Shanghai, China)
Investment company establishedJapan

December 2010 (Indonesia)
Regional headquarters established
Sales subsidiary of SEN
Corporation established
July 2010 (Taiwan)

Gearbox and hydraulic excavator

manufacturing plant to be expanded
2011/2012 (Tangshan, China)

Sales branch for energy-related
plants established
June 2010 (Thailand)

Asia

Sales in China(excluding Taiwan and Hong Kong)(¥ Billion)
80

2010 (Germany)
Speed reducer manufacturing plant
capacity enhanced

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

40

March 2011 (Belgium)

0

(FY)

Industrial gearbox manufacturer and marketer
Hansen Industrial Transmissions NV acquired

08

09

10

Sales in Asia and Others(¥ Billion)
80

Europe쐽 Environmental Facilities & Plants
쐽 Industrial Machinery쐽 Construction Machinery쐽 Precision Machinery쐽 Machinery Components

40

Sales in Europe0(¥ Billion)

(FY)

50

09

10

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

25

0

(FY)

08

08

09

10

Sumitomo Heavy Industries, Ltd. Annual Report 2011 | 3

Enhancing Our Business Portfolio
The SHI Group is pursuing business development in fields ranging from industrial machinery to large-scale plants. The Group consistently offers
first-class products and services that maximize customer value in each of these business fields while striving to secure high market shares andprofitability. At the same time, we are strengthening inter-segment R&D collaboration, thereby enhancing our product-innovation capabilities andthe product value we deliver. In fiscal 2010, SHI was able to secure profitability in all of its business segments.

Machinery Components
Sales

Precision MachineryOperating income

74.6 4.9
Billion yen

Sales

Construction MachineryOperating income

131.9 8.3

Billion yen

Billion yen

Sales

Operating income

130.8 5.3

Billion yen

Billion yen

Billion yen

Main Products

Main Products

Main Products

Power Transmission and Control Equipment

Plastic Injection Molding Machines

Hydraulic Excavators

Inverters

Cyclotrons for Medical Use, Ion Accelerators

Mobile Cranes

Plasma Coating System for FPDs (Flat PanelRoad Machinery

Displays)
Laser Processing Systems
Cryogenic Equipment, XY Stages
Transfer Molding Press Machines
Precision Forgings, Defense Equipment

Sales and Operating Income(¥ Billion)

Sales and Operating Income(¥ Billion)

100

15

160

20

80

12

120

15

60

9

80

10

40

6

40

5

20

3

0

0

0
(FY)

-5

0
06

07

08

09

(FY)

10

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

4 | Sumitomo Heavy Industries, Ltd.

06

07

08

09

10

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

Annual Report 2011

Sales and Operating Income(¥ Billion)

200

20

150

15

100

10

50

5

0
(FY)

0
06

07

08

09

10

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

1.6%

3.3%
쐽 Machinery Components

13.9%

쐽 Precision Machinery

13.6%¥548.0 billion

21.6%

쐽 Environmental Facilities & Plants

22.4%

Industrial Machinery

Ships

Operating income

11.5%쐽 Others

23.9%¥45.8 billion

18.2%

쐽 Ships

24.1%

Consolidated
Operating Income

10.6%쐽 Industrial Machinery

10.9%
12.1%

Sales

12.2%

쐽 Construction Machinery

Consolidated Net Sales

Sales

Environmental Facilities & Plants

Operating income

Sales

Operating income

66.5 10.3

59.5 9.9

76.1 5.6

Billion yen

Billion yen

Billion yen

Billion yen

Billion yen

Billion yen

Main Products

Main Products

Main Products

Forging Machines

Ships

Power Generation Systems

Material Handling Systems

Industrial Wastewater Treatment Systems

Logistics & Handling Systems

Water and Sewage Treatment Systems

Turbines

Landfill Leachate Treatment System

Pumps

Air Pollution Control Plants
Chemical Process Equipment & Plants
Pressure Vessels, Mixing Vessels
Steel Structures, Food Processing Machinery

Sales and Operating Income(¥ Billion)

100

20
16

80
60

12

40

8

20

4

0
(FY)

0
06

07

08

09

10

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

Sales and Operating Income(¥ Billion)

Sales and Operating Income(¥ Billion)

70

14

120

15.0

60

12

100

12.5

50

10

80

10.0

40

8
60

7.5

30

6

20

4

40

5.0

10

2

20

2.5

0

0
(FY)

0
(FY)

06

07

08

09

10

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

0.0
06

07

08

09

10

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 5

Financial Highlights
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

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

FY2006

FY2007

FY2008FY2009FY2010FY2010$6,602,594

Summary of Income (for the year):Net sales¥600,256¥660,769¥642,918¥516,165¥548,015

Machinery Components

91,116

96,522

91,876

69,04074,591

898,686

Precision Machinery

131,789

136,071

135,351

105,191

131,944

1,589,691
1,576,042

Construction Machinery

160,177

179,370

159,154

102,650

130,811

Industrial Machinery

68,286

81,16384,31085,63766,544

801,736

Ships

45,17553,781

56,02862,92759,496

716,824

Environmental Facilities & Plants

88,738100,682

106,479

81,88476,070916,511

Others

14,974

13,181

9,720

8,835

8,558

103,104

64,224

77,79056,94028,25445,803551,847

Operating income
Machinery Components

13,433

12,579

7,033

861

4,874

58,724

Precision Machinery

15,186

15,6475,307(2,603)

8,340

100,484

Construction Machinery

14,396

16,286

7,543

571

5,290

63,735

Industrial Machinery

10,302

13,93013,585

14,167

10,252

123,517

Ships

3,349

9,969

9,098

6,664

9,897

119,238

Environmental Facilities & Plants

4,750

7,526

13,040

7,101

5,566

67,055

2,568

1,710

1,131

1,376

1,518

18,293

EBITDA (Note 3)

Others

74,873

91,57875,26047,97963,744

768,003

Net income

37,352

42,974

13,64913,28027,926

336,461

Capital expenditure

17,25728,18031,75324,465

14,292

172,193

R&D expenses

8,581

9,908

10,047

8,187

8,228

99,133

Depreciation and amortization

10,64913,78818,32019,725

17,941

216,156

Cash flows from operating activities

56,78929,096

34,67657,51336,521

440,012

Cash flows from investing activities(12,461)(41,250)(35,924)(13,954)(23,513)(283,287)

Free cash flows (Note 4)

44,328(12,154)(1,248)43,55913,008

156,725

Cash flows from financing activities(41,193)(5,238)15,625(26,686)(22,020)(265,304)

Notes:
1. The U.S. dollar amounts have been translated, for convenience only, at ¥83=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2011.
2. From fiscal 2010, SHI adopted the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information (ASBJ Statement No. 17 of March 27, 2009). In line with thisadoption, SHI has changed its business segmentation from the period under review. Past figures are presented pro forma based on the new segmentation.
3. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
4. Free cash flows = Cash flows from operating activities + Cash flows from investing activities

Net Sales

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

(%)

700

80

16

50

25

600

70

14
40

20

60

12

50

10

30

15

40

8

30

6

20

10

20

4
10

5

10

2

500

Net Income and ROE

400

300

200

100

0

(FY)

06

07

08

09

10

0

(FY)

06

07

08

09

10

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

6 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

0

0

(FY)

06

07

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

08

09

10

0

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

FY2006

FY2007

FY2008FY2009FY2010FY2010$7,552,160

Financial Position (at year-end):
Total assets¥600,890¥678,634¥657,436¥610,087¥626,829

Interest-bearing debt

88,04589,567110,339

87,66067,833

817,271

Total net assets

206,010

246,371

238,697

254,153

269,380

3,245,537

Amounts per Share of Common Stock:

U.S. dollars(Note 1)Yen

Net income (Note 5)¥ 61.99¥ 71.19¥ 22.62¥ 22.01¥ 45.87$0.55

Stockholders’ equity

338.95392.80378.78404.73435.10

5.24

7.00

10.00

6.00

4.00

8.00

0.10

Cash dividends

Share Data:

U.S. dollars(Note 1)

Yen

Stock price at year-end¥1,174

¥644

¥325

¥563

¥543

$6.54
Thousands of
U.S. dollars(Note 1)Millions of yen

Market value¥708,972¥388,707¥196,127

Financial Indexes:¥339,720¥333,622

7.8$4,019,543%

ROIC (Note 6)

12.2

14.0

9.6

4.8

Operating income margin

10.7

11.8

8.9

5.5

8.4

EBITDA margin

12.5

13.9

11.7

9.3

11.6

Stockholders’ equity ratio

34.1

34.9

34.8

40.0

42.6

ROA (Return on assets)

6.3

6.7

2.0

2.1

4.5

ROE (Return on equity)

20.1

19.5

5.9

5.6

10.9

Interest-bearing debt ratio

14.7

13.2

16.8

14.4

10.8

¥118

¥100

¥98

¥93

¥83

Yen

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

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

Total Assets andStockholders’ Equity Ratio

Interest-Bearing Debt andInterest-Bearing Debt Ratio

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

800

60

150

25

50

120

20

40
600

45

400

30

200

30
90

15

60

10

30

5

20

10

0

15

-10

0

(FY)

06

07

08

09

10

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

0

0

(FY)

06

07

08

09

10

0

-20

(FY)

06

07

08

09

10

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 7

To Our Shareholders, Customers and Employees

We are Strengthening Our Competitive Advantages andGrowing into a “Strong and Powerful SHI” Capableof Achieving Sustainable Growth.
During fiscal 2010, ended March 31, 2011, the Japanese economy

will lead the Group into global growth, such as the establishment

witnessed signs of recovery supported by economic growth inof new overseas production bases.

emerging countries. Nevertheless, severe conditions persisted,

Then, in April 2011 we launched “Innovation 21,” our new

exacerbated by such factors as the rapid appreciation of the yen.

medium-term management plan. Extending over the next three

In contrast, overall conditions overseas remained on a path toward

years to March 31, 2014, “Innovation 21” upholds the principles ofrecovery. China and other emerging countries continued to enjoy“Global 21”; therefore, the SHI Group will continue to promotesteady economic expansion, and the United States and other devel-

growth strategies with an eye to securing success in the global

oped countries in Europe and other regions sustained mild recovery

arena. We will flexibly adjust to changes in the global market struc-throughout the period.

ture and strive to swiftly enhance our competitiveness in order to

In such an environment, the SHI Group continued to implement

ensure that we grow into a “Strong and Powerful SHI,” a company

cost reduction measures, including those aimed at improving its

capable of achieving sustainable growth under any operating con-production efficiency. At the same time, the Group aggressively

ditions. To overcome the various management issues we are facing

promoted business development overseas, especially in China andtoday and realize business breakthroughs, innovation is a must.

other emerging countries where economies are rapidly gaining

Innovation will empower us to bring about drastic improvements inmomentum. As a result, in the reporting term, SHI posted results

our corporate constitution for greater competitiveness. Therefore,that were higher across the board than in fiscal 2009. In particular,

the SHI Group will aggressively promote innovation in its products

the volume of orders received and operating income showed signif-and business processes.

icant improvement. We were able to increase orders by accurately

The SHI Group has always tried to contribute to the development

capturing demand in growth markets. We were also able toof society through the provision of first-class products and services.

increase earnings by promoting cost reductions and structural

This is our corporate mission. Winning the enduring confidence ofreforms, which, in turn, enhanced profitability.

customers worldwide is key to realizing sustainable growth and

The SHI Group launched the previous “Global 21” medium-term

enhancing corporate value, and will, in turn, enable us to better

management plan in fiscal 2008. Shortly after the launch ofmeet the expectations of shareholders, customers and employees“Global 21,” the world economy was shaken hard by the U.S.

as well as the local communities in which we operate.

financial crisis and the resultant global recession, and the businessAs we endeavor to develop into a “Strong and Powerful SHI,”

environment remained difficult for some time. However, the SHI

we thank all shareholders, customers and employees for theirGroup prioritized securing a satisfactory level of revenues andunderstanding and support.

earnings through the agile implementation of the aforementioned
reforms. Moreover, we shifted focus toward growth, striving to precisely grasp opportunities in areas where demand was recovering
due to rapid economic growth in emerging countries. From thesecond half of fiscal 2009, SHI has seen a steady rise in perfor-

Yoshio Hinoh

mance. Unfortunately, the negative impact of the sluggish market

Chairmanconditions in the aftermath of the 2008 global recession kept theGroup from meeting its “Global 21” targets in fiscal 2010, the final
year of the plan.
Despite the temporary suspension of certain investment plans,
we undertook growth-focused investments toward the end of the“Global 21” term. Through these investments, we worked to bet-

Yoshinobu Nakamura

ter prepare the ground for implementing the future strategies thatPresident and CEO

8 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Left:
Yoshio Hinoh
ChairmanRight:
Yoshinobu Nakamura
President and CEO

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 9

Review of the “Global 21” Medium-Term Management Plan
(Plan Period: April 1, 2008 to March 31, 2011)

Keywords for Growth and Specific Initiatives

policies included facility investments totaling ¥100.0 billion and

The SHI Group launched the “Global 21” three-year plan in fis-

R&D investments totaling ¥50.0 billion. Based on these policies,

cal 2008. Under this plan, we have worked hard to grow in the

we promoted investments in global business network expansion

global market and take a leap forward toward making SHI a

and the creation of first-class, competitive products and services.

world-leading brand. During the term of the plan, the domestic
market continued to mature, while the ongoing rapid market

Financial Performance

expansion in China and other emerging countries provided

For fiscal 2010, the final year of “Global 21,” SHI set the targets

many business opportunities. In this environment, the quickof achieving net sales totaling ¥850.0 billion and operating

establishment of the Group’s competitive advantages in theincome totaling ¥100.0 billion. Unfortunately, due to the global

global market became a priority issue.

recession during much of the plan’s period, the SHI Group was
unable to meet these targets. As the recession eased, operating

The SHI Group abided by its keywords for growth—namely,“globalization” and “innovation”—under “Global 21,” imple-

conditions remained severe, and the entire Group strove tomenting initiatives aimed at securing continuous expansion.

reduce fixed and other costs while promoting business restruc-

Specifically, we worked to create first-class products and servic-

turing, prioritizing certain operations to secure a viable level of

es that are competitive on the global level while using these

profitability. Simultaneously, by accurately capturing businessproducts and services to selectively target overseas markets.

opportunities that arose along with the rising demand accompa-

We also established and adhered to three-year investmentnying rapid economic development in China and other emerging
countries, we were able to shift back into expansion mode.

policies aimed at ensuring growth on a global scale. These
Review of “Global 21”• The SHI Group promoted business restructuring to overcome the global recession and return to a recovery course while undertaking investments
in line with its investment policies.
“Global 21”

Result• Net sales of ¥850.0 billion

Fiscal 2010 targets• Operating income of ¥100.0 billion

Despite the impact of the global recession, the SHI Group embarked on a recovery
course through business restructuring.

• ROIC* of 10% or more

Keywords for
growth• Globalization

Globalization progressed remarkably. The SHI Group will concentrate on innovation• Innovationfrom fiscal 2011 onward.

Three-year
investment policies• Facility investments totaling ¥100.0 billion

The SHI Group carried out growth-focused investments while prioritizing• R&D investments totaling ¥50.0 billion

financial soundness.

The SHI Group Performancein Fiscal 2010
(Final Year of “Global 21”)

• Although the Group was unable to achieve its net sales and operating income targets,it embarked on a recovery course.
TargetOrders received

Total Investments over the“Global 21” Period(Fiscal 2008 to Fiscal 2010)

Result—¥534.9 billion

Net sales¥850.0 billion¥548.0 billion

Operating income¥100.0 billion¥45.8 billion

ROIC

10% or more

7.8%

• The SHI Group carried out facility investments to expand its overseas production network. The Group undertook M&A to enhance operations in Machinery Components andPrecision Machinery while implementing R&D investments to create first-class products
and services. Three-year investments totaled approximately ¥130.0 billion.
Plan

ResultFacility investments¥100.0 billion¥70.6 billion

R&D investments¥50.0 billion¥31.1 billion

M&A—¥26.8 billion

Total¥150.0 billion¥128.5 billion* Return on invested capital

10 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

This strategic shift proved effective, enabling the Group to

World Cup Brazil and the 2016 Summer Olympics. To maintainembark on a course of recovery in the second half of fiscal 2009.

stable supplies and increase sales of its products, the SHI Group

With the easing of the global recession, SHI placed priority onplans to establish a local subsidiary, thereby expanding its busi-

ensuring financial soundness and, accordingly, slowed down

ness in Brazil and South America.

investments temporarily. However, once it had been confirmed• Expansion of the Tangshan Plant to Increase Gearbox andthat economic recovery centered on emerging countries was

Hydraulic Excavator Output

under way, we resumed growth-focused investments and laid

In August 2010, the SHI Group decided to invest about ¥10.0

out steppingstones on the path toward achieving global growth.

billion to more than double the production capacity of its
Tangshan Plant, which manufactures gearboxes and hydraulic

Steppingstones for Future Global Growth

excavators. The Tangshan Plant commenced production in 2009

In addition to creating first-class competitive products and ser-and has steadily expanded its operations since. Falling into thevices, the SHI Group promoted the “Global 21” plan tocategory of medium- and large-sized gearboxes, these products

strengthen its sales network and marketing activities, reinforce

are used in a wide range of industrial machinery for mining andits production network and bolster its global supply chain.

steelmaking and in a variety of infrastructure facilities for water

Meanwhile, the Group undertook M&A activities aimed at gen-treatment and other purposes. Markets for such machinery anderating synergies that enhance the efficiency and profitability offacilities are slated to expand further. Regarding hydraulic exca-

its established businesses. The following illustrates major proj-

vators, robust demand in China has caused supply to constantly

ects undertaken by the Group under “Global 21.”

fall short, and such short supplies are expected to prevail over

• Construction of a New Hydraulic Excavator Plant in Indonesia

the medium term. In response, the SHI Group resolved to

In May 2010, the SHI Group decided to construct a newenhance capacity. Backed by the expansion of the Tangshan

hydraulic excavator plant in Indonesia. The total investment is

Plant, the Group will step up sales in China—a country withestimated at around ¥2.3 billion, and the planned initial capaci-strong potential for additional growth—and otherwise develop

ty is set at 1,000 units a year. The new plant is scheduled to

its Chinese operations further.

begin operations in September 2011. This Indonesian plant will

• Acquisition of Belgium-Based Hansen Industrial Transmissions NV

be the Group’s third hydraulic excavator production and supply

In March 2011, SHI acquired equity in Belgium-based Hansenbase after the Chiba Works in Japan and the Tangshan Plant inIndustrial Transmissions NV (HIT), making the company a wholly

China. Indonesia is the largest market in Southeast Asia,

owned subsidiary. Total acquisition costs amounted to approxi-

accounting for the majority of construction machinery demandmately ¥10.0 billion.

in the region. Supported by increasing demand for natural

The SHI Group has continued to strengthen its speed reducer

resources and the quickening pace of social infrastructurebusiness, one of its core businesses. With speed reducer

development, the country is expected to show an even greater

demand expected to increase along with stable economic

rise in construction machinery demand. Along with thegrowth in emerging countries, the market for industrial gear-

Indonesian plant, we have decided to establish a local sales andboxes is anticipated to expand, buoyed by robust capital

servicing subsidiary. Through these business bases, we aim toinvestments in China, South America, South Africa, Australia,

expand our construction machinery business in the entire

India and other resource-rich countries. With its production

Southeast Asian market.

base near Antwerp serving as its center of operations, HIT• Construction of a New Gearbox Manufacturing Plant in Brazil

operates six assembly bases worldwide. Through these bases,

In May 2010, the SHI Group decided to build a new plant in

HIT boasts powerful sales channels not only in Europe but

Brazil for the production of medium- and large-sized gearbox-

also in South Africa and Australia, both of which are major

es. The Group will invest approximately ¥5.2 billion and plans

resource-producing countries boasting markets with significant

to commence operations at this new plant by the end of 2011.

growth potential. SHI has received gearbox-related technologi-

The gearboxes to be manufactured at this new plant have vari-cal support from Hansen Transmissions International NV—theous applications, such as in cranes, cement and coal mills,

former parent company of HIT—since 1973. Building on thispower generation systems and elevators. Infrastructure invest-

relationship, we expect to quickly generate synergies by work-ments are anticipated to further accelerate in Brazil due toing with HIT in product development. Through this new subsid-

increased demand for iron ore and other natural resources asiary, SHI aims to expand its sales channels and increase sales ofwell as because of preparations in anticipation of the 2014 FIFA

its industrial gearboxes in overseas markets.
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 11

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

Basic Policy

March 31, 2014, the SHI Group is aiming for net sales totaling

The SHI Group launched a new medium-term management¥730.0 billion, operating income totaling ¥73.0 billion andplan, “Innovation 21” in April 2011. Under this new plan, thereturn on invested capital (ROIC) of 10% or more. As a

SHI Group aims to realize a “Strong and Powerful SHI.” This

long-term target, the Group is working toward achieving“Strong and Powerful SHI” must be capable of sustaining¥1 trillion in annual net sales. We have set out an investment

growth by reinforcing its competitive advantages and flexibly

policy that earmarks a total of ¥150.0 billion for use in facilities

adjusting to changes in operating conditions.

enhancement and R&D to secure future growth.

Under the previous “Global 21” plan, the SHI Group promoted various initiatives, such as structural reforms, growth-

Strategies and Targets by Segment

focused investments and aggressive product development.

In Machinery Components and Construction Machinery, the SHI

Through these activities, we have identified certain issues need-Group will leverage its global business network to selectively

ing addressing, including the weak growth potential, poor prof-

target emerging countries and expand sales. In Precisionitability and stagnation of domestic operations. In response we

Machinery, the Group will work to expand its scope of opera-

formulated the “Innovation 21” plan, which is in line with thetions particularly in medical equipment and other cutting-edge

basic principles under the “Global 21” plan but places particu-

fields. In heavy machinery and environmental facilities andlar emphasis on solving the issues that have been identified inplants, the Group will concentrate on its fields of expertiseorder to realize additional corporate growth. Through the pro-

while expanding the global operations of certain businesses.

motion of “Innovation 21,” the SHI Group will further expand
its global network and build a strong corporate structure under-

Specific “Innovation 21” Initiatives

pinned by product and process innovation.

To achieve the quantitative targets of the “Innovation 21” plan,

Concerning quantitative targets for fiscal 2013, ending
Outline of “Innovation 21”

Financial targets(for Fiscal 2013)

Operating Income

Net sales¥730.0 billion

Operating income¥73.0 billion

ROIC(¥ Billion)
100¥73.0 bn
(FY13 target)

75

10% or more

¥54.0 bn

Total operating incomeof profitable businesses“Strong and Powerful SHI”

(FY11 estimate)

50

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

Corporate concept

the SHI Group must establish a strong corporate structure

Keywords for growth“Globalization” and “Innovation”

Investment policy¥150.0 billion over three years

Long-term target

Achieve net sales totaling ¥1 trillion¥45.8 bn

Total operating income

250

Net Sales and Invested Capital

Total operating income of deficit-generating businesses

-25
(FY)

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

ROIC

(¥ Billion)
1,000

(%)
15

¥730.0 bn
750¥630.0 bn(FY13 target)

8.7%

10

(FY11 estimate)

Net sales

10% or more

(FY13 target)
get
ett)

(FY11 estimate)¥548.0 bn

500

7.8%
Invested capital

5¥335.2 bn

250

Interest-bearing debt
¥67.8 bn

0
(FY)

98 99

00

01

02

03

04

05

06

07

12 | Sumitomo Heavy Industries, Ltd.

08

09

10

11

12

0

13

Annual Report 2011

(FY) 98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

underpinned by product and process innovation. Accordingly,

the Corporate Technology Operations Group and businessthe SHI Group will implement the following initiatives to expand

units, thereby ensuring the consistent delivery of first-classits global network and realize product and process innovation.

products and services to the market. Through the launch ofcompetitive, innovative products in priority markets, the SHI

1. Enhancing and Effectively Employing the Global Network

Group aims to accelerate its sustainable growth and improve its

SHI will continue to enhance its global network of manufactur-

earnings power on a global scale. Our Corporate Technology

ing, sales and service bases, recognizing that this is essential toOperations Group will channel the constituent and fundamen-

the Group’s further growth. Under “Global 21,” the SHI Grouptal technologies it develops into the development of compo-

concentrated on strengthening its production bases in emerg-

nents, equipment and systems. Moreover, it will incorporate

ing countries. Also, we focused on establishing bases to facili-

those technologies into SHI Group products. In this way, SHI

tate our global expansion, such as the acquisition of HIT inwill speed up the development of innovative products.

Belgium. Through “Innovation 21,” we will work to bolster
these new overseas bases’ functions while promoting both their

3. Promotion of Process Innovation

autonomy and collaboration with each other. In addition, SHI

Mainly in Japan, the SHI Group has introduced process innova-

plans to set up regional headquarters throughout the worldtion to enhance its business execution capabilities in develop-

and develop a structure for local operations to enable speedierment, design, manufacturing, sales, services and other areas.

management that more flexibly reflects real-time conditions in

A major example of this is the Toyota Production System, which

each region and market.

we implemented in our tanker building processes in the shipbuilding business, resulting in the halving of our lead times.

2. Promotion of Product Innovation

Looking ahead, SHI plans to introduce similar process innova-

SHI will strengthen collaborative product development amongtion and other expertise to Group companies on a global scale.

Product Innovation• Strengthen collaborative product development among the Corporate Technology Operations Group and business units and thereby consistently deliver
first-class products and services to the market• Increase the value of equipment and systems through the use of innovative components and technical modules
Solar power
generation

Business Units/
Subsidiaries & Affiliates

Corporate Technology
Operations Group
Administration of Technology
product development
Research
and intellectual property
Center

CFB boilers

Hybrid hydraulicexcavators

Forklifts

Energy-saving injection Proton therapy
molding machinessystems

Systems & Equipment

Inspection
systems forlithium ion
batteries
Coating systems

Superconducting
devicesSteam turbines for
power generation

Components

Synergistic Value Chain of the SHI Group

Energy-saving
tankers

Photovoltaic
solar power
generation

Wind power
generation

Power supply units for lithium ion
battery inspection systems

Speed
reducerss
Gear motors
orsElectricity
storagesystems

Controllers/drivers

Technical
Modules

4KGM cryocoolers

Various Basic Technologies

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 13

Interview with the President“Innovation 21” New Medium-Term Management PlanQ

The SHI Group announced the launch of “Innovation
21” in May 2011. Can you give us an overview ofthis new medium-term management plan?
Our keywords for growth—“globalization” andA“innovation”—remain in effect. By swiftly
establishing our competitive advantages, we aim togrow into a “Strong and Powerful SHI” to achievesustainable growth.

Under “Innovation 21,” the SHI Group is pursuing operations
that are in line with these keywords, which we adhered tounder “Global 21.” In other words, we will further accelerate
the expansion of our global business network while implementing innovation-focused initiatives to establish a truly
strong and powerful corporate structure.
During the “Global 21” period, the worldwide recession triggered a deterioration in market conditions. To overcome thesevere operating conditions, the SHI Group promoted cost
reductions and structural reforms. At the same time, by tapping demand expansion in emerging countries and othergrowth markets, we managed to turn around our performance, which once again embarked on an upward trend. In
the course of our business endeavors, however, we started tosee new issues arising. For example, although we are fully
aware that we must strengthen our focus on certain promisingmarkets, a number of businesses do not have the level of

14 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

growth potential and profitability required to sustain expansion

Looking at the global economy, the robust economic expan-

in a global market where emerging countries continue to gain

sion in China and other emerging countries are expected togreater presence. So, under “Innovation 21,” the SHI Grouppersist, while it is anticipated that market conditions will recov-

will solve these issues, bolster its global competitiveness ander in the United States and developed countries in Europe andthereby become a “Strong and Powerful SHI” capable of meet-other regions. By capturing demand in overseas growth mar-ing any operating conditions and realizing sustainable growth.

kets, we aim to meet our targets.

To gain the strengths required in these efforts, the SHIGroup must take a radically innovative approach as it redesigns
the Group’s corporate structure to ensure competitiveness. To
steer all Group companies along the same vector as it undertakes these efforts, the Group has established a corporate slogan “Innovation of Half and Double.” In line with this slogan,we will push ahead with initiatives on different scales andbased on concepts other than those previously implemented.

With regard to “globalization” and “innovation,”Q
A

has SHI defined which priority regions or businesses
it will promote?
We will accelerate our operations in Machinery
Components, Construction Machinery and Precision
Machinery.

In Machinery Components and Construction Machinery—Q
A

Could you describe the future operating conditions

segments falling into the category of mass-produced machinery—that were assumed for the formulation of

the SHI Group will strive to expand its operations, particularly in“Innovation 21”?

emerging countries. As part of efforts to realize global expansion

We expect to see the continuation of robust
economic growth in emerging countries.

Overseas Sales

We have set our performance targets for the final year ofEnvironmental
Facilities & Plants
3%

Environmental
Facilities & Plants
5%
Machinery Components
Ships 7%
11%

“Innovation 21,” fiscal 2013, ending March 31, 2014.
Specifically, we are targeting net sales totaling ¥730.0 billion

Ships
21%

and operating income totaling ¥73.0 billion. Of the net sales¥277.4 bn

amount, we plan to post overseas sales totaling around ¥470.0

51%*

Precision Machinery
22%

Machinery Components
13%

Industrial Machinery
8%¥470.0 bn
64%*

Precision
Machinery24%billion for an overseas sales ratio of 64%. Compared with theConstruction Machinery 36%

51% recorded in fiscal 2010, the figure will represent a major
shift when realized, and we will work to bring this shift about

Construction Machinery 42%*Overseas sales ratio

Industrial Machinery 6%

FY2010 Result

over the next three years.

FY2013 Target

Net Sales and Operating Income by Segment
Net Sales

Operating Income(¥ Billion)(¥ Billion)

800

700.0
548.0

80

730.0

630.0

61.0

600
쏋 Others
쏋 Environmental Facilities& Plants
쏋 Ships쏋 Industrial Machinery쏋 Construction Machinery쏋 Precision Machinery쏋 Machinery Components

54.0

60
쏋 Others
쏋 Environmental Facilities& Plants
쏋 Ships쏋 Industrial Machinery쏋 Construction Machinery쏋 Precision Machinery쏋 Machinery Components

400

200

0

73.0

(FY) 2010 Result

2011 Estimate 2012 Target

2013 Target

45.8
40

20

0

(FY) 2010 Result

2011 Estimate 2012 Target

Sumitomo Heavy Industries, Ltd.

2013 Target

Annual Report 2011 | 15

under the three-year “Global 21” plan, the SHI Group has
directed investments toward strengthening production facilities
in these segments. In 2009, the Group established the newTangshan Plant in China for the manufacture of gearboxes andhydraulic excavators. The Tangshan Plant has promoted steadyproduction since then. In 2010, we began constructing a new
hydraulic excavator plant in Indonesia and a new gearbox man-QA

Can you explain SHI’s investment and financial
policies for the next three years?
To ensure further corporate growth, we will invest a
total of ¥150.0 billion through the “Innovation 21”
period.

ufacturing plant in Brazil. These new facilities are scheduled toUnder our new management plan, we plan to makelaunch operations by the end of 2011. By increasing local pro-

growth-focused investments totaling ¥150.0 billion, including

duction, we intend to expand our share of demand for thesein facilities, R&D and M&A. The SHI Group invested a total of

products, which are being increasingly sought after along with

¥128.5 billion under the “Global 21” plan. So, our pace of

the acceleration of investments in social infrastructure and natu-

investment will accelerate under the new plan. While strictly

ral resource development in emerging countries.

maintaining financial discipline, we will invest aggressively to

In Precision Machinery, the medical equipment field is likely

achieve growth.

to see continued stable expansion, both in developed andemerging countries. Accordingly, the SHI Group will work to
expand sales of its cyclotrons for positron emission tomography(PET) and proton therapy systems in markets worldwide.

Q
A

How will you manage SHI’s global business network?

QA

We would like to hear your thoughts on
future M&A activities.
M&A must bring business growth. We will examine
every opportunity from multiple perspectives, taking
a comprehensive approach.

The potential of that an M&A has for generating synergies

We will establish a system for regional management.

within the SHI Group is the yardstick we use when judging
suitability. We can envision a number of scenarios where M&A
could further the Group’s growth. Some companies may boast

During the “Global 21” period, the SHI Group established new

valuable sales channels the Group has yet to tap and otherproduction and sales bases throughout the world. From thiscompanies may provide opportunities for the Group to become

point forward, we intend to strengthen collaboration among

the industry leader through business integration. Therefore, wethese bases while enhancing their operational functions towill examine every potential case carefully and thoroughly

improve the efficiency of our global network as a whole. In

search for the best choices before implementing any M&A.

addition, we plan to introduce the concept of regional management to enable the more effectively control of Group operations in each region. Until now, Group operations overseas

Outlook for Fiscal 2011

had relied heavily on the authority of our headquarters inJapan, where responsibility had been concentrated. We will
shift away from this system and move toward a decentralized
management system under which each regional headquarters
is delegated authority and responsibility for regional operations. This approach will enable speedier responses to changes
in markets. We have already established regional headquarters

Q
A

What is your outlook for fiscal 2011, the first year of“Innovation 21”?

We forecast a steady performance supported byrobust emerging countries.

in the United States and China. Looking ahead, we plan to
introduce the same system in Indonesia and Brazil.

For fiscal 2011, the SHI Group expects to record new orders
totaling ¥620.0 billion, net sales totaling ¥630.0 billion and

16 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

(¥ Billion, unless otherwise stated)

Fiscal 2011
Performance Forecasts

FY11 1H (Forecast)

FY11 2H (Forecast)

FY11 (Forecast)

FY10

Orders

290.0

330.0

620.0

534.9

Net sales

294.0

336.0

630.0

548.0

Operating income

18.5

35.5

54.0

45.8

Operating income margin (%)

6.3%

10.6%

8.6%

8.4%

Ordinary income

16.5

34.0

50.5

44.2

Ordinary income margin (%)

5.6%

10.1%

8.0%

8.1%

Extraordinary gains or losses

—

—

—

0.9

Net income

9.0

21.0

30.0

27.9

3.1%

6.3%

4.8%

5.1%

4

6

10

8

Payout ratio (%)

20.5%

17.3%

ROIC (after tax) (%)

8.7%

7.8%

85

92

Profit margin (%)
Dividends (¥)

Exchange rate (¥ to US$1.00)

operating income totaling ¥54.0 billion. These forecasts are

the level required to ensure future business development asbased on our assumption that emerging countries will continue

well as various other factors.

to enjoy dynamic economic expansion and that developed

For fiscal 2010, in line with this policy and reflecting thecountries will see continued recovery in market conditions. The

Group’s performance, SHI declared an annual per-share cash

volume of orders is expected to increase year on year across all

dividend of ¥8, up ¥4 from fiscal 2009. For fiscal 2011, thesegments. In particular, it is likely to expand significantly in the

Company plans to pay an annual per share cash dividend of

Machinery Components and Construction Machinery seg-

¥10, including an interim dividend of ¥4, the payment ofments, buoyed by healthy market conditions in emerging coun-

which has been resumed from this year, reflecting its expecta-

tries. We anticipate that net sales and operating income will

tions for improved performance.

grow in line with the increase in the volume of orders, with

SHI will precisely implement new initiatives under theboth exceeding fiscal 2010 results. Thus, the Group’s overall“Innovation 21” plan in order to achieve additional corporate

performance is likely to show a steady upward trend, backed

growth and thereby maximize its corporate value. Throughby strong demand, particularly in the markets of emerging

increases in profit distribution, the Company will continue tocountries.

meet the expectations of its shareholders.

Returning Profits to Shareholders

Q
A

Finally, what is SHI’s policy on distributing profits toshareholders? Also, can you explain cash dividends
for fiscal 2010 and tell us SHI’s dividend forecasts for

Dividends per Share and Payout Ratio
Dividends per Share (Left scale)

Payout Ratio (Right scale)

(Yen)

(%)

12

30

8

20

4

10

the coming fiscal year?
SHI adheres to a policy of paying performance-linked
cash dividends for each period while working toconstantly increase returns.

SHI pays out cash dividends based on its profits for each period
and continually strives to increase shareholder return. The

0

(FY)

06

07

08

09

10

11 Forecast0determination of actual dividend amounts takes into consideration the need to accumulate and maintain internal reserves at

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 17

Special Feature: The SHI Group’s Strategies in Asia

Capturing Growth Markets
Japan, the United States and developed countries in Europe have yet to achieve full-fledged recovery from economic stagnation.
In contrast, China, India and certain other emerging countries are seeing sustained growth at a relatively faster pace.
Reflecting this, the SHI Group’s fiscal 2010 sales in Asia increased 41% from fiscal 2009. Also, the ratio of sales in Asia to
consolidated net sales has risen to 24%. Accordingly, SHI views Asia—a market presenting significant potential for
rapid expansion—as a strategic region capable of helping SHI achieve future growth. Based on this view,
the Group is accelerating operations in this region.
In this special feature, we illustrate the activities and strategies that the SHI Group is currently promoting.
Sales in Asia(¥ Billion)

(%)

150

30

120

24

90

18

60

12

30

6

0

(FY)

04

Sales in China (Left scale)

05

06

07

Ratio of Sales in Asia to Consolidated Net Sales (Right scale)

18 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

08

09

10

0

ChinaEnhancing the Tangshan Plant’s Capacity
To bolster its business development in the booming Chinese market, the SHI Group beganbuilding a new plant in Tangshan City, Hebei Province, in December 2007. The Tangshan
Plant launched the full-scale production of medium- and large-sized gearboxes andhydraulic excavators in June 2009. The plant has operated steadily since then, and in August2010 the SHI Group decided to undertake additional facility investments aimed at morethan doubling the plant’s capacity by 2012 to further accelerate its operations in thepromising Chinese market.
The SHI Group is promoting global operations in power transmission and control
equipment, which is one of its core businesses. We have been producing small- andmedium-sized gearboxes locally in Tianjin City for more than 10 years while steadily
expanding this business in China. Gearboxes are used in the prime movers of a wide range
of industrial machinery and are sold in a variety of markets, including for mining machinery,steelmaking machinery, chemical processing machinery, harbor cranes and power
generation facilities.
External view of Tangshan Plant

In addition, the SHI Group’s hydraulic excavators offer a number of features that are
attracting a steadily increasing stream of repeat orders in China. Among the models on offer
is one that became the first construction machine to win the Energy Conservation Grand
Prize, which has been promoted mainly by the Ministry of Economy, Trade and Industry ofJapan. Along with other models, this excavator demonstrates superior fuel efficiency andexcellent operator-friendliness. Also driving the escalation in demand for hydraulicexcavators is a chronic shortage due to the country’s robust economic growth, which has
meant that many hydraulic excavators are being used in general construction and minedevelopment and supplies are being squeezed.
By bolstering its local production structure, the SHI Group aims to reduce costs and speed
up the pace of hydraulic excavator production, thereby aggressively expanding its presencein the Chinese market.

Capturing Demand Associated with Environmental and Infrastructure Development
In step with its economic expansion, China is showing greater-than-ever demand for power
generation facilities, water treatment facilities and other environment-friendly products andsolutions. The SHI Group manufactures circulating fluidized-bed (CFB) boilers for use in private
power generation. Because the Group’s CFB boilers are compatible with low-grade coal, wastematerials and biomass fuels, they help reduce fuel costs. Accordingly, these environmentfriendly CFB boilers have drawn significant praise and won the Group steady orders.
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 19

Capturing Growth Markets

In the meantime, calls are heightening for plants to implement environmental measures,
including appropriate flue gas treatment. The SHI Group has established dry desulfurization
technology that enables the water-free treatment of plants’ gaseous byproducts. This
technology provides the Group with an advantage, particularly in those regions of China
where access to water is limited, and has won it a number of orders for its flue gas
treatment facilities.
The SHI Group commands the top domestic share of the aerator market. To expand salesof aerators and other water treatment facilities in China, we plan to establish a sales base in
the country to pursue strategic market penetration.

A New Investment Company Supporting the Group’s Expansion in China
In January 2011, SHI established an investment company in China. Given the rapid growthin the Chinese market, it is expected that local Group companies will need funds for facility
and other investments. Through this investment company, SHI will form a framework toprovide support for the funding activities of its local arms. Also, the investment company
will work to balance the levels of capital held by Group companies in China—totaling 16 at
Dry activated carbon desulfurization andpresent—thereby promoting the centralized management of the Group’s capital resources indenitration facility

the country.
In August 2010, SHI established an area management company in China. This company isworking to build frameworks that will reinforce the management of and speed up decision
making by the Group’s Chinese operations. In cooperation with the investment company,
the area management company will strongly drive the Group’s business development in the
country.

Indonesia

Constructing a New Hydraulic Excavator Plant
In May 2010, the SHI Group decided to construct a new hydraulic excavator plant inIndonesia. Shortly thereafter, we acquired land and began construction work. The new plantis scheduled to start operations in September 2011, and the initial annual capacity isplanned at 1,000 units. Indonesia is the largest market for construction machinery inSoutheast Asia, commanding approximately half of the total demand in the region. Target
industries include mining and forestry. Along with this production base, the SHI Group plans
to form a new local company to promote sales and service operations. Through theseGroundbreaking ceremony of a new hydraulic excavator
plant in Indonesia (October 2010)

Indonesian bases, we aim to expand our construction machinery operations throughout
Southeast Asia.

Establishing Regional Headquarters in Indonesia
In December 2010, SHI established a new regional headquarters in Indonesia. Boasting a
population totaling approximately 200 million, Indonesia is expected to develop further as acentral market in Southeast Asia as global demand for natural resources expands and thecountry’s social infrastructure development accelerates. The SHI Group is already operating
20 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Indonesian sales and service bases for plastic injection molding machines and construction
machinery. In 2011, we will open a new plant and sales company for hydraulic excavators.
With an eye to penetrating other markets in the country in other business areas, the SHIGroup is striving to boost its share of the Indonesian market. To this end, the Group isbuilding a business support structure—including accounting and procurement functions—that will enable it to leverage its collective strengths and develop business efficiently.

India

Strengthening the Steam Turbines for Biomass Power Generation BusinessIndia is the second largest sugar producer in the world. Bagasse, the sugarcane refuse left
over after sugar production, is used in a biomass fuel for private power generation. Suchprivate power generation facilities are widely used not only in India but also in other warm
Steam turbine

locales, such as Southeast Asia, South and Central America and Australia. The SHI Group* Gas turbine combined cycle. GTCC power generation

took notice of the potential of biomass power generation from early on and has steadily

uses the combination of gas and steam turbines tobuilt a track record by delivering steam turbines for private biomass power generation to

improve generation efficiency.

markets worldwide. More specifically, since 1970, we have delivered more than 6,500 units
to 82 countries in Asia, Africa, the Middle and Near East, North and South America andother regions. One of these steam turbines, delivered to a sugar factory in India, has earned
a high evaluation for its superior performance and quality. In addition to the sugarprocessing market, the SHI Group is currently working to penetrate the GTCC* market with
its steam turbines. At the same time, we are striving to expand sales of our steam turbinesin Thailand, Indonesia and other Asian countries.

ThailandOpening a Regional Office to Promote Energy-Related andEnvironmental Businesses
In June 2010, the SHI Group opened a regional office in Bangkok, Thailand, that began
tracking market trends in preparation for expanding sales of CFB boilers. As biomass-based
CFB boiler

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 21

Capturing Growth Markets

fuels can be used in CFB boilers, the units help prevent the further advance of global
warming. Because of this feature, demand for these boilers is steadily increasing in recent
years. Also, in February 2010, the SHI Group received an order from a major power
producer in Singapore for a CFB boiler, which is in the world’s largest class of biomass fuel-* A collective term referring to a variety of plant waste,compatible boilers. This boiler is designed to burn fuels that combine tropical biomass* withsuch as palm shells, OPEFB, coconut shells and plantcoal. Southeast Asia is a warehouse for such biomass resources as palm shells and oil palm

chaff. The CFB boiler to be delivered to Singapore

empty fruit bunch (OPEFB) that traditionally have been thrown away. Our Thai regionalburns fuels that combine palm shells with coal.

office will promote market investigation targeting power generation facilities using theseresources and accelerate activities to expand sales of CFB boilers in Indonesia, Vietnam, thePhilippines and other Southeast Asian countries.

Vietnam

Boosting Motor Manufacturing Plant Capacity
The SHI Group launched operations at its motor manufacturing plant in Hanoi, Vietnam, in2006. In 2008, the Group completed the extension of this plant to boost production
capacity. The motors manufactured at the plant are exclusively designed for use in speed
reducers, one of SHI’s core businesses. The SHI Group has established a comprehensive
production process for these motors that covers everything from material procurement toassembly and inspection. The plant boasts a monthly production capacity of approximately
50,000 motors, which are supplied to the SHI Group’s speed reducer assembly plants
External view of motor plant (Hanoi, Vietnam)

throughout the world. The concentration of motor production in Vietnam has enabled theGroup to reduce costs, while comprehensive in-house production has allowed it to better
control the quality of its motors. This highly effective business model has ensured that our
motors—as core components of speed reducers—are underpinning the global developmentof our speed reducer business.

Tapping the Rapidly Industrializing Vietnam Market
Vietnam is accelerating its shift from an agricultural to an industrialized country. The nation’s
GDP growth rate has been steady over the past several years, and the country is expected toenjoy sustained economic expansion that is likely to attract foreign companies wanting to
make large-scale investments in new plants. By the same token, the expansion is likely to be
Motor for speed reducers

accompanied by increasing demand for industrial products as social infrastructure develops.
Through its sales bases, the SHI Group is working to cultivate the Vietnamese market for the
gearbox and injection molding machine businesses. Looking forward, the SHI Group aims toinvestigate and identify opportunities to expand other businesses in Vietnam.

22 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Review of Operations

Machinery Components
Main Products

Major Units

Power Transmission andControl Equipment

SEISA Gear, Ltd.

Inverters

Sumitomo Machinery Corporation of America

Sumitomo Heavy Industries PTC Sales Co., Ltd.

Sumitomo (SHI) Cyclo Drive Germany GmbH
Sumitomo Heavy Industries (Tangshan), Ltd.
Hansen Industrial Transmissions NV
Sumitomo Industrias Pesadas Do Brasil Ltda.

Fiscal 2010 Segment Results
Market recovery was clearly seen in China and other emerging

As a result, total segment orders increased 23% year on year tonations. Also, demand for components for use in factory automation¥75.8 billion, and total segment sales rose 8% to ¥74.6 billion.

equipment, such as machine tools and industrial robots, was robust,

Segment operating income soared 466% to ¥4.9 billion.

enabling us to expand both orders and sales in this segment.
Orders

Sales

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

(%)

100

100

8

10.0

80

80

6

7.5

60

60
4

5.0

40

40

20

20

2

2.5

0

(FY)

08

09

10

11 Forecast

0

(FY)

08

09

10

11 Forecast

0

(FY)

08

09

10

11 Forecast

0.0Power Transmission and Control Equipment
Market Environment
The SHI Group provides power transmission and control equipment as well as inverters to many customers in a variety of industries. Impacted by the Great East Japan Earthquake, the Japanese
economy will require a certain period of time until it experiences
recovery in market conditions. In contrast, overseas markets forour products continue to show robust trends toward economic
recovery, driven by strong exports to emerging countries. Thus,
Speed reducer “Paramax®”

markets outside Japan are expected to see steady turnover.

Fiscal 2010 Review and Topics

Fiscal 2011 Strategies and Initiatives

Amid rapid market recovery from the beginning of fiscal 2010, theSteady demand expansion is anticipated, particularly in emerging

SHI Group conducted aggressive marketing activities worldwide.

countries. The SHI Group plans to begin operations of its new

During the period under review, SHI released a larger model in theBrazil plant in September 2011 and to step up efforts to expand

Bevel BUDDYBOX series of right-angle-shaft gear motors withsales in the wider South American market. Moreover, we willbuilt-in CYCLO® speed reducers. Also, we launched speed reduc-extend our sales channels through cooperation with HIT, thereby

ers with highly efficient motors that comply with the standards set

increasing global sales of our industrial gearboxes. In Japan, weby the International Electrotechnical Commission (IEC) and otherwill fulfill our social responsibility by accommodating all repair andmotor efficiency-related standards and regulations in various coun-

replacement requests that we receive from customers affected bytries. In March 2011, SHI acquired equity in Belgium-based Hansen

the disaster.

®

Industrial Transmissions NV (HIT), turning that company into awholly owned subsidiary.
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 23

Precision Machinery
Main Products

Major Units

Plastic Injection Molding Machines

Sumitomo Heavy Industries Mechatronics, Ltd.

Cyclotrons for Medical Use

SEN Corporation

Ion Accelerators

Sumiju Examination & Inspection, Ltd.

Plasma Coating System for FPDs
(Flat Panel Displays)

SHI Plastics Machinery, Inc. of America

Laser Processing Systems

Sumitomo (SHI) Cryogenics of America, Inc.

Sumitomo (SHI) Demag Plastics Machinery GmbH

Cryogenic Equipment
XY Stages
Transfer Molding Press Machines
Precision Forgings
Defense Equipment

Plastics Machinery

for these products, we added functions to our new-concept

Market Environment“Zero-molding®” system and our new-theory plasticization system.

Conditions are strong in overseas markets, particularly in China,

The Zero-molding® system realizes innovative molding processes

Southeast Asia and South Asia and are slated to remain robust in

using less clamp force than conventional injection molding systems

China and most regions of Asia, supported mainly by growing

thanks to its optimized filling and mold-clamping functions.

demand for such IT-related equipment as smartphones and tablet
PCs. Consequently, industry players are expected to maintain theiraggressive stance toward capital investment. On the other hand,

Fiscal 2011 Strategies and Initiatives

with no major movements in sight, the Japanese market is antici-

Building on its full-electric injection molding machines, SHI willpated to show trends on par with the period under review.

enhance the functionality of its products while strengthening its
lineups tailored to the needs of customers in various end-productcategories. Also, in cooperation with Germany-based DemagFiscal 2010 Review and Topics

Plastics Group, which we acquired in 2008, we will accelerate

In Asia, centered on China, the SHI Group’s products—particularlybusiness development worldwide, especially in Europe and Asia.

those used for IT-related equipment—enjoyed brisk performances.

SHI will bolster its product competitiveness and marketing capabili-With the aim of creating value for customers in a wider range ofties through these activities, thereby becoming the world-leading

markets, SHI upgraded its products, including the flagship SE-DUZ

plastics machinery manufacturer.

series of full-electric injection molding machines. More specifically,

Full-electric injection molding
machine “SE75DUZ”

24 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Fiscal 2010 Segment Results
In plastics machinery, recovery in the East Asian market centered on

segment orders and sales. As a result, total segment orders surged

China enabled the SHI Group to expand orders and sales. In other

42% year on year to ¥150.5 billion, and total segment sales

businesses in this segment, medical equipment gave a strong per-jumped 25% to ¥131.9 billion. Segment operating income totaled

formance and semiconductor and electronic production equipment¥8.3 billion, a turnaround from the loss of ¥2.6 billion posted inshowed recovery. The upturns yielded an overall expansion in

fiscal 2009.

OrdersSales

왎 Plastics Machinery왎 Precision Equipment and Others

Operating Income

왎 Plastics Machinery왎 Precision Equipment and Others왎 Operating Income (Left scale)Operating Income Margin (Right scale)(¥ Billion)(¥ Billion)

200

200

15

15.0

150

150

10

10.0

100

100

5

5.0

50

50

0

0.0

0

(FY)

08

09

10

11 Forecast0(¥ Billion)

(FY)

08

09

10

11 Forecast

-5

(FY)

(%)

08

Vertically arranged compact proton therapy system

0910

11 Forecast-5.0

Rotating gantry irradiation system

Precision Equipment and Others

allows the facilities housing the proton therapy systems to beMarket Environment

smaller and thus less expensive in total. With another order

Overall market conditions are on a recovery course. In

received in South Korea for our proton therapy system, oursemiconductor- and electronics-related equipment, markets for cell

performance in the medical equipment field was strong. SHI’sphones and PCs are showing recovery trends, and the Asian mar-semiconductor- and electronics-related equipment performed

ket is presenting particular strengths. In medical equipment, SHI

robustly, particularly in markets related to smartphones.

provides systems and services, primarily in the market for cancer
diagnosis and treatment equipment. As maintaining quality of life

Fiscal 2011 Strategies and Initiatives(QOL) is gradually becoming an important consideration,* the per-The SHI Group will focus on the medical equipment and otherformance of our medical equipment is rapidly improving. In fiscal

robust fields while striving to increase the volume of orders

2011, official launches of several potential projects are anticipated.

received for products in these fields. To this end, we will bolster* In the world of medicine, it is becoming ever more important to respect

our sales and marketing structure overseas. In addition, we will

patients’ values and improve their quality of life during and after medical

work to cultivate new markets with particular emphasis placed onprocedures. SHI’s advanced medical equipment—the proton therapy system,
for example—eliminates the need for invasive surgical procedures, enabling thetreatment of patients without hospitalization.

new energy fields presenting exceptional growth potential,
including photovoltaic power generation and secondary cells.
As for semiconductor- and electronics-related equipment, market

Fiscal 2010 Review and Topics

conditions are continuing to recover in China, Taiwan, South Korea

During the period under review, SHI received an order for a protonand other Asian countries. To capitalize on such market trends,

therapy system from a hospital in Japan. This is the world’s firstwe will aggressively launch ion-implantation devices and otherproton therapy system with the gantry treatment room andhigh-quality, high-precision products.

cyclotron accelerator in a vertical arrangement. This arrangement
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 25

Construction Machinery
Main Products

Major Units

Hydraulic Excavators

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

Mobile Cranes

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

Road Machinery

Sumitomo (S.H.I.) Construction Machinery (Tangshan) Co., Ltd.
Link-Belt Construction Equipment Company, L.P., LLLPLBX Company, LLC

Hydraulic Excavators and Road Machinery

Fiscal 2011 Strategies and Initiatives
Supported by growth in emerging countries and recovery in

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

developed countries, global demand is expected to expand further.

Market Environment

With this tailwind, the SHI Group will accelerate the establishment

Demand for hydraulic excavators is expanding worldwide, buoyedof a global structure for production and marketing through, forby robust growth in China and other emerging countries andexample, the launch of the Indonesian plant. Regarding ourrecovery in the markets of developed countries in North America

product strategies, we will upgrade the safety functions of ourand Europe. Demand is also expanding in Japan due to active

excavators by incorporating a system that helps operators confirm

investments made by rental businesses and the increasing use ofambient safety in operations. In road machinery, we will accelerate

excavators in such non-engineering fields as forestry and scrap

steps to introduce our asphalt pavers in overseas markets.

metal. Overall, the hydraulic excavator market is showing healthy
conditions worldwide.

Fiscal 2010 Review and Topics
Against a backdrop of global expansion in demand for hydraulicexcavators, our Chiba Works went into full-fledged production
during the period under review. In addition, the SHI Group further
increased output at its Tangshan Plant in China, which entered its
second year of operation. Based on these plants’ expanded output, the SHI Group worked to capture demand in China, a country
that has grown to become the world’s largest market. Looking
ahead, we have decided to further boost annual output at theTangshan Plant to around 5,000 units. We have also decided toundertake large-scale investments aimed at constructing a plantand establishing a sales company in Indonesia. These Indonesianbases will be responsible for supplying SHI Group products acrossSoutheast Asia. Meanwhile, SHI fully acquired LBX Company, LLC
as part of its efforts to establish the structure required to lead
operations strategically in the United States.

26 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Hydraulic excavator “SH360”

Fiscal 2010 Segment Results
In hydraulic excavators, our operations steadily expanded in theweak, negatively affected by a lagging pace of recovery in the Northbooming Chinese market. In Europe and the United States, industry

American market. Accordingly, our orders and sales in this sector

players are accelerating inventory adjustments, leading to a partial

declined year on year. As a result, total segment orders leaped 41%

improvement in market conditions. Reflecting these positive devel-to ¥141.2 billion, and total segment sales climbed 27% to ¥130.8

opments, our hydraulic excavator orders and sales both increased

billion. Segment operating income skyrocketed 827% to ¥5.3 billion.

year on year. In mobile construction cranes, our performance wasOrders

Sales

Operating Income왎 Excavators, Road Construction Machinery왎 Mobile Cranes

왎 Excavators, Road Construction Machinery왎 Mobile Cranes

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

200

200

10

10.0

160

160

8

8.0

120

Operating Income Margin (Right scale)
(%)

120

6

6.0

80

80

4

4.0

40

40

2

2.0

0

0

0

(FY)

08

09

10

11 Forecast

(FY)

08

Mobile Cranes

09

10

11 Forecast

(FY)

08

09

10

11 Forecast

0.0

Fiscal 2011 Strategies and Initiatives
The North American crane markets have slowly begun to recover

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

in certain segments. The order volume and backlog have shownMarket Environment

steady improvement since the third quarter of 2010. Link-Belt

The North American crane market began to show signs of modest

strategies for 2011 will be focused on further expanding in inter-

improvement in the fourth quarter of 2010 as dealers began tonational markets, minimizing the impact of inflationary pricing

replenish inventories and rental fleets. The outlook for 2011pressure, maintaining new product development timelines andremains cautiously optimistic as new orders and order backlogs

continuing to support Lean Sigma® activities.

continue to increase. The Latin American market improved in 2010
and is projected to increase further in 2011, while the Near East
markets still remain depressed.

All terrain crane “ATC-3275”

Fiscal 2010 Review and Topics
Link-Belt Construction Equipment Company, L.P., LLLP (“Link-Belt”)
recorded a 24% decrease in sales in 2010 as a result of the global
economic recession that began late in 2008 continuing to impact
the demand for construction equipment. The North American
mobile telescopic and crawler crane markets declined approximately 35% from 2009 levels, with all market segments declining.
While the majority of international markets continued to decline,
Link-Belt increased international sales in line with long-term strategic goals. Link-Belt continued strategic initiatives implemented in2009 to align production volume with demand and reduce inventory while focusing on cost reduction activities to maximize profitability.
Link-Belt continued the Lean Sigma® initiatives and the development of new products to support future sales.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 27

Industrial Machinery
Main Products

Major Units

Forging Machines
Material Handling Systems

Sumitomo Heavy Industries Engineering andServices Co., Ltd.

Logistics & Handling Systems

Sumitomo Heavy Industries Techno-Fort Co., Ltd.

Turbines

Shin Nippon Machinery Co., Ltd.

Pumps

SHI Machinery Service (Hong Kong) Ltd.

customers operate. Through these activities, we aim to meetdemand related to capital investment in new facilities and therenewal and renovation of aging facilities and equipment. In addition, we will bolster our services business to ensure that we not
only offer after-sales services for our own products but also actively provide similar services for products manufactured by our competitors. Through the integration of products and services, the SHIGroup will advance sales activities that create added value for cusContinuous ship

tomers across East Asia, Southeast Asia and Japan.

unloaderMaterial Handling Systems
Sumitomo Heavy Industries Engineering and Services Co., Ltd.
Market Environment
Up to March 2011, the Japanese economy was continuing torecover slowly in the aftermath of the 2008 financial crisis.
Following the Great East Japan Earthquake, however, concerns
began mounting that capital investment in domestic industries
would slow. In contrast, capital investment in the steel-relatedindustries of emerging markets is expected to expand.

Steam turbine for

Fiscal 2010 Review and Topics

power generation

postpone or cancel their capital investments in fiscal 2010. Despite

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

the adverse conditions, the SHI Group was able to secure orders

Market Environment

for continuous ship unloaders from power producers while win-

In line with growing domestic demand, India and emerging coun-ning an order for copper electrolysis cranes in China. As a result,tries in Southeast Asia and other regions are stepping up invest-

the Group recorded a year-on-year increase in orders received

ments in natural resource and infrastructure development.

during the period under review.

Meanwhile, price competition is intensifying, reflecting the accel-

Fiscal 2011 Strategies and Initiatives

eration of yen appreciation against the dollar and the euro.

The SHI Group is supporting the reconstruction efforts of custom-

Fiscal 2010 Review and Topics

ers affected by the earthquake and tsunami. At the same time, we

In turbines, through its Thai sales base, the SHI Group won orders

continue to extend our reach in the markets where our majorfrom a sugar factory project in Southeast Asia. In India, the Group

Many principal customers in the shipbuilding industry continued to

28 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Fiscal 2010 Segment Results
In material handling systems, equipment for power generation facili-

expansion in orders, mainly for biomass power generation systems.

ties showed robust performance, and we were able to expand

Sales of turbines and pumps, however, declined year on year due toorders. Overall sales nevertheless dropped year on year, reflecting aa relatively low number of orders carried forward from fiscal 2009.

relatively low number of orders carried forward from fiscal 2009. In

As a result, total segment orders expanded 22% to ¥73.2 billion,

turbines and pumps, capital investment in resource- and energy-

while total segment sales decreased 22% to ¥66.5 billion. Segment

related facilities showed recovery in Asia, and the SHI Group saw anoperating income sank 28% to ¥10.3 billion.

Orders

Sales

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

100

100

80

80

60

60

40

40

20

20

0

(FY)

08

09

10

11 Forecast0(¥ Billion)

(FY)

08

received orders from a steel company. In North America, owing to09

10

11 Forecast

(%)

20

20.0

15

15.0

10

10.0

5

5.0

0

(FY)

08

09

10

11 Forecast

0.0

hesitant financing activities, the volume of orders received remained

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

low. In pumps, we received orders from an EPC company* in South

Market Environment

Korea. Also, thanks to the high acclaim we have earned from EPC

In the forging press businesses, an increase in the number ofcompanies in Europe and the United States for our technologicalprojects is anticipated thanks to Japanese automakers reinforcing

cooperation from the project planning stage, we won orders fortheir overseas production bases and to U.S. automakers expanding

projects to be undertaken in Saudi Arabia.

capital investments in line with performance recovery. In the

Fiscal 2011 Strategies and Initiatives

industrial machinery business, an increase is particularly expected

Taking advantage of the high efficiency and reliability of its tur-in aftermarket projects for steelmaking machinery.

bines, the SHI Group will focus on securing orders from GTCC**

Fiscal 2010 Review and Topics

power generation projects in Southeast Asia and renewable

A new, compact FPR series forging press was well received in theenergy power generation projects in North America. Regarding

domestic market, and the SHI Group won a number of orders dur-pumps, the Group will work to expand business with EPC compa-

ing the period under review. Overseas, we secured an order for anies in South Korea, Europe and the United States and thereby

large forging press. In addition, reflecting the significant recogni-

increase the volume of orders received. Meanwhile, we will further

tion SHI’s technological excellence has earned it in aftermarkets,

strengthen our competitiveness by promoting automated produc-

the Group secured many orders for modifications of forging

tion processes for greater efficiency.

presses developed by its competitors. In the industrial machinery* EPC stands for engineering, procurement and construction. EPC

business, we received an order for our continuous copper castercompanies primarily undertake plant engineering projects.
** GTCC power generation entails the combination of gas and steam
turbines to improve generation efficiency.

thanks to the high overall evaluation it has received.

Fiscal 2011 Strategies and Initiatives
Japanese automakers are aggressively expanding their overseas
output. Capitalizing on this opportunity in forging presses, the SHIGroup aims to boost orders received through technological differentiation. At present, the Group is flooded with an inflow of inquiries from overseas forging companies regarding remodeling andother projects. We will focus on acquiring these potential projects.
Moreover, we will work to pioneer new markets with our new
servo-driven presses. In the industrial machinery business, we willconcentrate on winning orders for modifications to help our customers improve productivity and product quality.

Hot forging press

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 29

ShipsMain Products

Major Units

Ships

Sumitomo Heavy Industries Marine &Engineering Co., Ltd.

Fiscal 2010 Segment Results
In fiscal 2009, we received no orders for new ships. In fiscal 2010,

As a result, total segment orders grew 240% year on year to

however, despite the lagging recovery in the shipbuilding market,¥14.6 billion, while total segment sales slipped 5% to ¥59.5 billion.

we were able to win orders for two new ships. Meanwhile, we

Segment operating income increased 49% to ¥9.9 billion.

delivered a total of eight new ships, one fewer than in fiscal 2009.
Orders

Sales

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

80

80

60

60

40

40

20

20

0

(FY)

08

09

10

11 Forecast0(¥ Billion)

(FY)

08

09

10

11 Forecast

(%)

10

20.0

8

16.0

6

12.0

4

8.0

2

4.0

0

(FY)

08

09

10

11 Forecast

0.0

Fiscal 2010 Review and Topics
Having conducted a design overhaul, we released new Aframax
tankers—our mainstay ship category—in tandem with aggressive
sales promotion. Despite the harsh operating conditions, thisapproach gained us orders for two new ships in the second half.
Meanwhile, the SHI Group has worked to improve shipbuilding
productivity through the ongoing implementation of the Toyota
Production System. This initiative finally bore fruit, enabling us topost record-high operating income with sales of eight new ships,
one fewer than in fiscal 2009.
Aframax tanker Guaicaipuro

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

Fiscal 2011 Strategies and Initiatives

Market Environment

log and, therefore, has been able to secure sales over the short

The shipping market, which had continued to suffer stagnation,

term. Nevertheless, from fiscal 2011 onward, we must endeavor

started to show some signs of recovery for certain ship types.

to secure additional orders even amid ongoing significant market

However, the tanker market still remains lackluster. In the market

uncertainties. To overcome negative factors in the external envi-

for new shipbuilding, South Korean shipbuilders are expandingronment, such as the disadvantageous exchange rates that Japan’s

their presence in the offshore field, while Chinese shipbuilders areexporters are facing today, we must maintain the high quality of

securing orders for commercial ships thanks to the support ofour ships and, simultaneously, improve productivity. The SHI Group

government policies. Nevertheless, due to the ongoing strong yen,

will, accordingly, tackle various new challenges to arrange step-

Japanese shipbuilders are suffering a severe order environment.

ping stones toward future business growth in fiscal 2011, the first

The SHI Group currently has an adequate shipbuilding order back-year of its new medium-term management plan.
30 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Environmental Facilities & Plants
Main Products

Major Units

Power Generation Systems
Industrial Wastewater Treatment Systems

Sumitomo Heavy Industries
Environment Co., Ltd.

Water and Sewage Treatment Systems

Sumiju Environmental Engineering, Inc.

Landfill Leachate Treatment System

Sumiju Plant Engineering Co., Ltd.

Air Pollution Control Plants

Nihon Spindle Mfg. Co., Ltd.

Chemical Process Equipment & Plants

Izumi Food Machinery Co., Ltd.

Pressure Vessels

Sumitomo Heavy Industries Process
Equipment Co., Ltd.

Mixing Vessels
Steel Structures
Food Processing Machinery

delivered a CFB boiler that exclusively uses biomass-based fuels toa customer in Japan and handed over a coal-fired CFB boiler to a
Japanese paper mill operating in China. Also, we made our firstdelivery in China of a dry activated carbon desulfurization anddenitration facility—a full-scale system for eliminating hazardous
substances from exhaust gases generated at steelworks. In addition, we delivered two rotary kilns to customers in Japan.

Fiscal 2011 Strategies and Initiatives
In Japan, the SHI Group will focus on acquiring biomass power
generation projects based on the FIT scheme. Simultaneously, SHI
Sumitomo - W+E rotary kiln

will bolster its service and maintenance business centered on customer satisfaction enhancement activities. Through these activities,

Energy-Related Plants

we will work to identify potential projects, such as preemptiveMarket Environment

repairs and modifications of existing facilities undertaken by

In Japan, severe operating conditions persist and materials-related

customers wishing to prevent premature deterioration and extend

industries are most likely to require more time to recover to previ-

the useful lives of facilities. Overseas, we will strengthen region-ous capital investment levels. Nevertheless, biomass power genera-

specific sales and marketing activities by instating clear customer

tion projects undertaken with an eye to introducing an FIT

targeting. As part of such efforts, we have enhanced our business

scheme* provide some hope. Overseas, economies in Southeast

structure in Southeast Asia by establishing a second regional office

Asia are robust, and capital investment in IPP** projects and otherin Jakarta, Indonesia, following on our first regional office ininfrastructure components as well as in the creation of industrial-

Bangkok, Thailand. Through these regional offices, we will

use electricity supply networks is slated to expand.

accelerate our business in CFB boilers that use low-grade coal andbiomass-based fuels.
* FIT stands for feed-in tariffs. Under the FIT scheme for government

Fiscal 2010 Review and Topics
Even amid market stagnation, the SHI Group received orders for acirculating fluidized-bed (CFB) boiler, one in Japan and threesubsidization related to renewable energy sources, selling prices for renewable energy generated by energy users are set by law.
** IPP stands for independent power producer. General businesses serve
as IPPs to sell and supply electricity to electric power companies.

overseas. Also, the Group won an order in Japan for a rotary kiln
for use in metal recovery from industrial waste. Meanwhile, we
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 31

Fiscal 2010 Segment Results
In energy-related plants, the sluggish market for industrial

orders and sales. As a result, total segment orders rose 13% topower-generation boilers led to year-on-year declines in both orders¥70.6 billion, and total segment sales edged down 7% to ¥76.1

and sales. In water and wastewater treatment plants, demand forbillion. Segment operating income declined 22% to ¥5.6 billion.

water treatment facilities began to recover, leading to expanded

OrdersSales

왎 Environmental Facilities, Plants

왎 Steel Structures

Operating Income

왎 Environmental Facilities, Plants

왎 Steel Structures

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

100

120

80

(¥ Billion)

90

60

(%)

15

15.0

12

12.0

9

9.0

6

6.0

3

3.0

60
40
30

20
0

(FY)

08

09

10

11 Forecast

0

(FY)

08

09

10

11 Forecast

0

(FY)

08

09

10

11 Forecast

0.0

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

we aim to expand our share in the steel industry—an industry

Market Environment

activated sludge reduction systems to the electronic component

Despite overall conditions remaining on a recovery course, theindustry. Also, in response to increased capital investment in con-domestic market, and particularly the private sector, continued tonection with facility aging and energy saving, the SHI Group will

suffer a harsh business environment. In the private sector, whilebolster its services business, which helps enhance the performance

capital investment in new plant construction decreased, that relat-of customers’ existing facilities and equipment. With regard to

ed to aging facility remodeling and renovation, energy generation

public-sector projects, as the adoption of energy-saving equipment

and conservation, and operating cost reductions increased.

gains momentum, the SHI Group will proactively implement strate-

Public-sector conditions have remained flat in the past several

gies based on key products that have been developed with market

years. However, as in the private sector, investments aimed at

differentiation in mind. These products include the MICRUS®

improving energy-saving performance and reducing costs aresuperfine-bubble membrane tube diffuser, tapered impeller type

expanding. In fiscal 2011, although uncertainties in market condi-

mixers for anaerobic tanks and the SUMIRATOR® UD vertical-shaft

tions are expected to persist due to the aftermath of the earth-surface aerator.

where we boast particular strengths—and to boost sales of ourquake, customers will most likely show greater interest in
improving the energy-saving performance of their facilities.

Fiscal 2010 Review and Topics
The volume of orders received remained low amid stagnant
market conditions. However, the SHI Group’s performance in theprivate sector showed a year-on-year improvement, reflecting theGroup winning an order for wastewater treatment facilities overseas. Our revenues and earnings in this business expanded fromfiscal 2009, owing to a significant number of facility handovers forlarge-scale public projects falling into the period under review.

Fiscal 2011 Strategies and Initiatives
The SHI Group will continue to aggressively implement initiatives
aimed at achieving greater stability in its business foundation. For
the private sector, the Group will step up sales activities to provide
high-value-added products. Through these activities and products,
Coagulation sedimentation system “SUMI-THICKENER®”

32 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Initiatives to Support the SHI Group’s
Sustainable Growth
X Research and Development
Z Intellectual Property[ Corporate Governance` Directors, Corporate Auditors and Executive Officers
a Environmental and Social Contribution Initiatives

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 33

Research and Development

R&D Expenses

R&D Strategy

R&D Expenses (Left scale)

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

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

(%)

12

1.6

9

1.2

6

0.8

3

0.4

management plan covering the three-year period ended March 31,
2011. Placing priority on reinforcing our global competitivenessand developing innovative products, we aggressively promoted
R&D based on a vertically integrated synergistic value chain model.
Specifically, we strengthened our fundamental technologies anddeveloped groundbreaking components to enhance the value of
our equipment and systems. Under its new “Innovation 21”
0medium-term management plan covering the period ending

(FY)

06

07

08

09

March 31, 2014, the SHI Group will adhere to its basic R&D policies

Major R&D Results by Business Segment

under “Global 21” and further bolster its R&D activities.

1. Machinery Components

10

0.0

In power transmission equipment, the SHI Group introduced a large
right-angle-shaft gear motor with built-in CYCLO® speed reducers in
the industrial machinery market. Also, we released speed reducers
with highly efficient motors that comply with a couple of international efficiency standards.

Right-angle-shaft gear motor

2. Precision Machinery

Bevel BUDDYBOX®

In plastics machinery, we added such new functions as molding
process visualization and quality management to our Zero-molding®
systems, which are based on the concept of minimizing defects andlosses, as well as maximizing operational efficiency. A high-speed,
Business Portfolio and Value Chain of SHI Group
Social & Industrial Infrastructure

Services

Transport &Material Handling

Value Chain of Markets
Material Processing

Environment & Energy

Total Systems

Water treatment facilities

Automotive

Heavy Machinery
Business GroupCFB Boilers for IPP

Lifestyle and Consumer

Liquid Crystal &Semiconductor

Medical, Bioscience,
Physics & Chemistry

IT & Digital Appliances

Wafer modification

Precision Equipment
Business Group

Proton therapy systems

Ships

Logistics & handling systems

Material handling systems

PET systems

Ships

Equipment

Value Chain of SHI Group

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

Pressure vessels
Hydraulic excavator

Transfer molding machines

Forging presses
Construction
machinerySurface grinding machines

Ion implantation system
Superconducting magnets

Turbines & pumps

XY stages

Key Components &Basic Technologies

Lifting magnets

Steel rolls

Cryopumps

Blades
Cryocoolers
Gear Reducer & Component Business Group
Gear motors

34 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Actuators

Control modules

high-response injection molding machine with high-precision

6. Environmental Facilities & Plants

control functions has been developed for the light guide plates of

In its water treatment business targeting private-sector customers,

large LCD panels.

the SHI Group is working to expand sales of its facilities for waste-

In quantum equipment, the Group is continuing to perform veri-

water treatment in the electronics industry. At the same time, thefication tests on an advanced three-dimensional irradiation system

Group is accelerating the development of new facilities that enable

for proton therapy systems.

great water quality through water recovery and treatment. In the

In precision positioning equipment, we introduced a precisionwater and sewage business, we introduced new energy-saving
unit-type equipment that helps reduce facility lifecycle costs andstage in the wafer exposure market.
In semiconductor production equipment, we upgraded our

prevent the further advance of global warming.

ion-implantation devices, which boast high ion-beam quality and

In energy and environmental plants, the SHI Group is bolstering

precision. More specifically, we achieved a substantial improvement

initiatives to expand sales of circulating fluidized-bed (CFB) boilers inin the productivity and cost performance of equipment and thenSoutheast Asia. At the same time, we conducted verification tests

launched it on the market.

on the combustibility of biomass resources and low-grade coal while

3. Construction Machinery

stepping up the development of constituent technologies regarding

In hydraulic excavators, the Group released a next-generation flag-

various fuels.

ship model that complies with interim Tier 4 emissions requirements

In metal processing machines, we expanded the application of ain Europe and the United States. In addition, we are accelerating

flow-forming method, which is a promising alternative to such con-research on hybrid technologies, building on the success of LEGEST®

ventional processing methods as cutting and forging, in automotive

HYBRID, which has been certified as low-carbon construction

parts and components.

machinery by the Ministry of Land, Transport and Infrastructure.
4. Industrial Machinery

In environment equipment, we launched energy- and spacesaving, high-performance dust collection equipment.

In logistics and automated parking systems, the SHI Group bolstered its lineup of automated guided vehicles (AGVs) for wide filmrolls, targeting photovoltaic cell manufacturers.
In forging presses, the Group developed a servo-driven, multiaction press for cold forging to meet the expected rise in demandin the automotive industry.
5. Ships
In ships, the SHI Group released a new Aframax tanker. For this newship, we applied original advanced energy-saving technologies to thehull forms and propulsion system and adopted a main engine
system that is compliant with anticipated environmental regulations

Planar XY stage “SA&SL Series”

while incorporating a ballast water treatment system. In the area

for semiconductor and printed circuitof production technology development, the Group is working

board exposure and inspection processes

constantly to shorten lead times and improve the quality of its ships.

Single-wafer, high-current

Automated guided vehicle

ion-implantation device “SHX-III/S”(AGV) for films

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 35

Intellectual Property

The SHI Group is oriented towards growth driven by distinc-

intellectual property evaluation in the design review (DR) process,tive technologies. As such, intellectual property is an issue of

we are striving to make our product capabilities more robust.

the utmost importance and the wellspring of the Group’s
competitive advantage. The principal focus of our efforts is

2. Intellectual Property Evaluation Activities

directed at the three elements of intellectual property activi-

The SHI Group evaluates the strength of individual patents held byty, namely, ensuring that rights to intellectual property are

the Group and strategically manages the processes for improving

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

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

intellectual property portfolio, such evaluation and management

to the active creation, management and protection of SHI

processes enable the Group to keep reinforcing the competitive

Group’s invaluable “property.”superiority of its products through the appropriate maintenance of
its intellectual property.

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

3. Accelerating Overseas Patent Applications

intellectual property activities, the Group has appointed chief intel-

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

SHI Group, we have been calling on all operating divisions andmanagers of technology and development divisions, a position

other relevant divisions to actively work to file patent applications

immediately below and reporting directly to officers in charge ofoverseas. As a result, as of April 2011, as many as 1,120, orgroups or divisional businesses.

30.1%, of the total 3,720 patents held by the Group were held

The CIPOs prepare optimal intellectual property strategies foroverseas. In recent years, the Group has been increasing patenteach division, make all members of those divisions thoroughly

applications, particularly in China, South Korea and Taiwan.

acquainted with these strategies and create the mechanisms to put
those strategies into practice. In addition, the Intellectual Property

SHI Group’s Overseas Patent Applications

Department participates fully in reform activities implemented by(Application)

the CIPOs.

350
300

Major Activities and Achievements

250

1. Intellectual Property Inspection Activities

200

We have formed an Inspection Committee composed principally of

OthersCIPOs and established mechanisms for the regular evaluation of

PCT*South Korea

inventive proposals and decisions regarding substantive examination

Taiwanrequests and rights maintenance. In this way, we foster the efficient

100
50

China

and systematic management of patent applications ultimately

0

intended for commercialization. Furthermore, by incorporating

CIPO System

150

(FY)

06

07

08

09

10

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

President

Sumitomo (S.H.I.)
Construction
Machinery

Mechatronics

Precision Equipment

Quantum Equipment

Plastics Machinery

Power Transmission& Controls

Technology
Research Center

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

CIPO: Chief Intellectual Property Officer

PL: Patent Leader

Sub-CIPO: Acting CIPO (Group Leader)

36 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011PL

Intellectual Property
Department

Corporate Governance

The SHI Group believes that the essence of corporate gover-Company’s Head Office, as an advisory body to the president. Thisnance lies in the establishment of a system that enables

Committee deliberates on important matters, including those to beefficient and transparent management. Sound corporate gov-

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

ernance helps the Group achieve higher enterprise value anddeliberation results to the Company’s president.
The Company’s corporate auditors audit the execution of duties

win the trust of all its stakeholders, including shareholders,by directors and executive officers from the perspectives of legality

customers, employees and the community as a whole.

and appropriateness. At the same time, corporate auditors of the
Corporate Governance System

Company and its subsidiaries and affiliates jointly hold regular meet-

SHI has adopted the corporate auditor system and, within thisings to exchange audit-related information and reinforce auditing

framework, has introduced an executive officer system to separate

functions covering the entire SHI Group. The Company has appoint-

the business execution and supervision functions of corporate man-ed a lawyer and a certified public accountant as its external corpo-

agement.

rate auditors to reinforce the overall system for checking compliance

The Company has a Board of Directors, comprising 10 directors,

and corporate accounting. Also, the Company has established theand a Board of Corporate Auditors, comprising 4 corporate audi-

Corporate Auditor’s Department as a staff organization to support

tors. The Board of Corporate Auditors, including two external cor-

the Board of Corporate Auditors.
The Directors Recommendation Committee makes recommenda-

porate auditors, and the Board of Directors, including one external
director, collaborate with executive officers in charge of internal

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

auditing and internal control in auditing and supervising the execu-

members of the Board of Directors and representative directors.

tion of duties by the Company’s directors. The Board of Directors

Meanwhile, director remuneration is determined by thedeliberates not only on matters stipulated under the JapaneseCompensation Committee. Half of the current Compensation

Corporate Law, but also on important management issues in a pre-Committee members have been externally appointed. More specifi-

emptive manner. Also, the Company’s Articles of Incorporation stip-cally, as an advisory body to the Board of Directors, theulate that the Company must have no more than 12 directors.

Compensation Committee determines a level of director remunera-

The Executive & Operating Officers Committee comprises 17

tion that reflects the Company’s business performance while ensur-

executive officers, who execute the Company’s business, including

ing transparency and ethical appropriateness in remuneration

5 who concurrently serve as directors of the Company, as well as 12

decision processes.

operating officers. The Committee manages consolidated business
Internal Auditing, Auditing by Corporate Auditors,

results and ensures the implementation of management policies.

Independent Audits

The Company has also established the Management Strategy

The Company has established the Internal Audit Department (withCommittee, comprising executive officers assigned to thea full-time staff of eight) as an internal auditing organization that
SHI’s Corporate Governance System
General Meeting of Shareholders

Audit

Board of Directors

Ethics Committee
Directors Recommendation Committee

Corporate Auditors/
Board of Corporate Auditors

Supervision

Audit

Corporate Auditor’s Dept.

President and Chief Executive Officer

Internal Control GroupInternal Control

Internal Audit Dept.

Internal Auditing

Audit

Management Strategy Committee

Independent Auditor

Compensation Committee

Executive & Operating Officers Committee

Operational Divisions

Subsidiaries and Affiliates

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 37

reports directly to the president. The Internal Audit Department

Internal Control System

periodically conducts audits of business execution at the Company’s

The SHI Group considers the internal control system to be aninternal organizations and at subsidiaries and affiliates in Japan andimportant management foundation for increasing its enterpriseoverseas, provides advice on operational improvements and follows

value and ensuring its sustainable development. The Board of

up on the implementation of improvements. The Department

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

undertakes the reinforcement of the internal control functions in

nal control system, which is the foundation of corporate gover-coordination with self-audits conducted by the operational divi-nance. The Board appropriately verifies the effectiveness of thesions. The corporate auditors perform their duties in line with theinternal control system and undertakes constant enhancement andaudit plans and policies formulated by the Board of Corporate

improvement. The Company appoints external directors to bring an

Auditors. To audit the execution of duties by the Company’s direc-

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

tors and executive officers, they attend meetings of the Board ofcorporate auditors conduct audits to ensure the appropriate execu-

Directors and the Executive & Operating Officers Committee as welltion of duties by the Company’s directors with respect to the devel-as other important meetings. In addition, the corporate auditors

opment and administration of the internal control system. Also, theare allowed to access principal internal memos and other importantCompany works to strengthen its internal control over financial

documents relating to business execution. The Company hasreporting. With the organization in charge conducting audits of theappointed KPMG AZSA LLC as its independent auditor, has enteredstatus of internal control system administration, the Company isinto an audit contract and undergoes rigorous audits. The corpo-

striving to secure the reliability of its financial reporting.

rate auditors, the Board of Corporate Auditors, Internal Audit
Department and independent auditor closely collaborate with each

Compliance Activities

other and exchange information about audit results, thereby devel-

The Ethics Committee, chaired by the president, formulates theoping and implementing an efficient audit system.

Company’s basic compliance policy. The Internal Control Group
undertakes the rigorous implementation of the policy through aExternal Director and External Corporate Auditorsgroup-wide internal control system. The Company distributes the

As discussed above, the Company has appointed one external

Ethics Regulations and Compliance Manual to all employees anddirector and two external corporate auditors.

undertakes regular ethics and compliance education. When neces-

External director Toshiaki Kakimoto attended all 15 Board ofsary, the Company requires written agreements from directors,

Directors meetings during fiscal 2010 and provided opinions andexecutive officers and all managers concerning individual compli-

advice based on his extensive knowledge of macroeconomics andance items. The Company maintains a resolute stance against orga-

corporate management. External corporate auditor Seishiro

nizations or individuals that pose a threat to public order and safety

Tsukada attended all 15 Board of Directors meetings and all 15

and engages in no relations whatsoever with such organizations orBoard of Corporate Auditors meetings during the reporting term.

individuals. The Company has established an ethics hotline (an in-

As a lawyer, he provided invaluable opinions and advice from ahouse whistle-blower system) as a point of contact to report mat-legal specialist perspective. Also, at the Ordinary General Meeting

ters that violate or may violate laws, ordinances or corporate ethics,of Shareholders held on June 29, 2011, the appointment of Mr.

promotes the use of the hotline and endeavors to discover prob-

Hideo Kojima as the Company’s external corporate auditor waslems at an early stage. The Company conducts audits of the execu-

approved. The Company expects Mr. Kojima to offer invaluable andtion of duties by the Company’s executive officers and by staff

candid opinions and advice on its management from a third-party

under the direct control of the executive officers through the orga-

perspective, based on his extensive experience as a certified public

nization in charge and ensures that their execution of duties com-accountant.

plies with laws, ordinances and the Articles of Incorporation.

Pursuant to the securities listing regulations of the Japaneseexchanges on which its stock is listed, the Company has notified

Risk Management

the Tokyo Stock Exchange and the Osaka Securities Exchange of

The Company engages in risk management using the group-wide

the designation of the external director and external corporate

internal control system. The Company takes a specialized approach

auditors as an independent director and independent corporate

to minimize risk. Through this approach, the business units inauditors, respectively. As they have no conflict of interest with the

charge prepare regulations governing individual risks—such as

Company’s shareholders, the Company has designated their statusenvironmental, legal, disaster, IT and export control risk—while pro-as independent.

viding education and guidance and conducting audits. In the event

38 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

of emergency, in accordance with the Company’s Emergency

who seek to make such purchases of the Company’s shares to be

Reporting Procedures, the involved employees immediately report

inappropriate as persons who control decisions on the Company’s

to executive management and take appropriate measures.

financial and business policies and has a basic policy on large-scale
share purchases of devising measures, as far as is necessary and

Takeover Defense Measuresreasonable, to secure and increase the Company’s enterprise value

SHI believes that—from the standpoint of increasing enterpriseand the common interests of the shareholders.

value and ensuring the common interests of the shareholders—the

In accordance with this basic policy, as part of measures to pre-nature of the persons who control decisions on the Company’svent inappropriate parties from controlling the Company’s decisions

financial and business policies should be ultimately decided by theon financial and business policies, SHI adopted the Counter-shareholders. Some large-scale purchases of shares, in light of theirmeasures to Large-Scale Acquisitions of the Company’s Shares

purpose or post-purchase management policy, pose the risk of clear(Takeover Defense Measures) following the approval of the 112th

impairment of enterprise value or the common interests of theOrdinary General Meeting of Shareholders held in June 2008.

shareholders. Some large-scale purchases—such as those conduct-These Takeover Defense Measures expired upon the closing of theed without the sufficient provision of information reasonably nec-

115th Ordinary General Meeting of Shareholders held in Juneessary for the shareholders to judge the purchase details—can be2011. The same shareholders meeting, however, approved the

expected to have a major impact on enterprise value or the com-continuation of the Takeover Defense Measures after making

mon interests of the shareholders. The Company considers persons

necessary changes.

Messages from External Director and Corporate Auditors

Toshiaki Kakimoto

Seishiro Tsukada

Hideo Kojima

External Director

External Corporate Auditor

External Corporate Auditor

Sumitomo Heavy Industries, Ltd.’s strengths areunderpinned by its effective corporate governancesystem, 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 andcompliance activities, SHI 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 SHI’s working to accelerate globalization and strengthen its corporate governance,
thereby contributing to the Group’s additional growthand enterprise value maximization.

Society at large is increasingly demanding corporations to bolster their compliance and corporate
governance. At the same time, legal requirements are
growing significantly more stringent, with Japan’s
Corporate Law and Financial Instruments andExchange Law mandating the establishment andappropriate administration of effective internal
control systems. Furthermore, recent amendments tothe securities listing regulations of Japanese stock
exchanges have reinforced similar requirements
regarding corporate governance. Against this backdrop, as a lawyer I am serving an external corporate
auditor of Sumitomo Heavy Industries. This is a position of great significant to me. Corporations mustpursue profit, and, I believe, their corporate activities
should not be excessively constrained by internal
control. There should be an optimal balance between
these two contradictory activities. I intend to work
toward finding that balance by performing my duties
to the fullest of my abilities.

With the recent revisions to the securities listing regulations of Japanese stock exchanges, listed companies are
now required to further strengthen their corporate governance. External corporate auditors designated as independent corporate auditors have an important role toplay in helping these companies fulfill this requirement.
Sumitomo Heavy Industries was engaged in the ongoing reinforcement of its corporate governance even
before these regulatory revisions were made. Being a certified public accountant and an external corporate auditorof SHI, I understand my primary role to be the verificationof the comprehensiveness of the Company’s financial
reporting and compliance with business accounting standards. Simultaneously, I must help the Company improve
said comprehensiveness. Also, in line with the Company’sbusiness globalization, it will become more important
than ever before to secure compliance throughout theGroup’s overseas operations and to enhance the qualityof its financial reporting on a consolidated basis.
Therefore, I will do my utmost to enable SHI to bolster
corporate governance from a global perspective.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 39

Directors, Corporate Auditors and Executive Officers(As of June 29, 2011)

Board of Directors

Yoshio Hinoh

Yoshinobu Nakamura

Shinji Nishimura

Shunsuke Betsukawa

Yuji Takaishi

Representative Director,
Chairman

Representative Director,
President and CEO

Representative Director,
Senior Executive Vice President

Representative Director,
Executive Vice President and CFO

Director, Executive Vice President

Hitoshi Kashimoto

Kensuke Shimizu

Mikio Ide

Kohei Takase

Toshiaki Kakimoto

Director, Executive Vice President

Director

Director

Director

External Director

Corporate Auditors
Yukio Kinoshita
Standing Auditor

Shunsuke Betsukawa

Katsuhide Yokota

Executive Vice President and CFO
General Manager, Corporate Finance, Accounting &Administration Group
General Manager, Export Administration Dept.

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

Shigeru Toyosumi

Junjiro Nogami

Standing Auditor

Yuji Takaishi

Seishiro Tsukada

Executive Vice President
General Manager, Plastics Machinery Div.

External Corporate Auditor

Senior Vice President
General Manager, Logistics & Parking System Div.

Hitoshi Ushiyama
Hitoshi Kashimoto

Hideo Kojima

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

External Corporate Auditor

Executive Officers

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

Kazumi Fujita

Yoshinobu Nakamura

Osamu Sekiya

Senior Vice President
General Manager, Internal Control Dept.

President and CEO

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

Yukio Kumata

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

Katsuhiko Taniguchi
Executive Vice President
General Manager, Corporate Technology Operations Group
General Manager, Information Systems Development Group

Noboru Mimoto
Executive Vice President
General Manager, Energy & Environment Group40 | Sumitomo Heavy Industries, Ltd.

Senior Vice President
General Manager, Quantum Equipment Div.

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

Mamoru Mishima
Senior Vice President
Representative Director and President,
Nihon Spindle Mfg. Co., Ltd.

Annual Report 2011

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

Yoshiyuki Tomita
Executive Officer
General Manager, Technology Research Center,
Corporate Technology Operations GroupEnvironmental and Social Contribution Initiatives

The SHI Group recognizes that protecting the global andEfforts to Prevent Global Warming

local environment and promoting recycling-oriented

The SHI Group is promoting zero-emissions* activities aimed at

economic activities are important to its corporate mission.

facilitating resource recycling through manufacturing operations.

In line with this recognition, the Company established the

In fiscal 2010, ended March 31, 2011, the SHI Group achieved

SHI Environmental Policy in 1997. This was followed by thezero emissions, recording a 0.4% ratio of the volume of waste for1999 formulation of the SHI Group Environmental Policy.

landfill to the total volume of waste.

Under this Groupwide policy, all SHI Group companies are* Zero emissions: The volume of waste for landfill is less than 0.5% of the total

working together to promote environmental initiatives

volume of waste generated by the SHI Group, in other words, the recycling rate

and management.

SHI Group Environmental Policy

is greater than 99.5%.

Reducing the Environmental Burden
The SHI Group is contributing to environmental preservation by• Consider the impact on the environment around the facilities

minimizing the environmental burden of its products and manufac-• Prevent environmental pollution• Reduce waste• Save energy and resources and promote recycling

SHI Group’s Recycling Rates
(%)

100

80

60

40

20

0

(FY)

05

06

07

08

Sumitomo Heavy Industries, Ltd.

09

10

11 (Target)

Annual Report 2011 | 41

turing operations. Going beyond improving the energy efficiency ofSocial Contribution Activities

its products, the Group is working to reduce waste generation and

Aiming to maintain sound relationships with not just the communi-

the power consumption of its plants.

ties in which it operates but also the global community, the SHI®

During fiscal 2010, the Group’s SAT-Chel ** wastewater treat-

Group conducts wide-ranging social contribution activities. These

ment system received a Chairman’s Prize from the Japan Society ofactivities include supporting social welfare institutions, providing

Industrial Machinery Manufacturers. The Company’s circulating

work experience programs for students and implementing local

fluidized-bed (CFB) boiler for private power generation won acleanup and disaster prevention activities.

Director-General’s Prize from the Industrial Science and Technology

The SHI Group places particular emphasis on biodiversity preser-

Policy and Environment Bureau of Japan’s Ministry of Economy,

vation. For example, the Company maintains a 13,000-m2 forest on

Trade and Industry. Moreover, the Group obtained low-emission

the grounds of its Tanashi Works in Nishitokyo City, Tokyo. Dubbed

construction machinery certification from the Ministry of Land,the “Forest of Inspiration,” the forest is home to more than 40 spe-

Infrastructure, Transport and Tourism for the SH200HB-5

cies of trees and plants that attract a significant number of animals.

LM-model*** hybrid hydraulic excavator. The aforementioned

Acorns and other seeds obtained in the forest are distributed toawards and certification serve as examples of the high evaluations

other SHI facilities and used for greening activities at these loca-

that many SHI Group products have received for their superior envi-

tions. Through the effective use of space available within facility

ronmental performance.

grounds, we are expanding green zones and working to realize®

** SAT-Chel : This wastewater pre-treatment system processes insoluble matter,eco-friendly plants.

®

making it soluble, and recovers methane gas. SAT-Chel helps reduce waste
and promotes effective energy utilization while cutting CO2 emissions by lowering power consumption.
*** LM-model: LM stands for lifting magnet. The LM-model hybrid hydraulicexcavator is mainly used to deal with rebar (removal) during building demolition. The SH200HB-5 LM-model uses the energy generated by deceleration inswing-and-dump maneuvers to produce electricity. The electricity is then used
to drive motors and support engine output, thereby improving fuel efficiency.

At the Saijo Factory, Ehime Works, plants are
growing from seeds gathered from the forest.

Wastewater treatment system “SAT-Chel®”Hybrid hydraulic excavator“SH200HB-5 LM-model”

42 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

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

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 43

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

FY2000FY2001

FY2002

FY2003

FY2004

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 (loss)¥513,753
434,544
71,724
8,688
7,485
20,402(28,612)¥517,138
430,399
72,564
6,777
14,17526,0781,650¥481,289
400,460
63,616
5,800
17,21329,322
2,688¥482,765
378,422
64,112
6,263
40,231
50,344
16,262¥521,310
407,51265,025
6,317
48,77358,055
22,792

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

¥ (16,957)
29,56012,603(21,403)36,496¥ 38,808(3,343)35,465(32,785)
40,846¥ 29,499(1,074)28,425(22,116)
47,661¥ 75,775(7,929)67,846(56,666)
57,678¥ 45,451(6,087)39,364(46,490)
49,108Financial Position (at year-end):
Total assets
Total current assets
Property, plant and equipment
Interest-bearing debt
Net interest-bearing debt
Stockholders’ equity
Total net assets (Note 4)¥579,772
394,252
119,135
324,324
287,609
30,049—¥634,904
371,049
199,758
294,552
254,40287,494—¥588,010
329,231
196,104
273,544
225,571
89,331—¥580,291
321,400
258,891
215,807
157,353
114,526—¥569,771
316,166
253,605
169,228
119,592
137,157—

Amounts per Share of Common Stock:
Net income (loss) (Note 5)
Stockholders’ equity
Cash dividends¥ (48.60)
51.04
—

¥

¥

¥

¥

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

2.80
148.63—4.57
151.86—27.01
190.25
—

1.5
4.0
1.7
(4.6)
(60.3)
5.2
55.9
10.8
1.3

2.7
5.0
1.3
0.3
2.8
13.8
46.4
3.4
2.3

3.6
6.1
1.2
0.4
3.0
15.2
46.5
3.1
2.6

8.3
10.4
1.3
2.8
16.0
19.7
37.2
1.9
6.5

¥ 14,305
12,916
12,411¥ 15,549
11,902
12,457¥ 14,406
12,118
11,777¥ 10,562
10,112
11,28237.80
227.90
3.00

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

¥

8,175
9,282
11,149Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥83=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2011.
2. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
3. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
4. Net assets are presented following enforcement of the new Japanese Corporate Law in 2006. Net assets comprise stockholders’ equity as previously defined,
plus minority interests and share subscription rights.
5. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
6. ROIC (Return on Invested Capital) =44 | Sumitomo Heavy Industries, Ltd.

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

Annual Report 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2010¥551,339
434,904
68,9307,434
47,50556,57729,742¥600,256
464,071
71,961
8,581
64,22474,87337,352¥660,769
505,366
77,613
9,908
77,79091,57842,974¥642,918
503,072
82,906
10,04756,94075,26013,649¥516,165
412,751
75,1608,187
28,25447,97913,280¥548,015
426,479
75,7338,228
45,80363,74427,926$6,602,594
5,138,297
912,450
99,133551,847
768,003
336,461¥ 50,023(7,024)42,999(48,812)
43,644¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700$ 440,012(283,287)
156,725(265,304)
622,893¥579,233
317,813
261,421
125,504
81,587
167,740—¥600,890
332,509268,381
88,04539,890—206,010¥678,634
381,946
296,688
89,56759,311—
246,371¥657,436
380,293
277,143
110,339
65,654—
238,697¥610,087
339,780
270,308
87,66025,149—254,153¥626,829
365,342
261,487
67,833
15,347—269,380$7,552,160
4,401,713
3,150,447
817,271
184,913—
3,245,537

¥

¥

¥

¥

¥

Yen

¥

U.S. dollars (Note 1)

49.45
279.02
5.00

61.99
338.957.00

71.19
392.8010.00

22.62
378.786.00

22.01
404.734.00

45.87
435.10
8.00

$

0.55
5.24
0.10

%

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.3
20.1
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8

8.4
11.6
1.5
4.5
10.9
42.6
10.8
0.3
7.8
Thousands of
U.S. dollars (Note 1)

Millions of yen¥ 10,285
9,072
11,319¥ 17,257
10,64912,561¥ 28,180
13,78814,408¥ 31,753
18,32014,984¥ 24,465
19,725
15,463¥ 14,292
17,941
17,025

Sumitomo Heavy Industries, Ltd.

$ 172,193
216,156

Annual Report 2011 | 45

Management’s Discussion and Analysis of Financial Conditions andOperating Results
1. Discussion and Analysis of Operating Results for Fiscal 2010

(3) Cost of Sales
In line with the increase in net sales, cost of sales expanded ¥13.7 bil-

(1) Orders

lion to ¥426.5 billion. The cost of sales ratio improved 2.2 percentage

Orders received during fiscal 2010, ended March 31, 2011, rose ¥131.5

points to 77.8%, reflecting decreases in all segments except thebillion from fiscal 2009 to ¥534.9 billion, with the order volume

Environmental Facilities & Plants segment.

exceeding the fiscal 2009 level in all segments. Specifically, supported
by recovery in market conditions in China and other emerging coun-(4) Selling, General and Administrative (SG&A) Expenses

tries, orders received in the Machinery Components, Precision

SG&A expenses edged up ¥0.6 billion year on year to ¥75.7 billion. The

Machinery and Construction Machinery segments increased ¥14.4 bil-

SG&A expense ratio improved 0.8 of a percentage point to 13.8%.

lion, ¥44.5 billion and ¥40.7 billion year on year to ¥75.8 billion,¥150.5 billion and ¥141.2 billion, respectively. Also, in the Ships seg-(5) Operating Income

ment, the SHI Group secured orders for two new ships, the first in

Operating income surged ¥17.5 billion from fiscal 2009 to ¥45.8 bil-approximately 30 months, resulting in a ¥10.3 billion increase in seg-lion. Segment operating income increased year on year in thement orders to ¥14.6 billion.

Machinery Components, Precision Machinery and Construction
Machinery segments primarily due to increases in segment sales. On the(2) Net Sales

other hand, despite declines in segment sales, the Industrial Machinery,

Net sales grew ¥31.9 billion to ¥548.0 billion. Sales in the Industrial

Ships and Environmental Facilities & Plants segments secured profitabili-

Machinery, Ships and Environmental Facilities & Plants segments fell year

ty owing to their cost reduction efforts. The operating income margin

on year, while those in the Machinery Components, Precision Machinery

increased 2.9 percentage points to 8.4%.

and Construction Machinery segments expanded year on year.
Overseas sales climbed ¥34.0 billion to ¥277.4 billion. The ratio of(6) Other Income and Expenses

overseas sales to consolidated net sales jumped 3.4 percentage points

Other income and expenses amounted to net expenses of ¥1.6 billion,

to 50.6%.

an improvement of ¥0.1 billion from fiscal 2009. Other income declined¥0.6 billion year on year to ¥3.9 billion, largely due to a decrease in
exchange gains. Meanwhile, other expenses dropped ¥0.7 billion to¥5.5 billion, mainly due to a decrease in interest expense.

Net Sales

Selling, General and
Administrative Expenses,
SG&A Expenses Ratio

Breakdown of Variation in Operating Income (Fiscal 2009–Fiscal 2010)(¥ Billion)(¥ Billion)

(%)

800

100

25

(¥ Billion)

45.8

+16.4
80

20

60

15

600

28.3

400
40

10

20

5

(2.6)

(0.6)

(0.3)

Exchange rate
fluctuations

SG&A
expenses

Loss onearthquake
disaster

+4.6
Sales
increase

Improvement
in cost of
sales ratio,
etc.

200

0

(FY) 06

07

08

09

0

10

 Machinery Components  Precision Machinery Construction Machinery  Industrial Machinery Ships  Environmental Facilities & Plants
 Others(FY) 06

07

08

 Selling, General and
Administrative Expenses (Left scale)
SG&A Expenses Ratio (Right scale)

46 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

09

10 0

(FY)

09

10

(7) Extraordinary Gains and Losses

non-current assets were more than offset by increases due to the inclu-

Extraordinary gains and losses amounted to net gains of ¥0.9 billion, asion of Hansen Industrial Transmissions NV and other companies in con-turnaround totaling ¥1.2 billion from fiscal 2009. Extraordinary gains

solidation. Specifically, cash and time deposits decreased ¥10.0 billion toincreased ¥1.1 billion to ¥3.5 billion, reflecting such factors as the post-¥52.5 billion, mainly owing to the posting of the payment for purchaseing of gain on negative goodwill. Extraordinary losses contracted ¥0.1

of subsidiary with change in scope of consolidation. Notes and accounts

billion to ¥2.6 billion. Among other factors, a ¥1.0 billion decrease inreceivable ¥23.4 billion to ¥155.3 billion, reflecting such factors as theloss on valuation of investment securities was more than offset by ¥1.4

aforementioned new inclusion of certain companies in consolidation.

billion in impairment losses on fixed assets.

Property, plant and equipment declined ¥2.3 billion to ¥214.2 billion,
primarily due to an increase in accumulated depreciation attributable to(8) Income Taxes (Total Income Taxes, Local Inhabitant Tax,Business Tax and Deferred Income Taxes)

the posting of impairment losses on fixed assets. Investments in unconsolidated subsidiaries and affiliated companies and long-term loans

Income taxes expanded ¥4.2 billion to ¥16.1 billion, mainly due toreceivable and investment securities decreased ¥4.1 billion to ¥26.3 bil-increases in income before income taxes of SHI and Group companies.

lion, largely due to deterioration in the fair value of securities.
Total liabilities rose ¥1.5 billion to ¥357.4 billion. Notes and accounts pay-(9) Minority Interests in Net Income

able expanded ¥23.9 billion to ¥132.0 billion. Reflecting the Group’s efforts

Minority interests in net income remained flat year on year at ¥1.1 billion.

to accelerate debt repayment in order to reinforce its financial strength,
interest-bearing debt decreased ¥19.8 billion to ¥67.8 billion. Net interest-(10) Net Income

bearing debt—the amount of interest-bearing debt less cash and time

Net income soared ¥14.6 billion year on year to ¥27.9 billion.

deposits—declined ¥9.8 billion to ¥15.3 billion. The ratio of net interestbearing debt to total assets improved 1.7 percentage points to 2.4%.

2. Discussion and Analysis of Financial Condition as ofAdvance payments received on contracts decreased ¥7.7 billion to

the Fiscal 2010 Year-End¥33.3 billion, mainly reflecting the transfer of these payments to thesales account, which resulted in increases in sales in the Environmental(1) Assets, Liabilities and Net Assets

Facilities & Plants and Ships segments.

As of March 31, 2011, total assets stood at ¥626.8 billion, up ¥16.7 bil-

Net assets rose ¥15.2 billion to ¥269.4 billion. This increase was due

lion from March 31, 2010. Decreases in cash and time deposits andto a rise in total owners’ equity caused by such factors as an increase in

Operating Income,Operating Income Margin

Total Assets,
Total Asset Turnover

Net Income,Net Income Margin, ROE

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

80

20

50

25

800

2.0

40

60

15

40

20
600

1.5

30

40

10
400

1.0

20

200

0.5

10

20

15

20

10

10

5

(¥ Billion)

5

0
-10

30

(Times)0(FY) 06

07

08

09

10

 Machinery Components
 Precision Machinery Construction Machinery Industrial Machinery(Left scale) Ships
 Environmental Facilities & Plants
 Others
Operating Income Margin (Right scale)0(FY) 06

07

08

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

09

10 0

0

(FY) 06

07

08

 Total Assets (Left scale)
Total Asset Turnover (Right scale)09

10 0.00(FY) 06

07

08

09

10

 Capital Expenditures Depreciation and Amortization

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 47

capital surplus in connection with the implementation of a stock swap

b. Precision Machinerywith Nihon Spindle Manufacturing Co., Ltd. and an expansion in

Investments in this segment centered on the purpose of strengthening

retained earnings in line with a year-on-year improvement in thethe cost-competitiveness of SHI’s domestic production bases. Segment

Group’s performance. As a result, the stockholders’ equity ratio as ofcapital expenditures totaled ¥3.0 billion.

March 31, 2011 improved 2.6 percentage points from March 31, 2010c. Construction Machinery

to 42.6%.

The SHI Group focused on boosting the capacity of its hydraulic excava(2) Cash Flows

tor production facilities, among other projects, in China. Segment capi-

The SHI Group uses internal funds and funds procured through debt

tal expenditures amounted to ¥4.4 billion.

financing as working capital and to fund capital spending.
Net cash provided by operating activities totaled ¥36.5 billion, downd. Industrial Machinery¥21.0 billion year on year. Cash inflows, such as income before income

The SHI Group prioritized the upgrading of its existing facilities andtaxes and minority interests and the increase in notes and accounts pay-equipment, aiming at enhancing their capacity and productivity.

able, were more than offset by cash outflows, such as the increase in

Segment capital expenditures amounted to ¥0.9 billion.

notes and accounts receivable and the increase in inventories.
Net cash used in investing activities amounted to ¥23.5 billion, up

e. Ships¥9.6 billion year on year. A major factor was the posting of the pay-

The SHI Group concentrated its energy on the upgrading and relocation

ment for purchase of subsidiary with change in scope of consolidation.

of its existing facilities and equipment aimed at enhancing their capaci-

Net cash used in financing activities totaled ¥22.0 billion, down ¥4.7

ty and productivity. Segment capital expenditures totaled ¥1.1 billion.

billion from fiscal 2009. The major reason for the decline was theabsence of the decrease in commercial paper that was posted in thef. Environmental Facilities & Plants

previous fiscal year.

In this segment, SHI invested a total of ¥0.7 billion primarily to improve

As a result, cash and cash equivalents as of March 31, 2011 stood at¥51.7 billion, down ¥9.8 billion from March 31, 2010.

business efficiency and streamline operations.
Groupwide investment projects included IT investments in line withthe establishment of a global production structure, environmental(3) Capital Expenditures and Depreciation and Amortization

investments to ensure compliance with related laws and regulations

During fiscal 2010, while suspending non-urgent investment projects

and other investments aimed at improving workplace environments.

on the domestic front, the SHI Group concentrated its investments on

For fiscal 2011, ending March 31, 2012, the SHI Group plans to

the establishment of business bases in China, Brazil and other emerging

invest a total of ¥15.0 billion, focusing on the Machinery Components,

countries in Southeast Asia. Total capital expenditures, including those

Precision Machinery and Construction Machinery segments. The Groupfor intangible fixed assets, declined ¥10.2 billion year on year to ¥14.3

expects to post depreciation and amortization totaling ¥18.5 billion.

billion. Depreciation and amortization was also down, declining ¥1.8
billion to ¥17.9 billion.

3. Policy on Distribution of Profits

Capital expenditures by segment are described below.
SHI adheres to a basic profit distribution policy of paying dividends
a. Machinery Components

commensurate with net income earned during the period while striving

SHI made investments to bolster the capacity of its production facilities

to increase dividend amounts. At the same time, the Company works

for medium- and large-sized gearboxes in China. In addition, theto maintain retained earnings at a level sufficient to ensuring sustain-

Company began constructing a new production base in Brazil for medium-

able business growth over the long term.

and large-sized gearboxes. Segment capital expenditures totaled¥3.8 billion.

With due consideration given to such factors as an improvement in
the SHI Group’s performance, the Company decided to pay out anannual dividend of ¥8 per share, a ¥4 increase from fiscal 2009.

48 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Business Risks

Risks that could adversely affect the business performance or financial

cannot guarantee that these policies will cover the full sums of com-position of the SHI Group are as follows.

pensation that may become payable in liability settlements. Repairs per-All statements below regarding future events represent judgments
made by the management of the Group as of March 31, 2011.

formed under guarantee and product compensation payments cangenerate significant costs for the Group, and this can adversely affectthe business performance and financial position of the Group.

1. Macroeconomic Factors
Demand for capital equipment, which accounts for more than half of

5. Impact of Impairment Accounting

Group sales, may be influenced by economic trends in both Japan andBased on the Law Concerning Revaluation of Land (Ordinance No. 34,

various overseas markets where the Group sells its products. Any con-issued March 31, 1998) and the Law to Partially Modify the Law

traction in demand triggered by a slump in the major markets for ourConcerning Revaluation of Land (Ordinance No. 19, March 31, 2001),

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

the Company revalued land used by its businesses on March 31, 2002.

could have an adverse impact on the business performance or financial

The difference between the market and book values of the revalued

position of the Group.

land as of March 31, 2011 was ¥21.5 billion, a decline of 21%. If land
values continue to fall, we may have to recognize impairment losses on

2. Exchange-Rate Fluctuations

fixed assets, which could adversely affect the business performance and

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

financial position of the Group.

ucts in countries all around the world. Yen translations are applied in
the consolidated financial statements for transactions (involving over-

6. Environmental Protection Measuresseas sales, expenses, assets and liabilities) undertaken in local curren-

Under the Group’s environmental policy, we take a range of measurescies. Due to exchange rate effects, the Group may be adversely

to reduce our environmental footprint such as avoiding environmental

impacted by transaction values after yen translation even if there is norisk factors and minimizing waste. We have taken every measure tosuch change in local currency terms. As of March 31, 2011, the Group

prevent environmental pollution, but cannot rule out responsibility for

had an order backlog, chiefly in its shipbuilding business, of US$0.4 bil-

instances of environmental pollution due to unforeseen events. Shouldlion. To minimize the impact of exchange-rate fluctuations on our busi-

the Company be responsible for an incidence of environmental pollu-

ness performance, the SHI Group uses forward exchange contracts totion, significant costs could ensue, negatively affecting the businesshedge against risk. However, it is not possible to eliminate all risk using

performance and financial position of the Group.

this method. For this reason, the Group could suffer an adverse impact
on its business performance from exchange-rate fluctuations.

7. Natural and Other Disasters
The Group has in place inspection, training and communications mech-

3. Overseas Businesses

anisms for minimizing the occurrence and fallout from disasters such as

The Group conducts its business on a global scale, with a focus on mass-fires, earthquakes, typhoons and other wind and flood damage.

produced machinery and construction machinery for markets in North

However, the Group’s business activities could be adversely affected if

America, Asia and Europe. To meet expanding overseas demand, thesuch disasters cause material damage to our operations or injury to ourGroup is upgrading its marketing networks and production facilities.

staff. We cannot guarantee that casualty insurance would be sufficient

However, wherever we operate, markets are subject to political change

to cover all damages from such events.

and unpredictable legal and regulatory changes. Such changes could
have an adverse impact on the performance of our overseas businesses.

8. Electricity Shortage
The Great East Japan Earthquake on March 11, 2011 caused damage

4. Product Quality

to certain power generation facilities in Japan. Because of this situation,

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

there is the possibility that the short supply of electricity could prevent

strict quality control standards. However, total defect elimination is

the SHI Group from undertaking its production operations as scheduled

impossible, and we cannot rule out having to undertake repair workin the event of the short supply of electricity, particularly during theunder guarantee at our own expense in the event of product flaws. The

peak hours of power consumption in summer. Therefore, this event

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

may have an adverse effect on the Group’s business performance.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 49

Consolidated Balance Sheets
March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

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

2011

2010

2011

¥ 52,486¥ 62,511$ 632,358

Trade receivables:
Notes receivable

12,5659,900

151,384

Accounts receivable

142,702

121,993

1,719,300

Allowance for doubtful accounts
Inventories (Note 3)
Deferred tax assets (Note 6)
Prepaid expenses and other current assets (Notes 2 and 5)(991)(1,073)(11,940)

131,035

123,416

1,578,736

9,648

8,632

116,239

17,897

14,401

215,636

365,342

339,780

4,401,713

Land (Note 5)

117,157

115,971

1,411,526

Buildings and structure (Note 5)

139,776

139,711

1,684,047

Machinery and other tangible fixed assets (Note 5)

158,195

145,800

1,905,972

1,938

1,450

23,351

417,066

402,932

5,024,896(202,910)(186,455)(2,444,705)

214,156

216,477

2,580,191

131,912

Total current assets

Property, plant and equipment:

Construction in progress
Accumulated depreciation
Net property, plant and equipment

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

10,94913,509Long-term loans receivable and investment securities (Note 13)

15,40016,968

185,538

Deferred tax assets (Note 6)

8,319

9,886

100,234

Other assets

14,13515,041

170,302

Allowance for doubtful accounts(1,472)(1,574)(17,730)

47,331

53,830570,256¥626,829¥610,087$7,552,160

Total investments, long-term loans and other assets
Total assets

50 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:

2011

2010

2011

Short-term bank loans (Note 5)¥ 21,504¥ 30,524$ 259,084

4,411

10,43853,145

Notes payable

26,772

26,211

322,557

Accounts payable

105,179

81,806

1,267,211

Advance payments received on contracts

33,29540,971

401,141

Accrued income taxes

11,574

6,759

139,441

Allowance for warranty

5,196

5,218

62,605

Allowance for losses on construction contracts

1,040

754

12,533

Allowance for losses on business restructuring

412

1,530

4,959

33,12430,743399,092

242,507234,954

2,921,768

Long-term debts (Note 5)

41,91846,698505,042

Employees’ severance and retirement benefits (Note 15)

31,38032,426

378,077

208

235

2,505

31,83632,211

383,564

Long-term debt due within one year (Note 5)
Trade payable:

Accrued expenses and other current liabilities (Notes 5 and 6)
Total current liabilities
Long-term liabilities:

Allowance for losses on product liabilities
Deferred tax liabilities on revaluation difference on land
Other long-term liabilities (Note 6)
Total long-term liabilities

9,600

9,410

115,667

114,942

120,980

1,384,855

30,87230,872371,948

Contingent liabilities (Note 8)
Net assets (Note 7):
Common stock:
Number of shares authorized
1,800,000 thousand shares
Number of shares issued
614,527 thousand shares in 2011
605,726 thousand shares in 2010
Capital surplus

23,78920,503

286,613Retained earnings

188,047

161,951

2,265,630(67)
242,641(1,494)
211,832(809)
2,923,382

982

2,002

11,822

Treasury stock at cost:

122,181 shares in 2011
2,315,778 shares in 2010

Total owners’ equity
Unrealized gains on securities, net of income taxes
Unrealized gains on hedging derivatives, net of income taxes

960

1,125

11,565(1,978)(1,753)(23,826)

Revaluation difference on land

39,851

40,386

480,131

Foreign currency translation adjustments(15,129)(9,370)(182,276)

24,68632,390297,416

Adjustment regarding pension obligations of consolidated overseas subsidiaries

Total accumulated other comprehensive income
Minority interests

2,053

9,931

24,739Total net assets

269,380

254,153

3,245,537¥626,829¥610,087$7,552,160

Total liabilities and net assets
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 51

Consolidated Statements of Income
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales (Note 10)

2011

2010

2011

¥548,015¥516,165$6,602,594

426,479

412,751

5,138,297

Costs and expenses (Note 10):
Cost of sales
Selling, general and administrative expenses
Operating income (Note 10)75,73375,160912,450502,212487,9116,050,747

45,80328,254

551,847

1,515

1,222

18,258Other income (expenses):
IncomeInterest and dividend income
Exchange gains
Other—net

111

933

1,333

2,283

2,395

27,508(1,489)(1,940)(17,946)

Expenses
Interest expense
Equity in losses of affiliates

(447)

(22)

(5,385)(3,582)(4,296)(43,159)

Gain on negative goodwill

3,437

—

41,406

Gain on sale of securities

80

1,581

962

Subsidy—

863—

Impairment losses on fixed assets (Note 4)(1,396)—(16,822)

Loss on revision of retirement benefit plan

(503)

—

(6,055)

Effect of adoption of accounting standard for
asset retirement obligations

(480)

—

(5,781)

Contract loss

(220)

(1,000)(2,647)

Loss on valuation of investment securities(21)(1,000)(249)

Environmental expenses

—

(503)

—

Other—net
Extraordinary gains (losses):
Gains

LossesBusiness restructuring costs
Income before income taxes and minority interests

—

(213)

—

45,091

26,274543,270

16,555

11,503

199,463

Income taxes (Note 6):
Current
Deferred

(468)

382

(5,643)16,087

11,885

193,820

Income before minority interests

29,004

14,389349,450

Minority interests in net income(1,078)(1,109)(12,989)¥ 27,926¥ 13,280$ 336,461

Total

Net income

Yen

U.S. dollars (Note 1)

2011

2010

¥45.87¥22.01

2011

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

52 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

$0.55

—

—

—

8.00

4.00

0.10

Consolidated Statements of Comprehensive Income
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011

2010

2011

¥29,004¥14,389$349,450

Unrealized gains (losses) on securities, net of income taxes(1,046)

2,556(12,604)

Unrealized losses on hedging derivatives, net of income taxes

(120)

(862)

(1,444)

Adjustment regarding pension obligations ofconsolidated overseas subsidiaries

(224)

1,255

(2,702)(5,970)(529)(71,925)

(43)

45

(522)

(7,403)

2,465(89,197)

21,601

16,854

260,253

20,756

15,693250,072

845

1,161

10,181

Income before minority interests
Other comprehensive income:

Foreign currency translation adjustments
Share of other comprehensive income of affiliates accounted
for using equity method
Other comprehensive income
Comprehensive income
Comprehensive income attributable to
Owners of the parent
Minority interests
See accompanying notes.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 53

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2011 and 2010

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

CapitalsurplusRetainedearnings

Treasurystock

605,726¥30,872¥20,503¥148,725
13,280¥(1,471)

Net assets at March 31, 2009
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer ofrevaluation difference on land
Increase of consolidated
subsidiaries with change inscope of consolidation
Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation
Changes in items other thanowners’ equity in the period (net)Total changes in the period
Net assets at March 31, 2010

(28)
5

(1)

—
605,726—¥30,872—¥20,503

Sub-total¥198,629
13,280
(28)
4

(26)

(26)

578

578

(605)

(605)

13,226¥161,951(23)¥(1,494)

13,203¥211,832

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

CapitalsurplusRetainedearnings

Treasurystock

605,726¥30,872¥20,503¥161,951(2,414)27,926¥(1,494)

5(1)

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

(164)
8

535

535

3,281

1,583
50

8,801
614,527—¥30,872

3,286¥23,789

26,096¥188,047

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

4,864
50

¥

1,427
(67)

30,809¥242,641

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

CapitalsurplusRetainedearnings

Treasurystock

605,726$371,948$247,019$1,951,214(29,080)
336,461$(18,001)

63

(14)

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

8,801
614,527

54 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

(1,972)
96

6,441

6,441

39,531

19,068608—$371,948

39,594$286,613

314,416$2,265,630

Sub-total$2,552,180(29,080)
336,461(1,972)
145

58,599608$

17,192(809)

371,202$2,923,382

Millions of yen
Unrealized gains(losses) on
securities, net ofincome taxes¥ (547)

Accumulated other comprehensive income
Unrealized gains Adjustment regarding
Revaluation(losses) on hedging pension obligations
differenceof consolidated
derivatives, net ofon landoverseas subsidiaries
income taxes¥1,945¥(3,008)¥40,360

Foreign currencytranslation
adjustments

Sub-total

Minority
interests¥(8,798)¥29,952¥10,116

Total¥238,697
13,280
(28)
4
(26)
578
(605)

2,549
2,549
¥2,002(820)(820)¥1,125

1,255
1,255¥(1,753)26
26¥40,386

(572)
(572)
¥(9,370)

2,438
2,438
¥32,390

(185)
(185)
¥ 9,931

Foreign currencytranslation
adjustments

Sub-total

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

2,253
15,456¥254,153

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

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

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

(1,020)(1,020)
¥ 982

(165)
(165)
¥ 960

(225)
(225)
¥(1,978)

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

Sub-total

Minority
interests$(112,886)$390,247$119,656(15,582)
15,227¥269,380

Thousands of U.S. dollars (Note 1)
Unrealized gains(losses) on
securities, net ofincome taxes$24,130

Accumulated other comprehensive income
Unrealized gains Adjustment regarding
Revaluation(losses) on hedging pension obligations
differenceof consolidated
derivatives, net ofon landoverseas subsidiaries
income taxes$13,554$(21,123)$486,572

Total$3,062,083(29,080)
336,461(1,972)
145
6,441
58,599608(12,308)(12,308)$11,822(1,989)(1,989)$11,565(2,703)(2,703)$(23,826)(6,441)(6,441)$480,131(69,390)(69,390)$(182,276)(92,831)(92,831)$297,416(94,917)(94,917)$ 24,739

Sumitomo Heavy Industries, Ltd.

(187,748)
183,454$3,245,537

Annual Report 2011 | 55

Consolidated Statements of Cash Flows
Years ended March 31, 2011 and 2010

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011

2010

2011

¥45,091¥26,274$543,270

Depreciation

17,941

19,725

216,156

Gain on negative goodwill(3,437)—(41,406)

Impairment losses on fixed assets

1,396

—

16,822

Loss on revision of retirement benefit plan

503

—

6,055

Effect of adoption of accounting standard for
asset retirement obligations

480

—

5,781

Loss on disposal of property, plant and equipment

434

584

5,227

Gain or loss on sale of investment securities(78)(1,581)(942)

Loss on valuation of investment securities

52

1,000

628

Contract loss

220

1,000

2,647

Environmental expenses

—

503

—

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:

Business restructuring costs
Decrease in employees’ severance and retirement benefits

—

213

—

(702)

(1,327)(8,453)Equity in losses of affiliates

447

22

5,385

Decrease in allowance

(818)

(17)

(9,860)Interest and dividend income(1,515)(1,222)(18,258)

Interest expenses

1,489

1,940

17,946(Increase) decrease in notes and accounts receivable(30,224)

15,652(364,148)(Increase) decrease in inventories(6,280)27,977(75,664)

Increase (decrease) in notes and accounts payable

26,420(29,282)

318,315

Other—net(2,124)

5,551(25,588)

Sub-total

49,29567,012593,913

1,014

1,785

12,214

Interest expenses(1,508)(1,869)(18,168)

Payment for income taxes(12,280)(9,415)(147,947)

Net cash provided by operating activities¥36,521¥57,513$440,012

Changes in operating assets and liabilities:

Interest and dividend received

56 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Thousands of
U.S. dollars (Note 1)

Millions of yen

2011

2010

2011

(368)

¥ 1,713$ (4,432)

—

1,500

—

(10,607)—(127,791)

Cash flows from investing activities:
Net (increase) decrease in time deposits
Decrease in short-term investment securities
Payment for purchase of subsidiary with change inscope of consolidation (Note 2)
Payments for securities

¥

(47)

(46)

(572)

(14,393)(20,004)(173,411)

Proceeds from sale of securities

457

1,485

5,501

Payment for purchase of investment in affiliated company

(76)

(22)

(918)

Payments for purchases of property, plant and equipment

Proceeds from sale of property, plant and equipment

1,511

926

18,208Decrease (increase) in short-term loans receivable

(270)

778

(3,251)

Payments for long-term loans receivable

(9)

(9)

(110)

Collection of long-term loans receivable

20

24

241

Other—net
Net cash used in investing activities

269

(299)

3,248

(23,513)(13,954)(283,287)

Cash flows from financing activities:
Decrease in short-term loans(7,260)(5,754)(87,464)

Decrease in commercial paper—(24,000)—

Proceeds from long-term debt

—

6,099

—

Payments for long-term debt

(10,697)(1,137)(128,874)

Proceeds from issuance of bonds—

10,000—

Redemption of bonds—(10,000)—(2,423)(22)(29,194)(347)(1,004)(4,176)(1,189)(843)(14,328)

(104)

(25)

(1,268)(22,020)(26,686)(265,304)

Cash dividends paid
Payment of dividends for minority stockholders
Repayments of finance lease obligations
Other—net
Net cash used in financing activities

(977)

206

(11,766)

Net increase (decrease) in cash and cash equivalents

Effect of exchange rate changes on cash and cash equivalents(9,989)17,079(120,345)

Cash and cash equivalents at beginning of year

61,452

42,414740,389

Increase due to new consolidated companies

237

1,942

2,849

Increase due to a consolidated subsidiary’s merger witha non-consolidated subsidiary

—

17

—

¥51,700¥61,452$622,893

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

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 57

Notes to Consolidated Financial Statements

1. Significant accounting policies

maturity not exceeding three months at the time of purchase are con-Basis of presenting consolidated financial statements

Marketable and investment securities

The accompanying consolidated financial statements have been prepared

Held-to-maturity debt securities are stated at amortized cost. Available-in accordance with the provisions set forth in the Japanese Financial

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

Instruments and Exchange Law and its related accounting regulations,gains and unrealized losses on these securities are reported, net of

and in conformity with accounting principles generally accepted in Japanapplicable income taxes, as a separate component of the net assets.

(“Japanese GAAP”), which are different in certain respects as to applica-

Realized gains and losses on sale of such securities are computed using

tion and disclosure requirements of International Financial Reporting

the moving-average method. Equity securities issued by subsidiaries andStandards.

affiliated companies, which are not consolidated or accounted for using

As discussed in Change in accounting policies (G), the accounts ofsidered to be cash and cash equivalents.

the equity method, are stated at cost based on the moving-average

consolidated overseas subsidiaries for the year ended March 31, 2009

method. Unlisted available-for-sale securities are stated at cost based onwere prepared in accordance with either International Financial

the moving-average method.

Reporting Standards or U.S. generally accepted accounting principles,with adjustments for the specified six items as applicable.
The accompanying consolidated financial statements have been reformatted and translated into English (with certain expanded descriptions)

Inventories
Inventories are stated at the lower of cost or net realizable value as of
the year-end date.

from the consolidated financial statements of Sumitomo Heavy Industries,
Ltd. (“the Company”) prepared in accordance with Japanese GAAP and

Depreciation and amortization

filed with the appropriate Local Finance Bureau of the Ministry of

Tangible fixed assets (not including lease assets):

Finance as required by the Financial Instruments and Exchange Law.

Buildings acquired between April 1, 1998 and March 31, 2007 are

Certain supplementary information included in the statutory Japanese

depreciated using a straight-line method with residual value of 5%.

language consolidated financial statements is not presented in the

Buildings acquired after April 1, 2007 are depreciated primarily using

accompanying consolidated financial statements.

a straight-line method with no residual value. Other tangible fixed

The translation of the Japanese yen amounts into U.S. dollars is included

assets acquired on or before March 31, 2007 are depreciated primarilysolely for the convenience of readers outside Japan, using the prevailingby declining-balance method with residual value of 5% and thoseexchange rate at March 31, 2011, which was ¥83 to U.S. $1. The conve-

acquired after April 1, 2007 are depreciated by declining-balance meth-nience translations should not be construed as representations of what theod with no residual value.

Japanese yen amounts have been, could have been, or could in the future bewhen converted into U.S. dollars at this or any other rate of exchange.

Lease assets:
The Company and consolidated domestic subsidiaries account for

Principles of consolidation

finance leases commencing prior to April 1, 2008 which do not transfer

The consolidated financial statements include the accounts of the Company

the ownership of the leased property to the lessee as operating leases

and its significant subsidiaries (“the Companies”). All significant inter-with disclosures of certain “as if capitalized” information. The Company

company balances and transactions have been eliminated in consolidation.

and consolidated domestic subsidiaries capitalized finance leases that

Investments in significant affiliated companies are accounted for bycommenced after March 31, 2008, except for certain immaterial or

the equity method. Significant goodwill and negative goodwill, which isshort-term finance leases, which are accounted for as operating leases.

difference between the investment cost and net assets at the date of

Property and equipment capitalized under finance lease arrange-acquisition are amortized over 5 years. In case of insignificant amounts,

ments are depreciated by the straight-line method over the lease term.

such amounts are charged or credited to income as incurred. Negative
goodwill which was incurred for the year ended March 31, 2011 wasAllowance for doubtful accounts

fully amortized at the time of generation.

The Company and consolidated subsidiaries provide an allowance for
doubtful accounts. Calculation of the allowance is based on historical

Consolidated statements of cash flows

collection losses for normal receivables, and for accounts receivable

In preparing the consolidated statements of cash flows, cash on hand,considered at risk (bankruptcy, companies under reorganization plan),readily available deposits and short-term highly liquid investments with58 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

the amount is recorded based on an estimated uncollectible amount,

Revenue recognition of construction contracts

on an individual basis.

The percentage-of-completion method is applied to construction contracts
when outcome of individual contracts is reliably estimated. The completed-

Revaluation difference on land

contract method is applied to the other construction contracts.

The Company revaluated land used for business operations on March
31, 2002 in accordance with Enforcement Ordinance for the Law

Software costs

Concerning Revaluation Reserve for Land effective March 31, 1998.

The Companies amortize costs of software for their own use using the

The current value of the land as of March 31, 2011 fell by ¥21,529

straight-line method over the estimated useful life (5 years).

million ($259,389 thousand) in comparison with the book value of theland after the revaluation.

Research and development costs
Research and development costs are charged to income when incurred.

Employees’ severance and retirement benefits

Research and development costs included in manufacturing cost, andIn order to provide for retirement benefits to be paid to employees, theselling, general and administrative expenses were ¥8,228 million

amount considered to have been accrued at the end of the fiscal year is($99,138 thousand) and ¥8,930 million for the years ended March 31,

recorded based on the estimated amount of retirement benefit obliga-

2011 and 2010, respectively.

tions and pension plan assets at the end of the fiscal year.
Prior service costs are charged to expenses as incurred by the

Income taxes

Company, and amortized by the straight-line method over a period

The Companies recognize deferred taxes for temporary differences

within the average remaining service year of employees (mainly 12

between the financial statement basis and the tax basis of assets andyears) by consolidated subsidiaries.

liabilities.

The actuarial gains (losses) are amortized by the straight-line method
over a period within the average remaining service year of employees

The Company and certain domestic consolidated subsidiaries adopt
Japanese tax regulations for a consolidated tax return.

(mainly 12 years) commencing from the next year of the incurrence.

Foreign currency translation
Allowance for warranty

Receivables and payables in foreign currencies are translated into Yen at

For expenditures in relation to repair work to be performed free of

year-end rates.

charge after delivery of products, allowance for warranty is provided at

All asset and liability accounts of foreign subsidiaries and affiliates are

an amount estimated to be incurred based on the past experience oftranslated into Yen at balance sheet date rates of each foreign subsid-

such repair work actually performed.

iary, except for common stock, capital surplus and retained earnings,
which are translated at historical rates.

Allowance for losses on construction contracts

From the fiscal year ended March 31, 2011, income and expense

With regard to construction contracts with high probability of incurring

accounts are translated at average rates. In the fiscal year ended March

substantial losses, an estimated amount of losses to be incurred in the31, 2010, income and expense accounts were translated at balance

future is provided as allowance for the losses on construction contracts.

sheet date rates. The adjustment resulting from the foreign currencytranslation is reported in net assets.

Allowance for losses on product liabilities
Allowance for losses on product liabilities is provided at an estimated

Amortization of goodwill

amount of product liabilities to be incurred in relation to crane business

Goodwill and negative goodwill that were generated on or beforeof overseas subsidiaries.

March 31, 2010, are equally amortized over 5 years. However, if theamount of goodwill or negative goodwill is insignificant, such an

Allowance for losses on business restructuring

amount is fully amortized at the time of generation. Negative goodwill

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

which was incurred for the year ended March 31, 2011 was fully amor-

ed amount to be incurred in connection with business restructuring of

tized at the time of generation.

the Company and affiliated companies.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 59

Derivatives and hedge accounting

Change in accounting policies

Derivative financial instruments are stated at fair value and changes in(A) New accounting standards for Presentation of Comprehensive

the fair value are recognized as gains or losses. When derivatives are

Incomeused for hedging purposes, the Companies defer recognition of gains

Effective from the fiscal year ended March 31, 2011, the Company

or losses resulting from changes in fair value of the derivatives until

adopted “Accounting Standard for Presentation of Comprehensive

related losses or gains on the hedged items are recognized.

Income” (Accounting Standard Board of Japan (“ASBJ”) Statement

However, if forward foreign exchange contracts meet certain hedging
criteria, they are accounted for as follows;
When a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,

No. 25 on June 30, 2010) and “Revised Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No. 22, revised onJune 20, 2010).
As a result of the adoption of these standards, the Company has pre-a) The difference, between the Yen amount of the hedged foreign cur-sented the consolidated statement of comprehensive income in the con-rency receivable or payable translated using the spot rate at thesolidated financial statements for the fiscal year ended March 31, 2011.

inception date of the contract and the book value of the receivableor payable is recognized in the income statement in the period which(B) New accounting standards for the Equity Method

includes the inception date, andEffective from the fiscal year ended March 31, 2011, the “Accountingb) The discount or premium on the contract (that is, the differenceStandard for the Equity Method” (ASBJ Statement No. 16, issued on

between the Yen amount of the contract using the contracted for-March 10, 2008) and the “Practical Solution on Unification ofward rate and the amount using the spot rate at the inception date

Accounting Policies Applied to Associates Accounted for Using theof the contract) is recognized over the term of the contract.

Equity Method” (ASBJ PITF No. 24, issued on March 10, 2008) have

When forward foreign exchange contracts are executed to hedge abeen adopted. There is no impact of this change on income before

future transaction in a foreign currency, the future transaction will beincome taxes and minority interests for the year ended March 31, 2011.

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

(C) New accounting standards for Asset Retirement Obligations

When interest rate swap contracts meet certain hedging criteria, the net

Effective from the fiscal year ended March 31, 2011, the “Accounting

amount to be paid or received is added to or deducted from the interest on

Standard for Asset Retirement Obligations” (ASBJ Statement No. 18,

the assets or liabilities for which the swap contracts were executed.

issued on March 31, 2008) and the “Guidance on the Accounting

When currency option contracts are executed to hedge future transactions in foreign currencies, the future transaction will be recorded
using the contracted forward rate, and no gains or losses on the currency option contracts are recognized.

Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21,
issued on March 31, 2008) have been adopted.
As a result, operating income for this consolidated fiscal year eachdecreased by ¥24 million ($290 thousand), and income before income taxes
and minority interests decreased by ¥504 million ($6,071 thousand).

Amounts per share
The computation of net income per share of common stock is based on(D) New accounting standards for Business Combinations

a weighted-average number of shares of common stock outstanding

Effective from the fiscal year ended March 31, 2011, the “Accounting

during each fiscal year.

Standard for Business Combinations” (ASBJ Statement No. 21, issued

The diluted net income per share is not presented, because theon December 26, 2008), the “Accounting Standard for Consolidated

Company does not have any outstanding convertible bonds or bonds

Financial Statements” (ASBJ Statement No. 22, issued on December 26,

with share subscription rights.

2008), the “Partial Amendments to Accounting Standard for Research

Cash dividends per share have been presented on an accrual basis

and Development Costs” (ASBJ Statement No. 23, issued on December

and include year-end cash dividend resolved at shareholders’ meeting

26, 2008), the “Revised Accounting Standard for Business Divestitures”

held after the end of fiscal year, but applicable to the year ended.

(ASBJ Statement No. 7, issued on December 26, 2008), the “Revised
Accounting Standard for Equity Method of Accounting for Investments”

Reclassifications(ASBJ Statement No. 16, issued on December 26, 2008) and the

Certain amounts in the consolidated financial statements for the year

“Revised Guidance on Accounting Standard for Business Combinations

ended March 31, 2010 have been reclassified to conform to the 2011

and Accounting Standard for Business Divestitures” (ASBJ Guidance

presentation.

No. 10, issued on December 26, 2008) have been adopted.

60 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

(E) New accounting standards for Retirement Benefits

financial statements prepared in accordance with either International

Effective from the fiscal year ended March 31, 2010, the Company and

Financial Reporting Standards or U.S. generally accepted accounting

consolidated domestic subsidiaries adopted the “Partial Amendments

principles. In this case, adjustments for the following six items areto Accounting Standard for Retirement Benefits (Part 3)” (ASBJ

required in the consolidation process so that their impact on net income

Statement No. 19, issued on July 31, 2008). The new accounting stan-is accounted for in accordance with Japanese GAAP unless the impact

dard requires domestic companies to use the rate of return on long-is not material.

term government or gilt-edged bonds as of the end of the fiscal yeara) Goodwill not subject to amortization

for calculating the projected benefit obligation of a defined-benefitb) Actuarial gains and losses of defined-benefit retirement plans rec-plan. Previously, domestic companies were allowed to use a discountognized outside profit or loss

rate determined by taking into consideration fluctuations in the yield ofc) Capitalized expenditures for research and development activities

long-term government or gilt-edged bonds over a certain period. Thered) Fair value measurement of investment properties, and revaluation

is no impact of this change on the operating income and income beforeof property, plant and equipment and intangible assets

income taxes and minority interests for the year ended March 31, 2010.

e) Retrospective treatment of a change in accounting policiesf) Accounting for net income attributable to minority interests(F) New accounting standard for Construction Contracts

The adoption of PITF No. 18 did not have any material impact on the

To account for the revenues and costs of construction contracts, theCompany’s consolidated financial statements.

percentage-of-completion method was applied to long-term, largescale construction contracts that met certain conditions, whereas theBusiness combinations

completed-contract method was applied to other construction con-(A) Stock exchange with Nihon Spindle Manufacturing Co., Ltd.

tracts. Effective from the year ended March 31, 2010, the domestic

1. General informationcompanies adopted the “Accounting Standard for Construction

On October 1, 2010, the Company and Nihon Spindle Manufacturing

Contracts” (ASBJ Statement No. 15, issued on December 27, 2007) andCo,. Ltd. (hereinafter “Nihon Spindle”), executed a stock exchange.

the “Guidance on Accounting Standard for Construction Contracts”

The legal form of the transaction is a stock exchange to convert(ASBJ Guidance No. 18, issued on December 27, 2007). Accordingly,

Nihon Spindle into a wholly-owned subsidiary of the Company. The

when the outcome of individual contracts is reliably estimated, thestock exchange was executed as a simplified stock exchange underdomestic companies apply the percentage-of-completion method to

Article 796 Paragragh 3 of the Corporate Law, and the Company

construction projects commencing in the year ended March 31, 2010,acquired additional 59.1% of the voting rights of Nihon Spindle,

otherwise the completed-contract method is applied. The percentage ofincluding 0.4% of indirect ownership.

completion at the end of the reporting period is measured by the proportion of the cost incurred to the estimated total cost. As a result of

2. Business of the entity

the adoption, net sales for this consolidated fiscal year increased by

The business of Nihon Spindle is manufacturing and distribution of¥781 million and operating income and income before taxes andenvironmental, air pollution control, industrial equipment and construc-minority interests each increased by ¥116 million compared to the pre-tion materials.

vious accounting method. Effects on the change on the segment information are described in “10. Segment information (C)”

3. Overview of the transaction and the purpose
Since Nihon Spindle became a consolidated subsidiary of the Company(G) Unification of Accounting Policies Applied to Foreign
Subsidiaries for Consolidated Financial Statementsin October 2007, both companies have worked together to create business synergies.

Effective from the fiscal year ended March 31 2009, the Company

However, the business environment has significantly changed andadopted “Practical Solution on Unification of Accounting Policies

market competition has become more intense as a result of the global

Applied to Foreign Subsidiaries for Consolidated Financial Statements”

economic downturn that began in the second half of 2008. In order to(“PITF No. 18”). PITF No. 18 requires that accounting policies and pro-cope with such changes, Nihon Spindle is constantly asked to further

cedures applied by a parent company and its subsidiaries to similar

expand its global presence and strengthen its product capabilities by its

transactions and events under similar circumstances should, in principle,

shareholders. With this in mind, Nihon Spindle developed a plan tobe unified for the preparation of the consolidated financial statements.

actively utilize the technical development capabilities and global busi-

PITF No. 18, however, as a tentative measure, allows a parent company

ness network of the Company in order to set it on a growth trajectory.

to prepare consolidated financial statements using foreign subsidiaries’
Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 61

(B) Acquisition of stocks of HANSEN INDUSTRIAL TRANSMISSIONS NV

Through the conversion of Nihon Spindle into a wholly-owned subsidiary, the Company intends to maximize business synergies between

1. General information

the two companies more quickly. This will help Nihon Spindle strengthen

On March 4, 2011, the Company acquired stocks of HANSEN INDUSTRIAL

its operating foundation, achieve long-term growth, and will ultimately

TRANSMISSIONS NV, a group company of HANSEN TRANSMISSIONS

improve the corporate value of the entire Companies.

INTERNATIONAL NV in Belgium.

4. Acquisition costs

the transaction, the Company’s ownership of the voting rights increased

The legal form of the transaction is purchase of stock. As a result ofMillions of yen

Acquisition priceto 100%.

¥4,864

Direct costs attributable to the acquisition

41

Acquisition costs

4,905

2. Business of the entity
The business of HANSEN INDUSTRIAL TRANSMISSIONS NV is manufacturing and distribution of industrial gearboxes.

5. The ratio for the stock exchange
Stock exchange ratio

The Company

1.0

Nihon Spindle

0.38

Notes: 1. Stock exchange ratio
0.38 share of the common stock of the Company was allocated to shareholders of
Nihon Spindle in exchange for 1 share of its common stock of Nihon Spindle.
However, no shares of the Company were allocated to the shares of the common
stock of Nihon Spindle owned by the Company (19,494,180 shares).
2. The method of calculation and basis of calculation by a third party institution
The Company had Daiwa Securities Capital Markets Co., Ltd. calculate the stock
exchange ratio. Daiwa Securities Capital Markets Co., Ltd. performed an analysis withrespect to the Company and Nihon Spindle, based on the market share-value method
together with the discounted cash flow method, and calculated the stock exchange
ratio by considering the results of these analyses. Meanwhile, Nihon Spindle had
Nomura securities calculate the ratio and it performed an analysis of the Company
and Nihon Spindle based on three methods; the market share-value average method,
the comparison with similar companies method and the discounted cash flow method. Nomura Securities Co., Ltd. calculated the stock exchange ratio by considering
the results of the analyses. Based on the above results, the Company and Nihon
Spindle determined the stock exchange ratio as explained.

6. Number of stocks delivered and the assessed value

To expand the overseas distribution channels, and increase sales ofindustrial gearboxes in the Machinery Components business.

4. Acquired company’s financial results for 2011
As the acquisition date is regarded to be on March 31, 2011, the resultsof operations of the acquired company before March 31, 2011 are notincluded in the Company’s consolidated financial statement.

5. Acquisition costs
Millions of yen

Acquisition price¥10,097

Direct costs attributable to the acquisition
Acquisition costs

436
10,533

6. Goodwill

Number of stocks delivered to Nihon Spindle
Assessed value

3. Overview of the transaction and the purpose

11,311,011 shares
4,864 millions of yen

The Company used its treasury stock as part of the stocks to be delivered for the stock exchange.

(1) Amount of goodwill

1,070 millions of yen(2) Reason for the goodwill
The goodwill was recorded since the acquisition price agreed with theseller was higher than the net assets measured at fair value as of the

7. Negative goodwill(1) Amount of negative goodwill

date of the acquisition.
3,437 millions of yen(3) Amortization of goodwill(2) Reason for the negative goodwill

Goodwill is amortized using the straight-line method over a five-year

The negative goodwill was recorded since the amount of minority interests decreased by this stock exchange was higher than the costs of theadditionally acquired common stock of Nihon Spindle.

62 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

period.

HANSEN INDUSTRIAL TRANSMISSIONS NV and six other Hansen Group

2. Cash and cash equivalents

companies (as of March 31, 2011)

ly with original maturities of three months or less. Those are readily

Thousands of
U.S. dollars

Millions of yen

Cash and cash equivalents include all highly liquid investments, generalCurrent assets

2011

2011

¥ 8,806$106,100
63,590convertible to known amounts of cash and have negligible risk ofNon-current assets

5,278changes in value.

Goodwill generated

1,070

12,889Current liabilities(3,833)(46,180)

Cash and cash equivalents as of March 31, 2011 and 2010 consisted

Non-current liabilitiesof the following:Thousands of
U.S. dollars

Millions of yen

Cash and time deposits

2011

2010

2011

¥52,486¥62,511$632,358

Time deposits with maturities
over three months(659)

Restricted deposits(128)

Investment securities(cash equivalents)
Cash and cash equivalents

(322)
(738)

(7,931)(1,546)1

1

12¥51,700¥61,452$622,893(788)(9,498)Acquisition cost of stock¥10,533$126,901

Cash and cash equivalents(2,535)(30,537)¥ 7,998$ 96,364

Payment for purchase of subsidiary withchange in scope of consolidation

3. Inventories
Inventories as of March 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen

2011

2010

2011

Finished products¥ 41,827¥ 34,408$ 503,941

COMPANY, LLC in the year ended March 31, 2011. As a result, LBXWork in process

70,80270,071

853,033

COMPANY, LLC became a consolidated subsidiary.

Raw materials and supplies

18,406

18,937

221,762¥131,035¥123,416$1,578,736

The Company acquired additional voting rights of an affiliate, LBX

The following table summarizes the assets and liabilities of LBX

Total

COMPANY, LLC at the acquisition date and the stock acquisition price.

4. Impairment losses on fixed assets

LBX COMPANY, LLC (as of April 30, 2010)
Millions of yen

Thousands of
U.S. dollars

2011

2011

¥5,058$60,943

Non-current assets

473

5,693

Goodwill generated

585

7,051

Current liabilities(1,259)(15,168)

Current assets

Non-current liabilities

The Company and a certain consolidated subsidiary recognized the following impairment losses in the year ended March 31, 2011.

Use

Location

Thousands of
U.S. dollars

2011

2011

Idle

Lands andbuildings, etc.

Inage-ku
Chiba, etc.

¥1,251$15,076

CommonassetsLands andbuildings

Yokosuka,
Kanagawa Pref.

91

1,094

Lands

Niihama,Ehime Pref, etc.

39

473

—

15

179

¥1,396$16,822

(14)

(171)

Book value on an equity basis before acquisition(2,116)(25,491)

Acquisition cost of stock¥2,727$32,857

Cash and cash equivalents(119)(1,430)Idle¥2,608$31,427

Other

Payment for purchase of subsidiary withchange in scope of consolidation

Type of assets

Millions of yen

Total

As explained in the Note of Business combinations (B), the Company
acquired the stock of HANSEN INDUSTRIAL TRANSMISSIONS NV, whichbecame a consolidated subsidiary.
The following table summarizes the assets and liabilities of HANSENINDUSTRIAL TRANSMISSIONS NV and six other Hansen Group companies at the acquisition date and the stock acquisition price.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 63

As of March 31, 2011 and 2010, assets pledged as collateral for

Reason for recognition of impairment losses
Mainly due to a change in the welfare and benefit program, recover-short-term loans, long-term loans from banks and insurance companies

ability became questionable.

and domestic bonds were as follows:
Thousands of
U.S. dollars

Millions of yen

Grouping of assets

2011

Assets’ grouping is made on a division basis. Temporarily idle assets

Cash and time deposits

constitute one group of assets.

Buildings and structure

¥

129
1,681

Machinery and other tangible
fixed assets

Calculation of recoverable amount

Total

739
2,295

2011

$

1,550
20,255

40

87

485

34,38734,529414,306¥36,237¥37,650$436,596

Land

The recoverable amount is generally based on a net selling price; it is

2010

¥

calculated by deducting costs related to sale from the selling price.
The Company has agreements with twelve banks for revolving lines ofcredit and four global commitment lines to efficiently raise working capital.

5. Bank loans and long-term debt

As of March 31, 2011 and 2010, unused revolving lines of credit andglobal commitment lines were as follows:

Bank loans as of March 31, 2011 and 2010 consisted of short-termloans, bearing average interest at 1.56% and 1.69% per annum,
respectively.
The amounts of lease obligation under finance leases include theimputed interest expense portion.
Long-term debt as of March 31, 2011 and 2010 consisted ofThousands of
U.S. dollars

Millions of yen

Limit of revolving lines of credit
and global commitment lines

2011

2010

2011

$594,024¥49,304¥50,888

Used

6,046

3,551

72,841

Unused¥43,258¥47,337$521,183

the following:
Millions of yen

0.9 % domestic bonds due
in December 2014

Thousands of
U.S. dollars

2011

2010

2011

¥10,000¥10,000$120,482

Loans principally from banks andinsurance companies due seriallythrough June 2018 with interest
ranging from 1.12% to 2.20%
in FY2010

6. Income tax
The Companies are subject to corporate, inhabitants’ and enterprisetaxes, which, in the aggregate show a statutory tax rate in Japan ofapproximately 41% for the years ended March 31, 2011 and 2010.
The following table summarizes significant differences between the

Secured

595

1,196

7,166

statutory tax rate and the effective tax rate for consolidated financial

Unsecured

35,73545,940430,538

statement purposes for the years ended March 31, 2011 and 2010.

Lease obligations

4,862

4,320

58,584¥51,192¥61,456$616,770

Amount due within one year

5,441

11,22665,553

Amount due after one year

45,751

50,230551,217

Annual maturities of long-term debt as of March 31, 2011 wereas follows:
Millions of yen

Thousands of
U.S. dollars

2011

2011

2012

¥ 5,441$ 65,553

2013

21,640260,725

2014

1,894

22,823

2015

21,932

264,244

2016

189

2,272

2017 and thereafter

96

1,153

¥51,192$616,770

Year ending March 31

Total

64 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

2011

2010

Statutory tax rate

40.69%

40.69%

Expenses not deductible for tax purposes

0.60

2.70

Per capita inhabitant tax

0.47

0.80

Dividend income deductible for tax purpose(1.49)(4.42)

Gain on negative goodwill(3.10)—

Others(1.49)

5.46

Effective tax rate

35.68%

45.23%

Main components of deferred tax assets and liabilities as of March
31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen

Under the Japanese laws and regulations, the entire amount paid for

2011

2010

2011

¥ 3,476¥ 3,280$ 41,879

company may, by a resolution of the Board of Directors, designate an

Deferred tax assets:
Accrued bonuses

7. Net assets
new shares is required to be designated as common stock. However, aAllowance for doubtful accounts

1,068

869

12,867amount not exceeding one-half of the price of the new shares as addi-

Allowance for warranty

1,829

1,832

22,035tional paid-in capital, which is included in capital surplus.

Allowance for employees’
severance and retirement benefit

15,11015,070

182,044

Under the Japanese Corporate Law (“the Law”), in cases where a
dividend distribution of surplus is made, the smaller of an amount equal

Unrealized profit on inventories

1,208

704

14,558Devaluation of marketablesecurities and investments into
affiliated companies

1,029

1,045

12,403

to 10% of the dividend or the excess, if any, of 25% of common stockover the total of additional paid-in-capital and legal earnings reserve

Depreciation

1,219

1,202

14,686

must be set aside as additional paid-in-capital or legal earnings reserve.

Net operating loss carryforward

6,103

5,382

73,527

Legal earnings reserve is included in retained earnings in the accompa-

Loss on valuation of inventories

2,202

2,238

26,531nying consolidated balance sheets.

Others

8,779

6,872

105,773

42,02338,494506,303(17,334)(14,109)(208,840)

in capital could be used to eliminate or reduce a deficit by a resolution¥24,689¥24,385$ 297,463

of the shareholders’ meeting.

(103)

(112)

(1,235)reserve may be transferred to other capital surplus and retained earn-

Difference on revaluation of assets
and liabilities of subsidiaries(3,800)(3,955)(45,787)

ings, respectively, which are potentially available for dividends.

Accelerated depreciation(1,669)(662)(20,106)

The maximum amount that the Company can distribute as dividends

Retained earnings in consolidated
overseas subsidiaries(1,550)(1,328)(18,678)is calculated based on the non-consolidated financial statements of the

Net unrealized holding gains
on securities(595)(1,038)(7,171)

Deferred gain or loss on hedges

(693)

(813)

(8,345)

Others

(360)

(104)

(4,340)¥ (8,770)¥ (8,012)$(105,662)

Total deferred tax assets
Less-valuation allowance
Deferred tax assets—net
Deferred tax liabilities:
Tax depreciation reserve

Deferred tax liabilities
Net deferred tax assets

Under the Law, generally legal earnings reserve and additional paid-

Under the Law, all additional paid-in-capital and all legal earnings

Company in accordance with the Japanese laws and regulations. The¥15,919¥16,373$ 191,801

maximum amount that the Company can distribute as dividends at
March 31, 2011, amounted to ¥38,956 million ($469,352 thousand).
At the general shareholders’ meeting held on June 29, 2011, theshareholders resolved cash dividends amounting to ¥4,915 million($59,220 thousand). Such appropriations have not been accrued in the
consolidated financial statements as of March 31, 2011 and are recognized in the period in which they were resolved.

8. Contingent liabilities
Certain consolidated domestic subsidiaries are contingently liable asendorsers of trade notes receivable discounted with banks in theamounts of ¥2,488 million ($29,978 thousand) and ¥2,502 million asof March 31, 2011 and 2010. In addition, the Company and certain
consolidated subsidiaries are contingently liable as guarantors of bankloans or other borrowings by unconsolidated subsidiaries, affiliatedcompanies and employees in the amounts of ¥25,397 million($305,987 thousand) and ¥15,495 million as of March 31, 2011 and2010, respectively (net of guarantees by co-guarantors).

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 65

9. Statement of income and comprehensive income

10. Segment information

As described in Note 1, the consolidated balance sheet and the consoli-(A) Segment information

dated statement of changes in net assets as of and for the fiscal year

From the fiscal year ended March 31, 2011, the “Accounting Standard for

ended March 31, 2010 have been modified to conform with the newDisclosures about Segments of an Enterprise and Related information”

presentation rules of 2011. In addition, the Company has presented the(Accounting Standards Board of Japan (“ASBJ”) Statement No. 17, issued

consolidated statement of comprehensive income for the fiscal year

on March 27, 2009) and the “Guidance on the Accounting Standard for

ended March 31, 2010 as well as that for the fiscal year ended March

Disclosures about Segments of an Enterprise and Related information”

31, 2011.

(ASBJ PITF No. 20, issued on March 21, 2009) have been adopted.
The Companies’ primary business activities consist of (1) machinerycomponents, (2) precision machinery, (3) construction machinery, (4)industrial machinery, (5) ships, (6) environmental facilities and plants.
The method of the accounting of the reportable business segment isgenerally the same as explained in the Note “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 business segment for the years ended March 31, 2011 and 2010 were as follows:
Millions of yen
Reportable segment

2011

Ships

Environmental
facilities
and plants

Total

Other

¥66,544¥59,496¥76,070¥539,457¥ 8,558

137

74

794

3,983

2,190

(6,173)—

66,681

59,57076,864543,440

10,748(6,173)548,015

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery¥ 74,591¥131,945¥130,811

1,810

1,158

10

76,401

133,103130,821

Adjustment

Consolidated¥¥548,015

Sales
Outside customers
Inter-segment
Total

4,874

¥

8,340

¥

—

Segment income

¥

5,290

¥10,252¥ 9,897¥ 5,566¥ 44,219¥ 1,518¥66¥ 45,803

Segment assets¥105,947¥138,404¥121,339¥49,921¥80,230¥52,246¥548,087¥39,466¥39,276¥626,829

¥

¥

¥

¥

¥

¥ 17,941

Other items
Depreciation

3,720¥ 1,706¥ 2,422¥ 1,037¥ 17,488

Gain on negative goodwill

—

—

—

—

—

3,437

3,437

—

—

3,437

Impairment losses on fixed assets

15

—

—

—

—

—

15

—

1,381

1,396

Investments for equity method
affiliates

—

1,407

3,164

3,704

—

—

8,275

—

—

8,275

3,848

2,976

4,442

869

1,106

712

13,953339—

14,292

Increase in property, plant andequipment, and intangible assets

3,298

5,305

Notes: 1. “Other” includes real estate, software and other businesses. These are not the Reportable segments.
2. “Adjustment” was as follows;(1) Adjustment of segment income (¥66 million) resulted from elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥39,276 million) consisted of cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥1,381 million) was losses on mainly idle assets such as housing lots.
3. Segment income was reconciled with operating income in consolidated statements of income.

66 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011453—

Millions of yen
Reportable segment

2010

Machinerycomponents

Sales

—

Outside customers

Ships

Environmental
facilities
and plants

Total

Other

¥85,637¥62,927¥81,884¥507,330¥ 8,835

207

129

742

4,253

2,285

(6,538)—85,844

63,056

82,626

511,583

11,120(6,538)516,165

Precisionmachinery

Construction
machinery

Industrial
machinery¥69,040¥105,192¥102,650

1,842

1,327

6

70,882

106,519

102,656

Inter-segment
Total

Adjustment

Consolidated¥¥516,165—

Segment income¥861¥ (2,603)¥

571¥14,167¥ 6,664¥ 7,101¥ 26,761¥ 1,376¥117¥ 28,254

Segment assets¥79,469¥135,666¥122,098¥63,505¥80,816¥54,931¥536,485¥17,413¥56,189¥610,087¥ 3,739

¥

¥

3,839

¥ 1,853¥ 2,695¥ 1,128¥ 19,320¥¥—¥ 19,725

Other items
Depreciation
Investments for equity method
affiliates
Increase in property, plant andequipment, and intangible assets

6,066

405

—

1,360

6,434

3,131

—

—

10,925——

10,925

5,762

3,161

8,480

1,792

2,695

2,197

24,087378—

24,465

Environmental
facilities
and plants

Total

Adjustment

Consolidated

Notes: 1. “Other” includes real estate, software and other businesses. These are not the Reportable segments.
2. “Adjustment” was as follows;(1) Adjustment of segment income (¥117 million) resulted from elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥56,189 million) consisted of cash and time deposits and marketable securities.
3. Segment income was reconciled with operating income in consolidated statements of income.

Thousands of U.S. dollars
Reportable segment

2011

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery

Ships$ 898,686 $1,589,691 $1,576,042

Other

Sales
Outside customers
Inter-segment
Total$801,736$716,824

21,807

13,958

111

1,654

892

9,562

47,984

26,391(74,375)—

920,493

1,603,649

1,576,153

803,390

717,716

926,073

6,547,474

129,495(74,375)

6,602,594

58,724 $ 100,484 $$916,511 $6,499,490$103,104$— $6,602,594

Segment income$

63,735$123,517$119,238$ 67,055 $ 532,753$ 18,293$

Segment assets$1,276,467 $1,667,535 $1,461,913$601,454$966,622$629,468 $6,603,459$475,494$473,207 $7,552,160

801 $ 551,847$$ 12,489 $ 210,693$$

Other items
Depreciation

39,737 $63,909 $44,825$ 20,558$ 29,175

Gain on negative goodwill

—

—

—

—

—

41,406

41,406——

41,406

Impairment losses on fixed assets

182

—

—

—

—

—

182

—

16,64016,822

Investments for equity method
affiliates—

16,955

38,121

44,621——

99,697——

99,69746,35835,85353,517

10,474

13,326

8,581

168,109

4,080—

172,189

Increase in property, plant andequipment, and intangible assets

5,463— $ 216,156

Notes: 1. “Other” includes real estate, software and other businesses. These are not the Reportable segments.
2. “Adjustment” was as follows;(1) Adjustment of segment income ($801 thousand) resulted from elimination of inter-segment transactions.
(2) Adjustment of segment assets ($473,207 thousand) consisted of cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($16,640 thousand) was losses on mainly idle assets such as housing lots.
3. Segment income was reconciled with operating income in consolidated statements of income.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 67

(B) Related information

Millions of yen

Information by geographical areaa) Net sales
Millions of yen

Thousands of
U.S. dollars

2011

2011

Japan

¥270,608$3,260,335

China

78,028940,092

Other areas

199,379

2,402,167

Total¥548,015$6,602,594* Net sales are classified into the country or the region based on customers’ locations.

b) Property, plant and equipment
Millions of yen

Japan

2010

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery and other tangible
fixed assets¥6,743¥15,152¥8,409Others

342

214

128

Total

¥15,494¥8,623¥6,871Thousands of U.S. dollars

2011

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery and other tangible
fixed assets$51,914$140,088$88,174

Others

3,395

2,621

774

Total

$143,483$90,795$52,688

Thousands of
U.S. dollars

2011

2011

¥180,322$2,172,559

Other areas

33,834

407,632

Total¥214,156$2,580,191

Total lease payments for finance leases which do not transfer
ownership to lessees amounted to ¥1,809 million ($21,800 thousand)and ¥2,768 million for the years ended March 31, 2011 and 2010,
respectively.

(C) The effect of the accounting changes on segment
Future lease payments as of March 31, 2011 and 2010, including

informationinterest under such leases were as follows:

New accounting standard for construction contracts
As discussed in“1. Change in accounting policies (F)”, from the year

Millions of yen

ended March 31, 2010, the Company and consolidated domestic subsidiaries adopted the new accounting standard for construction contracts.

Due within one year

Due to this accounting change, in the Environmental facilities &Due after one year

plants segment, sales increased by ¥302 million, and operating income

Total

Thousands of
U.S. dollars

2011

2010

2011

¥1,807¥2,410$21,768

2,566

4,461

30,920¥4,373¥6,871$52,688

increased by ¥28 million. In addition, in the Industrial machinery segment, sales increased by ¥479 million, and operating income increased

Also, future lease payments under operating leases as of March 31,
2011 and 2010 were as follows:by ¥88 million.

Millions of yen

11. Information for certain leases

Thousands of
U.S. dollars

2011

2010

2011

Future lease payments¥2,238¥2,269¥26,959

Due within one year includedin above

1,105

964

13,317(A) Lessees
The summary of pro forma amounts of acquisition cost, accumulated
depreciation and net book value with respect to finance leases accounted for in the same manner as operating leases as of March 31, 2011
and 2010 was as follows:

The summary of pro forma amounts of acquisition cost, accumulated
depreciation and net book value with respect to finance leases accounted for in the same manner as operating leases as of March 31, 2011 isMillions of yen

2011

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery and other tangible
fixed assets¥4,309¥11,627¥7,318Others

282

218

64

Total

¥11,909¥7,536¥4,373

68 | Sumitomo Heavy Industries, Ltd.

(B) Lessors

Annual Report 2011

not disclosed because the amounts are not material.

The summary of pro forma amounts of acquisition cost, accumulated
depreciation and net book value as of March 31, 2010 were as follows:
Millions of yen

2010

Effective from the fiscal year ended March 31, 2010, the Company

Acquisition
cost

Accumulated
depreciation

Net book
value

¥10

¥8

¥2

¥10

¥8

¥2

Machinery and other tangible
fixed assets
Total

12. Financial instruments
adopted the revised Accounting Standard, “Accounting Standard for
Financial Instruments” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 10 revised on March 10, 2008) and the “Guidance on
Disclosures about Fair Value of Financial Instruments” (ASBJ GuidanceNo. 19 revised on March 10, 2008). Information on financial instru-

Total lease receipts for finance leases which do not transfer ownership to lessees for the years ended March 31, 2011 are not disclosed

ments for the years ended March 31, 2011 and 2010 required pursuant
to the revised accounting standards was as follows;

because the amounts are not material. Total lease receipts for financeleases which do not transfer ownership to lessees amounted to ¥1 mil-(A) Qualitative information on financial instruments

lion for the years ended March 31, 2010.

Utilization policy of financial instruments:
The Company raises funds necessary for operating and investing activi-

Future lease receipts as of March 31, 2011, including interest undersuch leases are not disclosed because the amounts are not material.
Future lease receipts as of March 31, 2010, including interest undersuch leases were as follows:ties as bank loans and bond issuances and utilizes financial assets thatcarry little risk or no risk for temporary funds surplus. The derivatives
policy states that the Company utilizes derivatives only to mitigate therisks that are described below, and does not make speculative transac-

Millions of yen

2010

tions for trading purposes.

Within one year

¥2

After one year

0

Financial instruments and related risks:2

Trade receivables are exposed to the credit risk in relation to customers

Total

and trading partners. Trade receivables denominated in foreign currenAlso, future lease receipts under operating leases as of March 31,

cies are exposed to the foreign exchange rate fluctuation risk. The
Company mitigates such risks through forward exchange contracts and2011 and 2010 were as follows:
Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

Future lease receipts

¥591

¥770

$7,116

Due within one year included in above

149

151

1,797

options, and maintains the ratios of the exposure at a certain range.
The hedge ratios and balances not yet hedged are regularly reported totheir Board of Directors.
The Companies are exposed to the market price fluctuation risk inrelation to investment securities that are primarily for maintaining business relationship.
Most trade payables are due within one year. Although part of themis exposed to foreign exchange rate fluctuation risk, the exposure isalways within the balance of accounts receivable in the same currency.
Loans, commercial paper and corporate bonds are primarily used forfund raising related to operating and investing activities. For long-termloans in foreign currencies, the Companies enter into interest rate swap
contracts for hedging purposes.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 69

Risk management for financial instruments:(B) Fair values of financial instruments

Credit risk:Book values and fair values of the financial instruments on the consoli-

The Company reviews credit status of customers before accepting

dated balance sheets as of March 31, 2011 and 2010 were as follows.

orders to mitigate their credit exposure. In accordance with a credit

Certain financial instruments were excluded from the following table as

management policy, each business unit monitors collection and balance

the fair values were not available.
Millions of yenof receivables for each customer to minimize uncollectible amounts.
For derivatives and deposits, the Companies enter into contracts onlywith highly rated financial institutions.

2011

Book value

Fair value

Difference

Cash and time deposits¥ 52,486¥ 52,486¥

Trade receivables

155,267

155,066

Investment securities

Market risks:

Assets Total

—
(201)

13,036

13,036—

220,789

220,588(201)—

In relation to amounts of net trade receivables and trade payables in

Short-term bank loans

21,50421,504

foreign currencies, the Companies hedge exchange rate fluctuations inTrade payables

131,951

131,951—

Corporate bonds

10,00010,02222
480

accordance with a market risk management policy. The status of theLong-term debt

hedge is reported to the Board of Directors every month. Major consoli-

Liabilities Total

dated subsidiaries take the same approach.

Derivatives

36,32936,809199,784

200,286

502

1,501

1,095

(406)

Loan-related interest payable is also monitored and reported to theBoard of Directors regularly. To mitigate the interest-rate fluctuation
risk, interest-rate swaps are used.
In relation to securities and investment securities, the current fairmarket value and the financial position of the issuers are monitored

Millions of yen

2010

Book value

Fair value

Difference

Cash and time deposits¥ 62,511¥ 62,511¥

Trade receivables

131,893

131,767

Investment securities
Assets Total

—
(126)

14,533

14,533—208,937

208,811(126)

regularly. The Company reviews continuously the investment portfolio

Short-term bank loans

30,52430,524—in consideration of relationship with counterparties.

Trade payables

108,018

108,018—

Corporate bonds

10,000

9,933

(67)

Long-term debt

47,13647,259123

195,678

195,734

56

1,618

1,121

(497)

Derivative transactions executed by the Company and its major consolidated subsidiaries are used solely for the purpose of hedging risks
concerning exchange rate and interest rate fluctuations as explained

Liabilities Total
Derivatives

above. The Company reconciles balances with the contract counterparties every month.

Thousands of U.S. dollars

2011Book value

Fair value

Liquidity risks:

Cash and time deposits$ 632,358$ 632,358

The Company conducts cash management among major consolidated

Trade receivables

1,870,684

1,868,263

subsidiaries for efficient use of the Companies’ funds. The Company

Investment securities
Assets Total

Difference$—(2,421)

157,055

157,055—

2,660,097

2,657,676(2,421)—

timely formulates and updates the fund management plan based on

Short-term bank loans

259,084

259,084

reports from business units and major subsidiaries, and monitors theTrade payables

1,589,768

1,589,768—

liquidity risk.

Corporate bonds

120,482

120,749

267

Long-term debt
Liabilities Total
Derivatives

70 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

437,705

443,483

5,778

2,407,039

2,413,084

6,045

18,085

13,195(4,890)Cash and time deposits:

The affiliate stocks, the unlisted stocks and the investment bonds in

The book values approximate the fair values because of short-term

the following table are not included in “Investment Securities” above

maturities of these instruments.

because there is no fair value available.
Thousands of
U.S. dollars

Millions of yen

Trade receivables:

2011

2010

2011

Affiliate stocks¥10,949¥13,509$131,912

based on discount rates calculated as totals of appropriate baseline

Unlisted stocks

2,286

2,345

27,546rates and credit risk spreads.

Investment bond

11

11

131

The discounted cash flow method was used to estimate the fair values,

Investment securities:
The market prices were used to estimate the fair values.

The aggregate maturities subsequent to March 31, 2011 and 2010
for financial assets with maturity were as follows:
Millions of yen

Trade payables and short-term bank loans:

Over one year
withinfive years

Overfive years

The book values approximate the fair values because of short-term set-

2011

Withinone yeartlement of these instruments.

Cash and time deposits¥ 52,486

Trade receivables

148,6506,616

1¥201,136¥6,616

¥ 1

Total

¥

—

¥—

Corporate bonds:
The discounted cash flow method was used to estimate the fair values,
Millions of yen

based on discount rates calculated as totals of appropriate baseline
rates and credit risk spreads.

Long-term debt:
The discounted cash flow method was used to estimate the fair values,

Over one year
withinfive years

Overfive years

2010

Withinone year

Cash and time deposits¥ 62,511¥

Trade receivables

127,397

4,357

139

¥189,908¥4,357

¥139

Total

—

¥ —

based on marginal borrowing rates as discount rates.
Thousands of U.S. dollars

Derivatives:

Withinone yearOver one year
withinfive years

Overfive years

The fair values of forward exchange contracts are based on quoted for-2011

ward exchange rates. The fair values of options and interest rate swaps

Cash and time deposits$ 632,358$

Trade receivables

1,790,955

79,71118$2,423,313$79,711$18

are based on the quotes from financial institutions.

Total

Sumitomo Heavy Industries, Ltd.

—$—

Annual Report 2011 | 71

The aggregate maturities subsequent to March 31, 2011 for long-term debt and corporate bonds were as follows:
Millions of yen

2011

Withinone yearOver one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Overfive years

Long-term debt

¥4,411¥19,332¥1,032¥11,433¥34¥87

Corporate bond

—

—

—

10,000——Millions of yen

2010

Withinone yearOver one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Overfive years

Long-term debt

¥10,438¥4,133¥19,937¥1,040¥11,441¥147

Corporate bond

—

—

—

—

10,000—Over four years
within five years

Overfive years

Thousands of U.S. dollars

2011

Withinone yearOver one year
within two years

Over two years
within three years

Over three years
within four years

Long-term debt

$53,145$232,911$12,438$137,749$410$1,052

Corporate bond

—

—

—

120,482——

13. Securities(D) There were no available-for-sale securities with maturity and(A) Book values of securities not stated at fair values as of(E) Impairment of securities

held to maturity securities as of March 31, 2011 and 2010.

March 31, 2011 and 2010 were disclosed in “12. Financial
instruments”.

Impairment losses for securities were ¥1 million ($9 thousand) and ¥377
million for the years ended March 31, 2011 and 2010, respectively.

(B) Acquisition costs and book values of securities with fairvalues as of March 31, 2011 and 2010 were as follows:
Millions of yen

Available-for-sale securities
Equity securities Acquisition costThousands of
U.S. dollars

2011

2010

2011

¥11,404¥11,375$137,396

Book value

13,036

14,533

157,055

Difference¥ 1,632¥ 3,158$ 19,659

14. Derivatives information
The Companies enter into forward currency exchange contracts, interest rate swap contracts and currency option contracts as derivative
financial instruments. The Companies utilize forward currency exchangetransactions to hedge exchange rate risk with respect to receivables and(C) Total sales amount of available-for-sale securities in theyears ended March 31, 2011 and 2010 were as follows:
Millions of yen

Thousands of
U.S. dollars

2011

2010

2011

Sale of securities¥99¥1,705$1,188Net gain

79

1,581

956

payables denominated in foreign currencies. Interest rate swap transactions are utilized to minimize risks of increase in interest rate on borrowings. The Companies enter into such transactions only withinternational financial institutions with higher credit ratings to avoid
credit risk exposure. Details of transactions are reviewed and approvedby the Companies’ internal policies, which include personnel’s responsible based on transaction types and limits of amounts.

72 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

(A) Forward foreign exchange contracts not accounted for(D) Interest rate swap contracts accounted for as hedge

as hedge

The aggregate amounts of interest rate swap contracts accounted for

The aggregate contracted amounts to be paid / received and the fairas hedge as of March 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

values of forward foreign exchange contracts not accounted for as
Millions of yen

hedge in Japanese yen as of March 31, 2011 and 2010 were as follows:
Thousands of
U.S. dollars

Millions of yen

2011

2010

2011

To buy foreign currencies

¥ 895

¥

417

$ 10,783

To sell foreign currencies

8,960

11,160107,947

To buy foreign exchange options

186

495

2,236

To sell foreign exchange options

—

422

—

Fair value:
To buy foreign currencies

(10)

(15)

(112)

To sell foreign currencies

8

(187)

92

To buy foreign exchange options

2

7

21

To sell foreign exchange options

—

(9)

¥

0

¥

(204)

—
$

2010

2011

¥22,821¥26,868$274,957

(410)

(487)

(4,936)

Contracted amounts to be
paid/received:

Contracted amount to be
paid/received:

Net unrealized exchange gain (loss)

2011

Interest rate swap contracts(special treatment) (Note)

1

Interest swap fixed rate to
floating rate
Fair value:Interest swap fixed rate to
floating rate

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

15. Employees’ severance and retirement benefits(B) Interest rate swap contracts not accounted for as hedge

The Company has an unfunded retirement benefit plan and a defined

There were no interest rate swap contracts of the Companies as ofcontribution plan for employees. Consolidated domestic subsidiaries

March 31, 2011 and 2010.

have primarily a tax qualified retirement pension plan and an unfunded
retirement benefit plan for employees. But certain consolidated domes-(C) Forward foreign exchange contracts accounted for as hedge

tic subsidiaries abolished a tax qualified retirement pension plan and

The aggregate contracted amounts to be paid / received and the fairchanged to defined contribution plan. And certain consolidated over-values of forward foreign exchange contracts accounted for as hedge inseas subsidiaries adopt a defined contribution pension plan.

Japanese yen as of March 31, 2011 and 2010 were as follows:

Additionally, the Company has a “Retirement Benefit Trust”.

Thousands of
U.S. dollars

Millions of yen

2011

2010

2011

(A) Projected benefit obligation on the balance sheet dates
consists of the following:

Deferred hedge accounting
Contracted amount to be paid/
received:
To buy foreign currencies
To sell foreign currencies

¥

425

¥

308

$

To sell foreign currencies

23,31332,482

280,882

17

(13)

208

1,484

1,834

2011

2010

2011

(1) Projected benefit obligation¥(67,537)¥(69,847)$(813,702)(2) Fair value of employees’
retirement benefit plan assets

31,041

31,360373,989(3) Unfunded projected benefit
obligation

5,120

Fair value:
To buy foreign currencies

Thousands of
U.S. dollars

Millions of yen

17,877

Alternative method (Note)
Contracted amount to be
paid/received:
To buy foreign currencies

163

—

1,970

To sell foreign currencies

10,410148

125,418(36,496)(38,487)(439,713)(4) Unrecognized actuarial difference

5,041

5,981

60,734(5) Unrecognized prior service cost

75

80

902

(31,380)(32,426)(378,077)(6) Employees’ severance andretirement benefits

Fair value:
To buy foreign currencies

(8)

—

(99)

To sell foreign currencies

12

(10)

145

¥ 1,505¥ 1,811$ 18,131Net unrealized exchange gain (loss)

Note: When certain conditions are met, translation of foreign currency receivables and payable
are based on yen amounts fixed by forward contract.

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 73

(B) The following severance and pension benefit expenses areincluded in the statements of income for the years ended

16. Subsequent events

March 31, 2011 and 2010:
Thousands of
U.S. dollars

Millions of yen

2011

2010

2011

(1) Service cost

¥3,105¥3,232$37,417(2) Interest cost on projected benefit
obligation

1,790

1,829

21,568(3) Expected return on plan assets

(687)

(562)

(8,281)(4) Amortization of actuarial
difference

1,282

1,477

15,446

67

187

802

The following appropriations of retained earnings, which have not beenreflected in the accompanying consolidated financial statements for theyear ended March 31, 2011, were approved at a general shareholders’(5) Amortization of prior service cost(6) Effect of change in accounting
method of retirement benefits(Note 1)

—

110

—

(7) Severance and pension benefit
expense

5,557

6,273

66,952

meeting of the Company held on June 29, 2011:

Year-end cash dividends¥8.00 ($0.10) per share

Millions of yen

Thousands of
U.S. dollars

2011

2011

¥4,915$59,220

The approved dividend will be paid to the shareholders of record as(8) Loss on revision of retirement
benefit plan (Note 2)
Total

Appropriations of retained earnings

503

—

6,055

¥6,060¥6,273$73,007

Notes: 1. One domestic subsidiary ceased a simplified method in estimating the employees’ severance and retirement benefits for the year ended March 31, 2010 and expensed all
the difference at the beginning of the year.
2. Some consolidated subsidiaries terminated tax qualified retirement pension plans, andshifted to defined contribution plans. Due to this change, loss on revision of retirement benefit plan was incurred.

(C) Major actuarial assumptions used to determine pension
obligations as of March 31, 2011 and 2010 are as follows:
2011

2010

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

Equally to eachservice year
using theestimated
number of total
service years

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

Mainly 2.0%

Mainly 2.0%

(3) Expected rate of return on plan assets Mainly 0.0%
(Trust assets for
retirement
benefits; 0.0%)

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

Mainly 12 years

Mainly 12 years(5) Amortization period ofprior service cost

The Company:
1 yearSubsidiaries:
Mainly 12 years

The Company:
1 yearSubsidiaries:
Mainly 12 years

74 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011of March 31, 2011.

Independent Auditors’ Report

To the Board of Directors of Sumitomo Heavy Industries, Ltd.

We have audited the accompanying consolidated balance sheets of Sumitomo Heavy Industries, Ltd. and consolidated subsidiaries as of March 31,
2011 and 2010, and the related consolidated statements of income, comprehensive income, changes in net assets and cash flows for the years thenended expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to independently express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sumitomo Heavy
Industries, Ltd. and subsidiaries as of March 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, inconformity with accounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2011 are presented solely
for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been madeon the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2011

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 75

Major Subsidiaries and Affiliates

Segment

Machinery
Components

Precision
MachineryBusiness
Power Transmission and Control
Equipment

Plastic Injection Molding Machines

Quantum Equipment and
Ion Accelerators

Cryogenic Equipment

Company Name

Telephone Number

Sumitomo Heavy Industries, PTC Sales Co., Ltd.

03-6737-2580

Sumiju Tomida Machinery Co., Ltd.

0562-48-4167

Sumiju Technos, Ltd.

0562-48-5115

SEISA Gear, Ltd.

0724-31-3021

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

Sumitomo (SHI) Cyclo Drive China., Ltd.

86-22-2499-3501

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-955-0010

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

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

65-6-591-7800

Sumitomo (SHI) Cyclo Drive Korea, Ltd.

82-2-730-0151

Sumitomo Machinery Corporation of America

1-757-485-3355

Sumitomo Industrias Pesadas Do Brasil Ltda.

55-11-5585-3600

SM Cyclo of Canada, Ltd.

1-905-469-1050

Hansen Industrial Transmissions NV

32-3-450-12-11

Sumitomo Heavy Industries Modern, Ltd.

045-547-7711

Sumiju Platec Co., Ltd.

043-420-1558

Sumiju Logitech Co., Ltd.

043-420-1680

Izumi Seiki Co., Ltd.

0897-32-6232

Ningbo Sumiju Machinery, Ltd.

86-574-86805901

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

SHI Plastics Machinery, Inc. of America

1-770-447-5430

SHI Plastics Machinery (Hong Kong) Ltd.

852-2750-6630

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

65-6-779-7544

Sumiju Examination & Inspection, Ltd.

0898-65-4868

SHI Accelerator Service Ltd.

03-5434-8468

Japan Electron Beam Irradiation Service Co., Ltd.

03-5434-8467

Sumiju Magnet (Kunshan) Co., Ltd.

86-512-5768-9200

Sumitomo (SHI) Cryogenics of America, Inc.

1-610-791-6700

Sumitomo (SHI) Cryogenics of Europe GmbH49-6151-860610

Sumitomo (SHI) Cryogenics of Europe, Ltd.

44-1256-853333

SHI Manufacturing & Services (Philippines), Inc.

63-43-405-6263

Precision Equipment and Components Sumitomo Heavy Industries Himatex Co., Ltd.

0897-32-6485

Sumiju Precision Forging Co., Ltd.

046-869-1659

Sumitomo Heavy Industries Mechatronics, Ltd.

03-6737-2531

SEN Corporation

03-6737-2690

Machine Tools

Sumitomo Heavy Industries Finetech, Ltd.

086-525-6280

Defense Equipment

Sumiju Business, Ltd.

042-468-4311

Sumiju Tokki Service Co., Ltd.

042-468-4451

Sumitomo NACCO Materials Handling Co., Ltd.

0562-48-5251

LCD and Semiconductor Equipment

Forklift Trucks

76 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Segment

Construction
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

Mobile Cranes

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

1-859-263-5200

Material Handling Systems

Sumitomo Heavy Industries Engineering and Services Co., Ltd.

03-6737-2640

Forging Presses

Sumitomo Heavy Industries Techno-Fort Co., Ltd.

0897-32-6397

Sumijiu Technocraft Co., Ltd.

0897-32-6306

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Sales and Services,
Area Management Company

Sumitomo Heavy Industries (Shanghai) Management, Ltd.

86-21-3462-7660

Ships

Ships

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

03-6737-2620

Environmental
Facilities & Plants

Sumiju Plant Engineering Co., Ltd.
Energy-Related andEnvironmental Protection Systems Sumiju Environmental Technologies, Ltd.

042-468-4007

Water Treatment Systems

Sumitomo Heavy Industries Environment Co., Ltd.

03-6737-2700

Sumiju Environmental Engineering, Inc.

03-5719-5020

Industrial Machinery

Others03-6737-2820

Pressure Vessels, Chemical
Processing Equipment and Plants

Sumitomo Heavy Industries Process Equipment Co., Ltd.

0898-64-6936

Nihon Spindle Mfg. Co., Ltd.

06-6499-5551

Food Processing Machinery

Izumi Food Machinery Co., Ltd.

06-6718-6150

Sales and Services,
Area Management Company

PT. Sumitomo Heavy Industries Indonesia

62-0-21-57951095

OthersSumitomo Heavy Industries Business associates, Ltd.

03-6737-2342

Lightwell Co., Ltd.

03-5828-9230

Izumi Support Corporation

03-6737-2666

Sumitomo Heavy Industries (China), Ltd.

86-21-6219-8232

Sumitomo Heavy Industries (USA), Inc.

1-610-791-6782

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 77

Glossary

Machinery Components

Cyclotrons

Power transmission and control equipment

Power transmission and control equipment raises torque as the rotary
speed of a motor is reduced to an optimum level. This kind of equipment has many applications, including elevators, escalators, industrial
robots and factory production lines. SHI produces a wide range ofA cyclotron is an accelerator for particles that it ionizes using magnetic
force. SHI is the only manufacturer of these devices in Japan and has
the top share of the domestic market for cyclotrons for positronemission tomography (PET) applications, which are highly effective in
discovering and pinpointing cancer cells.

power transmission and control devices, from micro-miniature devices
with a motor capacity of 6 watts to very large devices of several thousand kilowatts. SHI has the leading share of the Japanese market for
Compact cyclotron for PET “HM-12S”

this equipment.
Hyponic Drive®

Ion-implantation devices

To create the transistors and other components that comprise semicon-

CYCLO® speed reducer

ductors, the necessary type/volume of elements required for such components must be added to a flat silicon single-crystal substrate known

Precision Machinery

as a wafer. Ion-implantation devices electrically ionize the elements andaccelerate the resulting ions at high voltage for high-precision injection

Plastic injection molding machines

Plastic injection molding machines are used to pour melted plastic

into the wafer.

into molds. Of the two system types, hydraulic and electromotive,
the latter enables greater molding precision. SHI specializes in the
precision, high-cycle molding required for manufacturing optical discs
and connectors.

Single-wafer, high-current
ion-implantation device “SHX-III/S”

Precision positioning stages
Full-electric injection molding machine “SE75DUZ”

Precision positioning stages set the vertical and horizontal positioningof substrates, wafers and other components in precision processing.

Proton therapy system

Proton therapy is a type of radiation therapy that destroys cancer cellsby bombarding affected areas with a proton beam. Allowing the minimally invasive treatment of cancer cells, proton therapy systems minimize damage to surrounding normal cells, thus reducing burden on the

Because two axes are involved, they are also called XY stages. These
products are used for manufacturing and inspection processes for liquid
crystal panels and semiconductor wafers. SHI’s high-precision positioning stages are one of its particular strengths.

patient’s body. Due to such features, these systems eliminate the needfor hospitalization and enable the outpatient treatment of cancer.

Planar XY stage “SA&SL Series” forRotating gantry

semiconductor and printed circuit board

irradiation system

78 | Sumitomo Heavy Industries, Ltd.

exposure and inspection processes

Annual Report 2011

Construction Machinery

Environmental Facilities & Plants

Crawler cranes

Circulating fluidized-bed (CFB) boiler

This is a self-propelled crane for construc-

Employing jets of air blown from below to evenly mix fuel particles at ation sites. It travels on caterpillar tracks.

high temperature, this CFB boiler is an efficient combustor suitable foruse with a wide variety offuels. The CFB boiler caneven burn such renewable

Lattice crawler crane “LS-218HSL”

energy fuels as low-grade
coal and biomass-based fuels.

Asphalt pavers
CFB boiler

Self-propelled machines used to spread asphalt when paving roads;
SHI is the market leader in asphalt pavers in Japan.
Rotary kiln

This rotary melting kiln is used for the combustion or melting of industrial waste materials. Through combustion or melting, these materials
are detoxified or recycled for metal recovery and slag-making. The cylinAsphalt paver “HA60W”

drical kiln is mounted, at aslight incline, horizontallyover a furnace and rotatedslowly when combusting orIndustrial Machinery

melting materials. Due tosuch architecture, industrial

Continuous ship unloaders

Continuous ship unloaders are large harbor-installed hoists used for thewaste materials can beprocessed efficiently.

continuous unloading of iron ore and other bulk raw materials from

Sumitomo - W+E rotary kiln

cargo vessels at dock. SHI has the top share of this market in Japan.
Vertical aerator systems

Used in water treatment processes, theseContinuous ship unloader

systems direct air to polluted water, helping
bacteria to break down substances more
efficiently. The operation of SHI vertical aerator systems can be optimized for the volume of water being treated, and SHI boasts
the top share of these products in Japan.

Ships

SUMIRATOR® UD

Aframax tankers, Suezmax tankers

Aframax tankers are midsized oil tankers with deadweight freightcapacity in the 80,000 to 120,000MTDW class; 150,000MTDW classtankers are called Suezmax tankers.

Coke drums

This equipment is used in oil refining to extract high-value-added
light oil from heavy oil that is subjected to heat cracking after refining.
SHI has the world’s leading share in coke drums.

Aframax tanker

Coke drums

Sumitomo Heavy Industries, Ltd.

Annual Report 2011 | 79Corporate Data

Head Office: Sumitomo Heavy Industries, Ltd.

Transfer Agent: The Sumitomo Trust and Banking Co., Ltd.

1-1, Osaki 2-chome, Shinagawa-ku,

Stock Exchange Listings: Tokyo, Osaka

Tokyo 141-6025, Japan
Tel. +81-3-6737-2331

Shares Outstanding*: 614,527,405

URL http://www.shi.co.jp

Number of Shareholders*: 60,453

Founded: 1888

Major Shareholders*:

Incorporated: November 1, 1934
Percentage ofvoting rights

Name of shareholder

Paid-in Capital: ¥30,871,651,300

Japan Trustee Services Bank, Ltd.

15.5%

The Master Trust Bank of Japan, Ltd.

7.1%

State Street Bank and Trust Company

6.0%

Domestic Offices:

Sumitomo Life Insurance Company

3.7%

Chubu Office
10-24, Higashi-sakura 1-chome, Higashi-ku, Nagoya-shi, Aichi 461-0005, Japan
Tel: 81-52-971-3063

Trust & Custody Services Bank, Ltd.

3.1%

Sumitomo Mitsui Banking Corporation

2.5%

JP Morgan Chase Bank

2.3%

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku, Osaka-shi, Osaka 530-0005, Japan
Tel: 81-6-7635-3610

The Chase Manhattan Bank

1.9%

Sumitomo Heavy Industries, Ltd. Kyoeikai

1.8%

Mellon Bank

1.7%

Kyushu Office
6-20, Nakasu 5-chome, Hakata-ku, Fukuoka-shi, Fukuoka 810-0801, Japan
Tel: 81-92-283-1670*As of March 31, 2011

Number of Employees*: 17,025 (Consolidated)

2,526 (Non-consolidated)

Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi, Tokyo 188-8585, Japan
Tel: 81-42-468-4104

Breakdown of Shareholders as of March 31, 2011:
Breakdown of shareholders

Number of shares held
(unit 1,000)

Financial Institutions

230,915

Chiba Works731-1, Naganumahara-machi, Inage-ku, Chiba-shi, Chiba 263-0001, Japan
Tel: 81-43-420-1355

Securities Companies

13,344

Individuals and Others

91,819Foreign Investors

226,077

Yokosuka Works
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-1842

Other Japanese Corporations

52,373

Nagoya Works
1, Asahi-machi 6-chome, Obu-shi, Aichi 474-8501, Japan
Tel: 81-562-48-5111

The “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 8.52%

Okayama Works
8230, Tamashima-Otoshima, Kurashiki-shi, Okayama 713-8501, Japan
Tel: 81-86-525-6101
Ehime Works—Niihama Factory
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Tel: 81-897-32-6211

ForeignInvestors

Financial
Institutions
37.58%

36.79%

Ehime Works—Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan
Tel: 81-898-64-4811

Securities Companies 2.17%
Individuals and Others 14.94%

Technology Research Center
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Additional copies of this annual report and other information may be obtained at the above URL or by contacting:Corporate Communications Department,
Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan80 | Sumitomo Heavy Industries, Ltd.

Annual Report 2011

Tel: +81-3-6737-2331

1
2Powering Global Growth68

Financial Highlights

At a Glance
2 Increasing Our Global Presence
4 Enhancing Our Business Portfolio

To Our Shareholders, Customers andEmployees
China

10

Review of the “Global 21” Medium-Term
Management Plan

12
14
18

“Innovation 21” New Medium-Term
Management Plan

19

Interview with the President

Indonesia

20

Special Feature: The SHI Group’s
Strategies in Asia
Capturing Growth Markets

23

Review of Operations

33

Initiatives to Support the SHI Group’s
Sustainable Growth

M Machinery Components
N Precision Machinery
P Construction Machinery
R Industrial Machinery
T Ships
U Environmental Facilities & Plants

X Research and Development
Z Intellectual Property[ Corporate Governance` Directors, Corporate Auditors and Executive Officers
a Environmental and Social Contribution Initiatives

43
76
78
80

India

21

Thailand

21

Vietnam

22

Financial Section
Major Subsidiaries and Affiliates
Glossary
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 and determined subjectively. Future performance is not guaranteed and all information related to future performance contained
herein is subject to changes in the business environment.

Sumitomo Heavy Industries

Sumitomo Heavy Industries
Annual Report 2011
For the year ended March 31, 2011

Annual Report 2011

For the Future, For the Dream
http://www.shi.co.jp

Printed in Japan O050E111