New Frontiers ofInnovation
ANNUAL REPORT

2011

1

FINANCIAL HIGHLIGHTS

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

FINANCIAL HIGHLIGHTS
Thousand of
U.S. dollars

Millions of yen

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

2009

2010

2011

2011

1,032,807
9,752-30,896-37,405

809,693
20,322
10,947
9,704

925,754
35,144
23,586
12,213

11,153,663
423,422284,169
147,145845,658
190,428
383,114835,819
208,929
362,088826,944
215,905
341,619

9,963,180
2,601,265
4,115,891

78,728-51,267-14,553

36,668-25,113-23,582

37,121-21,382-18,317447,241-257,614-220,687-53.34203.166.00

13.80
231.395.00

17.30
235.05
5.50

0.208
2.832
0.066

-20.0
1.2
2.7

6.3
2.4
2.2

6.9
4.2
2.1

----------

Note 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

Net sales

Operating income/ Ratio to net sales

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

(Billions of yen)50

1,104.7 1,174.2 1,032.8
809.7

800

0

53.6
4.9 48.4

925.8

20.3
2.5

20

2007

2008

2009

2010

2011

0

29.8

4.1

40

400

(%)
6

35.1
3.8

9.8
0.9
2007

2008

2010

2009

2011

4

25

2

0

0

-50

15.3

2008

2009

Total assets

ROA

Interest-bearing debt

(Billions of yen)
6

(Billions of yen)
600

4.9
845.7

800

835.8 826.9

4.8

4.2

4

12.2

2010

2011

-37.4
2007

(Billions of yen)
1,200 1,096.7

1,014.8

9.7

400

428.2

399.1

383.1

362.1 341.6

2008

2009

2010

2.4
2

400

0

2007

2008

2009

2010

2011

0

200

1.2
2007

2008

2009

2010

2011

0

2007

2011

Contents
FINANCIAL HIGHLIGHTSPROFILEAT A GLANCEINTERVIEW WITH THE PRESIDENT
SPECIAL FEATURE 1
SPECIAL FEATURE 2

Forward-Looking
Statements

1
2
3
5
9
11

CORPORATE GOVERNANCECSR ACTIVITIESDIRECTORS AND AUDITORSFINANCIAL SECTION
CORPORATE DATA / STOCK INFORMATION

15
17
19
20
74

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 theaccuracy of the forward-looking statements in this annual report.

Fiscal Year Notation The fiscal year in this annual report is indicated as fiscal 2011 or FY2011, which covers the period from April 1, 2010 to March 31, 2011.

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

PROFILE2

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––centered on
photonics, metals, and plastics––into functionality andquality 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 these inmaterials 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 Group willcontinue creating products that support industrial
development and enrich people’s lives around the world.

Materials
Development

ns
tio
a
c
ni
mu
m
eco
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 the market

Plastics

Competency
We are a continuous innovatorin the interplay between
materials development andproduct development

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

3

AT A GLANCE

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

AT A GLANCE
Transmission Infrastructure BusinessTelecommunications

Energy andIndustrial Products

Optical Fiber Cable Business● Photonics and Network
Solutions Business●

Ratio to Net Sales

Ratio to Net Sales●●

Energy BusinessIndustrial Products BusinessBusiness Outlook and Focus
Telecommunications

Electronics andAutomotive
Systems

Energy andIndustrial
Products

Metals

14.8%
25.0%

Transmission
Infrastructure
Business

Services andOthers

3.7%

20.7%

25.0%

14.8%
(Billions of yen)

15.1%
Functional
Materials
Business

2009

Results

Net Sales
Operating
Income2010

Results

Light Metals

159.1 135.5 149.3
9.3
9.8
9.6

Concluded agreement with Hengtong
in China to form joint venture to
manufacture fiber preform

20.7%

The Furukawa Electric Group isconcentrating on business development in two areas: the transmission
infrastructure business, for which
substantial demand growth isexpected in emerging markets, andthe functional materials business, ahigh-value-added sector in which
we can leverage the Group’s uniqueadvantages in materials.

2009

Results

2011 Topics●(Billions of yen)

2011

Results

Net Sales
Operating
Income2010

Results

2011

Results

277.4 208.8 253.0
1.1
3.7
0.9

2011 Topics
Reached an agreement with Hebei
Huatong Wires & Cables Group to establish
joint venture in China for the manufacture and sale of industrial rubber cables;
commenced operations in January 2011
● Started mass production of MCPET
for LED TVs●

2012 Initiatives

2012 Initiatives●

Joint venture with Hengtong in China tocommence operations in spring of 2012
● Acquire MetroCable, a Brazilian company
that manufactures and sells opticalcable fibers●

Major Products

Major Products●

Optical fibers and cables
Optical components● Optical fiber cable accessories andinstallations● Network equipment, etc.

●

●

●

Complete expansion of capacity for
new MCPET product for LED TVs● Agreement with FISA Brazil to begin
optical ground wires business in 2012
● Riken Electric Wire to establish joint
venture in elevator cable business with
Hebei Huatong Wires & Cables Group

Bare copper wires
Power cables● Power transmission cable accessories
and installations● Plastic products such as power cableconduit material and foam sheets
thermoelectric products, etc.

AT A GLANCE

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Functional Materials BusinessElectronics andAutomotive Systems

MetalsLight Metals●

Copper Strips & Pipes Business● Electrolytic Copper Foils Business

Ratio to Net Sales

Ratio to Net Sales

Automotive Parts Business● Electronics Components Business● Magnet Wire Business●(Billions of yen)
Results

Net Sales
Operating
Income2010

Ratio to Net Sales

20.7%

Results(Billions of yen)

2011

2009

Results

223.8 177.2 209.6
2.5
7.2
7.8

2011 Topics
●

●

15.1%

20.7%
2009

Aluminum Rolling BusinessAluminum Extrusion Business● Aluminum Casting, Forging and Other●

Integrate domestic production ofmagnet wire at two locations

Results

Net Sales
Operating
Income2010

Results(Billions of yen)

2011

2009

Results

170.2 119.6 152.9- 4.9 - 2.2
3.2

Results

Net Sales
Operating
Income2011 Topics

2011 Topics

Revise system for domestic productionof copper tube
● Started phosphor bronze strip joint
venture in China● Established a new company in Taiwan,
Furukawa Electric Copper Foil Taiwan
Co., Ltd. in March 2011●●

Results

2011

Results

234.0 188.1 209.0- 0.4 - 0.2 11.5

Established subsidiary in China,
Furukawa-Sky Aluminum(Shanghai) Corp.
● Opened Furukawa-Sky Aluminum Corp.
European Office within Furukawa-Sky
Dusseldorf

2012 Initiatives

2012 Initiatives●

Consolidate overseas subsidiary that
produces lead-acid batteries● Acquire controlling interest in ChonQing
Chang Hua Automobile Harness in
China and expand wire harness business● Invest in Taiwan’s Jung Shing Wire andbegin cooperation in finely divided
enameled wire●

Major Products

Major Products

Major Products●

Battery products
Automotive components andelectrical wires● Magnet wires● Heat sinks● Aluminum blanks for hard discs● Electronic component materials, etc.

●

Copper pipes
Copper strips● Electrolytic copper foils● Shape memory alloys and otherprocessed copper products, etc.

●

●

●

●

Double production capacity ofelectrolytic copper foil for
automotive components

2010

2012 Initiatives●

Furukawa-Sky to invest in ARCO
Aluminum of the United States

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

4

5

INTERVIEW WITH THE PRESIDENT

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

INTERVIEW WITH THE PRESIDENT

We will overcome the effects ofthis unprecedented disaster,
making steady progress toward theobjectives of our Medium-Term Plan.
you please review your operations during
Q1 Would
fiscal 2011?

A1

Masao Yoshida
President

The functional materials business wasfavorable, and our metal position
improved, driving higher sales and profits.
We also improved the efficiency andquality of our assets.

During fiscal 2011, ended March 31, 2011, the global economy
shifted into a recovery phase, but uncertainty remained,
owing to such factors as a potential rise in crude oil prices. The
Japanese economy showed signs of recovery in the first half ofthe fiscal year, but ensuring yen appreciation and the impactof the Great East Japan Earthquake rendered the economic
outlook unreadable.
Against this backdrop, the Furukawa Electric Group
posted favorable results, centered on its functional materials
business. Consolidated net sales grew 14.3% during the year,to ¥925.8 billion. Furthermore, sales to Asian markets
increased, pushing up our overseas sales ratio 2 percentage
points, to 33%.
On the profit front, our metal position improved. Metals
and Light Metals Company sales increased, and performanceby the Electronics and Automotive Systems Company wasrobust. As a result, consolidated operating income surged
72.9%, to ¥35.1 billion with consolidated net income growing
25.9%, to ¥12.2 billion.
By holding down total assets as income rose, we
improved the efficiency and quality of our assets. One
management indicator of efficiency—return on assets (ROA),
or operating income divided by total assets—improved 1.8
percentage points, to 4.2%. Total asset turnover likewise
increased, rising 0.16, to 1.12 times. In terms of quality, the D/E

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Asset efficiency

INTERVIEW WITH THE PRESIDENT

6

Quality improvements

ROA (%)

Total asset turnover

D/E ratio

Shareholders’ equity ratio (%)

1.00

2.0

20

3

0.75

1.5

2

0.50

1.0

10

1

0.25

0.5

5

5
4

0

1.25

+1.8

2010

2011

0.00

+0.16

2010

2011

ratio improved 0.16, to 2.06 times, and the shareholders’equity ratio increased 0.5 percentage point, to 20.1%.
were you affected by the Great East Japan
Q2 How
Earthquake?

A2

The earthquake had a downward impact
on operating income of approximately¥1.0 billion. We also posted an
extraordinary loss of ¥2.6 billion related tofacility restoration.

First, I would like to express my sincere condolences to all who
were affected by the Great East Japan Earthquake.
The Furukawa Electric Group suffered facility damages,
shortages of raw materials owing to the effects of the disasteron suppliers, and electrical power shortages. Given thesecircumstances, we were forced to halt production in someareas and scale back operations in others. However, owing tofocused recovery efforts we have now recommenced
operations at all our factories—even those worst affected.
The earthquake’s negative effect on operating income forthe fiscal year amounted to approximately ¥1.0 billion, owing
to lower production volumes of wire harnesses forautomobiles and copper foil for printed circuit boards. We also
recorded an extraordinary loss of ¥2.6 billion in expenses
related to facility restoration.
In the upcoming fiscal year, we anticipate
reconstruction-related demand to have a positive effect on
our performance, but this will be offset by production
cutbacks, particularly in the automotive sector. Overall, we
expect the disaster to have a downward impact on ouroperations amounting to around ¥2.0 billion.
Owing to electrical shortages in the aftermath of the

2.5

0.0

25

-0.16

2010

2011

+0.5

15

0

2010

2011

earthquake, the Japanese government has asked customers to
reduce their electricity use by 15%. The shortage is expected tobe most pronounced in the summer of 2011. To keep up its
level of operations while meeting such demands, the Furukawa
Electric Group is promoting energy-saving measures in a varietyof locations, including its factories, offices and R&D centers.
The Group also is rethinking ways of contributing tosociety through its core operations. One example is theintroduction of optical communication technology at data
centers, which handle huge volumes of information. Suchefforts should prove valuable, owing to the ongoingproliferation of cloud computing.
By sharing the pride that accompanies such achievements,
as well as the attendant responsibility, among all Group
employees, we are working to enhance corporate value further.

Q3 How is progress on your medium-term plan?
A3

We are making steady progress toward thetargets set for 2012.

The Furukawa Electric Group has formulated a medium-term
management plan, New Frontier 2012, which sets as its
targets for fiscal 2013 net sales of ¥1 trillion, operating incomeof ¥50 billion and net income of ¥25 billion.
During the fiscal year under review, the first year of theplan, we concentrated on the reinforcement of existing
operations. These activities were in line with one of the plan’s
key initiatives, to restructure our operating portfolio.
As part of our efforts to expand our transmission
infrastructure business globally, in the field of
telecommunications OFS, our U.S. subsidiary, signed a joint

7

INTERVIEW WITH THE PRESIDENT

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

INTERVIEW WITH THE PRESIDENT

venture agreement with Hengtong in China in June 2010 tomanufacture optical fiber perform. The joint venture isscheduled to commence operations in spring of 2012. As aresult, we will be able to handle the integrated production,from perform to cable, in China, which is the world’s largest
market for optical fiber.
In March 2011, Brazilian subsidiary FISA acquired a local
manufacturer of optical fiber cable. This purchase should
shore up our price competitiveness in South America.
Meanwhile, in an effort to enhance our functional
materials business, we have commenced mass production ofsuch high-value-added products as microfoamed
polyethylene terephthalate (MCPET), which is used inbacklight reflectors for LED TVs, and glass substrates for harddisk drives. We have also decided to invest in production
facilities in Japan and Taiwan that will approximately triple ourcapacity for the copper foil used in the electrodes oflithium-ion batteries. These are used in next-generation
vehicles, which are slated for a surge in demand.
To restructure our traditional processing businesses, wepursued efforts to integrate our domestic production facilities
for copper wire and copper tube. Overseas, our Chinese
subsidiary that makes phosphor bronze strips entered a joint
venture with a leader in the manufacture and sale of rolled
copper products in that country.

Q4 What is your outlook for the upcoming fiscal year?
A4

We expect sales to increase, but the impactof the earthquake is likely to makeprofitability difficult.

In the upcoming fiscal year, we will persevere with the efforts
we began during the year under review targeting efforts to
expand our transmission infrastructure business globally andenhance our functional materials business. Through these
activities, we aim to boost sales and income.
Looking at performance by segment, in thetelecommunications field we expect sales to fall ¥2.6 billion

Summer Power-saving initiatives: Maintaining regular
operations while cutting power consumption 25%
Nikko: Rolled copper, aluminum blanks
Secure power through hydro generation,sell surplus power in summer

Furukawa Electric Group strategies to conserve electricity
Facilities

Content

Factories

Take advantage of independent power
generation

Use cogenerator for standard operations• Make use of capacity from hydroelectric
generation subsidiary• Use NAS batteries• Increase number of own generators

Chiba: Optical cable, power cable

Shift production sites

Imaichi: Electrolytic copper foil

Shift to holiday, nighttime operations

Hiratsuka: MCPET, semiconductor tape
Shift to holiday and nighttime operations,introduce power generator

Mie: Optical fiber, semiconductor tape,copper wire, magnet wire
Material production site in western Japan• Adjust production at factories supplied by TEPCO• Shift production to Chubu and regions
further west

Revise operating hours• Revise holidays (staggered plant operations within
individual plants)• Shift to nighttime operation, etc.

Save power on staff office equipment• Reduce use of air conditioning and lightingINTERVIEW WITH THE PRESIDENT

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

Analysis of changes in operating income (Billions of yen)
35.1

-3.5

+1.5

-3.5

-2.0

Impact of
LCM basis

Impact fromdisaster

FY2011
achievement

Increase in prices
on crude oiland secondary
materials

Profit/Loss forecast for FY2012: second-half recovery (Billions of yen)
2011
Achievement

2012
Forecast

2012
The ﬁrst half

Net sales

925.8

950.0

450.0

500.0

+50

Operating income

35.1

31.0

10.0

21.0

+10

Ordinary profit

31.4

29.0

9.0

20.0

+11

Net income

12.2

11.5

3.5

8.0

+4.5

85.7
Base copper price (yen/kg) 738
Dubai crude (dollars/bbl)
84

85
860
115

+4.2 31.0-2.4-0.3 -0.1
Negative Positive
impact impact
WorseningfromfromForex loss
disaster disaster of metal
position

Increase in sales
due to improvesales mix

(yen/US dollar)

FY2012
forecast

Furukawa Electric Group strategies to conserve electricity
Save power used by office equipment• Reduce number of light ﬁxtures by installing highly
efficient reflectors• Reduce use of air conditioning and lighting• Reduce number of elevators in operation• Reduce number of copying machines in operation

Revise working hours• Change standardized hours •Reduce overtime• Promote further “cool biz” measures

R&D Centers,
Other

2012
Increase and
The second half
decrease

Assumptions
Exchange rate

year on year, to ¥7.0 billion. Although we anticipate solid
ongoing performance in Europe and the United States,
extraordinary demand related to terrestrial digital
broadcasting is likely to fall off in Japan.
In energy and industrial products, ongoing increases inemerging market demand for power cables and increases in
MCPET production capacity should have a substantial impact
on performance. As a result, we expect sales in this segment
to increase ¥2.1 billion, to ¥3.0 billion.
In electronics and automotive systems, we expect

Offices8

Employ own power generation• Shift heat storage tanks used for nighttime power
in clean rooms •Install own power generators

Save power on equipment• Reduce number of elevators in operation• Reduce number of copying machines in operation

Revise working hours• Promote time-shifted hours •Revise holidays

ongoing recovery in demand for magnet wire and aluminumblanks, but first-half demand for automobile parts is likely toremain affected by the earthquake. Consequently, we expect
segment sales to fall ¥1.3 billion, to ¥6.5 billion.
In the metals segment, sales of copper strip and copper
foil should remain on a recovery track, but we expect demandfor copper tube to fall in comparison with the year underreview, when unusually hot summer weather prompted asurge in demand. Accordingly, we expect sales to fall ¥0.2
billion year on year, to ¥3.0 billion.
Finally, in the light metals category we anticipate arecovery in demand for plate for LNG tankers, while thesecond-half outlook remains unclear. We therefore forecast a¥2.0 billion decrease in sales in this segment, to ¥9.5 billion.
As a result of these changes, we expect consolidated net
sales to rise to ¥950 billion in the upcoming fiscal year.
However, we expect operating income to fall, to ¥31.0 billion,
and for net income to drop to ¥11.5 billion, owing to rises incrude oil and auxiliary material prices as a result of the disaster.
We anticipate a recovery in the second half, however, andtherefore expect to reach our targets for fiscal 2013, the final
year of our Medium-Term Plan.
For the year under review, we increased dividends ¥0.5
per share, to ¥5.5 (comprising an interim dividend of ¥2.5 anda year-end dividend of ¥3.0), in line with our basic policy on
dividend stability. As of June 2011, we also expect to pay
dividends of ¥5.5 for the upcoming fiscal year, (comprising aninterim dividend of ¥2.5 and a year-end dividend of ¥3.0).

9

SPECIAL FEATURE 1

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

SPECIAL FEATURE 1
At Factories

Contributing
to Disaster
Recovery

Piping to Protect Underground Cables
This piping is strong, corrosion-resistantand offers superior chemical resistance,
providing robust protection forimportant cables. Pipes are long andflexible, which reduces labor
requirements during installation andshortens construction times.

We support the building of
infrastructure, chiefly byproviding low- to
ultrahigh-voltage power cables.

In Temporary Housing
Insulation Materials for Metal Roofs
Closed-port construction lends these materials excellent resistanceto heat and moisture, as well as providing durability.
Cables for Interior Wiring
As temporary housing must be constructed quickly, we worked tomeet sudden production requests and shorten delivery lead times.

At Thermal Power
Generation Plants
Ultrahigh-Voltage Power Cables
To counter power shortages, we expediteddelivery of the ultrahigh-voltage cable used totransmit power from generators at thermal power
generation plants undergoing facility expansion.

In Buildings
Cables for Internal Wiring in Buildings
We are providing many types of cables for a broad
range of applications to speed building andplant restoration.

Restoration Following
the Great East Japan Earthquake
The Great East Japan Earthquake caused massive destruction, centered on eastern Japan, which remains deeply
scarred from the disaster. To facilitate rapid recovery in the stricken region, the Furukawa Electric Group swiftly
dispatched products needed to restore electricity transmission infrastructure and temporary housing. At thesame time, we supplied energy-saving products in anticipation of the future need to conserve electricity.

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

SPECIAL FEATURE 1

10

In Shinkansen
TrainsLeaky Coaxial Cable
This type of cable is installed as antennas
along rails to allow communications
between terrestrial direction centers andrailcars. This helps ensure the safety of
fast-moving shinkansen trains.

In Residential Neighborhoods
Optical Fiber Cable
Ensuring safety and security requires information to
be gathered accurately and promptly. Accordingly,
we are putting every effort into the early recovery of
optical fiber networks that had broken down.

Contributing
to Further
Electricity
Savings

In Offices and Shops
E
ORST

Microcellular Reflective Sheetfor Lighting and Signage
Our proprietary microcellular foaming technology
provides excellent reflectivity. Combining our reflective
sheet with highly efficient inverters for fluorescentlamps reduces usage in fluorescent lighting and signs
by around 50%.

We are mounting companywide
efforts to save electricity andenergy in preparation for future
electric power shortages.

For Photovoltaic Systems
Storage Batteries
Power generated by natural energy sources andnighttime generation can be accumulated instorage batteries for discharge during the day,thereby reducing peak energy requirements.
Batteries can be configured into durable,
long-lasting and space-saving units.

In Front of Stations
Automated Sprinkling Systems
Rainwater stored in underwater cisterns is pumped
into water storage blocks, which help tocontinuously alleviate the heat island effectthrough evaporation.

At Data Centers
Ultrahigh-Speed Optical
Transmission Module
Cooling accounts for nearly half theenergy consumed by data centers.
Converting communications between
devices over to the use of high-speed,
high-capacity and compact opticaltransmission systems reduces heatemission and frees up space, thereby
boosting cooling efficiency and greatly
reducing power requirements.

11

SPECIAL FEATURE 2

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

BrazilSouth America
SPECIAL FEATURE 2

Argentina

Reaching and Expanding Market Presence in South America

FISA will continue togrow steadily in tandemwith the economy of the region
FISA (FURUKAWA INDUSTRIAL S.A. Produtos Eletricos) is a wholly-owned
subsidiary of our Group that manufactures and sells telecom cables, LAN-related
products, etc. in South America. It operates in Brazil, where its headquarters arelocated, as well as in Argentina and Chile. FISA is particularly strong incommercial-use LAN cables capable of transmission rates of 1GB/second, and is theleader for that product in Brazil, where it holds a greater than 50% market share.
FISA has planted firm roots in South American markets over the nearly 40 years
since it was established in June 1974, especially in Brazil. The company willcontinue to grow steadily in tandem with the economy of the region.

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

SPECIAL FEATURE 2

12

Optical fiber cable market
expands in Brazil ahead of theWorld Cup and Olympics
Brazil is expanding its presence in the global economy as theleading emerging economy in South America. Internet use
has exploded in popularity in recent years in Brazil, as websites
such as Twitter, Facebook, and YouTube have become evermore popular.
Although broadband was in use by only 10% of Internet
users in Brazil as of 2010, its use is expected to expand rapidly
in advance of the holding in Brazil of the World Cup in 2014
and the Olympics in 2016. The optical fiber cable market in
Brazil is also expected to rapidly grow in conjunction with this.

Broadband connection rates in Brazil, by region

Number of connections and penetration rates by region in December 2010
(estimate)
Total population: 190,732,694
Overall broadband penetrationin Brazil: 9.98%

North

502,704 (3.17%)

Northeast

1,957,116 (3.69%)

Middlewest

1,662,786 (11.84%)

South

3,417,501 (12.48%)

Southwest

4,223,967 (11.95%)

São Paulo

7,272,459 (16.15%)© 2010 IDC

Optical fiber demand forecast (Brazil)(f-km)
5,000
3,906 4,399
4,000
3,352
2,889
3,000
2,544
2,015 2,290
2,000
1,010 1,100
1,000
02008 2009 2010 2011 2012 2013 2014 2015 2016

By 2016 themarket will be
doubled192% UP
Source: CRU

FISA: Increasing competitiveness in
the Brazilian telecom market, with
optical fiber cable solutions and LAN
solutions as the core businesses
FISA’s operations in Brazil revolve around two core businesses,
optical fiber cable and LAN-related equipment.
FISA’s optical fiber cable focuses on telecommunications
carriers, and despite being a major business tends to fluctuate
according to the economy. In contrast, LAN business serving
companies and general users is growing more steadily in
conjunction with the growth of demand for the Internet, evenif business clients are themselves small.
FISA seeks to increase sales in the Brazilian market, which
continues to experience 4-5% GDP growth, by creating agood balance between these two business segments.
The key to doing so is to develop “solutions businesses”
by providing total support for the resolution of issues
confronted by customers, rather than simply supplying
products. In practice this means offering network design,
construction and similar technical services when providing aclient with cable or network linking equipment. The provision

C o l u m nStandardization of environmentally-friendly, eco-label products.
FISA displays market competitiveness, including in the data center market.
FISA advocates the “Green IT Program” for collecting and recycling unneeded LAN cable. This
reduces environmental impact for the customer, and it also enables FISA to cut materials
procurement costs by separating and reusing the plastic and copper from the discarded cable.
FISA is enhancing market competitiveness by working with local public agencies to proceedwith standardization of the use of “eco-label” certified environmentally-friendly products andservices, through means such as the Green IT Program, the use of RoHS-compliant products, etc.

FISA headquarters

13

SPECIAL FEATURE 2

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

FISA’s optical fiber plantof such services leads to greater customer satisfaction and amarket share that grows every year.
One sector that has been experiencing rapid growth inrecent years is the data center market. While FISA’s market
share was less than 1% in fiscal 2008, by fiscal 2011 it had
grown to 20%, and is expected to continue to increase.

FISA operates its own network ofagencies, providing solid service andtimely response capabilities thatenhance customer satisfaction
The reasons FISA has demonstrated such a high level ofcompetitiveness in Brazil are its service capabilities in areas
such as technical support and after service, and timely
response capability for prompt delivery.
FISA’s establishment of local manufacturing plants
underlies these capabilities.
FISA is not only capable ofresponding more quickly
than competitors thatsource their products fromoverseas, it also has theparts and staff on hand thatmake it easy to provide

technical support.
Major additional strength is provided by FISA’s own
network of agencies, in which great experience in local
business has been accumulated over many years. These
agencies have developed solid relationships of trust throughfair and open trading, as well as technical support provided bytraining centers. This enables FISA to respond to demandthroughout the broad expanses of Brazil, as well as to respondindividually to customers in a timely and respectful manner.

Improving competitive position inSouth America through measures
such as plant-building in Argentina
and buying up companies in Brazil
Regional optical fiber cable markets in South America are
expected to continue growing, and greater capacity will be
required to meet that demand.
Therefore, FISA established an optical fiber cable plant inRealizing speedy, on-time delivery throughstrict inventory controls

Argentina plant
Argentina offices

SPECIAL FEATURE 2
Reaching and Expanding Market Presence in South America

FISA will continue togrow steadily in tandemwith the economy of the region

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

SPECIAL FEATURE 2

14

C o l u m n
FISA focuses on advanced CSR activities.
Its brand strength serves to motivate employees.
FISA’s CSR activities are focused on four areas: environmental
conservation, workplace environment enhancement, contribution to local communities, and building sound relationships withmarkets and trading partners. One of FISA’s CSR programs is the“Bringing Up Local Children Project,” which offers children in theregion opportunities to become independent adults. This project
has received high marks, and will help provide FISA with highquality personnel in the future.

neighboring Argentina in June 2008. This plant supplies not
only Brazil, but also meets the needs of South America’s No. 2
market, Argentina.
In March 2011, FISA acquired MetroCable, a manufacturer
and seller of optical fiber cable in Brazil. MetroCable is one ofBrazil’s leading manufacturers of optical fiber cable, and isparticularly strong in the fiber network subscriber-use sector.
Through this acquisition FISA will not only strengthen its
production capacity, but also can be expected to produce avariety of synergistic effects, such as enhancing quality and costeffectiveness through supply of Furukawa Electric’s fiber cable,
and improving productivity by combining the two company’s
overlapping production lines.
By strengthening
competitiveness in theSouth American opticalfiber cable market throughsuch measures we seek
even greater expansion of
our business in that region.

Safety Education

proposing the use in the region of optical ground wires(OPGW)*, which have combined powertransmission/telecommunications functions.
The use of OPGW when laying power transmission cable
also provides for the simultaneous spread oftelecommunications infrastructure, allowing for efficient
provision of infrastructure for two
closely-connected functions.
FISA seeks to contribute to thegrowth of social infrastructure in
South America by actively offering
products with high functionality
and added value.
*OPGW (Optical Fiber Composite Overhead
Ground Wire): A type of multipurpose
electrical cable that combines optical fiber
cable telecommunications transmissionfunction with overhead ground wire, so as to OPGW (Optical Fiber Composite
protect against lightning induction.
Overhead Ground Wire)

MetroCable headquarters

In the future FISA will introduce
products such as OPGW that combine
power transmission with
telecommunications
Demand in the growing markets of South America will not be
confined to the telecommunications infrastructure, but will
also include power network and energy infrastructure
demand. As a new business in the region, FISA is therefore

Bringing Up Local Children Project

Business Strategy Conference

15

CORPORATE GOVERNANCE

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

CORPORATE GOVERNANCE
Basic Philosophy

Reinforcing Internal Controls

The Furukawa Electric Group strives to enhance its
performance by promptly responding to changes in thebusiness environment and the market through efficientmanagement based on timely decision making. At thesame time, we ensure sound management practices under
our internal control system. We uphold the basic policyof seeking to expand and develop our operations on asustainable basis and to raise corporate value throughthese efforts.
While pursuing compliance best practices across theGroup, we also provide society with excellent products andtechnologies that enrich people’s lives while maintaining
harmony with the environment. We fulfill our corporatesocial responsibility to develop solid relationships with all
stakeholders, including shareholders, business partners, local
communities and employees, and to remain a company
that benefits society.

Furukawa Electric establishes, develops and operates its
internal controls based on the following five principles:(1) Efficient execution of responsibilities(2) Compliance system(3) Risk management system(4) Information management system(5) Group company management(6) Sound, reliable financial statements

Management Organization
Furukawa Electric’s organizational structure incorporates
internal auditors, with emphasis on the independentfunctioning of Auditors and a Board of Auditors separate
from the Board of Directors. We are also tuning theoperations of our Board of Directors to strengthen
monitoring and supervision of business execution and toaccelerate decision making.

Compliance
The Furukawa Electric Group defines compliance as
extending beyond adherence to laws, to encompass
actions in accordance with the ethical standards andvalues required of a corporate citizen that is a contributing
member of society. We strive to ensure that all employees
follow compliance best practices in line with the Furukawa
Electric Group Action Guidelines that lay out our basic
philosophies on compliance.
Our compliance activities, including internal
educational programs and inspections for legal violations,take place centered around the Central Compliance
Committee with the president as chief officer in charge.
Compliance directors and compliance promotion officers,
placed under the company president and chief officerof each business division, further ensure the effective
implementation of activities.

External Board Members

Tetsuo Yoshino

Takasuke Kaneko

Sumitaka Fujita

Former Chairman and President of
Furukawa Co., Ltd.

Former Vice President of The Dai-ichi
Kangyo Bank, Ltd., President of Dai-ichi
Kangyo Shoken K.K., and Chairman of theBoard of Mizuho Securities Co., Ltd.

Former Vice President and subsequent Vice
Chairman of Itochu Corporation

Tetsuo Yoshino has an extensive executive
background in the non-ferrous metals sector.
With knowledge and experience covering
all aspects of management, including
operations, he brings valuable insightand direction to the Board of Directors.

With years of management experience inthe financial services industry, Takasuke
Kaneko provides vital knowledge of financial
strategies and risks to the Board of Directors.

Sumitaka Fujita’s strong foundationof knowledge and experience as a
trading company top executive brings
perspectives on global management
to the Board of Directors.

External Corporate Auditors

Yuzuru Fujita

Tadashi Kudo

Kenji Koroyasu

Former Chairman and President of Asahi
Mutual Life Insurance Co.

Former President of Mizuho Bank, Ltd.

Former Prosecutor for the Supreme Public
Prosecutors Office

With experience as a financial institution top
executive and as an external board member
for other firms, Yuzuru Fujita’s knowledge andbackground inform the Board of Directors
on effective and legally-compliant Groupmanagement practices from a risk management
and institutional investor perspective.

Tadashi Kudou has accumulated a broadbase of knowledge and experience as afinancial institution top executive and as
an external board member for other firms.
He strengthens the Board of Directors withinsights into effective and legally-compliant
Group management practices from a risk
management perspective.

Kenji Koroyasu possesses far-reachinginsight as a long-serving legal professional.
With knowledge of corporate legal affairs
and corporate management gained as
an external board member and external
corporate auditor for other firms, he isuniquely suited to advise the Board of
Directors on effective and legally-compliant
Group management practices.

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

In particular, Furukawa Electric has strengthened
controls over meetings with other firms in the industry andover the price-setting process to prevent the reoccurrenceof cartel violations, and has enhanced the monitoringprocess through regular guidance from external complianceexperts. We have also set up an anonymous internal“whistleblower” hotline to identify compliance violations as
early as possible.
Furthermore, our CSR Division, which also functions as
an internal audit division, closely monitors the executionof work processes in each business unit to verify whether
internal control systems, including the compliance system,
are functioning effectively. The Internal Audit Division reports
its findings to the executive management team, ensuring
appropriate internal disclosure and transparency.

Risk Management
Furukawa Electric’s risk management structure and control
methods are stipulated in its Risk Management Basic
Rules & Regulations. We have established a CSR and Risk

CORPORATE GOVERNANCE

16

Management Committee, consisting of the chairman,
president, chief officers, and company presidents underthe Board of Directors as a key component of our risk
management system. The Committee assesses all businessand operational risk of the Group and verifies the validity ofthis assessment and control methods.
The CSR and Risk Management Committee alsoestablishes information security systems in all businessdivisions and affiliate companies, and prepares our business
continuity plan in case of natural disaster.
In addition, information security has been positioned
as one of the highest priority risks facing the Company
today. As a countermeasure against counterfeit goods
and industrial espionage of intangible assets at Group
companies overseas, the Committee conducts ongoing
follow up activities through interviews at our overseas
offices. We have also began a second reexamination of ourmanagement practices concerning confidential proprietarybusiness information, in order to respond to revisions madeto the Unfair Competition Prevention Act.

Corporate Governance Organization Chart
Shareholders’ Meeting
Monitoring andSupervision

Appoints

Appoints

Board of Directors

Appoints

Audits accounts

12 Directors
Board of Auditors
Three external board members (including two independent members)
Submits reports,
Five corporate auditors
Delegates
attends(Three external corporate
meetings
Compensation Committee
auditors, including two
and audits
independent
members) Assistants
Three or more members from the Board of Directors and theto the corporate auditors
Board of Auditors (including one or more external members)

Delegates

business reports•Reviewing
Examines status of operations•andassetsCommittee members as of submission date of this reportThree board members (including one external board member)
One external corporate auditor

CSR and Risk Management Committee•Development and enhancement of internal control systems•Promotion of CSR activities
Chairman: CSRO (Chief Social Responsibility Of f icer)
Members: Chairman, president, chief officers, and company presidents

of critical matter relating•toDecisionbusiness operation•Supervises business operation

Submitreports

Accounting
Auditors
Screen reports•relatingtoaccounting•Examine status
Collaboration between of operations
auditsand assets

Submit reports

Monitors
Appoints

Business Operation

Chairman, PresidentManagement Committee•Deliberation and decision making on key issues inoperational execution
Chairman, President, Chief Of f icers,
Company Presidents

Direction

Internal Audits(CSR Division)

Chief Officers
Group-wide management, strategy, and business resource allocation
CSO (Responsible for corporate governance, Group strategy, personnel, and legal matters)
CFO (Responsible for finance, accounting, and investor relations)
CMO (Responsible for marketing)
CPO (Responsible for production technologies, purchasing, cost control, and quality control)
CSRO (Responsible for internal controls, compliance, internal auditing, export controls, safety and theenvironment, risk management, and CSR)
CTO (Responsible for R&D and intellectual properties)

Provide support and guidanceBusiness
Operations

Company Presidents
Telecommunications Company, Energy and Industrial Products Company,
Metals Company, Electronics and Automotive Systems Company
Affiliate Companies

Furukawa-Sky Aluminum Corporation
Light Metals Company
Other Af filiate Companies

17

CSR ACTIVITIESFurukawa Electric Co., Ltd. ANNUAL REPORT 2011

CSR ACTIVITIES
Fundamental Philosophy
The Furukawa Electric Group recognizes the corporate
responsibility it bears toward society: providing products
and services that contribute to social development
and improving people’s lives, while emphasizing public
regulations and corporate ethics, product safety, the safetyof employees and the local community, and reduced
environmental impact from business activities.
To meet these social responsibilities, the Group
formulated the Furukawa Electric Group Basic Policy on
CSR in February of 2007, thereby establishing a structure forreinforcing CSR efforts across the entire Group.
Under this structure, we plan to conduct corporate
activities that effectively balance the three factorsof business, environmental protection, and social

contribution, by deepening communication with our
stakeholders and further advancing and developing the
CSR activities of the Group.

CSR Basic Policy
We fully recognize the responsibilities of the Furukawa
Electric Group to society and will strive to maintainand improve on solid, friendly relationships with allof our stakeholders and contribute to the sustainable
development of society through corporate,environmental and social activities.

CSR Management
The Furukawa Electric Group has established theCSR Division, a specialized organization in charge ofpromoting CSR activities, and has appointed a Chief
Social Responsibility Officer. Through this initiative we will
ensure a uniform Company-wide approach to CSR while
applying a CSR perspective to the monitoring of corporate
activities, including internal controls, compliance, risk
management, safety, environmental conservation, andsocial contributions.
In addition, we maintain a framework for taking any
necessary action should problems arise, for example
investigating allegations and the causes of problems,
instituting remedial or preventive measures and releasingstatements, to deal with all eventualities quickly andappropriately.

CSR Promotion Framework
Board of Directors
Submit Proposals and Reports

CSR and Risk Management Committee

President

Compliance Committee
Central Committee forEnvironmental Management

CSRO
Collaboration

CPO
Collaboration

CSR Division

Central Safety and Health Committee
Central Quality Control Committee

In-House Companies

Promotion
Monitoring

Domestic Affiliate Companies

Other Chief Officers
Collaboration

Quality Promotion
Department

Each Corporate
Division

Collaboration

International Affiliate Companies

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

CSR ACTIVITIES

Aiming to Further Strengthen Management
The
Environment

The Furukawa Electric Group aims toproperly meet its responsibilities to ahost of shareholders that view theGroup from different perspectives.
To achieve this, we are monitoring
our business activities and enacting
initiatives to improve them.

Stakeholder
Customers

Suppliers

Customers

Local
Communities

Suppliers
Group
Employees

Shareholders andOther Investors

Principal Responsibilities

Communication Methods
Dialog through everyday transactions
Websites and CSR reports● Dialog through technology exhibitions andtrade shows

Maintain or improve the quality of our products,
businesses and services● Provide products and services that are useful
to society● Resolve the issues that customers face throughwide-ranging technologies and expertise●

Form sound relationships through fair transactions
that conform with laws and regulations● Realize CSR throughout the supply chain byimplementing CSR Procurement Guidelines for Partners

●

●

●

●

Partner meetings
Dialog through everyday transactions● CSR surveys● Feedback interviews on the results of partner evaluations●

Shareholders
and Other
Investors●

Provide appropriate returns
Ensure timely and appropriate disclosure● Enhance corporate value

●

●

●

Employees●

Respect human rights
Cultivate and appropriately value and reward
human resources● Promote health, including occupation health andsafety, as well as mental health● Support diversity of working styles and awork-life balance

●

●

●

Promote sporting and cultural activities; cultivate
the next generation● Cooperate with and sponsor traditional events● Support the activities of and collaborate withlocal NPOs●

Reduce emission of gases that contribute to
global warming● Promote energy conservation and recycling● Protect biodiversity● Curtail industrial waste● Manage and reduce harmful chemical substances

●

Local
Communities●

The Environment●

Annual reports, general meetings of shareholders
Shareholder reports● Management briefings and results presentations● Investor visits● Shareholder factory tours
Internal newsletter, intranet
Heart-to-heart communication between president
and employees● Management briefings

Factory tours
Hosting of Japanese dance and otherregional events● Social contribution activities, such as employee
participation in community clean-ups●

Conformance with various types of laws
and regulations● Conformance with the Kyoto Protocol on global
warming and the Nagoya Protocol on biodiversity● Environmental activities promoted by the Ministryof the Environment● Research and information sharing through JBIB on
preserving biodiversity

18

19

DIRECTORS AND AUDITORS

Furukawa Electric Co., Ltd. ANNUAL REPORT 2011

DIRECTORS AND AUDITORS

Hiroshi Ishihara
Chairman

Masao Yoshida
President

Tetsuo Yoshino

Takasuke Kaneko

Sumitaka Fujita

Hideo Sakura

Masahiro Yanagimoto

Tetsuya Satou

Director (Outside)

Director
Chief Financial Officer

Director (Outside)

Director
President of theElectro-nics andAutomo-tive Systems
Company

Director (Outside)

Director
Chief Social
Responsibility Officer

Statutory Auditors
Takahiko Ito
Kaoru Yabuki
Yuzuru Fujita (Outside)
Tadashi Kudo (Outside)
Kenji Koroyasu (Outside)
Hisaharu Yanagawa
President of theTelecommunications
Company

Nozomu Amano

Director
Chief Strategy Officer

as of June 29, 2011

Mitsuyoshi Shibata

Director
President of the Metals
Company

Tohru Shirasawa
Director
Chief Production
Officer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

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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

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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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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.

2-3, Marunouchi, 2-chome, Chiyoda-ku, Tokyo 100-8322, Japanwww.furukawa.co.jp/english/