DNP Annual Report 2006
Year ended March 31, 2006

“Taiwa” is a process that entails identifying problems
and finding solutions through the exchange ofviewpoints and ideas

“Taiwa” is a process that entails identifying problems
and finding solutions through the exchange ofviewpoints and ideas

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Table of Contents

2

Message to Our Shareholders

72

Electronics

72

Financial Results

74

Business Strategies

78

Topics8

DNP in Brief

10

Overview

18

Key Figures for 200620

DNP At a Glance

84

Legal Compliance and Corporate Ethics

22

DNP Solutions Businesses

86

Product Safety24

Major Events of the Fiscal Year Ended March 2006

88

Information Security

27

Corporate Governance89

Approach to Research & Development

33

Board of Directors, Statutory Auditors and90

Managing Intellectual Property

Corporate Officers

92

Environmental Protection

Investor Information

94

Creating Lively Workplaces

97

Cultural Activities

34

36
38

48

52
54

63

Special Feature:82

Sustainable Development

Building “TAIWA” – P&I Solutions DNP

Taiwa with Our Customers

98

Financial Section

38 Louvre Museum

100

Management’s Discussion and Analysis

40 Mizuho Bank, Ltd.

110

Selected Financial Data

42 Kirin Beverage Corporation

112

Consolidated Financial Statements

44

Mitsui Chemicals, Inc.

117

Notes to Consolidated Financial Statements

46Intel Corporation

133

Independent Auditors’ Report

134

Appendix: Printing Processes and Expansion Printing

140

Major Subsidiaries and Affiliates

142

Sources of Information About DNP

Q&A

Segment Information
Information Communication
54

Financial Results

56

Business Strategies

59

TopicsLifestyle and Industrial Supplies

63

Financial Results

65

Business Strategies

68

TopicsThis annual report is aimed at providing information about DNP’s businesses,
management vision, and business results. Opinions and forecasts contained in thereport were based on the best judgment of management at the time the report was
prepared, so we cannot guarantee that all information contained in the report iscompletely infallible.

1

Yoshitoshi Kitajima
President

2

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Message to Our Shareholders

This term, for the third year in a row, DNP achieved growth to record levels in sales andprofits. We believe this demonstrates that we chose the right path by having the entire company
pull together as one unit to fulfill our vision of DNP as a “P&I Solutions” provider.
On the other hand, the business environment surrounding DNP remains as harsh as ever: unit
sale prices fall while materials costs shoot up, technological development is faster than ever, andalliances cross industry and national boundaries, forcing companies to be more competitive thanever in order to survive.
Throughout our history, we always identified the direction we needed to take in the course of
dialogue with everyone who holds a stake in DNP. Even in these times of rapid change, we feel
sure that by placing emphasis on taiwa* we can identify problems, provide effective solutions, andcreate new value and new markets.
In October 2006, we will mark the 130th anniversary of our founding. In every era, we havealways run ahead of the pack. At the time of our founding, our slogan was “Business for
Civilization.” We have been expanding our fields of business based on the conviction that “We
can print on anything other than water or air.” Today, we are giving optimal form to informationthat is formless, and actively advancing into the Internet and other digital media. We currently dobusiness with more than 30,000 companies, which is testimony to the extent to which we provide
things that are indispensable to corporations and consumers as part of everyday life. Goingforward, we want to further expand the fields to which we apply Printing Technology andInformation Technology in order to generate new businesses.
We the management of DNP want to enhance the taiwa that we have with all of our
stakeholders. We intend to fulfill our social responsibilities and continue to be a trusted company
as we aim for sustainable growth.

*“Taiwa” is a process that entails identifying problems and finding solutions through the exchange of viewpoints and ideas.

3

■ Fiscal Year Results
Record High Sales, Operating Profit and Net Profit
This fiscal year through March 2006, the Japanese
economy continued its gradual recovery, evidenced
by such signs as increased capital investment backed
by improved corporate profits and a solid trend inindividual consumption. However, in the printing
industry, the business environment remained harsh
due to the influence of factors like cost increases
accompanying spiking oil prices, and lower unit
order prices due to increased competition.
Despite this difficult business environment, we canreport to our shareholders that we achieved a third
consecutive year of growth in sales and profits, and set
new records for corporate performance. Net sales rose
5.8% from the previous year to 1,507.5 billion yen,operating income increased by 0.1% to 120.7 billion
yen and net profit increased by 8.8% to 65.2 billion
yen. All of these figures represent new record highs
for DNP. We also increased dividend payments by 2
yen per share to 26 yen, marking the fourth consecutive term in which we increased our dividend payout.
We believe that we were able to maintain thissteady growth because we placed importance on
taiwa with each and every customer, discovered eachcustomer’s problems, and strove to offer the bestsolutions to those problems. We worked at getting
to know our customers thoroughly through sales
activities, developed and combined printing andinformation technologies, created planning, researchand production systems that allow us to offer uniquesolutions, grappled head-on with the problems of avariety of customers, and cultivated our desire tosolve problems. We believe that the effort we haveexpended to expand our business in line with our
corporate visions — “Business for Civilization,”“Expansion Printing,” and now “P&I Solutions” —has borne fruit in various ways. Going forward, we
intend to further accelerate this growth and do ourutmost to attain sustainable growth while fulfilling
our social responsibilities.

Results by Segment and Plans for the Immediate
FutureIn Information Communication, sales of printed
materials improved along with the general economy.
We also experienced good sales in commercial
printing, particularly of items like pamphlets andcoupons. We secured an overwhelming share of themarket for smart cash cards and other smart cards bymaking the most of our strength in software development. Our information processing services (IPS)
business received more orders. As a result, theInformation Communication segment’s net sales
grew 3.4% from the previous year, to 662.5 billion
yen, while operating income grew 3.4% to 51.0
billion yen. In the fiscal year ending March 2007, we
will strive to continue to expand orders of printed
materials, boost sales in commercial printing in linewith increased corporate spending on advertising,further expand our share of the IPS and smart card
markets, and increase profits by reducing costs.
The packaging sector of Lifestyle & Industrial
Supplies performed well thanks to sales of aseptic
filling systems for PET* bottles and the resulting
big increase in sales of pre-formed bottles, as well as
stronger sales of flexible packaging and paper cups.
In decorative materials, we sold more environmentally-friendly residential materials, and in industrial
supplies, optical films used for displays and ink
ribbons for color printers were among the items thatsold better than the previous year. Overall, theLifestyle & Industrial Supplies segment’s net sales
increased by 6.7% year on year to 480.0 billion yen,while operating income grew 4.4% to 37.6 billion
yen. In the fiscal year ending March 2007, we will
aim to increase sales and profits as we expect to see
more orders for high added-value eco-friendly
decorative materials accompanying increased demandfor condominiums and other residential units, and we
intend to win much larger orders for aseptic fillingsystems and industrial supplies.
In the Electronics segment, net sales rose 10.1%
to 296.8 billion yen, but because unit prices for color*PET = polyethylene terephthalate

4

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

filters declined and sales of projection screens andshadowmasks declined, operating income dropped
4.7% to 37.8 billion yen. In the fiscal year throughMarch 2007, we will still feel the effects of lower
unit prices for color filters and increased depreciation expenses, but we will work hard to improve sales
and profits as we expect to inaugurate a new inkjetmethod production line for color filters. Also, we
expect to start mass production of 65nm photomasks
in addition to the 90nm products that we are alreadyequipped to mass produce both in Japan andoverseas.

■ Medium-term Vision
Accelerating the “P&I Solutions” That Have
Already Begun Contributing to Profits
In May 2001, the DNP Group formulated a“vision for the 21st century,” and determined a newcorporate philosophy of “contributing to the intellectually active, prosperous, emergently evolving
society of the 21st century.” By an “emergently
evolving society” we mean a society in which people
with diverse values stimulate each other and create
new values as a result. We chose the phrase “P&I
Solutions” to express our aim to make the most of
our printing technologies (P) and information
technologies (I) – two of our strong points – in orderto solve a variety of problems for our customers andto go a step further to create new value in this typeof an “emergently evolving society.”
For many years, we have been applying technologies used in printing to a variety of fields andoffering unique solutions that only DNP could
provide. Particularly in the last five years as weformulated our new vision, there have been someoutstanding examples of success.
For example, since 2001 the use of smart cards as
cash cards and credit cards has grown rapidly. There
are new solutions that we are able to offer only
because in addition to card printing and manufac-

Special Feature

Segment Information

Sustainable Development

Financial Section

turing technologies, we have the technology todevelop card operating systems and applications suchas biometric identification and one-time password
authentication, and other technologies that allow us
to do things like securely encode digital data andissue cards after registering customer data. DNP
currently produces almost all of the smart cash cards
issued by Japanese megabanks, and holds roughly
50% of the overall Japanese smart card market.
Examples of our information processing services(IPS) include printing and sending individually
tailored promotional information and invoices, etc.
for mail-order businesses. This is an example ofmerging new applications for such technologies asdigital data processing, software development, anddatabase management. Our IPS business is growing
rapidly, partly thanks to increased demand for fullcolor invoices.
As another example, the aseptic PET bottlefilling system that we developed is indispensable tobottlers’ production processes. We are further developing these systems, for example by increasing filling
speed and adapting them for hot drinks.
In addition, in the medical field, we recently
applied micro-processing technology to capillary
regeneration, and we also succeeded in entering theenergy field by using coating and other technologies
to make solar energy cells and fuel cells. We believe
there are still limitless possibilities for developing
our printing and information technologies andapplying them to new fields.
These are some of the ways that P&I solutions aremaking big contributions to DNP’s profits, and we
fully expect to see further expansion of our businessin this area.
Steadily Creating New Business Bases
In order to promote our business vision evenmore forcefully, we need to further strengthen bothour “production” and “business design” functions.
Toward that end, we are currently actively engaged
in creating new bases.

5In the Information Communication segment, we
completed construction of our Shiraoka Plant in
Saitama Prefecture in 2005, and enhanced ourframework for integrated production of magazines.
In the Electronics segment, our Kurosaki Plant inFukuoka Prefecture started producing sixth-generation color filters in July 2005.
In September 2005, we concentrated sales,planning, and production staff from throughout theKansai region in one location in Osaka’s Namba
district. At the same time, we combined presentation
rooms for C&I, IC Tags, Business Forms, Packaging
and Decorative Materials sectors and opened acomprehensive showroom.
In the fiscal year through March 2007, we expect
to complete a production base in Mihara, Hiroshima
Prefecture, for antiglare film used in thin televisions,and to build a second facility at our Kurosaki Plant
in Kitakyushu (Fukuoka Prefecture) to reinforce
color filter production capacity.
These are some examples of how we continuallycreate new business bases. We will keep on strengthening our business infrastructure in order to realize
dramatic growth in our business and to fulfill our
corporate vision.

■ Management Issues and Countermeasures
Looking ahead, we expect that the businessenvironment will remain very difficult. In order tosustain steady growth into the future, we believe thatthe first thing we need to do is to further enhance
our ability to hold meaningful taiwa with ourcustomers. We aim to be a P&I solutions provider,and that entails getting directly involved in ourcustomers’ business and operational processes andmaking appropriate changes to the ways they dobusiness, including manufacturing and service
methods. Toward that end, we need to see things as
our customers do and exchange opinions with them,
identify problems, share information with everyone

6involved, and take steps toward problem resolution.
At every step of this process, maintaining taiwa isextremely important.
On the manufacturing side, we are establishing a
new kind of production system that can respond
more flexibly to today’s data processing needs,
including the processing of individual customers’
data. Also, we are continually reviewing our existing
businesses in terms of growth potential and profit
potential. Following the establishment of DNP
Hokkaido Co., Ltd. and DNP Tohoku Co., Ltd. in
the fiscal year through March 2005, this term we
reviewed our organizational structure in the
Chugoku, Shikoku and Kyushu regions, and consolidated into DNP Nishi Nippon Co., Ltd. We will
strive to provide efficient service through thisunified production-and-sales structure. Amidst
dynamic movement in local economies, we will
respond to customers’ needs in such areas as pricing,turnaround times, and small-lot production of varied
products by linking various functions in order toboost the efficiency of indirect divisions, and by thehorizontal development of our service menu.
Electronics and industrial supplies are areas where
we expect to see further growth in the future. In
these fields, we need to be able to quickly respond tomarket needs that change at a dizzying pace. In
addition to systematically increasing our production
capacity, we intend to concentrate investment ofmanagement resources in the development of newtechnologies and new products.
Regarding cost-cutting, we succeeded in steadilystrengthening our corporate constitution throughour “Production 21” activities. We intend tocontinue these activities in the future to realize
improvements in quality and cost competitiveness.
We aim to ensure stable, long-term growththrough such policies as honing our taiwa skills,
strengthening intra-group ties, reinforcing production systems, providing efficient services, and actively
investing management resources in growth areas.

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief■ Capital Policy
Seeking Balance between Liquidity, Stability,
Flexibility, and Shareholder Returns
Our aims are to achieve sustainable growth while
contributing to an intellectually active, prosperous,
emergently evolving society, to increase corporate
value and shareholder value, and to meet the
expectations of all stakeholders. We are firmly
convinced that we can achieve this as long as ourmanagement keep steering the DNP Group from along-term point of view.
In order to achieve sustainable growth, it isimportant to maintain adequate liquidity of ourfunds. Effective investment in M&As, capital equipment, and research and development that supportsbusiness development often requires quick decisions
and quick action, and we need to always maintainadequate cash flow to enable such action.
The following are our two main policies
concerning returns to shareholders.
First, our basic policy regarding dividends is tomaintain stable payouts while taking into account
DNP’s performance and the ratio of earnings todividends. Our successful performance has beenreflected in four consecutive annual dividend increases
totaling 8 yen per share – this term’s payout was 26
yen per share compared with 18 yen four years earlier.
We intend to continue returning profits to shareholders while maintaining steady payouts.
Also, in the past four years we have repurchased
52,869,000 of our own shares and retired 19 million
shares.
Going forward, our policy is to continue
returning profits to shareholders through dividend
payouts and retirement of treasury stocks, while
always maintaining balance between capital liquidity,
management stability, and the ability to move withflexibility.

Special Feature

Segment Information

Sustainable Development

Financial Section■ Corporate Social Responsibilities andSustainable Growth
Fulfilling Social Responsibilities in Order to
Sustain Growth in Value for All Stakeholders
We believe that in order for a company to achieve
long-term, sustainable growth in the global community, it must constantly fulfill its social responsibilities from a perspective that integrates society, theeconomy, and the environment. Here too, taiwa
between DNP and society plays an important role.
Throughout its history, DNP has always taken its
corporate social responsibilities (CSR) seriously, andhas endeavored to display integrity in its corporate
activities. In October 2004, DNP promoted companywide CSR activities including the establishment ofa CSR Committee and a CSR Promotion Office,and strengthening our corporate governance. Suchmoves were highly acclaimed, and DNP has received
praise from many directions. In February 2005, we
received the Grand Prize in the “Key Firm ofIntegrity Award 2005” competition, as well as the
Minister of Environment’s Award as part of the 14th
Global Environment Awards. In September 2005,
we were ranked fourth in a “best place to work”
competition held by a Japanese newspaper company.
In order to remain a company that truly fulfills its
corporate social responsibilities, we believe it’s
important for each and every employee to not only
maintain awareness of social responsibilities but also
to take concrete action. Each employee must understand what stakeholders expect of us. To enable
employees to respond to those expectations, we must
continue to implement CSR measures morethoroughly than ever. We will do everything in our
power to ensure that DNP continues to grow as acompany that is truly needed and respected byconsumers and by society as a whole.

Yoshitoshi Kitajima
President

7

DNP in Brief

8

CONTENTS

10

18

20

22

Overview

Key Figures for 2006

DNP At a Glance

DNP Solutions Businesses

24

27

33

34

Major Events of the Fiscal
Year Ended March 2006

Corporate Governance

Board of Directors, Statutory
Auditors and Corporate
Officers

Investor Information

9

Overview■ Profile■ Corporate Philosophy

DNP will celebrate the 130th anniversary of its
founding in October 2006. Shueisha, the forerunnerof Dai Nippon Printing Co., Ltd., was established in1876 as Japan’s first full-scale printing company. The
Company later branched out into a variety of fields,
including commercial printing, packaging,decorative materials, business forms, electronics andindustrial supplies. Today, DNP has established itself
as the leader in the world in the field ofcomprehensive printing.
Currently, DNP employs about 35,000 people. In
Japan, DNP has 20 division offices in major cities,
49 sales bases, and 37 production plants, while
overseas it has another 21 sales offices and sevenproduction plants. The DNP includes 82 consolidated subsidiaries and 9 affiliated companies that are
accounted for by the equity method.

Management Concept

In this annual report, DNP refers to the entire DNP Group, and “we” refers to DNP, orto the DNP management team.

The Shueisha building circa 1890

10

The DNP Group will contributeto the creation of an intellectuallyactive, rich, and 21st century
society with emergent evolution.
We believe that in the society of the 21st century,
individual consumers who subscribe to diverse values
will stimulate each other while recognizing andrespecting each other’s differences, and by doing so
will create new value. The new value born of thisprocess will influence consumers and lead to thegeneration of more new value. Through repetitionof this cycle, individuals and society will evolve
together.
We call this kind of society, in which value is built
through repeated interaction among individuals, andbetween individuals and society, an “emergently
evolving society.” We made contributing to this typeof emerging society our corporate ideal. We intend
to actively lead the development of an emergently
evolving society and expand our businesses morethan ever while keeping our eyes on the changing
times.

The Concept Mark of “P&I Solutions DNP”

Message to
Our Shareholders

DNP ANNUAL REPORT 2006

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Concept Phrase

Business Vision
We are keenly aware of our mission and our
responsibility as a business partner to our customers.
We intend to keep solving all kinds of problems forour customers by providing valuable products andservices, and by offering unique business models as
Manufacturing Solutions and Business Design
Solutions.
Production Solutions
In partnership with our customers, we solve theirproblems by offering products or a combination of
products and services that assist customers in their
manufacturing processes.

P&I Solutions DNP(P = Printing Technology,
I = Information Technology)
By combining printing technology (P) and information technology (I), we intend to continue to solve
our customers' problems and lead them to success.
We intend to generate new value for the emergently
evolving society of the 21st century by using ouroverall Group strength to provide unique solutions.

Business Design Solutions
We solve problems for consumers and for corporate customers by designing diverse businessmodels that provide new value.

Creation of Value by DNP

DNP

Society
Taiwa
Marketing/
Planning

Corporations
R&D

Production

Creation of
new value
Products/Services

Printing
Technology

P&I
Information
Solutions Technology

Individuals

11

■ DNP’s Businesses
The History of Business Expansion
DNP was created in 1876, the ninth year of the
Meiji Era, as Japan’s first full-fledged printing
company. The dynamism of the Meiji Restoration
brought big changes to all of Japanese society, andinfused the times with a spirit of freshness. Since then,
DNP has engaged in a broad variety of publishing andcommercial printing activities under the banner of the“Business of Civilization,” and has honed its printing
skills to meet the world’s highest standards.
Since the 1950s, DNP has expanded its field of
business under a policy that it calls “expansion
printing,” i.e. applying the printing technologies thatit cultivated since its founding to the development ofvarious types of businesses. In 1951, DNP entered thefields of packaging and decorative materials, and in1958 the Company succeeded in developing shadowmasks, which opened the door to the electronics field.
Today, DNP creates a variety of electronic products
including color filters, photomasks, and lead frames.
DNP even holds the top share in many markets, notonly in Japan but in the whole world.

In the early 1970s, DNP was among the first to get
involved in the digitization of text and images.
Responding to dramatic developments in information
technology, DNP reflected the needs of its corporateclients and individual consumers by working with
cutting-edge information media and introducing
innovations to its work processes. DNP has continued
to engage in optimal information processing andservices: the Company began working with CDROMs, high-definition television broadcasting, andsatellite communications in the 1980s, with theInternet in the 1990s, and most recently with suchmedia as mobile phone and digital broadcasting.
Along with the expansion of its business fields,
DNP has continually transformed itself, from a“printing business” to a “comprehensive printing
business,” to an “information processing business,”and now, to an “information communication
business.” In 2001, we began blending printing
technology (P) and information technology (I) to
offer new solutions as “P&I Solutions DNP,” thereby
speeding up our business development and taking thelead in the information communication industry.

The History of Business Development
1876

1950

Printing

1960

1970

1980

Comprehensive Printing

1990

2000

Information
Information
Processing Communication

2010

P&I Solutions DNPInformation Communication■ Books and Magazines■Commercial Printing■Business Forms

magnetic cards■ Digital Media

smart cards
CD-ROMs

Internet mobile phones IC tags
satellite broadcasting RMN image archives

Lifestyle & Industrial Supplies
aseptic filling system■Packaging
paper containers
flexible packaging/plastic containers■Decorative Materials
decorative sheet with wood grain pattern
Curlfitsteel plate printing

aseptic filling system for PET bottles
expansion into theregenerative medical field■ Industrial Supplies
thermal transfer recording media
lithium-ion rechargeable batteries

Electronics■ Displays
shadowmasks■ Semiconductor Products
photomasks lead frames

12

projection screenscolor filters

flexible organic EL display
expansion into fuel-cells

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

13

Business Portfolio and Segments
DNP has two main businesses: our Printing
business developed as a combination of printing
technologies and information technologies, and our
Beverages business handled by Hokkaido Coca-Cola
Bottling Co., Ltd.
We divide our Printing business into threestrategic segments: Information Communication,
Lifestyle and Industrial Supplies, and Electronics.
The three Printing segments account for about 95%
of DNP’s consolidated net sales. We haveconstructed a well-balanced business portfolio fromthe standpoints of stability, growth potential, andrisk.

Well-Balanced Strategic Segments

Information
Communication
Core business provides stableprofits; handles a wide variety
of information media,
including printed materials,
smart cards, IPS, andnetworks

The Three Segmentsof DNP’s
Printing
Lifestyle andIndustrial Supplies
Electronics
Business
The driving force behind
expanding our business fields; wehave ventured into new fields byapplying printing technologies
to packaging, decorative
materials, and industrial
supplies

Growth driver; we have captured
overwhelming market share andachieved high growth potential
in display-related products
and electronic devices

Printing
Information Communication
Our Information Communication segment is composed ofthree sub-segments: the printing of books and magazines,
which has been one of our core businesses since DNP’s founding, commercial printing, and business forms. This segment
covers a wide variety of media, including both paper and electronic media such as the Internet (PCs and mobile phones)
and DVD publishing, satellite broadcasting. In addition to
producing printed materials, we are expanding our business byoffering unique DNP solutions that combine such functions
as marketing analysis, project planning, system development,
media content creation and distribution, and data security
management.
Lifestyle and Industrial Supplies
The Lifestyle and Industrial Supplies segment comprises threesub-segments: packaging, decorative materials, and industrial
supplies. Starting with printing on non-paper materials likefilm or steel, we use coating and etching technologies andother basic printing skills to make products like optical film
used in electronic displays. DNP is the world’s largest supplierof a number of products, including color ribbons for printing
digital photos and ink ribbons for facsimile machines and barcode printers. We even make products like electrodes forlithium-ion rechargeable batteries, and we intend to continue
expanding our business field in the future.
Electronics
DNP’s Electronics segment uses the world’s most advanced
micro-processing technology to provide a large number ofelectronics products, including photomasks (original plates
used in semiconductor production), and color filters for LCD
displays. Ever since DNP became the first in Japan to succeed
at making a prototype shadowmask for use in a color
television a half century ago, the company has developed
electronic devices and display-related products that we
successfully commercialized one after another. In this way, we
steadily built up a solid position for ourselves in theelectronics sector. Becoming the first vendor of various
products has given us an edge in the market. In today’s worldof information devices, DNP electronics components are thekey to progress.

Beverages
DNP operates a beverages business through its subsidiary,
Hokkaido Coca-Cola Bottling Co., Ltd.

14

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section■ Special Characteristics of the Structure of DNP
DNP as a Comprehensive Printing Company

DNP’s Group Structure

As a result of expanding into new business fields
while keeping printing technologies at the core ofour business, DNP has become a comprehensive
printing company engaged in such fields as books andmagazines publishing, commercial printing, business
forms, packaging, decorative materials, electronic
components, recording media, and industrial
supplies. By going a step further and combining
printing technologies with information technologies,
we are accelerating our expansion into new fields.
Our comprehensive printing company format is anadvanced business format not seen elsewhere in theworld, and this is DNP’s strength.
DNP doesn’t merely offer products and services
off of a shelf. Instead, we hold repeated discussions
with our customers and proactively engage infinding new solutions to problems. Because we
dynamically link R&D, production, sales, planning,
management and other functions, we can receive
comprehensive orders that cover contingent operations, leading to the provision of new products andservices.

As the head office of the DNP Group, Dai
Nippon Printing Co., Ltd. (DNP) handles suchfunctions as planning, research and development,
and sales. In addition, the Group maintains acohesive structure by having the production andtechnical sections of each Group company cooperate
closely. The head office and Group companies focus
on their respective roles in ways that increase theefficiency and profitability of operations.

Businesses that Grow by Receiving Comprehensive Orders

Group Structure Enables Efficient Operations

DNP’s Workflow
Toward the Next Project

Planning/
Proposals

Information
Processing

Design/Development

Production/
Manufacturing

Delivery/
Provision ofService

MeasurementofEffectiveness

Dai Nippon
Printing Co., Ltd.

Receive comprehensive orders that include
supplementary services

Planning

Research

Development

SalesGroup company
Cross-media
development

Text
processing

DB construction
and management

Serveroperation

Distribution
management

Research

Promotionplanning

Production ofstill andvideo images

Programdevelopment

Information
security

Implementation/
operationof planMarketing

Product
planning

Copyright
management

Systemdevelopment

Customer
information
management

Customer
service center

AlliancesGroup company

Group company

Group company
Group company

15

■ Corporate Culture■ Guidelines for Behavior

DNP has a unique corporate culture that it has
nurtured over the course of its 130-year history. The
customer always comes first, ideas from the shop
floor, abundant pioneering spirit, carry everything
through till the end – these are some of the traditions
behind the self-confidence and self-awareness that has
been passed down through generations of employees.
In order to keep DNP the kind of workplace where
employees help each other grow and each employee
feels pride and expresses his or her own individuality,
we have identified five concepts that we want to passon as the essence of DNP’s corporate culture.

In order to fulfill our corporate philosophy of“contributing to emergently evolving society,” webelieve that each one of us needs to be aware of our
purpose and our responsibilities as a member of an
emergently evolving society, and we need to be able
to share dreams and visions. And in order for eachone of us to act with confidence and pride, it isimportant to consider our obligations to society andexercise self-discipline.
Based on these ideas, we drew up the “DNP
Group Action Charter,” a set of guidelines forbehavior. In order to get all of our employees toalways act in accordance with these guidelines, top
management takes the initiative and works hard at
spreading awareness of them.

Customers and People’s Lives
We will aim to create values that our customers and people intheir lives truly need and desire, conscious that each one of us
is an individual member of an emergently evolving society.

Observe, Listen and Think Carefully
We will detect and respond to what society truly needs
correctly and speedily, carefully observing conditions in themarket and sites of sales and production. We should be fullyalert to the opinions and reactions of those places, and fully
consider these in our response.

Independence and Collaboration
We will work together in a spirit of collaboration, taking
responsibility for and pride in ourselves as self-reliant professionals. By respecting the opinions that arise in an open atmosphere of collaboration between professional equals, we will
foster mutual relations of trust.

Speed and a Spirit of Challenge
We will strive both to respect the values of our coworkers as
professionals with regard to time, and to maintain a spirit ofchallenge, so that we can always supply leading-edge products
and services and play a major role in the evolution and development of society.

Openness and Fairness
We will make positive efforts to win the appreciation of society
for our philosophy, vision, and policy, and by taking action in a
spirit of fairness as good corporate citizens, aim to become acompany that is in tune with an emergently evolving society.

16

The DNP Group’s Corporate Pledge
1. We will act in full compliance with legal and ethicalstandards and also strive to maintain free and fair competition with fair and open activities.
2. We will work to preserve the Earth’s environment and conserve natural resources to safeguard the future of humanity.
3. We will work to contribute to society through communication and cultural activities, and by becoming good corporate citizens deeply involved with the community.
4. We will be alert and responsive to changes in society andthe market, identifying society’s needs and leading theindustry in finding solutions, while always approachingissues from the viewpoint of people in their lives.
5. We will provide both valuable products and services andoriginal business models by fusing our leading-edge information technology with the printing technology that wehave built up over the years, and by fully utilizing thewealth of knowledge and expertise that we have developed
through our long and varied experience in problem-solving.
6. We will establish an emergently evolving and dynamic
corporate culture in which each individual, while taking
pride in himself or herself as a self-reliant professional andactively generating and sharing information, collaborates
with and respects the individuality of his or her coworkers.
7. We will strive to enhance our individual awareness andjudgment, and to act quickly and boldly, without fearing
failure, when faced with even the most difficult challenges.

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

17Key Figures for 2006

Consolidated Financial Highlights
Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2006 and 2005
Yen in millions except per share amounts

2006

Dollars in thousands
except per share amounts% change

2006

2006/2005

12,884,667

5.8%

2005

Fiscal Year¥Net sales

1,507,506¥

1,424,943$

Operating income

120,670

120,528

1,031,368

0.1

Income before income taxes

114,640

107,686

979,829

6.5

Net income

65,18859,937557,162

8.8

Per Share Data (in yen)¥Primary

Net income

91.23

Fully diluted

Cash dividends

¥

82.56

$

0.78

10.5%

—

—

—

—

26.00

24.00

0.22

8.3

At Year-end¥

Total stockholders’ equity

1,063,309
1,662,377

Total assets¥

1,007,944

9,088,111

5.5%

14,208,350

3.9$

1,600,129

Note:
U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥117=U.S.$1, the approximate Tokyo foreign exchange market rate as of March 31, 2006.

Operating Income(in billions of yen)(in billions of yen)

05

06

72.2

80

120.7

89.9

100

1,200

120.5

120

102.4

1,424.9

1,354.1

1,309.0

1,311.9

1,500

1,507.5

Net Sales

900
60
600
40
300

20

0

0

02

03

04

05

06

Net Income(in billions of yen)(in billions of yen)

59.9

60
50

30

15.6

26.2

20

28.8

40

60

42.2

80

40

04

53.0

114.6

107.7

93.1

100

03

65.2

Income Before Income Taxes

120

10

20

0

0

02

18

02

03

04

05

06

02

03

04

05

06

Message to
Our Shareholders

DNP ANNUAL REPORT 2006

DNP in Brief

Special Feature

Segment Information

Net Income per Share

Employees by Segment(in yen)(persons)

80

Corporate
1,088

Beverages
1,308Electronics
4,427

Information
Communication
17,428

37.80

60

91.23

71.49

82.56

100

20.55

40

Lifestyle &Industrial Supplies
11,345

20

0

02

03

04

05

06

Net Sales by Segment

Operating Income by Segment(in billions of yen)(in billions of yen)

0

100

200

300

400

500

600

Information
Communication

700

662.5

Lifestyle &Industrial Supplies

480.0

Electronics

296.8

Beverages

0

30

40

50

51.0

Lifestyle &Industrial Supplies

37.6

Electronics

37.8
0.3

Total Assets(in billions of yen)

1,513.7

02

03

04

1,662.4

1,450.0

1,500

1,432.5

2,000

800

20

1,600.1

978.7

942.1

947.0

1,007.9(in billions of yen)

1,063.3

Total Stockholders’ Equity

10

Information
Communication

Beverages

76.5

1,000

Financial Section

Sustainable Development

05

06

600
1,000
400
500

200

0

0

02

03

04

05

06

Research and Development Expenditures

Capital Expenditure(in billions of yen)(in billions of yen)

136.1

28.7

26.4

24.1

23.4

25

26.1

30

150

120

69.8

03

04

15

86.1

73.8

90

85.1

20

60
10
30

5
0

0

02

03

04

05

06

02

05

06

Figures include investments to intangible fixed assets.

19

DNP At a Glance

DNP’s main businesses consist of three consolidated segments: Information Communication, Lifestyle &Industrial Supplies, and Electronics. Together, they contribute 94.9% of the group’s net sales. The company
also has a beverages segment, which generates 5.1% of net sales.

Information Communication

1

Books andMagazines

800

120

662.5

(in billions of yen)

640.7

Operating Income(in billions of yen)

629.8

Net Sales

Books, magazines [1], comics[2], dictionaries [3], textbooks,
graphic art collections, corporate
histories, historical reviews, andother published materials

100

600
80

2

49.4

51.0

60

43.7

400

05

06

3

40
200
20
0

0

04

05

06

04

Lifestyle & Industrial Supplies

13

Packaging
Net Sales

Operating Income(in billions of yen)(in billions of yen)

800

120

Printed packaging products andeco-friendly containers (forbeverages [13], food [14] [15],household products [16], andcosmetics and pharmaceuticals,etc.), aseptic filling systems,
PET bottles and preformed
bottles [17]

100

480.0

450.0

426.1

600

400

80

15

16

60

32.4

36.0

37.6

40

04

05

06

200
20
0

0

04

05

06

Electronics

26

Displays
Net Sales

Operating Income(in billions of yen)(in billions of yen)

800

120

LCD color filters [26], backplates for plasma display panels[27], hologram screens [28],shadowmasks [29], projection
TV screens [30], inorganic andorganic EL displays [31], andprojector screens [32]

100
600
80

29

37.8

40

39.7

60

33.0

296.8

269.6

236.4

400

05

06

200
20
0

0

04

20

05

06

04

30

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Information Communication 43.5%

Special Feature

Segment Information

Lifestyle and Industrial
Supplies 31.7%

Sustainable Development

Electronics 19.7%

Financial Section

Beverages 5.1%

Net Sales(%)

Information Communication 40.3%

Lifestyle and Industrial
Supplies 29.7%

Electronics 29.8%

Beverages 0.2%

Operating Income
(%)

4

7

8

9

10

11

12

21

22

23

24

25

33

34

35

37

38

39

Commercial Printing
Catalogs [4], flyers, pamphlets,
posters and calendars [5], pointof-purchase materials [6], andprinted materials advertising
events, etc.

IPS/Business Forms

5

6

Smart cards [7], plastic cards,
bankbooks and continuous
ledger forms for computerizedaccounting [8], personalized
mail, etc. produced using IPS(information processing
services) [9], packing anddelivery slips for parcels, direct
mail, stock and other securities
certificates, gift certificates [10],checks, all kinds of tickets,
digital pens [11], hologram
products [12]1418

Decorative Materials
Auto interior materials [18],decorative materials for stores,
offices and homes (including
coverings for walls, floors,
furniture surfaces, modular bathinteriors, and exteriors) [19],and functional films used inelectronic appliances [20]

17

19

27

28

Opto-Materials/
Industrial Supplies
Optical film for displays [21][22], transfer ribbons for color
printers and fax machines [23],digital photo printers [24],electrodes for lithium-ion
rechargeable batteries, carrier
films for electronic components
[25]

20

Electronic Devices
Photomasks [33] [34], leadframes [35], system modules[36], package substrates [37],
HDD suspension components[38], IC tags [39], otherchemically etched products

31

32

36

* All figures in this section are before elimination or corporate.

21

DNP Solutions Businesses

DNP offers flexible solutions to a variety ofproblems faced by corporate clients, based on
the knowledge and skills that we haveaccumulated throughout our long corporate
history. These problems include, “How can we
make our daily operations more efficient?”“How should we compile data to help us develop
a new market?” “How can we increase theeffectiveness of our sales promotions?” “Howshould we guard access to corporate andpersonal information?”

Solutions by Operating Process

Solutions by Segment
Information Communication(Books & Magazines; Commercial Printing; IPS/Business Forms)
Not only does DNP process information using new types of
media, we handle every step from planning and content creation
through the delivery of finished products. We offer more
effective, 21st-century information and marketing strategies thatease the burden on customers in a wide variety of industries andhelp deliver their messages to consumers with greater speed. Inorder to protect personal data in today’s information society, weneed to establish strong security systems. We offer a large
number of security solutions using smart cards.
Editorial support systems

Personalized DM/Catalogs

On-demand publishing

Cross-media solutions

Sales Promotion Operations
Product development support

Lifestyle & Industrial Supplies

Enhancement of sales methods(Packaging; Decorative Materials; Industrial Supplies)

Marketing and research
Promotional strategy proposals
Production of sales promotion tools and improving operational efficiency
Presentation support tools
Management of customer data

Production & Distribution Operations
Boosting efficiency in receiving/placing orders for materials
Databasing of product information

DNP has been finding new uses for printing technologies in thedevelopment of products that become an intimate part ofmodern daily life and are indispensable to industry. Our reliable
manufacturing technologies also serve as a base from which wedevelop a variety of solutions to make life more convenient andsafe. In addition to environment-oriented solutions, theseinclude product development, design, machinery design, systemengineering, and sales promotion.
Packaging design systems

Product tracing systems

Online systems for teampackage design editing

Aseptic container-fillingsystems

Decorative materials
environmental impact
assessment systems

Food and beverage-related
market research

Production line control systems
Delivery and distribution systems
Payment collection systems
Boosting the efficiency of manufacturing operations

Administrative Operations
Various types of operational support related tointellectual property rights
Purchasing systems

Electronics

ID issuing and management

On-line accounting systems(Displays; Electronic Devices)

Computerization of corporate information

Virtual plant solutions allow customers to use the world-classelectronics processing technologies of DNP’s manufacturing
facilities as if they were inside the customer’s own factory. Every
process from ordering to delivery can be easily confirmed. We
also provide turnkey business solutions that handle everythingfrom semiconductor circuit design to the production of final,
packaged products. In other words, we offer high value-added
services that go far beyond manufacturing.

Public/IR Relations
Corporate communication support
Archiving of corporate information
IR solutions

Training-related Operations
Computerized training programs
Educational materials production support
Editing of curriculum information

22

LSI design
Virtual plant systems

Turnkey businesses

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Digital Solutions
Network/Data Base Solutions
DNP offers a variety of solutions by developing applications andnetworked systems.

Smart Card Solutions
DNP doesn’t just manufacture cards, we also develop operating
systems and applications, provide ASP services, and build smart card
systems, etc.

Providing Functionality for Websites

Smart Card Introduction Support & Consulting

Development and setup of all kinds of active server
pages (ASP) services
Electronic application services e-statement issuance
Measurement of Web functions
Recommendation systems
Account settlement functions, etc.

DNP chip migration program, etc.

Frameworks for Content Sales
Distribution platforms
Protection from unauthorized content distribution
Issuance of content IDs
Copyright protection system, etc.

Smart Card Issuance Service
Contact smart cards Native OS MULTOS Java Card™
Non-contact smart cards Types A&B FeliCa®
Hybrid cards Dual-interface cards, etc.

Smart Card Software Development and ASP Services
OS Native OS MULTOS Java Card™
Authentication systems Desktop applications Drivers, etc.

Smart Card Peripheral Sales
Writing/reading devices card issuance systems gate systems, etc.

Database & Customer Relationship Management Solutions
Various kinds of CRM support (e.g. loyalty point cards)
Marketing data mining
Marketing information mapping, etc.

IC Tag Solutions
Because DNP manufactures books and food packages, we are in thebest position to attach IC tags to individual products.

Operation of DNP’s Information Sites

Applications Development

Digital content sales
Map information services
Shopping sites for mobile phones
Incentive Marketing, etc.

Product distribution management Tracing systems
Admissions systems (conferences, events, concerts, etc.)
Electronic notification when children leave school
Electronic posters, etc.

IC Tag Peripheral Sales
Navigation carts

Backup Systems
Security systems

IC tag reader/writers, etc.

DNP has created powerful backup systems that allow us to offer a variety of solutions.

Acquisition of Privacy Mark, ISO, etc., IP rights protection and software development, hardware enhancement, etc.

Internet data center

Data centers to support network services; hosting and housing support; Can also be used to provide smart card data services

Database management

Analysis and processing of purchasing histories and response data, for use in sales promotions and customer strategies

Distribution platforms

Platforms for clients who run e-businesses or content distribution, etc.; includes copyright protection, accounting,authentication functions

Agency Functions

DNP is ready to provide support and perform a variety of tasks on behalf of clients in order to establish the best
possible processes for their businesses.

Project management

Market research, project proposals, construction of frameworks for running campaigns, etc., total support for all kinds of projects

Creative support

Production support for all kinds of media, including printed materials, web sites (PCs and mobile phones), CD, DVD and animation

Fulfillment support

Back-end support through order centers, customer centers, logistics, payment collection, campaign office management, etc.

23

Major Events of the Fiscal Year Ended March 2006

July
DNP began manufacturing and issuing FeliCa/Java

DNP announced the construction of a new sixth-

dual-interface smart cards for use as student I.D. cards.

generation color filter manufacturing line, the first in

Chiba Institute of Technology used the cards tothe world to use an inkjet production method. DNP

become the first university in the world where students

began producing sixth-generation color filters in July

can access their academic transcripts and other person-

2005 in response to sharp growth in demand for LCD

al records through information terminals on campus

displays. The company now aims to invest approxi-

that identify them using palm vein authentication

mately 25 billion yen to build the additional line oftechnology. In the future, DNP aims to start offering

inkjet production method, which is scheduled to comemore high-security services using smart cards, includ-on line during 2006. Compared to photolithographic

ing biometric identification based on palm or finger

techniques, the inkjet production method costs less toveins, and one-time password authentication, which

set up initially, and makes it possible to reduce thewill start in the year ending March 2007.

amount of coloring materials used and the cost of com-

DNP funded the establishment of “Nanomedicine
DNP” courses at Tokyo Medical and Dental
University, and began joint research as of July. In July
2004, DNP and the same university succeeded in using

ponents. DNP also aims to use the inkjet production
method for making eighth-generation color filters, andto further expand the scale of its color filter business.
DNP opened a new consulting and negotiating cen-printing technology to form capillary patterns. The

ter in the Kansai region, called “Infopark Osaka.” This

new course aims to build on that success by studying

facility replaces multiple showrooms that had been

the culture and transplantation of blood vessel andscattered throughout the region. It consists of an exhi-

corneal cells and the activation of such cells in the liv-

bition area that introduces DNP’s latest solutions, and a

ing body. DNP aims to continue to use its printing

conference area for negotiations with client companies.

technology to open new frontiers and develop practicalAt the same time, DNP consolidated the sales, plan-

applications in the field of regenerative medicine.

ning, development, and manufacturing functions ofAugustnine business sectors and 19 Group companies in the
Kansai region into the same office building. DNP aims

DNP Archive.com began a licensing service to allow

to strengthen ties between business segments, and to

the temporary commercial, academic, or public use of

expand its business by making the most of its compre-

images of art works held by the Tokyo National

hensive strengths and speedily solving problems.

Museum. DNP already operates similar image
archiving businesses on behalf of Réunion des Musées
Nationaux, which manages 33 French national
museums including the Louvre and Musée d’ Orsay,
the British Museum, and Tokyo Metropolitan
Foundation for History and Culture, which operates
four museums including the Edo-Tokyo Museum.
DNP intends to build and develop applications forhigh-definition image data backed by printing
technology, and to develop a broad array of services
like this licensing service.

24

September

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

October
DNP enhanced its smart card manufacturing

Special Feature

Segment Information

Sustainable Development

Financial Section

N o v e m b e r- D e c e m b e r
In February 2003, DNP began repurchasing its own

framework by investing about 3.0 billion yen in capitalshares. This fiscal year, we bought back a total of 10

equipment, thereby boosting its monthly production

million shares. On November 22, 2005, we retired 10

capacity from 5.5 million cards to 7.5 million cards.

million shares for 14.9 billion yen. Going forward, we

Production capacity for contact cards was expanded towill repurchase and retire shares in order to increase

6 million cards, an increase of 33%, while capacity forshareholder value, while giving due consideration to

making contactless cards was raised to 1.5 million

such factors as our corporate funding needs and sharecards, an increase of 50%. The Japanese domestic

price trends.

market for smart cards is expanding rapidly, and thenumber of cards issued reached 110 million in theMarchfiscal year begun April 1, 2005. DNP is now prepared

DNP established Group-wide corporate social

to meet orders for some 90 million cards per year at its

responsibility-oriented criteria for procuring raw

high-security plant, and to further expand its share ofmaterials, machinery, and buildings, etc. The criteria

the market.

are aimed at building bonds of trust between the DNP

DNP consolidated three regional units – Chugoku,
Shikoku, and Kyushu – with DNP Kyushu Co., Ltd.,
to form DNP Nishi Nippon Co., Ltd. By creating anefficient, unified system for everything from manufacturing to sales in the western Japan region, we expect
to receive more orders and enhance our services.

NovemberGroup and its suppliers through fair trade, and atincreasing the corporate value of both sides by winning
the trust of society in general. DNP will ask its
approximately 3,000 suppliers in Japan and overseas tocomply with these criteria in order to fulfill its corporate social responsibility.
DNP and the Konica Minolta Group reached a basic
agreement on the transfer to DNP of Konica Minolta’s

DNP received two awards, from France and Italy, inphoto ID business and photo-related products domes-

recognition of our active contributions to business andtic sales business. By boosting sales of dye-sublimation

culture overseas. For establishing CDO, a joint ven-transfer ribbons for the photo ID market while com-

ture company that produces and sells ink ribbons forbining photo ID booths with “PrintRush” self-service

facsimile machines, we received the 2005 Award for

digital photo printing terminals, DNP aims to expand

Japanese Industrial Investment in France. We alsoboth print businesses in Japan.

received an award from the Italian Chamber ofCommerce in Japan for establishing DNP Photomask
Europe SpA on the outskirts of Milan. We plan tocontinue to expand our operations overseas.

25

26

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Corporate Governance■Fundamental Philosophy
As an emergently evolving company befitting the
21st century, DNP has established a management
concept in its 21st century vision of contributing to
the intellectually active, rich, emergently evolving
society of the 21st century, and recognizes that
fulfilling its corporate responsibilities to society as acorporation and being trusted by its shareholders,customers, consumers, employees and other stakeholders is critical to improving the competitivenessof the company. Toward this end, we regard
corporate governance, including an internal control
system, as a top management priority. We havestrived to establish and manage an organizational
structure that allows for precise managerial
decision-making, prompt and appropriate execution
based on the decisions made, and proper supervisionand surveillance; strengthen education and training
to improve each employee’s awareness of complianceissues; and enhance our overall corporate governance.

■Progress on Corporate Governance
Measures
1. The organizational structure for managerial
decision-making, execution, and supervision,and other aspects of the corporate governancestructure
Organizational details
DNP is organized around business operations so as
to be able to adapt quickly to changes in businessconditions, allow directors with specialized expertiseand experience in various business areas to participate
in decision-making and to have responsibility andauthority in managing day-to-day operations, and tosupervise the management of operations of otherdirectors. Also, so as to promptly make precise
management decisions, smoothly execute based on
the decisions, and further strengthen proper

supervisory functions, corporate officers named by
the Board of Directors execute the decisions made by
the Board of Directors, and have the responsibility
and authority to decide upon and carry out thosematters delegated by the Board. Working in close
communication with the directors and in close
proximity to the workplace, their function is to ensurethat the views of those on the front lines are reflected
in management.
The Board of Directors consists of 26 directors,
including one outside director. In principle, theboard meets once a month. Based on the Company’s
Board of Directors Regulations, the directors ensurethat operations are appropriately run and mutually
supervise day-to-day operations. The directors andcorporate officers hold executive committee
meetings once a month to exchange information thatis helpful for efficient decision-making.
DNP has in place a Board of Statutory Auditorsthat consists of five statutory auditors, including
three outside statutory auditors. In accordance withauditors’ prescribed audit criteria andresponsibilities, the statutory auditors conduct auditsof directors’ management of day-to-day operations
and, as necessary, seek information from directors
and employees regarding business operations.
The internal control system and audit
To maintain a structure that allows for precise
managerial decision-making, appropriate execution,
supervision and surveillance of the same, theCorporate Ethics Committee, which oversees internal
controls, reviews and guides the operating units basedon the basic compliance management regulations of
the DNP Group. The Auditing Department ensures
the propriety of operations by conducting accounting
and operational audits based on internal audit
regulations and providing progress reports to thestatutory auditors.
The statutory auditors hold regular meetings ofthe Board of Statutory Auditors, work with otherstatutory auditors to perform their audit duties, and27

closely cooperate with the accounting auditors byreceiving from them an explanation of the audit planat the start of the fiscal year, assessing audit operations during the fiscal year as appropriate, andreceiving a report of audit results at the end of the
fiscal year.
The names of the certified public accountants who
performed the accounting audits, the audit firm they
are employed by, and their assistants in the audit
work are as follows:• Certified public accountants who performed
the accounting audits(Continuous audit years)
Senior partner, managing partner
Atsushi Sasayama (4 years),
Kiyohisa Horie (1 year)
Managing partner
Koichiro Kita (1 year)• Audit firm
Meiji Audit Corporation• Number of accounting audit assistants
6 certified public accountants, 8 junioraccountants, 1 other
Development of a risk management structure
To manage risks related to compliance, theenvironment, disasters, product safety, information
security, and export management, the Corporate
Ethics Committee, other special committees, andother head office divisions develop rules and conduct
training as part of risk-related preemptive efforts,
and respond promptly to avert or minimize losses tothe DNP Group. Certain organizational units anddirectors are promptly established and appointed for
responding to risks that have newly developed.

28

Progress on other corporate governancemeasuresThrough the DNP Group Corporate Pledge(established in 1992, revised in 2002) and DNPGroup Employee Code (established in 1993, revisedin 1998), DNP has set down codes of conduct andspecific guidelines for behavior for employees tofollow, so as to contribute to the prosperity and solid
development of society, promote fair and appropriate
corporate activity, protect the environment,
contribute to society, and establish a free and lively
corporate culture. Among the stipulations is that
DNP, as an emergently evolving company, fulfill its
corporate responsibilities to society as a corporation,
respect its shareholders, customers, consumers,
employees and other stakeholders, and act in a waythat earns trust. The DNP Group CSR Report 2005
details not only the DNP Group’s business activities
but also efforts to address social issues and protect
the environment, and aims to enhance understanding
and deepen confidence and trust through communication with various stakeholders.
DNP has a policy of disclosing information that istransparent, fair, and continuous in a timely andappropriate manner, including the prompt disclosureof financial results to shareholders and investors inaccordance with the Securities and Exchange Law
and other related laws, as well as the “timely disclosure rules” established by the Tokyo Stock Exchange.
We also promptly and proactively disclose information even if the timely disclosure rules do not apply,
as long as we believe that the information is considered necessary and helpful to shareholders andinvestors to promote further understanding of ourcompany. By appropriately managing theInformation Disclosure Committee, which wasestablished in May 2006, we intend to further
enhance our arrangements and procedures for timely
and appropriate information disclosure.

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Financial Section

Sustainable Development

A diagram of the corporate governance structure is shown below.

General Meeting of Shareholders
Audit

Audit
Board of Directors

Representative Director

ReportingCorporate Ethics Committee
Open Door Room
ReportingInformation Disclosure Committee

Director in charge

Audit
Oversight of internal controls

Business divisions

Product Safety Committee
Information Security Committee
Environmental Committee
Complaint Handling Committee
Central Disaster Prevention Council
Audit

Audit

Group companies

Legal and other main divisions

Guidance
Training(environmental safety division, labor division,technology division, accounting division, management
division, IP division, legal affairs division)

Auditing Department

Head office

Operating units

Accounting Auditors

Corporate officers

Guidance
Training

ReportingBoard of Statutory Auditors

Audit

Assistance

Corporate Social Responsibility Committee

Guidance
Training

Audit unit

Audit
(Autonomous implementation, inspection,
review, improvement)

Coordination

Compensation paid to directors and auditors
The details of compensation DNP paid to
directors and statutory auditors are as follows:

Compensation paid to Meiji Audit Corporation(accounting auditor)
The details of compensation DNP paid to Meiji
Audit Corporation are as follows:

Compensation
based on articles ofincorporation andresolutions at
general meeting ofshareholders

Bonuses based on
profitpersons

million yen

persons

million yen

persons

million yen

Compensation for other services—

Directors

37

662

35

250

11

1,024

Total

56

(Of which,outside directors)

(1)

(19)

(1)

(0)

(—)

(—)

Auditors

5

95

—

—

—

—

Total

42

757

35

250

11

1,024

Directors’ retirement
benefits based on
resolutions at
general meeting ofshareholders(in millions of yen)Compensation for services in accordance with Article 2-1 of theCertified Public Accountants Law (Law No. 103, 1948)

56

Note: Figures less than ¥1 million have been rounded down.

Notes:
1. Figures less than ¥1 million have been rounded down.
2. In addition to the above, bonuses of ¥69 million were paid to employee directors.
3. There were 26 directors and five auditors as of the end of the fiscal year. The
directors and auditors above include 11 directors who stepped down during the
fiscal year.

29

2. Interests between DNP and its outside director
and outside statutory auditors
Neither the outside director nor the three outside
statutory auditors have personal, financial, or business
relationships or other interests with DNP.

3. Progress on corporate governance measures in
the current fiscal year
Each year, the DNP Group has published asummary of its environmental efforts as annual
reports, and with the substantial addition of its
economic and social activities, it newly released its
DNP Group CSR Report 2005.
In accordance with a resolution by the Board of
Directors at a May 10, 2006 meeting, DNP has established arrangements for ensuring the propriety ofoperations, encompassing the following aspects:
Arrangements for ensuring that the execution ofoperations by directors and employees complies
with the laws and the Articles of Incorporation
1) The DNP Group has established a code of
conduct for all employees (including directors)
through its DNP Group Corporate Pledge and
DNP Group Employee Code, and conducts
training to familiarize employees with it.
2) Directors with day-to-day business responsibilities
preempt acts in violation of laws or the Articles ofIncorporation by supervising the conduct of theheads of the various operating units, including
corporate officers.
3) To establish and manage arrangements for
ensuring the propriety of operations in the DNPGroup, the Group has established basic compliance management regulations, revised the divisionof duties for the directors who are members of the
Corporate Ethics Committee, and made thecommittee responsible for overseeing the Group’s

30

internal controls based on the rules andregulations.
4) DNP has established various corporate groups
under the oversight of the Corporate Ethics
Committee, including an Environmental
Committee, Product Safety Committee,
Information Security Committee, Complaint
Handling Committee, Central Disaster
Prevention Council, and each head office divisionin charge of specific laws and regulations. Under
the oversight of the Corporate Ethics Committee,
these committees conduct reviews, provide
guidance, and offer training for operating units
and Group companies in their areas of
responsibility.
5) DNP has newly established an information disclosure committee for developing arrangements for
ensuring the reliability of the Company’s financial
reports and for the timely disclosure of appropriatecompany information. Under the oversight of the
Corporate Ethics Committee, it is responsible forproperly disclosing information on DNP andconsolidated Group companies in a timely manner.
6) The Auditing Department is independent of theoperating units and conducts internal audits,
provides guidance, and offers training to theoperating units and Group companies regarding
the establishment and management of
arrangements for ensuring the propriety ofoperations.
7) The heads of the operating units autonomously
determine, implement, inspect, review, andimprove the required arrangements and procedures for their divisions, based on the basic
compliance management regulations of the DNPGroup and in light of the specific operations ofeach division.
8) The Open Door Room, a gateway for internal
notifications within the DNP Group establishedwithin the Corporate Ethics Committee, receives
and responds to reports from group employees
concerning legal violations.

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Rules and other arrangements for managing thedangers of losses
To manage risks related to compliance, theenvironment, disasters, product safety, information
security, and export management, the Corporate
Ethics Committee, other special committees, andother head office divisions develop rules and conduct
training as part of risk-related preemptive efforts,
and respond promptly to avert or minimize losses tothe DNP Group. Certain organizational units anddirectors are promptly established and appointed for
responding to risks that have newly developed.
Arrangements for ensuring that the execution ofoperations by directors is efficient
1) The Board of Directors meets once a month andat other times as needed. Executive committee
meetings are held once a month for efficientdecision-making and the sharing of management
information.
2) Those responsible for carrying out operations
based on decisions by the Board of Directors do
so within their authority and in accordance withorganizational regulations, position authority
rules, collective decision-making rules, and otherinternal rules.
Arrangements concerning the maintenance andmanagement of information relating to directors’
execution of operations
Information on directors’ execution of operations
is registered or recorded in the form of minutes ofBoard of Directors’ meetings, minutes of various
committee meetings, approval documents and otherdocumentation, or electronic documentation. This
information registered or recorded as paper orelectronic documents is appropriately and safely
retained and stored in easily searchable condition for
at least 10 years, in accordance with basic regulations
on information security, document management
standards, and electronic record-keeping standards.

Special Feature

Segment Information

Sustainable Development

Financial Section

Arrangements for ensuring the propriety ofoperations
1) To ensure the propriety of its operations, the
DNP Group has established the DNP Group
Corporate Pledge and DNP Group Employee
Code as a code of conduct for all employees(including directors), and conducts training tofamiliarize employees with it. The Group has alsoestablished basic compliance management regulations concerning the establishment and management of arrangements for ensuring the proprietyof operations, and based on them, group companies implement the regulations.
2) The Group companies autonomously determine,
implement, inspect, review, and improve therequired arrangements and procedures for theirdivisions, based on the policies above and in lightof the details and scale of their businesses.
3) The Auditing Department, the Corporate Ethics
Committee, the other special committees, andother head office divisions audit or review,provide guidance, and offer training on the
progress made in the two previous areas.
Arrangements for ensuring effective audits by
the statutory auditors
1) The Audit unit with dedicated staff assists
statutory auditors with their work. The Audit
unit staff performs operations under the directionof the statutory auditors.
2) The Auditing Department and the Corporate
Ethics Committee regularly report to thestatutory auditors on the establishment andmanagement of arrangements for ensuring the
propriety of audits and operations.
3) The Representative Director regularly exchanges
views with the Board of Statutory Auditors.

31

32

Message to
Our Shareholders

DNP ANNUAL REPORT 2006

DNP in Brief

Special Feature

Segment Information

Financial Section

Sustainable Development

Board of Directors, Statutory Auditors
and Corporate Officers(as of June 29, 2006)

President

Directors

Managing Directors

Yoshitoshi Kitajima (photo 1)

Noriaki Nakamura

Kenji Noguchi

Hiromitsu Ikeda

Yoshiaki Nagano

Kenzo Isumi

Motoharu Kitajima

Koichi Takanami (photo 2)

Toshio Kawada

Tadao Tsukada* 1

Satoshi Saruwatari (photo 3)

Kazumasa Hiroki

Masayoshi Yamada (photo 4)

Yujiro Kuroda

Mitsuhiko Hakii (photo 5)

Tatsuya Nishimura

Jitsuo Okauchi

Osamu Tsuchida (photo 6)

Itsuo Totsuka

Minoru Yoneda

Teruomi Yoshino (photo 7)

Masahiko Wada

Shizen Sasaki* 2

Kosaku Mori (photo 8)

Tetsuji Morino

Yoshinari Kitajima (photo 9)

Takashi Toida

Senior Managing Directors

Standing Statutory Auditors

Statutory Auditors

Shigeru Kashiwabara

Yasuchika Negoro* 2

Kunikazu Akishige

Kuniaki Nomura* 2*1 Outside Director*2 Outside Auditors

Corporate Officers

Junjiro Inoue

Taketsugu Yabuki

Masanori Akada

Tatsuo Komaki

Koichi Hashimoto

Fujio Yamazaki

Akira Oguri

Takao Shimizu

Takashi Saito

Tatsuro Kitayuguchi

Yukio Togano

Shigemi Furuya

6

8

2

5

4

1

7

9

3

33

Investor Information(as of March 31, 2006)

Dai Nippon Printing Co., Ltd.
Head Office:Administrator of Shareholder Register:

1-1, Ichigaya-Kagacho 1-chome, Shinjuku-ku,
Tokyo 162-8001, Japan

Mizuho Trust & Banking Co., Ltd.
2-1, Yaesu 1-chome, Chuo-ku,
Tokyo 103-8670, Japan
Phone: +813-5213-5213

Established:

1876
Annual Meeting of Shareholders:

The annual meeting of shareholders of DNP is normallyheld in June each year in Tokyo, Japan

Number of Employees (consolidated):

35,596
Paid-in Capital:

Investor Relations:¥114,464 million

Dai Nippon Printing Co., Ltd.
Press and Public Relations
1-1, Ichigaya Kagacho 1-chome, Shinjuku-ku,
Tokyo 162-8001, Japan
Phone: +813-5225-8220
Facsimile: +813-5225-8239
E-mail: info@mail.dnp.co.jp

Number of Common Stocks:

Authorized 1,490,000,000 shares
Issued740,480,693 shares
Number of Shareholders:(more than 1,000 shares)
22,187Web Site Address:

http://www.dnp.co.jp/
Stock Exchange Listings:

Tokyo, Osaka
Major Shareholders:
The Master Trust Bank of Japan, Ltd.(Trust A/C)

6.28%

The Dai-ichi Mutual Life Insurance Co.

4.68%

Japan Trustee Services Bank, Ltd.(Trust A/C)

3.97%

State Street Bank and Trust Company

2.77%

UBS AG London-IPB Client Account

2.44%

Mizuho Corporate Bank, Ltd.

2.06%

Nippon Life Insurance Co.

1.94%

Mizuho Bank, Ltd.

1.68%

NATS CUMCO

1.60%

Employees’ Shareholding Association

1.37%

Other than above, DNP holds 34，
817，
072 of its own shares.
While the registered owner of these shares is Dai Nippon Printing Co., Ltd.,
1,000 of the shares are in effect not owned by the company.

34

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Financial Section

Sustainable Development

Share Price Evolution (Tokyo Stock Exchange)(between April 1, 2004 and March 31, 2006)
DNP Stock Price (yen)Increase (%)*

2,500

120

100

80
2,000

60

40
1,500

−DNP
20

−Nikkei Average−TOPIX

0

1,000

04

05

06
*Index 100 = March 31, 2003

Voting Rights(as of March 31, 2006)

Type

Number of Stocks (Stocks)

Number of Voting Rights (Rights)

Stocks with no voting rights――

Stocks with limited voting rights (treasury stocks, etc.)――

Stocks with limited voting rights (other)――

Stocks with voting rights (treasury stocks, etc.)

Common stocks

36,251,000―

Stocks with voting rights (other)

Common stocks

701,179,000

701,179

Stocks with less than trading units

Common stocks

3,050,693―

Outstanding shares
Total voting rights of stockholders

740,480,693――

701,179

Treasury Stocks
Holder(as of March 31, 2006)

No. of Stocks Held

Percentage of Holding to No. of Outstanding Shares

Dai Nippon Printing Co., Ltd.

34,816,000

4.70

Kyoiku Shuppan Co., Ltd.

1,435,000

0.19

Total

36,251,000

4.90

35

Special Feature:“Taiwa” is a process that entails identifying problems
and finding solutions through the exchange ofviewpoints and ideas

36

DNP in Brief
DNPの概要CONTENTS

37

18

20

22

対話による価値の創造

2006年の主な経営主標

部門別事業一覧

サービス一覧

24

27

33

34

当期の主な出来事

コーポレート・ガバナンス

取締役・監査役および役員

投資家情報（コーポレート・オフィサー）

Under the banner of “P&I Solutions DNP,” we aim to expand our business more thanever by offering unique solutions that blend printing technologies with information

CONTENTS

technologies. It’s probably safe to say that DNP’s growth in the 21st century depends on
the success of our P&I solutions.
Printing companies generally deliver a customized product to each client. We have always
felt the need to engage in taiwa with our customers, meaning that we come to learn what
they really need as we exchange opinions with them, and we work with them to solve theirproblems. In today’s rapidly changing times, enhancing taiwa is our most important task.
We have engaged in taiwa innumerable times, with all kinds of stakeholders as well as

38 Taiwa with Our Customers
38 Louvre Museum
40 Mizuho Bank, Ltd.
42 Kirin Beverage Corporation
44 Mitsui Chemicals, Inc.
46 Intel Corporation

with our more than 30,000 client companies. By enhancing taiwa, we can provide greater
benefits and open up new business fields for ourselves and for our customers. This special

48 Q&A

section introduces some of the fruits of our taiwa with customers.

37

Communicating Beauty
Louvre Museum

Art Presentation that Evolves with the Times
In 2005, 7.5 million people visited the Louvre Museum of art. I believe that my job is tocontinually implement new developments, to achieve harmony with the times and to offer
an art museum that lives and breathes with the times, so that visitors can get even more outof their museum visit.
In “CyberLouvre,” the multimedia area that we opened within the museum in 1998 withsupport from DNP, we have been offering ways of enjoying the museum that are consistent
with modern times. For example, visitors can search electronically for artworks held by themuseum and can view CDs and DVDs about the Louvre as well as websites devoted to themuseum and its temporary exhibitions.
DNP is also working as our partner to produce the Japanese-language version of the
Louvre website, which we plan to completely renew in the fall of 2006. We have been able
to build a cooperative relationship with DNP that allows us to always enjoy good dialogue
as we share the goal of making a site that will meet the public’s expectations.
DNP is well-versed in printing, images, and a variety of other forms of communicative
expression, and the company demonstrated its strong abilities when we held a special exhibition in Japan. Moreover, DNP has established three graphic arts galleries in Japan whichhave been active for some 20 years. This is an example of why I believe we can say that DNP
is one of the private companies that plays an important role in supporting Japanese culture.
In the future, the Louvre Museum will continue to explore the potential of communication that combines art and technology. With help from DNP’s outstanding media communication skills, we hope to give as many people as possible the opportunity to encounter
these works of art and to benefit from the rich culture they represent.

Henri Loyrette Louvre Museum Director

The Louvre Museum was established in 1793
as a central museum for all the arts. As one of
the world’s largest art museums, its collection
contains artworks from a wide variety ofcivilizations and periods. Ever since hebecame the museum’s director in 2001, Henri
Loyrette has been working hard to fulfill theGrand Louvre Plan to create an environment
in which visitors can enjoy as many artworks
as possible in a relaxed space.

38

New Ways of Expressing Beauty
P&I Solutions DNPInformation Communication

DNP was founded in 1876 as Japan’s first full-scale
printing company. Since 1951, we have been expanding
into other business fields with “expansion printing” as ourbasic policy, meaning that we honed our printing
technologies and applied them in a variety of fields. Since
then, our business evolved from comprehensive printing to
information processing, and from information processing
to information communication. Currently, we combine
printing technologies and information technologies topropose new solutions. We call this “P&I Solutions.”
DNP began rapidly developing information technologies in the beginning of the 1970s, mainly in our information communication division. We expanded the kinds ofinformation media that we handle from paper media into
CD-ROMs, DVDs, broadcasting, and websites, etc., andhave used various technologies to explore new frontiers ofexpression. Among these modes of expression, one of the
fields that we have paid particular attention to is the worldof art, which strives for the ultimate expression of“Beauty.” That’s because artists find new ways to provide
beauty; while we express beauty through various media, sowhen it comes to exploring new modes of expression, we
share exactly the same degree of meticulous concern.
In 1998, DNP began building friendly relations with
the Louvre Museum, which is an embodiment of beauty.
For example, we helped create the “CyberLouvre” multimedia space inside the museum, and produced “The
Louvre Museum Streaming Gallery,” video software that
traces the development of Western art through highdefinition still images of artworks held by the Louvre. As
the world becomes increasingly digitized and networked,
DNP will continue to integrate the most advanced
technologies for using paper media, imaging, Internet,
space design and other media as we pioneer completely
new modes of expression and propose new types ofcommunication.
Meanwhile, since 1998, DNP has been operating animage licensing business called “RMN (Réunion desMusées Nationaux) Image Archives” in collaboration withthe federation that manages and operates France’s
national art museums. The company operates a licensing
service in Japan for art-related documents and images ofartworks held by 33 museums including the Louvre andthe Musée d’Orsay. DNP has since formed other alliances
like this, such as with the British Museum overseas andwith the Tokyo National Museum in Japan, in order tocontinue making electronic images of precious masterpieces and cultural heirlooms more easily accessible.
39

High Security and Good Service for a Card-Using Society
Mizuho Bank, Ltd.

Safety and Convenience Provided by Smart Cards
Amid calls for improved security for cash cards and better service forcustomers, we urgently needed to provide multi-functional smart cards
that are difficult to counterfeit.
In order to provide our customers with safety and convenience, Mizuho
Bank launched the "Mizuho Mileage Club" for individual customers inAugust 2004. After that, we began switching to smart cash cards. We wereamong the first to start using multifunctional smart cards, and we chose
DNP as our partner because we could trust them to handle everythingfrom software development to manufacturing and issuance backed by data
management.
We were also attracted by DNP’s comprehensive ability to boost theeffectiveness of the club by combining a wide variety of services, including
processing online applications for the Mizuho Mileage Club Card andsending out individualized direct mail.
We aim to use smart cards to continue developing the Mizuho Mileage
Club so that customers will continue to choose Mizuho Bank. DNP has
come to be very familiar with our bank's situation through repeateddialogue, and we are counting on DNP not only to provide us withgreater security, but also with more innovative ideas and services.

Takashi Nonaka Mizuho Bank, Ltd. Managing Director

Mizuho Bank actively explored the introduction of smart cards before they were widely used inJapan. In March 2001, The Japanese Bankers Association (JBA) established standard smart cash card
specifications, and in August of that year, with help from DNP, Mizuho began trial usage of smart
cards based on those standards. By February 2002, the JBA had established a certification authority,
and adoption of smart cards by the financial industry gathered momentum. Mr. Nonaka was adriving force behind these activities. Mizuho Bank began its full-fledged use of smart cards with theMizuho Mileage Club.

40

DNP ANNUAL REPORT 2006

株主の皆様へDNPの概要特集

部門別情報

持続可能な発展に向けての取り組み

財務セクション

Smart Cards: The Ultimate Information Terminals
P&I Solutions DNPInformation Communication

DNP began developing smart cards in 1981. Today, a quarter
century later, safe and convenient smart cards are known as “theultimate information terminals.” Compared to the magnetic
cards of the past, it is much more difficult to forge a smart cardor to access its information improperly, so it can be used while
maintaining a high level of security. In recent years, smart card
usage has rapidly expanded into a wide variety of fields
including finance, transportation, services, distribution, andcorporate information management.
Over the past 25 years, DNP has developed many programs,
including operating systems that are indispensable tomultifunctional smart cards, application software for biometricidentification and one-time passwords, and drivers for accessing
cards. DNP is the only company in the world that is developing
an operating system for mobile telephone SIM cards that will
also work with MULTOS and Java. Other than producing thechips used in smart cards, DNP does everything fromdeveloping software to manufacturing and issuing cards. In
October 2005, DNP’s card production capacity reached 7.5
million per month.
DNP currently holds about 50% of the Japanese smart card
market, and manufactures and issues almost all of the smart cash
cards used by domestic mega-banks. With software andhardware capabilities functioning in harmony, DNP intends tocontinue to overwhelmingly dominate the smart card market.
Another advantage of DNP is its ability to propose andprovide individualized printing (an example of information
processing services) and comprehensive services related to smart
cards, including online card application processing, and the
production and shipping of various types of sales promotion
tools.
In the future, smart cards are likely to be more indispensable
than ever to daily life. Through dialogue, DNP is quick to
discover the needs of corporate customers and society as awhole. We intend to use our reliable technology to create
concrete solutions to those needs, and to promote our businessof providing safer and more convenient smart cards.

41

A New Challenge Creates ‘Everyday Safety’
Kirin Beverage Corporation

The First-Ever Trial in Japan Was Also
Good for the Environment

At Kirin Beverage, “the spirit of innovation” is an importantconcept. It seems to me that we have always been taking on new
challenges, especially in partnership with DNP.
In 1994, there was increasing demand for milk-based beverages
in PET (polyethylene terephthalate) bottles. In order to provide
stable supplies, we needed to apply safe and reliable aseptic filling
technology to PET bottles. However, at the time, there were only
limited cases in Japan. For consumers’ safety’s sake, we could notallow this experiment to fail — an experiment that was the fruit of
our interaction with DNP, which had been researching aseptic
filling systems since the late 1970s. We cheered each other on with
the idea that we wanted to do something really new, something that
had never been done before. There was a good deal of trial and

Hideo Sekizawa
Kirin Beverage Corporation Senior Managing Director
Senior General Manager, Production & Logistics Division

error on both sides before we succeeded in creating Japan’s first
aseptic filling system for PET bottles, and launched the PET bottle
version of “Afternoon Tea - Milk Tea.” The high-speed PET bottle
filling line that we installed at our Shonan plant in 2000 was thefastest in the world at the time, aseptically filling 900 bottles per
minute. It was also a first-in-Japan experiment. Today, we continue
to innovate, for example by developing formed-in-line bottles forbeverages that are sold warm.
Over the last dozen or so years, Kirin Beverage and DNP havesat down together many times to talk and share ideas. Sometimes
DNP gives us ideas about how to optimize our production
processes. Since DNP has the technological capacity to realize ideas
from both sides, it is very reassuring to have them as a partner.
Using an aseptic filling system requires a slightly larger initialinvestment in capital equipment than a normal system, but because
we use preformed bottles that have not yet been expanded to fullsize, we require fewer deliveries. And because the filling process isenergy-efficient, the system not only lowers our running costs but
also helps preserve the environment. Therefore, it is useful forboosting competitiveness.
So, DNP, what should we tackle next?
42

Kirin Beverage Corporation is Japan’s third-largest cold beverage
manufacturer. Its major products include “Afternoon Tea,” “Namacha”(green tea), “Fire” brand coffee, and “Amino Supli” nutritional
supplement drink. The company is notable for its aggressive businessdevelopment; for example, it was the first company in Japan to adopt an
aseptic filling system for PET beverage bottles, and it developed thelightest 2-liter PET bottles in Japan. Mr. Sekizawa is the engine behind
this corporate climate of trailblazing, and “What should we tackle next?”
is his trademark question.

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

An Evolved Type of Packaging System
P&I Solutions DNP

Lifestyle and Industrial Supplies

DNP began offering aseptic filling and packaging

system form bottles in their own plants from small “pre-systems in response to the desire of food and beverage

forms” supplied by DNP. This system allows beverage

manufacturers to deliver safe and hygienic products to

manufacturers to reduce the cost of purchasing andconsumers. “Aseptic filling” entails filling a sterilizedshipping bottles, and to reduce materials costs and usage

container with sterilized food or beverage, in a germ-

volume.

free chamber. DNP was the first to create such a system

With the third generation, we reduced the timein Japan, when it developed a system for filling single-

required for sterilization. As a result, we raised our

portion containers of coffee whitener in 1978. Since

filling speed from 200 bottles per minute to 900 bottles

then, DNP has expanded applications to a variety ofper minute, achieving the fastest rate in the world. This

packaging types, depending on the contents, including

allows us to make highly productive, highly cost-

paper packages and film pouches.

competitive filling lines.

In 1994, DNP became the first company in Japan to

DNP holds roughly 80% of thedevelop an aseptic filling line for cold drinks in PET

market for aseptic PET bottle fillingbottles. In 1997, the company developed a second-systems in Japan. From the provision ofgeneration of aseptic filling with “in-line bottle

packaging materials to the filling of

forming,” and in 2000, a third-generation featuringcontainers in an aseptic environment,“high-speed in-line bottle forming.” DNP applied its

DNP’s integrated filling lines are an

outstanding aseptic management technology to theaggregate of the Company’s mostevolution of its filling systems.

advanced proprietary technology. These

Before DNP developed its second-generation system,
PET bottles were delivered from bottle manufactures.

sophisticated systems give packaging
new value and new functionality.

However, beverage manufacturers using the in-line
43

Developing Products by Sharing Dreams
Mitsui Chemicals, Inc.

The Partner We Need for Drawing Road Maps

Today, Mitsui Chemicals holds about one third of the
global market for optical filters used in plasma display
panels (PDPs) – that’s the top share in the world.
Historically, we have mainly handled general-purpose
intermediate products, and I think our encounter with
DNP is one reason we were so successful in this field,
which is closer to the end user.
When we first began product development in 2001 andwere searching for a business strategy, DNP proposedusing electromagnetic wave-shielding film for PDPs.
DNP’s offer, to employ sophisticated mesh technology inorder to supply us with large quantities of film in rolls well
suited to mass production, fit well with our own plan.
DNP’s proposal was even more appealing because the film

Akihide Kudoh
Mitsui Chemicals, Inc. Executive Officer
General Manager, Information Materials Division
Functional Chemicals & Engineered Materials Business Groupwould be made on a retooled shadowmask production linewith a good track record, allowing DNP to supply film
more cheaply. As a result of fair and open exchange of
information, we could approach product developmentwith the shared dream of creating a good product, and I
really feel that this is what allowed us to produce a strong
product that was so well received by the market.
I feel that DNP looks at things from the same point ofview as its clients, and has a knack for discovering its
clients’ problems and solving them. Also, because DNP
has close relations with an extremely large number ofcompanies, I think it is very sensitive to market trends. At
Mitsui Chemicals, we want to continue to proactively
develop our business by drawing our own industry
roadmap and making proposals to our customers. I thinkthat very often the new ideas we need for this kind ofdevelopment emerge out of dialogue with companies likeour partner and supplier, DNP. I think there will be aneed for even further evolution in optical filters for PDPs.
As long as we are partners with DNP, I think we will beable to face this new challenge and build each other’s
potential.
44

Mitsui Chemicals, Inc. is a giant, diversified chemical
manufacturer that supplies all kinds of basic materials usedin everyday items in a wide variety of fields, including
electronics, information, pharmaceuticals and health care,
and automobiles. Mr. Kudou is in charge of informationmaterials, an area where there is increasing demand. Heworks in product development and business expansion.

DNP ANNUAL REPORT 2006

株主の皆様へDNPの概要特集

部門別情報

持続可能な発展に向けての取り組み

財務セクション

Window on Information-oriented Society
P&I Solutions DNP

Lifestyle and Industrial Supplies

DNP entered the display products field in 1958, when it developed
Japan’s first shadowmasks for making picture tubes used in color
televisions. The success of those shadowmasks, which “transcended
the boundaries of conventional printing” by applying advanced
patterning technology, made a major contribution to the productionof color televisions in Japan. That success also served as a springboard for DNP to enter a variety of electronics-related fields. After
that, DNP’s business has expanded into products like color filtersand optical films, which came to be used in computers, LC displays,
and plasma televisions as a result of DNP’s broad ties with clientcompanies. Today, DNP’s Electronics segment has grown tocontribute 20% of overall net sales and 30% of operating income.
Electromagnetic wave-shielding film used in PDP front filters is
also a DNP (opto-materials sector) product. This product uses
micro-processing technology to form a thin copper film in a
uniform mesh pattern on top of transparent film. It has an excellent electromagnetic wave-shielding function and a high rate oflight transmission that improves picture quality. Foreseeing theshift to thin, large-screen TVs, DNP began developing electromagnetic wave-shielding film in 1999, and began marketing themin 2001, otherwise known as “Year One for private-use plasma
televisions.” At the start of mass production, DNP held down costsby renovating facilities previously used to produce shadowmasks.
Today, DNP supplies about 40% of the world’s electromagnetic
wave-shielding film, and has attained world-class status in terms ofboth technology and production capacity. Thanks to abundantdialogue with client companies, DNP has been quick to grasp theissues that the market faces and has used that knowledge todevelop technologies and products ahead of the industry, leading
to its success in this field.
Thin screen televisions still account for only about 20% of thedomestic television market. It is expected that as we get closer to2011, when the conversion of ground-based broadcasting in Japan
from analog to digital is scheduled to be completed, the shift
towards thin, large-screen televisions is expected to become more
pronounced than ever. Display products are indispensable in an
information-oriented society. Going forward, DNP will continue
to expand this business by investing in equipment so as not to missopportunities, and by being first to recognize the needs of clientcompanies and consumers and apply that knowledge to productdevelopment.

45

The Driving Force Behind Computing PowerIntel Corporation

The Challenge of Joint Development
Intel has been maintaining a leadership position in the semiconductor industry byrelentlessly driving the development of new technologies following a 2-year cycle. This
near clock-work progress is the essence of the famous Moore’s Law published by Intelco-founder Dr. Gordon Moore in 1965. Moore’s Law predicts that the number oftransistors per unit area doubles approximately every two years and this exponential
growth has contributed phenomenal benefits to the world economy.
Photomask is a critical component that enables the capabilities to pattern and shrink
the semiconductor devices from generation to generation. Intel and DNP have worked
closely together to develop mask technology for many generations. In January 2006, thetwo companies further agreed to extend the collaboration to 32nm node and beyond
including the next generation lithography of extreme ultraviolet lithography (EUVL).
We are very pleased with the ongoing relationship with DNP not only because of its
world leading mask technology, but also because of its quality and customer orientation
as a reliable supplier. We look forward to the continuation and expansion of this winwin relationship well into the future.

Jai Hakhu
Vice president of Intel Corporation and General Manager of Technology
Manufacturing EngineeringIntel Corporation, the world’s largest semiconductor
manufacturer, was established in California in 1968.
Intel has always developed advanced technologies andproducts, and is the driving force behind innovationin the semiconductor industry. Mr. Hakhu joinedIntel in 1997 as Director of Intel Tooling
Operations, which at the time included
responsibility for photomask operations.

46

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

The Cutting Edge of Microprocessing
P&I Solutions DNP

Electronics

The CPU is the “brain” of a computer or cell phone. Its“intelligence” is determined by semiconductors, and DNP
technology supports the photomasks that are indispensable tothe production of semiconductor chips.
Photomasks are transparent glass plates with tiny circuit
patterns etched onto a photoresist coating on their surface.
They serve the same function that original plates do in printing;in other words, they are used to burn integrated circuit patterns
onto silicon wafers. Photomask technology is so important to
the process of manufacturing ever-shrinking semiconductors,
that people say without progress in photomasks, the evolutionof semiconductor chips would be delayed.
DNP began manufacturing photomasks in 1961. For over
40 years, we have worked at the cutting edge of microprocessing and we are proud to claim the world’s mostadvanced technology. Especially in the high-end sector, which
requires advanced, under-90nm technology, we hold the top
market share in the world.
DNP is actively engaged in joint development with severalof the world’s largest semiconductor manufacturers, both inJapan and abroad. As next-generation semiconductors become
increasingly tiny, DNP is being asked to provide technologicalsupport in development projects that blur the lines between
photomask makers and semiconductor makers. DNP uses theknowledge we have gained through these joint development
projects to further expand our own business.
Modern society could not exist without semiconductor
chips – they are used in everything from mobile phones andhousehold appliances tocomputers, automobiles, andaircrafts. At the core of ourconvenient modern lifestyle,you’ll find DNP technology.
* 1nm (nanometer): 10 -9 = 0.000001mm

47

Building “TAIWA*” — P&I Solutions DNP

P&I Solutions

Q What P&I solutions means to DNP

In your “Vision for the 21st century,” you talkA

Q DNP’s strengths

Could you talk specifically about the DNP’s

about “P&I Solutions DNP” as a key concept.

strengths that enable it to offer customers

What kind of solutions do you have in mind?

unique solutions?

Two of our strengths are the printing technology
and information technology that we cultivatedA

We have three broad categories of strengths.
One is outstanding technology – the printing andover many years. By “P&I Solutions DNP,” weinformation technologies that were mentioned

mean making the most of these strengths to offer

before. We have the ability to apply these and tosolutions that only DNP can provide.

combine them.

Generally speaking, the word “solutions” is used

In many areas, DNP products have captured theto mean improving operational efficiency andlargest market share in the world. This proves

solving problems by using tools like informationthat the DNP technology that supports ourcommunication systems. But what we mean byproducts is top class, even from a global stand-“P&I Solutions” is combining printing and infor-

point. Our P&I technologies include technolo-

mation technologies and applying them to agies for processing text, images, and other infor-

broader range of business fields in order to solve

mation, micro-processing and patterning

various problems for all of our customers.

technologies, coating and image transfer

We have already achieved concrete results, andtechnologies, and processing technologies that

we will accelerate this effort in the future. It

add a great deal of value. These technologies canwould not be an overstatement to say that DNP’s

be applied not only to printing on paper, but to a

growth in the 21st-century hinges on this type ofwide variety of fields; they form the basis for

P&I solution.

DNP’s future development.

*“Taiwa” is a process that entails identifying problems and finding solutions through the exchange of viewpoints and ideas.

48

DNP ANNUAL REPORT 2006

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Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

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The Progress
The second type of strength that we have is theorganizational strength that supports our

Q Overall progress in the last five years

Could you give some concrete examples of P&I

technologies.

solutions?

DNP has continued to expand its business fields,
and has grown to be a comprehensive printing
company that is unrivaled anywhere in the world.

A

In the five years since DNP espoused theconcept of P&I solutions, we have implemented

In order to maintain world-class standards in amany such solutions and achieved good results.

variety of fields and combine technologies so we

Here are a few examples.

can offer unique DNP solutions, it is essentialthat we have coordination among many divisions,Leading expansion in the smart card market

including R&D, sales, planning, and production.

In the past several years, a lot of noise was madeIn order to have this kind of coordination, weabout countermeasures against counterfeit cards

laid down a group-wide management structure

and illicit use, and this led to the rapid spread ofand have been reinforcing our organizational

smart card use. DNP had already begun devel-strength.

oping smart cards 25 years ago, and we have

Our third strength is our ability to discern

played a leading role in expanding this market.

customers’ true needs through taiwa, and to

By combining “I” technologies like software

clearly identify issues that need to be resolved.

development and the secure processing of

The printing business is an order-taking

personal data with “P” technologies like cardbusiness. It always consists of customized work

printing and production, we have steadily

that involves close consultation with customers

expanded our market share. Currently, we haveand a good deal of working together.

the orders for almost every smart cash cardThroughout the 130 years of our company’s

issued in the name of a Japanese megabank. We

existence, we have maintained the same businessalso hold a high percentage of the market forstyle – we understand our customers’ needs

other cards, including credit cards and ETC

through taiwa, and respond carefully to each one(electronic toll collection) cards, to the point that

individually, so that we can handle orders that

we produce and issue more than half of the smart

differ from each other. Taiwa has already become

cards used in Japan. We intend to expand ouran integral part of our makeup, and we continue

smart card business further by developing

to work on making it more effective than ever.

software for applications like biometric identifi-

We intend to make the most of the strengths thatcation and one-time password authentication, by

we have acquired through our DNP tradition as

selling low-cost, multi-functional smart cards,

we promote P&I solutions.

and by offering services including ASP services
using DNP’s servers.

49

The Future
Building our Information Processing Services
business

Q Issues and countermeasures

Please explain what issues need to be resolved

We are also continuing to expand our IPS

as DNP expands its P&I solutions business, andbusiness through comprehensive solutions thatwhat countermeasures you are considering.

combine P and I. IPS is a generic name forservices like personalized direct mail, entailingthe processing, printing, and sending of individu-

A

We believe that the biggest issue in thesedramatically changing times is how to getally tailored information. We have obtained

customers to tell us their real problems. In theprivacy mark certification and establishedemergently evolving society of the 21st century,

systems that are fully legally compliant andindividuals stimulate each other, and individuals

solidly secure. This makes it possible for us toand society stimulate each other, to create new

respond very faithfully to our customers’ needs,

value. That new value in turn generates new

and we are continuously expanding our IPS

stimulation. In this kind of society, people arebusiness.

looking for more appropriate, quick, and creative
solutions. It’s important to respond to each

Offering new types of sales promotions

customer in ways that are more carefully tailored

We have also begun to offer broad-based sales

to each customer’s situation.

promotion services whereby we use mobile

Toward that end, it occurs to us that taiwa is aphones and IC tags to link printed material withkey concept to promote throughout our

web sites. For example, consumers can use theircompany. Along with technological strengths andmobile phone camera to photograph an image orcomprehensive strength, taiwa is already one of

the two-dimensional code of a product pictured

our proficiencies, but we believe we need toin a free newspaper, magazine, or catalog, and be

sharpen this skill even further in the future. We

guided to a web site containing details about thefeel sure that deepening taiwa will translate

product or related special offers. As Japanese

directly into growth in P&I solutions and growthcorporations are advertising more aggressively,

in DNP’s business as a whole.

we are receiving more orders by offering newpromotion methods that combine printing withvarious types of other media.

50

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Q Strategic growth fields

Segment Information

Sustainable Development

Financial Section

Active participation in the security field

The range of applications for printing technolo-

Protection of personal data is another businessgies is expected to continue to grow in thefield where we can expect future growth. Even

future. What are the main fields that you are

before Japan’s Personal Data Protection Law

focusing on?

took effect in April, 2005, DNP launched its own
personal data protection promotion system in

A

These are the areas that we are treating as new

1999. We took active steps including thoroughbusiness fields:

control of personal data that we held on behalf ofclient companies, creation of a compliance

Using printing technology to enter

manual, and obtaining Privacy Mark certifica-

regenerative medicine

tion. Using the expertise that we gained throughRegenerative medicine includes artificial cellthese activities, we developed businesses such as

cultivation, aimed at repairing damaged or

consulting for client companies and thediseased tissues and organs. DNP and Tokyo

construction of security-related systems.

Medical and Dental University succeeded in

In February 2005, we founded the Sharedforming capillaries by cultivating vascular

Security Formats Cooperation (SSFC) together

endothelial cells with unique pattern formation

with a large number of companies. SSFC aims totechnology using photo-catalysis. Using theimprove office security standards using smart

success of this joint research as a stepping stone,cards. DNP serves as the group’s secretariat.

DNP aims to develop various new businesses inbiology-related fields.
In the future, we intend to continue to develop
Developing energy business through solar

new businesses in order to achieve further

batteries

growth. At the same time, it is also important forEnergy is an area that will be more and more

us to fulfill our corporate social responsibilities

important to approach on a global scale. DNP

and to enhance taiwa with our shareholders andentered this field by developing a process forwith everyone who has a stake in DNP.

manufacturing low-cost, high-quality electrodes
for lithium-ion secondary batteries. We also planto get involved in solar power generation
systems, which have good prospects as a newenergy source. We have already developed highly
eco-friendly, highly recyclable components forsolar battery modules. We have the ability tomass produce them and to respond to growing
demand in the future.

51

Segment Information

52

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

CONTENTS

54

63

72

Information Communication

Lifestyle and Industrial Supplies

Electronics

54

63

72

Financial Results

Financial Results

Financial Results

56

65

74

Business Strategies

Business Strategies

Business Strategies

59

68

78

Topics

Topics

Topics53

Information Communication

Financial Results by Segment■ Financial Highlights■ Summary of Financial Results(in billions of yen, %)Sales of books and magazines floundered, butmagazine sales increased as orders for new magazines

March 2006

March 2005

March 2004

¥662.5¥640.7¥629.8Operating income

51.0

49.4

43.7

Operating income margin

7.7%

7.7%

6.9%

Net sales

and free newspapers and magazines made up for declines
in the circulation of existing magazines and lower unit
prices. In the end, overall sales were little changed fromthe previous year. In commercial printing, net sales
increased by about 5%, with orders for flyers and■ Net sales (left)

pamphlets growing as companies waged vigorous sales■ Operating income (right)

promotion campaigns. Operating income from commer-(in billions of yen)cial printing also increased, since growth in net sales and

600

120

500

100

400

80

about 10%, due to good growth in sales of smart cards

300

60

and information processing services (IPS). Overall, net

200

40

sales from Information Communication grew by 21.8

100

20

billion yen, or 3.4%, to 662.5 billion yen.

cost reductions made up for lower unit prices. The
business forms sector fared well, with net sales increasing

Operating income was affected by higher material
0

0

04

05

06

costs and lower unit prices, but thanks to aggressive
cost-cutting measures and the contribution of highadded-value items like smart cards and IPS, operating■ Business Environment

income increased by 1.7 billion yen, or 3.4%, from theyear before to 51.0 billion yen. The division’s operating

In calendar 2005, Japanese domestic publishing sales
declined 2.1% year-on-year, resuming a long downward

income margin was unchanged from the previous year,
at 7.7%.

trend that had been interrupted the previous year. Sales

Information Communication contributed 44% ofby advertising companies rose 2% in fiscal 2005, contin-

DNP’s total net sales, and 40% of operating income.

uing the previous term’s year-on-year rise. However,factors that restrained profits – such as increasingmaterial costs and downward pressure on unit prices from

Books and Magazines
The monetary value of publishing sales from January

intensified competition – were more prominent thanto December 2005 decreased 2.1% from the previous

ever, and made the industry environment very tough.

year to 2,196.4 billion yen, resuming its downward trend
after rising in 2004 for the first time in eight years. In
calendar 2005, book sales declined by 2.5% to 919.7
billion yen as new books dominated the best-seller list
while few high-priced books became hits. Sales ofmagazines were sluggish all year long due to higher

54

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

penetration of Internet access and free newspapers andthermal cards to take the place of scratch cards, and sales

magazines, the folding of small and medium-sizedcampaign packages.

bookstores, and the decline in the population of young

As a result, sales of flyers and pamphlets were good,people. Magazine sales declined by 1.8% from the year

and net sales related to the commercial printing sector

before to 1,276.7 billion yen, the eighth consecutive year-

rose 5% from the previous year.

on-year decline.
From April 2005 to March 2006, 192 new magazines
were launched in Japan, a decline of 32 from the sameBusiness Forms
Sales of ledgers continued their shrinking trend due toperiod a year earlier. DNP received orders to print 24% ofcorporate cost-cutting and ledger consolidation: althoughthese, or 47, compared to orders for 48 new magazines theorders were boosted by demand related to bank mergers

previous year. On the other hand, 116 magazines, 87 fewer

and the enactment of the Personal Information Protection

than the previous year, discontinued publication during theAct. The increase failed to make up for the lack of theyear. DNP had been printing 33 of these, or 28%.

previous term’s special demand arising from the mergers

Given the long-term slump in sales of magazines,of major non-life insurance companies. Meanwhile, IPS

which account for about 60% of Japanese publishingorders increased because credit card companies started

sales, we focused our sales efforts on new magazines andissuing full-color billing statements. Thanks to good

free newspapers and magazines, absorbed the impact ofgrowth in IPS and smart card sales, overall net sales in thelower circulations and lower unit prices, and maintained

Business Forms area increased 10% year-on-year.

net sales at the previous year’s level.

Major applications for which we have developed IPS
include billing statements for mobile phones, credit

Commercial Printing
Advertising companies enjoyed good sales in fiscal

cards, and transport services, non-life insurance certificates, application form issuance, bank and securities

2005, for the second year in a row. Thanks especially tocompany statements, on-demand printing of educational

the startup of Internet commercials in conjunction withmaterials for correspondence schools, and ticket issuance.

greater penetration of broadband access and the begin-

Backed by our highly reliable security systems, we havening of video transmission services, expenditures forcontinued to achieve good growth in IPS, which entails

Internet advertising grew a spectacular 55% over thethe storage of massive amounts of personal data, and theprevious year. At the same time, competition was intense

processing, printing, and even the transmission of data on

and the business environment remained harsh. In ourbehalf of customers.

effort to secure profits, the cost-cutting measures we

DNP holds a roughly 50% share of the Japanese smart

implemented included improving productivity bycard market. We became the number one player in the

reducing lead times and systematically maintaining

industry by developing the MULTOS operating systemproduction equipment, strengthening our cooperativeand various types of application software. Especiallyframework by offering technical guidance and consulting

when it comes to smart cards for banks, we hold more

to outsourcing providers, and condensing inventories inthan 90% of this market, because of customers’ greatorder to reduce outside warehousing fees.

appreciation for our accumulated card issuance expertise

Regarding P&I solutions that make the most of bothand our biometric technology.

printing technology (PT) and information technology

We have completed the implementation of measures(IT) in order to build up new business fields, we built anthat will allow us to meet future demand for smart cards,

EC site linked to sales promotion items aimed atwhich we expect will increase even further. As of October

expanding site promotion, developed a sales promotion

2005, we had invested 3.0 billion yen in our Ushiku and(SP) tool management system for shops for package

Nara plants, increasing production capacity from 5.5

contracts, and actively promoted other new ideas likemillion cards per month to 7.5 million.

55

Information Communication

Business Strategies

Due to the advance of an emergently evolving society and rapid changes in information infrastructure, information
distribution is becoming more important than ever. As media become increasingly diverse, we must be prepared tohandle not only paper publications, but also electronic media, including information distributed via the Internet. By
accurately assessing the latest trends and combining the printing technology and information technology that DNP has
accumulated over many years, we intend to make the most of our strengths, establish information distribution mechanisms in general as our field of business, and develop new business solutions that benefit consumers and corporateclients, in order to expand our business.

Fusion of Printing Technology and Information Technology
We will combine the printing technologies that DNP has cultivated since our founding with information technology that we have been accumulating since the 1970s so that we can offer unique solutions tocorporate customers and consumers. When appropriate, we will use M&As or corporate alliances toderive maximum benefits from these solutions, or to speed up the commercialization of new businesses.

Production Solutions and Business Design Solutions
We combine production of diverse media and related services to come up with Production Solutions
that resolve client companies’ problems.
We will make use of DNP’s planning capabilities and technologies in Business Design Solutions thatmeet client companies’ needs by creating new fields within their businesses.

Developing New IT Technology and Ensuring the Security of Information
Through our printing business, we acquired expertise in handling massive amounts of data as well as
knowledge and technology needed for maintaining the security of important information. We plan to use
these capabilities as a springboard for developing new businesses in which we offer information management solutions that include developing new IT technologies, streamlining customers’ information-related operations, assisting sales promotions, and maintaining data security.

56

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief■ Major Policies

Special Feature

Segment Information

Sustainable Development

Financial Section

entire value chains, including production, distribution,
and account settlement.

Expanding our business through P&I Solutions
Until recent years, production was our main business.

In addition, we will actively offer solutions for
managing operations and improving efficiency – issues

Now we are evolving a step further, expanding ourthat concern every corporation, regardless of its field of

solutions-based business by combining our corebusiness.

technologies – printing and information – so that we canoffer innovative solutions that only DNP can provide.
In this segment, we have come up with a variety of

Total SP solutions
We will expand our participation in the sales promo-

solutions that increase the added value of products,

tion and direct marketing markets by supporting our

including project planning, design, and marketing strate-

customers’ promotions and customer relationshipgies. In the fiscal year ended March 2006, we responded

management (CRM) through a combination of services

to corporate demand for direct marketing by creating alike data processing and on-demand functions using

new organization that promotes a new, comprehensive

digital printers.

information communication business covering everythingfrom the processing of personal data and promotional
material (text and images), digital printing and postprocessing to shipping. We also combined our IPS

We will also actively engage in new areas of businessoutsourcing by supporting back office operations.
In addition, we will develop next-generation communication methods using IC tags, electronic paper, etc.

(Information Processing Solutions) businesses – mainly
smart cards, electronic forms, and other account settlement-related solutions. By doing so, we increased our

Security solutions
DNP has fostered security-related technology for many

ability to provide comprehensive solutions to customers’

years. We plan to offer more security solutions by using

problems, based mainly on DNP products and services

smart cards for computer network security and roomsuch as IC tags, on demand printing, and personal DM.

entry/exit control systems. In 2005, we established theWe aim to actively offer solutions that will spawn new

Shared Security Formats Cooperation (SSFC), a corporate

ways for our customers to do business.

alliance aimed at realizing higher-security office environ-At the same time, as media diversify and the businessments, which is currently working out shared formats forenvironment changes, we are developing solutions aimed

smart cards and other security devices. As the secretariat of

at businesses that handle digital contents such as

this group of some 95 corporations (as of April 2006),

electronic book and music distribution. We intend to

DNP aims not only to help establish higher-security

help build an interactive and emergently evolving society.

environments, but to expand our security solutions

In the future, we aim to boost the proportion of ourbusiness by setting the de facto standard for the industry.

solution-based business and expand profits.
New businesses/ developing new markets throughBy strengthening ties between product categories,

global expansion

we will target our customers’ entire value chain

In addition to further developing the Asian market

In the future, we will focus on strengthening ties

through the local subsidiary that we set up in Shanghai inamong business divisions and prepare the ground so that

2005, we intend to take a global approach to new market

we will be able to not only propose operations anddevelopment for Information Communication, as we have

solutions tailored to each customer’s business field, but

done in other divisions. For example, we will introduce

also to offer comprehensive services. By providing

GMM (Global Metamedia) to optimize overseas produc-

services related to IC tags, IPS, and smart cards, wetion by using our global network to send data to beintend to expand businesses that target our customers’

printed to printing companies all over the world.

57

58

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Topics■ Leading the Rapidly Expanding Smart Card
Market

DNP plans to conduct field trials for various applications, including on-line banking, securities trading, andshopping, as well as a variety of other services that

DNP began working with smart cards in 1981, andrequire customer authentication, in order to offer thistoday controls about 50% of the Japanese smart card

type of authentication service on a commercial basis.

market. DNP produces and issues about 90% of thesmart cash cards given out by Japanese megabanks, banks,

New ASP service enables addition of software toand trust banks. DNP has also won about 50% of themultifunction smart cards already in circulation

market for contactless cards, which are increasingly in

DNP has developed an ASP service called “DNP

demand for such applications as employee IDs, railroad

PlusAppli” that enables the online addition or deletion ofpasses, and electronic money.

software applications to outstanding multifunction smart

In the fiscal year ended March 2006, we made themost of the technical expertise that we had accumulated

cards.
One of the advantages of multifunction smart cards

to date in order to greatly expand smart card-related

that have a MULTOS or JavaCard™ operating system isbusinesses. Going forward, we intend to continue to leadthe possibility of adding or deleting software. So far,the smart card market as we focus on such activities as

however, no one has offered a service that adds softwaredeveloping all types of software, providing ASP services

to cards already in circulation. By connecting DNP’s

using our data center, and marketing low-cost, multi-

Smart Card Data Center with smart card reader/writersfunction smart cards.

in financial institution branches, DNP PlusAppli can add
or delete software applications remotely. The service canSoftware development aimed at beefing up security

add software for biometric identification, one-time

DNP created a system that uses a one-time password

password authentication, or other new types of software.

generated by a smart card to improve identification of net

In the future, DNP intends to offer more services thatbanking customers. The new system is designed to be

are indispensable to reinforcing security or improving

used alongside existing IDs and passwords to add anothercustomer service in other ways.

level of security for net banking users, just as many banks
have added biometric means for identifying ATM users.
Bank of Tokyo-Mitsubishi UFJ, Ltd. plans to begin afield trial of the system in the spring of 2006.

Introduction of low-cost, multifunction smart cards
During the fiscal year through March 2007, DNP
plans to start selling two low-cost, multi-application
smart cards that contain no authentication software andonly minimal functions, such as cash card or credit card
functions, at the time of issue. DNP was able to bring
down the cost of the cards by improving the performanceof their IC chip.

One-time password
authentication system
uses a dedicated device andsmart card to display passwords
that are valid only one time

To date, multi-application smart cards have beensomewhat more expensive than “native cards” that can
only run software already loaded at the time the card isissued. However, in April 2006, DNP began marketing59

Information Communication

low-cost JavaCards™ (DNP Standard-J AxV4), and into the corporate network using an employee ID smart

August the company plans to launch a low-cost MULTOS

card for identification.

card (DNP Standard-M 4.218a). After the cards have been

The system uses smart cards compatible with theissued, their functionality can be adjusted by using DNP

SSFC standard format. It checks for unauthorized print-

PlusAppli to add or delete software as needed.

outs, writing of data to outside memory devices in violation of corporate security policy, or other suspicious■ Developing Information Security Services

actions that are not part of ordinary operations. The
server can automatically detect an unauthorized opera-

The establishment of information security systems

tion, inform the system administrator, and interrupt thethat prevent the leakage of corporate data has become aoperation. DNP is marketing the system as an effective

pressing need since Japan’s new Personal Information

way to prevent information leaks by company insiders.

Protection Act and e-Document Law took effect in April
2005. The office security market is expected to reach 100
billion yen, with most of that being spent on the

Extending personal data protection to the hiring process
CP Design Consulting Co., Ltd., a DNP subsidiary

construction of systems to protect companies that handle

that consults on matters related to personal data protec-

sensitive documents. DNP sees opportunity in this situa-tion, has introduced an aptitude test for potential

tion, and is working on developing a broad range of

employees to facilitate analysis of such traits as inclina-

services related to information security.

tion to obey the law.

SSFC participation rises to 95 companies

personnel with a strong awareness of legal compliance in

A growing number of corporations want to hire
The number of companies participating in Sharedorder to prevent information leakage at the hands of their

Security Formats Cooperation (SSFC), a corporate

employees. However, job interviewers are reluctant to ask

alliance aimed at creating standards for office security,questions that delve too deeply into a candidate’s person-

has grown from 22 at the time of its formation inality out of respect for personal privacy, and this makes it

February 2005, to 95 as of April 2006. DNP serves as thedifficult to assess a candidate’s attitudes toward obeying

group’s secretariat.

the law. The test was developed by Jinsoken Co., Ltd. andBy sharing some smart card data formats and devel-

has been used by large number of corporations. Because it

oping products for member companies based on thoseis difficult to guess the intention of the questions, which

standards, SSFC aims to improve both the conveniencemust be answered from a variety of standpoints, the test

and effectiveness of office security systems. The goal is to

makes it possible to get an accurate reading of a candi-make it possible to have a single smart card that serves as

date’s character. CP Design Consulting expects to take inan employee ID, tracks room entry and exit, activates

about 1 billion yen in sales during the fiscal year throughprinters and computers, and communicates with

March 2007, based on 100 companies adopting the test.

monitoring cameras, among other functions. SSFC
member companies each bring their various abilities to■ Expanding Applications for Digital Pens

the joint development of security products and systems.
Rapid expansion of digital pen solutions
Developing a system for continuous network
monitoring: “Who is doing what right now on which

many situations where there is a need to digitize

terminal?”

handwritten information, including the grading of tests at

DNP and Intelligent Wave Inc. have jointly developed60

DNP has been marketing digital pen solutions forcram schools and prep schools, preparation of estimatesa system that allows a company’s management to monitor

by moving companies, and recording of equipment

how employees use computers after they have logged inmaintenance operations. A miniature camera inside a

DNP ANNUAL REPORT 2006

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DNP in Brief

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digital pen reads the dot pattern on special paper andto be moved, a two-dimensional code printed on the

instantly converts letters and shapes into digital data as

triage tag is read by a mobile phone that accesses thethe paper is being written on, thereby increasing opera-

server and registers information, such as the name of thetional efficiency and reducing costs. DNP wants tomedical facility where the patient will be taken. This

expand this business as a “P&I solution” that combines

system makes it possible to get accurate information

information technology and the printing of special paper

about a patient’s location at any given time and therefore

with a microscopic dot pattern.

to respond quickly to inquiries, as well as allowing

DNP also developed a print on-demand system

medical staff to focus on treatment.

allowing users to print the specialized paper used with

Starting with emergency medical care, digital pen-

digital pens on a standard office printer, as needed. This

based solutions are being used in an increasingly wide

system has already been adopted on a trial basis for grading

range of applications.

tests, and DNP plans to expand its use in the future.

■ Expanding Mobile Phone Services
Using digital pens to boost the efficiency of emergency medical services

Development of mobile phone “clipping” system for

DNP collaborated with Aichi Medical University

interesting products

professor Hiroshi Noguchi on the trial operation of a

DNP has developed a system that allows shoppers todigital pen-based data entry system used by volunteer

use their mobile phone to scan a two-dimensional code

first aid staff for recording their work logs during thefrom a product that caught their eye in a store and save it2005 World Exposition held in Aichi, Japan. This was thein a folder containing their personal favorites on a server.

first time in Japan that digital pens were used inSince the two-dimensional code can distinguish between

emergency medical care. Information about patients’

individual retail outlets and products, the system cancondition that was handwritten at the site of injury orprovide information about discount sales and different

illness was instantly digitized. This raised the efficiency

outlets belonging to the same chain. DNP intends toof first aid activities by making it possible to centrally

operate the system on a trial basis at venues including retailmanage information, and thus to analyze trends instores and product exhibitions, with an eye toward begin-

accident occurrence and prevent recurrences.

ning marketing in the fiscal year through March 2008.

In conjunction with Associate Professor Takashi
Komura of Fuji Tokoha University and Catena

New service links printed material with mobile

Corporation, DNP also developed a system for tracking

phone web sites

injured people in the aftermath of a major disaster. The

Mobile Impulse Co., Ltd., a wholly-owned subsidiary ofsystem uses special triage tags that are compatible with a

DNP, has begun a service that retrieves product informa-digital pen. Information about injury victims recorded ontion registered on a server in response to the transmission

site is digitized and sent to a server. When the patient isof a photograph or other image of the product. Consumers

Product “clipping”
Digital pen solution
Special triage tag and digital pen used in the
injured person tracking system

The two-dimensional code on a product tag isread with a mobile phone camera and the
product is registered as a favorite

61

Information Communication

can use their mobile phone to photograph a productimage from a catalog, magazine, free newspaper, or similar■ Accelerating Development of Businesses that
Use IC Tags

publication, and send it to the server as an e-mail attachment. The server’s image recognition system thensearches its database and responds with information about
the product. This system is easier to operate than earlier
systems that required the embedding of an electronic
watermark in the photograph or the printing of a twodimensional code, as it can be used with existing images ofthe product. The company is focusing its marketing
efforts on distributors and manufacturers who want togive a boost to mail-order sales, promotional campaigns,
or special events, etc.

■ New Blog-linked P&I Business
Daily broadcasting of trendy terms

Using IC tags at points of purchase
DNP and Hankyu Department Stores co-developed apoint-of-purchase (POP) advertising system that uses IC
tags to improve customer service by promoting communication between customers and sales clerks.
When a customer picks up a piece of merchandise, areader/writers installed on the shelf automatically reads the
product’s IC tag and shows information about the producton a nearby touch-screen. The system is being used on a
trial basis in the men’s shoes department at Hankyu’s Umeda
store in Osaka. Going forward, DNP and Hankyu intend tocome up with more effective display methods so they canmore efficiently satisfy customers. DNP plans to use theknowledge that it gained through this joint development
project to sell similar systems to other retailers.

DNP has developed a system that extracts trendy
terms popular among bloggers and publishes them on
the “BLOG360” web site operated by DNP subsidiary
MyPoint.com Japan.
In the past few years it has become relatively easy toestablish a web site, and there has been a sharp rise in thenumber of people using blog services that facilitate theposting of material in a diary format. “BLOG360” treats
the topics addressed on blog sites as an important formof word-of-mouth information. Every day, the site
displays rankings of the keywords that appeared mostoften in blogs along with graphs tracking trends in their
popularity, and broadcasts lists of terms related to thetrendiest topics. The system collects RSS files(containing such information as page titles, summaries
and update times) transmitted by blog sites and uses a
proprietary method to extract keywords and rank them.
MyPoint.com Japan aims to expand advertising andmerchandise sales by attracting more visitors to the site.

62

Developing management systems using IC tags
DNP and Ozaki Shoji, a major manufacturer of school
uniforms and other apparel, have co-developed a system thatuses IC tags to track individual rolls of cloth. A rewritable IC
tag containing the material code, width, and length isattached to every cloth roll. Portable reader/writers are used
to record the information when the cloth is first received,
and to update it each time it is cut. The system makes it possible to efficiently manage materials and makes stocktaking
much easier.
DNP also worked with Yorks Co., Ltd. to develop an IC
tag-based system for real-time control of glove manufacturing. IC tags are issued with order details such as thetype of material to be used, processing methods, delivery
date, and person in charge. When an IC tag is passed in
front of a tag reader, its monitor displays information about
the status of processing. Production is controlled by
selecting the next process.
DNP is pushing the development of IC-related businessby expanding fields of use for the tags.

BLOG360

IC tag-based
inventory control
systemEvery day, BLOG360 broadcasts
rankings of the keywords mostfrequently used in blogs; clicking
on a keyword displays a graph ofits popularity over time

An IC tag attached to eachroll and an IC tag
reader/writer are used to
track information about
individual cloth rolls

Message to
Our Shareholders

DNP ANNUAL REPORT 2006

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Lifestyle and Industrial Supplies

Financial Results by Segment■ Financial Highlights■ Summary of Financial Results(in billions of yen, %)While there were signs of recovery in personal
consumption, a harsh business environment continued

March 2006

March 2005

March 2004

¥480.0¥450.0¥426.1

Operating income

37.6

36.0

32.4

Operating income margin

7.8%

8.0%

7.6%

Net saleswith rising materials costs. Net sales in the Packaging and
Decorative Materials areas increased nicely, while sales ofIndustrial Supplies grew sharply, mainly because of
growth in optical films. Net sales for the segment
increased by 30.0 billion yen, or 6.7% over the previous■ Net sales (left)

year to 480.0 billion yen.

■ Operating income (right)

Operating income was affected by the increase in(in billions of yen)materials costs, but the division’s operating income

600

120

500

100

400

80

supplies and highly profitable, environmentally friendly

300

60

decorative materials, and to the success of cost-cutting

200

40

measures. On the other hand, the operating income

100

20

margin dipped 0.2 percentage point to 7.8% because of00increased by 4.4%, or 1.6 billion yen, from a year earlier
to 37.6 billion yen thanks to increased sales of industrial

increased costs.
04

05

06

Lifestyle and Industrial Supplies contributed 32% of
DNP’s overall net sales and 30% of operating income.

■ Business Environment

Packaging
Packaging sales grew 5% over the previous year.

Regarding domestic consumption in calendar 2005,

Although sales of paper containers declined, sales ofalthough the year-on-year growth rate of convenience

flexible packaging and paper cups increased, and sales ofstore sales slowed to 1.0%, the amount of net sales

pre-formed bottles rose sharply. Sales volumes of pre-continued growing. Department store and supermarket

formed bottles – test tube-shaped primary products usedsales declined by 0.6%, which was a smaller rate of decline

for making PET bottles – have been growing inthan the previous year. Overall commercial sales increased

conjunction with the increasing use of aseptic bottle-

by 2.6% and overall retail sales also increased, by 1.1%.

filling systems.

Housing starts rose for the third consecutive year, by

Operating income from this sector was strongly

4.7% from a year earlier. Nevertheless, falling unit prices

affected by increases in prices for films and resins, which

and increases in materials cost continued to affect profits.

we have been working on passing on to customers. In theend, the operating income margin fell slightly from theprevious year.

63Lifestyle and Industrial Supplies

Decorative Materials
Sales of decorative materials grew by 4% over theprevious year. Strong sellers included eco-friendly,

electromagnetic wave-shielding film used in theirhealth-friendly “Safmare” decorative sheets and metallic

manufacture. DNP holds the top share – 50% of theprints. Exports, primarily Europe-bound, also did well.

market – in “etching mesh-type” film, which has superior

Profits rose due to the success of continued aggressive

electro-magnetic wave shield performance and consti-

cost-cutting measures and the higher proportion of sales

tutes 75% of the market for electromagnetic wave-of high added-value, environment-friendly products.

shielding film.

Eco-friendly products are made of non-PVC basematerials, which do not emit dioxin during disposal.
DNP developed its own method of surface processing
using electron beams, allowing us to eliminate the use ofsolvents that can cause sick-house syndrome. These
products have been very well received by the market.
Industrial Supplies
This term we enjoyed a sharp growth of 15% in salesof industrial supplies. Sales of ink ribbons for color
printers increased, due to demand for use in householduse personal printers and self-service printers installed at
mass retailing outlets. Sales of all kinds of optical film
also increased, in conjunction with expanded demand forthin displays.
Sales of ink ribbons for facsimile machines continued
the previous term’s shrinking trend, although ribbons forcolor printers grew to accommodate the expanded market
for printouts of digital photos, including those taken withmobile phone cameras.
DNP supplies ink ribbons for portable, home-use,
dye-sublimation photo printers on an OEM basis, andalso supplies ink ribbons for commercial-use dye-sublimation printers that are becoming popular as KIOSK
terminals because they are cheaper and work faster thansilver halide-type printers.
DNP supplies its main optical film product – antireflective film used in LCDs – to all deflector plate
manufacturers, and we hold a 75% share of this market.
Demand for antireflective film is expanding, largely foruse in LCDs, but at the same time there is pressure tolower prices, so we improved production efficiency. In
May 2005, we also reinforced the new production line at
our Okayama plant, boosting production capacity from 5
million m2 per month to 8 million.

64

Due to the rapid spread of PDPs (plasma display
panels), there has been a sharp increase in demand forDNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Business Strategies

DNP’s lifestyle and industrial supplies segment develops businesses aimed at realizing a more prosperous andemergently evolving society, while giving priority to functionality, environmental responsibility, and adding greater value.
We are working on boosting sales in this segment both in Japan and overseas. In the packaging and decorative materials
sectors, our aim is to secure stable growth by developing products that focus on functionality and environmental
concerns. In the recording media and opto-materials sectors, we aim to actively develop products with high added value
and new categories of products, in order to develop new markets.

Functionality and Environmental Responsibility
We will be guided by the goals of universal design and environmental responsibility as we developfunctional, environmentally friendly products that meet consumers’ demands for better health, greater
safety, and more comfort and convenience.

Adding Greater Value; Shifting into Growth Fields
Coating technologies have already sparked significant change and expansion in DNP’s business. Using
these as core technologies, we will explore additional uses for printing technologies and step up development of products and services with high added value. At the same time, we will shift our emphasis
towards fields with future growth potential.

Developing New Businesses in Industrial Supplies and Related Fields
We will take a broader view of the market and create new businesses by developing advanced anddifferentiated technologies and products in growing fields like electronics, energy, and information
media supplies. At the same time, we will continue to create new business models that make use of
corporate alliances.

65

Lifestyle and Industrial Supplies■ Major Policies

ties for producing PET bottle pre-forms in order toexpand this business.

DNP’s industrial supplies business will actively invest
in fields related to all types of displays
In the opto-materials sector, we will actively invest andgreatly expand production capacity for optical films used

Decorative materials business to focus on eco-friendly, high value-added products
Because we cannot expect a sharp increase in demandin displays, as we expect to see rapid growth in thisfor residential construction in Japan, our decorative

market in the future. DNP is already the world’s largest

materials business will seek to secure profits by adding

producer of this type of film, and we plan to double ourmore value. We will expand our Super Egos line of highly

production capacity by building a new, 15.0 billion-yen

scratch-resistant, soil-resistant, environmentally friendly

plant in Mihara, Hiroshima Prefecture, to operate indecorative sheets, and our Ecostandard WS Safmare line

conjunction with our existing Okayama plant. We expect

of non-PVC decorative sheets for residential interiors.

that this expansion will further solidify our hold on about

Also, we will work aggressively to boost sales in overseas

80% share of the world market for this type of film.

markets where there is strong demand for decorative

Concerning recording materials, one of DNP’s
responses to rapid growth in the digital photo market was

sheets used for covering furniture, etc.
We intend to further enhance our product lineup while

to reach a basic agreement with the Konica Minolta

keeping the focus on this type of environmentally friendly,

Group (Konica Minolta) on the transfer to DNP ofhigh value-added products, and to actively market our

Konica Minolta’s ID imaging business and domestic

products in the United States, Europe and the rest of thephoto-related product sales business.

world. In addition, we will use the Living Space Analysis
Center that we established in our Okayama plant to boost

Reinforcing our lineup of functional, environmental-

solutions-based businesses in the field of residential

ly friendly packaging products

environments, for example by offering measurement andAs Japan’s birthrate is declining, we cannot expect any

assessment of living environment quality.

significant growth in overall demand for our packaging
products, which consist mainly of food packaging.
However, increasing concern over environmental preser-

Starting with the establishment of a joint venture forvation and food safety is spurring demand for new types

the post-processing of ink ribbons in France, we haveof functionality, which in turn is creating new businessbeen expanding our overseas presence and will continue

opportunities for us. We have enjoyed steady growth into build optimal production networks aimed at markets

demand for products designed to use less plastic, and forthroughout the world.

systems that allow client companies to save money or
reduce environmental impact in their manufacturing
processes. In response to consumer concerns about foodsafety, demands for tracing services, i.e. managing databases containing information about food products’ ingredients, processing and distribution, are increasing. In the
future, we aim to continue to respond flexibly to market
needs like these and shift toward products with evenmore value-added functionality, in order to boost ourcompetitiveness.
Another area of technical strength for DNP is aseptic
container-filling systems. We plan to reinforce our facili-

66

Developing new markets through global expansion

DNP ANNUAL REPORT 2006

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Special Feature

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Financial Section

67Lifestyle and Industrial Supplies

Topics■ Promoting the Development of Safe,
Easier-to-Use Packaging Products

Development of new vapor deposition films forvarious uses that guard against moisture and oxygen
Using vapor deposition technology that it developed

New facility to aid in development of easy-to-use

itself and special coating technology, DNP has developed

packagingtwo new transparent, vapor deposition films that serve as

DNP established a facility in Namba, Osaka, for evaluating the user friendliness of merchandise packaging.
“PUL” (Package Usability Laboratory) contains astrong barriers against moisture and oxygen. The films
make it possible to see package contents and to extend
shelf life.

normally equipped kitchen unit, with water supply, a

DNP developed IB-ON-UB and IB-ON-FRC for

sewage line and kitchen utensils. Test subjects use

wrapping foods. Made of nylon, they can pass through amerchandise in an environment that resembles their own

metal detector and can be heated in a microwave oven.

home in order to more accurately assess usability and

They are strong and resistant to tearing. DNP intends toother characteristics. Since October 2004, DNP has been

expand sales by marketing them for use in small packets

operating its “Package Usability Survey,” a consultingof salad dressing, sauces and other liquids, and forservice aimed at user-friendly package development based

commercial packages of ready-made foods.

on ergonomic and cognitive science. DNP establishedDNP is also actively marketing IB-PET-PXB film as a

PUL to make it possible to conduct faster, cheaper, andreplacement for aluminum foil. It can be used in a wide

more thorough testing and analysis.

variety of fields, including nutritional supplements,

DNP aims to increase sales of its consulting services

medical uses such as kits for detecting bacteria, electronic

by supporting the development of products that are easiercomponents including silicon wafers and printed wiring

to use and deliver greater customer satisfaction, including

boards, industrial materials, and foods.

from the standpoint of universal design.
Receipt of Packaging Institute award for
retort food pouch
DNP’s retort food pouch “untouch-through stand-up
pouch” was awarded the “29th Kinoshita Award for
Research and Development,” sponsored by the Japan
Packaging Institute.
The Research and Development Award recognizes
A consumer tests package
usability at PUL (Package
Usability Laboratory)

notable success in the research and development of
packaging technologies or streamlining and improvementof packaging processes. DNP’s retort food pouch wasassessed on its overall merit, and received the prize
because it can be heated unopened in a microwave oven,keeps out oxygen and moisture after sterilization, isextremely easy to open, is highly impact-resistant and has
excellent seal performance.

68

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief■ Working Harder to Make Health-Friendly,
Environment-Friendly Decorative Materials

Special Feature

Segment Information

Sustainable Development

Financial Section

DNP’s “Grandmode” is a high-grade, eco-friendly
decorative material that uses EB (electron beam) coating
technology unique to DNP. EB coating hardens resin by

Renewal of strategic showroom for

exposing it to an electron beam. Compared to products

decorative materials

coated with urethane or UV resin, EB coated products are

In June 2005, DNP updated its VOXART showroom

highly scratch, stain and fade-resistant, more durable andfor decorative materials, which serves as a strategic basepractical, and excel in terms of stable quality. EB coating

for offering comprehensive solutions for residential space,technology is sufficiently environmentally friendly to be

based on the themes of health and ecology.

used for next-generation products: It uses less energy

Consideration for health and the environment is vital

during manufacturing, produces less CO2 emissions, andfor decorative materials. This includes reduced use ofdoes not require the use of solvents. DNP will seek toresources, energy efficiency, minimizing damage to theboost orders for a wide variety of applications, both

environment during production and disposal, and avoid-

residential and nonresidential.

ance of volatile organic compounds that can cause sickhouse syndrome. The new showroom allows visitors to see

VOC emission measuring service fordecorative materials in use, with a focus on DNP’s eco-automotive interiors

friendly products. DNP intends to boost sales of decora-

DNP has developed technology for measuring

tive materials by reinforcing its ability to propose solutions

emissions from volatile organic compounds (VOC) used

for a wide variety of buildings, including condominiums,

in components of automobile interiors, and has started asingle-family homes and other residential settings, hotels,

measurement service for components and materials on

offices, hospitals, and nursing care facilities.

behalf of automobile manufacturers.
Since 2002, DNP has been measuring VOC emissions
from its own decorative materials. In 2003, it became thefirst Japanese company to receive third-party certification(ISO/IEC 17025) for VOC measurement, and began anemissions measurement contracting service. In February

VOXART Decorative
Materials Showroom
Updated base for proposing
comprehensive solutions for residential spaces

2005, the Japan Automobile Manufacturers Association
adopted a resolution regarding reduction of VOCemissions. Automakers set emission standards and beganasking parts and materials makers for VOC emission
measurements. DNP used the technology that it had

Introducing one popular wood-grain material

already cultivated to start a VOC emission measurement

after anotherservice for automotive interior parts, which promises to be

Today there is increasing demand for comfortable anda growing market. In the future, DNP intends to expand

relaxing interiors. DNP is responding to this demand by

this business to many other fields, including consumer

developing and actively marketing its own brand of wood-electronics.

grain decorative materials, using its own technology.
“Elio Sheet Steel WS Selection” is a DNP-brandwood-grain surfacing material that is widely used in places
where building codes require nonflammable materials,
such as condominium entrance doors, and room partitions
and internal doors in hotels, offices, hospitals and nursing
care facilities.

69

Lifestyle and Industrial Supplies■ Starting Mass Production of New Surface
Films for Thin Televisions

Expansion of anti-glare film plant
We invested about 5 billion yen to build a new facility
at our Okayama plant. In May 2005, we began operating

Launching mass production of new surface films forthe new production lines, which had more than double

LCD and plasma display televisions

the plant’s existing production capacity.

In 2005, DNP developed new surface films for use in

In order to meet rapidly growing demand, we plan to

LCD and plasma display televisions. Compared tobuild a new plant in Mihara, Hiroshima, for manufac-

existing products, DNP’s films do a better job of reducing

turing anti-glare film for flat-panel displays. Since 1993,

reflection, allowing the display of brightly colored

our Mihara Plant has been manufacturing materials forimages, and protecting against scratches and dirt. Withvarious types of displays, including color filters for LC

the development and mass production of its new

displays, projection television screens, and shadowmasks

products, DNP aims to further expand its market sharefor picture tubes. We plan to invest about 15 billion yen

and the size of its functional film business.

in the new plant over the course of three years, with

DNP began producing surface films for LC displays in
1997. Currently, we hold about 75% of the world market

construction expected to be completed in October 2006.
By March 2008, we plan to expand production at ourfor such films. We began mass production of our new

Mihara Plant to 1,000 m2 per month. Combined with thesurface film for LC displays in October 2005, and begancapacity to produce 800 m2 per month at our Okayama

supplying it to every polarization plate manufacturer.

Plant, that will make us the world’s largest manufacturer

The start of this mass production guarantees our positionof anti-glare films.

as number one in the industry.
We developed our surface film for plasma display
panels in 2001, achieving excellent image quality andelectro-magnetic wave shielding capability. Unlike
existing PET films that underwent anti-reflection treatment, our newest surface film consists of a PET film
coated with a special resin that reduces reflection. The
new film is cheaper and DNP intends to expand themarket for it.

70

Architect’s
concept ofcompleted Mihara
Plant

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section■ Speeding Up Expansion of Photo Printing
Business

DNP to acquire Konica Minolta’s photo-related

New subsidiary, DNP PrintRush, responds toMinolta) reached a basic agreement in March 2006 on

growing photo print market

the transfer to DNP of Konica Minolta’s photo-related

product sales and photo ID businesses
DNP and the Konica Minolta Group (Konica

Since it was established in April 2005, DNP PrintRush

product domestic sales and ID imaging businesses. Basedhas been expanding sales of its commercial “PrintRush”

on the agreement, DNP was to acquire the twosystem for high-speed, high-quality printing of images

businesses by July 1, 2006. DNP aims to strengthen andtaken with digital cameras.

expand its digital photo printing business.

The system is compatible with a wide variety ofSince the late 1980s, DNP has maintained the top

recording media. It can produce a large print (89 x 127

share of the global market for dye sublimation transfermm) in approximately three seconds – about twice as fast

ribbons, including ink ribbons used for printing images

as any other printer in the world – meaning thattaken with digital cameras, and has been supplying

customers can receive their prints with little waiting.

printer makers on an OEM basis.

Using dye-sublimation thermal transfer printing, theNow DNP acquired Konica Minolta ID Imaging Co.,system can reproduce approximately 16.7 million colors

Ltd, which deals in photo ID-related business, including

and deliver beautiful, glossy prints that faithfully repro-

photo ID booths, and Konica Minolta Marketing

duce bright colors.

Corporation, which sells photo-related products in Japan.

In 2004, over 1.5 billion digital photo prints were sold

DNP intends to make the most of the imaging

in Japan, and the market is expected to grow rapidly, totechnologies that Konica Minolta has cultivated and theover 6 billion prints in 2008. During the fiscal year

capabilities of Konica Minolta’s sales network in order toending March 2007, DNP PrintRush is planning toincrease sales of dye sublimation transfer ribbons andinstall more than 2,000 printing systems in major photo

expand its business by combining ID photo booths withshops, appliance mass retailers, and shopping malls, etc.

PrintRush terminals.

DNP intends to actively expand this business to meetgrowing demand.

PrintRush digital photo printing
terminal, designed for installation inretail locations71Electronics

Financial Results by Segment■ Financial Highlights

shipments grew by 16% year-on-year in the Asia-Pacificregion (not including Japan), and by 4% in North
(in billions of yen, %)March 2006

March 2005

March 2004

America.
In addition, the number of personal computers¥296.8¥269.6¥236.4shipped in the 2005 world market rose 15.3% from a year

Operating income

37.8

39.7

33.0

earlier to 218.5 million units, and sales of mobile phones

Operating income margin

12.7%

14.7%

14.0%

Net sales

increased 21% to 816 million units, contributing tosignificant growth in the market for display products andsemiconductors.

■ Net sales (left)■ Operating income (right)(in billions of yen)

■ Summary of Financial Results

600

120

500

100

400

80

in conjunction with their expanded use in computer

300

60

monitors and home-use televisions, but there was a big

200

40

drop in sales of shadowmasks and screens for projection

100

20

televisions due to inventory adjustments. Photomask sales

00

The segment enjoyed strong sales of LCD color filters

04

05

06

grew significantly, both for domestic consumption andfor export, thanks in part to the contribution of our
Italian plant. This increase was largely due to brisk sales■ Business Environmentof cutting-edge products, where DNP holds a large shareof the market. Among etched products, lead frame sales
declined, while hard disk component sales increased.

In 2005, thin televisions sparked greater demand

As a result, the segment’s net sales grew 10.1% or 27.1

among consumers, partly because more thin TVs could

billion yen from the previous year to 296.8 billion yen.

display high-definition images and digital broadcasts, andOperating income declined by 1.9 billion yen, or

because retail prices fell.
The global market grew rapidly: worldwide shipmentsof LCD TVs in 2005 grew 140% over the previous year
to 22 million televisions, while shipments of plasma TVs
grew by 110% to 5.8 million units.

4.7%, to 37.8 billion yen, due to such factors as the slump
in projection TV screens and shadowmasks, and lower
unit prices for LCD color filters.
The segment contributed 20% of DNP’s total net
sales, and 30% of its operating income.

The semiconductor market in 2005 remained sound,72

as it was in 2004, due to a large increase in demand for

LCD color filter prices continued to drift downward,

use in computers, mobile phones, and digital electronic

but in the beginning of 2006, the balance between LCD

appliances. Semiconductor shipments increased by 6.8%

panel supply and demand was suddenly upset and panel

over the previous year to 227.5 billion dollars, reaching a

prices plunged. Some panel manufacturers began cutting

record high for the second year in a row. By region,back on production. At that time, panel manufacturers

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Sustainable Development

began to clamor for reductions in color filter prices. The

DNP’s Share in the Color Filter Market

price of fifth-generation color filters fell very sharply, by(monetary base)(%)

about 25% in a single year. Average sale prices for
medium-sized and sixth generation color filters together
33%

fell by about 10%. Nevertheless, sales volume increased
thanks to our expanded production capacity, and we
enjoyed a large increase in net sales.
Demand for projection screens fell sharply due to therapid rise in popularity of plasma display panels in the US

2006market. The decline in demand was particularly notablefor CRT type screens, whereas demand for MT typescreens increased. Overall, the drop in demand was
unexpectedly large.
In the photomask market, we were pleased with

Forecasted Size of the Photomask Market(in billions of yen)
4,000

3,500

demand for products with 90nm line widths, from both
domestic and overseas customers. We are also starting to

3,000

see demand for products with 65nm lines, and we expect

2,500

continued strong demand for these cutting-edge
products.

2,000

1,500

1,000

500

0

97

98

99

00

01

02

03

04

05

06

07

08

09

10

■ Other companies, under 90 nm ■ DNP, under 90 nm

73Electronics

Business Strategies

By accurately assessing market needs and continually refining our advanced technology, DNP maintains its position
as the industry leader. Despite the rapid pace of change in the electronics market, DNP has secured its position as a top
vendor. We strive to maintain a good balance between a defensive portfolio containing products in various lifecycle
stages (i.e. development, growth, maturity, or decline) and an aggressive business strategy entailing technological development and active expansion of manufacturing facilities.

Emphasizing Technological Development
With world class advanced technology as our greatest strength, DNP electronics products in many
fields have been acclaimed as No.1 in the world. In order to maintain this edge and further increase ourcompetitiveness we will concentrate more than ever on research and development, and create new products by achieving new heights in quality control and micro-fabrication.

Rapid Response to Change
We aim to keep our eyes on every step from materials supply to modularization, and to respond appropriately to sudden changes in the market and in customers’ needs as we expand our business.

Concentrated Allocation of Management Resources
While giving ample consideration to potential changes in product life cycles and other business risks,
we aim to concentrate our management resources on strategically important products in order to achieve
high profitability.

Speeding Up Business Startups
In order to speed the development of new ventures, we will always be on the lookout for M&As orother alliances with potential for cooperation between strong partners, and do our best to expand ourbusinesses efficiently.

74

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Introducing the world’s first inkjet method for producing LCD color filters

Readiness to supply a wide variety of products quickly
enough to take advantage of product life cycles

DNP plans to introduce the world’s first inkjet
method color filter production facilities in 2006, with the

Due to fast-paced and highly competitive technolog-

start up of a second production line at its Kitakyushu

ical development, product life spans have grown shorter

Kurosaki Plant. The inkjet method is very well suited toin the electronic display market, where new types of

reducing costs and allows more efficient expansion of

products are always appearing. Manufacturers need to

production capacity. It also makes it possible to repro-

accurately predict which product will dominate the next

duce high-purity colors that could not be obtained using

generation and when the change will occur. They must

conventional photolithography methods. In the future,

quickly gear up to produce new products before they

we plan to use this method also for large-scale, 8th-

become old. DNP avoids the risk of depending exces-

generation plates. Thanks to rapidly expanding demand

sively on a single product by maintaining a full productfor LCD televisions, this is an area where we can expect

lineup. Our basic strategy is to be prepared to meetto see great growth.

demand for all types of displays of every size.
Our sales strategy is geared toward global markets; we

By developing this type of technology that enables us
to deliver both low cost and high quality, we areseek to disperse risk by engaging in wide-ranging tradepreparing our production framework well in advance towith customers all over the world, and to secure revenues

meet consumer needs and respond to a rapidly changing

by maintaining a steady stream of orders.

market. We will strive to supply LCD color filters that

DNP plans to rapidly research and develop newcontribute to the development of the industry.

technologies and products related to next-generation
displays like organic and inorganic electroluminescent(EL) types, and develop world-class technologies in order
to secure our dominant position in the marketplace.

Stable shadowmask market
We expect demand for shadowmasks used in PCs tokeep falling as the market shifts toward greater use of
LCDs. However, demand for use in home televisions,

Flexible business models focused on profitability

currently estimated at 150 million units per year, isAs liquid crystal panel substrates grow larger with the

expected to remain steady, especially in Brazil, Russia,

advent of 6th, 7th, and 8th-generation products, we needIndia and China. We have already finished consolidating

to construct business models for our color filter produc-

and reorganizing shadowmask production facilities, so wetion that enable us to respond flexibly to our customers’

are ready to take advantage of the opportunity presented

needs and concerns.

by competitors’ withdrawal from the market, and we

In order to cope with growing substrate size, we took
various measures including the addition of a 6th-genera-

expect our overwhelming market dominance will help us
to bring in stable revenues.

tion line at our new plant in Kitakyushu. We intend tocontinue to respond flexibly to customers’ needs, forexample by establishing joint ventures with customers tobuild “byplants” adjacent to their manufacturing facilities
or “implants” that are directly connected to customers’
production line. Our goal is to steadily strengthen ouroperating base by giving priority to profitability whenselecting business models such as M&As, corporate
alliances, or royalty businesses.

75

Electronics

Using existing technology in development of new
products
DNP is promoting the development of new productsthat make use of proprietary technology that we cultivated in the past. One example of such a product is a
front projector screen that we have already begun selling.
In the future, we plan to promote demand for personaluse in addition to existing demand for corporate use. We
will aggressively push new products that are currently
under development, in order to expand our business.
Remaining No. 1 in the world in photomasks, thanks
to superior technology
DNP’s photomasks have a longstanding reputation foroutstanding quality, and dominate the world market.
What sets our photomasks apart is a degree of technological superiority that no competitor can match. More thanhalf of DNP’s photomask sales consists of cutting-edge
products with line widths of under 90 nm. In the ultraadvanced class where line widths are 65 nm, DNP has
captured more than half the market. Going forward, weplan to use the results of development conducted jointlywith one of our customers to accelerate the developmentof products with line widths under 45 nm ahead of theconventional technological roadmap and lock in the top
share of the world market.
Cultivating new core businesses and building astronger operational constitution for Electronic
Device Operations
We will work hard to expand sales not only ofphotomasks, but of other products that use micro-fabrication technology, such as semiconductor packages,
build-up substrates and fuel cells, in order to cultivate
new core businesses. In addition, by strengthening
solutions-based businesses like turnkey deals that include
everything from semiconductor circuit design to package
production, or IC tag businesses linked to the development of application software, we will build a flexible andstrong business constitution that is relatively unaffectedby the ups and downs of the semiconductor market.

76

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Electronics

TopicsGrowing Use of Electronic Devices■ IC Tags■ Photomasks

Development of ultra undersized IC tags, among thesmallest in the world

Joint development with Intel extended to 32 nm
products
DNP and Intel Corp. extended their photomask development collaboration to photomasks used in the produc-

DNP developed the “ACCUWAVE-IM0505” series ofultra undersized IC tags, which at 5mm square are among
the smallest 13.56MHz-band IC tags in the world.
The new tags take advantage of DNP’s unique antennation of semiconductors with line widths of 32 nm and less.

design technology nurtured through the manufacture of

The two companies will cooperate to develop critical

IC tags, IC chip mounting technology, metallic micro-

mask technologies for both optical lithography andprocessing technology, and substrate manufacturing

extreme ultraviolet lithography (EUV).

technology. DNP succeeded in downsizing the new IC tag

DNP and Intel have worked closely together sinceby multi-layering the antenna. Although the tag is only

2000 to develop photomasks for 180-45 nm semicon-

5mm square and less than 1mm thick, it can communicate

ductor production processes. This most recent extension

to distances of even 20 – 30mm using existing types ofof their collaboration not only continues the existing

weak IC tag reader/writers. Moreover, by implanting therelationship into the future, but reinforces the partners’

tags into resin or plastic, or processing them into a label

joint efforts.

format, they can be attached to products that are verysmall or have a complicated shape, which was difficult toParticipating in the development of nano-imprint

do with existing IC tags.

technology with a US venture company
DNP has invested 5 million US dollars (approximately
550 million yen) in Molecular Imprints, Inc. (MI), a US
venture company that develops and sells nano-imprint
lithography systems used in manufacturing semiconductors and other nano-devices.
In the field of nano-imprinting lithography, DNP has
focused on the development of quartz templates used forforming micro-patterns on wafers. This recent investment
makes DNP a strategic partner with MI in the establishment of a framework for developing and marketing
templates used in MI’s nano-imprint systems. The twocompanies intend to work on improving nano-imprint
technology and promoting its use.

78

“ACCUWAVE-IM0505”
series ultra undersized ICtag
We made the world’s tiniest
13.56MHz-band IC tag:
only 5 mm2

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Financial Section“CB4100A” camera board, with MPEG-4 module
before adjustment

after adjustment

First in Japan to start mass production of printed
boards with embedded components
DNP developed a printed board containing embedded
passive parts* such as condensers and resisters, and beganmass production in April 2006, becoming the firstcompany in Japan to mass produce such boards.
DNP uses its proprietary build-up base manufacturing
technology, called “B2it,” to embed passive components

easy-to-see images. DNP intends to boost sales, primarily

within the board during the lamination of the dielectricfor use in security cameras.

and the wiring layers, making it possible to produce amore compact, high-density board. DNP plans to step up■ Fuel Cell Components

marketing of the boards for use as functional modules.
Specific uses include as camera modules for mobile

Development of a metal separator for use asphones, or fingerprint verification modules.

a fuel cell component* Passive components are electronic components like condensers and resistors, which serve as
passive elements that consume, save and release supplied electricity.

DNP and Kansai Paint Co., Ltd. jointly developed alow-cost metal separator for use in fuel cells, which are
expected to be a next-generation power source for
automobiles, home generating systems, and mobile
devices.
The role of the separator in a fuel cell is to efficiently
supply hydrogen to components that generate electricity;

Printed board withembedded components
The first printed board withembedded passive parts to bemass produced in Japan

its cost represents about half the cost of a fuel cell. Metal
was seen as a promising material for making separators
due to its potential for strength and thinness, but because
metal required plating with a precious metal in order toprevent corrosion and maintain electrical conductivity,■ Modules

high cost was a problem.

Development of a camera board that automaticallythe new metal separator is coated with a conductive anti-

corrects images taken at night or against backlightcorrosive resin jointly developed by DNP and Kansai

Instead of precious metals, the stainless steel base of

DNP developed the “CB4100A” camera board, which

Paint. The coating is done using electrodeposition

has an MPEG-4 module that automatically corrects andtechnology that DNP cultivated through the production

compresses image data.

of semiconductor components. By using this technology

On a compact board that measures only 60 x 70 mm,

to apply a uniform coat of resin to the entire separator

DNP mounted components including its original MPEG-

base, the partners succeeded in creating a low-cost

4 compressor/decompressor module, an image correction

product.

chip, an SD card socket, and a LAN connector. The
image correction chip adjusts image contrast as needed,
compresses it along with voice data into the MPEG-4
format, and stores it. Even images taken at night oragainst backlight can be converted into natural-looking,79Electronics■ MEMS (Micro Electro Mechanical Systems)

The Growing Display Market andDevelopment of Next-Generation Products

Introduction of a dedicated production line
for 8-inch wafers■ Color Filters

DNP has decided to introduce a specialized production
line compatible with 8-inch wafers in response to growing

Production starts using a new 5th-generation line anddemand for MEMS.

a new 6th-generation plant

Applications for MEMS have grown to include acceler-

In response to growing demand for LCD televisions,

ation sensors and parts used in semiconductor manufac-

DNP invested about 25 billion yen to add a fifth-

turing equipment, and many clients have requested thatgeneration color filter production line at its Mihara Plant.

we boost production capacity. DNP has decided to meet

The new line began operating in May 2005.

this demand by installing a new production line for both

In July 2005, the company also started up a new 6th-

prototype and mass production, with startup planned forgeneration color filter plant in Kurosaki, Kitakyushu. The

the fall of 2006. In the first year, DNP will invest 4 billion

new plant can make filters for 6th-generation glass sizes,

yen in the new line, which will expand production capacity

1,500 x 1,850 mm. Its maximum output is 60,000 sheets

to approximately ten times the current level.

per month. With the addition of the new line, the DNPGroup’s total production capacity is 7.3 million sheets per■ LSI (Large-Scale Integration)month, calculated on the basis of 14-inch LCD panels.

New LSI research and development center in

Adoption of an inkjet method for the new 6th-

Kitakyushu

generation production line

In October 2005, DNP opened “DNP Hibikino

DNP is building a new color filter production line that

Research Center” in Kitakyushu Science and Researchis expected to become operational by the end of 2006. It

Park, to study design and other aspects of large-scale

will be the first color filter production facility in the world

integrated circuits (LSIs).

to use an inkjet production method.

Kitakyushu Science and Research Park is the home of

In response to rapidly increasing demand for LCD

university laboratories that develop LSIs, and many

televisions and falling prices, LCD panel makers arebusinesses engaged in semiconductor-related businesses.

working to boost production of sixth-generation panels

DNP opened the center to make it possible to take advan-

and to bring costs down further. Given this situation, DNP

tage of knowledgeable personnel, well-stocked libraries andhas begun producing color filters using an inkjet method.

information centers, and a base for semiconductor productCompared to conventional photolithography methods,

development. DNP is building ties with industry andthe inkjet method makes it possible to cut production

academia, including venture companies, and is developing

costs by reducing usage of coloring materials and reducing

new technologies related to LSIs and related systems.

component costs as photomasks are not needed. The

Going forward, DNP intends to actively hireinkjet method delivers better quality, too, making it

outstanding researchers and developers, reinforce its

possible to reproduce purer colors by improving thedevelopments framework, and expand LSI-related

purity of coloring materials since the production methodbusinesses in conjunction with its wholly-owned

does not require exposure and development processes.

subsidiary, DNP LSI Design Co., Ltd.

DNP has succeeded in its development of production
processes for the inkjet method to the point that it is now
adopting the method as its main production method.
In the future, DNP plans to also use the inkjet method
for 8th-generation color filters. Calculating on the basis of80

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14-inch LCD panels, the DNP Group as a whole expects

Launching of the transparent “Crystal Illusion

to be able to make about 9.7 million sheets per month

Screen” for projectors

after boosting 6th-generation production capacity, andThis screen consists of a transparent film coated with aabout 13 million sheets per month with the startup of its

special liquid crystal material that is attached to a sheet of

8th-generation production line, giving it the world’s

transparent glass or acrylic board. The liquid crystal

largest supply capacity.

material efficiently reflects only light from projected
images while allowing other light, such as light from the■ Projector Screensroom, to pass through it. This makes it possible to clearly
display projected images even in a well-lit place. DNPDevelopment of two roll-type front projectionplans to market the screens for use in stores, corporate

screens

showrooms, museums, and exhibition booths, etc.

DNP developed Supernova (known as“JETBLACK™” in Japan) – a large-scale front projection screen that can display projector images clearly evenin a well-lit room. Since the screen was introduced to themarket in 2005, its market share has grown steadily. It
received the outstanding performance award in the hometheater division at the January 2006 Consumer
Electronics Show in the US – the world’s largest exhibi-

Transparent projector
screen“Crystal Illusion Screen”

tion of consumer electronics.
Now DNP has added two roll-type screens to theSupernova series: a hanging screen operated by remotecontrol, and a free-standing roll-up screen. DNP intends
to expand sales by marketing the screens for use in homes,
company conference rooms, stores and event halls.

Supernova projector screen
Handing remote-control screen

Free-standing roll-up screen81Sustainable Development

Based on our management concept of contributing to the intellectually active, prosperous, emergently evolving
society of the 21st century, we established the DNP Group Corporate Pledge to specify our employees’ mission andresponsibilities, and the DNP Group Vision for the 21st Century to indicate the kind of company we want to be and the
direction we want our businesses to take in the future.
We believe that actualizing our management concept — by acting in good faith in accordance with our Corporate Pledge
and by actively creating new values according to our Vision for the 21st Century — will contribute to the sustainable
development of DNP and of society as a whole.

82

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Financial Section

CONTENTS

84

86

88

89

Legal Compliance andCorporate Ethics

Product Safety

Information Security

Approach to Research &Development

90

92

94

97

Managing Intellectual
Property

Environmental Protection

Creating Lively Workplaces

Cultural Activities

Notes:
1. In this section, fiscal 2005 refers to the fiscal year ended March 31, 2006.
2. Please refer to the “DNP Group CSR Report 2006” for the details of this section.

83

Legal Compliance and Corporate Ethics

In 1992, the DNP Group established the Dai Nippon Printing Group Corporate Pledge, which clarifies our commitment tooperate in compliance with all laws and social ethics. We also established Corporate Ethics Committees in all of our Group
organizations to promote the establishment and spread of corporate ethics. The Corporate Ethics Committee at our head
office has as its members the Directors in charge of each department; it meets monthly to determine policies related to corporate ethics, and to monitor and guide business activities. There are also separate committees for dealing with important
individual themes, such as the environment and information security.

Corporate Ethics Committee of eachdepartment at headquarters

Environmental
Committee

Complaint Handling
Committee

Product Safety
Committee

Central Disaster
Prevention Council

Information Security
Committee

Corporate Ethics
Committee

Open Door
Room

Corporate Ethics Committeeof each operational divisionCorporate Ethics Committeeof each Group company

The practice of corporate ethics requires that every single employee have an adequate understanding of the importance of
ethical behavior and links that understanding to action in everyday business. In order to establish corporate ethics more firmly
than ever, we believe it is important not only to persistently and continuously explain the importance of ethics, but also to build
systems and mechanisms into our day-to-day management structure that prevent people from reverting to old ways. Below are
examples of some of the things we have done to enhance awareness of corporate ethics.

■Systematization of Corporate Ethics Training
We systematized our corporate ethics training in thefollowing ways, making it possible for employees to receive
corporate ethics training many times, in order to continuallyremind each employee that he or she must actively participate in corporate ethics.

1.Training Tailored to Specific Organizations
If employees are to perceive corporate ethics as an
issue that affects them personally, the content of training
sessions must address questions that affect the specificdivision in which they work. Realizing that this was thecase, in November 2003 we began having Directors incharge of business units and other top executives holdindependent training sessions in corporate ethics, toexplain face-to-face the policies and decisions that eachdivision has taken regarding important issues. Every
DNP division holds training sessions like these.

84

2. Regular Training Sessions According to
Employee Level
We included corporate ethics in the curriculum fortraining sessions given to new employees and to
employees who have been newly promoted to the
management level. In this way, we ensure that every
employee receives training in corporate ethics at various
stages of his or her career, and will realize the importanceof ethical behavior.

3. Training Sessions Given by the Head Office
In order to supplement the training sessions describedabove, the sections in charge from the head office holdtraining sessions at various business units to discuss
important topics as necessary.

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Financial Section■ Open Door Room

■ Voluntary Review of Laws and Regulations

DNP Group employees can take their problems andquestions related to corporate ethics to the Corporate
Ethics Committee, where a full-time staff member
handles such issues promptly. We augmented ourconsulting framework by establishing the Open Door
Room, a place where employees can turn when it is difficult to consult with a supervisor or with coworkers. We
take great care to protect the anonymity of employees
who use the Open Door Room and preserve the secrecyof their consultations, so that they will not suffer any
negative consequences in their workplace.

In order to establish a corporate culture of legal andregulatory compliance, we expect every unit of ourorganization to have the courage to voluntarily check its
business operations relative to existing laws and regulations in order to be sure it is not guilty of any infringements, and to take swift corrective measures if necessary.
DNP’s Corporate Ethics Committee has encouraged
every business unit to perform this kind of voluntary
check once a year, based on a checklist prepared by thesections in charge, and to make improvements as necessary. The relevant sections of the head office thencompile the results of these reviews as they relate tovarious themes, and the Headquarters Corporate Ethics
Committee ties these together and promptly reflects theresults in the next companywide policies.
In addition, we have adopted what we call a “priority
execution plan,” based on the idea that we can get better
results by having each division prioritize checklist items
according to its own characteristics, rather than having
all divisions approach all items with the same degree ofurgency.

■ Management-by-Objective System
The DNP Group has incorporated elements of corporate ethics in its management-by-objective system. Whensupervisors meet with their subordinates to set action
targets or to review the results that have been achieved ahalf year later, they use these opportunities for dialogue
to make very sure that each and every employee acts withintegrity.

The DNP Group’s Corporate Pledge calls for “good-faith behavior." What we mean by integrity here is not simply
honesty or conscientiousness, but high-quality management that includes elements such as self-monitoring, a sense ofaccountability, sound morals, faithfulness to principles, and a solid awareness of goals. Our objective is to create anorganization that is thoroughly self-monitoring and has a strong awareness of its purpose and responsibilities. An
organization with this kind of solid ethical constitution will be one that supports free communication, is full of life, andwins the trust of society. Because this is the kind of organization that the DNP Group wants to be, we take a positive
attitude toward embracing corporate ethics.

85

Product Safety

Product safety is one of DNP’s top priorities. We created a unified product liability management system that is shared by
the entire DNP Group, so the whole Group can work together to make our products as safe as possible.

■Basic Policy■PL Management System

It goes without saying that our products must meet all
relevant legal and regulatory standards. Our goal is to fulfill
our corporate social responsibility by offering products thatexceed customers’ needs and expectations regarding productsafety.

Managing product liability is not a one-time event, but an
ongoing effort. We run a PL risk check whenever wedevelop a new product or receive a complaint, and once a
year we check all existing products.
Based on the results of this review, we make improvements or design changes aimed at establishing safety, andrecord our actions in a product safety standard report.

■Framework
In November 1994, we established a Product Safety
Committee in our headquarters, and in each operational
division and group affiliate, as the framework through which
we promote product safety.

■Defining Product Safety■PL Training Seminars
We have been conducting PL training seminars since
1994. In 2000, we began using our Intranet system for thistraining. Today, 12,435 employees have completed the online
seminar.

The Product Safety Committee of each division and eachGroup company sets general standards for product safetyassurance, as well as individual safety standards for eachproduct, based on guidelines established by the headquarters’
Product Safety Committee.

Product Safety Framework and Guidelines

PL Management System
When developing
a new productProducts
design revision;
production
technology
improvement

PL risk check
Headquarters
Product Safety
Committee

Operational Division
Product Safety
Committees
Group Company
Product Safety
Committees

86

Product Safety
Guidelines

When a complaint
has been received
Once a year for
all products

Ongoing
improvement
Product Safety
Assurance Standards
Product Safety
Standards for
Individual Products

Manufacturingaccording to
written standards

Creation of
written productsafety standards

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87

Information Security

During the 130 years that DNP has been producing important documents like stock and bond certificates, bankbooks, andentrance exam tests, the Company has accumulated expertise in preventing counterfeiting and information leakage and has
cultivated a strong awareness of the importance of information security.
DNP serves society by delivering products that are free of mistakes and by handling those products and the information that
we receive from customers with absolute safety and security. We address information security measures and the protection of
personal information as one of our highest priorities.

■ Personal Information Protection Policies
1. Comply with laws and regulations related to personal information protection; strive to protect personal data.
2. Take reasonable safety precautions to prevent illegitimate access to personal information, and to prevent loss, destruction,
falsification or leakage of such personal data. In the event that such a problem should occur, take prompt measures tocorrect the situation.
3. Specify reasons for using personal information; acquire, use, and provide personal information in fair and appropriate ways.
4. Respond appropriately to anyone whose personal information we hold if that person lodges a complaint, inquiry, or arequest regarding their own personal information, such as a request to disclose, correct, or stop using the information.
5. When the performance of services on behalf of a client company involves the handling of personal information, use theinformation only within the scope of the requested services.
6. Establish in-house regulations concerning the handling of personal information; build, maintain, and continuously improve
related systems.

■ Framework for Promoting Information Security

Head Office

We established the DNP Group Information Security
and Privacy Protection Promotion Committee as a companywide organization. We also established information
security committees within each operational division andaffiliated company. Committee members were given
responsibility for specific tasks, such as developing educational plans based on our basic principles, defining security
areas, or devising computer security measures.

DNP Information Security Committee
Committee Chief, Manager for protecting personal information,
Committee member■ Events Promoting Privacy Protection
In the arena of direct mail and invoice issuance, we haveestablished technical policies based on our own expertise indata printing and envelope stuffing and sealing, whichenables us to do thorough quality control. In the e-businessarena, we operate a high-security Internet data center(IDC), from which we provide support for web sites and ecommerce sites.
“Network Learning” Online Employee Education Programs• Aug 2005-Feb 2006, some 20,000 employees helped check computer virus countermeasures• May 2005, some 1,100 employees received Privacy Protection Training

Educational Materials Related to Computer Viruses• May 2005, produced some 31,000 copies of “Computer Virus Countermeasure
Education Guidebook” (in Japanese and English)• May 2005, distributed about 450 copies of video version of “Computer VirusCountermeasure Education” (in Japanese and English)

Information Security Training for Technicians (6 sessions)• Nov-Dec 2005, “Keynote Speech,” “Encoding Technology,” “Biometrics,"“Electronic Authentication,” “Network Security,” “System Vulnerability”, in total
about 700 employees participated

88

Framework for Promoting Information Security Within
Operational Divisions and Group Companies
Information Security Committee
Committee Chief, Person responsible for managing personal information(General managers of operations and presidents of group companies)
Person responsible for auditing and inspection
Information Security Promotion Office Manager
Information Security Manager
Person responsible for education
Person responsible for security area measures
Person responsible for public relations
Person responsible for information system measures

National Conferences, Briefings Related to Information Security
May, Nov 2005, Feb 2006, National Conference on Information Security, forrelevant staff
May 2005, Explanation of testing for vulnerabilities in servers that handle personal
information, for technicians
Sept 2005, Explanation of computer virus countermeasures, for technicians

Japan Federation of Printing Industries
March 2006, Lecture, Q&A: Personal Data Protection on the Print Shop Floor

Establishment of Management System• As of March 2006, 17 divisions had acquired privacy mark certification; fivedivisions BS 7799, ISMS

Technical Measure to Protect Information Security
DNP started a new service called "Gendarme" that enables safe online transfer of
personal information between DNP and customers, in order to prevent leakage of
personal information.

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Financial Section

Approach to Research & Development

DNP’s management concept is to help create an intellectually active, rich, emergently evolving society by providing“P&I solutions” based around printing technologies (P) and information technologies (I). In today’s emergently evolving society,information exchange is active at various levels. The role of Research and Development is to use printing technologies andinformation technologies from which to develop innovative new technologies and materials that facilitate every process
involved in information exchange, from data input to storage and output. The goal is to achieve this quickly — before othercompanies do. By quickly responding to market changes and always staking out positions in new business developments, we
can continue to offer new solutions to consumers and businesses alike.

■ Research & Development Framework
DNP’s research and development framework consists offour basic research laboratories, with our Research &Development Center at the core, and six specialized laboratories that focus on each business sector. These researchfacilities constitute the driving force behind actualizing theconcept of DNP as a P&I Solutions provider, and it isthrough their organic synthesis that we can create new
products, technologies, and systems.

The research facilities are also linked with the technicaldepartments of the various DNP production facilities, sothat they can help resolve issues on the front line of production. We take advantage of the technology and expertise that
we have accumulated in this way, by using it to develop
original DNP production equipment that allows us to offer
increasingly effective manufacturing technologies.

Controlled by Head Office
Production
Development technologies;
equipment
supportdevelopment

Controlled by Operations

R&D for new products
and technologies

Improvement of existing products and technologies/
Development of products and technologies
for the division

Books and magazines
Commercial printing

Display productsElectronics

Technical section of each operations

Information media supplies

Media Technology Research Center

Decorative materials

Lifestyle andIndustrial Supplies Opto-Materials/Industrial supplies

Nano Science Research Center

PackagingResearch & Development Center

Information Processing Services
Communication and Information

Technology Development Center

IPS/Business forms

Advanced Technology & Business
Development Division

Information
Communication

Packaging Laboratory
Decorative Interiors Laboratory
Advanced Industrial Supplies Laboratory
Information Media Supplies Laboratory
Display Components Laboratory
Electronic Devices Laboratory

Electronic devices

Commercialization projects

New Business Fields

Functions and Time Frames of R&D Facilities
R&D facility

Function

Headquarters
Research Centers

Conducts research and development related to new products and new production processes

Nano Science Research Center

Conducts basic, applied, and commercial-level research and development related to materials andprocesses; analyzes products

Media Technology
Research Center

Develops core technologies for the information communication field; develops and refines
technologies, products, and services

Technology Development Center

Researches and develops production technologies

Packaging Laboratory

Packaging materials and technologies, freshness preservation technologies

Decorative Interiors Laboratory

Develops surface materials for interior and exterior building décor

Opto-Materials Research Center

Researches and develops optical materials

Information Media Supplies
Laboratory

Develops all kinds of information media

Display Components Laboratory

Researches and develops all kinds of display devices and components

Electronic Devices Laboratory

Conducts research and development related to cutting-edge photomasks, mounting components,and LSI design

Development term

Medium to long term(less than five years)

Medium term(less than three years)

New Product Development

Division Laboratories

Research & Development Center

Short term(less than one year)89Managing Intellectual Property■ Basic Policy
In order to make intellectual property (IP) a major sourceof corporate revenues, each of DNP’s business operations
has formulated an independent IP strategy and has drafted abusiness strategy that includes the development and use ofpromising IP.
DNP provides all employees with education and training
regarding intellectual property in order to cultivate a corporate culture of fairness in which we both assert our own
rights when appropriate and respect the rights of othercompanies. In addition, we actively offer IP-related
consulting and planning support services.

■ IP Management Activities
This is what DNP has been doing with regard to IP inorder to help make P&I Solutions a reality.
1) By encouraging the generation of and use of intellectual
property and by creating policies and systems for evaluating and rewarding results in accordance with theirvalue, we are providing an environment in which each
employee can actively participate in creative activities to
produce intellectual properties.
2) We promote dynamic collaboration among business
operations and actively educate employees about intellectual property so as to support the generation of intellectual property that has a good deal of commercial
value, build skills among employees, and use ouroverseas resident system to appropriately develop rights
and maximize the potential of development results ineach region.
3) In order to develop intellectual property that we havealready created and increase its technological andcommercial value, we work on strengthening communication with relevant government bodies and evaluate theperformance of outside patent offices.
4) We support the work of our business operations by
evaluating and organizing intellectual property related toimportant themes -- both our own property and that ofother companies -- in order to effectively use IP for
which we already own rights as part of DNP's businessstrategy.
5) In order to deal with IP-related issues that arise inconnection with our business activities, we provide legal
support by studying legal implications and giving
opinions.
6) In order to increase the efficiency of research and development and speed up development, we are enhancing
the infrastructure that supports our patent information
management system.

907) In order to make the most of DNP's intellectual
property, we are keeping an eye on legal revisions andworking to get a grasp of how other companies manage
intellectual property.

■ Framework for Promoting IP Rights
DNP’s IP-protection framework consists of four sections
and employs six in-house attorneys. The Patented
Technology Section addresses IP related to basic researchand DNP’s main business segments: Information
Communication, Lifestyle and Industrial Supplies, andElectronics. The Licensing Section handles contracts andlegal issues related to IP. The Kansai Intellectual Property
Section handles both patent and license-related functions for
Kansai and the rest of western Japan, combining thefunctions of the first two sections. The PlanningManagement Group proposes IP strategy and operates
DNP’s patent information management system.
In addition, an IP representative is assigned to each development base in Japan, so that our IP activities can be closely
linked to our business operations. So that we may promptly
handle IP issues in the US, we have a representative at a Los
Angeles law firm who deals with the International Trade
Commission (ITC), researches patents and contracts with
US companies, and gathers information about IP-related
matters in the US.

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DNP in Brief

Special Feature

Sustainable Development

Segment Information

Financial Section

IP Framework

Patented Technology Section
Lifestyle and Industrial
Supplies

In-house attorneys (6)Electronics
Representative staff

Information
Communication① Discover patents, utility models, and designs; acquire rights ② Promote use of IP in
business activities ③ Handle IP-related problems that arise in the course of doing business(patents, utility models, designs, etc.), patent research, treatment of other companies’ patents,
support for business activities ④ Public relations related to patents, etc.

Basic ResearchProtect and make use of innovations that resulted from research and development activities① Support creation of IP in line with our R&D strategy ② Support creation of R&D
patent portfolio ③ Educate employees about R&D-related IP issues

R&D Center
Technology Development Center
Operational divisions

Overseas representatives

Licensing Section① Handle IP-related contracts (draft, review, etc.) ② Support all types of business activities
related to IP: trademarks, designs, copyrights, prevention of unfair competition, Law for
Preventing Unjustifiable Extra or Unexpected Benefit and Misleading Representation, etc.
③ Apply for trademarks, acquire and manage rights, research other companies’ rights④ Consult, negotiate, handle disputes related to every aspect of IP

Kansai Intellectual Property Section
Handle the same functions as the Patented Technology Section and Licensing Section for theKansai region and parts of Japan to the west of Kansai

Planning Management Section① Propose IP strategy; disseminate information ② Create patent research system/operate
patent management system/create infrastructure to support research and development
activities ③ Serve as secretariat for promoting IP business strategies ④ Run clericaloperations related to IP■ Number of Patent Disclosure and Trademark Applications and Number of Patents, Utility Models, Design
Rights and Trademarks Held in Japan during the Past Three Years
1) Number of patent disclosures

2) Number of patents and utility model rights held 3) Number of design rights held

800

600

2,500

500

2,000

600

400
1,500
400

300
1,000
200

200
500

0

100
0

0

03

04

Information Communication
Electronics

05

03

Lifestyle and Industrial Supplies

Basic ResearchInformation Communication

Other

Electronics

4) Number of trademark applications

04

05
Lifestyle and Industrial Supplies

Basic Research

Other

03

04

Information Communication
Electronics

Basic Research05
Lifestyle and Industrial Supplies
Other5) Number of trademarks held
1,500

120
100

1,200

80
900
60
600
40
300

20
0

0

03

04

Information Communication
Electronics

Basic Research05
Lifestyle and Industrial Supplies
Other

03

04

Information Communication
Electronics

Basic Research05
Lifestyle and Industrial Supplies
Other

91

Environmental Protection

By working to develop products that put the least possible strain on the environment, and by working to generate demand
for such products, every DNP employee contributes to making a sustainable, recycling-oriented society a reality. In 1972,
DNP became the first Japanese printing company to establish an environment department, and in 1993 we built our unique
Eco-Report System for our environmental management. In 2000, we created the DNP Environmental Committee, which has
worked proactively to promote sales of eco-friendly products, reduce industrial waste, prevent global warming, and reduce
generation of harmful substances.

■ Development and Sales of Eco-friendly Products
DNP adopted guidelines for developing environmentallyconscious products, based on principles (revised June 12, 2001)
propounded by Japan’s Green Purchasing Network, which
advises consumers to purchase products and services that aredesigned to damage the environment as little as possible overthe entire product life cycle. We used these guidelines todevelop and sell eco-friendly products. In fiscal 2005, our salesof such products amounted to 256.6 billion yen, up 16.8%
from the previous year, and far above our target.

DNP Group’s Environmental Management System
President
DNP Environmental Committee
Promotion office
Each operational division’s environmental committee
Promotion office
Technical/industrial group

Eco-friendly products
development group

Regional action group

Environmental preservation/
PRTR group

Office/labor environment group

Industrial waste reduction group■ Assessment of Past Performance and Future
Goals Related to Environmental Protection

Energy conservation group
Operational divisions 57 sites

Based on our environmental policies, DNP has establishedenvironment-related goals that are appropriate for ourbusiness activities, and we have been steadily improving ourenvironmental performance. Below are the goals that ourEnvironmental Committee adopted for the fiscal year ending
March 2006, along with actual results.
TargetResults for fiscal 2005 (year ending March 31, 2006)

Prevent global
warming

Reduce carbon dioxide emissions ratio (CO 2 emissions
volume divided by production value) by 15% from fiscal 1990
level (by fiscal 2010)
Compared to fiscal 1990: down 8.7% (Achieved)

Reduce environmental impact
from transport

Results for fiscal 2005 (year ending March 31, 2006)
Increase the ratio of eco-friendly product sales relative to total
sales by 10% year-on-year (every year)
Compared to fiscal 2004: up 56% (Achieved)

Green purchasing

Reduce carbon dioxide emissions ratio (CO 2 emissions
volume divided by production value) by 5% from fiscal 2000
level (by fiscal 2010)
Compared to fiscal 2000: down 48.0% (Achieved)

When purchasing general supplies (office supplies andequipment, etc.) increase the ratio of products that are officiallyrecognized as being environmentally friendly (Eco-markproducts, etc.) relative to overall purchases to 40% by 2010.
Fiscal 2005: up 27.5% (Achieved)

Reduce the amount of fuel consumed for transport (amount offuel consumed / sales) by 20% from the fiscal 2000 level (byfiscal 2010)
Compared to fiscal 2000: down 5.1%

Increase the ratio of “green” (per standards set by DNP
purchasing headquarters) raw materials costs relative to the cost of
all raw materials purchased to 50% (fiscal 2010).
Fiscal 2005: up 41.7% (Achieved)

Volatile organic
compounds

Reduce the amount of major emissions of all volatile organic
compounds (except methane gas) Group-wide to 50% of the
fiscal 2002 level (in fiscal 2005)
Compared to fiscal 2002: down 50.0% (Achieved)

Office environment

Maintain separated collection of used paper above 65% ofgeneral waste (every year)
Fiscal 2005 collection rate: 74.4% (Achieved)

Reduce industrial
waste

Reduce industrial waste output ratio (volume of industrial waste/ production value) by 40% compared to fiscal 2000 level (byfiscal 2005)
Compared to fiscal 2000: down 40.7% (Achieved)
Reduce overall waste generation by 25% compared to fiscal 2000
level (by fiscal 2005)
Compared to fiscal 2000: down 22.1%
Achieve zero emissions at 30 sites (by fiscal 2010)
Achieved at 31 sites (Achieved)
Reduce waste generation ratio (total volume of waste / total
volume of materials used) by 20% compared to fiscal 2000 level(by fiscal 2005)
Compared to fiscal 2000: down 27.1% (Achieved)
Achieve a recycling rate (amount of waste recycled /amount ofwaste generated) of 80% (by fiscal 2005)
Fiscal 2005 recycling rate: 79.4% (Achieved)

92

TargetDevelopment andsale of eco-friendly
products

Environmental
preservation

Keep the maximum concentration of gases subject to emissions
regulations within 70% of legal limit (from fiscal 2005)
Fiscal 2005 achievement rate (of our own standard): 96%(Achieved)
Keep the maximum concentration of substances subject to wastewater regulations within 70% of legal limit (from fiscal 2005)
Fiscal 2005 achievement rate (of our own standard): 93%(Achieved)
At production site boundaries, keep maximum noise levels within
95% of the legal limit (from fiscal 2005)
Fiscal 2005 achievement rate (of our own standard): 56%(Achieved)
Keep maximum vibration levels at production site boundaries
within 95% of the legal limit (from fiscal 2005)
Fiscal 2005 achievement rate (of our own standard): 100%
(Achieved)
At production site boundaries, keep maximum odor levels within
70% of the legal limit (from fiscal 2005)
Fiscal 2005 achievement rate (of our own standard): 96%(Achieved)

DNP ANNUAL REPORT 2006

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Special Feature

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93Creating Lively Workplaces

Our aim is for each of our employees to feel accountable and confident as an independent professional, to work at growing
and realizing his or her own potential, and to meet challenges proactively and courageously.
DNP shall provide environments and mechanisms that support each employee’s growth and self-development, and cultivate
an emergent evolutional corporate culture that allows each employee to use his or her abilities as a professional.

■ Transparent and Fair Hiring Practices
We fairly provide opportunities equally to anyone who shares our corporate vision and wants to work with us to realize his or
her potential. We use evenhanded methods to select and hire employees. We also actively participate in internship programs.
Explanation

Results

New hiring

We inform candidates of the type of person we are looking for, the steps in our hiring process, the timing of each step, and what we are looking for in each interview.
In order to avoid mismatches, we assign young employees as
recruiting partners to give candidates a real-life picture of our company.

Fiscal 2006 new hires
Regular employees: 140(95 men, 45 women)
Technical staff: 230(180 men, 50 women)

Mid-career hiring

We advertise broadly via the Internet, with no age restrictions. We explain clearly andspecifically the job duties of the positions we seek to fill.

Fiscal 2005 mid-career hires: 78

Internships (arranged
jointly with affiliatedcompanies)

In response to requests from schools and students seeking experience in the working
world, we provide students with opportunities to gain work experience. These
opportunities do not necessarily lead to regular employment.

Fiscal 2005: 68 interns accepted
August-September, in 42 categories

Type of Hiring■ Cultivating Independent Professionals
We believe it is important for each employee to work at self-development, consider his or her own career path, decide whatkind of work he or she wants to do, and expand his or her own field of work. In order to support these efforts by individual
employees, we have established personnel systems that allow them to choose the kind of work they want to do, as well as
education, evaluation, and compensation systems that encourage employees to acquire specialized knowledge and skills.

Self-reporting system

Training system/self-development support

Sharing goals, improving leadership,skill development
Acceptability of evaluations; confirmation of
performance goal levels
Acceptability of compensation levels;
confirmation of skill development goals
Confirmation of career goals; confirmationof individual situations
Advancing each individual’s careerand improving skills

Independent Professionals

Job grade system

Support and Guidance for Leaders

Employee evaluation system

Enhancement and continuationof dialogue

Employees’ Effort and Self-Development

94

Management-by-objective system

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1. Personnel System
Description

Results

In-house recruiting
systemSystemWe advertise positions requiring specialized knowledge and positions in new businesses or new product development. Anyone withability, experience, and the desire to be challenged is free to apply.
Discovery of talented employees and realization of their potential.

Fiscal 2005:
Number of positions offered
Number of employees reassigned

In-house venturesystemWe provide training, financing, and other types of support for
employees who have entrepreneurial aspirations and want to start anindependent new business. Generally, we appoint the person who
proposed the idea for a new company to be its president.

April 2002: CP Design Consulting Co., Ltd.
Sept 2003: M’s Communicate Co., Ltd.
July 2004: At Table Co., Ltd.
Jan 2005: Mobile Impulse Co., Ltd.
Jan 2006: YouToo Co., Ltd.

In-house apprenticeshipsystemIn order to improve skills related to their position, employees may
work as an apprentice in a different section for a limited term, andthen return to their original job.

Fiscal 2005: three employees

Certification support
programThis program pays incentives to employees who acquire specialized
knowledge, skills, or certifications needed for their job (covers about
90 types of certification, up to 100,000 yen).

Increased the number of employees who are certified for specialized knowledge or skills related to ITor other areas pertinent to their work
Fiscal 2005: 372 employees certified

Mastership recognition
program

Employees with valuable production skills are designated as“Meisters” and are encouraged to acquire additional specialized skills
and cultivate successors by passing on their talents. Meisters receivea certificate of recognition from the president, and are paid a special
allowance.

Fiscal 2005: three employees recognised
A total of 47 employees recognized as of March
2006

Special skills
recognition program

Employees with advanced specialties, whose talents are recognizedparticularly widely both inside the company and outside, receive special compensation.

Fiscal 2005: one employee recognised
As of March 2006, 13 employees had been recognized

Evaluation / compensation
systems (management-byobjective system, etc.)

At regular intervals, employees sit down with their supervisors to set
future performance targets and evaluate past performance.
Employees and supervisors increase mutual understanding throughdiscussion and counseling. Evaluation results are directly reflected insalaries and bonuses.

Expanded the scope of application to almost all
employees

Self-reporting system

We ask employees whether they want to change positions or workplaces in order to further their careers, and any other requests they
may have related to their life plans. When the company and theemployee agree, steps are taken to realize the employee’s wishes.

Fiscal 2005: 287 employees participated in selfreport interviews; 80 of them changed positions

78
55

2. Training for Employees Who Want to Advance Their Career
Employees design their own careers, with each one aiming to become an accountable, self-confident autonomous professional in a particular field, with the ability to collaborate smoothly with others inside and outside the company.
DNP supports employees’ career designs by arranging practical and diverse training programs that offer basic or specialized
knowledge required in various fields, as well as development of people skills and conceptual skills, etc.

■ Free, Open, and Pleasant Working Environments
1. Respecting Diversity
We believe that in order to contribute to society by realizing a free, open, and dynamic corporate culture, it is importantthat all employees respect each other and help create a pleasant working environment. Toward this end, we think it is important for everyone to realize their potential and do their best without worrying about gender, age, or disabilities.
Description

Results

Hiring people withdisabilities

SystemWe achieved the legally mandated ratio of disability employment, based on the premisethat people with disabilities should be able to function normally in society. We educate
workplace leaders so they can understand employees’ special needs.

As of March 2006: disabled
employee rate 2.00%

Hiring seniors

Employees who want to continue working as seasoned professionals after reaching
mandatory retirement age may be hired as “senior staff.”

Fiscal 2005: 62% of eligible
employees chose to work as
senior staff

Eliminating gender bias
from the workplace• We conducted training seminars for managers about supporting women’s careers.
• We expanded career opportunities for women.
• We sent female managers to outside training seminars.

From June 2003 to March 2006:
1,825 managers participated intraining about supporting
women’s careers952. Flexible Work Styles
If every employee is to reach their full potential as a professional, it is important that consideration be given to individualcareer plans and life plans, and that working time be balanced with ample time for self-development and private life. It is equallyimportant that coworkers respect each other’s precious time.
We are building systems to assist self-efforts of employees in order to promote their physical and mental health and theirfamilies’.
Description

Results

Childcare leave• Until April 30 of the child's second year, or until a child is 18 months old
Revised April 2005

Fiscal 2005: 50 employees
took leave under this system

Family nursing care leave• Up to 366 days per eligible family member; no limit on the number of times
Revised April 2005

Fiscal 2005: one employee
took leave under this system

Life Plan Consulting
Center

Provides information about pensions, employment insurance, motivation for living , lifelong education, etc. to assist individuals with planning for life after retirement

Fiscal 2004: 1,330 consultations

Career Consulting Center

Provides counseling and guidance regarding career development

Fiscal 2004: 138 employees
used the center

System

3. Creating Safe and Pleasant Workplaces
All of our employees want to work in a safe and pleasant environment, so we conduct our own safety and hygiene activities.
Our basic policy is to support the creation of comfortable and pleasant working environments and working styles that makeroom for family life. Accordingly, we created a system of safety and hygiene activities for all employees to participate in, and we
attach great importance to this system.
Description

Results

Creation ofguidelines

Management and employees together established a Central
Safety and Hygiene Committee within the head office. Each
operational division and group company has a similar systemfor discussing and promoting safety and hygiene-related
activities. We have also created company-wide standards andguidelines related to these topics.

<Major standards and guidelines>
1) Workplace environment improvement
Workplace environment standards, guidelines for preventing
noise in the workplace, guidelines for tobacco smoking
2) Preventing work-related accidents
Guidelines for preventing industrial accidents caused bymachinery, etc.

Improving skills

The safety and hygiene committees play the leading role inpromoting activities that are tailored to each workplace, and in
improving employees' skills when necessary to allow thecommittees to function effectively.

We encouraged employees to become certified as hygiene
managers, work supervisors, chemical substance handlers, etc.
The figures below show the number of employees as of March
31, 2006.
Certified hygiene managers
349
Certified work supervisors
2,126
Completed training in restricted operations
5,522
Completed special educational seminar
2,282

Accident prevention

We analyze potential hazards and take steps to prevent
accidents involving revolving machinery, which is a major
cause of industrial accidents. Concerning non-stationary andother high-risk operations, we review our operating standards,
practice safe operating procedures, and strive to ensure thatmishaps are never repeated.

DNP’s accident rate is low compared to the all-industry average
and even compared to the average for all types of printing
industries.
Jan - Dec 2004: Industrial accident rate (the number of
employees who missed work due to a work-related accident
divided by the total number of hours worked in units of 1
million hours): 0.50% for DNP and 0.25% for Dai Nippon
Printing Co., Ltd.

System

4. Secure Working Environments (Disaster Prevention Framework)
DNP has created an earthquake response outline and a central disaster prevention basic plan, in order to secure employees’safety, restore functioning to workplaces, and support employees’ families and local residents in the event of a disaster. We
established “Disaster Prevention Councils” in business operations at our headquarters and in outlying areas, and at affiliatedcompanies. In the event of an earthquake, these councils are prepared to automatically begin functioning as response
headquarters. Six action teams are to take specific disaster prevention measures and earthquake response measures, with eachteam taking responsibility for human rescue, care of buildings, asset protection, business operations, PR, or community aid.

96

DNP ANNUAL REPORT 2006

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Special Feature

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Financial Section

Cultural Activities

Printing is based on the art of making reproductions, which DNP sees as a new kind of creative technology that cancontribute to the development of art and culture. DNP is engaged in highly original cultural activities centered aroundsupporting graphic arts.

Ginza Graphic Gallery (ggg)
Opened in 1986
ggg exhibits creative works by individuals andgroups, from Japan and abroad, with a focus ongraphic design and printing. The gallery also
holds lectures and presentations by artists. Ten
years after the gallery’s founding, in 1996, it wasrecognized with a Mainichi Design Awards
Special Prize. That same year, ggg celebrated its
10th anniversary with a special exhibit on thehistory of Japanese graphic arts. The exhibit wasvery well received, and earned the gallery the Mecenat Award for
Outstanding Popularization of the Arts. To date, the gallery has held 226
exhibits, which were visited by 680,000 people.
Location: 7-7-2 Ginza, Chuo Ward, Tokyo, Japan 104-0061
Telephone: 03-3571-5206
Open 11:00 – 19:00 (till 18:00 on Saturdays); closed Sundays and holidays
Admission free of charge

ddd Gallery
Opened in 1991
Located in the Kansai district, ddd Gallery
specializes in graphic design.
It mainly hosts exhibits of spirited graphic
designers from overseas. To date, the gallery has
held 138 exhibits, attended by 196,000 visitors.

Location: Dojima Axis Bldg., 2-2-28 Dojimahama, Kita Ward, Osaka, Japan
530-8208
Telephone: 06-6347-8780
Open 10:00 – 18:00; closed Saturdays, Sundays and holidays
Admission free of charge

Maison des Musées de France
Opened in 2003
DNP established MMF as a venue for enjoying
French arts and culture. It serves as an
information center, boutique, and gallery,providing information about French art
museums and artworks, and selling merchandisefrom French museums. MMF invites museum
curators, critics, and researchers to give seminars
from time to time.

Total number of visitors to information center: 7,200
Total number of seminars given: 21
Total number of seminar participants: 1,100

The Center for Contemporary
Graphic Art Opened in 1995
The Center for Contemporary Graphic
Art is the home of the Tyler Graphics
Archive Collection, produced at therenowned U.S. contemporary block printstudio, Tyler Graphics Ltd. In addition toholding regular showings of its permanentcollection, the Center also introduces awide variety of modern art. It has hosted
35 special exhibits and received 50,000 visitors.
Location: 1 Miyata, Shiota, Sukagawa-shi, Fukushima, Japan 962-0711
Telephone: 0248-79-4811
Open 10:00 – 17:00 (Admission until 16:45); closed Mondays (unless Monday
is a public holiday), the day after public holidays, (except when this falls on
Saturday or Sunday), and exhibit changes, between late December and the endof February
Admission ¥300; ¥200 for students (free for children 12 and under, seniors
over 65, and handicapped-certificate holders)

Web site
DNP Museum Information
Japan artscape
URL: http://www.dnp.co.jp/artscape/News and information about exhibitionsat art museums throughout Japan andother art-related events is updated twice amonth and broadcast as Web Magazine.
DNP received the 2005 “Mécénat Award
for Information Communication Cultureof the Arts” for continuing to provide
specific information on the arts for 10
years, since the early years of Internet use
in Japan.
Updated: twice monthly
Hits: about 1 million page views per month
Artscape was formed by combining Museum Information Japan (MIJ),
established in 1995.

The Ginza School
This is an event that DNP organizes around the theme, “Let’s Enjoy
Thinking about Communication.” Guest speakers from various circles
address an audience of male and female participants of all ages, in anentertaining format. Admission is 500 yen. Located in DNP's Ginza
Annex, the event has been held 50 times since 1995, with a total of 4,500
people attending.

Location: DNP Ginza Annex 7-7-4 Ginza, Chuo Ward, Tokyo, Japan 104-0061
Telephone: 03-3574-2384
Open 11:00 – 19:00, closed Sundays• Figures such as numbers of visitors and events were valid as of March 31, 2006.

97

Financial Section

98

CONTENTS

100

110

112

117

133

Management’s
Discussion andAnalysis

Selected Financial
Data

Consolidated Financial
Statements

Notes to Consolidated
Financial Statements

Independent Auditors’
Report99

Management’s Discussion and Analysis■ OPERATING RESULTS
Business Environment
In the fiscal year ended March 2006, the Japanese economy continued its
modest recovery, as indicated by such developments as improved corporate
profits leading to greater capital spending, and a solid trend in personal
consumption.
However, in the printing industry where DNP is active, the businessenvironment remained harsh due to such factors as higher materials costs
resulting from soaring crude oil prices, and lower unit prices because of
intensified competition.
Consolidated Segments
In connection with Information Communication, the publishing industry(%)
saw book sales resume their downward trend after rising the previous fiscal
Beverages
year. Magazine sales fell below the previous-year level for the eighth year in
5.1%
Information
Electronics
Communicationa row, due to such factors as greater penetration of the Internet and free
19.7%
43.5%
newspapers and magazines, and the declining population of young people.
Overall, publishing industry sales declined 2.1% from the previous year.
Advertising-related sales were up 2% year on year from April 2005 until
February 2006, marking two consecutive years of year-on-year increase.
Lifestyle &Expenditures for Internet advertising increased a notable 55% from a year
Industrial Supplies
31.7%
earlier, due to the start of Internet advertising in connection with thegreater penetration of broadband access and video transmission services,
and also because of the increasing use of search-engine marketing. In thebusiness forms sector, the IPS and smart card markets expanded nicely, andcommercial printing sales were good.
In Lifestyle and Industrial Supplies, domestic personal consumption
began to show signs of recovery, and sales of flexible packaging and paper
cups increased. As more companies began using aseptic bottle-fillingsystems, sales of pre-form bottles also increased, resulting in strong sales forthe packaging sector. Due to increased concern about the environment,
sales of eco-friendly decorative materials were strong, including morewidespread demand from overseas markets. In industrial supplies, sales ofanti-glare film used in LCDs increased sharply due to a surge in demand for
LCD televisions. Also, expansion in the market for digital photo prints
resulted in good growth in sales of ink ribbons for color printers.
In the Electronics segment, the display market expanded along withgreater penetration of digital appliances and office automation equipment,
resulting in a big increase in sales of LCD color filters and photomasks used
for making cutting-edge semiconductors.

100

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Overview
The DNP Group strove to secure good results by providing products
and services that were developed in response to customer needs throughdynamic sales activities and through group-wide efforts to implement“Production 21” cost-cutting activities.
Net sales of printed materials like flyers and pamphlets increased nicely,
and sales of IPS (information processing services, including data entry,
printing, and mailing of personal mail, etc.) and smart cards also increased.
Sales of optical films for thin displays increased sharply, and items like LCD
color filters and photomasks sold well. As a result, net sales by all segments
rose above previous-year levels and consolidated net sales grew 5.8% overthe previous year.
Operating income was affected by the increased cost of film materials
used in packaging and sagging unit prices, but thanks to growth in sales ofhighly profitable products and the success of “Production 21” cost-cutting
measures, our operating income increased. Consolidated operating income
rose 0.1% over the previous year.
On the other hand, the consolidated operating income margin declined
0.5 percentage point to 8.0%, and the consolidated ordinary income margin
inched down 0.2 percentage point to 8.3%.
Net income increased 8.8%. Net sales exceeded previous-year levels forthe third consecutive fiscal term since March 2004, and net income grew
relative to the previous-year level for the fourth term in a row, since March
2003, setting new records each year.

Net sales (in millions of yen)

2006.32005.3

2004.3¥ 1,507,506¥ 1,424,943¥ 1,354,101

Gross profit margin (%)

20.3%

21.3%

20.8%

Operating income margin (%)

8.0%

8.5%

7.6%

Net income margin (%)

4.3%

4.2%

3.9%

Primary
Net income
per share (in yen) Fully diluted

¥

91.23
−

¥

82.56

¥

71.49

−

¥

−

Net Sales
Net sales this term increased by 82.6 billion yen or 5.8%, to 1,507.5
billion yen, renewing the Group’s record high for the third year in a row.
Net sales also exceeded previous-year levels in every business segment: by
3.4% in Information Communication, by 6.7% in Lifestyle & Industrial
Supplies, by 10.1% in Electronics, and by 4.7% in Beverages.
On the other hand, the decline in unit prices grew more severely due tointensified competition. The average unit prices fell 2% from the previous

101Gross Profit Margin
(%)

20.3

21.3

20.3

18.4

20

20.8

25

year, costing us 31.1 billion yen.
Looking at net sales by segment, starting with Information
Communication, sales of books were lackluster, but sales of periodicals
increased due partly to increased orders for free newspapers and magazines.
Sales were strong in commercial printing, with increased orders forpamphlets and other kinds of promotional materials. In the business forms
sector, sales of smart cards and IPS (information processing services) were
sharply higher.
In Lifestyle and Industrial Supplies, sales of flexible packaging and paper
cups increased due to recovery in personal consumption. There was a sharp
increase in sales of aseptic bottle-filling systems and the preformed bottles
used in such systems. In the decorative materials sector, we enjoyed strong
sales of eco-friendly materials for residential use. In industrial supplies, salesof ink ribbons for color printers and optical films for displays rose significantly.
In Electronics, sales of projection screens and shadow masks used indisplays declined, but sales of color filters rose sharply, and photomasks used
for making advanced semiconductors also increased.

15

10

5

0

02

03

04

05

06

SGA Expenses to Net Sales
(%)

13.2

12.8

03

04

05

12.3

13.4

12.9

15

12

9

6

Cost of Sales
DNP’s cost of sales increased 80.8 billion, or 7.2%, over the previous
fiscal year to 1,202.2 billion yen. The gross margin declined by 1.0 point,
from 21.3% to 20.3%.
This fiscal year, price increases of raw materials of petrochemical
products cost us roughly 6.0 billion yen. Compared to the impact of suchcost increases in the previous year, this year’s effect was bigger by 1.7 billion
yen or 39.5%.
In order to counter the effects of such cost increases, the entire DNPGroup worked to promote the “Production 21” cost-cutting measures that
we began implementing in April 2002. We succeeded in reducing costs byfocusing on such actions as improving process efficiency, improving yields,
reducing material losses, and cutting lead times. We applied successful
measures horizontally throughout the Group, and strove to raise standards
for the manufacturing division as a whole. Thanks to these activities, thisfiscal year we were able to reduce costs by 20.8 billion yen.

3

0

02

102

06

Selling, General and Administrative Expenses
Selling, general and administrative expenses this fiscal year increased by
1.6 billion yen, or 0.9%, to 184.7 billion yen, but the percentage of SG&A
relative to sales fell from 12.8% to 12.3%.
We worked on things like using information technology to boost operational efficiency and improving budget management in order to reduce

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

variable costs. However, in many cases we were not able to achieve satisfactory results because we didn’t feel we had time to devote to the steady
implementation of cost-cutting measures as our workload increased due toexpanded sales and we felt pressure to concentrate on meeting delivery
deadlines.

Operating Income Margin
(%)

7.6

6

6.9

8

8.0

8.5

10

5.5

Operating Income
This fiscal year, DNP’s operating income was strongly affected by lower
unit prices for orders received and increases in raw material costs, so
operating income rose by only 142 million yen, or 0.1%, to 120.7 billion
yen. We were able to pass on to customers about 50% of the increases in
raw materials costs, but the remainder reduced our income by about 3.0
billion yen. As a result, our operating income margin deteriorated from
8.5% in the previous fiscal year to 8.0%.
By segment, operating income in Information Communication rose 1.7
billion yen, or 3.4%, to 51.0 billion yen. In Lifestyle and Industrial Supplies,
it rose 1.6 billion yen, or 4.4%, to 37.6 billion yen. In Electronics, however,operating income fell 1.9 billion yen, or 4.7%, to 37.8 billion yen, and in
Beverages, operating income declined by 1.3 billion yen to 288 million yen.

4

2

0

02

03

04

05

06

Other Income (Expenses)
This fiscal year, other income declined by 453 million yen, or 4.5%, fromthe previous year to 9.7 billion yen. Other expenses declined by 4.5 billion
yen to 5.6 billion. As a result, the net balance of other income and expenses
was income of 4.0 billion yen, compared to a net expense of 43 million yen
the previous year.
Extraordinary profit increased by 3.0 billion yen, or 69.4%, to 7.3 billion
yen, while extraordinary losses increased by 286 million yen, or 1.7%, to17.4 billion yen. The net result was an extraordinary loss of 10.1 billion yen,or 2.7 billion yen less than the previous year’s loss of 12.8 billion yen.
The main reasons for the reduction in extraordinary losses were a yearon-year increase of 3.2 billion yen in gains from the sale of marketablesecurities and investment securities to 3.7 billion yen (on the sale of 5.1
billion yen worth of securities, up 3.8 billion yen from the amount sold theprevious year), and a decline of 242 million yen to 33 million yen in losses
on such sales.
As a result of the above, income before income taxes and minority interests was 114.6 billion yen, representing an increase of 7.0 billion yen or
6.5% over the previous fiscal year.

103

ROE
(%)

6.3

6.0

5.5

6
5

Net Income
Net income totaled 65.2 billion yen, up 8.8%, or 5.3 billion yen, from theprevious fiscal year. Net income per share was 91.23 yen, compared to 82.56
yen the previous year.

4

3.0

3

1.7

2
1
0

02

03

04

05

06

Capital Expenditures, Research & Development Expenditures, etc.
For five fiscal years in a row, from the year ended March 1997 to the year
ended March 2001, DNP invested more than 100 billion yen per year incapital expenditures. For the next four fiscal years, however, from April 2001
until March 2005, we reduced capital expenditures, focused investments on
strategic areas, and worked at making the most effective possible use of ourexisting facilities and equipment.
This fiscal year, we installed new production lines (one 5th-generationline and one 6th-generation line) for color filters, which are a strategicallyimportant product, and for optical film. We also boosted our smart card
production capacity and invested in upgrading printing machines tostrengthen our original business field. In the end, capital investment
amounted to 67.3 billion yen in the first half of the fiscal year and 68.7
billion yen in the second half, for a total of 136.0 billion yen for the entire
year, representing an increase of 50.0 billion yen over the previous year’s
final figure of 86.0 billion yen.
By segment, capital spending for our Information Communication
business increased 8.5 billion yen over the previous year to 26.6 billion yen,constituting 20% of our overall capital spending. Capital spending forLifestyle and Industrial Supplies amounted to 28.8 billion yen, up 7.7 billion
yen year on year, and 21% of the total. For Electronics, we invested 74.7
billion yen, an increase of 35.6 billion yen, and 55% of the total. Our capitalspending for Other Businesses declined 1.8 billion yen from the previous
year to 6.0 billion yen, representing 4% of the total.
Research & development expenditures totaled 28.7 billion yen, an
increase of 2.3 billion yen or 8.7% from the previous fiscal year.

■ LIQUIDITY AND CAPITAL RESOURCES
In order to expand our business, DNP’s management believes that it isimportant to steadily expand cash flow generated through aggressive
operating activities, and to concentrate investment in strategic areas. In
addition, we believe that a sound financial position is indispensable to stable
growth in the medium and long terms, so we have worked hard to enhance
our company’s financial position.

104

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

Cash Flow
This fiscal year, cash flow generated by operating activities increased by
20.6% or 36.7 billion yen, from the previous fiscal year to 141.7 billion yen.
The main reasons for this increase were that larger net sales resulted in an
increase of 19.7 billion yen in trade receivables, up 8.4 billion yen from theprevious year, while the increase in trade payables was 5.7 billion yen, down
23.1 billion yen from the previous year.
Cash flow used in investing activities increased by 20.2%, or 25.6 billion
yen, to 151.8 billion yen. The main factor behind this change was anincrease of 55.8 billion yen, or 75.6%, to 129.5 billion yen used for theacquisition of property, plant and equipment.
Cash flow used in financing activities increased 15.1%, or 6.1 billion yen, to46.7 billion yen. Major uses of this cash included expenditures of 20.7 billion
yen for purchases of treasury stocks and 18.2 billion yen for dividend payments.
As a result of these activities, DNP’s cash and cash equivalents at the endof the fiscal year amounted to 239.2 billion yen, down 54.1 billion yen or
18.5% from a year earlier.
Cash flow generated by operating activities minus cash flow used ininvestment activities is called free cash flow. This fiscal year, free cash flow
was -10.1 billion yen, mainly because we invested aggressively in facilities
and equipment to meet expected growth in demand in areas like color filters,
optical film, IPS, and smart cards.
2006.32005.3

2004.3

Cash flows from operating activities ¥ 141,673¥ 178,342¥ 161,487

Cash flows from investing activities（151,781）（126,229）（94,740）

Free cash flow

（10,108）

52,11366,747(in millions of yen)

¥ 1,600,129¥ 1,513,734

Current ratio (%)

178%

186%

197%

Working capital-to-net sales (%)

23%

27%

28%

Debt/equity ratio

6

7

7

¥ 1,507.90¥ 1,409.18¥ 1,348.40

1.78¥ 1,662,377

2.0

1.86

2004.3

1.71

2005.3(times)1.81

Total assets (in millions of yen)

2006.3Current Ratio
1.97

The Balance Sheet
In order to increase DNP’s corporate value, we strive constantly to
optimize our capital structure to increase our asset efficiency. Especially, we
are mindful of consistently maintaining appropriate liquidity so that we canproactively carry out our strategies and flexibly deal with changes in thebusiness environment.

1.5

1.0

Book value per share (in yen)

0.5

0

02

03

04

05

06

105

DNP’s total assets at the end of this fiscal year amounted to 1,662.4
billion yen, up by 62.2 billion yen or 3.9%.
Among current assets, cash and cash equivalents decreased by 16.3%, or
52.1 billion yen from the previous fiscal year, to 268.3 billion yen. Trade
receivables increased by 5.5%, or 22.8 billion yen, to 436.3 billion yen.
Marketable securities holdings decreased by 0.1%, or 5 million yen, to 6.8
billion yen. Inventories decreased by 558 million yen, or 0.7%, to 76.5
billion yen. As a result, total current assets decreased by 33.6 billion yen, or
4.0%, to 805.1 billion yen.
Among long-term assets, property, plant and equipment increased by
7.8% or 41.0 billion yen to 569.0 billion yen. The main components of thisincrease were year-on-year increases in the value of machinery, equipment,
and vehicles (32.9 billion yen or 17.5%), construction in progress (4.0billion yen, 15.1%), and buildings and structures (3.6 billion yen, 2.1%).
Land holdings decreased by 1.1 billion yen or 0.9%. Intangible long-term
assets decreased by 1.3 billion yen, or 5.6%, to 21.5 billion yen. Meanwhile,
investment securities increased by 63.0 billion yen, or 39.0%, to 224.5
billion yen. Long-term loans increased by 1.8 billion yen, or 30.0%, to 7.7
billion yen, but deferred tax assets declined by 12.0 billion yen, or 64.8%, to
6.5 billion yen. Overall, investments and other assets increased by 56.2
billion yen, or 26.7%, to 266.8 billion yen. As a result, long-term assets
increased by 95.9 billion yen, or 12.6%, over the previous year to 857.2
billion yen.
As of the end of the fiscal year, current liabilities were up by 1.9 billion
yen, or 0.4% year on year, to 452.9 billion yen. The main reasons for thisincrease were the facts that trade payables increased in conjunction withlarger sales, rising by 8.9 billion yen, or 2.9%, to 311.6 billion yen, although
at the same time the current portion of long-term debt decreased by 1.4
billion yen, or 35.0%, to 2.6 billion yen and accrued income taxes declined
by 2.8 billion yen, or 9.2%, to 28.2 billion yen.
Long-term liabilities increased by 2.5 billion yen, or 2.1% from theprevious year, to 118.3 billion yen, as long-term debt declined by 2.7 billion
yen, or 41.9%, while deferred tax liabilities increased relative to theprevious year by 5.8 billion yen to 6.1 billion yen. The balance ofoutstanding corporate bonds was unchanged from the previous year at 50.0
billion yen.
Total liabilities increased by 4.4 billion yen, or 0.8% from the previous
year, to 571.2 billion yen.
DNP has been repurchasing its shares since February 2003. This fiscal
term, we purchased 10 million shares for 20.5 billion yen, bringing the
cumulative total to 52,869,000 shares, worth 83.7 billion yen. This term weretired 10 million shares on November 22, 2005, for 14.9 billion yen,106

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Financial Section

Equity Ratio
(%)

65.0

64.7

63.0

64.0

80

66.1

bringing the cumulative total of retired shares to 19 million shares, worth
27.7 billion yen. As a result, this fiscal year’s reduction in treasury stockincreased by 5.8 billion yen over the previous year’s 51.6 billion yen, to 57.5
billion yen, which was a factor behind the decline in stockholders’ equity.
On the other hand, retained earnings increased by 4.1%, or 31.8 billion yen,
to 806.4 billion yen, while unrealized gain on available-for-sales securities
increased by 25.0 billion yen, or 82.3%, to 55.5 billion yen, which
contributed to increasing stockholders’ equity.
As a result of the above factors, our total stockholders’ equity at the end of
this fiscal year increased by 5.5%, or 55.4 billion yen, to 1,063.3 billion yen.

Sustainable Development

02

03

04

05

06

60

40

20

0

107

■ RISK MANAGEMENT
The performance and the results of DNP could be significantly affected by avariety of factors and circumstances that might arise in the future. Because DNP isaware of these risk factors, our policy is to strive to minimize their potential effects.
As of the time that we issue this annual report, the following are the major factors that the DNP management views as risks.
The Japanese Economy and Consumption Trends
DNP engages in a wide range of businesses with an extremely large number ofcustomers. We conduct our business so as not to be overly dependent on specificcustomers. The primary market where we do business is centered on the Japanese
domestic market, whereas our overseas sales constitute about 17% of net sales.
Therefore, if individual consumption and other aspects of domestic demand shouldslow down due to fluctuations in the Japanese economy, our corporate performance
could be affected by decreased orders, lower unit sale prices, or other effects of sucha downturn.
Changes in the Electronics Market
We expect our electronics segment to be highly profitable and we believe it has
good growth potential. We position it as a strategic sector which we aim to expandin the future. We intend to secure steady profits from it by focusing on building
business strategies based on a careful compilation of information and the development of highly competitive, high-added-value products. However, the market for
display components and electronic devices is subject to sudden changes. It is possible that DNP’s performance could be affected by sudden changes affecting productsthat we handle, such as dramatic fluctuations in demand or a plunge in unit prices.
Fluctuations in Raw Material Procurement
We procure raw materials such as printing paper and film from multiple
suppliers in Japan and overseas. We work hard to secure stable supplies andmaintain optimal prices. However, there is some potential for temporary imbalances
between supply and demand due to factors like spikes in petroleum prices or sudden
surges in demand from the Chinese market. We intend to cope with such instancesby negotiating with our customers. However, if it should become extremely difficult
to secure supplies, or if prices rise markedly, it is possible that our corporate
performance could be affected.
Development of New Products and Technologies
DNP adapts printing technologies in order to develop new products andtechnologies that meet the needs of our customers and the market. We provide
products and services to a wide range of industrial sectors. In recent years, the paceof technological innovation has become faster than ever, and customers’ needs havebeen rapidly diversifying. We believe that in the future, competition in the area of108

DNP ANNUAL REPORT 2006

Message to
Our Shareholders

DNP in Brief

Special Feature

Segment Information

Sustainable Development

Financial Section

product development will become more intense than ever before, and it is possiblethat our performance could fluctuate significantly due to unforeseeable changes inmarket trends or a shortening of product life cycles.
Currency Fluctuations
Particularly in such fields as electronics, we are expanding our dealings in products and services with customers, suppliers, and others overseas. Because we expect
the effects of currency rates to gradually become more important, we use suchmeans as foreign exchange forward contracts to hedge the risks of market fluctuations. Nevertheless, it is possible that radical swings in currency values could have amore serious effect on our corporate performance.
Legal Regulations, etc.
We conduct our business based on strict compliance with the law. Wherever we
operate, in Japan or overseas, we are subject to a wide variety of legal regulations
and restrictions, including laws related to product liability, environmental protection and recycling, anti-monopoly prohibitions, patents, taxes, imports and exports,
etc. We can imagine that in the future such regulations could become even more
restrictive. If that should occur, it is possible that DNP’s business performance
could be affected by limitations on our business activities or increased costs.
Information System Security
Now that the Internet and other computer networks and information systems areplaying an increasingly large role in business, the construction of information systems and security measures that protect them have become indispensable to thecontinuation of business activities. In recent years, DNP has become increasingly
vulnerable to computer-related risks, such as the possibility that information systems could be shut down by software or hardware trouble, computer viruses, etc., orthat customer information could be leaked outside the company. DNP takes every
possible measure to maintain and control computer systems and data throughincreasingly sophisticated security and employee education. However, in the unlikely event that an accident should occur, it is possible that our business activities could
be affected.
Disaster
We take steps to protect our production equipment and other major facilities
from being damaged by disasters like fires or earthquakes. In addition, we divide ourwork among multiple production bases and make every effort to prevent disasters
from causing production stoppages or disturbances in our ability to supply products.
However, it is possible that our business performance could be seriously affected in
the event of unforeseeable situations, such as production stoppage or massive damage to or destruction of our corporate infrastructure resulting from an event such asa huge earthquake or terrorist attack.

109

Selected Financial Data (unaudited)

2006

2005

2004

2003

Income Statement Data (in millions of yen)
Net sales¥

1,507,506¥

1,424,943¥

1,354,101¥

1,309,002

Cost of sales

1,202,160

1,121,374

1,073,118

1,043,456

Gross profit

305,346

303,569

280,983

265,546

Selling and administrative expenses

184,676

183,041

178,545

175,665

Operating income

120,670

120,528

102,438

89,881

Income before income taxes and minority interests

114,640

107,686

93,13742,244

Net income

65,18859,93752,971

28,774

Balance Sheet Data (in millions of yen)
Total assets¥

1,662,377¥

1,600,129¥

1,513,734¥

1,450,027

Property, plant and equipment-net

568,966

528,009513,175

540,874

Long-term liabilities

118,287

115,801

119,277

66,821

Total liabilities

571,170

566,796

510,970

484,581

1,063,309

1,007,944

978,736

942,083

Stockholders’ equity
Other Selected Data (in millions of yen)
Capital expenditures¥

136,059¥

86,057¥

69,834¥73,789Depreciation expenses

87,26480,44085,182

89,239R&D expenditures

28,692

26,386

26,05024,097

Common Share Data (in yen, shares)
Earnings per share - primary
Earnings per share - fully diluted

¥

91.23

¥

82.56

¥

71.49

¥

37.80

-

-

-

37.67

26.00

24.00

21.00

19.00

1,507.90

1,409.18

1,348.40

1,270.81

704,972,101

750,480,693

759,480,693

759,480,693

Gross profit

20.26%

21.30%

20.75%

20.29%

Selling, general and administrative expenses

12.25

12.85

13.19

13.42

Operating income

8.00

8.46

7.57

6.87

Income before income taxes and minority interests

7.60

7.56

6.88

3.23

Net income

4.32

4.21

3.91

2.20

Return on equity

6.29

6.03

5.52

3.02

Current ratio

178

186

197

171

6

7

7

6

Dividends paid per share
Book value per share
No. of common shares outstanding - primary
Financial Ratios (%, times)
As a percent of net sales:

Debt-to-equity ratio

110

DNP ANNUAL REPORT 2006

2002

¥

¥

¥

¥

1,311,934

Message to
Our Shareholders

DNP in Brief

2001

¥

1,342,035

Special Feature

2000

¥

1,286,703

Segment Information

1999

¥

1,269,543

Financial Section

Sustainable Development

1998

¥

1,336,604

1997¥

1,310,100

1,071,163

1,091,386

1,039,006

1,033,926

1,056,962

1,028,614

240,771

250,649

247,697

235,617279,642

281,486

168,529

164,708

161,811

166,008

172,824

170,298

72,242

85,941

85,886

69,609106,818

111,188

26,15069,116

79,19977,703

100,634

107,394

15,60933,40939,03430,49356,53956,165

1,432,458¥

1,489,871¥

1,451,700¥

1,445,293¥

1,450,709¥

1,410,138

543,962

561,017561,898

570,860

536,364

501,62279,01386,012

77,637

100,695

100,214

97,340460,691

522,105

495,541

518,323

538,113553,172

946,998

939,441925,646

898,646

885,507831,262

85,096¥103,050¥

113,858¥

119,372¥

111,341¥

113,656

94,87094,312

94,58882,80073,90867,58323,367

24,664

23,571

n.a.

n.a.

n.a.

20.55

¥

43.99

¥

51.40

¥

40.15

¥

74.49

¥

74.52

20.53

43.45

50.47

39.54

72.53

72.15

18.00

18.00

18.00

18.00

18.00

17.00

1,246.99

1,236.96

1,218.79

1,183.24

1,165.94

1,102.56

759,480,693

759,480,693

759,480,693

759,480,693

759,480,693

753,940,533

18.35%

18.68%

19.25%

18.56%

20.92%

21.49%

12.85

12.27

12.58

13.08

12.93

13.00

5.51

6.40

6.67

5.48

7.99

8.49

1.99

5.15

6.16

6.12

7.53

8.20

1.19

2.49

3.03

2.40

4.23

4.29

1.65

3.58

4.28

3.42

6.59

6.97

181

165

160

159

165

160

7

8

9

10

10

12

111

Consolidated Balance Sheets
Financial Statements
Financial Statements

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries March 31, 2006 and 2005

2005

2006

AssetsCurrent assets :Cash and cash equivalents (Note 4) .........................................................................
Time deposits ..........................................................................................................
Securities (Note 5)....................................................................................................
Trade receivables (Note 10) .....................................................................................
Allowance for doubtful receivables ..........................................................................
Inventories (Note 6) .................................................................................................
Prepaid expenses and other current assets (Notes 10 and 13).................................
Total current assets................................................................................................

239,222
30,113
6,798
436,331(7,118)76,48623,295805,127¥

293,356
30,123
6,803
413,566(6,935)77,044
24,778
838,735$

2,044,632
257,376
58,1033,729,325(60,838)
653,726
199,1036,881,427

Investments and advances :Non-consolidated subsidiaries and associated companies (Note 10)......................
Investment securities (Note 5) .................................................................................
Other (Note 10) .......................................................................................................
Total investments and advances ............................................................................

11,355221,253
2,674
235,282

9,685
158,841
1,689
170,215

97,051
1,891,051
22,8552,010,957

Property, plant and equipment, at cost (Notes 7 and 14) :Land ..........................................................................................................................
Buildings ...................................................................................................................
Machinery and equipment .......................................................................................
Construction in progress..........................................................................................
Total.......................................................................................................................
Accumulated depreciation ........................................................................................
Net property, plant and equipment ......................................................................

119,400
424,734
959,494
30,532
1,534,160(965,194)568,966

120,526
410,656
899,281
26,516
1,456,979(928,970)
528,0091,020,513
3,630,205
8,200,803
260,957
13,112,478(8,249,521)
4,862,957

Other assets (Note 13)..............................................................................................

53,002

63,170453,009

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

¥ 1,662,377¥ 1,600,129$ 14,208,350

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

112¥

DNP ANNUAL REPORT 2006

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Financial Section

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries March 31, 2006 and 2005

2005

2006

Liabilities and Stockholders’ Equity
Current liabilities :Short-term bank loans (Note 7)...............................................................................
Current portion of long-term debt (Note 7) ...........................................................
Trade payables (Note 10) .........................................................................................
Accrued expenses (Note 10) .....................................................................................
Income taxes payable (Note 13) ...............................................................................
Other current liabilities (Notes 10 and 13) .............................................................
Total current liabilities ..........................................................................................

¥

11,654
2,620
311,567
37,85028,17061,022452,883¥

12,425
4,030
302,667
36,37131,01864,484450,995$

99,60722,3932,662,966
323,504
240,769
521,556
3,870,795

Long-term liabilities :Long-term debt (Note 7) .........................................................................................
Liability for retirement benefits (Note 8)...............................................................
Other long-term liabilities (Note 13) ......................................................................
Total long-term liabilities .....................................................................................

53,72058,4486,119
118,287

56,40059,060341
115,801

459,145499,556
52,299
1,011,000

Minority interests ......................................................................................................

27,89825,389238,444

Contingent liabilities (Note 17)
Stockholders’ equity :Common stock Authorized : 1,490,000,000 shares;
Issued : 740,480,693 shares in 2006 and 750,480,693 shares in 2005 (Note 9)
Capital surplus (Note 9) ...........................................................................................
Retained earnings (Note 9) ......................................................................................
Unrealized gain on available-for-sale securities ......................................................
Foreign currency translation adjustments ...............................................................
Treasury stock, at cost
35,508,592 shares in 2006 and 35,403,863 shares in 2005 (Note 9) .....................
Total stockholders’ equity .....................................................................................

114,464
144,909806,447
55,489(549)

114,464
144,905
774,653
30,441(4,891)

978,325
1,238,538
6,892,709
474,265(4,692)(57,451)
1,063,309(51,628)
1,007,944(491,034)
9,088,111

Total liabilities, minority interests and stockholders’ equity.......................

¥ 1,662,377¥ 1,600,129$ 14,208,350

113

Consolidated Statements of Income
Financial Statements
Financial Statements

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

2005

2006

Net sales (Note 18)....................................................................................................

¥ 1,507,506¥ 1,424,943$ 12,884,667

Cost of sales (Notes 11, 15 and 18).........................................................................
Gross profit ...........................................................................................................

1,202,160
305,346

1,121,374
303,569

10,274,872
2,609,795

Selling, general and administrative expenses (Notes 11, 15 and 18) .................
Operating income .................................................................................................

184,676
120,670

183,041
120,528

1,578,427
1,031,368

2,727(1,324)442(1,898)3,680(1,651)(717)(1,810)(7,346)
1,867(6,030)114,640

2,368(1,232)(298)(7,603)191(1,077)(1,985)(976)(3,501)
3,719(1,016)(1,432)(12,842)
107,686

23,308(11,316)
3,778(16,222)
31,453(14,111)(6,128)(15,470)(62,786)
15,955(51,539)
979,82947,550515
48,06566,57543,072
3,194
46,26661,420406,410
4,402
410,812569,017(1,387)(1,483)(11,855)

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005

Other income (expenses) (Note 12):Interest and dividend income...................................................................................
Interest expenses.......................................................................................................
Equity in gains (losses) of associated companies .....................................................
Net loss on disposal of property, plant and equipment ...........................................
Net gain on sales of marketable securities and investment securities.....................
Loss on devaluation of investment securities...........................................................
Payments of special retirement benefits ..................................................................
Loss on discontinued business ................................................................................
Amortization of transitional obligation for retirement benefits (Note 8) ..............
Provision for retirement benefits (Note 8) ..............................................................
Reversal of liability for retirement benefits (Note 8) ..............................................
Impairment loss on fixed assets (Note 14) ...............................................................
Provision for doubtful receivables ...........................................................................
Other.........................................................................................................................
Income before income taxes and minority interests ............................................
Income taxes (Note 13):
Current .....................................................................................................................
Deferred....................................................................................................................

Minority interests ......................................................................................................
Net income............................................................................................................

¥

65,188¥59,937yen

Net assets per common share..................................................................................
Net income per common share:
Primary .....................................................................................................................
The accompanying notes are an integral part of these consolidated financial statements.

114¥

1,507.90

91.23

¥

$

557,162

U.S. dollars (Note 3)

1,409.18

82.56

$

12.89

0.78

DNP ANNUAL REPORT 2006

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Consolidated Statements of Stockholders’ Equity
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005

Common stock:
Balance at beginning of year ....................................................................................
Balance at end of year...............................................................................................
Capital surplus:
Balance at beginning of year ....................................................................................
Gain on sales of treasury stocks ...............................................................................
Balance at end of year...............................................................................................
Retained earnings:
Balance at beginning of year ....................................................................................
Net income ...............................................................................................................
Cash dividends (Note 9)...........................................................................................
Bonuses to directors .................................................................................................
Increase resulting from change in consolidation scope...........................................
Disposal of treasury stocks .......................................................................................
Balance at end of year...............................................................................................

2005

2006

¥
¥

114,464
114,464¥¥

114,464
114,464$$

978,325
978,325¥

144,905
4
144,909¥

144,901
4
144,905$

1,238,504
34
1,238,538

774,653
65,188(18,252)(271)(14,871)806,447¥

743,393
59,937(15,942)(231)
280(12,784)774,653

$

¥

¥

¥

¥

¥

$

$

6,620,966
557,162(156,000)(2,316)(127,103)
6,892,709

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

115

Consolidated Statements of Cash Flows
Financial Statements
Financial Statements

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2006 and 2005

Cash flows from operating activities :Income before income taxes and minority interests................................................

114,640¥

107,686

2006$

979,829

Adjustments to reconcile income before income taxes
and minority interests to net cash provided by operating activities:
Depreciation .............................................................................................................
Impairment loss on fixed assets ................................................................................
Provision for doubtful receivables (net)...................................................................
Provision for retirement benefits (net) ....................................................................
Equity in losses (gains) of associated companies .....................................................
Amortization of consolidation goodwill (net)..........................................................
Interest and dividend income...................................................................................
Interest expenses.......................................................................................................
Net gain on sales of marketable securities and investment securities.....................
Loss on devaluation of investment securities...........................................................
Net loss on disposal of property, plant and equipment ...........................................
Increase in trade receivables.....................................................................................
(Increase) decrease in inventories ............................................................................
Increase in trade payables.........................................................................................
Other.........................................................................................................................
Sub-total ................................................................................................................
Payments of special retirement benefits ..................................................................
Payments of income taxes .......................................................................................
Net cash provided by operating activities .......................................................

87,264
7,346(1,060)
(971)
(442)
1,080
(2,727)
1,324(3,680)1,651
1,898(19,696)
1,547
5,670
(1,540)
192,304(717)(49,914)141,673

80,440
5,647
(842)
298
1,669
(2,368)
1,232
(191)
1,077
7,603
(11,342)(6,635)28,751
1,745
214,770(1,985)(34,443)
178,342

745,846
62,786(9,060)(8,299)(3,778)9,231(23,308)
11,316(31,453)
14,111
16,222(168,342)
13,222
48,462(13,161)
1,643,624(6,128)(426,616)
1,210,880

Cash flows from investing activities :Net (increase) decrease in time deposits..................................................................
Payments for purchases of marketable securities ....................................................
Proceeds from sales of marketable securities...........................................................
Payments for purchases of property, plant and equipment .....................................
Proceeds from sales of property, plant and equipment ...........................................
Payments for purchases of investment securities.....................................................
Proceeds from sales of investment securities...........................................................
Interest and dividend received .................................................................................
Other.........................................................................................................................
Net cash used in investing activities............................................................

18
6,711
(129,472)
4,978(32,157)
5,093
3,043
(9,995)(151,781)(29,753)(11)
6,706(73,715)980(22,414)
5,282
2,753
(16,057)(126,229)

154
57,359(1,106,598)
42,547(274,846)
43,53026,009(85,429)(1,297,274)

Cash flows from financing activities :Net decrease in short-term bank loans ....................................................................
Proceeds from long-term debt.................................................................................
Repayments of long-term debt ................................................................................
Interest paid ..............................................................................................................
Dividend paid ...........................................................................................................
Payments for purchases of treasury stocks...............................................................
Other.........................................................................................................................
Net cash used in financing activities ................................................................

(1,309)585(4,998)(1,333)(18,962)(20,717)22(46,712)(1,736)
1,033(4,130)(1,233)(16,451)(18,093)42(40,568)(11,188)
5,000(42,718)(11,394)(162,068)(177,068)
188(399,248)

Effect of exchange rate changes on cash and cash equivalents...........................
Net increase (decrease) in cash and cash equivalents.......................................

2,686(54,134)(21)
11,524

22,958(462,684)

Cash and cash equivalents at beginning of year....................................................
Cash and cash equivalents of newly consolidated subsidiaries ..........................
Cash and cash equivalents at end of year ..............................................................

293,356
239,222279,368
2,464
293,356

2,507,316
2,044,632

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

116

¥

2005

¥

¥

$

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Notes to Consolidated Financial Statements

Dai Nippon Printing Co., Ltd. and Consolidated Subsidiaries March 31, 2006 and 2005

1. Basis of Presenting the Consolidated Financial Statements
Dai Nippon Printing Co., Ltd. (hereinafter referred to as the “Company”) and its domestic subsidiaries maintain their booksof account and prepare their financial statements in conformity with accounting principles and practices generally acceptedin Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile.
The accompanying consolidated financial statements have been compiled from the consolidated financial statements filedwith the Financial Services Agency of Japan as required by the Securities and Exchange Law of Japan. Certain
reclassifications of accounts and modifications have been made in the accompanying consolidated financial statements tofacilitate understanding by readers outside Japan. Certain reclassifications have also been made in the 2005 financial
statements to conform with current classifications. In addition, the notes to the consolidated financial statements include
additional information which is also not required for disclosure under accounting principles and practices generally acceptedin Japan.

2. Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant majorityowned subsidiaries. All significant intercompany accounts and intercompany transactions have been eliminated inconsolidation.
The fiscal year-end of the consolidated subsidiaries is the same as that of the Company except for twenty four subsidiaries
whose fiscal years end December 31. Significant transactions between December 31 and March 31 are reflected in the
consolidated financial statements.
Investments in non-consolidated subsidiaries are stated at cost and, for valuation of such investments, the equity method
has not been applied since these investments are considered immaterial in the aggregate. However, investments are devalued
if the decline in value is judged to be other than temporary.
Investments in 20% to 50% associated companies are accounted for by the equity method.
The differences between costs and underlying net assets at the date of investment in consolidated subsidiaries are included
in other assets or other long-term liabilities and are amortized over a period not exceeding five years.
Translation of foreign currency accounts
Monetary assets and liabilities denominated in foreign currencies of the Company and its domestic subsidiaries aretranslated into Japanese yen at the exchange rates at the balance sheet date. Revenues and expenses denominated in foreign
currencies are translated at the exchange rates prevailing during the year. The resulting translation gains (or losses) are
included in other income (or expenses).
The translation of foreign currency financial statements of foreign consolidated subsidiaries into Japanese yen has been
made for consolidation purposes in accordance with the translation method prescribed in the accounting standard forforeign currency transactions. The balance sheet accounts of the foreign consolidated subsidiaries are translated at theexchange rates in effect at the balance sheet date, except for common stock and capital surplus, which are translated athistorical rates. Revenue and expense accounts are translated at the average exchange rates during the year. The resulting
translation adjustments are presented as “foreign currency translation adjustments” which is shown as a separate componentof stockholders’ equity in the consolidated balance sheets.
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less,that are readily convertible to known amounts of cash and are so near maturities that they present insignificant risk ofchanges in value because of changes in interest rates.
117

Inventories
Inventories are stated at cost which is determined substantially by the average method.
Marketable securities and investment securities
Marketable and investment securities are classified and accounted for, depending on management’s intent, as follows: i) heldto-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity,
are reported at amortized cost and ii) available-for-sale securities are reported at fair value, with unrealized gains and losses,
net of applicable taxes, reported in a separate component of stockholders’ equity.
Non-marketable securities are stated at cost determined by the average method. For other than temporary declines in fairvalue, investment securities are reduced to net realizable value by a charge to income.
Property, plant and equipment and depreciation
Property, plant and equipment are carried at cost. Major renewals and additions are capitalized, while minor renewals,
maintenance and repairs are charged to income when incurred. Interest expenses on capital expenditures during theconstruction stage are not capitalized.
Depreciation of property, plant and equipment is principally computed by the declining-balance method at rates based on
estimated useful lives. However, depreciation of buildings acquired on or after April 1, 1998 is computed by the straight-line
method.
The estimated useful lives for depreciation purposes range as follows:
Buildings
3 to 50 years
Machinery and equipment 2 to 13 years
Assets with an acquisition cost of ¥100,000 ($855) or more per unit and less than ¥200,000 ($1,709) per unit, acquired on orafter April 1, 1998, are depreciated over three years on a straight-line basis, whereby one-third of such acquisition cost may
be taken as depreciation expense each year.
Intangible assets
Intangible assets included in other assets are carried at cost less accumulated amortization calculated by the straight-line
method over their estimated useful lives. Software development costs for internal use included in intangible assets areamortized by the straight-line method over five years.
Impairment of fixed assets
In August 2002, the Business Accounting Council of Japan issued a Statement of Opinion, Accounting for Impairment of
Fixed Assets, and in October 2003 the Accounting Standards Board of Japan (ASB) issued ASB Guidance No.6, Guidance
for Accounting Standard for Impairment of Fixed Assets. These new pronouncements are effective for fiscal years beginningon or after April 1, 2005.
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstance indicate
the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from thecontinued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amountby which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows
from the continued use and eventual disposition of the asset or the net selling price at disposition.
The effect of adoption of the new accounting standard for impairment of fixed assets was to decrease income before
income taxes and minority interests for the year ended March 31, 2006 by ¥7,158 million ($61,179 thousand).

118

DNP ANNUAL REPORT 2006

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Liability for retirement benefits
Effective April 1, 2000, the Company and several domestic significant consolidated subsidiaries applied a new accounting
standard for employees’ retirement benefits. Under the accounting standard, accrued pension and liability for employees
retirement benefits has been provided based on the estimated amounts of projected pension and severance obligation andfair value of plan assets at the end of the fiscal year. Prior service cost is being amortized as incurred by the straight-line
method over the period within the average remaining service periods of the eligible employees. Actuarial gains and losses
have been amortized from the following fiscal year by the declining balance method over the periods within the averageremaining service periods of the eligible employees.
The transitional obligation determined as of April 1, 2000 is being amortized over five years. The transitional obligation
was a net amount after deducting the contributed securities to the employees’ retirement benefits trust from the grossamount of transitional projected benefits obligation determined as of April 1, 2000.
Research and development expenses
Research and development expenses are charged to income as incurred.
Accounting for leases
Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessees are accounted forin the same manner as operating leases under generally accepted accounting principles in Japan.
Income taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferredtaxes are measured by applying currently enacted tax laws to the temporary differences.
Income taxes on undistributed earnings have been provided for foreign subsidiaries, but not for domestic companies, assuch earnings, if distributed in the form of dividends, are not taxable under the current Japanese tax laws.
Derivatives and hedging activities
The Company and certain consolidated subsidiaries use derivative financial instruments (“derivatives”) for foreign currency
forward contracts to manage their exposures to fluctuations in foreign exchange associated with certain accounts receivableand payable, including forecasted transactions, denominated in foreign currencies. The Company and its subsidiaries do notenter into derivatives contracts for speculative purposes.
While the trade accounts receivable and payable denominated in foreign currencies of the Company and domestic
subsidiaries which are comprehensively covered by foreign currency forward contracts are translated at the exchange rate at
the balance sheet date, such forward contracts are recognized as assets or liabilities and measured at fair value, and therelated gains or losses are currently recorded in the statement of income.
The trade accounts receivable and payable denominated in foreign currencies of the Company and domestic subsidiaries
which are individually covered by foreign currency forward contracts are translated at the contracted rates because suchtreatment is also allowed to be elected under the accounting standard if the forward contracts qualify for hedge accounting.
The forward contracts for forecasted transactions such as export sales and import purchases are measured at the fair value,
but the unrealized gains/losses are deferred until the underlying transactions are completed.
Net assets and income per common share
Net assets per common share were computed based on the number of shares outstanding after deducting treasury stock at
March 31, 2006 and 2005, respectively.
Primary amounts of net income per share were computed on the average number of shares of common stock outstanding

119

after deducting treasury stocks during each year. Fully diluted net income per share is not disclosed because the Company
has not issued any dilutive securities.

3. Basis of Translating Financial Statements
The consolidated financial statements are expressed in Japanese yen in accordance with accounting principles and practices
generally accepted in Japan. The Japanese yen amounts have been translated into U.S. dollar amounts, solely for theconvenience of the reader, at the rate of ¥117=U.S. $1, the approximate exchange rate on the Tokyo Foreign Exchange
Market at March 31, 2006. Such translations should not be construed as representations that the Japanese yen at that or any
other rate could be converted into U.S. dollars.

4. Cash and Cash Equivalents
Cash and cash equivalents as of March 31, 2006 and 2005 were comprised of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Cash and deposits.........................................................................................................
(excluding time deposits with a maturity over three months)
Other short-term investment ......................................................................................

2005

2006

¥

238,222¥290,357$ 2,036,085

¥

1,000
239,222¥2,999
293,356

8,547$ 2,044,632

5. Marketable Securities and Investment Securities
The acquisition cost and aggregate fair value of marketable and investment securities classified as available-for-sale securities
as of March 31, 2006 and 2005 were as follows:
Millions of yen

March 31, 2006

Stocks.....................................................................................................
Others ....................................................................................................
Total....................................................................................................

Acquisition cost

Unrealized gains

Unrealized losses

¥

¥

¥

¥

66,92740,864
107,791¥

95,95846
96,004

¥

2,020
325
2,345

Fair value¥¥

160,865
40,585
201,450

Thousands of U.S. dollars (Note 3)

Stocks.....................................................................................................
Others ....................................................................................................
Total....................................................................................................

120

Acquisition cost

Unrealized gains

Unrealized losses

$

$

$

$

572,026
349,265
921,291$

820,154393
820,547$

17,265
2,778
20,043

Fair value$ 1,374,915
346,880$ 1,721,795

DNP ANNUAL REPORT 2006

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Sustainable Development

Financial Section

Millions of yen

March 31, 2005

Stocks.....................................................................................................
Others ....................................................................................................
Total....................................................................................................

Acquisition cost

Unrealized gains

Unrealized losses

¥

¥

¥

¥

57,37827,777
85,155¥53,491
71
53,562

¥

2,025
20
2,045

Fair value¥¥

108,844
27,828
136,672

The proceeds from sales of available-for-sale securities for the years ended March 31, 2006 and 2005 were ¥5,057 million($43,222 thousand) and ¥1,243 million, respectively. The gross realized gains on these sales for the years ended March 31,
2006 and 2005 were ¥3,713 million ($31,735 thousand) and ¥465 million, respectively, and the gross realized losses on thesesales for the years ended March 31, 2006 and 2005 were ¥33 million ($282 thousand) and ¥275 million, respectively.
The following summarized carrying amounts of securities with no fair value as of March 31, 2006 and 2005:
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006

2005

2006

Held-to-maturity debt securitiesNon-listed foreign securities....................................................................................
Others .......................................................................................................................

¥

3,000
-

¥

3,000
11

$

25,641-

Available-for-sale securitiesNon-listed equity securities .....................................................................................
Others .......................................................................................................................

¥

23,56041¥

25,92635$

201,368
350

The redemption schedules for securities with maturities classified as held-to-maturity debt securities and other securities at
March 31, 2006 and 2005 were as follows:
Millions of yen

Due in one
year or lessMarch 31, 2006

Government bonds ......................................................................................................
Corporate bonds ..........................................................................................................
Other bonds .................................................................................................................

¥¥

Due after one year Due after five years
through five years through ten years

6,700
6,700

¥

¥

20,00060
20,060¥¥30
12,00012,030Thousands of U.S. dollars (Note 3)

Due in one
year or lessGovernment bonds ......................................................................................................
Corporate bonds ..........................................................................................................
Other bonds .................................................................................................................

$$

57,26557,265Due after one year Due after five years
through five years through ten years$$

170,940
513
171,453$$

256
102,565
102,821121

Millions of yen

Due in one
year or lessMarch 31, 2005

Government bonds ......................................................................................................
Corporate bonds ..........................................................................................................
Other bonds .................................................................................................................

¥

¥

6,791
11
6,802

Due after one year Due after five years
through five years through ten years¥¥

16,976
5
16,981

¥

¥

30
7,000
7,030

6. Inventories
Inventories at March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Finished products.........................................................................................................
Work in process ...........................................................................................................
Raw materials ...............................................................................................................

¥

¥

2005

30,45927,427
18,60076,486¥¥31,752
29,607
15,68577,044

2006$$

260,333
234,419
158,974
653,726

7. Short-term Bank Loans and Long-term Debt
Short-term bank loans at March 31, 2006 and 2005 were represented by bank loans and bank overdrafts, etc. bearing interest
at an average rate of 2.90 % per annum for 2006 and 2.11% per annum for 2005.
Long-term debt at March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Unsecured debentures
1.67% due 2014 ........................................................................................................

¥

50,000

¥

3,375
2,965
56,340(2,620)53,720Mortgage loans, maturing 2006-2011........................................................................
Unsecured loans, maturing 2006-2010 ......................................................................
Current portion of long-term debt .............................................................................

122

2005

¥

50,000

¥

3,983
6,447
60,430(4,030)56,4002006$

427,350$

28,84625,342
481,538(22,393)459,145

DNP ANNUAL REPORT 2006

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Financial Section

Mortgage loans were secured by property, plant and equipment amounting to ¥7,010 million ($59,915 thousand) and¥6,390 million at March 31, 2006 and 2005, respectively.
With minor exceptions, interest rates on mortgage loans ranged from 0.99 % to 5.64% per annum for 2006 and from
0.99% to 4.04% per annum for 2005, while interest rates on unsecured loans ranged from 0.86 % to 1.18 % per annum for2006 and from 0.60% to 2.04% per annum for 2005.
The aggregate annual maturities of long-term debt after March 31, 2006 were as follows:
Millions of yen

Thousands of
U.S. dollars (Note 3)

Year ending March 31
2007 .........................................................................................................................................................
2008 .........................................................................................................................................................
2009 .........................................................................................................................................................
2010 .........................................................................................................................................................
2011 .........................................................................................................................................................
2012 and thereafter .................................................................................................................................

¥

¥

2,620
2,044
1,082
520
74
50,00056,340$$22,394
17,470
9,248
4,444
632
427,350
481,538

8. Retirement Benefits
The Company and its domestic subsidiaries have several defined benefit retirement plans covering all of their employees, i.e.
corporate pension plan, tax-qualified non-contributory pension plan, a governmental welfare contributory pension plan andlump-sum retirement plan. Upon retirement or termination of employment for reasons other than the cause of dismissal,
employees are entitled to lump-sum payments based on the current rate of pay, length of services and accumulated numberof points determined based on the employment services.
Under the Defined Benefit Pension Plan Law, the Company has established new defined benefit pension plans on March 1,
2005 under which ninety percent of the retirement benefit liability of the Company is covered by the employees’ pension
fund. The prior service costs of ¥1,922 million resulting from application of the revised benefit plan is amortized over theperiod of six years from the fiscal year ended March 31, 2005.
Several subsidiaries have also participated in the new defined benefit pension plans on October 1, 2005. The prior service
costs of ¥8,748 million ($74,769 thousand) is amortized over the period of six years from the fiscal year ended March 31,
2006.
The liability for employees’ retirement benefits at March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Projected benefit obligation ........................................................................................
Fair value of plan assets ...............................................................................................
Unrecognized actuarial loss.........................................................................................
Unrecognized prior service cost..................................................................................
Prepaid pension cost ....................................................................................................
Net liability ..................................................................................................................

¥¥

148,799(79,756)(2,816)(8,605)826
58,448

2005¥¥

131,792(62,197)(9,452)(1,637)554
59,0602006$ 1,271,786(681,675)(24,068)(73,547)
7,060$
499,556

123

The components of net periodic benefit costs were as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Service cost...................................................................................................................
Interest cost..................................................................................................................
Expected return on plan assets ....................................................................................
Amortization of transitional projected benefit obligation ..........................................
Actuarial loss ................................................................................................................
Amortization of prior service cost .............................................................................
Loss on change of calculation basis for retirement benefits .......................................
Net periodic benefit costs............................................................................................
Reversal of liability for employees’ retirement benefits .............................................
Total ..........................................................................................................................

¥

¥

7,614
3,215
(1,410)
1,281
1,783
1,810
14,293
14,293

2005
¥

¥

6,590
2,928
(920)
3,501
2,070
322
14,491(3,719)10,772

2006$$

65,07727,479(12,052)
10,94915,23915,470122,162
122,162

Assumptions used for the years ended March 31, 2006 and 2005 were set forth as follows:

Attribution method of estimated benefits to periods of services..............................................................
Discount rate .............................................................................................................................................
Expected rate of return on plan assets ......................................................................................................
Recognition period of actuarial gain/loss .................................................................................................
Amortization period of transitional obligation .........................................................................................
Amortization period of prior service cost .................................................................................................

2006

2005

Straight-line method
2.5%
2.1%
11 years
6 years

Straight-line method
2.5%
2.1%
11 years
5 years
6 years

9. Stockholders’ Equity
Through May 1, 2006, Japanese companies are subject to the Japanese Commercial Code (the ‘‘Code’’).
Under the Code, at least 50 % of the issue price of new shares is required to be recorded as common stock and theremaining net proceeds as additional paid-in capital, which is included in capital surplus. The Code permits Japanesecompanies, upon approval of the Board of Directors, to issue shares to existing stockholders without consideration as a stock
split. Such issuance of shares generally does not give rise to changes within the stockholders’ accounts.
The Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain otherappropriations of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legal
reserve (a component of retained earnings) until such reserve and additional paid-in capital equals 25% of common stock.
The amount of total additional paid-in capital and legal reserve that exceeds 25% of the common stock may be available fordividends by resolution of the stockholders. In addition, the Code permits the transfer of a portion of additional paid-in
capital and legal reserve to the common stock by resolution of the Board of Directors.
The Code allows Japanese companies to repurchase treasury stock and dispose of such treasury stock by resolution of theBoard of Directors. The repurchased amount of treasury stock cannot exceed the amount available for future dividend plus
amount of common stock, additional paid-in capital or legal reserve to be reduced in the case where such reduction was
resolved at the general stockholders meeting.

124

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Upon approval by the resolution of the Board of Directors, the Company repurchased 10,000 thousand shares of common
stocks at aggregate cost of ¥20,485 million ($175,085 thousand) and 10,477 thousand shares at ¥17,847 million during theyear ended March 31, 2006 and 2005 respectively. Furthermore the Company disposed of 10,000 thousand shares ofcommon stocks at aggregate cost of ¥14,871 million ($127,103 thousand) and 9,000 thousand shares at ¥12,784 million
during the year ended March 31, 2006 and 2005 respectively.
In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment, theCode imposes certain limitations on the amount of retained earnings available for dividends. The amount of retained
earnings available for dividends under the Code was ¥545,701 million ($4,664,111 thousand) as of March 31, 2006, based on
the amount recorded in the parent company’s general books of account.
Dividends are approved by the stockholders at a meeting held subsequent to the fiscal year to which the dividends areapplicable. Semi-annual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain
limitations imposed by the Code.
Cash dividends and appropriations to legal reserve charged to retained earnings during the years ended March 31, 2006
and 2005 represented dividends paid out during those periods and related appropriations to this reserve. The accompanying
consolidated financial statements did not include the semi-annual dividend of ¥14.00 ($0.12) per share, aggregating ¥9,879
million ($84,436 thousand) and the related appropriation to legal reserve of the Company, which were approved at thegeneral stockholders’ meeting held in June 2006 with respect to the year ended March 31, 2006.
On May 1, 2006, a new corporate law became effective, which reformed and replaced the Code with various revisions thatwould be applicable to events or transactions which will occur on or after May 1, 2006 and for the years ending on or after
May 1, 2006.

10. Accounts with Non-consolidated Subsidiaries and Associated Companies
Account balances with non-consolidated subsidiaries and associated companies as of March 31, 2006 and 2005 weresummarized as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Trade receivables..........................................................................................................
Other current assets.....................................................................................................
Investment securities (stock)........................................................................................
Long-term loans ..........................................................................................................
Other investments........................................................................................................
Trade payables..............................................................................................................
Accrued expenses .........................................................................................................
Other current liabilities ...............................................................................................

¥

10,882
233
3,250
6,504
2,732
1,488
1,978

2005
¥

10,075
864
2,737
5,357
545
2,393
1,291
1,656

2006
$

93,0091,991
27,77855,59023,35012,71816,906125

11. Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Transportation expenses ..............................................................................................
Provision for doubtful receivables...............................................................................
Salaries and allowances ................................................................................................
Accrued bonuses ..........................................................................................................
Provision for retirement benefits ................................................................................
Depreciation ................................................................................................................
Research and development expenses ...........................................................................
Other ............................................................................................................................

¥

¥

2005

18,162
53,187
6,454
4,326
8,728
26,45067,369184,676¥¥

17,1582,975
51,021
6,293
4,833
9,986
24,141
66,634
183,0412006$

155,231454,590
55,162
36,97474,598226,068
575,804$ 1,578,427

Total research and development expenses (including manufacturing costs) amounted to ¥28,692 million ($245,231
thousand) and ¥26,386 million for 2006 and 2005, respectively.

12. Other Income
The following types of income from non-consolidated subsidiaries and associated companies were included in other income.
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Interest and dividend income ......................................................................................
Leasing fees..................................................................................................................

¥

87
1,195

2005
¥

95
917

2006
$

744
10,214

13. Income Taxes
The Company and its domestic consolidated subsidiaries are subject to a number of different taxes based on income, which,in the aggregate, resulted in a normal effective statutory tax rate of approximately 40.7% for the years ended March 31, 2006
and 2005, respectively.
The actual effective tax rate reflected in the accompanying consolidated statements of income differs from the normal
effective statutory tax rate primarily due to the effect of permanently non-deductible expenses, current operating losses ofsubsidiaries and different tax rates applicable to foreign subsidiaries, etc.
The following is a reconciliation of the difference between the normal effective statutory tax rate and the actual effective
tax rate for the year ended March 31, 2005, although no reconciliation for 2006 was shown because the difference was not
more than five percent of the statutory tax rate.

126

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2005
Normal effective statutory tax rate .......................................................................................................................................
Expenses not deductible for income tax purposes.............................................................................................................
Operating losses of subsidiaries-net ..................................................................................................................................
Special tax credit ................................................................................................................................................................
Undistributed earnings of foreign subsidiaries .................................................................................................................
Other ..................................................................................................................................................................................
Actual effective tax rate .........................................................................................................................................................

40.7%
2.0
(2.1)
(2.1)
4.4
0.1
43.0%

Net deferred tax assets at March 31, 2006 and 2005, resulting from temporary differences between the carrying amounts
and the tax bases of assets and liabilities, were reflected on the accompanying consolidated balance sheets under thefollowing captions :Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Prepaid expenses and other current assets ..................................................................
Other assets ..................................................................................................................

Other current and long-term liabilities.......................................................................
Net deferred tax assets .................................................................................................

¥¥

13,334
6,510
19,844
6,117
13,727

2005¥¥

13,15818,50931,667317
31,3502006$$

113,966
55,641
169,60752,282
117,325

Significant components of deferred tax assets at March 31, 2006 and 2005 were as follows :Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Deferred tax assets:
Excess provision for retirement benefits..................................................................
Loss on devaluation of investment securities...........................................................
Excess provision for doubtful receivables ................................................................
Accrued bonuses .......................................................................................................
Operating loss carryforwards ...................................................................................
Intercompany profits ................................................................................................
Enterprise tax payable ..............................................................................................
Impairment loss on fixed assets ................................................................................
Other.........................................................................................................................
Total deferred tax assets ...............................................................................................
Less: valuation allowance .........................................................................................
Total
Deferred tax liabilities:
Unrealized gain on available-for-sale securities ......................................................
Undistributed earnings of subsidiaries.....................................................................
Other.........................................................................................................................
Total.......................................................................................................................
Net deferred tax assets : ...............................................................................................

¥

¥

¥

22,972
16,383
6,275
5,821
5,555
2,218
2,184
2,907
4,298
68,613(7,328)61,285

2005

¥

¥

¥

¥

(38,106)(8,180)(1,272)(47,558)¥

13,727

22,46916,808
4,907
6,296
8,893
2,119
2,351
5,726
69,569(8,893)60,6762006$$

196,342140,026
53,63249,75247,47918,957
18,667
24,84636,735586,436(62,632)
523,804$¥(20,957)(7,002)(1,367)(29,326)$(325,692)(69,915)(10,872)(406,479)¥

31,350$117,325127

14. Impairment Loss on Fixed Assets
The Company and its consolidated subsidiaries reviewed the fixed assets for impairment for the year ended March 31, 2006.
Fixed assets were, in principle, grouped at the business unit for impairment testing purposes. Idle assets were grouped ineach assets. Loss on impairment of fixed assets for the year ended March 31, 2006 was recognized as an amount of ¥7,346
million ($62,786 thousand) due to the continued operating loss. The carrying amount of the fixed assets was written down of
the following:

Location

Function or status

Type of assets

Sukagawa-shi Fukushima pre. and others

Rental assets

Land, building and others

Mihara-shi Hiroshima pre.

Idle assets (Shadow mask production
equipment)

Machinery and equipment

Kitami-shi Hokkaido pre. and others

Idle assets and others

Land and others

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Land ..............................................................................................................................................................
Machinery and equipment............................................................................................................................
Buildings .......................................................................................................................................................
Others ...........................................................................................................................................................
Total...........................................................................................................................................................

¥

¥

4,395
1,861
1,050
40
7,346

$

$

37,564
15,906
8,974
342
62,786

15. Leases
Where finance leases do not transfer ownership of the leased property to the lessee during the lease terms, the leased
property is not capitalized and the related lease expenses are charged to income in the period incurred, as per the statement
issued by the Business Accounting Deliberation Council of Japan.
Pro forma information such as acquisition cost, accumulated depreciation and net book value of the leased properties forsuch finance lease purposes was as follows:

Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Acquisition cost............................................................................................................
Accumulated depreciation ...........................................................................................
Net book value.............................................................................................................

¥¥

32,718(16,514)
16,204

2005¥¥

34,006(18,807)
15,1992006$$

279,641(141,145)
138,496

Lease expenses on finance lease contracts without ownership-transfer amounted to ¥8,430 million ($72,051 thousand) and¥8,610 million for the years ended March 31, 2006 and 2005, respectively.

128

DNP ANNUAL REPORT 2006

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The amounts of outstanding future payments under finance leases due on March 31, 2006 and 2005, including the portionof interest thereon, were summarized as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Future lease payments:
One year or less ........................................................................................................
More than one year ..................................................................................................

¥
¥

2005

6,318
9,886
16,204

¥
¥

6,588
8,611
15,1992006$$

54,00084,496
138,496

The amounts of outstanding future payments under operating leases due on March 31, 2006 and 2005 were also
summarized as follows:
Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
Future lease payments:
One year or less ........................................................................................................
More than one year ..................................................................................................

¥
¥

584
2,799
3,383

2005

¥
¥

734
2,676
3,410

2006

$
$

4,992
23,923
28,915

16. Derivative Financial Instruments
Nature of Derivative Financial Instruments:
The Company and certain consolidated subsidiaries enter into derivative financial instruments (“derivatives”) for foreign
currency forward contracts to hedge foreign exchange risks associated with certain accounts receivable and accounts payable,
including forecasted transactions, denominated in foreign currencies. The Company and its subsidiaries do not holdderivatives for speculative purposes.
Derivatives are subject to market risks and credit risks. Because the counterparties to those derivatives are limited to majorinternational financial institutions, the Company and its subsidiaries do not anticipate any losses arising from credit risks.
The basic policies for the use of derivatives are established in the Company’s internal regulations and the execution andcontrol of derivatives are controlled by the Accounting Department.

129

Fair value of Derivative Financial Instruments:
The contracted amount and fair value of derivatives for foreign currency forward contracts at March 31, 2006 and 2005 wereas follows:
Millions of yen

Contracted
amount2006

Receivables:
U.S.dollars ................................................................................................................
Euro ..........................................................................................................................

¥
¥

Fair
value

10,063824
10,887¥¥

10,166843
11,009Unrealized
loss

¥
¥

103
19
122

Thousands of U.S. dollars (Note 3)

Contracted
amount2006

Receivables:
U.S.dollars ................................................................................................................
Euro ..........................................................................................................................

$$

86,0097,042
93,051

Fair
value

$
$

86,8897,205
94,094

Unrealized
loss

$
$

880
163
1,043

Millions of yen

Contracted
amount2005

Receivables:
U.S.dollars ................................................................................................................
Euro ..........................................................................................................................

¥¥

12,095486
12,581

Fair
value

¥
¥

12,499492
12,991

Unrealized
loss

¥
¥

404
6
410

Fair value was determined based on the foreign currency forward exchange market rates. Foreign currency forward
contracts which qualified for hedge accounting for the years ended March 31, 2006 and 2005 and were assigned to theassociated assets and liabilities or deferred until completion of the forecasted transactions were excluded from disclosure of
the above fair value information.

17. Contingent Liabilities
The Company was guarantor of bank loans of an other company, amounting to approximately ¥103 million ($879 thousand)and ¥92 million at March 31, 2006 and 2005, respectively. It is common practice in Japan for companies, in the ordinary
course of business, to receive promissory notes in settlement of trade accounts receivable and to subsequently discount such
notes at banks. At March 31, 2006 and 2005, the Company and its consolidated subsidiaries were contingently liable ontrade notes discounted in the amount of ¥820 million ($7,009 thousand) and ¥1,150 million, respectively. Notes discounted
were accounted for as sales.

130

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18. Business Segment Information
Industry segments:
The Company and its consolidated subsidiaries’ primary business industries principally consist of Printing and Beverage
operations. The Printing business includes three segments : Information Communication, Lifestyle and Industrial Supplies,
and Electronics.
The following tables present certain financial information, including net sales, costs and expenses, operating income,assets, depreciation, impairment loss and capital expenditures regarding the Company’s industry segments at March 31,
2006 and 2005 and for the years then ended.
Millions of yen

Printing

For 2006 :Net sales :Outside customers....
Inter-segment ...........
Total ......................
Costs and expenses ......
Operating income ....
Assets, depreciation,
impairment loss andcapital expenditures :Assets ........................
Depreciation.............
Impairment loss........
Capital expenditures ....

Information
Communication

Lifestyle and Industrial
Supplies¥¥¥

655,974
6,501
662,475
611,460
51,015¥¥¥¥

522,421
19,29826,601¥

478,368
1,615
479,983
442,392
37,591¥¥¥¥

436,190
23,211
13
28,818

Electronics¥

Beverages¥¥

296,767
296,767
258,955
37,812¥¥¥¥366,247
39,516
1,861
74,655

Total

Elimination and/or corporate¥ 1,507,506
8,171
1,515,677
1,388,971¥
126,706¥¥

76,39755
76,452
76,164
288

¥
¥
¥
¥

41,562
3,858
64
4,483

¥ 1,366,420¥
85,883¥
1,938¥
134,557

Consolidated¥(8,171)(8,171)(2,135)(6,036)¥ 1,507,506
1,507,506
1,386,836¥
120,670¥¥¥¥

295,957
1,381
5,408
1,502

¥ 1,662,377¥
87,264¥
7,346¥
136,059

Elimination and/or corporate

Consolidated

Thousands of U.S. dollars (Note 3)

Printing

For 2006 :Information
Communication

Lifestyle and Industrial
Supplies

Electronics

Net sales :Outside customers....
Inter-segment ...........
Total ......................
Costs and expenses ......
Operating income ....

$ 5,606,616
55,564
5,662,180
5,226,154$
436,026$ 4,088,615
13,804
4,102,419
3,781,128$
321,291$ 2,536,470
2,536,470
2,213,291$
323,179$

Assets, depreciation,
impairment loss andcapital expenditures :Assets ........................
Depreciation.............
Impairment loss........
Capital expenditures ....

$ 4,465,137$
164,940$$
227,359$ 3,728,120$
198,385$111$
246,308$ 3,130,316$
337,744$
15,906$
638,077

Beverages

Total$ 12,884,667
69,838
12,954,505
11,871,547$ 1,082,958$$

652,966470
653,436
650,974
2,462(69,838)(69,838)(18,248)(51,590)$ 12,884,667
12,884,667
11,853,299$ 1,031,368

$
$
$
$

355,231
32,974547
38,316$ 11,678,804$
734,043$
16,564$ 1,150,060$ 2,529,546$
11,803$46,222$
12,838$ 14,208,350$
745,846$
62,786$ 1,162,898$

131

Millions of yen

Printing

For 2005 :Net sales :Outside customers....
Inter-segment ...........
Total ......................
Costs and expenses ......
Operating income ....
Assets, depreciation andcapital expenditures :Assets ........................
Depreciation.............
Capital expenditures ....

Information
Communication

Lifestyle and Industrial
Supplies¥¥¥

633,499
7,157
640,656
591,305
49,351¥¥¥

499,407
19,33818,122

Electronics¥¥

448,832
1,134
449,966
413,947
36,019¥¥¥420,395
22,914
21,119Beverages¥¥

269,626
269,626
229,936
39,690¥¥¥313,809
33,06939,007

Elimination and/or corporate

Total¥ 1,424,943
8,291
1,433,234
1,306,571¥
126,663¥¥

72,986
72,986
71,383
1,603

¥
¥
¥

43,8973,796
2,895¥ 1,277,508¥
79,117¥
81,143

Consolidated¥(8,291)(8,291)(2,156)(6,135)¥ 1,424,943
1,424,943
1,304,415¥
120,528¥¥¥

322,621
1,323
4,914

¥ 1,600,129¥
80,440¥86,057

Information by geographic area:
Disclosure of information by geographic area was not required as domestic sales and assets exceeded 90% of consolidated
sales and assets, respectively, before elimination, for all segments for the years ended March 31, 2006 and 2005.
Overseas sales:
Overseas sales of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and 2005 are as follows :Thousands of
U.S. dollars (Note 3)

Millions of yen

2006
AmountOverseas sales (a)Asia ..........................................................................
Other ......................................................................
Total.....................................................................
Consolidated net sales (b) ..........................................

132

¥
¥

190,514
68,968259,482¥ 1,507,506

2005

Ratio:(a)/(b)

12.6%
4.6%
17.2%

Amount¥2006

Ratio:(a)/(b)158,373
74,665233,038

11.1% $ 1,628,325
5.2%
589,470
16.4% $ 2,217,795¥ 1,424,943$ 12,884,667¥

DNP ANNUAL REPORT 2006

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Financial Section

Independent Auditors’ Report
Financial Statements

To the Board of Directors of
Dai Nippon Printing Co., Ltd.

We have audited the accompanying consolidated balance sheets (expressed in Japanese yen) of Dai Nippon Printing Co.,
Ltd. and consolidated subsidiaries as of March 31, 2006 and 2005, and the related consolidated statements of income,stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, thefinancial position of Dai Nippon Printing Co., Ltd. and consolidated subsidiaries as of March 31, 2006 and 2005, andthe results of their operations and cash flows for the years then ended in conformity with accounting principles generally
accepted in Japan.
As noted in significant accounting policies, the Company and its consolidated subsidiaries applied the accounting
standard for impairment of fixed assets for the year ended March 31, 2006. This application was made in accordancewith the new accounting standard effective for fiscal years beginning on or after April 1, 2005.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made in conformity with the basis stated in Note 3 to the consolidated financial statements.
Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

Tokyo, Japan
June 29, 2006133

Appendix

Printing Processes and Expansion Printing

Basic Technologies and Advanced Products that Grew Out of Them: Process by Process
Printing can be defined as a generic term for techniques of transferring ink from an image on a form plate to another object in orderto reproduce the original image. It entails five main processes:
1) planning, 2) film making, 3) plate making, 4) printing and 5)
binding/post-processing. Through these five main processes, we havecultivated a truly wide range of skills and expertise.
First, planning: this requires an amalgamation of knowledge andskills related to various fields, including marketing, media selection,planning, and the collection, editing, and processing of information.
The preparation of form plates, including film making andplatemaking, requires skills like sophisticated digital image processing,color management, optics, and micro-processing. The actual printing
process entails skills and knowledge related to paper, film, or othermaterial to be printed, ink and a wide range of other materials, application techniques for fixing ink, and the mechanical skills required forthe smooth operation of printing presses. Binding and post-

step 1step 2step 3

Planning

Film making

Platemaking

These pre-press processes startwith deciding the general
direction of what the customer
wants. Then we prepare, design,edit, and lay out text andphotographs, etc. to be printed.

In this step, we make a film based on
the text, images, and patterns, etc.
in the copy. In the analog methodsof the past, a camera was used tomake the film. Today, however,
we use digital methods whereby
data is output directly on filmby an imagesetter.

In this process we make the platethat is set on the printing
machine to do the actual printing.
The plate is made by burning theimage from the film onto a plate,which is usually made of metal orresin.

Prepare copy to be printed

Make printing plate
Process text andphoto images

Precision/micro-fabrication

Information Processing
Technologies

Patterning Technologies• Digital Contents• Internet Mall
• Mobile Phone Services• Database Management• Fraud Prevention• Security Applications• Telecom/ Broadcasting Contents• System Solutions, etc.

134

• Display Components• Electronic Devices/
Semiconductor-related Products, etc.

processing involves skills needed to finish a variety of printed
products, including bound-in sleeves, CD-ROM bindings, packaging
material productions, and the formation of cups and PET bottles.
As the reader can see, printing is a complex process with both softand hard aspects. It requires the integration of content, all types of
media, materials, and control of mechanical systems.

step 4step 5

Printing

Binding/
post-processing

In this process, we set the plate on
the printing machine and apply ink.
The ink from the plate is transferredand fixed onto paper or film.

Printing
Select and develop materials

Forming the final productDevelop application methods

Coating/ Transferring Technologies• Film Packaging• Paper Containers• Steel Exterior Material• Wood-grain Building Materials• Wall Coverings• Modular Bathroom Interiors• High-Function Optical Film
• Components of Solar Battery
Modules, etc.

This step entails a number ofprocesses after printing.
Besides binding, which means
forming printed pages intobooks or pamphlets, we do
whatever processes arenecessary to create the final
products.

• Ink Ribbons• Electrode Material for
Lithium-Ion Rechargeable
Batteries• Image Receiving Paper for
Digital Photos, etc.

Add functionality and value

Post-Processing Technologies• Books and Magazines• Pop-Up Picture Books• Point of Purchase Materials• Paper Cups
• Plastic Containers• All Types of Packages• Beverage Cartons• PET Bottles• Laminated Tubes, etc.

135Appendix

Technologies and Their Applications

Information Processing Technologies

Treating Text and Images as Information and Processing Them Flexibly to Suit Various Media
Before we begin to actually print something, there are preparatory
processes in which we handle the text, photos, illustrations or othermaterial to be printed as information. As part of this prepress process, weconsider the printing method, size, materials, and methods of expressionthat will convey the material clearly, legibly, and most effectively. We thenprocess the material according to the most effective mode of expression.
Our job includes organizing and storing the processed information so thatit can be revised and re-used in the future, as is often done with dictionaries, contact lists and product catalogues.
DNP’s information processing skills are not limited to the domain of
paper printing, but have evolved to include all kinds of media. The range offields that we deal with expanded particularly suddenly in the 1970s, withthe digitalization of printing processes.
Information processing technologies include image processing
techniques, such as those aimed at optimizing the colors, outline, contrast,
or coloration used in an image, data conversion techniques (e.g. converting
the language, format, or size of a data file to fit paper, CD-ROM, Internet,
or other media), and data-basing techniques for organizing, storing, andmanaging information.
We have expanded our business to include information processing
services (IPS) that entail data input, printing and sending of personalized
mail, digitizing of cultural assets like pictures or other art objects, digitalarchiving based on designing databases that are easy to search and use, anddata center operations that provide high-security environments, including
secure physical infrastructure.
Most recently, in light of the new demand for personal data protection,
anti-counterfeit, and product traceability, DNP’s information processing
technology has become more advanced than ever. The information that ourcustomers ask us to print is valuable material. Thanks to a corporate
climate that allows us to take good care of that information, and thanks to
our track record for taking good care of highly confidential printed mattersuch as bankbooks, bank cards and stock certificates, we have earned a highdegree of trust from our customers. By combining hardware in the form ofsmart cards and IC tags with software applications, we are expanding into
areas of information processing that other industries have not entered.

Examples of Information Processing Technology Applications
DNP has used its digital information processing expertise to address a variety of electronic media, including CD-ROMs, DVDs, the Internet andbroadcasting. We have expanded our business to prepare for a full-fledged ubiquitous society — in which necessary information is accessible anywhere,anytime — and to meet the demand for personal data protection.
Application Example 2
Application Example 1

Development of User-Oriented MediaWith the rapid progress of computerization, information interfaces between
consumers and corporations are becoming more and more diverse. In order totransmit information more effectively, it is important to understand how a target
group of consumers uses information, and to develop media that is most suited
to their information usage style.
DNP set about computerizing its typesetting operations in the 1970s. This
included digitizing the original font, Shueitai, that we developed in the early
1900s. In 1985, we produced the world's first electronic dictionary on CDROM, after which we were quick to begin Internet (via PCs and cell phones)
and digital broadcasting. In 2005, we made our Shueitai font compatible with
JIS standards 3 and 4, and adapted it for use in word processing software. In
2006, we developed a version of Shueitai that is easier to read on digital displays.
DNP has refined its information processing technologies in order to makeinformation easy to read and easy to communicate. Going forward, we intend tocontinue expanding our business along with developments in information media.

Left: Traditional Shueitai font

136

Right: Shueitai font adapted for easy reading on digital display

Responding to the Need for Advanced
Information Security

Demand for information security is rapidly increasing, due partly to thepassage of Japan's Personal Information Protection Act and Law Concerning
Electronic Signatures and Certification Services, as well as measures aimed atpreventing corporate data leakage. There is especially strong demand forreinforcement of systems that protect and manage important information.
Since its founding, DNP has carefully guarded the manuscripts that it received
from corporate clients. Through this careful handling, we honed our information
processing skills. We developed technologies for organizing information into
databases, for efficiently reusing information, and for building more secure
network systems and products with improved anti-counterfeiting functions.
Recently, we have been building systems with such functions as smart cardcontrolled computer boot-up, data encoding, restricted device access requiring
personal authentication, and room entry/exit control. DNP also serves as thesecretariat for Shared Security Formats Cooperation (SSFC), a corporate
alliance aimed at creating standards for office security. These are some of theways in which DNP is responding increasingly broadly to today's demand forsophisticated information security.

Technologies and Their Applications

Patterning Technologies

Exposure, Development, and Etching: the Principles are the Same Whether the Product is Text
or Semiconductors
Patterning is the art of making images on form plates to be used in thefilm making process that is part of the overall printing process. The image
to be created on the form plate may consist of text, pictures, or a pattern.
Before the advent of full digitalization, the process of film making
involved photographing camera-ready masters or original photos andexposing the images onto film to make positive film or negative film. Colorphotographs were separated into four colors: with tiny dots of yellow,
magenta, cyan and black fixed onto four sheets of film.
The precisely drawn form plate image that was transferred from the filmusing patterning technology was then exposed onto a printing plate, usually
made of resin or metal. Specifically, the image on the form plate was
exposed onto a plate (usually made of resin or metal) that was coated with aphotosensitizing agent. This is called photolithography. After exposing
only the necessary parts of the resin or metal, a corrosive agent like acidwas used to engrave the image. This was then washed off to make a gravure
plate. This process is called etching.
As we refined this technology to the point that we now possess the mostprecise printing technology in the world, DNP developed its own production

equipment and systems. Today, high-quality printing uses 2,400 dpi (dots perinch); each dot is just over one hundredth of a millimeter in diameter.
DNP took the ultra-fine patterning, photolithography, and etchingskills that we accumulated in our printing work, and began applying thesemicro-processing technologies to the manufacture of electronic components. The first electronics-related product that we addressed was shadowmasks. Shadowmasks guide electron beams to a luminant; they are essential
for giving color to TV images. A shadowmask is a thin steel plate, only 0.2
mm thick, containing millions of ultra-microscopic holes. It is said to be
impossible to achieve the necessary precision by punching, but it is possible
to quickly mass-produce shadowmasks using printing technology.
DNP has already refined its patterning technologies to accommodate
the realm of nanotechnology necessary for manufacturing photomasks,
which serve as original plates in the manufacture of semiconductors. We
have built a record of success in the techniques that are indispensable to the
pursuit of ultra-miniaturization, and the industry looks to us to build on
this record in the future.

Examples of Applications for Patterning Technologies
DNP has continued to hold the world’s largest share of the shadowmask market, and has gone on to claim winning positions in other global markets suchas photomasks, which serve as original plates for making semiconductor circuits, and color filters used in liquid crystal displays (LCDs).
DNP’s Electronics business currently contributes 20% of consolidated net sales and 30% of operating income. As its importance approaches that of ourmainstay Information Communication business, we view it as a core business that is essential to our overall corporate development.
Application Example 1

Display Products/Color Filters for LCDs

An LCD color filter consists of the three primary colors in light – red, green
and blue – arranged in an orderly array on a glass substrate. Light from abacklight passes through the liquid crystals, and when it passes through thecolor filter, it creates a variety of colors. Color filter quality is determined by theformation of millions of pixels precisely in predetermined locations. Thisrequires extremely sophisticated patterning technology.
In 2006, we developed a multi-primary color filter with yellow and cyan(bright blue) added to the three primary light colors, thereby enhancing thequality of color reproduction.

Application Example 2

Electronic Devices/Photomasks

Photomasks consist of highly precise circuit patterns, of submicron or
nanometer order, formed on a glass substrate. They are essential to the
manufacture of LSIs and ICs because they are the original plates used forprinting circuits onto the surface of silicone wafers.
In recent years, as semiconductors have become increasingly highly
integrated and larger in capacity, the line width required for high-end products
has become smaller and smaller. Already, mass production is underway for
products with 90 nm lines, and developers are working on ultra-advanced
products with line width of 65 to 45 nm.
Ever since DNP began producing photomasks, we have always worked at theleading edge of micro-processing technology and have remained at the forefrontof technological development.

Polarizer
Glass

Color filter
Transparent electrode

Liquid crystal
TFT(Thin-film transistor)

Transparent electrode

Glass
Polarizer

White light from backlight137

Appendix

Technologies and Their Applications

Coatings/Transferring Technologies

Technologies for Applying Functional Coatings and Transferring Images
Coating technologies are used to apply and fix ink from the image on aform plate to a material like paper or film. In other words, coating meanstransferring ink to the object that is to be printed. This is the process ofprinting in its narrowest sense. It goes without saying that DNP has developed basic technologies for improving image reproduction and accuracy byadjusting the amount of ink and printing pressure. We have also foundways to improve functions like coloration and durability by coating thepaper surface with varnish or pigments, and have gone on to developtransfer technologies that support embossing, decorate printing and othertypes of texturing, as well as foil printing and other techniques thatenhance the aesthetic effect of the end product.
With these types of technologies as a basis, we have expanded ourbusiness field to include printing on film used for packaging, magnetic tapeused in bankbooks and cash cards, floor and wall coverings, wood-grain
printing and other decorative materials for buildings and automotive
interiors. By giving these products a wide range of functions such as
friction or abrasion resistance, lubrication, electrical conductivity control,

static or heat resistance, and heat shielding or photocatalytic properties, we
increased their market value. With the expansion of the market for displays
in recent years, there has been a big jump in demand for functional films
that reduce glare or reflection, and electro-magnetic wave shield-film foruse in plasma display panels (PDPs). These developments have also created
new business fields that present opportunities for DNP.
Rather than printing directly onto the target material, there are otherimportant transfer technologies whereby ink is first applied to film or someother material and then transferred to the material to be printed by using
heat or other means. Beginning with ink ribbons for fax machines, thermaltransfer materials were later used in the instant photo-sticker booths that
became wildly popular among young Japanese from the early 1990s.
Demand for these materials soared, as did demand for thermal transfer fax
receiving paper. The market for these materials is still growing, with thefocus now on ink ribbons for digital photo printers.

Examples of Coating and Transferring Technology Applications
Having cultivated coating technologies over the years, DNP began to apply them to the production of sophisticated, commercial-use printed products
like magnetic tape coatings for cash cards and functional optical films, and to a wide range of products including film packaging used in everyday life, anddecorative materials like floor and wall coverings. We hold a large share of all of these markets.
We also make use of our transferring technologies in the ink ribbons used in instant photo-sticker booths and digital photo printers, as well as in our
unique “Curlfit” technology, which uses water pressure to transfer patterns for printing on curved surfaces such as automotive interiors or molded plastic
products.
Application Example 1

High-function Optical Film

The surface of the polarizing plate at the very front of an LCD is covered
with a special, functional film, called anti-glare or anti-reflection film. This film
makes it easier to see the images on the screen by protecting the surface fromscratches and by limiting the reflection of incident light such as fluorescentlights. A special anti-glare film is also used on front filters – the glass surface atthe very front of PDPs.
By making the most of the coating technologies that are among our core
printing technologies and providing optical films that facilitate viewing andprevent eyestrain, DNP has captured an overwhelming share of the market forsurface functional films.

138

Application Example 2

Ink Ribbons for Digital Photo Printers

Ink ribbons used for digital photo printers consist of a base film coated withyellow, magenta, cyan, and black inks to precisely controlled thicknesses. A
certain amount of each color of ink is sublimated and transferred onto special
receiving paper, depending on the amount of energy in the printer's thermalhead. This method makes it possible to express very subtle variations in color
and to produce prints that are very close to the quality obtained with silver
halide photography.
As digital cameras and mobile phones with built-in cameras have rapidly
gained popularity, there has been increasing demand for printing photos takenwith these devices. In addition to the demand for supplying home-use printers,
there has also been a surge in commercial demand, including printing services atmajor mass retail shops.

Technologies and Their Applications

Post-processing Technologies

Refining the Final Shape and Making a Convenient Product: in Pursuit of Greater Usability
Even after printing has been completed, our job is not yet finished. In
the case of books and magazines, it’s only after we have completed thebinding processes — folding the printed pages, fixing them together,cutting off unnecessary parts and cleaning up the edges — that we have afinished product.
The single word “bookbinding” comprises a large number of types ofprocessing that we do in order to create a finished product. Depending on
the number of pages and the purpose for which a document is to be used,
we may use an expensive type of binding that yields a product with aluxurious feel or a less expensive method suited to high-volume products:
options include saddle-stitching, side-stitching, burst binding and “perfectbinding.”Ever since DNP’s founding, we have kept coming up with ideas forprocessing our final products so that they meet our customers’ specificneeds. In the early 1950s, with our entry into the packaging business, webegan developing one post-processing technology after another. We started
with three-dimensional processing of paper containers and went on todevelop processes like sealing film packages and forming plastic.
Eventually, we ended up developing and improving forming technologies
for a variety of materials, including laminated tubes and PET bottles.
In these processes, we must pay as much attention to the functionality ofthe end product as we do to the aesthetics of the printing. We must think
not only about durability and other types of strength, but also about ease ofuse. When we are binding a very thick book like a computer manual, we
must bind it very firmly. At the same time, we find a way to allow the
manual to stay open at the desired page even when the reader has both
hands on the computer. Because we seek maximum functionality in thearena of daily life, our post-processing technologies must also reflect
consideration for aspects like environmental impact and universality ofdesign.
The products that we make by applying these post-processing technologies are the result of matching DNP’s technological strengths with what itis that our customers want.

Examples of Post-Processing Technology Applications
The development of our post-processing technologies began with bookbinding. In recent years, regulations governing magazine supplements have been
eased so that today we encounter supplements like clothing, cosmetic samples, umbrellas, and other items that were unheard of in the past. Because of thistrend, DNP’s development of new post-processing techniques has proceeded very rapidly. Our post-processing technology must always anticipate changes
in the social environment and in consumers’ desires, and respond quickly.
In the packaging business, which we entered in the 1950s, we are currently responding not only to changes in demand for functions like convenience anddurability, but also to changes related to a growing concern for the environment and Japan’s aging society.
Application Example 1

Designing in Functionality and Comfort
Application Example 2

A large amount of packaging material is used in everyday life. It is developed
according to design principles calling for minimal environmental impact andmaximum functionality. For example, consumers do not see how much thought
was given behind the scenes to designing the aluminum lid of a yogurt cup,
which must be attached firmly enough to completely prevent leakage but not so
firmly that people with little strength have trouble opening it. As anotherexample, we considered the user’s comfort in our design of cups for cup noodles,
making it double-sided so that the outside will not be hot to the touch evenwhen the cup is filled with hot water.

Aseptic Filling System that Does Not
Harm Delicate Flavors

DNP established its aseptic filling technology in 1976 with the developmentof containers that can preserve their contents at room temperature for a long
period of time. These containers are used as portion packs for coffee cream andas packaging for prepared foods like stew or pasta sauce. In recent years, DNP
has also won high praise for its bottle filling system, which makes use of thissame aseptic filling technology for packaging a variety of beverages.
Under this system, bottles are filled in an aseptic environment, so thecontents are not damaged by thermal sterilization. This makes it possible to seal
in the delicate flavors of beverages like Japanese green tea or black tea. Also, we
provide parisons, or test- tube-like primary formed products. These are formed
into bottles only immediately before filling, so their transportation entails lesscost and less emission of CO2. In recognition of how effective this system is at
reducing the negative impact on the environment, DNP received an award fromthe LCA (Life Cycle Assessment) Japan Forum in December 2004.

139

Major Subsidiaries and Affiliates

Capital
Ownership ratio(Millions of yen)(%)

Printing
DNP Hokkaido Co., Ltd.
DNP Tohoku Co., Ltd.
DNP Tokai Co., Ltd.
DNP Nishinippon Co., Ltd.
DNP Shikoku Co., Ltd.

Photoengraving, printing, bookbinding, production and sales of packaging
Photoengraving, printing, bookbinding, production and sales of packaging
Photoengraving, printing, bookbinding and production of packaging
Photoengraving, printing, bookbinding, production and sales of packaging
Photoengraving, printing, bookbinding and production of packaging

350
350
120
400
50

100.0
100.0
100.0
100.0
97.0

200
200
100
100
80
80
80
50
40
(S$1,000)
3,892

100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

200
100
100
100
50

100.0
100.0
100.0
100.0
100.0

100
100
80
25
20
(Euro 1,000)
37

100.0
100.0
100.0
100.0
100.0
100.0

1,796
100
100
100
100
90
60
50
50
40
30
30
50

83.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
92.5
95.0
95.0
100.0

Photoengraving and production of packaging
Production and processing of composite resins
Photoengraving and production of packaging
Photoengraving and production of packaging
Photoengraving and production of packaging
Production of laminated tubes
Sales and consultation for aseptic systems for beverages
Molding, processing and printing of plastic containers
Molding and processing of paper containers
Filling and processing packages
Production and sales of packaging products

430
380
300
200
200
200
100
100
80
80
($1,000)
26,000

100.0
100.0
100.0
100.0
100.0
90.0
100.0
100.0
100.0
100.0
51.0

Printing and processing of steel and other metal plates
Photoengraving and production of decorative products

300
200

50.0
100.0

Printing of TTRs and ST materials
Production and sales of optical films for displays
Sales of photo materials for digital cameras

100
100
300

100.0
100.0
100.0

Information Communication
Books and Magazines
DNP Offset Co., Ltd.
DNP Seihon Co., Ltd.
DNP Total Process Ichigaya Co., Ltd.
DNP Total Process Maebashi Co., Ltd.
DNP Art Co., Ltd.
DNP Techtas Ichigaya Co., Ltd.
DNP Uniprocess Co., Ltd.
DNP Total Process Nagaoka Co., Ltd.
DNP Butsuryu Systems Ichigaya Co., Ltd.
Tien Wah Press (Pte.) Ltd.

Offset printing
Bookbinding
Photoengraving
Photoengraving
Production of drafts for photoengraving
Bookbinding
Photoengraving
Photoengraving
Warehousing and packaging of books and magazines
Photoengraving, printing and book binding

Commercial Printing
DNP Media Create Kansai Co., Ltd.
DNP Graphica Co., Ltd.
DNP Media Create Co., Ltd.
Multi Print Co., Ltd.
DNP Butsuryu Systems Shouin Co., Ltd.

Planning, production, photoengraving and bookbinding
Printing and bookbinding
Planning, designing, photoengraving and printing
Photoengraving, printing and bookbinding
Warehousing and packing of commercial printing

Business Forms
DNP Data Techno Co., Ltd.
DNP Data Techno Kansai Co., Ltd.
DNP Total Process BF Co., Ltd.
NexantiS Corporation*
DNP Techtas BF Co., Ltd.
DNP France SAS

Production and sales of plastic cards with magnetic stripes, IC chips and others
Production of business forms and plastic cards
Photoengraving and machine plate activities
Sales of smartcard related software and products
Enclosing, sealing, and logistics for business forms related products
Smart card and security business researchCommunicaion and Information
MyPoint.com Japan Co., Ltd.
DNP Archives.com Co., Ltd.*DNP AV Center Co., Ltd.*DNP Digitalcom Co., Ltd.
DNP Space Design Co., Ltd.*
Mobile Impulse Co., Ltd.*
Maison de DNP Ginza Co., Ltd.*DNP Corporate History Center Co., Ltd.*
Trans Art Inc.*CP Design Consulting Co., Ltd.*
M's Communicate Co., Ltd.*At Table Co., Ltd.*
YouToo Co., Ltd.*

Marketing system planning and operations for Internet advertisements
Planning, producing, and sales of art objects and contents
Planning, production, editing and sales of TV broadcasting, movies and video software
Planning and production of digital media contents
Planning and designing shops, exhibition booths and other commercial spaces
Website management for mobile online shops
Sales of Maison des Musées de France art products
Planning and production of corporate history archives
Procurement and sales of art objects
Consultation for the privacy protection and crisis management
Consultation for customer relationship management
Research, consulting and planning for sales promotions for grocery supermarkets
Provision of information over the Internet and mobile phones

Lifestyle and Industrial Supplies
Packaging
DNP Technopack Tokai Co., Ltd.
DNP Techno Film Co., Ltd.
DNP Technopack Co., Ltd.
DNP Technopack Kansai Co., Ltd.
DNP Technopack Yokohama Co., Ltd.
Sagami Yoki Co., Ltd.
Aseptic Systems Co., Ltd.
DNP Techno Polymer Co., Ltd.
DNP Cup Techno Co., Ltd.
DNP Hoso Co., Ltd.
PT DNP Indonesia

Decorative Materials
DNP Ellio Co., Ltd.
DNP Kenzai Co., Ltd.

Industrial Supplies
DNP IMS Co., Ltd.
DNP Advanced Industrial Supplies Co., Ltd.
DNP PrintRush Co., Ltd.

140

Capital
Ownership ratio(Millions of yen)(%)
Pixel Magic Imaging, Inc.

Sales of digital photo printing systems(US$1,000)
45,282(51.0)
51.0

DNP IMS America Corporation

Processing of TTR barcode and facsimile ribbons(US$1,000)
35,893(100.0)100.0Compagnie de Découpe de l’Ouest - CDO SAS

Small-roll processing of ink-ribbons for facsimiles(Euro1,000)
3,040

23.4

DNP IMS France SAS*

Sales of TTR barcode and facsimile ribbons(Euro 1,000)
300

100.0

Advanced Colortech Inc.
DAP Technology Co., Ltd.
DNP Precision Devices Co., Ltd.
DNP Denmark A/S

Production and sales of color filters for LCDs
Production and sales of PDP back plates
Produciton of display related components
Manufacturing and sales of projection screens

5,000
6,000
400
(Dkr1,000)
135,000

80.0
50.0
100.0
100.0

DNP Electronics America, LLC

Manufacturing and sales of projection screens

DNP Display Technology Taiwan Co., Ltd.

Sales of display components and technological consultation(US$1,000)
15,045(NT$1,000)
30,000(100.0)100.0(99.0)
100.0

490
300
100
40
(Euro1,000)
47,200

65.0
100.0
100
100.0
80.6

2,000
626
100
100
96
80
60

83.3
100.0
100.0
94.3
55.0
100.0
48.3

250
200
100
100
90
33
30
20

100.0
99.6
100.0
100.0
100.0
88.8
100.0
100.0

Electronics
Display Components

Electronic Devices
DT Fine Electronics Co., Ltd.
DNP Fine Electronics Co., Ltd.
DNP LSI Design Co., Ltd.
DNP Micro Technica Co., Ltd.
DNP Photomask Europe S.p.A.

Production and sales of components for manufacturing of semiconductor components
Production and sales of components for manufacturing of semiconductor components
Logical circuit designs for ICs and LSIs and layout designs
Inspection and packing of semiconductor components
Manufacturing and sales of photomasks

OthersThe Inctec Inc.
DNP Logistics Co., Ltd.
D.N.K. Co., Ltd.
DNP Trading Co.,Ltd.
Direc Co.,Ltd.
DNP SP Tech Co., Ltd.
Kyoiku Shuppan Co., Ltd.

Development and sales of ink, vanish, pigments and dyes
Packing, shipping operations and warehouse management
Manufacturing and sales of printing equipment and machine tools
Sales of paper and other products
Sales of publishing and educational equipment
Planning and production of promotional material
Publishing of educational books

P e r s o n n e l We l f a r e , F a c i l i t y S e r v i c e , a n d O t h e r s
Dai Nippon Kaihatsu Co., Ltd.
Shiobara Green Village Co., Ltd.*DNP Facility Services Co., Ltd.
DNP Information Systems Co., Ltd.*DNP Human Services Co., Ltd.*
Uzumine Country Club Co., Ltd.*DNP Accounting Services Co., Ltd.
DNP Techno Research Co., Ltd.*Real estate sales
Management of leisure facilities
Management and operations of buildings and welfare facilities
Planning, designing, development, management and operation of information systems
Planning, management and data processing activities related to personnel plans
Management of golf courses
Accounting and consulting services
Studies related to patents and the preparation of contracts

Overseas Sales
DNP America, LLC

Sales of printing solutions, electronic components and decorative materials(US$1,000)
100(100.0)100.0

DNP Corporation USA

Holding company(US$1,000)
47,387

(9.4)
100.0

DNP Holding USA Corporation

Holding company(US$1,000)
100(100.0)100.0

DNP Europa GmbH*

Sales of displays, semiconductor components and decorative materials(Euro1,000)
92

100.0

DNP UK Co., Ltd.*Sales of decorative materials(£1,000)
120

100.0

Dai Nippon Printing Co. (Australia) Pty. Ltd.*Sales of printing solutions(A$1,000)
70

100.0

DNP Singapore Pte. Ltd.*Sales of displays, semiconductor components and decorative materials(S$1,000)
350

100.0

DNP Korea Co., Ltd.*Sales of displays and semiconductor components(Krw1,000)
500,000

100.0

DNP Taiwan Co., Ltd.

Sales of displays and semiconductor components(NT1,000)
10,000100.0

DNP International Trading (Shanghai) Co., Ltd.*Sales of printing solutions and packaging products(US$1,000)
2,000

100.0

2,935

(3.8)
57.0

Beverages
Beverages
Hokkaido Coca-Cola Bottling Co., Ltd.

Manufacturing and sales of soft drinks

Notes: 1. Ownership ratios (in brackets) indicate the percentage of shares owned through DNP’s subsidiaries or affiliates.
2. Companies with an asterisk mark are neither consolidated nor accounted for under the equity method.

141

Sources of Information About DNP■ Reports“Yuho” Annual Securities Report (Japanese)
Submitted twice a year to the Finance Ministry in accordance with Article 24 of the Securities
Exchange Law (half-year report submitted in December, full year report submitted in June). We submit awide range of information, including consolidated financial statements with an attached auditor’s report,
non-consolidated financial statements, summary of financial results, and information on outstanding
shares and Directors, etc.

“Tanshin” Earnings Release (Japanese, partially in English)
In accordance with Tokyo Stock Exchange rules, we prepare earnings releases for each quarter.
(We began making quarterly releases after the rules were amended in March 2003.) In addition to
consolidated and non-consolidated financial statements, we report on the status of sales, etc.

■ Publications

Annual Report (Japanese, English)
Around August or September every year, we release a Japanese version and an English version. In
addition to consolidated financial statements, the report contains a message from the president, businessstrategies, summaries of financial results, news from each business sector, financial analysis, etc. The
Japanese version contains the same financial statement and notes as the securities report, without theauditor’s report. The English version contains financial statements with an attached auditor’s report.

“DNP Report” Report to Shareholders (Japanese)
This report is issued quarterly, in September, December, March and June, and is mailed to shareholders. Examples of its content include summaries of business reports, interviews with management,
information about new businesses, and information about shares.

Data Book (bilingual: Japanese and English)
Issued around August or September of every year, the Data Book contains values from financial statements of the past 10 years, financial analysis values presented in the form of tables and graphs, etc.
Financial statement values are taken from securities reports.

DNP Group CSR Report (Japanese, English version available as PDF file)
Issued around August or September of every year, the report covers corporate social responsibility fromthe standpoint of the economy, society, and environment. Since we issued our “Eco-report” in 1998, we
have continued to report under different names such as “Environment Report” or “Sustainability Report.”

Corporate Information (Japanese, English)
In order to give the public a better understanding of our operations, we published a pamphlet about
our company. It introduces each division and addresses aspects like products, services, sales, planning,
research and development, production facilities, company history, and a summary of our activities.

English: http://www.dnp.co.jp/index_e.html

142

■ Web site

We maintain a web site as a portal for communication with a large number of stakeholders. In addition
to general corporate information and news updates, we also offer PDF versions of various reports andpublications, introduce products, services, and bases of operations in Japan and overseas, and receive
inquiries via e-mail. The site also has links to DNP Group companies.
Major features of our web site
News releases

Reports, Corporate Information, etc.

Information for investors: Financial highlights,

Introduction to each division’s business: Lists ofbonds and rating report, disclosure policy, shareproducts and services

information, etc.

Personal information protection

PDF files: Annual “Yuho” Securities Reports,

Materials procurement“Tanshin” Earnings Releases, “Koukoku” Public

Hiring information

Notices of Account Settlement, Annual Reports,

Events and gallery information

DNP Reports, Data Books, DNP Group CSR

Contact information, etc.

Da Vinci“Mona Lisa (La Gioconda)” (partial view)
The Louvre Museum©Photo:RMN / R.G.Ojéda / digital file by DNP Archives.com

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Dai Nippon Printing Co., Ltd.
1-1-1, Ichigaya-Kagacho, Shinjuku-ku, Tokyo 162-8001, Japan

Printed using soy inks.
FSC certified paper is used for the main body of this annual report.
©2006 Printed in Japan.