Annual Report
2006
Year Ended December 31, 2006

Contents
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business at a Glance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
A Letter to Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Interview with the President and Group CEO . . . . . . . . . . . . . 6
Corporate Governance & Internal Control. . . . . . . . . . . . . . . 13

Board of Directors & Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . 20
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 39
Independent Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Securities Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ADK Group Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Forward Looking Statements
Forward looking statements made in this annual report concerning performance or business strategies have been determined according
to assumptions and beliefs based on information available at the time of publication and may contain elements of risk and uncertainty.

Financial

Years ended December 31, 2006 and 2005

Highlights
Thousands of
U.S. dollars,
except per-shareamounts

Millions of yen,
except per-share amounts

For the year:

2006

2005

2006

Gross billings¥ 420,059¥ 424,705$ 3,526,648

Gross profit

48,68547,774

408,740

Operating income

6,392

7,488

53,665

Income before income taxes and minority interests

9,682

11,02881,286

Income taxes

4,556

5,025

38,250Net income

5,070

5,946

42,566

Net income per share

106.62

122.110.90¥ 256,754¥ 246,867$ 2,155,604

141,387

135,748

1,187,029

At year end:
Total assets
Total net assets

Note: For convenience purposes, U.S. dollar amounts are converted from Japanese yen at the rate of ¥119.11=U.S.$1.00 as of December 31, 2006.

Gross Billings

Gross Profit
Millions of yen

500,000
400,000

40,000300,000

30,000200,000

20,000100,000

10,000

0

2002

2003

2004

2005

2006

Operating Income

Millions of yen

50,000

0

2002

2003

2004

2005

2006

Net Income (Loss)
Millions of yen

10,000Millions of yen

7,000
6,000
5,000

8,000

4,000
3,000

6,000

2,000
1,000

4,000

0
-1,0002,000-2,000-3,000

0

2002

2003

2004

2005

2006

-4,000

2002

2003

2004

2005

2006

ADK Annual Report 2006

1

Business at a

GlanceADK Profile
Asatsu-DK Inc., commonly known by its initials ADK, was founded in March 1956 by current Chairman Masao
Inagaki as a small, ambitious firm focusing on magazine advertising. Asatsu Inc., as it was known at the time,quickly built up a client base, primarily in the financial sector, giving it a strong foundation for growth.
As Japan entered the high-growth years of the 1960s, Asatsu Inc. broadened its creative reach as it began
the planning and production of TV animation programs for the then still-new medium of television.
In 1987, ADK was listed on the Second Section of the Tokyo Stock Exchange (TSE), becoming the first
advertising agency in Japan to make a public stock offering. In 1998, it made another major move as it signed
a reciprocal share agreement and strategic alliance with WPP Group plc, the world’s second-largest marketingorganization according to Advertising Age
Age’s annual Agency Report (April 30, 2007). The following year, thecompany merged with Dai-Ichi Kikaku Co., Ltd., another Top 10 Japanese agency, changed its nameto Asatsu-DK (ADK) and entered a period of new growth.

ADK’s Business Sectors (Non-Consolidated Gross Billings)
Millions of yen

Magazine

21,717(5.7%)

Newspaper

35,447(9.4%)

TV

179,940(47.5%)

Radio

4,193

(1.1%)

Digital Media

12,503

(3.3%)OOH Media

11,989

(3.2%)

Sales Promotion

57,504(15.2%)Creative & Other

55,507(14.7%)ADK vs. Consolidated Subsidiaries

TOTAL¥378,804（100%）

Advertising vs. Other BusinessMillions of yen

ADK378,804 (87.2%)

Domestic subsidiaries

35,114 (8.1%)

Overseas subsidiaries

20,676 (4.7%)(Adjustments)-14,535

Millions of yen

Advertising

TOTAL¥420,059（100%）

410,875 (97.8%)

Other Business

9,184 (2.2%)

TOTAL¥420,059（100%）

Management Indicators (Consolidated)
Operating Margin (%)

Staff Cost/Gross Profit Ratio (%)

20

60
16.8

15

13.7

57.1

56

55.7

56.0

2004

2005

54

10
9.1

2

57.8

58

15.7

13.1

5

59.1

20 02

ADK Annual Report 2006

52
2003

2004

2005

2006

50

2002

2003

2006

ADK Group Companies
Domestic

Overseas

・Kyowa Kikaku Ltd.

・ADK America

・ADK Arts Inc.

・ADK Europe B.V.

・ADK International Inc.

Advertising

・ADK Boys Inc.

・TRI Communication Inc.

・Digital Advertising Consortium Inc.
・Eiken Co., Ltd.

Other・Asatsu Century (Shanghai) Advertising Co., Ltd.

・ADK Europe Holding B.V.

・United-Asatsu International Ltd.

・Asatsu (Deutschland) GmbH・Asatsu-DK Singapore Pte. Ltd.

・DIK-Ocean Advertising Co., Ltd.

・Guangdong Guangxu (Asatsu) Advertising・Asatsu-DK Hong Kong Ltd.
・DK Advertising (HK) Ltd.

・ADK Thai Holding Ltd.

・Dai-Ichi Kikaku (Thailand) Co., Ltd.
・ASDIK Ltd.

・Shanghai Asatsu Advertising Co., Ltd.

Publishing

Information Processing Services

・Nihon Bungeisha, Ltd.

・Nippon Information Industry Corp.

・Neo Shobo, Ltd.

Consolidated Five-Year Summary

Millions of yen except per common share amounts and financial ratios

2006

2005

2004

2 0 032 0 02Gross billings¥ 420,059¥ 424,705¥ 413,898¥ 395,149¥ 373,899

Gross profit

48,68547,77449,07946,883

41,52937,731

Income Statement Data

Selling, general and administrative expenses

42,29240,28640,81940,467

Operating income

6,392

7,488

8,260

6,416

3,798

Income before income taxes and minority interests

9,682

11,028

9,440

7,447

(4,776)

Net income (loss)

5,070

5,946

5,181

3,621

(3,637)¥ 141,387¥ 134,751¥ 123,894¥ 119,572¥ 111,521

256,754

246,867

238,900

226,911

209,227

19,14016,79912,183

9,204

6,158

Balance Sheet Data
Total net assets (č)
Total assets
Total long-term liabilities
Per Common Share Data
Net income per share¥

106.62¥

122.11¥103.25

¥

70.53

¥

(72.26)

Dividends per share

27

36

20

18

18

Book value per share

2,979.79

2,809.30

2,554.78

2,416.67

2,246.56

No. of common shares issued

51,655,400

51,655,400

51,655,400

51,655,400

51,655,400

No. of common shares outstanding

47,096,993

47,952,849

48,458,828

49,425,148

49,640,893

Gross profit

11.59%

11.25%

11.86%

11.86%

11.11%

SG&A expenses

10.07

9.49

9.86

10.24

10.09

Financial Ratios
AS PERCENT OF GROSS BILLINGS

Operating income

1.52

1.76

2.00

1.62

1.02

Income before income taxes and minority interests

2.31

2.60

2.28

1.88

(1.28)Net income

1.21

1.40

1.25

0.92

(0.97)

Operating income

13.1%

15.7%

16.8%

13.7%

9.1%

Staff cost

57.8

56.0

55.7

57.2

59.1

AS PERCENT OF GROSS PROFIT

Return on equity

3.7

4.6

4.3

3.1

–

Equity ratio

54.7

54.6

51.9

52.7

53.3

Current ratio

1.44×

1.46×

1.45×

1.49×

1.46×

čFor the years until 2005, instead of net assets, shereholders’ equity balances are shown. For details of the difference, please refer to the Notes attached to the Financial Statements.
ADK Annual Report 2006

3

Masao Inagaki
Representative Director,
Chairman

4

ADK Annual Report 2006

Koichiro Naganuma
Representative Director,
President and Group CEO

A Letter to

Our Shareholders

Fiscal 2006 in Brief
It is our pleasure to provide an overview of ADK’s performance in fiscal 2006, ended December
31, 2006. During the year under review, we celebrated our 50th anniversary. We wish to takethis opportunity to thank you, our shareholders, for your support, which has helped us reachthis milestone. Unfortunately, however, we were unable to fully meet the expectations of ourshareholders. Even though gross profit increased as a result of the recovery of gross margins,declines were recorded in operating income and net income.
Fiscal 2006 also saw dramatic changes in the business environment, due to the enactmentof the New Corporate Law and the adoption of the so-called Japanese SOX Act (Financial
Instruments and Exchange Law). Companies must now reinforce their compliance and internal
control systems to be in accordance with the new laws and regulations. We at ADK go throughan ongoing process of self-reflection, so that we can be a company trusted and respected by all.

Shareholder Returns
We declared a year-end dividend of ¥17.0 per share, bringing the total annual dividend to ¥27.0
per share, based on ADK’s business performance as well as its shareholder return policy, whichcalls for 25% of consolidated net income to be distributed to shareholders as regular dividends.
During fiscal 2006, ADK allocated a total of ¥3,260 million to acquire 850,000 shares of treasury
stock, equivalent to 1.6% of total shares outstanding. Including regular dividends, and net of thepurchase and resale of shares in fewer-than-standard trading units, ADK’s total shareholder
distribution represented 89.9% of consolidated net income for the year. To maximize shareholder
value, we resolved to renew our dividend policy, calling for 35% of consolidated net income to be
distributed as regular dividends applicable for fiscal 2007 and later, with a minimum annual
dividend of ¥20.0 per share, based on the current number of shares outstanding. Moreover, weplan to accelerate stock buybacks in order to improve ROE. We will purchase 2,000,000 shares
during 2007, with an ROE target of 6.0% or more by 2010. At the same time, we will continue tomake every effort to improve EPS and dividend per share.

Philosophy and Strategies
Since our establishment, we have embraced a corporate philosophy of Management by All.
Guided by this philosophy, we are committed to making further strides over the next half-century
and beyond, drawing on our free and vigorous corporate culture to continuouslly address newchallenges. This, together with the latest technologies, will enable us to deliver optimal proposals
to our clients. We look forward to the ongoing support and understanding of our shareholders as
we pursue our future challenges.
June 2007

Masao Inagaki

Koichiro Naganuma

Representative Director, Chairman

Representative Director, President and Group CEO

ADK Annual Report 2006

5

Interview with the President and Group CEO

Back ontoanUptrend

Although the Japanese economy continues its steady recovery,
advertising expenditures remain sluggish. To overcome this, ADK has set new,aggressive targets for fiscal 2007. President and Group CEO, Koichiro Naganuma
talks about ADK’s new strategies for sustained growth.

6

ADK Annual Report 2006

billings, ended in the fall of 2005. As

Q.1

Q.2

In fiscal 2006,
ADK recorded a drop
in gross billings for the
first time in four years.
What are your thoughtson these results?

How is theJapanese economic
environment, andhow do you plan toboost performance?

part of this project, ADK had managed
two highly successful pavilions for theJapanese government. In 2006, theoverall performance failed to cover
the gap left by this major sourceof billings.
Second, our focus on profits led
to smaller media buying billings.
However, switching to a more efficient
media plan has led to an improvementin profit.

ADK was proud of its highest growth

The economy is sustaining its

rate in the industry for a long time.

recovery, but growth in advertising

During 2001 and 2002, we lost a major

spending is still somewhat lackluster.

client and suffered a drop in billings

Certainly, this environment does not

During 2006, ADK headquarters’

and profits, but performance bounced

inspire optimism. The increase inperformance was weak compared withback and growth continued. However,

advertising spending during 2006 wasbuoyant conditions at our local branch

the last couple of years can best be

0.6%.* The growth rate for 2007 looks

offices. This was not only for media

described as a downturn. Although

to be around 1%. Against this, the ADK

buying; as I noted earlier, results weregross billings and net income for fiscal

group is planning for a 4% increase in

not satisfactory for other transactions

2005 surpassed the previous year’s

gross billings. This may seem to be aeither. Moreover, we gained fewer

levels, gross profit and operating

challenging target, but I believe it is

new accounts than during theincome both fell. During 2006,

achievable.

previous year. Of course, we acquired

gross profit edged up, but gross* Data: Dentsu, February 2007

many new clients and brands throughbillings, operating income and net

Areas for Improvement

fiercely competitive presentations

Factors Behind the2006 Falloff

income decreased. This disappoints
me greatly. Moreover, I feel I must

and a number of them will come tofruition during 2007, but in terms of

apologize for not meeting our2006 performance, our results leave

shareholders’ expectations. But I do

To achieve our target, we must startmuch to be desired. To bolster ADK’s

not believe that this downtrend is set

with a close analysis of the factors

billings and profit, we have to pursue

to continue. From 2007, we expect tothat caused the falloff in 2006.

new accounts more aggressively andregain our upward momentum.

There were two major reasons forthe downturn in gross billings. First,

secure a greater share of businessfrom existing clients.

Expo 2005 Aichi, Japan, which had
been an important contributor to?jgol`g^BYhYf¿k?<H
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ADK Annual Report 2006

7

1. Reinforcing Sales Power

However, there is still much more to

products, and we have the know-how

First, we need to strengthen our sales

be done. We strive to continuously

for broader development through theforce. Each sales division needs toupgrade our profitability through suchcultivation of long-loved, high-quality

analyze its client portfolio anew. We

measures as bolstering our negotiating

characters.

can then carry out appropriate andpower with media companies.

In the future, we aim to bolster

efficient personnel distribution after
ascertaining which employees, offering

our endeavors to propel our

3. Strengthening

content business forward not only

Our Content Businessin Japan but also overseas. A 7.6%

In 2004 and 2005, one of ourequity investment in Daiwan Digitalon a daily basis, so advertising

animation contents, Yu-Gi-Oh! , became

Broadcasting in 2006 should shore up

professionals constantly need to learna major hit overseas, as well as inour distribution operations in Southnew technologies and acquire newJapan. But its popularity subsequently

Korea.

knowledge. We also have various

peaked and earnings declined.

training programs including ADK

Nevertheless, we have many otherwith preparations for digital content

University to further improve our

excellent animation contents, which

delivery via mobile phones throughemployees’ abilities. However, thishave expanded considerably, but not

Super Vision Inc., a non-consolidated

alone is not enough. We need a spirit

enough to offset the drop-off fromsubsidiary. I believe this will expand

and mind-set geared to assimilate

Yu-Gi-Oh!.

our content business utilizing ourwhat skills, are best for each client.
The advertising business evolves

these technologies and knowledge

In addition, we are moving ahead

People sometimes say that hit

high-quality library.

and then translate them into improved

products are one in a thousand, orclient performance. The solution tothat they come along only once every

means limited to animation products.

being the best partner for our clients

decade. However, ADK’s experience

During 2006, we became a marketinglies in the formula “technology andand track record has been unbroken

partner for the International

knowledge multiplied by spirit,” andalmost since its foundation. Over the

Tchaikovsky Competition , a stepping-

this is integrally linked to ADK’spast 43 years, we have been a leader

stone for up-and-coming classicalgrowth, billings and profit.

in the creation and development

music performers worldwide. Weof more than 200 TV animation

obtained exclusive sponsorship

2. Improving the Profitability of

programs. These include Doraemon ,sales rights for all corporations

Our Media Buying Businessone of Japan’s best-loved characters,

except Russian-based corporations,“Media buying agencies,” as the termand Kochikame , which also enjoyed

and as a start secured a leading

is understood in Europe and theacclaim overseas. Another recent

Japanese corporation to be theUnited States, do not exist in Japan.

example of our international success isgeneral sponsor of the competition.

This role falls under the auspices of a

The Prince of Tennis , which was aired

In addition, we plan to host Japanesefull-service agency such as ADK.

in China.

Kabuki performances in China during

We improved profits from media
buying during 2006 through the

My point is that ADK is a fertile
ground for the creation of hit

ADK’s content business is by no

2007, following the success of sumo
wrestling events in China in 2004.

presentation of efficient plans.

L = ; @FG DG?Q
Kochikame

Doraemon

Original works ©1976 Osamu Akimoto
Animation series and products derived
thereof ©1996 ADK©Fujiko Pro, Shogakukan, TV ASAHI, SHIN-EIANIMATION, ADK

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8ADK Annual Report 2006

Prince of Tennis

Yu-Gi-Oh! Duel Monsters GX

Original works ©1999 TAKESHI KONOMI
Animation series and products derived thereof©2001 NAS・TV TOKYO All rights reserved©1996 Kazuki Takahashi ©2004 NAS・TV TOKYO4. Cost Control

methods of gathering data have also

Non-consolidated operating income

shifted dramatically. Clients recognize

during 2006 was down 18% fromadvertising spending as an investment

the previous year. This arose from aand this in turn has led to a greater

4.2% increase in operating expenses,

emphasis on ROI.

which vastly outpaced the growth in

Q.4
So, what is your plan toseize those opportunities?

A common view is that the rise ofgross profit. In the rapidly changing

the internet spells danger for mass

field of advertising, recruitment

media. This is accurate insofar asof top personnel and research andtelevision-viewing hours will decreasedevelopment to accumulate new

if consumers have a variety of othertechnologies and expertise are vital. In

means to access information. However,addition, a remuneration system that

I think that it is a mistake to interpret

rewards high-performing personnel

this through a simplistic comparison

is needed to bolster staff motivation.

of mass media versus the internet.

These were the main factors responsible

They are not in conflict; they can bothfor increased costs during 2006.

move forward and prosper throughADK has long promoted a 360-degree

However, growth in expenses must notcreative integration. Synergy raises

communications approach. This

exceed gross profit. This is a point that

their impact, opening possibilities toinvolves efficiently utilizing every

must be given due consideration as wecreate communications with greater

touchpoint with consumers to answer

proceed with cost control.

consumer penetration.

client demands with well-conceived

Advocating a 360-Degree
Communications Approach

I do not think clients are losing

Q.3
Tell us about ADK’slonger-term strategies.
What do you think is the
future of advertising?

media-neutral and solution-neutral

their appetite for advertising. Rather,plans.

agencies are not responding to clientneeds. Put differently, agencies arestill not offering communications plansthat satisfy clients in terms of ROI.
Clients seek new communications that
respond to changes in circumstances.
For ADK, these changes represent
tremendous opportunities.
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ADK Annual Report 2006

9

Another important aspect of our

ADK Interactive Division. Our former

360-degree communications approachconcept was to start up a separate

is in-store media. The storefront is thecompany with the same functions, butultimate touchpoint between consumer

During fiscal 2006, our branch offices

after much deliberation we decided

and product. Many clients agonize

posted stellar results. In particular,

to bring it in-house. This ensuresover the problem of how to raise thebillings and profits for the Osakasmoother functioning when promoting

shop-floor presence of their products.

Branch Office grew significantly,

the seamless integration of mass

During 2006, ADK established AD&M

largely as a result of a successful

media and the internet and presenting

Inc. with two powerful partners, Dai

strategy of personnel dispatch fromour 360-degree communications

Nippon Printing Co., Ltd., and Mitsui

headquarters and collaborative work

solutions to clients.

& Co., Ltd. Through this initiative, we

between local and headquarters staff.

We are also establishing an

aim to bolster our in-store media

Osaka has a large advertisingexternal support system for ADK.

capabilities to better meet client

market. It is nearly as large as theDuring 2006, we formed ASP Co., Ltd.,in-store needs.

nationwide market of South Korea ora new company to offer e-marketing

Australia. That means we still have

Responding to the
Growing Power of Retailers

solutions, as a joint venture with
Septeni Co., Ltd. Furthermore, weestablished CGM Marketing Inc.

a big opportunity in Japan. Nagoya,
the third largest city in Japan, also
has a promising market. Next, we willwith Digital Garage, Inc., Dentsu

Another major client concern is thefocus on the Nagoya Branch Officeand cyber communications inc. This

growing power of distributors, that is,

to further reinforce operations incompany analyzes and applies suchretailers. This is because they have thethis region, and we will continue toconsumer-generated media as blogs

final call on which products are carriedstrengthen our other domestic branch

to develop new marketing methods

on store shelves. The importanceoffices in the same way.

and strategies. Digital Advertisingof brand strength, which leads toConsortium (DAC), an internet media

nomination buying by consumers, is

rep that we formed in 1996 withgrowing and is essential to avoiding

Hakuhodo, Tokyu Agency and otherprice competition or discounting. ADK

partners, and Drill Inc., which is theoperates a brand cultivation program

result of a tie-up with Dentsu in 2004,

called EX-Branding® that works toare progressing well. By utilizing theseraise brand strength by viewing

joint ventures, we efficiently invest in

brands as the consumers’ experience.

growing business areas and promote

At the same time, many clients

360-degree communications solutions

are pursuing new sales channels.

by raising our cross-media capabilities.

This is direct business. Our Direct
Communications Division isaggressively and creatively supporting
our clients’ direct business initiatives.

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External Support System

10

Further Strengthening
Branch Offices

During 2006, we established theADK Annual Report 2006

Investing in Overseas Markets

In 2005, we established the Asia
Regional Center to serve as a hub

Q.5

It is not easy for a Japanesefor Asia, which facilitates the smooth

advertising company to become adeployment of campaigns that spanmainstream agency on its own in thethe markets of various regional

mature European and U.S. markets.

affiliates. Our next step is India andAccordingly, we are progressing in

the Middle East. ADK has a businessthese markets by making full use oftie-up with the JWT India Group,

WPP’s resources and are ready towhich belongs to the WPP Group, andoffer competitive services throughis in the process of building a basecollaboration with them. Moreover,

for activities, including plans for alast year we created the ADK Global

joint venture. Then we will advanceSpecialized Agency Network. This

into the Middle East by making joint

There is no change to the fact that weconcept involves a network formed

ventures with local partners.

place great emphasis on shareholder

from various specialist agencies

Although overseas sales are stillIs the fundamental
approach to shareholder
return unchanged?

return. Specifically, through dividends

to offer superior marketing andembryonic for the ADK group, inand stock buybacks, we return profit

advertising advantages to clients.

2006 gross billings from overseas

to shareholders from both short-and

The Chinese market has enjoyedaccounted for 5.7% of total billings.

long-term perspectives. In 2006,

spectacular growth in recent years.

We plan to boost this contribution

the dividend per share was ¥27,

With the forthcoming Beijing 2008

in the future.

¥9 lower than for the previous year,
but combined with funds to buy back

Summer Olympics and the Shanghai

Developing and Fine-Tuninga Verification Systemtreasury stock, ADK returned 89.9%

a pipeline to the Chinese market

Clients view advertising as anhave decided to raise the dividend

through tie-ups with the Xinhua News

investment, so they seek the

payout ratio from 25% to 35%.

Agency, the People’s Daily newspaper

maximum return on their advertisingand other Chinese corporations.

spending and they need to verify

buybacks. We have already acquired

Furthermore, we are continuing totheir effects. ADK has developed

500,000 shares as of this April andstrengthen our own network byoriginal verification programs using

will purchase another 1,500,000

bolstering business efficiency throughthe EX-PM Simulator advertising

shares by the end of October 2007.

the progression of foreign direct

effect prediction model, the AMP IV®

The aim of this accelerated buyback

investment and the financing ofeffect simulator, and other modelingis to improve ROE. We aim to improveaffiliates in China.

tools. We are improving and honing

ROE to 6% or more by December

the accuracy of these programs to2010*, beating 4.9%, the current

ensure that we can quickly respondaverage ROE of major Japanese

to client needs.

advertising and media companies**.

World Expo 2010, the importance of
this market continues to grow. ADK

Gn]jk]YkYf\\ge]kla[g^^a[]k$kmZka\aYja]k
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of profits to shareholders.
Furthermore, from fiscal 2007 we

was quick off the mark in building

Moreover, we are accelerating stock

At the same time, we will continue tomake every effort to increase EPS and
improve dividend per share. Assuming
we achieve our target of net income
and buy back 2,000,000 shares, we
forecast that the dividend per share
would rise to about ¥47.
* Assuming the same stock value of investment
securities as that of December 2006.

** Namely ADK, Dentsu Inc., Hakuhodo

DY Holdings Inc. and five Tokyo-based TV
broadcasting companies.

ADK Annual Report 2006

11

Q.6
What are yourinitial feelings
about 2007 so far?

Propelling this growth, of course,is the philosophy of Management by
All, which has steered our company
since its foundation. Through thisapproach, each employee should workwith management-level awareness,reaching beyond the call of his or
her position, to make innovative andunique proposals that do not depend
solely on traditional advertising
methods. This is the rationale of a

Our first-quarter results were notoutstanding but were relatively goodcompared with our competitors. The
gross billings of ADK, the parent
company, increased 0.8% while theaverage growth of the nine largest
agencies* was -1.0%. Operating
income increased 1.6% even thoughnet income fell 12.6% due to a smaller
extraordinary profit. Consolidated
billings grew 1.3% and gross profit
increased 1.5% compared with thecorresponding period last year, eventhough operating income and net
income declined. This shows a sign ofpositive growth, and we will continue
to make every effort to accelerate thisto achieve our goals.
Again, I reiterate that theadvertising industry is undergoing
major changes. We are treatingthese changes as opportunities. In
contrast to a traditional agency, for
ADK change presents an environment
where we can prove our strength as a
New Wave Agency. In 2007, we lookforward to getting back on an uptrend
to realize our powerful growthpotential.

12

ADK Annual Report 2006

New Wave Agency.
Beyond this, ADK is transforming
itself from a New Wave Agency into
a Future Agency that is responsive
to markets amid tumultuous changes,
meets client needs and demands,
and contributes to their growth andperformance. These are the conditions
that I view as essential to ADK’s return
to a path of powerful growth.
* Dentsu, Hakuhodo, ADK, Daiko, Tokyu Agency,

Yomiko, East Japan M&C, Delphys and Asahi Ad.

Corporate Governance& Internal Control
ADK believes that the ultimate

while exchanging large amounts of

between ADK and Yasumori or

objective of a corporation should be

information across company domains

ADK and the executive of Yasumori

to maximize value for its shareholders

in a secure environment. At the same

responsible for auditing ADK’s

by generating sustained growth.

time, our policy is to maintain a small

accounts.

It is fundamental for corporations tonumber of non-executive directors

motivate and monitor management

to lead the Board to avoid any

a CPA of Yasumori Audit Corporation

teams to work toward this objective

material misjudgment that may arisefor 22 years. Mr. Kenichi Kubota hasin order to constantly raise corporate

if decision-making were limited toserved for five years. Although thevalue and ultimately enhanceinternal directors alone.

ADK group is in compliance withcompetitiveness.
Effective corporate governance

The “company-with-committees”

Mr. Mikio Yokokawa has served as

JICPA’s independence rules, Yasumori

system has also not been provedplans to replace Mr. Yokokawa withplays an essential role in thissuperior in addressing the second aim

another executive, effective fromcontext. This is because publicly

of corporate governance, which is tofiscal 2007.

listed companies, in particular, seek

reinforce the management supervision

ADK has four corporate auditors,

broad access to capital markets

function. For this reason, we intend to

three of whom are external. One offor fund-raising purposes, and theretain our corporate auditor system

the three is a lawyer and serves on a

authority of directors to perform

and maintain proper management

part-time basis. As of March 28, 2007,

their management tasks is ultimately

supervision by strengthening thethe ADK group did not contract withawarded by shareholders. To ensure

roles of non-executive directors andhim for his legal services. The groupeffective corporate governance,

corporate auditors.

has also established a policy not to do

therefore, a company must secure

We have limited the tenure of

so in the future, to honor that person’s

an environment that enables

directors to one year. This enables us

independence as an auditor. One

shareholders to exercise their rights

to better clarify the responsibilities

internal auditor is a full-time auditor.

fairly and equally. ADK’s corporateof directors and gives us greater

The three full-time corporate auditors

governance system is summarized

opportunity to gauge the trust of

attend all Board of Directors meetings.

below.

shareholders. At present, we have

The Board of Corporate Auditors met

12 directors, two of whom haveeight times in fiscal 2006.

ADK adopts a corporate auditor
system instead of a “company-with-representative status under JapaneseIn the interest of efficiency, we

committees” system. We believelaw, nine serve as operating officers,

have flattened the decision-making

such a system is best to realize

and one (Sir Martin Sorrell, Grouphierarchy as much as possible.

management decision-making

Chief Executive of WPP Group plc)

Decisions are made in four stages,

efficiency and to reinforce theas a non-executive director. ADK

centering on the Board of Directors,

management supervision function.

maintains close communication withthe president, division directors

With respect to enhancing

Sir Martin via the WPP Group’s Japan-

and department directors. The

based liaison officer.

organization responsible for business

management decision-making
efficiency, we decided against a

The Board of Directors meets

execution, based on decisions made“company-with-committees” system,

once a month, in principle, and moreby the Board of Directors, is chaired

where committees retain certain

often as necessary. In fiscal 2006,

by the president and subordinated bydecision-making authority in a Board

the Board met 15 times. On two

divisions and departments, the latterof Directors centered on external

occasions, the Board requested thebeing the smallest organizational

directors. Instead, we believe that

attendance of the accounting auditors

unit in the company. Multiple related

our current system is more effective

to receive direct reports of thedivisions are grouped into larger

because it allows the Board ofresults of accounting audits.

functional groups, each headed by

Directors, consisting primarily

ADK uses Yasumori Audit

an operating officer who provides

of executive directors, to make

Corporation as its independent

decisions quickly in a flexible mannerauditor. There is no conflict of interest

guidance.

ADK Annual Report 2006

13

The Management Strategy
Committee helps decision-making bycompanies to ensure proper group-

proper governance and compliance,

wide corporate governance.

enhancement of competitiveness,the president, who has the ultimate

responsiveness to market changes

authority over day-to-day operations.

and solid growth will lead the group

Takeover Defense
PolicyConsisting of operating officers incharge of divisions, the Committee
meets almost every business week

to maximize shareholder value. The
group will take appropriate action in
response to any unsolicited takeover(32 times in fiscal 2006) to submit

The ADK group understands that abid or a similar attempt. However, theinformation and exchange opinions

takeover defense is a means to defend

group has not yet implemented oron important matters to help the

corporate value for shareholders

prepared for any particular defense.

president’s decision-making. Full-timeby appropriately responding to a

corporate auditors also attend suchtakeover bid or a similar attempt thatmeetings to monitor the relevance ofwould treat shareholders unequally or

items discussed. To ensure common

diminish corporate value significantly

recognition and transparency ofin the medium to long term. As such,important issues among all employees,

the group believes that the best

At its meeting on May 15, 2006,

excerpts of meeting minutes are

defense is to obtain sustained support

the Board of Directors decided on

posted on the company’s intranet.

from shareholders for management

the company’s basic policies forstrategies and dividend distribution

an internal control system and its

on management strategies andpolicies by maximizing corporate

development, with the aim of ensuringcorporate governance with its groupvalue. We firmly believe that under

the appropriate execution of business.

ADK maintains close communication

Internal Control
System

At a subsequent meeting on December
11, 2006, the Board approved somemodifications of those basic policies.

?]f]jYdHmZda[

KlYc]`gd\]jkgl`]jl`Yfk`Yj]`gd\]jk=ph][lYlagfk

The following gives an overview ofthe modified policies.

;gjhgjYl]?gn]jfYf[]

K`Yj]`gd\]jk

Preamble?]f]jYdE]]laf_g^K`Yj]`gd\]jk
=d][l

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:gYj\g^<aj][lgjkBased on our Management by All:gYj\g^;gjhgjYl]9m\algjk

principle that has guided ADK since
9m\al;gjhgjYl]
9m\algjk

an internal control system with the<aj][lgjk

J]hj]k]flYlan]<aj][lgjk=p][mlan]<aj][lgjk;geemfa[Yl]9[[gmflaf_9m\algjk

its establishment, we have developedKmh]jnak]EYfY_]=d][l
Kmh]jnak]J]hgjl;gfkmdlfollowing aims:(1) Raise operational effectiveness andefficiency;

9hhgafl9m\alAfl]jfYd;gfljgd

Kmh]jnak]EYfY_]EYfY_]e]flKljYl]_q;geeall]]<]hYjle]flk

9m\al

HdYffaf_
EYfY_]e]flJggek<]hYjle]flk$:jYf[`]k:jYf[`G^^a[]k

9[[gmflK]jna[]
Gh]jYlagfKmhhgjl<]hYjle]flk

Egfalgj:mkaf]kk=p][mlagfGj_YfarYlagf;gjhgjYl]Kg[aYdJ]khgfkaZadalq ;KJ!

ADK Annual Report 2006

reporting;(3) Ensure compliance with laws
and regulations relating to businessactivities; andKmh]jnak]EYfY_]

Egfalgj

14

9m\alJgge<anakagf<aj][lgjkJakcEYfY_]e]fl;geeall]]<anakagfk(2) Maintain the reliability of financial

Gh]jYlaf_G^^a[]jk

Kmh]jnak]EYfY_](4) Safeguard assets.
Development of the internal control
system is overseen by the Risk
Management Committee, which ischaired by the president. The Risk
Management Committee regularlychecks to see if the system effectively

The task of the Operation Process

management by utilizing a processfunctions or not, using a process

Committee is to ensure that business

management system and orders

management system based on theexecution complies with laws andresponsible departments to take

PDCA (Plan, Do, Check, Act) cycle,

regulations, especially pertaining tonecessary measures.

and reports its results to the Board

the system for ensuring the reliabilityof Directors.

of financial reporting. To this end,

oversees the activities of five

the Operation Process Committee

specialist committees: the Compliance

1. System to ensure directors

instructs relevant departments

Committee, the Personal Informationand employees perform their duties

to adopt measures for setting up

Protection Committee, the Informationin accordance with laws,

appropriate business processes andSecurity Committee, the Businessregulations, ordinances

related provisions, with the aim ofContinuity Committee and theand the Articles of Incorporation

clearly conveying to employees how

Operation Process Committee.

The Board of Directors formulated

business should be executed.

These committees each carry out

the ADK Group’s Code of Conduct to

The Risk Management Committee

risk analyses, assessments andclarify the ethics and values to be

2. System regarding the retention andcountermeasures in their respective

shared by all directors and employees.

management of information related tofields. Other specialist subcommittees

The directors themselves observe

the execution of duties of directors

are established as the need arises. The

this code, and the chairman and the

The following policies have been put

Risk Management Committee directly

president continuously reiterate its

in place under the supervision of thecarries out risk management in fields

spirit to employees.

director in charge of the Corporate

not covered by other committees.

Division with regard to the storage

The Audit Office monitors theappoints the Compliance Committee

and management of information

effectiveness of the risk management

as a subordinate organization chaired

related to the execution of the duties

system and reports to the Riskby the director in charge of theof directors.

Management Committee.

Corporate Division; its members(1) Minutes of Board of Directors

shall include external attorneys. The

meetings and materials distributed

4. System to ensure the effective

Compliance Committee implements

to directors for deliberation over

execution of directors’ duties

policies to raise compliance awarenessresolutions are retained for a

The company maintains a small

among directors and employees.

minimum of 10 years by the office in

number of directors in order to ensure

The Compliance Committee also

charge of the preparation of minutes.

the mobility of active discussion

investigates major violations of laws(2) Retention of minutes of regularat Board meetings and flexible andand regulations, or the suspicion

meetings that directors are stipulated

frequent meetings. The company alsoof such violations, and instructs

to attend, as well as other documents

limits the tenure of each director to

the responsible department to takeapproved by directors or recording

one year to frequently monitor thecorrective actions. A confidential

their opinions, shall comply withqualification of directors.

helpline, run by the Compliancespecified Document Management

The Company has adopted an

Committee, is in place to encourage

Regulations and ADK’s Information

operating officer system to clarify

employees to report violations of laws

Security Policy.

directors’ duties and authority as

The Risk Management Committee

and regulations or any suspicion. The

defined in the New Corporate Law,

helpline system involves external law

3. Regulations and systems

especially with respect to approvals

offices and guarantees anonymity.

relating to risk management

and the supervision of business

The Risk Management Committee

The Risk Management Committee

also appoints the Operation Process

defines the risk management policy

Committee, chaired by the director inand carries out comprehensive risk

charge of the Finance and Accounting

management for the entire ADK

Division, as a subordinate organization.

group. The Committee carries out risk

ADK Annual Report 200615

execution.

certain corporate action or business.

employees have the right to refuse.

The division also reports on the

Directors and employees should

companywide visions and targets fordevelopment of internal control of thereport immediately to the Board of

directors and employees to share, andsubsidiaries to the Risk Management

Corporate Auditors any cases causing

establishes medium-term and yearlyCommittee at least once a year, andor raising concern about significant

business plans to ensure these visions

more often as necessary.

damage to the company, inappropriate

The Board of Directors sets

and targets are achieved. Progress isaction during the execution of duties

reported on a quarterly basis to the

6. Support for theby directors or reports received

Board Directors. In case there are

Board of Corporate Auditors

through the helpline system. At least

factors that hinder progress toward

In the case of requests by the Board

twice a year, the president holds athese goals, an executive director inof Corporate Auditors for employees

meeting to exchange opinions withcharge of the relevant department

to provide support, employees are

the Board of Corporate Auditors.

takes responsibility for formulating

assigned to the corporate auditors

The Audit Report of the Audit Officesolutions, and the president carries

as soon as possible. To reinforce

is submitted to both the Board ofthem out by giving directions to the

independence from directors,

Corporate Auditors and the president.

relevant departments.

employees required to support theMoreover, members of the Audit

Board of Corporate Auditors are not

Office attend meetings of the Board of

5. Maintenance of

to be assigned interlocking duties

Corporate Auditors to maintain proper

appropriate business practices

within the organization under thetwo-way communication.

throughout the ADK group

authority of a director. Performance

Under the supervision of theassessment, changes in personnel and

Risk Management Committee, theadministration of sanctions must be

division in charge of management ofapproved in advance by the Board of

subsidiaries directs each subsidiary

Corporate Auditors.

to set up its own internal control
system and establishes a group-wide

7. Reporting to the Board ofinternal control system by requesting

Corporate Auditors and systemobservance of the ADK Group’s Codeto ensure the efficient executionof Conduct.

of audits

The division in charge of

The company has established amanagement of subsidiaries sets up

standard for maintaining a minimum

the rules of management of group

number of auditors, which exceeds thecompanies in order to efficiently

legal requirement, as follows: four ormanage them while honoring

more auditors in total, three or more

appropriate autonomy. It also ensuresexternal auditors and three or morethat the group companies observefull-time auditors.

all relevant rules, including, but

In addition to Board of Directors

not limited to, the rule that a groupmeetings, the attendance of corporatecompany shall seek approval of or

auditors is requested at Business

report to the parent company inStrategy Meetings, Performanceadvance a decision on or execution ofReport Meetings and other important
regular meetings, and the minutes of
those meetings must be presented
to all corporate auditors. If auditors
request attendance at any othermeetings, neither directors nor

16

ADK Annual Report 2006

Board of Directors & Auditors

as of April 2007

Masao Inagaki

Shoji Honda

Katsumi Abe

Representative Director
Chairman

Executive Director
Senior Operating Officer
Finance and Accounting

Coporate Auditor

Koichiro Naganuma
Representative Director
President & Group CEO

Hideaki Hirose
Executive Director
Senior Operating Officer
Account Services

Takeo Hishiyama
Executive Director
Senior Operating Officer
Corporate/Creative/Strategic Planning

Kenji Mori
Executive Director
Senior Operating Officer
Account Services

Hideyuki Nagai
Executive Director
Senior Operating Officer
Media & Content Business

Komei Kasai
Executive Director
Operating Officer
Account Services

Kazuhiko Narimatsu
Executive Director
Operating Officer
Account Services

Hideshige Haruki
Coporate Auditor

Yoshiro Sakai
Coporate Auditor

Yuzo Shikata
Coporate Auditor

Kazuhiko Ohno
Executive Director
Operating Officer
Account Services

Yoji Shimizu
Executive Director
Operating Officer
Account Services

Sir Martin Sorrell
Non-Executive Director
Group Chief Executive
WPP Group plc

Operating Officers
Jiro Kitamura

Katsuhiro Ikuma

Toshiyuki Inoue

Atsuo Ota

Hidekatsu Ikedo

Hiroaki Onohara

Osamu Okayasu

Kaoru Detake

Hiroshi Nomiyama

Mikiro Kokita

Shinichi Ueno

Hiroshi Nakazato

Yasuto Horie

Takaharu Yokoyama

Yoshiki Uemura

Toshio Anada

Osamu Ishikawa

ADK Annual Report 200617

Corporate
Social Responsibility
Using our 360-degree

Compliancecommunications approach, ADK

which was superseded by ISO27001/
ISMS in 2006. These certifications

proposes communications plans that

ADK established the Risk Management

were extended to the Kansai Branchprovide sensational and unforgettable

Committee, independent from its

Office in July 2006 and to the head

consumer experiences and implements

existing corporate organization, at

office sales departments in February

these plans for our clients. We regard

the end of 2003. Since 2004, we2007. In the future, in addition tothese activities as the core element

have set up five subcommittees: themaintaining certification status for theof our corporate social responsibility

Information Security Committee,

already endorsed departments, we(CSR) commitment.

the Personal Information Protection

will continue to expand the scope ofCommittee, the Compliance Committee,

validation, targeting company-widethrough business activities based

the Business Continuity Committee

information security certification by

on this policy to provide returns toand the Operation Process Committee.

the end of 2007.

We utilize profits earned

shareholders, invest in research andJapan’s Personal Information

The Operation Process Committee’s

development to support ADK’s further

Protection Law, which pertains

responsibilities will include promoting

growth, conduct employee educationin various ways to the activities

the construction of an internaland support activities, and provideof advertising companies, came

control system required under the

new employment opportunities. At the

into effect in April 2005. At that

so-called Japanese SOX Act (Financial

same time, we continue to reinforce

time, we created the Information

Instruments and Exchange Law), whichbusiness ties with affiliates and media

Security Committee and the Personal

will apply to ADK from fiscal 2009.

companies to cultivate the mutual

Information Protection Committee

trust that we consider essential in

to prepare our company structure to

our ongoing endeavors.

handle information security issues

In the face of growing socialand personal information even moreawareness of corporate responsibility,

appropriately. These committees

ADK is keenly aware of its social

also carry out company-wide

responsibilities as a corporate citizen.

training to ensure the comprehensive

We have established a complianceunderstanding of these endeavors.

system and promote social

In addition, the Information Security

contribution activities in accordanceCommittee leads projects to ensurewith the ADK Group’s Code of

in-house data security. To this end, in

Conduct, which we established to

December 2005 ADK’s planning andpromote these activities.

development departments acquired

As an advertising company dealing

the international BS7799 and thewith communications and information,

Japanese ISMS Conformity Assessment

we seek to deepen the awareness

Scheme certification, the latter ofof our responsibilities, not only forthe data we handle but also for thebroader data environment. In thisway, ADK will continue to be a trusted

JakcEYfY_]e]fl;geeall]]Af^gjeYlagfK][mjalq
;geeall]]H]jkgfYdAf^gjeYlagf
Hjgl][lagf;geeall]]:mkaf]kk;gflafmalq;geeall]]

and respected corporation in an
increasingly competitive society.

;gehdaYf[];geeall]]Gh]jYlagfHjg[]kk;geeall]]18

ADK Annual Report 2006

Social Contribution

During fiscal 2006, ADK continued

In 2006, the Edo Shigusa televisionfrom the previous year doing pro bonocommercial campaign received theAt ADK, we realize thatcreative work for the Edo Shigusa (TheACC Prize. (ACC: All Japan Radio &communications is the domain in

Subtle Manners of Edo) advertising

Television Commercial Confederation)

which our social contributions most

campaign. During the Edo period

effectively utilize our experience and(1603-1867), people exercisedknow-how as an advertising company.

beautiful manners in Edo, the old

On this basis, we conduct activities

Tokyo town, where harmonious

targeting all our stakeholders while

coexistence was intrinsic to people’s

March 19, 2006, marked 50 years

respecting the individual initiatives

lives. This campaign depicts somesince ADK’s foundation. As part of theof our employees.

examples of those manners relativecelebration for this event as well as forto scenes of today’s urban life, toour social contribution activities, weshow that common courtesy does

made a donation to the establishment

not need to be enforced by rules. Theof the University of Tokyo Asatsu-DK

underlying suggestion is that people

China Education Fund.

Pro Bono Creativeand Idea Work

University of Tokyo Asatsu-DK
China Education Fund

Advertising companies in the WPPliving in modern urban environments

Through this China ScholarshipGroup, with which ADK is affiliated,take a fresh look at how they interact

Fund, the University of Tokyo will

actively carry out pro bono workand communicate with each other. The

accept outstanding graduates ofto assist the activities of various

advertisements appear on television,

Chinese universities for master’s

public groups and organizations,in newspapers, on posters in Tokyo

degree programs, thereby encouraging

nonprofit organizations (NPOs) andsubway stations and in other media,

long-term, friendly relations between

other entities. Since 2005, we haveas well as even being featured in a

Japan and China in the academic field.

provided pro bono work that has

textbook for teachers of school ethics

Some 75 students are to be invited to

won recognition and increasinglyclasses.

Japan under this program by 2015.

become an important part of our

As a result of ADK’s establishment

CSR activities.

of this fund, the Company wasawarded the University of Tokyo
Shokumon Award, which is presented
to express the gratitude of the
University to individuals, corporations
or associations of conspicuous meritin the development of its activities aswell as to honor such achievements.
The award ceremony was held at the
University of Tokyo on March 26,
2007.

Station poster of Edo Shigusa / Japan Ad Council

TV commercial of Edo Shigusa / Japan Ad Council

Masao Inagaki at the University of Tokyo
Shokumon Award ceremony

ADK Annual Report 2006

19

Management’s Discussion
and Analysis
Performance Highlights of
Fiscal 2006

ADK Group Overview
Asatsu-DK is the third largest advertising agency in Japan,
and the ninth largest advertising agency in the world.
We provide companies in Japan and overseas with a full

Consolidated gross billings down 1.1%

spectrum of services, encompassing creative planning and

Gross profit up 1.9% to ¥48,685
million; gross margin of 11.6%

digital media advertising, as well as sales promotion andOperating income down 14.6%;
operating margin of 13.1%,
1.9 percentage points below thetarget of 15%

this category ever since.

production for newspaper, magazine, radio, television andother advertising services. We launched our TV animation
content business in the 1960s and have been a pioneer inOther members of the ADK Group provide book andmagazine publishing and sales, as well as information
processing services. In fiscal 2006, the group’s advertisingbusiness generated gross billings of ¥410,875 million,
equivalent to 97.8% of consolidated total billings. Other
businesses generated ¥9,184 million, or 2.2% of total billings.
The ADK Group consists of 49 subsidiaries (44 inadvertising and five in non-advertising) and 24 affiliates(23 in advertising and one in non-advertising). Our global
reach extends to 19 cities and is reinforced by a close
alliance with WPP Group plc, the world’s second largest
communications group.
In fiscal 2006, all overseas sales of the ADK group weregenerated by the advertising business. Together, overseas
sales represented 5.7% of consolidated gross billings.

Industry Environment and ADK’s Response
The domestic advertising industry in fiscal 2006 saw
continued rapid diversification of the media environment,
driven by the ongoing proliferation of digital, broadband
and mobile communications infrastructures. Against thisbackground, clients have become increasingly demanding of
their advertising service providers. In addition to securing
media space, they want proposals on how to utilize oldand new media more efficiently and effectively. They wantcampaigns that contribute directly to their bottom lines
by addressing all of the touchpoints linking consumers tobrands.
In response to these client demands, ADK continues
to emphasize our 360-degree communications strategy.
Specifically, we strive to improve our corporate value by
helping clients strengthen the appeal of their brands andboost their revenues.

20 ADK Annual Report 2006

Consolidated Performance

Gross Profit

In fiscal 2006, the ADK group strove hard to improveits gross margin, despite a decline in gross billings.
However, we increased our operating expenses tosecure future growth. As a consequence, the groupreported lower year-on-year operating income andnet income.

low gross margins, along with group-wide efforts to obtain

The decline of sales in the media buying business, which has
new clients and brands, helped the group improve its grossmargin. As a result, gross profit totaled ¥48,685 million, a
1.9% year-on-year increase, and the gross margin edged up
0.4 points to 11.6%.
?jgkkHjg^alEaddagfkg^q]f(.

Gross Billings(-

Gross billings totaled ¥420,059 million, for a 1.1% year-on-(,

year decline. The decrease was mainly due to sluggish sales(+of the media buying business and the completion of Expo(*2005 Aichi, Japan, in the previous fiscal year.
?jgkk:addaf_k()($(((*($(((+($(((,($(((-($(((.($(((

Eaddagfkg^q]f(.

Operating Income(-

Operating expenses increased at a higher rate than gross(,profit growth, mainly due to investments in staff and R&D(+

activities for future growth. As a result, operating income(*

was ¥6,392 million, for a year-on-year decrease of 14.6%.
()(($(((*(($(((+(($(((-(($(((,(($(((The ADK group was, therefore, also unable to meet its 15%
operating margin target, which was held to 13.1%. The staff
cost to gross profit ratio was 57.8%.

Consolidated Gross Billings and Selected Profitability Data
Millions of yen except per commonshare amounts and financial ratios

Gross billings

2006

2005

2004

(.

¥420,059¥424,705¥413,898(-

Gross margin

11.6%

11.2%

11.9%

Operating margin

13.1%

15.7%

16.8%

Income before income taxes

Gh]jYlaf_Af[ge]¥9,682¥ 11,028

¥

9,440

¥

5,181

Net income¥5,070¥Net income per share¥106.62¥ 122.11

5,946¥ 103.25

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(+
(*
(

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Segment Information

Other Income and Expenses
Other income and expenses decreased 7.1% to ¥3,290 million.
Equity in earnings of affiliates–net increased to ¥240 million
from ¥124 million in fiscal 2005, thanks to the improved
earnings of Digital Advertising Consortium Inc., a publicly
traded Internet media buying representative agency, andsome overseas advertising affiliates. Our information
processing affiliate, Nippon Information Industry Corp.,

The ADK group’s businesses are classified into
two main segments: advertising, which accounted
for 97.8% of gross billings in fiscal 2006, and nonadvertising, which made up the remaining 2.2%.
The non-advertising business includes book andmagazine publishing and sales, as well as information
processing services.

remained a loss-making concern for the year under review.

Net Income

Advertising

Income before income taxes and minority interests totaled

The group’s advertising business generated gross billings¥9,682 million. After deductions of ¥4,556 million in income

totaling ¥410,875 million, registering a 1.1% year-on-year

taxes (current and deferred) and ¥56 million in minority

decline. Segment operating income decreased 17.4% tointerests, net income was ¥5,070 million, a 14.7% year-on-¥6,369 million.

year decrease. Net income per share declined to ¥106.62,
down 12.7%.

Since all of ADK’s non-consolidated gross billings andincome are generated from the advertising business, andthose non-consolidated gross billings represent 92.2% of theF]lAf[ge] Dgkk!

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consolidated advertising gross billings, its non-consolidated
performance is reviewed below. (Note: ADK revised its
divisional definition in the year under review to redefine(-

Out-of-Home (OOH) Media sales and the overseas media(,

buying business. The following gross billings by division are(+calculated under this new definition.)(*%,$((( %+$((( %*$((( %)$(((

(

)$(((

*$(((

+$(((

,$(((

-$(((

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Magazine Division
Japan’s national spending on magazine advertisingF]lAf[ge] Dgkk!h]jK`Yj]

Q]fcontinues to decline. In 2006, the market fell about 1.5%.
ADK’s Magazine Division maintained its billings to clients(.

in the Cosmetics/Toiletries sector, but suffered from lower(-

billings to the Apparel/Jewelry sector. Division gross billings(,

decreased 10.6% year-on-year to ¥21,717 million.

(+
(*
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%.(

%+(

(

+(

.(

1(

)*(

)-(

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((

22 ADK Annual Report 2006

K`Yj]g^?jgkk:addaf_k-$((()($((()-$(((*($(((*-$(((

Newspaper Division:addaf_kg^L]d]nakagf<anakagf

Total domestic spending on newspaper advertising showedsteady growth during the first half of 2006. However, due
to reduced spending by consumer finance companies, fullyear expenditures declined around 4% compared with

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(-

2005. At ADK, the Newspaper Division raised gross billings(

by 0.2% year-on-year, with larger billings to clients in the-($((()(($((()-($(((*(($(((

Government/Organizations and Automobiles/AutomobileRelated Products sectors. In addition, the division
aggressively promoted media buying related to the Turin
Olympic Games and the FIFA World Cup Soccer, while billings
to the Finance/Insurance sector decreased. As a result, thedivision generated gross billings of ¥35,447 million.
:addaf_kg^F]okhYh]j<anakagf
Eaddagfkg^q]fReference: Non-Consolidated Gross Billings for
Television Division by Segment
2006

2006/2005¥ 66,187 ¥ 67,075

Time (program-sponsored ads)
Spot
Total TV Division billings

98.7%

99,37895,513

14,375

14,53698.9%¥ 179,940 ¥ 177,124

101.6%

Content-related sales

K`Yj]g^?jgkk:addaf_k(Millions of yen)2005

104.0%

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1&,
(.

Radio Division
Although spending on radio advertising has continued to(()($(((*($(((+($(((,($(((

decline, ADK’s Radio Division increased gross billings toclients in the Automobiles/Automobile-Related Products
sector, especially by promoting spot sales for professional
baseball night games. However, due to a decline in

Television Division
Japan’s national spending on television advertising declined
about 1% in 2006 as a slight increase in program sales failed
to compensate for a decrease in spot sales. For the year,
ADK’s Television Division generated higher gross billings
from spot sales to clients in the Transportation/Leisurebillings to clients in the Beverages/Tobacco Products
and Information/Communications sectors, the division
generated gross billings of ¥4,193 million, for lower-thanexpected growth of 6.1%.
:addaf_kg^JY\ag<anakagf
Eaddagfkg^q]f

and Hobbies/Sporting Goods sectors. Our diversified
content portfolio, with new TV animation programs, suchas EyeShield 21 and Legend of Silver Fang-Weed, as well
as long-lasting content, such as Doraemon , could not fully
offset the decline in overseas sales of Yu-Gi-Oh! DuelK`Yj]g^?jgkk:addaf_k
Fgf%[gfkgda\Yl]\!

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(.
((

)$(((

*$(((

+$(((

,$(((

-$(((

Monsters . In addition, the division experienced lower
sponsored program sales, due to limited advertising budgets
and changes in advertising spending policies by someclients. As a result, the division yielded gross billings of¥179,940 million, for a slight 1.6% year-on-year increase.

ADK Annual Report 2006

23

Sales Promotion Division

Digital Media Division
Japan’s national spending on internet advertising has

The importance of sales promotion continues to grow as

continued to grow rapidly, surging nearly 30% in 2006. At

clients demand a more direct link between advertising

ADK, the Digital Media Division continued to generate higher

spending and sales. In fiscal 2006, ADK’s Sales Promotion

gross billings to clients in the Foods, Finance/Insurance andDivision generated gross billings of ¥57,504 million, an 8.7%

Information/Communications sectors. Thanks also to efforts

decrease, mainly due to the completion in the previous yearof cross-selling other media under the leadership of the newof major events, such as Expo 2005 Aichi, Japan. However,ADK Interactive Division, gross billings of the Digital Mediathe division responded to advertisers’ demands for effective

Division rose 17.0% to ¥12,503 million.

sales promotion services to help them boost their sales, aswell as to build up their brands. We also actively promoted:addaf_kg^<a_alYdE]\aY<anakagf
Eaddagfkg^q]f

K`Yj]g^?jgkk:addaf_k
Fgf%[gfkgda\Yl]\!

+&+

(.

our 360-degree communications approach. In these ways,
we continued to satisfy our clients in the Distribution/Retailand Information/Communications sectors.
:addaf_kg^KYd]kHjgeglagf<anakagf(-

Eaddagfkg^q]f
(

+$(((

.$(((

1$(((

)*$((()-$(((

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(.
(-

Out-of-Home Media Division(*($(((,($(((.($(((

0($(((

Out-of home media advertising represents another steady
growth segment in the industry. This type of media isan essential part of ADK’s 360-degree communications
approach. The Out-of-Home Media Division, a redefined

Creative and Other Division

division, generated higher gross billings to clients in the

The Creative Division continued its success in winning

Cosmetics/Toiletries and Restaurants/Other Services

major international advertising awards and attracting new

sectors, by handling a wide range of media, including publicbusiness from the Cosmetics/Toiletries and Beverages/

transport advertising and newspaper inserts. As a result,

Tobacco Products sectors. The Marketing Division could

the division achieved gross billings of ¥11,989 million, a

not generate major billings from clients in the Distribution/

15.2% year-on-year increase.

Retail sector as it had before. Also, after the completion of
Expo 2005 Aichi, Japan, gross billings of Creative and Other:addaf_kg^Gml%g^%@ge]E]\aY
<anakagf

Eaddagfkg^q]f

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miscellaneous businesses declined 7.6% to ¥55,507 million.

(.

:addaf_kg^;j]Ylan]Yf\Gl`]j<anakagf

(-

(.

+&*

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24 ADK Annual Report 2006*($(((,($(((.($(((

0($(((

Gross Billings: Breakdown by Division after Reclassification(Non-Consolidated)

Millions of yen

2006

2005

% of Total

Magazine¥ 21,717

5.7% ¥ 24,298

Non-Consolidated Gross Billings,
Market Share and Industry Ranking (1997-2006)(Non-Consolidated)% of Total

Millions of yen

6.2%

Year

Year-on-Year
Gross Billings
Market Share Industry Rank
Rate

Newspaper

35,447

9.4

35,3789.2

1997¥200,274

111.4%

3.34%

3

Television

179,940

47.5

177,124

46.0

1998

200,540

100.3

3.47

3

4,193

1.1

3,952

1.0

1999

320,085

104.6

5.62

3
3

Radio
Digital Media

12,503

3.3

10,6822.8

2000

340,888

106.5

5.57

Out-of-Home Media

11,9893.2

10,4102.7

2001

358,830

105.3

5.92

3

Sales Promotion

57,50415.2

62,95916.4

2002

334,915

93.3

5.87

3

Creative and Other

55,50714.7

60,041

15.6

2003

357,597

106.8

6.29

3

2004

373,897

104.6

6.38

3

2005

384,849

102.9

6.30

3

2006

¥378,804

98.4%

6.32%

3

Total

¥378,804 100.0% ¥384,849 100.0%

Gross Billings: Breakdown by Client Industry(Non-Consolidated)

Millions of yen

2006
Energy/Raw Materials/Machinery¥

Composition
Ratio

2005
¥

Composition
Ratio

ChangeYear-on-Year
Rate

135.8%

6,369

1.7%

4,689

1.2%

1,680

Foods

32,0958.5

35,4189.2-3,323

90.6

Beverages/Tobacco Products

25,985

6.9

24,872

6.5

1,113

104.5

Pharmaceuticals/Medical Supplies

13,925

3.7

16,1684.2-2,24386.1
104.7

Cosmetics/Toiletries

36,317

9.6

34,6959.0

1,622Apparel/Jewelry

7,409

1.9

8,488

2.2

-1,078

87.3

Precision Instruments/Office Equipment

5,892

1.5

6,512

1.7

-620

90.5

Electric Machines/AV Equipment

8,411

2.2

6,235

1.6

2,177

134.9

Automobiles/Automobile-Related Products

24,3696.4

22,971

6.0

1,398

106.1

Household Products

2,871

0.8

2,745

0.7

126

104.6

Hobbies/Sporting Goods

19,111

5.0

17,711

4.6

1,399

107.9

Real Estate/Housing

9,795

2.6

7,428

1.9

2,367

131.9
113.6

Publications

3,426

0.9

3,014

0.8

411

Information/Communications

41,867

11.1

43,834

11.4-1,967

95.5

Distribution/Retail

23,847

6.3

24,341

6.3

-494

98.0

Finance/Insurance

51,868

13.7

59,822

15.6-7,954

86.7

Transportation/Leisure

15,541

4.1

12,636

3.3

2,905

123.0

Restaurants/Other Services

13,7203.6

13,079

3.4

640

104.9

Government/Organizations

9,973

2.6

13,6183.5-3,645

73.2

Educational/Health Care Services

4,192

1.1

2,713

0.7

1,479

154.5

Classified Ads/Other
Total

21,821¥378,804

5.8

23,8606.2-2,03991.5

100.0%¥384,849

100.0%-6,046

98.4%

ADK Annual Report 200625

Group Companies in the Advertising Business

Balance Sheets and Cash Flow

The ADK group’s advertising companies had mixed
results. Kyowa Kikaku Ltd., a group company specializing

Total Assets

in medical advertising, held various seminars andAlthough the ADK group did not make any large capitalconventions for medical practitioners, but this could not

expenditures during the year, it continued its efficient

offset the decrease in gross billings of media buying, andcapital management program focus. At the end of fiscal

the business therefore experienced lower gross billings

2006, consolidated total assets stood at ¥256,754 million,

and operating income. A creative production company,up ¥9,887 million from a year earlier.

ADK Arts Inc., raised gross billings and operating income,Current assets rose ¥1,373 million to ¥138,883 million,

and one of our Thai subsidiaries reported improved

primarily due to a ¥2,226 million increase in marketableprofitability. Overall, the group’s consolidated subsidiaries

securities. Investments and other assets increased by ¥8,675

reported improved results for the year under review.

million to ¥114,003 million, mainly due to a ¥8,298 million
rise in investment securities, stemming primarily fromincreases in the stock prices of already-held securities.

Non-Advertising
ADK has two consolidated subsidiaries in the publications

Total Liabilities and Total Net Assets

industry. The smaller subsidiary, Neo Shobo Inc., completed

Total liabilities at the fiscal year-end amounted to ¥115,367

its contract for the publication of periodicals to credit card

million, up ¥4,248 million. Current liabilities were up ¥1,907

members and thus suffered a significant decline in sales. As

million, to ¥96,227 million principally due to small grossthe industry has been experiencing sluggish growth due tobillings. Long-term liabilities rose ¥2,341 million to ¥19,140

growing consumer preference for the internet and mobile

million, mainly stemming from an increase in deferred tax

media, the general publication subsidiary, Nihonbungeisha,liabilities, reflecting a larger unrealized gain on available-for-Ltd., has continued to suffer. As a result, the group’s non-sale securities. Total net assets, including minority interests,

advertising category generated gross billings of ¥9,184

increased ¥5,639 million to ¥141,387 million.

million, registering a 2.3% year-on-year decline, andoperating income of ¥36 million compared with an operating

Cash Flowloss of ¥222 million in fiscal 2005.

Gross billings
Operating income

Millions of yen

At the end of fiscal 2006, cash and cash equivalents stood at

2006

2005

¥9,18436¥9,404-222¥21,932 million, down ¥6 million from a year earlier.
Net cash provided by operating activities amounted to¥7,507 million, up from ¥189 million in fiscal 2005. Income
before income taxes and minority interests totaled ¥9,682
million, whereas depreciation totaled ¥1,205 million. The
group reported a ¥2,893 million decrease in notes andaccounts receivable, a ¥1,963 million decrease in notes
and accounts payable, a ¥280 million increase in workin progress (billable production orders in process) and¥1,852 million in income taxes paid. Net cash from operating
activities was used for investing and financing to increase
shareholder value.

26 ADK Annual Report 2006

Net cash used in investing activities totaled ¥3,191
million, compared with ¥5,202 million the previous year.
Major components included ¥6,134 million in proceedsfrom sales of securities and ¥7,503 million in purchasesof securities.
Net cash used in financing activities was ¥5,300 million, alarge increase from ¥3,128 million in fiscal 2005, mainly due
to larger returns to shareholders, such as ¥1,721 million in
dividends paid and ¥3,283 million in purchases of treasury
stock–net.
Capital Expenditures and Depreciation
2006

Millions of yen

2005

CapitalCapitalExpenditures Depreciation Expenditures Depreciation

Buildings
Structures
VehiclesEquipment and fixtures
Land
LicensesComputer software
Other
Total

¥ 54
0
30
106
0
0
399
3
¥ 592

¥ 155
4
25
182
0
52
783
4
¥1,205

¥ 42
0
28
119
0
0
337
0
¥ 526

Net cash provided by operating activities
Business reinvestment*
Free cash flow

2006
¥7,507-586¥6,921

Cash Flow

¥ 165
4
22
201
0
0
780
74
¥1,246

Outlook for Fiscal 2007
We expect the Japanese economy to continue
posting slow, but continuous, growth over thelong term. Given today’s increasingly demanding
business conditions, the advertising market
environment will remain a challenging one.
Facing this difficult environment, ADK has set
the following consolidated forecasts for fiscal
2007: ¥436,700 million in gross billings, ¥7,700
million in operating income and ¥6,130 million
in net income. On a non-consolidated basis, theforecasts are ¥391,000 million in gross billings,¥6,800 million in operating income and ¥5,300
million in net income.

Millions of yen

2005
¥ 189
-492
¥-302

* Business reinvestment = purchase of property and equipment + purchase of intangible
assets – sales of property and equipment

ADK Annual Report 200627

Forward-Looking Statements
and Risk Factors
Forward-Looking Statements

and/or industry), media inventory

Relationship with AdvertisersThis report may contain forward-

costs and advertising methods–could

In Japan, traditionally advertisers

looking statements based on ADK

significantly affect performance anddo not strictly require an exclusive

management’s views and assumptions

financial conditions.

relationship with their agencies, whichof future developments as of themay have business with competitors.

date of such statement. The foregoing

Response to the

However, there is no assurance

statements herein are inherently

Development of New Media

that this practice will continue insubject to risks, including but not

The ADK group continues tothe future. In the event that ADK

limited to those shown below, as wellfocus on both traditional and new

fails to adapt to such changes in theas uncertainties that could lead tomedia through its 360-degree

advertising market, its performancematerial differences between such

communications approach. Under thisand financial position could bestatements and actual outcomes.

approach, we do not see traditional

adversely affected.

Therefore, ADK does not warrant any

and new media cannibalizing eachcertainty and accuracy thereto. ADK

other. Rather, they enhance eachportfolio of first-tier clients. The

also expressly disclaims any obligation

other. In addition, the group has been

parent company’s largest 10 andto update or revise its forward-looking

accelerating its efforts to enhance

20 clients’ accounted for 22.5%

statements.

its functionalities to lead the digitaland 33.5%, respectively, of total

advertising market, including theunconsolidated gross billings for fiscal

Domestic Economy

Internet, by setting up an ADK

2006, and compared to competitors,

During fiscal 2006, 97.8% of groupinteractive division and joint ventures

sector concentration risk is limited.

billings were generated from thewith some leading companies in these

Although we strive to maintain andadvertising market. The group

markets. However, if ADK fails todevelop good relationships with ourgenerates 94.3% of its gross billings

adapt to changes in the advertisingclients, there is no assurance that wefrom the Japanese domestic market.

media, its performance and financial

will be able to continue to do so.

Japanese national advertisingcondition could be adversely affected.

spending is closely correlated with

The ADK group has a diversified

An advertising agency buys media
time or space and materials on behalf

the nominal GDP. In the event that

Competitive Riskof its clients on its own account.

the domestic economy deteriorates

Competition among Japan’s major

Sometimes a purchase is madeseriously, the ADK group’s

advertising companies is intensifying.

through another agency. Therefore,

performance and financial conditions

In addition, the entry of foreign “megaeven if a client and/or such another

could be negatively affected.

agency” groups into the Japaneseagency defaults, the advertisingmarket, and many new and rapidly

company is still liable for the media

Changes in thegrowing entrants in the Internet

and/or materials to a media owner

Advertising Market

advertising market, is accelerating

and/or a subcontracting production

The ADK group intends to continuecompetition. In the event that ADK

company.

selling traditional mass media

is unable to respond appropriately

advertising space and time to its

to client needs and changes in the

do not always have documented

well-diversified clientele as well as

advertising industry, and loses its

contracts with media and clients socarry out sales promotions and acompetitiveness as a result, there

as to maximize their adaptability towide range of peripheral services

is a significant risk that its market

sudden changes. However, ADK works

under its 360-degree communications

share could decline and profitability

to ensure it has written contracts withapproach. However, failure to respond

could deteriorate. This would have amore media and more clients. Whenappropriately to any market changes–

serious impact on its performance

this is the rule, not the exception, theincluding but not limited to changes

and financial conditions.

company believes accountability byin advertisers’ budgets (by name28 ADK Annual Report 2006

Advertising companies in Japan

both parties will minimize disputes.

Until that time, however, there remains

and in the event that ADK is unable

Relationship with WPP Group plc

the possibility of disputes with media

to respond appropriately, this could

ADK has maintained strategic

and clients.

have a negative impact on group

operating and equity ties with WPP

performance and financial conditions.

Group plc of the United Kingdom

Relationships with MediaIn Japanese advertising markets, an

since August 1998, holding a 2.52%

ADK generated 70.2% of its grossadvertising agency is usually required

equity stake in WPP (as of December

billings by handling the four

to absorb the credit and functionality

31, 2006). At the same time, bothmajor mass media, as well as therisks of many small and specialty

companies have non-executive

rapidly growing internet and digital

subcontractors without shifting them

directors on each other’s boards. By

advertising sectors and OOH media

to the advertisers. Besides, sometimes

way of operating alliances with WPP

during fiscal 2006, ADK continues toan agency needs to help finance such

Group operating companies, including

secure advertising time and/or spacesubcontractors by advance payments.

JWT, ADK has made a number ofof these traditional and new media,

In an international business, a partial

creative and promotional tie-ups andhowever, in the event of a decreaseadvance payment is commonly

will continue to develop operationsin advertising volume and/or changes

required. When a subcontractor

worldwide.

in business terms and conditions

cannot fulfill an order from an

and advertising methods, and/or theadvertiser or maintain its business as

majority of WPP’s voting rights, andemergence of new advertising formats,a going concern, an agency is likely

its influence on WPP Group operations

there is a significant possibility thatto suffer a loss.

is limited, in the event that the ADK

the ADK group’s performance and

Because ADK does not own agroup is unable to realize the benefits

financial position could be adversely

Content Businessfrom this relationship or if theaffected if it does not respond to

ADK continues to develop new

relationship should negatively changethese changes appropriately,

content under existing and new

in any way, there may be an impact

business models. However, there is noon the ADK group’s performance andMedia Inventories

guarantee of the continued successfinancial conditions in the future.

Occasionally, ADK purchases mediaof the content or of derivative and/or

In addition, although the yen-inventories, particularly animation

resale income from it. Accordingly,

translated market value of the equity

programs, at fixed prices basedin the case that the group is not able

stake in WPP is ¥50,493 million as ofon orders from client advertisers.

to generate income as expected, theDecember 31, 2006, compared with

Although we strive to improve thegroup could experience a significant

the book value of ¥22,262 million

quality of content and increase theimpact on its performance and(under the lower-of-cost-or-market

demand of such programs by keeping

financial conditions.

method), in the event of a majora close relationship with the media,

deterioration in the Group’s stockin the case of weak sales, excess

Overseas Operations

price there is a possibility that ADK

inventories could have an adverse

In overseas markets, because ofwould have to account for valuation

effect on our performance anddifferences in culture and society,losses on this holding.

financial conditions.

a variety of problems may arise.
In addition, both country risk

Staff

Relationship with Subcontractors

and currency risk are inherent inAdvertising is a people business

While ADK carries out the planning

conducting international business. In

and talent is a critical asset in thefor advertising and sales promotion

the event that the ADK group is unable

advertising industry. In the event that

campaigns, the execution of theseto expand its overseas operations as

ADK is unable to secure and train its

activities is mostly outsourced toplanned, its performance and financial

talented staff adequately, there could

qualified subcontractors. In the casecondition could be significantly

be a negative impact on performanceof a change in trading relationships

affected.

and financial conditions.

with these subcontracted companies

ADK Annual Report 200629

Marketable Securities

much pension assets and liabilities the¥5,523 million and ¥3,393 million,

and Investment Securities

group is accountable for, the grouprespectively.

The ADK group’s holdings of marketable

recognizes its annual cash contribution

and investment securities (including theto the fund as its periodic benefit costs

Legal Risks

aforementioned stake in WPP Group plc

applicable for the fund. In the case that

The ADK group’s advertising clients are

and the equity method value of Digitalthe fund requires the group to make aaffected by a number of mandatory

Advertising Consortium, Inc., or “DAC”)

larger contribution due to changes inand voluntary regulations, depending

totaled ¥102,019 million, representing

the discount rate, pension plan asseton the type or types of businesses

39.7% of ¥256,754 million in total

performance, number of member

in which they are engaged. If theseassets as of December 31, 2006. Of

companies and beneficiaries, and solaws and regulations are tightened,

this amount, ¥82,460 million is publicly

on, the group would need to recognize

or new ones are enacted, our clients’

traded equity securities, mostly forlarger net periodic benefit costs.

advertising activities could shrink

cross-shareholdings in advertising

The fund’s total pension assets

or become curtailed. Such changes

clients and other trading partners

and liabilities as of March 31, 2006,

may have a negative impact on our(excluding our investments in a 26.7%

were ¥73,345 million and ¥60,171

performance and financial conditions.

stake of DAC, which is accounted for by

million, respectively, and therefore thethe equity method at ¥2,162 million).

difference was positive to the tune

Regulatory Changes

The balance of unrealized gains onof ¥13,174 million. The discount rates

In Japan, there are a number of laws

available-for-sale securities is ¥26,676

for liabilities were mainly 5.5%. The

that bind advertising companies,

million after deducting deferred tax

aforementioned liabilities are calculated

including ADK. These include laws

liabilities on such gains. However, in theunder the assumption that the fundto prevent delays in payment toevent of a major decline in the market

had a reserve of ¥26,535 million, or

subcontractors and protect personal

prices of these holdings, we would be¥14,168 million larger than the caseinformation, as well as regulations

forced to account for valuation losses.

where re-calculation was conducted as

applicable to advertising companies. Ifstated under the welfare pension laws

there is a strengthening of existing laws

Retirement Benefits

because the fund will recalculate theor regulations affecting the advertisingand Pension Plans

necessary cash contributions in March

activities of advertisers or the format

At the end of 2004, ADK reformed

2007. Therefore, pension liabilities as ofor content of advertisements, theits employee retirement benefits andMarch 2007 would be affected by thefinancial results of the ADK group andpension plans, and adopted a defined

re-calculation.

other advertising companies could becontribution pension plan and a cash

The ADK group’s cash contribution

adversely affected. In the case of newbalance plan to reduce the volatility ofshare by both employers andlaws or regulations being introduced,

net periodic benefit costs (one of theemployees made during the year

or existing laws or regulations being

staff costs) through a smaller Projected

through March 2006 were 9.18% andreinterpreted, the result could also

Benefit Obligation and less risky

5.64%, respectively, making the total

affect the ADK group’s performance.

pension asset investment strategies.

14.82%. Applying simply the shares to

In the event of a deterioration

the aforementioned total fund assets,

Contingent Litigation Risks

in pension asset management

the group’s prorated shares of assets

As of the date of the statements, theperformance, and a significant change

as of March 31, 2006, were ¥10,869

ADK group has not been involved orin actuarial assumptions, the ADK

million in total. Out of this amount, theexposed to any lawsuit or dispute thatgroup could face a negative impact on

employers’ portion and employees’

could place a significantly negativeits performance and financial condition.

portion were ¥6,733 million and ¥4,136

influence on the group’s performance

ADK and some of its domestic

million, respectively. Likewise, theand financial position. However, there

subsidiaries are members of the Japan

group’s prorated shares of pension

is no guarantee that the group would

Advertising Industry Welfare Pension

liabilities were ¥8,917 million in total.

not be involved or exposed to such aFund. Because the ADK group cannot

Out of this amount, the employers’

lawsuit or dispute in the future.

technically and reasonably define how

portion and employees’ portion were

30 ADK Annual Report 2006

Financial Statements

Consolidated Balance Sheets
ASATSU-DK INC. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

ASSETS

2006

2005

20 06

¥ 22,145¥ 21,334$ 185,921

5,213

2,987

43,766

100,907

103,078

847,175

CURRENT ASSETS:
Cash and time deposits
Marketable securities (Note 3)
Notes and accounts receivable:
Trade
Allowance for doubtful receivables

(759)

(683)

(6,372)

7,979

7,575

66,988

575

629

4,827

2,823

2,590

23,701

138,883

137,510

1,166,006

Land

1,310

1,310

10,998

Buildings and leasehold improvements

4,020

3,985

33,750

Other

1,940

1,876

16,288

7,270

7,171

61,036(3,402)(3,142)(28,562)

3,868

4,029

32,474

95,02386,725

797,775

7,209

6,722

60,524

459

464

3,854

11,312

11,417

94,971

114,003

105,328

957,124¥256,754¥246,867$2,155,604

Inventories
Deferred tax assets (Note 7)
Other current assets
Total current assets
PROPERTY AND EQUIPMENT:

Total
Accumulated depreciation
Net property and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 3)
Investments in unconsolidated
subsidiaries and affiliated companies
Deferred tax assets (Note 7)
Other assets
Total investments and other assets
TOTAL

See notes to consolidated financial statements.

32 ADK Annual Report 2006

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

LIABILITIES AND NET ASSETSCURRENT LIABILITIES:
Short-term debt (Note 4)
Current portion of long-term debt (Note 4)
Notes and accounts payable—trade
Income taxes payable (Note 7)
Accrued bonuses to employees
Allowance for sales returns
Deferred tax liabilities (Note 7)
Other current liabilities
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Note 4)
Accrued retirement benefits (Note 5)
Allowance for retirement benefits to directors
and corporate auditors
Provision for loss on guarantees
Deferred tax liabilities (Note 7)
Other long term liabilities
Total long-term liabilities

2006

2005

¥

¥

344
549
84,448
2,771
289
770
8
7,048
96,227573
49
85,615
1,003
453
750
56
5,821
94,320

20 06
$

2,888
4,609
708,992
23,264
2,426
6,465
67
59,172807,883

108
1,694

658
2,801

907
14,222681
246
16,263
148
19,140635
12,477228
16,7995,717
2,065
136,538
1,243
160,692

37,58140,60747,671(12,973)
112,886

37,58140,60744,191(9,690)112,689

315,515
340,920400,227(108,916)
947,746

26,676
1775
27,452
1,049
141,387

21,784—278
22,062997
135,748

223,961
8
6,507
230,476
8,807
1,187,029¥256,754¥246,867$2,155,604

CONTINGENT LIABILITIES (Note 10)
NET ASSETS (Note 6):
Shareholders’ equity
Common stock
Authorized: 206,000,000 shares in 2006 and 2005;
Issued: 51,655,400 shares in 2006 and 2005
Capital surplus
Retained earnings
Treasury stock—at cost
Total shareholders’ equity—net
Valuation and translation adjustments
Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Foreign currency translation adjustments
Total valuation and translation adjustments
Minority interests
Total net assets
TOTAL

See notes to consolidated financial statements.

ADK Annual Report 200633

Consolidated Statements of Income
ASATSU-DK INC. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

GROSS BILLINGS (Note 12)2006¥420,059

2005¥424,705

2006$3,526,648

COST OF SALES (Note 12)
Gross profit

371,374
48,685376,931
47,774

3,117,908
408,740SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Notes 8 and 12)

42,29340,286355,075

6,392

7,488

53,665OTHER INCOME (EXPENSES):Interest and dividend income—net
Gain on sales of securities
Loss on sales of securities
Loss on valuation of securities
Amortization of negative goodwill
Equity in earnings of affiliated companies—net
Retirement benefits paid to directors and corporate auditors
Additional retirement benefits paid to employees
Provision for loss on guarantees
Expenses for 50th anniversary
Other—net
Other income—net

1,764
1,844
(31)
(384)
7
240
(117)
(65)
(246)
(134)
412
3,290

1,517
1,224
(50)
(196)
165
124
(72)
(64)
—
—
892
3,540

14,810
15,481(260)(3,224)
59
2,015
(982)
(546)
(2,066)(1,125)
3,459
27,621

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

9,682

11,02881,286

INCOME TAXES:
Current
Deferred

4,045
511

2,957
2,068

33,960
4,290

56

57

470

Operating income

MINORITY INTERESTS IN NET INCOME
NET INCOME

¥

5,070

¥

5,946

Yen

PER SHARE OF COMMON STOCK:Net income
Net assets
Cash dividend applicable to the year
See notes to consolidated financial statements.

34 ADK Annual Report 2006$

42,566

U.S. Dollars (Note 1)

2006

2005

¥ 106.62
2,979.79
27.00¥ 122.11
2,809.30
36.00

20 0 6$ 0.9025.02
0.23

Consolidated Statements of Changes in Net Assets (1)ASATSU-DK INC. and Consolidated Subsidiaries
Year Ended December 31, 2006

Millions of Yen

Year Ended December 31, 2006

Balance as of December 31, 2005

Shareholders’ equity
Common stock

Capital surplus¥37,581¥40,607

Retainedearnings

Treasurystock-at cost

Total
shareholders’equity¥ (9,690)¥112,689¥44,191

Change during the consolidated fiscal year
Dividend payments(1,721)(1,721)

Net income

5,070

5,070

Bonuses to directors and corporate auditors

(38)

(38)

Increase due to new consolidated subsidiaries

163

163

Acquisitions of treasury stock
Disposal of treasury stock

0(3,283)(3,283)00Increase due to change in accounting
standards of foreign subsidiaries

66(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2006

—

0

3,480

(3,283)

197¥37,581¥40,607¥47,671¥(12,973)¥112,886
Millions of Yen

Valuation and translation adjustments
Foreign
Total valuation
Unrealized
Deferred gain
currencyandgain onon derivatives
available-for- under hedgetranslationtranslation
sale securities
accounting
adjustments adjustments

Balance as of December 31, 2005

¥21,784—¥278¥22,062

Total net
assetsMinority
interests¥ 997¥135,748

Change during the consolidated fiscal year
Dividend payments(1,721)

Net income

5,070

Bonuses to directors and corporate auditors

38

Increase due to new consolidated subsidiaries

163

Acquisitions of treasury stock(3,283)

Disposal of treasury stock0

Increase due to change in accounting
standards of foreign subsidiaries

6(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2006

4,892

1

497

5,390

52

5,442

4,892

1

497

5,390

52

5,639

¥26,676¥1¥775¥27,452¥1,049¥141,387

ADK Annual Report 200635

Consolidated Statements of Changes in Net Assets (2)ASATSU-DK INC. and Consolidated Subsidiaries
Year Ended December 31, 2005

Millions of Yen

Year Ended December 31, 2005

Balance as of December 31, 2004

Shareholders’ equity
Common stock

Capital surplus¥37,581¥40,607

Retainedearnings

Treasurystock-at cost

Total
shareholders’equity¥ (7,810)¥109,714¥39,336

Change during the consolidated fiscal year
Dividend payments(1,017)(1,017)

Net income

5,946

5,946

Bonuses to directors and corporate auditors

(94)

(94)

Increase due to new consolidated subsidiaries

20

20

Acquisitions of treasury stock
Disposal of treasury stock0(1,880)(1,880)00(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2005

—

0

4,855

(1,880)2,975¥37,581¥40,607¥44,191¥(9,690)¥112,689
Millions of Yen

Valuation and translation adjustments
Foreign
Unrealized
Deferred gain
Total valuation
currency
gain onon derivatives
and translation
available-for- under hedgetranslation
adjustments
sale securities
accounting
adjustments

Balance as of December 31, 2004

¥14,078—¥102¥14,180

Minority
interests¥1,209Total net
assets¥125,103

Change during the consolidated fiscal year
Dividend payments(1,017)

Net income

5,946

Bonuses to directors and corporate auditors(94)

Increase due to new consolidated subsidiaries

20

Acquisitions of treasury stock(1,880)

Disposal of treasury stock0(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2005

36 ADK Annual Report 2006

7,706

—

176

7,882

(212)

7,670

7,706

—

176

7,882

(212)

10,645¥21,784—¥278¥22,062¥ 997¥135,748

Consolidated Statements of Changes in Net Assets (3)ASATSU-DK INC. and Consolidated Subsidiaries
Year Ended December 31, 2006

Thousands of U.S. Dollars (Note 1)

Year Ended December 31, 2006

Balance as of December 31, 2005

Shareholders’ equity
Common stock

Capital surplus

Retainedearnings

Treasurystock-at cost

Total
shareholders’equity$315,515$340,920$371,010$ (81,353)$946,092

Change during the consolidated fiscal year
Dividend payments(14,449)(14,449)

Net income

42,56642,566

Bonuses to directors and corporate auditors

(319)

(319)

Increase due to new consolidated subsidiaries

1,369

1,369

Acquisitions of treasury stock
Disposal of treasury stock

0(27,563)(27,563)00Increase due to change in accounting
standards of foreign subsidiaries

5050(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2006—

029,217(27,563)

1,654$315,515$340,920$400,227$(108,916)$947,746

Thousands of U.S. Dollars (Note 1)

Valuation and translation adjustments
Total valuation
Foreign
Unrealized
Deferred gain
andcurrency
gain onon derivatives
available-for- under hedgetranslationtranslation
sale securities
accounting
adjustments adjustments

Balance as of December 31, 2005

$182,890—$2,334$185,224

Total net
assetsMinority
interests$8,370 $1,139,686

Change during the consolidated fiscal year
Dividend payments(14,449)

Net income

42,566

Bonuses to directors and corporate auditors(319)

Increase due to new consolidated subsidiaries

1,369

Acquisitions of treasury stock(27,563)

Disposal of treasury stock0

Increase due to change in accounting
standards of foreign subsidiaries

50(Net) changes of items other thanshareholders’ equity
Total change during the consolidated fiscal year
Balance as of December 31, 2006

41,071

8

4,173

45,252

41,071

8

4,173

45,252$223,961$8$6,507$230,476

437

45,689437

47,343$8,807 $1,187,029

ADK Annual Report 200637

Consolidated Statements of Cash FlowsASATSU-DK INC. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

Thousands of
U.S. Dollars (Note 1)

Millions of Yen

2006
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes—paidDepreciation and amortization
Equity in earnings of affiliated companies
Gain on sales of securities
Loss on sales of securities
Loss on valuation of securities
Changes in assets and liabilities:
Decrease in notes and accounts receivable
Increase in work in progress
Decrease in notes and accounts payable
Others—net
Total adjustments
Net cash provided by operating activities

2005

2006

¥ 9,682¥11,028$ 81,286(1,852)1,205(240)(1,844)31384(4,372)
1,246(124)(1,224)50
196(15,549)
10,117(2,015)(15,481)
260
3,224

2,893
(280)
(1,963)(509)(2,175)
7,507

3,070
(447)
(5,125)(4,109)(10,839)
189

24,289(2,351)(16,481)(4,273)(18,260)
63,026(1,377)INVESTING ACTIVITIES:
Increase in time deposits—net
Proceeds from sales of securities
Purchases of securities
Proceeds from sales of property and equipment
Purchases of property and equipment
Purchases of intangible assets
Other investing activities
Net cash used in investing activities

6,134(7,503)
5
(190)
(401)
141
(3,191)

(500)
6,218
(9,713)
34
(189)
(337)
(715)
(5,202)(11,561)
51,499(62,992)
42(1,595)(3,367)
1,184(26,790)

FINANCING ACTIVITIES:(Decrease) increase in short-term debt—net
Repayment of long-term debt
Purchases of treasury stock—net
Dividends paid
Other financing activities
Net cash used in financing activities

(230)
(49)
(3,283)(1,721)(17)(5,300)157(388)(1,880)(1,017)
0(3,128)(1,931)(411)(27,563)(14,449)(143)(44,497)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS

561

281

4,710

NET DECREASE IN CASH AND CASH EQUIVALENTS(423)(7,860)(3,551)

CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR

21,93829,778184,183

CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATEDSUBSIDIARIES, BEGINNING OF THE YEAR

417

20

3,500

¥21,932¥21,938$184,132

CASH AND CASH EQUIVALENTS, END OF THE YEAR
See notes to consolidated financial statements.

38 ADK Annual Report 2006

Notes to Consolidated Financial Statements
ASATSU-DK INC. and Consolidated Subsidiaries
Years Ended December 31, 2006 and 2005

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements havemore familiar to readers outside Japan.

been prepared from the accounts maintained by ASATSU-

The consolidated financial statements are stated

DK INC. (the “Company”) and its consolidated subsidiaries

in Japanese yen, the currency of the country in whichin accordance with the provisions set forth in the Japanese

the Company is incorporated and mainly operates. The

Securities and Exchange Law and its related accounting

translation of Japanese yen amounts into U.S. dollar

regulations, and in conformity with accounting principles

amounts is included solely for the convenience of readersand practices generally accepted in Japan, which areoutside Japan and has been made at the rate of ¥119.11 todifferent in certain respects as to application and disclosure

U.S.$1.00 the approximate rate of exchange on December

requirements from International Financial Reporting

31, 2006. Such translation should not be construed as aStandards.

representation that the Japanese yen amounts could be

In preparing these consolidated financial statements,

converted into U.S. dollars at that or any other rate.

certain reclassifications and rearrangements have been

Certain reclassifications have been made in the 2005

made to the consolidated financial statements issued

financial statements to conform to the presentation fordomestically in order to present them in a form which is2006.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation—The consolidated financial statements

unconsolidated subsidiaries and 20 (20 in 2005) affiliatedinclude the accounts of the Company and its significant

companies are stated at cost. If these companies are fully

20 (18 in 2005) majority-owned subsidiaries (together,consolidated, or the equity method of accounting had been

the “Group”).

applied to the investments in these companies, the effect

Under the control or influence concept, thosecompanies in which the Company, directly or indirectly,
is able to exercise control over operations are fully
consolidated, and those companies over which theGroup has the ability to exercise significant influence
are accounted for by the equity method.
19 subsidiaries use a fiscal year ended December 31,
so does the Company. One subsidiary uses a fiscal year

on the accompanying consolidated financial statements
would not be material.
Goodwill is charged or credited to income in the year
incurred.
All significant inter-company balances andtransactions have been eliminated in consolidation. All
material unrealized profits included in assets resulting fromtransactions within the Group are eliminated.

ended September 30. The consolidated financial statements
include the financial statements of this subsidiary forb. Cash and Cash Equivalents—Cash and cash equivalents

its respective fiscal years after making appropriate

consist of cash, demand deposits with banks and thoseadjustments for significant transactions during the periods

which are short-term investments that are readily

from its respective year-end dates to the date of theconvertible into cash and that are not exposed to significant

consolidated financial statements.

risk of changes in value.

Investments in 1 (1 in 2005) insignificant

Cash equivalents include time deposits, certificates of

unconsolidated subsidiary, and 4 (4 in 2005) affiliateddeposit and money management funds investing in bonds

companie (of which 20% to 50% interest is owned

for the short-term, all of which mature or become dueby the Company) are accounted for by the equity

within three months of the date of acquisition.

method. Investments in the remaining 28 (28 in 2005)

ADK Annual Report 2006

39

The balances of cash and cash equivalents as of December 31, 2006 and 2005 are reconciled to the balance sheets asfollows:

2006
Balance sheet:
Cash and time deposits
Securities
Total
Less:
Time deposits over three months
Securities not applicable to cash equivalents(securities other than money management funds, etc.)
Cash and cash equivalents

Thousands of
U.S. Dollars

Millions of Yen

2005

20 0 6¥22,145
5,213
27,358¥21,334
2,987
24,321$185,921
43,766229,687

3,041

1,998

25,531

2,385¥21,932385¥21,938

20,024$184,132

c. Inventories—Inventories consist principally of billable

and affiliated companies not accounted for by the equity

production orders in process, which are stated at cost

method is not readily available, such securities should

determined by the specific identification method. Billable

be written down to net asset value with a corresponding

production orders in process are primarily costs incurredcharge in the statement of income in the event net asset

on behalf of clients when providing advertising services

value declines significantly. In these cases, such fair market

such as marketing and branding consultation, designing andvalue or the net asset value will be the carrying amount of

producing sales promotion programs, and event marketingthe securities at the beginning of the next year.

to clients.
e. Property and Equipment—Property and equipment
d. Marketable and Investment Securities—All applicable

are carried at cost. Depreciation for the property andsecurities are classified and accounted for, depending on

equipment other than the buildings acquired after April

management’s intent, as follows:

1, 1998, is computed on the declining balance method ati) trading securities, which are held for the purpose of

rates based on the estimated useful lives of the assets.

earning capital gains in the near term, are reported at

Depreciation of buildings acquired after April 1, 1998, isfair value, and the related unrealized gains and losses arecomputed on the straight-line method over their estimatedreflected to earnings of the period of such gain or loss, ii)

useful lives. The estimated useful lives of major assets are

held-to-maturity debt securities, which are expected to be

as follows:

held to maturity with the positive intent and ability to holdto maturity are reported at amortized cost and iii) available-

Buildings and leasehold improvements 10–50 years

for-sale securities, which are not classified as either of theaforementioned securities, are reported at fair value, withf. Provision for Loss on Guarantees—The Group sets aside a

unrealized gains and losses, net of applicable taxes, being

reserve of losses on guarantees for liabilities owed by non-reported in a separate component of net assets.

consolidated subsidiaries, affiliated companies or business

If the market values of held-to-maturity debt

associates. The amount of such provision reflects estimatedsecurities, equity securities issued by unconsolidated

potential losses based on such factors as the financial

subsidiaries and affiliated companies, and available-for-salecondition of the parties whose liabilities are guaranteed.

securities, decline significantly, such securities are stated
at fair market value, and the difference between the fairg. Retirement Benefits and Pension Plans—The Groupmarket value and the carrying amount is recognized as aaccounted for the liability for retirement benefits based

loss in the period of the decline. If the fair market valueon the projected benefit obligations and plan assets at theof equity securities issued by unconsolidated subsidiaries

balance sheet date.

40 ADK Annual Report 2006

The Company’s directors and corporate auditors are

the consolidated statements of income. Deferred income

entitled, in most circumstances, to lump-sum severance

taxes are recorded based on the asset and liability method

payments based on current rates of pay, length of service

to reflect the impact of temporary differences between

and certain other factors. The Company accrues 100% ofassets and liabilities recognized for financial reporting

obligations based on its rule required under the assumption

purposes and such amounts recognized for tax purposes.

that all directors and corporate auditors retired at the

The Group measures deferred taxes by applying enactedbalance sheet date.

tax laws to the temporary differences, which will be in

The Company and some of its domestic subsidiaries

effect when the differences are expected to reverse.

are members of the Japan Advertising Industry Pension
Fund. Because the Group cannot technically or reasonably

l. Appropriations of Retained Earnings—Appropriations

define how much pension assets and liabilities the Groupof retained earnings at each year-end are reflected in theis accountable for, the Group recognizes its annual cash

consolidated financial statements for the following year.

contribution to the fund as its periodic benefit costs
applicable for the fund but not pension assets and liabilities.

m. Foreign Currency Transactions—Short-term and longterm monetary receivables and payables denominatedh. Sales Recognition—Income derived from media

in foreign currencies are translated into Japanese yen atadvertising is recognized upon publication or broadcasting.

the exchange rates at the balance sheet dates. The foreign

Product sales are recognized when the products areexchange gains and losses from translation are recognizedreceived by clients. One domestic consolidated subsidiaryin the consolidated statements of income in the cases

provides allowances, based upon the Japanese tax code, forwhere they are not hedged by foreign exchange derivatives

returned publication merchandise and losses derived fromor a hedging transaction does not qualify for specific hedge

unsold publication merchandise.

accounting.

i. Leases—Leases are accounted for as operating leases inn. Foreign Currency Financial Statements—Both balance

the Company and domestic consolidated subsidiaries. Under

sheet accounts and revenue and expense items of theJapanese accounting standards for leases, finance leases

consolidated overseas subsidiaries and affiliated companies

that deem to transfer ownership of the leased property

are translated into Japanese yen at the current exchange

to the lessee are to be capitalized, while other finance

rates as of the balance sheet dates except for shareholders’leases are permitted to be accounted for as operating lease

equity, which is translated at historical exchange rates.

transactions if certain “as if capitalized” information isDifferences arising from such translation are shown

disclosed in the notes to the lessee’s consolidated financial

as “Foreign currency translation adjustments” in a separate

statements. In major overseas consolidated subsidiaries,

component of shareholders’ equity.

leases are accounted for as finance leases and leased
property to the lessee is capitalized.

o. Derivatives and Hedging Activities—The Group uses
derivative financial instruments to manage its exposures to

j. Software and R&D Costs—Research-and-development

fluctuations in foreign exchange. Foreign exchange forward

costs are charged to income as incurred. Capitalized

contracts are utilized by the Group to reduce foreign

software for internal use amounting to ¥1,410 million

currency exchange risks. The Group does not enter into($11,838 thousand) in 2006 and ¥1,791 million in 2005,

derivatives for trading or speculative purposes.

respectively, included in “Other assets” of investments andDerivatives are recognized as either assets orother assets, was amortized by the straight-line method

liabilities at fair value and gains or losses on derivative

based on their estimated useful lives (five years).

transactions are recognized in the consolidated statements
of income, unless such derivatives qualify for specific hedge

k. Income Taxes—The provision for income taxes isaccounting.

computed based on the pretax income or loss reported in

ADK Annual Report 2006

41

Short-term receivables and payables denominatedq. Accounting Standard for Presentation of Net Assets inin foreign currencies for which foreign exchange forward

the Balance Sheet—Effective from the year ended

contracts are used to hedge the foreign currency

December 31, 2006, the Company has applied “Accounting

fluctuations are translated at the contracted rate if thestandards for presentation of net assets in the balance

forward contracts qualify for specific hedge accounting.

sheet (Accounting Standards Board of Japan Statement
No. 5),” and “Implementation guidance for Accounting

p. Per Share Information—The computation of net income

standards for presentation of net assets in the balance

per common share is based on the weighted average

sheet (Accounting Standards of Japan Guidance No.8),” both

number of shares outstanding during each year. The

issued by the Accounting Standards Board of Japan on

average number of common shares used in the computation

December 9, 2005.

was 47,557,502 shares for the fiscal year ended December“Net assets” in the balance sheets is presented

31, 2006 and 48,391,630 shares for the fiscal year ended

according to the revision of “Regulations concerning

December 31, 2005.

the Terminology, Form and Presentation Methods ofCash dividends per common share presented in theConsolidated Financial Statements” dated April 25, 2006.

accompanying consolidated statements of income are
dividends applicable to the respective years including
dividends paid after the end of the year.
The calculation of dilution is not applicable becauseof the non-existence of dilutive factors such as convertible
bonds or bonds with warrants.

3. MARKETABLE AND INVESTMENT SECURITIESThe carrying amount and aggregate fair value of the securities classified as available-for-sale as of December 31, 2006 and2005 were as follows:
Millions of Yen

2006
Available-for-sale:
Equity securities
Debt securities
Other
Total

Cost

¥38,295
13,221
654¥52,170

Unrealized gains

Unrealized losses¥45,503230
7¥45,740¥1,338507
0¥1,845

Fair value¥82,460
12,944661¥96,065
Millions of Yen

2005
Available-for-sale:
Equity securities
Debt securities
Other
Total

42 ADK Annual Report 2006

Cost

¥36,187
12,640584¥49,411

Unrealized gains

Unrealized losses¥37,077
201
122¥37,400

¥ 781
608
—
¥1,389Fair value¥72,483
12,233706¥85,422

Thousands of U.S. Dollars

2006
Available-for-sale:

Cost

Equity securities
Debt securities
Other
Total

$321,509
110,998
5,491$437,998

Unrealized gains

Unrealized losses$382,025
1,931
59$384,015$11,233
4,257—$15,490

Fair value$692,301
108,6725,550$806,523

Available-for-sale securities whose fair values are not readily determinable as of December 31, 2006 and 2005 were as
follows:

Thousands ofMillions of Yen

2006

Carrying amount
Available-for-sale:Non-listed equity securities
Money management funds
Free financial funds
Other
Total

U.S. Dollars

2005¥1,5352,068
71
497¥4,171¥1,3792,078
71762¥4,290

20 0 6$12,887
17,362596
4,173$35,018

Total sales of available-for-sale securities sold in the years

The redemption schedule for available-for saleended December 31, 2006 and 2005 amounted to ¥6,400

securities with maturities as of December 31, 2006 andmillion ($53,732 thousand) and ¥6,329 million, respectively,

2005 is as follows (Note: If a security with a derivative

and the related gains amounted to ¥1,844 million ($15,481

instrument is to be redeemed earlier than the contracted

thousand) and ¥1,220 million, and the related losses

maximum maturity date under a certain condition,amounted to ¥15 million ($126 thousand) and ¥50 million,

regardless of such condition, the maximum maturity date isrespectively.

reflected to the schedule.):Millions of Yen

2006
Debt securities
Other
Total

Due within one year

¥2,31716¥2,333

1 to 5 years¥ 7,472—¥ 7,472

5 to 10 years

¥812
—
¥812

Over 10 years¥2,341—¥2,341Millions of Yen

2005
Debt securities
Other
Total

Due within one year

2006
Debt securities
Other
Total

Due within one year

¥382
410
¥792

1 to 5 years¥8,06825¥8,0935 to 10 years

¥997
—
¥997

Over 10 years¥2,789—¥2,789Thousands of U.S. Dollars$19,453
134$19,587

1 to 5 years$62,732—$62,732

5 to 10 years$6,817—$6,817

Over 10 years$19,654—$19,654ADK Annual Report 2006

43

4. SHORT-TERM AND LONG-TERM DEBT
The weighted average annual interest rates applicable to short-term debt were 1.81% and 1.38% as of December 31, 2006
and 2005, respectively.
Long-term debt as of December 31, 2006 and 2005 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2006
0.58% bonds due on October 10, 2007
Secured loans due through 2009 with weighted
average interest rates of 2.39% in 2006 and 2.48% in 2005
Amount due within one year
Total

2005

20 06

¥ 500

¥500

$4,198

157
(549)
¥ 108

207
(49)
¥658

1,318
(4,609)$ 907

Repayment schedule of long-term debt as of December 31, 2006, was as follows:
Millions of Yen

Year Ending December 31
2007
2008
2009
Total

¥549
48
60
¥657

Thousands of
U.S. Dollars$4,609403
504$5,516The carrying amounts of assets pledged as collateral for short-term debt of ¥240 million ($2,015 thousand), current portionof long-term debt of ¥49 million ($411 thousand) and long-term debt of ¥108 million ($907 thousand) as of December 31,
2006, were as follows:
Millions of Yen

Time deposits
Land, property and equipment—net of accumulated depreciation
Investment securities
Total

¥123
511
211
¥845

Thousands of
U.S. Dollars$1,033
4,290
1,771$7,094

5. RETIREMENT BENEFITS AND PENSION PLANS
The Company and certain of its consolidated subsidiaries

tax-qualified pension plans and plans provided by the Japan

provide two types of post-employment benefit plans,

Advertising Industry Pension Fund, as well as unfunded

namely defined contribution pension plans and defined

lump-sum payment plans under which all eligible employees

benefit pension plans. The latter consists of cash balance

are entitled to benefits based on the level of salary, lengthplans, funded non-contributory pension plans includingof service and certain other factors.

44 ADK Annual Report 2006

The liability for employees’ retirement benefits and pension plans as of December 31, 2006 and 2005 comprised thefollowing:Thousands of
U.S. Dollars

Millions of Yen

2006
Projected benefit obligations
Fair value of plan assets
Unrecognized actuarial differences
Net liability for retirement benefits

2005¥10,609(8,267)(648)¥ 1,694

20 0 6¥10,794(6,802)(1,191)¥ 2,801$89,069(69,407)(5,440)$14,222

The components of net periodic benefit costs for the years ended December 31, 2006 and 2005, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial differences
Contributions paid during the period, etc.*
Net periodic benefits costs

2006

2005

¥

¥

715
198
(101)
135

20 0 6
642
190
(59)
149

$ 6,003
1,662
(848)
1,133

909

898

7,632

¥ 1,856¥ 1,820$15,582

The discount rate used by the Group was 2.0% as of theyear over the estimated number of total service years.

years ended December 31, 2006 and 2005. The rate of

Unrecognized actuarial net gains and losses are amortized

expected return on plan assets used by the Group was 1.5%

over 13 years on a straight-line basis commencing fromfor the years ended December 31, 2006 and 2005. The

the succeeding period. Prior service costs are charged toestimated amount of retirement benefits to be paid at theincome when incurred.

future retirement date is allocated equally to each service*Remarks:

For plans provided by the Japan Advertising Industry Pension Fund, the Group cannot technically or reasonably
allocate pension assets and liabilities to the Group’s account. Therefore, the Group recognizes its annual cash
contribution to this fund as its periodic benefits costs, but not pension assets and liabilities as stated above.
The above-stated contributions paid during the period, etc., include the Group’s cash contribution for the period
to the Japan Advertising Industry Pension Fund.
The information of total pension assets and liabilities of the Japan Advertising Industry Pension Fund, theGroup’s share of the contribution to the fund, and the products of pension assets or liabilities and the Group’s
share of the contribution to the fund are as follows (Note: As stated above, the Group cannot technically or
reasonably allocate pension assets and liabilities to the Group’s account. The product calculation is simply for
information purposes only.) :ADK Annual Report 200645

a. Total pension assets and liabilities of the fund (as of March 31, 2006)
Millions of Yen

Pension liabilities
Pension assets
Net assets¥(60,171)
73,345¥ 13,174

Thousands of
U.S. Dollars$(505,171)
615,775$ 110,604

The rate of expected return on plan assets used by the fund was 5.5%.
b. The Group’s share of the contribution to the fund (from April 1, 2005 to March 31, 2006)

Share of the Group as employers
Share of employees
Total

9.18%
5.64%
14.82%

c. Products of pension assets or liabilities and the Group’s share of the contribution to the fund (as of March 31, 2006)
Millions of Yen

Share of the Groupas employer

Pension liabilities
Pension assets
Net assets¥(5,524)
6,733¥ 1,209

Share ofemployees¥(3,393)
4,136
¥
743
Thousands of U.S. Dollars

Share of the Groupas employer

Pension liabilities
Pension assets
Net assets
d. Supplemental information$(46,377)
56,527$ 10,150

Share ofemployees$(28,486)
34,724$ 6,238

its fiscal year-end at March 31, 2007 anyway. If a

The fund’s net pension asset amount of ¥13,174 million

recalculation had been applied as of March 31, 2006,

stated in “a” consisted of prior service liabilities ofthe earning surplus would have been smaller by ¥14,168¥7,966 million ($66,879 thousand) and an earnings

million ($118,949 thousand).

surplus of ¥21,140 million ($177,483 thousand), under
the fund’s accounting treatment, where a recalculation ofPrior service liabilities are amortized over 20 years

contribution in accordance with the revised Employees’

by the straight-line method at the fund accounting, andWelfare Pension Insurance Law was not exercised.

the Group expensed an additional contribution of ¥112

This treatment was adopted because the fund would

million ($940 thousand) during the period from April 1,

recalculate contribution amounts upon the end of2005 to March 31, 2006 for this amortization.

46 ADK Annual Report 2006

6. NET ASSETS
Net assets consist of shareholders’ equity, valuation andequity used in the past annual reports and net assets usedtranslation adjustments, and minority interests. Until fiscal

in this annual report are as follows:

2005, a different definition was used for the shareholders’1) Minority interests are included in net assets.

equity account. In the balance sheet presentation, for the2) Deferred gain or loss on derivatives under hedge

convenience of readers, Net assets accounts are shown foraccounting is classified to valuation and translation

both fiscal 2005 and 2006 after some reclassifications toadjustments.

the 2005 balances. The differences between shareholders’
The type and number of shares issued and treasury stock as of December 31, 2006 were as follows:

Number of shares as of December 31, 2005
Number of shares increased during the accounting
period ended December 31, 2006
Number of shares decreased during the accounting
period ended December 31, 2006
Number of shares as of December 31, 2006
Notes:

Type pf sharesissuedType of treasury
stock

Common stock

Common stock

51,655,400

3,702,551—

855,861—
51,655,400(5)4,558,407

1. The increase in the number of treasury stock was due to the purchase of 850,000 shares with the approval of Board of Directors
meeting and purchase of 5,861 shares of less-than-one-unit shares.
2. The decrease in the number of treasury stock was due to sales of less-than-one-unit shares.

Information related to dividends was as follows:(1) Dividends paid during the accounting period ended December 31, 2006
a. Dividend on common stock approved by the ordinary general meeting of shareholders held on March 30, 2006
Total amount of dividend¥1,246 million

Dividend per share¥26

Record date

December 31, 2005

Payable date

March 31, 2006

b. Dividend on common stock approved by the Board of Directors meeting held on August 16, 2006
Total amount of dividend¥474 million

Dividend per share¥10

Record dateJune 30, 2006

Payable date

September 13, 2006

ADK Annual Report 200647

(2) Dividend attributable to the accounting period ended December 31, 2006, but to be paid after the said accounting perioda. Dividend on common stock approved by the Board of Directors meeting held on February 14, 2007
Total amount of dividend¥800 million

Fund of dividend

Retained earnings

Dividend per share¥17

Record date

December 31, 2006

Payable date

March 13, 2007

7. INCOME TAXESThe Company and its domestic consolidated subsidiaries

enterprise tax, in the way that such tax should be deductible

are subject to corporate, inhabitant and enterprise taxes

for tax purposes only when paid. Overseas subsidiaries

based on income. Normal effective statutory tax rates forare subject to income taxes of the countries in which they

these taxes in the aggregate result in approximately 40.69%

operate.

for 2006 and 2005, respectively, after reflection of the
The deferred tax assets and liabilities as a result of the tax effects of significant temporary differences as of December 31,
2006 and 2005 were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2006
Deferred tax assets:
Allowance for doubtful receivables
Accrued bonuses
Accrued retirement benefits
Investment securities
Tax loss carry forwards
Deferred tax assets in overseas
consolidated subsidiaries*
Other
Valuation allowance*
Deferred tax assets
Deferred tax liabilities:
Marketable securities
Deferred tax liabilities in overseas
consolidated subsidiaries*
Other
Deferred tax liabilities
Net deferred tax liabilities*Remarks:

¥

2005
462
47
608
452
199

¥

20 06
597
115
967
487
279

$

3,879
395
5,104
3,795
1,671

39
978
2,785
(116)
2,669

36
999
3,480
(177)
3,303

327
8,211
23,382(974)
22,40817,883

14,661150,1393
20
17,906¥15,237

576
14,742¥11,43925
168
150,332$127,924

The deferred tax assets and liabilities as a result of the tax effects of significant temporary differences andlosses carried forward as of December 31, 2006 and 2005, in overseas consolidated subsidiaries were as follows:

48 ADK Annual Report 2006

Thousands of
U.S. Dollars

Millions of Yen

2006
Deferred tax assets:
Tax loss carry forwards
Other
Less valuation allowance*
Deferred tax assets
Deferred tax liabilities—Other
Deferred tax liabilities
Net deferred tax assets*Remarks:

2005
¥88
30
(79)
39
3
3
¥36

2006
¥55
43
(62)
36
5
5
¥31

$739
252
(664)
327
25
25
$302

Valuation allowances shown above are certain reversals of tax loss carry forwards under the Group’s tax
planning.

Reconciliation between the normal effective statutory tax rate for the years ended December 31, 2006 and 2005 and theactual effective tax rates reflected in the accompanying consolidated statements of income were as follows:

2006
Normal effective statutory tax rate
Certain expenses permanently not deductible
for tax purposes
Certain income permanently not taxable for tax purposes
Per capita levy
Other—net
Actual effective tax rate2005

40.69%

40.69%

6.16(1.04)
0.15
1.10
47.06%

4.54(0.78)
0.26
0.86
45.57%

8. RESEARCH-AND-DEVELOPMENT COSTS
Research-and-development costs charged to income for the years ended December 31, 2006 and 2005 were ¥841 million($7,061 thousand) and ¥872 million, respectively.

ADK Annual Report 2006

49

9. LEASESThe Group leases certain computer equipment, office space,expense of finance leases that do not cause transfer ofvehicles and other assets.

ownership of the leased property to the lessee on an “as if

Pro forma information of leased property such as

capitalized” basis for the years ended December 31, 2006

acquisition cost, accumulated depreciation, obligations

and 2005, were as follows:

under finance leases, depreciation expense and interest
Millions of Yen

Year Ended December 31, 2006
Acquisition cost
Accumulated depreciation
Net leased property

Furniture andequipment¥2,067
1,527¥1,080Machinery andvehicles

¥28
14
¥14

Software

¥386
111
¥275

Total

¥3,021
1,652¥1,369Obligations under finance leases:
Millions of Yen

Due within one year
Due after one year
Total

¥

575
824
¥ 1,399

Millions of Yen

Year Ended December 31, 2005
Acquisition cost
Accumulated depreciation
Net leased property

Furniture andequipment¥3,0791,833¥1,246

Machinery andvehicles

¥25
9
¥16

Software

¥406
190
¥216

Total

¥3,5102,032¥1,478

Obligations under finance leases:
Millions of Yen

Due within one year
Due after one year
Total

¥ 617
888
¥1,505
Thousands of U.S. Dollars

Year Ended December 31, 2006
Acquisition cost
Accumulated depreciation
Net leased property

50 ADK Annual Report 2006

Furniture andequipment$21,887
12,820$ 9,067

Machinery andvehicles

$236
118
$118

Software$3,241932$2,309Total$25,364
13,870$11,494

Obligations under finance leases:
Thousands of U.S. Dollars

Due within one year
Due after one year
Total

$ 4,827
6,918$11,745

Lease payments, depreciation expense and interest expense under finance leases:
Thousands of
U.S. Dollars

Millions of Yen

Total lease payments
Depreciation expense
Interest expense

2006
¥717
688
28

2005
¥825
789
32

2006
$6,0205,776
235

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements of income
and retained earnings, are computed by the straight-line method and the interest method, respectively.
Obligations under operating leases:
Thousands of
U.S. Dollars

Millions of Yen

2006
Due within one year
Due after one year
Total

2005
¥ 9
9
¥18

¥16
10
¥26

20 06
$ 76
76
$152

10. CONTINGENT LIABILITIESAs of December 31, 2006, the Group had the following contingent liabilities:
Guarantee obligations:Thousands of
U.S. Dollars

Millions of Yen

Trade notes discounted
Aggregated amount of guarantees for debts owed by subsidiaries
and affiliates and payables by a client, Mindshare Japan
Total

¥

—

800
¥800

$

—

6,716
$6,716

Other contingent liability:

September 2005. The subsidiary and its legal counsel filed

A client filed a lawsuit against one of the Company’s

a motion to dismiss the complaint in November 2005. The

consolidated subsidiaries and four other companies andcourt heard oral arguments on the motion in January 2006

five individuals seeking demands in excess of $12.5 million

and has not yet issued a ruling.

in connection with the subsidiary’s advertising business in

ADK Annual Report 2006

51

11. DERIVATIVESThe Group enters into foreign exchange forward contracts

limited to major sound financial institutions, the Group doesto hedge foreign exchange risk associated with certain

not anticipate any losses arising from credit risk.

assets and liabilities denominated in foreign currencies.

Derivative transactions entered into by the GroupThe Group does not hold or issue derivatives for trading or

have been made in accordance with internal rules andspeculative purposes.

policies which regulate the authorization and exposure limit

Because the counterparties to these derivatives areamount.

The notional amounts, fair values and unrealized gain and loss on derivatives as of December 31, 2006 and 2005 aresummarized as follows:
Millions of Yen

Year Ended December 31, 2006
Currency:
OTC market
Foreign exchange forward contracts- buying (US$)
Swaps
Total
Interest rate:
OTC market
Swaps

Notional
amounts

Due after
one year

Fair value

Unrealized gain
(loss)

¥ 67
1,417

¥
—
1,417

¥69
2

¥2
2
¥4

¥1,000

¥

¥ (3)

¥3

—

Millions of Yen

Year Ended December 31, 2005
Currency:
OTC market
Foreign exchange forward contracts- buying (US$)- selling (US$)
Swaps
Total
Interest rate:
OTC market
Swaps

52 ADK Annual Report 2006

Notional
amounts

Due after
one year

Fair value

Unrealized gain
(loss)

¥ 135
309
1,417

¥

67
—
1,417

¥134
353
(0)

¥ (0)
(44)
(0)
¥(44)

¥1,000¥—¥ (12)¥(12)

Thousands of U.S. Dollars

Year Ended December 31, 2006
Currency:
OTC market
Foreign exchange forward contracts- buying (US$)
Swaps
Total

Due after
one year

Notional
amounts

Interest rate:
OTC market
Swaps

Fair value

Unrealized gain
(loss)$ 562
11,897$—
11,897

$579
17

$17
17
34

$8,396

$

$(25)

$(25)

—

Derivative transactions accounted for by hedge accounting were excluded.

12. SEGMENT INFORMATION
Information about business segments, geographic segments and billings to foreign customers of the Group for the years
ended December 31, 2006 and 2005, was as follows:(1) Business Segment Information
Business segment information for the year ended December 31, 2006 and 2005 were as follows:a. Billings and Operating Income
Millions of Yen

2006
Billings to customers
Inter-segment billings
Total billings
Operating expenses
Operating income

Advertising

Nonadvertising¥410,87599
410,974
404,605¥ 6,369¥9,184
311
9,495
9,459
¥
36

Total

¥420,059
410
420,469
414,064¥ 6,405

Eliminations
or Corporate

¥

—
(410)
(410)
(397)
¥ (13)

Consolidated¥420,059—
420,059
413,667¥ 6,392
Millions of Yen

2005
Billings to customers
Inter-segment billings
Total billings
Operating expenses
Operating income

Advertising

Nonadvertising¥415,301
397
415,698
407,989¥ 7,709¥9,404
115
9,519
9,742
¥ (223)

Total¥424,705
512
425,217
417,731¥ 7,486

Eliminations
or Corporate

¥

—
(512)
(512)
(514)
¥
2

Consolidated¥424,705—
424,705
417,217¥ 7,488

ADK Annual Report 2006

53

b. Assets, Depreciation and Capital Expenditures
Millions of Yen

2006
AssetsDepreciation
Capital expenditures

Advertising

Nonadvertising

Total¥246,710
1,165
588¥10,05640
4¥256,766
1,205
592

Advertising

Nonadvertising

Total¥236,943
1,204
505¥10,04642
21¥246,989
1,246
526

Eliminations
or corporate

Consolidated

¥(12)
—
—

¥256,754
1,205
592
Millions of Yen

2005
AssetsDepreciation
Capital expenditures
a. Billings and Operating Income

2006
Billings to customers
Inter-segment billings
Total billings
Operating expenses
Operating income

Consolidated¥(122)——¥246,867
1,246
526

Thousands of U.S. Dollars

Advertising

Nonadvertising

Total$3,449,543
831
3,450,374
3,396,902$ 53,472$77,105
2,611
79,716
79,414$ 302$3,526,648
3,442
3,530,090
3,476,316$ 53,774

Eliminations
or corporate

Consolidated$—(3,442)(3,442)(3,333)$ (109)$3,526,648—
3,526,648
3,472,983$
53,665b. Assets, Depreciation and Capital Expenditures

2006
AssetsDepreciation
Capital expenditures

Eliminations
or corporate

Thousands of U.S. Dollars

Advertising

Nonadvertising

Total$2,071,279
9,781
4,936

$84,426336
34$2,155,705
10,117
4,970

Eliminations
or corporate

Consolidated$(101)——$2,155,604
10,117
4,970

Notes: 1. The Group is engaged primarily in the advertising industry. The two business segments, namely, advertising services and nonadvertising, consist primarily of the following services:
Advertising services: Planning, creating, producing and placing advertising in various media such as television, radio, newspapers,
magazines, public transportation, billboard, and digital media. Additional services, such as marketing and branding consultation,
design and production of sales promotion programs, and event marketing, are included.
Non-advertising: Publishing and selling of magazines and books and information processing services.
Notes: 2. Consolidated operating expenses are equal to the total of cost of sales and selling, general and administrative expenses shown in theaccompanying consolidated statements of income and retained earnings.

(2) Geographic Segment Information
Because the billings and total assets of the foreign(3) Billings to Foreign Customers
Since the billings to foreign customers of the Group for

operations of the Group for the years ended December

the years ended December 31, 2006 and 2005 were31, 2006 and 2005 were less than 10% of those of the

5.7% and 5.9%, respectively, or less than 10% of the total

total consolidated operation, such segment information

consolidated billings in the two periods, such information

is not presented.

is not presented.

54 ADK Annual Report 2006

INDEPENDENT AUDITORS’ REPORTThe Board of Directors
ASATSU-DK INC.:
We have audited the accompanying consolidated balance sheets of ASATSU-DK INC. and consolidated
subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of income,changes in net assets and cash flows for the years then ended, all expressed in Japanese yen. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to independently 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. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of ASATSU-DK INC. and consolidated subsidiaries as ofDecember 31, 2006 and 2005, and the consolidated results of their operations and cash flows for theyears then ended, in conformity with accounting principles generally accepted in Japan.
Our audit 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 1. Such U.S. dollar
amounts are presented solely for the convenience of readers outside Japan.

Yasumori Audit Corporation
Certified Public Accountants
March 30, 2007

ADK Annual Report 2006

55

Securities Holdings
Asatsu-DK INC. Consolidated Investments as of December 31, 2006

Millions of Yen

2006
Current

Money Management Funds¥ 2,069

Free Financial Funds

72

Discount Nochu Bank Debentures—

Face Value

2,317

7 funds

755

8 funds

Bonds
Mutual Funds in Equities and Bonds and Others
Total
Non-Current WPP Group plc.

¥ 5,213¥50,493

2.50% or 31,295,646 stocks

Digital Advertising Consortium Inc.

2,162

Equity Method

Other Publicly Traded Equities

31,967149 issues

Publicly Traded Equities total

84,622

Non-Publicly Traded Equities in Affiliates

4,312

19 issues

Non-Publicly Traded Equities in Subsidiaries

522

24 issues

Other Non-Publicly Traded Equities

1,535

78 issues

Non-Publicly Traded Equities total

6,369

Bonds

10,631

38 issues

397

8 issues

Mutual Funds in Equities and Bonds and Others
Total Non-current investments in securities¥102,019

Investments in affiliated companies (Non-Securities)

214

6 funds

Investments in Funds (Non-Securities)

11

3 funds

Total Non-current investments¥102,244

Millions of Yen

Top Five Equities by Balance Including WPPWPP Group plc.

2006
¥50,493

31,295,646 shares

Mitsubishi UFJ Financial Group, Inc.

4,405

2,753 shares

Tokyo Broadcasting System, Incorporated

2,708

982,900 shares

Omnicom Group Inc.

2,054

200,040 shares

ASAHI BREWERIES, Ltd.

1,897

891 shares

56 ADK Annual Report 2006

Investor Information(As of December 2006)

Parent company nameASATSU-DK INC.

EstablishedMarch 19, 1956

Head office13-1, Tsukiji 1-chome, Chuo-ku, Tokyo 104-8172, Japan

Number of employees

2,975 (consolidated basis)
1,978 (non-consolidated basis)

Common stock

Authorized: 206,000,000 shares
Issued: 51,655,400 shares

Number of shareholders 12,386
Treasury stock

8.82%

Securities companies

1.46%

Other domestic corporations 5.20%
Financial institutions

10.98%

Individual and others

18.30%

Distribution
byownersForeigners

55.24%

Percentage of total shares issued

Major shareholders

WPP International Holding B.V.

21.93%

Mellon Bank Treaty Clients Omnibus

5.31%

Northern Trust Co. (AVFC) Sub A/C American Clients

5.17%

Masao Inagaki

3.48%

UBS AG London-IPB Client Account

2.86%

State Street Bank and Trust Company

2.53%

CBNY-Third Avenue International Val. Fund

2.12%

The Master Trust Bank of Japan, Ltd. (trust account)

1.90%

CBNY-UMB Funds

1.78%

The Bank of New York Non-Treaty JASDEC Account

1.76%
Percentage of total shares issued

Stock listing

Tokyo Stock Exchange, First Section

Securities code

9747

Transfer agent

Tokyo Securities Transfer Agent Co., Ltd.
1-4-2 Marunouchi, Chiyoda-ku,
Tokyo 105-0005, Japan

Annual meeting

The annual meeting of shareholders is normallyheld in March in Tokyo, Japan.

For further information

Asatsu-DK Inc. Office of Corporate Communications
TEL: +81-3-3547-2003
URL: http://www.adk.jp/english/index.html
ADK Annual Report 2006

57

ADK Group Network

DOMESTICCONTENT GROUPEUROPEAGENCY GROUP

Nihon Ad Systems Inc.
13-1, Tsukiji 1-chome, Chuo-ku,
Tokyo 104-0045
TEL: 81(0)3-3547-2183
FAX: 81(0)3-3547-2098

Amsterdam
ADK Europe B.V. … ■Barbara Strozzilaan 386
1083 HN Amsterdam
The Netherlands
TEL: +31-20-799-3500
FAX: +31-20-799-3501

ADK International Inc. … ■1-1, Tsukiji 4-chome,
Chuo-ku, Tokyo 104-0045
TEL: 81(0)3-3546-9100
FAX: 81(0)3-3546-9150
Kyowa Kikaku Ltd. … ■20-15, Shimbashi 2-chome,
Minato-ku,
Tokyo 105-0004
TEL: 81(0)3-3571-3111
FAX: 81(0)3-3571-3314
TRI Communication Inc. … ■9-9, Tsukiji 3-chome, Chuo-ku,
Tokyo 104-0045
TEL: 81(0)3-3547-5151
FAX: 81(0)3-3547-5152
Digital Advertising Consortium Inc. … ❑20-3, Ebisu 4-chome, Shibuya-ku,
Tokyo 150-6033
TEL: 81(0)3-5449-6200
FAX: 81(0)3-5449-6201
Drill Inc.
19-5, Udagawa-cho, Shibuya-ku,
Tokyo 150-0042
TEL: 81(0)3-5428-8771
FAX: 81(0)3-5428-8772
ASP Co.,Ltd.
13-1, Tsukiji 1-chome,
Chuo-ku, Tokyo 104-0045
TEL: 81(0)3-3547-2100
FAX: 81(0)3-3547-2937
Motivation Marketing Inc.
1-1, Tsukiji 4-chome,
Chuo-ku, Tokyo 104-0045
TEL: 81(0)3-3546-9120
FAX: 81(0)3-3546-9107
AD&M Inc.
12-19, Ginza 4-chome,
Chuo-ku, Tokyo 104-0061
TEL: 81(0)3-3524-5056
FAX: 81(0)3-3524-5058
CREATIVE GROUPADK Arts Inc. … ■13-1, Tsukiji 1-chome, Chuo-ku,
Tokyo 104-0045
TEL: 81(0)3-3545-5400
FAX: 81(0)3-3545-5075
ADK Boys Inc. … ■13-13, Tsukiji 1-chome,
Chuo-ku, Tokyo 104-0045
TEL: 81(0)3-3545-1071
FAX: 81(0)3-3545-1305

58 ADK Annual Report 2006

Right Song Music Publishing Co., Ltd.
13-1, Tsukiji 1-chome, Chuo-ku,
Tokyo 104-0045
TEL: 81(0)3-3547-2184
FAX: 81(0)3-3547-2098
Eiken Co., Ltd. … ■56-7, Minamisenjyu 6-chome,
Arakawa-ku, Tokyo 116-0003
TEL: 81(0)3-3802-3011
FAX: 81(0)3-3807-6205
Super Vision, Inc.
13-1, Tsukiji 1-chome, Chuo-ku,
Tokyo 104-0045
TEL: 81(0)3-3547-2156
FAX: 81(0)3-3547-2098
PUBLISHING GROUP
Nihonbungeisha Co., Ltd. … ■1-7, Kanda-Jimbo-cho, Chiyoda-ku,
Tokyo 105-8407
TEL: 81(0)3-3294-7771
FAX: 81(0)3-3294-7780
Neo Shobo Inc. … ■6-7, Shimbashi 1-chome, Minato-ku,
Tokyo 105-0004
TEL: 81(0)3-3573-1277
FAX: 81(0)3-3574-8165
Information Processing Service
Nippon Information Industry Corp. … ❑1-4, Shibuya 3-chome, Shibuya-ku,
Tokyo 150-0002
TEL: 81(0)3-3409-9411
FAX: 81(0)3-3409-3785

OVERSEASNORTH AMERICANew York
ADK America Inc. N.Y. … ■515 West 20th St., 6F, New York,NY 10011, U.S.A.
TEL: +1-646-284-9800
FAX: +1-646-284-9825
Los Angeles
ADK America Inc. L.A.
970 W. 190th St. #710 Torrance,
CA 90502, U.S.A.
TEL: +1-310-630-3600
FAX: +1-310-630-3620

Knots Europe B.V.
Jadelaan 50b 2132 XW Hoofddorp,
The Netherlands
TEL: +31-23-554-3554
FAX: +31-23-554-3553
Asatsu (Deutschland) GmbH … ■Zeppelinalle 77a 60487 Frankfurt, Main,
Germany
TEL: +49-6970-799-210
FAX: +49-6970-799-190
Paris
ADK France S.A.S.
352 Rue Saint-Honore 75001, Paris,
France
TEL: +33-1-5345-3450
FAX: +33-1-5345-3455
ASIA
Beijing
Beijing Huawen-Asatsu International
Advertising Co., Ltd.
25F, Block B Winterless Center, No.1 West
Dawang Road, Chaoyang District,
Beijing 100026, P.R.C.
TEL: +86-10-6464-0088
FAX: +86-10-6464-3889
Tiexu Advertising Co., Ltd.
18F, Golden Land Bldg. No. 32,
Liangmaqiao Road, Chao Yang District,
Beijing, 100016, P.R.C.
TEL: +86-10-6466-2122
FAX: +86-10-8448-3324
DS Public Relations Consulting Co., Ltd.
Rm. 828, Beijing Capital Times Square,No. 88 Xichang’an Ave.,
Beijing, 100031, P.R.C.
TEL: +86-10-8391-3389
FAX: +86-10-8391-3399
Beijing Dai-Ichi Kikaku AdvertisingCo., Ltd.
C-3 Huitong Office Park No. 71, Jianguo
Road, Chaoyang District, Beijing, 100025,
P.R.C.
TEL: +86-10-8599-7788
FAX: +86-10-8599-7579

(As of April 2006)

Shanghai
Shanghai Asatsu Advertising Co.,
Ltd. … ❑10F, Yongxin Mansion, No. 887, Huaihai
Zhong Lu, Shanghai, 200020, P.R.C.
TEL: +86-21-6467-4118
FAX: +86-21-6474-7803
Asatsu Century (Shanghai)
Advertising Co., Ltd.
9F, Yongxin Mansion, No. 887, Huaihai
Zhong Lu, Shanghai, 200020, P.R.C.
TEL: +86-21-6474-8908
FAX: +86-21-6474-8909
Guangzhou
Guangdong Guangxu (Asatsu)
Advertising Co., Ltd. … ❑26F, Telecom Plaza No. 18,
Zhang Shan Er Road, Guang zhou,
510081, P.R.C.
TEL: +86-20-8888-9818
FAX: +86-20-8888-9819
Asatsu Century (Shanghai)
Advertising Co., Ltd./Guangzhou Branch
Rm, E-F, 19F, Jin An Tower, No. 300,
Dong Feng Zhong Road,
Guangzhou 510030, P.R.C.
TEL: +86-20-8321-2080
FAX: +86-20-8321-2032
ChengduAsatsu Century (Shanghai)
Advertising Co., Ltd./Chengdu Branch
B-801, Times Plaza, No. 2, Zongfu Road,
Chengdu 610016, P.R.C.
TEL: +86-28-8666-5471
FAX: +86-28-8672-5017
FuzhouFujian Asatsu-DK Ltd.
No.131 2F, Fuzhou Century Crown Bldg.
Bei Huan Zhong Road, Fujian 350003,
P.R.C
TEL: +86-591-8801-2100
FAX: +86-591-8801-2108
Hong Kong
Asatsu-DK Hong Kong Ltd. … ■25F, Leighton Centre, 77 Leighton Road,
Causeway Bay, Hong Kong
TEL: +852-2895-8111
FAX: +852-2576-3322
DK Advertising (HK) Ltd. … ■25F, Leighton Centre, 77 Leighton Road,
Causeway Bay, Hong Kong
TEL: +852-2811-9999
FAX: +852-2811-9699
Taipei
United-Asatsu International Ltd. … ■13F, No.287 Nanjing E. Road Sec 3, Taipei
105, Taiwan, R.O.C.
TEL: +886-2-8712-8555
FAX: +886-2-8712-9555

DIK-Ocean Advertising Co., Ltd. … ■13F, No. 287, Nanjing East Road, Sec. 3,
Taipei 105, Taiwan, R.O.C.
TEL: +886-2-2546-3636
FAX: +886-2-2546-1919
Asachin International Inc.
13F, No. 287, Nanjing East Road, Sec. 3,
Taipei 105, Taiwan, R.O.C.
TEL: 886-2-2713-5500
FAX: 886-2-2547-2626
BangkokAsatsu (Thailand) Co., Ltd.
24F, Sirinrat Bldg. 3388/86 Rama 4 Road
Klongton, Klongtoey Bangkok
10110, Thailand
TEL: +66-2-367-5951
FAX: +66-2-367-5946
Dai-Ichi Kikaku (Thailand) Co., Ltd. … ■23F, Shinawatra Tower III, 1010 Vibhavadi
Rangsit Road, Ladyao, Chatuchak,Bangkok 10900, Thailand
TEL: +66-2-949-2700
FAX: +66-2-949-2777
ASDIK Ltd. … ❑6F, Shinawatra Tower III, 1010 Vibhavadi,
Rangsit Road, Ladyao, Chatuchak, Bangkok
10900, Thailand
TEL: +66-2-949-2800
FAX: +66-2-949-2805
Kuala Lumpur
Asatsu-DK Malaysia Sdn. Bhd.
Level 18, Menara Merais, No.1, Jalan
19/3,
46300 Petaling Jaya, Selangor, Malaysia
TEL: +603-7954-0388
FAX: +603-7954-0266
Jakarta
PT. Asta Atria Surya
Wisma Slipi, Lantai 11 Jl. Let.
Jend. S. Parman Kav. 12,
Jakarta 11480, Indonesia
TEL: +62-21-530-7155
FAX: +62-21-530-7156
PT. Perdana IMMG Indonesia
JI. Kemang I No. 5,
Jakarta Selaten 12730, Indonesia
TEL: +62-21-520-3551
FAX: +62-21-520-3552
Ho Chi Minh
Asatsu-DK Vietnam Inc.
18F, Sun Wah Tower, 115 Nguyen Hue,
District 1, HCM City, Vietnam
TEL: +84-8-821-9211
FAX: +84-8-821-9210

Singapore
Asatsu-DK Singapore Pte. Ltd. … ■1 Liang Seah Street, #02-05 Singapore
189022
TEL: +65-6333-5115
FAX: +65-6333-5225
IMMG Pte. Ltd.
5 Shenton Way, UIC Bldg. #25-05,
Singapore 068808
TEL: +65-6323-9630
FAX: +65-6323-1172
Scoop AD World Pte. Ltd.
37 Beach Road, #2-02
Singapore 189678
TEL: +65-6336-2346
FAX: +65-6336-1982
Dubai
IMMG FZ LLC
Office 335-341, 3F Bldg, 7, P. O. Box
53777,
Dubai Media City (Phase 2), UAE
TEL: +971-4-390-2660
FAX: +971-4-390-4850
New Delhi
Asatsu-DK Inc. New Delhi Liaison Office
Enkay Centre Block A, Vanijya Nikunj
Commercial Complex, Udyog Vihar
Phasse V, Gurgaon 122016, India
TEL: +91-124-419-8430
FAX: +91-124-419-8454
ManilaAsatsu-DK Inc. Philippine Rep. Officec/o: Catalytx Advertising
9F Raffles Corporate Center,
F. Ortigas, Jr. Road
Ortigas Center, Pasig City 1605,
Philippines
TEL: +63-2-914-4297
FAX: +63-2-914-9001
Seoul
Asatsu-DK inc. Seoul LG AD/
ADK Division
LG mapo Bldg., 275, Kongdeok2-dong,
Mapo-gu, Seoul, 121-721 South Korea
TEL: +82-2-705-2517
FAX: +82-2-705-2952… ■ Consolidated subsidiaries… ❑ Affiliates accounted for by the equity
methodADK Annual Report 2006

59

ASATSU-DK INC.
http://www.adk.jp/english/index.html

Printed in Japan