A QUICK LOOK AT SHI

2

Financial Highlights
In the year ended March 31, 2007, orders received and net income both hit record
highs for the fourth consecutive year. We were also able to achieve all numerical targets
in the “Leap to Excellence ’07” medium-term management plan launched in fiscal 2005
(ended March 31, 2006) a year ahead of schedule.

4

WHAT WE THINKTo Our Shareholders, Customers and Employees
Our growth policy of ensuring sustainable growth through innovation of first-classproducts under the “Leap to Excellence ’07” plan is steadily bearing fruit. Building on
this momentum, we will further strengthen our technological and product development
capabilities and our cost structure as we evolve into a company of global excellence.

Medium-Term Management Plan “Leap to Excellence ’07”
We have already met all of our quantitative targets in this plan and steadilystrengthened synergies between business units and individual core product lines. We
are addressing the challenge of still further growth by setting new numerical targets forfiscal 2007 and fiscal 2010.

10

Special Feature (Products):
Circulating Fluidized Bed Boilers
Our circulating fluidized-bed boilers enable more efficient use of energy resources andreduction of CO2 emissions because they can handle a range of fuels, including lowgrade coal and biomass-based fuels, and because our technologies ensure high levels of
efficiency and long-term stable operation. We have already won many orders for thissystem in Japan, and are now expanding our business in overseas markets.

12

HOW WE’RE DOING
Review of Operations
In fiscal 2006, the second year of the “Leap to Excellence ’07” plan, we expanded andgrew our business based on the following priority policies: strengthening productdevelopment capability, deepening cooperation between business units and expanding
component businesses, expanding orders and profitability in the heavy machinery
businesses, shifting away from government and public sector contracts to private sector
orders, accelerating the development of overseas marketing, and taking steps tooverhaul production systems.

Sumitomo Heavy Industries, Ltd.

24

WHY WE’RE STRONG
Research and Development
In fiscal 2005, we drew up lists of core products for each business and invested in
product-planning, to enable us to continue our tradition of innovation of first-classproducts. In fiscal 2006, we were able to achieve good results through aggressive
investment in product development and launches.

Intellectual Property
The Group has four key concepts with regard to protecting its intellectual property:
attack (leverage exclusive rights), defense (respect other companies’ rights),
accumulation (put IP under patent) and speed (in reaction).

27

HOW WE BEHAVE
Corporate Governance and ComplianceTo create enterprise value, and deepen the trust of our shareholders and stakeholders,
we are creating a management system that is both highly effective and transparent, andtaking measures to strengthen internal controls including strict adherence to compliancerequirements.

Measures for Environmental Preservation
Based on our recognition of our corporate social responsibility to work for theprotection of the global and regional environment, and promote a “zero-waste”
society, the Group is engaged in a wide range of environmental initiatives centered on
combating global warming.

30

FINANCIAL SECTION

58

Glossary

60

Network

62

Management

63

Corporate Data

Annual Report 2007

1

Financial Highlights
SUMITOMO HEAVY INDUSTRIES, LTD. and Consolidated Subsidiaries

Thousands of
U.S. dollars(Note 1)
FY2006

Financial Highlights

FY2002

FY2003

Millions of yen
FY2004
FY2005

FY2006

Summary of Income (For the year):Net sales¥481,289
Mass-produced machinery
153,228
Environmental protection facilities, plants & others 100,310
Ship, steel structure & other specialized equipment
85,598Industrial machinery
46,758Construction machinery
95,393Operating income
17,213Mass-produced machinery
14,358Environmental protection facilities, plants & others
3,820
Ship, steel structure & other specialized equipment(3,416)
Industrial machinery(485)
Construction machinery
2,969
Elimination(32)
Operating Income Margin
3.6
EBITDA (Note 2)
29,322
Net income
2,688¥482,765
184,489
87,691
63,43845,988101,158
40,231
26,046
4,567
1,547
2,908
5,150
13
8.3
50,344
16,262¥521,310
205,091
87,93765,28854,008108,985
48,77330,415
7,094
478
4,834
5,961
(9)
9.4
58,055
22,792¥551,339
218,798
82,74067,372
56,054
126,375
47,50529,338
4,277
(479)
5,847
8,533
(10)
8.6
56,57729,742¥600,256
222,906
79,397
69,491
68,286160,177
64,224
28,844
4,494
6,714
9,527
14,396250
10.7
74,87337,352$5,086,918
1,889,032
672,852
588,909578,697
1,357,429
544,275
244,439
38,08056,90280,736122,000
2,117

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¥ 75,775(7,929)67,846(56,666)¥ 45,451(6,087)39,364(46,490)¥ 50,023(7,024)42,999(48,812)¥ 56,789(12,461)
44,328(41,193)$ 481,262(105,601)
375,661(349,092)¥ 29,499(1,074)28,425(22,116)

634,517
316,538

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥118=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market
as of March 31, 2007.
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 income per share of common stock is based on the weighted average number of shares outstanding in each year.
5. ROIC (Return on Invested Capital) = (Operating income + Interest and dividend received) x 55% (= 1 – Effective tax rate)(Average of stockholders’ equity + Average of interest-bearing debt)
6. Net assets are presented following enforsement of the new Japanese Corporate Law in 2006. Net assets comprise shareholders’ equity as previously
defined, plus minority interests and share subscription rights.

•Net Sales

Operating Income,•Operating
Income Margin(¥ Million)(¥ Million)

(%)

(%)

600,000

70,00014

25.0

60,00012

50,00010

40,000830,000

6

20,0004

10,000200500,000
400,000
300,000
200,000
100,0000-10,000
FY02

03

04

05

06

20.0
15.0
10.0
5.0
0.0

FY02

03

04

05

06

FY02

Mass-produced machinery

Mass-produced machinery

ROA

Environmental protection facilities, plants & others

Environmental protection facilities, plants & others

ROE

Ship, steel structure & other specialized equipment

Ship, steel structure & other specialized equipment

Industrial machinery

Industrial machinery

Construction machinery

Construction machineryOperating Income Margin (Right scale)

2•ROA, ROE

Sumitomo Heavy Industries, Ltd.

03

04

05

06

Financial Position (At year-end):
Total assets
Interest-bearing debt
Stockholders’ equity
Total net assets (Note 6)

FY2002

FY2003

Millions of yen
FY2004
FY2005

FY2006

Thousands of
U.S. dollars(Note 1)
FY2006¥588,010
273,544
89,331—¥580,291
215,807
114,526—¥569,771
169,228
137,157—¥600,890
88,045—
206,010$5,092,287
746,149—
1,745,847¥579,233
125,504
167,740—

U.S. dollars(Note 1)

Yen
Amounts Per Share:
Net income (Note 4)
Stockholders’ equity
Cash dividends¥ 4.57151.86—¥ 27.01
190.25—¥ 37.80
227.903.00¥ 49.45279.02
5.00¥ 61.99338.95
7.00

10.3
29.0
5.1
17.7
21.7
8.8

12.5
34.1
6.2
24.0
14.7
12.2

$0.53
2.87
0.06

%
Financial Indexes:
EBITDA margin
Stockholders’ equity ratio
ROA (Return on assets)
ROE (Return on equity)
Interest-bearing debt ratio
ROIC (Note 5)

6.1
15.2
0.5
3.0
46.5
2.6

Equity Ratio,•Stockholders’Interest-Bearing Debt

10.4
19.7
2.8
14.2
37.2
6.5

11.1
24.1
4.0
16.6
29.7
8.5

•Interest-Bearing Debt Ratio•Free Cash Flows(¥ Million)

(%)

(%)

(¥ Million)

300,000

60.0

50.0

70,00060,00040.0

50,00040.0

200,000

30.0

40,00020.0

30,00020.0

100,000

20,000
10.0

0.0

0
FY02

03

04

05

06

10,000

0.0

0
FY02

03

04

05

06

FY02

03

04

05

06

Interest-Bearing Debt
Stockholders’ Equity Ratio (Right scale)

Annual Report 2007

3

WHAT WE THINK

To our Shareholders, Customers and Employees

Top-Line Growth and Expansion
through First-Class Products

To our Shareholders, Customers and Employees

I am convinced that winning the long-term trust of customers
through rigorous adherence to our philosophy of “creation ofvalue for customers” will spur sustained development of the SHIGroup and build enterprise value, meeting the expectations of
all our shareholders, employees and host communities. By
providing products of a quality that our rivals cannot match, we
can build customer satisfaction, and at the same time drive ourgrowth by leveraging the trust that such products generate. My
ambition is to transform SHI into a company that always
supplies the market with internationally recognized first-classproducts in all its business categories.
As a result of our commitment to honing market
competitiveness and maximizing profitability in the previous
medium-term management plan launched in fiscal 2002, nearly
all of our businesses are now positioned to generate profits. We
aim to build on this success in our current medium-term
management plan “Leap to Excellence ’07”, launched in fiscal
2005, by shifting focus from bottom-line management to topline growth, and by achieving stable high growth and expansion
as a player in global markets. We have already achieved our
initial targets a year ahead of schedule, and have effectively
relaunched the current plan with new, more ambitious targets
for the final year.
The Group’s fundamental mission is to provide first-classproducts — meeting our customers’ needs with the highest
possible quality levels. If a business is operating in the red, I
believe that is because it cannot offer appealing products orservices, or satisfy the requirements of its customers. We are
passionate about raising quality levels and cutting costs throughreform of our manufacturing methods and by strengthening
our “key component” businesses and developing new products
and markets through business integration. Creating productsthat brighten the lives of our customers is the key to growing
sales and earnings. Even products for industries that in Japanthat have matured can find global markets if we look hardenough. I believe supplying first-class products to meet needs
wherever they arise in global markets must become the basis of
the growth strategy of the Group.

4

Sumitomo Heavy Industries, Ltd.

ChairmanPresident and CEO

Yoshio Hinoh

Yoshinobu Nakamura

Fiscal 2006 in Retrospect(Summary of the fiscal period April 2006 to March 2007)
Highlights of our business performance in fiscal 2006:• Earnings increased for the fourth consecutive term
• Operating income and net income all hit record highs• Orders received and net income hit record highs for the
fourth consecutive term
• Interest-bearing debt was cut to ¥88.0 billion• ROIC* (after tax) was 12.2%* ROIC: Return on Invested CapitalThis performance was driven chiefly by growth in our mainstay
power transmission equipment markets and improved profitability
in our traditional businesses of shipbuilding and heavy machinery,
which outweighed weakness in demand from manufacturers ofelectronic components and optical disks, sectors which havesuffered investment cutbacks lately, and slumping public-sector
infrastructure investment in Japan. These achievements havebrought greater stability to the Group’s overall operations, andherald our gradual return to a growth trajectory. In fiscal 2006,
we undertook various measures to achieve our targets under thefollowing priority policies.

Introducing Internal Control Systems
We are systematically putting into place new control mechanisms
enabling us to meet related obligations under Japan’s Corporation
Law and the Financial Products Exchange Law, and to address
revision and toughening of these new legal requirements, as well
as changes in social norms that could affect our operations. We
have also deepened our commitment to meeting compliancestandards.

●EBITDA/ROIC(¥ Billion)

(%)

80

20

60

15

40

10

20

5

0

0
FY96 97

98

EBITDA (Left scale)

Further Strengthening Mainstay Businesses
Creation of first-class products with global competitiveness is theprerequisite for sustainable growth for the Group. In this belief,
we aggressively marketed our lineups during the term andinvested in development of promising new products. We launched
new models in the power transmission, injection molding machineand construction machinery categories. We also pursued vertical
integration of our businesses to enable “fusion” of machine types
based on our strength in components.
Growth in Orders Received and Earnings in Heavy Machinery
Businesses
Against a background of buoyancy in industries such as
shipbuilding, steelmaking, energy technology and automaking,our heavy machinery businesses (material handling systems,
turbines and pumps, forging presses) performed well, making asignificant contribution to earnings improvement for the wholeGroup. We made investments to better respond to customer
needs, enabling us to maintain improved earnings levels at thesebusinesses.
Adding Impetus to Overseas Sales
In the power transmission equipment business, we upgradedoverseas production bases-for example, by completing a motor
manufacturing plant in Vietnam-and strengthened marketing andservice centers. In plastic injection molding machines, we likewisebuilt up our business capabilities in overseas markets, by
establishing a molding technology center in China and upgrading
customer support operations in local markets. These initiatives
strengthened our business in overseas markets.

99

00

01

02

03

04

05

06

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

Progress in the “Leap to Excellence ’07”
Medium-Term Management Plan
The “Leap to Excellence ’07” Medium-Term Management
Plan (April 2005 to March 2008)
Fiscal 2006 was the middle year in this three-year plan, and assuch was an important period for evaluating progress towards its
targets. Our achievement of initial targets one year ahead ofschedule admittedly owed much to favorable market conditions,but I am confident that the commitment of every single one of
the Group’s employees played a significant role. “Leap to
Excellence ’07” was intended to harness the collective expertise ofGroup employees, not just the special talents of certain
individuals, and, as such, our goal was transformation into aknowledge-intensive company that systematically provides its
customers with first-class products. First-class products means
products that brighten our customers’ lives and which cannot berivaled by other companies. If our customers are pleased by our
products, that means there will be a market for them somewhere.
Our quest is better product quality, not greater market scale.
Greater scale can only come from better product quality. This is
the thinking that drives our earnings growth and businessexpansion.

Improving Human Resources Training
In addition to upgrading our established employee-education
programs targeting senior managers and future Group leaders,
we expanded such programs geared to nurturing expertise in
specific fields, as part of our commitment to fostering the talent
we need to create first-class products.

Annual Report 2007

5

Targets “Leap to Excellence ’07” Medium-Term Management Plan
● Transformation into a knowledge-intensive company that systematically provides its customers with first-classproducts: launch new core products● A business model based on vertical integration: fusion of PTC (power transmission & controls) and mechatronics businesses● Expand and strengthen key component businesses● Numerical Targets

Achievement of targets for ROIC, operating income andinterest-bearing debt one year ahead of schedule(fiscal year ending March 31, 2008)

WHAT WE THINKROIC (after tax):

10%

Operating income:¥60 billion

Interest-bearing debt:¥150 billion

Operating income:Interest-bearing debt:

To our Shareholders, Customers and Employees

Our Core Product Lineups
Each of our businesses nominates and aggressively markets
established the core products that drive the growth of theCompany, and also develops new products. This policy has
strengthened our product appeal-a case in point being our speed
reducers for robot applications in our power transmission
equipment business. By simultaneously fusing this innovative
product with our precision control technologies, we have built up
a business in motion control drives. In our injection molding
machines business, in addition to supplying automotive
manufacturers, we have launched ultra high-speed injection
molding machines for the IT sector. In precision machinery, we
expanded overseas sales of our cyclotron for Positron Emission
Tomography (PET), and launched a cryopump for next-generation
semiconductor manufacturing devices.
In the Industrial machinery segment, we have marketedindustrial steam turbines in overseas markets to meet increased
demand for power-generation facilities using biomass, while inconstruction machinery, we launched new products compatible
with the third tier exhaust emission standards recently issued inJapan to correspond to Western standards. As we continue toenhance the appeal of our products and aggressively penetrate
new overseas markets, building up a synergistic value chain forour products, we are steadily realizing our ambition of vertical
integration under the Group’s “One-SHI” concept.
Europe12.2%¥64.2 billion¥88.0 billion

ROIC:

Progress infiscal 2006:

SICERA®
cryopump system
F-Cyclo® speed
reducer for precisioncontrol applications
HM-12S compact
cyclotron for PET use

Strengthening Overseas Businesses and Alliances
We are strengthening our networks of overseas sales and service
centers, and ramping up production capacity in China, Vietnam
and elsewhere. In Vietnam, we began operations in May at our
PTC motor plant, and are now positioned to provide stablesupplies to all our production bases around the world. We also set
up a new plastic molding technology development center inShanghai , enabling us to support our customers more effectively.
The overseas proportion of total sales is steadily growing, and we
expect this trend is to accelerate going forward.

North America

China

40 (¥ Billion)

40 (¥ Billion)

100 (¥ Billion)

20

20

80

0

0

FY04

05

06

FY04

05

60

06

Asia ex-China, India and Japan60 (¥ Billion)

India
0

FY04

40
20

40

20 (¥ Billion)

0

FY04

20
05

06

0

FY04

05

06

Overseas sales

6

Sumitomo Heavy Industries, Ltd.

LEGEST hydraulicexcavator

Fiscal 2004

Fiscal 2005

Fiscal 2006

¥197.8 billion¥230.3 billion¥276.1 billion

38%

42%

46%

05

06

Building on our Momentum and Aiming still
HigherPlan for fiscal 2007 (April 2007 to March 2008)
An enterprise never stops growing or expanding. At the SHI Group,
we are setting ever-higher targets in an effort to transform
ourselves into a company known globally for excellence, while
creating peerless technologies and a resilient cost structure. In
fiscal 2006, we beat all our initial forecasts, enabling us to meet
all the initial targets in the “Leap to Excellence ’07” medium-term
management plan. Ahead of the next medium-term management
plan, we have set a new sales target for fiscal 2007 of ¥650
billion, and an operating income target of ¥74 billion.

To enable the Group to meet its social responsibilities, we
continue to strengthen our risk management and ensure that all
employees in all of our operations are fully aware of compliancerequirements. We are also putting in place mechanisms foradministering and evaluating internal control systems affecting
our financial statements. In environmental initiatives, we arecontinuing our Companywide commitment to reducing usage
volumes for electricity and paper as a measure to combat global
warming, and are adopting “green” logistics to streamline
transportation operations.

● Capital Investment(¥ Billion)

30

New targets for fiscal 2007
Sales: ¥650 billion, Operating income: ¥74 billion
Sales and Invested Capital•(¥ Billion)¥650.0 billion

700

Sales

FY05

06

07

* Capital investment
figures reflect the final
investment plan anddiffer from figuresappearing on thefinancial statements.

Invested capital

400
300

¥292.7 billion

Interest-bearing debt

100

¥88.0 billion

0
FY98 99

00

01

02

03

04

05

06

Actual result•

07
Forecast

Operating Income and ROIC(¥ Billion)¥74.0 billion

Operating Income¥64.2 billion

60
40
20
0
-20
FY98 99

00

01

02

03

04

05

06

Actual result

(%)

15

Mass-produced
machinery

10

0

500

80

Machinery,
shipbuilding, other20¥600.3 billion

600

200

Construction
machinery07
Forecast

ROIC

12.2%

10

13.1%

5

In line with the Group’s environmental policy, we are taking
care to minimize the impact of our activities on the areas aroundour plants, and aggressively taking measures to prevent
environmental pollution, reduce generation of waste, andpromote energy-saving, resource-saving and recycling.
We have declared a dividend for the year of ¥7 per share, a¥2 increase from fiscal 2005. We plan to pay a dividend of ¥10
per share in fiscal 2007, subject to our earnings performance andfinancial position.
We would like to thank our shareholders for their continued
support.
Finally, we regret to announce that the Company was deemed by
one of Japan’s high courts to have violated Japan’s Antitrust Law
with regard to construction of a steel-structure bridge andmunicipal organic waste treatment recycling facilities. As a result,
we have been ordered to pay a fine of ¥160 million by Japan’s
Fair Trade Commission in relation to construction of the municipalorganic waste treatment recycling facilities and sluices. We takethis matter very seriously, and will make every effort to renew ourcommitment to compliance requirements and ensure that thiskind of incident does not recur.

0
FY98 99

00

01

02

03

04

05

06

Actual result

07
Forecast

Although the outlook for our markets remains robust, we face a
range of challenges such as global business expansion, cutting
costs through innovative production, and further raising productappeal. We are carefully watching trends in our markets, andbringing to bear all Group capabilities as we prepare ourselves forour next great advance.
We are also aggressively investing in capital facilities on theback of our strong cash flow position. We are vigorously
increasing our scale of operations and cutting costs by upgrading
overseas business bases and raising production capacity.

ChairmanPresident and CEO

Annual Report 20077

Medium-Term Management Plan “Leap to Excellence ’07”
Achievement of all Targets One Year ahead of
Schedule•ROIC (After Tax)
(%)

15.0

WHAT WE THINKThe Sumitomo Heavy Industries Group is working to achieve theobjectives of the “Leap to Excellence ’07” three-year mediumterm management plan introduced in fiscal 2005. Under theprevious medium-term management plan, called “Powerful
Sumitomo Heavy Industries Group,” the Company was able toreform its operating structure and improve its financial position.
Based on “Leap to Excellence ’07,” we shifted our focus frombottom-line management to top-line growth, with the goal ofachieving true excellence by global standards in the fields weoperate in.

Medium-Term Management Plan “Leap to Excellence ’07”

Plan Targets(1) To be a knowledge-based company that systematically supplies
markets with first-class products(2) To integrate our businesses vertically and pursue synergies(3) To achieve the following three numerical targets throughaggressive future investment:➀ Fiscal 2007 Return on Invested Capital (ROIC) above 10%:
ROIC > Weighted Average Cost of Capital (WACC)➁ Fiscal 2007 consolidated operating income: More than
¥60 billion➂ Fiscal 2007 year-end interest-bearing debt: Less than ¥150
billion(4) To strengthen and expand key component businesses
To achieve these targets, we have reformed our operating
stricture restructuring and are implementing measures tostrengthen our capabilities for managing the group as a whole.

10.0

5.0

0.0
FY00

01

02

03

04

05

06

03

04

05

06

•Operating Income(¥ Billion)

80
60
40
20
0
-20
FY00

01

02

Aggregate ofprofitable businesses

Aggregate of
unprofitable businesses•Net Income

In fiscal 2006, we achieved the following figures, a year
ahead of schedule:
ROIC: 12.2%
Operating income: ¥64.2 billion
Outstanding interest-bearing debt: ¥88.0 billion(¥ Billion)

Operating and Net Income
In fiscal 2006, we posted increases in operating ordinary and net
income at all our operations except Mass-Produced Machinery. As
a result, operating, ordinary and net income hit all-time highs, net
income for the fourth consecutive term.

-10

40
30
20
10
0

Interest-Bearing Debt
We were able to reduce our balance of interest-bearing debt by
an amount that far exceeded our target, due to aggressive
repayment of outstanding loans on the back of an improved
earnings performance and stricter cash flow management.

-20
-30
FY00

01

02

03

04

05

06

•Interest-Bearing Debt(¥ Billion)(¥ Billion)

300

75

200

50

100

25

0

0
FY02

03

04

05

06

Interest-bearing debt
Free cash flows (Right scale)(Left scale)
Net Interest-bearing debt (Left scale)8

Sumitomo Heavy Industries, Ltd.

Deepening Synergies, Strengthening Core
Products
We launched the motion control drive business unit as one of thestrategies implemented under our synergy model. By combining
the technologies of our power transmission controls, which enjoy
an overwhelming competitive advantage in terms of performance,and our specialty precision controls, we are targeting the actuator
market.
Regarding individual products, each business unit nominates
products to become the focus of development investments. For
example, in power transmission and controls, we have expanded
our line-up of compact gear boxes featuring high efficiency, low
noise and high-power output torque. We have also launched a
new series of medium-sized injection molding machines thattarget the automotive industry, and also the container andmedical equipment industries. In this way, we are working to
implement commercialization strategies that are in line with thedemands of the market. We aim to steadily continue developmentof promising products to build up our core portfolio.

•Core Product Sales(¥ Billion)

80
60
40
20
0
FY05

06

07

Targets for Fiscal 2007
Having met our targets in the “Leap to Excellence ’07” plan a year
ahead of schedule, we have set the following new objectives forfiscal 2007:
Sales: ¥650 billion
Operating income: ¥74.0 billion
Cyclo® Speed Reducer for
Precision Control

Air Actuator

Control Board, Controller

The Next Medium-Term Management Plan
We aim to translate our significantly improved profitability into investment for the next stage of our growth.
For fiscal 2010 we have the following targets:
Sales: ¥800 billion
Operating income: ¥100 billion
We will provide more detail on these targets later. With customer-oriented product excellence as ourwatchword, we plan to aggressively advance into overseas markets going forward.

Annual Report 20079

Special
Feature(Products)

Circulating Fluidized Bed Boilers
Circulatory Fluidized-Bed (CFB) boilers can be used with a wide range of fuels, contributing to more efficient use of energy
resources and reduction of CO2 emissions

SHI/Foster Wheeler Circulating Fluidized Bed Boiler
SHI’s Circulating Fluidized Bed (CFB) boiler has been adapted to handle a wide range of types of coal, including
low-grade coal (with high water content and low calorific value), which have traditionally proved difficult toburn efficiently and stably. In recent years, we have also broadened the range of waste-based fuels, such as
biomass (using woodchips, etc) and waste tires (used in place of fossil fuels) that can be burned in CFB boilers.
This system is making a name for itself as a means of combating global warming and enabling more efficient useof resources.

■Combustion Process
The CFB boiler is able to efficiently combust a wide range of fuels using a method
in which air is blown from the bottom part of the boiler, and high-temperature
particles (ash from the fuel) mix evenly in the air with the fuel. The fuel particles
that rose with the combustion gas are separated with a cyclone, causing them toreturn to the bottom of the boiler again. This increases combustion efficiency.

Steam generation by super-heaters

Steam turbines

Combustion gases• Suitable for a wide range of fuels• Fuel based on waste materials

No need to pulverize fuel materials, as materials ground down to a particle size of 10 mm orless can be used. Prior separation of wire from waste tires is also unnecessary as the system
can smoothly extract it.
• Lower combustion temperature

Because combustion efficiency is high, a combustion temperature of 850-900°C will suffice,lower than with other systems. This enables NOx generation to be curbed.

SHI has a technological alliance with Foster Wheeler Ltd. (of the US), which leads the worldin CFB boiler technological capability and market share. Using our independently
developed techniques, we have achieved stable particle circulation and ash emission. With
our wide-ranging expertise in the configuration and positioning of heat exchangerssuperheaters-and our know-how in the selection of raw materials, our system can be used
to generate high-temperature, high-pressure steam, over long periods, enabling highefficiency power generation by steam turbines.

Combustion
gases plus
particles
Introduction of coal plus biomass fuelSpecial Feature (Products)

Can handle difficult-to-combust fuels such as low-grade coal, waste construction materials,
waste tires, waste plastics, coal waste and paper sludge.

Particles

Particle separation using a cyclone■Features

Particle circulation

Air

Note 1: Biomass
Biomass refers to organic, non-fossil-based, fuels from biological sources such as woodchips from lumber, forest undergrowth, processed wood products and old
construction materials, and sludge. CO2 generated by the combustion of biomass was originally contained in the atmosphere and absorbed by plants byphotosynthesis, and is therefore recyclable and does not raise original CO2 levels in the atmosphere. This recyclable energy source, which makes it possible to reduce
consumption of fossil fuels such as oil, is used as a fuel that does not add to CO2 levels. Because its CO2 content does not vary, it is known as carbon-neutral.

Systems delivered

10

Biomass: (woodchips, sludge) co-combustion CFB boilers

Summit Myojyo Power / Itoigawa plant

Hokuetsu Paper Mills / Kanto plant (Katsuta)

Nippon Paper / Fuji plant (under construction)

Steam-generation capacity: 196t/h

Steam-generation capacity: 195t/h

Steam-generation capacity: 230t/h

Sumitomo Heavy Industries, Ltd.

Contributing to Reduced CO2 Emissions
When power is generated efficiently using renewable energy sources such as such as biomass, CO2 emissions
volumes are lower than when fossil fuels are used. This contributes to combating global warming. The figure
below shows by how much CO2 emissions can be reduced through introduction of SHI’s CFB boilers. In theory,
total CO2 volumes in the air do not change as the materials that absorb the gas are used as fuels (carbon
neutrality).
Timber felling,
lumber

Timber use in homeconstruction

CFB boilers for renewable energies(number of boiler units)
and CO2 emission levels

Biomass fuels do
not increase
CO2 levels

Photosynthesis(CO2 absorption)(CFB boiler)

2,000

20

1,500

15

1,000

10

500

5
0

0
FY04

Generationof CO2

06

07

08

09

est.

est.

est.

CO2 emission reduction(1,000 tons CO2 per year, left axis)
Number of boilers in operation (units, right axis)

FuelHouse demolition anddisposal of waste materials

Power generated using biomass

05

Globalizing the Technology
Based on our solid track record in introducing power generation facilities using renewable energy in Japan, we
aim to launch this technology in overseas markets. We expect to see steadily growing demand for CFB boilers
using renewable energy in the rest of East Asia and in North America, where significant growth is expected in
power demand and pressure is also rising for reductions in CO2 emissions. We also expect to be able to develop
new businesses using the Clean Development Mechanism* in line with the growth of the emissions tradingindustry.

●Clean Development Mechanism
Developing countries
Reducing gases that
contribute to global warming

Enforcement

Company
Acquisitionof emission rights

Purchaseof emission rights

Waste fuel (waste tires, plastic waste) co-combustion CFB boilers

Japanesegovernment

Note 2: Clean Development Mechanism
A tool for combating global warming (Kyoto
mechanism). Advanced countries carry out
projects to combat global warming indeveloping countries, and if CO2 emissions are
reduced, the volume is set off against the
reduction targets of the advanced country inquestion.

Low-grade coal CFB boilers (sold overseas)

Oji Paper Co., Ltd. / Nichinan plant

Chuetsu Pulp & Paper / Futatsuka plant

Dragon Special Resin Co.,Ltd., China

Steam-generation capacity: 130t/h

Steam-generation capacity: 130t/h

Steam-generation capacity: 3x220 t/hAnnual Report 2007

11

HOW WE’RE DOING

Review of Operations
Mass-Produced Machinery

Segment Overview■Business Environment

Review of Operations
Mass-Produced Machinery

Power Transmission Equipment
Plastic Injection Molding Machines
Cyclotrons for Medical Use
Ion Accelerators
Plasma Coating System for FPDs (Flat Panel Displays)
Laser Processing Systems
Cryogenic Equipment
XY Stages
Transfer Molding Press Machines
Forklift Trucks
Precision Forgings & Castings
Defense Equipment

Capital investment in industrial machinery is active bothat home and abroad, and the selling environment for
power transmission equipment has been favorable.
Demand has been particularly strong for large-scale
power transmission equipment for overseas customers.
Investment in plastic injection molding machines has
declined as a result of a fall in the market prices of LCD
screens and electronic components, but demand frommakers of cell phones and vehicle electronics hasremained firm.
In the market for medical equipment, overseas
demand has been growing strongly, particularly from
East Asian countries. Overall, the operating environment
for this segment has remained good both in Japan andoverseas.

Major Units■Review and Analysis of Results for Fiscal 2006

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

Operating results were strong for the powertransmission and control business, both domestically andoverseas, due to active new product introduction, and an
expansion of business thanks to the establishment of a
global supply chain, among other measures.
In the plastics machinery business, there was a
fallback in demand from the automotive and electronic
component industries, causing a slight decline in bothorders and sales compared with the previous term.
Orders received for cryocoolers and cyclotrons for
medical treatment, however, recorded growth, primarily
from overseas customers.
As a result, total segment orders rose 7% year-onyear, to ¥234.7 billion, sales rose 1% to ¥222.9 billion.
Operating income, however, declined 4% to ¥28.8
billion.

Main Products● Orders(¥ Billion)
250

Forecast

200

OthersPlastic machinery
Power transmission
and controls

150
100
50
0

FY04

FY05

FY06

FY07

● Sales(¥ Billion)
250

Forecast

200

OthersPlastic machinery
Power transmission
and controls

150
100
50
0

FY04

FY05

FY06

FY07

● Operating Income(¥ Billion)
30

(%)
15.0

20

10.0

10

5.0

0

12

Forecast

FY04

FY05

FY06

FY07

Sumitomo Heavy Industries, Ltd.

0.0

Operating income
Operating income margin(Right scale)■Outlook for Fiscal 2007
Market prices for industrial machinery, notably in theautomotive field, are expected to remain at a favorable
level worldwide. In the IT and other cutting-edge
technology fields, new capital investment can be
anticipated, led by spending on increased production
capacity. In the medical equipment field, demand islikely to grow in the emerging economies of Asia. For
the segment as a whole, year-on-year increases areprojected in orders, sales, and earnings.

Overall Conditions in Major Units
Power Transmission and Controls

Plastics Machinery

Business Performance for Fiscal 2006
Due to the slowdown in capital spending, orders received inJapan rose only slightly compared with the level of theprevious year. Orders from overseas, however, surged on theoverall strength of economies abroad, especially in Europe andthe United States.
By product, demand for large gearboxes for cement mills
remained buoyant, and small to medium-sized gearmotors
achieved growth across a broad array of sectors, including
factory automation and material handling machines for the
distribution and logistics industry. Precision speed reducer
units drew a good number of orders for applications inindustrial robots.

Business Performance for Fiscal 2006
The market situation has remained very strong since fiscal
2003, and total shipments for the reporting term by domestic
manufacturers numbered about 18,000 units. The factors
behind the positive operating environment include the steady
growth enjoyed by the cell phone, information technology,
and office equipment industries, especially in East Asia, as wellas the Japanese automobile industry. We have established
new bases for enhancing customer services in East Asia,
notably in Shanghai. We exhibited our fully electric injection
molding machines at the National Plastic Expo 2006
(NPE2006)* held in Chicago. The SE-DU Series of general-use,
small, fully electric injection molding machines in particularwere well received following their launch in the previous fiscal
year, as we introduced technologies that distinguish our
products as being able to meet ever diversifying and complex
market needs. Our medium-sized SE-HD and SE-HS series offully electric injection molding machines likewise won praise
for their distinctive technologies for the automotive andcontainer/medical sectors. Our Group has constantly
maintained the leading market share in Japan by shipment,
and our customers have used our technologies to makesignificant strides in productivity enhancement and cost
reduction.

Strategies for Fiscal 2007
We anticipate that capital investment will pick up again in
Japan, and this should generate higher demand, while
demand from Europe, China, Southeast Asia and the UnitedStates will remain strong. We will strive to strengthen our
global operation bases, sales channels and marketing divisions
by primarily focusing on the BRIC countries, and we will create
higher customer value by entering new sectors and, inparticular, introducing new products.
Our technical expertise in precision speed reducer units will
be upgraded to satisfy increasingly challenging demands from
customers. We aim to cut delivery times for small gearmotors
featuring greater compactness and quieter operation tosecure a larger share of the small gearmotor market. We will
also promote the medium-sized to large gearmotors andgearboxes that we launched on the market during theprevious year, and will bolster our sales force so that we canprovide customers with more advanced solutions.
In addition, we will improve the production capacity of ourmotor plant in Vietnam to put in place a structure thatenables a consistent supply of products.

international plastics fair; the largest plastics and rubber fair in*NPE2006:
the United States

Strategies for Fiscal 2007
In addition to enhancing lineups in small and medium-sized
fully electric injection molding machines, to ensure that all our
products exactly meet customers’ needs, the Group in fiscal
2007 will aim to consolidate its position as a technology andsolution leader, while expanding sales networks in the key
BRIC markets. We will harness our capabilities across theGroup to promptly satisfy increasingly diverse and complex
customer demands in plastic processing technologies. While
creating synergistic value chains to develop together with ourcustomers, we are steadily achieving our aim of becoming a
global leader in integrated plastic machinery manufacture.

ALTAX® NEO Gear Motor

Fully Electric Controlled Injection
Molding Machine “SE-DU”

RHYTAX® Drive

Annual Report 2007

13

HOW WE’RE DOING
Review of Operations

Quantum Equipment

Laser Systems

Business Performance for Fiscal 2006
In fiscal 2006, the Quantum Equipment Division received
record orders.
As a result of our commitment to overseas sales activities
over the past several years, especially in the East Asian region,
we recorded our highest ever total value of orders from China
for small cyclotrons for positron emission tomography (PET)examinations*1. China is experiencing rapid growth inadvanced medical treatment in line with the increased number
of wealthy patients.
We secured large orders for Plasma coating system for
FPDs from the photovoltaic panel industry, a market that is
expected to grow further. As in the preceding year,
manufacturers of organic electroluminescence-related devices
placed orders for mass-production equipment. Supported by
the strength of China’s steel demand and domestic capital
investment, the lifting magnet*2 business maintained thehealthy progress it showed in the preceding year, to achieve
record order volumes.

Business Performance for Fiscal 2006
Overall demand for LCD panels rose in the mobile LCD
domain, but orders for laser annealing systems turned
sluggish in the face of falling prices. In the printed circuitboard industry, we witnessed a number of new investments,
mainly for the cell phone market, particularly in China. To
respond to the demands of this market, we launched new
high-speed laser drills. We also received strong orders for laser
processing systems, reflecting robust capital spending in theautomobile and general machinery industries.
Orders for semiconductor packages rose during the firsthalf of the fiscal year under review, buoyed by the
introduction of encapsulation machines* with 120 ton
presses. However, with client companies limiting theirinvestment during the second half of the year, overall orders
for semiconductor packages increased only 6% comparedwith the previous year. We have commercialized compression
molding machines as encapsulation machines to handle
advanced packages, and they have earned a stellar reputationin the market for their molding quality.

PET (positron emission tomography) is a highly effective screening test for*1. cancer.
The cyclotrons are used to produce the diagnostic agent.

*2. Lifting magnets are used to lift scrap iron and metal.

encapsulation machines are used to enclose semiconductor*Semiconductor
chips within a resin coating.

Mass-Produced Machinery

Strategies for Fiscal 2007
Our small cyclotrons for PET examinations and lifting magnets
hold the leading shares in their respective markets in Japan.
We will be working hard to promote overseas sales of theseproducts to ensure continued growth.
In the medical sector, we will be expanding the area of oursales activities, primarily with the aim of boosting recognitionin the East Asian region. We will be conducting aggressive
sales promotion campaigns for our lifting magnets in China,
and have good hopes of registering growth in orders, giventhat infrastructure development continues to proceed at a
striking pace in that country.
In view of the buoyancy of demand for silicon wafers, we
anticipate that sales growth for single crystal silicon ingot
manufacturing equipment will outstrip the growth of theprevious year.

Strategies for Fiscal 2007
In the market for printed circuit boards, we anticipate that
active capital investments will continue, boosting orders forour high-speed laser drills. We will seek to win orders for laser
annealing systems designed for customers in the LCD andsemiconductor industries, in anticipation of their resumptionof capital investments. Meanwhile, we will broaden our lineup
of products for the automotive and general machineryindustries, which are enjoying sustained growth.
In semiconductor packages, although the level of capitalspending by major semiconductor manufacturers is still
uncertain, we expect steady capital spending by domestic andoverseas users that subcontract post-processing. We willcontinue to promote 120 ton press machines, and will seek to
win more substantial orders by improving the capacity of ourcompression molding machines.

PET RADIO-TRACER PRODUCTION SYSTEM “HM-12S”

Semiconductor encapsulation machines “SX120”

14

Sumitomo Heavy Industries, Ltd.

Cryogenic Equipment

Mechatronics

Business Performance for Fiscal 2006
In fiscal 2006, this business recorded a year-on-year increasein sales, to ¥14 billion. Fully leveraging the capabilities of thisdivision’s overseas network, we commenced the development
and production of new compressors locally at our researchand production facilities around the world for our mainstay
4KGM cryocooler*. As a result, we have developed a structurethat enables us to respond to the diversified needs ofcustomers.
Our superior global operations were also used to launch afull-scale sales promotion for “SICERATM”, a cryopump (oneof our core products), a super-vacuum pump that is currently
selling strongly and has the potential to grow still further, as
the first step in our expansion of products used forsemiconductor and liquid crystal manufacturing equipment.

Business Performance for Fiscal 2006
Since the first half of the previous term, supply had
outstripped demand in the flat panel display (FPD) market,
which includes our mainstay liquid crystal display (LCD)
market. As a consequence, orders and sales in this businessremained flat on a year-on-year comparison. Nonetheless, weembarked on a strategy of combining control technology
based on our extensive knowledge and experience inequipment and machinery with mechanical, measurement,
and drive technologies. Thanks to this, we were able toextend our product range from our specialty high-end
products to mid-range products. We also established a sales
base in Kansai as one of our initiatives to strengthen ourmarketing activities, and this is now starting to make its
presence felt.
Meanwhile, we are making steady progress in efforts toprovide control components to other business units for the
purpose of expanding the vertically integrated value chain
within our Group.

4KGM is so-called because it can cool materials down to 4 degrees Kelvin*The(i.e. 4 degrees above absolute zero), or minus 269 degrees Celsius.

Strategies for Fiscal 2007
In fiscal 2007, we hope to maintain our clear competitiveedge in cryocooler components and will take firm steps toexpand the cryopump business.
The markets are changing at a dramatic pace, and we must
respond to these changes promptly and provide global
support for customers. We will improve the quality of ourglobal operations and further integrate our production andsales operations both in Japan and overseas. We will also
make efforts to enhance product development capacity andboost sales, services, product quality and cost competitivenessso that we can continue to provide products and services thatmeet the needs of our customers.

Strategies for Fiscal 2007
Although the markets for semiconductors and displays(including FPDs) is likely to remain sluggish in the first half ofthe current term, we can expect sustainable growth in thesecond half, spurred by rising demand for large-screen TVs,personal computers and mobile phones. We predict that
capital investment will rise to fulfill the requirements of finer
design rules for semiconductor devices, use of larger
diameters for LCD substrates, and process reforms with theaim of cost cutting.
As for the overseas market, we already have experience inthe delivery of web control* devices for LCD manufacturing in
China, Taiwan and Korea, and we aim to expand further
throughout East Asia. We will also launch our mainly domestic
business in precision positioning devices on the global market.
We seek to attain synergy in our mechatronics technology,
which fuses mechanical and electric control systems. We willcontinue to expand our business in new and existing markets
by developing mechatronics products.

*Web control is a positioning control system for running films and sheets

Cryopump “SICERATM”

SA-300 Series
Air Guided Type Planar XY Stage for Small Travel

Annual Report 200715

Environmental Protection
Facilities, Plants & Others

Segment Overview■Business Environment

Power Generation Systems
Industrial Wastewater Treatment Systems
Water and Sewage Treatment Systems
Landfill Leachate Treatment System
Air Pollution Control Plants
Chemical Process Equipment & Plants
Food Machinery
SoftwareThis segment serves customers in both the public andprivate sectors, but as public-sector demand shrinks, weare transforming the structure of this business to focus
on the private sector. Demand from the private sector
centers on the segment’s main products, CFB (circulating
fluidized-bed) boilers, as the movement to reduce CO2
emissions gathers momentum, and sales of theseproducts are trending favorably. In the water-related
environmental market, we are concentrating moremarketing efforts on our waste-water treatment
facilities for private-sector customers, and we have good
hopes of growing this into a promising new market.

Major Units■Review and Analysis of Results for Fiscal 2006

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

The energy plant business received a strong inflow oforders for multi-fuel boilers, but sales for the entire
segment declined slightly due to a fall in sales by thewater treatment business. Orders received by thesegment as a whole came to ¥90.0 billion, up 8% overthe previous business term, sales were down 3% at ¥79.4
billion, and operating income was up 8% at ¥4.5 billion.

Main Products

HOW WE’RE DOING
Review of Operations■Outlook for Fiscal 2007

Environmental Protection Facilities, Plants & Others

Rapidly rising concern over the need to protect the
global environment is causing constant growth in themarket for biomass-related products, and the Company’s
energy plant business, centered on biomass boilers forelectric power generation, is expected to enjoy acontinued a good inflow of orders. We spun off ourwater treatment business in the reporting period andreorganized it as a separate subsidiary, and are in the
midst of a steady process of converting its businessstructure, focusing on private-sector demand with theaim of ensuring stronger and more reliable earnings.

● Orders(¥ Billion)
100

OthersEnvironmental protection
facilities, plants

Forecast

80
60
40
20
0

FY04

FY05

FY06

FY07

● Sales(¥ Billion)
100

OthersEnvironmental protection
facilities, plants

Forecast

80
60
40
20
0

FY04

FY05

FY06

FY07

● Operating Income(¥ Billion)
8

(%)
8.0
Forecast

6
4

4.0

2

2.0

0

16

6.0

FY04

FY05

FY06

FY07

Sumitomo Heavy Industries, Ltd.

0.0

Operating income
Operating income margin(Right scale)Overall Conditions in Major Units
Energy-Related Plants

Water Treatment Plants

Business Performance for Fiscal 2006
Reflecting rising awareness of the need to reduce CO2
emissions and promote the use of alternatives to fossil fuels,orders for boilers and power generation plants that employ
renewable energy remained strong.
This trend has gradually spread to the Asia-Pacific region.
In Korea, we received the first order for a co-firing combustion
boiler utilizing tire-derived fuel (TDF), a renewable fuel madefrom waste tires.
All projects delivered during the fiscal year under review
employ renewable energy. This is evidence that our circulating
fluidized-bed (CFB) boiler (Sumitomo CFB Boiler) constitutes ahighly efficient and reliable system that can handle a widearray of renewable energy types. In addition, the world’s first
boiler system that uses no coal with the high multi-fuelcombustion rate of waste tires is operating smoothly,
attracting interest from a number of industries worldwide.

Business Performance for Fiscal 2006
Our water treatment plant business consists primarily of two
domains: facilities for the private sector and facilities for the
public sector. Private-sector demand is expanding at aremarkable pace, supported by Japan’s booming economy. By
contrast, public-sector demand continues to decline, due tothe scaling back of public works, and we are experiencing
severe price competition in this market.
In response, we are endeavoring to improve thecompetitiveness of our products and develop new products
and technologies for the private sector. Through these
initiatives, we seek to strengthen and expand our existing
operations, while also rapidly building new businesses that
can take us into new markets or fields and become mainstaysof the future. In the public-sector domain, we are making
steady progress, with a focus on developing and expanding
sales of unique component equipment. This business is beingenhanced by the application of the technologies developed in
our private-sector wastewater treatment business.
This operating environment has created a need for rapid
management decision-making and flexible operations.
Recognizing this, we spun off this business on January 1,
2007, establishing Sumitomo Heavy Industries Environment,
Ltd.

Strategies for Fiscal 2007
We anticipate that investment in the Japanese paper and pulp
industry will gradually decline.
As initiatives to cut CO2 emissions have also become morecommon in other industries apart from the paper and pulp
sector, we will expand business to these other industries.
Coupled with economic growth, demand for power
generation systems is rising in East Asia and North America.
And with rising awareness of the need to reduce CO2
emissions in Asian countries, emissions trading is growing
steadily. In this environment, we expect that demand for CFB
boilers will continue to grow, and we will adopt an aggressive
and sustained approach to developing overseas markets,
focusing primarily on East Asia and North America.
We will also bolster our development capacity to create
new effective uses for fuels, satisfying the particular needs ofeach market. In addition, we will develop highly effective andreliable CFB boiler systems.
For more detailed information on the CFB boiler system, please refer to the
product features section on Page 10.

CFB Boiler

Strategies for Fiscal 2007
Domestic demand remains active, and we anticipate
expansion in our business for the private sector. In contrast,
the market for public-sector clients is becoming increasingly
difficult.
In fiscal 2007, we will continue bolstering thecompetitiveness of our products, while developing new
products and technologies. We will also take steps to cut costs
to expand our components business, and stabilize thisbusiness as an independent company.
The photograph shows the rainwater treatment facilities
installed at the Company’s coal yard and ore yard. The
coagulation settling tank, which is the main component ofthese facilities employs the super-fast coagulation agent SumiThickener, which allows excellent water treatment despite thespace-saving nature of the facilities.

Sumi-Thickener

Annual Report 200717

Ship, Steel Structure &Other Specialized Equipment

Segment Overview■Business Environment

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

Amid rising demand for oil, the market for petroleum
refinery construction is showing increased vigor. Against
the background of high oil prices, petroleum companies
are taking an aggressive stance on investment in theconstruction of new refineries and the expansion ofexisting facilities. Orders for ships are flowing in at a
brisk pace not only due to the active shipping market,
but also as a result of changes in the mandatory
specifications for hull painting. Demand for new
shipbuilding is projected to remain strong for theforeseeable future.

Major Units■Review and Analysis of Results for Fiscal 2006

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

Orders for the shipbuilding business posted a two-ship
increase over the previous term, to 13 ships. On the sales
side, delivery of eight tankers was made. These results
were due to marketing activities being concentrated in
medium-sized tankers to match market needs to our
shipbuilding capacity under a favorable market
environment. Orders for reactor vessels recorded strong
growth due to active capital investments in the oil andpetrochemical industries, amidst expanding demand forenergy and high oil prices.
As a result, segment orders as a whole rose 27% yearon-year, to ¥121.0 billion, sales rose 6% to ¥69.5 billion,
and operating income increased to ¥6.7 billion ascompared with an operating loss of ¥1.0 billion for theprevious term.

Main Products

HOW WE’RE DOING
Review of Operations■Outlook for Fiscal 2007

Ship, Steel Structure & Other Specialized Equipment● Orders(¥ Billion)
120
100
80
60
40
20
0
FY04

Forecast

FY05

FY06

Steel structure &other specialized equipment
Ship & marine

FY07● Sales(¥ Billion)

Forecast

80

Steel structure &other specialized equipment
Ship & marine

60
40
20
0

FY04

FY05

FY06

FY07

● Operating Income(¥ Billion)
10
8
6
4
2
0
-2
FY04

18

Forecast

FY05

FY06

FY07

Sumitomo Heavy Industries, Ltd.

(%)
12.5
10.0
7.5
5.0
2.5
0.0
-2.5

Operating income
Operating income margin(Right scale)

Demand for oil continues to grow, and consequently
investment in new petroleum refining facilities is likely
to maintain a favorable pace for some time to come.
Reactor vessels for use in refining heavy oil are a
specialty of SHI, and a steady inflow of inquiries can be
expected. As for ships, we have decided to restrict ourorder acceptance to medium-sized Aframax tankers, andin view of the strong demand for freight shipping, we
can expect ship prices to maintain a high level.

Overall Conditions in Major Units
Reactor Vessels
Business Performance for Fiscal 2006
During fiscal 2006, global demand for oil continued toincrease, primarily in the United States and China. A
significant number of new oil refineries were constructed, andthe capacities of existing facilities were expanded around theworld. Amid these favorable business conditions, we received
record orders, mainly for petroleum coke drums*,
desulfurization reactors, and contact reform reactors. In
particular, orders for coke drums, our key products, jumped to
26 units in total. A notable trend in these products was theshift to larger and more multiple equipment to upgrade
treatment capacity. For example, we delivered two separate
portions of petroleum coke drums to a state-owned oilcompany in Chile and successfully assembled them for a major
on-site project.
coke drums are vessels used to separate heavy oil into light oils and*Petroleum
a solid carbon residue known as “coke.”

Strategies for Fiscal 2007
Given rising global demand for petrochemical products —primarily from China and India — crude oil prices are likely toremain high. Consequently, we anticipate the continuous
construction of new plants and the expansion of existing
plants. We will seek to achieve sustainable growth, mainly bystrengthening sales promotion for our competitive cokedrums. The prices and delivery time for our products havebeen impacted by high material prices and delayed deliveriescaused by strong global demand for non-ferrous and precious
metals. To overcome these disadvantages, we will endeavor toprovide products and services that meet the needs ofcustomers by further improving our operational andmanufacturing processes.

Coke Drum

Ships (Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.)Business Performance for Fiscal 2006
New shipbuilding orders worldwide in 2006 rose to a record
93 million tons, thanks to a robust marine transport market —which benefited from the healthy growth of the global
economy that began in 2003 — and to the placement of lastminute orders ahead of the enactment of the revisedinternational regulations on shipping. Orders went to South
Korean shipbuilders (38 million tons); Chinese shipbuilders (24million tons); and Japanese shipbuilders (21 million tons).
Orders received by Chinese shipbuilders have grown strongly,
accompanying the rapid development of shipbuilding facilities
in that country, surpassing orders received by their Japanesecounterparts for the first time. Vessel prices also reachedrecord highs, reflecting stronger demand for ships.
We now concentrate on handling medium-sized tankers inorder to differentiate ourselves from our competitors. In thisenvironment, we took orders for 13 Aframax tankers anddelivered eight. In January 2007, we established a European
office in Piraeus, Greece, the first overseas office of Sumitomo
Heavy Industries Marine & Engineering.
Strategies for Fiscal 2007
With the global economy expected to grow steadily in fiscal
2007, driven primarily by the robust economies of the BRIC
countries and the United States, we expect the marinetransportation market to remain firm. However, competitionin the shipbuilding market appears set to increase graduallyduring fiscal 2007, given growing shipbuilding capacity in
China and South Korea. In response, we will continue todevelop unique ships that create higher customer value. We
will also bolster sales operations and improve the quality andproductivity of our products. Although prices of materials suchas steel are likely to continue to rise, we will take steps tofurther improve our performance for fiscal 2007 throughextensive cost-cutting derived from production innovation.

105,200MTDW Oil Tanker

Annual Report 200719

Segment Overview

Industrial Machinery■Business Environment
Supported by the strength of economies around theworld, demand for heavy machinery is brisk. Our sales ofmaterial handling systems have benefited from thevigorous investment in production facilities expansion by
Japanese shipyards, and capacity utilization is
maintaining a high level. In the field of steam turbines
for power generation, investment in new power plants isparticularly brisk in India, and demand for metal forging
presses from makers of automotive components is
growing. Overall, the business environment for thissegment is favorable.

Main Products

HOW WE’RE DOING

Logistics & Handling Systems
Automated Parking Systems
Moving Sidewalks
Forging Machines
Material Handling Systems
Turbines
Pumps
Major Units
Sumitomo Heavy Industries Engineering and Services Co., Ltd.
Sumitomo Heavy Industries Techno-Fort Co., Ltd.
Shin Nippon Machinery Co., Ltd.
SHI Machinery Service Hong Kong, Ltd

Review of Operations
Industrial Machinery■Outlook for Fiscal 2007
Against the backdrop of vigorous capital investment by
shipbuilders and steelmakers, demand for material
handling systems is expected to remain favorable. Salesof turbines and pumps will benefit from growing
demand for equipment used in biomass power
generation and in petroleum plants, and the market
scale as a whole is projected to increase. We anticipatedcontinued brisk orders for forging presses in view of thestrong business situation of the automotive industry.

● Orders(¥ Billion)
100■Review and Analysis of Results for Fiscal 2006
The material handling systems business expanded,
centered on large cranes, as we raised our capacity tohandle investment in increased capacity for the domestic
shipbuilding and steel companies. This resulted fromdetailed market analysis and timely expansion of
production facilities.
The turbine and pump business was favorable thanks
to increased investment in biomass generation plant aswell as oil and petrochemical plant, primarily in overseas
markets. Sales by the forging press business rose on
sustained production of forging presses for the
automotive industry.
This resulted in 36% year-on-year growth in orders
for the segment as a whole, to ¥93.6 billion, sales
growth of 22% year-on-year to ¥68.3 billion, and a 63%
growth in operating income to ¥9.5 billion.

Forecast

80
60

Overall Conditions in Major Units

40
20
0

FY04

FY05

FY06

Material Handling Systems (Sumitomo Heavy Industries
Engineering & Services Co., Ltd.)Business Performance for Fiscal 2006
We achieved a record level of orders in fiscal 2006, reflecting
strong capital investment by steel manufacturers andshipbuilders, which constitute the primary clientele of thematerial handling machinery and systems business unit.
Steel manufacturers are facing supply capacity shortfalls
which they are addressing by increasing their production
capacities and shifting their production to high-grade steel.

FY07● Sales(¥ Billion)
80

Forecast

60
40
20
0

FY04

FY05

FY06

FY07

● Operating Income(¥ Billion)
15

Forecast

(%)
15.0

12

12.0

9

9.0

6

6.0

3
0

Operating income
Operating income margin(Right scale)

3.0
FY04

FY05

FY06

FY07

0.0

Continuous Ship Unloader

20

Sumitomo Heavy Industries, Ltd.

Consequently, they are vigorously replacing and expanding
their material handling equipment, thanks to which we
received orders for continuous ship unloaders for raw
materials and a large number of steel making cranes.
With a large backlog of orders and rallying vessel prices
starting to exert positive effects on shipbuilder performance,
the shipbuilding industry made substantial investments to
replace cranes to upgrade production capacity, and to install
new equipment to meet the needs of diversification in ship
block construction. We received substantial orders for highcapacity Goliath cranes and Jib cranes.
In overseas markets, we bolstered sales activities in the East
Asian market, winning orders for Jib cranes from China andthe Philippines.
Strategies for Fiscal 2007
As in the preceding year, the capital investment trend in theJapanese steel and shipbuilding industries will be positive.
Overseas demand is likely to remain bullish overall, led by
China, Taiwan and South Korea.
With our basic stance of “seeking the leading position incustomer services with lifecycle solutions”, we will intensively
cultivate the Japanese and other priority markets in the East Asian
region, with active sales promotion of products and services.
We will also continue our strong investments in cranemanufacturing facilities and build up our value chain toprovide powerful products and establish a strong sales force.
Turbines and Pumps (Shin Nippon Machinery Co., Ltd.)Business Performance for Fiscal 2006
With the growing emphasis on environmental preservation,
power generation using renewable energy sources is expanding
on a global scale with the aim of reducing carbon dioxide
emissions. The biomass power generation market is expanding,chiefly in India, Southeast Asia and Latin America. Markets for
power generation using solar energy and waste heat are also
growing in North America. Orders for large multistage turbinesraised by 145% as compared with those in last year, to contributeto soaring order volumes in the entire turbine business.
Circumstances were also favorable for the pump business.
With economic growth in China and India and rising oil prices,
there is an increase in oil, petrochemical and LNG plant
construction projects in the Middle East and Southeast Asia. In
particular, the entire world is stepping up its investment inheavy oil reformers thanks to booming demand for highvalue-added oil products. These factors prompted a surge inorders for process pumps. Those for one of the core models,
namely barrel-type high pressure multistage pumps, raised by
130% as compared with those in last year. We successfully
expanded this business in line with our medium-term
management plan.
Strategies for Fiscal 2007
We will ascertain current customer needs through the use of

Barrel Type Multistage Pump [Model: BTBF]

special roving marketing groups, and by leveraging ouroverseas sales network. We will also focus on marketing
initiatives targeting key customers through close collaboration
between sales and technical staff. Such activities will enable us
to obtain a sufficient volume of profitable orders each year.
To improve the performance of our products, we will carryout reliability verification of new large models and develop
more advanced components for our turbines and whilefurther enhancing the performance of our pumps on the basisof flow analysis.
We will also proceed with reform of our manufacturingmethods to bolster production capacity and reconstruct the
product architecture with the aim of achieving significant costsavings.
Forging Presses and Industrial Machinery(Sumitomo Heavy Industries Techno-Fort Co., Ltd.)Business Performance for Fiscal 2006
Driven by export demand, domestic automobile production
for fiscal 2006 surpassed that of the previous year. Overseas
output of domestic automobile manufacturers has also been
rising, and the production of forged parts has continued toshift overseas. To respond to the growth in demand forforged parts, automakers and forging companies installed
new facilities in Japan and overseas as they did last year, withthe consequence that the Company received substantial
orders for forging presses of all sizes.
In the steel industry, Japanese companies are aggressively
expanding production to meet the rising demand in theautomobile, shipbuilding, and machine industries. In fiscal
2006, the majority of the orders we received were formodifications to existing production lines to bolster output
capacity.
Strategies for Fiscal 2007
Conditions in the automobile and steel industries are likely toremain positive, and we believe our operating environment
will generally hold firm during the current term. Our Forging
Press business is undertaking a number of projects to improve
its product lineup to meet customers’ diverse needs. We willtake measures to meet the demand stemming from ourcustomers’ expansion of overseas production, as well as
measures to cope with the buoyant overseas market. The
Industrial Machinery business will center on the remodelingand servicing of existing equipment, and we will strive toachieve customer satisfaction in after-sales services.
Sumitomo Heavy Industries Techno-Fort is committed tothe integrated operation of production and services, and tomaintaining the lead in technological fields where ourproprietary technologies are strong. With our slogan of“Combine expertise and passion to compete successfully,” weaim to build a system that consistently delivers strong profits,
enabling us to enjoy further growth under the next medium
term plan.

Multistage Steam Turbine [Model: C10]

6500t Press

Annual Report 200721

Construction Machinery

Segment Overview■Business Environment

Main Products
Hydraulic Excavators
Mobile Cranes
Road Machinery

HOW WE’RE DOING

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

We are fielding a large number of inquiries, from Europe
and China in particular, as a result of strong demand forbuilding construction. Our launching of a new-model
hydraulic excavator that conforms to the Phase III
exhaust gas emission restrictions has been a significant
factor in boosting our earnings. Brisk activity in North
America in the construction of plants and commercial
buildings, as well as the building of expressways, has led
to a strong growth in orders for mobile cranes.
■Review and Analysis of Results for Fiscal 2006

Review of Operations

The hydraulic excavator business was favorable, both
domestically and overseas, due to measures such as theintroduction of a new model of hydraulic excavator tothe market to address the Phase III exhaust gas emission
restrictions and increased production capacity. Of
particular note was that the growth in both sales andorders was concentrated in Europe and East Asia.
Both orders and sales in the mobile crane businessrecorded strong growth amid the continued dynamismof the North American market, due to the ongoing
introduction of new models and expansion of
production at North American sites.
This resulted in a 22% year-on-year increase in orders
for the segment as a whole, to ¥166.1 billion, a 27%
year-on-year growth in sales to ¥160.2 billion, and a 69%
growth in operating income to ¥14.4 billion.
■Outlook for Fiscal 2007

Construction Machinery● Orders(¥ Billion)200

Forecast

Mobile craneExcavator,
road construction machinery

150
100
50
0

FY04

FY05

FY06

FY07

● Sales(¥ Billion)200

Forecast

Mobile craneExcavator,
road construction machinery

150
100
50
0

FY04

FY05

FY06

FY07

● Operating Income(¥ Billion)
18
15
12
9
6
3
0
FY04

22

Forecast

FY05

FY06

FY07

Sumitomo Heavy Industries, Ltd.

(%)
12.0
10.0
8.0
6.0
4.0
2.0
0.0

Operating income
Operating income margin(Right scale)In the current term, business in this segment is likely toremain favorable both in Japan and overseas. We plan toconcentrate our marketing efforts on Europe and East
Asia in the case of hydraulic excavators, and on North
America in the case of mobile cranes. We will be
investing in increased production capacity and launching
new models in response to the rising level of demandwith the aim of realizing higher sales and a reliableearnings structure.

Overall Conditions in Major Units
Hydraulic Excavators and Road Machinery(Sumitomo (S.H.I.) Construction Machinery Co., Ltd.)

Crane Business(Link-Belt Construction Equipment Company)

Business Performance for Fiscal 2006
Domestic demand for construction machinery soared from theprevious year’s level on buoyant capital investment in theprivate sector. We worked vigorously to market new modelsof the mainstay hydraulic excavators that comply with thelatest emission regulations and, as in the preceding year, we
focused on hydraulic vehicles used for specialized applications,such as models fitted with lifting magnets*1 and thoseadapted for forestry applications. Through these efforts, we
successfully increased the number of new vehicles sold.
In the road machinery business, contracting domestic
demand resulted in a decline in sales of asphalt finishers*2.
Nonetheless, this business expanded its market share from thelevel of the previous year.
In overseas markets, we strengthened our tie-up with oursales partner CNH Global N.V. to expand hydraulic excavator
exports to the North American market, which remains robust,as well as new unit sales to Europe. Exports of hydraulicexcavators to the recovering Chinese market jumped sharply.
With respect to our production system, we expanded
production capacity at the Chiba Works to meet the highdemand for hydraulic excavators.

Business Performance for Fiscal 2006
In the North American market, our wholly owned subsidiary
Link-Belt Construction Equipment Company (Link-Belt)
designs, manufactures, sells and supports a diverse line ofmobile telescopic cranes and lattice-boom cranes. Link-Belt
also jointly develops crawler cranes with Hitachi Sumitomo
Heavy Industries Construction Crane Co., Ltd. (HSC), a joint
venture between Hitachi Construction Machinery Co., Ltd.
and the Company for sales in the North American market.
The North American mobile telescopic and crawler cranemarkets experienced double digit growth over the 2005 levels.
Overall market demand for mobile telescopic and crawler
cranes exceeded availability, and Link-Belt continues to benefit
from the strength of demand. Link-Belt’s sales for fiscal 2006
increased by approximately 46% over the previous term. The
introduction of new models in market classes previously
served, as well as in new market classes, has also contributed
to the increased sales volume. While Link-Belt’s production
increased in 2006, production capacity continues to beconstrained somewhat by component availability. Link-Belt
initiated a Lean Sigma® program late in 2004 that has allowed
it to improve efficiencies in production.
Link-Belt has continued to increase pricing on all products
in order to mitigate the impact of rising commodity prices.

*1. Lifting magnets are used to move scrap iron and steel.
Asphalt finishers are machines used to lay the final asphalt layer on a road
*2. surface.
Strategies for Fiscal 2007
In response to bullish demand for hydraulic excavators, theChiba Works embarked on an initiative to gear itself up to
consistently produce 10,000 units per year. In domestic terms,
we will be proactive in sales promotion for our new-model
hydraulic excavators in a bid to boost their market share. We
will be bringing to market a new model asphalt finisher that
conforms to the latest emission regulations.
Overseas, we will continue to strengthen ties with CNH to
expand sales of hydraulic excavators in the North Americanand European markets. In addition, we will be strongly
promoting Sumitomo-brand construction machinery to thegrowing Chinese market and emerging markets elsewhere in
the world.

Hydraulic Excavator SH200-5 LEGEST

Strategies for Fiscal 2007
The continuing strength of Link-Belt is the introduction of newmodels that not only meet the customer’s requirements andexpectations, but exceed them. Link-Belt’s continuing goal is
to be the leader in customer service and satisfaction.
The fiscal 2007 outlook for the North American cranemarket is for continued strong growth in the mobile telescopic
and crawler crane segment. As in 2006, the challenge forincreasing production volumes in 2007 will be the availabilityof components. Link-Belt is working closely with vendors toprovide an uninterrupted supply of material and components
to meet production needs, aiming at increased sales andimprovement in market share. Link-Belt will continue the Lean
Sigma® program, which, through continuous improvement
activities, will offer better quality, cost and delivery of LinkBelt’s products.
Another of Link-Belt’s strategies is the expansion of its
presence in the global market. In April 2007 the company
exhibited a mobile telescopic crane at the Bauma Trade Fair in
Germany, the largest construction equipment show in the world.

A Link-Belt “Crane-Fest”

Annual Report 200723

WHY WE’RE STRONG

Research and Development
1. R&D Strategy

Research and Development

To continuously create first-class products under the “Leap to
Excellence ’07” plan, we have designated the cream of ourlineups in each business area as “core products” and havelaunched Groupwide initiatives to further develop them. With agoal of achieving value for our customers, we are making priority
investments throughout the product cycle from planning todevelopment and marketing.
We have designated the following as growth areas where weare stepping up technological development and innovating new
products: Semiconductor and Liquid Crystal Production
Equipment, Information Technology Related Equipment, Medical
Equipment, and Actuators.
We have clustered on our leading-edge R&D and businessbases in the Yokosuka area southwest of Tokyo, and areaccelerating the pace of development. At the R&D Center,
development resources are focused on both new products as wellas key and basic technologies to help us create the next
generation of new products and strengthen our productinnovation capabilities.
Total R&D expenditures during the term came to ¥8.6 billion
in fiscal 2006. We intend to increase these expenditures in the
future, to further extend our technological lead.
As a yardstick of R&D efficiency, sales of new products
accounted for 30% of total sales on a non-consolidated basis. We
will continue to launch new products.

2. Main R&D Milestones(1) Growth Areas
Semiconductor and Liquid Crystal Production Equipment
and Information & Technology Related Equipment
In the plastic injection molding machine business, we added lightguiding panel modules to our SE-HP range of ultra high-speed allelectric injection molding machines, to meet market demand forthinner light-guiding panels. The upgraded product was warmly
received by the market. To enable formation of 0.3mm-thin lightguiding panels, we added our proprietary injection andtemperature control technologies to the high-speed, highresponse injection functions, yielding a very high level of filling
performance. We also developed and launched our new NANOPRESS H system capable of meeting the high productivity
requirements needed by optical glass element formation. We
added the SLR-400T to our range of CO2 laser drills for printed
circuit boards, continuing our drive for higher-quality processing
in laser-drilling machines. We impressed the market with ourfurther development - lowering running costs – of our ELA seriesof laser annealing systems for leading LCD manufacturers.
In semiconductor encapsulating systems, we launched the
new SX120 model for frame–widening in the transfer-molding
process, and continue to develop this series. In the COMP series ofcompression molding technologies, we completed thedevelopment of molds using substrates divided into several blocks,
and continue to develop ways to broaden the transfer area tomeet demand for lower running costs.
In encapsulation for organic electroluminescent (EL) devices,
we supplied pilot mass-production lines using our Reactive Plasma
Deposition method.
In cryogenic equipment and its applications, a newly
developed cryopump system “SICERATM” optimized for nextgeneration semiconductor-manufacturing equipment, has now
24

Sumitomo Heavy Industries, Ltd.

been adapted for volume production lines. Development of aseries of the cryopumps is underway. 4K pulse-tube cryocoolers
are under evaluation for medical and measuring equipment
applications and extensive work to further reduce vibration
continues.
In precision positioning stages, we focused development
efforts on platforms for large stages for LCD use. In motion
components, we expanded our product ranges for highperformance drivers and controllers for precision processing foradvanced semiconductor and LCD manufacturers. We launched
new products in our range of Air Sonic high-speed, high-precision
air actuators, which we have developed as an original machinecomponent, and as well as air dancers for them.
Orders were robust for clean transportation equipment for
high-performance film for LCD-manufacturing lines. We
continued to develop our lineup of Automatic Guided Vehicles(AGVs) and enhance their functionality.
Medical Equipment
We launched the ultra-compact HM-7 cyclotron system for
Positron Emission Tomography (PET) for cancer diagnostics. In
proton therapy devices for cancer treatment, efforts were focusedon increasing output and reducing the number of days oftreatment.
Actuators
In our core competence of motion control and drive products, weare developing new high-value-added products as successors to
our F4C-D and F2C-C series of Cyclo® speed reducers withenhanced rotation control and output torque to meet highrotational accuracy and low backlash specifications. In electromotor products, we developed a low-noise motor for stagesetting devices. This product, with an Interior Permanent Magnet
motor with built-in high-performance magnets, is designed tomeet demand for compact, high-performance, silent models. We
also focused efforts on the market for industrial magnetic motors,
which we expect to show strong growth going forward. In speed
reducers for industrial applications, one of our core products, welaunched a low-noise model in our SFC series of orthogonal speed
reducers for cooling towers and condenser drives. We were able
to achieve significant noise reduction by using three-dimensional
gear-tooth modification, enabling this product to be used formeeting noise reduction needs in systems located close toresidential areas. We will continue to develop basic technologies
to meet the high level of demand for orthogonal gearmotors.
(2) Other Businesses
Environmental Equipment, Ships, and Logistics
In our water-treatment plant business, we continue to develop
new units and component systems for water processing facilities.
We are also developing energy recovery and solutions based on
our core competence of fermentation technologies, and havelaunched and commercialized a camera for visually monitoring the
behavior of microorganisms inside reactor tanks.
In energy plant, we are developing application technologies
for our circulating fluidized-bed boilers for new fuels based on
woodchip biomass, waste tires and waste plastics. We have founda new way of smoothly extracting and recycling steel wire fromwaste tires due to the adoption of specially-designed furnacebases. We also have developed resource recovery technologies forrare metals derived from waste materials using rotary kilns.

In ship and marine operations, we have continued to develop
energy-saving hull forms, and new environment-friendly tankers
that meet tougher safety rules. We are studying ways of
improving construction methods to improve productivity andreduced lead times, by making more efficient use of a wide range
of information processing technologies.
Turning to logistics and parking systems, we are developing
products for mail-order customers through TV and online
channels. We are also developing rapid and flexible picking
systems that can promptly deal with changes in product lineups.
In car-parking facilities, we have completed trial operations ofan above-ground version of our “Sumipark® Ground” “puzzletype” parking facility, in which space-saving is achieved by more
efficient use of available spaces, and plan to commercialize thisnew system.

COMP-3

Other Industrial Equipment
In forging presses, we are expanding marketing of the 1,600 ton
press using the “i-CL@B®” large wet-type clutch break system,
which was well received by our customers. We have launched acompact model of the “i-Tr@nsfer®”, front-and-back, feed-bars
separated-type transfer system, developed with the goal of
substantially broadening the range of products handled, andimproving productivity and maintenance, and it and establishedmodels are operating satisfactorily. We have also developed the“i-H@nd®” charge device for use with this system, and planfurther function upgrades. At the same time we have completed aseries of new more simple and compact presses jointly with acustomer, and have completed their serialization as items of
production equipment. Repeat orders have already been placed
for all models.
In the field of industrial power-generation turbines, we havereceived an order for the C11-type 67MW turbine incorporating a
22-inch long-blade system that we have developed, and havealready begun design and manufacturing. In the process pumps,
we are upgrading the functions of our high-pressure multistage
cylindrical case pumps to expand their range in line with progressin light petrochemical applications.
R&D activities in construction machinery have focused on
products that offer IT compatibility, ease of operation, energysaving and environment-friendly qualities. In hydraulic excavators,
we launched models in the SH200-5 and SH240-5 mainstay
medium-sized ranges with engines that meet the (latest) Tier 3
emission regulations. These are next-generation vehicles with highlevels of operability, economic viability and environmentfriendliness under the motto “real performance.” We have also
built this environment-friendly engine into our large hydraulicexcavators for large-scale general civil engineering, road
construction and aggregate crushing, and launched models in theJapanese and overseas markets.
In road-paving equipment, we continued development of our
new HA90C large asphalt-finisher, mainly targeting overseas
markets, are developed the HA45C-6 (JP2045) asphalt-finisher
using the crawler method for mountainous areas and soft-soil
environments. We also further upgraded the “J-paver®” series of
3-stage extendable screeds.

NANO-PRESS H•Research and Development Expenses(¥ Billion)

(%)

15

1.5

10

1.0

5

0.5

0

0.0
FY03

04

Research and development expenses

05

06

R&D expenses ratio to net sales(Right scale)•Proportion of New Products in Total Sales
(%)

40
30
20
10
0
FY03

04

05

06

Annual Report 200725

Intellectual Property

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

Management StructureIntellectual Property

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

Principal Activities and Results(1) Intellectual Property Inspection Activities
We have formed an Inspection Committee composed principallyof CIPOs, and use mechanisms for the regular evaluation of
inventive proposals. In this way, we foster the efficient andsystematic filing of patent applications ultimately intended forcommercialization.
(2) Special Cross-Departmental Meetings
At our training center, we hold two-day gatherings for staff
involved in planning, marketing, technology, and intellectual
property, primarily the CIPOs. The members concentrate on
devising measures to respond to other companies’ patents, andon formulating the priority domains for inventive activity, in linewith our business strategies. This kind of support structure thatcuts across our organization is effective in stimulating activities forthe creation and use of intellectual property that tend to atrophy
if confined to individual divisions.
(3) Emphasis on Overseas Patent Applications
In tandem with the internationalization of the business activitiesof the Sumitomo Heavy Industries Group, we have been calling on
all operating divisions and other relevant divisions to take active
steps to file patent applications overseas. As a result, as of May
2007 as many as 1,376, or 39%, of the total of 3,512 patents
held by Sumitomo Heavy Industries were held overseas. It is ofnote that during the past four years we have increased thenumber of overseas patent applications under the Patent
Cooperation Treaty (PCT). We have been stepping up the use of
these PCT applications because of the advantages they offer interms of cost savings, higher efficiency and greater rapidity. For
example, they eliminate certain duplications in the examination
procedures that are conducted by each individual country, and thedate of filing within Japan is also deemed to be the date of filingin other designated countries, if certain conditions are satisfied.

•CIPO System•Overseas Patent Applications by SHI(Number)President

250
200

PTC
Group

Plastics
Machinery
Division

Precision
EquipmentGroup

Mechatronics
Division

Quantum
Equipment
Division

ElectroMechanical
Division

Research and Intellectual
Development
Property
CenterDivision

150
100

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

50
0

Patent Leader Patent Leader Patent Leader Patent Leader Patent Leader Patent Leader Patent Leader

Sub-Patent
Leaders(Several)

26

Sumitomo Heavy Industries, Ltd.

FY03
China
PCT

CIPO: Chief Intellectual Property Officer

04

05

TaiwanOthers

Korea

06*PCT indicates the contracting statesto the Patent Cooperation Treaty

(2) Basic Principles

Sumitomo Heavy Industries believes that the essence of corporate
governance is the establishment of a system enabling the efficient andtransparent conduct of management, with the aim of pursuing higher
enterprise value, allowing a company to enjoy even stronger trust fromall its stakeholders, including shareholders, customers, employees, andthe community as a whole.

1) The performance of their duties by the Company’s directors must be
in conformity with both the law of the land and the stipulations
contained in the Company’s Articles of Incorporation. To ensure this,the following system has been put in place.
➀The Board of Directors shall determine the basic policies regarding
an internal control system which, in turn, will serve as thefoundation on which good corporate governance is made possible.
Once it is set up, the Board shall verify that it functions effectively,
and shall subsequently make unceasing efforts to improve it still
further.
➁Outside directors shall be appointed to the Board of Directors to
introduce a more objective, external perspective on matters underdeliberation.
➂The statutory auditors shall audit the performance of their duties by
the directors.
2) Matters relating to the performance of duties➀Regarding the safekeeping and management of information
relating to the performance of their duties by members of theCompany’s management, these shall be conducted in accordancewith the document and electronic record safekeeping standards laid
down by the Company and the Company’s regulations relating to
the handling of confidential information, and the documents and/or
electronic files in question shall be available for perusal at any timeby any director(s) or corporate auditor(s) of the Company. Minutesof meetings of the Company’s Board of Directors shall be held in
safekeeping at the Company’s Head Office for a period of 10 years.
➁Matters relating to the management of loss riska) The internal control system conducts management of every
conceivable risk in all sections of the Company.
b) Regulations covering risks relating to separate categories such asenvironmental matters, legal compliance, damage earthquakes,
fires, and so on, information technology, export regulations andother categories are drawn up by the relevant section in charge
at the Company’s Head Office. The said sections also takecharge of educating staff in risk management and contingency
measures, including the issuing of practical guidelines.
c) In line with the stipulations in the Company’s “Guidelines for
Information Activities in Emergencies,” staff on site in the eventof an emergency must immediately inform the Company’s top
management and take appropriate emergency countermeasures.
➂System for ensuring the efficient performance of their duties bydirectorsa) The Company has adopted the executive officer system, in which
the directors focus their efforts on examining matters ofimportance and implementing swift decision-making, andsupervise the day-to-day management of the Company’sbusiness operations by the executive officers.
b) Medium-term management plans and budgets for individual
business years are put into action after they have been carefully
debated and decided on by dedicated deliberative bodies.
Additionally, at the monthly meetings of the Executive Officers
Committee, officers responsible for particular business
operations are required to report on progress made under the
medium-term management plan and in line with the annual
budget, and to report any problems encountered.
c) The Corporate Management Committee has been set up as anadvisory body to the President. To permit fast and effective
decision-making in relation to matters of importance tomanagement, based on examination of the matter in question
from multiple viewpoints, the Corporate Management
Committee examines the issue in question prior to its submission
to the President and the Board of Directors.
➃System for ensuring that the executive officers and other employees
perform their duties in compliance with the law and in conformity
with the Company’s articles of incorporationa) The Ethics Committee, chaired by the Company’s President,
decides the Company’s basic policies in the field of compliance,
and the Internal Control Group-via the internal control sections
that have been set up within every department of the Company— ensures that these policies are followed rigorously.
b) Copies of the Company’s Ethics Regulations and Compliance
Manual are distributed to all directors, executive officers, andother employees, and special seminars are held regularly to keep
all staff up to date with requirements related to ethical practiceand legal compliance. When deemed necessary, directors,
executive officers, and employees in managerial posts are
required to submit an agreement in writing to observe specific

1. The Current State of Corporate Governance at SHI
The Company employs the conventional Japanese management system,
known as the “corporate auditor system,” and within this governanceframework, we have introduced a system of executive officers. We
ensure a proper separation of the executive function carried out byexecutive officers and the supervisory function performed by the Boardof Directors.
The Company’s Board of Directors consists of ten directors, ofwhom one is an external director. The Board works to maintain, and,
where necessary, improve the degree of transparency of the Company’s
management, and to fulfill the function of oversight of the day-to-day
execution of the Company’s business. In addition to its mandatory dutyof stipulating the Company’s rules relating to those matters for whichsuch stipulation is required under Japan’s Corporation Law, the Board
also discusses issues of importance to the Company’s management,
both issues of an urgent nature and matters of a long-term nature. The
Articles of Incorporation of the Company specify that the number ofmembers of the Board shall be no more than 12.
The Executive Officers, numbering 16, of whom seven are
simultaneously directors of the Company, are charged with the
responsibility for supervising the day-to-day operations of the Company.
They sit on the Executive Officers Committee. All the presidents of theprincipal member companies of the SHI Group attend meetings of theGroup Management Council together with the Company’s President inorder to supervise the progress of business performance at theconsolidated level and ensure that the management policies laid downby the Board of Directors are also followed by the separate
managements of Group companies.
The Company has also set up the Corporate Management
Committee, composed of Executive Officers who are stationed at theCompany’s Head Office, which acts as an advisory body to the President.
The Management Strategy Committee deliberates on matters ofimportance, including matters to be referred to the Board of Directors
for further deliberation, and reports directly to the President on the
conclusions arising from its deliberations.
The Board of Corporate Auditors, comprising four corporate
auditors, of whom two are outside auditors, is charged withresponsibility for checking the conduct of the Company’s directors andexecutive officers in the discharge of their duties, from the perspectivesof legal correctness and ethical appropriateness. In addition, the Group
Corporate Auditing Committee, comprising corporate auditors of theCompany and of its subsidiaries and affiliates within the Group, meetsregularly to allow the exchange of information among the members toensure the efficient functioning of auditing at the Group level. The roleof the outside auditors, who are chosen from among lawyers andcertified public accountants, is to reinforce the system for checking theobservance of compliance within the Group, as well as the whole rangeof accounting procedures.
In addition, we have established the Corporate Auditor’s Dept., asecretariat body to assist the Board of Corporate Auditors, under the
direct control of the Board of Corporate Auditors.
We have set up a Directors Recommendation Committee torecommend candidates for new members of the Board of Directors: thecommittee recommends candidates for directors, directors with specificresponsibility for particular business operations, and representative
directors.
2. The Structure of the Company’s Internal Control System, andits Basic Internal Control Policies
The Company has laid down the following policies to be followed inorder to ensure that business operations are conducted in the correctmanner.
(1) Objectives
The Company regards a properly functioning internal control system as
an indispensable precondition for the improvement of the Group’s
enterprise value and the sustainable expansion of its business scale andoperational reach. The structure of the internal control system, and thebasic principles observed in its operation, are set out below.

Annual Report 200727

Corporate Governance and Compliance

Our Definition of Corporate Governance

HOW WE BEHAVE

Corporate Governance and ComplianceHOW WE BEHAVE

Board of Directors or any individual director
Personnel matters with respect to the staff working in the
Corporate Auditor’s Dept., including relocation to other posts andevaluation of performance and/or job skills, shall be decided by athree-way conference attended by the statutory auditors, thedirectors, and the executive officers.
➂Regarding the system whereby directors and employees report tothe statutory auditors,a) In order to effectively audit the job performance of theCompany’s directors and executive officers, the corporate
auditors shall attend meetings of the Board of Directors, theExecutive Officers Committee, and other important management
meetings, and shall be accorded sufficient opportunity to peruseringisho (documents for approval) and other documents ofmaterial importance to the conduct of business operations.
b) Directors, executive officers, and employees shall, without delay,report to the corporate auditors in the event of any of thematters listed below arising with respect to the Company orother Group companies.
* Acts in contravention of the law or of the Company’s articles
of incorporation, or suspected danger of such acts
* The discovery of a fact(s) or situation that threatens to causesignificant harm to the Company, or a suspected danger ofsuch a circumstance; or the discovery of an illegal act* Any matter whose deliberation is delegated on an
extraordinary basis by the Board of Directors to individual
executive officers* Any other matter with respect to which a corporate auditor or
auditors shall specifically request a report➃Other systems for ensuring that the corporate auditors are able tocarry out auditing effectivelya) The directors and executive officers shall fully cooperate with thecorporate auditors to ensure that the corporate auditors are able
to conduct their audits effectively through liaison andcooperation with the internal audit dept. and internal control
group, as well as the corporate auditors of other groupcompanies and the external auditing companies whose auditing
services are utilized by the other Group companies.
b) In the event that the corporate auditors of Group companies
other than the parent company shall discover acts incontravention of the law or of the Company’s articles ofincorporation, or suspected danger of such acts, or in the eventthat they shall discover a fact(s) or situation that threatens tocause significant harm to the Group as a whole, or a suspected
danger of such a circumstance; or in the event that they shalldiscover an illegal act, they shall immediately report the facts ofthe case to the corporate auditors of the parent company.
(3) Revisions to the above policies
The above policies may be revised whenever deemed necessary by the
management of the Company. Revisions shall be made by resolution of
the Board of Directors of Sumitomo Heavy Industries, Ltd.

•Our Corporate Governance System
General Meeting of Shareholders

Directors Recommendation
Committee

Compensation Committee

Audit

Corporate Auditors/
Board of Corporate Auditors

Corporate Auditor’s Dept.

President and Chief Executive Officer

Audit
Management Strategy Meeting
Internal Control GroupInternal Control

Internal Audit Dept.

Internal auditing

Corporate Operating Committee
Group Executives Management Committee

Operational divisions Subsidiaries/affiliates

Audit
Auditors/boards of corporate auditors of subsidiaries/affiliates

28

Sumitomo Heavy Industries, Ltd.

Independent auditors

Board of Directors

Audit

Ethics Committee

Oversightt

Corporate Governance and Compliance / Measures for Environmental Preservation

compliance requirements.
c) An in-house whistle-blower hotline has been set up to enabledirectors or other members of the Company’s staff to reportsuspected illegal (non-compliant) or unethical acts. All membersof the Company are actively encouraged to make use of thissystem, which enables the management to discover problems at
an early stage.
➄System for ensuring the correct conduct of business at the parent
company and all other Group companiesa) The management of Sumitomo Heavy Industries, Ltd., the parent
company, is responsible for ensuring that the management of
the Group as a whole is conducted in accordance with theGroup management principles that have been laid down, which
embody the principles of good corporate governance, and thatthe management is conducted efficiently.
b) The medium-term management plans and annual budgets of theGroup’s main member companies shall not be implemented
without prior examination at the Head Office of the Company.
Once underway, the progress of business performance shall be
regularly checked against the targets under the plan/budget, andany problems encountered shall be reported by the president of
the company in question to the Executive Officers Committee ofthe parent company and to the Group Management Council,
allowing the Company’s management to obtain an accurate
grasp of the overall business situation of the Group.
c) To ensure the legal and ethical correctness of the conduct ofbusiness by the entire Group, internal control sections have been
set up in all the principal companies of the Group. In addition,
the central internal control section (Internal Control Group),
located at the Head Office of the parent company, exercises
overall supervision over internal control activities throughout theGroup.
d) Statutory auditors of the main Group companies shall be
appointed by the parent company. In addition, the Company’s
auditing departments conduct audits of the businessperformance of the principal Group companies to ensure that a
uniform standard of effective auditing is applied throughout theentire Group.
e) In line with the stipulations in the Company’s “Guidelines for
Information Activities in Emergencies,” in the event of an
emergency, the management and/or staff of the Group company
in question must immediately inform the Company’s top
management and take appropriate emergency countermeasures.
3) Matters relating to the performance of auditing duties by theCompany’s corporate auditors➀Matters relating to the provision of administrative staff to assist theCompany’s corporate auditors in the event that the auditors request
the appointment of such staff
A Corporate Auditor’s Dept. shall be set up, under the control of
the Statutory Auditors.
➁Regarding the independence of the employees in the Corporate
Auditor’s Dept. from the direct chain-of-command starting with theMeasures for Environmental Preservation
The corporate mission of the Sumitomo Heavy Industries Group
includes the recognition of its responsibility to contribute toregional development, a better environment, and safety. The
Group as a whole is seriously tackling the issue of environmental
preservation, based on our understanding that the protection of
the global and regional environment, and the promotion of arecycling economy, are part of the social responsibilities of anenterprise. Especially since fiscal 2005, we have started activities
to help prevent further global warming. These Group-widemeasures include reduction of electricity consumption and paper
usage, and the active utilization of “green” logistics systems.

Environmental Management
Management Organization
The Environmental Management Department within the General
Affairs Group looks into various matters relating to environmental
management activities within the Company and the Group. Eachof the Works and the Group companies outside of the regions
covered by the Works has created and is operating environmental
management systems in compliance with ISO14001, theinternational standard for environmental management systems, inline with the environmental policies established by the president
or the plant manager. Elements listed as having a potential impact
on the environment are being assessed, and environmental
management programs and targets for activities are being set up
based on the assessment results.
Environmental Accounting
Environmental accounting-complying with the Environmental
Accounting Guidelines established by the Ministry of theEnvironment — has been implemented to clarify the money spentand amounts invested by the Company in environmental activities,
and to achieve greater efficiency in environmental preservation.
The total amount of environmental preservation costs for fiscal
2006 was about ¥2.9 billion, of which approximately ¥1.25 billion
was spent on capital investments in facilities and equipment todecrease the volume of materials with a heavy environmental
burden, and to save energy.
Expenses for environmental preservation have increased witheach passing year. For the reporting term, total environmental
preservation costs and capital investments increased ¥950 millionand ¥700 million, respectively, over the previous year.

Reducing Environmental LoadWe are working on new initiatives to contribute to the preventionof global warming-one of the most serious environmental
problems we face. To help reduce CO2 emissions, which are themajor cause of global warming, the Company set a goal for fiscal
2007 of cutting electricity consumption by 10% from the fiscal
2004 level. For fiscal 2006, we achieved a reduction of 1.5% fromthe fiscal 2004 level. We have accelerated introduction of energysaving equipment in fiscal 2007, to better position us to meetthese targets.
We have also set higher targets and taken initiatives for the
reduction of paper usage and the promotion of green logistics.
In addition, to prevent environmental pollution, we areworking on initiatives to reduce emissions of organic chlorinecompounds and volatile organic compounds (VOCs).

Activities Geared to the Recycling-Based Society
We aim to reduce the generation of substances that are a burden
on the environment in two steps: first, by cutting overall waste fromour business activities, and second, by reducing waste disposal.
Waste is being managed in three categories, namely: waste for
disposal, i.e. for landfills or incineration; recycling of waste as
resource materials, which enables reuse; and valuable resources,
which are reused or placed on a route for reuse in the Company.
Provided below are figures on the amount of waste theSumitomo Heavy Industries Group produced and disposed of in
fiscal 2006. These figures show that there has been a significant
reduction in the waste produced and disposed of compared tofiscal 2001 levels.
Volume of waste produced in FY2006

27,970 tons (down 9% from the FY2001 level)

Volume of waste disposed of in FY2006 3,007 tons (down 66% from the FY2001 level)

Developing Environmentally-Friendly Products
It is one of the missions of manufacturers to help preserve thequality of the environment in a broader sense through theirproducts and services, in addition to reducing the burden on theenvironment caused by emissions. The Group helps its customers
to reduce the environmental burden of their activities and reduce
their operating costs, while also contributing to the realization ofa society capable of sustainable development, through the
reduction in the size and weight of its products, the development
and supply of products that help conserve energy, and theconstruction and operation of environmental facilities, including
our recycling plazas and biomass power-generation facilities.

Format of Voluntary Environmental Preservation Costs(¥ Million)

Category(1) Costs in manufacturing field
Break down(1)-1 Preventing pollution(1)-2 Environmental preservation(1)-3 Resource recycling(2) Upstream and downstream
manufacturing processes(3) Environmental management(4) R&D(5) Compensation forenvironmental damage

Major Measures and Their Effects
Appropriate measures for water quality, air quality, noise, vibration, chemical substances, waste, etc.
Reduction of energy use and resource usage and recycling
Improvement and management of discharge treatment facilities, measures for dust collection and against VOCs,
examination of trace PCB content, measurement of water quality and emitted gases
Monitoring of electricity demand, investment in energy conservation, temperature management
Recycling of industrial waste, provision of waste leaving site, recycling of thinners, collection, transport, treatment and disposal of waste
Use of low-sulfur heavy oil, “green purchasing” of office goods
Maintenance and management for ISO14001 certification, staff training (general, specific, examiner, in-house supervisor),
periodical inspection, expansion of green areas, maintenance and management of green areas
Incineration and gasification of household garbage and industrial waste, development of emitted gas treatment systems,
development of ash-melting furnace systems, development of water supply and sewerage facilities, development of methods of
reducing noise from Cyclo® speed reducers, development of new tube heat exchangers
Surcharges for air pollutant loads, contributions by regional enterprises for green areas and compensation for damage
from pollution

Investment
Amount

Cost

1,095

924

103
974
18

228
93
602

0

12

35

109

124

589

0

6
(¥ Million)

Item
Total investments for the term
Total R&D costs for the term

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

Descriptions
Improvement of discharge treatment facilities, development of dust collection systems, installation of VOC treatment facilities,
investment in energy conservation
Incineration and gasification of household garbage and industrial waste, development of emitted gas treatment systems,
development of ash-melting furnace systems, development of water supply and sewerage facilities, development of methods of reducing
noise from Cyclo® speed reducers, development of new tube heat exchangers
Metal scrap left over after the effective use of remnant materials

Amount
1,254

713
282

Annual Report 2007

29

FINANCIAL SECTION

Eleven-Year Summary
SUMITOMO HEAVY INDUSTRIES, LTD. and Consolidated Subsidiaries

Eleven-Year Summary

FY1996

FY1997

FY1998FY1999

Summary of Income (For the year):Net sales............................................................................................
Cost of sales .....................................................................................
Selling, general and administrative expenses .....................................
Research and development expenses ................................................
Operating income..............................................................................
EBITDA (Note 2).................................................................................
Net income (loss) ..............................................................................

¥606,537
505,636
78,367
9,763
22,53432,297
5,923¥556,786
460,254
75,743
8,121
20,78935,1284,613¥554,488
464,286
80,572
8,983
9,630
23,800(12,298)¥566,668
473,798
80,162
12,206
12,70926,910(6,328)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.....................................

¥ 12,503(15,254)(2,751)(1,539)41,018¥516(4,198)(3,682)(1,933)35,403¥ 11,348(9,050)2,298
19,70957,410¥ 39,117(1,969)37,148(48,765)
45,173Financial 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 6) ...................................................................

¥740,091
559,900
128,396
363,894322,876
76,123—¥748,017
566,559
128,757
365,923
330,520
78,909—¥723,673
542,689
124,757
387,199
329,789
72,975—¥657,149
474,059
128,784
341,912298,61764,829
—

¥

¥

7.83
134.043.0¥ (20.88)
123.96—¥ (10.74)
110.12
3.0

3.7
5.3
1.6
0.8
7.8
10.3
49.2
4.8
3.2

3.7
6.3
1.5
0.6
5.8
10.5
48.9
4.6
2.8

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

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

¥ 20,732
15,378
14,842¥ 16,208
15,805
14,357¥ 14,763
14,17013,840¥ 12,606
14,201
13,748Amounts per Share of Common Stock:
Net income (loss) (Note 4)..................................................................
Stockholders’ equity ..........................................................................
Cash dividends .................................................................................

10.06
129.30
3.0

Financial Indexes:
Operating income margin ..................................................................
EBITDA margin .................................................................................
R&D expenses ratio to net sales ........................................................
Return on assets (ROA) ......................................................................
Return on equity (ROE) .....................................................................
Stockholders’ equity ratio ..................................................................
Interest-bearing debt ratio ................................................................
D/E ratio (Times) ...............................................................................
ROIC (Note 5) ...................................................................................

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

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥118=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as ofMarch 31, 2007.
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 income per share of common stock is based on the weighted average number of shares outstanding in each year.
5. ROIC (Return on Invested Capital) = (Operating income + Interest and dividend received) x 55% (= 1 – Effective tax rate)(Average of stockholders’ equity + Average of interest-bearing debt)
6. Net assets are presented following enforsement of the new Japanese Corporate Law in 2006. Net assets comprise shareholders’ equity as previously defined,
plus minority interests and share subscription rights.

30

Sumitomo Heavy Industries, Ltd.

Millions of yen

Thousands of
U.S. dollars(Note 1)

FY2000FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2006¥513,753
434,544
71,724
8,688
7,485
20,402(28,612)¥517,138
430,399
72,564
6,777
14,17526,0781,650¥481,289
400,460
63,616
5,800
17,21329,322
2,688¥482,765
378,422
64,112
6,263
40,231
50,344
16,262¥521,310
407,51265,025
6,317
48,77358,055
22,792¥551,339
434,904
68,9307,441
47,50556,57729,742¥600,256
464,071
71,961
8,599
64,22474,87337,352$5,086,918
3,932,802
609,841
72,875544,275
634,517
316,538¥(16,957)
29,56012,603(21,403)36,496¥ 38,808(3,343)35,465(32,785)
40,846¥ 29,499(1,074)28,425(22,116)
47,661¥ 75,775(7,929)67,846(56,666)
57,678¥ 45,451(6,087)39,364(46,490)
49,108¥ 50,023(7,024)42,999(48,812)
43,644¥ 56,789(12,461)
44,328(41,193)
47,523$ 481,262(105,601)
375,661(349,092)
402,740¥579,772
394,252
119,135
324,324
287,609
30,049—¥634,904
371,049
199,758
294,552
254,40287,494—¥588,010
329,231
196,104
273,544
225,571
89,331—¥580,291
321,400
258,891
215,807
157,353
114,526—¥569,771
316,166
253,605
169,228
119,592
137,157—¥579,233
317,813
261,421
125,504
81,587
167,740—¥600,890
332,509268,381
88,04539,890—206,010$5,092,287
2,817,876
2,274,411
746,149
338,053—
1,745,847

Yen

U.S. dollars(Note 1)

¥ (48.60)
51.04
—

¥

2.80
148.63—¥4.57
151.86—¥27.01
190.25—¥37.80
227.90
3.0

¥

49.45
279.02
5.0

¥

61.99
338.95
7.0

$

0.53
2.87
0.06

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

2.7
5.0
1.3
0.3
1.9
13.8
46.4
3.4
2.3

3.6
6.1
1.2
0.5
3.0
15.2
46.5
3.1
2.6

8.3
10.4
1.3
2.8
14.2
19.7
37.2
1.9
6.5

9.4
11.1
1.2
4.0
16.6
24.1
29.7
1.2
8.5

8.6
10.3
1.3
5.1
17.7
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.2
24.0
34.1
14.7
0.4
12.2

Millions of yen¥ 14,305
12,916
12,411¥ 15,549
11,902
12,457¥ 14,406
12,118
11,777¥ 10,562
10,112
11,282

¥

8,175
9,282
11,149¥ 10,285
9,072
11,319¥ 17,257
10,64912,561Thousands of
U.S. dollars(Note 1)
$ 146,250
90,250

Annual Report 2007

31

Analysis of Financial Conditions and Results of Operations(1) Analysis of Results of Operations for the Fiscal
Year (Consolidated)

FINANCIAL SECTION
Analysis of Financial Conditions and Results of Operations(i) Sales(iii) Selling, general and administrative expenses

Sales were ¥600.3 billion, up ¥48.9 billion from the previous fiscal
year, which is due to the increase in sales by ¥33.8 billion and ¥12.2
billion in the Construction Machinery Group and the Industrial
Machinery Group, respectively, from the previous fiscal year.

Selling, general and administrative expenses were ¥72 billion, up ¥3billion from the previous fiscal year. The main items that recorded
an increase were labor costs and R&D costs.

As for sales by region, domestic sales were ¥324.1 billion, up ¥3.1
billion from the previous fiscal year due to the increase in sales offorging presses and material handling systems business in the
Industrial Machinery Group. Sales in North America were ¥112.3
billion, up ¥17.4 billion from the previous fiscal year due to theincrease in sales of mobile cranes in the Construction Machinery
Group. Sales in Asia were ¥83.8 billion, up ¥10.3 billion from theprevious fiscal year due to the increase in sales of hydraulicexcavators in the Construction Machinery Group. Sales in otherregions were ¥80.0 billion, up ¥18.1 billion from the previous fiscal
year due to the increase in sales from shipbuilding for the Central
and South America markets in the Ship, Steel Structure & Other
Specialized Equipment Group.

(iv) Nonoperating profit and loss
Nonoperating profit and loss resulted in a profit of ¥1.1 billion, up¥1 billion from the previous fiscal year. Nonoperating income wasalmost at the same level as the previous fiscal year. On the other
hand, nonoperating expenses decreased by ¥1 billion from theprevious fiscal year mainly because the interest expenses decreasedby ¥0.7 billion to ¥1.7 billion from the previous fiscal year with thedecrease in interest-bearing debt. Foreign currency influence
included in the nonoperating profit and loss was a loss of ¥0.7
billion, which is an unfavorable change by ¥0.8 billion from theprevious fiscal year.

(v) Extraordinary gains and losses
Extraordinary gains and losses resulted in a loss of ¥2.4 billion,
which is an unfavorable change by ¥0.9 billion from the previous
fiscal year. Extraordinary gains were ¥1.7 billion, up ¥0.8 billion
from the previous fiscal year due to an increase in the gain on saleof securities by ¥0.5 billion from the previous fiscal year.
Extraordinary losses were ¥4.1 billion, up ¥1.7 billion from theprevious fiscal year mainly because the loss from businessreorganization of ¥1.9 billion and the loss from business transfer of¥1.3 billion were recorded.

(ii) Cost of sales
With the increase in sales, cost of sales increased by ¥29.2 billion
from the previous fiscal year to ¥464.1 billion. Cost to sales ratio
was 77.3%, which is an improvement of 1.6 points from theprevious fiscal year due to the improvement of the ratio in the Ship,
Steel Structure & Other Specialized Equipment Group and theIndustrial Machinery Group.

•Net Sales

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

600,000

80,00020

10,00060,00015

40,00010500,000
400,000

8,000
6,000

300,000

4,000
200,000
20,0005

100,000
0

0
FY02

03

04

05

06

03

04

05

06

Mass-produced machinery

Selling, general and administrative expenses

Environmental protection facilities, plants & others

SG&A expenses ratio(Right scale)

Ship, steel structure & other specialized equipment
Industrial machinery
Construction machinery

32

0
FY02

Sumitomo Heavy Industries, Ltd.

2,000
0
FY02

03

04

05

06

(2) Analysis of Financial Conditions for the Fiscal
Year (Consolidated)(vi) Corporate taxes, etc. (the total of corporate tax,
inhabitant tax, business tax and income tax-deferred)(i) Source of capital and liquidity of fund
The Company Group has applied borrowings and internal funds tothe operating fund and equipment fund. As for the fund raisingthrough borrowing, the total of interest-bearing debts as of the endof this fiscal year of consolidated accounts amounted to ¥88.0
billion, down ¥37.5 billion from the end of the previous fiscal yearof consolidated accounts. The Company Group has introduced
CMS (Cash Management System) to promote fund efficiency of theCompany Group as a whole by centralizing at the Company fundrelated tasks of subsidiaries and affiliated companies.

Corporate tax, etc., were ¥25 billion, up ¥9.1 billion from theprevious fiscal year due to the increase in income before corporate
taxes recorded at each company.

(vii) Minority interest
Minority interests were ¥0.6 billion, up ¥0.2 billion from theprevious fiscal year due to the favorable operational results of eachcompany.

Cash and deposits at the end of this fiscal year of consolidated
accounts was ¥48.2 billion, which is equivalent to the sales for 1.0
month. This amount is at the level to secure improved fundefficiency and appropriate fund liquidity. In addition, the Company
secures extremely affluent fund liquidity by concluding with multiple
financial institutions commitment line agreements totaling ¥26.8
billion when such agreements concluded in Japan and overseas
countries are combined.

(viii) Net income
Net income for this fiscal year was ¥37.4 billion, up ¥7.6 billion fromthe previous fiscal year.

Based on the viewpoint of securing necessary funds stably, theCompany has established as the current basic policy the
maintenance of well-balanced long-term fund raising. The ratio ofinterest-bearing long-term debt in the interest-bearing debt at theend of this fiscal year of consolidated accounts was 58%, a 3-point
decrease from the previous fiscal year.

Operating Income,•Operating
Income Margin

Net Income,•Net
Income Margin, ROE

Total Assets,•TotalAssets Turnover(¥ Million)(%)(¥ Million)(%)(¥ Million)(Times)

70,00014

40,00040

600,000

1.5

60,00012

50,00010

30,00030

40,0008

400,000

1.0

30,000

6

20,0004

200,000

0.5

10,00020

0-10,000

20,00020

10,000

10

0
FY02

03

04

05

06

0
FY02

03

04

05

06

0

0.0
FY02

03

04

05

Mass-produced machinery

Net income

Total assets

Environmental protection facilities, plants & others

Net income margin (Right scale)

Total assets turnover (Right scale)

Ship, steel structure & other specialized equipment

ROE (Right scale)06

Industrial machinery
Construction machineryOperating Income Margin (Right scale)

Annual Report 2007

33

(ii) Conditions of assets, liabilities and net assets

FINANCIAL SECTION

Net assets were ¥206.0 billion, up ¥38.3 billion from the total assets
for the previous fiscal year because net income of ¥37.4 billion wasrecorded and capital surplus increased by ¥3.7 billion due to thestock exchange with consolidated subsidiaries, etc., in this fiscal
year. As a result, capital-to-asset ratio as of the end of this fiscal
year of consolidated accounts was 34.1%, up 5.1 points from theprevious fiscal year.

Cash and deposits became ¥48.2 billion, up ¥4.2 billion from theprevious fiscal year because the collection of receivables was further
promoted. Trade receivables became ¥158.4 billion, down ¥0.5
billion from the previous fiscal year because the collection ofreceivables was further promoted. Net property, plant andequipment became ¥185.1 billion, up ¥3.7 billion from the previous
fiscal year because the capital investment was promoted.
Investment securities became ¥60.8 billion, up ¥5.8 billion from theprevious fiscal year due to the increased book value for thecompanies to which the equity method is applied.

Analysis of Financial Conditions and Results of Operations / Business Risk

Notes payable, trade was ¥150.9 billion, up ¥8.1 billion from theprevious fiscal year because trade volume increased due to anincrease of backlog by ¥103.8 billion from the previous fiscal year.
Interest-bearing debts were ¥88.0 billion, down ¥37.5 billion fromthe previous fiscal year because repayment was promoted to
improve financial strength. Advance payments received oncontracts was ¥40.5 billion, up ¥8.5 billion from the previous fiscal
year resulting from an increase in the amount recorded in the Ship,
Steel Structure & Other Specialized Equipment Group.

Interest-Bearing Debt,•Interest-Bearing
Debt Ratio•Stockholders’ Equity, D/E Ratio

Free Cash Flows,•Capital
Expenditures(¥ Million)(%)(¥ Million)(Times)(¥ Million)

300,000

60

200,000

4

70,000150,000

3

100,000

2

60,000200,000

40

50,00040,00030,000100,000

20
50,0001

0

020,00010,000

0

0
FY02

34

03

04

05

06

FY02

03

04

05

06

0
FY02

03

Interest-bearing debt

Stockholders’ equity

Free Cash Flows

Interest-bearing debt ratio (Right scale)

D/E ratio (Right scale)(Debt Equity Ratio)

Capital Expenditures

Sumitomo Heavy Industries, Ltd.

04

05

06

Business Risk
Risks that could adversely affect the business performance or
financial position of the Group are as follows.
All statements below regarding future events represent judgments
made by the management of the Group as of March 31, 2007.

(1) Macroeconomic Factors
Demand for capital equipment, which accounts the more than halfof Group sales, may be influenced by economic trends in both Japanand various overseas markets where the Group sells its products.
Any contraction in demand triggered by a slump in the major
markets for our products in Japan, the rest of East Asia, North
America and Europe could have an adverse impact on the businessperformance or financial position of the Group.

(2) Exchange-Rate Fluctuation
The Group’s business includes production and marketing ofproducts in countries all around the world. Yen translations areapplied in the consolidated financial statements for transactions(involving overseas sales, expenses, assets and liabilities) undertaken
in local currencies. Due to exchange rate effects, the Group may
suffer adverse impact on transaction values after yen translationeven if there is no such change in local currency terms. As of March
31, 2007, the Group had an order backlog, chiefly in its shipbuilding
business, of US$1.3 billion. To minimize the impact of exchangerate fluctuations on our business performance, the Company uses
forward exchange contracts to hedge against risk. However, it is notpossible to eliminate all risk using this method. For this reason, theCompany could suffer adverse impact on its business performancefrom exchange-rate fluctuations.

(3) Price Rises and Delivery Difficulties for Raw
Materials and Parts
As the global economy picks up, there have been significant rises inprices for oil, iron, copper and other raw materials, meaning thatprices of materials used in our products could rise in tandem. As our
suppliers near the limits of their delivery capacity, it is becoming
difficult to secure the necessary volumes of certain raw materials
and parts. In parallel with its cost-cutting measures, the Group seeks
to pass price rises on to end-users and adjusts production schedules,
after factoring rising raw-material prices into its estimates. However,rising costs and procurement difficulties could still have adverse
impact on the Group’s business performance.

(5) Product Quality
The Group manufactures a wide range of products in line with very
strict quality control standards. However, total defect elimination is
impossible, and we cannot rule out having to undertake repair
work, under guarantee at our own expense, in the event of productflaws. The Group has taken out insurance to cover product-defectliability, but we cannot guarantee that these policies will cover thefull sums of compensation that may become payable in liability
settlements. Repairs under guarantee and product compensation
payments can generate significant costs for the Group, and this canadversely affect the business performance and financial position of
the Group.

(6) Impact of Impairment Accounting
Based on the Law Concerning Revaluation of Land (Ordinance No.
34, issued March 31, 1998) and the Law to Partially Modify the Law
Concerning Revaluation of Land (Ordinance No. 19, March 31,
2001), the Company revalued land used by its businesses on March
31, 2002. The difference between the market value of the land at
the end of the term before the revaluation and the book value after
a revaluation was ¥22.0 billion, a decline of 22%. If land values
continue to fall, we may have to recognize impairment losses on
fixed assets. Such a situation could adversely affect the businessperformance of the Group.

(7) Environmental Protection Measures
Under the Group’s environmental policy, we take a range ofmeasures to reduce our environmental footprint such as avoidanceof environmental risk factors and minimizing waste. We have taken
every measure to prevent environmental pollution, but cannot ruleout responsibility for instances of environmental pollution due tounforeseen events. Should we be responsible for incidence ofenvironmental pollution, significant costs could be generated,
negatively affecting the business performance of the Group.

(8) Natural and Other Disasters
The Group has in place inspection, training and communications
mechanisms for minimizing the occurrence and fallout of disasters
such as fires, earthquakes, typhoons and other wind and flooding
damage. However the Group’s business activities could be adversely
affected if such disasters cause material damage to our operations
or injury to our staff. We cannot guarantee that our casualty
insurance would be sufficient to cover all such events.

(4) Overseas Businesses
The Group conducts its business on a global scale, with a focus on
mass-produced machinery and construction machinery for markets
in North America, Asia, and Europe. To meet expanding overseas
demand, the Company is upgrading its marketing networks andproduction facilities. However, wherever we operate, our markets
are subject to political change and unpredictable legal andregulatory change. This could have adverse impact on the businessperformance of our overseas units.

Annual Report 200735

Financial Statements-Consolidated Balance Sheets
March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2007

2006

2007

¥ 48,155¥ 43,917$ 408,096

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

17,553

16,208

148,751

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

FINANCIAL SECTION

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

140,823

142,685

1,193,418

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

(776)

(794)

(6,578)Inventories (Note 3)....................................................................................................

100,519

92,981

851,853

Deferred income taxes (Note 6)..................................................................................

10,342

7,844

87,647

Consolidated Balance Sheets

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

15,893

14,971

134,689

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

332,509317,8122,817,876

111,468

114,115944,641

Property, plant and equipment:
Land (Note 5).............................................................................................................
Buildings and structure ..............................................................................................

116,568

115,143

987,866

Machinery and equipment .........................................................................................

114,186

115,551

967,679

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

3,714

3,525

31,474345,936

348,334

2,931,660

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

160,791

166,854

1,362,636

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

185,145

181,480

1,569,024

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

26,714

23,612

226,392

Long-term loans receivable and Investment securities (Note 11) .................................

34,11531,457289,107

Deferred income taxes (Note 6)..................................................................................

7,288

7,400

61,764

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

16,712

19,774

141,621

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

(1,593)(2,302)(13,497)

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

83,236

79,941

705,387¥600,890¥579,233$5,092,287

See accompanying notes.

36

Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND STOCKHOLDERS’ EQUITY / NET ASSETS

2007

2006

2007

¥ 21,711
14,28515,000¥ 28,188
30,52920,000$ 183,989
121,062
127,11953,51597,35940,502
15,264596
161
38,820297,21352,86589,913
31,976
9,129——
36,946
299,546

453,518
825,077
343,238
129,353
5,052
1,367
328,976
2,518,751

Long-term liabilities:
Long-term debt due after one year (Note 5) ...............................................................
Employees’ severance and retirement benefits (Note 13) ............................................
Allowance for retirement benefits for directors, corporate auditors and executive officers (Note 1) ......
Allowance for loss on product liability (Note 1)...........................................................
Deferred income taxes on revaluation reserve for land (Note 1) ..................................
Other long-term liabilities...........................................................................................
Total long-term liabilities.......................................................................................

37,04924,110896
262
32,306
3,044
97,667

46,787
22,578921—
33,505
4,403
108,194

313,979
204,3227,590
2,221
273,779
25,798
827,689

Minority interests ....................................................................................................

—

3,752

—

—
—
—
—
—
—
—
—
—
—
—

30,872
16,80868,84842,142
158,670
10,269(654)(544)
167,741¥579,233

—
—
—
—
—
—
—
—
—
—
—

Current liabilities:
Short-term bank loans (Note 5) ..................................................................................
Long-term debt due within one year (Note 5).............................................................
Commercial paper (Note 5) ........................................................................................
Trade payable:
Notes payable .......................................................................................................
Accounts payable .................................................................................................
Advance payments received on contracts ...................................................................
Accrued income taxes ................................................................................................
Allowance for loss on reorganization of business (Note 1) ..........................................
Allowance for loss on business transfer (Note 1).........................................................
Accrued expenses and other current liabilities ............................................................
Total current liabilities ...........................................................................................

Contingent liabilities (Note 8)
Stockholders’ equity (Notes 1 and 7):
Common stock
Authorized-1,200,000 thousand shares in 2006 ...................................................
Issued-602,626 thousand shares in 2006 ..............................................................
Capital surplus ...........................................................................................................
Retained earnings ......................................................................................................
Revaluation reserve for land, net of income taxes (Note 1) .........................................
Unrealized gains on securities, net of income taxes ....................................................
Foreign currency translation adjustments ...................................................................
Treasury stock at cost, 1,439,859 shares in 2006 .......................................................
Total stockholders’ equity .....................................................................................
Total liabilities, minority interest, and stockholders’ equity..........................................

¥$Net assets (Notes 1 and 7)
Common stock:
Authorized 1,200,000 thousand shares in 2007....................................................
Issued 605,726 thousand shares in 2007
Capital surplus ...........................................................................................................
Retained earnings ......................................................................................................
Treasury stock at cost, 1,832,402 shares in 2007 .......................................................
Total owners’ equity .............................................................................................

30,872—

261,624

20,518104,950(996)
155,344———

173,879
889,411(8,441)
1,316,473

Unrealized gains on securities, net of income taxes ....................................................
Unrealized losses on hedging derivatives, net of income taxes....................................
Adjustment regarding pension obligations of consolidated overseas subsidiaries ........
Revaluation reserve for land, net of income taxes.......................................................
Foreign currency translation adjustments ...................................................................
Total valuation and translation adjustments ..........................................................

11,195(1,652)(772)
40,411
166
49,347

—
—
—
—
—
—

94,875(14,001)(6,542)
342,464
1,404
418,200

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

1,318
206,010¥600,890———

11,174
1,745,847$5,092,287

See accompanying notes.

Annual Report 200737

Consolidated Statements of Income
Years ended March 31, 2007 and 2006

Millions of yen
2007
2006
Net sales (Note 9) .....................................................................................................
Costs and expenses (Note 9):
Cost of sales .........................................................................................................
Selling, general and administrative expenses .........................................................

FINANCIAL SECTION

Operating income (Note 9)......................................................................................

Consolidated Statements of Income / Consolidated Statements of Stockholders’ Equity

Other income (expenses):
IncomeInterest and dividend income ............................................................................
Equity in earnings of unconsolidated subsidiaries andaffiliated companies......................................................................................
Other - net .......................................................................................................
Expenses
Interest expense................................................................................................
Loss on disposal of property, plant, equipment .................................................
Other - net .......................................................................................................
Special gains (losses):
Gains
Gain on sale of securities ..................................................................................
Gain on business transfer..................................................................................
LossesLoss from reorganization of business.................................................................
Loss on business transfer ..................................................................................
Loss on breach of antimonopoly law .................................................................
Impairment losses of fixed assets (Note 4) .........................................................
Loss on sale of property, plant and equipment ..................................................
Loss from write-down of investment securities ..................................................
Provision for retirement benefits to directors, corporate auditors andexecutive officers ............................................................................................
Loss on liquidation of subsidiaries .....................................................................
Loss from write-down of shares of affiliated company.......................................
Income before income taxes and minority interests.............................................
Income taxes (Note 6):
Current.................................................................................................................
Deferred ...............................................................................................................
Total .................................................................................................................
Minority interests ....................................................................................................
Net income ..............................................................................................................

¥600,256¥551,339$5,086,918

464,071
71,961
536,032
64,224434,904
68,930503,834
47,5053,932,802
609,841
4,542,643
544,275

866

587

7,335

4,584
2,775

4,303
3,305

38,84723,505(1,666)(1,012)(4,429)(2,384)(836)(4,894)(14,115)(8,577)(37,536)

1,398
294

906
—

11,851
2,494(1,870)(1,270)
(746)
(208)
—
—

—
—
(705)
(229)
(687)
(471)

(15,844)(10,760)(6,325)(1,762)
—
—

—
—
—

(257)
(70)
(7)

—
—
—

62,94046,066533,388

26,463(1,493)
24,970(618)¥ 37,352

15,736135
15,871(453)¥ 29,742

224,265(12,649)
211,616(5,234)$ 316,538

2007

2006

U.S. dollars (Note 1)
2007¥61.99—¥ 7.00¥49.45—¥ 5.00Yen
Amounts per share of common stock:
Net income ...........................................................................................................
Diluted net income ...............................................................................................
Cash dividends applicable to the year ...................................................................
See accompanying notes.

38

Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars (Note 1)
2007

$0.53
—
$0.06

Consolidated Statement of Stockholders’ Equity
Year ended March 31,

Millions of yen

Balance at March 31, 2005 ...................................
Decrease due to change in numbers ofconsolidated subsidiaries and companies
accounted for by the equity method................
Increase owing to merger ..................................
Adjustment of retirement benefits ofa subsidiary in the UK ......................................
Transfer from revaluation reserve for land,
net of income taxes to retained earnings .........
Sales of treasury stock .......................................
Net income........................................................
Adjustment from translation of foreign
currency financial statements...........................
Adjustment for unrealized gains on securities ....
Treasury stock ...................................................
Bonuses to directors and corporate auditors ......
Dividends ..........................................................
Bonus for employee in numbers ofconsolidated subsidiaries .................................
Others ...............................................................
Balance at March 31, 2006 ...................................

Number ofshares ofcommonstock(Thousand)Commonstock

602,626¥30,872

CapitalsurplusRetainedearnings(Accumulated
deficit)

Revaluation
reserve forland, net ofincome taxes

Unrealized
gains(losses) on
securities,
net ofincome taxes

Foreigncurrencytranslation
adjustments

Treasurystock¥16,803¥42,677¥45,265¥ 4,476¥(2,741)¥(195)

(55)
278
(839)
399

(3,123)

5
29,742
2,087
5,793
(349)
(42)
(3,308)602,626¥30,872¥16,808(4)
0¥68,848¥42,142¥10,269¥ (654)¥(544)

See accompanying notes.

Annual Report 200739

Consolidated Statement of Changes in Net Assets
Year ended March 31, 2007

Millions of yen
Owners’ Equity

FINANCIAL SECTION
Consolidated Statement of Changes in Net Assets

Stockholders’ equity at March 31, 2006
as previously reported........................................
Reclassification due to adoption of new
accounting standards at April 1, 2006 .............
Net assets at April 1, 2006....................................
Dividends (*Note) ..............................................
Dividends ..........................................................
Net income........................................................
Acquisition of treasury stock..............................
Disposal of treasury stock ..................................
Difference from transfer of Revaluation
reserve for land ...............................................
Stock exchange with consolidated subsidiaries...
Increase from increase of consolidated
subsidiaries with change in scope of
consolidation...................................................
Correction of capital allotment after mergerof parent company and consolidated
subsidiaries......................................................
Changes in items other than owners’ equity inthe period (net) ...............................................
Total changes in the period ...............................
Balance at March 31, 2007 ...................................

Number ofshares ofcommonstock(Thousand)Commonstock

CapitalsurplusRetainedearnings

602,626¥30,872¥16,808¥ 68,848¥(544)¥115,984

602,626¥30,872¥16,808¥ 68,848(1,503)(2,104)37,352¥(544)(457)
78¥115,984(1,503)(2,104)37,352
(457)
260

(73)

1,731
3,448

Treasury
stock

182
1,731
3,100

3,100
605,726

3,521—¥30,872

Sub-total

633

633

7

(7)

—

3,710
¥20,518

36,102¥104,950(452)¥(996)

39,360¥155,344

Millions of yen
Valuation and translation adjustments

Unrealized
holding gains
on othersecurities

Stockholders’ equity at March 31, 2006
as previously reported........................................
Reclassification due to adoption of new
accounting standards at April 1, 2006 .............
Net assets at April 1, 2006....................................
Dividends (*Note) ..............................................
Dividends ..........................................................
Net income........................................................
Acquisition of treasury stock..............................
Disposal of treasury stock ..................................
Difference from transfer of Revaluation
reserve for land ...............................................
Stock exchange with consolidated subsidiaries...
Increase from increase of consolidated
subsidiaries with change in scope of
consolidation...................................................
Correction of capital allotment after mergerof parent company and consolidated
subsidiaries......................................................
Changes in items other than owners’ equity inthe period (net) ...............................................
Total changes in the period ...............................
Balance at March 31, 2007 ...................................

Gain/loss
ondeferredhedge

Adjustmentof pension
obligationof overseas
subsidiaries

Revaluation
reserve forland

Foreignexchangetranslation
adjustments

Sub-total

Minority
interests¥10,269——¥42,142¥(654)¥51,757—¥167,741¥10,269——¥42,142¥(654)¥51,757

3,752¥3,752

3,752¥171,493(1,503)(2,104)37,352
(457)
260
1,731
3,448

634

926
926
¥11,195(1,652)(1,652)¥(1,652)

(772)
(772)
¥(772)(1,731)(1,731)¥40,411*Note: The dividends were made with the approval of the general stockholders’ meeting held on June 29, 2006.
See accompanying notes.

40

Sumitomo Heavy Industries, Ltd.

Total

820
820
¥ 165

(2,409)(2,409)¥49,347(2,434)(2,434)¥1,318(4,843)34,517¥206,010

Thousand of U.S. dollars
Owners’ Equity

Stockholders’ equity at March 31, 2006
as previously reported........................................
Reclassification due to adoption of new
accounting standards at April 1, 2006 .............
Net assets at April 1, 2006....................................
Dividends(*Note) ...............................................
Dividends ..........................................................
Net income........................................................
Acquisition of treasury stock..............................
Disposal of treasury stock ..................................
Difference from transfer of Revaluation
reserve for land ...............................................
Stock exchange with consolidated subsidiaries...
Increase from increase of consolidated
subsidiaries with change in scope of
consolidation...................................................
Correction of capital allotment after mergerof parent company and consolidated
subsidiaries......................................................
Changes in items other than owners’ equity inthe period (net) ...............................................
Total changes in the period ...............................
Balance at March 31, 2007 ...................................

Number ofshares ofcommonstock(Thousand)Commonstock

CapitalsurplusRetainedearnings

602,626$261,624$142,438$583,456$(4,611) $ 982,907

602,626$261,624$142,438$583,456(12,737)(17,827)
316,538$(4,611) $ 982,907(12,737)(17,827)
316,538(3,869)(3,869)657
2,197

Treasury
stock

1,540
14,672
3,100

29,840

(619)

5,370

3,100
605,726$261,624

62(62)31,442$173,879

305,955$889,411

Sub-total

14,672
29,222

5,370(3,831)
333,566$(8,441) $1,316,473

Thousand of U.S. dollars
Valuation and translation adjustments

Unrealized
holding gains
on othersecurities

Stockholders’ equity at March 31, 2006
as previously reported........................................
Reclassification due to adoption of new
accounting standards at April 1, 2006 .............
Net assets at April 1, 2006....................................
Dividends(*Note) ...............................................
Dividends ..........................................................
Net income........................................................
Acquisition of treasury stock..............................
Disposal of treasury stock ..................................
Difference from transfer of Revaluation
reserve for land ...............................................
Stock exchange with consolidated subsidiaries...
Increase from increase of consolidated
subsidiaries with change in scope of
consolidation...................................................
Correction of capital allotment after mergerof parent company and consolidated
subsidiaries......................................................
Changes in items other than owners’ equity inthe period (net) ...............................................
Total changes in the period ...............................
Balance at March 31, 2007 ...................................

Gain/loss
ondeferredhedge

Adjustmentof pension
obligationof overseas
subsidiaries

Revaluation
reserve forland

Foreignexchangetranslation
adjustments

Sub-total$87,029——$357,135$(5,546)$438,619$87,029——$357,135$(5,546)$438,619

Minority
interests

Total— $1,421,527
31,794
31,794$31,794 $1,453,321(12,737)(17,827)
316,538(3,869)2,197
14,672
29,222

5,370

7,847
7,847
$94,875(14,001)(14,001)$(14,001)(6,452)(6,452)$(6,452)(14,672)(14,672)$342,463

6,950
6,950
$ 1,404(20,419)(20,419)$418,200(20,621)(41,040)(20,621)292,526$11,174 $1,745,847*Note: The dividends were made with the approval of the general stockholders’ meeting held on June 29, 2006.
See accompanying notes.

Annual Report 200741

Consolidated Statements of Cash Flows
Years ended March 31, 2007 and 2006

Millions of yen
2007
2006

FINANCIAL SECTION
Consolidated Statements of Cash Flows

Cash flows from operating activities:
Income before income taxes and minority interests ....................................................
Adjustments to reconcile net income before income taxes to net cash provided
by operating activities:
Depreciation .........................................................................................................
Impairment losses of fixed assets...........................................................................
Gain on sale of property, plant and equipment .....................................................
Loss on sale of property, plant and equipment ......................................................
Loss on disposal of property, plant and equipment ...............................................
Gain on sale of investment securities.....................................................................
Loss on sale of investment securities .....................................................................
Loss from write-down of investment securities ......................................................
Loss from liquidation of subsidiaries ......................................................................
Loss from write-down of shares of affiliated company...........................................
Loss from reorganization of business.....................................................................
Gain on business transfer......................................................................................
Loss on business transfer ......................................................................................
Loss on breach of antimonopoly law .....................................................................
Increase in employee’ severance and retirement benefits.......................................
Increase in provision for retirement benefits to directors, corporate auditorsand executive officers .........................................................................................
Equity in earnings of unconsolidated subsidiaries and affiliated companies............
Decrease in allowance ..........................................................................................
Interest and dividend income ................................................................................
Interest expenses ..................................................................................................
Changes in operating assets and liabilities:(Increase) decrease in notes and accounts receivable .............................................
Increase in deposits received .................................................................................
(Increase) decrease in inventories ..........................................................................
Increase in notes and accounts payable.................................................................
Other-net .............................................................................................................
Sub-total ...........................................................................................................
Interest and dividend received...............................................................................
Interest expenses ..................................................................................................
Payment for income taxes .....................................................................................
Net cash provided by operating activities...............................................................

42

Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars (Note 1)
2007¥62,940¥46,066$533,388

10,649
208
(227)
68
1,012
(1,398)
3
136
—
—
1,870
(294)
1,270
746
(329)

9,072
229
(89)
686
836
(906)
1
471
70
7
—
—
—
705
1,315

90,2501,762(1,920)578
8,577(11,851)
25
1,153
—
—
15,844(2,494)
10,7606,325(2,785)(21)(4,584)
616
(866)
1,666

292
(4,303)(5,227)
(587)
2,384

(180)
(38,847)
5,221(7,335)
14,115

10,394(4,119)(7,213)
7,106

3,028
3,544
(1,634)
6,533

88,084(34,903)(61,128)
60,217(3,028)76,605
1,617(1,535)(19,898)¥56,789

5,958
68,451679(2,258)(16,849)¥50,023(25,661)
649,195
13,701(13,007)(168,627)$481,262

Thousands of
U.S. dollars (Note 1)
2007

Millions of yen
2007
2006
Cash flows from investing activities:
Net decrease in time deposits ...............................................................................

¥

(10)

Payments for securities..........................................................................................

(5,577)

Proceeds from sale of securities.............................................................................
Disbursement for investment in affiliated company ...............................................

¥

278

$

(84)

(1,295)(47,261)

4,017

1,280

34,046—(1,080)—

Proceeds from liquidation of subsidiaries...............................................................

—

1,528

—

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

(16,657)(11,497)(141,162)

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

1,769

2,202

14,989Proceeds from refund of investment .....................................................................

—

1,462

—

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

(43)

(44)

(361)

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

148

332

1,253

Proceeds from business transfer ...........................................................................

5,895

—

49,957

Other-net .............................................................................................................

(2,003)(190)(16,978)

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

(12,461)(7,024)(105,601)

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

(6,516)(18,074)(55,217)

Net increase in commercial paper..........................................................................

(5,000)8,500(42,373)

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

4,500

17,99038,136

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

(30,482)(52,540)(258,319)

Payments for redemption of bonds .......................................................................

—(1,000)—

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

379

8

3,215

Cash flows from financing activities:

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

(454)

(352)

(3,847)

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

(3,607)(3,308)(30,564)

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

(13)

(36)

(123)
(349,092)

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

(41,193)(48,812)

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

259

343

2,202

Net decrease in cash and cash equivalents............................................................

3,394(5,470)28,771

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

43,644

49,108369,861

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

485

3

4,108

Increase due to merger and acquisition ................................................................

—

215

—

Net decrease from the change in consolidated companies..................................

—

(212)

—

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

¥47,523¥43,644$402,740

See accompanying notes.

Annual Report 200743

Notes to Consolidated Financial Statements

FINANCIAL SECTION
Notes to Consolidated Financial Statements

1. Significant accounting policies
Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been
prepared in accordance with the provisions set forth in the Japanese
Securities and Exchange Law and its related accounting regulations,and in conformity with accounting principles generally accepted inJapan (“Japanese GAAP”), which are different in certain respects as
to application and disclosure requirements of International Financial
Reporting Standards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective countriesof domicile. The accompanying consolidated financial statements
have been restructured and translated into English (with certain
expanded disclosure and the inclusion of consolidated statements ofshareholders’ equity for 2006.) from the consolidated financial
statements of Sumitomo Heavy Industries, Ltd. (“the Company”)
prepared in accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Finance as
required by the Securities and Exchange Law. Some supplementary
information included in the statutory Japanese language
consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated
financial statements.
The consolidated balance sheet as of March 31, 2007, which
has been prepared in accordance with the new accounting standard
as discussed in “Change in accounting policy”, is presented with theconsolidated balance sheet as of March 31, 2006 prepared inaccordance with the previous presentation rules.
Also, as discussed in Note 1, the consolidated statement ofchanges in net assets for the year ended March 31, 2007 has been
prepared in accordance with the new accounting standard. The
accompanying consolidated statement of shareholders’ equity forthe year ended March 31, 2006 was voluntarily prepared for the
purpose of inclusion in the consolidated financial statements
although such statements were not required to be filed with the
Local Finance Bureau.
The translation of the Japanese yen amounts into U.S. dollars is
included solely for the convenience of readers outside Japan, using
the prevailing exchange rate at March 31, 2007, which was ¥118 to
U.S. $1. The convenience translations should not be construed as
representations that the Japanese yen amounts have been, could
have been, or could in the future be, converted into U.S. dollars at
this or any other rate of exchange.
Principles of consolidation
The consolidated financial statements include the accounts of theCompany and its consolidated subsidiaries (“the Companies”). All
significant inter-company transactions, accounts and profits havebeen eliminated in consolidation.

44

Sumitomo Heavy Industries, Ltd.

Investments in unconsolidated subsidiaries and significant
affiliated companies are accounted for by the equity method. The
difference between costs and net assets acquired of subsidiaries andaffiliated companies, consolidated or accounted for by the equity
method, are deferred and amortized over 5 years as long as theamounts are significant. In case of amounts being insignificant, suchamounts are charged or credited to income as incurred.
In the elimination of investments in subsidiaries, the assets andliabilities of the subsidiaries, including the portion attributable tominority stockholders, are recorded based on the fair value at thetime the Company acquired control of the respective subsidiaries.
Statements of cash flows
In preparing the consolidated statements of cash flows, cash on
hand, readily available deposits and short-term highly liquid
investments with maturity not exceeding three months at the timeof purchase are considered to be cash and cash equivalents.
Marketable and investment securities
Held-to-maturity debt securities are stated at amortized cost.
Available-for-sale securities with fair market values are stated at fairmarket value. (Unrealized gains and unrealized losses on thesesecurities are reported, net of applicable income taxes, as a separate
component of the stockholders’ equity / net assets, Realized gains
on sale of such securities are computed using the moving- averagemethod.) Equity securities issued by subsidiaries and affiliatedcompanies, which are not consolidated or accounted for using theequity method, are stated at moving-average cost. Unlisted
available-for-sale securities are stated at cost based on the movingaverage method.
Inventories
Work in process is stated principally at cost based on the specificidentification method. Finished products, semi-finished products,
raw materials and supplies are stated principally at cost based on
the average method.
Some subsidiaries of construction machinery segment adopted
the lower of cost or market method based on the specificidentification method for the valuation of certain finished products.
Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost except for certain
land revalued. Depreciation is computed primarily using thedeclining-balance method at rates based on respective useful lives,
except that buildings acquired after March 31, 1998 are depreciatedusing the straight-line method.
Allowance for doubtful receivables
The Company and consolidated subsidiaries provide a generalallowance for doubtful receivables. Calculation of this allowance isbased on actual collection losses incurred in the past. Additionally,
for accounts receivable considered at risk (bankruptcy, companies
under rehabilitation plan), an allowance is booked based on an
estimation of the uncollectible amount, on a case by case basis.

Revaluation reserve for land
The Company revaluated land used for business operations on
March 31, 2002 in accordance with Enforcement Ordinance for the
Law Concerning Revaluation Reserve for Land effective March 31,
1998. As a result of the revaluation, the land, which previously had
a book value of ¥32,412 million, was revaluated at ¥109,349
million, which is determined primarily based on real estate tax value.
The Company recorded ¥44,585 million as revaluation reserve forland in stockholders’ equity / net assets section, after reflecting
deferred income tax effects of ¥32,352 million which were recorded
as long-term liabilities.
The current value of the land on March 31,2007 fell ¥22,027
million ($186,667 thousand) in comparison with the book value ofthe land after revaluation.
Employees’ severance and retirement benefits
In order to provide for retirement benefits to be paid to employees,
the amount considered to have accrued as at the end of the term isstated based on the estimated amount of retirement benefit
obligations and pension plan assets as at the end of the term.
The prior service cost will be recognized in expenses as incurredby the Company, and will be recognized in expenses in equalamounts over a period within the average remaining service year of
employees (mainly 12 years) by consolidated subsidiaries.
The actuarial gains (losses) will be recognized in expenses inequal amounts over a period within the average remaining service
year of employees (mainly 12 years) commencing with the next yearof the accrual.
Retirement benefits for directors, corporate auditors andexecutive officers (collectively, “officers”)
The Company and certain of the Company’s consolidated
subsidiaries resolved to abolish their retirement benefit plans for
directors, corporate auditors and executive officers (collectively,“officers”), and provided liabilities for such benefits at the amounts
corresponding to the considerations for the service period until theplan abolishment.
Allowance for losses on construction of contract
With regard to construction contracts that have not yet beendelivered and are with high probability of generating substantial
losses at the end of the fiscal year, and where it is possible toreasonably estimate the amount of such losses, the estimatedamount of losses to be incurred in the future is provided asallowance for losses on construction contract.
Allowance for losses from business reorganization
Allowance for losses from business reorganization is provided at an
amount estimated to be incurred in the future with regard toreorganization of an overseas subsidiary.
Allowance for losses from business transfer
Allowance for losses from business transfer is provided at an
amount estimated to be incurred in the future in connection withthe resort development business transferred in 2007.

Allowance for losses from product liabilities
Allowance for losses from product liabilities is provided at an
estimated amount of product liabilities to be incurred related to thecrane business of overseas subsidiaries.
Impairment of fixed assets
Effective April 1, 2005, “Accounting standard for impairment of
fixed assets” (“Opinion Concerning establishment of accountingStandard for Impairment of Fixed Assets” (issued by the BusinessAccounting Deliberation Council on August 9,2002)) and the“implementation guidance for accounting standard for impairmentof fixed assets” (the financial Accounting Standard Implementation
Guidance No.6 issued on October 31, 2003) became effective andwere adopted by the Company and consolidated domestic
subsidiaries.
Accounting Standard for Statement of Changes in Net Assets
Effective from the year ended March 31, 2007, companies are
required to adopt the new accounting standard, “AccountingStandard for Statement of Changes in Net Assets” (Statement No.6
issued by the Accounting Standards Board of Japan on December
27, 2005), and the implementation guidance for the accounting
standard for statement of changes in net assets (the Financial
Accounting Standard Implementation Guidance No.9 issued by the
Accounting Standards Board of Japan on December 27, 2005),(collectively, “the New Accounting Standards”).
The Company prepared the accompanying consolidated
statement of changes in net assets for the year ended March 31,
2007 in accordance with the New Accounting Standards. The
accompanying consolidated statement of stockholders’ equity forthe year ended March 31, 2006, which was voluntarily prepared forinclusion in the consolidated financial statements, has not been
adapted to the new presentation rules of 2007.
Sales
Sales are principally recognized on a delivery basis except those forlong- term (over 1 year) contracts of ¥1 billion or more, which arerecognized, based on the percentage-of-completion method.
Software costs
The Companies amortize costs of software for its own use using thestraight-line method over the estimated useful life (5 years).
Research and development costs
Research and development costs included in production cost, andselling, general and administrative expenses were ¥8,599 million($72,875 thousand) and ¥7,441 million for the years ended March
31, 2007 and 2006, respectively.
Income taxes
The Companies recognize tax effects of temporary differences
between the financial statement basis and the tax basis of assets
and liabilities.
The Company and some of the consolidated subsidiaries
adopted the Japanese tax regulations allowing the Company to filea consolidated tax return.

Annual Report 200745

Bond issuance expense
Bond issuance expense is charged to income in the year incurred.

FINANCIAL SECTION

Foreign currency translation
Receivables and payables denominated in foreign currencies aretranslated into Japanese yen at the year-end rates.
All asset and liability accounts of foreign subsidiaries andaffiliates are translated into Japanese yen at the exchange rates
prevailing the balance sheet dates of the foreign subsidiaries, except
for common stock and capital surplus, which are translated athistorical rates.
Income and expenses are translated at the rates prevail at thebalance sheet dates. The resulting foreign currency translation
adjustment is reported in net assets (stockholders’ equity).

Also, if a currency option contract is executed to hedge a futuretransaction denominated in a foreign currency, the futuretransaction will be recorded using the contracted forward rate, andno gains or losses on the currency option contract are recognized.
Amounts per share
The computation of net income per share of common stock is basedon the weighted-average number of shares of common stock
outstanding during each fiscal year.
The diluted net income per share is not presented, because theCompany does not have any outstanding convertible bonds orbonds with warrant.
Cash dividends applicable to the year represent the actual
amount declared as applicable to the respective years.

Notes to Consolidated Financial Statements

Information for certain leases as Lessee
The Company and certain consolidated domestic subsidiaries
account for finance leases which do not transfer ownership ofleased assets to lessees as operating leases.

Reclassifications
Certain amounts in the consolidated financial statements for theyear ended March 31, 2006 have been reclassified to conform to
the 2007 presentation.

Derivatives and hedge accounting
Derivative financial instruments are stated at fair value and changes
in the fair value are recognized as gains or losses unless derivative
financial instruments are used for hedging purposes. If derivative
financial instruments are used as hedges and meet certain hedging
criteria, the Companies defer recognition of gains or losses resulting
from changes in fair value of derivative financial instruments until
the related losses or gains on the hedged items are recognized.
However, in cases where forward foreign exchange contracts
are used as hedges and meet certain hedging criteria, forward
foreign exchange contracts and hedged items are accounted for in
the following manner.
If a forward foreign exchange contract is executed to hedge anexisting foreign currency receivable or payable,a) The difference, if any, between the Japanese yen amount of thehedged foreign currency receivable or payable translated using
the spot rate at the inception date of the contract and the bookvalue of the receivable or payable is recognized in the income
statement in the period which includes the inception date, andb) The discount or premium on the contract (that is, the difference
between the Japanese yen amount of the contract translatedusing the contracted forward rate and that translated using the
spot rate at the inception date of the contract) is recognized over
the term of the contract.
If a forward foreign exchange contract is executed to hedge afuture transaction denominated in a foreign currency, the futuretransaction will be recorded using the contracted forward rate, andno gains or losses on the forward foreign exchange contract arerecognized.
Also, if interest rate swap contracts are used as hedge and meetcertain hedging criteria, the net amount to be paid or received
under the interest rate swap contract is added to or deducted fromthe interest on the assets or liabilities for which the swap contract
was executed.

Change in accounting policies(a) Accounting standard for presentation of net assets in the balance
sheet
Effective from the year ended March 31, 2007, the Company and its
consolidated subsidiaries adopted the new accounting standard,“Accounting Standard for Presentation of Net Assets in the Balance
Sheet” (Statement No.5 issued by the Accounting Standards Boardof Japan on December 9, 2005), and the implementation guidance
for the accounting standard for presentation of net assets in thebalance sheet (the Financial Accounting Standard Implementation
Guidance No. 8 issued by the Accounting Standards Board of Japanon December 9, 2005), (collectively, “the New AccountingStandards”).
The consolidated balance sheet as of March 31, 2007 preparedin accordance with the New Accounting Standards comprises three
sections, which are the assets, liabilities and net assets sections. The
consolidated balance sheet as of March 31, 2006 prepared pursuant
to the previous presentation rules comprises the assets, liabilities,
minority interests and shareholders’ equity sections.
The amount corresponding to the total of the “Stockholders’Equity” under former accounting policies is ¥207,115 million($1,755,216 thousand). There were no effects on the consolidated
statement of income for the year ended March 31, 2007.

46

Sumitomo Heavy Industries, Ltd.

(b) Accounting Standard for Business Combinations and AccountingStandard for Business Divestitures
From this fiscal year, “accounting standards concerning businesscombination” (issued by business accounting deliberation council on
October 31, 2003), “Accounting standards concerning businessseparation, etc.,” (ASBJ statement No.7 December 27, 2005) and“the accounting standards implementation Guide concerningbusiness combination and business separation, etc.” (ASBJ
statement implementation guide No. 10, finally amended on
December 22, 2006) are being applied.
There were no effects on the consolidated statement of income
for the year ended March 31, 2007.

Stock exchange
As of October 1, 2006, the Company executed a stock exchangewith SEISA Gear, Ltd.(“SEISA Gear”), a consolidated subsidiary of
the Company, with SEISA Gear being the acquired company of thetransaction. The stock exchange was recognized as a transaction
with minority stockholders.

Amount of goodwill generated

Business of SEISA Gear is manufacture and sales of gear, geartransmission, various reduction gears and various coupling.

Method of depreciation of goodwill
Goodwill will be depreciated evenly in 5 years.

With the stock exchange, SEISA Gear expects to construct a system
for utilization of the technology and human resources of theCompany in order to achieve current targets of the enhanced
competitiveness of products that respond to the diversified
customers’ needs and global sales development.

(c) Allowance for losses on construction contracts
In the year ended March 31, 2006, with regard to construction
works that have not yet been delivered and are with high probabilityof generating substantial losses as of the annual balance sheet dateand in cases where it is possible to reasonably estimate the amountof such losses, the accounting policy has been changed so that theestimated amount of such losses to be incurred in the following
fiscal years are recognized in the current fiscal year as allowance forlosses on construction contracts.
This change was made in order to strengthen financial healthand to more appropriately calculate periodical operating results, inlight of the recent trend that the establishment of such allowance
has become a general practice of accounting.
As a result, in the year ended March 31, 2006, cost of sales
increased by ¥45 million, and operating income and income before
income taxes and minority interests decreased by the same amount,respectively, compared with what would have been reported under
the previous accounting policy. Effects on the segment information
are disclosed in Note 9.

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

The Company

SEISA Gear

1

0.36

(Note) 1. Share exchange ratio
0.36 share of the common stock of the Company was provided in
exchange for one share of the common stock of SEISA Gear.
However, no shares of the Company have been allotted to theshares of the common stock of SEISA Gear owned by the Company(8,200,000 shares).
(Note) 2. Method of calculation and basis of calculation by a third party
institution
The Company and SEISA Gear asked Daiwa Securities SMBC Co. Ltd.
and Nomura Securities Co., Ltd. respectively, to calculate the stock
exchange ratio. Daiwa Securities SMBC Co. Ltd. conducted ananalysis with respect to both the Company and SEISA Gear, basedon the market share-value method as well as the discount cash flow
method, and determined the stock exchange ratio bycomprehensively considering the results of these analyses. Nomura
Securities Co., Ltd. conducted an analysis of the Company based on
the market share-value average method and an analysis of SEISA
Gear based on the market stock value average method, thecomparison with similar companies method and the discount cash
flow method. And then, Nomura Securities Co., Ltd. determined thestock exchange ratio by comprehensively considering the results of
the analyses. Based on the above results, the Company and SEISA
Gears determined the stock exchange ratio as indicated above
through discussions.

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

1,310 million yen

The goodwill represents the difference between the value of theshares delivered to shareholders, excluding the Company’s
consolidated subsidiary, and the amount of the equity held byminority shareholders.

(d) Retirement benefits for directors, corporate auditors andexecutive officers (collectively, “officers”)
In the year ended March 31, 2006, certain consolidated domestic
subsidiaries abolished their Officers’ Retirement Benefit Plans anddetermined to pay officers’ retirement benefits in the amounts
calculated for their service periods up to the time when the plan
was abolished. Pursuant to the decision, in order to further
strengthen financial health, such consolidated domestic subsidiaries
changed the accounting policy effective in the year ended March
31, 2006, and recognized officers’ retirement benefits on an accrualbasis and set up an allowance for retirement benefits for officers.
Due to this change, for the year ended March 31, 2006, ¥29
million of the officers’ retirement benefits incurred for that year,
was recognized as selling, general and administrative expenses, and¥257 million, which corresponds to the previous years’ benefits, wasrecognized as special losses. As a result, in 2005, operating income
decreased by ¥29 million and income before income taxes andminority interests decreased by ¥286 million compared with what
would have been reported under the previous accounting policy.
Effects on the segment information are disclosed in Note 9.

Annual Report 2007

47

FINANCIAL SECTION(e) Impairment of fixed assets
Effective April 1, 2005, “Accounting standard for impairment of
fixed assets” (“Opinion Concerning establishment of accountingStandard for Impairment of Fixed Assets” (issued by the BusinessAccounting Deliberation Council on August 9, 2002)) and the“implementation guidance for accounting standard for impairmentof fixed assets” (the financial Accounting Standard Implementation
Guidance No.6 issued on October 31, 2003) became effective andwere adopted by the Company and consolidated domestic
subsidiaries.
As a result, in the fiscal year ended March 31 2006, income
before income taxes minority interests decreased by ¥229 million.

Notes to Consolidated Financial Statements

2. Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments,
generally with original maturities of three months or lessthose are readily convertible to known amounts of cash and havenegligible risk of changes in value due to their short maturities.
Cash and cash equivalents as of March 31, 2007 and 2006
consisted of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

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

2007

2006

2007

¥48,155¥43,917$408,096

(288)
(344)
¥47,523(273)—¥43,644(2,442)(2,914)$402,740

The Company sold all shares of a consolidated subsidiary in theyear ended March 31. The following table summarizes assets andliabilities of the subsidiary.

Decrease of assets and liabilities caused by business transfer
The following table summarizes the relation between thedecreases in assets and liabilities and the proceeds from transfer ofresort development business.

Current assets ....................................
Long-term assets................................
Current liabilities ................................
Long-term liabilities............................
Loss on business transfer....................
Consideration of business transfer......
Cash and cash equivalents of SHI
Resort Development, Ltd. as of thedeconsolidation date........................
Net transfer of resort
development business ......................

Millions of yen

2007

2007

Current assets ....................................
Long-term assets................................
Total assets .....................................

¥ 323¥2,798¥3,121$ 2,738$23,712$26,450

Current liabilities ................................
Long-term liabilities............................
Total liabilities .................................

¥3,853¥ 459¥4,312$32,655$ 3,894$36,549

The proceeds from sale of the shares of SHI Resort
Development, Ltd. are included in the proceeds from transfer ofresort development business as described below.

2007

2007

¥ 1,481¥ 6,303¥ (340)¥ (459)¥(1,270)¥ 5,715$ 12,552$ 53,416$ (2,883)$ (3,894)$(10,760)$ 48,431¥ (135)$ (1,144)¥ 5,580$ 47,287

The following table summarizes the relation between the decreasein assets and the proceeds from transfer of sliding gate business.
Millions of yen

Thousands of
U.S. dollars (Note 1)

2007

2007

Current assets ....................................
Gain on business transfer ...................
Consideration of business transfer......
Cash and cash equivalents .................
Net transfer of resort
development business ......................

¥ 21
¥294
¥315
—

$ 175
$2,494$2,669—¥315$2,6693. Inventories
Inventories as of March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2007

SHI Resort Development, Ltd. (as of September 20th, 2006)
Thousands of
U.S. dollars (Note 1)

Thousands of
U.S. dollars (Note 1)

Millions of yen

Finished products and semi-finishedproducts ........................................... ¥ 31,348
Work in process ..................................
53,915
Raw materials and supplies .................
15,256¥100,519

2006

2007

¥26,744
53,344
12,893¥92,981$265,658
456,906
129,289$851,853

4. Impairment losses of fixed assets
The Company and certain consolidated domestic subsidiaryrecorded the following impairment losses in the year ended March
31, 2007.

Application Category

Business
Property
Idle

Location

Building and structures Miyakonojo,
Miyazaki-pref. ......
Machinery and
Yokosuka,delivery equipment
Kanagawa-pref. ...
Total .............................................................................

Millionsof yenThousands of U.S.
dollars (Note 1)

2007

2007

¥183

$1,547

¥ 25
¥208

$ 215
$1,762

Reason for recording impairment loss
Due to the decrease in profitability and changes in business plan, it
is expected that invested money cannot be recovered.
Method of grouping of assets
Asset grouping is determined for each operation group basically.
Idle assets that are not expected to be used in the future are
evaluated by each item.

48

Sumitomo Heavy Industries, Ltd.

Method of calculation of correctable amountThe correctable amount is based on the net sale price; it iscalculated by deducting costs related to sale from the sale price.
The Company recorded the following impairment losses in the year
ended March 31, 2006.
Millions of yen
Application Category

Idle

2006

LocationLand

Kurashiki-shi,
Okayama-pref. ................................
Total ..................................................................................

¥229
¥229

Reason for recording impairment loss
Company house site for the employees has been idle with thecompany house already been removed no plan for future use
and the decline in the land price.

Annual maturities of long-term debt as of March 31, 2007 were as
follows:
Millions of yen

Thousands of
U.S. dollars (Note 1)

Year ending March 31

2007

2007

2008..................................................
2009..................................................
2010..................................................
2011..................................................
2012..................................................
2013 and there after..........................

¥14,285
2,610
11,193
8,132
4,100
11,015$121,061
22,116
94,856
68,91634,742
93,349At March 31, 2007, assets pledged as collateral for bank loans,secured long-term loans from banks and insurance companies anddomestic mortgage bonds were as follows:
Millions of yen

Thousands of
U.S. dollars (Note 1)

2007

2007

¥36,534$309,614

3,178¥39,71226,929$336,543

Method of grouping of assets
Asset grouping is determined for each operation group
basically. Idle assets that are not expected to be used in the
future are evaluated by each item.

Land ..................................................
Bank deposit, accountantsreceivable, other property, plantand equipment, at cost lessaccumulated depreciation ................
Total ..................................................

Method of calculation of collectible amountThe collectible amount is based on the net sale price; it iscalculated by deducting costs related to sale from the sale price.

The Company has agreements with six banks for revolving lines ofcredit and four global commitment lines for timely operating-fundraising in the aggregate maximum amount of ¥26,809 million($227,195 thousand). As of March 31, 2007, the balance ofborrowings under these agreements was ¥3,129 million ($26,516
thousand).

5. Bank loans, commercial paper and long-term debt
Bank loans at March 31, 2007 and 2006 consisted of short-termloans, bearing interest principally at 1.05% and 0.59% per annum,
respectively.
At March 31, 2007 and 2006 commercial paper principally bore
an average annual interest rate of 0.66% and 0.3%, respectively.
Long-term debt at March 31, 2007 and 2006 consisted of thefollowing:
Millions of yen

1.0% domestic bonds due
in March 2010 ..................................
Loans principally from banks andinsurance companies due seriallythrough March 2015 with interest
ranging from 1.35% to 2.35%
in 2007
Secured.........................................
Unsecured.....................................
Amount due within one year ..............
Amount due after one year.................

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥10,000¥10,000$ 84,745

3,486
37,84951,335
14,285¥37,049

4,544
62,772
77,31630,529¥46,787

29,537
320,758
435,040
121,061$313,979

The item concerning global commitment lines is as follows:
Millions of yen

Aggregate guarantee ........................
The amount of loan as
at March 31, 2007 ...........................

Thousands of
U.S. dollars (Note 1)

2007

2007

¥11,800$100,000

3,129

26,516

6. Income tax
The Companies are subject to a number of income taxes, which, inthe aggregate indicate a statutory tax rate in Japan of approximately
41% for the years ended March 31, 2007 and 2006.
The following table summarizes the significant differences
between the statutory tax rate and the effective tax rate forconsolidated financial statement purposes for the year ended March
31, 2006.
2006
Statutory tax rate.......................................................................
Increase (decrease) in tax rates resulting from:
Expenses not deductible for tax purposes ...............................
Per capital inhabitant tax ........................................................
Income not counted for tax purpose.......................................
Elimination of dividend received .............................................
Equity in earnings of affiliated companies ...............................
Amortization of consolidation adjustment ..............................
Retained earnings in consolidated
subsidiaries overseas.............................................................
Decrease in less-valuation allowance.......................................
Others ....................................................................................
Effective tax rate.....................................................................

40.69%
1.56%
0.46%(1.64%)
0.47%(2.69%)(0.51%)
2.92%(5.82%)(0.99%)
34.45%

Annual Report 200749

Since the effective tax rate for consolidated financial statement
purposes for the year ended March 31, 2007 differed from thestatutory tax rate by less than 5%, disclosure of reconciliation
between these tax rates is omitted.
Significant components of deferred tax assets and liabilities asof March 31, 2007 and 2006 were as follows:

FINANCIAL SECTION

Millions of yen

Notes to Consolidated Financial Statements

Deferred tax assets:
Accrued bonuses .............................
Allowance for doubtful accounts .....
Allowance for warranty....................
Allowance for employees’
severance and retirement benefit ....
Profit/loss from deferred hedge........
Unrealized profit on inventories .......
Devaluation of marketablesecurities and investments..............
Excess depreciation ..........................
Operating losses carry forward.........
Others .............................................
Total deferred tax assets ..................
Less-valuation allowance..................
Deferred tax assets-net ....................
Deferred tax liabilities:
Excess tax depreciation reserve.........
Net unrealized holding gains
on securities...................................
Difference on revaluation of assets
and liabilities of subsidiaries ...........
Accelerated depreciation..................
Retained earnings in consolidated
subsidiaries overseas ......................
Others .............................................
Deferred tax liabilities.......................
Net deferred tax assets........................

50

Sumitomo Heavy Industries, Ltd.

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 3,403
1,553
1,937

¥ 3,058
1,442
1,339

$ 28,837
13,165
16,41315,066
1,134
1,299

14,041—
1,077

127,677
9,614
11,010

1,549
829
2,840
4,123
33,733(5,966)
27,767

2,880
676
3,532
4,151
32,196(6,930)25,266

13,124
7,028
24,06534,938285,871(50,555)
235,316

(135)

(147)

(1,145)(5,918)(6,980)(50,155)(1,849)(335)(1,849)(527)(15,667)(2,836)(2,782)(31)(11,050)¥16,717(1,851)(38)(11,392)¥13,874(23,574)(266)(93,643)$141,673

7. Net assets
Under the Corporate Law of Japan (the “Corporate Law”), at least
50% of the issue price of new shares, is required to be designatedas common stock. The portion which is to be designated ascommon stock is determined by resolution of the Board of Directors.
Proceeds in excess of amount designated as common stock arecredited to additional paid-in capital.
The maximum amount that the Company can distribute as
dividends is calculated based on the unconsolidated financial
statements of the Company in accordance with the Corporate Law.
Under the Corporate Law, certain amount of retained earnings
equal to at least 10% of cash dividends and bonuses to directors
and corporate auditors must be set aside as a legal earnings reserve(a component of retained earnings) until the total amount ofadditional paid-in capital and legal earnings reserve, which is notavailable for dividends, equals 25% of common stock. Subject toboth resolution of stockholders and legal requirement, the amountof total additional paid-in capital and legal earnings reserve thatexceeds 25% of common stock may be transferred to a reserve
which the Company can distributed as dividends.
The maximum amount that the Company can distribute as
dividends at March 31, 2007 amounted to ¥25,905 million($219,533 thousand).
In accordance with the customary practice in Japan, theappropriations are not accrued in financial statements for the period
to which they relate, but are recorded in the subsequent according
period after shareholders’ approval has been obtained. Retained
earnings at March 31, 2007 include amounts representing the yearend cash dividends approved at the shareholders’ meeting held on
June 28, 2007.
8. Contingent liabilities
Certain consolidated domestic subsidiary is contingently liable asendorsers of trade notes receivable discounted with banks in theamount of ¥112 million ($950 thousand) at March 31, 2007. In
addition, at the same date the Company and certain consolidated
subsidiaries are contingently liable as guarantors of bank loans orother borrowings by unconsolidated subsidiaries, affiliatedcompanies and employees in the amount of ¥6,114 million($51,810 thousand) (net of guarantees by co-guarantors).

9. Segment information(A) The Companies’ primary business activities include (1) mass-produced machinery, (2) environmental protection facilities, plants & others, (3)ship, steel structure & other specialized equipment, (4) industrial machinery, and (5) construction machinery.
A summary of net sales, costs and expenses, and operating income by segment of business activities for the years ended March 31, 2007
and 2006, and a summary of identifiable assets, depreciation expenses and capital expenditures by segment of business activities for the years
ended March 31, 2007 and 2006 are presented below:
Millions of yen

Mass-produced
machinery

Environmental
protection
facilities,
plants &othersI Sales and operating income
Sales:
Unaffiliated customers ..................................................
Intersegment.................................................................
Total ..........................................................................
Costs and expenses.......................................................
Operating income .........................................................

¥222,906
2,160
225,066
196,222¥ 28,844¥79,397
2,490
81,88877,393¥ 4,495¥69,491
511
70,002
63,287¥ 6,715¥68,286423
68,70959,182¥ 9,527¥160,177
31
160,208
145,812¥ 14,396¥—(5,615)(5,615)(5,865)¥ 250¥600,256—
600,256
536,032¥ 64,224

II Identifiable assets ..........................................................
Depreciation expenses...................................................
Impairment losses of fixed assets...................................
Capital expenditures .....................................................

¥239,031
5,601
—
9,188

¥59,213
892
—
1,124

¥88,760
1,250
—
1,606

¥50,451
1,240
25
2,497

¥123,991
1,666
183
2,842

¥39,444———¥600,890
10,649208
17,257Mass-produced
machinery

Environmental
protection
facilities,
plants &othersConstruction
machinery

Elimination
and/orcorporate

Consolidated

I Sales and operating income
Sales:
Unaffiliated customers ..................................................
Intersegment.................................................................
Total ..........................................................................
Costs and expenses.......................................................
Operating income .........................................................

¥218,798
2,059
220,857
191,519¥ 29,338¥82,740
2,903
85,64381,365¥ 4,278¥67,372
421
67,793
68,273¥ (480)¥56,054335
56,38950,542¥ 5,847¥126,375
56
126,431
117,898¥ 8,533¥—(5,774)(5,774)(5,763)¥(11)¥551,339—
551,339
503,834¥ 47,505

II Identifiable assets ..........................................................
Depreciation expenses...................................................
Impairment losses of fixed assets...................................
Capital expenditures .....................................................

¥217,048
4,722
—
5,316

¥78,417
975
—
1,458

¥89,549
1,355
—
1,206

¥44,328
609
—
1,010

¥106,618
1,411
—
1,295

¥43,273—229—¥579,233
9,072
229
10,2852007

Mass-produced
machinery

Environmental
protection
facilities,
plants &others

Ship, steel
structure &otherspecialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated

I Sales and operating income
Sales:
Unaffiliated customers ..................................................
Intersegment.................................................................
Total ..........................................................................
Costs and expenses.......................................................
Operating income .........................................................

$1,889,032
18,3091,907,341
1,662,902$ 244,439$672,852
21,102
693,954655,874$ 38,080$588,909
4,328
593,237
536,335$ 56,902$578,697
3,584
582,281
501,545$ 80,736$1,357,429
266
1,357,695
1,235,695$ 122,000$—(47,589)(47,589)(49,706)$ 2,117$5,086,918—
5,086,918
4,542,643$ 544,275

II Identifiable assets ..........................................................
Depreciation expenses...................................................
Impairment losses of fixed assets...................................
Capital expenditures .....................................................

$2,025,684
47,466—
77,866$501,808
7,559
—
9,522

$752,201
10,597—
13,611$427,548
10,512
215
21,162$1,050,773
14,116
1,547
24,089$334,273———$5,092,287
90,2501,762
146,250

2007

Ship, steel
structure &otherspecialized
equipment

Industrial
machinery

Construction
machinery

Elimination
and/orcorporate

Consolidated

Millions of yen

2006

Ship, steel
structure &otherspecialized
equipment

Industrial
machinery

Thousands of U.S. dollars (Note 1)

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

Annual Report 2007

51

FINANCIAL SECTION

Change in segment affiliation for the year ended March 31, 2007.
Japan Electron Beam Irradiation Service Co., Ltd. and SHI Examination and Inspection Ltd. have been transferred to the Mass-Produced Machinery
segment from the current year due to changes in organizational management of the Company. The two companies had formerly been grouped
into the Environmental Protection Facilities, Plants and Others segment and the Ship, Steel Structures and Other Specialized Equipment segment,
respectively.
Compared to previous method, these changes have resulted in the following increase for the Mass-produced Machinery segment and decreases
in the Environment Protection Facilities, Plants and Others segment, and the Ship, Steel Structures and Other Specialized Equipment segment.
Mass-produced Machinery segment: Increase of ¥1,960 million ($16,609 thousand) in sales, ¥1,423 million ($12,062 thousand) in operating
expenses, ¥537 million ($4,548 thousand) in operating profit, ¥1,717 million ($14,555 thousand) in assets, ¥152 million ($1,287 thousand) in
depreciation expenses, and ¥572 million ($4,848 thousand) in capital expenditures.
Environmental Protection Facilities, Plants and Others segment: Decrease of ¥745 million ($6,310 thousand) in sales, ¥593 million ($5,022
thousand) in operating expenses, ¥152 million ($1,289 thousand) in operating profit, ¥403 million ($3,412 thousand) in assets, ¥19 million ($161
thousand) in depreciation expenses, and ¥72 million ($614 thousand) in capital expenditures.
Ship, Steel Structures and Other Specialized Equipment segment: Decrease of ¥2,407 million ($20,398 thousand) in sales, ¥1,881 million($15,939 thousand) in operating expenses, ¥526 million ($4,458 thousand) in operating profit, ¥1,628 million ($13,796 thousand) in assets,¥133 million ($1,127 thousand) in depreciation expenses, and ¥500 million ($4,234 thousand) in capital expenditures.
(B) Information by geographic area for the years ended March 31, 2007 and 2006 is as follows:
Millions of yen

Notes to Consolidated Financial Statements

2007
I Sales and operating income
Sales:
Unaffiliated customers ...................................................
Intersegment .................................................................
Total ...........................................................................
Costs and expenses .......................................................
Operating income ..........................................................
II Identifiable assets..............................................................

Japan

North America

Other areas

Elimination and/or corporate

Consolidated¥494,178
31,671
525,849472,246¥ 53,603¥481,001¥71,264
745
72,00864,054¥ 7,954¥43,137¥34,815
12,33047,14544,200¥ 2,945¥33,645¥—(44,746)(44,746)(44,468)¥ (278)¥43,107¥600,256—
600,256
536,032¥ 64,224¥600,890

Millions of yen

2006
I Sales and operating income
Sales:
Unaffiliated customers ...................................................
Intersegment .................................................................
Total ...........................................................................
Costs and expenses .......................................................
Operating income ..........................................................
II Identifiable assets..............................................................

Japan

North America

Other areas

Elimination and/or corporate

Consolidated¥465,769
28,053493,822452,275¥ 41,547¥471,752¥56,672856
57,52853,176¥ 4,352¥37,707¥28,898
2,894
31,792
29,984¥ 1,808¥21,763¥—(31,803)(31,803)(31,601)¥ (202)¥48,011¥551,339—
551,339
503,834¥ 47,505¥579,233

Thousands of U.S. dollars (Note 1)

2007
I Sales and operating income
Sales:
Unaffiliated customers ...................................................
Intersegment .................................................................
Total ...........................................................................
Costs and expenses .......................................................
Operating income ..........................................................
II Identifiable assets..............................................................

Japan

North America

Other areas

Elimination and/or corporate

Consolidated$4,187,948
268,395
4,456,343
4,002,087$ 454,256$4,076,277$603,929
6,310
610,239542,829$ 67,410$365,571$295,041
104,496
399,537
374,573$ 24,964$285,128$—(379,201)(379,201)(376,845)$ (2,355)$365,310$5,086,918—
5,086,918
4,542,643$ 544,275$5,092,286

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

52

Sumitomo Heavy Industries, Ltd.

(C) Overseas sales of the Companies for the years ended March 31, 2007 and 2006 were as follows:
Millions of yen

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

To North America

To Asia

To other areas¥112,282
18.7%¥83,81114.0%¥80,027
13.3%

Total

To North America

To Asia

To other areas¥94,903
17.2%¥73,514
13.3%¥61,889
11.2%

To North America

To Asia

To other areas

Total$951,546$710,264$678,189$2,339,999¥276,120
46.0%

Millions of yen

2006
Overseas Sales .....................................................................................................

Total¥230,306
41.7%

Thousands of U.S. dollars (Note 1)

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

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

(D) The effect of the change on segment information.
As explained in Note 1, effective this fiscal year, the Company and certain consolidated subsidiaries changed accounting policies as follows.
Allowance for losses on construction contracts
In the year ended March 31, 2006, the Company and certain consolidated domestic subsidiaries changed their accounting policies and accrued
estimated amount of losses on construction contracts to be incurred in the following fiscal year.
The effects of the change on the industrial machinery segment are to increase cost and expense by ¥45 million and to decrease operating
income by ¥45 million. Also the effects of the change on Japan segment is to increase cost and expense by ¥45 million and to decrease
operating income by ¥45 million.
Accrued retirement benefits for directors, corporate auditors and executive officers (collectively, “officers”)
In the year ended March 31, 2006, the Company and a consolidated domestic subsidiary changed its accounting policy and accrued retirement
benefits for officers at March 31, 2006. Such benefits had previously been expensed upon officers’ retirement.
The effects of the change on the mass-produced machinery segment are to increase costs and expenses by ¥9 million and to decrease
operating income by ¥9 million. Those on the environmental protection facilities, plants & others group are to increase costs and expenses by ¥5
million and to decrease operating income by ¥5 million. Those on the ship, steel structure & other specialized equipment segment are to increase
costs and expenses by ¥3 million and to decrease operating income by ¥3 million. Those on the industrial machinery segment are to increase
costs and expenses by ¥3 million and to decrease operating income by ¥3 million. Those on the construction machinery segment are to increase
costs and expenses by ¥9 million and to decrease operating income by ¥9 million. Also, the effects of the change on Japan segment are toincrease costs and expenses by ¥29 million and to decrease operating income by ¥29 million.
Impairment of fixed assets
Effective April 1, 2005, the Company and consolidated domestic subsidiaries adopted new accounting standard for impairment of fixed assets.
In the year ended March 31, 2006, although impairment loss of ¥229 million was recognized, there were no effects on Segment information
as the related property was sold during that year.

Annual Report 200753

10. Information for certain leases
The summary of assumed amounts of acquisition cost, accumulated
depreciation and net book value with respect to finance leases
accounted for in the same manner as operating leases as of March
31, 2007 is as follows:(A) Lessees

Total lease payments for finance leases which do not transfer
ownership to lessees amounted to ¥21 million ($182 thousand) and¥21 million for the years ended March 31, 2007 and 2006,
respectively.
Future lease payments as of March 31, 2007 and 2006,
inclusive of interest under such leases were as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

FINANCIAL SECTION

Acquisition Accumulated Accumulated Net bookcost
depreciation Impairment loss value
Machinery andequipment...................
Others ...........................
Total..............................

¥29,131331¥29,462¥10,376
183¥10,559

¥143
—
¥143

¥18,612148¥18,760

Thousands of U.S. dollars (Note 1)

Acquisition Accumulated Accumulated Net bookcost
depreciation Impairment loss value
Machinery andequipment...................
Others ...........................
Total..............................

$246,869
2,806$249,675$87,932
1,547$89,479$1,212—$1,212$157,725
1,259$158,984

Notes to Consolidated Financial Statements

Total lease payments for finance leases which do not transfer
ownership to lessees amounted to ¥4,559 million ($38,633
thousand) and ¥4,292 million for the years ended March 31, 2007
and 2006, respectively.
Future lease payments as of March 31, 2007 and 2006,
inclusive of interest under such leases were as follows:
Millions of yen

Due within one year............................
Due after one year ..............................
Total ...................................................

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 5,127
13,776¥18,903¥ 4,356
11,738¥16,094$ 43,453
116,743$160,196

Also, future lease payments under operating leases as of March
31, 2007 were ¥860 million ($7,287 thousand), including ¥665
million ($5,636 thousand) due within one year.
(B) Lessors
Millions of yen
Acquisition Accumulated
cost
depreciation

Machinery and equipment..............
Total ..............................................

¥102
¥102

¥70
¥70

Net book
value

¥32
¥32

Thousands of U.S. dollars (Note 1)
Acquisition Accumulated
cost
depreciation

Machinery and equipment..............
Total ..............................................

54

Sumitomo Heavy Industries, Ltd.

$861
$861

$588
$588

Millions of yen

2007

2006

¥14
28
¥42

Due within one year........................
Due after one year ..........................
Total ...............................................

2007

¥20
31
¥51

$122
235
$357

Also, future lease payments under operating leases as of March
31, 2007 were ¥1,362 million ($11,546 thousand), including ¥275
million ($2,334 thousand) due within one year.
11. Securities(A) The following tables summarize book values of securities notstated at fair value as of March 31, 2007 and 2006.
Thousands of
U.S. dollars(Note 1)Millions of yen

2007

Held-to-maturity debt securities:
Non-listed corporate bonds .......
Available-for-sale securities:
Non-listed equity securities ........
Others .......................................
Total..........................................

¥

10

2,394
1,011
¥3,415

2006

¥

10

4,266
1,011
¥5,287

2007

$

85

20,2898,567$28,941(B) The following tables summarize acquisition costs and bookvalues of securities with fair value as of March 31, 2007 and 2006.
Millions of yen

Available-for-sale securities

2007

Thousands of
U.S. dollars(Note 1)

2006

2007

Acquisition cost:
Equity securities......................... ¥13,339
Total.......................................... 13,339¥ 8,703
8,703$113,043
113,043

Book value:
Equity securities.........................
Total..........................................

30,38330,38325,86525,865

257,487
257,487

Difference:
Equity securities......................... 17,044
Total.......................................... ¥17,044

17,162¥17,162

144,444$144,444

Net book
value

$273
$273

(C) Total sales amount of available-for-sale securities sold in the year
ended March 31, 2007 amounted to ¥3,633 million ($30,789
thousand) and the net gain amounted to ¥1,395 million ($11,825
thousand).

(D) The following tables summarize maturities of available-for-sale securities and held to maturity securities as of March 31, 2007
Millions of yen

2007

Bonds .............................
Total ...............................

Over one Over five
year but years but
Within one within five within ten
year
years
years

¥—
¥—

¥10
¥10

¥—
¥—

Thousands of U.S. dollars (Note 1)

Over one Over five
year but years but
Within one within five within ten
year
years
years

Over ten
years

Total

2007

¥—
¥—

¥10
¥10

Bonds .............................
Total ...............................

$—
$—

$85
$85

$—
$—

Over ten
years

Total

$—
$—

$85
$85

12. Derivatives information
The Companies enter into forward currency exchange contracts, interest rate swap contracts and currency option contracts as derivative financial
instruments. The Companies deal with forward currency exchange transactions to hedge exchange rate risk of monetary receivables and payables
denominated in foreign currencies in order to minimize the risk of exchange rate fluctuations. Interest rate swap transactions are made in orderto minimize the risk of interest rate hike on borrowings. The Companies deal with international financial institutions with higher credit ratings ascounter-parties of transactions to avoid credit risk exposure. Details of transactions are reviewed and approved by responsible officials of theCompanies in accordance with the Companies’ internal regulations, which include allowed transactions and maximum amounts thereof.
Counter-parties of derivative transactions are creditworthy financial institutions, and the Companies believe that the risk of default by thecounter-parties is minimal.
(A) Forward foreign exchange contracts
The aggregate amounts contracted to be paid/received and the fair values of forward foreign exchange contracts in Japanese yen of theCompanies at March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

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

2007

2006

2007

¥7,478——¥4,962
192—$63,372
—
—

7,544
—
—
¥ (66)

5,153(1)—¥ (192)

63,932——$ (560)(B) Interest rate swap contracts
There were no interest rate swap contracts of the Companies at March 31, 2007 and 2006.
13. Information regarding retirement benefits(A) Projected benefit obligation on the balance sheet date consists of the following:Thousands of
U.S. dollars (Note 1)

Millions of yen(1) Projected benefit obligation.....................................................................................................
(2) Fair value of employee retirement benefit trust ........................................................................
(3) Unfunded projected benefit obligation ....................................................................................
(4) Unrecognized actuarial difference............................................................................................
(5) Unrecognized prior service cost ...............................................................................................
(6) Prepaid pension benefit expenses ............................................................................................
(7) Allowance for severance and pension benefit ..........................................................................

2007

2006

2007

¥(66,099)
51,676(14,423)(10,006)356(37)(24,110)¥(66,830)
50,352(16,478)(6,051)
4(53)(22,578)$(560,160)
437,930(122,230)(84,794)
3,016
(314)
(204,322)

Annual Report 200755

(B) Included in the statements of operation for the years ended March 31, 2007 and 2006 are the following severance and pension benefit
expenses:Thousands of
U.S. dollars (Note 1)

Millions of yen

FINANCIAL SECTION(1) Service cost .............................................................................................................................
(2) Interest cost on projected benefit obligation ............................................................................
(3) Expected return on plan assets ................................................................................................
(4) Recognized actuarial difference ...............................................................................................
(5) Recognized prior service cost ...................................................................................................
(6) Severance and pension benefit expense...................................................................................

2007

2006

2007

¥3,440
1,522
(557)
(96)
35
4,344

¥3,152
1,439
(410)
1,558
8
5,747

$29,157
12,898(4,723)(810)
293
36,814(C) Assumptions for calculating:
2007(1) Allocation of the estimated amount of all retirement
benefits to be paid at the future retirement date..........................................................................

2006

Equally to each service year using the estimatednumber of total service years
2.0%
2.0%
0.0%
1.5%

(2) Assumed discount rate...................................................................................................................
(3) Expected rate of return on plan assets............................................................................................

(Trust assets for retirement benefits: 0.0%)(4) Amortization period of actuarial differences ...................................................................................
(5) Amortization period of prior service cost .......................................................................................

12 years
12 years

12 years
12 years

Notes to Consolidated Financial Statements / Independent Auditors’ Report

14. Subsequent events(1) On June 28, 2007, the shareholders of the Company approved payment of year-end cash dividends to shareholders of record as of March 31,
2007 of ¥3.5 ($0.030) per share or a total of ¥2,144 million ($17,912 thousand).
(2) Stock exchange
At the meeting of the Board of Directors held on May 8, 2007, the Company resolved to consent that two 100% subsidiaries of the Company,
Izumi Food Machinery Co., Ltd. (“Izumi Food Machinery”) and SNM Fastener Co., Ltd. (“SNM Fastener”), become wholly owned subsidiaries of
Nihon Spindle Manufacturing Co., Ltd. (“Nihon Spindle Manufacturing”), an affiliate company of the Company, through a stock exchange. As aresult of this stock exchange, the Company will have more than 40% of the voting rights of Nihon Spindle Manufacturing. Also, as thesubstantial controlling relationship will be recognized, it is expected that Nihon Spindle Manufacturing will become a subsidiary of the Company.
Main reason for accepting stock exchange
The Company will exchange all of its shares in Izumi Food Machinery and SNM Fastener for shares in Nihon Spindle Manufacturing, and thereby
the Company will have 40.6% of the voting rights in Nihon Spindle Manufacturing (including shares indirectly owned). Therefore, it is expected
that, effective October 1, 2007, on which date the stock exchange will become effective, Nihon Spindle Manufacturing will become a subsidiaryof the Company as the Company is considered to have the control due to the 40.6% ownership and existence of certain other conditions. It isconsidered that it will be beneficial for the Company Group to have Nihon Spindle Manufacturing as a subsidiary in pursuing the Company
Group’s strategy for growth and expansion.
By making Izumi Food Machinery and SNM Fastener 100% subsidiaries of Nihon Spindle Manufacturing, it is expected to facilitate Nihon
Spindle Manufacturing in achieving its growth strategy earlier and expanding its business. At the same time, it is expected that Izumi Food
Machinery and SNM Fastener will enjoy synergy effects.
The outline is as below:
Effective date of the stock exchange .................. October 1, 2007 (plan)
Legal form of business combination ................... Stock exchange implemented by Nihon Spindle Manufacturing
Rate of voting rights to be acquired ................... 16.2% (of which -0.1% is indirectly owned)

56

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 as ofMarch 31, 2007 and 2006, the related consolidated statements of income for the years then ended, the consolidated statement ofchanges in net assets for the year ended March 31, 2007, the consolidated statement of stockholders’ equity for the year ended March
31, 2006, and the consolidated statements of cash flows for the years ended March 31, 2007 and 2006, expressed in Japanese yen.
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to independently
express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Sumitomo Heavy Industries, Ltd. and subsidiaries as of March 31, 2007 and 2006, and the consolidated results of theiroperations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following.
1. As discussed in Note 1 to the consolidated financial statements, effective April 1, 2006, the Company and its consolidated domestic
subsidiaries adopted new accounting standards for the presentation of net assets in the balance sheet.
2. As discussed in Note 1 to the consolidated financial statements, effective April 1, 2005, the Company and consolidated domestic
subsidiaries changed the accounting policy to recognize losses on construction contracts that are probable to result and arereasonably estimated as of the balance sheet date as allowance for losses on construction contracts.
3. As discussed in Note 1 to the consolidated financial statements, effective for the year ended March 31, 2006, certain consolidated
domestic subsidiaries changed their accounting policies for retirement benefits for directors, corporate auditors and executive
officers from recognizing them upon retirement to accruing them as allowance for retirement benefits for them.
4. As discussed in Note 1 to the consolidated financial statements, effective April 1, 2005, the Company and consolidated domestic
subsidiaries adopted the new accounting standard for impairment of fixed assets.
5. As discussed in Note 14 (2) “Subsequent events” to the consolidated financial statements, Nihon Spindle Manufacturing Co., Ltd. is
expected to become a subsidiary of the Company through a share exchange to be executed by Nihon Spindle Manufacturing Co., Ltd.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2007 arepresented 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 28, 2007

Annual Report 200757

Glossary

Power transmission andcontrol equipment

Plastic injection molding
machines

Power transmission and control equipment raises torque as therotary speed of a motor is reduced to an optimum level. This kindof equipment has many applications, including elevators,
escalators, industrial robots, and factory production lines. SHI
produces a wide range of power transmission and control devices,from micro-miniature devices with a motor capacity of 6 watts tovery large devices of several thousand kilowatts. SHI has theleading share of the Japanese market for this equipment.

ALTAX® NEO
Gear Motor
RHYTAX® Drive

Plastic injection molding machines are used to pour melted plastic
into molds. Of the two system types, hydraulic and electromotive,
the latter enables greater molding precision. SHI specializes in the
precision, high-cycle molding required by optical discs andconnectors, and has the top share in Japan for this device.
Fully Electric Controlled
Injection Molding
Machine “SE-DU”

Cyclotrons

Glossary
Lifting magnets

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

PET RADIO-TRACERPRODUCTION SYSTEM“HM-12S”

Lifting magnets are electromagnets attached to crane hooks, andare used for lifting iron plates and other bulky iron items. Our
technology ensures that no magnetic force is transferred to theiron. SHI has the top share of this market in Japan (excluding selfpropelled cranes).
Lifting Magnets

Silicon monocrystal lifting
deviceUsing a super-conductive magnet, this device generates a
powerful magnetic field enabling the formation of large siliconmonocrystal ingots. The magnetic field facilitates precise controlof the flow of the liquid silicon.

Silicon Monocrystal Lifting Device

Laser annealing system

Using a laser beam, this device crystallizes amorphous (noncrystal) silicone membrane. It is used in the manufacture ofliquid crystal panels and organic electroluminescent (EL)products.
DPSS Laser
Annealing System“SWA-90GD”

Cryopumps

4KGM cryocooler

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

Cryopump System“SICERATM”

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

58

Sumitomo Heavy Industries, Ltd.

Precision positioning stages

Flocculator

Precision positioning stages set the vertical and horizontal
positioning of substrates, wafers and other components precision
processing. Because two axes are involved, they are also called XY
stages. This product is used for manufacturing and inspection
processes for liquid crystal panels and semiconductor wafers. SHI’s
high-precision positioning stages are one of our particularstrengths.

SA-300 Series
Air Guided Type
Planar XY Stagefor Small Travel

This system uses relative weight difference to separate offsuspended matter in waste water. A coagulant agent triggers floc
(lump) formation, enabling more efficient separation throughsedimentation.

Sumi-Thickener

Aframax tanker

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

105,200MTDWOil Tanker

Continuous ship unloader

The continuous ship unloader is a large harbor-installed hoist used
for continuous unloading of iron ore and other bulk raw materials
from cargo vessels at dock. SHI has the top share of this market in
Japan.
Continuous Ship
UnloaderGoliath craneThis is a large portal-type crane installed mainly in shipyards.
Our Goliath cranes have a maximum lifting capacity of 1,200
tons, and help raise the efficiency of shipbuilding operations.
SHI has the top share of the domestic market.
Goliath Crane

Jib crane

This is a large crane installed at harbors and shipyards which
travels on rails. SHI has the top share of the domestic market.

Jib Crane

Rough terrain craneThis is a self-propelled crane for construction sites. It is vehiclemounted, and can be driven and operated from the cab
driving seat.

Rough Terrain Crane

Crawler cranes

This is a self-propelled crane for construction sites. It travels oncaterpillars.

Lattice Crawler Crane
Annual Report 200759

Network[Domestic Network]
Offices

Sumitomo Heavy Industries Marine &Engineering Co., Ltd.

SHI Plastics Machinery, Ltd.

Head Office

1-1, Ohsaki 2-chome, Shinagawa-ku,

Tokyo 141-6026, Japan

1-1, Ohsaki 2-chome, Shinagawa-ku,

Tokyo 141-6025, Japan

Principal business: Plastics machineryTokyo 141-6025, Japan

Principal business: Sales, design, production, repair andreconstruction of vessel (excluding naval
vessels) and Marine Structure. Marine
engineering.

Tel: 81-3-6737-2587

Tel: 81-3-6737-2620

10-1, Yoga 4-chome, Setagaya-ku, Tokyo 158-0097,

100% owned subsidiaryJapan

Tel: 81-3-6737-2000
URL: http://www.shi.co.jp

Kansai Office
7-28, Kitahama 4-chome, Chuo-ku, Osaka-shi,
Osaka 541-0041, Japan
Tel: 81-6-6223-7111

Tanashi Works
1-1, Yato-cho 2-chome, Nishitokyo-shi,

Sumitomo Heavy Industries Engineering& Services Co., Ltd.
1-1, Ohsaki 2-chome, Shinagawa-ku,

1-1, Ohsaki 2-chome, Shinagawa-ku,

100% owned subsidiary

SEN Corporation, an SHI and Axcelis Company

Principal business: Semiconductor equipment, especially ion
implantation systems

Tel: 81-3-5491-7800
50% owned subsidiaryTokyo 141-6025, Japan

Tel: 81-42-468-4104

Principal business: Design, production and distribution ofgeneral industrial machinery, as well as
remodeling, repairs, inspection andmaintenance

Chiba Works

Tel: 81-3-6737-2640

731-1, Naganumahara-machi, Inage-ku, Chiba-shi,

100% owned subsidiary

Tel: 81-562-48-5251
URL: http://www.sumitomonacco.co.jp

Shin Nippon Machinery Co., Ltd.

50% owned subsidiaryTokyo 188-8585, Japan

Chiba 263-0001, Japan

Network

Tel: 81-43-420-1355

Sumitomo NACCO Materials Handling Co., Ltd.
75, Daitoh-cho 2-chome, Obu-shi, Aichi 474-8555,
Japan
Principal business: Forklift trucks and other materials
handling equipments

1-1, Ohsaki 2-chome, Shinagawa-ku,

Yokosuka Works

Tokyo 141-6025, Japan

Sumiju Environmental Engineering, Inc.

19, Natsushima-cho, Yokosuka-shi,

Principal business: Steam turbines, pumps and industrial
fasteners

9-11, Kitashinagawa 5-chome, Shinagawa-ku,

Tel: 81-3-6737-2630
URL: http://www.snm.co.jp

Principal business: Operation and maintenance forenvironmental systems and plants

100% owned subsidiary

Tel: 81-3-5421-8484

Kanagawa 237-8555, Japan
Tel: 81-46-869-1842

Nagoya Works
1, Asahi-machi 6-chome, Obu-shi, Aichi 474-8501,
Japan
Tel: 81-562-48-5111

Okayama Works
8230, Tamashima-Otoshima, Kurashiki-shi,

Tokyo 141-8686, Japan

100% owned subsidiary

Sumitomo Heavy Industries Techno-Fort Co.,
Ltd.

Lightwell Co., Ltd.

5-2, Sobiraki-cho, Niihama-shi, Ehime 792-0001, Japan

18-10, Moto-Asakusa 3-chome, Taito-ku,

Principal business: Forging press and other industrial

Tokyo 111-0041, JapanmachineryTel: 81-897-32-6300

Principal business: Software and related equipment

URL: http://www.shi.co.jp/stf/
100% owned subsidiary

Tel: 81-3-5828-9230
URL: http://www.lightwell.co.jp
100% owned subsidiary

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

Izumi Food Machinery Co., Ltd.

1-1, Ohsaki 2-chome, Shinagawa-ku,

2-18, Awaza 2-chome, Nishi-ku, Osaka-shi,

Tokyo 141-6026, Japan

Osaka 550-0011, Japan
Principal business: Food processing machinies and related

Tel: 81-898-64-4811

Principal business: Holding Company of Sumitomo (S.H.I.)
Construction Machinery Sales Co., Ltd.
and Sumitomo (S.H.I.) Construction
Machinery Manufacturing Co., Ltd.

Research and Development Center

Tel: 81-3-6737-2600
URL: http://www.sumitomokenki.co.jp

19, Natsushima-cho, Yokosuka-shi,

100% owned subsidiary

Okayama 713-8501, Japan
Tel: 81-86-525-6101

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

Ehime Works – Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan

Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

Seisa Gear, Ltd.
16-1, Wakihama 4-chome, Kaizuka-shi,

Major Subsidiaries

Osaka 597-8555, Japan
Principal business: Power transmission equipment

Sumitomo Heavy Industries Environment
Co.,Ltd.
25-9, Nishigotanda 7-chome, Shinagawa-ku,
Tokyo 141-0031, Japan
Principal business: Development, design, manufacture, saleand repair of water and sewage treatment
facilities for the private sector, and otherindustrial equipment

Tel: 81-724-31-3021
URL: http://www.seisa.co.jp
53.5% owned subsidiary

Sumitomo Heavy Industries PTC Sales Co., Ltd.
2-2-900, Umeda 1-chome, Kita-ku, Osaka-shi,
Osaka 530-0001, Japan
Principal business: Power transmission equipment

Tel: 81-3-6737-2700
URL: http://www.shiev.shi.co.jp
100% owned subsidiary

100% owned subsidiary

Sumitomo Heavy Industries, Ltd.

50% 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
23.4% owned subsidiary

Tel: 81-6-6346-0820
URL: http://www.sumiju.co.jp

60

equipment

Tel: 81-6-6543-3500
URL: http://www.izumifood.shi.co.jp

Sumitomo Heavy Industries Himatex Co., Ltd.
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Principal business: Castings, rolls and bimetallic cylinders

Tel: 81-897-32-6484
URL: http://www.shiff.co.jp
100% owned subsidiary[Overseas Network]
Offices

SHI Plastics Machinery (Europe) B.V.
Breguetlaan 10A, 1438 BC OUDE MEER, Netherlands

Sumitomo (SHI) Cryogenics of America, Inc.
Chicago Office

Sumitomo Heavy Industries (Shanghai), Ltd.

Principal business: Plastics machinery

1500-C Higgins Road Elk Grove Village,

26th Floor Raffles City (Office Tower) 268

IL 60007, U.S.A.

Xizang Middle Road, Shanghai 200001, China

Tel: 31-20-65-33-111
URL: http://www.spm-europe.com

Tel: 86-21-6340-3993

100% owned subsidiary

Tel: 1-847-290-5801

Principal business: Service and sales of cryocooler
100% owned subsidiary

100% owned subsidiary

S.H.I. Plastics Machinery (S) Pte., Ltd.
Sumitomo Heavy Industries (Vietnam) Co,Ltd.

67 Ayer Rajah Crescent #01-15 to 26,

SHI-APD Cryogenics of Europe Ltd.

Singapore 139950

2 Eros House, Calleva Industrial Park, Aldermaston,

1-7, Thang Long Industrial Park, Dong Anh District,

Principal business: Plastics machinery

Berkshire, RG7 8LN, U.K.

Hanoi, Vietnam

Tel: 65-6779-7544
URL: http://www.spm-singapore.com

Principal business: Manufacturer of MRI magnet cryocoolers,
cryopumps and laboratory cryostats forresearch and development

Principal business: Manufacture of motor for powertransmission equipment

100% owned subsidiary

Tel: 44-011-8981-9373

Tel: 84-4-9550004
100% owned subsidiary

SHI Plastics Machinery (Taiwan) Inc.

100% owned subsidiary

3F-1, No.687, Sec.5, Chung Shan North Road,

Major Subsidiaries

Sumitomo Machinery Corporation ofAmerica
4200 Holland Boulevard, Chesapeake, Virginia 23323,
U.S.A.

Taipei, Taiwan

SHI Cryogenics Europe GmbH

Principal business: Plastics machinery

Daimlerweg 5a D-64293, Darmstadt, D-64287, Germany

Tel: 886-2-2831-4500

Principal business: Service and sales of cryocooler

URL: http://www.spm-northasia.com

Tel: 49-6151-860610

100% owned subsidiary

100% owned subsidiary

SHI Plastics Machinery (Hong Kong) Ltd.

Link-Belt Construction Equipment Company

Tel: 1-757-485-3355
URL: http://www.smcyclo.com

RM601, Telford House, 12-16 Wang Hoi Road,

2651 Palumbo Drive, P.O. Box 13600,

Kowloon Bay, Hong Kong

Lexington, Kentucky 40583-3600, U.S.A.

100% owned subsidiary

Principal business: Plastics machinery

Principal business: Construction crane

Sumitomo (SHI) Cyclo Drive Germany, GmbH

Tel: 852-2750-6630
URL: http://www.spm-northasia.com

Tel: 1-859-263-5200
URL: http://www.linkbelt.com/

100% owned subsidiary

100% owned subsidiary

Principal business: Power transmission equipment

Postfach 62 (PLZ85227) Cyclostrasse 92
D-85229 Markt Indersdorf, Germany

SHI Plastics Machinery (Shanghai) Co., Ltd.

LBX Company, LLC

Tel: 49-8136-66-0
URL: http://www.sumitomodriveeurope.com

Dept. D, 2nd Fl., No.188, HeDan Rd.,

2004 Buck Lane Lexington, KY

Waigao Qiao FTZ, Pudong New Area,

40511-1074, U.S.A.

100% owned subsidiary

Shanghai, 200020, China

Principal business: Construction machinery

Principal business: Plastics machinery

Tel: 1-859-245-3900
URL: http://www.lbxco.com/

Principal business: Power transmission equipment

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte.
Ltd.
No.36 Tuas South Street 3, Singapore 638031

Tel: 86-21-6340-3488
URL: http://www.spm-northasia.com

Principal business: Power transmission equipment

Tel: 65-6863-2238
URL: http://www.sumitomodrive.com.sg
100% owned subsidiary

50% owned subsidiary

100% owned subsidiary

SHI Plastics Machinery (Malaysia) Sdn. Bhd.

SHI Machinery Service Hong Kong Ltd.
Unit 2203, Level 22, Tower II, Metroplaza,

Lot AG 16, 17 & 18, PJ Industrial Park, Jalan

No.223 Hing Fong Road, Kwai Chung,Kemajuan, Section 13, 46200 Petaling Jaya,

New Territories, Hong Kong

Selangor, D.E. Malaysia

Principal business: Maintenance service for harbor cranes

Sumitomo (SHI) Cyclo Drive China, Ltd.

Principal business: Plastics machinery

Tel: 852-2521-8433

No.7 Sanjing Road, Dongli Economic

Tel: 60-3-7958-2079

100% owned subsidiary

Development Zone, Tianjin, China

49% owned subsidiary

Principal business: Power transmission equipment

Tel: 86-22-2499-3501
URL: http://www.smcyclo.com.cn

Sumitomo (SHI) Cryogenics of America, Inc.

66.67% owned subsidiary

18103-4783, U.S.A.

Sumitomo Plastics Machinery Inc. of America

Principal business: Manufacturer of MRI magnet
cryocoolers,cryopumps and laboratory
cryostats for research and development

1266 Oakbrook Drive, Norcross, Georgia 30093, U.S.A.
Principal business: Holding company of Sumitomo (SHI)
Plastics Machinery Mfg. (USA), LLC and
Sumitomo (SHI) Plastics Machinery(America), LLC

Tel: 1-770-447-5430
URL: http://www.sumitomopm.com
100% owned subsidiary1833 Vultee St. Allentown, Pennsylvania

Tel: 1-610-791-6700
URL: http://www.apdcryogenics.com
100% owned subsidiary

SHI Designing & Manufacturing Inc.
32nd Floor Raffles Corporate Center Emerald Avenue,
Ortigas Center, Pasig City, Metro Manila, Philippines
Principal business: Plant engineering, machinery design andsoftware development

Tel: 632-914-4260
100% owned subsidiary

SHI Manufacturing & Services (Philippines),
Inc.
Barangay Sta. Anastacia, Sto.Tomas,
Batangas, Philippines
Principal business: Manufacture of key component for XY
stage, cryocooler, controller and metal
injection molding

Tel: 63-43-405-6263
100% owned subsidiary

Annual Report 2007

61

Management (As of June 28, 2007)
Board of Directors

Management / Corporate data

Yoshio Hinoh*

Yoshinobu Nakamura*

Yukio Kinoshita*

Shinji Nishimura*

Naoki Takahashi

ChairmanPresident and CEO

Senior Executive Vice President

Senior Executive Vice President

Executive Vice President

Eitaro Konii

Yuji Takaishi

Kensuke Shimizu

Mikio Ide

Toshiaki Kakimoto

Senior Vice President

Senior Vice President

Director

Vice President

Director*representative directors

Corporate Auditors
Eiichi Fujita, Standing Auditor
Nobuo Kadota, Standing Auditor
Hideki Kumagai, Auditor
Yoshio kohra, Auditor

Yuji Takaishi

Shigeru Toyosumi

Senior Vice President
General Manager, Personnel Group

Senior Vice President
General Manager, Internal Control Group

Kensuke Shimizu

Katsuhiko Taniguchi

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

Senior Vice President
General Manager, Plastics Machinery Div.

Mikio Ide
Executive Officers

Vice President

Yoshio Hinoh

Toshiaki Kakimoto

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

Chairman

Yasuhiko Seike
Yoshinobu Nakamura
President and CEO

Executive Vice President
General Manager, Steel Structure &Process Equipment Div.

Yukio Kinoshita
Senior Executive Vice President
General Manager, Export Administration Dept.

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

Naoki Takahashi

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

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

Executive Vice President

Eitaro Konii
Senior Vice President
General Manager, Corporate Planning &Development Group62

Sumitomo Heavy Industries, Ltd.

Osamu Sekiya
Senior Vice President
General Manager, Precision Equipment Group

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

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

Corporate Data
Head office:

Sumitomo Heavy Industries, Ltd.
1-1, Ohsaki 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*:

12,561 (Consolidated)

Transfer Agent:

The Sumitomo Trust and Banking Co., Ltd.

Stock Exchange Listings:

Tokyo, Osaka

Shares Outstanding*:

605,726,394

Number of Shareholders*:

59,951

Major Shareholders*:

Name of shareholder
Percentage of voting rights
State Street Bank and Trust Company ....................................................6.5%
Japan Trustee Services Bank, Ltd. ...........................................................6.2%
The Master Trust Bank of Japan, Ltd.......................................................5.5%
Sumitomo Life Insurance Company ........................................................3.7%
Trust & Custody Services Bank, Ltd.........................................................3.0%
Northern Trust Corporation....................................................................2.9%
Chase Manhattan Bank..........................................................................2.6%
Sumitomo Mitsui Banking Corporation...................................................2.5%
Mellon Bank, N.A...................................................................................2.5%
Nippon Life Insurance Company.............................................................1.7%

2,752 (Non-consolidated)* As of March 31, 2007

Breakdown of Shareholders as of March 31, 2007
Breakdown of shareholders

Number of shares held (unit 1,000)

Financial Institutions....................................

191,746

Securities Companies ..................................

12,404

Individuals and others .................................

87,260Foreign Investors .........................................

258,948

Other Corporations .....................................

55,3689.14%

31.66%
42.75%

Financial Institutions
Securities Companies

14.41%

2.05%

Individuals and others
Foreign Investors
Other Corporations“Other Corporations” category also includes treasury stock, government
institution and local government, and Japan Securities Depository Center, Inc.
Number of shares held are rounded down to the nearest 1,000.

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, Ohsaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan Tel. +81-3-6737-2331

Up to Sept. 7, 2007, the address is 9-11, Kitashinagawa 5-chome, Shinagawa-ku,
Tokyo 141-8686, Japan Tel. +81-3-5488-8336

Annual Report 200763

http://www.shi.co.jp