A N N U A L R E P O R T 1 9 9 9

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Millions of yen Thousands of dollars 1997 1998 1999 1999 Operations: Net sales ¥346,459 ¥345,185 ¥313,635 $2,592,025 Costs and expenses 340,135 339,202 312,114 2,579,455 Net income ¥ 6,324 ¥ 5,983 ¥ 1,521 $ 12,570 (b) Summarized below are significant transactions with affiliates for the years ended March 31, 1997, 1998 and 1999: Millions of yen Thousands of dollars 1997 1998 1999 1999 Sales ¥ 2,120 ¥ 1,651 ¥ 3,978 $ 32,876 Cost of sales— Purchases of materials 26,217 24,613 26,766 221,207 Subcontractors’ fees 7,433 7,050 8,088 66,843 Interest and dividend income 713 794 702 5,802 Rental income 732 779 1,034 8,545 3. Long-Term Indebtedness Long-term indebtedness as at March 31, 1998 and 1999, is detailed in the table below: Conversion/subscription price Millions of yen Thousands of dollars Yen per share 1998 1999 1999 Unsecured convertible bonds— 1.9%, due 2001 ¥1,645.10 ¥ 24,933 ¥ 24,933 $206,058 1.4%, due 2005 2235.20 34,950 34,950 288,843 Unsecured bonds— 2.7%, due 2007 — 50,000 50,000 413,223 Secured bonds— 7.1%, due 1998 — 200 — — 2.5%, due 2004 — 500 500 4,132 2.2%, due 2003 — 300 300 2,479 1.8%, due 2005 — — 200 1,653 Unsecured loans— Japanese banks, 2.0-4.0%, due 2000 through 2005 — 371 1,396 11,537 Foreign banks, 2.1-9.1%, due 2000 through 2005 — 121 757 6,256 Mortgage loans— Japanese banks, 2.0-5.9%, due 2000 through 2005 — 2,671 1,851 15,298 114,046 114,887 949,479 Less: Current portion included in current liabilities (996) (645) (5,330) ¥113,050 ¥114,242 $944,149 As at March 31, 1999, property, plant and equipment with a net book value of ¥5,145 million ($42,521 thousand) was pledged as collateral for long-term indebtedness. The convertible bonds are convertible into common stock at the option of the holders, currently at applicable conversion prices per share as listed in the preceding table. These conversion prices are subject to adjustment for subsequent stock splits of common stock and shares issued at less than market value. The outstanding convertible bonds are redeemable at the option of the Company at a price of 100% of the principal amount under certain conditions as provided in the respective agreements. The unsecured convertible bonds are subject to certain covenants such as restrictions on dividends, earnings and certain additional secured indebtedness, as defined in the agreements. The Company presently satisfies all required covenants. If all outstanding convertible bonds had been converted into common stock as at March 31, 1999, approximately 30,792 thousand shares of common stock would have been issued. As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that additional security and guarantees for present and future indebtedness will be given upon request of the bank under certain circumstances, and that any collateral so furnished will be applicable to all indebtedness to that bank. To date, the Company and its consolidated subsidiaries have not received any such requests from the banks. In addition, the agreements provide that the bank has the right to offset cash deposits against any short-term or long-term debt that becomes due, and in case of default and certain other specified events, against all other debt payable to the bank. 32
The aggregate annual maturities of long-term loans subsequent to March 31, 1999, are as follows: Fiscal year ending March 31 Millions of yen Thousands of dollars 2001 ¥711 $5,876 2002 534 4,413 2003 646 5,339 2004 487 4,025 2005 and thereafter 981 8,107 4. Income Taxes The Company and its subsidiaries are subject to several taxes (corporate, inhabitant and enterprise) based on income. The aggregate statutory tax rates and the effective tax rates for the years ended March 31, 1997, 1998 and 1999 are as follows: 1997 1998 1999 Statutory tax rate 51% 51% 47% Effective tax rate 71% 56% 49% Variance between the statutory tax rates and effective tax rates for the year ended March 31, 1997, consists primarily of the effect of permanently non-deductible expenses and non-taxable income. The effective tax rate for the year ended March 31, 1997, was affected by the lump-sum write-off of goodwill pertaining to the acquisition of Toppan Moore Co., Ltd. and Avery Toppan Co., Ltd. in 1997. For the years ended March 31, 1998 and 1999, the variance consists primarily of all temporary differences reflected to deferred taxes as a result of adopting the allocation of income taxes. Significant components of the Company’s deferred tax assets and liabilities as of March 31, 1999, are as follows: Millions of yen Thousands of dollars (Deferred tax assets) Bad debt reserve ¥1,277 $ 10,554 Accrued bonuses 950 7,851 Enterprise taxes 1,369 11,314 Depreciation 2,071 17,116 Estimated termination and retirement allowances 3,799 31,397 Intercompany profits 2,145 17,727 Net operating loss carry forwards 1,691 13,975 Other 3,100 25,620 16,402 135,554 Less valuation allowance (1,691) (13,975) Total 14,711 121,579 (Deferred tax liabilities) Tax purpose reserves regulated by Japanese tax law 3,467 28,653 Other 519 4,290 Total 3,986 32,943 Deferred tax assets, net ¥10,725 $ 88,636 (Fixed liabilities) Deferred tax liabilities Depreciation ¥177 $1,463 Other 54 446 Total deferred tax liabilities ¥231 $1,909 The valuation allowance mainly relates to deferred tax assets of the consolidated subsidiaries with operating loss carryforwards for tax purposes that are not expected to be realized. The disclosure of significant components of the Company’s deferred tax assets and liabilities have been required to be disclosed under accounting principles from fiscal 1999, but such accounting principles have not been required to restate the 1998 deferred tax information. 33 5. Shareholders’ Investment The Japanese Commerical Code provides that an amount equivalent to at least 10% of cash dividends paid and of other cash outlays in each fiscal or interim six-month period be appropriated to a legal reserve until such reserve equals 25% of the issued share capital. In accordance with the new disclosure requirements effective from the year ended March 31, 1999, legal reserve of ¥14,709 million ($121,562 thousand) is included in retained earnings for 1999. Previously it was presented as a separate component of the shareholders’ investment. The accompanying consolidated financial statements for the years ended March 31, 1997 and 1998 have been reclassified to conform to the 1999 presentation. The Code also provides that neither the additional paid-in capital nor the legal reserve is available for cash dividends, but may be used to reduce a capital deficit by resolution of the shareholders or may be capitalized by resolution of the Board of Directors. Year-end dividends are approved by the shareholders after the end of each fiscal year, and interim dividends are declared by the Board of Directors after the end of each semi-annual period. In accordance with the Commercial Code, the year-end dividends and the related appropriation of retained earnings are not reflected in the consolidated financial statements at the end of each fiscal year. On June 30, 1999, the shareholders approved the declaration of a year-end cash dividend totaling ¥5,246 million ($43,356 thousand), which was paid in that month to the shareholders of record as at March 31, 1999, and the related appropriation of profits to legal reserve of ¥539 million ($4,455 thousand). 6. Per Share Data Net income per share is based on the weighted average number of shares of common stock outstanding and dilutive common stock equivalents. The 1.9% and 1.4% convertible bonds were considered as common stock equivalents and were included in the calculation of earnings per share when they were dilutive. In computing net income per share, net income is adjusted, at net of income taxes, by interest expense on the convertible bonds. Dividends per share shown in the accompanying consolidated statements of income have been presented on an accrual basis but include dividends approved after each fiscal year-end and are applicable to the year then ended. The number of shares of common stock outstanding used in computing net income per share was as follows: Thousands of shares 1997 736,805 1998 730,231 1999 730,195 7. Derivative Financial Instruments The Company uses derivative financial instruments selectively, to manage interest rate risk and foreign exchange risk. The Company enters into forward exchange contracts to hedge foreign exchange risks and also uses interest rate swaps to manage floating interest rate risk. To reduce the credit risk of counterparties in derivative transactions, the Company selects major, creditworthy financial institutions as counterparties. The Company has entered into the following types of derivative financial instruments as of March 31, 1999.
Page 1 and 2: A N N U A L R E P O R T 1 9 9 9 Top
Page 3 and 4: FINANCIAL HIGHLIGHTS Toppan Printin
Page 5 and 6: Toppan is working to establish a fo
Page 7 and 8: With only one year remaining until
Page 9 and 10: ? Japan’s printing industry has a
Page 11 and 12: ? A large number of companies offer
Page 13 and 14: ? Electronics operations already ac
Page 15 and 16: Eco- Creativity To enable us to ful
Page 17 and 18: Securities and Cards In this field,
Page 19 and 20: Industrial Materials Toppan has use
Page 21 and 22: Management’s Discussion and Analy
Page 23 and 24: Cash Dividends per Share (¥) 15 10
Page 25 and 26: Toppan Printing Co., Ltd. and Subsi
Page 27 and 28: Liabilities and Shareholders’ Inv
Page 29 and 30: CONSOLIDATED STATEMENTS OF SHAREHOL
Page 31 and 32: NOTES TO CONSOLIDATED FINANCIAL STA
Page 33: Cash and Cash Equivalents For purpo
Page 37 and 38: 1997 Millions of yen Printing Other
Page 39 and 40: Board of Directors and Auditors 38
Page 41 and 42: Hiromichi Fujita Kenji Ejima Naoki
Page 43 and 44: D INDUSTRIAL MATERIALS Toppan Kenza
Page 45 and 46: D Siam Printing and Packaging Co.,
Page 47 and 48: Produced and printed in Japan by To

A N N U A L R E P O R T 1 9 9 9

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