Annual Report 2006
Year ended March 31, 2006

Y A M A T O HOLDINGS C O . , L T D .

DeliveryHome
ConvenienceA n n u a l R e p o r t 2006

INNOVATION
e-Business

Printed in Japan on recycled paper

BIZ-Logistics

Financial

Group
SupportProfile

Corporate Data

The Yamato Group consists of Yamato Holdings Co., Ltd. (“the Company”), 57 subsidiaries
and four affiliated companies. It is primarily involved in the Delivery, BIZ-Logistics, Home
Convenience, e-Business, Financial and Group Support businesses as well as services incidental
to these activities. The goal of the Yamato Group is to help bring about a better society byfurther refining the Takkyubin network, which is a part of the social infrastructure, creating
services that facilitate more convenient, comfortable lifestyles, and developing innovative
logistics systems. In pursuit of this goal the Group has developed products and services that
help improve the convenience of people’s lives. Looking ahead, the Group plans to develop
even more sophisticated services and to strengthen its profitability out of an ongoingcommitment to a stable form of management.

Head Office

BIZ-Logistics

e-BusinessYamato Holdings Co., Ltd.

Yamato Logistics Co., Ltd.*

Yamato System Development Co., Ltd.*

16-10, Ginza 2-chome, Chuo-ku, Tokyo

Yamato Packing Service Co., Ltd.*

Yamato Career Service Co., Ltd.*

104-8125, Japan

Konan Industry Co., Ltd.*

Yamato Systems U.S.A., Inc.*

Telephone: (03) 3541-4141

Yamato Transport U.S.A., Inc.*

Yamato Contact Service Co., Ltd.

Facsimile: (03) 5565-3427

Yamato Transport (U.K.) Ltd*

Dream Create Co., Ltd.

Contents

Yamato Transport Europe B.V.*

Major Subsidiaries and Affiliates

Yamato Transport (Hong Kong) Ltd.*

Financial

DeliveryYamato Transport (S) Pte. Ltd.*

Yamato Financial Co., Ltd.*

Yamato Transport Co., Ltd.*

Taiwan Yamato International Logistics Inc.*

Yamato Lease Co., Ltd.*

Okinawa Yamato Transport Co., Ltd.*

Yamato (Shanghai) Logistics Co., Ltd.*

Fine Credit Co., Ltd.*

Yamato Autoworks Co., Ltd.*

Yamato International Logistics., Ltd.*World Computer Center Co., Ltd.*

Yamato Autoworks Okinawa Co., Ltd.*

Yamato Transport (M) Sdn. Bhd.
*Consolidated subsidiaries

Kyoto Yamato Transport Co., Ltd.*
Kobe Yamato Transport Co., Ltd.*

Home Convenience

Box Charter Co., Ltd.*

Yamato Home Convenience Co., Ltd.*

Common Stock

Yamato Box Charter Co., Ltd.*

Hokkaido Yamato Home Convenience

Authorized: 1,787,541,000 shares

Yamato Box Charter Miyagi Co., Ltd.*

Co., Ltd.*

Issued: 457,062,665 shares

Yamato Box Charter Iwate Co., Ltd.*

Tohoku Yamato Home Convenience

Yamato Box Charter Niigata Co., Ltd.*

Co., Ltd.*

Stock Exchange Listing

Yamato Box Charter Kanazawa Co., Ltd.*

Hokushinetsu Yamato Home Convenience

Tokyo Stock Exchange

Yamato Box Charter Shizuoka Co., Ltd.*

Co., Ltd.*

Yamato Box Charter Aichi Co., Ltd.*

Chubu Yamato Home Convenience Co., Ltd.*

Yamato Box Charter Chugoku Co., Ltd.*

Kansai Yamato Home Convenience Co., Ltd.*

Transfer Agent andRegistrar

Yamato Box Charter Okayama Co., Ltd.*

Chugoku Yamato Home Convenience

Mizuho Trust & Banking Co., Ltd.

Yamato Box Charter Shikoku Co., Ltd.*

Co., Ltd.*

Consolidated Financial Highlights .............................

1

Six-year Consolidated Financial Summary ................ 21

Message from the Management ...............................

2

Management’s Discussion and Analysis ................... 22

Yamato Box Charter Fukuoka Co., Ltd.*

Shikoku Yamato Home Convenience

Annual Meeting

Consolidated Balance Sheets ................................... 28

Yamato Box Charter Kumamoto Co., Ltd.*

Co., Ltd.*The annual meeting of shareholders is nor-

Yamato Box Charter Kagoshima Co., Ltd.*

Kyushu Yamato Home Conveniencemally held in June in Tokyo, Japan.

Yamato·Staff·Supply Co., Ltd.*

Co., Ltd.*

Yamato Management Service Co., Ltd.*

Book Service Co., Ltd.*

Auditors

Yamato Architects & Design Co., Ltd.

Swan Co., Ltd.

Deloitte Touche Tohmatsu

Swan Net Co., Ltd.

(by Tohmatsu & Co., the Japanese member

Swan Charcoal Distribution Co., Ltd.

of Deloitte Touche Tohmatsu)

Continuous Innovation ..............................................

5

Business Framework

Consolidated Statements of Operations ................... 30

Group Corporate GovernanceConsolidated Statements of Shareholders’ Equity .... 31

Business Activities

Consolidated Statements of Cash Flows .................. 32

Highlights of the Year ................................................ 16

Notes to Consolidated Financial Statements ............ 33

Environmental Preservation and Social Activities ...... 18

Independent Auditors’ Report .................................. 40

Directors and Auditors .............................................. 20

Corporate Data ......................................................... 41

Principal Shareholders

Stock Price Range
Percentage of total
shares outstanding

Forward-Looking Statements
This annual report contains forward-looking statements concerning Yamato Holdings’ future plans, strategies and performance. Thesestatements represent assumptions and beliefs based on information currently available and are not historical facts. Furthermore, forward-looking
statements are subject to a number of risks and uncertainties that include, but are not limited to, economic conditions, customer demand, foreign currency exchange rates, tax laws and other regulations. Yamato Holdings therefore cautions readers that actual results may differ materially from these predictions.

The Master Trust Bank of Japan, Ltd. (Trust Account)

7.87%

Japan Trustee Services Bank, Ltd. (Trust Account)

7.42%

Mizuho Bank, Ltd.

3.77%

Yamato Employees’ Shareholding Association

2.98%

Meiji Yasuda Life Insurance Co.

2.68%(Tokyo Stock Exchange)

(Yen)

High

Low

First quarter

1,553

1,348

Second quarter

1,920

1,411

Third quarter

2,070

1,712

Fourth quarter

2,420

1,837

Distribution of Shareholders

The Sumitomo Trust & Banking Co., Ltd. (Trust Account B)

2.12%

Yamato Trading-Partner Shareholding Association

2.06%

State Street Bank and Trust Company 505103

2.04%

Financial Institutions

42.5%

1.85%

Securities Companies

1.5%

1.63%

Other Institutions

6.4%

34.42%

Foreign Investors

31.5%

Sumitomo Life Insurance Co.
JPMCB Omnibus US Pension Treaty JASDEC 380052
Total

Individuals and Others

18.1%

Total

100.0%(As of March 31, 2006)

4541

Consolidated Financial Highlights
Years Ended March 31

Thousands ofMillions of Yen

U.S. Dollars

2006

2005

2004

2006

Operating revenues¥1,144,961¥1,071,903¥1,011,344$9,746,837

Operating costs

1,043,372

998,786

945,201

8,882,032

32,86821,914

19,484

279,793

Selling, general andadministrative expenses
Income before income taxes
and minority interests

7,712

61,741

87,29365,647

Income taxes

31,276

27,95937,515266,249

Net (loss) income(23,968)

33,84849,783(204,036)

Yen

U.S. Dollars

Per share of common stock:
Net (loss) income¥(53.47)

Diluted net income
Cash dividends

¥

74.02

¥

107.51$(0.46)–

72.48

105.20

–

20.00

18.00

18.00

0.17
Thousands ofMillions of Yen

Working capital¥ 123,483¥

80,843

U.S. Dollars¥

74,803$1,051,184

Total shareholders’ equity

423,690458,792

443,715

3,606,790

Total assets

793,222676,156

652,792

6,752,547

Capital expenditures

48,86540,96647,587415,978

Depreciation and amortization

35,00337,14635,663297,973

Note: U.S. dollar amounts have been translated, for convenience only, at the rate of ¥117.47 to U.S.$1.

Operating Revenues

Net (Loss) Income

Net (Loss) Income per Share(¥ Millions)(¥ Millions)(¥)

1,200,000

60,000120

1,000,000

45,00090

800,000

30,00060

600,000

15,00030

400,00000

200,000–15,000–30–30,000

0’01 ’02 ’03 ’04 ’05 ’06–60’01 ’02 ’03 ’04 ’05 ’06’01 ’02 ’03 ’04 ’05 ’06

1

Message from the Management

The Yamato Group converted to apure holding company structure in
November 2005. Along with developing attractive services by combining
the management resources possessedby Group companies, we are raising
our market competitiveness by drastically reforming our approach to
management. We have established
six business formations and are
currently building a new, valueKaoru Seto

infused business model in these areas.

President

By pooling management resources,
starting with business infrastructureand expertise cultivated in a variety of

Keiji Aritomi

areas, we intend to generate com-

Chairmanpletely new synergies.

Q.Please tell us about theoperating environmentand your business results
for fiscal 2006.

by the impact of skyrocketing oil prices,Japan Post aggressively entering themarket for private door-to-door delivery.

we successfully enhanced our ability to

Even more intense competition iscontrol costs, and as a result generated

expected going forward as Japan Post is

We carried out reforms to create a corpo-

operating income of ¥68,721 million, an

officially privatized in 2007. In the midst of

rate group capable of growing in a sus-increase of 34.2% over the previous year.

this environment, the Yamato Group initi-

tainable manner and controlling costs.

We ended fiscal 2006, however, with aated the “Yamato Group Revolution Plan

Takkyubin, Yamato Transport Co., Ltd.’s

net loss of ¥23,968 million due in part to2007: New Value & Innovation Three-Yearcore service, has reached its thirtiethloss on devaluation of land associatedPlan,” our new medium-term manage-

anniversary and, in view of the ongoingwith splitting up the Delivery business,ment plan that started in the year underreforms, the time has come for it to bewhich was stated in order to shore up ourreview, in a bid to convert to a businessradically revamped.

financial position.

structure that enables us to maintain andIn fiscal 2006 we set a new record

Companies in the ground transporta-

accelerate growth. On November 1, 2005

high for income, beating the previous

tion industry continued to face difficult

we switched from an operating holding

high recorded in fiscal 2003, and also

operating conditions. In addition tocompany structure to a pure holding

achieved substantially higher sales. Con-

surges in oil prices, competition among

company structure by splitting the former

solidated operating revenues totaled

companies, especially over prices, has

Yamato Transport into Yamato Holdings,¥1,144,961 million, an increase of 6.8%

been fierce, due in part to the impact ofwhich handles decision-making andover the previous fiscal year.

2

On the cost front, while we were hit

supervision for the Group as a whole, and

the Group as a whole by incorporating

includes the soon-to-be-privatized Japanthe new Yamato Transport, which

new forms of value into the Takkyubin

Post. To meet the goals of theexecutes the Delivery business.

network; and 2) Realize high-efficiency

abovementioned three-year medium-term

Under a new Group structure thatmanagement by restructuring processes

plan, we intend to work to improve cor-combines six business formations, includ-in every business domain for the entire

porate value for the entire Group by

ing the Delivery business, Yamato Hold-Group. We intend to provide new forms

increasing the speed of management andings makes strategic decisions for theof convenience to our corporate clientsenhancing Group supervision and control.

entire Group and flexibly allocates man-and individual customers and create newagement resources in an optimal mannerbusiness domains for the Group. For

to accelerate the growth of the Group.

existing businesses, we will radically

Based on this plan, we are working torevamp our cost structure to ensure thesteadily expand the Delivery business andongoing efficiency of operations.

are starting to implement business strate-

As a part of this strategy, Yamato

Q.You converted to a holding company structure in
November 2005. What
was the purpose of thatchange?

gies for accelerating the growth of non-Holdings formed a partnership with Seino

In line with the “Yamato Group Revolu-

delivery businesses by leveraging theHoldings Co., Ltd. on February 27, 2006

tion Plan 2007: New Value & Innovation

Group’s management resources. We

to enhance the existing Kuroneko Box

Three-Year Plan,” launched in April

believe that our measures to realize high-Charter service by providing just-in-time

2005, the Yamato Group aims toefficiency management by restructuring

delivery of medium-lot cargo overachieve steady expansion of its Delivery

processes in every business domain havemedium- to long-distances to companies

business while initiating strategies toalso played a significant role.

seeking to reduce their distribution stock

accelerate growth in non-delivery busi-

and in-process inventory. Out of this part-nesses that draw on the resources of

Q.What are your approachand strategies for raising
the corporate value of the
Yamato Group?

nership, on April 3 we launched JITBOX

the group as a whole. In parallel, it isCharter, a service that helps customers

pursuing high-efficiency management byconstruct supply chain management

restructuring processes in every busi-

systems. The goal of the enterprise is toness domain. Within this context, in

The management strategy of the Yamato

become the new de facto standard inNovember 2005 the group shifted fromGroup requires the companies in eachbusiness-to-business distribution.

an operating holding company structurebusiness formation to jointly and effectively

Also on April 3, 2006, we established

to a pure holding company structure,use the management resources pos-a joint venture for direct marketing increating a new group configuration

sessed by the Group, to sufficiently nar-

Japan with DHL Global Mail (Japan) KK,

whereby Yamato Holdings incorporates

row in on target markets, and to capture

an affiliate of Deutsche Post World Net, insix business formations, including thethe top share in each market segment.

order to rapidly secure a competitive

Delivery business.

To this end, the Yamato Groupadvantage in the direct mail market,

together launched the “Yamato Group
Revolution Plan 2007: New Value & Inno-

This move was made to accelerate

which is expected to grow going forward.

the growth of the Group by flexibly con-The operating environment surround-

ducting strategic decision-making for thevation Three-Year Plan” in April 2005. The

ing the Yamato Group is becomingGroup as a whole and allocating manage-

plan establishes two goals for Group

increasingly challenging as competition

ment resources in an optimal manner.

management: 1) Accelerate growth for

between companies heats up, and thisThe overarching aim was to create a3means to optimize the distribution infra-

increased the term-end dividend by ¥2,management organs function effectively

structure. Under the previous operatingto ¥11 per share. Combined with the ¥9and carry out activities to ensure compli-

holding company structure, the way the

per share interim dividend that hasance with both the law and corporate

businesses were configured meant that

already been paid out, this brings the

ethical standards via a system of compli-

the Delivery business tended to have a

dividend for the full year to ¥20.

ance management.

disproportionate weight. In future we will

Internal reserves are used to facilitate

In 1995 the Yamato Group took the

avoid this type of structure and consider

the growth of the Group as a whole

pioneering step of documenting its policies

tie-ups with other companies that com-through capital investments—tofrom the time of its establishment in abine the group’s tangible and intangible

strengthen our network and develop new

concise form: the Yamato Transport Cor-

resources to establish an outstanding

businesses, for example—and invest-

porate Philosophy. In April 2005, ten years

configuration. The new structure will

ments are aimed at raising the corporate

after the document was created, we

incorporate logistics and financial tech-value in the future. Internal reserves arerevamped it, renaming it the Yamato

nologies as well as information technol-

also used to acquire treasury stock,

Group Corporate Philosophy and including

ogy to generate unprecedented

which is another way of returning profits

new information on such topics as han-synergies. We are currently leveraging theto shareholders. At a meeting on Februarydling corporate scandals, fulfilling disclo-

combined strengths of the group to23, 2006, the Board of Directors voted tosure and reporting responsibilities, andlaunch new businesses known as BU

purchase treasury stock off the market

protecting personal information. Employ-(business units) to accelerate the growth

and acquire 4,478,000 shares for a total ofees of the Yamato Group carry with themof non-delivery businesses. We believe¥9,999 million. On March 9 we canceleda small booklet that contains the Group’sthat the key to growing our non-delivery

12,459,000 shares of treasury stock.

corporate philosophy, credo, policies,
goals and latest medium-term manage-

operations is to aim to create unique

holding company system has created the

Q.Please discuss the YamatoGroup’s initiatives in thearea of corporate social
responsibility.

best organization to promote the growth

Since its founding the Yamato Group hasof our non-delivery businesses.

considered it important to conduct busi-

businesses in niche markets “so targeted
you can see the customer’s face.” We
therefore believe that the shift to a pure

ment plan. They do their utmost to understand the booklet and put it into practice.

ness activities with sufficient attention to

4

Q.What is the basic policy of
the Yamato Group on
earnings distribution?

the needs of society, the environment and

Keiji Aritomi

local communities, as well as to develop

Chairman

We have developed six business forma-at large. We have sought to be a corpo-

tions rooted in Group management.

rate group that has earned the trust of theAccordingly, with respect to distributing

public by valuing our relations with ourearnings, it is our policy to pay a dividend

various stakeholders—customers, share-

based on our business performance withholders, business partners and local

Kaoru Seto

the goal of having a payout ratio of 30% ofcommunities. With Yamato Holdings’ CSR

President

consolidated net income. For the dividend

Division as the administering body, wein the fiscal year under review, we

ensure checks and balances by existingon an ongoing basis in step with society

CONTINUOUSINNOVATION

Important three-year plansto create unique
new businesses and strengthen
the competitiveness of
the Delivery businessGroup businesses:
High growth byproviding uniqueproducts

Delivery business:
Steady growth
leveraging Yamato’s
strengths5

Business Framework

Switching to a Holding Company Structure

6

The Yamato Group has reorganized itselfof the Group through conducting strate-

the speed of management processes,

to promote Group management and has

gic decision-making for the Group as aevaluating business activities from a moreestablished six business formations: Deliv-

whole and allocating management

shareholder-oriented perspective, andery, BIZ-Logistics, Home Convenience,resources in an optimal manner. Previ-

allocating management resources appro-

e-Business, Financial and Group Support.

ously, the Delivery business had been

priately. Through strengthening the GroupWe also changed our system of corpo-

involved both in decision-making andstructure in this way we will seek to fur-rate governance and rebuilt our network.

supervision as Group headquarters andther raise corporate value.

As the final stage of this process, inin executing the Delivery business itself.

November 2005 we switched to a pureWith the move to the holding company

holding company structure by splitting

structure, the aim was to make the shift

the former Yamato Transport into Yamato

from Delivery business-oriented manage-

Holdings, which handles decision-making

ment to management targeting expansion

and supervision for the Group as a whole,of non-delivery business. To this end, weand the new Yamato Transport, whichhave adopted an organization focused on

executes the Delivery business. Thisdecision-making and supervision for themove was made to accelerate the growthGroup’s business formations, increasing

Delivery

The Delivery business is involved in small parcel delivery services for the generalpublic and corporations centering on Takkyubin and Kuroneko Mail. Takkyubin,
the mainstay service, celebrated its thirtieth anniversary this year. The businessalso offers high value-added services developed from the customer’s point ofview like Cool Takkyubin and Collect Service. It plans to maintain the quality ofits services and pursue higher quality services going forward.

BIZ-Logistics

BIZ-Logistics handles business-to-business distribution, which includes logistics, overseas distribution, and the transport of fine art. The business is working to strengthen its service offerings by adding service parts logistics andmedical logistics to its lineup. BIZ-Logistics helps its corporate clients manage
their supply chains by providing innovative logistics services and reducing total
costs, and presents proposals for optimized logistics systems.

Convenience is rooted in moving services, lifestyle support services
Home Convenience Homeand distribution services based on a mission of developing unique, new services on a region-by-region basis to eliminate the inconveniences inherent inliving in a particular area. In November 2005 Household Takkyubin was
launched. The business is devoted to providing services that are extremely
convenient for customers.

e-Businesse-Business is involved in a range of information services for corporations,
including ASP services and information system development. Looking forward,
the business intends to pursue new product development based on three key
words: tracking, security and packages. Having developed an individual tracking service for important documents in 2006, the business will continue to
conduct aggressive marketing activities for this and other services.

Financial

The Financial business offers settlement services and financial products targeting business customers and consumers. In April 2005 Yamato Transport madeFine Credit Co., Ltd., a company that purchases installment credit loans, its
subsidiary. The aims of this consolidation were to promote the diversification of
settlement methods, and leverage the combined strengths of the YamatoGroup to offer customers enhanced financial services. The business aims togrow as a provider of comprehensive distribution-related settlement services.

Group Support

Group Support is involved in broadly defined shared services centering on
vehicle maintenance, mainline transport, and staffing services. It works tosupport appropriate and maximal leveraging of management resources bymeans such as consolidating human resources and accounting—administrative
processes common to all Group companies. In addition to these efforts, thebusiness aims to achieve profitability by also marketing its services to nonGroup companies in future.

7

Group Corporate Governance

Basic Position on Corporate
Governancemitted to further strengthening the Group

Business Management andExecution

Based on its corporate philosophy, theand further raising corporate value by

The Board of Directors, Management

Yamato Group carries out businessassessing our businesses and allocating

Advisory Committee and Executive Com-

activities in accordance with the law andour resources from a more shareholder-mittee serve as administrative organs

social norms and actively promotes com-oriented point of view.

involved in decision-making, supervision

pliance management. Striving to maxi-

With this structure we are also com-

The Yamato Group is dedicated toand execution for the Yamato Group.

mize corporate value by effectively

highly efficient management acutelyThis management structure enables

utilizing the management resources of the

focused on securing new growth on thedecisions to be made rapidly and pre-Group is one of the top priorities of man-basis of the “Yamato Group Revolution

cisely on important matters. The term of

agement, and we work to bolster man-Plan 2007: New Value & Innovation

office of directors has been set at one

agement systems and implement policies

Three-Year Plan,” which was initiated inyear in order to clarify management

to this end.

April 2005. We now have a system in

responsibilities for each fiscal year.

place to enable management to act

Switching to a Holding
Company Structure

The Board of Auditors is made up ofquickly enough to meet the goals of thetwo full-time corporate auditors and twoplan and secure additional growth.

outside corporate auditors who do not

The Company changed its governance

In April 2006, the Company clearlystructure in conjunction with reorganizing

separated the role of directors, who arepany. Corporate auditors attend meetings

Group businesses in order to further

responsible for decision-making andof the Board of Directors and otherenhance management of the Group.

supervisory functions, from the role ofimportant meetings, conduct audits on

When the Group used an operating

executive officers, who are responsible

the legality of business execution, andholding company structure, all our busi-

for business execution. By delegating aotherwise endeavor to improve thenesses were bound up in the parent com-substantial amount of authority from thesoundness of management and the trustpany, Yamato Transport. In switching to a

Board of Directors to the Executiveof the public.

pure holding company structure, Yamato

Committee, the Company will improve

The Audit Division is in charge of

Holdings, which handles decision-making

its internal controls and achieve moreinternal auditing and conducts audits on

and supervision for the Group as a whole,

rapid management.

the effectiveness of internal controls. The

have any vested interests in the Com-was clearly separated from our operating

results are then reported to the directors

companies, which are responsible forand corporate auditors. A Group Auditors

executing our businesses. By developing

Meeting is also regularly convened. Dis-

Yamato Holdings and the operating com-cussions take place on auditing policies

panies in an integrated manner we hopeand methods with the full-time auditors

to enhance internal controls and further

affiliated with our principal operating com-speed up management processes.

panies, and efforts are made to strengthen
coordination by exchanging information.

8

The Yamato Group strives to be aand implement additional systems tocompany that is trusted by shareholders

ensure internal controls function effec-

through ensuring checks and balances

tively. In addition, our two outside direc-

by existing administrative organs andtors will spearhead a committee that will

implementing a system of complianceconsider executive nominations andmanagement. We conduct activities

remuneration and make proposals to the

aimed at ensuring compliance with theBoard of Directors. This will help tolaw and social norms, which are adminis-

improve the transparency of management

tered by the CSR Division. Going forward,

and further raise corporate value.

we intend to enhance checks and balances largely through internal audits
pivoting on Control Self-Assessment at
each division, which will be subject toevaluation. In this way we plan to build

Corporate Governance Framework

General Meeting of Shareholders
Elect

Elect

Elect/
Supervise

Board ofAuditors

Audit

Board ofDirectors

ReportReportIndependent
Auditor

Elect

Make decisions/Supervise

Execute business

Management
Advisory Committee

ReportExecutive
Committee

Accounting
audit

Nomination andCompensation
Committee

Propose/ReportCSR Division

Legal Advisor

Propose/ReportInternal
audit

Audit Division

Group Companies

9Business Activities

DELIVERY

Operating Revenues/
Operating Income

The Delivery business is mainly focused

when they are not present. Customers

on small parcel delivery services for con-are then free to pick up parcels at theirsumers and corporate clients and includes

convenience 24 hours a day.

(¥ Millions)

1,000,000

75,000

Takkyubin and Kuroneko Mail services.
The Yamato Group witnessed steady

800,000

60,000600,000

45,000400,000

growth in the Takkyubin service during

previous fiscal year to 1,735 million units,

the year under review, with total delivery

alongside revenue of ¥120,549 million.

volume up 6.2% year on year to 1,129

The chief factor spurring growth was themillion parcels, and revenue of ¥737,399

push to build stronger operations, includ-

million. The key reason for this growth

ing increased handling services for cor-

was a proactive sales approach tailored

porate customers and expansion of

to each market sector. This approach,service counters.

30,000200,000

15,0000

0’05■ Operating Revenues(Left scale)’06■ Operating Income(Right scale)underpinned by the Group’s corporate

As market competition intensifies,

philosophy in this business of Total Reli-honing the cost competitiveness ofability, was taken in order to respondoperations across the Takkyubin network

flexibly to diversifying customer needs.

has become an issue of paramount

November 2005, meanwhile, saw theimportance for the Delivery business.

launch of two services: Mail Notification

Since April 2003, this concern has

Service and Delivery Locker Pickup Ser-

prompted the Yamato Group to introduce

vice. The former keeps customers noti-

an Area Center System for Takkyubin

fied by e-mail from the time a delivery is

distribution, and to subdivide its service

scheduled to when it is completed,centers into the approximately 5,900

including occasions when delivery was

Takkyubin centers currently in operation

attempted but the addressee wasto provide a more attentive level of service.

absent. The second enables customers

Another move taken to raise cost com-to send Takkyubin parcels using thepetitiveness in the Delivery business is thesame lockers that are installed for receiv-

consolidation at major offices of functions

ing deliveries in most condominiums inonce handled separately by each service

Japan. Another example of services that

center, such as phone-based customer

cater to diverse customer needs andservice, accounting and personnel.

enhance convenience is the Takkyubin

As a result, total operating revenues

Store Pickup Service. Launched in Febru-

for the Delivery business were ¥915,952

ary 2006, this service allows customers

million, an increase of 5.7% compared toto have local convenience stores andthe previous fiscal year.

others receive parcels on their behalf

10

The Kuroneko Mail service saw handling volume increase 21.1% from theBIZ-LOGISTICS
BIZ-Logistics provides inter-company

is targeted at maintenance operations,logistics services, including international

where urgency is the norm. Other efforts

logistics and logistical transport of works

to strengthen the BIZ-Logistics serviceof art, aimed at the B2B supply chain

structure include medical logistics.

management market.

Through this service, the Group takes

Operating Revenues/
Operating Income(¥ Millions)

In fiscal 2006, operating revenues

advantage of its procurement, logistics

edged up 0.7% year on year, to ¥111,488

processes, storage, and delivery infra-

million. This modest growth was the

structure to handle every aspect of logis-

result of continued adversity surrounding

tics for medical products, from the initialforwarding and logistics operations, char-production site to final delivery to medical

acterized by lackluster demand for air-institutions.

freight forwarding and increasingly severe
price-based competition.
In this climate, the Yamato Group

120,000

6,000

90,0004,500

60,0003,000

30,0001,500

Through medical logistics, the Groupalso offers support for traceability man-

0

0

’05

’06

agement, a requirement stipulated byadvanced a proposal-driven sales

Japan’s amended Pharmaceutical Affairs

approach, offering a comprehensive

Law. The Tokyo BIZ-Logistics Center

range of logistics services by integrating(Ota Ward, Tokyo) of Yamato Logistics

sales activities for its domestic and inter-Co., Ltd., for example, has obtained

national logistics services. One suchapproval from Japan’s medical device

service was service parts logistics, a sys-

manufacturing industry to oversee andtem for the emergency transport ofoffer services pertaining to the packaging,

replacement parts and components 24labeling and storage aspects of thehours a day, 365 days a year. This service

manufacturing process.

■ Operating Revenues(Left scale)■ Operating Income(Right scale)Tokyo Biz-Logistics Center

11

HOME CONVENIENCE
Operating Revenues/
Operating Income (Loss)

Home Convenience services encompass

common sales route for large pieces ofthree businesses intimately connected

furniture or appliances was from manu-

with supporting the lifestyle needs of local

facturers to volume retailers, which thenmarkets: moving services, lifestyle sup-sold these products to individual custom-

port services, and merchandise marketing.

ers. However, the widespread use of net

During the year under review, operat-

auctions today has fueled an increase in(¥ Millions)500

50,00040,000400

30,000300

20,000200

10,000100

ing revenues increased 2.6% to ¥44,498

transactions involving large furnituremillion. Although moving services contin-

pieces and appliances between individu-

ued to face a tough market environment

als. The growth in online shopping

due to intensified competition with rival

demand, particularly the direct purchasecompanies, merchandise marketing grewof products from manufacturers, is alsosteadily atop sales of “Tokusen Ichiba”

circumventing the traditional sales route.

(Special Select Market) brand products.

Seizing on these opportunities, a service00–1,000–10,000’05’06

In November 2005, the Home Conve■ Operating Revenues(Left scale)

12■ Operating Income(Right scale)

was developed in this business that evennience business began offering thecovers the setup and installation of heavy

Household Takkyubin service. This ser-items, yet enables customers to use

vice targets customers who buy or sell

Takkyubin in the same convenient way as

furnishings and home appliances throughthey would for small parcels. Going for-

Internet auctions, as well as those withward, attention will focus on offering otherlight moving needs. Previously, the mosthighly convenient services to customers.

e-BUSINESSThe e-Business segment encompasses

highly trusted information management

information services targeting businessservices reflecting a track record in terms

customers, including ASP services andof processing capabilities of ¥10 billion in

the development of information systems.

transactions annually. Another is business

During the year under review, operating

support, backed by 24 hour-a-day, year-

revenues were ¥27,279 million, repre-

round and stable operations, as well as asenting a year-on-year increase of 11.7%.

backup system infrastructure anchored in

Operating Revenues/
Operating Income(¥ Millions)Firm sales of information management services for the credit and con-Tokyo and Osaka.

5,000

24,0004,000

18,0003,000

12,000

2,000

6,000

1,000

Guided by the keyword “security,” insumer finance industry were a major

2006, the Group developed a tracking

driver of growth in this business. Anothermanagement service targeting individual

was the establishment of a marketingcritical documents. The Critical Informa-

framework tailored to specific industry

tion Tracking ASP Service targets com-sectors and steps taken to change thepanies that handle business for financial

on-premise business format of this busi-

institutions and membership applications,ness over to solution-oriented services.

with sales growing to companies seeking

The Group also pursued a proactive

to achieve stricter management of per-marketing approach that included pro-sonal information. Going forward, theposals comprised of tracing, security andGroup plans to actively provide tracking

other elements.

services to firms outside of the Yamato

Looking ahead, the Group will work to

30,0000

0’05■ Operating Revenues(Left scale)’06■ Operating Income(Right scale)Group. To that end, it will incorporate thedevelop new businesses founded on threeexpertise in individual tracking manage-

key words: tracking, security and pack-ment gained from its Takkyubin parcel

ages. These businesses will emerge fromtracking system into a service package.

several areas, including the segment’s

Head Office, Yamato System Development Co., Ltd. at Toyocho OfficeServer Room

13

FINANCIAL
Operating Revenues/
Operating Income

The Financial business includes settle-

settlement service targeting mail-orderment and other financial services targetedbusinesses. The Group is aggressively

at business customers and consumers.

marketing this service and its diverse line

In this business, the Group is looking

of settlement methods that include cash(¥ Millions)

50,00015,00040,00012,00030,0009,000

to enhance customer convenience andon delivery, payment by credit card upon

diversify settlement methods by offering

delivery or order, payment at conve-

new retail settlement services. Primarily

nience stores and post offices, or pay-targeting small- and medium-sized

ment via PC or mobile phone.

enterprises, these services will focus on
20,00010,000

3,000

0

0

’05
■ Operating Revenues(Left scale)’06■ Operating Income(Right scale)handling uncollected and installment

Collect Service infoBOX, a service thatpayments. This objective led to the con-

allows the customers of mail-order busi-

solidation in April 2005 of Fine Credit, anesses using Collect Service to confirm

firm with credit and receivables manage-

payment and invoices for mail-orderment functions that the Group will utilize

items. In recent years, the expansion of

to provide these services.

sales channels beyond traditional face-

As a result, operating revenues,

to-face sales and purchasing has

which included the consolidation of Fine

increased the circulation of merchandise.

Credit, were ¥45,744 million, an increase

Recognizing this change, the Group isof 71.7% from the previous fiscal year.

working to provide a full lineup of financial

In July 2005, the Group began offering Collect Service, a comprehensive

14

November 2005 saw the launch of

6,000

services to mail-order businesses andother customers.

GROUP SUPPORTThe Group Support business is involved

related administrative operations, Yamato

Sapporo (Hokkaido, Japan) and Miein the provision of shared services in the

Autoworks is striving to become thePrefecture, Japan.

broadest sense, particularly vehicle

partner of choice for delivery companies.

In February 2006, the Group entered

maintenance, mainline transport, and

By offering integrated services coveringa business alliance with Seino Holdings

staffing services.

the purchase, maintenance, manage-

that saw commencement the following

ment, and body remodeling of new and

April of JITBOX Charter, a service to help

cally pursued support services that bestused vehicles, vehicle administration, andcustomers construct supply chain man-

allocate and optimally utilize management

insurance and logistics facility mainte-

agement systems. Targeting traditional

resources by consolidating operations

nance, Yamato Autoworks is helping

Kuroneko Box Charter service customers

common to all Group companies, suchdelivery companies to manage them-seeking to reduce their distribution stockas human resources and accounting. The

selves more efficiently.

and in-process inventory, this new service

In this business, the Group has typi-

focus now is on generating profit fromIn April 2006, the Group completed

offers just-in-time delivery of medium-lot

these services by providing them to cus-construction of its third outlet for thiscargo over medium- to long-distance

tomers outside the Group, using exper-

business in the Tokyo region. Called

delivery routes. In May, the Group forgedtise acquired over the years and the“Superworks,” the aim of this conceptu-

a business tie-up with Nippon Express

creation of new businesses as bench-

ally innovative service plant is to enhanceCo., Ltd., followed in June by a partner-

marks for success.

convenience for commercial-use truck

ship with 12 trucking firms with the aim ofcompanies, as well as attain further

establishing the new de facto standard

example of this business direction. Utiliz-

reductions in cost. This new service plantfor inter-company logistics.

ing expertise forged in maintaining Group

joins two earlier plants established in

Yamato Autoworks Co., Ltd. is one

assets, in this case 40,000 vehicles, and15

Highlights of the Year

Takkyubin Celebrates ThirtyYears, Further Service
Improvements Mademail-order companies and Takkyubin
Store Pickup Service. We also made alldelivery information available in real time.
The Yamato Group will continue to

Takkyubin celebrated its thirtieth anniversary on January 20, 2006. On the very

improve quality to earn the satisfaction

first day the service was launched, itof as many customers as possible. Our

handled only 11 packages, but theaim in doing so will be always to offer

employees at the time put their hearts

services that are the best they can beinto their work because they firmly

from the customer’s perspective.

believed that there would be significant

Launch of JITBOX Charter

demand for the service one day. As aresult, Takkyubin ended up successfullyon our commitment to serving custom-

The Yamato Group’s Kuroneko Box

earning customer support, grew by leaps

ers, the Yamato Group engages in diffi-

Charter service, originally launched inand bounds, and now handles over 1.1

cult negotiations with the regulating

May 2004, was relaunched in April 2006

billion parcels annually. During that time

authorities to provide innovative services

as JITBOX Charter through a businessthe spirit with which those first 11 pack-like Golf Takkyubin and Ski Takkyubin,alliance concluded in February 2006 withages were delivered has been passed

Collect Service and Time Service. In

Seino Holdings. The relaunched busi-

down to Yamato Group employees in an

doing so the Yamato Group has written aness targets product logistics for manu-

unbroken chain, and has inspired thenew page in the history of delivery andfacturers with supply chain management

pursuit of systems and services for deliv-

distribution in Japan.

needs and delivery logistics for parts andering diverse types of parcels quickly andefficiently. Based on this orientation andLocally-rooted networks, information
systems, operations know-how, andvide just-in-time delivery. By working toskilled human resources developed during

enhance the sales and operation sys-

this process of growth have served nottems of the business, we hope to estab-

only as the foundation for providing reliablelish it as the new de facto standard forservices to customers, but also as invalu-

business-to-business logistics. Goingable assets for the Yamato Group. Utilizing

forward, we plan to develop it by leverag-this wealth of assets, we intend to refine

ing the respective strengths of the two

Takkyubin services going forward, as wellcompanies, namely, Yamato’s know-how

as develop new services and businesses.

and management in the area of transport

In fiscal 2006, we launched new services

using roll box pallets, and Seino’s main-with a view to further improving conve-

line transportation capacities based on its

nience, including Collect Service, a com-nationwide network.

prehensive settlement service for16materials manufacturers required to pro-

In May 2006 we concluded a busi-

growth is anticipated. An additional factor

alliance that spans land, air and sea. The

ness agreement with Nippon Express andwas Deutsche Post World Net’s desire totwo groups will also consider integrated

in June we joined forces with 12 trucking

provide services in the Japanese market

operations for their respective air forward-

companies to put a system in place forthat leverage its expertise. We plan toing businesses in order to expand their

supplying services to customers in a bid

offer high value-added solutions to cus-sales networks and customer bases, as

to quickly become the de facto standard

tomers by fusing the Yamato Group’s

well as boost competitiveness. Moreover,in business-to-business logistics.

delivery network and Deutsche Post

with a view to further developing this stra-

World Net’s integrated upstream totegic alliance, a joint working committee

Establishment of Yamato
Dialog & Media and start ofoperations

downstream solutions know-how in direct

was established to pursue a broad-rang-

mail and by jointly developing peripheraling partnership that takes best advantage

businesses centered on direct marketing.

of the assets and expertise of both

Yamato Holdings teamed up with DHL

Yamato Holdings has a 51% share ingroups. Specifically, we have begun devel-

Global Mail (Japan), an affiliate of

the venture, and DHL Global Mail (Japan)

oping a system to initiate the co-loading ofDeutsche Post World Net, to establish a

has a 49% share.

air cargo by Yusen Air & Sea Service andjoint venture for direct marketing in Japan.

Company name:Yamato Logistics and have started prepa-

Operations were launched at the new

Yamato Dialog & Media Co., Ltd.

rations for the establishment of a jointcompany on April 3, 2006. The joint ven-

URL: http://www.yamato-dm.co.jp

operating company.
By accomplishing and deepening thisture was brought about partly by the needstrategic alliance we will seek to establish

tions in the non-correspondence direct

Strategic Alliance Between
the NYK Group and the
Yamato Group

mail market, where the most future

Yamato Holdings and NYK Line agreed to

tomer services.

to facilitate further growth in Kuroneko
Mail by providing high value-added solu-

a leading position in comprehensive global logistics and further enhance cus-a strategic operational and capital alliancein May 2006. The purpose of the allianceis to accommodate the diverse multinational needs of customers and provide
advanced strategic services by organicallyand efficiently maximizing the domestic
and overseas management resources
possessed by both groups. The twogroups will work to expand their business
operations in a mutually complementary
fashion and develop a broad operational

17

Environmental Preservation and Social Activities

Refrigerated Rail Containers
with Two Temperature Zones
In partnership with JR Freight, Yamato

Measures to Achieve Yamato
Transport Global Warming
Prevention Targets

Transport, which operates the Delivery

1. Deployment of Low-Emission

business, has developed a dedicated

Delivery Vehicles

refrigerated rail container with two tem-

As a means to achieve its global warming

perature zones—refrigerated and frozen.

prevention goals, Yamato Transport has

In a related move, it has launched Coolset a target of putting 20,000 low-meter radius of Takkyubin centers. Our

Takkyubin rail delivery services for refrig-

emission delivery vehicles into operation

goal is to add 5,000 of the vans to ourerated and frozen parcels. This enables

by fiscal 2013. In fiscal 2006 we added

fleet by fiscal 2013. Looking ahead,the use of the same roll box pallets that

708 low-emission vehicles, including 501

Yamato Transport plans to continue

are used with regular Takkyubin, improv-

hybrids, to bring the total to 4,843. This

actively adding hybrids and other low-

ing loading efficiency by around 30%. The

number represents 11.0% of Yamato

emission vehicles to its fleet.

switch from truck to rail is also expectedTransport’s total fleet of vehicles. In

to reduce carbon dioxide emissions byaddition to hybrids, we are also working

2. Opening More Satellite Centerssome 850 tons annually. In recent years,

to utilize fuel-efficient minivans. Minivans

Yamato Transport is actively engaged incorporate customers that order deliveries

are effective in reducing emissions of

opening more satellite centers as anotherhave grown increasingly concerned overcarbon dioxide, nitrogen oxides andmeans to achieve its global warming

CO2 emissions from logistics operations.

particulate matter, so we are actively

prevention goals. Deliveries from satellite

In response, Yamato Transport has

utilizing them in areas within a 400–800

centers use handcarts and minivans
instead of regular trucks. Having more

drawn up a plan to reduce CO2 emissions
per Takkyubin parcel by 30% by fiscal
2013. The initiative to introduce refriger-

Changes in the Number of
Low-emission Vehicles

ated rail containers with two temperature

available to us for picking up and delivering

20,000zones was approved in 2005 as a project
eligible for subsidy under the Japanese

centers will expand the range of options

Changes in the Number of theSatellite Centers

5,000

Ministry of Land, Infrastructure andTransport’s scheme to improve the effi-

4,000

50,000

1,000

3,000

40,000800

2,000

30,000600

1,000

20,000400

10,000200

ciency of distribution systems.

0’02 ’03 ’04 ’05 ’06 ’13(Plan)

Hybrid Cars
CNG Cars
LPG Cars
Others
Total

18

0

0

’02

’03

’04

’05

’06

Number of Vehicles (Left scale)
Number of Satellite Centers (Right scale)whole. Our employees act as the teach-

Safety Classes for Children

ers in these classes, and this role enables

The Yamato Group always puts safety

them to raise their own environmental

first in its business activities. Preventing

awareness and enhance their environment-

traffic accidents involving children is anrelated knowledge. They learn throughespecially important safety issue. We haveteaching. In the process they gain newheld safety classes for children since 1998

understanding of our environmental con-and in August 2005 the total number ofservation activities and, along with thechildren that had participated topped thechildren, they come to understand why

one million mark. As of May 2006,

the Yamato Group is actively adding low-classes have been held 10,083 times andemission vehicles to its fleet, engaging ina total of 1,095,175 children have partici-

parcels in urban areas and dense resi-a modal shift from trucks to rail, utilizing

pated. In recent years we have received

dential neighborhoods. It will also limit

eco-drive, and using handcarts for pickup

requests to hold safety classes at careincreases in vehicles required to handle

and delivery.

facilities and nursing homes in addition tohigher delivery volumes, which should

The classes address the issue of howelementary and junior high schools. The

serve to help prevent global warming and

Takkyubin’s methods of operation relate

Yamato Group intends to continue toreduce pollutant emissions. Our goal is toto the prevention of global warming. The

conduct distinctive community service

open a total of 1,000 satellite centers byclass thinks together about the mostactivities, including programs that are

fiscal 2013, which we anticipate willpressing environmental issue facing

even more in tune with local needs.

reduce the need for delivery vehicles byhumankind—the reasons behind theroughly 1,500 trucks. 781 satellite cen-current need for measures to prevent

ters have been established as of the end

global warming. Helping to prevent globalof March 2006, and we intend to open

warming is an extremely high priority andeven more of the centers going forward.

reducing carbon dioxide emissions, thecause of global warming, is an urgent

Yamato Transport Teaches
Children About theEnvironment

duty for the Yamato Group as well. Our

Aware of our corporate responsibilities as

they relate to Takkyubin’s operations, so

a transportation company that uses

elementary school students learn about

vehicles, we strive to contribute to local

industry as well as the importance ofcommunities through activities related toenvironmental conservation activities. The

our business. To that end, we offer

curriculum teaches the children that eachclasses on the environment for children.

and every person’s actions are important

Holding the classes provides an opportu-

and in the end encourages them tonity for us to participate in the environ-

rethink their own lifestyles.

employees teach the children about measures to help prevent global warming as

mental education of children—the next
generation—and serves to raise the environmental awareness of the Group as a19

Directors and Auditors

Director

Executive Officers

Chairman

Koji Ogura

Keiji Aritomi

Hiroshi Kawada
Mikio Hijikata

Representative Director

Etsuo Ogawa

President

Kenichi Shibasaki

Kaoru Seto

Kenji Minaki
Toshizo Kurisu

Representative Director
Senior Executive Officer
Makoto Kigawa

Members of the Board
Hiroshi Oura
Takeshi Yoshii

Auditors
Michio Abe
Takeshi Morishita
Shigemichi Matsuka
Keiko Kitamura(As of June 28, 2006)20

Six-year Consolidated Financial Summary

Thousands of
U.S. Dollars

Millions of Yen

2006

2005

2004

2003

2002

2001

2006

Operating revenues¥1,144,961 ¥1,071,903 ¥1,011,344¥972,135¥932,120¥906,944$9,746,837

Operating costs

1,043,372

896,023

861,775

838,219

8,882,032

998,786

945,201

Selling, general andadministrative expenses

32,86821,914

19,484

19,294

17,156

16,699279,793

Operating income

68,721

51,20346,65956,81853,18952,026585,012

Income (Loss) before income
taxes and minority interests

7,712

61,741

87,29391,06349,905(3,554)65,647

Income taxes

31,276

27,95937,51542,53822,217484

266,249

Net (loss) income(23,968)

33,84849,78348,502

27,512(4,181)(204,036)

Yen

U.S. Dollars

Per share of common stock:
Net (loss) income
Diluted net income
Cash dividends¥(53.47) ¥74.02 ¥

107.51¥ 104.51–

72.48

105.20101.63

¥

57.38

59.36

¥

(9.25)
–

–

20.00

18.00

18.00

15.00

14.00

14.00

0.17

¥ 123,483 ¥

80,843 ¥74,803(0.46)

Thousands of
U.S. Dollars

Millions of Yen

Working capital$¥ 77,514¥ 84,630¥ 93,534$1,051,184

Total shareholders’ equity

423,690458,792

443,715406,306

364,806

344,2093,606,790

Total assets

793,222676,156

652,792

655,877

678,939670,246

6,752,547

Capital expenditures

48,86540,96647,58742,59140,37937,144415,978

Depreciation and amortization

35,00337,14635,66331,731

31,76429,900297,973

operating activities

84,67576,642

41,06486,03569,72455,249720,820

Number of employees

152,787

141,602

131,974

112,948

108,700

101,784–

Net cash provided byOperating income margin (%)

6.00

4.78

4.61

5.84

5.71

5.74

–

Return on revenues (%)(2.09)

3.16

4.92

4.99

2.95

(0.46)–

Return on assets (%)(3.26)

5.09

7.61

7.27

4.08

(0.64)–

Return on equity (%)(5.43)

7.50

11.71

12.58

7.76

(1.23)–

Current ratio (%)

143.77142.85142.39145.44147.94154.34–Equity ratio (%)

53.41

67.85

67.97

61.95

53.73

51.36

–

Assets turnover (Times)
Interest coverage ratio (Times)

1.56

1.61

1.55

1.46

1.38

1.38

–

137.92104.19

65.17

36.68

24.99

20.55

–

951.081,019.02

971.84875.08790.58746.21

8.10

Shareholders’ equity
per share (Yen)

Note: U.S. dollar amounts have been translated, for convenience only, at the rate of ¥117.47 to U.S.$1.

21

Management’s Discussion and Analysis

Scope of Consolidation
The Yamato Group’s consolidated financial statements include 50 major consolidated subsidiaries.
The number of subsidiaries included in the statements was 43 at fiscal 2005 year-end. However, in
fiscal 2006, seven new companies were brought within the scope of consolidation. These included
Yamato Transport, established on November 1, 2005 as the receiver company for the Delivery
business that was spun off from the Company, and Fine Credit, which became a consolidated subsidiary on April 1, 2005. There are no non-consolidated subsidiaries or affiliates accounted for by
the equity method during the period under review.

Results of Operations
In the fiscal year ended March 31, 2006, the Japanese economy held to a recovery track, supported by improved corporate earnings and an expansion in private-sector capital expenditures, aswell as modest growth in consumer spending. In contrast to these upbeat conditions, the domestictransportation industry continued to face a harsh operating environment as the impact of elevatedcrude oil prices was compounded by intensifying price-based competition within the industry. Thisescalation in the competitive environment was due in part to the aggressive entry of Japan Post into
the private-sector package delivery market.
In this context, the Group completed its shift from an operating holding company structure to apure holding company structure. On November 1, 2005 we split the former Yamato Transport into
Yamato Holdings, which handles decision-making and supervision for the Group as a whole, andthe new Yamato Transport, which executes the Delivery business. The new Group structure under
Yamato Holdings is composed of six business formations that include the Delivery business. By
enabling strategic decision-making encompassing the entire Group and the capacity to flexibly
allocate management resources in an optimal manner, the Yamato Group has put in place a systemthat will accelerate the pace of growth for the Group as a whole.
From the year under review, the Group embarked on its latest management plan, “YamatoGroup Revolution Plan 2007: New Value & Innovation Three-Year Plan.” In a competitive environment expected to heat up further with the impending privatization of Japan Post in 2007, this plan
aims to help the Group switch to a business structure that can retain and extend its growth capabilities. Guided by this plan, the Group continued striving to systematically expand its Delivery business. Alongside the initiation of business strategies to accelerate growth in non-delivery businesses
capitalizing on group resources, the Group has also taken steps to achieve highly efficient management by restructuring processes in every business domain.
As a result of the above and other factors, Yamato Holdings recorded consolidated operating
revenues of ¥1,144,961 million, up ¥73,058 million, or 6.8%, from the previous fiscal year. Operating income also grew ¥17,518 million, or 34.2%, to ¥68,721 million, as efforts to enhance costcontrol capabilities offset costs, namely the effects of surging crude oil prices. Reflecting sharply
higher operating income, the operating income margin rose 1.2 percentage points to 6.0%. However, the Company posted a net loss of ¥23,968 million for the year. This was primarily due to thebooking of a loss on devaluation of land accompanying the spin-off of the Delivery business, a movethat was enacted to further strengthen the Company’s financial position.

22

Review by Operating Segment
The following are summaries from each operating segment:

Delivery
The Delivery business is mainly focused on small parcel delivery services for consumers and corporate clients and includes Takkyubin and Kuroneko Mail services.
Both the total delivery volume and revenue for the Takkyubin service increased sharply due tothe introduction of new services to meet diversifying customer needs and active measures taken to
improve customer convenience. Overall delivery volume in the parcel delivery business climbed to
1,129.0 million parcels, up 6.2% year on year. Contributing to growth was Cool Takkyubin, wherevolume increased 6.5% to 137.5 million units. Moreover, the Collect Service handling volume
increased 14.7% to 78.6 million units. Meanwhile, the unit price for the Takkyubin service dropped¥13 from ¥666 in fiscal 2005 to ¥653. This drop was due mainly to intensifying competition in theparcel delivery market, which sparked the roughly 2 percentage-point decline in unit price. The net
result of the above was that total Takkyubin service revenue increased 4.1% to ¥737,399 million.
Both total delivery volume and revenue for the Kuroneko Mail service increased, reflecting stronger operations, including increased handling services for corporate customers and expansion ofservice counters. Another factor was the commencement of sales of Kuroneko International Mailfrom July 2005. Handling volume increased 21.1% to 1,734.8 million units. Meanwhile, the unit pricefor the Kuroneko Mail service dropped ¥4 from ¥73 in fiscal 2005 to ¥69, reflecting the impact ofvolume discounts offered by Japan Post starting February 2003. The net result of the above wasthat revenue for the Kuroneko Mail service grew 16.0% to ¥120,549 million.
As a result, total operating revenues for the Delivery business were ¥915,952 million, an
increase of ¥49,200 million, or 5.7%. Operating income was ¥48,816 million, an increase of¥12,549 million, or 34.6%, despite the impact of higher personnel expenses for strengthening thequality of delivery services by employing more part-time staff.

Cool Takkyubin Delivery Volume

Collect Service Delivery Volume(1,000 parcels)(1,000 parcels)

150,000

80,00060,000100,000

40,00050,00020,000

0

0

’02

’03

’04

’05

’06

’02

’03

’04

’05

’06

23

Takkyubin Revenues, Delivery Volume, and Unit Price
Years ended March 31
2002
2003
Takkyubin revenues(Millions of Yen)
Delivery volume(1,000 parcels)
Unit price (Yen)

2004

2005

2006

683,589

698,499

690,088708,503

737,399

947,895
721

983,938710

1,011,150
682

1,063,057
666

1,128,998
653

Unit price declined in the fiscal years ended March 2003 and 2004 due to the merger of Shikoku Yamato Transport Co., Ltd.
and Kyushu Yamato Transport Co., Ltd.

BIZ-Logistics
BIZ-Logistics provides inter-company logistics services aimed at the B2B supply chain management
market and includes air-freight forwarding, logistics business and marine forwarding.
Revenue from the marine forwarding business rose a healthy 14.0% to ¥19,747 million year on
year. In contrast, the air-freight forwarding business posted a modest increase of 1.2% to ¥67,223
million, while revenue from the logistics business edged just 0.2% higher to ¥17,539 million.
Combining other areas such as packing operations and other services, operating revenue
edged up ¥797 million, or 0.7%, to ¥111,488 million, with operating income down ¥115 million, or
2.8%, to ¥4,036 million.

Home Convenience
Home Convenience services include moving services and lifestyle support services, such as home
services intimately connected with the needs of local markets, in addition to merchandise marketing.
Despite a tough market environment due to intensified competition with rival companies, moving
services posted ¥33,667 million in revenue, up ¥577 million, or 1.7%, from the previous fiscal year.
Merchandise marketing also grew steadily, recording ¥24,179 million in revenue, up 13.7%, or¥2,918 million.
As a result, operating revenues increased ¥1,114 million, or 2.6%, to ¥44,498 million. Furthermore, operating income was ¥381 million, reversing an operating loss of ¥638 million posted for theprevious fiscal year.

e-Business
The e-Business segment encompasses information services targeting business customers, including ASP services and the development of information systems.
During the year under review, e-Business established a marketing framework tailored to specificindustry sectors and took steps to change its on-premise business format to solution-oriented services. The segment’s proactive marketing efforts, meanwhile, included proposals comprised ofelements such as tracing and security.
As a result, operating revenues increased 11.7% to ¥27,279 million, largely reflecting strong
performance in information management services for the credit and consumer finance industry.

24Financial
The Financial business includes financial services targeted at business customers and consumers,such as settlement and collection.
In the fiscal year ended March 31, 2006, revenue from Collect Service was ¥26,068 million, up
12.6% from a year ago. Revenue from installment credit loans was ¥12,218 million, due to the addition of Fine Credit to the Yamato Group.
Consequently, operating revenues for this segment, which included the April 1, 2005 consolidation of Fine Credit, increased 71.7% to ¥45,744 million.

Financial Review
Operating Costs
In the fiscal year ended March 31, 2006, the Company recorded consolidated operating costs andexpenses of ¥1,076,240 million, up ¥55,540 million, or 5.4% from the previous fiscal year. Significant components of the operating costs were as follows:
Breakdown of operating costs
Years ended March 31
Personnel expenses
Subcontracting expenses
Vehicle expenses
Other expenses
Elimination of internal procurement costs
Total

Millions of Yen

2005

2006

¥ 542,306 ¥ 563,267
357,024
387,956
27,27731,502
235,163
250,463(141,070)(156,948)¥1,020,700 ¥1,076,240

Increase/decrease¥ 20,961
30,932
4,225
15,300(15,878)¥ 55,540

Major factors contributing to increased operating costs and expenses were higher subcontracting expenses for Kuroneko Mail and increased subcontracting expenses resulting from delivering
more diverse types of goods. As a result, subcontracting expenses for fiscal 2006 increased¥30,932 million.
Personnel expenses increased ¥20,961 million, mainly from an increase of ¥20,513 million insalaries to employees to boost service quality. The number of employees increased 11,185 to
152,787, due largely to a higher number of part-time employees in the Delivery business.

Other Income and Expenses
In fiscal 2006, other expenses—net totaled ¥61,009 million.
The major factor contributing to expenses was a ¥60,161 million loss on devaluation of land
accompanying the spin-off of the Delivery business. Moreover, a ¥2,177 million loss on impairmentof long-lived assets was booked due to the application of impairment accounting beginning theprevious year, continued negative growth in operating activities at six asset groups, including the
Kyoto branch office of Kyoto Yamato Transport Co., Ltd., and a significant drop in market prices.

25

Net Income
In fiscal 2006, income before income taxes and minority interests decreased ¥54,029 million, or
87.5%, to ¥7,712 million. Income taxes increased ¥3,317 million to ¥31,276 million.
With the inclusion of ¥404 million in minority interests, the Company posted a net loss of¥23,968 million. Return on equity (ROE) was negative 5.4%, while net loss per share was ¥53.47.
In light of sharply higher operating income, the annual dividend was ¥20.00, an increase of ¥2.0
from the previous fiscal year.

Cash Flows
Operating Activities
Net cash provided by operating activities totaled ¥84,675 million, an increase of ¥8,033 million fromthe previous fiscal year. The major factors included a decrease in income before income taxes andminority interests of ¥54,029 million to ¥7,712 million, the booking of a loss on devaluation of landof ¥60,161 million, and a ¥9,729 million increase in allowance for retirement benefits.

Investing Activities
Net cash used in investing activities was ¥54,271 million, an increase of ¥14,281 million. The principal uses of cash in investing activities were ¥41,566 million for acquiring fixed assets, ¥5,123 million
more than in the previous year, and ¥4,780 million for the acquisition of Fine Credit.

Financing Activities
Net cash used in financing activities totaled ¥25,355 million, a decrease of ¥8,557 million from theprevious fiscal year. This result was principally due to ¥78,740 million in proceeds from loans by
Fine Credit and others, ¥85,532 million for repayments of debt, and the absence of ¥17,000 million
used for the redemption of company bonds in the previous fiscal year.
As a result of these factors, cash and cash equivalents at the end of the fiscal year totaled¥125,504 million, up ¥5,474 million from the end of the previous fiscal year.

Financial Position
Total current assets as of March 31, 2006 were ¥405,608 million, an increase of ¥136,119 million,or 50.5%. This growth came mainly atop of an increase in the installment receivable balance of¥113,648 million accompanying the new consolidation of Fine Credit.
Net property, plant and equipment decreased ¥46,911 million, or 14.5%, to ¥277,630 million.
The major factor contributing to this decrease was a loss on devaluation of land of ¥60,161 million
from the spin-off of the Delivery business.
Investments and other assets increased ¥27,858 million, or 33.9%, to ¥109,984 million. Thiswas due primarily to an increase of ¥23,254 million in investment securities to ¥46,305 million.
As a result of the foregoing, total assets increased ¥117,066 million, or 17.3%, from the end of
the previous fiscal year, to ¥793,222 million.
The new consolidation of Fine Credit was responsible for increases in current and long-term
liabilities. The former included short-term bank loans of ¥43,705 million, up ¥43,668 million from theprevious year, and deferred profit on installment sales of ¥23,368 million. The latter consisted of anincrease in long-term debt of ¥38,768 million to ¥54,189 million.

26

As a result, total current liabilities increased ¥93,479 million, or 49.6%, to ¥282,125 million. The
current ratio was 143.8%. Total long-term liabilities increased ¥55,162 million, or 192.7%, to¥83,782 million.
Total shareholders’ equity declined ¥35,102 million, or 7.7%, to ¥423,690 million. The principal
factors were the decrease in retained earnings due to the posting of ¥23,968 million in net loss, aswell as a ¥19,981 million decrease in capital surplus due largely to the disposal of treasury stock.
Net assets per share for the period under review declined ¥67.94, or 6.7%, to ¥951.08. The
shareholders’ equity ratio dropped 14.5 percentage points to 53.4%.

Capital Expenditure
Capital expenditure was ¥48,865 million, providing the necessary delivery framework to improve thequality of the core Takkyubin services and offer additional services across Japan. The following is abreakdown of capital expenditure:

Breakdown of capital expenditure

Millions of Yen

Thousands of
U.S. Dollars

2005

2006

2006

Delivery
BIZ-Logistics
Home Convenience
e-Business
Financial
Eliminations and Corporate¥26,657830
458
906
11,632483¥33,557
1,539
381
1,406
11,88498$285,667
13,102
3,239
11,969101,164837

Consolidated¥40,966¥48,865$415,978In the Delivery business, capital expenditure was used for the opening of new Takkyubin centers, additional purchase and replacement of delivery vehicles, and other purposes. Major changes
in the Delivery business network are detailed below.
Network
Number of vehicles
Number of delivery channels
Number of sub-agents

2005

2006

49,046
8,467
296,438

54,693
10,777
289,59827

Consolidated Balance Sheets
March 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

ASSETS

2006

2005

2006

$ 1,068,195

CURRENT ASSETS:
Cash (Note 2.c)

¥ 125,481¥ 119,694

Time deposits (Note 2.c)

30

342

259

Marketable securities (Note 5)

891

111

7,580

Trade

129,352

116,174

1,101,152

Installment (Note 4)

113,648

Notes and accounts receivable:

Allowance for doubtful accounts(6,773)

967,461(501)(57,661)

Inventories

2,667

2,464

22,707

Deferred tax assets (Note 10)17,467

15,957

148,693

Prepaid expenses and other current assets

22,845

15,248

194,478405,608

269,489

3,452,864

Land (Notes 6 and 7)

92,030152,270

783,437

Buildings and structures (Note 6)

232,054

221,403

1,975,428

Vehicles

185,175

173,614

1,576,358

Machinery and equipment

97,528103,942830,238

Construction in progress

4,557

3,714

38,792

611,344654,943

5,204,253(333,714)(330,402)(2,840,842)

277,630

324,541

2,363,411

46,30523,051

394,188

Total current assets

PROPERTY, PLANT AND EQUIPMENT—At cost:

Total
Accumulated depreciation
Net property, plant and equipment

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 5 and 7)
Investments in and advances to non-consolidated subsidiaries and affiliates,
401

762

3,409

Long-term loans

net of valuation allowance of ¥75 million ($638 thousand) in 2006 and 2005

3,002

3,058

25,553

Lease deposits

26,69927,039227,286

Deferred tax assets (Note 10)

11,0106,812

93,725

Other assets

22,567

21,404

192,111

Total investments and other assets
TOTAL
See notes to consolidated financial statements.

28

109,984

82,126936,272¥ 793,222¥ 676,156$ 6,752,547

Thousands of
U.S. Dollars(Note 1)Millions of Yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

2006

2005

2006

CURRENT LIABILITIES:
Short-term bank loans (Note 7)
Current portion of long-term debt (Note 7)¥ 43,025

¥

37

680

$ 366,264
5,789

Notes and accounts payable:Trade102,935

91,118876,266

Construction

16,083

11,489136,916

Income taxes payable

22,07520,508

187,920

Employees’ savings deposits

3,355

3,309

28,563

Accrued expenses

49,05549,310417,596

Deferred profit on installment sales (Note 4)

23,368Other current liabilities

21,54912,875

183,439

282,125

188,6462,401,680

Long-term debt (Note 7)

54,18915,421

461,301

Liability for employees’ retirement benefits (Note 8)

22,81913,012

194,249

Total current liabilities

198,927

LONG-TERM LIABILITIES:

Retirement allowances for directors and corporate auditors

96

821

Deferred tax liabilities (Note 10)

4,823

41,059Other long-term liabilities

1,855

187

15,78883,782

28,620713,218

3,625

98

30,8591,026,439

Total long-term liabilities
MINORITY INTERESTSCONTINGENT LIABILITIES (Note 12)
SHAREHOLDERS’ EQUITY (Notes 7, 9 and 16):
Common stock—authorized, 1,787,541,000 shares in 2006 and
530,000,000 shares in 2005;
issued, 457,062,665 shares in 2006 and 469,478,756 shares in 2005

120,576

120,550

Capital surplus

113,474

133,455

965,984

Retained earnings

199,972

232,151

1,702,324

Unrealized gain on available-for-sale securities

11,3804,325

96,873

(172)

(653)

(1,467)(21,540)(31,036)(183,363)

Foreign currency translation adjustments
Treasury stock—at cost, 11,654,307 shares in 2006 and19,359,536 shares in 2005
Total shareholders’ equity
TOTAL

423,690458,792

3,606,790¥793,222¥676,156$6,752,547

29

Consolidated Statements of Operations
Years Ended March 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006

2005

2006

OPERATING REVENUES¥1,144,961¥1,071,903$9,746,837

OPERATING COSTS AND EXPENSES:
Operating costs
Selling, general and administrative expenses

1,043,372
32,868998,786
21,914

8,882,032
279,793

Total operating costs and expenses

1,076,240

1,020,700

9,161,825

68,721

51,203585,012

(559)
500
(130)
(1,250)
(45)
1,121
2,177
4

(492)
496

(4,759)4,256(1,103)(10,639)
(383)
9,541
18,53734

Operating income
OTHER (INCOME) EXPENSES:Interest and dividend income
Interest expense
Amortization of negative goodwill
Gain on adjustment of leasing property
Gain on sales of marketable and investment securities
Loss on disposal of property, plant and equipment
Loss on impairment of long-lived assets (Note 6)
Bond issuance costs
Gain on decrease of retirement benefit obligation upon transfer of unfunded
retirement benefit plan to cash balance plan (Note 2.i)
Loss on devaluation of land
Other—net

(427)
1,015
4,597
4
(14,383)

60,161(970)(1,348)512,136(8,255)61,009(10,538)

519,365

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

7,712

61,74165,647

INCOME TAXES (Note 10):
Current
Deferred

35,152(3,876)29,485(1,526)299,243(32,994)

31,276

27,959266,249

Other (income) expenses—net

Total income taxes
MINORITY INTERESTS IN NET EARNINGS (LOSS) OFCONSOLIDATED SUBSIDIARIESNET (LOSS) INCOME

404¥(23,968) ¥

(66)

3,434

33,848$ (204,036)

Yen

2006
PER SHARE OF COMMON STOCK (Notes 2.q and 13):
Basic net (loss) income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

30¥(53.47) ¥20.00

U.S. Dollars

2005

74.02
72.48
18.00

2006

$

(0.46)
0.17

Consolidated Statements of Shareholders’ Equity
Years Ended March 31, 2006 and 2005

Thousands

BALANCE, APRIL 1, 2004
Take-over of retained earnings formerger of non-consolidated subsidiaries
Adjustment of retained earnings for
newly consolidated subsidiaries
Net income
Cash dividends, ¥19 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Disposal of treasury stock
Shares issued on conversion of
convertible debt
Net increase in unrealized gain on
available-for-sale securities
Foreign currency translation adjustments
BALANCE, MARCH 31, 2005
Adjustment of retained earnings for
newly consolidated subsidiaries
Net loss
Cash dividends, ¥18 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Shares issued on conversion of convertible debt
Net increase in unrealized gain on
available-for-sale securities
Foreign currency translation adjustments
BALANCE, MARCH 31, 2006

Millions of Yen

Outstanding
Number of
Shares ofCommonStockCommonStockCapitalSurplus456,408¥120,548¥133,453

Unrealized
Gain onAvailablefor-sale
Securities

Foreign
Currency
Translation
Adjustments¥206,877 ¥ 4,183¥(625)

Retained
Earnings

Treasury
Stock¥(20,721)(28)
286
33,848(8,671)(161)(6,323)31(10,364)
49

3

2

2
142

450,119

120,550

133,455

232,151

(28)
(653)

4,325

(31,036)

3(23,968)(8,101)(113)(4,773)19
43

26(10,545)30
20,011

4(20,011)26
7,055

445,408¥120,576¥113,474¥199,972

481¥(172)¥11,380¥(21,540)

Thousands of U.S. Dollars (Note 1)

CommonStock

BALANCE, MARCH 31, 2005
Adjustment of retained earnings for
newly consolidated subsidiaries
Net loss
Cash dividends, $0.15 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Disposal of treasury stock
Retirement of treasury stock
Shares issued on conversion of convertible debt
Net increase in unrealized gain on
available-for-sale securities
Foreign currency translation adjustments
BALANCE, MARCH 31, 2006

$1,026,218

CapitalSurplusRetained
Earnings$1,136,075 $1,976,259

Unrealized
Gain onAvailablefor-sale
Securities$36,820

Foreign
Currency
Translation
Adjustments

TreasuryStock$(5,558) $(264,201)

29(204,036)(68,965)
(963)

221

(89,770)261
170,34735(170,347)
221
60,053$1,026,439$ 965,984 $1,702,324$96,873

4,091$(1,467) $(183,363)

See notes to consolidated financial statements.

31

Consolidated Statements of Cash Flows
Years Ended March 31, 2006 and 2005

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2006
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes—paidDepreciation and amortization
Loss on disposal of property, plant and equipment
Loss on impairment of long-lived assets
Loss on devaluation of land
Gain on sales of marketable and investment securities
Changes in assets and liabilities, net of effects from newly consolidated subsidiaries:
Increase in notes and accounts receivable
Decrease (increase) in inventories
Increase in notes and accounts payable
Increase (decrease) in liability for employees’ retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities
INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment
Purchases of property, plant and equipment
Proceeds from sales of marketable and investment securities
Purchases of marketable and investment securities
Decrease (increase) in investments in and advances tonon-consolidated subsidiaries and affiliates
Acquisition of new subsidiaries’ shares,
net of cash owned by those subsidiaries (Note 15)
Cash collected from long-term loans
Cash advanced for long-term loans
Other
Net cash used in investing activities
FINANCING ACTIVITIES:
Proceeds from short-term bank loans
Repayments of short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Dividends paid
Paid in from minority shareholders
Treasury stocks
Other
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS INCREASED BY MERGERNET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLYCONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

32

¥

2005

2006

7,712

¥ 61,741(35,325)
35,003
1,121
2,177
60,161(45)(27,805)
37,146
1,015
4,597
(427)

(300,714)
297,973
9,541
18,537512,136(383)(5,124)
114
9,812
9,729
(660)
76,96384,675(19,719)(88)
22,292(5,255)
3,145
14,901
76,642(43,622)972
83,53082,823(5,620)655,173
720,820724(41,566)436(7,029)143(36,443)
8,480(5,353)6,165(353,839)
3,709(59,839)

73

(194)

621

(4,780)2,523(2,457)(2,195)(54,271)

2,942(2,443)(7,122)(39,990)(40,693)
21,478(20,917)(18,681)(461,996)

42,000(80,752)
36,740(4,780)(8,138)35(10,511)51(25,355)
263

(105)
1,988
(17,000)(8,667)(10,315)
187(33,912)$65,647357,538(687,427)
312,761(40,691)(69,277)294(89,475)
431(215,846)

5,312

(11)
156
2,885

2,242
45,220162
120,030¥125,504

114
117,031¥120,030

1,380
1,021,790$1,068,390

Notes to Consolidated Financial Statements
Years Ended March 31, 2006 and 2005

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL
STATEMENTS

d. Inventories—Inventories which mainly consist of supplies are stated at cost as
determined by the first-in, first-out method.

The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law
and its related accounting regulations, and in conformity with accounting principles
generally accepted in Japan, which are different in certain respects as to applicationand disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications
and rearrangements have been made to the consolidated financial statements
issued domestically in order to present them in a form which is more familiar toreaders outside Japan. In addition, certain reclassifications and rearrangements
have been made in the 2005 financial statements to conform to the classifications
and presentations used in 2006.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Yamato Holdings Co., Ltd. (the “Company”) is
incorporated and operates. The translations of Japanese yen amounts into U.S.
dollar amounts are included solely for the convenience of readers outside Japanand have been made at the rate of ¥117.47 to $1, the approximate rate ofexchange at March 31, 2006. Such translations should not be construed as
representations that the Japanese yen amounts could be converted into U.S.
dollars at that or any other rate.

e. Marketable and Investment Securities—Marketable and investment securities
are classified and accounted for, depending on management’s intent, as follows:(1) trading securities, which are held for the purpose of earning capital gains innear term are reported at fair value, and the related unrealized gains and losses
are included in earnings, (2) held-to-maturity debt securities, which are expected
to be held to maturity with the positive intent and ability to hold to maturity arereported at amortized cost and (3) available-for-sale securities, which are notclassified as either of the aforementioned securities, are reported at fair value, withunrealized gains and losses, net of applicable taxes, reported in a separate component of shareholders’ equity. The Group has no trading securities.
Non-marketable available-for-sale securities are stated at cost determined by
the moving-average method.
For other than temporary declines in fair value, investment securities are
reduced to net realizable value by a charge to income.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation—The consolidated financial statements as of March 31, 2006
include the accounts of the Company and its 50 significant (43 in 2005) subsidiaries (together, the “Group”).
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully
consolidated, and those companies over which the Group has the ability to
exercise significant influence are accounted for by the equity method.
The remaining non-consolidated subsidiaries, whose combined assets, net
sales, net income and retained earnings in the aggregate are not significant to theconsolidated financial statements, have not been consolidated with the Company.
There were no affiliates accounted for by the equity method in 2006 or 2005.
Investments in the remaining non-consolidated subsidiaries and affiliates arestated at cost less a valuation allowance representing possible losses on theinvestments that are deemed to be other than temporary. If the equity method of
accounting had been applied to the investments in such companies, the effect on
the accompanying consolidated financial statements would not be material.
The excess of the costs over the underlying net equity of investments inconsolidated subsidiaries is allocated to identifiable assets, and the remaining
amount is recognized as goodwill and amortized on a straight-line basis over a
five-year period, with the exception of minor amounts which are charged or
credited to income in the period of acquisition.
All significant intercompany balances and transactions have been eliminatedin consolidation. All material unrealized profit included in assets resulting fromtransactions within the Group is eliminated.
b. Recognition of Operating Revenues—The Group recognizes freight charge
income as operating revenues at the time when freight has been received from theshipping customer for transportation.
The Group also records installment sales receivables, which include principal
and fees from customers, after the Group has accepted the relevant contracts
which are referred to the Group by participating member stores. Fees from customers and member stores were generally recognized in equal installment over the
lives of each respective contract.
c. Cash Equivalents—Cash equivalents are short-term investments that arereadily convertible into cash and that are exposed to insignificant risk of changes
in value. Cash equivalents include time deposits, certificate of deposits and mutual
funds investing in bonds that represent short-term investments, all of whichmature or become due within three months of the date of acquisition.
The difference between cash and time deposits in the accompanying consolidated balance sheets and cash and cash equivalents in the accompanying consolidated statements of cash flows is as follows:

Cash
Time deposits
TotalTime deposits due beyond three months
Cash and cash equivalents

Millions of Yen

Thousands of
U.S. Dollars

2006
2005
¥125,481 ¥119,694
30
342
125,511
120,036(7)(6)¥125,504 ¥120,030

2006$1,068,195
259
1,068,454(64)$1,068,390

f. Property, Plant and Equipment—Property, plant and equipment are stated atcost. Depreciation of property, plant and equipment of the Company and its
consolidated domestic subsidiaries is computed substantially by the declining-balancemethod at rates based on the estimated useful lives of the assets, while thestraight-line method is applied to the buildings acquired after April 1, 1998. The
depreciation of property, plant and equipment of foreign consolidated subsidiaries
is computed on the straight-line method over the estimated useful lives of theassets. The range of useful lives is principally as follows:
Buildings and structures
VehiclesMachinery and equipment

7–60 years
2– 7 years
2–20 years

Maintenance and repairs including minor renewals and improvements arecharged to income as incurred.
g. Long-lived Assets—In August 2002, the Business Accounting Council (“BAC”)
issued a Statement of Opinion, “Accounting for Impairment of Fixed Assets,” andin October 2003 the Accounting Standards Board of Japan (“ASBJ”) issued ASBJ
Guidance No. 6, “Guidance for Accounting Standard for Impairment of Fixed
Assets.” These new pronouncements are effective for fiscal years beginning on orafter April 1, 2005 with early adoption permitted for fiscal years ending on or after
March 31, 2004.
The Group adopted the new accounting standard for impairment of fixed assets
as of April 1, 2004. The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or
asset group may not be recoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds the sum of the undiscounted
future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as theamount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued use
and eventual disposition of the asset or the net selling price at disposition.
h. Other Assets—Amortization of intangible assets is computed on the straight-line
method over the period specified by the Japanese Commercial Code (the “Code”).
Bond issuance costs are deferred as other assets and amortized on thestraight-line method over a three-year period.
i. Retirement and Pension Plan (See Note 3, Accounting Change)—The
Company and certain consolidated subsidiaries have a contributory trusteed
pension plan and an unfunded retirement benefit plan. The foreign subsidiaries
have a defined contribution retirement plan. Other consolidated subsidiaries have an
unfunded retirement benefit plan and a general establishment welfare pension fund.
The Company and certain consolidated subsidiaries revised their retirement
benefit regulations on October 1, 2004, and transferred their unfunded retirement
benefit plan to the cash balance plan.
As a result of this transfer, the Company recognized a gain on the decreaseof its retirement benefit obligation in the amount of ¥14,383 million for the year
ended March 31, 2005.
Directors and corporate auditors are not covered by the retirement andpension plans described above. Benefits paid to such persons are charged toincome as paid. Any amounts payable to directors and corporate auditors uponretirement are subject to the approval of the shareholders.
j. Retirement Allowances for Directors and Corporate Auditors—Retirement
allowances for directors and corporate auditors for certain subsidiaries arerecorded to state the liability at the amount that would be required if all directors
and corporate auditors retired at each balance sheet date.

33

k. Leases—All leases are accounted for as operating leases. Under Japanese
accounting standards for leases, finance leases that deem to transfer ownership ofthe leased property to the lessee are to be capitalized, while other finance leases
are permitted to be accounted for as operating lease transactions if certain “as if
capitalized” information is disclosed in the notes to the lessee’s financial statements.
l. Income Taxes—The provision for income taxes is computed based on thepretax income included in the consolidated statements of operations. The asset
and liability approach is used to recognize deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. Deferred taxes are measured
by applying currently enacted tax laws to the temporary differences.
m. Appropriations of Retained Earnings—Appropriations of retained earnings at
each year end are reflected in the consolidated financial statements for the following year upon shareholders’ approval.
n. Foreign Currency Transactions—All short-term and long-term monetary
receivables and payables denominated in foreign currencies are translated into
Japanese yen at the exchange rates at the balance sheet date.
o. Derivative Financial Instruments—Certain consolidated subsidiaries use
derivative financial instruments to manage their exposures to fluctuations ininterest rates. Interest rate swaps are utilized by the consolidated subsidiaries toreduce interest rate risks. The consolidated subsidiaries do not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified
and accounted for as follows: (a) all derivatives are recognized as either assets or
liabilities and measured at fair value, and gains or losses on derivative transactions
are recognized in the statements of income and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items,
gains or losses on derivatives are deferred until maturity of the hedged transactions.
The interest rate swaps which qualify for hedge accounting and meet specificmatching criteria are not remeasured at market value but the differential paid or
received under the swap agreements are recognized and included in interest
expense or income.
p. Foreign Currency Financial Statements—The balance sheet accounts of theconsolidated foreign subsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date except for shareholders’ equity, which
is translated at the historical rate. Differences arising from such translation wereshown as “Foreign currency translation adjustments” in a separate component ofshareholders’ equity.
Revenue and expense accounts of the consolidated foreign subsidiaries aretranslated into Japanese yen at the current exchange rates as of the balance
sheet date.
q. Per Share Information—Basic net income per share is computed by dividing
net income available to common shareholders, by the weighted-average numberof common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if
securities were exercised or converted into common stock. Diluted net income pershare of common stock assumes full conversion of the outstanding convertible
notes and bonds at the beginning of the year (or at the time of issuance) with anapplicable adjustment for related interest expense, net of tax, and full exercise ofoutstanding warrants.
Cash dividends per share presented in the accompanying consolidated
statements of operations are dividends applicable to the respective years including
dividends to be paid after the end of the year.
r. New Accounting Pronouncements
Business combination and business separation
In October 2003, the BAC issued a Statement of Opinion, “Accounting for Business Combinations,” and on December 27, 2005 the ASBJ issued “AccountingStandard for Business Separations,” and ASBJ Guidance No. 10, “Guidance for
Accounting Standard for Business Combinations and Business Separations.”
These new accounting pronouncements are effective for fiscal years beginning on
or after April 1, 2006.

34

The accounting standard for business combinations allows companies toapply the pooling of interests method of accounting only when certain specificcriteria are met such that the business combination is essentially regarded as auniting-of-interests. These specific criteria are as follows:(a) the consideration for the business combination consists solely of commonshares with voting rights,(b) the ratio of voting rights of each predecessor shareholder group after thebusiness combination is nearly equal, and(c) there are no other factors that would indicate any control exerted by any
shareholder group other than voting rights.
For business combinations that do not meet the uniting-of-interests criteria,
the business combination is considered to be an acquisition and the purchasemethod of accounting is required. This standard also prescribes the accounting for
combinations of entities under common control and for joint ventures. Goodwill,
including negative goodwill, is to be systematically amortized over 20 years or less,but is also subject to an impairment test.
Under the accounting standard for business separations, in a businessseparation where the interests of the investor no longer continue and the investment is settled, the difference between the fair value of the consideration received
for the transferred business and the book value of net assets transferred to theseparated business is recognized as a gain or loss on business separation in thestatement of income. In a business separation where the interests of the investor
continue and the investment is not settled, no such gain or loss on businessseparation is recognized.
Bonuses to directors and corporate auditors
Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate
auditors were accounted for as a reduction of retained earnings in the fiscal year
following approval at the general shareholders meeting. The ASBJ issued ASBJ
Practical Issues Task Force (PITF) No. 13, “Accounting Treatment for Bonuses to
Directors and Corporate Auditors,” which encouraged companies to record
bonuses to directors and corporate auditors on the accrual basis with a related
charge to income, but still permitted the direct reduction of such bonuses fromretained earnings after approval of the appropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new
accounting standard for bonuses to directors and corporate auditors on
November 29, 2005. Under the new accounting standard, bonuses to directors
and corporate auditors must be expensed and are no longer allowed to be directly
charged to retained earnings. This accounting standard is effective for fiscal years
ending on or after May 1, 2006. The companies must accrue bonuses to directors
and corporate auditors at the year end to which such bonuses are attributable.

3. ACCOUNTING CHANGE
Beginning fiscal year 2005, the Group changed its policy of reporting actuarial
differences in the accounting for its employee retirement benefit plan. Formerly,
the Group recorded actuarial differences from the fiscal year in which theyoccurred. However, effective April 1, 2005, actuarial differences will be recorded
from the fiscal year following when they occurred.
The Company also changed the recording period of actuarial differences fromseven years to five years.
The effects of these changes were to increase recognized actuarial loss andto decrease income before income taxes and minority interests by ¥3,483 million($29,650 thousand) for the year ended March 31, 2006.

4. NOTES AND ACCOUNTS RECEIVABLE
Sales recorded on the installment basis were 1.1 % of net sales in 2006.
Annual maturities of notes and accounts receivable—installment at March 31,
2006 and related amortization of deferred profit on installment sales are as follows:

2007
2008
2009
2010
2011
2012 and thereafter
Total

Millions of Yen
DeferredProfit on
Installment
Receivables
Sales

Thousands of U.S. Dollars
DeferredProfit on
Installment
Receivables
Sales¥ 54,345
30,31016,705
7,673
3,417
1,198
¥113,648$462,626
258,025
142,20365,31729,087
10,203$967,461¥ 9,421
6,640
4,000
2,019
924
364
¥23,368$ 80,199
56,52534,04917,191
7,862
3,101$198,927

5. MARKETABLE AND INVESTMENT SECURITIES

6. LONG-LIVED ASSETS

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

The Group reviewed its long-lived assets for impairment as of the years ended
March 31, 2006 and 2005 and, as a result, recognized an impairment loss of¥2,177 million ($18,537 thousand) as other expense for the asset groups of the
Kyoto Branch of Kyoto Yamato Co., Ltd. and six regional branches of Yamato
Transport Co., Ltd. and ¥4,597 million as other expense for the asset groups of
the Saikyo Regional Branch and another five regional branches, respectively, due
to continuous operating losses of those units. The carrying amounts of the relevant asset groups were written down to the recoverable amounts. In the casewhere net selling prices were used as recoverable amounts, relevant buildings
were evaluated based on assessed value of fixed assets, and relevant lands were
evaluated based on posted land price.

Thousands of
U.S. Dollars

Millions of Yen

2006

2005

Current:
Government and corporate bonds
Other
Total

¥
¥

Non-current:
Marketable equity securities
Non-marketable equity securities
Other
Total

¥33,918
2,039
10,348¥46,305

¥
891
891

2006

10
101
111

¥

$
$

¥14,2291,754
7,068¥23,051

7,580
7,580

$288,741
17,35788,090$394,188

Information regarding each category of the securities classified asavailable-for-sale and held-to-maturity at March 31, 2006 and 2005 was as follows:

7. BANK LOANS AND LONG-TERM DEBT
Short-term bank loans at March 31, 2006 and 2005 consisted of notes to banks
and bank overdrafts. The annual interest rates applicable to the bank loans
ranged from 0.570% to 1.680% and were at 1.375% at March 31, 2006 and2005, respectively.
Long-term debt at March 31, 2006 and 2005 consisted of the following:
Millions of Yen

Millions of Yen

2006

2006
Cost

Securities classified as:
Available-for-sale:
Equity securities
Other
Held-to-maturity¥13,121
5,010
4,891

Unrealized
Gains

Unrealized
Losses¥20,799
1¥ 2

Fair Value

20¥33,918
5,011
4,871

Unrealized
LossesFair Value

Millions of Yen

2005
Cost

Securities classified as:
Available-for-sale:
Equity securities
Other
Held-to-maturity

Unrealized
Gains¥39,500

2006$336,2562,000¥ 2,000

17,026

13,36954,869(680)¥54,189

13,421
15,421

113,808
467,090(5,789)$461,301¥15,421

Annual maturities of long-term debt at March 31, 2006 were as follows:¥7,0195,010
1,004¥7,253¥43¥14,229
5,010
1,008

4
Thousands of U.S. Dollars

2006
Unrealized
Gains

Unrealized
Losses$111,699 $177,061
42,646
16
41,637
4

$ 19

Cost

Securities classified as:
Available-for-sale:
Equity securities
Other
Held-to-maturity

1.340% to 2.295% loans froma Japanese bank due 2007 to 2012
Unsecured 1.05% bonds
due in December 2007
Unsecured 1.2% convertible debentures,convertible into common stockat ¥1,211.80 per share,due in September 2009
Total
Less current portion
Total

Thousands of
U.S. Dollars

2005

Fair Value$288,741
42,662
41,468173

The majority of available-for-sale securities whose fair value is not readily
determinable as of March 31, 2006 and 2005 were as follows:
Carrying AmountMillions of Yen

Available-for-sale:
Equity securities
Preferred shares

Thousands of
U.S. Dollars

2006

2005

2006

¥2,0391,000¥1,7541,000$17,357
8,513

Proceeds from the sales of available-for-sale securities for the years ended
March 31, 2006 and 2005 were ¥265 million ($2,252 thousand) and ¥440 million,
respectively. Gross realized gains on these sales, computed on the moving average cost basis, were ¥45 million ($383 thousand) and ¥427 million for the years
ended March 31, 2006 and 2005, respectively.
The carrying values of debt securities by contractual maturities for securities
classified as held-to-maturity at March 31, 2006 are as follows:
Millions of Yen
Held to Maturity

Due in one year or lessDue after one year through five years
Total

¥ 891
4,000
¥4,891Thousands of
U.S. Dollars
Held to Maturity

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2007
2008
2009
2010
2011
2012 and thereafter
Total

¥

$

680
3,180
15,18035,289180360¥54,869

5,789
27,071
129,224
300,409
1,532
3,065$467,090

At March 31, 2006, land with carrying amount of ¥209 million ($1,781 thousand) was pledged as collateral for short-term bank loans of ¥25 million ($213
thousand). Investment securities with a carrying amount of ¥15 million ($131
thousand) were deposited as security for dealings at March 31, 2006.
Convertible debentures of the Company at March 31, 2006, were convertible
into 11,032 thousand shares of common stock of the Company. The conversion
prices are subject to adjustments to reflect stock splits and certain other events.
The Company has entered into loan commitment agreements amounting to¥28,000 million ($238,359 thousand) with financial facilities. The loans receivable
outstanding and the unused balances under these credit facilities as of March 31,
2006 amounted to ¥0 million ($0 thousand) and ¥28,000 million ($238,359 thousand), respectively.

8. RETIREMENT AND PENSION PLANS
The Group has severance payment plans for employees.
Under most circumstances, employees terminating their employment areentitled to retirement benefits determined based on the rate of government bonds,
years of service and certain other factors. Such retirement benefits are made in
the form of a lump-sum severance payment from the Company or from the consolidated subsidiaries and annuity payments from a trustee. Employees areentitled to larger payments if the termination is involuntary, by retirement at the
mandatory retirement age, by death, or by voluntary retirement at certain specificages prior to the mandatory retirement age. The retirement benefits for directors
and corporate auditors are paid subject to the approval of the shareholders.

$ 7,580
34,057$41,637

35

The liability for employees’ retirement benefits at March 31, 2006 and 2005
consisted of the following:

Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial gain (loss)
Prepaid pension cost
Net liability

Millions of Yen

Thousands of
U.S. Dollars

2006
2005
¥ 76,037 ¥ 80,367(56,319)(45,643)
3,067(21,712)34¥ 22,819 ¥ 13,012

2006$ 647,283(479,432)
26,108290$ 194,249

The components of net periodic benefit costs for the years ended March 31,
2006 and 2005 are as follows:
Millions of Yen

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of prior service cost
Net periodic benefit costs

2006¥ 4,929
1,620
917
7,393
¥14,859

2005¥ 4,9811,608
7,110(14,383)¥ (684)

Thousands of
U.S. Dollars

2006$ 41,961
13,794
7,805
62,932$126,492

Assumptions used for the years ended March 31, 2006 and 2005 are set
forth as follows:

Discount rate
Expected rate of return on plan assets
Amortization period of prior service cost
Recognition period of actuarial gain/loss:
Company
Consolidated subsidiaries

2006
2.0%
(2.0%)
1 year

2005
2.0%
0.0%
1 year

5 years
5 years

7 years
5 years

The amount of pension assets calculated from the premium contribution ratio
for the general establishment welfare pension fund is ¥797 million.

9. SHAREHOLDERS’ EQUITY
Through May 1, 2006, Japanese companies are subject to the Code.
The Code requires that all shares of common stock be issued with no par value
and at least 50% of the issue price of new shares is required to be recorded ascommon stock and the remaining net proceeds are required to be presented asadditional paid-in capital, which is included in capital surplus. The Code permits
Japanese companies, upon approval of the Board of Directors, to issue shares toexisting shareholders without consideration by way of a stock split. Such issuance ofshares generally does not give rise to changes within the shareholders’ accounts.
The Code also provides that an amount of 10% or more of the aggregate
amount of cash dividends and certain other appropriations of retained earnings
associated with cash outlays applicable to each period (such as bonuses todirectors) shall be appropriated as a legal reserve (a component of retained
earnings) until the total of such reserve and additional paid-in capital equals 25%of common stock. The amount of total legal reserve and additional paid-in capitalthat exceeds 25% of the common stock may be available for dividends by resolution of the shareholders after transferring such excess in accordance with the Code.
In addition, the Code permits the transfer of a portion of additional paid-in capitaland legal reserve to the common stock by resolution of the Board of Directors.
The Code allows Japanese companies to purchase treasury stock anddispose of such treasury stock upon resolution of the Board of Directors. The
aggregate purchased amount of treasury stock cannot exceed the amount available for future dividends plus the amount of common stock, additional paid-in
capital or legal reserve that could be transferred to retained earnings or othercapital surplus other than additional paid-in capital upon approval of such transfer
at the annual general meeting of shareholders.
In addition to the provision that requires an appropriation for a legal reserve inconnection with the cash outlays, the Code also imposes certain limitations on theamount of capital surplus and retained earnings available for dividends. The
amount of capital surplus and retained earnings available for dividends under the
Code was ¥179,836 million ($1,530,914 thousand) as of March 31, 2006, basedon the amount recorded in the parent company’s general books of account.

36

Dividends are approved by the shareholders at a meeting held subsequent to
the end of the fiscal year to which the dividends are applicable. Semiannual interim
dividends may also be paid upon resolution of the Board of Directors, subject tocertain limitations imposed by the Code.
On May 1, 2006, a new corporate law (the “Corporate Law”) became effective, which reformed and replaced the Code with various revisions that would, forthe most part, be applicable to events or transactions which occur on or after May
1, 2006 and for the fiscal years ending on or after May 1, 2006. The significant
changes in the Corporate Law that affect financial and accounting matters are
summarized below:(a) Dividends
Under the Corporate Law, companies can pay dividends at any time during the
fiscal year in addition to the year-end dividend upon resolution at the shareholders
meeting. For companies that meet certain criteria such as: (1) having the Board of
Directors, (2) having independent auditors, (3) having the Board of Corporate
Auditors, and (4) the term of service of the directors is prescribed as one year
rather than two years of normal term by its articles of incorporation, the Board of
Directors may declare dividends (except for dividends in kind) if the company hasprescribed so in its articles of incorporation.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash
assets) to shareholders subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution
by the Board of Directors if the articles of incorporation of the company so stipulate. Under the Code, certain limitations were imposed on the amount of capitalsurplus and retained earnings available for dividends. The Corporate Law also
provides certain limitations on the amounts available for dividends or the purchaseof treasury stock. The limitation is defined as the amount available for distribution
to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(b) Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Corporate Law requires that an amount equal to 10% of dividends must be
appropriated as a legal reserve (a component of retained earnings) or as additional
paid-in capital (a component of capital surplus) depending on the equity accountcharged upon the payment of such dividends until the total of aggregate amountof legal reserve and additional paid-in capital equals 25% of the common stock.
Under the Code, the aggregate amount of additional paid-in capital and legal
reserve that exceeds 25% of the common stock may be made available fordividends by resolution of the shareholders. Under the Corporate Law, the total
amount of additional paid-in capital and legal reserve may be reversed without
limitation of such threshold. The Corporate Law also provides that common stock,legal reserve, additional paid-in capital, other capital surplus and retained earnings
can be transferred among the accounts under certain conditions upon resolutionof the shareholders.
(c) Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchase treasury stock anddispose of such treasury stock by resolution of the Board of Directors. The
amount of treasury stock purchased cannot exceed the amount available for
distribution to the shareholders which is determined by specific formula.
Under the Corporate Law, stock acquisition rights, which were previously
presented as a liability, are now presented as a separate component of shareholders’ equity.
The Corporate Law also provides that companies can purchase both treasury
stock acquisition rights and treasury stock. Such treasury stock acquisition rights
are presented as a separate component of shareholders’ equity or deducted
directly from stock acquisition rights.
On December 9, 2005, the ASBJ published a new accounting standard forpresentation of shareholders’ equity. Under this accounting standard, certain
items which were previously presented as liabilities are now presented as components of shareholders’ equity. Such items include stock acquisition rights, minority
interest, and any deferred gain or loss on derivatives accounted for under hedge
accounting. This standard is effective for fiscal years ending on or after May 1, 2006.

10. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national andlocal income taxes which, in the aggregate, resulted in a normal effective statutory
tax rate of approximately 40% for the years ended March 31, 2006 and 2005.

Thousands of U.S. Dollars

The tax effects of significant temporary differences which resulted in deferred
tax assets and liabilities at March 31, 2006 and 2005 are as follows:
Thousands of
U.S. Dollars

Millions of Yen

Deferred tax assets:
Current:
Accrued expenses
Enterprise tax
Allowance for doubtful accounts
Legal welfare expense
Other
Deferred tax assets—current
Non-current:
Liability for employees’
retirement benefits
Investment securities
Investment in and advances tonon-consolidated subsidiaries
and affiliates
Loss on devaluation of land
Loss on impairment oflong-lived assets
Loss on devaluation of telephone
subscription rights
Unrealized profit
Other
Less valuation allowance
Deferred tax assets—non-current

2006
Buildings
andStructures Vehicles

2006

2005

2006

¥ 10,643
2,126
1,495
1,409
1,835
¥ 17,508¥11,410
1,942
77
1,454
1,112
¥15,995$ 90,600
18,095
12,728
11,99915,623$ 149,045

Acquisition cost
Accumulated depreciation
Net leased property

$840
281
$559

¥ 4,901
2,534$ 77,226
22,915

196
26,598

2,836

1,666
226,425

2,797

1,861

23,815603
678
980(28,546)¥ 15,070

525
607
701
(3,768)¥10,197

5,136
5,769
8,340
(243,008)$ 128,284

Deferred tax liabilities:
Current—other
Deferred tax liabilities—current

¥
¥

¥
¥

$
$

Non-current:
Unrealized gain on available-for-salesecurities
Other
Deferred tax liabilities—non-current
Deferred tax assets—net¥ 8,335548¥ 8,883¥ 23,654

Other
AssetsTotal$3,286 $165,477 $4,323 $173,926
1,159
61,937 1,163
64,540$2,127 $103,540 $3,160 $109,386
Millions of Yen

2005
Buildings
andStructures Vehicles

Acquisition cost
Accumulated depreciation
Net leased property¥ 9,072
2,692

MachineryandEquipment

¥99
22
¥77

¥180
132
¥ 48

MachineryandEquipment

Other
Assets¥16,768
8,821¥ 7,947

¥96
40
¥56

Total

¥17,143
9,015¥ 8,128

Obligations under finance leases which included the imputed interest expense
portion, and noncancelable operating leases as of March 31, 2006 and 2005 wereas follows:
Millions of Yen

Thousands of U.S. Dollars

2006

Due within one year
Due after one year
Total

2006

Finance
Lease

Operating
Lease

Finance
Lease

OperatingLease¥ 4,026
8,824¥12,850

¥ 591
1,084
¥1,675$ 34,275
75,111$109,386$ 5,034
9,228$14,262

Millions of Yen

2005
41
41

38
38

¥ 2,884501¥ 3,385¥22,769352
352$ 70,953
4,665$ 75,618$ 201,359

A reconciliation between the normal effective statutory tax rates and theactual effective tax rates reflected in the accompanying consolidated statementsof operations for the years ended March 31, 2006 and 2005 is as follows:
2006
40.0%
28.4
322.2
15.0
405.6%

Normal effective statutory tax rate
Per capita levy of local taxes
Valuation allowance
Other—net
Actual effective tax rate

2005
40.0%
3.4
1.8
0.1
45.3%

11. LEASES
Total lease payments under finance lease arrangements that do not transfer ownership of the leased property to the lessee were ¥4,022 million ($34,238 thousand)and ¥3,259 million for the years ended March 31, 2006 and 2005, respectively.
Pro forma information of leased property such as acquisition cost, accumulated
depreciation, accumulated impairment loss and obligations under finance leases
that do not transfer ownership of the leased property to the lessee on an “as if
capitalized” basis for the years ended March 31, 2006 and 2005 was as follows:

Due within one year
Due after one year
Total

Finance
Lease

Operating
Lease¥2,636
5,492¥8,128

¥ 88
124
¥212

12. CONTINGENT LIABILITIESContingent liabilities for guarantees and items of a similar nature at March 31,
2006 amounted to ¥153 million ($1,301 thousand) representing guarantees ofloans of an unaffiliated company jointly and severally by the Company and 18
other unaffiliated companies and ¥105 million ($897 thousand) as guarantees ofloans of a non-consolidated subsidiary.

13. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share(“EPS”) for the year ended March 31, 2005 is as follows:
Millionsof YenYear Ended March 31, 2005

Basic EPS—Net income available tocommon shareholders
Effect of dilutive securities—
Convertible bonds
Diluted EPS—Net income
for computation

Net Income

Thousandsof Shares
Weighted-average
Shares

EPS¥33,735

455,771¥74.02

101

11,075¥33,836

466,846

Yen¥72.48

Diluted net income per share for the year ended March 31, 2006 is notdisclosed because of the Company’s net loss position.

Millions of Yen

2006
Buildings
andStructures Vehicles

Acquisition cost
Accumulated depreciation
Net leased property

¥99
33
¥66

¥386
136
¥250

MachineryandEquipment

Other
AssetsTotal¥19,438
7,275¥12,163

¥508
137
¥371

¥20,4317,581¥12,85037

14. SEGMENT INFORMATION
Information about industry segments, geographic segments and operating revenues to foreign customers of the Company and consolidated subsidiaries for the years ended
March 31, 2006 and 2005 is as follows:(1) Industry Segments
Millions of Yen

2006
Delivery

BIZ-Logistics

Home
Convenience

e-Business

Financial

Eliminations
or Corporate

a. Operating revenues and operating income:Operating revenues to customers
Intersegment operating revenues
Total operating revenues
Operating costs and expenses
Operating income¥915,952
32,643
948,595
899,779¥ 48,816¥111,488
13,400124,888
120,852¥ 4,036¥44,498
15,52560,02359,642¥ 381¥27,279
16,141
43,42039,790¥ 3,630¥ 45,744
6,590
52,33442,739¥ 9,595¥ (84,299)(84,299)(86,562)¥ 2,263

1,144,961
1,076,240¥ 68,721

b. Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures¥363,707
24,57733,557¥ 49,808
1,017
1,539

¥16,840529
381¥22,560
1,119
1,406

¥223,092
7,591
11,884¥117,215
170
98¥ 793,222
35,00348,865

Consolidated

Consolidated¥1,144,961

Thousands of U.S. Dollars

2006
Delivery

BIZ-Logistics

Home
Convenience

e-Business

Financial

Eliminations
or Corporate

a. Operating revenues and operating income:Operating revenues to customers
Intersegment operating revenues
Total operating revenues
Operating costs and expenses
Operating income$7,797,325
277,887
8,075,212
7,659,654$ 415,558$ 949,072
114,074
1,063,146
1,028,784$ 34,362$378,807
132,160
510,967
507,720$ 3,247$232,221
137,405
369,626
338,728$ 30,898$ 389,412
56,099445,511363,828$ 81,683$(717,625)(717,625)(736,889)$ 19,264

9,746,837
9,161,825$ 585,012

b. Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures$3,096,171
209,217285,667$ 424,004
8,661
13,102$143,357
4,509
3,239

$192,050
9,524
11,969$1,899,139
64,618101,164$ 997,826
1,444
837

$6,752,547
297,973
415,978

Consolidated$9,746,837

Millions of Yen

2005
Delivery

BIZ-Logistics

Home
Convenience

e-Business

Financial

Eliminations
or Corporate

a. Operating revenues and operating income (loss):
Operating revenues to customers
Intersegment operating revenues
Total operating revenues
Operating costs and expenses
Operating income (loss)¥866,752
30,238896,990
860,723¥ 36,267¥110,691
10,734
121,425
117,274¥ 4,151¥43,384
14,97158,35558,993¥ (638)¥24,432
14,776
39,20836,299¥ 2,909¥26,644
6,882
33,52627,099¥ 6,427¥(77,601)(77,601)(79,688)¥ 2,087

1,071,903
1,020,700¥ 51,203b. Assets, depreciation and capital expenditures:
AssetsDepreciation
Capital expenditures¥407,299
28,25026,657¥ 45,682
1,012
830¥16,442740
458¥22,263891
906¥86,163
6,064
11,632¥ 98,307
189
483¥ 676,156
37,14640,966¥1,071,903

Notes: Delivery:
Small-parcel delivery services such as Takkyubin (door-to-door parcel delivery) and Kuroneko Mail
BIZ-Logistics:
Intercompany logistics services, aimed at the B2B supply-chain management market
Home Convenience: Lifestyle support services intimately connected with the needs of local markets, such as moving and home cleaning services
e-Business:
Information services targeted at the business market, including ASP services and the development of information systems
Financial:
Financial services targeted at business customers and consumers, such as settlement and collection
The effect of the change in the accounting of the employee retirement benefit plan described in Note 3 was to decrease operating income of Delivery, BIZ-Logistics,
Home Convenience, e-Business and Financial for the year ended March 31, 2006, by ¥3,025 million ($25,753 thousand), ¥158 million ($1,342 thousand), ¥119 million($1,014 thousand), ¥40 million ($337 thousand) and ¥142 million ($1,212 thousand), respectively, from such segments in the prior year.

38

(2) Geographic Segments
The geographic segments of the Company and consolidated subsidiaries for the years ended March 31, 2006 and 2005 are summarized as follows:
Millions of Yen

2006

Operating revenues:
Outside customers
Interarea
Total operating revenues
Operating costs and expenses
Operating income (loss)
AssetsJapan

U.S.A.

EuropeAsia¥1,120,372
5,047
1,125,419
1,056,925¥ 68,494¥ 665,639¥14,292
3,352
17,64417,306¥ 338¥ 3,247¥3,324
1,444
4,768
4,976
¥ (208)¥1,426¥6,973
2,664
9,637
9,540
¥ 97
¥4,196

Eliminations
or Corporate

Consolidated¥1,144,961¥ (12,507)(12,507)(12,507)¥118,714

1,144,961
1,076,240¥ 68,721¥ 793,222

Eliminations
or Corporate

Consolidated

Thousands of U.S. Dollars

2006

Operating revenues:
Outside customers
Interarea
Total operating revenues
Operating costs and expenses
Operating income (loss)
AssetsJapan

U.S.A.

EuropeAsia$9,537,510
42,9669,580,476
8,997,396$ 583,080$5,666,457$121,669
28,529150,198
147,319$ 2,879$ 27,646$28,300
12,29340,59342,361$ (1,768)$12,136$59,358
22,68382,041
81,220$ 821$35,719$9,746,837$ (106,471)(106,471)(106,471)$1,010,589

9,746,837
9,161,825$ 585,012$6,752,547

Consolidated

Millions of Yen

2005

Operating revenues:
Outside customers
Interarea
Total operating revenues
Operating costs and expenses
Operating income
AssetsJapan

U.S.A.

EuropeAsia

Eliminations
or Corporate¥1,048,648
5,128
1,053,776
1,003,398¥ 50,378¥ 554,329¥13,925
2,665
16,59016,219¥ 371¥ 2,853¥3,905
1,356
5,261
5,135
¥ 126
¥1,793¥5,425
2,256
7,681
7,354
¥ 327
¥3,439¥ (11,405)(11,405)(11,406)¥
1¥113,742¥1,071,903
1,071,903
1,020,700¥ 51,203¥ 676,156

Operating revenues and assets are summarized by geographic area based on the countries where subsidiaries are located.
(3) Operating Revenues to Foreign Customers
Operating revenues to foreign customers for the years ended March 31, 2006 and 2005 amounted to ¥27,078 million ($230,513 thousand) and ¥26,201 million, respectively.

15. SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED STATEMENTS OF CASH FLOWSIn April 2005, the Company acquired 70% of the shares of Fine Credit Co., Ltd.
The assets and liabilities of Fine Credit Co., Ltd. at the commencement of consolidation with the Company and reconciliation between the acquisition cost and net
cash used for the acquisition are as follows:

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Minority interests
Acquisition cost
Cash and cash equivalents
Net cash used for acquisition

Millions of Yen

Thousands of
U.S. Dollars¥ 120,296
8,603
(86)
(116,475)(3,083)(2,802)
6,453(1,669)4,784$1,024,056
73,234(732)(991,531)(26,241)(23,855)
54,931(14,205)
40,726

16. SUBSEQUENT EVENT
The following appropriations of retained earnings at March 31, 2006 wereapproved at the Company’s shareholders meeting held on June 28, 2006:
Millions of Yen

Year-end cash dividends, ¥11.00 ($0.09) per share
Bonuses to directors and corporate auditors¥4,89923

Thousands of
U.S. Dollars$41,708
196

39

Independent Auditors’ Report

To the Board of Directors of
Yamato Holdings Co., Ltd.:We have audited the accompanying consolidated balance sheets of Yamato Holdings Co., Ltd. (formerly Yamato Transport Co., Ltd.)(the “Company”) and consolidated subsidiaries (together, the “Group”) as of March 31, 2006 and 2005, and the related consolidated
statements of operations, shareholders’ equity, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we planand 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 all material respects, the consolidated financial
position of Yamato Holdings Co., Ltd. and consolidated subsidiaries as of March 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
As discussed in Note 3, the Group changed its policy of reporting actuarial differences in the accounting of employee retirement
benefit plan as of April 1, 2005.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience ofreaders outside Japan.

June 28, 2006

40

Profile

Corporate Data

The Yamato Group consists of Yamato Holdings Co., Ltd. (“the Company”), 57 subsidiaries
and four affiliated companies. It is primarily involved in the Delivery, BIZ-Logistics, Home
Convenience, e-Business, Financial and Group Support businesses as well as services incidental
to these activities. The goal of the Yamato Group is to help bring about a better society byfurther refining the Takkyubin network, which is a part of the social infrastructure, creating
services that facilitate more convenient, comfortable lifestyles, and developing innovative
logistics systems. In pursuit of this goal the Group has developed products and services that
help improve the convenience of people’s lives. Looking ahead, the Group plans to develop
even more sophisticated services and to strengthen its profitability out of an ongoingcommitment to a stable form of management.

Head Office

BIZ-Logistics

e-BusinessYamato Holdings Co., Ltd.

Yamato Logistics Co., Ltd.*

Yamato System Development Co., Ltd.*

16-10, Ginza 2-chome, Chuo-ku, Tokyo

Yamato Packing Service Co., Ltd.*

Yamato Career Service Co., Ltd.*

104-8125, Japan

Konan Industry Co., Ltd.*

Yamato Systems U.S.A., Inc.*

Telephone: (03) 3541-4141

Yamato Transport U.S.A., Inc.*

Yamato Contact Service Co., Ltd.

Facsimile: (03) 5565-3427

Yamato Transport (U.K.) Ltd*

Dream Create Co., Ltd.

Contents

Yamato Transport Europe B.V.*

Major Subsidiaries and Affiliates

Yamato Transport (Hong Kong) Ltd.*

Financial

DeliveryYamato Transport (S) Pte. Ltd.*

Yamato Financial Co., Ltd.*

Yamato Transport Co., Ltd.*

Taiwan Yamato International Logistics Inc.*

Yamato Lease Co., Ltd.*

Okinawa Yamato Transport Co., Ltd.*

Yamato (Shanghai) Logistics Co., Ltd.*

Fine Credit Co., Ltd.*

Yamato Autoworks Co., Ltd.*

Yamato International Logistics., Ltd.*World Computer Center Co., Ltd.*

Yamato Autoworks Okinawa Co., Ltd.*

Yamato Transport (M) Sdn. Bhd.
*Consolidated subsidiaries

Kyoto Yamato Transport Co., Ltd.*
Kobe Yamato Transport Co., Ltd.*

Home Convenience

Box Charter Co., Ltd.*

Yamato Home Convenience Co., Ltd.*

Common Stock

Yamato Box Charter Co., Ltd.*

Hokkaido Yamato Home Convenience

Authorized: 1,787,541,000 shares

Yamato Box Charter Miyagi Co., Ltd.*

Co., Ltd.*

Issued: 457,062,665 shares

Yamato Box Charter Iwate Co., Ltd.*

Tohoku Yamato Home Convenience

Yamato Box Charter Niigata Co., Ltd.*

Co., Ltd.*

Stock Exchange Listing

Yamato Box Charter Kanazawa Co., Ltd.*

Hokushinetsu Yamato Home Convenience

Tokyo Stock Exchange

Yamato Box Charter Shizuoka Co., Ltd.*

Co., Ltd.*

Yamato Box Charter Aichi Co., Ltd.*

Chubu Yamato Home Convenience Co., Ltd.*

Yamato Box Charter Chugoku Co., Ltd.*

Kansai Yamato Home Convenience Co., Ltd.*

Transfer Agent andRegistrar

Yamato Box Charter Okayama Co., Ltd.*

Chugoku Yamato Home Convenience

Mizuho Trust & Banking Co., Ltd.

Yamato Box Charter Shikoku Co., Ltd.*

Co., Ltd.*

Consolidated Financial Highlights .............................

1

Six-year Consolidated Financial Summary ................ 21

Message from the Management ...............................

2

Management’s Discussion and Analysis ................... 22

Yamato Box Charter Fukuoka Co., Ltd.*

Shikoku Yamato Home Convenience

Annual Meeting

Consolidated Balance Sheets ................................... 28

Yamato Box Charter Kumamoto Co., Ltd.*

Co., Ltd.*The annual meeting of shareholders is nor-

Yamato Box Charter Kagoshima Co., Ltd.*

Kyushu Yamato Home Conveniencemally held in June in Tokyo, Japan.

Yamato·Staff·Supply Co., Ltd.*

Co., Ltd.*

Yamato Management Service Co., Ltd.*

Book Service Co., Ltd.*

Auditors

Yamato Architects & Design Co., Ltd.

Swan Co., Ltd.

Deloitte Touche Tohmatsu

Swan Net Co., Ltd.

(by Tohmatsu & Co., the Japanese member

Swan Charcoal Distribution Co., Ltd.

of Deloitte Touche Tohmatsu)

Continuous Innovation ..............................................

5

Business Framework

Consolidated Statements of Operations ................... 30

Group Corporate GovernanceConsolidated Statements of Shareholders’ Equity .... 31

Business Activities

Consolidated Statements of Cash Flows .................. 32

Highlights of the Year ................................................ 16

Notes to Consolidated Financial Statements ............ 33

Environmental Preservation and Social Activities ...... 18

Independent Auditors’ Report .................................. 40

Directors and Auditors .............................................. 20

Corporate Data ......................................................... 41

Principal Shareholders

Stock Price Range
Percentage of total
shares outstanding

Forward-Looking Statements
This annual report contains forward-looking statements concerning Yamato Holdings’ future plans, strategies and performance. Thesestatements represent assumptions and beliefs based on information currently available and are not historical facts. Furthermore, forward-looking
statements are subject to a number of risks and uncertainties that include, but are not limited to, economic conditions, customer demand, foreign currency exchange rates, tax laws and other regulations. Yamato Holdings therefore cautions readers that actual results may differ materially from these predictions.

The Master Trust Bank of Japan, Ltd. (Trust Account)

7.87%

Japan Trustee Services Bank, Ltd. (Trust Account)

7.42%

Mizuho Bank, Ltd.

3.77%

Yamato Employees’ Shareholding Association

2.98%

Meiji Yasuda Life Insurance Co.

2.68%(Tokyo Stock Exchange)

(Yen)

High

Low

First quarter

1,553

1,348

Second quarter

1,920

1,411

Third quarter

2,070

1,712

Fourth quarter

2,420

1,837

Distribution of Shareholders

The Sumitomo Trust & Banking Co., Ltd. (Trust Account B)

2.12%

Yamato Trading-Partner Shareholding Association

2.06%

State Street Bank and Trust Company 505103

2.04%

Financial Institutions

42.5%

1.85%

Securities Companies

1.5%

1.63%

Other Institutions

6.4%

34.42%

Foreign Investors

31.5%

Sumitomo Life Insurance Co.
JPMCB Omnibus US Pension Treaty JASDEC 380052
Total

Individuals and Others

18.1%

Total

100.0%(As of March 31, 2006)

4541

Annual Report 2006
Year ended March 31, 2006

Y A M A T O HOLDINGS C O . , L T D .

DeliveryHome
ConvenienceA n n u a l R e p o r t 2006

INNOVATION
e-Business

Printed in Japan on recycled paper

BIZ-Logistics

Financial

Group
Support