Annual Report 2016
Year ended March 31, 2016

TERAOKA SEISAKUSHO CO., LTD.

Teraoka Seisakusho Co., Ltd.

15

PROFILE
Since its establishment in 1921, Teraoka Seisakusho Co., Ltd. has developed into aleading manufacturer of highly functional packing, electrical insulation, electronicequipment and other industrial and general home-use adhesive tapes.

PT. Teraoka Seisakusho Indonesia is one of five consolidated subsidiaries of Teraoka
Group and established its first overseas manufacturing base in Karawang, Indonesia in
2011. The entire company came together for thorough, concerted efforts in production
management and this year we achieved the first surplus since operations began in 2012.
The majority of raw materials are procured locally, producing fabric tapes, P-cut tapes
and double-sided film tapes, of which most products are exported to Japan and China.
At the production site, daily efforts are actively made by the on-site workers to improve quality through spontaneous quality control activities performed by small groups
and so-called quality control circle activities.
We would like to continue improving the individual on-site capabilities and contribute to the development of our group by focusing on the on-site abilities.

CONTENTS
Consolidated Financial Highlights............................ 1
To Our Stockholders.................................................. 2
Review of Operations................................................ 4
Consolidated Five-Year Summary............................. 6
Consolidated Financial Review................................. 7
Company Data............................................................ 26
Investor Information.................................................. 28
10

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

2016

2015

2016

¥21,771¥22,477$193,192

1,144

1,024

10,149

Income before Income Taxes

991

1,902

8,793

Net Income

727

1,025

6,454

Total Assets

33,49535,331

297,227

Net Assets

27,96328,268248,137

Operating Income to Net Sales

5.3

4.6

Equity Ratio

83.5

80.0

Return on Average Assets (ROA)

2.1

3.0

Return on Average Stockholders’ Equity (ROE)

2.6

3.8

Net Sales
Operating Income

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income¥27.62¥38.92$0.25

Cash Dividends

11.00

10.00

0.10

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥112.69 = US$1, the rate prevailing on March 31, 2016.

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

12

13

14

15

16

0

12

14
13

15

16

0

12

13

14

15

16

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Result for FY 2016
Fiscal year 2016, the year ended March 31, 2016 marks our 106th business term.
In consolidated net sales for the current accounting year, Teraoka’s Corporate Group strived
to establish sales and profit through enhancing sales for mobile device-related, transportationequipment related and daily living related fields and approval activities for internal and external
new sales contacts and expanding dealings with exiting sales contacts handled conventionally.
However, we struggled with sales of our electronic tape for mobile devices, which had maintained good numbers until the first half of the term, dropped from the first term, due to effects
of China’s sudden economic slowdown and from partial restructuring of the industry.
However, on the consolidated operating income side, with the drop in pricing of natural
rubber and naphtha, the price of raw materials dropped and profits increased from the previous
term due to continued, thorough task reduction activities and improvements in overseas business.
Also, celebrating its 4th year of operations, Indonesia manufacturing subsidiary’s entire company came together for thorough, concerted efforts in production and while small, there was asurplus over the entire fiscal year thanks to the decline in raw materials costs in addition to theincrease in production volume of core products.
The result is that consolidated net sales for this term were ¥21,771 million (US$193,192 thousand), a 3.1% decrease from the previous term. The consolidated operating income was ¥1,144
million (US$10,149 thousand), which was an increase of 11.6% over the previous period. Due tothe foreign exchange loss calculated at the end of the term, with the strengthened yen, consolidated income before income taxes was ¥991 million (US$8,793 thousand), a 47.9% decrease
from the previous term. The result is that the consolidated operating income pertaining to theparent company stock was ¥727 million (US$6,454 thousand), a 29.0% decrease from the previous term.
The end of term dividend was distributed at ¥5.00 (US$0.04) per share and the mid-term
dividend preceding it was ¥6.00 (US$0.05) per share for a total of ¥11.00 (US$0.10) per share inannual dividends.

Future Focus
As Japan’s economic situation worsens as the yen strengthens and the low stock prices since thebeginning of the year, in addition to the weak tone of personal consumption, there is concernof the slowdown of emerging economies, such as China, we expect this uncertainty to continue,
such as with increased risk of downward swings in corporate profits.�
Under such circumstances, our corporate group has got on track in safe production in theIndonesian manufacturing subsidiary, including production efficiency and quality, and besides
continuously striving to improve product quality, in addition to making efforts in cultivating ourexisting customer base and developing new demand both domestically and abroad, we havebeen able to improve our consolidated base profit level through promoting rationalization andoptimization of the manufacturing process, and enhancing the management base. Further, wehave placed importance on the development of personnel specialized in sales, manufacturing,2

Teraoka Seisakusho Co., Ltd.

development and management as a priority and we are developing our human resources with an eye on the future.

Problem Prevention
The Corporate Group considers the following issues to be the most important
challenges.
1 Enhancing Personnel Training
The Corporate Group recognizes that the source of business competitivenessthat is not influenced by the changing economic environment is found in people, and enhancement of human resource management to make the most of
the abilities of each employee is necessary in all departments for sales, manufacturing, R&D and management. Along with flexibly responding to changes,
we will create a business model and new systems for conducting business andin order to cause reform, we are building a system where it is possible for thecompany and employee to grow together.

Keishiro Teraoka,
President

2 Enhancing Operations of the Indonesian Manufacturing Subsidiary
Our Indonesian manufacturing subsidiary is continuing to make efforts for safe manufacturing
and is now sustaining a profit, but through promotion of a management focus that unifies thesubsidiary with the parent company for the expansion of production item lines, quality improvement and improvement of operating efficiency, we intend to further increase the profit contribution as part of the consolidated base.
3 Enhancing Quality Management and Assurance Systems
Along with establishing a system that fosters quality and answers the increasing demands fromthe industry for quality management levels, we will improve the quality of our company’s products through the establishment of appropriate quality risk management.
4 Unique Product Development and Intellectual Property
We will develop new technology and new products that are strong in originality backed byequipment and evaluation technology, and along with prompt introduction onto the market, we
will continue with intellectual property first.
We would like to take this opportunity to express our sincere gratitude to our shareholders fortheir continued patronage and support.
June 24, 2016

Keishiro Teraoka,
President
Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSIn order to continue developing products with high-performance and high-added value that meet the market needs,
our Corporate Group’s R&D plans to revitalize a wide range of R&D activity from general purpose to cutting edge fields
through promotion of the market-orientated development system proposing Teraoka’s original technology, and providing
products jointly developed with end users.
New achievements in the current accounting year include the market introduction of single and double sided fixing
tape for parts in electronic devices etc., high temperature heat-resistant tape for parts manufacturing, foam double-sided
tape that is highly water-resistant and shock resistant tape for grounding electronics and electronic parts and electromagnetic shielding materials, super adhesive tape for fixating automobile parts, environment compatible non-halogen flameretardant tape and specially shaped polyethylene cloth adhesive tape, and we anticipate product development over a wide
range of industrial fields.
Total R&D costs in this consolidated accounting period were ¥848 million (US$7,522 thousand) and the consolidated
sales ratio was 3.9%. This is an increase of 0.2 points compared to the previous term.
Consolidated sales for the corporate group were ¥21,771 million (US$193,192 thousand). Sales are broken down by
product segment below.

Packing Tapes
For Packing Tapes, the downward effects from the increase in consumption tax during the same period in the previous year finally ceased andsales promotion campaigns were run effectively in conjunction with this.
Consolidated sales for this product segment increased by 0.1% toSales of Packing Tapes(¥ billions)5¥3,753 million (US$33,304 thousand). This segment accounts for 17.2%

3of total consolidated sales and has increased by 0.5 points over the previ-2

ous term.

4.1

4

4.1

4.1
3.7

3.8

‘15

‘16

1

0

‘12

‘13

‘14

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

11.9
10.1

11

9.3

9.3

‘13

‘14

11.1

10
8
6
4
2
0

‘12

‘15

‘16

Electrical Insulation and Electronic Equipment Tapes
Electrical Insulation and Electronic Equipment Tapes segment, satisfactory
Sales of Other Industrial Tapes

orders received were maintained in the first half of the term for exported
device related products unrelated to mobiles. However, with the influ-(¥ billions)8

7.1

ence of China’s economic slowdown, the second half of the term suddenly turned into a struggle.
As a result, consolidated sales for this product segment greatly
decreased by 7.1% from the previous term to ¥11,077 million (US$98,295
thousand). This segment accounts for 50.9% of total consolidated sales
and decreased by 2.2 points below the previous term.
4

Teraoka Seisakusho Co., Ltd.

6.1

6.5

6.8

6.9

‘15

‘16

6

4

2

0

‘12

‘13

‘14

BREAKDOWN OF SALES BY CATEGORY

50.9% Electrical Insulation and17.2% 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●●

Acetate cloth adhesive tapes
Combination adhesive tapes●

Kapton film adhesive tapes
Nomex adhesive tapes●

Glass cloth adhesive tapes●

EMI/RFI shielding tapes●

Silicone rubber adhesive tapes●

31.9% Other Industrial Tapes

Polyester film adhesive tapes

R

R

Surface protection tapes

GEOGRAPHICAL SALES MARKETS
Asia

32.2%

CHANGES IN OVERSEAS SALES
Overseas Sales(¥ billions)
10

Japan

65.0%

8.17

8

6

7.61

6.01

6.07

6.29

’12

’13

’14

4

Other IndustrialNorth
TapesAmerica

1.5%
For Other Industrial Tapes, here was stable demand related to infraEurope
structure/civil engineering and mail-order sales took a turn for the
0.9%
better. Among these,
we wereOther
areasable to maintain overall steady orders
received amidst sluggish
0.4%consumption, even posting the highest sales

2

0

’15

’16

record yet in poliethyline cloth tape, one of our staple products.
The result was that consolidated sales for this product segment
increased by 2.1% over the previous term to ¥6,941 million (US$61,593
thousand). This segment accounts for 31.9% of total consolidated
sales, which is an increase of 1.7 points compared to the previous

GEOGRAPHICAL SALES MARKETS
Asia

32.2%

Japan

term.

65.0%

Overseas Sales
Overseas sales in the year under review are lower than the previous
term in the Electrical Insulation and Electronic Equipment Tapes segment by 7.7%, but in other product segments, Packing Tapes increased by 9.9%. The Other Industrial Tapes segment has significantly
increased over the previous term by 2.6%. Gross export value was¥7,613 million (US$67,565 thousand), a 6.8% decrease from the previous term. Gross export value makes up 35.0% of total consolidated
sales, and has decreased 1.3 points compared to the previous term.

North America

1.5%

Europe0.9%

Other areas

0.4%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2012

2013

2014

2015

2016

2016

¥20,333¥19,935¥20,529¥22,477¥21,771$193,192

Operating Income (Loss)

(168)

(92)

(105)

1,024

1,144

10,149

Income (Loss) before Income Taxes

(119)

674

(794)

1,902

991

8,793

Net Income (Loss)

(138)

263

(924)

1,025

727

6,454

Total Assets

30,43433,64732,59635,33133,495297,227

Net Assets

23,83826,67026,27728,26827,963

248,137

Operating Income to Net Sales

(0.8)

(0.5)

(0.5)

4.6

5.3

Equity Ratio

78.3

79.3

80.6

80.0

83.5

Return on Average Assets (ROA)

(0.4)

0.8

(2.8)

3.0

2.1

(0.6)

1.0

(3.5)

3.8

2.6

Years ended March 31

Net Sales

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per ShareYen¥(7.02)¥9.99¥(35.09)¥38.92¥27.62$0.25

Cash Dividends

10.00

10.00

10.00

10.00

11.00

0.10

The U.S. dollars are translated at the rate of ¥112.69 per US$1, prevailing on March 31, 2016.

6

U.S. dollars

Net Income (Loss)

Teraoka Seisakusho Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year 2016
Year ended March 31, 2016

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWNet Assets(¥ billions)
30

20

10

0

12 13 14 15 16

Net Income (Loss)
per Share (Yen)
40

30

20

10

0

12

14
13

15 16

Cash Dividends
per Share (Yen)
15

10

5

0

8

12 13 14 15 16

Teraoka Seisakusho Co., Ltd.

Business Performance
Regarding Japan’s economy in the current accounting year, in addition to the steps taken towards improving corporate performance, employment situations and capital investment, focusing on big enterprise, while
there was basic support for business conditions such as passing of a revised budget and inbound related exEquity
Ratio goods expenditures, personal consumptions trends were sluggish as always because inpansionof consumer(%)
come didn’t grow as expected and due to the progression of strengthened yen with low stock prices and the100
negative interest rates introduced by Bank of Japan, there is a heightened sense of uncertainty for the future.
However, looking overseas, while there are positive sides, such as the continuous growth of the US economy
80after improvements of the employment situation and individual consumption, without a leading force in theworld economy and watching the slowdown of emerging economies, such as China, and economic slumps inresource-rich countries, there is concern of greater risk of downward swings.
60
In this business environment, in addition to proposing personnel training along with strategizing for theentire company as business resources, which are given the most importance in the mid-term business plan,
40we can reduce the influence of the ever growing uncertainty on our Corporate Group’s business environment
by reducing overall manufacturing costs through making progress in streamlining and optimizing production
and restructuring advanced quality management and quality assurance systems to meet the high demand
20
standards of users, and strive to construct a strong and stable business foundation.
In the current accounting year, we struggled with sales of our electronic tape for mobile devices, which
0had maintained good numbers until the first half of the term, dropped from the first term, due to effects of
12 13 14 15 16
China’s sudden economic slowdown and from partial restructuring of the industry.
Consolidated operating income, with the drop in pricing of natural rubber and naphtha, the price of raw
Returnon Averagematerials
droppedand profits increased from the previous term due to continued, thorough task reduction
Assets (ROA) (%)
activities and improvements in overseas business. However, the effects of the weak yen the previous term
3came around in ordinary profit, reducing profits compared to the previous term due to foreign exchange loss
due to the stronger yen.
Also, celebrating its 4th year of operations, the Indonesian manufacturing subsidiary’s entire company
came together for thorough, concerted efforts in production and while small, there was a surplus over the2entire fiscal year thanks to the decline in raw materials costs in addition to the increase in production volume
of core products.
The result is that consolidated net sales for this term were ¥21,771 million (US$193,192 thousand), a 3.1%
decrease from the previous term. The consolidated operating income was ¥1,144 million (US$10,149 thousand) this term, an 11.6% increase over the previous term. Due to the foreign exchange loss calculated at1
the end of the term, with the strengthened yen, consolidated income before income taxes was ¥991 million(US$8,793 thousand), a 47.9% decrease from the previous term. The result is that the consolidated operating
income pertaining to the parent company stock was ¥727 million (US$6,454 thousand), a 29.0% decrease
14 term.
from12the previous
0
15 16
13
Segment Information
For Packing
the downward effects from the increase in consumption tax during the same period in
Return Tapes,
on Average
the previous
year finallyceased.
(%) promotions are also being run effectively. However, end of the year
Stockholders'Equity(ROE) Sales
demandformovementof
goods
and moving were sluggish, and sales didn’t grow as expected in the second
4term. The result was that consolidated sales for this product segment increased by 0.1% over the previous
term to ¥3,753 million (US$33,304 thousand). This segment accounts for 17.2% of total consolidated sales
and has increased by 0.5 points over the previous term.
3
For Electrical Insulation and Electronic Equipment Tapes, satisfactory orders received were maintainedin the first half of the term for exported device related products unrelated to mobiles. However, with the
influence of China’s economic slowdown, the second half of the term suddenly turned into a struggle due to2
continued production adjustments of sales corporations. The slump in electrical tape products for industrial
equipment continued throughout the year. The consolidated sales for this product segment was ¥11,077 million (US$98,295 thousand), which was a decrease of 7.1% from the previous period. This segment accounts
1
for 50.9% of total consolidated sales and decreased by 2.2 points below the previous term.
For Other Industrial Tapes, building materials related economic recovery was delayed in the first term,
but there
recovery in the second term, there was stable demand related to infrastructure/civil engineer12 was140ing. Mail-ordersales
15took16 a turn for the better. Of these, polyethylene cloth tape, our main product, was13
recognized in China, increasing overseas sales. The result was the ability to maintain overall steady orders
received amidst sluggish consumption, even posting the highest sales record yet. The result was that consoli-dated sales for this product segment increased by 2.1% over the previous term to ¥6,941 million (US$61,593
thousand). This segment accounts for 31.9% of consolidated sales and decreased by 1.7 points over theprevious term.
However, looking overseas, we were greatly affected by the slowdown in China’s economy and didn’t
assign sales activities to establish new sales contacts with Chinese mobile manufacturers, so we were unable
to cover the slump in sales to Chinese manufacturers with sales to Japanese manufacturers. Sales of ourmajor automobile-related products didn’t grow as expected in the second term due to economic slowdown.
The Electrical Insulation and Electronic Equipment Tapes segment decreased by 7.7%, but in other productsegments, Packing Tapes has increased by 9.9%, and the Other Industrial Tapes segment increased over theprevious period by 2.6%. Gross export value was ¥7,613 million (US$67,565 thousand), a 6.8% decrease
from the previous term. Gross export value also makes up 35.0% of total consolidated sales, and has decreased 1.3 points compared to the previous term.

Equity Ratio
(%)
100

80

60

40

20

16

0

s)

12 13 14 15 16Return on Average
Assets (ROA) (%)
3

2

1

16

16

0

12

14
15 16

13

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

3

2

Cash Flows
Capital from operating activities increased by ¥1,172 million (US$10,398 thousand). This was an increase on
the previous year’s consolidated accounting of ¥842 million. This increase in this term was mainly due to anincrease in current net profit before taxes and other adjustments.
Cash flow used for investment activities was ¥160 million (US$1,422 thousand). Even in the activities ofthe previous consolidated accounting term, ¥773 million was used for investment. The main factor for this in
the current term was expenditures for acquisition of fixed assets.
There was a ¥290 million (US$2,572 thousand) decrease in capital from financial activities. There wasa decrease of ¥638 million in used capital from the previous consolidated accounting year. The decrease thisterm was mainly due to dividend payments.
From these activities, consolidated cash and cash equivalents for end of year consolidated accounting
were ¥6,537 million (US$58,003 thousand), an increase of ¥501 million (US$4,446 thousand) compared tothe previous year end consolidated accounting.
Dividends

1

0

Financial Position
Total assets for the end of year consolidated accounting decreased by 5.2% or ¥1,836 million (US$16,298
thousand) from the previous end of year consolidated accounting to ¥33,495 million (US$297,227 thousand).
Total current assets for the end of year decreased by 1.9% or ¥346 million (US$3,069 thousand) fromthe previous end of year consolidated accounting to ¥17,755 million (US$157,556 thousand). This is mainly
due to the decrease of bills receivable and accounts receivable.
Total fixed assets for the end of year consolidated accounting decreased 8.7% or ¥1,491 million(US$13,229 thousand) from the previous end of year consolidated accounting for a total of ¥15,740 million(US$139,671 thousand). This is mainly due to depreciation and amortization of fixed assets.
Total liabilities for the end of year consolidated accounting decreased 21.7% or ¥1,531 million (US$13,588
thousand) from the previous end of year consolidated accounting to ¥5,532 million (US$49,090 thousand).
Out of this, total current liabilities decreased by 23.9% or ¥1,411 million (US$12,521 thousand) from theprevious end of term to ¥4,494 million (US$39,879 thousand). This is mainly due to the decrease of bills
payable and accounts payable. Total long-term liabilities for the end of the term decreased 10.4% or ¥120
million (US$1,065 thousand) for the previous end of year consolidated accounting to ¥1,038 million (US$9,211
thousand). This is mainly due to the reduction of deferred tax liability.
Total net assets for the end of year consolidated accounting decreased 1.1% or ¥305 million (US$2,707
thousand) below the previous end of year consolidated accounting to ¥27,963 million (US$248,138 thousand). This is mainly due to a reduction in adjusted cumulative total for retirement benefits.
The result of these figures is a capital-to-asset ratio of 83.5%, an increase of 3.5 points from the previous term.

12

14
13

15 16

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$0.04) and combined with the previously distributed interim
dividend of ¥6.00 (US$0.05) 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, 2016 and 2015

Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

¥  6,856¥  6,410$  60,839

5,668
(7)
4,347
341
550
17,755

6,010
(8)
4,529
330
830
18,10150,299(58)
38,571
3,027
4,878
157,556

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

4,052
11,61424,65869
40,393(29,124)
11,2694,076
11,75324,788131
40,748(28,509)
12,23935,959103,061
218,807615
358,442(258,442)
100,000

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

477

438

4,229

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

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

3,856
41
376
280
(0)
4,553

33,146
62
232
2,002
(0)
35,442

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

¥ 33,495¥ 35,331$ 297,227

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

2016

2015

2016

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

¥ 3,267
4
16
457
750
4,494

¥ 3,906
5
575
560
859
5,905

$ 28,987
39
146
4,053
6,653
39,878Long-term Liabilities:
Net defined benefit liability �����������������������������������������������������������������������
Deferred liabilities taxes (Note 2-g) �����������������������������������������������������������
Asset retirement obligations ���������������������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������
Total long-term liabilities �����������������������������������������������������������������

29
597
294
118
1,038

24
707
309
118
1,158

259
5,297
2,610
1,045
9,211

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

5,532

7,063

49,089NET ASSETSStockholders’ Equity:
Common stock: ����������������������������������������������������������������������������������������
Authorized: 80,000,000 shares
Issued:   ‌26,687,955 shares as of March 31, 2016 and26,687,955 shares as of March 31, 2015, respectively
Additional paid-in capital ��������������������������������������������������������������������������
Retained earnings �������������������������������������������������������������������������������������
Less: Treasury stock, at cost ����������������������������������������������������������������������
Total Stockholders’ equity ���������������������������������������������������������������

5,057

5,057

44,876

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

4,644
15,973(137)
25,537

41,210145,620(1,218)230,488

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

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

1,682
688
361
2,731
28,268

14,671
3,406(427)
17,650248,138

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

¥33,495¥35,331$297,227

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2016 and 2015

Thousands of
U.S. dollars

Millions of yen

2016¥21,771
15,903
5,868
4,724
1,144

2015
¥22,477
16,882
5,595
4,571
1,024

2016
$193,192
141,12152,071
41,922
10,149

83
(1)
12
12
(365)
(25)
139
—
—
(8)
(153)

78
(4)
12
13
986
(25)
47
(101)
(130)
2
878

737
(10)
106
110
(3,239)
(225)
1,233
—
—
(68)
(1,356)

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

991

1,902

8,793

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

140
124
264

774
103
877

1,241
1,098
2,339

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

¥   727¥ 1,025$  6,454

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

—
727

—
1,025

—
6,454

Net Sales ������������������������������������������������������������������������������������������������������
Cost of Sales ������������������������������������������������������������������������������������������������
Gross profit �������������������������������������������������������������������������������������������
Selling, General and Administrative Expenses �����������������������������������������������
Operating income ���������������������������������������������������������������������������������
Other Income and Expenses:
Interest and dividend income ��������������������������������������������������������������������
Interest expenses ��������������������������������������������������������������������������������������
Purchase discounts �����������������������������������������������������������������������������������
Insurance income �������������������������������������������������������������������������������������
Foreign exchange gains (losses), net ���������������������������������������������������������
Amortization of business commencement expenses ����������������������������������
Gain on sales of investment securities �������������������������������������������������������
Early extra retirement payments ����������������������������������������������������������������
Cost for asset retirement obligations ��������������������������������������������������������
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

¥27.62
11.00

U.S. dollars¥38.92
10.00

$0.25
0.10

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2016 and 2015

Thousands of
U.S. dollars

Millions of yen

2016
¥ 727

2015
¥1,0252016$ 6,454

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

560
520
189
1,269

(259)
(2,701)(3,632)(6,592)Comprehensive Income ��������������������������������������������������������������������������������

(15)

2,294

(138)

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

(15)
—

2,294
—

(138)
—

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, 2016 and 2015

Millions of yen
Accumulated Other Comprehensive Income

Stockholders’ Equity

Balance at April 1, 2014 ������
Cummulative effects of changes
in accounting policies �����������
Balance at the beginning ofcurrent year reflected changes
in accounting policies �����������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, 2015 ���Balance at April 1, 2015 �������
Cummulative effects of changes
in accounting policies �����������
Balance at the beginning ofcurrent year reflected changes
in accounting policies �����������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 ���Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

CommonStock:

Additional Paidin Capital

Retained
Earnings

Total
Treasury Stock, Stockholders’at CostEquityUnrealized
Gains onSecurities¥5,057¥4,644¥15,251¥(137) ¥24,815¥1,122

¥168

¥ 172

¥1,462¥26,277

—

—

(40)

—

(40)

—

—

—

—

(40)

5,057
—
—
—

4,644
—
—
—

15,211
(263)
1,025
—

(137)
—
—
(0)

24,775
(263)
1,025
(0)

1,122
—
—
—

168
—
—
—

172
—
—
—

1,462
—
—
—

26,237
(263)
1,025
(0)

—

—

—

—

—

560

520

189

1,269

1,269

—
¥5,057¥5,057—¥4,644¥4,644762¥15,973¥15,973(0)762¥(137) ¥25,537¥(137) ¥25,537

560¥1,682¥1,682

520
¥688
¥688

189
¥ 361
¥ 361

1,269
¥2,731¥2,731

2,031¥28,268¥28,268

—

—

—

—

—

—

—

—

—

—

5,057
—
—
—

4,644
—
—
—

15,973
(290)
727
—

(137)
—
—
(0)

25,537
(290)
727
(0)

1,682
—
—
—

688
—
—
—

361
—
—
—

2,731
—
—
—

28,268
(290)
727
(0)

—

—

—

—

—

(29)

(304)

(409)

(742)

(742)

—
¥5,057—¥4,644437¥16,410(0)437¥(137) ¥25,974(29)¥1,653

(304)
¥384

(409)
¥  (48)(742)¥1,989(305)¥27,963

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

Balance at April 1, 2015 ������� $44,876
Cummulative effects of changes—
in accounting policies �����������
Balance at the beginning ofcurrent year reflected changes
in accounting policies ����������� 44,876—
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, 2016 ��� $44,876

Additional
Paid in
CapitalRetained
Earnings$41,210 $141,737——

41,210———141,737(2,571)
6,454
—

—

—

—
3,883
$41,210 $145,620

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostUnrealized
Gains onSecurities$(1,217) $226,606$14,930$ 6,107$ 3,205$24,242$250,848

—

—

—

—

—

—

(1,217) 226,606—(2,571)
—
6,454
(1)
(1)

14,930
—
—
—

6,107
—
—
—

3,205
—
—
—

24,242———

250,848(2,571)
6,454
(1)

—

(259)

(2,701)(3,632)(6,592)(6,592)(1)
3,882$(1,218) $230,488(259)$14,671(2,701)$ 3,406(3,632)(6,592)(2,710)$   (427) $17,650 $248,138——

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’EquityTotal Net
AssetsTeraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2016 and 2015

Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

¥  991¥1,902$ 8,793

972
—
—
(139)
(1)
(404)
(83)
1
345

861
101
130
(47)
(2)
(207)
(78)
4
(726)

8,627
—
—
(1,233)(11)(3,586)
(737)
10
3,059

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

(22)
(415)
(156)
(151)
1,194
78
(4)
(426)
842

2,791
1,209
(5,466)
3,647
17,103737(10)(7,432)
10,398Investing 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 ��������������������������������������������������

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

(184)
(278)
(3)
66
(374)
(773)

(2,354)(1,425)
(23)
1,896
484
(1,422)Financing Activities:
Dividends paid ������������������������������������������������������������������������������������������
Increase (decrease) in long-term borrowings ���������������������������������������������
Payment for acquisition of treasury stock ��������������������������������������������������
Net cash used in financing activities �������������������������������������������������

(290)
—
(0)
(290)

(263)
(375)
(0)
(638)

(2,571)—(1)(2,572)

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

(221)
501
6,036
¥6,537

244
(325)
6,361
¥6,036(1,962)
4,442
53,561$58,003

Operating Activities:
Income (Loss) before income taxes �������������������������������������������������������������������
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization ��������������������������������������������������������������
Early extra retirement payments ������������������������������������������������������������
Cost for asset retirement obligations �����������������������������������������������������
Gain on sales of investment securities ���������������������������������������������������
Increase (decrease) in allowance for doubtful accounts ��������������������������
Increase(decrease)in net defined 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, 2016 and 2015

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 ¥112.69=
US$1, the prevailing exchange rate on March 31, 2016.

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 fiscal years of overseas subsidiaries end December 31. Overseas subsidiaries’ financial statements are
based on temporary settlement dates of March 31,
2016 and 2015 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 other than
temporary declines in fair value, other securities are
reduced to net realizable value by a charge to income.

16

Teraoka Seisakusho Co., Ltd.

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 and eventual 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.

Teraoka Seisakusho Co., Ltd.

17

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$131
thousand) and ¥17 million at March 31, 2016 and 2015.

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 – 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 is takenout 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 toliquidity 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)

18

Teraoka Seisakusho Co., Ltd.

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.

Estimated Fair Value of Financial Instruments
The carrying value of the financial instruments on the
consolidated balance sheet as of March 31, 2016 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 �����������������������������������������������������������������������������������

¥ 6,856¥ 6,856—(2) Notes and accounts receivable �����������������������������������������������������������������

5,668

5,668

—

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

3,716

3,716

—

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

(3,267)(3,267)—(5) 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 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.
(2) Financial instruments for which it is extremely difficult
to determine the fair value were as follows:
As of March 31, 2016
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.
(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2016
Millions of yen

Due in One
Year or Less

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

¥ 6,856
5,668—¥12,524(4) The redemption schedule for short-term debt and longterm debt at March 31, 2016 and 2015 was as follows:
Millions of yen

2016¥4
Short-term debt����������������������
¥4
Total������������������������������������

2015
¥5
¥5

Average interest
rates (%)

2016
4.1

Teraoka Seisakusho Co., Ltd.

19

5. Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2016 and 2015 are
as follows:
Millions of yen

2016
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

¥1,371¥3,716¥2,345¥2,347¥ (2)Other ���������������������������������������������������������������

—

—

—

—

—

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

¥1,371¥3,716¥2,345¥2,347¥ (2)Other Securities:

Millions of yen

2015
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,443¥3,837¥2,394¥2,394¥—

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

—

—

—

—

—

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

¥1,443¥3,837¥2,394¥2,394¥—

Thousands of U.S. dollars

2016
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

$12,168$32,978$20,810$20,830$(20)

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

—

—

—

—

—

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

$12,168$32,978$20,810$20,830$(20)

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

Millions of yen

2016

20

2016

2015

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

¥19

¥19

$168

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

—

—

—

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

¥19

¥19

$168

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, 2016 and 2015
were as follows:(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

2016

2016

2015

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

¥4,033¥4,140$35,787

Cumulative effects of changes in accounting policies ��������������������������������������

—

62

—

Related balance ��������������������������������������������������������������������������������������������������

4,033

4,202

35,787

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

263

272

2,335

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

56

58

497

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

312

(123)

2,771

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

(153)

(376)

(1,359)Ending balance of benefit obligations �����������������������������������������������������������������

¥4,511¥4,033$40,031(2) Changes in Pension Assets
Thousands of
U.S. dollars

Millions of yen

2016

2016

2015

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

¥4,409¥4,160$39,121

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

88

83

782

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

(94)

242

(833)

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

288

299

2,553

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

(153)

(376)

(1,359)Ending balance of pension assets �����������������������������������������������������������������������

¥4,537¥4,409$40,264(3) Reconciliation of retirement benefit liabilities using the simplified method
Thousands of
U.S. dollars

Millions of yen

2016

2016

2015

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

¥24

¥25

$213

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

5

5

46

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

—

(6)

—

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

¥29

¥24

$259

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

2016

2015

2016

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

¥ 4,511¥ 4,033$ 40,032

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

(4,537)(4,409)(40,264)

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

(26)

(376)

(232)

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

29

24

259

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

3

(352)

27

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

29

24

259

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

(26)

(376)

(232)

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

¥     3¥  (352)$    27

Note: This includes plans using the simplified method.

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

Millions of yen

2016

2016

2015

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

¥ 263

¥272

$ 2,335

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

56

58

497

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

(88)

(83)

(782)

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

(196)

(99)

(1,748)Benefits expenses caluculated on the simplified method ������������������������������������

5

5

46

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

¥   40¥153$  348(6) Remeasurements of defined benefit plans (Other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2016
Actual differences �����������������������������������������������������������������������������������������������

2016

2015

¥(603)¥266$(5,353)(7) Remeasurements of defined benefit plans (Accumulated other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2016
Unrecognized actuarial gains and losses �������������������������������������������������������������

¥(69)

2016

2015
¥534

$(616)(8) Pension Assets
 Breakdown of pension assets

22

2016

2015

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

68%

65%

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

24%

27%

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
2016

2015

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

0.5%

1.3%

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

2.0%

2.0%

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

2.8%

2.9%

7. Income Taxes
Deferred income tax assets and liabilities as of March 31, 2016 and 2015 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2016

2016

2015

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

¥ 115

¥ 141

$ 1,019

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

11

16

99

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

90

95

796

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

9

7

79

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

472

493

4,188

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

307

386

2,727

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

129

65

1,145

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

91

100

810

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

(2)

(0)

(18)

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

(874)

(932)

(7,756)

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

¥ 348

¥ 371

$ 3,089

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

(15)

(20)

(131)

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

(692)

(712)

(6,139)Net defined benefit asset ��������������������������������������������������������������������������������

(8)

(161)

(72)

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

118

186

1,045

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

¥(597)¥(707)$(5,297)

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

¥(249)¥(336)$(2,208)

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, 2016 and 2015 is as follows:
Statutory tax rate ����������������������������������������������������������������������������������������������������������������������������

2016

2015

33.1%

35.6%

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

0.9

1.2

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

(0.5)

(0.7)

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

2.1

1.1

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

3.4

2.9

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

(4.0)

10.8

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

(3.2)

(6.2)

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

(6.3)

(0.9)

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

1.1

2.3

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

26.6

46.1

Revision of the amount of deferred tax assets and deferred tax liability according to the changes in corporate tax
rate, etc.
The result was a reduction of deferred tax liabilities (theOn March 29, 2016, amendments to the Japanese tax
amount after deducting deferred tax assets) of ¥12 million
regulations, “Act for Partial Revision of the Income Tax(US$107 thousand), including an increase of ¥39 million
Act” and “Act for Partial Revision etc. of the Local Tax(US$345 thousand) in unrealized gains on available-forAct,” were enacted in the Diet. Based on the amendments,
sale securities, an increase of ¥7 million (US$62 thousand)the normal effective statutory tax rate used to calculate
in adjusted cumulative total and an increase of ¥34 million
deferred tax assets or liabilities changed from 33.1% to(US$300 thousand) in corporate tax adjustment added in
30.86% for those temporary differences expected to be
the current consolidated fiscal year.
realized or settled from April 1, 2016 to March 31, 2018,
and to 30.62% for those temporary differences expected
to be realized or settled on or after April 1, 2018.

8. Subsequent EventAppropriation of retained earnings
Subsequent to March 31, 2016, the Company’s Board of
Directors, with the approval of stockholders on June 24,2016 declared a cash dividend of ¥132 million (US$1,168
thousand) equal to ¥5.00 (US$0.04) per share, applicable24

Teraoka Seisakusho Co., Ltd.

to earnings of the year ended March 31, 2016 and payable to stockholders on the stockholders’ register on
March 31, 2016.

REPORT OF INDEPENDENT AUDITORS

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, 2016 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, 2016 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 Note1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.
Tokyo, Japan
June 24, 2016

INOUE AUDIT CORPORATION

Teraoka Seisakusho Co., Ltd.

25

COMPANY DATA

Company Outline

(as of March 31, 2016)

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

486 (648 consolidated)

Board of Directors and Auditors

(as of June 24, 2016)

President

Keishiro Teraoka

Senior Managing Director

Kenichi Tsuji

Managing Directors

Masakazu Naito
Hiroyoshi Ohbori

Directors

Kiyohiro Takagi
Noriya Hashimoto
Noriyoshi Shiraishi

Audit & Supervisory Board Members

Yutaka Nomiyama
Jun Watanabe
Masaki Miyake
Kazunori Shimamoto

Operating Officers

Taiji Namekawa
Masao Mochizuki
Ken Ebitani
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

(as of March 31, 2016)

Head Office

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

2,890

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

28

Teraoka Seisakusho Co., Ltd.

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

ITOCHU Corporation

6,672.0

25.34

Customers’ Stockholding Group

2,803.0

10.64

Keishiro Teraoka

888.9

3.38

Japan Trustee Services Bank, Ltd. (Trust Account)

826.6

3.14

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

818.8

3.11

CGML PB CLIENT ACCOUNT

760.2

2.89

Resona Bank, Ltd.

678.8

2.58

Kuniko Teraoka

526.0

2.00

Employees’ Stockholding Group

525.9

2.00

BBH BOSTON F NOMURA Jp Sm Cap F 620065

350.9

1.33

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.