Sumitomo Heavy Industries
Annual Report 2010

Creating Superior Products

http://www.shi.co.jp

Sumitomo Heavy Industries
Annual Report 2010
For the year ended March 31, 2010

This report is printed on paper certified by the Forest Stewardship Council (FSC). Pages 1 through 76 are printed on paper made from woodthat has been collected through a “Morino Chonai-Kai” (Forest Neighborhood Association) forest-thinning initiative in Japan. In addition, thisreport is printed using waterless printing that employs certified 100% VOC-free soy inks.

Printed in Japan O049 E101

Contents

7 At a GlanceSuperior Products Create Strong Portfolio 7
In this section, we provide a summary of the SHI Group’s
flagship products and performance trends by businesssegment.

Superior Products Create Global Growth 8
In this section, we provide a visual guide to trends in the
SHI Group’s overseas sales, with particular emphasis on
principal countries and regions.

1

10 Financial Highlights

30 Research and Development
32 Intellectual Property
33 Corporate Governance
36 Directors, Corporate Auditors andExecutive Officers

37 Environmental and Social
Contribution Initiatives

In this section, we present a summary of the most recent
five years of SHI Group financial data.

39 Financial Section
12 To Our Shareholders, Customers and Employees 72 Network
14 Interview with the President
74 Glossary
In his own words, President and CEO Yoshinobu
Nakamura discusses the SHI Group’s performance in
76 Corporate Data

Superior Products Create
Customer ValueIn this section, we introduce mainstays in
our lineup of superior products, thedevelopment of which has been undertaken with the sole purpose of creating
value for customers.

addition to the business outlook and strategies
for the future.

3

2
High Productivity
Injection Molding Machines

4High Efficiency
Turbines

Long Service LifeCYCLO® Speed Reducers

Special Feature:

Review of Operations:

18

20

24

22

26

Superior Products Create
Opportunities in China

5

6

Low Environmental Burden
CFB Boilers

Mass-Produced Machinery

Ship, Steel Structure & Other
Specialized Equipment

Improved Fuel Efficiency
Hydraulic Excavators

28

Construction Machinery

SHI Group’s Strategies in China
In this section, we describe our strategies
and activities in China—one of the
global economy’s growth drivers.

Environmental Protection
Facilities, Plants & Others

Industrial Machinery

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.

SHI10AR̲ECV0728̲再.indd 2

2014/09/25 19:16

Superior Products

Create Customer Value
Since its establishment in 1888 as a machinery production and repair shop for the Besshi

Copper Mine, Sumitomo Heavy Industries, Ltd. has continued to develop in step with thegrowth of Japanese society and industries. Today, the SHI Group is working to grow further through operations in wide-ranging fields, such as Mass-Produced Machinery, which
includes power transmission and control equipment and injection molding machines,
Environmental Protection Facilities, Plants & Others, Industrial Machinery and Construction
Machinery. In its various business fields, the Group provides a number of superior productsthat command leading shares in their respective categories.
Adhering to the principle of continuing to create added value for customers, the SHIGroup is committed to keep offering superior products and services to markets throughout the world. This is the SHI way of achieving sustainable growth.

Sumitomo Heavy Industries, Ltd. | MASS-PRODUCED MACHINERY: CYCLO® Speed Reducers

Long Service Life

SHI’s flagship CYCLO® speed reducers have a history of over
the Company has sold more than

10 million

70 years, and to dateunits worldwide. Recognized by cus-

tomers for their high durability and efficiency and long service life thanks to their uniquearchitecture, they have been applied in a broad range offields. In recent years, the introduction of wind power
CYCLO® Speed Reducers: A speed reducer raises thetorque caused by rotary speed of a motor, reducing it toan optimum running level for secondary devices.
CYCLO® speed reducers incorporate SHI‘s proprietary
unbreakable gear teeth. They have been used in many
types of industrial machinery, and principal applications
include factory automation and material-handlingmachines, industrial robots, water and sewage treatment
systems and amusement machines.

2 | Sumitomo Heavy Industries, Ltd.

generation is accelerating on a global scale as the awarenesstoward environmental protection is heightening. Their highly
evaluated performance has made CYCLO® speed reducers
the component of choice for windmills for power generation.

MASS-PRODUCED MACHINERY: Injection Molding Machines

High Productivity

Having shipped more than

50 thousand

injection molding machine units to date,

SHI has maintained the status of being the leading Japanese manufacturer in the global
market for such machines since 2003. In addition, the Company is steadily expanding salesof its injection molding machines in Asia, including China. In March 2008, SHI acquired theGermany-based Demag Plastics Group. Through this wholly
Injection Molding Machines: These machines areused to pour melted plastic into molds and produce

owned subsidiary, the Company is working aggressively to
expand injection molding machine sales in Europe, where theplastic products. SHI’s injection molding machines
are specialized for the high-precision, high-cycle

replacement of hydraulic systems with full-electric systems ismolding required for manufacturing optical discs,

promoted. By strengthening both its product competitivenessconnectors and such IT-related products as cell
phones and personal computers as well as thinpackaging for food.

and marketing capabilities, SHI aims to become the global
leader in the injection molding machine industry.
Sumitomo Heavy Industries, Ltd. | 3

ENVIRONMENTAL PROTECTION FACILITIES, PLANTS & OTHERS:
Circulating Fluidized-Bed (CFB) Boilers

Low Environmental Burden

Steam generation by
super-heaters

Steam turbines

patible with low-grade coal (withParticles
Combustion gases
plus particles

Particle separation using a cyclone

Combustion gases

Introduction of coal plus biomass fuels

CFB Boilers: These boilers are comhigh moisture content, low calorificclose technological alliance with U.S.-based Foster

value, etc.) and many other energy

Wheeler Ltd. The SHI Group and Foster Wheeler

fuels that could not previously be

together boast the leading global share of the mar-burnt efficiently and stably in conventional boilers. The latest CFB

ket for CFB boilers compatible with biomass-based

boilers can handle even tires andfuels. All around the world, concerns are ballooning

other waste-based fuels as well as
biomass-based fuels, both of which
Particle
circulation

The SHI Group’s CFB boilers are produced through aare being increasingly used in theplace of fossil-based fuels.

toward environmental issues, leading to CFB boilers drawing significant attention in
Japan and overseas. More recently, fuels based on palm shells and other tropicalbiomass resources found in Southeast Asia and other regions have increasingly

Accordingly, CFB boiler systems areAirgaining increasing recognition as

key ways of combating global warming and enabling the more
efficient use of resources.

come under the spotlight as renewable energy resources. SHI has secured an orderfor thelargest scale CFB boiler ever made, one designed to burn fuelsthat use tropical biomass in combination with coal.
4 | Sumitomo Heavy Industries, Ltd.

INDUSTRIAL MACHINERY: Turbines

High Efficiency

The SHI Group has had an eye on biomass power generation from early on and today
commands an overwhelming share of the global market for turbines used in this sector.
In fact, the Group has delivered more than

6,500 turbines in 80 countries. As themost recent example, in 2009, the Group delivered one of the world’s largest turbines fora biomass power generation facility. The SHI Group willkeep focusing on this market on the back of the growing
Turbines: Steam turbines efficiently convert the thermalenergy of the steam generated by boilers into rotaryenergy, which is used to drive generators. Leveraging an
extensive menu of methods for analyzing optimal designawareness toward environmental protection. At the sametime, the Group will accelerate marketing activities overseas, particularly in Southeast Asia and North America.

values, the SHI Group accommodates ever-diversifying
customer requirements. The Group’s turbines are primarily used for private power generation at industrial plants.

Sumitomo Heavy Industries, Ltd. | 5

CONSTRUCTION MACHINERY: Hydraulic Excavators

Improved Fuel Efficiency

The points of demand for hydraulic excavators have
moved to emerging markets in Asia and other regions.
Reflecting this trend, the SHI Group’s export ofhydraulic excavators now accounts for approximately

80% of the total output. Also, in order to meet
Hydraulic Excavators: The SHI Group’s LEGEST®-brandhydraulic excavator won both an Energy Conservation
Grand Prize and a Good Design Award in fiscal 2007.

robustly expanding demand in China, the Group has
established its first hydraulic excavator production plant

The LEGEST® series of hydraulic excavators has earned

overseas in Tangshan City, Hebei Province, and this new plant commenced production inhigh acclaim in Japan and overseas for superior engine

June 2009. With the aim of capitalizing on expected further market growth in Asia

performance, economic viability and functional beauty.
The series offers a variety of customized models, includ-

including China, the Group will bolster the capacity of the Tangshan plant and advanceing those with hybrid engines and for forestry andthe construction of a new plant in Indonesia.

demolition applications.

6 | Sumitomo Heavy Industries, Ltd.

At a Glance:

Superior Products Create Strong Portfolio
Mass-Produced Machinery

33.7%
Percentage
of Net Sales

Sales and Operating IncomePower Transmission Equipment
Plastic Injection Molding Machines
250
Cyclotrons for Medical Use
Ion Accelerators
200
Plasma Coating System for FPDs (Flat Panel Displays)
150
Laser Processing Systems
Cryogenic Equipment
100
XY Stages
50
Transfer Molding Press Machines
0
Precision Forgings
W Sales (Left scale)
Defense Equipment
WO perating Income (Right scale) (FY)
05
06
07
08

(¥ Billion)
40
32
24
16
8
0
09

-4

Environmental Protection Facilities, Plants & Others

15.0%
Percentage
of Net Sales

Power Generation Systems

Sales and Operating IncomeIndustrial Wastewater Treatment Systems

100

15

Water and Sewage Treatment Systems

80

12

60

9

Chemical Process Equipment & Plants

40

6

Food Machinery20

3

Landfill Leachate Treatment System
Air Pollution Control Plants

SoftwareW Sales (Left scale)W Operating Income (Right scale)0(FY)(¥ Billion)

0
05

06

07

08

09

Ship, Steel Structure & Other Specialized Equipment

14.8%
Percentage
of Net Sales

Pressure Vessels

Sales and Operating IncomeMixing Vessels

90

18

60

12

30

6

0

0

(¥ Billion)

Mixing Reactors
Coke Oven Machines
Steel Structures
Ships
Marine Structures
Marine Equipment

W Sales (Left scale)WO perating Income (Right scale)

(FY)

05

06

07

08

09

-2

Industrial Machinery

16.6%
Percentage
of Net Sales

Logistics & Handling Systems

Sales and Operating Income

Automated Parking Systems

100

20

Forging Machines

80

16

60

12

40

8

20

4

Material Handling Systems
Turbines
Pumps

W Sales (Left scale)WO perating Income (Right scale)0(FY)(¥ Billion)

0
05

06

07

08

09

Construction Machinery

19.9%

Hydraulic Excavators

Sales and Operating Income

Mobile Cranes

200

20

150

15

100

10

50

5

Road Machinery

Percentage
of Net Sales

W Sales (Left scale)WO perating Income (Right scale)0(FY)(¥ Billion)

0
05

06

07

08

09

Sumitomo Heavy Industries, Ltd. | Superior Products Create Global Growth
Under its current medium-term management plan, “Global 21,” the SHIGroup upholds “globalization” as one of the keywords for achieving

Overseas sales

growth. During fiscal 2009, ended March 31, 2010, the SHI Group’s

FY1999FY2009¥184.2 billion¥243.5 billion

business performance showed a temporary deterioration, adversely
affected by the ongoing economic recession that started in 2008.

32.5%

Overseas sales ratio

Nevertheless, the Group has steadily expanded its overseas sales and,

47.2%

consequently, its presence in the global market over the past 10 years.
In the emerging markets of China, India and other countries,
demand is expected to grow further for the SHI Group’s products,
especially in the Mass-Produced Machinery and Construction
Machinery segments.
Maintaining a forward-looking business stance, in all of its businesses
the SHI Group will continue to provide superior products—products thatwill win acclaim worldwide—and through these products we aim to leap
forward toward making SHI a world-leading brand.

EuropeChina(¥ Billion)(¥ Billion)
47.4

42.5

44.5

07

08

50.8

Sales Breakdownby Segment(FY09)

23.7

(FY)

47.2

(excluding Taiwan and Hong Kong)

Sales Breakdownby Segment(FY09)

09

(FY)

07

08

09

W Mass-Produced Machinery

W Mass-Produced Machinery

W Environmental Protection Facilities, Plants & Others

W Environmental Protection Facilities, Plants & Others

W Ship, Steel Structure & Other Specialized Equipment

W Ship, Steel Structure & Other Specialized Equipment

W Industrial Machinery

W Industrial Machinery

W Construction Machinery

W Construction Machinery

India(¥ Billion)
7.8

(FY)

07

4.3

4.5

08

09

Sales Breakdownby Segment(FY09)W Mass-Produced Machinery
W Environmental Protection Facilities, Plants & Others
W Ship, Steel Structure & Other Specialized Equipment
W Industrial Machinery
W Construction Machinery | Sumitomo Heavy Industries, Ltd.

Overseas Sales and Overseas Sales Ratio(¥ Billion)

(%)

350

70

300

60

250

50

200

40

150

30

100

20

50

10

0

(FY)

99

00

W Overseas sales (Left scale)

01

02

03

04

05

06

07

08

09

0

Overseas sales ratio (Right scale)North America(¥ Billion)
120.4
102.3

56.9

(FY)

07

08

Sales Breakdownby Segment(FY09)

09
W Mass-Produced Machinery
W Environmental Protection Facilities, Plants & Others
W Ship, Steel Structure & Other Specialized Equipment
W Industrial Machinery
W Construction Machinery

Others(¥ Billion)
127.9
116.6

107.6

Sales Breakdownby Segment(FY09)

(FY)

07

08

09
W Mass-Produced Machinery
W Environmental Protection Facilities, Plants & Others
W Ship, Steel Structure & Other Specialized Equipment
W Industrial Machinery
W Construction Machinery

Sumitomo Heavy Industries, Ltd. | 9

Financial Highlights
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

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

FY2005

FY2006

FY2007

FY2008FY2009FY2009¥551,339¥600,256¥660,769¥642,918¥516,165$5,550,162

Mass-produced machinery

218,798

222,906

232,593

227,226

174,231

1,873,454

Environmental protection facilities, plants & others

82,74079,397

91,25092,62577,195830,049

Summary of Income (for the year):Net sales

Ship, steel structure & other specialized equipment

67,372

69,491

76,39379,60276,452822,061

Industrial machinery

56,054

68,286

81,16384,31085,637920,833

Construction machinery

126,375

160,177

179,370

159,154

102,650

1,103,765

47,50564,224

77,79056,94028,254

303,804

29,33828,84428,20812,334(1,700)(18,279)

7,947

85,448Operating income
Mass-produced machinery
Environmental protection facilities, plants & others

4,277

4,494

6,903

10,719Ship, steel structure & other specialized equipment

(479)

6,714

14,094

12,562

7,202

77,445
152,337
6,138

Industrial machinery

5,847

9,527

12,11813,585

14,167

Construction machinery

8,533

14,396

16,286

7,543

571

(10)

250

181

197

67

715

56,57774,873

91,57875,26047,979515,901

Elimination and/or corporate
EBITDA (Note 2)
Net income

29,74237,352

42,974

13,64913,280142,798

Capital expenditure

10,285

17,25728,18031,75324,465

263,068

R&D expenses

7,434

8,581

9,908

10,047

8,187

88,035

Depreciation and amortization

9,072

10,64913,78818,32019,725

212,097

Cash flows from operating activities

50,02356,78929,096

34,67657,513

618,419(13,954)(150,041)

Cash flows from investing activities(7,024)(12,461)(41,250)(35,924)

Free cash flows (Note 3)

42,99944,328(12,154)(1,248)43,559468,378

15,625(26,686)(286,942)

Cash flows from financing activities(41,193)(48,812)(5,238)Notes:
1. The U.S. dollar amounts have been translated, for convenience only, at ¥93=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2010.
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

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)

05

06

07

08

09

0

(FY)

05

06

07

08

09

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

10 | Sumitomo Heavy Industries, Ltd.

0

0

(FY)

05

06

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

07

08

09

0

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

FY2005

FY2006

FY2007

FY2008FY2009FY2009Total assets¥579,233¥600,890¥678,634¥657,436¥610,087$6,560,080

Interest-bearing debt

125,504

88,04589,567110,339

87,660942,581

Stockholders’ equity

167,740

—

—

—

—

—

—

206,010

246,371

238,697

254,153

2,732,826

Financial Position (at year-end):

Total net assets (Note 4)

Amounts per Share of Common Stock:

U.S. dollars(Note 1)Yen

Net income (Note 5)¥ 49.45¥ 61.99¥ 71.19¥ 22.62¥ 22.01

Stockholders’ equity

279.02338.95392.80378.78404.73

4.35

5.00

7.00

10.00

6.00

4.00

0.04

8.8

12.2

14.0

9.6

4.8

Operating income margin

8.6

10.7

11.8

8.9

5.5

EBITDA margin

10.3

12.5

13.9

11.7

9.3

Stockholders’ equity ratio

29.0

34.1

34.9

34.8

40.0

ROA (Return on assets)

5.2

6.3

6.7

2.0

2.1

Cash dividends
Financial Indexes:

$0.24

%

ROIC (Note 6)

ROE (Return on equity)

19.5

20.1

19.5

5.9

5.6

Interest-bearing debt ratio

21.7

14.7

13.2

16.8

14.4

¥117

¥118

¥98

¥93

Yen

US$/Yen exchange rate (at year-end)¥100

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

Total Assets andStockholders’ Equity Ratio

Interest-Bearing Debt andInterest-Bearing Debt Ratio

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

800

40

150

(%)
25

120

20

(¥ Billion)
50

40
600

30

400

20

200

30
90

15

60

10

30

5

20

10

0

10

-10

0

(FY)

05

06

07

08

09

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

0

0

(FY)

05

06

07

08

09

0

-20

(FY)

05

06

07

08

09

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

Sumitomo Heavy Industries, Ltd. | 11

To Our Shareholders, Customers and Employees

We are well on our way to developing into a company
with a strong global presence backed by a commitment toproviding superior products and services.

Right:
Yoshio Hinoh
ChairmanLeft:
Yoshinobu Nakamura
President and CEO

1 | Sumitomo Heavy Industries, Ltd.

The global economy has seen a persistent and significant

In the course of such endeavors, the SHI Group will continue

decline since the onset of the global financial crisis in September

to embrace its basic policy of “Creation of value for customers.”

2008. Economies in Japan, North America and Europe as well as

In other words, the Group is committed to developing andin other developed countries are still facing severe economic

offering superior products and services that always take into

conditions. It is expected that market conditions in these coun-consideration the customer’s viewpoint. In line with this com-tries and regions will require more time to recover to the levels

mitment, we closely analyze region- and market-specific trends

they enjoyed prior to the current global recession. Reflecting theon a global scale and, consequently, work to adapt our business

operating conditions, the SHI Group’s business performance on

structure so that we can flexibly and agilely respond to changes

a consolidated basis for fiscal 2009, ended March 31, 2010,

in demand structure. This approach empowers the SHI Group to

showed substantial deterioration from fiscal 2008. Nevertheless,strategically promote on a global scale superior products packed

the Group has steadily expanded its operations in China andwith technological and other advantages. We will strive to offer

other emerging countries that have achieved rapid economic

products that win acclaim worldwide while working to makerecovery. Expanded operations in these countries have led to

SHI a world-leading brand.

improvements in orders and sales for the Mass-Produced

The SHI Group has always tried to contribute to the devel-

Machinery and Construction Machinery segments in the second

opment of society through the provision of superior products

half of the period under review.

and services. This is our corporate mission. Winning the endur-

Confronting the extremely harsh conditions of fiscal 2009,

ing confidence of customers worldwide is key to realizing sus-

the SHI Group worked aggressively to secure profitability

tainable growth and enhancing corporate value, which will, in

through cost reductions and the promotion of business restruc-

turn, enable us to better meet the expectations of shareholders,turing centered on such initiatives as the optimization of man-customers and employees as well as the local communities inagement resource allocation. At the same time, the Group iswhich we operate.

accelerating the implementation of bold initiatives aimed at

As the entire SHI Group takes strides toward attaining aachieving additional growth in Asia, including China, and otherglobal presence, we thank all shareholders, customers andregions where economies are briskly expanding.

employees for their understanding and support.

Fiscal 2010, ending March 31, 2011, is the final year of thecurrent “Global 21” medium-term management plan, which
was launched in fiscal 2008. We have to admit that accomplishing our initial “Global 21” performance targets in this final year

Yoshio Hinoh

will be unrealistic. However, our keywords for growth—namely,

Chairman“globalization” and “innovation”—remain unchanged, and wewill stay true to the principle of further developing our businesses in markets all around the world. So, for the plan’s final year,
the SHI Group will steadily advance restructuring efforts aimed
at turning critical situations into opportunities and thereby once

Yoshinobu Nakamura

again transition to a renewed growth mode.

President and CEO

Sumitomo Heavy Industries, Ltd. | 13

Interview with the President

Yoshinobu Nakamura, President and CEO

Fiscal 2009 ResultsQA

earnings front, operating income plunged 50% to ¥28.3 billion.

Can you provide readers with an overview of the

However, the decline in net income, which totaled ¥13.3 billion,

fiscal 2009 results?

was held to a slight 3%, thanks to the substantial decline or

Despite declines in both orders and sales, net income was about

absence of a substantial number of special losses recorded in thelevel with fiscal 2008, owing to restructuring efforts throughout

previous year that included business restructuring costs andthe SHI Group.

impairment losses on fixed assets.
By business segment, the Mass-Produced Machinery segment

For the first time since the beginning of the ongoing global
recession, the Japanese economy began showing signs of gradualexperienced significant declines in both orders and sales, negatively

recovery in fiscal 2009, supported by the government’s economic

impacted by cutbacks in capital investments in such industries asstimulus policies and an increase in the export to emerging

automobile, electric appliance and semiconductor. This segmentcountries. Overall market conditions, however, remained weak

posted an operating loss totaling ¥1.7 billion, mainly due to thethroughout the year. Overseas, markets in North America, Europe

decline in sales. In the three segments of Environmental Protection

and other regions with advanced economies suffered similarly harsh

Facilities, Plants & Others, Ship, Steel Structure & Other Specialized

economic conditions. On the other hand, China and other

Equipment and Industrial Machinery, despite increases in sales

emerging economies where government policies are producing

owing to extensive order backlogs in certain businesses, overalltangible outcomes have been seeing rapid recovery. Under theseorders and sales fell year on year. In the Construction Machinery

conditions, the SHI Group’s fiscal 2009 orders received totaled

segment, the hydraulic excavator business enjoyed market recovery¥403.4 billion, down 33% from fiscal 2008. Consolidated net sales

in China in the second half of the period under review. In otheramounted to ¥516.2 billion, down 20% year on year. On the

countries and regions, however, demand remained stagnant. Also,

Fiscal 2009 Quarterly Results
OrdersNet Sales(¥ Billion)

180
Construction Machinery

180

160

Construction Machinery

140
Industrial Machinery
Ship, Steel Structure &Other Specialized Equipment
Environmental Protection Facilities,
Plants & Others
Mass-Produced Machinery

160
140

Industrial Machinery

120
100

Ship, Steel Structure &Other Specialized Equipment

8060

Environmental Protection Facilities,
Plants & Others

40
20
0

(¥ Billion)

Mass-Produced Machinery(FY) 09/1Q

14 | Sumitomo Heavy Industries, Ltd.

09/2Q

09/3Q

09/4Q

120
100
80
60
40
20
0

(FY) 09/1Q

09/2Q

09/3Q

09/4Q

the mobile crane business was adversely affected by lagging
recovery in the North American market. As a result, segment orders
and sales deteriorated compared with fiscal 2008.
These order and sales results fell short of the SHI Group’s fiscal
2009 targets. Nevertheless, the Group managed to surpass its
targets for operating income and net income through costreduction and other restructuring efforts. We will keep focusing on
the reinforcement of our business and earnings structure.

Q
A

Strategies for Fiscal 2010

Q
A

What is your forecast regarding the Group’s businessenvironment and performance in fiscal 2010, ending
March 31, 2011?
We aim to achieve growth in both revenues and profits amid
the persistently severe business environment.

Driven by demand recovery in emerging countries, advanced
countries seem to be nearing the end of the tunnel, and their

What kind of initiatives did the SHI Group implement ineconomies are showing some positive indications. However, it isfiscal 2009 to improve profitability?

premature to take the optimistic view that the global economy will

The Group focused on reducing costs and accelerating

be able to sustain the current momentum of recovery and move

operations in emerging countries.

completely past the recessionary phase.
Looking at Group performance in fiscal 2010 by segment, theThe SHI Group expected that economic recovery in advanced

Mass-Produced Machinery and Construction Machinery segments

countries would lag even further behind in fiscal 2009. Therefore,are expected to enjoy steady recovery in orders and sales, buoyed

the Group reviewed—and suspended where appropriate—its large-

by the dynamism of the economic booms sweeping emerging

scale capital investment plans and aggressively promoted cost-

countries. On the other hand, in the remaining segments—namely,

reduction measures during the period under review, placing utmost

Environmental Protection Facilities, Plants & Others, Ship, Steelpriority on securing profitability.

Structure & Other Specialized Equipment and Industrial

The Group also anticipated that China and certain otherMachinery—severe market conditions are slated to persist throughcountries in Asia would move to strengthen their global presence infiscal 2010. Taking these factors into consideration, the SHI Groupline with their fast economic recovery and expansion. Accordingly,

anticipates that its fiscal 2010 performance will outstrip that of

we accelerated operations in these countries. For example, we

fiscal 2009, with orders, net sales and operating income totaling

established a new plant for manufacturing medium- and large-sized¥490.0 billion, ¥540.0 billion and ¥36.0 billion, respectively.

speed reducers and hydraulic excavators in Tangshan City, Hebei
Province, China. This plant started operations in June 2009 and has
been steadily increasing its output.
Also, we have confirmed that orders for speed reducers,
injection molding machines and construction machinery have
rapidly recovered since the second half of fiscal 2009, particularly in

Q
A

Given the current operating conditions, what management
issues is the SHI Group prioritizing?
We will move aggressively into emerging countries whilefurther bolstering our cost-competitiveness.

China. This is definitely a bright sign for our business and promises

In response to the ongoing global recession, the SHI Group has

to support improvement in our revenues and earnings.

agilely and strategically implemented cost-reduction and(¥billion, unless otherwise stated)

Fiscal 2010 Performance Forecasts
Orders

FY10 1H (Forecast) FY10 2H (Forecast)
230.0
260.0

FY10 (Forecast)
490.0

FY09
403.4
516.2

Net sales

245.0

295.0

540.0

Operating income

11.0

25.0

36.0

28.3

Operating income margin

4.5%

8.5%

6.7%

5.5%

8.5

23.5

32.0

26.3

Ordinary income margin (%)

3.5%

8.0%

5.9%

5.1%

Extraordinary gains or losses

(1.5)

(1.0)

(2.5)

(0.3)

Net income

3.0

13.5

16.5

13.3

1.2%

4.6%

3.1%

2.6%

0

5

Ordinary income

Profit margin (%)
Dividends (¥)

5

4

Payout ratio (%)

18.3%

18.2%

ROIC (after tax) (%)

6.0%

4.8%

90

95

Exchange rate (¥ to US$1.00)

Sumitomo Heavy Industries, Ltd. | 15

business-restructuring initiatives. We know, however, that merefor growth, “globalization” and “innovation,” still stand.

survival in the face of adversity is not the same as success. Rather, it

Accordingly, we will target significant business opportunities inis the ability to identify and capitalize on the opportunities foroverseas markets and selectively penetrate these markets withgrowth that adversity puts in our way that will enable us to prevail.

superior products that are not only innovative but meticulouslySpecifically, the SHI Group must keep upgrading its products andcrafted. In this way, the SHI Group aims to resume and sustain its

services and working to expand markets through these improved

corporate growth.

products and services.
Therefore, the SHI Group has planned a program of aggressive
investment in emerging countries for fiscal 2010, concentrating
efforts where additional market growth is highly anticipated. For
example, the Group will construct a new hydraulic excavator plantin Indonesia in expectation of significant demand expansion in

Q
A

What is the SHI Group’s current globalization status?
The Group is promoting globalization as scheduled, especiallyin Asia.

Southeast Asia. This will further enhance the cost-competitivenessAs mentioned, the SHI Group’s new Tangshan plant in China beganof its hydraulic excavators and thereby help the Group to expand

the full-scale production of medium- and large-sized speed reducers

sales in the region. In addition, we will bolster our operations inand hydraulic excavators in June 2009. The production volume atBrazil, another promising market in South America.

this plant is steadily growing. In India, the Group has established aframework to promote sales of hydraulic excavators and injection“Global 21” Medium-Term Management Plan

Q
A

molding machines, in effect pioneering the Indian market for theseIn SHI’s Annual Report 2009, it was stated that “Achieving

products. These are only two examples of how we are advancing

the numerical targets for Global 21 will be extremely

the establishment of production and marketing frameworks in Asia,

difficult.” What is your view on the current situation?

in addition to those already established in Europe and North

Although conditions remain difficult, we will keep adhering toAmerica. These Asian frameworks will provide a foothold on a new

the concepts of “globalization” and “innovation,” our keywords

world economic map, one in which economies of emerging

for growth.

countries are the global economic growth drivers.

Under its “Global 21” medium-term management plan, which waslaunched in fiscal 2008, the SHI Group set its net sales andoperating income targets—¥850.0 billion and ¥100.0 billion,
respectively—for fiscal 2010, the plan’s final year. We know that
achieving these targets will be extremely difficult; however, we also
know that it is important for us to now switch over to a renewed
growth mode based on an accurate grasp of the opportunities thatarise when market conditions are in recovery. The Group’s keywords

Operating Income and ROIC
Operating Income (Left scale)

ROIC (Right scale)(¥ Billion)

(%)

80

16

60

12

40

8

20

4

0

(FY)

99

00

01

16 | Sumitomo Heavy Industries, Ltd.

02

03

04

05

06

07

08

09

10 Forecast

0

Q
A

Can you elaborate on the keyword “innovation”?

we are working to maintain sound financial standing by strategically coordinating debt financing and effectively managing
internal reserves.

We are stepping up the development of products for whichmarket demand is rising.

Q
A

Superior products underpin the SHI Group’s success. The Group hasin place the framework required to develop innovative newtechnologies and create outstanding products and is working tostrengthen its development, design, production and marketing

Finally, what is SHI’s policy on distributing profits toshareholders?
We constantly strive to achieve corporate growth and enhance
our corporate value. This allows us to consistently increase
dividends.

processes, the components that constitute this framework. Our

Our success in reducing costs resulted in better-than-expectedsuperior products include coating systems used in the manufacture

profitability in fiscal 2009. SHI’s initial cash dividend forecasts forof photovoltaic solar cells, hybrid hydraulic excavators and biomass

the period under review were announced as “undetermined.”

power generation facilities. Also, in the advanced medical

During the second quarter, however, the Company released aequipment field—one of the most innovation-driven sectors

statement that it planned to pay out an annual cash dividend of

today—the SHI Group handles proton therapy systems, cyclotrons¥3 per share. In the end, the Company actually declared an annualfor positron emission tomography (PET), an inspection method usedper-share cash dividend of ¥4. For fiscal 2010, the Company plansin cancer diagnosis and many other sophisticated products. We areto pay out an annual per-share cash dividend of ¥5. SHI is

promoting advanced medical equipment businesses not only inendeavoring to achieve business growth and enhance its corporate

Japan, but also in Asia and North America.

value and thereby ensure its continuing ability to increase dividends.
Our ultimate goal is to steadily enhance the common interests ofour shareholders.

Capital Policy and Returning Profits to Shareholders

QA

Can you tell readers about the Group’s financial status?

Dividends per Share and Payout Ratio
Dividends per Share (Left scale)We will continue to maintain sound financial standing.

As of March 31, 2010, the SHI Group’s interest-bearing debt totaled

Payout Ratio (Right scale)

(Yen)

(%)

12

30

8

20

4

10

¥87.7 billion, down ¥22.7 billion from March 31, 2009. Cash andtime deposits increased ¥17.8 billion year on year to ¥62.5 billion.
As a result, net interest-bearing debt amounted to ¥25.1 billion, a¥40.5 billion contraction compared with March 31, 2009.
To facilitate future corporate growth through judicious investment,

0(FY) 05

06

07

08

09

10 Forecast

0

Net Sales, Invested Capital and Interest-Bearing Debt
Net Sales

Invested CapitalInterest-Bearing Debt(¥ Billion)

700
600
500
400
300
200
100
0

(FY)

99

00

01

02

03

04

05

06

07

08

09

Sumitomo Heavy Industries, Ltd. | 17

Special Feature: SHI Group’s Strategies in China

Superior Products Create Opportunities in China
Despite widespread stagnation around the globe, emerging

Accelerating Environmental Businesses

markets are driving a recovery of the worldwide economy.

In line with the expansion of the Chinese economy, the consumption of

In particular, China is expanding its presence at an unprecedented

industrial-use electricity and demand for environment-friendly products

pace, leading the world’s economic growth. Success, or otherwise,

are rapidly rising in China. The SHI Group manufactures circulatingin capturing demand in China will be the factor determining

fluidized-bed (CFB) boilers for use in private power generation. Because

many companies’ ability to achieve future growth. This special

the Group’s CFB boilers are compatible with low-grade coal, waste

feature introduces the SHI Group’s strategies and activities

materials and biomass fuels, they help reduce fuel costs. Accordingly,

in China.

these environment-friendly CFB boilers have drawn significant attention
and won the Group steady orders.
In the meantime, calls are heightening for plants to appropriately

Full-Fledged Operations Start at New Tangshan Plant

treat the gasses they generate. Often such treatment requires a substan-

In June 2009, an opening ceremony for a new plant constructed inTangshan City, Hebei Province, was held, and the Tangshan plant commenced full-fledged production operations. At the plant, the SHI Groupis manufacturing medium- and large-sized speed reducers and hydraulicexcavators. In China, demand for industrial and construction machineryis expanding on the back of accelerating mining and other development
projects and the SHI Group aims to capture some of this demand withtial amount of water; however, the SHI Group has established a technology that enables the water-free treatment of plants’ gaseous
byproducts. This technology provides the Group with an advantage,
particularly in those Chinese regions where access to water is limited,and has won it a number of orders for its gas treatment plants. The SHIGroup will continue to expand the presence of its environmental businesses in China, thereby securing new orders for its products andthis new plant as its core business driver.
The Group has locally produced medium- and small-sized speed

broadening its customer base.

reducers in Tianjin City for more than 10 years while gradually bolster-

Capitalizing on the Rapid Growth of the Injection Molding

ing the scale of its Chinese operations. SHI’s speed reducers have a long

Machine Market

service life, are compact and operate relatively quietly. These and otherIn step with improvements in living standards throughout China, the use

advantageous features have been highly evaluated by customers world-of cell phones and personal computers is spreading. Boasting exception-wide, enabling SHI to command the world’s second largest market share

al high-precision, high-speed capabilities, SHI’s injection molding

and the top domestic market share in this product category.

machines are highly competitive with regard to manufacturing applica-

Meanwhile, the SHI Group’s hydraulic excavators include a modeltions related to these and other IT products. The once slumping Chinesethat became the first construction machines to win the Energy

market for injection molding machines started to pick up and today

Conservation Grand Prize of the Energy Conservation Center, Japandemand outstrips supply. By quickly establishing an efficient and effec-(ECCJ). These and other models demonstrate superior fuel efficiency.

tive production structure, SHI will respond to and capitalize on thisDue to such environment-friendly performance, repeat orders for thefavorable situation.

Group’s hydraulic excavators are increasing in China. By reducing costs
through local production and shortening the time required for supplying
hydraulic excavators, the SHI Group is aggressively penetrating the

The SHI Group is working to develop many other businesses in East
Asia, including in China. In the medical equipment field, SHI is seeing a

Chinese market.

gradual increase in orders received for cyclotrons for positron emission

Growing China: Nominal GDP and Nominal Per-Capita GDP
Nominal GDP (Left scale)

Promoting Other Businesses

tomography (PET), an inspection method used in cancer diagnosis. Also,

Nominal Per-Capita GDP (Right scale)(Billions of U.S. dollars)
6,000(U.S. dollars)
4,200

5,000

3,500

4,000

2,800

3,000

2,100

2,000

1,400

1,000

700

0

00
01
02
03
04
05
06
07
08
(CY)
Source:Nominal GDP: China Statistical Abstract 2010, National Bureau of Statistics of China
Nominal per-capita GDP: World Economic Outlook Database, IMF

18 | Sumitomo Heavy Industries, Ltd.

09

0

CFB boiler

Proton therapy system

ChinaTangshan Plant

Sumitomo Heavy Industries (Tangshan), Ltd.
Sumitomo (S.H.I.) Construction Machinery (Tangshan) Co., Ltd.
Sumitomo (SHI) Cyclo Drive China, Ltd.

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.
SHI Plastics Machinery (Shanghai) Co., Ltd.
Sumitomo Heavy Industries (Shanghai), Ltd.
Ningbo Sumiju Machinery, Ltd.

Sumiju SCE (Xiamen) Construction Machinery Co., Ltd.

Above: Opening ceremony
Below: External viewGearbox for conveyors

in fiscal 2008, the Company received an order from Taiwan for a proton
therapy system for cancer treatment. East Asia is expected to step up
the practical use of advanced medical treatment using these and othermedical systems, which, in turn, will provide the SHI Group with ample
business opportunities.
In the area of material handling systems, the SHI Group secured
an order from Hong Kong for 15 hybrid power supply units for transfer
cranes in fiscal 2008. The SHI Group will keep launching products thatare similarly differentiated from those manufactured by local companies,

Hydraulic excavator “SH210”

thereby accurately grasping new business opportunities in East Asia.

Targeting High-Growth Emerging Markets
Following in China’s footsteps, emerging markets in India, Southeast Asia,
Brazil and other countries and regions are expected to achieve further
growth. SHI has decided to build a new construction machinery plant inIndonesia and a new speed reducer plant in Brazil. In India, the SHI Grouphas promoted sales activities for its steam turbines for private power generation from the dawn of the country’s economic boom and has steadily
advanced the establishment of the SHI brand. By gaining footholds inneighboring and other regions with its powerful product portfolio, the
SHI Group will strive to expand strongly in the global market.
Sumitomo Heavy Industries, Ltd. | 19

Review of Operations

Mass-Produced Machinery
Main Products

Major Units

Power Transmission Equipment

Sumitomo Heavy Industries Mechatronics, Ltd.

Plastic Injection Molding Machines

SEN Corporation

Cyclotrons for Medical Use

Seisa Gear, Ltd.

Ion Accelerators

SHI Examination & Inspection, Ltd.

Plasma Coating System for FPDs
(Flat Panel Displays)

Sumitomo Machinery Corporation of America

Laser Processing Systems

Sumitomo Heavy Industries (Tangshan), Ltd.

Cryogenic Equipment

SHI Plastics Machinery, Inc. of America

XY Stages

Sumitomo (SHI) Demag Plastics Machinery GmbH

Transfer Molding Press Machines

Sumitomo (SHI) Cryogenics of America, Inc.

Sumitomo (SHI) Cyclo Drive Germany GmbH

Precision Forgings
Defense Equipment

Business Environment
In this segment, the SHI Group provides a number of key components
used in a wide-range of industries as well as advanced equipment usedin frontier industries. The segment is characterized by its flexibility andagility in responding to changes in market conditions. Because thepower transmission and control equipment business has served a broad
range of customers in many industries, it has traditionally been considered to be unsusceptible to abrupt market changes. However, the across-Medium-sized, right-angle-shaft gear motor

the-board deterioration in market conditions for almost all industries“Bevel Buddybox®”

during fiscal 2009 has placed negative impact on the performance of thisPower Transmission and Controls

business. From the second half, most markets seemed to have exited theBusiness Environment and Topics in Fiscal 2009

worst period, and the markets for semiconductors and other electronics-

Conditions in the power transmission and control equipment mar-related products also started to show some signs of recovery. Meanwhile,

ket began to rapidly recover in the fourth quarter. In such an envi-

the markets for food-related equipment as well as medical equipment

ronment, the SHI Group released a number of new products in July

showed stable trends without being affected by external conditions.

2009, including fully remodeled Bevel Buddybox® medium-sized,right-angle-shaft gear motors with a built-in CYCLO® speed reducer

Outlook for Fiscal 2010

as well as the single-phase series of PREST® NEO small-sized,

Domestic demand is expected to remain weak; however, overseas

parallel-shaft gear motors.

demand, particularly in China and other Asian nations, is anticipated torecover. In addition to the environment and infrastructure sectors, theresources and energy sectors have begun showing an increased drive
toward investment in power transmission and control equipment. The
number of inquiries is expanding for plastic injection molding machines
for use in the manufacture of cell phones, personal computers, homeelectronics and other finished products. In addition, demand for semi-

Strategies and Initiatives for Fiscal 2010
SHI will enhance the production capacity of a new plant located inTangshan City, China, at which Sumitomo Heavy Industries(Tangshan), Ltd. started operating in February 2009. Based on thestrengthened capacity, we will work to expand sales of speed
reducers in the Chinese market. Also, with an eye on the rapidly
recovering global market, SHI will further bolster the capacity of its

conductor-related equipment is recovering, while that for medical andmanufacturing bases in Vietnam and Japan, thereby supporting

LCD-related equipment is showing a steady upward trend, particularly

domestic and overseas sales activities and accommodating wide-in Asia.

ranging customer needs.

20 | Sumitomo Heavy Industries, Ltd.

Review and Analysis of Results for Fiscal 2009
Both orders for and sales of nearly all machines in power transmission

in this segment, overall orders and sales fell year on year, mainly due toand controls declined year on year due to the stagnation of the entire

the deteriorated performance of the semiconductor-related business.

industrial machinery market. Also, both orders for and sales of plastic

As a result, total segment orders decreased 17% year on year to ¥167.5

injection molding machines dropped year on year despite some recovery

billion, and total segment sales plunged 23% to ¥174.2 billion.

in shipments particularly to emerging markets during the second half,

The segment posted an operating loss totaling ¥1.7 billion, comparedreflecting slower recovery in the European market. In other businesses

with operating income totaling ¥12.3 billion recorded in fiscal 2008.

OrdersSales

Power Transmission and Controls

Plastics MachineryOperating Income

Power Transmission and Controls

Plastics MachineryOperating Income (Left scale)

OthersOthers(¥ Billion)(¥ Billion)(¥ Billion)

(%)

300

250

30

15.0

250

200

200

Operating Income Margin (Right scale)

25

12.5

20

10.0

150

15

7.5

100

10

5.0

5

2.5

150
100

50

50
0

(FY) 07

08

09

0

10 Forecast

0.00(FY) 07

08

09

10 Forecast

Full-electric injection molding machine “SE75DUZ”

-5

(FY)

07

08

09

10 Forecast-2.5

Compact cyclotron for PET “HM-12S”

Plastic Injection Molding Machines

Precision Positioning Equipment and Others

Business Environment and Topics in Fiscal 2009

Business Environment and Topics in Fiscal 2009

The volume of orders received has gradually recovered in the mar-

The SHI Group continued to suffer the effects of a severe operatingkets of China and other Asian nations. Most of these orders cameenvironment due to deteriorated conditions in the semiconductor mar-from customers in the personal computer and other IT-related fields.

ket. However, through the launch of new models of ion-implantation

With the aim of creating added value for a broader customer basedevices and precision positioning stages, SHI laid the groundwork

through wider market coverage, the SHI Group has enhanced thefor capturing opportunities expected to arise in line with slowly

functionality of the new-concept “Zero Molding ” systems,* which

recovering market conditions. In medical equipment, we aggressively

it released in 2007.

promoted overseas sales expansion, particularly in Asia and®

North America.
Strategies and Initiatives for Fiscal 2010
Underpinned by demand for its full-electric injection molding

Strategies and Initiatives for Fiscal 2010

machines, SHI will work to enhance its lineup of products optimally

The SHI Group will focus on the medical equipment and othertailored to customer needs in specific product sectors. At the samerobust fields while striving to increase the volume of orders received

time, we will accelerate the promotion of a global market strategy

for products in these fields, particularly in overseas markets. Also, in

through the strengthening of both product competitiveness andlight of the gradual recovery in the semiconductor market, themarketing capabilities. Through these initiatives, we aim to becomeGroup will accelerate the overseas expansion of semiconductor

the world’s top manufacturer of plastic injection molding machines.

production equipment and other related products. Furthermore, by* Zero Molding® systems realize innovative molding processes using less clamp force

reinforcing our product advantages in terms of quality and costs,

than conventional injection molding systems thanks to their optimized filling andwe aim to bolster our business competitiveness in growth markets.

mold-clamping functions. These systems also contribute to the reduction of defects,
losses and faults in molded products.

Note: Buddybox, CYCLO, PREST and Zero Molding are registered trademarks of SHI.

Sumitomo Heavy Industries, Ltd. | 21

Environmental Protection Facilities,
Plants & Others
Main Products

Major Units

Power Generation Systems

Sumitomo Heavy Industries Environment Co., Ltd.

Industrial Wastewater
Treatment Systems

Sumiju Environmental Engineering, Inc.

Water and Sewage
Treatment Systems

Nihon Spindle Mfg. Co., Ltd.

Sumiju Plant Engineering Co., Ltd.

Landfill Leachate Treatment System
Air Pollution Control Plants

Lightwell Co., Ltd.
Izumi Food Machinery Co., Ltd.

Chemical Process Equipment & Plants
Food Machinery
SoftwareBusiness Environment
This segment serves customers in both the public and private sectors.
As public-sector demand continues to contract, we are transforming thestructure of this segment to focus on the private sector. As environmental conservation activities gain momentum throughout the world, suchenvironmental products as biomass boilers are sparking keen interest inJapan and overseas. Overall market conditions have yet to experience
full-fledged recovery as cutbacks in investment in large-scale projects
persist. In the water treatment business, while the private-sector market
has stagnated, we are working to secure orders from the food processing and other markets that are showing relatively robust performances.
Demand in the public sector, specifically for water and sewage treat-

CFB boiler

ment systems, remains stable.

Energy-Related Plants
Business Environment and Topics in Fiscal 2009

Outlook for Fiscal 2010

Despite severe market conditions in fiscal 2009, the SHI Group

Rising concern over the need to protect the global environment isreceived an order from a chemicals company in Japan for a com-

expected to drive constant growth in the market for biomass-related

bined heat and power plant using circulating fluidized-bed (CFB)

products. With interest in biomass boilers surging most notably inSoutheast Asia, the SHI Group expects that capital investment in related
fields will accelerate. Market conditions are anticipated to remain severein the water treatment plant business. However, we are steadily advancing business restructuring to enhance our focus on the private sector,
with the aim of stabilizing business performance and reinforcing
earnings power.

boilers.* Overseas, SHI secured an order from a major power
producer in Singapore for the largest scale CFB boiler ever made.
This boiler is designed to burn fuels that combine tropicalbiomass** with coal.
Also, because this CFB boiler is compatible with a variety ofbiomass fuels, it helps to reduce the CO2 emission volume and,
therefore, to prevent the further advance of global warming.
In Southeast Asia, where economies are steadily recovering, theneed to investigate the viability of installing power generation
facilities that use biomass-based fuels and/or lower-grade coal hasheightened. We anticipate that the inflow of inquiries about CFB
boilers will increase to reflecting this need.

22 | Sumitomo Heavy Industries, Ltd.

Review and Analysis of Results for Fiscal 2009
Both orders and sales in the energy-related plant business declined year

Sales increased year on year in this business, however, due to the execu-

on year, reflecting weak conditions in the industrial power-generation

tion of the extensive backlog of orders. As a result, total segment orders

boiler markets both in Japan and overseas. In the water treatment plantdecreased 24% year on year to ¥64.0 billion, and total segment sales

business, strong performance in the public sector was offset by weak

deteriorated 17% to ¥77.2 billion. Segment operating income slid 26%

performance in the private sector, resulting in a drop in orders received.

to ¥7.9 billion.

OrdersSales

Environmental Protection Facilities, Plants

OthersOperating Income

Environmental Protection Facilities, Plants

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

(%)

100

100

12

12.0

80

80

10

10.0

8

8.0

6

6.0

4

4.0

60

60

40

40

20

20

0

(FY) 07

08

09

10 Forecast

0

2.0

2

(FY) 07

08

09

10 Forecast

0

(FY)

07

08

09

10 Forecast

0.0Strategies and Initiatives for Fiscal 2010

Water and Wastewater Treatment Plants

In Japan, the business environment is expected to remain harsh.

Sumitomo Heavy Industries Environment Co., Ltd.

Accepting the strong possibility that no new capital investments will

Business Environment and Topics in Fiscal 2009

be undertaken across industries, SHI will bolster its service andDespite an adverse market climate, orders from new customers inmaintenance business. Specifically, we will work to identify poten-

the private sector increased steadily. Also, public sector demand fortial projects, such as repairs and modifications aimed at guarding

remodeling and renovation has been expanding in recent years.

customers’ existing facilities against age-related deterioration andStrategically accommodating such needs through sales activities

extending the useful lives of facilities. Overseas, we will take anthat concentrate on its unique, competitive component products,

aggressive stance in expanding sales of CFB boilers, with particular

the SHI Group has recorded a steady increase in orders received.

emphasis placed on the Southeast Asian market.
*A type of plant that supplies both electricity and steam for on-site use

Strategies and Initiatives for Fiscal 2010**A collective term referring to a variety of plant waste, such as palm shells

The SHI Group will continue to aggressively implement initiatives
aimed at achieving business stability supported by a highly profitable earnings structure. Specifically, for the private sector, we will
accelerate sales activities—particularly in the food, beverage andsteel industries, sectors where we now boast advantages—while
continuing to provide high-value-added products. In addition, the
SHI Group will reinforce its services business to more effectively capture opportunities arising in line with increased capital investments
related to aging facility remodeling and renovation as well as toenergy saving. Through such services business, we aim to contribute to the improved functionality of customers’ existing facilities.
In the public sector, as the adoption of energy-saving equipment
gains momentum, the SHI Group will strengthen sales activities for
the SUMIRATOR vertical aerator, MICRAS® superfine-bubble membrane tube diffuser and other products developed with market
differentiation in mind.

Coagulation sedimentation system “SUMI-THICKNER”

Sumitomo Heavy Industries, Ltd. | 23

Ship, Steel Structure &Other Specialized Equipment
Main Products

Major Units

Pressure Vessels

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

Mixing Vessels

Sumitomo Heavy Industries Process Equipment Co., Ltd.

Mixing Reactors
Coke Oven Machines
Steel Structures
Ships
Marine Structures
Marine Equipment

Business Environment
The market for new shipbuilding has remained sluggish since the second
half of fiscal 2008. However, tangible signs of market recovery havestarted to emerge, including a South Korean shipbuilder winning anorder for a large-scale tanker at the end of fiscal 2009. The steel structure and other specialized equipment business—which targets the
petrochemical plant market—is witnessing a decrease in plans for new
oil refinery construction. This unfavorable trend is mainly attributable toincreasing difficulty in fund procurement. On the other hand, petrochemical plant operators are accelerating initiatives aimed at improving
profitability by enhancing the efficiency of their existing facilities
and equipment.
Coke drums

Outlook for Fiscal 2010

Reactor Vessels

Despite the challenging conditions in the shipbuilding market, the SHIBusiness Environment and Topics in Fiscal 2009

Group retains a healthy order backlog and will most likely be able toOrders were stagnant in the petroleum coke drum market. The

minimize the impact of these conditions on its sales performance. In

unfavorable situation was attributable to a series of cancellations

addition, as the market for new shipbuilding has begun showing someand postponements with regard to planned capital investment due

favorable trends, it is expected that the second half of fiscal 2010 will

to problems related to profitability and financing—conditions

see steadier trends toward full-scale market recovery. In steel structure

similar to those witnessed in the second half of fiscal 2008. Even so,

and other specialized equipment, market conditions for our flagshipthe SHI Group won an order from an oil refinery in Yanbu, Saudi

coke drums* are expected to remain severe.
*Equipment for extracting high-value-added light oil from heavy oil

Arabia, for six large-scale coke drums. During the fiscal year underreview, the Group focused on the development of high-durability
coke drum architecture that accurately meets customer requirements and on the reestablishment of the repair and services business model. Through these activities, we are now better positioned
to target and capture future replacement demand from customers
who are currently using aging coke drums.

24 | Sumitomo Heavy Industries, Ltd.

Review and Analysis of Results for Fiscal 2009
The shipbuilding market has not shown any sign of recovery. Unlike

equipment, both orders for and sales of reactor vessels for use in petro-

fiscal 2008, when the SHI Group received orders for seven medium-sizedchemical plants declined year on year. As a result, total segment orders

tankers, in fiscal 2009 no orders for new ships came in. Nevertheless, wetook an 85% year-on-year plunge to ¥11.5 billion, and total segment

delivered a total of nine ships during the reporting term, compared withsales edged down 4% to ¥76.5 billion. Segment operating income

the eight ships in fiscal 2008. Our improved productivity contributed tototaled ¥7.2 billion, a decrease of 43% year on year.

this positive delivery record. In steel structure and other specialized
Orders
Ship & Marine

Sales
Steel Structure & Specialized Equipment

Operating Income

Ship & Marine

Steel Structure & Specialized Equipment

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

(%)

100

100

20

20.0

80

80

15

15.0

60

60
10

10.0

40

40

20

20

5

5.0

0

(FY) 07

08

09

10 Forecast

0(FY) 07

08

09

10 Forecast

0

(FY)

07

08

09

10 Forecast

0.0Strategies and Initiatives for Fiscal 2010
Fiscal 2010 is expected to witness general economic recovery, especially in emerging economies. Previously, the construction of plantsthat use coke drums or for additional coke drum installation has
been heavily concentrated in North America. However, it is anticipated that this long-standing industry practice will change; plansfor new plants will appear in many countries and regions, including
those acknowledged as emerging markets. Acting on this expectation, SHI will work to penetrate emerging markets, which are showing significant potential for future growth, by accurately grasping

105,000MTDW oil tanker

customer needs in these new markets. To this end, we will promote

Ships

innovative changes in sales and manufacturing processes. ThroughSumitomo Heavy Industries Marine & Engineering Co., Ltd.

these changes, we aim to establish an overwhelming, competitive

Business Environment and Topics in Fiscal 2009

position in emerging markets.

The SHI Group continued to promote a ship strategy focused on
greater differentiation while stepping up efforts to win orders for
Aframax and Suezmax tankers. New orders did not come in, however, due to customers’ extremely weak purchasing drive.
Nevertheless, we delivered a total of nine Aframax tankers to customers, accomplishing our original plan for fiscal 2009.
Strategies and Initiatives for Fiscal 2010
Some believe that the shipbuilding market has bottomed out;
however, market conditions are expected to remain severe for thetime being. The SHI Group currently has adequate shipbuilding
volume on hand and, therefore, has been able to secure sales overthe short term. Looking ahead, we will strive to develop differentiated products, improve product quality and realize production
process reforms. Through these initiatives, we will promote strategic
activities aimed at gaining shipbuilding orders, thereby continuing
to improve our business performance.

Shipyard

Sumitomo Heavy Industries, Ltd. | 25

Industrial Machinery

Main Products

Major Units

Logistics & Handling Systems

Sumitomo Heavy Industries Engineering & Services Co., Ltd.

Automated Parking Systems

Sumitomo Heavy Industries Techno-Fort Co., Ltd.

Forging Machines

Shin Nippon Machinery Co., Ltd.

Material Handling Systems

SHI Machinery Service Hong Kong Ltd.

Turbines
Pumps

Business Environment
In this segment, the SHI Group primarily provides large cranes and otherheavy machinery products. On the domestic front, although new largescale capital investment has been somewhat curtailed, investments
aimed at improving productivity have remained robust. At the sametime, in line with the increased attention being given to energyefficiency in facilities and equipment, market expectations are rising forthe provision of products with lower running costs. Infrastructure-related
investment overseas remains firm, especially in emerging economies.

Outlook for Fiscal 2010

Continuous ship unloader

Material Handling Systems
Sumitomo Heavy Industries Engineering & Services Co., Ltd.
Business Environment and Topics in Fiscal 2009
Many principal customers continued to postpone or cancel their

The overall order environment is expected to remain severe; however,capital investments in fiscal 2009, reducing orders received by thedespite the harsh conditions, the volume of inquiries for our material

SHI Group on a year on year basis. However, despite these difficult

handling systems is increasing, particularly from overseas steel compa-

conditions, we have worked to cultivate new markets throughnies. In turbines, we aim to secure orders by focusing on the biomass

forward-looking activities, such as securing an order in Shandong

power-generation market, which has begun showing inner stirrings

Province, China, for two electrolysis cranes for use in the nonferrous

toward demand growth. Amid accelerated cutbacks in new capital

metal industry.

investment across industries, the SHI Group is also focusing on cultivat-

Strategies and Initiatives for Fiscal 2010

ing aftermarket demand associated with the remodeling and renovation

Capital investment in the material handling sector is expected toof existing facilities and equipment.

increase year on year in fiscal 2010. In this favorable environment,
the SHI Group will actively promote continuous ship unloaders andother products as well as models that make significant contributions to environmental protection. In addition, through these products and models, the Group will accommodate customer needs for
new installations and the renewal and renovation of aging facilities
and equipment. At the same time, we will accelerate our services
business in such areas as preventive maintenance. Based on these
initiatives, we will advance sales activities that create added value
for customers throughout East Asia and Japan.

26 | Sumitomo Heavy Industries, Ltd.

Review and Analysis of Results for Fiscal 2009
In material handling systems, orders declined, particularly those fromand energy fields have remained hesitant to invest capital. Accordingly,

shipbuilders and steel companies. In contrast, sales increased year on

both orders and sales decreased year on year. As a result, total segment

year thanks to our healthy order backlog. In turbines and pumps,

orders dropped 39% year on year to ¥59.8 billion, but total segment

although demand has recovered for turbines for use in power-generation

sales edged up 2% to ¥85.6 billion. Segment operating income also

facilities, particularly in emerging markets, customers in the resources

edged up 4% to ¥14.2 billion.

OrdersOperating Income

Sales

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

(%)

120

100

20

20.0

100

80

15

15.0

10

10.0

5

5.0

80

60

60
40

40

20

20
0

(FY) 07

08

09

0

10 Forecast(FY) 07

08

09

10 Forecast

0

(FY)

07

08

09

10 Forecast

0.0

Hot forging press
Steam turbine forpower generation

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

Turbines and Pumps

Business Environment and Topics in Fiscal 2009

Shin Nippon Machinery Co., Ltd.

The automobile industry—the SHI Group’s main customer base in thisBusiness Environment and Topics in Fiscal 2009sector—is suffering from excessive production capacity. Accordingly,

Orders for both turbines and pumps, which had been stagnant

orders for new forging presses were weak during fiscal 2009. Despite

since fiscal 2008, showed a mild recovery from the second quarterthe unfavorable environment, we were able to secure orders for aof fiscal 2009. Reflecting a recovery in market conditions in India

large-scale hydraulic press, a newly launched forging press and otherand Southeast Asia, orders for turbines were received from sugar

products. Overall, the total amount of orders received by the SHI

factory and other projects. Meanwhile, demand for pumps isincreasing in emerging markets. By accurately capturing business
opportunities, the SHI Group won an order for pumps to be used ina large-scale petrochemical plant project in India.
Strategies and Initiatives for Fiscal 2010
The SHI Group will strive to further enhance its cost-competitivenessGroup in this sector did not reach our original target for fiscal 2009,
although we worked to cover our weak performance in the forging
press business with relatively strong performances in other industries,
including the winning of an order for a continuous caster.
Strategies and Initiatives for Fiscal 2010
In both the forging press and industrial machinery businesses, the
SHI Group will continue to value the principle of “Quality First.”

through the promotion of overseas procurement. For turbines, theBased on this principle, we will aggressively accelerate the provision

Group will focus on such fields as biomass power generation andof services aimed at upgrading the performance of existing prod-gas turbine combined cycle (GTCC) power generation* in the mar-ucts and proposing new products, thereby maximizing customer

kets of Southeast Asia and renewable energy power generation insatisfaction in terms of safety and reliability. In addition, in forging

North America. As for pumps, we will endeavor to secure orders

presses, our product lineup—now complemented by the new forg-

from a South Korean engineering company that is performing

ing press launched during fiscal 2009—is expected to contribute torobustly due to its winning of an order for a large-scale plant in thetechnological innovation in the automobile industry. Furthermore,

Middle East.

we will closely monitor trends in capital investment overseas, and*GTCC power generation uses the combination of gas and steam turbines to improvegeneration efficiency.

when improvement begins to take hold, we will work strategicallyto accurately capture the opportunities that emerge.
Sumitomo Heavy Industries, Ltd. | 27

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
LBX Company, LLC

Business Environment
Markets in Japan and Western nations continue to face harsh conditions, mainly attributable to persistent cutbacks in infrastructure-related
investment. On the other hand, the emerging markets of China,
Southeast Asia, India and other countries and regions are experiencing a
rapid recovery. These countries and regions are driving a recovery inworldwide market conditions.
Asphalt paver “HA60W”

Outlook for Fiscal 2010
The domestic hydraulic excavator market is expected to continue facing
severe conditions. In contrast, China and other emerging markets are

Hydraulic Excavators and Road Machineryshowing robust demand for hydraulic excavators. Rising demand also

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

seen in Southeast Asia and other regions is boosting a recovery in over-Business Environment and Topics in Fiscal 2009

all market conditions. Although the SHI Group anticipates a mild recov-

The points of demand for hydraulic excavators have largely moved

ery of the North American mobile crane market in the second half, theto emerging markets, and the export of hydraulic excavators now

market is slated to remain weak.

accounts for approximately 80% of the Chiba Works’ output. In
June 2009, the second production plant newly constructed inTangshan City, China, began operations, supplying two flagshipmodels exclusively developed for the Chinese market. In the roadmachinery business, the SHI Group has completed the developmentof a European-model asphalt paver and presented it at an international exhibition held in Paris in April 2009. Through these andother activities, we worked strategically to penetrate new roadmachinery markets overseas, using our success in the Chinese
market as a model.
Strategies and Initiatives for Fiscal 2010
The Chinese market continues to grow. To take full advantage ofthe opportunities presented by this promising market, the SHIGroup will speed up the boosting of production capacity at the

28 | Sumitomo Heavy Industries, Ltd.

Review and Analysis of Results for Fiscal 2009
In hydraulic excavators, the Chinese market showed some recovery infiscal 2008. Accordingly, both orders and sales decreased year on year.

the second half. However, demand remained stagnant in other countries

As a result, total segment orders dropped 28% year on year to ¥100.5

and regions. Due to these conditions, both orders and sales deteriorated

billion, and total segment sales fell 36% to ¥102.7 billion. Segment

year on year. In mobile cranes for construction, overall market condi-

operating income took a 92% year-on-year nosedive to ¥0.6 billion.

tions remained weak, negatively affected by a lagging recovery in the
North American market, which experienced a sudden slowdown during
OrdersSales

Excavator, Road Construction Machinery

Mobile Crane

Operating Income

Excavator, Road Construction Machinery

Mobile Crane

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

(%)

200

200

20

10.0

150

150

15

7.5

100

100

10

5.0

50

50

5

2.5

0

(FY)

07

08

09

10 Forecast

0(FY) 07

08

09

10 Forecast

0

(FY)

07

08

09

10 Forecast

0.0

Tangshan plant and diversification of the lineup of products manu-

Crane Businessfactured there. These initiatives will enable the Group to improve

Link-Belt Construction Equipment Company

the timeliness of its product supply. Also, in view of further market

Business Environment and Topics in Fiscal 2009

growth in Southeast Asia, we plan to construct our third hydraulicLink-Belt Construction Equipment Company (“Link-Belt”) recorded

excavator production plant in Indonesia, which will start supplying

a 46% decrease in sales in 2009 as a result of the global economic

products from the second half of 2011.

downturn and credit crisis. The North American mobile telescopic

In Japan, the SHI Group aims to expand the sale of hydraulicand crawler crane markets declined approximately 70% from 2008

excavators to the equipment leasing industry and to the forestry

levels, with certain segments hitting their lowest levels in twenty

industry, which is currently promoting the use of machinery. In its

years. Link-Belt implemented strategic initiatives to align production

efforts toward achieving this goal, the Group will strive to secure a

volume with demand and reduce inventory, while focusing on cost

sufficient level of orders.

reduction activities to maximize profitability. Link-Belt continued the

In road machinery, we will accelerate the establishment ofoverseas sales channels for our asphalt pavers.

Lean Sigma® initiatives and the development of new products to
support future sales.
Strategies and Initiatives for Fiscal 2010
The North American mobile telescopic and crawler crane markets
continue to decline in certain segments. The economic recovery inNorth America appears to be occurring at a very slow and measured pace. Link-Belt is being proactive in its plans and actions tominimize the impact of volatile market conditions during these difficult economic times. The strategic objectives will focus on continued cost reduction activities, flexible production schedules to meetmarket demand, maintaining new product development timelines
and further expanding in international markets. These strategic
initiatives and Lean Sigma® activities will position Link-Belt to takeadvantage of future market recovery.

Mobile telescopic crane “TCC-750”

Sumitomo Heavy Industries, Ltd. | 29

Research and Development

R&D Strategy

Major R&D Results by Business Segment

Under its “Global 21” medium-term management plan covering

Mass-Produced Machinery

the three-year period ending March 31, 2011, the SHI Group is con-

In power transmission equipment, the SHI Group released a new

tinuing to pursue efforts in line with its keywords for growth,series of right-angle-shaft gear motors with built-in CYCLO® speed

namely, “globalization” and “innovation.” As it does so, the Group

reducers for application in such industrial machinery as conveyors

is placing priority on reinforcing its global competitiveness andand cranes. For application in food processing and agriculturaldeveloping innovative products. To this end, we are aggressively

machinery, we launched a new single-phase series of parallel-shaft

promoting R&D based on a vertically integrated synergistic value

gear motors. This new series realizes quiet operations and a highchain model. Specifically, we are strengthening our fundamental

starting torque.
In plastics machinery, we reinforced our proprietary Zerotechnologies and developing groundbreaking components, thereby
strategically enhancing the value of the equipment and systems

Molding® systems, which are based on the concept of minimizing

we create.

defects, losses and faults in molded products and feature a filling
control function. Also, with the addition of an energy-saving mode,

R&D Expenses
R&D Expenses (Left scale)

we have further reduced the power consumption of Zero

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

(%)

12

1.6

9

1.2

6

0.8

3

0.4

Molding® systems.

Parallel-shaft gear motors“PREST® NEO”

0

(FY)

05

06

07

08

0.0

09

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

Transport &Material Handling

Environment & Energy

Material Processing

Automotive

Liquid Crystal &Semiconductor

Total Systems

Water treatment facilities

Ships
Ships

Medical, Bioscience,
Physics & Chemistry

IT & Digital Appliances

Wafer modification
Precision Equipment
Business Group

Heavy Machinery
Business GroupCFB Boilers for IPP

Material handling systems

Proton therapy systems
PET systems

Logistics & handling systems
Plastics machinery, laser processing system & laser annealing system

Forklifts
Equipment

Value Chain of SHI Group

Lifestyle and Consumer

Value Chain of Markets

Pressure vessels
Hydraulic excavator
Construction
machinery

Coating system

Forging presses

Transfer molding machines

Surface grinding machines

Ion implantation system

Turbines & pumps

Superconducting magnets
XY stages
Steel rolls

Key Components &Basic Technologies

Lifting magnets

Cryopumps
Blades
Cryocoolers
Gear Reducer & Component Business Group

Gear motors

30 | Sumitomo Heavy Industries, Ltd.

Actuators

Control modules

In quantum equipment, the Group developed a small-sizedcompliant with anticipated environmental regulations and help

gantry for use with proton therapy systems, contributing to sub-realize outstanding customer value. Also, in the area of production

stantial space savings. In addition, we are continuing to perform

technology development, the Group is promoting the introduction

verification tests on an advanced three-dimensional irradiationof automated facilities and equipment and the establishment of asystem.

training support system. Through these activities, we are working

In precision positioning equipment, we modified a small-sized
precision positioning stage. Also, we released a new large-sized

vigorously to achieve continuous improvements in the quality of
our ships.

positioning stage for which an air-floating glass substrate transport
Industrial Machinery

system has been adopted.
In semiconductor production equipment, we developed a new
product based on our ion-implantation devices, which boast highion-beam quality and precision. Integrating a built-in wafertransport system featuring high-speed wafer control and enhanced
ion-beam current density, this new product was released during

In logistics and automated parking systems, the SHI Group developed and released a clean roll stocker for use in the secondary cellindustry. This new roll stocker is characterized by its high-precisionroll handling capability. For application in the same industry, theGroup developed and released a compact automated guided vehicle (AGV) compatible with narrow rolls.

fiscal 2009.

In turbines, the Group pursued further R&D aimed at optimizing
Environmental Protection Facilities, Plants & Others

medium- and high-pressure blade configurations, with the aim of

In its water treatment business targeting private-sector customers,

improving power generation efficiency. The results of this R&D have

the SHI Group promoted the development of new facilities and sys-

been applied to our turbine products.

tems that take into account increasingly stringent environmental
regulations. In the water and sewage business, the Group launchedenergy-saving unit-type equipment that helps reduce facility lifecycle costs and prevent the further advance of global warming.
In energy and environmental plants, while we are strengthening sales activities for circulating fluidized-bed (CFB) boilers inSoutheast Asia, we conducted verification tests on the combustibility of biomass resources and low-grade coal and accelerated thedevelopment of constituent technologies regarding various fuels.

Construction Machinery

In hydraulic excavators, the Group focused on the development ofa next-generation flagship model that will comply with interim Tier
4 emissions requirements. At the same time, we worked to expand
the application of our existing hydraulic excavators—particularly
those compliant with Tier 3 emissions requirements—to cover suchspecialized fields as advanced forestry machinery. Furthermore, weare bolstering research on hybrid technologies, building on our
success in the development of LEGEST® HIBRID in fiscal 2008.

Ship, Steel Structure & Other Specialized Equipment

Note: CYCLO and Zero Molding are registered trademarks of SHI. LEGEST is a registered

In ships, the SHI Group undertook R&D into advanced energy-

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

saving technologies to be applied in hull forms and propulsion
systems, thereby continuing to develop and build ships that are

Ion-implantation device “SHX-III”

Automated guided vehicle (AGV) for films

XY stage for inspection and repair system “TL Series”

Sumitomo Heavy Industries, Ltd. | 31Intellectual Property

The SHI Group is oriented towards growth driven by distinc-intended for commercialization. Furthermore, by incorporatingtive technologies. As such, intellectual property is an issue ofintellectual property evaluation in the design review (DR) process,the utmost importance and the wellspring of the Group’s

we are striving to make our product capabilities more robust.

competitive advantage. The principal focus of our efforts isIntellectual 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
secured, utilizing exclusive rights and respecting other companies’ rights. In this way, we devote our Groupwide energies tothe active creation, management and protection of SHI

the Group and strategically manages the processes for improving
this strength. In addition to enhancing the quality of the Group’s
intellectual property portfolio, such evaluation and management
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 withAccelerating Overseas Patent Applications

intellectual property activities, the Group has appointed chief intel-

In tandem with the globalization of the business activities of the SHI

lectual property officers (CIPOs) to the same rank as the general

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

relevant divisions to take active steps to file patent applications

immediately below and reporting directly to officers in charge ofoverseas. As a result, as of April 2010, as many as 1,098, or 33.4%,

groups or divisional businesses.

of the total of 3,287 patents held by the Group were held overseas.
The Group is placing particular emphasis on patent applications in

The CIPOs prepare optimal intellectual property strategies for

China, South Korea and Taiwan.

each division, make all members of those divisions thoroughly
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

Division, which reports directly to the president, participates fully in(Application)

reform activities implemented by the CIPOs.

350
300

Major Activities and Achievements

250

OthersIntellectual Property Inspection Activities

South Korea

CIPOs and established mechanisms for the regular evaluation of

Taiwaninventive proposals and decisions regarding substantive examination
requests and rights maintenance. In this way, we foster the efficientand systematic management of patent applications ultimately

CIPO System

200

PCT*

We have formed an Inspection Committee composed principally of

150
100

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

50
0

(FY)

05

06

07

08

09

President

Sumitomo (S.H.I.)
Construction
Machinery

Mechatronics

Precision Equipment

Quantum Equipment

Plastics Machinery

Power Transmission& Controls

R&D 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)

SPL: Sub-Patent Leader

32 | Sumitomo Heavy Industries, Ltd.

SPL (Several)

PL

Intellectual Property

Corporate Governance

The SHI Group believes that the essence of corporate gover-

operating officers. The Committee manages consolidated businessnance lies in the establishment of a system that enables effi-

results and ensures the implementation of management policies.

cient and transparent management. Sound corporate

The Company has also established the Management Strategy

governance helps the Group achieve higher enterprise value

Committee, comprising executive officers assigned to theand win the trust of all its stakeholders, including sharehold-Company’s Head Office, as an advisory body to the president. Thisers, customers, employees and the community as a whole.

Committee deliberates on important matters, including those to besubmitted to the Board of Directors, and, consequently, reports

Corporate Governance Systemdeliberation results to the Company’s president.

SHI has adopted the corporate auditor system and, within thisThe Company’s corporate auditors audit the execution of duties

framework, has introduced an executive officer system toby directors and executive officers from the perspectives of legality

separate the business execution and supervision functions ofand appropriateness. At the same time, corporate auditors of thecorporate management.

Company and its subsidiaries and affiliates jointly hold regular

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

meetings to exchange audit-related information and reinforce

and a Board of Corporate Auditors, comprising 4 corporate audi-

auditing functions covering the entire SHI Group. The Company has

tors. The Board of Corporate Auditors, including two external cor-appointed a lawyer and a certified public accountant as its external

porate auditors, and the Board of Directors, including one external

corporate auditors to reinforce the overall system for checking com-

director, collaborate with executive officers in charge of internal

pliance and corporate accounting.

auditing and internal control in auditing and supervising the execu-

The Directors Recommendation Committee makes recommen-tion of duties by the Company’s directors. The Board of Directors

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

deliberates not only on matters stipulated under the Japanese

members of the Board of Directors and representative directors.

Corporate Law, but also on important management issues in a

Meanwhile, director remuneration is determined by thepreemptive manner. Also, the Company’s Articles of Incorporation

Compensation Committee. Half of the current Compensation

stipulate that the Company must have no more than 12 directors.

Committee members have been externally appointed. More specifi-

The Executive & Operating Officers Committee comprises 15

cally, as an advisory body to the Board of Directors, theexecutive officers, who execute the Company’s business, including

Compensation Committee determines the level of director remu-

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

neration that reflects the Company’s business performance while

SHI’s Corporate Governance System
General Meeting of Shareholders
Ethics Committee

Board of Directors

Directors Recommendation Committee

Supervision

Audit

Corporate Auditors/Board of Corporate Auditors
Audit

Corporate Auditor’s Dept.

Compensation Committee

Internal Control GroupInternal Control

Internal Audit Dept.

Internal Auditing

Management Strategy Committee
Executive & Operating Officers Committee

Operational Divisions

Audit

Independent Auditor

President and Chief Executive Officer

Subsidiaries and Affiliates

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

Sumitomo Heavy Industries, Ltd. | 33

ensuring transparency and ethical appropriateness in remunerationcompanies and the independent auditor. Corporate auditors ofdecision processes.

Group companies immediately report to the Company’s corporate
auditors if they have discovered any matter that violates or may vio-

Internal Auditing, Auditing by Corporate Auditors,

late laws, ordinances, or the Articles of Incorporation, any matter

Independent Auditsthat causes or may cause significant damage to a Group company

The Company has established the Internal Audit Department (withor the Group as a whole, or any materially improper matter.

a full-time staff of 8) as an internal auditing organization thatreports directly to the president. The Internal Audit Department

External Director and External Corporate Auditors

periodically conducts audits of business execution at the Company’s

As discussed above, the Company has appointed one externalinternal organizations and at subsidiaries and affiliates in Japan anddirector and two external corporate auditors. The Company has

overseas, provides advice on operational improvements and follows

appointed them in their respective posts in the belief that none ofup on the implementation of improvements. The Department

them is in the position to impose excessive control over theundertakes the reinforcement of the internal control functions in

Company’s management and that they can supervise the manage-

coordination with self-audits by the operational divisions. The

ment of the Company from an objective standpoint.

Company has appointed KPMG AZSA & Co. as its independent

External director Toshiaki Kakimoto has extensive experience

auditor, has entered into an audit contract and undergoes rigorousand expertise as an economist. External corporate auditor Yoshio

audits. The corporate auditors, the Board of Corporate Auditors,

Kohra has ample experience as a certified public accountant and tax

Internal Audit Department and independent auditor closely collabo-

accountant. External corporate auditor Seishiro Tsukada boasts

rate with each other and exchange information about audit results,

abundant experience as a lawyer. Based on their expertise andthereby developing and implementing an efficient audit system.

experience, the external director and external corporate auditors
provide invaluable and candid opinions and advice on the

The Corporate Auditor Audit System
The Company established the Corporate Auditor’s Department as astaff organization to support the Board of Corporate Auditors. The

Company’s management from a third-party perspective.
None of them has personal, capital, business or any other typeof significant relationship whatsoever with the Company.

corporate auditors discuss in advance with the directors and executive officers on personnel transfers and performance evaluation ofInternal Control Systemmembers of the Corporate Auditor’s Department. To audit the exe-

The SHI Group considers the internal control system to be an impor-cution of duties by the Company’s directors and executive officers,

tant management foundation for increasing its enterprise value andthe corporate auditors attend meetings of the Board of Directors

ensuring its sustainable development. The Board of Directors

and the Executive & Operating Officers Committee as well as otherdecides the basic policy for the development of the internal control

important meetings and examine, at will, important approvalsystem, which is the foundation of corporate governance. The

requests and other important documents concerning the conduct

Board appropriately verifies the effectiveness of the internal controlof business. The directors and executive officers, along with staff

system and undertakes constant enhancement and improvement.

under the direct control of the directors and executive officers,

The Company appoints external directors to bring an outside per-report, in a timely manner, to the corporate auditors any matter

spective to the decisions of the Board of Directors. The corporate

within the Company or Group companies that violates or may

auditors conduct audits to ensure the appropriate execution ofviolate laws, ordinances, or the Articles of Incorporation, any matter

duties by the Company’s directors with respect to the developmentthat causes or may cause significant damage to the Company, or

and administration of the internal control system. Also, theany materially improper matter. The directors and executive officers

Company works to strengthen its internal control over financial

cooperate to enable the corporate auditors to perform effective

reporting. With the organization in charge conducting audits of theaudits through collaboration with the Internal Audit Department,

status of internal control system administration, the Company is

the Internal Control Group, the corporate auditors of Group

striving to secure the reliability of its financial reporting.

34 | Sumitomo Heavy Industries, Ltd.

Compliance Activities

charge prepare regulations governing individual risks—such as envi-

The Ethics Committee, chaired by the president, formulates theronmental, legal, disaster, IT, and export control risk—while provid-

Company’s basic compliance policy. The Internal Control Grouping education and guidance and conducting audits. In the event ofundertakes the rigorous implementation of the policy through aemergency, in accordance with the Company’s Emergencygroup-wide internal control system. The Company distributes theReporting Procedures, the involved employees immediately report

Ethics Regulations and Compliance Manual to all directors, execu-

to executive management and take appropriate measures.

tive officers, and employees and undertakes regular ethics andcompliance education. When necessary, the Company requires writ-

Takeover Defense Measures

ten agreements from directors, executive officers, and all managers

SHI believes that—from the standpoint of increasing enterpriseconcerning individual compliance items. The Company maintains avalue and ensuring the common interests of the shareholders—theresolute stance against organizations or individuals that pose anature of the persons who control decisions on the Company’s

threat to public order and safety and engages in no relations what-

financial and business policies should be ultimately decided by thesoever with such organizations or individuals. The Company has

shareholders. Some large-scale purchases of shares, in light of theirestablished an ethics hotline (an in-house whistleblower system) as

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

a point of contact to report matters that violate or may violate laws,

impairment of enterprise value or the common interests of theordinances, or corporate ethics, promotes use of the hotline andshareholders. Some large-scale purchases, such as those conducted

endeavors to discover problems at an early stage. The Company

without the sufficient provision of information reasonably necessary

conducts audits of the execution of duties by the Company’s execu-

for the shareholders to judge the purchase details, can be expected

tive officers and by staff under the direct control of the executive

to have a major impact on enterprise value or the common interests

officers through the organization in charge and ensures that theirof the shareholders. The Company considers persons who seek to

execution of duties complies with laws, ordinances and the Articles

make such purchases of the Company’s shares to be inappropriate

of Incorporation.

as persons who control decisions on the Company’s financial andbusiness policies and has a basic policy on large-scale share pur-

Risk Managementchases of devising measures, as far as is necessary and reasonable,

The Company engages in risk management using the group-wide

to secure and increase the Company’s enterprise value and theinternal control system. The Company takes a specialized approachcommon interests of the shareholders.

to minimize risk. Through this approach, the business units in

Message from an External Director
For more than half of my forty years as a businessperson I have been involved with macroeconomic
studies. In my capacity as a member of the Japan Association of Corporate Executives and theKansai Association of Corporate Executives, I have continuously engaged in research into and madeproposals on various corporate management issues.
Sumitomo Heavy Industries, Ltd.’s strengths are underpinned by its effective corporate governance system, which has been realized through the clear separation of its executive function from its
supervisory function. What is more, supported by the strategic implementation of its internal control
system and compliance activities, SHI has established a highly effective, transparent corporate management system.
As an external director of SHI, I am committed to providing advice and guidance from a comprehensive and objective perspective. In this way, I will help the Company maximize its enterprise value
Toshiaki Kakimotoover the long term.

Sumitomo Heavy Industries, Ltd. | 35

Directors, Corporate Auditors and Executive Officers(As of June 29, 2010)

Board of Directors

Yoshio Hinoh*

Yoshinobu Nakamura*

Yukio Kinoshita*

Shinji Nishimura*

Mikio Ide

ChairmanPresident and CEO

Senior Executive Vice President
and CFO

Senior Executive Vice President

Senior Executive Vice President

Yuji Takaishi

Shunsuke Betsukawa

Kensuke Shimizu

Kohei Takase

Toshiaki Kakimoto

Executive Vice President

Executive Vice President

Director

Director

Director

Corporate Auditors
Eiichi Fujita
Standing Auditor

Nobuo Kadota
Standing Auditor

Yoshio Kohra
AuditorSeishiro Tsukada

Yasuhiko Seike

Hitoshi Kashimoto

Executive Vice President

Executive Vice President

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

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

Katsuhiko Taniguchi

Osamu Sekiya

Executive Vice President

Senior Vice President

General Manager, Corporate Technology
Operations Group
General Manager, Intellectual Property Div.
General Manager, Information Systems
Development Group

General Manager, Precision Equipment Group

AuditorNoboru Mimoto
Executive Officers
Yoshinobu Nakamura
President and CEO

Yukio Kinoshita

Executive Vice President
General Manager, Energy & Environment Group

Shunsuke Betsukawa
Executive Vice President

Senior Executive Vice President and CFO

General Manager, Corporate Finance, Accounting &Administration Group

Shinji Nishimura

Yuji Takaishi

Senior Executive Vice President

Executive Vice President

General Manager, Power Transmission & Controls Group

General Manager, Plastics Machinery Div.

Mikio Ide
Senior Executive Vice President

Shigeru Toyosumi
Senior Vice President
General Manager, Internal Control Group

Chuck Martz
Senior Vice President
Chairman and CEO, Link-Belt Construction
Equipment Company

Mamoru Mishima
Senior Vice President
President and CEO, Sumitomo Heavy Industries Process
Equipment Co., Ltd.

Katsuhide Yokota
Senior Vice President
President and CEO, Sumitomo Heavy Industries
Engineering & Services Co., Ltd.
*A director with representative rights

36 | Sumitomo Heavy Industries, Ltd.

Environmental and Social Contribution Initiatives

SHI Group Environmental Policy• Consider the impact on the environment around the facilities• Prevent environmental pollution• Reduce waste• Save energy and resources and promote recycling

The SHI Group recognizes that protecting the global and local
environment and promoting recycling-oriented economic
activities are important to its corporate mission. In line withthis recognition, the Company established the SHISHI Group’s CO2 Emissions
SHI Group’s Actual CO2 Emissions
SHI Group’s CO2 Emissions Target(10,000t-CO2 )10

Environmental Policy in 1997. This was followed by the 1999
formulation of the SHI Group Environmental Policy. Under8

29% reduction

this Groupwide policy, all SHI Group companies are working

vs. FY2004

6

together to promote environmental initiatives and

FY2010 Target:

16% reduction
vs. FY2004

management.
4

Efforts to Prevent Global Warming
As part of its efforts to help prevent the further advance of global
warming, the SHI Group is taking steps to curb CO2 emissions andreduce paper usage as well as to promote “green” logistics opera-

20(FY) 04

05

06

07

08

09

10 (Target)

tions—in other words, reduce CO2 emissions in logistics operations.
In all its efforts, the Group places the greatest emphasis on encouraging the participation of all employees and making processes andresults tangible, thereby eliminating wasteful practices and improving related administrative procedures. The Group reached its fiscal
2009 targets in all categories, as shown below.
FY2009 Target

ResultReduce CO2 emissions:

13% reduction vs. FY2004

29% reduction

Reduce paper usage:

35% reduction vs. FY2005

52% reduction

Green logistics (reduce CO2
emissions in logistics operations):

10% reduction vs. FY2006

11% reduction

Sumitomo Heavy Industries, Ltd. | 37

Reducing Environmental Load

Social Contribution Activities

The SHI Group is contributing to global environment preservation

Aiming to maintain sound relationships not just with the communi-

through the minimization of the environmental load of its products

ties in which it operates but also with the global community, theand production activities. More specifically, the Group is not only

SHI Group conducts wide-ranging social contribution activities.

working to develop energy-efficient products, but also to reduce

These activities include supporting social welfare institutions, pro-electric power consumption and waste generation at its plants.

viding work experience programs for students and implementing

During fiscal 2009, SHI’s Yokosuka Works received a Director
General’s Award from the Environmental Management Bureau

local cleanup and disaster prevention activities.
Currently, the SHI Group is placing particular emphasis on biodi-

under the Ministry of the Environment (MOE) in recognition ofversity preservation. For example, the Company is maintaining a

activities aimed at preserving the aerial environment. The Yokosuka

forest located on the grounds of its Tanashi Works in Nishitokyo

Works also received an FY2009 Award for Implementation ofCity, Tokyo. Dubbed the “Forest of Inspiration,” this forest is home

Measures to Reduce Volatile Organic Compounds (VOCs) from theto more than 40 species of trees and plants that attract a significant

MOE. Specific activities commended by the MOE included the con-number of birds and insects. A section of the Forest of Inspiration is

struction of a painting plant extension and the installation of VOC

open to the public and serves as a place of relaxation and exchange

removal equipment and paint recovery equipment. The painting

for local residents, thanks to walking trails and benches. The Forest

plant extension involved the transfer of all outdoor onshore paint-of Inspiration is approximately 13,000 square meters. Past researching processes conducted within the shipyard of the Yokosuka Works

conducted in the forest confirmed the presence of a rare foreign

to indoor facilities. This enables the easier collection of VOCs, whichbutterfly species, which had previously not been found in Easternconstitute part of the volatile emissions of paint. As a result of thisJapan, as well as a butterfly species that previously had been seen

initiative, along with the installation of the VOC removal equipmentin the warmer regions of Western Japan. The Forest of Inspiration isboasting a 95% removal rate and paint recovery equipment, theaccordingly believed to be an invaluable natural asset also for aca-

Yokosuka Works has reduced the ratio of VOCs discharged into thedemic researchers.

air to the total volume of paint used from 82% to 74%. In addition, the Yokosuka Works was able to reduce CO2 emissions attributable to shipbuilding by approximately 15% year on year, despite
an increase in the total volume of paint used due to an increase in
the number of ships built.

Awards ceremony for the FY2009
Award for Implementation of Measures
to Reduce VOCs
Forest of Inspiration

VOC removal equipment

38 | Sumitomo Heavy Industries, Ltd.

Financial Section
40 Eleven-Year Summary
42 Management’s Discussion and Analysis of Financial
Conditions and Operating Results

45 Business Risks
46 Consolidated Balance Sheets
48 Consolidated Statements of Income
49 Consolidated Statements of Changes in Net Assets
52 Consolidated Statements of Cash Flows
54 Notes to Consolidated Financial Statements
71 Independent Auditors’ Report

Sumitomo Heavy Industries, Ltd. | 39

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

FY1999FY2000FY2001

FY2002

FY2003

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)¥566,668
473,798
80,162
12,206
12,70926,910(6,328)¥513,753
434,544
71,724
8,688
7,485
20,402(28,612)¥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

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

¥ 39,117(1,969)37,148(48,765)
45,173¥ (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)
57,678Financial 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)¥657,149
474,059
128,784
341,912298,61764,829—¥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—

Amounts per Share of Common Stock:
Net income (loss) (Note 5)
Stockholders’ equity
Cash dividends¥ (10.74)
110.123.00¥ (48.60)
51.04
—

¥

¥

¥

2.2
4.7
2.2
(0.9)
(9.2)
9.9
52.0
5.3
1.9

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

¥ 12,606
14,201
13,748¥ 14,305
12,916
12,411¥ 15,549
11,902
12,457¥ 14,406
12,118
11,777¥ 10,562
10,112
11,282Financial 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—

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥93=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as of March 31, 2010.
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) =		

40 | 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)

Thousands of
U.S. dollars (Note 1)

Millions of yen

FY2004

FY2005

FY2006

FY2007

FY2008FY2009FY2009¥521,310
407,51265,025
6,317
48,77358,055
22,792¥551,339
434,904
68,9307,434
47,50556,57729,742¥600,256
464,071
71,961
8,581
64,22474,87337,352¥660,769
505,366
77,613
9,908
77,79091,57842,974¥642,918
503,072
82,906
10,04756,94075,26013,649¥516,165
412,751
75,1608,187
28,25447,97913,280$5,550,162
4,438,182
808,176
88,035
303,804
515,901
142,798¥ 45,451(6,087)39,364(46,490)
49,108¥ 50,023(7,024)42,999(48,812)
43,644¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452$ 618,419(150,041)
468,378(286,942)
660,778¥569,771
316,166
253,605
169,228
119,592
137,157—¥579,233
317,813
261,421
125,504
81,587
167,740—¥600,890
332,509268,381
88,04539,890—206,010¥678,634
381,946
296,688
89,56759,311—
246,371¥657,436
380,293
277,143
110,339
65,654—
238,697¥610,087
339,780
270,308
87,66025,149—254,153$6,560,080
3,653,543
2,906,537
942,581
270,415—
2,732,826

¥

¥

¥

¥

¥

¥

Yen

U.S. dollars (Note 1)

37.80
227.903.00

49.45
279.02
5.00

61.99
338.957.00

71.19
392.8010.00

22.62
378.786.00

22.01
404.73
4.00

$

0.24
4.35
0.04

%

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.3
20.1
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8
Thousands of
U.S. dollars (Note 1)

Millions of yen

¥

8,175
9,282
11,149¥ 10,285
9,072
11,319¥ 17,257
10,64912,561¥ 28,180
13,78814,408¥ 31,753
18,32014,984¥ 24,465
19,725
15,463$ 263,068
212,097

Sumitomo Heavy Industries, Ltd. | 41

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

1. Discussion and Analysis of Operating Results for Fiscal 2009

Machinery and Construction Machinery segments. Sales in Asia contracted ¥17.1 billion to ¥92.7 billion, with expanded sales in the(1) Orders

Construction Machinery segment offset by a shrinking in sales in theOrders received during fiscal 2009, ended March 31, 2010, totaled

Mass-Produced Machinery and Ship, Steel Structure & Other Specialized¥403.4 billion, a decline of ¥197.2 billion from fiscal 2008. This out-

Equipment segments. In other regions, sales dropped ¥23.1 billion tocome was attributable to a year-on-year decline in orders received by all¥93.9 billion, primarily due to decreased sales in Europe.

segments. In particular, orders in the Ship, Steel Structure & Other
Specialized Equipment segment decreased ¥66.5 billion year on year to(3) Cost of Sales¥11.5 billion. Similarly, orders in the Industrial Machinery andIn line with the decline in net sales, cost of sales decreased ¥90.3 billion

Construction Machinery segments dropped ¥38.9 billion and ¥38.3 bil-year on year to ¥412.8 billion. The cost to sales ratio rose 1.8 percentage

lion to ¥59.8 billion and ¥100.5 billion, respectively.

points to 80.0%, owing to deterioration in the cost of sales ratios of theShip, Steel Structure & Other Specialized Equipment and Mass-Produced(2) Net Sales

Machinery segments.

Net sales fell ¥126.8 billion year on year to ¥516.2 billion, mainly due
to a significant year-on-year decline in sales in the Mass-Produced(4) Selling, General and Administrative (SG&A) Expenses

Machinery and Construction Machinery segments. On the other hand,

SG&A expenses declined ¥7.7 billion to ¥75.2 billion. Major decreases

the Industrial Machinery segment recorded year-on-year sales expansion

were recorded under R&D expenses and the amortization of goodwill.

due to an extensive backlog of orders.

The SG&A expense ratio climbed 1.7 percentage points to 14.6%.

Overseas sales declined ¥85.7 billion year on year to ¥243.5 billion.
The ratio of overseas sales to consolidated net sales sank 4.0 percent-(5) Operating Income

age points to 47.2%.

Operating income dropped ¥28.7 billion to ¥28.3 billion, reflecting a fall in

By region, domestic sales slid ¥41.0 billion to ¥272.7 billion due tooperating income across all segments except the Industrial Machinery seg-a decrease in sales in the Mass-Produced Machinery and Construction

ment attributable to the decline in net sales. In particular, the Mass-

Machinery segments. In North America, sales deteriorated ¥45.5 billion

Produced Machinery segment posted an operating loss totaling ¥1.7 billion.

to ¥56.9 billion, reflecting a decline in sales in the Mass-Produced

The operating income margin decreased 3.4 percentage points to 5.5%.

Net Sales

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

Breakdown of Variation in Operating Income (Fiscal 2008–Fiscal 2009)(¥ Billion)(¥ Billion)

(%)

800

100

25

80

20

60

15

(¥ Billion)

56.9(26.9)

600

Sales decline

Highermaterial
costs

400
40

10

20

5

200

0

(FY) 05

06

07

08

0 (FY) 05

09

N Mass-Produced Machinery
N Environmental Protection Facilities, Plants & Others
N Ship, Steel Structure & Other Specialized Equipment
N Industrial Machinery
N Construction Machinery

06

07

08

N Selling, General and
Administrative Expenses (Left scale)
SG&A Expenses Ratio (Right scale)42 | Sumitomo Heavy Industries, Ltd.

09

0

(FY)

08

SG&A
expenses

(2.2)
(3.7)
Exchangerate
fluctuations

(3.6)

+7.7

28.3

Deteriorationof costof salesratio, etc.

09(6) Other Income and Expenses(10) Net Income

Other income and expenses amounted to net expenses of ¥1.7 billion,

Net income edged down ¥0.4 billion year on year to ¥13.3 billion.

an improvement of ¥5.0 billion from fiscal 2008. Other income rose
¥0.7 billion year on year due mainly to the recording of foreign

2. D iscussion and Analysis of Financial Condition as of
the Fiscal 2009 Year-End

exchange gains. Other expenses contracted ¥4.0 billion, primarily owing
to the absence of foreign exchange losses.

(1) Assets, Liabilities and Net Assets(7) Special Gains and Losses

As of March 31, 2010, total assets stood at ¥610.1 billion, down ¥47.3

Special gains and losses amounted to net losses of ¥0.3 billion, an improve-billion from March 31, 2009. An increase due to the inclusion ofment of ¥16.3 billion from fiscal 2008. Special gains were ¥2.4 billion

Sumitomo Heavy Industries (Tangshan), Ltd. in consolidation was offset

mainly due to the posting of a gain on sale of securities, totaling ¥1.6 bil-by decreases in trade receivables due to their collection as well as

lion, in the period under review. Special losses declined ¥13.8 billion toa contraction in inventories. Cash and time deposits increased ¥17.8¥2.7 billion, largely owing to a ¥5.0 billion decrease in loss on valuation ofbillion to ¥62.5 billion as a result of the collection of trade receivables,

investment securities and the absence of a number of losses recorded inwhich consequently decreased ¥23.8 billion to ¥131.9 billion. Property,

the previous fiscal year.

plant and equipment expanded ¥2.4 billion to ¥216.5 billion, owing to
the aforementioned new inclusion of a subsidiary in consolidation.

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

Investment securities increased ¥2.2 billion to ¥30.4 billion, primarily

Business Tax and Deferred Income Tax)due to a recovery in their market value.

Income taxes decreased ¥6.8 billion year on year to ¥11.9 billion due toUnder liabilities, notes and accounts payable decreased ¥28.1 bil-a decline in income before income taxes of each consolidated subsidiary.

lion from the previous year-end to ¥108.0 billion. Reflecting theGroup’s efforts to accelerate debt repayment in order to reinforce its(9) Minority Interests in Net Income

financial strength, interest-bearing debt was reduced ¥22.7 billion to

Minority interests in net income amounted to ¥1.1 billion, down ¥0.3

¥87.7 billion. Factoring in the aforementioned ¥17.8 billion increase

billion from fiscal 2008, reflecting the weak performances of consoli-in cash and time deposits to ¥62.5 billion, net interest-bearing debt

dated subsidiaries.

contracted ¥40.5 billion from March 31, 2009 to ¥25.1 billion. The

Operating Income,Operating Income Margin

Net Income,Net Income Margin, ROE

Total Assets,
Total Asset Turnover(¥ Billion)(%)(¥ Billion)

(%)

80

20

50

25

60

15

40

20

40

10

30

20

(¥ Billion)(Times)(¥ Billion)

800

2.0

40

600

1.5

30

400

1.0

20

200

0.5

10

15

20

10

10

5

5

0
-10 (FY) 05

Capital Expenditures,
Depreciation and Amortization

0

06

07

08

09

N Mass-Produced Machinery
N Environmental Protection Facilities,
Plants & Others
N Ship, Steel Structure &(Left scale)
Other Specialized Equipment
N Industrial Machinery
N Construction MachineryOperating Income Margin (Right scale)

0 (FY) 05

06

07

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

08

09

0

0

(FY) 05

06

07

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

08

09

0.0

0 (FY) 05

06

07

08

09

N Capital Expenditures
N Depreciation and Amortization

Sumitomo Heavy Industries, Ltd. | 43

ratio of net interest-bearing debt to total assets improved 5.9 percent-(3) Capital Expenditure and Depreciation and Amortization

age points to 4.1%.

The SHI Group invested a total of ¥24.5 billion during fiscal 2009, with

Advance payments received on contracts dropped ¥9.0 billion year

the primary goal of reinforcing its global supply chain.

on year to ¥41.0 billion, primarily owing to the transfer of these pay-

In the Mass-Produced Machinery segment, the Company invested

ments to the sales account, which resulted in increases in sales in the

totaling ¥8.9 billion in line with the said goal. More specifically, thisenergy and environmental plant and ships businesses.

investment was aimed at strengthening the cost-competitiveness of the

Net assets totaled ¥254.2 billion, up ¥15.5 billion from March 31,

Group’s production bases in China and other countries. In the2009, mainly due to an increase in total owners’ equity, reflecting theEnvironmental Protection Facilities, Plants & Others segment, the SHI

posting of net income in the period under review, and unrealized gains

Group invested a total of ¥0.8 billion in projects to streamline businesson securities, net of income taxes. As a result, the stockholders’ equity

processes and improve operational efficiency. In the Ship, Steel Structure

ratio as of March 31, 2010 rose 5.2 percentage points year on year

& Other Specialized Equipment segment, the Group invested a total of

to 40.0%.

¥4.5 billion for upgrading and relocating existing facilities and equipment—an initiative aimed at boosting production capacity and produc-(2) Cash Flows

tivity. In the Industrial Machinery segment, the SHI Group used a total

The SHI Group uses internal funds and funds procured through debtof ¥1.8 billion to enhance productivity in order to meet increased

financing as working capital and to fund capital spending.

demand for such products as material handling systems, turbines andNet cash provided by operating activities totaled ¥57.5 billion, up

pumps. In the Construction Machinery segment, the Group invested¥22.8 billion year on year. The ¥7.5 billion decrease in income before

a total of ¥8.5 billion, focusing on bolstering the cost-competitivenessincome taxes and minority interests was more than offset by such cashof its production bases in China and other countries, with the aim of

inflows as depreciation and decreases in inventories as well as notes

establishing a global supply chain.

and accounts receivable in addition to a much lower payment forincome taxes.

Depreciation and amortization for the period under review totaled¥19.7 billion, down ¥1.4 billion year on year.

Net cash used in investing activities totaled ¥14.0 billion, down ¥22.0
billion year on year. This decline was largely attributable to a decrease in

3. Policy on Distribution of Profits

payments for purchases of property, plant and equipment in line with
the Company’s efforts to reduce capital expenditure and to the absence

SHI adheres to a basic profit distribution policy of paying out dividendsof the payment for purchase of consolidated subsidiary with change incommensurate to the net income earned during the period and striving

scope of consolidation in fiscal 2009.

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

Net cash used in financing activities totaled ¥26.7 billion. In fiscal
2008, the Company worked to secure capital liquidity in expectation of

to maintain retained earnings at a level sufficient to ensuring sustainable business growth over the long term.

a deterioration in the fund procurement environment, particularlyWith due consideration given to such factors as deterioration in thethrough commercial paper and corporate bonds. In contrast, in fiscal

SHI Group’s performance, the Company decided to pay out an annual

2009, the Company worked to compress its interest-bearing debt,

dividend of ¥4 per share, a ¥2 reduction from fiscal 2008.

which resulted in a ¥5.8 billion net decrease in short-term loans anda ¥24.0 billion decrease in commercial paper.
Accounting for these factors, cash and cash equivalents as of March
31, 2010 stood at ¥61.5 billion, up ¥19.0 billion from March 31, 2009.

44 | Sumitomo Heavy Industries, Ltd.

Business Risks

Risks that could adversely affect the business performance or financial

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

position of the SHI Group are as follows.

and unpredictable legal and regulatory changes. Such changes could

All statements below regarding future events represent judgments

have an adverse impact on the performance of our overseas businesses.

made by the management of the Group as of March 31, 2010.
5. Product Quality
1. Macroeconomic Factors

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

Demand for capital equipment, which accounts for more than half ofstrict quality control standards. However, total defect elimination isGroup sales, may be influenced by economic trends in both Japan andimpossible, and we cannot rule out having to undertake repair work

various overseas markets where the Group sells its products. Any con-under guarantee at our own expense in the event of product flaws. The

traction in demand triggered by a slump in the major markets for ourGroup has taken out insurance to cover product-defect liabilities, but

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

cannot guarantee that these policies will cover the full sums of com-

could have an adverse impact on the business performance or financial

pensation that may become payable in liability settlements. Repairs per-position of the Group.

formed under guarantee and product compensation payments cangenerate significant costs for the Group, and this can adversely affect

2. Exchange-Rate Fluctuations

the business performance and financial position of the Group.

The Group’s business includes the production and marketing of products in countries all around the world. Yen translations are applied in

6. Impact of Impairment Accounting

the consolidated financial statements for transactions (involving over-

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

seas sales, expenses, assets and liabilities) undertaken in local curren-

issued March 31, 1998) and the Law to Partially Modify the Law

cies. Due to exchange rate effects, the Group may be adversely

Concerning Revaluation of Land (Ordinance No. 19, March 31, 2001),

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

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

such change in local currency terms. As of March 31, 2010, the GroupThe difference between the market and book values of the revalued

had an order backlog, chiefly in its shipbuilding business, of US$0.5 bil-land as of March 31, 2010 was ¥21.1 billion, a decline of 21%. If land

lion. To minimize the impact of exchange-rate fluctuations on our busi-

values continue to fall, we may have to recognize impairment losses onness performance, the SHI Group uses forward exchange contracts tofixed assets, which could adversely affect the business performance andhedge against risk. However, it is not possible to eliminate all risk using

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. Environmental Protection Measures
Under the Group’s environmental policy, we take a range of measures

3. New Influenza Strain

to reduce our environmental footprint such as avoiding environmental

The Group has established a “New Influenza Strain Countermeasuresrisk factors and minimizing waste. We have taken every measure to pre-Committee” to prepare for the possible spread of infections in Japanvent environmental pollution, but cannot rule out responsibility forand overseas from the latest influenza strain (A/H1N1), as well as theinstances of environmental pollution due to unforeseen events. Should

emergence of victims infected with highly virulent forms of this disease.

the Company be responsible for an incidence of environmental pollu-

The Group has also devised measures to prevent the internal outbreak oftion, significant costs could ensue, negatively affecting the business

infections and response measures in the event that influenza victims do

performance and financial position of the Group.

emerge. Nevertheless, the spread of infections from this new influenza
strain in Japan and overseas could take a human toll and result in a

8. Natural and Other Disasters

breakdown in social infrastructure. These events could potentially impact

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

the Group’s activities and adversely affect its business performance.

anisms for minimizing the occurrence and fallout from disasters such as
fires, earthquakes, typhoons and other wind and flood damage.

4. Overseas Businesses

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

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

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

produced machinery and construction machinery for markets in North

staff. We cannot guarantee that casualty insurance would be sufficientAmerica, Asia and Europe. To meet expanding overseas demand, theto cover all damages from such events.

Group is upgrading its marketing networks and production facilities.
Sumitomo Heavy Industries, Ltd. | 45

Consolidated Balance Sheets
March 31, 2010 and 2009

Thousands of
U.S. dollars (Note 1)

Millions of yen

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

2010

2009

2010

¥ 62,511¥ 44,685$ 672,167

Trade receivables:
Notes receivable
Accounts receivable
Allowance for doubtful accounts

9,900

14,303

106,450

121,993

141,361

1,311,756(1,073)(1,012)
149,380(11,540)
1,327,059

Inventories (Note 3)
Deferred tax assets (Note 6)

123,416
8,632

7,631

92,814

Prepaid expenses and other current assets (Notes 2 and 5)

14,401

23,945

154,837

339,780

380,293

3,653,543

Total current assets

Property, plant and equipment:
Land (Note 5)

115,971

115,9091,247,000

Buildings and structure (Note 5)

139,711

133,721

1,502,274

Machinery and other tangible fixed assets (Note 5)

145,800

138,063

1,567,733

1,450

3,864

15,593402,932

391,557

4,332,600(186,455)(177,529)(2,004,892)

216,477

214,028

2,327,708

Construction in progress
Accumulated depreciation
Net property, plant and equipment

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

13,50914,790145,259

Long-term loans receivable and investment securities (Note 12)16,96813,582

182,450

Deferred tax assets (Note 6)

9,886

11,940106,303

Other assets

15,041

24,267

161,739

Allowance for doubtful accounts(1,574)(1,464)(16,922)53,830¥610,087

63,115

578,829¥657,436$6,560,080

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

46 | Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:

2010

2009

2010

Short-term bank loans (Note 5)¥ 30,524¥ 34,176$ 328,218

10,4381,136

112,232

Current portion of bonds (Note 5)—

10,000—Commercial paper (Note 5)—

24,000—26,21181,80637,652281,844

98,438879,636

Advance payments received on contracts

40,971

49,977440,546

Accrued income taxes

6,759

4,810

72,680Allowance for warranty

5,218

5,661

56,107

Allowance for losses on construction contracts

754
1,530

274
1,842

8,104
16,450Long-term debt due within one year (Note 5)

Trade payable:
Notes payable
Accounts payable

Allowance for losses on business restructuring
Accrued expenses and other current liabilities (Notes 5 and 6)
Total current liabilities

30,74334,420330,570

234,954

302,386

2,526,387

Long-term liabilities:
Long-term debt (Note 5)

46,69841,027502,131

Employees’ severance and retirement benefits (Note 14)

32,42634,808348,662

235

237

2,525

32,211

32,211

346,351

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

9,410

8,070

101,198

120,980

116,353

1,300,867

30,87230,872331,953

Contingent liabilities (Note 8)
Net assets (Note 7):
Common stock:
Number of shares authorized 1,800,000 thousand shares
Number of shares issued
Capital surplus

605,726 thousand shares
20,50320,503

220,458

Retained earnings

161,951

148,725

1,741,406

Treasury stock at cost, 2,315,778 shares in 2010 and
2,259,483 shares in 2009
Total owners’ equity(1,494)
211,832(1,471)
198,629(16,066)
2,277,751

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

2,002

(547)

21,535

Unrealized gains on hedging derivatives, net of income taxes

1,125

1,945

12,097

Adjustment regarding pension obligations of consolidated overseas subsidiaries(1,753)

Revaluation difference on land
Foreign currency translation adjustments

40,386(3,008)40,360(18,852)
434,253(9,370)(8,798)(100,748)

32,39029,952

348,285

Total valuation and translation adjustments
Minority interests

9,931

10,116

106,790

Total net assets

254,153

238,697

2,732,826¥610,087¥657,436$6,560,080   Total liabilities and net assets
See accompanying notes.

Sumitomo Heavy Industries, Ltd. | 47

Consolidated Statements of Income
Years ended March 31, 2010 and 2009

Thousands of
U.S. dollars (Note 1)

Millions of yen

2010

2009

2010

¥516,165¥642,918$5,550,162

Cost of sales

412,751

503,072

4,438,182

Selling, general and administrative expenses

75,16082,906808,176

487,911585,978

5,246,358

28,25456,940303,804

1,222

1,179

13,142
10,030Net sales (Note 9)
Costs and expenses (Note 9):

Operating income (Note 9)
Other income (expenses):
Income   Interest and dividend income   Exchange gains

933—   Equity in earnings of affiliates

—

755

—

2,395

1,859

25,747(1,940)(1,611)(20,863)

(22)

—

(233)

   Other—net
Expenses   Interest expense   Equity in losses of affiliates—(1,941)—(4,296)(6,919)(46,195)

1,581

13

16,995

863

—

9,282

   Loss on valuation of investment securities(1,000)(6,043)(10,754)   Contract loss

(1,000)—(10,750)(503)—(5,408)   Exchange losses   Other—net
Special gains (losses):Gains   Gain on sale of securities   Subsidy
Losses   Environmental expenses   Amortization of goodwill—(4,932)—   Business restructuring costs(213)(2,019)(2,285)—(1,904)—   Impairment losses on fixed assets (Note 4)—(1,638)—26,27433,739282,512Current

11,503

17,711

123,677

Deferred

382

979

4,112

11,885

18,690127,789   Loss on breach of antimonopoly law
Income before income taxes and minority interests
Income taxes (Note 6):

Total
Minority interests in net income
Net income(1,109)(1,400)(11,925)¥ 13,280¥ 13,649$ 142,798

Yen

U.S. dollars (Note 1)

2010

2009

2010

¥22.01¥22.62

$0.24

—

—

—

4.00

6.00

0.04

Amounts per share of common stock:
Net income
Diluted net income
Cash dividends applicable to the year (Note 15)
See accompanying notes.

48 | Sumitomo Heavy Industries, Ltd.

Consolidated Statements of Changes in Net Assets
Year ended March 31, 2009

Millions of yen
Owners’ equity

Net assets at March 31, 2008

Number of sharesof common stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Sub-total

605,726¥30,872¥20,524¥142,053¥(1,425)¥192,024

Increase/decrease due to changein accounting for foreignsubsidiaries (*Note)

(409)

(409)

Dividends(6,639)(6,639)Net income

13,65013,650Acquisition of treasury stock
Disposal of treasury stock

(21)

(3)

(112)

(112)

66

42

 Increase due to transfer ofrevaluation difference on land

117

117

 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation

(44)

(44)

 Changes in items other thanowners’ equity inthe period (net)Total changes in the period
Net assets at March 31, 2009

—

—

(21)

7,081

(46)

7,014

605,726¥30,872¥20,503¥148,725¥(1,471)¥198,629

Millions of yen
Valuation and translation adjustments
Adjustment
Unrealized
regarding
Unrealized gains (losses)
pensiongains (losses) on hedging obligations ofForeignon securities, derivatives, consolidated Revaluation
currency
net ofnet ofoverseas
differencetranslation
income taxes income taxes subsidiaries
on landadjustments

Net assets at March 31, 2008

¥4,224¥2,459¥ (999)¥40,477¥(1,101)

Sub-total

Minority
interests

Total¥45,060¥ 9,287¥246,371

Increase/decrease due to changein accounting for foreignsubsidiaries (*Note)(409)

Dividends(6,639)Net income

13,650Acquisition of treasury stock(112)

Disposal of treasury stock42 Increase due to transfer ofrevaluation difference on land117

 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation(44) Changes in items other thanowners’ equity inthe period (net)(4,771)(514)(2,009)(117)(7,697)(15,108)829

Total changes in the period(4,771)(514)(2,009)(117)(7,697)(15,108)829(7,265)

Net assets at March 31, 2009

¥ (547)¥1,945¥(3,008)¥40,360¥(8,798)¥29,952¥10,116¥238,697(14,279)*Note: The amount represents the effect of application of the “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated
Financial Statements” (Accounting Standards Board of Japan, Practical Issues Task Force No. 18 issued on May 17, 2006).

Sumitomo Heavy Industries, Ltd. | 49

Consolidated Statements of Changes in Net Assets
Year ended March 31, 2010

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

CapitalsurplusRetainedearnings

Treasurystock

Sub-total

605,726¥30,872¥20,503¥148,725¥(1,471)¥198,629

Net assets at March 31, 2009

13,280Net income

13,280Acquisition of treasury stock(1)

Disposal of treasury stock

(28)

(28)

5

4

 Increase due to transfer ofrevaluation difference on land

(26)

(26)

 Increase from increase of
consolidated subsidiaries
with change in scopeof consolidation

578

578

 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation

(605)

(605)

 Changes in items otherthan owners’ equity inthe period (net)—Total changes in the period
Net assets at March 31, 2010

605,726¥30,872¥20,503

13,226(23)

13,203¥161,951¥(1,494)¥211,832

Millions of yen
Valuation and translation adjustments
Adjustment
Unrealized
regarding
Unrealized gains (losses)
pensiongains (losses) on hedging obligations ofForeignon securities, derivatives, consolidated Revaluation
currency
net ofnet ofoverseas
differencetranslation
income taxes income taxes subsidiaries
on landadjustments

Net assets at March 31, 2009

¥ (547)¥1,945¥(3,008)¥40,360¥(8,798)

Sub-total

Minority
interests

Total¥29,952¥10,116¥238,697
13,280Net income
Acquisition of treasury stock(28)

Disposal of treasury stock4 Increase due to transfer ofrevaluation difference on land(26)

 Increase from increase of
consolidated subsidiaries
with change in scopeof consolidation578 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation(605) Changes in items otherthan owners’ equity inthe period (net)

2,549

(820)

1,255

26

(572)

2,438

(185)

2,253

Total changes in the period

2,549

(820)

1,255

26

(572)

2,438

(185)

15,456

Net assets at March 31, 2010

¥2,002¥1,125¥(1,753)¥40,386¥(9,370)¥32,390¥ 9,931¥254,153

50 | Sumitomo Heavy Industries, Ltd.

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

Net assets at March 31, 2009

Number of sharesof common stock(Thousand)Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Sub-total

605,726$331,953$220,458$1,599,198$(15,812)$2,135,797

142,798

Net income

142,798

Acquisition of treasury stock

(301)

(301)

47

30

Disposal of treasury stock(17) Increase due to transfer ofrevaluation difference on land

(279)

(279)

 Increase from increase of
consolidated subsidiaries
with change in scopeof consolidation

6,211

6,211

 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation(6,505)(6,505) Changes in items otherthan owners’ equity inthe period (net)———142,208(254)

141,954605,726$331,953$220,458$1,741,406$(16,066)$2,277,751

Total changes in the period
Net assets at March 31, 2010

Thousands of U.S. dollars (Note 1)

Net assets at March 31, 2009

Valuation and translation adjustments
Adjustment
Unrealized
regarding
Unrealized gains (losses)
pensiongains (losses) on hedging obligations ofForeignon securities, derivatives, consolidated Revaluation
currency
net ofnet ofoverseas
differencetranslation
income taxes income taxes subsidiaries
on landadjustments

Sub-total

Minority
interests

Total$ (5,877)$322,066$108,775$2,566,638$20,910$(32,342)$433,974$ (94,599)

142,798

Net income
Acquisition of treasury stock(301)

Disposal of treasury stock30 Increase due to transfer ofrevaluation difference on land(279)

 Increase from increase of
consolidated subsidiaries
with change in scopeof consolidation

6,211 Decrease due to exclusion of
consolidated subsidiaries fromthe scope of consolidation(6,505) Changes in items otherthan owners’ equity inthe period (net)27,412(8,813)

13,490279(6,149)26,219(1,985)24,234

Total changes in the period

27,412(8,813)

13,490279(6,149)26,219(1,985)

166,188

Net assets at March 31, 2010

$21,535$12,097$(18,852)$434,253$(100,748)$348,285$106,790$2,732,826

Sumitomo Heavy Industries, Ltd. | 51

Consolidated Statements of Cash Flows
Years ended March 31, 2010 and 2009

Thousands of
U.S. dollars (Note 1)

Millions of yen

2010

2009

2010

¥26,274¥33,739$282,512

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:
19,72518,320212,097

Impairment losses on fixed assets

—

1,904

—

Loss on disposal of property, plant and equipment

584

859

6,284

Depreciation

Gain on sale of investment securities(1,581)(9)(16,995)

Loss on valuation of investment securities

1,000

6,043

10,754

Amortization of goodwill

—

4,932

—

Business restructuring costs

213

2,019

2,285

Loss on breach of antimonopoly law

—

1,638

—

Environmental expenses

503

—

5,408

Contract loss

1,000

—

10,750

Increase (decrease) in employees’ severance and retirement benefits(1,327)

1,345(14,270)

22

(755)

233

 Equity in earnings (losses) of unconsolidated subsidiaries andaffiliated companies
Increase (decrease) in allowance

(17)

5

(179)

Interest and dividend income(1,222)(1,179)(13,142)Interest expenses

1,940

1,611

20,863

Changes in operating assets and liabilities:(Increase) decrease in notes and accounts receivable

15,65230,033

168,298(Increase) decrease in inventories

27,977(19,021)300,824

Increase (decrease) in notes and accounts payable(29,282)(25,368)(314,855)

Other—net

5,551

6,271

59,693   Sub-total

67,01262,387

720,560

Interest and dividend received

1,785

1,712

19,195Interest expenses(1,869)(1,615)(20,096)

Payment for income taxes
Net cash provided by operating activities52 | Sumitomo Heavy Industries, Ltd.

(9,415)(27,808)(101,240)¥57,513¥34,676$618,419

Thousands of
U.S. dollars (Note 1)

Millions of yen

2010

2009

¥ 1,713¥2010

Cash flows from investing activities:
Net increase in time deposits
Net decrease (increase) in short-term investment securities
Payments for securities
Payments for purchases of property, plant and equipment

1,500

55

$ 18,414—

16,129

(46)

(475)

(494)

(20,004)(28,073)(215,094)

1,485

1,045

15,966

Payment for purchase of investment in affiliated company(22)(4,511)(240)

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

926

1,112

9,961

Decrease in short-term loans receivable

778

3,137

8,364

Payments for long-term loans receivable

(9)

(57)

(101)

Collection of long-term loans receivable

24

64

262

—

(7,921)— Payment for purchase of consolidated subsidiary with change
in scope of consolidation (Note 2)

(299)

(300)

(3,208)(13,954)(35,924)(150,041)

Net increase (decrease) in short-term loans(5,754)

19,644(61,874)

Increase (decrease) in commercial paper

Other—net
Net cash used in investing activities
Cash flows from financing activities:(24,000)

6,000(258,065)

Proceeds from long-term debt

6,099

384

65,577

Payments for long-term debt

(1,137)(2,857)(12,224)

Proceeds from issuance of bonds

10,000—107,527

Redemption of bonds(10,000)—(107,527)(22)(6,628)(234)(1,004)(382)(10,791)

Repayments of finance lease obligations

(843)

(466)

(9,062)Other—net

(25)

(70)

(269)

(26,686)

15,625(286,942)

206(1,817)

2,207

Cash dividends paid
Payment of dividends for minority stockholders

Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents

17,07912,560183,643

Cash and cash equivalents at beginning of year

42,41429,879456,067

Increase due to new consolidated companies

1,942

—

20,883

Decrease from the change in consolidation scope

—

(39)

—

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

17

14

185

¥61,452¥42,414$660,778

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

Sumitomo Heavy Industries, Ltd. | 53

Notes to Consolidated Financial Statements

1. Significant accounting policies

In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to minority
shareholders, are recorded based on the fair value at the time theBasis of presenting consolidated financial statements

Company acquired control of the respective subsidiaries.

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese

Consolidated statements of cash flows

Financial Instruments and Exchange Law and its related accounting regu-

In preparing the consolidated statements of cash flows, cash on hand,lations, and in conformity with accounting principles generally accepted

readily available deposits and short-term highly liquid investments within Japan (“Japanese GAAP”), which are different in certain respects as tomaturity not exceeding three months at the time of purchase are con-application and disclosure requirements of International Financial

sidered to be cash and cash equivalents.

Reporting Standards.
Prior to the year ended March 31, 2009, accounts of consolidated over-Marketable and investment securities

seas subsidiaries were based on their accounting records maintained in con-Held-to-maturity debt securities are stated at amortized cost. Available-

formity with generally accepted accounting principles prevailing in thefor-sale securities with fair values are stated at fair value. Unrealized

respective countries of domicile. As discussed in Change in accounting poli-

gains and unrealized losses on these securities are reported, net ofcies (C), the accounts of consolidated overseas subsidiaries for the year ended

applicable income taxes, as a separate component of the net assets.

March 31, 2009 were prepared in accordance with either International

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

Financial Reporting Standards or U.S. generally accepted accounting princi-

the moving-average method. Equity securities issued by subsidiaries andples, with adjustments for the specified six items as applicable.

affiliated companies, which are not consolidated or accounted for using

The accompanying consolidated financial statements have been refor-the equity method, are stated at cost based on the moving-average

matted and translated into English (with certain expanded descriptions)

method. Unlisted available-for-sale securities are stated at cost based onfrom the consolidated financial statements of Sumitomo Heavy Industries,

the moving-average method.

Ltd. (“the Company”) prepared in accordance with Japanese GAAP and
filed with the appropriate Local Finance Bureau of the Ministry of Finance

Inventories

as required by the Financial Instruments and Exchange Law. Certain sup-Inventories are stated at the lower of cost or net realizable value as ofplementary information included in the statutory Japanese language con-the year-end date.

solidated financial statements is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is

Depreciation and amortization
Tangible fixed assets (not including lease assets):

included solely for the convenience of readers outside Japan, using the

Buildings acquired between April 1, 1998 and March 1, 2007 areprevailing exchange rate at March 31, 2010, which was ¥93 to U.S. $1.

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

The convenience translations should not be construed as representations

Buildings acquired after April 1, 2007 are depreciated primarily using aof what the Japanese yen amounts have been, could have been, or

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

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

acquired on or before March 31, 2007 are depreciated primarily byother rate of exchange.

declining-balance method with residual value of 5% and those acquired
after April 1, 2007 are depreciated by declining-balance method with

Principles of consolidation

no residual value.

The consolidated financial statements include the accounts of theDuring the year ended March 31, 2009, the Company and consoli-

Company and its significant subsidiaries (“the Companies”). All signifi-

dated domestic subsidiaries reviewed and changed useful lives prompt-

cant inter-company balance and transaction have been eliminated in

ed by reassessment of useful lives in the Japanese Corporation Tax Law

consolidation.

in 2009. This had not any material impact on the Company’s consoli-

Investments in significant affiliated companies are accounted for by

dated financial statements.

the equity method. Significant goodwill, which is difference between theinvestment cost and net assets at the date of acquisition are amortizedLease assets:over 5 years. In case of insignificant amounts, such amounts are charged

The Company and consolidated domestic subsidiaries account foror credited to income as incurred.

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

54 | Sumitomo Heavy Industries, Ltd.

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

losses to be incurred in the future is provided as allowance for the loss-

with disclosures of certain “as if capitalized” information. The Company

es on construction contracts.

and consolidated domestic subsidiaries capitalized finance leases thatcommenced after March 31, 2008, except for certain immaterial or

Allowance for losses on product liabilities

short-term finance leases, which are accounted for as operating leases.

Allowance for losses on product liabilities is provided at an estimatedProperty and equipment capitalized under finance lease arrange-amount of product liabilities to be incurred in relation to crane businessments are depreciated by the straight-line method over the lease term.

of overseas subsidiaries.

Allowance for doubtful accounts

Allowance for losses on business restructuring

The Company and consolidated subsidiaries provide an allowance for

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

doubtful accounts. Calculation of the allowance is based on historicaled amount to be incurred in connection with business restructuring ofcollection losses for normal receivables and accounts receivable consid-

the Company and affiliated companies in the future.

ered at risk (bankruptcy, companies under reorganization plan), theamount is recorded based on an estimated uncollectible amount, on an

Revenue recognition of construction contracts

individual basis.

The percentage-of-completion method is applied to construction
contracts when outcome of individual contracts is reliably estimat-

Revaluation difference on landed. The completed-contract method is applied to the other con-

The Company revaluated land used for business operations on Marchstruction contracts.

31, 2002 in accordance with Enforcement Ordinance for the Law
Concerning Revaluation Reserve for Land effective March 31, 1998.
The current value of the land as of March 31, 2010 fell by ¥21,137
million ($227,276 thousand) in comparison with the book value of the

Software costs
The Companies amortize costs of software for their own use using thestraight-line method over the estimated useful life (5 years).

land after the revaluation.

Research and development costs
Employees’ severance and retirement benefits

Research and development costs are charged to income when incurred.

In order to provide for retirement benefits to be paid to employees, theResearch and development costs included in production cost, and selling,amount considered to have accrued at the end of the fiscal year is

general and administrative expenses were ¥8,930 million ($96,020 thou-recorded based on the estimated amount of retirement benefit obliga-sand) and ¥10,688 million for the years ended March 31, 2010 andtions and pension plan assets at the end of the fiscal year.

2009, respectively.

Prior service costs are recognized in expenses as incurred by theCompany and amortized by the straight-line method over a period

Income taxes

within the average remaining service year of employees (mainly 12

The Companies recognize deferred taxes for temporary differences between

years) by consolidated subsidiaries.

the financial statement basis and the tax basis of assets and 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 in the next year when incurred.

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
With regard to construction contracts with high probability of incurring
substantial losses at the end of the fiscal year, an estimated amount of
Sumitomo Heavy Industries, Ltd. | 55

Income and expense accounts are translated at balance sheet daterates. The adjustment resulting from the foreign currency translation isreported in net assets.

during each fiscal year.
The diluted net income per share is not presented, because theCompany does not have any outstanding convertible bonds or bonds
with subscription rights.

Amortization of goodwill

Cash dividends per share have been presented on an accrual basis

Goodwill is amortized based on the straight-line method over the 5-

and include year-end cash dividend resolved at shareholders’ meeting

year period, the estimated period over which the effect of investment isheld after the end of fiscal year, but applicable to the year ended.

expected to be obtained.
However, where amount of goodwill is insignificant, all such amountis charged or credited to income as incurred.

Reclassifications
Certain amounts in the consolidated financial statements for the year
ended March 31, 2009 have been reclassified to conform to the 2010

Derivatives and hedge accounting

presentation.

Derivative financial instruments are stated at fair value and changes in
the fair value are recognized as gains or losses. When derivatives are for

Change in accounting policies

hedging purposes, the Companies defer recognition of gains or losses(A) New accounting standards for retirement benefits

resulting from changes in fair value of the derivatives until related losses

Effective from the fiscal year ended March 31, 2010, the Company andor gains on the hedged items are recognized.

consolidated domestic subsidiaries adopted the “Partial Amendments

However, if forward foreign exchange contracts meet certain hedging
criteria, they are accounted for the contracts as follows;
When a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,

to Accounting Standard for Retirement Benefits (Part 3)” (AccountingStandards Board of Japan (“ASBJ”) Statement No. 19 issued on July 31,2008). The new accounting standard requires domestic companies to
use the rate of return on long-term government or gilt-edged bonds asa) T he difference, if any, between the Yen amount of the hedged for-of the end of the fiscal year for calculating the projected benefit obliga-

eign currency receivable or payable translated using the spot ratetion of a defined-benefit plan. Previously, domestic companies wereat the inception date of the contract and the book value of theallowed to use a discount rate determined by taking into consideration

receivable or payable is recognized in the income statement in thefluctuations in the yield of long-term government or gilt-edged bonds

period which includes the inception date, andover a certain period. There is no impact of this change on the operat-b) The discount or premium on the contract (that is, the difference
between the Yen amount of the contract using the contracted for-ing income and income before income taxes and minority interests forthe year ended March 31, 2010.

ward rate and the amount using the spot rate at the inception
date of the contract) is recognized over the term of the contract.

(B) New accounting standard for construction contracts

When a forward foreign exchange contract is executed to hedge a

To account for the revenues and costs of construction contracts, the per-future transaction in a foreign currency, the future transaction will becentage-of-completion method was applied to long-term, large-scale

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

construction contracts that met certain conditions, whereas the complet-

be recognized.

ed-contract method was applied to other construction contracts. Effective

When interest rate swap contracts meet certain hedging criteria, the net

from the year ended March 31, 2010, the domestic companies adopted

amount to be paid or received is added to or deducted from the interest on

the “Accounting Standard for Construction Contracts” (ASBJ Statement

the assets or liabilities for which the swap contract was executed.

No. 15, issued on December 27, 2007) and the “Guidance on Accounting

When currency option contract is executed to hedge a future transac-

Standard for Construction Contracts” (ASBJ Guidance No. 18, issued ontion in a foreign currency, the future transaction will be recorded using

December 27, 2007). Accordingly, when the outcome of individual con-the contracted forward rate, and no gains or losses on the currency

tracts is reliably estimated, the domestic companies apply the percentage-

option contract are recognized.

of-completion method to construction projects commencing in the year
ended March 31, 2010, otherwise the completed-contract method is

Amounts per share

applied. The percentage of completion at the end of the reporting period

The computation of net income per share of common stock is based on

is measured by the proportion of the cost incurred to the estimatedthe weighted-average number of shares of common stock outstanding

total cost. As a result of the adoption, net sales for this consolidated

56 | Sumitomo Heavy Industries, Ltd.

­fiscal year increased by ¥781 million ($8,397 thousand) and operating

2. Business of the entity:

income and income before taxes and minority interests each increased by

The business of SEN Corporation, an SHI and Axcelis Company is devel-¥116 million ($1,251 thousand) compared to the previous accounting

opment, manufacturing, and sale of ion implanters and related services.

method. Effects on the change on the segment information are describedin “9. Segment information (D)”.

3. Overview of the transaction and the purpose:
To accelerate and promote the global market expansion of business of(C) Unification of accounting policies applied to foreign subsidiar-ion implanters (a kind of semiconductor equipment)

ies for consolidated financial statements
On May 17, 2006, the Accounting Standards Board of Japan issued

4. Acquired company’s financial results for 2009:

ASBJ Practical Issues Task Force No. 18 “Practical Solution on Unification

As the acquisition date is deemed to be on March 31, 2009, the resultsof Accounting Policies Applied to Foreign Subsidiaries for Consolidatedof operations of the acquired company before March 31, 2009 are

Financial Statements” (“PITF No. 18”). PITF No. 18 requires that

included in equity in earnings of affiliates.

accounting policies and procedures applied by a parent company andits subsidiaries to similar transactions and events under similar circum-

5. Acquisition costs:

stances should, in principle, be unified for the preparation of the consolidated financial statements. PITF No. 18, however, as a tentative
measure, allows a parent company to prepare consolidated financial
statements using foreign subsidiaries’ financial statements prepared inaccordance with either International Financial Reporting Standards or
U.S. generally accepted accounting principles. In this case, adjustments
for the following six items are required in the consolidation process sothat their impact on net income is accounted for in accordance withJapanese GAAP unless the impact is not material.
 (a) Goodwill not subject to amortization(b) Actuarial gains and losses of defined-benefit retirement plans recognized outside profit or loss(c) Capitalized expenditures for research and development activities(d) Fair value measurement of investment properties, and revaluationof property, plant and equipment and intangible assets(e) Retrospective treatment of a change in accounting policies(f) Accounting for net income attributable to minority interests

Millions of yen

Acquisition price¥11,315

Direct costs attributable to the acquisition
Acquisition costs

118
11,433

6. Negative goodwill:(1) Amount of negative goodwill

3,334 million yen(2) Reason for the negative goodwill
The negative goodwill was recorded as the acquisition price agreed
with the seller in consideration of the valuation by a third party institution was lower than the net assets measured at fair value as of the dateof the acquisition.
(3) Amortization of negative goodwill
Negative goodwill is amortized using the straight-line method overa five-year period.

The adoption of PITF No. 18 did not have any material impact on the
Company’s consolidated financial statements.

Business combinations
Acquisition of voting rights in SEN Corporation, an SHI and
Axcelis Company
1. General information:
The Company acquired voting rights in SEN Corporation, an SHI and
Axcelis Company on March 30, 2009.
The legal form of the transaction is a purchase of stock. As a result of
the transaction, the Company’s ownership of the voting rights increased
from 50% to 100%.
In addition, SEN Corporation, an SHI and Axcelis Company changed
its company name to SEN Corporation on April 1, 2009.

Sumitomo Heavy Industries, Ltd. | 57

2. Cash and cash equivalents

4. Impairment losses on fixed assets

Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less. Those are readily

The Company and a certain consolidated subsidiary recognized the fol-

convertible to known amounts of cash and have negligible risk oflowing impairment losses in the year ended March 31, 2009.
Millions of yenchanges in value.
Cash and cash equivalents as of March 31, 2010 and 2009 consistedof the following:Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

¥62,511¥44,685$672,167

Time deposits with maturities
over three months(322)(2,035)(3,461)

Collateral deposits

(738)

(237)

(7,939)Investment securities(cash equivalents)

1

1

11

¥61,452¥42,414$660,778

Cash and time deposits

Cash and cash equivalents

Use

Type of assets

Location

2009

Business Property Intangible fixed assets

Germany

Idle

Buildings, etc.

Kurashiki,
Okayama Pref.

116

Idle

Buildings, etc.

Saijo, Ehime Pref.

108

Buildings, etc.

Yokosuka,
Kanagawa Pref.

47

Idle
Total

¥1,633¥1,904

Reason for recognition of impairment losses:
Due to decrease in profitability and changes in a business plan, recoverability of assets amount cannot be expected.

As the Note of Business combinations states, the Company acquired
additional voting rights of an affiliate, SEN Corporation, an SHI and
Axcelis Company, which became a consolidated subsidiary as a result.
The following table summarizes the assets and liabilities of SEN
Corporation, an SHI and Axcelis Company at the acquisition date, thestock acquisition price and related expense.
SEN Corporation, an SHI and Axcelis Company (as of March 30, 2009)
Millions of yen

Grouping of assets:
Assets grouping is basically determined based on each division operation. Temporarily idle assets are grouped as each item.

Calculation of recoverable amount:
The recoverable amount is based on a net selling price; it is calculated
by deducting costs related to sale from the selling price.

2009

Current assets¥11,477

Non-current assets

4,242

Goodwill generated(3,334)Current liabilities(876)

5. Bank loans, commercial paper and long-term debt

(76)

Bank loans as of March 31, 2010 and 2009 consisted of short-term loans,

Acquisition cost of stock¥11,433

bearing average interest at 1.69% and 1.63% per annum, respectively.

Cash and cash equivalents(3,512)

Non-current liabilities

Payment for purchase¥ 7,921

There was no balance of the commercial paper as of March 31, 2010.
Commercial paper as of March 31, 2009 bore interest principally at
0.50% per annum.
The amounts of lease obligation under finance leases include the

3. Inventories

imputed interest expense portion.

Inventories as of March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2009

2010

Finished products¥ 34,408¥ 43,260$ 369,979

Work in process

70,071

84,826753,455

Raw materials and supplies

18,937

21,294

203,625¥123,416¥149,380$1,327,059

Total

58 | Sumitomo Heavy Industries, Ltd.

Long-term debt as of March 31, 2010 and 2009 consisted of thefollowing:Thousands of
U.S. dollars

Millions of yen

2010

0.9 % domestic bonds due
in December 2014

The Company has agreements with twelve banks for revolving linesof credit and four global commitment lines to efficiently borrow work-

2010

2009

ing capital.
As of March 31, 2010 and 2009, unused revolving lines of credit andglobal commitment lines were as follows:¥10,000$107,527

Thousands of
U.S. dollars

Millions of yen

1.0 % domestic bonds due
in March 2010

¥10,000

Loans principally from banks andinsurance companies due seriallythrough June 2018 with interest
ranging from 1.07% to 2.20%
in 2009

Limit of revolving lines of credit
and global commitment lines

Secured

1,196

1,796

12,860Unsecured

45,94040,367493,977

4,320

2,460

46,449¥61,456¥54,623$660,813

Amount due within one year

11,226

11,136

120,706

Amount due after one year

50,23043,487

540,107

Lease obligations

2010

2009

2010

$547,183¥50,888¥45,823

Executed

3,551

4,351

38,184

Unused¥47,337¥41,472$508,999

6. Income tax
The Companies are subject to corporation, inhabitants’ and enterprisetaxes, which, in the aggregate show a statutory tax rate in Japan of

Annual maturities of long-term debt as of March 31, 2010 were as

approximately 41% for the years ended March 31, 2010 and 2009.
The following table summarizes significant differences between thefollows:

statutory tax rate and the effective tax rate for consolidated financial

Millions of yen

Thousands of
U.S. dollars

2010

2010

2011

¥11,226$120,706

2012

5,532

59,4842013

21,262

228,622

Expenses not deductible for tax purposes

2.70

1.37

2014

1,619

17,409Per capita inhabitant tax

0.80

0.60

2015

21,650232,801

Dividend income deductible for tax purpose(4.42)(1.42)

167

1,791

Amortization of goodwill

0.62

7.76

¥61,456$660,813—(8.37)
11.53

Year ending March 31

2016 and thereafter
Total

As of March 31, 2010 and 2009, assets pledged as collateral forstatement purposes for the years ended March 31, 2010 and 2009.
Statutory tax rate

Retained earnings in consolidated overseas subsidiaries

2010

2009

40.69%

40.69%

Valuation allowance

3.82

Others1.02

3.24

Effective tax rate

45.23%

55.40%

short-term loans, long-term loans from banks and insurance companies
and domestic bonds were as follows:
Thousands of
U.S. dollars

Millions of yen

2010

Cash and time deposits
Buildings and structure
Machinery and other tangible
fixed assets
Land
Total

¥

739
2,295

2010

2009

¥

294
2,754

$

7,942
24,674

87

1,663

934

34,52934,652371,284¥37,650¥39,363$404,834

Sumitomo Heavy Industries, Ltd. | 59

Main components of deferred tax assets and liabilities as of March
31, 2010 and 2009 were as follows:
Thousands of
U.S. dollars

Millions of yen

2009

2010

¥ 3,280¥ 3,387$ 35,271

pany may, by a resolution of the Board of Directors, designate an Allowance for employees’
severance and retirement benefit

869

846

9,341

amount not exceeding one-half of the price of the new shares as addi-

2,048

19,702tional paid-in capital, which is included in capital surplus.

15,07015,804

162,040

704

Unrealized profit on inventories Devaluation of marketablesecurities and investments into
affiliated companies

shares is required to be designated as common stock. However, a com-

1,832

Allowance for doubtful accounts
Allowance for warranty

Under Japanese laws and regulations, the entire amount paid for new

2010

Deferred tax assets:
Accrued bonuses

7. Net assets

880

7,574

Under the Japanese Corporate Law (“the Law”), in cases where a
dividend distribution of surplus is made, the smaller of an amount equal
to 10% of the dividend or the excess, if any, of 25% of common stock

1,045

1,621

11,238over the total of additional paid-in-capital and legal earnings reserve

Excess depreciation

1,202

1,350

12,929must be set aside as additional paid-in-capital or legal earnings reserve.

Net operating loss carryforward

5,382

3,461

57,867

Legal earnings reserve is included in retained earnings in the accompa-

Loss on valuation of inventories

2,238

1,686

24,061Others

6,872

7,359

73,891nying consolidated balance sheets.

38,49438,442413,914

Total deferred tax assets

Under the Law, generally legal earnings reserve and additional paid-in(14,109)(13,617)(151,706)

capital could be used to eliminate or reduce a deficit by a resolution of¥24,385¥24,825$262,208

the shareholders’ meeting.

Excess tax depreciation reserve

(112)

(115)

(1,207) Difference on revaluation of assets
and liabilities of subsidiaries

reserve may be transferred to other capital surplus and retained earn-(3,955)(4,089)(42,525)

ings, respectively, which are potentially available for dividends.

(662)

(545)

(7,114) Retained earnings in consolidated
overseas subsidiaries(1,328)(1,345)(14,279) Net unrealized holding gains
on securities(1,038)—(11,158)

mum amount that the Company can distribute as dividends at March

Deferred gain or loss on hedges(813)(1,333)(8,739)31, 2010, amounted to ¥30,662 million ($329,703 thousand).

Others

(104)

(15)

(1,130)

Deferred tax liabilities¥ (8,012)¥ (7,442)$ (86,152)

Net deferred tax assets¥16,373¥17,383$176,056

Less-valuation allowance
Deferred tax assets—net
Deferred tax liabilities:

Accelerated depreciation

Under the Law, all additional paid-in-capital and all legal earnings

The maximum amount that the Company can distribute as dividends
is calculated based on the non-consolidated financial statements of theCompany in accordance with Japanese laws and regulations. The maxi-

At the general shareholders’ meeting held on June 29, 2010, theshareholders resolved cash dividends amounting to ¥2,414 million($25,953 thousand). Such appropriations have not been accrued in the
consolidated financial statements as of March 31, 2010 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 ¥2,502 million ($26,902 thousand) and ¥3,257 million asof March 31, 2010 and 2009. 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 amount of ¥15,495 million ($166,612
thousand) and ¥14,178 million as of March 31, 2010 and 2009 respectively (net of guarantees by co-guarantors).

60 | Sumitomo Heavy Industries, Ltd.

9. Segment information(A) The Companies’ primary business activities include (1) mass-produced machinery, (2) environmental protection facilities, plants& others, (3) ship, steel structure & other specialized equipment, (4) industrial machinery, and (5) construction machinery.
A summary of net sales, costs and expenses, and operating income by business segment for the years ended March 31, 2010 and 2009, and asummary of identifiable assets, depreciation, impairment losses on fixed assets and capital expenditures by business segment for the years ended
March 31, 2010 and 2009 are presented below:
Millions of yen

2010

Mass-produced
machinery

Environmental
protection facilities,
plants & others

Ship, steel structure& other specialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated¥174,231¥77,195¥76,452¥85,637¥102,650¥¥516,165

2,322

2,306

652

207

6

(5,493)—

176,553

79,501

77,10485,844

102,656(5,493)516,165

I Sales and operating income
Sales:
Outside customers
Inter-segment   Total
Costs and expenses

178,253

71,55469,902

71,677

Operating income (loss)¥ (1,700)¥ 7,947¥ 7,202¥14,167¥

102,085571¥—(5,560)487,91167¥ 28,254¥610,087¥227,759¥61,545¥91,564¥63,505¥122,098¥43,616

Depreciation

9,804

1,053

3,176

1,853

3,839

—

19,725

Capital expenditures

8,923

750

4,520

1,792

8,480

—

24,465

II Identifiable assets

Millions of yen

2009

Mass-produced
machinery

Environmental
protection facilities,
plants & others

Ship, steel structure& other specialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated¥227,227¥92,625¥ 79,602¥84,310¥159,154¥¥642,918

3,883

2,648

650

226

31

(7,438)—231,110

95,27380,252

84,536

159,185(7,438)642,918

151,642I Sales and operating income
Sales:
Outside customers
Inter-segment   Total—

Costs and expenses

218,776

84,554

67,69070,951(7,635)585,978

Operating income¥ 12,334¥10,719¥ 12,562¥13,585

¥

7,543

¥197

¥ 56,940

II Identifiable assets¥263,192¥70,269¥110,701¥69,529¥118,505¥25,240¥657,436

Depreciation

9,357

1,128

2,871

1,775

3,189

—

18,320

Impairment losses on fixed assets

1,749

—

—

—

—

155

1,904

Capital expenditures

14,397

999

6,528

3,458

6,371

—

31,753

Sumitomo Heavy Industries, Ltd. | 61Thousands of U.S. dollars

2010

Mass-produced
machinery

Environmental
protection facilities,
plants & others

Ship, steel structure& other specialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated$1,873,454$830,049$822,061$920,833$1,103,765$$5,550,162

24,96424,800

7,011

2,222

64

(59,061)—

1,898,418

854,849

829,072

923,055

1,103,829(59,061)

5,550,162

I Sales and operating income
Sales:
Outside customers
Inter-segment   Total

1,916,697

769,401

751,627

770,718

1,097,691(18,279)$ 85,448$ 77,445$152,337$

II Identifiable assets$2,449,020$661,778$984,558$682,855

Depreciation

105,416

11,321

34,15019,925

Capital expenditures

95,956

8,068

48,59919,265

Costs and expenses
Operating income (loss)$—(59,776)

5,246,358

715$ 303,804$1,312,881$468,988$6,560,080

41,285—

212,097

91,180—263,068

6,138$

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

(B) Information by geographic area for the years ended March 31, 2010 and 2009 was as follows:
Millions of yen

2010

Japan

North America

Other areas

Elimination and/or
corporate

Consolidated¥418,145¥46,715¥51,305¥        —¥516,165

32,315

1,000

7,951

(41,266)—

450,460

47,71559,256(41,266)

516,165

I Sales and operating income
Sales:
Outside customers
Inter-segment   Total
Costs and expenses

422,42945,94561,296(41,759)

487,911

Operating income (loss)¥ 28,031¥ 1,770¥ (2,040)¥

493¥ 28,254¥451,472¥45,383¥66,902¥46,330¥610,087

Elimination and/or
corporate

Consolidated

II Identifiable assets

Millions of yen

2009

Japan

North America

Other areas¥506,320¥76,770¥59,828¥

38,209997

11,137(50,343)—544,529

77,76770,965(50,343)642,918

I Sales and operating income
Sales:
Outside customers
Inter-segment   Total—¥642,918

Costs and expenses

497,860

69,93069,748(51,560)

585,978

Operating income¥ 46,669¥ 7,837¥ 1,217¥ 1,217¥ 56,940

II Identifiable assets¥529,250¥50,636¥50,533¥27,017¥657,436

62 | Sumitomo Heavy Industries, Ltd.

Thousands of U.S. dollars

2010

Japan

North America

Other areas

Elimination and/or
corporate

Consolidated$4,496,180$502,310$551,672$          —$5,550,162

347,478

10,75485,489(443,721)—

4,843,658

513,064

637,161(443,721)

5,550,162

I Sales and operating income
Sales:
Outside customers
Inter-segment   Total
Costs and expenses

4,542,243

494,034

659,098(449,017)

5,246,358

Operating income (loss)$ 301,415$ 19,030$ (21,937)

$

5,296

$ 303,804$4,854,545$487,987$719,379$498,169$6,560,080

II Identifiable assets

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

(C) Overseas sales of the Companies for the years ended March 31, 2010 and 2009 were as follows:
Millions of yen

2010

To North America

To Asia¥56,869¥92,696¥93,885

11.0%

18.0%

18.2%

To North America

To Asia

To other areas

Total¥102,347¥109,796¥117,017¥329,160

15.9%

17.1%

18.2%

To North America

To Asia

To other areas

Total$611,497$996,729$1,009,516$2,617,742

11.0%

18.0%

18.2%

Overseas Sales

To other areas

Total¥243,450
516,165

Consolidated Sales
Ratio of overseas sales to consolidated sales

47.2%

Millions of yen

2009

Overseas Sales
Consolidated Sales

642,918

Ratio of overseas sales to consolidated sales

51.2%

Thousands of U.S. dollars

2010

Overseas Sales

5,550,162

Consolidated Sales
Ratio of overseas sales to consolidated sales

47.2%

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

(D) The effect of the accounting changes on segment information

By the accounting change, in the Environmental protection facilities,

New accounting standard for construction contracts

plants & other segment, sales increased by ¥302 million ($3,250 thou-

As discussed in “1. Change in accounting policies (B),” from the yearsand), and operating income increased by ¥28 million ($306 thousand).

ended March 31, 2010, the Company and consolidated domestic subsid-

Further, in the Industrial machinery segment, sales increased by ¥479

iaries adopted the new accounting standard for construction contracts.

million ($5,147 thousand), and operating income increased by ¥88 million ($945 thousand).

Sumitomo Heavy Industries, Ltd. | 63

10. Information for certain leases

Future lease payments as of March 31, 2010 and 2009, includinginterest under such leases were as follows:
Millions of yen

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, 2010
and 2009 was as follows:

2009

2010

¥ 3,792$25,908

4,461

6,981

47,970¥6,871¥10,773$73,878

Also, future lease payments under operating leases as of March 31,
Millions of yen

Machinery and other tangible
fixed assets

2010¥2,410Due after one year
Total(A) Lessees

2010

Due within one year

Thousands of
U.S. dollars

Acquisition
cost

Accumulated
depreciation

Net bookvalue

2010 and 2009 were as follows:
Millions of yen¥15,152¥8,409¥6,743

Others

342

214

128

Total

¥15,494¥8,623¥6,871

Future lease payments

Thousands of
U.S. dollars

2010

2009

2010

¥2,269¥2,544$24,402964

769

10,361

Due within one year includedin above

Millions of yen

2009

Acquisition
cost

Accumulated
depreciation

Net book
value

Machinery and other tangible
fixed assets¥20,704¥10,159¥10,545

Others

514

286

228

Total

¥21,218¥10,445¥10,773(B) Lessors
Millions of yen

2010

Machinery and other tangible
fixed assets
Total

Acquisition
cost

Accumulated
depreciation

Net book
value

¥10

¥8

¥2

¥10

¥8

¥2

Thousands of U.S. dollars

2010

Machinery and other tangible
fixed assets

Acquisition
cost

Accumulated
depreciation

Net book
value$162,926$90,419$72,507

Others

3,672

2,301

1,371

Total

$166,598$92,720$73,878

Millions of yen

2009

Machinery and other tangible
fixed assets
Total

Acquisition
cost

Accumulated
depreciation

Net book
value

¥74

¥59

¥15

¥74

¥59

¥15

Total lease payments for finance leases which do not transfer ownershipto lessees amounted to ¥2,768 million ($29,760 thousand) and ¥3,922
million for the years ended March 31, 2010 and 2009, respectively.

Thousands of U.S. dollars

2010

Machinery and other tangible
fixed assets
Total

Acquisition
cost

Accumulated
depreciation

Net book
value

$109

$92

$17

$109

$92

$17

Total lease payments for finance leases which do not transfer ownership to lessees amounted to ¥1 million ($15 thousand) and ¥15 million
for the years ended March 31, 2010 and 2009, respectively.

64 | Sumitomo Heavy Industries, Ltd.

Future lease payments as of March 31, 2010 and 2009, includinginterest under such leases were as follows:

Financial instruments and related risks:
Trade receivables are exposed to the credit risk in relation to customers

Millions of yen

Thousands of
U.S. dollars

and trading partners. Trade receivables denominated in foreign curren-

2010

2009

2010

cies are exposed to the foreign exchange rate fluctuation risk. The

Due within one year

¥2

¥11

$17

Company mitigates such risks through forward exchange contracts andDue after one year

0

12

3

options, and maintains the ratios of the exposure at a certain range.

¥2

¥23

$20

The hedge ratios and balances not yet hedged are regularly reported to

Total

their Board of Directors.
Also, future lease payments under operating leases as of March 31,
2010 and 2009, were as follows:

The Companies are exposed to the market price fluctuation risk in relation to investment securities that are primarily for business relationship.

Millions of yen

Thousands of
U.S. dollars

Most trade payables are due within one year. Although part of them

2010

2009

2010

is exposed to foreign exchange rate fluctuation risk, the exposure is

Future lease payments

¥770

¥697

$8,277

always within the balance of accounts receivable in the same currency.

Due within one year included in above

151

194

1,625

Loans, commercial paper and corporate bonds are primarily used forfund raising related to operating and investing activities. For long-term

11. Financial instruments

loans in foreign currencies, the Companies enter into interest rate swap
contracts for hedging purposes.

Effective from the fiscal year ended March 31, 2010, the Company adopted
the revised Accounting Standard, “Accounting Standard for Financial

Risk management for financial instruments:

Instruments” (Accounting Standards Board of Japan (“ASBJ”) Statement

Credit risk:

No. 10 revised on March 10, 2008) and the “Guidance on Disclosures about

The Companies review credit status of customers before accepting

Fair Value of Financial Instruments” (ASBJ Guidance No. 19 revised onorders to mitigate their credit exposure. In accordance with a credit

March 10, 2008). Information on financial instruments for the year

management policy, each business unit monitors collection and balance

ended March 31, 2010 required pursuant to the revised accountingof receivables for each customer to minimize uncollectable amounts.

standards is as follows;

For derivatives and deposits, the Companies enter into contracts onlywith highly rated financial institutions.

(A) Qualitative information on financial instruments
Utilization policy of financial instruments:
The Companies raise funds necessary for operating and investing activities through bank loans and bond issuances and utilizes financial assetsthat carry little risk or no risk for temporary funds surplus. The derivatives policy states that the Company utilizes derivatives only to mitigate
the risks that are described as follows, and does not conduct speculative transactions for trading purposes.

Sumitomo Heavy Industries, Ltd. | 65

Market risks:Thousands of U.S. dollars

In relation to amounts of net trade receivables and trade payables inBook value

Fair value

Difference

foreign currencies, the Companies hedge exchange rate fluctuations in

Cash and time deposits$ 672,167$ 672,167$      —

accordance with a market risk management policy. The status of theTrade receivables

1,418,206

1,416,847(1,359)156,269

156,269—

2,246,642

2,245,283(1,359)—hedge is reported to the Board of Directors every month. Major consolidated subsidiaries take the same approach.

2010

Investment securities
Assets Total

1,161,479

1,161,479

Short-term bank loans

328,218

328,218—

Corporate bonds

107,527

106,811

(716)
1,328

Trade payables

Loan-related interest payable is also monitored and reported to theBoard of Directors regularly. To mitigate the interest-rate fluctuation

506,637

508,165

2,104,061

2,104,671(612)

17,395

12,050(5,345)Long-term debt

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

Liabilities Total
Derivatives

regularly. The Company reviews appropriately the investment portfolio

Cash and time deposits:in consideration of relationship with counterparties.

The fair values approximate the book values because of short-term

Derivative transactions conducted by the Company and its major con-maturities of these instruments.

solidated subsidiaries are used solely for the purpose of hedging risks
concerning exchange rate and interest rate fluctuations as explained

Trade receivables:

above. The Company confirms balances with the contract counterpar-

The discounted cash flow method was used to estimate the fair values,

ties every month.

based on discount rates calculated as totals of appropriate baseline
rates and credit risk spreads.

Liquidity risks:
The Companies conduct cash management among major consolidated

Investment securities:

subsidiaries for efficient use of the Companies’ funds. The Company

The market prices were used to estimate the fair values.

timely formulates and updates the fund management plan based onreports from business units and major subsidiaries, and monitors theTrade payables and short-term bank loans:liquidity risk.

The fair values approximate the book values because of short-term
settlement of these instruments.

(B) Fair values of financial instruments
Book values and fair values of the financial instruments on the consoli-

Corporate bonds:

dated balance sheet as of March 31, 2010 were as follows. Certain

The discounted cash flow method was used to estimate the fair values,

financial instruments were excluded from the following table as the fairbased on discount rates calculated as totals of appropriate baseline

values were not available.

rates and credit risk spreads.
Long-term debt:

Millions of yen
Book value

Fair value

Difference

Cash and time deposits¥ 62,511¥ 62,511¥    —

Trade receivables

131,893

131,767

(126)

2010

14,533

14,533—208,937

208,811(126)

Trade payables

108,018

108,018—

Short-term bank loans

30,52430,524—

Corporate bonds

10,000

9,933

(67)
125

Investment securities
Assets Total

Long-term debt
Liabilities Total
Derivatives

47,13647,259195,678

195,736

58

1,618

1,121

(497)

66 | Sumitomo Heavy Industries, Ltd.

The discounted cash flow method was used to estimate the fair values,
based on marginal borrowing rates as discount rates.

Derivatives:

The aggregate maturities subsequent to March 31, 2010 for financial

The fair values of forward exchange contracts are based on quoted for-assets with maturity were as follows:

ward exchange rates. The fair values of options and interest rate swaps

Millions of yen

are based on the quotes from financial institutions.

Over one year
withinfive years

Withinone year

The affiliates stocks, the unlisted stocks and the investment bonds inthe following table are not included in “Investment Securities” above

Cash and time deposits¥ 62,511

Trade receivables

127,396

4,357

139

¥189,907¥4,357

¥139

Total

¥

Over
five years—¥ —because there is no fair value available.

Millions of yen

Thousands of
U.S. dollars

2010

2010

Affiliates stocks¥13,509$145,259

Unlisted stocks

2,345

25,220Investment bond

11

117

Thousands of U.S. dollars
Over one year
withinfive years

Withinone year

Cash and time deposits$ 672,167$

Trade receivables

1,369,855

46,852

1,499$2,042,022$46,852$1,499

Total

—

Over
five years$—

The aggregate maturities subsequent to March 31, 2010 for long-term debt and corporate bonds were as follows:
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—Thousands of U.S. dollars

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

$112,232$44,436$214,378$11,178$123,016$1,597

Corporate bond

—

—

—

—

107,527—

Sumitomo Heavy Industries, Ltd. | 67

12. Securities

13. Derivatives information(A) Book values of securities not stated at fair value as of

The Companies enter into forward currency exchange contracts, inter-

March 31, 2010 were disclosed in note 11 “Financial instru-

est rate swap contracts and currency option contracts as derivativements”. Book values of securities not stated at fair value

financial instruments. The Companies utilize forward currency exchange

as of March 31, 2009 were as follows:transactions to hedge exchange rate risk with respect to receivables andMillions of yen

payables denominated in foreign currencies. Interest rate swap transac-

2009tions are utilized to minimize risk of increase in interest rate on borrow-

Held-to-maturity debt securities:
Non-listed corporate bonds¥

10

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

sure. Details of transactions are reviewed and approved by the11Companies’ internal policies, which include personnel’s responsible¥2,509(B) Acquisition costs and book values of securities with fairvalue as of March 31, 2010 and 2009 were as follows:
Millions of yen

financial institutions with higher credit ratings to avoid credit risk expo-

2,488

OthersTotal

ings. The Companies enter into such transactions only with international

based on transaction types and limits of amounts.

(A) Forward foreign exchange contracts not accounted for as
hedge

Thousands of
U.S. dollars

The aggregate contracted amounts to be paid / received and the fair

2010

2009

2010

values of forward foreign exchange contracts not accounted for as¥11,375¥11,717$122,314

hedge in Japanese yen as of March 31, 2010 and 2009 were as follows:Book value

14,533

10,928156,269

Difference¥ 3,158(789)$ 33,955

Available-for-sale securities
Equity securities Acquisition cost

¥

2010

(C) Total sales amount of available-for-sale securities in theyear ended March 31, 2010 and 2009 were as follows:
Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

Sale of securities¥1,705¥1,013$18,336

Net gain

1,581

9

16,995(D) There were no available-for-sale securities with maturity
and held to maturity securities as of March 31, 2010.

Thousands of
U.S. dollars

Millions of yen

2010

2009

Contracted amount to be
paid/received:
To buy foreign currencies
To sell foreign currencies¥

417
11,160

¥

872

$

4,486

14,866

120,004

To buy foreign exchange options

495

819

5,325

To sell foreign exchange options

422

1,637

4,537

Fair value:
To buy foreign currencies

(15)

692

(163)

To sell foreign currencies(187)

15,177(2,006)

To buy foreign exchange options

7

10

75

To sell foreign exchange options

(9)

(69)

(95)

Net unrealized exchange gain (loss)¥    (204)(551)$   (2,189)¥

Maturities of available-for-sale securities and held tomaturity securities as of March 31, 2009 were as follows:
Millions of yen

2009

Withinone yearOver one year Over five years
withinwithinten years
five years

There were no interest rate swap contracts of the Companies as ofOver
ten years

Total

Bonds

¥10

¥—

¥—

¥—

¥10

Total

¥10

¥—

¥—

¥—

¥10

(E) Impairment of securities
Impairment losses for securities were ¥377 million ($4,051 thousand)and ¥6,024 million for the years ended March 31, 2010 and 2009,
respectively.

68 | Sumitomo Heavy Industries, Ltd.

(B) Interest rate swap contracts not accounted for as hedge
March 31, 2010 and 2009.

(C) F orward foreign exchange contracts accounted for ashedge

14. Employees’ severance and retirement benefits

The aggregate contracted amounts to be paid / received and the fairvalues of forward foreign exchange contracts accounted for as hedge

consists of the following:in Japanese yen as of March 31, 2010 were as follows
Millions of yen

Thousands of
U.S. dollars

2010

2010

Deferred hedge accounting
Contracted amount to be paid/received:   To buy foreign currencies   To sell foreign currencies¥

308
32,482$

3,307
349,268

Fair value:   To buy foreign currencies

(13)

(135)

   To sell foreign currencies

1,834

19,719Alternative method*

Thousands of
U.S. dollars

Millions of yen

2010

2009

2010

(1) Projected benefit obligation¥(69,847)¥(74,428)$(751,039)(2) F air value of employees’ retirement benefit plan assets

31,36029,007337,205(3) Unfunded projected benefit
obligation(38,487)(45,421)(413,834)(4) Unrecognized actuarial difference

5,981

10,45164,307(5) Unrecognized prior service cost

80

170

865

(6) Prepaid pension benefit expenses

—

(8)

—

¥(32,426)¥(34,808)$(348,662)(7) Employees’ severance andretirement benefits

Contracted amount to be paid/received:   To sell foreign currencies(A) Projected benefit obligation on the balance sheet dates

148

1,589

(10)

(110)

(B) The following severance and pension benefit expenses are¥1,811$19,474

included in the statements of income for the years ended

Fair value:   To sell foreign currencies   Net unrealized exchange gain (loss)* When certain conditions are met, translation of foreign currency receivables and payable arebased on yen amounts fixed by forward contract.

March 31, 2010 and 2009:
Thousands of
U.S. dollars

Millions of yen(D) Interest rate swap contracts accounted for as hedge
The aggregate amounts of interest rate swap contracts accounted foras hedge as of March 31, 2010 were as follows:
Millions of yen

Thousands of
U.S. dollars

2010

2010

Interest rate swap contracts(special treatment)*
Contracted amount to be paid/received:   Interest swap fixed rate to floating rate

¥26,868$288,905(487)(5,236)

Fair value:   Interest swap fixed rate to floating rate

* 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.

2010

2009

2010

(1) Service cost

¥3,232¥3,602$34,768(2) Interest cost on projected benefit
obligation

1,829

1,774

19,663(3) Expected return on plan assets

(562)

(642)

(6,046)(4) Amortization of actuarial
difference

1,477

815

15,883(5) Amortization of prior service cost

187

346

2,007

(6) Effect of change in accounting
method of retirement benefits*

110

—

1,181

(7) Severance and pension benefit
expense¥6,273¥5,895$67,456* One domestic subsidiary ceased adopting a simplified method in estimating the employees’
severance and retirement benefits for the year ended March 31, 2010 and expensed all thedifference at the beginning of the year.

Sumitomo Heavy Industries, Ltd. | 69

(C) Main actuarial assumptions used to determine pension
obligations as of March 31, 2010 and 2009 are as follows:(1) Allocation of the estimated amountof all retirement benefits to be paid
at the future retirement date(2) Assumed discount rate

2010

2009

Equally to eachservice year
using theestimated
number of total
service years

Equally to eachservice year
using theestimated
number of total
service years

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 yearsb) Business of the entity
Business of Nihon Spindle is manufacturing and sales of dust collectors,
cooling towers, spinning machines, food processing equipment, clean
rooms, and industrial fasteners.
c) Overview of the transaction including its purpose
From the time Nihon Spindle became a consolidated subsidiary of theCompany in October 2007, both companies have worked together tocreate business synergies.
However, since that time the business environment has significantly
changed and market competition has become more intense as a resultof the global economic downturn that began in the second half of2008. In order to cope with such changes, Nihon Spindle is constantly
asked to further expand its global presence and strengthen its productcapabilities by its shareholders. With this in mind, Nihon Spindle developed a plan to actively utilize the technical development capabilities
and global business network of the Company in order to set it on a
growth trajectory.
Through the conversion of Nihon Spindle into a wholly-owned sub-15. Subsequent events

sidiary, the Company intends to maximize business synergies between(A) Appropriations of retained earnings

en its operating foundation, achieve long-term growth, and will ulti-

The following appropriations of retained earnings, which have not beenmately improve the corporate value of the entire Companies.

the two companies more quickly. This will help Nihon Spindle strength-reflected in the accompanying consolidated financial statements for theyear ended March 31, 2010, were approved at a general shareholders’meeting of the Company held on June 29, 2010:

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

Millions of yen

Thousands of
U.S. dollars

2010

2010

¥2,414$25,953

The approved dividend will be paid to the shareholders of record as ofMarch 31, 2010.

(B) Stock exchangea) General information
The Company will execute a stock exchange for Nihon Spindle
Manufacturing Co., Ltd. (“Nihon Spindle”), a consolidated subsidiary ofd) The ratio for the stock exchange
Stock exchange ratio

The Company

Nihon Spindle

1

0.38

Notes: 1. Share exchange ratio		0.38 share of the common stock of the Company is provided to shareholders of
Nihon Spindle in exchange for 1 share of its common stock of Nihon Spindle.
However, no shares of the Company are allotted to the shares of the common stockof 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 asked Daiwa Securities Capital Markets Co., Ltd. to calculate thestock exchange ratio. Daiwa Securities Capital Markets Co., Ltd. conducted an analysis with respect to the Company, based on the market share-value method together
with the discount cash flow method, and determined the stock exchange ratio by
considering the results of these analyses.
		  Nomura Securities Co., Ltd. conducted an analysis of Nihon Spindle based on threemethods; the market share-value average method, the comparison with similar companies method and the discount cash flow method. Nomura Securities Co., Ltd.
determined the stock exchange ratio by considering the results of the analyses. Basedon the above results, the Company and Nihon Spindle determined the stock exchange
ratio as indicated above.

the Company, as the acquired company on the transaction on October 1,
2010. The stock exchange will be executed with minority shareholders.

e) Number of shares will be delivered
Number of shares will be delivered to shareholders of Nihon Spindle
excluding the Company.
11,311,011 shares70 | Sumitomo Heavy Industries, Ltd.

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 asof March 31, 2010 and 2009, and the related consolidated statements of income, changes in net assets and cash flows for the years
then ended expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to independently express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall 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, 2010 and 2009, and the results of their operations and their cash
flows for the years then ended, in conformity 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, 2010 are
presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2010

Sumitomo Heavy Industries, Ltd. | 71

Network

Domestic Network

OfficesHead Office
1-1, Osaki 2-chome, Shinagawa-ku,

Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.

SEN Corporation

1-1, Osaki 2-chome, Shinagawa-ku,

Tokyo 158-0097, JapanTokyo 141-6025, Japan

Principal business: Semiconductor equipment, especiallyPrincipal business: S ales, design, production, repair andTokyo 141-6025, Japan
Tel: 81-3-6737-2000
URL: http://www.shi.co.jp

10-1, Yoga 4-chome, Setagaya-ku,

ion implantation systems

reconstruction of vessels (excluding

Tel: 81-3-5491-7800

naval vessels) and marine structures;

100% owned subsidiarymarine engineering
Tel: 81-3-6737-2620

Sumitomo NACCO Materials Handling Co., Ltd.
75, Daitoh-cho 2-chome, Obu-shi,

Kansai Office

URL: http://www.shi.co.jp/me3-33, Nakanoshima 2-chome, Kita-ku, Osaka-shi,

100% owned subsidiary

Osaka 530-0005, Japan
Tel: 81-6-7635-3610

Sumitomo Heavy Industries Engineering & Services
Co., Ltd.

Tel: 81-562-48-5251

Tanashi Works

1-1, Osaki 2-chome, Shinagawa-ku,

URL: http://www.sumitomonacco.co.jp

1-1, Yato-cho 2-chome, Nishitokyo-shi,

Tokyo 141-6025, Japan

50% owned subsidiaryTokyo 188-8585, Japan

Principal business: D esign, production and distribution ofgeneral industrial machinery, as well as

Tel: 81-42-468-4104

remodeling, repairs, inspection andChiba Works

maintenance731-1, Naganumahara-machi, Inage-ku,

Tel: 81-3-6737-2640

Chiba-shi, Chiba 263-0001, Japan

URL: http://www.shi.co.jp/ses

Tel: 81-43-420-1355

100% owned subsidiary

Yokosuka Works

Shin Nippon Machinery Co., Ltd.

19, Natsushima-cho, Yokosuka-shi,

1-1, Osaki 2-chome, Shinagawa-ku,

Kanagawa 237-8555, JapanTokyo 141-6025, Japan

Tel: 81-46-869-1842

Principal business: Steam turbines and pumps

Nagoya Works

Tel: 81-3-6737-2630

1, Asahi-machi 6-chome, Obu-shi, Aichi 474-8501, Japan
Tel: 81-562-48-5111

URL: http://www.snm.co.jp
100% owned subsidiary

Sumitomo Heavy Industries Techno-Fort Co., Ltd.

Okayama Works
8230, Tamashima-Otoshima, Kurashiki-shi,
Okayama 713-8501, Japan

5-2, Sobiraki-cho, Niihama-shi, Ehime 792-0001, Japan
Principal business: D esign, production, sales as well as
remodeling, repairs and maintenance

Tel: 81-86-525-6101

of forging presses and other industrial

Ehime Works—Niihama Factorymachinery

5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan

Tel: 81-897-32-6300

Tel: 81-897-32-6211

URL: http://www.shi.co.jp/stf/

Ehime Works—Saijo Factory

100% owned subsidiary

1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan

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

Tel: 81-898-64-4811

1-1, Osaki 2-chome, Shinagawa-ku,

Research and Development Center
19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Major Subsidiaries

Sumitomo Heavy Industries Environment Co., Ltd.
25-9, Nishigotanda 7-chome, Shinagawa-ku,
Tokyo 141-0031, Japan
Principal business: Development, design, manufacture,sale and repair of water and sewage

Tokyo 141-6025, Japan
Principal business: Construction Machinery
Tel: 81-3-6737-2600
URL: http://www.sumitomokenki.co.jp
100% owned subsidiary

Principal business: Forklift trucks and other materials
handling equipment

Sumiju Environmental Engineering, Inc.
9-11, Kitashinagawa 5-chome, Shinagawa-ku,
Tokyo 141-0001, Japan
Principal business: Operation and maintenance forenvironmental systems and plants
Tel: 81-3-5421-8484
100% owned subsidiary

Lightwell Co., Ltd.
18-10, Moto-Asakusa 3-chome, Taito-ku,
Tokyo 111-0041, Japan
Principal business: Software and related equipment
Tel: 81-3-5828-9230
URL: http://www.lightwell.co.jp
100% owned subsidiary

Izumi Food Machinery Co., Ltd.
4-2-30 Shioe, Amagasaki-shi,
Hyogo 661-8510, Japan
Principal business: Food processing machines and related
equipment
Tel: 81-6-6543-3500
URL: http://www.izumifood.shi.co.jp
100% owned subsidiary

Nihon Spindle Mfg. Co., Ltd.
2-30, Shioe 4-chome, Amagasaki-shi,
Hyogo 661-8510, Japan
Principal business: Industrial machinery, environmental
protection equipment and building
materials
Tel: 81-6-6499-5551
URL: http://www.spindle.co.jp

Seisa Gear, Ltd.

40.6% owned subsidiary (Note: 100% owned subsidiary16-1, Wakihama 4-chome, Kaizuka-shi,from October 1, 2010)

Osaka 597-8555, Japan
Principal business: Power transmission equipment
Tel: 81-724-31-3021
URL: http://www.seisa.co.jp
53.5% owned subsidiary

treatment facilities for the private

Sumitomo Heavy Industries PTC Sales Co., Ltd.

sector and other industrial equipment

1-1, Osaki 2-chome, Shinagawa-ku,

Tel: 81-3-6737-2700

Tokyo 141-6025, Japan

URL: http://www.shiev.shi.co.jp

Principal business: Power transmission equipment

100% owned subsidiary

Tel: 81-3-6737-2580
URL: http://www.sumiju.co.jp
100% owned subsidiary

72 | Sumitomo Heavy Industries, Ltd.

Aichi 474-8555, Japan

Sumitomo Heavy Industries Himatex Co., Ltd.
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-0002, Japan
Principal business: Castings, rolls and bimetallic cylinders
Tel: 81-897-32-6484
URL: http://www.shiff.co.jp
100% owned subsidiaryOverseas Network
Offices

Sumitomo Heavy Industries (Shanghai), Ltd.
Room 1301, Xingdi Business Building, No. 1698 YishanRoad, Minhang District, Shanghai,
People’s Republic of China

Sumitomo (SHI) Demag Plastics Machinery GmbH

Sumitomo (SHI) Cryogenics of Europe, Ltd.

Altdorfer str. 15, 90571 Schwaig, Germany

3 Hamilton Close, Houndmills Industrial Estate,

Principle business: Manufacture and sales of plastic

Basingstoke, Hampshire RG21 6YT, United Kingdom

molding machines

Principal business: Manufacturer of MRI magnet

Tel: 49-911-50610

cryocoolers, cryopumps and laboratory
cryostats for research and development

URL: http://www.sumitomo-shi-demag.eu
100% owned subsidiary

Tel: 44-01256-853333
100% owned subsidiary

Tel: 86-21-3462-7660

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

100% owned subsidiary

67 Ayer Rajah Crescent #01-15 to 26, Singapore 139950

Sumitomo (SHI) Cryogenics of Europe GmbH

Principal business: Plastics machinery

Daimlerweg 5a D-64293, Darmstadt, Germany

Tel: 65-6779-7544

Principal business: Service and sales of cryocoolers

100% owned subsidiary

Tel: 49-6151-860610

Major Subsidiaries

Sumitomo Machinery Corporation of America

100% owned subsidiary

4200 Holland Boulevard, Chesapeake,

SHI Plastics Machinery (Taiwan) Inc.

Virginia 23323, U.S.A.

3F-1, No. 687, Sec. 5, Chung Shan North Road,

Principal business: Power transmission equipment

Taipei, Taiwan

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

Tel: 1-757-485-3355

Principal business: Plastics machinery

No. 33 Yuanqu Road, Manufacturing Industrial Zone of

URL: http://www.smcyclo.com

Tel: 886-2-2831-4500

Modern Equipment, Kaiping District, Tangshan City,

100% owned subsidiary

URL: http://www.spm-northasia.com

Hebei Province, China

100% owned subsidiary

Principle business: Manufacture of hydraulic excavators

Sumitomo (SHI) Cyclo Drive Germany GmbH

Tel: 61-3391000

Cyclostrasse 92, 85229 Markt Indersdorf, Germany

SHI Plastics Machinery (Hong Kong) Ltd.

Principal business: Power transmission equipment

RM601, Telford House, 12-16 Wang Hoi Road,

Tel: 49-8136-66-0

Kowloon Bay, Hong Kong

Link-Belt Construction Equipment Company

URL: http://www.sumitomodriveeurope.com

Principal business: Plastics machinery

2651 Palumbo Drive, P.O. Box 13600, Lexington,

100% owned subsidiary

Tel: 852-2750-6630

Kentucky 40583-3600, U.S.A.

URL: http://www.spm-northasia.com

Principal business: Mobile cranes

100% owned subsidiary

Tel: 1-859-263-5200

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.
15 Kwong Min Road, Singapore 628718

100% owned subsidiary

URL: http://www.linkbelt.com/

Principal business: Power transmission equipment

SHI Plastics Machinery (Shanghai) Co., Ltd.

Tel: 65-6591-7800

Department, F, 1st Floor, Building.A, No.51, Ri Jing Road,

URL: http://www.sumitomodrive.com.sg

Shanghai Waigaoqiao Free Trade Zone,LBX Company, LLC

100% owned subsidiary

Pu Dong New Area, Shanghai, China

2333 Alumni Park Plaza, Lexington, KY 40517, U.S.A.

Principal business: Plastics machinery

Principal business: Construction machinery

Tel: 86-21-3462-7556

Tel: 1-859-245-3900

URL: http://www.spm-northasia.com

URL: http://www.lbxco.com/

100% owned subsidiary

50% owned subsidiary

Sumitomo Heavy Industries (Vietnam) Co., Ltd.
I-7, Thang Long Industrial Park, Dong Anh District, Hanoi,
Vietnam
Principal business: Manufacture of motors for power

100% owned subsidiary

SHI Plastics Machinery (Malaysia) Sdn. Bhd.

SHI Machinery Service (Hong Kong) Ltd.

Tel: 84-4-3955-0004

Lot AG 16, 17 & 18, PJ Industrial Park, Jalan Kemajuan,

Unit 2203, Level 22, Tower II, Metroplaza,

100% owned subsidiary

Section 13, 46200 Petaling Jaya, Selangor, D.E. Malaysia

No. 223 Hing Fong Road, Kwai Chung,Principal business: Plastics machinery

New Territories, Hong Kong

Tel: 60-3-7958-2079

Principal business: Maintenance service for harbor cranes

transmission equipment

Sumitomo Heavy Industries (Tangshan), Ltd.
No. 35 Yuanqu Road, Manufacturing Industrial Zone ofModern Equipment, Kaiping District, Tangshan City,

49% owned subsidiary

Tel: 852-2521-8433
100% owned subsidiary

Hebei Province, China

Sumitomo (SHI) Cryogenics of America, Inc.

Principle business: Manufacture of large and middle size

1833 Vultee St., Allentown,

SHI Designing & Manufacturing Inc.

Pennsylvania 18103-4783, U.S.A.

8th & 9th Floor Octagon Center, Sanmiguel Ave.,

Principal business: Manufacturer of MRI magnet

Ortigas Center, Pasig City, Metro Manila, Philippines

power transmission
Tel: 86-315-3390880
100% owned subsidiary

Sumitomo (SHI) Cyclo Drive China, Ltd.
13 Floor, No. 1698 Yishan Road, Shanghai, China 201103
Principal business: Power transmission equipment
Tel: 86-21-3462-7877

cryocoolers, cryopumps and laboratory
cryostats for research and development

Principal business: Plant engineering, machinery designand software development

Tel: 1-610-791-6700

Tel: 63-2-636-1935

URL: http://www.apdcryogenics.com

100% owned subsidiary

100% owned subsidiary

SHI Manufacturing & Services (Philippines) Inc.

URL: http://www.smcyclo.com.cn

Sumitomo (SHI) Cryogenics of America, Inc.

Barangay Sta. Anastacia, Sto.Tomas, Batangas, Philippines

100% owned subsidiary

Chicago OfficePrincipal business: Manufacture of key components for

SHI Plastics Machinery, Inc. of America
1266 Oakbrook Drive, Norcross, Georgia 30093, U.S.A.
Principal business: Holding company of Sumitomo (SHI)
Plastics Machinery Mfg. (USA), LLC and
Sumitomo (SHI) Plastics Machinery

1500-C Higgins Road, Elk Grove Village,
Illinois 60007, U.S.A.

XY stages, cryocoolers, controllers andmetal injection molding

Principal business: Service and sales of cryocoolers

Tel: 63-43-405-6263

Tel: 1-847-290-5801

100% owned subsidiary

100% owned subsidiary(America), LLC
Tel: 1-770-447-5430
URL: http://www.sumitomopm.com
100% owned subsidiary

Sumitomo Heavy Industries, Ltd. | 73

Glossary

Mass-Produced Machinery

Power transmission and control equipment

Ion-implantation devices

Power transmission and control equipment raises torque as the rotary

To create the transistors and other components that comprise semicon-

speed of a motor is reduced to an optimum level. This kind of equip-

ductors, the necessary type/volume of elements required for such com-ment has many applications, including elevators, escalators, industrial

ponents must be added to a flat silicon single-crystal substrate known

robots and factory production lines. SHI produces a wide range ofas a wafer. Ion-implantation devices electrically ionize the elements andpower transmission and control devices, from micro-miniature devices

accelerate the resulting ions at high voltage for high-precision injection

with a motor capacity of 6 watts to very large devices of several thou-

into the wafer.

sand kilowatts. SHI has the leading share of the Japanese market forthis equipment.
Hyponic Drive®

Ion-implantation device “SHX-III”

Precision positioning stages

Precision positioning stages set the vertical and horizontal positioning of

CYCLO® speed reducer

substrates, wafers and other components in precision processing.

Plastic injection molding machines

Because two axes are involved, they are also called XY stages. These

Plastic injection molding machines are used to pour melted plastic into

products are used for manufacturing and inspection processes for liquidmolds. Of the two system types, hydraulic and electromotive, the lattercrystal panels and semiconductor wafers. SHI’s high-precision position-

enables greater molding precision. SHI specializes in the precision, high-ing stages are one of its particular strengths.

cycle molding required for manufacturing optical discs and connectors
and has the top share in Japan for these devices.

XY stage for inspection and repair system“TL Series”

Full-electric injection molding machine “SE75DUZ”

Environmental Protection Facilities, Plants & Others

Circulating fluidized-bed (CFB) boiler

Cyclotrons

A cyclotron is an accelerator for particles that it ionizes using magnetic
force. SHI is the only manufacturer of these devices in Japan and has
the top share of the domestic market for cyclotrons for positronemission tomography (PET) applications, which are highly effective in

Employing jets of air blown from below to evenly mix fuel particles at ahigh temperature, this CFB boiler is an efficient combustor suitable foruse with a wide variety of fuels. The CFB boiler can even burn such
renewable energy fuels as low-grade coal and biomass-based fuels.

discovering and pinpointing cancer cells.

Compact cyclotron for PET “HM-12S”

CFB boiler

74 | Sumitomo Heavy Industries, Ltd.

Industrial Machinery

Vertical aerator systems

Continuous ship unloaders

Used in water treatment processes, theseContinuous ship unloaders are large harbor-installed hoists used for thesystems direct air to polluted water, help-

continuous unloading of iron ore and other bulk raw materials froming bacteria to break down substancescargo vessels at dock. SHI has the top share of this market in Japan.

more efficiently. The operation of SHI
vertical aerator systems can be optimized
for the volume of water being treated, andSHI boasts the top share of these products
in Japan.
“SUMIRATOR UD”

Superfine-bubble membrane tube diffusers

Superfine-bubble membrane tube diffusers are used for aeration
systems at sewage treatment facilities. The use of a high-quality siliconrubber membrane for the diffuser tubes contributes to the high performance and durability of the systems.

Continuous ship unloader

Transfer cranes

Self-propelled cranes used to transport containers at ports and othersites; electricity to power the motor during hoisting and lowering is
supplied by a generator incorporated into the crane.

Transfer craneSuperfine-bubble membrane tube diffuser“MICRAS®”

Ship, Steel Structure & Other Specialized Equipment

Construction Machinery

Coke drums

Asphalt pavers

This equipment is used in oil refining to extract high-value-added light

Self-propelled machines used to spread asphalt when paving roads; SHI

oil from heavy oil that is subjected to heat cracking after refining. SHI

is the market leader in asphalt pavers in Japan.

has the world’s leading share in coke drums.

Asphalt paver “HA60W”

Coke drums

Aframax tankers, Suezmax tankers

Aframax tankers are midsized oil tankers with deadweight freight

Crawler cranes

This is a self-propelled crane for construction sites. It travels on
crawler tracks.

capacity in the 80,000 to 120,000MTDW class; 150,000MTDW classtankers are called Suezmax tankers.

105,000MTDW oil tanker

Lattice crawler crane “LS-218HSL”

Sumitomo Heavy Industries, Ltd. | 75

Corporate Data

Head Office: Sumitomo Heavy Industries, Ltd.

1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan
Tel. +81-3-6737-2331
URL http://www.shi.co.jp
Founded: 1888
Incorporated: November 1, 1934
Paid-in Capital: ¥30,871,651,300
Number of Employees*: 15,463 (Consolidated)

2,748 (Non-consolidated)
Transfer Agent: The Sumitomo Trust and Banking Co., Ltd.
Stock Exchange Listings: Tokyo, Osaka
Shares Outstanding*: 605,726,394
Number of Shareholders*: 57,596
Major Shareholders*:
Percentage ofvoting rights

Name of shareholder

Japan Trustee Services Bank, Ltd.

14.3%

The Master Trust Bank of Japan, Ltd.

7.8%

State Street Bank and Trust Company
Sumitomo Life Insurance Company

5.9%
3.7%

Trust & Custody Services Bank, Ltd.

3.5%

The Chase Manhattan Bank

3.0%

Sumitomo Mitsui Banking Corporation

2.5%

JP Morgan Chase Bank

2.2%

Northern Trust Company

2.0%State Street Bank

1.9%

*As of March 31, 2010
Foreign Investors 36.55%
Other Japanese Corporations 9.22%

Breakdown of Shareholders as of March 31, 2010:
Breakdown of shareholders

Number of shares held
(unit 1,000)

Financial Institutions

228,746

Securities Companies

10,486

Individuals and Others

89,267

Foreign Investors

221,359

Other Japanese Corporations

55,868Financial Institutions 37.76%

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.

Securities Companies 1.73%
Individuals and Others 14.74%

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, Japan76 | Sumitomo Heavy Industries, Ltd.

Tel: +81-3-6737-2331

Contents

7 At a GlanceSuperior Products Create Strong Portfolio 7
In this section, we provide a summary of the SHI Group’s
flagship products and performance trends by businesssegment.

Superior Products Create Global Growth 8
In this section, we provide a visual guide to trends in the
SHI Group’s overseas sales, with particular emphasis on
principal countries and regions.

1

10 Financial Highlights

30 Research and Development
32 Intellectual Property
33 Corporate Governance
36 Directors, Corporate Auditors andExecutive Officers

37 Environmental and Social
Contribution Initiatives

In this section, we present a summary of the most recent
five years of SHI Group financial data.

39 Financial Section
12 To Our Shareholders, Customers and Employees 72 Network
14 Interview with the President
74 Glossary
In his own words, President and CEO Yoshinobu
Nakamura discusses the SHI Group’s performance in
76 Corporate Data

Superior Products Create
Customer ValueIn this section, we introduce mainstays in
our lineup of superior products, thedevelopment of which has been undertaken with the sole purpose of creating
value for customers.

addition to the business outlook and strategies
for the future.

3

2
High Productivity
Injection Molding Machines

45High Efficiency
Turbines

Long Service LifeCYCLO Speed Reducers®

Special Feature:

Review of Operations:Superior Products Create
Opportunities in China

Mass-Produced Machinery

18

6

Low Environmental Burden
CFB Boilers

20

24

22

26

Ship, Steel Structure & Other
Specialized Equipment

Improved Fuel Efficiency
Hydraulic Excavators

28

Construction Machinery

SHI Group’s Strategies in China
In this section, we describe our strategies
and activities in China—one of the
global economy’s growth drivers.

Environmental Protection
Facilities, Plants & Others

Industrial Machinery

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
Annual Report 2010

Creating Superior Products

http://www.shi.co.jp

Sumitomo Heavy Industries
Annual Report 2010
For the year ended March 31, 2010

This report is printed on paper certified by the Forest Stewardship Council (FSC). Pages 1 through 76 are printed on paper made from woodthat has been collected through a “Morino Chonai-Kai” (Forest Neighborhood Association) forest-thinning initiative in Japan. In addition, thisreport is printed using waterless printing that employs certified 100% VOC-free soy inks.

Printed in Japan O049 E101