Challenge for
Growth andEvolution

Ishihara Sangyo Kaisha
Annual Report 2016
Year Ended March 31, 2016

Contents
Consolidated Financial Highlights...........................................................................1
To Our Shareholders and Friends.............................................................................2
Business Overview.............................................................................................................5
Financial Statements
Consolidated Balance Sheet................................................................................6
Consolidated Statement of Income................................................................8
Consolidated Statement of Comprehensive Income...........................9
Forward-Looking Statements
Forward-looking statements in this report relating to operational
result forecasts are based on certain assumptions that theCompany believes are reasonable and involve risks anduncertainties. Actual results may differ significantly from these
forecasts, affected by various material factors.

Consolidated Statement of Changes in Net Assets............................10
Consolidated Statement of Cash Flows.....................................................11
Notes to Consolidated Financial Statements..........................................12
Report of Independent Public Accountants...........................................38
Corporate Data..........................................................................................................39

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Financial Highlights
For the year ended March 31,2016
Thousands of
U.S. dollars(Note)

Millions of yen

2016

2015

2014

2016

For the years ended March 31,
Net sales:
Domestic...........................................................................................

¥

48,982¥50,803¥49,047$434,662

Overseas...........................................................................................

53,92152,52856,247478,489

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

102,903103,331

105,294

913,151

Inorganic chemicals...........................................................................

49,922

51,34251,751

443,003

Organic chemicals.............................................................................

49,50949,03150,364439,338

Other businesses..............................................................................

3,472

2,958

3,179

30,810Total......................................................................................................

102,903103,331

105,294

913,151

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

8,315

11,105

3,039

73,786

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

9,462

6,984

(7,837)

83,965

Depreciation and amortization of property, plant and equipment.........

5,350

5,561

6,040

47,475

Research and development costs.........................................................

8,989

9,330

8,965

79,768Current assets......................................................................................

110,484

107,470

97,998980,424

Total assets...........................................................................................

165,051

169,415

165,987

1,464,646

Current liabilities....................................................................................

49,72656,89259,496441,264

Net assets.............................................................................................

61,59853,21546,710546,614

Sales classified by business segment:

As of March 31,

U.S. dollars(Note)Yen

Per share data
Net income (loss)..................................................................................

¥

23.66

¥

17.46

¥

(19.59)$0.21

Net assets.............................................................................................

154.06133.08116.791.37

Number of employees (as of March 31).................................................

1,604

1,636

1,694

–

Note: T he U.S. dollar amounts in this report have been translated from the yen amounts, for convenience only, at ¥112.69 =U.S.$1.00, the rate of exchange
prevailing on March 31, 2016.

Ishihara Sangyo Kaisha, Ltd.

1

To Our Shareholders and Friends
The global markets in fiscal 2015, ended March 2016, saw the USA economy transition
towards relatively favorable growth on improved employment and increased consumer
spending while the EU economy only achieved mild recovery. At the same time, theeconomy of China remained unstable due to a slow-down in economic growth andthe economies of Southeast Asia, India, Brazil, and other emerging nations declined
due to the impact of a drop in resource prices and the appreciation of the US dollar,
among other factors. In Japan, although corporate earnings and employment improved,
consumer spending remained sluggish and overall the economy lacked the strength
necessary to drive recovery.
Amid such conditions, the ISK Group started our sixth medium-term management
plan (MTP) but we face a severe market environment due to the decline of economies
in emerging nations, which had thus far driven market growth, and a decline in global
Kenichi Tanaka
President & CEO

demand for mainstay products such as titanium dioxide and agrochemicals. Demand
for titanium dioxide in Japan was largely unchanged from last year but the overseas
market experienced a notable decline due to a decline in the global supply and demandenvironment triggered by decline in demand within China. Global shipment totals for
agrochemicals declined significantly year on year. Already facing declining prices for
agricultural products, the impact of an US dollar appreciation and other factors had afurther negative impact on economic environments and results in a significant drop in
demand in Brazil.
As a result, net sales for the year under review decreased ¥0.4 billion year on year to¥102.9 billion (US$ 913 million), operating income decreased ¥2.7 billion to ¥8.3 billion(US$ 74 million), and due to non-operating factors such as gains on currency fluctuations
from the previous fiscal year transitioning to losses on currency fluctuations, ordinary
income decreased ¥4.4 billion to ¥7.3 billion (US$ 65 million). Net income attributable toparent company shareholders increased ¥2.4 billion to ¥9.4 billion (US$ 84 million). This was
the result of extraordinary income recorded for gains on the sale of land leasing rights of an
overseas subsidiary no longer in use due to the suspension of business activities.
As part of our efforts related to the Ferosilt issue being undertaken since 2005, in
December 2015 we completed the transportation and final disposal of all Ferosilt being
temporarily stored at our Yokkaichi plant.
Centered on the theme of reforms and actions aimed at becoming a strong chemicalcompany, this MTP focuses on initiatives linked to strengthening existing businesses andstrengthening our growth platform. As we head toward our 100th anniversary in 2020, ourGroup will unite as one towards achieving our ultimate goal of stabilizing earnings andestablishing a platform for profitable growth.
In our inorganic chemicals business, we will continue to enhance existing businesses
by utilizing our strengths, including developing sales channels in high added-value fields
and enhancing customer service capabilities. We integrated domestic and overseas salesorganizations as well as strengthen our sales structure for functional material products
at our overseas branches. This will enable us to accelerate the overseas developmentof added-value titanium dioxide products such as lineup of Super Weatherability Gradethat are recording sales growth on the Japanese market, and also respond to the trend
towards globalization among domestic clients. In February 2016, we reorganized ourinorganic materials R&D Division in order to increase our ability to create new cornerstone2

Ishihara Sangyo Kaisha, Ltd.

products. We also established New Business Planning and Developing Division that ischarged with fusing inorganic and organic base technologies to establish new businesses
in domains not covered by existing businesses.
In our organic chemicals businesses, our mainstay agrochemicals business faces
a severe business environment in the immediate future due to the impact of sluggish
demand in Brazil and other regions. However, agricultural production in Asia is expanding
and demand for agrochemicals is favorable. Capturing demand in these growth markets
will prove vital to the growth of this business. In light of this, we established a local
subsidiary in India that will mainly be involved in development and registration. Operations
at the subsidiary were started in April 2016. In Europe, Japan, and other major regions,
we will conduct initiatives, including the aggressive launching of new mixtures that meetregion-specific needs, to maintain and strengthen the position of our products. On the
production side, we are working to increase competitiveness by achieving additional
manufacturing cost reductions.
Outside of agrochemicals, we will continue to conduct aggressive R&D aimed at
expanding existing businesses and developing new businesses in new domains such as
veterinary drugs and life sciences. In the area of veterinary drugs development, we havecompleted clinical trials in Japan and have moved into the regulatory approval filing andcommercialization stage. This year we will also start overseas development. In the life
sciences field, we have entered Phase I clinical trials for three types of cancer – prostatecancer, malignant melanoma, and malignant mesothelioma – for the HVJ-E anti-cancer
drug we are developing in collaboration with Osaka University. Also, in March 2016 we
filed for domestic approval of a bone cement.
The Group has formulated a “Basic Philosophy” and “Code of Conduct” to represent thefundamental and universal values shared by all its employees in the execution of theirwork activities.
Basic Philosophy• Contribute to social development, protection of life and environmental preservation• Respect shareholders, customers, suppliers, local communities and employees• Abide by laws and regulations; maintain transparency in business activities
Code of Conduct• We will strictly observe laws, regulations, social norms and Company rules,
while steadfastly adhering to high ethical standards, so as to gain social trust in
our business.
• In manufacturing activities, we will place the utmost priority on global
environmental protection, and worker safety, and will work to prevent any
workplace accident or injury.
• On the basis of respect for human rights, we will promote mutual understanding
and cooperation among employees, in order to create an open and friendly workplace.
• To maintain transparency in our business activities, as a corporate citizen, we will
promote communication with local communities and society, and will disclose
corporate information in a timely and appropriate manner.

Ishihara Sangyo Kaisha, Ltd.

3

With all employees constantly mindful of and practicing the Basic Philosophy and Code of
Conduct, the ISK Group will strive to foster progress of society through growth as a robust
development-oriented corporation that adapts to the changing times and environment.
We look forward to your ongoing support and understanding.

Kenichi Tanaka
President & CEO

4

Ishihara Sangyo Kaisha, Ltd.

Business Overview
Inorganic Chemicals
Sales of titanium dioxide fell due to a drop in domestic anddown year on year. Although a decline in materials costs wasoverseas demand and declining overseas market conditions.

a positive factor, fixed costs increased due to an adjustment

As a result, net sales were down ¥1.1 billion year on year, toin operations incidental to the drop in demand for titanium¥38.2 billion (US$ 339 million).

dioxide and we felt the significant impact of inventory valuation

Functional materials were down ¥0.2 billion, to ¥11.7 billion(US$ 104 million). Although sales for electronic components

losses due to declining conditions on overseas markets.
As a result, segment net sales decreased ¥1.4 billion,

grew and overall product sales were favorable, we experienced

to ¥49.9 billion (US$ 443 million) and operating income fella decline in sales following a drop in initial demand for new

significantly year on year, a drop of ¥3.3 billion to ¥2.5 billion

products launched during the previous year. Income was(US$ 23 million).

Organic Chemicals
Domestic sales of agrochemicals were largely on par with theaggressive initiatives aimed at expanding the applicability ofprevious year despite the impact of unstable climate conditions

existing products.

during the summer.
Overseas net sales were up year on year. Although
shipments to Brazil declined significantly due to the impact

Net sales of medical products declined compared to theprevious fiscal year. This was the result of a decline in sales ofcontracted pharmaceutical ingredients.

of sluggish agrochemical demand, this was made up for by

As a result, segment net sales increased ¥0.4 billion, toincreased sales in Europe, North America, Asia, and other¥49.5 billion (US$ 439 million) and operating income increased

regions thanks to the release of new mixtures to market and¥0.5 billion to ¥7.2 billion (US$ 64 million).

Other Businesses
Net sales from other businesses increased ¥0.5 billion to¥0.2 billion to ¥0.3 billion (US$ 3 million).

¥3.4 billion (US$ 31 million) and operating income increased

Ishihara Sangyo Kaisha, Ltd.

5

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Balance Sheet
As of March 31, 2016
Thousands of
U.S. dollars(Note 1)Millions of yen

2016
AssetsCurrent assets:
Cash and deposits (Notes 5, 10 and 18)....................................................................
Trade receivables (Note 18):
Notes.....................................................................................................................
Accounts...............................................................................................................

¥

29,3992015¥

21,472

2016$

260,884

Less allowance for doubtful receivables....................................................................
Trade receivables, net............................................................................................

2,105
23,121
25,226(184)
25,0422,640
26,41929,059(188)
28,871

18,680205,173
223,853(1,633)
222,220

Inventories (Note 7)....................................................................................................
Deferred income taxes (Note 14)...............................................................................
Other current assets..................................................................................................
Total current assets................................................................................................

53,0701,097
1,876
110,484

53,3772,264
1,485
107,469

470,938
9,735
16,647980,424

Less accumulated depreciation.................................................................................
Property, plant and equipment, net (Note 25)........................................................

5,411
35,367112,934
3,299
2,129
159,140(120,406)
38,734

5,768
49,385
113,623
3,498
1,127
173,401(128,876)
44,52548,017
313,843
1,002,165
29,27518,893
1,412,193(1,068,471)
343,722

Investments and other assets:
Investments in securities (Notes 6, 10 and 18):
Unconsolidated subsidiaries and affiliates.............................................................
Other.....................................................................................................................
Total investments in securities..............................................................................

3,856
1,483
5,339

3,674
1,822
5,496

34,218
13,16047,378Deferred income taxes (Note 14)...............................................................................
Asset for retirement benefits (Note 12).......................................................................
Other.........................................................................................................................
Total investments and other assets.......................................................................

8,015
16
2,463
15,833

8,786
14
3,125
17,421

71,124142
21,856
140,500

169,415$ 1,464,646

Property, plant and equipment:
Land (Notes 8 and 10)...............................................................................................
Buildings and structures (Notes 8, 9 and 10).............................................................
Machinery and equipment (Notes 8, 9 and 10)..........................................................
Leased assets...........................................................................................................
Construction in progress...........................................................................................

Total assets (Note 25)....................................................................................................
See notes to consolidated financial statements.
6

Ishihara Sangyo Kaisha, Ltd.

¥

165,051¥

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars(Note 1)Millions of yen

2016
Liabilities and net assets
Current liabilities:
Short-term bank loans (Notes 10 and 18)..................................................................
Current portion of long-term bank loans (Notes 10 and 18).......................................
Current portion of bonds (Notes 10 and 18)..............................................................
Trade payables (Note 18):
Notes.....................................................................................................................
Accounts...............................................................................................................

¥

Lease obligations (Notes 10 and 18)..........................................................................
Accrued income taxes (Note 14)................................................................................
Accrued expenses.....................................................................................................
Accrued bonuses for employees...............................................................................
Reserve for sales returns...........................................................................................
Reserve for Ferosilt removal......................................................................................
Reserve for implementation of environmental and safety arrangements....................
Provision for maintenance.........................................................................................
Provision for loss on liquidation of a subsidiary.........................................................
Other current liabilities...............................................................................................
Total current liabilities.......................................................................................
Long-term liabilities:
Long-term bank loans (Notes 10 and 18)...................................................................
Bonds (Notes 10 and 18)...........................................................................................
Lease obligations (Notes10 and 18)...........................................................................
Liability for retirement benefits (Note 12)....................................................................
Deferred income taxes (Note 14)...............................................................................
Long-term deposits received.....................................................................................
Reserve for implementation of environmental and safety arrangements....................
Provision for maintenance.........................................................................................
Asset retirement obligations (Note 11)........................................................................
Other long-term liabilities...........................................................................................
Total long-term liabilities...................................................................................

13,85814,093
280

2015

¥

15,40016,072
280

2016

$

122,975
125,060
2,485

1,393
8,949
10,342
511
500
4,481
628
26
–
797
223
24
3,963
49,726

1,369
11,04012,409
549
628
4,346
670
33
2,459
25
–
324
3,697
56,892

12,361
79,413
91,7744,535
4,437
39,764
5,573
231
–
7,072
1,979
213
35,166441,264

35,167560
935
12,958
21
1,029
1,086
–
828
1,143
53,72742,447840
897
12,085
36
880
807
83
840
393
59,308312,069
4,970
8,296
114,988
186
9,131
9,637
–
7,348
10,143476,768

43,421
10,627
10,062

43,421
10,627600

385,314
94,30389,288(703)
63,407(698)
53,950(6,238)562,667245–(1,273)(781)(1,809)61,598165,051

513
0
(850)
(398)
(735)
53,215
169,415

2,174–(11,296)(6,931)(16,053)
546,614$ 1,464,646

Contingent liabilities (Note 13)
Net assets:
Shareholders’ equity (Note 15):
Common stock:
Authorized: 1,000,000 thousand shares
Issued:403,839 thousand shares in 2016 and 2015................................
Capital surplus.......................................................................................................
Retained earnings..................................................................................................
Less treasury stock, at cost:
4,020 thousand shares in 2016 and 3,973 thousand shares in 2015..................
Total shareholders’ equity................................................................................
Accumulated other comprehensive income (loss):
Net unrealized holding gain on securities...............................................................
Unrealized deferred gain on hedges......................................................................
Translation adjustments.........................................................................................
Retirement benefits liability adjustments................................................................
Total accumulated other comprehensive loss..................................................
Total net assets................................................................................................
Total liabilities and net assets........................................................................................

¥¥

See notes to consolidated financial statements.

Ishihara Sangyo Kaisha, Ltd.

7

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Statement of Income
For the year ended March 31, 2016

Thousands of
U.S. dollars(Note 1)Millions of yen

Net sales (Note 25)........................................................................................................

¥

2016
102,903¥2015
103,331$

2016
913,151

Cost of sales (Notes 7 and 16)......................................................................................

71,53468,856

634,786

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

31,36934,475

278,365

Selling, general and administrative expenses (Note 16).................................................

23,05423,370204,579

Operating income (Note 25)..........................................................................................

8,315

11,10573,786

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

135

194

1,198

Other income:Equity in earnings of affiliates.....................................................................................

423

385

3,754

Foreign exchange gain, net.......................................................................................

–

1,691

–

Reversal of provision for liquidation of a subsidiary...................................................

–

759

–

Reversal of reserve for Ferosilt removal.....................................................................

845

–

7,498

Gain on sales of raw materials...................................................................................

198

93

1,757

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

208

235

1,846

1,809

3,357

16,053

Interest expense........................................................................................................

1,398

1,563

12,406Retirement benefit expense.......................................................................................

–

356

–

Foreign exchange loss, net........................................................................................

830

–

7,365

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

578

779

5,129

2,806

2,698

24,9007,318

11,76464,939Gain from redemption upon liquidation of a subsidiary..............................................

–

312

–

Gain on sales of fixed assets.....................................................................................

7,317

–

64,930

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

16

34

142

7,333

346

65,072Other expenses:

Ordinary income...........................................................................................................
Extraordinary gains:

Extraordinary losses:
Loss on disposal of fixed assets................................................................................

377

285

3,345

Reserve for implementation of environmental and safety arrangements....................

1,186

251

10,524

Loss on impairment of fixed assets (Notes 9 and 25)................................................

716

86

6,354

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

18

40

160

2,297

662

20,383

12,354

11,448109,628

Current......................................................................................................................

745

860

6,611

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

2,147

3,604

19,052

2,892

4,464

25,663

9,462

6,984

83,965

Income before income taxes.........................................................................................
Income taxes (Note 14):

Net income (Note 23)....................................................................................................
Net income attributable to:
Owners of parent.......................................................................................................
See notes to consolidated financial statements.

8

Ishihara Sangyo Kaisha, Ltd.

¥

9,462

¥

6,984

$

83,965Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Statement of Comprehensive Income
For the year ended March 31, 2016

Thousands of
U.S. dollars(Note 1)Millions of yen

Net income...................................................................................................................

¥

2016
9,462

¥

2015
6,984

$

2016
83,965

Other comprehensive (loss) income (Note 21):
Net unrealized holding (loss) gain on securities.........................................................

(268)

195

(2,378)

Unrealized deferred (loss) gain on hedges.................................................................

(0)

26

(0)

Translation adjustments.............................................................................................

(372)

(518)

(3,301)Retirement benefits liability adjustments....................................................................

(383)

463

(3,399)Other comprehensive (loss) income of affiliates accounted for by the equity
method attributable to the Company......................................................................

(52)

72

(461)

Total other comprehensive (loss) income...................................................................
Comprehensive income................................................................................................

238(1,075)(9,539)

¥

8,387

¥

7,222

$

74,426

¥

8,387

¥

7,222

$

74,426

Total comprehensive income attributable to:
Owners of parent.......................................................................................................
See notes to consolidated financial statements.

Ishihara Sangyo Kaisha, Ltd.

9

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Statement of Changes in Net Assets
Year ended March 31, 2016
Millions of yen
Shareholders’ equity
Number ofshares ofcommonstock in issue

Commonstock

Balance at April 1, 2014...................... 403,839,431 ¥Capitalsurplus43,421 ¥Accumulated other comprehensive income (loss)

Retainedearnings

10,627 ¥Treasurystock, at cost

(5,673) ¥Net
unrealized
Unrealized
holding gain deferred gain Translation
on securities on hedges adjustments(692) ¥

318 ¥(26) ¥

Retirement
benefits
liability
adjustments(404) ¥

(861) ¥

Total net
assets

46,710

Cumulative effects of changes
in accounting policies......................

–

–

–

(711)

–

–

–

–

–

(711)

Restated balance at April 1, 2014.......

–

43,421

10,627(6,384)

(692)

318

(26)

(404)

(861)

45,999Net income attributable to ownersof parent for the period....................

–

–

–

6,984

–

–

–

–

–

6,984

Acquisition of treasury stock...............

–

–

–

–

(6)

–

–

–

–

(6)

Disposition of treasury stock..............

–

–

0

–

0

–

–

–

–

0

Other changes....................................

–

–

–

–

–

195

26

(446)

463

238

43,421 ¥

10,627 ¥600 ¥(698) ¥

513 ¥

0 ¥

(850) ¥

(398) ¥

53,215

Balance at April 1, 2015...................... 403,839,431 ¥Net income attributable to ownersof parent for the period....................

–

–

–

9,462

–

–

–

–

–

9,462

Acquisition of treasury stock...............

–

–

–

–

(5)

–

–

–

–

(5)

Disposition of treasury stock..............

–

–

0

–

0

–

–

–

–

0

Other changes....................................

–

–

–

–

–

(268)

(0)

(423)

(383)

(1,074)43,421 ¥

10,627 ¥10,062 ¥(703) ¥

245 ¥

– ¥

(1,273) ¥(781) ¥

61,598

Balance at March 31, 2016................ 403,839,431 ¥Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Commonstock

Balance at April 1, 2015.....................

Capitalsurplus$ 385,314 $Retainedearnings

94,303 $(7,543) $83,965

–

–

–

–

–

83,965

–

(44)

–

–

–

–

(44)

0

–

0

–

–

–

–

0

–

–

–

(2,378)(0)(3,753)(3,399)(9,530)94,303 $89,288 $(6,238) $2,174 $

– $ (11,296) $

–

–

–

Disposition of treasury stock.............

–

Other changes...................................

–

See notes to consolidated financial statements.

10

Ishihara Sangyo Kaisha, Ltd.

Total net
assets0 $–5,323 $

Retirement
benefits
liability
adjustments

4,552 $

Acquisition of treasury stock..............

$ 385,314 $Treasurystock, at costNet
unrealized
Unrealized
holding gain deferred gain Translation
on securities on hedges adjustments(6,194) $Net income attributable to ownersof parent for the period...................

Balance at March 31, 2016...............

Accumulated other comprehensive income (loss)(3,532) $ 472,223(6,931) $ 546,614

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Consolidated Statement of Cash Flows
For the year ended March 31, 2016
Thousands of
U.S. dollars(Note 1)Millions of yen

2016
Cash flows from operating activities
Income before income taxes.........................................................................................
Adjustments for:
Depreciation and amortization...................................................................................
(Gain) loss on disposal or sales of fixed assets, net...................................................
Loss on impairment of fixed assets...........................................................................
Decrease in provision for loss on liquidation of a subsidiary......................................
Foreign exchange loss (gain), net...............................................................................
Increase in liabilities for retirement benefits, net.........................................................
Reversal of reserve for Ferosilt removal.....................................................................
Increase in reserve for implementation of environmental and safety arrangements.....
Interest and dividend income....................................................................................
Interest expense........................................................................................................
Equity in earnings of affiliates, net..............................................................................
Other.........................................................................................................................
Changes in operating assets and liabilities:
Trade receivables...................................................................................................
Inventories.............................................................................................................
Other current assets..............................................................................................
Trade payables......................................................................................................
Accrued expenses and other current liabilities.......................................................
Subtotal..............................................................................................................
Interest and dividends received....................................................................................
Interest paid..................................................................................................................
Insurance claim received...............................................................................................
Income taxes paid.........................................................................................................
Net cash provided by operating activities..................................................................
Cash flows from investing activities
Increase in time deposits...........................................................................................
Decrease in time deposits.........................................................................................
Purchases of property, plant and equipment.............................................................
Proceeds from sales of property, plant and equipment.............................................
Increase in long-term loans receivable......................................................................
Collection of long-term loans receivables..................................................................
Proceeds from liquidation of a subsidiary..................................................................
Other.........................................................................................................................
Net cash provided by (used in) investing activities.................................................
Cash flows from financing activities
Redemption of bonds................................................................................................
Decrease in short-term bank loans, net.....................................................................
Proceeds from long-term bank loans........................................................................
Repayment of long-term bank loans..........................................................................
Repayment of lease obligations.................................................................................
Repayment of installment payable.............................................................................
Proceeds from deposits received..............................................................................
Repayment of deposits received...............................................................................
Increase in treasury stock, net...................................................................................
Net cash (used in) provided by financing activities.................................................
Effect of exchange rate changes on cash and cash equivalents...................................
Increase in cash and cash equivalents..........................................................................
Cash and cash equivalents at beginning of year...........................................................
Cash and cash equivalents at end of year (Note 5).......................................................

¥

¥
¥

¥

12,3542015¥

11,448

2016$

109,628

5,350(7,106)
716
(288)
368
356
(2,459)
1,051
(135)
1,398
(334)
193

5,561
150
86
(1,990)(1,151)912(2,310)
255
(194)
1,563
(294)
(292)

47,475(63,058)
6,354(2,556)
3,266
3,159(21,821)
9,326(1,198)12,406(2,964)
1,714

3,286
(746)
(287)
(1,513)274
12,478119(1,441)
78(965)
10,269(2,823)(1,623)277(1,339)
217
8,453
148
(1,623)
95
(722)
6,351

29,160(6,620)(2,547)(13,426)
2,431
110,729
1,056(12,788)692(8,563)
91,126(0)–(3,543)
13,318
(375)
267
41
(51)
9,657
(280)
(1,542)
7,150(16,409)
(569)
(18)
1,780
(2,028)(5)(11,921)(78)
7,927
21,282
29,209

¥
¥

¥

–
490
(4,646)
72
(208)
190
471
416
(3,215)(280)(1,120)18,263(15,635)
(663)
–
2,286
(2,073)
(6)
772
188
4,096
17,186
21,282

$
$

$

(0)
–
(31,440)
118,183(3,328)
2,369
364
(453)
85,695(2,485)(13,684)
63,448(145,612)(5,049)(160)
15,796(17,996)(44)(105,786)(691)
70,344
188,854259,198

See notes to consolidated financial statements.

Ishihara Sangyo Kaisha, Ltd.

11

Ishihara Sangyo Kaisha, Ltd. and Consolidated Subsidiaries

Notes to Consolidated Financial Statements
Year ended March 31, 2016

1. Basis of Preparation of Consolidated Financial Statements
The accompanying consolidated financial statements of Ishihara

in Japan in order to present them in a format which is more

Sangyo Kaisha, Ltd. (the “Company”) and its consolidated

familiar to readers outside Japan. In addition, the notes to thesubsidiaries have been prepared on the basis of accounting

consolidated financial statements include information which is notprinciples generally accepted in Japan, which are different inrequired under accounting principles generally accepted in Japan

certain respects as to the application and disclosure requirements

but is presented herein as additional information.

of International Financial Reporting Standards, and are compiled

The translation of yen amounts into U.S. dollar amounts

from the consolidated financial statements prepared by theis included solely for convenience, as a matter of arithmetic

Company as required by the Financial Instruments and Exchange

computation only, at ¥112.69 = U.S.$1.00, the approximate rate of

Act of Japan.

exchange in effect on March 31, 2016. This translation should not

In preparing the accompanying consolidated financial

be construed as a representation that yen have been, could havestatements, certain reclassifications and rearrangements havebeen, or could in the future be, converted into U.S. dollars at the

been made to the consolidated financial statements issued

above or any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation and accounting for investments inunconsolidated subsidiaries and affiliates

Revenue and expense items arising from transactions
denominated in foreign currencies are generally translated into yen

The accompanying consolidated financial statements include

at the exchange rates in effect at the respective transaction dates.

the accounts of the Company and its 13 significant consolidated

Foreign exchange gain or loss is credited or charged to income

subsidiaries, consisting of ISK Bioscience K.K., ISK SINGAPORE

in the year in which such gain or loss is recognized for financial

PTE. LTD., the ISK AMERICAS INCORPORATED Group (5reporting purposes.

subsidiaries), ISK BIOSCIENCES EUROPE N.V., ISK Taiwan Co.,
Ltd., Fuji Titanium Industry Co., Ltd., Ishihara Techno Corporation,

Financial statements of overseas consolidated subsidiaries

Yokkaichi Energy Service Co., Ltd. and ISK Engineering Partners

The balance sheet accounts of the overseas consolidated

Corporation.

subsidiaries are translated into yen at the rates of exchange in

The Company’s remaining subsidiaries, including ISK

effect at the balance sheet date, except that the components of

BIOSCIENCES KOREA LTD., have not been consolidated

net assets are translated at their historical rates. Revenue andbecause they are not significant in terms of total assets, retained

expense accounts are translated at the average rates of exchangeearnings, net sales and net income.

in effect during the year. Differences resulting from translating

Investments in significant affiliates are stated at theirfinancial statements denominated in foreign currencies have notunderlying net equity after the elimination of intercompany income.

been included in the determination of net income (loss) but are

Investments in unconsolidated subsidiaries and the remaining

reported as translation adjustments which are components ofaffiliate companies are stated at cost.

accumulated other comprehensive income (loss).

The overseas consolidated subsidiaries are consolidated on thebasis of fiscal periods ending December 31, which differs from the(c) Cash and cash equivalentsbalance sheet date of the Company. As a result, adjustments have

For the purposes of the consolidated statement of cash flows,

been made for any significant intercompany transactions which took

cash and cash equivalents consist of cash on hand, cash in banks

place during the period between the year ends of these overseas

which can be withdrawn at any time and short-term investments

consolidated subsidiaries and the year end of the Company.

with a maturity of three months or less when purchased which
can easily be converted to cash and are subject to little risk of(b) Foreign currency translation

change in value.

Foreign currency transactions
All monetary assets and liabilities denominated in foreign(d) Inventories

currencies are translated into yen amounts at the rates ofInventories of the Company and its domestic consolidated

exchange in effect at the balance sheet date, except thatsubsidiaries are principally stated at lower of cost or net sellingreceivables and payables hedged by qualified forward foreignvalue, cost being determined by the gross average method.

exchange contracts are translated at their corresponding
contracted rates.
12

Ishihara Sangyo Kaisha, Ltd.

(e) Securities
Securities are classified into three categories: trading securities,(g) Property, plant and equipment and depreciation (except forleased assets)held-to-maturity debt securities and other securities. Trading

Property, plant and equipment are stated at cost. Depreciation

securities, consisting of debt and marketable equity securities, areof property, plant and equipment is recognized primarily bycarried at fair value. Gain and loss, both realized and unrealized,

the straight-line method over the estimated useful lives ofare credited or charged to income. Held-to-maturity debt

the respective assets. The useful lives of property, plant andsecurities are carried at amortized cost. Marketable securities

equipment are principally as follows:classified as other securities are carried at fair value, with any

Buildings and structures...........................3 to 55 years

changes in unrealized holding gain or loss, net of the applicable

Machinery and equipment........................2 to 20 years

income taxes, reported as a separate component of accumulated

Costs for maintenance, repairs and minor renewals areother comprehensive income (loss). Non-marketable securities

charged to income as incurred. Major renewals and betterments

classified as other securities are carried at cost. Cost of securities

are capitalized.

sold is determined by the moving average method.
Investments in investment business limited liability(h) Intangible assets (except for leased assets)

partnerships and other similar partnerships, which are deemed to

Intangible assets are amortized by the straight-line method overbe securities under Article 2, Clause 2 of the Financial Instruments

the useful lives of the respective assets. Expenditures relatingand Exchange Law of Japan, are valued at the amount of theto computer software developed for internal use are charged tounderlying equity in their net assets based on the latest financial

income as incurred, except if these are deemed to contributestatements available as of the closing date stipulated in theto the generation of future income or cost savings. Suchpartnership agreement.

expenditures are capitalized as assets and amortized by thestraight-line method over their estimated useful lives of 5 years.

(f) Derivatives and hedging activities
Derivative financial instruments are utilized by the Company and(i) Research and development costs

its domestic consolidated subsidiaries principally in order to

Research and development costs are charged to income as

manage risk arising from adverse fluctuation in foreign exchange

incurred.

rates and interest rates. The Company and its domestic
consolidated subsidiaries have established a control environment(j) Leased assets

which includes policies and procedures for risk assessment,

Leased assets under finance leases that transfer ownership ofincluding an assessment of the effectiveness of their hedging

the assets are depreciated by using the economic useful lives ofactivities, and for the approval, reporting and monitoring ofleased assets.

transactions involving derivatives.

Leased assets under finance lease contracts that do not

Derivatives are carried at fair value with any changes intransfer ownership to the lessee are depreciated to a residual

unrealized gain or loss credited or charged to income, except

value of zero by the straight-line method using the term of thefor those which meet the criteria for deferral hedge accounting

contract as the useful life.

under which unrealized gain or loss is deferred and reported as acomponent of accumulated other comprehensive income (loss).

(k) Allowance for doubtful receivables

Receivables and payables hedged by forward foreign exchange

The Company and its domestic consolidated subsidiaries havecontracts which meet certain conditions are translated at theirprovided an allowance for doubtful receivables based on theircontracted rates (the “allocation method”). Interest-rate swaps

historical experience of bad debts on ordinary receivables plus anwhich meet certain conditions are accounted for as if the interest

additional estimate of probable specific doubtful accounts fromrates which apply to the swaps had originally applied to thecustomers experiencing financial difficulties.

underlying debt (the “special method”).
The effectiveness of hedges is assessed based oncomparison of the cumulative changes in markets or cash flows

The allowance for doubtful receivables of the overseas
consolidated subsidiaries has been provided at the estimatedaggregate amount of their probable bad debts.

of the hedged items and those of the hedging instruments.
However, the assessment of interest rate swaps which the special(l) Accrued bonuses for employees

method is applied is omitted.

Accrued employees’ bonuses are accounted for at an estimatedamount of the bonuses to be paid as allocated to the current fiscal
year.

Ishihara Sangyo Kaisha, Ltd.

13

(m) Reserve for sales returns(Additional information)

Reserve for sales returns is provided for estimated losses incurring

ISK SINGAPORE PTE. LTD., a consolidated subsidiary of thedue to the return of finished goods and merchandise sold during

Company, terminated the operations during the year ended March

the fiscal year subsequent to the balance sheet date, using the31, 2014 and has been under the liquidation proceedings.

historical rate of such returns in prior years.
(r) Retirement benefits(n) Reserve for Ferosilt removal

Liability for retirement benefits is provided at an amount calculated

The Company has provided a reserve for estimated expenditures

based on the retirement benefit obligation and the fair value of thefor Ferosilt removal and disposal based on local costs for thepension plan assets as of the balance sheet date.

removal, transportation and disposal of Ferosilt with reference toeach construction region and disposal location.

The retirement benefit obligation for employees is attributed
to each period by the straight-line method over the estimatedyears of service of the eligible employees.

(Additional information)

Actuarial gain or loss is amortized in the year following the

The Company completed the transportation and final disposal ofyear in which such gain or loss is recognized, principally by the

all Ferosilt temporarily stored at its Yokkaichi Plant in December

straight-line method, over the estimated average remaining years

2015.

of service of the employees participating in the plans.

(o) Reserve for implementation of environmental and safety

over the estimated average remaining years of service of thePrior service cost is amortized by the straight-line methodarrangements

employees participating in the plans.

The Company has provided the reserve for estimatedexpenditures to promote environmental and safety arrangements.

(s) Income taxes
Income taxes are calculated based on taxable income and(p) Provision for maintenancecharged to income on an accrual basis. Certain temporary

Provision for maintenance is provided in an amount estimateddifferences exist between taxable income and income reported forto be necessary for the maintenance for certain machinery andfinancial statement purposes which enter into the determinationequipment.

of taxable income in a different period. The Company andits consolidated subsidiaries recognize the tax effect of such(q) Provision for loss on liquidation of a subsidiary

temporary differences in their consolidated financial statements.

Provision for loss on liquidation of a subsidiary is provided basedon an estimate of expenditures necessary to complete theprocess of liquidating of a subsidiary.

3. Accounting Standards Issued but Not Yet Effective
Revised Implementation Guidance on recoverability of Deferred
Tax Asset(1) Treatment of companies that do not satisfy any of the category
requirements for (Category 1) through (Category 5)(2) Category requirements for (Category 2) and (Category 3)(a) Overview
Regarding the treatment of the recoverability of deferred tax
assets, a review was conducted following the framework of(3) Treatment related to future deductible temporary differences
which cannot be scheduled in companies that qualify as(Category 2)

the Japanese Institute of Certified Public Accountants Audit(4) Treatment related to the reasonable estimable period of future

Committee Report No.66 “Audit Treatment on Determining the

pre-adjusted taxable income in companies that qualify as

Recoverability of Deferred Tax Assets,” whereby companies
are categorized into five categories and deferred tax assets arecalculated based on each of these categories:(Category 3)(5) Treatment in cases that companies that satisfy the category
requirement for (Category 4) but qualify as (Category 2) or(Category 3)

14Ishihara Sangyo Kaisha, Ltd.

(b) Scheduled date of adoption(c) Impact of adopting revised implementation guidance

The Company and its domestic subsidiaries will adopt the revisedThis adoption had no impact on its consolidated financial

implementation guidance effective from the beginning of the fiscal

statements.

year ending March 31, 2017.

4. Accounting Changes
Accounting Standards for Business Combinations

Statement No. 7) and other relevant revised accounting standard

The Company adopted “Revised Accounting Standard forand revised guidance effective from April 1, 2015, and amended

Business Combinations” (Accounting Standards Board of Japanthe presentation method of profit attributable to owners of parent.
Certain reclassifications were made to the previous year’s(“ASBJ”) Statement No. 21), “Revised Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No. 22),

consolidated financial statements to reflect these changes in“Revised Accounting Standard for Business Divestitures” (ASBJ

presentation.

5. Cash and Deposits
The reconciliation between cash and cash equivalents in the accompanying consolidated statements of cash flows and cash anddeposits in the accompanying consolidated balance sheets as of March 31, 2016 and 2015 is presented as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits........................................................................................................

2016
29,399¥Time deposits with maturities in excess of three months..............................................

2015
21,472¥¥

29,2092016
260,884

(190)

(190)

Cash and cash equivalents...........................................................................................

$¥(1,686)

21,282$

259,198

6. Investments in Securities
Marketable securities classified as held-to-maturity debt securities and other securities at March 31, 2016 and 2015 were as follows:(a) Held-to-maturity debt securities
Millions of yen

2016
Carrying value

2015

Estimated fairvalue
Unrealized gain Carrying value

Estimated fairvalue
Unrealized gain

Securities whose estimated fair value exceeds
their carrying value..................................................

¥

10

¥

10

¥

0

¥

10

¥

10

¥

0

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

¥

10

¥

10

¥

0

¥

10

¥

10

¥

0

Thousands of U.S. dollars

2016
Carrying value

Estimated fairvalue
Unrealized gain

Securities whose estimated fair value exceeds
their carrying value..................................................

$

89

$

90

$

1

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

$

89

$

90

$

1

Ishihara Sangyo Kaisha, Ltd.

15

(b) Other securities
Millions of yen

2016

Securities whose carrying value exceeds theiracquisition cost: Equity securities............................

Carrying value

Acquisition
cost

¥

¥

975

614

2015
Unrealized gain
(loss)
Carrying value¥361¥ 1,371

Acquisition
cost¥

Unrealized gain
(loss)

703

¥

668

Subtotal..............................................................

975

614

361

1,371

703

668

Securities whose acquisition cost exceeds theircarrying value: Equity securities...............................

118

141

(23)

36

40

(4)

Subtotal..............................................................

118

141

(23)

36

40

(4)

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

¥ 1,093338¥ 1,407

¥

755

¥

¥

743

¥

664

Thousands of U.S. dollars

2016
Carrying value

Acquisition
cost

Unrealized gain
(loss)

Securities whose carrying value exceeds theiracquisition cost: Equity securities............................

$ 8,652$ 5,449$ 3,203

Subtotal..............................................................

8,652

5,449

3,203

Securities whose acquisition cost exceeds theircarrying value: Equity securities...............................

1,047

1,251

(204)

Subtotal..............................................................

1,047

1,251

(204)

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

$ 9,699$ 6,700$ 2,999

Proceeds from sales of other securities and the aggregate gain for the years ended March 31, 2016 and 2015 are summarized asfollows:
Thousands of
U.S. dollars

Millions of yen

Proceeds from sales.....................................................................................................

¥

Aggregate gain..............................................................................................................

2016
9

¥

2015
3

$

3

7

2016
80
62

The redemption schedule subsequent to March 31, 2016 for held-to-maturity debt securities classified as other securities is described in
Note 18.

7. Inventories
Inventories at March 31, 2016 and 2015 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Finished goods and merchandise.................................................................................

¥

Work in process............................................................................................................

¥

53,070$¥53,377

2016
304,526
34,67017,358

14,846¥2015
31,870
4,149

3,907

Raw materials and supplies..........................................................................................
Total..............................................................................................................................

2016
34,317

131,742$

470,938

Net loss on devaluation of inventories included in cost of sales for the years ended March 31, 2016 and 2015 amounted to ¥1,003 million($8,901 thousand) and ¥16 million, respectively.

16

Ishihara Sangyo Kaisha, Ltd.

8. Acquisition Costs of property, plant and equipment
The accumulated amount deducted from the acquisition costs of machinery and equipment, receiving government subsidies totaled ¥15
million ($140 thousand) at March 31, 2016.
The accumulated amount deducted from the acquisition costs of land and buildings, resulting from the exchange of rights on an
urban area redevelopment project totaled ¥923 million at March 31, 2015.

9. Loss on Impairment of Fixed Assets
For the year ended March 31, 2016, the Company recorded a loss on impairment of fixed assets. The main components of loss on
impairment of fixed assets are as follows:
Thousands of
U.S. dollars

Millions of yen

Location
Yokkaichi Plant(Yokkaichi City, Mie Prefecture)

Bunkyo-ku, Tokyo

Major use
Production equipment

Office equipment

Classification
Buildings and structures

¥

2016
115

$

2016
1,020

Machinery and equipment

99

879

Demobilization cost

468

4,153

Subtotal

682

6,052

Buildings and structures¥

Subtotal
Total

34

$

302

$

6,354

34
¥

716

302

The Company and its consolidated subsidiaries group theirrecognized a loss on impairment. In addition, on March 11, 2016,

assets based on the business segment and production process

the board of Directors of the Company approved relocation of

for assessment of loss on impairment. Idle assets which are notTokyo branch. Therefore, the office equipment of Tokyo branch

anticipated to be utilized in the future and leased real estate areis not anticipated to be utilized in the future, the Company and its

classified as individual cash-generating units. Assets not definitely

consolidated subsidiary classified it as the assets scheduled forlinked to a specific business, such as the head-office building,the disposal and recognized a loss on impairment. The Company

the facilities for research and development and the facilities forand its consolidated subsidiary wrote down the book value of

welfare, are classified as corporate assets.

these assets to nil.
For the year ended March 31, 2015, the Company recorded a

As a part of production equipment located at the Yokkaichi
Plant in the above table, such as equipment for organic

loss on impairment of fixed assets. The main components of loss

compound, is not anticipated to be utilized in the future, theon impairment of fixed assets are as follows:

Company classified the production equipment as idle assets andMillions of yen

Location
Yokkaichi Plant(Yokkaichi City, Mie Prefecture)

Major use
Production equipment

Classification
Buildings and structures¥

Machinery and equipment
Total

2015
35
51

¥

86

As the production equipment located at the Yokkaichi Plant inrecognized the production equipment as idle assets andthe above table, such as equipment for liquid ammonia and fuelrecognized a loss on impairment. The Company wrote down theoil, is not anticipated to be utilized in the future, the Company

book value of these assets to nil.

Ishihara Sangyo Kaisha, Ltd.

17

10. Short-Term Bank Loans, Long-Term Bank Loans, Lease Obligations and Bonds
The average annual interest rate on short-term bank loans at March 31, 2016 and 2015 was approximately 1.5%.
Long-term bank loans, including the current portion of long-term bank loans, at March 31, 2016 and 2015 consisted of thefollowing:Thousands of
U.S. dollars

Millions of yen

Secured bank loans......................................................................................................

¥

2016
19,348¥2015
18,202$

2016
171,692

Unsecured bank loans..................................................................................................

29,91240,317

265,436

Subtotal........................................................................................................................

49,26058,519437,128

Less amounts due within one year................................................................................
Total..............................................................................................................................

(16,072)(14,093)¥

35,167¥42,447(125,059)$

312,069

Interest rates applicable to long-term bank loans presented in the above table ranged from 1.0% to 3.1% at March 31, 2016 and from
1.2% to 5.9% at March 31, 2015. These bank loans become due from 2016 through to 2023.
Bonds at March 31, 2016 and 2015 were as follows:
Thousands of
U.S. dollars

Millions of yen

Unsecured bonds, payable in yen at rate of 0.162%, due 2019.....................................

¥

Less amounts due within one year................................................................................
Total..............................................................................................................................

2016
840

¥

560

$

(280)

(280)
¥

2015
1,120

¥

840

2016
7,454
(2,485)$

4,969

Lease obligations at March 31, 2016 and 2015 were as follows:
Thousands of
U.S. dollars

Millions of yen

Finance lease obligations (ownership not transferred to the lessee)..............................

¥

Less amounts due within one year................................................................................
Total..............................................................................................................................

2016
1,446

¥

935

$

(549)

(511)
¥

2015
1,446

¥

897

2016
12,832(4,535)$

8,297

Information for the payment schedules of long-term bank loans, bonds, and lease obligations subsequent to March 31, 2016 is describedin Note 18.
At March 31, 2016 and 2015, the following assets were pledged as collateral for short-term bank loans, the current portion of longterm bank loans and long-term bank loans:Thousands of
U.S. dollars

Millions of yen

Property, plant and equipment, net of accumulated depreciation.................................

¥

2016
25,616¥2015
29,765$

2016
227,314

Investments in securities...............................................................................................

84

105

745

Cash and deposits........................................................................................................

190

190

1,686

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

18

Ishihara Sangyo Kaisha, Ltd.

¥25,890¥30,060$229,745

Short-term bank loans, the current portion of long-term bank loans and long-term bank loans secured by such collateral at March 31,
2016 and 2015 were as follows:
Thousands of
U.S. dollars

Millions of yen

Short-term bank loans..................................................................................................

¥

2016
7,530

2015
12,790¥2016
66,820$Current portion of long-term bank loans.......................................................................

5,761

4,717

51,123Long-term bank loans...................................................................................................

13,587

13,485120,570

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

¥

26,878¥30,992$

238,513

In addition, buildings and structures of ¥88 million ($781 thousand) and ¥92 million, land of ¥219 million ($1,943 thousand) and ¥219
million were pledged as collateral to secure future loans from certain financial institutions at March 31, 2016 and 2015, respectively.
However, there were no corresponding liabilities at March 31, 2016 and 2015.

11. Asset Retirement Obligations
The asset retirement obligations include legal obligations for

The asset retirement obligations are measured at present

disposal of items including polychlorobiphenyl pursuant to thevalue calculated based on the discount rate applicable to“Law Concerning Special Measures Against PCB Waste” andgovernment bonds and the assets’ useful lives, estimated to be 3other legal obligations for the removal of leasehold improvements

years to 8 years.

and restoration of premises around the Yokkaichi Plant to their
original condition upon termination of lease contracts.
The following is a summary of changes in the carrying amounts of the asset retirement obligations for the years ended March 31, 2016
and 2015.
Thousands of
U.S. dollars

Millions of yen

Asset retirement obligation balance at the beginning of the year..................................

¥

2016
840

¥

2015
841

$

2016
7,454

Liabilities incurred due to the acquisition of property, plant and equipment..................

14

5

Accretion expense........................................................................................................

0

0

0

Liabilities settled............................................................................................................

(26)

(6)

(230)

Asset retirement obligation balance at the end of the year............................................

¥

828

¥

840

124

$

7,348

Disclosure of detailed information on the asset retirement obligations at March 31, 2016 and 2015 was omitted because the total amountsof asset retirement obligations at March 31, 2016 and 2015 were less than 1% of the amount of total liabilities and net assets.

12. Retirement Benefits
The Company and certain consolidated subsidiaries have a

Certain consolidated subsidiaries have calculated their

lump-sum payment plan as a retirement benefit plan for eligible

retirement benefit obligations and retirement benefit expenses

employees upon retirement. Retirement payments are determinedbased on the amount which would be payable at the year end

by reference to basic salary, years of service and certain otherif all eligible employees terminated their services voluntarily (thefactors. In addition to this, the Company and certain domestic“Simplified Method”).

consolidated subsidiaries have defined contribution pension
plans.

Ishihara Sangyo Kaisha, Ltd.

19

The changes in retirement benefit obligations during the years ended March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligations at the beginning of the year...........................................

¥

2016
11,405¥2015
10,347$

2016
101,207

Cumulative effects of changes in accounting policies...................................................

–

1,095

–

Restated balance at the beginning of the year..............................................................

11,405

11,442

101,207

Service cost..................................................................................................................

592

612

5,253

Interest cost..................................................................................................................

108

110

958

Actuarial loss (gain).......................................................................................................

589

(273)

5,227

Retirement benefits paid...............................................................................................

(479)

(483)

(4,251)Other.............................................................................................................................
Retirement benefit obligations at the end of the year....................................................

(3)

(16)
¥

12,199¥11,405(141)$

108,253

The changes in plan assets during the years ended March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Plan assets at the beginning of the year........................................................................

¥

Expected return on plan assets....................................................................................

2016
162

¥

2015
306

$

2016
1,438

1

5

Actuarial (loss) gain.......................................................................................................

(9)

15

(80)

Contributions paid by the Company and subsidiaries...................................................

24

25

213

Retirement benefits paid...............................................................................................

(38)

(181)

(337)

Other.............................................................................................................................
Plan assets at the end of the year.................................................................................

(8)

(0)
¥

140

9

¥

162

(1)
$

1,242

The changes in retirement benefit obligations calculated by the Simplified Method during the year ended March 31, 2016 and 2015 are as
follows:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligations at the beginning of the year...........................................

¥

Retirement benefit expenses.........................................................................................

20

Ishihara Sangyo Kaisha, Ltd.

¥

883

$

¥

828

2016
7,348
879

(13)

(44)
¥

2015
761
80

99

Retirement benefits paid...............................................................................................
Retirement benefit obligations at the end of the year....................................................

2016
828

(391)
$

7,836

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheet as of March
31, 2016 and 2015 for the Company’s and the consolidated subsidiaries’ defined benefit plans:
Thousands of
U.S. dollars

Millions of yen

Funded retirement benefit obligation.............................................................................

¥

Plan assets at fair value.................................................................................................
Unfunded retirement benefit obligation.........................................................................

2016
243

2015
276

¥

$

2016
2,156

(140)

(162)

(1,242)

103

114

914

12,83911,957

113,932

Net amount of asset and liability for retirement benefits
in the consolidated balance sheet..............................................................................

12,942

12,071

114,846

Liability for retirement benefits......................................................................................

12,95812,085

114,988

Asset for retirement benefits.........................................................................................

(16)

(14)

(142)

Net amount of asset and liability for retirement benefits
in the consolidated balance sheet..............................................................................

¥

12,942¥

12,071$

114,846

The components of retirement benefit expenses for the years ended March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost..................................................................................................................

¥

2016
592

2015
612

¥

$

2016
5,253

Interest cost..................................................................................................................

108

110

958

Expected return on plan assets....................................................................................

(1)

(5)

(9)

Net retirement obligation at transition........................................................................

–

359

–

Actuarial loss.............................................................................................................

46

68

408

Prior service cost.......................................................................................................

19

20

169

Retirement benefit expenses calculated by the Simplified Method............................

99

80

Amortization:

Retirement benefit expenses.........................................................................................

¥

863

¥

1,244

879
$

7,658

The components of retirement benefits liability adjustments included in other comprehensive (loss) income (before tax effect) for the years
ended March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Actuarial (loss) gain.......................................................................................................

¥

2016
(552)

2015
356

¥

$

2016
(4,898)

Prior service cost..........................................................................................................

19

20

168

Net retirement obligation at transition............................................................................

–

359

–

Others...........................................................................................................................
Total..............................................................................................................................

15

0
¥

(533)

¥

750

0
$

(4,730)The components of retirement benefits liability adjustments included in accumulated other comprehensive income (before tax effect) as ofMarch 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Unrecognized actuarial loss..........................................................................................

¥

Unrecognized prior service cost...................................................................................
Total..............................................................................................................................

2016
923

¥

1,113

$

209

190
¥

2015
371

¥

580

2016
8,191
1,686

$

9,877

Ishihara Sangyo Kaisha, Ltd.

21

The fair value of plan assets, by major category, as a percentage of total plan assets as of March 31, 2016 and 2015 are as follows:

Debt securities..............................................................................................................

2016
83%

2015
84%

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

11

11

Cash and deposits........................................................................................................

6

5

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

100%

100%

The expected return on plan assets has been estimated based on the anticipated allocation to each asset class at present and in the
future and the expected long-term returns on assets held in each category at present and in the future.
The assumptions used in accounting for the defined benefit plans for the years ended March 31, 2016 and 2015 are as follows:

Discount rate.................................................................................................................

2016
Principally 0.1%

2015
Principally 0.9%

Expected long-term rate of return on plan assets.........................................................

Principally 2.1%

Principally 1.8%

Expected rates of salary increase.................................................................................

Principally 6.6%

Principally 6.5%

Total contributions paid by the Company and certain consolidated subsidiaries to the defined contribution pension plans for the years
ended March 31, 2016 and 2015 amounted to ¥86 million ($763 thousand) and ¥85 million, respectively.

13. Contingent Liabilities(a) Guarantees
At March 31, 2016, the Company was contingently liable for the following:Thousands of
U.S. dollars

Millions of yen

Trade notes receivable discounted with banks.......................................................................................

¥

As guarantor for borrowings of unconsolidated subsidiaries..................................................................
Total.......................................................................................................................................................

(b) Remediation measures in response to contaminated soil

2016
72

$

2016
639

$

1,535

101
¥

173

896

extraordinary losses to the extent that were paid during theand underground water and waste assumed to be buried atyear or reasonably estimated as of the balance sheet date. The

Yokkaichi Plant of the Company (the “Plant”)

Company does not record any costs that cannot be reasonably

As a result of soil and underground water surveys conducted at

estimated at the balance sheet date, such as costs for permanent

the Plant after an assessment by a comprehensive compliancecontamination remediation measures.

test in 2008, contamination was identified, which seems to be

The following information on buried waste that must

mainly derived from past production activities. In response to

be removed from the Plant has been officially announced

this, the Company submitted certain documents to Yokkaichiin connection with the assessment of the comprehensive

City, which has jurisdiction over the matter, notifying thecompliance test in 2008. The measures required to remove theauthorities of these findings, in accordance with the “Ordinanceburied waste will probably have an impact on the Company’s

for Conservation of the Living Environment” enacted by Mie

future business performance, however, the Company had not

Prefecture. Subsequently, under the guidance and advice frombeen able to conduct the detailed investigations efficiently as thethe Environmental Expert Committee, which consists of academic

vacant area in the Plant was used for temporarily storing removed

advisors, the Company conducted a survey to identify the status

Ferosilt.

and source of the contamination and set up pumping and water

In December 2015, the Company completed the disposal oftreatment facilities in order to prevent dispersal of contaminatedthe removed Ferosilt that had been temporarily stored at the Plant

ground water. While full-scale pumping is continuing, theand started to hold discussions on the location, extent, nature

Company also conducts detailed surveys and considers theand volume of buried waste, and appropriate methods to dispose

appropriate countermeasures. The Company records costs

such waste. The Company has continued discussions with thefor preventing dispersal of contaminated ground water as

authorities and plans to start further detailed investigations.

22

Ishihara Sangyo Kaisha, Ltd.

The Company records costs for disposal of inorganic sludge

buried waste, the Company is confirming the presence ofdescribed in (2) below as extraordinary losses to the extent that

underground metallic and type of soil, which is different from othercan be reasonably estimated as of the balance sheet date. The

layers.

Company does not record any costs that cannot be reasonably
estimated at the balance sheet date, such as costs for disposal ofburied waste.

(2) Inorganic sludge and other substances at a former
Synthesis Rutile plant site
The Company has temporarily stored removed Ferosilt at the site.

(1) Buried waste in area No. 2

From January 2009, the Company started to carry out the Ferosilt

Since area No. 2 was previously the site of a sedimentation

removal and implemented a boring survey in sections as removal

pond, certain legally permitted waste was also buried there.

was completed, as a result, inorganic sludge was identified from

Consequently, prior to waste removal, the Company will needcertain bored sections. The Company started to dispose of theto distinguish between legally and illegally buried wastes. In thesludge from April 2016 and plans to bore the area to survey buriedprocess of identifying the exact location of the inappropriately

waste after the disposal is completed.

14. Income Taxes
Income taxes applicable to the Company and its domestic

approximately 32.6% and 35.1%, respectively. Overseas

consolidated subsidiaries consist of corporation, inhabitants’ andsubsidiaries are subject to the income taxes of the respective

enterprise taxes. The applicable statutory tax rates in Japan for

countries in which they operate.

the years ended March 31, 2016 and 2015 were, in the aggregate,
The effective tax rates reflected in the accompanying consolidated statement of income for the years ended March 31, 2016 and 2015
differs from the above statutory tax rates for the following reasons:Statutory tax rate......................................................................................................................................

2016
32.6 %

2015
35.1 %

Permanently non-deductible expenses.................................................................................................

0.3

0.3

Permanently non-taxable income..........................................................................................................

(0.5)

(1.0)

Per capita portion of inhabitants’ taxes.................................................................................................

0.3

0.3

Tax deduction for experiment and research expenses..........................................................................

(0.7)

(0.9)

Unrealized gain on intercompany transactions......................................................................................

0.1

(0.8)
(3.0)

Changes in valuation allowance.............................................................................................................

3.4

Decrease of deferred tax assets resulting from change in tax rates......................................................

3.7

9.4

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

(1.5)

(0.4)

Effective tax rate.......................................................................................................................................

23.4 %

39.0 %(*) Difference in subsidiaries’ tax rates, which had been presented in Other for the year ended March 31, 2015, was separately stated in the table above forthe year ended March 31, 2016 due to an increase in materiality.

Ishihara Sangyo Kaisha, Ltd.

23

Deferred income taxes reflect the net tax effect of the temporary differences between the carrying amounts of the assets and liabilities
for financial reporting purposes and the corresponding amounts for income tax purposes. The significant components of the Company’s
and consolidated subsidiaries’ deferred tax assets and liabilities at March 31, 2016 and 2015 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

Deferred tax assets:......................................................................................................
Tax loss carryforwards..............................................................................................

¥

16,542¥

10,317$

146,792

Liability for retirement benefits...................................................................................

3,931

3,851

Loss on devaluation of inventories.............................................................................

185

195

1,642

Unrealized gain on intercompany transactions..........................................................

1,304

1,631

11,572

34,883

Accrued expenses.....................................................................................................

400

504

3,550

Accrued bonuses for employees...............................................................................

192

216

1,704

Reserve for Ferosilt removal......................................................................................

–

1,033

–

Reserve for implementation of environmental and safety arrangements....................

598

293

5,307

Asset retirement obligations......................................................................................

249

267

2,210

Loss on liquidation of a subsidiary.............................................................................

16

6,783

142

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

2,118

1,864

18,793Gross deferred tax assets.............................................................................................

25,535

26,954

226,595

Less valuation allowance..............................................................................................

(15,925)(15,347)(141,317)

Total deferred tax assets...............................................................................................

9,610

11,607

85,278

(21)

(21)

(186)

Unrealized holding gain on securities........................................................................

(73)

(143)

(648)

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

(425)

(429)

(3,771)

Total deferred tax liabilities............................................................................................

(519)

(593)

(4,605)

Deferred tax liabilities:
Property, plant and equipment..................................................................................

Net deferred tax assets.................................................................................................

¥

9,091

¥

11,014$80,673The “Act for Partial Amendment of the Income Tax Act, etc.”

temporary differences expected to be realized or settled from(Act No. 15 of 2016) and the “Act for Partial Amendment of theApril 1, 2018, respectively. The effect of the announced reduction

Local Tax Act, etc.” (Act No. 13 of 2016) were enacted in theof the effective statutory tax rate was to decrease deferred tax

Japanese Diet session on March 29, 2016. As a result, theassets, after offsetting deferred tax liabilities, by ¥470 million

effective statutory tax rate used to measure the Company’s($4,171 thousand) and increase deferred income tax expense

deferred tax assets and liabilities was changed from 31.8% toby ¥454 million ($4,029 thousand), as of and for the year ended

30.4% and 30.2% for the temporary differences expected to be

March 31, 2016.

realized or settled in the year beginning April 1, 2016 and for the

15. Shareholders’ Equity
The Company Act of Japan (the “Act”) provides that an amountUnder the Act, upon the issuance and sale of new shares of

equal to 10% of the amount to be disbursed as distributions

common stock, the entire amount of the proceeds is required toof capital surplus (other than the capital reserve) and retained

be accounted for as common stock, although a company may, by

earnings (other than the legal reserve) be transferred to the capital

resolution of the Board of Directors, account for an amount notreserve and the legal reserve, respectively, until the sum of theexceeding one-half of the proceeds of the sale of new shares ascapital reserve and the legal reserve equals 25% of the capital

additional paid-in capital.

stock account. Such distributions can be made at any time byresolution of the shareholders or by the Board of Directors if
certain conditions are met.

24

Ishihara Sangyo Kaisha, Ltd.

Common stock and treasury stock
Movements in common stock and treasury stock during the years ended March 31, 2016 and 2015 are summarized as follows:
Thousands of shares

2016
April 1, 2015

Increase

Decrease

March 31, 2016

Common stock.....................................................................

403,839––

403,839

Treasury stock......................................................................

3,973

47

0

4,020

Thousands of shares

2015
April 1, 2014

Increase

Decrease

March 31, 2015

Common stock.....................................................................

403,839––

403,839

Treasury stock......................................................................

3,909

65

1

3,973

The increases in treasury stock were due to purchases of sharesshares at requests of shareholders who own less than one votingof less than one voting unit for the years ended March 31, 2016

unit for the years ended March 31, 2016 and 2015.

and 2015. The decreases in treasury stock were due to sales of

16. Research and Development Costs
Research and development costs included in manufacturing costs

ended March 31, 2016 and 2015 totaled ¥8,989 million ($79,768

and selling, general and administrative expenses for the years

thousand) and ¥9,330 million, respectively.

17. Leases
Operating lease transactions
Future minimum lease payments subsequent to March 31, 2016 under non-cancelable operating leases are summarized as follows:Year ending March 31,

Thousands of
U.S. dollars

Millions of yen

2017........................................................................................................................................................

¥

301

¥

1,261

2018 and thereafter.................................................................................................................................
Total........................................................................................................................................................

$

2,671

$

11,190960

8,519

18. Financial Instruments
Overview(2) Types of financial instruments and related risk

(1) Policy for financial instruments

Trade receivables – trade notes and accounts receivable – are

In consideration of plans for capital expenditures or cash

exposed to credit risk in relation to customers. In addition,

management, the Company and its consolidated subsidiaries

the Group has global operations and the percentage of sales(collectively, the “Group”) raise funds through bank loans ortransactions denominated in foreign currencies is high. As a

issuing bonds for its domestic and overseas business. The Group

result, the Group is exposed to foreign currency exchange risk

manages temporary cash surpluses through low-risk financial

arising from receivables denominated in foreign currencies.

assets. The Group uses derivatives for the purpose of reducing

Marketable securities and investments in securities are

fluctuation risk of foreign exchange and interest rates. However,exposed to market risk. Those securities are composed of mainly

the use of derivatives is limited within the extent of risk at theheld-to-maturity debt securities and the shares of common

basis of the actual demand and the Group does not enter into

stock of other companies with which the Group has businessderivatives for speculative or trading purposes.

relationships, or affiliated companies. The Group has also loans
receivable from other companies with which it has business
relationships. These loans receivable are exposed to credit risk.

Ishihara Sangyo Kaisha, Ltd.

25

Regarding trade payables – trade notes and accounts

the unfavorable impact caused by foreign currency exchange

payable – the Group is exposed to the risk of failure of settlement

fluctuations on accounts receivable deriving from forecastedof these payables at the due date because of working capital

export sales transactions, the Group may enter into forward

issue, which may result in loss of credit. The Group is also

foreign exchange contracts to the extent it is probable that those

exposed to foreign currency exchange risk arising from those

forecasted export sales take place. In order to mitigate thepayables denominated in foreign currencies due to the import ofinterest rate risk for loans payable and bonds bearing interest at

raw materials and other supplies.

variable rates, the Group may also enter into interest rate swap

A portion of bank loans and bonds has some financial
covenants, which may result in the risk of early repaymenttransactions.
For marketable securities and investments in securities,

depending on the fluctuation of the financial position of the Group.

the Group periodically reviews the fair values of such financial

Short-term and long-term bank loans with variable interest rates

instruments and the financial position of the issuers. In addition,

are exposed to interest rate fluctuation risk. The repayment dates

the Group continuously evaluates whether securities otherof the debt extend up to 7 years from the balance sheet date.

than those classified as held-to-maturity debt securities should

Regarding derivatives, the Group enters into forward foreignexchange contracts to reduce the foreign currency exchange
risk arising from the receivables and payables denominated in

be maintained taking into account their fair values and therelationships with the issuers.
In conducting derivative transactions, the division in charge of

foreign currencies. The Group also enters into interest rate swap

derivative transactions follows the internal policies, and requests

transactions to reduce fluctuation risk deriving from interest

divisions that perform such derivative transactions to report thesepayable for long-term bank loans bearing interest at variabletransactions, and reconciles this information with transaction

rates. Information regarding the method of hedge accounting isdetails obtained from financial institutions. The division preparesdescribed in Note 2 (f).

monthly reports which include actual transaction data, thecontracted amounts, principals, fair value of these derivatives and(3) Risk management for financial instruments

valuation gains or losses. These reports are then submitted to the(a) Monitoring of credit risk (the risk that customers or

Board of Directors for their review.

counterparties may default)
In accordance with the internal policies for credit limit
management, the Group reduces certain risks arising from credit(c) Monitoring of liquidity risk (the risk that the Group may not beable to meet its obligations on scheduled due dates)transactions with customers by setting credit limits for individual

Based on the reports from each cash management division, thecustomers, managing maturity dates and outstanding amounts,

Group prepares and updates its cash flow plans on a monthly

recognizing the existing risks and controlling all receivables

basis to manage liquidity risk. The Group also reports theseappropriately. The Group monitors the financial situation ofplans to the Board of Directors and takes actions if necessary to

its main customers periodically and compares outstanding

maintain a specified level of cash position.

receivables balances with the amounts of credit limit by eachcustomer periodically and confirms that the internal policies areappropriately applied.
In accordance with the internal policies for asset(4) Supplementary explanation of the estimated fair value offinancial instruments
The fair value of financial instruments is based on their quoted

management, the Group invests in held-to-maturity debt securities

market price, if available. When there is no quoted market pricewith high credit ratings. Accordingly, the Group believes that theavailable, fair value is reasonably estimated. Since various

credit risk deriving from such debt securities is insignificant.

assumptions and factors are reflected in estimating the fair value,

The Group also believes that the credit risk of derivatives

different assumptions and factors could result in different fairis insignificant as it enters into derivative transactions only withvalue. In addition, the notional amounts of derivatives in Note 19

financial institutions or trading companies which have a soundare not necessarily indicative of the actual market risk involved in

credit profile.

the derivative transactions.

(b) Monitoring of market risks (the risks arising from fluctuations inforeign exchange rates, interest rates and others)
For trade receivables and payables denominated in foreign
currencies, the Group identifies the foreign currency exchange
risk for each currency on a monthly basis and enters into forward
foreign exchange contracts to hedge such risk. In order to mitigate
26

Ishihara Sangyo Kaisha, Ltd.

Estimated Fair Value of Financial Instruments

following table does not include financial instruments for which it is

The carrying value of financial instruments on the consolidated

extremely difficult to determine the fair value. (Please refer to Notebalance sheets, estimated fair value and the differences as of18(b) below)

March 31, 2016 and 2015 are shown in the following table. The(a) Estimated fair value of financial instruments
Millions of yen

2016

2015

Carrying value

Estimated fair
value

Carrying value

Estimated fair
value

¥

¥

¥

¥

Difference

Difference

Assets:(1) Cash and deposits......................................................
(2) Trade receivables........................................................

29,39925,22629,399¥–25,226–

21,472
29,05921,472¥–

29,059–0(3) Securities and investments in securities:
Held-to-maturity debt securities................................

10

10

0

10

10

Other securities.........................................................

1,093

1,093

–

1,407

1,407

Total assets......................................................................

¥

55,728¥55,728¥0¥51,948¥51,948–¥0Liabilities:(1) Trade payables.........................................................

10,342

10,342–

12,40912,409–(2) Short-term bank loans................................................

13,85813,858–15,40015,400–(3) Long-term bank loans, including current portion........

49,26049,45258,519192

58,53617

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

¥

73,460¥73,652¥

192¥

86,328¥86,345¥17

Derivatives (*)...................................................................

¥

95

¥

95

¥

–

¥

274

¥

274

¥

–

Thousands of U.S. dollars

2016
Carrying value

Estimated fairvalue(1) Cash and deposits......................................................

$ 260,884$ 260,884(2) Trade receivables........................................................

223,853

223,853

–

89

89

0

Difference

Assets:$–(3) Securities and investments in securities:
Held-to-maturity debt securities................................
Other securities.........................................................

9,699

9,699

Total assets......................................................................

$ 494,525$ 494,525–$0Liabilities:(1) Trade payables.........................................................

91,774

91,774–(2) Short-term bank loans................................................

122,975

122,975–(3) Long-term bank loans, including current portion........

437,129438,832

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

$ 651,878$ 653,581

$

1,703

Derivatives (*)...................................................................

$

$

$

–

843

843

1,703

(*) Assets and liabilities arising from derivatives are shown at net value with the amount in parentheses representing net liability position.

Methods to determine the estimated fair value of financial

Assets:instruments and other matters related to securities and derivative(1) Cash and deposits and (2) Trade receivablestransactions are as follows:

Since these items are settled in a short time period, their carrying
value approximates estimated fair value.

Ishihara Sangyo Kaisha, Ltd.

27

(3) Securities and investments in securities(3) Long-term bank loans, including current portion

The fair value of equity and debt securities is based on quoted

For long-term bank loans with floating interest rates, their carrying

market prices.

value approximates estimated fair value because their interest rate

Regarding the information on securities and investments inreflects the market interest rate.
The estimated fair value of long-term bank loans withsecurities corresponding to holding purposes, please refer to

fixed interest rates is based on the present value of the total ofNote 6.

principal and interest discounted by the interest rate to be applied
Liabilities:

assuming new loans under the similar conditions to existing loans(1) Trade payables and (2) Short-term bank loans

are made.

Since these items are settled in a short time period, their carrying
value approximates estimated fair value.

Derivatives:
Please refer to Note 19 “Derivatives.”(b) Financial instruments whose fair values were extremely difficult to determine
Thousands of
U.S. dollars

Millions of yen

Unlisted equity securities..............................................................................................

¥

2016
4,204

Investments in limited partnerships...............................................................................

2015
4,025

¥

2016
37,306

$

55

32

284

Because no quoted market price is available and it is extremely difficult to determine the fair value, the above financial instruments are notincluded in the preceding table.
(c) Redemption schedule of deposits, monetary receivables and securities with maturities
Millions of yen

Millions of yen

2016
Due in one
year or less

Deposits.....................................

¥

Trade receivables.......................

29,3902015

Due after one
year throughfive years

Due after five
years throughten years

Due after ten
years

¥

¥

¥

25,226––––

Due after one
year throughfive years

Due in one
year or lessDue after five
years throughten years¥

Due after ten
years

– ¥

21,462 ¥

–

– ¥

–

–

29,059

–

–

–

–

10

– ¥

10

Investments in securities:
Held-to-maturity debt
securities..............................
Total...........................................

–¥

54,616

–
¥

–

10
¥

10

–
¥

– ¥

Thousands of U.S. dollars

2016
Due in one
year or less

Deposits.....................................

$ 260,804

Trade receivables.......................

223,853

Due after one
year throughfive years

Due after five
years throughten years

Due after ten
years

$

$

$

–
–

–
–

–
–

Investments in securities:
Held-to-maturity debt
securities..............................

–

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

$ 484,657

28

Ishihara Sangyo Kaisha, Ltd.

–
$

–

89
$

89

–
$

–

–
50,521 ¥–¥–(d) Redemption schedule of long-term debt
Millions of yen

2016Long-term bank loans...................................

Due in one year
or less

Due after one
year through two
years

¥

¥

14,093

13,533Due after two
years throughthree years¥

13,686

Due after three
years throughfour years

¥

6,046

Due after four
years through five
years

¥

1,564

Due after five
years

¥

338

Bonds...........................................................

280

280

280

–

–

–

Lease obligations..........................................

511

370

261

169

95

40

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

¥

14,884¥

14,183¥

14,227

¥

6,215

¥

1,659

¥

378

Thousands of U.S. dollars

2016
Due in one year
or less

Due after one
year through twoyears

Long-term bank loans...................................

$ 125,060$ 120,091$ 121,448

Bonds...........................................................

2,485

2,485

2,485

Due after two
years throughthree years

Lease obligations..........................................

4,535

3,283

2,316

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

$ 132,080$ 125,859$ 126,249

Due after three
years throughfour years$

53,652

Due after four
years through five
years

$

13,879–55,152

$

2,999

–

1,500
$

Due after five
years

–

842
$

14,721

355
$

3,354

19. Derivatives
The notional amounts and the estimated fair value of the derivative instruments outstanding which did not qualify for deferral hedge
accounting at March 31, 2016 and 2015 were as follows:(a) Currency-related transactions
Forward foreign exchange contracts:
Millions of yen

Notional amount

2016

2015

Estimated fairvalue

Estimated fairvalue

Unrealized gain

Notional amount¥¥

Unrealized gain
(loss)

Sell:
Euro...........................................................

¥

4,552

¥

89

89

2,754

¥

281

¥

281

Buy:
Japanese yen............................................
Total..............................................................

370
¥

5

4,922

¥

94

484

5
¥

94

¥

3,238

(7)
¥

274

(7)
¥

274

Thousands of U.S. dollars

2016
Estimated fairvalue

Notional amount

Unrealized gain

Sell:
Euro...........................................................

$

40,394

$

790

$

790

Buy:
Japanese yen............................................
Total..............................................................

3,283
$

43,677

44
$

834

44
$

834

Ishihara Sangyo Kaisha, Ltd.

29

(b) Currency-related transactions (hedge accounting is applied)
Forward foreign exchange contracts:
Millions of yen

2016
Method ofaccounting

Classification

The allocation Buy:
methodU.S. dollars

Hedged item

Accounts
payableNotional amount

Notional amount(over one year)

¥

¥

–

–

2015
Estimated fairvalue (*)¥–

Notional amount

Notional amount(over one year)

¥

¥

13

–

Estimated fairvalue (*)¥(**)(*) The estimated fair value of forward foreign currency exchange contracts is computed using prices provided by counterparty financial institutions.
(**) Because forward foreign exchange contracts are accounted for as if the exchange rates applied to the forward foreign exchange contracts hadoriginally applied to the accounts receivable or payable, their fair values were included in accounts receivable or payable.

(c) Interest-related transactions (hedge accounting is applied)
Millions of yen

2016
Method ofaccounting

Classification

Hedged item

Receive/floating
and pay/fixedLong-termbank loans

Notional amount

Notional amount(over one year)

¥

¥

2015
Estimated fairvalue (*)

Notional amount

Notional amount(over one year)¥¥

Estimated fairvalue (*)

Deferral hedge
The special
method

8,732

6,983

¥

(**)

9,835

5,772

¥

(**)

Thousands of U.S. dollars

2016
Method ofaccounting

Classification

Hedged item

Receive/floating
and pay/fixedLong-termbank loans

Notional amount

Notional amount(over one year)$$

Estimated fairvalue (*)

Deferral hedge
The special
method77,48761,966$(**)(*) The estimated fair value of forward foreign currency exchange contracts is computed using prices provided by counterparty financial institutions.
(**) Because interest rate swap agreements are accounted for as if the interest rates applied to the swaps had originally applied to the long-term bankloans, their estimated fair values were included in estimated fair value of long-term bank loans.

20. Gain on Sales of Fixed Assets
The gain on sales of fixed assets for the year ended March 31,

rights of ISK Singapore PTE. Ltd., a consolidated subsidiary of the2016 mainly consisted of gain on sales of land and a building at

Company, in the amounts of ¥639 million ($5,671 thousand) andthe Company’s head office, and gain on sales of land leasing¥6,661 million ($59,110 thousand), respectively.

30

Ishihara Sangyo Kaisha, Ltd.

21. Other Comprehensive Income (loss)
The following table presents reclassification adjustments and tax effects for components of other comprehensive income (loss) for theyears ended March 31, 2016 and 2015:
Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

Net unrealized holding (loss) gain on securities:
Amount arising during the year..................................................................................

¥

(339)

¥

218

$

(3,008)Before tax effect....................................................................................................

(339)

218

(3,008)Tax effect...............................................................................................................

71

(23)

630

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

(268)

195

(2,378)

(0)

0

(0)

Reclassification adjustments for gains and losses included in net income................

0

41

0

Before tax effect....................................................................................................

(0)

41

(0)

Tax effect...............................................................................................................

0

(15)

0

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

(0)

26

(0)

Amount arising during the year..................................................................................

(372)

(698)

(3,301)(3,301)

Unrealized deferred (loss) gain on hedges:
Amounts arising during the year................................................................................

Translation adjustment:
Before tax effect....................................................................................................

(372)

(698)

Tax effect...............................................................................................................

–

180

–

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

(372)

(518)

(3,301)

Amount arising during the year..................................................................................

(598)

303

(5,307)

Reclassification adjustments for gains and losses included in net income................

65

447

577

Before tax effect....................................................................................................

(533)

750

(4,730)Tax effect...............................................................................................................

150

(287)

1,331

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

(383)

463

(3,399)Retirement benefits liability adjustments:

Other comprehensive (loss) income of affiliates accounted for by the equity method
attributable to the Company.......................................................................................
Total other comprehensive (loss) income......................................................................

72

(52)
¥

(1,075)

¥

238

(461)
$

(9,539)22. Supplemental Information to Consolidated Statements of Cash Flows
Information on significant non-cash transactions
The Company and its consolidated subsidiaries recorded new leased assets of ¥550 million ($4,881 thousand) and ¥371 million andlease obligations of ¥594 million ($5,271 thousand) and ¥400 million under finance leases for the years ended March 31, 2016 and 2015,
respectively.

Ishihara Sangyo Kaisha, Ltd.

31

23. Amounts per ShareYen

Net assets per share.....................................................................................................

¥Net income attributable to owners of parent per share.................................................

2016
154.06

U.S. dollars¥

2015
133.08

2016
1.37

$

17.46

23.66

0.21

Net income attributable to owners of parent per share is based

the number of shares of common stock outstanding at the year

on the net income attributable to shareholders of common stock

end.
Diluted net income attributable to owners of parent per shareand the weighted-average number of shares of common stock
outstanding during each year. Net assets per share are based on

for the years ended March 31, 2016 and 2015 is not presented
since no potentially dilutive securities have been issued.

The financial data for the computation of basic net income attributable to owners of parent per share for the years ended March 31, 2016
and 2015 in the table above is summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2016

2015

2016

Information on basic net income attributable to owners of parent per share:
Net income attributable to owners of parent.............................................................

¥Net income not attributable to common shareholders..............................................
Adjusted net income attributable to common shareholders..........................................

9,462

¥

6,984

¥

9,462

$

83,965

–

–
¥

6,984

–
$

83,965

Thousands of shares

2016399,842

Weighted-average number of shares of common stock outstanding during the year......

2015
399,901

The financial data for the computation of net assets per share at March 31, 2016 and 2015 in the above table is summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Total net assets.............................................................................................................

¥

2016
61,598¥2015
53,215$

2016
546,614

Deductions from total net assets:
Non-controlling interests...........................................................................................
Total net assets used in the calculation of net assets per share....................................

––¥

61,598¥53,215

Thousands of shares

Number of shares used in the calculation of net assets per share................................

32

Ishihara Sangyo Kaisha, Ltd.

2016
399,8192015
399,866–$

546,61424. Related Party Transactions
Major transactions and balances between the Company and an affiliated company for the years ended and as of March 31, 2016 and2015 were as follows:
Transactions

BalancesThousandsof U.S.
dollars

Millions of yen
Name of affiliated company

Type of transaction

2016

2015

2016

BELCHIM CROPPROTECTION N.V.

Sales of products

¥471

¥ 48

$ 4,180

Thousandsof U.S.
dollars

Millions of yen
Account

2016

2015

2016

Trade receivables

¥ 94

¥6

$ 834

Major transactions and balances between a consolidated subsidiary and an affiliated company for the years ended and as of March 31,
2016 and 2015 were as follows:
Transactions

BalancesThousandsof U.S.
dollars

Millions of yen
Name of affiliated company

Type of transaction

2016

BELCHIM CROPPROTECTION N.V.

Sales of products¥ 17,152

2015

Millions of yen

2016¥ 16,776 $ 152,205

Thousandsof U.S.
dollars

Account

Trade receivables

2016

2015

2016

¥ 3,109¥ 4,054$ 27,589

25. Segment Information(a) Overview of the reportable segments

Organic chemicals

The Company’s reportable segments are determined on the basis

This reportable segment includes the business of manufacturingthat such segments provide the Board of Directors with specificand sales of organic intermediates such as agrochemicals andinformation to determine the business activity policy and allocation

active pharmaceutical ingredients.

of management resources and to evaluate their businessperformance. Consequently, the Company has classified its

Other businesses

business into three reportable segments of “Inorganic chemicals,”This reportable segment principally includes the trading business“Organic chemicals,” and “Other businesses” based on theand the construction business.

properties of products and services sold, manufacturing methods
and processes.

(b) Valuation method for reportable segment sales, income andInorganic chemicals

The accounting policies for the reportable business segments

This reportable segment includes the business of manufacturing

are the same as those described in Note 2. Intersegment sales

and sales of titanium dioxide, functional materials, which areare recorded at the same prices used in transactions with third

value-added products designed to take advantage of theparties.

assetscharacteristics of titanium dioxide and other inorganic chemicals.

Ishihara Sangyo Kaisha, Ltd.

33

(c) Reportable segment information
Millions of yen

2016
Reportable segments
Inorganic
chemicals

Organic
chemicals¥ 49,922¥ 49,509

Otherbusinesses

Subtotal

Elimination andcorporate (*1)

Consolidated(*2)¥¥ 102,903

Net sales and operating income:Net sales:
External customers...............................................

¥

3,472

¥ 102,903–

Intersegment.........................................................

–

–

2,962

2,962

(2,962)–

Net sales...............................................................

49,92249,5096,434

105,865(2,962)102,903

Segment income......................................................

¥

Segment assets.......................................................

2,568

¥

7,238

¥

394

¥ 10,200¥(1,885)¥8,315¥ 68,875¥ 58,665¥

3,121¥ 130,661¥ 34,390¥ 165,051

3,321

966

58

4,345

113

4,458

Loss on impairment of fixed assets.......................

–

682

7

689

27

716

Increase in fixed tangible and intangible assets....

3,743

782

20

4,545

110

4,655

Other items:
Depreciation and amortization of
intangible assets.................................................

Millions of yen

2015
Reportable segments
Inorganic
chemicals

Organic
chemicals

External customers...............................................

¥ 51,342¥ 49,031

Intersegment.........................................................

–

–

Other
businesses

Subtotal

Elimination andcorporate (*1)

Consolidated
(*2)

¥

–

¥ 103,331(2,026)–

Net sales and operating income:Net sales:

Net sales...............................................................

51,342¥¥ 103,331

2,026

2,026

4,984

105,357

6,698

¥

152

¥ 12,745¥¥ 73,143¥ 58,753¥

2,573

Depreciation and amortization of
intangible assets.................................................

3,495

1,015

Loss on impairment of fixed assets.......................

86–

Increase in fixed tangible and intangible assets....

2,282

627

Segment income......................................................

¥

Segment assets.......................................................

5,895

49,031

2,958¥(2,026)

103,331(1,640)¥ 11,105¥ 134,469¥ 34,946¥ 169,415

62

4,572

185

4,757

–

86

–

86

44

2,953

137

3,090

Other items:

34

Ishihara Sangyo Kaisha, Ltd.

Thousands of U.S. dollars

2016
Reportable segments
Inorganic
chemicals

Organic
chemicals

Otherbusinesses

Subtotal

Elimination andcorporate (*1)

Consolidated(*2)

External customers...............................................

$ 443,003$ 439,338$ 30,810$ 913,151

Intersegment.........................................................

––

26,28526,285$(26,285)$ 913,151–

Net sales...............................................................

443,003439,338

57,095

939,436(26,285)

913,151

Segment income......................................................

$ 22,788$ 64,229$

90,513$ (16,727)$

Segment assets.......................................................

$ 611,190$ 520,587$ 27,696$1,159,473$ 305,173$1,464,646

29,4708,572

515

38,557

1,003

39,560Loss on impairment of fixed assets.......................

–

6,052

62

6,114

240

6,354

Increase in fixed tangible and intangible assets....

33,215

6,939

178

40,332976

41,308Net sales and operating income:Net sales:

3,496

$

–

73,786

Other items:
Depreciation and amortization of
intangible assets.................................................

million includes ¥716 million ($6,354 thousand) and ¥828 million of
offset of inter-segment receivables and payables, and ¥35,106 million($311,527 thousand) and ¥35,774 million of corporate assets, which
are not allocable to a reportable segment as of March 31, 2016 and2015, respectively. Corporate assets consist of investments of surplus
funds (cash and securities), long-term investments (investments insecurities), assets of the administration department and so forth.
(*2) Segment income corresponds to operating income in the
consolidated statements of income.

(*1) The elimination and corporate applicable to segment income
amounted to ¥1,885 million ($16,727 thousand) and ¥1,640 million in
the above tables and includes ¥71 million ($630 thousand) and ¥165
million of eliminations of intersegment transactions and ¥1,956 million($17,357 thousand) and ¥1,805 million of corporate expenses, which
are not allocable to the reportable segments for the years ended
March 31, 2016 and 2015, respectively. Corporate expenses mainlycomprise expenses incurred by the administration department of theCompany, which are not allocable to any reportable segment.
The elimination and corporate applicable to segment assets
amounted to ¥34,390 million ($305,173 thousand) and ¥34,946

Related information
Products and services information
The information on each product and service is omitted because it is the same as that of reportable segment information for the years
ended March 31, 2016 and 2015.
Geographical information
Net sales by geographical segment for the years ended March 31, 2016 and 2015 are summarized as follows:
Millions of yen

Year ended March 31, 2016
Japan

Net sales.......................................................

¥

48,982

Asia¥

18,411

America¥

11,293

Europe¥23,970

Other

¥

247

Total

¥ 102,903

Millions of yen

Year ended March 31, 2015
Japan

Net sales.......................................................

¥

50,803

Asia¥

17,511

America¥

12,946

Europe¥21,643

Other

¥

428

Total

¥ 103,331

Thousands of U.S. dollars

Year ended March 31, 2016
Japan

Net sales.......................................................

$ 434,661

Asia

America

Europe$ 163,377$ 100,213$ 212,707

Other

$

2,193

Total

$ 913,151

Ishihara Sangyo Kaisha, Ltd.

35

The regions are determined on the basis of geographic proximity and the Company’s business activities as follows:
Asia:

China, Taiwan, South Korea, Thailand, Indonesia and Singapore

America: The United States, Canada, Brazil, Argentina and Mexico
Europe: Germany, the Netherlands, France, the United Kingdom, Belgium, Italy, Eastern Europe and the Middle East
Other:

Australia, New Zealand and Africa

Property, plant and equipment by geographical segment as of March 31, 2016 and 2015 are summarized as follows:
Millions of yen

At March 31, 2016
Japan

Property, plant and equipment..............................................

¥

37,766

Asia¥

America

142

¥

784

Europe

¥

42

Total

¥

38,734

Millions of yen

At March 31, 2015
Japan

Property, plant and equipment..............................................

¥

43,518Asia¥

America

150

¥

816

Europe

¥

41

Total

¥

44,525

Thousands of U.S. dollars

At March 31, 2016
Japan

Property, plant and equipment..............................................

$ 335,132

Asia

$

1,260

America$

6,957

Europe

$

373

Total

$ 343,722

Geographical segments are determined on the basis of geographic proximity and the Company’s business activity as follows:
Asia:

TaiwanAmerica: The United States
Europe: Belgium
Information on sales transactions with major customers
Sales transactions with major customers for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen
Customer name

MITSUI & CO., LTD.

Relevant reportable segments

Inorganic chemicals and Organic chemicals................

2016¥ 10,709

2015¥ 10,481

Thousands of
U.S. dollars

2016$ 95,031

26. Subsequent Event
Consolidation of shares and a change in the number of shares
per share trading unit(a) Purpose of consolidation of shares and a change in the numberof shares per share trading unit

On May 19, 2016, the board of Directors’ meeting resolved to

Stock exchanges in Japan including the Tokyo Stock Exchangechange the number of shares per share trading unit from 1,000

issued “Action Plan for Consolidating Trading Units” and haveshares to 100 shares to be effective on October 1, 2016. In

aimed to unify the number of common shares per share trading

addition, by resolution at the Company’s 93rd Ordinary Generalunit of domestic listed companies in Japan at 100 shares. As

Meeting of Shareholders to be held on June 29, 2016, theone of the listed companies on the Tokyo Stock Exchange, theCompany is going to consolidate 10 shares into 1 share also to beCompany has endorsed the purport of the action plan above andeffective on October 1, 2016.

is going to change its number of shares per share trading unit to
100 shares and consolidate 10 shares into 1 share considering36

Ishihara Sangyo Kaisha, Ltd.

the appropriate level of the price range of share units (between(2) Consolidation ratio:¥50 thousand and ¥500 thousand) as encouraged by the stock

As of October 1, 2016, every 10 shares held by each shareholder

exchanges.

are to be consolidated into 1 share based on the number ofshares listed in the Company’s Register of Shareholders as of the(b) Details of consolidation of shares

end of the day on September 30, 2016.

(1) Class of stock to be consolidated: Common stock(3) Decrease in number of shares due to consolidation of shares
Number of outstanding shares before consolidation (as of March 31, 2016)................................................
Decrease in number of shares after consolidation.......................................................................................
Number of outstanding shares after consolidation.......................................................................................

403,839,431 shares
363,455,488 shares
40,383,943 shares

Note: “Decrease in number of shares after consolidation” and “Number of outstanding shares after consolidation” are theoretical values
calculated based on the number of outstanding shares before consolidation and the consolidation ratio.

(c) Impact on net income and net assets per share
Net income and net assets per share for the years ended March 31, 2016 and 2015 assuming that consolidation of shares had been
carried out at the beginning of the year ended March 31, 2015 are as follows:Yen

Net assets per share............................................................................................................
Net income per share...........................................................................................................

2016¥ 1,540.63
236.64

U.S. dollars

2015¥ 1,330.83
174.632016$ 13.67
2.10

Note: Diluted net income per share for the years ended March 31, 2016 and 2015 is not presented since no potentially dilutive securities
have been issued.

Ishihara Sangyo Kaisha, Ltd.

37

Report of Independent Public Accountants

38

Ishihara Sangyo Kaisha, Ltd.

Corporate Data
(As of June 29, 2016)

Head Office

Overseas Affiliated Companies

1-3-15 Edobori, Nishi-ku, Osaka 550-0002, Japan
Tel: +81-6-6444-1451(General Affairs Division)
Fax: +81-6-6445-7798(General Affairs Division)

ISK Taiwan Co.,Ltd
Empire Bldg., Fl 11-1., 87, Sung Chiang Road
Taipei, Taiwan
Tel: +886-2-2504-5387 Fax: +886-2-2509-4961

Board of Directors
Executive Director President
Kenichi Tanaka
Directors
Yoshinari Terakawa
Michiyoshi Arata
Chimoto Honda
Yoshiyuki Suzuki
Outside Directors
Noriyuki Yonemura
Daizaburo Teranishi

Board of Corporate Auditors(Standing) Corporate Auditor
Taizo Kato
Outside Corporate Auditors
Yoshitaka Akikuni
Masaaki Harima

Executive Officers
President & Chief Executive Officer
Kenichi Tanaka
Senior Managing Executive Officers
Yoshinari Terakawa
Michiyoshi Arata
Managing Executive Officers
Chimoto Honda
Yoshiyuki Suzuki
Executive Officers
Teruaki Matsue
Norihiro Kato
Yoichi Kobayashi
Ken Kawaguchi
Masanari Kato
Hideo Takahashi
Kiyomitsu Yoshida
Kiyoshi Masuda
Hiroshi Yoshizawa
Hisashi Takenaka

ISK KOREA CORPORATION#421 Cheonggu Blueville, 11-1 Sunae-dong, Bundang-gu
Seongnam-City, Gyeonggi-do,
463-825 Korea
Tel: +82-31-778-6393 Fax: +82-31-778-6392
ISK Biosciences Korea Ltd.
4F Kairos Bldg., 837-2 Yeoksam-dong, Gangnam-gu,
Seoul , 135-937 Korea
Tel: +82-2-555-1401 Fax: +82-2-563-1408
ISK Americas, Incorporated
7474 Auburn Road
Concord, OH 44077-9703, U.S.A.
Tel: +1-440-357-4600 Fax: +1-440-357-4611
ISK Biosciences Corporation
7470 Auburn Road, Suite A
Concord, OH 44077-9703, U.S.A.
Tel: +1-440-357-4640 Fax: +1-440-357-4661
ISK Biocides, Inc.
416 East Brooks Road, Memphis, TN
38109-0158, U.S.A.
Tel: +1-901-344-5350 Fax: +1-901-344-5387
ISHIHARA CORPORATION (U.S.A.)
601 California Street Suite 1700
San Francisco, CA 94108, U.S.A.
Tel: +1-415-421-8207 Fax: +1-415-397-5403
ISK Biosciences Europe N.V.
Pegasus Park Building 6, 4th Floor De
Kleetlaan 12B – Box9 1831 Diegem Belgium
Tel: +32-2-627-8611 Fax: +32-2-627-8600

Ishihara Sangyo Kaisha, Ltd.

39

Ishihara Sangyo Kaisha, Ltd.

Printed in Japan