Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

FINANCIALSECTION

FINANCIAL SECTION

20

Contents
SIX-YEAR SUMMARYCONSOLIDATED FINANCIAL REVIEWCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF COMPREHEMSIVE INCOMECONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSREPORT OF INDEPENDENT AUDITORSSIX-YEAR SUMMARY

Thousand of
U.S. dollars

Millions of yen

2006

20
21
29
31
32
33
37
39
82

2007

2008

2009

2010

2011

872,535 1,104,709
722,575
930,399
112,529
120,676
37,43053,632
4.3
4.9
15,78023,40344,542
57,98625,50829,76518,017
19,97630,886
41,83336,94337,903

1,174,247
1,002,410
123,390
48,447
4.1
11,46631,034
15,291
19,78945,264
42,1281,032,807
899,409
123,6469,752
0.9
12,732-30,896-37,405
19,89541,27546,933809,693
679,403109,968
20,322
2.5
1,371
10,947
9,704
17,27025,43342,461

925,754 11,153,663
773,499 9,319,265
117,111 1,410,976
35,144423,4223.8−
5,422
65,32523,586284,169
12,213
147,145
18,296
220,434
27,947
336,71140,396486,699

Total assets
1,052,256 1,096,708
Net assets
286,701
316,302
Total current assets
483,171
531,584
Property, plant and equipment, net of accumulated depreciation 325,325
337,679
Total current liabilities
430,205
454,690
Interest-bearing debt
435,346
428,173

1,014,778
294,982
501,436
338,227
419,175
399,050

845,658
190,429397,264
312,073
332,374
383,114835,819
208,929
400,498
291,189
332,315362,088826,944
215,905
419,808
273,025
338,861
341,619

9,963,180
2,601,265
5,057,928
3,289,458
4,082,662
4,115,891

2011

For the year:
Net sales
Cost of sales
Selling, general and administrative expenses
Operating income
Operating income Ratio (%)
Provision for Income taxes
Income (loss) before income taxes and minority interests
Net income (loss)
Research and development costs
Capital expenditure and cash flow
Depreciation

At year-end:

Cash frow:
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash and Cash Equivalents

22,719
11,133-46,782
41,56750,724-29,612-20,694
45,86390,760-52,113-41,581
43,82878,728-51,267-14,553
53,45336,668-25,113-23,582
40,80837,121-21,382-18,317
37,647447,241-257,614-220,687
453,57936.94
316.243.00

42.16
349.896.50

21.81
332.61
7.00-53.34203.166.00

13.80
231.395.00

17.30
235.05
5.50

0.208
2.832
0.066

12.8
3.6
2.7
21.2
0.8

12.7
4.9
1.7
22.5
1.0

6.4
4.8
1.7
22.9
1.2

-20.0
1.2
2.7
16.9
1.2

6.3
2.4
2.2
19.6
1.0

6.9
4.2
2.1
20.1
1.1

−
−
−
−
−

Per share date:
Net income
Net assets
Cash dividends

Ratios:ROE (%)ROA (%)
D/E Ratio
Ratio of Shareholders’ Equity (%)
Total assets turnoverNote 1: U.S. dollar amounts have been translated, for convenience only, at the rate of ¥83 to US$1.
Note 2: ROA = Operating income / Total assets

21

CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

CONSOLIDATED FINANCIAL REVIEW
Scope of Consolidation
The consolidated financial statements for fiscal 2011, ended March 31,
2011, include the business results of 109 subsidiaries and 18 affiliates
accounted for using the equity method.
In the fiscal year under review, five subsidiaries were added,
while two were excluded from the scope of consolidation, one due tomerger and one due to treatment as an equity-method affiliate.
With respect to consolidated equity-method affiliates, two wereadded, one formerly included within the scope of consolidation was
newly treated as an equity method affiliate, and one was removed due
to liquidation.

Overview of Business Performance
Net Sales
In fiscal 2011, the global economy was plagued by a number of
uncertainties, including European financial concerns centered on
the Greek debt crisis. However, the world economy as a wholeentered a phase of gradual recovery, spurred by the impact ofvarious countries’ economic stimulus measures, as well as economic
expansion in emerging markets. In the United States, economic
conditions remained on a positive track, benefiting from increases inpersonal consumption and capital investment. In Europe, however, theeconomic situation remained difficult, owing to a slowdown in the rateof recovery and high rates of unemployment, among other factors. In
Asia, the economies of China and India grew, centered on expanded
internal demand. South Korea, Taiwan and countries in the ASEAN
region posted robust growth, buoyed by vigorous demand for digitalproducts. Moving into 2011, clouds appeared on the economic horizonas pro-democracy demonstrations in the Middle East and North
Africa caused the political situation to worsen, raising concerns about
a potential hike in crude oil prices. In Japan, government economic
stimulus measures spurred demand improvements, particularly for
automobiles and digital home appliances, in the first half. Despite thesesigns, the ongoing strength of the yen in foreign exchange markets put
downward pressure on export-oriented manufacturers. Furthermore,
the Great East Japan Earthquake struck in March2011, causing massive
destruction and throwing the economic outlook into turmoil.

Under these circumstances, the Furukawa Electric Group launched
its new medium-term management plan, New Frontier 2011, which it
formulated in the previous year. In addition to aggressively investing in
the functional materials segment—in the areas of MCPET microcellular
foamed sheets used in LCD TV reflectors and copper foil for lithiumion batteries, the plan calls for us to cultivate future eco businesses bystepping up R&D related to smart grids and next-generation vehicles.
We made steady progress on the measures defined in this plan, building
our foundations for future growth. Having learned from our compliancerelated issues, related to the Group’s violation of the Anti-Monopoly Act,the plan also raises reform of the organizational culture as an objective.
We worked to prevent recurrence by ensuring that compliance wasfirmly rooted in Group’s psyche by continuing to introduce “hard”
measures, or specific rules, and “soft” measures, such as increasing thenumber of opportunities for managers and employees to interact
directly. Furthermore, the Great East Japan Earthquake caused somedamage at our own facilities, prompted raw material shortages owing to
the effects of the disaster on suppliers, and precipitated power shortages.
These factors caused the Group to suspend operations temporarily
at certain facilities. However, thanks to recovery efforts all facilities are
now back on line, even those that sustained the worst damage. We willcontinue working to restore operations fully to pre-earthquake levels
and responding flexibly to circumstances as we put our groupwide
effort into meeting the needs of society and our customers.
As a result, during the year sales were affected by high prices
on bare copper, but the Light Metals Company delivered robust
performance, particularly in automobile wire harnesses and MCPET
and other functional materials operations. As a result, consolidated
net sales rose 14.3% from the preceding fiscal year, to ¥925.8 billion.
Overseas sales expanded 23.4%, to ¥307.5 billion.
Results by Business Segment
Telecommunications
Consolidated net sales grew 10.2% from the previous fiscal year, to¥149.3 billion. In Japan, sales of system products to cable televisioncompanies were robust, owing to the full-scale shift to terrestrial digital
broadcasting in July 2011, but demand for telecommunication cable
was down year on year. Overseas, demand for optical fibers from China

Net sales (Billions of yen)
0.7

20.9
33.3
32.4
44.2
13.8
Telecommunications

Electronics
andAutomotive
Systems

Light Metals

Servicesand Others-29.2
Elimination or
Corporate

MetalsUp ¥116.1 billion
year-on-year

925.8

Energy andIndustrial
Products

809.7
2010

2011

CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 201122

and other Asian countries was lackluster, but sales of telecommunicationand other cable for mobile telephony to OFS of the United States and
FISA of Brazil remained robust, boosting sales in this category.
Meanwhile, in June 2010 OFS entered an agreement with
China’s Jiangsu Hengtong Photo Electric Stock Co., Ltd., to establish
a subsidiary to produce optical fiber preform. As a result, we will
become capable of integrated production—from upstream opticalfiber preform to downstream optical fiber and cable—in China, which
is currently the world’s biggest market for optical fiber. This should
expand our overseas sales even further.

MetalsConsolidated net sales rose 27.8% from the previous fiscal year to¥152.9 billion. Contributing to this increase was the uptrend in barecopper prices and a recovery in demand for copper strips for electronic
components. Furthermore, unusually warm summer weather boosted
demand for copper tubes used in air conditioners.
Furthermore, in March 2011 we established a new company in Taiwan,
Furukawa Electric Copper Foil Taiwan Co., Ltd., to manufacture and sellcopper foil for lithium-ion batteries. This move should further strengthen
our presence in an area where we already hold the top market share.

Energy and Industrial Products
Consolidated net increased 21.1% from the previous fiscal year, to ¥253.0
billion. In Japan, sales of electrical cable for construction remainedsluggish, owing to continued lackluster construction demand. However,in functional materials we benefited from new orders for MCPET—
boosting production accordingly—and bare copper prices rose.
Meanwhile, Furukawa Electric Industrial Cable Co., Ltd., and two
subsidiaries of China’s Huatong Furukawa Cable Co., Ltd., entered into
an agreement in July 2010 to form a joint venture with Hebei Huatong
Wires & Cables Group Co., Ltd., to manufacture and sell industrial rubber
cable. This move should be instrumental in expanding our overseas
market, as it applies the Furukawa Electric Group’s technology related
to industrial rubber cable, which is highly regarded in the Japanesemarket—to meet burgeoning Chinese demand for social infrastructure.

Light Metals
Consolidated net sales increased 11.1%, to ¥209.0 billion. During thefirst half of the fiscal year, unusually hot summer weather prompted
higher sales volumes in a wide range of areas, including materials
for beverage cans, materials for automobile heat exchangers, andthick plates used in semiconductor and LCD fabrication equipment.
Demand for some products slumped in the second half of the fiscal
year, but sales were up for the year due to resurgent demand forautomobile heat exchange materials and foil materials.

Electronics and Automotive Systems
Consolidated net sales rose 18.3% from the previous fiscal year, to¥209.6 billion. This rise is attributable to solid annual increases in market
demand, both in Japan and overseas, for automobile wiring harnesses
and automotive parts, as well as flourishing demand for magnet wires
and other items for smartphones.
As part of our efforts to consolidate similar businesses andstrengthen collaboration within the Group, subsidiary Furukawa
Magnet Wire Co., Ltd., took over the magnet wire business of TOTOKUElectric Co., Ltd., in October 2009. This business and the magnet wirebusiness of Riken Electric Wire Co., Ltd. were consolidated under
Furukawa Magnet Wire in April 2010.

Services and Others
Consolidated net sales for this segment rose 1.9% from the previous
fiscal year, to ¥37.6 billion.

Cost of Sales/Selling, General and
Administrative Expenses
While cost of sales increased 13.8% from the previous fiscal year, to¥773.5 billion, the cost of sales ratio improved by 0.3 percentage point,
from 83.9% to 83.6%.
Selling, general and administrative expenses rose 6.5% from theprevious year, to ¥117.1 billion.

Net Income
In fiscal 2011, operating income rose ¥14.8 billion, to ¥35.1 billion(US$0.4 billion). This was largely as net sales expanded moresignificantly than cost of sales. Operating income recorded by
the Metals Company and the Light Metals Company improved

Operating income (Billions of yen)
-2.2
6.4
Metal position
improve

14.1

Sales increase
Mix improve

LCM-basis rebound-1.9
Crude oil/
auxiliarymaterials price
down

-1.5
FX lossUp ¥14.8 billion
year-on-year

35.1

20.3

2010

2011

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CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

substantially, and the Electronics and Automotive Systems Company
continued to deliver solid performance in the automotive sector.
Furthermore, the metal position improved.
In other income, the Company recorded a ¥0.5 billion net foreignexchange loss, ¥1.3 billion worse than the income figure reported
in the preceding fiscal year, primarily as a result of ongoing yen
appreciation. The loss on disposal of property, plant and equipment
abated, to ¥0.5 billion, and the Group did not set aside a provision forpenalties under the Antimonopoly Law, whereas this figure amounted
to ¥4.6 billion in the preceding fiscal year. However, the Group did
record two losses that were absent in the preceding fiscal year: a ¥1.2
billion loss on adjustment for changes of accounting standards for
asset retirement obligations and a ¥2.6 billion loss on disaster.
Income before income taxes and minority interests totaled ¥23.6
billion (US$0.3 billion) and net income after income taxes and minority
interests in net income of consolidated subsidiaries totaled ¥12.2
billion (US$0.1 billion).

Liquidity

Dividends

R&D Activities

Furukawa Electric intends to pay dividends to shareholders,
upholding its basic policy of paying solid dividends, while maintaining along-term outlook on future income trends and business development.
The Company adheres to the basic principle of paying cash
dividends twice a year out of its earned surplus as interim and fullyear dividends. Full-year dividends paid out of earned surplus are
determined by the shareholders’ meeting and interim dividends
are decided by the Board of Directors meeting. For fiscal 2011, theCompany paid a dividend of ¥5.5 per share (interim dividend was ¥2.5
per share) based on the above principle. The Company will also seek tostrengthen its financial condition by securing retained earnings.
The Company stipulates in its articles of incorporation that it can
pay an interim dividend based on the record date of September 30 ofeach year through a resolution by its Board of Directors.

Cash Flows
In fiscal 2011, income before income taxes and minority interests
increased ¥12.6 billion from the previous fiscal year, to ¥23.6 billion.
Cash and cash equivalents as of March 31, 2011, amounted to ¥37.6
billion, down ¥3.2 billion from one year earlier, owing mainly to the
reduction of interest-bearing debt.
Net cash provided by operating activities was ¥37.1 billion.
Primary factors included a rise in income before income taxes andminority interests and increases in inventories and income taxes paid,with the increase in trade payables down year on year.
Net cash used in investing activities was ¥21.4 billion. Proceedsfrom sales of marketable securities and sales of property, plant andequipment were down. However, payments for purchase of investment
securities and property, plant and equipment also decreased.
Net cash used in financing activities was ¥18.3 billion. Althoughcontinuing efforts to reduce short-term debt, the Group raised cash
through sale-and-lease-back activities.

Since launching the Furukawa Survival Plan in 2004, a three-year
medium-term management plan, we have endeavored to sell
investment securities and real estate holdings and reduce interestbearing debt to bolster our financial condition.
As a result, interest-bearing debt decreased ¥20.5 billion from theprevious fiscal year, to ¥341.6 billion.
We established a new medium-term management plan, New
Frontier 2012, in April 2010 and are endeavoring to further improve ourfinancial strength. We will seek to curb increases in total assets, continue
to reduce inventory, trade receivables and fixed costs, repay interestbearing debt by generating income, and build up shareholders’ equity.
In terms of numerical targets, we are forecasting shareholders’equity of ¥210.0 billion, interest-bearing liabilities of ¥320.0 billion, adebt-to-equity ratio of 1.5, ROA of 5.6% and total asset turnover of 1.1
by March 31, 2013.

Furukawa Electric Group maintains a solid R&D structure that enables
it to create and develop new businesses through innovative products
and technologies and to aggressively pursue R&D activities. Furukawa
Electric Co., Ltd., operates six research laboratories in Japan, including
Yokohama R&D Laboratories, the Metal Research Center, the Ecology andElectronics Laboratory, the FITEL Photonics Laboratory, the Automotive
Technology Center and the Power & Systems Laboratory, which arefurther complemented by the research laboratories of other Group
companies. We also operate two overseas laboratories, OFS Laboratories,
LLC, in the United States and Furukawa Electric Institute of Technology
Ltd. in Hungary. Total R&D expenditures in fiscal 2011 were ¥18.3 billion.
The major results of our R&D activities segment were as follows:

Telecommunications(1) For 100Gbps optical digital coherent transmission, we introduced
compact chips employing quartz waveguide technology thatenables receiver components to convert amplified optical signals
through value multiplexing—including phase modulation andpolarization multiplexing—and commenced shipments toequipment manufacturers.
(2) The area of 100Gbps digital coherent transmission requires highly
stable oscillation wavelengths to semiconductor lasers for signal
light sources. We succeeded in reducing to 500kHz or less the widthof the oscillation band on the semiconductor lasers that constrain
bandwidth and have begun sample shipments to customers ofstandard control circuits incorporating this technology.
(3) We began developing wavelength-selection switches (WSSs), key
components that control bandwidth in signal route switching
devices, thereby making telecommunications networks more
efficient and power efficient.
(4) We have created a multicore fiber containing seven cores in asingle fiber, which may find use in spatial multiplexing technology
for future ultrahigh-capacity optical communications. We

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

CONSOLIDATED FINANCIAL REVIEW

24

conducted transmission evaluation to determine applicability
for optical interconnection, subscriber access and long-distancetrunk lines.
(5) In the optical interconnection category, we used an active opticalcable (AOC) to develop an optical engine featuring low power
consumption, which we installed on our proprietary 1060nm
vertical-cavity surface-emitting laser (VCSEL) for evaluation by
manufacturers of optical transmission devices, transmission
equipment and computers.
(6) We developed a non-halogen insulation material for heatprotection during soldering and have commercialized the productfor use on electronic device wiring.
(7) We are moving forward with customer verification testing for use
in laser processing of our single-mode fiber laser equipment with
optical outputs of 300W and 500W.
R&D expenditures for the segment totaled ¥5.6 billion.

superconducting power cables to replace ultra-high voltage
power cables. In addition, we are proactively participating indemonstration projects both in Japan and overseas. Furthermore,with respect to devices applying yttrium-based superconducting
thin films, we will conduct verification tests at an early date andare pursuing commercial development.
(4) We are developing smart grid technology and products. Notably,
we are endeavoring to develop practical applications forsecondary battery-related technologies, which are particularly
important and enjoy high demand, at an early date under a Groupwide system, while also participating in the national project.
(5) We established a pipe development system for oceanic energy
resource transport, and we are participating in a national project
to promote such efforts. We are also developing pipes withspecifications suited to offshore, undersea and seabed applications.
R&D expenditures for the segment totaled ¥1.2 billion.

Energy and Industrial ProductsElectronics and Automotive Systems(1) We are making progress in the development of high-functioning
foamed materials. Using this material, we have succeeded
in developing reflectors for LED TEVs that that increase theirbrightness by 5% compared with conventional materials, and havecommenced mass production. In addition, through the applicationof microcellular foaming technology to polyphenylene sulfide(PPS), we are working to make automobiles more lightweight andtherefore emit less CO2. We also have developed non-halogen
flame-resistant foam, which reduces environmental impact, andare pursuing the development of highly reflective foam, assistanceefforts to conserve energy.
(2) Demand related to the smart grid market is expected to include
superconductors and other next-generation transmission
technologies, as well as efficient power system operation
technologies that make use of telecommunications technologies.
We established the Power & System Laboratories to take overall
responsibility for developing technologies such as these.
(3) We continue to participate in a national project for yttriumbased, high-temperature superconducting power cables, andwe are promoting the development of ultra-high voltage(1) We formed a Next-Generation Automotive Product Team tointegrate the activities of various laboratories involved in nextgeneration vehicles, including hybrid and electric vehicles, as wellas to contribute to new product development that will lead to the
expansion of business in the automotive field.
(2) We continue to develop radar employing ultra-wideband (UWB)
technologies. In this field, we are collaborating with manufacturersof automobile systems and vehicles to develop technology forsensors to monitor a vehicle’s surroundings, as such technology is
expected to boost automobile safety.
(3) In 2012, we expect to begin mass production of a sensor for automobile
batteries, targeting automakers. Battery power management is
expected to improve the efficiency of automobiles’ energy use.
(4) Having confirmed the principles through which an altogether
new type of configuration of onboard GPS antennas can be madewithout employing ceramics that employ high-dielectric materials,
including rare metals, we are pursuing the commercialization ofthis structure.
(5) We have developed a new process for shortening processing timeand reducing processing energy for cellular phone antennas, andResearch and development costs (Billions of yen)

0.5

0.0
0.1

17.3
2010

0.0

0.1

Telecommunications

Energy andIndustrial
Products

Metals0.2

Servicesand Others

Up ¥1.0 billion
year-on-year

18.3

Light Metals

Electronics
andAutomotive
Systems
2011

25

CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

have set up a mass production system in China. We are expanding
the process to other antenna products.
(6) We have developed a new finely pitched tape substrate suitable
for mounting next-generation high-frequency components, andare pursuing its market expansion.
(7) Having pushed beyond the development of heat pipes with wall
thicknesses of 0.8mm for use in highly functional home appliances,
we have developed ultrathin heat pipes with walls 0.6mm thick.
(8) Heat pipes in cooling power modules used in inverters andconverters for high-speed railways and subways deliver higher
performance eliminate the need for a blower.
(9) We have developed magnet wires for use in the drive motors
in hybrid vehicles (HVs) that eliminate the need for interphaseinsulative paper, thereby allowing motors to be more compact
and deliver higher output that was possible with conventional
designs. At the same time, we have accelerated R&D on nextgeneration magnet wires with low electric permittivity, highvoltage resistance and thin films.
(10) We are pursuing the development of transistors and diodes fordevices using gallium nitride (GaN) through a research association
for next-generation power device technology established jointlywith the Fuji Electric Group.
(11) We were commissioned by the New Energy and Industrial
Technology Development Organization (NEDO) and are pursuingthe development of a revolutionary ultra-lightweight electric wireusing carbon nano tubes.
R&D expenditures for the segment totaled ¥3.8 billion.

Metals(1) In high-performance connector material, we have commenced
mass production of highly flexible alloys, and have obtained
certification and orders from customers. We have gainedcompetitive advantages in price and quality and are establishing a
low-cost, high-precision gauge control technology.
(2) We began mass producing new highly adhesive products fordeveloping aluminum plastic composite products and are
expanding sales in this category.
(3) We made progress in developing a current collector for a next-

generation lithium-ion secondary battery, which has been wellreceived by customers.
(4) In the development of high-temperature superconducting wirerods, we are specializing in yttrium-based materials that are
expected to become next-generation wire rods. We participate
in the national project for yttrium-based superconducting powerdevice technology, and have improved length characteristics byintroducing our proprietary layered structure.
(5) We are developing nano metal powder as a material for hardwiring and bonding for electronics, and are conducting tests forpractical applications.
R&D expenditures for the segment totaled ¥1.2 billion.

Light Metals(1) For popular lithium-ion batteries, we have developed andmanufacture a variety of materials that we supply to customers inJapan and overseas. These include aluminum foil for the battery’s
positive electrode collector and laminated exterior material, as wellas square aluminum sheet as exterior material.
(2) The use of aluminum in place of copper pipes in the pipework
for air-conditioning devices has been attracting attention, andwe have developed aluminum pipes that excel in heat exchange,
corrosion resistance and workability. The pipes continue to earnhigh praise from air conditioner manufacturers.
(3) Given the growing importance of thermal management in nextgeneration automobiles, such as electric cars, we developed the
VL Fan, an aluminum air-cooled chiller with significantly enhanced
cooling capability. Many users have inquired about this product,
which is being given high marks. Nevertheless, we continue
pursing research and development aimed to boost performancefurther. We are also pursuing developments designed to replacecopper parts with aluminum in next-generation automobiles.
(4) As a top manufacturer of materials for automobile heatexchangers, we are developing thin-walled, high-performancematerials, which have been well-received by heat exchanger users.
R&D expenditures for the segment totaled ¥2.8 billion.

Capital expenditure (Billions of yen)
-1.4

4.3

Electronics
andAutomotive
Systems-1.0
Metals-1.2
Light Metals

0.5
25.4

2010

Telecommunications

Energy andIndustrial
Products

0.7
0.6
Services andOthersElimination or
corporate

Up ¥2.5 billion
year-on-year

27.9

2011

CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Services and Others

26

Light Metals

This area is primarily related to our new business fields.
(1) We were commissioned by NEDO to continue developing
negative electrode materials for lithium-ion batteries, which
delivery high output and are long-lived.
(2) We have established the Next-Generation Battery Materials R&D
Center to step up our development of next-generation battery
materials, leveraging the Furukawa Electric Group’s materials
expertise to conduct leading-edge R&D.
R&D expenditures for the segment totaled ¥3.7 billion.

Capital Expenditures
The Furukawa Electric Group conducted increased investments during
the year in the Energy and Industrial Products Company and theTelecommunications Company, and total Group capital expenditures,at ¥27.9 billion, were higher than the previous fiscal year.
The primary goals for capital expenditures by segment wereas follows:

Telecommunications• Expand production capacity of optical fiber cables• Rationalize production facilities/expand factory buildings
Energy and Industrial Products• Expand production equipment for foamed products• Build new factory and integrate production facilities• Maintain and upgrade facilities
Electronics and Automotive Systems• Mass produce and expand capacity for electronic components
for automobiles• Mass produce and increase capacity for electronic functional materials• Integrate facilities after consolidation of magnet wire business
Metals• Maintain and upgrade production facilities for copper foil, copperand copper alloys for the automotive, IT and electronics markets• Upgrade older large cranes used for transporting slabs for rolling• Upgrade plate cutting line to use AC motors
Major capital investments completed during the year under review
include upgrading the accounting system used by Furukawa Electric’s
finance department, upgrading large-scale cranes at the FurukawaSky Aluminum Corporation and building a plant and production line at
Furukawa Automotive Systems Vietnam (FASV).
No significant facilities were disposed of our sold during the fiscal
year under review.

Financial Position
Total assets decreased ¥8.9 billion from the previous fiscal year, to¥826.9 billion. Current assets increased ¥19.3 billion, to ¥419.8 billion,
while non-current assets decreased ¥28.2 billion, to ¥407.1 billion.
The major reasons for these fluctuations were decreases intangible and intangible assets, as well as investment securities, while
trade receivables and inventories of work-in-progress, raw materials
and stored goods increased.
Operating capital increased, as the rise in trade receivables andinventories exceeded the increase in payables.
Major factors behind changes in non-current assets included anincrease of ¥27.9 billion in capital expenditures, a decrease of ¥40.4
billion in depreciation, and impairment losses.
With respect to current liabilities, interest-bearing debt, which isthe sum of long- and short-term debt and corporate bonds, decreased¥20.5 billion from the end of the previous fiscal year, to ¥341.6 billion.
In the category of net assets, retained earnings increased ¥15.0
billion. Unrealized gains on other marketable securities decreased,as did exchange and valuation adjustments, owing to such factors
as price fluctuations on investment securities and yen appreciation.
Furthermore, during the year under review the Group began
recording retirement benefits on overseas subsidiaries, causing otheraccumulated comprehensive income to fall ¥12.4 billion. Consequently,
total shareholders’ equity ratio rose 0.5 percentage point from the endof the previous consolidated fiscal year, to 20.1%.

Assets (Billions of yen)

12.9
Inventories

10.0
-3.4

835.8

2010

0.1
Trade
Cash and Marketable receivablebanksecurities
deposits

0.4

-0.8

Deferredincometaxes

Othercurrent
assets0.1-7.6
Allowancefor doubtful
accounts Investments
andlong-termloans

Current assets:
Up ¥19.3 billion
year-on-year

-18.2
0.4

Property, Deferredplant and income
equipment, taxes
net ofaccumulated
depreciation

-2.6
Other
assets-0.2
Allowancefor doubtful
accounts

826.9

2011

Non-current
assets:Down ¥28.2
billionyear-on-year

27

CONSOLIDATED FINANCIAL REVIEW

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Business-Related Risks
The Furukawa Electric Group’s management performance is affectedby the economic conditions of the various markets in which we sell
our products and provide services.
The Furukawa Electric Group’s management performance, stock
price and financial condition may be affected by the following risks,assessed by the Group as of June 29, 2011, the date on which we
submitted our financial report.

1) Infringement of third-party intellectual property
rights and other rights
The Furukawa Electric Group takes appropriate measures to preventthe infringement of intellectual property and other rights ownedby third parties in connection with business activities, including thedevelopment, manufacture, use and sales of products and software.
These measures include prior research of such rights and thearrangement of licensing as required. However, we may become
engaged in disputes or negotiations in situations in which a third
party sues the Group for alleged infringement of intellectual property
or other rights owned by the third party, or in cases where intellectual
property or other rights owned by the Group are infringed uponby a third party. Lawsuits involving intellectual property may resultin the suspension of the manufacture or sale of Group products or
a major claim for damages or settlement benefits, and in the event
the Group is faced by such suspensions or payment obligations,the results of operations and financial position of the Group may be
adversely affected. In addition, despite having a framework in place
to deal with property rights, corporate competitiveness may decline
in the event that the Group’s manufacturing technology (knowhow)is leaked to a third party.

or that we will not be liable for any unforeseen future losses or damages.
Any defects in products such as power cables, communication cables
and automotive parts may incur significant additional costs.
While our product liability insurance policy covers risks associatedwith our products, it may not cover all the damages we might be required
to pay. Product defects causing significant damage or product liability
may incur major costs and tarnish the Group’s reputation, adversely
affecting the results of the Group’s operations and financial position.

3) Fluctuations in raw material and fuel prices
Prices for our main raw materials, including non-ferrous metals suchas copper and aluminum, and polyethylene, along with fuels such as
heavy oil and LNG, may fluctuate beyond expectations due to changes
in international politics and market trends. We may not be able tosufficiently reflect such substantial price fluctuations onto our sales
prices, or we may be unable to do so in a timely manner. This may
adversely affect the results of our operations or financial position.

4) Fluctuations in exchange rates
The Furukawa Electric Group owns foreign currency-denominatedcredit and obligations. Therefore, fluctuations in the foreign currency
environment may result in exchange gains or losses.

5) Higher interest rates
If interest rates rise, our interest expenses will increase, which may
adversely affect the results of operations.

6) Lowering of credit ratings
Should our performance stagnate, credit rating agencies may downgrade
our long-term bonds and commercial paper. This situation could makeraising funds more difficult and cause interest payments to rise.

2) Defective products7) Impairment of assets

The Furukawa Electric Group manufactures products and services inaccordance with prevailing domestic and international standards andspecifications as well as its own quality control standards developed
over the course of its extensive business experience. However, wecannot warrant that all our products and services are free from defects

In the event of unfavorable conditions in the market or businessenvironment, the market value of our assets may substantially decline,or the profit generated by our assets may decrease, leading us to incur
impairment losses on such assets.

Liabilities and net assets (Billions of yen)
4.9
3.4
Shortterm debt

-7.6

5.8

Current Tradeportion payablesof bonds

835.8

Other
current
liabilities

-14.0

Bonds

0.0
Commontreasurystock, at
-12.4
cost

-2.2
Longterm debt

15.0
-5.7
0.0

2010

0.0

Accrued -0.8
0.4 Common Common Retained
retirestock, earnings
stock
ment Provision Other
for
Capitallong-term
benefits
environ- liabilities
surplusmentalcosts

Liabilities:
Down ¥15.9
billionyear-on-year

4.4
Total Minority
accumu- interests
lated
other
comprehensive
income

826.9

2011

Net assets:
Up ¥7.0
billionyear-on-yearFurukawa Electric Co., Ltd. ANNUAL REPORT 2011

8) Soil pollution on land held for business purposes
Soil pollution exists at on the site of the Company’s Nikko Works,
and we are currently conducting detailed surveys and planning
remediation measures. A survey is also underway with regard to waste
disposal and ground pollution at land owned in the Oyama area. In
addition, we are implementing soil and groundwater countermeasuresat the Ibaraki Plant owned by Aoyama Kinsho Co., Ltd. When wesell our land or change its use in other areas, we may incur costs
associated with soil pollution in the event a soil survey demonstrates
the land is contaminated.

9) Overseas activities
The Furukawa Electric Group manufactures and sells products not
only in Japan but also in overseas markets, including markets in the
U.S., Europe and Asia, as well as emerging markets. We face various
potential risks in these overseas markets, such as unexpected changes
in laws and regulations, labor disputes caused by changes in theeconomic environment or sudden outbreaks of epidemics. Such risks
may adversely affect the result of our operations.
Particularly in China, where the economy has been growing
rapidly over the past several years, we have established and operate
a number of business sites, namely in Shanghai, Beijing and Tianjin.
Unexpected events in China, such as changes in laws, rules andregulations associated with investment, foreign currency, finance andtrade; suspension of power supply; or the outbreak of epidemics, may
adversely affect our operations. Concretely, should the Chinese GDP
growth rate sharply decline due to the adoption of a governmental
policy to curb excessively rapid economic growth, or should theexchange rate of the yuan be adjusted, the results of our operations in
China may significantly differ from our business plan forecast. In suchcases, the cash flows of our subsidiaries in China may be adversely
affected because the collection period for sales receivables from
Chinese customers is relatively long.

10) Legal violations
In May 2010, Furukawa Electric was issued cease and desist as well as
administrative surcharge orders by the Japan Fair Trade Commission
as a result of acts in violation of the Anti-Monopoly Act in relation totransactions regarding optical fiber cable and related products. The
Company has made a court appeal with regard to some products
included in the administrative surcharge payment order and is awaiting
a final decision by the commission. In November 2010, Company
subsidiary Furukawa Elecom Co., Ltd., received an administrative
surcharge payment order from the Japan Fair Trade Commission
related to transactions on three general-purpose construction
products including construction wiring. Compensation for damages
may be claimed in relation to this violation. Furthermore with respect
to construction wiring, in April 2010 Kyowa Electric Wire Co., Ltd., wasincluded in an examination owing to suspicion of violating the AntiMonopoly act with regard to transactions of this same product. We are
currently cooperating with this investigation.

CONSOLIDATED FINANCIAL REVIEW

28

Furthermore, the Furukawa Electric Group is currently underinvestigation by the Japan Fair Trade Commission and bureaus
responsible for antitrust law in the United States and European
Union concerning automobile wire harnesses and related products.
We are currently cooperating with these investigations. In addition,
equity method affiliate VISCAS Corporation is under investigation in
the European Union by the bureau responsible for antitrust law inrelation to power cables and related products. In this investigation,
the commission has found the company in violation. Although noreparations have not been determined, it is possible that administrative
surcharge payments may be levied, and that a civil action may be filed
seeking compensation for damages in relation to this violation.

11) Impact of the Great East Japan Earthquake
The impact of the Great East Japan Earthquake, which struck on
March 11, 2011, may have a negative effect on the Furukawa ElectricGroup’s operating performance, owing to difficulties in procuring raw
materials, the interruption of plant operations because of shortages inthe electric power supply and increases in electricity rates.

Future Outlook
In the upcoming year, the aftermath of the Great East Japan Earthquake
is expected to continue affecting Japan in a number of ways, so
economic conditions remain uncertain. Overseas, high growth isexpected to continue in emerging markets, but the negative potential
impact of the European debt crisis and concerns about rising prices on
crude oil and other raw materials is growing more pronounced.
In this environment, the Furukawa Electric Group will continue to
implement measures introduced last year under its new medium-term
management plan, New Frontier 2012. By making steady progress inputting these measures into action, we aim to cultivate new frontiers(new markets and new businesses) and management that is morerobust in the face of change.
In the transmission infrastructure segment, we will introduce
investment initiatives to meet the high levels of emerging market demandthat are expected to continue in relation to communications and power
infrastructure, and we will work to reinforce our production systems andexpand our sales accordingly. In the functional materials business, wewill seek to boost profitability by concentrating on the establishmentof competitive technologies and higher productivity. At the same time,
we will make aggressive capital investment to match demand trends. In
addition, we will cultivate new environmental businesses by leveraging
new organizations established in the preceding fiscal year—the Smart Grid
Business Development Department, the Next-Generation Automotive
Product Team and the Next-Generation Battery Materials R&D Center—tostrengthen our initiatives for cultivating new markets and new products.
In fiscal 2012, we expect ¥950.0 billion in consolidated net sales,¥31.0 billion in operating income, ¥29.0 billion in ordinary income and¥11.5 billion in net income.

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CONSOLIDATED STATEMENTS OF INCOME

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CONSOLIDATED STATEMENTS OF COMPREHEMSIVE INCOME

32

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CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

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36

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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REPORT OF INDEPENDENT AUDITORS

82

83

CORPORATE DATA / STOCK INFORMATION

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Corporate Data
Head Office

Manufacturing Facilities

2-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8322, Japan
PHONE: 81-3-3286-3001
URL: http://www.furukawa.co.jp/english/¥69,395 million (As of March 31, 2011)

Chiba
Nikko
Hiratsuka
Mie
Yokohama
Osaka

Branches

Research Laboratories

Osaka
NagoyaFukuoka
Hiroshima
Sendai
SapporoYokohama R&D Laboratories
Metal Research Center
Ecology & Electronics Laboratories
Power & System Laboratories
FITEL Photonics Laboratory
R&D Center for Automotive Systems & Devices

Common Stock

Stock Information
Stock InformationNumber of shares authorized March 31, 2011

2,596,000,000

Common shares 

2,500,000,000

Preferred shares 

50,000,000

Subordinated shares 

46,000,000

Total number of shares issued and outstanding (Common shares)

706,669,179

Distribution of Stock Ownership(Common shares) March 31, 2011

Treasury stock
0.06%
438,730 shares

Financial institutions
42.15%
297,852,185 shares

Domestic corporations,others7.18%
50,714,685 shares

Securities companies
2.64%
18,674,440 shares

Individuals andothers30.00%
212,013,370 shares

Foreign corporations
17.97%
126,975,769 shares

Total number of shares issued and outstanding: 706,669,179

Major top 10 shareholders of the Company and the Company’s capital contributions to such shareholdersName of major shareholders

March 31, 2011

Number of shares

Shareholding ratio

Japan Trustee Services Bank, Ltd. (Trust Account)

35,774,000

5.07%

The Master Trust Bank of Japan, Ltd. (Trust Account)

33,745,000

4.78%Japan Trustee Services Bank, Ltd. (Trust Account 9)29,295,000

4.15%

Trust & Custody Services Bank, Ltd(Mizuho Trust & Banking; Employee Retirement Benefit Trust, Mizuho Bank Account)

22,928,250

3.25%

Japan Trustee Services Bank, Ltd. (Trust Account 4)

22,410,000

3.17%Asahi Mutual Life Insurance Co.

16,060,500

2.27%

Furukawa Co., Ltd.

13,290,455

1.88%

SSBT OD05 OMNIBUS ACCOUNT - TREATY CLIENTS

12,894,100

1.83%

Nippon Life Insurance Co.

11,895,000

1.68%

Fuji Electric Holdings Co., Ltd.

11,000,000

1.56%

Notes) 1. The Company holds 438,730 shares of treasure stock, they are excluded from the capital positions of the above shareholding ratio.
2. Although not mentioned in the above table, Asahi Mutual Life Insurance Company has placed 10,500,000 shares in a retirement benefits trust.
3. Although not mentioned in the above table, Furukawa Co., Ltd. has placed 10,919,000 shares in a retirement benefits trust.
4. Fuji Electric Holdings Co., Ltd. changed its trade name to FUJI ELECTRIC CO., LTD. on April 1, 2011.