Annual Report 2017
Year ended March 31, 2017

TERAOKA SEISAKUSHO CO., LTD.

Teraoka Seisakusho Co., Ltd.

15

PROFILE
Established in 1921, throughout over 95 years of business, Teraoka Seisakusho
Co., Ltd. has risen to the top of manufacturing of highly functional packing,electrical insulation, electronic equipment, other industrial and general home-use
adhesive tapes.

Improved work efﬁciency! Two types of curing tape on sale!
● Double-sided Glueless P-Cut Tape, P-Cut Tape “Easy”
A new product without glue on either side that easily peels off after use has joined the P-Cut tape series
which can be easily cut off with hands. This tape withstrong adhesive strength can be used in applications
such as construction, moving, painting, etc., as a curing tape that can be peeled off while wearing gloves.
It is available in two colors: Green and transparent.
● Double-layer structured curing tape with half the effort P-Cut Tape W (double)
We launched a new double-layered curing tape. Double-layer tape allows for double thecuring in half the time. By peeling the first layer after the undercoat paint, it can be used
for finishing, saving the trouble of repositioning the curing tape. Tape material is widely
available from cloth tape to P-Cut tape, contributing to increased work efficiency in fields
such as road paving and construction painting.

10

CONTENTS
Consolidated Financial Highlights ........................... 1
To Our Stockholders ................................................. 2
Review of Operations ............................................... 4
Consolidated Five-Year Summary ............................ 6
Consolidated Financial Statements ......................... 7
Financial Review ........................................................ 8
Report of Independent Auditors ............................. 25
Company Data........................................................... 26

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

For the years ended March 31,
Thosands of
U.S. dollars

Millions of yen

2017

2016

2017

¥21,262¥21,771$189,504

1,039

1,144

9,259

Income before Income Taxes

768

991

6,842

Net Income

616

727

5,491

Total Assets

34,64033,495

308,733

Net Assets

27,99427,963

249,501

Operating Income to Net Sales

4.9

5.3

Equity Ratio

80.8

83.5

Return on Average Assets (ROA)

1.8

2.1

Return on Average Stockholders’ Equity (ROE)

2.2

2.6

Net Sales
Operating Income

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income¥23.96¥27.62$0.21

Cash Dividends

11.00

11.00

0.10

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥112.20 = US$1, the rate prevailing on March 31, 2017.

Net Sales

Net Income (Loss)(¥ billions)

Total Assets(¥ millions)(¥ billions)
40

1,200

30

1,000
30
800

20

20

600

10

400
10
200

0

13

14

15

16

17

0

14
13

15

16

17

0

13

14

15

16

17

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Result for FY 2017
The fiscal year 2017, ended March 31, 2017 marks our 107th business term.
Although the sales of electronic tapes related to mobile devices bottomed out in the second
quarter for the Corporate Group in the current consolidated fiscal year, and there was no growthin sales that could fully establish an economic recovery in all product divisions. The Indonesian
production subsidiary secured a surplus in the previous fiscal year as a result of a company-wide
effort to improve quality and to build a stable and efficient production system.
As a result, for this term there was a 2.3% decrease of ¥21,262 million (US$189,504 thousand) in consolidated net sales from the previous term. The operating income was ¥1,039 million(US$9,259 thousand) this term, a 9.2% decrease from the previous term. Consolidated income
before income taxes was ¥768 million (US$6,842 thousand), a 22.5% decrease from the previous
term. The result is that, adjusted for the gains on sales of investment securities and environmental countermeasure expenses, the consolidated operating income pertaining to the parent company stock was ¥616 million (US$5,491 thousand), a 15.3% decrease from the previous term.
The end of term dividend was distributed at ¥6.00 (US$0.05) per share and the mid-term
dividend preceding it was ¥5.00 (US$0.04) per share for a total of ¥11.00 (US$0.10) per share inannual dividends.

Future Focus
Japan’s economic situation is on the track to recovery due to the weaker yen and revived corporate profits due to an improvement in exports, an increase in public investment, improvement in
employment and income environment. However, political trends abroad such as changes to US
policy management and European elections, are very likely to impact the market, and there arealso geopolitical risks in the Middle East, Northeast Asia and other regions, that remain uncertain
and can be expected to remain uncertain.
Under such circumstances, the Corporate Group will enter the final of the first three years(Phase 1) of the new mid-term management plan. In the latter three years of the plan (Phase 2),
we will enter the stage of transforming this substance into muscle in order to greatly expand
business performance. Human resource development is regarded as the most important management task and we will develop human resources with a firm focus on the future. We will continue
to strengthen our sales base by cultivating new customers in Japan and overseas and attending
to detail of the sales activities for existing customers, investing in capacity building for production
facilities, promoting cost reduction activities, streamlining and efficiency. In addition to putting
production efficiency of the Indonesian subsidiary and safe production, including quality, back on
track, we will strive to improve quality throughout and will focus on overseas sales activities thattake advantage of geographical advantages.

2

Teraoka Seisakusho Co., Ltd.

Problem Prevention
The Corporate Group considers the following issues to be the greatest
priorities.

1. Enhancing Individual Training
The Corporate Group recognizes that the source of business competitivenessthat is not influenced by the dramatically changing economic environment isfound in people, and enhancement of human resource management to makethe most of the abilities of each employee is necessary in all sales, manufacturing, R&D and management departments.
Along with flexibly responding to changes, we will create a business modeland new systems for conducting business and in order to cause reform, weare building a system where it is possible for the Company and employee togrow together.

2. Enhancing Operations of Indonesian Manufacturing Subsidiaries

Keishiro Teraoka,
President

The subsidiary in Indonesia continues stable production and while progress is moderate, operations remain on track.
We are further enhancing human resource training in order to improve the product lineup
and quality as well as independence. By conducting business as a single, united group with aflagship consolidated subsidiary, we will raise profit contribution of the consolidated basis to thenext level.

3. Enhancing Quality Management and Assurance Systems
Along with establishing thorough, quality education and raising the bar for quality management
abilities, we are establishing a system that can respond to the industry with the highest productquality control levels and improve the quality of our company’s products through the establishment of appropriate quality risk management.

4. Prospective Technological and New Product Developments
New products with originality that are representative of the company are being launched on themarket in a timely manner while advancing technological developments with high added value
for prospective mid to long-term production and development of next-generation products thatwill become the pillars of new business.
We would like to take this opportunity to express our sincere gratitude to our shareholders fortheir continued patronage and support.
June 23, 2017

Keishiro Teraoka,
President
Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONS
Based on the philosophy, “Good products provided tocustomers quickly and inexpensively,” which is one of thecompany policies, the Corporate Group’s research anddevelopment is focused on activities such as new product development and improved quality in adhesive tapes,
measures for global environmental problems, etc.
Training of researchers in charge of cutting edge
developments and providing solutions for customer demands in a timely manner. Further, in order to accurately
identify the strengths of our company and move ahead of
the competition, we will extract the core technologies of
our Corporate Group and core technologies indispensable
for commercialization, furthering develop of our strengths
and establish exercises to make up for weaknesses.
New achievements in the current accounting year
include the market introduction of single and double sided
fixing tape for parts in smartphones, tablets and PCs etc.,
high temperature heat-resistant tape for parts manufacturing, foam double-sided tape that is highly water-resistantand shock resistant, tape for grounding electronics andelectronic parts and electromagnetic shielding materials,
super adhesive tape for fixating automobile parts, environment compatible non-halogen flame-retardant tape and(¥ billions)5(¥ billions)
12

4.1

4.1
3.7

3.8

P-Cut Tape "Easy"

Sales of Electrical Insulation andElectronic Equipment Tapes

Sales of Packing Tapes

4

specially shaped polyethylene cloth adhesive tape, andwe anticipate product development over a wide range ofindustrial fields.
We will continue to take on new challenges with a
mid to long-term theme regarding various parts required
for the electrification of passenger vehicles, which is thelargest certain change in industry throughout the world.
Total R&D costs in this consolidated accounting period
were ¥846 million (US$7,539 thousand) and the consolidated sales ratio was 4.0%. This is an increase of 0.1
points compared to the previous term.
Consolidated sales for the Corporate Group were¥21,262 million (US$189,504 thousand). Sales are broken
down by product segment below.

3.7

3

11.9

11
10

9.3

(¥ billions)
8

11.1
10.3

9.3

6.5

7.1

6.8

6.9

‘15

‘16

7.3

6

8
4

6

2

4
1
0

Sales of Other Industrial Tapes

2

2

‘13

‘14

‘15

‘16

‘17

0

‘13

‘14

‘15

‘16

‘17

0

‘13

‘14

‘17

Regarding Packing Tapes, cloth tapes for mail-order sales

Electrical Insulation and Electronic
Equipment Tapes

continued to be favorable in the third quarter, but due toRegarding Electric and Electronic Equipment Tapes, fromoverall poor market conditions, our production depart-the middle of the third quarter there was a visible recovery

ment’s consolidated sales were ¥3,691 million (US$32,898

in electronic equipment tape orders and while progress

thousand) which was a 1.6% decrease from the previous

was made in solidifying transactions with existing custom-

term. This segment accounts for 17.4% of total consolidat-

ers and developing new customer transactions, it was

ed sales and has increased by 0.2 points over the previous

insufficient to make up for the decrease suffered during

term.

the second quarter.

Packing Tapes

As a result, consolidated sales for this product segment greatly decreased by 6.8% from the previous termto ¥10,318 million (US$91,965 thousand). This segment
accounts for 48.5% of total consolidated sales and decreased by 2.4 points below the previous term.
4

Teraoka Seisakusho Co., Ltd.

BREAKDOWN OF SALES BY CATEGORY

48.5% Electrical Insulation and17.4% Packing Tapes

Electronic Equipment Tapes

Olive cloth tapes● Kraft paper tapes●●●

Polypropylene film adhesive tapes●●●

Double-coated adhesive tapes●

Corrosion-proof tapes
Masking cloth tapes●

Surface protection tapes●

CHANGES IN OVERSEAS SALES
Overseas SalesGEOGRAPHICAL SALES MARKETS

Kapton film adhesive tapes
Nomex adhesive tapes●

Glass cloth adhesive tapes●

EMI/RFI shielding tapes●

Silicone rubber adhesive tapes

R

R

Other Industrial Tapes
Regarding Other Industrial Tapes, continuing into thethird quarter, demand for infrastructure repairs increased
and due to introduction of new products that improve(¥ billions)Asia10operational efficiency the record sales volume was posted

27.6%

8.17

8

6

Acetate cloth adhesive tapes
Combination adhesive tapes●●

34.1% Other Industrial Tapes

Polyester film adhesive tapes

6.07

7.61

Japan

69.0%

6.29

6.59

polyethylene cloth tape throughout the entire fiscal year. It
was also supported by demand in other industrial uses.
The result was that consolidated sales for this productsegment increased by 4.5%
over the previous term to4¥7,253 million (US$64,641

North America

thousand). This segment

1.5%

2

accounts for 34.1% of total

Europe
0

’13

0.9%

’14

Other ’15
areas ’16

consolidated sales, which
’17

1.0%

is an increase of 2.2 points
compared to the previous
term.

GEOGRAPHICAL SALES MARKETSP-Cut Tape W

Overseas Sales
Overseas sales for this term included the first stages of

Asia

27.6%

Japan

69.0%

mail-order stationary supply sales in China, but due to thecontinued slump in mobile electronic equipment tapes,
Packaging Tapes decreased 1.1%, Electrical Insulation andElectronic Equipment Tapes decreased 14.0% and Industrial Tapes decreased 8.6%. Gross export value was ¥6,594
million (US$58,774 thousand), a 13.4% decrease fromthe previous term. Gross export value makes up 31.0%

North America

1.5%

of total consolidated sales, and has decreased 4.0 points
compared to the previous term.

Europe0.9%

Other areas

1.0%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2013

2014

2015

2016

2017

2017

¥19,935¥20,529¥22,477¥21,771¥21,262$189,504

Operating Income (Loss)

(92)

(105)

1,024

1,144

1,039

9,259

Income (Loss) before Income Taxes

674

(794)

1,902

991

768

6,842

Net Income (Loss)

263

(924)

1,025

727

616

5,491

Total Assets

33,64732,59635,33133,49534,640308,733

Net Assets

26,67026,27728,26827,96327,994

249,501

Operating Income to Net Sales

(0.5)

(0.5)

4.6

5.3

4.9

Equity Ratio

79.3

80.6

80.0

83.5

80.8

Return on Average Assets (ROA)

0.8

(2.8)

3.0

2.1

1.8

1.0

(3.5)

3.8

2.6

2.2

Years ended March 31

Net Sales

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen

¥9.99

¥(35.09)¥38.92¥27.62¥23.96$0.21

Cash Dividends

10.00

10.00

10.00

11.00

11.00

0.10

The U.S. dollars are translated at the rate of ¥112.20 per US$1, prevailing on March 31, 2017.

6

U.S. dollars

Net Income (Loss)

Teraoka Seisakusho Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year 2017
Year ended March 31, 2017

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance

Net Assets(¥ billions)
30

20

10

0

13 14 15 16 17

Net Income (Loss)
per Share (Yen)
40

30

20

Japan’s economy during this consolidated fiscal year consisted of rallying export, high stock prices and a
low and stable resource market, with continued improvement of the corporate earnings environment. Whileconsumer spending, continued to fluctuate, there was also steady improvement in employment and income
Equity Ratio
conditions,finally showing signs of economic recovery. On the other hand, looking overseas, the US has(%)
experienced a favorable recovery within the employment environment. Consumer spending and expectations
100
for the new administration’s policies, and the economy remain favorable. The bottoming out of Europe’s
emerging economies serves as tail winds while corporate results and consumption continue to recover. China
80
exports are leveling and the expectation is that there will be a pause in decelerating economic trend and thencontinued growth.
In this business environment, the Corporate Group passed the midpoint of the new medium-term man60
agement plan (Phase 1). In order to convert to a strong management structure for Phase 2 (3 years from April,
2018, to March, 2021) with the purpose of a great leap forward, we are continuing our efforts to cultivate
40
human resources throughout the entire company, we have also focused on strengthening our new productdevelopment system, continuing cost reduction activities, and developing proposal-based sales activities. On
20
the management front, we promoted rationalization and efficiency of operations, strengthened the internal
control systems and risk management systems, and worked hard to improve corporate ethics.
In the current consolidated fiscal year, although the sales of electronic tapes related to mobile devices bot0
13 out14in 15
16 17quarter, and there was no growth in sales that could fully establish an economic
tomed
the second
recovery in all product divisions. The Indonesian production subsidiary secured a surplus in the previous fiscal
yearReturn
as a resultof a company-wide effort to improve quality and to build a stable and efficient production
on Average
Assets (ROA) (%)
system.
Consolidated net sales for this term were ¥21,262 million (US$189,504 thousand), a 2.3% decrease3
from the previous term. The consolidated operating income was ¥1,039 million (US$9,259 thousand) thisterm, a 9.2% decrease from the previous term. Consolidated income before income taxes was ¥768 million(US$6,842 thousand), a 22.5% decrease from the previous term. The result is that, adjusted for the gains
2
on sales of investment securities and environmental countermeasure expenses, the consolidated net income
pertaining to the parent company stock was ¥616 million (US$5,491 thousand), a 15.3% decrease from theprevious term.

Segment Information

1
10

0

14
13

15 16 17

Cash Dividends
per Share (Yen)
15

10

5

0

8

13 14 15 16 17

Teraoka Seisakusho Co., Ltd.

The Company’s Corporate Group business consists of a single segment, manufacture and sale of adhesive
tape. However, the following is an explanation of the state of sales by product division.
Regarding
Packing Tapes, overall market conditions in terms of movement of goods were poor, but
140cloth13tape for 15
commercial
16 17 use and for post sales throughout the year were favorable. This was not enough,however, to cover the entire division and consolidated sales were ¥3,691 million (US$32,898 thousand) which
was a 1.6% decrease from the previous term. This segment accounts for 17.4% of total consolidated sales
Return on Average
andStockholders'has increased Equity
by 0.2 (ROE)
points (%)
over the previous term.
Regarding Electrical Insulation and Electronic Equipment Tapes, during the first quarter automobile relat4
ed tapes were performing well, but mobile tape sales performed poorly. From the middle of the third quarter
there was a visible recovery in electronic equipment tape orders and while progress was made in advancing
transactions with existing customers and developing new customer transactions, it was insufficient to make3
up for the decrease suffered during the second quarter.
As a result, consolidated sales for this product segment greatly decreased by 6.8% from the previous
term to ¥10,318 million (US$91,965 thousand). This segment accounts for 48.5% of total consolidated sales2and decreased by 2.4 points below the previous term.
Regarding Other Industrial Tapes, due to fickle weather conditions during the second quarter, curing
tape
sales
were sluggish, but demand for infrastructure repairs increased and due to introduction of new
1
products that improve operational efficiency a record sales volume was posted throughout the entire fiscal
year for polyethylene cloth tapes. It was also supported by demand in other industrial uses.
14
0
13
15 16 17

7

7

7

Equity Ratio
(%)
100

80

The result was that consolidated sales for this product segment increased by 4.5% over the previous
term to ¥7,253 million (US$64,641 thousand). This segment accounts for 34.1% of total consolidated sales,
which is an increase of 2.2 points compared to the previous term.
On the other hand, the Overseas Sales slump in mobile electronic equipment tapes continued throughout the world. Also sales efforts for mail-order stationary supplies have begun in China, but were not able tocover all sales.
As a result, Packaging Tapes decreased 1.1%, Electrical Insulation and Electronic Equipment Tapes decreased
14.0% and Other Industrial Tapes decreased 8.6%. Gross export value was ¥6,594 million (US$58,774 thousand), a 13.4% decrease from the previous term. Gross export value also makes up 31.0% of total consolidated sales, and has decreased 4.0 points compared to the previous term.

60

Financial Position
40

20

0

13 14 15 16 17

Return on Average
Assets (ROA) (%)
3

2

1

0

Cash Flows14
15 16 17

13

Return on Average
Stockholders' Equity (ROE) (%)
4

3

2

Capital from operating activities increased by ¥2,003 million (US$17,855 thousand). Increase in these activities for the previous fiscal year was ¥1,172 million. This increase in this term was mainly due to an increase incurrent net profit before taxes and other adjustments.
Cash flow used for investment activities was ¥21 million (US$189 thousand). Even in these activities ofthe previous consolidated accounting term, ¥160 million was used for investment. This was mainly due to
expenditures for acquisition of tangible fixed assets.
There was a ¥587 million (US$5,228 thousand) decrease in capital from financial activities. The amountof capital used in financial activities for the previous consolidated accounting year was ¥290 million. The
decrease this term was mainly due to Acquisition of Own Shares.
From these activities, consolidated cash and cash equivalents for end of year consolidated accounting
were ¥7,905 million (US$70,455 thousand), an increase of ¥1,368 million (US$12,199 thousand) compared tothe previous year end consolidated accounting.

Dividends

1

0

Total assets for the end of year consolidated accounting increased by 3.4% or ¥1,145 million (US$10,208
thousand) over the previous end of year consolidated accounting to ¥34,640 million (US$308,733 thousand).
Total current assets for the end of year increased by 7.0% or ¥1,236 million (US$11,014 thousand) overthe previous end of year consolidated accounting to ¥18,991 million (US$169,258 thousand). This was mainly
due to an increase in cash and deposits.
Total fixed assets for the end of year consolidated accounting decreased 0.6% or ¥91 million (US$806
thousand) from the previous end of year consolidated accounting for a total of ¥15,649 million (US$139,475
thousand). This is mainly due to a decrease in fixed assets and tangible fixed assets.
Total liabilities for the end of year consolidated accounting increased 20.1% or ¥1,114 million (US$9,928
thousand) from the previous end of year consolidated accounting to ¥6,646 million (US$59,232 thousand).
Out of this, total current liabilities increased by 13.1% or ¥590 million (US$5,257 thousand) from the previous
end of term to ¥5,084 million (US$45,309 thousand). This was mainly due to an increase in trade payables.
Total long-term liabilities for the end of the term increased 50.5% or ¥524 million (US$4,670 thousand) forthe previous end of year consolidated accounting to ¥1,562 million (US$13,923 thousand). This is mainly due
to the increase in environmental measure allowances and lease obligations.
Total net assets for the end of year consolidated accounting increased 0.1% or ¥31 million (US$280
thousand) above the previous end of year consolidated accounting to ¥27,994 million (US$249,501 thousand). This was mainly due to an increase in retained earnings and Acquisition of Own Shares.
The result of these figures is a capital-to-asset ratio of 80.8%, a decrease of 2.7 points from the previous term.

14
13

15 16 17

Teraoka considers the payment of dividends to its shareholders as one of our most important business issues,
and we continue stable dividend payments.
According to our basic stance on this type of dividend, the end of term dividend was ¥6.00 (US$0.05)
and combined with the previously distributed interim dividend of ¥5.00 (US$0.04) per share, the total annual
dividends were ¥11.00 (US$0.10) per share.
Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2017 and 2016

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

¥  8,223
5,583
549
(7)
3,965
324
354
18,991¥  6,856
5,319
349
(7)
4,347
341
550
17,755$  73,287
49,7564,896(62)35,342
2,884
3,155
169,258

Less: Accumulated depreciation ����������������������������������������������������������������
Property, plant and equipment, net �����������������������������������������������������������

4,051
11,645
24,792269
97
40,854(29,782)
11,072

4,052
11,61424,658—69
40,393(29,124)
11,26936,102
103,792
220,9642,402
865
364,125(265,440)
98,685Intangible Assets ������������������������������������������������������������������������������������������

366

477

3,265

Investments and Other Assets:
Investments in securities (Notes 2-b and 5) �����������������������������������������������
Deferred income taxes (Note 2-g) �������������������������������������������������������������
Net defined benefit asset ��������������������������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������
Less: Allowance for doubtful accounts (Note 2-h) �������������������������������������
Total investments and other assets ������������������������������������������������������������

3,893
7
88
226
(3)
4,211

3,735
7
26
226
(0)
3,994

34,698
63
780
2,013
(29)
37,525

Total assets ����������������������������������������������������������������������������������������

¥ 34,640¥ 33,495$ 308,733

ASSETS
Current Assets:
Cash and time deposits ����������������������������������������������������������������������������
Notes and accounts receivable - trade �������������������������������������������������������
Electronically recorded monetary claims - operating ����������������������������������
Less: Allowance for doubtful accounts (Note 2-h) �������������������������������������
Inventories (Note 2-c) �������������������������������������������������������������������������������
Deferred income taxes (Note 2-g) �������������������������������������������������������������
Other current assets ���������������������������������������������������������������������������������
Total current assets ����������������������������������������������������������������������������

Property, Plant and Equipment (Notes 2-d and f):
Land ���������������������������������������������������������������������������������������������������������
Buildings ��������������������������������������������������������������������������������������������������
Machinery and equipment ������������������������������������������������������������������������
Leased assets ��������������������������������������������������������������������������������������������
Construction in progress ���������������������������������������������������������������������������

The accompanying notes to consolidated financial statements are an integral part of these statements.

10

Teraoka Seisakusho Co., Ltd.

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:
Notes and accounts payable - trade ����������������������������������������������������������
Electronically recorded obligations - operating ������������������������������������������
Short-term borrowings �����������������������������������������������������������������������������
Accrued income taxes �������������������������������������������������������������������������������
Accrued expenses �������������������������������������������������������������������������������������
Other current liabilities �����������������������������������������������������������������������������
Total current liabilities ���������������������������������������������������������������������

¥ 1,226
2,482
4
118
484
770
5,084

¥ 2,939
328
4
16
457
750
4,494

$ 10,926
22,119
36
1,054
4,314
6,860
45,309Long-term Liabilities:
Net defined benefit liability �����������������������������������������������������������������������
Deferred liabilities taxes (Note 2-g) �����������������������������������������������������������
Asset retirement obligations ���������������������������������������������������������������������
Lease obligations ��������������������������������������������������������������������������������������
Provision for environmental measures �������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������
Total long-term liabilities �����������������������������������������������������������������

31
545
293
268
316
109
1,562

29
597
294
—
7
111
1,038

278
4,861
2,609
2,392
2,812
971
13,923

Total liabilities ���������������������������������������������������������������������������������

6,646

5,532

59,232NET ASSEETSStockholders’ Equity:
Common stock �����������������������������������������������������������������������������������������
Authorized: 80,000,000 shares
Issued:   ‌26,687,955 shares as of March 31, 2017 and26,687,955 shares as of March 31, 2016, respectively
Additional paid-in capital ��������������������������������������������������������������������������
Retained earnings �������������������������������������������������������������������������������������
Less: Treasury stock, at cost ����������������������������������������������������������������������
Total Stockholders’ equity ���������������������������������������������������������������

5,057

5,057

45,072

4,644
16,768(462)
26,007

4,644
16,410(137)
25,974

41,390149,445(4,121)
231,786

Accumulated other comprehensive income
Unrealized gains on securities (Notes 2-b and 5) ���������������������������������������
Foreign currency translation adjustments (Note 2-j) �����������������������������������
Remeasurements of defined benefit plans ������������������������������������������������
Total accumulated other comprehensive income �����������������������������
Total net assets �������������������������������������������������������������������������������

1,669
322
(4)
1,987
27,994

1,653
384
(48)
1,989
27,963

14,8832,864(32)
17,715249,501

Total liabilities and net assets ����������������������������������������������������������

¥34,640¥33,495$308,733

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2017 and 2016

Thousands of
U.S. dollars

Millions of yen

2017¥21,262
15,486
5,776
4,737
1,039

2016
¥21,771
15,903
5,868
4,724
1,144

2017
$189,504
138,02251,48242,223
9,259

89
70
(0)
(41)
(25)
(475)
399
(333)
45
(271)

83
—
(1)
(365)
(25)
(20)
139
—
36
(153)

790
628
(3)
(368)
(226)
(4,234)
3,554(2,970)412(2,417)

Income before income taxes ������������������������������������������������������������������

768

991

6,842

Income taxes:
Current ����������������������������������������������������������������������������������������������������
Deferred ���������������������������������������������������������������������������������������������������
Total income taxes ���������������������������������������������������������������������������������

188
(36)
152

140
124
264

1,671
(320)
1,351

Net income �������������������������������������������������������������������������������������������

¥   616¥   727$  5,491

Profit attributable to non-controlling interests ����������������������������������������������
Profit attributable to owners of parent ���������������������������������������������������������

—
616

—
727

—
5,491

Net Sales ������������������������������������������������������������������������������������������������������
Cost of Sales ������������������������������������������������������������������������������������������������
Gross Profit �������������������������������������������������������������������������������������������
Selling, General and Administrative Expenses �����������������������������������������������
Operating income ���������������������������������������������������������������������������������
Other Income and Expenses:
Interest and dividend income ��������������������������������������������������������������������
Commission received ��������������������������������������������������������������������������������
Interest expenses ��������������������������������������������������������������������������������������
Foreign exchange gains (losses), net ���������������������������������������������������������
Amortization of business commencement expenses ����������������������������������
Commission paid ��������������������������������������������������������������������������������������
Gain on sales of investment securities �������������������������������������������������������
Environmental expenses ���������������������������������������������������������������������������
Other, net �������������������������������������������������������������������������������������������������Per Share
Per share of common stock
Net income �����������������������������������������������������������������������������������������������Cash dividends �����������������������������������������������������������������������������������������

The accompanying notes to consolidated financial statements are an integral part of these statements.

12

Teraoka Seisakusho Co., Ltd.

Yen

¥23.96
11.00

U.S. dollars¥27.62
11.00

$0.21
0.10

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2017 and 2016

Thousands of
U.S. dollars

Millions of yen

2017
¥ 616

2016
¥ 727

2017
$ 5,491

16
(62)
44
(2)

(29)
(304)
(409)
(742)

148
(557)
397
(12)

Comprehensive Income ��������������������������������������������������������������������������������

614

(15)

5,479

Total comprehensive income attributable to:Comprehensive income attributable to owners of parent ��������������������������
Comprehensive income attributable to non-controlling interests ���������������

614
—

(15)
—

5,479
—

Net income ��������������������������������������������������������������������������������������������������
Other Comprehensive Income
Unrealized gains on securities �������������������������������������������������������������������
Foreign currency translation adjustments ��������������������������������������������������
Remeasurements of defined benefit plans, net of tax ��������������������������������
Total other comprehensive income ������������������������������������������������������������

The accompanying notes to consolidated financial statements are an integral part of these statements.

Teraoka Seisakusho Co., Ltd.

13

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the years ended March 31, 2017 and 2016

Millions of yen
Accumulated Other Comprehensive Income

Stockholders’ Equity

Balance at April 1, 2015 �������Cash dividends paid ���������������
Net income (loss) ��������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2016 ���Balance at April 1, 2016 �������Cash dividends paid ���������������
Net income (loss) ��������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2017 ���CommonStock:

Additional Paidin Capital

Retained
Earnings¥5,057———¥4,644———¥15,973
(290)
727
—

—

—

—

—
¥5,057¥5,057————¥4,644¥4,644———437¥16,410¥16,410
(258)
616
—

—

—

—

—
¥5,057—¥4,644358¥16,768

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Treasury Stock, Stockholders’at CostEquityUnrealized
Gains onSecurities¥(137) ¥25,537
—
(290)
—
727
(0)
(0)

¥1,682
—
—
—

¥ 688
—
—
—

¥ 361
—
—
—

¥2,731———¥28,268
(290)
727
(0)

—

(29)

(304)

(409)

(742)

(742)

(0)
437
¥(137) ¥25,974¥(137) ¥25,974
—
(258)
—
616
(325)
(325)

(29)
¥1,653¥1,653
—
—
—

(304)
¥ 384
¥ 384
—
—
—

(409)
¥ (48)¥ (48)———(742)¥1,989¥1,989———(305)¥27,963¥27,963
(258)
616
(325)

—

16

(62)

44

(2)

(2)

(325)
33
¥(462) ¥26,007

16¥1,669

(62)
¥ 322

44
¥  (4)(2)¥1,987

31¥27,994——

Total Net
AssetsThousands of U.S. dollars
Stockholders’ Equity
CommonStock

Balance at April 1, 2016 ������� $45,072—
Cash dividends paid ���������������
—Net income (loss) ��������������������
—Purchase of treasury stock ������
Net changes of items other—than Stockholders’ equity �����
Total changes of items during—
the period ����������������������������
Balance at March 31, 2017 ��� $45,072

Additional
Paid in
CapitalRetained
Earnings$41,390 $146,256—(2,302)
—
5,491
—
—
—

—

—
3,189
$41,390 $149,445

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostUnrealized
Gains onSecurities$(1,224) $231,494—(2,302)—5,491(2,897)(2,897)$14,735———$3,421
—
—
—

—

148

(557)

(2,897)292$(4,121) $231,786

148$14,883(557)$2,864—

The accompanying notes to consolidated financial statements are an integral part of these statements.

14

Teraoka Seisakusho Co., Ltd.

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Stockholders’Equity$(429) $17,727
—
—
—
—
—
—
397

(12)

Total Net
Assets$249,221(2,302)5,491(2,897)
(12)

397
(12)
280
$ (32) $17,715 $249,501

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2017 and 2016

Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

¥  768¥  991$ 6,842

879
333
(399)
4
5
(89)
0
18

972
—
(139)
(1)
(404)
(83)
1
345

7,841
2,970
(3,554)
33
42
(790)
3
157

(468)
376
447
(124)
1,750
89
(0)
164
2,003

315
136
(616)
410
1,927
83
(1)
(837)
1,172

(4,173)
3,350
3,987(1,107)
15,601
790
(3)
1,467
17,855Investing Activities:
Payment for purchases of property, plant and equipment �������������������������
Payment for purchases of intangible assets �����������������������������������������������
Payment for purchases of investment in securities �������������������������������������
Proceeds from sales of investment securities ���������������������������������������������
Decrease (increase) in time deposits ����������������������������������������������������������
Net cash used in investing activities ��������������������������������������������������

(240)
(20)
(303)
542
—
(21)

(265)
(160)
(3)
214
54
(160)

(2,145)(179)(2,697)
4,832
—
(189)

Financing Activities:
Dividends paid ������������������������������������������������������������������������������������������
Payment for acquisition of treasury stock ��������������������������������������������������
Other, net �������������������������������������������������������������������������������������������������
Net cash used in financing activities �������������������������������������������������

(258)
(325)
(4)
(587)

(290)
(0)
—
(290)

(2,302)(2,897)(29)(5,228)

Effect of Exchange Rate Changes on Cash and Cash Equivalents ����������Net Increase (Decrease) in Cash and Cash Equivalents ���������������������������Cash and Cash Equivalents at Beginning of Period ��������������������������������Cash and Cash Equivalents at End of Period �������������������������������������������

(27)
1,368
6,537
¥7,905

(221)
501
6,036
¥6,537(239)
12,19958,256$70,455

Operating Activities:
Income (Loss) before income taxes �������������������������������������������������������������������
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization ��������������������������������������������������������������
Environmental expenses ������������������������������������������������������������������������
Gain on sales of investment securities ���������������������������������������������������
Increase (decrease) in allowance for doubtful accounts ��������������������������
Increase (decrease) in net defied benefit liability ������������������������������������
Interest and dividends income ���������������������������������������������������������������
Interest expenses �����������������������������������������������������������������������������������
Foreign exchange losses (gains) �������������������������������������������������������������
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable ��������������������������
(Increase) decrease in inventories �������������������������������������������������������
Increase (decrease) in notes and accounts payable �����������������������������
Other, net ���������������������������������������������������������������������������������������������
Subtotal �����������������������������������������������������������������������������������������������
Interest and dividends income received �������������������������������������������
Interest expenses paid ��������������������������������������������������������������������
Income taxes (paid) refund �������������������������������������������������������������
Net cash provided by operating activities ����������������������������������������

The accompanying notes to consolidated financial statements are an integral part of these statements.

Teraoka Seisakusho Co., Ltd.

15

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2017 and 2016

1. Basis of Presenting Financial Statements
The accompanying consolidated financial statements of
TERAOKA SEISAKUSHO CO., LTD. (the “Company”) and its
subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements from International Financial Reporting Standards, andare compiled from the consolidated financial statements
prepared by the Company, as required by the Financial
Instruments and Exchange Law of Japan. However, certain
account balances, as disclosed in the basic consolidated
financial statements in Japan, have been reclassified to theextent deemed necessary to enable presentation in a form
which is more familiar to readers outside Japan.
The accounts of overseas consolidated subsidiaries are
based on their accounting records maintained in conformity with generally accepted accounting principles andpractices prevailing in the respective countries of domicile.
For the convenience of readers, the accompanying
consolidated financial statements are presented in U.S.
dollars by translating yen amounts at the rate of ¥112.20=
US$1, the prevailing exchange rate on March 31, 2017.

2. Summary of Significant Accounting Policies
a. Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and five subsidiaries,
TERAOKA SEISAKUSHO (Hong Kong) CO., LTD.,TERAOKA SEISAKUSHO (Shanghai) CO., LTD.,TERAOKA SEISAKUSHO (Shenzhen) CO., LTD.,
SHIN-EI SHOJI CO., LTD. and PT. TERAOKA SEISAKUSHOINDONESIA.
Significant inter-company balances, unrealizedinter-company profits and losses among the companies are entirely eliminated. The assets and liabilities of
the consolidated subsidiaries are incorporated into thefinancial statements at fair value and the difference
between net assets at fair value and investment
amounts are amortized by the straight-line method
over a period of five years.
The fiscal years of overseas subsidiaries end December 31. Overseas subsidiaries’ financial statements are
based on temporary settlement dates of March 31,2017 and 2016 and are used for the consolidation of
the Company.
b. Investments in securities
Debt securities that are intended to be held to maturity (“held-to maturity debt securities”) are measured
at amortized cost in the balance sheet. Securities otherthan held-to maturity debt securities (“other securities”) are measured at fair value.
Other Securities that have fair values are stated atfair value, with unrealized gains and losses included in
the net assets, net of applicable income taxes. Realized
gains and losses on sales of securities are based on themoving average cost of the securities. Other securities
that do not have fair values are stated at cost16

Teraoka Seisakusho Co., Ltd.

determined by the moving average method. For otherthan temporary declines in fair value, other securities
are reduced to net realizable value by a charge toincome.
c. Inventories
The Company mainly applies the cost method basedon the periodic average method which determines
the amount of the inventories shown on the balance
sheet by writing them down based on the decrease in
their profitability.
d. Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost.
Depreciation is computed principally by the decliningbalance method at a rate based on their estimateduseful lives, which range as follow:
Buildings������������������������������������������������ 3~50 years
Machinery and equipment��������������������� 4~16 years
Depreciation of buildings, machinery and equipment of overseas subsidiaries and buildings acquired by
the Company and its domestic subsidiary on or after
April 1, 1998 is computed by the straight-line method
due to changes in Japanese income tax regulations.
e. Impairment of assets
Assets are reviewed for impairment whenever eventsor changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss is 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 an asset or asset group exceeds

its recoverable amount, which is the higher of the
discounted cash flows from the continued use andeventual disposition of the asset or asset group, or the
net selling price at disposition.
f. Leased assets
Under accounting standards generally accepted inJapan, leased assets related to finance leases that do nottransfer ownership of the leased property to the lessee
are depreciated on a straight-line basis, with lease periodused as their useful lives and no residual value.
g. Income taxes
Income taxes are provided based on amounts requiredby the tax return for the period.
The Company has adopted the asset-liability
method of tax effect accounting to recognize deferred
tax assets and liabilities for the expected future tax
consequences of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purpose, and the amounts used for income
tax purposes.
h. Allowance for doubtful accounts
Allowance for doubtful accounts provides for possible
losses on the uncollectability of receivables at theamount of estimated uncollectability, based on pastexperience of doubtful receivables and individual evaluation of collectability of the receivables.
i. Accrued retirement benefits(1) The‌
method of attributing expected retirement
benefit to periods
The Company applies the benefit formula basis tomeasure the pension obligation. The expected
retirement benefit attributed to periods of service
under the plan’s benefit formula is deemed asarising in each period.
(2) Actuarial‌gains and losses
Actuarial gains and losses are amortized by the
declining balance method over a certain period (5years) within the average remaining years of serviceof the eligible employees commencing with thefollowing periods.
j. Foreign currency translation
All receivables and payables denominated in foreign
currencies at the balance sheet date are translated into
yen at current exchange rates. The resulting exchange
gains or losses are charged to income.
Balance sheets of consolidated overseas subsidiaries
are translated into yen at the year-end rates except for
stockholders’ equity accounts, which are translated at

the historical rates. Income statements of consolidated
overseas subsidiaries are translated at average rates.
Translation differences are presented as “foreign currency translation adjustments” in the accompanying
consolidated financial statements.
k. Derivatives and hedge accounting
Derivative financial instruments are stated at fair value
unless they are used for hedging purposes.
If derivative financial instruments are used as hedges
and meet certain hedging criteria, the Company and its
consolidated subsidiaries defer recognition of gains orlosses resulting from changes in fair value of derivative
financial instruments until the related losses or gains on
the hedged items are recognized.
However, in cases where forward foreign exchange
contracts are used as hedges and meet certain hedging
criteria, forward foreign exchange contracts and hedged
items are accounted for in the following manner:
If a forward foreign exchange contract is executedto hedge a future transaction denominated in a foreign
currency, the future transaction will be recorded using
the contracted forward rate, and no gains or losses on
the forward foreign exchange contract are recognized.
l. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows include all highly liquid investments, generally with original maturities of threemonths or less, that are readily convertible to known
amounts of cash and are so near maturity that theypresent insignificant risk of changes in value.
(Changes in Display Method)(Consolidated Balance Sheets)
Electronically recorded monetary claims, which was
included in notes and accounts receivable of total current
assets as well as electronically recorded monetary obligation included in notes and accounts payable as well asother in total current liabilities in the previous consolidated fiscal year were separated and listed independently
in this year’s consolidated balance sheets with the perspective of clarifying the details in the statement.
We are currently transitioning the consolidated financial
statements from the previous year in order to reflect thischange in display method.
The result is that the ¥349 million displayed in notes
and accounts receivable in current assets in the previous
consolidated fiscal year’s consolidated balance sheets is
displayed as ¥349 million in electronically recorded
Teraoka Seisakusho Co., Ltd.

17

monetary claims and the ¥328 million displayed in notes
and accounts payable in total current liabilities has
switched to ¥328 million in electronically recorded monetary obligations. The same transition is taking place forannotations in (financial instruments).
Also, provision for environmental measures, which was
included in long-term payables of long-term liabilities has
become more important, so it will be listed independently
starting this consolidated fiscal year. We are currently transitioning the consolidated financial statements from the previous year in order to reflect this change in display method.
The result is that the ¥7 million displayed in long-termpayables under long-term liabilities on the consolidatedbalance sheets in the previous consolidated fiscal year
has transitioned to ¥7 million under provision for environmental measures.
(Changes in Accounting Estimates)
As a reasonable estimate of disposal costs for PCB wastematerials, etc. became possible this consolidated fiscal
year, the estimated amount was calculated as a special loss
under provision for environmental measures.
Due to this change, the net income prior to adjustment
for taxes, etc. decreased by ¥333 million this period compared to the method previously used.

3. Contingent Liabilities
Contingent liabilities in respect of trade notes and export
bills discounted with banks with recourse in the ordinary

course of business, amounted to ¥4 million (US$38
thousand) and ¥15 million at March 31, 2017 and 2016.

4. Financial Instruments
Overview(1) Policy for financial instruments
The Company raises the funds by bank borrowings, andmanages funds only through short-term time deposit
and others. The Company uses derivatives for the purposes of managing foreign currency exchange risk related to trading receivables and payables, and does notenter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables – notes receivable and accounts
receivable, and electronically recorded monetaryclaims – are exposed to credit risk in relation to customers. In addition, the Company is exposed to foreign currency exchange risk arising from receivables
denominated in foreign currencies resulting from tradewith overseas customers.
Equity securities – the Company holds equity
securities, which are mainly issued by company who
have business relationships with the Company, andthese securities are exposed to the risk of fluctuation inmarket prices. Trade payables – notes payable andaccounts payable, and electronically recorded obligations – mostly have payment due dates within one year.
A portion of trade payables, which is denominated inforeign currencies, is exposed to foreign currency

18

Teraoka Seisakusho Co., Ltd.

exchange risk. Long-term debt is taken out principallyfor the purpose of capital expenditure. Long-term debt
with interest rate fluctuation risks is carried out on fixed
rate loans. Debt is exposed to liquidity risk relating to
the funding as described below.
(3) Risk management for financial instruments(a) Monitoring of credit risk (the risk that customers may
default)
In accordance with the internal policies for managing
credit risk of the Company, the Company monitors
credit worthiness of their main customers periodically,
and monitors due dates and outstanding balances bycustomer.
To minimize the credit risk when entering into
derivative transactions, counterparties are limited tofinancial institutions with high ratings.
(b) Monitoring of market risks (the risks arising fromfluctuations in foreign exchange rates, interest rates
and others)
For equity securities included in investments in securities, the fair values of these securities are periodicallyreviewed and reported to the Board of Directors.
In conducting and managing derivative transactions,the accounting department confirm the effectiveness ofhedging and obtain approval from the responsible

person, depending on the notional contract value,
based on the internal policies and formal regulations onmarket risk for financial instruments.
(c) Monitoring of liquidity risk for financing (the risk that
the Company may not be able to meet its obligations
on the scheduled due dates)
The Company manages the liquidity risk mainly throughthe monthly cash-flow plans, prepared by the Company.

(4) Supplementary explanation of the estimated fair valueof financial instruments
The notional amounts of derivatives listed below are
not necessarily indicative of the actual market risk
involved in derivative transactions.

Estimated Fair Value of Financial Instruments
The carrying value of the financial instruments on the
consolidated balance sheet as of March 31, 2017 andunrealized gain (loss) are shown in the following table.

The table does not include financial instruments for which
it is extremely difficult to determine the fair value. (Pleaserefer to (2) below).
Millions of yen

Financial Instruments

Carrying

Estimatefair value

Difference(1) Cash and deposits �����������������������������������������������������������������������������������

¥ 8,223¥ 8,223—(2) Notes and accounts receivable �����������������������������������������������������������������

5,583

5,583

—

(3) Electronically recorded monetary claims ���������������������������������������������������

549

549

—

(4) Marketable securities and investments in securities ���������������������������������

3,874

3,874

—

(5) Notes and accounts payable ��������������������������������������������������������������������

(1,226)(1,226)—(6) Electronically recorded obligations �����������������������������������������������������������

(2,482)(2,482)—(7) Short-term debt ���������������������������������������������������������������������������������������

(4)

(4)

—

(1) Methods to determine the estimated fair value offinancial instruments and other matters related tosecurities and derivative transactions
Cash and deposits, Notes and accounts receivable, andElectronically recorded monetary claims
Since these items are settled in a short period, theircarrying value approximates fair value.
Investment in securities
The fair value of equity securities is based on quoted
market prices.
Notes and accounts payable, Electronically recorded
obligations, and short-term debt
Since these items are settled in a short period of time,
their carrying value approximates fair value.

The above financial instruments are not included in thepreceding table, because no quoted market prices are available and it is extremely difficult to determine the fair value.
(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2017
Millions of yen

Due in One
Year or Less

Cash and deposits ��������������������������������������
Notes and accounts receivable ��������������������
Electronically recorded monetary claims ������
Marketable securities andinvestments in securities ���������������������������
Total ��������������������������������������������������������

Millions of yen¥19—¥14,355(4) The redemption schedule for short-term debt and longterm debt at March 31, 2017 and 2016 was as follows:(2) Financial instruments for which it is extremely difficult
to determine the fair value were as follows:
As of March 31, 2017
Unlisted equity securities¥ 8,223
5,583
549

Millions of yen

Short-term debt ���������������������
Total �����������������������������������

2017
¥4
¥4

2016
¥4
¥4

Average interest
rates (%)

2017
3.9

Teraoka Seisakusho Co., Ltd.

19

5. Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2017 and 2016 are
as follows:
Millions of yen

2017
Historical costs

Fair value

Net differences

Gross gains

Gross losses

Equity securities ������������������������������������������������

¥1,230¥3,574¥2,344¥2,344¥—

Other ����������������������������������������������������������������

300

300

0

0

—

Total ���������������������������������������������������������������������

¥1,530¥3,874¥2,344¥2,344¥—

Other Securities:

Millions of yen

2016
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,371¥3,716¥2,345¥2,347¥ (2)Other Securities:
Equity securities ������������������������������������������������
Other ����������������������������������������������������������������

—

—

—

—

—

Total ���������������������������������������������������������������������

¥1,371¥3,716¥2,345¥2,347¥ (2)Thousands of U.S. dollars

2017
Historical costs

Fair value

Net differences

Gross gains

Gross losses

Other Securities:
Equity securities ������������������������������������������������

$10,966$31,853$20,887$20,887$—

Other ����������������������������������������������������������������

2,674

2,676

3

3

—

Total ���������������������������������������������������������������������

$13,640$34,529$20,890$20,890$—

Securities that do not have fair values are as follows:
Thousands of
U.S. dollars

Millions of yen

2017

20

2017

2016

Equity securities ��������������������������������������������������������������������������������������������������

¥19

¥19

$169

Other ������������������������������������������������������������������������������������������������������������������

—

—

—

Total �������������������������������������������������������������������������������������������������������������������

¥19

¥19

$169

Teraoka Seisakusho Co., Ltd.

6. Retirement and pension plans
The Company has a defined benefit pension plan. Our
domestic consolidated subsidiary and one of overseas
consolidated subsidiaries have retirement lump-sum plans.
In addition, when an employee retires, an employee may
be paid additional retirement benefits that are not part ofretirement benefit obligations. In lump-sum benefit plansoffered by domestic consolidated subsidiary etc. the retirement benefits and liabilities relating to the retirement
benefits are calculated using the simplified method.

The detailed notes relating to defined benefit pension plans for the fiscal year ended March 31, 2017 and 2016
were as follows:(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Beginning balance of benefit obligations ������������������������������������������������������������

¥4,511¥4,033$40,207

Service cost �����������������������������������������������������������������������������������������������������

275

263

2,447

Interest cost ����������������������������������������������������������������������������������������������������

23

56

209

Actuarial gains and losses �������������������������������������������������������������������������������

(79)

312

(705)

Benefits paid ���������������������������������������������������������������������������������������������������

(159)

(153)

(1,414)Ending balance of benefit obligations �����������������������������������������������������������������

¥4,571¥4,511$40,744(2) Changes in Pension Assets
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Beginning balance of pension assets ������������������������������������������������������������������

¥4,537¥4,409$40,440

Expected return on pension assets ������������������������������������������������������������������

91

88

809

Actuarial gains and losses �������������������������������������������������������������������������������

(40)

(94)

(362)

Contributions by the employer ������������������������������������������������������������������������

230

288

2,051

Benefits paid ���������������������������������������������������������������������������������������������������

(159)

(153)

(1,414)Ending balance of pension assets �����������������������������������������������������������������������

¥4,659¥4,537$41,524(3) Reconciliation of retirement benefit liabilities using the simplified method
Thousands of
U.S. dollars

Millions of yen

2017
Beginning balance of retirement benefit liabilities �����������������������������������������������

2017

2016

¥29

¥24

$260

Benefits expenses ��������������������������������������������������������������������������������������������

7

5

59

Benefits paid ���������������������������������������������������������������������������������������������������

(5)

—

(41)

Ending balance of retirement benefit liabilities ���������������������������������������������������

¥31

¥29

$278

Teraoka Seisakusho Co., Ltd.

21

(4) Reconciliation‌of benefit obligations and pension assets with net defined benefit liability and asset on theConsolidated Balans Sheets
Thousands of
U.S. dollars

Millions of yen

2017

2016

2017

Funded defined benefit obligations ��������������������������������������������������������������������

¥ 4,571¥ 4,511$ 40,744

Pension assets ����������������������������������������������������������������������������������������������������

(4,659)(4,537)(41,524)

Subtotal ����������������������������������������������������������������������������������������������������������

(88)

(26)

(780)

Unfunded defined benefit obligations ����������������������������������������������������������������

31

29

278

Net amount of liabilities and assets recognized in consolidated balance sheet ����

(56)

3

(502)

Liabilities (net defined benefit liability) ����������������������������������������������������������������

31

29

278

Assets (net defined benefit assets) ����������������������������������������������������������������������

(88)

(26)

(780)

Net amount of liabilities and assets recognized in consolidated balance sheet ����

¥   (56)¥    3$   (502)

Note: This includes plans using the simplified method.

(5) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

2017

2017

2016

Service costs �������������������������������������������������������������������������������������������������������

¥275

¥ 263

$2,447

Interest costs ������������������������������������������������������������������������������������������������������

23

56

209

Expected return on pension assets ����������������������������������������������������������������������

(91)

(88)

(809)

Recognition of actuarial gains and losses ������������������������������������������������������������

25

(196)

228

Benefits expenses caluculated on the simplified method ������������������������������������

7

5

59

Total �������������������������������������������������������������������������������������������������������������������

¥239

¥  40

$2,134(6) Remeasurements of defined benefit plans (Other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2017
Actual differences �����������������������������������������������������������������������������������������������

2017

2016

¥64

¥(603)$572(7) Remeasurements of defined benefit plans (Accumulated other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2017
Unrecognized actuarial gains and losses �������������������������������������������������������������

¥(5)

2017

2016
¥(69)

$(47)

(8) Pension Assets
 Breakdown of pension assets

22

2017

2016

Debt securities ��������������������������������������������������������������������������������������������������������������������������������

69%

68%

Equity securities ������������������������������������������������������������������������������������������������������������������������������

23%

24%

Cash and deposits ��������������������������������������������������������������������������������������������������������������������������

3%

3%

Other ����������������������������������������������������������������������������������������������������������������������������������������������

5%

5%

Total �����������������������������������������������������������������������������������������������������������������������������������������������

100%

100%

Teraoka Seisakusho Co., Ltd.

 Rate of expected return on pension assets

Expected return rate on plan assets is determined by considering the current and anticipated future portfolio of
pension assets and current and anticipated future

long-term performance of individual asset classes thatcomprise the funds’ asset mix.

(9) Basic assumptions for calculating benefit obligations
2017

2016

Discount rate ����������������������������������������������������������������������������������������������������������������������������������

0.6%

0.5%

Expected return rate on plan assets ������������������������������������������������������������������������������������������������

2.0%

2.0%

Salary Increase Rate ������������������������������������������������������������������������������������������������������������������������

2.8%

2.8%

7. Income Taxes
Deferred income tax assets and liabilities as of March 31, 2017 and 2016 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2017

2017

2016

Deferred tax assets:
Accrued bonus to employees ��������������������������������������������������������������������������

¥ 122

¥ 115

$ 1,089

Depreciation ���������������������������������������������������������������������������������������������������

6

11

53

Loss on valuation of investment securities �������������������������������������������������������

80

90

717

Net defined benefit liability �����������������������������������������������������������������������������

9

9

85

Tax loss carryforward ���������������������������������������������������������������������������������������

441

472

3,931

Impairment loss ����������������������������������������������������������������������������������������������

252

307

2,247

Loss on valuation of inventories ����������������������������������������������������������������������

98

129

871

Asset retirement obligations ����������������������������������������������������������������������������

91

91

808

Provision for environmental measures �������������������������������������������������������������

97

—

862

Other ��������������������������������������������������������������������������������������������������������������

(43)

(2)

(387)

Valuation allowance ����������������������������������������������������������������������������������������

(822)

(874)

(7,329)Total deferred tax assets ����������������������������������������������������������������������������������

¥ 331

¥ 348

$ 2,947

Reserve for advanced depreciation of noncurrent assets ���������������������������������

(11)

(15)

(103)

Unrealized gains on other securities ����������������������������������������������������������������

(674)

(692)

(6,007)

Net defined benefit asset ��������������������������������������������������������������������������������

(27)

(8)

(241)

Other deferred tax liabilities ����������������������������������������������������������������������������

167

118

1,490

Total deferred tax liabilities ������������������������������������������������������������������������������

¥(545)¥(597)$(4,861)

Net deferred tax assets (liabilities) ��������������������������������������������������������������������

¥(214)¥(249)$(1,914)

Deferred tax liabilities:

Teraoka Seisakusho Co., Ltd.

23

A reconciliation on the difference between the statutory tax rate and effective rate on taxable income for the fiscal years
ended March 31, 2017 and 2016 is as follows:
Statutory tax rate ����������������������������������������������������������������������������������������������������������������������������

2017

2016

30.9%

33.1%

Entertainment and other non-deductible expenses �������������������������������������������������������������������������

0.9

0.9

Dividend and other non-taxable income �����������������������������������������������������������������������������������������

(0.7)

(0.5)

Per capita levy of inhabitant taxes ���������������������������������������������������������������������������������������������������

2.2

2.1

Adjustment on deferred tax assets due to change in income tax rate ���������������������������������������������

—3.4

Increase in valuation allowance ������������������������������������������������������������������������������������������������������

(6.8)

(4.0)

Tax deduction for research expenses �����������������������������������������������������������������������������������������������

(8.2)

(3.2)

Rate difference from foreign subsidiaries ����������������������������������������������������������������������������������������

(2.7)

(6.3)

Consolidated adjustment ����������������������������������������������������������������������������������������������������������������

2.4—

Other, net ���������������������������������������������������������������������������������������������������������������������������������������

1.7

1.1

Effective tax rate �����������������������������������������������������������������������������������������������������������������������������

19.7%

26.6%

8. Subsequent EventAppropriation of retained earnings
Subsequent to March 31, 2017, the Company’s Board of
Directors, with the approval of stockholders on June 23,2017 declared a cash dividend of ¥152 million (US$1,355
thousand) equal to ¥6.00 (US$0.05) per share, applicable24

Teraoka Seisakusho Co., Ltd.

to earnings of the year ended March 31, 2017 and payable to stockholders on the stockholders’ register on
March 31, 2017.

REPORT OF INDEPENDENT AUDITORS

Independent Auditor’s Report
To the Board of Directors of Teraoka Seisakusho Co., Ltd.
We have audited the accompanying consolidated balance sheets of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March 31, 2017 and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audits in conformity with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March
31, 2017 and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
Emphasis of matter
As it is listed in the notes (changes in accounting estimates), as a reasonable estimate of disposal costs for PCB
waste materials ,etc ,the company changes the estimate concerned.
The matter concerned is not the thing which has an influence on our opinion.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amount into U.S. dollar amounts and, in our
opinion, such translation has been made in conformity with the basis stated in Note1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.
Tokyo, Japan
June 23, 2017

INOUE AUDIT CORPORATION

Teraoka Seisakusho Co., Ltd.

25

COMPANY DATA

Company Outline

(as of March 31, 2017)

Company NameTERAOKA SEISAKUSHO CO., LTD.

Head Office

4-22, Hiromachi 1-chome, Shinagawa-ku, Tokyo 140-8711, Japan
Tel:81-3-3491-1141
Fax:81-3-3491-5316

FoundedFebruary 11, 1921

Incorporated

May 5, 1943

Paid-in Capital¥5,057 million

Employees

473 (665 consolidated)

Board of Directors and Auditors

(as of June 23, 2017)

President

Keishiro Teraoka

Senior Managing Director

Kenichi Tsuji

Managing Directors

Masakazu Naito
Hiroyoshi Ohbori

Directors

Noriya Hashimoto
Noriyoshi Shiraishi

Audit & Supervisory Board Members

Yutaka Nomiyama
Jun Watanabe
Masaki Miyake
Harushige Sakai

Operating Officers

Taiji Namekawa
Nobuhisa Ishizaki

26

Teraoka Seisakusho Co., Ltd.

Consolidated Subsidiaries
Shin-ei Shoji Co., Ltd.

Tokyo, Japan

Teraoka Seisakusho (Hong Kong) Co., Ltd.

Hong Kong, China

Teraoka Seisakusho (Shanghai) Co., Ltd.

Shanghai, China

Teraoka Seisakusho (Shenzhen) Co., Ltd.

Shenzhen, China

PT. Teraoka Seisakusho Indonesia

Karawang, Indonesia

R&D Center, Factories and Offices
R&D Center

Shinagawa-ku, Tokyo

Factories  Ibaraki Factory

Kitaibaraki, Ibaraki Prefecture  Sano Factory

Sano, Tochigi Prefecture  Kannami Factory

Kannami-cho, Shizuoka Prefecture

Branch Offices

Tokyo, Osaka, Nagoya and Seoul

Representative Office

Taipei

Teraoka Seisakusho Co., Ltd.

27

INVESTOR INFORMATION

Investor Information

Head Office(as of March 31, 2017)

Teraoka Seisakusho Co., Ltd.
4-22, Hiromachi 1-chome,Shinagawa-ku, Tokyo 140-8711, Japan
Telephone: 81-3-3491-1141
Facsimile: 81-3-3491-5316

Financial Year

April 1 to March 31

Common Stocks

Authorized Shares 80,000,000
Issued Shares 26,687,955

Stockholders

3,226

Stock Listing

Tokyo Stock Exchange, Second Section (Code: 4987)

Transfer Agency

Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo
100-8212, Japan

Major Stockholders
Number ofshares(thousandshares)Ratio of shareholding (%)

ITOCHU Corporation

6,672.0

26.34

Customers’ Stockholding Group

2,966.0

11.71

Keishiro Teraoka

890.1

3.51

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

818.8

3.23

Resona Bank, Ltd.

678.8

2.68

Employees’ Stockholding Group

578.7

2.28

Kuniko Teraoka

526.0

2.08

BBH BOSTON F NOMURA Jp Sm Cap F 620065

395.7

1.56

Kanichiro Otsuka

262.3

1.04

Sompo Japan Nipponkoa Insurance Inc.

206.0

0.81

Stockholders

28

Teraoka Seisakusho Co., Ltd.

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.