Annual Report 2008

DOWA HOLDINGS Co., Ltd. D owa H oldings C o ., Lt d . Annual Report 2008

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Annual Report 2008 New Stage For the year ended March 31, 2008 Profile

We, the Dowa Group, are engaged in a wide range of activities to supply materials and provide services that are indispensable for modern lifestyles. Our business segments are Nonferrous Metals, Environmental Management & Recycling, Electronic Materials, Metal Processing and Heat Treatment. We have continuously faced great changes and countless trials since the Dowa Group was established in 1884, but we have overcome all such challenges through adaptation and by maintaining our technological superiority. This business spirit underpins the “Business Structure Reform Plan” we commenced in 2000, and is the driving force behind our “Dismantle and Rebuild” strategy and position as a “Technology-oriented Company.” In October 2006, 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. This Annual Report details the results obtained and initiatives undertaken in fiscal 2007, the second year of our management plan, Business Structure Reform Plan III.

Contents

1 Financial Highlights 25 Board of Directors and Officers 2 Message from the Management 26 Financial Section 4 Feature: Building a Strong Base of 26 Consolidated 11-Year Summary Operations 28 Financial Review 4 Urban Mining 32 Consolidated Balance Sheets 6 Metal Processing Business 34 Consolidated Statements of Income 8 Heat Treatment Business 35 Consolidated Statements of Changes in Equity 10 At a Glance 36 Consolidated Statements of Cash Flows 12 Business Review and Outlook 37 Notes to Consolidated Financial Statements 12 Nonferrous Metals 52 Report of Independent Auditors 14 Environmental Management & Recycling 54 Global Network 16 Electronic Materials 55 Subsidiaries and Affiliates 18 Metal Processing 56 Corporate History 20 Heat Treatment 57 Corporate Data 22 Environmental Preservation Activities 23 Dowa’s Network of Environmental Operations & Recycling 24 Corporate Governance

Annual Report 2008 Dowa Holdings Co., Ltd. Financial Highlights Years ended March 31

Thousands of Millions of Yen U.S. Dollars*1 2008 2007 2008 For the Year: Net Sales ...... ¥475,826 ¥458,701 $4,749,238 Operating Income ...... 44,319 48,733 442,349 Ordinary Income ...... 44,888 49,717 448,037 Net Income ...... 24,520 26,337 244,742 Net Cash Provided by Operating Activities ...... 40,398 13,700 403,221 At Year-end: Equity ...... 150,281 141,276 1,499,964 Total Assets ...... 367,931 352,299 3,672,334 Interest-bearing Debt*2 ...... 120,953 114,757 1,207,240 Return on Assets (ROA*3) ...... 12.5% 15.2% 12.5% Capital Expenditures ...... 26,324 21,821 262,745 R&D Expenses ...... 7,309 4,384 72,959

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 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08

Net Income Total Assets & ROA*3 Capital Expenditures and R&D Expenses (Billions of Yen) (Billions of Yen) (%) (Billions of Yen) 30 400 20 40

25 300 15 30 20 12.5％

15 200 10 20

10 100 5 10 5

0 0 0 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08

*1 The U.S. dollar amounts included herein represent translations, using the approximate exchange rate at March 31, 2008 of ¥100.19=US$1, solely for convenience. 2 Interest-bearing debt at March 31, 2008 does not include lease obligations. 3 ROA is Ordinary Income divided by average of Total Assets.

Dowa Holdings Co., Ltd. Annual Report 2008 1 Message from the Management

To achieve the goals set out in the medium-term business plan Business Structure Reform Plan III for the three years up to the fiscal year ending March 31, 2009, the Dowa Group is implementing a varied program of measures in line with the plan slogan, “Embrace the challenge of uncharted territory.”

Results for Fiscal 2007 Supported by strong business investment and buoyant exports, the Japanese economy initially continued to recover steadily Achieving the Goals of in fiscal 2007, the year ended March 31, Business Structure Reform Plan III 2008. However, there was a downturn in the U.S. economy coupled with the continued appear- ance of negative factors such as yen appreciation and a further surge in oil prices. In the nonferrous metals business, strong demand Kosaka Smelting & Refining Co., Ltd. (construction from China for minerals and the ongoing oligopoly in the started in 2005), an increase in the processing capacity mining sector resulted in a steady tightening of the of our waste treatment facility in the Kanto region of global supply-demand balance for raw materials, leading Japan, an increase in capacity at a metal processing to generally higher prices for gold, silver, copper and plant, and the construction of a new heat treatment other major metals. In the metal processing sector, facility. Our investments in the metal processing increasing automotive and construction machinery business were of particular note. We acquired Yamaha demand from Asia supported expansion of exports of Metanix Corporation and Yamaha-Olin Metal Corporation, related components from Japan. In our environmental both of which are based in Iwata, Shizuoka Prefecture— management and recycling business, while expanding the same location as our main manufacturing firm in production of chemical products spurred demand for this sector, Dowa Metal Co., Ltd. The addition of these treatment of industrial wastes that are technically difficult production and sales companies for rolled copper to process, the soil remediation market weakened due products has enabled us to establish a monthly pro- mainly to the impact of the revision of building codes. duction capacity to 5,000 tons. Elsewhere, we set up Compared with the previous year, consolidated net a metal processing plant in Thailand, a country with sales increased by ¥17.1 billion to ¥475.8 billion. Oper- rapid growth in the automotive industry where Japa- ating income was ¥4.4 billion lower at ¥44.3 billion and nese automakers have made significant investments ordinary income declined by ¥4.8 billion to ¥44.8 and are willing to source more components locally. billion. Consolidated net income for fiscal 2007 was This investment provides the Dowa Group with a ¥24.5 billion, a year-on-year decline of ¥1.8 billion. three-pronged supply base in Asia—Japan, China (Shanghai) and Thailand. Anticipated Benefits from Concerted In the heat treatment business, besides the con- Program of Action struction of a new facility in Ota in Gunma Prefecture The Dowa Group has continued to make aggressive (completed in May 2008), we established a new base business investments. of operations in Thailand to provide heat treatment In fiscal 2007, we invested approximately ¥30 services on a subcontract basis, manufacture heat- billion in capital spending projects, including M&As. treatment equipment and provide related maintenance These included completion of a new smelting facility at services. These steps form part of our plan to reinforce

2 Annual Report 2008 Dowa Holdings Co., Ltd. Achieving the Goals of Business Structure Reform Plan III

our base of operations for Dowa Group businesses in Japan and overseas. We regard these investments as important measures to generate earnings growth in the Dowa Group going froward.

Nearing the Completion of Business Structure Reform Plan III As the final year of our medium-term plan Business Structure Reform Plan III, fiscal 2008 will be the climax By implementing these measures speedily and of three years of reform. We will formulate a new busi- steadily, we will not only ensure that we achieve the ness plan in fiscal 2008 for the next three years. In goals for the final year of Business Structure Reform addition to continuous structural changes effected to Plan III, but also create momentum as we transition date in the nonferrous metals business, we plan to focus into the next medium-term business plan. efforts on fortifying the frameworks of our four other core businesses, environmental management and recycling, electronic materials, metal processing and heat treatment, by continuing investments for future growth. One of the slogans of the current medium-term business plan is to transform the Dowa Group into a “technology-oriented company.” We plan to re-emphasize this key aspect of growth in fiscal 2008 with the appointment of a Chief Technology Officer (CTO), who will be responsible for planning and implementing a technology strategy for the Group aimed at boosting our overall technical capabilities. We aim to advance various front-line improvement activities at each plant. Through such reforms, we hope to become an even MASAKI KOHNO more efficient and profitable enterprise. President and Representative Director

Dowa Holdings Co., Ltd. Annual Report 2008 3 Feature

Attention has increasingly focused in recent years on the concept of “urban mining.” The Dowa Group was an early adopter of this recycling-oriented approach, and has undertaken related initiatives to differentiate its business from that of competitors. This section looks at some developments in the field of “urban mining.”

Building a Strong Base of Operations Urban Mining

An Uneven Global Distribution of Finite Urban Mining Resources For instance, a post-use mobile phone handset con- Japan faces the major issue of the depletion and tains gold at a ratio of 400ppm on average (that is, 400 uneven distribution of mineral resources across the grams per ton). In contrast, gold-bearing ores typically planet for many of the metals that underpin Japan’s contain only around 20ppm (20 grams per ton) of the industry and production. metal. Old handsets are thus potentially far richer To take gold as an example, currently the global sources of gold than the ore extracted from mines. reserves of gold will not last for much more than a Urban mining takes the view that items such as old decade. Not only that, but 35% of known reserves are mobile phones, PC motherboards and industrial scrap concentrated in just three countries: South Africa, from production processes constitute a mine in the city. Australia and Peru. Extracting precious resources efficiently from these As emerging nations continue to develop, the urban mines through recycling activities can ensure a demand for many metals continues to escalate. The stable supply of metal resources. As an additional problems could become particularly acute for countries benefit, the environmental impact of urban mining such as Japan that are poor in terms of metal resources. metal production via recycling is estimated at around Urban mining, which refers to the use of resources one three-hundredth of that from transporting large such as those used in electronic equipment instead of volumes of ore over long distances. minerals, has attracted attention in recent years as a potential answer to this problem.

XXXXXXXXXXXXJapan’s reserves/the world’s reserves XXXXXXXXXXXX (%) (Tons) Rare Metals(Tons) (31) 80 Japan maintains a strategic national reserve (7): Nickel (Ni), chromium (Cr), tungsten (W), cobalt (Co), molybdenum (Mo), manganese 60 (Mn), vanadium (V) Regarded as a priority but Japan does not maintain a strategic national reserve (10): Niobium (Nb), tantalum (Ta), strontium (Sr), antimony (Sb), platinum (Pt), palladium 40 (Pd), zirconium (Zr), gallium (Ga), indium (In), rare earths (17) Japan does not maintain a strategic national reserve (14): 20 Cesium (Cs), barium (Ba), rhenium (Re), thallium (Tl), bismuth (Bi), germanium (Ge), titanium (Ti), lithium (Li), boron (B), selenium (Se), tellurium (Te), rubidium (Rb), hafnium (Hf), beryllium (Be) 0 Sb Cu Au In Pb Pt Ag Ta Sn Zn Base Metals Copper (Cu), gold (Au), lead (Pb), silver (Ag), tin (Sn), zinc (Zn)

4 Annual Report 2008 Dowa Holdings Co., Ltd. Structural Reform of the Precious Metals The RtoS Koden Collection Project and Copper Business The Dowa Group has taken the lead in implementing a Amid these social conditions, the Group has invested in number of advanced initiatives in the field of environ- a major new smelting furnace designed to recycle mental recycling. One of these is a research project metals from raw materials. Located in Kosaka (Akita being conducted at the Group’s facility in Odate in Prefecture), which started operations in April 2008. Akita Prefecture by the RtoS Group, a collaboration Drawing on the Kosaka facility’s strength in process- between Dowa, Tohoku University and other partners. ing complex ores, Dowa have been boasting industry- The RtoS Koden project is a trial collection program leading recycled material ratios. Nevertheless, there that targets used small electronic equipment. were limitations to the recycling capabilities of the Japan maintains a strategic national reserve only for conventional flash smelter. seven of the 31 rare metals. However, no collection The newly installed furnace at Kosaka is optimized to framework exists for such metals once a product, in process metals entirely from recycled materials. In future, which such rare metals are used, has been distributed in Group plans call for adding tin and nickel to the list of to the market. In addition, it is also pointed out there is a recoverable metallic elements. These upgraded capabili- potential risk of unsuitable treatment of any rare metals ties are a major advance for the Dowa Group’s precious contained in exported and used electronic equipment. metals and copper business—and can be called a dra- There are numerous problems as regards building a matic structural reform of the business. system for recovering rare metals, including how to deter- Through this proactive business strategy, the Dowa mine the amount of electronic equipment accumulated in Group aims to thrive as a leading firm within the metal ordinary households, how to identify the percentages of recycling sector amid increasingly harsh business rare metals in this equipment categorized by product and conditions due to ongoing deterioration in the terms for manufacturer, and how to raise the levels of awareness of purchasing mined ores and an intense scramble to ordinary people about the importance of recycling. secure recyclable raw materials. The RtoS Koden project is a trial operation with the aim of solving these problems, and has been attracting the attention of a number of parties concerned.

GoldAmount of gold contained SilverAmount of silver contained (Tons)(g/t) (Tons)(g/t) Portable MD player Portable MD player

Portable CD player Portable CD player

Cassette tape player Cassette tape player

Digital camera Digital camera

Digital video camera Digital video camera

Mobile phone Mobile phone

Portable music player Portable music player

Ore Ore

0 100 200 300 400 500 600 0 500 1,000 1,500 2,000 2,500 3,000

Dowa Holdings Co., Ltd. Annual Report 2008 5 In recent years, the Dowa Group has invested aggressively in three businesses: rolled copper products, an area where there is firm global demand for copper of high quality and reliability for use in automotive connectors; precious metal electroplating, which is an essential treatment for many automotive parts and mobile phone components; and metal-ceramic substrates, which are used in inverters for industrial machinery. These aggressive investments will drive earnings growth going forward.

Building a Strong Base of Operations Metal Processing Business

Expanding businesses by business parts and batteries, and other applications. These facili- investment ties provide cutting-edge electroplating processing In rolled copper products, we are taking steps to boost capacity that can be optimized to suit a wide variety of production of copper alloy and cater to increasing customer specifications. demand for productivity improvements. We have doubled In ceramic substrates, we completed the construc- the production capacity of copper alloy, a mainstay of tion of a new plant building and the expansion and earnings, by introducing specialist production equipment. enhancement of facilities in May 2008, thereby raising We started renovation of the hot rolling mills in fiscal production capacity by about 1.5 times. We will respond 2005 as a planned series of facility upgrades. This large to increased demand for aluminum nitride (AlN) sub- business investment covers almost all manufacturing strates. These products function as thermo-radiant or stages, from the first processes of melting and casting to insulation substrates in power modules fitted to inverters slitting, plating and other finishing steps. After construc- in equipment such as industrial machinery, rolling tion is finished in fiscal 2008, we will be able to supply stock, solar batteries and wind power generators. larger coil sizes across the range and lift overall production capacity by 20%, including for copper and brass. Expanding business areas through M&As In precious metal electroplating, we are engaged in In rolled copper products, the Dowa Group has the phased introduction of state-of-the-art, fully acquired 90% of the shares of a manufacturer of rolled automated electroplating lines in an all-new clean copper products that was formerly a wholly owned processing facility. Five production lines have already subsidiary of Yamaha Corporation. Renamed Dowa been installed that can handle silver, nickel and tin Metanix Co., Ltd., the firm began operations as a com- electroplating for mobile phone components, automotive pany of Dowa Group in December 2007. The company

CopperXXXXXXXXXXXX and brass strips: Total sales volume XXXXXXXXXXXXCopper and brass strips: Alloy sales volume (t/month)(Tons) (Tons)(t/month) 7,500 4,000

6,000 3,000

4,500 2,000 3,000

1,000 1,500

0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Forecast Forecast

6 Annual Report 2008 Dowa Holdings Co., Ltd. mainly manufactures high-tensile materials for semicon- aluminum nitride powders into AlN substrates, which ductor lead frames, and is one of the top Japanese then undergo further processing to produce metal- suppliers in this field in terms of quality and production bonded ceramic substrates. technology. We plan to expand into new business areas by adding our strength in the semiconductor field to our Developing business overseas existing strength in the automotive component field, and The Dowa Group completed a processing and sales leveraging R&D activities combined with these technolo- base to supply rolled copper strip products in Thailand gies together with enhanced production. Separately, the in December 2007 in line with global business develop- Dowa Group also purchased Yamaha’s entire 50% ment plans in this sector. Many automakers are increas- interest in Yamaha-Olin Metal Corporation, a Japanese ing local procurement of parts in Thailand and this base sales joint venture with the largest manufacturer of will be our core operation in Southeast Asia, following rolled copper products in North America. Future plans that in Shanghai, China. We will also install facilities at call for further upgrading of the sales and marketing the base to supply products that are electroplated using capabilities of the joint venture, now renamed Dowa precious metals, thereby responding to a wide variety of Olin Metal Corporation. customer needs. In ceramic substrates, the Dowa Group has estab- Furthermore, to achieve full-scale sales of sub- lished Tokuyama-Dowa Power Materials Co., Ltd., a strates in the European market, the Dowa Group has production and sales joint venture with Tokuyama Cor- established a local subsidiary in Germany. Demand in poration, a leading Japanese chemicals maker. The AlN Germany is expected to be significant due to the high ceramic substrates supplied by this joint venture pro- concentration of development and production bases vide raw materials for substrate operations. Volume across the automotive and industrial machinery sectors. production commenced in April 2008. Besides provid- Based on a full-scale entry into Europe, the Dowa ing a stable source of raw materials—essential for this Group aims to gain more than 50% of the global growth business—this joint venture is also expected to market for AIN substrates by fiscal 2010. help boost the quality and efficiency of the integrated production set-up. The sequence involves converting

ReflowGold tin plated copper and brass strips: Volumes sold SilverAluminum nitride substrates: Number sold (t/month)(Tons) (Tons)(Thousands of sheets/month) 2,500 1,000

2,000 800

1,500 600

1,000 400

500 200

0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Forecast Forecast

Dowa Holdings Co., Ltd. Annual Report 2008 7 Demand for advanced heat treatments continues to rise as a method for increasing the strength, flexibility and durability of metal components. The Group’s heat treatment operations offer 20 different types of surface-treatment processes. The Group has also applied the expertise gained from this business to develop operations in industrial furnaces. Efforts are underway to develop this business to gain a lead over rivals in the sector, focusing on measures to expand production facilities, boost production capacity and accelerate the Group’s overseas business development program.

Building a Strong Base of Operations Heat Treatment Business

Expanding facilities and pursuing M&As operations in May 2008. Ota, a major industrial city in In addition to making investments to expand and the northern Kanto region, is a hub of automobile enhance the Chukyo Handa works and Moka plant in makers, parts manufacturers and metal-mold makers. fiscal 2006, in August that year the Dowa Group The Ota plant is a state-of-the-art production facility acquired all of the shares of Cemm Co., Ltd. Based in that has overcome many technical challenges by incor- Nagoya (Aichi Prefecture), Cemm is a company estab- porating our extensive experience and expertise. lished over 80 years ago with a proven track record in Designed as a next-generation facility offering high- metal heat treatment and processing and the manufac- efficiency environmental performance, the Ota plant ture of industrial furnaces. The firm specializes in aims to deliver 30% lower production costs, 30%

plasma nitriding for automotive parts, other precision higher labor productivity and a 30% reduction in CO2 components and all types of metal molds, among other emissions compared with previous facilities. Fitted with applications. Cemm has also received many plaudits the latest facilities, it also employs automated systems from customers for its gas nitriding processes for small, to manage facilities, production and other operations. mass-produced items. Cemm has made a substantial In addition to conducting the core carburizing and contribution to the expansion of the Group’s heat treat- nitriding processes for parts, the Ota plant plans to ment business, adding a fifth production base within focus on a process for metal molds. The Ota plant has the central Japan region to the Dowa Group network. practically applied a new TD process, a surface treatment technology that dramatically improves the hard- Building a domestic 10-plant network ness, durability and abrasion resistance properties of The construction of the Ota plant in Gunma Prefecture metal molds. This new TD process has improved pro- began in fiscal 2007 and the plant commenced ductivity levels above those of conventional plants, and

DomesticXXXXXXXXXXXX carburizing and nitriding process capacity Domestic 10-plantXXXXXXXXXXXX network for heat treatment business (t/month)(Tons) (Tons)

12,000 Moka Works

New Ota plant 10,000 New Seki plant 8,000 (planned location) Cemm 6,000 Toyoda Works Yokohama Works 4,000 Hamamatsu Shiga Works Works 2,000 Anjo Works Chukyo Handa Works 0 2004 2008 2009 2012 Forecast

8 Annual Report 2008 Dowa Holdings Co., Ltd. on the quality front is characterized by generating Developing business overseas almost no incidence of in-process warping in metal Dowa upgraded the capabilities of a base in the United molds when the heat treatment is applied. This tech- States in fiscal 2006 with the installation of a new nological competitive edge is expected to be a powerful Corvette treatment line. The Corvette treatment weapon in generating new demand in the city of Ota, improves both the anti-burning and abrasion resistance which is a center of production for metal dies and properties of parts. The treatment employs a low tem- molds. Positioning the Ota plant as our flagship facility perature of 190°C that ensures that there is no degrada- in the Kanto region, we are targeting an increased tion in the characteristics or dimensional accuracy of share of the heat treatment market in Japan. parts, and is mainly used for transmission gears. In The Dowa Group is currently making steady prog- fiscal 2007, the company started operations at a plant ress in building a new plant at Seki in Gifu Prefecture. in Thailand, which is developing business in outsourced The plant will use the same advanced technology and heat treatment and maintenance services. In addition to design concepts that were employed at the Ota facility. overseas development by Japanese companies in recent Scheduled to become operational in fiscal 2008, the years, the ratio of overseas projects from overseas users Seki plant will boost the Dowa Group’s carburizing and is rising. Going forward, besides fortifying capabilities in nitriding capabilities in the central Japan region by industrial furnaces and related maintenance services 40%. The completion will give us a national network of through overseas bases, the Group plans to strengthen ten production bases (three in the Kanto region, six in partnerships with local manufacturing partners with the central Japan and one in Shiga Prefecture). The Dowa aim of further accelerating global development. Group plans to leverage its nationwide network and the high quality provided by deployment of advanced technology to a solid business foundation.

GoldPerformance comparison with conventional continuous DOWA’s heat treatment: Domestic market share (Tons)furnace with baseline of 100 (%) 200 25

20 150

15 100 10

50 5

0 New continuous furnace, U-TKM 0 Productivity Energy costs Lead time 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Forecast

Dowa Holdings Co., Ltd. Annual Report 2008 9 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

4% Dowa Metals & Mining Co., Ltd. 5% Gold, silver, copper, zinc, lead, zinc alloys, 200 20 16% platinum, palladium, indium, bismuth, 49% tellurium, sulfuric acid 2008 100 10 11%

15% 0 0 04 05 06 07 08 04 05 06 07 08

Environmental Management 100 10 Operating Income by Segment & Recycling 80 8 2% 8% Dowa Eco-System Co., Ltd. 60 6 7% Waste treatment, soil remediation, metal recycling, consulting, 40 4 14% landfill facilities, logistics 2008 51% 20 2

0 0 18% 04 05 06 07 08 04 05 06 07 08

Electronic Materials 80 8

Ordinary Income by Segment Dowa Electronics Materials Co., Ltd. 60 6 1% Compound semiconductor wafers, light-emitting diodes, gallium and indium, 40 4 8% copper powders, silver powders, 6% silver oxide powders, metal powders, ferrite powders, carrier powders 20 2 14% 2008 53% 0 0 04 05 06 07 08 04 05 06 07 08 18%

Metal Processing 100 5 Dowa Metaltech Co., Ltd. 80 4

Copper, brass, and copper alloy strips, 60 3 Total Assets by Segment nickel alloy strips, reflow tin plated strips, brass rods, forged brass products, 40 2 metal-ceramic substrates, 12% electroplated products 20 1 8% 40% 0 0 2008 04 05 06 07 08 04 05 06 07 08 17%

10% 13% Heat Treatment 30 4

Dowa Thermotech Co., Ltd. 3 20 ■ Nonferrous Metals Various types of heat treatment, ■ Environmental Management & various types of surface treatment, 2 Recycling design, manufacture, marketing, ■ Electronic Materials and maintenance of various types of 10 ■ Metal Processing heat treatment equipment and ancillary 1 ■ Heat Treatment equipment ■ Others 0 0 04 05 06 07 08 04 05 06 07 08

10 Annual Report 2008 Dowa Holdings Co., Ltd. Ordinary Income (Billions of Yen) Total Assets (Billions of Yen) Highlights

■ 30 160 Opened Bolivia Office ■ Started work to expand production at Tizapa mine in Mexico ■ Resumed the production of antimony 120 20 ■ Completed new smelting facility for treating recyclable materials at Kosaka Smelt- ing & Refining Co., Ltd. 80 ■ Advanced business of recovering zinc from iron and steel dust, and established 10 new company 40

0 0 04 05 06 07 08 04 05 06 07 08

10 50 ■ Completed the North Japan Plant of Eco-System Recycling Co., Ltd. in the Kosaka district of Akita Prefecture 8 40 ■ Completed Kosaka Plant of Auto Recycle Akita Co., Ltd. ■ Started construction of a new incinerator, Japan’s largest, at Eco-System Chiba 6 30 Co., Ltd. ■ Opened Taiwan office 4 20

2 10

0 0 04 05 06 07 08 04 05 06 07 08

8 60 ■ Commenced sample shipments of nitride semiconductors ■ Commercialized 45nm ultrafine particle metal powders compatible with high- capacity data storage tapes 6 40 ■ Decided to boost production capacity of carrier powder for photocopiers ■ Established Dowa Trading (Shenzhen) Co., Ltd. in Shenzhen, Guangdong in China 4

20 2

0 0 04 05 06 07 08 04 05 06 07 08 (1)

5 80 ■ Acquired 90% of the stock of a subsidiary of Yamaha Corporation that manufactures rolled copper products 4 ■ Expanded melting and casting facilities for copper alloys at Dowa Metal Co., Ltd. 60 ■ Expanded three high-performance electroplating lines—two in Japan and one in 3 Thailand 40 ■ Established the thermal device business and commenced construction to expand 2 production at Dowa Power Device Co., Ltd. 20 1 ■ Completed manufacturing plant for aluminum nitride substrates at Tokuyama- Dowa Power Materials Co., Ltd., a joint venture with Tokuyama Corporation 0 0 04 05 06 07 08 04 05 06 07 08 (2)

4 30 ■ Commenced construction of new plant at Ota in Gunma Prefecture ■ Decided to build new plant at Seki in Gifu Prefecture ■ Commercialized U-TKM, a new type of high-performance energy-saving industrial 3 20 furnace, and installed it in Chukyo Handa Works in Aichi Prefecture ■ DOWA Thermotech (Thailand) Co., Ltd. started operations 2

10 1

0 0 04 05 06 07 08 04 05 06 07 08

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.

Dowa Holdings Co., Ltd. Annual Report 2008 11 Business Review and Outlook Years ended March 31, 2008 Nonferrous Metals

BUSINESS STRUCTURE REFORM PLAN III Net Sales Operating Income Ordinary Income ROA Investments R&D

2009 ¥229 billion ¥12.5 billion ¥13.0 billion 9% ¥7.0 billion ¥1.0 billion (Forecast)

2008 ¥272.2 billion ¥22.4 billion ¥23.5 billion 16% ¥13.3 billion ¥4.0 billion

2007 ¥276.6 billion ¥25.1 billion ¥25.3 billion 18% ¥6.6 billion ¥0.8 billion

In the Nonferrous Metals segment, the completion of the new nonferrous facility introduced at Kosaka Smelting & Refining Co., Ltd. has resulted in a significant improvement in the processing capabilities for recycled resources from an annual 30,000 tons to an annual 150,000 tons. In addition to further enhancing recycling, we will also strengthen our competitiveness by means of operational improvements, including cost reductions. We are pushing ahead with structural reforms in the precious metals and copper business.

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 in collaboration with environmental businesses with synergies. Install new recycling 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 business model which is free from metal-market price volatility

Cumulative 3-year investments Percentage of 3-year investments Percentage of 3-year R&D costs and R&D costs (Billions of Yen) 40

30 32% 32% Company-wide Company-wide 20 projection projection ¥83.5 billion ¥18.0 billion 10

0 07 08 09

12 Annual Report 2008 Dowa Holdings Co., Ltd. Business environment Prices of copper and precious metals remained high during the fiscal year ended March 31, 2008 due to tight global supply- demand balance and the influx of speculative funds. Healthy demand from the automotive parts and electronic components sectors boosted sales volumes for gold, copper and platinum group metals, despite declining demand for silver due mainly to decreased production of photographic films. Prices for zinc declined due to higher overseas production of zinc ores and unre- fined metal, but zinc sales were favorable centered on sales for the automotive parts sector. Sales of sulfuric acid posted robust growth, boosted by higher international prices for sulfur, notably for use in individual applications. As a result, consolidated net sales in the Nonferrous Metals segment declined 2% year on year to ¥272.2 billion. Cost- reduction efforts failed to fully offset poorer contractual terms for ores purchased as raw materials, leading to a 10% year-on- year fall in consolidated operating income to ¥22.4 billion.

Precious metals and copper Kosaka Smelting & Refining Co., Ltd. completed the construction of a new type of furnace that optimizes the treatment of recyclable materials. The new facility commenced operation in April 2008. In the copper-related business alliance, we are increasing the consigned production volume of copper at Onahama Smelting & Refining Co., Ltd., whose top shareholder is Dowa’s alliance partner, Mitsubishi Materials Corporation. Alongside this alliance, Dowa Metals & Mining continued to focus efforts on strengthening its business platform through development of a unique business model by making steady progress in the process changeover at Kosaka Smelting & Refining. New smelting facility at Kosaka Smelting & Refining Co., Ltd.

Zinc At Akita Zinc Co., Ltd., efforts continued to focus on improving capacity utilization, reducing costs, reducing inventory and renovating facilities to increase profitability and achieve a better operating structure through higher operational stability. As part of the ongoing drive to secure stable supplies of raw materials, we decided to increase the production volume from the year 2010 of the Tizapa mine in Mexico, in which the Dowa Group retains a 39% equity interest. Tar- geting business stability and expansion of earnings, Dowa Metals & Mining entered the business of zinc recovery from iron and steel dust in an attempt to secure a new source of raw materials The Tizapa mine for zinc recycling processes.

Rare metals In the business of recovering platinum group metals (PGM) from used catalyst materials associated with automotive exhaust gas and elsewhere, we strengthened the capabilities of sampling facilities and took other actions to focus on expansion through increased collection activities of raw materials. Other plans call for diversification of metal recycling for the new furnace at Kosaka Smelting & Refining Co., Ltd. through the development of new technologies to recover tin and nickel.

Nippon PGM America, Inc.

Dowa Holdings Co., Ltd. Annual Report 2008 13 Environmental Management & Recycling

BUSINESS STRUCTURE REFORM PLAN III Net Sales Operating Income Ordinary Income ROA Investments R&D

2009 ¥88.0 billion ¥8.4 billion ¥8.4 billion 18% ¥6.6 billion ¥0.7 billion (Forecast)

2008 ¥84.5 billion ¥8.0 billion ¥7.9 billion 18% ¥4.7 billion ¥0.6 billion

2007 ¥74.7 billion ¥7.9 billion ¥8.0 billion 19% ¥2.5 billion ¥0.5 billion

In the Environmental Management & Recycling segment, we pursued initiatives to expand business scale and business fields, including by starting construction of a new waste incinerator, expanding into the precision cleaning business, and by starting the automobile salvage business. Aiming to be the leading company in East Asia in these businesses, we will continue to make aggressive business investments, create new businesses, and expand overseas business.

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).

Cumulative 3-year investments Percentage of 3-year investments Percentage of 3-year R&D costs and R&D costs (Billions of Yen) 20

Company-wide Company-wide 10 projection projection ¥83.5 billion ¥18.0 billion 5 10% 17% 0 07 08 09

14 Annual Report 2008 Dowa Holdings Co., Ltd. Business environment In the waste treatment business, although orders for processing of wastes with low environmental impact were lower than the previous year, overall revenues grew due to a greater number of waste treatment contracts for high-impact materials from corporate clients in the chemical and electronics industries. While orders in the soil remediation business were affected by a sharp decline in construction starts following revision of Japan’s building standards legislation, revenues increased due to projects secured prior to the enactment of the revised law and the completion of a number of large projects. Amid fierce global competition, Dowa Eco-System focused on collection of recyclable materials and achieved the same level of handling volumes as the previous year. As a result, consolidated net sales in the Environmental Management & Recycling segment rose 13% year on year to ¥84.5 billion. Increased handling volumes for high-value-added wastes that pose technical difficulties in processing, along with successful efforts to reduce costs in distribution and intermediate processing, helped to offset a reduction in on-site processing margins in the soil remediation business. Consolidated operating income for the segment amounted to ¥8.0 billion, a year-on-year increase of 1%.

Waste treatment Construction of the largest waste incinerator in Japan continued at Eco-System Chiba Co., Ltd. toward targeted completion at the end of 2008. The new facility will increase total annual processing capacity for intermediate wastes at the Dowa Group to one million tons. Elsewhere in the sector, efforts are focusing on expanding sales networks, upgrading existing facilities, and improving waste treatment systems to achieve greater process integration from collection and transportation to final disposal.

New incinerator (under construction) at Eco-System Chiba Co., Ltd.

Soil remediation The domestic market has stalled due to the effects of revisions to Japanese building standards legislation. Having successfully completed a number of large processing domestic projects, Dowa Eco-System plans to continue focusing efforts on the expansion of sales channels, on enlarging the range of on-site treatment capabilities, and on developing new opportunities in markets through boosting order-winning activities in regions such as East Asia and Southeast Asia.

Soil remediation facility at Eco-System Hanaoka Co., Ltd.

Recycling In line with plans to boost collection activities for recyclable materials to feed into the new smelting facility at Kosaka Smelting & Refining Co., Ltd. that was completed in August 2007, Dowa Eco-System is working to expand recycling operations in Japan and overseas for precious metals, automotive scrap and home appliances. This involves developing the range of recycling-related services while trying to increase volumes of scrap materials handled. The company also plans to aggressively develop new businesses in areas such as bio-diesel fuel, which uses recycled cook- ing oil, and rare metals collection. Recyclable raw materials

Dowa Holdings Co., Ltd. Annual Report 2008 15 Electronic Materials

BUSINESS STRUCTURE REFORM PLAN III Net Sales Operating Income Ordinary Income ROA Investments R&D

2009 ¥70.0 billion ¥7.0 billion ¥7.0 billion 20% ¥2.7 billion ¥2.8 billion (Forecast)

2008 ¥61.4 billion ¥6.3 billion ¥6.1 billion 17% ¥1.6 billion ¥2.6 billion

2007 ¥56.3 billion ¥6.9 billion ¥6.7 billion 19% ¥4.4 billion ¥2.7 billion

In the Electronic Materials segment, we enhanced the quality of existing products to better meet customer needs, while working to develop new products, anticipating future markets. During fiscal 2008 we will commercialize the new products, continue to concentrate on priority areas, and will continue to enhance R&D, aiming to expand business as a technology-oriented company.

BUSINESS STRUCTURE REFORM PLAN III Drive growth by aggressively investing in priority fields and developing new business

■ SEMICONDUCTORS Expand sales of red LEDs (for medical sensors, etc.), infrared LEDs (for Infrared Data Association (IrDA), etc.), and other products, while aggressively investing in and developing new products such as nitride semiconductors. ■ FUNCTIONAL MATERIALS Expand business by concentrating on priority products such as silver powder and indium oxide. Launch higher value-added metal-powder products for computer backup tapes and rapidly launch new businesses.

Cumulative 3-year investments Percentage of 3-year investments Percentage of 3-year R&D costs and R&D costs (Billions of Yen) 20

Company-wide Company-wide 10 projection projection ¥83.5 billion ¥18.0 billion 5 45%

0 10% 07 08 09

16 Annual Report 2008 Dowa Holdings Co., Ltd. Business environment Sales of indium significantly decreased due to a steep drop in market prices for the metal. Sales of LED (light-emitting diode) chips also declined due to a reduced use of infrared communication devices based on the IrDA standard in new model mobile phones. Offsetting these negative effects, sales of metal powders posted solid growth due to robust underlying demand from emerging markets, among other factors. Silver and copper powders (for pastes used in digital components), zinc powder (for alkaline batteries) and iron powder (mainly for automotive applications) all recorded higher sales. Sales of other sections grew, including carrier powder (for use in copiers) and metal powders for magnetic recording applications, in part reflecting revenue contributions from new products. As a result, consolidated net sales in the Electronic Materials segment increased 9% compared with the previous year to ¥61.4 billion. Higher sales revenues from high-value-added products and the savings generated by cost-reduction programs were offset by the rising cost of fuels and materials and other factors, resulting in a 10% year-on-year fall in consolidated operating income to ¥6.3 billion.

Semiconductors Sales of some products struggled increasingly under challenging business conditions. Market prices for indium dropped amid an inventory correction, while demand for LEDs fell as the result of reduced usage of IrDA communication devices. Dowa Electronics Materials focused on expanding sales of LEDs for use in sensors with either medical or security applications, the fields in which demand is steadily growing. We succeeded in developing a new world-class product—a high-performance deep-UV LED. These products have potential applications in many fields. Dowa Electronics Materials aims to supply LEDs for Deep-UV LED (color altered by use of blue fluorescent light for photograph) various commercial applications through an ongoing in-house development program, thereby creating new demand.

Functional materials In the electronic materials sector, spherical silver powders for plasma display panels, copper powders for capacitors and zinc powders for alkaline batteries all generated higher sales. In the magnetic materials sector, steady progress was made in the commercial rollout of new “fourth-generation” metal powders. Sales of carrier powder increased as Dowa Electronics Materials strove to supply products tailored to the particular business strategies of copier manufacturers. Ongoing efforts to maintain and reinforce competitiveness focused on programs to boost manufacturing productivity and reduce expenses in a bid to offset increases in costs due to rising Nano-silver conductive ink prices for raw materials and energy. In-house new product development efforts focused on the early market introduction of nano- particulate metals. Dowa Electronics Materials secured exclusive sales rights from U.S.-based venture firm PChem Associates for the latter’s silver nano-material. Looking ahead, the company will strengthen technological collaborations to establish a competitive edge in this new field.

Dowa Holdings Co., Ltd. Annual Report 2008 17 Metal Processing

BUSINESS STRUCTURE REFORM PLAN III Net Sales Operating Income Ordinary Income ROA Investments R&D

2009 ¥105.0 billion ¥5.9 billion ¥6.0 billion 9% ¥5.6 billion ¥0.5 billion (Forecast)

2008 ¥91.7 billion ¥3.0 billion ¥2.6 billion 5% ¥8.0 billion ¥0.4 billion

2007 ¥78.0 billion ¥4.5 billion ¥4.3 billion 9% ¥5.3 billion ¥0.4 billion

In the Metal Processing segment, we have pursued a strategy of aggressive investment and global development across all major operations. The company has targeted higher capacity, upgraded capabilities and an expansion of its business domain through a combination of facility investment, M&A initiatives and the establishment of overseas bases. In the final year of Business Structure Reform Plan III, we aim to cement our position as a leading supplier by leveraging successes achieved under the reform plan to date.

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. ■ METAL-CERAMIC SUBSTRATES Strengthen business by strategic relationship with business partners. Expand Cu-AIN substrate business and become the top share supplier.

Cumulative 3-year investments Percentage of 3-year investments Percentage of 3-year R&D costs and R&D costs (Billions of Yen) 40 7% 30

Company-wide Company-wide 20 projection projection 23% ¥83.5 billion ¥18.0 billion 10

0 07 08 09

18 Annual Report 2008 Dowa Holdings Co., Ltd. Business environment Sales of copper alloy strip products for use in automotive terminals and connectors were significantly ahead of the previous year. Firm demand boosted sales of circuit substrates for inverters used in industrial machinery. Precious metal electroplating was another area of growth as sales of electroplated automotive and IT-related parts increased. Boosted by high prices for copper, gold and silver and the addition of new processing and sales companies to the segment, consolidated net sales for the Metal Processing segment increased 17% over the previous year to ¥91.7 billion. Programs to reduce inventories and cut costs failed to offset soaring energy costs and higher transportation expenses, leading to a 33% year-on-year drop in consolidated operating income to ¥3.0 billion.

Metal PROCESSING In rolled copper products, we pursued M&As in Japan and expanded and upgraded facilities, and also substantially increased production and sales capabilities by operations at a plant in Thailand. Sales of copper alloy and tin reflow plating mainly for connectors were significantly ahead in year- on-year terms, mainly due to growth in automotive connector applications amid rising automobile production volumes and the ongoing adoption of automotive electronics. Furthermore, we expanded our product lineup by such actions as commencing the manufacture and sales of nickel alloys. Sales of brass rods and other forged parts also increased due to higher demand for eco- Breakdown mill for performing rough milling friendly cadmium-free materials.

Electroplating Growth in sales of precious metal electroplated products was driven mainly by the automotive component and mobile phone sectors. Three new electroplating lines were introduced—two in Japan plus one in Thailand—to boost capacity for automotive connectors and switches. As well as introducing new lines and converting existing facilities to meet increasingly diverse specifications within a rapidly changing market, Dowa Metaltech continued to invest in efforts to reinforce global competitiveness through the development of new plating films and improved production technologies.

Gold-stripe electroplating

Metal-Ceramic substrates Sales of products for industrial equipment applications grew amid higher demand for machinery and other industrial equipment in China and Southeast Asia. Other sectors, including rolling stock, also drove sales growth due to market expansion in Japan and overseas. The expansion and upgrading of facilities started in fiscal 2007 was completed in May 2008. The production capacity for aluminum nitride substrates was doubled and plans call for expanding sales in Europe, where a new local subsidiary was established, in order to meet firm demand.

Copper-clad aluminum nitride substrates

Dowa Holdings Co., Ltd. Annual Report 2008 19 Heat Treatment

BUSINESS STRUCTURE REFORM PLAN III Net Sales Operating Income Ordinary Income ROA Investments R&D

2009 ¥30.0 billion ¥5.2 billion ¥5.1 billion 16% ¥4.5 billion ¥0.4 billion (Forecast)

2008 ¥28.8 billion ¥3.5 billion ¥3.5 billion 13% ¥2.9 billion ¥0.4 billion

2007 ¥27.0 billion ¥3.5 billion ¥3.5 billion 13% ¥5.8 billion ¥0.2 billion

In the Heat Treatment segment in fiscal 2008, the Dowa Group opened the Ota plant in May and expects to com- mence operations at the Seki plant. Besides increasing our share of domestic manufacturing capacity within the heat treatment sector, we aim to focus on sharpening our competitive edge through cost-reduction initiatives and the development of new technologies. Other plans include strengthening overseas operations in North America and Thailand and engineering further production-related quality, cost and delivery (QCD) improvements. We aim to remain the leading company in the heat treatment industry.

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.

Cumulative 3-year investments Percentage of 3-year investments Percentage of 3-year R&D costs and R&D costs (Billions of Yen) 20 6% 16% 15

Company-wide Company-wide 10 projection projection ¥83.5 billion ¥18.0 billion 5

0 07 08 09

20 Annual Report 2008 Dowa Holdings Co., Ltd. Business environment In the heat treatment business, revenue growth was held back in part by sluggish sales of motorcycles in Japan and North America, particularly larger models. Offsetting factors included robust sales of heat treatment services for transmissions and other automotive parts exported to Asia, along with steadily increasing sales of contract processing services for surface treatment for construction machinery components. Supported by higher automobile production volumes worldwide and increased demand for construction machinery, both domestic sales and exports of industrial furnaces generated strong growth. Related maintenance services also posted higher revenues. As a result, consolidated net sales in the Heat Treatment segment totaled ¥28.8 billion, a gain of 6% over the previous year. Amid rising manufacturing costs due mainly to soaring prices for energy and raw materials, the Dowa Group targeted higher profits by taking steps to raise capacity utilization and reduce selling costs. Consolidated operating income for the segment was on a par with a year earlier, at ¥3.5 billion.

Heat treatment In heat treatment, carburizing treatment volumes were 20% ahead in year-on-year terms at the Chukyo Handa Works in Aichi prefecture following the completion of a capacity upgrade in fiscal 2006. A new state-of-the-art plant in Ota, Gunma Prefecture commenced operations in May 2008. The Dowa Group plans to have another new plant located at Seki in Gifu Prefecture operational before the end of fiscal 2008. The network of ten plants across Japan and our differentiation by quality promises to result in a higher share of the domestic market for the Dowa Group.

Exterior view of Ota plant

Industrial furnaces Sales of industrial furnaces, both domestic and overseas, increased. Plans call for the aggressive development of overseas customers, notably in the BRICs countries, by supplying high-quality facilities that are designed to deliver unrivaled energy efficiency and environmental performance, among other varied requirements. Reinforcement of maintenance services is another key aspect of promoting sales in overseas markets. Leveraging increases in product quality and manufacturing capacity by enhanced in-house process completion, the Dowa Group plans to make further inroads into markets in Continuous furnace Japan and overseas.

Overseas expansion Having commenced maintenance services for industrial furnaces in October 2007, the Dowa Group also started outsourced processing by offering surface treatment services for metal molds and dies in December 2007, and plans to add carbonitriding in August 2008. At its U.S. Ohio plant, the Dowa Group is strengthening front-line capabilities by such measures as making investments to boost operating capacity. Going forward, Dowa Thermotech will develop overseas operations actively while focusing on global markets in both the heat treatment and industrial furnace sectors. Dowa Thermotech (Thailand) Co., LTD.

Dowa Holdings Co., Ltd. Annual Report 2008 21 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 real- izing 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 shall establish their own environmental targets and goals and Dowa’s environmental preservation activities are based on its corpo- create an environmental management system. rate philosophy of “Contributing to society and enriching people’s (2) The Company shall always take into account all aspects of lives by remaining an active player in the global community with the the natural environment (the atmosphere, water, soil, waste, efficient use of management resources.” Dowa’s fundamental guide- etc.) impacted by its business activities. Furthermore, in line for action regarding the environment is “Give careful regard to addition to working to reduce the environmental impact of its preserving the natural environment and make effective use of operations, the Company shall periodically review environ- resources while promoting recycling.” mental targets and goals and carry out environmental audits. The Company seeks to preserve and live in harmony with the (3) The Company shall strive to obey all laws, rules, and agree- natural environment while, at the same time, striving to reduce the ments related to the natural environment in all of its busi- environmental impact of its operations and contributing to creating ness activities, products, and services. conditions that will enable continuous global-scale development. (4) The Company shall operate its environmental and smelting Dowa’s environmental preservation activities are as follows: facilities so as to curtail the environmental risks to society (1) Preventing environmental pollution, conserving resources, from waste, soil contamination, and other sources. The and reducing the burden on the environment Company shall also contribute to the goals of preserving the (2) Reducing environmental risks to society environment, conserving energy, reducing the use of resources, and achieving zero emissions by recycling CONDUCT GUIDELINES metals, recovering energy, and using clean energy sources. (1) The Company shall promote zero emissions and continuously (5) The Company shall work to enhance the environmental work toward lowering the environmental burden. To this end, awareness of employees and shall endeavor to live in har- the entire Company, every business division, and all affiliates mony 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, 2008

n Nonferrous Metals • Enhanced wastewater treatment facilities and conducted campaign to • Completed construction of new furnace for secondary materials save water treatment • PRTR Award presented to New Nippon Brass Co., Ltd. • Launched operation to recover zinc from iron and steel dust n Heat Treatment n Environmental Management & Recycling • Promoted the recycling and transformation to a useful material of shot • As part of the ecotown project in northern Akita Prefecture, constructed blast powder an automobile recycling plant and a precious metals recovery plant • Introduced energy-conserving devices and equipment and promoted • Contributed to preventing global warming caused by CFCs energy-conserving measures such as a switch from electric power to gas • Minister of the Environment’s Prize awarded to Eco-Recycle Co., Ltd. n Company-wide n Electronic Materials • Held a tree-planting festival in the Kosaka region, planting approxi- • Inverted various electric devices and increased efficiency by reducing mately 6,000 trees along with local elementary school students and power consumption during standby other concerned people • Promoted recycling of expired batteries • Ran classes on science and the environment for elementary schools • Launched project to plant 3,000 Kawazu cherry trees on the shores of Lake Kojima with local support, approximately 1,700 trees planted in DOWA’S ENVIRONMENTAL CONTRIBUTION (March 2008 Fiscal Year) fiscal 2007 • Environmental Management & Recycling (External Economic Benefit n Metal Processing Evaluation®): ¥87.5 billion • Promoted energy conservation by inverting various electric devices and • Afforestation project (possession of 1,610 ha forest in Japan ➔ CO2 reduction) reviewing lighting

22 Annual Report 2008 Dowa Holdings Co., Ltd. DOWA’S NETWORK OF ENVIRONMENTAL Operations & Recycling

MATERIALS TO BE RECYCLED Automobile shredder residue Computer residue Used home Catalysts Recycling sources plastics electric appliances

Industrial/ Gallium scraps Contaminated soil municipal waste

Smelting Home electric appliance

TO MARKET & Refinery recycling plants

Gold, silver, copper, lead Smelting & Refinery sources

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

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

Metals (gold, Incinerator for recycling silver,copper) metal and steam Plastics Akita Rare Metals Eco-System Co., Ltd. Akita Co., Ltd. Ash Landfill sites

Copper sources Eco-System Kosaka Co., Ltd.

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

Heavy metals RECYCLE Platinum, (lead, cadmium) palladium, rhodium Green Fill Kosaka sources Co., Ltd. Eco-System Nippon PGM Co., Ltd. Hanaoka Co., Ltd.

Remediated soil and landfill materials

Gold, silver, copper, lead, zinc, cadmium, bismuth, selenium, tellurium, platinum, PRODUCTS palladium, rhodium, gallium, germanium, indium, antimony, sulfuric acid

Dowa Holdings Co., Ltd. Annual Report 2008 23 Corporate Governance

Dowa Holdings and its Group companies have constantly INTERNAL CONTROL SYSTEM contributed to society through their business activities while In December 2006, we took the opportunity provided by the shift responding to the demands of the public. to a holding company system to revise the internal control system Recognizing corporate governance as a highly important as defined by a resolution of the Board of Directors in May 2006. management issue, the Group as a whole endeavors to contribute Subsequently, resolutions were passed by the board of directors of to society while implementing and operating an effective and each Group company in March 2007 to introduce similar internal efficient internal control system in accordance with the “Dowa control systems at each Group company (excluding certain joint Group’s Values and Standards of Conduct.” ventures) in order to make the “Dowa Group’s Values and Stan- In October 2006, we converted to a holding company system. dards of Conduct” known throughout the entire Group. Each of Dowa’s business divisions was spun off into an operating In December 2007, we established the CSR Division to imple- subsidiary to allow for greater sensitivity to customer needs at the ment vigorous CSR activities that will enable us to fulfill our social forefront of the Company’s markets, as well as more speedy and responsibilities as a corporate group. As one part of these CSR authoritative decision making. This will also enable our business activities, the division is supporting all Group companies in their divisions to be run in a bold and flexible manner suitable to the work of building and introducing internal control systems. nature of each business. As a holding company, Dowa is now responsible for optimally distributing management resources RESPONSE TO FINANCIAL INSTRUMENTS AND throughout the Group to drive sustained growth Group-wide, with EXCHANGE LAW the aim of maximizing the Group’s corporate value. To comply with the Financial Instruments and Exchange Law, The Group has taken steps to enhance and maintain the which comes into full effect in fiscal 2008, we have made the soundness of management by (1) establishing the Board of accounting process of the entire Group visible on a documentary Auditors; (2) appointing an outside director. basis, completing this work by March 2007. We also expanded the process of documentation to operations other than accounting during fiscal 2007, with the aim of entrenching compliance in our daily operations while improving 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 companies regarding internal 2001 Formed the Management Administration Council control system Documentation of accounting process 2003 Shortened the terms of office of directors from two years to one at Group companies Documentation of operational 2006 May Board of Directors passed resolution on internal control system processes other than accounting at Dowa Holdings Co., Ltd June Appointed outside directors December CSR Division established October Moved to a holding company structure December Revised resolution of Board of Directors on internal control system

24 Annual Report 2008 Dowa Holdings Co., Ltd. Board of Directors and Officers As of June 25, 2008

DIRECTORS

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

Fumitoshi Sugiyama Kenji Ohnishi Takeaki Yamada Takuya Warashina Kenji Kanamaru Director & CTO Director Director Director Director *1

AUDITORS

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

OFFICERS

Seiichi Hisano Mineo Ogino Masaru Namura Hiroshi Nakashio Hiroshi Tomikawa Satoru Mihara Officer Officer Officer Officer Officer Officer

Nobuo Yamazaki Yoshito Koga Akira Otsuka Yukio Ishibashi Katsuya Yukitake Officer Officer Officer Officer Officer

*1 Outside Director 2 Outside Auditor

Dowa Holdings Co., Ltd. Annual Report 2008 25 Consolidated 11-Year Summary Dowa Holdings Co., Ltd. and Consolidated Subsidiaries

Millions of Yen For the years ended March 31 2008*1 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 For the Year: Net Sales ...... ¥475,826 ¥458,701 ¥316,388 ¥254,192 ¥234,675 ¥221,051 ¥222,175 ¥239,758 ¥232,809 ¥250,489 ¥294,868 Cost of Sales ...... 399,901 383,136 253,389 202,447 192,843 181,142 182,689 197,882 196,602 208,760 244,454 Selling, General and Administrative Expenses ...... 31,605 26,830 26,101 24,102 24,192 25,159 26,875 26,419 27,859 29,235 32,606 Operating Income ...... 44,319 48,733 36,897 27,642 17,640 14,749 12,609 15,457 8,347 12,494 17,807 Operating Income to Net Sales (%) ...... 9.31 10.62 11.66 10.88 7.52 6.67 5.68 6.45 3.59 4.99 6.04 Operating Income by Segment (%) Nonferrous Metals ...... 50.74 51.55 45.58 41.31 13.99 11.30 24.32 22.95 10.90 53.40 49.16 Environmental Management & Recycling (2000–) . . . . 18.11 16.31 16.32 17.02 25.77 22.09 18.94 10.36 7.63 – – Electronic Materials (2007–) ...... 14.23 14.31 – – – – – – – – – Metal Processing (2007–) ...... 6.86 9.37 – – – – – – – – – Electronic Materials & Metal-Processing (2003–2006) . . – – 28.15 32.04 40.47 27.27 – – – – – Metal Processing and Chemical Products (–2003) . . . . – – – – – 7.95 5.31 8.99 13.23 15.15 15.88 New Materials (–1999) ...... – – – – – – – – – 23.55 19.72 Electronic Materials (2000–2002) ...... – – – – – – 22.20 39.88 55.93 – – Heat Treatment (2000–) ...... 8.11 7.37 8.90 10.86 16.76 20.30 14.19 10.44 3.22 – – Construction and Real Estate (–2005) ...... – – – 1.62 4.79 11.23 16.14 8.57 12.20 6.36 9.08 Commodity Sales (–2004) ...... – – – – 1.06 1.38 1.06 1.09 2.26 1.79 0.88 Others and Elimination ...... 1.93 1.08 1.04 (2.86) (2.83) (1.51) (2.17) (2.28) (5.37) (0.25) 5.28 Net Income (Loss) ...... 24,520 26,337 14,532 10,609 8,683 (2,619) 282 4,921 2,070 3,524 5,088 Capital Expenditures ...... 26,324 21,821 12,497 11,551 9,419 9,814 10,244 11,641 9,172 16,265 15,199 R&D Expenses ...... 7,309 4,384 3,739 2,993 2,690 2,195 2,454 2,177 3,100 2,923 2,723

At Year-end: Equity*5 ...... 150,281 141,276 114,869 94,670 84,673 70,931 76,125 69,564 61,695 53,383 52,030 Minority Interests ...... 6,078 4,491 3,833 – – – – – – – – Total Assets*5 ...... 367,931 352,299 303,029 261,461 246,275 248,689 284,552 313,209 319,989 330,670 351,292 Interest-bearing Debt*7 ...... 120,953 114,757 99,653 97,709 104,375 132,179 158,440 188,831 208,868 227,437 237,894

Yen Per Share: Basic Net Income ...... ¥ 81.86 ¥ 87.82 ¥ 48.12 ¥ 35.14 ¥ 28.79 ¥ (8.85) ¥ 0.93 ¥ 17.61 ¥ 7.42 ¥ 12.51 ¥ 18.06 Fully Diluted Net Income*6 ...... 77.91 83.59 – – – – – – – – – Fully Diluted Equity*4 ...... 481.85 456.10 382.69 315.46 282.15 236.29 250.59 239.65 221.22 190.56 184.67 Cash Dividends ...... 20.00 20.00 14.00 10.00 7.00 7.00 5.00 5.00 3.00 5.00 6.00

Millions of Yen Cash Flows: Cash Flows from Operating Activities ...... ¥ 40,398 ¥ 13,700 ¥ 17,783 ¥ 17,432 ¥ 29,725 ¥ 23,134 ¥ 23,503 ¥ 21,176 ¥ 17,515 ¥ 13,594 ¥ 24,470 Cash Flows from Investing Activities ...... (39,138) (24,387) (15,616) (7,636) (1,290) (1,520) (7,708) (4,033) (3,513) (14,389) (18,307) Cash Flows from Financing Activities ...... (1,820) 9,634 (1,758) (8,917) (30,072) (26,882) (26,127) (17,523) (19,723) (4,154) (1,390) Cash and Cash Equivalents at End of Year ...... 4,294 4,792 5,813 5,286 4,414 5,624 10,429 20,696 21,028 32,425 29,066

% Ratios: Return on Assets*2 ...... 12.31% 14.87% 13.07% 10.89% 7.13% 5.53% 4.22% 4.88% 2.57% 3.66% 5.14% Return on Equity*3*4 ...... 17.45 20.93 13.87 11.83 11.16 (3.56) 0.39 7.50 3.60 6.69 10.13 Equity Ratio*4 ...... 39.19 38.83 37.91 36.21 34.38 28.52 26.75 22.21 19.28 16.14 14.81 Current Ratio ...... 156.05 124.63 129.16 132.54 121.86 95.93 90.51 95.67 107.98 104.67 85.97 Interest Coverage (times) ...... 21.10 30.18 29.23 20.30 12.04 8.38 5.59 5.14 2.91 3.95 5.74 Debt/Equity Ratio (times)*4 ...... 0.84 0.84 0.87 1.03 1.23 1.86 2.08 2.71 3.39 4.26 4.57 Return on Invested Capital*4 ...... 9.25 10.47 6.77 5.52 4.59 (1.29) 0.12 1.91 0.77 1.26 1.76 * 1. The years stated in the text are ended March 31 of the year. Thus “2008” refers to the fiscal year, which ran from April 1, 2007 through March 31, 2008. 2. Operating Income divided by average of Total Assets at the start and end of the year. 3. Net Income divided by average of Equity at the start and end of the year. 4. From 2007, the ratios have been calculated after deducting minority interests amounts from equity amounts. 5. The Equity and Total Assets for 2006 have been reclassified to reflect the “Accounting standards for presentation of net assets in the balance sheet.” 6. Figures for Fully Diluted Net Income are not shown before 2007 because there were no diluted shares until 2006. 7. Interest-bearing debt at March 31, 2008 does not include lease obligations.

26 Annual Report 2008 Dowa Holdings Co., Ltd. Millions of Yen For the years ended March 31 2008*1 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 For the Year: Net Sales ...... ¥475,826 ¥458,701 ¥316,388 ¥254,192 ¥234,675 ¥221,051 ¥222,175 ¥239,758 ¥232,809 ¥250,489 ¥294,868 Cost of Sales ...... 399,901 383,136 253,389 202,447 192,843 181,142 182,689 197,882 196,602 208,760 244,454 Selling, General and Administrative Expenses ...... 31,605 26,830 26,101 24,102 24,192 25,159 26,875 26,419 27,859 29,235 32,606 Operating Income ...... 44,319 48,733 36,897 27,642 17,640 14,749 12,609 15,457 8,347 12,494 17,807 Operating Income to Net Sales (%) ...... 9.31 10.62 11.66 10.88 7.52 6.67 5.68 6.45 3.59 4.99 6.04 Operating Income by Segment (%) Nonferrous Metals ...... 50.74 51.55 45.58 41.31 13.99 11.30 24.32 22.95 10.90 53.40 49.16 Environmental Management & Recycling (2000–) . . . . 18.11 16.31 16.32 17.02 25.77 22.09 18.94 10.36 7.63 – – Electronic Materials (2007–) ...... 14.23 14.31 – – – – – – – – – Metal Processing (2007–) ...... 6.86 9.37 – – – – – – – – – Electronic Materials & Metal-Processing (2003–2006) . . – – 28.15 32.04 40.47 27.27 – – – – – Metal Processing and Chemical Products (–2003) . . . . – – – – – 7.95 5.31 8.99 13.23 15.15 15.88 New Materials (–1999) ...... – – – – – – – – – 23.55 19.72 Electronic Materials (2000–2002) ...... – – – – – – 22.20 39.88 55.93 – – Heat Treatment (2000–) ...... 8.11 7.37 8.90 10.86 16.76 20.30 14.19 10.44 3.22 – – Construction and Real Estate (–2005) ...... – – – 1.62 4.79 11.23 16.14 8.57 12.20 6.36 9.08 Commodity Sales (–2004) ...... – – – – 1.06 1.38 1.06 1.09 2.26 1.79 0.88 Others and Elimination ...... 1.93 1.08 1.04 (2.86) (2.83) (1.51) (2.17) (2.28) (5.37) (0.25) 5.28 Net Income (Loss) ...... 24,520 26,337 14,532 10,609 8,683 (2,619) 282 4,921 2,070 3,524 5,088 Capital Expenditures ...... 26,324 21,821 12,497 11,551 9,419 9,814 10,244 11,641 9,172 16,265 15,199 R&D Expenses ...... 7,309 4,384 3,739 2,993 2,690 2,195 2,454 2,177 3,100 2,923 2,723

Dowa Holdings Co., Ltd. Annual Report 2008 27 Financial Review Years ended March 31

Net Sales and Operating Results of Operations Income to Net Sales Supported by strong business investment and buoyant exports, the Japanese economy continued (Billions of Yen) (%) 600 12 to recover steadily during the fiscal year ended March 31, 2008. Later in the year it slowed amid a downturn in the U.S. economy coupled with negative factors such as yen appreciation and a 500 10 further surge in oil prices. Growth was substantially reduced in the final quarter of the year. Looking at the Group’s operating environment, in the Nonferrous Metals segment, an oligo 400 8 polistic trend continued with strong demand from China and consolidation in the mining sector

300 6 resulting in a steady tightening of global supply conditions, leading to generally higher prices for gold, silver, copper and other major metals. In contrast, market prices for zinc fell due to higher 200 4 production levels. In the Metal Processing segment, higher automotive and construction machinery demand from Asia supported growth in Japanese exports of related components. Sales of IT- 100 2 related components and electronic parts for office equipment also posted solid growth. In the

0 0 Environmental Management & Recycling segment, while higher production of chemical products 04 05 06 07 08 boosted consignment volumes for the treatment of industrial wastes that are technically difficult Net Sales (left scale) Operating Income to Net Sales to process, higher metal prices led to fiercer competition to collect materials for metal recycling. (right scale) The year under review marked the second year of the Group’s three-year medium-term business plan, Business Structure Reform Plan III: Jump up to the New Stage. The emphasis was on fortifying existing businesses through M&A and investments in production capacity upgrades while also pursuing various actions to invest aggressively in growth sectors. At the same time, the Group focused on expanding sales by developing and introducing new products, while also seek- ing to reduce costs to counter sharply higher prices for raw materials and other inputs. Compared with the previous year, consolidated net sales increased 4% to ¥475,826 million in fiscal 2007. Operating income declined 9% on the same basis to ¥44,319 million, while ordinary income fell 10% to ¥44,888 million. Consolidated net income was ¥24,520 million, a 7% decline in year-on-year terms. During the fiscal year the Group acquired 90% of the outstanding shares in Yamaha Metanix Corporation, a former subsidiary of Yamaha Corporation that manufactures and sells rolled copper products. Renamed Dowa Metanix Co., Ltd., the company became a Dowa Group consolidated subsidiary. In addition, the Group acquired 50% of the outstanding shares in Yamaha- Olin Metal Corporation, a sales company for rolled copper products. Renamed Dowa Olin Metal Corporation, this company became an equity-method affiliate of the Dowa Group. Two China-based Dowa Group subsidiaries were also newly included in the scope of consolidation during the fiscal year ended March 31, 2008. Dowa Advanced Materials (Shanghai) Co., Ltd. processes and sells rolled copper products, while Suzhou-based Dowa Environmental Net Income Management Co., Ltd. is engaged in waste recovery and metal recycling. (Billions of Yen) 30 Elsewhere, following the Group’s withdrawal from the civil engineering, construction and geothermal power generation businesses, Dowa Engineering Co., Ltd., Showa Kaihatsu Kogyo 25 Co., Ltd. and Akita Geothermal Energy Co., Ltd. were all removed from the scope of consolidation. 20 The adoption of a holding company structure had a significant impact on financial perfor- 15 mance at the parent company level. On a non-consolidated basis, net sales fell 93% in year- on-year terms to ¥14,554 million. On the same basis, operating income declined 37% to 10 ¥8,233 million and ordinary income fell 39% to ¥9,061 million. Net income increased 10% to

5 ¥8,611 million.

0 04 05 06 07 08

28 Annual Report 2008 Dowa Holdings Co., Ltd. Total Assets Outlook for next fiscal year (Billions of Yen) Management expects business conditions to remain challenging in the fiscal year ending March 400 31, 2009. Significant external factors include high and rising prices for oil and other raw materials, the economic slowdown in the United States and the uncertainty associated with economic 300 prospects in China. This uncertain operating environment presents downside risks to earnings, notably in relation to potential developments in the currency markets and price trends for major metals. There is 200 also lingering uncertainty regarding demand trends in the Electronic Materials and Metal Processing segments. 100 Facing such conditions, in the final year of the medium-term business plan, Business Structure Reform Plan III, the Group plans to focus on comprehensive cost-reduction measures to reinforce earnings while also undertaking bold expansion initiatives. 0 04 05 06 07 08 For the fiscal year ending March 31, 2009, the Group forecasts net sales of ¥460 billion, operating income of ¥40 billion, ordinary income of ¥40 billion and net income of ¥22 billion. These figures assume average U.S. dollar exchange rates in the first and second halves of the year of ¥100 and ¥95, respectively. Profits are expected to decline in the Nonferrous Metals segment on a year-on-year basis, reflecting poorer terms for procurement of raw materials for copper and zinc, a stronger yen and rising energy costs. Cost-reduction programs are unlikely to generate sufficient savings to absorb the bottom-line impact of this significant deterioration in the operating environment. Management expects to generate higher profits in the Environmental Management & Recycling, Electronic Materials, Metal Processing and Heat Treatment segments due to increased sales and processing volumes coupled with the benefits of cost-reduction efforts. Following major investments in the form of the construction of new facilities, production capacity upgrades and acquisitions, profits in the Metal Processing and Heat Treatment segments are expected to be significantly higher than the previous fiscal year.

* Disclaimer: The above forecasts are based on assumptions, projections and plans relating to future performance that were accurate at the time of this report’s publication. Actual performance could differ materially from these forecasts due to risks associated with changes in global economic conditions, the competitive climate and exchange rates, among other factors not subject to the Group’s control.

Financial Position Assets, liabilities and equity Consolidated total assets as of March 31, 2008 amounted to ¥367,931 million, an increase of Interest-bearing Debt ¥15,632 million compared with the previous fiscal year-end. This was due to growth of ¥13,847 (Billions of Yen) 150 million in property, plant and equipment, reflecting aggressive investments to promote business expansion across various segments; an increase of ¥1,449 million in notes and accounts receiv- 125 ables associated with business expansion; and a rise of ¥1,076 million in inventories. The value of investments in securities was ¥8,350 million lower, reflecting a fall in the mark-to-market 100 valuation of the Group’s portfolio due to a decline in share prices. 75 Consolidated interest-bearing debt as of March 31, 2008 totaled ¥120,953 million, an increase of ¥6,195 million compared with the previous fiscal year-end. 50

0 04 05 06 07 08

Dowa Holdings Co., Ltd. Annual Report 2008 29 Cash Flows from Operating Cash flows Activities On a consolidated basis, cash and cash equivalents (hereafter “cash”) amounted to ¥4,294 (Billions of Yen) 50 million as of March 31, 2008, down ¥498 million from a year earlier. Net cash provided by operating activities was ¥40,398 million, an increase of ¥26,698 million

40 compared with the previous year. Although income before income taxes and minority interests declined by ¥4,887 million to ¥41,129 million, non-cash-related expenditure adjustments such

30 as depreciation of ¥13,830 million made a significant contribution. Another major factor was the ¥3,376 million decline in inventories.

20 Net cash used in investing activities amounted to ¥39,138 million, an increase of ¥14,751 million from the previous year. Cash outflows largely reflected aggressive capital investments of

10 ¥27,833 million in property, plant and equipment aimed at business conversion and achieving expansion across business segments. Share acquisitions totaling ¥16,275 million aimed at

0 expanding and reinforcing the Group’s business were another major factor. 04 05 06 07 08 Net cash used in financing activities equaled ¥1,820 million, as compared with net cash provided of ¥9,634 million in the previous year. One of the main factors was cash dividend payments of ¥6,216 million, which outweighed an increase of ¥4,471 million in interest-bearing debt. The difference between the year-on-year change in interest-bearing debt as stated in the consolidated balance sheets and that stated in the consolidated statements of cash flows was attributable to effect of newly consolidated subsidiaries.

Basic Dividend Policy and Dividends The Company views the payment of dividends to shareholders as a key management issue. The Company’s policy is to pay a dividend commensurate with performance having appropriated sufficient retained earnings to reinforce the Group’s business position and support future business development. In the fiscal year ended March 31, 2008, although the Group made steady progress in achieving the objectives set out in Business Structure Reform Plan III: Jump up to the New Stage, earnings were below the level of the prior year as the result of a number of factors, including poorer business conditions and a rise in depreciation expenses due to an aggressive capital spending program. As previously announced, for the fiscal year ended March 31, 2008 the Company paid an annual dividend of ¥20 per share, the same level as in the previous year. The Company also plans to pay the same level of dividend, ¥20 per share, for the fiscal year ending March 31, 2009. Cash Flows from Investing Activities Business Risks (Billions of Yen) 0 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 state-

–10 ments among the risk items that follow reflect the opinion of the Group as of March 31, 2008.

–20 Economic conditions The Group’s business performance and financial condition may be negatively affected by eco-

–30 nomic recessions in its principal markets, which include Japan, North America, Asia, and Europe, or by shrinking demand accompanying such changes.

–40

–50 04 05 06 07 08

30 Annual Report 2008 Dowa Holdings Co., Ltd. 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.

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 precaution to protect its rights with respect to these laws. Neverthe- less, 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 ¥22.0 billion in marketable securities it held as of March 31, 2008. These securities primarily represent stock held in Group business partners. While the market value of these securities was estimated to contain ¥11.7 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, 2008, the Group’s balance of interest-bearing debt was ¥120.9 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. Nevertheless, 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.

Dowa Holdings Co., Ltd. Annual Report 2008 31 Consolidated Balance Sheets Dowa Holdings Co., Ltd. and Consolidated Subsidiaries As of March 31, 2008 and 2007

Thousands of U.S. Dollars Millions of Yen (Note 1) Assets 2008 2007 2008 Current Assets: Cash and time deposits (Note 4) ...... ¥ 4,316 ¥ 4,814 $ 43,081 Notes and accounts receivables (Note 14): Trade ...... 74,230 69,516 740,897 Non-consolidated subsidiaries and affiliates ...... 3,229 6,430 32,230 Others ...... 4,911 5,116 49,025 Subtotal ...... 82,371 81,063 822,152 Inventories ...... 82,236 81,160 820,809 Deferred tax assets, current (Note 10) 4,156 2,910 41,484 Other current assets ...... 4,388 1,427 43,797 Allowance for doubtful accounts, current ...... (46) (66) (461) Total current assets ...... 177,422 171,310 1,770,864

Property, Plant and Equipment (Notes 6 and 7): Land ...... 23,121 21,297 230,780 Buildings and structures ...... 75,121 85,214 749,789 Machinery, equipment and others ...... 171,956 154,077 1,716,307 Construction in progress ...... 7,934 7,672 79,193 Subtotal ...... 278,134 268,261 2,776,070 Accumulated depreciation ...... (166,794) (170,769) (1,664,777) Total property, plant and equipment ...... 111,340 97,492 1,111,293

Investments and Other Assets: Investments in securities (Notes 5 and 7) ...... 38,102 51,849 380,306 Investments in and advances to non-consolidated subsidiaries and affiliates (Notes 5 and 7) ...... 30,191 24,795 301,341 Long-term loans ...... 28 19 282 Deferred tax assets, non-current (Note 10) ...... 6,777 2,320 67,650 Goodwill ...... 860 1,578 8,586 Other assets ...... 3,389 3,089 33,832 Allowance for doubtful accounts, non-current ...... (182) (154) (1,822) Total investments and other assets ...... 79,167 83,496 790,177 Total assets ...... ¥367,931 ¥352,299 $3,672,334 *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 of the previous year through March 31. Thus, 2008 refers to the year ended March 31, 2008. 3. ¥100.19=US$1, the rate of exchange on March 31, 2008, is used.

32 Annual Report 2008 Dowa Holdings Co., Ltd. Thousands of U.S. Dollars Millions of Yen (Note 1) Liabilities and Equity 2008 2007 2008 Current Liabilities: Short-term borrowings (Note 7) ...... ¥ 20,687 ¥ 40,893 $ 206,484 Current maturities of long-term debt (Note 7) ...... 17,981 24,664 179,470 Notes and accounts payables (Note 14): Trade ...... 44,979 34,605 448,937 Non-consolidated subsidiaries and affiliates ...... 356 3,387 3,556 Others ...... 3,907 5,678 38,999 Subtotal ...... 49,242 43,671 491,493 Accrued expenses ...... 6,154 5,695 61,427 Accrued income taxes ...... 13,189 13,306 131,643 Deferred tax liabilities, current (Note 10) ...... 288 – 2,881 Accrued bonus ...... 3,563 3,002 35,570 Accrued directors’ bonus ...... 477 282 4,764 Other current liabilities ...... 2,110 5,937 21,061 Total current liabilities ...... 113,695 137,454 1,134,797

Long-term Liabilities: Long-term debt (Note 7) ...... 83,116 49,199 829,592 Reserve for employees’ retirement benefits (Note 13) ...... 12,626 12,586 126,029 Reserve for directors’ and corporate auditors’ retirement benefits . . . . . 723 679 7,225 Deferred tax liabilities, non-current (Note 10) ...... 2,933 8,014 29,275 Negative goodwill ...... 970 – 9,689 Other Long-term liabilities ...... 3,582 3,088 35,759 Subtotal ...... 103,954 73,567 1,037,572 Total liabilities ...... ¥217,649 ¥211,022 $2,172,370

Contingent Liabilities (Note 8):

Equity (Note 9): Common stock: Authorized: 1,000,000 thousand shares in 2008 and 2007, respectively Issued: 303,790 thousand shares in 2008 and 2007, respectively . . . . ¥ 36,436 ¥ 36,436 $ 363,674 Additional paid-in capital ...... 26,367 26,368 263,179 Retained earnings ...... 75,469 57,052 753,263 Unrealized gain on available-for-sale securities ...... 7,854 19,219 78,391 Deferred gain on derivatives under hedge accounting ...... 1,047 294 10,455 Foreign currency translation adjustments ...... (348) (336) (3,477) Treasury stock, at cost (4,522 thousand shares in 2008 and 3,887 thousand shares in 2007) . . . (2,624) (2,250) (26,193) Subtotal ...... 144,202 136,785 1,439,293

Minority Interests ...... 6,078 4,491 60,671 Total equity ...... 150,281 141,276 1,499,964 Total liabilities and equity ...... ¥367,931 ¥352,299 $3,672,334

Dowa Holdings Co., Ltd. Annual Report 2008 33 Consolidated Statements of Income Dowa Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2008 and 2007

Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Net Sales ...... ¥475,826 ¥458,701 $4,749,238 Cost of Sales (Note 15) ...... 399,901 383,136 3,991,434 Gross profit ...... 75,924 75,564 757,804 Selling, General and Administrative Expenses (Notes 11 and 12) ...... 31,605 26,830 315,454 Operating income ...... 44,319 48,733 442,349

Other Income (Expenses): Interest and dividend income ...... 1,400 1,219 13,979 Interest expense ...... (2,167) (1,654) (21,630) Gain (loss) on disposal and sale of property, plant and equipment, net . . . 17 (185) 177 Exchange loss ...... (301) (105) (3,011) Loss on sale of investments in subsidiaries and affiliates ...... (409) (579) (4,088) Equity in earnings of affiliates ...... 2,059 3,000 20,557 Gain on sale of investment in securities ...... 1,714 5 17,113 Loss on impairment of property, plant and equipment ...... (266) (69) (2,661) Loss on disposal of inventories ...... (405) (62) (4,051) Write-down of inventories (Note 15) ...... – (522) – Loss on liquidation of business ...... (1,746) – (17,432) Loss on change of business ...... (1,088) (1,986) (10,868) Other, net ...... (1,995) (1,775) (19,915) Subtotal ...... (3,189) (2,715) (31,831) Income before income taxes and minority interests ...... 41,129 46,017 410,517

Income Taxes (Note 10): Current ...... 19,147 19,286 191,109 Deferred ...... (3,700) (485) (36,938) Total income taxes ...... 15,446 18,801 154,171

Minority Interests ...... (1,162) (878) (11,603) Net income ¥ 24,520 ¥ 26,337 $ 244,742

U.S. Dollars Per Share (Note 2 (16)): Yen (Note 1) Basic net income ...... ¥ 81.86 ¥ 87.82 $ 0.81 Fully diluted net income ...... 77.91 83.59 0.77 Cash dividends ...... 20.00 20.00 0.19 *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 of the previous year through March 31. Thus, 2008 refers to the year ended March 31, 2008. 3. ¥100.19=US$1, the rate of exchange on March 31, 2008, is used.

34 Annual Report 2008 Dowa Holdings Co., Ltd. Consolidated Statements of Changes in Equity Dowa Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2008 and 2007

Thousands of shares 2008 2007 Number of Shares of Common Stock Balance at beginning of year ...... 303,790 303,790 Net change during year ...... – – Balance at end of year ...... 303,790 303,790

Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Common Stock Balance at beginning of year ...... ¥36,436 ¥36,436 $363,674 Net change during year ...... – – – Balance at end of year ...... ¥36,436 ¥36,436 $363,674 Additional Paid-in Capital ...... Balance at beginning of year ...... ¥26,368 ¥26,368 $263,189 Net change due to sale of treasury stock ...... (0) – (9) Balance at end of year ...... ¥26,367 ¥26,368 $263,179 Retained Earnings Balance at beginning of year ...... ¥57,052 ¥35,079 $569,441 Net income ...... 24,520 26,337 244,742 Cash dividends paid ...... (6,075) (4,252) (60,638) Bonuses to directors ...... – (108) – Adjustment of retained earnings for newly consolidated subsidiaries . . . . . 47 (3) 476 Increase due to sale of treasury stock of affiliates ...... 3 – 39 Decrease in retained earnings due to decrease in number of consolidated subsidiaries ...... (79) – (798) Balance at end of year ...... ¥75,469 ¥57,052 $753,263 Unrealized Gain on Available-for-sale Securities Balance at beginning of year ...... ¥19,219 ¥22,112 $191,827 Net change during year ...... (11,365) (2,893) (113,435) Balance at end of year ...... ¥ 7,854 ¥19,219 $ 78,391 Deferred Gain on Derivatives Under Hedge Accounting Balance at beginning of year ...... ¥ 294 ¥ (6,285) $ 2,942 Net change during year ...... 752 6,580 7,513 Balance at end of year ...... ¥ 1,047 ¥ 294 $ 10,455 Foreign Currency Translation Adjustments Balance at beginning of year ...... ¥ (336) ¥ (426) $ (3,358) Net change during year ...... (11) 90 (118) Balance at end of year ...... ¥ (348) ¥ (336) $ (3,477) Treasury Stock, at Cost Balance at beginning of year ...... ¥ (2,250) ¥ (2,249) $ (22,458) Net change of treasury stock held by affiliates during year ...... (363) 12 (3,628) Purchase of treasury stock ...... (13) (12) (129) Sale of treasury stock ...... 2 – 24 Balance at end of year ...... ¥ (2,624) ¥ (2,250) $ (26,193) Minority Interests Balance at beginning of year ...... ¥ 4,491 ¥ 3,833 $ 44,825 Net change during year ...... 1,587 657 15,845 Balance at end of year ...... ¥ 6,078 ¥ 4,491 $ 60,671

*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 of the previous year through March 31. Thus, 2008 refers to the year ended March 31, 2008. 3. ¥100.19=US$1, the rate of exchange on March 31, 2008, is used. Dowa Holdings Co., Ltd. Annual Report 2008 35 Consolidated Statements of Cash Flows Dowa Holdings Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2008 and 2007

Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Cash Flows from Operating Activities: Income before income taxes and minority interests ...... ¥41,129 ¥46,017 $410,517 Adjustments for: Depreciation ...... 13,830 9,897 138,040 (Gain) loss on disposal and sale of property, plant and equipment, net ...... (17) 185 (177) Increase (decrease) in allowance for doubtful accounts ...... 45 (315) 453 Equity in earnings of affiliates ...... (2,059) (3,000) (20,557) (Gain) loss on sale of investment in securities, net ...... (1,304) 575 (13,025) Loss on impairment of property, plant and equipment ...... 266 69 2,661 Loss on liquidation of business ...... 1,143 – 11,415 Loss on change of business ...... 473 1,986 4,726 (Increase) decrease in trade receivables ...... 212 (28,427) 2,122 (Increase) decrease in inventories ...... 3,376 (11,275) 33,701 Increase in trade payables ...... 3,445 7,503 34,393 Decrease in interest and dividend receivables ...... 901 323 9,000 Increase in interest payables ...... 99 67 995 Other, net ...... (307) 4,778 (3,068) Income taxes paid (20,837) (14,685) (207,978) Net cash provided by operating activities 40,398 13,700 403,221 Cash Flows from Investing Activities: Acquisition of property, plant and equipment ...... (27,833) (20,205) (277,807) Proceeds from disposal and sale of property, plant and equipment, net ...... 2,522 7,376 25,173 Proceeds from sale of investment in securities ...... 2,239 24 22,347 Acquisition of investments in securities ...... (6,095) (10,034) (60,838) Proceeds from sale of investments in affiliates ...... 99 530 997 Acquisition of investments in subsidiaries and affiliates ...... (6,539) (1,260) (65,274) Acquisition of subsidiaries, net of cash acquired ...... (3,640) (2,015) (36,330) Payment for loans ...... (552) (567) (5,513) Proceeds from collection of loans ...... 663 1,665 6,627 Other, net ...... (2) 99 (28) Net cash used in investing activities ...... (39,138) (24,387) (390,646) Cash Flows from Financing Activities: Net increase (decrease) in short-term bank loans ...... (20,781) 11,733 (207,418) Proceeds from long-term debt ...... 50,200 18,935 501,048 Repayment of long-term debt ...... (24,947) (16,468) (248,999) Cash dividends paid ...... (6,216) (4,401) (62,048) Increase in lease obligations ...... 198 – 1,983 Repayment of lease obligations ...... (262) (151) (2,619) Proceeds from sale of treasury stock ...... 1 – 14 Purchase of treasury stock ...... (13) (12) (129) Net cash provided by (used in) financing activities ...... (1,820) 9,634 (18,170) Foreign currency translation adjustment on cash and cash equivalents ...... (14) 24 (147) Net Decrease in Cash and Cash Equivalents ...... (575) (1,027) (5,743) Cash and Cash Equivalents of Newly Consolidated Subsidiaries (Note 4) ...... 420 6 4,192 Decrease in Cash and Cash Equivalents due to Exclusion of Subsidiaries from Scope of Consolidation ...... (343) – (3,426) Cash and Cash Equivalents at Beginning of Year...... 4,792 5,813 47,838 Cash and Cash Equivalents at End of Year (Note 4) ...... ¥ 4,294 ¥ 4,792 $ 42,861

36 Annual Report 2008 Dowa Holdings Co., Ltd. Notes to Consolidated Financial Statements Dowa Holdings Co., Ltd. and Consolidated Subsidiaries

1. Basis of Presentation of the Consolidated Financial Statements The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law (formerly, the Japanese Securities and Exchange Law) and its related accounting regulations and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. Japanese yen figures less than ¥1 million (US$1 thousand) are rounded down to the nearest ¥1 million (US$1 thousand), except for per share data. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2007 consolidated financial statements to conform to the classifications used in 2008. The consolidated financial statements are stated in Japanese yen, the currency of the country in which Dowa Holdings Co., Ltd. (the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥100.19 to $1, the approximate rate of exchange at March 31, 2008. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. Summary of Significant Accounting Policies (1) Principles of Consolidation The consolidated financial statements as of March 31, 2008 include the accounts of the Company and its 48 significant (48 in 2007) subsidiaries (together, the “Group”). All significant intercompany 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 net difference between the purchase price and the underlying equity in the equity of acquired business 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, 2007 include Dowa Technology Co., Ltd., which had been 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 shares of Cemm Co., Ltd. during the year ended March 31, 2007. The results of this subsidiary were included in the consolidated financial statements from the year ended March 31, 2007. The Company signed an agreement to sell all owned shares 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 from the year ended March 31, 2007. Pulse Kensetsu Consultant Co., Ltd., which was a subsidiary of the Company, signed an agreement to merge with another subsidiary, Showa Kaihatsu Kogyo Co., Ltd. during the year ended March 31, 2007, and changed its business name into “Showa Kaihatsu Kogyo Co., Ltd.”. The consolidated financial statements for the year ended March 31, 2008 include Dowa Environmental Management Co., Ltd. and Dowa Advanced Materials (Shanghai) Co., Ltd., which were unconsolidated subsidiaries in the consolidated financial statements for the year ended March 31, 2007 from the viewpoint of materiality. The Company signed an agreement to buy shares of Dowa Metanix Co., Ltd. during the year ended March 31, 2008. The results of this subsidiary were included in the consolidated financial statements from the year ended March 31, 2008.

Dowa Holdings Co., Ltd. Annual Report 2008 37 The Company dissolved Akita Geothermal Energy Co., Ltd. and Dowa Engineering Co., Ltd. during the year ended March 31, 2008. The Company also signed an agreement to sell all of its shares in Showa Kaihatsu Kogyo Co., Ltd., to its management during the year ended March 31, 2008. The results of these subsidiaries are included in the consolidated financial statements up to the date of dissolution or signing of these agreements.

(b) Accounting Period of Foreign Subsidiaries Dowa THT America, Inc. changed its accounting period from December to March. As the result of this change, transactions for 15 months (from January 1, 2006 to March 31, 2007) were included in the consolidated financial statements for the year ended March 31, 2007. In preparing the consolidated financial statements for the year ended March 31, 2008, the financial statements of Dowa Environmental Management Co., Ltd. and Dowa Advanced Materials (Shanghai) Co., Ltd., as of December 31, 2007 were used. For material transactions that occurred between January 1, 2008, and March 31, 2008, adjustments were made in the consolidated financial statements, as necessary.

(2) Financial Instruments (a) Derivatives and Hedging Activities The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange, interest and nonferrous metal rates. Foreign exchange forward contracts, interest rate swaps and nonferrous metal forward contracts are utilized by the Group to reduce foreign currency exchange, interest and nonferrous metal rate risks. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the consolidated income statement and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward contracts employed to hedge foreign exchange exposures for export sales and import purchases are measured at the fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at the fair value but the unrealized gains/losses are deferred until the underlying transactions are completed. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements are recognized and included in interest expense or income.

(b) Securities Securities held by the Group 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. Unrealized gain on these securities are stated at net of tax effect and minority interests as “unrealized gain on available-for-sale securities” on the Consolidated Statements of Changes in Equity. 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.

38 Annual Report 2008 Dowa Holdings Co., Ltd. (3) Inventories Inventories are stated at the lower of cost or market value. The costs of the primary finished goods and imported raw materials are determined by the first-in first-out (FIFO) method. 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” (Accounting Standards Board of Japan Statement 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, consisting of ¥599 million in the Nonferrous Metals segment, ¥6 million in the Electronic Materials segment, and ¥16 million in the Metal Processing segment. Gross profit, operating income and income before income taxes and minority interests all decreased by ¥621 million.

(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. Depreciation of the land fill is computed using the production method. The Company and some consolidated subsidiaries have computed the depreciation for the buildings (excluding lease- hold improvements and auxiliary facilities attached to buildings) that have newly been acquired on or after April 1, 1998, by the straight-line method. The Change of Accounting Policy (2008) Property, plant and equipment acquired on and after April 1, 2007 are depreciated by the declining-balance method in accordance with the revised corporate tax law, which is effective for fiscal years beginning on and after April 1, 2007. As a result of this change, operating income decreased by ¥599 million ( US$5,980 thousand), which consists of ¥309 million (US$3,092 thousand) in the Nonferrous Metals segment, ¥76 million (US$766 thousand) in the Environmental Management & Recycling segment, ¥54 million (US$539 thousand) in the Electronic Materials segment, ¥110 million (US$1,100 thousand) in the Metal Processing segment, ¥32 million (US$327 thousand) in the Heat Treatment segment, and ¥15 million (US$152 thousand) in the Others segment. Income before income taxes and minority interests decreased by ¥602 million (US$6,011 thousand). Additional information (2008) Property, plant and equipment had been depreciated up to 95% of acquisition cost with 5% of residual value carried until previous fiscal years. However, such 5% portion of property, plant and equipment is systematically amortized over 5 years starting in the following year in which the carrying value of property, plant and equipment reaches 5% of the acquisition cost in accordance with the revised corporate tax law. As a result of this change, operating income decreased by ¥734 million ( US$7,327 thousand) which consists of ¥302 million (US$3,018 thousand) in the Nonferrous Metals segment, ¥69 million (US$691 thousand) in the Environmental Management & Recycling segment, ¥144 million (US$1,442 thousand) in the Electronic Materials segment, ¥121 million (US$1,210 thousand) in the Metal Processing segment, ¥73 million (US$732 thousand) in the Heat Treatment segment, and ¥23 million (US$231 thousand) in the Others segment. Income before income taxes and minority interests decreased by ¥725 million (US$7,245 thousand).

(5) Research and Development and Intangible Assets Research and development expenses are charged to the consolidated statements of income as incurred. Expenses relating to the development of internal use computer software are charged to the consolidated statements of income when incurred, except when it is determined the software contributes to the generation of income or to future cost savings. Such expenses are capitalized as an asset and are amortized using the straight-line method over its estimated useful life, which is five years. Intangible assets other than software are amortized using the straight line method, in accordance with the Japanese Corporate Tax Law.

Dowa Holdings Co., Ltd. Annual Report 2008 39 (6) Long-lived Assets The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

(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 Group is obliged to pay to employees after the year-end.

(9) Accrued directors’ bonus Accrued bonuses to directors including bonuses for the portion corresponding to the corporate performances in the corporate performance-based remuneration system are provided for at the estimated amounts, which the Group is obliged to pay to directors 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 Standard 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, consisting of ¥63 million in the Nonferrous Metals segment, ¥80 million in the Environmental Management and Recycling segment, ¥36 million in the Electronic Materials segment, ¥42 million in the Metal Processing segment, ¥28 million in the Heat Treatment segment, and ¥32 million in the Others segment. Operating income and income before income taxes and minority interests for the year ended March 31, 2007 both decreased by ¥282 million.

(10) Reserve for Employees’ Retirement Benefits Employees of the Group are 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. If a mathematical calculation difference occurs from the difference between the expected operational earnings from retirement assets and the actual earnings results, the difference is amortized as an operating expense on a straight-line basis over five years, usually beginning the year following the year in which the difference arises. For any past service liability that arises as a result of revision of the retirement benefit regulations or other cause, this is amortized as an operating expense on a straight-line basis over five years, usually beginning the year following the year in which the liability arises.

(11) Reserve for Directors’ and Corporate Auditors’ Retirement Benefits The Company and some of 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 decided to terminate the retirement benefits system for the directors and corporate auditors at the general meeting of stockholders on June 28, 2006.

40 Annual Report 2008 Dowa Holdings Co., Ltd. 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 The Group adopted the Law Concerning Special Measures against PCB Waste, and recorded the estimate cost for the disposal of polychlorinated biphenyl waste.

(13) Leases Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the notes to the lessee’s financial statements. All other leases are accounted for as operating leases.

(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. The assets and liabilities of the Company’s consolidated subsidiaries are valued using the fair-value method. 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 equity.

(15) Accounting Treatment for Consumption Tax All transactions are recorded at net of consumption tax.

(16) Net Income per Share Basic 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.

(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. Changes of Accounting Policies (a) Accounting Standard for Presentation of Equity in the Balance Sheet (2007) The Company and its domestic consolidated subsidiaries have adopted “Accounting Standard for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan Statement No. 5)”, and “Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (Accounting Standards Board of Japan Guidance No. 8)” both issued by the Accounting Standards Board of Japan on December 9, 2005, from the year ended March 31, 2007. This change of accounting policy had no impact on the Company’s net income. “Equity” in the balance sheets for the years ended March 31, 2008 and 2007 is presented according to the revised “Regulations concerning the Terminology, Form and Presentation Methods of Consolidated Financial Statements.” Beginning in 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 “Deferred gain (loss) on derivatives under hedge accounting” under Equity.

Dowa Holdings Co., Ltd. Annual Report 2008 41 (b) Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures and The Related Implementation Guidance (2007) The Company and its domestic consolidated subsidiaries have adopted “Accounting Standard for Business Combinations” (Accounting Standard issued on October 31, 2003 by the Business Accounting Council in Japan), “Accounting Standard for Business Divestitures” (Accounting Standard Board of Japan Statement No. 7) and “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, beginning in the year ended March 31, 2007. This change of accounting policy had no impact on the Company’s net income.

(c) Accounting Standard for Treasury Shares and Appropriation of Legal Reserve (2007) The Group has adopted “Accounting Standard for Treasury Shares and Appropriation of Legal Reserve” (Accounting Stan- dards Board of Japan Statement No. 1, revised on August 11, 2006) and “Guidance on Accounting Standard for Treasury Shares and Appropriation of Legal Reserve” (Accounting Standards Board of Japan Guidance No. 2), beginning in the year ended March 31, 2007. This change of accounting policy had no impact on the Company’s net income. This change in the presentation of the Consolidated Financial Statements had been made in accordance with the revised regulations on Consolidated Financial Statements.

4. Cash and Cash Equivalents (1) Cash and cash equivalents at March 31, 2008 and 2007 consisted of: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Cash and time deposits ...... ¥4,316 ¥4,814 $43,081 Time deposits with deposit terms of over three months ...... (22) (22) (219) Cash and cash equivalents ...... ¥4,294 ¥4,792 $42,861

(2) The main items of assets and liabilities of Dowa Metanix Co., Ltd. and Cemm Co., Ltd. at the acquisition date which were newly included in the consolidated financial statements for the years ended March 31, 2008 and 2007, as applicable, are as follows:

Dowa Metanix Co., Ltd. as of October 1, 2007 (2008) Thousands of U.S. Dollars Millions of Yen (Note 1) Current assets ...... ¥7,911 $78,965 Non-current assets ...... 5,907 58,967 Current liabilities ...... 6,176 61,647 Non-current liabilities ...... 2,250 22,460

Cemm Co., Ltd. as of September 30, 2006 (2007) Millions of Yen Current assets ...... ¥1,521 Non-current assets ...... 2,296 Current liabilities ...... 1,313 Non-current liabilities ...... 684

42 Annual Report 2008 Dowa Holdings Co., Ltd. (3) The main items of assets and liabilities of Showa Kaihatsu Kogyo Co., Ltd. at the exclusion date which were included in the consolidated financial statements up to that date are as follows:

Showa Kaihatsu Kogyo Co., Ltd. as of February 29, 2008 Thousands of U.S. Dollars Millions of Yen (Note 1) Current assets ...... ¥1,379 $13,772 Non-current assets ...... 364 3,636 Current liabilities ...... 1,251 12,489 Non-current liabilities ...... – –

5. Investments Investments at March 31, 2008 and 2007 consisted of: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Investments in and advances to non-consolidated subsidiaries and affiliates ...... ¥30,191 ¥24,795 $301,341 Available-for-sale securities with market quotations ...... 33,833 47,654 337,689 Unlisted securities ...... 4,204 4,130 41,965 Others ...... 65 65 651 Total ...... ¥68,294 ¥76,644 $681,648

The net unrealized gain on the available-for-sale securities with quotations as of March 31, 2008 and 2007 were ¥11,795 million (US$117,732 thousand) and ¥30,507 million, respectively. Available-for-sale securities that the Group sold during the years ended March 31, 2008 and 2007: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Proceed from sales ...... ¥2,239 ¥24 $22,347 Gain on sales ...... 1,716 5 17,136 Loss on sales ...... 0 1 1

Available-for-sale securities due within 5 years at March 31, 2008 and 2007: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Bonds: Governmental bonds and local governmental bonds ...... ¥ 2 ¥ 2 $ 20 Corporate bonds ...... 10 10 100 Total ...... ¥12 ¥12 $120

6. Long-lived Assets The Group reviewed its long-lived assets for impairment as of the year ended March 31, 2008 and 2007 and, as a result, recognized impairment loss of ¥266 million (US$2,661 thousand) and ¥69 million as other expense for idle assets due to decline of market value.

Dowa Holdings Co., Ltd. Annual Report 2008 43 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 0.90% to 4.31% (an approximate average rate of 1.28%) per annum at March 31, 2008 and 0.45% to 1.63% (an approximate average rate of 1.14%) per annum at March 31, 2007. It is normal business custom in Japan for short- term borrowings to be rolled over each year. At March 31, 2008 and 2007, long-term debt consisted of the following: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 0.77% to 4.65% loans, principally from banks and due between 2007 and 2016: Collateralized ...... ¥ 41,234 ¥36,551 $ 411,566 Unsecured ...... 49,842 17,284 497,476

1.04% straight bond due 2007 ...... – 10,000 – 1.21% straight bond due 2009 ...... 10,000 10,000 99,810 2.15% straight bond due 2010 ...... 21 28 209 101,098 73,864 1,009,062 Less: Current maturities of long-term debt ...... 17,981 24,664 179,470 Long-term debt due after one year ...... ¥ 83,116 ¥49,199 $ 829,592

At March 31, 2008 and 2007, 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) Property, plant and equipment, less accumulated depreciation . . . . . ¥3,625 ¥ 4,627 $36,183 Investments in and advances to affiliates ...... 8,220 11,122 82,051 Investments in securities ...... 6,051 12,689 60,403

Annual maturities of long-term debt as of March 31, 2008 for the next five years and thereafter were as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2009 ...... ¥ 17,981 $ 179,470 2010 ...... 29,257 292,015 2011 ...... 16,545 165,140 2012 ...... 13,531 135,062 2013 and thereafter ...... 23,782 237,373 Total ...... ¥101,098 $1,009,062

44 Annual Report 2008 Dowa Holdings Co., Ltd. 8. Contingent Liabilities At March 31, 2008 and 2007, the Group guarantees of loans incurred by non-consolidated subsidiaries and affiliates in the amount of ¥2,417 million (US$24,126 thousand), and ¥183 million, respectively. 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, 2008 and 2007, in connection with this structured finance agreement the maximum repurchase commitment, the Company’s expo- sure is ¥825 million (US$8,239 thousand) and ¥1,355 million, respectively.

9. Equity Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the “Corporate Law”), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Corporate Law that affect financial and accounting matters are summarized below:

(a) Dividends Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the Company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of equity after dividends must be maintained at no less than ¥3 million.

(b) Increases/decreases and transfer of common stock, reserve and surplus The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

(c) Treasury stock and treasury stock acquisition rights The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

Dowa Holdings Co., Ltd. Annual Report 2008 45 10. Income Taxes Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporation tax, inhabitants’ tax and enterprise tax, which in the aggregate resulted in normal statutory tax rates of approximately 40% for 2008 and 2007, respectively. At March 31, 2008 and 2007, the significant components of deferred tax assets and liabilities were as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Deferred tax assets Consolidated subsidiaries’ deficit ...... ¥ 5,768 ¥ 1,573 $ 57,578 Reserve for employees’ retirement benefits ...... 5,042 4,672 50,333 Unrealized earnings ...... 4,325 4,524 43,171 Accrued bonus ...... 1,425 1,169 14,232 Excess depreciation ...... 1,213 104 12,111 Accrued enterprise taxes ...... 1,091 1,065 10,895 Loss on impairment of property, plant and equipment ...... 1,063 996 10,616 Write-down of inventories ...... 708 562 7,071 Write-down of investment securities ...... 440 221 4,398 Reserves for directors’ and corporate auditors’ retirement benefits . 376 338 3,755 Allowance for doubtful accounts ...... 63 445 636 Others ...... 2,341 2,150 23,371 Total ...... 23,862 17,825 238,172 Valuation allowance ...... (7,979) (7,996) (79,639) Deferred tax assets ...... ¥15,883 ¥ 9,828 $158,533 Deferred tax liabilities Unrealized gain on available-for-sale securities ...... (4,718) (12,201) (47,093) Special depreciation reserve ...... (997) (57) (9,956) Unrealized gain on land ...... (924) – (9,230) Net deferred hedge income ...... (786) – (7,854) Provision for loss of foreign investments ...... (0) (0) (5) Others ...... (742) (352) (7,415) Total deferred tax liabilities ...... (8,171) (12,612) (81,555) Net deferred tax assets (liabilities) ...... ¥ 7,712 ¥ (2,783) $ 76,977 ( ) represents deferred tax liabilities.

(Note) The components of net deferred tax assets (liabilities) for the years ended March 31, 2008 and 2007 were as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Deferred tax assets, current ...... ¥4,156 ¥2,910 $41,484 Deferred tax assets, non-current ...... 6,777 2,320 67,650 Deferred tax liabilities, current ...... (288) – (2,881) Deferred tax liabilities, non-current ...... (2,933) (8,014) (29,275)

46 Annual Report 2008 Dowa Holdings Co., Ltd. For the year ended March 31, 2008, the reconciliation of the statutory tax rate to the effective income tax rate was as follows: 2008 Statutory tax rate ...... 40.0% Tax benefit on prior losses of subsidiaries ...... 4.0 Non-deductible items including entertainment expenses ...... 0.7 Loss on impairment of property, plant and equipment ...... 0.6 Inhabitants’ tax ...... 0.2 Loss on liquidation of business ...... (3.8) Tax credits ...... (2.1) Equity in earnings of affiliates ...... (1.0) Non-taxable items including dividend income ...... (0.3) Others ...... (0.8) Effective income tax rate ...... 37.6%

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.

11. Research and Development Expenses Research and development expenses for the years ended March 31, 2008 and 2007 were ¥7,309 million (US$72,959 thousand) and ¥4,384 million, respectively.

12. Leases Lease rental expenses on finance lease contracts without ownership transfer for the years ended March 31, 2008 and 2007 are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Lease rental expenses for the year ...... ¥473 ¥339 $4,722

The amounts of outstanding future lease payments due at March 31, 2008 and 2007, including the portion of interest thereon, are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Finance leases: Future lease payments Within one year ...... ¥ 465 ¥ 314 $ 4,645 Over one year ...... 1,063 866 10,612 Total ...... ¥1,528 ¥1,180 $15,257

The amounts of outstanding future lease payments due at March 31, 2008 and 2007 are summarized as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Operating leases (lessee): Within one year ...... ¥4 ¥2 $45 Over one year ...... 4 3 45 Total ...... ¥9 ¥6 $91

Dowa Holdings Co., Ltd. Annual Report 2008 47 Acquisition cost, accumulated depreciation, and net book value at March 31, 2008 and 2007, if capitalized, are summarized as follows: Thousands of Millions of Yen U.S. Dollars (Note 1) 2008 2007 2008 Machinery, Machinery, Machinery, Equipment Equipment Equipment and and and Vehicles Others Total Vehicles Others Total Vehicles Others Total Acquisition cost ...... ¥2,476 ¥654 ¥3,131 ¥1,407 ¥462 ¥1,870 $24,719 $6,531 $31,250 Accumulated depreciation . . . 1,347 255 1,602 530 161 691 13,446 2,546 15,992 Net leased property ...... ¥1,129 ¥399 ¥1,528 ¥ 877 ¥301 ¥1,178 $11,272 $3,984 $15,257

13. 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, 2008 and 2007 is analyzed as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Projected benefit obligations ...... ¥(15,024) ¥(15,127) $(149,957) Plan assets ...... 2,595 2,796 25,908 Unfunded retirement obligations ...... (12,428) (12,331) (124,049) Unrecognized actuarial differences ...... (143) (189) (1,428) Unrecognized prior service cost ...... (42) (12) (429) Net retirement obligations ...... (12,614) (12,532) (125,906) Prepaid pension fee ...... 12 53 123 Reserves for employees’ retirement benefits ...... ¥(12,626) ¥(12,586) $(126,029)

Net pension expenses related to the retirement benefits for the years ended March 31, 2008 and 2007 are as follows: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Service cost ...... ¥1,563 ¥1,160 $15,609 Interest cost ...... 224 218 2,238 Expected return on plan assets ...... (19) (16) (198) Amortization of actuarial differences ...... 32 222 324 Amortization of prior service cost ...... 32 50 321 Net pension expenses ...... ¥1,833 ¥1,636 $18,295

Assumptions used in calculation of the above information were as follows: 2008 2007 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 period of prior service cost ...... Five years Five years Recognition period of actuarial differences ...... Five years Five years

48 Annual Report 2008 Dowa Holdings Co., Ltd. 14. Trade Note Maturities The notes are accounted for as cleared on the actual clearing date. 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: Millions of Yen Notes receivable ...... ¥1,051 Notes payable ...... 923

15. 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 for the year ended March 31, 2008 and 2007: Thousands of U.S. Dollars Millions of Yen (Note 1) 2008 2007 2008 Cost of Sales ...... ¥1,486 ¥1,494 $14,840 Write-down of inventories ...... – 522 – Total ...... ¥1,486 ¥2,017 $14,840

16. Deposited Inventory Silver bullion, which is deposited at the Company’s warehouse but is not included in the consolidated balance sheets as of March 31, 2008 due to receipt of deposition, was as follows. The presented amount is based on a calculation using the market price at March 31, 2008. Thousands of U.S. Dollars Millions of Yen (Note 1) Silver bullion ...... ¥2,352 $23,484

17. Equity Warrants Equity warrants which the Company had for the years ended March 31, 2008 and 2007 were as follows: Number of shares to be issued Class of stocks Balance sheet Item to be issued March 31, 2007 Increase Decrease March 31, 2008 (Millions of Yen) Equity warrants . . Common stock 15,188,998 – – 15,188,998 – Total . . . . . 15,188,998 – – 15,188,998 –

The number of the shares to be issued is based of the assumption on when the share warrant exercise was carried out. Exercise period for equity warrants has not come. As of March 31, 2008, the number of shares to be issued upon the exercise of equity warrants is estimated to be less than 15,188,998 shares.

Dowa Holdings Co., Ltd. Annual Report 2008 49 18. Derivatives Derivative transactions at March 31, 2007, are not disclosed since all of the transactions are accounted for hedged accounting. The Group had the following derivative contracts outstanding at March 31, 2008:

Commodity related Millions of Yen Thousands of U.S. Dollars (Note 1) Contract Over Unrealized Contract Over Unrealized Fair Value Fair Value Type Amount One Year Gain/(Loss) Amount One Year Gain/(Loss) Nonferrous Metal Forward Contracts Buying Zinc ...... ¥ 47 – ¥ 46 ¥ (1) $ 476 – $ 463 $ (13) Copper ...... 842 – 839 (3) 8,409 – 8,377 (31) Selling ...... Gold ...... 87 – 84 3 875 – 840 35 Silver ...... 319 – 310 9 3,189 – 3,099 89 Zinc ...... 425 – 394 30 4,243 – 3,938 305 Copper ...... 5,438 – 5,455 (17) 54,284 – 54,456 (171) Total ...... ¥ – – ¥ – ¥21 $ – – $ – $213 (Notes) 1. Fair value was calculated by quotations obtained from commodity future market as of March 31, 2008. 2. Derivative transactions that qualify for hedge accounting are excluded from disclosure.

19. Subsequent Event The following appropriation of retained earnings at March 31, 2008 was approved at the Company’s shareholders’ meeting held on June 25, 2008: Thousands of U.S. Dollars Millions of Yen (Note 1) Year-end cash dividends, ¥20 (US$0.19) per share ...... ¥6,075 $60,637

20. Segment Information The classification of business for the segment information by business type is based on the classification adopted by the internal management system. (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: Copper strips, brass strips, copper alloy strips, brass bars, and precision processed products (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

50 Annual Report 2008 Dowa Holdings Co., Ltd. Segment information by business type as of March 31, 2008 and 2007 is summarized as follows: Millions of Yen Environmental Nonferrous Management Electronic Metal Heat 2008 Metals & Recycling Materials Processing Treatment Others Total Eliminations Consolidated I Net sales: Outside customers . . . . ¥239,885 ¥50,632 ¥59,282 ¥91,650 ¥28,806 ¥ 5,569 ¥475,826 ¥ – ¥475,826 Intersegment ...... 32,340 33,877 2,149 58 0 14,618 83,044 (83,044) – Total ...... 272,226 84,510 61,432 91,708 28,806 20,187 558,870 (83,044) 475,826 Operating expenses . . . 249,738 76,481 55,123 88,666 25,210 20,178 515,399 (83,891) 431,507 Operating income . . . . ¥ 22,487 ¥ 8,028 ¥ 6,308 ¥ 3,042 ¥ 3,596 ¥ 8 ¥ 43,471 ¥ 847 ¥ 44,319

II Assets, depreciation and capital expenditures: Assets ...... ¥144,561 ¥46,786 ¥33,910 ¥64,245 ¥28,416 ¥ 7,778 ¥325,697 ¥42,233 ¥367,931 Depreciation ...... 4,836 2,392 2,206 2,309 1,336 551 13,631 343 13,974 Capital expenditures . . . 13,191 4,657 1,519 3,390 2,554 647 25,961 363 26,324

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

Thousands of U.S. Dollars (Note 1) Environmental Nonferrous Management Electronic Metal Heat 2008 Metals & Recycling Materials Processing Treatment Others Total Eliminations Consolidated I Net sales: Outside customers . . . . $2,394,308 $505,362 $591,698 $914,766 $287,515 $ 55,587 $4,749,238 $ – $4,749,238 Intersegment ...... 322,794 338,135 21,456 581 0 145,902 828,872 (828,872) – Total ...... 2,717,103 843,498 613,155 915,347 287,516 201,490 5,578,110 (828,872) 4,749,238 Operating expenses . . . 2,492,650 763,369 550,187 884,984 251,622 201,401 5,144,216 (837,327) 4,306,888 Operating income . . . . $ 224,452 $ 80,129 $62,967 $ 30,363 $ 35,893 $ 88 $ 433,894 $ 8,455 $ 442,349

II Assets, depreciation and capital expenditures: Assets ...... $1,442,868 $466,973 $338,465 $641,233 $283,623 $ 77,636 $3,250,800 $421,533 $3,672,334 Depreciation ...... 48,270 23,876 22,019 23,051 13,336 5,501 136,056 3,428 139,484 Capital expenditures . . . . 131,664 46,483 15,170 33,839 25,501 6,460 259,121 3,624 262,745

Segment information by geographic area is not disclosed pursuant to regulations on consolidated financial statements in Japan, since the net sales of the Group in Japan 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 Group was less than 10% of consolidated net sales. ¥100.19=US$1, the rate of exchange on March 31, 2008 is used.

Dowa Holdings Co., Ltd. Annual Report 2008 51 Report of Independent Auditors

This is a copy of an audit report on the consolidated financial statements of Dowa Holdings, Co., Ltd. and subsidiaries for the year ended March 31, 2007 issued by Misuzu Audit Corporation dated June 27, 2007. Misuzu Audit Corporation has ceased operations and has not reissued the audit report.

52 Annual Report 2008 Dowa Holdings Co., Ltd. Report of Independent Auditors

Dowa Holdings Co., Ltd. Annual Report 2008 53 Global Network As of June 25, 2008

Overseas Subsidiaries and Offices

U.S.A. India 1 Dowa International Corporation 0 Hightemp 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 2 Dowa THT America, Inc. China 2130 South Woodland Circle, 11 Shanghai Office Bowling Green, OH 43402, U.S.A. Shanghai B-1201, Far East International Plaza, 3 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, q Dowa Environmental Management Co., Ltd. Chapultepec, C.P. 11560, México, D.F., México 28 Sanzhen Road, Suzhou New District, Suzhou, 5 Minera Tizapa, S.A. de C.V. Jiangsu, China Calzada Manuel Gómez Morín #44 w Dowa Trading (Shenzhen) Co., Ltd. Col. Torreón Residencial 40/F., Unit 15 Office Tower, Shunting Square Diwang C.P. 27268, Torreón, Coahulia, México Commercial Centre, 5002 Shennandong Rd., Shenzhen, China Bolivia Canada 6 Dowa Metals & Mining Co., Ltd. Bolivia Office 15 Dowa Metals & Mining Co., Ltd. Vancouver Office Edificio Taurus, Piso 1-OF 101 Suite 1845, 701 West Georgia Street, Calle 19 No. 8079 Calacoto La Paz Bolivia P.O. Box 10116, Pacific Centre, Singapore Vancouver, B.C. V7Y 1C6, Canada 7 Dowa F-Tec (Singapore) Pte., Ltd. Thailand No. 13, Benoi Crescent, Jurong, Singapore 629976 r Dowa Metaltech (Thailand) Co., Ltd. 8 Eco-System Japan Co., Ltd. Singapore Office Gateway City Industrial Estate (in export-processing zone), No. 13, Benoi Crescent, Jurong, Singapore 629976 Chachoengsao Province, Thailand Taiwan t Dowa Thermotech (Thailand) Co., Ltd. Eastern Seaboard Industrial Estate, 9 Dowa Eco-System Co., Ltd. Taiwan Office Rayong Province, Thailand 7F-2, No. 41, Nanking West Rd., Taipei 10352, Taiwan Germany y DOWA HD Europe GmbH Ostendstrasse 196, D-90482, Nurnberg, Germany

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54 Annual Report 2008 Dowa Holdings Co., Ltd. Subsidiaries and Affiliates

Owned Directly Name Issued Share or Indirectly by 48 Consolidated Subsidiaries and 10 affiliates Capital the Company accounted for by the equity method (Millions of Yen) (%) Principal Business Nonferrous Metals Dowa Metals & Mining Co., Ltd. 1,000 100 Manufacturing and sales of nonferrous, precious and rare metals Akita Zinc Co., Ltd. 5,000 81 Refining of zinc; manufacturing of sulfuric acid Kosaka Smelting & Refining Co., Ltd. 4,700 100 Smelting and refining of copper and lead; manufacturing of sulfuric acid Akita Zinc Solutions Co., Ltd. 375 84 Processing of zinc alloy, zinc wire and other products Nippon PGM Co., Ltd. 300 60 Recovery of platinum group metals from disposable catalysts Zinc Excel Co., Ltd. 200 85 Sales of zinc, cadmium, zinc alloy, zinc wire and other products Akita Rare Metals Co., Ltd. 20 100 Recovery of indium and other products Environmental Management & Recycling Dowa Eco-System Co., Ltd. 1,000 100 Waste treatment, soil remediation and recycling Eco-System Hanaoka Co., Ltd. 300 100 Soil remediation and waste treatment Eco-System Recycling Co., Ltd. 300 100 Recovery of precious and nonferrous metals Act-B Recycling Co., Ltd. 200 55 Recovery of discarded household appliances, personal computers and other items Eco-Recycle Co., Ltd. 150 59 Recovery of discarded household appliances, personal computers and other items Green Fill Kosaka Co., Ltd. 100 100 Waste treatment 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 Okayama Co., Ltd. 100 100 Industrial waste treatment; recovery of ferrous and nonferrous metals Eco-System Sanyo Co., Ltd. 100 100 Waste treatment and resources recycling Eco-System Chiba Co., Ltd. 90 100 Industrial waste treatment Eco-System Akita Co., Ltd. 50 100 Waste treatment and resources recycling Eco-System Kosaka Co., Ltd. 50 100 Industrial waste treatment; recovery of ferrous and nonferrous metals Eco-System Japan Co., Ltd. 30 90 Operation of waste and resources recycling; collection and transportation of industrial waste Dowa-Tsuun Co., Ltd. 20 100 Vehicle transportation, forwarding and warehousing Dowa Environmental Management Co., Ltd. US$6 *1 90 Treatment and recycling of industrial waste Electronic Materials Dowa Electronics Materials Co., Ltd. 1,000 100 Manufacturing and sales of semiconductors, and electronic and magnetic materials Dowa Hightech Co., Ltd. (Chemical) 450 100 Manufacturing of metal compounds, and chemical and other products Dowa IP Creation Co., Ltd. 300 70 Manufacturing of iron and carrier powders Dowa F-Tec Co., Ltd. 300 100 Manufacturing of ferrite powders Dowa Semiconductor Akita Co., Ltd. 300 100 Manufacturing of high-purity metal materials, compound semiconductor wafers and light- emitting diodes Dowa Electronics Materials Okayama Co., Ltd. 100 100 Manufacturing of metal powders, copper powders and other materials Dowa F-Tec (Singapore) Pte. Ltd. S$3 *2 100 Manufacturing of ferrite powders Metal Processing Dowa Metaltech Co., Ltd. 1,000 100 Metal and plating processing Dowa Metanix Co., Ltd. 500 90 Manufacturing and sales of nickel, copper and other alloys, and electronics parts Dowa Hightech Co., Ltd. (Electroplating) 450 100 Plating of electronics parts and strips Dowa Metal Co., Ltd. 400 100 Manufacturing of copper strip and other products Hoei Shoji Co., Ltd. 110 100 Processing and sales of copper strip, aluminum and other products New Nippon Brass Co., Ltd. 100 100 Manufacturing and sales of various types of brass bar and forged products Dowa Power Device Co., Ltd. 100 100 Metal-ceramic substrates manufacturing Dowa Advanced Materials (Shanghai) Co., Ltd. US$2.5 *1 100 Processing and sales of copper strip products Heat Treatment Dowa Thermotech Co., Ltd. 1,000 100 Heat treatment processing Dowa Thermoengineering Co., Ltd. 100 100 Design, manufacturing, maintenance and improvement of various heat treatment equipment; various heat treatment processing; various plating; surface improvement Cemm Co., Ltd. 55 100 Various heat treatment processing; various plating; design and manufacturing of various heat treatment equipment Dowa THT America, Inc. US$5 *1 100 Various heat treatment processing; various plating on consignment Others Dowa Management Service Co., Ltd. 850 100 Outsourcing of general indirect business services Dowa Techno Engineering Co., Ltd. 400 100 Plant construction Dowa Kohsan Co., Ltd. 305 100 Outsourcing and management of golf courses and real estate; brokerage Akita Kouei Co., Ltd. 95 97 General civil engineering projects; construction products; power business; maintenance of various plants; drilling; vehicle servicing Yowa Kouei Co., Ltd. 20 100 Civil engineering and construction projects; real estate transactions Dowa Technology Co., Ltd. 10 100 Technological development support; outsourcing of analysis and evaluation services Dowa Techno-Research Co., Ltd. 10 100 Environmental measurement Ten Affiliates Accounted for by the Equity Method Fujita Kanko Inc.*3 12,081 33 Lodging and hotel management; real estate agent Onahama Smelting & Refining Co., Ltd. 7,000 32 Copper smelting and refining Kowa Seiko Co., Ltd. 1,000 50 Industrial waste treatment, recovery of ferrous and nonferrous materials Dowa Olin Metal Corporation 480 50 Manufacturing, marketing and sales of special copper alloy strips Japan Copper Casting Co., Ltd. 200 30 Various types of copper production Acids Co., Ltd. 150 50 Sale of sulfuric acid and others Okayama Rinko Co., Ltd. 98 33 Warehousing; other business activities Nippon AN-FO Manufacturing Co., Ltd. 91 29 Production and marketing of industrial explosives Takeuchi Metal Foil and Powder Co., Ltd. 80 50 Production, processing and marketing of metal foil and powder Minera Tizapa, S.A. de C.V.*4 M.P.41 *5 39 Prospecting, development, mining and ore preparation *1 US$: Millions of U.S. Dollars 2 S$: Millions of Singapore Dollars 3 The shares of this company are listed on the Tokyo Stock Exchange and the Osaka Securities Exchange. 4 Common stock includes revaluation adjustments under inflation accounting. 5 M.P.: Millions of Mexican pesos

Dowa Holdings Co., Ltd. Annual Report 2008 55 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 Dowa acquires E&E Solutions Inc. Metal Co., Ltd.) Recycle Systems Japan Co., Ltd. is made a subsidiary.

1937 Fujita Gumi and Fujita Mining Co., Ltd. merge to create Fujita 2002 Shanghai office in China is established. Gumi Co., Ltd. Akita Zinc Solutions Co., Ltd. is established. Kosaka Plant completes and begins operating metal and vapor 1945 Corporate name is changed to Dowa Mining Co., Ltd. recovery furnaces. 1953 Okayama Works is established. Recycle Systems Japan Co., Ltd. sets up a new plant in western Japan. 1957 Dowa Mining absorbs Fujita Kogyo Co., Ltd. Dowa Advanced Materials Shanghai Co., Ltd. is established. 1967 Kosaka Plant is completely equipped with flash furnaces. 2003 Zinc Excel Co., Ltd. and Acids Co., Ltd. are established. 1971 Akita Zinc Co., Ltd. is established. Dowa Environmental Management Co., Ltd. is established.

1976 Kosaka Plant begins producing indium. 2004 Dowa Techno-Research Co., Ltd. is established. New landfill site “Green Fill Kosaka” starts operations. 1982 Semiconductor Materials Laboratory is established. 2006 Dowa acquires Act-B Recycling Co., Ltd. 1983 Okayama Works completes and begins operating a facility for Dowa relocates Head Office to Akihabara, Tokyo. manufacturing metal powders used in 8mm videotape. Dowa acquires Cemm Co., Ltd. 1986 Hanaoka and Kosaka mining operations are transferred from the Dowa adopts a holding company system. parent company to two newly established subsidiaries—Hanaoka Dowa Mining changes its name to Dowa Holdings Co., Ltd. Mining Co., Ltd. and Uchinotai Mining Co., Ltd., respectively. Dowa Mining’s five business divisions are spun off to become core operating companies. 1989 New York-based Dowa International Corporation is established. Dowa Metaltech (Thailand) Co., Ltd. is established in Thailand. Kosaka Plant is separated from the parent company in the form of a subsidiary—Kosaka Smelting & Refining Co., Ltd. 2007 Tokuyama-Dowa Power Materials Co., Ltd. is established. Dowa Thermotech (Thailand) Co., Ltd. is established in Thailand. 1990 Dowa Mining absorbs Dowa Kosan Co., Ltd. Dowa Eco-System Co., Ltd. Taiwan Office is established. Environmental Protection Laboratory is established. Auto Recycle Akita Co., Ltd. is established. 1991 Dowa Mining absorbs Tokyo Heat Treating Co., Ltd. Dowa Trading (Shenzhen) Co., Ltd. is established. Dowa acquires Yamaha Metanix Corporation (now Dowa 1992 Mexico-based Minera Tizapa, S.A. de C.V. is established. Metanix Co., Ltd.) and Yamaha-Olin Metal Corporation (now Shiojiri Works is completed. Dowa Olin Metal Corporation). 1993 Okayama Clean Works facility is completed. North Japan Plant of Eco-System Recycling Co., Ltd. is completed. Thermo-Technology Center is completed. DOWA HD Europe GmbH is established. 2008 Akita Zinc Recycling Co., Ltd. is established.

56 Annual Report 2008 Dowa Holdings Co., Ltd. Corporate Data

The data indicated below is for Dowa Holdings Co., Ltd. The data indicated below is for Dowa Holdings Co., Ltd. and consolidated subsidiaries. Founded: September 18, 1884 Main Businesses: 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, 2008) 4,166 (As of March 31, 2008)

Shares Issued: Major Domestic Operations: 303,790,809 shares (As of March 31, 2008) Domestic Works Akita, Iwate, Tochigi, Gunma, Saitama, Chiba, Tokyo, Kanagawa, Common Stock: Nagano, Shizuoka, Aichi, Shiga, Okayama, Kumamoto ¥36,436 million (As of March 31, 2008) Domestic Branches Tokyo, Chiba, Shizuoka, Aichi, Osaka, Fukuoka Stock Listing: 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, Okayama), Dowa Technology Co., Ltd. Metallurgical Laboratory (Akita), Dowa Metals & Mining Co., Ltd. Number of Shareholders: Environmental Protection Laboratory (Akita), Dowa Eco-System Co., 17,190 (As of March 31, 2008) Ltd. Semiconductor Materials Laboratory (Akita), Electronics Materials Principal Shareholders: Laboratory (Saitama), Magnetic Materials Laboratory (Okayama), Dowa Electronics Materials Co., Ltd. Percentage of Metallic Materials Laboratory (Saitama, Shizuoka), Dowa Outstanding (As of March 31, 2008) Shares (%) Metaltech Co., Ltd. R&D Center (Shizuoka), Dowa Thermotech Japan Trustee Services Bank, Ltd. (Trust Account) 7.57 Co., Ltd. The Master Trust Bank of Japan, Ltd. (Trust Account) 5.20 Fujita Kanko Inc. 4.51 JFE Steel Corporation 3.70 Mizuho Corporate Bank, Ltd. 2.43 National Mutual Insurance Federation of Agricultural Cooperatives 2.43 Resona Bank, Ltd. 2.29 Trust & Custody Services Bank, Ltd. (Trust Account) 1.64 Nippon Life Insurance Company 1.61 Aioi Insurance Co., Ltd. 1.46

Dowa Holdings Co., Ltd. Annual Report 2008 57 DOWA HOLDINGS Co., Ltd. 14-1, Sotokanda 4-chome, Chiyoda-ku, Tokyo 101-0021, Japan D owa H oldings C o ., Lt d URL http://www.dowa.co.jp/ . Annual Report 2008

Printed in Japan