Annual Report 2009
Year ended March 31, 2009

TERAOKA SEISAKUSHO CO., LTD.

PROFILE
Since its establishment in 1921, Teraoka Seisakusho Co., Ltd. has evolved into aleading developer of highly functional packing, electrical insulation, electronicequipment, other industrial and general home-use adhesive tapes.
Demand for our double-coated tapes for use in electronic devices such as cell
phones, in particular, has continued to grow steadily, owing to their adhesivestrength, extreme thinness, transparency, light blocking and recycling properties,
and their environment-friendliness.
In the term under review, TERAOKA began marketing an ultra-thin, doublecoated tape of 0.005mm, the thinnest in the industry. This highly functional 3-layer
structured polyester film represents the culmination of many years of adhesion
technology research and development carried out by the Company to meet the
rapidly changing demands of the marketplace.

TERAOKA adhesive tapes

Measuring machine indicates 0.005mm thinness.

CONTENTS
Consolidated Financial Highlights

Changes in Overseas Sales
Overseas Sales
Export Ratio (%)(%)(¥ billions)
8

30

7.32
6.3

6.03

6

5.22

20

4.0
4
10
2

2

Review of Operations

4

Consolidated Five-year Summary

6

Financial Statements

7

Financial Review

8

Consolidated Balance Sheets

10

Consolidated Statements of Income

12

Consolidated Statements of Stockholders' Equity

13

Consolidated Statements of Cash Flows14

Notes to Consolidated Financial Statements

15

Report of Independent Auditors

19

Company Data
00

FY 2005

FY 2006

FY 2007

FY 2008

FY 2009

1

To Our Stockholders

20

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

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

Millions of yen

2009

2008

2009

¥23,833¥25,945$242,550

40

1,540

407

Income (Loss) before Income Taxes

(426)

1,155

(4,335)Net Income (Loss)

(402)

758

(4,091)

Total Assets

31,84932,696324,130

Net Assets

23,41624,343

238,307

Operating Income to Net Sales

0.2

5.9

Equity Ratio

73.5

74.5

Return on Average Assets (ROA)

(1.2)

2.3

Return on Average Stockholders’ Equity (ROE)

(1.7)

3.1

Net Sales
Operating Income

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income (Loss)¥(20.00)¥37.93$(0.20)Cash Dividends

10.00

14.00

0.10

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥98.26 = U.S.$1, the rate prevailing on March 31, 2009.

Net Sales

Net Income (Loss)

Total Assets(¥ billions)(¥ millions)(¥ billions)

1,500

30

40

1,200
30
20
900

20
600
10
10
300

09
0

05

06 07 08 09

005

06 07 08

0

05

06 07 08 09

Teraoka Seisakusho Co., Ltd.

1TO OUR SHAREHOLDERS

Business Environment
During fiscal 2009, the year ended March 31, 2009, TERAOKA's 99th business
term, the Japanese economy continued to react to the effects of rising crude oil
prices and costs for other natural resources, and the effects of the global
slowdown in economic growth following on the financial crisis in the U.S. In thelatter half of the year, Japanese exports slowed, exacerbating the downward
trend in corporate profits, which also contributed to further deterioration of theemployment situation for Japanese companies.
The Company's business environment remained severe, as markets slowed,
necessitating a downward shift in production and subsequent inventory
adjustments among TERAOKA's major manufacturing industry clientele, andprice competition became even more fierce than in the previous term. Under
these circumstances, we strove to improve our marketing strategies in order toincrease market competitiveness and by increasing the value-added content of
our expanding lineup of tape products. Further efforts were made to rationalize
operations and lower operating costs at every level of our organization, and as aresult TERAOKA has strengthened its fundamentals and positioned itself forincreased profitability in the future.

Results for FY 2009
Consolidated results reflected the harsh operating environment for TERAOKA
during the term under review. Consolidated net sales decreased by 8.1%, to¥23,833 million (US$242,550 thousand), while consolidated operating income
amounted to ¥40 million (US$407 thousand), an unprecedented decrease of
97.4% over the previous period. The consolidated loss before income taxes forthe term was ¥426 million (US$4,335 thousand). This total reflected thevaluation loss of securities held by the Company, owing to the protracted slump
in stock prices throughout fiscal 2009, resulting in a consolidated net loss forthe term amounting to ¥402 million (US$4,091 thousand). An interim dividendof ¥7.00 (US$0.07) and a term-end dividend of ¥3.00 (US$0.03) were paid toshareholders, totaling, ¥10.00 (US$0.10) per share payout for the period.

2

Teraoka Seisakusho Co., Ltd.

Future Focus
For the immediate future, we are
anticipating further deteriorationin domestic production,reflecting the continuing falloff
in exports in the current fiscal
period. With the slowdown inglobal economic expansion andthe resulting decrease ingovernment spending andconsumer confidence, we expect
the business environment toremain extremely severe.
Under these austere conditions, TERAOKA will continue to develop productdevelopment and marketing strategies one step ahead of rapidly evolving market
demands, and through even tighter management and more effective production
systems, we believe we will move the Company in the direction of profitability
once again. Towards this goal, we have begun to implement a plan to close our
Fukuoka Office and close our Ohmiya Factory.
Through these and other efforts, we continue to strengthen our corporate
fundamentals and expand our market shares, while diversifying our lineup of
highly advanced, highly functional tape products, and in these endeavors wecontinue to ask for the support and patronage of our shareholders, clients andfriends.

June 26, 2009

Keishiro Teraoka
President

Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSTERAOKA is a technology-based enterprise with formidable research & development
capabilities. In order to compete in a rapidly evolving global marketplace, technologicalinnovation and value-added product content is what has allowed the Company tomaintain a competitive lead in markets demanding highly advanced tape products.
During the fiscal term in review, we continued to focus our efforts on developing
increasingly specialized intermediary components for use in high technology
product manufacturing, and in our expanding line of consumer use tapeproducts.
During the term TERAOKA marketed its environmentally friendly
non-halogen VOC (organic solvent) double-faced tape andelectric insulation tape, and its newly developed 5-micron
double-faced tape, the thinnest in the industry, a VOC
head-conductive tape, a conductive tape, and asolvent-less thin silicon rubber adhesive tape.
During the fiscal term in review,
consolidated net sales for the Company
amounted to ¥23,833 million(US$242,550 thousand). Research &development expenses amounted
to ¥1,067 million (US$10,859
thousand), accounting for4.5% of total
consolidated sales.

Breakdown of Sales by Category
Packing Tapes.Olive cloth tapes.Kraft paper tapes.Polypropylene cloth/film adhesive tapes
22.3%
Other Industrial Tapes.Double-coated adhesive tapes.Corrosion-proof tapes.Masking cloth tapes.Surface protection tapes
29.6%

4

Teraoka Seisakusho Co., Ltd.

Electrical Insulation andElectronic Equipment Tapes.Polyester cloth/film adhesive tapes.Acetate cloth adhesive tapes.Combination adhesive tapes.Kapton film adhesive tapes.Nomex adhesive tapes.Glass cloth adhesive tapes.EMI/RFI shielding tapes
48.1%

Packing Tapes
Sales of packaging adhesive tapes, and in particular, for
TERAOKA's Light Olive Tape, increased during the term, by 2.1%,
owing to efforts by the Company to increase mail-order sales andexpand its home center venues. As a result, consolidated sales forthis product segment amounted to ¥5,320 million (US$54,142
thousand). This division accounted for 22.3% of the total
consolidated sales.

Export Markets
Asia

92.4%

North America

3.9%
Europe3.5%
Other areas

0.2%

Electrical Insulation and Electronic Equipment Tapes
Sales of the Company's electrical insulation and electronicequipment tapes grew steadily during the first half of the fiscal
term, however, owing to the falloff in demand for digital equipment
related tapes used in flat-screen TV and cell phones, and tapes forautomotive parts, in the second half of the year, consolidated net
sales for this division amounted to ¥11,456 million (US$116,589
thousand), a decrease of 12.0% over the previous term. Thisdivision accounted for 48.1% of total consolidated sales.

Other Industrial Tapes
Consolidated sales of industrial tapes, including protecting clothand P-Cut Tapes (polyethylene cloth tapes) for home construction
and remodeling, decreased by 8.4% from the previous year during
the term, to ¥7,057 million (US$71,819 thousand). This divisionaccounted for 29.6% of total consolidated sales.

Overseas Sales

Export Ratio

During the term, exports decreased markedly, reflecting thedownturn in global economic growth and growing fear in financial
sectors worldwide. Owing to this situation, overseas sales decreaseby 14.6% from the previous term to ¥6,251 million (US$63,617
thousand). Overseas sales accounted for 26.2% of TERAOKA's total
consolidated sales.

Domestic

73.8%
Export26.2%

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2005

2006

2007

2008

¥21,063¥21,829¥23,536¥25,945

Operating Income

1,463

1,399

1,424

1,540

40

407

Income (Loss) before Income Taxes

1,401

1,452

2,004

1,155

(426)

(4,335)

931

945

1,242

758

(402)

(4,091)

Total Assets

28,791

31,18432,271

32,696

31,849324,130

Net Assets

22,57623,94024,472

24,343

23,416238,307

Operating Income to Net Sales

6.9

6.4

6.1

5.9

0.2

Equity Ratio

78.4

76.8

75.8

74.5

73.5

Return on Average Assets (ROA)

3.2

3

3.9

2.3

(1.2)

4.2

4.1

5.1

3.1

(1.7)

Years ended March 31

Net Sales

Net Income (Loss)

2009

2009

¥23,833 $242,550

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen

Net Income (Loss)¥44.65¥45.62¥62.12¥37.93¥(20.00)$(0.20)Cash Dividends

14.00

14.00

14.00

14.00

10.00

0.10

The U.S. dollars are translated at the rate of ¥98.26 per U.S.$1, prevailing on March 31, 2009.

6

U.S. dollars

Teraoka Seisakusho Co., Ltd.

Financial Statements
Fiscal Year 2009
Year ended March 31, 2009

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance

The Electrical Insulation and Electronic Equipment
Tapes Division endeavored to improve sales, however
the sharp decline in demand from manufacturers ofdigital devices and automotive parts, primary markets
for these products during the term resulted in a
12.0% decrease in sales for this segment to ¥11,456
million (US$116,589 thousand).
In the Other Industrial Tapes Division, shipments
of protecting tapes and P-Cut Tapes (polyethylene
cloth tapes) declined, reflecting the further downturnin home building and remodeling as a result of theslowing economy. Therefore, sales of this division for
the fiscal term amounted to ¥7,057 million(US$71,819 thousand), a decrease of 8.4% from theprevious term.
By region, domestic total sales amounted to¥17,582 million (US$178,933 thousand), a decreaseof 5.6% from the previous term, while total export
sales were ¥6,251 million (US$63,617 thousand), a
decrease of 14.6% from the previous term.
Sales to China, Singapore and other Asian markets
accounted for 92.4% of total exports in fiscal 2009.
Shipments to North America and European markets
constitute 7.6% of TERAOKA's overseas total
consolidated sales.

In TERAOKA's operating environment, markets
contracted radically owing to the economic downturn
during the term, especially the curtailment of
production and inventory adjustments in the various
manufacturing industries to which we supply our
products. Price competition also continued to become
increasingly severe.
Under these circumstances, TERAOKA
established a new production facility and developed
new products to strengthen our futurecompetitiveness, and we also endeavored to improve
our earnings by revising product prices to cope withhigher prices for raw materials, optimizing inventory
quantities, and reducing costs, however, businessperformance continued to weaken owing to thedownturn in the Japanese and overseas economies.
Despite our concerted efforts to improve management
and sales performance, consolidated net sales for theperiod in review amounted to ¥23,833 million(US$242,550 thousand), a decrease of 8.1% overthe previous term. Consolidated operating income
declined by a record 97.4%, to ¥40 million (US$407
thousand). Moreover, consolidated loss before income
taxes amounted to ¥426 million (US$4,335
thousand) and consolidated net loss was ¥402 million(US$4,091 thousand).

Financial Position
Total consolidated assets at the end of the fiscal term
were ¥31,849 million (US$324,130 thousand), a
decrease of 2.6%, or ¥847 million (US$8,620
thousand). The capital-to-asset ratio was 73.5%,
down 1.0 point from the previous term.
Total current assets at the term-end amounted to¥15,133 million (US$154,009 thousand), a decrease

Segment Information
Sales for TERAOKA's Packing Tapes Division
increased over the previous term, by 2.1%, owing toefforts to expand mail-order and at-home centers,
resulting in consolidated net sales of ¥5,320 million
US$54,142 thousand).

Net Assets

Net Income (Loss) per Share

Cash Dividends per Share(¥ billions)

(Yen)

(Yen)

30

60

15

20

40

10

10

20

5

0

06

07

08

09

05
-20

8

09

0

05

Teraoka Seisakusho Co., Ltd.

06

07

08

0

05

06

07

08

09

of 13.3%, or ¥2,328 million (US$23,692 thousand)when compared with the previous term-end, owing inpart to a ¥1,833 million (US$18,655 thousand)decrease in notes and accounts receivable. The total
fixed assets increased by 9.7%, or ¥1,482 million(US$15,082 thousand), to ¥16,717 million(US$170,130 thousand), during the term.
Construction in progress increased by ¥1,963 million(US$19,978 thousand).
Total current liabilities decreased by 29.3%, or¥2,409 million (US$24,517 thousand), amounting to¥5,821 million (US$59,241 thousand) at term-end,
owing to a decrease of ¥1,445 million (US$14,706
thousand) in notes and accounts payable.
Total fixed liabilities increased by ¥2,489 million(US$25,331 thousand) to ¥2,612 million(US$26,582 thousand), in part because long-termborrowings increased by ¥2,375 million (US$24,171
thousand) during the term in review.
Total net assets at year-end amounted to ¥23,416
million (US$238,307 thousand), representing a yearon-year decrease of 3.8%, or ¥927 million(US$9,434 thousand), owing primarily to a decline inretained earnings of ¥701 million (US$7,134
thousand).

amount of decrease in notes and accounts payableamounted to ¥1,466 million (US$14,920 thousand).
Funds used for investment purposes amounted to¥3,098 million (US$31,529 thousand), an increasedof 314.2% over the previous term. This increasereflected the increase in payments of ¥3,058 million(US$31,122 thousand) for purchase of property, plantand equipment during the term.
Funds obtained through financing activities
amounted to ¥1,208 million (US$12,294 thousand).
In the previous term, we used the fund of ¥263
million (US$2,666 thousand). In fiscal 2009,¥2,500 million (US$25,443 thousand) represented
long-term borrowings from banks.
Through these activities, consolidated cash andcash equivalents at the end of the term in review
amounted to ¥6,128 million (US$62,365 thousand),an increase of ¥89 million (US$906 thousand) whencompared with the end of the previous consolidated
accounting period.

Dividends
During each term, TERAOKA's basic policy is tocontinue a stable dividend payment to shareholders
after careful consideration of its business results,
including operating results for the period in review, its
overall financial condition, cash flow, dividend
propensity and future business forecasts, in order tomaintain a stable financial base. With projections of acontinued severe business environment in the next
accounting year, it was decided to pay an interim
dividend of ¥7 (US$0.07) per share and a term-end
dividend of ¥3 (US$0.03) per share, for an annual
dividend of ¥10 (US$0.10) per share.

Cash Flows
Funds obtained through operating activities totaled¥1,931 million (US$19,652 thousand), a decrease of
16.0% from the previous term. This decline was due
mainly to depreciations and amortizations of ¥1,464
million (US$14,899 thousand); the amount ofdecrease in notes and accounts receivable increasedby ¥2,103 million (US$21,402 thousand), and theEquity Ratio(%)

Return on Average Assets(ROA) (%)

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

80

5

6

4
60
4
3
40
2
2
20
1

09

0

0

05

06

07

08

09

-1

05

06

07

09

0

08

05

06

07

08

-2

Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

¥ 6,129¥ 6,339$ 62,375

5,280

6,918

53,734ASSETS
Current Assets:
Cash and time deposits........................................................................
Notes and accounts receivable:
Trade...............................................................................................
Affiliate...........................................................................................

—

195

—

Less: Allowance for doubtful accounts (Note 2-g)...................................

(11)

(2)

(112)

Inventories (Note 2-c)..........................................................................

3,191

3,529

32,475

Deferred income taxes (Note 2-f)..........................................................

164

239

1,669

Other current assets.............................................................................

380

242

3,868

Total current assets.......................................................................

15,133

17,460154,009

3,784

3,724

38,510Property, Plant and Equipment (Note 2-d):Land..................................................................................................
Buildings............................................................................................

7,392

7,328

75,229Machinery and equipment....................................................................

21,77920,410221,647

4,117

2,154

41,89937,072

33,616377,285

Less: Accumulated depreciation............................................................

(23,148)(22,120)(235,579)

Property, plant and eqipment, net.........................................................

13,924

11,496

141,706

Intangible Assets.....................................................................................

197

333

2,005

Investments in securities (Notes 2-b and 4)...........................................

1,900

2,922

19,337

Investments in affiliates.......................................................................

—

113

—

Construction in progress.......................................................................

Investments and Other Assets:

Deferred income taxes (Note 2-f)..........................................................

443

50

4,508

Other..................................................................................................

283

322

2,880

Less: Allowance for doubtful accounts (Note 2-g)...................................

(31)

—

(315)

Total investments and other assets........................................................

2,595

3,407

26,410Total assets...................................................................................

¥31,849¥32,696¥324,130

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

2009

2008

2009

¥ 3,306
36
125
—
374
1,980
5,821

¥ 4,751
1,046
—
323
578
1,532
8,230

$ 33,645
366
1,272
—
3,806
20,152
59,241

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:
Notes and accounts payable:
Trade...............................................................................................
Short-term borrowings..........................................................................
Current portion of long-term borrowings.................................................
Accrued income taxes..........................................................................
Accrued expenses................................................................................
Other current liabilities .......................................................................
Total current liabilities...................................................................
Long-term Liabilities:
Long-term borrowings...........................................................................
Retirement and severance benenfits (Notes 2-h and 5):
Employees.......................................................................................
Deferred liabilities taxes (Note 2-f)........................................................
Negative Goodwill................................................................................
Other..................................................................................................
Total long-term liabilities................................................................

2,375

—

24,171

28
18
102
89
2,612

—
—
6
117
123

285
183
1,038
905
26,582

Total liabilities..............................................................................

8,433

8,353

85,823

NET ASSETSStockholders’ Equity:
Common stock:
Authorized: 80,000,000 shares
Issued: 20,081,955 shares as of March 31, 2009    and 2008, respectively........................................................
Additional paid-in capital.....................................................................
Retained earnings................................................................................
Less: Treasury stock, at cost.................................................................
Total Stockholders’ equity..............................................................

3,904
3,491
16,031(1)
23,425

3,904
3,491
16,732(98)
24,02939,731
35,528163,149(10)
238,398

Valuation and Translation Adjustments:
Unrealized gains on securities (Notes 2-b and 4)....................................
Foreign currency translation adjustments (Note 2-i)................................
Total valuation and translation adjustments............................................
Total net assets.............................................................................
Total liabilities and net assets.........................................................

83
(92)
(9)
23,416¥31,849

395
(81)
314
24,343¥32,696

845
(936)
(91)
238,307$324,130

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Net Sales................................................................................................

¥23,833¥25,945$242,550

Cost of Sales...........................................................................................

19,206

19,896

195,461

Gross profit...................................................................................

4,627

6,049

47,089Selling, General and Administrative Expenses............................................

4,587

4,509

46,682

Operating income..........................................................................

40

1,540

407

Interest and dividend income................................................................

79

93

804

Interest expenses.................................................................................

(19)

(6)

(193)

Loss on disposal of inventory asset........................................................

(15)

(6)

(153)

Other Income and Expenses:

Loss on write-down of investment in securities.......................................

(503)

(373)

(5,119)Loss on disposal of property, plant and equipment..................................

(34)

(11)

(346)

Foreign exchange gains (losses), net......................................................

(68)

(143)

(692)

Equity in earnings (losses) of affliated company......................................

—

14

—

94

47

957

(466)

(385)

(4,742)

(426)

1,155

(4,335)Current...............................................................................................

67

496

682

Deferred.............................................................................................

(91)

(99)

(926)

(24)

397

(244)

758

$ (4,091)

Other, net...........................................................................................

Income (Loss) before income taxes.................................................
Income Taxes:

Net income (loss)..........................................................................

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

12

Teraoka Seisakusho Co., Ltd.

¥

(402)

¥

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF Stockholders’ Equity
For the years ended March 31, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

Balance at beginning of year.................................................................

¥ 3,904¥ 3,904$ 39,731

Issuance during the year......................................................................

—

—

—

Balance at end of year.........................................................................

3,904

3,904

39,731

Balance at beginning of year.................................................................

3,491

3,491

35,528Net sales treasury stock.......................................................................

—

—

—

Balance at end of year.........................................................................

3,491

3,491

35,528

Balance at beginning of year.................................................................

16,732

16,254

170,283

Common Stock:

Additional Paid in Capital:

Retained Earnings:
Net Income (Loss)...............................................................................

(402)

758

(4,091)

Cash dividends paid.............................................................................

(281)

(280)

(2,860)

Disposal of treasury stock.....................................................................

(18)

—

(183)

Balance at end of year.........................................................................

16,031

16,732

163,149

Balance at beginning of year.................................................................

(98)

(76)

(1,009)Purchase of treasury stock....................................................................

—

(22)

—

Treasury Stock, at Cost:

97

Disposal of treasury stock.....................................................................
Balance at end of year.........................................................................

¥

(1)

999

—
¥

(98)

¥

(10)

Unrealized Gains on Securities:
Balance at beginning of year.................................................................

395

855

4,020

Net change during the year...................................................................

(312)

(460)

(3,175)

Balance at end of year.........................................................................

83

395

845

Foreign Currency Translation Adjustments:
Balance at beginning of year.................................................................

(81)

44

(824)

Net change during the year...................................................................

(11)

(125)

(112)

Balance at end of year.........................................................................

(92)

(81)

(936)

Yen

U.S. dollars

Per Share of Common Stock
Net income (loss)..........................................................................

¥(20.00)¥37.93$(0.20)Cash dividends paid.......................................................................

10.00

14.00

0.10

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, 2009 and 2008

Thousands of
U.S. dollars

Millions of yen

2009

2008

2009

758

$ (4,091)

1,464
34
2
(91)
—
30
500

1,372
(1)
(139)
(99)
(14)
11
373

14,899
346
20
(926)
—
305
5,089

2,103
348
(1,466)
(425)
(166)
2,333
1,931

(19)
(766)
908
9
(93)
1,542
2,300

21,402
3,542(14,920)(4,325)(1,689)23,743
19,652

Investing Activities:
Payment for purchases of property, plant and equipment.........................
Payment for purchases of intangible assets............................................
Payment for purchases of marketable securities......................................
Payment for purchases of investment in securities..................................
Proceeds from sales of marketable securities..........................................
Other, net...........................................................................................
Net cash used in investing activities.........................................

(3,058)
(40)
—
(3)
—
3
(3,098)(2,645)(65)(1,395)
(35)
3,392
—
(748)

(31,122)
(407)
—
(31)
—
31
(31,529)

Financing Activities:
Dividends paid....................................................................................
Increases (decrease) in short-term borrowings........................................
Increases in long-term borrowings.........................................................
Other, net...........................................................................................
Net cash used in financing activities.........................................

(281)(1,010)
2,500
(1)
1,208

(280)
39
—
(22)
(263)

(2,860)(10,279)
25,443(10)
12,294

Effect of Exchange Rate Changes on Cash and Cash Equivalents.......................

(51)

Operating Activities:
Net Income.........................................................................................
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization........................................................
Allowance for doubtful accounts.....................................................
Provision for retirement benefits.....................................................
Deffered income taxes...................................................................
Equity in earning (losses) of affliciated company..............................
Loss on disposal of property,plant and equipment.............................
Loss on write-down of investment in 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.....................
Other, net..................................................................................
Total adjustment.....................................................................
Net cash provided by operating activities...................................

¥

(5)

(81)

Net Increase (Decrease) in Cash and Cash Equivalents...................................

36

1,208

366

Cash and Cash Equivalents at Beginning of Year............................................

6,039

4,831

61,460Cash and Cash Equivalents of Newly Consolidated Subsidiaries........................

53

—

539

Cash and Cash Equivalents at End of Year.....................................................

¥6,128¥6,039$62,365

Additional Cash Flow Information
Interest paid.......................................................................................
Income taxes paid...............................................................................

18
¥ 492

6
¥ 486

183
$ 5,007

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

14¥ (402)

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

notes to consolidated financial statements
For the years ended March 31, 2009 and 2008

1. Basis of Presenting Financial Statements
The accompanying consolidated financial statementsof TERAOKA SEISAKUSHO CO., LTD. (the “Company”)
and its subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which
are different in certain respects as to application anddisclosure requirements from International Financial
Reporting Standards, and are 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 the extent deemednecessary to enable presentation in a form which ismore familiar to readers outside Japan.
The accounts of overseas consolidated subsidiaries
are based on their accounting records maintained inconformity with generally accepted accounting principles and practices prevailing in the respective countriesof 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¥98.26=U.S.$1, the prevailing exchange rate on March
31, 2009.

2. Summary of Significant Accounting Policies
a. Consolidation
The accompanying consolidated financial statements include the accounts of the Company andfour subsidiaries, TERAOKA SEISAKUSHO (HongKong) CO., LTD., TERAOKA SEISAKUSHO (Shanghai) CO., LTD., TERAOKA SEISAKUSHO (Shenzhen)CO., LTD. and SHIN-EI SHOJI CO., LTD.
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 the financial statements at fair value andthe difference between net assets at fair value andinvestment amounts are amortized by the straightline 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 ofMarch 31, 2009 and 2008 and are used for the
consolidation of the Company.
b. Investments in securities
Debt securities that are intended to be held tomaturity (“held-to maturity debt securities”) aremeasured at amortized cost in the balance sheet.
Securities other than 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 includedin the net assets, net of applicable income taxes.
Realized gains and losses on sales of securities are

based on the moving average cost of the securities.
Other securities that do not have fair values arestated at cost determined by the moving averagemethod.
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 decreasein their profitability.
(Changes in accounting policies)
Until the fiscal year ended March 31, 2008, thelower of cost method mainly based on the periodic average method or fair value was adopted formeasuring inventories held for sale in the ordinary
course of business.
However, the “Accounting Standard For Measurement of Inventories” has been applied from thefiscal year ended March 31, 2009, and now theseinventories are mainly measured by means of thecost method based on 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.
As a result, operating income, ordinary income
each decreased by ¥64 million (US$651 thousand),loss before income taxes increased by ¥64 million(US$651 thousand).

Teraoka Seisakusho Co., Ltd.

15

d. Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost.
Depreciation is computed principally by the declining balance method at a rate based on their estimated useful 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 thestraight-line method due to changes in Japaneseincome tax regulations.
(Additional information)
Effective from the fiscal year ended March 31,
2009, the Company and its domestic subsidiary
reexamined the period of depreciation for machineryand consequently changed the period of depreciation for machinery in accordance with the revised
Japanese Corporation Tax Law.
As a result of this change, operating income andloss before income taxes for the period had an insignificant effect, compared with the amount under theformerly applied method.
e. Leased assets(Changes in accounting policies)
Under accounting standards generally accepted inJapan, leased assets related to finance leases that
do not transfer ownership of the leased property to
the lessee are depreciation on a straight-line basis,
with lease period used as their useful lives and noresidual value. The accounting treatment for financeleases that do not transfer ownership of the leased
property to the lessee which took place before
March 31, 2008 continues to be in accordance withthe method used for operating lease transaction.
The impact of this change on profit or loss has
been insignificant.
f. Income taxes
Income taxes are provided based on amounts required by 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 liabili-

16

Teraoka Seisakusho Co., Ltd.

ties 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
the amount of estimated uncollectability, based on
past experience of doubtful receivables and individual evaluation of collectability of the receivables.
h. Retirement and severance benefits
Employees who terminate their services with theCompany are generally entitled to lump-sum severance payments based on their current basic rates of
pay and length of service. In addition, the Company
maintains tax-qualified pension plans with insurance companies and trust banks. The plans entitle
employees with more than 10 years of services,
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 thebalance sheet dates.
The Company’s overseas subsidiaries do not havesuch retirement benefit plan.
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 aretranslated at the historical rates. Income statementsof consolidated overseas subsidiaries are translated ataverage rates. Translation differences are presented
as “foreign currency translation adjustments” in theaccompanying consolidated financial statements.
j. Cash and cash equivalents
Cash and cash equivalents in the consolidated
statements of cash flows include all highly liquid investments, generally with original maturities of threemonths or less, that are readily convertible to known
amounts of cash and are so near maturity that theypresent insignificant risk of changes in value.

3. Contingent Liabilities(US$122 thousand) and ¥72 million at March 31,
2009 and 2008.

Contingent liabilities in respect of trade notes andexport bills discounted with banks with recourse in theordinary course of business, amounted to ¥12 million

4. Securities
Historical costs, fair value and gross unrealized gains
and losses for marketable securities as of March 31,
2009 and 2008 are as follows.
Millions of yen

Historical costs

Fair value

2009
Net differences

Gross gains

Gross losses¥1,740¥1,880

¥139

¥229

¥(89)

Other securities:
Equity securities........................................
Corporate bonds.........................................

0

0

0

Other........................................................

—

—

—

¥139

¥229

¥(89)

Total.............................................................

¥1,740¥1,880Millions of yen

Historical costs

Fair value

2008
Net differences

Gross gains

Gross losses¥2,238¥2,902Other securities:
¥664

¥769

¥(105)

Corporate bonds.........................................

Equity securities........................................

0

0

0

Other........................................................

—

—

—

¥664

¥769

¥(105)

Total.............................................................

¥2,238¥2,902Thousands of U.S. dollars

Historical costs

Fair value

2009
Net differences

Gross gains

Gross losses

Equity securities........................................

$17,708$19,133$1,415$2,331$(906)

Corporate bonds.........................................

0

0

0

0

0

$1,415$2,331$(906)

Other securities:

Other........................................................

00

Total.............................................................

$17,708$19,133

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

Millions of yen

Equity securities.....................................................................................

2009
¥18

2008
¥18

2009
$183

Others...................................................................................................

—

—

—

Total......................................................................................................

¥18

¥18

$183

Teraoka Seisakusho Co., Ltd.

17

5. Retirement and Severance Benefits
Employees who terminate their services with theCompany are generally entitled to lump-sum severance
payments based on their current basic rates of pay andlength of service. In addition, the Company maintains
tax-qualified pension plans for employees with morethan 10 years of services.

Provision for employees’ retirement benefit obligations as of March 31, 2009 and 2008 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Benefit obligations..................................................................................

2009¥(3,771)2008¥(3,804)2009$(38,378)

Pension assets.......................................................................................

2,854

3,642

29,045

Unrecognized actuarial differences...........................................................

941

313

9,577

Prepaid retirement benefits cost in consolidated balance sheets..................

52

—

529

Provisions for retirement benefits.............................................................

(28)

151

(285)

Employees’ retirement benefit expenses for the years ended March 31, 2009 and 2008 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Service costs..........................................................................................

2009
¥209

2008
¥205

2009
$2,127

Interest costs.........................................................................................

76

76

773

Expected return on pension assets............................................................

(72)

(85)

(732)

Amortization of unrecognized actuarial difference......................................

115

(168)

1,170

Benefits expenses total............................................................................

¥328

¥ 28

$3,338Significant assumptions of pension plans used to determine these amounts are as follows:
Discount rate...................................................................................................

2009
2.0 %

2008
2.0 %

Expected rate of return on pension assets...........................................................

2.0 %

2.0 %

Years over which the actuarial differences obligations are allocated.......................

5 years

5 years

6. Subsequent EventAppropriation of retained earnings
Subsequent to March 31, 2009, the Company’s Boardof Directors, with the approval of stockholders on June
26, 2009 declared a cash dividend of ¥60 million

18

Teraoka Seisakusho Co., Ltd.

(US$611 thousand) equal to ¥3.00 (US$0.03) per
share, applicable to earnings of the year ended March
31, 2009 and payable to stockholders on the stockholders’ register on March 31, 2009.

Report of Independent Auditors

INOUE 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, 2008 and 2009, and the related consolidated statements of income, stockholders’ equity and cash flows for the years then ended,
all expressed in Japanese yen. These consolidated financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Teraoka Seisakusho Co., Ltd. and consolidated
subsidiaries as of March 31, 2008 and 2009, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles generally accepted in Japan, consistently applied during the period.
The accompanying consolidated financial statements as of and for the year ended March 31,
2009 have been translated into U.S. dollars solely for the convenience of the readers. We
have recomputed the translation and, in our opinion, the consolidated financial statements
expressed in yen have been translated into U.S. dollars on the basis set forth in Note 1 of
the Notes to Consolidated Financial Statements.
Tokyo, Japan
June 26, 2009

Inoue Auditing Co., Inc.

Teraoka Seisakusho Co., Ltd.

19

COMPANY DATA

Company Outline(as of March 31, 2009)

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

Paid-in Capital¥3,904 million

Employees

552

Board of Directors and Auditors(as of June 26, 2009)

President		Keishiro Teraoka
Managing Director		Kiyohiro Takagi
Directors		Kuniyuki Takei
			

Takeo Kawaguchi			

Jun Watanabe

			Yutaka Nomiyama			Toshinobu Nishimura

Standing Corporate Auditor

Motoaki Hattori

Corporate Auditors		

Hirokazu Nakamura

			Kazunori Shimamoto
			Kohji Dohmoto
Operating Officers		

Minoru Tanaka			

Hiroyoshi Ohbori

			Nobuo Ito			

Tadashi Shirota

			

Masao Mochizuki

Consolidated Subsidiaries
Teraoka Seisakusho (Hong Kong) Co., Ltd.
Teraoka Seisakusho (Shanghai) Co., Ltd.
Teraoka Seisakusho (Shenzhen) Co., Ltd.
Shin-ei Shoji Co., Ltd.

20

Teraoka Seisakusho Co., Ltd.

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

Shinagawa-ku, Tokyo

Ibaraki Factory	Kitaibaraki, Ibaraki Prefecture
Sano Factory

Sano, Tochigi Prefecture

Ohmiya Factory

Saitama, Saitama Prefecture	Kannami Factory
Branch Offices

Tagata-gun, Shizuoka Prefecture
Tokyo, Osaka, Nagoya, Sendai, Ohmiya and Fukuoka

Investor Information(as of March 31, 2009)

Financial Year

April 1 to March 31

Common Stocks

Authorized Shares

80,000,000

Issued Shares

20,081,955

		
Stockholders

2,328

Stock Listing

Tokyo Stock Exchange, Second Section

Transfer Agency

Mitsubishi UFJ Trust and Banking Corporation		

4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212, Japan
Number of shares(thousand shares)

Voting rightratio (%)

Customers’ Stockholding Group

1,719

8.56

Japan Trustee Services Bank, Ltd.

978

4.87

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

976

4.86

Keishiro Teraoka

881

4.39

Resona Bank, Ltd.

678

3.38

The Master Trust Bank of Japan, Ltd.

561

2.79

Kuniko Teraoka

526

2.61

Major Stockholders
		

Employees’ Stockholding Group

444

2.21

RBC Dexia Investor Services Trust, London Client Account

386

1.92

SGSS / SGBT LUX

286

1.42

Teraoka Seisakusho Co., Ltd.

21

http://www.teraokatape.co.jp

This report is printed on recycled paper.

Printed in Japan