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, 2005 and 2004, and the related consolidated
statements of income, stockholders’ equity, and cash flows for the three years then ended,
all expressed in yen. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these 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 thefinancial statements. An audit also includes assessing the accounting principles used andsignificant 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, 2005 and 2004, and the consolidated results of their operations
and their cash flows for the three years then ended in conformity with accounting principles
generally accepted in Japan.
Supplemental Information
As described in Note 2, effective the fiscal year ended March 31, 2005, JALUX Inc. and its
consolidated subsidiaries adopted early a new accounting standard for impairment of fixed
assets as early adoption of the standard was permitted from the fiscal year ended March 31,
2004.
The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended March 31, 2005 are presented solely for convenience. Our audit
also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 3.
Ernst & Young Shin Nihon
June 22, 2005

JALUX Inc. and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31,
2005
2004
(Thousands of yen)

AssetsCurrent assets:
Cash and time deposits
Notes and accounts receivable (Notes 16 and 17):
Trade
ParentUnconsolidated subsidiary and affiliates
Other
Allowance for doubtful accounts
Inventories
Deferred income taxes (Note 10)
Other (Note 17)
Total current assets
Investments and advances:
Unconsolidated subsidiary and affiliates
Other (Note 5)
Total investments and advances
Property and equipment (Note 7):Land
Buildings and structures
Machinery and vehicles
Flight equipment
Construction in process
Other
Accumulated depreciation
Property and equipment, net
Intangible assets:
Software
Other
Total intangible assets
Long-term loans
Deposits for business space (Note 17)
Deferred income taxes (Note 10)
Other assets, net

2

2005(Thousands of
U.S. dollars)(Note 3)

¥ 5,218,478¥ 4,130,377$ 48,771

10,961,620
2,843
49,495
1,194,792(33,777)
5,210,814
424,203
1,766,699
24,795,171

8,099,154
3,925,984
45,942
1,123,597(34,876)
5,115,801
412,545
1,249,858
24,068,386

102,44527
463
11,166(316)
48,6993,965
16,511
231,731

1,987,501
294,5212,282,023

1,860,858
255,083
2,115,942

18,575
2,753
21,327

388,772
4,260,217
549,354
2,241,948
19,188697,467
8,156,949(3,484,944)
4,672,005

445,033
4,385,208
556,730
3,015,537
25,363625,367
9,053,242(4,404,618)
4,648,623

3,633
39,815
5,134
20,953
179
6,518
76,233(32,570)
43,664454,253
37,584
491,838

463,680
76,905
540,586

4,245
351
4,597

499,693
1,793,931
382,316
247,716¥35,164,696

1,395,753
2,357,550
317,633
262,279¥35,706,754

4,670
16,7663,573
2,315$328,642

March 31,
2005
2004
(Thousands of yen)

Liabilities and stockholders’ equity
Current liabilities:
Short-term borrowings (Notes 7 and 17)
Current portion of long-term debt (Note 7)
Notes and accounts payable (Note 16):
Trade
ParentUnconsolidated subsidiary and affiliates
Accrued expenses
Accrued income taxes (Note 10)
Other
Total current liabilities

2005(Thousands of
U.S. dollars)(Note 3)

¥ 1,778,187
1,580,510¥ 1,986,723
1,282,069$ 16,619
14,771

10,260,355–
602,772
2,141,546
805,075
2,373,139
19,541,588

11,555,793
224,500
532,1212,407,207
647,475
1,707,154
20,343,046

95,891–
5,633
20,014
7,524
22,179182,632

2,758,646

3,881,290

25,782

Accrued pension and severance costs (Note 8)

329,100

212,202

3,076

Directors’ and statutory auditors’ retirement benefits

174,950

139,452

1,635

Other

10,27727,433

96

Minority interests

733,930

626,225

6,859

2,558,550
711,296
8,608,902

2,558,550
711,260
7,448,233

23,912
6,648
80,457

10,413(263,946)

8,053(242,130)97(2,467)(9,013)
11,616,202¥35,164,696(6,863)
10,477,102¥35,706,754(84)
108,563$328,642

Long-term debt (Notes 7 and 16)

Commitments and contingent liabilities(Notes 12 and 13)

Stockholders’ equity (Note 11):
Common stock, without par value:
Authorized: 20,000,000 shares
Issued: 12,775,000 shares in 2005 and 2004
Capital surplus
Retained earnings
Net unrealized gain on other securities,
net of taxes (Note 5)
Translation adjustments
Common stock in treasury: 14,179 shares in 2005
and 13,209 shares in 2004
Total stockholders’ equity

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

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Income

2005

Operating revenues (Notes 15 and 17)
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 earnings of affiliates
Other, net (Note 9)
Income before income taxes and minority
interests
Income taxes (Note 10):
Current
Deferred
Minority interests
Net income

Year ended March 31,
2004
2003
(Thousands of yen)

2005
(Thousands of
U.S. dollars)(Note 3)¥98,622,995¥86,089,991¥86,867,003$921,710

75,549,297
20,332,031
95,881,328
2,741,667

65,845,097
18,163,531
84,008,629
2,081,362

67,402,869
17,627,788
85,030,657
1,836,346

706,068
190,019
896,087
25,62342,343(69,082)
78,921
57,259109,441

40,830(75,929)
84,847
101,954
151,702

14,233(94,175)
85,374
210,478
215,911

396
(646)
738
535
1,023

2,851,108

2,233,064

2,052,257

26,646

1,349,346
1,207,818
1,048,840(78,800)(166,573)(159,619)
1,270,546
1,041,244
889,221(144,891)(106,409)(130,036)¥ 1,435,670 ¥ 1,085,411 ¥ 1,032,999

12,611(736)
11,874(1,354)$ 13,417

The accompanying notes are an integral part of these statements.

4

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Stockholders’ Equity

Balance at March 31, 2002
Net income for the year ended
March 31, 2003
Cash dividends
Bonuses to directors andstatutory auditors
Net change during the year
Balance at March 31, 2003
Net income for the year ended
March 31, 2004
Cash dividends
Bonuses to directors andstatutory auditors
Increase resulting frommergerOther
Balance at March 31, 2004
Net income for the year ended
March 31, 2005
Cash dividends
Bonuses to directors andstatutory auditors
Other
Balance at March 31, 2005

Balance at March 31, 2004
Net income for the year ended
March 31, 2005
Cash dividends
Bonuses to directors andstatutory auditors
Other
Balance at March 31, 2005

Number ofshares ofcommonstock

Commonstock

CapitalsurplusRetainedearnings

12,250,000¥2,558,550¥661,250¥5,309,269

Net unrealized
gain (loss) onother securities,
net of taxes
Translation(Note 5)adjustments(Thousands of yen)
¥ 3,632¥ 86,606

Commonstock intreasuryTotal¥ (535)¥ 8,618,773

1,032,999(183,735)

1,032,999(183,735)(10,250)
12,250,000

2,558,550

525,000
12,775,000

2,558,550

661,250

50,00010711,260

6,148,284(14,667)(11,034)(157,458)(70,852)(4,312)(4,847)

1,085,411(195,960)

1,085,411(195,960)(11,690)(11,690)422,186
7,448,232

19,088
8,053(171,277)(242,130)(2,016)(6,863)

1,435,670(255,439)¥2,558,550¥711,296

Number ofshares ofcommonstock

Commonstock

Capitalsurplus12,775,000$23,912$6,6472,360(21,816)(2,149)(19,562)(21,568)¥ 10,413¥(263,946)¥(9,013)¥11,616,202

Net unrealized
gain (loss) onother securities,
Retained
net of taxes
Translation
earnings(Note 5)adjustments(Thousands of U.S. dollars) (Note 3)

Commonstock intreasury

Total$69,610$(64)$ 97,917¥8,608,902$75$(2,263)

13,417(2,387)

13,417(2,387)(183)
012,775,000$23,912$6,648472,186(154,195)
10,477,102
1,435,670(255,439)(19,562)36
12,775,000(10,250)(176,438)
9,281,349$80,457

22

(204)

(20)

(183)
(202)

$97

$(2,467)$(84)$108,563

The accompanying notes are an integral part of these statements.

5

JALUX Inc. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows2005

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
Provision for allowance for doubtful accounts
Net provision for accrued pension and severance costs
Interest and dividend income
Interest expense
Exchange (gain) loss, net
Equity in earnings of affiliates(Gain) loss on sales of, and loss on disposal of property
and equipment
Impairment losses on fixed assets
Gain on sales of investments in securities
Loss on revaluation of investments in securities
Decrease (increase) in notes and accounts receivable(Increase) decrease in inventories(Decrease) increase in notes and accounts payable
Increase (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

Year ended March 31,
2004
2003
(Thousands of yen)

2005
(Thousands of
U.S. dollars)(Note 3)

¥ 2,851,108¥ 2,233,064¥ 2,052,257$ 26,646

634,346(9,234)
116,898(80,618)
69,082(3,192)(78,921)637,524
55,672
103,106(96,150)
75,929777(84,847)

662,914(28,663)
92,867(58,411)
94,175(2,575)(85,374)

5,928
(86)
1,093
(753)
646
(30)
(738)

(81,246)
123,340(15,995)–
979,608(101,030)(1,445,848)
47,587(20,570)
248,558
3,233,873
94,819(66,912)(1,260,408)
2,001,372(262,686)–(123,114)
7,800(702,146)
197,2121,074,175(60,172)(12,950)(438,441)
2,604,753
107,875(80,123)(1,157,629)
1,474,876(177,219)–(1,446)
12,750(1,063,729)
383,445(893,968)
59,874(11,550)
124,867
1,160,213
64,691(90,570)(872,200)
262,133

(759)
1,153
(149)
–
9,155
(944)
(13,513)
445
(192)
2,323
30,223886(625)(11,780)
18,704

Investing activities
Purchases of property and equipment
Proceeds from sales of property and equipment
Purchases of intangible assets
Purchases of investments in subsidiaries
Purchases of investments in securities
Proceeds from sales of investments in securities
Purchases of investments in capital
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
Other, net
Net cash used in investing activities(699,801)
243,822(119,932)(50,000)(51,264)
78,376(50,000)(121,685)
612,942–272(100,934)
700,135(56,009)385,922(836,715)
494,320(218,370)––
202,457(50,000)(2,800)128,502(10,002)
10,000(93,103)44,387
120,050(211,273)(1,459,471)
197,040(215,521)–(51,116)
61,256–(714,456)
716,141(14,711)160,000(78,354)285,443(32,809)(1,146,559)(6,540)2,279(1,121)
(467)
(479)
732
(467)
(1,137)
5,728
–
3
(943)
6,543
(523)
3,607

Financing activities(Decrease) increase in short-term borrowings
Proceeds from long-term loans
Repayment of long-term loans
Redemption of bonds
Dividends paid to stockholders
Dividends paid to minority interests
Other, net
Net cash (used in) provided by financing activities(258,160)
468,900(1,288,953)–(255,439)(36,000)(1,868)(1,371,520)

19,1772,484,280(2,817,850)(350,000)(195,960)(36,000)(3,189)(899,542)(49,978)
1,439,650(725,930)–(183,735)(36,000)(1,753)442,252(2,413)
4,382(12,046)–(2,387)(336)(17)(12,818)

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 resulting from merger
Cash and cash equivalents at end of the year

12,875
1,028,649
4,106,222–¥ 5,134,871

5,753
369,814
3,523,755
212,651¥ 4,106,222(1,991)(444,165)
3,967,921–¥ 3,523,755

120
9,614
38,376–$ 47,989

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

JALUX Inc. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2005
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 Securities and Exchange Law ofJapan and include certain additional financial information for the convenience ofreaders outside Japan.
As permitted by the Securities and Exchange Law of Japan, amounts of less than one
thousand yen have been omitted. As a result, the totals shown in the accompanying
consolidated financial statements (both in yen and U.S. dollars) do not necessarily
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
subsidiary 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 three 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.
The differences between the cost and the fair value of net assets at the dates ofacquisition of the consolidated subsidiaries and companies accounted for by the equity
method are amortized by the straight-line method over a period of 5 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 subsidiary 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 ofstockholders’ equity, net of taxes. Non-marketable securities classified as othersecurities are carried at cost. Cost of securities sold is determined principally by theaverage 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:
Merchandise– principally by the first-in, first-out method
Real estate for sale– by the specific identification method
Supplies for aircraft cabins – by the most recent purchase price methodf.

Property and equipment
Property and equipment is stated at cost and depreciation is computed as follows:
Flight equipment:
Depreciation of flight equipment used as leased property is computed by the 150%
declining-balance method, which is the same method as the Modified Accelerated
Cost Recovery System (“MACRS”) in the U.S., based on the lease term and theestimated residual value. Under MACRS, the 150% declining-balance method ischanged to the straight-line method when the amount of depreciation calculated by
the 150% declining-balance method falls below the amount of depreciation
available if calculated by the straight-line method.

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.

g.

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

h.

Discounts on bonds
Discounts on bonds are amortized over a period of 5 years.

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.
The unrecognized benefit obligation at transition is being amortized by thestraight-line method principally 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,
which is less than the average remaining years of service of the active participants inthe plans.

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.

Foreign currency translation
Foreign currency receivables and payables are translated into yen at the applicableyear-end exchange rates and translation adjustments are included in current earnings.
Translation adjustments arising from the translation of assets, liabilities, revenues andexpenses of consolidated foreign subsidiaries and affiliates accounted for by the equity
method into yen at the applicable year-end exchange rates are presented as minority
interests and a separate component of stockholders’ equity.
9

1.

Summary of Significant Accounting Policies (continued)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. Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings withrespect to a financial period is made by resolution of the stockholders at a general
meeting held subsequent to the close of the financial period and the accounts for that
period do not, therefore, reflect such appropriations.
n.

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

Impairment of fixed assets
A new Japanese accounting standard “Impairment of Fixed Assets” was issued in August
2002 that is effective for fiscal years beginning on or after April 1, 2005. Early adoption
is allowed from fiscal years beginning on or after April 1, 2004 and an application fromfiscal years ending March 31, 2004 to March 30, 2005 is also permitted. The newstandard requires that tangible and intangible fixed assets be carried at cost lessdepreciation, and be reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Companies would
be required to recognize an impairment loss in their income statement if certain indicatorsof asset impairment exist and the book value of an asset exceeds the undiscounted sum of
future cash flows of the asset.
Effective the fiscal year ended March 31, 2005, the Company and its consolidated
subsidiaries opted for an early adoption of the new accounting standard for the impairmentof fixed assets. The effect of adoption of this standard was to recognize an impairment
loss of ¥123,340 thousand ($1,153 thousand). As a result, income before income taxes
decreased by ¥123,340 thousand ($1,153 thousand).
After the recognition of the impairment loss, “fixed assets” represents the total recoverable
amount which is stated at the carrying amount less the accumulated impairment loss. See
Note 15 for the effective of the loss on impairment of fixed assets on the segment
information.

10

3.

U.S. Dollar Amounts

Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of¥107.00 = U.S.$1.00, the approximate exchange rate prevailing on March 31, 2005, 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,
2005
2004
2005
(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)¥5,218,478¥4,130,377$48,771(23,140)(23,323)(216)(61,227)760¥5,134,871(1,019)186¥4,106,222(572)
7$47,989

The following is a summary of the assets and liabilities which the Company taken over as aresult of the merger with JAS TRADING CO, LTD. (“JTR”) for the year ended March 31,
2004:
March 31, 2004
(Thousands of yen)
Current assets
Noncurrent assets
Total assets
Current liabilities
Noncurrent liabilities
Total liabilities¥1,540,835
1,006,249
2,547,085
2,023,379
51,518¥2,074,898

As a result of the merger with JTR, capital surplus at March 31, 2004 increased by ¥50,000
thousand.

11

5.

Fair Value of Securities

The Company and its consolidated subsidiaries did not possess any trading securities orheld-to-maturity securities at March 31, 2005 and 2004. Securities classified as othersecurities have been included in “investments and advances – other” in the accompanying
consolidated balance sheets at March 31, 2005 and 2004.
The components of unrealized gain or loss on marketable securities classified as othersecurities at March 31, 2005 and 2004 are summarized as follows:
March 31, 2005
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of yen)
Unrealized gain:
StocksBonds:
Government bonds
Other
Unrealized loss:
StocksTotal¥20,709¥47,643¥26,933

7,162
3,794
31,666

8,504
4,114
60,261

1,341
319
28,5959,187
9,187¥40,854

8,480
8,480
¥68,742

(706)
(706)
¥27,888

March 31, 2005
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of U.S. dollars)
Unrealized gain:
StocksBonds:
Government bonds
Other
Unrealized loss:
Stocks
Total

$194

$445

$252

67
35
296

79
38
563

13
3
267

86
86
$382

79
79
$642

(7)
(7)
$261

12

5.

Fair Value of Securities (continued)
March 31, 2004
Acquisition
Carrying
Unrealized
costs
value
gain (loss)(Thousands of yen)
Unrealized gain:
StocksBonds:
Government bonds
Other
Unrealized loss:
StocksTotal¥13,512¥39,419¥25,907

7,162
3,791
24,466

8,859
4,037
52,317

1,697
246
27,851

16,384
16,384¥40,850

15,24015,240¥67,558(1,143)(1,143)¥26,707

Non-marketable securities classified as other securities at March 31, 2005 and 2004
amounted to ¥125,728 thousand ($1,175 thousand) and ¥137,475 thousand, respectively.
Proceeds from sales of securities classified as other securities amounted to ¥28,112
thousand ($263 thousand), ¥202,457 thousand and ¥61,257 thousand with an aggregate
gain of ¥15,995 thousand ($149 thousand), ¥123,114 thousand and ¥1,446 thousand and an
aggregate loss of nil for the years ended March 31, 2005, 2004 and 2003, respectively.
The redemption schedule for securities with maturity dates which were classified as othersecurities as of March 31, 2005 and 2004 are summarized as follows:
March 31, 2005
Due after one
Due in one
year throughyear or lessfive years(Thousands of yen)
Bonds:
Government bonds
Other:
Investment trusts
Total

¥–

¥ 7,500

–
¥–

4,114
¥11,614

March 31, 2005
Due after one
Due in one
year throughyear or lessfive years(Thousands of U.S. dollars)
Bonds:
Government bonds
Other:
Investment trusts
Total

$–

$ 70

–
$–

38
$109
13

5.

Fair Value of Securities (continued)
March 31, 2004
Due after one
Due in one
year throughyear or lessfive years(Thousands of yen)
Bonds:
Government bonds
Other:
Investment trusts
Total

6.

¥–

¥ 7,500

–
¥–

4,037
¥11,537

Impairment of Fixed Assets

For the year ended March 31, 2005, the Company and its domestic consolidated
subsidiaries recognized impairment losses on fixed assets of ¥123,340 thousand ($1,153
thousand) which consisted of the following:

Location

Years ended March 31,
2005
2005
(Thousands of (Thousands ofyen)
U.S. dollars)

UseClassification

Izumisano-shi, Osaka Airport shopand other 6 shops

Furniture and other¥72,017$673

Ito-shi, Shizuoka

Land

51,322

480

Unused assets

Assets are classification into groups based on their business segment as cash-generation
units which are defined as the smallest identifiable group of assets which generate cash
inflows and which are largely independent of the cash inflows from other assets or groupsof assets.
An impairment loss on airport shops was recognized due to significant decrease in
expected future cash flows on the medium-range strategy plan decided in March 2005.
An impairment loss on unused assets was recognized as a recovery in market value is notexpected and because certain assets have been scheduled for disposal.
The recoverable amount of airport shops was measured by their usage value and future
cash flows at a discount rate of 8.1%. The recoverable amount of the unused assets wasmeasured by the net realized value based on the buying and selling transaction prices.

14

7.

Short-Term Borrowings and Long-Term Debt

The weighted average interest rates on short-term borrowings outstanding at March 31,
2005 and 2004 were 2.01% and 0.84%, respectively.
Long-term debt at March 31, 2005 and 2004 consisted of the following:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Loans with collateral, due 2004 to 2010,¥ 1,639,587 ¥ 2,121,388
at rates ranging from 3.84% to 7.91%
Loans without collateral, due 2004 to 2013,
2,398,500
2,778,500
at rates ranging from 1.20% to 1.62%
Other
301,070
263,472
4,339,157
5,163,360
Less current portion of long-term debt
(1,580,510) (1,282,069)¥ 2,758,646 ¥ 3,881,290$ 15,323
22,4162,814
40,553(14,771)$ 25,782

The aggregate annual maturities of long-term debt subsequent to March 31, 2005 aresummarized as follows:Year ending March 31,(Thousands ofyen)(Thousands of
U.S. dollars)¥1,580,510
962,538
672,657
406,339
717,110¥4,339,157$14,771
8,996
6,287
3,798
6,702
$40,553

2006
2007
2008
2009
2010 and thereafter

Assets pledged as collateral for long-term debt at March 31, 2005 and 2004 aresummarized as follows:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Land
Buildings and structures, net ofaccumulated depreciation
Flight equipment, net of accumulated
depreciation¥ 175,056¥

78,656$ 1,636

1,126,923

1,370,575

10,532

1,058,065¥2,360,044

1,221,368¥2,670,600

9,888$22,05615

8.

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 the consolidated domestic subsidiaries have principally
non-contributory defined pension plans. Certain consolidated foreign subsidiaries havedefined contribution pension plans.
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,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Projected benefit obligation
Plan assets
Accrued pension and severance costs
Net unrecognized amount¥(2,661,333) ¥(2,553,307)
2,137,176
2,051,502
329,100
212,202¥ (195,055) ¥ (289,602)$(24,872)
19,9743,076$ (1,823)

In computing the projected benefit obligation, several simplified methods are permitted forsmall companies, and certain of the Company’s consolidated subsidiaries have adopted
such methods.
The net unrecognized amount was as follows:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Unrecognized benefit obligation
at transition
Actuarial assumption adjustment
Net unrecognized amount¥–(195,055)¥(195,055)¥ (70,477)(219,125)¥(289,602)$–(1,823)$(1,823)

The components of net periodic pension and severance costs excluding the employees’
contributory portion were as follows:Year ended March 31,
2005
2004
2003
2005
(Thousands of yen)(Thousands of
U.S. dollars)Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of unrecognized benefit
obligation at transition
Amortization of actuarial assumption
adjustment
Net periodic pension and severance costs¥137,585
62,666(50,858)¥133,086
68,545(47,166)¥124,604
68,142(50,227)$1,286586(475)

70,47770,47770,477659

57,372¥277,242

40,010¥264,953

13,804¥226,801536$2,59116

8.

Accrued Pension and Severance Costs (continued)

The contributions based on the defined contribution pension plans have been charged toincome as paid.
Special termination benefits paid but not included in determining the projected benefit
obligation are charged to income when paid. The amounts charged to income amounted
to ¥77,554 thousand for the year ended March 31, 2003.
The assumptions used were as follows:

Discount rate
Expected rate of return on plan assets
9.

2005

2004

2.5%
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, 2005 were as follows:Year ended March 31,
2004
2003
2005
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Dividends received
Exchange (loss) gain, net
Gain on sales of property and equipment
Gain on sales of investments in securities
Loss on disposal of property and equipment
Loss on revaluation of investments insecurities
Special termination benefits
Impairment losses on fixed assets
Loss on advanced repayment of bank loans
Other, net¥ 38,274(110,201)
237,385
15,995(156,139)¥ 55,320 ¥ 44,178(342,910)
43,490306,203
196,849
123,114
1,446(51,981)(23,734)$ 358(1,030)2,219
149(1,459)––(123,340)–
155,283¥ 57,259(7,800)(12,750)–(77,554)––(47,574)–
67,581
38,553¥ 101,954 ¥ 210,478––(1,153)
–
1,451
$ 535

17

10.

Income Taxes

The significant components of deferred tax assets and liabilities at March 31, 2005 and2004 were as follows:
March 31,
2004
2005
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Deferred tax assets:
Accrued bonuses
Elimination of unrecognized gain on
intercompany accounts and transactions
Directors’ and statutory auditors’
retirement benefits
Accrued enterprise tax
Allowance for doubtful accounts
Accrued pension and severance costs
Impairment losses on fixed assets
Other
Subtotal
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Depreciation
Accumulated earnings of consolidated
subsidiaries
Other
Total deferred tax liabilities
Net deferred tax assets¥246,373¥255,323$2,30367,32966,475629

71,00977,30974,732
133,670
57,070138,176865,672–
865,672

56,61264,039104,380
86,194–
157,801
790,827–
790,827

664
723
698
1,249
533
1,291
8,090
–
8,090

(6,668)(7,178)(62)(40,627)(11,855)(59,151)¥806,520(44,007)(9,463)(60,648)¥730,178

(380)
(111)
(553)
$7,538The difference between the statutory tax rate and the effective tax rate for the years ended
March 31, 2003 represented less than 5% of the statutory tax rate. As a result, areconciliation is not required to be disclosed.
A reconciliation between the statutory tax rate and the effective tax rate for the year ended
March 31, 2005 and 2004 are presented as follows:Year ended March 31,
2005
2004
Statutory tax rate
Disallowed expenses, including entertainment
expenses
Other
Effective tax rate

40.69%

42.05%

3.08
0.79
44.56%

3.70
0.88
46.63%

18

10.

Income Taxes (continued)

Reflecting a change in the local tax rates, the statutory tax rate used in determining deferred
tax assets and liabilities has been applied as follows. The current rate (42.05%) has been
applied to temporary differences expected to be deducted for tax purposes by the end of
March 2004 and the new rate (40.49%) has been applied to those to be utilized after April
2004. As a result of this change, deferred tax assets net of deferred tax liabilities at March
31, 2003 increased by ¥24,609 thousand and income taxes – deferred charged to income forthe year decreased by ¥24,691 thousand.
11.

Stockholders’ Equity

The Commercial Code of Japan (the “Code”) provides that an amount equal to at least 10%of the amount disbursed as distributions of earnings be appropriated to the legal reserve
until the sum of the reserve and the additional paid-in capital account, which is included incapital surplus in the consolidated balance sheets, equals 25% of the common stock
account. The Code provides that neither additional paid-in capital nor the legal reserve isavailable for dividends, but both may be used to reduce or eliminate a deficit by resolutionof the stockholders or may be transferred to common stock upon approval by the Board of
Directors. The Code further provides that if the total amount of additional paid-in capitaland the legal reserve exceeds 25% of the amount of common stock, the excess may be
distributed to the stockholders either as a return of capital or as dividends subject to theapproval of the stockholders. The Company’s shares of common stock have no par value
in accordance with the Code.
Effective April 1, 2002 the Company and its consolidated subsidiaries adopted a new
accounting standard for treasury stock and the reduction of legal reserves. The effect of
the adoption of this new accounting standard on operating results was immaterial for theyear ended March 31, 2003.
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, 2005 and 2004, and the related depreciation and interest expense for theyears ended March 31, 2005, 2004 and 2003, respectively, which would have beenreflected in the consolidated balance sheets and the related consolidated statements ofincome:March 31, 2005
Property andequipment –otherAcquisition costs
Less accumulated depreciation
Net book value¥186,846
122,972¥ 63,873

Software(Thousands of yen)

Total

¥29,103
29,103¥–¥215,949
152,075¥ 63,873

19

12.

Leases (continued)

As lessee under financing and operating leases (continued)
March 31, 2005
Property andequipment –otherSoftware
Total(Thousands of U.S. dollars)
Acquisition costs
Less accumulated depreciation
Net book value$1,746
1,149
$ 597

$272
272
$ –

$2,0181,421$ 597

March 31, 2004
Property andequipment –otherAcquisition costs
Less accumulated depreciation
Net book value

Software(Thousands of yen)Total

¥32,563
26,189¥ 6,373¥475,313
375,719¥ 99,594¥442,750
349,530¥ 93,220

Year ended March 31,
2005
2004
2003
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Depreciation expense¥56,424¥83,951¥122,252$527

Interest expense¥ 2,686¥ 4,511

¥

$ 25

7,411

Lease expenses relating to the financing leases accounted for as operating leases amounted
to ¥60,619 thousand ($567 thousand), ¥91,306 thousand and ¥133,781 thousand for theyears ended March 31, 2005, 2004 and 2003, respectively.
Future rental expenses under financing leases accounted for as operating leases outstandingat March 31, 2005 and 2004 are summarized as follows:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥32,466
33,291¥65,758¥ 53,987
48,945¥102,933

$303
311
$615

20

12.

Leases (continued)

As lessee under financing and operating leases (continued)
Future rental expenses under operating leases outstanding at March 31, 2005 and 2004 aresummarized as follows:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥ 80,245
276,980¥357,226¥ 54,094
324,315¥378,409

$ 750
2,589
$3,339As lessor under operating leases
Certain consolidated subsidiaries lease equipment under operating leases. Future rental
income under operating leases outstanding at March 31, 2005 and 2004 are summarized asfollows:
March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥ 538,368
2,543,864¥3,082,232¥ 572,506
2,830,828¥3,403,335$ 5,031
23,774$28,806

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,
2005 and 2004 are summarized as follows:
March 31,
2004
2005
2005
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year

¥ 526,037
4,216,538¥4,742,576¥47,686
43,803¥91,490$ 4,916
39,407$44,323

21

12.

Leases (continued)

As lessee and lessor under subleases (continued)
Future rental expenses as lessee under the original lease agreements outstanding at March
31, 2005 and 2004 are summarized as follows:
March 31,
2004
2005
2005
(Thousands of yen)(Thousands of
U.S. dollars)Within 1 year
Over 1 year13.

¥ 575,177
4,846,103¥5,421,281¥46,664
42,879¥89,543$ 5,375
45,291$50,666

Contingent Liabilities

Contingent liabilities
The Company received complaints from Cecile Co., Ltd. dated October 8, 2004 for thedamage based on the default of obligation and misfeasance regarding the pouch-packed
curry which the Company had sold to Cecile Co., Ltd. amounted to ¥142,281 thousand($1,330 thousand), and complaints from BELLUNA CO., LTD. dated March 18, 2005 forthe damage based on default of obligation regarding the pouch-packed curry which theCompany had sold to BELLUNA CO., LTD. amounted to ¥300,000 thousand ($2,804
thousand).
The Company considers that those allegations have no reasonable basis and intend to
defend against them. However, the outcome of these lawsuits may affect adversely to theconsolidated financial statements of the Company.
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, 2005, 2004 and 2003 were the same.

Net income per share

2005

Year ended March 31,
2004
2003
2005
(Yen)
(U.S. dollars)¥110.62¥86.21¥83.62$1.03422

14.

Amounts Per Share (continued)

Net assets per share are computed based on the number of shares of common stock
outstanding at each balance sheet date.
March 31,
2004
2005
(Yen)
Net assets per share¥908.112005(U.S. dollars)¥819.13$8.487

Effective April 1, 2002, the Company and its consolidated subsidiaries adopted a new
accounting standard for per share information, under which the amount which is notavailable to stockholders of shares of common stock is excluded from the calculation of
earnings per share. The effect of the adoption of this standard was not significant. No
prior year earnings per share amounts have been restated and therefore, the basis ofcomputation of per share information for 2002 has not been presented.
The following table sets forth the basis of the computation of net income per share for theyear ended March 31, 2005 and 2004:
Year ended March 31,
2005
2004
2003
2005
(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 stockholders ofshares of common stock
Weighted average number of shares ofcommon stock outstanding¥1,435,670¥1,085,411¥1,032,999$13,417(24,006)(19,195)(9,549)(224)¥1,411,664¥1,066,216¥1,023,449$13,193

12,761,085

12,367,114

12,239,538

12,761,085

23

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
Customer service business:
Operations within the Customer service business segment are as follows:– Planning and creation of printed matter and other media– 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)

24

15.

Segment Information (continued)

The business segment information of the Company and its consolidated subsidiaries for theyears ended March 31, 2005, 2004 and 2003 are summarized as follows:Year ended March 31, 2005

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)

¥28,141,383¥27,331,712¥43,149,899¥98,622,995¥

835,799
28,977,183
27,270,612¥ 1,706,570

72,456
27,404,169
26,720,410¥ 683,758

3,170
43,153,070
40,233,701¥ 2,919,369

911,427
99,534,423
94,224,725¥ 5,309,698(911,427)–(911,427)
98,622,995
1,656,603
95,881,328¥(2,568,030) ¥ 2,741,667

¥

¥

¥

¥

¥

269,370¥–¥ 308,047¥11,223,935

66,955¥–¥36,484¥ 7,161,095

224,511¥72,017¥ 589,536¥11,962,018

560,837¥
72,017¥ 934,068¥30,347,049–

73,509¥51,322¥43,357¥ 4,817,646¥98,622,995¥

634,346¥ 123,340¥ 977,425¥35,164,696

Year ended March 31, 2005

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 U.S. dollars)$263,004$255,437$403,270$921,710$–$921,710

7,811
270,815
254,866$ 15,949

677
256,114
249,723$ 6,39030
403,300
376,016$ 27,284

8,518
930,228
880,605$ 49,623(8,518)(8,518)15,482$24,000–
921,710896,087$ 25,623$ 2,517$626$ 2,098$ 5,241$687$ 5,928$–$ 2,879$104,897$–$
341$ 66,926$
673$ 5,510$111,795$
673$ 8,730$283,617

$ 480
$ 405
$45,025$ 1,153$ 9,135$328,642

25

15.

Segment Information (continued)
Year ended March 31, 2004

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
servicebusiness
Total(Thousands of yen)

¥22,219,979¥27,174,191¥36,695,820¥86,089,991¥

716,61322,936,593
21,331,771¥ 1,604,822

83,201
27,257,392
26,586,777¥ 670,614

5,177
36,700,997
34,343,179¥ 2,357,817

804,992
86,894,984
82,261,728¥ 4,633,255(804,992)–(804,992)
86,089,991
1,746,900
84,008,629¥(2,551,892) ¥ 2,081,362¥ 308,162¥ 722,343¥10,772,286¥
75,005¥35,992¥ 7,208,940¥ 181,590¥ 465,147¥12,847,919¥ 564,759¥ 1,223,483¥30,829,146¥
72,764¥
88,664¥ 4,877,607–¥86,089,991¥ 637,524¥ 1,312,148¥35,706,754

Year ended March 31, 2003

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
servicebusiness
Total(Thousands of yen)

¥24,978,580¥25,575,813¥36,312,609¥86,867,003¥

739,670
25,718,251
24,361,508¥ 1,356,743

82,46125,658,275
25,410,897¥ 247,377

4,742
36,317,352
33,850,766¥ 2,466,586

826,874
87,693,878
83,623,172¥ 4,070,706(826,874)–(826,874)
86,867,003
1,407,485
85,030,657¥(2,234,360) ¥ 1,836,346¥ 330,858¥ 931,857¥ 9,726,191¥
69,066¥ 133,967¥ 7,335,800¥ 183,286¥ 518,842¥10,591,959¥ 583,211¥ 1,584,668¥27,653,951¥
79,703¥
95,067¥ 5,003,147–¥86,867,003¥ 662,914¥ 1,679,735¥32,657,099

Due to the reorganization during the year ended March 31, 2003, the domestic sales
branches of the Company mainly engaging in the life service business segment werediscontinued and transferred to each independent division of the headquarters. As a result,sales and operating income in the life service business segment decreased by ¥3,364,936
thousand and ¥129,213 thousand, respectively, while those in the aviation businesssegment increased by ¥1,115,186 thousand and ¥10,950 thousand, respectively. In
addition, sales and operating income in the customer service business segment increased by¥2,249,750 thousand and ¥118,263 thousand, respectively, for the year ended March 31,
2003.
Unallocated operating expenses included in “General corporate assets and intercompnay
eliminations” for the years ended March 31, 2005, 2004 and 2003 amounted to ¥2,568,816
thousand ($24,008 thousand), ¥2,553,981 thousand and ¥2,284,517 thousand, respectively,
and consisted primarily of administrative expenses incurred at the Company’s
headquarters.
26

15.

Segment Information (continued)

In addition, unallocated assets included in “General corporate assets and intercompany
eliminations” at March 31, 2005, 2004 and 2003 amounted to ¥5,028,922 thousand($46,999 thousand), ¥5,295,421 thousand and ¥5,472,550 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, 2005, 2004 and 2003 is summarized as follows:Year ended March 31, 2005

Japan
Sales to outside parties ¥95,131,871
Inter-segment sales
and transfers
283,610
Total
95,415,481
Operating expenses
92,768,755
Operating income (loss) ¥ 2,646,726
Identifiable assets¥31,988,156

Generalcorporate
assets andintercompany
eliminations Consolidated

North
AmericaOtheroverseas
counties
Total(Thousands of yen)

¥1,824,609¥1,666,515¥98,622,995¥

7,617,345
9,441,954
9,308,966¥ 132,988¥5,129,848

1,558,682
3,225,197
3,404,436¥ (179,239)¥ 631,673

9,459,638
108,082,634
105,482,158¥ 2,600,475¥37,749,678(9,459,638)–(9,459,638)
98,622,995(9,600,830)
95,881,328¥ 141,191 ¥ 2,741,667¥(2,584,982) ¥35,164,696–¥98,622,995

Year ended March 31, 2005

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

Generalcorporate
assets andintercompany
eliminations Consolidated

Japan

North
AmericaOtheroverseas
counties
Total(Thousands of U.S. dollars)$889,083$17,052$15,575$921,710$–$921,710

2,651
891,733
866,998$ 24,736$298,955

71,19088,24387,000$ 1,243$47,943

14,56730,142
31,817$ (1,675)$ 5,90388,4081,010,118
985,815$ 24,304$352,801(88,408)(88,408)(89,727)$ 1,320$ (24,159)–
921,710896,087$ 25,623$328,642

Year ended March 31, 2004

Japan
Sales to outside parties ¥83,378,350
Inter-segment sales
and transfers
72,880Total
83,451,230
Operating expenses
81,604,343
Operating income (loss) ¥ 1,846,887
Identifiable assets¥33,225,637

Generalcorporate
assets andintercompany
eliminations Consolidated

North
AmericaOtheroverseas
counties
Total(Thousands of yen)

¥1,418,062¥1,293,579¥86,089,991¥

4,682,517
6,100,580
6,069,908¥ 30,671¥4,116,983

1,463,318
2,756,897
2,921,622¥ (164,725)¥ 711,591

6,218,716
92,308,708
90,595,874¥ 1,712,833¥38,054,212(6,218,716)–(6,218,716)
86,089,991(6,587,245)
84,008,629¥ 368,528 ¥ 2,081,362¥(2,347,458) ¥35,706,754–¥86,089,991

27

15.

Segment Information (continued)
Year ended March 31, 2003

Japan
Sales to outside parties ¥84,335,906
Inter-segment sales
and transfers
125,397
Total
84,461,303
Operating expenses
82,678,178
Operating income (loss) ¥ 1,783,124
Identifiable assets¥29,760,169

Generalcorporate
assets andintercompany
eliminations Consolidated

North
AmericaOtheroverseas
counties
Total(Thousands of yen)

¥1,240,302¥1,290,794¥86,867,003¥

5,237,016
6,477,318
6,356,929¥ 120,389¥4,322,449

1,749,497
3,040,292
3,119,346¥ (79,053)¥ 641,806

7,111,910
93,978,914
92,154,454¥ 1,824,460¥34,724,425(7,111,910)–(7,111,910)
86,867,003(7,123,796)
85,030,657¥
11,885 ¥ 1,836,346¥(2,067,326) ¥32,657,099–¥86,867,003

For the years ended March 31, 2005, 2004 and 2003, 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.
16.

Derivative and Hedging Activities

The Company has utilized forward foreign exchange contracts and foreign currency coupon
swaps to hedge certain foreign currency transactions related to foreign accounts receivableand payable on a consistent basis. The Company has also utilized interest-rate andcurrency swaps to minimize the risk of fluctuation in cash flows arising from changes ininterest and foreign exchange rates related to its outstanding debt.
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.
Since all derivative instruments held by the Company at March 31, 2005 and 2004, met thecriteria for hedge accounting, fair value information has not been presented.
17.

Related Party Transactions

The Company had significant related party transactions with the parent company, thecompanies controlled by the parent company and the companies over which the Company
exercises significant influence in the terms of their operating and financial policies.
The transactions between the Company and the parent company for the years ended March
31, 2005 are summarized as follows:

28

17.

Related Party Transactions (continued)

With Japan Airlines Corporation:
Year ended March 31,
2005
2005
(Thousands of (Thousands ofyen)
U.S. dollars)
Proceeds from sales of investments in securities
Gain on sales of investments in securities¥22,111
15,995$207
149

The transactions between the Company and the companies controlled by the parent
company, for the years ended March 31, 2005, 2004 and 2003 are summarized as follows:
With Japan Airlines International Co., Ltd.:2005

Operating revenues:
Sales of flight equipment
Purchases of merchandiseYear ended March 31,
2004
2003
(Thousands of yen)

¥16,110,755–¥14,576,148
1,250,619¥16,559,530
1,351,444

March 31,
2005
2004
(Thousands of yen)Accounts receivable¥3,281,641

2005(Thousands of
U.S. dollars)¥3,652,792$150,568–

2005(Thousands of
U.S. dollars)$30,670

With Japan Airlines Domestic Co., Ltd.:Year ended March 31,
2005
2005
(Thousands of (Thousands ofyen)
U.S. dollars)
Operating revenues:
Sales of flight equipment¥2,210,936$20,663

March 31,

Accounts receivable

2005(Thousands of
yen)

2005
(Thousands of
U.S. dollars)¥366,507$3,42529

17.

Related Party Transactions (continued)

With JAL Capital Co., Ltd.:Year ended March 31,
2005
2004
2005
(Thousands of yen)(Thousands of
U.S. dollars)
Proceeds from short-term borrowings
Repayment of short-term borrowings
Sales of merchandiseInterest expenses¥28,500,000
29,300,000–
5,116¥31,750,000
30,150,000
573,733
8,822

March 31,
2005
2004
(Thousands of yen)
Short-term borrowings
Accounts receivable¥800,000–$266,355
273,832–
48

2005(Thousands of
U.S. dollars)¥1,600,000
554,719$7,477–

With Fukuoka Airport Building Co., Ltd.:Year ended March 31,
2005
2005
(Thousands of (Thousands ofyen)
U.S. dollars)
Operating expenses:
Rent for office space¥56$1
March 31,

Other current assets
Deposits for business space

2005(Thousands of
yen)

2005
(Thousands of
U.S. dollars)¥475,714
118,200$4,4461,10530