Annual Report  2007 Year ended March 31, 2007 Furukawa  Co., Ltd.  was established in 1875, and over its 132-year history it has developed a diverse portfolio of businesses in the fields of machinery, metals, electronic materials, chemicals and fuels. Grounded in its management philoso- phy—Innovation, Creativity, and  Harmony—the Company has moved forward with innovation in its corporate structure and technological devel- opment. Furukawa strives to offer appealing products and services to its customers and to contribute to the creation of a prosperous society that is in harmony with the environment. In fiscal 2007, ended March 31, 2007, we achieved historic highs in both revenues and profit owing primarily to an expansion in revenues in the Metals Division, which has been operating in an environment of high copper and metal prices, as well as to improved earning capacity in major divisions, thanks to the implementation of our “selection and concentration” strategy. Fiscal  2008 marks the final year of the April 2005–March 2008 Medium–Term Management Plan. To complement our determination to implement the Plan suc- cessfully, we will also undertake greater efforts to build a solid path toward future growth.
Forward-Looking Statements: This annual report contains forward-looking statements such as the plans, strategies and statements related to the outlook for future regults. These forward-looking statements are not listorical facts. They are expeen- tions, estimates, foreessts and projections based on information currently available to the Company and are subject to various ridks, uncertainties and assumptions. As such, actual results may differ materially from those projected.
Furukawa Co., Ltd. and consolidated subsidiaries Years ended March 31, 2007, 2006 and 2005
2. From the fiscal year ended March 31, 2007, what was formerly recorded as "shareholders' equity" is now recorded as "net assets," in line with revisions to Japanese accounting standards as detailed in the Accounting Standards Board of Japan's (ASBJ) "Accounting Standard for Presentation of Net Assets in the Balance Sheet" (ASBJ Statement No. 5, December 9, 2005) and its implementation guidance, "Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet" (ASBJ Guidance No. 8, December 9, 2005). Figures for fiscal 2005 to fiscal 2006 represent total shareholders' equity. ■ Machinery ■ Metals ■■ Electronic Materials and Chemicals ■ Real Estate ■■ Fuels and Others 1
Performance in Fiscal 2007
In the Machinery Division, despite a decline in net sales owing to a fall off in the industrial machinery business sales, healthy overseas shipments exhibited by the rock drill business and improved prof- itability in the industrial machinery business supported an increase in income. Sales and income in the Metals Division grew significant- ly in the fiscal year under review owing to high-priced copper, gold, silver, and correspondingly, improvements in Treatment and Refining Charge (T/C, R/C). Electronic Materials and Chemicals Division profit increased due to steady sales of high-purity metallic arsenic and cuprous oxide. As a result, consolidated net sales rose 10.3% year on year to ¥200,749 million, while operating income grew 39.3% to ¥16,899 million. Furukawa recorded ¥3,032 million in losses related to its copper smelting business in Australia. After accounting for deferred income taxes of ¥6,793 million, net income amounted to ¥17,554 million, a threefold increase—precisely 3.3 times—compared to the previous fiscal year. Reflecting an overall robust performance, annual dividends increased ¥2.00 per share, for dividend payments of ¥5.00 per share.
Medium-Term Management Plan Progress
Update
Fiscal 2007 was the intermediate year of our April 2005–March 2008 Medium-Term Management Plan, which designates the pur- suit of maximum corporate value for the entire Group through a shift to an operating holding company system and additional strengthening of Furukawa's financial position through increased profitability as priority issues. Performance goals for fiscal 2008 set under the Plan include consolidated net sales of ¥165,000 million, operating income of ¥10,500 million and a ¥30,000 million reduc- Furukawa Co., Ltd. and its consolidated subsidiaries recorded historic highs in both revenue and profit in the fiscal year ended March 31,2007. Making the most of this new growth spurt, Furukawa plans to accelerate its efforts toward establishing a foundation for greater growth and expansion, as it aims to broaden its business and enhance corporate value. Left Chairman and Representative Director, Tetsuo Yoshino Right: President and Representative Director, Nobuyoshi Soma tion in interest-bearing liabilities. In the fiscal year under review, consolidated net sales and operating income already surpassed these targets, owing to greater- than-expected expansion of earnings in the Metals Division on the back of high metal prices carried over from the previous fiscal year. At the fiscal year-end, interest-bearing liabilities (corporate bonds and long-term debt) stood at ¥89,389 million, a reduction of ¥27,462 million from March 31, 2005, exhibiting a steady decline in interest-bearing liabilities. In fiscal 2008, the final year of the Plan, while working to build a revenue base resilient to fluctuations in the metals market by enhancing the profitability of the Machinery Division, the Electronic Materials and Chemicals Division and other divisions, we are also working to develop our next medium-term management plan with the aim of further Group expansion and growth.
Building a Foundation to Facilitate Our Next
Stage of Growth
Current efforts in the Machinery Division include bolstering overseas development of hydraulic rock breakers, crawler drills and drill jum¬ bos for mine development. In order to meet a surge in demand, we are implementing capital investment for the installation of new equipment and machinery upgrades at the Takasaki and Yoshii Plants. The goal of these efforts is to increase our global share of the market for hydraulic rock breakers and crawler drills, lifting it from approximately 30% in fiscal 2006 to 40% within the next few years. In fiscal 2007, we acquired new orders from Russia for drill jumbos, a product for which we command an overwhelming share of the Japanese market. In an operating environment where mine development has intensified on the back of worldwide expansion in demand for resources and energy, we are striving to establish an overseas sales and service structure to facilitate growth in sales.
In the UNIC machinery business, we built a facility for knock- down production at our factory in Thailand as well as newly estab- lished a sales subsidiary there to meet increased demand in Southeast Asia. We are confident that this, along with our efforts to reduce costs by selectively allocating production to our factories in China and Thailand, will lead to increased sales in overseas markets. In the Electronic Materials and Chemicals Division, we are look- ing to develop and release high-value-added crystal products to the market. Specifically, by the middle of fiscal 2008, we plan to achieve mass production of gallium nitride substrates, which are expected to become a key material for the generation of blue-violet laser diodes (LDs), the core of next-generation DVD players, and high-intensity white light-emitting diodes (LEDs). In addition, as we aim to bring about sustainable growth over the medium to long term, we are promoting Group R&D activities geared to fortifying Furukawa’s core technologies. At the same time, while our efforts will continue to be focused on expanding existing businesses, we will also concentrate on the generation of new business.
A New Management Structure
At the General Shareholders' Meeting and the Board of Directors' Meeting held on June 28, 2007, Tetsuo Yoshino, who had held the position of President and Representative Director, was appointed Chairman of the Board of Directors and Representative Director, while Managing Director Nobuyoshi Soma was newly appointed as President and Representative Director. During Tetsuo Yoshino’s term as President and Representative Director, Furukawa overcame harsh business conditions and implemented business-restructuring efforts based on a selection and concentration strategy, which was the impetus behind halting operations at a copper smelting business in Australia that had incurred large-sum losses. In March 2005, Furukawa spun off its businesses and shifted to an operating hold¬ ing company system and has since continued to work to maximize management efficiency and corporate value. As a result, in the fiscal year ended March 31, 2006, Furukawa realized its most pressing goal of resuming cash dividend payments, and additionally, declared an increase in dividends in the fiscal year under review. Furthermore, concerning the withdrawal from the copper smelting business in Australia, settlement seems to be in sight. Newly appointed President Nobuyoshi Soma is known for being able to demonstrate sound judgment and decisiveness and possesses a wealth of experience from his appointment as an exec- utive director in our machinery and materials-related businesses. Under its new leadership, the Furukawa Company Group will remain steadfast in its commitment to growth and expansion, ongoing development of strong overseas businesses, and raising corporate value. We ask for the continued support and understanding of our shareholders. September 2007
As R&D plays such an indispensable role in boosting corporate competitiveness, we asked Akira Usui, executive officer and general manager of the Furukawa Company Group R&D Division, to outline the Group's R&D activities, strengths and strategies.
Please tell us about the Furukawa Company Group’s R&D
activities and structure.
The R&D activities of the Furukawa Company Group are twofold. While each of our businesses engages in product development to support today's busi¬ ness, our R&D Division conducts research into the new products and technologies of tomorrow. The R&D Division is part of Furukawa Co., Ltd., and com¬ prises the Techno-Research Laboratory, Materials Research Laboratory and Semiconductor Growth System Department, which actually execute R&D projects, as well as the R&D Planning and Intellectual Property Departments, both of which support the R&D activities of the other departments and laboratories. The R&D Division is currently focused on the machinery and materials fields. In the area of machinery, we are developing mechatronics-related TV camera carrier robots, semiconductor deposition equipment, protein crystallization equipment, and 3-D Zone Positioning Systems (ZPSs). In the area of materials, we are working on the development of nitride semiconductor crystals, scintillator crystals and thermoelectric conversion materials in relation to the electronic chemicals business. With technological innovation accelerating at such a rapid pace, it is even more vital that our R&D activities directly relate to business, markets and customers. It is from this perspective that we plan to further enhance our undertakings in R&D. Executive Officer and General Manager, R&D Division
What do you consider to be Furukawa’s
essential technologies?
Furukawa developed Japan's first rock drill in 1914. Since then, not only have we remained the top maker of mine machinery, we have also continued to unearth advanced know-how in machinery design, manufacturing and integrated mechatronics that is the technology behind machinery control and automation. We take pride in being able to draw on this expertise and these abilities. Grinding and excavation rock drill-related technologies, specifically, can be said to form a significant part of the Furukawa Company Group's origins. Another of our core technologies is our com¬ bined capabilities in materials manufacturing and processing, which we have cultivated through experience acquired in copper smelting. Although Furukawa no longer operates a copper smelting business per se and exclusively outsources its cop- per smelting to other companies, we possess sub- R&D Division 4
stance separation and crystallization know-how that has been handed down through our long his- tory in the materials business. These capabilities have borne fruit in the form of a top share in the field of high-purity metallic arsenic and cuprous oxide manufacturing and advances in next-generation compound semiconductor sub- strates and scintillator crystals. The Furukawa Company Group believes that applying these core technologies in the fields of machinery and materials will lead to the further development of new products and technology and plans to move forward with this in mind.
How do you regard collaborative research with other companies and
organizations and what kind of projects are you currently involved in?
Collaborations with other organizations are indispen- sable to expeditious development and make the most of limited resources and time. At present, Furukawa is participating in seven separately themed industry-academia joint research projects and four national level projects. For example, we are partici- pating in research endeavors with Shimane University and the Japan Science and Technology Agency (JST) that are targeting the development of deposition equipment for zinc oxide thin films. Zinc oxide is marked for use as a low-cost blue LED material. In projects related to gallium nitride, Furukawa is taking part in a consortium, mainly cen¬ tered around Tohoku University, as well as in the Next-Generation  Gallium  Nitride  Substrate Development Project headed by the New Energy and Industrial Technology Development Organization (NEDO). Furukawa's research into the development of high-performance scintillator crystals is also con¬ tributing to its involvement in a JST regional R&D resource utilization program focused on the develop¬ ment of next-generation mammography equipment to aid in the detection of breast cancer.
Please tell us about your efforts in managing intellectual property.
All intellectual property is managed by the Intellectual Property Department, which also discovers and man- ages patents for new products and materials. The Furukawa Company Group currently holds about 300 patents, which we aim to use effectively by pub¬ licizing them through our Web site and actively pro- moting activities such as licensing to other compa¬ nies. Also, in order to increase engineers' motivation and prompt greater advances in R&D, Furukawa has set specific company guidelines for the payment of remunerative rewards to inventors.
Lastly, what would you like to say to shareholders and investors?
Since being founded in 1875, the Furukawa Company Group has long supported an essential part of Japan's industrial sector. Today, Furukawa is making the most of its wealth of knowledge in machinery and materials, its core technological areas of expertise, and its access to a rich lode of trust¬ based relationships that span a variety of industries to boldly take on new challenges. As we continue to promote efficient development processes, we hope to germinate the seeds of development that will support our next stage of growth. Our stakeholders should expect to see some outstanding new devel- opments in the years ahead. 1. Robot Dolly is an intelligent, robotic, mobile TV camera system that was jointly developed by Furukawa and the Science & Technical Research Laboratories of the Japan Broadcasting Corporation (NHK). Controls programmed into the system enable automatic Robot Dolly carrier and vertical camera movements as well as make possible faith- ful repetition of any pre-programmed movements. Already three of these camera systems have been delivered to NHK, where their use is being incorpo- rated into the filming of TV programs. We anticipate that this kind of intelligent robot camera system will play a role in any filming that involves repetitive motion, overcoming the ineffi- ciencies of manual filming. By customizing the robots to precisely meet the needs of customers, we are working to increase sales domestically, while looking to expand into overseas markets. 2.
High-performance scintillator crystals
Furukawa is targeting the mass production of lutetium aluminum gamet (Lu3AlsO12 [LuAG]) as a scintillator crystal for the detection of gamma rays in next-generation breast cancer equipment. Scintillator crystals play a vital role in positron emis- sion tomography (PET) and are likewise anticipated to become essential to mammography equipment used to detect cancer. LuAG, which Furukawa is seeking to mass produce, is a high-performance scintillator crystal developed by a team of profes- sors led by Tsuguo Fukuda at Tohoku University. Compared with conventional bismuth germanium oxide (BGO), the light yield of incident gamma rays is more than three times higher with LuAG crystals, resulting in shorter luminescence decay time, more precise diagnosis and facilitating the early detection of small cell carcinomas. Furukawa, which will be continuing develop- ments aimed at increasing the size of the scintillator crystals from the current two-inch diameter to four inches, is planning to commence mass production during fiscal 2009.
Gallium nitride substrates
Furukawa is working to develop and manufacture gallium nitride substrates for blue-violet laser diodes (LDs) used in next-generation DVD players and high-intensity, white light-emitting diodes (LEDs) that are expected to be used in illumination devices. When compared with existing sapphire substrates, gallium nitride substrates generate less crystal defects and are well suited to the production of high-output LDs and LEDs. Furukawa is making progress with the development of gallium nitride substrates using the hydride vapor phase epitaxy (HVPE) method for growing crystals that gasifies, transports and causes a reaction in the raw material used. Sample shipments of these gallium nitride substrates to electronics manufacturers are already under way. Furthermore, Furukawa is targeting mass production by the end of fiscal 2008, while improv¬ ing production technology and establishing a pro¬ duction structure. strate Real Estate 1.5% Fuels and Others 14.6%
In fiscal 2007, the year ended March 31,2007, the Machinery Division posted a 3.6% decrease in sales compared with the previous fiscal year, to ¥67,796 million. Operating income increased, rising 39.1%, year on year, to ¥5,902 million, while the operating margin improved by 2.7 percentage points to 8.7%. In the industrial machinery business, Furukawa con¬ tinued to promote cost reductions and Group busi¬ ness reorganization based on a selection and con- centration strategy, while plagued by harsh operating conditions and intensified price competition. Revenues in our core business of pump products increased, owing to the sale of a pump plant to a water and sewage treatment facility. Conditions were further exac- erbated by changes in bidding methods in the bridge construction business. As a result, sales in the industrial machinery business fell 17.0% to ¥14,119 million. In the rock drill business, overseas sales of break- ers and crawler drills significantly expanded, owing to continued efforts to strengthen Furukawa's sales net- work. Shipments were buoyant, particularly to Europe, the United States and the Middle East. Despite slowed demand for drill jumbos in Japan due to fewer public- sector construction projects, Furukawa acquired orders from Russia as a result of its concentration on devel- oping business in overseas mining markets. Furthermore, Furukawa looks forward to future growth in this business owing to increased activity in mining developments attributable to a rise in demand for resources and energy sources around the world. Sales in the rock drill business rose a slight 0.8% to ¥33,046 million thanks to an increase in overseas sales, which offset a decline of ¥2,810 million as a result of the withdrawal from the domestic sales of wheel loaders. In the first half of the fiscal year under review, the UNIC business experienced an increase in domes- tic shipments of UNIC cranes. This was attributable to a rise in the number of trucks sold as a result of pres- sure to meet gas emission regulations. In the end, however, domestic demand declined, after demand associated with gas emission regulations subsided in the second half of the fiscal year. Within this environ- ment, Furukawa worked to expand sales of its new fuel-efficient U-can ECO crane series, released in October 2006. In overseas business, while promoting expansion into new markets, Furukawa aimed to reduce costs associated with international divisions of labor by launching factory upgrades to accommodate knockdown manufacturing in Thailand, following sim¬ ilar moves made in China. As a result, UNIC product sales rose 0.4%, year on year, to ¥20,629 million.
President and Representative Director Furukawa Metals & Resources Co., Ltd. The Metals Division recorded a 60.9% surge in sales year on year to ¥84,754 million. Operating income grew 52.9% to ¥8,837 million, while the operating margin dipped 0.6 of a percentage point to 10.4%. The price of electrolytic copper in overseas markets reached an historic high at US$8,800 per ton in May 2006, but later succumbed to a softening trend. Toward the end of the fiscal year, however, the price once again began to rise due to strong demand, com¬ ing primarily from China. Its domestic market price during the same period reached a record high of ¥1,000,000 per ton with a quoted average of ¥860,000 per ton, a substantial ¥350,000 per ton increase compared to the previous fiscal year. The sales volume of electrolytic copper increased 4,056 tons on a year-on-year basis to 88,521 tons in line with increased production that was attributable to con¬ tract smelters' enhanced manufacturing capabilities. Under these circumstances, Treatment & Refining Charge (T/C, R/C) for smelters improved owing to negotiations that took place at the end of 2005, while greatly appreciated copper prices helped significantly improve copper prices on a sliding-scale system. These factors, coupled with high gold and silver prices and a weak yen, contributed to large increases in both sales and operating income. (Indonesia) in which Furukawa Co., Ltd. which Furukawa Metals & Resources Co., Ltd. has capital participation Co., Ltd. has capital participation
Sales in the Electronic Materials and Chemicals Division declined due to the termination of electrolytic aluminum capacitor foil consignment sales at the end of previous fiscal year. They totaled ￥15,902 million, a 25.1% year-on-year decline. Operating income increased 39.4% to ¥2,088 mil- lion owing to steady shipments of high-purity metallic arsenic and cuprous oxide. The operating margin improved by 6.0 percentage points to 13.1%. Shipments of high-purity metallic arsenic, which is mainly used in gallium arsenate semiconductors, were robust owing to strong demand for their use in electronic devices for mobile phones and LED lamps. Demand for other crystal products grew, leading to an increase in revenues. The unit price of cuprous oxide, which is used in paints for ship bottoms, expanded significantly owing to high copper prices and resulted in growth in earnings. Shipments of polymeric ferric sulfate solution, an aggregating agent used to treat wastewater, remained steady owing to stable public-sector demand. As a result of these combined factors, operating income expanded.
Real Estate Division sales in the fiscal year under review declined 5.5% to ¥2,936 million, while operating income waned by 7.3%, year on year, to ¥839 million. The operating margin fell by 0.5 of a percentage point to 28.6%. In the division's core office-building business, brisk corporate sector demand for office space improved in the Tokyo metropolitan area, followed by the Osaka region, where Furukawa's mainstay buildings are located. Within this environment, Furukawa worked to reduce vacancies by acquiring new tenants and simultaneously to reduce expenses.
Fuels and Others
The Fuels and Others Division recorded a 15.2% decrease in sales year on year to ¥29,361 million. In addition, after recording allowance for doubt- ful accounts, operating loss worsened, dropping from ¥69 million in the previous fiscal year to ¥415 million. In Fuels, crude oil prices in August 2006 reached an all-time high in Dubai, but thereafter entered a cor¬ rection phase. In terms of supply and demand, Furukawa exerted efforts to maintain a steady supply amid the severe conditions caused by reduced con- sumption volumes attributable to fuel transitions, par- ticularly away from Bunker A. In Others, primarily transport and new business, sales increased, but income declined. The protection of the environment is one of the most important management issues at the Furukawa Company Group. Our fundamental policy is that each employee should strive in all corporate activities to perform in harmony with the environment, consider the improvement of the environment, and con- tribute to the development of a sustainable society. We are aware of the important role we play in giving back to the community as a corporate citizen and strive to contribute in every way we can with the involvement of every Furukawa employee.
Environmental Management
●Environmental management system The senior decision-making body for environmental-protection activities is the Central Committee for Environmental Management, in which everyone from the president on down participates. The Environmental Management Subcommittee studies, proposes, directs and monitors environmental protection activities. The companies of the Furukawa Company Group have each estab- lished their own Environmental Management Committees, chaired by their own top management, to formulate environmental protection plans and direct environmental protection programs. Furthermore, the Committee of Environmental Protection Supervisors meets every year, bringing together the people who directly guide and manage environmental and safety initiatives in each group company. At these meetings, the committee aims to fulfill three basic purposes: 1. to help improve the competency of environmental protection supervisors; 2. to prevent accidents resulting from Furukawa's business activities through concerted efforts to share information; and 3. to verify revisions to environment-related regulations.
●Environmental protection auditing
As of March 31, 2005, the Furukawa Company Group's principal busi¬ ness sites had obtained ISO14001 certification. Internal and external audits are now being conducted in order to effect continuous improve¬ ment in environmental protection activities. External audits are being conducted by an accredited ISO14001 certification body, while inter¬ nal audits are implemented once a year by Furukawa's Environmental Control Department.
Environmental Protection Activities
The Furukawa Company Group is striving to lessen environmental bur¬ den by working to meet the targets it has set for fiscal 2009, the year ending March 31, 2009. Targets are based on a comparison of fiscal 2004 consumption levels and aim to reduce natural resources and energy consumption.

Environment-Friendly Products
The Furukawa Company Group vigorously develops products related to the environment that contribute to the realization of an environmental- ly conscious society. Among these is the Group's low-noise, low-vibra- tion hydraulic rock breaker that improves environments in and around construction-site areas. Furthermore, in October 2006, Furukawa newly added the fuel-efficient U-can ECO series to its lineup of cranes that realizes reduced fuel consumption during crane operation for medium¬ and large-sized trucks. Other endeavors include collaborative efforts such as our participation with Shimane University, Japan Pionics Co., Ltd. and the Japan Science and Technology Agency (JST) targeting the development of deposition equipment for zinc oxide thin films. White lighting realized through high¬ intensity blue LEDs using gallium nitride, zinc oxide and other materials consumes comparatively less energy than conventional lighting without the use of mercury and arsenic, boosting its appeal as an energy-efficient and environmentally sound product.
Social Contribution Activities
The bedrock of Furukawa's social contribution activities as a good corpo¬ rate citizen is the "spirit of harmony," which is one of its management philosophies. The Furukawa Company Group seeks to maintain good rela¬ tionships and to live in harmony with local communities through stew¬ ardship and maintenance of forests owned by Furukawa, afforestation programs, beach cleanup operations, preservation of the "Nikko¬ Suginamiki" (Avenue of Cedars in Nikko), accepting internships, hosting factory visits, conducting fund-raisers, arranging blood-donor drives, and loaning its land for free to local environmental associations. Furukawa's ZPS-BW is contributing to safety and peace of mind within nursing facil- ities and hospitals as a nurse-call transmittance system. The ZPS-BW uses a 3-D detection system that senses changes in ultrasonic wave reflections to "watch" over patient beds. Nurses are called upon when the system detects irregular movement The basic policy of the Furukawa Company Group is to contribute to society, our shareholders and other stakeholders by building an efficient management structure that will yield stable profits and increased corporate value through greater management transparency and continuous innovation in our corporate structure. This policy binds the Group's businesses together to ensure Group integrity, while enabling them to manage their individual operations under a flexible management structure with a clear focus on accountability for gain and loss. At the same time, the Group businesses leverage collective strengths to maximize corporate value by providing products and services that achieve customer satisfaction.
System of Corporate Governance
To clearly separate management oversight functions from executive func- tions, accelerate decision-making and clarify responsibilities, Furukawa has adopted an executive officer system. Furukawa's executive officers have become representative directors at six core companies in the inter¬ est of promoting an agile management structure. As of July 28, 2007, the system comprised 16 executive officers, six of whom concurrently hold positions as directors. The Board of Directors has a membership of nine, of whom one is an outside director, with the Board overseeing the execution of the Furukawa Company Group's operations. The Management Council sets the Furukawa Company Group's fundamental management policies and strategies and makes decisions on important matters. There is also a Management Committee, which meets monthly to discuss the opera¬ tions of Furukawa and its core companies, and provides direction. Decisions made by the Management Council that involve the allocation of funds or other important management issues must be approved by a resolution of the Board of Directors. Furukawa uses an auditor system, with a Board of Auditors com¬ posed of two statutory auditors and two outside auditors. Pursuant to an audit policy formulated by the Board of Auditors, auditors attend meetings of the Board of Directors, the Management Council, the Management Committee, and other important management meetings. In addition, they audit business sites and subsidiaries and monitor the performance of duties carried out by directors. The audit function is further reinforced by the Audit Office, an organization in charge of inter¬ nal auditing. The Audit Office is composed of six members who engage in auditing Group-wide operations management and the execution of business operations. In order to ensure the efficiency and effective¬ ness of the audit function, Furukawa continuously works to reinforce cooperation between the Audit Office, auditors and accounting auditors, who together devise audit plans, review audit results and share other audit-related information.
System of Risk Management
Furukawa recognizes effective risk management as an important aspect of its business activities and conducts stringent risk assessment and analysis of its business operations. Additionally, Furukawa established the Risk Management and Compliance Committee for the purpose of ensuring earnest and responsible business operations from a social and ethical perspective.
Consolidated Five-year Financial Summary

Financial Review
Revenue and Expenses
Consolidated net sales in the fiscal year ended March 31, 2007 totaled ¥200,749 million, an increase of 10.3% compared with the previous fiscal year. This total was the result of a 60.9% jump in net sales of the Metals Division on the continued strength of high copper prices, although there were decreases in all other major divisions. Net sales in the Machinery Division decreased 3.6% because of a reduction in revenues from industrial machinery products, while net sales in the Electronic Materials and Chemicals Division dropped 25.1% due to the termination of electrolytic aluminum capacitor foil consignment sales at the end of the previous fiscal year. Net sales of the Fuels Division declined 16.0% year on year as a result of a drop in sales volume. Cost of sales increased by 9.3% to ¥167,507 million, with the cost of sales margin dipping 0.8 of a percentage point to 83.4% year on year. This improvement was due mainly to an improvement in the profit margin for the industrial machinery business and the Electronic Materials and Chemicals Division. Selling, general and administrative expenses decreased 1.1% to ¥16,343 million, primarily owing to a decrease in the provision for employees' retirement benefits, as well as salaries and allowances. Operating income surged 39.3% compared to the previous fiscal year to ¥16,899 million. This is due in large part to higher operating income in the Metals Division and Machinery Division, which grew 52.9% and 39.1%, respectively. Under other income and expenses, ¥798 million in interest and dividend income and ¥2,478 million in interest expense were recorded. Other principal items include a loss on the copper smelting business in Australia of ¥3,032 million and a loss on the disposal and devaluation of inventories of ¥699 million. As a result of the above factors, income before income taxes and minority interests increased by 13.4% year on year to ¥11,127 million. After accounting for ¥6,793 million in deferred income taxes, Furukawa reported a surge in net income of 230.6%, to ¥17,554 million. Accordingly, Furukawa distributed full-year dividend payments of ¥5.00 per share, (including an interim dividend payment of ¥2.00 per share), a ¥2.00 increase compared to the previous fiscal year.
Financial Position
Total assets as of the end of the fiscal year ended March 31, 2007 stood at ¥217,027 million, a 1.9% increase compared to the end of the previous fiscal year. Current assets increased 6.5% to ¥94,865 million, mainly because of increases in inventories, particularly of metals, and deferred income taxes. Total investments declined 6.5% to ¥47,146 million owing to a decrease in investment securities attributable to a fall in the market value of shareholdings. Property, plant and equipment grew by 2.0% to ¥75,016 million due to the implementation of capital investment. Total liabilities decreased by 7.4% to ¥164,891 million owing to decreases in corporate bonds and debt and deferred income taxes. As a result, the fiscal year-end balance of interest-bearing liabilities (corporate bonds and debt) was reduced by ¥10,029 million to ¥89,389 million. Net assets at the fiscal year-end stood at ¥52,136 million. This was attributed to an increase in retained earnings from net income. In addition, Furukawa has presented minority interests and other items that comprise net assets in the balance sheet in accordance with the adoption of a new accounting standard, which was put into effect on April 1, 2006. The equity ratio grew 5.7 percentage points to 25.9%.
R&D and Capital Expenditures
Research and development expenses for the fiscal year under review were ¥1,888 million, representing 0.9% of consolidated net sales. Of this, ¥1,022 million was allocated to the Machinery Division and ¥866 million to the Electronic Materials and Chemicals Division. Capital expenditures (including investments in intangible fixed assets) amounted to ¥3,905 million. Of this total, ¥2,333 million was allocated to the Machinery Division, ¥159 million to the Metals Division and ¥753 million to the Electronic Materials and Chemicals Division, primarily for improvements in manufacturing efficiency. In addition, ¥318 million was allocated to the Real Estate Division for maintenance on leased buildings and ¥31 million to the Fuels and Others Division for the purchase of vehicles for use in the transportation business.
Cash Flows
Net cash provided by operating activities during the fiscal year under review totaled ¥12,648 million, an increase of ¥4,394 million compared to the previous fiscal year, mainly owing to an increase in income before income taxes and minority interests and a decrease in trade receivables. Net cash used in investing activities amounted to ¥4,367 million, a ¥4,031 million increase compared to the previous fiscal year, chiefly due to an increase in expenditures for purchases of property, plant and equipment. Net cash used in financing activities dropped ¥9,176 million from the previous fiscal year to ¥8,910 million, principally owing to a decline in the repayment of notes. As a result, cash and cash equivalents at end of year were ¥16,333 million, a 2.4% decrease year on year.
Business Risks
Port Kembla Copper Pty. Ltd. (Australia)
Operations at Port Kembla Copper Pty. Ltd. (PKC) were halted in August 2003. In the ensuing period, the company was placed in a care and maintenance status with efforts now directed at conducting an orderly withdrawal and resolving related environmental issues. While estimated losses relating to the suspension of operations have been brought to account, potential risks that may affect the Furukawa Company Group's operating results and financial position include costs in connection with cleanup activities at plants, sites and other areas, and the decided upon withdrawal method.
Fluctuations in the Foreign Exchange and
Metals Markets
The Furukawa Company Group is at risk of foreign exchange fluctuations in connection with its export business, the import of raw materials, primarily copper ore, and smelting and processing income. In addition, the Furukawa Company Group's stock of nonferrous metal inventories, an internationally traded commodity, is subject to market movements. While the Furukawa Company Group utilizes foreign exchange contracts and forward delivery transactions as a hedge against the aforementioned risks, its operating results and financial position may be adversely affected by movements in exchange rates and nonferrous metal markets.
Investments in Securities and Land
Historically, the Furukawa Company Group has maintained relatively high balances of marketable securities and land. In recent years, however, the Group has worked to streamline assets and has sold a portion of its marketable securities and idle assets. As of March 31, 2007, the carrying value of investments in securities was ¥30,102 million, while land stood at ¥46,539 million. Accordingly, the Furukawa Company Group's operating results and financial position are at risk of impairment losses, losses from devaluation and losses on sale due to movements in stock and land prices.
Accrued Employees' Retirement Benefits
The employees of the Furukawa Company Group are covered by unfunded employee retirement benefit plans and non-contributory funded employee pension plans as defined-benefit plans. Accrued employees' retirement benefits are provided at an amount calcu¬ lated based on the retirement benefit obligation and the fair value of pension plan assets at the balance sheet date. In calculating accrued employees' retirement benefits, the Furukawa Company Group adopts assumptions in connection with the discount rate and expected rate of return on plan assets, as well as other assumptions. Accordingly, the Furukawa Company Group's operating results and financial position are at risk in the event the actual discount rate and expected rate of return on plan assets differs materially from the assumptions, as well as in the event of a change in the assumptions on which accrued employees' retirement benefits are made.
Earthquake and Natural Disasters
The Furukawa Company Group's operating results and financial position are at risk in the event of a suspension in operations and delays in shipments due to damage to manufacturing bases and facilities from earthquakes and other natural disasters.
Environmental Protection
The Furukawa Company Group places the highest importance on environmental protection, environmental safety, and prevention of pollution, and it has implemented stringent measures at all business sites, both in Japan and overseas, respecting all laws and regulations. Furthermore, in Japan the Group is vigilant in preventing water run-off from idle mines from contaminating water supplies and in preventing the build up of slag or slurry. The Furukawa Company Group also maintains tight security at metals deposition sites. However, in the event of new legislation or similar directives, there is a possibility that the Group's performance results and its financial standing could be influenced.
Consolidated Balance Sheets

Consolidated Statement of Shareholders' Equity

Consolidated Statement of Changes in Net Assets

Notes to Consolidated Financial Statements
Furukawa Co., Ltd. and consolidated subsidiaries
March 31, 2007
1. Basis of Presentation
The accompanying consolidated financial statements of Furukawa Co., Ltd. (the "Company") and consolidated subsidiaries (together the "Furukawa Group") have been prepared in accordance with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and have been compiled from those prepared by the Company as required under the Securities and Exchange Law of Japan.
2. Summary of Significant Accounting Policies
(1) Principles of Consolidation
The Company had 37 subsidiaries as of March 31, 2007 (39 as of March 31, 2006). The consolidated financial statements included the accounts of the Company and 37 subsidiaries as of March 31, 2007 (39 as of March 31, 2006). Compared with the previous year, the number of subsidiaries decreased by 2 due to liquidation. For the purpose of preparing the consolidated financial statements, all significant inter-company transactions, account balances and unrealized profits among the Furukawa Group have been eliminated. Certain foreign subsidiaries have a December 31 year-end. Relevant adjustments have been made for significant transactions with such subsidiaries during the period from January 1 to March 31. Although the Company had 12 affiliates as of March 31, 2007 (11 affiliates as of March 31, 2006), the equity method was applied to 5 affiliates as of March 31, 2007 (4 as of March 31, 2006) in preparing the consolidated financial statements, and investments in the rest of those affiliates are carried at cost or less.
(2) Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
(3) Marketable Securities and Investments in Securities
Securities other than equity securities issued by subsidianes and affiliates are classified into three categories: trading, held-to-maturity or other securities. The Furukawa Group does not hold any trading or held-to- maturity securities as of March 31, 2007 and 2006. Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets (shareholders' equity in 2006). Fair value is determined based on the average of the market value during the last month of the fiscal year. Non-marketable securities classified as In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information. In preparing these statements, the Company has made certain reclassifications and rearrangements to the consolidated financial statements prepared in Japan in order to present these statements in a form which is more familiar to readers outside Japan. In addition, certain amounts in the prior year's financial statements have been reclassified to conform to the current year's presentation. other securities are carried at cost. Cost of securities sold is determined by the moving average method.
(4) Inventories
Finished copper products and work in process relating to copper products are stated at cost determined by the moving average method. Other inventories are mainly stated at cost determined by the average method.
(5) Allowance for Doubtful Accounts
In order to cover probable losses on collection, the allowance for doubtful accounts is calculated based on the historical default rates for normal receivables plus estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers who are experiencing financial difficulties.
(6) Property, Plant and Equipment, and Depreciation
Property, plant and equipment is stated at cost. Depreciation is mainly calculated by the straight-line method based on the estimated useful lives of the assets. The range of useful lives of property, plant and equipment are summarized as follows: Buildings and structures 5 to 60 years Machinery and equipment 2 to 25 years Amortization is calculated by the straight-line method for intangible assets.
(7) Leases
Non-cancelable lease transactions entered into by the Company and domestic consolidated subsidiaries are accounted for as operating leases (whether such leases are classified as operating or finance leases), except that lease agreements which stipulate the transfer of ownership of the leased assets to the lessees are accounted for as finance leases. However, leases of foreign consolidated subsidiaries are generally classified and accounted for as either finance or operating leases.
(8) Retirement Benefit Plans
The employees of the Company and most of its domestic consolidated subsidiaries are covered by unfunded employee retirement benefit plans and non-contributory funded employee pension plans as defined benefit plans. The employee retirement benefit plans provide for lump-sum payments. The employee pension plans, which are funded, were instituted to replace a certain portion of the benefits under the retirement benefit plans with respect to employees who retire at the mandatory retirement age. Certain consolidated subsidiaries (both domestic and foreign) have defined contribution plans. Accrued employees' retirement benefits have been provided at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets at the balance sheet dates, as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation has been attributed to each period by the straight-line method over the years of service of the eligible employees. Prior service cost is being amortized by the straight-line method over a period of principally 15 years, which is shorter than the average remaining years of service of the employees. Actuarial gain and loss is amortized in the year following the year in which the gain or loss is recognized by the straight-line method over the period of mainly 15 years, which is shorter than the average remaining years of service of the employees. (9) Accrued Directors' and Statutory Auditors' Retirement Benefits Directors and statutory auditors of the Company and certain domestic consolidated subsidiaries are customarily entitled to lump-sum payments under their respective unfunded retirement benefits plans. The accrual for retirement benefits for these directors and statutory auditors is recorded at the amount which would have been paid in accordance with the internal rules if they had resigned their offices as of the balance sheet date.
(10) Surplus on the Revaluation of Land
Pursuant to the "Law Concerning the Revaluation of Land," land used for the Company's business operations was revalued on March 31, 2002. The income tax effect of the difference between the book value and the revalued amount has been presented under liabilities as "Deferred income taxes on surplus on the revaluation of land" and the remaining balance has been presented under shareholders' equity as "Surplus on the revaluation of land" in the accompanying consolidated balance sheets. Revaluation of land was determined based on the official notice prices published by the Commissioner of the National Tax Authorities in accordance with Paragraph 4, Article 2 of the "Enforcement Ordinance Concerning Land Revaluation," with relevant adjustments. The carrying value of the land after revaluation exceeded its fair value by ¥1,591 million ($13,483 thousand) and ¥1,401 million as of March 31, 2007 and 2006, respectively.
(11) Income Taxes
Current income taxes comprising corporation tax, enterprise tax and inhabitants' taxes are provided for based on amounts currently payable for each year. Deferred income taxes ansing from temporary differences between financial reporting and tax bases of the assets and liabilities, which were measured using the enacted tax rates and laws which will be in effect when the temporary differences are expected to reverse, are reflected in the consolidated financial statements. The Company and its domestic wholly-owned subsidiaries files a consolidated corporation tax returns.
(12) Amounts per Share
Basic net income per share is computed based on the net income available for distribution to shareholders of common stock and the weighted-average number of shares of common stock outstanding during the year. Diluted net income per share is computed based on the net income available for distribution to the shareholders and the weighted-average number of shares of common stock outstanding during each year after giving effect to the dilutive potential of shares of common stock to be issued upon the conversion of convertible bonds. In the year ended March 31, 2007, diluted net income per share is not disclosed because it is anti-dilutive. Cash dividends per share represent the cash dividends declared as applicable to the respective years together with the interim cash dividends paid. Net assets per share are computed based on the net assets excluding stock minority interests and the number of common stock outstanding at the year end.
(13) Foreign Currency Translation
Foreign currency denominated monetary assets and liabilities are translated into Japanese yen using the rates of exchange in effect at the balance sheet date. Resulting gains or losses are credited or charged to income as incurred. The balance sheet accounts of the foreign consolidated subsidiaries are translated into yen at the rates of exchange in effect at the balance sheet date, except for the components of net assets excluding minority interests (shareholders' equity in 2006) which are translated at their historical exchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year. Differences arising from the translation are presented as translation adjustments and minority interests in its consolidated financial statements.
(14) Hedging Activities
The Furukawa Group uses derivative financial instruments for the purpose of hedging the risks of adverse fluctuations in foreign exchange rates, commodity prices and interest rates on the receivables, payables and forecast transactions denominated in foreign currencies. All derivative financial instruments except below are stated at fair value and related gain or loss on the changes in the fair values of denvative financial instruments is deferred as a component of net assets (an asset or liability in 2006) in the balance sheet until the recognition of gain or loss on hedged items when those derivative financial instruments qualify for hedge accounting. Trade receivables, trade payables and forecast transactions denomi- nated in foreign currencies are translated at the contracted rates if the relating forward contracts qualify for hedge accounting. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not carried at fair value but any
3. Accounting Changes
(1) Accounting for the Presentation of Net Assets in the Balance
Sheets
Effective April 1, 2006, the Company adopted a new accounting standard for presentation of net assets in the balance sheet and related implementation guidance. Shareholders' equity under the previous presentation method amounted to ¥55,875 million ($473,517 thou- sand) as of March 31, 2007. In addition, effective the year ended March 31, 2007, the Company is required to prepare consolidated statement of changes in net assets instead of consolidated statements of shareholders' equity.
4. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter of anthmetic computation only, at ¥118=US$1.00, the exchange rate prevailing on March 31, 2007. This differences paid or received on the interest rate swaps are recognized as adjustments to interest expense or income over the life of each swap, thereby adjusting the effective interest rate on the hedged items.
(15) Shareholders' Equity
The new Company Law of Japan (the "Law"), which superseded most of the provisions of the Commercial Code of Japan, came into effect on May 1, 2006. The Law provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions.
(2) Accounting for Accrued Directors' and Statutory Auditors'
Retirement Benefits
Until the year ended March 31, 2006, retirement benefits for directors and statutory auditors were charged to income when the payments were approved by the shareholders' meeting and made. Effective April 1, 2007, the Company and certain consolidated subsidiaries started to provide for the retirement benefits at the amount which would have been required to be paid if those directors and statutory auditors had resigned their offices as of the balance sheet date. The effect of this change was to decrease operating income and income before income taxes and minority interests by ¥56 million ($475 thousand) and ¥306 million ($2,593 thousand), respectively, for the year ended March 31, 2007 as compared to the corresponding amounts which would have been recorded if the previous method were followed. The effect of this change on the segment information is immaterial. translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.
5. Inventories
Inventories as of March 31, 2007 and 2006 consisted of the following:

6. Investments in Securities
The aggregate acquisition cost, carrying value and unrealized gain or loss pertaining to the marketable other securities as of March 31, 2007 and
Proceeds from sales of securities classified as other securities with aggregate gain and loss for the years ended March 31, 2007 and 2006 are summanzed as follows:

7. Short-Term Loans and Long-Term Debt
Short-term loans, most of which are unsecured, represented notes payable to banks, with the average interest rates of 1.3% and 1.6% as of March 31, 2007 and 2006, respectively. Long-term debt as of March 31, 2007 and 2006 consisted of the following:
The average interest rate applicable to the above loans amounting to ¥68,039 million ($576,602 thousand) was 1.9% as of March 31, 2007. The aggregate annual maturities of long-term debt subsequent to March 31, 2007 were as follows:
The Company and certain consolidated subsidiaries have entered into overdraft and loan commitment agreements amounting to ¥29,939 million ($253,720 thousand) with 25 banks and ¥29,245 million with 25 banks as of March 31, 2007 and 2006, respectively. The borrowings outstanding and the unused balances under these credit facilities amounted to ¥13,752 million ($116,542 thousand) and ¥16,187 million ($137,178 thousand), respectively, as of March 31, 2007 and amounted to ¥12,819 million and ¥16,426 million, respec¬ tively, as of March 31, 2006. In addition, the following lease obligations are included in "Other long-term liabilities" in the accompanying consolidated balance sheets.
Assets pledged as collateral for payables, trade of ¥1,425 million ($12,076 thousand) and ¥1,296 million, short-term debt of ¥740 million ($6,271 thousand) and ¥1,070 million, long-term debt (including current portion) of ¥5,203 million ($44,093 thousand) and ¥7,494 million and lease obligations (included in other long-term liabilities) of ¥6,424 million ($54,441 thousand) and ¥5,602 million as of March 31, 2007 and 2006, respectively, consisted of the following:
The above assets include those of a foreign consolidated subsidiary which are pledged as collateral for lease obligations. The foreign consolidated subsidiary has discretionary powers to dispose of these assets other than machinery and equipment leased under the lease contracts and restricted deposits (partly time deposit and included in other current assets) with the aggregated carrying value of ¥3,930 million ($33,305 thousand) and ¥3,463 million as of March 31, 2007 and 2006, respectively.
8. Depreciation and Amortization
Depreciation and amortization for the years ended March 31, 2007 and 2006 consisted of the following:

9. Research and Development Expenses
Research and development expenses, included in selling, general and administrative expenses and cost of sales for the years ended March 31, 2007 and 2006 amounted to ¥1,888 million ($16,000 thousand) and ¥1,859 million, respectively.
10. Leases
The Furukawa Group leases certain machinery and equipment under non-cancellable finance lease agreements, of which ownership is all non-transferable. depreciation and net carrying value for the machinery and equipment and others held under the finance leases currently accounted for as operating leases as of March 31, 2007 and 2006 were as follows: The pro forma amounts representing acquisition costs, accumulated
Lease payments relating to finance leases accounted for as operating leases amounted to ¥294 million ($2,492 thousand) and ¥264 million for the years ended March 31, 2007 and 2006, respectively, which were equal to the depreciation expense of leased assets computed by the straight-line method over the lease terms. Future minimum lease payments including an interest element under the finance leases outstanding as of March 31, 2007 and 2006 are summarized as follows:
The future minimum lease payments under lease agreements other than finance leases as of March 31, 2007 and 2006 are summarized as follows:

11. Derivative Financial Instruments
The Furukawa Group entered into swap agreements to manage interest rate risks. Interest rate swaps convert floating rate of long-term debt to a fixed basis. The Furukawa Group also entered into forward foreign exchange contracts to hedge against transactions in foreign currencies. For copper products, the Furukawa Group also entered into futures contracts to reduce the risks of fluctuations of commodity price. There are market risks in these derivatives. As the counterparties to the derivative transactions are major financial institutions and trading companies, the Furukawa Group believes that their derivative financial instruments entail minimal credit risks. Furthermore, the Furukawa Group does not use derivative financial instruments that would increase market risks. As of March 31, 2007 and 2006, there is no derivative transaction for which hedge accounting is not applied.
12. Retirement Benefits
The balances of the retirement benefit obligation and plan assets, funded status and the amounts recognized in the consolidated balance sheets as of March 31, 2007 and 2006 are summarized as follows:
The components of retirement benefit expenses for the years ended March 31, 2007 and 2006 were as follows:
The assumptions used in accounting for the above plans are as follows:

13. Income Taxes
The reconciliation between the statutory tax rate and the effective tax rate of the Furukawa Group for the year ended March 31, 2007 was summarized as follows:
The above information for 2006 has not been presented because the difference between the statutory tax rate and the effective tax rate was less than 5% of the statutory tax rate.

14. Contingent Liabilities
Contingent liabilities as of March 31, 2007 and 2006 consisted of the following:

15. Other Income (Expenses)—Other, Net
Other Income (Expenses) —Other, net for the years ended March 31, 2007 and 2006 consisted of the following:

16. Segment Information
The business of the Furukawa Group is divided into the following six categories: machinery, metals, electronic materials and chemicals, real estate, fuels and others. The business segment information of the Furukawa Group for the years ended March 31, 2007 and 2006 was as follows:
The geographic segment information for the years ended March 31, 2007 and 2006 has not been presented, because the amounts of operating revenues and total assets in Japan exceed 90% of consolidated totals. domestic consolidated subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiaries, totaled ¥33,246 million ($281,746 thousand) and ¥24,530 million or 16.6% and 13.5% of the consolidated net sales for the years ended March 31, 2007 and 2006, respectively. Overseas sales, which include exports of the Company and its
17. Subsequent Event
The following appropriations of retained earnings of the Company were approved at a shareholders' meeting held on June 28, 2007:

Report of Independent Auditors
The Board of Directors Furukawa Co., Ltd. We have audited the accompanying consolidated balance sheets of Furukawa Co., Ltd. and consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements of incorne and cash flows for the years then ended, changes in the net assets for the year ended March 31, 2007 and shareholders' equity for the year ended March 31, 2006, all expressed in yen. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Furukawa Co., Ltd. and consolidated subsidiaries as of March 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2007 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 4. June 28, 2007
(As of March 31, 2007)

Directors and Auditors (As of June 28, 2007)
Company Name: Furukawa Co., Ltd. Head Office: 2-3, Marunouchi 2-chome, Chiyoda-ku, Tokyo 100-8370, Japan TEL: +81-3-3212-6570   FAX: +81-3-3212-6578 Date of Foundation: August 1875 Date of Establishment: April 1918 Number of Shares Authorized: 800,000,000 shares Number of Shares Outstanding: 404,455,680 shares Stock Exchange Listing: Tokyo, Osaka Securities Code Number: 5715 Employees: Consolidated 2,279; Non-consolidated 206 Stock Transfer Agent: The Chuo Mitsui Trust and Banking Company, Limited 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan Composition of Shareholders: URL: http://www.furukawakk.co.jp/e_index.html
Executive  Officers (As of June 28, 2007)

FURUKAWA CO.,LTD. 2–3, Marunouchi 2–chome, Chiyoda–ku, Tokyo 100-8370, Japan