annual report 2014 - soc.co.jp

2014ANNUAL REPORTFor the Year Ended March 31, 2014

Annual Report 2014 Sumitomo Osaka Cement Co., Ltd.

Philosophy

We aim to be a business group that helps preserve the global environment and

contributes to the sustainment and ongoing development of a prosperous society through

tireless technological innovation and wide-ranging business activities.

Through the implementation of the Sumitomo Osaka Cement Corporate Philosophy in

the daily business activities of all Group employees, we will gain the trust of all stakeholders

as we strive to improve our corporate value in order to achieve sustainable growth.

Sumitomo Osaka Cement Co., Ltd. Annual Report 2014

Forward-Looking StatementsThis annual report contains forward-looking statements that reflect Sumitomo Osaka Cement Co., Ltd.’s current views and judgments with respect to current plans, strategies and beliefs. They are

based upon currently available information, and do not constitute promises, commitments or guarantees. The forward-looking statements involve both real and potential risks and uncertainties that

can cause actual events and results to differ materially from those anticipated in these statements. Risks that can cause actual results to differ materially from those stated or implied in the forward-

looking statements and from historical events include, but are not limited to, future economic trends, competition in the industrial sector in which Sumitomo Osaka Cement operates, market demand,

rates of exchange, and other social, political and economic factors.

ContentsTo Our Shareholders 1

At a Glance 3

Review of Operations 5

Corporate Governance 7

Our Management Team 9

Consolidated Financial Data 10

Six-Year Summary 10

Financial Review 11

Consolidated Financial Statements 14

Notes to Consolidated Financial Statements 20

Independent Auditors’ Report 33

Company Profile 34


1

As a result, consolidated net sales during the fiscal year

under review increased 7.3% year on year to ¥235,078 million,

due largely to higher revenue in the cement business.

In terms of profitability, ordinary income rose ¥7,788 million

compared with the previous fiscal year to ¥22,400 million, and

net income increased ¥5,870 million to ¥13,331 million. This

was largely the result of a year on year increase in sales volume

and improvement in manufacturing costs in the cement busi-

ness as well as improved income in the Others segment.

Returning Profits to Shareholders

Sumitomo Osaka Cement believes that earnings distributions to

shareholders should be determined in accordance with the

Company’s business results. As a cement manufacturer, it is

essential for the Company to continually improve facilities while

investing in facility renewal in order to secure such earnings in

the future. Therefore, we consider it vital to expand our

reserves. Based on this viewpoint, the Company will determine

earnings distribution from the viewpoint of overall business

management.

For fiscal 2014, we paid a full-year dividend of ¥5 per share

(including an interim dividend of ¥2.5 per share). For fiscal

2015, we plan to again pay a full-year dividend of ¥5 per share

(including an interim dividend of ¥2.5 per share).

Medium-Term Management Plan

In May 2014, we announced our new medium-term manage-

ment plan for fiscal 2015 through fiscal 2017.

Under the medium-term management plan, as we expect

domestic cement demand to remain relatively strong for the

time being, we will work to ensure a steady supply and to maxi-

mize profit. In addition, with an eye to the future, we will aggres-

sively expand growth fields to establish a Companywide

framework for steady profit.

In the cement business, while ensuring stable supply to meet

firm domestic demand and maximizing profit, we will work to

build a production and supply network that will be highly com-

petitive into the future. In pursuit of growth fields, we aim to

expand our repair business to meet the needs posed by the

great volume of aging infrastructure in Japan, and to establish

business in Southeast Asia, were growth is ongoing.

In other businesses, we will work to increase profits by seek-

ing out growth markets and conducting precisely targeted

investment of management resources.

Furthermore, we will continue to actively contribute to the

To Our Shareholders

Performance in Fiscal 2014

During fiscal 2014, the fiscal year ended March 31, 2014, the

Japanese economy saw gradual recovery backed by increased

investment in construction, which was supported by govern-

ment economic policy, a pickup in capital expenditure and an

increase in consumer spending.

In the cement industry, reconstruction demand related to the

Great East Japan Earthquake and growth in nationwide disaster

prevention and mitigation demand pushed up public-sector

demand. At the same time, private-sector demand grew in line

with increases in private housing investment and private capital

investment. As a result, cement demand in Japan grew 7.0%

year on year to 47,705 thousand metric tons. Exports, however,

retreated 11.7%. Consequently, the total sales of cement pro-

duced by domestic manufacturers, including exports, climbed

3.9% year on year to 55,455 thousand metric tons.

Under these circumstances, the Sumitomo Osaka Cement

Group worked to provide a stable supply of cement and other

products while promoting Groupwide efforts aimed at sustain-

able development, such as cost reduction measures.

Sumitomo Osaka Cement Co., Ltd. Annual Report 2014 Annual Report 2014 Sumitomo Osaka Cement Co., Ltd.

2

(3) Business Strategy

(4) Numerical Targets

Assumptions: Exchange rate: ¥105/US$, Coal price: US$100/t, Crude oil price: US$105/bbl

(1) Operating Environment

Domestic cement demand: Although certain risks remain, including those related to the difficulty of procuring sufficient human resources and rising material prices, we expect domestic cement demand to remain strong for some time, reflecting the ramping up of reconstruc-tion demand related to the Great East Japan Earthquake as well as demand related to the 2020 Tokyo Olympics. However, demand is expected to decline from around 2020 onward.

Cement-Related Businesses: There are additional growth markets in areas related to cement, reflecting the needs of specific times and regions.

Repair business: Repair and maintenance of aging public infrastructure is unavoidable.

Overseas cement business: Cement demand is forecast to continue growing in Southeast Asia.

(2) Basic Policy

Amid strong domestic demand, we will concentrate Group strengths to maximize profit

• Ensure a steady supply to meet our social responsibility as a cement manufacturer

• Construct a supply network commensurate with domestic demand

• Reduce costs by such means as energy conservation

Aggressively expand growth fields to establish a Companywide framework for steady profit even when domestic demand declines

• Expand the repair business, a growth field• Rapidly establish a foundation for the overseas cement

business• Increase profits through further selection and concentration in

new businesses

To Our Shareholders (continued)

(Millions of yen) Fiscal 2017

Net sales 250,000

Cement 191,800

Non-Cement 58,200

Mineral Resources 13,900

Cement-Related Products 20,500

Optoelectronics 8,000

Advanced Materials 6,500

Others 9,300

Operating income 26,000

Net income 14,600

Outline of the Medium-Term Management Plan (Fiscal 2015 – 2017: April 1, 2014 – March 31, 2017)

Reinforce competitiveness of the domestic cement business

Expand and develop growth businesses

Secure steady profit in new businesses

Maximize profit in the current environment while building a production and supply network that will be competitive into the future

Expand the repair business, where growth is expectedEstablish a foundation for the cement business overseas through new business development in Southeast Asia

Increase profits by seeking out growth markets in each busi-ness and conducting precisely targeted investment of man-agement resources

1.

2.

3.

establishment of a recycling-oriented society by utilizing recy-

cled raw materials and fuels and strive to reduce our environ-

mental impact.

As a medium-term financial target for these initiatives, we

have set the goal for ROA (ordinary income basis) of approxi-

mately 8%.

* Please refer to the outline of the medium-term management plan, which follows, for more details.

I extend my sincerest thanks to our shareholders and other

stakeholders for their continuing support and confidence.

September 2014

Fukuichi Sekine, President


3

At a Glance

Business Overview

With the cement business as our core business, we work with our plants

and service stations throughout Japan to conduct manufacturing, distribu-

tion and sales of assorted cements and solidification materials. The Group

actively contributes to the realization of a recycling-based society by recy-

cling waste materials and by-products, and working to improve its electric-

ity self-supply ratio with in-house power generation systems that use wood

biomass fuel. At the same time, we focus on the development of even

higher-performance cements and efficient manufacturing systems.

Business Overview

Sumitomo Osaka Cement boasts some of the largest limestone sources in

Japan and supplies limestone as an industrial material to the steel, chemi-

cal, cement and various other industries. High-purity limestone enjoys

robust demand and is also exported to Asian countries. In addition, we

apply our unique grinding and sorting technologies to manufacture and

market aggregate for ready-mixed concrete, calcium carbonate, silica pow-

der and other products.

Business Overview

We manufacture and sell products used in the rehabilitation and reinforce-

ment of concrete structures and implement projects related to rehabilitative

construction. Using expertise gained in the cement business, we supply

high-value-added products that address the many different causes of dete-

rioration of concrete infrastructure and buildings, including damage from

salt, acid rain and frost damage. We also develop large-scale, high-rise

artificial marine reefs as well as seaweed bed technology, thus contributing

to the preservation of the ocean environment.

Products/ Services

• Assorted cements

• Ready-mixed concrete

• Cement-related solidifica-tion materials

• Supply of electrical power

• Recycling of raw materials and fuel

Products

• Limestone

• Dolomite

• Calcium carbonate

• Aggregate

• Silica powder

Products/ Services

• Repairing and reinforcing products for concrete structures

• Construction work

• Cathodic protection for concrete structures (ELGARD SYSTEM)

• Artificial marine reefs

Cement

Mineral Resources

Cement-Related Products


4

Business Overview

Our optoelectronics business is engaged in the manufacture and sale of

optical communications devices and components, such as LiNbO3 (LN)

modulators and optical transmitters and receivers for cable television.

These products offer high-quality and high-performance for the expanding

optical communications market in Japan and overseas.

Business Overview

The advanced materials business develops and manufactures such func-

tional materials as films, coatings and anti-bacterial agents based on the

Group’s proprietary nanoparticle production technologies. These unique

materials are used in a wide array of fields that includes various displays

and cosmetics. In addition, ceramics that combine sintering and engineer-

ing technologies are used in semiconductor manufacturing and mounting

equipment.

Business Overview

The others business engages in the long-term leasing of office buildings,

supermarkets, hardware stores, distribution centers and a wide array of

other facilities constructed on the Group’s idle real estate. In addition, we

manufacture and sell high-capacity, highly safe secondary battery cathode

materials. We are involved in activities that include the construction of elec-

trical facilities and electric furnaces at Group companies.

Products

• LiNbO3 external optical modulators

• Optical transmitters and receivers for CATV

• Optical measurement equipment

Products

• Various transparent and functional coating solu-tions

• Heat and ultraviolet shield-ing films

• Hydrophilic antifouling easy cleaning coating solutions

• Components of semicon-ductor manufacturing equipment

Products/ Services

• Leasing of real estate, including distribution warehouses

• Secondary battery cath-ode materials

• Sales of office appliances

• Development of software

• Engineering

Optoelectronics

Advanced Materials

Others


5

Review of Operations

The volume of cement sales rose year

on year, as did the use of recycled raw

materials and fuels, which helped drive

down manufacturing and other costs.

As a result, net sales increased ¥7,342

million, or 4.2%, year on year to

¥183,188 million. Segment profit rose

¥4,430 million, or 36.5%, to ¥16,575

million.

The total sales volume of cement

increased 1.5% year on year to 10,387

thousand metric tons, with the sales

volume in Japan up 3.4% to 9,502

thousand metric tons, while exports fell

15.0% to 884 thousand metric tons.

Capital expenditures totaled

¥14,846 million, an increase of ¥2,610

million from the previous fiscal year.

In addition to a rise in the sales vol-

umes of aggregate and limestone for

use in overseas steel industries, mining

costs improved. As a result, net sales

rose to ¥12,937 million, up ¥1,228

million, or 10.5%, year on year.

Segment profit increased ¥357 million,

or 38.3%, to ¥1,292 million.

Capital expenditures amounted to

¥1,334 million, a decrease of ¥1,223

million from the previous fiscal year.

Private-sector orders for soil improve-

ment work increased, as did the sales

volume of materials used in the reha-

bilitation and reinforcement of concrete

structures, leading net sales to rise to

¥20,468 million, an increase of ¥5,181

million, or 33.9%, year on year.

Segment profit jumped to ¥1,793 mil-

lion, up ¥1,496 million, or 502.9%,

from the previous fiscal year.

Capital expenditures amounted to

¥343 million, an increase of ¥159 mil-

lion from the previous fiscal year.

Cement Mineral Resources Cement-Related Products

77.9%of Net Sales

5.5%of Net Sales

8.7%of Net Sales

(Billions of yen)

200 20

150

100

50

0FY

15

10

5

02012 2013 2014

Net Sales (left)Segment Profit (right)

(Billions of yen)

14

10

12

6

8

2

4

1.4

1.0

1.2

0.6

0.8

0.2

0.4

0FY

02012 2013 2014


(Billions of yen)

24

20

16

12

8

4

2.4

2.0

1.6

1.2

0.8

0.4

0FY

02012 2013 2014



6

Due to an increase in the sales volume

of optical communication devices as

well as the influence of the weak yen,

net sales came to ¥6,545 million, up

¥2,288 million, or 53.8%, year on year.

Segment profit increased ¥1,120 mil-

lion from a segment loss in the previ-

ous year to ¥1,101 million.

Capital expenditures were ¥611

million, a decrease of ¥236 million from

the previous fiscal year.

Due in part to the conclusion of sales

and shipments of filters used in plasma

display panels, net sales fell to ¥4,852

million, down ¥982 million, or 16.8%,

year on year. However, due to an

increase in the sales volume of elec-

tronic materials used in semiconductor

manufacturing equipment and efforts

to cut costs, segment profit rose to

¥701 million, up ¥126 million, or

21.9%, from the previous fiscal year.

Capital expenditures came to ¥193

million, a decrease of ¥123 million from

the previous fiscal year.

Electric facility construction work in the

engineering business increased, as did

transaction volume in the software

sales business. As a result, net sales

increased ¥937 million, or 15.2%, year

on year to ¥7,085 million. However,

due in part to costs associated with

establishing a manufacturing system

for the battery materials business,

segment profit fell ¥16 million, or

24.9%, compared with the previous

year to ¥51 million.

Capital expenditures came to ¥257

million, a decrease of ¥2,252 million

from the previous fiscal year.

2.8%of Net Sales

2.1%of Net Sales

3.0%of Net Sales

Optoelectronics Advanced Materials Others

(Billions of yen)

8

6

2

4

0

-2

1.2

0.9

0.3

0.6

0

-0.3FY 2012 2013 2014

Net Sales (left)Segment Profit (Loss) (right)

(Billions of yen)

12

9

3

6

0

-3

1.2

0.9

0.3

0.6

0

-0.3FY 2012 2013 2014

Net Sales (left)Segment Profit (Loss) (right)

(Billions of yen)

8 0.8

6

4

2

0FY

0.6

0.4

0.2

02012 2013 2014



7

Corporate Governance

We believe that a primary objective of corporate governance is to constantly enhance corporate value by

increasing management efficiency, and by securing soundness and transparency in every phrase of busi-

ness activities. We, therefore, recognize the fulfillment of this aim as our most important management issue.

General Meeting of Shareholders

Risk Management Committee

Board of Directors8 directors

(Incl. 1 external director)

President

Executive Officers

SubsidiariesHead Office/Production Works/Branch Offices/Divisions/Laboratories

Internal Audit Department(Internal Notification Office)

Compliance Committee

Notification Office (External)

Board of Corporate Auditors 5 corporate auditors (Incl. 3 external auditors)

Accounting Auditor

SUBSIDIARIES

Election/Supervision

Election/ Supervision

Election

Election

Decision-Making

Operational Audit Financial Audit

Perceive, evaluate andrespond to risks

Direction/Order

Report

BUSINESS EXECUTION

Financial Audit

Audit Result Report

Audit ResultReport Perceive, evaluate and

respond to risks

ReportInternal Audit

Report

DECISION-MAKING

Report

Internal Audit

Keeping informed about complianceand taking correctivemeasures

Each Organization’s Roles

We promote a corporate governance system based on our

view that it is appropriate to improve our operational efficiency

by management decision-making though the Board of

Directors’ Meeting, which consists of directors knowledgeable

in business operations, and to enhance the auditing functions

of company auditors, and therefore adopt a company auditor

system. In addition, we are taking steps to improve our opera-

tional efficiency by strengthening both management decision-

making and supervisory functions of the Board of Directors, by

accelerating decision-making process, and by defining authority

and responsibility, through the introduction of the Executive

Officer System in June 2006, under which management deci-

sion-making and supervisory functions are separated from busi-

ness execution function.

With the President at its chairman, the Board of Directors

consists of 7 directors, including 1 outside director* who pro-

vides an outside perspective to management decision-making.

In addition, the term of office for directors is limited to 1 year in

order to define the responsibility of directors and to build a

management system that allows us to respond more quickly to

changes in our business environment. The Board of Directors’

Meeting is held once or more each month to determine impor-

tant management matters and to receive reports on business

execution.

The Board of Company Auditors consists of 5 company audi-

tors, including 3 outside auditors*. The Board of Company

Auditors’ Meeting is held once or more each month. The com-

pany auditors audit the decision-making of directors and busi-

ness execution of executive officers to determine whether or

not they are being properly conducted. To this end, the com-

pany auditors are participating in the Board of Directors’

Meetings and other important meetings as well as obtaining

reports from directors and executive officers, employees and

accounting auditors (audit corporations).

With regard to internal audits, we established the 9 member

Internal Audit Department as an in-house organization to con-

duct audits in accordance with the Internal Audit Regulations.

The Internal Audit Department works closely with the company

auditors.

* The outside director and outside company auditors have been reported to the Tokyo Stock Exchange as an independent director and independent auditors.


8

Compliance System Status

We established a Compliance Committee chaired by the

President for the purpose of raising the Group-wide awareness

of compliance on the part of the Sumitomo Osaka Cement

Group’s directors, executive officers and employees. In addi-

tion, we issued the Compliance Committee Regulations to

define the roles and responsibilities of the Compliance

Committee. The Compliance Committee initiates annual com-

pliance activity plans and monitors the progress of the plans.

Compliance Audits are conducted by the Internal Audit

Department, which submits a report to the Compliance

Committee. The Compliance Committee then takes necessary

measures, screening the results and submitting a report to the

Board of Directors and the company auditors.

Furthermore, we have introduced a reporting system

(Compliance Hotline System) to enhance compliance. This sys-

tem is designed to receive compliance reports from the Group’s

directors, executive officers and employees and allows us to

take corrective actions at an earlier stage. The system’s report-

ing methods and the scope of reportable subject matters have

been revised in an effort to ensure an even higher level of effec-

tive compliance and to make sure that all our business transac-

tions are conducted fairly.

Risk Management

Chaired by the President, the Risk Management Committee

strives to identify and evaluate the Group’s risks. In order to

define the Committee’s roles and responsibilities, we issued

Risk Management Committee Regulations. The Risk

Management Committee prepares a risk management plan

each year. Risk Management Audits in accordance with the risk

management plan are conducted by the Internal Audit

Department, which submits a report to the Risk Management

Committee. The Risk Management Committee then takes nec-

essary measures, screens the results and submits a report to

the Board of Directors and the company auditors.

Basic Policy regarding Control of the Company

At a Board of Directors’ Meeting held on May 14, 2008, we

adopted a basic policy regarding parties who control the deci-

sions on its financial and business policies, as well as intro-

duced countermeasures against the acquisition of its shares

with a view of securing 20% or more of our voting rights by a

specific shareholder group (hereafter “the Plan”). The Plan was

introduced as a measure to prevent certain parties, who are

considered to be inappropriate in accordance with Sumitomo

Osaka Cement’s basic policy, from controlling decisions on its

financial and business policies.

The Plan (valid for a three-year period) was initially approved

by the majority of shareholders at the 145th Annual General

Meeting of Shareholders held on June 27, 2008. Subsequently,

the Plan was partially revised and renewed with the approval of

the majority of shareholders at the 148th Annual General

Meeting of Shareholders held on June 29, 2011 and more

recently at the 151st Annual General Meeting of Shareholders

held on June 27, 2014.

For details of the Plan, please visit our website

(http://www.soc.co.jp/wp-content/themes/soc/img/ir/document/document04/151teizikabunusi.pdf).

WEB

Corporate Governance (continued)


9

Board of Dirctors

President, Representative Director Fukuichi Sekine

Representative Dirctor, Senior Managing Executive OfficersMasafumi NakaoAkira Fujisue

Dirctor, Managing Executive OfficersKatsuji MukaiYushi Suga

Director, Executive Officer Isao Yoshitomi

Outside Director Kunitaro Saida

Auditors

Company AuditorsRyuji MuramatsuKatsuhisa Aoi

Outside Company Auditors

Fuminori TomosawaShoji HosakaKazuo Suzuki

Executive Officers

Managing Executive Officers

Shigemi YamamotoYasuo FujiwaraToshihiko Onishi

Executive Officers

Fujitoshi NakagawaShinichi InoueHiroyuki SakakibaraRyoji OgiTomonori NonomuraHirotsune MorohashiToshi ImaiShintarou Ooshima

Our Management Team (As of June 27, 2014)


10

Millions of yenThousands of U.S. dollars

(Note 2)

2009 2010 2011 2012 2013 2014 2014

For the year:

Net sales ¥215,390 ¥194,624 ¥201,644 ¥217,044 ¥219,083 ¥235,078 $2,284,093

Cost of sales 172,920 157,432 159,542 172,609 170,042 177,606 1,725,679

Selling, general and administrative expenses 36,496 34,415 35,362 36,297 35,082 35,966 349,465

Operating income 5,973 2,776 6,738 8,136 13,959 21,504 208,948

Net income (loss) 450 (1,002) 920 3,645 7,460 13,331 129,528

Net cash provided by operating activities ¥ 17,593 ¥ 24,555 ¥ 21,548 ¥ 23,243 ¥ 30,015 ¥ 32,537 $ 316,139

Net cash used in investing activities (23,191) (21,525) (15,048) (16,314) (17,362) (17,950) (174,408)

Net cash (used in) provided by financing activities 8,753 1,765 (10,991) (6,111) (15,173) (7,967) (77,411)

Cash and cash equivalents at end of year 25,988 30,800 26,277 27,093 25,078 31,928 310,231

At year end:

Net assets ¥121,682 ¥125,044 ¥128,541 ¥131,782 ¥142,976 ¥154,821 $1,504,285

Total assets 309,465 311,707 310,746 309,890 315,734 325,328 3,160,982

Per share data (yen/dollars):

Net income (loss) ¥ 1.08 ¥ (2.41) ¥ 2.21 ¥ 8.76 ¥ 17.92 ¥ 32.03 $ 0.31

Cash dividends 4.00 4.00 4.00 4.00 5.00 5.00 0.049

Shareholders’ equity 288.62 296.41 305.37 313.21 340.14 368.5 3.58

Financial ratios:

ROE (Return on equity) 0.4% (0.8)% 0.7% 2.8% 5.5% 9.0%

ROA (Return on assets) 1.4% 0.3% 0.4% 1.2% 2.4% 4.1%

Equity ratio (Note 1) 38.9% 39.6% 40.9% 42.1% 44.8% 47.1%

Number of employees 2,706 2,808 2,816 2,769 2,834 2,821

Notes: 1. Equity = Total net assets – Share subscription rights – Minority interests 2. U.S. dollar amounts have been translated from yen at the rate of ¥102.92=US$1 as of March 31, 2014.

Consolidated Financial Data

SUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31

Six-Year Summary


11

Financial Review

Scope of ConsolidationThe scope of these consolidated financial statements includes Sumitomo Osaka Cement, 35 consolidated subsidiaries and one equity-method affiliate.

Net SalesDuring the fiscal year under review, the Japanese economy saw gradual recovery backed by increased investment in construction, which was supported by government economic policy, a pickup in capital expenditure and an increase in consumer spending. In the cement industry, reconstruction demand related to the Great East Japan Earthquake and growth in nationwide disaster prevention and mitigation demand pushed up public-sector demand. At the same time, private-sector demand grew in line with increases in private housing investment and private capital investment. As a result, cement demand in Japan grew 7.0% year on year to 47,705 thousand metric tons. Exports, however, retreated 11.7%. Consequently, the total sales of cement pro-duced by domestic manufacturers, including exports, climbed 3.9% year on year to 55,455 thousand metric tons. Under these circumstances, the Sumitomo Osaka Cement Group worked to provide a stable supply of cement and other products while promoting Groupwide efforts aimed at sustain-able development, such as cost reduction measures. As a result, consolidated net sales during the fiscal year under review increased 7.3% year on year to ¥235,078 mi l l ion (US$2,284,093 thousand), due largely to higher revenue in the cement business. For more information on results by business segment, please refer to the Review of Operations (pages 5-6).

ProfitsOperating income grew 54.1% year on year to ¥21,504 million (US$208,948 thousand) due to a rise in earnings primarily in the

cement business. Net income surged 78.7% compared with the previous fiscal year to ¥13,331 million (US$129,528 thou-sand). Consequently, net income per share stood at ¥32.03.

Financial PositionTotal assets as of March 31, 2014, stood at ¥325,328 million (US$3,160,982 thousand), an increase of ¥9,593 million from the previous fiscal year-end. Current assets increased ¥5,909 million from the previous fiscal year-end to ¥101,425 million (US$985,478 thousand), attributable primarily to an increase in cash and deposits. Total noncurrent assets rose ¥3,683 million from the previous fiscal year-end to ¥223,902 mill ion (US$2,175,503 thousand), mainly as a result of an increase in investment securities. Within noncurrent assets, property, plant and equipment decreased ¥3 million to ¥159,806 million (US$1,552,728 thousand), while investments and other assets rose ¥4,042 million to ¥61,039 million (US$593,081 thousand). Total liabilities declined ¥2,250 million from the previous fiscal year-end to ¥170,507 million (US$1,656,696 thousand). Current liabilities increased ¥8,988 million to ¥99,362 million (US$965,432 thousand) largely due to an increase in the bal-ance of the current portion of long-term loans payable. Long-term liabilities decreased ¥11,239 million to ¥71,144 million (US$691,264 thousand) as a result of such factors as drops in long-term loans payable and bonds payable. Total interest-bearing debt declined ¥4,663 million compared with the previ-ous fiscal year-end to ¥98,147 million (US$953,632 thousand), while the interest coverage ratio increased from 17.7 times in the previous fiscal year to 23.5 times. Net assets at the end of the fiscal year under review stood at ¥154,821 million (US$1,504,285 thousand), up ¥11,844 million from a year earlier. This increase was mainly the result of a rise in retained earnings. Consequently, the shareholders’ equity

Net Sales Operating Income Total Assets

(Billions of yen)

250235.1

219.1217.0201.6194.6

215.4

6.0

309.5 311.7 310.7 309.9335.7 325.3

2.8

6.78.1

14.0

21.5

’09 ’10 ’11 ’12 ’13 ’14

200

150

100

50

0

(Billions of yen)

25

20

’09 ’10 ’11 ’12 ’13 ’14

15

10

5

0

(Billions of yen)

400

’09 ’10 ’11 ’12 ’13 ’14

300

200

100

0


12

Dividend PolicySumitomo Osaka Cement believes that earnings distributions to shareholders should be determined in accordance with the Company’s business results. As a cement manufacturer, it is essential for the Company to continuously improve facilities while investing in facility renewal in order to secure future earnings. To this end, the Company considers it vital to expand its reserves. Based on this viewpoint, the Company will determine earnings distribution from the viewpoint of overall business management. For fiscal 2014, an interim dividend of ¥2.5 per share and a year-end dividend of ¥2.5 were paid. Consequently, the full-year dividend payment totaled ¥5.00 per share.

Fiscal 2015 OutlookIn the fiscal year ending March 31, 2015, while risks associated with the global economic downturn and other factors remain, the Japanese economy is expected to continue to recover, due in part to the economic policies of the government. In the cement industry, private-sector demand is forecast to remain on par with that of the previous fiscal year, with private capital investment expected to continue to grow even as pri-vate housing investment declines. Public-sector demand is also forecast to remain level with that of the previous fiscal year, reflecting unchanged levels of both reconstruction demand related to the Great East Japan Earthquake and nationwide demand related to disaster prevention and mitigation. Accordingly, overall domestic demand is expected to remain largely unchanged year on year. Amid such circumstances, the Sumitomo Osaka Cement Group will focus on ensuring supply stability by establishing flexible production, sales and distribution systems to meet fluc-tuations in demand in the domestic cement business while working to set appropriate sales prices. With regard to the

ratio climbed from 44.8% as of March 31, 2013, to 47.1% as of March 31, 2014.

Capital Investment, Depreciation and AmortizationThe Company is stabilizing its business foundation in the cement business by further streamlining production and distri-bution. In other business fields, the Company is investing capi-tal based on its medium-and long-term management strategies to expand revenues by allocating key management resources to growth fields. Total capital expenditures undertaken through-out the Group in the fiscal year under review decreased ¥1,065 million, or 5.7%, from the previous fiscal year to ¥17,587 million as of March 31, 2014. Depreciation and amortization fell ¥886 million, or 5.1%, to ¥16,599 million.

Cash FlowNet cash provided by operating activities totaled ¥32,537 mil-lion (US$316,139 thousand), up ¥2,522 million from the previ-ous fiscal year. In addition to income before income taxes and minority interests, cash inflows were primarily due to an increase in retained earnings reflecting such factors as depreci-ation and amortization. Net cash used in investing activities amounted to ¥17,950 million (US$174,408 thousand), up ¥588 million from the previous fiscal year, mainly reflecting purchases of property, plant and equipment. Net cash used in financing activities was ¥7,967 million (US$77,411 thousand), down ¥7,206 million from the previous fiscal year. Cash inflows includ-ed proceeds from long-term loans payable, while outflows comprised mainly the repayment of long-term loans payable and cash dividends paid. As a result, cash and cash equivalents at the fiscal year-end increased ¥6,850 million, or 27.3%, year on year to ¥31,928 million (US$310,231 thousand).

Net Assets ROE (Return on Equity) ROA (Return on Assets)

(Billions of yen)

160

131.7128.5125.0121.7

0.41.4

0.3 0.4

1.2

2.4

4.1

(0.8)

0.7

2.8

5.5

9.0

’09 ’10 ’11 ’12 ’13 ’14

140

120

100

60

80

20

40

0

(%)

10

’09 ’10 ’11 ’12 ’13 ’14

4

2

6

8

-2

0

(%)

5

’09 ’10 ’11 ’12 ’13 ’14

3

4

2

1

0

143.0154.8


13

over the long term. On the other hand, the price of coal, the pri-mary raw fuel used in cement production, may potentially increase due to future circumstances. The Group is making efforts to limit the effects on its performance by improving cement sales prices to reflect operating cost increases caused by rising expenses of coal procurement.

• Collection of DebtThe Sumitomo Osaka Cement Group does business with major customers in the construction and retail industries for its main-stay cement products and concrete. In the event that the per-formance of such major customers rapidly deteriorates and the Group is unable to collect receivables, its financial condition, results and cash flows may be seriously affected. The Sumitomo Osaka Cement Group is therefore working to strengthen credit administration by holding down accounts receivable through direct sales at cement service stations and by seeking to secure liquidity guarantees from customers.

• Plant OperationsBecause cement plants contain large-scale equipment and facil-ities, in the event of a significant incident, fire, accident, natural disaster, electric outage or other unforeseen circumstance that may interfere with plant operations, the Group’s financial condi-tion, results and cash flows may be significantly affected due to excessive recovery time and costs. However, the Group con-ducts regular inspections and disaster-prevention patrols at all of its plants in order to ensure stable operations based on its pro-duction plan. Accordingly, the Group estimates the possibility of such an occurrence to be low. Further, Sumitomo Osaka Cement has six cement plants nationwide (four operated by the Company; two by affiliated companies), and should operations at one plant be interrupted, the Group will respond by shifting orders among cement plants and by purchasing needed cement from business partners in an effort to ensure stable supply.

• Impairment of Property, Plant and EquipmentIn the event that the Group is unable to recover its investment due to decreased profitability or a decline in the market value of property, plant and equipment following the application of impairment accounting, Sumitomo Osaka Cement will be required to write down the book value of fixed assets to a price that may be recovered, based upon future earnings plans and related forecasts. At the current moment, the Group has recorded all impairment accounting of property, plant and equipment that is required. However, impairment loss may be caused by changes in future land prices and operating condi-tions, and the Group’s financial condition and results may be significantly affected.

overseas cement business, the Group will continue to examine the possibility of entering regions that are expected to grow in the future. In other business fields, the Group will investigate various measures to increase its business scale and profits through overseas production and sales as well as the focused distribution of management resources. The Sumitomo Osaka Cement Group will continue to rigorously pursue compliance. At the same time, in line with its social mission, the Group will continue to actively contribute to the establishment of a recycling-oriented society by utilizing recycled raw materials and fuels and strive to reduce its environmental impact. For the fiscal year ending March 31, 2015, Sumitomo Osaka Cement expects net sales of ¥236,000 million, an increase of 0.4% year on year, ordinary income of ¥22,000 million, a decrease of 1.8%, and net income of ¥12,100 million, a decrease of 9.2% from the fiscal year under review. The Company plans to pay a full-year dividend of ¥5.00 per share.

The aforementioned figures are based on information available as of May 2014, and therefore may differ in accordance with various factors in the future. Major possible risk factors are described as follows.

Business Risks• Decrease in Domestic Demand for CementIn the Sumitomo Osaka Cement Group’s mainstay cement business, domestic demand is significantly impacted by public investment and private-sector capital expenditure in Japan. Therefore, in the event that public works spending or private-sector capital expenditure deteriorate at a pace that exceeds the Company’s forecasts, the Group’s financial condition, results and cash flows may be substantially affected. However, given that cement is an indispensable material contributing to social capital, it is projected that demand above a certain level can be consistently secured in the medium to long term. Based on an anticipated decline in domestic demand for the foresee-able future, the Sumitomo Osaka Cement Group has restruc-tured its production framework by closing certain cement plants in prior years and will continue to implement various cost reductions and revisions of sales prices.

• Increase in Raw Material and Fuel PricesThe Group’s mainstay product of cement requires a variety of raw materials and fuels, including limestone, clay and coal. Therefore, price hikes in raw materials and fuels used in the cement manufacturing process have the potential to significant-ly affect the Group’s financial condition, results and cash flows. However, the Group’s own mine can provide an extremely sta-ble supply of limestone, the primary raw material of cement,


14

SUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES March 31, 2013 and 2014

Millions of yen

Thousands of U.S. dollars (Note 1)

2013 2014 2014

ASSETS

Current assets:

Cash and deposits (Note 4) ¥ 25,225 ¥ 32,081 $ 311,713

Notes and accounts receivable—trade 47,697 47,038 457,039

Securities 0 — —

Merchandise and finished goods 6,540 6,215 60,393

Work in process 1,990 1,477 14,351

Raw materials and supplies 9,533 10,014 97,305

Short-term loans receivable 567 437 4,250

Deferred tax assets (Note 13) 2,267 1,801 17,505

Other 1,954 2,574 25,018

Less: Allowance for doubtful receivables (261) (216) (2,099)

Total current assets 95,515 101,425 985,478

Property, plant and equipment, net:

Buildings and structures 53,240 51,933 504,596

Machinery, equipment and vehicles 46,393 49,815 484,020

Land 38,914 38,845 377,434

Construction in progress 5,888 3,671 35,676

Other 15,372 15,540 150,999

Total property, plant and equipment, net 159,809 159,806 1,552,728

Intangible assets:

Goodwill 357 206 2,007

Other 3,055 2,849 27,686

Total intangible assets 3,413 3,056 29,693

Investments and other assets:

Investment securities (Note 6) 48,925 51,933 504,599

Long-term loans receivable 1,714 2,618 25,442

Deferred tax assets (Note 13) 788 787 7,653

Net defined benefit asset (Note 15) — 230 2,240

Other 6,329 6,209 60,330

Less: Allowance for doubtful receivables (760) (739) (7,184)

Total investments and other assets 56,997 61,039 593,081

Total noncurrent assets 220,219 223,902 2,175,503

Total assets ¥315,734 ¥325,328 $3,160,982

See accompanying notes to the consolidated financial statements.

Consolidated Balance Sheets


15

Millions of yen


2013 2014 2014

LIABILITIES AND NET ASSETS

Current liabilities:

Notes and accounts payable—trade ¥ 27,245 ¥ 27,790 $ 270,017

Short-term loans payable (Note 7) 34,086 32,764 318,346

Current portion of long-term loans payable (Note 7) 11,290 15,939 154,876

Current portion of bonds (Note 7) — 5,000 48,581

Income taxes payable 4,320 5,805 56,403

Provision for bonuses 2,091 2,192 21,303

Other 11,340 9,870 95,902

Total current liabilities 90,373 99,362 965,432

Long-term liabilities:

Bonds payable (Note 7) 15,000 10,000 97,162

Long-term loans payable (Note 7) 42,433 34,443 334,664

Deferred tax liabilities (Note 13) 13,013 13,760 133,705

Provision for retirement benefits (Note 15) 1,299 — —

Provision for directors’ retirement benefits 221 212 2,068

Net defined benefit liability (Note 15) — 2,277 22,127

Asset retirement obligations 642 707 6,875

Other 9,773 9,742 94,659

Total long-term liabilities 82,384 71,144 691,264

Total liabilities 172,758 170,507 1,656,696

Net assets:

Shareholders’ equity

Capital stock 41,654 41,654 404,722

Capital surplus (Note 9) 31,084 29,282 284,516

Retained earnings (Note 9) 50,620 60,829 591,036

Treasury stock (1,989) (236) (2,301)

Total shareholders’ equity 121,368 131,529 1,277,975

Accumulated other comprehensive income:

Unrealized gain on available-for-sale securities 20,125 22,117 214,903

Foreign currency translation adjustments 95 409 3,975

Remeasurements of defined benefit plans — (710) (6,905)

Total accumulated other comprehensive income 20,220 21,816 211,973

Minority interests 1,387 1,475 14,337

Total net assets 142,976 154,821 1,504,285

Total liabilities and net assets ¥315,734 ¥325,328 $3,160,982


16

Consolidated Statements of IncomeSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2013 and 2014

Millions of yen


2013 2014 2014

Net sales ¥219,083 ¥235,078 $2,284,093

Cost of sales 170,042 177,606 1,725,679

Gross profit 49,041 57,471 558,413

Selling, general and administrative expenses (Note 12) 35,082 35,966 349,465

Operating income 13,959 21,504 208,948

Non operating income:

Interest income 96 91 892

Dividend income 1,093 1,584 15,397

Foreign exchange gain 728 597 5,804

Compensation income for business interaction 326 — —

Equity in earnings of affiliates 122 199 1,941

Rental income 189 164 1,597

Other 626 516 5,019

Total non operating income 3,183 3,154 30,653

Non operating expenses:

Interest expense 1,647 1,351 13,129

Other 883 907 8,820

Total non operating expenses 2,530 2,259 21,950

Ordinary income 14,612 22,400 217,651

Extraordinary income:

Gain on sales of noncurrent assets 132 56 547

Gain on sales of investment securities 4 18 175

Total extraordinary income 136 74 722

Extraordinary loss:

Loss on retirement of noncurrent assets 613 632 6,144

Loss on sales of noncurrent assets 38 7 75

Loss on valuation of investment securities 16 1 12

Loss on impairment of noncurrent assets (Note 16) 517 213 2,076

Loss on business restructuring (Note 17) 541 — —

Other 68 — —

Total extraordinary loss 1,795 855 8,308

Income before income taxes and minority interests 12,953 21,619 210,064

Income taxes (Note 13):

Current 5,468 7,703 74,844

Deferred (2) 493 4,794

Income before minority interests 7,488 13,423 130,425

Minority interests in net income of consolidated subsidiaries 27 92 896

Net income (Note 21) ¥ 7,460 ¥ 13,331 $ 129,528


Consolidated Statements of Income


17

SUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2013 and 2014

Millions of yen


2013 2014 2014

Income before minority interests ¥ 7,488 ¥13,423 $130,425

Other comprehensive income (Note 14):

Unrealized gain on available-for-sale securities 5,299 1,992 19,361

Foreign currency translation adjustments 151 313 3,043

Share of other comprehensive income of affiliates accounted for using the equity method 2 0 3

Comprehensive income ¥12,942 ¥15,729 $152,833

Total comprehensive income attributable to:

Shareholders of Sumitomo Osaka Cement Co., Ltd. ¥12,914 ¥15,637 $151,934

Minority interests 27 92 898


Consolidated Statements of Comprehensive Income


18


Millions of yenShareholders’ equity

Shares of common stock

Capital stock

Capital surplus

Retained earnings

Treasury stock

Total

Balance at April 1, 2012 427,432,175 ¥41,654 ¥31,084 ¥44,865 ¥(1,972) ¥115,630 Dividends from surplus — — (1,665) — (1,665) Net income for the year — — 7,460 — 7,460 Purchase of treasury stock — — — (17) (17) Disposal of treasury stock — 0 — 0 0 Increase (decrease) in change in accounting

period of consolidated subsidiary — — (40) — (40) Other, net — — — — —Balance at March 31, 2013 427,432,175 ¥41,654 ¥31,084 ¥50,620 ¥(1,989) ¥121,368 Dividends from surplus — — (3,121) — (3,121) Net income for the year — — 13,331 — 13,331 Purchase of treasury stock — — — (50) (50) Disposal of treasury stock — 0 — 0 1 Retirement of treasury stock (10,000,000) — (1,802) — 1,802 — Increase (decrease) in change in accounting

period of consolidated subsidiary — — — — — Other, net — — — — —Balance at March 31, 2014 417,432,175 ¥41,654 ¥29,282 ¥60,829 ¥ (236) ¥131,529

Millions of yenAccumulated other comprehensive income

Unrealized gain on available-for-sale

securities

Foreign currency translation

adjustments

Remeasurements of defined benefit plans

Total

Minority interests

Total net assets

Balance at April 1, 2012 ¥14,822 ¥ (55) ¥ — ¥14,767 ¥1,384 ¥131,782 Dividends from surplus — — — — — (1,665) Net income for the year — — — — — 7,460 Purchase of treasury stock — — — — — (17) Disposal of treasury stock — — — — — 0 Increase (decrease) in change in accounting

period of consolidated subsidiary — — — — — (40) Other, net 5,302 151 — 5,453 2 5,456Balance at March 31, 2013 ¥20,125 ¥ 95 ¥ — ¥20,220 ¥1,387 ¥142,976 Dividends from surplus — — — — — (3,121) Net income for the year — — — — — 13,331 Purchase of treasury stock — — — — — (50) Disposal of treasury stock — — — — — 1 Retirement of treasury stock — — — — — — Increase (decrease) in change in accounting

period of consolidated subsidiary — — — — — — Other, net 1,992 313 (710) 1,595 88 1,683Balance at March 31, 2014 ¥22,117 ¥409 ¥(710) ¥21,816 ¥1,475 ¥154,821

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

Shares of common stock

Capital stock

Capital surplus

Retained earnings

Treasury stock

Total

Balance at March 31, 2013 427,432,195 404,722 302,025 491,840 (19,335) 1,179,253 Dividends from surplus — — (30,332) — (30,332) Net income for the year — — 129,528 — 129,528 Purchase of treasury stock — — — (493) (493) Disposal of treasury stock — 9 — 8 18 Retirement of treasury stock (10,000,000) — (17,518) — 17,518 — Increase (decrease) in change in accounting

period of consolidated subsidiary — — — — — Other, net — — — — —Balance at March 31, 2014 417,432,175 $404,722 $284,516 $591,036 $(2,301) $1,277,975

Thousands of U.S. dollars (Note 1)Accumulated other comprehensive income

Unrealized gain on available-for-sale

securities

Foreign currency translation

adjustments

Remeasurements of defined benefit plans

Total

Minority interests

Total net assets

Balance at March 31, 2013 195,540 932 — 196,472 13,478 1,389,204 Dividends from surplus — — — — — (30,332) Net income for the year — — — — — 129,528 Purchase of treasury stock — — — — — (493) Disposal of treasury stock — — — — — 18 Retirement of treasury stock — — — — — — Increase (decrease) in change in accounting

period of consolidated subsidiary — — — — — — Other, net 19,362 3,043 (6,905) 15,500 859 16,359Balance at March 31, 2014 $214,903 $3,975 $(6,905) $211,973 $14,337 $1,504,285


Consolidated Statements of Changes in Net Assets


19


Millions of yen


2013 2014 2014Operating activities:Income before income taxes and minority interests ¥12,953 ¥21,619 $210,064Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,485 16,599 161,283 Loss on impairment of fixed assets 517 213 2,076 Amortization of goodwill 152 150 1,464 Gain on negative goodwill Increase (Decrease) in provision for retirement benefits (131) — — Increase (Decrease) in provision for net defined benefit liability — (185) (1,806) Increase (Decrease) in provision for directors’ retirement benefits 14 (8) (84) Increase (Decrease) in provision for loss on disaster (6) — — Increase (Decrease) in allowance for doubtful accounts (90) (57) (556) Interest and dividend income (1,190) (1,676) (16,290) Interest expenses 1,647 1,351 13,129 Foreign exchange losses (gains) 256 (587) (5,706) Equity in (earnings) losses of affiliates (122) (199) (1,941) Gain on sales of noncurrent assets (132) (56) (547) Loss on sales of noncurrent assets 38 7 75 Loss on retirement of noncurrent assets 274 73 711 Loss (Gain) on sales of investment securities 29 (18) (175) Loss (Gain) on valuation of investment securities 16 1 12 Decrease (Increase) in notes and accounts receivable-trade 156 682 6,632 Decrease (Increase) in inventories (220) 435 4,228 Increase (Decrease) in notes and accounts payable-trade 778 210 2,040 Other 1,411 (73) (713)Subtotal 33,839 38,481 373,898 Interest and dividends income received 1,186 1,678 16,311 Interest expenses paid (1,693) (1,382) (13,428) Income taxes paid (3,316) (6,241) (60,642) Net cash provided by operating activities 30,015 32,537 316,139

Investing activities:Proceeds from redemption of securities 0 0 2Purchases of property, plant and equipment (17,746) (17,711) (172,087)Proceeds from sales of property, plant and equipment 492 167 1,623Purchases of investment securities (10) (3) (32)Proceeds from sales of investment securities 62 232 2,259Payments for sales of investments in subsidiaries resulting in change in scope of consolidation (19) — —Payments of loans receivable (883) (1,548) (15,040)Collection of loans receivable 739 927 9,015Other 3 (15) (147) Net cash used in investing activities (17,362) (17,950) (174,408)

Financing activities: Net increase (decrease) in short-term loans payable 239 (1,347) (13,090)Proceeds from long-term loans payable 18,598 8,112 78,819Repayment of long-term loans payable (22,253) (11,479) (111,537)Proceeds from sales of treasury stock 0 1 18Redemption of bonds (10,000) — —Purchases of treasury stock (17) (50) (493)Cash dividends paid (1,665) (3,121) (30,332)Cash dividends paid to minority shareholders (1) (4) (39)Other (74) (77) (755) Net cash used in financing activities (15,173) (7,967) (77,411)Effect of exchange rate changes on cash and cash equivalents 154 230 2,238Net increase (decrease) in cash and cash equivalents (2,365) 6,850 66,558Cash and cash equivalents at beginning of year 27,093 25,078 243,672Increase in cash and cash equivalents resulting from change in scope of consolidation 350 — —Cash and cash equivalents at end of year (Note 4) ¥25,078 ¥31,928 $310,231


Consolidated Statements of Cash Flows


20

SUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES March 31, 2013 and 2014

1. BASIS OF PREPARATION OF CONSOLIDATED

FINANCIAL STATEMENTS

Sumitomo Osaka Cement Co., Ltd. (the “Company”) maintains its

accounting records and prepares its financial statements in accordance

with accounting principles and practices generally accepted and

applied in Japan.

The accompanying consolidated financial statements of the

Company and its consolidated subsidiaries are prepared on the basis of

accounting principles generally accepted in Japan, and are compiled

from the consolidated financial statements prepared by the Company

as required by the Financial Instruments and Exchange Law of Japan.

In addition, the notes to the consolidated financial statements include

certain information which is not required under accounting principles gen-

erally accepted in Japan but is presented herein as additional information.

The U.S. dollar amounts are included solely for the convenience of

the reader and are stated, as a matter of arithmetic computation only, at

US$1.00=¥102.92, the exchange rate prevailing on March 31, 2014.

These translations should not be construed as representations that the

Japanese yen amounts actually represent, or have been or could be

converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation

The accompanying consolidated financial statements include the

accounts of the Company and its significant subsidiaries. All significant

intercompany balances and transactions have been eliminated in consol-

idation. Any material differences between the cost of investments in con-

solidated subsidiaries and the underlying equity in their net assets at the

dates of acquisition are amortized over five years. Significant investments

in unconsolidated subsidiaries and affiliates are accounted for by the

equity method. Investments in unconsolidated subsidiaries and affiliates

which are not accounted for by the equity method are carried at cost.

Three consolidated subsidiaries have a December 31 year end which

differs from that of the Company. As a result, adjustments have been

made for any significant intercompany transactions which took place

during the period between the year end of the subsidiaries and the year

end of the Company.

(b) Cash and cash equivalents

Cash and cash equivalents include all highly liquid debt instruments

purchased with a maturity of three months or less.

(c) Inventories

Inventories are stated principally at the lower of cost or market, cost

being determined principally by the moving average method.

(d) Allowance for doubtful receivables

Allowance for doubtful receivables is provided at an estimated amount

of the anticipated loss on bad debts plus an amount calculated at the

average rate of historical losses on bad debts charged to income for

the past three years.

(e) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated

depreciation. Depreciation is calculated mainly by the declining-balance

method for property, plant and equipment at rates based on the esti-

mated useful lives of the respective assets. The depreciation of build-

ings purchased on and after April 1, 1998, in-house power generation

facility at the Ako Plant, the Kochi Plant and the Tochigi Plant, and

property, plant and equipment of certain subsidiaries is calculated by

the straight-line method. Leased assets under finance leases which do

not transfer ownership of the leased property are depreciated or amor-

tized by the straight-line method over the lease terms assuming no

residual value. The useful lives range as follows: buildings and struc-

tures, 2 to 75 years; machinery, equipment and tools, 2 to 22 years.

Quarry sites are depreciated by the unit-of-production method.

Normal repairs and maintenance, including minor renewals and

improvements, are charged to income as incurred.

(f) Investment securities

Securities are classified and accounted for, depending on manage-

ment’s intent, as follows: i) “trading securities,” which are held for the

purpose of earning capital gains in the short term, are stated at fair

value, and the related unrealized gain or loss is included in earnings, ii)

“held-to-maturity debt securities,” which are expected to be held to

maturity with the positive intent and ability to hold to maturity, are stated

at amortized cost and iii) “available-for-sale securities,” not classified in

either of the aforementioned categories, are stated at fair value with

unrealized gain and loss, net of the applicable taxes, stated as a sepa-

rate component of accumulated other comprehensive income.

The Company classified all securities as “available-for-sale securities.”

Available-for-sale securities with fair value are stated at average mar-

ket value for the month ended on the balance sheet date. Other securi-

ties without a fair value are stated at cost determined by the

moving-average method.

The difference between the acquisition cost and the carrying value of

available-for-sale securities, net of the applicable taxes, is recognized in

“unrealized gain (loss) on available-for-sale securities.” The cost of available-

for-sale securities sold is computed based on the moving-average method.

Notes to Consolidated Financial Statements


21

(g) Foreign currency translation

Balance sheets of consolidated overseas subsidiaries are translated into

Japanese yen at the rates of exchange in effect at the balance sheet date

for all assets and liabilities, and at the historical rates for the component

of net assets excluding minority interests. Differences arising from such

translations are shown as “foreign currency translation adjustments” as a

separate component of accumulated other comprehensive income.

Exchange rates as of the subsidiaries’ balance sheet date are used

for the translation of income and expenses. Gain or loss resulting from

the translation of foreign currency transactions is credited or charged to

income as incurred.

(h) Leases

All finance lease transactions are capitalized and recognized as leased

assets and lease obligations on the consolidated balance sheets,

except for finance lease transactions executed on or before March 31,

2008 that do not involve a transfer of ownership, which are accounted

by the same method as former fiscal years.

(i) Income taxes

Deferred tax assets and liabilities are determined based on the differ-

ences between the carrying amounts of the existing assets and the lia-

bilities for financial reporting purposes and their respective tax bases,

and the operating loss carryforwards. Deferred tax assets and liabilities

are measured using the enacted tax rates and laws which will be in

effect when the differences are expected to reverse.

(j) Provision for bonuses

Provision for bonuses is recorded based on an estimated amount.

(k) Provision for retirement benefits

i) Projected benefit obligations are attributed to periods using the

straight-line method.

ii) Actuarial gain or loss is amortized by the straight-line method over

a fixed period not exceeding the average remaining years of service

of the eligible employees from the year following the year in which the

gain or loss is recognized.

iii) Certain consolidated subsidiaries employ a simplified method to

calculate the net defined benefit liability and retirement benefit cost.

This method entails using the amount of accrued severance benefits

at the end of the fiscal year based on voluntary termination as pro-

jected benefit obligations.

Directors and statutory auditors are generally entitled to receive

lump-sum retirement benefit payments based on their level of compen-

sation and years of service at the time of retirement. Such lump-sum

payments are covered by an unfunded retirement benefit plan and

accrued at an amount to be required at the balance sheet date accord-

ing to internal regulations.

(l) Revenue recognition

The percentage-of-completion method is applied if the outcome of the

construction activities can be accurately estimated as of the fiscal year-

end. Otherwise, the completed-contract method shall be applied.

(m) Appropriation of retained earnings

Under the Corporation Law and the Articles of Incorporation of the

Company, appropriations of retained earnings (primarily for the payment

of cash dividends) proposed by the Board of Directors must be

approved at a shareholders’ meeting held within three months of the

end of each fiscal year. The appropriations of retained earnings reflected

in the accompanying financial statements represent appropriations appli-

cable to the immediately preceding fiscal year, which were duly

approved at a shareholders’ meeting and implemented during that year.

Dividends are paid to shareholders of record at the end of the fiscal year.

(n) Net income per share

Basic net income per share is computed by dividing net income avail-

able to common shareholders by the weighted-average number of

common shares outstanding for the period.

(o) Derivatives

The Company and consolidated subsidiaries enter into derivative agree-

ments to manage their exposures to fluctuations in interest rates.

Interest rate swaps are utilized to reduce interest rate risks on borrow-

ings. The Company and consolidated subsidiaries do not enter into

derivative agreements for trading or speculative purposes. Interest rate

swaps which qualify for hedge accounting and meet specific matching

criteria are not remeasured at fair value, but accounted for as if the

interest rates applied to the interest rate swaps had originally applied to

the underlying borrowings.

Hedged items are identified by transaction at the time when the

Company and the consolidated subsidiaries enter into derivative agree-

ments, and the hedging instruments and the hedged items are sepa-

rately recorded and maintained. The Company and the consolidated

subsidiaries evaluate the effectiveness of derivatives based on either the

difference between the accumulated amount of cash flows from the

hedging instrument and from the corresponding hedged item or

variance between the fair value of the hedging instrument and the

hedged item, except for interest rate swaps which meet specific match-

ing criteria.

(p) Asset retirement obligations

An asset retirement obligation is recorded at the time of acquisition or

construction of a tangible fixed asset and when there is a statutory or

similar obligation associated with the removal of such tangible fixed

asset. The asset retirement obligation is measured at the discounted

value of the liability at the time the tangible fixed asset is acquired or


22

constructed and the amount of the liability is added to the book value of

the relevant tangible fixed asset. The cost component of the obligation is

depreciated over the remaining useful life of the tangible fixed asset.

(q) Consumption tax

National and local consumption taxes are recorded separately from

their respective transaction amounts. However, non-deductible con-

sumption taxes related to assets are reported as expenses for the fiscal

year in which they are incurred.

(r) Accounting standards issued but not yet applied

The Company plans to adopt the Accounting Standard for Retirement

Benefits (Accounting Standards Board of Japan (ASBJ), Statement

No.26, issued on May 17, 2012) and the Guidance on Accounting

Standard for Retirement Benefits (ASBJ Guidance No. 25, issued on

May 17, 2012).

i) Summary

The accounting standards have been revised in light of improving finan-

cial reporting and international trends, mainly in terms of accounting

methods used to determine unrecognized actuarial gain or loss and

unrecognized past service cost, calculation methods for projected ben-

efit obligations and service cost, and the enhancement of disclosures.

ii) Effective date

The changes in accounting policy for projected benefit obligations and

service cost will be applied from the beginning of the fiscal year ending

March 31, 2015.

iii) Effect of application

The effect of adopting this new standard on the Company’s financial

statements was under evaluation at the time the accompanying consol-

idated financial statements were being prepared.

3. CHANGES IN ACCOUNTING POLICY

As of March 31, 2014, the Group adopted the Accounting Standard for

Retirement Benefits (ASBJ Statement No. 26, issued on May 17, 2012;

hereinafter “Retirement Benefits Accounting Standards”) and the

Guidance on Accounting Standard for Retirement Benefits (ASBJ

Guidance No. 25, issued on May 17, 2012; hereinafter the “Guidance”),

excluding the provisions stipulated in the main clause of Article 35 of the

Retirement Benefits Accounting Standards and in the main clause of

Article 67 of the Guidance. Accordingly, the Group’s retirement benefit

obligation is now presented as net defined benefit liability, which is

obtained by deducting pension assets from projected benefit obligations.

The adoption of the Retirement Benefits Accounting Standards is

subject to the transitional treatment stipulated by Article 37 of the

Retirement Benefits Accounting Standards. Accordingly, the impact of

the abovementioned revision in calculation methods is included in

remeasurements of defined benefit plans in accumulated other compre-

hensive income as of March 31, 2014.

As a result, as of March 31, 2014, the Group posted net defined bene-

fit liability of ¥2,277 million (US$22,127 thousand) and net defined benefit

asset of ¥230 million (US$2,240 thousand), while total accumulated other

comprehensive income fell ¥710 million (US$6,905 thousand).

The effect of these changes on per share information is described in

Note 21.

4. CASH AND CASH EqUIvALENTS

Cash and cash equivalents at March 31, 2013 and 2014 consisted of

the following:


2013 2014 2014

Cash and deposits ¥25,225 ¥32,081 $311,713

Time deposits with a maturity of over three months (146) (152) (1,482)

¥25,078 ¥31,928 $310,231

5. FINANCIAL INSTRUMENTS

1. Items Concerning the Status of Financial Instruments

(a) Policies for Financial Instruments

The Sumitomo Osaka Cement Group (the “Group”) procures necessary

funds primarily through bank loans and the issuance of bonds in accor-

dance with capital expenditure plans and financial plans mainly to

engage in the business of producing and selling cement. Temporary

surpluses are invested in low-risk financial instruments and bank loans

provide short-term working capital. It is the Group’s policy to use deriv-

atives as a way to avoid the below-stated risks and to not engage in

trading or speculative transactions.

(b) Types and Risks of Financial Instruments and Risk Management

Trade receivables, such as notes and accounts receivable, are subject

to credit risk in relation to customers. In accordance with its internal

policies for managing such risk, the Company has established a system

that manages the due dates and outstanding balances by each cus-

tomer. Securities and investment securities are composed of mainly

stocks associated with business and capital alliances, and are subject

to market risk.

Trade payables, such as notes and accounts payable, usually have a

payment due dates within one year. Furthermore, a certain portion of

such payables are denominated in a foreign currency, associated with

the import of raw materials, thus subject to exchange rate fluctuation

risk. However, such risks are minor. Loans, bonds and lease obligations

related to finance lease transactions are taken out principally for the

purpose of making capital investments. Such obligations’ redemption


23

dates are a maximum of 15 years from the balance sheet date. A cer-

tain portion of said liabilities have variable interest rates and are subject

to interest rate fluctuation risk. However, to hedge such risk, the interest

rates are fixed through the use of derivative transactions (interest rate

swap transactions). Evaluation of the effectiveness of derivatives is

omitted since all of the interest rate swap transactions meet the specific

matching criteria.

Derivative transactions are entered into and managed in accordance

with internal policies, which determine the authority to undertake such

transactions. To minimize credit risk, derivative transactions are entered

into only with highly rated financial institutions.

Furthermore, trade payables and loans are subject to liquidity risks

(the risk that the Group may not be able to meet its obligations). The

Group manages such risks by preparing monthly cash flow plans.

(c) Supplemental Explanation of the Estimated Fair value of

Financial Instruments

The values of contracts related to derivative transactions as stated in “2.

Estimated Fair Value of Financial Instruments” do not by themselves indi-

cate the market risk associated with the respective derivative transaction.

2. Estimated Fair value of Financial Instruments

Consolidated balance sheet amounts, estimated fair values and their

differences as of March 31, 2014 (the consolidated account closing

date for the fiscal year under review) are as follows. The following table

does not include financial instruments for which it is extremely difficult

to determine the fair value (see Note 2).

Millions of yen

2014Consolidated

Balance Sheet Amounts

Fair Value

Difference

Cash and deposits ¥ 32,081 ¥ 32,081 ¥ —

Notes and accounts receivable —trade

47,038

47,038

—

Securities and investment securities:

Available-for-sale securities 47,388 47,388 —

Short-term loans receivable 437 437 —

Long-term loans receivable 122 127 4

Total assets 127,068 127,073 4

Notes and accounts payable —trade

27,790

27,790

—

Short-term loans payable 32,764 32,764 —

Bonds payable 15,000 15,114 114

Long-term loans payable 50,383 50,679 296

Total liabilities 125,937 126,348 410

Derivative transactions — — —

Total derivative transactions — — —

Thousands of U.S. dollars

2014Consolidated

Balance Sheet Amounts

Fair Value

Difference

Cash and deposits $ 311,713 $ 311,713 $ —

Notes and accounts receivable —trade

457,039

457,039

—

Securities and investment securities:

Available-for-sale securities 460,442 460,442 —

Short-term loans receivable 4,250 4,250 —

Long-term loans receivable 1,192 1,238 46

Total assets 1,234,637 1,234,683 46

Notes and accounts payable —trade

270,017

270,017

—

Short-term loans payable 318,346 318,346 —

Bonds payable 145,744 146,856 1,112

Long-term loans payable 489,540 492,418 2,878

Total liabilities 1,223,647 1,227,640 3,993

Derivative transactions — — —

Total derivative transactions — — —

Note 1: Methods to determine the estimated fair value of financial instruments

and other matters related to securities and derivative transactions

Cash and deposits, trade receivables and short-term loans receivable

Since these items are settled in the short-term, their fair market value

approximates the carrying amount. Therefore, the carrying amount is

used to estimate fair value.

Securities and investment securities

The fair value of such securities is based on quoted market prices.

Please refer to Note 6. Securities, of these notes to the consolidated

financial statements for information on securities classified by holding

purpose.

Long-term loans receivable

Long-term loans receivable are classified by remaining length of time to

maturity. The fair values are estimated based on the present value of

future cash flows discounted by the contracted rates as adjusted con-

sidering the rate for Japanese government issued bonds.

Trade payables and short-term loans payable

Since these items are settled in the short-term, their fair market value

approximates the carrying amount. Therefore, the carrying amount is

used to estimate fair value.

Bonds payable

The fair value of bonds issued by the Company is based on the quoted

market price.


24

Long-term loans payable

Long-term loans payable are classified by remaining length of time to

maturity. The fair values are estimated based on the present value of

future cash flows discounted by interest rates applicable to new bor-

rowings. Long-term loans payable are hedged by interest rate swaps

that meet the specific matching criteria.

Therefore, the fair value of such loans payable is estimated based on

the present value of future cash flows estimated in accordance with the

accounting treatment described in Note 2 (o) Derivatives.

Accordingly, such future cash flows include cash flows from applica-

ble interest rate swap transactions as well as payment of principal and

interest. Future cash flows are discounted by the interest rate to be

applied if similar new borrowings were entered into.

Derivative Transactions

(a) Items not subject to hedge accounting: None

(b) Items subject to hedge accounting:

Information on derivative transactions subject to hedge accounting as

of March 31, 2014 is as follows.

Millions of yen

Hedge accounting

method

Type of derivative

transaction

Major hedged items

Contracted

amount

Amount due

after one year

Fair

value

Special accounting treatment for interest rate swaps

Interest swap transactions (Pay fixed; receive floating)


¥26,600 ¥14,700 *


Hedge accounting

method

Type of derivative

transaction

Major hedged items

Contracted

amount

Amount due

after one year

Fair

value

Special accounting treatment for interest rate swaps

Interest swap transactions (Pay fixed; receive floating)


$258,453 $142,829 *

* The fair value of the interest rate swaps is not shown since it is included in

long-term loans payable (please refer to the abovementioned long-term

loans payable).

Note 2: Financial instruments for which fair value is extremely difficult to

determine as of March 31, 2014

Millions of yen

Classification Consolidated Balance Sheet Amounts

Unlisted securities ¥1,774

Long-term loans receivable 2,495


Classification Consolidated Balance Sheet Amounts

Unlisted securities $17,245

Long-term loans receivable 24,249

Unlisted securities have no available market price and the estimation of

future cash flows is expected to entail excessive costs. Consequently,

their fair value is recognized as extremely difficult to estimate and, unlisted

securities are not included in available-for-sale securities.

In addition, the abovementioned long-term loans receivable are not

included in long-term loans receivable of the preceding table because

future cash flows cannot be estimated reliably.

Note 3: Redemption schedule for receivables and securities with

maturities at March 31, 2014 .

Millions of yen

2014

Within one year

Over one year and under five years

Over five years and under ten years

Over

ten years

Cash and deposits ¥32,049 ¥— ¥— ¥—Trade receivables 47,038 — — —Securities: Available-for-sale

securities —

—

—

—

Short-term loans receivable

437

—

—

—


5

45

1

69

Total ¥79,531 ¥45 ¥ 1 ¥69


2014

Within one year

Over one year and under five years

Over five years and under ten years

Over

ten years

Cash and deposits $311,403 $ — $— $ —Trade receivables 457,039 — — —Securities: Available-for-sale

securities —

—

—

—

Short-term loans receivable

4,250

—

—

—


53

445

16

676

Total $772,748 $445 $16 $676

6. SECURITIES

Investment securities at March 31, 2013 and 2014 consisted of the

following:

The acquisition cost and fair value of the securities classified as

available-for-sale at March 31, 2013 and 2014 are summarized as follows:

Millions of yen

2013Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale ¥12,779 ¥44,308 ¥31,536 ¥(7)


25

Millions of yen

2014Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale ¥12,782 ¥47,388 ¥34,609 ¥(3)


2014Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale $124,199 $460,442 $336,274 $(31)

Proceeds from sales of investment securities for the years ended

March 31, 2013 and 2014 consisted of the following:


2013 2014 2014

Proceeds ¥60 ¥32 $315

Gross realized gain 4 18 175

Gross realized loss 34 — —

A significant decline in the fair value of investment securities is recog-

nized as an impairment loss if the decline is not considered recoverable.

Losses on devaluation of investments classified as available-for-sale

securities as a result of a permanent decline in value amounted to ¥16

million and ¥1 million (US$12 thousand) for the years ended March 31,

2013 and 2014, respectively.

7. SHORT-TERM BANK LOANS AND BONDS

The annual interest rates applicable to the loans outstanding at March

31, 2013 and 2014 ranged from 0.5% to 1.9% and from 0.4% to 1.9%,

respectively.

Long-term debt at March 31, 2013 and 2014 consisted of

the following:


2013 2014 2014

Loans, principally from banks and insurance companies, due from 2016 to 2029 (2015 to 2026 in 2013) ¥53,724 ¥50,383 $489,540

Bonds 15,000 15,000 145,744

¥68,724 ¥65,383 $635,285

Less: Current portion of long-term debt:

Loans ¥11,290 ¥15,939 $154,876

Bonds — 5,000 48,581

11,290 20,939 203,457

¥57,434 ¥44,443 $431,827

The annual interest rates applicable to the long-term loans outstanding

at March 31, 2013 and 2014 ranged from 0.8% to 2.5% and from 0.4%

to 2.8%, respectively.

The aggregate annual maturities of long-term loans subsequent to

March 31, 2014 are summarized as follows:

Years ending March 31, Millions of yenThousands of U.S. dollars

2016 ¥ 9,074 $ 88,170

2017 8,602 83,583

2018 5,165 50,188

2019 3,156 30,671

2020 and thereafter 8,444 82,051

¥34,443 $334,664

Assets pledged as collateral at March 31, 2013 and 2014 are sum-

marized as follows:


2013 2014 2014

Property, plant and equipment, at net book value ¥21,509 ¥22,552 $219,130

Other 557 543 5,276

¥22,066 ¥23,095 $224,406

The obligations secured by such collateral as at March 31, 2013 and

2014 are as follows:


2013 2014 2014

Short-term loans payable ¥ 635 ¥1,077 $10,467

Current portion of long-term loans payable 812 557 5,417

Long-term loans payable 2,742 3,377 32,818

Other 395 705 6,857

¥4,585 ¥5,718 $55,561

8. CONTINGENT LIABILITIES

Contingent liabilities at March 31, 2013 and 2014 are as follows:


2013 2014 2014

Guarantees of loans and other ¥223 ¥634 $6,168

9. SHAREHOLDERS’ EqUITY

The Corporation Law of Japan provides that an amount equal to 10%

of the amounts to be disbursed as distributions of earnings be appropri-

ated to the legal reserve until the sum of the legal reserve equals 25%

of the common stock account.

10. LEASES

(a) Finance leases

Finance leases commencing on or before March 31, 2008 continue to

be accounted for in the same method as operating leases. The follow-

ing amounts represent the acquisition costs, accumulated depreciation

and amortization and net book value of the leased property at March

31, 2013 and 2014 which would have been reflected in the consolidated


26

balance sheets if finance lease accounting had been applied to the

finance leases currently accounted for as operating leases:


2013 2014 2014

Acquisition costs

Machinery, equipment and vehicles ¥ 9 ¥— $ —

Other 20 15 153

30 15 153

Accumulated depreciation and amortization

Machinery, equipment and vehicles 6 — —

Other 15 14 139

22 14 139

Net book value

Machinery, equipment and vehicles 3 — —

Other 4 1 14

¥ 7 ¥ 1 $14

Lease payments relating to finance leases accounted for as operating

leases amounted to ¥17 million and ¥4 million (US$42 thousand), which

are equal to the depreciation and amortization expenses of the leased

assets computed by the straight-line method over the lease terms, for

the years ended March 31, 2013 and 2014, respectively.

Future minimum lease payments (including the interest portion there-

on) subsequent to March 31, 2014 for finance leases accounted for as

operating leases are summarized as follows:


2015 ¥ 1 $14

2016 and thereafter — —

¥ 1 $14

(b) Operating leases

Future minimum lease payments subsequent to March 31, 2014 for

non-cancelable operating leases are summarized as follows:


2015 ¥124 $1,211

2016 and thereafter 323 3,142

¥448 $4,353

11. NOTES TO CONSOLIDATED STATEMENTS OF

CHANGES IN NET ASSETS

(a) Shares outstanding and treasury stock

Information pertaining to the type and number of shares outstanding

and of treasury stock as of March 31, 2013 and 2014 is as follows:

Fiscal 2013 (From April 1, 2012 to March 31, 2013)

1. Type and number of outstanding shares and treasury shares

Thousands of shares

Number of shares at

beginning of year

Increase

Decrease

Number of shares at

end of year

Shares outstanding

Common stock 427,432 — — 427,432

Total 427,432 — — 427,432

Treasury stock

Common stock (Note) 11,102 63 0 11,166

Total 11,102 63 0 11,166

Note 1: The increase and decrease in common stock held as treasury

stock are due to the requests for sales and purchases of shares

in amounts of less than one trading unit by shareholders.

Fiscal 2014 (From April 1, 2013 to March 31, 2014)

1. Type and number of outstanding shares and treasury shares

Thousands of shares

Number of shares at

beginning of year

Increase

Decrease

Number of shares at

end of year

Shares outstanding (Note 1)

Common stock 427,432 — 10,000 417,432

Total 427,432 — 10,000 417,432

Treasury stock

Common stock (Note 2) 11,166 139 10,005 1,300

Total 11,166 139 10,005 1,300

Note 1: The decrease in common shares outstanding is due to the

retirement of treasury stock.

Note 2: A breakdown of the increase and decrease in common stock

held as treasury stock is as follows:

Increase due to requests to purchase shares in amounts of less

than one trading unit by shareholders: 139 thousand shares

Decrease due to retirement of treasury stock: 10,000 thousand

shares

Decrease due to requests to sell shares in amounts of less than

one trading unit by shareholders: 5 thousand shares


27

(b) Dividends

i) Dividends paid

For the year ended March 31, 2013

2013

Resolution

Type of shares

Total amount of cash dividends (Millions of yen)

Dividends per

share (Yen)

Cut-off date

Effective date

Annual General Meeting of Shareholders held on June 28, 2012 Common stock ¥1,665 ¥4.0 March 31,

2012June 29, 2012

For the year ended March 31, 2014

2014

Resolution

Type of shares


Total amount of cash dividends (Thousands of U.S. dollars)

Dividends per

share (Yen)

Dividends per share

(U.S. dollars)

Cut-off date

Effective date

Ordinary General Meeting of Shareholders held on June 27, 2013

Common stock ¥2,081 $20,219 ¥5.0 $0.049 March 31,

2013June 28, 2013

Board of Directors Meeting held on November 6, 2013 Common stock ¥1,040 $10,104 ¥2.5 $0.024 September

30, 2013December 3, 2013

ii) Dividends whose cut-off date falls in the fiscal year under review, but whose effective date is in the following fiscal year

Dividends with the cut-off date in the year ended March 31, 2013 and the effective date in the year ended March 31, 2014

2013

Resolution

Type of shares


Source of dividends

Dividends

per share (Yen)

Cut-off date

Effective date

Ordinary General Meeting of Shareholders held on June 27, 2013 Common stock

¥2,081 Retained earnings

¥5.0 March 31, 2013

June 28, 2013

Dividends with the cut-off date in the year ended March 31, 2014 and the effective date in the year ending March 31, 2015

2014

Resolution

Type of shares


Total amount of cash dividends (Thousands of U.S. dollars)

Source of dividends

Dividends

per share (Yen)

Dividends per share

(U.S. dollars)

Cut-off date

Effective date

Ordinary General Meeting of Shareholders held on June 27, 2014

Common stock ¥1,040 $10,104 Retained

earnings ¥2.5 $0.024 March 31, 2014

June 30, 2014

12. SELLING, GENERAL AND ADMINISTRATIvE EXPENSES

The main components of selling, general and administrative expenses

for the years ended March 31, 2013 and 2014 are as follows:


2013 2014 2014

Sales costs ¥9,778 ¥10,512 $102,145

Allowances and bonuses 7,557 7,951 77,258

Provisions for bonuses 1,009 1,042 10,133

Retirement benefit costs 663 660 6,418

Provisions for retirement benefits for officers 44 36 350

Research and development expenditures 3,750 3,507 34,079

13. INCOME TAXES

A reconciliation of the statutory tax rate to the effective tax rate for the

year ended March 31, 2013 is presented as follows.

2013

Statutory tax rate 38.0%

Nondeductible expenses 0.5

Change in valuation allowance 4.1

Tax credit (1.6)

Other 1.3

Effective tax rate 42.2%


28

A reconciliation between the statutory tax rate and the effective tax

rate for the year ended March 31, 2014 is immaterial and the reconcilia-

tion of those rates is not disclosed.

The significant components of the Company’s deferred income tax

assets and liabilities at March 31, 2013 and 2014 are as follows:


2013 2014 2014

Deferred tax assets:

Impairment loss on fixed assets ¥ 2,468 ¥ 2,524 $ 24,524

Deferred tax loss 1,090 1,077 10,467

Accrued bonuses 796 800 7,776

Unrealized holding gain 694 641 6,231

Provision for retirement benefits 468 — —

Net defined benefit liability — 415 4,037

Unpaid enterprise taxes 396 387 3,764

Allowance for doubtful accounts

214

234

2,274

Other 1,705 1,590 15,451

Gross deferred tax assets 7,835 7,670 74,527

Less valuation allowance (4,161) (4,212) (40,933)

Total deferred tax assets ¥ 3,674 ¥ 3,457 $ 33,594

Deferred tax liabilities:

Unrealized gain on available-for-sale securities ¥(11,346) ¥(12,467) $(121,136)

Difference between cost of investments and their underlying net equity at fair value

(1,530)

(1,445)

(14,047)

Other (754) (716) (6,957)

Total deferred tax liabilities (13,631) (14,629) (142,141)

Deferred tax liabilities, net ¥ (9,957) ¥(11,171) $(108,547)

Note 1: Under the Act for Partial Revision of the Income Tax Act, etc.,

promulgated March 31, 2014, the Special Corporate Tax for

Reconstruction will no longer be levied as of the fiscal year

beginning April 1, 2014. As a result, the statutory tax rate used

to calculate deferred tax assets and deferred tax liabilities at

March 31, 2014 has been changed from 38.0% to 36.0%, for

temporary differences expected to be settled in the fiscal year

beginning April 1, 2014.

As a result, deferred tax assets (less deferred tax liabilities)

decreased ¥93 million (US$910 thousand) and deferred income

taxes increased ¥93 million (US$910 thousand) as of and for

the fiscal year ended March 31, 2014.

14. OTHER COMPREHENSIvE INCOME

The following table presents reclassification adjustments and tax effects

allocated to each component of other comprehensive income for the

years ended March 31, 2013 and 2014.


2013 2014 2014

Unrealized gain (loss) on available-for-sale securities:

Amount arising during the year ¥8,267 ¥3,129 $30,414

Reclassification adjustments for gains and losses included in net income 12

(16)

(162)

Amount before tax effect 8,279 3,113 30,252

Tax effect (2,980) (1,120) (10,891)

Unrealized gain (loss) on available-for-sale securities 5,299

1,992

19,361

Foreign currency translation adjustments:

Amount arising during the year 151 313 3,043

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

Amount arising during the year 2 0 3

Total other comprehensive income ¥5,453

¥2,306

$22,407

15. RETIREMENT BENEFITS FOR EMPLOYEES

The Company and consolidated subsidiaries have a defined benefit

pension plan covering substantially all employees.

Accrued severance benefits at March 31, 2013 and 2014 consisted

of the following:


2013 2014 2014

Projected benefit obligation ¥(14,821) ¥— $—

Fair value of pension fund 11,742 — —

Unrecognized actuarial loss 1,956 — —

Prepaid pension expenses (177) — —

Provision for retirement benefits ¥ (1,299) ¥— $—

Retirement benefit expenses for the years ended March 31, 2013

and 2014 are as follows:


2013 2014 2014

Service cost ¥ 744 ¥— $—

Interest cost 240 — —

Expected return on pension fund assets (176) — —

Recognized actuarial loss 393 — —

Net retirement benefit expenses ¥1,201 ¥— $—


29

Assumptions adopted for the years ended March 31, 2013 and 2014

are as follows:

2013 2014

Discount rate 2.0% —

Expected rate of return on pension fund assets 2.0% —

Period over which actuarial loss is recognized 15 years —


2013 2014 2014

(1) Reconciliation of projected benefit obligation beginning and ending balances of (excluding plans using the simplified method)

Beginning balance of projected benefit obligation ¥— ¥12,133 $117,888

Service cost — 597 5,809

Interest cost — 239 2,329

Actuarial loss — 51 502

Payment of retirement benefits — (1,030) (10,015)

Ending balance of projected benefit obligation ¥— ¥11,991 $116,513

(2) Reconciliation of beginning and ending balances of pension assets (excluding plans using the simplified method)

Beginning balance of pension assets ¥— ¥ 9,849 $ 95,696

Expected return — 196 1,913

Actuarial gain — 543 5,278

Employer contribution — 1,106 10,754

Payment of retirement benefits — (1,016) (9,874)

Ending balance of pension assets ¥— ¥10,679 $103,768

(3) Reconciliation of beginning and ending balances of net defined ben-efit liability using the simplified method

Beginning balance of net defined benefit liability ¥— ¥795 $7,724

Retirement benefit cost — 111 1,082

Payment of retirement benefits — (69) (672)

Employer contribution — (102) (993)

Ending balance of net defined benefit liability ¥— ¥734 $7,141

(4) Reconciliation of projected benefit obligations and pension assets at end of year with net defined benefit liability and net defined benefit asset recorded in the consolidated balance sheets

Projected benefit obligation of funded plan ¥— ¥12,957 $125,899

Pension assets — (12,044) (117,030)

Net — 912 8,869

Projected benefit obligation of unfunded plan — 1,133 11,016

Net amount of liabilities and assets on balance sheet — 2,046 19,886

Net defined benefit liability — 2,277 22,127

Net defined benefit asset — (230) (2,240)

Net amount of liabilities and assets on balance sheet ¥— ¥ 2,046 $ 19,886

(5) Breakdown of retirement benefit cost

Service cost ¥— ¥ 597 $ 5,809

Interest cost — 239 2,329

Expected return on pension fund — (196) (1,913)

Amortization of actuarial loss — 354 3,447

Retirement benefit cost calculated using simplified method — 111 1,082

Retirement benefit cost of defined benefit pension ¥— ¥1,106 $10,754

(6) Remeasurements of defined benefit plans

Unrecognized actuarial loss ¥— ¥1,110 $10,789

(7) Pension assets (%)

Bonds — 49

Stocks — 28

General accounts — 17

Other — 7

Total — 100

Method for determining the expected rate of return on pension fund

assets

The current and forecast allocation of pension assets and the current

and expected rates of return for the various components of the pension

assets are considered when determining the expected rate of return on

pension fund assets.

(8) Actuarial assumptions (%)

Discount rate — 2.0

Expected rate of return on pension fund assets — 2.0

16. LOSS ON IMPAIRMENT OF NONCURRENT ASSETS

For the years ended March 31, 2013 and 2014, the Company and certain

consolidated subsidiaries recognized ¥517 million and ¥213 million

(US$2,076 thousand), respectively, of losses on impairment of fixed

assets as follows:


2013 2014 2014

Idle assets ¥106 ¥152 $1,482

Business assets 411 61 594

¥517 ¥213 $2,076

As for idle assets, their grouping of assets is based on the corre-

sponding property unit, and for business assets, on the smallest seg-

ments used in management accounting.

The Company and consolidated subsidiaries recognize impairment

losses if the undiscounted expected future cash flows are less than

carrying amounts of the assets.

In such case, the carrying amounts of the assets are written down to

their recoverable amounts. The recoverable amounts in these asset

groups were calculated using respective net selling prices based primari-

ly on appraisal valuations or discounted expected future cash flows.


30

17. LOSS ON BUSINESS RESTRUCTURING

The loss is due to the discontinuation of production of plasma display

panel (PDP) filters following a restructuring of the high functional film

business in the Advanced Materials segment during the year ended

March 31, 2013.

18. SUBSEqUENT EvENTS

Not applicable.

19. FAIR vALUE OF INvESTMENT AND RENTAL PROPERTY

The Company and certain subsidiaries own rental warehouses, rental

office buildings (including the surrounding land), idle land and other

properties in Osaka prefecture and other areas. During the fiscal year

ended March 31, 2014, rental income from rental property was ¥984

million (US$9,567 thousand) (rental income was recorded as sales and

rental costs were recorded as cost of sales), net gains from sales of

rental property amounted to ¥2 million (US$26 thousand) (recorded as

extraordinary loss) and impairment loss amounted to ¥152 million

(US$1,482 thousand) (recorded as extraordinary loss).

The carrying amount of rental property and corresponding fair value

as of March 31, 2014 and changes in carrying amount during the fiscal

year ended March 31, 2014 are as follows:

Millions of yen

Consolidated balance sheet amountsFair value as of March 31, 2014As of March 31, 2013 Net change As of March 31, 2014

¥23,360 ¥272 ¥23,632 ¥32,692


Consolidated balance sheet amountsFair value as of March 31, 2014As of March 31, 2013 Net change As of March 31, 2014

$226,976 $2,643 $229,619 $317,652

Notes: 1: Consolidated balance sheet amounts exclude accumulated depreci-

ation and amortization as well as accumulated impairment loss from

acquisition costs.

2: The fair value (which includes adjustments using relevant indices) as

of the end of the fiscal year under review is calculated by the

Company using the standard for real estate appraisal for significant

assets, estimated based on the value calculated for property tax for

other assets.

20. SEGMENT INFORMATION

For the years ended March 31, 2013 and 2014:

The reportable segments of the Company are components for which

discrete financial information is available and whose operating results

are regularly reviewed by the Executive Committee to make decisions

about resource allocation and to assess performance.

The Company’s reportable segments are composed of products and ser-

vices based on the Cement segment and departments. The Company’s six

reportable segments are: Cement, Mineral Resources, Cement-Related

Products, Optoelectronics, Advanced Materials, and Others.

Main products for each reportable segment are as follows:

Cement: Assorted cement, ready-mix concrete, cement-related solidifi-

cation materials, supply of electrical power, and recycling of raw materi-

als and fuel

Mineral Resources: Limestone and mineral products

Cement-Related Products: Repairing and reinforcing products for con-

crete structures, and secondary products of concrete

Optoelectronics: Optical communications devices and components,

and optical measurement equipment

Advanced Materials: Ceramic products, plasma display panels (PDPs)

filters, and nanoparticle materials

Others: Leasing of real estate, engineering, development of software,

and secondary cell materials


31

Information on the reportable segments as of and for the years ended March 31, 2013 and 2014 is as follows:

Millions of yen

2013

CementMineral

resourcesCement-related

products

Optoelectronics Advanced materials

Others

Total

Eliminations and adjustments

Consolidated

Net sales:

Outside customers ¥175,846 ¥11,708 ¥15,287 ¥4,257 ¥5,835 ¥ 6,148 ¥219,083 ¥ — ¥219,083

Intersegment sales 3,611 4,193 2,034 15 14 5,162 15,032 (15,032) —

Total 179,458 15,902 17,321 4,272 5,850 11,311 234,116 (15,032) 219,083

Segment profit or loss 12,145 934 297 (18) 575 68 14,002 (43) 13,959

Segment assets 209,616 32,527 13,161 4,941 5,228 32,275 297,752 17,982 315,734

Other items:

Depreciation and amortization 13,431 2,074 433 348 305 893 17,485 (0) 17,485

Amortization of goodwill 169 34 (59) 7 — — 152 — 152

Capital expenditures 12,236 2,557 184 847 316 2,509 18,652 — 18,652

Notes: 1. Eliminations and adjustments for segment profit and loss include ¥(43) million of elimination of inter-segment profit and loss.

2. Eliminations and adjustments for segment assets include ¥(11,382) million of elimination of inter-segment profit and loss and ¥29,365 million of corpo-

rate assets.

3. Eliminations and adjustments for depreciation and amortization include ¥(14) million of elimination of inter-segment profit and loss and ¥14 million of

depreciation and amortization for corporate assets, which are not allocable to a reportable segment.

Millions of yen

2014

CementMineral


products


Others

Total


Consolidated

Net sales:

Outside customers ¥183,188 ¥12,937 ¥20,468 ¥6,545 ¥4,852 ¥ 7,085 ¥235,078 ¥ — ¥235,078


Total 186,288 17,349 22,501 6,561 4,859 12,125 249,686 (14,607) 235,078

Segment profit or loss 16,575 1,292 1,793 1,101 701 51 21,515 (10) 21,504

Segment assets 214,984 32,120 14,285 5,815 4,990 32,679 304,876 20,451 325,328

Other items:

Depreciation and amortization 12,218 1,986 385 536 265 1,206 16,598 0 16,599

Amortization of goodwill 179 34 (70) 7 — — 150 — 150

Capital expenditures 14,846 1,334 343 611 193 257 17,587 — 17,587


2014

CementMineral


products


Others

Total


Consolidated

Net sales:

Outside customers $1,779,915 $125,703 $198,876 $63,600 $47,149 $ 68,847 $2,284,093 $ 0 $2,284,093


Total 1,810,030 168,573 218,635 63,756 47,216 117,812 2,426,024 (141,930) 2,284,093

Segment profit or loss 161,050 12,558 17,428 10,699 6,817 498 209,052 (104) 208,948

Segment assets 2,088,847 312,087 138,803 56,508 48,491 317,527 2,962,266 198,715 3,160,982

Other items:

Depreciation and amortization 118,722 19,305 3,744 5,208 2,576 11,722 161,279 4 161,283

Amortization of goodwill 1,740 332 (681) 73 — — 1,464 — 1,464

Capital expenditures 144,251 12,969 3,338 5,940 1,882 2,505 170,888 — 170,888

Notes: 1. Eliminations and adjustments for segment profit and loss include ¥(10) million ($(104) thousand) of elimination of inter-segment profit and loss.

2. Eliminations and adjustments for segment assets include ¥(12,038) million ($(116,973) thousand) of elimination of inter-segment profit and loss and

¥32,490 million ($315,689 thousand) of corporate assets.

3. Eliminations and adjustments for depreciation and amortization include ¥(13) million ($(126.37) thousand) of elimination of inter-segment profit and loss

and ¥13 million ($130.86 thousand) of depreciation and amortization for corporate assets, which are not allocable to a reportable segment.


32

Geographical information

Information regarding geographical areas is omitted for the years ended March 31, 2013 and 2014, because sales and total assets in the Japan area

constitute more than 90% of all geographical areas.

Impairment loss on fixed assets by reportable segment for the years ended March 31, 2013 and 2014 is summarized as follows:

Millions of yen

2013

CementMineral


products


Others

Total


Consolidated

Loss on impairment of fixed assets ¥188 ¥12 ¥50 ¥— ¥— ¥— ¥251 ¥265 ¥517

Millions of yen

2014

CementMineral


products


Others

Total


Consolidated

Loss on impairment of fixed assets ¥65 ¥34 ¥— ¥— ¥— ¥— ¥99 ¥114 ¥213


2014

CementMineral


products


Others

Total


Consolidated

Loss on impairment of fixed assets $635 $331 $— $— $— $— $966 $1,109 $2,076

21. AMOUNTS PER SHARE

Amounts per share at March 31, 2013 and 2014 and for the years then

ended are as follows:

Yen U.S. dollars

2013 2014 2014

Net income:

Basic ¥17.92 ¥32.03 $0.31

Diluted ¥ — ¥ — $ —

Yen U.S. dollars

2013 2014 2014

Net assets ¥340.14 ¥368.50 $3.58

Note 1: As described under Changes in Accounting Policy, the Group has

adopted the Accounting Standard for Retirement Benefits, subject

to the transitional treatment stipulated by Article 37 of said

Standard. As a result, net assets per share as of March 31, 2014

decreased ¥1.71 (US$0.02).


33

Independent Auditor’s Report


34

Company Profile

Company NameSumitomo Osaka Cement Co., Ltd

PresidentFukuichi Sekine

Headquarters6-28, Rokubancho, Chiyoda-ku, TOKYO,102-8465, Japan

Date EstablishedNovember 29, 1907

Capital41.6 billion yen

Number of Employees1,193 (Consolidated: 2,821) (As of March 31, 2014)

Net Sales150 (Consolidated: 235) billion yen (Year ended March 31, 2014)

6-28, Rokubancho, Chiyoda-ku, Tokyo 102-8465, Japan

Tel: +81-3-5211-4500 Fax: +81-3-3221-4652

http://www.soc.co.jp

annual report 2014 - soc.co.jp

Documents