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SUMCOANNUAL REPORT2013

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February 1, 2013 to December 31, 2013

1 SUMCO Annual Report 2013

For AllInnovation

2SUMCO Annual Report 2013

For AllInnovation

In daily life we hardly ever see a silicon wafer, but they are used in every sort of electronic device and are indispensable in our lives.

All sorts of technological innovation have enabled the evolutionary development of electronic devices, which have added immeasurably to our lives and greatly facilitated cultural progress. Some products have consequentially become smaller, and others larger; some lighter, some stronger, some faster.

Engineers are carrying on the battles of their predecessors, and are going beyond the achievements of those persons, creating revolutionary change. The continued evolution of the silicon wafer is a precondition for taking up this battle.

SUMCO sees itself as being engaged in this battle, as a corporation dedicated to contributing to all sorts of technological innovation on behalf of the advancement of society and the development of humanity.


SUMCO’s History

Transfer of Business (Feb. 2002)

Merger (Feb. 2002)

SUMCO isan organization of men and women who create value through diverse technology and culture.

SUMCO wasfounded in 1999 by combining the silicon wafer operations of Sumitomo and Mitsubishi.

SUMCO isa specialized maker of silicon wafer with a world market share of about 30% and an overseas sales ratio of about 70%.

Sumitomo Metal Industries, Ltd.Sitix Division

Osaka Special Steel Manufacturing Co.

Nicchitsu Electronic Chemicals Corp

Osaka TitaniumCo., Ltd.

Japan Electronic Metals Co., Ltd.

Started: Oct. 1998

Mitsubishi Materials Silicon Corp.

Silicon United Manufacturing

SUMCO's Milestone

Silicon United Manufacturing Corp.

Founded: Jul. 1999

1

Sumitomo MitsubishiSilicon Corp.

Change of Corporate Name: Feb. 2002

Change of Corporate Name: Oct. 1991

Trancefer of Business: Jan. 1979

2

Komatsu ElectronicMetals Co., Ltd.

Founded: Apr. 1960

Consolidated Subsidary: Oct. 2006

5

SUMCO Corp.

Change of Corporate Name: Aug. 2005

3 4

Founded: Oct. 1959

Founded: Dec. 1958

Founded: Jan. 1937

Change of Corporate Name: Nov. 1952


Silicon UnitedManufacturing

Sumitomo Metal Industries, Ltd., Mitsubishi Materials Corp. and Mitsubishi Materials Silicon Corp. established a jointly-owned company of development and manufacturing of 300mm silicon wafers, Silicon United Manufacturing Corp.

Silicon United Manufacturing Corp. acquired the silicon wafer business (Sitix Division) from Sumitomo Metal Industries, Ltd. merged with Mitsubishi Materials Silicon Corp. and changed its corporate name to Sumitomo Mitsubishi Silicon Corp.

The corporate name was changed to SUMCO Corp.

Listed on the First Section of the Tokyo Stock Exchange, Inc.

Komatsu Electronic Metals Co., Ltd. (present SUMCO TECHXIV CORPORATION) became a consolidated subsidiary by accepting SUMCO’s tender offer.

Jul. 1999

Feb. 2002

Aug.2005

Nov.2005

Oct.2006

SUMCO’s Milestones

1

2

3

4

5

30% 70%

300

200

100

0

World Market Share

Overseas Sales

Product Breakdown

High-puritysilicon wafer business 100%

Billions of yen

Jan-10Jan-06 Jan-09Jan-05 Jan-08Jan-04 Jan-11Jan-07 Jan-12 Jan-13 Dec-13(11-month term)

Sales (Fiscal years 2003–2013) FY2013 (11-month term)

SUMCOVision


SUMCO Vison

World's Best in Technology

Deficit-Resistant Even during Economic Downturns

Vision

Vision

1

2


It was in April of 2012 that the SUMCO Group formulated the SUMCO Vision, with the underling objective of becoming recognized as an excellent company.The SUMCO Vision has four component objectives.

INDEX

Lively, Vigorous Business Activities with a Keen Awareness of Profit

Competitiveness in Overseas Markets

Vision

Vision

3

4

SUMCO's History P3

SUMCO Vision P5

CEO Message P7

CFO Message P11

Financial Data P27

Outline P35

Special Feature SUMCO and the Growing Silicon Wafer Market P13

“Intangible Assets”support creation of value P15

Governance P21

CSR P25


CEO Message

President and CEO　Mayuki Hashimoto

Message from CEO

Shifting gearto an aggressive strategy withour world's best technology

Highlights of Consolidated Results

3 0.7

-100

-66

-84

50

0

-50

-100

-150

Net Income (loss)

-87

-8

0.9

1813

50

0

-50

-100

Operating Income (loss)

Progressed to become a company that can generate a profit even during an adverse environmentIn the fiscal year 2013 (February 1 to December 31, 2013), the second year since I was appointed as President, I am pleased to report that our operating profit of 17.8 billion yen exceeded the previous year’s 13.2 billion, despite being an 11-month irregular year due to a change in fiscal year-end.

In 2013, the silicon wafer market was favorable in the first half, driven by increasing demand for smartphones and tablet PCs, but was affected by an adjustment in demand for smartphones, which had been leading the market, and a resulting production adjustment at foundries in the second half of the year. Consequently, demand for 300mm silicon wafer, our main product, dropped sharply.

Anticipating further miniaturization of leading-edge semiconductors, we continued R&D spending and technological development to make our products more distinctive. At the same time, we strived to reduce costs and lower breakeven points. As we implemented corporate structural reform to better enable us to respond with greater flexibility to sudden changes in the market, we were able to record a higher profit compared to the previous year.

I am grateful that we have proved ourselves “deficit-resistant even during economic downturns” and have realized one of the SUMCO Vision. It is said that “When times are tough, those who survive are not the strong ones but the flexible ones that adapt themselves quickly to the changing environment.” I have reminded myself once and again of the importance of taking prompt actions.

300

200

100

0

Net Sales

218

277

247

207

185

Billions of yen Billions of yen Billions of yen

Jan-10 Jan-10 Jan-10Jan-11 Jan-11 Jan-11Jan-12 Jan-12 Jan-12Jan-13 Jan-13 Jan-13Dec-13 Dec-13 Dec-13


Shifting gearto an aggressive strategy withour world's best technology


CEO Message

Execution of SUMCO Vision will lead to further growth

We are making progress in realizing the SUMCO Vision.We are thoroughly entrenching activities based on the SUMCO Vision, which consists of the following four points.

“World's best in technology.” We have demonstrated significant progress on this front. In the silicon wafer industry, where values can be driven by technologies, manufacturers which cannot manufacture desired new-generation products tend to lose the chance to supply even older-generation products. Market needs are evolving at every moment. We strive to quickly and accurately capture these needs, push our limits to develop ultra-precision wafer technology, and collaborate on the technological front with customers in building long-term partnerships. By doing so, I believe that we have won the high regard of our customers.

SUMCO has about a 30% share of the global 300mm

World's Best in Technology1

Competitiveness in Overseas Markets4

Lively, Vigorous Business Activities with a Keen Awareness of Profit3

Deficit-Resistant Even during Economic Downturns 2

*Supplier Continuous Quality Improvement Award

silicon wafer market and is highly valued consistently by customers with the most difficult technological requirements. In April 2014, we were awarded the SCQI Award by Intel, the No. 1 semiconductor manufacturer in the world, for the twelfth consecutive year and for 13 times in total. The SCQI Award is a top-level award given to about 10 companies per year and SUMCO was remarkably the first company to win an SCQI Award for 12 consecutive years, among over 10,000 Intel suppliers around the world.

In addition, we were also awarded the Best Partner Award by Samsung Electronics in February 2014, after receiving the Samsung Prize (Special Prize) in November 2012. Continuous awards from such distinguished top-ranking manufacturers is proof of the high level of our technologies and I am confident that this will lead to the creation of corporate value.

Regarding the second point, “deficit-resistant even during economic downturns,” we have made some

SUMCO Vision


progress in solving technological obstacles to sales and have reduced fixed costs to a lower breakeven point.

I believe that our efforts have proved effective by resulting in two consecutive years of profits even in a harsh environment, after we recorded losses in the preceding three years. Without being complacent, we will continually raise our capacity to be adaptive in a changing environment by solving various issues through information sharing at a corporate-wide conference, and by enhancing cost competitiveness and raising customer satisfaction.

Regarding the third point, “lively, vigorous business activities with a keen awareness of profit,” I have promoted changes in awareness and corporate reforms since I was appointed as President. We dissolved the vertically-divided teams in the technology department and introduced a structure to enable people in manufacturing, sales, and development to share information on all issues and work together in the same direction. We are also introducing the same initiative at other plants. As a result, we are solving problems more quickly and preventing problems from occurring through a proactive initiative. I am encouraged to see such a corporate culture is becoming widespread on the operational front.

Finally, let us turn to global human resources. I am impressed to see many of our employees communicate well in foreign languages and our non-Japanese employees play an active role mostly at overseas bases of SUMCO, which now generates about 70% of sales overseas. In terms of diversity, however, I believe that we should do more. We have many female engineers but they tend to be placed disproportionately in the areas of essential technology and analysis. We need to make them play an active role in more diverse fields.

From a corporate reform phase to the next phase of an aggressive strategyIn the silicon wafer market, the production adjustments by foundries which began in the second half of 2013 have eased. Production is gradually recovering while capital spending for semiconductors is reviving. In particular, miniaturization is expected to push demand for advanced wafer products. We anticipate that demand will gradually exceed supply in the future.

In fiscal 2014, ending December 31, 2014, SUMCO is at an important juncture of shifting from a corporate reform phase to the next phase of an aggressive strategy. In the past two years, we implemented the Business Restructuring Plan, which was centered on withdrawing from the solar business and reducing excess production capacity for wafers of 200mm or less in diameter. We also took initiatives based on the SUMCO Vision. As a result of those efforts, we have accomplished structural reform and our technological endeavors have born fruit in the form of increased sales. Going forward, we will focus on lowering the fixed cost ratio, rather than the absolute amount of fixed costs. In other words, we will change gear from “reducing costs to lower fixed costs” to “increasing productivity to achieve more output with the same amount of fixed costs.” We are determined to make ourselves more capable to satisfy the technological requirements of our customers worldwide as a trusted supplier. This should also help increase our sales.

Abraham Lincoln once said that “commitment is what transforms a promise into reality.” I think these words aptly fit SUMCO’s current position.

Investing in human resources to achieve sustainable growthWhile there are various issues to be tackled, such as boosting financial strength, improving the breakeven point, and making further progress in world-leading technology, I am confident that our management team and employees can overcome those challenges with their high capabilities.

In such an environment, I recognize that securing and fostering next-generation human resources is certainly a great challenge that needs to be addressed once again. This is partly because we suspended hiring for two years at the time of implementing the Business Restructuring Plan. Going forward, we will increase investment in the continuous hiring and fostering of human resources, with the aim of developing our human assets, which are the most important foundation of corporate competitiveness.

We sincerely hope that you, our shareholders, will understand and share our vision and growth strategies from a long-term perspective and extend your continued support and cooperation to us.


CFO Message

Executive Vice President and CFO

Michiharu Takii

Message from CFO

Aiming to be a resilient company regardless of economic conditions

Making steady progress with the Business Restructuring PlanUnder the SUMCO Vision of “deficit-resistant even during economic downturns,” we implemented the Business Restructuring Plan to build a solid management base, become more adaptive to the environment, and realize a lower breakeven point. I am pleased to say that our efforts have helped improve our profitability steadily.

In fiscal 2013, particularly in the second half, our sales were sluggish in a harsh external environment. However, we have lowered our break-even point by over 30% when compared to fiscal 2011 and generated an operating profit of 17.8 billion yen and EBITDA of over 40.0 billion yen. If we had not implemented structural reform, we could have plunged into losses. In fiscal 2014, anticipating a pick-up in demand, we expect to grow sales and build profit.


Raise cash flow and enhance financial strength The key points of our business restructuring were to generate profits in any environment and to have positive free cash flow. As SUMCO managed to record profit amid declining demand, our next challenge is to improve free cash flow.

SUMCO has long-term contracts for the purchase of raw materials, in order to ensure stable supply of products, which we consider to be our social responsibility as a company with a high global market share. This also means, however, that when wafer consumption slows down, our inventory goes up. In fiscal 2013, flattish wafer consumption resulted in an increase in inventories and had a negative impact on free cash flow. Therefore, our immediate challenge is to find a way to offset this negative impact and generate free cash flow.

Furthermore, given the massive losses generated in the past, our equity ratio is low at present. I believe that we need to increase our shareholders’ equity by generating profit in each upcoming year.

Continue investment for the future

Our original plan for capital spending was to invest 14-17 billion yen per year. However, we conducted a comprehensive review, engaged in thorough dialogue with customers, devised various creative schemes, and prepared a plan to purchase and upgrade our equipment in order to produce more advanced and more precise wafers, as well as R&D activities, and so forth. Thanks to those initiatives, we have been able to keep our annual capital spending down to about 10 billion yen. We will continue to be conscious of ef ficiency in investment. As for investment to expand manufacturing capacity in accordance with demand growth, we will determine this only when an increase in product prices is sufficient to generate a recovery of the cost of investment.

Break-even point for sales (indexed)

100

80

60

40

20

0

1H 2H

Jan-2012

1H 2H

Jan-2013

1H 2H

Dec-2013

Continuously focus on rewarding our shareholdersTwo years ago, SUMCO issued class A shares with an entitlement to a dividend in priority over holders of common shares. For fiscal year 2013, we recorded a net loss but, with the approval of class A shareholders, we continued to pay dividends to common shareholders.

While the per-share dividend was cut from 2 yen to 1 yen, we paid dividends, as we have essentially become profitable through restructuring and have become more confident about our earnings growth in the future.

Nevertheless, our dividend is at the lowest level and we are not at all satisfied with this situation. We will therefore strive hard so that we can continue to pay dividends and even raise them.

The dividend for 2013 reflects our commitment to focus on rewarding our long-term shareholders who supported us even during dif f icult times, as well as our message that holding our shares continuously for the long-term is highly appreciated.

Index


SUMCO and the Growing Silicon Wafer Market

Growth Factors in the Silicon Wafer Market

Semiconductor devices are essential for electronic devices such as smartphones and tablet PCs. Increased use of semiconductors has meant greater demand for silicon wafers.

Silicon wafer demand has grown in tandem with semiconductor use

The shipment value of semiconductors using silicon wafers has increased about six-fold since 1990.Silicon wafer shipments in terms of area have also increased about six-fold.

Silicon Wafer (LH)Semiconductor (RH)

■ Smartphones　■ Tablet PCs■ Regular PCs

■ Silicon wafer shipments (SEMI-base)ー Theoretical silicon wafer shipmentsー SUMCO’s forecast

Global Silicon Wafer Shipment in Square Inches and Semiconductor Shipment in Value

Global Shipments of PCs and Mobile Devices 300mm Silicon Wafer Shipment Results,Forecasts, and Estimated Capacity

Medium-Term (Macro) Outlook for the Silicon Wafer Market

Growth of smartphones andtablet PCs is a driver.

Growth in demand for smartphones and tablet PCs are expected to drive demand for silicon wafers.

Silicon wafer demand has grown in tandem with global economic growth

Silicon wafer shipments are highly correlated to purchasing power parity (PPP) based GDP and are expected to keep growing in line with economic growth.

The demand/supply balance of 300mm wafers is expected to improve.

Increasing demand for advanced semiconductor devices such as memory and logic devices is expected to result in a tightened demand/supply balance for 300mm wafers by around 2015.

Special Feature

Growing Silicon Wafer Market

Global market value, Approx. 1 trillion yen

(About 3% of the semiconductor market)

Growth of thewafer market

Growth of thesemiconductor market

Evolution in technologies of semiconductors

Growth of global PPP-GDP

Exponential increase in use of the Internet

Improved balance of demand and supply

Technological innovationof wafers

2

3

4

1

1

3

2

4

1990 2000 2010

2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2014 20152017 (Forecasts)

2013 2001 2013 2016* Sources: SEMI, WSTS * Sources: SUMCO estimates

* Sources: SUMCO estimates* Sources: SUMCO estimates

10,000

7,500

5,000

2,500

0

2.5

2.0

1.5

1.0

0.5

0

6

5

4

3

2

1

0

12,000

9,000

6,000

3,000

0

400

300

200

100

0

(Millions of square inches/year)

(Billions units)(Million/month)

(Millions of square inches/year)(Billions of dollars/year)

12,000

9,000

6,000

3,000

00 20 40 60 80 100

Medium-Term (Macro) Outlook for theSilicon Wafer Market

■SEMI statistics　■SUMCO’s forecasts(min)■SUMCO’s forecasts(max)　ーEstimated capacity

(Millions of square inches/year)

PPP-GDP (Trillions of dollars)


Silicon makers have consolidated

About 15 years ago, the silicon wafer industry was crowded with 9 major wafer makers. It is now consolidated and made up of 6 companies, SUMCO, Shin-Etsu Handotai Co., Ltd., and 4 overseas makers.

Two Japanese makers are leading the market in size and profitability

SUMCO and its Japanese competitor hold the top two positions of the silicon wafer market in revenue size, profitability, and technology.

Global Major Silicon Wafer Makers’ Operating Income(Aggregate)

Global Major Silicon Wafer Makers’ Operating Income

Major makers’ profits are improving

After global major silicon wafer makers’ profits dropped in the second half of 2008 following the global financial crisis, profits bottomed out in 2011.

Difference between makers is widening

While profits of overseas majors are declining, SUMCO has expanded its earnings power to a peak level, due to reforms under the new management team.

In addition to global economic growth, the fact that smartphones, tablet PCs, automobiles, industrial machinery and other various products are connected by the Internet has helped expand the market for silicon wafers which are essential for fabricating semiconductors.The demand/supply balance for 300 mm wafers is expected to improve.Within the context of the recent consolidation of the silicon wafer industry, SUMCO, which has made progress in management reforms, has become a global leader in size and in profitability.

Industrial Structure and SUMCO’s Position

*Sources: Prepared by SUMCO, based on the Japan Society of Newer Metals’ data.Simple aggregate of each company’s fiscal year results. Estimate for 2013.

*1 SUMCO estimates, based on the results from the 4th quarter of 2012 to the 3rd quarter of 2013

50

40

30

20

10

0

50

40

30

20

10

0

(Billions of yen/year) (Billions of yen/year)

Global Major Silicon Wafer Makers’ Size and Profitability

15%

10%

5%

0%

(5%)

(10%)

(15%)

Sales (Billions of yen)

* Sources: SUMCO estimates

0 50 100 150 200 250

Operating income margin

2013 *1201220112010 2013 *1201220112010

*Sources: Prepared by SUMCO, based on each company’s business results.Simple aggregate of overseas companies’ fiscal year results, using month-end currency rates. Estimates for 2013.

*1 SUMCO estimates, based on the results from the 4th quarter of 2012 to the 3rd quarter of 2013

2013

SUMCO

Shin-Etsu Handotai

Siltronic

SunEdison

LG Siltron

Sino-America

2002

SUMCO

Siltronic

1998

Sumitomo Sitix

Mitsubishi Materials Silicon

Komatsu Electronic Metals

Shin-Etsu Handotai

Wacker-Siltronic

Nittetsu Electronic

MEMC

LG Siltron

Toshiba Ceramics

2007

SUMCO

Covalent Materials

C

B

A

SUMCO

D

■ SUMCO■ Competitor A■ Others


“Intansible Assets” support creation of value

Sources and Cycle of SUMCO’s Value Creation

“Intangible Assets”

In order to create corporate value, SUMCO’s “Intangible assets” which do not appear on the financial statements play an important role.Let us introduce SUMCO’s cycle for the creation of corporate value through use of these assets.

Continuously improving human

resources and R&D activities

“Intangible Assets”support creation of value

1

P16

Enhancing technological capability and productivity

2

P17

Enhancingcorporate value

6

P20

Ensuring high yield, high quality, high performance, and

large, stable supply

3

P18

Capturinghigh global shares

5

P20

Being highly evaluated by customers worldwide

4

P19

Reinvestment


SUMCO’s human resources are the fountainhead for the creation of corporate value.In addition, continuous R&D efforts are critical for continued evolution of silicon wafers, which incorporate various advanced technologies.

Management information briefing

World’s No. 1 in the Number of Patents Held

R&D Expenditures

The president and vice president hold information briefings on a regular basis and personally brief executives and employees on business and financial conditions in order to share the information and improve the power of the corporate team.The company makes special efforts to ensure that, in addition to managers and senior executives, regular employees have a good understanding of the company’s conditions and the thinking of the top management.

Aiming to be the world’s best in technology, SUMCO holds more patents than any other company for silicon wafer manufacturing.

Every year SUMCO devotes 2-3% of its net sales to R&D and promotes development of technology in anticipation of requirements of the next generation.

3,000

2,500

2,000

1,500

1,000

500

0

12.5

10.0

7.5

5.0

2.5

0

5

4

3

2

1

0

%

SUMCO

9.8

7.6

6.7

5.8

4.6 4.6

A B C D

Continuously improving human resources and R&D activities

2.5

3.5

2.42.3

2.22.5

1

(billions of yen)

Jan-10Jan-09 Jan-11 Jan-12 Jan-13 Dec-13

R&D expenses (LH)Ratio of R&D Expenditures to Net Sales (RH)



Enhancing technological capability and productivity

Debriefing sessions and awarding for young engineers

Defect Rate (Index)

As a result of company-wide measures to prevent defects, the occurrence of defects in FY2013 was reduced to a third of the level of the FY2011 and we will continue our efforts for "zero defect" in the future.

100

75

50

25

0

Index

Zero

2SUMCO is proud to be a technology-driven company. Enhancing each specific technological capability is how the company will maintain and improve its competitiveness.It is technological capability that is raising our productivity and enabling us to stably provide high-quality products.

In 2013 we provided an opportunity for our young engineers to report on their work, in a debriefing session held at one of our Kyushu factories. The audience included our president, vice president, and other executives. In addition to engineers from Technology Departments in Japan, engineers from the US, Indonesia, Taiwan, and other overseas locations attended and made presentations. In addition to one Grand Award for Excellence and two Awards for Excellence, various awards of recognition were given to engineers who gave presentations.These engineers, who are at the forefront in our drive to be world best in technology, were at times warmly encouraged, and at times strongly (and constructively) criticized; the event has provided added motivation to these young engineers. In 2014 the similar event to allow our young engineers to report on their work will be held at one of our Kyushu factories.

Jan-12 Jan-13 Dec-13 Target


The company’s global network enables SUMCO to address customers’ needs in a prompt and appropriate manner.

Ensuring high yield, high quality,high performance, and large, stable supply

The Silicon Wafer Production Process

Global Network

Monocrystalline pulling

● UK

● Shingapore

● Albuquerque

●●● Taiwan

Overseas Bases as of March 2014 ● Sales base● Technical support base● Manufacturing base● Representative office

Korea ●Phoenix ●●

China ●

Indonesia ●

The quest for crystal perfection The quest for ultra-flatness The quest for ultrahigh purity

Melting Seeding

Illustration Illustration Illustration

Rotation and pulling

Monocrystalline silicon ingot

Slicing Lapping Etching Polishing

Wafer processing techniques

SUMCO is producing almost perfect monocrystalline ingots that have constant atomic arrangement with no minuscule crystal defects.

SUMCO is producing ultra-flat silicon wafers: wafers that are thoroughly flat up to its outer periphery(Equivalent to the difference in the elevation of 0.1mm, or 0.004 inch, in a baseball stadium of 300m, or 12 inch, in diameter)

SUMCO is producing ultrahigh purity silicon wafer, with close to zero micro-particles present on the wafer.(Equivalent to 10 or less ping-pong balls sitting in a circular land area of 300km, or 186 miles, diameter, such as Kyushu Island in Japan)

3Enhanced technological capability and productivity result in high yield, high quality, and high performance.In addition, satisfying requirements of our customers worldwide and realizing a stable supply of products are essential for SUMCO to be a leading company.

High purity, high quality silicon wafers can only be made in an ultra-clean environment.In the monocrystalline pulling process, by use of SUMCO crystal control technology, monocrystalline ingots that are nearly perfect and free of defects are manufactured. Next, after process, silicon wafers that are ultra-flat, ultra-pure, and polished like a mirror are produced.

Cross-section drawing



Supplier Continuous Quality Improvement Award

SONY Semiconductor

Excellent Partner Award(2013)

Texas Instruments (U.S.A.)

Supplier Excellent Award(2013)

International Rectifier (U.S.A.)

2013 Supplier of the Year(2013)

Shanghai Hua Hong NEC (China)The Best Partner

(2012)

Excellent QualityTechnical Support

Photo by Chip Holley

Samsung Award of Honor (Special Award)Best Partner Award

Corporate name Location ofheadquarters

Semiconductor sales ($m)

1 Intel U.S.A. 49,114

2 Samsung South Korea 33,590

3 TSMC Taiwan 19,804

4 SK hynix South Korea 13,040

5 Toshiba Japan 12,197

Corporate name Location ofheadquarters

Semiconductor sales ($m)

6 TI U.S.A. 11,474

7 Micron U.S.A. 10,551

8 ST Europe 8,184

9 Renesas Japan 7,827

10 Infineon Europe 5,265

All top 10 semiconductor manufacturers are SUMCO’s customers

Awarded by Other Customers

12th Consecutive Years SCQI Award, Awarded 13 Times in Total

First to Receive Award as Foreign CompanyBest Partner Award to be awarded for the second time

First to Receive Award as Silicon Wafer Maker

Top 10 Semiconductor Manufacturers in 2013

Source: Prepared by SUMCO based on data by IC Insights (excluding fabless)

The SCQI award is part of Intel's SCQI program, which encourages Intel's key suppliers to strive for excellence and continuous improvement. To qualify for SCQI status, suppliers must score at least 95 percent on a report card that assesses performance and ability to meet cost, quality, availability, technology and environmental, social and governance goals. Suppliers must also achieve 90 percent or greater on a challenging improvement plan and demonstrate solid quality and business systems. SUMCO accomplished the unprecedented feat of winning SCQI Award 12th consecutive years and 13 times in total among more than 10,000 suppliers.

Being the first silicon maker to receive the Samsung Prize (Special Prize) in 2012 from Samsung Electronics, SUMCO, in 2013, received the Best Partner Award from that company’s Semiconductor Business for its outstanding contribution to business development.

SUMCO received this Technical Support Award from TSMC’s major plants for the second time.

4 Being highly evaluated bycustomers worldwideIn the silicon wafer industry where values can be driven by technologies, SUMCO supplies wafer to semiconductor manufacturers all over the world, from Japan to America, Europe, South Korea, Taiwan, China, and Southeast Asia.SUMCO is highly evaluated by its customers worldwide, including all top 10 semiconductor manufacturers, as reflected in terms of sales.


SUMCO30%

Others

Capturing high global shares

Enhancing corporate value

SUMCO’s high global share reflects its high evaluation by customers worldwide. This also means that we can hear voices of many more customers, enabling us to further enhance our value.

We believe that efforts to augment our “intangible assets” will ultimately lead to higher corporate value recognized in the capital market.

Global Share

TSR (Total Shareholder Return)

One in every three or four leading-edge electronic devices in the world uses silicon wafers made by SUMCO.

SUMCO’s share price dropped significantly from 2007 due to profit deterioration caused by excessive capital spending in the past. However, under the current management team, the corporate reforms have begun to bear fruit, with SUMCO’s TSR changing into an improving trend. SUMCO’s management does not aim at improving the stock price in the short term, its objective is to increase real corporate value and to raise the TSR in the medium term.

Semiconductor devices have evolved together with nanotechnology. SUMCO, deeply involved in the development of production methods and technology at the nano scale, and has earned recognition for the highly stable quality of its products, for the cutting-edge technological development capability, for the adaptive and detailed technical support provided, and for the stable supply of its products, accompanying its supply of defect-free, ultrahigh quality, ultrahigh purity, and ultrahigh precision wafers.

Total Shareholder Return (TSR) combines share price appreciation and dividends paid and is expressed as an annualized percentage.

25

20

15

10

5

0

(5)

(10)

(15)

(20)

(25)

(30)

(35)

From January 31, 2007 to January 31, 2012

From January 31, 2012 to December 31, 2013

TSR (Total Shareholder Return)

5

6

%


Governance

Each operational organization clarifies its authorities and a person responsible for its execution under an executive officer in charge, based on the Internal Regulations, and stipulates its proper administrative procedures. SUMCO has adopted a corporate auditor system which is currently composed of five members, including two full-time corporate auditors. Auditors perform audits based on a plan formulated by the Board of Corporate Auditors. They also attend the meetings of the Board of Directors and other important meetings to examine business operations and the Company’s financial condition. These activities allow auditors to monitor the performance of directors. SUMCO has also established an internal auditing department, which is composed of seven staff members. Based on the Internal Auditing Regulations and annual auditing plan, the department performs internal audits to check the efficiency of operations and status of compliance activities. The results of the auditing are reported to the president and reported to the audited departments. If needed, correction measures are implemented and their progress is updated. The internal auditing department works closely with auditors by conducting regular meetings and sharing audit results and other information with the aim of achieving efficient and effective auditing.

Corporate Governance

Corporate Governance Structure (as of March 28, 2014)

Fundamental Policy

SUMCO’s Board of Directors comprises nine directors including three outside directors. The directors make decisions concerning legal, managerial, and other important issues. The Board is also responsible for supervising the performance of the directors as well as the execution of business operations by the president and other executive officers. By nominating outside directors with expertise and insights in managerial issues, SUMCO is incorporating the perspective of outsiders to enhance its function of managerial supervision. The Board of Directors meets once a month and holds extraordinary meetings as required. SUMCO’s Management Conference, which is composed of all executives with the rank of managing executive officer and above, meets each week in principle to examine important managerial matters. SUMCO has adopted an executive officer system in which executive officers execute business operations based on decision-making by the Board of Directors which performs the function of decision making and supervision. This separation allows SUMCO to respond more promptly to the changing business environment and speed up its decision-making.

1 4

6

5

2

3

SUMCO places importance on responding to the expectations of shareholders by increasing corporate value. Another priority is establishing and preserving sound relationships with all stakeholders. With this in mind, we implement a variety of corporate governance measures with the principal aim of

maintaining a high level of transparency and fairness with regard to speedy decision-making and execution of business operations. As part of this commitment, we strive to ensure transparency with timely and appropriate information disclosure.

Business Security Committee (BSC)

Risk assessment, prevention, and

crisis management

Executive officersExecution of overallbusiness activities

Divisions and departments

Execution of day-to-day operations

Subsidiaries

Internal Auditing Dep’tInternal audit

Management ConferenceDiscussion on important issues

SUMCO Charter of Corporate

Conduct

General Meeting of Shareholders

Appointment, dismissal Appointment, dismissal

Appointment, dismissal

Appointment,dismissal

Board of Directors (Directors)Managerial decision making and supervision

Board of Corporate Auditors(Auditors)

Staff for corporate auditors

Accounting AuditorsAccounting audit

Corporate Governance Structure


BSC (Business Security Committee)Structure

Objectives

Risk Management

BSC’s Structure and Objectives

Compliance Structure

SUMCO Charter of Corporate ConductIn order to develop business and ensure that the company is a sound and sustainable entity, SUMCO believes that it is indispensable that our executives and employees comply with rules and regulations and their underlying spirit, ethics, and other social standards, to be accepted in the world. “The Charter of Corporate Conduct” has been designated as the superior standard, positioned above our company’s other rules and compliance program, for action by the company to enable it to fulfill its social responsibility and grow further. The Chief Compliance Officer is assigned to be the supreme officer responsible for supervising compliance with the SUMCO Charter. Each general manager supervises compliance in his or her department and submits regular reports to the Chief Compliance Officer. All SUMCO Group companies maintain their own code of conduct which is similar to the SUMCO Charter of Corporate Conduct.

Establishment of an Internal HotlineAn internal hotline has been in place since 2006, and since September 2010 employees can also consult an appointed outside lawyer for consultation regarding corporate or employee conduct. Company employees have been well informed of the system, by means including distribution of a compliance card which explains the hotline system, the legal advisor, and how to report to them.

Fair Business ActivitiesSUMCO’s “Rules on Handling Grant of Benefits” prohibit the following actions: (1) To make contributions and donations to politicians in violation of the Political Funds Control Act and/or the Public Offices Election Act of Japan; (2) To offer favorable benefits in the form of excessive entertainment or gifts, with the aim of seeking return or receiving favors, in connection with duties of civil servants; (3) To deal with anti-social forces or groups; (4) To give financial benefits concerning the exercise of rights of shareholders; (5) To offer excessive entertainment or gifts, beyond the extent permitted by social ethical standards; and (6) To provide any type of illegal benefit or favors or engage in transactions which could be recognized as unfair or unjust under social ethical standards. At the same time, concerning the making of contributions and sponsoring activities, entertainment expenses, making of gifts of celebration and condolence, placing of advertisements and promotion of business activities, subscription to or purchase of published materials, payment of membership fees of external organizations, and the like, rules have been adopted and it is required to receive appropriate clearance before acts such as these.

Export ControlIn order to appropriately exercise control of exports with the aim of maintaining international peace and security, SUMCO has adopted its “Security Export Control Rules.” The company screens customers and transactions and, with regard to export of goods and provision of technology to non-residents, it checks whether proper procedures are taken based on the Rules and the pertinent laws and regulations.

Blocking Any Relationship withAntisocial ForcesThe SUMCO Charter states that the company and its employees

1

2

SUMCO has established the “Risk Management Basic Rules,” which stipulate basic issues on risk management. Measures such as an information distribution route and setting-up of an emergency headquarters have also been established in case of a major risk occurrence.

1 Risk Management Basic PoliciesWith the aim of ensuring the safety of all resources that are related to corporate activities such as personnel, properties, money, and trust, SUMCO shall (1) predict risks in advance and prevent their occurrence (preventive measures against risk occurrence) and (2) continue to promote measures to minimize damage in the case of risk occurrence (minimizing damage). The Company’s basic policy in promoting risk countermeasures is as follows:a. From the standpoint of proper allocation of management resources and ensuring effectiveness, prioritize the adoption of countermeasures against risks with a higher rate of occurrence and a higher degree of damage. b. From the standpoint of business continuity, aim to minimize damage or loss by preventing the suspension or discontinuation of business activities even in the case of an accident or other such situations.

2 Business Security Committee (BSC) The BSC was launched to control all risk management activities. The BSC formulates risk management policies for the entire Company and verifies the status of risk response measures in progress. SUMCO also properly controls specific risks such as risks related to information leakage, financial markets, and product quality.

are to have no relationship with antisocial forces and reject any requests or demands from them. This is understood and observed throughout SUMCO executives and employees, who are kept aware of this through training programs and seminars.

The BSC shall implement the following matters that are related to risk management.

Departments Group companies in Japan

Overseas group companies

President

Directors and executive officers ofeach department, officers in charge of offices, plants, and group companies

General Affairs Department

Chairman:

Committee members:

Secretariat:

a. Discussing and deciding on risk management policies for the entire Company

b. Discussing and deciding on risk prevention measures

c. Addressing and discussing new risk-related issues

d. Sharing risk-related information

e. Providing education on risk management

f. Following up on the progress of risk-related issues


Governance

List of Directors (as of March 28, 2014)

Directors and Corporate Auditors

A message from Outside Corporate Auditor

In keeping with the common aim of sound development of corporate management, directors and auditors brace themselves for execution of their respective duties, based on the relations of trust.While directors, including outside directors, are engaged in management of the company, the important role of auditors is to contribute to corporate governance through monitoring making and execution of decisions by directors. As an outside auditor, I strive to fulfill my duty of checking on these matters not by mechanically adhering to conventional internal practices but based on the knowledge, experience, and social common sense that I have acquired in my practice as lawyer.

Corporate Auditor, Hitoshi Tanaka

Apr. 1976 Registered as Attorney at LawJoined Narutomi Law Office (present Marunouchi Minami Law Office)

Oct. 2003 Representative of Narutomi Law Office (present post)

Apr. 2005 Audit & Supervisory Board Member of the Company (present post)

*1 Directors Makoto Nakaoka, Hirotake Ohta, and Masahiro Mitomi are Outside Directors as stipulated in Article 2-15 of the Company Law of Japan.

President and CEO

MayukiHashimoto

Director

Harumitsu Endo

Director

Makoto Nakaoka

EVP and CFO

MichiharuTakii

Director

Hisashi Furuya

Director

HirotakeOhta

Director

Yoichi Tsuchiya

Director

Kazuo Hiramoto

Director

MasahiroMitomi

*1 *1 *1


Executive Officers

* Executive Officers who concurrently hold position as Directors

1 SUMCO’s managementI evaluate that, given the demanding business environment of the times, all the divisions including production, technology, sales & marketing, and other administrative divisions are making efforts, while the management is fully capturing the situation and conditions of each division and working on its missions and tasks.2 SUMCO’s governanceWith regard to governance-related basic principles, organizational structure, implementation, and the internal control system, there is no problematic issue to be pointed out at present. Given that a person with an independent position has recently been appointed as a director, I believe

that SUMCO’s corporate structure becomes even more aligned with the interests of general shareholders.3 Meetings of the Board of Corporate Auditors and the Board of DirectorsAt the meetings of the Board of Corporate Auditors and the Board of Directors, participants spend ample time for discussion as well as questions and answers from their respective viewpoints, in my view. When there are issues of concern, information is provided in advance of the meeting in order to enable productive discussions and decisions.

*2 Corporate Auditors Hitoshi Tanaka, Kitaro Yoshida and Keisuke Yamanobe, are Outside Corporate Auditors as stipulated in Article 2-16 of the Company Law of Japan.

President* Mayuki Hashimoto

Executive Vice President* Michiharu Takii

Senior Managing Executive Officer* Yoichi Tsuchiya

Senior Managing Executive Officer* Harumitsu Endo

Senior Managing Executive Officer* Hisashi Furuya

Senior Managing Executive Officer* Kazuo Hiramoto

Managing Executive Officer Takeo Sasaki

Managing Executive Officer Fumio Inoue

Managing Executive Officer Keiichi Tanaka

Executive Officer Seiji Miyachi

Executive Officer Makoto Itoh

Executive Officer Kazuhiro Ikezawa

Executive Officer Jiro Ryuta

Executive Officer Takayuki Morikawa

Full-timeCorporate Auditor

HiroshiYoshikawa

Corporate Auditor

Kitaro Yoshida

Full-timeCorporate Auditor

Hidemasa Hosaka

Corporate Auditor

KeisukeYamanobe

Corporate Auditor

Hitoshi Tanaka

*2 *2

*2


CSR

Social Responsibilities (CSR)

SUMCO aims to become the world’s No. 1 silicon wafer manufacturer that fulfills expectation of its customers and shareholders, enhances the well-being of its employees, and contributes to society.

Management Philosophy

Basic Policy

SUMCO pledges to fulfill its responsibilities to stakeholders who support our business activities.

Stakeholder Relationship Diagram

Major Responsibilities to Various Stakeholders

For our customersImprove customer satisfaction(maintain and improve the quality of products and services)

For our shareholders

Distribute profits (through dividends, etc.) and increase corporate value

For ourcounterparties

Build robust, excellent and sound supply chains

For our employees

Ensure employment, distribute profits (through bonuses, etc.) and improve the work environment (including health, childrearing and leaves for long-term care)

For local communities

Create jobs and generate tax revenues, contribute to local environment(through street cleaning and installing street lights) and local educational activities (providing workplace experience, plant tours, and sending speakers to school)

Customers

Shareholders

EmployeesLocalcommunities

Counterparties

At SUMCO, we strive to contribute to the development of industry and to the betterment of people’s lives by supplying silicon wafers that are essential for many companies that make a variety of semiconductor products. Our CSR activities associated with those objectives reflect our dedication to always being a good corporate citizen.SUMCO’s CSR activities comprise two main parts. Compliance, assurance of safety, and environmental protection are among the obvious responsibilities of “citizens,” and must be borne while maintaining and improving products and services through business activities, while maintaining employment, and while distributing profits to society as fundamental corporate responsibilities. These responsibilities combine to form the

foundations of CSR, and the fulfillment of these duties and responsibilities is predicated on the proper governance of the organization. For this reason, SUMCO believes corporate governance and corporate ethics are important managerial issues.

In addition to such basic activities, we are expected to contribute to society in areas other than our primary business activities, through improving the environment, educational and cultural activities, supporting volunteer activities of employees, and more. We would like to be a good member of our local communities and are actively engaged in those activities.


Together with Local CommunitiesTo be a good partner in the local community, SUMCO’s plants and offices are actively involved in local activities.

Participating in Local Environmental Improvement ActivitiesSUMCO’s JSQ Division in Akita City participates with local residents and local companies in the Omono River Watershed Clean-up Activity, which is organized by the city once a year.At SUMCO TECHXIV Corporation’s Nagasaki Office, many employees participate in the concerted clean-up efforts of the Omura Bay Area, hosted by the Society to Beautify Omura Bay” organized by municipalities and others in the Bay area. The event is held twice a year.SUMCO TECHXIV Corporation’s Miyazaki Office is involved in a local clean-up activity called Kiyotake-cho KINRIN Clean-up Activity, together with nearby companies, twice a year.

Participating in Local Traffic Safety CampaignsSUMCO’s Chitose Plant in Hokkaido participates in traffic safety campaigns each spring and fall, to emphasize to drivers and pedestrians the importance of traffic safety awareness.

Left: Employees and their families participated in the Omono River watershed clean-up activity.(JSQ Div.)Middle: Clean-up activity in the Omura Bay area (SUMCO TECHXIV Corporation’s Nagasaki Plant)Right: Kiyotake-cho KINRIN Clean-up Activity (SUMCO TECHXIV Corporation’s Miyazaki Plant)

Joint emergency drill, assuming a fire (SUMCO TECHXIV Corporation’s Nagasaki Office)

Comprehensive Fire DrillsEvery year, the SUMCO Group conducts comprehensive fire drills, night-time and off-day drills, and small-scale drills based on its fire-fighting and prevention plan. Drills and training programs of fire-fighting with fire extinguishers, use of fire hydrants, and use of an in-house fire engine, are carried out assuming that an earthquake has started a fire. Employees are also given the experience of a seismic intensity 6 earthquake, in a vehicle specially fitted out for this purpose. The night-time and off-day drills are conducted during the night time and off-days, so that conditions more closely resemble those that might be confronted.

Simulated earthquake experience

Drill for using a fire hydrantDrill in how to use an in-house fire engine

Participating in Local Clean-up Activities in PhoenixMany of our employees in our U.S. plant participate in the Adopt-A-Street Program of the City of Phoenix. In order to help maintain and beautify Phoenix streets, they clean up the streets around the plant several times a year. A street sign with the name of the

sponsoring entity and volunteers

Joint Fire Drill with a Social Welfare FacilityAt SUMCO TECHXIV Corporation’s Nagasaki Office, employees regularly participate in joint emergency drills based on the assumption of fire in a nearby social welfare facility.

Participating in the Festival in IndonesiaSUMCO’s plant in Indonesia co-sponsors and participates actively in the Jakarta-Japan Matsuri Festival, a two-day event hosted by the Embassy of Japan, in which around 100,000 people participate each year. In 2013, SUMCO won a second place prize in competition with about 30 companies.

Employees in Indonesia participated in the competition among companies.


Financial Data

Dec-13 Dec-13 Jan-13 Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05

Fiscal Year Thousands of

U.S. dollars11 month termMillions of yen

Net sales 1,756,391 185,106 206,692 247,177 276,962 218,218 391,929 474,951 319,386 220,527 193,123

Domestic sales 468,327 49,357 68,396 87,895 97,527 85,772 149,695 178,995 133,295 94,017 82,609

Overseas sales 1,288,064 135,749 138,296 159,282 179,435 132,446 242,234 295,956 186,091 126,510 110,514

Operating income (loss) 168,915 17,802 13,216 967 (8,432) (86,502) 45,069 140,386 84,390 44,341 31,467

Net income (loss) 6,784 715 3,427 (84,369) (65,588) (100,472) 18,887 74,880 72,051 20,486 10,866

Comprehensive income (loss) 154,493 16,282 8,553 (88,127) (68,758) - - - - - -

End of Fiscal YearThousands of

U.S. dollars Millions of yen

Total assets 4,730,269 498,523 493,334 436,421 561,777 662,882 733,897 710,495 578,854 351,934 317,911

Cash and cash equivalents 596,480 62,863 72,104 25,465 53,876 71,776 53,955 58,755 38,005 31,152 15,002

Total liabilities 2,881,554 303,687 313,008 309,648 345,633 377,959 344,375 294,985 251,536 190,084 237,486

Liabilities with interest 2,266,239 238,839 239,944 235,024 264,879 299,620 208,094 114,189 136,250 127,260 180,596

Minority interests* - - - - - - - - - 170 67

Total equity 1,848,715 194,836 180,326 126,773 216,144 284,923 389,522 415,510 327,318 161,680 80,358

Cash flows from operating activities 22,212 2,341 16,308 18,917 29,188 7,700 93,334 188,517 83,165 62,895 49,365

Cash flows from investing activities (82,892) (8,736) (15,228) (17,473) (12,017) (75,968) (147,585) (149,231) (101,455) (52,700) (35,168)

Cash flows from financing activities (42,831) (4,514) 47,503 (29,583) (34,345) 86,844 51,212 (18,706) 24,841 5,835 (31,063)

Depreciation and amortization 199,497 21,025 32,333 51,998 78,182 122,869 89,864 66,317 44,151 35,251 34,728

Capital expenditures 69,219 7,295 12,205 22,042 10,396 29,914 144,160 165,207 88,145 49,032 44,639

R&D expenses 44,217 4,660 4,682 5,802 6,755 7,642 9,893 10,829 6,917 4,550 4,263

EBITDA 381,222 40,177 46,768 52,330 60,994 15,414 137,554 209,021 129,909 80,530 67,132

Per Share Information U.S. dollars Yen

Net income (loss) per share (0.01) (1.22) 8.93 (327.33) (254.46) (389.81) 74.36 294.34 597.66 195.61 208,639.39

Diluted net income (loss) per share - - - - - - - - - - -

Net assets per share 4.49 473.42 436.94 424.47 761.97 1,025.35 1,419.24 1,409.59 2,297.90 1,350.41 1,199,372.83

Cash Dividends Per Share U.S. dollars Yen

- Common stock 0.01 1.00 2.00 0.00 0.00 0.00 40.00 55.00 50.00 20.00 0.00

- Preferred stock 21,706.72 2,287,671.23 2,500,000.00 - - - - - - - -

Financial Ratios %

Operating income margin 9.6 6.4 0.4 (3.0) (39.6) 11.5 29.6 26.4 20.1 16.3

Return on assets 3.6 2.8 0.2 (1.4) (12.4) 6.2 21.8 18.1 13.2 9.7

Shareholders' equity ratio 33.7 33.2 25.1 35.0 39.9 49.8 50.5 50.5 45.9 25.3

Return on euqity 0.4 2.6 (55.2) (28.5) (31.9) 5.2 23.0 31.7 16.9 14.5

Debt equity ratio (Net) 1.0 1.1 1.9 1.1 0.9 0.4 0.3 0.3 0.6 2.1

Number of shares outstanding (thousands) 257,751 257,751 257,751 257,751 257,751 257,751 254,400 127,200 119,700 67

Number of employees 7,277 7,879 8,328 9,459 9,719 9,629 9,526 8,864 5,554 5,705

10-year Major Financial Data


Dec-13 Dec-13 Jan-13 Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05

Fiscal Year Thousands of

U.S. dollars11 month termMillions of yen

Net sales 1,756,391 185,106 206,692 247,177 276,962 218,218 391,929 474,951 319,386 220,527 193,123

Domestic sales 468,327 49,357 68,396 87,895 97,527 85,772 149,695 178,995 133,295 94,017 82,609

Overseas sales 1,288,064 135,749 138,296 159,282 179,435 132,446 242,234 295,956 186,091 126,510 110,514

Operating income (loss) 168,915 17,802 13,216 967 (8,432) (86,502) 45,069 140,386 84,390 44,341 31,467

Net income (loss) 6,784 715 3,427 (84,369) (65,588) (100,472) 18,887 74,880 72,051 20,486 10,866

Comprehensive income (loss) 154,493 16,282 8,553 (88,127) (68,758) - - - - - -

End of Fiscal YearThousands of

U.S. dollars Millions of yen

Total assets 4,730,269 498,523 493,334 436,421 561,777 662,882 733,897 710,495 578,854 351,934 317,911

Cash and cash equivalents 596,480 62,863 72,104 25,465 53,876 71,776 53,955 58,755 38,005 31,152 15,002

Total liabilities 2,881,554 303,687 313,008 309,648 345,633 377,959 344,375 294,985 251,536 190,084 237,486

Liabilities with interest 2,266,239 238,839 239,944 235,024 264,879 299,620 208,094 114,189 136,250 127,260 180,596

Minority interests* - - - - - - - - - 170 67

Total equity 1,848,715 194,836 180,326 126,773 216,144 284,923 389,522 415,510 327,318 161,680 80,358

Cash flows from operating activities 22,212 2,341 16,308 18,917 29,188 7,700 93,334 188,517 83,165 62,895 49,365

Cash flows from investing activities (82,892) (8,736) (15,228) (17,473) (12,017) (75,968) (147,585) (149,231) (101,455) (52,700) (35,168)

Cash flows from financing activities (42,831) (4,514) 47,503 (29,583) (34,345) 86,844 51,212 (18,706) 24,841 5,835 (31,063)

Depreciation and amortization 199,497 21,025 32,333 51,998 78,182 122,869 89,864 66,317 44,151 35,251 34,728

Capital expenditures 69,219 7,295 12,205 22,042 10,396 29,914 144,160 165,207 88,145 49,032 44,639

R&D expenses 44,217 4,660 4,682 5,802 6,755 7,642 9,893 10,829 6,917 4,550 4,263

EBITDA 381,222 40,177 46,768 52,330 60,994 15,414 137,554 209,021 129,909 80,530 67,132

Per Share Information U.S. dollars Yen

Net income (loss) per share (0.01) (1.22) 8.93 (327.33) (254.46) (389.81) 74.36 294.34 597.66 195.61 208,639.39

Diluted net income (loss) per share - - - - - - - - - - -

Net assets per share 4.49 473.42 436.94 424.47 761.97 1,025.35 1,419.24 1,409.59 2,297.90 1,350.41 1,199,372.83

Cash Dividends Per Share U.S. dollars Yen

- Common stock 0.01 1.00 2.00 0.00 0.00 0.00 40.00 55.00 50.00 20.00 0.00

- Preferred stock 21,706.72 2,287,671.23 2,500,000.00 - - - - - - - -

Financial Ratios %

Operating income margin 9.6 6.4 0.4 (3.0) (39.6) 11.5 29.6 26.4 20.1 16.3

Return on assets 3.6 2.8 0.2 (1.4) (12.4) 6.2 21.8 18.1 13.2 9.7

Shareholders' equity ratio 33.7 33.2 25.1 35.0 39.9 49.8 50.5 50.5 45.9 25.3

Return on euqity 0.4 2.6 (55.2) (28.5) (31.9) 5.2 23.0 31.7 16.9 14.5

Debt equity ratio (Net) 1.0 1.1 1.9 1.1 0.9 0.4 0.3 0.3 0.6 2.1

Number of shares outstanding (thousands) 257,751 257,751 257,751 257,751 257,751 257,751 254,400 127,200 119,700 67

Number of employees 7,277 7,879 8,328 9,459 9,719 9,629 9,526 8,864 5,554 5,705

(Note) The translation of Japanese yen amount into U. S. dollar amount has been made at the rate of ¥105.39 to $1, the rate of exchange at December 31, 2013.


Financial Data

Management's Discussion and Analysis of Operations and Financial Conditions

Market EnvironmentDuring the year ended December 31, 2013 (February 1, 2013 – December 31, 2013), the market for silicon wafers for semiconductors was negatively impacted by the sluggish demand for personal computers. However, growing demand for smartphones and tablet computers compensated for this, and the market began to recover after bottoming out in February.

Net SalesFor the year ended December 31, 2013, the SUMCO Group registered net sales of 185.1 billion yen 21.6 billion yen decrease from the previous fiscal year, due to change of fiscal year-end and production adjustment of foundries.

Domestic net sales decreased to 49.4 billion yen from the previous fiscal year of 68.4 billion yen. Overseas net sales decreased to 135.7 billion yen from the previous fiscal year of 138.3 billion yen. As a result, the share of overseas net sales in consolidated net sales was 73.3 percent.

Cost of Sales, andSelling and Administrative ExpensesBased on the SUMCO Vision, the SUMCO Group has strived to develop technologies that will differentiate from current products, reduce costs and worked on corporate structural reform to allow the Group to respond with greater flexibility for unforeseeable sudden changes in market.

As a result, the cost of sales decreased to 148.0 billion yen from the previous fiscal year of 169.9 billion yen. Selling, general and administrative expenses decreased to 19.3 billion yen from the previous fiscal year of 23.6 billion yen.

Operating IncomeOperating income was 17.8 billion yen 4.6 billion increase from the previous fiscal year.

Conditions in Period under Preview

Consolidated Business Results

During the second half, however, demand for 300 mm wafers, the main product of the SUMCO Group, was impacted as foundries adjusted their output in response to the sharp shift in demand from high-end to low-end smartphones. Demand for small-diameter wafers underwent seasonal adjustment, especially in their main markets for power semiconductors and LCD drivers.

%

100

80

60

40

20

0

60.764.8 64.4 66.9

73.3

132 179 159

86 98 88

138

68

136

49

(billions of yen)

500

400

300

200

100

0

■ Overseas sales■ Domestic sales－ Overseas sales ratio

Net sales / Overseas sales ratio

Jan-10 Jan-11 Jan-12 Jan-13 Dec-13

Net Sales by Region (Year ended December 31, 2013, Unit: billions of yen)

Japan NorthAmerica Asia Europe Total

Net sales 49.4 29.6 90.5 15.6 185.1

Share 26.7% 16.0% 48.9% 8.4% 100.0%


%

50

25

0

(25)

(50)

(87)9.6

(8) 1

1813

39.6

0.4

6.4

(3.0)

100

50

0

(50)

(100)

Operating income /Operating income margin

■ Operation income－ Operation income margin

(billions of yen)


Other Income/Expenses

Other expenses, net amounted 13.4 billion yen. The main factors were a foreign exchange loss exchange loss of 6.1 billion yen, interest expense of 3.2 billion yen and loss incurred from business restructuring of 2.7 billion yen.

Net IncomeAfter income taxes and minority interests, net income was 0.7 billion yen 2.7 billion yen decrease from the previous fiscal year.

Capital Expenditure and DepreciationGiven the severe business environment and in line with current trends in demand, the Group is committed to achieving greater efficiency in capital expenditure. For the year ended December 31, 2013, capital expenditure amounted to 7.3 billion yen 4.9 billion yen decrease from previous fiscal year.Depreciation decreased by 11.3 billion yen from the previous fiscal year, amounted to 21.0 billion yen.

Amortization of goodwill was 1.7 billion yen, and EBITDA amounted to 40.2 billion yen 6.6 billion yen decrease from the previous fiscal year.

R&D ExpensesThe Group is committed to “product strategy matching customers’ development speed and improvement of profitability” and targets “world's best in technology.” The Group has focused its energies on responding to miniaturization needs and the development to next-generation technologies. It has also prioritized achieving higher quality for mass produced products and implementing cost rationalization for enhanced productivity.R&D expenses for the year ended December 31, 2013 amounted to 4.7 billion yen, which was 2.5 percent of net sales.

(Notes) Change in Accounting periodThe Group changed its fiscal year-end from January 31 to December 31. consequently the fiscal year ended December 31, 2013 was the eleven month transitional period (February 1, 2013 – December 31, 2013).

50

25

0

(25)

(50)

(750)

(100)

(125)(100)

(66)(84)

3.4 0.7

(billions of yen)


Net income

15

61

5247

40

EBITDA

80

60

40

20

0


(billions of yen)

160

120

80

40

0

123

10

78

22

52

71221

3230


(billions of yen)

Capital expenditure / Depreciation

■ Capital expenditure■ Depreciation

7.6

6.85.8

4.7 4.7


10

8

6

4

2

0

(billions of yen)R&D expenses


Financial Data

AssetsAt the end of the fiscal year 2013 total assets increased by 5.2 billion yen from the end of the previous fiscal year, to 498.5 billion yen. The main factor behind this change was a 29.6 billion yen increase in inventories owing primarily to the purchasing of raw materials pursuant to long-term agreements. This factor more than offset a 5.6 billion yen decrease in property, plant and equipment due to progression of depreciation, a 5.5 billion yen decrease in marketable securities, a 3.8 billion yen decrease in long-term advance payments,

LiabilitiesCurrent liabilities at the end of the fiscal year 2013 decreased by 50.0 billion yen from the end of the previous fiscal year, to 135.2 billion yen. The main reasons for the decrease were a 38.8 billion yen decrease in short-term borrowings and a 5.3 billion yen decrease in current portion of long-term lease obligations.

Long-term liabilities at the end of the fiscal year 2013 increased by 40.7 billion yen from the end of the previous fiscal year, to 168.4 billion yen. The main reason for the increase was a 40.7 billion yen increase in long-term debt.

EquityTotal equity at the end of the fiscal year 2013 increased by 14.5 billion yen from the end of the previous fiscal year, to 194.8 billion yen. The main contributing factors were a 6.9 billion yen increase in foreign currency translation adjustments and a 5.2 billion yen increase in minority interests reflecting the lower value of the yen.

Shareholders’ equityTotal shareholders’ equity, excluding minority interests, came to 168.1 billion yen. As a result, the shareholders’ equity ratio improved to 33.7 percent from 32.2 percent in the previous fiscal year. The debt/equity ratio improved to 1.0 times from 1.1 times in the previous fiscal year, but return on equity declined to 0.4 percent from 2.6 percent in the previous fiscal year.

Cash FlowNet cash provided by operating activities for the year ended December 31, 2013 decreased by 14.0 billion yen from the previous fiscal year, to 2.3 billion yen. The decline was primarily caused by a decrease in depreciation and amortization, although income before income taxes and minority interests increased.

Financial Conditions and Cash Flow

800

600

400

200

0

663

562

436493 499

(billions of yen)


Total assets

400

300

200

100

0

%

80

60

40

20

0

39.935.0 25.1 32.2

33.7

264

196

109

159 168


■ Shareholders’ equity－ Shareholders’ equity ratio

Shareholders’ equity / Shareholders’ equity ratio

(billions of yen)

500

400

300

200

100

0

2.5

2.0

1.5

1.0

0.5

0.0

0.9

1.1

1.9

1.11.0

300

265235 240 239


(billions of yen) (times)

Interest-bearing debt / Debt equity ratio(Net)

■ Interest-bearing debt－ D/E Ratio(Net)


Net cash used in investing activities decreased by 6.5 billion yen from the previous fiscal year, to 8.7 billion yen. This was mainly due to reduced payments for purchases of fixed assets.

Net cash used in financing activities was 4.5 billion yen. This mainly reflected proceeds from long-term debt of 97.7 billion yen, repayments of long-term debt of 55.0 billion yen, decrease in short-term borrowings, net of 39.8 billion yen and repayments of lease obligation of 8.6 billion yen.

As a result, cash and cash equivalents at the end of the fiscal year 2013 decreased by 9.2 billion yen from the end of the previous fiscal year, to 62.9 billion yen.

Business RisksThe following is a list of factors that the SUMCO Group identifies as major risks to its management and business activities. Although the Group is taking measures to prevent the realization of these risks and to respond as required in the event that a risk materializes, these factors may have a significant effect on the Group’s operations, business results, or performance.Note that forward-looking statements contained in the descriptions of the factors below are based on the Group’s judgment as of the date of publication of this document. Actual results may differ as such statements include uncertainty.

Operating EnvironmentAs the silicon wafers manufactured and sold by the SUMCO Group are used primarily for semiconductor substrates, the Group’s business is susceptible to a number of factors specific to the semiconductor and associated industries. Among these factors are sharp deterioration of market conditions in the semiconductor industry; the accelerated pace of technological progress in the semiconductor and associated industries; obsolescence of products; dramatic changes in product mixes; declines in product prices; reliance on a limited number of customers for a large percentage of sales, and volatility in the volume of orders from such customers; changes in the Group’s competitive advantage due to a shift in its standing in comparison to competitors; and large fluctuations in demand from customers. These factors may affect the Group’s business results or performance.

Group ProductsPrices of semiconductors that use products manufactured by the SUMCO Group generally tend to decline after their market release due in part to widespread application and subsequent growth in sales volumes. The Group’s business plans incorporate various measures aimed at offsetting the expected decline in the prices of its products. These measures include efforts to raise sales volumes by increasing production levels and to improve manufacturing processes to raise production yields. However, if prices decline more significantly than expected due to a sudden deterioration in market conditions or because of some other event, such price declines may affect the Group’s business results or performance.In addition to the above factors, problems related to product quality may arise. Specifically, a product supplied by the Group to a customer may not meet the required standards and specifications or may be incompatible with the customer’s own products. Such problems may result in serious complaints on product quality. Problems pertaining to failure to reach targets for improving productivity may also arise. In such instances, earnings may decline if the Group is unable to consistently improve manufacturing efficiency, for example by raising production yields. The Group is also exposed to the risk of interruption or significant delay in manufacturing processes due to an accident involving manufacturing equipment or other causes. Such events could reduce the production capacity of the entire Group and make it difficult to supply customers with certain products. Consequently, these events may affect the Group’s business results or performance.

%50

25

0

(25)

(50)

(75)

(31.9) (28.5)

(55.2)

2.6 0.4

(12.4)

(1.4) 0.2 2.8 3.6


－ROE　－ROA

ROE / ROA

1

2


Financial Data

Procurement of Raw MaterialsThe principal raw material for silicon wafers is extremely high-purity polycrystalline silicon. As only a very limited number of manufacturers are capable of producing such silicon, there is a risk of supply instability. To ensure stable procurement of raw materials, the SUMCO Group has concluded with the world’s major polycrystalline silicon manufacturers long-term purchase agreements, under which the manufacturers are committed to supplying, and the Group agrees to purchase, specified volumes of polycrystalline silicon over a specified period of time. However, due to dramatic changes in the market, current consumption projections are no longer in line with demand expectations that prevailed at the time when the long-term purchase agreements were entered into. As a result, the Group is currently holding excess inventory. The balance of raw materials and supplies, which includes the inventory of raw materials, amounted to 115.7 billion yen as of the end of the fiscal year 2013, up 30.9 billion yen from the end of the previous fiscal year and is expected to increase to approximately over 130.0 billion yen by the end of the fiscal year 2014. However, as the long-term purchase agreements are gradually expiring, the annual increase in inventory is slowing down and is projected to follow a downward trend after peaking around the fiscal year 2016.Inventory is expected to reach appropriate levels over the medium- to long-terms but it should be noted that changes in consumption amounts or the introduction of necessary accounting measures due to significant changes in the business environment or other factors may affect the Group’s business results, financial position, or performance.

Procurement of Key Manufacturing EquipmentCritical manufacturing equipment used by the SUMCO Group includes such specialized machinery as double-side polishing machines developed jointly with equipment manufacturers. Taking this into consideration, the Group may not be able to find alternative suppliers of such equipment. Consequently, any problem hampering the smooth procurement of such manufacturing equipment may affect the Group’s business results or performance.

Risks Related to Customers and Suppliers (bankruptcies, shutdown, etc.)While the SUMCO Group carefully monitors the creditworthiness of its customers, bankruptcies of customers resulting in substantial amounts of uncollectable receivables may affect the Group’s business results, financial position, or performance. To avoid risks of disruption in procurement, the Group has taken multiple measures, such as concluding supply contracts with multiple suppliers of various materials. However, in the event, for example, of a supplier’s bankruptcy due to a sharp deterioration in economic conditions, or of a supplier’s shutdown due to an accident involving manufacturing equipment, the resultant difficulty in

procuring materials may affect the Group’s business results, financial position, or performance.

Capital InvestmentThe SUMCO Group undertakes capital investment based on its medium- to long-term demand projections. However, if changes in economic trends or in the operating environment of the semiconductor industry result in substantial shifts in projected demand, the Group’s business development, business results, or performance may be affected.

Procurement of FundsSignificant deterioration in the SUMCO Group’s financial position could result in breach of financial covenants set out in its syndicated and other loan contracts. Such an event could trigger demands for repayment of relevant loans, and in turn lead the Group to forfeit the benefit of time and affect is ability to procure funds.

Technology and R&DThe semiconductor industry is characterized by rapid advances in technology, a process that finds expression in such forms as higher circuit densities, finer lines, new applications for semiconductors, greater precision, and higher manufacturing efficiency. Customers have a broad range of technological demands with regard to silicon wafers supplied by the SUMCO Group and are constantly demanding the achievement of even higher specifications. To meet customer demands, the Group is engaged in R&D activities with an emphasis on technologies for 300 mm wafers, an area where medium- to long-term growth in demand is expected. By product category, emphasis is being placed on technologies related to epitaxial wafers, annealed wafers, and other high value-added products, as well as on technologies pertaining to next-generation wafer products.However, R&D activities may not produce the expected benefits if the Group becomes unable to respond to technological advances in the semiconductor industry and to comply with customer demands. In that event, the Group’s business development, business results, or performance may be affected.

Intellectual Property RightsThe SUMCO Group recognizes that securing patents and other intellectual property rights is vital to its ability to compete with other silicon wafer manufacturers. The Group holds a large number of patents, including those pending, both in Japan and abroad. Moreover, the Group holds basic patents pertaining to the manufacture of crystals grown from larger charge sizes, low-defect crystals, high-precision double-side polishing, and other items. The Group is also working on applying for patents involving technologies developed based on, and peripheral technologies associated with, its patented technologies.

3

4

5

6

7

8

9


However, the Group may infringe a third party’s patent without knowing the patent exists. In that case, the Group may become a defendant in litigation seeking injunction against the use of the patent, payment of damages, or other actions. These events may affect the Group’s business development, business results, or performance.

Overseas OperationsThe SUMCO Group supplies silicon wafers to major semiconductor manufacturers and other entities worldwide. It also has manufacturing and sales bases in North America, Europe, and Asia, as well as in Japan. As a result, in addition to being susceptible to currency risk risks, the Group’s manufacturing and sales activities may be affected by changes in the economic and political developments, laws and regulations, taxation, currency conversion restrictions, and other conditions of the countries and regions in which the Group operates. Other factors that may affect its activities include wars and local conflicts, acts of terrorism or natural disasters, epidemics, different social and labor practices, and underdeveloped social infrastructure in those countries and regions.

Environmental Laws and RegulationsThe SUMCO Group operations, in particular its manufacturing bases, are subject to environmental laws and regulations in Japan and abroad that govern such matters as energy consumption, atmospheric emissions and effluents, the use and storage of harmful chemical substances, the disposal of industrial wastes, and investigation of soil and groundwater pollution and removal of their contaminants. Pursuant to these laws and regulations, the Group may be held legally responsible for certain expenses and damages or may be required to take other actions. Furthermore, in recent years, there has been a general tendency toward the tightening environmental laws and regulations. Looking ahead, the Group may become subject to new environmental laws and regulations in Japan and other countries. In such cases, the Group could incur additional expenses for complying with these laws and regulations. Any of these events may affect the Group’s business development, business results, or performance.

Natural Disasters and AccidentsIn the event of natural disasters, such as typhoons, rainstorms, earthquakes, tsunamis, and volcanic activities, as well as of accidents, fires, acts of terrorism, and other contingencies and crises, the SUMCO Group manufacturing bases may face unexpected problems, including shutdown of operations, damaged equipment, and limited access to water and electricity. In that event, the Group’s business development, business results, or performance may be affected.In particular, in the event that the Group’s facilities housing its 300 mm wafer manufacturing processes are hit by natural disasters, accidents, fires, or other events

mentioned above, the Group’s ability to manufacture and sell 300 mm wafers, its main product, may be impaired. Such an event may affect the Group’s business development, business results, or performance.

Acquisition of Other CompaniesWhen considering the acquisition of another company, the SUMCO Group endeavors to minimize risks by performing due diligence concerning the financial conditions and other aspects of the company under consideration. However, in the event of drastic changes in the business environment and other unexpected situations, such acquisitions may affect the Group’s business development, business results, or performance.

Other RisksThe following events resulting from changes in the business environment and other developments may affect the SUMCO Group’s business results, financial position, or performance:

a. Major changes in the business environment necessitating business or organizational restructuring or other actions;

b. With regard to retirement benefit obligations, a decline in the market value of SUMCO’s pension assets, a decline in return on investment, or significant changes in the actuarial assumptions used in the calculation of retirement benefit obligations;

c. Significant changes in projections of future earnings and other developments caused chiefly by changes in economic conditions, which necessitate the implementation of certain accounting measures; or

d. Changes in the external environment or other events resulting in greater demand for funds than previously anticipated by the Group or in the forfeiture of the benefit of time in accordance with agreements with financial institutions; or failure to procure funds at the desired time or under the desired terms due to interest rate levels, market conditions, or other factors.

10

11

12

13

14


Outline

Share Information (as of December 31, 2013) Basic Share Information

Total number of shares authorized

Common stock 803,999,100 shares

Class A shares 450 shares

Class B shares 450 shares

Total 804,000,000 shares

Total number of shares issued and outstanding

Common stock 257,751,739 shares

Class A shares 450 shares

Total 257,752,189 shares

Number of shareholders (common stock)

46,453

Business year January 1 to December 31

(Note) At the General Meeting of Shareholders held on April 25, 2013, a resolution was made to change SUMCO’s fiscal year-end from January 31, to December 31. As a transitional year, fiscal 2013 (ended December 31, 2013) is an 11-month term.

Annual shareholders’ meeting

Held in March of every year

Base dates Annual shareholders' meeting

Year-end dividends

Interim dividends

December 31

December 31

June 30

Other days as needed, to be designated subject to prior public announcement.

Share trading unit 100 shares

Methods of announcement

Official announcements shall be made electronically and shall be posted on the company website (http://www.sumcosi.com/).When an announcement cannot be made electronically due to systems failure or for any other unavoidable reasons, the announcement shall appear in the Nihon Keizai Shimbun.

Market of listing Tokyo Stock Exchange, First Section (code: 3436)

SUMCO is continuously improving its website for shareholders and investors. In addition to financial result materials and press releases, information related to its manufacturing product, silicon wafers, and other information are available. Please visit our website at http://www.sumcosi.com/english/

Share Information

Name of Shareholders Number of shares (thousands of shares)

% of total shares

Nippon Steel & Sumitomo Metal Corporation 71,700 27.82%

Mitsubishi Materials Corporation 71,700 27.82%

STATE STREET BANK AND TRUST COMPANY 6,395 2.48%

THE BANK OF NEW YORK133522 5,305 2.06%

STATE STREET BANK AND TRUST COMPANY 505223 4,314 1.67%

The Master Trust Bank of Japan, Ltd. (Trust Account) 4,272 1.66%

THE BANK OF NEW YORK – JASDECTREATY ACCOUNT 4,225 1.64%

The Japan Trustee Services Bank, Ltd. (Trust Account) 4,165 1.62%

STATE STREET BANK AND TRUST COMPANY 505225 2,789 1.08%

MELLON BANK, N.A. AS AGENT FOR ITS CLIENT MELLON OMNIBUS US PENSION

2,780 1.08%

Major Shareholders


Corporate Information (as of December 31, 2013)

Corporate Name SUMCO CORPORATION

Head Office 1-2-1 Shibaura, Minato-ku, Tokyo 105-8634, JapanTel:+81-3-5444-0808http://www.sumcosi.com/

Established July 30, 1999

Capital 136,607 million yen

Employees Consolidated - 7,277; Unconsolidated – 3,455

IR Contact PR and IR Office, Tel: +81-3-5444-3915

Corporate Profile

Head Office Tokyo

Sales Offices Tokyo, Osaka, Fukuoka

Manufacturing Bases Kyushu ComplexPlant - Imari Factory ( Imari-shi, Saga)

Kyushu ComplexPlant - Saga Factory (Kohoku-machi, Kishima-gun, Saga)

Yonezawa Plant (Yonezawa-shi, Yamagata)

Chitose Plant (Chitose-shi, Hokkaido)

JSQ Division (Akita-shi, Akita)

Offices

Japan SUMCO TECHXIV Corp.SUMCO Technology Corp.SUMCO Service Corp.SUMCO Support Corp.SUMCO Insurance Service Corp.

Overseas SUMCO Phoenix Corporation SUMCO Southwest CorporationSUMCO Funding CorporationSTX Finance America, Inc.SUMCO Personnel Services CorporationSUMCO Europe Sales PlcPT.SUMCO IndonesiaSUMCO Singapore Pte. Ltd.FORMOSA SUMCO TECHNOLOGY CORPORATION

(U.S.A.)(U.S.A.)(U.S.A.)(U.S.A.)(U.S.A.)

(U.K.)

(Taiwan)

Major Consolidated Subsidiaries

SUMCO CORPORATION

Appendix

FINANCIAL STATEMENTS

2013 ( February 1, 2013 to December 31, 2013 )

F-1

SUMCO CORPORATION and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEET December 31, 2013

2013

Jan. 31 2013 Dec. 31

2013 Dec. 31

(Millions of yen) (Thousands of U.S. dollars (Note 1)) Assets Current assets: Cash and time deposits (Notes 3 and 14) ...................................... ¥ 35,104 ¥ 31,363 $ 297,590 Marketable securities (Notes 3, 4 and 14) ................................... 37,000 31,500 298,890 Notes and accounts receivable: Trade (Notes 14 and 15) .......................................................... 32,457 30,806 292,305 Other ...................................................................................... 983 827 7,847 33,440 31,633 300,152 Allowance for doubtful accounts ............................................. (132) (11) (104) 33,308 31,622 300,048 Inventories (Note 5) ................................................................... 113,059 142,660 1,353,639 Deferred income tax assets (Note 10) ......................................... 161 149 1,414 Prepaid expenses and other current assets .................................... 8,109 6,965 66,088 Total current assets .............................................................. 226,741 244,259 2,317,669 Property, plant and equipment (Note 19): Land (Note 2(f)) ........................................................................ 20,235 20,279 192,419 Buildings and structures (Note 6) ............................................... 190,304 193,796 1,838,846 Machinery and equipment (Note 6) ............................................ 737,237 721,334 6,844,425 Construction in progress ............................................................ 16,328 8,134 77,180 Total .................................................................................... 964,104 943,543 8,952,870 Accumulated depreciation .......................................................... (784,743) (769,749) (7,303,814) Net property, plant and equipment ........................................ 179,361 173,794 1,649,056 Investments and other assets: Investment securities (Notes 4 and 14) ....................................... 51 53 503 Investments in unconsolidated subsidiaries ................................. 122 122 1,158

Goodwill ................................................................................... 15,231 13,573 128,788 Software .................................................................................... 2,365 2,091 19,841 Deferred income tax assets (Note 10) ......................................... 5,925 5,623 53,354 Long-term advance payments (Notes 7 and 16) .......................... 58,094 54,307 515,296 Other assets ............................................................................... 5,814 5,097 48,361 Allowance for doubtful accounts ................................................ (370) (396) (3,757) Total investments and other assets ........................................ 87,232 80,470 763,544 Total assets ................................................................................. ¥ 493,334 ¥ 498,523 $ 4,730,269

See Notes to Consolidated Financial Statements.

F-2

SUMCO CORPORATION and Consolidated Subsidiaries CONSOLIDATED BALANCE SHEET — (continued)

December 31, 2013 2013

Jan. 31 2013 Dec. 31

2013 Dec. 31

(Millions of yen) (Thousands of U.S. dollars Liabilities and Equity (Note 1)) Current liabilities: Short-term borrowings (Notes 6 and 14) ....................................... ¥ 70,580 ¥ 31,781 $ 301,556 Current portion of long-term debt (Notes 6 and 14) ...................... 54,728 57,329 543,970 Current portion of long-term lease obligations (Notes 6 and 14) .... 9,074 3,728 35,373 Notes and accounts payable: Trade (Notes 14 and 16) ............................................................ 28,659 29,952 284,202 Construction (Note 14) .............................................................. 2,332 1,260 11,956 Other ........................................................................................ 7,656 6,029 57,206 38,647 37,241 353,364 Accrued income taxes .................................................................. 236 477 4,526 Other current liabilities (Notes 14 and 15) .................................... 12,022 4,683 44,435 Total current liabilities ........................................................... 185,287 135,239 1,283,224 Long-term liabilities: Long-term debt (Notes 6, 14 and 15) ............................................ 103,151 143,841 1,364,845 Long-term lease obligations (Notes 6 and 14) ............................... 2,411 2,160 20,495 Liability for retirement benefits (Note 8) ...................................... 17,545 17,505 166,097 Deferred income tax liabilities (Note 10) ...................................... 512 895 8,492 Deferred income tax liabilities on revaluation reserve for land (Notes 2(f) and 10) .................................................................... 1,559 1,559 14,793 Other long-term liabilities ............................................................ 2,543 2,488 23,608 Total long-term liabilities ....................................................... 127,721 168,448 1,598,330 Commitments and contingent liabilities (Notes 13 and 17) Equity (Note 9): Capital stock ................................................................................ 136,607 136,607 1,296,205 Common stock

Authorized —803,999,100 shares on Jan. 31, 2013 and Dec. 31, 2013 Issued — 257,751,739 shares on Jan. 31, 2013 and Dec. 31, 2013

Preferred stock (class A) Authorized — 900 shares on Jan. 31, 2013 and Dec. 31, 2013

Issued — 450 shares on Jan. 31, 2013 and Dec. 31, 2013

Capital surplus ............................................................................. 15,677 15,677 148,752 Retained earnings ........................................................................ 16,849 15,924 151,096 Treasury stock

— at cost, 5,166 shares on Jan. 31, 2013 and 5,826 shares on Dec. 31, 2013 ..................................................................................... (9) (10) (95)

Accumulated other comprehensive income (loss): Net unrealized gain on available-for-sale securities .................... 0 0 0 Deferred loss on derivatives under hedge accounting ................ (3,431) Land revaluation surplus (Notes 2(f) and 10) ............................. 2,672 2,672 25,353 Foreign currency translation adjustments ................................... (9,619) (2,675) (25,381) Postretirement liability adjustments for foreign consolidated

subsidiaries .............................................................................. (144) (1,366)

Total ...................................................................................... 158,746 168,051 1,594,564 Minority interests ............................................................................ 21,580 26,785 254,151 Total equity ............................................................................ 180,326 194,836 1,848,715 Total liabilities and equity ........................................................... ¥ 493,334 ¥ 498,523 $ 4,730,269


F-3


CONSOLIDATED STATEMENT OF INCOME Period ended December 31, 2013

2013

(Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars (Note 1)) Net sales (Note 19) ....................................................................... ¥ 206,692 ¥ 185,106 $ 1,756,391 Cost of sales ................................................................................ 169,896 147,966 1,403,986 Gross profit .................................................................................. 36,796 37,140 352,405 Selling, general and administrative expenses (Note 11) ............. 23,580 19,338 183,490 Operating income ....................................................................... 13,216 17,802 168,915 Other income (expenses): Interest and dividend income ....................................................... 176 46 436 Interest expense .......................................................................... (3,237) (3,168) (30,060) Gain on sales of fixed assets ........................................................ 81 42 399 Subsidy income ............................................................................ 941 450 4,270 Loss on sales and disposals of fixed assets ................................... (134) (278) (2,638) Compensation income ................................................................... 1,392

Gain on contribution of securities to retirement benefit trust ......... 320

Loss incurred from business restructuring (Notes 8 and 12) ......... (7,272) (2,672) (25,353) Commission for syndicate loan ................................................... (15) (1,490) (14,138) Foreign exchange loss ................................................................. (680) (6,065) (57,548) Other, net ................................................................................... (884) (274) (2,600) Other expenses, net .................................................................. (9,312) (13,409) (127,232) Income before income taxes and minority interests .................... 3,904 4,393 41,683 Income taxes (Note 10): Current ....................................................................................... 303 396 3,757 Deferred ..................................................................................... (1,066) 1,716 16,283 Total ........................................................................................ (763) 2,112 20,040 Net income before minority interests ............................................. 4,667 2,281 21,643 Minority interests ....................................................................... 1,240 1,566 14,859 Net income .................................................................................. ¥ 3,427 ¥ 715 $ 6,784 2013

(Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

(Yen) (U.S. dollars (Note 1)) Per share information: Basic net income (loss) ....................................................... ¥ 8.93 ¥ (1.22) $ (0.01) Cash dividends applicable to the year (Note 20)

-Common stock ........................................................ 2.00 1.00 0.01 -Preferred stock (class A) ......................................... 2,500,000,00 2,287,671.23 21,706.72


F-4


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Period ended December 31, 2013

2013

(Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

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

Net income before minority interests ......................................... ¥ 4,667 ¥ 2,281 $ 21,643 Other comprehensive income (Note 18): Net unrealized gain (loss) on available-for-sale securities ............ (150) 0 0

Deferred gain (loss) on derivatives under hedge accounting ......... (3,441) 3,431 32,555 Foreign currency translation adjustments ..................................... 7,477 10,849 102,942 Post retirement liability adjustments for foreign consolidated

subsidiaries ................................................................................. (279) (2,647)

Total other comprehensive income ............................................. 3,886 14,001 132,850 Comprehensive income ............................................................... ¥ 8,553 ¥ 16,282 $ 154,493 Total comprehensive income attributable to: Owners of the parent ................................................................... 4,340 10,946 103,862 Minority interests ........................................................................ 4,213 5,336 50,631


F-5

SUMCO CORPORATION and Consolidated Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Period ended December 31, 2013 Number of Shares

2013 (Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

Common stock: At beginning of year .......................................................................................................................... 257,751,739 257,751,739 At end of year .................................................................................................................................... 257,751,739 257,751,739 Preferred stock (class A): At beginning of year .......................................................................................................................... 450 Issuance of preferred stock (Note 9) .................................................................................................. 450 At end of year .................................................................................................................................... 450 450 Treasury stock: At beginning of year .......................................................................................................................... 4,866 5,166 Purchases of treasury stock .............................................................................................................. 300 660 At end of year .................................................................................................................................... 5,166 5,826 2013

(Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of Shareholders’ equity: U.S. dollars

Capital stock: (Note 1)) Balance at beginning of year ........................................................... ¥ 114,107 ¥ 136,607 $ 1,296,205 Issuance of preferred stock (Note 9) ............................................ 22,500 Balance at end of year ..................................................................... ¥ 136,607 ¥ 136,607 $ 1,296,205

Capital surplus: Balance at beginning of year ........................................................... ¥ 89,292 ¥ 15,677 $ 148,752 Disposed deficit (Note 9) ................................................................. (96,115) Issuance of preferred stock (Note 9) ................................................ 22,500 Balance at end of year ..................................................................... ¥ 15,677 ¥ 15,677 $ 148,752

Retained earnings: Balance at beginning of year ........................................................... ¥ (82,693) ¥ 16,849 $ 159,873 Disposed deficit (Note 9) ................................................................. 96,115 Dividends paid ................................................................................. (1,640) (15,561) Net income ........................................................................................ 3,427 715 6,784 Reversal of revaluation reserve for land (Note 10) .......................... 0 0 0 Balance at end of year ..................................................................... ¥ 16,849 ¥ 15,924 $ 151,096

Treasury stock: Balance at beginning of year ........................................................... ¥ (9) ¥ (9) $ (86) Increase due to purchases of treasury stock .................................... (0) (1) (9) Balance at end of year ..................................................................... ¥ (9) ¥ (10) $ (95)

Total shareholders’ equity .............................................................. ¥ 169,124 ¥ 168,198 $ 1,595,958 Accumulated other comprehensive income (loss):

Net unrealized gain on available-for-sale securities: Balance at beginning of year ........................................................... ¥ 150 ¥ 0 $ 0 Net change ....................................................................................... (150) 0 0 Balance at end of year ..................................................................... ¥ 0 ¥ 0 $ 0

Deferred gain (loss) on derivatives under hedge accounting: Balance at beginning of year ........................................................... ¥ 10 ¥ (3,431) $ (32,555) Net change ....................................................................................... (3,441) 3,431 32,555 Balance at end of year ..................................................................... ¥ (3,431) ¥ $

Land revaluation surplus: Balance at beginning of year ........................................................... ¥ 2,672 ¥ 2,672 $ 25,353 Reversal of revaluation reserve for land (Note 10) .......................... 0 0 0 Balance at end of year ..................................................................... ¥ 2,672 ¥ 2,672 $ 25,353

Foreign currency translation adjustments: Balance at beginning of year ........................................................... ¥ (14,122) ¥ (9,619) $ (91,270) Net change ....................................................................................... 4,503 6,944 65,889 Balance at end of year ..................................................................... ¥ (9,619) ¥ (2,675) $ (25,381)

Postretirement liability adjustments for foreign consolidated subsidiaries:

Balance at beginning of year ........................................................... Net change ....................................................................................... ¥ (144) $ (1,366) Balance at end of year ..................................................................... (144) (1,366)

Total accumulated other comprehensive loss ................................ ¥ (10,378) ¥ (147) $ (1,394) Minority interests:

Balance at beginning of year ........................................................... ¥ 17,366 ¥ 21,580 $ 204,763 Net change ....................................................................................... 4,214 5,205 49,388 Balance at end of year ..................................................................... ¥ 21,580 ¥ 26,785 $ 254,151 Total ...................................................................................................... ¥ 180,326 ¥ 194,836 $ 1,848,715


F-6


CONSOLIDATED STATEMENT OF CASH FLOWS Period ended December 31, 2013

2013 (Feb. 1, 2012 – Jan. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

2013 (Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars Operating activities: (Note 1)) Income before income taxes and minority interests ......................... ¥ 3,904 ¥ 4,393 $ 41,683 Adjustments to reconcile income before income taxes and

minority interests to net cash provided by operating activities:

Depreciation and amortization ................................................... 32,333 21,025 199,497 Amortization of goodwill .......................................................... 1,637 1,658 15,732 Compensation income ............................................................... (1,392) Loss incurred from business restructuring .................................. 2,766 2,672 25,353 Decrease in allowance for doubtful accounts ............................. (42) (125) (1,186) Decrease in liabilities for retirement benefits ............................. (438) (537) (5,095) Interest and dividend income ..................................................... (176) (46) (436) Interest expense ........................................................................ 3,237 3,168 30,060 Net loss on sales and disposal of fixed assets ............................. 53 237 2,249 Decrease in notes and accounts receivable, trade ........................ 4,973 3,678 34,899 Increase in inventories ............................................................... (34,383) (27,055) (256,713) Decrease in other current assets ................................................. 3,006 1,807 17,146 Increase (decrease) in notes and accounts payable, trade ............ 785 (1,209) (11,472) Decrease in other current liabilities ............................................ (180) (5,764) (54,692) Other, net .................................................................................. 3,737 1,905 18,076 Subtotal .................................................................................. 19,820 5,807 55,101

Interest and dividends received .................................................. 151 47 446 Interest paid .............................................................................. (3,302) (3,290) (31,219) Income taxes paid ..................................................................... (361) (223) (2,116)

Net cash provided by operating activities .................................. 16,308 2,341 22,212 Investing activities:

Payments for purchases of fixed assets ...................................... (16,276) (8,400) (79,704) Proceeds from sales of fixed assets ............................................ 67 148 1,404 Purchases of investments in subsidiaries ..................................... (5) Other, net .................................................................................. 986 (484) (4,592)

Net cash used in investing activities ........................................... (15,228) (8,736) (82,892) Financing activities:

Increase (decrease) in short-term borrowings, net ...................... 3,016 (39,769) (377,351) Proceeds from long-term debt .................................................... 39,000 97,650 926,558 Proceeds from sale and leaseback transactions ........................... 3,029 28,741 Repayments of long-term debt ................................................... (29,719) (55,012) (521,985) Repayments of lease obligations ................................................ (9,560) (8,640) (81,981) Payments for purchases of treasury stock ................................... (0) (1) (9) Proceeds from issuance of preferred stock, net of stock issue

expenses ................................................................................. 44,766

Dividends paid .......................................................................... (1,640) (15,561) Dividends paid to minority shareholders .................................... (131) (1,243)

Net cash provided by (used in) financing activities ................... 47,503 (4,514) (42,831) Foreign currency translation adjustments on cash and cash

equivalents ................................................................................. 367

1,668

15,827

Net increase (decrease) in cash and cash equivalents .................. 48,950 (9,241) (87,684) Cash and cash equivalents at beginning of year .......................... 25,465 72,104 684,164 Cash and cash equivalents decrease by elimination of

consolidated subsidiaries ............................................................. (2,311)

Cash and cash equivalents at end of year (Note 3) ...................... ¥ 72,104 ¥ 62,863 $ 596,480 See Notes to Consolidated Financial Statements.

F-7


Notes to Consolidated Financial Statements

Year ended December 31, 2013

1. Basis of presentation of consolidated financial statements

The accompanying consolidated financial statements of SUMCO CORPORATION (the “Company”) and its

consolidated subsidiaries 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 the application and

disclosure requirements from International Financial Reporting Standards.

Effective December 31, 2013, the Company changed its fiscal year end from January 31 to December 31 by the

resolution of "Proposal for Partial amendment to Articles of Incorporation" at the 14th General Meeting of

Shareholders held on April 25, 2013, to unify accounting periods with foreign subsidiaries in order to improve

efficiency in management and business operations, including control of budget and business results. In addition,

domestic consolidated subsidiaries also changed their fiscal year end from January 31 to December 31.

The accompanying consolidated financial statements for the current fiscal period include the eleven-month period

of operations of the Company and its domestic consolidated subsidiaries and the twelve-month period of operations of

the foreign consolidated subsidiaries.

The effect of the elimination of this one-month lag on the consolidated financial statements is not material. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made

to the 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 2013 (February 1, 2012 to January

31, 2013) consolidated financial statements to conform to the classifications used in 2013 (January 1, 2013 to

December 31, 2013).

The consolidated financial statements are stated in Japanese yen, the currency of the country in which the

Company is incorporated and operates. The translation of Japanese yen amounts into U.S. dollar amounts is included

solely for the convenience of readers outside Japan and has been made at the rate of ¥105.39 to $1, the rate of exchange

at December 31, 2013. Such translation should not be construed as a representation that the Japanese yen amounts

have been, could have been, or could in the future 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 December 31, 2013, include the accounts of the Company and its 14

(13 at January 31, 2013) significant subsidiaries (collectively, the “Group”).

In the fiscal period ended December 31, 2013, SUMCO Insurance Service Corporation was established and

included in the consolidated subsidiaries.

Under the control concept, those companies in which the Company, directly or indirectly, is able to exercise

control over operations are fully consolidated.

F-8

Investments in unconsolidated subsidiaries are stated at cost, except that appropriate write-downs are recorded for

investments in companies which have incurred substantial losses deemed to be of a permanent nature. 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 an acquisition over the fair value of the identifiable net assets of the acquired subsidiary at

the date of acquisition (“goodwill”) is amortized over 15 to 20 years on a straight-line basis.

All significant intercompany balances and transactions have been eliminated in consolidation. All material

unrealized profit included in assets resulting from transactions within the Group has been also eliminated.

(b) Cash equivalents

Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to

insignificant risk of changes in value.

Cash equivalents include time deposits and certificate of deposits, all of which mature within three months of the

date of acquisition. (c) Inventories

Inventories are stated principally at the lower of cost, determined by the average method, or net selling value. (d) Marketable and investment securities

Marketable and investment securities are classified as available-for-sale securities and held-to-maturity debt

securities. Available-for-sale securities with a readily determinable fair value are reported at fair value, with

unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Available-for-sale

securities for which fair value is not readily determinable are stated at cost determined by the moving-average method.

Held-to-maturity debt securities are stated at amortized cost.

For other-than-temporary declines in fair value, investment securities are reduced to net realizable value by a

charge to income or loss in the consolidated statement of income. (e) Property, plant and equipment

Property, plant and equipment are stated at cost.

Depreciation of property, plant and equipment, except buildings, is computed principally by the declining-balance

method at rates based on the estimated useful lives of the assets, while the straight-line method is principally applied to

buildings and lease assets.

The useful lives are principally 31 years for buildings and structures and 5 years for machinery and equipment. The

useful lives for lease assets are the terms of the respective leases. (f) Land revaluation

Under the “Law of Land Revaluation,” the predecessor company, which was merged into the Company on

February 1, 2002, elected a one-time revaluation of its own-use land to a value based on real estate appraisal

information as of March 31, 2000. Land revaluation surplus represents unrealized appreciation of land and is stated,

net of income taxes, as a component of equity without any effect on income or loss in the consolidated statement of

income. Subsequent readjustment is not permitted, unless the land value declines significantly, in which case the

amount of the decline in value should be removed from land revaluation surplus account and related deferred tax

liabilities, accordingly. As of December 31, 2013, the carrying amount of the land after the above one-time revaluation

exceeded the fair value by ¥3,692 million ($35,032 thousand).

F-9

(g) 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 would be 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 would be measured as

the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the

discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at

disposition. (h) Software

Certain costs incurred to develop computer software for internal use are capitalized and amortized on a

straight-line basis over the estimated useful life of 5 years. (i) Retirement benefits and pension plans

The Company and certain consolidated subsidiaries have noncontributory defined benefit pension plans and

unfunded retirement benefit plans for employees. The Company and certain consolidated subsidiaries account for the

liability for retirement benefits based on projected benefit obligations and the fair value of plan assets at the balance

sheet date. (j) Research and development costs

Research and development costs are charged to expense as incurred. (k) Leases

In March 2007, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Statement No. 13, “Accounting

Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions.

Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased

property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating

lease transactions if certain “as if capitalized” information was disclosed in the notes to the lessee‟s financial

statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing

lease assets and lease obligations in the balance sheet.

The Company applied the revised accounting standard effective February 1, 2008. In addition, the Company

continues to account for leases, which existed at the transition date and do not transfer ownership of the leased

property to the lessee as operating lease transactions. (l) Income taxes

The provision for income taxes is computed based on the pretax income or loss 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 basis of assets

and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences.

(m) 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 balance sheet date. Foreign exchange gains and losses from translation

are recognized in the consolidated statement of income.

F-10

(n) Foreign currency financial statements

The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current

exchange rates as of the balance sheet date of the subsidiaries, 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.

Revenue and expense accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the

average exchange rates during the year. (o) 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.

All foreign exchange forward contracts employed to hedge foreign exchange exposures are measured at fair value

and the unrealized gains or losses are recognized in income or loss. However, foreign exchange forward contracts that

are used as hedges for forecasted export sales transactions and meet certain hedging criteria are measured at fair value

and the unrealized gains or losses are deferred until the underlying forecasted export sales transactions are recognized.

Interest rate swaps which are used as hedges and meet certain hedging criteria are measured at fair value and the

unrealized gains or losses are deferred until the related losses or gains on the hedged items are recognized. However,

certain interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured

at fair value. The differential paid or received under such swap agreements is recognized and included in interest

expense. (p) Per share information

Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders, by

the weighted-average number of common stock outstanding for the period.

Diluted net income per share reflects the potential dilution that could occur if preferred stock was converted into

common stock.

Cash dividends per share presented in the accompanying consolidated statements of income are dividends

applicable to the respective years, including dividends to be paid after the end of the year.

Diluted net income per share is not disclosed because there is no potential stock which has a dilutive effect for the

fiscal year ended December 31, 2013.

(q) Business combinations

In October 2003, the Business Accounting Council issued a Statement of Opinion, ”Accounting for Business

Combinations,” and in December 2005, the ASBJ issued ASBJ Statement No. 7, ”Accounting Standard for Business

Divestitures” and ASBJ Guidance No. 10, ”Guidance for Accounting Standard for Business Combinations and

Business Divestitures.” The accounting standard for business combinations allowed companies to apply the pooling of

interests method of accounting only when certain specific criteria are met such that the business combination is

essentially regarded as uniting of interests. For business combinations that do not meet the uniting-of-interests criteria,

the business combination is considered to be an acquisition and the purchase method of accounting is required. This

standard also prescribes the accounting for combinations of entities under common control and for joint ventures.

F-11

In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No.

21, “Accounting Standard for Business Combinations.” Major accounting changes under the revised accounting

standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase

method. As a result, the pooling of interests method of accounting is no longer allowed. (2) The previous accounting

standard required research and development costs to be charged to income as incurred. Under the revised standard,

in-process research and development costs acquired in the business combination are capitalized as an intangible asset.

(3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically

amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain

purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the

assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the

purchase price allocation. The revised standard was applicable to business combinations undertaken on or after April 1,

2010. (r) Accounting Changes and Error Corrections

In December 2009, the ASBJ issued ASBJ Statement No. 24 “Accounting Standard for Accounting Changes and

Error Corrections” and ASBJ Guidance No. 24 “Guidance on Accounting Standard for Accounting Changes and Error

Corrections.” Accounting treatments under this standard and guidance are as follows:

(1) Changes in Accounting Policies - When a new accounting policy is applied following revision of an accounting

standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional

provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentations

- When the presentation of financial statements is changed, prior-period financial statements are reclassified in

accordance with the new presentation. (3) Changes in Accounting Estimates - A change in an accounting estimate is

accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if

the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors - When an

error in prior-period financial statements is discovered, those statements are restated. (s) New accounting pronouncements

Accounting Standard for Retirement Benefits — On May 17, 2012, the ASBJ issued ASBJ Statement No.

26, ”Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25, ”Guidance on Accounting Standard

for Retirement Benefits,” which replaced the Accounting Standard for Retirement Benefits that had been issued by the

Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidances,

and followed by partial amendments from time to time through 2009.

Major changes are as follows:

(1) Treatment in the balance sheet

Under the current requirements, actuarial gains and losses and past service costs that are yet to be

recognized in profit or loss are not recognized in the balance sheets, and the difference between retirement

benefit obligations and plan assets (hereinafter, “deficit or surplus”), adjusted by such unrecognized amounts,

is recognized as a liability or asset.

Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be

recognized in profit or loss shall be recognized within equity (accumulated other comprehensive income),

after adjusting for tax effects, and any resulting deficit or surplus shall be recognized as a liability (liability for

retirement benefits) or asset (asset for retirement benefits).

F-12

(2) Treatment in the statement of income and the statement of comprehensive income

The revised accounting standard does not change how to recognize actuarial gains and losses and past

service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain period no

longer than the expected average remaining working lives of the employees. However, actuarial gains and

losses and past service costs that arose in the current period and have not yet been recognized in profit or loss

shall be included in other comprehensive income and actuarial gains and losses and past service costs that

were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the

current period shall be treated as reclassification adjustments.

(3) Amendments relating to the method of attributing expected benefit to periods and relating to the discount rate

and expected future salary increases

The revised accounting standard also made certain amendments relating to the method of attributing

expected benefit to periods and relating to the discount rate and expected future salary increases.

This accounting standard and the guidance for (1) and (2) above are effective for the end of annual periods beginning

on or after April 1, 2013, and for (3) above are effective for the beginning of annual periods beginning on or after April

1, 2014, or for the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in

March 2015, both with earlier application being permitted from the beginning of annual periods beginning on or after

April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements

in prior periods is required. The Company expects to apply the revised accounting standard for (1) and (2) above from the end of the annual period

beginning on January 1, 2014, and for (3) above from the beginning of the annual period beginning on January 1, 2015,

and is in the process of measuring the effects of applying the revised accounting standard in future applicable periods.

Accounting Standards for Business Combinations and Consolidated Financial Statements — On September 13,

2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised

ASBJ Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business Divestitures,”

and revised ASBJ Statement No. 22, “Accounting Standard for Consolidated Financial Statements.”

Major accounting changes are as follows:

(1) Transactions with noncontrolling interest

A parent‟s ownership interest in a subsidiary might change if the parent purchases or sells ownership

interests in its subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the

parent‟s ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary.

Under the current accounting standard, any difference between the fair value of the consideration received or

paid and the amount by which the minority interest is adjusted is accounted for as an adjustment of goodwill or

as profit or loss in the consolidated statement of income. Under the revised accounting standard, such

difference shall be accounted for as capital surplus as long as the parent retains control over its subsidiary.

(2) Presentation of the consolidated balance sheet

In the consolidated balance sheet, “minority interest” under the current accounting standard will be changed

to “noncontrolling interest” under the revised accounting standard.

F-13

(3) Presentation of the consolidated statement of income

In the consolidated statement of income, “income before minority interest” under the current accounting

standard will be changed to ”net income” under the revised accounting standard, and “net income” under the

current accounting standard will be changed to “net income attributable to owners of the parent” under the

revised accounting standard.

(4) Provisional accounting treatments for a business combination

If the initial accounting for a business combination is incomplete by the end of the reporting period in which

the business combination occurs, an acquirer shall report in its financial statements provisional amounts for

the items for which the accounting is incomplete. Under the current accounting standard guidance, the impact

of adjustments to provisional amounts recorded in a business combination on profit or loss are recognized as

profit or loss in the year in which the measurement is completed. Under the revised accounting standard

guidance, during the measurement period, which shall not exceed one year from the acquisition, the acquirer

shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new

information obtained about facts and circumstances that existed as of the acquisition date and that would have

affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if

the accounting for the business combination had been completed at the acquisition date.

(5) Acquisition-related costs

Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs to

effect a business combination. Under the current accounting standard, the acquirer accounts for

acquisition-related costs by including them in the acquisition costs of the investment. Under the revised

accounting standard, acquisition-related costs shall be accounted for as expenses in the periods in which the

costs are incurred. The above accounting standards and guidance for “transactions with noncontrolling interest”, “acquisition-related

costs” and “presentation changes in the consolidated financial statements” are effective for the beginning of annual

periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods

beginning on or after April 1, 2014, except for the presentation changes in the consolidated financial statements. In

case of earlier application, all accounting standards and guidance above, except for the presentation changes, should

be applied simultaneously. Either retrospective or prospective application of the revised accounting standards and

guidance for “transactions with noncontrolling interest” and “acquisition-related costs” is permitted. In retrospective

application of the revised standards and guidance for “transactions with noncontrolling interest” and

“acquisition-related costs”, accumulated effects of retrospective adjustments for all “transactions with noncontrolling

interest” and “acquisition-related costs” which occurred in the past shall be reflected as adjustments to the beginning

balance of capital surplus and retained earnings for the year of the first-time application. In prospective application, the new standards and guidance for “transactions with noncontrolling interest” and

“acquisition-related costs” shall be applied prospectively from the beginning of the year of the first-time application.

The changes in presentation shall be applied to all periods presented in financial statements containing the first-time

application of the revised standards and guidance.

F-14

The revised standards and guidance for “provisional accounting treatments for a business combination” is effective for

a business combination which will occur on or after the beginning of annual periods beginning on or after April 1,

2015. Earlier application is permitted for a business combination which will occur on or after the beginning of annual

periods beginning on or after April 1, 2014. The Company expects to apply the revised accounting standards and guidance from the beginning of the annual period

beginning on January 1, 2016 and is in the process of measuring the effects of applying the revised accounting

standards and guidance in future applicable periods.

3. Reconciliations of cash and cash equivalents

The reconciliations of cash and time deposits in the consolidated balance sheets to cash and cash equivalents in the

consolidated statements of cash flows at January 31, 2013 and December 31, 2013, were as follows: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Cash and time deposits per the consolidated balance sheets .............. ¥ 35,104 ¥ 31,363 $ 297,590 Marketable securities which mature within three months of the date of the acquisition .......................................................................

37,000

31,500

298,890

Cash and cash equivalents per the consolidated statements of cash flows .................................................................................

¥ 72,104

¥ 62,863

$ 596,480

4. Marketable and investment securities

The cost and aggregate fair value of marketable and investment securities with readily determinable fair values at

January 31, 2013 and December 31, 2013, were as follows: January 31, 2013

Cost

Unrealized gains

Unrealized losses

Fair value

(Millions of yen) Securities classified as: Available for sale: Equity securities .......................................................... ¥ 37,003 ¥ 1 ¥ 37,004

December 31, 2013

Cost

Unrealized gains

Unrealized losses

Fair value

(Millions of yen) Securities classified as: Available for sale: Equity securities ........................................................... ¥ 31,505 ¥ 1 ¥ 31,506

December 31, 2013

Cost

Unrealized gains

Unrealized losses

Fair value

(Thousands of U.S. dollars) Securities classified as: Available for sale: Equity securities ...................................................... $ 298,937 $ 10 $ 298,947

F-15

The information for available-for-sale securities which were sold for the fiscal periods ended January 31, 2013 and

December 31, 2013, is as follows: January 31, 2013 Proceeds Realized gains Realized losses (Millions of yen) Available for sale: Equity securities ¥ 30 ¥ 0 ¥ (3)

December 31, 2013 Proceeds Realized gains Realized losses (Millions of yen) Available for sale: Equity securities

December 31, 2013 Proceeds Realized gains Realized losses (Thousands of U.S. dollars) Available for sale: Equity securities

The impairment loss on available-for-sale securities for the fiscal period ended December 31, 2013, was ¥1 million

($9 thousand).

5. Inventories

Inventories at January 31, 2013 and December 31, 2013, consisted of the following: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Finished products ..................................................................... ¥ 17,031 ¥ 14,751 $ 139,966 Work in process ....................................................................... 11,229 12,190 115,666 Raw materials and supplies ...................................................... 84,799 115,719 1,098,007 Total ........................................................................................ ¥ 113,059 ¥ 142,660 $ 1,353,639

6. Short-term borrowings and long-term debt

Short-term borrowings outstanding at January 31, 2013 and December 31, 2013, consisted of the following: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Unsecured:

Bank loans ........................................................................... ¥ 70,580 ¥ 31,781 $ 301,556 Total short-term borrowings ..................................................... ¥ 70,580 ¥ 31,781 $ 301,556

The average interest rate per annum for short-term bank loans was 0.6% at January 31, 2013 and 0.7% at

December 31, 2013.

F-16

Long-term debt at January 31, 2013 and December 31, 2013, consisted of the following: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Loans from banks, insurance companies, and other financial

institutions, due serially through 2020 — with an average interest rate of 1.7% per annum at January 31, 2013 and 1.6% at December 31, 2013: Collateralized ................................................................... ¥ 4,132 ¥ 3,648 $ 34,614 Unsecured ........................................................................ 153,747 197,522 1,874,201

Lease obligations, due serially through 2018 — with an average interest rate of 2.0% per annum at January 31, 2013 and 1.8% at December 31, 2013 ....................................... 11,485 5,888 55,868

Total long-term debt ...................................................... 169,364 207,058 1,964,683 Less current portion ............................................................ (63,802) (61,057) (579,343) Long-term debt and lease obligations, less current portion ... ¥ 105,562 ¥ 146,001 $ 1,385,340

Annual maturities of long-term debt as of December 31, 2013 for the next 5 years and thereafter are as follows: Years Ending December 31,

(Millions of yen)

(Thousands of U.S. dollars)

2014 .................................................................................................... ¥ 61,057 $ 579,343 2015 .................................................................................................... 57,768 548,136 2016 .................................................................................................... 38,723 367,426 2017 .................................................................................................... 31,020 294,335 2018 .................................................................................................... 16,420 155,802 2019 and thereafter ............................................................................... 2,070 19,641 Total .................................................................................................... ¥ 207,058 $ 1,964,683

Assets pledged as collateral for short-term bank loans and long-term debt at January 31, 2013 and December 31,

2013, were as follows: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Buildings and structures ......................................................... ¥ 4,985 ¥ 5,821 $ 55,233 Machinery and equipment ...................................................... 2,424 2,612 24,784 Total ...................................................................................... ¥ 7,409 ¥ 8,433 $ 80,017

The Company and Formosa SUMCO Technology Corporation have loans with financial covenants. The amounts

at January 31, 2013 and December 31, 2013 consisted of the following. 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Long-term debt ..................................................................................... ¥ 10,999 ¥ 71,782 $ 681,108 Current portion of long-term debt ......................................................... 31,033 1,216 11,538 Total .................................................................................................... ¥ 42,032 ¥ 72,998 $ 692,646

The Company has commitment-line contracts with financial covenants which require maintaining certain levels of

total equity in the consolidated and non-consolidated balance sheet and net cash provided by operating activities in the

consolidated statement of cash flows.

The details at January 31, 2013 and December 31, 2013, were as follows. 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Total amount of commitment-line contract ............................................ ¥ 30,000 ¥ 59,650 $ 565,993 Utilized amount .................................................................................... 29,650 281,336 Net ....................................................................................................... ¥ 30,000 ¥ 30,000 $ 284,657

F-17

7. Long-term purchase agreements of polycrystalline silicon (1) In order for the Company and some of its consolidated subsidiaries to secure polycrystalline silicon, which is

the main raw material of silicon wafers, they entered into long-term purchase contracts with polycrystalline silicon

producers. In accordance with the contracts, the Company and some of its consolidated subsidiaries have made

advance payments to some of the producers.

(2) In order to control the growth of its polycrystalline silicon inventory and diversify its financing, for some of the

long-term purchase contracts for polycrystalline silicon, within a maximum amount of ¥10,000 million ($94,886

thousand), the Company has entered into contracts (hereinafter, transfer contracts) to transfer to the transferees the

Company‟s status as purchaser in those long-term contracts.

Under these transfer contracts, in either of the following cases, the Company will pay the remaining amount (the

amount equivalent to the unsold inventory held by the transferee) to the transferees and, at the same time, take back

the inventory.

The first case is where, within a given period, the transferee cannot dispose of the inventory purchased under the

transfer contracts by selling it to the Company or a third party. The second case is where the Company violates a

cancellation clause such as violating certain financial covenants.

Please note that, in accordance with the transfer contracts, the amount equivalent to the remaining amount as of the

end of December 31, 2013 is ¥1,032 million ($9,792 thousand).

8. Retirement and pension plans

The Company and certain consolidated subsidiaries have retirement benefit plans for employees.

Under most circumstances, employees terminating their employment are entitled to retirement benefits determined

based on the rate of pay at the time of termination, years of service, and certain other factors. Such retirement benefits

are made in the form of a lump-sum retirement benefit from the Company or from certain consolidated subsidiaries

and annuity payments from a trustee.

The liability for employees‟ retirement benefits at January 31, 2013 and December 31, 2013, consisted of the

following: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Projected benefit obligation .................................................... ¥ 33,323 ¥ 31,890 $ 302,590 Fair value of plan assets ......................................................... (15,041) (15,378) (145,915) Unrecognized actuarial gain (loss) .......................................... (713) 993 9,422 Unrecognized prior-service cost ............................................. (24) Net liability ............................................................................ ¥ 17,545 ¥ 17,505 $ 166,097

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The components of net periodic benefit costs for employees‟ retirement benefit plans at January 31, 2013 and

December 31, 2013, were as follows: 2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Service cost .............................................................................. ¥ 2,107 ¥ 1,873 $ 17,772 Interest cost .............................................................................. 684 597 5,665 Expected return on plan assets .................................................. (327) (337) (3,198) Recognized actuarial loss ......................................................... 495 318 3,017 Amortization of prior-service cost ............................................ 134 22 209 Other cost ................................................................................ 226 182 1,727 Net periodic benefit costs ......................................................... ¥ 3,319 ¥ 2,655 $ 25,192

The Group has also paid additional retirement benefits to employees related to restructurings amounting to

¥6,982 million and ¥2,565 million ($24,338 thousand) for the fiscal periods ended January 31, 2013 and December

31, 2013, respectively. These payments are not included in net periodic benefit costs above, but are included in loss

incurred from business restructuring in the consolidated statements of income.

Assumptions used for the fiscal periods ended January 31, 2013 and December 31, 2013, were set forth as follows: 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

Discount rate .................................................................................................... 2.0% 2.0% Expected rate of return on plan assets ................................................................ 2.5% 2.5% Amortization period of prior-service cost .......................................................... 10 years 10 years Recognition period of actuarial gain/loss ........................................................... 10 years 10 years

9. 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. For companies that meet certain criteria, such as (1)

having a board of directors, (2) having independent auditors, (3) having an audit and supervisor board, and (4) the term

of service of the directors is prescribed as 1 year rather than 2 years of normal term by its articles of incorporation, the

board of directors may declare dividends (except for dividends in kind) if the company has prescribed so in its articles

of incorporation.

The Companies Act permits companies to distribute dividends in kind (noncash assets) to shareholders subject to

certain limitations 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 also 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 capital stock, reserve, and surplus

The 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

F-19

equity account charged upon the payment of such dividends until the total aggregate amount of the legal reserve and

additional paid-in capital equals 25% of the capital stock. The aggregate amount of additional paid-in capital and legal

reserve that exceeds 25% of the capital stock may be made available for dividends by resolution of the shareholders.

Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without

limitation of such threshold. The Companies Act also provides that capital stock, legal reserve, additional paid-in

capital, other capital surplus, and retained earnings can be transferred among the accounts under certain conditions

upon resolution of the shareholders. (c) Treasury stock and treasury stock acquisition rights

The 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, which were previously presented as a liability, are now

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 has issued class A preferred shares (no voting rights) by the method of third-party allotment on May

11, 2012. The contents are as follows:

(1) Class of shares and number of shares Class A, 450 shares

(2) Total amount of issuance of share ¥45,000 million (¥100 million per share)

(3) Capital stock and capital surplus to be

increased Capital stock Capital surplus

¥22,500 million

(¥50 million per share) ¥22,500 million

(¥50 million per share)

(4) Method of offering Third-party allotment - Sumitomo Metal Industries, Ltd. (*) - Mitsubishi Materials Corporation - Japan Industrial Solutions Fund I

(150 shares) (150 shares) (150 shares)

(*) Sumitomo Metal industries, Ltd. and Nippon Steel Corporation merged into Nippon Steel & Sumitomo

Metal Corporation as of October 1, 2012.

In addition, the Company reduced the other capital surplus and transferred it to retained earnings on April 27, 2012

and May 11, 2012.

As a result, capital surplus decreased by ¥96,115 million and retained earnings increased by the same amount.

10. Income taxes

The Company and certain domestic subsidiaries are subject to Japanese national and local income taxes which, in

the aggregate, resulted in a normal effective statutory tax rate of approximately 40.1% for the fiscal period ended

January 31, 2013 and 37.8% for the fiscal period ended December 31, 2013.

F-20

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred income

tax assets and liabilities at January 31, 2013 and December 31, 2013, were as follows: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Deferred income tax assets: Tax loss carryforwards ........................................................... ¥ 63,846 ¥ 73,594 $ 698,302 Property, plant and equipment ................................................ 21,762 18,499 175,529 Employees‟ retirement benefits .............................................. 6,214 6,039 57,301 Tax credit in Taiwan .............................................................. 5,085 4,227 40,108 Inventories ............................................................................. 2,172 2,081 19,746 Other ..................................................................................... 6,470 3,746 35,544 Subtotal ................................................................................... 105,549 108,186 1,026,530 Valuation allowance ............................................................... (99,463) (102,414) (971,762) Total ........................................................................................ ¥ 6,086 ¥ 5,772 $ 54,768 Deferred income tax liabilities: Undistributed profit in foreign countries ................................. ¥ (364) ¥ (735) $ (6,974) Other ..................................................................................... (148) (160) (1,518) Total ........................................................................................ ¥ (512) ¥ (895) $ (8,492) Net deferred income tax assets ................................................. ¥ 5,574 ¥ 4,877 $ 46,276 Deferred income tax liabilities on revaluation reserve for land ...................................................................... ¥ (1,559) ¥ (1,559) $ (14,793)

Reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the

accompanying consolidated statement of income for the fiscal periods ended January 31, 2013 and December 31, 2013,

is as follows: 2013 2013 Jan. 31 Dec. 31 Normal effective statutory tax rate ................................................................................................ 40.1% 37.8% Valuation allowance ..................................................................................................................... (42.8) 6.3 Amortization of goodwill .............................................................................................................. 16.8 14.3 Lower income tax rates applicable to income in foreign countries .................................................. (19.5) (20.3) Investment in consolidated subsidiaries ......................................................................................... (25.1) Undistributed profit in foreign countries ........................................................................................ 4.9 8.5 Other, net ..................................................................................................................................... 6.0 1.5 Actual effective tax rate ................................................................................................................ (19.6)% 48.1%

11. Selling, general and administrative expenses

Selling, general and administrative expenses for the fiscal periods ended January 31, 2013 and December 31, 2013,

consisted of the following: 2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Freight ..................................................................................... ¥ 3,823 ¥ 2,623 $ 24,889 Salaries and bonuses ................................................................. 5,157 4,038 38,315 Research and development expenses ........................................ 4,682 4,660 44,217 Other ....................................................................................... 9,918 8,017 76,069 Total ....................................................................................... ¥ 23,580 ¥ 19,338 $ 183,490

12. Loss incurred from business restructuring Loss incurred from business restructuring for the fiscal periods ended January 31, 2013 and December 31, 2013,

were mainly additional retirement payments to employees related to the Business Reorganization Plan.

F-21

13. Leases

(a) Finance leases

Pro forma information of leased property on an “as if capitalized” basis as of, or for, the fiscal periods ended

January 31, 2013 and December 31, 2013, is as follows: 2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Machinery

and Equipment

Machinery and

Equipment

Machinery and

Equipment Acquisition cost ......................................................................... ¥ 673 ¥ 571 $ 5,418 Accumulated depreciation .......................................................... (589) (554) (5,257) Net leased property ........................................................................ ¥ 84 ¥ 17 $ 161

Obligations under finance leases:

2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Due within one year ................................................................... ¥ 72 ¥ 17 $ 161 Due after one year ...................................................................... 12 Total .......................................................................................... ¥ 84 ¥ 17 $ 161

Lease payments and depreciation expense under finance leases: 2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Lease payments ........................................................................ ¥ 176 ¥ 67 $ 636 Depreciation expense ............................................................... 176 67 636

An imputed interest expense portion is included in the above pro forma information. Depreciation expense, which

is not reflected in the accompanying consolidated statement of income, is computed by the straight-line method. (b) Operating leases

Minimum rental commitments under non-cancelable operating leases at January 31, 2013 and December 31, 2013,

were as follows: 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Due within one year ................................................................... ¥ 131 ¥ 127 $ 1,205 Due after one year ...................................................................... 1,139 1,287 12,212 Total .......................................................................................... ¥ 1,270 ¥ 1,414 $ 13,417

14. Financial instruments and related disclosures

In March 2008, the ASBJ revised ASBJ Statement No. 10, “Accounting Standard for Financial Instruments,” and

issued ASBJ Guidance No. 19, “Guidance on Accounting Standard for Financial Instruments and Related Disclosures.”

Information on financial instruments for the fiscal years ended January 31, 2013 and December 31, 2013, is as follows:

F-22

(a) The status of financial instruments

(1) Policies for financial instruments

The Group‟s use of financial instruments is limited to short-term deposits, etc. Funding is procured from bank

loans, etc. Derivatives are used, not for speculative purposes, but to manage financial risks as described later.

(2) Nature and extent of risks arising from financial instruments and risk management

Customer‟s credit risk exists in notes and accounts receivable. The Group manages its credit risk through

monitoring of payment terms and balances of each trading partner. Moreover, the Group has a system for regular

monitoring of the customer‟s business situation. Also, foreign exchange risk exists in foreign currency trade

receivables. The Group uses foreign exchange contracts to hedge against the risk. Marketable securities are certificate

of deposits which mature within three months from the date of acquisition. Investment securities, mainly consisting of

equity securities related to customers and suppliers in relation to business, are exposed to the risk of market price

fluctuations. The Group continuously reviews the circumstances through consideration of the market situation and

relationship to the counterparties.

Mainly, payment terms of notes and accounts payable are less than half a year. Interest rate fluctuation risk exists

in long-term debt with floating interest rates. The Group uses derivatives consisting of interest rate swaps and certain

long-term debt for the purpose of hedging interest fluctuation risk.

Derivative transactions entered into by the Group have been made in accordance with internal policies which

regulate the authorization and credit limit amount. Because the counterparties to these derivatives are limited to major

international financial institutions, the Group does not anticipate any losses arising from credit risk. Please see Note 2

(o) for the details about derivatives.

The Group manages its liquidity risk along with preparing the monthly financial plan, etc.

(3) Supplemental information on fair value

Fair value of financial instruments includes market prices and values calculated reasonably when there is no

market price. Since variable factors are incorporated in calculating the relevant fair value, it may change depending on

different assumptions. The contract amounts described in Note 15 “Derivatives” do not indicate the amount of market

risk or credit risk related to derivative transactions.

F-23

(b) The fair value of financial instruments

Carrying amount, fair value and unrealized gain of the financial instruments as of January 31, 2013 and December

31, 2013, were as follows:

Financial instruments whose fair value was not readily determinable were excluded from the following table:

January 31, 2013 Carrying amount

Fair value

Unrealized gain (loss)

(Millions of yen) (1) Cash and time deposits ¥ 35,104 ¥ 35,104 (2) Notes and accounts receivable: Trade 32,457 32,457 (3) Marketable and investment securities 37,004 37,004

Total assets 104,565 104,565 (1) Short-term borrowings (*1) 70,580 70,580 (2) Notes and accounts payable: Trade 28,659 28,659 Construction 2,332 2,332 (3) Long-term debt (*1) 157,879 158,193 ¥ 314 (4) Lease obligations 11,485 11,481 (4)

Total liabilities 270,935 271,245 ¥ 310 a. Derivatives to which hedge accounting is not applied (1,938) (1,938) b. Derivatives to which hedge accounting is applied (3,431) (3,431)

Total derivative transactions (*2) ¥ (5,369) ¥ (5,369)

December 31, 2013 Carrying amount

Fair value


(Millions of yen) (1) Cash and time deposits ¥ 31,363 ¥ 31,363 (2) Notes and accounts receivable: Trade 30,806 30,806 (3) Marketable and investment securities 31,506 31,506

Total assets 93,675 93,675 (1) Short-term borrowings (*1) 31,781 31,781 (2) Notes and accounts payable: Trade 29,952 29,952 Construction 1,260 1,260 (3) Long-term debt (*1) 201,170 201,331 ¥ 161 (4) Lease obligations 5,888 5,873 (15)

Total liabilities 270,051 270,197 ¥ 146 a. Derivatives to which hedge accounting is not applied (428) (428) b. Derivatives to which hedge accounting is applied

Total derivative transactions (*2) ¥ (428) ¥ (428)

December 31, 2013 Carrying amount

Fair value


(Thousands of U.S. dollars) (1) Cash and time deposits $ 297,590 $ 297,590 (2) Notes and accounts receivable: Trade 292,305 292,305 (3) Marketable and investment securities 298,947 298,947

Total assets 888,842 888,842 (1) Short-term borrowings (*1) 301,556 301,556 (2) Notes and accounts payable: Trade 284,202 284,202 Construction 11,956 11,956 (3) Long-term debt (*1) 1,908,815 1,910,343 $ 1,528 (4) Lease obligations 55,868 55,726 (142)

Total liabilities 2,562,397 2,563,783 $ 1,386 a. Derivatives to which hedge accounting is not applied (4,061) (4,061) b. Derivatives to which hedge accounting is applied

Total derivative transactions (*2) $ (4,061) $ (4,061)

(*1) Current portion of long-term debt is included in long-term debt and excluded from short-term borrowings.

F-24

(*2) Receivables and payables arising from derivative transactions are presented net. Net payables are presented in

parentheses.

Notes

1. Calculation method of the fair value of financial instruments and securities and derivative transactions is as

follows:

Assets:

(1) Cash and time deposits and (2) Notes and accounts receivable

The fair values approximate book value because of their short-term maturities. Therefore, the fair value is

measured at the book value.

(3) Marketable and investment securities

Marketable securities are certificate of deposits. The fair values approximate book value because of their

short-term maturities. Therefore, the fair value is measured at the book value. The fair value of equity securities

is measured at the market price of the stock exchange for the equity instruments. The information of the fair value

for the investment securities by classification is included in Note 4.

Liabilities:

(1) Short-term borrowings and (2) Notes and accounts payable

The fair values approximate book value because of their short-term maturities. Therefore, the fair value is

measured at the book value.

(3) Long-term debt and (4) Lease obligations

The fair values are determined based on discounting the aggregated value of the principal and interest using an

assumed interest rate if the same types of loans were newly made.

Derivatives:

The information on the fair value for the derivatives is included in Note 15.

2. Financial instruments whose fair value was extremely difficult to calculate. 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Millions of yen) (Thousands of U.S.

dollars) Available-for-sale securities:

Unlisted equity securities ¥ 47 ¥ 47 $ 446

It was extremely difficult to calculate their fair value because there was no market price. Therefore, these

items were not included in “(3) Marketable and investment securities.”

3. Redemption schedule of monetary assets with contractual maturities.

January 31, 2013 Due in one year or less

Due after one year through

five years Due after five years

(Millions of yen) Cash and time deposits ¥ 35,104 Notes and accounts receivable:

Trade 32,457 Marketable and investment securities

Certificate of deposits 37,000 Total ¥ 104,561

F-25

December 31, 2013 Due in one year or less



(Millions of yen) Cash and time deposits ¥ 31,363 Notes and accounts receivable:


Certificate of deposits 31,500 Total ¥ 93,669

December 31, 2013 Due in one year or less



(Thousands of U.S. dollars) Cash and time deposits $ 297,590 Notes and accounts receivable:


Certificate of deposits 298,890 Total $ 888,785

4. Repayment schedule of short-term borrowings, long-term debt, and lease obligations is included in Note 6.

15. Derivatives

The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain

assets and liabilities denominated in foreign currencies. The Group also enters into interest rate swap contracts to

manage its interest rate exposures on certain liabilities.

All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within

the Group‟s business. Accordingly, the market risk in these derivatives is offset by opposite movements in the value of

hedged assets or liabilities.

Because the counterparties to these derivatives are limited to major international financial institutions, the Group

does not anticipate any losses arising from credit risk.

Derivative transactions entered into by the Group have been made in accordance with the internal policies which

regulate the authorization and credit limit amount.

(a) Derivative transactions to which hedge accounting was not applied.

January 31, 2013 Contract amount

Contract amount due after one year

Fair value


(Millions of yen) Foreign currency forward exchange contracts:

Sell U.S. dollars .................. ¥ 13,823 ¥ (1,938) ¥ (1,938)

December 31, 2013 Contract amount


Fair value



Sell U.S. dollars .................. ¥ 8,000 ¥ (428) ¥ (428)

December 31, 2013 Contract amount


Fair value


(Thousands of U.S. dollars) Foreign currency forward exchange contracts:

Sell U.S. dollars .................. $ 75,909 $ (4,061) $ (4,061)

F-26

(b) Derivative transactions to which hedge accounting was applied.

January 31, 2013 Hedged

item Contract amount


Fair Value


Sell U.S. dollars .................. Accounts receivable, trade ¥ 24,776 ¥ (3,431)

Interest rate swaps: Fixed-rate payment, floating rate receipt ............. Long-term debt ¥ 51,925 ¥ 42,375 (*)

December 31, 2013 Hedged



Fair Value


Sell U.S. dollars .................. Accounts receivable, trade

Interest rate swaps: Fixed-rate payment, floating rate receipt ............. Long-term debt ¥ 98,985 ¥ 67,620 (*)

December 31, 2013 Hedged



Fair Value

(Thousands of U.S. dollars) Foreign currency forward exchange contracts:

Sell U.S. dollars .................. Accounts receivable, trade

Interest rate swaps: Fixed-rate payment, floating rate receipt .............

Long-term debt $ 939,226 $ 641,617 (*)

(*) The above interest rate swaps, which qualify for hedge accounting and meet specific matching criteria, are

not re-measured at market value but the differential paid or received under the swap agreements is

recognized and included in interest expense or income. In addition, the fair value of such interest rate swaps

in Note 14 is included in that of hedged items (i.e., long-term debt).

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.

The contract 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.

F-27

16. Related-party transactions (a) Transactions between the Company and related parties

Significant transactions between the Company and related parties for the fiscal periods ended January 31, 2013 and

December 31, 2013, were as follows:

January 31, 2013 Transaction

Notes and accounts payable

Long-term advance payments

(Millions of yen) Mitsubishi Materials Corporation

Purchase of raw material .......................................................... ¥ 16,954 ¥ 5,967 ¥ 4,401 Undertaking of capital increase ................................................ 15,000

Sumitomo Metal industries, Ltd. Undertaking of capital increase ................................................ 15,000

December 31, 2013

Transaction Notes and

accounts payable Long-term

advance payments (Millions of yen) Ryoko Sangyo Corporation

Purchase of raw material, etc .................................................... ¥ 14,093 ¥ 8,609 ¥ 3,499

December 31, 2013 Transaction

Notes and accounts payable

Long-term advance payments

(Thousands of U.S. dollars) Ryoko Sangyo Corporation

Purchase of raw material, etc .................................................... $ 133,722 $ 81,687 $ 33,200

Long-term advance payments for Mitsubishi Materials Corporation included current portion of ¥1,200 million as

of January 31, 2013, and Long-term advance payments for Ryoko Sangyo Corporation included current portion of

¥1,200 million ($11,386 thousand) as of December 31, 2013.

Sumitomo Metal industries, Ltd. and Nippon Steel Corporation merged into Nippon Steel & Sumitomo Metal

Corporation as of October 1, 2012. (b) Transactions between consolidated subsidiaries and related parties

There were no significant transactions between consolidated subsidiaries and related parties for the fiscal periods

ended January 31, 2013 and December 31, 2013.

17. Contingent liabilities

Contingent liabilities at January 31, 2013 and December 31, 2013, were as follows. 2013 2013 2013 Jan. 31 Dec. 31 Dec. 31 (Millions of yen) (Thousands of U.S. dollars) Guarantees for an uncollected claim for a trading company ¥ 2,328 Loan guarantees for employees ................................................... ¥ 813 ¥ 652 $ 6,187

F-28

18. Comprehensive income

The components of other comprehensive income for the fiscal periods ended January 31, 2013 and December 31,

2013, were as follows:

2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Net unrealized gain (loss) on available-for-sale securities: Gains arising during the year ............................................................. ¥ 0 ¥ 0 $ 0 Reclassification adjustments to profit or loss .................................. (150) Amount before income tax effect ................................................... (150) 0 0 Income tax effect ........................................................................... Total ......................................................................................... ¥ (150) ¥ 0 $ 0 Deferred gain (loss) on derivatives under hedge accounting:

Gains arising during the year ......................................................... ¥ (3,431) Reclassification adjustments to profit or loss .................................. (10) ¥ 3,431 $ 32,555 Amount before income tax effect ................................................... (3,441) 3,431 32,555 Income tax effect ........................................................................... Total ......................................................................................... ¥ (3,441) ¥ 3,431 $ 32,555 Foreign currency translation adjustments: Adjustments arising during the year ............................................... ¥ 7,477 ¥ 10,849 $ 102,942 Reclassification adjustments to profit or loss .................................. Amount before income tax effect ................................................... 7,477 10,849 102,942 Income tax effect ........................................................................... Total ......................................................................................... ¥ 7,477 ¥ 10,849 $ 102,942 Post retirement liability adjustments for foreign consolidated subsidiaries:

Gains arising during the year ......................................................... ¥ (380) $ (3,606) Reclassification adjustments to profit or loss .................................. 42 399 Amount before income tax effect ................................................... (338) (3,207) Income tax effect ........................................................................... 59 560 Total ......................................................................................... ¥ (279) $ (2,647) Total other comprehensive income .................................................. ¥ 3,886 ¥ 14,001 $ 132,850

19. Segment information

The segment information for the fiscal periods ended January 31, 2013 and December 31, 2013, was as follows:

(a) Information about products and services

Information about products and services is not provided because the Group has only one segment which is „Crystalline silicon.‟

F-29

(b) Information about geographical areas

(1) Sales 2013 (January 31, 2013)

(Millions of yen)

Japan North

America

Asia

Europe

Total ¥ 68,396 ¥ 31,152 ¥ 92,498 ¥ 14,646 ¥ 206,692

2013 (December 31, 2013)

(Millions of yen)

Japan North

America

Asia

Europe

Total ¥ 49,357 ¥ 29,595 ¥ 90,523 ¥ 15,631 ¥ 185,106

2013 (December 31, 2013)

(Thousands of U.S. dollars)

Japan North

America

Asia

Europe

Total $ 468,327 $ 280,814 $ 858,934 $ 148,316 $ 1,756,391

(2) Property, plant and equipment

2013 (January 31, 2013) (Millions of yen)

Japan Asia Others Total ¥ 134,321 ¥ 40,866 ¥ 4,174 ¥ 179,361

2013 (December 31, 2013)

(Millions of yen) Japan Asia Others Total

¥ 123,886 ¥ 45,348 ¥ 4,560 ¥ 173,794

2013 (December 31, 2013) (Thousands of U.S. dollars)

Japan Asia Others Total $1,175,501 $ 430,288 $ 43,267 $ 1,649,056

(c) Information about major customers

Sales Related segment

2013 2013 2013 (Feb. 1, 2012 –

Jan. 31, 2013) (Feb. 1, 2013 – Dec. 31, 2013)

(Feb. 1, 2013 – Dec. 31, 2013)

(Millions of yen) (Thousands of U.S. dollars) Samsung Electronics Co., Ltd. ........ ¥ 29,656 ¥ 20,885 $ 198,169 Crystalline silicon Sumitomo Corporation .................... ¥ 28,642 ¥ 19,691 $ 186,839 Crystalline silicon

(d) Information about impairment loss

Impairment loss was not incurred for the fiscal year ended January 31, 2013 and December 31, 2013.

(e) Information about amortization of goodwill

Information about amortization of goodwill was not provided because the Group has only one segment, which is

„Crystalline silicon,‟ for the fiscal periods ended January 31, 2013 and December 31, 2013.

F-30

20. Subsequent events

Appropriations of retained earnings

The following appropriations of retained earnings at December 31, 2013, were approved at the Company‟s

shareholders‟ meeting held on March 28, 2014:

(Millions of yen) (Thousands of U.S. dollars) Year-end cash dividends, ¥1.00 ($0.01) per common share ...................... ¥ 258 $ 2,448 Year-end cash dividends, ¥2,287,671.23 ($21,706.72) per class A share ... ¥ 1,029 $ 9,764

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r 31, 2013

SUMCO CORPORATION1-2-1 Shibaura, Minato-ku, Tokyo 105-8634Tel: +81-3-5444-0808

http://www.sumcosi.com/english/

sumco - mscicorpdocs.msci.com/annual/ar_2013_313846.pdf · special feature sumco and the growing...

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