Annual Report 2012
Year ended March 31, 2012

TERAOKA SEISAKUSHO CO., LTD.

PROFILE
Since its establishment in 1921, Teraoka Seisakusho Co., Ltd. has developed into a leading manufacturer of highly functional packing, electrical insulation, electronic equipment and otherindustrial and general home-use adhesive tapes.
We have designated the three years starting April 2012, as a period of “Challenge andachievement.” In order to surpass our historical sales and profit figures, we have formulated
an annotated business plan with five challenge themed growth strategies developed to ensure
success.

1 Joint development of products and advancement of large-variety and small-lot
production system
2 Increased production efficiency and price competitiveness through optimal
placement of production
3 Investment of operational resources in growth sectors
4 Expansion and a full-fledged penetration into the global market
5 Promotion of the development of technologies friendly to people and the environment

Midterm Management Plan Target(¥ billion)30(¥ million)
1,500

20

1,000

10

500

0

FY2013

FY2014FY20150Consolidated Net Sales (¥ billion)
Consolidated Operating Income (¥ million)

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
23
24
26

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

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

Millions of yen

2012

2011

2012

¥20,333¥23,137$247,538

Operating Income (Loss)

(168)

598

(2,045)

Income (Loss) before Income Taxes

(119)

1,007

(1,448)Net Income (Loss)

(138)

649

(1,685)

Total Assets

30,43432,330370,514Net Assets

23,83824,035290,218

Operating Income to Net Sales

(0.8)

2.6

Equity Ratio

78.3

74.3

Return on Average Assets (ROA)

(0.4)

2.0

Return on Average Stockholders’ Equity (ROE)

(0.6)

2.7

Net Sales

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income (Loss)¥(7.02)¥32.91$(0.09)Cash Dividends

10.00

10.00

0.12

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥82.14 = U.S.$1, the rate prevailing on March 31, 2012.

Net Sales

Net Income (Loss)(¥ billions)

Total Assets(¥ millions)(¥ billions)
40

1,500

30

1,200
30
20
900
20
600
10
10
300

0

08

09

10

11

12

0

09
08

12
10

11

0

08

09

10

11

12

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Keishiro Teraoka,
President

Business Environment

in response to the continuing instability of our inventory

We would like to announce that Fiscal Year 2012, thecontrol.

period ending March 31, 2012, marked TERAOKA’s 102ndbusiness term.
The Japanese economy faced many challenges dur-

Our headquarters and factories are working together
to reduce costs by seeking new overseas sources of raw
materials and by improving production yields. We haveing the term under review, due to disrupted supply chains

also sought out new sales channels and put effort into theand other effects of the Great East Japan Earthquake.

development and sales of new price competitive products.

There were indications of gradual improvement, however,In addition, the whole Teraoka Group has worked togeth-

European debt problem, protracted appreciation of theer to reduce costs, however, the protracted appreciation

yen and decelerating growth in developing countries haveof the yen and the rise in cost of some raw materials haveall contributed to what can still only be called a severe

led to very severe results.

business environment.
It is within this environment that Teraoka continued

2

Results for FY 2012

the restoration of its Ibaraki factory and endeavored

Consolidated net sales for this term decreased by 12.1%

to increase production at the factory in anticipation ofto ¥20,333 million (US$247,538 thousand), and consoli-

possible power outages during the summer months.

dated operating loss was ¥168 million (US$2,045 thou-

However, problems in the electronic device industry havesand). Although the previous term saw a consolidated

affected our inventory control, resulting in a decrease inoperating income of ¥598 million (US$7,280 thousand),sales. Towards the end of the term, we slowed production

this term resulted in a loss. The consolidated loss before

Teraoka Seisakusho Co., Ltd.

income taxes was ¥119 million (US$1,448 thousand), andraw materials to finished products. Our partnership withthe consolidated net loss was ¥138 million (US$1,685

ITOCHU Corporation will also enable us to expand ourthousand).

marketing network and expand globally to increase sales

The term-end dividend was ¥5.00 (US$0.06) and theof products and optimize purchases of raw materials. We

interim dividend was ¥5.00 (US$0.06), totaling ¥10.00

will devote all our efforts to enhance our competitiveness(US$0.12) per share in dividend payouts for the term.

and maximize our corporate value.
In addition, we have formulated a three-year medi-

Capital and Business Partnership with ITOCHU

um-term management plan, implemented in April 2012,

Corporation

to get our entire organization working together as one to

In March of this year, Teraoka entered into a capital andachieve our goals.

business partnership agreement with ITOCHU Corpora-

We would like to take this opportunity to express ourtion, and carried out third-party allotment of new shares

sincere gratitude to our shareholders for their continued

to ITOCHU. Teraoka has a long history of business withpatronage and support.

ITOCHU, primarily in the purchase of raw materials for ouradhesive tapes. The primary goal of this partnership is toJune 26, 2012leverage synergies to expand our product base of electrical insulation and electronic equipment tapes on a global
scale. In cooperation with ITOCHU, Teraoka will pursue
global expansion.

Future Focus

Keishiro Teraoka,

Deceleration of the world economy due to credit uncer-

President

tainty in Europe, protracted appreciation of the yen anddecelerating growth in developing countries, has caused
the future to become more unpredictable and uncertain
than ever before. In this business environment, Teraoka
will endeavor to develop tapes and other new high valueadded products for use in products such as digital homeelectrical appliances, which are expected to continue
expanding.
From a long-term standpoint, we will exploit promising emerging markets, avoid risks of the appreciating yen,
and improve price competitiveness. With this in mind, we
will open a factory this year in the Republic of Indonesiathat features an integrated system of production from

Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSIn March of this year, Teraoka entered into a capital and business partnership agreement with ITOCHU Corporation. We
believe that this partnership will create synergy allowing the expansion of our long-held adhesive tape business on a global scale, and will optimize the costs of raw materials purchases.
In order to develop sophisticated and high value-added products which meet the needs of the market, we intend to
stimulate leading edge research and development through joint development with end-users and market oriented systems
development.
In addition, this term we have released a variety of new products, including: thin tapes designed for use in smart
phones, LED heat-resistant double-coated tapes, electromagnetic shielding conductive non-woven double-coated tapes,
tapes containing no volatile organic compounds designed for automobile interiors, and optical adhesive tapes with hightransparency.
Research & development expenses for the term amounted to ¥888 million (US$10,811 thousand), accounting for 4.4%of total consolidated sales, a decrease of 8.5% over the previous term.
Consolidated net sales for the Company during this term amounted to ¥20,333 million (US$247,538 thousand). The
performance of the individual product segments is detailed below.

Packing Tapes
Sales of packing tapes were affected by the disruption in production due tothe earthquake, but slowly showed signs of improvement towards the end of
the term. As a result, consolidated sales for this product segment amounted
to ¥4,099 million (US$49,907 thousand), a 7.5% decrease from the previous
term. This division accounted for 20.2% of the total consolidated sales, a 1.0%
increase from the previous term.

Electrical Insulation and Electronic Equipment Tapes
Sales of the Company’s electrical insulation and electronic equipment tapes
faced hard times due to increasing competition in the global market. The decelerating production of cellular phones, computers, and flat-screen monitors hascaused the sales of relevant tapes to drop. The sales of tapes used in automobiles finished near projections, however, were not enough to compensate forlosses in the other tape segments.
Consequently, the consolidated net sales for this division amounted to¥10,112 million (US$123,105 thousand), a decrease of 16.2% over the previous
term. This division accounted for 49.7% of total consolidated sales, 2.4% lower
than the previous term.

BREAKDOWN OF SALES BY CATEGORY

20.2% Packing Tapes
Olive cloth tapes● Kraft paper tapes●●

Polypropylene cloth/film adhesive tapes

49.7% Electrical Insulation andElectronic Equipment Tapes●●●

Polyester cloth/film adhesive tapes
Acetate cloth adhesive tapes
Combination adhesive tapes

Kapton film adhesive tapes● Nomex adhesive tapes●

RR

30.1% Other Industrial Tapes●

Double-coated adhesive tapes

Corrosion-proof tapes● Masking cloth tapes●●

4

Surface protection tapes

Teraoka Seisakusho Co., Ltd.

GEOGRAPHICAL SALES MARKETS●Glass cloth adhesive tapes●

EMI/RFI shielding tapes

CHANGES IN OVERSEAS SALES

Other Industrial Tapes

The temporary shutdown of the Ibaraki factory caused a delay in the production of P-Cut tapes (polyethylene cloth tapes) and double-coated tapes, which(%)
led to a 7.9% decrease in sales of industrial tapes over the previous term. The
40
10BREAKDOWN OF SALES BY CATEGORY
consolidated net sales of this segment amounted to ¥6,122 million (US$74,526
thousand). This division accounted for49.7
30.1%
total consolidated
Insulationsales,
and 1.4%
820.2% Packing Tapes%ofElectrical30
7.32● Olive cloth tapes
higher than the previous term.
Electronic Equipment Tapes
7.46
6.012
Overseas Sales
Export Ratio (%)(¥ billions)

6.30

6

●

6.70
Kraft
paper tapes●●

Polypropylene cloth/film adhesive tapes Overseas Sales

●

20

●

Polyester cloth/film adhesive tapes
Acetate cloth adhesive tapes
Combination adhesive tapes

During the term, even with a sales decrease of ●23.7%
in packing tapes andKapton film adhesive tapes
20.9% in electrical insulation and electronic equipment
tapes,tapes
industrial tapes● Nomex adhesivemarked an increase of 6.0%, while struggling against
theadhesive
appreciation● Glass cloth
tapes of theyen. As a result, total overseas sales amounted ●tomillion(US$73,190¥6,012
EMI/RFIshieldingtapes
thousand), a 19.4% decrease over the previous term. Overseas sales accounted
for 29.6% of Teraoka’s total consolidated sales, a decrease of 2.7% over theprevious term.
R

4

R

2

30.1% Other Industrial Tapes

0

FY 2008

10●

Double-coated adhesive tapes●

Corrosion-proof tapes

Masking
clothFYtapes
FY ●
2009
FY 20102011●

0

FY 2012

Surface protection tapes

GEOGRAPHICAL SALES MARKETS
Asia

27.7%

Japan

70.4%

North America

1.2%

Europe0.6%

Other areas

0.1%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2008

2009

2010

2011

2012

2012

¥25,945¥23,833¥22,909¥23,137¥20,333$247,538

Operating Income (Loss)

1,540

40

522

598

(168)

(2,045)

Income (Loss) before Income Taxes

1,155

(426)

575

1,007

(119)

(1,448)

758

(402)

359

649

(138)

(1,685)

Total Assets

32,696

31,84932,09832,33030,434

370,514Net Assets

24,343

23,416

23,66924,03523,838290,218

Operating Income to Net Sales

5.9

0.2

2.3

2.6

(0.8)

Equity Ratio

74.5

73.5

73.7

74.3

78.3

Return on Average Assets (ROA)

2.3

(1.2)

1.1

2.0

(0.4)

3.1

(1.7)

1.5

2.7

(0.6)

Years ended March 31

Net Sales

Net Income (Loss)

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen

Net Income (Loss)¥73.93¥(20.00)¥17.93¥32.91¥(7.02)$(0.09)Cash Dividends

14.00

10.00

7.00

10.00

10.00

0.12

The U.S. dollars are translated at the rate of ¥82.14 per U.S.$1, prevailing on March 31, 2012.

6

U.S. dollars

Teraoka Seisakusho Co., Ltd.

Financial Statements

Fiscal Year 2012
Year ended March 31, 2012

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance

Net Assets(¥ billions)
30

20

10

0

08 09 10 11 12

Net Income (Loss)
per Share (Yen)60

40

Teraoka faced many challenges due to the damage to the Ibaraki factory during the Great
East Japan Earthquake, which caused a partial disruption of supply chains, a shortage of raw
materials
well as other negative effects which slowed production of several products. As
EquityasRatio(%)
a resultof our stringent efforts towards restoration, we were able to resume all operations
80in the middle of May.
We increased production in anticipation of possible power outages during the summer
months. However, since the economic outlook has become unpredictable and uncertain,
60both domestic and overseas users and merchandizing firms have adjusted their production
and inventory, resulting in the worsening of electrical device industry. In addition, our Japanese electrical device maker clients are struggling to compete for market share in the global
40
market, resulting in a decrease in our sales.
Towards the end of the term, we slowed production in response to the continuing
instability of our inventory control. Our headquarters and factories are working together to20
reduce costs by seeking new overseas sources of raw materials and by improving production
yields. We have also sought out new sales channels and put effort into the development
and sales of new price competitive products. The whole Teraoka Group has worked togeth008reduce
09 10
11 however,12
er tocosts,
the protracted appreciation of the yen and the rise in cost ofsome raw materials have led to very severe results.
Returnon Average
Consequently,
the consolidated net sales for the term under review were ¥20,333 milAssets (ROA) (%)
lion (US$247,538 thousand), a large decrease of 12.1% over the previous term. The consoli5dated operating loss was ¥168 million (US$2,045 thousand), compared to a consolidated
operating income from the last term of ¥598 million (US$7,280 thousand). The consolidated
4loss before income taxes was ¥119 million (US$1,448 thousand), and the consolidated net
loss was ¥138 million (US$1,685 thousand). The previous term, in comparison, saw a consolidated net income of ¥649 million (US$7,901 thousand).
3

Segment Information
2
20

0

12

09
08

10 11

Cash Dividends
per Share (Yen)
15

10

5

0

8

08 09 10 11 12

Teraoka Seisakusho Co., Ltd.

Sales of Teraoka’s packing tapes were affected by the disruption of production caused by
the Great East Japan Earthquake. However, due to advance adjustments by companies
1projecting a rise in demand for reconstruction purposes, the sales accelerated temporarily in
April and May, followed by a reactionary decline, but sales slowly showed signs of improve09
12
0ment towards the end of the term. As a result, consolidated sales for this product segment08
11
amounted
to10¥4,099
million (US$49,907 thousand), a 7.5% decrease from the previous
term. This division accounted for 20.2% of the total consolidated sales, a 1.0% increaseon Average
fromReturn
the previous
term.
(%)
Stockholders'Equity (ROE)
As for the Company’s
electricalinsulation and electronic equipment tapes, Japanese
6electrical device companies faced hard times due to increasing competition in the global
market which is causing a reduction in their market share. Also, the severe flooding in
Thailand in the interim period 2011 has caused users who are also our clients, to adjust
production, which resulted in a deceleration in the sales of digital device relevant tapes. The
4sales of tapes used in automobiles finished near projections, however, were not enough tocompensate for losses in the other tape segments. Consequently, the consolidated net sales
for this division amounted to ¥10,112 million (US$123,105 thousand), a decrease of 16.2%
over the previous term. This division accounted for 49.7% of total consolidated sales, 2.4%
2lower than the previous term.
There was a delay in the production of P-Cut tapes (polyethylene cloth tapes) anddouble-coated tapes, due to the damage to the Ibaraki factory from the earthquake. This09120caused shipments of the Company’s industrial tapes to slow down temporarily. As for the
10 11
08
constructionindustry, belated rise in demand for restoration purposes caused an overstock.

12

Consequently, the consolidated net sales for this segment amounted to ¥6,122 million(US$74,526 thousand), a decrease of 7.9% compared to the previous term. This division accounted for 30.1% of total consolidated sales, 1.4% higher than the previous term.
Equity Ratio
(%)

60

40

20

0

s)

12

12

Financial Position80

08 09 10 11 12Return on Average
Assets (ROA) (%)
5

4

Cash Flows

3

2

1

0

Total assets at the end of the fiscal term were ¥30,434 million (US$370,514 thousand), a
decrease of 5.9% or ¥1,896 million (US$23,083 thousand). The capital-to-asset ratio was
78.3%, up 4.0% from the previous term.
Total current assets at the term-end amounted to ¥16,090 million (US$195,888 thousand), a decrease of 17.8% or ¥3,481 million (US$42,379 thousand) when compared withthe previous term-end, primarily owing to a decrease in cash deposits.
Total fixed assets increased by 12.0%, or ¥1,585 million (US$19,296 thousand), to¥14,344 million (US$174,629 thousand) during the term. This is due to the increase in tangible fixed assets.
Total liabilities decreased 20.5%, or ¥1,700 million (US$20,696 thousand), to ¥6,595
million (US$80,296 thousand) during the term. Total current liabilities increased by 18.3%
or ¥1,126 million (US$13,708 thousand), amounting to ¥5,027 million (US$61,204 thousand)at term-end, due to a decrease in accrued income tax and other tax payments.
Total long-term liabilities decreased by 26.8% or ¥574 million (US$6,988 thousand)to ¥1,568 million (US$19,092 thousand), in part because of the decrease in long-termborrowings.
Total net assets decreased by 0.8% or ¥197 million (US$2,398 thousand) to ¥23,838
million (US$290,218 thousand) due to the decrease in income stemming from the decrease
in total sales for this term.

09
08

12
10 11

Return on Average
Stockholders' Equity (ROE) (%)
6

4

Cash used in operating activities totaled ¥361 million (US$4,401 thousand). There was anincrease of ¥2,540 million (US$30,923 thousand) in the previous term, but this term resulted
in a decrease. This was due mainly to the term’s consolidated loss before income taxes.
Cash flow from investment activities decreased by ¥2,792 million (US$33,989 thousand). The previous term showed an increase in investment expenditures of ¥774 million(US$9,423 thousand), but the term under review saw a decrease owing to the acquisition of
tangible fixed assets, these funds decreased in the term under review.
Funds used for finance activities amounted to ¥697 million (US$8,490 thousand) during
the term under review. In the previous term, we used ¥675 million (US$8,218 thousand)through these activities. Consequently the total amount increased by ¥22 million (US$268
thousand) from the previous term. This was mainly due to the repayment of long-term borrowings.
Through these activities, consolidated cash and cash equivalents at the end of the termin review amounted to ¥6,081 million (US$74,034 thousand), a decrease of ¥3,940 million(US$47,967 thousand) when compared with the end of the previous consolidated accounting term.

Dividends
2

0

09
08

12
10 11

TERAOKA considers the payment of dividends to its shareholders as one of our most important business functions, and we operate under a basic policy of continued stable dividend
payments. After careful consideration of this term’s business results, overall financial condition, cash flow, dividend propensity and future business forecasts, we have implemented aterm-end dividend of ¥5 (US$0.06) per share and an interim dividend of ¥5 (US$0.06) per
share, amounting to an annual dividend of ¥10 (US$0.12) per share.

Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

¥ 6,081¥10,021$ 74,034

5,955
(10)
3,200
213
651
16,090

5,888
(9)
3,079
298
294
19,571

72,492(121)
38,962
2,592
7,929
195,888

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

3,959
8,524
21,5152,355
36,353(24,537)
11,816

3,733
8,502
22,308211
34,754(24,268)
10,48648,204
103,779
261,932
28,668442,583(298,719)
143,864

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

54

76

652

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

2,157
108
212
(3)
2,474

1,960
53
208
(24)
2,197

26,263
1,310
2,578
(41)
30,110Total assets�����������������������������������������������������������������������������������������

¥30,434¥32,330$370,514

ASSETS
Current Assets:
Cash and time deposits�����������������������������������������������������������������������������
Notes and accounts receivable:
Trade�����������������������������������������������������������������������������������������������������
Less: Allowance for doubtful accounts (Note 2-g)��������������������������������������
Inventories (Note 2-c)��������������������������������������������������������������������������������
Deferred income taxes (Note 2-f)���������������������������������������������������������������
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��������������������������������������������������������������������������������������
Provision for loss on disaster����������������������������������������������������������������������
Other current liabilities������������������������������������������������������������������������������
Total current liabilities�������������������������������������������������������������������������

2012

2011

2012

¥ 3,111
3
500
20
534
—
859
5,027

¥ 3,629
3
500
357
532
103
1,029
6,153

$ 37,879
40
6,087
239
6,501
—
10,45861,204Long-term Liabilities:
Long-term borrowings�������������������������������������������������������������������������������
Provision for retirement benefits (Notes 2-h and 6)
Employees����������������������������������������������������������������������������������������������
Deferred liabilities taxes (Note 2-f)�������������������������������������������������������������
Asset retirement obligations����������������������������������������������������������������������
Negative Goodwill�������������������������������������������������������������������������������������
Other��������������������������������������������������������������������������������������������������������
Total long-term liabilities���������������������������������������������������������������������

875

1,375

10,653

404
8
169
25
87
1,568

438
18
166
51
94
2,142

4,921
100
2,055
310
1,053
19,092

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

6,595

8,295

80,296NET ASSETSStockholders’ Equity:
Common stock:
Authorized: 80,000,000 shares
Issued:    20,081,955 shares as of March 31, 2012
and 2011, respectively��������������������������������������������������������
Additional paid-in capital���������������������������������������������������������������������������
Retained earnings��������������������������������������������������������������������������������������
Less: Treasury stock, at cost�����������������������������������������������������������������������
Total Stockholders’ equity�������������������������������������������������������������������

3,904
3,491
16,405(137)
23,664

3,904
3,491
16,741(137)
23,99947,53342,504
199,722(1,663)
288,096

Accumulated other comprehensive income
Unrealized gains on securities (Notes 2-b and 5)����������������������������������������
Foreign currency translation adjustments (Note 2-i)������������������������������������
Total accumulated other comprehensive income���������������������������������

403
(229)
174

252
(217)
35

4,905
(2,783)
2,122

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

23,83824,035290,218

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

¥30,434¥32,330$370,514

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2012¥20,333
16,401
3,931
4,099
(168)

2011
¥23,137
17,597
5,540
4,942
598

2012
$247,538
199,675
47,862
49,907(2,045)

65
(32)
—
—
(21)
39
—
—
—

53
(42)
(10)
43
(4)
(118)
16
1,106
(358)

791
(395)
—
—
(259)
474
—
—
—

—
—
(70)
(9)
77
49

(177)
(26)
(155)
—
81
409

—
—
(847)
(113)
946
597

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

(119)

1,007

(1,448)

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

42
(23)
19
(138)
¥  (138)

374
(16)
358
649
¥   649

510
(273)
237
(1,685)$  (1,685)

Net Sales
Cost of Sales �����������������������������������������������������������������������������������������������
Gross profit �������������������������������������������������������������������������������������������
Selling, General and Administrative Expenses ����������������������������������������
Operating income (loss) �������������������������������������������������������������������������
Other Income and Expenses:
Interest and dividend income���������������������������������������������������������������������
Interest expenses���������������������������������������������������������������������������������������
Loss on valuation of investment securities��������������������������������������������������
Gain on sales of investment securities��������������������������������������������������������
Loss on disposal of property, plant and equipment�������������������������������������
Foreign exchange gains (losses), net����������������������������������������������������������
Gain on allotment of shares�����������������������������������������������������������������������
Gain on sales of land ��������������������������������������������������������������������������������
Business structure improvement expenses �������������������������������������������������
Loss on adjustment for changes of accounting standard for
asset retirement obligations ��������������������������������������������������������������������
Environmental expenses ���������������������������������������������������������������������������Disaster loss�����������������������������������������������������������������������������������������������
Loss on valuation of telephone subscription right ��������������������������������������
Other, net �������������������������������������������������������������������������������������������������

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�������������������������������������������������������������
Comprehensive Income �����������������������������������������������������������������������������
Total comprehensive income attributable to:
Owners of the parent��������������������������������������������������������������������������������
Minority interests���������������������������������������������������������������������������������������
The accompanying notes to consolidated financial statements are an integral part of these statements.

12

Teraoka Seisakusho Co., Ltd.

2012¥(138)

2011
¥649

2012
$(1,685)

151
(12)
139
1

(32)
(74)
(106)
544

1,837
(142)
1,695
11

1
—

544
—

11
—

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended March 31, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

Shareholders’ Equity
Common Stock:
Balance at beginning of year������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

3,904
3,904

3,904
3,904

47,53347,533

Additional Paid in Capital:
Balance at beginning of year������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

3,491
3,491

3,491
3,491

42,50442,504Retained Earnings:
Balance at beginning of year������������������������������������������������������������������
Net income (loss)������������������������������������������������������������������������������������Cash dividends paid�������������������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

16,741(138)(197)
16,405

16,269649(177)
16,741

203,809(1,685)(2,402)
199,722

Treasury Stock, at Cost:
Balance at beginning of year������������������������������������������������������������������
Purchase of treasury stock����������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

(137)
0
(137)

(136)
(1)
(137)

(1,662)(1)(1,663)

Total Shareholders’ Equity
Balance at end of year����������������������������������������������������������������������������

¥23,664¥23,999$288,096

Accumulated Other Comprehensive Income (Loss)
Unrealized Gains on Securities:
Balance at beginning of year������������������������������������������������������������������
Net change during the year��������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

252
151
403

284
(32)
252

3,068
1,837
4,905

Foreign Currency Translation Adjustments:
Balance at beginning of year������������������������������������������������������������������
Net change during the year��������������������������������������������������������������������
Balance at end of year����������������������������������������������������������������������������

(217)
(12)
(229)

(143)
(74)
(217)

(2,641)(142)(2,783)

Total Accumulated Other Comprehensive Income
Balance at end of year����������������������������������������������������������������������������

¥   174¥    35$  2.122

Total Net Assets
Balance at end of year����������������������������������������������������������������������������

¥23,838¥24,035$290,218

Yen

Per Share of Common Stock
Net income (loss)���������������������������������������������������������������������������������������Cash dividends paid�����������������������������������������������������������������������������������

¥ (7.02)
10.00

U.S. dollars¥32.91
10.00$(0.09)0.12

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, 2012 and 2011

Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

¥  (138)¥   649$   (1,685)

1,451
(19)
(34)
(22)
—
—
27
—
—

1,859
(10)
115
(16)
(1,106)
358
—
(43)
10

17,662
(237)
(411)
(273)
—
—
324
—
—

(67)
(121)
(518)
(502)
(103)
(315)
(223)
(361)

507
116
(209)
325
—
(15)
1,891
2,540

(810)
(1,478)(6,305)(6,115)(1,252)(3,821)(2,716)(4,401)

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 in securities������������������������������������������
Proceeds from sales of land�����������������������������������������������������������������������
Net cash used in investing activities�������������������������������������������������

(2,850)
(18)
(4)
—
80
(2,792)

(516)
(3)
(3)
141
1,155
774

(34,699)
(213)
(51)
0
974
(33,989)

Financing Activities;
Dividends paid�������������������������������������������������������������������������������������������
Increase (Decrease) in short-term borrowings���������������������������������������������
Increase (Decrease) in long-term borrowings����������������������������������������������
Other, net��������������������������������������������������������������������������������������������������
Net cash used in financing activities�������������������������������������������������

(197)
—
(500)
(0)
(697)

(178)
3
(500)
(0)
(675)

(2,402)—(6,087)(1)(8,490)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 Year ������������������������������������Cash and Cash Equivalents at End of Year ����������������������������������������������

(90)(3,940)10,021¥ 6,081

(38)
2,601
7,420
¥10,021(1,087)(47,967)
122,001$ 74,034

Additional Cash Flow Information
Interest paid����������������������������������������������������������������������������������������������
Income taxes paid��������������������������������������������������������������������������������������

32¥   54442¥    50395$  6,625

Operating Activities:
Net income (loss)���������������������������������������������������������������������������������������
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization���������������������������������������������������������������
Allowance for doubtful accounts������������������������������������������������������������
Provision for retirement benefits�������������������������������������������������������������
Deferred income taxes���������������������������������������������������������������������������
Gain on sales of land������������������������������������������������������������������������������
Business structure improvement expenses����������������������������������������������
Loss on disposal of property, plant and equipment���������������������������������
Loss (Gain) on sales of investment securities�������������������������������������������
Loss (Gain) on valuation of investment securities������������������������������������
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 income taxes payable���������������������������
Increase (Decrease) in provision for loss on disaster�����������������������������
Other, net�������������������������������������������������������������������������������������������
Total adjustment������������������������������������������������������������������������������
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, 2012 and 2011

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 ¥82.14=
U.S.$1, the prevailing exchange rate on March 31, 2012.

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,
2012 and 2011 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.
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����������������������� 4~8 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. 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.

Teraoka Seisakusho Co., Ltd.

15

f. 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.
g. 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.
h. Provision for retirement benefits
Employees who terminate their services with the Company are generally entitled to lump-sum severance
payments based on their current basic rates of pay andlength of service. In addition, the Company maintains
defined benefit pension plans with insurance companies and trust banks. The plans entitle employees
upon retirement, to receive either lump-sum payments
or annuity payments over 10 years.
The provision for employees’ retirement benefits
recorded in the balance sheets, less the pension plan
assets, was sufficient to satisfy the projected benefit
obligation for employees’ services up to the balance
sheet dates.
i. 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.

16

Teraoka Seisakusho Co., Ltd.

Translation differences are presented as “foreign currency translation adjustments” in the accompanying
consolidated financial statements.
j. 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.
k. 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.
l. New accounting pronouncements:
Accounting Changes and Error Correction
In December 2009, ASBJ issued ASBJ Statement No.
24 “Accounting Standard for Accounting Changes
and Error Corrections” and ASBJ Guidance No. 24“Guidance on Accounting Standard for Accounting
Changes and Error Corrections.”
This accounting standard and the guidance areapplicable to accounting changes and corrections ofprior period errors which are made from the beginningof the fiscal year that begins on and after April 1, 2011.

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$182
thousand) and ¥13 million at March 31, 2012 and 2011.

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, 2012 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

Carrying

Estimatefair value

Difference(1) Cash and deposits������������������������������������������������������������������������������������������������������� ¥ 6,081

Financial Instruments¥ 6,081¥  —(2) Notes and accounts receivable�������������������������������������������������������������������������������������

5,955

5,955

—

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

2,138

2,138

—

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

(3,111)(3,111)—(5) Short-term debt�����������������������������������������������������������������������������������������������������������

(3)

(3)

—

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

(1,375)(1,388)(13)(7) Derivative transactions�������������������������������������������������������������������������������������������������

—

—

—

(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, 2012
Unlisted equity securities

Millions of yen¥18

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

Teraoka Seisakusho Co., Ltd.

(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2012
Millions of yen

Due in One
Year or Less

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

¥ 6,081
5,955—¥12,036(4) The redemption schedule for short-term debt andlong-term debt at March 31, 2012 and 2011 was asfollows:
Average interest
rates (%)

Millions of yen

2012
2011
Short-term debt���������������������� ¥    3 ¥    3Long-term debt����������������������
875 1,375
Current portion of long-term debt����
500
500
Total������������������������������������ ¥1,378 ¥1,878

2012
4.3
1.9
1.9

The annual maturities of long-term debt for 5 years subsequent to March 31, 2012 are summarized below:
Year ending March 31,

2013�����������������������������������������������������������
2014�����������������������������������������������������������
2015�����������������������������������������������������������

Millions of yen

¥500
500
375

5. Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2012 and 2011 are
as follows.
Millions of yen

2012
Historical costs

Fair value¥1,521¥2,138Net differences

Gross gains

Gross losses

¥691

¥(74)

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

¥617

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

—

—

—

—

—

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

¥1,521¥2,138

¥617

¥691

¥(74)

Gross gains

Gross losses¥536¥(113)

Millions of yen

2011
Historical costs

Fair value¥1,517¥1,941

Net differences

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

¥423

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

—

—

—

—

—

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

¥1,517¥1,941¥423¥536¥(113)

Thousands of U.S. dollars

2012
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

$18,517$26,029$7,512$8,412$(901)

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

—

—

—

—

—

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

$18,517$26,029$7,512$8,412$(901)

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

Millions of yen

2012

2011

2012

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

¥18

¥18

$219

Others�����������������������������������������������������������������������������������������������������������������

—

—

—

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

¥18

¥18

$219

Teraoka Seisakusho Co., Ltd.

19

6. Provision for Retirement Benefits
Employees who terminate their services with the Company
are generally entitled to lump-sum severance payments
based on their current basic rates of pay and length ofservice. In addition, the Company maintains defined benefit pension plans for employees.

Provision for employees’ retirement benefit obligations as of March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

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

¥(3,958)¥(3,713)$(48,186)

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

3,296

3,199

40,131

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

257

76

3,134

Prepaid retirement benefits cost in consolidated balance sheets��������������������������

—

—

—

Provision for retirement benefits��������������������������������������������������������������������������

404

438

4,918

Employees’ retirement benefit expenses for the year ended March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

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

¥220

¥227

$2,673

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

74

76

896

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

(64)

(64)

(779)

Amortization of unrecognized actuarial differences���������������������������������������������

28

117

342

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

¥257

¥356

$3,129Significant assumptions of the pension plan used to determine these amounts are as follows:

20

2012

2011

Method of attributing benefits to periods of service��������������������������������������������������������

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

2.0%

2.0%

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

2.0%

2.0%

Years over which the actuarial differences obligations are allocateddeclining balance method����������������������������������������������������������������������������������������������

5 years

5 years

Teraoka Seisakusho Co., Ltd.

7. Income Taxes
Deferred income tax assets and liabilities as of March 31, 2012 and 2011 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2012

2011

2012

Accrued bonus to employees���������������������������������������������������������������������������

¥ 148

¥ 179

$ 1,796

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

60

97

725

Deferred tax assets:

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

122

138

1,489

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

138

177

1,681

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

163

—

1,981

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

(310)

(240)

(3,770)Total deferred tax assets�������������������������������������������������������������������������������

¥ 321

¥ 351

$ 3,902

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

(48)

(63)

(581)

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

(214)

(171)

(2,606)

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

254

216

3,087

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

¥(8)¥(18)$(100)Net deferred tax assets���������������������������������������������������������������������������������

¥ 312

¥ 332

$ 3,802(Adjustment of deferred tax assets and liabilities pursuant
to the change in the corporate tax rates)
Following the promulgation on December 2, 2011, of the“Act for Partial Revision of the Income Tax Act, etc., for
the Purpose of Creating a Taxation System Responding toChanges in Economic and Social Structures” and the “Acton Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake,” effective from fiscal
years beginning on and after April 1, 2012, corporate tax
rates will be reduced and a special temporary recovery tax
will be imposed. In accordance with this reform, the effective statutory tax rate, used to measure deferred tax assets
and deferred tax liabilities (however, this applies only tothe above-mentioned that will be settled on and after April
1, 2012), will be reduced to 37.8% from 40.5% for temporary differences that are expected to be realized during
the period from the fiscal year beginning on April 1, 2012,
to the fiscal year beginning on April 1, 2014, and to35.5% from 40.5% for temporary differences that are
expected to be realized during and after the fiscal year
beginning on April 1, 2015. As a result of this change, netdeferred tax assets (after netting deferred tax liabilities)
decreased by ¥18 million (US$219 thousand), and income
taxes – deferred, valuation difference on available-for-salesecurities increased by ¥48 million (US$584 thousand),¥29 million (US$353 thousand), respectively.

Teraoka Seisakusho Co., Ltd.

21

8. Subsequent Event(1) Appropriation of retained earnings
Subsequent to March 31, 2012, the Company’s Boardof Directors, with the approval of stockholders on June
26, 2012 declared a cash dividend of ¥99 million(US$1,201 thousand) equal to ¥5.00 (US$0.06) per(2) The issuance of the shares by way of third party allotment
The Company resolved at its special shareholders’meeting held on March 29, 2012 that the Company
would issue new shares by way of third party allotment, and the payment of the shares were completed

share, applicable to earnings of the year ended March
31, 2012 and payable to stockholders on the stockholders’ register on March 31, 2012.

on April 4, 2012. The Company plans to apply thefunds raised to the procurement of manufacturing
equipment in overseas production base (PT. Teraoka
Seisakusho Indonesia).

Outline of the issuance of the Shares

22(a) Numbers of offered shares

6,606,000 common shares(b) Payment amount of offered shares¥349 per share(c) Total amount of payment¥2,305,494,000(d) Increase in the amount of common stock¥1,152,747,000(e) Increase in the amount of additional paid-in capital¥1,152,747,000(f) Method of issuance ll shares shall be allotted to Itochu Corporation byA
way of a third party allotment.

(g) Payment date

April 4, 2012

Teraoka Seisakusho Co., Ltd.

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, 2012 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
the overall 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, 2012 and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
Emphasis of Matter
We draw attention to Note 8 (2) to the consolidated financial statements which describe the issuance of theshares by way of third party allotment. Our opinion is not modified with respect to this matter.
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 26, 2012

Inoue Auditing Co., Inc.

Teraoka Seisakusho Co., Ltd.

23

COMPANY DATA

Company Outline

(as of March 31, 2012)

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 (as of April 4, 2012)

Employees

546 (593 consolidated)

Board of Directors and Auditors

(as of June 26, 2012)

President

Keishiro Teraoka

Managing Director

Kenichi Tsuji

Directors

Tadashi Shirota

Minoru Tanaka
Kiyohiro Takagi
Hiroyoshi Ohbori

Masakazu Naitou
Tsuyoshi Ohsaki
Standing Corporate Auditor

Yutaka Nomiyama

Corporate Auditors

Motoaki Hattori
Yoshiyasu Ito
Kazunori Shimamoto

Senior Operating Officer

Jun Watanabe

Operating Officers

Taiji Namekawa
Masao Mochizuki
Ken Ebitani
Kenji Abe24

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

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 and Nagoya

Sales OfficeSendai

Teraoka Seisakusho Co., Ltd.

25

INVESTOR INFORMATION

Investor Information

Head Office(as of March 31, 2012)

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 20,081,955

Stockholders

2,692

Stock Listing

Tokyo Stock Exchange, Second Section (Code: 4987)

Transfer Agency

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

Major Stockholders
Number of shares(thousand shares)

Ratio of shareholding (%)

2,288

11.60

Keishiro Teraoka

884

4.48

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

818

4.15

Japan Trustee Services Bank, Ltd. (Trust Account)

689

3.49

Resona Bank, Ltd.

678

3.44

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

542

2.75

Kuniko Teraoka

526

2.67

Employees’ Stockholding Group

512

2.60

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

454

2.30

The Bank of New York Non-Treaty JASDEC Account

244

1.24

Stockholders

Customers’ Stockholding Group26

Teraoka Seisakusho Co., Ltd.

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.