ANNUAL REPORT2005

New Vision, New Platform
Year ended March 31, 2005

Profile>>

Furukawa Co., Ltd. was established in 1875, and over its 130-year
history has developed a diverse portfolio of businesses in the fields ofmachinery, metals, electronic materials, chemicals, and fuels. Grounded in its
management philosophy—Innovation, Creativity, and Harmony—theCompany has moved forward with innovation in its corporate structure andtechnological development. Furukawa strives to offer appealing products andservices to its customers, and to contribute to the creation of a prosperous
society that is in harmony with the environment.

>>

In fiscal 2005, ended March 31, 2005, Furukawa’s restructuring of its
businesses, which included withdrawing from unprofitable businesses and salesof assets, began to make its effects felt. For the first time in five years, theCompany was able to post net income. Furukawa also moved forward withfurther structural reforms, including the shift to a group management system inconnection with the spin-off of business divisions.

>>

In fiscal 2006, which will be the Company’s first year of operation under
the new medium-term management plan, Furukawa will work to maximize thecorporate value of the entire Furukawa Company Group, employing the new
business structure to further increase earning power and improve its financial
position.

Contents

Consolidated Financial Highlights

1

To Our Shareholders

2

Medium-Term Management Plan

5

Review of Operations

8

Environmental Protection and Social Contribution Activities

12

Management

13

Financial Section

14

Principal Subsidiaries and Affiliates

36

Corporate Data

37

Consolidated Financial Highlights
Furukawa Co., Ltd. and consolidated subsidiaries
Years ended 31st March, 2005, 2004 and 2003

Millions of yen

For the year:
Net sales
Operating income (loss)
Income (loss) before income taxes andminority interests
Net income (loss)
At year-end:
Total assets
Shareholders’ equity

Percentchange’05 / ’04

2005

2004

2003

2005

¥ 147,237
7,383¥ 153,513
2,024¥ 151,630(1,591)$1,376,047
69,000

4,199
2,257

(35,238)(27,634)(22,032)(17,000)

39,24221,093——¥ 204,651
31,335¥ 206,250
28,660¥ 252,856
33,665$1,912,626
292,850

(0.8)
9.3

Yen

Per share amounts:
Net income (loss):
Basic
DilutedCash dividends

Thousands of
U.S. dollars

¥

5.57
5.03
—

¥

(4.1)%
264.8

U.S. dollars(84.61)——¥ (67.88)
—
—

$

0.05
0.05
—

—
—
—

Note: U.S. dollar amounts are translated from yen for convenience only at the rate of ¥107=$1.

Net Sales

Operating Income (Loss)(Billions of yen)(Billions of yen)

180

7.5

Total Assets
7.4(Billions of yen)

320
294.0

144.3

149.4

151.6

278.2

153.5
147.2

252.9
240

135
5.0

5.0

206.3

204.7

2004

2005

160

90

2.5
2.0
80

45

0

0
2001

2002

2003

2004

0
2001

2005

Machinery

2002

2003

(1.6)

MetalsElectronic Materials and Chemicals
Real Estate
Fuels and Others

(4.7)
-5.0

2001

2002

2003

2004

2005

Forward-Looking Statements: This annual report contains forward-looking statements such as the plans, strategies and statements related to the outlook for future
results. These forward-looking statements are not historical facts. They are expectations, estimates, forecasts and projections basedon information currently available to the Company and are subject to various risks, uncertainties and assumptions. As such, actual
results may differ materially from those projected.

FURUKAWA Annual Report 2005

1

To Our Shareholders

Tetsuo Yoshino
President and Representative Director

The efforts of the entire Group to

Furukawa Co., Ltd. and its consolidated subsidiaries made steady progress toward theirincrease its profitability and improvegoals in fiscal 2005. The efforts of the entire Group to increase its profitability and improve

its financial position proved to be

its financial position proved to be effective and marked an end to the business restructuring that had been underway for over two years. The Furukawa Company Group tookeffective and marked an end to theanother step forward in March 2005 with the spin-off of business divisions to become

business restructuring that had been

independent companies and the concomitant shift to an operating holding company sys-

underway for over two years.

tem.

Performance in Fiscal 2005
Consolidated net sales for the fiscal year ended March 31, 2005 declined 4.1% to¥147,237 million. In our core business segment, the Machinery Division, construction andmining machinery (rock drills) business achieved growth in revenues on the strength ofhealthy overseas shipments, although sales in the UNIC machinery business declined withthe disappearance of last year’s replacement domestic demand for trucks, which had
been spurred by stricter exhaust-gas regulations. Revenues in the Metals Division fell significantly as a result of the termination of operations at Australian subsidiary Port Kembla
Copper Pty. Ltd. (PKC). The Electronic Materials and Chemicals Division posted strong
sales of high-purity metallic arsenic and other products. Due chiefly to the recovery in theperformance of the Metals Division and the Electronic Materials and Chemicals Division,
operating income jumped 264.8% to ¥7,383 million. After posting gains on sales of investment securities, gain on sales of property, plant and equipment, and loss on impairment ofland resulting from spin off of businesses, Furukawa was able to post net income of¥2,257 million, in contrast to net loss of ¥27,634 million in the previous fiscal year.
Furukawa greatly regrets that it was unable to declare a dividend for the fiscal year ended
March 31, 2005.

Overview of Furukawa’s Business Restructuring
Furukawa designated fiscal years 2004 and 2005 as a period for restructuring its businessbase, increasing its profitability, and strengthening its financial position. Primary measurestaken during this two-year period in connection with the restructuring are listed below.

FURUKAWA Annual Report 20052

Rationalization of business• Operations halted at PKC in Australia, placed in Care & Maintenance status• Nikko hydroelectric power generation business sold• Foundry products business spun off• Manufacturing halted in money-losing titanium dioxide business• Two domestic sales and service subsidiaries for construction and mining machinery
businesses were merged into one• Sold holdings in Hitachi-Furukawa Construction Machinery Ltd. and took other measures to withdraw from the construction machinery manufacturing business
Improving and strengthening financial position• Reduced labor force through the implementation of an early retirement program andintensified executive and employee compensation cuts
• Increased retained earnings by absorbing Furukawa Real Estate Co., Ltd.
• Conducted a ¥9.2 billion capital increase through third-party allocation• Liquidated land and structures pertaining to the Furukawa Building (Muromachi) andthe Furukawa Chiyoda Building
As a result of these measures, operating income increased for the second consecutive fiscal year, and the Group posted net income for the first time in five years. In addition, interest-bearing liabilities (corporate bonds and debt) were reduced from ¥140,389 million atMarch 31, 2003 to ¥116,851 million at March 31, 2005.

This new business structure will

Business Divisions Spun Off and Group Management System Adopted

allow each of these businesses to real-

In March 2005, Furukawa spun off several business divisions and changed to a groupize agile management throughmanagement system. Operations in three business divisions—Machinery (industrial
machinery, construction and mining machinery (rock drills), and UNIC machinery), Metals,

responsibility and accountability sys-and Electronic Materials and Chemicals (electronic materials and chemicals businesses)—tems.

were spun off to become six subsidiaries. Furukawa Co., Ltd. will retain stock holdings inthese equity-method subsidiaries, and will exercise operational control. The Company will
also retain two businesses, Real Estate, and Fuels and Others, as well as research anddevelopment operations.

FURUKAWA Annual Report 2005

3

Furukawa has two main objectives in shifting to this new business structure. First,
because these businesses have become independent companies, responsibility andaccountability for asset management and profitability are clearly defined. The increased
efficiency and profitability of each business that will result will strengthen the Group’s overall management system. Second, manufacturing and sales are integrated, which will allow
the new subsidiaries to practice quick decision making and vigorous management closely
linked to the characteristics of each business and trends in its markets. This will allow
these subsidiaries to rapidly provide the high-quality products and services desired by theircustomers.
Faced with a rapidly changing business environment marked by increasingly
severe global competition, this new business structure will allow each of these businesses
to realize agile management through responsibility and accountability systems, which will
maximize the corporate value of the Furukawa Company Group overall.

Under the new group management

Formulating the Medium-Term Management Plansystem, the focus shifts to growth.

As mentioned above, Furukawa’s revenue base was strengthened by the rationalization ofbusinesses during the restructuring in fiscal years 2004 and 2005, and various financial
measures improved the Group’s financial position. Under the new group management system, the focus shifts to growth. The new medium-term management plan, which will cover
the period from fiscal 2006 through fiscal 2008 (April 1, 2005 through March 31, 2008), willlead us in that direction. The most important issues in the plan are to maximize the value ofeach business through the new business structure and to further strengthen the Group’s
financial position and growth in earnings. For detailed information on the new medium-term
management plan, see pages 5 through 7 of this report. In brief, though, Furukawa’s strategy for attaining its goals is to expand its overseas machinery business, bolster businesses
that respond to the needs of lifestyle industries and society, further develop its environmental engineering business, expand its lineup of environmentally conscious high-value-added
raw material products, and strengthen its financial position through increasing asset efficiency. Through these measures, we aim to increase consolidated operating income to ¥10,500
million and reduce interest-bearing liabilities by approximately ¥30,000 million by the end of
fiscal 2008 (April 1, 2007 through March 31, 2008).

Furukawa will work to maximize theMaximizing Corporate Value

corporate value of the Group, pursu-

Over the past two years, Furukawa has made progress in shedding its adverse legacy.

ing continuous reform.

However, reform has only just begun. First, we must put the new business structure on thefast track, and steadily execute the new medium-term management plan. I hope to meetthe expectations of investors next fiscal year with the resumption of dividends.
Furukawa will work to maximize the corporate value of the Group, pursuing continuous reform, and seeking to increase the competitiveness of its products and services
through consultations with shareholders and other stakeholders.
We request your continued understanding and support.
September 2005

Tetsuo Yoshino,
President and Representative Director

FURUKAWA Annual Report 2005

4

Medium-Term Management Plan
(April 2005 to March 2008)

The Furukawa Company Group has formulated its medium-term management plan for the period from fiscal 2006
through fiscal 2008 (April 1, 2005 to March 31, 2008). For the past two years, the Group has been rationalizing its operations, and improving its financial position. Building on the results in this “business restructuring period,” and the spinoff of Furukawa’s business divisions into separate companies in March 2005, the new management plan is intended tomaximize the value of each business and further improve its financial position by increasing the Group’s earnings.

Performance Targets
The new medium-term management plan sets consolidated performance targets for fiscal 2008 (April 1, 2007 throughMarch 31, 2008) of ¥165.0 billion in net sales and ¥10.5 billion in operating income, and a reduction of interest-bearing
liabilities by approximately ¥30.0 billion by the end of the fiscal year.

Net Sales by Business Division

Operating Income by Business DivisionInterest-Bearing Liabilities(Billions of yen)(Billions of yen)(Billions of yen)

180

150

12
165.0
151.6

153.5

147.2

135

9

90

6

7.4

30
0

0
2004

2005

88.0

60

3

2003

116.9

90

(1.6)

0

124.0
120

2.0

45

140.4

10.5

2003

2008

2004

2005

-6
2003

2004

2005

2008
(Target)Machinery

2008(Target)(Target)

Metals

Machinery

MetalsElectronic Materials and Chemicals

Electronic Materials and Chemicals

Real Estate

Real Estate

Fuels and Others

Fuels and Others

Management Policies
The medium-term management plan presents the following three management policies.

1

Develop innovative, high-value-added global
products and services, and increase profits.
Achieve earnings expansion by enhancing customer satisfaction and developing its global businesses providing environmentally conscious products and services.

2

3

reduction of interest-bearing liabilities.

corporate governance and Group management.

Strengthen our financial position through increased capitalefficiency and asset efficiency throughout the Group, andthrough the reduction of interest-bearing liabilities.

Increase the speed of management decision making and clarify responsibilities by the spin-off of business divisions into independent companies and shift to a Group management structure.
Maximize corporate value by further emphasizing businessspecific control of performance and results, bolster the Group’s
earnings platform and reform employee mindset.

FURUKAWA Annual Report 2005

5

Management Strategy
Furukawa has adopted the following three strategies as a means to attain the goals set in the mediumterm management plan.
1. Develop machinery for the global market and strengthen environmental businesses.
2. Expand lineup of environmentally conscious, high-value-added raw materials products.
3. Strengthen financial position through increased asset efficiency.

1

Develop machinery for the global market and strengthen
environmental businesses
The decline in spending on public-works projects precludes precipitous growth in thedomestic industrial machinery market, which is why the Furukawa Company Group isstressing overseas sales. In Japan, the Group is emphasizing businesses that respond to theneeds of the country’s aging population and growing demands for environmental protection.

1 Develop overseas businessTo expand sales of UNIC products (such as truck-mounted cranes) in China’s exploding market, we established Taian Furukawa Machinery Co., Ltd. in 2003, and phase one of conTruck-mounted cranes (UNIC cranes)

struction was completed at the end of October 2004. In October 2005 we are scheduled tocommence the semi-knockdown production of truck-mounted cranes, exporting thepartly-finished goods from Japan for assembly and sale in China. Our goal is to achieve an
overseas sales ratio of 30% in fiscal 2008, when we will start full-scale manufacturing in China.
We are building the optimum system for manufacturing UNIC products, anchored in
Thailand, Japan and China, and will be reducing costs.
In the field of construction and mining machinery (rock drills), we established
Furukawa Rock Drill Korea Co., Ltd. in 2003 and a Shanghai representative office inFebruary 2004 to expand sales in the Asian market. In the future we will further strengthen
our sales and service structure, which extends to the U.S., Europe, Japan, and otherareas of Asia.
We will employ the brand power of both our UNIC products and rock drills todevelop and market differentiated products, and win a large share of those markets. The combined overseas sales ratio of products in both these categories was 35% in fiscal 2005, andRock drill products (Hydraulic breakers)

we intend to increase that to 50% in fiscal 2008.
TAIAN FURUKAWA
MACHINERY CO., LTD.
FURUKAWA ROCK DRILLEUROPE B.V.
FURUKAWASERVICES S.A.S.

SHENYANG-FURUKAWA
ROCK DRILL CO., LTD.

Shanghai Rep. Office

GOUGLERINDUSTRIES INC.

FURUKAWA ROCK DRILLKOREA CO., LTD.

FURUKAWA UNIC
(THAILAND) CO., LTD.

2 Strengthen business activities that cater to lifestyle industries and theneeds of society
The Furukawa Company Group developed a smaller version of its “Dream Mill” line ofpneumatic micro-powder producing equipment, and commenced sales of these mills in April
Pneumatic micro-powder producing equipment“Dream Mill”

2005. In addition to their R&D applications, these mills can be used in multiproduct,
small-lot manufacturing in the food and pharmaceuticals industries, and we are energeticallypromoting such applications.
FURUKAWA Annual Report 2005

6

In Japan, the Furukawa Company Group is moving forward with the development of
new businesses that respond to social needs and statutory revisions. The need for nursing
care precautionary services is expected to increase as a result of a 2005 revision to the
Nursing Care Insurance Law. In response, the Furukawa Company Group has entered thegeriatric health support business, and is engaged in product development jointly with university
research departments. In addition, as a step toward obligatory food recycling, the Groupdeveloped and is marketing raw garbage carbonization equipment.
Net sales in the lifestyle and needs of society business for fiscal 2005 were ¥100 million, and the Group’s target for fiscal 2008 is ¥1.2 billion.

3 Bolster environmental engineering business
The Group is strengthening its environmental engineering business through proposalbased marketing including plant design and construction for recycling and fusion facilities.
One step in this effort is the maximization of earnings in the rural-community
sewage treatment facility business through the sale of NEW MECHACERA, an added value
product for the reduction in volume and treatment of wastewater. The Group has also started
producing and marketing recycled wood composite from waste wood and plastic. Because
The rural-community sewage
treatment facility
NEW MECHACERA (right)

Furukawa uses no polyvinyl chloride resins in its recycled wood composite, it emits noharmful gasses when incinerated. Since it is resistant to insects and moisture absorption, we
will market it as a construction material for use as roofing substrate and in walls. The plant willcommence its operation from September 2005 and ship products from October 2005.
In fiscal 2005 net sales in the environmental engineering business were ¥2.2 billion,
and our target for fiscal 2008 is ¥5.8 billion.

2

Expand lineup of environmentally conscious high-valueadded raw material products
In response to the expansion of the digital and optical markets, Furukawa is developing andmarketing crystalline products.
The Furukawa Group has developed gallium nitride (GaN) substrates, and has a goalof increasing production to 100 wafers per month during fiscal 2006. GaN substrates
have great potential for use in blue laser diodes (LDs) and white light-emitting diodes(LEDs). Growth is forecast for this market.
In another area, Furukawa has developed high-performance scintillator crystals
for use in PET* detector equipment. This PET detector equipment is quickly being adopted

Gallium nitride (GaN) substrates

for diagnosis of cancer. In addition, Furukawa will expand its lineup of optical laser products
used for polishing.
Net sales in the digital and optical markets during fiscal 2005 were ¥600 million, andour target for fiscal 2008 is ¥2.3 billion.
*PET: Positron Emission Tomography, a method of making images using positrons.

3

Strengthen financial position through increased asset efficiency
To strengthen our financial position, we will improve our operating cash flow, as well as sell
assets and investment securities to reduce interest-bearing liabilities.
FURUKAWA Annual Report 2005

7

Review of Operations

Machinery
Net Sales (Billions of yen)This division is composed of three businesses: the industrial machinery business,

80

which is responsible for the manufacturing and sales of general industrial machin65.6

63.8

60

59.7

63.2

62.3

ery and construction operations; the construction and mining machinery (rock drill)business, which conducts manufacturing and sales of civil engineering and construction machinery; and the UNIC machinery business, which involves the manu-

40

facturing and sales of truck-mounted cranes and other UNIC products. The indus20

trial machinery business is operated by Furukawa Industrial Machinery Systems
Co., Ltd.; the rock drill business is operated by Furukawa Rock Drill Co., Ltd.; and

0
2001

2002

2003

2004

2005

Operating Income (Loss) (Billions of yen)

the UNIC machinery business is operated by Furukawa UNIC Corporation.
In fiscal 2005, ended March 31, 2005, net sales in the(% of Net Sales)

Machinery Division edged down 1.4% to ¥62,291 mil-6

lion. High-margin domestic sales of UNIC products
4.3
4contracted, together with other factors causing operat3.5

ing income to fall 17.7% to ¥3,541 million. The operat-

42.3
2

ing margin declined by 1.1 percentage points to 5.7%.

%

1.4

The industrial machinery business was affected

0.7

by the continued contraction of public works spending. However, intensified marketing of sewage treat-0

ment facilities for rural communities began to show
(1.5)
-2

2001

2002

their effects, and revenues in this business showed growth. Revenues from bridges and
2003

2004

2005

industrial plants declined.
In the construction and mining machinery (rock drill) business, domestic demandremained at a low level, but overseas sales of rock drill products (rock drills and construc-

Operating Margin (%)

tion machinery) increased, particularly in the European and Middle East markets. In Asia,

9

sales in China were affected by a monetary squeeze, but sales in Korea rose steadily.

6.8
5.7

6

The UNIC machinery business saw a substantial downturn in domestic sales, as
last fiscal year’s transient demand in the Tokyo region produced by stricter regulation of3
1.0

truck exhaust emissions subsided. Exports to Taiwan, Australia, and Europe were healthy,

2.3

and overseas sales increased. The first phase of plant construction has been completed at0a joint venture subsidiary in Taian, China, in anticipation of future growth in demand.
-3

(2.3)
2001

2002

2003

2004

2005
FURUKAWA Annual Report 2005

8

Metals
Net Sales (Billions of yen)In this division, Furukawa Metals & Resources Co., Ltd. is responsible for the

60
48.2

import of copper ore, and the refining and sale of copper, gold, silver, and sulfuric

49.9

acid. Furukawa Metals & Resources has taken a stake in Onahama Smelting &

45
42.2

38.2

35.9

Refining Co., Ltd. and Hibi Kyodo Smelting Co., Ltd., and consigns smelting work
to them.

30

15

In fiscal 2005, net sales in the Metals Division fell(% of Net Sales)

15.0% to ¥35,862 million. However, following an oper0
2001

2002

2003

2004

ating loss of ¥5,046 million in the previous fiscal year,2005

the division was able to finish fiscal 2005 in the black,
posting operating income of ¥1,027 million. The oper-

24.4

Operating Income (Loss) (Billions of yen)2
1.0

ating margin improved from a negative 12.0% to 2.9%.

%

Market prices for electrolytic copper overseas
remain at a high level, supported by solid demand0

across the board. In Japan, the average quotation for(0.3)

the fiscal year was ¥370,000 per ton, up ¥100,000 per
ton from the previous fiscal year. Some mines have substantially increased production, and-2some idle mines have restarted operations. In addition, purchasing of ore by smelters in
China and India has been restrained as a result of a monetary squeeze and other factors.

-4

This is causing a trend toward a loose supply-demand balance for copper ore, which led to
(5.3)
-6

2001

2002

improvement in purchasing conditions. The termination of operations at Australian sub-

(5.0)
(6.0)
2003

2004

2005

sidiary PKC also contributed to the recovery of earnings.

Operating Margin (%)
2.9

3
0
(0.7)
-3
-6
-9
(11.0)
-12

2001

2002

(12.0)(12.0)

2003

2004

2005
FURUKAWA Annual Report 2005

9

Electronic Materials
and Chemicals
Net Sales (Billions of yen)This division is composed of the electronic materials business, which is engaged

20
17.5
15.7

in manufacturing and sales of electronic materials, including high-purity metallic
arsenic and compound semiconductors, and the chemicals business, which man-

15
14.5

12.2

14.0

ufactures and sells industrial chemicals such as cuprous oxide and sulfuric acid.
The electronic materials business is operated by Furukawa Denshi Co., Ltd., and10

the chemicals business is operated by Furukawa Chemicals Co., Ltd.
5The Electronic Materials and Chemicals Division’s net(% of Net Sales)

0
2001

2002

2003

2004

2005

sales in fiscal 2005 increased 25.3% to ¥17,502 million. Operating income jumped 64.7% to ¥1,739 million, and the operating margin rose 2.3 percentage
points to 9.9%.

11.9

Operating Income (Billions of yen)
3

Sales of high-purity metallic arsenic increased%

2.5

on the strength of strong demand for gallium arsenate
crystals, which is the main application for this material,

2

for use in DVD laser diodes, LED traffic signals and1.7

other private-sector optics applications. The division

1.3
1.1

commenced full-scale marketing of healing jewelry containing germanium in fiscal 2005,

1

and a substantial increase in shipments has already been seen. Sales of gallium phospho-

0.4

rous polycrystals declined as a result of its low intensity characteristics when used in LEDs,

0
2001

2002

2003

2004

2005

and inventory adjustments by users.
Revenues from the sale of cuprous oxide, which is used in hull coatings, showed arobust increase as a result of an upturn in domestic and overseas shipbuilding. The division
began production of aluminum sulfate in January 2003, and brisk demand has resulted in

Operating Margin (%)

major sales growth. Manufacturing of titanium dioxide was terminated in 2003, and the divi-

20
16

sion shifted to the procurement and marketing of OEM titanium dioxide. Sales in this area

15.7

declined, but these operations made a large contribution to the improvement of the divi-

12

9.9

9.1

sion’s profitability.

7.6

8
4
3.0
0
2001

2002

2003

2004

2005
FURUKAWA Annual Report 2005

10

This division is engaged in the construction, allotment sale and brokerage of office andcondominium buildings, and related services. Operations are conducted by Furukawa
Co., Ltd.
Net sales in the Real Estate Division fell 7.3% to ¥3,835 mil-(% of Net Sales)

lion in fiscal 2005. Operating income dropped 19.9% to¥1,376 million, and the operating margin declined 5.6 percentage points to 35.9%.
A recovery of tenant demand in the division’s core

2.6

office-building market was seen, but conditions remain%

severe. The division is responding to these conditions withReal
Estateefforts to reduce vacancy rates and cut operating expenses.
In an effort to strengthen its financial position throughenhanced asset efficiency, in March 2005 the division soldthe Furukawa Chiyoda Building, which is located in Tokyo.

Net Sales (Billions of yen)

Operating Margin (%)

Operating Income (Billions of yen)

6.0

50

3

43.4

5.2
2.3

4.6

4.5

4.4

4.1

3.8

1.9

2

43.8
41.1

41.5

40
1.9
1.7

3.0

35.9

30
1.4
20

1
1.5

10

0

0

0
2001

2002

2003

2004

2005

2001

2002

2003

2004

2001

2005

2002

2003

2004

2005

Fuels and Others(% of Net Sales)

These divisions are composed of the fuels business, which

18.8

is engaged in the sale of oil, petrochemicals and LPG, and%other businesses, which include the transportation businessand other operations. These businesses are operated by
Furukawa Co., Ltd.

Net sales in the Fuels and Others Divisions declined 7.7% to ¥27,747 million. An operating loss of ¥329 million was posted, larger
than last year’s operating loss by ¥164 million. The operating margin sank by 0.6 percentage points to a negative 1.2%.
Worldwide growth in demand, coupled with a decline in the ability to meet that demand, have sent oil prices to record highs,
and domestic prices are also at high levels. At the same time, though, the decline in the volume of fuel oil use by power plants
caused the division’s oil sales to fall sharply.
Operating Income (Loss) (Billions of yen)

Net Sales (Billions of yen)
30.0

30

27.7

25
20

Operating Margin (%)

0

0

23.0
19.7

-0.4

20.6

-0.1

(0.6)
(0.7)

(0.1)
-0.8

15

(0.8)
(0.9)

-0.2

10

(0.2)

(0.2)

(0.2)

-1.2
(1.2)

5
(0.3)

-0.3

0
2001

2002

2003

2004

2005

2001

2002

2003

2004

FURUKAWA Annual Report 2005

11

2005

-1.6
2001

2002

2003

2004

2005

Environmental Protection and Social Contribution Activities
The protection of the environment is one of the most important management issues at the
Furukawa Company Group. Our fundamental philosophy is that each employee should
strive in all our corporate activities to act in harmony with the environment, to consider the
improvement of the environment, and to contribute to the development of a sustainable
society. We are aware of the important role we play in community service as a corporate citizen, and every employee is involved. Major activities are introduced below.

Environmental Management

Environmental Protection Activities

Environmental management system

The implementation of energy conservation activities

The senior decision-making body for environmental protection

The Furukawa Company Group is pressing forward with energy

activities

Environmental

conservation by reducing energy consumption at its plants andManagement, in which everyone from the president down par-offices. Electricity usage in fiscal 2005 has been lowered sub-ticipates. The Environmental Management Subcommittee

stantially.

is

the

CentralCommittee

forstudies, proposes, directs, and monitors environmental pro-Reducing industrial waste

tection activities.

Furukawa’s total volume of industrial waste generated in fiscal

The companies of the Furukawa Company Group

2005 was 6,329 tons, down approximately 20% from its fiscal

have each established their own Environmental Management

2004 level. The Group is working for further reductions.

Committees, chaired by their own top management, which formulate environmental protection plans and drive environmental
protection programs.

Environmentally Friendly Products

To further improve its environmental protection activities,
the Furukawa Company Group convenes a meeting of envi-

The Furukawa Company Group is developing and marketing aronmental protection activity supervisors every year. For thenumber of products that directly contribute to environmental

purposes of sharing information and resolving issues quickly, envi-

protection. Among these are high performance dioxin removalronmental protection supervisors from the various Group com-plants that contribute to environmental protection by removing

panies are assembled to jointly discuss the activities the various

dioxins and other harmful substances from incinerator stackcompanies are pursuing, and study means to resolve thegasses. The Group’s NEW MECHACERA for sewage treat-issues that have arisen in the course of those activities.

ment facilities for rural communities not only protects water
quality and reduces unpleasant odors, but also reduces theISO14001 certification

volume of sludge and has treatment capabilities, realizing the recy-

The Furukawa Company Group saw ISO14001 certification as thecling of sludge for use as agricultural land.

starting point for environmentally conscious corporate activities, and proceeded to obtain certification. By March 31, 2005,
the Furukawa Company Group’s principal business sites had

Social Contributions

obtained certification as planned.

The bedrock of Furukawa’s social contribution activities as acorporate citizen is “the spirit of harmony,” one of its management
philosophies. The Group seeks to maintain good relationships withlocal communities through stewardship and maintenance offorest land owned by Furukawa, afforestation programs, seacoast
cleanup, preservation of the Nikko-Suginamiki*, and participation

Afforestation activity in Ashio, Japan

in blood drives.
*More than 15,000 Japanese cedar trees, planted in the 17th century, line the
30-mile route from the city of Nikko to a shrine and temple area. This scenic
drive and the surrounding woodlands have been designated a natural monument.

Usuiso seaside cleanup

FURUKAWA Annual Report 2005

12

Management
Corporate GovernanceThe basic policy of the Furukawa Company Group is to con-also the Management Committee, which meets monthly to discuss

tribute to society, our shareholders, and our other stakeholders by

the operations of Furukawa and its core subsidiaries, and provide

building an efficient management structure that will yield stable prof-

direction. Decisions made by the Management Council thatits and increased corporate value through greater management

involves the allocation of funds or important managementtransparency and continuous innovation in our corporate structure.

issues must be approved by resolution of the Board ofThis policy led to the March 2005 spin-off of six businesses in three

Directors.

divisions, and the concomitant shift to a holding company system.

The Furukawa Company Group uses the auditor sys-

The Furukawa Company Group’s management structure is dis-tem, with a Board of Auditors composed of two statutory auditors

cussed below.

and two outside auditors. Auditors attend meetings of theBoard

To clearly separate management oversight functionsofDirectors,

Management

Council,Managementfrom executive functions, accelerate decision making, and clarify

Committee, and other important management meetings, as well as

responsibilities, the Furukawa Company Group has adopted anmonitor performance of duty by directors and audit businessexecutive officer system. Representative directors at six companies

sites and subsidiaries. In March 2005, an Internal Audit

that conduct the Group’s core businesses have become executive

Department was established to perform audits of the status of

officers in the interest of promoting agile management.

management and the execution of operations throughout the
Furukawa Company Group’s operations, from the standpoint of

The Board of Directors has a membership of eight, ofreinforcing and monitoring the internal control system.

which one is an outside director, and performs oversight over the
execution of the Furukawa Company Group’s operations. The

As one measure to further its IR activities, Furukawa has

Management Council sets the Furukawa Company Group’s

redone its Web page, and will be using it to provide corporate infor-

fundamental management policies and strategies, and makes

mation to shareholders, investors, and other stakeholders in a time-decisions regarding decisions on important matters. There isly fashion.

Directors and Auditors

Executive Officers

President and Representative Director Tetsuo Yoshino

Senior Managing Executive Officer Isao Asada

Senior Managing Director Isao Asada

Senior Managing Executive Officer Toshikatsu Uematsu

Senior Managing Director Toshikatsu UematsuManaging Executive Officer Koji Toda

Managing Director Koji Toda

Managing Executive Officer Nobuyoshi Soma

Managing Director Nakao Yamashita

Managing Executive Officer Nakao Yamashita

Director Junnosuke Furukawa

Senior Executive Officer Yasuhei Konagaya

Director Yasuhei Konagaya

Senior Executive Officer Hiroyuki Shiaku

Director Hiroyuki Shiaku

Senior Executive Officer Yukio Takeuchi

Statutory Auditor Tsuyoshi Ishii

Executive Officer Toshihiko Arai

Statutory Auditor Ryouji Ohnuma

Executive Officer Yasuhiro Ogura

Auditor Toshiharu Nagao

Executive Officer Shin Nakamura

Auditor Tomoo Yamada

Executive Officer Masafumi Miyata
Executive Officer Takeji Saitsu
Executive Officer Toshikazu Nakagawa
Executive Officer Yoichiro Kato
Executive Officer Toshio Matsumoto
Executive Officer Yasuji Tomiyama
Executive Officer Makoto Iwasaki
Executive Officer Manabu Zama
FURUKAWA Annual Report 2005

13

Financial Section
Consolidated Five-Year Financial Summary
Furukawa Co., Ltd. and consolidated subsidiaries
Years ended 31st MarchMillions of yen

2005

2004

2003

2002

2001

For the year:
Net sales
Net income (loss)¥147,237
2,257¥153,513(27,634)¥151,630(17,000)¥ 149,436(18,696)¥ 144,333(4,191)

At year-end:
Total assets
Current assets
Current liabilities
Shareholders’ equity¥204,651
92,197
104,439
31,335¥206,250
83,777
81,213
28,660¥252,856
79,552
94,056
33,665¥ 278,174
87,081
100,298
49,791¥ 294,020
109,335
98,15561,491¥ (74.56)
—
—
199

¥

Yen

Per share amounts:
Net income (loss):
Basic
DilutedCash dividends
Net assets

¥

5.57
5.03
—
77

¥ (84.61)——
71¥ (67.88)——
134(16.71)—
3.00
245

Percent

Financial indicators:
Return on equity

7.5%

Net Sales(88.7)%

Operating Income (Loss)
and Operating Margin(40.7)%(33.6)%(7.1)%Net Income (Loss)and Return on Sales(Billions of yen)(Billions of yen)(%)(Billions of yen)

(%)

180

10

10

10

10

5

0

144.3

7.4

153.5
149.4 151.6
147.2

135

2.3
5

5.0

2.0
90

0
(4.2)

0

0

-10

-5

-20

-10

-30

-10

(1.6)
(17.0)
45

-5

0

(4.7)

-10
2001

2002 2003

2004

2005

2001

2002 2003■ Operating Income

■

2004

2005

Operating MarginFURUKAWA Annual Report 2005

14

-20

(18.7)(27.6)
2001

2002 2003■ Net Income

■

2004

-30
2005

Return on Sales

Financial Review

Revenue and Expenses

currency denominated debt. Other principal items include
gain on sales of investments in securities of ¥2,118 million
and gain on sales of property, plant and equipment totaling¥1,913 million. (For details please refer to Note 14 of Notes toConsolidated Financial Statements)
Accounting for these factors, income before income
taxes and minority interests was ¥4,199 million, a turnaroundfrom the loss of ¥35,238 million in fiscal 2004. After income
taxes and minority interests, Furukawa reported net incomeof ¥2,257 million compared with a net loss of ¥27,634 million
in the previous fiscal year.

During fiscal 2005, ended March 31, 2005, consolidated net
sales totaled ¥147,237 million, a 4.1% decrease comparedwith the previous fiscal year. Cost of sales also declined 8.3%
year on year to ¥124,586 million, contributing to a 3.9
percentage point drop in the cost of sales margin to 84.6%.
The principal cause for the improvement in the cost rate is thesuspension of operations at Port Kembla Copper Pty. Ltd.
(PKC), which had incurred substantial losses. Selling, generaland administrative expenses amounted to ¥15,268 million, adecrease of 2.2% compared with the previous fiscal year.
Major components were the transfer to allowance for doubtful accounts and a decline in employee salaries. As a result of
these factors, operating income jumped 264.8% on a yearon-year basis to ¥7,383 million.
Under other income and expenses, expenses of ¥3,184
million were posted compared with expenses totaling ¥37,262
million in the previous fiscal year. Of this amount, Furukawa
incurred other, net expenses of ¥1,426 million, a significant
improvement from other, net expenses of ¥35,040 million ayear earlier. In the fiscal year under review, a loss on impairment of land resulting from spin off of businesses of ¥4,011
million was reported as well as a loss on copper smelting
business in Australia of ¥1,476 million, down from ¥53,137
million in fiscal 2004. While Furukawa recorded gain on
foreign exchange, this was substantially lower than the previous fiscal year. This year-on-year decline is attributed to thedrop in foreign exchange gains relating to PKC’s foreign-

Financial Position
Furukawa pursues financial policies that are intended toaccomplish the goals of maintaining liquidity at suitable levels,
securing the funds needed for business activities, and preserving the soundness of its balance sheet.
Total assets as of the fiscal year-end, March 31, 2005,
stood at ¥204,651 million, a light drop of 0.8% compared withthe previous fiscal year-end. Current assets climbed 10.1%
to ¥92,197 million reflecting the increase in cash and cash
equivalents following the sale of the Furukawa Chiyoda
Building and the increase in inventories of copper ore inconnection with Furukawa’s copper smelting business. Investment rose 5.4% to ¥39,257 million. As a result of the saleof an office building in Tokyo and devaluation of land resulting
from the spin off of businesses, property, plant and equipment, net declined 14.1% to ¥73,197 million

Total Assets

Shareholders’ Equity(Yen)(Billions of yen)(Billions of yen)

30

400

80

Net Income (Loss) per Share

5.57
0

61.5

300

294.0

60

278.2
252.9

49.8

(16.71)206.3 204.7

-30

200

40

33.7
28.7

-60

31.3

20

100
(67.88)(74.56)(84.61)-90
2001

2002 2003

2004

2005

0

2001

2002 2003

2004

FURUKAWA Annual Report 2005

15

2005

0
2001

2002 2003

2004

2005

Current liabilities increased 28.6% to ¥104,439 million
owing mainly to the reclassification of a portion of corporate
bonds to current portion of long-term debt and an increase intrade accounts payable relating to the purchase of ores andother metals materials. Long-term liabilities contracted 26.2%
to ¥76,427 million. This was attributed to the aforementioned
reclassification of a portion of corporate bonds to current
portion of long-term debt. As a result, fiscal year-end interestbearing liabilities (corporate bonds and debt) declined ¥7,144
million to ¥116,851 million.
Shareholders’ equity as of March 31, 2005 stood at¥31,335 million, an increase of 9.3%. The deficit narrowed
significantly due to the net income for the period. The shareholders’ equity ratio climbed 1.4 percentage points to 15.3%.

Capital investment (including investments in intangible
fixed assets) amounted to ¥2,994 million. Of this total, ¥946
million was allocated to the Machinery Division, ¥597 million
to the Metals Division, ¥487 million to the Electronic Materials
Division, all for improvements in manufacturing efficiency,and ¥825 million to the Real Estate Division for maintenanceon lease buildings, and ¥139 million to the Fuels and Others
Division for the purchase of vehicles for use in the transportation business.

Cash FlowsNet cash provided by operating activities during the fiscal
year under review totaled ¥7,698 million, chiefly as a result of
the turnaround to income before income taxes and minority
interests and increases in inventories and payables, trade.
Net cash provided by investing activities was ¥7,620
million. Included in the principal components was proceedsfrom sales of property, plant and equipment.
Net cash used in financing activities narrowed to ¥8,227
million. Principal components were repayment of short-termloans, repayment of long-term loans payable and repaymentof notes.
As a result, cash and cash equivalents at the end of the
fiscal year were up 36.8% to ¥26,608 million.

R&D and Capital Expenditures
In response to rapid changes in the social and economic
environment, the Furukawa Company Group is engaged inresearch and development of a wide range of new materials
and high-value-added products to meet the needs of themarket. Research and development expenses for the fiscal
year under review were ¥1,777 million, representing 1.2% ofconsolidated net sales. Of this, ¥823 million was allocated to
the Machinery Division, ¥14 million to the Metals Division, and¥939 million to the Electronic Materials Division.

Return on Equity

Capital Expenditures, andDepreciation and Amortization

Cash Flows(%)(Billions of yen)(Billions of yen)

20

12

30

7.5

11.6

25.6

24.1

(7.1)
-10

15

9
7.9
(33.6)(40.7)-40

5.8 5.8

6

6.3

2.7

6.5

7.6
7.7

4.3
1.1

0
(2.2)
(4.5) (3.1)

3.7
-70

3.0

3

3.0 3.0

-15

(8.2)

(8.6) (8.0)(12.2)(15.0)(88.7)-100
2001

2002 2003

2004

2005

-30

0
2001

2002 2003

2004

2005

■ Capital Expenditures ■ Depreciation and Amortization

FURUKAWA Annual Report 2005

16

2001

2002 2003■ Cash Flows from Operating Activities■ Cash Flows from Investing Activities■ Cash Flows from Financing Activities

2004

2005

Business Risks
Port Kembla Copper Pty. Ltd. (Australia)

Accrued Employees’ Retirement Benefits
The employees of the Furukawa Company Group are covered by unfunded employee retirement benefit plans andnon-contributory funded employee pension plans as defined
benefit plans. Accrued employees’ retirement benefits areprovided at an amount calculated based on the retirement
benefit obligation and the fair value of pension plan assets atthe balance sheet date. In calculating accrued employees’
retirement benefits, the Furukawa Company Group adopts
assumptions in connection with the discount rate and expected rate of return on plan assets as well as other assumptions. Accordingly the Furukawa Company Group’s operating
results and financial position are at risk in the event the actual
discount rate and expected rate of return on plan assets
differs materially from assumptions, and in the event of achange in the assumptions on which accrued employees’
retirement benefits are made.

Operations at Port Kembla Copper Pty. Ltd. (PKC) werehalted in August 2003. In the ensuing period, the company
has been placed in a care and maintenance status with efforts
made to identify a potential investor for ultimate sale. Whileestimated losses relating to the suspension of operations
have been brought to account, potential risks that may
impact the Furukawa Company Group’s operating results
and financial position include: costs in connection with negotiations regarding the possible sale of PKC; and costs inconnection with cleanup activities at plants, sites and otherareas, subject to discussion with local authorities.

Fluctuations in the Foreign Exchange and Metals
Markets
The Furukawa Company Group is at risk of foreign exchange
fluctuation in connection with its export business, the importof raw materials, primarily copper ore, and smelting andprocessing income. In addition, the Furukawa Company
Group’s stock of nonferrous metal inventories, an internationally traded commodity, is subject to market movements.
While the Furukawa Company Group utilizes foreign exchange contracts as a hedge against the aforementioned
risks, its operating results and financial position may be
adversely impacted by movements in exchange rates andnonferrous metal markets.

Earthquake and Natural Disaster
The Furukawa Company Group’s operating results and financial position are at risk in the event of a suspension in
operations and delays in shipments due to damage to manufacturing bases and facilities from earthquakes and othernatural disasters.

Investments in Securities and Land
Historically, the Furukawa Company Group has maintained
relatively high balances of marketable securities and land. In
recent years, however, the Group has worked to streamline
assets and has sold a portion of its marketable securities andidle assets. As of March 31, 2005 the carrying value ofinvestments in securities was ¥21,655 million, while landstood at ¥47,282 million. The Furukawa Company Group’s
operating results and financial position are therefore at risk of
impairment losses, losses from devaluation and losses onsale due to movements in stock and land prices.

FURUKAWA Annual Report 200517

Consolidated Balance Sheets
Furukawa Co., Ltd. and consolidated subsidiaries
31st March, 2005 and 2004

Thousands of
U.S. dollars (Note 3)

Millions of yen

ASSETS

2005

2004

2005

¥ 26,608¥ 19,454

Notes and accounts

31,73331,968Affiliates

1,596

1,958

14,916Inventories (Notes 4 and 6)

23,33820,521

218,112Deferred income taxes (Note 12)

1,439

1,985

13,449Other current assets (Note 6)

7,871

8,631

73,560Current Assets:
Cash and cash equivalents (Note 6)$

248,673

Receivables, trade (Note 6):

Allowance for doubtful accounts
Total current assets

296,570

(388)

(740)

(3,626)92,197

83,777

861,654

Investments:
Investments in securities (Notes 5 and 6)

27,301

25,532

255,150

Investments in affiliates

1,676

3,050

15,664Loans receivable

2,192

2,190

20,486

Deferred income taxes (Note 12)

169

955

1,579

Other investments (Note 7)

9,926

7,364

92,766

Allowance for doubtful accounts(2,007)(1,834)(18,757)

39,257

37,257366,888

Land and timberlands

49,12857,329459,140

Buildings and structures

37,102

40,681

346,748

Machinery and equipment

36,41638,901

340,336

Construction in progress

402

116

3,757

123,048

137,027

1,149,981(49,851)(51,811)(465,897)

73,197

85,216

684,084¥204,651¥206,250$ 1,912,626

Total investments

Property, Plant and Equipment—at Cost (Notes 6 and 7):

Accumulated depreciation
Property, plant and equipment, net

Total assets

FURUKAWA Annual Report 2005

18

Thousands of
U.S. dollars (Note 3)

Millions of yen

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2005

2004

2005

¥ 22,415¥ 24,269

44,192

23,258413,00925,725

17,937240,421

5

210

47

8,001

8,218

74,776

482

281

4,505

Current Liabilities:
Short-term loans (Note 6)
Current portion of long-term debt (Note 6)$

209,486

Payables, trade:
Notes and accounts (Note 6)
Affiliates
Accrued expenses
Accrued income taxes (Note 12)
Deferred income taxes (Note 12)

29

4

271

Other current liabilities (Note 6)

3,590

7,036

33,550104,439

81,213

976,065

Long-term debt (Note 6)

50,24476,468469,570

Accrued employees’ retirement benefits (Note 11)

1,187

1,020

11,093

Deferred income taxes (Note 12)

11,404

379

106,579

Deferred income taxes on surplus on the revaluation of land (Note 12)

3,010

13,46628,131

Total current liabilities

Long-term Liabilities:

Other long-term liabilities (Note 6)
Total long-term liabilities

Minority Interests in Consolidated Subsidiaries

10,582

12,221

98,89876,427

103,554714,271(7,550)(7,177)(70,560)

28,20828,208263,626

Contingent Liabilities (Note 13)
Shareholders’ Equity:
Common stock without par value:
Authorized—800,000,000 shares
Issued—404,455,680 shares—

29,534—

Deficit

Capital surplus(2,871)(50,390)(26,832)

Surplus on the revaluation of land, net of income taxes

4,387

20,17241,000Net unrealized holding gain on securities, net of income taxes

2,026

1,349

18,935

Translation adjustments

(404)

(206)

(3,776)

31,346

28,667

292,953

(11)

(7)

(103)

31,33528,660292,850¥204,651¥206,250$ 1,912,626

Treasury stock, at cost
2004—96,606 shares
2005—127,084 shares
Total shareholders’ equity
Total liabilities, minority interests and shareholders’ equity
The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 2005

19

Consolidated Statements of Operations
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2005 and 2004

Thousands of
U.S. dollars (Note 3)

Millions of yen

2005

2004

2005

Net Sales¥ 147,237¥ 153,513$ 1,376,047

Cost of Sales (Note 8)(124,586)(135,872)(1,164,355)

Gross profit
Selling, General and Administrative Expenses (Note 8)
Operating income

22,651

17,641

211,692(15,268)(15,617)(142,692)

7,383

2,024

69,000
4,336

Other Income (Expenses):
Interest and dividend income

464

502

Equity in earnings of affiliates

69

103

645

Interest expense(2,291)(2,827)(21,411)

Other, net (Note 14)(1,426)(35,040)(13,328)

4,199(35,238)

39,242

(494)

(550)

(4,617)

Income (loss) before income taxes and minority interests
Income Taxes (Note 12):Current
Deferred(1,363)(4,138)(12,738)

Total(1,857)(4,688)(17,355)

Minority Interests
Net income (loss)

¥

(85)

12,2922,257¥ (27,634)

Yen

(794)
$

21,093

U.S. dollars (Note 3)

Net Income (Loss) per Share:
Basic

¥

DilutedCash Dividends per Share
The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 2005

20

5.57

¥

(84.61)

$

0.05

5.03

—

0.05

—

—

—

Consolidated Statements of Shareholders’ Equity
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2005 and 2004

Millions of yen
Number ofshares ofcommon stock(thousands)

Commonstock

Capitalsurplus250,752¥ 23,608¥ 11,435

allotment

79,304

4,600

Increase due to merger

74,400————

Balance as of 31st March, 2003

DeficitSurplus on
the revaluationof land

Net unrealized
holding
gain (loss)
on securities

Translation
adjustments

Treasurystock,
at cost¥ (18,651)¥ 21,136¥ (2,291)¥ (1,566)

¥ (6)

4,600

—

—

—

—

—

13,499(4,896)

—

—

—

—

—

(155)

—

—

—

Increase due to third-party

Decrease due to the change
in the tax rate
Reversal of surplus
on the revaluation of land

—

—

—

809

(809)

—

—

—

Net loss for the year

—

—

—

(27,634)

—

—

—

—

Bonuses to directors andstatutory auditors

—

—

—

(18)

—

—

—

—

Net change during the year

—

—

—

—

—

3,640

1,360

(1)

404,456

28,20829,534(50,390)

20,172

1,349

(206)

(7)

—

—

(29,534)

29,534

—

—

—

—

—

—

—

—

(49)

—

—

—

on the revaluation of land

—

—

—

15,736(15,736)———

Net income for the year

—

—

—

2,257

—

—

—

—

statutory auditors

—

—

—

(8)

—

—

—

—

Net change during the year

—

—

—

—

—

677

(198)

(4)

404,456¥ 28,208(2,871)¥ 4,387¥ 2,026

(404)

¥(11)

Balance as of 31st March, 2004
Elimination of deficit
Decrease due to the change
in the Company’s ownershipinterests in the affiliate
Reversal of surplus

Bonuses to directors andBalance as of 31st March, 2005

¥

—

¥

¥

Thousands of U.S. dollars (Note 3)

Balance as of 31st March, 2004
Elimination of deficit

Commonstock

Capitalsurplus$263,626$ 276,019—(276,019)

Surplus on
the revaluationof land

Net unrealized
holdinggain
on securities

Translation
adjustments

Treasurystock,
at cost$(470,935) $ 188,523

Deficit

276,019$12,607$(1,925)$ (66)————

Decrease due to the change in the Company’sownership interests in the affiliate

—

—

—

(458)

—

—

—

Reversal of surplus on the revaluation of land——

147,065(147,065)———

Net income for the year——

21,093————

Bonuses to directors and statutory auditors

—

—

(74)

—

—

—

—

Net change during the year

—

—

—

—

6,328

(1,851)(37)$ (26,832) $ 41,000$18,935$(3,776)$(103)

Balance as of 31st March, 2005

$263,626$—

The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 200521

Consolidated Statements of Cash Flows
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2005 and 2004

Millions of yen

Cash Flows from Operating Activities:
Income (loss) before income taxes and minority interests
Adjustments to reconcile income (loss) before income taxes and minority interests
to net cash provided by (used in) operating activities:
Unrealized exchange gain on foreign currency items
Depreciation and amortization(Decrease) increase in allowance for doubtful accounts, net
Increase (decrease) in accrued employees’ retirement benefits
Gain from establishment of trust for retirement benefits plans
Loss on disposal and sales of property, plant and equipment
Gain on sales of property, plant and equipment
Gain on sales of investments in securities
Loss on impairment of land resulting from spin off of businesses
Interest and dividend income
Interest expense
Gain on sales of hydroelectricity businessImpairment loss on fixed assets
Changes in operating assets and liabilities:
Receivables, trade
Inventories
Payables, trade
Other
SubtotalInterest and dividends received
Interest paid
Payments related to copper smelting business in Australia
Income taxes paid
Other
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities:
Increase in time deposits
Decrease in time deposits
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Increase in restricted deposits
Purchases of investments in securities
Proceeds from sales of investments in securities
Proceeds from sales of subsidiaries’ stock
Proceeds from sales of hydroelectricity business
Proceeds from rental of real estate
Payments for investments
Payments for long-term deposits
Other
Net cash provided by investing activities
Cash Flows from Financing Activities:
Proceeds from long-term loans payable
Repayment of long-term loans payable
Proceeds from short-term loans
Repayment of short-term loans
Proceeds from issuance of notes
Repayment of notes
Proceeds from issuance of common stock
Repayment of finance lease obligations
Net decrease in deposits for securities lending transactions
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year (Note 15)
The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 2005

22

Thousands of
U.S. dollars (Note 3)

2005

2004

2005

¥ 4,199¥(35,238)$ 39,242

(27)
3,026
(173)
772
(1,484)789(1,913)(2,118)
3,891
(464)
2,291
—
—

(5,471)6,533
461(1,859)—544(1,194)(9,097)
—
(502)
2,827
(6,911)
41,428(252)
28,280(1,617)
7,215(13,869)
7,374(17,879)(19,794)
36,364(4,336)
21,411——629(2,816)
6,673
836
14,111488(2,344)(3,407)
(539)
(611)
7,698

1,024
5,200
(4,194)
9,067
2,618
484
(4,267)—(1,179)(739)(3,083)

5,879(26,318)
62,364
7,815
131,879
4,561(21,907)(31,841)(5,037)(5,711)
71,944(356)
702(2,978)8,154
401(4,384)
4,742
1,180
—
191
(11)
—
(21)
7,620

(3,563)319(2,837)9,760—(2,620)15,575—
10,000196(200)(1,000)(28)
25,602(3,327)
6,561(27,832)
76,206
3,748(40,972)
44,31811,028
—
1,785
(103)
—
(197)
71,21521,700(22,569)
14,296(16,250)500(5,000)
—
(895)
—
(9)
(8,227)63
7,154
19,454

19,129(27,381)
23,817(24,833)
1,000(5,713)9,132(178)(9,990)55(14,962)80
7,637
11,817

202,804(210,925)
133,607(151,869)
4,673(46,729)—(8,364)—(85)(76,888)589
66,860181,813¥ 26,608¥ 19,454$ 248,673

Notes to Consolidated Financial Statements
Furukawa Co., Ltd. and consolidated subsidiaries
31st March, 2005

1. Basis of Presentation
The accompanying consolidated financial statements of
Furukawa Co., Ltd. (the “Company”) and consolidated subsidiaries (together the “Furukawa Group”) have been prepared in accordance with accounting principles generally accepted inJapan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and have been compiled from those preparedby the Company as required under the Securities and Exchange
Law of Japan.
In addition, the notes to the consolidated financial statements

include information which is not required under accounting principles generally accepted in Japan but is presented herein as
additional information.
In preparing these statements, the Company has made certain
reclassifications and rearrangements to the consolidated financial statements prepared in Japan in order to present thesestatements in a form which is more familiar to readers outside
Japan.
In addition, certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s
presentation.

2. Summary of Significant Accounting Policies(1) Principles of Consolidation
The Company had 38 subsidiaries as of 31st March, 2005 (41 asof 31st March, 2004). The consolidated financial statements included the accounts of the Company and 38 subsidiaries as of
31st March, 2005 (41 as of 31st March, 2004).
Compared with the previous year, the number of subsidiaries
increased by 3 due to establishment and decreased by 6 due toliquidation and so on.
For the purpose of preparing the consolidated financial statements, all significant inter-company transactions, account balances and unrealized profits among the Furukawa Group havebeen eliminated.
Certain foreign subsidiaries have a 31st December year-end.
Relevant adjustments have been made for significant transaction
with such subsidiaries during the period from 1st January to
31st March.
Although the Company had 14 affiliates as of 31st March,2005 (13 affiliates as of 31st March, 2004), the equity method
was applied to 6 affiliates as of 31st March, 2005 (6 as of 31st
March, 2004) in preparing the consolidated financial statements
and investments in the rest of those affiliates are carried at costor less.

(3) Marketable Securities and Investments in Securities
Securities other than equity securities issued by subsidiaries andaffiliates are classified into three categories: trading, held-to-maturity or other securities. The Furukawa Group does not hold any
trading or held-to-maturity securities as of 31st March, 2005 and2004. Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss,
net of the applicable income taxes, included directly in shareholders’ equity. Fair value is determined based on the average ofthe market value during the last month of the fiscal year. Nonmarketable securities classified as other securities are carried atcost. Cost of securities sold is determined by the moving average method.
(4) Inventories
Finished copper products and work in process relating to copper
products held by the Company and a domestic consolidated
subsidiary are stated at cost determined by the moving averagemethod. Other inventories are mainly stated at cost determinedby the average method.
(5) Allowance for Doubtful Accounts
In order to cover probable losses on collection, the allowance for
doubtful accounts is calculated based on the historical default
rates for normal receivables plus estimate of uncollectible
amounts determined by reference to specific doubtful receivablesfrom customers which are experiencing financial difficulties.

(2) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investmentswith a maturity of three months or less when purchased.

FURUKAWA Annual Report 200523

(6) Property, Plant and Equipment, and Depreciation
Property, plant and equipment is stated at cost. Depreciation ismainly calculated by the straight-line method based on the estimated useful lives of the assets. The range of useful lives ofproperty, plant and equipment are summarized as follows:
Buildings and structures 5 to 60 years
Machinery and equipment 2 to 25 years
Amortization is calculated by straight-line method for intangible assets.

Prior service cost is being amortized by the straight-line
method principally over a period of 15 years which are shorter
than the average remaining years of service of the employees.
Actuarial gain and loss is amortized in the year following the year
in which the gain or loss is recognized by the straight-line
method over the period of mainly 15 years which are shorter
than the average remaining years of service of the employees.
(9) Surplus on the Revaluation of Land
Pursuant to the “Law Concerning the Revaluation of Land”, land
used for the Company’s business operations was revalued on
31st March, 2002. The income tax effect of the difference between the book value and the revalued amount has been presented under liabilities as “Deferred income taxes on surplus on
the revaluation of land” and the remaining balance has been presented under shareholders’ equity as “Surplus on the revaluationof land” in the accompanying consolidated balance sheets. Revaluation of land was determined based on the official noticeprices published by the Commissioner of the National Tax Authorities in accordance with Paragraph 4, Article 2 of the “Enforcement Ordinance Concerning Land Revaluation,” with
relevant adjustments. The carrying value of the land after revaluation exceeded its fair value by ¥1,299 million ($12,140 thousand) and ¥6,878 million as of 31st March, 2005 and 2004,
respectively.

(7) Leases
Non-cancelable lease transactions entered into by the Company
and domestic consolidated subsidiaries are accounted for as
operating leases (whether such leases are classified as operating or finance leases), except that lease agreements which stipulate the transfer of ownership of the leased assets to the lessees
are accounted for as finance leases. However, leases of the foreign consolidated subsidiaries are generally classified and accounted for as either finance or operating leases.
(8) Retirement Benefit Plans
The employees of the Company and most of its domestic consolidated subsidiaries are covered by unfunded employee retirement benefit plans and non-contributory funded employee
pension plans as defined benefit plans. The employee retirement
benefit plans provide for lump-sum payments. The employee
pension plans, which are funded, were instituted to replace acertain portion of the benefits under the retirement benefit plans
with respect to employees who retire at the mandatory retirement age. Certain consolidated subsidiaries (both domestic andforeign) have defined contribution plans.
Accrued employees’ retirement benefits have been provided
at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets at the balance
sheet dates, as adjusted for unrecognized net retirement benefit
obligation at transition, unrecognized actuarial gain or loss andunrecognized prior service cost. The retirement benefit obligation has been attributed to each period by the straight-line
method over the years of service of the eligible employees. The
Company established a trust and the Company’s net retirement
benefit obligation at transition was fully charged to operations
for the year ended 31st March, 2001. The net retirement benefit
obligation at transition of the domestic consolidated subsidiariesof ¥560 million had amortized by the straight-line method over a
period of 5 years from 2001.

(10) Income Taxes
Current income taxes comprising corporation tax, enterprise tax
and inhabitants’ taxes are provided for based on amounts currently payable for each year. Deferred income taxes arising from
temporary differences between financial reporting and tax basesof the assets and liabilities, which were measured using the enacted tax rates and laws which will be in effect when the temporary differences are expected to reverse, are reflected in the
consolidated financial statements.

FURUKAWA Annual Report 200524

(11) Amounts per Share
Basic net income (loss) per share is computed based on the net
income (loss) attributable to shareholders of common stock andthe weighted average number of shares of common stock outstanding during the year, and diluted net income per share iscomputed based on the net income attributable to the shareholders and the weighted average number of shares of common
stock outstanding during each year after giving effect to thedilutive potential of shares of common stock to be issued upon
the conversion of convertible notes.
Amounts per share of net assets are computed based on net
assets available for distribution to the shareholders and thenumber of shares of common stock outstanding at the year end.
No diluted net income per share is presented for the year ended
31st March, 2004 because the Company recorded net loss forsuch year.

(13) Appropriation of Retained Earnings
Cash dividends, and bonuses to directors and statutory auditors
are recorded in the fiscal year in which the proposed appropriations of retained earnings are approved by the board of directors
and/or shareholders’ meeting.
(14) Hedging Activities
The Furukawa Group uses derivative financial instruments forthe purpose of hedging the risks of adverse fluctuations in foreign exchange rates and interest rates on the receivables,
payables and forecast transactions denominated in foreign currencies. All derivative financial instruments except below arestated at fair value and related gain or loss on the changes in thefair values of derivative financial instruments is deferred as an
asset or liability in the balance sheet until the recognition of gainor loss on hedged items when those derivative financial instruments qualify for hedge accounting.
Trade receivables and payables denominated in foreign currencies are translated at the contracted rates if the relating forward contracts qualify for hedge accounting.
The interest rate swaps which qualify for hedge accounting
and meet specific matching criteria are not carried at fair value
but any differences paid or received on the interest rate swaps
are recognized as adjustments to interest expense or income
over the life of each swap, thereby adjusting the effective interest rate on the hedged items.

(12) Foreign Currency Translation
Foreign currency denominated monetary assets and liabilities
are translated into Japanese yen using the rates of exchange in
effect at the balance sheet date. Resulting gains or losses iscredited or charged to income as incurred.
Assets, liabilities, revenue and expense accounts of the foreign consolidated subsidiaries are translated at the rates of exchange in effect at the balance sheet date. Shareholders’ equity
is translated at the historical rate. Differences arising from translation are included in minority interests and translation adjustments.

(15) Shareholders’ Equity
The Commercial Code of Japan (the “Code”) provides that an
amount equal to at least 10% of the amounts to be disbursed as
distributions of earnings be appropriated to the legal reserve until such reserve and capital surplus equals 25% of the common
stock account. The code also stipulates that, to the extent thatthe sum of the capital surplus and the legal reserve exceeds
25% of the common stock account, the amount of the excess (ifany) is available for appropriations by resolution of the shareholders.

3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of arithmetic computation only, at ¥107=US$1.00, the exchange rate prevailing on
31st March, 2005. This translation should not be construed as arepresentation that yen have been, could have been, or could in
the future be, converted into U.S. dollars at the above or any
other rate.

FURUKAWA Annual Report 2005

25

4. Inventories
Inventories as of 31st March, 2005 and 2004 consisted of the following:

Millions of yen

Finished products
Work in process
Raw materials and supplies

Thousands of
U.S. dollars

2005

2004

2005

¥12,619
3,537
7,182

¥12,204
3,653
4,664

$117,935
33,056
67,121¥23,338¥20,521$218,112

5. Investments in Securities
The aggregate acquisition cost, carrying value and unrealized gain or loss pertaining to the marketable other securities as of 31st
March, 2005 and 2004 were as follows:
Thousands of
U.S. dollars

Millions of yen

2005

Securities whose carrying value
exceeds their acquisition cost:
Listed corporate shares
Government bonds
Corporate bonds
Securities whose acquisition costexceeds their carrying value:
Listed corporate shares
Government bonds
Corporate bonds
Total

2005

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥16,960——¥20,542——¥3,582——$158,505——$ 191,981——$33,476——

16,96020,542

3,582

158,505

191,981

33,476

1,209
16
—

1,097
16
—

(112)
(0)
—

11,299150—

10,252150—(1,047)
(0)
—

1,225

1,113

(112)

11,44910,402(1,047)¥18,185¥21,655¥3,470$169,954$ 202,383$32,429

Millions of yen

2004

Securities whose carrying value exceeds their acquisition cost:
Listed corporate shares
Government bonds
Corporate bonds
Securities whose acquisition cost exceeds their carrying value:
Listed corporate shares
Government bonds
Corporate bonds
Total

FURUKAWA Annual Report 2005

26

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 6,485——
6,485¥ 9,623——
9,623¥ 3,138——
3,138

11,48416—
11,500¥17,985

10,49816—
10,514¥20,137

(986)
(0)
—
(986)
¥ 2,152

Proceeds from sales of securities classified as other securities with aggregate gain and loss are summarized as follows:

Millions of yen

Sales proceeds
Aggregate gain
Aggregate loss

Thousands of
U.S. dollars

2005

2004

2005

¥5,316
2,118—¥15,575
9,097
313$49,682
19,794—

6. Short-Term Loans and Long-Term Debt
Short-term loans, most of which are unsecured, represented notes payable to banks, with the average interest rates of 1.6% and 1.5%
as of 31st March, 2005 and 2004, respectively.
Long-term debt as of 31st March, 2005 and 2004 consisted of the following:

Millions of yen

0.90% yen convertible notes due 2006
1.45% yen notes due 2004
1.91% yen notes due 2005
0.37% yen notes due 2006
2.21% yen notes due 2007
0.65% yen notes due 2008
Loans, principally from banks, insurance companies and government agencies,
most of which are secured, due 2005 to 2020
Current portion of long-term debt

The 0.90% yen convertible notes are convertible into shares ofcommon stock at the option of the holders on any date up to
30th March, 2006 at the conversion price of ¥332 ($3.10) per
share. The above conversion price is subject to adjustment incertain circumstances, including stock splits. If all convertible
notes had been converted at the current conversion price as of
31st March, 2005, 60,831 thousand new shares of common
stock would have been issuable.

Thousands of
U.S. dollars

2005

2004

2005

¥ 20,196
—
5,000
1,000
4,100
500

¥ 20,196
5,000
5,000
1,000
4,100
—

$ 188,747—
46,7299,346
38,318
4,673

63,64064,430594,766

94,436(44,192)

99,726(23,258)

882,579(413,009)¥ 50,244¥ 76,468$ 469,570

The average interest rate applicable to the above loans
amounting to ¥63,640 million ($594,766 thousand) was 2.2% asof 31st March, 2005.

The aggregate annual maturities of long-term debt subsequent to 31st March, 2005 were as follows:Year ending 31st March,Millions of yen

Thousands of
U.S. dollars

2006
2007
2008
2009
2010 and thereafter¥44,192
21,19015,302
7,945
5,807$413,009
198,038
143,00974,252
54,271¥94,436$882,579

FURUKAWA Annual Report 2005

27

The Company and certain consolidated subsidiaries have entered into overdraft and loan commitment agreements amounting to ¥47,284 million ($441,907 thousand) with 27 banks and¥35,041 million with 27 banks as of 31st March, 2005 and 2004,
respectively. The borrowings outstanding and the unused balances under these credit facilities amounted to ¥16,810 million($157,103 thousand) and ¥30,474 million ($284,804 thousand),
respectively, as of 31st March, 2005 and amounted to ¥17,657
million and ¥17,384 million, respectively, as of 31st March, 2004.
In addition, the following lease obligations are included in “Other
current liabilities” and “Other long-term liabilities” in the accompanying consolidated balance sheets.

Millions of yen

Current portion
Non current portion

2005

2004

¥

¥ 331
5,258

—
5,059

Thousands of
U.S. dollars

2005
$

—
47,280Assets pledged as collateral for payables, trade of ¥373 million ($3,486 thousand) and ¥178 million, short-term debt of ¥1,089 million($10,178 thousand) and ¥1,189 million, long-term debt (including current portion) of ¥9,416 million ($88,000 thousand) and ¥13,057 million and lease obligations (included in other long-term liabilities) of ¥5,059 million ($47,280 thousand) and ¥4,998 million as of 31st
March, 2005 and 2004, respectively, consisted of the following:

Millions of yen

Cash and cash equivalents
Receivables, trade
Inventories
Other current assets
Investments in securities
Property, plant and equipment, net

Thousands of
U.S. dollars

2005

2004

2005

¥ 1,501
45
45
3,530
3,783
20,977¥ 4,350
599
617
3,807
2,919
21,138$ 14,028
421
421
32,99035,355
196,047¥29,881¥33,430$279,262

Above assets include those of a foreign consolidated subsidiary which are pledged as collateral for lease obligations. The foreign
consolidated subsidiary has discretionary powers to dispose of these assets other than machinery and equipment leased under thelease contracts and restricted deposits (partly time deposit and included in other current assets) with the aggregated carrying value of¥3,243 million ($30,308 thousand) and ¥3,601 million as of 31st March, 2005 and 2004, respectively.

7. Depreciation and Amortization
Depreciation and amortization for the years ended 31st March, 2005 and 2004 consisted of the following:

Millions of yen

Property, plant and equipment
Other investments

Thousands of
U.S. dollars

2005

2004

2005

¥2,95868¥6,47063$27,645635¥3,026¥6,533$28,280

8. Research and Development Expenses
Research and Development expenses, included in selling, general and administrative expenses and cost of sales for the years ended
31st March, 2005 and 2004 amounted to ¥1,777 million ($16,607 thousand) and ¥1,794 million, respectively.

FURUKAWA Annual Report 2005

28

9. Leases
The Furukawa Group leases certain machinery and equipment under non-cancellable finance lease agreements, of which ownership is
all non-transferable.
The pro forma amounts representing acquisition costs, accumulated depreciation and net carrying value for the machinery and equipment held under the finance leases currently accounted for as operating leases as of 31st March, 2005 and 2004 were as follows:

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

Acquisition costs
Less accumulated depreciation¥1,570780¥1,558874$14,673
7,290

Net carrying value

¥ 790

¥ 684

$ 7,383

Lease payments relating to finance leases accounted for as operating leases amounted to ¥262 million ($2,449 thousand) and ¥265
million for the years ended 31st March, 2005 and 2004, respectively, which were equal to the depreciation expense of leased assets
computed by the straight-line method over the lease terms.
Future minimum lease payments including an interest element under the finance leases outstanding as of 31st March, 2005 and 2004
are summarized as follows:

Millions of yen

Within one year
Over one year

Thousands of
U.S. dollars

2005

2004

2005

¥218
572

¥215
469

$2,037
5,346

¥790

¥684

$7,383

The future minimum lease payments under lease agreements other than finance leases as of 31st March, 2005 and 2004 are summarized as follows:

Millions of yen

Within one year
Over one year

Thousands of
U.S. dollars

2005

2004

2005

¥ 838
1,598

¥ 747
2,319

$ 7,832
14,934¥2,436¥3,066$22,766

10. Financial Instruments
The Furukawa Group entered into swap agreements to manageinterest rate risks. Interest rate swaps convert floating rate oflong-term debt to a fixed basis. The Furukawa Group also entered into forward foreign exchange contracts to hedge against
transactions in foreign currencies.
There are market risks in these derivatives. As thecounterparties to the derivative transactions are major financial

institutions and trading companies, the Furukawa Group believes that their derivative financial instruments entail minimal
credit risks. Furthermore, the Furukawa Group does not use derivative financial instruments that would increase market risks.
As of 31st March, 2005 and 2004, there is no derivative transaction for which hedge accounting is not applied.

FURUKAWA Annual Report 2005

29

11. Retirement Benefits
The balances of the retirement benefit obligation and plan assets, funded status and the amounts recognized in the consolidated balance sheets as of 31st March, 2005 and 2004 are summarized as follows:

Millions of yen

Retirement benefit obligation
Plan assets at fair value
Unfunded status
Unrecognized net retirement benefit obligation at transition
Unrecognized actuarial loss
Unrecognized prior service cost
Prepaid pension expenses
Accrued employees’ retirement benefits

Thousands of
U.S. dollars

2005

2004

2005

¥(13,828)
12,083¥(13,811)
8,317$(129,233)
112,925(1,745)—8,420
89(7,951)(5,494)
112
9,958
98
(5,694)(16,308)—
78,691
832(74,308)¥ (1,187)¥ (1,020)$ (11,093)

The components of retirement benefit expenses for the years ended 31st March, 2005 and 2004 were as follows:

Millions of yen

Thousands of
U.S. dollars

2005

2004

2005

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Amortization of net retirement benefit obligation at transition

¥ 702
329
(133)
8
779
112

¥ 790
419
(147)
36
851
112

$ 6,561
3,075(1,243)
75
7,280
1,046

Retirement benefit expenses
Employees’ contributions to the defined benefit pension plans¥1,79716¥2,061
114$16,794
150

Total¥1,813¥2,175$16,944

The assumptions used in accounting for the above plans are as follows:

Discount rates
Expected return on plan assets

2005

2004

mainly 2.4%
mainly 2.0%

mainly 2.4%
mainly 2.0%

FURUKAWA Annual Report 200530

12. Income Taxes
The difference between the statutory tax rate and the effective tax rate of the Furukawa Group for the year ended 31st March, 2005 was
as follows:
Statutory tax rate
Non-deductible expenses for tax purposes
Non-taxable dividends and other income
Inhabitants per capita tax
Equity in earnings of affiliated companies
Amortization of goodwill
Changes in valuation allowance
Other

40.7%
1.7
(0.2)
1.7
(0.7)
(1.3)
6.6
(4.3)

Effective tax rate

44.2%

A reconciliation of the difference between the statutory tax
rate and the effective tax rate of the Furukawa Group for theyear ended 31st March, 2004 was omitted because the

Furukawa Group recorded a loss before income taxes and minority interests.

Deferred tax assets and liabilities as of 31st March, 2005 and 2004 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2005
Deferred tax assets:
Allowance for doubtful accounts
Accrued employees’ retirement benefits
Investments in securities
Impairment loss on fixed assets
Unrealized gains on sales of property, plant and equipment
Net operating loss carryforwards
Land
Other

¥

167
4,055
8,197
11,788616
18,367
1,468
1,198

2004
¥

165
3,613
1,368
11,776798
27,398
2,143
471

2005
$

1,561
37,89776,608110,168
5,757
171,654
13,72011,196

Total gross deferred tax assets

45,85647,732428,561

Valuation allowance(37,975)(38,186)(354,906)

7,881

9,546

73,655(1,435)(182)(4,327)(9,093)(2,023)
(646)

(872)
(186)
(3,668)—(1,567)(696)(13,411)(1,701)(40,439)(84,981)(18,907)(6,038)(17,706)(6,989)(165,477)

Total deferred tax assets
Deferred tax liabilities:
Net unrealized holding gain on securities
Statutory reserves provided for tax purposes
Gain from establishment of trust for retirement benefit plans
Land
Capitalized interest of a foreign subsidiary
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
Deferred tax liabilities on surplus on the revaluation of land

FURUKAWA Annual Report 2005

31

(9,825)

2,557(91,822)¥ (3,010)¥(13,466)$ (28,131)

13. Contingent Liabilities
Contingent liabilities as of 31st March, 2005 and 2004 consisted of the following:

Millions of yen

Notes receivable discounted and endorsed
Loans guaranteed

Thousands of
U.S. dollars

2005

2004

2005

¥4,266
2,315¥4,5383,424$39,869
21,636

14. Other Income (Expenses)—Other, Net
Other Income (Expenses)—Other, net for the years ended 31st March, 2005 and 2004 consisted of the following:

Millions of yen

2005
Rental income from real estate
Gain on foreign exchange
Gain on sales of property, plant and equipment
Gain on sales of investments in securities
Gain on sales of hydroelectricity business
Gains from establishment of trust for retirement benefits
Payments for closing mines
Loss on impairment of land resulting from spin off of businesses
Loss on copper smelting business in Australia
Loss on disposal and sales of property, plant and equipment
Other, net¥

Loss on copper smelting business in Australia, which has become dormant in 2004, consisted of Care & Maintenance expense of ¥1,153 million ($10,776 thousand) and consulting fee of¥323 million ($3,019 thousand) for the year ended 31st March,Thousands of
U.S. dollars

2004

2005

196
4,259
1,194
9,097
6,911
—
(741)
—
(53,137)(544)(2,275)$ 1,785766
17,87919,794—
13,869(5,720)(37,486)(13,794)(7,374)(3,047)¥(35,040)$(13,328)

191
82
1,913
2,118
—
1,484
(612)
(4,011)(1,476)
(789)
(326)

¥

¥(1,426)

2005, and impairment loss on fixed assets of ¥41,428 million
and Care & Maintenance expense of ¥11,709 million for the year
ended 31st March, 2004.

FURUKAWA Annual Report 2005

32

15. Consolidated Statements of Cash Flows—Supplementary Information
Summary of assets and liabilities decreased by sales of hydroelectricity business was as follows:
Millions of yen

2004
Current assets
Fixed assets

¥

98
3,007

Current liabilities

16

16. Segment Information
The business of the Furukawa Group is divided into the following six categories: machinery, metals, electronic materials and chemicals,
real estate, fuels and others.
The business segment information of the Furukawa Group for the years ended 31st March, 2005 and 2004 were as follows:Year ended 31st March, 2005

Millions of yen

Machinery

MetalsElectronic
Materials andChemicals

I. Sales and operating income (loss)
Outside customers
Intersegment¥ 62,291
437¥ 35,862
637¥ 17,502
151¥ 3,835
107¥ 26,815
245

Total
Costs and expenses

62,728(59,187)

36,499(35,472)

17,653(15,914)

3,942(2,566)

27,060(27,389)

Operating income (loss)¥ 3,541¥ 1,027¥ 1,739¥ 1,376¥

II. Assets, depreciationand capital expenditures
Total assets
Depreciation
Capital expenditures¥ 64,998
1,173
946¥ 26,850
503
597¥ 29,452802
487¥14,971449
825¥ 7,959
51
55

MetalsElectronic
Materials andChemicals

Real Estate

Real Estate

Fuels

¥

(329) ¥

OthersEliminations andCorporate

Consolidated

932
1,307

¥
—
(2,884)¥ 147,237—

2,239(2,239)(2,884)
2,913

147,237(139,854)

0

¥

29

¥

7,383

¥ 6,68754
84¥53,734(6)—¥ 204,651
3,026
2,994

OthersEliminations andCorporate

Consolidated

Thousands of U.S. dollars

Machinery

Fuels

I. Sales and operating income (loss)
Outside customers
Intersegment$ 582,160 $ 335,159
4,084
5,953

$ 163,570
1,411$ 35,841 $ 250,607 $ 8,710
1,000
2,290
12,215

Total
Costs and expenses

586,244(553,150)

164,981(148,729)

36,841 252,897
20,925(23,981) (255,972) (20,925)

Operating income (loss)$ 33,094 $9,598$ 16,252$ 12,860 $II. Assets, depreciationand capital expenditures
Total assets
Depreciation
Capital expenditures$ 607,458 $ 250,935
10,963
4,701
8,841
5,579

$ 275,252
7,495
4,551

$139,916 $ 74,383 $ 62,495
4,196
477
504
7,710
514
786

341,112(331,514)

FURUKAWA Annual Report 2005

33

(3,075) $0$— $ 1,376,047(26,953)—(26,953)
27,224$271

1,376,047(1,307,047)$

69,000$502,187 $ 1,912,626(56)
28,280—27,981

Year ended 31st March, 2004

Millions of yen

Machinery

MetalsElectronic
Materials andChemicals

I. Sales and operating income (loss)
Outside customers
Intersegment¥ 63,174319¥ 42,188611¥ 13,96698¥ 4,139102¥ 29,163
226

Total
Costs and expenses

63,493(59,189)

42,799(47,845)

14,064(13,008)

4,241(2,522)

29,389(29,606)

Operating income (loss)¥ 4,304¥ (5,046)¥ 1,056¥ 1,719¥

II. Assets, depreciationand capital expenditures
Total assets
Depreciation
Capital expenditures¥ 71,815
1,271
701¥ 31,068
3,660
926¥ 29,219
892
717¥19,757608
502¥ 9,085
43
68

Real Estate

Fuels

Others¥Eliminations andCorporate

883
1,326

¥

2,209
(2,157)(217) ¥

52¥

¥ 4,980
67
82

Consolidated—(2,682)¥ 153,513—(2,682)
2,838

153,513(151,489)

156¥40,326
(8)
—

¥

2,024

¥ 206,250
6,533
2,996

The geographic segment information for the year ended 31st March, 2005 was omitted, because the amounts of operating revenues
and total assets in Japan exceed 90% of consolidated totals.
The geographic segment information for the year ended 31st March, 2004 was as follows:Year ended 31st March, 2004

Millions of yen

I. Sales and operating income (loss)
Outside customers
Inter-area
Total
Costs and expenses
Operating income (loss)
II. Assets
Total assets

Eliminations andCorporate

Japan

Oceania

Other Areas¥ 134,491
3,928
138,419(132,004)¥ 6,415¥ 12,196—
12,196(16,722)¥ (4,526)¥ 6,826239
7,065(7,004)¥61¥—(4,167)(4,167)4,241¥
74¥ 153,513—
153,513(151,489)¥ (2,024)¥ 225,024¥ 11,832¥ 7,917¥(38,523)¥ 206,250“Other areas” consists principally of Europe, Asia and North
America.
Overseas sales, which include exports of the Company and its
domestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, totaled

Consolidated¥18,245 million ($170,514 thousand) and ¥29,157 million or
12.4% and 19.0% of the consolidated net sales for the years
ended 31st March, 2005 and 2004, respectively.

FURUKAWA Annual Report 2005

34

Certified Public Accountants
Hibiya Kokusai Bldg.
2-2-3, Uchisaiwai-cho,
Chiyoda-ku, Tokyo 100-0011
C.P.O. Box 1196, Tokyo 100-8641

Tel:
Fax:

03 3503-1100
03 3503-1197

REPORT OF INDEPENDENT AUDITORSThe Board of Directors
Furukawa Co., Ltd.
We have audited the accompanying consolidated balance sheets of Furukawa Co., Ltd. and consolidated
subsidiaries as of 31st March, 2005 and 2004, and the related consolidated statements of operations,shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Furukawa Co., Ltd. and consolidated subsidiaries as of 31st March, 2005 and2004, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended 31st March, 2005 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3.
29th June, 2005

FURUKAWA Annual Report 2005

35

Principal Subsidiaries and Affiliates
Company Name

Principal Business

Paid-in Capital

Subsidiaries
Furukawa Industrial Machinery Systems Co., Ltd. Sales and manufacture of machinery

JPY 300 million

Furukawa Rock Drill Co., Ltd.

JPY 400 million

Sales and manufacture of rock drills and construction machinery

Furukawa UNIC Corporation

Sales and manufacture of UNIC products

JPY 200 million

Furukawa Metals & Resources Co., Ltd.

Copper smelting

JPY 100 million

Furukawa Denshi Co., Ltd.

Sales and manufacture of electronic materials

JPY 300 million

Furukawa Chemicals Co., Ltd.

Sales and manufacture of chemical products

JPY 300 million

Furukawa Transportation Co., Ltd.

Transportation

JPY 150 million

Otsuka Iron Works, Ltd.

Manufacture of crushers

JPY 140 million

Oita Mining Co., Ltd.

Mining and sales of limestone

JPY 125 million

Ashio Smelting Co., Ltd.

Copper smelting and industrial waste treatment

JPY 100 million

Furukawa Commerce Co., Ltd.

Sales of petroleum and management of gas stations, sales ofindustrial machinery and non–life insurance, and management of
bowling alleys

JPY 95 million

Furukawa Castec Co., Ltd.

Sales and manufacture of castings and industrial machines

JPY 50 million

Heiko Bridge Co., Ltd.

Construction of bridges

JPY 50 million

Tsubame Industrial Community Limited

Manufacture of machine tools and industrial machinery

JPY 40 million

Furukawa Plant Engineering and Construction
Co., Ltd.

Construction and installation of various types of plants

JPY 30 million

Ashio Construction Co., Ltd.

Civil engineering and construction

JPY 30 million

UNIC Kanto Sales Co., Ltd.

Sales of UNIC cranes

JPY 30 million

UNIC Kyushu Sales Co., Ltd.

Sales of UNIC cranes

JPY 30 million

Furukawa Mansion Maintenance Co., Ltd.

Maintenance of apartments

JPY 20 million

UNIC Tohoku Sales Co., Ltd.

Sales of UNIC cranes

JPY 16 million

Ashio Rock Drill Co., Ltd.

Manufacture and repair of rock drills and industrial machinery

JPY 10 million

Iwaki Kosan Co., Ltd.

Administration of real estate

JPY 10 million

Dojima Jitsugyo Co., Ltd.

Maintenance of buildings

JPY 10 million

Wellness Co., Ltd.

Sales of health-care products

JPY 10 million

Port Kembla Copper Pty. Ltd. (Australia)

Copper smelting (Operations currently suspended)

AUD 369.5 million

Furukawa Unic (Thailand) Co., Ltd. (Thailand)

Manufacture of UNIC cranes, parts, and accessories

THB 200 million

Furukawa Rock Drill Europe B.V.
(The Netherlands)

Sales of breakers and crawler drills

EUR 0.9 million

Gougler Industries, Inc. (U.S.A.)

Sales of breakers and crawler drills, production and sales of molds USD 59.5 million

Furukawa Services S.A.S. (France)

Service of construction machinery

Shenyang-Furukawa Rock Drill Co., Ltd. (China)

Manufacture of hydraulic breakers

USD 1 million

Taian Furukawa Machinery Co., Ltd.

Sales of UNIC cranes

USD 2.5 million

Tohpe Corporation

Production of paints

JPY 2,087 million

Iwaki Semiconductors Co., Ltd.

Production of semiconductors, such as gallium arsenate
semiconductors

JPY 60 million

Hibi Kyodo Smelting Co., Ltd.

Copper smelting

JPY 4,700 million

EUR 5 million

Affiliates

FURUKAWA Annual Report 200536

Corporate Data
(As of March 31, 2005)

Company Name: Furukawa Co., Ltd.
Head Office: 6-1, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8370, Japan
TEL: +81-3-3212-6570 FAX: +81-3-3212-6578
Date of Foundation: August 1875
Date of Establishment: April 1918
Number of Shares Authorized: 800,000,000 shares
Number of Shares Outstanding: 404,455,680 shares
Stock Exchange Listing: Tokyo, Osaka
Securities Code Number: 5715
Employees: Consolidated 2,226; Non-consolidated 194
Stock Transfer Agent: The Chuo Mitsui Trust and Banking Company, Limited
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan
Composition of Shareholders:

Other Japanese Companies

Financial Institutions

29.35%

26.71%

Securities Companies

3.17%

34.05%

Foreign Institutions

6.72%
Individuals and Others

URL: http://www.furukawakk.co.jp/e_index

FURUKAWA Annual Report 200537

6-1, Marunouchi 2-chome, Chiyoda-ku,
Tokyo 100-8370, Japan

Printed in Japan on recycled paper