Global
Innovation
andGrowthANNUAL REPORT 2008

Furukawa Electric Establishes New Group Philosophy
and Corporate Message
Furukawa Electric has consistently supplied products and services essential for developing the economy
and industry, and this year marks 124 years since our founding.
Seeking growth on a global scale to enhance our corporate value, the Furukawa Electric Grouphas established a new Group Philosophy and Corporate Message, “Bound to Innovate.” “Bound to”
embodies our dynamism, clear direction and determination to take action, while “Innovate” signifies a
commitment to innovation that reaches beyond our products and technologies to include our corporate systems.
We will continue to take action toward realizing our vision of striving for technologicalinnovation to become a creative and highly profitable corporate group with a global presence.

Establishment of the Corporate PHILOSOPHYCORPORATE PHILOSOPHY
Drawing on more than a century of expertisein the development and fabrication ofadvanced materials, we will contribute to therealization of a sustainable society throughcontinuous technological innovation.
Establishment of the Corporate Message
We have adopted a new corporate message that
embodies our firm determination to focus the
Furukawa Electric Group Philosophy and all ourenergy into continuous innovation.

The red arrow represents the zeal and dynamism necessary to move to a higher stage
with a hop, step and jump some 124 years after Furukawa Electric was founded.

Contents
Consolidated Financial Highlights
Interview with the President
Status of the Medium-Term Management Plan
Feature: Towards Further Growth
R&D × Environmental Topics
Opening new possibilities for superconducting technology
CSR Activities
Corporate GovernanceDirectors and Auditors

01
02
09
10
16
17
18
19

Review of Operations
Telecommunications
Energy and Industrial Products
MetalsElectronics and Automotive Systems
Light Metals
Services and Others
Financial Section
Corporate Data/Stock Information

20
22
24
26
28
30
32
33
75

Consolidated Financial Highlights
The Furukawa Electric and Its Consolidated Subsidiaries
For the years ended March 31, 2008 and 2007

Millions of yen

Net sales

Thousands of U.S. dollars

2008

2007

2008

¥ 1,174,247¥ 1,104,709$ 11,742,470

Operating income

48,44753,633

484,470

Net income

15,291

29,765

152,910

Basic

21.81

42.16

0.218

Diluted

21.81

42.14

0.218

Per share of common stock (yen and U.S. dollars):

Cash dividends paid
Total assets

7.00

6.50

0.070

1,014,778

1,096,709

10,147,780

205,385

199,274

2,053,850

Total shareholders’ equity

Note: U.S. dollar amounts have been translated, for convenience only, at the rate of ¥100 to US$1.

Net sales

Operating income (loss)/Ratio to net sales(Billions of yen)

Operating income (loss)(Billions of yen)

1,200

1,104.7

1,174.2

1,000

872.5
800

60
50

37.4

40

739.9 775.9

23.7

30

(%)

(Billions of yen)

6

160

53.6
4.9 48.4

4.3

5
4

4.1

80

15.8

3

3.1

600

Net income (loss)

Ratio to net sales

25.5

29.8

15.3

0
2

10

1

200

0

0

0

-10

01

-80

2004

2005

2006

2007

2008

-0.4
-3.2
2004

-1

2005

2006

2007

-160

2008

-140.1
2004

2005

2006

Total assets

ROA (Based on operating income)Interest-bearing debt

(Billions of yen)
1,500

(%)

(Billions of yen)
600

4.9

5

4.8

2007

2008

529.7
4

1,200 1,110.7

991.4

1,052.31,096.71,014.8

3

600

300

435.3 428.2
400

2.4

900

471.3

500

3.6

2

300

1

200

0

399.1

100

-0.3
-1

0

2004

2005

2006

2007

2008

0

2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

Forward-Looking Statements
Statements made in this Annual Report with respect to Furukawa Electric’s current plans, estimates, strategies, and beliefs and other statements which are not historical facts areforward-looking statements based on the Company’s assumptions and expectations in light of currently available information, and therefore involve risks and uncertainties which may cause
actual performance results to differ from those discussed in the forward-looking statements.
Potential risks may include, but are not limited to, general economic conditions, management environment, market demand, foreign exchange rates, and taxes and other system impacts.
Therefore, no guarantee is presented or implied relative to the accuracy of the forward-looking statements in this Annual Report.

Notation Used in this Annual Report
In this annual report, “the previous fiscal year,” “the fiscal year under review,” and “the year ahead” indicate the years ended March 31, 2007, March 31, 2008, and the year ending March 31,
2009, respectively.

ANNUAL REPORT 2008

20
400

Interview with the President

Enhancingprofitability

overseas markets, high-value added products
focused on the environment,
and a reduction of interest-bearing debt
Amid an increasingly severe business environment,
the Furukawa Electric Group will enhance profitability toattain its goals by establishing a firm footing in largely
untapped overseas markets and by delivering highvalue-added products that combine our unique advantages
in materials and comprehensive capabilities to addressenvironmental and social needs.
Newly elected President Yoshida shares his views on
accomplishing further growth, including the challenge ofreducing interest-bearing debt.

02
ANNUAL REPORT 2008

Masao Yoshida
President & Chief Operating Officer

Q1
A1First, give us some insights on what you intend to do as
the new president.
I will seek sustainable growth and development by
pursuing both “universality” and “rationality.”

Q2
A2

Now, tell us about the latest global trends intelecommunications and what Furukawa Electric is doing.
In Japan, where the focus of investment is movingfrom optical fiber to optical devices, we supply key
components, such as optical amplifiers. For overseas
markets, we are expanding our optical production
capacity in view of growing global while proceeding to
restructure our portfolio, for example, selling an underperforming business.

Reviewing trends in the telecommunications market, although the number of optical
network subscribers in Japan has reached more than 10 million households and is03
ANNUAL REPORT 2008

My previous work with the Furukawa Electric Group has been varied, encompassing
research, sales and management planning. I believe my mission as the president is to
apply this extensive experience and steer our Group to rise above the volatile tides ofchange sweeping across the world today.
Every company needs to infuse organization with “universality,” accepted
throughout the world, and “rationality,” formed from reason and logic. To pursue these
two themes, I recognize we must recruit excellent human resources, without regard torace, effectively mobilize our workforce and evaluate performance against quantitative
data. I hope to achieve sustainable growth and development by redirecting Groupsystems in these areas.
This concept can be applied to our business as well. During the period guided by
my predecessor, we endeavored to stabilize the entire Group by pursuing competitive
advantages in each segment, centered on the concept of multi-axis business management.
I see may job as taking the next step forward, evolving in the same direction yet striving
for more strategic development of our business based on universality and rationality.
To this end, we must concentrate our efforts on comparatively long-term businesses
such as energy, telecommunications and automotive components. Demand for energy
and telecommunications infrastructures will expand on a global scale. And although wemust work hard to have manufacturers adopt our automotive components, once they
have done so, our components will be in continuous use, given the long product lifecycleof approximately five years before introduction of new models.
Meanwhile, we will also focus on developing materials that may appear unremarkable
but are nevertheless essential to capture substantial market share. If we can produce
materials that competitors cannot duplicate and establish them as global standards, evenproducts that do not bear the Furukawa Electric brand will contain our materials. For
example, base component materials, such as electrolytic copper foil, are used in products
made by every company and will continue to be used in new models. I believe that
pursuing this strategy on a global scale will boost the overseas ratio of our sales.

*1 OFS: Overall term for OFS Fitel, LLC
and OFS Bright Wave, LLC, optical fiberand optical cable operating companies
acquired from Lucent Technologies Inc.
of the United States in 2001.

04
ANNUAL REPORT 2008

increasing, we have entered a stage of maturity in terms of prior investment over the
medium to long term. Therefore, much additional growth cannot be expected. However,once we turn our attention to the global market, there is still ample room for
growth. For example, demand is expanding in North America, where major telecommunications companies like AT&T and Verizon are building optical fiber networks;
and in high-growth regions in South America, including Brazil and Argentina; as well as in
Russia and Western Europe. Optical fiber networks are being developed at an accelerated
pace in South Africa ahead of the FIFA World Cup, while future growth prospects arealso good in newly emerging countries such as China and Southeast Asian nations.
Against this background of expanding global demand for optical fiber, OFS*1, whichlast year reported an operating profit for the first time since our acquisition, achieved
increases in both revenue and profit in the fiscal year under review. On a monthly basis,
OFS has begun to generate stable profit even during the winter season, a period whenrevenues had dropped in the past because of the suspension of work in colder regions;so a profit structure is firmly taking root with the improving business environment. To
meet growing demand, we began expanding production capacity at OFC Russia in
October 2007 and at OFS Germany in the latter half of 2008 in hopes that they willcontribute to earnings beyond fiscal 2009.
On the other hand, we are also reviewing our portfolio through moves such as
the sale of OCP in the United States, whose performance had been deteriorating as its
products became commodities.
Although demand for optical fiber is stabilizing in theJapanese market, we are expecting demand for nextgeneration networks (NGN) to pick up starting in 2008.
The Furukawa Electric Group supplies optical devices
that constitute the core of NGN infrastructures, such as
semiconductor lasers and optical amplifiers, which we
expect will also contribute to boosting sales and profit.

Q3
A3

Please share a progress report on your Innovations 09
Medium-Term Management Plan.
While we have cleared our planned sales target, wehave yet to do so in terms of profit, due to such factors
as the high price of crude oil and sub-materials, andthe rising yen. Looking ahead, we intend to expand oursales channels in the ASEAN region and in high-growthcountries such as the BRICs.

Fiscal 2008 marks the second year of Innovations 09 Medium-Term Management Plan.
Revenues in the first year far exceeded expectations, allowing us to achieve our final
year targets ahead of schedule, so we subsequently revised our goals in May 2007 to
net sales of ¥1.15 trillion and operating income of ¥51.0 billion on a consolidated basis.
As a result, although we surpassed our net sales target with ¥1.1742 trillion, operating
income remained at ¥48.4 billion, falling short of the target. This was due to the negative
impact of ¥3.2 billion in additional expenses caused by the surging prices of crude oil andsub-materials and ¥0.6 billion in exchange rate losses caused by the rising yen; otherwise
I believe we would have cleared both targets in concrete terms.

Improving profit will be essential for accomplishing our final goal over the next two
years, and to that end as well, we must intensify our focus on overseas regions with highGDP growth rates. In Innovations 09, we are aiming to expand our overseas sales ratio
to 35%, and this ratio has increased from 21.9% in fiscal 2004 to as high as 30.2% in
the fiscal year under review. While the effects of foreign exchange
rates make it difficult to measure the level of accomplishment, I
Revised Targets for Innovations 09
Net sales
hope we can attain this goal and meet our targets for net sales and □ Net sales(Plan)
Operating income(Plan)
Operating income
profit.
Net sales (Billions of yen)
Operating income (Billions of yen)
Accomplishing these goals requires cultivating personnel who
can work effectively with a global perspective. The Furukawa
1,300
100
Electric Group, however, is still lacking in such human resources.
1,250.0
Going forward, I intend to hire outstanding personnel regardless
1,174.2
1,200
80(Actual)of age, gender, race or nationality, and develop an environment
1,104.7
70.0*
in which they can demonstrate their abilities in top management(Actual)
1,100
60
positions anywhere in the world.
53.6
I also plan to place special emphasis on ASEAN, which is
48.4(Actual)1,000
40(Actual)geographically close to Japan and an area in which we have
37.4
(Actual)many business partners. It is a major economic region with a
872.5
900
20
(Actual)large population, where an advantageous business environment
is emerging, as seen in the progress in tariff reductions within the
0
0
2006
2007
2008
2010
region based on the AFTA (ASEAN Free Trade Area) concept. We(Plan)
intend to aggressively expand our business in this region.
* Prior to fiscal 2008 tax code revisions.

Please explain your future growth strategy andportfolio strategy for accomplishing your plans.
We will continue to enhance our competitivenessby fully leveraging our material power in theareas of photonics, metals and plastics, and thecomprehensive power generated by the varied rangeof our products.

The Furukawa Electric Group’s business consists of five segments: Telecommunications;
Energy and Industrial Products; Electronics and Automotive
Systems; Metals; and Light Metals. The first two are so-called
infrastructure industries, for which our priority is expansion into
the global markets. By presenting Japan’s superior technology
and know-how worldwide, we intend to establish our products
as global standards and to transfer part of the base of ourbusiness activities overseas.
Meanwhile, I believe the key in the areas of Electronics andAutomotive Systems, Metals, and Light Metals is to propose
unique products utilizing the material power that constitutes thestrength of the Furukawa Electric Group to capture large sharesin niche markets. By “material power,” I mean our ability to
combine abundant knowledge and expertise in the three areasof metals, polymers and glass to create the highly functional products demanded by themarkets. We hope to build a highly profitable business base by vigorously presenting

ANNUAL REPORT 2008

Q4
A4

05

high value-added products that meet the needs in each field and thereby avoiding costcompetition.
We have particularly high hopes for automotive products with relatively long
lifecycles, where we can expect stable growth. The Furukawa Electric Group is focusedon wire harnesses, the “nerves and blood vessels” of automobiles. However, it is difficult
to differentiate ourselves if we only supply the harness. We will therefore strive to offer
highly functional modules that combine various parts, leveraging
the comprehensive power of the Furukawa Electric Group.
This strategy is effective in any industrial sector, not only theautomobile industry. We are currently promoting “group sales,”in which an overall parts and products proposal is presented toeach individual customer by the Group as a whole, regardlessof segment, in an effort to pursue proposals that transcendorganizational boundaries. This also provides our customers withthe advantage of procuring various parts and products in a single
business negotiation, and there have been cases in which generallycompetitive parts and products were actually adopted as part ofa package. We intend to strengthen our efforts in this area.

06
ANNUAL REPORT 2008

Q5
A5

How are you dealing with environmental concerns,
which have recently become key issues for corporate
operations?
We will focus our efforts on R&D with a theme on “theenvironment and energy conservation,” and incorporate
the perspective of environmental contribution into ourmanagement decisions.

Upon the launch of Innovations 09, the Furukawa Electric Group formulated Vision 2015,
which summarizes the visions and principles for our research and development. We
designated “the environment and energy conservation” as a key social theme for future
R&D. Focusing on reducing the environmental burden of products not only responds tosocial concerns but significantly contributes to creating
greater value for our customers.
The Furukawa Electric Group possesses technology
for materials such as aluminum and other light metals
as well as foamed resins such as plastics, which affords
a significant advantage in lightweight solutions for such
Rainwater retention and infiltration
fields as automobiles, and the market expects muchsystem based on resin blockfrom our Group.
assembly method (HYDROSTAFF)
We will also endeavor to advance recycling from theviewpoints of effectively using resources and reducing
waste. For example, we command an 80% share of
the domestic market for electrolytic copper foils usedin lithium ion batteries, and the raw materials for thesefoils are 100% recycled copper from electric cables. We
Superconducting technology
are also generating results in the development of opticalexhibited at the Toyako Summit
cables that are easier to be dissembled facilitating highrecyclability. In addition, we have developed a rainwater reserve system to address theheat island problem in inner city areas. We will continue to create technologies andproducts that contribute to reducing environmental burdens from a variety of angles.
At the Toyako Summit in Hokkaido held in July this year, superconducting
power cables were presented as a technology that contributes to reducing
CO2 emissions, and Furukawa Electric has been cooperating in this project.
Our Group has accumulated many years of research on superconductive
technology and has already succeeded in reducing energy loss duringtransmission to one-quarter the level of conventional copper and aluminum
power cables. Commercializing this cable would reduce CO2 emissions by
1,060,000 tons per year.
In the future, we will proceed with research and development along
environmental themes, and emphasize environmental contribution in selecting ourbusinesses. We believe that businesses that contribute to society from an environmental
viewpoint have the potential for future growth, even if their current profitability is low.

Q6
A6What are your financial targets?
We will reduce interest-bearing debt by using ourincreased cash flows from operating activities.

07

2003

2004

2005

2006

2007

2008

ANNUAL REPORT 2008

As the graph at the right shows, cash flows from our operating activities have steadily
increased. At the end of the fiscal year under review, refunds in income taxes from
Canada and other factors brought the total to ¥90.8 billion. In Japan, taxes on
depreciation were revised over two consecutive years, which had a positive effect on our
cash flow. Our international competence has also been enhanced.
*2 D/E ratio: An indicator used to measure
We emphasize the D/E ratio*2 as a financial target. While our goal under Innovations
the soundness of a corporation. It shows
09 is set at 1.3, we hope to get this closer to 1.0.
debt in proportion to shareholders’equity and is described as: InterestAs a result of our efforts over the past few years, interest-bearing debt was reduced
bearing debt ÷ Shareholders’ equity
by ¥29.1 billion from the previous year to ¥399.1 billion at the endof the fiscal year under review. As a consequence, the D/E ratio
Cash Flows from Operating Activities,
Interest-Bearing Debt and Operating Income
improved from 1.8 in the previous fiscal year to 1.7, demonstrating
Interest-bearing debt
Cash flows from operating activities
a level of effectiveness in improving our financial condition. We
Operating income
will seek to further reduce interest-bearing debt to achieve our(Billions of yen)Innovations 09 goal of ¥380.0 billion.
To expand profit as a Group, it is essential that each of our
91
100
600
businesses achieves growth. For the time being, we will maintain the80
550
framework of ¥1 trillion in total assets, seek to optimize the portfolio
530
54
531
60
48
within this scope and draw a balanced growth path. In doing so,
37
33
40
51
500
even should we decide to exit a business, our basic stance will be to
23
12
24
11
20
transfer the business to a company that can utilize the technology
471
450
435
0
428
-3
and facilities, not squander them. This ensures that human resources-20
399
and facilities are put to effective use. Such a decision would also be
400-44
friendlier to the environment in the sense that management resources-40of the past are not wasted.
350
-60

Q7
A7

08

Please share with us your outlook for the next fiscal
year and your dividend policy.
To increase revenues even in an increasingly severebusiness environment, we will strive to enhance
profitability and increase returns to our shareholders.

ANNUAL REPORT 2008

Instability in the financial markets is expected to continue in the global economy infiscal 2009, while the price of resources such as crude oil is expected to rise further.
While the business environment will become more severe, the Furukawa Electric Groupwill continue to pursue research and development and capital investments in ourpriority areas toward enhancing profitability by focusing our resources on developing
new overseas markets. We will also endeavor to improve asset efficiency and reduce
interest-bearing debt, while accelerating the pace of reform in our Group management
structure by reinforcing internal controls across the entire Group and reorganizing Group
companies.
Based on these efforts, we expect consolidated net sales to increase 3%
on the year to ¥1.21 trillion in fiscal 2009. Meanwhile, consolidated operating
income is expected to decrease 5% on the year to ¥46.0 billion, due to theincreased burden ¥5.8 billion caused by the surge in the price of crude oil andother raw materials, and ¥6.5 billion caused by shortened depreciation periods
under the revised Corporate Tax Law of Japan. We expect consolidated net
income will rise 58% on the year to ¥24.1 billion, due to ¥11.1 billion in otherincome from foreign exchange conversions accompanying the dissolution of overseas
subsidiaries.
Upholding the principle of stable dividend payment, we intend to exercise flexibility inproviding returns to our shareholders based on a long-term perspective on profit trends
with due consideration for future business development. For the fiscal year under review,
we increased our dividend by ¥0.5 per share to ¥7.0 per share on an annual basis. We
plan to pay an annual dividend of ¥7.0 per share in fiscal 2009, while seeking a further
increase according to our growth strategy under Innovations 09.

President & Chief Operating Officer

Masao Yoshida