Annual Report 2019Year ended March 31, 2019

TERAOKA SEISAKUSHO CO., LTD.

Teraoka Seisakusho Co., Ltd.

15

PROFILE
Since its establishment as a comprehensive manufacturer of adhesive tape in 1921,
Teraoka Seisakusho Co., Ltd. has remained an industry leader in driving development oforiginal and advanced technology, providing customers with a diverse lineup of adhesive
tapes that extend to packing, electrical insulation, electronic equipment, other industrial andgeneral home-use adhesive tapes.
As we approach the 100th year anniversary of our founding, we have drafted the secondary medium-term management plan dubbed, “Teraoka 100,” to be applied over the 6 years starting April
2015, for which the aim is to improve the Company’s corporate value and in turn, the interests ofstockholders. Then, April 2018 marked the beginning of Teraoka 100 Phase 2, which is the plan forthe latter three years.
Our vision in this is to, “In light of our 100th anniversary, transform into a company with a tremendous presence through steady reform and taking on new challenges while fulfilling our CSR.
We will take on the challenge of four basic strategies to achieve this vision.
● Train personnel who can demonstrate strong ability at worksite● Corporate-wide Manufacturing Reforms● Build a business and product portfolio for the purpose of growth● Strengthen consolidated management strategy and overseas strategy
Although simple adhesive tapes continue to quietly posting results, the Company Group is always
creating new value and taking strides to become a corporate with a tremendous presence, as yourindispensable partner.

CONTENTS
Consolidated Financial Highlights.......................... 1
To Our Stockholders................................................. 2
Review of Operations ............................................... 4
Consolidated Five-Year Summary .......................... 6
Consolidated Financial Statements ....................... 7
Financial Review ....................................................... 8
Report of Independent Auditors ............................. 25
Company Data ........................................................... 26
Investor Information ................................................. 28
10

Teraoka Seisakusho Co., Ltd.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FINANCIAL HIGHLIGHTS

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

Millions of yen

2019

2018

2019

¥23,558¥22,816$212,215

Operating Income

1,144

1,319

10,308

Income before Income Taxes

1,366

1,291

12,313Net Income

1,034

921

9,320

Total Assets

35,85435,575332,982

Net Assets

28,97828,686

261,047

Operating Income to Net Sales

4.9

5.8

Equity Ratio

80.8

80.6

Return on Average Assets (ROA)

2.9

2.6

Return on Average Stockholders’ Equity (ROE)

3.6

3.3

Net Sales

Ratio (%)

Per Share

Yen

U.S. dollars

Net Income¥40.84¥36.37$0.37

Cash Dividends

14.00

12.00

0.13

The U.S. dollar amounts in this annual report are translated from yen, for convenience only,at the rate of ¥111.01 = US$1, the rate prevailing on March 31, 2019.

Net Sales

Net Income

Total Assets(¥ billions)(¥ millions)(¥ billions)
40

1,200

30

1,000
30
800

20

20

600

10

400
10
200

0

15

16

17

18

19

0

15

16

17

18

19

0

15

16

17

18

19

Teraoka Seisakusho Co., Ltd.

1TO OUR STOCKHOLDERS

Result for FY 2019

Fiscal year 2019, the year ended March 31, 2019 marks the 109th business term for theCompany Group.
In the current accounting year, the Company Group struggled with sales of our electronictapes for mobile devices, which had maintained good numbers, dropped from the first term,
due to effects of China’s sudden economic slowdown, resulting in falling short of projections
announced on October 23 last year.
As a result, sales for the Company Group for the consolidated fiscal year were ¥23,558
million (US$212,215 thousand), increasing 3.3% over the previous term. We have also been
active in hiring, including specialists, in order to bring the medium-term business plan tofruition, leading to an increase in sales expenses and general management expenses, bringing operating income to ¥1,144 million (US$10,308 thousand). This was a 13.3% decrease
from the previous fiscal year. Consolidated income before income taxes was ¥1,366 million(US$12,313 thousand), a 5.9% increase from the previous term. Consolidated income for theparent company was ¥1,034 million (US$9,320 thousand), a 12.3% increase over the previous term.

Future Focus

Although robust demand for architecture and civil engineering, such as infrastructure development for the coming Olympic Games is expected, due to uncertainties such as trade
friction between the US and China, and BREXIT, the immediate future of the Japanese
economy is also uncertain. For the full year projected consolidated operating results for the
March 2020 term, by expanding sales of existing high-profit products and launching of new
products, review of unprofitable products, promotion of “manufacturing reforms” that include
thorough inventory management and stabilizing quality, reducing costs by optimizing worktasks, sales are forecasted to be ¥26 billion (US$234 million), operating income to be ¥1,400
million (US$12,611 thousand), consolidated income before income taxes at ¥1,510 million(US$13,602 thousand), and consolidated income attributable to parent company stock is
forecast at ¥1,170 million (US$10,540 thousand).

Problem Prevention

Inappropriate Conduct Related to Some Company Products
In regards to the inappropriate conduct pertaining to some of the Company’s products, madepublic on April 6, 2018, we received an investigation report by an external investigation committee consisting of outside experts dated June 29 of the same year, and we announced
measures to prevent recurrence based on this report on July 20 of the same year. The
Company is sincerely promoting prevention of recurrence by taking the following efforts forEnhancement of Compliance Structure and to enhance the quality management and assurance system.
(1) Enhancement of Compliance Structure
The Company Group is dedicated to creating a healthy corporate environment we can beproud of while achieving our CSR (corporate social responsibility). Moreover, we will bemaking compliance enhancement (compliance with corporate ethics and laws), and further we be increasing employee compliance awareness through company-wide education
programs using e-learning while also conducting company-wide proactive efforts througha compliance committee.

2

Teraoka Seisakusho Co., Ltd.

(2) Enhancing Quality Management and Assurance
Arrangements
We are making efforts to increase our corporate value
and exceed stockholders’ benefits, aiming to surpass
common interests by strictly implementing high-quality
risk management such as building a system in response
to demands of the industry with the highest quality
management standard demands and by introducing inspection systems that eliminate human error, while also
implementing thorough quality training based on rules
and principles.

Management Challenges(1) Establishing Continued Operating Proﬁt on Sales
The Company will ensure improved Operating Profit on
Sales through deep and comprehensive understandingof customer needs by actively communicating withproduct users, and conducting effective sales activities
by concentrating human resources in focus segments.
(2) Production System Organization and New Product Development for the Future
Along with promoting Scrap and Build of the equipment for organizing an optimum production system
and achieving further improvement of product quality,
we are proceeding with organic collaboration between
manufacturing, research and sales departments and will
strive to put new products with a high profitability andhigh expected added value on the market in a timely
manner, with consideration for environmental issues.

Dividends

The end of term dividend was distributed at ¥5 (US$0.05) per share and the mid-term dividend
preceding it was ¥9 (US$0.08) per share for a total of ¥14 (US$0.13) per share in annual dividends.
We would like to take this opportunity to express our sincere gratitude to our stockholders fortheir continued patronage and support.
June 21, 2019

Keishiro Teraoka,
Chairman

Kenichi Tsuji,
President

Teraoka Seisakusho Co., Ltd.

3REVIEW OF OPERATIONSThe Company Group R&D is held up by the pillars ofboth short-term and medium to long-term perspectives,
developing new products based on adhesive tape andresin sheets, developing materials with new function,
developing new manufacturing methods, introduction of
new technology thanks to external alliances, improved
quality of environmental measures, improved efficiency
in production and sales, etc.
The market continues to evolve. For example, theautomotive and telecommunication industries areundergoing dramatic reforms based on concepts thatdiffer from past methods, causing a paradigm shift.
With this, the needs of the Company Group’s customers have also become more diverse and sophisticated.
The demand for environmental considerations is also
increasing in many industries and services. In responseto these trends as well, the Company Group will continue to upgrade our technology as well as engage in newtechnology development and capital investment, proposing high-quality products with high added value thatwill satisfy our customers’ needs, and provide stableproducts and services.

Sales of Electrical Insulation andElectronic Equipment Tapes

Sales of Packing Tapes(¥ billions)5
4

New achievements in this consolidated fiscal year
include new product development of advanced-fixation
double-sided tape, strong adhesive double-sided tape,advanced-sealing double-sided tape, heat-resistanttape, etc. Also, new technological development expected to be launched in the medium to long-term saw
progress in new functional coating material development, solventless technology, petroleum alternative developments, etc. Furthermore, we are actively investingin equipment, moving forward with expanding our R&D
system by introducing experimental equipment related
to new adhesive production methods, various analyticalequipment and practical evaluation equipment, among
others.
Total R&D costs in this consolidated accounting
period were ¥934 million (US$8,413 thousand), increasing 10.2% over the previous year. Furthermore, R&D
accounted for 4.0% of consolidated sales, which was 0.3
points increase over the previous fiscal year.
Consolidated sales for the corporate group was¥23,558 million (US$212,215 thousand), which are broken down by product segment below.

Sales of Other Industrial Tapes(¥ billions)(¥ billions)
8

14

3.7

3.8

3.7

3.7

3.7

3

12

11.9

11.1

10

11.6

12.2

10.3

6.8

6.9

15

16

7.3

7.5

7.6

17

18

19

6

8
4

6

2

4

2

1
2
0

0

0

15

16

Packing Tapes

17

18

19

15

16

Consumer-related products that are mainly mail-order
are steady and construction work tapes were continue
to perform well, but overall inventory turnover has been
in a slump since the beginning of the year. Therefore,

17

18

19

consolidated sales for this product segment kept at theexact same level as the previous fiscal year at ¥3,724
million (US$33,545 thousand). This segment accounts
for 15.8% of total consolidated sales and decreased by
0.5 points below the previous term.

Electrical Insulation and Electronic
Equipment Tapes

While electronic equipment tapes and automotive equipment tape sales were strong in the second and third
quarters, sales were only ¥12,201 million (US$109,913
thousand) due to effects of sudden decrease in production of mobile devices in China in the fourth quarter.
This was a 5.6% increase over the previous fiscal year.
This segment accounts for 51.8% of total consolidated
sales and has increased by 1.2 points over the previous
term.
4

Teraoka Seisakusho Co., Ltd.

BREAKDOWN OF SALES BY CATEGORY

51.8% Electrical Insulation and15.8% Packing Tapes

Electronic Equipment Tapes

Olive cloth tapes● Kraft paper tapes●●

Polypropylene film adhesive tapes●

Polyester film adhesive tapes●

Acetate cloth adhesive tapes
Combination adhesive tapes●

R

Kapton film adhesive tapes● Nomex adhesive tapes●

R

32.4% Other Industrial Tapes●

Double-coated adhesive tapes

Corrosion-proof tapes● Masking cloth tapes●●●

Glass cloth adhesive tapes●

EMI/RFI shielding tapes●

Silicone rubber adhesive tapes

Surface protection tapes

CHANGES IN OVERSEAS SALES(¥ billions)

10
GEOGRAPHICALSALES MARKETS

Asia

8.17
8

27.6%

8.02

7.61

7.31

Japan

6.59

69.0%

6

Other Industrial Tapes

4

2

North America
0

15

1.5
%
16
17
Europe

18

19

0.9%
Other areas

1.0%SALES MARKETSGEOGRAPHICAL

While sales were sluggish in automotive equipment
tapes, sales for this product segment increased slightly
to ¥7,633 million (US$68,758 thousand) thanks to strong
performance of protective cloth tape and polyethylene
cloth tape, which are major products used in infrastructure and construction. This is a 1.2% increase fromthe previous term. This segment accounts for 32.4% ofconsolidated sales and decreased by 0.7 points below
the previous term.

Overseas Sales

Asia

24.5%

Japan

66.0%

North America

7.4%
Europe1.0%
Other areas

1.1%

The Company Group has expanded activities overseas
by establishing corporate bodies and bases in Hong
Kong SAR, Shanghai, Shenzhen, Indonesia, South Korea, as well as Taiwan.
Comparing overseas sales for the current consolidated fiscal year by segment, Packing Tapes decreased
by 0.5% while Electrical Insulation and Electronic Equipment Tapes increased by 1.5%, but Other Industrial
Tapes decreased by 1.0%. The result of this was overseas sales of ¥8,024 million (US$72,289 thousand) inthis segment, 9.8% growth compared to the previous
term. This also accounted for 34.1% of consolidated
sales and was a 2.1 point increased compared to theprevious term.

Teraoka Seisakusho Co., Ltd.

5

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED FIVE-YEAR SUMMARY

Thousands of
U.S. dollars

Millions of yen

2015

2016

2017

2018

2019

2019

¥22,477¥21,771¥21,262¥22,816¥23,558$212,215

Operating Income

1,024

1,144

1,039

1,319

1,144

10,308

Income before Income Taxes

1,902

991

768

1,291

1,366

12,313Net Income

1,025

727

616

921

1,034

9,320

Total Assets

35,33133,49534,64035,57535,854

332,982

Net Assets

28,26827,96327,994

28,68628,978261,047

Operating Income to Net Sales

4.6

5.3

4.9

5.8

4.9

Equity Ratio

80.0

83.5

80.8

80.6

80.8

Return on Average Assets (ROA)

3.0

2.1

1.8

2.6

2.9

3.8

2.6

2.2

3.3

3.6

Years ended March 31

Net Sales

Ratio (%)

Return on Average
Stockholders' Equity (ROE)Per Share

Yen

Net Income¥38.92¥27.62¥23.96¥36.37¥40.84$0.37

Cash Dividends

10.00

11.00

11.00

12.00

14.00

0.13

The U.S. dollars are translated at the rate of ¥111.01 per US$1, prevailing on March 31, 2019.

6

U.S. dollars

Teraoka Seisakusho Co., Ltd.

CONSOLIDATED FINANCIAL STATEMENTS
Fiscal Year 2019Year ended March 31, 2019

Teraoka Seisakusho Co., Ltd.

7

FINANCIAL REVIEWBusiness Performance
Net Assets(¥ billions)
30

20

10

0

15

16

17

18

19

Net Income
per Share (Yen)40

30

In termsof Ratio
Japan’s economic state for this consolidated fiscal year, while industrial producEquity
tion (%)
index weakened somewhat in the second half of the year, bringing corporate profits to a
standstill,
the employment and income environment continued to improve, including steady100
increase in real income, resulting in moderate recovery of the household sector.
However, in addition to the worsening Chinese economy due to intensifying friction in trade80
betweenthe US and China, the European and US economy slowdown contributed to sudden
deterioration of the Company Group’s surrounding environments, and we need to tread carefully in these continuously unpredictable circumstances.
60
The sales department partnered up with the R&D department in an effort to gain neworders, through projects like holding an independent exhibition, pushing the Company Group
product
strengths such as insulation, high heat resistance, strong adhesives, etc. In the R&D
40
field we were able to launch new products with high added value. We have started somemanufacturing reforms and various systematizations in order to take a big leap forward in the20
production sector.
The result was that consolidated sales for the consolidated fiscal year increased by 3.3%
overthe previous term to ¥23,558 million (US$212,215 thousand). However, as we are con0
16 active
17 18
19 including specialists, in order to bring the medium-term businesstinuing15to bein hiring,plan to fruition, sales expenses and general management expenses increased, bringing operatingReturn
income¥1,144 million (US$10,308 thousand), which was a 13.3% decrease from the
ontoAverage
Assets
(ROA)
previousyear,but(%)Income before Income Taxes increased 5.9% to ¥1,366 million (US$12,313
thousand)due to the weakened yen. The result is that the consolidated operating income
3
pertaining to the parent company stock was ¥1,034 million (US$9,320 thousand), a 12.3%
increase over the previous term, but this result did not meet the business projections announced in October of last year. This is due to struggles in electronic tape for mobile devices
which was affected by China’s economical slowdown, despite performing well prior.
2

Segment Information
20

10

0

15 16

17 18 19

Cash Dividends
per Share (Yen)
15

10

5

0

8

15

16

17 18

Teraoka Seisakusho Co., Ltd.

19

The Company’s corporate group business consists of a single segment, manufacture and saleof adhesive tape. However, the following is an explanation of the state of sales by product1
division.
In this fiscal year’s Packing Tapes sector, consumer-related products that are mainly
mail-order are steady and construction work tapes were continue to perform well, but overall
inventory turnover has been in a slump since the beginning of the year. Consolidated sales for
this
0 product segment kept at the exact same level as the previous fiscal year at ¥3,724 mil15 16 17thousand).
18 19 This segment accounts for 15.8% of total consolidated sales andlion (US$33,545
decreased by 0.5 points below the previous term.
In
the Electrical
Returnon AverageInsulation and Electronic Equipment Tapes sector, while electronic equipmentStockholders'tape and automotive
tape sales were strong in the second and third quarters,
Equity (ROE)equipment
(%)
sales
were only ¥12,201 million (US$109,913 thousand) due to effects of sudden decrease in
4
production of mobile devices in China. This was a 5.6% increase over the previous fiscal year.
This segment accounts for 51.8% of total consolidated sales and has increased by 1.2 points
over the previous term.
3
In the Other Industrial Tapes segment, while sales were sluggish in automotive equipment tapes, sales for this product segment increased slightly to ¥7,633 million (US$68,758
thousand) thanks to strong performance of protective cloth tape and polyethylene cloth tape,2
which are major products used in infrastructure and construction. This is a 1.2% increase fromthe previous term. This segment accounts for 32.4% of consolidated sales and decreased by
0.7 points below the previous term.
1 At the same time, looking at results in the Overseas Sales sector, overseas sales for thecurrent consolidated fiscal year increased by 9.8% over the previous fiscal year, coming to¥8,024 million (US$72,289 thousand). This also accounted for 34.1% of consolidated sales.
This
was a 2.1 point increased compared to the previous term.
015

16 17 18 19

19

19

19

Financial Position
Equity Ratio
(%)
100

80

60

40

20

0

15

16

17

18

19

Return on Average
Assets (ROA) (%)
3

Cash Flows

2

1

0

15

16 17 18

19

Return on Average
Stockholders' Equity (ROE) (%)
4

Capital from operating activities increased by ¥1,458 million (US$13,140 thousand). This was
an increase on the previous year’s consolidated accounting of ¥1,692 million. The increases
in this fiscal year were mainly increases in consolidated income before income taxes and capital from depreciation and amortization expenses, and decrease in capital due to corporate
tax payments.
Cash flow used for investment activities was ¥883 million (US$7,955 thousand). Even in
the activities of the previous consolidated accounting term, ¥452 million was used for investment. The main factor for this in the current term was expenditures for acquisition of fixed
assets.
There was a ¥399 million (US$3,599 thousand) decrease in capital from financial activities. There was a decrease of ¥327 million in used capital from the previous consolidated
accounting year. The decrease this term was mainly due to dividend payments.
From these activities, consolidated cash and cash equivalents for end of year consolidated accounting were ¥8,959 million (US$80,710 thousand), an increase of ¥234 million(US$2,108 thousand) compared to the previous year end consolidated accounting.

Dividends

TERAOKA considers the payment of dividends to its shareholders as one of our most important business issues, and we operate according to a basic policy of continued stable dividend
payments.
Regarding dividends, in addition to elements affecting the amount, such as business results, current financial state, cash flow, dividend payout ratio, etc., dividends were determinedbased overall considerations of future business strategy, business development policies andprojections, including considerations for ensuring a certain level of flexibility, as well as ensuring capital for investment.
According to our basic stance, the end of term dividend was ¥5.00 (US$0.05) per share,
and combined with the previously distributed interim dividend of ¥9.00 (US$0.08) per share,
the total annual dividends were ¥14.00 (US$0.13) per share. The payout ratio for this term
was 47.2%.

3

2

1

0

Total assets for the end of year consolidated accounting increased by 0.8% over the previous
end of year consolidated accounting to ¥35,854 million (US$322,982 thousand).
Total current assets for the end of year increased by 4.6% over the previous end of year
consolidated accounting to ¥20,937 million (US$188,609 thousand). This was mainly due toan increase in cash and deposits.
Total fixed assets for the end of year consolidated accounting decreased 4.2% from theprevious end of year consolidated accounting to ¥14,917 million (US$134,373 thousand). Thiswas mainly due to the market value decrease in investment securities due to drop in stock
price.
Total liabilities for the end of year consolidated accounting decreased 0.2% from the previous end of year consolidated accounting to ¥6,876 million (US$61,935 thousand).
Out of this, total current liabilities increased by 2.0% over the previous end of term to ¥5,594
million (US$50,394 thousand). This was mainly due to an increase in operating receivables.
Furthermore, total long-term liabilities decreased 0.2% below the previous end of year consolidated accounting to ¥6,876 million (US$61,935 thousand).
Total net assets for the end of year consolidated accounting increased 1.0% over the previous end of year consolidated accounting to ¥28,978 million (US$261,047 thousand). Thiswas mainly due to an increase in retained earnings.
The result of these figures is a capital-to-asset ratio of 80.8%, an increase of 0.2 points
from the previous term.

15

16 17 18 19

Teraoka Seisakusho Co., Ltd.

9

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSMarch 31, 2019 and 2018

Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

¥  9,425
5,685
1,274
1,715
1,253
1,238
355
(8)
20,937¥  9,077
5,909
1,013
1,702
968
1,041
308
(9)
20,009$  84,903
51,215
11,472
15,448
11,284
11,153
3,202(68)
188,609

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

11,94922,488
4,047
269
172
2,083
41,008(30,226)
10,782

11,54922,624
4,032
269
285
2,139
40,898(30,101)
10,797

107,640
202,573
36,4552,427
1,550
18,763
369,408(272,284)
97,124

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

209

285

1,886

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

3,579
35
119
193
(0)
3,926

4,134
0
177
174
(1)
4,484

32,242
316
1,075
1,734
(4)
35,363

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

¥ 35,854¥ 35,575$ 322,982

ASSETS
Current Assets:
Cash and time deposits ����������������������������������������������������������������������������
Notes and accounts receivable – trade ������������������������������������������������������
Electronically recorded monetary claims – operating ���������������������������������
Merchandise and finished goods (Note 2-c) ����������������������������������������������
Work in process (Note 2-c) �����������������������������������������������������������������������
Raw materials and supplies (Note 2-c) �������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������
Less: Allowance for doubtful accounts (Note 2-h) �������������������������������������
Total current assets�����������������������������������������������������������������������������

Property, Plant and Equipment (Notes 2-d and 2-f):
Buildings and structures ����������������������������������������������������������������������������
Machinery, equipment and vehicles ����������������������������������������������������������
Land ���������������������������������������������������������������������������������������������������������
Leased assets ��������������������������������������������������������������������������������������������
Construction in progress ���������������������������������������������������������������������������
Other �������������������������������������������������������������������������������������������������������

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

10

Teraoka Seisakusho Co., Ltd.

Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent Liabilities:
Notes and accounts payable – trade ���������������������������������������������������������
Electronically recorded obligations – operating ������������������������������������������
Lease obligations ��������������������������������������������������������������������������������������
Accrued income taxes��������������������������������������������������������������������������������
Accrued expenses��������������������������������������������������������������������������������������
Other��������������������������������������������������������������������������������������������������������
Total current liabilities�������������������������������������������������������������������������

¥ 1,263
2,603
19
191
593
925
5,594

¥ 1,294
2,455
19
203
560
953
5,484

$ 11,378
23,447
175
1,720
5,337
8,337
50,394Long-term Liabilities:
Lease obligations���������������������������������������������������������������������������������������
Deferred liabilities taxes (Note 2-g) �����������������������������������������������������������
Provision for environmental measures �������������������������������������������������������
Net defined benefit liability������������������������������������������������������������������������
Asset retirement obligations����������������������������������������������������������������������
Long-term accounts payable - other ���������������������������������������������������������
Other��������������������������������������������������������������������������������������������������������
Total long-term liabilities���������������������������������������������������������������������

230
284
316
43
301
57
51
1,282

249
396
316
40
297
57
50
1,405

2,068
2,557
2,842
387
2,713
511
463
11,541

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

6,876

6,889

61,935NET ASSETSStockholders’ Equity:
Common stock������������������������������������������������������������������������������������������
Authorized: 80,000,000 shares
Issued:    26,687,955 shares as of March 31, 2019 and26,687,955 shares as of March 31, 2018, respectively
Additional paid-in capital ��������������������������������������������������������������������������
Retained earnings �������������������������������������������������������������������������������������
Less: Treasury stock, at cost ����������������������������������������������������������������������
Total Stockholders’ equity ������������������������������������������������������������������

5,057

5,057

45,556

4,644
18,039(462)
27,278

4,644
17,385(462)
26,624

41,834
162,505(4,168)245,727

Accumulated other comprehensive income
Unrealized gains on securities (Notes 2-b and 5) ���������������������������������������
Foreign currency translation adjustments (Note 2-j) �����������������������������������
Remeasurements of defined benefit plans ������������������������������������������������
Total accumulated other comprehensive income ��������������������������������
Total net assets ����������������������������������������������������������������������������������
Total liabilities and net assets �������������������������������������������������������������

1,445
263
(8)
1,700
28,978¥35,854

1,847
151
64
2,062
28,686¥35,575

13,0172,376(73)
15,320261,047$322,982

Teraoka Seisakusho Co., Ltd.

11

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
For the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars

Millions of yen

2019¥23,558
17,202
6,356
5,212
1,144

2018
¥22,816
16,630
6,186
4,867
1,319

2019
$212,215
154,958
57,257
46,94910,308

10
95
—
207
(54)
—
(91)
—
55
222

6
90
41
(274)
(1)
(13)
—
74
49
(28)

86
856
—
1,864
(485)
—
(818)
—
502
2,005

Income before income taxes ������������������������������������������������������������������

1,366

1,291

12,313

Income taxes:
Current ����������������������������������������������������������������������������������������������������
Deferred ���������������������������������������������������������������������������������������������������
Total income taxes ���������������������������������������������������������������������������������

294
38
332

297
73
370

2,650
343
2,993

Net income �������������������������������������������������������������������������������������������

¥ 1,034¥   921$ 9,320

Profit attributable to non-controlling interests ����������������������������������������������
Profit attributable to owners of parent ���������������������������������������������������������

—
1,034

—
921

—
9,320

Net Sales ������������������������������������������������������������������������������������������������������
Cost of Sales ������������������������������������������������������������������������������������������������
Gross Profit �������������������������������������������������������������������������������������������
Selling, General and Administrative Expenses �����������������������������������������������
Operating income ���������������������������������������������������������������������������������
Other Income and Expenses:
Interest income �����������������������������������������������������������������������������������������
Dividend income ���������������������������������������������������������������������������������������
Commission received ��������������������������������������������������������������������������������
Foreign exchange gains (losses), net ���������������������������������������������������������
Loss on retirement of non-current assets ���������������������������������������������������
Amortization of business commencement expenses ����������������������������������
Commission paid ��������������������������������������������������������������������������������������
Gain on sales of investment securities �������������������������������������������������������
Other, net �������������������������������������������������������������������������������������������������Per Share
Per share of common stock
Net income �����������������������������������������������������������������������������������������������Cash dividends �����������������������������������������������������������������������������������������

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

12

Teraoka Seisakusho Co., Ltd.

Yen

¥40.84
14.00

U.S. dollars¥36.37
12.00

$0.37
0.13

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars

Millions of yen

2019¥1,034

2018
¥ 921

2019
$ 9,320

(402)
112
(72)
(362)

178
(171)
68
75

(3,628)1,017(653)(3,264)Comprehensive Income ��������������������������������������������������������������������������������

¥  672¥ 996$ 6,056

Total comprehensive income attributable to:Comprehensive income attributable to owners of parent ��������������������������
Comprehensive income attributable to non-controlling interests ���������������

672
—

996
—

6,056
—

Net income ��������������������������������������������������������������������������������������������������
Other Comprehensive Income
Unrealized gains on securities �������������������������������������������������������������������
Foreign currency translation adjustments ��������������������������������������������������
Remeasurements of defied benefit plans, net of tax ����������������������������������
Total other comprehensive income ������������������������������������������������������������

Teraoka Seisakusho Co., Ltd.

13

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the years ended March 31, 2019 and 2018

Millions of yen
Accumulated Other Comprehensive Income

Stockholders’ Equity

Balance at April 1, 2017 �������Cash dividends paid ���������������
Net income ����������������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2018 ��
Balance at April 1, 2018 �������Cash dividends paid ���������������
Net income ����������������������������
Purchase of treasury stock ������
Net changes of items otherthan Stockholders’ equity �����
Total changes of items during
the period ����������������������������
Balance at March 31, 2019 ��

CommonStock:

Additional Paidin Capital

Retained
Earnings¥5,057———¥4,644———¥16,768
(304)
921
—

—

—

—

—
¥5,057¥5,057————¥4,644¥4,644———

617¥17,385¥17,385
(380)
1,034
—

—

—

—

—
¥5,057—¥4,644654¥18,039

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Treasury Stock, Stockholders’at CostEquityUnrealized
Gains onSecurities¥(462) ¥26,007
—
(304)
—
921
(0)
(0)

¥1,669
—
—
—

¥ 322
—
—
—

¥ (4)
—
—
—

¥1,987———¥27,994
(304)
921
(0)

—

178

(171)

68

75

75

(0)
617
¥(462) ¥26,624¥(462) ¥26,624
—
(380)
—
1,034
(0)
(0)

178
¥1,847¥1,847
—
—
—

(171)
¥ 151
¥ 151
—
—
—

68
¥ 64
¥ 64
—
—
—

75
¥2,062¥2,062———

692¥28,686¥28,686
(380)
1,034
(0)

—

(402)

112

(72)

(362)

(362)

(0)
654
¥(462) ¥27,278(402)¥1,445

112
¥ 263

(72)
¥ (8)

(362)
¥1,700292¥28,978——

Total Net
AssetsThousands of U.S. dollars
Stockholders’ Equity
CommonStock

Balance at April 1, 2018 ������� $45,556—
Cash dividends paid ���������������
—Net income ����������������������������
—Purchase of treasury stock ������
Net changes of items other—than Stockholders’ equity �����
Total changes of items during—
the period ����������������������������
Balance at March 31, 2019 ��� $45,556

Additional
Paid in
CapitalRetained
Earnings$41,834 $156,608—(3,423)
—
9,320
—
—
—

—

—
5,897
$41,834 $162,505

Accumulated Other Comprehensive Income

Treasury
Stock,
at CostUnrealized
Gains onSecurities$(4,167) $239,831—(3,423)
—
9,320
(1)
(1)

$16,645———$1,359
—
—
—

$ 580
—
—
—

$18,584———$258,415(3,423)
9,320
(1)

—

(3,628)

1,017

(653)

(3,264)(3,264)(1)
5,896$(4,168) $245,727(3,628)$13,017

1,017$2,376(653)(3,264)2,632$ (73) $15,320 $261,047—

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

14

Teraoka Seisakusho Co., Ltd.

Foreign
Remeasure- Total AccumuCurrency
ments oflated Other
Translation
DefinedComprehenAdjustments Benefit Plans sive Income

Total
Stockholders’EquityTotal Net
AssetsTeraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

¥1,366¥1,291$12,313

932
54
—
(2)
(44)
(105)
0
(127)

867
1
(74)
(0)
17
(96)
0
183

8,395
485
—
(17)
(392)
(942)
2
(1,153)

(21)
(477)
103
(21)
1,658
105
(0)
(305)
1,458

(809)
230
57
173
1,840
96
(0)
(244)
1,692

(190)
(4,298)931(190)
14,944942(2)(2,744)
13,140Investing Activities:
Payment for purchases of property, plant and equipment �������������������������
Payments for retirement of property, plant and equipment �����������������������
Proceeds from sales of property, plant and equipment ������������������������������
Payment for purchases of intangible assets �����������������������������������������������
Payment for purchases of investment in securities �������������������������������������
Proceeds from sales of investment securities ���������������������������������������������
Decrease (increase) in time deposits ����������������������������������������������������������
Net cash used in investing activities ��������������������������������������������������

(685)
(47)
3
(53)
(3)
—
(98)
(883)

(440)
—
—
(46)
(3)
91
(54)
(452)

(6,174)
(421)
23
(477)
(24)
—
(882)
(7,955)

Financing Activities:
Dividends paid ������������������������������������������������������������������������������������������
Decrease in short-term loans payable ��������������������������������������������������������
Payment for acquisition of treasury stock ��������������������������������������������������
Other, net �������������������������������������������������������������������������������������������������
Net cash used in financing activities �������������������������������������������������

(380)
—
(0)
(19)
(399)

(304)
(4)
(0)
(19)
(327)

(3,423)—(1)(175)(3,599)Effect of Exchange Rate Changes on Cash and Cash Equivalents ����������Net Increase (Decrease) in Cash and Cash Equivalents ���������������������������Cash and Cash Equivalents at Beginning of Period ��������������������������������Cash and Cash Equivalents at End of Period �������������������������������������������

58
234
8,725
¥8,959

(93)
820
7,905
¥8,725527
2,113
78,597$80,710

Operating Activities
Income before income taxes ������������������������������������������������������������������������
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization ��������������������������������������������������������������
Loss on retirement of non-current assets �����������������������������������������������
Gain on sales of investment securities ���������������������������������������������������
Increase (decrease) in allowance for doubtful accounts ��������������������������
Increase (decrease) in net defied benefit liability ������������������������������������
Interest and dividends income ���������������������������������������������������������������
Interest expenses �����������������������������������������������������������������������������������
Foreign exchange losses (gains) �������������������������������������������������������������
Changes in assets and liabilities:(Increase) decrease in notes and accounts receivable ��������������������������
(Increase) decrease in inventories �������������������������������������������������������
Increase (decrease) in notes and accounts payable �����������������������������
Other, net ���������������������������������������������������������������������������������������������
Subtotal �����������������������������������������������������������������������������������������������
Interest and dividends income received ����������������������������������������������
Interest expenses paid ������������������������������������������������������������������������
Income taxes (paid) refund �����������������������������������������������������������������
Net cash provided by operating activities ����������������������������������������

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

Teraoka Seisakusho Co., Ltd.

15

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 2019 and 2018

1. Basis of Presenting Financial Statements
The accompanying consolidated financial statements of
TERAOKA SEISAKUSHO CO., LTD. (the “Company”) and its
subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements from International Financial Reporting Standards, andare compiled from the consolidated financial statements
prepared by the Company, as required by the Financial
Instruments and Exchange Law of Japan. However, certain
account balances, as disclosed in the basic consolidated
financial statements in Japan, have been reclassified to theextent deemed necessary to enable presentation in a form
which is more familiar to readers outside Japan.
The accounts of overseas consolidated subsidiaries are
based on their accounting records maintained in conformity with generally accepted accounting principles andpractices prevailing in the respective countries of domicile.
For the convenience of readers, the accompanying
consolidated financial statements are presented in U.S.
dollars by translating yen amounts at the rate of ¥111.01=
US$1, the prevailing exchange rate on March 31, 2019.

2. Summary of Significant Accounting Policies
a. Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and five subsidiaries,
TERAOKA SEISAKUSHO (Hong Kong) CO., LTD.,TERAOKA SEISAKUSHO (Shanghai) CO., LTD.,TERAOKA SEISAKUSHO (Shenzhen) CO., LTD.,
SHIN-EI SHOJI CO., LTD. and PT. TERAOKA SEISAKUSHOINDONESIA.
Significant inter-company balances, unrealizedinter-company profits and losses among the companies are entirely eliminated. The assets and liabilities of
the consolidated subsidiaries are incorporated into thefinancial statements at fair value and the difference
between net assets at fair value and investment
amounts are amortized by the straight-line method
over a period of five years.
The fiscal years of overseas subsidiaries end December 31. Overseas subsidiaries’ financial statements are
based on temporary settlement dates of March 31,
2019 and 2018 and are used for the consolidation of
the Company.
b. Investments in securities
Debt securities that are intended to be held to maturity (“held-to maturity debt securities”) are measured
at amortized cost in the balance sheet. Securities otherthan held-to maturity debt securities (“other securities”) are measured at fair value.
Other Securities that have fair values are stated atfair value, with unrealized gains and losses included in
the net assets, net of applicable income taxes. Realized
gains and losses on sales of securities are based on themoving average cost of the securities. Other securities
that do not have fair values are stated at cost16

Teraoka Seisakusho Co., Ltd.

determined by the moving average method. For otherthan temporary declines in fair value, other securities
are reduced to net realizable value by a charge toincome.
c. Inventories
The Company mainly applies the cost method basedon the periodic average method which determines
the amount of the inventories shown on the balance
sheet by writing them down based on the decrease in
their profitability.
d. Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost.
Depreciation is computed principally by the decliningbalance method at a rate based on their estimateduseful lives, which range as follow:
Buildings������������������������������������������������ 3~50 years
Machinery and equipment��������������������� 4~16 years
Depreciation of the Company and its domestic consolidated subsidiary is computed by the decliningbalance method (excluding buildings (excluding building
attachments) acquired on or after April 1, 1998 andbuilding attachments and structures acquired on orafter April 1, 2016 straight-line method), overseas consolidated subsidiaries adopt the straight-line method.
e. Impairment of assets
Assets are reviewed for impairment whenever eventsor changes in circumstance indicate the carrying
amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying
amount of an asset or asset group exceeds the sum of
the undiscounted future cash flows expected to result
from the continued use and eventual disposition of
the asset or asset group. The impairment loss would

be measured as the amount by which the carrying
amount of an asset or asset group exceeds its recoverable amount, which is the higher of the discounted
cash flows from the continued use and eventual disposition of the asset or asset group, or the net selling
price at disposition.
f. Leased assets
Under accounting standards generally accepted inJapan, leased assets related to finance leases that do nottransfer ownership of the leased property to the lessee
are depreciated on a straight-line basis, with lease periodused as their useful lives and no residual value.
g. Income taxes
Income taxes are provided based on amounts requiredby the tax return for the period.
The Company has adopted the asset-liability
method of tax effect accounting to recognize deferred
tax assets and liabilities for the expected future tax
consequences of temporary differences between the
carrying amounts of assets and liabilities for financial
reporting purpose, and the amounts used for income
tax purposes.
h. Allowance for doubtful accounts
Allowance for doubtful accounts provides for possible
losses on the uncollectability of receivables at theamount of estimated uncollectability, based on pastexperience of doubtful receivables and individual evaluation of collectability of the receivables.
i. Accrued retirement benefits(1) The‌
method of attributing expected retirement
benefit to periods
The Company applies the benefit formula basis tomeasure the pension obligation. The expected
retirement benefit attributed to periods of service
under the plan’s benefit formula is deemed asarising in each period.
(2) Actuarial‌gains and losses
Actuarial gains and losses are amortized by the
declining balance method over a certain period (5years) within the average remaining years of serviceof the eligible employees commencing with thefollowing periods.
j. Foreign currency translation
All receivables and payables denominated in foreign
currencies at the balance sheet date are translated into
yen at current exchange rates. The resulting exchange
gains or losses are charged to income.

Balance sheets of consolidated overseas subsidiaries
are translated into yen at the year-end rates except for
stockholders’ equity accounts, which are translated at
the historical rates. Income statements of consolidated
overseas subsidiaries are translated at average rates.
Translation differences are presented as “foreign currency translation adjustments” in the accompanying
consolidated financial statements.
k. Derivatives and hedge accounting
Derivative financial instruments are stated at fair value
unless they are used for hedging purposes.
If derivative financial instruments are used as hedges
and meet certain hedging criteria, the Company and its
consolidated subsidiaries defer recognition of gains orlosses resulting from changes in fair value of derivative
financial instruments until the related losses or gains on
the hedged items are recognized.
However, in cases where forward foreign exchange
contracts are used as hedges and meet certain hedging
criteria, forward foreign exchange contracts and hedged
items are accounted for in the following manner:
If a forward foreign exchange contract is executedto hedge a future transaction denominated in a foreign
currency, the future transaction will be recorded using
the contracted forward rate, and no gains or losses on
the forward foreign exchange contract are recognized.
l. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows include all highly liquid investments, generally with original maturities of threemonths or less, that are readily convertible to known
amounts of cash and are so near maturity that theypresent insignificant risk of changes in value.
(Changes in Display Method)(Changes accompanying the application of “Partial Amendments to Accounting Standard for Tax Effect Accounting”)“Partial Amendments to Accounting Standard for Tax
Effect Accounting” (ASBJ Statement No. 28, February 16,2018) is applicable from the start of the Consolidated
Fiscal Year. Therefore, “Deferred income taxes” display
method has changed to the “Investments and Other
Assets” category, and “Deferred liabilities taxes” to the“Long-term Liabilities” category. The tax effect accounting
notes have also been amended with these changes.
The result is that the ¥334 million under “Deferredincome taxes” under “Current Assets” on the

Teraoka Seisakusho Co., Ltd.

17

Consolidated Balance Sheet in the previous consolidated
fiscal year is included in the ¥396 million “Deferred liabilities taxes” under “Long-term Liabilities.”
In addition, notes on “Accounting Standard for Tax
Effect Accounting” (Note 8) (excluding total valuation
allowance) and (Note 9) provided in Items 3 to 5 of the“Partial Amendments to Accounting Standard for Tax
Effect Accounting” have been added to the tax effectaccounting notes. However, related matters pertaining to
the previous consolidated fiscal year have not been statedunder the transitional treatment provided in Item 7 of the“Partial Amendments to Accounting Standard for Tax
Effect Accounting.”(Related to Consolidated Financial Statement)
The financial importance of “Loss on retirement of noncurrent assets,” which was included in “Other, net” under“Other Income and Expenses” in the previous consolidated
fiscal year, has increased, so it has been listed independently for this consolidated fiscal year. We are currently
transitioning the Consolidated Financial Statements fromthe previous consolidated fiscal year in order to reflect thischange in display method. As a result, the ¥48 million
listed in “Other, net” under “Other Income and Expenses”
in the Consolidated Financial Statements of the previous
consolidated fiscal year has been reclassified as ¥1 million
under “Loss on retirement of non-current assets,” and ¥49
million under “Other, net.”

3. Contingent Liabilities
Contingent Liabilities in respect of trade notes and export
bills discounted with banks with recourse in the ordinary

course of business, amounted to ¥3 million at March 31,
2018, and none at March 31, 2019.

4. Financial Instruments
Overview(1) Policy for financial instruments
The Company raises the funds by bank borrowings, andmanages funds only through short-term time deposit
and others. The Company uses derivatives for the purposes of managing foreign currency exchange risk related to trading receivables and payables, and does notenter into derivatives for speculative or trading purposes.
(2) Types of financial instruments and related risk
Trade receivables – notes receivable and accounts
receivable, and electronically recorded monetaryclaims – are exposed to credit risk in relation to customers. In addition, the Company is exposed to foreign currency exchange risk arising from receivables
denominated in foreign currencies resulting from tradewith overseas customers.
Equity securities – the Company holds equity
securities, which are mainly issued by company who
have business relationships with the Company, andthese securities are exposed to the risk of fluctuation inmarket prices. Trade payables – notes payable andaccounts payable, and electronically recorded obligations – mostly have payment due dates within one
year. A portion of trade payables, which is denomi-

18

Teraoka Seisakusho Co., Ltd.

nated in foreign currencies, is exposed to foreign
currency exchange risk. Long-term debt is taken out
principally for the purpose of capital expenditure.
Long-term debt with interest rate fluctuation risks is
carried out on fixed rate loans. Debt is exposed toliquidity risk relating to the funding as described
below.
(3) Risk management for financial instruments(a) Monitoring of credit risk (the risk that customers may
default)
In accordance with the internal policies for managing
credit risk of the Company, the Company monitors
credit worthiness of their main customers periodically,
and monitors due dates and outstanding balances bycustomer.
To minimize the credit risk when entering into
derivative transactions, counterparties are limited tofinancial institutions with high ratings.
(b) Monitoring of market risks (the risks arising fromfluctuations in foreign exchange rates, interest rates
and others)
For equity securities included in investments in securities, the fair values of these securities are periodicallyreviewed and reported to the Board of Directors.

In conducting and managing derivative transactions,the accounting department confirm the effectiveness ofhedging and obtain approval from the responsible
person, depending on the notional contract value,
based on the internal policies and formal regulations onmarket risk for financial instruments.
(c) Monitoring of liquidity risk for financing (the risk that
the Company may not be able to meet its obligations
on the scheduled due dates)
The Company manages the liquidity risk mainly throughthe monthly cash-flow plans, prepared by the Company.

(4) Supplementary explanation of the estimated fair valueof financial instruments
The notional amounts of derivatives listed below are
not necessarily indicative of the actual market risk
involved in derivative transactions.
Estimated Fair Value of Financial Instruments
The carrying value of the financial instruments on the
consolidated balance sheet as of March 31, 2019 andunrealized gain (loss) are shown in the following table.
The table does not include financial instruments for which
it is extremely difficult to determine the fair value. (Pleaserefer to (2) below).
Millions of yen

Financial Instruments

Carrying

Estimatefair value

Difference(1) Cash and deposits �����������������������������������������������������������������������������������

¥ 9,425¥ 9,425—(2) Notes and accounts receivable �����������������������������������������������������������������

5,685

5,685

—

(3) Electronically recorded monetary claims ���������������������������������������������������

1,274

1,274

—

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

3,560

3,560

—

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

(1,263)(1,263)—(6) Electronically recorded obligations �����������������������������������������������������������

(2,603)(2,603)—(1) Methods to determine the estimated fair value offinancial instruments and other matters related tosecurities and derivative transactions
Cash and deposits, Notes and accounts receivable, andElectronically recorded monetary claims
Since these items are settled in a short period, theircarrying value approximates fair value.
Investment in securities
The fair value of equity securities is based on quoted
market prices.
Notes and accounts payable, Electronically recorded
obligations, and short-term debt
Since these items are settled in a short period of time,
their carrying value approximates fair value.
(2) Financial instruments for which it is extremely difficult
to determine the fair value were as follows:
As of March 31, 2019
Unlisted equity securities

The above financial instruments are not included in thepreceding table, because no quoted market prices are available and it is extremely difficult to determine the fair value.
(3) Redemption schedule for receivables and marketablesecurities with maturities at March 31, 2019
Millions of yen

Due in One
Year or Less

Cash and deposits ��������������������������������������
Notes and accounts receivable ��������������������
Electronically recorded monetaryclaims - operating �������������������������������������
Marketable securities andinvestments in securities ���������������������������
Total ��������������������������������������������������������

¥ 9,425
5,685
1,274
—
¥16,384(4) There are no repayments planned for long-term debt
or other interest-bearing debt after the consolidated
closing date.

Millions of yen¥19

Teraoka Seisakusho Co., Ltd.

19

5. Securities
Historical costs, fair value and gross unrealized gains and losses for marketable securities as of March 31, 2019 and 2018 are
as follows:
Millions of yen

2019
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,218¥3,252¥2,034¥2,034¥—

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

298

308

10

10

—

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

¥1,516¥3,560¥2,044¥2,044¥—

Millions of yen

2018
Historical costs

Fair value

Net differences

Gross gains

Gross losses¥1,216¥3,809¥2,593¥2,593¥—

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

299

306

6

6

—

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

¥1,515¥4,115¥2,599¥2,599¥—Thousands of U.S. dollars

2019
Historical costs

Fair value

Net differences

Gross gains

Gross losses

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

$10,975$29,295$18,320$18,320$—

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

2,683

2,777

94

94

—

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

$13,658$32,072$18,414$18,414$—

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

Millions of yen

2019

2019

2018

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

¥19

¥19

$170

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

—

—

—

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

¥19

¥19

$170

6. Retirement and Pension Plans
The Company has a defined benefit pension plan. Our
domestic consolidated subsidiary and one of overseas
consolidated subsidiaries have retirement lump-sum plans.
In addition, when an employee retires, an employee may
be paid additional retirement benefits that are not part of20

Teraoka Seisakusho Co., Ltd.

retirement benefit obligations. In lump-sum benefit plansoffered by domestic consolidated subsidiary etc. the retirement benefits and liabilities relating to the retirement
benefits are calculated using the simplified method.

The detailed notes relating to defined benefit pension plans for the fiscal year ended March 31, 2019 and 2018 were as follows:(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

Beginning balance of benefit obligations ������������������������������������������������������������

¥4,684¥4,571$42,196

Service cost �����������������������������������������������������������������������������������������������������

249

254

2,239

Interest cost ����������������������������������������������������������������������������������������������������

23

28

215

Actuarial gains and losses �������������������������������������������������������������������������������

53

(12)

476

Benefits paid ���������������������������������������������������������������������������������������������������

(169)

(158)

(1,526)

Ending balance of benefit obligations �����������������������������������������������������������������

¥4,840¥4,684$43,600(2) Changes in Pension Assets
Thousands of
U.S. dollars

Millions of yen

2019

2019

2018

Beginning balance of pension assets ������������������������������������������������������������������

¥4,861¥4,659$43,794

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

97

93

876

Actuarial gains and losses �������������������������������������������������������������������������������

(17)

84

(158)

Contributions by the employer ������������������������������������������������������������������������

187

183

1,689

Benefits paid ���������������������������������������������������������������������������������������������������

(169)

(158)

(1,526)

Ending balance of pension assets �����������������������������������������������������������������������

¥4,959¥4,861$44,675(3) Reconciliation of retirement benefit liabilities using the simplified method
Thousands of
U.S. dollars

Millions of yen

2019

2019

2018

Beginning balance of retirement benefit liabilities �����������������������������������������������

¥40

¥31

$360

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

3

13

32

Benefits paid ���������������������������������������������������������������������������������������������������

(0)

(4)

(5)

Ending balance of retirement benefit liabilities ���������������������������������������������������

¥43

¥40

$387

(4) Reconciliation‌of benefit obligations and pension assets with net defined benefit liability and asset on theConsolidated Balance Sheets
Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

Funded defined benefit obligations ��������������������������������������������������������������������

¥ 4,840¥ 4,684$ 43,600

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

(4,959)(4,861)(44,675)

Subtotal ����������������������������������������������������������������������������������������������������������

(119)

(177)

(1,075)

Unfunded defined benefit obligations ����������������������������������������������������������������

43

40

387

Net amount of liabilities and assets recognized in consolidated balance sheet ����

(76)

(137)

(688)

Liabilities (net defined benefit liability) ����������������������������������������������������������������

43

40

387

Assets (net defined benefit assets) ����������������������������������������������������������������������

(119)

(177)

(1,075)

Net amount of liabilities and assets recognized in consolidated balance sheet ����

¥   (76)¥  (137)$   (688)

Note: This includes plans using the simplified method.
Teraoka Seisakusho Co., Ltd.

21

(5) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

2019

2019

2018

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

¥249

¥254

$2,239Interest costs ������������������������������������������������������������������������������������������������������

23

28

215

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

(97)

(93)

(876)

Recognition of actuarial gains and losses ������������������������������������������������������������

(34)

2

(309)

Benefits expenses calculated on the simplified method ��������������������������������������

3

13

32

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

¥144

¥204

$1,301(6) Remeasurements of defined benefit plans (Other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2019
Actual differences �����������������������������������������������������������������������������������������������

2019

2018

¥(105)¥98$(942)(7) Remeasurements of defined benefit plans (Accumulated other comprehensive income)Thousands of
U.S. dollars

Millions of yen

2019
Unrecognized actuarial gains and losses��������������������������������������������������������������

¥(12)

2019

2018
¥93

$(105)(8) Pension Assets① Breakdown of pension assets

2019

2018

Debt securities ��������������������������������������������������������������������������������������������������������������������������������

67%

68%

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

25%

24%

Cash and deposits ��������������������������������������������������������������������������������������������������������������������������

3%

3%

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

5%

5%

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

100%

100%

② Rate of expected return on pension assets

Expected return rate on plan assets is determined by considering the current and anticipated future portfolio of
pension assets and current and anticipated future

long-term performance of individual asset classes that
comrise the funds’ asset mix.

(9) Basic assumptions for calculating benefit obligations

22

2019

2018

Discount rate ����������������������������������������������������������������������������������������������������������������������������������

0.4%

0.5%

Expected return rate on plan assets ������������������������������������������������������������������������������������������������

2.0%

2.0%

Salary Increase Rate ������������������������������������������������������������������������������������������������������������������������

2.8%

2.8%

Teraoka Seisakusho Co., Ltd.

7. Income Taxes
Deferred income tax assets and liabilities as of March 31, 2019 and 2018 were composed of the following:Thousands of
U.S. dollars

Millions of yen

2019

2018

2019

Deferred tax assets:
Allowance for doubtful accounts ��������������������������������������������������������������������
Accrued bonus to employees ��������������������������������������������������������������������������
Accrued enterprise tax ������������������������������������������������������������������������������������
Unrealized intercompany profits ����������������������������������������������������������������������
Loss on valuation of inventories ����������������������������������������������������������������������
Depreciation ���������������������������������������������������������������������������������������������������
Long-term accounts payable - other ���������������������������������������������������������������
Loss on valuation of investment securities �������������������������������������������������������
Loss on valuation of golf club membership �����������������������������������������������������
Net defined benefit liability �����������������������������������������������������������������������������
Impairment loss ����������������������������������������������������������������������������������������������
Asset retirement obligations ����������������������������������������������������������������������������
Tax loss carryforward ���������������������������������������������������������������������������������������
Provision for environmental measures �������������������������������������������������������������
Other ��������������������������������������������������������������������������������������������������������������
Subtotal ����������������������������������������������������������������������������������������������������������
Valuation allowance for tax loss carryforwards (Note 2) ����������������������������������
Valuation allowance for deductible temporary difference ��������������������������������
Total valuation allowance (Note 1) ������������������������������������������������������������������
Total deferred tax assets ����������������������������������������������������������������������������������

¥   2
116
20
26
101
2
17
80
2
14
221
93
89
97
15
895
(54)
(350)
(404)
¥ 491

¥    3
125
24
50
103
3
16
80
2
12
236
92
283
97
46
1,172
—
—
(656)
¥  516$   22
1,043
176
230
907
18
157
724
20
125
1,995
839
798
870
140
8,064
(485)
(3,152)(3,637)$ 4,427

Deferred tax liabilities:
Reserve for advanced depreciation of noncurrent assets ���������������������������������
Unrealized gains on other securities ����������������������������������������������������������������
Net defined benefit asset ��������������������������������������������������������������������������������
Other ��������������������������������������������������������������������������������������������������������������
Total deferred tax liabilities ������������������������������������������������������������������������������
Net deferred tax assets (liabilities) ��������������������������������������������������������������������

(7)
(599)
(40)
(94)
¥(740)¥(249)

(9)
(752)
(54)
(97)
¥ (912)¥ (396)(67)(5,397)(361)(844)$(6,669)$(2,242)

Notes: 1. ‌The total valuation allowance decreased by ¥252 million. This decrease is due to decrease of the valuation allowance for tax loss carryforwards inconsolidated subsidiaries.
2. The tax loss carryforwards amount and the amount of deferred tax assets by the carryforwards maturity date
Consolidated Fiscal Year (March 31, 2019)
Tax loss carryforwards (a)Within 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

More than 5 years

Total

88

—

—

—

—

—

¥88 million

Valuation allowance

53

—

—

—

—

—

Deferred tax assets

35

—

—

—

—

—

¥53 million(b)¥35 million(a) The amount of tax loss carryforwards is the amount multiplied by the statutory tax rate.
(b) ‌The result of considering prospective taxable earnings based on future earning power of the consolidated subsidiaries, we have determined that the deferred tax assets
pertaining to tax loss carryforwards can be recovered.

Teraoka Seisakusho Co., Ltd.

23

A reconciliation on the difference between the statutory tax rate and effective rate on taxable income for the fiscal years
ended March 31, 2019 and 2018 is as follows:
Statutory tax rate ����������������������������������������������������������������������������������������������������������������������������

2019

2018

30.6%

30.9%

Entertainment and other non-deductible expenses �������������������������������������������������������������������������

4.0

2.4

Dividend and other non-taxable income �����������������������������������������������������������������������������������������

(0.4)

(0.4)

Per capita levy of inhabitant taxes ���������������������������������������������������������������������������������������������������

1.4

1.3

Increase in valuation allowance ������������������������������������������������������������������������������������������������������

(3.3)

(0.9)

Tax deduction for research expenses �����������������������������������������������������������������������������������������������

(4.7)

(7.9)

Rate difference from foreign subsidiaries ����������������������������������������������������������������������������������������

(2.0)

(1.7)

Consolidated adjustment ����������������������������������������������������������������������������������������������������������������

(1.7)

4.8

Other, net ���������������������������������������������������������������������������������������������������������������������������������������

0.6

0.3

Effective tax rate �����������������������������������������������������������������������������������������������������������������������������

24.3%

28.6%

8. Subsequent EventAppropriation of retained earnings
Subsequent to March 31, 2019, the Company’s Board of
Directors, with the approval of stockholders on June 21,
2019 declared a cash dividend of ¥127 million (US$1,141
thousand) equal to ¥5.00 (US$0.05) per share, applicable24

Teraoka Seisakusho Co., Ltd.

to earnings of the year ended March 31, 2019 and payable to stockholders on the stockholders’ register on
March 31, 2019.

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

REPORT OF INDEPENDENT AUDITORS

Independent Auditor’s Report
To the Board of Directors of Teraoka Seisakusho Co., Ltd.
We have audited the accompanying consolidated balance sheets of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March 31, 2019 and the related consolidated statements of income, comprehensive
income, stockholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in Japan, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audits in conformity with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Teraoka Seisakusho Co., Ltd. and consolidated subsidiaries as of March
31, 2019 and the consolidated results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in Japan.
Convenience Translation
Our audit also comprehended the translation of Japanese yen amount into U.S. dollar amounts and, in our
opinion, such translation has been made in conformity with the basis stated in Note1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.
Tokyo, Japan
June 21, 2019

INOUE AUDIT CORPORATION

Teraoka Seisakusho Co., Ltd.

25

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

COMPANY DATA

Company Outline

(as of March 31, 2019)

Company NameTERAOKA SEISAKUSHO CO., LTD.

Head Office

4-22, Hiromachi 1-chome, Shinagawa-ku, Tokyo 140-8711, Japan
Tel:81-3-3491-1141
Fax:81-3-3491-1143

FoundedFebruary 11, 1921

Incorporated

May 5, 1943

Paid-in Capital¥5,057 million

Employees

509 (701 consolidated)

Board of Directors and Auditors

(as of June 21, 2019)

ChairmanKeishiro Teraoka

President

Kenichi Tsuji

Managing Director

Masakazu Naitou

Directors

Taiji Namekawa
Nobuhisa Ishizaki
Tatsuya Kubo

Masaaki Wada
Noriyoshi Shiraishi
Audit & Supervisory Board Members

Yutaka Nomiyama
Jun Watanabe
Masaki Miyake
Harushige Sakai

Operating Officers

Mitsuhiro Takano
Satoshi Hironaka

26

Teraoka Seisakusho Co., Ltd.

Consolidated Subsidiaries
Shin-ei Shoji Co., Ltd.

Tokyo, Japan

Teraoka Seisakusho (Hong Kong) Co., Ltd.

Hong Kong, China

Teraoka Seisakusho (Shanghai) Co., Ltd.

Shanghai, China

Teraoka Seisakusho (Shenzhen) Co., Ltd.

Shenzhen, China

PT. Teraoka Seisakusho Indonesia

Karawang, Indonesia

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

Shinagawa-ku, Tokyo

Factories  Ibaraki Factory

Kitaibaraki, Ibaraki Prefecture  Sano Factory

Sano, Tochigi Prefecture  Kannami Factory

Kannami-cho, Shizuoka Prefecture

Branch Offices

Tokyo, Osaka, Nagoya and Seoul

Representative Office

Taipei

Teraoka Seisakusho Co., Ltd.

27

Teraoka Seisakusho Co., Ltd. and Consolidated Subsidiaries

INVESTOR INFORMATION

Investor Information

Head Office(as of March 31, 2019)

Teraoka Seisakusho Co., Ltd.
4-22, Hiromachi 1-chome, Shinagawa-ku, Tokyo 140-8711, Japan
Telephone: 81-3-3491-1141
Facsimile: 81-3-3491-1143

Financial Year

April 1 to March 31

Common Stocks

Authorized Shares 80,000,000
Issued Shares 26,687,955

Stockholders

3,578

Stock Listing

Tokyo Stock Exchange, Second Section (Code: 4987)

Transfer Agency

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

Major Stockholders
Number ofshares(thousandshares)Ratio of shareholding (%)

ITOCHU Corporation

6,672.0

26.34

Customers’ Stockholding Group

2,867.3

11.32

1,220.0

4.82

Keishiro Teraoka

891.7

3.52

MUFG Bank, Ltd.

818.8

3.23

Resona Bank, Ltd.

678.8

2.68

Japan Trustee Services Bank, Ltd.

581.2

2.29

Kuniko Teraoka

526.0

2.08

Employees’ Stockholding Group

404.4

1.60

KBL EPB S.A. 107704

374.2

1.48

Stockholders

BNP PARIBAS SECURITIES SERVICESLUXEMBOURG/JASDEC/FIM/LUXEMBOURG FUNDS/UCITS ASSETS

28

Teraoka Seisakusho Co., Ltd.

http://www.teraokatape.co.jp

Printed in Japan

12

Teraoka Seisakusho Co., Ltd.