Annual Report 2007 for the Year Ended March 31, 2007 Annual Report 2007 Dowa Holdings Co., Ltd

Dowa Holdings Co., Ltd.

oaHlig oLtd Co Holdings Dowa

nulRpr 200 Report Annual

Jump up to the New Stage

Environmental Nonferrous Metals Management & Electronic Materials Metal Processing Heat Treatment Recycling

Become the No.1 in the Five Core Businesses

Intensive Investments in the Five Core Businesses

Accelerating Overseas Expansion

Technology-oriented Company

Moving to the New Stage

Annual Report 2007 For the year ended March 31, 2007 Annual Report 2007 Dowa Holdings Co., Ltd.

Profile

The Dowa Group is engaged in a wide range of activities to supply materials and provide services that underpin modern lifestyles. Our business segments include Nonferrous Metals, Environmental Management & Recycling, Electronic Materi- als, Metal Processing and Heat Treatment. We have faced great changes and countless trials since being established in 1884, but we have overcome all such challenges through refusing to be afraid of change and placing a priority on technology. This legacy is demonstrated in the “Business Structure Reforms Plan” we commenced in 2000, and is the driving force behind our “Dismantle and Rebuild” strategy and position as a “Technology-oriented Company.” In the fiscal year ended March 31, 2007, we converted to a holding company structure to realize greater management speed, autonomy, specialization, and agility of business divisions. The resulting structure comprises five operating companies under Dowa Holdings Co., Ltd. The fiscal year under review also marked the first year of our new medium-term management plan, Business Structure Reform Plan III, and the results of the plan during this fiscal year are detailed in this Annual Report.

Contents

1 Financial Highlights 24 Environmental Preservation Activities 2 Message from the Management 25 Dowa’s Network of Environmental 3 Become the No.1 in Operations & Recycling the Five Core Businesses 26 Corporate Governance 5 Intensive Investments in 27 Board of Directors and Officers the Five Core Businesses 28 Financial Section 7 Accelerating Overseas Expansion 28 Consolidated 11-Year Summary Technology-oriented Company 30 Financial Review 9 Moving to the New Stage through 34 Consolidated Balance Sheets the Adoption of a Holding 36 Consolidated Statements of Income Company System 37 Consolidated Statements of 12 At a Glance Changes in Net Assets 14 Business Review and Outlook 38 Consolidated Statements of 14 Dowa Metals & Mining Co., Ltd. Cash Flows [Nonferrous Metals] 39 Notes to Consolidated 16 Dowa Eco-System Co., Ltd. Financial Statements [Environmental Management & Recycling] 51 Report of Independent Auditors 18 Dowa Electronics Materials Co., Ltd. [Electronic Materials] 52 Global Network 20 Dowa Metaltech Co., Ltd. 53 Subsidiaries and Affiliates [Metal Processing] 54 Corporate History 22 Dowa Thermotech Co., Ltd. 55 Corporate Data [Heat Treatment] Dowa Holdings Co., Ltd. Annual Report 2007

Financial Highlights Years ended March 31 Thousands of Millions of Yen U.S. Dollars*1 2007 2006*2 2007 For the Year: Net Sales ...... ¥458,701 316,388 $3,885,650 Operating Income ...... 48,733 36,897 412,821 Ordinary Income ...... 49,717 33,177 421,158 Net Income ...... 26,337 14,532 223,103 Net Cash Provided by Operating Activities ...... 13,700 17,783 116,057 At Year-end: Net Assets ...... 141,276 114,869 1,196,749 Total Assets ...... 352,299 303,029 2,984,321 Interest-bearing Debt ...... 114,757 99,653 972,110 Return on Assets (ROA*3) ...... 15.2% 11.8% 15.2% Capital Expenditures ...... 21,821 12,497 184,848 R&D Expenses ...... 4,384 3,739 37,144

Net Sales Operating Income Ordinary Income (Billions of Yen) (Billions of Yen) (Billions of Yen) 500 50 50

400 40 40

300 30 30

200 20 20

100 10 10

0 0 0 03 04 05 06 07 03 04 05 06 07 03 04 05 06 07

Net Income (loss) Total Assets & ROA*2 (Billions of Yen) (Billions of Yen) 30 400

25 15.2% 300 20

15 200 10

5 100

0 03 04 05 06 07 03 04 05 06 07

*1 The U.S. dollar amounts included herein represent translations, using the approximate exchange rate at March 30, 2007 of ¥118.05=US$1, solely for convenience. *2 Effective from the year ended March 31, 2007, Dowa has applied “Accounting Standard for Presentation of Net Assets in the Balance Sheet.” (Accounting Standards Board of Japan, December 9, 2005, Statement No. 5) and the consolidated financial statements for the year ended March 31, 2006 have been reclassified to reflect this Accounting Standard. *3 ROA is Ordinary Income divided by average of Total Assets.

1 Annual Report 200707 DOWA Dowa HOLDINGS Holdings Co.,CO., Ltd. LTD.

Message from the Management

MASAKI KOHNO President and Representative Director

2 Dowa Holdings Co., Ltd. Annual Report 2007

In the fiscal year ended March 31, 2007, the Dowa Group shifted to a come of ¥49.7 billion, up ¥16.5 billion, and net income of ¥26.3 billion, holding company system to build a solid business foundation that is not up ¥11.8 billion. Operating income, ordinary income, and net income all easily influenced by market prices for metals. In addition to reorganizing reached record highs. our existing core businesses into five operating companies, we also In the reform of our asset structure, we strove to promote business launched a new medium-term management plan called Business Structure selection and concentration, industry alliances, through cost reductions Reform Plan III, which aims to generate results by the end of March 2009. at manufacturing sites, and enhanced productivity. These measures to The plan’s slogan is “Jump up to the New Stage”: Achieve Higher Reform maximize use of assets allowed ROA to rise to 15.2% from 11.8% in the Objectives and Embrace the Challenge of Uncharted Territory. During the previous fiscal year. three years of this plan, we will promote a variety of measures. For example, we plan to aggressively invest ¥80 billion in the construction of Become the No.1 in new plants and M&As, spend ¥15 billion on research and development in the Five Core Businesses high-value-added fields, as well as reforming our earnings structure and It gives us great pleasure to be able to report these achievements to our restructuring our assets. shareholders. At the same time, we believe they prove that the business restructuring undertaken by the Group as a whole has produced strong Overview of March 2007 Fiscal Year results. We will seize this opportunity to carry out even greater mea- In the fiscal year ended March 31, 2007, our operating environment was sures this fiscal year in order to solidify our operations in the domestic favorable. As in the previous fiscal year, a steep rise in metal prices con- market and jump up to the new stage. We will promote plans for a shift tinued to have a favorable impact, with the price of copper reaching an in operations at Kosaka Smelting & Refining Co., Ltd., expansion work at annual average of 316 cents per pound. In addition, Dowa benefited from the environmental management company Eco-System Chiba Co., Ltd., increased demand from a robust automobile industry and IT-related in- mergers and acquisitions in rolled copper operations from Yamaha Cor- dustries. We are also steadily achieving the medium-term management poration, the joint venture with Tokuyama Corporation, the start-up of plan targets, with all business divisions proceeding smoothly with the the nitride semiconductor plant, the construction of a new heat treat- earnings structure reforms called for by the plan. ment plant in the Kanto region, and the establishment of new compa- As a result, in the fiscal year ended March 31, 2007, we reported nies in Thailand engaging in rolled copper operations and heat treatment consolidated net sales of ¥458.7 billion, a year-on-year increase of ¥142.3 operations. Through these endeavors, we aim to ensure that each oper- billion, operating income of ¥48.7 billion, up ¥11.8 billion, ordinary in- ating company becomes the number one player in its respective market.

Medium-term Management Plan (Fiscal years ending March 2007 through March 2009): Business Structure Reform Plan III Slogan ■ Maximize collective strengths by drawing on “centrifugal” (autonomy “Jump up to the New Stage”: Achieve Higher Reform Objectives and and progress by forming internal companies) forces and “centripetal” Embrace the Challenge of Uncharted Territory (sharing of corporate resources) forces Management Policies Management Targets for March 2009 Fiscal Year ■ “Technology-oriented Company,” “Speed,” “Dismantle and Rebuild” Ordinary Income ¥40 billion ■ Adhere to social norms and conduct business activities in a fair Investment ¥80 billion (over 3 years) manner Operating Cash Flow ¥100 billion (3 years) ■ Take on the challenge of entering unexplored fields by leveraging R&D Expenditure ¥15 billion (3 years) the Company’s human resources ROA* 13% Basic Policies *ROA is Ordinary Income divided by Total Assets at the fiscal year-end. ■ Build a highly efficient and profitable company by “Selection and Concentration” Main Assumptions (March 2009 Fiscal Year) ■ Make intensive investments in core businesses and take on the chal- Exchange rates: ¥/$100, Copper: ¢/lb120, Zinc: $/t1,000, Indium: $/kg700 lenge of business expansion Dowa Holdings is projecting effectively lower net sales and earnings for the year ■ ending March 31, 2009 based on the above assumptions for exchange rates and Create industry-leading businesses by leveraging technical expertise metal prices. and excellence in product quality and management 3 Annual Report 2007 Dowa Holdings Co., Ltd.

Start-up of New Nitride Semiconductor Plant for Next-generation Devices (Dowa Semiconductor Akita Co., Ltd.)

Dowa Semiconductor Akita’s nitride semiconductor plant (in Akita, Akita Prefecture) entered operation in February 2007. Nitride semiconductors can operate in high heat radiation and high temperature conditions, and can emit light in short wavelengths ranging from ultraviolet to blue light. They are expected to be used in inverters for hybrid vehicles, next-generation base stations for mobile phones, devices for switching supplies, and white LED illumination. Stage 2 of the construction project is scheduled to be completed as early as fiscal 2007, and the Dowa Group is aiming for sales of over ¥10 billion for nitride semiconductors alone.

4 Dowa Holdings Co., Ltd. Annual Report 2007

Intensive Investments in the Five Core Businesses Nonferrous Metals Construction of new type of furnace exclusively for refining by Kosaka Smelting & Refining Co., Ltd. To further strengthen the metal recycling business in Kosaka Smelting & Refining Co., Ltd. (Kosaka, Akita Prefecture) that DOWA has focused on for some time, we began building a new type of furnace that optimizes the treatment of recyclable materials by investing approximately ¥12 billion in 2006. Full-scale operation is slated to commence around 2008 following completion and a period of trial operation.

Environmental Management & Recycling Construction of Eco-System Chiba Co., Ltd.’s new incinerator To boost the treatment capacity of Eco-System Chiba Co., Ltd. (Sodegaura, Chiba Prefecture), Dowa’s waste treatment base in the Kanto area, we started to construct a new incinerator with a daily treatment capacity of 600 tons. Completion is scheduled for October 2008, and once it is completed, the overall Dowa Group is projected to have an annual waste treatment capacity of one million tons.

Electronic Materials Construction of nitride semiconductor plant Dowa Semiconductor Akita Co., Ltd. (Akita, Akita Prefecture), the manufacturing base of Dowa’s semiconductor operations, has constructed a new nitride semiconductor manufacturing plant (completed in February 2007). Nitride semiconductors are used in such applications as hybrid vehicles and next-generation base stations for mobile phones, and they are expected to grow into a large market. As a result, we will substantially expand our product lineup in combination with gallium arsenide semiconductors, a market in which we already hold the leading share.

Metal Processing Established copper alloy processing and sales subsidiary in Thailand and started construction of plant As part of the global expansion of the metal processing business, in October 2006, Dowa Metaltech Co., Ltd. established Dowa Metaltech (Thailand) Co., Ltd., a copper alloy processing and sales subsidiary, in Thailand. Among the various countries in Southeast Asia, the development of the automobile industry is particularly remarkable in Thailand. We also embarked on the construction of a plant that is scheduled for completion in summer 2007. In the future, the Dowa Group aims to build a global supply network, with Thailand as the core base, and to expand business throughout the entire Asian region.

M&As and alliances August 2006 Acquired Cemm Co., Ltd. (Nagoya, Aichi Prefecture), a heat treatment processing and industrial furnace manufacturing company February 2007 Established Tokuyama-Dowa Power Materials Co., Ltd., a joint venture for the manufacture and sale of aluminum nitride (AIN) substrates, with Tokuyama Corporation, the world’s largest manufacturer of aluminum nitride powders (mass production scheduled to begin in spring 2008) March 2007 Reached a basic agreement with Yamaha Corporation on the transfer of 90% of the outstanding shares of Yamaha Metanix Corporation (Iwata, Shizuoka Prefecture) and 50% of the outstanding shares of Yamaha-Olin Metal Corporation (Iwata, Shizuoka Prefecture). Yamaha Metanix manufactures copper alloy materials and Yamaha-Olin Metal handles the sale of these products. (Stock transfer scheduled for end of September 2007)

5 Annual Report 2007 Dowa Holdings Co., Ltd.

8th Conference of the Parties to the Basel Convention

In November 2006, Dowa Eco-System Co., Ltd., the environmental management and recycling company in the Dowa Group, the Secretariat of the Basel Convention, and Japan’s Ministry of the Environment reached agreement to promote a project for the collection and recycling of used mobile phones in three Southeast Asian countries (Thailand, Malaysia, and Singapore). The Basel Conven- tion is an international convention on the control of transboundary movements of hazardous wastes. We are creating and using on trial a scheme to collect used mobile phones in the three countries concerned, export them to Japan, and recycle them appropriately at Dowa’s Kosaka smelting and refining facility.

6 Dowa Holdings Co., Ltd. Annual Report 2007

Heat Treatment Construction of new manufacturing bases in Japan In the heat treatment industry, where competition is intensifying year by year, to solidify our top share of the Japanese market, we acquired land for new plants in the Kanto region (Ota, Gunma Prefecture) and the Chukyo region (Seki, Gifu Prefecture) in the fiscal year ended March 31, 2007. We have already started to build a plant in the Kanto region that is slated to be completed and start operation in 2007. To strengthen our business foundation in Japan and overseas, we will actively promote the reinforcement of existing bases and the establishment of new bases.

[common] Pursuit of aggressive M&As and alliances aimed at business reinforcement We will allocate the total investment of ¥80 billion over three years provided for in the Business Struc- ture Reform Plan III, not only to reinforce existing bases and establish new ones, but also to pursue aggressive M&As and alliances aimed at bolstering each business.

Accelerating Overseas Expansion In 2003, the Dowa Group started out by being the first Japanese company to set up an environmental management and recycling company in Suzhou, Jiangsu Province, China with the establishment of Dowa Environmental Management Co., Ltd. In 2006, we then set up an operating base in Singapore, followed by another in Taiwan in 2007, as we steadily built a framework to cover every part of East Asia and Southeast Asia. As Dowa’s Kosaka Plant has complex ore processing technologies cultivated over a long period of time, it has a rare presence in the world. It is not only capable of handling varied materials for recycling, but can also recycle 16 types of metal resources. Expanding this cross-border recycling network centered on the Kosaka Plant and increasing recycling volume will surely lead to the resolution of resource and environmental problems in Japan and other Asian countries. Especially for Japan, which relies almost entirely on foreign countries for resources, this should lead to the further enhancement of its status as a world-leading manufacturing country. Thus, to fulfill its mission in the nonferrous smelting and refining industry, namely, the stable supply of materials, the Dowa Group aims to create a society that can permanently make effective use of limited resources while widely broadcasting these strongly felt intentions in various forms.

Technology-oriented Company “Technology-oriented Company” is a slogan that Dowa Holdings has consistently advocated as a management policy for the business restructuring that started in 2000. We are undertaking the following basic strategies to achieve our aim of being a high-level technology-oriented company capable of com- peting on the global stage.

7 Annual Report 2007 Dowa Holdings Co., Ltd.

Cooperation between Industry and Academia

The Dowa Group is vigorously promoting cooperation between industry and academia by building up technical and personnel exchanges with universities in locations throughout Japan in various fields and at various levels. In the fiscal year ended March 31, 2007, we concluded new comprehensive collaboration agreements with Tohoku University and Kumamoto University. Going forward, we will particularly expand the themes of joint research and consigned research to develop new businesses and new products, and foster world-class businesses and products. Furthermore, by promoting cooperation through the combination of industry and academia’s mutual research results and technological capabilities, we will strive to promote academic research and contribute to society.

8 Dowa Holdings Co., Ltd. Annual Report 2007

Basic strategies • Target products and businesses where quality is the key •Achieve differentiation through original technologies and enhance added value in businesses and products •Improve the abilities of the entire group through the cultivation of professional human resources

Measures to create a technology-oriented company • On-site reinforcement: Implement measures and support relating to training centers, standardization, autonomous improvement and bottom-up development, and strengthen environmental initiatives • New development: Augment research and planning functions and promote use of external resources such as universities • Construction investment: Reinforce systems in production and technology departments to decisively complete large-scale investments •Cross-functionality: Establish project coordination capabilities that transcend the boundaries of operating companies • Human resource development: Develop engineers and create a system to foster leaders Dowa plans to invest a total of ¥15 billion in R&D over three years under the Business Structure Reform Plan III. To ensure future development, we will carry out aggressive investment and R&D in areas where we are competitive. We will invest in R&D in each of our five operating companies to ensure they outrival their competitors. However, in particular, we will allocate almost half of total investment to the rapid launch of next-generation mainstay products and new businesses in the Electronic Materials segment. We will also engage in strategic and effective promotion of industry-academia cooperation with universities in various locations throughout Japan, to improve basic research and strengthen development capabilities for new technologies that will form the basis of next-generation products and businesses. We aim to grow into a truly excellent company. Being a technology-oriented company is a major key to the success of this aim.

Moving to the New Stage through the Adoption of a Holding Company System Dowa previously carried out its business operations based on an operating division system and 10.3% 20.7% then an in-house company system. However, to further accelerate management decision-making, ensure 6.9% the autonomy of operating divisions, and enhance specialization and speed, we have changed to a Breakdown of holding company system. We have separated operating divisions into independent group compa- 13.8% R&D Expenditure nies and as a holding company; the parent company will carry out the specialist function of ensuring

48.3% Technology-oriented company: a company where technological capabilities drive high earnings and growth ■ Nonferrous Metals ■ Environmental Management & Recycling The objective of a technology-oriented company: ■ Electronic Materials to minimize the cost of all products while maintaining world-leading optimal quality ■ Metal Processing ■ Heat Treatment

9 Annual Report 2007 Dowa Holdings Co., Ltd.

Cemm Co., Ltd.

As part of the reinforcement of the heat treatment business, in August 2006, Dowa acquired all of the shares of Cemm Co., Ltd. (Aichi Prefecture), which is engaged in metal heat treatment and processing and the manufacture of industrial furnaces. Cemm was founded more than 80 years ago. It has won particularly high acclaim for its plasma nitride processing, which is compatible with a broad range of applications, such as auto parts, precision components, and various metal molds, and its gas nitride processing, which is suitable for small articles produced in large quantity. We expect collaboration with Dowa’s existing bases to contribute to the expansion of this business.

10 Dowa Holdings Co., Ltd. Annual Report 2007

optimal allocation of management resources across the entire group. Through these measures, we aim to maximize corporate value based on sustained growth as an entire group. • Corporate name changed from Dowa Mining Co., Ltd. to Dowa Holdings Co., Ltd. •Separation into five companies (five core operating companies): Nonferrous Metals ➔ Dowa Metals & Mining Co., Ltd. Environmental Management & Recycling ➔ Dowa Eco-System Co., Ltd. Electronic Materials ➔ Dowa Electronics Materials Co., Ltd. Metal Processing ➔ Dowa Metaltech Co., Ltd. Heat Treatment ➔ Dowa Thermotech Co., Ltd.

Through business structural reforms from April 2000, we endeavored to create a durable corporate structure based on “Selection and Concentration” and establish a solid earnings base supported by four core businesses: Nonferrous Metals, Environmental Management & Recycling, Electronic Materials & Metal Processing, and Heat Treatment. These measures smoothly and steadily produced successful results. In April 2006, we then launched a new three-year medium-term management plan called Business Structure Reform Plan III. Based on the plan’s slogan “Jump up to the New Stage”: Achieve Higher Reform Objectives and Embrace the Challenge of Uncharted Territory, we set out a vision for further rapid growth. Business Structure Reform Plan III incorporates more aggressive and bolder measures than before, and its aim is for each business to overcome competition in Japan and overseas as a frontrunner in its respective market. We regard the move to a holding company structure in October 2006 as an important measure in realizing the high-level targets of Business Structure Reform Plan III. The five operating companies will assess customers’ needs more sensitively on the frontlines of the markets in which they operate, carry out swift decision-making based on greater authority, and perform flexible and bold management of business operations in line with the characteristics of each business. Furthermore, the holding company will display its strategic function and leverage management resources such as personnel, technologies, and funds across businesses in a flexible manner. In this way, we aim to maximize the total corporate value of the group, and combine the group’s overall strengths.

OPERATING COMPANIES Dowa Metals & Mining Co., Ltd. HOLDING COMPANY Dowa Eco-System Co., Ltd. 100% ownership Dowa Holdings Co., Ltd. Dowa Electronics Materials Co., Ltd. (New name of Dowa Mining Co., Ltd.) Dowa Metaltech Co., Ltd. Dowa Thermotech Co., Ltd.

BUSINESS SUPPORT COMPANIES Dowa Technology Co., Ltd. Dowa Management Service Co., Ltd.

11 Annual Report 2007 Dowa Holdings Co., Ltd.

At a Glance Years ended March 31

Net Sales (Billions of Yen) Operating Income (Billions of Yen)

Net Sales by Segment Nonferrous Metals 300 30 6% Dowa Metals & 250 25 17% Mining Co., Ltd. 200 20 Gold, silver, copper, zinc, lead, zinc alloys, 150 15 12% 2007 60% platinum, palladium, indium, bismuth, tellurium, sulfuric acid 100 10 50 5 16% 0 0 03 04 05 06 07 03 04 05 06 07 ■ Others: -11%

80 10 Operating Income Environmental Management & 70 Recycling 8 by Segment 60 1% Dowa Eco-System Co., Ltd. 50 6 40 7% Waste treatment, soil remediation, metal recycling, consulting, landfill facilities, 30 4 9% logistics 20 2 14% 10 2007 52% 0 0 03 04 05 06 07 03 04 05 06 07 16%

Electronic Materials 60 8 7 50 Ordinary Income Dowa Electronics 6 40 by Segment Materials Co., Ltd. 5 Compound semiconductor wafers, light-emitting diodes, 30 4 3% high-purity rare metals such as gallium and indium, 3 conductive powders such as copper powders, 20 2 7% silver powders, silver oxide powders, metal powders, 10 9% ferrite powders, carrier powders 1 0 0 03 04 05 06 07 03 04 05 06 07 14% 2007 51%

16% Metal Processing 100 5 Dowa Metaltech Co., Ltd. 80 4 Copper, brass, and copper alloy strips, 60 3 Total Assets by Segment strip electroplating, brass rods, forged brass products, metal-ceramic substrates, electroplated products 40 2

17% 20 1

8% 39% 0 0 2007 03 04 05 06 07 03 04 05 06 07 14%

30 4 10% 12% Heat Treatment 25 Dowa Thermotech Co., Ltd. 3 Various types of heat treatment, 20 ■ Nonferrous Metals various types of surface treatment, 15 2 ■ Environmental Management & design, manufacture, marketing, Recycling and maintenance of various types of heat treatment 10 ■ Electronic Materials equipment and ancillary equipment 1 ■ Metal Processing 5 ■ Heat Treatment 0 0 ■ Others 03 04 05 06 07 03 04 05 06 07

12 Dowa Holdings Co., Ltd. Annual Report 2007

Ordinary Income (Billions of Yen) Total Assets (Billions of Yen) Highlights

30 160 ■ Construction of new furnace for recyclable materials treatment at Kosaka Smelt- 140 ing & Refining Co., Ltd., scheduled for completion during the year ending March 25 120 31, 2008 20 100 ■ Achieved leading share of Japanese electrolytic zinc market by increasing equity 15 80 interest in Akita Zinc Co., Ltd. 60 ■ Put in place a system for recovering 150 tons of indium per year from indium tin 10 40 oxide (ITO) scrap at Akita Rare Metals Co., Ltd. 5 20 ■ Began construction of new furnace at Onahama Smelting & Refining Co., Ltd. as part 0 0 of a copper refining-related business alliance with Mitsubishi Materials Corporation 03 04 05 06 07 03 04 05 06 07

10 50 ■ Commenced mobile phone collection project in Asia in conjunction with the Sec- retariat of the Basel Convention 8 40 ■ Obtained permission for construction of new facility to enhance waste treatment

6 30 capacity at Eco-System Chiba Co., Ltd. ■ In the soil remediation business, obtained patent for an original remediation 4 20 method using iron powder, and introduced on-site soil remediation plants ■ Boosted capacity for processing automobile shredder residue by 50% at Eco- 2 10 System Okayama Co., Ltd. 0 0 ■ Strengthened recycling business, and soil surveying and processing business over- 03 04 05 06 07 03 04 05 06 07 seas by establishing offices in Taiwan and Singapore

8 60 ■ Completed construction of plant to manufacture nitride semiconductors for next- 7 generation devices at Dowa Semiconductor Akita Co., Ltd. 50 6 ■ Commercialized ultrafine particle metal powders compatible with high-capacity 40 5 data storage tapes 4 30 ■ Boosted production capacity of carrier powder 3 ■ Established the New Business Promotion Dept. to accelerate the commercializa- 20 2 tion of new business themes 10 1 0 0 03 04 05 06 07 03 04 05 06 07 (1)

5 60 ■ Reached basic agreement with Yamaha Corporation on acquisition of stock of copper alloy manufacturing and sales companies 50 4 ■ Established copper alloy processing and sales subsidiary in Thailand 40 ■ 3 Increased production capacity at Dowa Metal Co., Ltd. by upgrading heating fur- 30 naces and other equipment 2 ■ Established joint venture company with Tokuyama Corporation, Tokuyama-Dowa Power 20 Material Co., Ltd., for the manufacture and sales of materials for ceramic substrates 1 10 ■ Constructed new building at Dowa Hightech Co., Ltd. to expand electroplating 0 0 lines. Three new electroplating lines installed. 03 04 05 06 07 03 04 05 06 07 (2)

4 30 ■ Acquired Cemm Co., Ltd., a provider of heat treatment services and manufacturer of industrial furnaces 25 3 ■ Acquired land for construction of new plants in the Kanto region (Gunma Prefec- 20 ture) and Chukyo region (Gifu Prefecture) 2 15 ■ Made decision to establish new company in Thailand. Plan to commence operation of factory for consigned processing and after-sales service for heat treat- 10 1 ment furnaces in 2007 5 ■ Developed and began operation of U-TKM, a new type of high-performance, en- 0 0 ergy-saving industrial furnace 03 04 05 06 07 03 04 05 06 07

Notes: (1) Figures prior to the fiscal year ended March 31, 2006 are included in the figures for the previous Electronic Materials and Metal Processing segment in the graph for the Electronic Materials segment. (2) Figures prior to the fiscal year ended March 31, 2006 are for the previous Electronic Materials and Metal Processing segment.

13 Annual Report 2007 Dowa Holdings Co., Ltd.

Business Review and Outlook Year ended March 31, 2007

Nonferrous Metals Dowa Metals & Mining Co., Ltd. President and Representative Director Main products Tetsuo Ohnishi Gold, silver, copper, zinc, lead, zinc alloys, platinum, palladium, indium, bismuth, tellurium, sulfuric acid

Net Sales* Ordinary Income ROA Investment R&D 2009 ¥23.0 billion ¥1.5 billion Target¥98.0 billion ¥10.0 billion 12% (over 3 years) (over 3 years) 2007 Actual ¥276.6 billion ¥25.3 billion 21.2% ¥15.5 billion ¥0.5 billion * Dowa is projecting decreased net sales and ordinary income for fiscal 2008 based on the assumption of falling metal prices. BUSINESS STRUCTURE REFORM PLAN III Become the leader in East Asia in zinc business Increase specialization in recycling operations in precious metals and copper business ■ ZINC AND RARE METALS Reinforce operating base through active investments in areas ranging from raw materials to processing and sales, as well as operational improvements at Akita Zinc Co., Ltd. and elsewhere Become the leader in East Asia in collective capabilities, while fostering a strong awareness of the competition ■ PRECIOUS METALS AND COPPER Develop unique business models linked to environmental businesses Build new processing facilities at Kosaka Smelting & Refining Co., Ltd. and enhance recycling efficiency through such means as reinforcing Japan’s recycling network as well as overseas deliveries of E-Waste ➔ Shift to an operating structure that is not readily susceptible to change in metals prices

Business Environment In the fiscal year ended March 31, 2007, domestic metal prices remained at high levels. This was in an

environment where overseas market prices for copper and zinc reached new record highs in response to

a globally tight supply-demand balance for raw materials and metals and the inflow of speculative

funds. In addition, the yen tended to weaken on foreign exchange markets. In this environment, we

boosted sales of zinc products on the back of robust demand for Japanese automobiles. Although raw

material costs rose, profits grew substantially because we worked to reduce manufacturing, sales, and

logistics costs.

As a result, consolidated net sales in the Nonferrous Metals segment rose 63% year on year to

¥276.6 billion. Consolidated ordinary income jumped 60% to ¥25.3 billion.

14 Dowa Holdings Co., Ltd. Annual Report 2007

PRECIOUS METALS AND COPPER Kosaka Smelting & Refining Co., Ltd. moved forward with the construction of a new type of furnace that optimizes the treatment of recyclable materials, which is scheduled for completion in the fiscal year ending March 2008. Onahama Smelting & Refining Co., Ltd., in which Dowa is invested, embarked on the construction of a new furnace (scheduled completion: year ending March 2008). New furnace for recyclable materials treatment under construction (Kosaka Smelting & We steadily implemented production and marketing measures, such as increasing collection of recy- Refining Co., Ltd.) clable materials, and continued to strive to bolster the precious metals and copper business.

ZINC As Dowa increased its equity interest in Akita Zinc Co., Ltd. from 57% to 81%, electrolytic zinc production capacity increased 104 thousand tons per annum compared to the previous year to 150 thousand tons per annum, helping the company acquire the largest share of the domestic market. In the area of manufacturing, we promoted a reduction in costs by improving capacity utilization. For example, we reduced losses on valuable metals by improving processes at Akita Zinc Co., Ltd. and we concentrated special alloy production at the Iijima plant of Akita Zinc Solutions Co., Ltd. (AZS). Moreover, we investigated the expansion of production at the joint-venture Tizapa mine in Mexico, with the aim of Promoting concentration of production Akita Zinc Solutions Co., Ltd. ensuring a stable source of raw materials (ore).

RARE METALS Dowa increased its capacity for recovering indium from indium tin oxide (ITO) scrap, a business con- ducted by Akita Rare Metals Co., Ltd., and established a system capable of processing 150 tons per annum. We also resumed the recovery of antimony, and plan to start production in 2007. In the platinum group metals (PGM) business, we continued to strive to expand recycled raw materials collection, and we intend to further cultivate the Japanese and North American markets while moving into the European market.

Antimony recovery equipment (Kosaka Smelting & Refining Co., Ltd.)

Dowa Metals & Mining Co., Ltd. Strategic Planning Dept. Resource Development & Mexico Office Raw Materials Dept. Vancouver Office Bolivia Office Precious Metal & Copper Business Unit Rare Metal Business Unit Zinc Business Unit Metallurgical Laboratory

15 Annual Report 2007 Dowa Holdings Co., Ltd.

Environmental Management & Recycling Dowa Eco-System Co., Ltd. President and Representative Director Main products and services: Masao Yamada Waste treatment, soil remediation, metal recycling, consulting, landfill facilities, logistics

Net Sales Ordinary Income ROA Investment R&D 2009 ¥21.0 billion ¥1.0 billion Target¥66.0 billion ¥10.0 billion 23% (over 3 years) (over 3 years) 2007 Actual ¥74.7 billion* ¥8.0 billion 20.1% ¥2.5 billion ¥0.3 billion * Current metal prices are higher than those of target. BUSINESS STRUCTURE REFORM PLAN III Become a leading company in East Asia ■ WASTE TREATMENT Aim for further business expansion as a leading company in the waste treatment business by increasing capacity at existing treatment facilities and augmenting treatment networks. ■ SOIL REMEDIATION Become a leading company in Japan and the rest of East Asia leveraging a diverse lineup of services covering surveys, consulting and clean-up, as well as reliable technologies ■ RECYCLING Aim to expand business by strengthening operations such as the recycling of precious metals from electronic circuit board scrap and other scrap, recycling of home appliances, and treatment of automobile shredder residue (ASR)

Business Environment In the waste treatment business, demand for the treatment of waste that is difficult to treat and munici-

pal waste increased. This reflected stronger demands by society in general for appropriate treatment

and increased production volumes in strong-performing industries, primarily petrochemicals, chemi-

cals, and electronics. Furthermore, the soil remediation market has also been expanding in response to

growing awareness of the risks of soil contamination. Consequently, while newcomers entered the mar-

ket from other industries, the weeding out of weaker players in the industry also continued for reasons

including some companies leaving the industry. In the recycling business, international competition

over scrap collection intensified in regions such as Europe and the United States due to a steep rise in

metal prices and burgeoning demand in China. In this climate, the volume that we handled increased,

albeit slightly, while processing volume for automobile shredder residue (ASR) also grew.

As a result, consolidated net sales in the Environmental Management & Recycling segment climbed

27% to ¥74.7 billion and consolidated ordinary income rose 31% to ¥8.0 billion.

16 Dowa Holdings Co., Ltd. Annual Report 2007

WASTE TREATMENT Amid the growing tendency among companies to process their industrial waste in-house, the Dowa Eco- System focused on waste that is difficult to treat without advanced technology at four treatment facilities in Akita, Chiba, Okayama, and Kitakyushu. Owing to the treatment of waste with high unit prices and improved capacity utilization as well as an increase in volume received at landfill facilities, group sales in Industrial waste incinerator (Eco-System Sanyo Co., Ltd.) the waste treatment business rose 7% year on year. In addition, we carried out a trial involving the treatment of waste oil containing low-density polychlorinated biphenyls (PCBs) at Eco-System Akita Co., Ltd. and Kowa Seiko Co., Ltd. In March 2007, Eco-System Chiba Co., Ltd. acquired approval to construct a new incinerator, and we are aiming for total group-wide processing capacity of 1 million tons per year after the completion of this facility in the fiscal year ending March 2009.

SOIL REMEDIATION To overcome intensifying competition in the midst of a growing market driven by vigorous land transactions and an increase in autonomous management projects, Dowa endeavored to bolster treatment volume at our soil remediation facility which has the biggest capacity in Japan. In the fiscal year ended March 2007, we introduced on-site soil remediation plants with purification capacity of 10 tons per hour and we acquired a patent for our unique purification method that utilizes iron powder. In addition to these on-site treatment technologies, we developed our marketing network by opening an office in Taiwan in April 2007, and we aim to expand orders aggressively in overseas markets such as On-site soil remediation plant South Korea and Taiwan, where growth is projected.

METAL RECYCLING Competition for delivery of recyclable materials is becoming increasingly fierce on a global scale. How- ever, to bolster the collection of recyclable raw materials for Kosaka Smelting & Refining Co., Ltd.’s new furnace, which is scheduled for completion in the fiscal year ending March 31, 2008, the Dowa Eco- System carried out such measures as establishing collection bases in Singapore and Taiwan. Moreover, as part of endeavors to realize the international circulation of resources, we initiated a project to collect mobile phones in certain Asian countries in conjunction with the Secretariat of the Basel Convention and Signing ceremony for Asian mobile phone collection project a project to collect small home appliances in Odate, Akita Prefecture. In the fiscal year ending March 31, 2008, we will also step up initiatives to handle diverse recycling demand. For example, we will expand the hydro-metallurgical processing base in Akita Prefecture.

Dowa Eco-System Co., Ltd. Strategic Planning Dept. Environmental Protection Laboratory Taiwan Office Waste Management Business Unit Soil Remediation Business Unit Nagoya Office Sales Dept. Osaka Office Sales Dept.

Recycling Business Unit Nagoya Office Sales Dept. Logistics Business Unit Environmental Solution Dept.

17 Annual Report 2007 Dowa Holdings Co., Ltd.

Electronic Materials Dowa Electronics Materials Co., Ltd. President and Representative Director Main products: Fumitoshi Sugiyama Compound semiconductor wafers, light-emitting diodes, Executive Vice President and high-purity rare metals such as gallium and indium, Representative Director conductive powders such as copper powders, Akira Otsuka silver powders, silver oxide powders, metal powders, ferrite powders, carrier powders

Net Sales Ordinary Income ROA Investment R&D 2009 ¥7.0 billion ¥7.0 billion Target¥50.0 billion ¥9.0 billion 26% (over 3 years) (over 3 years) 2007 Actual ¥56.3 billion ¥6.7 billion 22.7% ¥4.3 billion ¥2.7 billion

BUSINESS STRUCTURE REFORM PLAN III Drive growth by aggressively investing in priority fields and developing new business ■ SEMICONDUCTORS Expand lineups of red LEDs (for medical sensors, etc.), infrared LEDs (for IrDAs, etc.), and other products, while aggressively investing in and developing new businesses such as nitride semiconductors ■ ELECTRONIC MATERIALS Expand business by concentrating on priority products such as silver powder and indium oxide ■ MAGNETIC MATERIALS Launch higher value-added metal-powder products for computer backup tapes and rapidly establish new businesses

Business Environment Although the Electronic Materials segment was adversely influenced by customers’ inventory adjust-

ments and demand was stagnant for some products, IT-related demand, including demand for digital

consumer electronics and mobile phones, was generally robust. As metal prices were at high levels, sales

increased, but raw material costs also rose, which put pressure on earnings.

As a result, consolidated net sales in the Electronic Materials segment rose 11% year on year to

¥56.3 billion. Dowa strove to expand sales of products in strong demand and boost sales of high-

value-added products while strongly promoting cost cutting through the enhancement of efficiency

in manufacturing processes. As a result, ordinary income in the division increased 6% to ¥6.7 billion.

18 Dowa Holdings Co., Ltd. Annual Report 2007

SEMICONDUCTORS Demand in the digital consumer electronics market was robust, and sales volume for gallium arsenide wafers and LEDs, which are used in digital consumer electronic components, increased. Dowa also boosted sales of high-purity gallium, a raw material for gallium arsenide wafers. We will strengthen raw material procurement and recycling and build an organization that can also cope with increased Nitride semiconductor plant (Dowa Semiconductor Akita Co., Ltd.) demand going forward. Dowa’s subsidiary Dowa Semiconductor Akita Co., Ltd. completed the construction of a nitride semiconductor plant for next-generation devices. Supported by this new plant, we will promote improvements in quality, reductions in costs, and volume production that fulfill market needs, and we will endeavor to further open and expand markets.

ELECTRONIC MATERIALS Products such as spherical silver powders used in plasma display panels (PDPs), copper powders and silver oxide powders recorded sales growth. As the market for spherical silver powder used in PDPs is projected to continue to expand, we will endeavor to improve the performance of our products and cut costs in order to strengthen our competitiveness. As the market for existing products is subject to fierce competition and drastic change, we aim to maintain and expand earnings by responding flexibly to market trends. In addition, we will actively promote investment in new product development to secure earnings and expand business fields in the future. Expanded silver powder plant (Dowa Hightech Co., Ltd.)

MAGNETIC MATERIALS Among metal powders, products for digital tapes performed well and posted sales and profit growth. Dowa commercialized ultrafine particle metal powders that were compatible with high-capacity backup tapes, and will continue to further promote research and development relating to next-generation products and products in the subsequent generation. For carrier powders, aggressive model changes by pho- tocopier manufacturers demands the development of new products and an improvement in productivity. Carrier powder (Dowa IP Creation Co., Ltd.) We aim to seize this business opportunity and respond swiftly to these needs.

Dowa Electronics Materials Co., Ltd. Strategic Planning Dept. Semiconductor Business Unit Osaka Office Sales Dept. Kyushu Office Sales Dept. Semiconductor Materials Laboratory Advanced Fine Materials Osaka Office Sales Dept. Business Unit Electronics Materials Laboratory Magnetic Materials Laboratory New Business Promotion Dept.

19 Annual Report 2007 Dowa Holdings Co., Ltd.

Metal Processing Dowa Metaltech Co., Ltd. President and Representative Director Main products: Yukio Ishibashi Copper, brass, and copper alloy strips, strip electroplating, brass rods, forged brass products, metal-ceramic substrates, electroplated products

Net Sales Ordinary Income ROA Investment R&D 2009 ¥21.0 billion ¥2.0 billion Target¥55.0 billion ¥6.0 billion 14% (over 3 years) (over 3 years) 2007 Actual ¥78.0 billion* ¥4.3 billion 10.5% ¥5.3 billion ¥0.4 billion * Current metal prices are higher than those of target. BUSINESS STRUCTURE REFORM PLAN III Expand business and establish a stronger global presence through aggressive investments ■ METAL PROCESSING Shift further emphasis to value-added products by expediting capital investments Cement a leading position as a top supplier of materials for automotive connectors ■ ELECTROPLATING Expand business by constructing new electroplating lines Develop technologies in value-added fields

Business Environment In the fiscal year ended March 31, 2007, amid high gasoline prices and a depreciating yen, Japanese cars

became increasingly popular overseas, supported by the promotion of their high fuel efficiency, while

demand for auto parts used in finished cars for export and locally manufactured cars was at a high level.

Consequently, high-performance copper alloys and electroplated products, which are used in cars as

automotive connectors, recorded an increase in sales. In addition, a rise in metal prices pushed up selling

prices, leading to a substantial increase in sales.

As a result, consolidated net sales in the Metal Processing segment rose 56% to ¥78.0 billion. We also

strove to maintain earnings by increasing sales of mainly high-value-added products, enhancing produc-

tion yields for various products, and cutting costs. Consequently, ordinary income grew 8% to ¥4.3 billion.

20 Dowa Holdings Co., Ltd. Annual Report 2007

METAL PROCESSING Owing to buoyant car manufacturing conditions, among rolled copper products, high-performance copper alloys with outstanding heat resistance and durability used in automotive connectors and tin reflow plating of the surface of materials posted sales growth. In particular, the volume of tin reflow plating sales surged 16% year on year. Brass rods used in valves in gas equipment and other devices and related Metal-ceramic substrates (Dowa Power Device Co., Ltd.) processed products also saw an increase in sales. Metal-ceramic substrates achieved steady sales growth mainly in the case of products for hybrid cars, which experienced a high level of demand, machine tools and industrial robots. The metal-ceramic substrates business became a business unit as the Thermal Device Business Unit from April 1, 2007.

ELECTROPLATING Sales of precious metal plating grew in response to an increase in the number of installed connectors stemming from the growing adoption of automotive electronics as well as the digitization and multifunctionality of electronic equipment. To cater for burgeoning demand, Dowa constructed a new building exclusively for electroplating and installed three production lines for such processes as nickel plating for mobile phone switches and silver plating for automotive components. We will continue to promote R&D relating to high-performance plating technologies such as plating film that is highly resis- tant to heat and abrasion and continuous processing for difficult-to-plate materials. By fiscal 2008, we New electroplating lines (Dowa Hightech Co., Ltd.) plan to increase the number of lines to 12 (an increase of 50% compared to fiscal 2006 in terms of processing capacity).

OVERSEAS EXPANSION As a second overseas base to follow the one in Shanghai, China, Dowa established Dowa Metaltech (Thailand) Co., Ltd. in October 2006, a subsidiary engaged in the processing and sale of rolled copper products in Thailand. We have taken the lead over our competitors in the industry by introducing a tin reflow plating line in the Southeast Asian region, which is slated to enter operation in the first half of the fiscal year ending March 31, 2008. Even among the countries of Southeast Asia, the development of the automobile industry has been remarkable in Thailand. Moreover, as local procurement of auto parts is also advancing, we will build a three-pronged supply system comprising hubs in Japan, China, and Thailand, with Southeast Asia as the core base. Dowa Metaltech (Thailand) Co., Ltd. (Illustration of completed plant) In the metal-ceramic substrates business, we have deployed staff exclusively for Europe with the aim of fully entering the European market, where a number of power module manufacturers, which are our customers have already established operations.

Dowa Metaltech Co., Ltd. Management & Strategic Planning Dept. Metal Processing Business Unit Hamamatsu Office Sales Dept. Nagoya Office Sales Dept. SCM Center Electroplating Business Unit Nagoya Office Sales Dept. Osaka Office Sales Dept. Thermal Device Business Unit* Nagoya Office Sales Dept. Kyushu Office Sales Dept. Metallic Materials Laboratory * The metal-ceramic substrates business in the Metal-Processing Business Unit became the Thermal Device Business Unit on April 1, 2007.

21 Annual Report 2007 Dowa Holdings Co., Ltd.

Heat Treatment Dowa Thermotech Co., Ltd. President and Representative Director Main products: Mineo Ogino Various types of heat treatment, Executive Vice President and various types of surface treatment, Representative Director design, manufacture, marketing, Katsuya Yukitake and maintenance of various types of heat treatment equipment and ancillary equipment

Net Sales Ordinary Income ROA Investment R&D 2009 ¥7.0 billion ¥3.0 billion Target¥30.0 billion ¥5.0 billion 20% (over 3 years) (over 3 years) 2007 Actual ¥27.0 billion ¥3.5 billion 15.4% ¥5.7 billion ¥0.2 billion

BUSINESS STRUCTURE REFORM PLAN III Expand business through innovations in production technologies and aggressive investments ■ HEAT TREATMENT Strengthen operations by improving productivity and reducing costs Expand domestic market share by making capital investments to increase capacity Overseas, implement new initiatives in North America and Asia ■ INDUSTRIAL FURNACES Bring new products to market through development focused on customer needs Expand business by putting in place a strong overseas sales and maintenance network

Business Environment In heat treatment operations, the consignment of surface treatment services for automotive compo-

nents such as transmissions, which recorded strong exports to North America, grew steadily. The same

applied to the consignment of surface treatment services for construction machinery parts, which expe-

rienced buoyant exports to Asia. In industrial furnace operations, domestic sales remained flat but ex-

ports to North America were robust and exports to China and India also expanded. Nevertheless, sales of

maintenance work remained at the level of the previous fiscal year.

As a result, consolidated net sales in the Heat Treatment segment grew 22% to ¥27.0 billion. Dowa

endeavored to raise processing capacity mainly by expanding facilities, to improve production opera-

tions at new-style, high-performance, energy-saving furnaces, and to reduce costs. Consequently, con-

solidated ordinary income rose 6% to ¥3.5 billion.

22 Dowa Holdings Co., Ltd. Annual Report 2007

HEAT TREATMENT Dowa’s heat treatment services comprise surface treatments provided mainly to enhance the durability of the surfaces of engines, transmissions, and other automotive components. Dowa has possessed an extensive array of processing technologies such as carburizing and nitriding for some time. In August 2006, however, we added such new technologies as plasma nitriding through the acquisition of Cemm Co., Ltd., a heat treatment pro- Plasma nitriding products (Cemm Co., Ltd.) cessing and industrial furnace manufacturing company. This has enabled Dowa to handle even more diverse needs than previously. In fiscal 2006, capital investment centered on the Chukyo Handa Works again proved effective and Dowa captured demand for automotive components and construction machinery parts, which registered buoyant exports. As a result, sales grew 20% year on year. As we will maintain aggressive capital investments, we have acquired sites in Gunma and Gifu prefectures in preparation for the construction of new plants. In addition, we developed and commercialized a new type of high-performance, energy-saving furnace called the U-TKM, which boasts double the productivity of existing furnaces and is able to reduce energy costs by 30%.

INDUSTRIAL FURNACES Dowa manufactures and markets industrial furnaces for heat treatment facilities and provides maintenance services for these furnaces. In addition to industrial furnaces, we contribute to the optimization of customers’ operations through the sale of ancillary equipment and the provision of an extensive range of after-sales services. In fiscal 2006, domestic demand remained flat year on year, but demand from North America was robust and sales to China and India expanded. As a result, sales in this segment grew 10% year on year.

New furnace “U-TKM” (Chukyo Handa Works)

OVERSEAS EXPANSION Dowa increased processing capacity at its U.S. plant by expanding its carburizing furnace facilities and building a new Corvette treatment line. In Thailand as well, where Japanese automobile manufacturers have been establishing operations, we set up an overseas subsidiary to conduct heat treatment and manufacture equipment. In December 2007, we will initiate maintenance services for industrial furnaces, and in 2008, we will expand products produced through processes such as carburizing and carbonitriding.

Corvette treatment line (Dowa THT America, Inc.)

Dowa Thermotech Co., Ltd. Management Group Strategic Planning Dept. Accounting Dept. Environment & Safety Management Dept. Oversea Strategic Planning Dept. Sales Group Sales Strategic Planning Dept. Heat Treating Equipment Sales Dept. Heat Treatment Sales Dept. Manufacturing Group Manufacturing Management Dept. Product Quality Assurance Dept. Procurement Dept. R&D Center Commodities Development Dept. Production Technology Development Dept.

23 Annual Report 2007 Dowa Holdings Co., Ltd.

Environmental Preservation Activities

Dowa takes appropriate steps to control the environmental impact of its business activities. In parallel, the Company provides a comprehensive range of environmental services aimed at helping people to enjoy comfortable lives and realizing the emergence of a truly sustainable society. To this end, Dowa contributes to the improved environmental performance of products by utilizing high-precision smelting technology to promote resource recycling, as well as through the development of high-performance materials and energy-saving furnaces. Other services include environmental risk reduction centered on environmental businesses such as industrial waste management and soil remediation.

BASIC PHILOSOPHY CONDUCT GUIDELINES Dowa’s environmental preservation activities are based on its corpo- (1) The Company shall promote zero emissions and continuously work rate philosophy of “Contributing to society and enriching people’s lives toward lowering the environmental burden. To this end, the entire by remaining an active player in the global community with the effi- Company, every business division, and all affiliates shall establish cient use of management resources.” Dowa’s fundamental guideline their own environmental targets and goals and create an environ- for action regarding the environment is “Give careful regard to pre- mental management system. serving the natural environment and make effective use of resources (2) The Company shall always take into account all aspects of the natural while promoting recycling.” environment (the atmosphere, water, soil, waste, etc.) impacted by its The Company seeks to preserve and live in harmony with the natural business activities. Furthermore, in addition to working to reduce the environment while, at the same time, striving to reduce the environ- environmental impact of its operations, the Company shall periodi- mental impact of its operations and contributing to creating condi- cally review environmental targets and goals and carry out environ- tions that will enable continuous global-scale development. mental audits. Dowa’s environmental preservation activities are as follows: (3) The Company shall strive to obey all laws, rules, and agreements (1) Preventing environmental pollution, conserving resources, and re- related to the natural environment in all of its business activities, ducing the burden on the environment products, and services. (2) Reducing environmental risks to society (4) The Company shall operate its environmental and smelting facilities so as to curtail the environmental risks to society from waste, soil contamination, and other sources. The Company shall also contribute to the goals of preserving the environment, conserving energy, reducing the use of resources, and achieving zero emissions by recycling metals, recovering energy, and using clean energy sources. (5) The Company shall work to enhance the environmental awareness of employees and shall endeavor to live in harmony with regional communities through environmental preservation activities.

DOWA GROUP ACTIVITIES TO REDUCE ENVIRONMENTAL RISKS FACED BY SOCIETY Main Environmental Activities During the Fiscal Year ended March 31, 2007 ■ Nonferrous Metals ■ Metal Processing • Began construction of new furnace for secondary materials treatment at •Increased sales of environmentally friendly materials such as cadmium- Kosaka Smelting & Refining Co., Ltd. (scheduled for completion during free brass rods fiscal 2007) ■ Heat Treatment ■ Environmental Management & Recycling • Developed a new type of high-performance, energy-saving furnace that • Obtained permission for construction of new waste processing incinera- doubles productivity and reduces energy costs by 30% compared to ex- tor at Eco-System Chiba Co., Ltd. isting furnaces ■ • Introduced on-site soil remediation plants Others • Cultivation of forests at former mining sites in Kosaka area (planted around • Commenced used mobile phone collection project in Asia in conjunction 8,000 seedlings in fiscal 2006) with the Secretariat of the Basel Convention DOWA’S ENVIRONMENTAL CONTRIBUTION (March 2007 Fiscal Year) ■ Electronic Materials • Environmental Management & Recycling (External Economic Benefit Evalu- •Improved recycling of gallium and indium ation®): ¥81 billion • Commenced operation of Bio Palette, a biotope-type effluent purification • Geothermal/Hydroelectric energy (180GWh➔CO2 reduction) facility, greatly reducing volumes of nitrogen (Dowa Hightech Co., Ltd.) • Afforestation project (possession of 1,612ha forest in Japan ➔CO2 reduction)

24 Dowa Holdings Co., Ltd. Annual Report 2007

DOWA’S NETWORK OF ENVIRONMENTAL OPERATIONS & RECYCLING

MATERIALS TO BE RECYCLED Automobile shredder residue High-quality recycling Computer residue Used home Catalysts sources plastics electric appliances

Zn sources Polymetallic Industrial/ sulfide ores Ga scraps Contaminated soil municipal waste

Smelting & Home electric appliance

TO Refinery recycling plants MARKET

Au·Ag·Cu· Smelting & Refinery Pb sources

Zn·Cd sources

Eco-Recycle Akita Zinc Co., Ltd. Co., Ltd.

In Kosaka Smelting & Waste treatment works Refining Co., Ltd.

Metals Incinerator for recycling (Au·Ag·Cu) metal and steam Plastics Akita Rare Metals Eco-System Co., Ltd. Akita Co., Ltd. Ash Landfill sites

Cu sources Eco-System Kosaka Co., Ltd.

Eco-System Eco-System Recycling Co., Ltd. Landfill site Hanaoka Co., Ltd. Certified plants with soil remediation facilities

Heavy metals

Pt·Pd· (Pb·Cd) RECYCLE Rh sources Green Fill Kosaka Co., Ltd. Eco-System Nippon PGM Co., Ltd. Hanaoka Co., Ltd.

Remediated soil and landfill materials

PRODUCTS Au·Ag·Cu·Pb·Zn·Cd·Bi·Se·Te·Pt·Pd·Rh·Ga·Ge·In·H2SO4

25 Annual Report 2007 Dowa Holdings Co., Ltd.

Corporate Governance

Dowa Holdings and its Group companies have constantly contributed REVISION OF RESOLUTION ON INTERNAL CONTROL SYSTEM to society through their business activities while responding to the In December 2006, we took the opportunity provided by the shift to a demands of the public. holding company system to revise the internal control system as de- Recognizing corporate governance as a highly important manage- fined by the resolution of May 2006. This revision reaffirmed that the ment issue, the Group as a whole endeavors to contribute to society Group will work as one, with management implementing business ac- while implementing and operating an effective and efficient internal tivities and employees performing their respective duties, in line with control system in accordance with the “Dowa Group’s Values and Stan- the “Dowa Group’s Values and Standards of Conduct” on a daily basis. dards of Conduct.” We plan to make these Standards of Conduct known throughout In October 2006, we converted to a holding company system. Each the entire Group by introducing similar internal control systems at of Dowa’s business divisions was spun off into an operating subsidiary each Group company (excluding certain joint ventures). To this end, to allow for greater sensitivity to customer needs at the forefront of resolutions were passed by the board of directors of each company by the Company’s markets, as well as more speedy and authoritative de- March 2007. cision making. This will also enable our business divisions to be run in a bold and flexible manner suitable to the nature of each business. As RESPONSE TO FINANCIAL INSTRUMENTS AND EXCHANGE LAW a holding company, Dowa is now responsible for optimally distribut- To comply with the Financial Instruments and Exchange Law, which ing management resources throughout the Group to drive sustained comes into full effect in 2008, we have made the accounting process growth Group-wide, with the aim of maximizing the Group’s corpo- of the entire Group visible on a documentary basis, completing this rate value. work by March 2007. We also aim to expand the process of documen- The Group has taken steps to enhance and maintain the soundness tation to operations other than accounting during fiscal 2007, with of management by (1) establishing the Board of Auditors; (2) appointing the aim of entrenching compliance in our daily operations while im- outside directors. proving the efficiency of those operations.

DOWA GROUP CORPORATE GOVERNANCE INITIATIVES

2000 Introduced an executive officer system 2007 March Resolutions of boards of directors of Group compa- 2001 Formed the Management Administration Council nies regarding internal control system

2003 Shortened the terms of office of directors from two Documentation of accounting process at Group com- years to one panies

2006 May Board of Directors passed resolution on internal con- Documentation of operational processes other than trol system accounting at Dowa Holdings Co., Ltd.

June Appointed outside directors

October Moved to a holding company structure

December Revised resolution of Board of Directors on internal control system

26 Dowa Holdings Co., Ltd. Annual Report 2007

Board of Directors and Officers (As of June 27, 2007)

DIRECTORS

Hirokazu Yoshikawa Masaki Kohno Chairman & CEO, President, Representative Director Representative Director

Kazumasa Suezawa Yuji Saeki Satoru Mihara Yoshito Koga Kenji Kanamaru Executive Vice President & Director Director Director Director*1 Director

AUDITORS

Fumio Nishiwaki Kanji Ohida Yoshiyuki Ohji Satoshi Yamaji Corporate Auditor*2 Corporate Auditor Corporate Auditor Corporate Auditor*2

OFFICERS

Mineo Ogino Masaru Namura Kenji Ohnishi Takeaki Yamada Seiichi Hisano Tetsuo Ohnishi Officer Officer Officer Officer Officer Officer

Masao Yamada Fumitoshi Sugiyama Yukio Ishibashi Katsuya Yukitake Akira Otsuka Takuya Warashina Officer Officer Officer Officer Officer Officer

*1 Outside Director *2 Outside Auditor

27 Annual Report 2007 Dowa Holdings Co., Ltd.

Consolidated 11-Year Summary Dowa Holdings Co., Ltd. and its Consolidated Subsidiaries

For the years ended March 31 2007*1 2006 2005 2004 For the Year: Net Sales...... ¥458,701 ¥316,388 ¥254,192 ¥234,675 Cost of Sales ...... 383,136 253,389 202,447 192,843 Selling, General and Administrative Expenses...... 26,830 26,101 24,102 24,192 Operating Income ...... 48,733 36,897 27,642 17,640 Operating Income to Net Sales (%)...... 10.62 11.66 10.88 7.52 Operating Income by Segment (%) Nonferrous Metals ...... 51.55 45.58 41.31 13.99 Environmental Management & Recycling ...... 16.31 16.32 17.02 25.77 Electronic Material...... 14.31 ——— Metal Processing ...... 9.37 ——— Electronic Materials & Metal-Processing ...... — 28.15 32.04 40.47 Metal Processing and Chemical Products...... — ——— New Materials...... — ——— Electronic Materials...... — ——— Heat Treatment ...... 7.37 8.90 10.86 16.76 Construction and Real Estate...... — —1.624.79 Commodity Sales...... — ——1.06 Others and Elimination ...... 1.08 1.04 (2.86) (2.83) Net Income (Loss) ...... 26,337 14,532 10,609 8,683 Capital Expenditures ...... 21,821 12,497 11,551 9,419 R&D Expenses ...... 4,384 3,739 2,993 2,690 At Year-end: Net Assets ...... 141,276 114,869 94,670 84,673 Total Assets ...... 352,299 303,029 261,461 246,275 Interest-bearing Debt ...... 114,757 99,653 97,709 104,375 ...... Per Share: Primary Net Income...... ¥ 87.82 ¥ 48.12 ¥ 35.14 ¥ 28.79 Fully Diluted Net Income ...... 456.10 382.69 315.46 282.15 Cash Dividends ...... 20.00 14.00 10.00 7.00 ...... Cash Flows: Cash Flows from Operating Activities...... ¥ 13,700 ¥ 17,783 ¥ 17,432 ¥ 29,725 Cash Flows from Investing Activities ...... (24,387) (15,616) (7,636) (1,290) Cash Flows from Financing Activities ...... 9,634 (1,758) (8,917) (30,072) ...... Ratios: 2 Return on Assets* ...... 14.87% 13.07% 10.89% 7.13% 3 Return on Net Assets* ...... 20.93 13.87 11.83 11.16 Equity Ratio...... 38.83 37.91 36.21 34.38 Current Ratio ...... 124.63 129.16 132.54 121.86 Interest Coverage ...... 30.18 29.23 20.30 12.04 Debt/Equity Ratio ...... 0.84 0.87 1.03 1.23 Return on Invested Capital ...... 10.47 6.77 5.52 4.59 *1 The years started in the text are ended March 31 of the year. Thus “2007” refers to the fiscal year, which ran from April 1, 2006 through March 31, 2007. 2 Operating Income divided by average of Total Assets 3Net Income divided by average of Net Assets

28 Dowa Holdings Co., Ltd. Annual Report 2007

Millions of Yen 2003 2002 2001 2000 1999 1998 1997

¥221,051 ¥222,175 ¥239,758 ¥232,809 ¥250,489 ¥294,868 ¥288,684 181,142 182,689 197,882 196,602 208,760 244,454 242,341 25,159 26,875 26,419 27,859 29,235 32,606 32,496 14,749 12,609 15,457 8,347 12,494 17,807 13,846 6.67 5.68 6.45 3.59 4.99 6.04 4.80

11.30 24.32 22.95 10.90 53.40 49.16 48.30 22.09 18.94 10.36 7.63 — — — —————— — —————— — 27.27 — — — — — — 7.95 5.31 8.99 13.23 15.15 15.88 20.31 ————23.55 19.72 14.30 — 22.20 39.88 55.93 — — — 20.30 14.19 10.44 3.22 — — — 11.23 16.14 8.57 12.20 6.36 9.08 13.01 1.38 1.06 1.09 2.26 1.79 0.88 (4.35) (1.51) (2.17) (2.28) (5.37) (0.25) 5.28 8.43 (2,619) 282 4,921 2,070 3,524 5,088 9,681 9,814 10,244 11,641 9,172 16,264 15,119 12,113 2,195 2,454 2,177 3,100 2,923 2,723 1,864

70,931 76,125 69,564 61,695 53,383 52,030 48,410 248,689 284,552 313,208 319,989 330,670 351,292 341,165 132,179 158,440 188,831 208,868 227,437 237,895 229,081

Yen

¥ (8.85) ¥ 0.93 ¥ 17.61 ¥ 7.42 ¥ 12.51 ¥ 18.06 ¥ 34.39 236.29 250.59 239.65 221.22 190.56 184.67 171.84 7.00 5.00 5.00 3.00 5.00 6.00 5.00

Millions of Yen

¥ 23,134 ¥ 23,503 ¥ 21,176 ¥ 17,515 ¥ 13,594 ¥ 24,470 ¥ 18,457 (1,520) (7,708) (4,033) (3,513) (14,389) (18,307) (6,910) (26,882) (26,127) (17,523) (19,723) (4,154) (1,390) (14,591)

5.53% 4.22% 4.88% 2.57% 3.66% 5.14% 4.09% (3.56) 0.39 7.50 3.60 6.69 10.13 21.89 28.52 26.75 22.21 19.28 16.14 14.81 14.19 95.93 90.51 95.67 107.98 104.67 85.97 88.06 8.38 5.59 5.14 2.91 3.95 5.74 3.97 1.86 2.08 2.71 3.39 4.26 4.57 4.73 (1.29) 0.12 1.91 0.77 1.26 1.76 3.49

29 Annual Report 2007 Dowa Holdings Co., Ltd.

Financial Review Years ended March 31

Net Sales and Operating Results of Operations Income to Net Sales (Billions of Yen) (%) 600 12 During the fiscal year ended March 31, 2007, Japan’s economic expansion continued, with economic growth now surpassing that of the so-called “Izanagi boom” in terms of its longevity. The economy was boosted 500 10 by strong exports to Asia, Europe and North America, as well as healthy capital investment. 400 8 Looking at the Group’s operating environment, in the Nonferrous Metals segment, prices of major metals 300 6 rose overall due to tightening supply and demand conditions for raw materials, the result of both surging

200 4 demand in China and the consolidation of mining rights, in addition to inflows of speculative funds. In the Metal Processing segment, the operating environment saw strong exports of automotive parts comple- 100 2 ment steady growth in mobile phones and other IT-related products. And in the Environmental Manage- 0 0 03 04 05 06 07 ment & Recycling segment, competition surrounding the collection of recyclable materials has become Net Sales (left scale) Operating Income to Net Sales more intense, in line with the growing need for proper treatment of difficult-to-treat industrial waste (right scale) amid widespread moves to reduce waste volumes. The Group also took bold steps to enact a raft of initiatives, which included the shift to a holding company system on October 1, 2006. As a result, consolidated net sales rose 45% year on year to ¥458,701 million, with operating income up 32% to ¥48,733 million. Ordinary income climbed 50% to ¥49,717 million, while net income surged 81% to ¥26,337 million on a consolidated basis.

Outlook The operating environment presents several risks that could impact profitability in fiscal 2007. These risks include rising oil prices and uncertain outlooks for the leading economies of the United States and China, as well as price movements for major metals. There are also lingering questions regarding demand trends in the Electronic Materials and Metal Processing segments. Amid these conditions, the Group is projecting net sales of ¥410 billion, operating income of ¥41 billion, ordinary income of ¥41 billion, and net income of ¥20 billion. These figures reflect an anticipated decline in major metal prices, and an average U.S. dollar exchange rate of ¥118 and ¥108 in the first and second halves of the year, respectively. In Nonferrous Metals, earnings will likely be lower, with a phase of adjustment for copper prices expected alongside worsening conditions for procurement of raw materials. Environmental Management & Recycling, meanwhile, will likely see earnings growth remain flat as the recycling business is affected by falling metal prices. On the other hand, the Electronic Materials, Metal Processing and Heat Treatment segments are all expected to post higher earnings. The above forecasts reflect projections based on assumptions, outlooks, and plans regarding the Group’s performance as of the release date of this report. Consequently, risks associated with changes in global economic conditions, the competitive climate, and exchange rates, as well as other unforeseen and uncon- trollable factors, could cause actual performance to differ materially from these forecasts.

30 Dowa Holdings Co., Ltd. Annual Report 2007

Total Assets, Net Assets and Financial Position ROE (Billions of Yen) (%) 500 25 Assets, Liabilities and Net Assets The Group’s total assets as of March 31, 2007 stood at ¥352,299 million, up ¥49,269 million from the 400 20 previous fiscal year-end. In addition to an increase in property, plant and equipment, at cost, of ¥4,585

300 15 million due to aggressive investments to promote expansion in each business segment, inventories grew ¥11,453 million due to growth in construction orders for soil remediation services, as well as an increase 200 10 in raw materials driven by rising prices for major metals. Another factor was a temporary increase of

100 5 ¥29,308 million in notes and accounts receivables accompanying the rise in metal prices. The Group’s interest-bearing debt balance rose ¥15,104 million from the previous fiscal year-end to 0 0 03 04 05 06 07 ¥114,757 million. Total Assets (left scale) Net Assets (left scale) ROE (right scale) Cash Flows On a consolidated basis, cash and cash equivalents (‘cash’ below) as of March 31, 2007 amounted to ¥4,792

Capital Expenditures million, down ¥1,020 million from a year earlier. The major components of cash flows are detailed below. (Billions of Yen) 25 Net cash provided by operating activities was ¥13,700 million, or ¥4,083 million less than a year ago. Cash was lower despite a high level of income before income taxes and minority interests of ¥46,017 20 million (up ¥17,661 million year on year), which was mainly offset by an increase in inventories, including

15 raw materials, of ¥11,275 million in line with higher prices for major metals. Likewise, an increase in trade receivables used cash of ¥28,427 million. 10 Net cash used by investing activities was ¥24,387 million, or ¥8,770 million more than a year earlier. 5 Cash used largely reflected aggressive capital investments of ¥20,205 million aimed at business conver-

0 sion and achieving expansion in all business segments, as well as ¥13,310 million in stock purchases. 03 04 05 06 07 Net cash provided by financing activities was ¥9,634 million, or ¥11,393 million more than a year ago, with ¥4,401 million in cash dividends paid outweighed by an increase of ¥14,200 million in interest-bear- Cash Flows from Operating ing debt. Activities (Billions of Yen) The difference between the year-on-year change in interest-bearing debt stated in the consolidated 30 balance sheets and that stated in the consolidated statements of cash flows is due to the new consolida- 25 tion of two companies.

0 03 04 05 06 07

31 Annual Report 2007 Dowa Holdings Co., Ltd.

Basic Dividend Policy and Dividends The Company views the payment of dividends to stockholders as one of its most important management issues. Guided by a fundamental commitment to the payment of a consistent and stable dividend, the Company’s policy is to pay a dividend commensurate with performance after ensuring that it retains suf- ficient reserves to bolster its corporate position and support future business development. In the fiscal year ended March 31, 2007, the Company reported substantial year-on-year earnings growth, supported by improved earnings power in all business segments and rising prices for major metals. In light of this performance, the Company will pay a full-year cash dividend of ¥20 per share, an increase of ¥6 over the previous year when the Company paid an ordinary dividend of ¥12 per share and a commemorative dividend of ¥2. At present, the Company also plans to pay the same dividend (¥20 per share) in the fiscal year ending March 31, 2008.

Business Risks The Group faces a variety of risks such as those described below that could potentially and adversely impact its operating results, stock price and financial position. Forward-looking statements among the risk items that follow reflect the opinion of the Group as of March 31, 2007.

Economic conditions The Group’s business performance and financial condition may be negatively affected by economic reces- sions in its principal markets, which include Japan, North America, Asia, and Europe, or by shrinking demand accompanying such changes.

Metal and currency markets Among its products, the Group handles gold, silver, copper, and zinc, the prices for which are set by international markets. The unprocessed ore for these metals is also procured from overseas. For these reasons, the Group is confronted with risks due to changes in international market conditions and fluctuations in currency exchange rates. The Group employs a variety of hedging measures, including nonferrous metal commodity forward contracts and forward exchange contracts, in an attempt to mitigate these risks.

32 Dowa Holdings Co., Ltd. Annual Report 2007

Public regulations The Group is subject to a variety of legal regulations. In Japan, these include laws pertaining to the environment and recycling, as well as anti-trust laws. Overseas, the Group must comply with legal regulations present in the countries where it operates, for example regulations regarding customs, imports and exports, and laws concerning the control of foreign currency. The Group, for its part, takes every legal pre- caution to protect its rights with respect to these laws. Nevertheless, business performance may be adversely affected if Group business operations are restricted as a result of mandates stipulated by the establishment of presently unforeseen regulations.

Stock price fluctuations The Group is subject to risks due to fluctuations in stock prices stemming from the approximately ¥17.1 billion in marketable securities it held as of March 31, 2007. These securities primarily represent stock held in Group business partners. While the market value of these securities was estimated to contain ¥30.5 billion in unrealized value as of the fiscal year-end, this figure is contingent upon future stock price trends and will change. Similarly, the Group faces the risk that a fall in stock prices could erode the value of pension assets, causing shortfalls in the reserve for retirement benefits and leading to a substantial increase in retirement benefit expenses.

Interest rate fluctuations As of March 31, 2007, the Group’s balance of interest-bearing debt was ¥114.7 billion, with external fund procurement accounting for 33% of total assets. Consequently, a sharp rise in interest rates could adversely affect business performance.

Disasters and power outages The Group conducts disaster prevention and equipment inspections at all of its facilities in an attempt to minimize any possible negative effects that could result from sudden production line stoppages. Never- theless, the Group may experience a dramatic decline in production capacity should a disaster, power outage, or other type of interruption occur at its production facilities.

33 Annual Report 2007 Dowa Holdings Co., Ltd.

Consolidated Balance Sheets Dowa Holdings Co., Ltd. and Its Consolidated Subsidiaries As of March 31, 2007 and 2006

Thousands of U.S. Dollars Millions of Yen (Note 1) Assets 2007 2006 2007 Current Assets: Cash and time deposits (Note 5) ...... ¥4,814 ¥5,815 $ 40,787 Notes and accounts receivables (Note 13): Trade ...... 69,516 44,866 588,872 Non–consolidated subsidiaries and affiliates ...... 6,430 1,915 54,472 Others ...... 5,116 4,238 43,345 Subtotal ...... 81,063 51,019 686,690 Inventories (Note 6) ...... 81,160 69,706 687,508 Deferred tax assets (Note 9) ...... 2,910 6,641 24,652 Other current assets ...... 1,427 952 12,088 Allowance for doubtful accounts ...... (66) (161) (560) Total current assets ...... 171,310 133,973 1,451,166

Property, Plant and Equipment, at Cost (Note 7): Land ...... 21,297 24,715 180,409 Buildings and structures ...... 85,214 81,321 721,854 Machinery, equipment and others ...... 154,077 146,065 1,305,186 Construction in progress ...... 7,672 3,867 64,991 Subtotal ...... 268,261 255,970 2,272,442 Accumulated depreciation...... (170,769) (163,063) (1,446,585) Total property, plant and equipment ...... 97,492 92,907 825,857

Investments and Other Assets: Investments in securities (Notes 6 and 7) ...... 51,849 46,605 439,219 Investments in non-consolidated subsidiaries and affiliates (Notes 6 and 7) ...... 24,794 21,969 210,029 Long–term loans ...... 19 456 162 Deferred tax assets, non-current (Note 9) ...... 2,320 2,881 19,657 Goodwill ...... 1,578 1,635 13,367 Other assets ...... 3,089 2,967 26,167 Allowance for doubtful accounts ...... (154) (367) (1,307) Total investments and other assets ...... 83,496 76,148 707,296 Total assets...... ¥352,299 ¥303,029 $2,984,321

*1.The accompanying notes are an integral part of these consolidated financial statements. 2. The years stated in the text are for fiscal years, which run from April 1 through March 31 of the following year. Thus, FY2006 refers to the year ended March 31, 2007. 3. ¥118.05=US$1, the rate of exchange on March 30, 2007 is used.

34 Dowa Holdings Co., Ltd. Annual Report 2007

Thousands of U.S. Dollars Millions of Yen (Note 1) Liabilities and Net Assets 2007 2006 2007 Current Liabilities: Short-term borrowings (Note 7) ...... ¥ 40,893 ¥ 28,907 $ 346,407 Current maturities of long-term debt (Note 7) ...... 24,664 16,065 208,936 Notes and accounts payables (Note 13): Trade ...... 34,605 29,179 293,145 Non-consolidated subsidiaries and affiliates ...... 3,387 271 28,698 Others ...... 5,678 6,024 (48,100) Subtotal ...... 43,671 35,475 369,944 Accrued expenses ...... 5,695 5,102 48,246 Accrued income taxes ...... 13,306 8,648 112,716 Accrued bonus ...... 3,002 2,785 25,436 Accrued director’s bonus ...... 282 — 2,397 Derivative dealings ...... — 6,706 — Other current liabilities ...... 5,937 4,904 50,293 Total current liabilities ...... 137,454 108,595 1,164,379

Long-term Debt (Note 7) ...... 49,199 54,680 416,767 Reserves for Employees’ Retirement Benefits (Note 12) ...... 12,586 12,151 106,616 Reserves for Directors’ and Corporate Auditors’ Retirement Benefits ...... 679 858 5,753 Deferred Tax Liabilities, non-current (Note 9) ...... 8,014 10,213 67,890 Other Long-Term Liabilities ...... 3,088 1,661 26,164 Subtotal ...... 73,567 79,565 623,192 Total liabilities ...... ¥211,022 ¥188,160 $1,787,572 Contingent Liabilities (Note 8):

Net Assets Shareholders’ Equity: Common stock: Authorized: 1,000,000 thousand shares in 2007 and 795,073 thousand shares in 2006 Issued: 303,790 thousand shares at March 31, 2007 and 2006, respectively . . . . . 36,436 36,436 308,653 Additional paid–in capital ...... 26,368 26,368 223,370 Retained earnings ...... 57,052 35,079 483,289 Treasury stock, at cost (3,887 thousand shares in 2007 and 3,892 thousand shares in 2006) ...... (2,250) (2,249) (19,060) Subtotal ...... 117,607 95,634 996,252 Adjustments for Valuation, Foreign Currency Translation and Others: Unrealized gain on available-for-sale securities ...... 19,219 22,112 162,805 Net deferred hedge income ...... 294 (6,285) 2,497 Foreign currency translation adjustments ...... (336) (426) (2,850) Subtotal ...... 19,177 15,400 162,452 Minority Interests ...... 4,491 3,833 38,044 Total net assets ...... 141,276 114,869 1,196,749 Total liabilities and net assets ...... ¥352,299 ¥303,029 $2,984,321

35 Annual Report 2007 Dowa Holdings Co., Ltd.

Consolidated Statements of Income Dowa Holdings Co., Ltd. and Its Consolidated Subsidiaries For the years ended March 31, 2007 and 2006

Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Net Sales ...... ¥458,701 ¥316,388 $3,885,650 Cost of Sales (Note 14) ...... 383,136 253,389 3,245,547 Gross profit ...... 75,564 62,998 640,102 Selling, General and Administrative Expenses (Notes 10 and 11) ...... 26,830 26,101 227,281 Operating income ...... 48,733 36,897 412,821

Other Income (Expenses): Interest and dividend income ...... 1,219 860 10,331 Interest expenses...... (1,654) (1,291) (14,018) Gain on sale and loss on disposal of property, plant and equipment, net . . . . (185) (996) (1,572) Exchange loss ...... (105) (869) (895) Equity in earnings (losses) of affiliates ...... 3,000 (1,853) 25,418 Loss on sale of investment securities ...... (579) — (4,909) Loss due to impairment of property, plant and equipment ...... (69) (1,881) (590) Loss due to disposal of inventories ...... — (1,332) — Write-down of inventories (Note 14) ...... (522) — (4,428) Loss due to restructuring...... (1,986) — (16,826) Other, net ...... (1,831) (1,177) (15,516) Subtotal ...... (2,715) (8,541) (23,006) Income before income taxes and minority interests ...... 46,017 28,355 389,814 Income Taxes (Note 9): Current ...... 19,286 13,522 163,377 Deferred ...... (485) (194) (4,112) Subtotal ...... 18,801 13,328 159,264

Minority Interests ...... (878) (495) (7,445) Net income ...... ¥ 26,337 ¥ 14,532 $ 223,103

U.S. Dollars Per Share: Yen (Note 1) Primary net income ...... ¥ 87.82 ¥ 48.12 $ 0.74 Fully diluted net income ...... 83.59 — 0.71 Cash dividends ...... 20.00 14.00 0.17 *1.The accompanying notes are an integral part of these consolidated financial statements. 2. The years stated in the text are for fiscal years, which run from April 1 through March 31 of the following year. Thus, FY2006 refers to the year ended March 31, 2007. 3. ¥118.05=US$1, the rate of exchange on March 30, 2007 is used.

36 Dowa Holdings Co., Ltd. Annual Report 2007

Consolidated Statements of Changes in Net Assets Dowa Holdings Co., Ltd. and Its Consolidated Subsidiaries For the years ended March 31, 2007 and 2006

Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Number of Shares of Common Stock (thousand) Balance at beginning of year ...... 303,790 303,790 — Net change during year...... — — — Balance at end of year ...... 303,790 303,790 — Common Stock Balance at beginning of year ...... ¥36,436 ¥36,436 $308,653 Net change during year...... — — — Balance at end of year ...... ¥36,436 ¥36,436 $308,653 Additional Paid–in Capital Balance at beginning of year ...... ¥26,368 ¥26,377 $223,370 Disposal losses of treasury stock by an exchange of shares ...... — (8) — Balance at end of year ...... ¥26,368 ¥26,368 $223,370 Retained Earnings Balance at beginning of year ...... ¥35,079 ¥23,357 $297,155 Net income ...... 26,337 14,532 223,103 Cash dividends paid ...... (4,252) (3,037) (36,026) Bonuses to directors ...... (108) (74) (916) Increase (decrease) due to equity of subsidiaries newly consolidated . . . . . (3) 304 (26) Increase in equity of new affiliates accounted for by the equity method. . . . — 2 — Decrease in retained earnings due to decrease in number of consolidated subsidiaries ...... — (5) — Balance at end of year ...... ¥57,052 ¥35,079 $483,289 Treasury Stock, at Cost Balance at beginning of year ...... ¥(2,249) ¥ (2,254) $ (19,057) Net change of treasury stock held by affiliates during year ...... 12 (14) 103 Purchase of treasury stock ...... (12) (277) (107) Disposal of treasury stock by an exchange of shares...... — 294 — Balance at end of year ...... ¥(2,250) ¥ (2,249) $ (19,060) Unrealized Gain on Available–for–Sale Securities Balance at beginning of year ...... ¥22,112 ¥11,420 $187,317 Net change during year...... (2,893) 10,692 (24,511) Balance at end of year ...... ¥19,219 ¥22,112 $162,805 Net Deferred Hedge Income (Loss) Balance at beginning of year ...... ¥(6,285) ¥— $ (53,244) Net change during year...... 6,580 (6,285) 55,741 Balance at end of year ...... ¥ 294 ¥ (6,285) $2,497 Foreign Currency Translation Adjustments Balance at beginning of year ...... ¥ (426) ¥(666) $ (3,615) Net change during year...... 90 239 764 Balance at end of year ...... ¥ (336) ¥(426) $ (2,850) Minority Interest Balance at beginning of year ...... ¥3,833 ¥— $ 32,474 Net change during year...... 657 3,833 5,569 Balance at end of year ...... ¥4,491 ¥3,833 $ 38,044

37 Annual Report 2007 Dowa Holdings Co., Ltd.

Consolidated Statements of Cash Flows Dowa Holdings Co., Ltd. and Its Consolidated Subsidiaries For the years ended March 31, 2007 and 2006

Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Cash Flows from Operating Activities: Income before income taxes and minority interests ...... ¥46,017 ¥28,355 $389,814 Adjustments for: Depreciation ...... 9,897 9,316 83,843 Loss due to sale or disposal of property, plant and equipment, net ...... 185 996 1,572 Reversal of allowance for bad debts ...... (315) (39) (2,670) Equity in (earnings) losses of affiliates ...... (3,000) 1,853 (25,418) Change in liability for retirement benefits ...... 160 561 1,358 Interest and dividend income ...... (1,219) (860) (10,331) Interest expenses ...... 1,654 1,291 14,018 Loss due to impairment of property, plant and equipment ...... 69 1,881 590 Loss due to restructuring ...... 1,986 — 16,826 Increase (decrease) in trade receivables ...... (28,427) 845 (240,811) (Increase) in inventories ...... (11,275) (19,002) (95,510) Increase in trade payables ...... 7,503 7,794 63,563 Other, net ...... 5,193 (515) 43,993 Subtotal ...... 28,430 32,477 240,837 Interest and dividend income received ...... 1,543 863 13,072 Interest expenses paid ...... (1,587) (1,306) (13,450) Income taxes paid ...... (14,685) (14,251) (124,402) Net cash provided by operating activities ...... 13,700 17,783 116,057 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ...... (20,205) (11,733) (171,156) Proceeds from disposal and sale of property, plant and equipment ...... 7,376 325 62,486 Proceeds from sale of investment in securities ...... 24 0 207 Acquisition of investments in securities ...... (10,034) (713) (85,002) Poroceeds from sale of investments in affiliates ...... 530 — 4,492 Acquisition of investments in subsidiaries and affiliates ...... (1,260) (3,381) (10,678) Acquisition of cash owned by new subsidiaries, net of payment for purchase of investments in subsidiaries...... (2,015) (819) (17,076) Proceeds from sale of investment in subsidiaries, net cash owned by those companies ...... — 41 — Payment for loans ...... (567) (90) (4,810) Procceds from collections of loan ...... 1,665 278 14,112 Other, net ...... 99 474 841 Net cash used in investing activities ...... (24,387) (15,616) (206,584) Cash Flows from Financing Activities: Net increase (decrease) in short-term bank loans ...... 11,733 955 99,393 Proceeds from long-term debt ...... 18,935 11,545 160,398 Repayment of long-term debt ...... (16,468) (10,792) (139,502) Cash dividends paid ...... (4,401) (3,194) (37,280) Payment of lease liability ...... (151) — (1,285) Purchases of treasury stock ...... (12) (272) (107) Net cash provided by (used in) financing activities ...... 9,634 (1,758) 81,616 Effect of Exchange Rate Changes on Cash and Cash Equivalents ...... 24 28 208 Net Increase (Decrease) in Cash and Cash Equivalents ...... (1,027) 436 (8,703) Cash and Cash Equivalents at Beginning of Year ...... 5,813 5,286 49,247 Cash and Cash Equivalents of Newly Consolidated Subsidiaries (Note 5) ...... 6 110 56 Decrease in Cash and Cash Equivalents due to Exclusion of Subsidiaries from scope of Consolidation ...... — (19) — Cash and Cash Equivalents at End of Year (Note 5) ...... ¥4,792 ¥5,813 $40,601

38 Dowa Holdings Co., Ltd. Annual Report 2007

Notes to Consolidated Financial Statements Dowa Holdings Co., Ltd. and Its Consolidated Subsidiaries

1. Basis of Presentation of the Consolidated Financial Statements The accompanying consolidated financial statements of DOWA HOLDINGS CO., LTD. (the “Company”) and its consolidated subsidiaries (the “Group”) are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements, from International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange Law of Japan. Moreover, the Company changed its business name from “DOWA MINING CO., LTD.” to “DOWA HOLDINGS CO., LTD.” on October 1, 2006. Certain items presented in the consolidated financial statements submitted to the Director of the Kanto Finance Bureau in Japan have been reclassified for the convenience of readers outside Japan. Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥118.05=US$1, the rate of exchange on March 30, 2007, has been used in translation. The inclusion of such amounts is not intended to imply that Japanese yen amounts have been or could be readily converted, realized or settled in U.S. dollars at this rate or any other rate.

2. Summary of Significant Accounting Policies (1) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant intercom- pany accounts and transactions have been eliminated in consolidation. Investments in non-consolidated subsidiaries have not been accounted for by the equity method, but carried at cost, since the Company’s equity in their combined earnings, in aggregate, does not have a material effect on the consolidated financial statements. The excess of the purchase price over the underlying equity in net assets of businesses acquired is amortized on a straight-line basis within 20 years. Investments in major affiliated companies in which the Company does not have control, but has the ability to exercise significant influence over the operating and financial policies, are accounted for by the equity method. (a) Note Regarding Scope of Consolidation The consolidated financial statements for the year ended March 31, 2006 included Akita Rare Metals Co., Ltd. and Akita Kouei Co., Ltd., which were unconsolidated subsidiaries in the consolidated financial statements for the year ended March 31, 2005 from the viewpoint of materiality. The Company signed an agreement to buy 55% of the issued stock in Act-B Recycling Co., Ltd. during the year ended March 31, 2006 The results of this subsidiary are included in the consolidated financial statements from the date of the signing of the agreement. The Company signed an agreement to sell half of the issued stock in Takeuchi Metal Foil and Powder Co., Ltd., during the year ended March 31, 2006. The results of this subsidiary are included in the consolidated financial statements up to the time of the signing of the agreement, and the company has been accounted for the by the equity method from the date of the signing of the agreement. The consolidated financial statements for the year ended March 31, 2007 include Dowa Technology Co., Ltd., which was an unconsolidated subsidiary in the consolidated financial statements for the year ended March 31, 2006 from the viewpoint of materiality. The Company signed an agreement to buy all circulating stocks of Cemm Co., Ltd. during the year ended March 31, 2007. The results of this subsidiary are included in the consolidated financial statements from the date of the signing of the agreement. The company signed an agreement to sell all owned stock in Dongwoo Heat Treating Co., Ltd. during the year ended March 31, 2007. This affiliate was excluded from the scope of equity method in the consolidated financial statements for the year ended March 31, 2007. Pulse Kensetsu Consultant Co., Ltd. signed an agreement to merger Showa Kaihatsu Kogyo Co., Ltd. during the year ended March 31, 2007, and changed its business name into “Showa Kaihatsu Kogyo Co., Ltd.” on October 1, 2006. (b) Accounting Period of Foreign Subsidiary Dowa THT America, Inc. changed an accounting period from December to March. As the result of this change, the financial statements of Dowa THT America, Inc. as of March 31, 2007, transactions for 15 month (from January 1, 2006 to March 31, 2007) are included. In preparing the consolidated financial statements for the year ended March 31, 2007 and 2006, the financial statements of Dowa THT America, Inc. as of March 31, 2007 and as of December 31, 2005 were used.

39 Annual Report 2007 Dowa Holdings Co., Ltd.

(2) Financial Instruments (a) Derivatives All derivatives are stated at fair value, with changes in fair value included in net profit or loss for the period in which they arise, except for derivatives that are designated as “hedging instruments” (see (c) Hedge Accounting). (b) Securities Securities held by the Group and its subsidiaries are classified into three categories. Investments of the Company in equity securities issued by unconsolidated subsidiaries and affiliates are accounted for by the equity method. Exceptionally, investments in certain unconsolidated subsidiaries and affiliates are stated at cost by using the moving average method because the effect of application of the equity method would be immaterial. Available-for-sale securities for which market quotations are available are stated at fair value. Net unrealized gains on these securities are reported as a separate item in the net assets at a net of tax and minority interests amounts. Available-for-sale securities for which market quotations are unavailable are stated at cost, by using the moving average method except as stated in the paragraph below. In cases where the fair value of equity securities issued by unconsolidated subsidiaries and affiliates or available-for-sale securities has declined significantly and such impairment of the value is not deemed temporary, those securities are written down to the fair value and the resulting losses are included in net profit or loss for the period. (c) Hedge Accounting Gains or losses arising from changes in fair value of the derivatives designated as “hedging instruments” are deferred as net assets and included in net profit or loss in the same period during which the gains and losses on the hedged items or transactions are recognized. Because the notional principal and interest payment receipt conditions (interest rate, payment receipt date, etc.) and contract period are almost identical to those of the asset or liability concerned, interest swaps against interest on borrowings are not stated at fair value. Rather, the net amount of monies received is added to the interest on the asset or liability concerned. The derivatives designated as hedging instruments by the Group are principally interest swaps, and nonferrous metal commodity forward contracts. The related hedged items are interest on borrowings, and nonferrous metal prices. The Group has a policy to utilize the above hedging instruments in order to reduce the Group’s exposure to the risk of foreign exchange rate, interest rate and nonferrous metal price fluctuations. Thus, the Company’s purchases of hedging instruments are limited to the amounts of the hedged items at a maximum. The Group evaluates the effectiveness of its hedging activities by reference to the accumulated gains or losses on hedging instruments and the related hedged items from the commencement of the hedges.

(3) Inventories Inventories are stated at cost. The costs of the primary finished goods and imported raw materials are determined by the first-in first- out (FIFO) method (state of the lower of cost or market value). The costs of other finished goods and other raw materials are determined by the moving-average method. The Change of Accounting Policy (2007) The company and its domestic consolidated subsidiaries have adopted “Accounting Standard for Measurement of Inventories” (“Busi- ness Accounting Standard No 9, July 5, 2006”) from the consolidated fiscal year beginning April 1, 2006. As a result of this change, cost of sales increased by ¥621 million (US$5,267 thousand), ¥599 million (US$5,077 thousand) in the Nonferrous Metals segment, ¥6 million (US$51 thousand) in the Electronic Materials segment, ¥16 million (US$139 thousand) in the Metal Processing segment. Gross profit, operating income and income before income taxes and minority interests decreased by ¥621 million (US$5,267 thousand), respectively.

(4) Property, Plant and Equipment and Depreciation Property, plant and equipment, including significant renewals and additions, are stated at cost. Repairs and maintenance expenses are charged to current income. Depreciation is computed by the declining-balance method based on the estimated useful lives of the respective assets. Deprecia- tion of the land fill is computed using the production method. The Company and some consolidated subsidiaries have computed the depreciation for the buildings (excluding leasehold improvements and auxiliary facilities attached to buildings) that have newly been acquired on or after April 1, 1998, by the straight-line method.

40 Dowa Holdings Co., Ltd. Annual Report 2007

(5) Accounting Standard for Impairment of Fixed Assets On August 9, 2002, the Business Accounting Council in Japan issued “Accounting Standard for Impairment of Fixed Assets.” The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss shall be recognized in the Statement of Income by reducing the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net selling price and value in use. The Change of Accounting Policy (2006) The Company and its domestic consolidated subsidiaries have adopted “Accounting Standard for Impairment of Fixed Assets” which required that impairment losses should be measured as the excess of the book value over the higher of fair market value and net of disposition costs of the fixed assets, effective from the consolidated fiscal year beginning April 1, 2005. As a result of this change, income before income taxes and minority interests for the year ended March 31. 2006 decreased by ¥1,881 million and the fixed assets decreased ¥1,881 million in the others segment. Under the new accounting standard, the Company and its domestic consolidated subsidiaries have subtracted the accumulated impairment loss from the cost of property, plant and equipment.

(6) Research and Development and Computer Software Research and development expenditure is charged to income when incurred. Expenditure relating to computer software developed for internal use is charged to income when incurred, except if it contributes to the generation of income or to future cost savings. Such expenditure is capitalized as an asset and is amortized using the straight- line method over its estimated useful life, which is five years.

(7) Allowance for Doubtful Accounts The Group has provided the allowance for doubtful accounts by the method based on the percentage of its own historical bad debt loss against the balance of total receivables, plus the amount deemed necessary to cover individual accounts estimated to be uncollectible.

(8) Accrued bonus Accrued bonuses to employees are provided for at the estimated amounts, which the companies are obliged to pay to employees after the year-end.

(9) Accrued directors’ bonus Accrued bonuses to directors are provided for at the estimated amounts, which the companies are obliged to pay to directors during after the year-end. The Change of Accounting Policy (2007) The Company and its domestic consolidated subsidiaries have adopted “Accounting standard for directors’ bonus” (Accounting Stan- dard Board of Japan Statement No.4 issued on November 29, 2005 by the Accounting Standards Board of Japan), from the year ended March 31, 2007. As a result of the application of this standard, general and administrative expenses increased by ¥282 million (US$2,397 thousand), ¥63 million (US$534 thousand) in the Nonferrous Metals segment, ¥80 million (US$682 thousand) in the Environmental Man- agement and Recycling segment, ¥36 million (US$307 thousand) in the Electronic Materials segment, ¥42 million (US$358 thousand) in the Metal Processing segment ¥28 million (US$241 thousand) in the Heat Treatment segment, and ¥32 million (US$272 thousand) in the Others segment. Operating income and income before income taxes for the year ended March 31, 2007 decreased by ¥282 million (US$2,397 thousand), respectively.

41 Annual Report 2007 Dowa Holdings Co., Ltd.

(10) Reserve for Employees’ Retirement Benefits Employees of the Group is entitled to lump-sum severance indemnities, which are generally determined based on the length of service, current rates of pay and certain other factors at the time of retirement. In addition to the unfunded lump-sum severance indemnities described above, the Group has established a non-contributory funded pension plan, which covers substantially all employees. In accordance with the new standard, the reserve for retirement benefits as of March 31, 2001 represents the estimated present value of projected benefit obligations in excess of the fair value of the plan assets except for, as permitted under the new standard. Unrecognized prior service cost are amortized on a straight-line basis over five years, and unrecognized actuarial differences are amortized on a straight-line basis over the period of five years from the next year in which they arise.

(11) Reserve for Directors’ and Corporate Auditors’ Retirement Benefits The Company and its subsidiaries also provide for the liability for directors’ and corporate auditors’ severance indemnities in an amount determined by the Company’s internal regulations for such severance indemnities. Additional Information (2007) The company determined abolition of the retirement benefits system for the directors and corporate auditors at the general meeting of stockholders on June 28, 2006. The company has recorded accrued directors‘ and corporate auditors‘ severance indemnities approved at the general meeting of stockholders under “Other Long-term Liabilities” pursuant to “Auditing Treatment Relating to Reserve Defined under the Special Tax Measurement Law, Reserve defined under the Special Law and Reserve for Director and Corporate Auditor Retirement Benefits” (The Japanese Institute of Certified Public Accountants (“JICPA”) Auditing and Assurance Practice Committee Report No. 42, revised on April 13, 2007).

(12) Allowance for Environmental Measures Effective from the year ended March 31, 2006, the Group adopted the Law Concerning Special Measures against PCB Waste, and recorded the estimate cost for the disposal of polychlorinated biphenyl waste. Additional Information (2006) Effective from the year ended March 31, 2006, the Group recorded ¥319 million as extraordinary loss for cost of disposal of polychlorinated biphenyl waste. As a result, for the year ended March 31 2006, income before income taxes and minority interests decreased by ¥319 million. However, this change of accounting policy had no influence on the segment information for the year ended March 31 2006.

(13) Leases Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases, while leases that do not transfer ownership of the assets at the end of the lease term are accounted for as operating leases, in accordance with accounting principles and practices generally accepted in Japan.

(14) Foreign Currency Translations All monetary assets and liabilities denominated in foreign currencies, whether long-term or short-term, are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are included in net profit or loss for the period. Assets and liabilities, and revenues and expenses of overseas subsidiaries are converted into yen at the spot exchange rates prevailing on the balance sheet date of the overseas subsidiaries in question, and translation differences are included as minority interest and foreign currency translation adjustments in Net Assets.

(15) Appropriation of Retained Earnings Cash dividends are recorded in which the proposed appropriation of retained earnings is approved at the general meeting of stockholders.

(16) Net Income per Share Primary net income per share is based on the weighted average number of shares of common stock of the Company issued and outstanding during the respective year. The Company had not issued the common stocks which diluted the amount of net income per share, therefore, the consolidated financial statements for the year ended March 31, 2006 and before, were not presented fully diluted net income per share.

42 Dowa Holdings Co., Ltd. Annual Report 2007

(17) Cash and Cash Equivalents Cash and cash equivalents in the Consolidated Statements of Cash Flows are composed of cash on hand, bank deposits able to be withdrawn on demand and short-term investments with an original maturity of three months or less and which represent a minor risk of fluctuation in value.

3. The Change of Accounting Policy

(a) Accounting Standard for Presentation of Net Assets in the Balance Sheet The Company and its domestic consolidated subsidiaries have adopted “Accounting standards for presentation of net assets in the balance sheet (Accounting Standards Board of Japan Statement No.5)”, and “Implementation guidance for Accounting standards for presentation of net assets in the balance sheet (Accounting Standards of Japan Guidance No.8)” both issued by the Accounting Stan- dard Board of Japan on December 9, 2005, from the year ended March 31, 2007. The amount corresponding to the conventional “Shareholders’ Equity” in the balance sheet is ¥136,490 million (US$1,156,204 thousand). “Net assets” in the balance sheets for the year ended March 31, 2007 is presented according to the revision of “Regulations concerning the Terminology, Form and Presentation Methods of Consolidated Financial Statements” dated on April 25, 2006. Further- more, the Group presented its net assets in the balance sheets using the new presentation as of March 31, 2006. From the year ended March 31, 2007, the net-of-tax amount of the “deferred hedge loss” item that was posted under Current Assets in the year ended March 31, 2006 is shown as “net deferred hedge income” under Adjustments for Valuation, Foreign Currency Translation and Others. (b) Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures and The Related Implementation Guidance The Company and its domestic consolidated subsidiaries have adopted “Accounting standard for business combinations” (Accounting Standards issued on October 31, 2003 by the Business Accounting Council in Japan), “Accounting standard for business divestitures” (Accounting Standards Board of Japan Statement No.7) and “Implementation guidance on Accounting standard for business combinations and Accounting standard for business divestitures” (Accounting Standards Board of Japan Guidance No.10) both issued on December 27, 2005 by the Accounting Standards Board of Japan, from the year ended March 31, 2007. This change of accounting policy has no influence. (c) Accounting Standard for Treasury Shares and Appropriation of Legal Reserve The Group has adopted “Accounting Standard for Treasury Shares and Appropriation of Legal Reserve and its Implementation Guid- ance” (“Business Accounting Standard No 1, revised on August 11, 2006”) This change of accounting policy has no influence. The following changes in the presentation of the Consolidated Financial Statements have been made in accordance with the revised regulations on Consolidated Financial Statements. “Treasury stock, at cost” is presented in the end part of “Shareholders’ Equity” of “Net Assets” from the consolidated fiscal year beginning April 1, 2006. On the consolidated balance sheets for the year ended March 31, 2006, “Treasury stock, at cost” was presented in the end part of “Shareholders’ Equity.”

4. Change of Presentation The Group has rounded down figures less than ¥1 million from the consolidated fiscal year beginning April 1, 2006. Figures had been rounded off from April 1, 2005 to March 31, 2006. As a result, if each figure is merely added up, it is not certain that the sum of figures can be equal to the total figure. The consolidated financial statements of the year ended March, 2007 and 2006 composed by rounding down. The consolidated financial statements for the year ended March 31, 2006 has been reclassified to reflect these changes.

43 Annual Report 2007 Dowa Holdings Co., Ltd.

5. Cash and Cash Equivalents (1) Cash and cash equivalents at March 31, 2007 and 2006 consisted of: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Cash and time deposits ...... ¥4,814 ¥5,815 $40,787 Time deposits with deposit terms of over three months ...... (22) (2) (186) Cash and cash equivalents ...... ¥4,792 ¥5,813 $40,601

(2) The main items of assets and liabilities of Cemm Co., Ltd. which was included in the consolidated financial statements for the year ended March 31, 2007. Thousands of U.S. Dollars Millions of Yen (Note 1) Current assets 1,521 12,888 Non-current assets 2,296 19,457 Current liabilities 1,313 11,125 Non-current liabilities 684 5,799

6. Investments Investments at March 31, 2007 and 2006 consisted of: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Investments in non-consolidated subsidiaries and affiliates ...... ¥24,794 ¥21,969 $210,029 Available-for-sale securities with market quotations ...... 47,654 43,365 403,681 Unlisted securities ...... 4,130 3,168 34,985 Others ...... 65 72 552 Total...... ¥76,643 ¥68,575 $649,249

The net unrealized gain on the available-for-sale securities with quotations as of March 31, 2007 and 2006 were ¥30,507 million (US$258,424 thousand) and ¥35,246 million, respectively. Available-for-sale securities that the Group sold during the years ended March 31, 2007 and 2006: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Sales value ...... ¥24 ¥0 $207 Gain on sales ...... 5 0 47 Loss on sales ...... 1 — 9

Available-for-sale securities due within 5 years at March 31, 2007 and 2006: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Bonds: Governmental bonds and local governmental bonds ...... ¥2 ¥2 $16 Corporate bonds ...... 10 10 84 Total ...... ¥12 ¥12 $101

44 Dowa Holdings Co., Ltd. Annual Report 2007

7. Short-term Borrowings and Long-term Debt Short-term borrowings from banks and other financial institutions were represented by short-term borrowings bearing interest at 0.45% to 1.63% (an approximate average rate of 1.14 %) per annum at March 31, 2007 and 0.15% to 1.63% (an approximate average rate of 0.54%) per annum at March 31, 2006. It is normal business custom in Japan for short-term borrowings to be rolled over each year. At March 31, 2007 and 2006, long-term debt consisted of the following: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 0.60% to 5.70% loans, principally from banks and due between 2007 and 2015: Collateralized ...... ¥36,551 ¥38,026 $309,628 Unsecured ...... 17,284 19,685 146,418

0.64% straight bond due 2006 ...... — 3,000 — 1.04% straight bond due 2007 ...... 10,000 10,000 84,709 1.21% straight bond due 2009 ...... 10,000 — 84,709 2.15% straight bond due 2010 ...... 28 35 237 73,864 70,746 625,703 Less: Long-term debt due within one year ...... 24,664 16,065 208,936 Long-term debt due after one year ...... ¥49,199 ¥54,680 $416,767

At March 31, 2007 and 2006, the following assets were pledged as collateral for short-term borrowings and the long-term debt of the Group: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Property, plant and equipment, less accumulated depreciation ...... ¥4,627 ¥10,787 $ 39,197 Investments in and advances to affiliates ...... 11,122 8,205 94,220 Investments in securities ...... 12,689 19,204 107,494

8. Contingent Liabilities At March 31, 2007 and 2006, the Group was contingently liable as guarantor of loans incurred by affiliates in the amount of ¥183 million (US$1,550 thousand), and ¥160 million, respectively. During the year the Company sold notes and accounts receivable amounts to a finance company. As part of the finance agreement, under certain circumstances, the Company has the obligation to repurchase these amounts. At March 31, 2007 and 2006, in connection with this structured finance agreement the maximum repurchase commitment the Company has exposure to is ¥1,355 million (US$11,484 thousand) and ¥996 million, respectively.

45 Annual Report 2007 Dowa Holdings Co., Ltd.

9. Income Taxes Income taxes applicable to the Group consist of corporation tax, inhabitants’ tax and enterprise tax, which in the aggregate resulted in normal statutory rates of approximately 40% for 2007 and 2006, respectively. At March 31, 2007 and 2006, the significant components of deferred tax assets and liabilities were as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Deferred tax assets Reserve for employees’ retirement benefits ...... ¥ 4,672 ¥ 5,111 $ 39,582 Allowance for doubtful accounts ...... 445 68 3,771 Accrued bonuses ...... 1,169 1,110 9,904 Write-down of investment securities...... 221 207 1,878 Reserves for directors’ and corporate auditors’ retirement benefits ...... 338 332 2,870 Accrued enterprise taxes ...... 1,065 675 9,026 Write-down of inventories ...... 562 35 4,764 Loss due to impairment of property, plant and equipment ...... 996 1,040 8,445 Unrealized earnings ...... 4,524 4,190 38,329 Consolidated subsidiaries’ deficit ...... 1,573 2,599 13,329 Others ...... 2,254 1,020 19,099 Total...... 17,825 16,393 151,001 Valuation allowance ...... (7,996) (7,172) (67,741) Deferred tax assets ...... ¥ 9,828 ¥ 9,220 $ 83,259 Deferred tax liabilities Unrealized gain on available-for-sale securities ...... (12,201) (14,098) (103,361) Provision for loss of foreign investments ...... (0) (1) (6) Others ...... (409) (2) (3,472) Total deferred tax liabilities ...... (12,612) (14,101) (106,840) Net deferred tax liabilities ...... ¥ (2,783) ¥ (4,881) $ (23,581)

For the year ended March 31, 2006, the reconciliation of the statutory tax rate to the effective income tax rate was as follows: 2007 2006 Statutory tax rate ...... — 40.0% Loss due to impairment of property, plant and equipment ...... — 2.9 Valuation allowance...... — 0.9 Non deductible items including entertainment expenses ...... — 1.0 Inhabitants’ tax ...... — 0.3 Non taxable items including dividend income ...... — (0.6) Equity in losses of affiliated companies ...... — 2.6 Others ...... — 0.0 Effective income tax rate ...... — 47.0%

A reconciliation of the statutory tax rate to the effective income tax rate for the year ended March 31, 2007 is not disclosed as the difference is immaterial.

10. Research and Development Expenses Research and development expenses for the years ended March 31, 2007 and 2006 were ¥4,384 million (US$37,144 thousand) and ¥3,739 million, respectively.

46 Dowa Holdings Co., Ltd. Annual Report 2007

11. Leases Lease rental expenses on finance lease contracts without ownership transfer for the years ended March 31, 2007 and 2006 are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Lease rental expenses for the year ...... ¥339 ¥283 $2,876

The amounts of outstanding future lease payments due at March 31, 2007 and 2006, including the portion of interest thereon, are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Finance leases: Future lease payments Within one year ...... ¥ 314 ¥ 450 $2,666 Over one year ...... 866 1,344 7,337 Total ...... ¥1,180 ¥1,795 $10,003

The amounts of outstanding future lease receipts due at March 31, 2007 and 2006 are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Operating leases (Lessor): Within one year ...... ¥— ¥ 103 $— Over one year ...... — 1,084 — Total...... ¥— ¥1,187 $—

The amounts of outstanding future lease payments due at March 31, 2007 and 2006 are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Operating leases (Lessee): Within one year ...... ¥2 ¥— $23 Over one year ...... 3 — 31 Total...... ¥6 ¥— $54

Acquisition cost, accumulated depreciation, net book value at March 31, 2007 and 2006 and depreciation expenses for the years ended March 31, 2007 and 2006 of the leased assets, if capitalized, are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Acquisition cost ...... ¥1,870 ¥2,941 $15,844 Accumulated depreciation ...... 691 1,145 5,859 Net book value ...... ¥1,178 ¥1,795 $9,984 Depreciation expenses ...... ¥ 339 ¥ 283 $2,876

47 Annual Report 2007 Dowa Holdings Co., Ltd.

12. Employees’ Retirement Benefit Plan The Group has a defined retirement benefit plan covering substantially all employees. The reserve for employees’ retirement benefits for the years ended March 31, 2007 and 2006 is analyzed as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Projected benefit obligations ...... ¥(15,127) ¥(14,682) $(128,148) Plan assets ...... 2,796 2,615 23,690 ...... (12,331) (12,067) (104,458) Unrecognized actuarial differences...... (189) (60) (1,603) Unrecognized prior service cost ...... (12) 39 (105) ...... (12,532) (12,088) (106,166) Prepaid pension fee ...... 53 63 449 Reserves for employees’ retirement benefits ...... ¥(12,586) ¥(12,151) $(106,616)

Net pension expenses related to the retirement benefits for the years ended March 31, 2007 and 2006 are as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2007 2006 2007 Service cost ...... ¥1,160 ¥1,029 $9,827 Interest cost ...... 218 229 1,853 Expected return on plan assets ...... (16) (13) (137) Amortization of unrecognized actuarial loss ...... 222 64 1,888 Amortization of prior service cost ...... 50 431 431 Net pension expenses ...... ¥1,636 ¥1,741 $13,863

Assumptions used in calculation of the above information were as follows: 2007 2006 Discount rate ...... 2.5% 2.5% Expected rate of return on plan assets ...... Principally 1.25% Principally 1.25% Method of attributing the projected benefits to periods of service ...... Straight- line basis Straight- line basis Amortization of unrecognized prior service cost ...... Five years Five years Amortization of unrecognized actuarial differences ...... Five years Five years

13. Trade Note Maturities The following trade notes, which matured but were not settled on March 31, 2007 because that day fell on a bank holiday, were included in the balance sheet as of March 31, 2007: Thousands of U.S. Dollars Millions of Yen (Note 1) Notes receivable ...... ¥1,051 $8,909 Notes payable ...... 923 7,821

48 Dowa Holdings Co., Ltd. Annual Report 2007

14. The Write Down of Inventories The Group recorded the following write-downs of inventories held for ordinary sales purposes due to impairment reflecting a drop in profitability: Thousands of U.S. Dollars Millions of Yen (Note 1) Cost of Sales ...... ¥1,494 $12,659 Write-down of inventories ...... 522 4,428 Total ...... ¥2,017 $17,087

15. Equity Warrants Equity warrants which the Company had for the years ended March 31, 2007 and 2006 were as follows: Number of stocks to be issued Class of stocks March 31, March 31, Balance sheet Item to be issued 2006 Increase Decrease 2007 (Millions of Yen) Equity warrants Common stock — 15,188,998 — 15,188,998 — Total — 15,188,998 — 15,188,998 —

The number of the stocks used as the purpose has indicated the number of stocks when a share warrant assumes that the exercise was carried out. An increase is based on issue. The first day of an exercise period for equity warrants has not come.

16. Segment Information The Company’s business segments, which should be separately disclosed pursuant to regulations in Japan on consolidated financial statements, consist of the following: (1) Nonferrous Metals: Production and sale of gold, silver, copper, zinc, lead, zinc alloy, indium, platinum, and other nonferrous metals (2) Environmental Management & Recycling: Waste treatment, soil remediation, metal recycling, consulting, final waste treatment and disposal facilities, and freight transport (3) Electronic Materials: High–purity gallium for compound semiconductor manufacturing, compound semiconductors for electronic and optical devices, LEDs for transmission and medical sensors, metal powders for data storage tape and other electronic materials (4) Metal Processing: Manufacture and sale of copper, brass, copper alloy strips and other copper strip products, strip plantings, brass bars and forged parts, and metal–ceramic substrates for power modules (5) Heat treatment: Heat treatment, surface treatment, and surface modification treatment, and the design, manufacture, sale and maintenance of facilities for heat treatment (6) Others: Construction, rental, geothermal business and others

From April 1, 2005, the Company began restructuring and the business scale was reduced due to sales of real estate. As a result, Construction and Real Estate information is now included in the Others segment. From April 1, 2006, the Company divided “Electronic Materials and Metal processing” into “Electronic Materials” and “Metal Processing.” This change was due to restructuring of business segments resulting in the establishment of independent operating companies. The segment date of March 31, 2006 has been reclassified to reflect this change.

49 Annual Report 2007 Dowa Holdings Co., Ltd.

Segment information by business segment as of March 31, 2007 and 2006 is summarized as follows: Millions of Yen Environmental Nonferrous Management Electronic Metal Heat 2007 Metals & Recycling Materials Processing Treatment Others Total Eliminations Consolidated I Net sales: Outside customers . . . . ¥ 243,232 ¥ 44,175 ¥ 54,991 ¥ 78,032 ¥ 27,056 ¥ 11,212 ¥ 458,701 ¥ — ¥ 458,701 Intersegment ...... 33,368 30,544 1,343 30 — 8,816 74,103 (74,103) — Total ...... 276,601 74,719 56,335 78,062 27,056 20,029 532,804 (74,103) 458,701 Operating expenses . . . 251,478 66,771 49,359 73,494 23,465 19,254 483,823 (73,856) 409,967 Operating income . . . . . ¥ 25,122 ¥ 7,948 ¥ 6,976 ¥ 4,567 ¥ 3,591 ¥ 775 ¥ 48,981 ¥ (247) ¥ 48,733

II Assets, depreciation and capital expenditures: Assets ...... ¥ 137,970 ¥ 41,983 ¥ 34,161 ¥ 50,288 ¥ 27,348 ¥ 17,465 ¥ 309,217 ¥ 43,081 ¥ 352,299 Depreciation ...... 2,483 2,241 1,716 1,318 1,064 759 9,585 312 9,897 Capital expenditures . . 5,914 2,479 4,364 4,992 3,394 166 21,312 509 21,821

Millions of Yen Environmental Nonferrous Management Electronic Metal Heat 2006 Metals & Recycling Materials Processing Treatment Others Total Eliminations Consolidated I Net sales: Outside customers . . . . . ¥ 142,852 ¥ 41,340 ¥ 46,710 ¥ 49,960 ¥ 22,196 ¥ 13,328 ¥ 316,388 ¥ — ¥ 316,388 Intersegment ...... 27,248 17,286 3,908 25 — 8,667 57,136 (57,136) — Total ...... 170,101 58,626 50,618 49,985 22,196 21,995 373,524 (57,136) 316,388 Operating expenses . . . 153,282 52,605 44,236 45,965 18,912 21,381 336,384 (56,893) 279,490 Operating income . . . . . ¥ 16,819 ¥ 6,021 ¥ 6,381 ¥ 4,020 ¥ 3,284 ¥ 613 ¥ 37,140 ¥ (242) ¥ 36,897

II Assets, depreciation and capital expenditures: Assets ...... ¥ 100,839 ¥ 37,742 ¥ 25,239 ¥ 31,928 ¥ 18,438 ¥ 28,755 ¥ 242,944 ¥ 60,085 ¥ 303,029 Depreciation ...... 2,635 2,204 1,662 1,114 773 592 8,982 333 9,316 Capital expenditures . . 2,366 3,279 1,658 2,235 1,644 844 12,029 467 12,497

Thousands of U.S. Dollars (Note 1) Environmental Nonferrous Management Electronic Metal Heat 2007 Metals & Recycling Materials Processing Treatment Others Total Eliminations Consolidated I Net sales: Outside customers . . . . $2,060,419 $374,206 $465,834 $661,011 $229,194 $ 94,983 $3,885,650 $ — $3,885,650 Intersegment ...... 282,666 258,741 11,384 254 — 74,684 627,731 (627,731) — Total ...... 2,343,086 632,947 477,218 661,266 229,194 169,667 4,513,382 (627,731) 3,885,650 Operating expenses . . . 2,130,272 565,620 418,123 622,573 198,772 163,102 4,098,463 (625,634) 3,472,829 Operating income . . . . . $ 212,814 $ 67,327 $ 59,094 $ 38,693 $ 30,422 $ 6,565 $ 414,918 $ (2,097) $ 412,821

II Assets, depreciation and capital expenditures: Assets ...... $1,168,747 $355,637 $289,381 $425,989 $231,665 $147,952 $2,619,375 $364,946 $2,984,321 Depreciation ...... 21,041 18,990 14,538 11,167 9,019 6,437 81,194 2,648 83,843 Capital expenditures . . . 50,102 21,006 36,970 42,294 28,752 1,409 180,536 4,311 184,848

Segment information by geographic area is not disclosed pursuant to regulations on consolidated financial statements in Japan, since the net sales of the Company and its domestic consolidated subsidiaries, taken as a whole, were more than 90% of consolidated net sales. Information on overseas sales is not disclosed pursuant to regulations in Japan on consolidated financial statements, since the aggregate overseas sales of the Company and its domestic subsidiaries and overseas consolidated subsidiaries was less than 10% of consolidated net sales.

50 Dowa Holdings Co., Ltd. Annual Report 2007

Report of Independent Auditors

51 Annual Report 2007 Dowa Holdings Co., Ltd.

Global Network As of June 27, 2007

OVERSEAS SUBSIDIARIES AND OFFICES

U.S.A. India ᕡDowa International Corporation ᕩHightemp Furnaces Ltd. 370 Lexington Avenue, 1-C, 2nd Phase, Peenya Industrial Area, New York, NY 10017-6503, U.S.A. Post Box No. 5809, Bangalore 560-058, India ᕢ Dowa THT America, Inc. China 2130 South Woodland Circle, 10 Shanghai Office Bowling Green, OH 43402, U.S.A. Shanghai B-1201, Far East International Plaza, ᕣ Nippon PGM America Inc. No. 317, Xianxia Road, Shanghai, China 500 Richards Run, Burlington, NJ 08016, U.S.A. ¸Dowa Advanced Materials Shanghai Co., Ltd. Mexico 8-7 Rongxiang Road, Songjiang 4 Dowa Metals & Mining Co., Ltd. Mexico Office Export Processing Zone, Shanghai, China Galileo 20, Oficina 504, Col. Polanco, ¹Dowa Environmental Management Co., Ltd. Chapultepec, C.P. 11560, México, D.F. No. 99, Yushan Road, Suzhou Xing District, ᕥMinera Tizapa, S.A. de C.V. Suzhou City, Jiangsu Province, China Calzada Manuel Gómez Morín #44 Canada Col. Torreón Residencial 13 Dowa Metals & Mining Co., Ltd. Vancouver Office C.P. 27268, Torreón, Coahulia, México Suite 1845, 701 West Georgia Street, Singapore P.O. Box 10116, Pacific Centre, ᕦDowa F-Tec (Singapore) Pte., Ltd. Vancouver, B.C. V7Y 1C6, Canada No. 13, Benoi Crescent, Jurong, Singapore 629976 Thailand ᕧ Eco-System Japan Co., Ltd. Singapore Office ƹDowa Metaltech (Thailand) Co., Ltd. No. 13, Benoi Crescent, Jurong, Singapore 629976 Gateway City Industrial Estate (in export- Taiwan processing zone), Chachoengsao Province, Thailand 8 Dowa Eco-System Co., Ltd. Taiwan Office ƺ 7F-2, No. 41, Nanking West Rd., Dowa Thermotech (Thailand) Co., Ltd. Taipei 10352, Taiwan Eastern Seaboard Industrial Estate, Rayong Province, Thailand

· ³ » ¹¸10 8 ᕥ 4 ᕩ ƹ ƺ

ᕦᕧ

Overseas Subsidiary Overseas Office

52 Dowa Holdings Co., Ltd. Annual Report 2007

Subsidiaries and Affiliates

Name Issued Share Capital Percentage 48 Consolidated (Millions of Yen, Owned Directly Subsidiaries and 9 affiliates Mexico Peso, or Indirectly by accounted for Singapore Dollars, the Company by the equity method or U.S. Dollars) (%) Principal Business Nonferrous Metals Dowa Metals & Mining Co., Ltd. 1,000 100 Operating company of nonferrous metals Kosaka Smelting & Refining Co., Ltd. 4,700 100 Smelting and refining of copper, gold, silver and others Nippon PGM Co., Ltd. 300 60 Manufacturing of platinum group metals Akita Rare Metals Co., Ltd. 20 100 Recovery of gallium and indium Akita Zinc Co., Ltd. 5,000 81 Refining of zinc and cadmium Akita Zinc Solutions Co., Ltd. 375 84 Manufacturing of zinc alloy, zinc wire and other products Zinc Excel Co., Ltd. 200 85 Sales and marketing of zinc, lead and other materials Environmental Management & Recycling Dowa Eco-System Co., Ltd. 1,000 100 Operating company of environmental management and recycling Eco-System Akita Co., Ltd. 50 100 Industrial waste treatment Eco-System Chiba Co., Ltd. 90 100 Industrial waste treatment Eco-System Sanyo Co., Ltd. 100 100 Industrial waste treatment Green Fill Kosaka Co., Ltd. 100 100 Management-type activities for waste landfill Eco-System Japan Co., Ltd. 30 90 Collection and transportation of waste and recyclable materials Eco-System Hanaoka Co., Ltd. 300 100 Soil remediation, management-type activities for waste landfill E&E Solutions Inc. 100 100 Comprehensive technological consulting in environmental management and energy Geotechnos Co., Ltd. 100 100 Soil surveys and remediation projects, environmental consulting, etc. Eco-System Kosaka Co., Ltd. 50 100 Industrial waste treatment Eco-System Okayama Co., Ltd. 100 100 Industrial waste treatment Eco-System Recycling Co., Ltd. 100 100 Recovery of precious and nonferrous metals Eco-Recycle Co., Ltd. 150 59 Recovery of discarded household appliances, personal computers and other items Act-B Recycling Co., Ltd. 200 55 Recovery of discarded household appliances, personal computers and other items Dowa-Tsuun Co., Ltd. 20 100 Logistics, mainly environmental business Electronic Materials Dowa Electronics Materials Co., Ltd. 1,000 100 Operating company of electronic materials Dowa Electronics Materials Okayama Co., Ltd. 100 100 Manufacturing of metal powders, copper powders and barium sulfate Dowa IP Creation Co., Ltd. 300 70 Manufacturing of iron powders for use in copiers Dowa F-Tec Co., Ltd. 300 100 Manufacturing of ferrite powders Dowa F-Tec (Singapore) Pte., Ltd. S$3*1 100 Manufacturing of ferrite powders for plastic magnets Dowa Semiconductor Akita Co., Ltd. 300 100 Manufacturing of high-purity metal materials, compound semiconductor wafers and light-emitting diodes Dowa Hightech Co., Ltd. (Chemical) 450 100 Manufacturing of metal compounds, chemical products and silver powders Metal Processing Dowa Metaltech Co., Ltd. 1,000 100 Operating company of metal processing Dowa Metal Co., Ltd. 400 100 Manufacturing of copper and brass strip, and copper alloy strip products New Nippon Brass Co., Ltd. 100 100 Manufacturing of various types of brass bar and forged products Dowa Power Device Co., Ltd. 100 100 Metal-ceramic substrates manufacturing Hoei Shoji Co., Ltd. 110 100 Processing and sales of copper strip products and aluminum products Dowa Hightech Co., Ltd. (Electroplating) 450 100 Plating of electronics parts and strips Heat Treatment Dowa Thermotech Co., Ltd. 1,000 100 Operating company of heat treatment Dowa Thermoengineering Co., Ltd. 100 100 Heat treatment. Manufacturing and maintenance of heat treatment equipment. Cemm Co., Ltd. 55 100 Heat treatment. Manufacturing and maintenance of heat treatment equipment. Dowa THT America, Inc. US$5 100 Heat treatment. Manufacturing and maintenance of heat treatment equipment. Others Dowa Engineering Co., Ltd. 100 100 Civil engineering, design, execution, and management of construction projects Showa Kaihatsu Kogyo Co., Ltd. 50 100 Construction and quarrying Dowa Techno Engineering Co., Ltd. 400 100 Plant construction Yowa Kouei Co., Ltd. 20 100 Civil engineering projects Akita Kouei Co., Ltd. 95 98 General civil engineering projects, construction products, etc. Dowa Kosan Co., Ltd. 305 100 Management of real estate Dowa Management Service Co., Ltd. 850 100 Financial and corporate administration services Dowa Technology Co., Ltd. 10 100 Support for heightening the Dowa Group’s business and technological capabilities Dowa Techno-Research Co., Ltd. 10 100 Environmental measurement and authorized special environmental measurement certification business (dioxins) Akita Geothermal Energy Co., Ltd. 300 100 Supply of geothermal steam for electricity generation Nine Affiliates Accounted for by the Equity Method Kowa Seiko Co., Ltd. 1,000 50 Industrial waste treatment, recovery of ferrous and nonferrous materials Onahama Smelting & Refining Co., Ltd. 7,000 32 Copper smelting and refining Nippon AN-FO Manufacturing Co., Ltd. 91 29 Production and marketing of industrial explosives Fujita Kanko Inc. *2 12,081 28 Lodging and hotel management; real estate agent Japan Copper Casting Co., Ltd. 200 30 Various types of copper production Minera Tizapa, S.A.de C.V.*3 M.P.59*4 39 Prospecting, development, mining and ore preparation Okayama Rinko Co., Ltd. 98 33 Warehousing; other business activities Acids Co., Ltd. 150 50 Sale of sulfuric acid and others Takeuchi Metal Foil and Powder Co., Ltd. 80 50 Production, processing and marketing of metal foil and powder *1 S$: Singapore Dollars *2 The shares of this company are listed on the Tokyo Stock Exchange and the Osaka Securities Exchange. *3 Common stock includes revalution adjustments under inflation accounting. *4 M.P.: Mexico Peso

53 Annual Report 2007 Dowa Holdings Co., Ltd.

Corporate History

1884 The Japanese government sells the Kosaka mine to Fujita Gumi, 1994 Kyushu Branch is established. which was established by Dowa’s founder, Denzaburo Fujita. Minera Tizapa, S.A. de C.V. starts operations.

1898 Fujita Gumi begins using a dry-refining method for refining 1995 Metallic Materials Laboratory, Fine Chemicals Laboratory, and kuroko (complex sulfide ores) at the Kosaka mine. Magnetic Materials Laboratory are established.

1899 Fujita Gumi begins land drainage and reclamation work in 1996 Technology Research Center for Metals Division is established. Kojima Bay, Okayama Prefecture. 1997 Fine Chemicals Laboratory is reestablished as Electronic 1902 Fujita Gumi begins using a revolutionary method for process- Materials and Parts Laboratory. ing kuroko, thereby restoring the commercial viability of the Dowa THT America, Inc. is established. Kosaka mine. 1998 Okayama Clean Works starts operation of new incinerator for 1912 Production of electrolytic zinc is begun at the Kosaka mine. industrial waste.

1915 Fujita Gumi acquires the Hanaoka mine. 1999 Eco-Recycle Co., Ltd. is established.

1916 Fujita Gumi acquires the Yanahara mine. 2000 Dowa acquires Nippon Purle Limited.

1919 Fujita Gumi establishes the Toyosaki Plant (currently Dowa 2001 Eco-Recycle Co., Ltd. starts operations. Metal Co., Ltd.) Dowa acquires E&E Solutions Inc. Recycle Systems Japan Co., Ltd. is made a subsidiary. 1937 Fujita Gumi and Fujita Mining Co., Ltd. merge to create Fujita Gumi Co., Ltd. 2002 Shanghai office in China is established. Akita Zinc Solutions Co., Ltd. is established. 1945 Corporate name is changed to Dowa Mining Co., Ltd. Kosaka Plant completes and begins operating metal and 1953 Okayama Works is established. vapor recovery furnaces. 1957 Dowa Mining absorbs Fujita Kogyo Co., Ltd. Recycle Systems Japan Co., Ltd. sets up a new plant in western Japan. 1967 Kosaka Plant is completely equipped with flash furnaces. Dowa Advanced Materials Shanghai Co., Ltd. is established.

1971 Akita Zinc Co., Ltd. is established. 2003 Zinc Excel Co., Ltd. and Acids Co., Ltd. are established. 1976 Kosaka Plant begins producing indium. Dowa Environmental Management Co., Ltd. is established.

1982 Semiconductor Materials Laboratory is established. 2004 Analysis departments of Group companies in the Akita area are consolidated into a newly established company, Dowa 1983 Okayama Works completes and begins operating a facility for Techno-Research Co., Ltd. manufacturing metal powders used in 8mm videotape. New landfill site “Green Fill Kosaka” starts operations. 1986 Hanaoka and Kosaka mining operations are transferred from the 2006 Dowa acquires Act-B Recycling Co., Ltd. parent company to two newly established subsidiaries—Hanaoka Dowa relocates Head Office to Akihabara, Tokyo. Mining Co., Ltd. and Uchinotai Mining Co., Ltd., respectively. Dowa acquires Cemm Co., Ltd. 1989 New York-based Dowa International Corporation is established. Dowa adopts a holding company system. Kosaka Plant is separated from the parent company in the Dowa Mining changes its name to Dowa Holdings Co., Ltd. form of a subsidiary—Kosaka Smelting & Refining Co., Ltd. Dowa Mining’s five business divisions are spun off to become core operating companies. 1990 Dowa Mining absorbs Dowa Kosan Co., Ltd. Dowa Metaltech (Thailand) Co., Ltd. is established in Thailand. Environmental Protection Laboratory is established. Tokuyama-Dowa Power Materials Co., Ltd. is established. 1991 Dowa Mining absorbs Tokyo Heat Treating Co., Ltd. 2007 Dowa Thermotech (Thailand) Co., Ltd. is established in Thailand. 1992 Mexico-based Minera Tizapa, S.A. de C.V. is established. Dowa Eco-System Co., Ltd. Taiwan Office is established. Shiojiri Works is completed.

1993 Okayama Clean Works facility is completed. Thermo-Technology Center is completed.

54 Dowa Holdings Co., Ltd. Annual Report 2007

Corporate Data

The data indicated below is for Dowa Holdings Co., Ltd. The data indicated below is for Dowa Holdings Co., Ltd. and its consolidated subsidiaries. Founded: September 18, 1884 Main Business: Nonferrous metal smelting and refining, Environmental services & Incorporated: recycling, Electrical & electronic materials, Metal production and March 11, 1937 fabrication, and Heat treatment

Authorized Shares: Employees: 1,000,000,000 shares (As of March 31, 2007) 3,823 (As of March 31, 2007)

Shares Issued: Major Domestic Operations: 303,790,809 shares (As of March 31, 2007) Domestic Works Akita, Iwate, Nagano, Tochigi, Chiba, Saitama, Kanagawa, Shizuoka, Common Stock: Aichi, Shiga, Okayama, Shimane, Kumamoto ¥36,436 million (As of March 31, 2007) Domestic Branches Stock Listing: Tokyo, Chiba, Shizuoka, Aichi, Osaka, Fukuoka Common stock is listed on the Tokyo, Nagoya and Fukuoka stock Laboratories & Development Groups exchanges and the Osaka and Sapporo securities exchanges. Techno Center (Saitama), Dowa Technology Co., Ltd. Metallurgical Laboratory (Akita), Dowa Metals & Mining Co., Ltd. Number of Shareholders: Environmental Protection Laboratory (Akita), Dowa Eco-System Co., Ltd. 15,305 (As of March 31, 2007) Semiconductor Materials Laboratory (Akita), Electronics Materials Principal Shareholders: Laboratory (Saitama), Magnetic Materials Laboratory (Okayama), Dowa Electronics Materials Co., Ltd. Percentage of Outstanding Metallic Materials Laboratory (Shizuoka), Dowa Metaltech Co., Ltd. (As of March 31, 2007) Shares (%) R&D Center (Shizuoka), Dowa Thermotech Co., Ltd. Japan Trustee Services Bank, Ltd. (Trust Account) 9.59 The Master Trust Bank of Japan, Ltd. (Trust Account) 6.38 Fujita Kanko Inc. 4.51 Mizuho Corporate Bank, Ltd. 2.43 Mizuho Trust Retirement Benefit Trust 2.37 (Trust & Custody Services Bank, Ltd. as Custodian Marubeni A/C Sub-Trustee Trust & Custody Services Bank, Ltd.) Resona Bank, Ltd. 2.29 National Mutual Insurance Federation of Agricultural Cooperatives 2.15 Nippon Koa Insurance Co., Ltd. 1.65 Nippon Life Insurance Company 1.61 JEE Steel Corporation 1.37

55 Dowa Holdings Co., Ltd. 14-1, Sotokanda 4-chome, Chiyoda-ku, Tokyo 101-0021, Japan Dowa

URL http://www.dowa.co.jp/

Holdings

Ltd

Annual

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200

Printed in Japan