0

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

FINANCIAL HIGHLIGHTS
Thousand of
U.S. dollars

Millions of yen
Net sales
Operating income
Income (loss) before income taxes and minority interests
Net income (loss)
Total assets
At year-end
Net assets
Interest-bearing debt
Cash flows from operating activities
Cash flow
Cash flows from investing activities
Cash flows from financing activities
Per share date Net income(yen)
Net assets
Cash dividends
ROE
Ratios(%)
ROA
D/E Ratio
For the year

2008

2009

2010

2010

1,174,247
48,44731,034
15,291
1,014,778
294,982
399,050
90,760-52,113-41,58121.81
332.61
7.00
6.4
4.8
1.7

1,032,807
9,752-30,896-37,405
845,658
190,429
383,11478,728-51,267-14,553-53.34203.16
6.00
-20.0
1.2
2.7

809,693
20,322
10,947
9,704
835,819
208,929
362,088
36,668-25,113-23,58213.80
231.39
5.00
6.3
2.4
2.2

8706,376
218,516
117,710
104,3448,987,301
2,246,549
3,893,398
394,280-270,032-253,570
0.148
2.488
0.054
----------Note) 1. U.S. dollar amounts have been translated, for convenience only, at the rate of ¥93 to US$1.
2. ROA = Operating income (loss) / Total assets

Net sales

Operatingincome/ Ratioto net sales

Net income (loss)(Billions of yen)
1,200(Billions of yen)
60

(Billions of yen)
50

872.5

1,104.7 1,174.2 1,032.8
809.7

800

400

0

40

37.4
4.3

(%)
6

53.6
4.9 48.4
4.1

20.3
2.5

20

2006

2007

2008

2009

2010

0

4

9.8
0.9
2006

2007

2008

2009

2010

25

2

0

0

-50

25.5

29.8
15.3

-37.4
2006

2007

2008

Total assets

ROA

Interest-bearing debt

(Billions of yen)
1,200(Billions of yen)
6

(Billions of yen)
600

1,052.3 1,096.7 1,014.8

4.9
845.7 835.8

800

4

4.8
400

3.6

9.7

435.3

428.2

2006

2007

2009

2010

399.1

383.1 362.1

2008

2009

2.4
2

400

0

2006

2007

2008

2009

2010

0

200

1.2
2006

2007

2008

2009

2010

0

2010

Contents
FINANCIAL HIGHLIGHTSPROFILEAT A GLANCEINTERVIEW WITH THE PRESIDENT
SPECIAL FEATURE NEW FRONTIER 2012
BUSINESS OUTLOOK AND FOCUS

01
02
03
05
09
23

CORPORATE GOVERNANCECSR ACTIVITIESDIRECTORS AND AUDITORSFINANCIAL SECTION
CORPORATE DATA / STOCK INFORMATION

29
31
33
34
88

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 forward-looking statements. Potential risks may include, but are not limited to, general economic conditions, management environment,
market demand, foreign exchange rates, taxes and other government programs or policies. Therefore, no guarantee is presented or implied relative to the accuracy of the forward-looking statementsin this annual report.
Fiscal Year Notation
The fiscal year in this annual report is indicated as fiscal 2010 or FY2010, which covers the period from April 1, 2009 to March 31, 2010.

Furukawa Electric Co., Ltd. ANNUAL REPORT 201002

PROFILEThe Furukawa Electric Group has pioneered technicalinnovation for over a century, providing clients and end
users with high-value technologies in a broad array of fields.
Our key strength is in integrating materials –– centeredon photonics, metals, and plastics –– into functionality
and quality that meet the demands of the market.
Through development of products in industry
segments including telecommunications, energy andindustrial products, electronics and automotive systems,

metals, and light metals, we also excel in the ability toquickly assess market needs and trends, and reflect thesein materials innovation.
Our ingenuity in materials development and productdevelopment creates innovation and synergies that drive
the new solutions we bring to the market. As we further
enhance this ingenuity, the Furukawa Electric Groupwill continue creating products that support industrial
development and enrich people’s lives around the world.

Materials
Development

s
on
ati
c
i
un
mm
o
ec
Tel

We possess in-depth expertise anda vast knowledge base in materials

MetalsPhotonics

We begin withmaterials innovation
to develop thehigh-performance,high-quality products
demanded by themarket

Plastics

Competency
We are a continuous
innovator in the interplay
between materials
development and productdevelopment

Transmission
Infrastructure
Business

To develop innovative
materials, we quickly
assess the functionality
and quality demandedby the market in a widearray of fields

Functional
Materials
Business

Product Development
We understand market needs
and potential

d
s
duct
gy an
Ener strial Pro
InduElectronics andAutomotive Systems

Meta
ls

Lig
ht
Me
tal
s

0

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

AT A GLANCE
Segment

Ratio toNet Sales

Major
Businesses

Transmission Infrastructure BusinessTelecommunications

Energy andIndustrial Products

15.6%

Business•Energy
Industrial
Products Business
•

24.1%

Functional Materials BusinessElectronics andAutomotive Systems

Fiber Cable Business•OpticalPhotonics
and Network•Solutions Business

20.5%

Parts Business•Automotive
Electronics Components•Business•Magnet Wire Business

Strips & Pipes Business•Copper•Electrolytic Copper Foils Business

Metals13.8%

Light Metals

21.7%

Services and Others

4.3%

Rolling Business•Aluminum
Extrusion Business•Aluminum
Aluminum Casting, Forging and•Other
Processing Businesses

Furukawa Electric Co., Ltd. ANNUAL REPORT 20100

Billions of yen

Major
Products

2010 Topics

fibers and cables•OpticalOptical•Optical components
fiber cable accessories•and installations•Network equipment, etc.

sales of LAN cables & optical cables in Brazil•Expanded
Launched
optical
JV in India•Launched secondfiber
cable•manufacturing siteopticalin Indonesia

copper wires
•Bare
Power
•Power cablestransmission cable•accessories
and installations
products such
•asPlastic
power cable conduit

new production site for foamed plastics in Russia•Launched
Providedtechnical
for ultra•high-voltage cablesassistancein Russia
production of copper wires•Consolidated
production of foamed plastics•Consolidated
in-floor heating system subsidiary to Max•Divestedof a construction affiliate with•aMerger
Fuji Electric subsidiary

products•Battery
Automotive components•andelectrical wires
wires•Magnetsinks•Heat
Aluminum and glass blanks•for
HDD devices•Electronic component materials, etc.
pipes
•Copper
strips•Coppercopper foils•Electrolytic
Shape memory alloys and other•processed
copper products, etc.

Acquired management control of a wire
•harnesscompany in Malaysia
Launched
second wire harness•manufacturingsite in Vietnam•Consolidated production of magnet wires

material and foamed sheets
thermoelectric products, etc.

sheets•Aluminum
aluminum products•Extruded•Cast and forged products, etc.

Real estate, logistics,•informationand various
other services

production of tin plating copper•Consolidated
Transferred electrode wire trademark•rights
to Oki Electric Cable Co., Ltd.

Made aluminum foil subsidiary wholly-owned•operatingcompany through successful TOB•Consolidated aluminum sheet production in Japan

2008
Results

2009
2010
Results Results

Net Sales

163.1

159.1

135.5

Operating
Income

11.0

9.3

9.8

Net Sales

315.0

277.4

208.8

Operating
Income

8.1

1.1

3.7

Net Sales

268.6

223.8

177.2

Operating
Income

9.1

2.5

7.2

Net Sales

213.7

170.2

119.6

Operating
Income

6.1

-4.9

-2.2

Net Sales

258.6

234.0

188.1

Operating
Income

12.4

-0.4

-0.2

Net Sales

45.8

41.3

36.9

Operating
Income

1.5

1.8

1.9

0

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

INTERVIEW WITH THE PRESIDENT

Sustainable Growth in the
New Frontier
The New Frontier 2012 Medium-Term Plan, our blueprint for
growth in new businesses and new markets, will guide our path tosustainable growth in a changing business environment.

Masao Yoshida President

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

Please describe the Company’s operating

improved our foreign exchange gains/losses.
We posted ¥6.3 billion in net gains on sales ofinvestment securities, but we recorded ¥2.8 billion
in business restructuring costs and ¥4.6 billion inprovisions for penalties under the Anti-Monopoly Law.
As a result, consolidated net income for the fiscal year
under review was ¥9.7 billion, an improvement of ¥47.1
billion year-on-year.

Q1 performance in the fiscal year under review.
a decline in sales during
A1 Despite
the first half and a drop in baremetal prices, we were able topost large income gains due
to a recovery in earnings.

In fiscal 2010, the fiscal year ended March 31, 2010,
we observed a steady global economic recovery.
Emerging nations in Asia, and China in particular,
are experiencing especially rapid economic revivals.
There are also signs that the economic recession hasbottomed out in Japan, particularly for automakers andother manufacturers.
Given these economic conditions, consolidated net
sales for the Furukawa Electric Group were down 21.6%
year-on-year to ¥809.7 billion. Although our earnings
were down overall, we were able to exceed the previous
forecast of ¥807.7 billion in net sales for the fiscal year
under review, thanks to the recovery in demand forelectronic and automotive products.
We posted our first consolidated operating income
since the fourth quarter of fiscal 2009 to move into theblack beginning in the second quarter of fiscal 2010,
thanks to our cost-cutting initiatives and a recovery
in sales. Earnings continued to recover steadily with
operating income gaining 108.4% year-on-year to¥20.3 billion.
In addition, we were able to eliminate our exchange
rate risk by converting a yen loan that our US holding
company had made to OFS to USD-denominated sharesin OFS as a result of the liquidation of this holding
company in the previous fiscal year. This significantly

What were the results of the Company’s

Q2 previous medium-term plan and how was the
new medium-term plan developed?

made optimal use of the plan’sA2 We
achievements as we charted apath to growth allowing forsocial changes.

Looking back on our business performance over the past
10 years helps me realize that we have navigated throughdramatic changes in our operating environment.
We ushered in the 21st century in 2000 withconcentrated investments in optical telecommunications.
In fiscal 2001, we posted record-high operating income.
However, we posted an operating loss in fiscal 2003, after
the IT bubble collapsed. We launched our Survival Planin fiscal 2005, which served as our guide in restoring ourbusiness performance, and achieved a V-shaped recovery.
Starting in fiscal 2007, we shifted from a defensive
to an offensive approach as we began investing in focus
markets, including automotive, the environment andoptical networks under our previous medium-term
management plan Innovations 09.
As a result of the economic crisis in the second half offiscal 2009, the Company’s earnings fell short of forecasts.

Review of Innovations 09(Billions of yen)
2,500

ROA on OI

250
Collapse of

3.8% IT bubble

2,000

200
ROA on OI

4.9%

1,500

Financial crisis
Commodity price hikes

150
100

1,000
Total Assets

500
0Operating
Income (Loss)

00

01

02

03

04

05

06

0

07

08

09

Innovations 09

10

50
0

Tax system reforms• (related
to fixed assets)

caused operating income
to decline.

Company faced assets• risks
due to the financial
crisis and commodity
price fluctuations.

will reduce asset risk
• toWeensuresustainablegrowth.

07

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

Furukawa Electric Group Management Vision

Toward a more proﬁtable, innovative, and dynamic
global presence
Create new businesses

Next-generation
vehiclesEnergy / smart grids

High-density opticaltelecommunications

Invest proﬁts in research and development

Strengthen existing
businesses

Expand transmission
infrastructurebusiness globally

Enhance our functional
materials businessRestructure our
traditional processing
businesses

Strengthen management base
Reform organizational climate

We were also confronted with the risks posed byfluctuations in asset prices as amortization of fixed assets
increased due to tax system reforms and commodity
prices were highly volatile. This made us keenly aware of
the importance of reducing asset-related risks.
Our newly developed New Frontier 2012 MediumTerm Plan indicates a path to achieve our Groupmanagement vision. This can be summarized with thephrase, “toward a more profitable, innovative, anddynamic global presence.”
We will seek opportunities in new businesses and newmarkets, as well as aim to create a corporate structure thatcan withstand changes in the operating environment.
As a result, we have decided to focus on return on assets(ROA) on an operating income basis as a key management
indicator so that we can reduce asset-related risk, as wellas accelerate the repayment of interest-bearing debt
through an improved investment turnover ratio.
Please provide an overview of the current

Q3 medium-term plan.

the plan, we will seek growth
A3 Underopportunities in the new businesses
and new markets representing the
new frontier.

The focus of the New Frontier 2012 Medium-Term Plan,
which spans a three-year period beginning in fiscal 2011,

Improve ﬁnancial strength

is to seek growth opportunities in new businesses andnew markets.
By new businesses, we refer to the environmental
businesses of tomorrow. In particular, we will target thethree fields of next-generation vehicles, smart grids andhigh-density optical telecom, which leverage our Group’s
technical competencies.
We will seek to strengthen existing businesses further
and use the profits that they generate to make strategic
investments in research and development in these threefields. We will also focus on expanding the market for our
existing businesses in BRICs, ASEAN and other emerging
nations, as we can expect these regions to continue
investing in transmission infrastructure, including
electricity and telecommunications.
In addition, in our functional materials business, which
includes electrode materials used in lithium-ion vehicle
batteries and blank disks for HDDs, we will establish massproduction technologies and expand productivity with thegoal of becoming a leading supplier in these segments. At
the same time, we will move forward with the restructuringof our operating portfolio to reform the business models of
our less profitable businesses.
Finally, we will create a management base that
supports this strategy by fostering an organizational
climate suitable for global markets and strengthening ourfinancial standing by streamlining Group assets.

Furukawa Electric Co., Ltd. ANNUAL REPORT 2010

Q4 What is the Company’s stance on compliance?
take our repeated violation ofA4 We
antitrust law seriously. I myself willlead the Company in reinforcing ourcompliance structure.

Since I became president of the Company, we have had
five on-site inspections, including affiliate companies,
from the Japan Fair Trade Commission to investigate
violations of the Anti-Monopoly Act of Japan. I would
like to take this opportunity to express my deepest
regret and apologies to our shareholders for theinconvenience and concern that we have caused.
This series of violations against anti-trust legislation
has made me keenly aware of the need to reconsider
long-standing industry practices. As such, weestablished the third-party investigation committee
on violations of the Anti-Monopoly Act, consisting of amajority of neutral and fair external outside experts inJuly 2009, in order to conduct a complete investigation
into the cause of these violations and prevent future
occurrences. In December 2009, we released thecommittee’s report to the public and announced that
our top management, including the chairperson andpresident, would take the lead on corporate ethics toensure best practices going forward, including strict
adherence to all relevant laws and regulations.
Based on the recommendations outlined in thecommittee’s report, we have implemented various
internal policies and measures to strengthen thecompliance structure of each business division,
improve the governance of the sales and marketing

division, including the price setting process, andenhance monitoring systems.
I will continue to take the lead in ensuring thatthese incidents never happen again and that weachieve and retain compliance best practices so that
we can begin to recover our credibility and trustfrom society.
Finally, tell us about your outlook andQ5 dividend policy for the next ﬁscal year.
expect to see higher earnings
A5 We
and increased revenue, so we plan toincrease our dividend.

In the next fiscal year, we expect that theeconomic recovery in emerging nations
will pick up, and also anticipate that nextgeneration vehicles and smart grids will build
the market for the environmental business.
In anticipation of this, we expect that steady
implementation of the medium-term plan will yieldhigher sales and income. Accordingly, we forecast net
sales of ¥920.0 billion, operating income of ¥36.0 billion,up ¥15.7 billion from the fiscal year under review, and net
income of ¥12.5 billion, an increase of ¥2.8 billion.
In fiscal 2010 we paid an annual dividend of ¥5
per share in line with our basic policy of paying solid
dividends. In the next fiscal year we plan to increase ourannual dividend to ¥5.5 per share.
I would like to express our sincerest gratitude to ourshareholders and ask for their continued encouragement
and guidance going forward.

Net sales

Operating income

Net income(Billions of yen)(Billions of yen)(Billions of yen)

1,200

40

15

800

30

10

400

20

+14%

0

2010

2011
(Forecast)

0

+77%

+29%

5

2010

2011
(Forecast)

08

0

2010

2011
(Forecast)

Note)
We have calculated figures forfiscal 2010 on the assumption thatthe exchange rate will be USD/JPY
92.90 and the price of copper,
aluminum and crude oil will be¥610.30 per kg, ¥190.20/kg and
US$ 69.60 per barrel, respectively.
The forecasts for fiscal 2011 arebased on the assumption that theexchange rate will be USD/JPY
90 and the price of copper,
aluminum and crude oil will be¥640 per kg, ¥233/kg and US$ 78
per barrel, respectively.