TERAOKA S EIS AKUS HO CO., LTD.

INTERIM REPORTThe six-month period ended September 30, 2006

TERAOKA SEISAKUSHO CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As of September 30, 2006 and 2005

Millions ofYen

Millions ofYen

Thousands of
US Dollars

2006

2005

2006

ASSETS
Current Assets:
Cash and time deposits¥4,130¥5,930$35,027

6,957

6,149

59,004

(3)

(4)

(22)

Marketable securities

2,100

24

17,812Inventories

2,739

2,799

23,228Deferred income taxes

2562452,171

Other current assets

118187999

Total current assets

16,296

15,330138,220

Land

3,724

3,754

31,588

Buildings

7,295

7,252

61,873

Machinery and equipment

19,256

18,724

163,329

Construction in progress

180

301

1,529

30,45630,031

258,318(20,752)(19,873)(176,017)

9,703

10,15782,302

497

542

4,213

Investments in securities

4,092

2,677

34,711

Investments in affiliate

94

52798

Other

443

517

3,761

4,630

3,246
¥29,276

39,271

Notes and accounts receivable:
Trade
Allowance for doubtful accounts

Property, Plant and Equipment:

Less: Accumulated depreciation
Property, plant and equipment, net
Intangible Assets
Investments and Other Assets:

Total investments and other assets
Total assets¥31,126

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

-1-$264,005

Millions ofYenMillions ofYen

Thousands ofUS Dollars

2006

2005

2006

LIABILITIESCurrent Liabilities:
Notes and accounts payable:
Trade
Short-term borrowings
Accrued income taxes¥3,763
1,015
560¥4,02848
206$31,918
8,608
4,746

Accrued expenses
Other current liabilities
Total current liabilities

600606
6,543

586
924
5,792

5,087
5,136
55,496

139
91
150

239
144
31

1,175
774
1,270

14
394
6,937

19
433
6,225

119
3,339
58,835

3,904-33,116Long-term Liabilities:
Retirement and severance benefits:
Employees
Directors and corporate auditors
Deferred tax liability
Negative good will
Total long-term liabilities
Total liabilities
NET ASSETS
Owners' Equity:
Common stock:
Authorized……80,000,000 shares
Issued……20,081,955 sharesat September 30, 2006
Additional paid-in capital
Retained earnings

3,491
15,938(76)

Treasury stock
Total owners' equity

23,258Valuation and translation adjustments：
Ｎｅｔ unrealized gains on available-for-sale securities
Foreign currency translation adjustment
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets

-2-

892
40
932
24,190¥31,126--

29,612
135,180(643)
197,265

7,562
342
7,904
205,170$264,005

Minority Interest in Consolidated Subsidiaries

Millions ofYenMillions ofYen

Thousands of
US Dollars

2006

2005

2006

-12-

-

3,904
3,492
14,904-

Shareholders' Equity:
Common stock:
Authorized……80,000,000 shares
Issued……20,081,955 sharesat September 30, 2005
Additional paid-in capital
Retained earnings-

Unrealized gain on securities
Foreign currency translation adjustment
Treasury stock
Total shareholders' equity
Total liabilities and shareholders' equity-3--83510(106)23,039¥29,276-

TERAOKA SEISAKUSHO CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income
For the six-month period ended September 30, 2006 and 2005

Net Sales
Cost of Sales
Gross profit
Selling, General and Administrative Expenses
Operating income
Other Income and Expenses:
Interest and dividend income
Interest expenses
Foreign exchange gains(losses), net
Equity in earnings(losses) of affiliated company
Loss on disposals of property, plant and equipment
Loss on disposals of inventories
Gain(loss) on sales of land
Other, net

Millions ofYenMillions ofYen

Thousands of
US Dollars

2006

2005

2006

¥11,493
8,589¥10,469$97,482
72,848

2,904
2,125

7,767
2,702
2,155

779

547

6,610

37(2)
4

21(1)
(1)

310
(13)
34

5(6)

3-

42(53)

24,63418,023

(11)
482

(10)

(92)
4,084

25
532

18
29

199
4,511

525-191-4,454-

525

191

4,454

¥786

¥384

$6,668Yen¥39.32
7.00

Yen¥19.247.00

US Dollars
$0.33
0.06

Income Taxes:
Current
Deferred

Net income
Per Share of Common Stock:
Net income
Cash dividends paid

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

-4-

TERAOKA SEISAKUSHO CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Shareholders' Equity
For the six-month period ended September 30, 2006 and 2005

Millions ofYen

Millions ofYen

Thousands ofUS Dollars

20062005

2006

Common Stock:
Balance at beginning of period¥3,904¥3,904$33,116

Issuance during the period---

Balance at end of period

3,904

3,904

33,116

3,493

Net change during the period

3,491
-

(1)

29,612-

Balance at end of period

3,491

3,492

29,612

15,325

14,719129,988

786

384

6,668

Cash dividends paid

(140)

(160)

(1,187)

Bonuses to directors and corporate auditors

(34)

(39)

(289)

¥15,938¥14,904$135,180

Balance at beginning of period

(75)

(74)

(640)

Net change during the period

(0)

(32)

(3)

Balance at end of period

(76)

(106)

(643)

Balance at beginning of period

1,258554

10,666

Net change during the period

(366)

281

(3,104)

Balance at end of period

892

835

7,562

Balance at beginning of period

37(20)

314

Net change during the period

330

29

Balance at end of period

40

10342

Additional Paid in Capital:
Balance at beginning of period

Retained Earnings:
Balance at beginning of period
Net Income

Balance at end of period
Treasury Stock, at cost:

Unrealized Gains on Securities:

Foreign Currency Translation Adjustments:

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

-5-

TERAOKA SEISAKUSHO CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cas h Flow
For the six-month period ended September 30, 2006 and 2005

Operating Activities:
Net Income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Allowance for doubtful accounts
Provision for retirement benefits
Equity in earnings (losses) of affiliated company
Bonuses to directors and corporate auditors
Gain on sales of land
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued income taxes
Other, net
Total adjustment
Net cash provided by operating activities
Investing Activities:
Payment for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from sales of land
Payment for purchases of intangible assets
Payment for purchases of investment in securities
Payment for purchases of marketable securities
Proceeds from sales of marketable securities
Net cash used in investing activities
Financing Activities:Increase(decrease) in short-term borrowings
Dividends paid
Otner, net
Net cash used in financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Period
Cash and Cash Equivalents at End of Period

Millions ofYen

Millions ofYen

Thousands ofUS Dollars

2006

2005

2006

¥786

¥384

$6,668

565
(2)
(159)
(5)
(34)
(482)

503
(5)
(204)
(3)
(39)
-4,794(16)(1,346)(42)(289)(4,084)

(519)
105
(35)
304
88(172)
614

(21)
107
401
250
(79)
910
1,293

(4,401)
891
(298)
2,583
746
(1,462)5,206(412)
496
(17)
(397)
(1,998)1,500(829)(1,830)
3(45)
(105)
270
(1,707)(3,494)4,207(145)(3,368)(16,950)
12,721(7,028)

(22)
(140)
(0)
(163)

(6)
(160)
(1)
(167)

(190)
(1,187)(3)(1,380)2(375)
5,005¥4,63030(551)
6,481¥5,93021(3,181)42,450$39,268

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

-6-TERAOKA SEISAKUSHO CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements
1. Translation into US dollars has been made, solely for the reader's convenience, at the rate of¥117.9 to US$1 prevailing on the Tokyo Foreign Exchange Market on September 30, 2006.
2. Consolidated subsidiaries and affiliate are as follows.
＊Consolidated subsidiaries
Teraoka Seisakusho (Shanghai) Co., Ltd.
Teraoka Seisakusho (Hong Kong) Co., Ltd.
＊Affiliate accounted for by the equity method
Shin-ei Shoji Co., Ltd.
3. Contingent liabilities in respect of trade notes and export bills discounted with banks withrecourse in the ordinary course of business at September 30, 2006 and 2005, amounted to¥61
million (US$ 520 thousand) and ¥21 million.

Corporate Information(as of September 30, 2006)

Head Office

4-22, Hiromachi 1-chome
Shinagawa-ku, Tokyo 140-8711, Japan
Tel: +81-3-3491-1141
Fax: +81-3-3491-5316

FoundedFebruary 11, 1921

Paid-in Capital¥3,904 million

Shareholders

2,000

Stock Listing

Tokyo Stock Exchange, 2nd Section

Transfer AgentThe M itsubishi UFJ Trust & Banking Corporation
4-5, M arunouchi 1-chome
Chiyoda-ku, Tokyo 100-8212, Japan

Employees

522

Branch Offices

Tokyo, Osaka, Nagoya, Ohmiya, Sendai,
Yokohama, Fukuoka, Shanghai, Hong Kong

R&D CenterTokyo

Factories

Ibaraki, Sano, Ohmiya, Kannami

Websitehttp://www.teraokatape.co.jp-7-