ANNUAL REPORT 2010...In non-cement business fields, we pursued expansion both by stepping up sales...

A N N U A L R E P O R T 2 0 1 0 FOR THE YEAR ENDED MARCH 31, 2010

Business EnvironmentDuring fiscal 2010, the year ended March 31, 2010, the

Japanese economy remained severe due to a weak recovery

rate and a high rate of unemployment. These conditions contin-

ued despite government-sponsored economic countermea-

sures helping to shore up consumer spending and thus the

economy as well as indications of a recovery in exports and

other areas following a rebound in overseas economies.

In the cement industry, domestic demand for cement fell

14.7% from the previous fiscal year to 42.7 million metric tons.

The main factors behind the fall were a decline in public-sector

demand caused by the deteriorating finances of regional gov-

ernments as well as a drop in private-sector demand due to

lower investment in private housing. On the other hand, exports

grew 3.6% from the previous fiscal year owing to a rise in

exports to such destinations as Singapore. Nevertheless, the

total volume of cement sold by domestic manufacturers (includ-

ing exports) decreased 11.4% year on year to 53.0 million

metric tons.

PerformanceResponding to the harsh business conditions, the Sumitomo

Osaka Cement Group focused on improving sales prices in its

cement business and worked to reduce manufacturing costs.

In non-cement business fields, we pursued expansion both by

stepping up sales of existing products and by introducing new

products while extending into new fields through acquisitions.

As a result, net sales in fiscal 2010 fell 9.4% year on year to

¥195,089 million and operating income dropped 49.2% year on

year to ¥3,037 million, reflecting decreased revenues and prof-

its in the cement and other businesses. In addition, the

Contents

Corporate Governance 2

At a Glance 4

Review of Operations 5

Special Features 7

Efforts to Create a Sustainable Society 8

Six-year Financial Summary 10

Financial Review 11

Consolidated Financial Statements 14

Notes to Consolidated Financial Statements 19

Corporate Data and Investor Information 31

TO OUR SHAREHOLDERSCorporate Philosophy

We aim to be a business group that helps

preserve the global environment and

contributes to the sustainment and ongoing

development of a prosperous society through

tireless technological innovation and wide-

ranging business activities.

Through the implementation of the

Sumitomo Osaka Cement Corporate

Philosophy in the daily business activities of

all Group employees, we will gain the trust of

all stakeholders as we strive to improve

our corporate value in order to achieve

sustainable growth.

SUMITOMO OSAKA CEMENT CO., LTD. �

Company recorded a net loss of ¥849 million compared with

net income in the previous year. This result was mainly attribut-

able to an extraordinary loss due to the disposal of equipment.

Overview of the 101 Medium-Term Management PlanThe Sumitomo Osaka Cement Group is implementing the 101

Medium-Term Management Plan, which began on April 1, 2009

and will continue until March 31, 2012. Focusing on sustainable

growth, the 101 Medium-Term Management Plan centers on

two initiatives, a “two-pronged management” approach.

The first initiative aims to increase profits by augmenting the

business value of our domestic cement business. In other

words, we want to ensure stable profits and build businesses

with high growth potential. This will be achieved by developing

an even more muscular business structure. For this reason, we

are working to ensure reasonable prices despite low levels of

demand, carrying out ongoing cost rationalization, increasing

product quality and developing new technology. The second

initiative aims to secure profits by expanding the business scale

of the overseas cement, environment, power generation and

other business. To this end, we are actively utilizing the support

of productive relationships by forming partnerships and partici-

pating in M&As, both in Japan and overseas.

The requirements for achieving numerical targets established

in the 101 Medium-Term Management Plan have been changed

due to severe economic conditions. However, the plan’s funda-

mental policy, the “two-pronged management approach,”

remains the same. Therefore, we will take steps to further

implement the policy.

Fiscal 2011 OutlookIn the fiscal year ending March 31, 2011, the Japanese econo-

my is forecasted to remain uncertain due to various factors that

are having a dampening effect on the economy, including

decreases in public-sector investment.

In the cement industry, the Company expects public-sector

demand to fall significantly due to a major contraction in nation-

al public works-related budgets. Private-sector demand, in

contrast, is expected to stop decreasing as the downward

trends in private capital investment and private housing invest-

ment bottom out. Consequently, the Company expects domes-

tic demand for cement in fiscal 2011 to reach 40.0 million

metric tons, a 6.4% decline compared with fiscal 2010.

Expecting that demand stagnation will continue for the time

being, Sumitomo Osaka Cement will build a structure to main-

tain income despite domestic demand for cement remaining at

the 40 million tonne level, as we take steps to expand busi-

nesses in growth fields.

Specifically, in the domestic cement business, we will look

Yutaka Watanabe, President

into streamlining and reducing costs in all areas, including pro-

duction, distribution, sales and administration. In terms of pro-

duction, while maintaining the present structure, the Company

will promote further efficiency, mainly by curbing the level of

production loss that occurs when production slows and by

making it easier to use recycled raw materials and fuels. These

initiatives will be realized by restructuring production facilities

and by engaging in precise production management. At the

same time, we will step up the efficiency of distribution and

sales through such actions as building an optimal transport ship

system and eliminating and consolidating service stations. The

Company will also actively expand businesses, primarily by

launching overseas cement businesses; strengthening the

downstream mineral resources and cement-related products

businesses; and developing the optoelectronics, advanced

materials and next-generation battery materials businesses.

Furthermore, amid heightened concerns about global envi-

ronmental problems, contributing as a member of the cement

industry to the establishment of a recycling-oriented society by

utilizing industrial waste and other materials is the social mis-

sion of the Group, one that it will continue to actively promote.

In the face of the severe economic conditions, we will strive

to meet the expectations of our shareholders by providing a

stable supply of cement—a basic material that makes an indis-

pensable contribution to social capital—strengthening our busi-

ness foundation and increasing our corporate value.

We would like to sincerely thank our shareholders for their

continuing support and understanding.

September 2010

TO OUR SHAREHOLDERS

� SUMITOMO OSAKA CEMENT CO., LTD.

CORPORATE GOVERNANCE

Sumitomo Osaka Cement recognizes that a primary objective of corporate governance is to

constantly strive to maximize corporate value by increasing management efficiency and securing

soundness and transparency in every phase of business activities. The Company has positioned the

fulfillment of these aims as its most important management issue.

Each Organization’s RolesSumitomo Osaka Cement adopts an auditor system. The Company

recognizes such system in which directors knowledgeable in busi-

ness operations make suitable management decisions through

deliberations at the Board of Directors’ Meeting and promote oper-

ational efficiency and which enhances auditing functions of audi-

tors. The Company promotes a corporate governance system

based on the above framework, which is deemed to be appropriate

for its operations. In addition, in June 2006, the Company intro-

duced the Executive Officer System to separate managerial deci-

sion making and auditing functions from business execution functions,

aiming to reinforce each function, accelerate decision making and

clarify authority and responsibility. Through these measures, the

Company is taking steps to improve operational efficiency.

With the President at its chairman, the Board of Directors is com-

posed of nine directors, including one external director* who pro-

vides an outside perspective to decision making. In addition, the

term of office for directors is limited to one year in order to clarify

director responsibilities and build a management system that can

quickly respond to changes in the operating environment. The

Board of Directors’ Meeting is held once or more each month to

determine important management matters and to receive reports

regarding business execution conditions.

The Board of Auditors is composed of five auditors, including

three external auditors.* To clarify Directors’ responsibility and to

build the management system which can react to changes of man-

agement environment, the term of office of directors is 1 year. The

Board of Auditors’ Meeting is held once or more each month. The

auditors conduct audits whether or not operations are being execut-

ed appropriately by directors and executives through participating in

such important meetings, obtaining reports from directors, executive

officers, employees and accounting auditors (audit corporations).

With regard to internal audits, the Company established the 10-

member Internal Audit Department as an in-house organization to

conduct audits in accordance with the Internal Audit Regulations.

This department takes steps to coordinate with auditors.

* The external director and external auditors have been reported to the Tokyo Stock Exchange and the Osaka Securities Exchange as an independent director and independent auditors.

Compliance System StatusSumitomo Osaka Cement established a Compliance Committee

chaired by the President for the purpose of raising awareness of

compliance on the part of the Group’s directors, executive officers

and employees and diffusing it Groupwide. In addition, the

Company established the Compliance Committee Regulations to

define the roles and responsibilities of the Committee. The

Compliance Committee devises an annual compliance activity plan

and controls the progress of the activities. Audits regarding compli-

ance are conducted by the Internal Audit Department, which sub-

mits a report of the results to the Compliance Committee. The

Compliance Committee then takes necessary measures, screening

the results and submitting a report of the results to the Board of

Directors and auditors.

Furthermore, Sumitomo Osaka Cement has established a report-

ing system (Compliance Hotline System) with the aim of implement-

ing measures to enhance compliance. This system is designed to

receive reports from the Group’s directors, executive officers and

employees regarding the efficacy of the Group’s compliance-related

activities. These measures ensure effective compliance and the fair

business transactions are conducted within the Group.

Risk Management System Chaired by the President, the Risk Management Committee strives

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

Committee’s roles and responsibilities, Sumitomo Osaka Cement

formulated Risk Management Committee Regulations. The

Committee prepares a risk management plan each year and moni-

tors its implementation. Audits are conducted in connection with

risk management, and the results are reported to the Board of

Directors and auditors.

Basic Policy Regarding Control of the CompanyAt its Board of Directors’ Meeting held on May 14, 2008, Sumitomo

Osaka Cement resolved a basic policy regarding parties who control

the decisions on its financial and business policies, as well as counter-

measures against the acquisition of its shares with a view of securing a

ratio of voting rights of 20% or higher by a specific shareholder group

(hereafter “the Plan”). The Plan was resolved as a measure to prevent

certain parties, who are considered to be inappropriate in accordance

with Sumitomo Osaka Cement’s basic policy, from controlling decisions

on its financial and business policies.

The Plan (valid for a three-year period) went into force with the

approval of the majority of shareholders with voting rights at the 145th

Ordinary General Meeting of Shareholders held on June 27, 2008.

For details of the Plan, please visit Sumitomo Osaka Cement’s

Web site (http://www.soc.co.jp, Japanese only).


General Meeting of Shareholders

Risk Management Committee

Board of Directors9 directors

(Incl. 1 external director)

President

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

Internal Audit Department(Internal Notification Office)

Compliance Committee

Notification Office (External)

Board of Corporate Auditors5 corporate auditors (Incl. 3 external auditors)

Accounting Auditor

SUBSIDIARIES

Election/Supervision

Election/Supervision

Election

Election

Decision-Making

Operational Audit Financial Audit

Perceive, evaluate,respond to and audit risks

Direction/Order

Report

BUSINESS EXECUTION

Financial Audit

Audit Result Report

Perceive, evaluate,respond to and audit risks

ReportInternal Audit

Report

DECISION-MAKING

Report

Internal Audit

Keeping informed about complianceand taking correctivemeasures

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

Board of Directors

President Yutaka Watanabe* Vice President Tomoyuki Katsura Director, Managing Executive Officers Fukuichi Sekine Masafumi Nakao Akira Fujisue Kazuhisa Tsukamoto Shigehiro Kobayashi Ryuji Muramatsu

External Director Kunitaro Saida

Auditors

Corporate Auditors Toshio Matsui Toshishige Fujioka External Corporate Auditors Akira Watanabe Shoji Hosaka Kazuo Suzuki

Executive Officers

Managing Executive Officers Masayuki Negishi Yasuhiro Aoki Katsuji Mukai

Executive Officers Yushi Suga Atsushi Kato Toru Chubachi Hisashi Inokawa Akira Saito

*Representative Director

CORPORATE GOVERNANCE

Corporate Governance Organization Chart


AT A GLANCE

ProductsOptoelectronics:• LiNbO3 external optical

modulators• Optical transmitters and

receivers for CATV• Optical measurement

equipment

Advanced materials:• Plasma display panels

(PDPs) filters• Various transparent coating

solutions• Heat and ultraviolet shield-

ing films• Hydrophilic antifouling easy

cleaning coating solutions • Components of semicon-

ductor manufacturing equip-ment

• Cathode Materials for use in Lithium-Ion Batteries

Business Overview

Optoelectronics:Our optoelectronics business is engaged in the manufacture and sale of optical communications devices and components such as LiNbO3 (LN) modulators and optical transmitters and receivers for cable television. These products offer high-quality, high-performance features for the expanding optical communications market in Japan and overseas.

Advanced materials:The advanced materials business develops and manufactures functional materials based on the Group’s proprietary nanoparticle production tech-nologies. These unique materials are being used in a wide array of fields that include various kinds of display technology and cosmetics and semi-conductor manufacturing equipment components.

Optoelectronics and Advanced Materials

Cement-Related Products Products• Repairing and reinforcing

products for concrete struc-tures

• Construction work• Cathodic protection for con-

crete structures (ELGARD SYSTEM)

• Artificial marine reefs

Business OverviewWe manufacture and sell products used in the rehabilitation and reinforce-ment of concrete structures and implement projects relating to rehabilitative construction. By using expertise gained in the cement business, we supply products that respond to the many different causes of deterioration to con-crete infrastructures and buildings, including damage from salt, acid rain and frost damage. We also develop large-scale, high-rise artificial marine reefs, thus contributing to the preservation of the ocean environment.

Mineral Resources Products• Limestone• Dolomite• Calcium carbonate• Aggregate• Silica powder

Business OverviewSumitomo Osaka Cement owns limestone mines in various places throughout Japan and supplies limestone as an industrial material to the steel, chemical, cement and other industries. High-purity limestone enjoys robust demand both in Japan and overseas and is exported to Asian countries. We also deal in aggregate for ready-mixed concrete and construction through our domestic sales network. In addition, we apply our unique grinding and sorting technologies to manufacture and market calcium carbonate and silica powder.

Cement Products• Assorted cements• Ready-mixed concrete • Cement-related solidifica-

tion materials• Supply of electrical power• Recycling of raw materials

and fuels

Business OverviewWith the cement business as our core operation, we have established plants and service stations throughout Japan as we conduct manufactur-ing, distribution and sales of cement and solidification materials. The Group actively contributes to a recycling-based society by recycling waste materials and by-products, and by improving its electricity self-supply ratio with in-house power generation systems that mainly use wood biomass. At the same time, we focus on the development of high-performance cements and efficient manufacturing systems.

Real Estate and Others Products & Services• Leasing of real estate,

including distribution ware-houses

• Sales of office appliances• Development of software• Engineering

Business OverviewThe real estate business engages in long-term leasing of office buildings, distribution centers, and various other facilities constructed on the Group’s idle real estate. In the other business, we are involved in activities that include the construction of electrical facilities and electric furnaces and the sale of office appliances.


REVIEW OF OPERATIONS

Note:From the fiscal year ending March 31, 2011, the Company will divide the Optoelectronics and Advanced Materials business into the Optoelectronics and Advanced Materials businesses and change the name of the Real Estate and Other business to the Others business. In addition, next-generation battery mate-rials previously included in the Optoelectronics and Advanced Materials business will now be included in the Others business.

Despite an improvement in sales prices, a significant decrease in domestic demand led to a fall in sales volume. As a result, net sales declined ¥19,540 million year on year, or 11.2%, to ¥155,184 million. Operating income dropped ¥2,842 mil-lion, or 50.4%compared with the previous fiscal year, to ¥2,797 million. The sales volume in Japan declined 19.1% year on year to 8,577 thousand metric tons, while cement exports increased 12.9% compared with the previous fiscal year to 1,112 thousand metric tons. This resulted in a total sales volume of 9,689 thousand metric tons, a 16.4% reduction from the previous fiscal year. The Company undertook capital expenditures totaling of ¥15,027 million, a decrease of ¥3,681 million year on year. Such expenditures were directed mainly at further energy efficiency and rationalization works related to facility operations, primarily at cement production plants, as well as at boosting our intake capacity with the aim of reducing costs through the wider use of recycled raw materials and fuels.

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2008 2009 2010

Net Sales (left) Operating Income (right)

(Billions of yen)

(Millions of yen)

2008 2009 2010Net Sales ¥155,741 ¥174,725 ¥155,184Operating Income 10,409 5,640 2,797Assets 205,048 206,439 207,428Capital Expenditures 14,658 18,709 15,027

Cement

(Millions of yen)

2008 2009 2010Net Sales ¥ 9,145 ¥ 8,976 ¥ 7,543Operating Income (loss) 829 128 (478)Assets 26,949 27,433 31,267Capital Expenditures 3,312 3,836 3,638

During the fiscal year under review, the sales volume of limestone for use in aggregate and steel decreased. As a result, net sales in the mineral resources business fell ¥1,431 million, or 16.0%, compared with the previous fiscal year to ¥7,543 million. Operating income deteriorated ¥606 million year on year to report a loss of ¥478 million. In addition, the Company made a ¥3,638 million capital expenditure, down ¥197 million from the previous fiscal year, aimed at reinforcing its business foun-dation and enhancing its earnings capabilities. The Group completed the development of its third mining operations area atits mainstay Shuho limestone mine that commenced operations in September 2009. With this move, the Group has secured supplies of approximately 300 metric million tons of limestone over approximately 40 years, thereby ensuring a stable supply.

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2008 2009 2010

Net Sales (left) Operating Income (Loss) (right)

(Billions of yen)

Mineral Resources

¥195,089million

Cement

79.5%

Real Estate and Others

3.2%

Mineral Resources

3.9%

Cement-Related Products

7.0%

Optoelectronics andAdvanced Materials

6.4%

Sales by Segment


(Millions of yen)

2008 2009 2010Net Sales ¥11,873 ¥13,192 ¥13,666Operating Income 252 384 255Assets 10,357 9,503 12,383Capital Expenditures 463 143 220

(Millions of yen)

2008 2009 2010Net Sales ¥12,814 ¥12,095 ¥12,544Operating Income (loss) (1,253) (1,675) (844)Assets 12,061 11,369 13,196Capital Expenditures 742 660 249

(Millions of yen)

2008 2009 2010Net Sales ¥ 7,786 ¥ 6,403 ¥ 6,149Operating Income 1,687 1,507 1,346Assets 32,853 32,511 30,437Capital Expenditures 148 990 161

REVIEW OF OPERATIONS

The optoelectronics business recorded a fall in revenues and earnings due to a decline in sales prices caused by the strong yen and intensifying competition. This decrease occurred despite a rise in sales volume attributable to expanded demand for optical communication devices. While, the advanced materials busi-ness experienced an improvement in revenue due to an increase in the sales vol-ume for filters used in plasma display panels (PDPs). As a result, net sales in the optoelectronics and advanced materials business climbed ¥449 million, or 3.7% year on year, to ¥12,544 million, while operating loss improved ¥830 million to ¥844 million. Based on its policy of allocating management resources to growing fields, the Company made capital expenditures totaling ¥249 million, a year-on-year decrease of ¥410 million, in the fiscal year under review in areas that include the development of new products and technologies as well as business expansion measures that are responsive to technological innovations.

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2008 2009 2010

Net Sales (left) Operating Income (Loss) (right)

(Billions of yen)


Net sales in the other business fell ¥252 million, or 4.0%, to ¥6,149 million due to decreases that include facility construction work in the engineering business. Operating income declined ¥160 million, or 10.6%, to ¥1,346 million. In addition, capital expenditure totaled ¥161 million, a decrease of ¥828 million during the fiscal year under review.

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2008 2009 2010


(Billions of yen)

Real Estate and Others

Owing mainly to acquiring a controlling interest in Kurimoto Concrete Industries, Ltd., which manufactures and sells hume pipes, net sales in the cement-related products business rose ¥474 million, or 3.6% compared with the previous fiscal year, to ¥13,666 million. Despite the upturn, operating income decreased ¥129 million, or 33.7% year on year, to ¥255 million due primarily to deteriorating prof-its caused by intensifying competition in the wake of a decline in demand in the area of contract construction. Capital expenditure totaled ¥220 million, an increase of ¥77 million from the previous fiscal year, reflecting activities carried out at production facilities to realize laborsaving and streamlined workflows as well as expanded business capacity.3

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(Billions of yen)



As one of its growth strategies under the 101 Medium-Term

Management Plan (fiscal 2009–fiscal 2011), Sumitomo Osaka

Cement prioritizes the expansion of its overseas businesses. In par-

ticular, China is being positioned as a market that is expected to

grow in the medium term.

Sumitomo Osaka Cement established a representative office in

Shanghai—an economic, financial and information hub—in 2005 to

function as a central base for expanding its business operations in

China. The Shanghai Representative Office will not only undertake

cement-related business development that targets every region of

China, it will also continue to conduct surveys and information gath-

ering related to expanding the optoelectronics and advanced mate-

rials businesses.

In the Cement business, the Company invested in Yunnan

Kungang & K. Wah Cement Construction Materials Co., Ltd. togeth-

er with a Hong Kong-based partner in 2007. The Company began

to deepen its business relationships by implementing technical

cooperation and personnel exchanges involving engineers in the

field of cement production.

In the Advanced Materials business, the Company established

Sumi Long Nanotechnology Materials (Shenzhen) Co., Ltd. in 2002,

to produce and sell various functional coating solutions containing Shanghai, which is experiencing a construction boom

SPECIAL FEATURES

Promoting the Expansion of Non-Cement Businesses

Business Development in China

Aiming to expand its non-cement businesses as stated in the basic

policies of the medium-term management plan, Sumitomo Osaka

Cement is proactively promoting business alliances and M&As.

To that end, Sumitomo Osaka Cement acquired a controlling

interest in Kurimoto Concrete Industries, Ltd. in September 2009,

including that company into its scope of consolidation as part of its

development of downstream cement-related products businesses.

Kurimoto Concrete Industries, Ltd. is engaged in the sale of centrif-

ugal reinforced concrete pipes (hume pipes) for sewage systems

and thus boasts a wide-ranging product lineup that includes spe-

cial pipes. Given this, the Company will utilize its cement and con-

crete-related technologies to develop Kurimoto Concrete

Industries’ business operations and strive to enhance product qual-

ity while cutting costs at the acquired company. By doing so, the

Company aims to increase earnings throughout the Group.

In addition, the Company entered into a business alliance agree-

ment with the U.S. cosmetics materials processing company Kobo

Products, Inc. in October 2009 with the aim of expanding its cos-

metics materials business in North America. The Company has

been selling zinc oxide, which is an ultraviolet shield material, in

superfine particle form for use in sunscreen products since 1989. In

recent years, zinc oxide has drawn increasing public attention in the

United States and Europe in view of rising interest in anti-aging

products. Through the business alliance with Kobo Products, which

holds a high market share in the United States, Sumitomo Osaka

Cement will aim to expand the sale of cosmetics materials.

Furthermore, as part of the development of downstream mineral

resources businesses, the Company included Ito Industry Co., Ltd.

into its scope of consolidation as a wholly owned subsidiary in

December 2009. Looking at Ito Industry’s main businesses of man-

ufacturing and the sale of lime, the Company expects further expan-

sion of mineral resources business after this business consolidation.

Utilizing external cooperation, Sumitomo Osaka Cement will

strive to expand its non-cement businesses and earnings.

nano particles. The initial product lineup, including coating for cath-

ode-ray tubes, has shifted to new materials, including coating for

LCD TVs, anti-bacterial agents and heat and shielding films in

accordance with changing demand of times.

Anticipating increasing demand for cement in line with an upturn

in infrastructure and private-sector capital investment, Sumitomo

Osaka Cement will continue to promote aggressive business devel-

opment in China, where there are expanding business opportunities

in the new materials field.


Based on the fundamental philosophy underlying its environmental

policies, the Sumitomo Osaka Cement Group aims to contribute to

the preservation of the global environment and create abundance in

society by pursuing environmentally friendly manufacturing and dis-

tribution operations in order to maintain harmony between the envi-

ronment and corporate activities. The Group uses natural resources

in the manufacturing processes of its core cement business, con-

suming a significant amount of energy. At the same time, the

Group’s recycling technologies ensure the stable and safe use of

Finishing process

Plasterboard waste

Slag/sludge

Casting sand

Coal ash

Sludge

Construction site soil

Blast-furnance slag

White clay waste

Waste oil

Waste Plastics

Alkali waste Meat-and-bonemeal waste

Reclaimed oil

Chlorofluorocarbons

Unburnt ash

Wood scraps Sewage sludge,dehydrated sludge

Waste tires RDF

Waste oil

Cement mill

Blast-furnace slag

Plaster by-products

Kiln

Preheater

Raw mill

Materials

Limestone

Clay Silica

Ferrous Materials

Clinker

Cement

Raw material preparation process Burning process

Environmental Activities

Cement manufacturing facilities carry out the three processes of

raw material preparation, burning and finishing. When using waste

materials and by-products, the Company investigates the proper-

ties of each material and handles it appropriately so that it will not

cause problems for product quality or the environment. The

Company is improving its capacity to make appropriate and effec-

tive use of biomass materials and fuels such as sewage sludge and

wood scraps as well as various waste materials and by-products.

Raw material preparation:

Blend various raw materials, including limestone, at the appropriate

rate and dry and crush them

Burning:

Heat up the powdered raw materials, mainly by burning coal in a

rotary kiln incinerator that achieves a temperature of 1,450°C, and

then rapidly cools it down with air to make a semi-finished product

called “clinker”

Finishing:

Add plaster to the clinker and crush it to make cement

EFFORTS TO CREATE A SUSTAINABLE SOCIETY

Acceptance of Waste Materials and By-products in the Cement Manufacturing Process

waste materials and industrial by-products. In addition to recycling

raw materials, the Group helps to preserve the natural environment

and promotes energy reduction and energy efficiency initiatives

The Group not only provides society with high-quality products

as an arterial industry, it plays a role as a venous industry that recy-

cles waste materials. Looking ahead, the Group will actively work to

decrease environmental impact and create a recycling-oriented

society by further developing the above initiatives as it aims to

undertake sustainable business management.


Sumitomo Osaka Cement proactively uses such waste materials and by-products as tire waste,

waste plastics, coal ash, sewage sludge and construction site soil as part of its raw materials and

fuels. The use of such materials reduces the need for natural resources like limestone and coal

and generates no secondary waste, as even burnt residue can be employed as a raw material for

cement. The reduction of waste materials is helping to lessen the environmental burden caused

by incineration and waste landfill as well as extending the life of final disposal sites.

In fiscal 2009, the Company accepted 5.02 million metric tons of waste materials and by-prod-

ucts, a decrease of 13.8% from the previous fiscal year. However, the amount of waste materials

and by-products per metric ton of cement produced annually exceeded the 400-kilogram level—

the fifth consecutive year at this level—while exceeding the 500-kilogram mark at 515.5 kilograms

in fiscal 2009.

Beginning with accepting dust and ash from the incineration of regular garbage as raw materi-

als for cement, the Company will continue to work to develop and introduce environmental tech-

nologies aimed at expanding the amount of waste materials used as well as the types of items

that can be accepted for this use. In doing so, the Company will focus even more on environ-

mental preservation and social contribution.

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2006 2007 2008 2009 2010FY

Material-derived Fuel-derived By-products

Use of Waste Materials andBy-products

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2006 2007 2008 2009 2010

Material-derived Fuel-derived By-products

FY

Use of Waste Materials andBy-products per Metric Ton of Cement Products

Use of Waste Materials and By-products

Environmental Topics

EFFORTS TO CREATE A SUSTAINABLE SOCIETY

Promoting Businesses That Recycle Ash and Dust from Incinerated Garbage

Initiatives Concerning Wood Biomass-Based Power Generation and Biomass Fuel Development

In cooperation with the Hyogo Environmental Advancement

Association, Sumitomo Osaka Cement established a new pretreat-

ment facility and commenced cement-based recycling business

operations in August 2010 with the purpose of utilizing ash and

dust from the incineration of regular garbage as raw materials for

cement. The cement-based recycling business involves putting ash

and dust collected from garbage incineration facilities in Hyogo pre-

fecture through crushing and foreign material/salt removal treat-

ment processes at the Company’s abovementioned pretreatment

facility in order to ensure that these materials conform to accepted

standards related to raw materials used in cement. After process-

ing, the entire volume of treated ash and dust is suitable for use as

raw materials for cement produced at the Company’s Ako Plant.

Sumitomo Osaka Cement introduced a biomass power generation

unit at its Tochigi Cement Plant that uses wood biomass as its pri-

mary fuel. This unit commenced full scale operations in April 2009.

In addition, in September 2009 a wood biomass fuel-production

facility, which converts construction waste, thinned wood and other

materials into chips, was installed at the Group company Izumi

Industry Co., Ltd. This facility has begun supplying the Tochigi

Cement Plant with wood chips. By operating facilities using power

generated from wood biomass, we expect to reduce CO2 emis-

sions by approximately 91,000 tons per year, while the amount of

woodchips used annually is forecasted to exceed 100,000 tons.

Until now, the Company purchased wood chips only from woodchip

Through these business operations, we have not only made ash

and dust recycled from incinerated garbage into reusable resourc-

es, we are helping to reduce environmental impact by extending

the useful life of final waste disposal sites.

manufacturers to supply its facilities. However, we are now able to

provide a stable supply of wood biomass within the Group by intro-

ducing facilities that manufacture woodchips.

A new pretreatment facility at Ako Plant

A wood biomass power generation facility at Tochigi Cement Plant

10 SUMITOMO OSAKA CEMENT CO., LTD.

SIX-YEAR SUMMARYSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31

Millions of yen

except per share amounts

Thousands of U.S. dollars except per share amounts

(Note 3)

2005 2006 2007 2008 2009 2010 2010

Net sales ¥181,856 ¥191,994 ¥198,362 ¥197,359 ¥215,391 ¥195,089 $2,096,830

Cost of sales 135,294 143,081 146,921 149,333 172,921 157,677 1,694,724

Selling, general and administrative expenses 34,168 34,094 35,658 36,097 36,496 34,375 369,464

Operating income 12,394 14,819 15,783 11,929 5,974 3,037 32,642

Net income (loss) 5,473 2,685 6,000 5,074 451 (849) (9,128)

Per share:

Net income (loss) ¥ 13.07 ¥ 6.42 ¥ 14.35 ¥ 12.14 ¥ 1.08 ¥ (2.04) $ (0.020)

Cash dividends 4.00 4.00 5.00 6.00 4.00 4.00 0.043

Shareholders’ equity 294.93 323.63 344.48 320.83 288.62 296.78 3.190

Net assets (Note 1) ¥ — ¥ — ¥145,473 ¥135,524 ¥121,682 ¥125,197 $1,345,628

Shareholders’ equity 123,416 135,395 — — — — —

Total assets 306,852 321,140 328,280 316,836 309,466 311,969 3,353,061

ROA (Return on assets) 3.2% 4.1% 4.3% 3.2% 1.4% 0.3%

Equity ratio (Note 2) 40.2% 42.2% 43.9% 42.3% 38.9% 39.6%

ROE (Return on equity) 4.6% 2.1% 4.3% 3.7% 0.4% (0.7)%

Net cash provided by operating activities ¥ 20,519 ¥ 20,566 ¥ 20,688 ¥ 23,203 ¥ 17,594 ¥ 22,236 $ 238,998

Net cash used in investing activities (9,404) (11,828) (14,445) (18,330) (23,192) (21,526) (231,362)

Net cash (used in) provided by financing activities (12,889) (2,963) (12,431) 5,159 8,753 1,766 18,980

Cash and cash equivalents at end of year 13,186 18,998 12,814 22,826 25,988 30,800 331,043

Number of employees 2,692 2,684 2,643 2,646 2,706 2,808

Notes: 1. “Accounting Standards for Net Assets of Balance Sheet” have been adopted from the year ended March 31, 2007.

2. Equity = Total net assets – Share subscription rights – Minority interests

3. U.S. dollar amounts have been translated from yen at the rate of ¥93.04=US$1 as of March 31, 2010.

CONSOLIDATED FINANCIAL DATA

SUMITOMO OSAKA CEMENT CO., LTD. 11

FINANCIAL REVIEW

Scope of ConsolidationThe scope of these consolidated financial statements includes Sumitomo Osaka Cement, 37 consolidated subsidiaries and one equity-method affiliate.

Net SalesThe operating environment in which the Sumitomo Osaka Cement Group conducts its business remained severe during the fiscal year under review. In terms of the Company’s core cement business, the harsh conditions were attributable to a decline in public-sector demand caused mainly by a deteriora-tion of finances among regional governments as well as a drop in private-sector demand due to a cooling of investment in pri-vate housing and other factors. Under these circumstances, the Group focused its efforts in the cement business on improving sales prices and reducing production costs. The Company strived to expand other business fields by increasing sales of existing products and releasing new products, while acquiring other companies in order to expand its business in new sec-tors. In addition, proactive measures were also taken Groupwide to contribute to the formation of a recycling-oriented economy and reduce its impact on the environment. As a result, the cement business recorded a decrease in revenue, contributing to a 9.4% drop year on year in consolidated net sales for the fiscal year under review to ¥195,089 million (US$2,096.830 mil-lion). For more information on results by business segment, please refer to the Review of Operations on pages 5 and 6.

ProfitsOperating income fell 49.2% year on year to ¥3,037 million (US$32.642 million) due to a decline in revenue primarily in the cement business. During the fiscal period under review, the

Company declared a net loss of ¥849 million (US$9.128 million). This was attributable to the recording an extraordinary loss caused mainly by the dismantling of certain facilities. Consequently, net loss per share stood at ¥2.04.

Financial PositionTotal assets as of March 31, 2010 stood at ¥311,968 million (US$3,353.061 million), an increase of ¥2,503 million from the previous fiscal year-end. Current assets declined ¥1,733 million year on year to ¥92,574 million (US$994.986 million), attributable primarily to a fall in notes and accounts receivable, and a decrease in raw materials and other inventories. Fixed assets rose ¥4,236 million year on year to ¥219,396 million. Within property, plant and equipment, tangible assets decreased ¥532 million to ¥173,907 million (US$1,869.161 mil-lion). However, investments and other assets increased ¥7,001 million to ¥41,576 million (US$446.859 million) due to such fac-tors as a rise in investment securities. Total liabilities fell ¥1,012 million from the previous fiscal year-end to ¥186,772 million (US$2,007.433 million). Current l iabil it ies declined ¥10,351 mill ion to ¥84,551 mill ion (US$908.760 million) primarily due to decreases in accounts payable, notes payable and the balance of corporate bonds scheduled to be reimbursed within one year. Long-term liabili-ties grew ¥9,339 million to ¥102,221 million (US$1,098.677 mil-lion) as a result of such factors as increases in long-term debt and deferred tax liabilities. Total interest-bearing debt rose ¥2,373 million to ¥129,780 million (US$1,394.884 million) com-pared with the previous fiscal year-end, while the interest cover-age ratio fell from 3.3 times in the previous fiscal year to 1.7 times.

0

50

100

150

200

250

181.9192.0 198.4 197.4 195.1

215.4

Net Sales(Billions of yen)

’10’09’08’07’06’050

20

15

10

5

12.4

14.815.8

11.9

3.0

6.0

Operating Income(Billions of yen)

’10’09’08’07’06’050

400

300

200

100

306.9321.1 328.3

316.8 312.0309.5

Total Assets(Billions of yen)

’10’09’08’07’06’05


As a result, cash and cash equivalents at the fiscal year-end increased ¥4,811 million, or 18.5%, to ¥30,800 million (US$264.566 million).

Dividend PolicySumitomo Osaka Cement believes that earnings distributions to shareholders should be determined in accordance with the Company’s business results. As a cement manufacturer, in order to secure earnings in future years, the Company requires continuous improvement of facilities and investment in facility renewal. Given this situation, the Company also considers it vital to expand company reserves. In this light, the Company will determine earnings distribution from the viewpoint of overall business management. For f iscal 2010, interim dividends were not paid. Consequently, the year-end dividend was ¥4.0 per share, while the full-year dividend payment totaled ¥4.00 per share, which is the same as the previous fiscal year.

Fiscal 2011 OutlookIn the fiscal year ending March 31, 2011, despite a recovery in overseas economies and a consistent effect expected from the national government’s economic countermeasures, the Japanese economy is forecasted to remain uncertain. This uncertainty is due to the existence of risks that are having a dampening effect on the economy, including decreases in pub-lic-sector investment and the occurrence of deflation. In the cement industry, the Company expects domestic demand to fall due to a major forecasted decline in public-sec-tor demand caused by a significant contraction of national pub-lic works-related budgets. This decrease is forecasted to occur despite the anticipated cessation of decreases in private-sector demand owing to a gradual recovery in private capital invest-ment and private housing investment.

Net assets at the end of the fiscal year under review stood at ¥125,197 million (US$1,345.628 million), up ¥3,515 million from a year earlier. This increase was mainly the result of a rise in unrealized gains on available-for-sale securities. Consequently, the shareholders’ equity ratio edged up from 38.9% as of March 31, 2009 to 39.6% as of March 31, 2010.

Capital Investment, Depreciation and AmortizationThe Company is taking steps to stabilize its business founda-tion in the cement business by making further efforts to stream-line production and distribution. In other business fields, the Company will implement capital investment based on its medi-um- and long-term management strategies to expand revenues by allocating key management resources to growth fields. As a result, total capital expenditures undertaken throughout the Group decreased ¥5,040 million, or 21.8% from the previ-ous fiscal year, to ¥19,297 million as of March 31, 2010. This was caused by factors that include to a narrowing of the cement business. Depreciation and amortization rose ¥580 million, or 2.9%, to ¥20,871 million.

Cash FlowNet cash provided by operating activities totaled ¥24,555 mil-lion (US$238.998 million), up ¥6,962 million from the previous fiscal year. Cash inflows were primarily composed of internal reserves, beginning with depreciation and amortization. Net cash used in investing activities amounted to ¥21,526 million (US$231.362 million), down ¥1,666 million from the previous fiscal year, mainly reflecting purchases of property, plant and equipment (included within capital investment). Net cash pro-vided by financing activities fell ¥6,988 million to ¥1,766 million (US$18.980 million) due primarily to proceeds received from long-term bank loans, as well as the issuance and reimburse-ments of corporate bonds.

0

30

60

90

120

150

123.4

135.4145.5

135.5

125.2121.7

Shareholders’ Equity(Billions of yen)

’10’09’08’07’06’05–1

1

0

2

3

4

5 4.6

2.1

4.3

3.7

0.4

(0.7)

ROE (Return on Equity)(%)

’10’09’08’07’06’050

1

2

3

4

5

3.2

4.14.3

3.2

1.4

0.3

ROA (Return on Assets)(%)

’10’09’08’07’06’05


However, the Group’s own mine can provide an extremely sta-ble supply of limestone, the primary raw material of cement, over the long term. On the other hand, the price of coal, the pri-mary raw fuel used in cement production, may potentially increase due to future circumstances. The Group is making efforts to limit the effects on its performance by improving cement sales prices to reflect operating cost increases caused by rising expenses for coal procurement.

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

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

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

Amid such circumstances, the Sumitomo Osaka Cement Group will investigate and implement various policies with the aim of achieving continual growth by building a new business foundation. Regarding its core cement business, the Group will restructure domestic sales and distribution systems, and will continue to focus on optimizing prices and reduce costs in the area of production. With regard to the overseas cement busi-ness, the Group will examine the possibility of penetrating regions that are expected to grow in the future. The Group will also work to further expand other business fields by enhancing internal company systems in the environment business while prioritizing the allocation of management resources towards promising businesses that are expected to grow. For the fiscal year ending March 31, 2011, Sumitomo Osaka Cement expects net sales of ¥185.0 billion, a decrease of 5.2% year on year, operating income of ¥4.2 billion, a rise of 38.3%, and net income of ¥0.4 billion, up ¥4.5 million from the fiscal year under review. The Company plans to make a determination regarding the scheduled monetary amount of dividends by examining future performance trends. The aforementioned figures are based on information avail-able as of May 2010, and therefore may differ in accordance with various factors in the future. Major possible risk factors are described as follows:

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

• Increase in Raw Material and Fuel PricesThe Group’s mainstay product of cement requires a variety of raw materials and fuels, including limestone, clay and coal. Therefore, price hikes in raw materials and fuels used in the cement manufacturing process have the potential to significant-ly affect the Group’s financial condition, results and cash flows.


CONSOLIDATED BALANCE SHEETSSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES March 31, 2009 and 2010

Millions of yen

Thousands of U.S. dollars (Note 1)

2009 2010 2010

ASSETS

Current assets:

Cash and cash equivalents (Note 3) ¥ 25,988 ¥ 30,800 $ 331,043

Trade receivables:

Accounts receivable 28,009 26,155 281,118

Notes receivable 14,228 12,405 133,334

Securities 1 0 2

Inventories (Note 4) 22,068 18,872 202,839

Short-term loans to unconsolidated subsidiaries and affiliates (Note 5) 361 262 2,812

Deferred tax assets (Note 12) 1,533 1,817 19,527

Other 2,349 2,588 27,494

Less: Allowance for doubtful receivables (230) (296) (3,183)

Total current assets 94,307 92,574 994,986

Property, plant and equipment:

Land 39,138 40,185 431,907

Buildings and structures 143,317 149,886 1,610,986

Machinery, equipment and tools 354,321 373,848 4,018,148

Quarry sites 19,181 22,164 238,217

Lease assets 106 206 2,211

Construction in progress 15,892 5,764 61,761

Less: Accumulated depreciation (397,516) (418,128) (4,494,069)

Property, plant and equipment, net 174,439 173,907 1,869,161

Investments and other assets:

Investment securities (Note 7) 22,918 30,915 332,280

Investments in unconsolidated subsidiaries and affiliates 2,516 2,451 26,340

Long-term loans receivable 129 145 1,558

Long-term loans to unconsolidated subsidiaries and affiliates (Note 5) 1,324 1,252 13,458

Deferred tax assets (Note 12) 1,016 923 9,926

Other 7,287 6,404 68,836

Less: Allowance for doubtful accounts (615) (515) (5,539)

Total investments and other assets 34,575 41,576 446,859

Intangible fixed assets 6,145 3,913 42,055

Total assets ¥309,466 ¥311,969 $3,353,061

See accompanying notes to the consolidated financial statements.


Millions of yen


2009 2010 2010

LIABILITIES AND NET ASSETS

Current liabilities:

Short-term bank loans (Note 8) ¥ 33,116 ¥ 33,560 $ 360,700

Current portion of long-term debt (Note 8) 17,614 13,355 143,537

Trade payables:

Accounts payable (Note 6) 23,717 19,600 210,665

Notes payable 4,296 3,845 41,332

Other 7,818 7,916 85,083

Accrued income taxes (Note 12) 856 783 8,420

Accrued expenses 3,480 3,594 38,633

Deferred tax liabilities (Note 12) 14 13 137

Other 3,991 1,884 20,249

Total current liabilities 94,902 84,551 908,756

Long-term liabilities:

Long-term debt (Note 8) 76,768 82,956 891,621

Accrued severance benefits for employees (Note 13) 828 1,096 11,777

Accrued severance benefits for directors and statutory auditors 316 294 3,161

Deferred tax liabilities (Note 12) 5,400 8,353 89,778

Other 9,570 9,522 102,340

Total long-term liabilities 92,882 102,221 1,098,677

Total liabilities 187,784 186,772 2,007,433

Contingent liabilities (Note 9)

Net assets:

Shareholders’ equity

Common stock

Authorized: 1,470,130,000 shares

Issued: 427,432,175 shares at March 31, 2009 and 2010 (Note 10) 41,654 41,654 447,701

Capital surplus (Note 10) 31,084 31,084 334,097

Retained earnings (Note 10) 45,427 43,738 470,102

Treasury stock, at cost

(10,866,768 shares at March 31, 2009 and 10,948,439 at March 31, 2010) (1,927) (1,941) (20,872)

Total shareholders’ equity 116,238 114,535 1,231,028

Valuation and translation adjustment

Unrealized gain on available-for-sale securities 4,025 9,101 97,822

Foreign currency translation adjustments (36) (34) (368)

Total valuation and translation adjustment 3,989 9,067 97,454

Minority interests 1,455 1,595 17,146

Total net assets 121,682 125,197 1,345,628

Total liabilities and net assets ¥309,466 ¥311,969 $3,353,061


CONSOLIDATED STATEMENTS OF INCOMESUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2009 and 2010

Millions of yen


2009 2010 2010

Net sales ¥215,391 ¥195,089 $2,096,830

Cost of sales 172,921 157,677 1,694,724

Gross profit 42,470 37,412 402,106

Selling, general and administrative expenses 36,496 34,375 369,464

Operating income 5,974 3,037 32,642

Other income (expenses):

Interest and dividend income 1,353 753 8,093

Interest expense (2,223) (2,225) (23,916)

Loss on sales and disposal of property, plant and equipment, net (1,011) (409) (4,392)

Gain on sales of securities, net 18 526 5,653

Write-down of investment securities (1,168) (57) (607)

Loss on disposal and devaluation of inventories (305) — —

Loss on impairment of fixed assets (Note 14) (69) (13) (134)

Other, net (912) (2,433) (26,150)

(4,317) (3,857) (41,453)

Income (loss) before income taxes and minority interests 1,657 (820) (8,811)

Income taxes (Note 12):

Current 1,729 900 9,671

Deferred (579) (880) (9,456)

1,150 20 215

Minority interests in net income of consolidated subsidiaries (56) (9) (102)

Net income (loss) ¥ 451 ¥ (849) $ (9,128)

Yen

U.S. dollars (Note 1)

2009 2010 2010

Per share (Note 2 (m)):

Net income ¥ 1.08 ¥ — $ —

Net income assuming dilution — — —



CONSOLIDATED STATEMENTS OF CHANgES IN NET ASSETSSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2009 and 2010

Millions of yen


Shares of common stock

Common stock

Capital surplus

Gains on sales of treasury stock

Retained earnings

Treasury stock

Total

Balance at March 31, 2008 427,432,175 ¥41,654 ¥31,029 ¥58 ¥47,271 ¥(1,725) ¥118,287

Cash dividend paid — — — (2,295) — (2,295)

Net income for the year — — — 451 — 451

Acquisition of treasury stock — — (3) — (202) (205)

Other, net — — — — — —

Balance at March 31, 2009 427,432,175 ¥41,654 ¥31,029 ¥55 ¥45,427 ¥(1,927) ¥116,238

Cash dividend paid — — — (840) — (840)

Net income for the year — — — (849) — (849)

Acquisition of treasury stock — — — — (14) (14)

Other, net — — — — — —

Balance at March 31, 2010 427,432,175 ¥41,654 ¥31,029 ¥55 ¥43,738 ¥(1,941) ¥114,535

Millions of yen


Unrealized gain on securities

Translation adjustment

Total

Minority interests

Total net assets

Balance at March 31, 2008 ¥15,763 ¥(53) ¥15,710 ¥1,527 ¥135,524

Cash dividend paid — — — — (2,295)

Net income for the year — — — — 451

Acquisition of treasury stock — — — — (205)

Other, net (11,738) 17 (11,721) (72) (11,793)

Balance at March 31, 2009 ¥ 4,025 ¥(36) ¥ 3,989 ¥1,455 ¥121,682

Cash dividend paid — — — — (840)

Net income for the year — — — — (849)


Other, net 5,076 2 5,078 140 5,218

Balance at March 31, 2010 ¥ 9,101 ¥(34) ¥ 9,067 ¥1,595 ¥125,197



Common stock

Capital surplus

Gains on sales of treasury stock

Retained earnings

Treasury stock

Total

Balance at March 31, 2009 $447,701 $333,500 $593 $488,250 $(20,709) $1,249,335

Cash dividend paid — — — (9,020) — (9,020)

Net income for the year — — — (9,128) — (9,128)

Acquisition of treasury stock — — 4 — (163) (160)

Other, net — — — — — —

Balance at March 31, 2010 $447,701 $333,500 $597 $470,102 $(20,872) $1,231,028



Unrealized gain on securities

Translation adjustment

Total

Minority interests

Total net assets

Balance at March 31, 2009 $43,262 $(385) $42,877 $15,635 $1,307,847

Cash dividend paid — — — — (9,020)

Net income for the year — — — — (9,128)


Other, net 54,560 17 54,577 1,511 56,089

Balance at March 31, 2010 $97,822 $(368) $97,454 $17,146 $1,345,628



CONSOLIDATED STATEMENTS OF CASH FLOWSSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES Years ended March 31, 2009 and 2010

Millions of yen


2009 2010 2010Operating activities:Net income (loss) ¥ 451 ¥ (849) $ (9,128)Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 20,291 20,872 224,332 Amortization of goodwill 138 170 1,825 Loss on closing of the ready-mixed concrete plant for under lease — 1,352 14,532 Loss on impairment of fixed assets 69 13 134 Allowance for doubtful receivables 226 23 243 Accrued severance benefits, net of payments (13) (4) (47) Loss (gain) on sales and disposal of property, plant and equipment, and investment securities, net 189 (556) (5,978) Loss (gain) on investments in unconsolidated subsidiaries and affiliates, net (17) — — Write-down of investments in common stock 1,168 57 607 Loss on disposal of inventory 302 — — Bad debt expense 2 0 3 Deferred income taxes (579) (880) (9,456) Other 124 133 1,430 Changes in operating assets and liabilities: Trade receivables (1,297) 4,942 53,112 Inventories (5,117) 4,066 43,703 Other assets (175) (223) (2,397) Trade payables 1,757 (4,264) (45,833) Accrued income taxes (193) (73) (785) Accrued expenses (106) 114 1,229 Other liabilities 374 (335) (3,602)Subtotal 17,143 25,405 273,052 Net cash provided by operating activities 17,594 24,555 263,924

Investing activities:Proceeds from redemption of securities 0 1 6Proceeds from sales of property, plant and equipment 515 381 4,101Purchases of property, plant and equipment (25,247) (20,324) (218,446)Proceeds from sales of investment securities 9 1,421 15,274Increase in investment securities (570) (312) (3,353)Decrease in investments in unconsolidated subsidiaries and affiliates 31 — —Collection of loans receivable 486 235 2,523Increase in loans receivable (512) (2,363) (25,394)Other 2,096 (565) (6,073) Net cash used in investing activities (23,192) (21,526) (231,362)

Financing activities: Increase in short-term bank loans 2,211 743 7,986Proceeds from long-term loans 19,938 15,154 162,882Repayment of long-term loans (5,826) (8,225) (88,406)Redemption of bonds (5,000) (5,000) (53,740)Cash dividends paid (2,304) (839) (9,020)Other (266) (67) (722) Net cash provided by financing activities 8,753 1,766 18,980Effect of exchange rate changes on cash and cash equivalents 7 (11) (120)Net increase in cash and cash equivalents 3,162 4,784 51,423Increase resulting by merger of subsidiary — 28 296Cash and cash equivalents at beginning of year 22,826 25,988 279,324Cash and cash equivalents at end of year (Note 3) ¥25,988 ¥30,800 $331,043

Supplemental cash flow disclosures:Interest paid ¥ 2,210 ¥ 2,232 $ 23,994Income taxes paid 1,877 1,063 11,426



NOTES TO CONSOLIDATED FINANCIAL STATEMENTSSUMITOMO OSAKA CEMENT CO., LTD. AND CONSOLIDATED SUBSIDIARIES March 31, 2010

1. BASIS OF PREPARATION OF CONSOLIDATED

FINANCIAL STATEMENTS

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

accounting records and prepares its financial statements in accordance

with accounting principles and practices generally accepted and

applied in Japan.

The accompanying consolidated financial statements of the Company

and its consolidated subsidiaries are prepared on the basis of account-

ing principles generally accepted in Japan, which are different in certain

respects as to the application and disclosure requirements of

International Financial Reporting Standards, and are compiled from the

consolidated financial statements prepared by the Company as required

by the Financial Instruments and Exchange Law of Japan.

In addition, the notes to the consolidated financial statements include

certain information which is not required under accounting principles gen-

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

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

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

US$1.00=¥93.04, the exchange rate prevailing on March 31, 2010.

These translations should not be construed as representations that the

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of consolidation

The accompanying consolidated financial statements include the

accounts of the Company and its significant subsidiaries. All significant

intercompany balances and transactions have been eliminated in

consolidation. Any material differences between the cost of investments

in consolidated subsidiaries and the underlying equity in their net assets

at the dates of acquisition are amortized over five years. Significant

investments in unconsolidated subsidiaries and affiliates are accounted

for by the equity method. Investments in unconsolidated subsidiaries

and affiliates which are not accounted for by the equity method are

carried at cost.

Two consolidated subsidiaries have a December 31 year end which

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

made for any significant intercompany transactions which took place

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

end of the Company.

(b) Cash and cash equivalents

Cash and cash equivalents include all highly liquid debt instruments

purchased with a maturity of three months or less.

(c) Inventories

Inventories are stated mainly at cost determined by the moving-average

method.

(Accounting standard for measurement of inventories)

The Company and its consolidated subsidiaries have adopted

“Accounting Standard for Measurement of Inventories” (ASBJ Statement

No. 9, issued on July 5, 2006) effective the year ended March 31, 2009.

As a result, operating income and income before income taxes and

minority interests for the year ended March 31, 2009 both decreased

by ¥579 million from the corresponding amounts which would have

been reported under the previous method. The effect of this change on

segment information is explained in Note 17.

(d) Allowance for doubtful receivables

Allowance for doubtful receivables is provided at an estimated amount

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

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

the past three years.

(e) Property, plant and equipment

Property, plant and equipment is stated at cost. Depreciation is calcu-

lated mainly by the declining-balance method for property, plant and

equipment at rates based on the estimated useful lives of the respective

assets. The depreciation of buildings purchased on and after 1st April,

1998 in-house power generation facility at the Ako Plant, the Kochi

Plant and the Tochigi Plant, and property, plant and equipment of cer-

tain subsidiaries is calculated by the straight-line method. Leased

assets under finance leases which do not transfer ownership of the

leased property are depreciated or amortized by the straight-line meth-

od over the lease terms assuming no residual value. The useful lives

range as follows: buildings and structures, 2 to 75 years; machinery,

equipment and tools, 2 to 22 years. Quarry sites are depreciated by the

unit-of-production method.

Normal repairs and maintenance, including minor renewals and

improvements, are charged to income as incurred.

(Changes in estimated useful lives of tangible fixed assets)

In accordance with the revision made to the Corporate Tax Law of

Japan which went into effect on April 1, 2008, effective the year ended

March 31, 2009, the Company and its domestic consolidated subsid-

iaries have partially revised the estimated useful lives of tangible fixed

assets (mainly machinery and equipment).

As a result, operating income and income before income taxes and

minority interests for the year ended March 31, 2009 both decreased

by ¥2,610 million from the corresponding amounts which would have


been reported under the previous method. The effect of this change on

segment information is explained in Note 17.

(f) Investment securities

Securities are classified and accounted for, depending on management’s

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

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

related unrealized gain or loss is included in earnings, ii) “held-to-maturi-

ty debt securities,” which are expected to be held to maturity with the

positive intent and ability to hold to maturity, are stated at amortized

cost and iii) “available-for-sale securities,” not classified in either of the

aforementioned categories, are stated at fair value with unrealized gain

and loss, net of the applicable taxes, stated as a separate component

of valuation and translation adjustment.

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

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

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

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

moving-average method.

The difference between the acquisition cost and the carrying value of

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

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

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

(g) Foreign currency translation

Balance sheets of consolidated overseas subsidiaries are translated into

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

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

of net assets excluding minority interests. Differences arising from such

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

separate component of valuation and translation adjustments.

Exchange rates which is subsidiaries balance sheets date are used

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

the translation of foreign currency transactions is credited or charged to

income as incurred.

(h) Accounting for leases

(Accounting standard for lease transactions)

Before the fiscal year ended March 31, 2008, finance lease transactions

that do not involve a transfer of ownership were accounted for using the

same method as operating leases.

Since the fiscal year beginning April 1, 2008, “Accounting Standard

for Lease Transactions” (ASBJ Statement No.13, issued on June 17,

1993 (First Committee of Business Accounting Council), revised on

March 30, 2007) and “Guidance on Accounting Standard for Lease

Transactions” (ASBJ Guidance No.16, issued on January 18, 1994

(Accounting System Committee of Japan Institute of Certified Public

Accountants), revised on March 30, 2007) are applied and all finance

lease transactions are capitalized and recognized as leased assets and

leased obligation on the consolidated balance sheets, except for the

finance lease transaction executed on or before March 31, 2008 that do

not involve a transfer of ownership, which are accounted by the same

method as former fiscal years.

This change had no effect on operating income, and income before

income taxes and minority interests for the year ended March 31, 2009.

(i) Income taxes

Deferred tax assets and liabilities are determined based on the differences

between the carrying amounts of the existing assets and the liabilities

for financial reporting purposes and their respective tax bases, and the

operating loss carryforwards. Deferred tax assets and liabilities are mea-

sured using the enacted tax rates and laws which will be in effect when

the differences are expected to reverse.

(j) Accrued severance benefits and pension plan

Employees of the Company are covered by its funded pension plan.

Benefits under this plan are based on current basic salary rates and

length of service.

Accrued severance benefits are stated based on the projected benefit

obligation and the estimated assets in the pension plan at the end of

the year. The unrecognized actuarial gain or loss is amortized over a

period of 15 years, which falls within the remaining years of service of

the eligible employees and is amortized from the year following the year

in which the gain or loss was incurred. Excess amount of fair value of

plan assets over projected benefit obligation are accounted for as pre-

paid pension expense.

Directors and statutory auditors are generally entitled to receive lump-

sum retirement benefit payments based on their level of compensation

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

ments are covered by an unfunded retirement benefit plan and accrued

at an amount to be required at the balance sheet date according to

internal regulations.

(Change in Accounting Policy)

Effective from the fiscal year ended March 31, 2010, the Company and

its domestic consolidated subsidiaries have applied the “Partial

Amendments to Accounting Standard for Retirement Benefits (Part 3)”

(ASBJ Statement No. 19 of July 31, 2008).

This application had no effect on operating income, ordinary income

or income (loss) before income taxes.


(k) Completed-Contract Method and Percentage-of-Completion

Method Accounting Standards

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

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

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

(Change in Accounting Policy)

Until the year ended March 31, 2009, revenues and costs of construc-

tion contracts were recognized by the completed-contract method.

Effective the Company and its consolidated subsidiaries have adopted

the new accounting standard, “Accounting Standard for Construction

Contracts” (Accounting Standards Board of Japan (ASBJ) Statement

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

Standard for Construction Contracts” (ASBJ Guidance No. 18,

December 27, 2007). Accordingly, revenues and costs of construction

contracts that commenced on or after April 1, 2009, of which the per-

centage of completion can be readily estimated, are recognized by the

percentage-of-completion method. The completed-contract method is

applied for contracts for which the percentage of completion cannot be

readily estimated.

The effect of this change was immaterial to the consolidated financial

statements for the year ended March 31, 2010.

(l) Appropriation of retained earnings

Under the Corporation Law and the Articles of Incorporation of the

Company, appropriations of retained earnings (primarily for the payment

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

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

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

in the accompanying financial statements represent appropriations

applicable to the immediately preceding financial year, which were duly

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

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

(m) Net income per share

Basic net income per share is computed by dividing net income available

to common shareholders, by the weighted-average number of common

shares outstanding for the period. Diluted net income per share is not

presented since no potentially dilutive shares of common stock are to

be issued.

(n) Derivatives

The Company and consolidated subsidiaries enter into derivative

agreements to manage their exposures to fluctuations in interest rates.

Interest rate swaps are utilized to reduce interest rate risks on borrowings.

The Company and consolidated subsidiaries do not enter into derivative

agreements for trading or speculative purposes. Interest rate swaps

which qualify for hedge accounting and meet specific matching criteria

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

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

underlying borrowings.

Identification of hedged items is made by transaction at the time when

the Company and the consolidated subsidiaries enter into derivative

agreements, and hedging instruments and the hedged items are

separately recorded and maintained. The Company and the consolidated

subsidiaries evaluate the effectiveness of derivatives based on either the

difference between the accumulated amount of cash flows from the

hedging instrument and from the corresponding hedged item or variance

between the fair value of the hedging instrument and the hedged item

except for interest rate swaps which meets specific matching criteria.

3. CASh AND CASh EqUIvALENTS

Cash and cash equivalents at March 31, 2009 and 2010 consisted of

the following:

Millions of yenThousands of U.S. dollars

2009 2010 2010

Cash and deposits ¥26,258 ¥31,072 $333,966

Time deposits with a maturity of over three months (270) (272) (2,923)

¥25,988 ¥30,800 $331,043

4. INvENTORIES

Inventories at March 31, 2009 and 2010 consisted of the following:


2009 2010 2010

Merchandise and finished goods ¥ 7,480 ¥ 8,181 $ 87,921

Work in process 3,007 1,669 17,943

Raw materials 5,981 3,775 40,578

Supplies 5,600 5,247 56,397

¥22,068 ¥18,872 $202,839


5. LOANS TO UNCONSOLIDATED SUBSIDIARIES

AND AFFILIATES

Loans to unconsolidated subsidiaries and affiliates at March 31, 2009

and 2010 consisted of the following:


2009 2010 2010

Short-term loans:

Unconsolidated subsidiaries ¥ 143 ¥ 116 $ 1,250

Affiliates 218 146 1,562

¥ 361 ¥ 262 $ 2,812

Long-term loans:

Affiliates ¥1,324 ¥1,252 $13,458

¥1,324 ¥1,252 $13,458

6. FINANCIAL INSTRUMENTS

1. Items Concerning the Status of Financial Instruments

(a) Policies for Financial Instruments

The Sumitomo Osaka Cement Group procures necessary funds primar-

ily through bank loans and the issuance of bonds in accordance with

capital expenditure plans and financial plans mainly to engage in the

business of producing and selling cement. Temporary surpluses are

invested in low-risk financial instruments and bank loans provide short-

term working capital. It is the Group’s policy to use derivatives as a way

to avoid the below-stated risks and to not engage in trading or specula-

tive transactions.

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

Trade receivables such as notes and accounts receivable are subject to

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

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

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

tomer. Securities and investment securities are composed of mainly

stocks associated with business and capital alliances, and are subject

to market risk.

Trade payable such as notes and accounts payable usually have a

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

such payables are denominated in foreign currency, which are associat-

ed with the import of raw materials, thus subject to exchange rate fluc-

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

obligations related to financial lease transactions are taken out princi-

pally for the purpose of making capital investments. Such obligations’

redemption date is a maximum of 13 years from the balance sheet

date. A certain portion of said liabilities have variable interest rates and

are subject to interest rate fluctuation risk; However, to hedge such risk,

interest rate is fixed through the use of derivative transactions (interest

rate swap transactions). Evaluation of the effectiveness of derivatives

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

specific matching criteria,

Derivative transactions are entered into and managed in accordance

with internal policies, which determine the authority to undertake such

transactions. To minimize credit risk, derivative transactions are entered

into only with highly rated financial institutions.

Furthermore, trade payables and loans are subject to liquidity risks

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

Group manages such risks by preparing monthly cash flow plans.

(c) Supplemental Explanation of the Estimated Fair value of

Financial Instruments

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

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

cate the market risk associated with the respective derivative transaction.

2. Estimated Fair value of Financial Instruments

Consolidated balance sheet amounts, estimated fair values and their

differences as of March 31, 2010 (the consolidated account closing

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

does not included financial instruments for which it is extremely difficult

to determine the fair value (see Note 2).

Millions of yen

2010Consolidated

Balance Sheet Amounts

Fair Value

Difference

Cash and cash equivalents ¥ 30,800 ¥ 30,800 ¥ —

Trade receivables 38,560 38,560 —

Securities and Investment securities:

Available-for-sale securities 28,657 28,657 —

Short-term loans to unconsolidated subsidiaries and affiliates (Note 5) 262 262 —

Long-term loans receivable 145 140 (5)

Total assets 98,424 98,419 (5)

Trade payables 31,361 31,361 —

Short-term bank loans 33,560 33,560 —

Bonds 27,000 27,384 384

Long-term loans payable 69,311 69,828 517

Total Liabilities 161,232 162,133 901

Derivative transactions — — —

Total derivative transaction — — —


Thousands of U.S. dollars

2010Consolidated

Balance Sheet Amounts

Fair Value

Difference

Cash and cash equivalents $ 331,043 $ 331,043 $ —

Trade receivables 414,452 414,452 —

Securities and Investment securities:

Available-for-sale securities 308,007 308,007 —

Short-term loans to unconsolidated subsidiaries and affiliates (Note 5) 2,812 2,812 —

Long-term loans receivable 1,558 1,504 (54)

Total assets 1,057,872 1,057,818 (54)

Trade payables 337,080 337,080 —

Short-term bank loans 360,700 360,700 —

Bonds 290,198 294,325 4,127

Long-term loans payable 744,959 750,516 5,557

Total Liabilities 1,732,937 1,742,621 9,684

Derivative transactions — — —

Total derivative transaction — — —

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

and other matters related to securities and derivative transaction

Cash and cash equivalents, trade receivables and short-term loans

to unconsolidated subsidiaries and affiliates.

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

approximates carrying amount. Therefore the carrying amount is used

to estimate fair value.

Securities and investment securities

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

Please refer to Note 7 securities of the notes to the consolidated

financial statements for information on securities classified by holding

purpose.

Long-term loans receivable

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

maturity. The fair values are estimated effective based on the present

value of future cash flows discounted by interest rates as adjusted con-

sidering the rate for Japanese government issued bonds.

Trade payables and short-term bank loans

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

approximates carrying amount. Therefore the carrying amount is used

to estimate fair value.

Bonds

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

market price.

Long-term loans payable

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

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

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

rowing. Long-term loans payable hedged by interest rate swaps meet

the special matching criteria.

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

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

accounting treatment described in Note 2 (n) Derivatives.

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

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

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

applied if similar new borrowings were entered into.

Derivative Transactions

(a) Items not subject to hedge accounting: None

(b) Items that are subject to hedge accounting:

The contracted amount as of the consolidated balance sheet dates as

of March 31, 2010 are as follows.

Millions of yen

Hedge

accounting method

Type of

derivative transaction

Major

hedged items

Contracted amount

Maturing

amount due after one year

Fair value

Calculation methods for applicable fair values

Special accounting treatment for interest rate swaps

Interest swap transactions Fixed payments & Variable receipts


29,850 28,650 * —


Hedge

accounting method

Type of

derivative transaction

Major

hedged items

Contracted amount

Maturing

amount due after one year

Fair value

Calculation methods for applicable fair values

Special accounting treatment for interest rate swaps

Interest swap transactions Fixed payments & Variable receipts


320,830 307,932 * —

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

long-term loans payable (please refer to the above mentioned long-term

loans payable).


Note 2: Financial Instruments for which it is extremely difficult to deter-

mine the fair value

Millions of yen

ClassificationConsolidated Balance Sheet Amounts

as of March 31, 2010

Unlisted securities ¥4,708

Long-term loans receivable 1,252


ClassificationConsolidated Balance Sheet Amounts

as of March 31, 2010

Unlisted securities $50,602

Long-term loans receivable 13,457

Unlisted securities have no available market price and are expected to

entail excessive costs in the estimation of future cash flows. Consequently,

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

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

In addition, above mentioned long-term loans receivable are not

included in Long-term loans receivable of the above table because

future cash flows cannot be estimated on a rational basis.

Note 3: Redemption schedule for receivables and securities with

maturities at March 31, 2010.

Millions of yen

2010

Within one year

Over one year and under five years

Over five years and under ten years

Over

ten years

Cash and cash equivalents

¥31,060

¥—

¥ —

¥—

Trade receivables 38,560 — — —

Securities:

Available-for-sale securities

0

1

302

—

Short-term loans to unconsolidated subsidiaries and affiliates (Note 5)

262

—

—

—


4

35

103

—

Total ¥69,886 ¥36 ¥405 ¥—


2010

Within one year

Over one year and under five years

Over five years and under ten years

Over

ten years

Cash and cash equivalents

$333,835

$ —

$ —

$—

Trade receivables 414,452 — — —

Securities:

Available-for-sale securities

2

12

3,245

—

Short-term loans to unconsolidated subsidiaries and affiliates (Note 5)

2,812

—

—

—


51

383

1,111

—

Total $751,152 $395 $4,356 $—

(Additional information)

Effective the fiscal year ended March 31, 2010 onward, the Group

adopted new accounting standard, “Accounting Standard for Financial

Instruments” (The accounting Standards Board of Japan (ASBJ) No. 10,

March 10, 2008) and “Guidance on Disclosures about Fair Value of

Financial Instruments” (ASBJ No. 19, March 10, 2008).

7. SECURITIES

Investment securities at March 31, 2009 and 2010 consisted of

the following:


2009 2010 2010

Investment securities:

Stock ¥22,486 ¥30,491 $327,718

Corporate bonds 303 303 3,255

Other 129 121 1,306

¥22,918 ¥30,915 $332,280

The acquisition cost and fair value of the securities classified as

available-for-sale at March 31, 2009 and 2010 are summarized as follows:

Millions of yen

2009Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale ¥14,000 ¥20,935 ¥7,311 ¥(376)

Millions of yen

2010Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale ¥13,124 ¥28,657 ¥15,787 ¥(254)



2010Acquisition

costFair

valueUnrealized

gainUnrealized

loss

Classified as:

Available-for-sale $141,059 $308,011 $169,682 $(2,730)

Proceeds from sales of investment securities for the years ended

March 31, 2009 and 2010 consisted of the following:


2009 2010 2010

Proceeds ¥40 ¥1,421 $15,273

Gross gain 18 526 5,653

Gross loss — — —

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

nized as an impairment loss if the decline is not considered recover-

able. Losses on devaluation of investment classified as available-for-sale

securities as a result of the permanent decline are summarized as

¥1,168 million and ¥57 million (US$607 thousand) for the years ended

March 31, 2009 and 2010, respectively.

8. ShORT-TERM BANK LOANS AND BONDS

Short-term bank loans represent overdrafts. The annual interest rates

applicable to the loans outstanding at March 31, 2009 and 2010

ranged from 0.8% to 2.4% and from 0.6% to 4.4%, respectively.

Long-term debt at March 31, 2009 and 2010 consisted of

the following:


2009 2010 2010

Loans, principally from banks and insurance companies, due from 2009 to 2023 (2008 to 2023 in 2008) ¥62,382 ¥69,311 $ 744,960

Bonds 32,000 27,000 290,198

¥94,382 ¥96,311 $1,035,158

Less: current portion of long-term debt:

Loans ¥ 7,614 ¥ 8,355 $ 89,797

Bonds 10,000 5,000 53,740

17,614 13,355 143,537

¥76,768 ¥82,956 $ 891,621

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

at March 31, 2009 and 2010 ranged from 0.8% to 5.4% and from 0.8%

to 4.9%, respectively.

The aggregate annual maturities of long-term loans subsequent to

March 31, 2010 are summarized as follows:

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

2011 ¥ 8,355 $ 89,796

2012 9,063 97,412

2013 20,617 221,595

2014 7,111 76,424

2015 and thereafter 24,166 259,733

¥69,311 $744,960

Assets pledged as collateral at March 31, 2009 and 2010 are sum-

marized as follows:


2009 2010 2010

Property, plant and equipment, at net book value ¥38,803 ¥31,469 $338,232

Other 455 358 3,844

¥39,258 ¥31,827 $342,076

The obligations secured by such collateral as at March 31, 2009 and

2010 are as follows:


2009 2010 2010

Short-term bank loans ¥ 550 ¥ 550 $ 5,912

Current portion of long-term debt 1,917 2,115 22,728

Long-term debt 7,396 6,410 68,892

Other 211 402 4,320

¥10,074 ¥9,476 $101,852

9. CONTINGENT LIABILITIES

Contingent liabilities at March 31, 2009 and 2010 are as follows:


2009 2010 2010

Guarantees of loans and other ¥441 ¥225 $2,422

10. ShAREhOLDERS’ EqUITY

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

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

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

the common stock account.

11. LEASES

(a) Finance leases

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

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

ing amounts represent the acquisition costs, accumulated depreciation


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

31, 2010 and 2009 which would have been reflected in the consolidated

balance sheets if finance lease accounting had been applied to the

finance leases currently accounted for as operating leases:


2009 2010 2010

Acquisition costs

Machinery, equipment and tools ¥865 ¥844 $9,072

Other 13 13 136

¥878 857 9,208

Accumulated depreciation and amortization

Machinery, equipment and tools 447 583 6,272

Other 5 8 82

¥452 591 6,354

Net book value

Machinery, equipment and tools 418 261 2,800

Other 8 5 54

¥426 ¥266 $2,854

Lease payments relating to finance leases accounted for as operating

leases amounted to ¥173 million and ¥167 million (US$1,790 thousand),

which are equal to the depreciation and amortization expenses of the

leased assets computed by the straight-line method over the lease

terms, for the years ended March 31, 2009 and 2010, respectively.

Future minimum lease payments (including the interest portion there-

on) subsequent to March 31, 2010 for finance leases accounted for as

operating leases are summarized as follows:


2010 ¥122 $1,312

2011 and thereafter 144 1,543

¥266 $2,855

(b) Operating leases

Future minimum lease payments subsequent to March 31, 2010 for

non-cancelable operating leases are summarized as follows:


2010 ¥28 $303

2011 and thereafter 36 388

¥64 $691

12. INCOME TAxES

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

year ended March 31, 2009 is presented as follows. The differences

between the statutory tax rate and the effective tax rate for the year

ended March 31, 2010 is immaterial and the reconciliation of those rate

are not disclosed.

2009

Statutory tax rates 41.0%

Prior-period adjustment 28.2

Nondeductible expenses 1.8

Tax credit (3.7)

Other 2.1

Effective tax rates 69.4%

The significant components of the Company’s deferred income tax

assets and liabilities at March 31, 2009 and 2010 are as follows:


2009 2010 2010

Deferred tax assets:

Net operating loss carry forwards ¥ — ¥ 885 $ 9,507

Impairment loss on fixed assets 2,042 2,023 21,743

Estimated severance benefits and other accrued expenses 1,415 1,393 14,974

Depreciation 188 180 1,931

Unrealized holding gain 795 706 7,584

Other 1,490 1,386 14,902

Gross deferred tax assets 5,930 6,573 70,641

Less valuation allowance (2,909) (2,963) (31,850)

Total deferred tax assets ¥ 3,021 ¥ 3,609 $ 38,791

Deferred tax liabilities:

Retained earnings ¥(2,410) ¥(2,119) $(22,770)

Unrealized gain on available-for-sale securities (2,834) (6,360) (68,356)

Other (642) (756) (8,127)

Total deferred tax liabilities (5,886) (9,235) (99,253)

Deferred tax liabilities, net ¥(2,865) ¥(5,626) $(60,462)

13. RETIREMENT BENEFITS FOR EMPLOYEES

The Company and consolidated subsidiaries have a defined benefit

pension plan covering substantially all employees.

Accrued severance benefits at March 31, 2009 and 2010 consisted

of the following:


2009 2010 2010

Projected benefit obligation ¥14,429 ¥14,981 $161,014

Fair value of the pension fund (10,228) (11,359) (122,091)

Unrecognized actuarial loss (4,037) (2,922) (31,404)

Prepaid pension expenses 664 396 4,258

Accrued severance benefits for employees, net ¥ 828 ¥ 1,096 $ 11,777


Retirement benefit expenses for the years ended March 31, 2009

and 2010 are as follows:


2009 2010 2010

Service cost ¥ 986 ¥ 992 $10,657

Interest cost 235 240 2,580

Expected return on pension fund assets (197) (173) (1,855)

Recognized actuarial loss 276 393 4,228

Net retirement benefit expenses ¥1,300 ¥1,452 $15,610

Assumptions adopted for the years ended March 31, 2009 and

2010are as follows:

2009 2010

Discount rate 2.0% 2.0%

Expected rate of return on pension fund assets

2.0%

2.0%

Period over which actuarial loss is recognized

15 years

15 years

14. LOSS ON IMPAIRMENT OF FIxED ASSETS

For the year ended March 31, 2010, the Company and certain consolidated

subsidiaries recognized ¥13 million (US$134 thousand) of losses on

impairment of fixed assets as follows:


2009 2010 2010

Assets not in use ¥ 8 ¥13 $134

Business assets 61 — —

¥69 ¥13 $134

As for assets not in use, the grouping of assets is based on every

property unit, and for business assets, on the smallest segments used

in management accounting.

The Company and consolidated subsidiaries recognize impairment

losses if the undiscounted expected future cash flows are less than

carrying amounts of the assets.

In such case, carrying amounts of the assets are devaluated to their

recoverable amounts.The recoverable amounts in these asset groups

were calculated using respective net selling prices based primarily on

appraisal valuations or discounted expected future cash flows.

15. SUBSEqUENT EvENTS

The following appropriations of retained earnings were approved at the

meeting of the shareholders of the Company held on June 29, 2010:


Cash dividends ¥1,665 $17,896

16. FAIR vALUE OF INvESTMENT AND RENTAL PROPERTY

The Company and certain subsidiaries own rental warehouses, rental

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

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

ended March 31, 2010, rental income for rental real-estate assets was

¥905 million (US$9,729 thousand) (rental income was recorded as sales

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

rental properties amounted to ¥36 million (US$382 thousand) (recorded as

other income) and impairment loss amounted to ¥13 million (US$134 thou-

sand) (recorded as other expenses).

The carrying amount of rental real-estate and corresponding fair value

as of March 31, 2010 and changes in carrying amount during the fiscal

year ended March 31, 2010 are as follows.

Millions of yen

Consolidated balance sheet amountsFair value as of March 31, 2010As of March 31, 2009 Net change As of March 31, 2010

¥22,963 ¥(398) ¥22,565 ¥31,776


Consolidated balance sheet amountsFair value as of March 31, 2010As of March 31, 2009 Net change As of March 31, 2010

$246,813 $(4,282) $242,531 $341,539

Notes: 1. The consolidated balance sheet amounts represent the acquisition

cost less accumulated depreciation and cumulative impairment

loss.

2. The fair value (which includes adjustments using relevant indices) is

estimated by the Company in accordance with standard for real

estate appraisal for important assets estimated based on value

calculated for property tax for other assets.

(Additional Information)

Effective the fiscal year ended March 31, 2010, the Group adopted a

new accounting standard, “Accounting Standard for Disclosures about

Fair Value of Investment and Rental Property” (The Accounting

Standards Board of Japan (ASBJ) No. 20, November 28, 2008) and

“Guidance on Accounting Standard for Disclosures about Fair Value of

Investment and Rental Property” (The Accounting Standards Board of

Japan (ASBJ) No. 23, November 28, 2008).


17. SEGMENT INFORMATION

(1) Business Segments

The Company’s group operates in five business segments: cement, mineral resources, cement-related products, optoelectronics and advanced mate-

rials, and real estate and others.

A summary of net sales, costs and expenses, operating income and other financial information by business segment for the years ended March 31,

2009 and 2010 is as follows:

Millions of yen

2009

Cement

Mineral

resources

Cement-related

products

Optoelectronics and advanced

materials

Real estate and others

Total

Eliminations and

adjustments

Consolidated

Net sales:

Outside customers ¥174,725 ¥ 8,976 ¥13,192 ¥12,095 ¥ 6,403 ¥215,391 ¥ — ¥215,391

Intersegment sales 3,288 3,964 2,388 18 6,586 16,244 (16,244) —

Total 178,013 12,940 15,580 12,113 12,989 231,635 (16,244) 215,391

Costs and expenses 172,373 12,812 15,196 13,788 11,482 225,651 (16,234) 209,417

Operating income (loss) ¥ 5,640 ¥ 128 ¥ 384 ¥ (1,675) ¥ 1,507 ¥ 5,984 ¥ (10) ¥5,974

Assets ¥206,439 ¥27,433 ¥ 9,503 ¥11,370 ¥32,511 ¥287,256 ¥22,210 ¥309,466

Depreciation and amortization 16,314 1,847 357 975 799 20,292 (1) 20,291

Loss on impairment of fixed assets 2 — — 61 — 63 6 69

Capital expenditures 18,709 3,836 143 660 990 24,338 (1) 24,337

Millions of yen

2010

Cement

Mineral

resources

Cement-related

products


materials


Total

Eliminations and

adjustments

Consolidated

Net sales:

Outside customers ¥155,184 ¥ 7,544 ¥13,667 ¥12,545 ¥ 6,150 ¥195,089 ¥ — ¥195,089

Intersegment sales 3,585 3,769 2,676 3 4,742 14,776 (14,776) —

Total 158,770 11,313 16,343 12,548 10,892 209,865 (14,776) 195,089

Costs and expenses 155,972 11,791 16,088 13,392 9,545 206,789 (14,737) 192,052

Operating income (loss) ¥ 2,798 ¥ (479) ¥ 255 ¥ (844) ¥ 1,347 ¥ 3,076 ¥ (39) ¥ 3,037

Assets ¥207,429 ¥31,267 ¥12,383 ¥13,196 ¥30,437 ¥294,713 ¥17,256 ¥311,969

Depreciation and amortization 16,435 2,414 393 884 757 20,883 (11) 20,872

Loss on impairment of fixed assets 7 — — — — 7 5 13

Capital expenditures 15,027 3,639 221 250 161 19,298 — 19,298


2010

Cement

Mineral

resources

Cement-related

products


materials


Total

Eliminations and

adjustments

Consolidated

Net sales: $1,667,933 $ 81,081 $146,890 $134,830 $ 66,096 $2,096,830 $ — $2,096,830

Outside customers 38,536 40,508 28,763 33 50,973 158,812 (158,812) —

Intersegment sales 1,706,469 121,588 175,653 134,863 117,069 2,255,642 (158,812) 2,096,830

Total

Costs and expenses 1,676,401 126,735 172,912 143,939 102,593 2,222,579 (158,391) 2,064,188

Operating income (loss) $ 30,068 $ (5,146) $ 2,742 $ (9,076) $ 14,476 $ 33,063 $ (421) $ 32,642

Assets $2,229,458 $336,060 $133,097 $141,833 $327,144 $3,167,592 $185,469 $3,353,061

Depreciation and amortization 176,645 25,945 4,219 9,501 8,140 224,449 (117) 224,332

Loss on impairment of fixed assets 76 — — — — 76 58 134

Capital expenditures 161,514 39,107 2,373 2,682 1,735 207,413 — 207,413


Note:

(The effect of new accounting standard for measurement of inventories)

As described in Note 2 (c), the Company and consolidated subsidiaries have adopted “Accounting Standard for Measurement of Inventories” (ASBJ Statement

No.9, issued on July 5, 2006) effective the year ended March 31, 2009.

As a result, operating cost increased by ¥266 million (US$2,706 thousand) in Cement segment, ¥21 million (US$214 thousand) in Mineral resources segment,

¥6 million (US$59 thousand) in Cement-related products segment, ¥286 million (US$2,913 thousand) in Optoelectronics and advanced materials segment, over

the corresponding amounts which would have been reported under the previous method, and operating income (loss) decreased (increased) by the same

amounts for the year ended March 31, 2009.

(The effect of changes in estimated useful lives of tangible fixed assets)

As described in Note 2 (e), in accordance with the revision made to the Corporate Tax Law of Japan, effective the year ended March 31, 2009, the Company

and domestic consolidated subsidiaries have partially revised the estimated useful lives of tangible fixed assets (mainly machinery and equipment).

As a result, operating cost increased by ¥2,218 million (US$22,575 thousand) in Cement segment, ¥259 million (US$2,638 thousand) in Mineral resources

segment, ¥24 million (US$241 thousand) in Cement-related products segment, ¥103 million (US$1,050 thousand) in Optoelectronics and advanced materials

segment, ¥7 million (US$66 thousand) in Real estate and other segment, over the corresponding amounts which would have been reported under the previous

method, and operating income (loss) decreased (increased) by the same amounts for the year ended March 31, 2009.

(2) Geographical Segments

Information regarding geographical areas is omitted for the years ended March 31, 2009 and 2010, because sales and total assets in the Japan area are more

than 90% of all geographical areas.

(3) Overseas Sales

Information regarding overseas sales is omitted for the years ended March 31, 2009 and 2010, because overseas sales represents less than 10% of total sales.

INDEPENDENT AUDITORS’ REPORT



Corporate Data

Head Office 6-28,Rokubancho,Chiyoda-ku,Tokyo102-8465,Japan Tel:+81-3-5211-4500 Fax:+81-3-3221-4652 URL:http://www.soc.co.jp/

Established November29,1907 FoundedasIwakiCementCo.,Ltd. October1,1963 RenamedasSumitomoCementCo.,Ltd. October1,1994 SumitomoCementandOsakaCementmergedintoSumitomoOsakaCementCo.,Ltd.

Paid-in Capital ¥41,654,077thousand

Number of Employees 1,362

Domestic Network Branchoffices:Sapporo,Tohoku,Hokuriku,Nagoya,Osaka,

Shikoku,Hiroshima,Fukuoka Plants: Tochigi,Gifu,Ako,Kochi Laboratories: NewTechnologyResearchLab, Cement/ConcreteResearchLab

Overseas Network RepresentativeOffice:Shanghai

Sumitomo Osaka Cement Group(MajorConsolidatedSubsidiaries)

Cement

Production

HachinoheCementCo.,Ltd. WakayamaBlast-FurnaceSlagCementCo.,Ltd. Transport

SumiseKaiunCo.,Ltd. TaiyoHoldingsCo.,Ltd. TaiyoShippingCo.,Ltd. TaiyoKisenCo.,Ltd. TaiyoShippingKochiCo.,Ltd. IzumiUnyuCo.,Ltd. Sales

SumiseKenzaiCo.,Ltd. TokaiSumiceSalesCo.,Ltd. SOCKenzaiCo.,Ltd. ShinKitauraTradingCo.,Ltd. ProductionandSalesofReady-MixedConcrete

TokyoSOCCo.,Ltd. SaitamaSOCCo.,Ltd. YokohamaSOC.,Ltd. ShowaSOCCo.,Ltd. HigashiKobeOsakaReady-MixedConcreteCo.,Ltd. ShinYodoReady-MixedConcreteCo.,Ltd. ShinsenReady-MixedConcreteCo.,Ltd.

CORPORATE DATA & INVESTOR INFORMATION (As of March 31, 2010)

QualityAssurance, FacilityConstructionandMaintenance,etc.

SOEngineeringCo.,Ltd. MutsuIndustryCo.,Ltd. IzumiIndustryCo.,Ltd. ChukenConsultantCo.,Ltd.

Mineral Resources

InasasCo.,Ltd. ShuhoMiningCo.,Ltd. KokuraKogyoCo.,Ltd. ShigaKousanCo.,Ltd. ItoIndustryCo.,Ltd. SumimetalMiningCo.,Ltd.


SNCCo.,Ltd. EstecCo.,Ltd. KurimotoConcreteIndustries,Ltd.


SumitecCo.,Ltd. SumiLongNanotechnologyMaterials

(Shenzhen)Co.,Ltd.

Real Estate and Other

CapCo.,Ltd. ChiyodaEngineeringCo.,Ltd. SumitomoCementComputerSystemsCo.,Ltd.

Investor Information

Number of Shares

Authorized 1,470,130,000 Issued 427,432,175

NumberofShareholders 35,594

Stock Exchange Listings Tokyo,Osaka

Transfer Agent and Registrar TheSumitomoTrust&BankingCo.,Ltd.

Fiscal Year-End March31

Annual Meeting of Shareholders June

Independent Auditors Ernst&YoungShinNihon

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

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

http://www.soc.co.jp

Printed in Japan on recycled paper

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