Growing through Challenge
A N N U A L REPORT 200 8
Year ended March 31, 2008

The Furukawa Company Group has adopted a holding company structure headedby the principal operating arm, Furukawa Co., Ltd. Founded in 1875, the Company has,over its 133-year history, developed a diverse portfolio of business in the fields of machinery, nonferrous metals, electronic materials, chemicals and fuels. Grounded in its corporate philosophy—Innovation, Creativity, and Harmony—Furukawa endeavors tooffer appealing products and services to its customers and to contribute to the creation ofa prosperous society that is in harmony with the environment.

In fiscal 2008, ended March 31, 2008, we achieved an historic high in revenues.
The Furukawa Company Group was also successful in significantly improving its financial
position, a key objective of its previous April 2005–March 2008 Medium-Term
Management Plan.

Fiscal 2009 marks the start of the new April 2008–March 2011 Medium-Term
Management Plan. Guided by the catch phrase “Growing through Challenge,” we willcontinue to solidify our foundation as the springboard for the next substantial leap
forward.

Contents
Consolidated Financial Highlights

1

Environmental Protection and Social Contribution Activities 15

To Our Shareholders

2

Corporate Governance16

Feature: Growing through Challenge—Medium-Term

Financial Section

17

Management Plan (April 1, 2008 to March 31, 2011)—

4

Principal Subsidiaries and Affiliates

40

Business at a Glance

7

Corporate Data

41

Review of Operations

8

Forward-Looking Statements:
This annual report contains forward-looking statements such as the plans, strategies and statements related to the outlook for future results. These forwardlooking 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 those projected.

C O N S OLID AT E D FIN A N C IAL HIGHLIGHTS
Furukawa Co., Ltd. and consolidated subsidiaries
Years ended March 31, 2008, 2007 and 2006

Millions of yen

Thousands of
U.S. dollars

Percent change

2008

2007

2006

2008

2008/2007¥ 213,426
14,407¥ 200,749
16,899¥ 181,938
12,130$2,134,260
144,070

6.3%(14.7)

12,484
8,595

11,127
17,554

9,810
5,309

124,840
85,95012.2(51.0)¥ 199,383
55,431¥ 217,027
52,136¥ 213,046
43,072$1,993,830
554,310(8.1)
6.3

For the year:

Net sales
Operating income
Income before income taxes andminority interests
Net income
At year-end:
Total assets
Net assets

Yen

Per share amounts:
Net income:
Basic
DilutedCash dividends

¥

21.26
—
6.00

¥

U.S. dollars

43.42
—
5.00

¥

13.12
12.37
3.00

$

0.21
—
0.06

(51.0)—
20.0

Notes 1. U.S. dollar amounts are translated from yen for convenience only at the rate of ¥100=US$1.00.
2. From the fiscal year ended March 31, 2007, what was formerly recorded as “shareholders’ equity” is now recorded as “net assets,” in line with revisions to Japanese accounting standards as detailed in the Accounting Standards Board of Japan’s (ASBJ) “Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Statement No.
5, December 9, 2005) and its implementation guidance, “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet” (ASBJ Guidance No. 8,
December 9, 2005).
Figures for fiscal 2006 represent total shareholders’ equity.

Net Sales

Operating Income

Total Assets(Billions of yen)(Billions of yen)(Billions of yen)

300

20

’06

’07

199.4

’05

217.0

204.7

’04

200

12.1

150

206.3

14.4

15

213.0

16.9

213.4

250

147.2

153.5

200

200.7

181.9

250

150
7.4

10
100

100
5
50
2.0

50

0
’04

’05

’06

’07

’08

0

0
’04

’05

’06

’07

’08

’08

Machinery
MetalsElectronic Materials and Chemicals
Real Estate
Fuels and Others

FURUKAWA Annual Report 20081

T O O UR SH A R E H O LD E R S

The Furukawa Company Group (Furukawa Co., Ltd. andits consolidated subsidiaries) has positioned the next
three years as a critical period in its ongoing development. Over this term, we will initiate and pursue fullfledged monozukuri (manufacturing) activities to secure
further growth over the next generation.

Left:
President and Representative Director,
Nobuyoshi Soma

Right:
Chairman and Representative Director,
Tetsuo Yoshino

Performance in Fiscal 2008previous fiscal year. In fiscal 2009, the Company plans to pay an

In fiscal 2008, ended March 31, 2008, consolidated net sales in-annual dividend of ¥6 per share comprising an interim dividend of

creased 6.3% year on year to ¥213,426 million, an historic high for¥2.5 per share and a period-end dividend of ¥3.5 per share.

the Group. This was mainly attributable to the price of copper, which
the Metals Division, as well as healthy overseas sales of rock drills in

Overview of the Previous Medium-Term
Management Plan

the Machinery Division. On the earnings front, however, operating

Under the Furukawa Company Group’s Medium-Term Management

income declined 14.7% to ¥14,407 million. Despite an upswing inPlan that ran through the three-year period from April 2005 to Marchearnings in the Machinery Division due to robust shipments in the2008, we spun off several business divisions and adopted a Grouprock drill business and improved profitability in the industrial ma-

management system. As a key priority of the Plan, we worked dili-chinery business, this downturn was mainly attributable to a signifi-

gently to establish a robust business foundation, maximize the value

cant deterioration in profits in the Metals Division, reflecting weakof individual businesses and strengthen our financial positioncopper treatment and refining charge (TC/RC) conditions.

through efforts to further enhance overall Group earnings. Buoyedcontinued to hover at a high level, and an increase in shipments in

Turning to other income and expenses, the Group undertook aby these endeavors, robust growth in the Metals Division, which

review of its provisions relating to the copper smelting business incontinued to benefit from a sharp rise in copper prices and contribu-

Australia. This resulted in other income of ¥1,475 million in the fis-tions from the Machinery Division on the back of aggressive over-cal year under review. In other expenses, the Group incurred aseas business development, we surpassed the Plan’s targets forwrite-down of investments in securities of ¥637 million and a loss

consolidated net sales and operating income by considerable mar-on disposal and devaluation of inventories of ¥656 million. Basedgins. In the area of interest-bearing liabilities (corporate bonds,

on the aforementioned, income before income taxes and minority

long- and short-term debt), Furukawa reduced its debt balance byinterests was ¥12,484 million, an increase of 12.2% compared withapproximately ¥39.0 billion. This was well above the Plan’s ¥30.0

the previous fiscal year. Taking into account the absence of deferredbillion target and contributed significantly to strengthening theincome taxes totaling ¥6,793 million in fiscal 2007, net income de-Group’s overall financial position. Taking all of aforementioned

clined 51.0% year on year to ¥8,595 million.

into consideration, the April 2005–March 2008 Medium-Term
Management Plan has had its desired effect.

Returns to Shareholders
management priority. In working to enhance shareholder returns,

The New Medium-Term Management Plan—“Growing through Challenge”

the Company also takes into consideration a variety of factors in-

The Furukawa Company Group’s new Medium-Term Management

cluding the retained earnings required as capital investment funds

Plan covers the three-year period from April 2008 to March 2011.

as well as R&D expenditures, which are the basis for future business

Amid expectations of significant domestic and overseas change as

development and growth.

well as a harsh economic environment, Furukawa has positioned

Furukawa positions the return of profits to shareholders as a key

2

Based on this core policy, Furukawa has decided to pay an an-

the next three-year period as critical to its endeavors to secure fur-nual dividend of ¥6 per share, up ¥1 per share compared with thether growth. Looking ahead, as we reorganize individual business

FURUKAWA Annual Report 2008

Net Sales (consolidated)

Operating Income (consolidated)

Interest-Bearing Liabilities(Billions of yen)(Billions of yen)(Billions of yen)

250

16

213.4

150

14

200

12
165.0

150

14.4

147.2

10.5

10
8

120

116.9

7.4
99.4

6

100

Machinery

4

89.4

90

Metals2

50

Electronic Materials
and Chemicals

0
0

2005

2008

2008

-2

86.8

77.9

Real Estate
Fuels and Others

2005

2008

(Target)2008(Target)60

Eliminations and‘05

Corporate

‘06

‘07

‘08

‘08
(Target)Note: Interest-bearing liabilities = Long-and short-term debt + Corporate bonds

segments, we will build on our corporate philosophy—Innovation,

years, Furukawa is committed to creating an earnings platform in theCreativity, and Harmony—and rally under a banner of “Growing

Machinery Division capable of generating annual operating income

through Challenge.” Returning to our roots as a manufacturer, wein excess of ¥10.0 billion. In this context, we will build a robust cor-

will initiate and pursue full-fledged monozukuri activities as we

porate structure that remains unaffected by trends in the external en-

strive to develop a high-level production, sales and service struc-vironment, including conditions in the metals and related markets.

ture. To this end, we will adhere to the policies of promoting further
overseas development, strengthening the technical capabilities of

In Summary

the Machinery Division and promoting development activities

As we move forward, the Furukawa Company Group will continue

aimed at new product commercialization. Consolidated perfor-

to reform its corporate structure, and guided by its Medium-Termmance targets and priority measures under the new Medium-Term

Management Plan, will strive to improve performance and maxi-Management Plan are as follows.

mize corporate value. At the same time, we will endeavor to fulfill
our responsibilities from both the social and ethical perspectives,

Fiscal 2011 Consolidated Performance Targets:ensuring strict compliance. In this context, the Furukawa Company

Net sales: ¥230.0 billion

Group will strengthen its internal control structure and systems, fo-

Operating income: ¥15.0 billion

cusing on efforts to enhance its corporate governance function.

Net income: ¥8.0 billion

As we work toward achieving our goals and securing a significant leap forward, we ask for the continued support and under-

Priority Measures:standing of our shareholders.

1. Initiate full-fledged monozukuri activities
2. Promote Machinery Division overseas development
3. Develop and launch new products such as next-generation

August 2008

semiconductor materials
4. Implement full-scale structural development efforts for future
growthTetsuo Yoshino,Compared to profit results for fiscal 2008, performance targets

Chairman and Representative Director

for the fiscal year ending March 31, 2011 are weak. This is attributable to a variety of factors including deterioration in copper TC/RC
conditions. Nevertheless, buoyed by increased profits owing toreforms in production systems resulting in enhanced production
efficiency, cost reductions and overseas business development

Nobuyoshi Soma,

expansion in the Machinery Division, as well as the market release

President and Representative Directorof new gallium nitride substrate products in the electronic materials
business, we are forecasting earnings growth. Over the next three

FURUKAWA Annual Report 2008

3

F E AT UR E

Growing through Challenge—Medium-Term Management Plan (April 1, 2008 to March 31, 2011)—
As the platform for the Group’s next stage of development, we asked Nobuyoshi Soma, President and Representative
Director, to outline the objectives and priority measures of the Furukawa Company Group’s Medium-Term Management
Plan that commenced on April 1, 2008.

Q1.

Please tell us about the general purport of the Group’s
new Medium-Term Management Plan.

Under its recently completed Medium-Term Management Plan, the Furukawa

Medium-Term Management Plan

Company Group spun off several of its business units in March 2005 and shifted— Growing through Challenge —(Fiscal 2009−2011)

to a group management structure. The most important issue in this plan was to

Basic Policies

further strengthen the Group’s financial position by promoting profit growthacross the Group as a whole. As a result, we were able to expand Group-wide

1. Promote further overseas development and strengthen
technical capabilities of Machinery Division

earnings, exceed our reduction target for interest-bearing liabilities and significantly improve our financial position. In hindsight, however, this strong perfor-

2. Promote development activities aiming for new productmance was mainly attributable to sales and profit growth in the Metals Divisioncommercialization

amid a sharp surge in copper prices and substantially improved copper TC/RC
conditions, in addition to aggressive overseas business development by the
Machinery Division. Looking ahead, we therefore recognize the pressing needFiscal 2011 Consolidated Performance Targets

to build a robust structure that is unaffected by fluctuations in the external environment. Accordingly, the next three years represent a critical period for the
Net sales

Furukawa Company Group. Under our new Medium-Term Management Plan,
we will return to our manufacturing roots and build a robust springboard to¥230.0 billion

Operating income¥15.0 billion

Net income¥8.0 billion

make a significant leap forward. In this context, we will focus on initiating fullBased on the following assumptions for fiscal 2011:

fledged monozukuri (manufacturing) activities and implementing full-scale•Copper prices: $6,500/t

structural development efforts for future growth.

Machinery
Metals•Exchange rate: ¥105/$, ¥155/

Segment Sales Plan

Electronic Materials(Billions of yen)

and Chemicals

250¥213.4 billion

Real Estate, Fuels andOthers200¥230.0 billion(Billions of yen)15

¥14.4 billion

26.0

0.1
1.5

19.5
75.5

6.2

24.8
15.3

150

Segment Operating Income Plan

97.5

10

¥15.0 billion
0.7
2.3
1.5
10.5

100

109.0

5

6.8

75.8

50
0

2008

2011 (Plan)

0

2008

2011 (Plan)

Establish a revenue base capable of reliably achieving atleast ¥10.0 billion in annual operating income in the
Machinery Division

President andRepresentative Director,

Nobuyoshi Soma

elaborate on the Group’s
Q 2. Please“full-fledged monozukuri activities.”
In order to succeed amid intense global competition, we will work to reform our production
systems with the aims of improving productivity, reducing costs and pursuing enhanced
quality. At the same time, we will increase production through effective investment in equipment and facilities.
In specific terms, we will shift from a decentralized production system to a productbased, comprehensive system. The manufacture of hydraulic breakers, which had been split
4

FURUKAWA Annual Report 2008

between our Takasaki and Yoshii plants, for example, will be central-Group subsidiary, Furukawa Otsuka Co., Ltd., merged on April 1,

ized at the Takasaki Plant. Crawler drills and tunnel drill jumbos will

2008. In the future, we will combine the technologies and capabili-

be manufactured at our Yoshii Plant.

ties of each company and endeavor to enhance efficiencies in pro-Overseas, we will better leverage the production facilities ofduction and sales.

our subsidiaries in China and Thailand. In building an optimal pro-Furthermore, we will make full use of the Group’s technologi-

duction and procurement structure, we will achieve further reduc-cal and product development capabilities to expand our lineup oftions in operating and production costs.

environmentally conscious and high-value-added products andIn the industrial machinery business, the principal operating

bring new products to market.

company, Furukawa Industrial Machinery Systems Co., Ltd., and a

specific measures will the Group undertake to implement
Q 3 . What
full-scale structural development efforts for future growth?
We will reestablish our R&D structure and strengthen our develop-

porate risk management along withment capabilities in an effort to accelerate the market release ofefforts to upgrade internal control sys-

next-generation products. As a part of these endeavors, we createdtems and operations.

the Nitride Business Office on April 1, 2008 to promote activities in

Looking ahead, we will continue

gallium nitride (GaN) substrate businesses. In the GaN epi-wafer

to promote business structural reform.

field, we entered into a capital and business alliance with POWDECIn July 2008 we spun off our fuels busi-

K.K., a pioneer in epi-wafer technology, in December 2007 and areness, and in positioning our wholly

engaging in joint-development activities.

owned subsidiary Furukawa Commerce

In addition to establishing an optimal Group-wide manufac-

Co., Ltd. as the surviving company, areturing structure by leveraging each plant’s field of expertise, we

working to improve our earnings plat-

are also promoting effective training and optimal allocation ofform through increased efficiency.

human resources. Furthermore, we are strengthening overall cor-

initiatives do you plan to implement in each machinery businessQ 4 . toWhat
promote further development of the Group’s overseas activities?
Rock Drills(Fiscal year ended March 31, 2008) to 40% by the fiscal year ending

In the rock drill business we will continue to expand sales in stable

March 31, 2013.

markets including the United States and Europe and such fast-growing

The Rock Drill Businessmarkets as the Middle East and China, while targeting new markets

Promote Overseas Sales Network

including India and Russia. To this end, we will strengthen our overseas sales network including North America, Europe, Korea and China
by expanding into Russia, the Middle East, Asia, Africa, Oceania, Canada, Central and South America and other countries and regions. At

Regional managementcompany(Europe, Russia, Africa,
Middle East)

FRD EUROPE

the same time, we will establish regional management companies in
Middle East

North America, Asia and Europe. In addition, we plan to increase thenumber of sales distributors. From a product lineup overseas sales perspective, we will continue to focus on traditional civil engineeringand infrastructure-related fields while bolstering our sales capabilities in

CanadaRussiaRegional managementcompany(North, Central and
FRD USASouth America)

FRD KOREAFRD SHANGHAIResident Office (Bangalore, India)

AfricaIndia
Singapore
Australia

Regional
managementcompany(Asia, Oceania)

Central andSouth America

tunnel drill jumbos for mining and other large-scale rock drill products.
Furthermore, we intend to lift our global share of the hydraulicrock breaker and crawler drill markets from its current level of 30%

Current sales bases
Sales bases scheduled for expansion
New area management companies scheduled
for establishment

FURUKAWA Annual Report 2008

5

UNIC Machinery

overseas development capabilities while developing business in

The Furukawa Company Group’s global UNIC sales network cur-major Asian markets focusing on slurry pumps, crushers and bri-

rently comprises bases in Thailand and China. The Group will ac-

quetting machines (granulators).

celerate overseas business development by expanding to a five-polar

The UNIC Machinery Businessnetwork that encompasses bases in North America, Europe, Russia

Strengthen Overseas Business Based on a Five-Polar Structure

and CIS countries, Asia and Oceania and the Middle East. We will
strengthen our sales and promotional activities in each of these re-Europe2 Bases

gions and raise recognition of lightweight UNIC cranes that offer

Lyon Branch

superior operability in areas where swing-boom cranes are theRussia and CIS
Countries
8 Bases

mainstream.

North America
2 Bases

Taian Furukawa
Machinery Co., Ltd.

Middle East
5 Bases

While the ratio of UNIC overseas sales to total sales was 20%
in the fiscal year ended March 31, 2008, we intend to lift this to

FURUKAWA UNIC (THAILAND)UNIC SALES (THAILAND)

40% by the fiscal year ending March 31, 2011.

Asia and Oceania
11 Bases

Industrial Machinery
In the industrial machinery business, we will utilize the Group’s

Number of Major
Sales Bases

PlantsBases

do you regard collaborative research with other companies andQ 5 . How
organizations and what kind of projects are you currently involved in?
The GaN substrate market is expected to reach approximate-

GaN Substrate Market Scale*ly ¥25.0 billion in the fiscal year ending March 31, 2011,25

March 31, 2013. Against this backdrop, the Furukawa Com-20pany Group plans to commence volume production, introducing to the market GaN substrates that used for blue-violet
laser diodes, a key component in the manufacture of next-(Billions of yen)growing to around ¥50.0 billion by the fiscal year ending

GaN substrates(2 inches)

15
LD
10

LED
Electronic devices

5

generation DVD players, as well as white light-emitting di-0odes used for lighting and other applications. In addition, we

2008

2009

2010

2011

2012

2013

*The GaN market
scale as estimated by
FURUKAWAwill work to develop higher-value-added products including
GaN epi-wafers for electronic devices that are expected toNotes: 1. A light-emitting material that uses incoming radiation energy

be used in automotive power devices.
In an exciting new move, we are developing lutetium

2. Positron Emission Tomography
3. Positron Emission Mammography

1aluminum garnet (LuAG) scintillator crystals to help realize
next-generation PET2 cancer screening equipment and PEM3
breast cancer detection equipment as well as resource (oil)exploration equipment.

Q 6 . Please tell us about the Group’s capital investment plan.

6

The Furukawa Company Group plans to invest ¥18.0 billion overlion to boost production and establish a paint factory and a new

the next three years in equipment and facilities as it strives to im-technical training center in the UNIC machinery business and ¥2.4

plement each of the aforementioned initiatives. In specific terms,

billion in the electronic materials business to install GaN substrate

we intend to allocate ¥5.0 billion to increase production and in-mass-production equipment and establish a facility for GaN epi-

stall heat treatment equipment in the rock drill business, ¥3.0 bil-wafer development.

FURUKAWA Annual Report 2008

B U S I NE SS AT A G LA N C E% of Net Sales

Machinery

35.5%

Businesses

Core Business Company

Main Products

Industrial
Machinery

Furukawa Industrial
Machinery Systems
Co., Ltd.

Pumps, environmental machinery, plants, steel
structures, castings, stone crushers

Rock Drills
Furukawa Rock Drill(Construction &Co., Ltd.
Mining Machinery)

Rock drills (hydraulic breakers, hydrauliccrawler drills, tunnel drill jumbos, etc.)

UNIC Machinery

Furukawa UNIC
Corporation

UNIC cranes, UNICPAL, UNIC carriers and mini
crawler cranes

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, and optical parts

Chemicals

Furukawa Chemicals
Co., Ltd.

Cuprous oxide, sulfuric acid, aluminum sulfate
and titanium dioxide

Real Estate

Furukawa Co., Ltd.

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

Fuels

Furukawa Commerce*Co., Ltd.

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

OthersFurukawa Co., Ltd.

Transportation service by trucks and domestic
shipping

Metals45.7%
Electronic Materials
and Chemicals

7.2%
Real Estate

1.3%
Fuels and Others

10.3%*In July 2008 Furukawa spun off its fuels business to its wholly owned subsidiary, Furukawa Commerce Co., Ltd.

FURUKAWA Annual Report 2008

7

R E V I E W OF OP E R AT ION S

MachineryIn fiscal 2008, the year ended March 31, 2008, the Machinery Division achieved an 11.9% increase in sales
compared with the previous fiscal year, to ¥75,841 million. Operating income rose 15.9% year on year to¥6,838 million, while the operating margin improved 0.3 of a percentage point to 9.0%.

Net Sales

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

80

75.8

70.3
63.2

67.8

62.3

Operating Margin
6.8

7

5

4.3

8.7

4.2

6.8

3

6.0
5.7

6

2

20

9.0

8

3.5

4
40

10

5.9

6

60

(%)

1
0

‘04

‘05

‘06

‘07

‘08

0

‘04

‘05

‘06

‘07

‘08

4

‘04

‘05

‘06

‘07

‘08

Industrial Machinery
Net Sales

Operating Income (Loss)

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

（%）

40

5

10

4

30

4.8
5

3
20

17.5

16.2

17.0

17.3
14.1

2

0

10

(1.0)

0
0
‘04

‘05

‘06

‘07

‘08

-1

(1.2)

0.8

1
(0.2)

(0.1)

‘04

‘05

0.1

0.5
(0.9)

-5
(5.8)

‘06

‘07

‘08

-10

‘04

‘05

‘06

‘07

‘08

Business Environment

through the reorganization of unprofitable operations and

Demand is weak for industrial machinery in the civil en-other initiatives. As a result, net sales in the industrial ma-

gineering and rock drill industries, affected by a cutbackchinery business rose 22.8% to ¥17,332 million, and op-

in public-sector investment. On the other hand, demand

erating income amounted to ¥838 million, 11.5 times theis growing in the steel and nonferrous metal industries,

amount recorded in the previous fiscal year, while the op-

which are accelerating capacity enhancement and facility

erating margin improved 4.3 percentage points to 4.8%.

renewal on the back of their robust performance. At the
Yasuji Tomiyama

same time, these industries are seeing a greater number ofStrategies from Fiscal 2009

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

capital investment plans announced by industry players,

Aiming to bolster its earnings power, Furukawa will

aimed at promoting energy saving and efficient use ofstrengthen its sales and marketing capabilities and ad-

natural resources. Meanwhile, with inquiries for stonevance cost reductions through improved production effi-

crushers, pulverizers and briquetting machines increasing

ciency, while accelerating the development and launch offrom the food, pharmaceutical, chemical and engineering

new core products. In more specific terms, Furukawa will

industries, Furukawa has high expectations for expanding

enhance the lineup of the Dream Mill pneumatic micro-

into new markets.

powder-producing equipment series while progressing
with the development of such next-generation strategic

General-purpose slurry pump

Fiscal 2008 Overview

products as new pump products and electrostatic precipi-

In the industrial machinery business, Furukawa continued

tators. Furthermore, the Furukawa Company Group willprofitability-focused sales and marketing and cost reduc-leverage its comprehensive capabilities to penetrate into

tion efforts. Sales increased for pump products and steel

overseas markets, introducing core products including

structures, and profitability in this business improved,slurry pumps, stone crushers and briquetting machines.

thanks to enhanced management efficiency achieved

8

FURUKAWA Annual Report 2008

Rock Drills (Construction & Mining Machinery)
Net Sales(Billions of yen)

37.5

40
32.8
30

26.8

Operating Income

Operating Margin(Billions of yen)

（%）

5

28.7

9.9

10

33.0

3.7

4
3.1
3

9.4

7.9

8

2.6

20
2
1.2

10

1.4

6

1

4.4
5.0

0

0
‘04

‘05

‘06

‘07

‘08

‘04

‘05

‘06

‘07

4

‘08

‘04

‘05

‘06

‘07

‘08

Business Environment

Strategies from Fiscal 2009

Despite concerns for potential demand decline in certain

Furukawa’s rock drill business is ready to enjoy the posi-

overseas markets attributable to the indirect impact of thetive outcome of its efforts to penetrate into the markets in

U.S. subprime loan crisis, overall conditions are favorable

Eastern Europe, Central and South America and Africa.

overseas, with demand remaining strong for rock drills

Specific initiatives scheduled for implementation in theused in infrastructure and mine development. Demandfiscal year ending March 31, 2009 include the establish-

remains robust, especially in emerging countries, which

ment of a representative office in the Middle East, which

Yoichiro Katoare rapidly advancing infrastructure development, andis aimed at expanding sales and building an efficient ser-President and Representative
Director
Furukawa Rock Drill Co., Ltd.

the BRIC countries, in particular, which are expected tovice structure in the region. In addition, Furukawa plansshow further increase in demand for natural resources.

to turn its representative office in India, which was

These situations are fueling the expansion of the rock drill

opened in 2007, into a subsidiary and lay out a frame-market on a global scale.

work for sales expansion through promotion of local hires
in the country.

Fiscal 2008 Overview

On the domestic front, Furukawa will continue toDomestic sales in the rock drill business decreased due tointroduce new high-quality products boasting superiora sales decline for tunnel drill jumbos and crawler drills

environmental performance, thereby maintaining a sub-attributable to fewer public-sector construction projects,

stantial market share of rock drills.

which more than offset the strong performance of breakers and crushers. On the other hand, overseas sales werebrisk, except in the United States. Behind such successabroad were aggressive sales and marketing activities
conducted in Middle Eastern and Southeast Asian markets, the release of tunnel drill jumbos for mine development in the Russian market and expanded shipments in
China and South Korea. As a result, net sales in the rock
drill business surged 13.5% year on year to ¥37,497 million, and operating income soared 18.6% to ¥3,702 milHydraulic breakers

lion. The operating margin rose 0.5 of a percentage point

Hydraulic crawler drills

to 9.9%.

Market Share
Hydraulic crawler drills

Hydraulic breakers

60%

30%

35%

30%

Japanese Market Share

Global Market ShareJapanese Market Share

Global Market ShareFURUKAWA Annual Report 2008

9

UNIC Machinery
Net Sales

Operating Income

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

（%）

40

5

30

4

20

18.8

17.4

20.5

20.6

21.0

20
17.8
3.3

3

2.2

2.6

2.7

2.3

15

2
10

12.9

0

0
‘04

‘05

‘06

‘07

‘08

13.1

12.8

1
‘04

‘05

‘06

‘07

10

‘08

‘04

‘05

10.9
‘06

‘07

‘08

Business Environment¥21,012 million, while operating income decreased

In the domestic market, truck replacement demand asso-

15.1% to ¥2,298 million mainly due to an increase in

ciated with enhanced gas emission regulations has sub-initial costs associated with overseas business expansion.

sided, which resulted in a severe operating environment

The operating margin dropped 2.2 percentage points tofor the UNIC machinery business. Meanwhile, overseas

10.9%.

markets still have potential demand waiting to be cultivated, due to low recognition of truck-mounted cranes on

Strategies from Fiscal 2009

Susumu Nakamura

a global scale. In particular, in resource-producing coun-

In Japan, Furukawa will work to expand sales of the U-

President and Representative
Director
Furukawa UNIC Corporation

tries and other regions, where these cranes’ operator-

can ECO crane series and a new operator-friendly joystickfriendliness is gradually being recognized, signs haveremote crane controller. At the same time, Furukawa aims

emerged of a growing demand. Thus, there are high ex-

to increase sales of such new strategic products as stand-

pectations for market expansion of UNIC machinery busi-

alone mini crawler cranes, UNICPAL swing-boom typenesses in the future.

truck-mounted cranes and the ship-mounted Ocean
Crane. Overseas, the Furukawa Company Group will bol-

Fuel-efficient U-can ECO craneFiscal 2008 Overview

ster sales and marketing activities based on a penta-polar

The export of UNIC products steadily increased thanks to

structure focusing on North America, Europe, Russia andFurukawa’s strategic entry into the European mini crawler

CIS countries, Asia and Oceania and the Middle East.

crane and Russian UNIC crane markets. Domestic ship-

On the production front, Furukawa will pursue in-ments of UNIC products declined, following a lull in thenovation in its manufacturing systems and achieve inven-

first half of the previous fiscal year in special procure-tory and lead-time reductions by introducing the Toyota

ments attributable to enhanced gas emission regulations.

Production System at its flagship Sakura Factory in Chiba

Nevertheless, Furukawa steadily increased sales of thePrefecture, Japan. Furthermore, through the establishment

U-can ECO truck-mounted crane series, which won anof a tripolar, optimal manufacturing and procurement“Energy Conservation Center Chairperson’s Prize” at thestructure underpinned by the Sakura Factory, Taian Furu-

18th Energy Conservation Award event held in 2007, andkawa Machinery Co., Ltd. in China and Furukawa UNIC

have been received well by many users. As a result, net(Thailand) Co., Ltd., Furukawa strives to realize further

sales in the UNIC machinery business grew 1.9% tocost reductions.

Market Share
Truck-mounted cranes (UNIC cranes)

UNIC carriers

45%Japanese Market Share10

FURUKAWA Annual Report 2008

Vehicle carriers (UNIC carriers)

46%

Japanese Market ShareMetals
The Metals Division increased sales by 15.1% year on year, to ¥97,520 million. Operating income declined
29.8% to ¥6,207 million, while the operating margin dropped 4.0 percentage points to 6.4%.

Net Sales(Billions of yen)

97.5

100

84.8

Operating Income (Loss)

Operating Margin(Billions of yen)

(%)

8.8

10
8

80

5.8

6
42.2

40

2

35.9

1.0

6.4
2.9

0

(5.0)

0

-4

-2

20

-8

-4
0

10.4

8
4

4

52.7

60

11.0

12
6.2

‘04

‘05

‘06

‘07

‘08

-6

‘04

‘05

‘06

‘07

‘08

Business Environment

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

Demand for electrolytic copper remains robust, particularly from the automobile and semiconductor industries
in Japan, while demand from the construction industry
remains on a downward trend due to the adverse effectsof the revised Building Standards Law of Japan and surging copper prices. Domestic demand for sulfuric acid also
remains strong, especially for fertilizer and industrial applications, while overseas demand for the product continues to show healthy growth.
Meanwhile, a tightening supply-demand condition
for ore has led to a worsening in Treatment & Refining
Charge (TC/RC), including the abolishment of a slidingscale-based portion of copper prices, which has beenpreviously recognized as smelters’ take. These situations
have collectively resulted in a harsh operating environment for custom smelters.

Fiscal 2008 Overview

Copper cathode

Despite a slight decline in the second half of the fiscal
year under review, the price of electrolytic copper inoverseas markets stably floated in a high range of aroundjust below US$8,000 per ton in the first half, maintaining
high-level prices throughout the period. The domestic
market price also trended favorably, with a quoted annual

Copper prices and foreign exchange rates
LME Copper price (average; ¢/lb)
JPY rate per US dollar (average of fiscal year)

Copper production and sales volume*

2004

2005

-12

(12.0)
‘04

‘05

‘06

‘07

‘08

average of ¥910,000 per ton. The sales volume of electrolytic copper grew 7,286 tons year on year to 95,807 tonsin line with increased production by contract smelters.
Concerning ore trading, the Metals Division experienced
severe operating conditions attributable to the abolishment of a sliding-scale-based portion of copper prices
within the TC/RC framework and the yen’s appreciation
toward the end of the period.

Strategies from Fiscal 2009
Prioritizing profitability, the Metals Division will reinforce
its focus on the domestic sales of electrolytic copper. Regarding sulfuric acid, for which Furukawa has secured
reliable sales channels in Japan, the division will continue
domestic sales while conducting profitability-focusedoverseas sales.
In ore procurement, the division is working to explore new supply sources, as a way to prepare Furukawa
for such unforeseeable events as TC/RC revisions and interrupted production. Also, from the perspectives of securing new suppliers of copper ore and countering
overseas nonferrous metals powerhouses’ oligopolistic attempts, the Furukawa Company Group will advance operations in a meticulous manner to seize investment
opportunities without fail.

2006

2007

2008

92.8

136.1

185.8

316.2

344.0

¥114.07¥108.55¥114.32¥118.03¥114.28

2004

2005

2006

2007

2008

Copper production volume (tons)

81,386

83,33584,49888,686

95,355

Copper sales volume (tons)

91,36883,88384,46488,521

95,808*Furukawa Metals & Resources Co., Ltd.

FURUKAWA Annual Report 200811

Electronic Materials and Chemicals
Sales in the Electronic Materials and Chemicals Division dipped 3.9% year on year to ¥15,277 million.
Operating income edged down 30.3% to ¥1,455 million, while the operating margin slid 3.6 percentage
points to 9.5%.

Net Sales

Operating Income

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

(%)

25

4

15

21.2
20
15

17.5

13.1
15.9

14.0

15.3

3
2.1
1.7

2
10

1.5

9.9

1.5

1.1

9

1

5
0

12

‘04

‘05

‘06

‘07

‘08

0

‘04

‘05

‘06

‘07

‘08

6

‘04

9.5
7.1

7.6

‘05

‘06

‘07

‘08

Electronic Materials
Net Sales

Operating Income

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

（%）

3

20

15

15.9
15
10

12.5

2
9.4

9.2

12
1.3

8.8

1.4

‘05

‘06

‘07

‘08

0

11.2

1.0
9

5

‘04

11.5

1.4
1.1

1

0

14.8
14.3

‘04

‘05

‘06

‘07

‘08

6

6.7
‘04

‘05

‘06

‘07

‘08

Business Environment

lion owing to a decline in sales of healing accessories and

Demand for high-purity metallic arsenic is robust owing

high-purity metallic arsenic, coupled with a deteriorated

to strong demand for gallium arsenate semiconductors—

yield in other crystal products. The operating margin con-the main use for the material—in Japan and overseas,

sequently slipped 3.6 percentage points to 11.2%.

amidst ever-intensifying competition in this material’sbusiness. Demand for other crystal products is maintain-

Strategies from Fiscal 2009

ing its momentum, while demand for healing accessories

Concerning high-purity metallic arsenic, Furukawa will

Yasuhei Konagaya

is declining due to the fading boom of germanium acces-

further its cost-reduction efforts while bolstering sales andPresident and Representative
Director
Furukawa Denshi Co., Ltd.

sories. Core coils for line filters are showing brisk de-marketing activities in Japan and overseas to maintain amand, particularly for automotive applications.

high market share. In other crystal products, Furukawa
will work to improve yield and productivity and thereby

Fiscal 2008 Overview
In the high-purity metallic arsenic business, sales decreased due to expanded sales of competitors, despite thedemand for gallium arsenate semiconductors remaining
almost unchanged compared with the previous fiscal year.
Demand for other crystal products expanded, leading toan increase in sales. As a result, net sales in the electronicmaterials business dipped 6.5% year on year to ¥8,751
million. Operating income dropped 29.1% to ¥984 mil-

12

FURUKAWA Annual Report 2008

High-purity metallic arseniccontribute to enhanced competitiveness of Furukawa’s

Furthermore, the Furukawa Company Group is bol-customers. Regarding aluminum nitride ceramics, Furu-

stering operations for gallium nitride substrates to makekawa will strive to pioneer the product’s application as athe operations a pillar for its overall business.

heat-sink in electronic parts.

Market Share
High-purity metallic arsenic

Gallium phosphorus polycrystals

85%

65%

40%

40%

Japanese Market Share

Global Market ShareJapanese Market Share

Global Market Share

Chemicals
Net Sales

Operating Income (Loss)

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

（%）

20

3

12

15

2

8

10
5

1
4.7

5.0

5.3

6.5

6.5

0.3

0.4

0.7

6.1

8.2

7.2

4
0.5
0

0
(0.3)

0
‘04

10.7

‘05

‘06

‘07

‘08

-1

‘04

-4
‘05

‘06

‘07

‘08

(5.6)
‘04

‘05

‘06

‘07

‘08

Business Environment

Strategies from Fiscal 2009

Buoyed by a worldwide shipbuilding boom in recent

Furukawa aims to improve profitability in operations re-years, demand remains strong for cuprous oxide, which islating to its existing products, including cuprous oxide. To

used in paints for ship bottoms. Shipments of polymeric

this end, it will focus on the three initiatives of securing

ferric sulfate solution, an aggregating agent used to treat

stable raw material supplies, strategically transferring raw

wastewater, are showing steady growth due to stable pub-material cost increases to product prices and further re-lic- and private-sector demand. In addition, demand for

ducing costs. In new products, Furukawa will enhance

Fumio Kato

sulfuric acid is trending favorably.

the market presence of its copper-coating cuprous oxide

President and Representative
Director
Furukawa Chemicals Co., Ltd.

Fiscal 2008 Overview

of which the Furukawa Company Group began manufac-

Despite copper prices hovering in a high range and strong

turing and sales in June 2008. To achieve this goal, Furu-

Market Sharedemand for cuprous oxide, cuprous oxide shipments andkawa will undertake necessary capital investments.

Cuprous oxide

adjustment, which resulted from tight supplies of raw ma-

used in the manufacture of printed circuit boards (PCBs),

sales both declined, negatively affected by production
terials. During the fiscal year under review, Furukawa discontinued the production of sapphire substrates due to an
unsuccessful negotiation with its main customer on trad-50%

ing conditions. As a result, net sales in the chemicals business decreased 0.2% to ¥6,525 million. Operating
income slumped 32.9% to ¥471 million, with the operating margin sinking 3.5 percentage points to 7.2%.

Cuprous oxide

Japanese Market ShareFURUKAWA Annual Report 200813

Real Estate
Real Estate Division sales, operating income and operating margin decreased 6.1%, 10.7% and 1.4 percentage points year on year to ¥2,758 million, ¥749 million and 27.2%, respectively.

Net Sales

Operating Income

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

(%)

5
4.1
4

5

50

4

40

3

30

41.5

3.8
3.1

3

2.9

2.8

2

2
1

1

0

0

‘04

‘05

‘06

‘07

‘08

1.7

‘04

29.1

28.6

27.2

‘06

‘07

‘08

20

1.4

‘05

35.9

0.9

0.8

0.7

‘06

‘07

‘08

10
0

‘04

‘05

Overview
In the division’s core office-building business, the supply-demand condi-

tor demand for office space continues to be robust. In such an environment,tion continues tightening, which is leading to the Tokyo metropolitan area’s

the Real Estate Division worked to reduce vacancies by acquiring new ten-

average vacancy rate staying at a very low level. In addition, corporate-sec-

ants and simultaneously to reduce expenses to improve profitability.

Fuels and Others
Sales in the Fuels and Others Division slumped 25.0% year on year to¥22,030 million. Operating loss totaled ¥660 million, compared with anoperating loss of ¥416 million recorded in fiscal 2007.
Overview
In Fuels, crude oil prices in March 2008 reached an all-time high in Dubai, and thereafter unit prices continued to rise. However, fuel demand kept declining. Under these circumstances, the Fuels and Other Division advanced sales and marketing activities based on stringent credit controls. As a result, net sales in thefuels business declined, and Furukawa recorded operating loss in this business mainly due to an increase inallowance for doubtful accounts.
In Others, primarily the transport and new businesses, net sales increased, but operating income declined.

Net Sales

Operating Income (Loss)

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

(%)

40

1.0

34.6
30.0

30

27.7

0

(0.2)

-0.5

29.4

0.5
-1.0

22.0

(0.2)
10

-0.5

0

-1.0

(1.2)

-1.5

0

20

(0.5)

(0.1)
(0.3)

(1.4)

-2.0
(0.4)

-2.5
(0.7)

14

‘04

‘05

‘06

FURUKAWA Annual Report 2008

‘07

‘08

‘04

‘05

‘06

‘07

‘08

-3.0

(3.0)
‘04

‘05

‘06

‘07

‘08

E N V I R O N MEN TA L PR O TE CTION AND SOCIAL CONTRIBUTION ACT IVITIESThe 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 with the environment, consider the improvement of the environment, and contribute to the development of a sustainable society. We areaware of the important role we play in giving back to the community as a good corporate citizen and strive to contributein every way we can through the involvement of every Furukawa employee.

Environmental Management
Environmental management system
The senior decision-making body for environmental protection activities is
the Central Committee for Environmental Management, in which the president and directors participate. The Environmental Management Subcommittee studies, proposes, directs and monitors environmental protection
activities.
The companies of the Furukawa Company Group have each established their own Environmental Management Committee, chaired by theirown top management, to formulate environmental protection plans anddirect environmental protection programs.
Furthermore, the Committee of Environmental Protection Supervisors
meets every year, bringing together the people who directly guide andmanage environmental and safety initiatives in each Group company. At
these meetings, the committee aims to fulfill three basic purposes: 1. tohelp improve the competency of environmental protection supervisors at
each Group company; 2. to prevent accidents and disasters through concerted efforts to share information and reflect it in its daily business management; and 3. to verify revisions to environment-related regulations.

Environment and safety auditing
Setting up policies for environment and safety auditing, the Furukawa Company Group conducts audits on an annual basis for its legal complianceand working environment, as well as on the control and maintenance of its
facilities. From fiscal 2008, ended March 31, 2008, we changed the designation “environmental protection auditing” to “environment and safety auditing,” in pursuit of detailed auditing for occupational health and safety on
top of the existing environmental protection auditing. Furthermore, we
commenced cross-auditing to have environment protection supervisors at
each plant audit each other’s workplace. This helps us to gain a different
viewpoint and develop capabilities to spot areas that need improvement.
With the new system, we are going to implement auditing of higher effectiveness, while striving to raise the awareness of all employees.

Environmental Protection Activities
The Furukawa Company Group is striving to lessen environmental burden
by working to meet the targets it has set for fiscal 2009, the year ending
March 31, 2009. Targets are based on a comparison of fiscal 2004 consumption levels and aim to reduce natural resources and energy consumption.

Environment-Friendly Products
The Furukawa Company Group vigorously develops products related to theenvironment that contribute to the realization of an environmentally conscious society.

Low-noise, low-vibration hydraulic breakers
Hydraulic breakers that realize low noise and vibration are helping to contribute to the improvement of environments in and around construction-siteareas.

Fuel-efficient cranes
Enabling up to 40% more energy efficiency compared with the existingproduct lineup to significantly contribute to the reduction of greenhousegas emissions, the U-can ECO crane series received the 18th Energy Conservation Center Chairperson’s Prize of the Energy Conservation Awards
in 2007.

Development of LuAG scintillator crystals
Scintillator crystals have the characteristic of transforming gamma rays into
photons, and they are used for various
applications, including the high-energy
physics, medical, industrial and agricultural fields. Furukawa was granted
the 2007 Japan Mining Industry Association Award.

LuAG scintillator crystal

Dream Mill pneumatic micropowderproducing equipment
The Dream Mill series offers pneumatic micropowder-producing equipment that can turn objects into ultrafine powder of a few micrometers
without changing the crushed objects’ properties with heat. With this capability, the Dream
Mill series received the Chairman’s Award at thePrize for Promoting Machine Industry hosted by
the Japan Society for the Promotion of Machine
Industry in 2007.

Dream Mill pneumatic
micropowder-producing
equipment

Social Contribution Activities
Category

Fiscal 2009 (target)

Electricity

40% reduction of fiscal 2004 consumption

Heavy oil

25% reduction of fiscal 2004 consumption

Natural gas

10% reduction of fiscal 2004 consumption

Water

25% reduction of fiscal 2004 consumption

Total discharge ofindustrial waste, etc.

35% reduction of fiscal 2004 consumption

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 to maintain 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), accepting internships, hosting factory visits,
conducting fund-raising events, arranging blood-donor drives, and loaning
its land for free to local environmental associations.

FURUKAWA Annual Report 200815

C O R POR AT E G O V ER N A N CE

The basic policy of the Furukawa Company Group is to contribute to society, our shareholders and other stakeholders bybuilding an efficient management structure that will yield stable profits and increased corporate value through greater
management transparency and continuous innovation in our corporate structure. This policy binds the Group’s businesses
together to ensure Group integrity, while enabling them to manage their individual operations under a flexible management structure with a clear focus on asset management and accountability for gain and loss. At the same time, Groupbusinesses leverage collective strengths to maximize corporate value by providing products and services that achievecustomer satisfaction.
Board of Directors, the Management Council, the Management Committee
and other important management meetings. In addition, they receive business reports from directors, audit business sites and subsidiaries and monitor the performance of duties carried out by directors. The audit function isfurther reinforced by the Audit Office, an organization in charge of internal
auditing. The Audit Office is composed of six members who engage in auditing Group-wide operations management and the execution of business
operations. In order to ensure the efficiency and effectiveness of the audit
function, Furukawa continuously works to reinforce cooperation between
the Audit Office, auditors and independent auditors, who together devise
audit plans, review audit results and share other audit-related information.

System of Corporate GovernanceFurukawa maintains a Board of Directors comprising nine members, one ofwhom is appointed from outside the Group. The Board of Directors oversees
the execution of the Furukawa Company Group’s operation and in principle
meets once every month, with additional meetings held as required.
To clearly separate management oversight functions from executivefunctions, accelerate decision-making and clarify responsibilities, Furukawa has adopted an executive officer system. Furukawa’s executive officers
have become representative directors at six core companies in the interestof promoting an agile management structure. As of June 27, 2008, the system comprised 15 executive officers, six of whom concurrently hold positions as directors.
The Management Council 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 companies, andprovides direction. Decisions made by the Management Council that involve the allocation of funds or other important management issues must
be discussed and approved by a resolution of the Board of Directors. Furthermore, important matters that have been determined by individualGroup companies are discussed and reviewed by the Board of Directors
and other relevant bodies.
Furukawa uses an auditor system, with a Board of Auditors composedof two statutory auditors and three outside auditors. Pursuant to an audit
policy formulated by the Board of Auditors, auditors attend meetings of theCompliance and System of Risk Management
The Furukawa Company Group has formulated a Corporate Conduct Charter and an Employees’ Code of Behavior. Every effort is made to ensure that
all members of the Group are fully aware of and practice the principles
contained in each.
Furukawa also recognizes effective risk management as an important
aspect of its business activities. In addition to identifying and assessing potential risk and formulating preventive and response measures as well as
remedial initiatives, the Group has established the Risk Management &Compliance Committee for the purpose of formulating the Group’s basic
policies toward risk management and compliance. Through these means,
Furukawa is committed to developing a comprehensive structure capableof addressing all relevant issues.

Corporate Governance Organization Chart

Shareholders’ Meeting
Appoints/recalls

Independent
Auditors

Appoints/recalls

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

Reports

Reports

Appoints/recalls/oversees

Risk Management& Compliance
Committee

Approves appointments/recalls

Reports

AuditsReports

Directs
Directs/
oversees

Reports

Management
Committee

Reports

Board of Auditors
5 members(2 statutory, 3 external)

President & Representative Director
Directs/
oversees

Appoints/recallsManagement
CouncilReports
Reports

AuditsAuditsAll Divisions and Group Companies

FURUKAWA Annual Report 2008

AuditsAudit Office

Executive Officers(15 members)

16

Appoints/recalls

AuditsF I N A NC IA L SEC TION

Contents
Consolidated Six-year Financial Summary

18

Financial Review

19

Consolidated Balance Sheets

22

Consolidated Statements of Income

24

Consolidated Statements of Changes in Net Assets

25

Consolidated Statements of Cash Flows

27

Notes to Consolidated Financial Statements

28

Report of Independent Auditors

39

FURUKAWA Annual Report 200817

Consolidated Six-year Financial Summary
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended March 31

For the year:
Net sales ......................................................
Cost of sales .................................................
Gross profit ..................................................
Selling, general and administrative expenses ....
Operating income (loss) ................................
Income (loss) before income taxes andminority interests ......................................
Net income (loss) .........................................
Cash flows from operating activities .............
Cash flows from investing activities ..............
Cash flows from financing activities .............
Capital expenditures .....................................
Depreciation and amortization .....................
At year-end:
Total assets ...................................................
Current assets ...............................................
Current liabilities ..........................................
Net assets (Note 1) .......................................
Interest-bearing liabilities .............................

Millions of yen

2008

2007

2006

2005

2004

2003

¥ 213,426
181,522
31,904
17,497
14,407¥ 200,749
167,507
33,242
16,343
16,899¥ 181,938
153,281
28,657
16,527
12,130¥ 147,237
124,586
22,651
15,2687,383¥ 153,513
135,872
17,641
15,6172,024¥ 151,630
136,509
15,121
16,712(1,591)

12,484
8,595
12,823(855)(13,835)
4,374
2,993

11,127
17,554
12,648(4,367)(8,910)
3,905
2,626

9,810
5,309
8,254
(336)
(18,086)
1,777
2,595

4,199
2,257
7,698
7,620
(8,227)
2,994
3,026

(35,238)(27,634)(3,083)25,602(14,962)
2,995
6,533

(22,032)(17,000)(2,153)(4,538)
1,108
5,814
6,261

¥ 199,383
88,88880,48755,431
77,907¥ 217,027
94,86589,29352,13689,389¥ 213,046
89,05588,22043,072
99,418¥ 204,651
92,197
104,439
31,335
116,851¥ 206,250
83,777
81,213
28,660123,995¥ 252,856
79,552
94,056
33,665140,389

¥

5.57
5.03
—
77.49

¥ (84.61)
—
—
70.86

¥ (67.88)——
134.23Yen

Per share amounts:
Net income (loss):
Basic ........................................................
Diluted .....................................................
Cash dividends .............................................
Net assets .....................................................

¥

21.26
—
6.00
134.33

¥

43.42
—
5.00
139.13

¥

13.12
12.37
3.00
106.52

Profitability:
Cost of sales margin (%) ...............................
Gross margin (%) ..........................................
SG&A expense margin (%) ...........................
Operating margin (%) ...................................
Return on sales (%) .......................................

85.1
14.9
8.2
6.8
4.0

83.4
16.6
8.1
8.4
8.7

84.2
15.8
9.1
6.7
2.9

84.6
15.4
10.4
5.0
1.5

88.5
11.5
10.2
1.3
(18.0)

90.0
10.0
11.0
(1.0)
(11.2)

Efficiency and soundness:
Return on equity (%) (Note 2) .......................
Return on assets (%) (Note 3) ........................
Debt-to-equity ratio (times) (Note 4) .............
Equity ratio (%) (Note 5) ...............................

15.5
4.1
1.4
27.2

35.3
8.2
1.6
25.9

14.3
2.5
2.3
20.2

7.5
1.1
3.7
15.3

(88.7)(12.0)
4.3
13.9(40.7)
(6.4)
4.2
13.3

Stock market value ratios
Dividend payout ratio (Note 6) .....................
Price book value ratio (times) (Note 7) ..........
Stock price at fiscal year-end ........................

28.2
1.4
183

11.5
2.1
293

22.9
2.9
306

—
1.8
143

—
2.0
142

—
0.5
64

Notes: 1. Figures for fiscal 2003 to fiscal 2006 represent total shareholders’ equity.
2. Return on equity = Net income/Average total equity×100
3. Return on assets = Net income/Average total assets×100
4. Debt-to-equity ratio = Interest-bearing liabilities (fiscal year-end)/Total equity [Shareholders’ equity] (fiscal year-end)
5. Equity ratio = Total equity [Shareholders’ equity] (fiscal year-end)/Total assets (fiscal year-end)×100
6. Dividend payout ratio = Total cash dividends/Consolidated net income×100
7. Price book value ratio = Stock price at fiscal year-end/Net assets per share
8. Total equity = Net assets-Minority interests (As of March 31, 2008: ¥54,301 million; As of March 31, 2007: ¥56,246 million)

18

FURUKAWA Annual Report 2008

Financial Review
income in the Metals Division, reflecting weak TC/RC conditions.

Revenue and Expenses
Consolidated net sales in the fiscal year ended March 31, 2008

Under other expenses, ¥2,381 million in interest expense wastotaled ¥213,426 million, an increase of 6.3% compared with therecorded. Principal components in other, net, under other income

previous fiscal year. This total was the result of a 15.1% year-on-

and expenses included a ¥656 million loss on disposal and deval-year improvement in net sales of the Metals Division on the con-uation of inventories, a ¥637 million write-down of investments intinued strength of high copper prices and shipment growth, as wellsecurities and ¥1,475 million in gains related to a copper smelting

as an 11.9% upswing in Machinery Division net sales on the backbusiness in Australia. This latter gain is attributable to certain fac-of robust overseas rock drill shipments. These positive factors more

tors including a review of provisions in connection with a copper

than offset the drop in Fuels Division net sales, which declined

smelting subsidiary in Australia, taking into consideration progress

26.5% year on year. Throughout the fiscal year under review,to date of voluntary environmental cleanup plans.

crude oil prices continued to surge, marking all-time highs in

As a result, income before income taxes and minority interests

Dubai. While unit prices rose thereafter, demand for fuel main-increased 12.2% year on year to ¥12,484 million. After account-tained its downward spiral and the Company implemented strin-

ing for current and deferred income taxes totaling ¥3,948 million,

gent credit controls.

net income amounted to ¥8,595 million, a drop of 51.0% compared with the previous fiscal year.

Cost of sales increased 8.4% to ¥181,522 million, with the costof sales margin rising 1.7 percentage points to 85.1%. This

Turning to shareholder returns, Furukawa distributed full fiscal

upswing was mainly attributable to weak copper treatment andyear dividend payments of ¥6.00 per share (including an interimrefining charge (TC/RC) conditions in the Metals Division. Selling,

dividend payment of ¥2.50 per share), a ¥1.00 per share increase

general and administrative expenses climbed 7.1% year on year toyear on year.

¥17,497 million owing mainly to increases in salaries andallowances as well as shipping charges. Accounting for the afore-

Financial Position

mentioned factors, operating income declined 14.7% compared

Total assets as of March 31, 2008 stood at ¥199,383 million, anwith the previous fiscal year to ¥14,407 million. Despite higher

8.1% decrease compared with the end of the previous fiscal year.

operating income in the Machinery Division, which grew 15.9%

Current assets declined 6.3% year on year to ¥88,888 million due

year on year on the back of increased shipments in the rock drill

to such factors as the drop in cash and cash equivalents. Fixedbusiness and improved profitability in the industrial machinery

assets also contracted 9.6% to ¥110,495 million. Of this total,

business, this was due in large part to the 29.8% drop in operating

investments declined 23.0% year on year to ¥36,315 million. This

Operating Income

Net Income (Loss)(Billions of yen)(Billions of yen)(Billions of yen)

Operating Margin (%)

Return on Sales (%)

0

-10

-10

8.4

7.4

6.8

6.7

5.0
5

5

50

1.3
0
’07

’08

0
’04

’05

’06

’07

’08

-20

(27.6)

2.0

-20

’06

8.6

0
10

100

’05

10
4.0

12.1

2.3
1.5

15

10

’04

8.7

5.3

10

14.4

15

0

20

16.9

213.4

20

(18.0)

150

20

147.2

153.5

200

200.7

181.9

20

2.9

250

17.6

Net Sales

-30
’04

-30
’05

’06

’07

’08

FURUKAWA Annual Report 200819

was mainly attributable to a drop in investments in securities

Chemicals Division, primarily for improvements in manufacturingreflecting the decline in market values of stockholdings as of theefficiency. In addition, ¥338 million was allocated to the Realfiscal year-end.

Estate Division for maintenance on leased buildings and ¥49 mil-

Total liabilities fell 12.7% to ¥143,952 million owing tolion to the Fuels and Others Division for the purchase of vehicles

decreases in corporate bonds and debt as well as finance leasefor use in the transportation business.

obligations. As a result, the fiscal year-end balance of interest-bearing liabilities (corporate bonds and debt) contracted by ¥11,482

Cash Flows

million to ¥77,907 million.

Net cash provided by operating activities during the fiscal year

Net assets at the fiscal year-end stood at ¥55,431 million, up

under review totaled ¥12,823 million, an increase of ¥175 million

6.3% compared with the end of the previous fiscal year. Despitecompared with the previous fiscal year, owing mainly to income

the net unrealized holding loss on securities, net of income taxes,

taxes refunded.

this was mainly attributable to the turnaround from minority inter-

Net cash used in investing activities amounted to ¥855 million,

ests in losses of consolidated subsidiaries to minority interests ina drop of ¥3,512 million year on year. This was chiefly due to pro-income of consolidated subsidiaries and contributions from net

ceeds from the redemption of investments.

income. Accounting for the aforementioned factors, the equity

Net cash used in financing activities rose ¥4,925 million toratio improved 1.3 percentage points to 27.2%.

¥13,835 million, principally owing to repayment of finance leaseobligations.

R&D and Capital Expenditures

As a result, cash and cash equivalents at the end of the fiscal
year were ¥14,547 million, a 10.9% decrease year on year.

Research and development expenses for the fiscal year underreview were ¥1,941 million, representing 0.9% of consolidated
net sales. Of this total, ¥1,010 million was allocated to theBusiness Risks

Machinery Division and ¥931 million to the Electronic Materials(1) Fluctuations in the Foreign Exchange and Nonferrous
Metals Markets

and Chemicals Division.
Capital expenditures (including investments in intangible fixed

The Furukawa Company Group is at risk of foreign exchange fluc-assets) amounted to ¥4,374 million. Of this total, ¥3,017 million

tuations in connection with its export business, the import of raw

was allocated to the Machinery Division, ¥120 million to thematerials, primarily copper ore, and smelting and processing

Metals Division and ¥484 million to the Electronic Materials andincome. In addition, the Furukawa Company Group’s stock of

Total Assets

Net Assets(Yen)(Billions of yen)(Billions of yen)

Return on Assets (%)

Return on Equity (%)

40

8.2

43.1
40

30

0

-50

50

0
’04

’05

’06

’07

’08

10

0
(88.7)(12.0)(84.61)
-100

-6

10

7.5

20

-75

20
14.3

30

2.5

1.1

100

31.3

4.1

6

15.5

150
-25

55.4

50
12

0

50

35.3

200

60
52.1

199.4

213.0

204.7

217.0

18
206.3

13.12

5.57

25

250
21.26

50

28.7

43.42

Net Income (Loss) per Share

’04

’05

’06

’07

’08

-12

0

-100
’04

’05

’06

’07

’08

Net assets of fiscal 2004 to fiscal 2006 represent total
shareholders’ equity.

20

FURUKAWA Annual Report 2008

nonferrous metal inventories, an internationally traded commodi-

Group adopts assumptions in connection with the discount ratety, is subject to market movements. While the Furukawa Company

and expected rate of return on plan assets, as well as otherGroup utilizes foreign exchange contracts and forward delivery

assumptions. Accordingly, the Furukawa Company Group’s oper-transactions as a hedge against the aforementioned risks, its oper-

ating results and financial position are at risk in the event the actu-

ating results and financial position may be adversely affected by

al discount rate and expected rate of return on plan assets differs

movements in exchange rates and nonferrous metal markets

materially from the assumptions, as well as in the event of achange in the assumptions on which accrued employees’ retire-(2) Investments in Securities and Landment benefits are made.

Historically, the Furukawa Company Group has maintained relatively high balances of marketable securities and land. In recent(4) Earthquake and Natural Disasters

years, however, the Group has worked to streamline assets and

The Furukawa Company Group’s operating results and financial

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

position are at risk in the event of a suspension in operations andMarch 31, 2008, the carrying value of investments in securities

delays in shipments due to damage to manufacturing bases andwas ¥21,751 million, while land stood at ¥45,978 million.

facilities from earthquakes and other natural disasters.

Accordingly, the Furukawa Company Group’s operating results
and financial position are at risk of impairment losses, losses from

(5) Environmental Protection

devaluation and losses on sales due to movements in stock and

The Furukawa Company Group places the highest importance onland prices.

environmental protection, environmental safety, and prevention ofpollution, and it has implemented stringent measures at all busi-(3) Accrued Employees’ Retirement Benefits

ness sites, both in Japan and overseas, respecting all laws and reg-

The employees of the Furukawa Company Group are covered byulations. Furthermore, in Japan the Group is vigilant in preventing

unfunded employee retirement benefit plans and non-contributory

water run-off from idle mines from contaminating water supplies

funded employee pension plans as defined-benefit plans. Accrued

and in preventing the buildup of slag or slurry. The Furukawa

employees’ retirement benefits are provided at an amount calcu-

Company Group also maintains tight security at metals deposition

lated based on the retirement benefit obligation and the fair value

sites. However, in the event of new legislation or similar direc-

of pension plan assets at the balance sheet date. In calculatingtives, there is a possibility that the Group’s performance results

accrued employees’ retirement benefits, the Furukawa Company

and its financial standing could be influenced.

Equity Ratio

Capital Expenditures
Depreciation and Amortization(%)

Cash Flows(Billions of yen)
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities(Billions of yen)

30

30

6.5

25.6

27.2

25.9

8

25

’05

’06

’07

’08

0

12.6
’04

’05

’06

’07

’08

-20

(0.9)

(4.4)

’04

’05

’06

(13.8)(18.1)

(8.9)

(8.2)
(15.0)

-10

’04

8.3
(0.3)

(3.1)

3.0

3.9
2.6

2
5

0

0

1.8

10

2.6

3.0

13.9

3.0
3.0

4

15

7.7
7.6

10

4.4

20.2
15.3

20

12.8

20
6

’07

’08

FURUKAWA Annual Report 200821

Consolidated Balance Sheets
Furukawa Co., Ltd. and consolidated subsidiaries
March 31, 2008 and 2007ASSETS

Thousands of
U.S. dollars (Note 4)

Millions of yen

2008

2007

2008

¥ 16,333$ 145,470
313,010

Current Assets:
Cash and cash equivalents (Note 7) ..................................................................................... ¥ 14,547
Receivables, trade (Note 7):
Notes and accounts ..........................................................................................................

31,301

31,342Affiliates ...........................................................................................................................

914

932

9,140

Inventories (Note 5) .............................................................................................................

35,30432,318353,040

Deferred income taxes (Note 13) .........................................................................................

2,001

1,982

20,010

Other current assets (Note 7) ................................................................................................

5,505

12,48055,050Allowance for doubtful accounts .........................................................................................

(684)

(522)

(6,840)Total current assets .......................................................................................................

88,88894,865888,880

Investments in securities (Notes 6 and 7) ..............................................................................

24,752

36,047

247,520

Investments in affiliates ........................................................................................................

3,217

2,065

32,170Loans receivable ..................................................................................................................

906

979

9,060

Deferred income taxes (Note 13) .........................................................................................

91

41

910

Other investments (Note 8) ..................................................................................................

8,681

9,152

86,810Investments:

Allowance for doubtful accounts .........................................................................................

(1,332)(1,138)(13,320)

Total investments .........................................................................................................

36,31547,146363,150

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

47,83548,395478,350

Buildings and structures .......................................................................................................

41,37540,545

413,750

Machinery and equipment ...................................................................................................

48,21247,754482,120

Construction in progress ......................................................................................................

22

1,348

712

13,480138,770

137,406

1,387,700

Accumulated depreciation ...................................................................................................

(64,590)(62,390)(645,900)

Property, plant and equipment, net ..............................................................................

74,18075,016

741,800

Total assets ................................................................................................................... ¥ 199,383¥ 217,027$ 1,993,830

FURUKAWA Annual Report 2008

Thousands of
U.S. dollars (Note 4)

Millions of yen

LIABILITIES AND NET ASSETS

2008

2007

2008

¥ 16,750$ 153,180

18,27022,947

182,700

Current Liabilities:
Short-term loans (Note 7) ..................................................................................................... ¥ 15,318
Current portion of long-term debt (Note 7) ...........................................................................
Payables, trade:
Notes and accounts (Note 7) ............................................................................................

33,39933,266

333,990

Affiliates ...........................................................................................................................

18

17

180

Accrued expenses ................................................................................................................

9,402

10,441

94,020Accrued income taxes (Note 13) ..........................................................................................

618

696

6,180

Deferred income taxes (Note 13) .........................................................................................

32

11

320

Other current liabilities ........................................................................................................

3,430

5,165

34,300Total current liabilities ..............................................................................................

80,48789,293804,870

Long-term Liabilities:
Long-term debt (Note 7) .......................................................................................................

44,32049,692443,200

Accrued employees’ retirement benefits (Note 12) ...............................................................

1,136

1,138

11,360Accrued directors’ and statutory auditors’ retirement benefits ..............................................

14

347

140

Deferred income taxes (Note 13) .........................................................................................

6,824

7,669

68,240

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

3,113

3,157

31,130

Other long-term liabilities (Note 7) ......................................................................................

8,058

13,59580,580Total long-term liabilities ..........................................................................................

63,46575,598634,650

Issued—404,455,680 shares .........................................................................................

28,20828,208282,080

Retained earnings .............................................................................................................

24,62918,194

246,290

Net Assets:
Shareholders’ Equity:
Common stock without par value:
Authorized—800,000,000 shares

Treasury stock, at cost:
2008—225,261 shares .................................................................................................

(35)

—

(350)

2007—179,522 shares .................................................................................................

—

(24)

—

Total shareholders’ equity .........................................................................................

52,802

46,378528,020

Net unrealized holding gain (loss) on securities, net of income taxes ...............................

(1,200)6,270(12,000)

Deferred gains on hedges .................................................................................................

146

371

1,460

Surplus on the revaluation of land, net of income taxes ....................................................

3,775

3,838

37,750Translation adjustments ....................................................................................................

(1,222)(611)(12,220)

Valuation, Translation Adjustments and Others:

Total valuation, translation adjustments and others ...................................................

1,499

9,868

14,990Minority Interests in Consolidated Subsidiaries ....................................................................

1,130(4,110)11,300Total net assets .........................................................................................................

55,431

52,136554,310

Total liabilities and net assets ................................................................................... ¥ 199,383¥ 217,027$ 1,993,830

The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 200823

Consolidated Statements of Income
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

2008
Net Sales ................................................................................................................................. ¥ 213,426
Cost of Sales (Note 9) ..............................................................................................................

Thousands of
U.S. dollars (Note 4)

Millions of yen

2007

2008

¥ 200,749$ 2,134,260(167,507)(1,815,220)(181,522)

Gross profit ......................................................................................................................

31,90433,242

319,040

Selling, General and Administrative Expenses (Note 9) ...........................................................

(17,497)(16,343)(174,970)

Operating income ............................................................................................................

14,407

16,899144,070
9,510

Other Income (Expenses):
Interest and dividend income ...............................................................................................

951

798

Equity in earnings of affiliates ...............................................................................................

114

358

1,140

Interest expense ...................................................................................................................

(2,381)(2,478)(23,810)

Other, net (Note 15) .............................................................................................................

(607)(4,450)(6,070)

Income before income taxes and minority interests ..........................................................

12,484

11,127

124,840

Current ................................................................................................................................

(1,082)(1,026)(10,820)

Deferred ..............................................................................................................................

(2,866)

6,793(28,660)

Total ................................................................................................................................

(3,948)5,767(39,480)

Minority Interests ....................................................................................................................

59

660

Income Taxes (Note 13):

Net income ...................................................................................................................... ¥

8,595

¥

17,554

Yen

590$

85,950U.S. dollars (Note 4)

Net Income per Share:
Basic .................................................................................................................................... ¥

¥

43.42

$

0.21

Cash Dividends per Share .......................................................................................................

6.00

5.00

0.06

Net Assets per Share ...............................................................................................................

134.33139.13

1.34

The accompanying notes are an integral part of these statements.

24

21.26

FURUKAWA Annual Report 2008

Consolidated Statements of Changes in Net Assets
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended March 31, 2008 and 2007
Millions of yen
Shareholders’ equity

Balance as of March 31, 2007 .........................................................................
Cash dividends paid ....................................................................................
Net income for the year ...............................................................................
Acquisition of the treasury stock ..................................................................
Reversal of surplus on the revaluation of land ..............................................
Net change during the year ..........................................................................
Balance as of March 31, 2008 .........................................................................

Number ofshares ofcommon stock(thousands)

Commonstock

Retainedearnings

Treasury stock,at costTotal
shareholders’equity404,456—————
404,456¥ 28,208—————¥ 28,208¥ 18,194(2,223)
8,595
—
63
—
¥ 24,629¥ (24)——(11)——¥ (35)¥ 46,378(2,223)
8,595
(11)
63
—
¥ 52,802

Translation
adjustments

Total valuation,translation
adjustments
and others

Minority
interests inconsolidated
subsidiaries

Total
net assets¥¥

Millions of yen
Valuation, translation adjustments and others
Net unrealized
holding gain (loss)
on securities, netof income taxes

Balance as of March 31, 2007 ................................ ¥ 6,270
Cash dividends paid ............................................
—Net income for the year ......................................
—
Acquisition of the treasury stock .........................
—
Reversal of surplus on the revaluation of land .....
—Net change during the year .................................
(7,470)
Balance as of March 31, 2008 ................................ ¥ (1,200)

Deferredgains
on hedges

Surplus on
the revaluationof land, net ofincome taxes

¥ 371
—
—
—
—
(225)
¥ 146

¥ 3,838
—
—
—
(63)
—
¥ 3,775

(611)
—
—
—
—
(611)
¥ (1,222)

9,868 ¥ (4,110)
—
—
—
—
—
—
(63)
—
(8,306)5,240¥ 1,499 ¥ 1,130¥ 52,136(2,223)
8,595
(11)
—
(3,066)¥ 55,431

Millions of yen
Shareholders’ equity

Balance as of March 31, 2006 .........................................................................
Cash dividends paid ....................................................................................
Bonuses to directors and statutory auditors ..................................................
Net income for the year ...............................................................................
Acquisition of the treasury stock ..................................................................
Reversal of surplus on the revaluation of land ..............................................
Net change during the year ..........................................................................
Balance as of March 31, 2007 .........................................................................

Number ofshares ofcommon stock(thousands)

Commonstock

404,456——————
404,456¥ 28,208
—
—
—
—
—
—
¥ 28,208

Retainedearnings

Treasury stock,at costTotal
shareholders’equity¥2,634(2,020)(7)
17,554—33—¥ 18,194¥ (16)
—
—
—
(8)
—
—
¥ (24)¥ 30,826(2,020)(7)
17,554(8)
33—¥ 46,378

Total valuation,translation
adjustments
and others

Minority
interests inconsolidated
subsidiaries

Total
net assets

(37)
—
—
—
—
—

¥ 12,246
—
—
—
—
(33)

¥ (8,142)
—
—
—
—
—

¥ 34,930(2,020)(7)
17,554
(8)
—

(574)
(611)

¥

(2,345)
9,868

4,032
¥ (4,110)

1,687¥ 52,136

Millions of yen
Valuation, translation adjustments and others
Net unrealized
holding gain on
securities, netof income taxes

Balance as of March 31, 2006 ................................ ¥Cash dividends paid ............................................
Bonuses to directors and statutory auditors .........
Net income for the year ......................................
Acquisition of the treasury stock .........................
Reversal of surplus on the revaluation of land .....

8,412
—
—
—
—
—

Net change during the year .................................
(2,142)
Balance as of March 31, 2007 ................................ ¥ 6,270

Deferredgains
on hedges¥

Surplus on
the revaluationof land, net ofincome taxes

—
—
—
—
—
—

¥ 3,871
—
—
—
—
(33)

371
¥ 371

—
¥ 3,838

Translation
adjustments¥¥

FURUKAWA Annual Report 200825

Thousands of U.S. dollars (Note 4)
Shareholders’ equity
Commonstock

Balance as of March 31, 2007 .............................................................................................. $282,080
Cash dividends paid ..........................................................................................................
—Net income for the year .....................................................................................................
—
Acquisition of the treasury stock ........................................................................................
—
Reversal of surplus on the revaluation of land ....................................................................
—Net change during the year ...............................................................................................
—
Balance as of March 31, 2008 .............................................................................................. $282,080

Retainedearnings

Treasury stock,at costTotal
shareholders’equity$181,940(22,230)
85,950—630—$246,290$ (240)
—
—
(110)
—
—
$ (350)$ 463,780(22,230)
85,950(110)
630—$ 528,020

Minority
interests inconsolidated
subsidiaries

Total
net assets

Thousands of U.S. dollars (Note 4)
Valuation, translation adjustments and others
Net unrealized
holding gain (loss)
on securities, netof income taxes

Deferredgains
on hedges

Surplus on
the revaluationof land, net ofincome taxes

Translation
adjustments

Total valuation,translation
adjustments
and others

Balance as of March 31, 2007 ................................ $ 62,700
Cash dividends paid ............................................
—Net income for the year ......................................
—
Acquisition of the treasury stock .........................
—
Reversal of surplus on the revaluation of land .....
—$ 3,710————$ 38,380
—
—
—
(630)

$ (6,110)————$ 98,680 $ (41,100)
—
—
—
—
—
—
(630)
—

$ 521,360(22,230)
85,950(110)—

Net change during the year ................................. (74,700)
Balance as of March 31, 2008 ................................ $ (12,000)(2,250)$ 1,460—$ 37,750(6,110)$(12,220)(83,060)
52,400$ 14,990 $ 11,300(30,660)$ 554,310

The accompanying notes are an integral part of these statements.

26

FURUKAWA Annual Report 2008

Consolidated Statements of Cash Flows
Furukawa Co., Ltd. and consolidated subsidiaries
For the years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (Note 4)

Millions of yen

2008
Cash Flows from Operating Activities:
Income before income taxes and minority interests .............................................................. ¥ 12,484
Adjustments to reconcile income before income taxes and minority interests
to net cash provided by operating activities:
Depreciation and amortization ............................................................................................
2,993
Increase (Decrease) in allowance for doubtful accounts, net ................................................
357
Increase in accrued employees’ retirement benefits .............................................................
327
Loss on disposal and sales of property, plant and equipment ...............................................
746
Write-down of investments in securities ................................................................................
637
Gain on sales of property, plant and equipment ...................................................................
(286)
Equity in earnings of affiliates ...............................................................................................
(114)
Interest and dividend income ...............................................................................................
(951)
Interest expense ...................................................................................................................
2,381
Changes in operating assets and liabilities:
Receivables, trade ............................................................................................................
62
Inventories .......................................................................................................................
(2,986)
Payables, trade .................................................................................................................
(6)
Other ...................................................................................................................................
(2,287)

2007

2008

¥ 11,127$ 124,840

2,626
(94)
174
264
8
(20)
(358)
(798)
2,478

29,930
3,570
3,270
7,460
6,370
(2,860)(1,140)(9,510)23,8102,279(3,802)
3,103
5,384

620
(29,860)(60)(22,870)

Subtotal ............................................................................................................................
Interest and dividends received ............................................................................................
Interest paid .........................................................................................................................
Payments related to copper smelting business in Australia ...................................................
Income taxes paid ................................................................................................................
Income taxes refunded .........................................................................................................
Other ...................................................................................................................................

13,357966(2,383)—(2,218)3,100—

22,371985(2,505)(407)(7,432)
10(374)

133,570
9,660(23,830)—(22,180)
31,000—Net cash provided by operating activities .....................................................................

12,823

12,648128,230

Cash Flows from Investing Activities:
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 redemption of investments .............................................................................
Acquisition of an affiliate accounted for by the equity method..............................................
Proceeds from rental of real estate .......................................................................................
Proceeds from the collection of the loan ..............................................................................
Other ...................................................................................................................................

(4,281)
449
4,425(3,476)0
3,000(1,000)—14
14(3,862)24
63(1,332)
526
—
(50)
108
425
(269)

(42,810)
4,490
44,250(34,760)
030,000(10,000)—
140
140

Net cash used in investing activities .............................................................................

(855)(4,367)(8,550)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 .............................................................................................
Repayment of notes .............................................................................................................
Repayment of finance lease obligations ...............................................................................
Cash dividends ....................................................................................................................
Other ...................................................................................................................................

17,250(18,473)
6,304(7,645)(4,600)(4,425)(2,223)(23)

15,000(20,676)
10,600(10,816)(1,000)(45)(2,022)
49

172,500(184,730)
63,040(76,450)(46,000)(44,250)(22,230)(230)

Net cash used in financing activities .............................................................................
Effect of exchange rate changes on cash and cash equivalents ................................................

(13,835)
82(8,910)219(138,350)
820

Net decrease in cash and cash equivalents ..............................................................................
Cash and Cash Equivalents at Beginning of Year .....................................................................

(1,786)
16,333(410)
16,743(17,860)
163,330

Cash and Cash Equivalents at End of Year ............................................................................... ¥ 14,547¥ 16,333$ 145,470

The accompanying notes are an integral part of these statements.

FURUKAWA Annual Report 200827

Notes to Consolidated Financial Statements
Furukawa Co., Ltd. and consolidated subsidiaries
March 31, 2008

1. Basis of Presentation
The accompanying consolidated financial statements of Furukawa

ples generally accepted in Japan but is presented herein as addition-Co., Ltd. (the “Company”) and consolidated subsidiaries (together

al information.

the “Furukawa Group”) have been prepared in accordance with

In preparing these statements, the Company has made certain

accounting principles generally accepted in Japan, which are differ-

reclassifications and rearrangements to the consolidated financial

ent in certain respects as to the application and disclosure require-statements prepared in Japan in order to present these statements inments of International Financial Reporting Standards, and have been

a form which is more familiar to readers outside Japan.

compiled from those prepared by the Company as required under
the Financial Instruments and Exchange Law of Japan.
In addition, the notes to the consolidated financial statements

In addition, certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.

include information which is not required under accounting princi-

2. Summary of Significant Accounting Policies(1) Principles of Consolidation

month of the fiscal year. Non-marketable securities classified as

The Company had 34 subsidiaries as of March 31, 2008 (37 as ofother securities are carried at cost. Cost of securities sold is deter-

March 31, 2007). The consolidated financial statements included

mined by the moving average method.

the accounts of the Company and 34 subsidiaries as of March 31,
2008 (37 as of March 31, 2007).
Compared with the previous year, the number of subsidiaries
decreased by 3 due to liquidation.
For the purpose of preparing the consolidated financial statements, all significant inter-company transactions, account balances(4) Inventories
Finished copper products and work in process relating to copper
products are stated at cost determined by the moving averagemethod. Other inventories are mainly stated at cost determined by
the average method.

and unrealized profits among the Furukawa Group have been eliminated.

(5) Allowance for Doubtful Accounts

Certain foreign subsidiaries have a December 31 year-end.

In order to cover probable losses on collection, the allowance for

Relevant adjustments have been made for significant transactions

doubtful accounts is calculated based on the historical default rates

with such subsidiaries during the period from January 1 to Marchfor normal receivables plus estimate of uncollectible amounts deter-

31.

mined by reference to specific doubtful receivables from customers

Although the Company had 12 affiliates as of March 31, 2008 (12who are experiencing financial difficulties.

affiliates as of March 31, 2007), the equity method was applied to 6
affiliates as of March 31, 2008 (5 as of March 31, 2007) in preparing(6) Property, Plant and Equipment, and Depreciation

the consolidated financial statements, and investments in the rest of

Property, plant and equipment is stated at cost. Depreciation isthose affiliates are carried at cost or less.

mainly calculated by the straight-line method based on the estimated useful lives of the assets. The range of useful lives of property,(2) Cash and Cash Equivalents

plant and equipment are summarized as follows:

Cash and cash equivalents include all highly liquid investments with

Buildings and structures 5 to 60 years

a maturity of three months or less when purchased.

Machinery and equipment 2 to 25 years
Amortization is calculated by the straight-line method for intangi-(3) Marketable Securities and Investments in Securities

ble assets.

Securities other than equity securities issued by subsidiaries and28

affiliates are classified into three categories: trading, held-to-maturity(7) Leases

or other securities. The Furukawa Group does not hold any trading

Non-cancelable lease transactions entered into by the Company andor held-to-maturity securities as of March 31, 2008 and 2007.

domestic consolidated subsidiaries are accounted for as operating

Marketable securities classified as other securities are carried at fairleases (whether such leases are classified as operating or financevalue with changes in unrealized holding gain or loss, net of theleases), except that lease agreements which stipulate the transfer ofapplicable income taxes, included directly in net assets. Fair value isownership of the leased assets to the lessees are accounted for as

determined based on the average of the market value during the last

finance leases. However, leases of foreign consolidated subsidiaries

FURUKAWA Annual Report 2008

are generally classified and accounted for as either finance or oper-

31, 2002. The income tax effect of the difference between the bookating leases.

value and the revalued amount has been presented under liabilities
as “Deferred income taxes on surplus on the revaluation of land”(8) Retirement Benefit Plans

and the remaining balance has been presented under net assets as

The employees of the Company and most of its domestic consolidat-“Surplus on the revaluation of land” in the accompanying consoli-

ed subsidiaries are covered by unfunded employee retirement bene-

dated balance sheets. Revaluation of land was determined based on

fit plans and non-contributory funded employee pension plans as

the official notice prices published by the Commissioner of thedefined benefit plans. The employee retirement benefit plans pro-National Tax Authorities in accordance with Paragraph 4, Article 2

vide for lump-sum payments. The employee pension plans, whichof the “Enforcement Ordinance Concerning Land Revaluation,” withare funded, were instituted to replace a certain portion of the bene-

relevant adjustments. The carrying value of the land after revalua-fits under the retirement benefit plans with respect to employees

tion exceeded its fair value by ¥1,658 million ($16,580 thousand)

who retire at the mandatory retirement age. Certain consolidated

and ¥1,591 million as of March 31, 2008 and 2007, respectively.

subsidiaries (both domestic and foreign) have defined contributionplans.

(11) Income Taxes

Accrued employees’ retirement benefits have been provided at an

Current income taxes comprising corporation tax, enterprise tax andamount calculated based on the retirement benefit obligation andinhabitants’ taxes are provided for based on amounts currently

the fair value of the pension plan assets at the balance sheet dates,

payable for each year. Deferred income taxes arising from tempo-

as adjusted for unrecognized actuarial gain or loss and unrecog-

rary differences between financial reporting and tax bases of thenized prior service cost. The retirement benefit obligation has beenassets and liabilities, which were measured using the enacted tax

attributed to each period by the straight-line method over the years

rates and laws which will be in effect when the temporary differ-of service of the eligible employees.

ences are expected to reverse, are reflected in the consolidated

Prior service cost is being amortized as incurred by the straightline method over a period of principally 15 years, which is shorter
than the average remaining years of service of the employees.

financial statements.
The Company and its domestic wholly-owned subsidiaries file a
consolidated corporation tax return.

Actuarial gain and loss is amortized in the year following the year inwhich the gain or loss is recognized by the straight-line method over(12) Amounts per Sharethe period of mainly 15 years, which is shorter than the average

Basic net income per share is computed based on the net income

remaining years of service of the employees.

available for distribution to shareholders of common stock and theweighted-average number of shares of common stock outstanding(9) Accrued Directors’ and Statutory Auditors’ Retirement Benefits

during the year. Diluted net income per share is not presented for

Directors and statutory auditors of the Company and certain domes-

the years ended March 31, 2008 and 2007 since no dilutive instru-

tic consolidated subsidiaries are customarily entitled to lump-sum

ments were issued and outstanding during those years.

payments under their respective unfunded retirement benefits plans.

Cash dividends per share represent the cash dividends declared

The accrual for retirement benefits for these directors and statutory

as applicable to the respective years together with the interim cash

auditors is recorded at the amount which would have been paid in

dividends paid.

accordance with the internal rules if they had resigned their offices
as of the balance sheet date.
As for the Company, a resolution was approved by the sharehold-Net assets per share are computed based on the net assets excluding minority interests and the number of common stock outstandingat the year end.

ers’ meeting on June 28, 2007, that the retirement benefit plan for
directors and statutory auditors be terminated, effective immediate-(13) Foreign Currency Translation

ly. The allowance of ¥208 million ($2,080 thousand) prior to theForeign currency denominated monetary assets and liabilities areapproval date was included in “Other long-term liabilities” withtranslated into Japanese yen using the rates of exchange in effect at

respect to directors and statutory auditors who are in service atthe balance sheet date. Resulting gains or losses are credited or

March 31, 2008.

charged to income as incurred.

(10) Surplus on the Revaluation of Landsidiaries are translated into yen at the rates of exchange in effect at

Pursuant to the “Law Concerning the Revaluation of Land,” land

the balance sheet date, except for the components of net assets

used for the Company’s business operations was revalued on Marchexcluding minority interests, which are translated at their historical

The balance sheet accounts of the foreign consolidated sub-FURUKAWA Annual Report 200829

exchange rates. Revenue and expense accounts are translated at the

The interest rate swaps which qualify for hedge accounting andaverage rate of exchange in effect during the year. Differences aris-

meet specific matching criteria are not carried at fair value, but any

ing from the translation are presented as translation adjustments anddifferences paid or received on the interest rate swaps are recog-

minority interests in consolidated financial statements.

nized as adjustments to interest expense or income over the life ofeach swap, thereby adjusting the effective interest rate on the(14) Hedging Activities

hedged items.

The Furukawa Group uses derivative financial instruments for the
purpose of hedging the risks of adverse fluctuations in foreign(15) Shareholders’ Equity

exchange rates, commodity prices and interest rates on the receiv-

The Company Law of Japan (the “Law”) provides that an amountables, payables and forecast transactions denominated in foreign

equal to 10% of the amount to be distributed as distributions of cap-

currencies. All derivative financial instruments except below areital surplus (other than the capital reserve) and retained earnings

stated at fair value and related gain or loss on the changes in the fair(other than the legal reserve) be transferred to the capital reserve

values of derivative financial instruments is deferred as a component

and the legal reserve respectively, until the sum of the capitalof net assets in the balance sheet until the recognition of gain or loss

reserve and the legal reserve equals 25% of the common stockon hedged items when those derivative financial instruments qualify

account. Such distributions can be made at any time by resolution

for hedge accounting.

of the shareholders, or by the Board of Directors if certain condi-

Trade receivables, trade payables and forecast transactions
denominated in foreign currencies are translated at the contracted

tions are met, but neither the capital reserve nor the legal reserve isavailable for distributions.

rates if the relating forward contracts qualify for hedge accounting.

3. Accounting Changes(1) Changes in Method of Depreciation of Tangible Fixed Assets
In accordance with the revision made to the Corporate Tax Law of(2) Accounting for Accrued Directors’ and Statutory Auditors’
Retirement Benefits

Japan (the “Tax Law”) which went into effect on April 1, 2007,

Until the year ended March 31, 2006, retirement benefits for direc-

effective the year ended March 31, 2008, the Company and domes-

tors and statutory auditors were charged to income when the pay-

tic consolidated subsidiaries have adopted the new method pre-ments were approved by the shareholders’ meeting and made.

scribed in the revised Tax Law for depreciating tangible fixed assets

Effective April 1, 2007, the Company and certain consolidated sub-acquired on or after April 1, 2007. The impact of this change wassidiaries started to provide for the retirement benefits at the amountimmaterial.

which would have been required to be paid if those directors andIn addition to the above adoption, effective the year ended Marchstatutory auditors had resigned their offices as of the balance sheet

31, 2008, these companies depreciate the difference between 5% ofdate. The effect of this change was to decrease operating income

acquisition cost and nominal value by the straight-line method overand income before income taxes and minority interests by ¥56 mil-a period of five years from the year following the year in which thelion and ¥306 million, respectively, for the year ended March 31,

accumulated depreciation has reached 95% of acquisition cost with

2007 as compared to the corresponding amounts which would haverespect to the tangible fixed assets acquired on or before March 31,

been recorded if the previous method were followed. The effect of2007. As a result, operating income and income before income

this change on the segment information is immaterial.

taxes decreased by ¥248 million ($2,480 thousand) and ¥296 million($2,960 thousand), respectively, from the corresponding amounts
which would have been reported under the previous method.

4. U.S. Dollar Amounts

30

The translation of yen amounts into U.S. dollar amounts is included

This translation should not be construed as a representation that yen

solely for convenience, as a matter of arithmetic computation only,

have been, could have been, or could in the future be, converted

at ¥100=US$1.00, the exchange rate prevailing on March 31, 2008.

into U.S. dollars at the above or any other rate.

FURUKAWA Annual Report 2008

5. Inventories
Inventories as of March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2008

2007

2008
$ 132,070

Finished products ........................................................................................................................

¥ 13,207¥ 12,975

Work in process ...........................................................................................................................

5,983

6,440

59,830Raw materials and supplies ..........................................................................................................

16,114

12,903

161,140

Total .............................................................................................................................................

¥ 35,304¥ 32,318$ 353,040

6. Investments in Securities
The aggregate acquisition cost, carrying value and unrealized gain or loss pertaining to the marketable other securities as of March 31, 2008
and 2007 were as follows:
Millions of yen

Thousands of U.S. dollars

2008

2008

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Listed corporate shares .............................................

¥ 7,643¥ 10,793¥ 3,150$ 76,430$ 107,930$ 31,500

Government bonds ..................................................

—

—

—

—

—

—

Corporate bonds ......................................................

—

—

—

—

—

—

7,643

10,7933,150

76,430107,930

31,500Listed corporate shares .............................................

14,75010,943(3,807)

147,500

109,430(38,070)

Government bonds ..................................................

16

15

(1)

160

150

(10)

Corporate bonds ......................................................

—

—

—

—

—

—

14,766

10,958(3,808)

147,660

109,580(38,080)¥ 22,409¥ 21,751(658)$ 224,090$ 217,510$ (6,580)

Securities whose carrying value exceeds
their acquisition cost:

Securities whose acquisition cost exceeds
their carrying value:

Total .............................................................................

¥

Millions of yen

2007
Acquisition
cost

Carrying
value

Unrealized
gain (loss)

Listed corporate shares .............................................

¥ 15,960¥26,587

Government bonds ..................................................

—

—

—

Corporate bonds ......................................................

—

—

—

15,96026,587

10,627

Listed corporate shares .............................................

3,604

3,441

(163)

Government bonds ..................................................

16

15

(1)

Corporate bonds ......................................................

59

59

—

3,679

3,515

(164)

Total .............................................................................

¥ 19,639¥ 30,102¥ 10,463

Securities whose carrying value exceeds
their acquisition cost:¥10,627

Securities whose acquisition cost exceeds
their carrying value:

FURUKAWA Annual Report 200831

Proceeds from sales of securities classified as other securities with aggregate gain and loss for the years ended March 31, 2008 and 2007 aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Sales proceeds .............................................................................................................................

¥ 0

¥ 8

$ 0

Aggregate gain .............................................................................................................................

—

7

—

Aggregate loss ..............................................................................................................................

—

—

—

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 2.0% and 1.3% as ofMarch 31, 2008 and 2007, respectively.
Long-term debt as of March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2008
2.21% yen notes due 2007 ..........................................................................................................

¥

—

2007
¥

4,100

2008
$

—

0.65% yen notes due 2008 ..........................................................................................................

—

500

—

Loans, principally from banks, insurance companies and government agencies,
most of which are secured, due 2008 to 2023 ...........................................................................

62,59068,039625,900

62,59072,639625,900(18,270)(22,947)(182,700)¥ 44,320¥ 49,692$ 443,200

Current portion of long-term debt ................................................................................................

The average interest rate applicable to the above loans amounting to ¥62,590 million ($625,900 thousand) was 2.0% and 1.9% as of March
31, 2008 and 2007, respectively.
The aggregate annual maturities of long-term debt subsequent to March 31, 2008 were as follows:
Millions of yen

Thousands of
U.S. dollars

2009 ................................................................................................................................................................

¥ 18,270$ 182,700

2010 ................................................................................................................................................................

16,185

161,850

2011 ................................................................................................................................................................

12,097

120,970

2012 ................................................................................................................................................................

6,965

69,650Year ending March 31,

2013 and thereafter ..........................................................................................................................................

32

FURUKAWA Annual Report 2008

9,073

90,730¥ 62,590$ 625,900

The Company and certain consolidated subsidiaries have enteredand ¥18,009 million ($180,090 thousand), respectively, as of March

into overdraft and loan commitment agreements amounting to

31, 2008 and amounted to ¥13,752 million and ¥16,187 million,¥30,702 million ($307,020 thousand) with 25 banks and ¥29,939

respectively, as of March 31, 2007. In addition, the following leasemillion with 25 banks as of March 31, 2008 and 2007, respectively.

obligations are included in “Other long-term liabilities” in the

The borrowings outstanding and the unused balances under theseaccompanying consolidated balance sheets.

credit facilities amounted to ¥12,693 million ($126,930 thousand)Non current portion .....................................................................................................................

Thousands of
U.S. dollars

Millions of yen

2008

2007

¥

¥ 6,424

—

2008
$

—

Assets pledged as collateral and liabilities with collateral pledged as of March 31, 2008 were as follows:(a) Assets pledged as collateralThousands of
U.S. dollars

Millions of yen

2008
Cash and cash equivalents ...........................................................................................................

¥

Receivables, trade ........................................................................................................................

2007

—

¥ 4,864

—

85

2008
$

—
—

Other current assets .....................................................................................................................

—

254

—

Investments in securities ..............................................................................................................

950

2,445

9,500

Property, plant and equipment, net ..............................................................................................

19,79820,696

197,980¥ 20,748¥ 28,344$ 207,480(b) Liabilities with collateral pledged
Thousands of
U.S. dollars

Millions of yen

2008
Notes and accounts payable—trade .............................................................................................

¥

2007

2008

338

¥ 1,426

Short-term debt ............................................................................................................................

—

740

$

3,380
—

Long-term debt (including current portion) ..................................................................................

3,630

5,203

36,300

Lease obligations (included in other long-term liabilities) .............................................................

—

6,424

—

¥ 3,968¥ 13,793$ 39,680

8. Depreciation and Amortization
Depreciation and amortization for the years ended March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Property, plant and equipment ....................................................................................................
Other investments ........................................................................................................................

2008

2007

2008

¥2,964¥ 2,601$ 29,640

29

25

290

¥2,993¥ 2,626$ 29,930

9. Research and Development Expenses
Research and development expenses, included in selling, general and administrative expenses and cost of sales for the years ended March 31,
2008 and 2007 amounted to ¥1,941 million ($19,410 thousand) and ¥1,888 million, respectively.

FURUKAWA Annual Report 200833

10. Leases
The Furukawa Group leases certain machinery and equipment

ed depreciation and net carrying value for the machinery and equip-

under non-cancellable finance lease agreements, of which owner-

ment and others held under the finance leases currently accounted

ship is all non-transferable.

for as operating leases as of March 31, 2008 and 2007 were as fol-

The pro forma amounts representing acquisition costs, accumulat-lows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Acquisition costs ..........................................................................................................................

¥3,477¥ 2,302$ 34,770

Less accumulated depreciation ....................................................................................................

1,182

926

11,820Net carrying value .......................................................................................................................

¥2,295¥ 1,376$ 22,950

Lease payments relating to finance leases accounted for as operat-

puted by the straight-line method over the lease terms.

ing leases amounted to ¥472 million ($4,720 thousand) and ¥294

Future minimum lease payments including an interest element

million for the years ended March 31, 2008 and 2007, respectively,

under the finance leases outstanding as of March 31, 2008 andwhich were equal to the depreciation expense of leased assets com-2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Within one year ...........................................................................................................................

¥ 561

¥ 357

$ 5,610

Over one year ..............................................................................................................................

1,734

1,019

17,340¥2,295¥1,376$ 22,950

The future minimum lease payments under lease agreements other than finance leases as of March 31, 2008 and 2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Within one year ...........................................................................................................................

¥ 805

¥ 781

$ 8,050

Over one year ..............................................................................................................................

50

7

500

¥ 855

¥ 788

$ 8,550

11. Derivative Financial Instruments
The Furukawa Group entered into swap agreements to manage inter-the derivative transactions are major financial institutions and trading

est rate risks. Interest rate swaps convert the floating rate of long-term

companies, the Furukawa Group believes that their derivative finan-

debt to a fixed basis. The Furukawa Group also entered into forward

cial instruments entail minimal credit risks. Furthermore, theforeign exchange contracts to hedge against transactions in foreign

Furukawa Group does not use derivative financial instruments thatcurrencies. For copper products, the Furukawa Group also enteredwould increase market risks.

into futures contracts to reduce the risks of fluctuations of commodity
price.
There are market risks in these derivatives. As the counterparties to34

FURUKAWA Annual Report 2008

As of March 31, 2008 and 2007, 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 March 31, 2008 and 2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Retirement benefit obligation .......................................................................................................

¥ (14,142)¥ (14,356)$ (141,420)

Plan assets at fair value ................................................................................................................

10,58416,011

105,840

Unfunded status ...........................................................................................................................

(3,558)

1,655(35,580)

Unrecognized actuarial loss .........................................................................................................

9,064

4,183

90,640

Unrecognized prior service cost ..................................................................................................

97

107

970

Prepaid pension expenses ............................................................................................................

(6,739)(7,083)(67,390)

Accrued employees’ retirement benefits ......................................................................................

¥ (1,136)¥ (1,138)$ (11,360)

The components of retirement benefit expenses for the years ended March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Service cost .................................................................................................................................

¥ 664

¥ 636

$ 6,640

Interest cost .................................................................................................................................

367

396

3,670

Expected return on plan assets ....................................................................................................

(198)

(224)

(1,980)

Amortization of prior service cost ................................................................................................

11

9

110

Amortization of actuarial loss ......................................................................................................

511

290

5,110

Retirement benefit expenses ........................................................................................................

1,355

1,107

13,550

Employees’ contributions to the defined benefit pension plans ....................................................

14

10

140

Total .............................................................................................................................................

¥1,369¥ 1,117$13,690

The assumptions used in accounting for the above plans are as follows:
2008

2007

Discount rates ..............................................................................................................................

mainly 2.4%

mainly 2.4%

Expected return on plan assets .....................................................................................................

mainly 2.0%

mainly 2.0%

13. Income Taxes
The reconciliations between the statutory tax rate and the effective tax rates of the Furukawa Group for the years ended March 31, 2008 and 2007
were summarized as follows:
2008

2007

Statutory tax rate ..........................................................................................................................

40.7%

40.7%

Non-deductible expenses for tax purposes ...................................................................................

0.8

0.7

Non-taxable dividends and other income ....................................................................................

(0.5)

(0.2)

Inhabitants per capita tax .............................................................................................................

0.6

0.7

Equity in earnings of affiliates ......................................................................................................

(0.4)

(1.3)

Amortization of goodwill .............................................................................................................

(0.5)

(0.9)

Gain from forgiveness of debt by minority shareholders ...............................................................

13.2

17.3

A devaluation loss of investment in subsidiaries and allowance for doubtful accounts .................

—(65.5)(43.6)

Changes in valuation allowance ..................................................................................................

(19.7)

Other ...........................................................................................................................................

(2.6)

0.3

Effective tax rates .........................................................................................................................

31.6%(51.8)%FURUKAWA Annual Report 200835

Deferred tax assets and liabilities as of March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Deferred tax assets:
Allowance for doubtful accounts .............................................................................................

¥

445

¥

312

$

4,450

Accrued employees’ retirement benefits ..................................................................................

4,895

4,767

48,950Loss on impairment of fixed assets ...........................................................................................

5,089

11,15950,890Accrued expenses .....................................................................................................................

318

—

3,180

Net unrealized holding loss on securities ..................................................................................

815

—

8,150

Unrealized gains on sales of property, plant and equipment eliminated in consolidation .........

465

434

4,650
262,880

Net operating loss carryforwards ..............................................................................................

26,28825,078Land ........................................................................................................................................

1,779

1,753

17,790

Other .......................................................................................................................................

1,044

1,130

10,440Total gross deferred tax assets ..................................................................................................

41,13844,633411,380

Valuation allowance ................................................................................................................

(27,425)(28,985)(274,250)

Total deferred tax assets ...........................................................................................................

13,713

15,648137,130(532)(4,199)(5,320)

Deferred tax liabilities:
Net unrealized holding gain on securities ................................................................................
Statutory reserves provided for tax purposes ............................................................................

(348)

(321)

(3,480)Gain from establishment of trust for retirement benefit plans ....................................................

(4,327)(4,327)(43,270)

Land ........................................................................................................................................

(9,225)(9,225)(92,250)

Capitalized interest of a foreign subsidiary ...............................................................................

(3,777)(2,694)(37,770)

Other .......................................................................................................................................

(268)

(539)

(2,680)Total deferred tax liabilities ......................................................................................................

(18,477)(21,305)(184,770)

Net deferred tax liabilities ........................................................................................................

¥ (4,764)¥ (5,657)$ (47,640)

Deferred income taxes on surplus on the revaluation of land ...................................................

¥ (3,113)¥ (3,157)$ (31,130)

14. Contingent Liabilities
Contingent liabilities as of March 31, 2008 and 2007 consisted of the following:
Millions of yen

36

Thousands of
U.S. dollars

2008

2007

2008

Notes receivable discounted and endorsed ..................................................................................

¥2,631¥ 3,679$ 26,310

Loans guaranteed .........................................................................................................................

1,241

1,376

12,410FURUKAWA Annual Report 2008

15. Other Income (Expenses)—Other, Net
Other Income (Expenses)—Other, net for the years ended March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Rental income from real estate .....................................................................................................

2008

2007

¥

2008

82

¥ 108

Gain or loss on foreign exchange .................................................................................................

(79)

205

$

(790)

820

Loss on disposal and sales of property, plant and equipment .......................................................

(460)

(243)

(4,600)2,030

Gain on sales of disused articles ..................................................................................................

203

25

Gains on business transfer ...........................................................................................................

—

50

—

Gains related to copper smelting business in Australia .................................................................

1,475

—

14,750

Payments for closing mines ..........................................................................................................

(237)

(373)

(2,370)

Payments for idle mines ...............................................................................................................

(402)

(255)

(4,020)Loss on disposal and devaluation of inventories ...........................................................................

(656)

(699)

(6,560)Loss on copper smelting business in Australia ..............................................................................

—(3,032)—

Write-down of investments in securities .......................................................................................

(637)

(8)

(6,370)

Other, net ....................................................................................................................................
¥

104

(228)

1,040

(607)

¥(4,450)$ (6,070)

16. Segment Information
The business of the Furukawa Group is divided into the following six categories: machinery, metals, electronic materials and chemicals, realestate, fuels and others.
The business segment information of the Furukawa Group for the years ended March 31, 2008 and 2007 was as follows:Year ended March 31, 2008

Millions of yen

Machinery

MetalsElectronic
Materials andChemicals

Real Estate

Fuels

OthersEliminations
andCorporate

Consolidated¥ 213,426

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

¥ 75,841¥ 97,520¥ 15,277¥ 2,758¥ 20,735¥ 1,295—

Intersegment....................................

470

544

202

158

401

1,643

¥ (3,418)—

Total................................................

76,311

98,064

15,4792,916

21,136

2,938(3,418)

213,426

Costs and expenses .............................

(69,473)(91,857)(14,024)(2,167)(21,567)(3,168)3,237(199,019)

Operating income (loss) ......................

¥

6,838

¥

6,207

¥

1,455

¥

749

¥

(431)

¥

¥

(230)

¥

(181)

¥

14,407

II. Assets, depreciation andcapital expenditures
Total assets ......................................

¥ 70,415¥ 32,975¥ 26,657¥ 14,582

5,221¥ 3,155¥ 46,378

Depreciation ...................................

1,364

222

860

334

26

57

130

¥ 199,383
2,993

Capital expenditures........................

3,017

120

484

338

3

46

366

4,374

FURUKAWA Annual Report 200837

Thousands of U.S. dollars

Machinery

MetalsElectronic
Materials andChemicals

Real Estate

Fuels

Eliminations
andCorporate

OthersConsolidated

I. Sales and operating income (loss)
Outside customers........................... $ 758,410 $ 975,200 $ 152,770
Intersegment....................................

4,700

5,440

$ 27,580 $ 207,350

2,020

1,580

$ 12,950—$ 2,134,260

16,430$ (34,180)

—

4,010

Total................................................

763,110980,640

154,790

29,160211,360

29,380(34,180)

2,134,260

Costs and expenses .............................

(694,730)(918,570)(140,240)(21,670)(215,670)(31,680)

32,370(1,990,190)

Operating income (loss) ...................... $68,380 $62,070 $14,550$7,490 $

(4,310) $ (2,300) $ (1,810) $144,070

II. Assets, depreciation andcapital expenditures
Total assets ...................................... $ 704,150 $ 329,750 $ 266,570$ 145,820 $

52,210$ 31,550$ 463,780

Depreciation ...................................

13,640

2,220

8,600

3,340

260

570

1,300

29,930Capital expenditures........................

30,170

1,200

4,840

3,380

30

460

3,660

43,740Eliminations
andCorporate

Consolidated

Year ended March 31, 2007

$ 1,993,830

Millions of yen

Machinery

MetalsElectronic
Materials andChemicals

Outside customers...........................

¥ 67,796¥ 84,754¥ 15,902¥ 2,936¥ 28,206¥ 1,155—¥ 200,749

Intersegment....................................

786

527

164

114

363

1,388

¥ (3,342)—

Real Estate

Fuels

OthersI. Sales and operating income (loss)

Total................................................

68,58285,281

16,066

3,050

28,5692,543(3,342)200,749

Costs and expenses .............................

(62,680)(76,444)(13,978)(2,211)(28,683)(2,844)2,990(183,850)

Operating income (loss) ......................

¥

5,902

¥

8,837

¥

2,088

¥

839

¥

(114)

¥

¥

(301)

¥

(352)

¥

16,899II. Assets, depreciation andcapital expenditures
Total assets ......................................

¥ 72,206¥ 33,782¥ 28,049¥ 14,138

7,084¥ 2,231¥ 59,537¥ 217,027

Depreciation ...................................

1,135

218

783

292

25

59

114

2,626

Capital expenditures........................

2,333

159

753

318

8

23

311

3,905

The geographic segment information for the years ended Marchlion ($397,830 thousand) and ¥33,246 million or 18.6% and

31, 2008 and 2007 has not been presented, because the revenues

16.6% of the consolidated net sales for the years ended March 31,

and total assets in Japan exceed 90% of consolidated totals.

2008 and 2007, respectively.

Overseas sales, which include exports of the Company and its
domestic consolidated subsidiaries and sales (other than exports toJapan) of the foreign consolidated subsidiaries, totaled ¥39,783 mil-

17. Subsequent Event
The following appropriations of retained earnings of the Company, which have not been reflected in the accompanying consolidated financial
statements, were approved at a shareholders’ meeting held on June 27, 2008:
Thousands of
U.S. dollars

Millions of yen

38

2008

2007

2008

Year-end cash dividends (¥3.50 = $0.035 per share) ....................................................................

¥1,415¥ 1,213$ 14,150

Transfer to legal reserve ................................................................................................................

141

121

1,410

¥1,556¥ 1,334$ 15,560

FURUKAWA Annual Report 2008

Report of Independent Auditors
The Board of Directors
Furukawa Co., Ltd.

We have audited the accompanying consolidated balance sheets of Furukawa Co., Ltd. and consolidated subsidiaries as ofMarch 31, 2008 and 2007, and the related consolidated statements of income, changes in net assets, and cash flows for the years
then ended, all expressed in yen. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that weplan 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 at March 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2008
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.

June 27, 2008

FURUKAWA Annual Report 2008

39

P R I N C I P A L S U B S I D I A R I E S A N D A F F I L I AT E S(As of July 31, 2008)

Company Name

Principal Business

Paid-in Capital

Furukawa Industrial Machinery Systems Co., Ltd.

Sales and manufacture of industrial 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

Subsidiaries

Furukawa Commerce Co., Ltd.

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

JPY 95 million

Furukawa Castec Co., Ltd.

Sales and manufacture of castings and industrial machinery

JPY 50 million

Gunma Kankyo Recycle Center Co., Ltd.

Industrial medical waste treatment

JPY 400 million

Ashio Rock Drill Co., Ltd.

Manufacture of rock drills and industrial machinery

JPY 100 million

Tsubame Industrial Community Limited

Manufacture of machine tools and industrial machinery

JPY 40 million

FRD Iwaki Co., Ltd.

Manufacture of rock drills

JPY 30 million

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

Sales of rock drills

Furukawa Rock Drill Europe B.V. (The Netherlands) Sales of rock drills

USD 59.5 million
EUR 0.9 million

Furukawa Rock Drill Korea Co., Ltd.

Sales of rock drills

KRW 300 million

Furukawa Rock Drill (Shanghai) Co., Ltd.

Sales of rock drills

JPY 50 million

UNIC Kanto Sales Co., Ltd.

Sales of UNIC cranes

JPY 30 million

UNIC Tohoku Sales Co., Ltd.

Sales of UNIC cranes

JPY 16 million

UNIC Kyushu Sales Co., Ltd.

Sales of UNIC cranes

JPY 30 million

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

Manufacture of UNIC cranes

THB 200 million

Taian Furukawa Machinery Co., Ltd.

Sales and manufacture of UNIC cranes

USD 4.8 million

Ashio Smelting Co., Ltd.

Copper smelting and industrial waste treatment

JPY 100 million

Oita Mining Co., Ltd.

Mining and sales of limestone

JPY 125 million

Ashio Construction Co., Ltd.

Civil engineering and construction

JPY 30 million

Port Kembla Copper Pty. Ltd. (Australia)

Copper smelting (Operations currently suspended)

AUD 369.5 million

Wellness Co., Ltd.

Sales of health-care products

JPY 10 million

Dojima Jitsugyo Co., Ltd.

Maintenance of buildings

JPY 10 million

Furukawa Transportation Co., Ltd.

Transportation

JPY 150 million

Iwaki Kosan Co., Ltd.

Administration of real estate

JPY 10 million

UNIC Kitatohoku Sales Co., Ltd.

Sales of UNIC cranes

JPY 20 million

UNIC Sales (Thailand) Co., Ltd.

Sales of UNIC cranes

THB 40 million

Hibi Kyodo Smelting Co., Ltd.

Copper smelting

JPY 4,700 million

Iwaki Semiconductors Co., Ltd.

Production of semiconductors, such as gallium arsenate semiconductors JPY 60 million

POWDEC K.K.

Development and production of GaN transistor wafers

JPY 768 million

Tohpe Corporation

Production of paints

JPY 2,087 million

Affiliates

40

FURUKAWA Annual Report 2008

C O R P O R AT E D ATA(As of March 31, 2008)

Directors and Auditors (As of June 27, 2008)
Chairman and Representative Director Tetsuo Yoshino
President and Representative Director

Nobuyoshi Soma

Senior Managing Director

Nakao Yamashita

Managing Director

Yasuhei Konagaya

Managing Director

Hiroyuki Shiaku

Managing Director

Yoichiro Kato

Director

Junnosuke Furukawa

Director

Manabu Zama

Director

Yoshihito Emoto

Statutory Auditor

Ryoji Ohnuma

Statutory Auditor

Masafumi Miyata

AuditorTamiki Ishihara

AuditorNobuyuki Tomotsune

AuditorYoshiki Sato

Company Name: Furukawa Co., Ltd.
Head Office: 2-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo
100-8370, Japan
TEL: +81-3-3212-6570 FAX: +81-3-3212-6578
Date of Foundation: August 1875
Date of Establishment: April 1918
Number of Shares Authorized: 800,000,000 shares
Number of Shares Outstanding: 404,455,680 shares
Stock Exchange Listing: Tokyo, Osaka
Securities Code Number: 5715
Employees: Consolidated 2,286; Non-consolidated 210
Stock Transfer Agent: The Chuo Mitsui Trust and Banking
Company, Limited
33-1, Shiba 3-chome, Minato-ku,
Tokyo 105-8574, Japan
Principal Shareholders:

Executive Officers (As of June 27, 2008)
Senior Managing Executive Officer

Nakao Yamashita

Managing Executive Officer

Yasuhei Konagaya

Managing Executive Officer

Hiroyuki Shiaku

Managing Executive Officer

Yoichiro Kato

Senior Executive Officer

Manabu Zama

Senior Executive Officer

Yoshihito Emoto

Senior Executive Officer

Susumu Nakamura

Executive Officer

Taketsugu Saitsu

Executive Officer

Toshikazu Nakagawa

Executive Officer

Toshio Matsumoto

Executive Officer

Yasuji Tomiyama

Executive Officer

Akira Usui

Executive Officer

Naohisa Miyakawa

Executive Officer

Fumio Kato

Executive Officer

Masaya Kouzaki

Asahi Mutual Life Insurance Co.

Number of
Shares(Thousands)

Percentage ofTotal Shares(%)

27,923

6.90

Japan Trustee Services Bank, Ltd. (trust account) 16,454

4.06

Seiwa Sogo Tatemono Co., Ltd.

15,034

3.71

Sompo Japan Insurance Inc.

13,8103.41

Chuo Real Estate Co., Ltd.

11,827

2.92

The Master Trust Bank of Japan, Ltd. (trust account) 11,098

2.74

Shoei Co., Ltd.

2.50

10,142

Fujitsu Limited

9,617

2.37

The Furukawa Electric Co., Ltd.

8,777

2.17

Fuji Electric Holdings Co., Ltd.

8,620

2.13

Composition of Shareholders:
Other Japanese Companies
25.64%

Financial
Institutions
26.62%

Financial
Instruments Firms
3.12%
Foreign
Institutions
8.22%

Individuals
and Others
36.40%

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

FURUKAWA Annual Report 200841

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

Printed in Japan