Recently, various forms of highly unusual weather occurred one after another and the global warming seems closer. Under the Kyoto Protocol, Japan made a commitment to the world that it would reduce carbon dioxide emissions by 6% from the level of 1990 by 2010. To achieve this commitment, 2% reduction every year is required. In addition, chemical substance controls typified by European RoHS (Restriction of Hazardous Substances) Directive and REACH (Registration, Evaluation and Authorization of Chemicals; a chemical registration system) are getting stricter, and the efforts to reduce environmental burden are required more than ever. Until now, we have been actively working on environment preservation activities positioning them as one of our most important tasks for businesses. And furthermore, we enhanced our environmental management system as follows.

One activity is expanding our ISO 14001-compliant management system both at home and abroad. We have been developing this management system in our domestic manufacturing sector. This year, we incorporated our affiliated company New Fine Tool Co., Ltd. into our ISO 14001 standard-related in-house organization (ISO 14001 organization). Our affiliated companies abroad, TMF in Thailand, TXC and TXCT both in China, have already acquired ISO 14001 certification. Further to them, our affiliated company TSPI in Philippines newly acquired the certification. With this acquisition, we completed all of our scheduled new registrations at both home and abroad.

The second activity is the audit by the Total Audit System in Tungaloy Group for Environment (TASTE) established in October of the year before last. This is our unique system that enables to articulate the environmental management conditions of each business establishment in chronological order by evaluating the clarification of responsibility, implementation of visual management, etc. of environmental facilities etc. according to our own detailed scoring standards, based on site, actual thing and reality. This year, we audited the above-mentioned four plants abroad for the first time in addition to our domestic plants and raised their site management levels.

The third activity is joining a government-sponsored national campaign "Team -6%". We spread a new business style by adopting "Cool Biz" no-tie, no-jacket campaign etc., and reduced the carbon dioxide emissions including our office work sector.

By these activities, we achieved our major objectives such as energy saving and resource saving. As a result, in the environmental management assessment survey conducted every year by Nihon Keizai Shimbun (Japan economic newspaper), we were ranked at the 142nd place among Japan's 560 leading manufacturing companies (last time: 199th place), and the 1st place among the manufacturers specialized in cemented carbide tools.

However, we are not satisfied with this result. To make the Tungaloy brand products continue to be used by customers with a sense of security, we will work on the development of environmentally conscious products, supply chain management, green procurement, efficient production, optimization of logistics, product recycling, waste management, etc. more actively than ever before

This report describes the overview of our above-mentioned activities. Your understanding and support as well as advice will be highly appreciated.

November 2006

Akihiro Tokunaga
President of Tungaloy Corporation