We at Tamron are advancing with our corporate philosophy to guide our mission.

Transcription

1 Annual Report 2013

2 Mission We at Tamron are advancing with our corporate philosophy to guide our mission. Corporate Philosophy With its firm commitment to developing high-quality, innovative and technologically advanced products that satisfy customer needs, Tamron is securing a leading position in the worldwide optical industry. Our primary objective is to sustain strong corporate growth based on a high level of customer satisfaction achieved by providing superior products at the right price, thus also contributing to the prosperity of our shareholders and employees. Employees Customers Corporate Philosophy Shareholders table of contents message from the president & CEO... 1 financial highlights... 2 BUSINESS SEGMENT... 3 corporate governance... 4 management s discussion and analysis... 5 consolidated statements of income/consolidated statements of comprehensive income... 9 consolidated balance sheets consolidated statements of changes in net assets consolidated statements of cash flows notes to consolidated financial statements independent auditors report company profile/stock overview Note: In the 2013 annual report, amounts of less than the unit indicated, for example, one million yen or one thousand dollars, have been omitted.

3 message from the president & CEO It is my pleasure to report our financial performance for the year 2013 and the business environment. Summing up conditions of the global economy throughout the past year, the U.S. sustained a relatively steady recovery as shown in a favorable note in the key performance indicators despite the concern about the financial cliff and the subsequent risk that lingered in the latter half of the year. Most of the EU nations continued to remain stagnant with prevailing high ratio of unemployment. Slowdown in China s growth pattern became evident compared to that of the preceding years. Russia also exhibited prominent down-turn nearly in every aspect of the industry across the board. Japanese economy, on the other hand, posted a modest recovery along with expansion in consumer expenditures backed by positive general expectation toward implementation of government economic policies and the restored bullish note in the stock market. As for the digital camera segment that Tamron is engaged in, compact digital still camera market segment showed a significant shrinkage of over 40% in annual shipment caused by the erosion by accelerated inroads of smartphones. Shipment of digital SLR cameras also decreased by approximately 20% and that of interchangeable lenses by some 10% respectively. Under the circumstances, Tamron and its group companies posted record high sales revenue of 68,452 million, an increase of 6.4% year-on-year, mostly attributable to the growth in the photographic lens segment coupled with depreciation of Yen and the consistent expansion in commercial/industrial lens segment. Although the corporate-wide cost-cutting efforts enabled a reduction in expense on a foreign currency basis, the said depreciation of Yen adversely affected the resultant amount of the same, pushing it up by 666 million, an increase of 4.4% year-on-year. Initial expense to startup operations at the new plant in Vietnam was an added factor. Consequently, the operating net income and the ordinary income decreased by 4.9% to 5,233 million and by 3.4% to 5,196 million respectively. The current net income decreased by 17.9% to 3,197 million, reflecting an extraordinary loss caused by a settlement over a patent dispute. The year-end dividend was determined as 30 per share. Combined with the interim dividend of 20, the aggregated annual dividend turned out to be 50, marking the consolidated payout ratio of 42.9%. It is our plan to deliver an annual dividend of 50 per share for the Year For the new fiscal term of 2014, our management goals are set to: consolidated net sales of 71,000 million, an increase of 3.7% year-on-year, operating income of 5,800 million, an increase of 10.8% year-on-year, ordinary income of 5,600 million, an increase of 7.8% year-on-year and net income of 3,900 million, an increase of 22.0% year-on-year. The exchange rates are assumed at 100 to the US dollar and 135 to the euro. Mid-term management goal for Year 2016 is 90 billion in sales and 8,500 million in operating income (9.4% in ratio). Our team at Tamron is determined to keep up the positive performance, expanding the horizon of our product portfolio under our corporate theme of New Eyes for Industry. We sincerely appreciate your continued support and the patronage. President & CEO Morio Ono Tamron Co., Ltd. 1

4 financial highlights Tamron Co., Ltd. and Consolidated Subsidiaries Thousands of U.S. Dollars Years ended December For the Year: Net sales 68,452 64,353 58,507 56,650 49,892 $700,426 Operating income 5,233 5,503 5,687 5,476 2,295 53,547 Operating income ratio 7.6% 8.6% 9.7% 9.6% 4.6% Ordinary income 5,196 5,377 5,702 5,476 2,263 53,176 Ordinary income ratio 7.6% 8.4% 9.7% 9.7% 4.5% Net income 3,197 3,894 3,804 3, ,716 At Year-End: Total assets 64,704 58,058 51,898 50,120 47,391 $662,069 Net assets 47,087 40,805 36,134 33,996 32, ,816 Number of employees 2,545 2,295 6,005 7,198 5,472 Per Share Data (in yen, dollars): Net income $ 1.19 Shareholders equity 1, , , , , Cash dividends Ratios (%): Return on assets (ROA) Return on equity (ROE) Equity ratio Notes: 1. U.S. dollar amounts are translated from yen, for convenience only, at the rate of 97.73=US$1. 2. ROA=Ordinary income/total assets 3. ROE=Net income/net assets NET SALES () OPERATING INCOME () NET INCOME () 68,452 64,353 56,650 58,507 49,892 5,476 5,687 5,503 3,689 5,233 3,804 3,894 3,197 2, Tamron Co., Ltd.

5 BUSINESS SEGMENT Our main business drivers are the following three segments, Photographic Products, Optical Components, and Commercial/Industrial-use Optics. Business Segment Main Business Photographic Products Interchangeable lenses for 35mm/Digital SLR cameras Interchangeable lenses for non-reflex type cameras Optical Components Camcorder lenses Digital still camera lenses Optical device units Commercial/Industrial-use Optics Lenses for CCTV cameras Automotive lenses Mid-Term Management Goals for FY 2016 NET SALES OPERATING INCOME FY ,000 Million 8,500 Million (9.4% operating income margin) Strategy Towards FY2016 by Segment Photographic Products Development of innovative new products for own-branded lens line Improvement of new product development time line and launch schedule Expansion of sales network and market share in the emerging markets Optical Components Focus on higher value-added products to avoid getting involved in price competition and to secure profits. Entry into new business segments such as cinema camera lens Achieving better cost efficiency for LWIR (Long-Wave Infra Red) lenses to develop business opportunities RJoint development with major camera manufactures. Commercial / Industrial-use Optics Strengthened development of security surveillance camera lenses and expansion in global sales network Addition of mega-pixel and HD compliant lens models to the current portfolio Continued development of automotive camera lens business Commercialization of lenses for video conference systems and traffic surveillance cameras etc. Tamron Co., Ltd. 3

6 CORPORATE GOVERNANCE We are committed to fair and transparent management practices as well as enhancing corporate value, which is achieved by strengthening corporate governance to build up trust with shareholders and investors. 1. Basic Policy We at Tamron have constantly pursued fair and transparent management practices under our management philosophy and in line with our brand message, New Eyes for Industry as well as by respecting the rights and equality of our shareholders and working diligently to maintain a sound relationship with all stakeholders. 2. Corporate Governance System Overview Tamron has employed the Executive Officer System to speed up decision making and improve efficiencies, which has enabled it to establish a management structure capable of making accurate and strategic decisions. External Directors with expertise in their respective field carefully monitor and advise the company regarding its execution of operations from an independent and fair standpoint. At the same time, Independent Auditors with expert knowledge of finance, accounting and legal affairs as well as Corporate Auditors well versed in Tamron s operations work together with the Accounting Auditor and Internal Audit & Supervision Board to carry out rigorous audit programs. Tamron appoints 14 Directors, of which 2 are External Directors, and 4 Corporate Auditors, of which 3 are Independent Auditors. (1) Board of Directors Meetings of the Board of Directors are held twice a month, in principle, attended by all Directors and Corporate Auditors, for reviewing the execution of duties by the Directors and deciding on important issues as set forth in the basic policy of the company and related laws and regulations. In 2013, Board of Directors met 26 times. (2) Board of Auditors The Board of Auditors audits the processes of decision making by the Board of Directors and the execution of duties of Directors by attending the Board of Director meetings and checking approval documents. The Board of Auditors meets monthly, in principle. In 2013, Board of Auditors met 14 times. (3) Executive Officer System Tamron has employed the Executive Officer System to ensure separation between management and the execution of operations. Executive Officers carry out their duties and responsibilities following the basic policy determined by the Board of Directors. (4) Internal Control through Committee Meetings We regularly hold monthly management (MAC) meetings attended by all Directors, full-time Corporate Auditors and Executive Officers to discuss management issues and respond to the fast-changing management environment. (5) Accounting Auditor Tamron has concluded an auditing agreement with Wako Audit Corporation and receives audit from this firm in its capacity as accounting auditor. Audit & Supervisory Board General Meeting of Shareholders Election/Dismissal Election/Dismissal Election/Dismissal Supervise CSR Implementation & Administration Board CSR Committee Compliance Committee Coordinate Coordinate Board of Directors President & CEO Corporate Management Committee (MAC) Executive Officer Divisions and Subsidiaries Independent Auditor Financial Audit Coordinate Internal Audit & Supervision Board Internal Audit 4 Tamron Co., Ltd.

7 management s discussion and analysis In this Annual Report, Tamron, the Company, we, us, our or ours mean Tamron Co., Ltd. and consolidated subsidiaries unless otherwise specified. Operating Result Term Overview In fiscal year 2013 consolidated net sales rose 6.4% to 68,452 million renewing full-year sales record mainly due to the favorable depreciation of Yen. Gross profit increased 1.9% to 20,941 million, a year-on-year increase of 396 million. Operating income, however, decreased 4.9% to 5,233 million, a year-on-year decrease of 270 million as operating expenses increased 666 million mainly due to the depreciation of Yen, despite the corporatewide cost-cutting effort enabled a reduction in expense on foreign currency base. Initial expense to startup operations at the new plant in Vietnam was an added factor. Non-operating income increased by 89 million to 290 million while non-operating expense totaled 326 million. Income before income tax decreased by 491 million to 4,831 million affected by decrease in ordinary income by 181 million and increase in extraordinary expense by 310 million including settlement on patent dispute. As a result, net income decreased 17.9% to 3,197 million. Cash Flow Cash and cash equivalents at the term end totaled 14,297 million, a year-on-year increase of 3,474 million. Net cash provided by operating activities totaled 9,602 million, a year-on-year increase of 5,866 million consisted of net income before income tax totaling 4,831 million, depreciation, amortization totaling 3,440 million, 2,927 million for receivable, and 3,071 million for inventories, etc. Net cash used in investing activities totaled 6,041 million, a year-on-year increase 2,217 million, mainly due to the purchase of property, plant and equipment amounted to 5,753 million. Net cash outflow from financing activities totaled 1,324 million, a year-on-year decrease 1,039 million, consisted of proceeds from long-term loans payable totaling 2,060 million, repayment of long-term loans payable totaling 1,304 million and the disbursement of dividends of 1,372 million. Research and Development During the term under review total R&D expenses amounted to 3,217 million, resulting mainly from development of new interchangeable lenses for digital SLR cameras and new lenses for digital still cameras, camcorders and surveillance camera lenses as well as development of lenses for automotive application and Far-IR camera for future business expansion. R&D EXPENDITURE () CAPITAL EXPENDITURE () NUMBER OF EMPLOYEES 2,753 3,292 3,304 3,492 3,217 4,386 6,130 5,472 7,198 6,005 3,656 3,102 1,774 2,295 2, Tamron Co., Ltd. 5

8 As for Photographic Products business, we proceeded to develop a high-power zoom lens, mm F (Model C001) for Micro Four Thirds cameras and also launched an ultra-telephoto zoom lens, SP mm F/ VC USD (Model A011). As a result, R&D expenses for Photographic Products business totaled 2,119 million. R&D expenses for Optical Component business totaled 412 million, mainly used for the development of rather high value lenses for digital still cameras and camcorders. We also proceeded to develop a compact designed 3x zoom lens for LWIR cameras. In Commercial/Industrial-use Optics business, we proceeded to develop built-in type vari-forcal or zoom lenses for mega-pixel cameras as well as lenses for traffic surveillance cameras or automotive applications. As a result R&D expenses for this business totaled 684 million. Capital Investment Consolidated capital investment amounted to 6,130 million, reflecting major investment in plant buildings and machinery and equipment for TAMRON OPTICAL (VIETNAM) Co., LTD in Vietnam as well as an increase in the extensions of headquarters. Capital investment for Photographic Products business totaled 4,215 million, reflecting major investment in injection molds for new interchangeable lenses for digital SLR cameras. That for Optical Components business totaled 615 million, reflecting major investment in injection molds and production equipment for digital still camera lenses. That for Commercial/Industrial-use Optics business totaled 802 million reflecting mainly investment in injection molds to support new product development for CCTV camera lenses in line with the expansion of security and surveillance market. There is no sale or retirement of great importance in fiscal year Issues on Mid-to Long-Term Management 1. enhancing corporate governance based on CSR management system coupled with internal control and risk management. 2. Aiming at shortening the lead time from development to production launch. 3. Boosting sales of our own-branded interchangeable lenses by developing innovative new products and enhancing brand recognition 4. Materializing further cost reduction to meet demand increases by defining role of each production facility. 5. Facilitating new business development by collaborative relationship management with third-party partners, expanding the scope of New eyes for industry 6. Accelerating activities in core technology development revolving around optics and taking proactive stance in IP strategy. Business & Other Risks Items listed in this annual report regarding business and financial conditions that may potentially impact investor decisions are including but not limited to the following risk factors. Forward-looking statements contained herein are based upon judgments made by the Company as of March 28, Reliance on a Few Selected Customers A high degree of Company s sales depends on a Sony group company approximately 23% and Nikon corporation approximately 21% (FY2013) of our consolidated net sales. Consequently, in case of a change in the business strategies and directions by the client, it could impact the overall performance of the company. 2. Expanding Business Segments and Entering New Businesses The Company plans to expand the scope of its business by automotive application and Far-IR cameras. Because of the anticipated growth of those business segments, several companies are expected to come into play, which will cause severe price competition as well as putting continuous pressure for technological innovation, coping with rapid changes in the customers needs. 6 Tamron Co., Ltd.

9 management s discussion and analysis 3. Procurement of Raw and Other Materials While the Company has numerous sources from which to procure most of the necessary raw materials and parts it requires, in the case of glass materials, the Company relies on a limited number of suppliers. As a results, if for various reasons raw materials and other parts cannot be obtained according to plans regarding volume or price, the Company may have difficulty achieving its planned production volume. In such cases, the Company may not be able to fulfill delivery obligations to its customers, which in turn may affect results. 4. Defective Products All of the Company s domestic and overseas development and production facilities have obtained ISO9001 certification for quality management system and ISO14001 certification for environmental management systems, indicating the Company s excellent framework regarding quality assurance. However, the Company cannot fully guarantee that no product may at some future point be subject to a recall or product liability case. In the event that the defective product is the object of a large-scale recall or product liability case, significant expenses could be incurred, or serious damage could be done to the Company s credibility. In such case, the Company results may be affected. 5. Risk Surrounding Overseas Subsidiaries The Company owns sales outlets in the United Sates, Germany, France, and in Shanghai (China), and in Russia. A distribution and sales company in Hong Kong, and a production company in Foshan, China. In addition, new production base in Vietnam is currently in the middle of construction. Following is a list of several inherent risks arising from the Company s activities in overseas markets. In cases where such events occur, the Company results may be affected thereby. (1) Unexpected changes to laws and regulations (2) Unexpected and unfavorable changes in political or economic conditions (3) Unfavorable changes in tax policies or tax rates (4) Terrorism, war, natural disaster, epidemics or other factors contributing to social upheaval 6. Concentration of Domestic Production Facilities in Aomori Prefecture The Company s three production facilities in Japan are concentrated in the Tsugaru region of Aomori Prefecture. In the event of an earthquake or other natural disaster, the Company s production facilities could be damaged, and production operations may be severely impacted. 7. Intellectual Property In order to avoid difficulties surrounding intellectual property, the Company conducts surveys and negotiations, and actively applies for intellectual property rights. At present, there are no instances in which the Company is thought to be in violation of another party s intellectual property rights. However, this does not indicate that the risk of being caught up in litigations at some future point is nonexistent. In the event of unfavorable litigation, fiscal results may be affected. Tamron Co., Ltd. 7

10 8. Environmental Regulations The Company has implemented an environmental management system that conforms to ISO environmental standards, and is working actively to implement environmental reforms. Regarding the ground contamination found during the voluntary investigation conducted December 2003 at the Company s head office, the Company completed the construction which it proposed to Saitama City in its Plan to Halt the Spread of Groundwater Contamination. The Company conducted survey at other domestic facilities such as Hirosaki plant, Namioka plant, and Owani plant has been confirmed that all domestic facility environment is accordance with environmental regulation levels. However, as environmental laws and regulations are revised, the Company may discover instances of violations under new regulations. In such cases, Company results may be affected by related clean-up costs. 10. Impact of Currency Exchange Fluctuation Transactions between the Company and its overseas subsidiaries and with certain domestic and overseas customers are conducted either in full or in part in foreign currencies. Fluctuations in currency exchange rates affect the competitiveness of the Company s products in foreign markets and the profitability of its exports. Accordingly, the Company s results may be affected. 11. Research and Development Costs The Company is investing in new technology for further expansion of our business and we will continue to invest in R&D. However, some R&D projects may not progress as planned, or the Company s new technology may be eclipsed by some other technology introduced by our competitors in the market. In such cases, recovering the investment may pose a problem, consequently affecting the Company results. 9. Disposal of Inventories and Valuation Loss The Company makes every effort to be thorough in quality control of products and parts, compliance with environmental standards, and inventory management. However, changes in environmental standards, market and technology trends, rapid transitions in product life cycles and other factors may lead to unavoidable variations in the valuation of products and partially finished goods. As a result, the Company may need to dispose of inventories, expense valuation losses to income, and adopt other measures. In such cases, the Company s results may be affected. 8 Tamron Co., Ltd.

11 consolidated statements of income Tamron Co., Ltd. and Consolidated Subsidiaries Thousands of U.S. Dollars Years ended December Net sales 68,452 64,353 $700,426 Cost of sales 47,510 43, ,143 Gross profit 20,941 20, ,283 Selling, general and administrative expenses: Advertising expenses 1,612 1,455 16,502 Promotion expenses ,112 Provision of allowance for doubtful accounts Salaries and bonuses 3,966 3,476 40,582 Retirement benefit expenses ,603 Technical research expenses 3,159 3,403 32,304 Other 6,004 5,526 61,424 Total selling, general and administrative expenses 15,708 15, ,735 Operating income 5,233 5,503 53,547 Non-operating income: Interest income Dividends income Rent income Other ,139 Total non-operating income ,971 Non-operating expenses: Interest expenses Foreign exchange losses ,326 Loss on retirement of noncurrent assets Other Total non-operating expense ,343 Ordinary income 5,196 5,377 53,176 Extraordinary loss: Loss on retirement of noncurrent assets License fee for prior periods 332 3,405 Total extraordinary loss ,734 Income before income taxes and minority interests 4,831 5,322 49,441 Income taxes current 1,562 1,651 15,987 Income taxes deferred 72 (222) 737 Total income taxes 1,634 1,428 16,724 Income before minority interests 3,197 3,894 32,716 Net income 3,197 3,894 $32,716 consolidated statements of comprehensive income Tamron Co., Ltd. and Consolidated Subsidiaries Thousands of U.S. Dollars Years ended December Income before minority interests 3,197 3,894 $32,716 Other comprehensive income Net change in unrealized gain (loss) on investment securities ,819 Foreign currency translation adjustments 4,181 2,029 42,788 total other comprehensive income 4,457 2,150 45,607 Comprehensive income 7,654 6,044 78,324 Comprehensive income attributable to owners of the parent 7,654 6,044 78,324 Tamron Co., Ltd. 9

12 consolidated balance sheets Tamron Co., Ltd. and Consolidated Subsidiaries Thousands of U.S. Dollars As of December Assets Current assets: Cash and deposits 14,297 10,822 $146,298 Notes and accounts receivable trade 14,898 15, ,448 Finished goods 6,485 8,144 66,363 Work in process 3,022 2,842 30,923 Raw materials and supplies 1,547 1,376 15,838 Deferred tax assets ,408 Other 1, ,510 Allowance for doubtful accounts (50) (52) (515) total current assets 41,758 40, ,282 Noncurrent assets: Property, plant and equipment Buildings and structures 12,778 8, ,754 Accumulated depreciation (5,640) (5,053) (57,716) Buildings and structures, net 7,137 3,452 73,037 Machinery, equipment and vehicles 19,363 15, ,129 Accumulated depreciation (12,048) (9,813) (123,282) Machinery, equipment and vehicles, net 7,314 5,994 74,846 tools, furniture and fixtures 17,181 16, ,803 Accumulated depreciation (14,444) (13,846) (147,801) tools, furniture and fixtures, net 2,736 2,407 28,002 Land 1,042 1,004 10,665 Construction in progress 811 1,554 8,298 total property, plant and equipment 19,042 14, ,849 Intangible assets ,897 Investments and other assets Investment securities 2,138 1,649 21,885 Deferred tax assets ,871 other ,281 Allowance for doubtful accounts (97) (93) (1,001) total investments and other assets 3,131 2,712 32,040 total noncurrent assets 22,945 17, ,787 total assets 64,704 58,058 $662, Tamron Co., Ltd.

13 Thousands of U.S. Dollars As of December Liabilities Current liabilities: Accounts payable trade 5,051 5,410 $51,685 Short-term loans payable 3,634 3,928 37,191 Income taxes payable ,244 Other 4,945 4,223 50,601 Total current liabilities 14,144 14, ,727 Noncurrent liabilities: Long-term loans payable 2,080 1,547 21,285 Provision for retirement benefits 1,201 1,154 12,289 Other ,950 Total noncurrent liabilities 3,471 2,990 35,525 Total liabilities 17,616 17, ,253 Net assets Shareholders equity: Capital stock 6,923 6,923 70,838 Capital surplus 7,432 7,432 76,049 Retained earnings 29,135 27, ,121 Treasury stock (81) (81) (832) Total shareholders equity 43,409 41, ,177 Accumulated other comprehensive income: Unrealized gain (loss) on investment securities ,789 Foreign currency translation adjustments 3,308 (873) 33,849 total accumulated other comprehensive income 3,678 (778) 37,639 Total net assets 47,087 40, ,816 Total liabilities and net assets 64,704 58,058 $662,069 Tamron Co., Ltd. 11

14 consolidated statements of changes in net assets Tamron Co., Ltd. and Consolidated Subsidiaries Year ended December 31 Common stock Capital surplus Stockholders equity Retained earnings Treasury stock Total shareholders Balance of January 1, ,923 7,432 27,310 (81) 41,584 Changes in term Dividends from surplus (1,372) (1,372) Net income 3,197 3,197 Purchase of treasury stock (0) (0) Net change of items other than stockholders equity Total change in the term 1,824 (0) 1,824 Balance of December 31, ,923 7,432 29,135 (81) 43,409 Changes in accumulated other comprehensive income Total Unrealized Foreign accumulated gain (loss) on currency Total net other investment translation assets comprehensive securities adjustments Year ended December 31 income Balance of January 1, (873) (778) 40,805 Changes in term Dividends from surplus (1,372) Net income 3,197 Purchase of treasury stock (0) Net change of items other than stockholders equity 275 4,181 4,457 4,457 Total change in the term 275 4,181 4,457 6,282 Balance of December 31, ,308 3,678 47,087 equity Thousands of U.S. Dollars Stockholders equity Total Common Capital Retained Treasury shareholders stock surplus earnings stock Year ended December 31 equity Balance of January 1, 2013 $70,838 $76,049 $279,448 $(830) $425,505 Changes in term Dividends from surplus (14,044) (14,044) Net income 32,716 32,716 Purchase of treasury stock (1) (1) Net change of items other than stockholders equity Total change in the term 18,672 (1) 18,671 Balance of December 31, 2013 $70,838 $76,049 $298,121 $(832) $444,177 Thousands of U.S. Dollars Changes in accumulated other comprehensive income Total Unrealized Foreign accumulated gain (loss) on currency Total net other investment translation assets comprehensive securities adjustments Year ended December 31 income Balance of January 1, 2013 $ 970 $ (8,939) $ (7,968) $417,537 Changes in term Dividends from surplus (14,044) Net income 32,716 Purchase of treasury stock (1) Net change of items other than stockholders equity 2,819 42,788 45,607 45,607 Total change in the term 2,819 42,788 45,607 64,279 Balance of December 31, 2013 $3,789 $33,849 $37,639 $481, Tamron Co., Ltd.

15 consolidated statements of cash flows Tamron Co., Ltd. and Consolidated Subsidiaries Thousands of U.S. Dollars Years ended December Cash flows from operating activities: Income before income taxes and minority interests 4,831 5,322 $ 49,441 Depreciation and amortization 3,440 3,182 35,209 Decrease in provision for retirement benefits Interest and dividend income (55) (58) (564) Interest expense Loss on retirement of property, plant and equipment ,116 Decrease (increase) in notes and accounts receivable trade 2,927 (1,908) 29,951 Increase in inventories 3,071 (2,488) 31,425 Increase (decrease) in notes and accounts payable trade (2,815) 452 (28,812) Other net (171) 1,147 (1,756) Sub total 11,468 5, ,352 Interest and dividend income received Interest expenses paid (86) (111) (881) Income taxes paid (1,835) (2,148) (18,780) net cash provided by operating activities 9,602 3,736 98,255 Cash flows from investing activities: Purchases of property, plant and equipment (5,753) (3,384) (58,869) Purchase of intangible assets (168) (262) (1,719) Purchase of investment securities (43) (132) (446) Payments of loans receivable (16) (9) (166) Collection of loans receivable Other net (71) (43) 738 Net cash used in investing activities (6,041) (3,824) (61,816) Cash flows from financing activities: Net decrease in short-term loans payable (707) (742) (7,240) Proceeds from long-term loans payable 2, ,085 Repayment of long-term loans payable (1,304) (1,048) (13,346) Cash dividends paid (1,372) (1,372) (14,046) Net cash used in financing activities (1,324) (2,363) (13,556) Effect of exchange rate changes on cash and cash equivalents 1, ,672 Net increase (decrease) in cash and cash equivalents 3,474 (1,950) 35,555 Cash and cash equivalents at beginning of year 10,822 12, ,743 Cash and cash equivalents at the end of year 14,297 10,822 $146,298 Tamron Co., Ltd. 13

16 notes to consolidated financial statements Tamron Co., Ltd. and Consolidated Subsidiaries Basis of presenting Consolidated Financial Statements The financial statements of Tamron Co., Ltd. (the Company ) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law and Corporate Law and in conformity with accounting principles generally accepted in Japan. Therefore, application and disclosure requirements are different from International Financial Reporting Standards in certain respects. Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of = US$1 prevailing on December 31, 2013 has been used in translating the consolidated financial statements expressed in Japanese yen into U.S. dollars. Such translations should not be construed as representations that the Japanese yen amounts could be readily converted, realized or settled in U.S. dollars at this rate. 1. Scope of Consolidation All subsidiaries are consolidated. Number of consolidated subsidiaries: 9 TAMRON USA, Inc. TAMRON Europe GmbH. TAMRON France EURL. TAMRON (Russia) LLC. TAMRON OPTICAL (VIETNAM) CO., LTD. TAMRON INDIA PRIVATE LIMITED TAMRON INDUSTRIES (HONG KONG) LIMITED TAMRON OPTICAL (FOSHAN) CO., LTD. TAMRON OPTICAL (SHANGHAI) CO., LTD. TAMRON INDIA PRIVATE LIMITED was newly established and included in the scope of consolidation in this fiscal year. 2. Application of the Equity Method The Company does not have any unconsolidated or affiliated companies, accordingly, the equity method is not applied. 3. Fiscal Term The fiscal terms of each consolidated subsidiary are the same as the term of the Company. 4. Accounting Policies (1) Methods for valuation of significant assets a. Investments in securities With market quotations: stated at fair market value. Unrealized gains and losses on these securities are reported, net of applicable income taxes, as a separate component of the net assets. Realized gains and losses on the sale of such securities are computed using the moving-average cost. Without market quotations: stated at cost using the moving-average method. b. Derivatives Derivatives financial positions are stated at fair value. c. Inventories Inventories of the Company and its consolidated subsidiaries are valued at cost, as determined mainly by the monthly moving-average method, with balance sheet inventory amounts calculated using lowered book values, reflecting a potential decline in profitability. (2) Depreciation of fixed assets a. Tangible assets (excluding leased assets) The Company: depreciation of depreciable assets other than buildings (excluding facilities attached) is principally computed using the declining-balance method, while the straight-line method is applied for buildings (excluding facilities attached) acquired on or after April 1, The estimated useful lives are as follows: Buildings and structures 10 to 40 years Machinery and equipment 5 to 10 years b. Intangible assets (excluding leased assets) Depreciation of intangible assets is computed by the straight-line method. In-house use software is amortized over a five-year period based on the assumed useful life. c. Leased assets The company uses the straight-line method over the terms of their respective leases with a zero residual value. Finance lease transactions not involving transfer of ownership commencing on or before December 31, 2008 are accounted for based on methods applicable to ordinary rental transactions. (3) Reserves a. Reserves for doubtful accounts Reserves for doubtful accounts are generally provided based on actual collection losses incurred in the past. Additionally, for accounts receivable considered at risk (bankruptcy, companies under rehabilitation plan), an allowance is provided based on an estimation of the uncollectible amount, on a case-by-case basis. b. Reserve for employees retirement benefits In order to provide for retirement benefits to be paid to employees, the amount considered to have accrued, as at the end of the term, is stated, based on the estimated amount of retirement benefit obligations and pension plan assets, as at the end of the term. The actuarial gains (losses) will be recognized in expenses (income), in equal amounts, over a five-year period, which is shorter than the average remaining service years of eligible employees, commencing with the next year of the accrual. (4) Foreign currency translation of significant assets and liabilities Foreign currency-denominated assets and liabilities held by the Company are translated into Japanese yen using exchange rates prevailing on the balance sheet date; and gains and losses on translation are charged to income. Relevant assets and liabilities held by subsidiaries are translated into Japanese yen using exchange rates prevailing on the balance sheet date; and revenues and expenses are translated using the average exchange rates during the term. Gains and losses on translation are charged to net assets under Foreign currency translation adjustments. 14 Tamron Co., Ltd.

17 (5) Hedging a. Hedge accounting Derivative financial instruments are stated at fair value and changes in the fair value are recognized as gains or losses, unless derivative financial instruments are used for hedging purposes. If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company defers recognition of gains or losses, resulting from changes in fair value of derivative financial instruments, until the related losses or gains on the hedged items are recognized. b. Hedge instruments and assets and liabilities being hedged Hedge instruments are foreign exchange forward contracts and foreign currency option contracts. Assets and liabilities being hedged are foreign currency receivables and payables and future foreign currency transactions. c. Hedge transaction policies The Company engages in derivative transactions with the aim of hedging risk on foreign exchange fluctuations in accordance with in-house regulations. d. Assessment of effectiveness of hedging The Company has realized a high correlation coefficient between market fluctuations and cash flows (assets and liabilities being hedged) and hedge instruments: it thereby highly evaluates the effectiveness of the derivatives transactions in question. (b) Above Statement and Guidance are established from the view point of improvements to financial reporting and international convergence, mainly focusing on (i) how actuarial gains and losses and past service costs should be accounted for, (ii) how retirement benefit obligations and current service costs should be determined and (iii) enhancement of disclosures. (c) Followings are schedule for the adoption of ASBJ. (i) relating to determination of retirement benefit obligations and current service costs. on or after January 1, (ii) relating to accounting treatment mainly for actuarial gains and losses and past service costs. At the end of fiscal (d) the Company is currently evaluating the effects ASBJ Statement No.26 and its Guidance No.25 will have on its consolidated financial statements. (6) Scope of cash and cash equivalents in the statement of cash flows In preparing the consolidated statements of cash flows, cash on hand, available deposits and short-term highly liquid investments, with readily maturity not exceeding three months at the time of purchase, are considered to be cash and cash equivalents. (7) Other significant accounting policies for preparing consolidated financial statements Consumption tax: Consumption tax is not included. (8) Change in accounting principle inseparable from change in estimate. With revision of the Japanese corporation tax law, the Company adopted a new depreciation method established in the revised tax law. This accounting change is applied to tangible fixed assets which acquired on or after January 1, 2013, and also applied to the first consolidated quarterly financial report for fiscal This change had no effect on the consolidated results of the Company. (9) New accounting standards and related guidance not yet adopted. (a) A new Accounting Standard for Retirement Benefits (Statement No.26) and its Guidance (Guidance No.25), both are issued by the Accounting Standards Board of Japan(ASBJ) on May 17, Tamron Co., Ltd. 15

18 notes to consolidated financial statements notes to consolidated financial statements (Consolidated Balance Sheets) Assets pledged as collateral as of December 31, 2013 (1) Property, plant and equipment Buildings and structures 596 Machinery, equipment and vehicles 706 Tools, furniture and fixtures 192 Land 96 Intangible assets 11 Total 1,602 (2) Other Buildings and structures 3,171 Land 96 Total 3,267 (3) Loans secured by the above assets Short-term loans payable 1,595 Long-term loans payable (including loans due within one year) 2,175 Total 3,770 (Consolidated Statements of Income) 1. Research and development expenses included in selling, general and administrative expenses and manufacturing costs totaled 3,217 million. 2. The ending inventory balance represents after write-down of book value when their carrying amounts become unrecoverable. The inventory losses of 46 million, net of reversal of the balance of reserve at end of fiscal (CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME) (CHANGES IN OTHER COMPREHENSIVE INCOME AND THOSE TAX EFFECTS FOR THE YEAR ENDED DECEMBER 31, 2013) Valuation difference on available-for-sale securities: Newly recognized 426 million Tax effect (150) million Net 275 million Foreign currency translation adjustments: Newly recognized Total 4,181 million 4,457 million 16 Tamron Co., Ltd.

19 (leases) Finance lease that do not transfer ownership 1. Leased assets Mainly a lens production facility 2. Depreciation method for leased assets It is described in Basis of Presenting Consolidated Financial Statements (4. Accounting Policies, (2) Depreciation of fixed assets, c. Leased assets). Regarding finance lease that do not transfer ownership, for which the starting date for the lease transaction is prior to December 31, 2008, lease payments are recognized as expenses. Details are as follows. (1) Acquisition cost, accumulated depreciation and net book value of lease assets Acquisition cost Accumulated depreciation Net book value Machinery, equipment and vehicles Tools, furniture and fixtures Total (2) Obligation under finance leases Due within one year 1 Due after one year 3 Total 5 (3) Lease expenses, depreciation and interest expenses Lease expenses 2 Depreciation cost equivalent 2 Interest expenses equivalent 0 (4) Method of calculating depreciation Depreciation expense on leased assets is calculated by using the straight-line method, over the lease period and has a residual value of zero. (5) Method of calculating interest expense The difference between total lease expense and acquisition cost of leased assets, is considered as the interest portion, and the allocation of this interest is calculated by the interest method. Tamron Co., Ltd. 17

20 notes to consolidated financial statements (Financial instruments) Year ended December 31, Overview of financial instruments (1) Policy on the handling of financial instruments In principle, the Company obtain funds from banks for the capital needed to execute operations. Any temporary surplus is invested in highly secured bank deposits. The Company adheres to a policy under which derivatives are used to avert the risks outlined below and not for speculative purposes. (2) Financial instruments and inherent risks and its management Notes and accounts receivable trade are exposed to customers credit risks. To reduce customers credit risks, the Company has established credit policies under which monitoring of, due dates and remaining balance of note and account receivable trade and of credit condition, by each customer. Receivables denominated in foreign currencies, which arise in the process of business activities undertaken overseas, are exposed to market risks arising from fluctuations in foreign currency exchange rates. The Company manages these risks by entering into foreign currency exchange forward contracts. Investments in securities consist mainly of the equity securities of corporations with which the Company has business relations, are exposed to the risk of fluctuations in market prices. The Company manages this risk by periodically examining market prices and the financial condition of the issuing entities. Accounts payable trade is all due within one year. Some are denominated in foreign currencies and are therefore exposed to risks arising from changes in foreign currency exchange rates. The Company manages these risks by entering into foreign exchange forward contracts. The Company execute and manage derivative transactions which are foreign currency forward exchange contracts used to reduce risk exposure arising from which changes in exchange rates applied to foreign-currency-denominated receivables and payables. Accounting policies for hedges, specifically hedge accounting, hedge instruments and assets and liabilities being hedged, hedge transaction policies, assessment of effectiveness of hedging, are described in the section 4. Accounting Policies (5)Hedging. In the execution and monitoring of derivative transactions, the Company is guided by internal rules. In derivative transactions, the Company only enter into transactions with financial institutions having high credit ratings, thereby significantly mitigating potential losses arising from credit risk. Accounts payable trade and loans payable are exposed to liquidity risks. The Company and each of its consolidated subsidiaries, prepares a cash flow plan and keeps its in financially sound conditions. (3) Additional information for fair values of financial instruments Fair values of financial instruments are based on fair markets value. If the fair markets value is not available, other rational valuation methods are used instead. These estimates include variable factors, and are subject to fluctuations due to changes in the underlying assumptions. 2. Fair Value of Financial Instruments Fair value and variances with carrying amounts as of December 31, 2013 are as follows. Investment securities those fair values can not be measured reliably, are not included in the following table. (Refer to Note 2 bellow) Carrying amounts Fair value Difference (1) Cash and time deposits 14,297 14,297 (2) Notes and accounts receivable 14,898 14,898 (3) Investment securities: Other securities 2,031 2,031 Total assets 31,226 31,226 (1) Accounts payable 5,051 5,051 (2) Short-term loans payable 3,634 3,634 (3) Income taxes payable (4) Long-term loans payable 2,080 2,080 Total liabilities 11,277 11,277 Derivative instruments Note 1: Method for calculating the fair value of financial instruments and information about investments in securities and derivative transactions Assets (1) Cash and time deposits; (2) Notes and accounts receivable The carrying amounts approximate fair value because of the short maturity of these instruments. (3) Investments in securities Market prices on stock exchanges are used to determine the fair value of these securities. Prices quoted by financial institutions are used to determine the fair value of bonds. Liabilities (1) Accounts payable; (2)Short-term loans payable; (3) Income taxes payable The carrying amounts approximate fair value because of the short maturity of these instruments. (4) Long-term loans payable The fair value of long-term loans payable in estimated by discounting future cash flows using rates currently available for loans similar terms and remain maturities. 18 Tamron Co., Ltd.

21 Derivative instruments Please refer to (DERIVATIVE TRANSACTIONS) below Note 2: Carrying amount of financial instruments those fair values cannot be reliably determined. As of December 31, 2013 Unlisted stocks 107 Note: unlisted stocks are not included in investment securities (Note 1-(3) above), because its extremely difficult to estimates those fair values, both, due to their markets prices are not available and to the difficulty in estimating future cash flows relating to the stocks. Note 3: December 31, 2012 the following schedule shows the maturities of financial instruments (assets) More than 1 year Up to 1 year and up to 5 years Cash and deposits 14,297 Notes and accounts receivable 14,898 Investment securities: Securities with maturity in other investment securities account 300 Total 29,496 Note 4: The aggregate annual maturities of Corporate bond, long-term borrowings, lease obligations and other interestbearing debt at December 31, Please refer to (Schedule of borrowings) (Investments in Securities) Type of securities As of December 31, 2012 As of December 31, 2013 Carrying amount Acquisition costs Carrying amount Acquisition costs Difference Difference Securities whose carrying amounts (1) Stocks ,686 1, on consolidated balance sheets (2) Debt securities exceed their acquisition costs (3) Others Total ,686 1, Securities whose carrying amounts (1) Stocks (101) (5) on consolidated balance sheets (2) Debt securities (1) does not exceed their acquisition (3) Others (0) costs Total (102) (6) Total 1,561 1, ,031 1, (DERIVATIVE TRANSACTIONS) Derivative transactions with the hedge accounting is applied Currency-related transactions Year ended December 31, 2013 Hedge accounting method Designation method Type of transactions Forward foreign exchange contracts Sell U.S. dollar Primary hedged items Accounts receivable Contract amount, etc. Portion with maturity over one year Fair value 4,047 (See Note) Euro 686 (See Note) Hong Kong dollar 26 (See Note) Pay Accounts U.S. dollar receivable 136 (See Note) Note: under Japanese GAAP, forward foreign exchange contracts as a derivative financial instrument and accounts receivable as hedged items are considered as a pair of transaction and if hedge accounting such as the designation method is applied to derivative financial instruments, fair valuation of such derivative financial instruments itself, is not required. Tamron Co., Ltd. 19

22 notes to consolidated financial statements (Retirement Benefits) Year ended December 31, Retirement and pension plans The Company had defined benefit plans that define benefit corporate pension plans and lump-sum retirement benefit plans. The Company also had adopted defined contribution pension plans as well as defined benefit pension plans. Some overseas consolidated subsidiaries adopt defined contribution pension plans. 2. Retirement benefit obligation (1) Retirement benefit obligations (2,614) (2) Plan assets at fair value 1,396 (3) Unfunded retirement benefit obligations (1)+(2) (1,218) (4) Unrecognized actuarial gains 17 (5) Net balance sheet amount (3)+(4) (1,201) (6) Prepaid pension expense (7) Accrued retirement benefits (5)-(6) (1,201) 3. Retirement benefit expenses Retirement benefit expenses 482 (1) Service expenses 177 (2) Interest expenses 50 (3) Expected return on plan assets (21) (4) Amortization of net actuarial difference 117 (5) Other Basis for calculation of retirement benefit obligation Straight-line (1) Periodic allocation method for projected benefits method (2) Discount rate 2.0% (3) Expected rate of return on plan assets 2.0% (4) Amortization period for net actuarial difference 5 years (Accounting for deferred income tax) Year ended December 31, Breakdown of the major components for deferred tax assets and liabilities Deferred Tax Assets Reserve for doubtful accounts 44 Unrealized intercompany profits 334 Reserve for employees retirement benefits 450 Long-term accounts payable 50 Loss on devaluation of inventories 24 Loss on disposal of fixed assets 23 Depreciation and amortization 18 Lump-sum depreciable assets 25 Unrealized loss on investment securities 2 Other 310 Total of deferred tax assets 1, Tamron Co., Ltd.