Japan Transcity Corporation
Audited Consolidated Financial Statements
March 31, 2004 and 2003

ChuoAoyama PricewaterhouseCoopers

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, 2004 and 2003, and the related consolidated statements ofincome, shareholders' 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 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
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, 2004 and 2003, 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.
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.

ChuoAoyama PricewaterhouseCoopers
Nagoya, Japan
June 29, 2004

-1-

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31, 2004 and 2003

Millions of Yen
2004
2003
AssetsCurrent assets:
Cash and cash equivalents
Short-term investments (Notes 4 and 5)
Trade receivables:
Notes
Accounts
Allowance for doubtful accounts¥

Inventories (Note 3)
Deferred tax assets (Note 11)
Other current assets
Total current assets

Property and equipment, at cost (Note 5):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 (Notes 4 and 5)
Investments in and long-term loans tounconsolidated subsidiaries and affiliates (Note 4)
Deferred tax assets (Note 11)
Lease deposits
Other assets (Note 5)
Allowance for doubtful accounts
Total investments and other assets¥

11,752
119

10,408912$

111,924
1,133

935
12,341(18)
13,258
2,063
454
1,108
28,754

1,145
11,528(25)
12,648
2,596
396
1,190
28,1508,905
117,533(171)
126,267
19,647
4,324
10,552
273,847

31,34340,193
9,387
9,353
3
90,279(40,570)
49,70931,30039,639
9,522
9,476
46
89,983(39,223)
50,760298,505
382,790
89,40089,07629
859,800(386,381)
473,419

7,327

4,455

69,781

2,492
2,972
882
1,351
(124)
14,90093,363

2,393
3,933
930
1,250
(172)
12,78991,69923,73328,3058,400
12,867(1,181)
141,905
889,171

See accompanying Notes to Consolidated Financial Statements.

-2-¥

Thousands of
U.S. Dollars
2004

¥

$

Millions of Yen
2004
2003
Liabilities, Minority Interests and Shareholders' Equity
Current liabilities:
Short-term borrowings (Note 5)¥
Current maturities of long-term debt (Note 5)
Trade payables:
Notes
Accounts

8,300
2,057

¥

8,101
3,423

Thousands of
U.S. Dollars
2004$

79,04819,590

1,377
5,418
6,795
1,639
615
1,424
20,830

1,732
5,181
6,913
1,653
734
2,124
22,948

13,11451,60064,714
15,6105,857
13,562
198,381Long-term debt (Note 5)
Employee retirement benefit liability (Note 6)
Guarantee deposits received (Note 5)
Deferred tax liabilities for revaluation
Accrued severance indemnities for officers
Other non-current liabilities (Note 11)25,206
9,114
4,501
1,903
397
218

23,595
8,850
4,584
1,931
371
217

240,057
86,80042,86618,124
3,781
2,076

Commitments and contingent liabilities(Notes 7 and 8)
Minority interests in consolidated subsidiaries

832

767

7,924

7,792

7,792

74,2105,908
12,292
2,842

5,908
11,5142,885

56,267
117,067
27,067

2,164
(35)

522
(11)

20,609(334)(601)
30,36293,363(174)
28,436
91,699(5,724)
289,162
889,171

Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities

Shareholders' equity (Note 10):
Common stock, no par valueAuthorized: 240,000,000 shares,
Issued: 63,613,246 shares in 2004 and 2003
Capital surplus
Retained earnings
Land revaluation increment
Net unrealized gains on available-for-salesecurities
Foreign currency translation adjustment
Less, treasury stock, at cost – 2,807,251 shares in2004 and 786,974 shares in 2003
¥

-3-

¥

$

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Income
For the Years Ended March 31, 2004 and 2003

Operating revenues (Note 12)¥

Operating expenses (Notes 6, 8 and 12)
Operating income
Other income (expenses) :Interest and dividend income
Interest expenses
Equity in net earnings of unconsolidated
subsidiaries and affiliates
Net gain (loss) on sale or devaluation of
securities
Other, net
Income before income taxes andminority interests
Income tax expenses (Note 11)Less, minority interests in net income of
consolidated subsidiaries
Net income¥

Millions of Yen
2004
2003

Thousands of
U.S. Dollars
2004

73,230$¥69,46570,871
2,359

67,723
1,742

674,962
22,467

74
(455)

102
(459)

705
(4,334)

224

232

2,133

32
(48)
(173)

(447)
(107)
(679)

305
(457)
(1,648)

2,186

1,063

20,819

944

615

8,990

36
1,206

¥

14
434

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

¥

19.14
16.02
7.00

See accompanying Notes to Consolidated Financial Statements.

-4-697,429¥$343
11,486

U.S. Dollars

6.26
5.63
7.00

$

0.18
0.15
0.07

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31, 2004 and 2003

Number ofcommonshares issued

Balance at March 31, 2002
Net income for the year
Cash dividends
Bonuses to directors and statutory auditors
Increase in retained earnings for the change inscope of equity method
Reversal of land revaluation increment
Adjustment for applicable income taxes
Net change in unrealized gains on available-forsale securities, net of applicable income taxes
Translation adjustment
Purchase of treasury stock and fractional sharesacquired, net
Balance at March 31, 2003
Net income for the year
Cash dividends
Bonuses to directors and statutory auditors
Reversal of land revaluation increment
Adjustment for applicable income taxes
Net change in unrealized gains on available-forsale securities, net of applicable income taxes
Translation adjustment
Purchase of treasury stock and fractional sharesacquired, net
Balance at March 31, 2004

63,613,246-

Common stock

Capital surplus

¥

¥

7,792
-

5,908
-

Land
revaluation
increment
Millions of Yen

Retainedearnings¥

11,223
434
(445)
(38)

¥

3,050
-

Net unrealized
gains onavailable-for-salesecurities

Foreign currencytranslation
adjustment

¥

¥

858
-

19
-

Treasury
stock

¥

(3)
-

-

-

-

112
228
-

(228)
63

9

-

-

-

-

-

-

-

(345)
-

(30)

-

63,613,246
-

7,792
-

5,908
-

11,514
1,206
(433)
(37)
42
-

2,885
(42)
(1)

522
-

(11)
-

(171)
(174)
-

-

-

-

-

-

1,642
-

(24)

-

63,613,246

¥

7,792

¥

5,908

¥

12,292

¥

2,842

¥

2,164

¥

(35)

¥

(427)
(601)

Thousands of U.S. Dollars
Balance at March 31, 2003
Net income for the year
Cash dividends
Bonuses to directors and statutory auditors
Reversal of land revaluation increment
Adjustment for applicable income taxes
Net change in unrealized gains on available-forsale securities, net of applicable income taxes
Translation adjustment
Purchase of treasury stock and fractional sharesacquired, net
Balance at March 31, 2004$

74,210-$-$74,21056,267-$-$56,267

109,657
11,486(4,124)
(352)
400
-

$

-

$

See accompanying Notes to Consolidated Financial Statements.

-5-117,067

27,476
(400)
(9)

$

-

$

27,067

4,971-$

15,638-$20,609

(105)
-

$

(229)

$

(334)

(1,657)-$(4,067)(5,724)

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2004 and 2003

Millions of Yen
2004
2003
Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation
Net provision for employee retirement benefit liability
Net (gain) loss on sale or devaluation of securities(Increase) decrease in trade receivables
Decrease (increase) in inventories
Decrease in trade payables
Other, net
Sub-totalInterest and dividend received
Interest paid
Income taxes paid
Net cash provided by operating activities¥

Cash flows from investing activities:
Increase in property and equipment and intangible assets
Acquisition, net of cash acquired
Decrease in short-term investments
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Increase in long-term debt
Repayment of long-term debt
Increase (decrease) in short-term borrowings
Dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents upon inclusion of additional
subsidiary on consolidation
Cash and cash equivalents at end of year

¥

2,186

¥

1,063

Thousands of
U.S. Dollars
2004$

20,819

2,676
264
(32)
(498)
186
(120)
(519)
4,143
109
(462)
(1,294)
2,496

2,713
170
447
1,563
(3)
(15)
92
6,030
138
(507)
(626)
5,035

25,4862,514(305)(4,743)
1,771(1,143)(4,942)39,457
1,038(4,400)(12,324)
23,771(1,732)
(29)
793
212
(756)

(5,761)(1)
13
554(5,195)(16,495)
(276)
7,552
2,019
(7,200)3,897(3,652)
201
(434)
(429)
(417)
(7)
1,316
10,4084,286(3,693)
(257)
(445)
(173)
(282)
(4)
(446)
10,854

37,114(34,781)
1,914(4,133)(4,085)(3,971)(67)
12,53399,12428
11,752¥

10,408$See accompanying Notes to Consolidated Financial Statements.

-6-

267
111,924

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 in accordance with the provisions set forth in the Commercial Codeof Japan and the Securities and Exchange Law of Japan, and 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 the original consolidated financial statements in Japanese preparedby the Company as required by the Securities and Exchange Law of Japan and submitted to the
Director of Kanto Finance Bureau of Japan.
(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 ¥105 to $1, theapproximate rate of exchange at March 31, 2004. The inclusion of such dollar amounts is solely
for the convenience of the readers and is not intended to imply that Yen and the assets andliabilities originating in Yen have been or could be readily converted, realized or settled in dollars
at ¥105 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 and amortized over five years.
The number of consolidated subsidiaries, unconsolidated subsidiaries and affiliates for the years
ended March 31, 2004 and 2003 was as follows:

Consolidated subsidiaries
Unconsolidated subsidiaries and affiliates, accounted forby the equity method
Unconsolidated subsidiaries, stated at cost
Affiliates, stated at cost

2004

2003

24

23

7
11
3

8
10
3

All inter-company accounts and transactions have been eliminated on consolidation.
The accompanying consolidated financial statements included the accounts of overseas
consolidated subsidiaries (two subsidiaries in 2004 and one subsidiary in 2003). Such overseas-7-consolidated subsidiaries close their books at December 31 every year, three months earlier thanthe Company 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) Cash equivalents
The Japan Transcity Group considers cash equivalents to be highly liquid debt instrumentspurchased with an original maturity of three months or less.
(c) 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 separate
component of shareholders’ equity, net of applicable income taxes. Gains and losses on
disposition of available-for-sale securities are computed based on the moving-average method.
Non-marketable securities without available market quotations for available-for-sale securities arecarried at cost determined by the moving-average method. Adjustments in carrying values ofindividual securities are charged to income through write-downs, when a decline in value isdeemed other than temporary.
(d) 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.
Certain transactions classified as hedging transactions are accounted for under a deferral method,whereby unrealized gains or losses on hedging instruments are carried as assets or liabilities on thebalance sheet until the gains and losses on the hedged items are realized. Foreign exchange
forward contracts are accounted for to translate foreign currency denominated assets and liabilities
at such contracts rates as an interim measure, if certain hedging criteria are met. According to thespecial treatment as permitted by the accounting standard for financial instruments, the hedging
interest rate swap is accounted for on an accrual basis, and recorded net of interest expenses
generated from borrowings, a hedged item, if certain conditions are met.
(e) Inventories
Real estate held for sale is stated at cost determined by the specific identification method.
inventories are stated at moving-average cost.

Other(f) 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 ageneral reserve for other receivables calculated based on the historical loss experience for a certain
past period.

-8-

(g) 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.
(h) 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.
(i) 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. The Company has established a defined benefit
pension plan, which covers 100% of retirement benefits for employees of the Company who
terminate at the compulsory retirement age and 70% of other retirement benefits of the Company.
Some of consolidated subsidiaries have similar pension plans.
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 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. As of March 31, 2004, pension plan assets equivalent to theamount to be returned to the Japanese Government amounted to ¥7,341 million ($69,914 thousand).
As the Company has not elected to apply for the transitional accounting treatment specified inparagraph 47-2 of the “Practical Guidelines of Accounting for Retirement Benefits (Interim
Report)” (Accounting Committee Report No.13 issued by the Japanese Institute of Certified Public
Accountants), the Company has not recognized an extinguishment of retirement benefit obligation
with respect to such substituted portion as of the date of the approval. If the Company had
applied for the transitional treatment as of the current fiscal year ended March 31, 2004, an otherincome of ¥3,299 million ($31,419 thousand) would have been recognized on the accompanying
consolidated statements of income. The Company expects to complete such procedures for a
return of pension plan assets to the Japanese government in a year(j) Accrued severance indemnities for officers
The Japan Transcity Group may pay severance indemnities to directors and statutory 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 statutory auditors' severance indemnities at-9-the respective balance sheet dates.
(k) Bond issue expenses
Bond issue expenses are charged to income as incurred.
(l) Interest expenses
Interest expenses are charged to income as incurred, except that interest incurred in connection
with the development of the real estate held for sale is capitalized as a part of the cost of the related
real estate held for sale.
(m) 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.
(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 thetransaction 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 separate component of shareholders’ equity in theaccompanying consolidated balance sheets.
(o) Appropriation of retained earnings
Cash dividends and bonuses to directors and statutory auditors are recorded in the fiscal year whena proposed appropriation of retained earnings is approved by the Board of Directors and/or
shareholders of the Company.
(p) 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
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 excess of the sound reassessed values overoriginal book values is recorded as deferred tax liabilities for revaluation account, and the rest ofsuch excess, net of the tax effect, is recorded in the shareholders’ equity as land revaluation
increment account in the accompanying consolidated balance sheets. At March 31, 2004 and2003, 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 ¥4,349 million($41,419 thousand) and ¥2,835 million, respectively.

- 10 -

(q) 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 timeof 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.
(r) Adoption of new accounting standards
On August 9, 2002, the Business Accounting Council of Japan issued “Accounting Standard for
Impairment of Fixed Assets”. The standard requires that fixed assets be reviewed for impairment
whenever events or changes 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 thecarrying amount of impaired assets or a group of assets to the recoverable amount to be measured
as the higher of the asset’s net selling price and value in use. The standard shall be effective forfiscal years beginning April 1, 2005, with earlier adoption permitted. The Company has notdetermined the timing of adoption and cannot estimate the financial impact of this new accounting
standard at the date of adoption at present. However, the Company believes that any such impact
would be a charge to earnings.

3.

Inventories
At March 31, 2004 and 2003, inventories consisted of the following:

Millions of Yen
2004
2003
Real estate held for sale
Supplies and other

¥
¥

4.

2,006 ¥
57
2,063 ¥

Thousands of
U.S. Dollars
2004

2,530 $
66
2,596 $

19,104543
19,647

Investments
At March 31, 2004 and 2003, short-term investments consisted of time deposits with an original
maturity
of
more
than
three
months.
At March 31, 2004 and 2003, investment securities consisted of the following:

Millions of Yen
2004
2003
Marketable securities:
Equity securities
Bonds
Other

¥

Other non-marketable securities¥- 11 -

6,462
41
6,503
824
7,327

¥

¥

Thousands of
U.S. Dollars
2004

3,600 $
1
41
3,642
813
4,455 $

61,543
390
61,933
7,848
69,781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 shareholders’ equity account until realized. At March 31, 2004 and 2003, gross unrealized
gains and losses for marketable securities classified as available-for-sale are summarized asfollows:

Cost

Available-for-sale securities at March 31, 2004:
Equity securities
¥
2,759
Other
40
¥
2,799
Available-for-sale securities at March 31, 2003:
Equity securities
¥
2,665
Bonds
1
Other
40
¥
2,706

Gross
Gross
unrealized
unrealized
gains
lossesMillions of Yen

Fair andcarrying
value

¥

(26)
(26)

¥

(119)
(119)

¥

3,729
1
3,730

¥

¥

1,054
0
1
1,055

¥

¥
¥

¥

¥

¥

¥

6,462
41
6,503

3,600
1
41
3,642

Thousands of U.S. Dollars
Available-for-sale securities at March 31, 2004:
Equity securities$
26,276
Other
381$
26,657$$35,515
935,524

$

(248)
(248)

$

$ 61,543
390$ 61,933

During the year ended March 31, 2003, the Japan Transcity Group recorded a loss on devaluationof marketable investment securities due to a permanent diminution in value in the amount of ¥462
million. For the year ended march 31, 2004, the Japan Transcity Group recorded no loss ondevaluation of marketable investment securities.
At March 31, 2004 and 2003, investments in and long-term loans to unconsolidated subsidiaries
and affiliates consisted of the following:

Millions of Yen
2004
2003
Investments, accounted for by the equity
method for significant unconsolidated
subsidiaries and affiliates, and stated at costfor others
Interest bearing long-term loans¥¥- 12 -

2,492
2,492

¥
¥

2,359
34
2,393

Thousands of
U.S. Dollars
2004

$
$

23,73323,733

5.

Short-term Borrowings and Long-term Debt
At March 31, 2004 and 2003, short-term borrowings consisted of the following:

Millions of Yen
2004
2003
Short-term bank loans or bank overdrafts withinterest rates ranging from 0.54% to 1.92%
per annum at March 31, 2004:
Collateralized
Unsecured¥

3,451 ¥
4,849
8,300 ¥¥

Thousands of
U.S. Dollars
2004

3,360 $
4,741
8,101 $

32,867
46,181
79,048At March 31, 2004 and 2003, long-term debt consisted of the following:Thousands of
U.S. Dollars
2004

Millions of Yen
2004
2003
0.85% convertible bonds due September 2005¥
Zero coupon 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
Long-term loans from banks and other financial
institutions due through 2022 with interest rates
ranging from 0.05% to 3.08% per annum at
March 31, 2004:
Collateralized
UnsecuredLess, current maturities
¥

7,459
1,500
2,500
1,500
4,000

¥

3,672
6,632
27,263(2,057)25,206

¥

7,459
2,500
1,500
4,000

$

71,03814,28623,80914,28638,095

3,887
7,672
27,018(3,423)
23,595 $34,971
63,162259,647(19,590)240,057

At March 31, 2004, the current conversion price of 0.85% convertible bonds due September 2005
is ¥534 per share and is subject to adjustment under certain circumstances, including stock splits.
At March 31, 2004, the current conversion price of zero coupon convertible bonds due March
2008 is ¥285 per share and is subject to adjustment under certain circumstances, including stock
splits. At March 31, 2004, the number of shares of common stock necessary for conversion of allconvertible bonds outstanding was approximately 19 million.
The aggregate annual maturities of long-term debt at March 31, 2004 was as follows:
Millions of
Yen

Years ending March 31,
2005
2006
2007
2008
2009
2010 and thereafter¥¥- 13 -

Thousands of
U.S. Dollars

2,057 $
8,018
1,108
1,936
9,977
4,167
27,263 $19,59076,362
10,552
18,43895,01939,686259,647

At March 31, 2004, the following assets were pledged as collateral for short-term borrowing,
long-term debt and employees’ savings deposits:
Millions ofYenTime deposits included in short-term investments
Land
Buildings and structures
Machinery and equipment, and other property
Investment securities and other assets¥

Thousands of
U.S. Dollars

32 $
8,064
2,024
163
38

305
76,80019,276
1,552
362

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.
Guarantee deposits that were received from members of a golf club operated by a certain
consolidated subsidiary bear no interest and are refundable only when members withdraw from thegolf club for the period subsequent to the first ten years.

6.

Employee Retirement Benefits
The Japan Transcity Group has defined benefit retirement plans covering substantially all
employees. Certain portions of the benefits under the plans are covered by a pension plan, whichis governed by the regulations of the Japanese Welfare Pension Insurance Law. Some of theconsolidated subsidiaries have similar retirement benefit plans.
The following table reconciles the benefit liability and net periodic retirement benefit expense asat or for the years ended March 31, 2004 and 2003:

Reconciliation of benefit liability:
Projected benefit obligationLess, fair value of pension plan assets at end ofyear
Less, unrecognized actuarial differences (loss)
Unrecognized prior service cost of retroactive
benefits granted by the pension plan amendment
Net amount of employee retirement benefit
liability recognized on the consolidatedbalance sheets¥¥

Millions of Yen
2004
2003

Thousands ofU.S Dollars
2004

27,495¥ 28,091$(15,230)
12,265(4,218)(12,158)
15,933(7,263)(145,047)
116,810(40,172)

1,067

180

10,162

9,114

¥

8,850

$

261,857

86,800Note: 1. The table above includes the amounts related to the portion subject to the Japanese
Welfare Pension Insurance Law.
- 14 -

2. Projected benefit obligation of consolidated subsidiaries was calculated using thesimplified calculation method as permitted by the accounting standard for employee
retirement benefits.
3. 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
be used by the employees for other purpose, which amounted to ¥197 million ($1,876
thousand) and ¥232 million at March 31, 2004 and 2003, respectively

Millions of Yen
2004
2003
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
Net periodic retirement benefit expense
¥

750
655
(291)
791
(44)
1,861

¥

801
744
(392)
460
(20)
¥ 1,593

Thousands ofU.S Dollars
2004

$

$

7,143
6,238
(2,771)
7,533(419)
17,724

Major assumptions used in the calculation of the above information for the years ended March 31,
2004 and 2003 were as follows:
2004
2003
Method attributing the projected benefits toperiods of services
Straight-line method Straight-line method
Discount rate
2.5%
2.5%
Expected rate of return on pension plan assets
2.5%
2.5%
Amortization of actuarial differences
10 years
10 years
Amortization of prior service cost
10 years
10 years

7.

Contingent Liabilities
At March 31, 2004 and 2003, the Japan Transcity Group was contingently liable for guarantees ofindebtedness principally of affiliates in amounts of ¥2,416 million ($23,010 thousand) and ¥2,983
million, respectively.

8.

Lease Commitments
The Japan Transcity Group leases land and buildings to be used for office spaces and warehouses
principally under long-term cancelable or non-cancelable operating lease agreements, and also
computer equipment, other equipment and vehicles which are not generally cancelable for mainly
four-to-ten year contract terms as lessee.
Total rental and lease expenses including cancelable and non-cancelable leases for the years ended
March 31, 2004 and 2003 were ¥6,062 million ($57,733 thousand) and ¥6,345 million,
respectively. For the years ended March 31, 2004 and 2003, the lease expenses for
non-cancelable lease agreements which were categorized as financing leases amounted to ¥275
million ($2,619 thousand) and ¥167 million, respectively.
The aggregate future minimum payments for non-cancelable operating leases and financing leases,
including the imputed interest, at March 31, 2004 and 2003 were as follows:- 15 -

Thousands of
U.S. Dollars
2004

Millions of Yen
2004
2003
Operating leases:
Due within one year
Due after one year¥¥

Financing leases:
Due within one year
Due after one year

¥
¥

932
5,644
6,576
274
1,773
2,047

¥

966
6,590
7,556

¥
¥

223
1,722
1,945

¥

$

8,876
53,75362,629$$2,609
16,886
19,495$

9. Derivative Instruments
The Japan Transcity Group is a party to derivative instruments such as foreign currency forward
exchange contracts or interest rate swap contracts in the normal course of business to reduce its
own exposure to fluctuations in exchange rates or interest rates for the hedge purposes. As
disclosed in Note 2(d), hedge accounting is qualified and all derivative instruments outstanding at
March 31, 2004 and 2003 were accounted for by the hedge accounting. The Japan Transcity
Group is exposed to credit loss in the event of nonperformance by other parties. However, theJapan Transcity Group does not expect nonperformance by the counterparties.

10. Shareholders' Equity
The authorized number of shares of no par value common stock is 240 million at March 31, 2004,
unless there may be a reduction due to a cancellation of treasury stock acquired.
Pursuant to the Commercial Code of Japan and the Company’s amended articles of incorporation
approved by shareholders at the annual general meeting on June 29, 2004, the Company canpurchase the treasury stock subject to the resolution of the Board of Directors from that date.
At March 31, 2004 and 2003, capital surplus consisted of additional paid-in capital. In addition,
retained earnings included legal reserve of the Company in the amount of ¥1,200 million ($11,429
thousand) at March 31, 2004 and 2003, respectively. The Commercial Code of Japan provides
that an amount equivalent to at least 10% of cash payments as an appropriation of retained
earnings shall be appropriated as a legal reserve until a total amount of additional paid-in capitaland such legal reserve equals 25% of common stock. Such a legal reserve is not available fordividend distribution, but may be used to reduce a deficit or may be transferred to common stockby proper actions of the Board of Directors and/or shareholders of the Company.
Shareholders of the Company approved the appropriation of retained earnings at the annual
general meeting of shareholders on June 29, 2004 as follows:
Millions of
Yen
Cash dividends
Bonuses to directors and statutory auditors¥- 16 -

243
39

Thousands of
U.S. Dollars
$

2,314
371

11. Income Taxes
Income tax expenses for the years ended March 31, 2004 and 2003 consisted of the following:Thousands of
U.S. Dollars
2004

Millions of Yen
2004
2003
Income tax expenses:
Current
Deferred¥¥

1,180 ¥
(236)
944 ¥

1,055 $
(440)
615 $

11,238(2,248)8,990

The tax effects on temporary differences that give rise to a significant portion of deferred tax
assets and liabilities at March 31, 2004 and 2003 were as follows:
Thousands of
U.S. Dollars
2004

Millions of Yen
2004
2003
Deferred tax assets:
Enterprise tax accruals
Accrued bonuses to employees
Loss on devaluation of inventories
Employee retirement benefit liability
Accrued severance indemnities for officers
Inter-company capital gains
Net operating loss carryforward
Other

¥

Less, valuation allowance
Deferred tax assets
Deferred tax liabilities:
Deferred capital gain
Accelerated depreciation
Unrealized gains on available-for-salesecurities
Other
Deferred tax liabilities
Net deferred tax assets

¥

54
445
234
4,491
159
490
285
341
6,499
(603)
5,896

¥

63
387
296
4,288
149
498
237
408
6,326
(606)
5,720

$

514
4,238
2,229
42,771
1,514
4,667
2,714
3,248
61,895(5,743)56,152

560
51

577
68

5,333
486

1,489
382
2,482
3,414

378
372
1,395
4,325

14,181
3,638
23,63832,514¥$At March 31, 2004 and 2003, deferred tax assets and liabilities were as follows:
Thousands of
U.S. Dollars
2004

Millions of Yen
2004
2003
Deferred tax assets:
Current
Non-current
Deferred tax liabilities:
Non-current

¥

454
2,972
12

¥

396
3,933
4

$

4,324
28,305115

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
not be realized. The ultimate realization of deferred tax assets is dependent upon the generation- 17 -

of the future taxable income during the periods in which those temporary differences become
deductible. At March 31, 2004 and 2003, 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, 2003 was as follows:
Percentage ofpre-tax income
Japanese statutory effective tax rate
Increase (decrease) due to:Permanently non-deductible expenses
Tax exempt income
Local minimum taxes per capita levy
Income from the trust for retirement benefit plan
Equity in net earnings of unconsolidated
subsidiaries and affiliates
Elimination of inter-company dividend
Adjustments due to a change in tax rate
Other
Actual effective income tax rate

41.4%
7.2
(2.4)
3.4
0.9
(9.0)
2.6
10.6
3.1
57.8%

The reconciliation for the year ended March 31, 2004 was not disclosed, as such difference was
not material.

- 18 -

12.

Segment Information
The Japan Transcity Group's operations are classified into two major segments: Integrated logistics services and other services.
industry segment for the years ended March 31, 2004 and 2003 was summarized as follows:Integrated logistics
services
For the year 2004:
Operating revenues:
Outside customers
Inter-segment sales
Total operating revenues
Operating expenses
Operating income
Identifiable assets
Depreciation
Capital expenditures
For the year 2003:
Operating revenues:
Outside customers
Inter-segment sales
Total operating revenues
Operating expenses
Operating income (loss)
Identifiable assets
Depreciation
Capital expenditures¥¥

70,834
4
70,83868,627
2,211

Others¥¥

Total
Millions of Yen

2,396
2,307
4,703
4,521
182

¥

¥

Elimination

73,2302,311
75,541
73,1482,393¥¥(2,311)(2,311)(2,277)(34)

Information by

Consolidated¥¥

73,23073,23070,871
2,359¥

87,642
2,287
1,087

¥

9,056
389
117

¥

96,698
2,676
1,204

¥

(3,335)-¥93,363
2,676
1,204

¥

67,062
4
67,06665,335
1,731

¥

2,403
1,852
4,255
4,264
(9)

¥

69,465
1,856
71,321
69,5991,722¥(1,856)(1,856)(1,876)20¥

69,46569,46567,723
1,742

84,296
2,288
3,413

¥

9,700
425
78

¥

93,996
2,713
3,491

¥

(2,297)-¥

91,6992,713
3,491(22,009)(22,009)(21,686)(323)$

697,429
697,429
674,962
22,467(31,762)
-

$

¥
¥

¥

¥

¥

¥

Thousands of U.S. Dollars
For the year 2004:
Operating revenues:
Outside customers
Inter-segment sales
Total operating revenues
Operating expenses
Operating income
Identifiable assets
Depreciation
Capital expenditures$$$

674,61038
674,648
653,591
21,057$

834,686
21,781
10,353$$

22,81921,97144,79043,057
1,733$

86,247
3,705
1,114

$

$

697,429
22,009719,438
696,648
22,790$920,933
25,486
11,467$$

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

- 19 -$

889,171
25,486
11,467

Information for overseas

13. Financial Information of Japan Transcity Corporation (Parent)
Presented below are the non-consolidated balance sheets, non-consolidated statements of income
and shareholders’ equity of Japan Transcity Corporation, the parent company, for the years ended
March 31, 2004 and 2003.
Non-Consolidated Balance Sheets
Japan Transcity Corporation (Parent)
March 31, 2004 and 2003
Millions of Yen
2004
2003
AssetsCurrent 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 andaffiliates
Deferred tax assets
Lease deposits
Other assets
Allowance for doubtful accounts
Total investments and other assets¥¥
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Trade payables
Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities
Long-term debt
Employee retirement benefit liability
Deferred tax liabilities for revaluation
Accrued severance indemnities for officers
Other non-current liabilities
Shareholders' equity:
Common stock
Capital surplus
Retained earnings
Land revaluation increment
Net unrealized gains on available-for-sale securities
Less, treasury stock, at cost
Total shareholders' equity¥¥- 20 -

8,224
38

¥

7,183
867

Thousands of
U.S. Dollars
2004$

78,324362

12,57418
260
1,073
22,18764,372(27,129)
37,243

12,05513
178
1,028
21,32464,255(26,342)
37,913

119,752
172
2,476
10,219211,305
613,067(258,372)
354,695

6,823

4,107

64,981

3,008
2,257
849
1,331
(122)
14,14673,576

3,014
3,136
899
1,206
(171)
12,191
71,42828,64821,495
8,086
12,676(1,162)
134,724
700,724

4,196
1,353
7,153
851
428
1,194
15,175
20,354
7,950
1,903
350
175
7,792
5,908
9,699
2,842
2,029
(601)
27,66973,576

¥

¥

¥

4,325
2,460
6,922
870
527
1,836
16,94018,004
7,649
1,931
330
180
7,792
5,908
9,531
2,885
452
(174)
26,39471,428$$$39,962
12,886
68,124
8,105
4,076
11,371
144,524
193,848
75,714
18,124
3,333
1,667
74,21056,267
92,371
27,067
19,323(5,724)
263,514700,724

Non-Consolidated Statements of Income
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2004 and 2003¥

Operating revenues
Operating expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Net gain (loss) on sale or devaluation of securities
Miscellaneous, net
Income before income taxes
Income tax expenses:
Current
Deferred
Total income tax expenses
Net income¥

Millions of Yen
2004
2003

Thousands of
U.S. Dollars
2004

67,900$¥64,444

66,582
1,318

63,0991,345

634,114
12,552

145
(295)
32
(44)
(162)
1,156

158
(320)
(434)
(123)
(719)
626

1,381
(2,809)305(419)(1,542)
11,010

848
(288)
560
596

760
(298)
462
164

8,076
(2,742)
5,334
5,676

¥

$

Yen
Per share:
Net income:- Basic- Diluted
Cash dividends¥- 21 -

646,666

9.14
7.91
7.00

¥

U.S. Dollars

2.01
2.01
7.00

$

0.09
0.08
0.07

Non-Consolidated Statements of Shareholders' Equity
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2004 and 2003

Commonstock

Balance at March 31, 2002
Net income for the year
Cash dividends
Bonuses to directors and statutory
auditors
Reversal of land revaluation
increment
Adjustment for applicable income
taxes
Net change in unrealized gains onavailable-for-sale securities, net of
applicable income taxes
Purchase of treasury stock andfractional shares acquired, net
Balance at March 31, 2003
Net income for the year
Cash dividends
Bonuses to directors and statutory
auditors
Revaluation increment on land
Adjustment for applicable income taxes
Net change in unrealized gains onavailable-for-sale securities, net of
applicable income taxes
Purchase of treasury stock andfractional shares acquired, net
Balance at March 31, 2004

¥

¥

Land
Retainedrevaluation
earnings
increment
Millions of Yen

Capitalsurplus

7,792
-

¥

5,908
-

¥

9,621
164
(445)

¥

3,050
-

Net unrealized
gains onavailable-for- salesecurities

¥

780
-

Treasury
stock

¥

(3)
-

-

-

(37)

-

-

-

-

-

228

(228)

-

-

-

-

-

63

9

-

-

-

-

-

(337)

-

7,792
-

5,908
-

9,531
596
(433)

2,885
-

452
-

(171)
(174)
-

-

-

(37)
42
-

(42)
(1)

-

-

-

-

-

-

-

-

7,792

¥

5,908

¥

9,699

¥

2,842

¥

1,577
2,029

¥

(427)
(601)

Thousand of U.S. Dollars
Balance at March 31, 2003
Net income for the year
Cash dividends
Bonuses to directors and statutory
auditors
Reversal of land revaluation
increment
Adjustment for applicable income
taxes
Net change in unrealized gains onavailable-for-sale securities, net of
applicable income taxes
Purchase of treasury stock andfractional shares acquired, net
Balance at March 31, 2004$$

74,210-$56,267-$

90,771
5,676(4,124)$27,476
-

$

4,304
-

$

(1,657)
-

-

-

(352)

-

-

-

-

-

400

(400)

-

-

-

-

-

(9)

-

-

-

-

-

-

15,019-74,210$56,267$

92,371$

27,067$

19,323- 22 -$(4,067)(5,724)