furukawa_arE_pdf 06.10.6 10:21 ページ 2

Today’s Actions,
Tomorrow’s Growth
ANNUAL REPORT 2006
Year ended March 31, 2006

furukawa_arE_pdf 06.10.6 10:21 ページ 3

PROFILE

Furukawa Co., Ltd. was established in 1875, and over its 131-year history has developed adiverse portfolio of businesses in the fields of machinery, metals, electronic materials, chemicals andfuels. Grounded in its management philosophy—Innovation, Creativity, and Harmony—
the Company has moved forward with innovation in its corporate structure and technologicaldevelopment. Furukawa strives to offer appealing products and services to its customers and tocontribute to the creation of a prosperous society that is in harmony with the environment.

Net income increased in fiscal 2006, ended March 31, 2006, with our overall
performance pulled up by increased overseas sales in our rock drills business and by our Metals
Division operating in an environment of high copper prices. We are pleased to declare a dividend forthe first time in five years.

For fiscal 2007 we have identified the theme of “selection and concentration” as we continue ourbusiness restructuring, concentrating our management resources on growth areas, and building aplatform from which to grow further.

Consolidated Financial Highlights

1

To Our Shareholders

2

Feature: The Machinery of Global Expansion

4

Business at a Glance

7

Review of Operations

8

Environmental Protection and Social Contribution Activities

12

Corporate Governance

13

Financial Section

14

Principal Subsidiaries and Affiliates

36

Corporate Data37

FURUKAWA Annual Report 2006

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

furukawa_arE_pdf 06.10.6 10:21 ページ 1

CONSOLIDATED FINANCIAL HIGHLIGHTS
Furukawa Co., Ltd. and consolidated subsidiaries
Years ended 31st March, 2006, 2005 and 2004

Millions of yen

Thousands of
U.S. dollars

Percent change

2006 / 2005

2006

2005

2004

2006

¥ 181,938
12,130¥ 147,237
7,383¥ 153,513
2,024$1,555,026
103,675

9,810
5,309

4,199
2,257

(35,238)(27,634)

83,84645,376

133.6
135.2

¥ 213,046
43,072¥ 204,651
31,335¥ 206,250
28,660$1,820,906
368,1374.1
37.5

For the year:

Net sales
Operating income
Income (loss) before income taxes andminority interests
Net income (loss)

23.6%
64.3

At year-end:

Total assets
Shareholders’ equity

Yen

U.S. dollars

Per share amounts:

Net income (loss):
Basic
DilutedCash dividends

¥

13.12
12.37
3.00

¥

5.57
5.03
—

¥ (84.61)
—
—

$

0.11
0.11
0.03

135.5
145.9
—

Note: U.S. dollar amounts are translated from yen for convenience only at the rate of ¥117=$1.

Net Sales

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

149.4

151.6

153.5

147.2

(4.7)

181.9

Total Assets(Billions of yen)

(1.6)

2.0

7.4

12.1

15

200

278.2

252.9

206.3

204.7

213.0

’02

’03

’04

’05

’06

300

250
10

150

200

100

5

150

100
50

0
50

0
’02

’03

’04

’05

’06

-5

’02

’03

’04

’05

’06

0

Machinery
MetalsElectronic Materials and Chemicals
Real Estate
Fuels and Others

FURUKAWA Annual Report 2006

1

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TO OUR SHAREHOLDERS

Furukawa Co., Ltd. and its consolidated
subsidiaries reported increased revenue andprofit in fiscal 2006, the year ended March 31,
2006. Implementing the spin-off of businessdivisions into independent companies is creating
a flexible management structure with anemphasis on profitability, and this is providing
the engine for tomorrow’s success.

Performance in Fiscal 2006

(April 2007–March 2008) of ¥165,000 million in consolidated net

Consolidated net sales for the fiscal year ended March 31, 2006

sales, ¥10,500 million in operating income, and a reduction ofincreased by 23.6% to ¥181,938 million. In our core business¥30,000 million in interest-bearing liabilities.

Machinery Division, the industrial machinery business continued

Based on the performance in fiscal 2006, we are ahead of ourto face weak demand and intensifying price competition, but

2008 target for consolidated net sales and operating income. Due

income from the rock drills business increased on the strength of

to continuing record-high prices for copper on world markets, thevibrant overseas orders, and the UNIC machinery business also

Metals Division is already exceeding targets for sales and income.

increased its sales on the strength of higher replacement demand for

Furukawa is bolstering the Machinery Division and Electronic

ordinary trucks. Revenues in the Metals Division increased sharply

Materials and Chemicals Division so that they will have theas a result of high copper prices and improved Treatment &strength and the presence to ensure stable income.

Refining Charge (T/C, R/C). Net sales overall in the Electronic
Materials and Chemicals Division have firmed up.

In the area of interest-bearing liabilities (corporate bonds andlong- and short-term debt), Furukawa is implementing its planned

Operating income rose by 64.3% to ¥12,130 million, mainly

reduction steadily. The balance of interest-bearing liabilities as ofon the strength of higher profits in the Machinery Division and the

March 31, 2006 was ¥99,418 million—a reduction of ¥17,433

Metals Division. After posting gains on sales of investments in secu-

million from March 31, 2005 due mainly to bond redemption.

rities, loss on disposal and devaluation of inventories, etc.,
increase of 135.2% over the previous fiscal year. Furukawa is

Continuously Promoting Furukawa’s BusinessRestructuring

pleased to announce that after requesting shareholders’ understand-For several years past, Furukawa has been constructing a platform

ing for four years in which no dividend was declared, it is resuming

to assure stable profitability and is fully conscious of the fact that apayment of a dividend of ¥3 per share.

far-reaching business reorganization is necessary to improve prof-

Furukawa was able to post net income of ¥5,309 million, an

itability. To this end, the industrial machinery business within the2

Overview of the Medium-Term Management Plan

Machinery Division, following the principles of selection and con-Fiscal 2006 was the first year of the Medium-Term Management

centration, is shifting its priorities to highly profitable businesses.

Plan, which runs from April 2005 through March 2008. The most

In practice this means focusing its management resources on envi-

important issues in the Plan are to maximize the value of the overallronmental products such as sewage treatment pumps and process-Group through shifting to an operating holding company systeming equipment, while stone crushers and similar products are trans-

and to further strengthen the Group’s financial position and earn-ferred to Furukawa Otsuka Co., Ltd. Personnel have also been

ings growth. The Plan sets performance targets for fiscal 2008

reduced through reassignment.

FURUKAWA Annual Report 2006

furukawa_arE_pdf 06.10.6 10:21 ページ 3■ Progress of Medium-Term Management Plan (April 2005 to March 2008)
Net Sales by Business Division
Machinery
MetalsElectronic materials and chemicals
Real estate
Fuels and others
Total

Millions of yen

2005

2006

2008 (Target)

2006/2008 (Target)

62,29135,862
17,502
3,835
27,747
147,237

70,32952,662
21,2283,107
34,612
181,938

75,50035,00022,0003,800
28,700165,000

93.2%
150.5%
96.5%
81.7%
120.6%
110.3%

2005

2006

2008 (Target)

2006/2008 (Target)

3,541
1,027
1,739
1,376
(329)
29
7,383

4,244
5,779
1,498
905
(69)
(227)
12,130

4,800
2,000
2,300
1,300
200
(100)
10,50088.4%
289.0%
65.1%
69.6%
–
–
115.5%

Operating Income by Business Division
Machinery
MetalsElectronic materials and chemicals
Real estate
Fuels and others
Eliminations and corporate
Total

Millions of yen

Interest-Bearing Liabilities(Billions of yen)

140.4

124.0

116.9

99.4

88.0

’03

’04

’05

’06

(Target)

150

120

90

60

’08

Note: Interest-bearing liabilities = Long- and short-term debt + Corporate bonds

In addition, Furukawa is improving the groundwater environment at the PKC copper smelter subsidiary in Australia in prepara-commenced operations in September 2005, and sample shipments
and market development are now progressing.

tion for a disposal to minimize our future burdens.

In Conclusion
Taking the Next Steps to Further Growth

Since March 2005 Furukawa has spun off several business divisions

As domestic demand in the rock drill and UNIC machinery busi-

and transformed itself into a group management system. From thatnesses within our Machinery Division is not expected to grow sub-point on, each group company has assumed clear profit-and-loss

stantially, we have strengthened our expansion in overseas markets.

responsibility and reorganized its business structure in accordance

To meet the healthy overseas demand, the rock drill business iswith the priority of profitability. What is more, each group compa-

investing in expanded production capacity with a view to enlarging

ny is implementing speedy and flexible decision-making appropri-

its market share. Together with implementing capital investment at

ate for its own speciality, and we are certain that this will create

its three factories in Sakura (Japan), China and Thailand, theglobally competitive products and services.

UNIC machinery business is bolstering its local sales structure in all

Two years remain of the Furukawa Company Group’s

territories. (For further information on the overseas expansion plans

Medium-Term Management Plan, during which we are laying theof both businesses, please refer to pages 4–6.)

foundation for the next stage of growth.

The Electronic Materials and Chemicals Division is working
on the early introduction of mass-production systems for gallium

We look forward to the continued support and understandingof our shareholders.

nitride (GaN) substrates, which are expected to be used as a source
material for blue laser diodes (LDs).

September 2006

Furthermore, the division is also increasing its production
capacity of sapphire substrates for use in GaN crystalline substrates,
for which the main application is blue and white light-emitting
diodes, to meet increased demand. In fiscal 2007 monthly production capacity will be increased from 5,000 to about 10,000 wafers.
Furukawa also energetically starts new businesses to meet soci-Tetsuo Yoshino,
President and Representative Director

ety’s needs. In April 2006, Furukawa’s joint venture (in Gunma
Prefecture) with Toho Zinc Co., Ltd. commenced operations inprocessing medical waste. In addition, manufacture and sales of acomposite material made from recycled waste lumber and plastic

FURUKAWA Annual Report 20063

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FEATURE

The Machinery of Global Expansion
RussiaEurope■Rock Drills
・Due largely to hydraulicrock breakers, sales are
up 80% compared to
five years ago, and ahigh-profitability
earnings structure is inplace.
・Immediate plans to〈Environmentally conscious,
expand sales of crawler low-noise breaker〉
drills・To expand sales, Furukawa Rock Drill Europe
B.V. (The Netherlands) is relocating to newpremises. The site provides simple assemblyand service and plays a significant role insupporting our sales in Europe.

■Rock Drills
・In addition to breaker and crawler drills, we arevigorously expanding sales of drill jumbos formine developments.
■UNIC Machinery
・UNIC machinery is partly distributed throughsecond-hand channels. We are strengthening oursales activities for new machinery by signaling
the merits of the straight-boom type model crane 〈Drill jumbo for minedevelopments〉
for its light weight and excellent operability.

■UNIC Machinery
・Sales of mini crawler
cranes are growing.
Mini crawler cranes are
extremely valuable inworking in narrow
spaces between
buildings and otherareas where trucks〈Mini crawler crane〉
cannot gain access.
・Strengthened measures planned to expand thename recognition of straight-boom type truckmounted cranes to increase sales

Asia
The Middle East
■Rock Drills
・With an extensive sales agent and service
network now in place, sales in the Middle
East are three times the level of five years
ago.
■UNIC Machinery・With plentiful capital for infrastructure
spending in the Middle East, we are now
promoting the superiority of the straight〈Crawler drill〉
boom type, truck-mounted crane for its lightweight and excellent operability and are
expecting healthy orders.

4

FURUKAWA Annual Report 2006

■Rock Drills
・Total sales in Asia, including China are double the levelof five years ago.
・Korea is a strong market for crawler drills, and our local
subsidiary, Furukawa Rock Drill Korea Co., Ltd., carries
out sales and service.
■UNIC Machinery
・UNIC has high recognition in Thailand, Vietnam andother Southeast Asian nations through the distributionof its used machines. Now we are strengthening oursales activities for new machines.
・A plan is in place for our parts assembly factory,
Furukawa Unic (Thailand) Co., Ltd., to produce andassemble parts for sale in Asia and Oceania, in
addition to parts assembly for Japan.

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In the absence of any signs of a dramatic improvement in domestic demand, the Furukawa Company Group’s
rock drill and UNIC machinery businesses of the Machinery Division are strengthening their overseas sales
activities. With competitive products and an extensive sales and service structure, our target is to become theworld’s leading manufacturer of rock drills and truck-mounted cranes. The markets in which both businesses
operate, their global networks, their sales trends, their strengths and their strategies, are explained below.

The United States■Rock Drills
・Sales are more than double the level of five years ago;
we have established a high profitability earnings
structure.
・Sales, service and simple assembly to be provided bysales subsidiary, Gougler Industries Inc. (USA).
・The next step is to extend network of agents andstrengthen sales.
■UNIC Machinery・With the low penetration oftrucks capable of mounting acrane, our expanded
marketing of the large-truckmodel UNIC truck-mounted
crane has paid off in higher
sales.
・Our next steps are to focus
similar attention on
expanding sales of the smalltruck model UNIC crane.
〈Large-model UNIC
・Further strengthen sales structure crane〉
by expanding the network of sales agents

China■Rock Drills
・Furukawa Rock Drill (Shanghai) Co., Ltd. was established in
February 2006 with the purpose of offering sales, service andsimple assembly. It is in the process of establishing a sales
structure to maximize our potential in this growing market.
■UNIC Machinery・Taian Furukawa Machinery Co., Ltd. is undergoing Phase II of its
factory construction, a parts manufacturing facility. Whencompleted, Taian Furukawa will be able to undertake local
manufacturing in addition to sales.

〈Taian Furukawa Machinery Co., Ltd.〉〈A truck-mounted craneassembled at our China factory〉

FURUKAWA Annual Report 20065

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Expanding the Rock Drill Business Overseas
Sales Trends
Furukawa began exporting rock drill machinery
approximately 40 years ago. Now we export tomore than 100 countries and have attracted
high praise from our customers. In particular,
with our recent objective of achieving earnings
stability from our overseas operations, we havebased our sales initiatives not just on largescale projects, but also on general trade, andwe have worked hard to strengthen our sales
network to this end.
As a result, in the fiscal year ended March
31, 2006 the net overseas sales of the rock drill
business—based on units sold—was twice thevolume of fiscal 2002, and the share of overseas
sales exceeded 60%. In breakers and crawler

drills, close to 90% of our total production, on a
manufactured units base, is sold overseas.

Furukawa’s Strengths
With a worldwide agency network of morethan 200 companies, Furukawa rock drills
enjoy high brand recognition both domesticallyand internationally. We are especially proud of
our technical strengths, through which we canmeet customers’ particular specifications in
any territory.

capital investment. Together with the further
strengthening of our sales and service centers, weare developing our human resources to equipthem properly for our global expansion. We
are targeting an increase in our share of themarket for hydraulic breakers and crawler
drills from 30% in fiscal 2006 to 40% within thenext few years. And in tunnel jumbo drills,
where we have an overwhelming share of theJapanese market, we also aim to be No. 1 in
Asia.

Strategies and Objectives
Responding to vigorous demand, we are
installing new factory equipment and renewing machinery, and over the next three years
we are implementing our largest-ever program ofExpanding the UNIC Machinery Business Overseas
Market Trends
Truck-mounted cranes can be broadly divided
into two types. One is the swing-boom type,which folds and bends the crane boom in the
middle and has an attachment at the end that isused to grab the load. The other is the typethat has come to represent our UNIC cranes, thestraight-boom type crane, in which the boom
can be extended and a wire rope lowers a hookthat attaches to the load. Of the swing-boom
type, some 40,000 units are produced worldwide
every year; while for the straight-boom typecrane, annual worldwide production isapproximately 20,000 units.
The advantages of the straight-boom type
are that because the load is suspended fromthe hook, no additional weight is incurredfrom the side, and therefore the crane can belighter and the costs lower. Because the rope isinterposed, the movement is smooth and precise,
and when lowering the load the drop spot can beeasily indicated.

6

FURUKAWA Annual Report 2006

In Japan and Taiwan, straight-boom typecranes account for 97% of all cranes manufactured and in service, whereas in Europe, theMiddle East and South America, almost all
cranes are swing-boom type. Straight-boom
type cranes comprise 50% of the United Statesmarket and about one-third of the market inboth Australia and Southeast Asia.

Furukawa’s Strengths
Operating a crane safely and efficiently
requires a high degree of skill. The special featureof UNIC crane machinery, however, is thatcomplex operations can be performed by asimple lever action. With Furukawa’s original
radio-controlled operation fitted as an option,
just a click allows complex movements to besmoothly executed. UNIC cranes are also fittedwith excess load warnings and anti-tilt measures, offering a high degree of safety, while
their energy-saving and low-noise operation
addresses environmental concerns.

All core parts are designed and manufactured in-house, and with so much of our manufacturing carried out within the company, we
continuously develop the technological strengths that lead to highly distinctive products.

Strategies and Objectives
We have a contribution to make to society
throughout the world with UNIC crane’s efficient, energy-saving operations. As we cultivate the market in the BRICs (Brazil, Russia,
India, China) and other newly industrializing
countries, we are also challenging the preference for the swing-boom type crane in Europe
and America. Our objective is to increase ourshare of the global market and to raise theoverseas share of net sales from 11% in fiscal
2006 to 30% in fiscal 2009. To this end, we are
implementing a capital investment program at
our factories at Sakura (Chiba, Japan),Thailand and China (Taian).

furukawa_arE_pdf 06.10.6 10:21 ページ 7

BUSINESS AT A GLANCE

Fuels and Others

Real EstateElectronic Materials
and Chemicals

Metals

Machinery% of Net Sales

38 .7 %

28 .9 %

11 .7 %

1 .7 %

Businesses

Core Business Company

Main Products

Industrial
Machinery

Furukawa Industrial
Machinery Systems
Co., Ltd.

Pumps, environmental treatment
facilities, plants, multistory parking
systems, steel bridges, stone
crushers and semiconductor
production equipment

Rock Drills(Construction& Mining
Machinery)

Furukawa Rock Drill
Co., Ltd.

Rock drills (hydraulic rock breakers,
hydraulic crawler drills, tunnel drill
jumbos, etc.) and environmental
machinery

UNIC
Machinery

Furukawa UNIC
Corporation

Truck-mounted cranes (UNIC cranes,
UNICPAL, UNIC carriers and mini
crawler cranes, etc.)

MetalsFurukawa Metals &Resources Co., Ltd.

Copper, gold, silver and sulfuric acid

Electronic
Materials

Furukawa Denshi
Co., Ltd.

High-purity metallic arsenic, aluminum
nitride ceramics, core coil for line
filters and laser-use lenses, andoptical parts

Chemicals

Furukawa Chemicals
Co., Ltd.

Cuprous oxide, sulfuric acid,aluminum sulfate, sapphire substrates
and titanium dioxide

Real Estate

Furukawa Co., Ltd.

Construction/sales, mediation/brokerage and other related services
for office buildings and apartments

Fuels

Furukawa Co., Ltd.

Petroleum, petroleum-related
products, LPG, coke, aggregate

OthersFurukawa Co., Ltd.

Transportation service by trucks anddomestic shipping

19 .0 %FURUKAWA Annual Report 2006

7

furukawa_arE_pdf 06.10.6 10:21 ページ 8

Machinery
Net Sales(Billions of yen)

63.8

59.7

63.2

62.3

70.3

80
60
40
20
0

’02

’03

’04

’05

’06

Yasuji Tomiyama

Yoichiro Kato

Shin Nakamura

President and Representative
Director
Furukawa Industrial
Machinery Systems Co., Ltd.

President and Representative
Director
Furukawa Rock Drill Co., Ltd.

President and Representative
Director
Furukawa UNIC Corporation

In fiscal 2006, ended March 31, 2006, the Machinery Division recorded an increase of
12.9% in sales over the previous fiscal year, reaching ¥70,329 million. Operating
income increased by 19.9% over the corresponding period, and stood at ¥4,244 million.
The operating margin improved by 0.3 percentage point to reach 6.0%.

Operating Income (Loss)

Facing a slump in domestic demand and intensifying price competition, the industrial machinery business is(Billions of yen)

(1.5)

1.4

4.3

3.5

4.2

facing difficult circumstances, exacerbated by the influence of an administrative order to suspend business on

6

public works for a fixed period due to an infringement of the Antitrust Act. Given these circumstances, the4Group has been concentrating its management resources on environmental machinery such as water and sewage

2

treatment pumps and has concentrated the stone crushing and similar businesses into Furukawa Otsuka Co.,
Ltd. The merged company has been reorganized with a view to building a reliable business base.

0-2

In the construction and mining machinery (rock drills) business, domestic demand continues at low lev’02

’03

’04

’05

’06

els, with a decline in sales for tunnel drill jumbos. Strengthened efforts in breakers, crushers and crawler drills
resulted in higher sales, while sales in overseas markets improved across all product lines. There was strong
growth in sales of crawler drills and breakers in the United States and the Middle East. Europe also saw increased

Operating Margin

sales of crawler drills. Due to an economic slowdown, sales of crawler drills were depressed in South

(%)

(2.3)

2.3

6.8

5.7

6.0

Korea, but held steady in other markets in Asia and Oceania.
In the UNIC machinery business, domestic sales increased on the back of greater demand for ordinary

9

trucks as stricter regulation of exhaust emissions led to increased replacement orders. However, this was a tran6

sient demand and it is expected to subside in fiscal 2007. Anticipating the decline, Furukawa has stressed devel-3

opment of overseas markets. This led to0increased exports to the U.S., Europe-3and Southeast Asia, resulting in an
’02

’03

’04

’05

’06

increase in overseas sales of UNIC
machinery to 10.9%.
Hydraulic breaker

8

FURUKAWA Annual Report 2006

Slurry pump for tunnel shield
construction

furukawa_arE_pdf 06.10.6 10:21 ページ 9

MetalsNet Sales(Billions of yen)

48.2

49.9

42.2

35.9

52.7

60

Yoshihito Emoto
President and Representative
Director
Furukawa Metals & Resources
Co., Ltd.

45
30
15
0

’02

’03

’04

’05

’06

Net sales in the Metals Division in the fiscal year under review increased by 46.8% overthe previous fiscal year, reaching ¥52,662 million. Operating income increased by a staggering 462.7% to stand at ¥5,779 million, while the operating margin improved by 8.1
percentage points to reach 11.0%.

Operating Income (Loss)

Electrolyte copper prices continued to rise on overseas markets throughout fiscal 2006 due to(Billions of yen)

(5.3)

(6.0)

(5.0)

1.0

5.8

expanding demand from China as well as an influx of capital from investment funds, while in6

Japan the average quotation for the fiscal year was ¥510,000 per ton, a large increase of ¥140,000 per

3

ton from the previous fiscal year. With increased output from large-scale mines, some idle mines restart-0

ing operations, and delays in planned increases by somesmelters, copper ore continues to be in plentiful supply.

-3-6

The sharp increases in the price of copper have greatly
’02

’03

’04

’05

’06

improved Treatment & Refining Charge (T/C, R/C), andtrends toward a weaker yen on currency markets have contributed to a substantial increase in operating income.

Operating Margin

Copper and gold mine, Batu Hijau Mine
(Indonesia) in which Furukawa Co., Ltd.
invests(%)(11.0)(12.0)(12.0)

2.9

11.0

’02

’03

’04

’05

’06

12
8
4
0
-4
-8
-12

Onahama Smelting & Refining Co., Ltd. inwhich Furukawa Metals & Resources
Co., Ltd. has capital participation

Hibi Kyodo Smelting Co., Ltd. in which
Furukawa Metals & Resources Co., Ltd.
has capital participation

FURUKAWA Annual Report 2006

9

furukawa_arE_pdf 06.10.6 10:21 ページ 10Electronic Materials and Chemicals
Net Sales(Billions of yen)

12.2

14.5

14.0

17.5

21.2

25
20
15
10

Yasuhei Konagaya

Nobuyoshi Soma

President and Representative
Director
Furukawa Denshi Co., Ltd.

President and Representative
Director
Furukawa Chemicals Co., Ltd.

5
0

’02

’03

’04

’05

’06

Operating Income (Loss)

Shipments of high-purity metallic arsenic were low due to decreased demand for gallium arsenate semi-(Billions of yen)

0.4

1.3

1.1

1.7

The Electronic Materials and Chemicals Division’s net sales in fiscal 2006 increased
21.3% over the previous fiscal year to ¥21,228 million. Operating income fell 13.9% to¥1,498 million. The operating margin declined 2.8 percentage points to 7.1%.

1.5

conductors, which is the main use for the material. Gallium arsenate semiconductors, in turn, are usedin DVD laser diodes and communications devices for third-generation mobile phones. Although there

2.0

is strong demand for these products, product miniaturization and improvements in extraction have
1.5

resulted in lower shipment volumes of high-purity metallic arsenic. Meanwhile, we increased the price1.0

of high-purity metallic arsenic from April 2006. Consignment sales of electrolytic aluminum capaci-

0.5

tor foil and shipments of healing jewelry containing geranium increased sharply. Shipments of sapphire0

substrates for use in blue and white LEDs also grew as a result of the phased introduction of mass pro’02

’03

’04

’05

’06

duction capacity.
Revenues from the sale of cuprous oxide, which is used in hull coatings, rose sharply due to theincrease in the price of copper. Increased shipments to government and municipal authorities of poly-

Operating Margin

meric ferric sulfate solution used as a coagulant in processing sewage have been a source of revenue.

(%)

Titanium
3.0

9.1

7.6

9.9

7.1

10

oxide

produced

lower revenues, however, on
fewer shipments to paint and8

ink manufacturers, who are its

6main users.

4
2
0

’02

’03

’04

’05

’06

High-purity metallic arsenic

10

FURUKAWA Annual Report 2006

Sapphire substrates

furukawa_arE_pdf 06.10.6 10:21 ページ 11

Real Estate
Because of the sale of Furukawa’s central Tokyo office building inMarch 2005, net sales in the Real Estate Division in fiscal
2006 fell by 19.0% over the previous fiscal year to ¥3,107 million.
Operating income declined by 34.2% to ¥905 million, and theoperating margin fell by 6.8 percentage points to 29.1%.
A recovery of tenant demand in the division’s core office-building
market was seen, but this has yet to be reflected in rent levels. The
division responded to these conditions with strengthened efforts toacquire new tenants, to reduce vacancy rates and to cut operating
expenses.
Net Sales

Operating Income

Operating Margin(Billions of yen)(Billions of yen)

(%)

4.6

4.4

4.1

3.8

1.9

3.1

1.9

1.7

1.4

0.9

4

41.1

43.8

41.5

35.9

29.1

’02

’03

’04

’05

’06

50

2.0

5

40

1.5

30

3
1.0

20

2
0.5

1
0

’02

’03

’04

’05

’06

10

0

’02

’03

’04

’05

’06

0

Fuels and Others
Net sales in the Fuels and Others Divisions increased by 24.7% in fiscal 2006 to reach ¥34,612 million.
Operating loss narrowed from ¥329 million to ¥69 million, while the operating margin improved
slightly from negative 1.2% to negative 0.2%.
The division has been facing record-high oil prices. These initially peaked in August 2005 and subsequently weakened, before
soaring again at the start of 2006. The division has responded to these circumstances by balancing price and reliability of supply. The “others” category, of which the main component is the transportation business, experienced a widening of its operating loss due to the start of production of a wood-composite business.

Net Sales

Operating Income (Loss)

Operating Margin(Billions of yen)(Billions of yen)

(%)

20.6

23.0

30.0

27.7

(0.2)

34.6

(0.2)

(0.2)

(0.3)

(0.1)

(0.8)

(0.6)

(1.2)

(0.2)

’02

’03

’04

’05

’06

0

0

35
28

(0.9)

-0.1
-0.5

21
-0.2
14

-1.0
-0.3

7
0

’02

’03

’04

’05

’06

-0.4

’02

’03

’04

’05

’06

-1.5

FURUKAWA Annual Report 200611

furukawa_arE_pdf 06.10.6 10:21 ページ 12

ENVIRONMENTAL PROTECTION AND SOCIAL CONTRIBUTION ACTIVITIESThe protection of the environment is one of the most important management issues at the Furukawa Company Group.
Our fundamental policy is that each employee should strive in all corporate activities to perform in harmony withthe 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.
Environmental Management

Environment-Friendly Products■Environmental management system
The senior decision-making body for environmental protection
activities is the Central Committee for Environmental Management,
in which everyone from the president down participates. The
Environmental Management Subcommittee studies, proposes,
directs and monitors environmental protection activities.
The companies of the Furukawa Company Group have eachestablished their own Environmental Management Committees,chaired by their own top management, which formulates environmental protection plans and directs environmental protection
programs.
For the purposes of sharing information and resolving issues
quickly, the committee of environmental protection supervisors
meets every year, bringing together the people who directly guideand manage environmental and safety initiatives in each group company, to analyze and share information on the initiatives each company may undertake and the problems they may face.

The Furukawa Company Group is vigorously developing environmentally related products that contribute to the realization of anenvironmentally conscious society. Among these is a composite
material made from recycled waste lumber and plastic, for which
production commenced in September 2005 and which is now on
sale. A feature of the lumber is that it does not contain polyvinyl
chloride resin, so it emits no toxic gas when burned. In addition, it
is water-resistant, has excellent sound insulation properties, and isfinished with an ant repellant.
Another environment-friendly product is the pneumatic micropowder-producing equipment “Dream Mill” that allows for a more
efficient use of raw materials andalso contributes to a reduction ofindustrial waste. With its highbacterial kill-rate, the “Dream
Mill” assures the highest levels ofsafety for food ingredients.

■ISO14001 certification
By March 31, 2005 the Furukawa Company Group’s principal business sites had obtained ISO14001 certification. Internal and external
audits are now being conducted in order to effect continuous
improvement in environmental protection activities.

Environmental Protection Activities
Taking fiscal 2004, the year ended March 31, 2004, as its base year,
the Furukawa Company Group has set targets for the reduction ofnatural resources and energy consumption by fiscal 2009.
Percentage of fiscal 2006 target achieved and fiscal 2009 targets areshown below.

12

Pneumatic micro-powder-producing
equipment “Dream Mill” (DM-150S)

Social Contributions
The bedrock of Furukawa’s social contribution activities as a good
corporate citizen is the “spirit of harmony,” which is one of its management philosophies. The Furukawa Company Group seeks tomaintain good relationships and to live in harmony with local communities through stewardship and maintenance of forests owned by
Furukawa, afforestation programs, beach cleanup operations, preservation of the “Nikko-Suginamiki” (Avenue of Cedars in Nikko),receiving factory visits, arranging blood donor drives, and loaning its
land for free to local environmental associations.

Category

Fiscal 2009 (target)

Percentage of fiscal 2006
target achieved

Electricity
Heavy oil
Natural gas
Water
Total discharge ofindustrial waste, etc.

40% reduction of fiscal 2004 consumption
25% reduction of fiscal 2004 consumption
10% reduction of fiscal 2004 consumption
25% reduction of fiscal 2004 consumption

96.9％
186.8％
83.6％
114.3％

35% reduction of fiscal 2004 consumption

89.0％

FURUKAWA Annual Report 2006

furukawa_arE_pdf 06.10.6 10:21 ページ 13

CORPORATE GOVERNANCE

The basic policy of the Furukawa Company Group is to contribute to society, our shareholders and other stakeholders
by building an efficient management structure that will yield stable profits and increased corporate value throughgreater management transparency and continuous innovation in our corporate structure. This policy led to the March
2005 spin-off of six businesses in three divisions and the concomitant shift to a holding company system.

System of Corporate GovernanceTo clearly separate management oversight functions from executivefunctions, accelerate decision-making and clarify responsibilities, theFurukawa Company Group has adopted an executive officer system.
Representative directors at six companies that conduct the Group’s
core businesses have become executive officers in the interest of promoting an agile management structure.
The Board of Directors (regular meetings held once per monthand extraordinary meetings held when required) has a membershipof nine, of whom one is an external director, with the Board overseeing the execution of the Furukawa Company Group’s operations.
The Management Council (weekly meetings held, in principle) sets
the Furukawa Company Group’s fundamental management policies
and strategies and makes decisions on important matters.
There is also a Management Committee, which meets monthly
to discuss the operations of Furukawa and its core subsidiaries, andprovides direction. Decisions made by the Management Council
that involve the allocation of funds or other important management
issues must be approved by a resolution of the Board of Directors.
The Furukawa Company Group uses an auditor system, with a

Board of Auditors composed of two statutory auditors and two outside auditors. Auditors attend meetings of the Board of Directors,
Management Council, Management Committee, and other important management meetings, and audit business sites and subsidiaries,
as well as monitor the performance of duties carried out by directors.
The audit function is further reinforced by the Audit Office, which
audits the Furukawa Company Group’s system of internal controls.

Compliance
Taking the view that compliance is not just abiding by laws and regulations, but that companies also have the obligation to act responsibly and to address social and ethical considerations directly, theFurukawa Company Group has drawn up a charter to point the way
for all Group employees and thoroughly raise the awareness andpractice of compliance. The charter sets employees’ duties in accordance with criteria for all of the actions of employees and directors.
Furukawa conducts stringent risk assessment and analysis of its
business operations and implements preventive and damage-control
measures. The Risk Management & Compliance Committee establishes fundamental policies on hazard control and systems improvement.

■Corporate Governance Organization Chart

Shareholders’ Meeting
Appoints/recalls

Independent
Auditors
Reports

Appoints/recalls/oversees
Reports

Appoints/recalls

Reports

AuditsBoard of Directors
9 members(8 internal, 1 external)

Reports

Risk Management& Compliance
Committee

Approves appointments/recalls

Appoints/recalls

Auditsoversees

Reports
Directs

Reports

Management
Committee

Board of Auditors
4 members(2 statutory, 2 external)

Reports

President
Directs/
oversees Directs/

Appoints/recallsManagement
Council

Executive Officers(17 members)

Reports
AuditsAudit Office
AuditsAuditsAuditsAuditsAll Divisions and Group Companies

FURUKAWA Annual Report 2006

13

FINANCIAL SECTION

Consolidated Five-year Financial Summary
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st MarchMillions of yen

2006

2005

2004

2003

2002

For the year:
Net sales
Cost of sales
Selling, general and administrative expenses
Operating income (loss)
Income (loss) before income taxes and minority interests
Net income (loss)
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Capital expenditures
Depreciation and amortization¥181,938
153,281
16,527
12,130
9,810
5,309
8,254
(336)
(18,086)
1,777
2,595

¥ 147,237
124,586
15,268
7,383
4,199
2,257
7,698
7,620
(8,227)
2,994
3,026

¥ 153,513
135,872
15,6172,024(35,238)(27,634)(3,083)25,602(14,962)
2,995
6,533

¥ 151,630
136,509
16,712(1,591)(22,032)(17,000)(2,153)(4,538)
1,108
5,814
6,261

¥ 149,436
135,405(18,709)(4,678)(27,962)(18,696)
4,269(7,967)(12,191)
7,870
5,782

At year-end:
Total assets
Current assets
Current liabilities
Shareholders’ equity¥213,046
89,05588,22043,072¥ 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¥ (67.88)
—
—
134

¥

Yen

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

¥

13.12
12.37
3.00
107

¥

5.57
5.03
—
77

¥ (84.61)——
71(74.56)——
199

Percent

Financial indicators:
Operating margin
Return on sales
Equity ratio
Return on equity

6.7%
2.9
20.2
14.3

1.3%
(18.0)
13.9(88.7)

Operating Income (Loss)/
Operating Margin

Net Sales(Billions of yen)

181.9

180

149.4

5.0%
1.5
15.3
7.5

151.6

(1.0)%(11.2)
13.3(40.7)Net Income (Loss)/
Return on Sales(Billions of yen)(%)(Billions of yen)

15

15

10

147.2

10
5.3

12.1

10
7.4

2.3
1.5

5

10

0

0

5

-10

-10
(12.5) (11.2)

2.0
1.3

(17.0)
45

0

(1.0)
(3.1)

14

’03

’04

FURUKAWA Annual Report 2006

’05

’06

-5

2.9

6.7

5.0

90

’02

(%)

153.5

135

0

(3.1)%(12.5)
17.9(33.6)

0

-20

-5

-30

(18.0)-20(18.7)

(1.6)
(4.7)

’02

’03

’04

’05

’06

(27.6)
’02

’03

’04

-30
’05

’06

Financial Review

Revenue and Expenses¥1,009 million, loss on disposal and devaluation of inventories ofConsolidated net sales in the fiscal year ended March 31, 2006

¥568 million, loss on reorganization of local businesses of ¥536

totaled ¥181,938 million, an increase of 23.6% compared withmillion and loss on copper smelting business in Australia of ¥464

the previous fiscal year. Within this total, net sales in the Metals

million. (For details please refer to Note 15 of Notes to Consoli-

Division increased by 46.8% on the strength of high copper

dated Financial Statements.)
Accounting for the above factors, income before income taxes

prices; and in the Machinery Division, higher sales overseas in
the rock drill business and domestically in the UNIC machineryand minority interests increased by 133.6% compared to the pre-business accounted for an increase of 12.9%. Net sales in the Fu-

vious fiscal year, reaching ¥9,810 million. After income taxes andels Division rose by 25.3% over the previous fiscal year due tominority interests, Furukawa reported a rise in net income ofthe high price of oil. The cost of sales increased by 23.0% over

135.2% to ¥5,309 million. Accordingly, Furukawa is pleased tothe previous fiscal year to ¥153,281 million, but the cost of sales

declare the payment of its first dividend in 5 years, at a rate of ¥3

margin fell by 0.4 percentage points and now stands at 84.2%. A

per share.

primary cause of the improved cost of sales margin was the substantial improvement in profits on smelting operations in the

Financial Position

Metals Division. Selling, general and administrative expenses

Furukawa pursues financial policies that are intended to accom-amounted to ¥16,527 million, an increase of 8.2% comparedplish the goals of maintaining liquidity at suitable levels, securingwith the previous fiscal year, primarily due to forward charges on

the funds needed for business activities, and preserving thefreight and increased allowance for salaries and bonuses. Operat-soundness of its balance sheet.

ing income jumped 64.3% to reach ¥12,130 million. This is due

Total assets as of the fiscal year ended March 31, 2006 stoodin large part to higher operating income in the Metals Division,at ¥213,046 million, an increase of 4.1% compared with the pre-which grew by 462.7% on the strength of improved Treatment

vious fiscal year-end. Current assets declined by 3.4% to ¥89,055& Refining Charge (T/C, R/C) for copper.

million due a reduction in cash and cash equivalents resulting

Under other income and expenses, interest and dividend in-from bond redemption. Inventory increased, however, particu-

come of ¥490 million was posted, while under other expenses,

larly of metals. Fixed assets grew by 10.3 % and totaled

interest expense of ¥2,267 million was recognized. Other princi-¥123,991 million. Total investments compared with the previous

pal items include gain on sales of investments in securities offiscal year-end grew by 28.5% to ¥50,444 million due to an in-

Net Income (Loss) per ShareTotal Assets

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

30

400

80

13.12
5.57
0

300

60

278.2
252.9

49.8
206.3

-30

204.7

43.1

213.0

200

40
33.7

31.3
28.7

-60

100

20

(67.88)(74.56)-90(84.61)
’02

’03

’04

’05

’06

0

’02

’03

’04

’05

’06

0

’02

’03

’04

’05

’06

FURUKAWA Annual Report 200615

crease in the value of investment securities, reflecting an increasecluding investments in intangible fixed assets) amounted toin unrealized gains. Property, plant and equipment were largely¥1,777 million. Of this total, ¥516 million was allocated to theunchanged from the previous fiscal year-end at ¥73,547 million.

Machinery Division, ¥182 million to the Metals Division, andCurrent liabilities contracted by 15.5% to ¥88,220 million¥513 million to the Electronic Materials and Chemicals Divi-owing to a decrease in the current portion of long-term debt andsion, all for improvements in manufacturing efficiency. In addi-

short-term loans. Long-term liabilities increased by 17.6% withtion, ¥73 million was allocated to the Real Estate Division for

additional long-term borrowing and stood at ¥89,896 million. As

maintenance on leased buildings and ¥389 million to the Fuels

a result, the fiscal year-end balance of interest-bearing liabilities

and Others Division for the purchase of vehicles for use in the(corporate bonds and debt) was reduced by ¥17,433 million totransportation business.

¥99,418 million.

Cash Flows

Shareholders’ equity at fiscal year-end was 37.5% higher thanat the end of the previous fiscal year and stood at ¥43,072 mil-Net cash provided by operating activities during the fiscal year

lion. This was attributed to an increase in the net unrealized

under review totaled ¥8,254 million, chiefly as a result of the in-holding gain on securities and in retained earnings. The share-crease in income before income taxes and minority interests.

holders’ equity ratio climbed 4.9 percentage points to 20.2%.

Net cash used in investing activities amounted to ¥336 million due to the disposal of fixed assets.

R&D and Capital Expenditures

Net cash used in financing activities totaled ¥18,086 million

In response to rapid changes in the social and economic environ-due largely to the redemption of corporate bonds. As a result,ment, the Furukawa Company Group is engaged in research andcash and cash equivalents at the end of the fiscal year were down

development of a wide range of new materials and high-value-

37.1% to ¥16,743 million.

added products to meet the needs of the market. Research anddevelopment expenses for the fiscal year under review were
¥1,859 million, representing 1.0 % of consolidated net sales. Of
this, ¥974 million was allocated to the Machinery Division, ¥14
million to the Metals Division, and ¥885 million to the Electronic Materials and Chemicals Division. Capital investment (in-Capital Expenditures/
Depreciation and Amortization

Return on Equity(%)

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

20

14.3
7.5

-10

30
12

25.6

15

9
7.9

7.77.6

8.3

4.3

-40

6.5

6.3

(33.6)
6(40.7)

5.8

1.1

0

5.8

(0.3)

(2.2)
(3.1)
(4.5)
(8.2)

(8.0)

-70

3.0

3

3.0 3.0
2.6-15(12.2)(15.0)

1.8(18.1)Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities(88.7)
-100

16

’02

’03

’04

FURUKAWA Annual Report 2006

’05

’06

0

’02

’03

’04

’05

’06

-30

’02

’03

’04

’05

’06

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

Accrued Employees’ Retirement Benefits

Operations at Port Kembla Copper Pty. Ltd. (PKC) were halted

unfunded employee retirement benefit plans and non-contribu-

in August 2003. In the ensuing period, the company has been

tory funded employee pension plans as defined-benefit plans. Ac-

placed in a care and maintenance status with efforts made to

crued employees’ retirement benefits are provided at an amountidentify a potential investor for ultimate sale. While estimatedcalculated based on the retirement benefit obligation and the fairlosses relating to the suspension of operations have been brought

value of pension plan assets at the balance sheet date. In calculat-

to account, potential risks that may impact the Furukawa Com-ing accrued employees’ retirement benefits, the Furukawa Com-pany Group’s operating results and financial position includepany Group adopts assumptions in connection with the discountcosts in connection with negotiations regarding the possible salerate and expected rate of return on plan assets, as well as on otherof PKC and costs in connection with cleanup activities at plants,

assumptions. Accordingly, the Furukawa Company Group’s op-

sites and other areas, subject to discussion with local authorities.

erating results and financial position are at risk in the event the

The employees of the Furukawa Company Group are covered byactual discount rate and expected rate of return on plan assets

Fluctuations in the Foreign Exchange and Metals
Markets

differs materially from the assumptions, as well as in the event of

The Furukawa Company Group is at risk of foreign exchangement benefits are made.

a change in the assumptions on which accrued employees’ retire-

fluctuations in connection with its export business, the import of
raw materials, primarily copper ore, and smelting and processing

Earthquake and Natural Disasters

income. In addition, the Furukawa Company Group’s stock of

The Furukawa Company Group’s operating results and financial

nonferrous metal inventories, an internationally traded commod-

position are at risk in the event of a suspension in operations andity, is subject to market movements. While the Furukawa Com-

delays in shipments due to damage to manufacturing bases andpany Group utilizes foreign exchange contracts as a hedge against

facilities from earthquakes and other natural disasters.

the aforementioned risks, its operating results and financial position may be adversely impacted by movements in exchange rates

Environmental Protection

and nonferrous metal markets.

The Furukawa Company Group places the highest importanceon environmental protection, environmental safety, and preven-

Investments in Securities and Landtion of pollution, and has implemented stringent measures in all

Historically, the Furukawa Company Group has maintained rela-business sites, both in Japan and overseas, respecting all laws andtively high balances of marketable securities and land. In recent

regulations. Furthermore, in Japan the Group is vigilant in con-years, however, the Group has worked to streamline assets andtrolling mine pollution by preventing water run-off from idle

has sold a portion of its marketable securities and idle assets. As

mines from contaminating water supplies, and by maintainingof March 31, 2006 the carrying value of investments in securities

tight security at metals deposition sites. However, in the event ofwas ¥32,775 million, while land stood at ¥46,571 million. In the

new legislation or similar directives, there is a possibility that the

fiscal year under review, a loss on impairment of fixed assets ofGroup’s operating results and its financial position could be in-¥302 million was recognized. The Furukawa Company Group’s

fluenced.

operating results and financial position are therefore at risk of
impairment losses, losses from devaluation and losses on sale due
to movements in stock and land prices.

FURUKAWA Annual Report 200617

Consolidated Balance Sheets
Furukawa Co., Ltd. and consolidated subsidiaries
31st March, 2006 and 2005

Thousands of
U.S. dollars (Note 4)

Millions of yen

ASSETS

2006

2005

2006

¥ 16,743¥ 26,608$ 143,103

33,07831,733282,718

Current Assets:
Cash and cash equivalents (Note 7)
Receivables, trade (Note 7):
Notes and accounts
Affiliates
Inventories (Notes 5 and 7)
Deferred income taxes (Note 13)

1,348

1,596

11,521

28,34923,338242,299

936

1,439

8,000

Other current assets (Note 7)

9,361

7,871

80,009Allowance for doubtful accounts

(760)

(388)

(6,496)89,05592,197761,154

Total current assets

Investments:
Investments in securities (Notes 6 and 7)

38,46027,301

328,718

Investments in affiliates

1,852

1,676

15,829Loans receivable

1,411

2,192

12,060

61

169

521

Other investments (Note 8)

Deferred income taxes (Note 13)

9,651

9,926

82,487

Allowance for doubtful accounts(991)(2,007)(8,470)50,444

39,257431,145

Land and timberlands

48,42549,128413,889

Buildings and structures

38,76337,381

331,308

Machinery and equipment

45,82644,297

391,675

Construction in progress

587

402

5,017

133,601

131,208

1,141,889(60,054)(58,011)(513,282)

73,54773,197

628,607¥213,046¥ 204,651$ 1,820,906

Total investments

Property, Plant and Equipment—at Cost (Notes 7 and 8):

Accumulated depreciation
Property, plant and equipment, net

Total assets

18

FURUKAWA Annual Report 2006

Thousands of
U.S. dollars (Note 4)

Millions of yen

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITY

2006

2005

2006

¥ 17,713¥ 22,415$ 151,393

21,51044,192

183,846

29,93825,725

255,8804534Accrued expenses

11,0698,001

94,607

Accrued income taxes (Note 13)

4,291

482

36,675Current Liabilities:
Short-term loans (Note 7)
Current portion of long-term debt (Note 7)
Payables, trade:
Notes and accounts (Note 7)
Affiliates

Deferred income taxes (Note 13)

2

29

17

Other current liabilities (Note 7)

3,693

3,590

31,56588,220104,439754,017

Total current liabilities
Long-term Liabilities:
Long-term debt (Note 7)

60,19550,244514,487

Accrued employees’ retirement benefits (Note 12)

1,219

1,187

10,419Deferred income taxes (Note 13)

14,72911,404

125,889

Deferred income taxes on surplus on the revaluation of land (Note 13)

3,184

3,010

27,214

Other long-term liabilities (Note 7)

10,56910,58290,33389,89676,427768,342(8,142)(7,550)(69,590)

28,20828,208241,094———

Retained earnings (deficit)

2,634(2,871)

22,513

Surplus on the revaluation of land, net of income taxes

3,871

4,387

33,086

Net unrealized holding gain on securities, net of income taxes

8,412

2,026

71,897

(37)

(404)

(316)

43,08831,346368,274

(16)

(11)

(137)

43,072

31,335368,137¥213,046¥ 204,651$ 1,820,906

Total long-term liabilities
Minority Interests in Consolidated Subsidiaries
Contingent Liabilities (Note 14)
Shareholders’ Equity:
Common stock without par value:
Authorized—800,000,000 shares
Issued—404,455,680 shares
Capital surplus

Translation adjustments
Treasury stock, at cost
2005—127,084 shares
2006—147,830 shares
Total shareholders’ equity
Total liabilities, minority interests and shareholders’ equity
The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 2006

19

Consolidated Statements of Income
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2006 and 2005

Thousands of
U.S. dollars (Note 4)

Millions of yen

2006

2005

2006

Net Sales¥ 181,938¥ 147,237$ 1,555,026

Cost of Sales (Note 9)(153,281)(124,586)(1,310,094)

Gross profit

28,65722,651

244,932(16,527)(15,268)(141,257)

12,1307,383

103,675

Interest and dividend income

490

464

4,188

Equity in earnings of affiliates

191

69

1,633

(2,267)(2,291)(19,376)(734)(1,426)(6,274)

9,810

4,199

83,846

Selling, General and Administrative Expenses (Note 9)
Operating income
Other Income (Expenses):

Interest expense
Other, net (Note 15)
Income before income taxes and minority interests
Income Taxes (Note 13):
Current(4,757)(494)(40,658)

Deferred567(1,363)

4,846

Total

(4,190)(1,857)(35,812)

Minority Interests

(311)

(85)

(2,658)Net income

¥

5,309

¥

2,257

Yen

$

45,376

U.S. dollars (Note 4)

Net Income per Share:
Basic
DilutedCash Dividends per Share
The accompanying notes are an integral part of these statements.

20

FURUKAWA Annual Report 2006

¥

13.12

¥

5.57

$

0.11

12.37

5.03

0.11

3.00

—

0.03

Consolidated Statements of Shareholders’ Equity
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2006 and 2005

Millions of yen
Number ofshares ofcommon stock(thousands)

Commonstock

404,456——

Balance as of 31st March, 2004
Elimination of deficit

CapitalsurplusRetainedearnings(deficit)

Surplus on
the revaluationof landNet
unrealized
holding gain
on securities

Translation
adjustments¥ 28,208¥ 29,534¥ (50,390)¥ 20,172¥ 1,349

¥

(206)

¥ (7)

—

(29,534)

29,534

—

—

—

—

—

—

—

(49)

—

—

—

Treasury stock,at costDecrease due to the change
in the Company’s ownershipinterests in the affiliate
Reversal of surplus
on the revaluation of land

—

—

—

15,736(15,736)———

Net income for the year

—

—

—

2,257

—

—

—

—

Bonuses to directors andstatutory auditors

—

—

—

(8)

—

—

—

—

Net change during the year

—

—

—

—

—

677

(198)

(4)

404,456

28,208—(2,871)

4,387

2,026

(404)

(11)

—

—

—

—

(313)

—

—

—

on the revaluation of land

—

—

—

203

(203)

—

—

—

Net income for the year

—

—

—

5,309

—

—

—

—

Balance as of 31st March, 2005
Decrease due to the change
in the Company’s ownershipinterests in the affiliate
Reversal of surplus

Bonuses to directors andstatutory auditors

—

—

—

(7)

—

—

—

—

Net change during the year

—

—

—

—

—

6,386

367

(5)

404,456¥ 28,208

2,634¥ 3,871¥ 8,412

(37)

¥(16)

Balance as of 31st March, 2006¥

Commonstock

Balance as of 31st March, 2005

$ 241,094—

Thousands of U.S. dollars (Note 4)Net
Retained
Surplus on
unrealized
earnings
the revaluation
holding gain
(deficit)of landon securities

Capitalsurplus$¥—$ (24,538) $¥Translation
adjustments

Treasury stock,at cost37,496$ 17,316$ (3,453)$ (94)—

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

—

—

—

(2,675)——

Reversal of surplus on the revaluation of land

—

—

1,735

(1,735)———

Net income for the year——

45,376————

Bonuses to directors and statutory auditors

—

—

(60)

—

—

—

—

Net change during the year

—

—

—

—

54,581

3,137

(43)

—

$ 22,513$ 33,086$71,897$ (316)$(137)

Balance as of 31st March, 2006

$241,094$

The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 200621

Consolidated Statements of Cash Flows
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended 31st March, 2006 and 2005

Millions of yen

Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes and minority interests
to net cash provided by operating activities:
Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts, net
Increase 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
Loss on impairment of 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
Income taxes refunded
Other
Net cash provided by 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
Decrease in restricted deposits
Purchases of investments in securities
Proceeds from sales of investments in securities
Proceeds from sales of subsidiaries’ stock
Proceeds from rental of real estate
Other
Net cash (used in) 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
Repayment of finance lease obligations
Proceeds from issuance of common stock of a consolidated subsidiaryto a minority shareholder
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
The accompanying notes are an integral part of these statements.

22

FURUKAWA Annual Report 2006

Thousands of
U.S. dollars (Note 4)

2006

2005

2006

¥ 9,810¥ 4,199$ 83,846

2,595
177
701
—
138
(178)
(1,009)
—
(490)
2,267
302

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

22,179
1,513
5,991
—
1,179
(1,521)(8,624)—(4,188)19,376
2,581(902)(4,710)5,788(2,928)
11,561501(2,636)
(406)
(827)
253
(192)
8,254

629
(2,816)
6,673
809
14,111488(2,344)(3,407)
(539)
—
(611)
7,698

(7,709)(40,256)
49,470(25,025)
98,812
4,282(22,530)(3,470)(7,068)2,162(1,641)70,547(5)
22(1,767)639
15(1,896)
2,513
—
150
(7)
(336)

(356)
702
(2,978)8,154
401(4,384)
4,742
1,180
191
(32)
7,620

(43)
188
(15,103)
5,462
128(16,205)
21,479—1,282(60)(2,872)

31,588(19,587)
6,797(11,745)—(25,196)(161)

21,700(22,569)
14,296(16,250)500(5,000)(895)

269,983(167,410)
58,094(100,385)—(215,350)(1,376)232(14)(18,086)
303(9,865)26,608¥ 16,743—(9)(8,227)63
7,154
19,454¥ 26,608

1,983
(120)
(154,581)
2,590(84,316)
227,419$ 143,103

Notes to Consolidated Financial Statements
Furukawa Co., Ltd. and consolidated subsidiaries
31st March, 2006

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 in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards, and have been compiled
from those prepared by 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 these statements 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 39 subsidiaries as of 31st March, 2006 (38 as of
31st March, 2005). The consolidated financial statements included
the accounts of the Company and 39 subsidiaries as of 31st March,
2006 (38 as of 31st March, 2005).
Compared with the previous year, the number of subsidiaries increased by 1 due to establishment.
For the purpose of preparing the consolidated financial statements,
all significant inter-company transactions, account balances and unrealized profits among the Furukawa Group have been eliminated.
Certain foreign subsidiaries have a 31st December year-end. Relevant adjustments have been made for significant transactions withsuch subsidiaries during the period from 1st January to 31st March.
Although the Company had 11 affiliates as of 31st March, 2006
(14 affiliates as of 31st March, 2005), the equity method was applied
to 4 affiliates as of 31st March, 2006 (6 as of 31st March, 2005) in
preparing the consolidated financial statements, and investments in
the rest of those affiliates are carried at cost or less.

(3) Marketable Securities and Investments in Securities
Securities other than equity securities issued by subsidiaries and affiliates are classified into three categories: trading, held-to-maturity orother securities. The Furukawa Group does not hold any trading or
held-to-maturity securities as of 31st March, 2006 and 2005. Marketable securities classified as other securities are carried at fair value withchanges 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 of the market value during the lastmonth of the fiscal year. Non-marketable securities classified as othersecurities are carried at cost. Cost of securities sold is determined by
the moving average method.

(2) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with amaturity of three months or less when purchased.

(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 fornormal receivables plus estimate of uncollectible amounts determinedby reference to specific doubtful receivables from customers who areexperiencing financial difficulties.

(4) Inventories
Finished copper products and work in process relating to copper products are stated at cost determined by the moving average method.
Other inventories are mainly stated at cost determined by the averagemethod.

FURUKAWA Annual Report 200623

(6) Property, Plant and Equipment, and Depreciation
Property, plant and equipment is stated at cost. Depreciation is mainly
calculated by the straight-line method based on the estimated useful
lives of the assets. The range of useful lives of property, plant andequipment are summarized as follows:
Buildings and structures 5 to 60 years
Machinery and equipment 2 to 25 years
Amortization is calculated by the straight-line method for intangible assets.
(7) Leases
Non-cancelable lease transactions entered into by the Company anddomestic consolidated subsidiaries are accounted for as operatingleases (whether such leases are classified as operating or finance leases),
except that lease agreements which stipulate the transfer of ownershipof the leased assets to the lessees are accounted for as finance leases.
However, leases of 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 forlump-sum payments. The employee pension plans, which are funded,
were instituted to replace a certain portion of the benefits under theretirement benefit plans with respect to employees who retire at the
mandatory retirement age. Certain consolidated subsidiaries (both domestic and foreign) have defined contribution plans.
Accrued employees’ retirement benefits have been provided at an
amount calculated based on the retirement benefit obligation and thefair value of the pension plan assets at the balance sheet dates, as adjusted for unrecognized actuarial gain or loss and unrecognized priorservice cost. The retirement benefit obligation has been attributed toeach period by the straight-line method over the years of service of theeligible employees. The net retirement benefit obligation at transition
was fully amortized by the year ended 31st March, 2005.

24

FURUKAWA Annual Report 2006

Prior service cost is being amortized by the straight-line method
over a period of principally 15 years, which is shorter than the averageremaining years of service of the employees. Actuarial gain and loss isamortized in the year following the year in which the gain or loss isrecognized by the straight-line method over the period of mainly 15
years, which is shorter than the average remaining years of service ofthe 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 revaluation of land” in the accompanying consolidated balance sheets. Revaluation of land was determined based on theofficial notice prices 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 ¥1,401 million ($11,974 thousand) and ¥1,299 million as of 31st March, 2006 and 2005, respectively.
(10) Income Taxes
Current income taxes comprising corporation tax, enterprise tax andinhabitants’ taxes are provided for based on amounts currently payablefor each year. Deferred income taxes arising from temporary differences between financial reporting and tax bases of 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 toreverse, are reflected in the consolidated financial statements.
(11) Amounts per Share
Basic net income per share is computed based on the net income attributable to shareholders of common stock and the weighted average
number of shares of common stock outstanding during the year, anddiluted net income per share is computed based on the net income attributable to the shareholders and the weighted average number ofshares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued
upon the conversion of convertible notes.

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

recognition of gain or 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 andmeet 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.

(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.

(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 that the sum of the capitalsurplus and the legal reserve exceeds 25% of the common stock account, the amount of the excess (if any) is available for appropriations
by resolution of the shareholders.

(14) Hedging Activities
The Furukawa Group uses derivative financial instruments for the
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 are stated at fair value and related gain orloss on the changes in the fair values of derivative financial instruments is deferred as an asset or liability in the balance sheet until the

3. Accounting Change
Effectively 1st April, 2005, the Company and its domestic consolidated subsidiaries have adopted a new accounting standard for the impairment of
fixed assets.
The effect of this change was to decrease income before taxes and minority interests by ¥302 million ($2,581 thousand) from the amountwhich would have been reported if the previous treatment had been applied consistently.

4. 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¥117=US$1.00, the exchange rate prevailing on 31st March, 2006. This translation should not be construed as a representation 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 200625

5. Inventories
Inventories as of 31st March, 2006 and 2005 consisted of the following:
Millions of yen

Thousands of
U.S. dollars

2006

2005

2006

Finished products
Work in process
Raw materials and supplies¥ 12,961
5,483
9,905

¥ 12,619
3,537
7,182

$ 110,778
46,86384,658

Total¥ 28,349¥ 23,338$ 242,299

6. Investments in Securities
The aggregate acquisition cost, carrying value and unrealized gain or loss pertaining to the marketable other securities as of 31st March, 2006 and2005 were as follows:

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

Millions of yen

Thousands of
U.S. dollars

2006

2006

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 18,062——¥ 32,328——¥ 14,266——$ 154,376——$ 276,308——$ 121,932——

18,06232,32814,266

154,376

276,308

121,932

498
16
—

432
15
—

(66)
(1)
—

4,256
137
—

3,692
128
—

(564)
(9)
—

514

447

(67)

4,393

3,820

(573)

¥ 18,576¥ 32,775¥14,199$ 158,769$ 280,128$121,359

Millions of yen

2005

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

26

FURUKAWA Annual Report 2006

Acquisition
cost

Carrying
value

Unrealized
gain (loss)¥ 16,960——¥ 20,542——¥ 3,582——

16,96020,542

3,582

1,209
16
—

1,097
16
—

(112)
(0)
—

1,225

1,113

(112)

¥ 18,185¥ 21,655¥ 3,470

Proceeds from sales of securities classified as other securities with aggregate gain and loss for the years ended 31st March, 2006 and 2005 aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen

Sales proceeds
Aggregate gain
Aggregate loss

2006

2005

2006

¥ 2,456
1,009—¥ 5,316
2,118—$ 20,991
8,624—

7. 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, 2006 and 2005, respectively.
Long-term debt as of 31st March, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars

Millions of yen

0.90% yen convertible notes due 2006
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 2006 to 2021
Current portion of long-term debt

¥

2006

2005

—
—
1,000
4,100
500

¥ 20,196
5,000
1,000
4,100
500

2006
$

—
—
8,547
35,043
4,273

76,10563,640650,470

81,705(21,510)

94,436(44,192)

698,333(183,846)¥ 60,195¥ 50,244$ 514,487

The 0.90% yen convertible notes due 2006 were fully redeemed on 30th September, 2005.
The average interest rate applicable to the above loans amounting to ¥76,105 million ($650,470 thousand) was 2.1% as of 31st March, 2006.
The aggregate annual maturities of long-term debt subsequent to 31st March, 2006 were as follows:Year ending 31st March,Millions of yen

Thousands of
U.S. dollars

2007
2008
2009
2010
2011 and thereafter¥ 21,510
26,631
15,175
11,1337,256$ 183,846
227,615
129,701
95,15462,017¥81,705$698,333

The Company and certain consolidated subsidiaries have entered into
overdraft and loan commitment agreements amounting to ¥29,245 million ($249,957 thousand) with 25 banks and ¥47,284 million with 27
banks as of 31st March, 2006 and 2005, respectively. The borrowings outstanding and the unused balances under these credit facilities amounted to¥12,819 million ($109,564 thousand) and ¥16,426 million ($140,393

thousand), respectively, as of 31st March, 2006 and amounted to ¥16,810
million and ¥30,474 million, respectively, as of 31st March, 2005. In addition, the following lease obligations are included in “Other current liabilities” and “Other long-term liabilities” in the accompanying
consolidated balance sheets.

FURUKAWA Annual Report 2006

27

Millions of yen

Non current portion

Thousands of
U.S. dollars

2006

2005

2006

¥ 5,602¥ 5,059$ 47,880

Assets pledged as collateral for payables, trade of ¥1,296 million ($11,077 thousand) and ¥373 million, short-term debt of ¥1,070 million($9,145 thousand) and ¥1,089 million, long-term debt (including current portion) of ¥7,494 million ($64,051 thousand) and ¥9,416 million andlease obligations (included in other long-term liabilities) of ¥5,602 million ($47,880 thousand) and ¥5,059 million as of 31st March, 2006 and2005, 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

2006

2005

¥ 1,048
92
28
3,699
3,411
20,165¥ 1,501
45
45
3,530
3,783
20,977$2006¥ 28,443¥ 29,881$ 243,103

8,957
786
239
31,61629,154
172,351

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 the lease contracts and restricted deposits (partly time deposit and included in other current assets) with the aggregated carrying value of ¥3,463 million ($29,598 thousand) and¥3,243 million as of 31st March, 2006 and 2005, respectively.

8. Depreciation and Amortization
Depreciation and amortization for the years ended 31st March, 2006 and 2005 consisted of the following:
Millions of yen

Property, plant and equipment
Other investments

Thousands of
U.S. dollars

2006

2005

2006

¥ 2,56926¥ 2,95868$ 21,957
222¥ 2,595¥ 3,026$ 22,179

9. 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, 2006
and 2005 amounted to ¥1,859 million ($15,889 thousand) and ¥1,777 million, respectively.

10. Leases
The Furukawa Group leases certain machinery and equipment under
non-cancelable finance lease agreements, of which ownership is all
non-transferable.

28

FURUKAWA Annual Report 2006

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 operatingleases as of 31st March, 2006 and 2005 were as follows:Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

Acquisition costs
Less accumulated depreciation¥ 1,552638¥ 1,570780$ 13,265
5,453

Net carrying value¥¥$ 7,812914

790

Lease payments relating to finance leases accounted for as operating leases amounted to ¥264 million ($2,256 thousand) and ¥262 million forthe years ended 31st March, 2006 and 2005, respectively, which were equal to the depreciation expense of leased assets computed by the straightline method over the lease terms.
Future minimum lease payments including an interest element under the finance leases outstanding as of 31st March, 2006 and 2005 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Within one year
Over one year

2006

2005

2006

¥ 253
661

¥ 218
572

$ 2,162
5,650

¥ 914

¥ 790

$ 7,812

The future minimum lease payments under lease agreements other than finance leases as of 31st March, 2006 and 2005 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2006
Within one year
Over one year

¥

785
787

¥ 1,572

2005

2006

838
1,598

$ 6,709
6,727¥ 2,436$ 13,436¥

11. Financial Instruments
The Furukawa Group entered into swap agreements to manage interest rate risks. Interest rate swaps convert floating rate of long-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 the counterparties tothe derivative transactions are major financial institutions and trading

companies, the Furukawa Group believes that their derivative financial instruments entail minimal credit risks. Furthermore, theFurukawa Group does not use derivative financial instruments thatwould increase market risks.
As of 31st March, 2006 and 2005, there is no derivative transaction
for which hedge accounting is not applied.

12. 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, 2006 and 2005 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2006

2005

2006

Retirement benefit obligation
Plan assets at fair value¥ (14,353)
19,477¥ (13,828)
12,083$ (122,675)
166,470

Unfunded status
Unrecognized actuarial loss
Unrecognized prior service cost
Prepaid pension expenses

5,124
910
81
(7,334)(1,745)8,420
89(7,951)

43,795
7,778
692(62,684)¥ (1,219)¥ (1,187)$ (10,419)

Accrued employees’ retirement benefits

FURUKAWA Annual Report 2006

29

The components of retirement benefit expenses for the years ended 31st March, 2006 and 2005 were as follows:
Thousands of
U.S. dollars

Millions of yen

2006
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¥

Retirement benefit expenses
Employees’ contributions to the defined benefit pension plans
Total

668
372
(182)
8
749
—

2005
¥

2006

702
329
(133)
8
779
112

$ 5,710
3,179(1,556)
68
6,402
—

1,615
9

1,797
16

13,80377¥ 1,624¥ 1,813$ 13,880

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

Discount rates
Expected return on plan assets

2006

2005

mainly 2.4%
mainly 2.0%

mainly 2.4%
mainly 2.0%

13. Income Taxes
The reconciliation between the statutory tax rate and the effective tax rate of the Furukawa Group for the year ended 31st March, 2005 was summarized 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%

The above information for 2006 has not been presented because the difference between the statutory tax rate and the effective tax rate was lessthan 5% of the statutory tax rate.

30

FURUKAWA Annual Report 2006

Thousands of
U.S. dollars

Millions of yen

2006
Deferred tax assets:
Allowance for doubtful accounts
Accrued employees’ retirement benefits
Investments in securities
Loss on impairment of fixed assets
Unrealized gains on sales of property, plant and equipment
Net operating loss carryforwards
Land
Accrued enterprise tax
Other

¥

662
4,528
8,430
10,605612
15,249
1,754
416
567

2005
¥

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

2006
$

5,658
38,701
72,05190,641
5,231
130,333
14,992
3,556
4,846

Total gross deferred tax assets

42,82345,856

366,009

Valuation allowance(33,836)(37,975)(289,197)

8,987

7,881

76,812(5,772)(188)(4,327)(9,225)(2,760)(449)(1,435)(182)(4,327)(9,093)(2,023)(646)(49,333)(1,607)(36,983)(78,846)(23,590)(3,838)

Total deferred tax liabilities(22,721)(17,706)(194,197)

Net deferred tax liabilities(13,734)(9,825)(117,385)

Deferred tax liabilities on surplus on the revaluation of land

¥ (3,184)¥ (3,010)$ (27,214)

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

14. Contingent Liabilities
Contingent liabilities as of 31st March, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Notes receivable discounted and endorsed
Loans guaranteed

2006

2005

2006

¥ 2,495
1,721¥ 4,266
2,315$ 21,325
14,709FURUKAWA Annual Report 200631

15. Other Income (Expenses)—Other, Net
Other Income (Expenses)—Other, net for the years ended 31st March, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Rental income from real estate
Gain on foreign exchange
Gain on sales of property, plant and equipment
Gain on sales of investments in securities
Gains from establishment of trust for retirement benefits
Payments for closing mines
Loss on impairment of fixed assets
Loss on disposal and devaluation of inventories
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
Loss on reorganization of local businesses
Payment related to antitrust laws
Other, net

¥

2006

2005

2006

150
448
178
1,009
—
(192)
(302)
(568)
—
(464)
(138)
(536)
(280)
(39)

¥

191
82
1,913
2,118
1,484
(612)
—
(417)
(4,011)(1,476)
(789)
—
—
91

$ 1,282
3,829
1,521
8,624
—
(1,641)(2,581)(4,855)—(3,966)(1,179)(4,581)(2,393)(334)¥ (1,426)$ (6,274)¥ (734)

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 year ended 31st March, 2006 was as follows:Year ended 31st March, 2006

I. Sales and operating income (loss)
Outside customers
Intersegment

Millions of yen
Machinery

MetalsElectronic
Materials andChemicals¥ 70,329
766¥ 52,662
554¥ 21,228181¥ 3,10746¥ 33,589
367¥ 1,023
1,353

71,095(66,851)

53,216(47,437)

21,409(19,911)3,153(2,248)33,956(33,806)

2,376(2,595)

Total
Costs and expenses

32

Operating income (loss)¥

II. Assets, depreciation, impairment loss
on fixed assets and capital expenditures
Total assets
Depreciation
Impairment loss on fixed assets
Capital expenditures¥ 70,982
1,041
3
516

FURUKAWA Annual Report 2006

4,244

¥

5,779

¥ 26,913
237
—
182

¥

1,498

¥ 28,671
787—
513

Real Estate

Fuels

Others¥Eliminations andCorporate¥

Consolidated—(3,267)¥ 181,938—(3,267)3,040

181,938
169,808

905

¥

150

¥ (219)¥(227)¥ 12,130¥14,277
317
78
73

¥

7,744
25
17
6

¥ 2,367
66—
383¥ 62,092
122
204
104

¥ 213,046
2,595
302
1,777

Thousands of U.S. dollars
Machinery

MetalsElectronic
Materials andChemicals

Real Estate$ 26,556 $ 287,085 $ 8,743
393
3,137
11,564

I. Sales and operating income (loss)
Outside customers
Intersegment$ 601,103 $ 450,103
6,547
4,735

$ 181,436
1,547

Total
Costs and expenses

607,650(571,376)

182,983(170,180)

454,838(405,444)

Operating income (loss)$

36,274 $ 49,394

II. Assets, depreciation, impairment loss
on fixed assets and capital expenditures
Total assets
Depreciation
Impairment loss on fixed assets
Capital expenditures$ 606,684 $ 230,026
8,897
2,026
26
—
4,410
1,556

$

12,803$ 245,051
6,726
—
4,385

Others26,949290,222(19,214) (288,940)$

Eliminations andCorporate$

20,307(22,180)

Consolidated— $ 1,555,026(27,923)—(27,923)
25,983

1,555,026
1,451,351
103,675

7,735 $

1,282 $ (1,873)$ (1,940) $$ 122,026 $
2,709
667
624

66,188 $ 20,230
214
564
145
—
51
3,273

$ 530,701
1,043
1,743
889

$ 1,820,906
22,1792,581
15,188assets had been included in the “Metal” and the “Other” segments, respectively.
The effect of this change was to increase operating expenses in the“Machinery,” the “Electronic Materials,” the “Real Estate,” the “Others,” and the “Elimination or Corporate” segments by ¥343 million,($2,932 thousand), ¥489 million ($4,179 thousand), ¥11 million($94 thousand), ¥80 million ($684 thousand) and ¥78 million ($667
thousand), respectively, and to decrease operating expenses in the“Metal” and the “Fuels” segments by ¥636 million ($5,436 thousand)and ¥368 million ($3,145 thousand), respectively, compared with thecorresponding figures which would have been recorded if the previous
method had been adopted.
Had the new allocation method been adopted, the business segment
information for the year ended 31st March, 2005 would have been as
follows:

The Furukawa Group spun off its machinery, metals, electronic materials and chemicals segments to subsidiaries and changed the groupmanagement system in March 2005. As a result, the allocation basis ofcompany-wide common expenses to each segment was changed.
Until the year ended 31st March, 2005, company-wide common
expenses were allocated to each segment based on sales. Effective theyear ended 31st March, 2006, the company-wide common expenses
except for those related to metal mine former site property and coalmine former site property are started to be allocated to each segment
based on the services received.
In addition, as the Furukawa Group defined its groups of assets
upon the adoption of the new accounting standard for the impairmentof fixed assets, effective April 1, 2006, metal mine former site property
and coal mine former site property were included in the “Elimination
or Corporate” segment. Until the year ended 31st March, 2005, thoseYear ended 31st March, 2005

I. Sales and operating income (loss)
Outside customers
Intersegment

Fuels

Millions of yen
Machinery

MetalsElectronic
Materials andChemicals¥ 62,291
437¥ 35,862
637¥ 17,502
151¥ 3,835
107¥ 26,815
245

62,728(59,411)36,499(34,972)

17,653(16,373)

3,942(2,560)27,060(27,038)

1,280¥ 1,382¥22¥ 29,219802
464¥14,922
450
821

¥

7,370
24
5

Total
Costs and expenses
Operating income (loss)

¥

3,317

II. Assets, depreciation and capital
expenditures
Total assets
Depreciation
Capital expenditures¥ 64,952
1,223
895

¥

1,527

¥ 22,555
365
487

¥

Real Estate

Fuels

Others

¥

932
1,307

Eliminations andCorporate¥

2,239(2,337)¥(98)¥ 1,87463
276¥

Consolidated—(2,884)¥ 147,237—(2,884)
2,837

147,237(139,854)(47)¥63,759
99
46

¥

7,383

¥ 204,651
3,026
2,994

FURUKAWA Annual Report 2006

33

The geographic segment information for the year ended 31st
March, 2006 and 2005 has not been presented, because the amountsof operating revenues and total assets in Japan exceed 90% of consolidated totals.
Overseas sales, which include exports of the Company and its do-

mestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, totaled ¥24,530 million($209,658 thousand) and ¥18,245 million or 13.5% and 12.4% of
the consolidated net sales for the years ended 31st March, 2006 and2005, respectively.

17. Subsequent Event
The following appropriations of retained earnings of the Company were approved at a shareholders' meeting held on June 29, 2006:

Year-end cash dividends (¥3.00 = $0.026 per share)
Transfer to legal reserve

34

FURUKAWA Annual Report 2006

Millions of yen

Thousands of
U.S. dollars¥1,212
122$10,359
1,043¥1,334$11,402

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, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for theyears then ended, all expressed in yen. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require thatwe 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 the accounting 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, 2006 and 2005, and the consolidated resultsof 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,
2006 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 4.
29th June, 2006

FURUKAWA Annual Report 2006

35

PRINCIPAL SUBSIDIARIES AND AFFILIATES

Company Name

Principal Business

Paid-in Capital

Furukawa Industrial Machinery Systems Co., Ltd.

Sales and manufacture of machinery

JPY 300 million

Furukawa Rock Drill Co., Ltd.

Sales and manufacture of rock drills

JPY 400 million

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

Furukawa Otsuka Co., Ltd.

Sales and 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

Subsidiaries

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

Gunma Kankyo Recycle Center Co., Ltd.

Industrial medical waste treatment

JPY 40 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

Furukawa Rock Drill Korea Co., Ltd.

Sales of rock drills machinery

KRW 300 million

Furukawa Rock Drill (Shanghai) Co., Ltd.

Sales and manufacture of hydraulic breakers

JPY 50 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

EUR 5 million

Taian Furukawa Machinery Co., Ltd.

Sales of UNIC cranes

USD 4.9 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

Copper smelting

JPY 4,700 million

Affiliates

Hibi Kyodo Smelting Co., Ltd.

36

FURUKAWA Annual Report 2006

furukawa_arE_pdf 06.10.6 10:21 ページ 14

CORPORATE DATA
(As of March 31, 2006)

Directors and Auditors (As of June 29, 2006)

Company Name: Furukawa Co., Ltd.

President and Representative Director Tetsuo Yoshino
Senior Managing Director

Isao AsadaManaging Director

Koji Toda

Managing Director

Nakao Yamashita

Managing Director

Nobuyoshi Soma

Director

Junnosuke Furukawa

Director

Yasuhei Konagaya

Director

Hiroyuki Shiaku

Director

Manabu Zama

Statutory Auditor

Tsuyoshi Ishii

Statutory Auditor

Ryoji Ohnuma

AuditorToshiharu Nagao

AuditorFuminori AnaiHead Office: 2-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo
100-8370, Japan(Head office relocated on May 15, 2006)

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

Executive Officers (As of June 29, 2006)

Employees: Consolidated 2,247; Non-consolidated 202
Stock Transfer Agent: The Chuo Mitsui Trust and Banking
Company, Limited
33-1, Shiba 3-chome, Minato-ku, Tokyo
105-8574, Japan

Senior Managing Executive Officer

Isao AsadaManaging Executive Officer

Koji Toda

Managing Executive Officer

Nakao Yamashita

Managing Executive Officer

Nobuyoshi Soma

Senior Executive Officer

Yasuhei Konagaya

Senior Executive Officer

Hiroyuki Shiaku

Senior Executive Officer

Manabu Zama

Executive Officer

Shin Nakamura

Executive Officer

Masafumi Miyata

Executive Officer

Taketsugu Saitsu

Executive Officer

Toshikazu Nakagawa

Securities
Companies

Executive Officer

Yoichiro Kato

5.77%

Executive Officer

Toshio Matsumoto

Executive Officer

Yasuji Tomiyama

Executive Officer

Makoto Iwasaki

Executive Officer

Yoshihito Emoto

Executive Officer

Akira Usui

Composition of Shareholders:
Other JapaneseCompanies

Financial Institutions

25.32%

25.26%

37.37%

Foreign Institutions

6.28%

Individuals and Others

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

FURUKAWA Annual Report 200637

furukawa_arE_pdf 06.10.6 10:21 ページ 1

2-3, Marunouchi 2-chome, Chiyoda-ku,
Tokyo 100-8370, Japan

Printed in Japan on recycled paper.