The year 2005 was one of significant change for

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1 In This Report Letter from the CEO About SUMCO Long-term EHS Goals EHS Policies EHS and Safety Environmental Stewardship / Natural Resource Use Environmental Performance Analysis

2 The year 2005 was one of significant change for SUMCO USA. We closed two manufacturing facilities in Salem and consolidated their operations into our remaining facilities in Phoenix, Albuquerque and Cincinnati. The responsible closure of those facilities as well as the smooth incorporation of their operations into our other U.S. facilities was a challenge that we met with the highest standards of care. This report focuses on SUMCO USA s Environmental, Health and Safety activities. In it, you will find our environmental policies, environmental performance, recent environmental challenges and goals. Our commitment to the environment can be summed up in two words: environmental stewardship. We understand that our operations have the opportunity to impact the environment in many different ways. We are committed to understanding those impacts and providing the necessary resources and attention to minimize and prevent adverse consequences from our activities. SUMCO USA takes its commitment to the environment seriously and we make that commitment a core value of how we do business. Our facilities perform in a manner consistent with the principles of responsible environmental stewardship and we have set high goals to ensure that this core value is achieved. This means we pledge to: Conserve resources by continuously reviewing opportunities to reduce the use of energy, water and raw materials; Prevent pollution; Reduce waste; Go beyond compliance with environmental legislation and regulation; Educate our employees and inform the community about responsible environmental practices. Shigetoshi Shibuya Our commitment to the environment can be summed in two words: environmental stewardship. In addition to our commitment of environmental stewardship, SUMCO strives to continually provide a safe and healthy environment for our employees, contractors and surrounding community. We demand safe work behaviors, practices, designs and systems. The standard measurement for industrial safety performance is the OSHA Recordable Rate. We are not satisfied that our OSHA Recordable Rate is higher than the average for our industry. In 2005, we renewed our focus on this very important business metric, establishing improvement goals for our plants and implementing a Safety Management System to provide a framework for this improvement. The next year will undoubtedly provide us with a variety of new challenges which we will meet head-on. It s what SUMCO USA must do to exceed the expectations of our shareholders, customers, employees and communities. And we will. Shigetoshi Shibuya Chairman, President and CEO SUMCO USA Corporation

3 About Sumco SUMCO USA manufactures electronic-grade silicon wafers for the semiconductor industry. We are one of the three largest such manufacturers in the world. SUMCO USA employs more than 1,300 people at three manufacturing facilities in the United States. Our wafers are used by companies all over the world to make integrated circuits and semiconductor devices that power a myriad of electronic products, from computers to cell phones, digital watches to automobile engine systems. With proprietary technologies pioneered in Japan and here in the U.S., SUMCO is able to meet and exceed customers expectations, even as their need for sub-micron-level surface flatness and hyper-clean surfaces increases. SUMCO s mission is to be the world s No. 1 silicon wafer supplier by exceeding the expectations of our customers and stockholders, recognizing the value of our employees, and being good neighbors in our communities. To ensure that we produce the highest quality wafers possible with minimum environmental impact, we have invested the time and energy to implement ISO 9001 and management systems at all of our facilities.

4 Guiding Principles We strive for excellence in every aspect of our business - products and services, client relationships, employee teamwork, and corporate performance. We focus on continuous improvement. We are always looking for better ways to do things, and we rely on our employees to help identify improvements. We are committed to maintaining a healthy, safe and clean environment for our employees, and we have programs in place to assure this. We believe in good corporate citizenship. Globally, that means treating our customers with respect and operating with honesty and integrity. Locally, it also means protecting and enhancing the environment and communities in which we operate. We do this through responsible environmental management programs, volunteerism, and corporate and employee contributions to organizations that enrich our communities. SUMCO USA is committed to conducting business in a manner consistent with our Guiding Principles. We will operate our facilities in an environmentally responsible manner with continuous improvement in our processes, EHS Management Systems and technologies that prevent pollution. To achieve this, we will: Meet or exceed all applicable environmental, health and safety regulatory requirements as well as other best-practice standards to which we subscribe. Establish sound EHS objectives and targets for continual improvement in our efforts to provide a safe workplace and environmental stewardship. Evaluate performance by monitoring results through effective management reviews and routine reports to all management levels. Report progress and key issues to senior management at the plant and corporate levels. Long-term EHS Goals to be Achieved by 2010* Achieve continuous improvement in the recordable injury/illness rate with an interim target of being at less than the industry average by the end of 2007 Reduce hazardous waste by 50% from 2005 levels Reduce water use by 25% from 2005 levels Reduce energy use by 25% from 2005 levels Achieve zero EHS-related fines and continuous improvement in the number of citations *Environmental metrics are on a production-rate basis.

5 Policies SUMCO USA s Safety and Environmental Policies (below) are given wide communication throughout our organization to serve as guiding principles for how we expect all our personnel to conduct business on our behalf.

6 Environmental, Health and Safety at SUMCO USA Safety 5 OSHA Recordable Incident Rates 12 Month Roll Annual Incidents per 100 Employees NAICS Recordable Rate SUMCO USA Recordable Rate 4 Industry Average Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 The common safety metric for industrial safety performance among U.S. companies is the federal Occupational Health and Safety Administration (OSHA) Recordable Incident Rate. This rate is the number of annual OSHA Recordable incidents per 100 employees. The industry average for companies in the semiconductor sector is 3.3 incidents per year. We are aware that our 2005 rate of 4.41 exceeds that average. In 2005, we initiated Behavior-Based Safety Management Systems throughout our manufacturing operations, as well as clearly stated goals for improvement. We expect to see improvement in 2006 and beyond.

7 Environmental SUMCO USA has manufacturing operations in Phoenix, Albuquerque and Cincinnati. Their combined operations are registered to the globally recognized environmental management system standard ISO through an independent auditor, Lloyd s Register Quality Assurance. Each manufacturing plant has an Environmental Management System Team consisting of the senior Plant Operations Manager, the site Environmental Management Representative, the Plant Facilities Manager and other members appropriate to the needs of the specific plant. In addition, a Corporate EMS Team provides overall structure and policies to give direction to plant EMS activities. One of the functions of the plant Environmental Management System Team is to drive environmental improvement objectives and targets. In 2005, the following environmental improvement activities were initiated or completed: SUMCO Site Environmental Objective Comments Cincinnati Recover at least 85% of the wire saw COMPLETED abrasive and carrier Albuquerque Install a foam vapor fire suppression COMPLETED system in the TCS cylinder storage room Albuquerque Provide recommendations to EMS Team COMPLETED regarding improvement of plant security systems Phoenix Provide recommendations to EMS Team COMPLETED regarding improvement of plant security systems SUMCO USA Encourage recycle content in products from COMPLETED SUSA cardboard suppliers Albuquerque Recommend whether to enter into a recycle CLOSED - It has been difficult to find an program for the calcium flouride filter cake outlet for the small amount of CaFl generated. The project was closed due to there being no recycling source for the material.

8 Recognition from Local Regulators The SUMCO Albuquerque plant received a Gold Award from the city of Albuquerque Water Utility Authority for complete and consistent compliance with its industrial wastewater permit for the program year. The SUMCO Phoenix plant also received a recognition award from the city of Phoenix Water Services Department s Pollution Control Division for 100% compliance with its permit parameters for the 2005 calendar year and was honored at a local breakfast meeting sponsored by the city and attended by city councilpersons, the Arizona Department of Environmental Quality and representatives of the Governor s office. Both facilities have received these awards multiple times since their operations began. Phoenix also received a certificate of appreciation in 2004 from the city of Phoenix for its dedication to firefighter safety. Recycling and Reuse SUMCO USA s environmental stewardship commitment is demonstrated by vigorous recycling programs at each of the plants. In 2005, our recycling/reuse efforts kept tons of materials in the cycle of productive use. If not for recycling, these materials would consume precious landfill space. Even more important is that with recycling, these materials are allowed to re-enter the cycle of commerce, thereby saving significant amounts of raw materials. The Albuquerque facility recycled 14 tons of plastic by sending old wafer cassettes to a recycler. The Cincinnati facility recycled tons of paper, 23.8 tons of silicon and 180 tons of trichlorosilane, and reused 62 tons of slurry. The Phoenix facility leads the way in recycling. In 2005, it facilitated the reclamation or internal reuse of materials from the following: Tons Cardboard Plastic Paper Metal drums Plastic drums Scrap metal Power supplies Fluorescent light bulbs Silicon Computer equipment Polyethylene glycol

9 Conservation of Resources Efficient use of the utilities and consumable materials that go into making wafers is not only good business it is a core principle of environmental stewardship. In 2005, SUMCO USA facilities were able to reuse significant amounts of materials, thereby saving the environmental impact of their production from our suppliers. Cincinnati - Hydrogen Recovery In our manufacturing process, hydrogen gas is a productionsupport material. The Cincinnati facility has been using a Hydrogen Recovery Unit for many years. It collects hydrogen gas as it leaves the wafer reactors. We are able to isolate as much as 90% of the used hydrogen, and clean and reuse it internally. In 2005, the Cincinnati facility reused over 333,000,000 standard cubic feet of hydrogen. This effort means that our suppliers did not have to produce that amount of new material nor put it in trucks for delivery to our facility. As many as 485 truck deliveries and their subsequent 400,000 miles of travel were saved in 2005, as well as the associated environmental impact of the production activities of our suppliers. Cincinnati Albuquerque Water consumption in a desert community such as Albuquerque is an important issue. Any water that can be used more than once is water that does not have to be supplied from city resources. Water reuse at our Albuquerque facility includes two components. Industrial waste water that has been treated at the plant for ph adjustment is directed to a collection tank used by the city to irrigate a local park. In 2005, the Albuquerque facility provided 7.8 million gallons of irrigation water to the city. Albuquerque The plant also uses spent water from its internal production of highquality deionized water to irrigate the plant grounds. In 2005, the facility reused 2.8 million gallons of water in this manner. Phoenix Our engineers have developed a process where solvent is reused three times to clean wafers. Even when the solvent has reached its useful capacity, it is sent to an off-site recycler to be distilled and recycled again. Phoenix

10 Air Emissions Each of SUMCO USA s manufacturing facilities operates under an air emission permit issued by local authorities. Air waste streams from processes are passed through appropriate treatment technologies to remove as much as 99% of the contaminants from the incoming stream. The residual emissions are tracked for reporting purposes. 6 Pounds of Air Emissions per 1,000 Wafers Hydrogen Chloride Hydrogen Fluoride Toluene Volatile Organic Nitrogen Oxides Compound 10

11 Water Consumption According to the Pacific Northwest Pollution Prevention Resource Center, a typical semiconductor fab uses 6.7 million gallons of water per day to manufacture next-generation semiconductors. Even though SUMCO USA fabs are well under that metric, we continue to advocate programs to reduce water usage. Total Water Usage Gallons/1,000 Wafers 120, ,000 80,000 97,506 97, ,110 60,000 40,000 20, Waste Materials The U.S. Environmental Protection Agency (EPA) defines hazardous waste and regulates businesses according to the amount of hazardous waste generated. The smallest EPA category of hazardous waste generator is Conditionally Exempt Small Quantity Generator. Our Albuquerque facility is in this category. The next smallest category is Small Quantity Generator. Our Phoenix facility is in this category. For purposes of this report, we show graphs for the waste water from the CZ ingot growing process, plus all other hazardous wastes generated from all three plants EPA Hazardous Waste Pounds/1,000 Wafers The significant increase in 2005 is the result of waste water from the CZ manufacturing process that is classified as an EPA hazardous waste. There is an Environmental Improvement Project to treat this waste water. Because of the significant design and installation associated with the project, it will be completed in hazardous waste with CZ waste water hazardous waste without CZ waste water

12 Electricity Consumption Electricity Consumption KWH / Wafer REMEDIATION Salem, Oregon In 2005, SUMCO USA ceased operations at two manufacturing facilities in Salem, Oregon. With the closure of these facilities, SUMCO developed and implemented detailed closure plans to address the appropriate removal of residual chemicals. Local fire departments approved these plans and since their completion have confirmed that they were followed appropriately and that the sites were cleaned to a satisfactory condition. California SUMCO USA is involved in ongoing environmental cleanup at two former manufacturing facilities in California that have been out of operation for several years. The need for cleanup activities at these sites resulted from activities that were legal and in compliance with the industrial standards at that time. However, as soon as any environmental impact was identified, SUMCO USA and other identified responsible parties took the appropriate actions to address the need. Early activity consisting of soil removal has been completed. Residual treatment of groundwater continues under remediation plans that have been approved and are being overseen by local or federal environmental agencies. 12