Annual Report 2014
Year ended March 31, 2014

TERAOKA SEISAKUSHO CO., LTD.

PROFILE
Teraoka Seisakusho Co., Ltd. was established in 1921 and has sincegrown into a leading manufacturer of highly functional packing,electrical insulation, electronic equipment, other industrial andgeneral home-use adhesive tapes.

TERAOKA’s P-Cut Tape (polyethylene cloth adhesive tape) remains a customer
favorite due to its ease of use, as no scissors are required to cut it.
It has been improved since its launch in 1994 and with additions to the line-up, it
has become one of the defining products for our company. Customers like that it
can be simply torn, it doesn’t leave significant adhesive marks and its compact size,
making it widely used not only in curing on building sites, but also in households
for packages and moving. Sales of this product have improved for the second
consecutive year. The future evolution of P-Cut Tape will be something to watch.

CONTENTS
Consolidated Financial Highlights
To Our Stockholders
Review of Operations
Consolidated Five-year Summary
Financial Statements
Financial Review
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
Company Data
Investor Information

10

Teraoka Seisakusho Co., Ltd.

1
2
4
6
7
8
10
12
13
14
15
24
25
27

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

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

Millions of yen

2014

2013

2014

¥20,529¥19,935$199,462

Operating Loss

(105)

(92)

(1,025)

Income (Loss) before Income Taxes

(794)

674

(7,715)Net Income (Loss)

(924)

263

(8,978)

Total Assets

32,596

33,647316,717

Net Assets

26,277

26,670255,317

Operating Loss to Net Sales

(0.5)

(0.5)

Equity Ratio

80.6

79.3

Return on Average Assets (ROA)

(2.8)

0.8

Return on Average Stockholders’ Equity (ROE)

(3.5)

1.0

Net Sales

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income (Loss)¥(35.09)¥9.99$(0.34)

Cash Dividends

10.00

10.00

0.10

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥102.92 = U.S.$1, the rate prevailing on March 31, 2014.

Net Sales

Net Income (Loss)(¥ billions)

Total Assets(¥ millions)(¥ billions)
40

1,000

30

800
30
20
600
20
400
10
10
200

0

10

11

12

13

14

0

12
10

11

14
13

0

10

11

12

13

14

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Results for FY 2014
We report to you the business summary of the 2014 Fiscal Year, the period ending
March 31, 2014, TERAOKA’s 104th business term.
Along with the continuing development of new competitive products from theprevious term, the Company and Group reviewed sales strategy and yield improvement from manufacturing technology reform, and focused on gaining new clients
thanks to our cooperation with ITOCHU Corperation. Our Indonesian manufacturing subsidiary has entered its second year, and apart from greatly increasing
production volume and items, quality has been steadily improving. Because ofcompany-wide efforts to improve business, sales gradually improved during the
beginning of the financial year.
The consolidated net sales for this term were ¥20,529 million (US$199,462
thousand), a 3.0% increase on the previous term. As for operating profit/loss,
through streamlining and efficiency improvements of manufacturing processes,
Keishiro Teraoka,

reduction in the cost of sales, and efforts to review expenses, operating income

President

for individual operating results improved, but because of the costs relating to increasing production at the Indonesian manufacturing subsidiary, the consolidated
operating loss is ¥105 million (US$1,025 thousand). The consolidated operating
loss for the previous term was ¥92 million (US$894 thousand). Due to the foreignexchange profit calculated at the end of the term, consolidated loss before income
taxes was ¥794 million (US$7,715 thousand). Also, as a result of calculating ¥1,383
million (US$13,439 thousand) as impairment loss regarding the adhesive tape manufacturing facilities of the advanced precision production and clean functionality
at the Ibaraki factory in order to maintain a healthy business structure, the consolidated net loss for the period was ¥924 million (US$8,978 thousand).
The end of term dividend was distributed at ¥5.00 (US$0.05) per share andthe mid-term dividend preceding it was also ¥5.00 (US$0.05) per share for a totalof ¥10.00 (US$0.10) per share in annual dividends.

Problem Prevention
The Company and Group consider the following to be the most important challenges.
1. Enhance business base and reduce costs
Along with efficiently and consistently managing the logistics process and sales after product procurement, keeping an appropriate inventory, restructuring to meetthe size of the business, and building a stronger business base, there will also becosts reductions.

2

Teraoka Seisakusho Co., Ltd.

2. Product development
By pursuing features such as usability, convenience and functionality expected ofadhesive tape and soon releasing new and competitive products on to the market,
we will increase our profit margin.
3. Stabilizing and expansion of Indonesian manufacturing subsidiary
The Indonesian manufacturing subsidiary has entered its second year since thestart of full production, and production volume and items have been steadily
increasing, but personnel and financial support from Japan is still necessary. We
will continue to push education and training and by improving these resources onsite and continue to nurture the subsidiary so that it can contribute to profit in the
consolidate accounting in the near future.
4. Human resource development
By raising the bar of capabilities of individual employees through in-house training,
OJT review and self-development and training employees to increase their corporate value, we will build an organization structure that can survive global competition.

Future Focus
With regard to next term’s outlook, there are concerns such as the slowdown in
consumer spending due to an increase in consumption tax and the impact on thedomestic economy of the downturn in overseas economies. Amidst this businessenvironment, apart from further improvements in quality by achieving stability andexpanding operations of the Indonesian manufacturing subsidiary, the Company
and Group will continue to strengthen rationalization investment and mix profitability with the goal of business recovery. With regard to sales, we will enhancesales activities to create demand domestically and overseas, and soon introduce
high-quality and unique new products to the market, as well as respond to customer needs.
We would like to take this opportunity to express our sincere gratitude to ourshareholders for their continued patronage and support.
June 26, 2014

Keishiro Teraoka,
President

Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSIn order to continue developing high-performance and high-value products that meet the needs of the market, througha sophisticated, market-orientated development system and an improvement of joint development with end users, ourCompany and Group’s R&D will be more active in cutting-edge fields.
New achievements for the Company and Group in this fiscal year have been the continued success of polyester film
adhesive tape and waterproof thin foam double face adhesive tape, that are used to fix various components in smartphones and tablets etc., Kapton® film adhesive tape, various types of aluminum foil conductive adhesive tape and flame
retardant double-coated thermal conductive adhesive tape. Also, with considerations for recyclability and sick house
syndrome, low-VOC (solvent free) removable double-coated adhesive tape, polythene cloth adhesive tape for harness fixing and film masking tape were put on the market and we expect these products to find footing in a wide range of industries.
Total R&D costs in this consolidated accounting period were ¥855 million (US$8,307 thousand) and the consolidated
sales ratio was 4.2%. This is a decrease of 0.2 points from the previous term.
Consolidated sales for the Company and Group were ¥20,529 million (US$199,462 thousand), which we have broken
down by product segment below.

Packing Tapes

Regarding the Packing Tapes division, shipments of the Indonesian manufacturing subsidiary have increased significantly and market penetration
has been growing steadily. There was a reduction in demand during thefirst half of the year, but this gradually recovered in the second half. There
was also a surge in demand before the tax increases and an increase in
consumer cloth tape sales. Consolidated sales for this product segment
increased by 0.2% over the previous term to ¥4,059 million (US$39,434
thousand). This segment accounts for 19.8% of total consolidated sales
and decreased by 0.6 points under the previous term.

Sales of Packing Tapes(¥ billions)
5

4.6

4.4

4

4.1

4.1

4.1

‘12

‘13

‘14

3

2

1

0

‘10

‘11

Electrical Insulation and Electronic Equipment Tapes

With regards to the Electrical Insulation and Electronic Equipment Tapes
segment, we will first consider electric tape. Electric tape is relatively
steady for automobiles and industrial machinery etc., but we continue
to face difficult times due to the price competition with overseas tapemanufacturers. Electronic tape continued to experience low sales of digital consumer adhesive tape in the first half of the year. However not only
did demand decrease in the second half of the year, the result of work inlaunching new promising products and sales activities of new products,
resulted in us seeing the first signs of recovery.
As a result, consolidated sales for this product segment increased
by 0.1% over the previous term to ¥9,346 million (US$90,812 thousand).
This segment’s consolidated sales account ratio was 45.5%, and increasedby 1.3 points over the previous term.

Sales of Electrical Insulation andElectronic Equipment Tapes(¥ billions)
12

11.8

12.1
10.1

11

9.3

9.3

‘13

‘14

10
8
6
4
2
0

‘10

‘11

‘12

Sales of Other Industrial Tapes(¥ billions)
8

6.5

6.6

‘10

‘11

7.1
6.1

6.5

6

4

2

0

4

Teraoka Seisakusho Co., Ltd.

‘12

‘13

‘14

BREAKDOWN OF SALES BY CATEGORY

19.8% Packing Tapes
Olive cloth tapes● Kraft paper tapes

45.5% Electrical Insulation andElectronic Equipment Tapes

●

●

●

Polypropylene film adhesive tapes●●●

Double-coated adhesive tapes●

Corrosion-proof tapes
Masking cloth tapes●

Surface protection tapes●

Other Industrial Tapes

With regards to the Other Industrial Tapes segment, because of a
GEOGRAPHICAL
SALESMARKETSboom
in the residential
constructionindustry and an increase in public
works, there has been significant growth in polyethylene cloth adheAsia
sivetape (P-Cut Tape) and curing cloth tape. The annual sales volumeof29.0P-Cut %Tape continued to grow last year and hit a record high.
Japan
As a result, consolidated sales for this product segment increased
69.3million%
by 8.8% over the previous term to ¥7,124(US$69,217 thousand). The segment’s consolidated sales account for 34.7% and increased by 1.9 points over the previous term.

Kapton film adhesive tapes
Nomex adhesive tapes●

Glass cloth adhesive tapes●

EMI/RFI shielding tapes●

Silicone rubber adhesive tapes

R

R

CHANGES IN OVERSEAS SALES
Overseas Sales(¥ billions)
10

8

7.46
6.70

6

6.01

6.07

6.29

’12

’13

’14

4

Overseas Sales

Regarding overseas sales for this term, through cooperation with ITONorth
CHU we have continued
toAmerica
gain new clients in Europe, and North andSouth America. In Asia,
1.0we% established our Seoul branch and a new
representative officeEurope
in Taiwan in February 2013. They have focusedon sales activities to0.5
local%electrical manufacturers, and immediately
responding to local OtherJapanesemanufacturers and in the area of autoareas
motive adhesive tape, there has be a recovery in the market, so sales
0.2%
have remained strong. However, due to manufacturing adjustments
of mobile phone manufacturers, it was not possible to meet our initial
estimates. Compared to the previous term packaging tapes increased
14.1% and electrical insulation and electronic equipment tapes increased 1.4%, both an improvement on the previous term. Industrial
tapes increased by 22.3% on the previous term. Gross export value
was ¥6,293 million (US$61,144 thousand), a 3.6% increase over theprevious term. Gross export value makes up 30.7% of total consolidated sales and increased 0.2 points compared to the previous term.

Acetate cloth adhesive tapes
Combination adhesive tapes●●

34.7% Other Industrial Tapes

Polyester film adhesive tapes

2

0

’10

’11

GEOGRAPHICAL SALES MARKETS
Asia

29.0%

Japan

69.3%

North America

1.0%Europe0.5%

Other areas

0.2%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2010

2011

2012

2013

2014

2014

¥22,909¥23,137¥20,333¥19,935¥20,529$199,462

Operating Income (Loss)

522

598

(168)

(92)

(105)

(1,025)

Income (Loss) before Income Taxes

575

1,007

(119)

674

(794)

(7,715)Net Income (Loss)

359

649

(138)

263

(924)

(8,978)

Total Assets

32,09832,33030,43433,64732,596

316,717

Net Assets

23,66924,03523,83826,67026,277

255,317

Operating Income to Net Sales

2.3

2.6

(0.8)

(0.5)

(0.5)

Equity Ratio

73.7

74.3

78.3

79.3

80.6

Return on Average Assets (ROA)

1.1

2.0

(0.4)

0.8

(2.8)

1.5

2.7

(0.6)

1.0

(3.5)

Years ended March 31

Net Sales

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen

Net Income (Loss)¥17.93¥32.91¥(7.02)¥9.99¥(35.09)$(0.34)

Cash Dividends

7.00

10.00

10.00

10.00

10.00

0.10

The U.S. dollars are translated at the rate of ¥102.92 per U.S.$1, prevailing on March 31, 2014.

6

U.S. dollars

Teraoka Seisakusho Co., Ltd.

Financial Statements

Fiscal Year 2014
Year ended March 31, 2014

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance

Net Assets(¥ billions)
30

20

10

0

10 11 12 13 14

Net Income (Loss)
per Share (Yen)40

30

Segment Information

20

10

0

12
10 11

14
13

Cash Dividends
per Share (Yen)
15

10

5

0

8

There was concern about the Japanese economy because of the downturn in the world
economy from the slow down of emerging markets against the backdrop reduction of monetary easing in the United States. However, despite this, there has been an increase in busiEquity Rationess(%) confidence as a result of a series of economic measures implemented by the government, an improved export environment due to the weakening of the yen, and an increase80
in stock prices, which have meant that the economy has managed to maintain its gradual
recovery.
In the current fiscal year, the Company and Group, besides continuing to work on the60
development of new competitive products, has also reviewed sales strategy and yield improvement through improving manufacturing technology, establishing an efficient management system and cultivating new clients through its cooperation with ITOCHU. This is the40
second year that the Indonesian manufacturing subsidiary has been operating. Apart fromgreatly increasing manufacturing volume and items, it has also steadily improved quality.
Through company-wide efforts for business recovery, sales gradually improved in the first20
half of the fiscal year.
As a result, consolidated net sales for this term were ¥20,529 million (US$199,462
thousand), a 3.0% increase from the previous term. Consolidated operating loss was sub0
sequently
10 11¥105
12 million
13 14 (US$1,025 thousand). This was because of costs for the increased
production of the Indonesian manufacturing subsidiary, despite there being a reduction insales costs through the streamlining and efficiency improvements of the manufacturing proReturn on Average
cessand a(ROA)
review(%)of expenses that led to an improvement of operating income in individual
Assetsoperating results. The consolidated loss before income taxes was ¥794 million (US$7,715
3
thousand).
In addition, to maintain a healthy business structure, ¥1,383 million (US$13,439 thousand) was calculated as an impairment loss in relation to adhesive tape manufacturing facilities for high precision and clean performance at the Ibaraki plant. As a result of this, the2consolidated
net loss was ¥924 million (US$8,978 thousand).

10 11 12 13 14

Teraoka Seisakusho Co., Ltd.

Regarding the Packing Tapes division, shipments of the Indonesian manufacturing subsidiary1
haveincreased significantly and market penetration has been growing steadily. In the firsthalf of the year there was a delay in the impact of the economic recovery in the logistics
market, and so demand was slow, including in the mail order field, which has been a growing market, but
12 in the14second half of the year, there was steady improvement and there wasa0 sudden
demandbefore the tax increase in the mail order and construction markets, and10 11
13
there was also an increase in consumer cloth tape sales.
Consolidated sales for this product segment increased by 0.2% over the previous term
Return on
Averageto ¥4,059
million(US$39,434 thousand). This segment accounts for 19.8% of total consoli(%)
Stockholders'(ROE)bydated sales and Equity
decreased
0.6 points over the previous term.
4With regards to the Electrical Insulation and Electronic Equipment Tapes segment, we
will first consider electric tape. Electric tape is relatively stable for automobiles and industrial
machinery etc., but we continue to face difficult times due to the price competition with3
overseastape manufacturers. Electronic tape continued to experience low sales of digitalconsumer adhesive tape in the first half of the year. However not only did demand increasein the second half of the year, the result of work in launching new promising products and2
sales
activities of new products, resulted in us seeing the first signs of recovery. Tape formobile phones was impacted by the manufacturing adjustments made by mobile phone
manufacturers, and demand continues to seesaw, but because of steady business activities
1withdomestic and overseas manufacturers, sales have steadily been recovering.
Consolidated sales for this product segment increased by 0.1% under the previous termto ¥9,346 million (US$90,812 thousand). This segment’s consolidated sales ratio was 45.5%
12
14
0
and
increased by 1.3 points under the previous term.
10 11
13Regarding the Other Industrial Tapes segment, due to the increase in public works and an
active residential construction industry, P-Cut Tape and curing cloth tape sales have greatlyincreased, especially in mail-order. There was a surge in demand before the increase in consumption tax at the end of the fiscal year, and the annual sales volume of P-Cut Tape hit arecord high last year.
Consolidated sales for this product segment increased by 8.8% over the previous termto ¥7,124 million (US$69,217 thousand). This segment’s consolidated sales account for
34.7%, and increased by 1.9 points over the previous term.

Equity Ratio(%)
80

Financial Position
60

40

20

14

0

10 11 12 13 14

Return on Average
Assets (ROA) (%)
3

2

Total assets for the end of year consolidated accounting decreased by 3.1% or ¥1,051
million (US$10,212 thousand) under the previous end of year consolidated accounting to¥32,596 million (US$316,717 thousand).
Total current assets for the end of year increased by 0.2% or ¥42 million (US$408 thousand) over the previous end of year consolidated accounting to ¥17,057 million (US$165,731
thousand). This was mainly due to an increase in inventory.
Total fixed assets for the end of year consolidated accounting decreased 6.5% or¥1,093 million (US$10,620 thousand) under the previous end of year consolidated accounting to ¥15,539 million (US$150,986 thousand). This was mainly due to impairment loss.
Total liabilities for the end of year consolidated accounting decreased 9.4% or ¥658 million (US$6,393 thousand) under the previous end of year consolidated accounting to ¥6,319
million (US$61,400 thousand). Out of this, total current liabilities decreased by 1.0% or ¥60
million (US$583 thousand) under the previous end of term to ¥5,674 million (US$55,130
thousand). This was mainly due to a decrease in accrued tax payable. Total long-term liabilities for the end of the term decreased 48.1% or ¥598 million (US$5,810 thousand) under
the previous end of year consolidated accounting to ¥645 million (US$6,270 thousand). Thiswas mainly due to the repayment of long-term debt.
Total net assets for the end of year consolidated accounting decreased 1.5% or ¥393
million (US$3,818 thousand) under the previous end of year consolidated accounting to¥26,277 million (US$255,317 thousand). This was mainly due to a decrease in retained earnings.
The result of these figures is a capital-to-asset ratio of 80.6%, an increase of 1.3 points
from the previous term.

1

Cash Flows
14

0

12
10 11

14
13

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

3

Capital from operating activities increased by ¥349 million (US$3,399 thousand). This increase in the current term was mainly due to an increase in accounts payable.
Cash flow used for investment activities reduced by ¥363 million (US$3,532 thousand).
In the previous term activities there was a ¥2,544 million (US$24,718 thousand) decrease incapital. The main factor for this in this term was expenditure for acquisition of tangible fixed
assets.
There was ¥763 million (US$7,418 thousand) decrease in capital from financial activities. There was a decrease of ¥1,561 million (US$15,167 thousand) in used capital from theprevious accounting year. The main factor for this was the repayment of long-term borrowings.
From these activities, consolidated cash and cash equivalents for end of year consolidated accounting were ¥6,361 million (US$61,802 thousand), a decrease of ¥643 million(US$6,248 thousand) compared to the previous year end consolidated accounting.

2

Dividends
1

14

0

12
10 11

14
13

TERAOKA considers the payment of dividends to its shareholders as one of our most important business issues, and we operate under a basic policy of continued stable dividend
payments.
The end of term dividend was ¥5.00 (US$0.05) and combined with the previously
distributed interim dividend of ¥5.00 (US$0.05) per share, makes the total annual dividends¥10.00 (US$0.10) per share.

Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2014 and 2013

Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥  6,440¥  7,004$  62,576

5,968
(8)
4,027
292
338
17,057

5,803
(10)
3,424
310
484
17,01557,986(78)
39,123
2,839
3,285
165,731

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

4,021
11,26824,25754
39,600(27,691)
11,9094,033
11,03624,09357
39,219(25,457)
13,76239,069109,486
235,691524
384,770(269,055)
115,715

Intangible Assets ������������������������������������������������������������������������������������������

192

70

1,868

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 ������������������������������������������������������������

3,161
9
21
249
(2)
3,438

2,489
9
—
304
(2)
2,800

30,710
83
205
2,421
(16)
33,403

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

¥ 32,596¥ 33,647$ 316,717

ASSETS
Current Assets:
Cash and time deposits ����������������������������������������������������������������������������
Notes and accounts receivable:
Trade ����������������������������������������������������������������������������������������������������
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 (Note 2-d):Land ���������������������������������������������������������������������������������������������������������
Buildings ��������������������������������������������������������������������������������������������������
Machinery and equipment ������������������������������������������������������������������������
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

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:
Notes and accounts payable:
Trade ����������������������������������������������������������������������������������������������������
Short-term borrowings �����������������������������������������������������������������������������
Current portion of long-term borrowings �������������������������������������������������
Accrued income taxes �������������������������������������������������������������������������������
Accrued expenses �������������������������������������������������������������������������������������
Other current liabilities �����������������������������������������������������������������������������
Total current liabilities ���������������������������������������������������������������������

2014

2013

2014

¥ 4,015
4
375
115
530
635
5,674

¥ 3,645
4
500
329
566
690
5,734

$ 39,013
40
3,644
1,117
5,153
6,163
55,130Long-term Liabilities:
Long-term borrowings ������������������������������������������������������������������������������
Provision for retirement benefits (Notes 2-i and 6)
Employees ���������������������������������������������������������������������������������������������
Net defined benefit liability �����������������������������������������������������������������������
Deferred liabilities taxes (Note 2-g) �����������������������������������������������������������
Asset retirement obligations ���������������������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������
Total long-term liabilities �����������������������������������������������������������������

—

375

—

—
25
327
177
116
645

405
—
160
171
132
1,243

—
249
3,178
1,719
1,124
6,270

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

6,319

6,977

61,400

NET ASSETSStockholders’ Equity:
Common stock: ����������������������������������������������������������������������������������������
Authorized: 80,000,000 shares
Issued:   ‌26,687,955 shares as of March 31, 2014 and26,687,955 shares as of March 31, 2013, respectively ��������
Additional paid-in capital ��������������������������������������������������������������������������
Retained earnings �������������������������������������������������������������������������������������
Less: Treasury stock, at cost ����������������������������������������������������������������������
Total Stockholders’ equity ���������������������������������������������������������������

5,057

5,057

49,136

4,644
15,251(137)
24,815

4,644
16,438(136)
26,00345,122
148,178(1,329)241,107

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 �����������������������������

1,122
168
172
1,462

641
26
—
667

10,904
1,633
1,673
14,210Total net assets �������������������������������������������������������������������������������

26,277

26,670255,317

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

¥32,596¥33,647¥316,717

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars

Millions of yen

2014¥20,529
16,218
4,311
4,416
(105)

2013
¥19,935
15,678
4,257
4,349
(92)

2014
$199,462
157,578
41,88442,909(1,025)

72
(14)
(2)
—
611
(1,383)
27
(689)

66
(23)
(5)
(115)
794
—
49
766

702
(132)
(19)
—
5,939
(13,439)259(6,690)

Income (Loss) before income taxes ��������������������������������������������������������

(794)

674

(7,715)

Income taxes:
Current ����������������������������������������������������������������������������������������������������
Deferred ���������������������������������������������������������������������������������������������������
Total income taxes ���������������������������������������������������������������������������������
Net income (loss) before minority interests ��������������������������������������������

296
(166)
130
(924)

348
63
411
263

2,877
(1,614)
1,263(8,978)Net income (loss) �����������������������������������������������������������������������������������

¥  (924)¥   263$  (8,978)

Net Sales ������������������������������������������������������������������������������������������������������
Cost of Sales ������������������������������������������������������������������������������������������������
Gross profit �������������������������������������������������������������������������������������������
Selling, General and Administrative Expenses �����������������������������������������������
Operating loss ���������������������������������������������������������������������������������������
Other Income and Expenses:
Interest and dividend income ��������������������������������������������������������������������
Interest expenses ��������������������������������������������������������������������������������������
Loss on disposal of property, plant and equipment ������������������������������������
Loss on abandonment of inventories ��������������������������������������������������������
Foreign exchange gains, net ���������������������������������������������������������������������
Impairment loss ����������������������������������������������������������������������������������������
Other,net ��������������������������������������������������������������������������������������������������Per Share
Per share of common stock
Net income (loss) ��������������������������������������������������������������������������������������Cash dividends �����������������������������������������������������������������������������������������

Yen¥(35.09)
10.00

U.S. dollars¥ 9.9910.00

Thousands of
U.S. dollars

Millions of yen

Consolidated Statement of Comprehensive Income
Net income (loss) before minority interests ��������������������������������������������
Other Comprehensive Income
Unrealized gains on securities �������������������������������������������������������������������
Foreign currency translation adjustments ��������������������������������������������������
Total other comprehensive income ������������������������������������������������������������

2014¥(924)

2013
263

2014
$(8,978)

481
142
623

238
254
492

4,672
1,382
6,054

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

(301)

755

(2,924)

Total comprehensive income attributable to:
Owners of the parent �������������������������������������������������������������������������������
Minority interests ��������������������������������������������������������������������������������������

(301)
—

755
—

(2,924)—

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

12$(0.34)0.10

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended March 31, 2014 and 2013

Millions of yen
Stockholders’ Equity

Balance at April 1, 2012 �������
Issuance of new Stock ������������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, 2013 ��Balance at April 1, 2013 �������
Issuance of new Stock ������������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, 2014 ��CommonStock

Additional
Paid in
CapitalRetained
Earnings¥3,904
1,153———¥3,491
1,153———¥16,405
—
(230)
263
—

—

—

—

1,153
¥5,057¥5,057
—
—
—
—

1,153
¥4,644¥4,644————33¥16,438¥16,438
—
(263)
(924)
—

—

—

—

—
¥5,057—¥4,644(1,187)¥15,251

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostForeign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Stockholders’EquityUnrealized
Gains onSecurities¥(136) ¥23,664
—
2,306
—
(230)
—
263
(0)
(0)

¥  403————¥(229)
—
—
—
—

¥ —
—
—
—
—

¥  174————¥23,838
2,306
(230)
263
(0)

—

238

254

—

492

492

(0)
2,339
¥(136) ¥26,003¥(136) ¥26,003
—
—
—
(263)
—
(924)
(1)
(1)

238
¥641
¥641
—
—
—
—

254
¥26
¥26
—
—
—
—

—
—
—
—
—
—
—

492
¥667
¥667
—
—
—
—

2,831
¥26,670¥26,670
—
(263)
(924)
(1)

—

481

142

172

795

795

(1)
(1,188)¥(137) ¥24,815

481¥1,122

142
¥ 168

172
¥172

795
¥1,462(393)¥26,277——

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

CommonStock

Balance at April 1, 2013 ������� $49,136
Issuance of new Stock ������������—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, 2014 �� $49,136

Additional
Paid in
CapitalRetained
Earnings$45,122 $159,715———(2,559)—(8,978)—————(11,537)$45,122 $148,178

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostForeign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Stockholders’EquityUnrealized
Gains onSecurities$(1,328) $252,645———(2,559)—(8,978)(1)(1)$ 6,232————$  251
—
—
—
—

$  —
—
—
—
—

$ 6,483————$259,128—(2,559)(8,978)
(1)

—

4,672

1,382

1,673

7,727

7,727

(1) (11,538)$(1,329) $241,107

4,672$10,904

1,382$1,633

1,673$1,673

7,727$14,210(3,811)$255,317—

Total Net
Assets

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 CASH FLOWSFor the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥ (794)¥   674$ (7,715)

1,170
1,383
(2)
(133)
(72)
14
(537)

1,216
—
(2)
—
(66)
23
(603)

11,366
13,439(20)(1,289)(702)
132(5,215)

(161)
(576)
354
(53)
208
801
72
(14)
(510)
349

152
(194)
534
53
(206)
1,581
66
(23)
132
1,756

(1,561)(5,600)
3,443
(512)
2,020
7,786
702
(132)
(4,957)3,399

Investing 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 ��������������������������������������������������

(195)
(154)
(2)
68
(80)
(363)

(2,496)
(45)
(3)
—
—
(2,544)(1,894)(1,500)
(24)
660
(774)
(3,532)Financing Activities:
Dividends paid ������������������������������������������������������������������������������������������
Increase (decrease) in long-term borrowings ���������������������������������������������
Proceeds from issuance of common stock �������������������������������������������������
Payment for acquisition of treasury stock ��������������������������������������������������
Net cash used in financing activities �������������������������������������������������

(263)
(500)
—
(0)
(763)

(230)
(500)
2,291
(0)
1,561

(2,559)(4,858)—(1)(7,418)

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 �������������������������������������������

134
(643)
7,004
¥6,361

150
923
6,081
¥ 7,004

1,303(6,248)68,050$61,802

Operating Activities:
Income (loss) before income taxes ��������������������������������������������������������������������
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization ��������������������������������������������������������������
Impairment loss �������������������������������������������������������������������������������������
Increase (decrease) in allowance for doubtful accounts ��������������������������
Increase (decrease) in net defined benefit liability ����������������������������������
Interest and dividend 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 �����������������������������
Increase (decrease) in accrued consumption taxes ������������������������������
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.

14

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2014 and 2013

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 ¥102.92=
U.S.$1, the prevailing exchange rate on March 31, 2014.

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,
2014 and 2013 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 cost

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
Teraoka Seisakusho Co., Ltd.

15

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 method of attributing expected retirement benefit to periods is allocated by the Straight-line basis(the expected benefit divided by the total service
years would be deemed as arising 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.
(Accounting Change)
The Companies have applied the “Accounting Standard for Retirement Benefits” (Accounting Standards
Board of Japan (“ASBJ”) Statement No. 26 of May 17,2012) and “Guidance on Accounting standard for
Retirement Benefits” (ASBJ Guidance No. 25 of May
17, 2012) since the current fiscal year end (except forthe main clause of Article 35 of the standard and the16

Teraoka Seisakusho Co., Ltd.

main clause of Article 67 of the guidance).
Under the new standard, pension assets are
deducted from retirement benefit obligations and the
net amount is recognized as net defined benefit asset/
liability, and previously unrecognized actuarial gains
and losses are recorded as net defined benefit asset
eventually.
In accordance with transitional accounting as stipulated in Article 37 of the standard, the effect of thechanges on accounting policies arising from initial
application is recognized as remeasurements ofdefined benefit plans in accumulated other comprehensive income at the current fiscal year end.
As a result, net defined benefit asset increased by¥21 million (US$205 thousand), and accumulated
other comprehensive income increased by ¥172 million(US$1,673 thousand) at the current fiscal year end.
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.

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 ¥15 million (US$150
thousand) and ¥1 million at March 31, 2014 and 2013.

4. Financial Instruments
Overview(1) Policy for financial instruments
The Company raises the funds by bank borrowings,
and manages funds only through short-term time
deposit and others. The Company uses derivatives forthe purposes of managing foreign currency exchange
risk related to trading receivables and payables, anddoes not enter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables – notes receivable and accounts
receivable – are exposed to credit risk in relation tocustomers. In addition, the Company is exposed toforeign 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 – mostly have payment due dates
within one year. A portion of trade payables, which isdenominated in foreign currencies, is exposed toforeign currency exchange risk. Long-term debt istaken out principally for 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
through the 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.

Teraoka Seisakusho Co., Ltd.

17

Estimated Fair Value of Financial Instruments
The carrying value of the financial instruments on the
consolidated balance sheet as of March 31, 2014 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

Estimatefair value

Difference(1) Cash and deposits ������������������������������������������������������������������������������������������������������ ¥6,440¥6,440—(2) Notes and accounts receivable ������������������������������������������������������������������������������������

5,968

5,968

—

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

3,142

3,142

—

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

(4,015)(4,015)—(5) Short-term debt ����������������������������������������������������������������������������������������������������������

(4)

(4)

—

(6) Long-term debt ����������������������������������������������������������������������������������������������������������

(375)

(376)

(1)

(7) Derivative transaction �������������������������������������������������������������������������������������������������

—

—

—

(1) Methods to determine the estimated fair value offinancial instruments and other matters related tosecurities and derivative transactions
Cash and deposits and notes and accounts receivable
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 and short-term debt
Since these items are settled in a short period of time,
their carrying value approximates fair value.
Long-term debt
The fair value of long-term debt is based on the present value of the total amount including principal andinterest, discounted by the expected interest rate to be
applied if similar new loans with a similar remaining
period were entered into.
(2) Financial instruments for which it is extremely difficult
to determine the fair value were as follows:
As of March 31, 2014
Unlisted equity securities

Millions of yen¥19

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.

18

Carrying

Teraoka Seisakusho Co., Ltd.

(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2014
Millions of yen

Due in One
Year or Less

Cash and deposits���������������������������������������
Notes and accounts receivable���������������������
Marketable securities andinvestments in securities����������������������������
Total���������������������������������������������������������

¥ 6,440
5,968—¥12,408(4) The redemption schedule for short-term debt andlong-term debt at March 31, 2014 and 2013 was asfollows:
Average interest
rates (%)

Millions of yen

Short-term debt����������������������
Long-term debt����������������������
Current portion of long-term debt����
Total������������������������������������

2014
¥  4
—
375
¥379

2013
¥  4
375
500
¥879

2014
5.0
—
1.9

The annual maturities of long-term debt for 5 years subsequent to March 31, 2014 are summarized below:
Year ending March 31,2015�����������������������������������������������������������

Millions of yen¥375

5. Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2014 and 2013 are
as follows:
Millions of yen

2014
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

¥1,460¥3,142¥1,682¥1,682¥—Other ���������������������������������������������������������������

—

—

—

—

—

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

¥1,460¥3,142¥1,682¥1,682¥—Gross gains

Gross losses

¥959

¥(13)

Other securities:

Millions of yen

2013
Historical costs

Fair value¥1,524¥2,470Net differences

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

¥946

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

—

—

—

—

—

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

¥1,524¥2,470

¥946

¥959

(¥13)

Thousands of U.S. dollars

2014
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

$14,182$30,526$16,344$16,344$—

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

—

—

—

—

—

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

$14,182$30,526$16,344$16,344$—

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

Millions of yen

2014

2013

2014

Equity securities

¥19

¥19

$184

Other

—

—

—

Total

¥19

¥19

$184

Teraoka Seisakusho Co., Ltd.

19

6. Retirement and pension plans(1) Provision for employees’ retirement benefit obligations as of March 31, 2013 consisted of the following:
Millions of yen

2013
Benefit obligations ���������������������������������������������������������������������������������������������������������������������������������������������

¥(4,008)

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

3,739

Unrecognized actuarial differences ��������������������������������������������������������������������������������������������������������������������

(136)

Provisions for retirement benefits ����������������������������������������������������������������������������������������������������������������������

(405)(2) Employees’ retirement benefit expenses for the year ended March 31, 2013 consisted of the following:
Millions of yen

2013
Service costs ������������������������������������������������������������������������������������������������������������������������������������������������������

¥220

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

79

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

(66)

Amortization of unrecognized actuarial difference ��������������������������������������������������������������������������������������������

95

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

¥328(3) Significant assumptions of the pension plan used to determine these amounts are as follows:
2013
Method of attributing benefits to periods of service ������������������������������������������������������������������������������������������

Straight line
methodDiscount rate �����������������������������������������������������������������������������������������������������������������������������������������������������

2.0%

Expected rate of return on pension assets ���������������������������������������������������������������������������������������������������������

2.0%

Years over which the actuarial differences obligations are allocated ������������������������������������������������������������������

5 years

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 of20

Teraoka Seisakusho Co., Ltd.

retirement 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, 2014 were as
follows:(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

As of April 1, 2013 ������������������������������������������������������������������������������������������������������������������

¥3,985$38,718

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

219

2,128

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

80

774

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

24

237

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

(168)(1,632)As of March 31, 2014 ������������������������������������������������������������������������������������������������������������

¥4,140$40,225(2) Changes in Pension AssetThousands of
U.S. dollars

Millions of yen

As of April 1, 2013 ������������������������������������������������������������������������������������������������������������������

¥3,739$36,328

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

75

727

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

206

2,006

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

309

3,001

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

(168)(1,632)As of March 31, 2014 ������������������������������������������������������������������������������������������������������������

¥4,161$40,430(3) Reconciliation of retirement benefit liabilities using the simplified method.
Thousands of
U.S. dollars

Millions of yen

As of April 1, 2013 ������������������������������������������������������������������������������������������������������������������

¥23

$230

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

2

19

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

——As of March 31, 2014 ������������������������������������������������������������������������������������������������������������

¥25

$249

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

Millions of yen

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

¥ 4,140$ 40,225

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

(4,161)(40,430)

Net ��������������������������������������������������������������������������������������������������������������������������������������

(21)

(205)

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

25

249

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

4

44

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

25

249

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

(21)

(205)

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

¥     4$     44

Note: This includes plans using the simplified method.

Teraoka Seisakusho Co., Ltd.

21

(5) Retirement benefit expenses
Millions of yen

Thousands of
U.S. dollars

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

¥219$2,128Interest costs ���������������������������������������������������������������������������������������������������������������������������

80

774

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

(75)

(727)

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

(50)

(486)

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

2

19

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

¥176$1,708(6) Remeasurements of defined benefit plans
Millions of yen

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

¥268

Thousands of
U.S. dollars$2,602(7) Pension Assets
 Breakdown of pension assets

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

62%

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

30%

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

3%

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

5%

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

100%

 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 that
comrise the funds’ asset mix.

(8) Basic assumptions for calculating benefit obligations
Discount rate �������������������������������������������������������������������������������������������������������������������������������������������������������
Expected return rate on plan assets ���������������������������������������������������������������������������������������������������������������������

2.0%
2.0%

7. Impairment loss
The Companies group their operating assets in accordancewith the classifications used for internal management.
For assets for business whose profitability has declined,
the carrying amounts were reduced to the recoverable
amounts, and the amounts of these reductions were22

Teraoka Seisakusho Co., Ltd.

recorded as impairment loss. Impairment loss of ¥1,383
million (US$13,439 thousand) for the year ended March
31, 2014 included ¥1,023 million (US$9,941 thousand) for
buildings and structures, ¥360 million (US$3,498 thousand)for machinery and equipment.

March 31, 2014

Use

Classification

Location

Assets for Business

Buildings and structures,
machinery and equipment, land

Ibaraki prefecture

Amount(Millions of yen)Amount(Thousands of
U.S. dollars)¥1,383$13,439

The recoverable amounts of assets for business are measured at the net selling price. But they are measured at memorandum
price because of having difficulty in selling or converting.

8. Income Taxes
Deferred income tax assets and liabilities as of March 31, 2014 and 2013 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥ 148

¥ 162

$ 1,435

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

24

48

229

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

104

122

1,015

Retirement & severance benefits ���������������������������������������������������������������������

—

144

—

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

8

—

73

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

345

130

3,352

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

493

—

4,790

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

(38)

53

(368)

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

(783)

(341)

(7,604)

Total deferred tax assets ����������������������������������������������������������������������������������

¥ 301

¥ 318

$ 2,922

Deferred tax liabilities:
Reserve for advanced depreciation of noncurrent assets ���������������������������������

(28)

(37)

(270)

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

(560)

(305)

(5,440)Net defined benefit asset ��������������������������������������������������������������������������������

(9)

—

(89)

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

270

182

2,621

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

¥(327)¥(160)$ (3,178)

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

¥ (26)¥ 158$   (256)

9. Subsequent Event(1) Appropriation of retained earnings
Subsequent to March 31, 2014, the Company’s Boardof Directors, with the approval of stockholders on June24, 2014 declared a cash dividend of ¥132 million(US$1,279 thousand) equal to ¥5.00 (US$0.05) per

share, applicable to earnings of the year ended March
31, 2014 and payable to stockholders on the stockholders’ register on March 31, 2014.

Teraoka Seisakusho Co., Ltd.

23

REPORT OF INDEPENDENT AUDITORSINOUE AUDITING CO., INC.
Shuhan Kaikan Bldg.
3-37, Kanda-sakuma-cho
Chiyoda-ku, Tokyo, JapanTo 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, 2014 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, 2014 and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
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 Note 1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.
Tokyo, Japan
June 24, 2014

Inoue Auditing Co., Inc.

24

Teraoka Seisakusho Co., Ltd.

COMPANY DATA

Company Outline

(as of March 31, 2014)

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 (US$49,136 thousand)Employees

535 (612 consolidated)

Board of Directors and Auditors

(as of June 24, 2014)

President

Keishiro Teraoka

Managing Director

Kenichi Tsuji

Directors

Masakazu Naito
Hiroyoshi Ohbori
Kiyohiro Takagi
Tsuyoshi Ohsaki

Standing Audit & Supervisory Board Member

Yutaka Nomiyama

Audit & Supervisory Board Members

Masaru Nakamura
Yoshiyasu Ito
Kazunori Shimamoto

Senior Operating Officer

Jun Watanabe

Operating Officers

Taiji Namekawa
Masao Mochizuki
Ken Ebitani

Teraoka Seisakusho Co., Ltd.

25

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

Indonesia

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

Shinagawa-ku, Tokyo

Factories

26

Teraoka Seisakusho Co., Ltd.

  Ibaraki Factory

Kitaibaraki, Ibaraki Prefecture  Sano Factory

Sano, Tochigi Prefecture  Kannami Factory

Kannami-cho, Shizuoka Prefecture

Branch Offices

Tokyo, Osaka, Nagoya, Seoul and Taipei

Sales OfficeSendaiINVESTOR INFORMATION

Investor Information

Head Office(as of March 31, 2014)

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

2,355

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
Stockholders

Number of shares Ratio of share(thousand shares) holding (%)

Itochu Corporation

6,672

25.34

Customers’ Stockholding Group

2,548

9.68

Keishiro Teraoka

886

3.37

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

818

3.11

Resona Bank, Ltd.

678

2.58

Japan Trustee Services Bank, Ltd. (Trust Account)

678

2.57

Employees’ Stockholding Group

596

2.26

Kuniko Teraoka

526

2.00

The Nomura Trust and Banking Co., Ltd. (Trust Account)

479

1.82

Trust & Custody Services Bank, Ltd. (Trust Account)

360

1.37

Teraoka Seisakusho Co., Ltd.

27

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.