Top Message. OSG Corporation President and Coo COMMITTED TO CUSTOMER NEEDS COMMITTED TO THE ENVIRONMENT COMMITTED TO COMMUNICATION.

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1 ENVIRONMENTAL REPORT 214

2 Top Message OSG is striving to reduce environmental impacts of our business activities by creating a corporate culture in which all employees actively address environmental issues. Our goal is to contribute to the sustainable growth of society by developing communication and mutual understanding with our stakeholders. 1 Norio Ishikawa OSG Corporation President and Coo Ever since its foundation in 1938, for 76 years, OSG has grown into a global company which has the world s largest market share for taps, and provided a wide range of products, end mills, drills, rolling dies and gauges. Currently, we aim to become the global top manufacturer of hole-making cutting tools. We have established sales and technical support network in 29 countries. Based on our corporate philosophy Tool Communication which states we communicate with our customers through our tools, we have been striving to improve manufacturing skills and human resources in order to provide tools and machining methods that best serve our customers as a global player. In manufacturing, OSG has promoted environmental conservation activities. As well as energy conservation and resource saving, we have reduced environmental impacts by actively promoting recycling. In addition, we have strived to develop high-quality and highperformance products which enable machining at high speed with high efficiency in order to contribute to reduction of environmental impacts of our customers by providing eco-friendly products. Moving forward, OSG will aim to raise employee environmental awareness as part of our human resources development. We will strive to create a corporate culture in which all employees actively participate in environmental conservation activities on their own initiative, and continue to develop tools which contribute to further reduction of environmental impacts by our customers. We look forward to your continued support. COMMITTED TO CUSTOMER NEEDS Anytime and Anywhere, assisting customers in machining improvements, lead time reduction, and global development/expansion and cost reduction. From its first days of its foundation, OSG has continually worked to contribute to world manufacturing through originally developed technology and products. Today, the combination of a customer-oriented sales network, continual development of core technology and acquisition of the highest manufacturing skills are the key components of our business model. With this business model and our products, we interface continually with our customers and communicate the best solutions for them ( Tool Communication ). To support and evolve this process, we emphasize employee education and promote a crossfunctional organization spurred on by active communication. We absorb the needs and demands of the customers into our development objectives, and OSG aims to keep on seeking out customer needs as new seeds for active development far into our future. Our steadfast aim is to take our customer s reliability to the future through our Tool Communication. COMMITTED TO THE ENVIRONMENT Striving in the development of environmentally safe products. COMMITTED TO COMMUNICATION The motto is Tool Communication. Assisting in the selection and application of the proper tool as well as providing excellent after-sales service.

3 Fundamental Business Policy Always aware that our corporation is an institution that serves society, we provide products that are appreciated by our customers. We assign our employees appropriate jobs and strive to improve their daily lives. We strive to provide stable dividends to our stockholders. We implement sound business practices that earn enhanced social trust and develop the corporation into a worldwide business. Basic Environmental Ideas All will work to maintain the global environment in harmony with OSG s basic business policies. OSG publicizes information on its three declarations made in October 1996 (i.e., Global Expansion, Health-consciousness, and Eco-friendliness). OSG conducts activities with consideration of the environment while offering products and services that contribute to society. Following societal norms, OSG promotes communication with the local community. 2 Environmental Policy OSG strives to protect the global environment and act in harmony with nature under OSG s slogans of an Eco-friendly Company and a Culture That Cares for the Environment. Fifth Mid-Term Plan Fifth Stage Slogan (From FY212 through FY214) Continuous Improvement in Environmental Impact Reduction [Priority] Efficient Energy Use and Switching to Energy-Saving Equipment FY213 Targets and FY214 Results Environmental Objectives FY213 Target FY213 Result FY214 Target Energy Conservation Total Energy Use Reduction (Energy sources: Electric power, Fuel oil and LPG) Total use of energy BM: 83,63 GJ/month Basic unit of production BM : GJ/million yen 1.% reduction 836 GJ/month reduction 1.% reduction.23 GJ/million yen reduction 1.2% reduction 1,51 GJ/month reduction 4.3% reduction.97 GJ/million yen reduction 1.% reduction 836 GJ/month reduction 1.% reduction.23 GJ/million yen reduction Eco-Factory Eco-Friendly Production 15 cases 27 cases 25 cases Eco-Products Eco-Friendly Product Development 12 cases 7 cases 12 cases

4 Environmental Activities An important task for OSG is to address environmental issues, which will impact future generations. We aim to reduce environmental impacts and build a recycling-oriented society, while making efficient use of resources, promoting eco-friendly production and providing eco-friendly products and services to our customers. Material Balance In order to contribute to the realization of a low-carbon society and the creation of a resource recycling society, OSG understands and manages the various environmental impacts of our business activities. We remain committed to initiatives such as reducing energy use and using waste from our manufacturing processes as recycled materials. Energy Resources Purchased electric power 62,, kwh Raw Materials (Metal) 1,565 tons INPUT (Natural resources, Energy) Crude oil power generation 4,54 kl Air conditioning 829 kl Gas(LPG) 862 tons Water supply 19,534 m 3 Water for industrial use 12,65 m 3 Well water 2,329 m 3 Oils (Cutting fluid, Grinding fluid) 382 kl Others Sub-materials 3 Paper: Copy paper (A4 size) 3,33, sheets Resource extraction Material manufacture Energy resource extraction Material (Smelting) Design development Procurement OSG Manufacture Packaging Sales and Services Suppliers Storage (Processing) Development of Eco-friendly products Energy saving, resource saving (High efficiency and long tool life) Reduction of environmental impacts (Dry cutting tools) Entrance control Green procurement Eco-friendly production Reduction of environmental impacts Eco-package promotion Reduction of environmental impacts Products Customers Recycle Disposal Manufactured Products Water Emissions Emissions Waste Material Production 4,675 million yen Drainage water 141,928 m 3 Amount for re-use tons OUTPUT (Waste materials, Emissions to water and atmosphere) Packaging supplies 153 million yen Subjected Material of PRTR Chromium (metal content) 7.9 tons Cobalt (metal content) 5.3 tons Manganese (metal content) 4.7 tons * Most drainage water is domestic drainage water. * We have balanced our water use so that the amount of drainage water equals our water usage. 5 6% of actual drainage water is estimated to be from the use of water-soluble coolants and the evaporation from air conditioning, etc. Atmospheric Emissions Recycled amount tons Reclaimed amount 2.2 tons Total output 1,57.3 tons Molybdenum (metal content) Vanadium (metal content) 54.8 tons 26.2 tons CO 2 emissions Production 49,17 tons-co 2 Transportation 558 tons-co 2

5 Promotion of Resources Recycling OSG has promoted zero emission activities to reduce waste. We developed a system to recycle reusable and recyclable resources, and established a structure to ensure the proper disposal of waste from our operations. Therefore, our recycling rate has been over 99% since 25, and 99.9% for the fifth consecutive year since 28. Recycling Rate 99.9% Waste recycling Metal scrap Cardboard boxes (sold for re-use) Waste oil (sold for re-use, recycled) Oil sludge (sold for re-use, recycled) Diatomaceous soil (sold for re-use, recycled) Waste solvents (recycled) Waste grinding wheels (recycled) Waste plastic (recycled) Wood chips (recycled) Others (recycled) Total tons 5.8 tons tons tons tons. tons 34.2 tons 35.6 tons 16.4 tons 43. tons 1,568.1 tons Reductions in Environmental Impacts OSG has strived to reduce energy consumption, CO 2 emissions and waste output. Focusing on efficient energy use and switching to energy-saving equipment, we have worked to promote continuous improvement in environmental impact with the entire company. Reductions in Energy Use In FY213, OSG replaced aging fuel oil heating systems with electric air conditioners. We also continued our energy saving efforts by installing inverters to air-conditioning systems. In addition, we replaced old fluorescent lights with LED lights and actively implemented small energy saving improvements in each work site. However, largely as a result of a decrease in production, our energy consumption per unit of production increased 6% compared with FY212. Reductions in CO 2 Emissions OSG s CO 2 emissions per unit of production increased 6% compared with FY212. Along with decrease in production, CO 2 emissions were reduced, however, the rate of reduction in CO 2 emissions was only 9% against that of production 14%. Increase in Rate of Valuable Resources recovered from Waste OSG has been promoting recycling of industrial waste continuously. We completely switched conventional grinding oil to chlorine-free grinding oil, which helped to reduce industrial waste by recovering waste oil as a valuable resource. As a result of that, the ratio of valuable resources recovered from industrial waste was 53%, a 1% increase from last fiscal year. 4 Energy Use Carbon-Dioxide Emissions Waste Output and Ratio of Recovered Valuables (GJ) 12, (GJ/Million yen) 4 (ton) 6, (t/million yen) 2.4 (ton) 2,5 (%) 1 9, , 2. 2, 8 6, , , ,.8 1,5 1, 47% 49% 51% 52% 53% 6 4 3, 1 1, Electricity Fuel oil (Generating electricity) Liquefied petroleum gas Basic unit of production Emission Comparing production output Total weight emissions Ratio of recovered valuables

6 Environmental Activities Eco-Friendly Products and Services OSG is striving to produce eco-friendly products and provide them to our customers. We are actively working to reduce environmental impacts by enhancing regrinding services and developing energy-saving products and high-efficiency products that enable high speed and long-life. Carbide Material Recycling Raw materials of carbide tools include rare metals such as tungsten and cobalt. OSG group promotes recycling of carbide tools. For customers CSR activities and zero-emission promotion, we utilize these resources by collecting end-of-life tools from our customers and recycling rare metals. Customers (Carbide tool users) 5 Rare metal Tungsten Refineries and manufacturers Nihon Hard Metal Co., Ltd. (Cemented Carbide material manufacturer) OSG Materials Collection Products (Carbide tool manufacturer) Regrinding Services Cutting tools such as taps, end mills and drills become worn and dull after repeated use. These tools can be returned to their original as new condition by regrinding. OSG group provides regrinding services and meets customer s various needs. Before After

7 Phoenix Indexable Drill for 5D OSG has developed a new indexable drill Phoenix P5D, which enables high efficiency deep-hole drilling. With our proprietary designs which have high rigidity and excellent chip evacuation, stable deep-hole drilling with high efficiency can be realized even when drilling 5xD deep holes. Therefore, the selection of tool diameter and the tool management such as insert replacement can be facilitated. The Phoenix P5D is a cost effective indexable drill which has inserts with high wear resistance in a wide range of work materials. Features of P5D 6 The high precision finishing of the flute surface improves chip evacuation. Unique flute design enables stable drilling, even with rigorous, 5xD deep holes. The internal coolant system enables highly efficient drilling. Economical 4-corner design. Simplified tool management with the same insert being applicable to both the center and peripheral cutting edge. Unique flute design enables stable drilling Designed optimally for drilling steel or stainless steel The flute design features both high rigidity and superb chip evacuation performance. With an attached breaker to the cutter body, cutting chips can be broken into small pieces. Designed to achieve an optimal balance of cutting performance and strength, enabling it to excel in steel and stainless steel. Economical 4-corner design. Simplified tool management with the same insert being applicable to both the center and peripheral cutting edge. A proprietary OSG design enabling this product to drill deep holes of 5xD as if it were drilling holes of 3xD depth.

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