Japan Transcity Corporation
Consolidated Financial Statements
March 31, 2007 and 2006

Report of Independent Auditors

To the Board of Directors and Shareholders ofJapan Transcity Corporation,

We have audited the accompanying consolidated balance sheets of Japan Transcity Corporation and its
consolidated subsidiaries as of March 31, 2007 and 2006, and the related consolidated statements ofincome, changes in equity, 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 express an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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
consolidated financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Japan Transcity Corporation and its consolidated
subsidiaries as of March 31, 2007 and 2006, and the consolidated results of their operations and their
cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
As described in Note 2(j), effective from the year ended March 31, 2006, Japan Transcity Corporationand its domestic consolidated subsidiaries adopted a new accounting standard for impairment of fixed
assets.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, havebeen translated on the basis set forth in Note 1 to the accompanying consolidated financial statements.

Misuzu Audit Corporation
Nagoya, Japan
June 28, 2007

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31, 2007 and 2006

Millions of Yen
2007
2006
Current assets:
Cash and cash equivalents
Short-term investments (Notes 3 and 4)
Trade receivables:
Notes
Accounts
Allowance for doubtful accounts¥

Inventories
Deferred tax assets (Note 10)
Other current assets
Total current assets

Property and equipment, at cost (Note 4):Land
Buildings and structures
Machinery and equipment
Vehicles and vessels
Construction in progress
Less, accumulated depreciation
Net property and equipment

Investments and other assets:
Investment securities (Note 3)
Investments in unconsolidated subsidiaries andaffiliates
Deferred tax assets (Note 10)
Lease deposits
Other assets
Allowance for doubtful accounts
Total investments and other assets

Total assets¥

12,946703

14,332
275$

109,712
5,958

974
13,673(19)
14,62891
236
1,529
30,133865
13,192(18)
14,039
106
512
1,567
30,831

8,254
115,873(161)
123,966
771
2,000
12,957
255,364

27,762
42,143
10,765
7,482
1,563
89,715(42,125)
47,59027,734
41,631
10,8778,369
141
88,752(41,633)
47,119235,271357,144
91,22963,407
13,246760,297(356,992)
403,305

10,236

11,73786,746

2,976
505
935
1,527
(50)
16,129

2,814
491
929
1,473
(51)
17,39325,2204,280
7,924
12,941(424)
136,687

93,852

See accompanying Notes to Consolidated Financial Statements.

-2-¥

Thousands of
U.S. Dollars
2007¥

95,343$795,356

Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Current liabilities:
Short-term borrowings (Note 4)
Current maturities of long-term debt (Note 4)
Trade payables:
Notes
Accounts¥

Accrued expenses
Income taxes payable
Deferred tax liabilities (Note 10)
Other current liabilities
Total current liabilities
Long-term debt (Note 4)
Employee retirement benefit liability (Note 5)
Guarantee deposits received
Deferred tax liabilities for revaluation
Deferred tax liabilities (Note 10)
Accrued severance indemnities for directors andcorporate auditors
Other long-term liabilities
Total liabilities
Equity (Note 6):
Common stock
Capital surplus
Retained earnings
Less, treasury stock, at cost
Total shareholders' equity
Other components of equity
Minority interests
Total equity
Total liabilities and equity¥

Minority interests
Shareholders' equity:
Common stock
Capital surplus
Retained earnings
Land revaluation decrement
Net unrealized gains on available-for-salesecurities
Foreign currency translation adjustment
Less, treasury stock, at cost
Total shareholders’ equity
Total liabilities, minority interestsand shareholders’ equity

-3-

2,710
1,136

¥

3,208
1,357

$

22,966
9,627

1,454
6,476
7,930
1,759
463
203
2,507
16,70825,634
3,872
4,381
5,281
1,107

1,447
6,645
8,092
1,654
1,392
1,550
17,253
26,339
4,814
4,466
5,281
1,709

12,32254,881
67,203
14,9073,924
1,720
21,246
141,593
217,237
32,814
37,12744,754
9,382

489
121
57,593436
4560,343

4,144
1,025
488,076

8,428
6,738
18,253(138)
33,2811,628
1,350
36,25993,852-

71,423
57,102
154,686(1,169)282,042
13,797
11,441
307,280
795,356

-

1,201

-

-

8,411
6,720
16,256(2,018)

-

-

4,467
(9)
(28)
33,799-95,343--¥$

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Income
For the Years Ended March 31, 2007 and 2006

Operating revenue (Note 11)¥

Operating costs and expenses(Notes 5, 8 and 11)
Operating income
Other income (expenses) :Interest and dividend income
Interest expenses
Equity in net earnings of unconsolidated
subsidiaries and affiliates(Loss) gain on sale or disposal of property
and equipment
Impairment loss on fixed assets (Note 2(j))
Other, net
Income before income taxes andminority interests
Income taxes (Note 10)Less, minority interests in net income of
consolidated subsidiaries
Net income¥

Millions of Yen
2007
2006

Thousands of
U.S. Dollars
2007

83,333$¥83,09978,6904,643

79,195
3,904

666,864
39,348

170
(409)

126
(381)

1,440
(3,466)

188

128

1,593

(139)
78
(112)

1,596
(2,953)
195(1,289)(1,178)
661
(950)

4,531

2,615

38,398

1,777

2,183

15,059

143

103

1,212

2,611

¥

329

Yen
Per share:
Net income:-Basic-Diluted
Cash dividends

¥

39.08
37.05
8.50

See accompanying Notes to Consolidated Financial Statements.

-4-706,212¥$22,127

U.S. Dollars

4.27
4.09
8.00

$

0.33
0.31
0.07

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Changes in Equity
For the Years Ended March 31, 2007 and 2006
Number ofcommonshares issued

Balance at March 31, 2005
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Reversal of land revaluation increment
Adjustment for applicable income taxes
Conversion of convertible bonds
Net change in unrealized gains on available-forsale securities, net of applicable income taxes
Translation adjustment
Fractional shares acquired, net
Balance at March 31, 2006

64,262,367
2,757,243
67,019,610

Common
stock

¥

¥

7,884
527
8,411

Capitalsurplus¥¥Retainedearnings

6,193
527
6,720

¥

¥

15,731
329
(524)
(42)
762
16,256Land
Net unrealized
revaluation
gains onincrement
available-for(decrement) sale securities
Millions of Yen

¥

¥

2,717
(762)
(3,973)(2,018)

¥

¥

2,188
2,279
4,467

Foreigncurrencytranslation
adjustment

¥

¥

(58)
49
(9)

Shareholders' equity
Number ofcommonshares issued

Balance at March 31, 2006
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Conversion of convertible bonds
Purchase of treasury stock and fractional shares, net
Net changes other than shareholders’ equity
Balance at March 31, 2007

67,019,610
122,807
67,142,417

Common
stock

¥

¥

8,411
17
8,428

Capitalsurplus

¥

¥

6,720
18
6,738

Retainedearnings¥¥

16,256
2,611
(568)
(46)
18,253Net unrealized
Total
gains onTreasuryshareholders' available-forstock
equitysale securities
Millions of Yen

¥

¥

(28)
(110)
(138)

¥

¥

31,359
2,611
(568)
(46)
35
(110)
33,281¥¥

Treasury
stock

¥

¥

(13)
(15)
(28)

Total
shareholders’equity¥¥34,642
329
(524)
(42)
(3,973)
1,054
2,279
49
(15)
33,799Other components of equity
ForeignLandcurrencytranslation
revaluation
decrement
adjustment

4,467
(878)
3,589

¥

(2,018)(2,018)¥37,856(7,440)30,416$ (17,102)$ (17,102)

$

¥

¥

Total othercomponentsof equity

(9) ¥
66
57 ¥

2,440
(812)
1,628

Minority
interests¥¥

Total equity

1,201
149
1,350

¥

35,000
2,611
(568)
(46)
35
(110)
(663)
36,259¥10,178
1,263
11,441$ 296,610
22,127(4,814)
(390)
297
(932)
(5,618)$ 307,280

Thousands of U.S. Dollars
Balance at March 31, 2006
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Conversion of convertible bonds
Purchase of treasury stock and fractional shares, net
Net changes other than shareholders’ equity
Balance at March 31, 2007$$

71,279144
71,423$$56,949153
57,102$ 137,763
22,127(4,814)(390)$ 154,686$$

See accompanying Notes to Consolidated Financial Statements.
-5-

(237)
(932)
(1,169)$ 265,754
22,127(4,814)
(390)
297
(932)
$ 282,042

$

$

$

(76)
559
483

$

$

20,678(6,881)
13,797$$

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2007 and 2006

Millions of Yen
2007
2006
Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation
Net reversal for employee retirement benefit liability
Loss (gain) on sale or disposal of property and equipment
Impairment loss on fixed assets
Increase in trade receivables
Decrease in inventories(Decrease) increase in trade payables
Other, net
Sub-totalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities

¥

4,531

¥

2,615

Thousands of
U.S. Dollars
2007$

38,398

2,755
(943)
139
(503)
16
(123)
193
6,065
210
(403)
(2,246)
3,626

2,640
(558)
(1,596)
2,953(1,102)
448
354
(212)
5,542
175
(381)
(571)
4,765

23,347(7,992)
1,178(4,263)136(1,042)
1,636
51,3981,780(3,415)(19,034)
30,729Cash flows from investing activities:
Increase in property and equipment and intangible assets
Decrease in property and equipment and intangible assets
Acquisition, net of cash acquired
Increase in short-term investments
Other, net
Net cash used in investing activities(2,555)
76
(3)
(427)
(25)
(2,934)(4,175)
3,067
(98)
(296)
(395)
(1,897)(21,653)644(25)(3,619)(212)(24,865)

Cash flows from financing activities:
Increase in long-term debt
Repayment of long-term debt
Decrease in short-term borrowings
Dividends paid
Other, net
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year253
(1,211)
(499)
(568)
(110)
(2,135)57(1,386)
14,332
12,946

9,291(7,596)
(954)
(523)
(16)
202
43
3,113
11,21914,332

2,144(10,262)(4,229)(4,814)(932)(18,093)483(11,746)
121,458
109,712¥¥$

See accompanying Notes to Consolidated Financial Statements.
-6-

Japan Transcity Corporation and Consolidated Subsidiaries
Notes to Consolidated Financial Statements

1. Basis of Consolidated Financial Statements(a) Basis of presenting the consolidated financial statements
The accompanying consolidated financial statements of Japan Transcity Corporation (the"Company") and its consolidated subsidiaries (together with the Company, the “Japan Transcity
Group ”) have been prepared on the basis of accounting principles generally accepted in Japan,
which are different in certain respects as to application and disclosure requirements of International
Financial Reporting Standards. These consolidated financial statements are compiled from theoriginal consolidated financial statements in Japanese prepared by the Company as required by the
Securities and Exchange Law of Japan and submitted to the Director of Kanto Finance Bureau ofJapan.
(b) U.S. dollar amounts
The Company maintains its accounting records in Japanese Yen. The U.S. dollar amounts
included in the accompanying consolidated financial statements and notes thereto represent thearithmetic results of translating Japanese Yen into U.S. dollars at a rate of ¥118 to $1, theapproximate rate of exchange at March 31, 2007. The inclusion of such dollar amounts is solely
for the convenience of the readers and is not intended to imply that the assets and liabilities
originating in Yen have been or could be readily converted, realized or settled in dollars at ¥118 to$1 or at any other rate.

2. Summary of Significant Accounting Policies(a) Principles of consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
significant subsidiaries. Investments in significant unconsolidated subsidiaries and affiliates areaccounted for by the equity method. Investments in unconsolidated subsidiaries and affiliates notaccounted for by the equity method are stated at cost. Differences between acquisition cost ofinvestments in subsidiaries and the underlying equity in their net assets adjusted based on the fairvalue at the time of acquisition are principally deferred as goodwill or negative goodwill andamortized over five years.
The number of consolidated subsidiaries, unconsolidated subsidiaries and affiliates for the years
ended March 31, 2007 and 2006 was as follows:
2007
2006
Consolidated subsidiaries
Unconsolidated subsidiaries and affiliates, accounted forby the equity method
Unconsolidated subsidiaries, stated at cost
Affiliates, stated at cost

27

27

5
13
4

5
13
4

All inter-company accounts and transactions have been eliminated on consolidation.
The accompanying consolidated financial statements included the accounts of overseas
consolidated subsidiaries (three subsidiaries in 2007 and 2006). Such overseas consolidated
subsidiaries close their books at December 31 every year, three months earlier than the Company-7-and other domestic consolidated subsidiaries. The Company consolidated such subsidiaries’
financial statements as of their year-end. Significant transactions for the period between
subsidiaries’ year-end and the Company’s year-end are adjusted on consolidation.
Overseas consolidated subsidiaries adopt accounting principles generally accepted in theircountries, and no adjustments to conform to accounting principles generally accepted in Japan
have been made to their financial statements on consolidation as allowed under accounting
principles generally accepted in Japan.
(b) Accounting standard for presentation of net assets in the balance sheet
The Accounting Standards Board of Japan (“ASBJ”) issued “Accounting Standard for Presentationof Net Assets in the Balance Sheet (ASBJ Statement No.5)” and Implementation Guidance“Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet (ASBJ
Guidance No.8)” on December 9, 2005, which are applied for the year ending on May 1, 2006.
The standard requires presenting the equity section in the balance sheet as similar to International
Financial Reporting Standards. The Japan Transcity Group has adopted these new accounting
standards from the year ended March 31, 2007. If the previous accounting method had been
applied for the consolidated balance sheet at March 31, 2007, equity would have amounted to¥34,908 million ($295,831 thousand).
(c) Cash equivalents
The Japan Transcity Group considers cash equivalents to be highly liquid debt instrumentspurchased with an original maturity of three months or less.
(d) Investments and marketable securities
The Japan Transcity Group classifies certain investments in debt and equity securities as“held-to-maturity”, “trading” or “available-for-sale”, whose classification determines therespective accounting method as stipulated by the accounting standard for financial instruments.
Marketable securities with available market quotations for available-for-sale securities are stated atfair value and net unrealized gains or losses on these securities are reported as a component ofequity, net of applicable income taxes. Gains and losses on disposition of available-for-salesecurities are computed based on the moving-average method. Non-marketable securities
without available market quotations for available-for-sale securities are carried at cost determinedby the moving-average method. Adjustments in carrying values of individual securities arecharged to income through write-downs, when a decline in value is deemed other than temporary.
(e) Accounting for derivatives
Derivatives are valued at fair value, if hedge accounting is not appropriate or where there is no
hedging designation, and the gains or losses on derivatives are recognized in the current earnings.
According to the special treatment as permitted by the accounting standard for financial
instruments, the hedging interest rate swap is accounted for on an accrual basis, and recorded netof interest expenses generated from the hedged borrowings, if certain conditions are met.
(f) Inventories
Inventories consisted of supplies.

Supplies are stated at cost, using moving-average method.

(g) Allowance for doubtful accounts
Allowance for doubtful accounts has been provided for at the aggregate amount of estimated credit
loss based on the individual financial review approach for doubtful or troubled receivables and a-8-general reserve for other receivables calculated based on the historical loss experience for a certain
past period.
(h) Property and equipment, and depreciation
Property and equipment, including significant renewals and additions, are stated at cost, and havebeen depreciated principally by the declining-balance method at rates based on the estimateduseful lives of the assets, except that the buildings acquired on and after April 1, 1998 have been
depreciated by the straight-line method. Property of the cost of not less than ¥100,000 and below¥200,000 each is capitalized and depreciated over three years on a straight-line basis.
Expenditures on maintenance and repairs are charged to operating income as incurred.
(i) Leases
Where financing leases do not transfer ownership of the leased property to the lessee during theterm of the lease, the leased property of the Company and its domestic consolidated subsidiaries is
not capitalized and relating rental and lease expenses are charged to income as incurred as
accepted by the "Opinion Concerning Accounting Standard for Leases" issued by the BusinessAccounting Council of Japan (“BACJ”) and the related practical guideline issued by the JapaneseInstitute of Certified Public Accountants (“JICPA”).
(j) Accounting standard for impairment of fixed assets
On August 9, 2002, BACJ issued "Accounting Standard for Impairment of Fixed Assets", which iseffective for the fiscal years beginning on and after April 1, 2005. ASBJ issued related practicalguidance on October 31, 2003. The Company and its domestic consolidated subsidiaries adopted
this new accounting standard and related practical guidance effective from the year ended March
31, 2006. The standard requires that fixed assets be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may not be recoverable.
An impairment loss shall be recognized in the income statement by reducing the carrying amountof impaired assets or a group of assets to the recoverable amount to be measured as the higher of
the asset’s net selling price or value in use. Fixed assets include land, buildings and other forms
of property as well as intangible assets and are to be grouped at the lowest level for which there are
identifiable cash flows from other groups of assets. For the purpose of recognition andmeasurement of an impairment loss, fixed assets are principally grouped into cash-generating units,
such as regional business divisions, other than idle or unused property. Recoverable amounts of
the assets were measured based on value in use calculated using discounted future cash flows byinterest rate of 4.0% for Golf club courses or net selling prices primarily for municipal property tax
bases or estimated disposal value for idle or unused property. For the year ended March 31, 2006,
the Japan Transcity Group recognized impairment loss as follows:
Millions of Yen
Buildings and structures
Land

¥
¥

82
2,871
2,953

As a result of adoption of this new accounting standard, income before income taxes and minority
interests decreased by ¥2,953 million, as compared with the previous accounting method.
(k) Revaluation of land
In accordance with the Law Concerning Revaluation of Land (“Law”), the Company elected the
one-time revaluation to restate the cost of land used for the Company’s business at values-9-rationally reassessed effective on March 31, 2002, reflecting appropriate adjustments for land
shape and other factors, based on the values of the municipal property tax bases. According to
the Law, the amount equivalent to the tax effect on the difference between the sound reassessedvalues and original book values is recorded as deferred tax liabilities for revaluation account, andthe rest of such difference, net of the tax effect, is recorded in the equity as land revaluation
decrement account in the accompanying consolidated balance sheets. At March 31, 2007 and2006, the difference of the carrying values of land used for the Company’s business after
reassessment over the current market value at the fiscal year-ends amounted to ¥7,240 million($61,356 thousand) and ¥6,736 million, respectively.
On September 8, 2005, JICPA issued “Q&A for the Treatment of Revaluation Increment Accountof Land”. As the Company adopted this treatment relating to the assessment of relaizability ofdeferred tax assets for land revaluation from the year ended March 31, 2006, land revaluationdifference deceased by ¥3,973 million and deferred tax liabilities for revaluation increased by thesame amount. This change of accounting treatment resulted in no effect on the operating results
for the year ended March 31, 2006.
(l) Employee retirement benefits
Employees who terminate their service with the Japan Transcity Group are entitled to retirement
benefits generally determined by the reference of current basic rates of pay, length of service andconditions under which the termination occurs.
In accordance with the accounting standard for employee retirement benefits, the Japan Transcity
Group has recognized the retirement benefits for employees including pension cost and related
liability based on actuarial present value of projected benefit obligation using actuarial appraisal
approach and the pension plan assets available for benefits at the fiscal year-ends. Unrecognizedactuarial differences as changes in the projected benefit obligation or pension plan assets resulting
from the experience different from that assumed and from changes in assumptions are amortizedon a straight-line basis over ten years as a certain period within average remaining service lives of
employees from the next year in which they arise. Unrecognized prior service cost is amortizedusing the straight-line method over ten years from the year in which it occurs.
In conjunction with enforcement of the Defined Benefit Enterprise Pension Plan Law, theCompany received an approval from the Minister of Health, Labor and Welfare of Japan, for
exemption from payment of future benefit regarding the substituted portion of the employee
pension fund on January 1, 2004 and additional approval for the exemption from the payment of
past benefit and established a new benefit pension plan for its employees on January 1, 2005. For
the year ended March 31, 2006, excess of the estimated balance equivalent to the amount to be
returned to the Japanese Government as of March 31, 2005 over the actual payment of liability
reserve of the pension plan in the current year was recorded as other income in the amount of ¥72
million.
(m) Accrued severance indemnities for directors and corporate auditors
The Japan Transcity Group may pay severance indemnities to directors and corporate auditors,
which are subject to the approval of the shareholders. The Japan Transcity Group has provided
for at the full amount of the liabilities of directors' and corporate auditors' severance indemnities at
the respective balance sheet dates.
(n) Translation of foreign currency accounts
Receivables, payables and securities, other than stocks of subsidiaries and certain other securities,
are translated into Japanese Yen at the exchange rates at the respective fiscal year-ends.
Transactions in foreign currencies are recorded based on the prevailing exchange rates on the- 10 -

transaction dates.

Resulting translation gains or losses are included in the current earnings.

In respect of the financial statement items of overseas consolidated subsidiary, all asset andliability accounts are translated into Japanese Yen by applying the exchange rates in effect at the
fiscal year-ends. All income and expense accounts are translated at the average rates of exchange
prevailing during the respective fiscal years. Translation differences are reported as foreign
currency translation adjustment in a component of equity in the accompanying consolidatedbalance sheets.
(o) New share issue expenses
New share issue expenses are charged to income as incurred.
(p) Income taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets andliabilities are recognized for the future tax consequences attributable to differences between the
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
carryforward. Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in the period that includes the enactment date.
(q) Enterprise taxes
With the implementation of the “Revision of the Local Tax Law” issued on March 31, 2003, a
local corporate enterprise tax base such as “added value amount” and “capital amount” has been
adopted. Enterprise taxes based on “added value amount” and “capital amount” are included inselling, general and administrative expenses pursuant to “Practical Treatment for Presentation ofSized-based Corporate Enterprise Taxes in the Statement of Income” (ASBJ Report of Practical
Issues No.12).
(r) Accounting standard for directors’ bonus

From the year ended March 31, 2007, the Japan Transcity Group has adopted “AccountingStandard for Directors’ Bonus (ASBJ Statement No.4)” issued by ASBJ on November 29, 2005.
The standard requires that the directors’ bonuses, including those for corporate auditors, shall be
accounted for as an expense of the accounting period in which such bonuses are accrued. Until
the year ended March 31, 2006, bonuses to directors and corporate auditors were recorded as a partof the appropriation of retained earnings in the fiscal year when a proposed appropriation ofretained earnings for directors and corporate auditors’ bonuses was approved by the Board of
Directors and/or shareholders. The adoption of this new accounting standard resulted in no effecton the consolidated financial statements.
(s) Appropriations of retained earnings
Cash dividends and bonuses to directors and corporate auditors are recorded in the fiscal year whena proposed appropriation of retained earnings is approved by the Board of Directors and/or
shareholders. See Note 2(r) for the accounting for bonuses to directors and corporate auditors.
(t) Per share data
Basic net income per share is computed by dividing income available to common shareholders by
the weighted-average number of shares of common stock outstanding during the fiscal year.
Diluted net income per share is computed assuming convertible bonds were converted at the time- 11 -

of issue unless having anti-dilutive effects. Cash dividends per share for each fiscal year in theaccompanying consolidated statements of income represent dividends declared by the Company asapplicable to the respective years.

3.

Investments
At March 31, 2007 and 2006, short-term investments consisted of time deposits with an original
maturity of more than three months.
At March 31, 2007 and 2006, investment securities consisted of the following:Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Marketable securities:
Equity securities
Other

¥

Other non-marketable securities
¥

9,400
11
9,411
825
10,236¥¥

10,889 $10
10,899838
11,737 $79,66193
79,754
6,992
86,746

Marketable investment securities classified as available-for-sale are stated at fair value withunrealized gains and losses excluded from the current earnings and reported as a net amount within
the equity account until realized. At March 31, 2007 and 2006, gross unrealized gains and losses
for marketable securities classified as available-for-sale are summarized as follows:

Cost

Available-for-sale securities at March 31, 2007:
Equity securities
¥
3,268
Other
10
¥
3,278
Available-for-sale securities at March 31, 2006:
Equity securities
¥
3,252
Other
10
¥
3,262

Gross
Gross
unrealized
unrealized
gains
lossesMillions of Yen

Fair andcarrying
value

¥

(18)
(18)

¥

(3)
(3)

¥ 10,88910¥ 10,899

¥

¥
¥

6,150
1
6,151

7,640
7,640

¥
¥

¥
¥

¥

9,400
11
9,411

Thousands of U.S. Dollars
Available-for-sale securities at March 31, 2007:
Equity securities$
27,695Other
85$
27,780- 12 -$$

52,1198
52,127

$
$

(153)
(153)

$ 79,661
93$ 79,754

4.

Short-term Borrowings and Long-term Debt
At March 31, 2007 and 2006, short-term borrowings consisted of the following:

Millions of Yen
2007
2006
Short-term bank loans or bank overdrafts withinterest rates ranging from 0.84 % to 1.71 %per annum at March 31, 2007:
Collateralized¥
Unsecured
¥

30 ¥
2,680
2,710 ¥

Thousands of
U.S. Dollars
2007

745 $
2,463
3,208 $

254
22,712
22,966At March 31, 2007 and 2006, long-term debt consisted of the following:Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Zero coupon unsecured convertible bonds due
March 2008
1.47 % unsecured bonds due July 2008
1.41 % unsecured bonds due July 2008
1.76 % unsecured bonds due September 2008
Zero coupon unsecured convertible bonds due
September 2009
Long-term loans from banks and other financial
institutions due through 2022 with interest rates
ranging from 0.05 % to 6.97 % per annum at
March 31, 2007:
Collateralized
UnsecuredLess, current maturities
¥

2,500
1,500
4,000

35
2,500
1,500
4,000

21,186
12,71233,898

1,500

1,500

12,712

470
16,80026,770(1,136)25,634

1,561
16,60027,696(1,357)
26,3393,983
142,373
226,864(9,627)217,237¥$

At March 31, 2007, the current conversion price of zero coupon convertible bonds due September
2009 was ¥410 per share, which is subject to adjustment under certain circumstances, including
stock splits. At March 31, 2007, the number of shares of common stock necessary for conversionof all convertible bonds outstanding was approximately 4 million.
The aggregate annual maturities of long-term debt at March 31, 2007 ware as follows:
Millions of
Yen

Year ending March 31,
2008
2009
2010
2011
2012
2013 and thereafter¥- 13 -

Thousands of
U.S. Dollars

1,136
10,125
3,069
3,093
420
8,927
26,770 $9,627
85,80526,00826,212
3,559
75,653226,864

At March 31, 2007, the following assets were pledged as collateral for short-term borrowing andlong-term liabilities:
Millions ofYenTime deposits included in short-term investments
Buildings and structures¥

Thousands of
U.S. Dollars

41 $
850

348
7,203

As is customary in Japan, substantially all loans from banks (including short-term loans) are madeunder general agreements which provide that, at the request of the relevant bank, the Japan
Transcity Group is required to provide collateral or guarantors (or additional collateral or
guarantors, as appropriate) with respect to the loans, and that all assets pledged as collateral undersuch agreements will be applicable to all present and future indebtedness to the bank concerned.
The Japan Transcity Group has not received such requests. The general agreements further
provide that the banks have the right, as indebtedness matures or becomes due prematurely byreason of default thereon, to offset deposits at the banks against indebtedness due to the banks.
5.

Employee Retirement Benefits
The Company has defined benefit retirement plans, which cover 100% of retirement benefits for
employees of the Company who terminate at the compulsory retirement age and 70% of otherretirement benefits of the Company. Certain portions of the benefits are covered by a pension
plan governed by the regulations of the Japanese Welfare Pension Insurance Law. Some of theconsolidated subsidiaries have similar retirement benefit plans. In addition, two consolidated
subsidiaries have a defined benefit pension plan in certain pension funds organized by others.
The following table reconciles the benefit liability and net periodic retirement benefit expense asat or for the years ended March 31, 2007 and 2006:

Reconciliation of benefit liability:
Projected benefit obligationLess, fair value of pension plan assets at end ofyear
Unrecognized actuarial differences
Unrecognized prior service cost of retroactive
benefits granted by the pension plan amendment
Accrued retirement and severance benefits
Prepaid pension cost
Balance of employee retirement benefit
liability recognized on the consolidatedbalance sheets¥¥

Millions of Yen
2007
2006

Thousands ofU.S Dollars
2007

14,828¥ 14,850$(13,161)
1,667
1,836

(12,451)
2,399
2,047

(111,534)
14,127
15,559

326
3,829
43

368
4,814
-

2,763
32,449
365

3,872

¥

4,814

$

125,661

32,814

Note: 1. Projected benefit obligation of consolidated subsidiaries was calculated using thesimplified calculation method as permitted by the accounting standard for employee
retirement benefits.
2. The above table excluded the amounts for the assets not separately allocatable to someof the domestic consolidated subsidiaries in certain pension funds organized by others
together with the consolidated subsidiaries or effectively restricted so that they cannot- 14 -

be used by the employees for other purpose, which amounted to ¥248 million ($2,102
thousand) and ¥249 million at March 31, 2007 and 2006, respectively.
Thousands ofU.S Dollars
2007

Millions of Yen
2007
2006
Components of net periodic retirement benefit expense:¥
Service cost
Interest cost
Expected return on pension plan assets
Amortization of actuarial differences
Amortization of prior service cost
Premiums to defined contribution plan
Net periodic retirement benefit expense
¥

560
257
(232)
(99)
(42)
14
458

¥

541
262
(161)
214
(42)
14
828

¥

$

4,746
2,178
(1,966)
(839)
(356)
119
3,882

$

Major assumptions used in the calculation of the above information for the years ended March 31,
2007 and 2006 were as follows:

Method attributing the projected benefits toperiods of services
Discount rate
Expected rate of return on pension plan assets
Amortization of actuarial differences
Amortization of prior service cost

6.

2007

2006

Straight-line method
2.0%
2.0%
10 years
10 years

Straight-line method
2.0%
2.0%
10 years
10 years

Equity(a) The authorized number of shares of common stock without par value is 240,000,000. At March
31, 2007 and 2006, the number of shares of common stock issued was 67,142,417 and 67,019,610
shares, respectively. At March 31, 2007 and 2006, the number of treasury stock held by the Japan
Transcity Group was 275,911 and 80,167 shares, respectively.
(b) At March 31, 2007 and 2006, capital surplus principally consisted of additional paid-in capital.
In addition, retained earnings included legal reserve of the Company in the amount of ¥1,200
million ($10,169 thousand) at March 31, 2007 and 2006, respectively. The Corporate Law ofJapan provides that an amount equivalent to 10% of cash dividends as an appropriation of retained
earnings shall be appropriated as legal reserve until a total amount of additional paid-in capital andsuch legal reserve equals 25% of common stock. The reduction of legal reserve is restrictedunder the certain circumstances by proper actions of shareholders of the Company.
(c) Shareholders of the Company approved the appropriation of retained earnings at the annual general
meeting of shareholders on June 28, 2007 as follows:
Millions of
Yen
Cash dividends (¥4.50 per share)¥- 15 -

301

Thousands of
U.S. Dollars
$

2,551

7.

Contingent Liabilities
At March 31, 2007 and 2006, the Japan Transcity Group was contingently liable for guarantees ofindebtedness principally of affiliates in amounts of ¥1,349 million ($11,432 thousand) and ¥1,688
million, respectively.

8.

Lease Commitments
The Japan Transcity Group leases, as lessee, land and buildings to be used for office spaces andwarehouses principally under long-term cancelable or non-cancelable operating lease agreements,
and also computer equipment, other equipment and vehicles which are not generally cancelable.
Total rental and lease expenses including cancelable and non-cancelable leases for the years ended
March 31, 2007 and 2006 were ¥6,409 million ($54,314 thousand) and ¥6,116 million,
respectively. For the years ended March 31, 2007 and 2006, the lease expenses for
non-cancelable lease agreements which were categorized as financing leases amounted to ¥454
million ($3,847 thousand) and ¥366 million, respectively.
The aggregate future minimum payments for non-cancelable operating leases and financing leases,
including the imputed interest, at March 31, 2007 and 2006 were as follows:

Millions of Yen
2007
2006
Operating leases:
Due within one year
Due after one year¥¥

Financing leases:
Due within one year
Due after one year

¥
¥

546
3,654
4,200
451
2,513
2,964

¥
¥
¥
¥

592
4,129
4,721
446
2,772
3,218

Thousands of
U.S. Dollars
2007
$
$
$
$

4,627
30,96635,593
3,822
21,297
25,119

9. Derivative Instruments
The Japan Transcity Group is a party to derivative instruments such as interest rate swap contracts
in the normal course of business to reduce its own exposure to fluctuations in interest rates for thehedge purposes. In addition, during the year ended March 31, 2007, the Company entered into
the derivative contract relating to earthquake for the hedge purposes, whose outstanding contract
amount was ¥300 million ($2,542 thousand) at March 31, 2007. As the fair value of such acontract is not considered determinable, that derivative contract has not been accounted for at thefair value. All other derivative instrument contracts are qualified for hedge accounting. The
Japan Transcity Group is exposed to credit loss in the event of nonperformance by other parties.
However, the Japan Transcity Group does not expect nonperformance by the counterparties.

- 16 -

10. Income Taxes
Income taxes for the years ended March 31, 2007 and 2006 consisted of the following:

Millions of Yen
2007
2006
Income taxes:
Current
Deferred

¥
¥

1,312
465
1,777

¥
¥

1,691
492
2,183

Thousands of
U.S. Dollars
2007
$
$

11,1183,941
15,059The tax effects on temporary differences that give rise to a significant portion of deferred tax
assets and liabilities at March 31, 2007 and 2006 were as follows:

Millions of Yen
2007
2006
Deferred tax assets:
Enterprise tax accruals¥
Accrued bonuses to employees
Employee retirement benefit liability
Accrued severance indemnities for directors andcorporate auditors
Inter-company capital gains
Net operating loss carryforward
Impairment loss on fixed assets
Other
Less, valuation allowance
Deferred tax assets
Deferred tax liabilities:
Deferred capital gain
Unrealized gains on available-for-salesecurities
Other
Deferred tax liabilities
Net deferred tax liabilities

¥

40
458
2,489
197

¥

112
447
2,925
175

Thousands of
U.S. Dollars
2007
$

339
3,881
21,093
1,670

339
182
1,187
345
5,237
(1,581)
3,656

346
232
1,190
391
5,818
(1,648)
4,170

2,873
1,542
10,0592,924
44,381(13,398)
30,983

1,364

1,404

11,559

2,465
396
4,225
569

3,070
402
4,876
706

20,8903,356
35,8054,822¥$

At March 31, 2007 and 2006, deferred tax assets and liabilities were as follows:

Millions of Yen
2007
2006
Deferred tax assets:
Current
Non-current
Deferred tax liabilities:
Current
Non-current

¥

236
505
203
1,107

¥

512
491
1,709

Thousands of
U.S. Dollars
2007
$

2,000
4,280
1,720
9,382

In assessing the realizability of deferred tax assets, management of the Japan Transcity Groupconsiders whether it is more likely than not that some portion or all of the deferred tax assets will

- 17 -

not be realized. The ultimate realization of deferred tax assets is dependent upon the generationof the future taxable income during the periods in which those temporary differences become
deductible. At March 31, 2007 and 2006, a valuation allowance was provided to reduce thedeferred tax assets to the extent that the management believes that the amount of the deferred tax
assets is expected to be realizable.
A reconciliation of the difference between the Japanese statutory effective tax rate and the actual
effective income tax rate on pre-tax income reflected in the accompanying consolidated statements
of income for the year ended March 31, 2006 was as follows:

Japanese statutory effective tax rate
Increase (decrease) due to:Permanently non-deductible expenses
Tax exempt income
Local minimum taxes per capita levy
Equity in net earnings of unconsolidated
subsidiaries and affiliates
Change in valuation allowance
Other
Actual effective income tax rate

Percentage ofpre-tax income
40.1%
2.7
(1.9)
1.4
(2.0)
44.9
(1.7)
83.5%

The reconciliation for the year ended March 31, 2007 was not disclosed as such difference was
not material.

- 18 -

11.

Segment Information
The Japan Transcity Group's operations are classified into two major segments: Integrated logistics services and other services. Other services
segment includes the operations for the trading of real estate or golf club and other services.
Information by industry segment for the years
ended March 31, 2007 and 2006 was summarized as follows:Integrated logistics
services
For the year 2007:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating costs and expenses
Operating income
Identifiable assets
Depreciation
Capital expenditures
For the year 2006:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating costs and expenses
Operating income
Identifiable assets
Depreciation
Impairment loss on fixed assets
Capital expenditures¥

Others81,803
28
81,831
77,432
4,399¥¥

95,845
2,544
3,299

¥

¥

¥
¥

Total
Millions of Yen

1,530
1,484
3,014
2,737
277

¥

¥

2,503
211
56

80,22928
80,25776,475
3,782¥

97,061
2,371
85
3,799

¥

¥

¥

Elimination

83,333
1,512
84,84580,1694,676¥¥

98,348
2,755
3,355

¥

(4,496)-¥

93,852
2,755
3,355

2,870
2,510
5,380
5,283
97

¥

83,0992,538
85,63781,7583,879¥(2,538)(2,538)(2,563)25¥

83,09983,09979,195
3,904

2,692
269
2,868
160

¥

99,753
2,640
2,953
3,959

¥

(4,410)-¥95,343
2,640
2,953
3,959

(12,813)(12,813)(12,534)(279)$

706,212706,212666,864
39,348¥¥¥¥(1,512)(1,512)(1,479)(33)

Consolidated

¥

¥

¥

83,333
83,33378,690
4,643

Thousands of U.S. Dollars
For the year 2007:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating costs and expenses
Operating income
Identifiable assets
Depreciation
Capital expenditures$$$

693,246237
693,483
656,20337,280812,246
21,55927,958$$$

12,966
12,57625,542
23,195
2,347
21,212
1,788
474

$

$
$

706,212
12,813
719,025
679,398
39,627
833,458
23,34728,432

Geographic segment information is not shown, as the operating revenue of overseas subsidiaries is not material.
is not disclosed, as such sales are not material.

- 19 -$$$(38,102)-$$795,356
23,34728,432

Information for overseas sales12. Non-Consolidated Financial Information of Japan Transcity Corporation (Parent)

Presented below are the non-consolidated balance sheets, non-consolidated statements of income
and changes in equity of Japan Transcity Corporation, the parent company, for the years ended
March 31, 2007 and 2006.

Non-Consolidated Balance Sheets
Japan Transcity Corporation (Parent)
March 31, 2007 and 2006

Millions of Yen
2007
2006
Current assets:
Cash and cash equivalents
Short-term investments
Trade receivables, net of allowance for
doubtful accounts
Inventories
Deferred tax assets
Other current assets
Total current assets¥

Property and equipment, at costLess, accumulated depreciation
Net property and equipment
Investments and other assets:
Investment securities
Investments in and long-term loans to
subsidiaries and affiliates
Lease deposits
Other assets
Allowance for doubtful accounts
Total investments and other assets
Total assets¥- 20 -

10,51038¥

12,084
39

Thousands of
U.S. Dollars
2007$

89,068322

13,86626
1,981
26,421

13,192
16
307
1,595
27,233

117,509220
16,788
223,907

66,131(28,439)
37,69264,300(27,576)
36,724560,432(241,008)
319,424

9,557

10,92980,991

3,499
891
1,442
(50)
15,33979,452

3,928
890
1,427
(50)
17,12481,081

29,653
7,551
12,220(424)
129,991
673,322¥$

Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Current liabilities:
Short-term borrowings¥
Current maturities of long-term debt
Trade payables
Accrued expenses
Income taxes payable
Deferred tax liabilities
Other current liabilities
Total current liabilities
Long-term debt
Employee retirement benefit liability
Deferred tax liabilities for revaluation
Deferred tax liabilities
Accrued severance indemnities for directors
and corporate auditors
Other long-term liabilities
Total liabilities
Equity:Common stock
Capital surplus
Retained earnings
Less, treasury stock, at cost
Total shareholders' equity
Other components of equity
Total equity
Total liabilities and equity¥

Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Land revaluation decrement
Net unrealized gains on available-for-salesecurities
Less, treasury stock, at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity- 21 -

4,547
713
8,350
862
173
203
2,174
17,022
20,827
2,770
5,281
1,078

¥

4,200
1,003
8,289
835
1,180
1,348
16,855
21,375
3,657
5,281
1,673

$

38,534
6,042
70,763
7,305
1,466
1,720
18,424
144,254
176,500
23,47444,754
9,136

434
288
47,700392
284
49,5173,678
2,441
404,237

8,428
6,738
15,355(138)
30,383
1,369
31,75279,452-

71,423
57,102130,127(1,169)257,483
11,602
269,085
673,322

-

8,411
6,720
14,271(2,018)

-

-

4,208
(28)
31,56481,081-¥$

Non-Consolidated Statements of Income
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2007 and 2006¥

Operating revenue
Operating costs and expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses(Loss) gain on sale or disposal of property andequipment
Loss on sale or devaluation of
investment securities
Impairment loss on fixed assets
Miscellaneous, net
Income before income taxes
Income taxes:
Current
Deferred
Total income taxes
Net income¥

Millions of Yen
2007
2006

Thousands of
U.S. Dollars
2007

77,649$¥77,05474,624
3,025

74,452
2,602

632,407
25,635

257
(299)

230
(285)

2,178
(2,534)

(129)

1,635

(1,093)

(10)
109
(72)
2,953

(75)
185
1,690
4,292

(85)
924
(610)
25,025

791
464
1,255

1,250
299
1,549

6,703
3,932
10,635

1,698

¥

2,743

Yen
Per share:
Net income:-Basic-Diluted
Cash dividends¥- 22 -

658,042

25.41
24.09
8.50

¥

$

14,390U.S. Dollars

40.66
35.57
8.00

$

0.22
0.20
0.07

Non-Consolidated Statements of Changes in Equity
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2007 and 2006

Commonstock

Balance at March 31, 2005
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Reversal of land revaluation increment
Adjustments for applicable income taxes
Conversion of convertible bonds
Net change in unrealized gains onavailable-for-sale securities, net of
applicable income taxes
Fractional shares acquired, net
Balance at March 31, 2006

¥

¥

7,884
527

8,411

Capitalsurplus

¥

¥

6,193
527

6,720

Retainedearnings¥¥

11,332
2,743
(524)
(42)
762
-

14,271Land
revaluation
increment(decrement)
Millions of Yen

¥

¥

2,717
(762)
(3,973)-(2,018)Net unrealized
gains onavailable-forsale securities

¥

2,042
-

2,166
4,208

¥

¥

¥

Shareholders' equity
Commonstock

Balance at March 31, 2006
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Conversion of convertible bonds
Purchase of treasury stock and fractional
shares, net
Net changes other than shareholders’ equity
Balance at March 31, 2007

¥

¥

8,411
17
8,428

Capitalsurplus

¥

¥

6,720
18
6,738

Retainedearnings¥¥

14,271
1,698
(568)
(46)

15,355

¥

¥

(28)
-

(110)
(138)

¥

¥

29,374
1,698
(568)
(46)
35
(110)
30,383

(13)
-

(15)
(28)

¥

¥

30,155
2,743
(524)
(42)
(3,973)
1,054

2,166
(15)
31,564

Other components of equity
Net unrealized
gains onLand
Total otheravailable-forrevaluation
components ofsale securities
decrement
equityTotal
shareholders'equityTreasurystockMillions of Yen

Total
shareholders’equityTreasury
stock

¥

¥

4,208
-

(821)
3,387

¥

¥

(2,018)-(2,018)

¥

¥

2,190
-

(821)
1,369

Total equity¥¥

31,564
1,698
(568)
(46)
35
(110)
(821)
31,752Thousands of U.S. Dollars
Balance at March 31, 2006
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Conversion of convertible bonds
Purchase of treasury stock and fractional
shares, net
Net changes other than shareholders’ equity
Balance at March 31, 2007$$

71,279144
71,423$$56,949153
57,102$$120,941
14,390(4,814)(390)
130,127

$

$

(237)
-

(932)
(1,169)- 23 -$$

248,932
14,390(4,814)
(390)
297
(932)
257,483$$

35,661-(6,957)28,704$$(17,102)-(17,102)$$

18,559-(6,957)
11,602$$

267,491
14,390(4,814)
(390)
297
(932)
(6,957)
269,085