annual report - spp.co.jp · spp is particularly strong in the precision machining of high-strength...
TRANSCRIPT
2019
(Year ended March 31, 2019)
Annua l Repor t
Business expanded into landing gear and heat exchangers for aircraft
Start of integrated production of propellers
Research into duralumin
The development department investigates and develops new business operations
G r o w t h H i s t o r y▶ Starting with high-precision technology for engineering aircraft equipment, SPP has
extended its business into a broad range of creative areas.▶ SPP is particularly strong in the precision machining of high-strength metal materials,
thermal management, and joining of metal materials.▶ SPP has some 15% of the world market for landing gear systems used in regional jets.▶ We boast world-class shares of the markets for plate-fin heat exchangers and LNG
vaporizers.
Fu tu re1900 1950 20001961
First industrial heat exchangers produced by leveraging aircraft heat exchanger technology
Commercial hydraulic equipment operations started by applying hydraulic technology for propellers
Leveraging system technologies to enter the environmental systems market
Introduction of vacuum pump technology Start of liquid crystal
manufacturing equipment operations
Start of semiconductor/MEMS manufacturing equipment business
Control taken of a plasma etching specialist
C o n t e n t s
3
6
7
9
11
13
15
19
37
38
M e s s a g e f r o m t h e P r e s i d e n t
F i n a n c i a l H i g h l i g h t s
S e g m e n t O v e r v i e w
A e r o s p a c e a n d R e l a t e d P r o d u c t s
H e a t E n e r g y a n d E n v i r o n m e n t a l R e l a t e d P r o d u c t s
I C T R e l a t e d P r o d u c t s
C o r p o r a t e G o v e r n a n c e
C S R A c t i v i t i e s
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s
D o m e s t i c a n d O v e r s e a s B a s e s
C o m p a n y P r o f i l e / S t o c k I n f o r m a t i o n
Net Sales 49.0 billion yen
Business Mix (results for f iscal 2018)
▶
Aerospace and Related Products
30.4 (62%)
Aerospace and Related Products
30.4 (62%)
Heat Energy andEnvironmental
Related Products
9.0(18%)
Heat Energy andEnvironmental
Related Products
9.0(18%)
ICT RelatedProducts
9.6(20%)
ICT RelatedProducts
9.6(20%)
Landing Gearsand
Landing GearControl Systems
Heat ControlProducts
OtherProducts
MEMS/SemiconductorManufacturing
Equipment
EnvironmentalSystems and others
HeatExchangersfor Aircraft
HydraulicControl
Products
Notes on forward-looking statementsInformation provided in this annual report contains certain forward-looking statements concerning performance forecasts and projections made by SPP using information available at present (performance forecasts for fiscal 2019 are the figures announced on May 15) and is subject to various risks and uncertainties. Due to various changes, actual results may vary from those projected in the forward-looking statements.
MEMS manufacturing equipment technology employed to start sensor business
21
A e r o s p a c e P r o d u c t s
H y d r a u l i c C o n t r o l P r o d u c t s
H e a t C o n t r o l P roducts
Env i ronmenta l Sys tems(Ozone Genera to r )
M E T(Liquid Crystal
Manufacturing Equipment)
M E M S /S e m i c o n d u c t o r M a n u f a c t u r i n g E q u i p m e n t
M E M S D e v i c e s
Aerospace and Re la ted Products
Heat Energy and Environmental Related Products
ICT Re la ted Products
Foundation of SPP
M e s s a g e f r o m t h e P r e s i d e n t
We would like to sincerely apologize again for our misconduct regarding defense equipment causing great inconvenience to many stakeholders including our shareholders and customers. While giving top priority to fact-finding investigations, both our directors and employees are working together to implement reforms such as strengthening governance and internal control, maintaining keen compliance awareness and enhancing cross-divisional cooperation.
Overview of Business Performance in Fiscal 2018
In fiscal 2018, SPP posted net sales of ¥48.99 billion, a year-on-year growth of 3.7%. The Heat Energy segment saw recovery of demand, while ICT Related Products benefitted primarily from brisk sales of the micro-machining and semiconductor heat treatment equipment.Operating income was ¥2.58 billion, an increase of ¥0.54 billion. This growth was partly because the Heat Energy and Environmental Related Products achieved profitability due to increased sales and streamlining progress. The brisk performance of the subsidiaries related to hydraulic equipment and MEMS/Semiconductor Manufacturing Equipment also contributed to this growth. Ordinary income also grew year-on-year to ¥2.68 billion primarily due to an exchange gain, which was recorded as a non-operating item, and increased equity in earnings of associated companies.Extraordinary losses posted for fiscal 2018 included ¥5.06 billion in provisions for the refund expected to be incurred in relation to overcharging the Defense Ministry. On March 13, 2019, the Defense Ministry notified SPP that a special investigation would be conducted into the company. The above amount is a current estimate that can be calculated logically at present and is therefore subject to change depending on the future progress of the special investigation.In addition, the losses caused by disasters are included in extraordinary losses, while the insurance benefits received in relation to these losses are posted as extraordinary profit. Also recorded as extraordinary losses were losses on impairment of property, plant and equipment due to reduced performance of domestic subsidiaries including the aircraft landing gear maintenance business as well as business restructuring expenses arising from the reorganization of the Canadian subsidiary. This led to ¥2.25 billion in loss attributable to parent company shareholders after corporate tax and other deductions.While maintaining a basic policy of paying out dividends in a stable and sustainable fashion, SPP decided not to pay any
dividends for the second half of fiscal 2018. Following the posting of a high net loss for the fiscal year, this decision was taken after comprehensively considering key concerns such as the continuity of profit distribution, impact on future performance and financial health. We would like to sincerely apologize to our shareholders. We will work to improve our performance and make our financial foundation sounder to resume dividend payments as soon as possible.
Free Cash Flow
In fiscal 2018, SPP achieved a free cash flow of ¥2.9 billion, a positive figure for the third year in a row since fiscal 2016.Interest-bearing debts were reduced from ¥28.8 billion at the end of March 2018 to ¥25.6 billion exactly a year later, because SPP went beyond using methods such as repaying loans as scheduled to also suppress refunding due to the positive free cash flow. In fiscal 2019, SPP will raise the money for refunding the Defense Ministry by reducing working assets, in order to achieve a positive free cash flow for the fourth back-to-back year.We will continue to ensure the improvement of financial strength and thus maintain and consolidate the capability of achieving positive cash flow in a stable manner.
Outlook for Fiscal 2019
For fiscal 2019, net sales are forecast to increase slightly to ¥53.5 billion due to higher public demand for aerospace equipment and the recovery of demand for heat energy products. Operating income and ordinary income will both be ¥2.4 billion due to the strong yen and changes in the sales mix for semiconductor/MEMS manufacturing equipment. Income attributable to parent company shareholders is expected to be ¥1.7 billion yen.
Mid-term Rolling Plan
In its Mid-term Rolling Plan formulated in fiscal 2018, the SPP Group summarizes its aspirations as Sumitomo Precision Vision 2020. To be a company continually contributing to society through ongoing technical development, the company
will strengthen its abilities in manufacturing, technology development, sales and marketing in the medium to long term. Aerospace and Related Products are working to improve design and development as well as manufacturing technology; Heat Energy and Environmental Related Products will promote application development; and ICT Related Products will leverage its advanced technology to increase its share of the IoT market and other areas.Numerical targets for fiscal 2020 include a consolidated operating income of ¥4.0 billion, consolidated free cash flow of more than ¥2.0 billion and a D/E ratio of 0.7 or less.
This plan is being implemented under our slogan, “Face the Challenges of Change”, and according to the select and concentrate concept. In order to achieve the objectives, we will reallocate our finite business resources for company-wide total optimization, using a perspective focusing on the company-wide portfolio. In the first step, we have clarified growth areas and the areas to reallocate resources to in consideration of our business environment.
Aerospace and Related Products gives top priority to the early launch of the existing program for landing gear systems. In order to improve our earnings structure, we will build a more efficient administrative structure and improve profitability while maintaining our current competitiveness. Our SPP Canada
A company continually contributing to society through ongoing technical developmentSumitomo Precis ion Products Vis ion 2020
■ Contribute to development in the aerospace field on a global basis by combining advanced technology with rich experience to improve design/development and manufacturing technology.
■ Develop applications in heat control and environmental technology to continually meet social and customer needs.
■ Leverage advanced technologies related to MEMS and ICT to open up a new dimension for the IoT with a commitment to meeting social and customer needs.
“Face the Challenges of Change”
Numerical targetsTarget for fiscal 2020Indicator
Operating incomeFree cash flow
D/E ratio (debt-to-equity ratio)
¥4billion¥2billion or higher
Below 0.7
Pres ident
3 4
(Forecast)
Aircraft (SPPCA) subsidiary and the Head Office and Main Plant in Amagasaki are eliminating functional redundancies -- a review to streamline our existing business structure. We are also working on manufacturing restructuring, an initiative for cost rationalization through improved productivity. For the aircraft heat exchangers, we will develop higher-performance products and work to further strengthen cooperation with engine manufacturers. Our hydraulic control products, for which China still remains the biggest market, will work for greater success in North America and India as well. The Heat Energy and Environmental Related Products segment will continue to strengthen the cost-competitiveness of our heat exchangers through restructuring and updating their product portfolio. Environmental systems will focus on semiconductor applications, for which continued growth is expected.ICT Related Products works on promoting the sale of existing products and developing new products in view of market growth in areas such as the IoT, optical communication and automobiles. In addition, SPP is unique in offering both equipment and devices in the MEMS market. To further develop these technologies and create new ideas and solutions, we have established a new ICT Equipment and Devices Development.We are creating strategies for individual business segments, focusing on resource allocation and profitability, and strengthening management emphasizing the PDCA cycle. At the same time, we are closely reviewing investment projects for risk and have an arrangement for strengthened tracing of
projects already underway.SPP will also work with Sumitomo Corporation, our largest shareholder, to discuss creating synergy and leveraging the strengths of both companies.
Measures against Misconduct Recurrence
In response to the revelation in January 2019 that SPP had overcharged the Defense Ministry under a contract on defense equipment, SPP will move quickly to implement reforms such as strengthening governance and internal control, raising a keen compliance awareness in the workforce and enhancing cross-divisional cooperation. To promote these measures under a new arrangement, we have appointed an executive officer responsible for compliance. We have also established an external whistle-blower hotline to monitor compliance throughout the company and conducted an employee compliance survey. With the new organizational provisions, we will strengthen our readiness by developing organizations and personnel involved in governance, internal control and compliance. We will also promote relevant work such as promoting compliance education and awareness-raising as well as overhauling internal rules. In doing so we will raise awareness among all directors and employees.
To regain the trust of all our stakeholders as soon as possible, our directors and employees will work together with unwavering determination to prevent recurrence and improve our corporate value in a sustainable fashion. We would appreciate the continued understanding and support of our stakeholders.
F i n a n c i a l H i g h l i g h t sM e s s a g e f r o m t h e P r e s i d e n tF o r t h e y e a r s e n d e d M a r c h 3 1 , 2 0 1 9
Net sales
Operating income
Operating margin
Net income attributable to owners of the parent
Total assets
Equity ratio
Per share
Net income*
Cash dividends*
(million ¥)
(million ¥)
(%)
(million ¥)
(million ¥)
(%)
(¥)
(¥)
47,1351,597
3.41,450
81,89842.4
27.397.00
2014
51,2101,306
2.6△ 624
82,95639.6
△ 11.807.00
2015
48,0967301.5
△ 1,48877,811
40.5
△ 28.125.00
2016
47,2412,034
4.3501
80,13340.6
9.475.00
2017
48,9902,580
5.3△ 2,25281,345
35.7
△ 425.5725.00
2018
53,5002,400
4.51,700
74,00040.9
321.25(TBD)
2019
▶ Net Sa les・Operat ing Marg in (not including the SPTS business) ▶ Tota l Asse ts・Equ i t y Ra t io
**SPP Process Technology Systems (SPTS) has been excluded from consolidation since the third quarter of fiscal 2011, following the transfer of the SPTS shares in the first half of that fiscal year.
*As of October 1, 2018, SPP consolidated every ten shares of common stock into one new share. Per share data for fiscal 2018 and thereafter are calculated for the new consolidated shares.
¥48.99 billion (+ 3.7%)
Resul ts for F iscal 2018
N e ts a l e s
* Net income attributable to owners of the parent
(+ ¥0.54 billion)¥2.58 billion Operating
income (- 2.75 billion)△ ¥2.25 billionN e t
i n c o m e*
Aggressiveinvestments
Pushing ahead with reforms
Aerospace and Related Products
▶Improve the earnings structure (reorganize Canadian affiliates, implement manufacturing restructuring)▶Develop next-generation products such as high-performance oil coolers.▶Strengthen cooperation with promising partners.▶Promote business in China and other overseas markets.
Heat Energy and Environmental Related Products
ICT Related Products
Landing Gear Systems
Heat Management Systems
Hydraulic Control Products
● ● ●
Heat Control Products
Environmental Systems
● ●
MEMS/Semiconductor Manufacturing Equipment
MEMS Devices
●
●
▶Increase cost-competitiveness through business restructuring.▶Review the product portfolio.
▶Adapt to the market environment to strengthen sales promotion to develop semiconductor applications.
SPP product groups have active markets in fields such as the IoT, optical communication, automobiles.▶Strengthen the sales promotion of existing product groups and development of new products.▶The new ICT Development Office further develops unique technologies for equipment and devices, and creates new ideas and solutions. 2012201120102009 2013 2014 2015 2016 2017 2018 2019
(Forecast)
(million ¥) (%)
56,236
52,295
40,170
47,13545,031
42,766
51,210
48,096 47,241
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2.5
0.0
7.5
5.0
12.5
10.0
15.0
17.5
48,990
53,500
0.6
2.0
1.21.1
2.1
3.4
2.6
1.5
4.3
5.3
4.5
Net SalesContribution from SPTS**
Operating Margin (not including the SPTS business)
81,34580,095
72,60275,584
79,948
2012
81,282
201120102009 2013 2014 2015 2016 2017
81,898 82,956
77,81180,133
2018 2019(Forecast)
(%)(million ¥)
74,000
29.4
35.0
45.644.1
41.042.4
39.6 40.5 40.6
35.7
100
90
80
70
60
50
40
30
20
10
00
100,000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
40.9
Total AssetsEquity Ratio
5 6
In the fiscal year under review (fiscal 2018), Aerospace and Related Products achieved net sales of ¥30.36 billion, a drop of 1.7% from the previous year. This was due to lower sales especially for aircraft landing gear developments. Operating income fell by 15.6% from the previous year to ¥1.05 billion. The gains achieved by the ongoing streamlining and cost reductions were more than canceled by the negative effect of changes in sales mix.For fiscal 2019, net sales will likely rise to ¥3.30 billion, primarily due to higher public demand. Despite an expected gain due to the increase in revenue, operating income is expected to be ¥1.45 billion, primarily owing to the negative effects of the forecast exchange rate with a stronger yen and an increase in the cost required for developing aircraft heat exchangers.
▶ Overview of Business Performance in Fiscal 2018
Major product lines and SPP’s Strengths
Landing Gear Systems
CRJ700/900/1000Dressed Main Landing Gear AssyImpact absorption during landing
CRJ700/900/1000Dressed Nose Landign Gear AssySteering of surface movement
CRJ1000(from Bombardier Web Page)
Trent 1000® Engine FOHETrent 1000® Engine(Photograph : Courtesy of Rolls Royce plc.)
Trent 1000® Engine SACOC
Heat Management Systems
Thermal management and the joining of metal materials are SPP’s specialties here.
High efficiency, compact size, and low weight as well as shapes that help reduce air drag contribute to reducing the fuel consumption and noise of aircraft engines.
Since the 1980s, SPP has supplied heat exchangers for almost all engine series of Rolls-Royce, one of the big three manufacturers of aircraft engines.
QT PumpsQS Pump CX Pump
Hydraulic Control ProductsTechnologies developed for aircraft hydraulic equipment are leveraged to offer hydraulic pumps featuring low consumption, low pulsation, and low noise for various applications such as transport equipment and general industrial equipment.
Under strong partnership with the Haitian group, the world’s largest manufacturer of injection molding equipment, a joint venture has been established to develop business in China.
Many years of experience in the design, development, and production technology for landing gear, with a focus on the outstanding precision machining of high-strength metal materials
Approximately 15% share of the regional jet market
Purchase of a Canadian specialized surface finishing service provider leads to establishing a production system combining precision machining and specialized surface finishing.
In Japan, SPP took over ANA MRO operations to found a subsidiary in Nagasaki. SPP also works with Lufthansa to strengthen overseas MRO.
Today, SPP products account for some 80% of the landing gear systems installed in the Defense Ministry’s air fleet.
Involvement in the development projects on the Mitsubishi SpaceJet and HondaJet, both promising products for Japan’s future aviation industry provide opportunities to make technical achievements as a landing gear system integrator.
30,36833,000
30,897
2019(Forecast)
20182017
Net Sales(million ¥)
10,000
0
20,000
30,000
40,000 1,450
1,0531,248
2019(Forecast)
20182017
OperatingIncome
(million ¥)
500
0
1,000
1,500
The root of SPP’s Aerospace and Related Products segment is propeller production, which started in 1933, and its main products currently include landing gear and heat exchangers.In 1957, SPP delivered the landing gear system for the T-33 training aircraft to the former Japanese Defense Agency. Since then, aircraft for the Agency (now upgraded to a ministry) have almost exclusively been equipped with landing gear systems from SPP. SPP has also entered into the regional jet market and has been successful in the area of commercial aircraft. In 1997, the company worked with U.S.-based Menasco to win a landing gear system project for the CRJ700 from Bombardier in Canada. In addition, the company is striving to increase its market share, receiving orders from customers including an order from Mitsubishi Aircraft Corporation for the SpaceJet M90 landing gear system.Furthermore, SPP offers general industrial hydraulic products using hydraulic control technologies developed in the aircraft equipment business.
Bus iness Pro f i l e
Number of aircraft
05,000
10,00015,00020,00025,000
-5,000
-15,000-10,000
Improving Service and Streamlining Cost by Optimizing Business Structure in Japan and AbroadAgainst the backdrop descr ibed above, the procurement, manufacturing and sales of the Canadian subsidiary SPP Canada Aircraft (SPPCA) are being integrated into the Head Office and Main Plant. SPPCA agreements with its existing customers have been taken over by the head office for direct transactions.
We also established SPP Aerospace Service Inc. (SPPASI) in April 2019 to enable local service staff in North America to offer timely and seamless customer service. In the near future, SPPASI will go between the SPP head office and North American customers to provide support for the head office in both areas of sales and technical service.
0
1,000
-1,000
-2,000
-3,000
-4,000
2,000
3,000
4,000 Number of aircraftin service
2018 20382018~38
3,445
Retirements
-3,104
New deliveries3,111
Number of aircraftin service
3,452
Number of aircraft
Pro jected Demand for Regiona l Jets wi th 20 to 99 seats(Source: Japan Ai rcraf t Deve lopment Corporat ion)
2018 20382018~38Number of aircraft
in service20,900
Retirements
-10,600
New deliveries18,700
Number of aircraftin service29,000
Pro jected Demand for Bus iness Jets(Source: Japan Ai rcraf t Deve lopment Corporat ion)
30,000
¥30.36 billionN e ts a l e s
¥1.05 billionOperatingincome
7 8
S e g m e n t O v e r v i e w A e r o s p a c e a n d R e l a t e d P r o d u c t s
S e g m e n t O v e r v i e wH e a t E n e r g y a n d E n v i r o n m e n t a l R e l a t e d P r o d u c t s
¥9.03 billion
¥0.29 billion
N e ts a l e s
Operatingincome
LNG Vaporizer Heat Exchanger for Air Separation Plant
AOP(Advanced Oxidation Process) water treatment system
Ozone generator
Major product lines and SPP’s Strengths
Heat Control ProductsTechnology developed for aircraft heat exchangers is applied to energy-related products and industrial equipment
Environmental Systems
Since the delivery of the first domestic equipment, SPP’s open rack LNG vaporizer (ORV) engineers have leveraged their high technical standards to contribute to building the global energy value chain.
Domestic market share of heat exchangers for cryogenic applications (for air separation plants, petrochemical plants, etc.) is almost 100%, while the global share is 20%.
SPP serves Japanese heavy electrical equipment manufacturers as their main supplier of inverter-controlled element coolers for fast trains. SPP's element coolers for Shinkansen bullet trains boast the highest share of the Japanese market.
Ozone generating technology is used as a basis to deliver advanced water treatment systems that are ideal for decomposing persistent substances.
With their high reliability and quality, SPP plate-fin heat exchangers have made the SPP name the best brand in applications such as air separation and petrochemical plants.
In the Heat Energy field, SPP is proud to have the world’s highest delivery in the LNG vaporizer market and is highly regarded in multiple industries for its compact, high-performance plate-fin heat exchangers that can be used for many energy-related products.
Bus iness Pro f i l e
Reviewing Priorities for Sales Promotion Areas in Response to Demand Changes
The SPP Heat Energy business is focusing on promising fields to accommodate changes in demand. For large products, SPP is working on winning orders for energy applications related to natural gas. Sales promotion for general-purpose products is being increased in power device cooling for use in electronics. Considering future demand, SPP's
diffusion bonding technology is being used to develop new applications for hydrogen/LNG-fueled vessels and other areas.SPP Heat Energy will continue to improve its profitability by replacing traditional product groups with new ones and identifying and developing new differentiating products.
Concentrating resources on promising fields
Strengthening work to win orders for products used in petrochemical, natural gas and other energy applications (related to natural gas)
Large products
Strengthening sales promotion in power device cooling for use in electronicsGeneral-
purpose products
Using diffusion bonding technology to develop new applications (e.g., hydrogen/LNG-fueled vessels)New
demand
Replacing traditional product groups with new ones
Identifying and developing new differentiating products
Sales promotion in the market for CPU cooling in servers for data centers (electronics)
Micro-channel heat exchanger used in the fuel supply system for
liquefied natural gas (LNG)-fueled vessels
Ozone generators are a lso prov ided for the product ion of semiconductors.
-200
-100
0
100
300
20011,000
9,0368,366
2019(Forecast)
20182017
Net Sales(million ¥)
5,000
10,000
15,000
0
250291
△255
2019(Forecast)
20182017
OperatingIncome
(million ¥)
-300
In the fiscal year under review (fiscal 2018), Heat Energy and Environmental Related Products benefitted from the recovery of demand for heat exchangers, posting net sales of ¥9.03 billion, a year-on-year increase of 8.0%. Operating income was ¥0.29 billion due to the positive results from the higher net sales and ongoing streamlining.For fiscal 2019, we expect the current recovery of demand for heat exchangers to help us achieve year-on-year growth in net sales to ¥11.0 billion. Operating income is expected to be ¥0.25 billion. In addition to changes in sales mix, negative factors will include a one-time increase in expenses due to strengthened sales and development of heat exchangers for electronics and ozone generators for the semiconductor industry.
▶ Overview of Business Performance in Fiscal 2018
9 10
¥9.58 billion
¥1.23 billion
N e ts a l e s
Operatingincome
In the fiscal year under review (fiscal 2018), ICT Related Products benefitted from the solid sales of micro-machining and semiconductor heat treatment equipment, recording net sales of ¥9.58 billion, a year-on-year increase of 20.2%. Operating income grew by 16.8% to ¥1.23 billion, primarily due to the higher revenue. The brisk performance of the subsidiaries for MEMS/Semiconductor Manufacturing Equipment was a further positive factor.In fiscal 2019, the ICT segment expects to post net sales of ¥9.5 billion. Operating income will likely be ¥0.7 billion due to changes in sales mix as well as increased development and system investments.
▶ Overview of Business Performance in Fiscal 2018
The ICT Related Products segment provides MEMS and semiconductor manufacturing equipment. SPP is a leading company providing silicon etching equipment and silicon oxide sacrificial layer etching equipment which are indispensable for MEMS production. In 1995, SPP became the first provider in the world of silicon etching equipment.SPP will also strive to develop high-precision sensors and other MEMS devices using MEMS manufacturing equipment.
Bus iness Pro f i l e
9,5009,586
7,977
700
1,235
1,057
2019(Forecast)
20182017
Net Sales(million ¥)
0
10,000
8,000
6,000
4,000
2,000
2019(Forecast)
20182017
OperatingIncome
(million ¥)
200
400
600
800
0
1,200
1,400
1,000
Silicon Deep Etching System
■MEMS Gyro & Systems
High Precision Gyro
■MEMS Devices for Optical Communications
MEMS VOA SHUTTER
SiO2 Sacrificial Layer Etching System
Major product lines and SPP’s Strengths
MEMS/Semiconductor Manufacturing Equipment
MEMS Devices
Satisfactory product line-up of MEMS and semiconductor manufacturing equipment enabling users to conduct a wide range of processes from development and trial production to commercial production
As for silicon etching equipment used for three-dimensional forming of electronic devices such as MEMS, our main products, we supply 90% of products demanded globally using our original technologies, together with SPTS Technologies, our partner company (SPP conducts this business mainly in the Japanese market).
Acquired a US-based Thermal Products business for semiconductor industry in June 2015. Aim to secure a foothold for overseas business development and obtain synergies.
Jo in t ven tu re company , S i l i con Sens ing Sys tems, s ta r ted mass-producing MEMS gyros in 1999 and has celebrated the 20th anniversary this year.
After success in automotive stabilization controller, Silicon Sensing Systems has become a highly respected supplier of the world's highest precision gyros to a worldwide market.
MEMS gyro and systems from SPP finds extensive use in a broad range of applications such as the attitude control in various mobile equipment including down-hole mining, autonomous helicopters, GPS antennas, and satellites as well as safety systems in automobiles and trains.
Based on MEMS process technology and experience from mass production of silicon gyro sensors by SPP and its group companies since the last century, we are now providing high quality MEMS devices for the Optical Communications Market.
We have decided to move into this area to support this market which is expanding continuously due to the fact that the data traffic volume is increasing sharply as you well know. We look forward to working with many new partners in this field to contribute to society with small-sized and lower-power consumption products.
Increasing Added Value by Development for Differentiation
SPP’s ICT Related Products segment has two business pillars: MEMS/semiconductor manufacturing equipment and MEMS devices.For MEMS/semiconductor manufacturing equipment, the segment improves equipment performance by enabling mass-production and accommodating requirements for higher precision. The segment also strives to open up new markets by offering minimal fab technology for semiconductor manufacturing, which is designed to form a production line of minimal size and launch small-scale production of semiconductor chips
quickly at low cost. At the same time, the segment will make resources input more efficient, e.g. by module sharing.The segment will attach importance to the sales promotion of sensors and communication devices; the market for these products indispensable for the IoT is expected to enter its full-fledged growth phase going forward.The ICT Rated Products segment will continue to commit itself to increasing the added value of products through development for differentiation.
Purchase of a heat treatment business
8.7
0.9
Net Sales(billion ¥)
25
20
15
10
20114.32.1
3.30.9
3.01.1
2.70.8
3.9
1.75.3
1.36.9
1.1
8.6
0.9
2012 2013 2014 2015 2016 2017 2018
5
0 2019(Forecast)
SPTS(transfer business) MET, MEMS Devices,and others MEMS/Semiconductor Manufacturing Equipment
SPTS business transferWithdrawal from M2M
Withdrawal from sensor network business
11 12
S e g m e n t O v e r v i e w I C T R e l a t e d P r o d u c t s
C o r p o r a t e G o v e r n a n c e
■ C o r p o r a t e G o v e r n a n c e S y s t e mSPP has excellent corporate governance that consists of the Board of Directors including independent external directors and the Audit & Supervisory Board. The Board of Directors meets at least monthly to decide on important matters and supervises the implementation of specific operations. Management Conference meetings of the senior management and Business Study Meetings at individual departments are also held as appropriate to ensure exhaustive discussion. If necessary, the legal advisor provides relevant advice. These procedures allow the company to carry out its operations in a fast and appropriate fashion. After the Ordinary Shareholder Meeting of June 28, 2017, SPP introduced an executive officer system. By separating the business decision-making and supervising from the implementation of business operations, the new system is designed to enable the Board of Directors to supervise more successfully, while strengthening SPP’s implementing business operations.Furthermore, SPP operates a non-statutory Appointment and Compensation
Committee as an advisory body for the Board of Directors. This committee, with outside directors consisting of half of the committee, serves to secure greater transparency and fairness in considering the appointment of and compensation for directors.Audit and Supervisory Board members attend meetings of the Board of Directors and other significant meetings to correctly understand and supervise the way the company is actually managed. They also utilize the Audit and Supervisory Board Members’ Office to help audit the internal control system and the risk management structure. Under an agreement with an accounting auditor, the company conducts regular audits and, as the need arises, receives professional advice.In addition, we have established a new organizational setup to ensure compliance. Following the revelation in January 2019 that SPP had overcharged the Defense Ministry for the purchase of defense equipment, SPP has appointed an executive officer responsible for compliance, who reports directly to the President, and raised the company's readiness to implement measures to prevent recurrence of similar irregularities.
■ I n t e r n a l C o n t r o l S y s t e mSPP carries resolutions at its Board of Directors meetings with regard to the basic policy of its internal control system (i.e. the foundation of corporate governance), and then verifies the effectiveness of the system whenever necessary, aiming for system enhancement and improvement at all times. The outline of the system is described below.
(1) ComplianceThe Compliance Committee goes beyond helping employees maintain a keen compliance awareness to also maintain both internal and external contacts for whistle-blowing for early detection and preventing legal violations and illicit practices. As a further measure, employee surveys are conducted beginning in fiscal 2018.
(2) Risk managementSPP holds special committees on business execution risk on a regular basis, aiming to understand and reduce individual risks. The CSR Committee is responsible for overall risk management by controlling individual special committees.
(3) Business executionSPP determines important management matters by holding Board of Directors meetings where executive directors regularly report their job execution statuses. SPP has also implemented a system to promote appropriate and prompt business operations by holding regular Management Conference meetings and Business Study
Meetings at individual departments and having discussions on important issues.
(4) Group managementSPP offers CSR training to employees including those of its subsidiaries, etc. so that it can disseminate its group corporate principles and code of conduct. In addition, its special committee activities include those for subsidiaries, etc. SPP also aims to comply with its management policy by obligating its subsidiaries to discuss and report important matters, giving careful consideration when preparing annual plans and semiannual budgets, and holding information exchange meetings.
(5) Audit and Supervisory Board membersAudit and Supervisory Board members conduct audits by attending important meetings including the Board of Directors meetings, inspecting important documents, gathering information including directors’ reports, etc., and conducting other activities.
Directors, Audit & Supervisory Board Members, and Executive Officers As of June 26, 2019
Advice
AccountingAuditor
Cooperation
Cooperation
Cooperation
External audit
Audit & Supervisory BoardInside 1/Outside 3
Affiliated Companies
Individual business segmentsand indirect department
Appointment andCompensation Committee
Executive Officer
ComplianceCommittee and
other specialcommittees
Management ConferenceBusiness Study Meetings
Internal audit
Decision-makingSupervision Audit
Audit
Appointment/dismissal Appointment/dismissal
Direction/Supervision
Direction/SupervisionMonitoring
control
President
Board of DirectorsInside 4/Outside 2
CSR Committee
Internal Auditing Department
Appointment/dismissal
General Meeting of Shareholders
Executive officer responsiblefor compliance
■ D i r e c t o r s
Hideaki TAKAHASHIPresident
Heat Exchangers, Environmental Systems, Microelectronics Technology, MEMS/Semiconductor Equipment, MEMS Devices, Corporate R&D, ICT Equipment & Devices, Corporate Environmental Control & Facilities Engineering
Machi NAKATADirectorExecutive Vice President
Outside Director(Audit & Supervisory Committee Member), NICHIDEN Corporation
Kiyokazu FURUTAOutside Director
Corporate Planning, General Administration, Human Resources, Factory Innovation,Controlling & Treasury, Information Systems, Materials & Procurement
Masatoshi DEGUCHIDirectorManaging Executive Officer
Aerospace, Hydraulic Control
Kenro ITAKURADirectorManaging Executive Officer
Senior Advisor, Daikin Industries, Ltd.Outside Director, ICHINEN HOLDINGS CO., LTD.
Guntaro KAWAMURAOutside Director
■ E x e c u t i v e O f f i c e r s
Production, Procurement, Engineering, Quality Assurance for Heat Exchangers
Takayuki KASHIWAManaging Executive Officer
MEMS/Semiconductor Equipment
Toshihiro HAYAMIManaging Executive Officer
Internal Auditing,Legal Compliance
Masato AYANIManaging Executive Officer
Corporate Planning, Controlling & Treasury, Information Systems
Syogo ISHIMARUExecutive Officer
Environmental Systems, Microelectronics Technology, MEMS Devices
Hiroaki MINAMIExecutive Officer
Business Strategy Planning for Heat Exchangers
Takeshi YADAExecutive Officer
Hydraulic Control
Masakazu YAGIExecutive Officer
General Administration, Human Resources, Factory Innovation
Keiichi NAKAMOTOExecutive Officer
Yukinobu YOKOOOutside Audit & Supervisory Board Member
Ayumu TAKAHASHISenior Audit & Supervisory Board Member
Attorney at Law
Eiichi MORIOutside Audit & Supervisory Board Member
Hideaki MIHARAOutside Audit & Supervisory Board MemberCertified Public Accountant
■ A u d i t & S u p e r v i s o r y B o a r d M e m b e r s
(As of June 26, 2019)
13 14
15 16
C S R A c t i v i t i e s
1. COMPLIANCE: Complying with laws and regulations, we will conduct all business activities based on the highest ethical standards.
2. CUSTOMER SATISFACTION: Focusing intensely on market demands and clients´ needs, we will continue to offer quality products and services to achieve the highest customer satisfaction possible.
3. CHANGE & CHALLENGE: Responding sensitively to global trends, we will boldly try to fully meet these changes and keep our eyes open to new opportunities that accompany this changing atmosphere.
4. HUMAN RESOURCES: Respecting our human resources, we will provide a supportive environment that encourages each individual's fulfillment and harmony among all employees.
5. COEXISTENCE WITH SOCIETY: By playing an active role in society, we will promote good citizenship with our community and harmony with the surrounding environment.
“Toward a Promising Future” Sumitomo Precision Products Group will continue to increase its global presence with innovative technology, and will pave its way toward a prosperous tomorrow.
Year20172018
2019(As of end of June)
111
052
Accidents resulting in leave Accidents not resulting in leave
Safety and Health Committee
Product Liability Committee
Quality Assurance Committee
Human Rights/Diversity Promotion Committee
Environmental Management Committee
Information Security Committee
Risk Management Committee
Compliance Committee
CSRCommittee
The SPP Group actively conducts CSR activities to fulfill its corporate social responsibility. Chaired by the President, the CSR Committee has built a framework for CSR activities to probe into group management from the CSR perspective.At the same time, we have established the “Code of Conduct” on the basis of the “Corporate Principles.” Copies of a brochure describing our CSR activities and the above rules and basic ideas are distributed to all employees to develop a keen CSR awareness.Going forward, we will review and further strengthen the individual committees in order to implement reforms such as strengthening governance and internal control and helping employees maintain a keen compliance awareness.
CSR Activit ies
The “Regulations on Measures against Natural Disasters” provide for emergencies caused by natural disasters such as earthquakes and typhoons. Following procedures stated in these regulations, every July the company registers equipment likely to cause a hazard during natural disasters, designates evacuation routes and spaces, and maintains an emergency contact network. In addition, drills on responding to an earthquake early warning (EEW) are conducted regularly—in May and November—to ensure the
safety of employees. SPP has a safety confirmation system in place that checks for employee safety in natural disasters and other emergencies.Emergencies other than natural disasters are addressed by establishing the “Crisis Management Regulations.” Cards showing “Action to Be Taken in Emergencies Such as Earthquakes and Terrorist Attacks” are provided to all employees to ensure the fastest possible action and communication in the event of a disaster.
Measures against natural disasters and other emergencies2
SPP cares about the communities it operates in. We interact with local residents by donating to local events and inviting them to our summer festival. In fiscal 2018, SPP helped organize Eco Kids Messe 2018, an experience for children held in the company’s hometown of Amagasaki, by providing a Segway two-wheeled self-balancing personal transporter, which integrates products from one of our affiliates. Many visitors enjoyed the rare opportunity to test-ride
the unique electric vehicle.Seihokai, the group of SPP’s front-line supervisors, spearheads the biannual cleanup of walks and ditches around the SPP Main Plant. We also take part in Hyogo Prefecture’s “Hyogo Adopt--Lighting Maintenance Partners” project, helping maintain road lighting installed along a prefectural route.
Local contr ibutions2
Social contr ibutions1
Relat ions with Society and Local
SPP’s biannual blood donation events attracted a total of 300 contributors in fiscal 2018. In fiscal 2018, SPP cooperated with the All Japan Student Indoor Flying Robot Contest sponsored by the Japan Society for Aeronautical and Space Sciences, serving as a presenter to
provide and present winners with extra prizes. Contributing to developing Japan’s aerospace technology and related human resources, the competition has been increasing its scope year after year and now has an additional multicopter category for drones.
Following the Sumitomo business slogan of “valuing credibility and ensuring reliability,” the Sumitomo Precision Products group conducts business on the following corporate principles. In so doing we
discharge our responsibilities to different stakeholders in ensuring sustained business development and an increase in corporate value.
Corporate Principles
Safety drill against hazardous gas leaks
In addition to committing itself to safety education, SPP holds meetings of the Safety and Health Committee and monthly ceremonies to pray for safety at an in-house shrine to improve the safety awareness of all employees.In 2019, we give priority to three areas: continued implementation of measures to increase safety sensibility, continued operation of the Occupational Safety and Health Management System (S-OSHMS), and continued strengthening of the workplace safety and health management structure and improvement of the relevant environment.
Educational/training projects will include improving the experience-based safety education facility to provide all employees with such education and conducting a range of safety drills including those against hazardous gas leaks.
Safety, health, and f i re prevention3
SPP conducts IR activities to help shareholders and investors better understand our business policies and strategies. More specifically, these include presentations of financial results for institutional investors and analysts, financial summaries and annual reports for shareholders, and communication via the SPP website. Initiated in fiscal 2017, the shareholders’ factory tour program was continued in fiscal 2018.We will continue to disclose material facts and other relevant information in an appropriate manner via the security exchange, news media, and our website.We will remain committed to upgrading our information disclosure and ensuring the timeliness and usefulness of IR information.
Shareholder and Investor Relat ions
IR activit ies and disclosure
Plant tour offered to shareholders
Employee Relat ions
●Recruitment plans Considering a balanced workforce age mix, SPP continues recruiting to secure all important talent. The company has the basic policy of hiring 10 to 20 university and college graduates and 20 to 30 graduates from professional schools and high schools on a periodical basis. SPP also responds flexibly to the needs to expand operations by recruiting mid-career employees. The SPP also faces up to the challenge of ensuring workforce diversity. Measures include the positive recruitment of the challenged (the current employment of 31 persons surpasses the legally required number of 27), employing more women, and recruiting international employees and interns.
●Human rights, diversity education and female empowermentTo increase employee awareness of human rights, promote diversity, and thereby prevent and eliminate all forms of discrimination, SPP provides relevant education programs including an annual human rights/diversity lecture meeting as well as educational material distributed to all employees during Human Rights Week (December 4 to 10). In addition, we strive to take every opportunity to raise the employee awareness of the need to eliminate discrimination and promote diversity. Examples include providing education for new employees (both new graduates and mid-career employees) and having representatives participate in education programs provided by authorities.SPP properly addresses harassment. In addition to providing separate contacts with male and female counselors, SPP makes a further contact available outside the company.To accelerate female empowerment, while the company has been recruiting an increasing number of women, the company actively commits itself to rulemaking and awareness-raising. The Health and Labor Ministry (MHLW) has certified SPP as an Eruboshi business under the Act on Promotion of Women's Participation and Advancement in the Workplace. The company is also highly regarded for its aggressive support for employees bringing up their children and has been named a Kurumin-mark holder by the Hyogo Labor Bureau on behalf of MHLW.
Diversity commitment1
Kurumin-mark certification under the Act on Measures
to Support the Development of the Next
Generation
Fiscal 2017-2019Employees
Share(International employees)
2161.8%(4)
1338.2%(3)
Male Female34
100%(7)
TotalUniversity/College Graduates Employed via Regular Recruiting
(As of June 26, 2019)
17 18
A strongly oxidizing substance, ozone has applications including sterilization, deodorization and decoloration. Ozone is also environmentally friendly because it eventually decomposes into oxygen. SPP ozone generators are used for water treatment at tap water/sewage facilities, swimming pools, aquariums, and industrial water/drainage treatment and water recycling facilities. They also help preserve the natural environment in applications such as decomposing persistent organic substances contained in drainage e.g., from chemical plants, reducing harmful chlorine-based substances contained in paper products and waste water by dechlorinating pulp bleaching processes, and reducing CO2 emissions by using less chemicals and energy consumption in fiber bleaching processes.
Environmental Systems (Ozone Generators)
■ Ozone system for pulp bleaching
■ AOP(Advanced Oxidation Process) water treatment system
■ Ozone water treatment system for recycle waste water
Health management4SPP works to maintain and improve the health of our employees through multiple initiatives, such as for encouraging more employees to have their health checkups, conducted in collaboration with the SK Health Insurance Union, of which the company is a member. As part of the company's independent
commitment, SPP holds an annual health seminar. Preventive mental health programs include opening a temporary clinic with an external counselor twice a month for consultation on concerns such as those over psychological and physical health, human relationships and family problems.
In the area of heat exchangers, SPP offers many product lines that help spread clean energy sources and promote the efficient use of energy by providing support in saving energy and reducing environmental impact.
Heat Exchangers
Natural gas is regarded as friendly to the environment since it generates low emissions of CO2 and NOx and no sulfur oxides during combustion. SPP develops and produces equipment that vaporizes natural gas liquefied for transport purposes (LNG).
■ LNG VaporizersHydrogen is raising expectations as a clean source of energy since the gas generates no CO2 emissions during combustion. All-out national efforts are now underway to build a hydrogen-based society. Hydrogen supply infrastructure is the key requirement for a widespread use of hydrogen fuel cell vehicles. In this connection, SPP has worked on the development of diffusion bonded heat exchangers for hydrogen stations.
■ Development of heat exchangers for hydrogen stations
Environmental Preservat ion
Environmental ly-Fr iendly Products1Committed toward social contributions through its business activities, SPP offers many environmentally-friendly products, which are designed to reduce environmental risks, increase the efficiency of resources and
energy use, or facilitate environmental preservation. The company also strives to develop new environmental products and technologies.
Efficient, compact, and lightweight, SPP heat exchangers for aircraft engines help increase aircraft fuel efficiency. Some of them feature shapes that help reduce air drag, contributing to reducing noise.In relation to the ongoing electrification of aircraft, we are also developing a more efficient, more lightweight, and more compact heat exchanger,
since aircraft electrification leads to increased cooling loads for the engine lubricating oil and engine generator.
Aerospace Products
In developing new aerospace products, SPP always focuses on weight savings, because component weight is an important determinant of the aircraft’s fuel consumption, hence its environmental impact.
In the aircraft industry, various types of electric components are currently being used mainly due to the necessity of improving fuel efficiency through weight reduction and reducing the burden on the environment.Against this backdrop, SPP is striving to electrify its landing gear systems. As landing gear extension and retraction system, in medium- and large-sized aircraft require a higher power than any other systems in an aircraft, and it has been technically difficult to electrify such a system, it has not been realized so far. SPP is getting closer to success in this field for the first time in the world by adopting a method to operate an actuator using an electric motor-driven hydraulic pump.
■ Development of electric landing gear extension and retraction systems
■ Heat exchangers for energy-saving aircraft engines
Heat Exchangers for Aircraft Engines
C S R A c t i v i t i e s
All organizations of SPP commit themselves to environmental preservation in accordance with the Environmental Policy:
Environmental Pol icy and Environmental Management2
As a responsible member of society, we recognize the significant need to preserve the local and global environment and meet the challenge of “harmony with the surrounding environment” stated in the company principle as one of the top priorities in management, through the following actions: 1. Set environmental targets, aim to achieve these targets through environmental
preservation work involving all employees, and continually improve the environmental management system to achieve higher environmental performance.
2. Reduce the environmental impact of individual phases of business operations, such as by preventing burden on and polluting the environment, to contribute to its preservation.
3. Carefully meet relevant legal requirements and other obligations.4. Improve the environmental awareness of employees and facilitate their
environmental preservation activities.5. Promote activities for resource and energy saving and 3 R’s (reduce, reuse, and recycle).6. Take advantage of basic technologies that have long been developed in individual
fields including Aerospace, Hydraulic Control, Heat Control, and Industrial Products, and Environmental Systems to promote the development of environmental preservation technologies and products as a means of social contribution.
General Manager of Corporate EnvironmentalControl & Facilities Engineering Department
Corporate Environmental Control & Facilities Engineering Department
Environmental ManagementCommittee
Internal Environmental Auditor
Working Departments
Environmental Management Officer
Purchasing / Research / Corporate Environmental Control & Facilities Engineering Department
Sensor / New Operation Department
Industrial Equipment Systems Department
Heat Exchangers Department
Aerospace Department
Management and Sales Department
To reduce the environmental impact of its operations, SPP strongly commits itself toward company-wide activities for saving energy and resources. The resources-saving initiative focuses on recycling activities, including not only the reuse of metallic waste generated from the production process, but also the reuse of logistics and packaging materials and the recycling of paper by meticulous separation.The energy-saving work is spearheaded by the Energy-Saving Committee. Individual workplaces are expected to reduce energy use through stringent control. In addition, they try to make a difference through small efforts, such as switching to energy-saving equipment, removal of some lights, and turning off the power to unused equipment. These activities do not immediately result in a substantial reduction in company-wide energy usage because, at SPP,
energy usage during manufacturing differs depending on the product. But they do help us in our efforts to maintain it at certain levels and even reduce it.
EnergyUsage kl
2013 2014 2015 2016 2017 2018
▶ E n e r g y u s a g e
Init iat ives for reducing environmental impact3
Specificconsumption
0
3,000
6,000
9,000
12,000
15,000
0
0.2
0.4
0.6
0.8
1.0
1.2Energy Usage klSpecific consumption per ¥million of added value
Mil l ions of YenThousands ofU.S. Dol lars
(Note 1)
2019 2018 2019
Mil l ions of YenThousands of U.S. Dol lars
(Note 1)
2019 2018 2019
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
C o n s o l i d a t e d B a l a n c e S h e e tM a r c h 3 1 , 2 0 1 9
ASSETS
CURRENT ASSETS:
Cash and cash equiva lents (Note 16)
Notes and accounts receivable (Note 16) :
Trade
Unconsol idated subsid iar ies and associated companies
A l lowance for doubtfu l accounts
Inventor ies (Notes 4 and 7)
Other current assets
Tota l current assets
PROPERTY, PLANT AND EQUIPMENT:
Land (Note 5)
Bui ld ings and structures (Note 5)
Machinery and equipment
Lease assets (Note 14)
Construct ion in progress
Tota l
Accumulated depreciat ion
Net property, p lant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment secur i t ies (Notes 3 and 16)
Investments in and advances to unconsolidated subsidiaries and associates
Intangib le assets:
Goodwi l l
Other intangib le assets
Deferred tax assets (Notes 2.t and 13)
Other assets
A l lowance for doubtfu l accounts
Tota l investments and other assets
TOTAL
¥10,092
19,346
681
(12 )
25,890
1,335
57,332
4,658
20,159
36,587
527
11
61,942
(46,357 )
15,585
2,025
1,746
533
944
2,940
262
(22 )
8,428
¥81,345
¥10,600
19,706
343
(11 )
23,800
630
55,068
4,658
19,891
35,880
387
20
60,836
(44,345 )
16,491
3,554
1,600
592
1,045
1,549
256
(22 )
8,574
¥80,133
$90,919
174,288
6,136
(108 )
233,243
12,027
516,505
41,964
181,613
329,613
4,748
99
558,037
(417,632 )
140,405
18,243
15,730
4,802
8,505
26,486
2,360
(198 )
75,928
$732,838
¥15,2474,170
3,3676,297
9569
3,110225
1,39284
5,0613,659
43,190
6,2471,085
137129323
7,921
10,31211,332
7,883(102)
762(460)(661)
29,0661,168
30,234
¥ 81,345
¥16,1842,440
3,0184,517
21134
2,588654
1,322134
3,30934,321
10,1291,095
142561236
12,163
10,31211,33210,400
(101)
1,758(452)(703)
32,5461,103
33,649
¥80,133
$137,36037,568
30,33356,730
815,126
28,0182,027
12,541757
45,59532,964
389,100
56,2799,7751,2341,1622,909
71,359
92,901102,090
71,018(919)
6,865(4,144)(5,955)
261,85610,523
272,379
$732,838
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short- term bank loans (Notes 5 and 16)
Current port ion of long-term debt (Notes 5 and 16)
Payables (Note 16) :
Trade notes
Trade accounts
Unconsol idated subsid iar ies and associated companies
Construct ion
Other
Income taxes payable
Accrued expenses
Prov is ion for loss on construct ion contracts (Note 7)
Prov is ion for compensat ion-re lated loss on the defense
equipment business (Note 2.m)
Other current l iab i l i t ies
Tota l current l iab i l i t ies
LONG-TERM LIABILITIES:
Long-term debt (Notes 5 and 16)
L iabi l i ty for ret i rement benef i ts (Note 6)
Asset ret i rement obl igat ions
Deferred tax l iab i l i t ies (Notes 2.t and 13)
Other long-term l iab i l i t ies
Tota l long-term l iab i l i t ies
COMMITMENTS AND CONTINGENT LIABILITIES (Note 18)
EQUITY (Note 8) :
Common stock, authorized, 20,000,000 shares; issued, 5,316,779 shares in 2019 and 2018 *(1)
Capital surplus
Retained earnings
Treasury stock - at cost 24,920 shares in 2019 and 24,250 shares in 2018 *(1)
Accumulated other comprehensive income:
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Noncontrolling interests
Total equity
TOTAL
See notes to consol idated f inancia l statements. * (1) Share f igures have been restated, as appropr iate, to ref lect a ten-for-one reverse stock spl i t e f fected October 1, 2018.
19 20
Mil l ions of YenThousands of U.S. Dol lars
(Note 1)
Yen U.S. Dol lars
2019 2018 2019
Thousands of U.S. Dol lars
(Note 1)
2019
Mil l ions of Yen
2019 2018
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
C o n s o l i d a t e d S t a t e m e n t o f O p e r a t i o n sY e a r E n d e d M a r c h 3 1 , 2 0 1 9
NET SALES
COST OF SALES (Notes 7 and 14)
Gross prof i t
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 9 and 14)
Operat ing income
OTHER INCOME (EXPENSES):
Interest and div idend income
Interest expense
Fore ign currency exchange gain ( loss)
Equi ty in earn ings of associated companies
Gain on sa les of investment secur i t ies
Gain on exempt ion of indi rect tax
Loss on impaired assets (Note 10)
Compensat ion-re lated loss on the defense equipment business (Note 2.m)
Business t ransformat ion expenses (Note 11)
Insurance income (Note 12)
Loss on disaster (Note 12)
Other – net
Other expenses – net
INCOME (LOSS) BEFORE INCOME TAXES
INCOME TAXES (Note 13) :
Current
Deferred
Tota l income taxes
NET INCOME (LOSS)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT
PER SHARE OF COMMON STOCK (Note 2.w):
Basic net income ( loss)
Cash div idends appl icable to the year
¥48,991
36,24012,751
10,1712,580
36(218)
45375
25
(315)(5,061)
(181)121
(131)(156)
(5,460)
(2,880)
571(1,378)
(807)
(2,073)
179
¥(2,252)
¥(425.57)25.00
Di luted net income per share is not presented because no di lut ive secur i t ies ex ist .Per share f igures have been restated, as appropr iate, to ref lect a ten-for-one reverse stock spl i t e f fected October 1, 2018.See notes to consol idated f inancia l statements.
$441,360
326,486114,874
91,63123,243
324(1,964)
4063,378
225
(2,838)(45,595)
(1,630)1,090
(1,180)(1,405)
(49,189)
(25,946)
5,144(12,414)
(7,270)
(18,676)
1,612
$(20,288)
$(3.83)0.23
C o n s o l i d a t e d S t a t e m e n t o f C o m p r e h e n s i v e I n c o m eY e a r E n d e d M a r c h 3 1 , 2 0 1 9
NET INCOME (LOSS)
OTHER COMPREHENSIVE INCOME (Note 18) :
Unreal ized gain on avai lable- for-sa le secur i t ies
Fore ign currency t rans lat ion adjustments
Def ined ret i rement benef i t p lans
Share of other comprehensive income in associates
Tota l other comprehensive income ( loss)
COMPREHENSIVE INCOME (LOSS)
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Owners of the parent
Noncontro l l ing interests
¥ (2,073)
(1,046) (121)
42 50
(1,075)
¥(3,148)
¥(3,213) 65
¥ 47,241
35,86511,376
9,3412,035
41(178)(307)
261118164
(608)
(86)(595)
1,440
998(254)
744
696
195
¥501
¥9.4750.00
¥696
551 (20) 298
36 865
¥1,561
¥1,316 245
See notes to consol idated f inancia l statements.
$ (18,676)
(9,423) (1,089)
378 450
(9,684)
$(28,360)
$(28,946) 586
21 22
Mil l ions of Yen
2019 2018 2019
Thousands of U.S. Dol lars
(Note 1)Thousands of Shares/Mi l l ions of Yen
Common Stock
Shares *(1)
Amount Capita lSurplus
Reta inedEarnings
Shares*(1)
AmountUnrealized
Gain onAvailable-for-
Sale Securities
ForeignCurrency
TranslationAdjustments
DefinedRetirement
BenefitPlans
Tota l Noncontrolling Interests
Tota lEqui ty
Treasury Stock Accumulated Other Comprehensive Income
Thousands of U.S. Dol lars (Note 1)
CommonStock
Amount Capita lSurplus
Reta inedEarnings
AmountUnrealized
Gain onAvailable-for-
Sale Securities
ForeignCurrency
TranslationAdjustments
DefinedRetirement
BenefitPlans
Tota l Noncontrolling Interests
Tota lEqui ty
TreasuryStock
Accumulated Other Comprehensive Income
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t yY e a r E n d e d M a r c h 3 1 , 2 0 1 9
BALANCE, APRIL 1, 2017
Net income attributable to owners of the parent
Cash dividends, ¥50.0 per share
Purchase of t reasury stock
Net change in the year
BALANCE, MARCH 31, 2018
Net loss attributable to owners of the parent
Cash dividends, ¥50.0 per share
Purchase of t reasury stock
Net change in the year
BALANCE, MARCH 31, 2019
BALANCE, MARCH 31, 2018
Net loss attributable to owners of the parent
Cash dividends, $0.45 per share
Purchase of t reasury stock
Net change in the year
BALANCE, MARCH 31, 2019
5,317
5,317
5,317
¥10,312
10,312
¥10,312
¥11,332
11,332
¥11,332
¥10,163
501
(264)
10,400
(2,252)
(265)
¥7,883
(23)
(1)
(24)
(1)
(25)
¥(100)
(1)
(101)
(1)
¥(102)
¥1,235
523
1,758
(996)
¥762
¥(446)
(6)
(452)
(8)
¥(460)
¥31,495
501
(264)
(1)
815
32,546
(2,252)
(265)
(1)
(962)
¥29,066
¥858
245
1,103
65
¥1,168
¥32,353
501
(264)
(1)
1,060
33,649
(2,252)
(265)
(1)
(897)
¥30,234
¥(1,001)
298
(703)
42
¥(661)
$92,901
$92,901
$102,090
$102,090
$93,694
(20,288)
(2,388)
$71,018
$(910)
(9)
$(919)
$15,838
(8,973)
$6,865
$(4,072)
(72)
$(4,144)
$293,208
(20,288)
(2,388)
(9)
(8,667)
$261,856
$9,937
586
$10,523
$303,145
(20,288)
(2,388)
(9)
(8,081)
$272,379
$(6,333)
378
$(5,955)
* (1) Share f igures have been restated, as appropr iate, to ref lect a ten-for-one reverse stock spl i t e f fected October 1, 2018.See notes to consol idated f inancia l statements.
C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w sY e a r E n d e d M a r c h 3 1 , 2 0 1 9
OPERATING ACTIVITIES: Income ( loss) before income taxes Adjustments for : Income taxes paid Income taxes refunded Depreciat ion and amort izat ion Amort izat ion of goodwi l l Loss on impaired assets (Note 10) Business t ransformat ion expenses (Note 11) Loss on disaster (Note 12) Equi ty in earn ings of associated companies Gain on sa les of investment secur i t ies Changes in assets and l iab i l i t ies, net of ef fects: Increase in accrued expenses Increase in l iab i l i ty for ret i rement benef i ts (Decrease) increase in asset ret i rement obl igat ions Provision for compensation-related loss on the defense equipment business (Note 2.m) Decrease ( increase) in t rade notes and accounts receivable Increase in inventor ies ( Increase) decrease in other current assets Increase in t rade notes and accounts payable Increase in other current l iab i l i t ies Other – net Tota l adjustments Net cash prov ided by operat ing act iv i t ies
INVESTING ACTIVITIES: Purchases of property, p lant and equipment Purchase of intangib le assets Proceeds f rom col lect ion of long-term loans receivable Proceeds f rom sales of investment secur i t ies Other – net Net cash used in invest ing act iv i t ies
FINANCING ACTIVITIES: Increase (decrease) in short- term bank loans – net Proceeds f rom long-term debt Repayments of long-term debt D iv idends paid Other – net Net cash used in f inancing act iv i t ies
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTSNET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTSCASH AND CASH EQUIVALENTS, BEGINNING OF YEARCASH AND CASH EQUIVALENTS, END OF YEAR
¥(2,880)
(1,191)
1,88685
315181101
(375)(25)
352(6)
5,061602
(2,147)(275)
1,562423284
6,5363,656
(633)(149)
139
(22)(764)
(904)
(2,175)(265)
(2)(3,346)
(54)(508)
10,600¥10,092
¥1,440
(498)31
2,178128608
(261)(118)
31245
3
(250)(409)
271,503
46352
3,7375,177
(941)(50)
6156
26(803)
187750
(2,498)(264)
(1)(1,826)
(9)2,5398,061
¥ 10,600
$(25,946)
(10,730)
16,991766
2,8381,6311,180
(3,378)(225)
27468(54)
45,5955,423
(19,342)(2,477)14,072
3,8112,559
58,88432,938
(5,703)(1,342)
9351
(198)(6,883)
(8,143)
(19,595)(2,388)
(19)(30,145)
(486)(4,576)95,495
$ 90,919See notes to consol idated f inancia l statements.
23 24
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Sumitomo Precision Products Co., Ltd. (the "Company") have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards ("IFRS").In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the Company's consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2018 consolidated financial statements to conform to the classifications used in 2019.The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥111.00 to $1, the approximate rate of exchange at March 31, 2019. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Consolidation - The consolidated financial statements as of March 31, 2019, include the accounts of the Company and its 18 (18 in 2018) significant subsidiaries (together, the "Group").Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.Investments in 4 (4 in 2018) associated companies are accounted for by the equity method.Investments in the remaining unconsolidated subsidiary and associated company are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition is amortized over a period of 10 years.All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is also eliminated.
b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements - Under Accounting Standards Board of Japan ("ASBJ") Practical Issues Task Force ("PITF") No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements," the accounting policies and procedures
applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America (Financial Accounting Standards Board Accounting Standards Codification – "FASB ASC") tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material:(a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.
c. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method - ASBJ Statement No. 16, "Accounting Standard for Equity Method of Accounting for Investments," requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method, unless it is impracticable to determine such adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing capitalized development costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting.
d. Cash Equivalents - Cash equivalents are short-term investments that are readily convertible into cash and exposed to insignificant risk of changes in value.Cash equivalents include time deposits, which mature or become due within three months of the date of acquisition.
e. Inventories - Inventories are stated at the lower of cost, determined by the average method for finished products and work in process, by the specific identification method for certain work in process, and by the moving-average method for all raw materials and supplies, or net selling value.
f. Investment Securities - Investment securities are classified and accounted for, depending on management's intent, as follows: (1) held-to-maturity debt securities are reported at amortized cost; and (2) marketable available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined by the moving-average method. Nonmarketable available-for-sale securities are stated at cost, determined by the moving-average method. The Group's investment securities consist of marketable and nonmarketable available-for-sale securities.
g. Property, Plant and Equipment - Property, plant and equipment are stated at
cost. Depreciation of property, plant and equipment of the Company and its consolidated domestic subsidiaries is computed generally by the declining-balance method, while the straight-line method is principally applied to buildings, structures acquired on or after April 1, 2016, and lease assets of the Company and property, plant and equipment of consolidated foreign subsidiaries. The range of useful lives is principally from 3 to 50 years for buildings and structures and from 4 to 9 years for machinery and equipment. The useful lives for lease assets are the terms of the respective leases.
h. Other Intangible Assets - Intangible assets, except for goodwill, are stated at cost less accumulated amortization, which is computed by the straight-line method over the estimated useful lives of the assets. The useful life is principally 5 years for software for internal use.
i. Long-Lived Assets - The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss is measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted future cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.
j. Derivatives and Hedging Activities - The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.Derivative financial instruments are classified and accounted for as follows: (1) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated statement of income, and (2) for derivatives used for hedging purposes, if such derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions.Currency swaps are utilized to hedge exchange rate risk exposures in borrowings denominated in foreign currencies. Long-term debt denominated in foreign currencies are translated at the contracted rates if the currency swaps qualify for hedge accounting.Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expense.
k. Allowance for Doubtful Accounts - The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies' past credit loss experience and an evaluation of potential losses in the receivables outstanding.
l. Provision for Loss on Construction Contracts - The provision for loss on construction contracts is provided for an estimated amount of probable losses to be incurred in future years in respect of construction projects in progress. When there are losses on completed-contract method applied
contracts, the allowance for losses on construction contracts is offset against the costs of construction contracts in process in the balance sheet.
m. Provision for Compensation-Related Loss on the Defense Equipment Business - The provision for compensation-related loss on the defense equipment business is provided for an estimated amount of probable losses to be incurred in future in respect to contracts for the defense equipment business with the Japanese Ministry of Defense (the "MOD").With respect to the contract with the MOD for the defense equipment business, it was found in January 2019 that the Company had adjusted estimated costs inappropriately and overcharged the MOD in the past. The Company has voluntarily reported this matter to the MOD, and has also established an independent special investigation committee to conduct a detailed investigation. The Company estimated the reimbursement amount to be paid to the MOD and recorded ¥5,061 million ($45,595 thousand) in current liabilities as provision for compensation-related loss on the defense equipment business, and have also recorded said amount in other expenses as compensation-related loss on the defense equipment business. The Company was notified on March 13, 2019, by the MOD that the MOD would conduct a special investigation, and the special investigation is currently in progress. The recorded amount is an estimate falling within the range that can be reasonably calculated at this point, and it may fluctuate depending on how the special investigation turns out in the future.
n. Retirement Benefits - The Company and its consolidated domestic subsidiaries have defined benefit retirement plans covering substantially all of their employees. The Group accounts for the liability for retirement benefits based on projected benefit obligations and plan assets at the consolidated balance sheet date.The projected benefit obligations are attributed to periods on a benefit formula basis. Actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects and are recognized in profit or loss over 10 years, no longer than the expected average remaining service period of the employees.
o. Research and Development Costs - Research and development costs are charged to income as incurred.
p. Asset Retirement Obligations - An asset retirement obligation is recorded for a legal obligation imposed either by law or contract that results from the acquisition, construction, development, and normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of the asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to thetiming or the amount of the original estimate of undiscounted cash flows are
N o t e s t o C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s Y e a r E n d e d M a r c h 3 1 , 2 0 1 9
25 26
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
reflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related asset retirement cost.
q. Leases - Finance lease transactions are capitalized by recognizing lease assets and lease obligations in the consolidated balance sheet.All other leases are accounted for as operating leases.
r. Bonuses to Directors and Audit & Supervisory Board Members - Bonuses to directors and Audit & Supervisory Board members are accrued at the end of the year to which such bonuses are attributable.
s. Construction Contracts - Construction revenue and construction costs are recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs, and the stage of completion of the contract at the consolidated balance sheet date can be reliably measured, the outcome of a construction contract is deemed to be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on such construction contracts.
t. Income Taxes - The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax of assets and liabilities. Deferred taxes are measured by applying currently enacted income tax rates to the temporary differences.On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, "Partial Amendments to Accounting Standard for Tax Effect Accounting," which requires deferred tax assets and deferred tax liabilities to be classified as investments and other assets and long-term liabilities, respectively. Deferred tax assets were previously classified as current assets and investments and other assets, and deferred tax liabilities were previously classified as current liabilities and long-term liabilities under the previous accounting standard. The revised accounting standard is effective for annual periods beginning on or after April 1, 2018. The Company retrospectively applied the revised accounting standard effective April 1, 2018, and deferred tax assets of ¥1,271 million which were previously classified as current assets, and deferred tax liabilities of ¥1,141 million which were previously classified as current liabilities as of March 31, 2018, have been reclassified as investments and other assets and long-term liabilities, respectively, in the accompanying consolidated balance sheet.
u. Foreign Currency Transactions - All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statement of income.
v. Foreign Currency Financial Statements - The consolidated balance sheet accounts and revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the consolidated balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation are shown as "Foreign currency translation adjustments" under accumulated other
comprehensive income in a separate component of equity.w. Per Share Information - Basic net income per share is computed by dividing
net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period.Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years.Shares and per share figures have been restated, as appropriate, to reflect a ten-for-one reverse stock split effected October 1, 2018.
x. New Accounting Pronouncements(a) The Company and its domestic consolidated subsidiariesRevenue recognition - On March 30, 2018, the ASBJ issued ASBJ Statement No. 29, "Accounting Standard for Revenue Recognition," and ASBJ Guidance No. 30, "Implementation Guidance on Accounting Standard for Revenue Recognition." The core principle of the standard and guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should recognize revenue in accordance with that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customerStep 2: Identify the performance obligations in the contractStep 3: Determine the transaction priceStep 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The accounting standard and guidance are effective for annual periods beginning on or after April 1, 2021. Earlier application is permitted for annual periods beginning on or after April 1, 2018.The Company expects to apply the accounting standard and guidance for annual periods beginning on or after April 1, 2021, and is in the process of measuring the effects of applying the accounting standard and guidance in future applicable periods.(b) Foreign consolidated subsidiaries
The Company is currently evaluating the potential impacts of applying these standards to be adopted by its overseas subsidiaries in the future period.
3. INVESTMENT SECURITIES
The cost and aggregate fair value of available-for-sale securities at March 31, 2019 and 2018, were as follows:
The proceeds, realized gains, and realized losses of the available-for-sale securities which were sold during the year ended March 31, 2019, were as follows:
4. INVENTORIES
Inventories at March 31, 2019 and 2018, consisted of the following:
5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans bear interest at rates ranging from 0.28% to 5.20% at March 31, 2019, and from 0.03% to 4.70% at March 31, 2018.Long-term debt at March 31, 2019 and 2018, consisted of the following:
Annual maturities of long-term debt, as of March 31, 2019, for the next five years and thereafter were as follows:
The carrying amounts of assets pledged as collateral for long-term bank loans of ¥1,376 million ($12,396 thousand) at March 31, 2019, were as follows:
The above assets are provided for a factory foundation mortgage.The above collateralized long-term debt includes the current portion of long-term debt.
6. RETIREMENT BENEFITS
The Company and its domestic consolidated subsidiaries have defined benefit retirement plans for employees.Employees terminating their employment are, under most circumstances, entitled to retirement benefits determined based on the rate of pay at the time of termination, length of service, and conditions under which the termination occurs. If the termination is involuntary, caused by retirement at the mandatory retirement age, or caused by death, the employee is entitled to greater payments than in the case of voluntary termination.Employees of the Company who retire at the mandatory retirement age are entitled to receive approximately 50% of their benefits in the form of an annuity with the balance in a lump-sum payment upon retirement. The funds for the annuity payments are entrusted to an outside trustee.(1) The changes in defined benefit obligation for the years ended March 31,
2019 and 2018, were as follows:
Loans from banks and insurance companies, due serially to 2023 with interest rates ranging from 0.15% to 5.20% (2019 and 2018):
CollateralizedUnsecured
Obligation under finance leasesTotalLess current portionLong-term debt, less current portion
2019
¥1,3768,891
15010,417(4,170)¥6,247
¥1,60810,819
14212,569(2,440)
¥10,129
$12,39680,1001,351
93,847(37,568)$56,279
2018 2019
Millions of Yen Thousands ofU.S. Dollars
202020212022202320242025 and thereafterTotal
¥4,1702,4942,974
572206
1¥10,417
$37,56822,46826,793
5,1531,856
9$93,847
Thousands ofU.S. Dollars
Millions ofYen
Year Ending March 31
LandBuildings and structures Total
¥40919
¥428
$3,685171
$3,856
Thousands ofU.S. Dollars
Millions ofYen
Equity securitiesCost¥758
UnrealizedGains
Millions of YenUnrealized
LossesFair Value
¥2,580 ¥3,336
March 31, 2018
Equity securitiesCost
$6,631
UnrealizedGains
Thousands of U.S. DollarsUnrealized
LossesFair Value
$16,279 $9,648
March 31, 2019
Equity securitiesCost¥736
UnrealizedGains
Millions of YenUnrealized
LossesFair Value
¥1,807
¥2
¥1,071
March 31, 2019
Equity securitiesProceeds
Thousands of U.S. DollarsRealized
GainsRealizedLosses
$351 $225
March 31, 2019
Equity securitiesProceeds
¥39
RealizedGains
Millions of YenRealizedLosses
¥25
March 31, 2019
Finished productsWork in processRaw materials and suppliesTotal
2019¥4,97512,5918,324
¥25,890
¥4,07611,2868,438
¥23,800
$44,820113,43174,991
$233,243
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Balance at beginning of year (as restated)Current service costInterest costActuarial lossesBenefits paid
Balance at end of year
2019¥6,428
4245883
(505)¥6,488
¥6,229427
57150
(435)¥6,428
$57,9103,820
523748
(4,524)$58,477
2018 2019
Millions of Yen Thousands ofU.S. Dollars
IFRS 16 Leases
ASC 842 Leases
OutlineAccounting Standard Date of Application
Main revisions are:Revision to apply a control model to the identification of leases and distinguish between leases and service contracts; and revision to eliminate lease classification and recognition of assets and liabilities for all leases by the lessee.Same as above.
From the fiscal year beginning April 1, 2019
From the fiscal year beginning April 1, 2020
27 28
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
(2) The changes in plan assets for the years ended March 31, 2019 and 2018, were as follows:
(3) A reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets is as follows:
(4) The components of net periodic retirement benefit costs for the years ended March 31, 2019 and 2018, were as follows:
(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for the years ended March 31, 2019 and 2018, were as follows:
(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit plans as of March 31, 2019 and 2018, were as follows:
(7) Plan assetsa. Components of plan assets
Plan assets as of March 31, 2019 and 2018, consisted of the following:
b. Method of determining the expected rate of return on plan assetsThe expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the future from the various components of the plan assets.
(8) Assumptions used for the years ended March 31, 2019 and 2018, were set forth as follows:
7. PROVISION FOR LOSS ON CONSTRUCTION CONTRACTS
(1) Both the costs on uncompleted construction contracts and the provision for loss on construction contracts are offset in the balance sheet as of March 31, 2019. Amounts of provision for loss on construction contracts offset by inventories were as follows:
(2) Provision for loss on construction contracts included in "Cost of sales" for the year ended March 31, 2019, were as follows:
8. EQUITY
Japanese companies are subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders' meeting. Additionally, for companies that meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year if the Company has prescribed so in its articles of incorporation. The Company meets the above criteria and,
accordingly, the Board of Directors may declare dividends (except for dividends-in-kind) at any time during the fiscal year.The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders subject to a certain limitation and additional requirements.Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/decreases and transfer of common stock, reserve, and surplusThe Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus), depending on the equity account charged upon the payment of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts with equity under certain conditions upon resolution of the shareholders.
(c) Treasury stock and treasury stock acquisition rightsThe Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders, which is determined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
The Company conducted a ten-for-one reverse stock split of common shares effective October 1, 2018. The corresponding figures shown here have been calculated on the assumption that the reverse stock split had been conducted at the beginning of the previous fiscal year.
9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the years ended March 31, 2019 and 2018, principally consisted of the following:
10. LONG-LIVED ASSETS
The Group reviewed its long-lived assets for impairment as of March 31, 2019 and 2018.For the year ended March 31, 2018As the performance of CFN Precision, Ltd., a wholly owned subsidiary, has deteriorated, the Group recognized an impairment loss for certain machinery and equipment, goodwill, and other assets of the Aerospace business. The impairment loss total of ¥608 million was recorded as other expenses. The recoverable amount of that asset group of the Aerospace business was measured at its value in use and the discount rate used for computation of the present value of future cash flows was 10%.For the year ended March 31, 2019As the performance of SPP Nagasaki Engineering Co., Ltd. and CFN Precision, Ltd., wholly owned subsidiaries, have deteriorated, the Group recognized an impairment loss for certain buildings and structures, machinery and equipment, and other assets of the Aerospace business. An impairment loss totaling ¥315 million ($2,838 thousand) was recorded as other expenses. The recoverable amount was measured mainly by the value in use, which is calculated by discounting future cash flows at a discount rate of 10%. However, some assets were determined to have no fair value since the estimated future cash flows are negative.
11. BUSINESS TRANSFORMATION EXPENSES
Business transformation expenses are restructuring costs associated with the subsidiaries in Canada, the main items being personnel reduction costs, attorneys' fees, etc.
12. INSURANCE INCOME AND LOSS ON DISASTER
Both insurance income and loss on disaster were mainly attributable to Typhoon No. 21, which occurred in September 2018.
Debt investmentsEquity investmentsCash and cash equivalentsOthersTotal
43%4926
100%
42%5026
100%
2019 2018
Discount rateExpected rate of return on plan assetsExpected rate of salary increase
0.865-1.011%3.0%
1.4-2.6%
0.865-1.011%3.0%
1.4-2.6%
2019 2018
Employees' salaries and bonusesNet periodic retirement benefit costsDepreciation and amortizationResearch and development costsGoodwill amortization
2019¥3,714
14738698285
¥3,449166361927128
$33,4591,3243,4778,847
766
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Balance at beginning of yearExpected return on plan assetsActuarial gainsContributions from the employerBenefits paid
Balance at end of year
2019¥5,333
160(117)209
(181)¥5,404
¥4,950148205210
(180)¥5,333
$48,0451,441
(1,054)1,884
(1,631)$48,685
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Defined benefit obligationPlan assetsNet liability arising from defined benefit obligation
2019¥6,488(5,404)¥1,084
¥6,428(5,333)¥1,095
$58,450(48,685)$9,765
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Service costInterest costExpected return on plan assetsAmortization of prior service costRecognized actuarial lossesOthersNet periodic benefit costs
2019¥424
58(160)
(6)265
13¥594
¥42757
(148)(7)
382(2)
¥709
$3,820523
(1,441)(54)
2,387116
$5,351
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Prior service costActuarial lossesTotal
2019¥6
(67)¥(61)
¥7(436)
¥(429)
$54(604)
$(550)
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Unrecognized prior service costUnrecognized actuarial lossesTotal
2019¥(17)970
¥953
¥(23)1,037
¥1,014
$(153)8,739
$8,586
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Work in process ¥236 $2,126
Millions ofYen
Thousands ofU.S. Dollars
¥320 $2,892
Millions ofYen
Thousands ofU.S. Dollars
Work in process
29 30
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
13. INCOME TAXES
The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of 30.8% for the years ended March 31, 2019 and 2018.The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2019 and 2018, were as follows:
The increase in total valuation allowance was mainly due to impairment loss at consolidated subsidiaries.The expiration of tax loss carryforwards, the related valuation allowances, and the resulting net deferred tax assets as of March 31, 2019, are as follows:
A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying consolidated
statement of operations for the year ended March 31, 2018, is as follows:
The reconciliation between the statutory effective tax rate and the actual tax rate is omitted due to the recording of a net loss for the year ended March 31, 2019.
14. LEASES
Total rental expenses including lease payments under finance lease agreements that do not transfer ownership of the leased property to the Group, accounted for as operating leases, were ¥401 million ($3,613 thousand) and ¥443 million for the years ended March 31, 2019 and 2018, respectively.
15. RELATED-PARTY TRANSACTIONS
Balances and transactions of the Company with a subsidiary of Sumitomo Corporation as of and for year ended March 31, 2019, were as follows:Transaction between the Company and Related Parties
16. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
(1) Group Policy for Financial InstrumentsThe Group uses financial instruments, mainly long-term debt, including bank loans based on its capital financing plan. Cash surpluses, if any, are invested in low-risk financial assets. Short-term bank loans are used to fund the Group's ongoing operations. Derivatives are not used for speculative purposes, but to manage exposure to financial risks as described in (2) below.
(2) Nature and Extent of Risks Arising from Financial InstrumentsReceivables, such as trade notes and trade accounts, are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are hedged by using forward foreign currency contracts. Investment securities are mainly equity securities and their fair market values are monitored on a quarterly basis.Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are generally hedged by using forward foreign currency contracts.
(3) Risk Management for Financial InstrumentsCredit risk managementCredit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring payment terms and balances of major customers by each business administration department to identify the default risk of customers at an early stage. Because the counterparties to derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk. See Note 17 for more details regarding derivatives.Market risk management (foreign currency exchange rate risk and interest rate risk)Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such exchange rate risk is hedged principally by forward foreign currency contracts. Interest rate swaps and currency swaps are used to manage exposure to market risks from changes in the interest rates and foreign currency exchange rates of loan payables.Investment securities are managed by monitoring market value and the financial position of issuers on a regular basis.Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount by the corporate treasury department.Liquidity risk managementLiquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on their maturity dates. The Group manages its liquidity risk by holding an adequate volume of liquid assets along with adequate financial planning by the corporate treasury department.
(4) Fair Values of Financial InstrumentsFair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, other rational valuation techniques are used instead. See Note 17 for details on the fair values of derivatives.(a) Fair values of financial instruments
Cash and cash equivalents and Notes and accounts receivableThe carrying values approximate fair value because of their short maturities.Investment securitiesThe fair values are measured at the quoted market price of the stock exchange for the equity instruments. Fair value information for the investment securities by classification is included in Note 3.Short-term bank loans and PayablesThe carrying values approximate fair value because of their short maturities.Long-term debtThe fair values of long-term debt and lease obligations are determined by discounting the future cash flows related to the debt at the Group's assumed corporate borrowing rate.
Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal
Short-term bank loansPayablesLong-term debt *(1)Total
CarryingAmount
Millions of YenFair Value
UnrealizedLoss
¥10,09220,015
1,807¥31,914
¥(15,247)(13,352)(10,417)
¥(39,016)
¥10,09220,015
1,807¥31,914
¥(15,247)(13,352)(10,420)
¥(39,019)¥(3)¥(3)
March 31, 2019
Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal
Short-term bank loansPayablesLong-term debt *(1)Total
CarryingAmount
Millions of YenFair Value
UnrealizedLoss
¥10,60020,038
3,336¥33,974
¥(16,184)(10,278)(12,569)
¥(39,031)
¥10,60020,038
3,336¥33,974
¥(16,184)(10,278)(12,576)
¥(39,038)¥(7)¥(7)
March 31, 2018
Cash and cash equivalentsNotes and accounts receivableInvestment securitiesTotal
Short-term bank loansPayablesLong-term debt *(1)Total
CarryingAmount
Thousands of U.S. DollarsFair Value
UnrealizedLoss
$90,919180,316
16,280$287,515
$(137,360)(120,289)
(93,847)$(351,496)
$90,919180,316
16,280$287,515
$(137,360)(120,289)
(93,874)$(351,523)
$(27)$(27)
March 31, 2019
*(1) The above long-term debt includes the current portion of long-term debt.
operating segment performance and deciding how to allocate resources to operating segments.1. Description of Reportable Segments
The Group's reportable segments are those for which separate financial information is available and regular evaluation by the Company's management is performed in order to decide how resources are allocated among the Group. The Group consists of three segments: aerospace and related products, heat energy and environmental related products, and ICT related products.Aerospace and related products consists of manufacturing and sale of propeller systems, landing gear systems, heat control systems, space equipment, hydraulic pumps, hydraulic valves, and others. Heat energy and environmental related products consist of manufacturing and sale of LNG vaporizers, heat exchangers, ozone generators, and others. ICT related products consist of manufacturing and sale of semiconductor equipment and others.
2. Methods of Measurement for the Amounts of Sales, Profit, Assets, and Other Items for Each Reportable SegmentThe accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting Policies."
3. Information about Sales, Profit, Assets, and Other Items
4. Information about Geographical Areas(1) Sales
(2) Property, plant and equipmentInformation about property, plant and equipment by geographical area is not disclosed because Japanese GAAP does not require such disclosure if total assets in Japan represent more than 90% of the consolidated amounts.
Deferred tax assets relating to tax loss carryforwardsLess valuation allowances for tax loss carryforwardsNet deferred tax assets relating to tax loss carryforwards
1 Year(s)or Less
After 1 Yearthrough2 Years
After 2 Yearsthrough3 Years
$437
(437)
$531
(531)
$397
(397)
$90
(90)
$87
(87)
$11,354
(11,161)
193
$12,896
(12,703)
193
After 3 Yearsthrough4 Years
After 4 Yearsthrough5 Years
After5 Years Total
Thousands of U.S. DollarsMarch 31, 2019
Deferred tax assets relating to tax loss carryforwardsLess valuation allowances for tax loss carryforwardsNet deferred tax assets relating to tax loss carryforwards
1 Year(s)or Less
After 1 Yearthrough2 Years
After 2 Yearsthrough3 Years
¥49
(49)
¥59
(59)
¥44
(44)
¥10
(10)
¥10
(10)
¥1,259
(1,238)
21
¥1,431
(1,410)
21
After 3 Yearsthrough4 Years
After 4 Yearsthrough5 Years
After5 Years Total
Millions of YenMarch 31, 2019
Normal effective statutory tax rateExpenses not permanently deductible for income tax purposesIncome not permanently taxable for income tax purposesPer capita in local taxAmortization of goodwillEquity in earnings of associated companiesTax rate difference in foreign subsidiariesTax creditChange in valuation allowanceOther – netActual effective tax rate
30.8%0.5
(0.1)1.11.0
(5.5)3.5
(3.5)23.50.3
51.7%
Sales prices and other conditions are determined on general terms and conditions.
Sumitomo Corporation:Accounts receivable-tradeSales
Sumisho Aero-Systems Corporation:Accounts receivable-tradeSales
Sumisho Metalex Corporation:Accounts receivable-tradeSales
¥1,6574,842
3,0844,468
7972,406
¥1,4193,683
1,7744,213
8522,145
2019 2018 2019
$14,92843,622
27,78440,252
7,18021,676
Thousands ofU.S. DollarsMillions of Yen
Deferred tax assets:Reserve for accrued bonusesLiability for retirement benefitsLoss on devaluation of inventoriesLoss on devaluation of investment securitiesTax loss carryforwardsProvision for loss on the defense equipmentOtherTotal of tax loss carryforwards and temporary differencesLess valuation allowance for tax loss carryforwardsLess valuation allowance for temporary differencesTotal valuation allowance
Deferred tax assetsDeferred tax liabilities:
Roll-over relief on property, plant and equipmentNet unrealized gain on available-for-sale securitiesPrepaid pension costOther
Deferred tax liabilitiesNet deferred tax assets
2019
¥39129282366
1,4311,5491,5356,087
(1,410)(1,248)(2,658)¥3,429
¥(123)(328)(68)(99)
¥(618)¥2,811
¥39231058464
1,416
1,1373,903
(1,755)¥2,148
¥(126)(794)(77)
(163)¥(1,160)
¥988
$3,5232,6307,414
59512,89213,95513,82954,838
(12,703)(11,243)(23,946)$30,892
$(1,108)(2,955)
(613)(892)
$(5,568)$25,324
2018 2019
Millions of Yen Thousands ofU.S. Dollars
31 32
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
operating segment performance and deciding how to allocate resources to operating segments.1. Description of Reportable Segments
The Group's reportable segments are those for which separate financial information is available and regular evaluation by the Company's management is performed in order to decide how resources are allocated among the Group. The Group consists of three segments: aerospace and related products, heat energy and environmental related products, and ICT related products.Aerospace and related products consists of manufacturing and sale of propeller systems, landing gear systems, heat control systems, space equipment, hydraulic pumps, hydraulic valves, and others. Heat energy and environmental related products consist of manufacturing and sale of LNG vaporizers, heat exchangers, ozone generators, and others. ICT related products consist of manufacturing and sale of semiconductor equipment and others.
2. Methods of Measurement for the Amounts of Sales, Profit, Assets, and Other Items for Each Reportable SegmentThe accounting policies of each reportable segment are consistent with those disclosed in Note 2, "Summary of Significant Accounting Policies."
3. Information about Sales, Profit, Assets, and Other Items
4. Information about Geographical Areas(1) Sales
(2) Property, plant and equipmentInformation about property, plant and equipment by geographical area is not disclosed because Japanese GAAP does not require such disclosure if total assets in Japan represent more than 90% of the consolidated amounts.
Unrealized gain on available-for-sale securities:Gains arising during the yearReclassification adjustments to profit or lossAmount before income tax effectIncome tax effect
Total
Foreign currency translation adjustments:Adjustments arising during the year
Total
Defined retirement benefit plans:Adjustments arising during the yearReclassification adjustments to profit or lossAmount before income tax effectIncome tax effect
Total
Share of other comprehensive income in associates:Gains arising during the year
TotalTotal other comprehensive income
2019
¥(1,532)20
(1,512)466
¥(1,046)
¥(121)¥(121)
¥(198)25961
(19)¥42
¥50¥50
¥(1,075)
¥684111795
(244)¥551
¥(20)¥(20)
¥54375429
(131)¥298
¥36¥36
¥865
$(13,802)180
(13,622)4,199
$(9,423)
$(1,089)$(1,089)
$(1,784)2,333
549(172)$377
$451$451
$(9,684)
2018 2019
Millions of Yen Thousands ofU.S. Dollars
DerivativesFair value information for derivatives is included in Note 17.(b) Carrying amount of financial instruments whose fair value cannot
be reliably determined
(5) Maturity analysis for financial assets with contractual maturitiesThe entire balance for cash and cash equivalents, and notes and accounts receivable is due in one year or less as of March 31, 2019 and 2018. See Note 5 for annual maturities of long-term debt.
17. DERIVATIVES
The Group enters into derivative contracts to hedge market risks such as foreign exchange and interest rate fluctuations associated with certain assets and liabilities.It is the Group's policy to use derivatives only for the purpose of reducing market risks associated with assets and liabilities. The Group does not hold or issue derivatives for speculative purposes.Since all of the Group's derivative transactions are related to qualified hedges of underlying business exposures, market gain or loss risk on derivative instruments is generally offset by opposite movements in the value of the hedged assets or liabilities.Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount.Derivative transactions to which hedge accounting is applied.
The above interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value, but the differential paid or received under the swap agreements is recognized and included in interest expense.The above currency swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value.In addition, the fair values of such interest rate swaps and currency swaps in Note 16 are included in that of hedged items (i.e., long-term debt).The contractual or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Group's exposure to credit or market risk.
18. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended March 31, 2019 and 2018, were as follows:
19. SEGMENT INFORMATION
Under ASBJ Statement No. 17, "Accounting Standard for Segment Information Disclosures" and ASBJ Guidance No. 20, "Guidance on Accounting Standard for Segment Information Disclosures," an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and for which such information is evaluated regularly by the chief operating decision-maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating
Investments in equity instruments that do not have a quoted market price in an active market
Total
2019
¥218
¥218
¥218
¥218
$1,964
$1,964
2018 2019
Millions of Yen Thousands ofU.S. Dollars
Interest rate swaps:(fixed rate payment, floating rate receipt)
ContractAmount
HedgedItem
Long-termdebt ¥2,140
1,094
¥780
850
ContractAmount
Due afterOne Year
FairValue
Millions of YenAt March 31, 2019
Interest rate swaps:(fixed rate payment, floating rate receipt)
ContractAmount
HedgedItem
Long-termdebt $19,279
9,856
$7,027
7,658
ContractAmount
Due afterOne Year
FairValue
Thousands of U.S. DollarsAt March 31, 2019
Interest rate swaps:(fixed rate payment, floating rate receipt)
Currency swaps
Currency swaps
ContractAmount
HedgedItem
Long-termdebt
Long-termdebt
Long-termdebt
Long-termdebt
ContractAmount
Due afterOne Year
FairValue
Millions of YenAt March 31, 2018
Currency swaps
¥2,200
1,339
¥2,140
1,094
Sales:Sales to external customersIntersegment sales or transfers
TotalSegment profit(operating income)
Segment assetsOther:DepreciationAmortization of goodwill
Consolidated
Millions of Yen2019
¥48,991
¥48,991
¥2,580
81,345
1,886 85
1,275
Reconciliations
¥8,641
Total
¥48,991
¥48,991
¥2,580
72,704
1,88685
1,275
ICT RelatedProducts
¥9,586
¥9,586
¥1,235
11,268
25082
97
Heat Energyand EnvironmentalRelated Products
¥9,036
¥9,036
¥291
10,598
336
193
Aerospace and Related
Products
¥30,369
¥30,369
¥1,054
50,838
1,299 3
985
Reportable Segment
Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets
Sales:Sales to external customersIntersegment sales or transfers
TotalSegment profit(operating income)
Segment assetsOther:DepreciationAmortization of goodwill
Consolidated
Millions of Yen2018
¥47,241
¥47,241
¥2,035
80,133
2,178 128
1,225
805
Reconciliations
¥9,703
Total
¥47,241
¥47,241
¥2,035
70,430
2,178128
1,225
805
ICT RelatedProducts
¥7,978
¥7,978
¥1,058
13,683
25579
1,225
93
Heat Energyand EnvironmentalRelated Products
¥8,366
¥8,366
¥(272)
10,640
487
74
Aerospace and Related
Products
¥30,897
¥30,897
¥1,249
46,107
1,436 49
638
Reportable Segment
Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets
Sales:Sales to external customersIntersegment sales or transfers
TotalSegment profit(operating income)
Segment assetsOther:DepreciationAmortization of goodwill
Consolidated
Thousands of U.S. Dollars2019
$441,360
$441,360
$23,243
732,838
16,991766
11,486
Reconciliations
$77,847
Total
$441,360
$441,360
$23,243
654,991
16,991766
11,486
ICT RelatedProducts
$86,360
$86,360
$11,126
101,514
2,261739
874
Heat Energyand EnvironmentalRelated Products
$81,405
$81,405
$2,622
95,477
3,027
1,738
Aerospace and Related
Products
$273,595
$273,595
$9,495
458,000
11,70327
8,874
Reportable Segment
Investment in associated companies accounted for by the equity methodIncrease in property, plant and equipment and intangible assets
¥48,990
Tota l
¥142
Other
¥2,766
Other Asia
¥4,832
China
¥3,863
Canada
¥6,952
Europe
¥4,828
The United States of America
¥25,607
Japan
Millions of Yen2019
¥47,241
Tota l
¥112
Other
¥2,784
Other Asia
¥5,227
China
¥4,146
Canada
¥6,175
Europe
¥5,235
The United States of America
¥23,562
Japan
Millions of Yen2018
$441,351
Tota l
$1,279
Other
$24,918
Other Asia
$43,532
China
$34,802
Canada
$62,631
Europe
$43,495
The United States of America
$230,694
Japan
Thousands of U.S Dollars2019
Note: Sales are classified by country or region based on the location of customers.
33 34
C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t sS u m i t o m o P r e c i s i o n P r o d u c t s C o . , L t d . a n d C o n s o l i d a t e d S u b s i d i a r i e s
I n d e p e n d e n t A u d i t o r ’ s R e p o r tM a r c h 3 1 , 2 0 1 9
Amortization of goodwillGoodwill at March 31, 2019
Millions of Yen2019
¥82
515
¥3
17
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
¥85
532
Total
Millions of Yen2018
¥49
19
¥79
573
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
¥128
592
Total
Thousands of U.S. Dollars2019
$739
4,640
$27
153
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
$766
4,793
Total
Amortization ofgoodwillGoodwill at March 31, 2018
Amortization ofgoodwillGoodwill at March 31, 2019
5. Information about Major CustomersInformation about major customers is not disclosed for the years ended March 31, 2019 and 2018, because there is no customer that represents more than 10% of net sales in the consolidated statement of income.
6. Information about Impairment Losses of Assets
7. Information about Amortization of Goodwill
Impairment losses of assets
Millions of Yen2018
¥608
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
¥608
Total
Impairment losses of assets
Millions of Yen2019
¥315
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
¥315
Total
Impairment losses of assets
Thousands of U.S. Dollars2019
$2,838
Heat Energy andEnvironmental
Related Products
Aerospace and Related
ProductsICT Related
ProductsElimination/Corporate
$2,838
Total
35 36
D o m e s t i c■ Office & Plant / ■ Main Affiliated Company
O v e r s e a s ■ Main Affiliated Company
■ Head Office & Main Plant
■ Sumisei Engineering Co., Ltd. (Design, drawing and engineering services) ■ Sumisei Sangyo Co., Ltd. (Sales of all types of materials and machinery parts) ■ Shinsen Seiki Co., Ltd. (Processing of all types of machinery parts)
■ SPP Nagasaki Engineering Co., Ltd (Maintenance, repair and overhaul on aircraft landing gear systems and customer support)
■ Shiga Plant
■ Nagoya Sales Office
■ Tokyo Head Office
■ SPP Technologies Co., Ltd. (Production, sales and support of MEMS/ semiconductor related process tools)
■ Sumisei Hydraulic Systems Co., Ltd. (Production, maintenance and sales of aerospace and hydraulic equipment)
■ Wakayama Plant
■ Iruma Plant
■ Sumitomo Precision USA, Inc. (Production and sales of heat exchangers for aerospace)
■ SPP Aerospace Service Inc. (Business development and customer support for Commercial Landing Gear Systems)■ SPP Canada Aircraft, Inc. (Design of Commercial Landing Gear Systems)■ Sumitomo Precision Shanghai Co., Ltd.
(Development and sales of environmental systems)
■ Ningbo SPP Hydraulics Co., Ltd. (Production and sales of QT pumps)
■ Silicon Sensing Systems Ltd. (Production and sales of motion sensors)
■ Tecnickrome Aéronautique Inc. (Surface finishing of aircraft parts)
■ CFN Precision Ltd. (Production and sales of aircraft parts)
■ SPT Microtechnologies USA, Inc. (Manufacture and sales of thermal process furnace equipment etc. and relevant services for semiconductor related device industry)
5,316 thousandshares
Ind iv iduals and other32.9%
Financia l Inst i tut ions13.9%
Domest ic Corporat ions
42.8%
Fore ign Investors
7.9%
Treasury Stock0.5%
Financia l Instrument Companies
2.0%
Sumitomo Precision Products Co., Ltd.January, 1961¥10,311 millionHideaki Takahashi1,822 (Consolidated)1,088 (Non-consolidated)1-10 Fuso-cho, Amagasaki, Hyogo 660-0891, JapanMain Plant (Amagasaki), Shiga Plant, Wakayama Plant (Plant site area: 136,844 square Meters)https://www.spp.co.jp
C o m p a n y P r o f i l e ( A s o f M a r c h 3 1 , 2 0 1 9 )
Company NameEstabl ishedPaid- in Capi ta lPres identNumber of Employees
Head Of f icePlantURL
S t o c k I n f o r m a t i o n ( A s o f M a r c h 3 1 , 2 0 1 9 )
F iscal YearOrdinary Shareholder Meet ingRecord Date
Transfer Agent
Method of Publ ic Not icesStock CodeNumber of Author ized SharesNumber of Issued SharesNumber of ShareholdersMin imum Trading Uni tStock Exchange L ist ing
From April 1 of each year through March 31 of the following yearJuneOrdinary Shareholder Meeting: March 31Year-end Dividends: March 31Interim Dividends: September 301-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan Sumitomo Mitsui Trust Bank, Limited To be posted on the Company’s Website (https://www.spp.co.jp)635520,000,0005,316,7794,823100Tokyo
▶ Major Shareholders▶ Breakdown of Shareholders
Name of Shareholder
Sumitomo Corporation
Nippon Steel & Sumitomo Metal Corporation*
The Master Trust Bank of Japan, Ltd. (trust account)
Sumitomo Precision Products Co., Ltd. Kyoeikai
Japan Trustee Services Bank, Ltd. (trust account)
DFA INTL SMALL CAP VALUE PORTFOLIO
Japan Trustee Services Bank, Ltd. (trust account 5)
Kazuyoshi Yamamoto
Sumitomo Mitsui Banking Corporation
Masayoshi Yamauchi
1,462764216124116
9363625451
Number ofShares
(thousands)
ShareholdingRatio
(%)
27.6414.45
4.092.352.201.761.211.171.030.97
D o m e s t i c a n d O v e r s e a s B a s e sA s o f J u l y 1 , 2 0 1 9
C o m p a n y P r o f i l e / S t o c k I n f o r m a t i o n
*Nippon Steel & Sumitomo Metal Corporation changed its trade name to Nippon Steel Corporation on April 1, 2019.
37 38
1-10 Fuso-cho, Amagasaki, Hyogo 660-0891, JapanPhone 81-(0)6-6482-8811 FAX 81-(0)6-6489-5801https://www.spp.co.jp/