5-1, Kiba 1-chome, Koto-ku, Tokyo 135-8512, Japan Fujikura Ltd. Tel. +81-3- 5606 -1030 ANNUAL REPORT 2007 Fax. +81-3-5606-1502 URL. http://www.fujikura.co.jp ANNUAL REPORT 2007

“TSUNAGU” Technology

Printed in Japan Management Policies under the New Medium-Term Business Plan

Since its establishment in 1885, Fujikura has continuously contributed to the advancement of society by developing cutting-edge technologies and conducting its business on a foundation of trust and dependability. However, in order to not only survive but also win in this market of constant and dramatic change, it is necessary to fundamentally reform our corporate culture. To achieve this objective,

FUJIKURA positioned 2005 as a year of rebirth – the beginning of the “Third 60 Years.” With this in mind, we have formulated the “Mission •

Vision • Core Values” to be shared by all Fujikura Group employees – a new set of corporate management concepts and principles that will help us successfully navigate a new path to the future. Based on our new corporate philosophy defined in our “Mission • Vision • Core Values,” we have commenced our G-FPS (Global Fujikura Production System) campaign under which we are implementing various strate- gies and plans. In our G-FPS activities, “Quality First” is the core concept that serves as the platform for our production activities, and injects the culture of manufacturing with the spirit of craftsmanship. We must clarify to all that “Quality First” is “an absolute to be implemented from the customers’ perspective,” and are undertaking a reform of our corporate climate to press forward with the “Third 60 Years.”

In our G-FPS activities, we use the corporate philosophy “Mission • Vision • Core Values” as a compass to navigate our way to customer value creation, and each individual is an integral contributor in helping us to realize of our goals of reinforcing craftsmanship and eliminating waste wherever possible. These activities will be implemented not only in the Fujikura Group’s Japanese operations, but also overseas, in all areas of operations, at both production plants and support divisions.

Policy of the New Mid-Term Business Plan Toward a “Customer Value Creation Business Model” “Deliver value, not just products, to customers”

Sustained awareness of “Mission • Vision • Reinforcement of “Monozukuri (manufacturing)” Core Values (MVCV)” and promotion of MVCV culture and to “Eliminate waste (Nothing is organizational cultural reform scared in the quest for zero waste)” Business Strategy Goals through promotion of G-FPS

Business Strategy (Companywide & By Sector)

Mid-term & Single Year Execution Plan

G-FPS Activities Nothing is sacred in Manufacturing Culture of “Change” Sales-oriented the quest for zero waste Quality Improvement Management

Quality First Confirm “what MUST be performed and achieved” from the Customer’s perspective and “change” organizational culture to satisfy these requirements.

Contents

Consolidated Financial Highlights ...... 1 Management’s Analysis of Financial Position and Operating Results... 17 A Message from the President & CEO ...... 2 Consolidated Balance Sheets ...... 18 Focusing on fused technology of optics, electronics and wireless ...... 6 Consolidated Statements of Income...... 20 Fujikura at a Glance...... 8 Consolidated Statements of Changes in Net Assets ...... 21 Telecommunications ...... 9 Consolidated Statements of Cash Flows ...... 22 Electronics & Auto ...... 10 Notes to the Consolidated Financial Statements ...... 23 Metal Cable & Systems ...... 11 Report of Independent Auditors...... 36 Directors, Corporate Auditors and Executive Office rs ...... 12 Main Consolidated Subsidiaries...... 37 Corporate Social Responsibility ...... 13 Investor Information...... 37 Consolidated Financial Highlights Fujikura Ltd. and its Consolidated Subsidiaries

thousands of millions of yen U.S. dollars Years ended March 31, 2003 2004 2005 2006 2007 2007 For the Year Net Sales ¥316,909 ¥331,325 ¥360,752 ¥503,090 ¥645,984 $5,470,272 Income from Operations 8,887 13,359 16,763 39,758 34,508 292,214 Net Income (Loss) (5,630) (2,557) 5,412 24,990 21,484 181,932 Capital Expenditure 23,493 21,046 21,506 24,598 32,412 274,471 Research and Development Expenditure 11,356 11,010 12,128 12,252 12,291 104,085

At Year-End Total Assets 421,633 412,316 411,619 465,358 536,766 4,545,402 Total Shareholders’ Equity 177,474 177,852 181,029 — — — — — — 223,824 254,638 2,156,312

Number of Employees 23,873 23,825 27,553 33,658 43,874

yen U.S. dollars Per Share Data Net Income (Loss) – Primary ¥(14.6) ¥(6.7) ¥14.4 ¥66.2 ¥57.3 $0.485 Net Income – Fully Diluted — — — — — — Cash Dividends 3.0 3.0 6.0 10.0 10.0 0.085

Note 1: All dollar figures herein refer to U.S. currency, which have been translated from yen amounts, for convenience only, at the rate of ¥118.09=US$1.00, the rate of exchange on March 31, 2007. 2: Fujikura Ltd. and its subsidiaries restated their consolidated financial statements for the years ended March 31, 2005 and 2006. The consolidated financial statements for the years ended March 31, 2004 and 2003 were not restated.

Net Sales Income from Operations Net Income (Loss)

(millions of yen) (millions of yen) (millions of yen) 700,000 40,000 30,000

600,000 30,000 20,000 500,000

400,000 20,000 10,000 300,000

200,000 10,000 0 100,000

0 0 -10,000 2003 2004 2005 2006 2007 20032004 2005 2006 2007 20032004 2005 2006 2007

Total Assets Shareholders’ Equity Shareholders’ Equity to Total Assets

(millions of yen) (millions of yen) (%) 600,000 300,000 50

500,000 40

400,000 200,000 30 300,000 20 200,000 100,000

10 100,000

0 0 0 20032004 2005 2006 2007 20032004 2005 2006 2007 20032004 2005 2006 2007

ANNUAL REPORT 2007 1 A Message from the President & CEO

Dating from 1885 – the year of our birth as a manufacturer of wire insulated by silk and cotton windings, 2006 marked the 121st year of Fujikura’s existence. Throughout this period, which is the equivalent of two traditional 60-year lifetimes. Fujikura has continued to contribute to the advance of soci- ety and earn its trust through the development and manu- facture of cutting-edge technology. Today we are taking our fi rst bold steps into our “Third 60 Years of Leadership”, and we have announced a new mid-term business plan that targets FY2010 for the achievement of our goals. As a “Value Creation for Customer” enterprise, an approach that delivers original value – not just products – to our customers, Fujikura is committed to enriching the society of tomorrow.

Looking back on FY2006

The Japanese economy during the last fiscal year (April 1, 2006~March 31, 2007) enjoyed overall growth. Both capital investment and hiring increased in step with the improving corporate profi ts, stimulating a moderate recovery in personal consumption. For Fujikura, this generally favorable climate served as a tailwind for our business activities. On the other hand, factors such as soaring material costs in global mar- kets and increasingly severe price competition produced new hurdles to overcome. As a result, while consolidated sales of Fujikura reached ¥645,984 million – a 28.4% increase over the previous year and the highest in our history, we recorded ordinary profi t of ¥32,772 million for the same period or a 9.0% decrease from the previous year, which was mainly attributed to downward pressures on our supply price of flexible printed circuits (FPC). However, dividends of ¥10 per share were the same as in the previous fiscal year. In the Telecommunications segment, we witnessed the continuing rapid expansion of the broadband market and aggressive investment in Fiber To The Home (FTTH) infra- structure by carriers both in Japan and abroad. Anticipating this demand, our strategy to increase optical fi ber & optical fiber cable manufacturing capacity proved successful, and Kazuhiko Ohashi, President & CEO we have enjoyed growth in not only sales but also profits

2 Fujikura Ltd. thanks to reduced manufacturing costs. America Fujikura Ltd. fine-pitch connectors and dome switches for mobile devices, (AFL) reported strong sales of optical fiber cable and related Fujikura will boost sales and improve profitability. For FY2007, connectivity products, further contributing to favorable results we are targeting FPC sales of ¥100 billion and expect to in this segment. further expand sales to ¥150 billion in FY2010. In the Electronics & Auto segment, the recovery in In order for our Automotive Electronics business to consumer spending has fueled expansion of products respond to the globalization of the automobile industry, we ranging from digital appliances and mobile phones to digital acquired a 60% equity share in Auxiliar de Componentes cameras. On the other hand, the severe price competition Electricos, S.A. (“ACE”), a manufacturer of wire harnesses in facing these consumer goods in turn had a large impact on Spain, in October 2006. The addition of ACE to the Fujikura our core FPC (flexible printed circuits) business, resulting in Group reinforced our supply system and completed our the unavoidable reduction of our prices. global network of 4 centers serving Japan, China, North In the Metal Cable & Systems segment, Fujikura also America and Europe. The powerful synergy of Fujikura’s enjoyed favorable results driven by strong investment in plant technological excellence and ACE’s strong relationship with and equipment, large-scale commercial facility construction European automakers is expected to contribute to significant in Japan, and our positioning as a supplier for overseas plant future growth of our European operations. We are committed engineering projects. From the perspective of profitability, soaring to answering the remarkable electronics revolution in auto- copper prices were absorbed by an appropriate adjustment motive design by incorporating FPC, membrane switches in cable product prices, but more importantly by successful and other strengths of Fujikura technology in new product efforts to reduce costs. As a consequence, operating profi ts proposals for our Automotive Electronics business. were about double the level of the previous year. Through the execution of these strategies, our business plan aims at growing the Electronics & Auto segment into a core business of Fujikura, targeting sales of ¥400 billion (66% New mid-term business plan targets new levels of increase compared with FY2006) and operating profi t of ¥35 growth and improved profitab ility. billion (182% increase compared with FY2006) in FY2010, or Announced in June 2007, the new mid-term business plan approximately half of all company sales and profits. clearly positions the Electronics & Auto segment as the In the Telecommunications segment, we will exploit nucleus of Fujikura’s business and aims at driving growth our globally leading cost competitiveness in optical fi ber and increased profi tability through aggressive investment. manufacturing and focus on expanding sales in overseas Through these efforts, Fujikura plans to achieve total sales markets. In response to the global expansion of FTTH of ¥850,000 million on a consolidated basis in FY2010 (32% networks, we will leverage the powerful sales channels that increase compared with FY2006) and operating profi ts of have won Fujikura the top share of the global connectivity ¥68,000 million (97% increase compared with FY2006). This device market. Our aim is to grow and become the world’s will represent an increase in the operating profi t ratio from the leading optical cable system provider. Also in the field of current 5.3% to 8.0%. device components, we will expand sales in the medical In the Electronics & Auto segment, we will pursue field, sensors, automotive applications and other non- aggressive investment in the core FPC products, aiming at telecommunications markets that hold huge future potential enhanced product functionality and further modularization. for optical technology applications. With these expectations By offering a complete lineup of added-value module in mind, Fujikura is committing even larger investments in products that combine FPC with other components such as related research and development.

ANNUAL REPORT 2007 3 A Message from the President & CEO

Engineering Service is a strength of AFL, and Fujikura with a handful of trusted clients. Today, however, demand will be concentrating its energies on expanding its presence from the domestic infrastructure has peaked, and we must in the giant American market. seek new concepts and approaches in order to achieve The Metal Cable & Systems segment market is quite further growth. With the aim of instilling the spirit and com- mature, especially in Japan, and significant growth is not mitment towards starting anew, I declared the “Third 60 expected; however, because this segment continues to be a Years” of Fujikura. stable source of sales and takes advantage of core technolo- No matter what business strategy we formulate, it will gies that have been fostered over our 120-year corporate be the spirit of the employees to meet and overcome new history, it will maintain a high priority at Fujikura. In overseas challenges that will determine our success. In October 2005,

markets such as China and the Middle East, demand is brisk. I unveiled our new corporate philosophy “Mission • Vision • Last year we sought improved effi ciencies on the production Core Values (MVCV)” and our mission, stating “Our FIRST side by consolidating the manufacturing of metal cable for RESPONSIBILITY is to our customers. We shall help them telecommunications in the Suzuka Plant. Through these sustain and develop their business by providing superior marketing and production measures, we forecast operating products and services through “TSUNAGU” (connection) profits of ¥10 billion in FY2010 – twice the level of FY2006. technologies.” Every since then, I have been visiting our Over the 4-year period from FY2007 to FY2010, the offices and plants around Japan and the world, and urging planned investment in plant and equipment that will support employees to embrace “change” and take an active role our strategies will total approximately ¥150 billion, of which in the “Third 60 Years” of our company. In order to make 60% will be allocated to the Electronics and Auto segment our aims for the Third 60 Years easier to understand and and 15% to Telecommunications segment. Also during to encourage common understanding, we produced an the same 4-year period, approximately ¥70 billion is to be illustrated book entitled “Tobu Zo” (Let’s Fly) in August 2006, invested in research and development with a focus on fused and distributed it to our employees, allowing me to share my technologies of optical/ thoughts on the joy and sense of achievement that can be wireless and electronics, found in a job well done. and also on life sciences. In June of this year, we announced our new mid-term Since June 2007, we business plan, which established goals to be achieved in have been concentrating FY2010. As one of the companywide activities to help us our domestic R&D activi- reach these targets, we launched G-FPS (Global Fujikura ties in the Sakura Plant, Production System). Based on the fundamental concept of enabling us to pursue our “Quality First” – which is the platform for all our manufactur- research more efficiently. ing, G-FPS calls on each employee to take the initiative and tackle their jobs with our “MVCV” corporate philosophy serving as their navigator. While reinforcing the essential Our key to success in the Third 60 Years is our manufacturing culture, we are eliminating waste wherever it employees. exists – not only in our domestic group operations but also In the previous era, the core business of Fujikura was driven overseas. Not only in every corner of manufacturing, but any by booming demand generated by the electrical power and operation indirectly related to or supporting manufacturing is telecommunications infrastructure. As a result, we enjoyed subject to severe scrutiny. Nothing is sacred in our quest to strong and steady business performance built on relationships cut waste.

4 Fujikura Ltd. Always “connected” with society.

Throughout the long history of Fujikura, we have assigned the highest priority to our social responsibilities. In 1919, our founder’s family donated both personal funds and land for the creation of Fujikura Gakuen, a special facility for the mentally challenged. Since then, our company and our employees have continued to fully support this institution. In June of this year as part of the commemoration of the 120th anniversary of our founding, we presented Fujikura Gakuen with a newly constructed main hall to replace the aging facili- ties as well as a new building where the mentally challenged can receive training to help them become more self-reliant. Fujikura’s contribution does not end at the shores of Japan. Our Group employs approximately 43,000 people, and in Thailand, where Fujikura is one of the largest Japan- based corporate groups operating in that country, we are from FY2006) on a consolidated basis. The main factor contributing to local education through a variety of activities behind our forecast for decreased profits is the lingering including sponsorship of scholarships and donation of impact of FPC price erosion. recreational equipment to primary schools. Guided by our new mid-term business plan, we shall Fujikura is also aggressively tackling environmental endeavor to achieve further growth and improve our profit- management and is in the process of earning ISO14001 ability. Above all, we aim to raise shareholder value with a certification for all its domestic business and manufacturing dividend payout ratio of 30% as our target. centers. With the continued support and encouragement of all All over the world, awareness and expectations of our investors and shareholders, I look forward to not only corporate social responsibility are on the rise. For companies meeting but also exceeding your expectations. that aspire to be corporate citizens on a global scale, it is vital to be conscious of responsibilities on the global stage June 2007 and to have a clearly defined and executed CSR policy. At Fujikura, we strive to conduct ourselves, fully aware of our economic, environmental and social responsibilities, and we are committed to improvement of social welfare and making our world a better place for all. Kazuhiko Ohashi President & CEO Prospects for FY2007

In our business plan for FY2007, we expect to record net sales of ¥655 billion (+1.4% from FY2006), ordinary profi t of ¥30 billion (-8.5%) and after-tax profits of ¥ 20 billion (+6.9%

ANNUAL REPORT 2007 5 Focusing on fused technology of optics, electronics and wireless

As a research-driven company that regards high-tech as the wellspring of its competitiveness, Fujikura pursues advanced R&D activities to support all aspects of its Telecommunications, Electronics & Auto, and Metal Cable & Systems segments. In Japan, we operate three research facilities including Optics and Electronics Laboratory, Material Technology Laboratory, and Electron Device Laboratory. Besides these laboratories, Electronic Components R&D Center, Optical Cable System R&D Center, and Optoelectronics Circuits & Systems R&D Center, and Power and Telecommunication Cable System R&D Center are operating in each fi eld of our business segments. Overseas, we operate the Fujikura Technology Singapore facility. Below is an outline of current progress in R&D activities.

Telecommunications

With proven strength in optical communications technologies, the Fujikura Group supplies optical fiber cables and optical components all over the world. In Japan, major telecommunications carriers are working to expand broadband FTTH (Fiber to the Home) subscribership. Fujikura is contributing to this effort through the development and supply of a broad range of miniature optical connectors and other components at reduced costs with the aim of supplying FTTH networks to a larger number of households. Of late the high-end residential condominium market shows the most promise for growth in demand. For this application, Fujikura has developed highly flexible optical fiber cable – halving in bending radius of conventional cable – facil- itating cable installation. Fujikura maintains the major share of the world market for state-of- the-art optical fiber fusion splicers which can connect large core optical fiber and other special purposed fi bers. Fujikura is also developing a 10 Gbps optical transceiver and a 10 Gbps optical transponder. We are also developing applications for industries other than telecommunications, including fiber lasers and optical interconnection modules.

6 Fujikura Ltd. Electronics & Auto

This segment supplies flexible printed circuits (FPC), electronic wire, semiconductor device packaging products and thermal products such as heat pipes to the digital consumer appliance and electronic device industries. We supply wire harnesses and other electronics to the automotive industry. We are currently observing an accelerating trend toward more advanced functionality, com- pactness and reduced costs in digital home appliances as well as electronic devices. To meet the requirements of these applications, Fujikura is developing technologies that include fine-patterning and multi-layering technologies, IC-chip-embedded board and low spring-back materials for substrate use. In electronic wiring, we have begun to mass-produce micro coaxial cables and we are further developing our technologies to achieve even smaller wire radii. Our semiconductor packaging products employ WLP (Wafer Level Packaging) technology. We have used this technology in conjunction with our expertise in MEMS (Micro Electro Mechanical Systems) technology to establish a method for three-dimensional pattern processing which used through silicon vias (TSV). For thermal devices, we are developing systems that incorporate cooling fans in addition to conventional heat pipes and heat chambers. For electrical components, we have commercialized static capacitance sensors, Liquid Crystal back light cooling heat pipes and antenna coils for RFID (Radio Frequency Identifi cation). We plan to continue our efforts to adapt our proprietary technologies to electrical components.

Metal Cable & Systems

In step with our expansion on the global stage, our development in Metal Cable & Systems is increasingly focused on meeting the relevant component, construction and installation requirements in those overseas markets, as well as the development of power distribution systems and components that satisfy the diverse needs of the new approaches to environ- mentally friendly power generation. In the field of telecommunications metal cable, we are focusing on the development of corrugated coaxial cable known for its superior electrical and mechanical properties, and leaky coaxial cable for the era of “ubiqui- tous” networking. Another type of micro coaxial cable was also developed and joined our electronics lineup.

In the area of YBa2Cu3O7-x (YBCO) oxide superconducting wire, Fujikura is attracting global attention for development of prototype superconducting coil that generated 1 tesla and powered a motor driving a propeller in an underwater experiment - the first time that this has been achieved anywhere in the world. Future plans will see the production of longer superconductive coils to be used in feasibility research with a view towards commercialization.

ANNUAL REPORT 2007 7 Fujikura at a Glance

>> Telecommunications Segment

Leading the world in optical fi ber manufacturing technology, Fujikura has pioneered optical fiber cable, optical components, optical fusion splicers and other products for the Fiber to Net Sales the Home (FTTH) sector. For the development of FTTH and next-generation networks in 18% Japan and abroad, we are combining our proprietary technology with the latest technolo- gies to provide total solutions that satisfy the demands of every aspect and application of optical networks.

>> Electronics & Auto Segment

As a Global Wiring Solution Provider, Fujikura is the source for one-stop solutions ranging from flexible printed circuits (FPC) that enable higher functionality and miniaturization in Net Sales digital cameras and mobile phones to a variety of other products including electronic wiring, 36% components for hard disk drives, membrane switches, micro heat pipes, heat sinks, vapor chambers and other modular products. In car electronics, the establishment of a new base in Europe – principally for the production of automotive wire harnesses incorporating advanced wiring technologies, completes a global production network that boasts production bases in each of the four key marketing regions of the world.

>> Metal Cable & Systems Segment

In addition to supplying metal cable for telecommunications including coaxial cable, tele- communications cable for telephone use and plant instrumentation cable, Fujikura provides a variety of other electric wiring and cable such as the electric and control cable used inside Net Sales buildings and factories, industrial device cable, as well as the electric wiring and cable used 42% in elevators, shipping, rail transportation, and various other industrial applications, and we also supply eco products. Fujikura also enjoys a global reputation for the performance and reliability of ultra- high voltage (500,000 volts) underground and submarine transmission cable, overhead power transmission networks for electric power companies, and overhead power and ground wiring incorporating optical fi ber.

>> Other

The former Fujikura plant site at Kiba in Koto Ward, Tokyo (70,000 square meters) has been redeveloped into an integrated urban complex that includes offi ce buildings, a shopping Net Sales mall, a cinema complex, a fi tness club, and restaurants. The new offi ce building (N-Tower) 4% completed in January 2007 and the S-Tower completed in 2003 together comprise the twin-tower centerpiece of the project. Sales in this segment totaled ¥14.2 billion, up ¥700 million year-on-year, reflecting real estate rental revenues principally from the Fukagawa redevelopment business. Operating profit rose ¥500 million year-on-year, to ¥3.6 billion.

8 Fujikura Ltd. Telecommunications

Business Activities In the Telecommunications segment, we expect an ongoing expansionary trend in FTTH worldwide. In the segment’s mainstay optical cable and network equipment operations, we anticipate growing demand for backbone and access systems. Fujikura is expanding its sales network in the U.S., and also in China, India, Russia, Net Sales the Middle East and Africa. Strong sales of optical fiber cable and optical fusion splicers are (millions of yen) primarily attributable to our cost competitiveness, which we have improved over the long 120,000 term. We will continue making patient efforts to enhance our strengths.

100,000 Results Steady growth in demand for FTTH both in Japan and overseas has fueled strong demand for our optical fiber cables and optical connection components for access networks as well 80,000 as optical fusion splicers. In particular, robust demand for optical fiber cable contributed significantly, resulting in a growth in both revenues and earnings. Overseas, America Fujikura

60,000 Ltd., our U.S. unit achieved a dramatic growth in revenues and earnings thanks to strong demand for optical fiber cable and connecting components. The Telecommunications seg- ment reported a ¥17.3 billion increase in sales, to ¥117.7 billion on a consolidated basis, while 40,000 operating profit grew ¥4.0 billion, to ¥13.6 billion.

20,000 Major Businesses Optical fiber & optical fiber cables, optical connectors and connection components, optical devices, optical fusion splicers, optical network monitoring systems, optical transmission 0 2003 2004 2005 2006 2007 equipment, optical wiring systems, and telecommunications-related installation projects.

ANNUAL REPORT 2007 9 Business Activities In the Electronics & Auto segment, we forecast growth in demand from digital home electronics and mobile equipment manufacturers for our mainstay FPC (flexible printed circuits) and con- nector products, amid the spread of “ubiquitous networks.” On the other hand, the operating environment is quite severe, given the shortened product lifecycles and intensifying price competition. We will be required to undertake active investment, while maintaining a cautious stance on decision-making for individual projects, to raise profi ts under these circumstances. We will continue to proactively invest in production capacity for FPC, connectors, and HDD (hard disk drive) components, among other items. We are working to raise our production yield and improve product quality by upgrading our production capabilities.

Results Sales in the Electronics & Auto segment rose ¥43.3 billion to ¥240.9 billion. Operating profi t declined ¥12.3 billion to ¥12.3 billion. FPC products performed well amid a growing market for digital home electronics, mobile phones, and digital cameras. The impact of severe price

competition for these fi nished products made reductions in the price of FPC, as a component, Net Sales unavoidable. In terms of profi ts, there was a considerable deterioration compared with the previ- ous year’s results, which was the primary reason for the decline in the overall operating profit for (millions of yen) 250,000 the Electronics & Auto segment. In addition, we made extensive efforts to boost sales of con- necters, taking advantage of market expansion, and achieved a year-on-year growth in sales. In the field of electronic wire harnesses, demand remained strong for micro coaxial cables 200,000 for use in mobile phones. Wire harnesses for automotive applications remained steady. In order to commit actively to the automotive industry, which is flourishing globally, we acquired a 60% stake in Auxiliar de Componentes Ele´ctricos, S.A. (“ACE”), a Spanish manufacturer of wire 150,000 harness, and then, in December, we acquired the remaining shares in the Chinese joint venture company Fujikura Changchun Ltd. from the U.S. company Alcoa Inc., making it our wholly owned subsidiary. 100,000 The Group already operates production bases for wire harnesses in Japan, the U.S. and China. The acquisition of ACE has enabled the establishment of a base in the European market, and helped us to create a system for responding to demand in the world’s leading vehicle markets. 50,000

Major Businesses Flexible printed circuit boards (FPC), connectors, automotive wire harnesses, automotive compo- 0 nents, sensors, electronic wiring, hard disk drive components, micro heat pipes and heat sinks. 2003 2004 2005 2006 2007

Electronics & Auto

10 Fujikura Ltd. Metal Cable & Systems

Business Activities Markets for the Metal Cable & Systems segment have already matured. Nonetheless, there still exists room for developing new products and carving out new demand, and we are making strenuous efforts to this end. Moreover, we are consolidating manufacturing facilities to improve profi tability and enhance our cost-competitiveness.

Results Thanks to a high level of capital investment in Japan, centered primarily on the construction of large-scale commercial facilities, and the robust overseas demand for plants, the industrial-use wire market saw steady growth. Another factor was the ongoing upward trend in copper prices that began the preceding year. Overall, sales for the Metal Cable & Systems segment rose ¥81.4 billion to ¥273.0 billion, registering a substantial growth. Operating profit in this segment came to ¥4.9 billion, an increase of Net Sales ¥2.6 billion year-on-year, and a major improvement in performance achieved through cost-cutting measures implemented in recent years and a strong performance in overhead power transmission (millions of yen) 300,000 wires in the U.S. market. In the Japanese market, on April 1, 2006 the telecommunications-use metal cable business of the Telecommunications segment was incorporated into the Power Cables segment, and 250,000 relaunched as the Metal Cable & Systems segment. In addition, we transferred production facilities of metal cables from our Sakura Plant to our Suzuka Plant, consolidating production to enhance 200,000 effi ciency in manufacturing and to strengthen our technological and development capabilities. Simultaneously, we worked to unify the leadership of Group companies, provide support for pro- duction, and upgrade manufacturing technologies as we undertook reorganization of operations. 150,000 Overseas, we set up a joint venture in China to manufacture and sell components for use in electric power networks supplying electric power for homes and small businesses in units of 6.6 100,000 kv or less. These components consist primarily of metal and rubber parts for connecting electric cables and attaching cables to electric poles.

50,000 Major Businesses Industrial cables, metal telecommunications cables, overhead power transmission cables, 0 distribution wires, magnet wires, electrical wire, all kinds of cable accessory products, and cable 2003 2004 2005 2006 2007 laying works.

ANNUAL REPORT 2007 11 Directors, Corporate Auditors and Executive Officers

Kazuhiko Ohashi Masao Kawabata Yutaka Wakui Takashi Nishida President & CEO & Senior Executive Vice President & Executive Vice President & Executive Vice President & Representative Director Representative Director Member of the Board Member of the Board

Toshio Mizushima Yoichi Nagahama Takashi Sato Takao Shioda Masato Koike Senior Vice President & Senior Vice President & Senior Vice President & Senior Vice President & Senior Vice President & Member of the Board Member of the Board Member of the Board Member of the Board Member of the Board

President & CEO & Senior Vice President & Managing Executive Representative Director Member of the Board Officer Kazuhiko Ohashi Toshio Mizushima Ryozo Yamauchi Yoichi Nagahama Noboru Sugiyama Senior Executive Vice President & Takashi Sato Joji Suzuki Representative Director Takao Shioda Masao Kawabata Masato Koike Executive Officer Hideo Suzuki Executive Vice President & Corporate Auditor Mitsuhiro Nakazawa Member of the Board Takashi Sugiyama Takashi Kunimoto Yutaka Wakui Takeo Kuroki Eiichiro Yamada Takashi Nishida Takahiko Abe Hideo Shiwa Hiroyoshi Ichisawa

As of June 29, 2007

12 Fujikura Ltd. Corporate Social Responsibility

Corporate Social Responsibility System The Fujikura Group aims to behave in a responsible manner ethics, compliance, risk management, and information security, toward its business partners, society and the natural environment, with the ultimate goal of meeting our stakeholders’ expectations by contributing toward the realization of a sustainable society. We raising the Company’s enterprise value. The following organizational operate a balanced approach to addressing the various issues of chart shows the system utilized by Fujikura for overseeing and human rights, employment conditions, product quality, corporate implementing corporate governance.

Board of directors Stakeholders Supervise Report results Executive committee Disclose information Supervise/instruct Report results Report results

CSR Activities Promotion Team Legal Security Export Corporate Strategy Human Resource & Procurement Market Research & Global Environment Division Quality Assurance Division Department Administrative Division Planning Division General Affairs Division Division Planning Department

Information disclosure, Employee welfare, human Compliance Environment Quality Procurement and logistics advertising and IR rights and social contribution

Support/instruct Report/consult Business segment and group companies

Corporate Governance Systems Fujikura ensures clarification of operating responsibilities and an whistle-blowing system through the Risk Management Committee effi cient top management by adopting the executive officer system and the Conduct Code Promotion Committee. as well as the corporate auditor system, as a system that enables As for control of the Group, we established the “Group monitoring and supervision of management in the management Management Policy” to promote its common values and facilitate a decision-making process. shared sense of unity as well as improve the effectiveness of man- We have divided the execution and supervision of management agement supervision, risk management and compliance systems through the introduction of the executive offi cer system. The system throughout the Group. defines the monitoring and supervising functions of Directors and As for a mechanism to support Auditors’ operational audit and requires them to monitor whether business operations comply with the improve audit accuracy, we have formulated Directors’ responsibilities relevant laws and regulations and the Company’s Articles of Incorporation. concerning the appointment and dismissal of employees supporting The activities of internal control with regard to daily operations Auditors, independence from operating departments, and access are designed to supervise legal compliance in operational pro- to information required by Auditors. We also sets up regular occa- cesses through the Internal Control System Development Division, sions to exchange views with operating offi cers and ensure that the relevant departments at headquarters, and administrative opportunities are provided for Auditors to express their demands. organizations within each business segment. Our system of internal controls will also cover our financial As a system for internal control, we have established manage- report for the FY2008 reporting period and after. We have set up ment rules for documents and electronic information, and the an organization to oversee this process, and FY2007 has been storage of control management information. In addition, we review designated as a trial period, in preparation for the full-scale imple- company-wide risks, promote a compliance system and manage a mentation of this system.

Frame Format of the Fujikura Corporate Governance System General Meeting of Shareholders Appointment Appointment Appointment Audit Board of Auditors (Auditors) Board of Directors (Directors) Cooperation Supervision Audit Executive Committee Appointment/supervision Risk Management Committee

Accounting Auditor Cooperation Compliance Audit Executive officers Conduct Code Promotion Committee Audit Audit Audit Division Business segment / the relevant divisions at headquarters Audit

Affiliated companies Auditors (Board of Auditors) Accounting Auditor

ANNUAL REPORT 2007 13 Corporate Social Responsibility

Risk Management Security of Electronic Information Fujikura classifi es risks to be managed into two groups: strategic Basic Policies risks associated with business opportunities and operational risks 1. Fujikura will take appropriate human, physical and technological related to the conduct of business operations. Strategic risks are measures to prevent unauthorized access, leakage, tampering, managed under the aegis of top management (Board of Directors destruction or other inappropriate handling of information assets. and Executive Committee), while the Risk Management Committee Fujikura will also not be a perpetrator of such activities. handles operational risks based on the Fujikura Risk Management 2. If a security breach should occur, Fujikura will promptly address Regulations. it to minimize damages. The Fujikura Risk Management Regulations also ensure that 3. Fujikura will ensure a high level of security by executing security top offi cials in the area of business affected are swiftly notifi ed when activities continuously and establishing a security management critical situations arise and have created response mechanisms and framework to address new threats. We pledge to fulfi ll our social accountability frameworks for crisis management. responsibility to ensure the security of electronic information through the above activities, gaining the trust of our customers, Compliance stock holders, business partners and other stakeholders. We established a “Fujikura Code of Conduct,” basic rules that executives, employees and all staff engaged in our business should Structure follow. It is the job of the Conduct Code Promotion Committee to Security standards related to electronic information ensure that this code is respected. The Conduct Code Promotion to electronic information Committee consists of top management offi cials and full-time audi- Security policies related tors. The committee holds a meeting every three months to receive reports on code of conduct compliance activities and problems 1 Basic policies and other issues, and give necessary instructions. We also have an internal report system as part of the code of conduct. This system enables employees to report a compliance 2 problem or other issue to an external law firm without being penal- Basic rules ized. This report can be made anonymously. The details of the report are immediately sent to related departments, who will then take the necessary measures and report the results to the code of 3 conduct promotion committee. Specific guidelines

Protection of Personal Information

1. Fujikura will build a companywide information security framework For proper management of information assets, rules that are 1 standardized across the organization must be clearly stated so and establish rules to protect personal information, to prevent that information handling does not vary depending on the user such information from being leaked, lost, damaged or otherwise Behavior and criteria to be followed in order to ensure electronic improperly handled. 2 information security 2. Fujikura clarifies the intended use when obtaining personal information. 3 Implementing procedures 3. Fujikura only handles personal information for the intended use and within the range reasonably accepted to have an equivalent relationship to the intended use. 4. Fujikura does not disclose personal information to third parties Measures to help prevent global warming unless it is legally stipulated or Fujikura has informed consent. The Fujikura group is working to lower its emissions of greenhouse 5. Fujikura tries to ensure the transparency of personal information gases by taking steps to improve the efficiency of its use of energy it has and has established services such as an information center in its business operations. Under the Kyoto Protocol, Japan is for information providers. committed to reducing its emissions of greenhouse gases between 2008 and 2012 by 6% compared with the base year of 1990. The Fujikura Group has for many years been working to raise the effi- ciency of its use of energy in production processes, enabling it to

14 Fujikura Ltd. realize energy conservation. Measures taken include the reduction Improvement of energy efficiency of energy amounts where not required, particularly by limiting the use of air-conditioning equipment to certain areas of the Group’s Target: Reducing energy expenses in FY2006 (domestic factories, and installing high-efficiency lighting control devices. and overseas) as a percentage of sales by at least 1% for Our Head Office is located in Tokyo, and we are taking steps domestic operations and at least 3% for overseas opera- to comply with Tokyo CO2 Emission Reduction Program (which tions compared with the FY2005 level applies to over 1,000 places of business that use over a specified amount of energy) by reducing the carbon equivalents of the We have set targets for improvement of the efficiency of energy electricity consumed by the Head Offi ce. In accordance with the use by Fujikura — expressed in terms of the cost of energy con- system operated by the Tokyo Metropolitan Government, we are to sumed as a percentage of sales — in the form of reductions in the submit to them a plan for reduction of energy consumption each energy-to-sales percentage for both manufacturing facilities and year from FY2005 to FY2010. The Tokyo Metropolitan government offi ces within Japan and overseas, and are working to realize these evaluates the progress made, and the results of such evaluations targets. As of FY2006, the cost of all energy consumed accounted are made public on the Tokyo Metropolitan government’s website. for 1.15% of total sales on a consolidated basis. While this fi gure Currently, our evaluation stands at AA, indicating that our carbon constitutes a reduction from the FY2005 level of 1.25%, the main dioxide reduction rate surpasses the targeted figure by 5 percent- factors behind the decrease were the substantial rise in the price of age points. copper and the impact of the yen’s depreciation against the dollar, both of which caused sales to record an all-time high. Carbon dioxide emission The energy cost to sales ratio for Fujikura and its group companies (including both manufacturing facilities and offices), in Target for FY2006: To accurately ascertain CO2 emissions FY2006 in Japan and overseas, represented a decrease of 8.2% by Fujikura and its consolidated subsidiaries within Japan compared with FY2005 for domestic operations but an increase of 8.5% for overseas operations. Measures were taken both The volume of carbon dioxide emitted by each individual business within Japan and overseas to improve energy conservation, but facility and each company in the Fujikura Group in its operations in the case of our overseas operations, the rise in the price of oil within Japan in FY2006 has been calculated utilizing the fi gures for combined with the depreciation of the yen to push up the prices of emission intensity (published by the electric power utility companies electric power and other fuels purchased, as a result of which the from which we purchase our power) regarding the amount of car- ratio worsened compared with FY2005. bon dioxide emissions per unit of electricity generated. (The figures For the current term (FY2007) and afterward, we will be are adjusted to take into account the proportions of the different making further efforts to improve the efficiency of our usage of fuels, with their differing carbon footprints, used to generate the electric power with the aim of improving the productivity indicators electricity. The emission coefficient for each fossil fuel is determined (production volume in terms of length/weight of wires and cables, by law.) number of pieces of equipment, floor space utilized, etc.) for each manufacturing facility.

Emissions of greenhouse gases in FY2006 by the Fujikura Group Energy cost ratio (consolidated basis) (operations in Japan)

CO2 (tons) (millions of yen) (%) 70,000 700,000 2.0 64,497 1.84 645,984 60,000 58,544 600,000 1.64 503,090 1.5 50,000 500,000

40,000 400,000 360,752 1.25 331,325 1.15 1.0 30,000 300,000

20,000 200,000 0.5 10,000 100,000 4,061 188 0 0 0.0 Fujikura (parent) Group companies Fujikura (parent) Group companies FY2003 FY2004 FY2005 FY2006 Manufacturing facilities Offices Sales (consolidated; left scale) Ratio (right scale)

ANNUAL REPORT 2007 15 Corporate Social Responsibility

Reduction in waste emissions and aluminum for recycling, as these metals have always been treated as marketable resources rather than industrial waste. From Target: Cutting landfi ll portion of waste products emitted by here onward, we intend to apply the same active recycling policy to the Fujikura Group in Japan to 5% or less other materials as well. The companies in the Fujikura Group are taking steps to One of the major issues for manufacturers these days is their reduce wastage of raw materials during all production processes, responsibility to reduce the volume of the waste emissions from and are separately recovering waste for effective reuse, thereby their factories, and to recycle (or to assist in the recycling of) their helping to lower the volume of waste that proceeds to the “fi nal products when their useful lives are over. By reducing the volume disposal” stage, i.e. landfi ll or incineration (excluding combustion of marketable material generated by production processes (with where the heat generated is effectively employed). the exception of materials that can be repurchased at a profi t even With effect from FY2006, the landfi ll waste volume reduction after deduction of transportation costs), the manufacturer is able activities of the Fujikura Group have been applied to all consolidated to decrease the total volume of waste emitted, and thereby reduce subsidiaries of Fujikura operating within Japan. the amount that goes to landfi ll sites. In addition, manufacturers The total waste emission volume of Fujikura Ltd. and the 14 are being urged to contribute as far as possible to the realization other companies in its group for FY2006 amounted to 16,341 tons, of a society dedicated to maximizing the effective reuse of natural of which only 957 tons, or 5.85%, was consigned for final disposal resources. at landfi ll sites. As the targeted level for the term was 5%, this Fujikura has set itself the target for FY2010 of reducing the constitutes a failure to achieve our goal under our waste reduction volume of industrial waste for final disposal (i.e. landfi ll) by 82% plan. compared with the volume for the base year of FY1995 as specifi ed Currently, waste produced by us that is consigned to landfill by the Japanese Electric Wire & Cable Makers’ Association (this sites includes used wires and cables coated with a mixture of standard was adopted in response to the recommendations in the polyethylene and eco-material, or with a mixture of polyethylene Japan Business Federation guidelines for voluntary environmental and PVC. To facilitate recycling of the metals, we are working on preservation measures). In common with other companies in our ways to easily strip these coatings from such wires and cables. industry, we have since the beginning been collecting scrap copper

(t) (%) Landfill volume (left scale) 18,000 10.0 16,341 Emission volume (left scale) 16,000 9.06 8.0 14,000 Landfill ratio (right scale) 12,000 6.0 10,000 5.85 7,735 8,606 8,000 4.0 6,000 3.49

4,000 2.0 2,000 779.9 956.7 270.0 0 0.0 Fujikura Ltd. Fujikura Group Total (excluding parent; (15 group companies in Japan) in Japan)

16 Fujikura Ltd. Management’s Analysis of Financial Position and Operating Results

Analysis of Financial Position and Operating Results We will continue to improve manufacturing systems for FPC, connectors, and components for use in hard disk drives. We will also keep working to (1) Operating Results for the Fiscal Year to March 2007 enhance our production technologies capabilities to raise production yields Net sales for the year under review rose ¥142.8 billion year-on-year to ¥645.9 and improve product quality. billion on a consolidated basis, driven by growth in the Telecommunications, In the Metal Cable & Systems segment, there is plenty of opportunity Metal Cable & Systems, and Electronics & Auto segments. available in this mature market for new product development as well as for Income from operations declined ¥5.2 billion year-on-year to ¥34.5 the cultivation of new markets. We will therefore work persistently to imple- billion, reflecting the impact of sales price reductions for FPC (fl exible printed ment various measures, and by streamlining production facilities and raising circuits), our mainstay product of the Electronics & Auto segment. Recurring our cost competitiveness, endeavor to improve our earnings performance. income fell ¥3.6 billion to ¥32.7 billion. Net income for the term under review declined ¥3.5 billion to ¥21.4 Risks Associated with Business billion, marking an increase in revenues and a decrease in earnings. Risks associated with the Fujikura Group’s business that may affect its (2) Significant Factors Affecting the Results of Operations operating results, stock price or financial position, include, but are not limited The Telecommunications segment prospered on the robust demand for to, the following. FTTH services, and we continued making aggressive capital investments in the Electronics & Auto segment. Moreover, Fujikura gained a European base (1) Market Demand Trends for its automotive electronics business through the acquisition of a majority Results of operations for the Fujikura Group may be affected by trends in stake in a local company, as part of active efforts in this segment. However, capital investment in the telecommunications industry (the principal source in line with the rapid rise in materials prices worldwide, copper prices surged, of demand for our products), in addition to capital investment trends in the which has created a severe situation for our industrial cable operations, as electronics, automotive and electric power industries. copper accounts for more than half the production cost of cables. Due to fierce price competition in the digital home appliances market, we have been (2) Currency Exchange Rate Fluctuations forced to substantially reduce our selling prices for FPC, our leading product The Fujikura Group takes steps to minimize the negative effects of in this field. exchange-rate fl uctuations through hedged currency transactions within the scope of ordinary transactions backed by actual demand, when conducting (3) Analysis of Capital Resources and Liquidity export transactions in foreign currencies. The risk of fl uctuations in currency Cash flow provided by operating activities totaled ¥39.2 billion, unchanged exchange rates cannot be completely avoided, however, and these fl uctua- from the previous year’s level. Cash infl ows, mainly from income before tions could adversely affect the Group’s business results. income taxes (¥32.7 billion) and depreciation expenses (¥26.9 billion), were partially offset by cash outflows, principally from an increase of ¥9.4 billion in (3) Fluctuations in Raw Material Prices trade receivables. Net cash used in investment activities, centering primarily The price of copper, a major material used in our products, fluctuates in on plant, property and equipment investments, totaled ¥47.7 billion, up ¥28.9 accordance with international trends in supply and demand. Because a rise billion from the previous year. Net cash from fi nancing activities, centering in purchasing costs resulting from a steep rise in the price of copper cannot mainly on fund procurement through loans, came to ¥1.2 billion, a ¥21.0 immediately be transferred to product prices, signifi cant fluctu ations in the billion improvement over the previous year. price of copper could adversely affect the Group’s business results. As a result of the above, cash and cash equivalents at the end of the term totaled ¥22.1 billion, a decline of ¥3.2 billion year-on-year. (4) Product Defects The Group manufactures a wide range of products following strict quality (4) Issues Facing Management and Future Directions control standards, but cannot guarantee that every one of its products will The Fujikura Group will continue to shift management resources to promising be defect-free or will not be the subject of quality complaints in the future. fields, and to base its growth strategy on strengthened and expanded We have taken out insurance to cover defect liability compensation, but we operating fundamentals. cannot guarantee that the compensation total will always be fully covered by In the Telecommunications segment, we expect to see ongoing expan- this insurance. sion in demand worldwide for FTTH. So as not to miss this opportunity, Fujikura will undertake expansion of its sales network not only in the U.S. but (5) Laws and Regulations also in China, India, Russia, the Middle East and Africa. In addition, strong per- The Group’s overseas business activities are subject to the laws in force in formances by our optical fi ber cables and optical fusion splicers are widely each of the countries in which it operates. These regulations include govern- attributable to our cost competitiveness, which we have raised over the long- ment permits needed for conducting business and making investments, term period. We will continue to make efforts to maximize this strength. regulations relating to trading transactions and exporting and importing, In the Electronics & Auto segment, although an overall high level and laws and regulations relating to taxation, fi nancial transactions, and the of growth is predicted, price competition is expected to increase amid a environment. The Group operates its business in strict conformity with these shortening of the product lifecycle. Players in this fi eld are being required laws and regulations. Its business results could be adversely affected if its to pursue bold investment strategies for profi t generation, even though operations are now more strictly restricted or costs pushed up by diffi culty in a cautious stance is required for decision-making on individual projects. continuing to observe laws and regulations under these circumstances.

ANNUAL REPORT 2007 17

Main Consolidated Subsidiaries As of March 31, 2007

Equity Ownership Paid-in Capital Percentage, Including (Millions of Company Name Indirect Ownership Each Currency) Business Overview

Nishi Nippon Electric Wire & Cable Co., Ltd. 60.7% ¥960 Manufacture and Sale of Cables Yonezawa Electric Wire Co., Ltd. 92.8 ¥1,022 Manufacture and Sale of Cables Dai-ichi Denshi Kogyo Co., Ltd. 86.6 ¥1,075 Manufacture of Connectors and Co-Axial Switches Tohoku Fujikura Ltd. 100.0 ¥1,000 Manufacture and Sale of Electronics Parts Fujikura Development Ltd. 100.0 ¥1,150 Real Estate and Insurance Fujikura Dia Cable Ltd. 66.0 ¥400 Sales of Cables DDK (Thailand) Ltd. 86.6 B.T.730 Manufacture of Connectors Fujikura (Thailand) Ltd. 100.0 B.T.1,100 Manufacture and Sale of Electronic Materials LTEC Ltd. 99.5 B.T.500 Manufacture and Sale of Electronic Materials PCTT Ltd. 100.0 B.T.1,000 Manufacture, Assembling, and Sale of Printed Circuits America Fujikura Ltd. 100.0 US$102 Manufacture and Sale of Optical Components and Equipment/Power Cables

Other than the above, 61 consolidated subsidiaries.

Investor Information As of March 31, 2007

Head Offi ce Major Shareholders 5-1, Kiba 1-chome, Koto-ku Number of Ratio of Tokyo 135-8512, Japan Shares Held Shareholding E-mail: [email protected] (Thousands) (%)

Year of Establishment Japan Trustee Services Bank, Ltd. 1885 (Trust Account) 19,622 5.21 Date of Incorporation The Master Trust Bank of Japan, Ltd. March 18, 1910 (Trust Account) 14,550 3.87 Common Stock Mitsui Life Insurance Company Limited 10,192 2.71 Authorized: 1,190,000,000 shares Issued: 376,263,421 shares Japan Trustee Services Bank, Ltd. Capital: ¥53,075,807,507 (Holder of Retirement Benefit Trust for The Chuo Mitsui Trust and Banking Company, Limited) 9,777 2.60 Number of Shareholders 36,927 Sumitomo Mitsui Banking Corporation 8,456 2.25 Independent Certified Public Accountants The Sumitomo Trust and Banking Co., Ltd. Misuzu Audit Corporation (Trust Account B) 7,763 2.06 – A network firm of PricewaterhouseCoopers The Shizuoka Bank, Ltd. 7,713 2.05 Grant Thornton Taiyo ASG Mitsui Sumitomo Insurance Company, Limited 6,891 1.83 Further Information For further Information and additional copies Deutsche Bank AG London-BB Irish Residents 619 6,597 1.75 of our Annual Report, please contact the Dowa Metals & Mining Co., Ltd. 6,453 1.72 Investor Relations Group at the Head Offi ce.

ANNUAL REPORT 2007 37