Report of Independent Auditors
The Board of Directors
JALUX Inc.
We have audited the accompanying consolidated balance sheets of JALUX Inc. andconsolidated subsidiaries as of March 31, 2008 and 2007, and the related consolidated
statements of income, changes in net assets, and cash flows for each of three years in the
period ended March 31, 2008, all expressed in yen. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of JALUX Inc. and consolidated
subsidiaries at March 31, 2008 and 2007, and the consolidated results of their operations andtheir cash flows for each of the three years in the period ended March 31, 2008 in conformity
with accounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect
to the year ended March 31, 2008 are presented solely for convenience. Our audit also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 3.

June 18, 2008

JALUX Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31,
2008
2007
(Thousands of yen)
AssetsCurrent assets:
Cash and time deposits (Note 4)
Notes and accounts receivable (Notes 16 and 17):
Trade
Unconsolidated subsidiaries and affiliates
Other
Allowance for doubtful accounts
Short-term investment in securities (Note 5)Inventories
Deferred income taxes (Note 10)
Other (Note 17)
Total current assets

2008(Thousands of
U.S. dollars)(Note 3)

¥ 6,280,283¥ 5,688,228$ 62,803

12,080,232
106,092
1,586,041(21,902)–7,309,995
470,034
1,399,731
29,210,510

13,408,709
61,0101,656,721(29,364)
7,681
6,117,340
469,397
2,178,944
29,558,670

120,802
1,061
15,860(219)–
73,1004,700
13,997292,105

2,162,640
475,924
2,638,564

2,257,327
604,436
2,861,763

21,626
4,759
26,386

Accumulated depreciation
Property and equipment, net

282,071
4,380,280
212,378
3,587,102
97,663
781,797
9,341,294(4,528,691)
4,812,603

293,077
4,375,069
239,651
3,742,954
99,307755,219
9,505,280(4,295,003)
5,210,276

2,821
43,803
2,124
35,871
977
7,818
93,413(45,287)
48,126

Intangible assets:
Software
Software under development
Other
Total intangible assets

1,830,029
7,700
35,983
1,873,712

422,595
1,410,977
28,201
1,861,775

18,30077
360
18,737445,589
1,959,907
246,936
199,820
187,298¥41,574,944

530,925
1,860,995–
276,601
184,928¥42,345,936

4,456
19,599
2,469
1,998
1,873
$415,749

Investments and advances:
Unconsolidated subsidiaries and affiliates
Other (Note 5)
Total investments and advances
Property and equipment (Notes 6 and 9):Land
Buildings and structures
Machinery and vehicles
Flight equipment
Construction in process
Other

Long-term loans
Deposits for business space
Prepaid pension expenses (Note 7)
Deferred income taxes (Note 10)
Other assets, net

2

March 31,
2008
2007
(Thousands of yen)
Liabilities and net assets
Current liabilities:
Short-term borrowings (Notes 6 and 17)
Current portion of long-term debt (Note 6)
Notes and accounts payable (Notes 16 and 17):Trade
Affiliates
Accrued expenses
Accrued income taxes (Note 10)
Other
Total current liabilities

2008(Thousands of
U.S. dollars)(Note 3)

¥ 2,841,587
1,116,875¥ 2,632,869
1,198,467$ 28,416
11,16912,736,107
523,485
2,255,387
413,664
1,826,552
21,713,660

12,890,050
671,493
2,407,705
684,3992,552,839
23,037,825

127,361
5,235
22,554
4,137
18,266217,137

3,466,495

3,388,976

34,665

Accrued pension and severance costs (Note 7)

30,526

112,767

305

Directors’ and statutory auditors’ retirement benefits

176,561

195,006

1,766

Deferred income taxes (Note 10)

150,120

90,412

1,501

4,781

5,370

48

2,558,550
711,499
11,885,115

2,558,550
711,421
11,289,771

25,586
7,115
118,851(10,888)(9,677)(109)(5,890)13,707(59)(43,161)(48,576)
986,150
16,032,797¥41,574,944

4,068
7,144
940,591
15,515,577¥42,345,936

(432)
(486)
9,862
160,328$415,749

Long-term debt (Note 6)

OtherCommitments and contingent liabilities(Notes 12 and 13)

Net assets (Note 11):
Common stock, without par value:
Authorized: 20,000,000 shares
Issued: 12,775,000 shares in 2008 and 2007
Capital surplus
Retained earnings
Common stock in treasury: 15,050 shares in 2008
and 14,429 shares in 2007
Net unrealized (loss) gain on other securities,
net of taxes (Note 5)
Net unrealized (loss) gain on hedging instruments,
net of taxes (Note 16)
Translation adjustments
Minority interests
Total net assets

The accompanying notes are an integral part of these statements.
3

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Income

2008

Operating revenues (Notes 15 and 17)¥120,228,386

Operating expenses (Notes 15 and 17):
Cost of sales
Selling, general and administrative
expenses
Operating income
Non-operating income (expenses):
Interest income
Interest expense
Equity in (losses) earnings of affiliates
Other, net (Note 8)
Income before income taxes and minority
interests
Income taxes (Note 10):
Current
Deferred
Minority interests
Net income

Year ended March 31,
2007
2006
(Thousands of yen)¥

¥114,133,497 ¥107,952,007

2008(Thousands of
U.S. dollars)(Note 3)
$1,202,284

96,359,302

89,602,555

84,595,451

963,593

21,680,655
118,039,957
2,188,428

21,284,783
110,887,338
3,246,158

20,911,898
105,507,350
2,444,656

216,807
1,180,400
21,88434,809(135,928)(91,047)
324,557
132,390

16,998(132,492)
162,429(126,866)(79,930)

19,283(94,722)
108,864
691,679
725,104348(1,359)
(910)
3,246
1,324

2,320,819

3,166,227

3,169,761

23,208997,868
180,196
1,178,065(164,271)
978,483 ¥

1,309,046
93,932
1,402,979(183,420)
1,579,827 ¥

1,246,151
49,784
1,295,936(184,584)
1,689,240

9,979
1,802
11,781(1,643)
9,785$

The accompanying notes are an integral part of these statements.

4

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets

Balance at March 31, 2005
Cash dividends(¥24 per share)
Net income for the year
ended March 31, 2006
Bonuses to directors
and statutory auditors
Share increase inaffiliate
Purchases of common
stock in treasury
Sales of common stock
in treasury
Other
Balance at March 31, 2006
Cash dividends(¥24 per share)
Net income for the year
ended March 31, 2007
Adjustment due tochanges in the number
of affiliates
Share decrease inaffiliate
Purchases of common
stock in treasury
Sales of common stock
in treasury
Other
Balance at March 31, 2007
Cash dividends(¥30 per share)
Net income for the year
ended March 31, 2008
Purchases of common
stock in treasury
Sales of common stock
in treasury
Other
Balance at March 31, 2008

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

12,775,000¥2,558,550¥711,296¥ 8,608,902

2,558,550

711,3632,558,550

711,421¥ 10,413¥ 21,549¥(263,946)

Total
net assets¥733,930¥12,371,682(280,974)

1,689,240

1,689,240(24,792)(24,792)
(7)

(7)

(313)

(313)

49
9,992,376(9,284)

12,25022,663(24,158)(2,609)212,844(51,101)

147,427
881,358116
348,363
14,103,315(306,515)(306,515)

1,579,827

1,579,827

24,082

24,082

58
12,775,000¥ (9,013)

Minority
interests(280,974)

66
12,775,000NetNet
unrealized
unrealized(loss) gain (loss) gainon otheron hedging
Commonsecurities, instruments,
stock innet of taxes net of taxes Translation
treasury(Note 5)(Note 16) adjustments(Thousands of yen)

8

8

(452)

(452)

51
11,289,771(9,677)(8,956)
13,707

6,677
4,068

58,246
7,144

59,233
940,591109
115,201
15,515,577(383,139)(383,139)

978,483

978,483(1,293)78
12,775,000

Number ofshares ofcommonstock
Balance at March 31, 2007 12,775,000
Cash dividends(¥0.3 per share)
Net income for the year
ended March 31, 2008
Purchases of common
stock in treasury
Sales of common stock
in treasury
Other
Balance at March 31, 2008 12,775,000¥2,558,550¥711,499(1,293)

82¥11,885,115

Commonstock

CapitalsurplusRetainedearnings$25,586$7,114$112,898¥(10,888)(19,598)¥ (5,890)(47,230)¥(43,161)(55,721)¥ (48,576)

NetNet
unrealized
unrealized(loss) gain (loss) gainon otheron hedging
Commonsecurities, instruments,
stock innet of taxes net of taxes Translation(Note 16) adjustments
treasury(Note 5)
(Thousands of U.S. dollars) (Note 3)$ (97)

$ 137

$ 41

$ 71

45,559¥986,150

160(76,990)¥16,032,797

Minority
interests

Total
net assets$9,406$155,156(3,831)(3,831)

9,785

9,785
(13)

1
$25,586$7,115(13)

1$118,851$(109)(196)$ (59)(472)$(432)(557)$(486)

456$9,8622(770)$160,328

The accompanying notes are an integral part of these statements.
5

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows2008

Operating activities
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization
Decrease in provision for allowance for doubtful accounts
Decrease in net provision for accrued pension andseverance costs
Increase in prepaid pension expenses
Interest and dividend income
Interest expense
Exchange loss (gain), net
Equity in losses (earnings) of affiliates
Loss on changes in equity interest
Loss on sales of, and loss on disposal of property andequipment
Impairment losses on fixed assets(Gain) loss on sales of investments in securities
Loss on sales of investments in affiliates
Loss on revaluation of investments in securities
Decrease (increase) in notes and accounts receivable
Increase in inventories(Decrease) increase in notes and accounts payable
Decrease (increase) in advance payment(Decrease) increase in advance received
Decrease in bad debts on receivables
Payments of bonuses to directors and statutory auditors
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Investing activities
Purchases of property and equipment
Proceeds from sales of property and equipment
Purchases of investment in unconsolidated subsidiaries andaffiliates
Proceeds from sales of investments in affiliates
Purchases of intangible assets
Purchases of investments in securities
Proceeds from sales of investments in securities
Purchases of investments in capital
Purchases of investments in unconsolidated subsidiaries
Long-term loans receivable madeCollection of long-term loans
Purchases of time deposits
Proceeds from maturity of time deposits
Increase in deposits for business space
Decrease in deposits for business space
Increase in deposits with restrictions
Other, net
Net cash used in investing activities
Financing activities
Increase in short-term borrowings, net
Proceeds from long-term loans
Repayment of long-term loans
Dividends paid to stockholders
Dividends paid to minority interests
Other, net
Net cash (used in) provided by 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 the year
Increase in cash and cash equivalents arising from initial
inclusion of subsidiaries in consolidation
Cash and cash equivalents at end of the year (Note 4)

Year ended March 31,
2007
2006
(Thousands of yen)

2008
(Thousands of
U.S. dollars)(Note 3)

¥ 2,320,819¥ 3,166,227¥ 3,169,761$ 23,208

1,111,740(13,387)

759,293(35,300)

696,862(15,041)

11,117(134)(82,240)(246,936)(78,133)
135,928
39,686
91,047–(170,848)–(57,980)
132,492(52,210)(162,429)
14,343(45,483)–(55,840)
94,722(26,545)(108,864)
8,550

(822)
(2,469)
(781)
1,359
397
910
–

141,546
35,592(19,999)–
90,879922,958(1,238,277)(200,189)
739,175(916,872)
11,513–368,220
3,213,070
71,392(145,746)(1,266,258)
1,872,458

126,112
9,382
3,599
1,265
–
(1,675,530)(150,434)
1,628,897(1,409,312)
670,31225,784(22,870)
62,3992,863,193
72,140(118,387)(1,223,163)
1,593,783

14,28926,507–––(673,942)(343,115)
884,319626,720
124,114
17,782(26,100)(377,201)
3,991,497
70,272(89,566)(1,449,779)
2,522,424

1,415
356
(200)
–
909
9,230
(12,383)(2,002)
7,392(9,169)115–
3,682
32,131714(1,457)(12,663)
18,725(478,985)
2,927(748,410)
10,701(1,096,982)
12,022(4,790)29(27,000)–(581,539)(240)
20,000––(14,308)
153,585(127,469)
100,000(145,187)
70,598(5,449)(55,585)(1,088,655)(50,000)
54,683(727,972)(192,358)
3,900––(220,761)
40,229(37,200)–(236,374)
310,399–(30,383)(1,823,547)(30,000)–(895,550)(262,307)
100,280(5,000)(115,561)(1,741)
465,153(243,613)
268,628(82,982)
28,349–2,563(1,856,740)(270)–(5,815)
(2)
200
–
–
(143)
1,536
(1,275)1,000(1,452)
706
(54)
(556)
(10,887)

275,480
1,200,000(1,188,272)(377,810)(122,473)(3,706)(216,782)(38,364)
528,654
5,646,173

766,679
1,675,120(1,246,722)(303,575)(123,114)(3,294)
765,092
48,335
583,663
4,946,949

5,906
639,602(1,192,628)(280,974)(36,990)(1,381)(866,466)
12,859(187,922)
5,134,871

2,755
12,000(11,883)(3,778)(1,225)(37)(2,168)(384)
5,287
56,462–¥ 6,174,828

115,561¥ 5,646,173–¥ 4,946,949–$ 61,748

The accompanying notes are an integral part of these statements.
6

JALUX Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2008
1.

Summary of Significant Accounting Policiesa.

Basis of preparation
JALUX Inc. (the “Company”) and its consolidated domestic subsidiaries maintaintheir accounting records and prepare their financial statements in accordance withaccounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial
Reporting Standards, and its consolidated foreign subsidiaries, in conformity withthose of their countries of domicile. The accompanying consolidated financial
statements have been compiled from the consolidated financial statements filed with
the Financial Services Agency as required by the Financial Instruments and Exchange
Law of Japan and include certain additional financial information for the convenienceof readers outside Japan.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts ofless than one thousand yen have been omitted. As a result, the totals shown in theaccompanying consolidated financial statements (both in yen and U.S. dollars) do notnecessarily agree with the sum of the individual amounts.
Certain amounts previously reported have been reclassified to conform to the current
year’s classification except for the effects with respect to the adoption of new
accounting standards.

b.

Principles of consolidation and accounting for investments in unconsolidated
subsidiaries and affiliates
The consolidated financial statements include the accounts of the Company andsignificant companies controlled directly or indirectly by the Company. Companies
over which the Company exercises significant influence in terms of their operating andfinancial policies have been included in the consolidated financial statements on an
equity basis.
The balance sheet date of six of the consolidated subsidiaries is December 31. Any
significant differences in intercompany accounts and transactions arising fromintervening intercompany transactions during the period from January 1 throughMarch 31 have been adjusted, if necessary, for the respective years.
All significant intercompany accounts and transactions and unrealized gain or loss onintercompany accounts and transactions have been eliminated.

7

1.

Summary of Significant Accounting Policies (continued)c.

Securities
Securities except for investments in an unconsolidated subsidiaries and affiliates areclassified as trading securities, held-to-maturity securities or other securities. Trading
securities are carried at fair value. Held-to-maturity securities are carried atamortized cost. Marketable securities classified as other securities are carried at fairvalue with any unrealized gain or loss reported as a separate component of net assets,
net of taxes. Non-marketable securities classified as other securities are carried atcost. Cost of securities sold is determined principally by the average method.

d.

Derivatives
Derivatives positions are stated at fair value.
Gain or loss on derivatives designated as hedging instruments is deferred until the loss
or gain on the underlying hedged items is recognized. Foreign receivables andpayables are translated at the applicable forward foreign exchange rates if certain
conditions are met. In addition, the related interest differential paid or received underinterest-rate swaps utilized as hedging instruments is recognized over the terms of theswap agreements as an adjustment of interest expense on the hedged items if certain
conditions are met.

e.

Inventories
Inventories are stated at cost determined as follows:f.

Merchandise:
The Company
Subsidiaries
Real estate for sale–––

Supplies–by the moving average method
principally by the first-in, first-out methodby the specific identification method
Leasing real estates for sale are depreciated byapplying the method of tangible fixed assets.
by the last purchase price method

Property and equipment
Property and equipment is stated at cost and depreciation is computed as follows:
Flight equipment:
Depreciation of flight equipment is computed by the straight-line method based on
the estimated useful lives of the respective assets.

8

1.

Summary of Significant Accounting Policies (continued)f.

Property and equipment (continued)
Other property and equipment:
For the Company and the consolidated domestic subsidiaries, depreciation of the
shops in airports is computed principally by the straight-line method anddepreciation of other property and equipment is computed principally by the
declining-balance method based on the useful lives stipulated in the Corporation
Tax Law of Japan. The consolidated foreign subsidiaries principally adopt thestraight-line method based on the estimated useful lives of the respective assets.
Effective April 1, 2007, the Company and domestic consolidated subsidiaries havechanged the method of depreciation based on an amendment to the Corporation Tax
Law of Japan for tangible fixed assets acquired on or prior to March 31, 2007. Suchtangible fixed assets are to be depreciated based on the difference between theequivalent of 5% of acquisition cost and memorandum value over a period of 5 years
once they have been fully depreciated to the limits of their respective depreciable
amounts effect April 1, 2007. The impact on net income was immaterial for the year
ended March 31, 2008.

g.

Software
Computer software intended for internal use is amortized by the straight-line method
based on their estimated useful life.

h.

Allowance for doubtful accounts
The allowance for doubtful accounts on specific receivables is provided at the estimateof the unrecoverable amounts. The allowance for doubtful accounts on otherreceivables is provided based on the historical rate of losses on receivables.

i.

Accrued pension and severance costs
To provide for employees’ severance indemnities and pension payments, net periodic
pension and severance costs are computed based on the projected benefit obligationand the pension plan assets.
Past service cost is being amortized by the straight-line method over a period of 5
years.
The adjustment incurred during this fiscal year arising from revisions to the actuarial
assumptions (the “actuarial assumption adjustment”) is to be amortized by thestraight-line method beginning the following fiscal year over a period of 5 years.

91.

Summary of Significant Accounting Policies (continued)i.

Accrued pension and severance costs (continued)
Effective October 1, 2007, the Company has changed its retirement pension plan to the
combination of defined contribution plans and defined benefit pension plans which theCompany manages from tax qualified non-contributory defined pension plans.
Effective March 1, 2008, a domestic consolidated subsidiary has changed its
retirement pension plan to the lump-sum retirement plans and the defined benefit
pension plan from tax qualified non-contributory defined pension plans. The
Company and a domestic consolidated subsidiary have applied “Accounting for theTransfer between Retirement Benefit Plans” (Accounting Standards Board of Japan
Implementation Guidance No. 1). As a result, income before income taxes andminority interests decreased ¥29,917 thousands ($299 thousands) for the year ended
March 31, 2008.

j.

Directors’ and statutory auditors’ retirement benefits
Reserve for directors’ and statutory auditors’ retirement benefits is provided at theamount which would have been paid had all directors and statutory auditors resigned at
the year end.

k.

Reserve for bonuses to officers
Reserve for bonuses to officers is provided for at the necessary amounts based on theestimated amounts payable at the date of the balance sheet.

l.

Leases (As lessee)
The Company and its consolidated subsidiaries lease certain equipment under
noncancelable leases referred to as financing leases. At the Company and thedomestic subsidiaries, financing leases which do not transfer the ownership of theleased property to the lessee are principally accounted for as operating leases.

m. Cash equivalents
The Company and its consolidated subsidiaries define cash equivalents as highly liquid,
short-term investments with an original maturity of three months or less.
2.

Accounting Change

Change in Method of Accounting for Inventories
Effective April 1, 2007, the Company has changed its accounting method to calculate costfor merchandise to the moving average method from the first-in, first-out method. The
purpose of this change was to improve operational efficiency and to average the pricevolatility and ensure accuracy in the periodic accounting for profit and loss. The impact
on net income was immaterial for the year ended March 31, 2008.

10

2.

Accounting Change (continued)

Change in Method of Accounting for Depreciation Related to Tangible Fixed Assets
Effective April 1, 2007, the Company and domestic consolidated subsidiaries have changed
the method of depreciation based on an amendment to the Corporation Tax Law of Japanfor tangible fixed assets acquired on or after April 1, 2007. The impact on net income
was immaterial for the year ended March 31, 2008.
Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective April 1, 2006, the Company and its consolidated subsidiaries have adopted the“Accounting Standard for Presentation of Net Assets in the Balance Sheet” (AccountingStandards Board of Japan Statement No. 5 issued on December 9, 2005) and the“Implementation Guidance on Accounting Standard for Presentation of Net Assets in the
Balance Sheet” (Accounting Standards Board of Japan Implementation Guidance No. 8
issued on December 9, 2005). In this connection, the financial statements for the year
ended March 31, 2006 was restated to conform to the presentation of the financial
statements for the years ended March 31, 2008 and 2007.
3.

U.S. Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of¥100.00 = U.S.$1.00, the approximate exchange rate prevailing on March 31, 2008, hasbeen used. The inclusion of such amounts is not intended to imply that yen have been or
could be readily converted, realized or settled in U.S. dollars at that or any other rate.
4.

Cash Flow Information

The components of cash and cash equivalents are summarized as follows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Cash and time deposits
Time deposits with maturities of morethan three months
Credit balances of current accounts
included in short-term bank loans
Current assets – other (Deposits Paid)¥6,280,283¥5,688,228$62,803(105,027)(65,474)(1,050)(427)–¥6,174,828(758)
24,178¥5,646,173(4)–$61,74811

5.

Fair Value of Securities

The Company and its consolidated subsidiaries did not possess any trading securities orheld-to-maturity securities at March 31, 2008 and 2007. Securities classified as othersecurities have been included in “investments and advances – other” in the accompanying
consolidated balance sheets at March 31, 2008 and 2007.
The components of unrealized gain or loss on marketable securities classified as othersecurities at March 31, 2008 and 2007 are summarized as follows:
March 31, 2008
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of yen)
Unrealized gain:
StocksOther
Unrealized loss:
StocksBonds:
Other
Other
Total

¥ 17,180
1,657
18,837¥ 42,972
1,801
44,773¥ 25,791
143
25,93533,21630,336(2,879)100,000
2,153
135,369¥154,207

86,560
1,666
118,563¥163,336(13,440)(486)(16,806)¥ 9,129

March 31, 2008
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of U.S. dollars)
Unrealized gain:
StocksOther
Unrealized loss:
StocksBonds:
Other
Other
Total

$ 172
17
188

$ 430
18
448

$ 258
1
259

332

303

(29)

1,000
22
1,354
$1,542

866
17
1,186
$1,633

(134)
(5)
(168)
$ 91

12

5.

Fair Value of Securities (continued)
March 31, 2007
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of yen)
Unrealized gain:
StocksBonds:
Government bonds
Other
Unrealized loss:
StocksBonds:
Other
Total¥ 27,566¥ 69,374¥ 41,808

7,162
3,802
38,531

7,681
5,723
82,779519
1,920
44,24852,68938,916(13,773)

100,000
152,689¥191,220

94,780133,696¥216,475(5,220)(18,993)¥ 25,255

Non-marketable securities classified as other securities at March 31, 2008 and 2007
amounted to ¥263,925 thousand ($2,639 thousand) and ¥328,228 thousand, respectively.
Proceeds from sales of securities classified as other securities amounted to ¥20,000
thousand ($200 thousand) and ¥3,900 thousand with an aggregate gain of ¥19,999 thousand($200 thousand) and ¥3,899 thousand and an aggregate loss of nil and ¥7,499 thousand forthe years ended March 31, 2008 and 2007, respectively.
The redemption schedule for securities with maturity dates which were classified as othersecurities as of March 31, 2008 and 2007 are summarized as follows:
March 31, 2008
Due after one
year throughDue after
five years
ten years(Thousands of yen)
Bonds:
Other
Other:
Investment trusts
Total

¥

–

¥100,000

3,467¥3,467–¥100,000135.

Fair Value of Securities (continued)
March 31, 2008
Due after one
year throughDue after
five years
ten years(Thousands of U.S. dollars)
Bonds:
Other
Other:
Investment trusts
Total

$ –

$1,00035$35–$1,000March 31, 2007
Due after one
Due in one
year throughDue after
year or lessfive years
ten years(Thousands of yen)
Bonds:
Government bonds
Other
Other:
Investment trusts
Total

6.

¥7,500–¥–––¥7,5005,723¥5,723¥–100,000–¥100,000

Short-Term Borrowings and Long-Term Debt

The weighted average interest rates on short-term borrowings outstanding at March 31,
2008 and 2007 were 3.55% and 4.10%, respectively.
Long-term debt at March 31, 2008 and 2007 consisted of the following:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Loans with collateral, due 2007 to 2013,
at rates ranging from 4.25% to 7.03%
Loans without collateral, due 2007 to 2013,
at rates ranging from 1.28% to 2.68%
Other
Less current portion of long-term debt

¥ 1,857,611¥ 2,450,179$ 18,576

2,225,000
1,707,000
500,758
430,265
4,583,370
4,587,444(1,116,875) (1,198,467)¥ 3,466,495 ¥ 3,388,976

22,2505,008
45,834(11,169)$ 34,665

14

6.

Short-Term Borrowings and Long-Term Debt (continued)

The aggregate annual maturities of long-term debt subsequent to March 31, 2008 aresummarized as follows:Year ending March 31,(Thousands ofyen)(Thousands of
U.S. dollars)¥1,116,875
930,365
816,500
613,929
1,105,700¥4,583,370$11,169
9,304
8,165
6,139
11,057$45,834

2009
2010
2011
2012
2013 and thereafter

Assets pledged as collateral for long-term debt at March 31, 2008 and 2007 aresummarized as follows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Land
Buildings and structures, net ofaccumulated depreciation
Flight equipment, net of accumulated
depreciation
Construction in process

7.

¥ 191,788¥ 200,121$ 1,918

1,219,165

1,294,479

12,192

1,328,206–¥2,739,160

1,776,177
86,167¥3,356,946

13,282–$27,392

Accrued Pension and Severance Costs

An employee whose employment is terminated is entitled, in most cases, to pension
payments or lump-sum severance indemnities, the amounts of which are determined byreference to the basic rate of pay, length of service and the conditions under which thetermination occurs.
The Company and two domestic consolidated subsidiaries have changed their retirement
pension plan to defined benefit pension plans from non-contributory defined pension plans.
And a domestic consolidated subsidiary has changed its retirement pension plan to the
lump-sum retirement plans and the defined benefit corporate pension plan from
non-contributory defined pension plans.

15

7.

Accrued Pension and Severance Costs (continued)

The projected benefit obligation and the funded status of the plans including a portion of
the governmental welfare pension program were as follows:
March 31,
2007
2008
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Projected benefit obligation
Plan assets
Accrued pension and severance costs
Prepaid pension expenses
Net unrecognized amount¥(3,221,910) ¥(2,954,334)
2,677,930
2,769,975
30,526
112,767(246,936)–¥ (760,389) ¥ (71,591)$(32,219)
26,779305(2,469)$ (7,604)

In computing the projected benefit obligation, several simplified methods are permitted forsmall companies, and certain consolidated subsidiaries have adopted such methods.
The net unrecognized amount was as follows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Actuarial assumption adjustment
Post service cost
Net unrecognized amount¥(458,672)(301,716)¥(760,389)¥(71,591)–¥(71,591)$(4,587)(3,017)$(7,604)

The components of net periodic pension and severance costs excluding the employees’
contributory portion were as follows:Year ended March 31,
2008
2007
2006
2008
(Thousands of yen)(Thousands of
U.S. dollars)Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of actuarial assumption
adjustment
Loss on transfer of retirement benefit plan
Net periodic pension and severance costs¥147,993
63,368(68,820)¥146,730
67,778(61,370)¥151,136
65,202(53,116)$1,480634(688)

41,327
29,917¥213,786

32,759–¥185,897

57,071–¥220,293

413
299$2,138The contributions based on the defined contribution pension plans have been charged toincome as paid.

16

7.

Accrued Pension and Severance Costs (continued)

The assumptions used were as follows:

Discount rate
Expected rate of return on plan assets
8.

2008

2007

1.8%
2.5%

2.5%
2.5%

Other Income (Expenses)

The components of “Other, net” in “Non-operating income (expenses)” for each of thethree years in the period ended Match 31, 2008, 2007 and 2006 were as follows:Year ended March 31,
2008
2007
2006
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Dividends received
Exchange gain, net
Brokerage commission received
Gain on sales of property and equipment
Gain on sales of investments in securities
Gain on reversal of allowance for doubtful
accounts
Gain on reversal of reserve for bonuses to
officers
Gains on exemptions from consumption taxes
Commission paid
Loss on sales and disposal of property andequipment
Impairment losses on fixed assets
Loss on sales of investments in securities
Loss on revaluation of investments insecurities
Loss on sales of investments in affiliate
Loss on revaluation of inventories
Loss on closing stores
Loss on transfer of retirement benefit plan
Revision of the loss of prior year ofreceivables
Other, net¥ 43,323
446,493
53,292–
19,999¥ 40,982
6,846
62,146204
3,899¥ 36,556
583,288–
12,022
–

$

433
4,465
533
–
200

4,654

24,3786,730

47

15,010–(24,796)––(20,000)–
130,131
–

150
–
(248)

(141,546)(35,592)–(126,317)(9,382)(7,499)(26,312)(26,507)–(1,415)(356)–(90,879)––(20,265)(29,917)–(1,265)(87,358)(58,655)–––(95,181)
–
–

(909)
–
–
(203)
(299)

–
84,781¥ 324,557–
45,153¥(126,866)(35,522)
106,472¥691,679–
848$ 3,24617

9.

Impairment of Fixed Assets

For the years ended March 31, 2008, 2007 and 2006, the Company recognized impairment
losses on fixed assets of ¥35,592 thousand ($356 thousand) and ¥9,382 thousand and¥26,507 thousand which consisted of the following:
Location

Use

Kobe-shi, Hyogo andother 4 shops
Airport shop
Aomori-shi, Aomori
and other 4 shops
Airport shop

Classification

Buildings, furnitureand other
Buildings, furnitureand otherYear ended March 31,
2007
2006
2008
(Thousands of yen)(Thousands of
U.S. dollars)

2008¥35,592

–

–

$356

–

–

¥26,507–

The Company and its consolidated subsidiaries did not recognize material impairment
losses for the year ended March 31, 2007. As a result, the details of such impairment
losses are not required to be disclosed in accordance with accounting principles generally
accepted in Japan.
Assets are classified into groups based on their business segment as cash-generation units
which are defined as the smallest identifiable groups of assets which generate cash inflows
and which are largely independent of the cash inflows from other assets or groups of assets.
Impairment losses on airport shops were recognized due to significant decrease in expected
future cash flows on the medium-range strategy plan.
The recoverable amount of airport shops was measured by their usage value and future
cash flows at discount rates of 5.0% and 5.2% for the years ended March 31, 2008 and2006, respectively.

18

10.

Income Taxes

The significant components of deferred tax assets and liabilities at March 31, 2008 and2007 were as follows:
March 31,
2007
2008
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Deferred tax assets:
Accrued bonuses
Allowance for doubtful accounts
Elimination of unrecognized gain on
intercompany accounts and transactions
Directors’ and statutory auditors’
retirement benefits
Accrued enterprise tax
Accrued pension and severance costs
Impairment losses on fixed assets
Loss on revaluation of inventories
Loss on revaluation of investments insecurities
Loss on revaluation of other investments
Deferred loss on hedging instruments
Tax loss carryforwards
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Accumulated earnings of consolidated
subsidiaries
Depreciation
Prepaid pension expenses
Other
Total deferred tax liabilities
Net deferred tax assets¥ 259,817
45,809¥ 273,362
46,261$ 2,598458

75,62569,782756

71,72145,327
12,59262,72445,403

79,25867,48646,02661,43340,222

717
453
126
627
454

38,65935,43529,611
34,903113,043
870,673(41,025)
829,647

518
35,435––98,720818,508–
818,508

387
354
296
349
1,130
8,707
(410)
8,296

(46,380)(149,663)(100,478)(13,389)(309,912)¥ 519,734(46,572)(89,935)–(26,413)(162,921)¥ 655,586(464)(1,497)(1,005)(134)(3,099)$ 5,197

19

10.

Income Taxes (continued)

Reconciliations between the statutory tax rate and the effective tax rates for the years ended
March 31, 2008 and 2007 were presented as follows:Year ended March 31,
2007
2008
Statutory tax rate
Disallowed expenses, including entertainment
expenses
Inhabitants’ per capita taxes
Changes in valuation allowance
Equity in losses of affiliates
Other
Effective tax rate

40.69%

40.69%

5.48
0.68
1.76
1.60
0.55
50.76%

3.81
0.48
–
–
(0.67)
44.31%The difference between the statutory tax rate and the effective tax rate for the year ended
March 31, 2006 represented less than 5% of the statutory tax rate. As a result, areconciliation is not required to be disclosed.
11.

Net Assets

The Corporation Law of Japan (the “Law”), which superseded most of the provisions of theCommercial Code of Japan, went into effect on May 1, 2006. The Law provides that an
amount equal to at least 10% of the amount to be disbursed as distributions of capitalsurplus (except for distributions from additional paid-in capital) and retained earnings(except for distributions from the legal reserve) be appropriated to additional paid-in capitaland the legal reserve, respectively, until the sum of additional paid-in capital and the legal
reserve equals 25% of the capital stock account. Such distributions can be made at any
time by resolution of the stockholders, or by the Board of Directors if certain conditions aremet, but neither additional paid-in capital nor the legal reserve is available for distribution
by resolution of the Board of Directors.
The total number and periodic changes in the number of shares of common stock intreasury for the years ended March 31, 2008 and 2007 were as follows:Year ended March 31, 2008
At
March 31,
2007
Number of shares ofcommon stock in treasury:
Common stock

14

Increase
Decrease(Thousands of shares)

0

0

At
March 31,
2008

15

20

11.

Net Assets (continued)

The increase in common stock in treasury of 0 thousand shares during the current period
resulted from the Company’s purchase of 0 thousand odd-lot shares of less than one unit at
the request of the stockholders and purchases of 0 thousand shares by related companies
accounted for by the equity method. The decrease in common stock in treasury of 0
thousand shares during the current period resulted from the Company’s sales of such
odd-lot shares at the request of the stockholders.
Year ended March 31, 2007
At
March 31,
2006
Number of shares ofcommon stock in treasury:
Common stock

14

At
March 31,
2007

Increase
Decrease(Thousands of shares)

0

0

14

The increase in common stock in treasury of 0 thousand shares during the current period
resulted from the Company’s purchase of 0 thousand odd-lot shares of less than one unit at
the request of the stockholders. The decrease in common stock in treasury of 0 thousand
shares during the current period resulted from the Company’s sales of such odd-lot sharesat the request of the stockholders and reversion of 0 thousand similar shares by relatedcompany accounted for by the equity method.
Dividends
Dividends whose cut off date fall within the reporting period are as follows:

Resolution

General meeting ofshareholders held on
June 18, 2008

Type ofsharesResourcesofdividends

Commonstock

Retainedearnings

Total dividends(Thousands of (Thousands ofyen)
U.S. dollars)¥446,994$4,470

Dividends
per share(Yen)

Cut off
date

Effective
date

¥35.0

March 31,2008

June 19,
2008

21

12.

LeasesAs lessee under financing and operating leases
The following pro forma amounts represent the acquisition costs, accumulated depreciationand net book value of the leased property held under financing accounted for as operatingleases at March 31, 2008 and 2007, and the related depreciation and interest expense for theyears ended March 31, 2008, 2007 and 2006, respectively, which would have beenreflected in the consolidated balance sheets and the related consolidated statements ofincome:March 31, 2008
Property andequipment –otherAcquisition costs
Less accumulated depreciation
Net book value

Software(Thousands of yen)

Total

¥18,698
9,771¥ 8,926¥200,668
110,942¥ 89,725¥181,970
101,171¥ 80,799

March 31, 2008
Property andequipment –Software
Total
other
(Thousands of U.S. dollars)
Acquisition costs
Less accumulated depreciation
Net book value$1,820
1,012
$ 808

$187
98
$ 89

$2,007
1,109$ 897

March 31, 2007
Property andequipment –otherAcquisition costs
Less accumulated depreciation
Net book value

Software(Thousands of yen)

Total

¥18,698
6,132¥12,566¥236,811
100,398¥136,412¥218,113
94,266¥123,846

Year ended March 31,
2008
2007
2006
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Depreciation expense¥46,687¥50,183¥54,227$467

Interest expense¥ 2,936¥ 3,832¥ 3,872

$ 29

22

12.

Leases (continued)

As lessee under financing and operating leases (continued)
No impairment loss had been recognized on leased property for the years ended March 31,
2008, 2007 and 2006.
Lease expenses relating to the financing leases accounted for as operating leases amounted
to ¥49,644 thousand ($496 thousand), ¥53,427 thousand and ¥57,941 thousand for theyears ended March 31, 2008, 2007 and 2006, respectively.
Future rental expenses under financing leases accounted for as operating leases outstandingat March 31, 2008 and 2007 are summarized as follows:
March 31,
2007
2008
2008
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥40,50251,952¥92,454¥ 46,707
92,454¥139,161

$405
520
$925

Future rental expenses under operating leases outstanding at March 31, 2008 and 2007 aresummarized as follows:
March 31,
2007
2008
2008
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥116,465
408,458¥524,924¥137,660
324,448¥462,108$1,165
4,085$5,249As lessor under operating leases
Certain consolidated subsidiaries lease equipment under operating leases. Future rental
income under operating leases outstanding at March 31, 2008 and 2007 are summarized asfollows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥ 688,127
2,727,554¥3,415,681¥ 805,284
3,833,650¥4,638,934$ 6,881
27,276$34,157

23

12.

Leases (continued)

As lessee and lessor under subleases
The Company subleases equipment to a third party, and the lease agreements between thetwo original parties remain in effect. The original and the new lease agreements areoperating leases.
Future rental revenues as lessor under the new lease agreements outstanding at March 31,
2008 and 2007 are summarized as follows:
March 31,
2007
2008
2008
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥ 1,756,471
8,944,112¥10,700,584¥ 982,253
3,463,111¥4,445,364$ 17,565
89,441$107,006

Future rental expenses as lessee under the original lease agreements outstanding at March
31, 2008 and 2007 are summarized as follows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year13.

¥ 1,769,791
8,258,716¥10,028,508¥ 935,739
5,144,310¥6,080,050$ 17,698
82,587$100,285

Loan Commitment Agreements

The Company has entered into loan commitment agreements with banks in order to source
funds for its operations smoothly.
The outstanding balance of loan commitment as of March 31, 2008 and 2007 were as
follows:
March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Total commitment available
Less amount utilized
Balance available¥4,000,000
800,000¥3,200,000¥4,000,000–¥4,000,000$40,000
8,000$32,00024

14.

Amounts Per Share

Net income per share is computed based on the weighted average number of shares ofcommon stock outstanding during each year. The Company and its consolidated
subsidiaries have not issued any potentially dilutive stocks during either year.
Accordingly, fully diluted net income per share and basic net income per share for theyears ended March 31, 2008, 2007 and 2006 were the same.

Net income per share

2008

Year ended March 31,
2007
2006
2008
(Yen)
(U.S. dollars)¥76.68¥124.01¥132.57$0.767

Net assets per share are computed based on the number of shares of common stock
outstanding at each balance sheet date.
March 31,
2007
2008
(Yen)
Net assets per share¥1,179.21¥1,142.19

2008(U.S. dollars)$11.792

The following table sets forth the basis of the computation of net income per share for theyears ended March 31, 2008, 2007 and 2006:
Year ended March 31,
2007
2006
2008
2008
(Thousands of yen, except share)(Thousands of
U.S. dollars,
except share)
Net income
Less: appropriation of bonuses todirectors and statutory auditors
Net income available to stockholdersof shares of common stock
Weighted average number of sharesof common stock outstanding¥978,483¥1,579,827¥1,689,240$9,785

–

2,673

2,491

–

¥978,483¥1,582,501¥1,691,732$9,785

12,760,491

12,760,644

12,760,783

12,760,491

25

15.

Segment Information

The Company and its consolidated subsidiaries conduct worldwide operations related toaviation as well as to lifestyle and customer services. They have segmented their business
into three categories: “Aviation business,” “Life service business” and “Customer service
business.”
Aviation business:
Operations within the Aviation business segment are as follows:– Purchases of aircraft, spare engines and full flight simulators– Sales of used aircraft– Aircraft parts – supply and logistics– Handling airline surpluses– Support for the steady supply of fuel as a fuel purchasing agent– Sales and operating agreement of equipment for airport facilities and of materials forconstruction– Sales and operating agreement of airport vehicles and security equipment– Planning and sales of international inflight duty-free goods and domestic inflightgoods– Planning and sales of uniforms mainly for airlines and airport shops– Aircraft leasing for training purposesLife service business:
Operations within the Life service business segment are as follows:– Import and sales of agricultural and marine products and flowers– Planning and sales of processed foodstuffs, gifts of food, high quality wines– Providing wines for JAL inflight beverage service– Planning and sales of original jewelry– Mail order business through inflight magazines (“JALSHOP”)– Online shopping on a web site
– Planning and creation of printed matter and other media
Customer service business:
Operations within the Customer service business segment are as follows:– Wholesale sales of office appliances– Insurance and life assurance agent– Sales of real estate and relocation consulting services– Management of BLUE SKY (souvenir shops, restaurants and coffee shops)– Management of JAL–DFS (duty free stores)

26

15.

Segment Information (continued)

The business segment information of the Company and its consolidated subsidiaries for theyears ended March 31, 2008, 2007 and 2006 are summarized as follows:Year ended March 31, 2008

Sales to outside parties
Inter-segment sales
and transfers
Total
Operating expenses
Operating income
Depreciation andamortization
Impairment losses on
fixed assets
Capital expenditures
Identifiable assets

Generalcorporate
assets andintercompany
eliminations Consolidated

Aviationbusiness

Life service
business

Customer
servicebusiness
Total(Thousands of yen)

¥41,851,962¥35,208,682¥43,167,741¥120,228,386 ¥

1,227,407
43,079,369
41,605,579¥ 1,473,790

104,338
35,313,021
33,931,526¥ 1,381,494–
43,167,741
40,248,870¥ 2,918,870

1,331,745
121,560,132
115,785,976¥ 5,774,155(1,331,745)–(1,331,745) 120,228,386
2,253,981
118,039,957¥ (3,585,726) ¥ 2,188,428

¥

¥

¥

¥

¥

422,979¥–¥ 182,601¥13,453,927

101,224¥–¥ 260,790¥ 9,547,905

233,812¥35,592¥ 389,529¥11,790,548

758,016¥
35,592¥
832,921¥ 34,792,381–¥120,228,386

353,723¥ 1,111,740¥–¥ 290,228¥ 6,782,563¥
35,592¥ 1,123,149¥ 41,574,944

Year ended March 31, 2008

Sales to outside parties
Inter-segment sales
and transfers
Total
Operating expenses
Operating income
Depreciation andamortization
Impairment losses on
fixed assets
Capital expenditures
Identifiable assets

Generalcorporate
assets andintercompany
eliminations Consolidated

Aviationbusiness

Life service
business

Customer
serviceTotalbusiness(Thousands of U.S. dollars)$418,520$352,087$431,677$1,202,284$–$1,202,284

12,274
430,794
416,056$ 14,738

1,043
353,130
339,315$ 13,815–
431,677
402,489$ 29,189

13,3171,215,601
1,157,860$ 57,742(13,317)(13,317)
22,540$(35,857)–
1,202,284
1,180,400$ 21,884$ 4,230$ 1,012$ 2,338$

7,580$ 3,537$$–$ 1,826$134,539$–$ 2,608$ 95,479$
356$ 3,895$117,905

$
356
$
8,329
$ 347,924$–$ 2,902$ 67,826$
356$ 11,231$ 415,749

11,11727

15.

Segment Information (continued)
Year ended March 31, 2007

Sales to outside parties
Inter-segment sales
and transfers
Total
Operating expenses
Operating income
Depreciation andamortization
Capital expenditures
Identifiable assets

Generalcorporate
assets andintercompany
eliminations Consolidated

Aviationbusiness

Life service
business

Customer
serviceTotalbusiness(Thousands of yen)

¥37,892,090¥33,467,399¥42,774,006¥114,133,497 ¥

1,177,738
39,069,829
36,924,431¥ 2,145,397

118,205
33,585,604
32,252,905¥ 1,332,699–
42,774,006
39,901,100¥ 2,872,906

1,295,943
115,429,440
109,078,437¥ 6,351,002(1,295,943)–(1,295,943) 114,133,497
1,808,901
110,887,338¥ (3,104,844) ¥ 3,246,158¥ 380,946¥ 595,550¥15,846,030¥
44,526¥54,383¥ 8,555,737¥ 245,868¥ 202,905¥11,154,239¥
671,341¥
852,838¥ 35,556,006¥
87,951¥ 718,957¥ 6,789,929–¥114,133,497¥
759,293¥ 1,571,796¥ 42,345,936

With reorganization, the Company transferred creative design and printing businessclassified as “Customer service business” to “Life service business” in the year ended
March 31, 2007.
In this connection, the financial statements in the year ended March 31, 2006 has been
restated to conform to the presentation of the financial statements for the years ended
March 31, 2008 and 2007.
Year ended March 31, 2006

Sales to outside parties
Inter-segment sales
and transfers
Total
Operating expenses
Operating income
Depreciation andamortization
Impairment losses on
fixed assets
Capital expenditures
Identifiable assets

Generalcorporate
assets andintercompany
eliminations Consolidated

Aviationbusiness

Life service
business

Customer
servicebusiness
Total(Thousands of yen)

¥35,516,160¥32,863,906¥39,571,940¥107,952,007¥

865,338
36,381,498
35,031,574¥ 1,349,924

119,291
32,983,198
31,812,882¥ 1,170,315

2,985
39,574,925
36,911,410¥ 2,663,515

987,615
108,939,622
103,755,866¥ 5,183,756(987,615)–(987,615) 107,952,007
1,751,483
105,507,350¥(2,739,099) ¥ 2,444,656

¥

¥

¥

¥

¥

336,093¥–¥ 1,048,891¥13,619,181

53,515¥–¥24,893¥ 7,905,524

252,441¥
26,507¥ 162,342¥10,269,973

642,050¥
26,507¥ 1,236,127¥ 31,794,680–

54,812¥–¥ 893,709¥ 5,768,734¥107,952,007¥

696,862¥
26,507¥ 2,129,837¥ 37,563,414

Unallocated operating expenses included in “General corporate assets and intercompnay
eliminations” for the years ended March 31, 2008, 2007 and 2006 amounted to ¥3,585,467
thousand ($35,855 thousand), ¥3,109,431 thousand and ¥2,738,471 thousand, respectively,
and consisted primarily of administrative expenses incurred at the Company’s
headquarters.

28

15.

Segment Information (continued)

In addition, unallocated assets included in “General corporate assets and intercompany
eliminations” at March 31, 2008, 2007 and 2006 amounted to ¥6,910,902 thousand($69,109 thousand), ¥6,658,940 thousand and ¥5,541,806 thousand, respectively, andconsisted primarily of cash and cash equivalents, investments in securities and assets
belonging to the headquarters of the Company.
The geographical segment information of the Company and the consolidated subsidiaries
for the years ended March 31, 2008, 2007 and 2006 are summarized as follows:Year ended March 31, 2008

Japan

North
America

Sales to outside parties ¥115,362,639 ¥ 2,750,801
Inter-segment sales
and transfers
341,294
12,094,410
Total
115,703,933
14,845,211
Operating expenses
113,284,789
14,633,769
Operating income (loss) ¥ 2,419,144 ¥ 211,442
Identifiable assets¥ 34,149,783 ¥ 7,763,279

Otheroverseas
Total
counties(Thousands of yen)

Generalcorporate
assets andintercompany
eliminations Consolidated¥ 2,114,946¥120,228,386 ¥– ¥120,228,386

1,955,007
4,069,953
4,084,920¥ (14,967)¥1,045,836

14,390,712(14,390,712)–
134,619,098(14,390,712) 120,228,386
132,003,479(13,963,521) 118,039,957¥ 2,615,619 ¥ (427,190) ¥ 2,188,428¥ 42,958,899 ¥ (1,383,955) ¥ 41,574,944

Year ended March 31, 2008

Sales to outside parties
Inter-segment sales andtransfers
Total
Operating expenses
Operating income (loss)
Identifiable assets

Generalcorporate
assets andintercompany
eliminations Consolidated

Japan

North
AmericaOtheroverseas
Total
counties(Thousands of U.S. dollars)$1,153,626$ 27,508$21,149$1,202,284$–$1,202,284

3,413
1,157,039
1,132,848$ 24,191$ 341,498

120,944
148,452
146,338$ 2,114$ 77,633

19,55040,70040,849$ (150)$10,458

143,907
1,346,191
1,320,035$ 26,156$ 429,589(143,907)(143,907)(139,635)$ (4,272)$ (13,840)–
1,202,284
1,180,400$ 21,884$ 415,749

Year ended March 31, 2007

Japan
Sales to outside parties ¥108,287,779
Inter-segment sales
and transfers
855,014
Total
109,142,794
Operating expenses
106,046,654
Operating income (loss) ¥ 3,096,139
Identifiable assets¥ 36,784,448

North
AmericaOtheroverseas
Total
counties(Thousands of yen)

Generalcorporate
assets andintercompany
eliminations Consolidated¥ 3,460,012¥2,385,704¥114,133,497 ¥– ¥114,133,497

12,354,050
15,814,063
15,567,204¥ 246,858¥ 8,610,790

1,656,467
4,042,172
4,153,248¥ (111,075)¥ 912,129

14,865,533(14,865,533)–
128,999,030(14,865,533) 114,133,497
125,767,107(14,879,768) 110,887,338¥ 3,231,922 ¥
14,235 ¥ 3,246,158¥ 46,307,367 ¥ (3,961,431) ¥ 42,345,936

29

15.

Segment Information (continued)
Year ended March 31, 2006

Japan
Sales to outside parties ¥104,140,596
Inter-segment sales
and transfers
602,653
Total
104,743,250
Operating expenses
101,816,053
Operating income (loss) ¥ 2,927,196
Identifiable assets¥ 33,338,735

North
America

Generalcorporate
assets andintercompany
eliminations Consolidated

Other
overseas
counties
Total(Thousands of yen)

¥ 1,864,875¥1,946,535¥107,952,007 ¥–¥107,952,007

13,383,598
15,248,474
15,013,094¥ 235,379¥ 7,536,463

1,226,047
3,172,583
3,350,851¥ (178,267)¥ 743,936

15,212,299 (15,212,299)–
123,164,307 (15,212,299) 107,952,007
120,179,999 (14,672,648) 105,507,350¥ 2,984,308 ¥ (539,651) ¥ 2,444,656¥ 41,619,135 ¥ (4,055,721) ¥ 37,563,414

Operating revenues from overseas operations of the Company and the consolidated
subsidiaries for the year ended March 31, 2008 are summarized as follows:Year ended March 31, 2008
North
America
Operating revenues from overseas
operations
Consolidated operating revenues
Operating revenues from overseas
operations as a percentage ofconsolidated operating revenues

EuropeOther(Thousands of yen)Total

¥3,564,914¥7,053,106¥1,539,429¥ 12,157,450¥120,228,386

3.0%

5.9%

1.2%

10.1%

Year ended March 31, 2008
North
America
Operating revenues from overseas
operations
Consolidated operating revenues
Operating revenues from overseas
operations as a percentage ofconsolidated operating revenues

EuropeOther(Thousands of U.S. dollars)

Total$35,649$70,531$15,394$ 121,575$1,202,284

3.0%

5.9%

1.2%

10.1%

For the years ended March 31, 2007 and 2006, operating revenues from overseas
operations represented less than 10% of consolidated operating revenues. As a result,operating revenues from overseas operations are not required to be disclosed.

30

16.

Derivative and Hedging Activities

The Company has utilized forward foreign exchange contracts to hedge certain foreign
currency transactions related to foreign accounts receivable and payable on a consistentbasis. The Company has also utilized interest-rate swaps to minimize the risk offluctuation in cash flows arising from changes in interest rate related to its outstandingdebt.
And a certain subsidiary has the hybrid financial instrument with embedded derivative(bond), whose redemption schedule is substantially affected by the foreign exchange rate
fluctuation.
The Company enters into hedging transactions in accordance with its internal guidelines.
The routine operations relating to hedging activities are formalized and controlled by the
Accounting Department. Gain or loss on hedging instruments and the assessment ofhedge effectiveness, which is performed both at the inception and on an ongoing basis, isreported to the related directors and department managers on a timely basis.
The fair value information of embedded derivative of the hybrid financial instrument(bond) is included in Note 5.
Since all other derivative instruments held by the Company, met the criteria for hedge
accounting, fair value information has not been presented here.
17.

Related Party Transactions

The Company had related party transactions with the companies controlled by the company
for which the Company is an affiliate and the companies over which the Company
exercises significant influence in the terms of their operating and financial policies.
The significant transactions between the Company and the companies controlled by thecompany for which the Company is an affiliate, for the years ended March 31, 2008, 2007
and 2006 are summarized as follows:
With Japan Airlines International Co., Ltd.:
2008

Sales of flight equipment
Purchases of merchandiseYear ended March 31,
2007
2006
(Thousands of yen)

¥15,863,137
8,288,247¥14,899,629
5,118,236¥14,445,701–

March 31,
2008
2007
(Thousands of yen)Accounts receivable
Advance payment
Accounts payable¥2,511,575
113,391
289,415¥2,473,366
462,482
1,106,628

2008(Thousands of
U.S. dollars)$158,631
82,882

2008(Thousands of
U.S. dollars)$25,116
1,134
2,894

31

17.

Related Party Transactions (continued)

With JAL Capital Co., Ltd.:

2008

Proceeds from short-termborrowings
Repayment of short-termborrowings
Interest expenses

Year ended March 31,
2007
2006
(Thousands of yen)

2008
(Thousands of
U.S. dollars)¥–¥17,000,000¥2,400,000

$–

–
–

16,400,000
3,828

2,800,000
430––

March 31,
2008
2007
(Thousands of yen)
Short-term borrowings–¥1,000,000

2008(Thousands of
U.S. dollars)$–With Japan Trans Ocean Air Co., Ltd.:

2008

Sales of flight equipment
spare parts¥–

Year ended March 31,
2007
2006
(Thousands of yen)

¥2,284,092¥2,389,425

2008(Thousands of
U.S. dollars)$–Year ended March 31,
2008
2007
2008
(Thousands of yen)(Thousands of
U.S. dollars)
Accounts receivable¥–¥598,439

$–

32

18.

Subsequent Event

Effective June 18, 2008, the Company reorganized its business headquarters into two newdivisions: the “Corporate Sales” division, which will be focused on its “B-to-B” business,and the “Retail Business” division, which will be focused on its “B-to-C” business. Thischange resulted from the Company’s conclusion that business strategy and business
operations are judged from the standpoint of the market. As a result of the changes in the
structure of the internal organization, the Company’s reportable segments were alsochanged from “Aviation business,” “Lifestyle services business,” and “Customer services
business” to “Aviation-related business,” “Corporate solutions business,” “Travel retailbusiness,” and “Food & beverage business.” In subsequent periods, the Company will
disclose segment information that has been restated to reflect the new reportable segments.
The primary products and services for each of the new reportable segments are as follows:Business segment

Main product and sales

Aviation-related businessAircraft, Aircraft components, Machinery & Facilities,
Materials, Cabin service supply, Textiles supply,
Clothing & Uniform

Corporate solutions business

Printing, Insurance, Real estate, Property management

Travel retail business

Cabin service supply, Brand & Fashion, Mail-ordersales, Overseas real estate, Souvenir & Specialty goods,
Restaurant, Duty-free items

Food & beverage business

Agriculture & marine products, Processed foods, Wine,
Food gift items

33