Management’s Discussion
and Analysis
Scope of Consolidation
Yamato’s consolidated financial statements include 27 consolidated subsidiaries and three
affiliates accounted for by the equity method.

Results of Operations
In the fiscal year ended March 31, 2003, the Japanese economy saw improvement in someindices, including those for exports and production. These trends temporarily heightened
expectations for a recovery. Subsequently, however, the economy remained in a general
slump as capital spending and exports were dampened by lower stock prices andeconomic deceleration, mainly in the United States.
Under these conditions, in April 2002 the Yamato Group embarked on a new three-yearplan aimed at increasing the quality of existing services, including Takkyubin and Kuroneko
Mail. Simultaneously, the Group radically rebuilt its information systems, increased thenumber of delivery centers, and implemented other policies to enhance customer convenience. The Group also took steps to boost transactions with new customers in every
business area. These efforts produced a 4.3% rise in consolidated operating revenues to¥972,135 million (US$8,087.6 million). Results by segment are presented below.
Domestic Transportation Industry
The domestic transportation industry continued to experience a harsh business environment,with price competition escalating amid a slump in demand for both ground transportation
and air transportation. The Yamato Group still fared generally well under these conditions,
thanks to efforts to increase transactions with corporate customers and the provision of avariety of Internet-based services, including the SD direct communication system inOctober 2002.
Sales in the Takkyubin business are greatly affected by delivery volume and average unit
prices. Handling volume increased 10.1% to 58 million units, with the collect service
posting the highest growth rate. Also contributing to growth was Cool Takkyubin, wherevolume increased 3.3% to 115 million units. Consequently, overall delivery volume in theparcel delivery business climbed 3.8% to 983 million units. The average unit price perparcel fell ¥11 from ¥721 to ¥710 (US$5.9) because of a greater number of transactions withcorporate customers.
In the moving business, orders received for moves by families increased year on year.
However, there was a downturn in orders for moves by single people because of intensecompetition. Kuroneko Mail registered solid volume as a result of efforts to increase transactions with small- and medium-sized companies. Domestic airfreight volume rose
year-on-year, buoyed by efforts to acquire new customers and a recovery in volume in thewake of a downturn caused by the imposition of strict regulations governing the loading offreight in response to the terrorist attacks in the United States. Altogether, operating
revenues in the domestic transportation business rose 2.7% to ¥856,827 million (US$7,128.3million), accounting for 88.1% of consolidated operating revenues, down 1.4 percentage
points from 89.5% in the previous fiscal year.

International Transportation Industry
In the international transportation industry, the dockworkers’ strike on the West Coast of
the United States caused many sea shipments to be shifted to air transportation, resulting
in an increase in volume for that mode of transport. Even so, volume was generally weak,reflecting mainly downturns in economies overseas, principally in the United States.
Under these conditions, we sought to acquire new small- and medium-sized export
customers. This, combined with higher export volume to Asia by automobile-related
customers, and the inclusion of three additional consolidated subsidiaries, resulted in a
21.1% rise in operating revenues to ¥74,117 million (US$616.6 million), accounting for 7.6%of consolidated operating revenues, up 1.0 percentage point from 6.6% in the previous
fiscal year.
Information Communications Industry
The information communications industry continued to perform poorly, continuing a
trend from the second half of the previous fiscal year. The main factors behind this situation were a lack of willingness to invest on the part of users and stiffer competition fromindustry rivals, manifested in lower order prices. Amid this environment, the IT businessestablished new distribution centers in Tokyo, Kanagawa Prefecture and the Nagoya
district, proactively negotiated with customers about the purchase of logistics information
systems, and held seminars to support E-business and foster logistics system softwaresales. As a result of these efforts to generate new business, segment operating revenuesrose 2.5% to ¥18,888 million (US$157.1 million), accounting for 2.0% of consolidated operating revenues, unchanged from the previous fiscal year.

Operating Income/Operating Income Growth Rate(¥ Millions)
60,000Operating Revenueby Segment

Operating Revenue from Takkyubin/
Takkyubin Delivery Volume(%)(¥ Millions)24

50,00020

40,0001630,000

1220,0008(%)

2.3%
2.0%
7.6%

88.1%

10,000400’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03
Operating Income
Operating Income Growth Rate

Domestic Transportation Industry
International Transportation Industry
Information Communication Industry
Other Industry(10 thousand parcels)

700,000

140,000

600,000

120,000

500,000

100,000

400,000

80,000300,000

60,000200,000

40,000100,000

20,00000’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03
Operating Revenue from Takkyubin
Takkyubin Delivery Volume

YAMATO TRANSPOR T Ann ual Report 2003

22,23

Other Industry
In this segment, sales of books were strong, thanks to an increase in orders placed fromPCs and cellular phones via the Internet. This, combined with sales in the packaging
business and the addition of eight consolidated subsidiaries, resulted in a 23.3% increasein operating revenues to ¥22,303 million (US$185.6 million), accounting for 2.3% of consolidated operating revenues, up 0.4 percentage point from 1.9% in the previous fiscal year.

Financial Review
Operating Revenues
In the fiscal year ended March 31, 2003, Yamato Transport recorded consolidated operating
revenues of ¥972,135 million (US$8,087.6 million), up 4.3% from the previous fiscal year.
Looking at sales by segment, although the domestic transportation industry registered a slight decline in revenues in the moving businesses, revenues in other businesses
were strong. Revenues in the logistics business jumped 53.5% as a result of efforts by
Yamato Logistics Corporation (YLC) to expand its corporate business. Consequently,
overall operating revenues in the domestic transportation industry climbed 2.7% to¥856,827 million (US$7,128.3 million).
In the international transportation industry, higher export volume and the addition of
three companies to the scope of consolidation resulted in higher profits in both the sea
transport and air transport businesses. Consequently, operating revenues in the international transportation business rose 21.1% to ¥74,117 million (US$616.6 million).
In the information communications industry, sales of information equipment fell 10.9%.
Altogether, segment operating revenues increased 2.5% to ¥18,888 million (US$157.1 million).
In other industry, the addition of eight consolidated subsidiaries lifted sales in themarketing business 119.2%. This, combined with sales in the packaging business andother businesses, resulted in a 23.3% rise in segment operating revenues to ¥22,303
million (US$185.6 million).

Cool Takkyubin Delivery
VolumeCollect Service Delivery
Volume(Millions of parcels handled)

Total Assets(Millions of parcels handled)

12060

100508040603040202010(¥ Millions)
800,000

600,000

400,000

200,000

00’98

’99

’00

’01’02’030’98

’99

’00

’01

’02

’03

’98

’99

’00

’01

’02

’03

Operating Income
Operating income rose 6.8% to ¥56,818 million (US$472.7 million) as thorough cost cutting
more than offset higher expenses due to the rebuilding of information systems and a
51.4% increase in expenses for retirement benefits. The number of employees (total of fulltime and part-time personnel) rose 3.9% to 112,948, but the ratio of personnel expenses tooperating revenues declined 1.3 percentage point to 46.0%, also contributing to the rise inoperating income.
Net Income
Regarding other expenses (income), interest expense declined ¥590 million. Also, gain on
release of future responsibility for contributed national pension plan resulted in a gain of¥45,703 million (US$380.2 million), while loss on valuation of land from merger anddemerger totaled ¥8,697 million (US$72.4 million). Meanwhile, the Company recorded aloss on bond redemption of ¥1,103 million (US$9.2 million). Consequently, income before
income taxes and minority interest jumped 82.5% to ¥91,063 million (US$757.6 million).
The result was a 76.3% increase in net income to ¥48,502 million (US$403.5 million).
As a result of these factors, net income per share amounted to ¥104.51 (US$0.87), andreturn on equity was 12.6%.
Cash Flows(Operating Activities)
Net cash provided by operating activities totaled ¥86,035 million (US$715.8 million), an
increase of ¥16,311 million from the previous fiscal year. Income before income taxes andminority interest totaled ¥91,063 million (US$757.6 million), boosted by a gain on release offuture responsibility for contributed national pension plan. Provisions for employees’
retirement benefits declined ¥25,605 million (US$213.0 million), while loss on valuation ofland from merger and demerger totaled ¥8,697 million (US$72.4 million), and notes andaccounts payable rose to ¥7,150 million (US$59.5 million).
(Investing Activities)
Net cash used in investing activities totaled ¥39,375 million (US$327.6 million), a decline of¥7,093 million (US$59.0 million) from the previous fiscal year. Purchases of property, plant,and equipment declined ¥6,496 million (US$54.0 million), as measures to reduce capital
expenditures offset costs associated with the ongoing introduction of low-emission vehicles. Purchases of marketable and investment securities declined ¥1,371 million (US$11.4million) as a result of a reduction in bond purchases compared with the previous fiscalyear. Reflecting the need for cash to redeem corporate bonds, proceeds from sales ofmarketable and investment securities rose ¥622 million (US$5.2 million).
(Financing Activities)
Net cash used in financing activities totaled ¥73,595 million (US$612.3 million), an increaseof ¥46,648 million (US$388.1 million) from the previous fiscal year. Repayments of long-term
YAMATO TRANSPOR T Ann ual Report 2003

24,25

debt rose ¥33,657 million (US$280.0 million), reflecting the repayment of ¥16,141 million(US$134.3 million) in borrowings from financial institutions as part of efforts to reduce
interest-bearing debt to strengthen the Company’s financial position. Redemption of corporate bonds totaled ¥41,324 million (US$343.8 million), ¥26,324 million (US$219.0 million)
more than in the previous fiscal year. This rise was due to the redemption of corporate
bonds and the assumption of debt. Stock repurchases totaled ¥10,685 million (US$88.9million), ¥10,452 million (US$87.0 million) more than in the previous fiscal year, reflecting
the buyback of 4.5 million shares of the Company’s stock (based on resolution approved byshareholders). Dividend payments totaled ¥6,694 million (US$55.7 million).
As a result of the above actions, cash and cash equivalents at the end of the fiscal year
totaled ¥132,393 million (US$1,101.4 million), down ¥22,910 million (US$190.6 million) fromthe end of the previous fiscal year.

Financial Position
Total assets declined 3.4% to ¥655,877 million (US$5,456.6 million).
Current assets were down 5.0% to ¥248,108 million (US$2,064.1 million). The principal
reason was that cash decreased ¥20,543 million (US$170.9 million) as a result of ¥40,000
million (US$332.8 million) used to redeem bonds and ¥9,405 million (US$78.2 million) used
to repurchase stock.
Net property, plant, and equipment declined 0.5% to ¥318,794 million (US$2,652.2million), reflecting ¥4,030 million (US$33.5 million) in construction in progress for thecomputer center of Yamato System Development Co., Ltd. and ¥8,697 million (US$72.4million) in land valuation losses. Under investments and other assets, deferred tax assets
fell ¥8,932 million (US$74.3 million) to ¥20,777 million (US$172.9 million) as a result oftransfers to the reserve for retirement benefits and other factors.
Total current liabilities fell 3.4% to ¥170,594 million (US$1,419.3 million). There was a¥5,186 million (US$43.1 million) decline in short-term bank loans and the current portion

Total Shareholders’ Equity

Equity Ratio

ROA(¥ Millions)(%)
70500,000(%)
860
400,000

650

300,000

4

40

30

200,000

2

20
100,000

0
10

00

’98

’99

’00

’01

’02

’03

–2

’98

’99

’00

’01

’02

’03

’98

’99

’00

’01

’02

’03

of long-term debt declined because of the redemption of ¥15,200 million (US$126.5 million)
in bonds. Offsetting this, however, were increases in accounts payable, income taxes
payable, and notes payable related to the purchase of plant, property, and equipment.
Total long-term liabilities fell 42.3% to ¥78,528 million (US$653.3 million). The principal
factors were the redemption of ¥25,000 million (US$208.0 million) of straight bonds prior tomaturity, the conversion to stock of ¥8,516 million (US$70.8 million) of convertible bonds,and the repayment of ¥6,499 million (US$54.1 million) of long-term debt. Another factor
was that liabilities for employees’ retirement benefits fell ¥25,131 million (US$209.1 million) to ¥47,724 million (US$397.0 million) as a result of the net effect of an increase due totransfers to the reserve for retirement benefits and a decrease due to reserve reversals andgain on release of future responsibility for contributed national pension plan.
Total shareholders’ equity rose 11.4% to ¥406,306 million (US$3,380.3 million). The
principal factors were the addition of ¥4,248 million (US$35.3 million) to both the common
stock and additional paid-in capital accounts as a result of the conversion of convertible
bonds. Another factor was a ¥10,685 million (US$88.9 million) increase in treasury stock
associated with the repurchase of 4.5 million shares of the Company’s stock. The shareholders’ equity ratio rose 8.2 percentage points to 61.9%.
Interest-bearing debt (the sum of short-term bank loans, the current portion of longterm debt and long-term debt) fell 67.6% from ¥95,046 million (US$790.7 million) to ¥30,839
million (US$256.6 million), corresponding to a decline of ¥64,207 million (US$534.2 million).
The interest coverage ratio (operating income plus interest and dividend income
divided by interest expense) improved sharply, rising from 24.99 times to 36.68 times. Thedebt payback period (interesting-bearing debt/operating cash flows) improved from 1.4
year to 0.4 years.

ROE

Capital Expenditures/Depreciation and Amortization(%)(¥ Millions)
50,00015Interest Coverage Ratio

Capital Expenditures
Depreciation and Amortization(Times)40

40,0001030

30,000520
20,000010
10,000–50’98

’99

’00

’01

’02

’03

0’00

’01

’02

’03

’98

’99

’00

YAMATO TRANSPOR T Ann ual Report 2003

’01

’02

’03

26,27