Progress witha New Perspective
Annual Report 2015 For the fiscal year ended March 31, 2015

TO OUR STAKEHOLDERS

From the First 100 Years
since Founding to the Next 100 Years
Greetings. My name is Koichi Ogata. I took office as the new representative director and president of Nitta
Gelatin Inc. on April 1, 2015.
In 2018, our Company will reach its 100th year since founding. As the 100th anniversary approaches, I
believe that my role as president will be to lead all employees in developing the Nitta Gelatin Group further,and to lay down the foundations for the next 100 years of dramatic advancement.
To all our stakeholders, we ask for your continued understanding of Nitta Gelatin’s business activities andlook forward to your undying support as we strive to make progress.

For the past several years, we had been investing
ambitiously to grow further as a top company in thegelatin industry. At this point, we have reached thestage of generating results from those investments.
To do this, it will become absolutely crucial to apply
our advanced technologies in developing new products that match the needs of our customers.
In the fiscal year ended March 31, 2015, we faceda very tough business environment in which the yen’s
depreciation drove our raw material prices and energy
costs to increase. In April 2013, Nitta Gelatin formulated and launched a new medium-term management
plan. However, after doing everything we could as aGroup to achieve the plan we decided to suspend it
as of the fiscal year ended March 31, 2015. This wasin light of a substantial change in business environment that had been brought about by the yen depreciating more than expected. Yet, as an upside, ourgelatin sales in Japan have continued to rise, whilestrong sales trends in the North American market
have continued to increase segment sales and profits
in our collagen casing business. Overall, demand forour products remains robust, and I believe that themost important issue at this point is how Nitta
Gelatin will make certain to capture that demand.
As I touched on earlier, Nitta Gelatin will celebrateits 100th anniversary in 2018. To usher in this major
milestone, we have adopted “Progress with a New
Perspective” as our corporate slogan, and are heralding “Pursue the Highest Quality” as our basic strategy
as we strive to strengthen business foundations forthe next 100 years of growth. The new slogan signifies a move forward to the next stage: from the initialstage of the investments we made to expand our

global production platform to a new stage of reaping
returns on those investments and generating profits.
Moreover, our basic strategy in pursuit of high quality
will encompass more than the quality of our products
to also include the strong commitment we have torefining our marketing and services even further. To
this end, employees will strive to upgrade their capabilities to new levels while Nitta Gelatin endeavors toearn the approval of stakeholders and raise corporate
value to an even greater extent.
The specific strategic objectives we will be focusing
on in taking this route will be to (1) Develop high-valueadded products, (2) Ensure optimal production, optimal
sales, and (3) Strengthen global business foundations.

(1) Develop High-Value-Added Products
One demographic I would like to emphasize in developing new products is senior citizens, who as a groupare seeking to enjoy physically active lifestyles. Many
older people these days have a strong desire to lead
physically healthy and active lives. This, for example,
will likely serve to heighten the attention collagen
peptide draws from consumers as a material known
to regulate bodily functions. I imagine we can makethe most of Nitta Gelatin’s unique technologies todevelop new collagen peptide products that con­sumers can ingest while having their daily meals.

(2) Ensure Optimal Production, Optimal Sales
In view of the global production platform we haveestablished, Nitta Gelatin has begun to promote local
production for local consumption, whereby we will channel products manufactured in Japan for consumption in
Japan and products manufactured in local factories

Company Slogan:“Progress with a New Perspective”
Basic Strategy:“Pursue the Highest Quality”

overseas for local consumption overseas. In this way,
we will strive to expand sales particularly in the growthmarkets of Asia, even as we work to optimize manufacturing to reduce costs and bolster profitability.

(3) Strengthen Global Business Foundations
The Nitta Gelatin Group is globalizing its business,
mainly in North America and Asia. In order to further
this development, we have consolidated Nitta Gelatin
India Ltd. as a subsidiary, and will work to strengthen
global management through means that will include
promotions among human resources from our Group
companies overseas.
In some ways, it can be difficult for consumers ingeneral to picture Nitta Gelatin’s business because
we are more of a manufacturer of materials. To bringthis obstacle down, I will continue actively seeking
opportunities for conversing face to face with ourinvestors. This means that for our individual investors
in particular, we will put extra effort into deepening
their understanding of Nitta Gelatin through the active
dissemination of information via shareholder benefits,
the General Meeting of Shareholders, and the shareholder newsletters and other information we publish.
We ask for your continued support as I lead all
employees to achieve our targets for the fiscal year
ending March 31, 2016, and strive for sustainablegrowth of the Nitta Gelatin Group.

Koichi Ogata
Representative Director and President

2

NITTA GELATIN ANNUAL REPORT 2015

CONTENTSTO OUR STAKEHOLDERS

1

PERFORMANCE HIGHLIGHTS

3

NITTA GELATIN WORKS

4

BUSINESS ACTIVITIES/OVERVIEW OF OPERATIONS

6NITTA GELATIN GROUP HISTORYBOARD OF DIRECTORS, AUDIT & SUPERVISORY BOARD
MEMBERS AND EXECUTIVE OFFICERS

8
10INVESTOR INFORMATION12CORPORATE INFORMATION

13

MANAGEMENT’S DISCUSSION AND ANALYSIS

14

BUSINESS RISKS

17

CONSOLIDATED BALANCE SHEETS

20

CONSOLIDATED STATEMENTS OF INCOME

22

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

23

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

24

CONSOLIDATED STATEMENTS OF CASH FLOWS

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS28

The earnings forecasts in this Annual Report are forward-looking
statements made on the basis of information available at thetime they were made and other certain assumptions deemed
reasonable. Therefore, actual earnings may differ from forecast
figures as a result of changes in business performance andother factors.

NITTA GELATIN ANNUAL REPORT 2015

PERFORMANCE HIGHLIGHTS

74th term
From April 1,2012 to March
31, 2013

Millions of yen
75th term
From April 1,2013 to March
31, 2014

76th term
From April 1,2014 to March
31, 2015

Thousands of
U.S. dollars
76th term
From April 1,2014 to March
31, 2015¥28,772¥32,814¥31,914$265,617

Operating income

1,595

955

392

3,262

Net income

1,525

665

610

5,076

Comprehensive income

1,913

1,227

1,530

12,734

Research and development expenses

1,026

1,004

915

7,615

Capital expenditure

1,193

2,949

2,449

20,382

Depreciation and amortization

825

914

1,115

9,280

Net cash provided by (used in)operating activities

2,050

(692)

2,074

17,261

Net cash used in investing activities(1,557)(3,105)(2,505)(20,848)

For the year:
Net sales

Net cash provided by (used in)financing activities

(376)

3,875

544

4,527

Cash and cash equivalents at end of period

2,258

2,406

2,602

21,656¥ 6,287¥ 8,804¥10,848$ 90,287

Net assets

9,724

13,781

15,373

127,948

Noncurrent liabilities

5,828

7,528

8,283

68,938

Total assets

25,19031,38933,932

282,413

Net assets per share (BPS)¥607.31¥742.20¥831.15$   6.91

Net income per share (EPS)

96.72

37.90

33.20

0.27

Equity ratio (%)

38.0

43.4

45.0

Return on equity (ROE) (%)

17.3

5.7

4.2

Return on assets (ROA) (%)

6.1

2.1

1.9

Payout ratio (%)

14.5

31.7

36.1

At year-end:
Property, plant and equipment

Per share information (yen, U.S. dollars):

Other:

Note: The U.S. dollar amounts are translated from Japanese yen at the rate of ¥120.15 = U.S. $1, the prevailing exchange rate at March 31, 2015.

3

4

NITTA GELATIN ANNUAL REPORT 2015

NITTA GELATIN WORKS
Nitta Gelatin products are used not only in food products familiar to you but also in numerous other fields.
Here, we introduce you to some of Nitta Gelatin’s new business and product initiatives.

TopicsNitta Collagen Peptide Symposium 2014
In October 2014, we invited customers, overseas sales agents, and the press, among others, to hold a Nitta Collagen
Peptide Symposium 2014 in Tokyo. There, leading authorities from the field of collagen peptide research in Japan gave
talks along the theme of “The New Future in Collagen Peptide.” The symposium was held in high regard by those inattendance and received extensive coverage by the press.

Exhibit at ifia® JAPAN 2015, the 20th International Food Ingredients & Additives Exhibition
and Conference
In May 2015, Nitta Gelatin was an exhibitor at ifia® JAPAN 2015, the 20th International Food Ingredients & Additives
Exhibition and Conference, at Tokyo Big Sight. Products introduced at the Company’s exhibition booth included gelatin,
collagen peptide, food materials and adhesives. Apart from holding a presentation as one of the exhibiting companies,
we held presentations for visitors inside our booth, as well as a seminar at HFE JAPAN 2015, the 13th Health Food
Exposition & Conference, which was in session on-site at the same time. The response to our exhibit at ifia® JAPAN2015 was overwhelming, and we subsequently received many product and business inquiries from the visitors.

Consolidation of Indian Affiliates as Subsidiaries
In April 2015, we consolidated Nitta Gelatin India Ltd., Bamni Proteins Ltd., and Reva Proteins Ltd.—our affiliatecompanies in India—as subsidiaries. Moving ahead, we will continue to strengthen our global business foundation
as a company.

NITTA GELATIN ANNUAL REPORT 2015

Global Brands
Wellnex™
Collagen peptide, produced by fragmenting gelatin into
smaller peptide chains, has been known to have benefits
effective at maintaining the functional health of skin,joints, bones and muscles. Wellnex™ is the global brandfor the highly functional collagen peptide Nitta Gelatin
has developed over the years. The name is a word wecreated by combining “wellness” with the radical “x,” asa symbol of infinite potential, to signify our wish for customers to lead healthy and active lives.
We created the information site, Wellnex-Collagen.com,
for those interested in learning more about Wellnex™.
We encourage you to have a look at this site, which canalso be accessed from our corporate website.

G-zain®
Nitta Gelatin’s adhesives technology can also be foundin high-performance gaskets used to make smartphones
and digital cameras airtight. G-zain® is the brand namefor the high-performance gaskets developed from Nitta
Gelatin’s patented adhesive technologies. G-zain® hasenabled electronics manufacturers to fully automate theprocess of attaching gaskets to their products, which
previously had to be applied by hand.

In August 2014, Nitta Gelatin completed the construction of a new Adhesive Innovation Center (AIC). This facility
will be used by the Group to pursue the potential of highperformance gaskets further and develop new products.

beMatrix®
Collagen developed by Nitta Gelatin was used in theworld’s first operation to transplant retinal pigment­epithelial tissue derived from iPS cells in treating agerelated macular degeneration, a major cause of geriatriconset blindness.
Cell-culture collagen developed with Nitta Gelatin’svaunted technology enables medical professionals tomultiply cells for transplant both safely and efficiently.
The Group’s Cellmatrix® series of cell-culture collagenand beMatrix® series of medical gelatin and collagen arebeing used as a vital material in the field of regenerative
medicine.
In March 2015, numerous research reports involving
the use of our medical gelatin and collagen were received
in high regard at the 14th Congress of the JapaneseSociety for Regenerative Medicine at PACIFICO Yokohama.

5

6

NITTA GELATIN ANNUAL REPORT 2015

BUSINESS ACTIVITIES/OVERVIEW OF OPERATIONSCollagen Material BusinessIn the Collagen Material business, we manufacture and sell high-value-added gelatin, collagen peptide, collagencasing, collagen and other products made from byproducts of the meat industry, such as animal bones and skin. In
the process, we aim to propose products and applications demanded by customers and solve the issues they face.
GelatinFor food

Collagen Peptide

For capsules

For dietary foodsupplements

For photographic films
and papers

For protein drinks andfoods

Collagen Casing
Sausage casings

Life Science
Testing reagent for­laboratory research
Biomaterial

For cosmetics

Gelatin BusinessLife Science Business

Besides its ability to solidify, gelatin has a variety of functions
such as water retention, foaming, adhesive and emulsifying
properties. For this reason, gelatin has a range of applications,from food to pharmaceuticals and photography. In the gelatinbusiness, we sell gelatin for applications in various industrial
sectors. Edible gelatin is marketed as a food material primarily
for use in convenience store delicatessen items and the confectionery and dairy product sectors. In other areas, edible
gelatin is also marketed to improve the texture and add flavor
to foods manufactured in the frozen food, instant noodles andprocessed food industries. Marketing of gelatin for capsules
extends beyond its use in the manufacturing of pharmaceuticalcapsules to include use in the food processing industry, including for application in nutritional supplements and health foods.
Photographic gelatin is marketed to the photosensitive material
production industry, as an additive to photosensitive materials,
such as photographic film and paper.

Collagen is extracted and refined from animal skin and tendons
using acid solutions and enzymes, while preserving its triplespiral molecular structure. Collagen has a close affinity withbiological tissue. In addition to applications as a research
reagent (Cellmatrix®) for cell cultures, collagen is used as abiomaterial in synthetic tissue and bones, which promote selfregeneration and restoration of tissue. We have also developed
a highly refined medical gelatin (beMatrix®) as a biomaterial topromote the self-regeneration and restoration of human tissue
in the field of regenerative tissue engineering. Collagen for allof these applications is manufactured by the Company and ismarketed to medical equipment manufacturers, as well asuniversities and other research institutes.

Peptide BusinessIn the peptide business, we manufacture and sell collagen
peptide, a lower molecular form of gelatin that has been processed through the hydrolysis of gelatin using proteolytic
enzymes. The defining property of collagen peptide is that it
does not solidify into jelly. Collagen peptide has been found tohave the ability to activate biological functions and regulate
bodily functions. As such, collagen peptide is used in nutritional foods and supplements, among other food products, that
tout beauty as well as other functional health benefits related
to the skin, bones and joints.

Collagen Casing BusinessIn the collagen casing business, we sell edible collagen casings. Collagen casings are tubular materials that are filled withmeat in the sausage production process. Collagen casings aremarketed to the livestock food processing sector as an alternative to natural casings made from sheep and pig intestines.

Performance for the Fiscal Year Ended March 31,
2015 and Outlook for the Fiscal Year Ending
March 31, 2016
In the gelatin field, sales of edible gelatin and gelatin for­capsules increased in the Japanese market. Profits declined,
however, as raw material prices remained high and pricerevisions were unable to mitigate the yen’s depreciation. In
North America, capsule gelatin sales declined as negative
reports regarding fish oil in the U.S. sparked a temporary
contraction in the supplement market, while profits declined,
partly due to higher raw material prices for pig skin.
Consequently, in the gelatin field, sales increased partly due
to the impact of the yen’s depreciation, while profits fell.
Collagen peptide sales decreased overall, as the Japanesemarket was unable to dispel a slump in consumer sentimentfollowing an increase in the consumption tax rate, despite
brisk sales in the Asian region.
Collagen casing sales and earnings increased, due to steadysales in the North American markets.
As a result, net sales in the Collagen Material businessincreased 2.3% year on year to ¥22,959 million. Segment
profit (operating income) was down 22.4% to ¥1,101 million.
In the fiscal year ending March 31, 2016, the Collagen
Material business is targeting net sales of ¥28,700 million
and segment profit (operating income) of ¥2,000 million.

NITTA GELATIN ANNUAL REPORT 2015

Formula Solution BusinessIn the Formula Solution business, we manufacture and sell high-value-added formulations through formulation technologies for a variety of materials. Our goal is to provide product proposals and applications demanded by customers
as we help them to solve the issues they face.
Food Material
Gelling agents
Stabilizers for meatproducts

Adhesive
Stabilizers and quality
enhancers for heat-andserve meals

Hot-melt adhesives
High-performancegaskets

Consumer products for
mail-order sales

Food Material BusinessIn the food material business, we sell edible formulations, suchas gelling agents and stabilizers for meat products, to the foodprocessing industry. Leveraging properties such as their jellyforming ability, water retention, binding, thickening and emulsion stability, these food agents are used mainly to add value
to food and maintain food quality by contributing to food shaperetention and texture enhancement, and so forth. These edible
formulations are also used to improve work efficiency andproduction yield during food processing. Our food agents arecustom made according to their purpose of use. Edible gelling
agents are marketed mainly to the dessert, bakery and confectionery, dairy product and beverage manufacturing sectors.
Stabilizers for meat products are marketed mainly to the meatproduct and livestock food processing sectors. We also manufacture and sell consumer products such as collagen beverages and food, and cosmetics, as well as collagen for use incosmetics. These consumer products are planned and developed by the Company, manufactured by partner companies andsold by our subsidiary Nitta Biolab Inc. Collagen for use incosmetics is manufactured and sold by the Company.

Adhesive BusinessAs with the food material business, the adhesive businessproposes adhesive applications that are optimized for client
production lines, with the view to developing adhesive functions
that fit customer needs and applications. Examples include
hot-melt adhesives, which are formulated with multiple materials, and animal glue adhesives. Hot-melt adhesives are formulated with such materials as petroleum-based synthetic resins
and natural resins such as rosin. They are heated and melted
before application. Because they provide bonding after coolingand solidifying from a molten state, hot-melt type adhesives
feature a fast bonding speed. Accordingly, hot-melt adhesives

are used widely not only in packaging applications for sectors
like the food and beverage industry, but also in the sanitarymaterial, bookbinding, construction and woodwork, electrical,
housing and other sectors. Moreover, animal glue adhesives aremarketed mainly to the paper-processing sectors, such as the
bookbinding industry and the paper product and craft sectors,
due to their superior adhesive properties with respect to paper.
In recent years, we have been marketing high-performancegaskets based on our adhesives technology that cures with­ultraviolet exposure mainly to the electric machinery and tool
manufacturing sector.

Performance for the Fiscal Year Ended March 31,
2015 and Outlook for the Fiscal Year Ending
March 31, 2016
In the Formula Solution business, sales of food materials
decreased on lackluster trends in food stabilizers due toreduced demand accompanying a hike in Japan’s consumption
tax rate and unseasonable summer weather in the fiscal year
ended March 31, 2015. In adhesives, there was a large decline
in sales of hot-melt adhesives for use in hygiene products dueto the shift of production to China, in addition to sluggish salesof hot-melt adhesives for packaging and bookbinding.
Meanwhile sales of high-performance gaskets saw sluggish
growth because, although their delivery for use in smartphones
and smartwatches has begun, these products have yet to be
adopted by customers on a full scale.
As a result, net sales in the Formula Solution businessdecreased 13.7% year on year to ¥8,955 million. Segment
profit (operating income) declined 29.6% to ¥647 million.
In the fiscal year ending March 31, 2016, the Formula
Solution business is targeting net sales of ¥9,400 million andsegment profit (operating income) of ¥800 million.

7

8

NITTA GELATIN ANNUAL REPORT 2015

NITTA GELATIN GROUP HISTORY
Note: The Company name recorded is the current Company name.

Progress with a New Perspective
1930

Succeeded in producing thin leaf gelatin
Succeeded in producing edible thin leaf
gelatin of a high quality,and began marketing it

1971

Started an adhesives business
Commenced an adhesives business by developing high-speed,
hot-melt-type adhesives as areplacement for animal glue

1974

Started a food material
business
Began marketing various foodproducts containing naturalpolysaccharides and other ingredients, in addition to gelatin

1990

Established Nitta Gelatin Canada, Inc.
(Canada)1968

Established Hikone Gelatin Inc.

1918

1970

1980

1937

Started productionof gelatin andanimal glue

1918

Started production ofanimal glue and industrial gelatin for the firsttime in Japan with industrial production methods
introduced from the West1935

Completed the Osaka Plant

1990
1982

Started production of­photographic gelatin
After having relied on
imports, research yielded
Japan’s first domesticallymade photographic gelatin

Established BostikNitta Co., Ltd.

1975

Established Nitta Gelatin India Ltd.
(India)1979

Established Nitta Gelatin NA Inc. (U.S.A)

NITTA GELATIN ANNUAL REPORT 2015

1999

Began production of gelatin in India
Started production of gelatin in India
in response to the demand in Asia

2001

Moved into the consumer products
business
Began marketing Collagenaid®,
a collagen food supplement, togeneral consumers

2014

Started production of collagen peptide in the U.S.

2000

Started a peptide
business
Fully entered the collagen
peptide business in
response to new applications, including as ahealth food2010

Established Guangdong Baiwei
Bio Material Co., Ltd. (China)

2000

2011

Established Shanghai Nitta­Gelatin Co., Ltd. (China)

2015

2010

1996

Started a casing business
Commercialized a collagencasing business in North­America, after many years of
research

2012

Established Beijing Qiushi­Collagen Casing Co., Ltd. (China)

1996

Established Nitta Casings Inc.
(U.S.)

Established Nitta Casings(Canada) Inc. (Canada)

2004

Established Nitta Gelatin USA, Inc.
(U.S.)

2013

Established Nitta Gelatin Vietnam Co., Ltd.
(Vietnam)

9

10

NITTA GELATIN ANNUAL REPORT 2015

BOARD OF DIRECTORS, AUDIT & SUPERVISORY BOARD
MEMBERS AND EXECUTIVE OFFICERS(As of June 25, 2015)

Back row from the left: Raymond Merz, Director and Executive Officer; Toru Tamaoka, Director and Executive Officer; Hiroshi Nitta,
Director and Executive Officer; Yasuyuki Nakai, Standing Audit & Supervisory Board Member; Shigeoki Tougou,
Outside Audit & Supervisory Board Member; Tamon Tsuda, Outside Audit & Supervisory Board Member
Front row from the left: Hisayuki Suekawa, Outside Director; Tsuneo Sasaki, Director and Senior Managing Executive Officer;
Koichi Ogata, Representative Director and President, Executive Officer; Norimichi Soga, Director and Chairman,
Executive Officer; Mayumi Ishihara, Outside Director

Board of Directors
Director and Chairman, Executive Officer

Representative Director and President, Executive Officer

Apr. 1971 Joined Kobe Kiito Co., Ltd.
July 1973 Joined the Company
July 1991 General Manager, Overseas Sales and Marketing Divisionof the Company
July 1992 General Manager, Sales & Marketing Department, Gelatin
Division of the Company
Nov. 1996 Director of the Company
July 1997 General Manager, Sales & Marketing Division andGeneral Manager, Tokyo Branch of the Company
June 1999 Managing Director of the Company
Sept. 1999 General Manager, Operating Division of the Company
June 2003 Senior Managing Director of the Company
June 2004 Representative Director, Senior Managing Director of
the Company
June 2006 Representative Director and President of the Company
Apr. 2015 Director and Chairman of the Company (to present)
July 2015 Executive Officer of the Company (to present)

Apr. 1981 Joined Kanebo Foods, Ltd. (currently Kracie Foods, Ltd.)
Dec. 2005 Joined the Company
Mar. 2008 General Manager, R&D Department, Sales & Marketing
Division of the Company
June 2010 Executive Officer of the Company
June 2012 Director of the Company
Mar. 2013 General Manager, Sales & Marketing Division of
the Company
Apr. 2015 Representative Director and President of the Company(to present)
July 2015 Executive Officer of the Company (to present)

Norimichi Soga

Koichi Ogata

NITTA GELATIN ANNUAL REPORT 2015

Board of Directors

Audit & Supervisory Board Members

Director and Senior Managing Executive Officer

Standing Audit & Supervisory Board Member

Apr. 1974 Joined Mitsui Bank (currently Sumitomo Mitsui Banking
Corporation)
Nov. 2002 Dispatched to the Company
Nov. 2003 Joined the Company
Mar. 2004 General Manager, Finance Department, General
Administration Division of the Company
Sept. 2004 General Manager, Production Planning Department,
Operating Division of the Company
Mar. 2005 General Manager, Production Management Department,
Operating Division of the Company
Mar. 2006 General Manager, Finance Division, General
Administration Division of the Company
June 2006 Director of the Company (to present)
June 2006 Executive Officer of the Company
Sept. 2006 General Manager, Finance Division of the Company
June 2010 Managing Executive Officer of the Company
June 2011 General Manager, General Affairs Division of the Company
June 2012 Senior Managing Executive Officer of the Company(to present)
Mar. 2013 General Manager, General Affairs Division of the Company(to present)

Apr. 1978 Joined Mitsui Bank (currently Sumitomo Mitsui Banking
Corporation)
Nov. 2007 Dispatched to the Company
Mar. 2008 General Manager, Corporate Planning Division of
the Company
June 2008 Joined the Company
June 2008 Executive Officer of the Company
July 2009 General Manager, GRM Division of the Company
July 2010 General Manager, Planning and Management
Department, Gelatin Division of the Company
Mar. 2011 General Manager, Planning and Management
Department, Manufacturing Division of the Company
Mar. 2013 General Manager, Planning and Management
Department, Gelatin Division of the Company
June 2013 Standing Audit & Supervisory Board Member of
the Company

Tsuneo Sasaki

Director and Executive Officer

Toru Tamaoka

Apr. 1984 Joined the Company
Mar. 2008 General Manager, Planning and Management
Department, Gelatin Division of the Company
July 2010 General Manager, Adhesives Division of the Company(to present)
June 2012 Executive Officer of the Company (to present)
June 2014 Director of the Company (to present)

Director and Executive Officer

Raymond Merz

Sept. 1984 Joined Alcan Aluminium Limited (Canada)Jan. 1995 Joined Cangel Inc. (currently Nitta Gelatin Canada, Inc.)
Jan. 1996 General Manager, Production Division of Nitta Gelatin
Canada, Inc.
Jan. 2000 Director and Vice President of Nitta Gelatin Canada, Inc.
May 2002 Chief Operating Officer (COO) of Nitta Gelatin Canada, Inc.
Dec. 2004 Director and CEO of Nitta Gelatin USA, Inc.
Apr. 2006 Director and CEO of Nitta Gelatin Canada, Inc.
June 2013 Executive Officer of the Company (to present)
Mar. 2014 General Manager, Gelatin Division of the Company(to present)
June 2014 Director of the Company (to present)

Director and Executive Officer

Hiroshi Nitta

Apr. 2003 Joined Nitta Corporation
Apr. 2003 Dispatched to Nitta Haas Inc.
June 2009 Director of the Company (to present)
Jan. 2011 Deputy General Manager, Gelatin Division of the Company
Mar. 2011 Deputy General Manager, Manufacturing Division of
the Company
July 2015 Executive Officer of the Company (to present)

Outside Director

Yasuyuki Nakai

Outside Audit & Supervisory Board Member

Shigeoki Tougou

Apr. 1966 Joined Bank of Japan
July 1993 General Manager, Secretariat of the Policy Board of
Bank of Japan
Apr. 1995 General Manager, International Department ofBank of Japan
June 1996 Managing Director of The Nippon Credit Bank, Ltd.
(currently Aozora Bank, Ltd.)
Aug. 1997 President of Aozora Bank, Ltd.
June 2000 President and Representative Director of Osaka
Shipbuilding Co., Ltd. (currently Daizo Corporation)
June 2010 President of Nippon RAD Inc.
June 2011 Chief Executive Officer of Nippon RAD Inc.
June 2012 Outside Audit & Supervisory Board Member of theCompany (to present)
Oct. 2012 President of Higashi Nippon Gakuen University(to present)

Outside Audit & Supervisory Board Member

Tamon Tsuda

Apr. 1975 Joined The Sumitomo Bank, Limited (currently Sumitomo
Mitsui Banking Corporation)
Oct. 1981 Joined Arthur Andersen, LLP
Mar. 1985 Registered as a certified public accountant
Dec. 1994 Partner of Century Audit Corporation (currently Ernst &Young ShinNihon LLC)
Nov. 2000 Representative Partner of Century Ota Showa & Co.
(currently Ernst & Young ShinNihon LLC)
July 2008 Senior Partner of Ernst & Young ShinNihon LLC
July 2012 Head of Tsuda Certified Public Accountant Office(to present)
June 2014 Outside Audit & Supervisory Board Member of
the Company (to present)

Managing Executive Officer
Takeo Yamaki

Mayumi Ishihara
Apr. 1986 Worked at Kobe District Court
Oct. 1994 Passed the bar exam
Apr. 1997 Registered as an attorney at law
Apr. 1997 Joined Oh-Ebashi LPC & Partners (to present)
June 2010 Outside Director of the Company (to present)

Outside Director

Hisayuki Suekawa
Apr. 1982 Joined Shiseido Company, Limited
Feb. 2007 General Manager of the Business Planning Departmentof Shiseido Company, Limited
Apr. 2008 Corporate Officer, General Manager of the Corporate
Planning Department of Shiseido Company, Limited
June 2009 Director of Shiseido Company, Limited
Apr. 2011 Representative Director, President & CEO of Shiseido
Company, Limited
Apr. 2013 Senior Adviser of Shiseido Company, Limited (to present)
June 2014 Outside Director of the Company (to present)

Executive Officers
Hidenori Takemiya
Yuji Yamamoto
Yoshitaka Oda
Hiroshi Takase
Yoshihisa Sugimoto
Juergen Gallert

11

12

NITTA GELATIN ANNUAL REPORT 2015

INVESTOR INFORMATION

Stock Information (As of March 31, 2015)
Number of Shares Authorized: 50,000,000 shares
Number of Shares Issued:

18,373,974 shares (including treasury stock of 162 shares)

Number of Shareholders:

6,960

Major Shareholders (Top 10)
Shareholder name

Number of shares

Shareholding percentage

2,966,516

16.15%IBP Co., Ltd.
Nitta Corporation

840,014

4.57

Sumitomo Mitsui Banking Corporation

630,286

3.43

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

621,074

3.38

The Master Trust Bank of Japan, Ltd. (trust account)603,500

3.28

Iwaki Co., Ltd.

533,600

2.90

Nitta Gelatin Employees Shareholding Association

469,000

2.55

Ishizuka Corporation

382,014

2.08

Resona Bank, Limited

334,672

1.82

Japan Trustee Services Bank, Ltd. (trust account)

250,000

1.36

Note: Shareholding percentages are calculated based on the total number of shares issued minus treasury stock (162 shares).
Percentages are rounded to two decimal places.

Share Distribution
Breakdown of Shareholding by Investor Type

Breakdown of Shareholding by Number of Shares Held

Financial institutions

Financial instruments
business operators
1.5%

Financial instruments
business operators
0.4%

0.5%
Foreign investors

0.8%
Domestic
companies
1.1%

Foreigninvestors
4.0%
Financial
institutions
21.9%

Individual,
other
97.2%

Domestic
companies
32.8%

Individual,
other
39.8%

NITTA GELATIN ANNUAL REPORT 2015

CORPORATE INFORMATION

Company Outline

Affiliates (As of October 1, 2015)

Headquarters:

1 Nitta Gelatin NA Inc. (U.S.A.)

Establishment:
Incorporation:
Capital:Number of
Shares Issued:
Net Sales:

4-26, Sakuragawa 4-chome, Naniwa-ku,
Osaka 556-0022, Japan
January 1918
February 1945
¥3,144,929,440

2 Nitta Gelatin USA, Inc. (U.S.A.)
3 Nitta Casings Inc. (U.S.A.)
4 Nitta Gelatin Holding, Inc. (U.S.A.)
5 Nitta Gelatin Canada, Inc. (Canada)

18,373,974 shares
Non-consolidated: ¥21,872 million(Year ended March 31, 2015)
Consolidated: ¥31,914 million(Year ended March 31, 2015)
Employees:
Non-consolidated: 253(As of March 31, 2015)
Consolidated: 595(As of March 31, 2015)
Main Businesses: Production and sales of edible gelatin,
pharmaceutical gelatin and photographic gelatin
Production and sales of collagen peptides
Production and sales of collagen casings
Production and sales of collagen for cosmetics,
biomaterials and biochemical products
Production and sales of edible gelling agents,
stabilizers and other food materials
Production and sales of adhesives for
packaging, bookbinding, building materials andhygiene products
Operating Facilities: 10 locations in Japan, 15 locations overseas

7

13
12
19

18
17

Consolidated subsidiaries
Equity-method affiliates
Other affiliates

14 15
16

8
9

10
11

6 Nitta Casings (Canada) Inc. (Canada)
7 Alma Corporation (Japan)
8 Nitta Biolab Inc. (Japan)
9 Hikone Gelatin Inc. (Japan)
 Bostik-Nitta Co., Ltd. (Japan)
 Shinju Service Co., Ltd. (Japan)
 Shanghai Nitta Gelatin Co., Ltd. (China)
 Beijing Qiushi Collagen Casing Co., Ltd. (China)
 Guangdong Baiwei Bio Material Co., Ltd. (China)
 Nitta Hong Kong Ltd. (China)
 Nitta Gelatin Vietnam Co., Ltd. (Vietnam)
 Nitta Gelatin India Ltd. (India)
 Bamni Proteins Ltd. (India)
 Reva Proteins Ltd. (India)

5 6
3 4
1
2

13

14

NITTA GELATIN ANNUAL REPORT 2015

MANAGEMENT’S DISCUSSION AND ANALYSIS
Business Performance Summary for the Fiscal Year
Ended March 31, 2015
In the fiscal year ended March 31, 2015, the outlook for the
global economy was uncertain, despite an ongoing recovery
in the U.S. business climate. This outlook reflected the factthat the European economy has yet to start recovering in
earnest, along with slowing growth in emerging countries
such as China and Southeast Asian nations. Meanwhile,
Japan’s economy showed a gradual recovery trend, duepartly to an improvement in corporate and individual
incomes supported by economic policies and quantitativeand qualitative monetary easing. This was despite a downturn in demand following an increase in the consumption tax
in April 2014 and the yen’s sharp depreciation.
Amid these circumstances, the Nitta Gelatin Groupencountered very challenging business conditions, including
increased overseas prices of raw materials, a temporary
decline in demand in overseas markets, rising energy costs
in Japan, and continuing high import procurement costs dueto the yen’s depreciation.
As a result, in the fiscal year ended March 2015, net
sales decreased 2.7% year on year to ¥31,914 million. In
Japan, the Group revised prices, but this was outweighed byrising raw material and procurement costs reflecting the
yen’s depreciation. Consequently, operating income fell
58.9% to ¥392 million. Ordinary income declined by 13.2%
to ¥967 million, cushioned by foreign exchange gains, andnet income decreased 8.3% to ¥610 million.

Consolidated Business Performance for the Fiscal
Year Ended March 31, 2015
Net Sales and Earnings
Net Sales
Looking at the Group’s net sales in the fiscal year ended
March 2015, the Group posted strong sales of gelatin in
the Japanese market. However, sales of food materials
were sluggish due to reduced demand accompanying theconsumption tax hike in April 2014 and unseasonable
summer weather. Other downsides included a decline insales of hot-melt adhesives. Consequently, sales on thewhole were lackluster. As a result, in the fiscal year ended
March 31, 2015, net sales decreased ¥899 million, or
2.7%, year on year to ¥31,914 million.
Gross Profit
Consolidated gross profit declined ¥513 million, or 7.9%,
year on year to ¥5,970 million, mainly reflecting increased
overseas prices of raw materials, a temporary decline indemand in overseas markets, rising energy costs in Japan,
and continuing high import procurement costs due to the
yen’s depreciation.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses
increased ¥49 million, or 0.9%, year on year to¥5,577 million.

Operating Income
As a result of the foregoing, operating income decreased¥562 million, or 58.9%, year on year to ¥392 million.
Net Income
Net income decreased ¥55 million, or 8.3%, year on year to¥610 million.
We booked a loss on retirement of noncurrent assets of¥34 million as extraordinary losses.

Segment Performance
Collagen Material BusinessIn the gelatin field, sales of edible gelatin and capsule gelatin in Japan increased, but earnings declined as raw material prices remained high and price revisions were unable tomitigate the yen’s depreciation. In North America, capsulegelatin sales declined as negative reports regarding fish oilin the U.S. sparked a temporary contraction in the supplement market, while earnings decreased, partly due to higher
raw material prices for pig skin. Consequently, in the gelatinfield, sales increased partly due to the impact of the yen’s
depreciation, but earnings decreased.
Collagen peptide sales decreased overall, as the Japanese market was unable to dispel a slump in consumer
sentiment following the increase in the consumption tax inApril 2014, despite brisk sales in the Asian region.
Collagen casing sales and earnings increased, due to
steady sales in the North American markets.
As a result, net sales in the Collagen Material business increased 2.3% year on year to ¥22,959 million.
Segment profit (operating income) was down 22.4% to¥1,101 million.
Formula Solution Business
Sales of food materials decreased on lackluster trends infood stabilizers due to reduced demand accompanying theconsumption tax hike in April 2014 and unseasonable
summer weather.
In adhesives, there was a large decline in sales of­hot-melt adhesives for use in hygiene products due to theshift of production to China, in addition to sluggish sales of
hot-melt adhesives for use in packaging and bookbinding.
Meanwhile, sales of high-performance gaskets saw sluggish
growth because although their delivery for use in smartphones and smartwatches has begun, these products have
yet to be adopted by customers on a full scale.
As a result, net sales in the Formula Solution businessdecreased 13.7% year on year to ¥8,955 million. Segment
profit (operating income) declined 29.6% to ¥647 million.

NITTA GELATIN ANNUAL REPORT 2015

Research and Development“As a world-leading gelatin manufacturer, the Group uses its
proprietary technology to quickly and efficiently provide
superior products and services to global customers. The
Group produces healthy, functional and valuable products in
multinational facilities that are safe, reliable and environmentally friendly.” Guided by this vision, we are advancing
both the Collagen Material and Formula Solution businesses
with the aim of establishing Nitta Gelatin as a global brandthat is chosen first by customers.
The markets we face are constantly evolving and diversifying on a daily basis. Our basic R&D policy is to quickly andefficiently develop products and services that are a half stepor a whole step ahead of customer expectations in order toenhance the Company’s brand value and contribute to sustained business expansion and growth. We have organized a
product development structure that is as close to customers
as possible in an effort to energize R&D activities and identify shifts in market and customer needs with a constantly
positive mindset. In other words, we have stationed sales,development and production personnel across the R&D
organization to ensure that requests from customers,­markets and others are directly conveyed to technology,
service, product development and production technology
development units, so that timely responses are made.
While the internal research personnel are focused on product development and customer service, we also actively
conduct joint research with and commission research toexternal research institutes, universities and other entities
for the purpose of promoting basic research into food ingredients, obtaining new fundamental technologies and meeting other priorities.
Since 2007, we have held TPM (Technology, Product,
Market) Presentations under the guidance of external consultants, in an initiative to promote and encourage R&D
activities. These presentations are based on the “TPM
cycle” approach of obtaining market recognition throughproduct development driven by technology. Meanwhile, we
are making efforts to enhance the technological capabilities
and knowledge of the development divisions and individuals
by holding Technical Discussion sessions in all the development divisions.
The following is a breakdown of R&D activities by divisionin each business during the fiscal year ended March 31,
2015. Total R&D expenses were ¥915 million.

Collagen Material Business
Gelatin
Improve and upgrade production technology for raw
material and gelatin processes
Develop new gelatin (new materials, new functions)
Provide optimal quality for each application
Collagen Peptide
Develop collagen peptide production technology­(peptide synthesis, refining technology)
Research functional characteristics of collagen peptide
Collagen Casing
Improve and upgrade collagen casing production
Develop new markets and productsLife Science
Research and development of collagen for biomaterials
and cell cultures
Research and development of gelatin and collagen foradvanced medical care
R&D expenses in the Collagen Material business were¥498 million.

•
•
•
•
•
•
•
•
•

Formula Solution Business
Food Material
Develop applications utilizing application laboratories
Develop novel products (for delicatessen items andfood products for seniors, such as medical foods)
Plan and develop consumer products (collagen supplements, collagen-added cosmetics)
Adhesive
Develop high-performance gasket applications
Environmentally friendly hot-melt adhesives
R&D expenses in the Formula Solution business were¥416 million.

•
•
•
•
•

Cash Flows■ Net cash provided by operating activities
Net cash provided by operating activities was ¥2,074 million, compared with ¥692 million used in the previous fiscal
year. The main contributing factors were income before
income taxes and minority interests of ¥933 million, depreciation and amortization of ¥1,115 million, and a decreasein notes and accounts receivable of ¥1,740 million. These
inflows were partly offset by a decrease in notes andaccounts payable of ¥802 million.
■ Net cash used in investing activities
Net cash used in investing activities was ¥2,505 million,
compared with ¥3,105 million in the previous fiscal year.
The main use of cash was the purchase of property, plantand equipment of ¥2,449 million.
■ Net cash provided by financing activities
Net cash provided by financing activities was ¥544 million,
compared to ¥3,875 million in the previous fiscal year. This
mainly reflected a net increase in short-term loans payableof ¥454 million and proceeds from long-term debt of¥2,495 million, which were partly offset by ¥2,147 million in
repayment of long-term debt.
As a result, cash and cash equivalents were ¥2,602
million as of March 31, 2015, an increase of 8.2% from ayear earlier.

15

16

NITTA GELATIN ANNUAL REPORT 2015

Capital Investment
Based on business strategies, we executed capital investments of ¥2,381 million centered on the Collagen Material
business, mainly to achieve global cost competitiveness ingelatin products, strengthen collagen peptide supply capability, and enhance collagen casing productivity.
In the Collagen Material business, we executed capital
investments of ¥1,759 million. Looking at the main capital
investments, we invested ¥806 million to construct a newcollagen peptide plant at Nitta Gelatin USA, Inc. and ¥370
million to introduce and renew collagen casing manufacturing plant and equipment at Nitta Casings Inc. In other areas,
we spent ¥582 million on renewing plant and equipment
and introducing facilities for saving energy at our Osaka
plant and subsidiary, Hikone Gelatin Inc., and at Nitta
Gelatin Canada, Inc. to maintain production capacity andenhance quality.
In the Formula Solution business, we executed capital
investments of ¥562 million. Looking at the main capital
investments, we invested ¥543 million to construct a new
office and laboratory and upgrade production facilities for
the Adhesives Division.
The funds required for the abovementioned capital investments were sourced from our own capital and borrowings.
Expenses amounting to ¥21 million were booked as aloss on retirement of noncurrent assets for relocation andremoval of plant and equipment in constructing the new
office and laboratory for the Adhesives Division, in additionto ¥13 million in ongoing replacement of machinery andother plant and equipment.

Financial Position
AssetsTotal assets amounted to ¥33,932 million at March 31,
2015, ¥2,542 million higher than at March 31, 2014. Thiswas mainly attributable to a ¥579 million increase in inventories including merchandise and finished goods, a ¥2,044
million increase in property, plant and equipment in linewith the renewal of an adhesives office and a laboratory,
and the construction of a collagen peptide plant at Nitta
Gelatin USA, Inc., and a ¥908 million increase in investment securities due to the higher fair value of securities.
These increases were partly offset by a ¥1,438 million
decrease in notes and accounts receivable owing to thesecuritization of receivables.

Liabilities
Total liabilities stood at ¥18,558 million at March 31, 2015,¥949 million higher than at March 31, 2014. This was
mainly due to a ¥583 million increase in short-term loans
payable, a ¥646 million increase in long-term loans payable(current portion included), and a ¥185 million increase indeferred tax liabilities. These increases were partly offset bya ¥486 million decrease in notes and accounts payable.
Net Assets
Net assets stood at ¥15,373 million at March 31, 2015,¥1,592 million higher than at March 31, 2014. This was
mainly attributable to a ¥688 million increase in retained
earnings, a ¥498 million increase in valuation difference on
available-for-sale securities, and an increase of ¥788 million
in foreign currency translation adjustment. These increases
were partly offset by a decrease of ¥379 million in accumulated adjustments for retirement benefits.
As a result, the equity ratio stood at 45.0% as of March
31, 2015, compared to 43.4% as of March 31, 2014.

Basic Profit Distribution Policy and Dividends
Our basic policy on profit distribution is to continuously pay
steady dividends, while securing the internal reserves
needed to develop future businesses and strengthen ouroperating structure.
Furthermore, our basic policy is to pay dividends twice
every fiscal year, with interim and year-end dividends determined by the Board of Directors and the Annual General
Meeting of Shareholders, respectively.
In regard to dividends for the fiscal year ended March 31,
2015, in accordance with the aforementioned policies, management has decided to pay a year-end dividend of ¥6.00
per common share. Combined with the interim dividend of¥6.00, the annual dividend per common share is ¥12.00.
In regard to funds set aside as internal reserves, we
intend to effectively invest these funds in enhancing costcompetitiveness even more than before, bolstering ourtechnology and product development structure in response
to market needs, as well as implementing global strategies.
These investments will help us to address anticipatedchanges in the business environment going forward.

NITTA GELATIN ANNUAL REPORT 2015

BUSINESS RISKSThis section provides information about the principal business risks concerning the Nitta Gelatin Group’s operations
and related matters that may have a material impact on thedecisions of investors. Matters that do not necessarily
constitute such risks but are considered to have a material
impact on the investment decisions of investors are also
disclosed below from the standpoint of actively disclosing
information to investors. Recognizing the possibility for suchrisks to occur, we endeavor to prevent the occurrence ofsuch risks and to respond properly in the event that suchrisks occur.
This section includes forward-looking statements­determined based on information available to us as ofJune 25, 2015.

(1) Product Development
Guided by our motto of quickly and efficiently providing products and services that address shifting market conditions
and customer needs, we actively conduct R&D and capital
investment. However, there is no guarantee that we cansuccessfully develop new products. In addition, even if a
new product is successfully developed, it may not matchcustomer needs and thus fail to gain their acceptance.
In regard to products for medical applications, customers
using our products require an extensive lead time todevelop and launch medical products. During this period,
the customer may suspend product development or face
protracted development delays, among other contingencies,
mainly on account of shifting market conditions, changes inoperating performance, or delays in obtaining approval from
regulatory authorities.
In the event that we face delays or are unable torecover R&D expenses and capital investment as a result,our operating results and financial position may be negatively impacted.

(2) Overseas Markets
Ever since the establishment of our first overseas sales
subsidiary in the U.S. in July 1979, we have been actively
working to expand sales in overseas markets. In the fiscal
year ended March 31, 2015, sales in overseas markets
accounted for 42.2% of our net sales. In the North American
market, our primary region for business development sofar, our sales expansion may be negatively impacted bycompetition arising between our products and those of ourcompetitors in the same industry.
In addition, in the future strategic Chinese, Indian andSoutheast Asian markets, our sales expansion may be negatively impacted by even greater competition than in North
America between our products and those of our competitors
in the same industry.

The Group is working to enhance its competitiveness,
mainly by reducing costs, improving quality, developing
unique new products, and conducting production in optimal
locations. However, if these measures prove ineffective,
sales growth could stagnate. This could have a negative
impact on our operating results and financial position.

(3) Exchange Rate Movements
When selling products to overseas customers either directlyor through a subsidiary, we export products on a U.S. dollardenominated basis. On the procurement front, we purchaseraw materials for gelatin, such as bovine bones and ossein,
primarily using U.S. dollars. We also import pig skin gelatinfrom overseas on a Canadian dollar-denominated basis. For
this reason, we hedge our foreign exchange risk by concluding foreign exchange forward contracts with financial institutions with respect to U.S. dollar-denominated exports, aswell as U.S. dollar- and Canadian dollar-denominatedimports. Through these measures, we reduce our exposure
to foreign exchange risk related to operating transactions.
However, in the event of unforeseeable foreign exchange
rate movements, our operating results and financial position
could be negatively impacted.
Furthermore, gains and losses arising from foreign­currency-denominated transactions, as well as the translation into Japanese yen of foreign currency-denominatedreceivables and payables and the financial statements ofoverseas consolidated subsidiaries prepared in foreign
currencies, are subject to foreign exchange rate movements.
This could have a negative impact on our operating results
and financial position.

(4) Price Fluctuations for Primary Raw Materials
Raw material costs accounted for 57.7% of our cost of
manufacturing in the fiscal year ended March 31, 2015.
Raw material prices fluctuate for a variety of reasons. In the
Collagen Material business, primary raw materials such as
bovine bones and hides, pig skin and fish scales are all
byproducts of the livestock and fishery industries. The raw
material price may fluctuate depending on changes in meat
consumption reflecting global economic conditions, aswell as changes in supply-demand dynamics driven by­regulations governing food processing and distribution in
response to various animal epidemics and other factors. In
the Formula Solution business, prices of natural polysaccharides, the primary raw material in the food material
divisions may fluctuate due to changes in the climate ofgrowing regions and other factors. Prices of petroleum
resins, the key raw material for adhesives, may fluctuate
due to changes in commodity prices and supply-demand
dynamics for heavy oil and naphtha.
Meanwhile, in some cases the market environment andother factors can make it difficult to transfer the impact ofprice fluctuations for these key raw materials to the selling
price of our products. Accordingly, fluctuations in raw materials prices could have a negative impact on our operating
results and financial position.

17

18

NITTA GELATIN ANNUAL REPORT 2015

(5) Animal Diseases
Our primary products, including gelatin, collagen peptide,collagen casing and collagen, are made from animal­byproducts derived from livestock and fishery production,such as bovine bones and hides, pig skins, and fish scales.
Accordingly, these materials are subject to the risk of animal
diseases. We therefore procure these materials only after
confirming that they are free from any animal infectious
diseases, while working to diversify the sourcing region of
raw materials in order to ensure their safety.
Despite these efforts, in the event that an extensive
outbreak of animal disease occurs in a region from which
we procure raw materials, the supply of raw material bones
and skins may decline or stop due to a suspension or stoppage of meat production, or may cause us to switch to analternative region for sourcing raw materials. These andother related factors may have a negative impact on thestable procurement of raw materials.
In addition, our product sales may be affected by theoutbreak of an animal disease in countries in which raw
materials are produced or products are manufactured.
­Specifically, product sales may stagnate due to import
restrictions and other measures imposed on animal products made from raw materials originating from or products
manufactured in these countries.
As a result of the foregoing, the Group may be impacted
by higher raw material procurement costs, reduced revenue
due to lower product sales, higher inventories and so forth.
This could negatively affect our operating results and financial position.

(6) Laws and Regulations
In the course of executing business activities, the Group’sbusiness is subject to Japanese laws and regulations,
including the Food Sanitation Law, the Japanese AgriculturalStandard and the Pharmaceutical and Medical Device Act aswell as directives issued by the competent authorities. In
the event that these laws and regulations are amended orabolished, or if new laws and regulations are established,
we may incur additional costs and other outlays to addressthese developments, or face restrictions in terms of thescope of our business activities.
Furthermore, the Group is subject to various laws andregulations in overseas countries where it conducts business. Our operating results and financial position could be
negatively impacted by changes to these laws and regulations and our status of legal compliance.
In regard to the environment, gelatin production requires
large amounts of water in the whole process, from raw materials to gelatin. For this reason, our plants are supplied withand release large amounts of water, and are subject to thelaws and regulations of each country and region in regard towastewater volume and water quality. Efforts are made ateach plant to recycle and reuse water and to upgrade production processes so as to reduce the volume of watersupplied and released and to maintain water quality. In theevent of a major amendment to national or regional laws

and regulations, we may incur costs associated withaddressing such new legislative changes.
The foregoing impacts could negatively affect our operating results and financial position.

(7) Religious Rules
Gelatin is an animal-derived product that is widely used infood, pharmaceutical capsules and other items. However, due
to religious injunctions, consumption of some of these items
may be forbidden, depending on the animal species and the
manufacturing methods. Main examples of such religious
rules include the Halal (Islam) and Kosher (Judaism).
­Followers of these religions are forbidden from consuming
pig-derived products. In order to sell proper gelatin to business customers who manufacture products for these consumers, we produce gelatin by procuring raw materials
derived from permissible animal species and by using appropriate manufacturing methods in line with religious rules. To
make certain that our products conform to religious rules, we
obtain certification through audits by certifying entities ofeach religion. In this context, we strictly manage our raw
materials and manufacturing. However, in the event that ourcertification is revoked as a result of a breach of a religious
rule due to a management deficiency, we will lose sales
opportunities, which could have a negative impact on ouroperating results and financial position.

(8) Natural Disasters, Accidents, Terrorism,
War and Other Contingencies
In the event of natural disasters such as earthquakes,
storms and floods, accidents, problems with local communities, regional terrorism, wars and other contingencies
at our business locations, the procurement of raw materials and the production and sale of products could be­disrupted, which could have a negative impact on our­operating results and financial position. Our businesslocations include our main offices and major outsourcing
partners (including those in Osaka, Shiga and Tochigi­prefectures, Japan; Province of Ontario, Canada; State ofNorth Carolina and New Jersey, U.S.A.; State of Kerala,
India; Guangdong Province, China; and Long An Province,­Vietnam), regions from which primary raw materials areprocured (including India, Canada, U.S.A., New Zealand,
Thailand, Pakistan and China), and primary regions where
products are sold (including Japan, North America, India,
China and various other Asian countries).

(9) Product Quality
We endeavor to put quality first in order to earn our customers’ trust. To this end, we develop products focused on
customer needs, and manufacture products under an internationally accepted quality assurance system. One particular focus lies in ensuring traceability from raw materials tofinished products in an effort to market safe products.

NITTA GELATIN ANNUAL REPORT 2015

We have enrolled in product liability insurance policies,
among other safeguards. However, in the event that a customer suffers damages as a result of defects in our products, there is no guarantee that our liability for damages will
be covered within the compensation limits of these insurance policies.
Accordingly, in the event of a serious quality problem, theensuing claims for damages, loss of public trust in theGroup and other factors could negatively impact our operating results and financial position.

(10) Alternative Products
There is a growing trend to switch the raw materials used incertain pharmaceuticals, cosmetics and food from animal toplant-derived materials. In the capsule market, one of ourcore markets for gelatin, this trend has given impetus to thedevelopment of plant-derived (starch and cellulose derivatives) capsule products. Certain pharmaceutical and healthfood manufacturers have adopted these capsules as analternative to gelatin capsules. We believe that the popularization of plant-derived capsules has been limited only tocertain segments of the market.
Nevertheless, in the event of new regulations on animalderived products or a change in consumer sentiment, therapid popularization of plant-derived capsules could reducedemand for gelatin capsules, and have a negative impact on
our operating results and financial position.

paying taxes in the country of its jurisdiction. While theGroup pays close attention to international taxation risks
such as the transfer pricing taxation applicable in eachcountry, additional taxes may be imposed in the event that
the Group’s views on this matter conflict with those of the
tax authorities.

(13) Information Security
We have established an information system that enables
us to obtain and analyze necessary information in real timein various processes, including purchasing, production,
sales and management. We put particular emphasis on thestrict management of access rights to the system for the
purpose of ensuring stable system operation and preventing any leaks of sales data, including client data and personal information stored on the system. These efforts
notwithstanding, in the event of difficulty in maintaining thestable operation of the information system due to a software malfunction, unauthorized external access or otherfactors, our business activities could be disrupted. In theevent that sales or client data is leaked outside our Group,
we could face consequences such as claims for damages
from customers, and a loss of public trust in our Group. As
a result, our operating results and financial position could
be negatively affected.

(14) Infringement of Intellectual Property Rights(11) Interest-Rate Fluctuations
We primarily borrow funds from financial institutions tofinance capital investments. The percentage of interestbearing liabilities relative to total assets was 27.7%(including lease obligations) in the fiscal year ended
March 31, 2015.
We endeavor to reduce borrowings and other interestbearing liabilities. However, in the event of an increase inmarket interest rates going forward, our operating results
and financial position could be negatively impacted.

We protect our intellectual property rights through suchmeans as obtaining patents on proprietary technology andother innovations we have developed. Efforts are also
made in the product development process to prevent any
infringement of rights held by third parties, including intellectual property rights. These efforts notwithstanding, wecannot completely rule out the possibility of becoming
subject to allegations and claims by third parties concerning the ownership or infringement of intellectual property
and other rights. In the event that we are subject to claims
for damages or cease-and-desist orders as a result, ouroperating results and financial position could be negatively affected.

(12) Taxation
In Japan, a 17% tariff is levied on imported gelatin except
for photographic use. Going forward, the selling price of
these imports may decrease as a result of the reduction
or abolition of this tariff. A price difference may arise
between imports such as South American bovine hidegelatin and Indian bovine bone gelatin, and bovine bonegelatin produced at the Company’s Osaka Plant. In suchan event, our operating results and financial position
could be negatively affected.
Moreover, the Group conducts production and sales
activities on a global scale, and materials, semi-finishedgoods and other items are mutually supplied within theGroup. Each Group business entity complies with the tax
laws to follow the proper procedures for calculating and(15) Legal Disputes and Litigation
In the course of our business activities, we endeavor toenhance our internal control system and strengthen compliance, encompassing legal compliance and observance ofsocial norms, while reducing our exposure to various formsof risk. At the same time, the Group receives advice fromlawyers and other experts as necessary.
These efforts notwithstanding, the Group may be subject
to lawsuits in the course of business activities, irrespectiveof whether or not there is a breach of laws or regulations. In
such an event, our operating results and financial position
could be negatively affected.

19

20

NITTA GELATIN ANNUAL REPORT 2015

CONSOLIDATED BALANCE SHEETS
Nitta Gelatin Inc. and Consolidated Subsidiaries
As of March 31, 2015 and 2014

2015

2014

Thousands of U.S.
dollars (Note 1)
2015

AssetsCurrent assets:
Cash and deposits (Notes 5, 9 and 17)
Notes and accounts receivable (Note 9)Inventories (Note 3)
Deferred tax assets (Note 6)
Other
Allowance for doubtful accounts
Total current assets¥ 2,622
6,726
8,221
139
330
(2)
18,038¥ 2,426
8,164
7,642
158
306
(13)
18,685$ 21,822
55,98068,422
1,156
2,746
(16)
150,129

Property, plant and equipment:
Buildings and structures (Note 5)
Machinery, equipment and vehicles (Note 5)
Land (Note 5)
Lease assets (Note 8)
Construction in progress
Other
Accumulated depreciation
Net property, plant and equipment

9,700
13,028
781
1,195
435
1,339
(15,632)
10,848

7,564
9,841
768
1,136
2,260
1,316
(14,084)
8,804

80,732
108,431
6,500
9,945
3,620
11,144(130,104)
90,287

69

50

574

3,984
5
185
689
109
4,974
¥ 33,932

3,075
8
399
253
111
3,849
¥ 31,389

33,158
41
1,539
5,734
907
41,398$ 282,413

Millions of yen

Intangible assets

Investments and other assets:
Investment securities (Notes 4, 5 and 9)
Long-term loans receivable
Deferred tax assets (Note 6)
Asset for retirement benefits (Note 7)
Other
Total investments and other assets
Total assets
See notes to consolidated financial statements.

NITTA GELATIN ANNUAL REPORT 2015

2015

2014

Thousands of U.S.
dollars (Note 1)
2015

Liabilities
Current liabilities:
Notes and accounts payable (Note 9)
Short-term loans payable (Note 5)
Current portion of long-term debt (Notes 5 and 9)
Lease obligations (Notes 5 and 8)
Other payable (Note 9)
Income taxes payable
Provision for bonuses
Other
Total current liabilities¥ 3,768
1,705
2,127
232
1,435
206
173
626
10,274¥ 4,255
1,121
1,932
215
1,747
147
177
481
10,080$ 31,360
14,19017,702
1,930
11,943
1,714
1,439
5,210
85,509Noncurrent liabilities:
Long-term debt (Notes 5 and 9)
Lease obligations (Notes 5 and 8)
Liability for retirement benefits (Note 7)
Provision for directors’ retirement benefits
Other
Total noncurrent liabilities
Total liabilities

4,867
475
2,661
38
240
8,283
18,558

4,415
495
2,524
37
55
7,528
17,60840,507
3,953
22,147316
1,997
68,938
154,456

3,144

3,144

26,167

2,966
9,312
(0)
15,423

2,966
8,623
(0)
14,734

24,68577,503(0)
128,364

1,121
33
601
(1,908)(152)102
15,373¥33,932

622
(5)
(187)
(1,528)(1,097)
144
13,781¥31,389

9,330
274
5,002
(15,880)(1,265)848
127,948$282,413

Millions of yen

Commitments and contingent liabilities (Notes 8, 10 and 11)
Net assets
Shareholders’ equity (Note 14):
Capital stock:
Authorized — 50,000,000 shares
Issued — 18,373,974 shares in 2015 and 2014
Capital surplus
Retained earnings
Treasury stock — 162 shares in 2015 and 2014
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Accumulated adjustments for retirement benefits (Note 7)
Total accumulated other comprehensive income
Minority interests
Total net assets
Total liabilities and net assets
See notes to consolidated financial statements.

21

22

NITTA GELATIN ANNUAL REPORT 2015

CONSOLIDATED STATEMENTS OF INCOME
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2015 and 2014

2015

2014

Thousands of U.S.
dollars (Note 1)
2015¥31,91425,944
5,970¥32,814
26,3296,484$265,617
215,930
49,687

5,577
392

5,528
955

46,416
3,262

24
(151)
36
112
578
–
(66)
–
(34)
–
41
540

24
(133)
35
97
166
(23)
(37)
89
(29)
(104)
31
114

199
(1,256)
299
932
4,810
–
(549)
–
(282)
–
341
4,494

933

1,070

7,765

376
(23)
353

350
67
418

3,129
(191)
2,937

580
(29)
¥   610651(13)¥   665

4,827
(241)
$  5,076

Millions of yen

Net sales
Cost of sales (Note 3)
Gross profit
Selling, general and administrative expenses (Note 12)
Operating income
Other income (expenses):
Interest and dividends income
Interest expenses
Rent income
Equity in earnings of affiliates
Foreign exchange gains
Going public expenses
Commissions paid
Guarantees received
Loss on retirement of noncurrent assets
Loss on change in equity
Other, net

Income before income taxes and minority interests
Income taxes (Note 6):
Current
Deferred
Total income taxes
Income before minority interests
Minority interests in income
Net income (Note 16)
See notes to consolidated financial statements.

NITTA GELATIN ANNUAL REPORT 2015

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2015 and 2014

Millions of yen

Income before minority interests

Thousands of U.S.
dollars (Note 1)
2015

2015

2014

¥  580¥  651$ 4,827

Other comprehensive income (Note 18):
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Pension liability adjustment of foreign subsidiaries
Adjustments for retirement benefits
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income
Comprehensive income

498
18
638
–
(370)

123
(30)
388
(11)
–

4,144
149
5,310
–
(3,079)165
950¥1,530105
575¥1,2271,373
7,906$12,734

Comprehensive income attributable to:
Owners of the parent
Minority interests¥1,555(24)¥1,2242$12,942(199)

See notes to consolidated financial statements.

23

24

NITTA GELATIN ANNUAL REPORT 2015

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2015 and 2014

Balance at March 31, 2013
Issuance of new shares
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity
Balance at March 31, 2014
Cumulative effect of changes in accounting policies
Balance at April 1, 2014 after reflecting changes inaccounting policies
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity
Balance at March 31, 2015

Capitalstock

Millions of yen
Shareholders’ equity
CapitalRetained
Treasury
surplusearnings
stock¥1,577
1,567¥1,3981,567¥8,194

¥(0)

(236)
665

Total

¥11,170
3,135
(236)
665
–
¥14,734
299¥3,144¥2,966¥8,623
299

¥(0)

3,144

2,966

8,922
(220)
610

(0)

¥3,144¥2,966¥9,312¥(0)

15,033(220)
610–¥15,423

Total

Minority
interests

Total
net assets

Millions of yen
Accumulated other comprehensive income
Valuationdifference
Deferredon available- gains orfor-salelosses on
securities
hedgesBalance at March 31, 2013 ¥  499Issuance of new shares
Dividends from surplus
Net income
Net changes of
items other thanshareholders’ equity
122
Balance at March 31, 2014 ¥  622Cumulative effect ofchanges in accounting
policies
Balance at April 1, 2014
after reflecting changes inaccounting policies
622
Dividends from surplus
Net income
Net changes of
items other thanshareholders’ equity
498
Balance at March 31, 2015 ¥1,121
See notes to consolidated financial statements.

Foreigncurrencytranslation
adjustment

Accumulated Pension liability
adjustments
adjustment
for retirementof foreign
benefits
subsidiaries¥27¥(667)¥–¥(1,452)¥(1,592)¥147¥ 9,724
3,135
(236)
665

(32)
¥ (5)

480
¥(187)(1,528)¥(1,528)

1,452
¥–

494
¥(1,097)

(3)
¥144

491
¥13,781

299

(5)

(187)

(1,528)–(1,097)144

14,080
(220)
610

38
¥33

788
¥601

(379)
¥(1,908)

–
¥–

945
¥  (152)

(41)
¥102

904
¥15,373

NITTA GELATIN ANNUAL REPORT 2015

Thousands of U.S. dollars (Note 1)
Shareholders’ equity
CapitalRetained
Treasury
surplusearnings
stock

Capitalstock

Balance at March 31, 2014
Cumulative effect of changes in accounting policies
Balance at April 1, 2014 after reflecting changes inaccounting policies
Dividends from surplus
Net income
Net changes of items other than shareholders’ equity
Balance at March 31, 2015

Total

$26,167$24,685$71,768
2,488

$(0)

$122,630
2,488

26,167

24,68574,257(1,831)5,076(0)$26,167$24,685$77,503$(0)

125,118(1,831)
5,076–$128,364

Minority
interests

Total
net assets

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Valuationdifference
Deferredon available- gains orfor-salelosses on
securities
hedgesBalance at March 31, 2014
Cumulative effect ofchanges in accounting
policies
Balance at April 1, 2014
after reflecting changes inaccounting policies
Dividends from surplus
Net income
Net changes of
items other thanshareholders’ equity
Balance at March 31, 2015

$5,176

Foreigncurrencytranslation
adjustment

Accumulated Pension liability
adjustments
adjustment
for retirementof foreign
benefits
subsidiaries$(41) $(1,556) $(12,717)

$–

Total

$(9,130) $1,198 $114,698

2,488

5,176

(41)

(1,556)(12,717)–(9,130)4,144$9,330

316
$274

6,558
$5,002(3,154)$(15,880)

$–

7,865
(341)
7,523
$(1,265) $  848 $127,948

See notes to consolidated financial statements.

1,198

117,186(1,831)
5,076

25

26

NITTA GELATIN ANNUAL REPORT 2015

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nitta Gelatin Inc. and Consolidated Subsidiaries
Years ended March 31, 2015 and 2014

Millions of yen

Operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Increase (decrease) in provision for directors’
retirement benefits
Increase (decrease) in provision for bonuses
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in liability for retirement benefits
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Equity in earnings of affiliates
Loss on retirement of noncurrent assets
Loss (gain) on change in equity
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Investing activities:
Payments into time deposits
Proceeds from withdrawal of time deposits
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Purchase of stocks of affiliates
Proceeds from cancellation of insurance funds
Purchase of insurance funds
Other, net
Net cash provided by (used in) investing activities
See notes to consolidated financial statements.

Thousands of U.S.
dollars (Note 1)
2015

2015

2014

¥

933
1,115

¥ 1,070914$ 7,765
9,280

1
(8)
(13)
9
(24)
151
(267)
(112)
34
–
1,740
(308)
(802)
117
(125)
2,441
106
(152)
(321)
2,074

1
(46)
(2)
(27)
(24)
133
(35)
(97)
29
104
(2,147)
(624)
324
(52)
88
(391)
134
(134)
(301)
(692)

8
(66)
(108)
74
(199)
1,256
(2,222)(932)
282–
14,481(2,563)(6,674)973(1,040)20,316882(1,265)(2,671)
17,261(20)
20(2,449)
(30)
(6)
–
–
(2)
(15)
¥(2,505)(20)
20(2,949)
(12)
(6)
(142)
15
(4)
(5)
¥(3,105)(166)
166(20,382)
(249)
(49)
–
–
(16)
(124)
$(20,848)

NITTA GELATIN ANNUAL REPORT 2015

Millions of yen

Financing activities:
Net increase (decrease) in short-term loans payable
Proceeds from long-term debt
Repayment of long-term debt
Redemption of bonds
Proceeds from issuance of common stock
Proceeds from sale and leaseback transactions
Repayments of lease obligations
Cash dividends paid
Cash dividends paid to minority shareholders
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 17)
See notes to consolidated financial statements.

2015

2014

¥

¥

454
2,495
(2,147)
–
–
214
(235)
(220)
(16)
544
83
196
2,406
¥ 2,602(91)
3,222(2,165)
(200)
3,135
432
(216)
(236)
(5)
3,875
70
147
2,258
¥ 2,406

Thousands of U.S.
dollars (Note 1)2015$ 3,778
20,765(17,869)––
1,781(1,955)(1,831)
(133)
4,527
690
1,631
20,024$ 21,656

27

28

NITTA GELATIN ANNUAL REPORT 2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nitta Gelatin Inc. and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Nitta Gelatin Inc. (the “Company”) and its consolidated subsidiaries(together, the “Group”) have been prepared in accordance with the provisions set forth in the Financial Instruments andExchange Act of Japan and its related accounting regulations and in conformity with accounting principles generally acceptedin Japan which are different in certain respects as to application and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theconsolidated financial statements issued domestically in order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2014 financial statements to conform to theclassifications used in 2015.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company isincorporated and operates. As permitted by the regulations under the Financial Instruments and Exchange Act of Japan,
amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated
financial statements in yen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto were translated
from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥120.15 = U.S. $1, the approximate rateof exchange at March 31, 2015, and were then rounded down to the nearest thousand. As a result, the totals shown in theaccompanying consolidated financial statements in U.S. dollar do not necessarily agree with the sums of the individual
amounts. This translation of Japanese yen amounts into U.S. dollar amounts is included solely for convenience of readers
outside Japan. Such translation should not be construed as a representation that Japanese yen could be converted into U.S.
dollars at that or any other rate.

2. Significant Accounting Policies(1) Principles of consolidation and accounting for investments in unconsolidated subsidiaries and affiliates
The consolidated financial statements as of and for the fiscal year ended March 31, 2015 include the accounts of theCompany and its 14 significant subsidiaries (14 significant subsidiaries in 2014). The fiscal year-end of three consolidated
subsidiaries (December 31) differs from the consolidated fiscal year-end (March 31), and necessary adjustments are madefor any significant transactions between their fiscal year-end and the consolidated fiscal year-end.
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise
control over operations are consolidated, and those companies over which the Group has the ability to exercise significant
influence are accounted for using the equity method.
For the fiscal year ended March 31, 2015, three affiliates (three affiliates in 2014) are accounted for using the equity
method. Investments in companies accounted for using the equity method whose fiscal year-ends differ from the consolidated
fiscal year-end are accounted for on the basis of the companies’ respective fiscal year-end. Investments in one unconsolidated
subsidiary and two affiliates are excluded from the application of the equity method and stated at cost because the Group’s
share of their net income and retained earnings have slight effects on the accompanying consolidated financial statements
and are considered insignificant overall.

(2) Foreign currency translation
Receivables and payables denominated in foreign currencies are translated into yen at the exchange rates as of the consolidated balance sheet date, and differences arising from the translation are included in the consolidated statements of income.
The asset and liability accounts of foreign consolidated subsidiaries are translated into yen at the exchange rates as of
the consolidated balance sheet date, and revenue and expense accounts are translated at the average rate during the fiscal
year. Differences arising from the translation are presented in foreign currency translation adjustment and minority interests
in net assets.

(3) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, cash in banks which can be withdrawn at any time and short-term
investments with a maturity of three months or less when purchased which are readily convertible into cash and are exposed
to insignificant risk of changes in value.

NITTA GELATIN ANNUAL REPORT 2015(4) Investment securities
In general, securities are classified into three categories: trading, held-to-maturity or available-for-sale securities. Securities
held by the Group are all classified as available-for-sale securities. Available-for-sale securities with a determinable market
value are stated at fair value, with any changes in unrealized holding gain or loss, net of the applicable income taxes,
included directly in net assets. Cost of securities sold is determined by the moving-average method. Available-for-salesecurities without a determinable market value are stated at cost determined by the moving-average method.

(5) Inventories
Finished goods are mainly stated at the lower of cost determined by the gross average method or net selling value. Merchandise,semi-finished goods, work in process, raw materials and supplies are mainly stated at the lower of cost determined by themoving-average method or net selling value.

(6) Property, plant and equipment and depreciation (excluding lease assets)
Depreciation of property, plant and equipment held by the Company and its domestic consolidated subsidiaries is computed by
the declining-balance method, except for buildings on which depreciation is computed by the straight-line method. Depreciationof property, plant and equipment held by foreign consolidated subsidiaries is computed mainly by the straight-line method.
The useful lives of property, plant and equipment are summarized as follows:
Buildings and structures:
7 to 50 years
Machinery, equipment and vehicles: 2 to 10 years(7) Intangible assets and amortization (excluding lease assets)
Intangible assets are amortized by the straight-line method. Internal-use software is amortized by the straight-line method
over the estimated useful life of five years.

(8) Lease assets
Lease assets are depreciated by the straight-line method over the lease term with no residual value (residual value guarantee
amount if it is agreed).

(9) Allowance for doubtful accounts
The Company and its domestic consolidated subsidiaries provide allowance for doubtful accounts mainly to cover a loss from
uncollectible receivables at an amount determined based on the historical experience of bad debt with respect to ordinary
receivables and an estimated uncollectible amount based on individual collectibility of specific doubtful receivables such as
doubtful accounts receivable.
The foreign consolidated subsidiaries provide allowance for doubtful accounts mainly at an estimated uncollectible
amount for specific doubtful receivables.

(10) Provision for bonuses
The Company and its consolidated subsidiaries record provision for bonuses at an amount estimated to cover the bonus
payments for services rendered by employees during each fiscal year.

(11) Provision for directors’ retirement benefits
Certain domestic consolidated subsidiaries record provision for directors’ retirement benefits to cover future payments at an
amount required according to the internal rules as of the balance sheet date.

(12) Accounting method for retirement benefits
The retirement benefit obligation is calculating by allocating the estimated retirement benefits to period of service by thebenefit formula method.
Prior service benefits and costs are recognized as income or expense by the straight-line method over a certain period(mainly 10 years) which is within the average remaining years of service of the employees at the time they arise.
Actuarial gains and losses are amortized by the straight-line method over a certain period (mainly 10 years), which iswithin the average remaining years of service of the employees at the time when the gains or losses arise, from the fiscal
year following the fiscal year in which it arises.
Certain consolidated subsidiaries apply the simplified method for the calculation of liability for retirement benefits andretirement benefit costs. Under the simplified method, these subsidiaries provide the amount which is required if all employees
retire voluntarily at the end of their fiscal year as liability for retirement benefits.

29

30

NITTA GELATIN ANNUAL REPORT 2015(13) Hedge accounting
In principle, deferral hedge accounting is adopted for hedge transactions. Interest rate swaps are accounted for by the exceptional
treatment if the interest rate swaps meet certain criteria to adopt the treatment.
The following summarizes hedging derivative instruments used by the Group and items hedged:
2015
Hedging instruments
Hedged items
Foreign exchange forward contracts	Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies
Interest rate swaps
Loans and debt
2014
Hedging instruments
Hedged items
Foreign exchange forward contracts	Payables denominated in foreign currencies in connection with imports of raw
materials and forecasted transactions denominated in foreign currencies
Interest rate swaps
Loans and debt
As a policy, the Group utilizes derivative transactions within a certain range to hedge market fluctuations in connection withhedged items in accordance with internal management rules defining authorization policies and transaction limits. The Groupassesses the hedge effectiveness by comparing the accumulated gains or losses on the hedging instruments and the related
hedged items during the period from the commencement of the hedging transactions to the assessment of effectiveness. Forinterest rate swaps accounted for by the exceptional treatment, however, the assessment of effectiveness is not performed.

(14) Income taxes
Income taxes are computed based on taxable income of each group company.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in whichthose temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities due tothe change in tax rate is recognized in the statement of income for the period including the enacted date.

(15) Accounting change(Application of Accounting Standard for Retirement Benefits, etc.)
With regard to the “Accounting Standard for Retirement Benefits” (Accounting Standards Board of Japan (ASBJ) Statement
No. 26, issued on May 17, 2012; hereinafter, the “Retirement Benefits Standard”) and the “Guidance on Accounting­Standard for Retirement Benefits” (ASBJ Guidance No. 25, issued on March 26, 2015; hereinafter, the “Retirement Benefits
Guidance”), the Company adopted the stipulations of Article 35 of the Retirement Benefits Standard and of Article 67 of the
Retirement Benefits Guidance from April 1, 2014.
As a result, the Company revised its calculation method of retirement benefit obligations and service costs, and changed
its method for attributing estimated retirement benefits to accounting periods from the straight-line method to the benefit
formula method.
At the same time, the method for determining the discount rate was changed to apply a single weighted-average discountrate reflecting the estimated period of benefit payments and amounts to be paid in each period. Formerly, this discount rate
was based on a close approximation of the number of years the Company’s employees had on average until retirement.
In accordance with the transitional treatment stipulated by Article 37 of the Retirement Benefits Standard and as ofApril 1, 2014, the amounts that correspond to the effect of the change in the calculation method of retirement benefit­obligations and service costs were added to, or deducted from, the beginning balance of retained earnings of the fiscal year
ended March 31, 2015.
As a result, net defined benefit liability decreased by ¥238 million ($1,980 thousand), net defined benefit asset
increased by ¥225 million ($1,872 thousand), and retained earnings increased by ¥299 million ($2,488 thousand) in the
beginning balance of the fiscal year ended March 31, 2015.
This change will have only a negligible impact on operating income and income before income taxes and minority interests
for the fiscal year ended March 31, 2015.
Also net assets per share as of March 31, 2015 increased by ¥16.28 ($0.13).
The effect on net income per share for the fiscal year ended March 31, 2015 was immaterial.

NITTA GELATIN ANNUAL REPORT 2015(16) New accounting standards(Application of Accounting Standard for Business Combinations, etc.)
The ASBJ issued the following revised accounting standards and guidances on September 13, 2013:“Revised Accounting Standard for Business Combinations” (ASBJ Statement No. 21)“Revised Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22)“Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7)“Revised Accounting Standard for Earnings per Share” (ASBJ Statement No. 2)“Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures”(ASBJ Guidance No. 10)“Revised Guidance on Accounting Standard for Earnings per Share” (ASBJ Guidance No. 4)
1. Outline
The purpose of this amendment is mainly to revise (1) how to account for changes in the parent company’s equity as a resultof an additional acquisition of stock, etc., in a subsidiary over which the parent remains in control, (2) how to account for the
related acquisition costs, (3) the presentation of net income and changes to the presentation of minority interests as noncontrolling interests, and (4) provisional accounting treatments.
2. Scheduled adoption date
These accounting standards and guidances will be effective from the beginning of the fiscal year ending March 31, 2016.
Provisional accounting treatments will be effective for business combinations that take place on or after April 1, 2015.
3. Impact of applying the accounting standards
The Company is in the process of assessing the impact of applying the revised accounting standards.

3. Inventories
The balances of inventories as of March 31, 2015 and 2014 consisted of the following:
Millions of yen

Merchandise and finished goods
Work in process
Raw materials and supplies
Inventories, total

2015

2014

¥4,8211,243
2,156¥8,221¥4,732
1,089
1,820¥7,642Thousands of
U.S. dollars
2015$40,124
10,345
17,944$68,422

Inventory write-downs of ¥39 million ($324 thousand) and ¥(28) million were recorded in cost of sales for the fiscal years
ended March 31, 2015 and 2014, respectively, due to a decline in profitability.

31

32

NITTA GELATIN ANNUAL REPORT 2015

4. Investment Securities
Information on available-for-sale securities as of March 31, 2015 and 2014 was as follows:
Millions of yen

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total

Carrying value

2015
Acquisition
cost

Difference¥1,893¥238

2¥1,8952¥240

Carrying value

2014
Acquisition
cost

Difference¥1,655¥1,194

¥227

¥966

(0)
¥1,654

5¥1,199

6
¥234

(1)
¥965

Thousands of U.S. dollars
2015
Acquisition
Carrying value
cost
Difference

Securities whose carrying value
exceeds their acquisition cost:
Equity securities
Securities whose carrying value does
not exceed their acquisition cost:
Equity securities
Total$15,755$1,980$13,774

16$15,771

16$1,997(0)$13,766

Unlisted equity securities of ¥18 million ($149 thousand) as of March 31, 2015 and 2014 were not included in the abovetables as there were no market prices available and it is extremely difficult to determine their fair value.
Investments in unconsolidated subsidiaries and affiliates of ¥2,070 million ($17,228 thousand) and ¥1,857 million were
included in investment securities as of March 31, 2015 and 2014, respectively.
Impairment losses on available-for-sale securities with fair market value are recognized if the available fair market value
declined by 50% or more from the acquisition cost or when the fair market value declined by 30% to 50% and the decline wasconsidered not recoverable.

5. Short-Term Loans Payable, Long-Term Debt and Lease Obligations
Millions of yen

Current portion of long-term debt
Lease obligations (current portion)
Long-term debt excluding current
portionLease obligations excluding current
portionLess: Current portion

Millions of yen
2014

Thousands of
U.S. dollars
2015

Amount2015
Weightedaverageinterest rate (%)

DueAmountAmount¥2,127232

1.511%–––¥1,932215$ 17,702
1,930

4,867

1.802

2016 to 2021

4,415

40,507475
7,702(2,359)¥5,342–2016 to 2022

495
7,060
(2,148)¥4,911

3,953
64,103(19,633)$ 44,461

The weighted-average interest rate of short-term loans payable at March 31, 2015 was 2.079%.
The average interest rate on lease obligations is not provided because the balance of lease obligations includes interest
equivalent that is contained in the total lease payments.

NITTA GELATIN ANNUAL REPORT 2015

The maturities of long-term debt and lease obligations outstanding on or after April 1, 2015 were as follows:Year ending March 31,

2016
2017
2018
2019
2020 and thereafter
Total

Millions of yen
Long-term debt
Lease obligations¥2,127
1,708
1,285
968
904
¥6,995

¥232
185
154
87
47
¥707

Thousands of U.S. dollars
Long-term debt
Lease obligations$17,702
14,215
10,694
8,056
7,523$58,218$1,930
1,539
1,281
724
391
$5,884

The following assets were pledged as collateral as of March 31, 2015 and 2014.
Millions of yen

Buildings and structures
Machinery, equipment and vehicles
Land
Investment securities
Total
Assets pledged as collateral for factory foundation mortgages
included in the above assets:
Buildings and structures
Machinery, equipment and vehicles
Land
Total

Thousands of
U.S. dollars
2015

2015

2014

¥1,757196
191
328¥2,473¥1,20381
191
213¥1,689$14,623
1,631
1,589
2,729
$20,582¥1,757196
191¥2,145¥1,20381
191¥1,475$14,623
1,631
1,589$17,852

The obligations collateralized by the above assets as of March 31, 2015 and 2014 were as follows:
Millions of yen

Long-term debt
Factory foundation mortgage included in the above liabilities:
Long-term debt

Thousands of
U.S. dollars
2015

2015

2014

¥3,302¥3,214$27,482¥3,021¥2,920$25,143

For the purpose of obtaining working funds effectively, the Company and one consolidated subsidiary had entered into
overdraft agreements and loan commitment agreements with five banks as of March 31, 2015 and 2014.
Information of overdraft agreements and loan commitment agreements was as follows:
Millions of yen

Contract amounts
Borrowing outstanding
Unused balance

2015

2014

¥4,950(400)¥4,550¥4,950–¥4,950Thousands of
U.S. dollars
2015$41,198(3,329)$37,869

33

34

NITTA GELATIN ANNUAL REPORT 2015

6. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiaries comprise corporation, inhabitants andenterprise taxes. The statutory tax rate applicable to the Company was approximately 35.6% and 38.0% for the fiscal years
ended March 31, 2015 and 2014, respectively. For the fiscal year ended March 31, 2015, reconciliations between the statutory income tax rate and the effective income tax rate as a percentage of income are as follows:
2015

Statutory tax rate
Adjustments for:Non-deductible expenses for income tax purposes
Non-taxable income
Inhabitants taxes—per capita levy
Tax credit for research and development, etc.
Unrecognized net increase (decrease) in tax effect on loss carryforwards of subsidiaries
Difference in tax rates between the Company and its consolidated subsidiaries
Equity in earnings of affiliates
Downward adjustment to ending deferred tax assets due to changes in the statutory tax rate
Other
Effective tax rate

35.6%
0.9
(0.1)
1.1
(5.7)
3.4
2.8
(4.3)
5.5
(1.4)
37.8%

For the fiscal year ended March 31, 2014, reconciliations between the statutory income tax rate and the effective income
tax rate as a percentage of income are omitted since the difference between the statutory income tax rate and the effective
income tax rate was less than 5% of the statutory income tax rate.
The significant components of deferred tax assets and liabilities at March 31, 2015 and 2014 were as follows:
Millions of yen

Deferred tax assets:
Loss on valuation of inventories
Unrealized profit
Provision for bonuses
Accrued enterprise tax
Loss on valuation of golf club membership
Loss on valuation of investment securities
Liability for retirement benefits
Provision for directors’ retirement benefits
Interest expenses
Impairment loss
Tax loss carryforward
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Valuation difference on available-for-sale securities
Asset for retirement benefits
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2015

2015

2014

¥

61
31
64
19
1
225
642
28
19
26
1,221
34
2,378
(1,067)
1,311¥   47
38
72
15
1
249
851
29
23
29
752
50
2,162
(996)
1,165

$   507
258
532
158
8
1,872
5,343
233
158
216
10,162282
19,791(8,880)10,911

(582)
(533)
(59)
(1,175)
¥ 135

(235)
(342)
(34)
(611)
¥  553(4,843)(4,436)(491)(9,779)$ 1,123

Following the promulgation of the “Act for Partial Revision of the Income Tax Act” (Act No. 9, 2015) on March 31, 2015,
the corporate income tax rate, etc., will be reduced from fiscal years beginning on or after April 1, 2015, among other revisions.

NITTA GELATIN ANNUAL REPORT 2015

In line with this change, the statutory income tax rate used to calculate deferred tax assets and deferred tax liabilities for
temporary differences expected to reverse in the fiscal year beginning on April 1, 2015 has been reduced from the previous
35.6% to 33.1%, and for temporary differences expected to reverse in the fiscal year beginning on April 1, 2016 has been
reduced to 32.3%.
As a result of these changes in the tax rate, the amount of deferred tax liabilities (less the amount of deferred tax assets)
decreased by ¥7 million ($58 thousand), valuation difference on available-for-sale securities increased by ¥54 million ($449
thousand), deferred gains or losses on hedges increased by ¥0 million ($0 thousand) and accumulated adjustments for
retirement benefits increased by ¥4 million ($33 thousand) in the consolidated balance sheets as of March 31, 2015, while
income taxes-deferred increased by ¥51 million ($424 thousand) for the fiscal year then ended.

7. Retirement Benefit Plans
The Company and certain consolidated subsidiaries have defined benefit plans and defined contribution plans for employees’ retirement benefits. Defined benefit plans are composed of lump-sum payment plans and defined benefit corporate
pension plans.
The lump-sum payment plans which certain consolidated subsidiaries have are calculated using the simplified
accounting method.

(1) Defined benefit plans including plan applied simplified method(a) Retirement benefit obligations
Millions of yen

Retirement benefit obligations:
Balance at beginning of year
Cumulative effect of changes in accounting policies
Balance at beginning of year after reflecting changes
in accounting policies
Service cost
Interest cost
Actuarial gains and losses
Benefits paid
Foreign currency translation adjustment
Balance at end of year

Thousands of
U.S. dollars
2015

2015

2014

¥8,379(464)¥7,632–$69,737(3,861)

7,914
221
239
330
(460)
580
¥8,827

7,632
179
259
372
(357)
293
¥8,37965,867
1,839
1,989
2,746
(3,828)
4,827$73,466(b) Plan assets
Millions of yen

Plan assets:
Balance at beginning of year
Expected return on plan assets
Administrative fees
Actuarial gains and losses
Contribution paid by the employer
Contribution paid by the employees
Benefits paid
Foreign currency translation adjustment
Balance at end of year

2015

2014

¥6,107
286
(22)
211
161
2
(364)
472
¥6,855¥5,458
253
(23)
255
172
2
(249)
238
¥6,107

Thousands of
U.S. dollars
2015$50,828
2,380
(183)
1,756
1,339
16
(3,029)3,928$57,053

35

36

NITTA GELATIN ANNUAL REPORT 2015(c) Reconciliation from retirement benefit obligations and assets to liability (assets) for retirement benefits

2015

2014

Thousands of
U.S. dollars
2015¥ 7,160(6,855)305
1,666¥ 1,972¥ 2,661(689)¥ 1,972¥ 6,527(6,107)419
1,851¥ 2,271¥ 2,524(253)¥ 2,271$ 59,592(57,053)2,538
13,866$ 16,412$ 22,147(5,734)$ 16,412

2014

Thousands of
U.S. dollars
2015

Millions of yen

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Net liability (asset) for retirement benefits
Liability for retirement benefits
Asset for retirement benefits
Net liability (asset) for retirement benefits(d) Retirement benefit costs

Millions of yen
2015

¥ 221
239
(286)
22
92
(13)
¥ 276

Service cost
Interest cost
Expected return on plan assets
Administrative fees
Amortization of actuarial gains and losses
Amortization of prior service benefit and cost
Net retirement benefit costs

¥ 179
259
(253)
23
75
(13)
¥ 270

$ 1,839
1,989(2,380)
183
765
(108)
$ 2,297(e) Adjustments for retirement benefits
Thousands of
U.S. dollars
2015

Millions of yen
2015

Adjustments for retirement benefits:
Prior service costs
Actuarial gains and losses
Total

2014

¥ (13)(277)¥(290)$  (108)(2,305)$(2,413)

¥ –
18
¥18

(f) Accumulated adjustments for retirement benefits
Thousands of
U.S. dollars
2015

Millions of yen
2015

2014

Accumulated adjustments for retirement benefits:
Unrecognized prior service costs

¥

41

¥

55

$

341

Unrecognized actuarial gains and losses(1,950)(1,673)(16,229)

Total¥(1,908)¥(1,617)$(15,880)

2015

2014

50%
45
1
4
100%

54%
37
4
5
100%

(g) Plan assets
Plan assets comprise:

Bonds
Equity securities
Cash and deposits
Other
Total

Current and target asset allocations and current and expected returns on various categories of plan assets havebeen considered in determining the long-term expected rate of return.

NITTA GELATIN ANNUAL REPORT 2015(h) Actuarial assumptions

Discount rate:
The Company and domestic consolidated subsidiaries
Foreign consolidated subsidiaries
Long-term expected rate of return:
The Company and domestic consolidated subsidiaries
Foreign consolidated subsidiaries

2015

2014

1.0%
4.2%–4.4%

1.1%
3.3%–4.5%

2.1%
4.3%–6.5%

2.1%
4.3%–6.5%(2) Defined contribution plans
Certain consolidated subsidiaries that have defined contribution plans are expected to contribute ¥76 million ($632 thousand)and ¥71 million to the defined contribution plans for the fiscal years ended March 31, 2015 and 2014, respectively.

8. Leases(1) Finance leases (lessee)
The Company leases production facilities (machinery, equipment and vehicles) in connection with the Collagen Material­business as a lessee through finance lease transactions that do not transfer ownership of the leased property to the lessee.

(2) Operating leases
Future minimum lease payments subsequent to March 31, 2015 for non-cancelable operating leases were as follows:Year ending March 31,

20162017 and thereafter
Total

Millions of yen

Thousands of
U.S. dollars

¥ 54
162
¥216

$  4491,348$1,797

9. Financial Instruments(1) Overview(a) Policy for financial instruments
In consideration of plans for capital investment, the Group raises necessary funds mainly through bank borrowings. The
Group invests temporary surplus funds mainly in highly liquid financial assets and raises short-term operating capitalthrough bank borrowings. The Group uses derivatives to avoid after-mentioned risks and does not enter into derivatives
for speculative purposes.
(b) Descriptions of financial instruments and related risks
Trade receivables such as notes and accounts receivable are exposed to customer credit risk. Although trade receivables
denominated in foreign currencies arising from foreign operations are exposed to foreign currency risk, the balances ofreceivables are always less than payables denominated in the same currencies.
Investment securities are mainly composed of equity securities of companies with business relationship and are
exposed to market risk. The Company also provides long-term loans to companies with business relationship.
Substantially all trade payables such as notes and accounts payable have payment due dates within five months.
Although certain payables denominated in foreign currencies are exposed to foreign currency risk, such risk is hedged byforeign exchange forward contracts except for payables less than receivables denominated in the same currencies.
Long-term debt, bonds and lease obligations under finance leases are principally for the purpose of making capital
investments and due up to eight years from the balance sheet date. Although certain of them are exposed to interest
rate fluctuation risk, such risk is hedged by derivatives (interest rate swaps).
As for derivatives, the Group has entered into foreign exchange forward contracts to hedge the foreign currency risk
arising from trade payables denominated in foreign currencies and interest rate swap transactions to hedge fluctuation
risk deriving from interest payments of long-term debt.
Information regarding the method of hedge accounting, hedging instruments and hedged items, hedging policy andassessment of hedge effectiveness is disclosed in Note 2. “Significant Accounting Policies (13) Hedge accounting.”

37

38

NITTA GELATIN ANNUAL REPORT 2015(c) Risk management for financial instruments
Credit risk management (risk of default by customers or counterparties)
In accordance with the credit management rules of the Company, for trade receivables and long-term loans receivable,sales departments of each division monitor credit worthiness of their main customers periodically and manage due dates
and outstanding balances by customer. In addition, the Company is making efforts to identify uncollectibility in the earlier
stage and mitigate risks of bad debts from customers having financial difficulties. Consolidated subsidiaries similarly
manage such risks in accordance with the Company’s credit management rules.
The Company believes that the credit risk of derivatives is insignificant as it has entered into derivative transactions
only with financial institutions with a sound credit rating.
Market risk management (risks of fluctuations in foreign exchange rates, interest rates and others)
For trade payables denominated in foreign currencies, the foreign currency risk of the Company identified by currency on amonthly basis is hedged by foreign exchange forward contracts. In addition, in order to mitigate the interest rate risk forinterest payments of long-term debt, the Company has entered into interest rate swap transactions.
For investment securities, the Company periodically monitors the fair values and the financial position of the issuers(companies with business relationship) and continuously reviews the holding status taking into account market conditions
and relationships with the issuers.
Derivative transactions are conducted and managed by the responsible division with the approval of authorized
personnel in accordance with the internal management rules which define the authorization policies and transaction limits.
Consolidated subsidiaries have not entered into derivative transactions.
Management of liquidity risk on funding (risk of default at due dates)
Based on reports from each division, the responsible division of the Company prepares and updates its cash flow plan ona timely basis and manages liquidity risk by maintaining liquid funds. Consolidated subsidiaries manage their liquidity risk
in a similar manner.
(d) Supplementary explanation of the fair value of financial instruments
The fair value of financial instruments is based on their market price if available. When there is no market price available,
fair value is reasonably calculated. Since various assumptions and factors are reflected in the calculation of fair value,
different assumptions and factors could result in different fair value. In addition, the notional amounts of derivatives inNote 10. “Derivative Transactions” are not indicative of the market risk involved in derivative transactions.

(2) Fair value of financial instruments
Carrying value of financial instruments on the consolidated balance sheets as of March 31, 2015 and 2014, fair value andtheir difference are shown in the following table. Financial instruments whose fair value is extremely difficult to determine are
not included in the following table.

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Short-term loans payable
Long-term debt (including current portion)
Total liabilities
Derivative transactions(*)*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(

Carrying value

Millions of yen
2015
Fair value¥ 2,622
6,726
1,895
11,245
3,768
1,435
1,705
6,995
13,90420¥ 2,622
6,726
1,895
11,245
3,768
1,435
1,705
7,005
13,91520

Difference

¥   –
–
–
–
–
–
0
10
10
–

NITTA GELATIN ANNUAL REPORT 2015

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Long-term debt (including current portion)
Total liabilities
Derivative transactions(*)

Carrying value

Millions of yen
2014
Fair value¥ 2,426
8,164
1,199
11,790
4,255
1,747
6,348
12,3528¥ 2,426
8,164
1,199
11,790
4,255
1,747
6,359
12,3628

Difference

¥   –
–
–
–
–
–
10
10
–

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(

Thousands of U.S. dollars

Cash and deposits
Notes and accounts receivable
Investment securities
Total assets
Notes and accounts payable
Other payable
Short-term loans payable
Long-term debt (including current portion)
Total liabilities
Derivative transactions(*)

Carrying value

2015
Fair value$ 21,822
55,98015,771
93,591
31,36011,943
14,19058,218
115,722166$ 21,822
55,98015,771
93,591
31,36011,943
14,19058,302
115,813166

Difference

$   –
–
–
–
–
–
0
83
83
–

*) The value of assets and liabilities arising from derivative transactions is shown at net value.

(

Note 1. Methods to calculate the fair value of financial instruments and other matters related to securities andderivative transactions
Assets:Cash and deposits and Notes and accounts receivable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Investment securities
The fair value of equity securities is based on quoted market prices. The information on securities classified by holding
purpose is disclosed in Note 4. “Investment Securities.”
Liabilities:
Notes and accounts payable and Other payable
Since these items are settled in a short period of time, their carrying value approximates fair value.
Short-term loans payable and Long-term debt
The fair value of short-term loans payable and long-term debt is based upon the present value of the total of principal andinterest discounted by the interest rate to be applied if similar new borrowings were entered into.
Derivative transactions:
The information on derivative transactions is disclosed in Note 10. “Derivative Transactions.”

Note 2. Financial instruments whose fair value is extremely difficult to determine
Millions of yen
2015

Carrying value:
Unlisted equity securities

¥18

2014

¥18

Thousands of
U.S. dollars
2015

$149

These are not included in investment securities in the above table because there was no quoted market price available
and it is extremely difficult to determine the fair value.

39

40

NITTA GELATIN ANNUAL REPORT 2015(3) As of March 31, 2015 and 2014, monetary receivables with maturities were deposits of ¥2,617 million ($21,781 thousand)and ¥2,422 million and notes and accounts receivable of ¥6,726 million ($55,980 thousand) and ¥8,164 million,
respectively. These were all due within one year.

10. Derivative Transactions
Hedge accounting has been applied to all derivative transactions held by the Group as of March 31, 2015 and 2014, andtheir fair value information is stated as follows. Fair value is measured based on quotes and prices provided by counterparty
financial institutions.
Currency-related:
Millions of yen
Contract ornotional amount2015
Maturing after
one year¥620¥–

Deferral hedge accounting:Foreign exchange forward
contracts:
Buy: USD and CAD

Fair value

Contract ornotional amount2014
Maturing after
one year

Fair value

¥533

¥–

¥(8)

Contract ornotional amount2014
Maturing after
one year

Fair value¥2,050¥123¥20

Thousands of U.S. dollars
2015
Contract or
Maturing after
notional amount
one year
Fair value

Deferral hedge accounting:Foreign exchange forward
contracts:
Buy: USD and CAD$5,160$–Contract ornotional amount2015
Maturing after
one year

¥750

¥175

$166

Interest-related:
Millions of yen

Exceptional treatment:Interest rate swaps:
Receive/floating andpay/fixed

Fair value

*)

(

*)

(

Thousands of U.S. dollars
2015
Contract or
Maturing after
notional amount
one year
Fair value

Exceptional treatment:Interest rate swaps:
Receive/floating andpay/fixed$6,242$1,456*)(*) Interest rate swaps to which the exceptional treatment is applied are accounted for together with long-term debt designated as a hedged item. Therefore, theirfair value is included in the fair value of long-term debt.

(

11. Contingent Liabilities
As of March 31, 2015, the Group was contingently liable for the assignment of receivable with recourse in the amount of¥292 million ($2,430 thousand).

NITTA GELATIN ANNUAL REPORT 201512. Selling, General and Administrative Expenses
The main components of selling, general and administrative expenses for the fiscal years ended March 31, 2015 and 2014
were as follows:
Thousands of
U.S. dollars
2015

Millions of yen

Packing and freightage expenses
Salaries
Bonuses
Provision for bonuses
Retirement benefit costs
Provision for directors’ retirement benefits
Provision of allowance for doubtful accounts
Depreciation
Research and development expenses

2015

2014

¥  805
1,394
224
54
94
1
(14)
95
753

¥  822
1,305
205
60
74
1
3
86
814

$ 6,699
11,602
1,864
449
782
8
(116)
790
6,267

For the fiscal years ended March 31, 2015 and 2014, research and development expenses included in general and administrative expenses and manufacturing costs were ¥915 million ($7,615 thousand) and ¥1,004 million, respectively.

13. Information on Related Party Transactions
Transactions of the Company with affiliates for the year ended March 31, 2015 were as follows:

Name

Paid-in capital

Principal business

Ownership ratio

Description oftransaction or
account of balance

Millions of Thousands ofyen
U.S. dollars

Nitta Gelatin India Ltd. (Thousands of rupees) Production and Direct43.0% Purchase of¥2,109(Kerala, India)
90,791sale of gelatin
raw materials
and ossein¥  301
Notes andaccounts
payable$17,553$ 2,505

Transactions of the Company with affiliates for the year ended March 31, 2014 were as follows:
Name

Paid-in capital

Guangdong Baiwei
Bio Material Co., Ltd.
(Guangdong, China)(Thousands of RMB)
67,600Description oftransaction

Principal business

Ownership ratio

Manufactureof collagen
peptideDirect44.6% Subscription ofcapital stock

Millions of
yen

¥142

For the fiscal years ended March 31, 2015 and 2014, significant affiliates were Nitta Gelatin India Ltd. and Bostik-Nitta
Co., Ltd., and the condensed financial information prepared by combining the financial statements of these significant affiliates was as follows:
Millions of yen

Thousands of
U.S. dollars
2015

2015

2014

Total current assets
Total noncurrent assets¥3,3892,318¥2,9382,111$28,206
19,292

Total current liabilities
Total noncurrent liabilities

2,153
333

1,922
262

17,9192,771

Total net assets

3,220

2,864

26,799Net sales
Income before income taxes
Net income

9,682
571
343

8,040
327
185

80,582
4,752
2,854

41

42

NITTA GELATIN ANNUAL REPORT 201514. Shareholders’ Equity
The Companies Act of Japan provides that an amount equivalent to 10% of the amount of deduction from surplus as a resultof the payment of dividends shall be recorded as additional paid-in capital (a component of capital surplus) or legal reserve (acomponent of retained earnings) on the dividend date until the total of additional paid-in capital and legal reserve equals 25%of the capital stock account.
Such distributions can be made at any time by resolution of the shareholders’ meeting or the Board of Directors if certain
conditions are met.
Changes in the total number of shares of capital stock issued for the fiscal years ended March 31, 2015 and 2014 wereas follows:
As of March 31,

2013

Increase/(decrease)2014

Increase/(decrease)

2015

Issued:Common stock

15,770,074

2,603,900

18,373,974–

18,373,974

Treasury stock:
Common stock

162

–

162

–

162

For the fiscal year ended March 31, 2014, the increase in the number of issued shares of common stock was due toissuance of new shares by public offering, the payment date of which was July 29, 2013 (2,400,000 shares), and issuanceof new shares by third-party allotment, the payment date of which was August 28, 2013 (203,900 shares).

15. Information Related to the Consolidated Statements of Changes in Net Assets(1) Dividends paid to shareholders

Resolution

Type of shares

June 26, 2014
CommonAnnual General Meetstock
ing of Shareholders
November 6, 2014
CommonBoard of Directors
stock

Amount(Millions of yen)

2015
Amount(Thousands of
U.S. dollars)

Amount per
share (Yen)Amount per
share(U.S. dollars)

¥110

$915

¥6.00

$0.04

March 31,2014

June 27,
2014

110

915

6.00

0.04

September
30, 2014

December 5,
2014

Record date

Effective date

Record date

Effective date2014
Resolution

Type of shares

June 26, 2013
CommonAnnual General Meetstock
ing of Shareholders
November 5, 2013
CommonBoard of Directors
stock

Amount(Millions of yen)Amount per
share (Yen)

¥126

¥8.00

March 31,2013

June 27,
2013

110

6.00

September
30, 2013

December 6,
2013

NITTA GELATIN ANNUAL REPORT 2015

(2) Dividends with a record date during the fiscal year but an effective date subsequent to the fiscal year
2015

Resolution

AmountAmount(Thousands ofType of shares (Millions of yen) U.S. dollars)

June 25, 2015
Annual General Common
Meeting ofstock
Shareholders

¥110

$915

Paid from

Retainedearnings

Amountper share(Yen)

Amountper share(U.S. dollars)

¥6.00

$0.04

Record date

Effective date

March 31, June 26,
2015
2015

2014

Resolution

June 26, 2014
Annual General
Meeting of
Shareholders

AmountType of shares (Millions of yen)

Commonstock¥110

Paid from

Retainedearnings

Amountper share(Yen)

Record date

March 31,
2014

¥6.00

Effective dateJune 27,
2014

16. Amounts per Share
Net assets per share is computed based on net assets available for distribution to the shareholders of common stock andthe number of shares of common stock outstanding at the fiscal year-end.
Net income per share is computed based on the net income available to shareholders of common stock and weightedaverage number of shares of common stock outstanding during the period which was 18,373,812 shares and 17,556,927
shares for the fiscal years ended March 31, 2015 and 2014, respectively.
Yen

Net assets per share
Net income per share

2015

2014

¥831.1533.20¥742.20
37.90

U.S. dollars
2015

$6.91
0.27

Diluted net income per share is not disclosed due to the absence of dilutive shares for the fiscal years ended March 31,
2015 and 2014.

17. Cash Flow Information
Reconciliations between cash and cash equivalents in the consolidated statements of cash flows for the fiscal years
ended March 31, 2015 and 2014 and cash and deposits in the consolidated balance sheets as of March 31, 2015 and2014 were as follows:
Millions of yen

Cash and deposits
Time deposits with a maturity in excess of three months
Cash and cash equivalents

2015

2014

¥2,622(20)¥2,602¥2,426(20)¥2,406

Thousands of
U.S. dollars
2015$21,822(166)$21,65643

44

NITTA GELATIN ANNUAL REPORT 2015

18. Comprehensive Income
Reclassification adjustments and income tax benefit (expense) on components of other comprehensive income for the fiscal
years ended March 31, 2015 and 2014 were as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2015

Valuation difference on available-for-sale securities:
Gains arising during the period
Reclassification adjustments
Pre-tax amount
Income tax benefit
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Gains (losses) arising during the period
Adjustments to aquisition cost of assets
Pre-tax amount
Income tax expense
Deferred gains or losses on hedges
Foreign currency translation adjustment:
Gains arising during the period
Pension liability adjustment of foreign subsidiaries:
Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax expense
Pension liability adjustment of foreign subsidiaries
Adjustments of defined benefit plans:Losses arising during the period
Reclassification adjustments
Pre-tax amount
Income tax expense
Adjustments of defined benefit plans
Share of other comprehensive income of associates
accounted for using equity method:
Gains arising during the period
Reclassification adjustments
Share of other comprehensive income of associates
accounted for using equity method
Total other comprehensive income

2014

¥ 689
0
689
(191)
498

¥191
(0)
191
(68)
123

$ 5,734
0
5,734(1,589)
4,144

89
(61)
28
(9)
18

(15)
(33)
(49)
18
(30)

740
(507)
233
(74)
149

638

388

5,310

–
–
–
–
–

(58)
77
18
(30)
(11)

–
–
–
–
–

(369)
78
(290)
(79)
(370)

–
–
–
–
–

(3,071)649(2,413)(657)(3,079)

166
(1)

53
52

1,381
(8)

165
¥ 950

105
¥575

1,373
$ 7,906

19. Segment Information(1) Overview of reportable segments

Reportable segments are defined as a component of the Group for which separate financial information is available andwhose operating results are regularly evaluated by the Board of Directors to make decisions about how resources are allocatedamong the Group and assess their performance.
The Group plans comprehensive domestic and overseas strategies for its products and services and develops businessactivities based on business segments by product and service.
Accordingly, the Group consists of two segments by product and service based on the business activities as follows:“Collagen Material business” produces gelatin, collagen peptide, collagen casings and others.
“Formula Solution business” produces various materials for foods, adhesives and others.

NITTA GELATIN ANNUAL REPORT 2015

(2) Basis of measurement for the amounts of net sales, profit, assets and other items by reportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2. “Significant Accounting­Policies.” Segment profit is based on operating income, and intersegment sales and transfers are based on actual market prices.

(3) Information about net sales, profit, assets and other items by reportable segment
Millions of yen
2015

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)¥31,9141,430
33,345
1,749
31,009¥–(1,430)(1,430)(1,356)
2,922¥31,914–
31,914392
33,932

98

1,079

36

1,115

562

2,322

59

2,381

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)

Collagen Material
business

Formula Solution
business¥22,959
1,430
24,3901,101
25,698¥8,955
–
8,955
647
5,310

981
1,759

Total

Millions of yen
2014

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Collagen Material
business

Formula Solution
business¥22,436
1,487
23,923
1,420
23,327¥10,377–
10,377920
5,791¥32,814
1,487
34,301
2,340
29,118¥–(1,487)(1,487)(1,384)
2,271¥32,814–32,814955
31,389

808

70

878

35

914

2,845

229

3,075

27

3,102

Reconciliation(Note 1)

Amounts on
consolidated
financialstatements(Note 2)

Total

Thousands of U.S. dollars
2015

Net sales:
Sales to third parties
Intersegment sales and transfers
Total
Segment profit
Segment assets
Other items:
Depreciation and amortization
Increase in property, plant andequipment and intangible assets

Collagen Material
business

Formula Solution
business$191,086
11,901
202,996
9,163
213,882$74,531–
74,531
5,384
44,194$265,617
11,901
277,528
14,556
258,085$–(11,901)(11,901)(11,285)
24,319$265,617–
265,617
3,262
282,413

8,164

815

8,980

299

9,280

14,6404,677

19,325491

19,816

Total

45

46

NITTA GELATIN ANNUAL REPORT 2015

Note 1. “Reconciliation” included the following:
2015

2014

Thousands of
U.S. dollars
2015

¥

¥

$

Millions of yen

Segment profit:
Intersegment elimination
Corporate expense(*)
Total

2(1,358)¥(1,356)

3(1,387)¥(1,384)

16(11,302)$(11,285)*) “Corporate expense” presents mainly general and administrative expenses that are not allocated to reportable segments.

(

Millions of yen

Segment assets:
Intersegment elimination
Corporate assets(*)
Total

2015

2014

¥ (524)
3,447¥2,922¥ (567)
2,838¥2,271Thousands of
U.S. dollars
2015$ (4,361)
28,689$24,319*) “Corporate assets” presents mainly cash and deposits, property, plant and equipment and investment securities that are not allocated to reportable segments.

(

Note 2. Segment profit is reconciled to operating income on the consolidated statements of income.
Note 3. Related information for the fiscal years ended March 31, 2015 and 2014(a) Information by geographical area
Net sales:Japan¥18,435

Japan¥19,684

Asia¥2,017

Asia¥2,022

Japan

Asia

$153,433$16,787

Millions of yen
2015
North America
Canada¥8,084¥2,550Millions of yen
2014
North America
Canada¥8,240¥2,006

Thousands of U.S. dollars
2015North America
Canada$67,282$21,223

Millions of yen
2015
North America

Canada

Other

¥827

Other

¥860

Other

$6,883

Total¥31,914

Total¥32,814

Total$265,617

Property, plant and equipment:Japan¥3,514Japan¥2,990Japan$29,246

Asia

¥181

Asia

¥255

Asia

$1,506¥6,328Millions of yen
2014
North America¥4,664
Thousands of U.S. dollars
2015North America$52,667¥824

Canada¥894

Canada$6,858

Total¥10,848

Total¥8,804

Total$90,287(b) Information by product and service has been omitted since similar information is disclosed as information by reportable segment. Information by major customer has been omitted since there were no sales to any single externalcustomer accounting for 10% or more of the consolidated sales.

NITTA GELATIN ANNUAL REPORT 201520. Subsequent Events(Subsidiary conversion as a result of rising involvement in management)
At a Board of Directors’ meeting held on April 24, 2015, the Company decided to acquire the convertible preferred shares of
equity-method affiliate Nitta Gelatin India Ltd. (NGIL).
Following this decision, the Company has determined that its involvement in NGIL’s management has increased overall.
Therefore, the Company has resolved to convert NGIL into a consolidated subsidiary. The details are outlined as follows:(1) Outline of business combination
Name of acquired company and its
business activities

Name of acquired company:
Nitta Gelatin India Ltd.
Business activities:
Production and sale of ossein from bovine bones, bovine gelatin and collagen peptide

Main reasons for implementing
business combination

This business combination was implemented to establish a framework for responding
to market conditions with greater flexibility and to further strengthen the Company’s
global business platform.

Business combination date

April 1, 2015 (effective acquisition date)

Statutory basis for businesscombination

Control of decision-making bodies

Name of company after businesscombination

No change

Acquired voting interest

Voting interest held before the business combination
Additional voting interest acquired on the business combination dateVoting interest after acquisition

Main rationale for deciding on
acquisition target

Judging by a comprehensive range of factors, such as the reliance of NGIL’s businesson the Company and the level of personnel support, Nitta Gelatin’s influence over NGIL
had increased, and as a result, the Company was recognized to have control over
NGIL’s decision-making bodies.

43.0%
—
43.0

(2) Acquisition cost of acquired company and components
Consideration for acquisition		¥1,055 million ($8,780 thousand)(3) Difference between the acquisition cost for the acquired company and the total amount of the acquisition costs
for each transaction leading to the acquisition
The Company expects to record a loss of ¥620 million ($5,160 thousand) in connection with the phased acquisitionof NGIL.

(4) Amount of goodwill, reason for goodwill, amortization method and amortization period
The Company is now closely examining the details.

(5) Amount of assets and liabilities transferred on the business combination date and main components
The Company is now closely examining the details.

47

48

NITTA GELATIN ANNUAL REPORT 2015

(Change in material subsidiary associated with change in joint venture agreement)
At a Board of Directors’ meeting held on May 19, 2015, the Company resolved to change the content of a joint venture agreement of Beijing Nitta Collagen Casing Co., Ltd., a consolidated subsidiary. As a result of the change, Beijing Nitta Collagen
Casing Co., Ltd. will change from a consolidated subsidiary to an equity-method affiliate.

(1) Reason and method for the change associated with the change in joint venture agreement
In a change of the joint venture agreement with Nitta Hong Kong Ltd. and Beijing Qiushi Agriculture Development Co.,
Ltd., Beijing Qiushi Agriculture Development Co., Ltd. will make an additional investment. As a result, the shareholding
ratio of Nitta Hong Kong Ltd. after the change in the joint agreement will be 30%, changing Beijing Nitta Collagen Casing
Co., Ltd.* from a consolidated subsidiary to an equity-method affiliate.
* Nitta Hong Kong Ltd. is wholly owned by Nitta Casings Inc., a consolidated subsidiary of the Company.

(2) Overview of subsidiary undergoing change
Name

Beijing Nitta Collagen Casing Co., Ltd.

Location of head office

Beijing, People’s Republic of China

Representative

Rodney Moore

Business activities

Production and sale of collagen casing

Paid-in capital

U.S. $3 million

Date of establishment

September 20, 2012

Shareholding ratios

Nitta Hong Kong Ltd.
Beijing Qiushi Agriculture Development Co., Ltd.

70.0%
30.0%

(3) Overview of Beijing Qiushi Agriculture Development Co., Ltd.
Name

Beijing Qiushi Agriculture Development Co., Ltd.

Location of head office

Beijing, People’s Republic of China

Representative

Du Daxue

Business activities

Processing and sales of sheep casing

Paid-in capital

RMB 66 million

Date of establishment

December 1979

(4) Change in shareholding ratios(a) Shareholding ratios before change in joint venture agreement

Nitta Hong Kong Ltd.
Beijing Qiushi Agriculture Development Co., Ltd.

Thousands of
U.S. dollars
Paid-in capital

Shareholding
ratio$2,100900$3,00070%
30
100

Thousands of
U.S. dollars
Paid-in capital

Shareholding
ratio$2,100
4,900$7,00030%
70100(b) Shareholding ratios after change in joint venture agreement

Nitta Hong Kong Ltd.
Beijing Qiushi Agriculture Development Co., Ltd.

NITTA GELATIN ANNUAL REPORT 2015(5) ScheduleMay 19, 2015
Resolution of the Board of Directors of Nitta Gelatin Inc.
May 22, 2015
Resolution of the Board of Directors of Beijing Nitta Collagen Casing Co., Ltd.
The date of the change will be the date of the additional investment, following approval by the Chinese regulatory authorities.

(6) Outlook
The impact of this change on the consolidated financial results for the fiscal year ending March 31, 2016 is currently
being assessed. Nitta Gelatin Inc. will promptly disclose any material impact that may arise.

(Supplementary Note)
As stated in Note 1. “Basis of Presenting Consolidated Financial Statements,” the Company, by its own judgment, has
prepared the accompanying consolidated financial statements by making reclassifications and rearrangements to the financial
statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. These
financial statements have not been audited by independent auditors.
The Group’s consolidated financial statements for the fiscal years ended March 31, 2015 and 2014, which were includedin the Annual Securities Report, have been prepared in thousands of yen and audited by Ernst & Young ShinNihon LLC in
accordance with Article 193-2 (1) of the Financial Instruments and Exchange Act of Japan.

49