Japan Transcity Corporation
Consolidated Financial Statements
March 31, 2006 and 2005

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, 2006 and 2005, 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, 2006 and 2005, 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 3, effective for the year ended March 31, 2006, Japan Transcity Corporation and its
domestic consolidated subsidiaries have 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.

ChuoAoyama PricewaterhouseCoopers
Nagoya, Japan
June 29, 2006

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31, 2006 and 2005

Millions of Yen
2006
2005
AssetsCurrent assets:
Cash and cash equivalents
Short-term investments (Notes 5 and 6)
Trade receivables:
Notes
Accounts
Allowance for doubtful accounts¥

Inventories (Note 4)
Deferred tax assets (Note 12)
Other current assets
Total current assets

Property and equipment, at cost (Note 6):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 5 and 6)
Investments in unconsolidated subsidiaries andaffiliates
Deferred tax assets (Note 12)
Lease deposits
Other assets (Note 6)
Allowance for doubtful accounts
Total investments and other assets

Total

¥

14,332
275

11,219323$

122,496
2,351

865
13,192(18)
14,039
106
512
1,567
30,831886
11,991(20)
12,857
554
439
1,374
26,766

7,393
112,752(154)
119,991
906
4,376
13,393
263,513

27,734
41,631
10,8778,369
141
88,752(41,633)
47,11931,94739,889
9,355
9,333
732
91,256(40,992)
50,264

237,043355,820
92,966
71,5301,205
758,564(355,838)
402,726

11,737

7,414

100,316

2,814
491
929
1,473
(51)
17,393

2,631
1,426
888
1,212
(76)
13,49524,051
4,197
7,940
12,590(436)
148,658

95,343

See accompanying Notes to Consolidated Financial Statements.

-2-¥

Thousands of
U.S. Dollars
2006¥

90,525$814,897

Millions of Yen
2006
2005
Liabilities, Minority Interests and Shareholders' Equity
Current liabilities:
Short-term borrowings (Note 6)¥
Current maturities of long-term debt (Note 6)
Trade payables:
Notes
Accounts

3,208
1,357

¥

4,151
8,076

Thousands of
U.S. Dollars
2006$

27,41911,598

1,447
6,645
8,092
1,654
1,392
1,550
17,253

1,856
6,009
7,865
1,628
296
1,622
23,63812,36756,795
69,162
14,137
11,897
13,248147,461Long-term debt (Note 6)
Employee retirement benefit liability (Note 7)
Guarantee deposits received
Deferred tax liabilities for revaluation
Deferred tax liabilities (Note 12)
Accrued severance indemnities for officers
Other non-current liabilities

26,339
4,814
4,466
5,281
1,709
436
45

18,957
5,372
4,608
1,819
9
403
38

225,120
41,14538,17145,137
14,607
3,727
384

Minority interests in consolidated subsidiaries

1,201

1,039

10,265

8,411

7,884

71,8896,720
16,256(2,018)

6,193
15,731
2,717

57,436
138,940(17,248)

4,467
(9)

2,188
(58)

38,179(77)(28)
33,799(13)
34,642(239)
288,880

Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities

Shareholders' equity (Notes 8 and 13):
Common stock, no par valueAuthorized: 240,000,000 shares,
Issued: 67,019,610 shares in 2006 and64,262,367 shares in 2005
Capital surplus
Retained earnings
Land revaluation (decrement) increment
Net unrealized gains on available-for-salesecurities
Foreign currency translation adjustment
Less, treasury stock, at cost – 80,167 shares in2006 and 52,261 shares in 2005
Commitments and contingent liabilities(Notes 9 and 10)
Total

¥

-3-

95,343¥90,525$814,897

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Income
For the Years Ended March 31, 2006 and 2005

Operating revenue (Note 14)¥

Operating expenses (Notes 7, 10 and 14)
Operating income
Other income (expenses) :Interest and dividend income
Interest expenses
Equity in net earnings of unconsolidated
subsidiaries and affiliates
Gain (loss) on sale or disposal of property
and equipment
Gain on return of substituted portion of theemployee welfare pension fundImpairment loss on fixed assets
Other, net
Income before income taxes andminority interests
Income tax expenses (Note 12)Less, minority interests in net income of
consolidated subsidiaries
Net income¥

Millions of Yen
2006
2005

Thousands of
U.S. Dollars
2006

83,099$¥78,393

79,195
3,904

75,045
3,348

676,880
33,368

126
(381)

98
(424)

1,077
(3,257)

128

274

1,094

1,596

(510)

13,641(2,953)
195(1,289)

3,673
(466)
2,645

(25,239)
1,666(11,018)

2,615

5,993

22,350

2,183

2,203

18,658

103

72

880

329

¥

3,718

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

¥

4.27
4.09
8.00

See accompanying Notes to Consolidated Financial Statements.

-4-710,248

¥

$

2,812

U.S. Dollars

59.54
45.32
7.50

$

0.04
0.03
0.07

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31, 2006 and 2005
Number ofcommonshares issued
Balance at March 31, 2004
Net income for the year
Cash dividends
Bonuses to directors and corporate auditors
Increase in retained earnings through inclusion of
additional subsidiary on consolidation
Reversal of land revaluation increment
Conversion of convertible bonds, throughreissuance of treasury stock
Net change in unrealized gains on available-forsale securities, net of applicable income taxes
Translation adjustment
Fractional shares acquired, net
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

63,613,246-

Common stock

Capital surplus

¥

¥

7,792
-

5,908
-

Retainedearnings¥

12,292
3,718
(428)
(39)

Land
Revaluation(decrement)
increment
Millions of Yen

Net unrealized
gains onavailable-for-salesecurities

Foreign currencytranslation
adjustment

¥

¥

¥

2,842
-

2,164
-

(35)
-

Treasury
stock
¥

(601)
-

-

-

-

63
125

(125)

-

-

-

649,121

92

285

-

-

-

-

608

64,262,367
2,757,243

7,884
527

6,193
527

15,731
329
(524)
(42)
762
-

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

24
2,188
-

(23)
(58)
-

(20)
(13)
-

67,019,610

8,411

6,720

16,256(2,018)

2,279
4,467

49
(9)

(15)
(28)

¥

¥

¥

¥

¥

¥

¥

Thousands of U.S. Dollars
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$$

67,385
4,504
71,889$$52,932
4,504
57,436$$

See accompanying Notes to Consolidated Financial Statements.

-5-

134,453
2,812(4,479)(359)
6,513
138,940$$

23,222(6,513)(33,957)(17,248)$$

18,701
19,47838,179

$

$

(496)
419
(77)

$

$

(111)
(128)
(239)

Japan Transcity Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended March 31, 2006 and 2005

Millions of Yen
2006
2005
Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation
Net reversal for employee retirement benefit liability(Gain) loss on sale or disposal of property and equipment
Gain on return of substituted portion of the employee welfare
pension fundImpairment loss on fixed assets(Increase) decrease in trade receivables
Decrease in inventories
Increase 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
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
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 provided by (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
subsidiaries on consolidation
Cash and cash equivalents at end of year

¥

2,615

¥

5,993

Thousands of
U.S. Dollars
2006$

22,3502,640(558)(1,596)

2,533
(73)
510

22,564(4,769)(13,641)

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

(3,673)
554
194
796
203
7,037
132
(416)
(1,032)
5,721

25,239(9,419)3,829
3,026(1,812)47,367
1,496(3,256)(4,880)40,727(4,175)
3,067
(98)
(296)
(395)
(1,897)(2,496)
245
(117)
(79)
(109)
(2,556)(35,684)
26,214(838)(2,530)(3,376)(16,214)

9,291(7,596)
(954)
(523)
(16)
202
43
3,113
11,2192,953(2,197)(4,149)(428)(24)(3,845)(3)(683)
11,752

79,410(64,923)(8,154)(4,470)
(137)
1,726
368
26,607
95,88914,332¥

150
11,219$See accompanying Notes to Consolidated Financial Statements.

-6-

122,496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 ¥117 to $1, theapproximate rate of exchange at March 31, 2006. 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 ¥117 to$1 or at any other rate.
(c) Reclassification
Certain comparative figures have been reclassified to conform to the current year's presentations.

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, 2006 and 2005 was as follows:

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

-7-

2006

2005

27

27

5
13
4

5
12
3

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 2006 and 2005). Such overseas consolidated
subsidiaries close their books at December 31 every year, three months earlier than the 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.
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.
(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. On January 1, 2005, the Company received additional approval
for the exemption from the payment of past benefit and established a new benefit pension plan for
its employees. The Company recorded “Gain on return of substituted portion of the employee
welfare pension plan” in the amount of ¥3,673 million in the accompanying consolidated statementof income for the year ended March 31, 2005. Excess of the estimated balance equivalent to theamount to be returned to the Japanese Government as of March 31, 2005 over the actual paymentof liability reserve of the pension plan in the current year was recorded as other income in theamount of ¥72 million ($615 thousand) in the accompanying consolidated statement of income forthe year ended March 31, 2006.
(j) Accrued severance indemnities for officers
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.

-9-(k) Bond issue expenses and new share issue expenses
Bond issue expenses and new share issue expenses are charged to income as incurred.
(l) 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.
(m) Enterprise taxes
With the implementation of the “Revision of Local Tax Law” (Legislation No.9, 2003) on March
31, 2003, size-based corporate taxes for local government enterprise taxes have been newly leviedfrom the fiscal year beginning on and after April 1, 2004. As a result, the Japan Transcity Grouphas recorded enterprise taxes calculates based on the “added value” and “capital” amounts as
selling, general and administrative expenses in accordance with practical guidance issued by
Accounting Standards Board of Japan.
(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 corporate auditors are recorded in the fiscal year
when a proposed appropriation of retained earnings is approved by the Board of Directors and/or
shareholders. Bonuses paid to directors and corporate auditors are recorded as a part of theappropriation of retained earnings, instead of being charged to income, as permitted by theJapanese accounting standard.
(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, 2006 and- 10 -

2005, 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 ¥6,736 million($57,573 thousand) and ¥5,795 million, respectively.
On September 8, 2005, the Japanese Institute of Certified Public Accountants issued “Q&A for theTreatment of Revaluation Increment Account of Land”. As the Company adopted this treatment
relating to the assessment of relaizability of deferred tax assets for land revaluation from the year
ended March 31, 2006, land revaluation excess deceased by ¥3,973 million ($33,957 thousand),and deferred tax liabilities for revaluation increased by the same amount. This change ofaccounting treatment resulted in no effect on the operating results for the year ended March 31,
2006..
(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.

3.

Accounting change-Adoption of New Accounting standard for impairment of fixed assets
On August 9, 2002, the Business Accounting Council of Japan issued "Accounting Standard for
Impairment of Fixed Assets", which is effective for the fiscal years beginning on and after April 1,
2005, with earlier adoption permitted. The Accounting Standards Board of Japan issued related
practical guidance on October 31, 2003. The Company and its domestic consolidated subsidiaries
have adopted this new accounting standard and related practical guidance effective for the year
ended March 31, 2006. 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. 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 ofrecognition and measurement 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 by interest 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 asfollows:

Buildings and structures
Land

Millions of Yen

Thousands of
U.S. Dollars

¥

$

¥

82
2,871
2,953

$

701
24,53825,239As a result of adoption of this new accounting standard, income before income taxes and minority
interests decreased by ¥2,953 million ($25,239 thousand), as compared with the previous
accounting method.

- 11 -

4.

Inventories
At March 31, 2006 and 2005, inventories consisted of the following:Thousands of
U.S. Dollars
2006

Millions of Yen
2006
2005
Real estate held for sale
Supplies and other

¥

- ¥
106
106 ¥

¥

5.

501 $
53
554 $

906
906

Investments
At March 31, 2006 and 2005, short-term investments consisted of the following:Thousands of
U.S. Dollars
2006

Millions of Yen
2006
2005
Marketable securities
Time deposits with an original maturity ofmore than three months

¥

-

¥

40 $

-

¥

275
275

¥

283
323 $

2,351
2,351

At March 31, 2006 and 2005, investment securities consisted of the following:

Millions of Yen
2006
2005
Marketable securities:
Equity securities
Other

¥

Other non-marketable securities¥

10,88910
10,899838
11,737¥

Thousands of
U.S. Dollars
2006

6,570 $
6,570
844
7,414 $¥

93,06886
93,154
7,162
100,316

Marketable investment securities classified as available-for-sale, including short-term investments,
are stated at fair value with unrealized gains and losses excluded from the current earnings andreported as a net amount within the shareholders’ equity account until realized. At March 31,
2006 and 2005, gross unrealized gains and losses for marketable securities classified asavailable-for-sale are summarized as follows:

Cost

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

- 12 -

Gross
Gross
unrealized
unrealized
gains
lossesMillions of Yen

Fair andcarryingvalue¥¥ 10,88910¥ 10,899

¥

7,640
7,640

¥
¥

(3)
(3)

Cost
Available-for-sale securities at March 31, 2005:
Equity securities
¥
2,824
Other
40
¥
2,864

Gross
unrealized
gains

Gross
unrealized
lossesFair andcarrying
value

¥

¥

¥

¥

3,768
3,768

(22)
(22)

¥

¥

6,570
40
6,610

Thousands of U.S. Dollars
Available-for-sale securities at March 31, 2006:
Equity securities$
27,795Other
86$
27,881

6.

$$

65,29965,299

$
$

(26)
(26)

$ 93,068
86$ 93,154

Short-term Borrowings and Long-term Debt
At March 31, 2006 and 2005, short-term borrowings consisted of the following:
Millions of Yen
2006
2005
Short-term bank loans or bank overdrafts withinterest rates ranging from 0.38 % to 5.56 %per annum at March 31, 2006:
Collateralized¥
Unsecured
¥

745 ¥
2,463
3,208 ¥

Thousands of
U.S. Dollars
2006

2,517 $
1,634
4,151 $

6,368
21,051
27,419At March 31, 2006 and 2005, long-term debt consisted of the following:
Millions of Yen
2006
2005
0.85 % unsecured convertible bonds due
September 2005¥
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 6.50 % per annum at
March 31, 2006:
Collateralized
UnsecuredLess, current maturities¥- 13 -

-

¥

7,459

Thousands of
U.S. Dollars
2006

$

-

35
2,500
1,500
4,000

515
2,500
1,500
4,000

299
21,367
12,821
34,188

1,500

1,500

12,821

1,561
16,60027,696(1,357)
26,3393,536
6,023
27,033(8,076)
18,957

13,342
141,880
236,718(11,598)
225,120¥$

At March 31, 2006, the current conversion price per share of zero coupon convertible bonds due
March 2008 and zero coupon convertible bonds due September 2009 are ¥285 and ¥410,
respectively, all of which are subject to adjustment under certain circumstances, including stock
splits. At March 31, 2006, the number of shares of common stock necessary for conversion of allconvertible bonds outstanding was approximately 4 million.
The aggregate annual maturities of long-term debt at March 31, 2006 ware as follows:
Millions of
Yen

Years ending March 31,
2007
2008
2009
2010
2011
2012 and thereafter¥¥Thousands of
U.S. Dollars

1,357 $
1,009
10,162
2,906
3,025
9,237
27,696 $11,5988,624
86,85524,83725,85578,949236,718At March 31, 2006, the following assets were pledged as collateral for short-term borrowing andlong-term debt:
Millions ofYenTime deposits included in short-term investments
Land
Buildings and structures
Machinery and equipment, and other property
Investment and other assets¥

Thousands of
U.S. Dollars

39 $
6,402
2,348
116
3

333
54,71820,068991
26

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.
7.

Employee Retirement Benefits
The Company has defined benefit retirement plans, under which certain portions of the benefits
are covered by a pension plan governed by the regulations of the Japanese Welfare Pension
Insurance Law. Some of the consolidated 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, 2006 and 2005:- 14 -

Reconciliation of benefit liability:
Projected benefit obligationLess, fair value of pension plan assets at end ofyear
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
2006
2005

Thousands ofU.S Dollars
2006

14,850¥ 21,959$(12,451)
2,399
2,047

(15,709)
6,250(1,289)(106,419)
20,504
17,496

368

411

3,145

4,814

¥

5,372

126,923$

41,145

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
be used by the employees for other purpose, which amounted to ¥249 million ($2,128
thousand) and ¥198 million at March 31, 2006 and 2005, respectively.

Millions of Yen
2006
2005
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
¥

541
262
(161)
214
(42)
814

¥

574
559
(317)
473
(96)
¥ 1,193

Thousands ofU.S Dollars
2006

$

4,624
2,239
(1,376)
1,829
(359)
6,957

$

Major assumptions used in the calculation of the above information for the years ended March 31,
2006 and 2005 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

- 15 -

2006

2005

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

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

8. Shareholders' Equity
At March 31, 2006 and 2005, 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 ($10,256 thousand) at March 31, 2006 and 2005, respectively. The Corporate Law ofJapan in force on May 1, 2006 provides that an amount equivalent to at least 10 % of dividends as
an appropriation of retained earnings shall be appropriated as a legal reserve until a total amountof additional paid-in capital and such legal reserve equals 25 % of common stock. Such a legal
reserve is not available for dividend distribution, but may be used to reduce a deficit or may betransferred to common stock or retained earnings by proper actions of the Board of Directors
and/or shareholders of the Company.

9.

Contingent Liabilities
At March 31, 2006 and 2005, the Japan Transcity Group was contingently liable for guarantees ofindebtedness principally of affiliates in amounts of ¥1,688 million ($14,427 thousand) and ¥2,035
million, respectively.

10.

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, 2006 and 2005 were ¥6,116 million ($52,274 thousand) and ¥6,195 million,
respectively. For the years ended March 31, 2006 and 2005, the lease expenses for
non-cancelable lease agreements which were categorized as financing leases amounted to ¥366
million ($3,128 thousand) and ¥301 million, respectively.
The aggregate future minimum payments for non-cancelable operating leases and financing leases,
including the imputed interest, at March 31, 2006 and 2005 were as follows:

Millions of Yen
2006
2005
Operating leases:
Due within one year
Due after one year¥¥

Financing leases:
Due within one year
Due after one year

¥
¥

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

¥
¥
¥
¥

779
4,870
5,649
304
1,659
1,963

Thousands of
U.S. Dollars
2006
$
$
$
$

5,060
35,29040,3503,812
23,69227,504

11. 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. As disclosed in Note 2(d), hedge accounting is qualified and all derivative
instruments outstanding at March 31, 2006 and 2005 were accounted for by the hedge accounting.

- 16 -

The Japan Transcity Group is exposed to credit loss in the event of nonperformance by otherparties. However, the Japan Transcity Group does not expect nonperformance by thecounterparties.

12. Income Taxes
Income tax expenses for the years ended March 31, 2006 and 2005 consisted of the following:Thousands of
U.S. Dollars
2006

Millions of Yen
2006
2005
Income tax expenses:
Current
Deferred

¥
¥

1,691
492
2,183

¥
¥

719
1,484
2,203

$
$

14,453
4,205
18,658The tax effects on temporary differences that give rise to a significant portion of deferred tax
assets and liabilities at March 31, 2006 and 2005 were as follows:
Thousands of
U.S. Dollars
2006

Millions of Yen
2006
2005
Deferred tax assets:
Enterprise tax accruals
Accrued bonuses to employees
Employee retirement benefit liability
Accrued severance indemnities for officers
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) assets

¥

112
447
2,925
175
346
232
1,190
391
5,818
(1,648)
4,170

¥

25
442
2,985
162
478
243
456
4,791
(474)
4,317

$

957
3,820
25,000
1,496
2,957
1,983
10,171
3,342
49,726(14,085)
35,641

1,404

541

12,000

3,070
402
4,876
(706)

1,506
414
2,461
1,856

26,2393,436
41,675(6,034)¥$At March 31, 2006 and 2005, deferred tax assets and liabilities were as follows:
Thousands of
U.S. Dollars
2006

Millions of Yen
2006
2005
Deferred tax assets:
Current
Non-current
Deferred tax liabilities:
Non-current

¥

512
491
1,709

- 17 -

¥

439
1,426
9

$

4,376
4,197
14,607

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 generationof the future taxable income during the periods in which those temporary differences become
deductible. At March 31, 2006 and 2005, 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 years ended March 31, 2006 and 2005 were 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 of pre-tax income
2006
2005
40.1%
40.1%
2.7
(1.9)
1.4

1.1
(0.6)
0.6

(2.0)
44.9
(1.7)
83.5%

(1.8)
(2.2)
(0.4)
36.8%

13. Subsequent Event
Shareholders of the Company approved the appropriation of retained earnings at the annual
general meeting of shareholders on June 29, 2006 as follows:
Millions of
Yen
Cash dividends
Bonuses to directors and corporate auditors¥- 18 -

301
46

Thousands of
U.S. Dollars
$

2,573
393

14.

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, 2006 and 2005 was summarized as follows:Integrated logistics
services
For the year 2006:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating expenses
Operating income
Identifiable assets
Depreciation
Impairment loss on fixed assets
Capital expenditures
For the year 2005:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating expenses
Operating income
Identifiable assets
Depreciation
Capital expenditures¥

Others80,22928
80,25776,475
3,782¥¥

97,061
2,371
85
3,799

¥

¥

¥
¥

Total
Millions of Yen

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

¥

¥

2,692
269
2,868
160

76,01627
76,04372,8883,155¥

88,218
2,211
3,105

¥

¥

¥

Elimination

83,0992,538
85,63781,7583,879¥¥

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

2,377
2,932
5,309
5,028
281

¥

6,277
322
52

¥

¥

¥

Consolidated(2,538)(2,538)(2,563)25¥¥(4,410)-¥95,343
2,640
2,953
3,959

78,393
2,959
81,352
77,916
3,436¥(2,959)(2,959)(2,871)(88)¥

78,39378,39375,045
3,348

94,495
2,533
3,157

¥

¥

¥

¥

¥

83,09983,09979,195
3,904(3,970)-¥90,525
2,533
3,157(21,692)(21,692)(21,906)
214$

710,248
710,248
676,880
33,368(37,692)-$

Thousands of U.S. Dollars
For the year 2006:
Operating revenue:
External customers
Inter-segment sales
Total operating revenue
Operating expenses
Operating income
Identifiable assets
Depreciation
Impairment loss on fixed assets
Capital expenditures$$$

685,718
239
685,957
653,632
32,325
829,581
20,265726
32,470$$$24,53021,45345,98345,154829
23,0082,299
24,513
1,368

$

$
$

710,248
21,692
731,940
698,786
33,154$

852,589
22,56425,23933,838$$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 -$

814,897
22,56425,23933,838

Information for overseas

15. 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, 2006 and 2005.
Non-Consolidated Balance Sheets
Japan Transcity Corporation (Parent)
March 31, 2006 and 2005
Millions of Yen
2006
2005
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¥

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
Deferred tax liabilities
Accrued severance indemnities for officers
Other non-current liabilities
Shareholders' equity:
Common stock
Capital surplus
Retained earnings
Land revaluation (decrement) increment
Net unrealized gains on available-for-sale securities
Less, treasury stock, at cost
Total shareholders' equity¥¥- 20 -

10,084
2,039

¥

8,512
79

Thousands of
U.S. Dollars
2006$

86,18817,427

13,192
16
307
1,595
27,23364,300(27,576)
36,724

12,34312
227
2,032
23,20565,026(27,224)
37,802

112,752
137
2,624
13,633
232,761549,572(235,692)
313,880

10,9296,886

93,410

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

4,003
664
851
1,189
(75)
13,51874,52533,573
7,607
12,196(427)
146,359
693,000

4,200
1,003
8,289
835
1,180
1,348
16,855
21,375
3,657
5,281
1,673
392
284
8,411
6,720
14,271(2,018)4,208(28)
31,56481,081

¥

¥

¥

5,453
7,812
7,835
835
16
1,408
23,35914,408
4,195
1,819
364
225
7,884
6,193
11,332
2,717
2,042
(13)
30,15574,525$$$35,897
8,573
70,846
7,137
10,086
11,521
144,060
182,692
31,25645,137
14,2993,351
2,427
71,88957,436
121,974(17,248)
35,966(239)
269,778
693,000

Non-Consolidated Statements of Income
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2006 and 2005
Millions of Yen
2006
2005
¥

Operating revenue
Operating expenses
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Gain (loss) on sale or disposal of property andequipment
Loss on liquidation of a subsidiary
Gain on return of substituted portion of the employee
welfare pension fundImpairment loss on fixed assets
Miscellaneous, net
Income before income taxes
Income tax expenses:
Current
Deferred
Total income tax expenses
Net income¥

77,054¥

72,814

Thousands of
U.S. Dollars
2006$

74,452
2,602

70,8201,994

636,342
22,239

230
(285)

171
(287)

1,966
(2,436)

1,635
-

(450)
(970)

13,975
-

(75)
185
1,690
4,292

3,673
(392)
1,745
3,739

(641)
1,581
14,44536,684

1,250
299
1,549
2,743

232
1,532
1,764
1,975

10,684
2,556
13,24023,444¥$Yen
Per share:
Net income:- Basic- Diluted
Cash dividends¥- 21 -

658,581

40.66
35.57
8.00

¥

U.S. Dollars

31.31
24.06
7.50

$

0.35
0.30
0.07

Non-Consolidated Statements of Shareholders' Equity
Japan Transcity Corporation (Parent)
For the Years Ended March 31, 2006 and 2005
Commonstock
Balance at March 31, 2004
Net income for the year
Cash dividends
Bonuses to directors and corporate
auditors
Reversal of land revaluation increment
Conversion of convertible bonds, throughreissuance of treasury stock
Net change in unrealized gains onavailable-for-sale securities, net of
applicable income taxes
Fractional shares acquired, net
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¥¥

Capitalsurplus

7,792
-

¥

Retainedearnings

5,908
-

¥

9,699
1,975
(428)

Land
revaluation(decrement)
increment
Millions of Yen
¥

2,842
-

Net unrealized gains
on available-for- salesecurities
¥

2,029
-

Treasury
stock
¥

(601)
-

-

-

(39)
125

(125)

-

-

92

285

-

-

-

608

7,884
-

6,193
-

11,332
2,743
(524)

2,717
-

13
2,042
-

(20)
(13)
-

527

527

(42)
762
-

(762)
(3,973)
-

-

-

8,411

6,720

14,271(2,018)

2,166
4,208

(15)
(28)

¥

¥

¥

¥

¥

Thousand of U.S. Dollars
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$$

67,385-$52,932-$96,85523,444(4,479)$23,222-$

17,453
-

$

(111)
-

4,504

4,504

(359)
6,513
-

(6,513)(33,957)---

71,88957,436

121,974(17,248)

18,51335,966

(128)
(239)

$

$

$

$

- 22 -$