2006
Annual Report
For the year ended March 31, 2006

TONAMI TRANSPORTATION CO., LTD.

TONAMI TRANSPORTATION CO., LTD.

URL:http://www.tonami.co.jp/

Printed in Japan on recycled paper

Board of Directors and Statutory Auditors
Tonami Transportation is a leader in total logistics solutions that span
all aspects from design and development of distribution channels tofreight haulage and all related information management functions.

Chairman and Representative Director
Yoshihiro Minami

Tonami has pioneered computerized distribution services in Japan, inte-

President and Representative Director
Katsusuke Watanuki

grating physical transport with information management to provide
advanced systematized distribution services

Senior Managing Director
Akiyoshi Kunisada

The Tonami Group offers a fully integrated distribution network inJapan and overseas, based on distribution centers in 117 locations

Standing Statutory Auditors
Makoto Nagai
Nariyuki Aoki

Managing Directors
Kohichi Kishida
Shigeki Sakamotoaround the country linked by an advanced information network.
Tonami Group distribution services add value to industry and enhance

Statutory Auditors
Shinichiro Inushima
Toshio Yaeda
Yohji Ishiguro

Director and Adviser
Yohsuke Konishi

the lifestyles of individuals.

Directors
Noriaki Murata
Kiyomi Asamizu
Yasuo Terabayashi
Yoshinobu Watanabe
Toshiyuki Koroku
Shigeyuki Okada(As of June 29, 2006)

Corporate Data

Strategic Logistics Solutions
Head Office2-12, Showa-machi 3-chome, Takaoka,
Toyama Prefecture 933-8566, Japan
Phone: (0766) 21-1073
Fax: (0766) 21-3640

Contents
1 Consolidated Financial Highlights
2 To Our Shareholders and Investors
5 Corporate Governance
8 Corporate Social Responsibility Activities
9 Financial Section
44 Consolidated Subsidiaries
45 Board of Directors and Statutory Auditors
45 Corporate Data

Issued and Outstanding Shares
97,610,118 shares

Tokyo Office
3-8, Higashinihonbashi 3-chome, Chuo-ku,
Tokyo 103-0004, Japan
Phone: (03) 3664-5401
Fax: (03) 3664-5405
Date of Established

June 1943

Common Stock¥14,183 million

Forward-Looking Statements
This annual report includes forward-looking statements that represent Tonami’s assumptions and expectations in light of currently available
information. These statements reflect industry trends, clients’ situations and other factors, and involve risks and uncertainties which may
cause actual performance results to differ from those discussed in the forward-looking statements in accordance with changes in thebusiness environment.

45

Shareholders

8,162

Employees

5,298

Terminals

84

Warehouses

48

Motor Vehicles

5,542(As of March 31, 2006)

Consolidated Financial Highlights
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESTwo years ended March 31, 2006
Thousands of
U.S. dollars(Note 1)
2006

Millions of yen
2006
2005

FOR THE YEAR:
Operating revenues¥129,098¥129,068$1,098,987

Logistics

117,151

117,816

997,284

Others11,947

11,252

101,703

Operating income

2,057

2,983

17,511

Net income (loss)(5,050)2,173(42,990)

22.94$ (0.4769)

—

21.36

—

6.00

6.00

0.0511¥121,577¥127,909$1,034,962

47,02952,496400,349

PER SHARE (Yen and U.S. dollars):
Net income (loss), basic¥ (56.02)

Net income (loss), diluted
Cash dividends¥

AT YEAR-END:
Total assets
Total shareholders’ equity

Notes: 1. U.S. dollar amounts presented herein are included solely for convenience. The rate of ¥117.47 = U.S.$1, prevailing on March 31,
2006, has been used for the translation into U.S. dollar amounts.
2. The computation of net income per share of common stock is based on the weighted average number of shares outstanding (which
represents the number of issued shares less treasury stock.) during each financial year.

Operating Revenues by
Business Segment

Operating Income

Net Income (Loss) and
Net Income (Loss) per Share
(Billions of yen)(Billions of yen)(Billions of yen)
3

150

2

100

50

1

0

0
’02

’03

’04

’05

’06

(Yen)

5

50

4

40

3

30

2

20

1

10

0

0

-10
’02

’03

’04

’05

’06

-100
’02

’03

’04

’05

’06

Net Income (Loss) (Left scale)
Net Income (Loss) per Share, basic (Right scale)

Logistics
Others01

To Our Shareholders and Investors

Chairman, Yoshihiro Minami

President, Katsusuke Watanuki

Operating Environment and Business Results

During the fiscal year ended March 31, 2006, Japan’s economy followed a recovery trajectory as capital investment rose and the employment situation improved, supported by resurgent corporate
earnings, while personal consumption was brisk. Nevertheless, a sharp rise in the price of oil andother causes for concern contributed to an uncertain economic outlook.
In the distribution industry, the business environment remained adverse. The volume of domestic
freight transport continues to decline, and erosion of unit freight charges persists owing to customer
demands for greater efficiency in physical distribution and intensification of competition. At thesame time, fuel costs and other costs are rising.
In these circumstances, during the year under review the Tonami Group launched the 17th medium-term business plan, a three-year plan with the slogan “Committed to Corporate Innovation.”
Specifically, we worked to expand highly profitable businesses by integrating systematized distribution (third-party logistics) — the provision of comprehensive physical distribution services thatcombine business processes including existing transport, storage, distribution processing, inventory
management, delivery, and information processing — with proposal capabilities while strengthening
sales power by deploying a distribution solutions business characterized by improved logistics.
In the fiscal year under review, the first year of the plan, although revenues from mainstay road
haulage operations decreased in an adverse operating environment, we worked to cover the shortfall
by strengthening related operations. As a result, operating revenues were ¥129,098 million, an
increase of 0.02% year on year.
Internally, we implemented measures to increase operating efficiency through productivity
enhancement and mounted a group-wide effort to cut fuel costs and other operating costs. Despite
these efforts, operating income decreased 31.06% year on year to ¥2,057 million. Net income
decreased substantially year on year to ¥5,050 million, principally owing to the booking of an extraordinary loss of ¥7,678 million in line with the application of the accounting standards for impairment of fixed assets.
We plan to pay total annual dividends of ¥6 yen per share, including the interim dividend of ¥3
per share.
Issues to be Addressed

Although the economic recovery trend in Japan is expected to continue, in the distribution industry
a decrease in the volume of domestic freight transport for the seventh consecutive year is forecast. In
these circumstances, the Tonami Transport Group has several issues to address, including devising
responses to the increase in fuel costs due to a spike in crude oil prices, the strengthening of govern-02

ment environmental and safety regulations, and globalization and the implementation of information and communication technologies underpinning physical distribution. In this business environment, we launched the 17th medium-term business plan under the slogan “Aiming for a New
Value-Added Corporate Group — Committed to Corporate Innovation.”
The business plan sets forth the following six core objectives:
1) Develop the distribution solutions business;
2) Upgrade the quality of distribution services;
3) Strengthen international operations;4) Increase revenues from road haulage operations;5) Recruit, retain, and develop human resources; and
6) Build an internal control structure.
By engaging in focused efforts within the framework of these objectives, we will manage with theaim of expanding the Group’s business by increasing competitive advantage and enhancing value tosociety through the creation of additional value in our distribution operations and the fulfillment ofcorporate social responsibility. Specific numerical targets for the final year of the plan (the year ending March 2008) are operating revenues of ¥142,000 million, operating income of ¥2,700 million,
and an operating margin of 1.9%. We are committed to achieving these targets.
With regard to capital investment in the year under review, we opened the Nishi-yodogawa
Distribution Center (Osaka) in July and a representative office in Shanghai in August. We will continue to actively engage in strategic expansion and enhancement of our transportation network anddistribution facilities.
Outlook for the Year Ending March 2007

Although Japan’s economy is forecast to continue to perform solidly in the fiscal year ending
March 2007, it is necessary to pay close attention to persisting high crude oil prices, signs of risinginterest rates, and destabilizing factors in the international situation, notably with regard to theeconomies of the United States and China. Also, as previously mentioned, the distribution industry
faces a number of issues and the operating environment is likely to remain adverse. In these circumstances, we will work to secure operating revenues and increase profitability by redoubling ourefforts to achieve the objectives set forth in the newly launched 17th medium-term business plan.
As a result of the above circumstances, we forecast full-year operating revenues of ¥130,000 million (100.7% of the previous year), operating income of ¥2,250 million (109.4%), and net incomeof ¥1,800 million for the fiscal year ending March 31, 2007.
We will strive to improve business performance to meet the expectations of our shareholders. In
all our endeavors in the coming years, we request the continued support of our shareholders.
June 2006

Yoshiro Minami
Chairman and Representative Director

Katsusuke Watanuki
President and Representative Director
03

Tonami’s Transport Network and Distribution Centers
Total number of distribution centers: 48
Tonami’s major licensed routes
Routes provided by alliance partners

Chugoku region: 2
Hokuriku region: 11

Niigata

Kanazawa

Hiroshima

Shinetsu region: 4

Toyama

Fukui

Osaka

NagoyaKanto region: 10

Kansai region: 17
ShizuokaTokyo

Tokai region: 4

Tonami Logistics Solutions

Physical distribution
consulting functions

Physical distribution
network functions

Procurement logistics

Production logistics

Raw materials (Parts etc.)
manufacturers

Factories

Environmental
logistics

In-house logistics

Goods returned, repairs,
waste, etc.

Warehouses, distribution
centers

Sales logistics

Consumers

Destinations in Japan

Wholesalers, retailers
Overseas suppliers

ImportExportDestinations overseas

International logistics
Systematized distribution (3PL), information sharing
Supply chain management (SCM)

Information systemdevelopment functions

Operational functions04

Corporate Governance

At a meeting of the Board of Directors held on May 8, 2006, the Company passed a resolution concerning abasic policy for internal control systems in accordance with the Company Law, which went into effect on May
1, 2006. The Company, with the Internal Control Committee in a central role, is constructing sound internal
control systems on the basis of the policy with the aim of increasing the corporate value of the Tonami
Transportation Group.

Description of Management Organization and State of Development of Internal Control Systems

1) Basic Explanation of the Management Organization
The Board of Directors of the Company is the organization responsible for important matters concerning business policy and business strategy. In accordance with the Board of Directors Regulations,
the Board of Directors convenes, in principle, once a month and convenes for extraordinary meetings
as necessary so that the directors attain mutual understanding and engage in mutual supervision of
the execution of business and employ the services of outside experts as necessary to prevent violations of the law or the Articles of Incorporation.The Management Council deliberates and decides
matters related to business execution. Meetings of the Management Council are held, in principle,
twice a month and attended by all directors and the standing statutory auditors.
The Company employs a statutory auditor system as part of its internal control framework. The
Board of Statutory Auditors consists of five statutory auditors (two standing statutory auditors andthree outside statutory auditors). The statutory auditors audit the legality of the directors’ actions byattending meetings of the Board of Directors and other important meetings, by offering their opinions, and by other means.
The statutory auditors, including the outside statutory auditors, audit the execution of business by
the directors in accordance with the auditing policy and task assignments decided by the Board of
Statutory Auditors. In the event that a director discovers a violation of the law or the Articles ofIncorporation on the part of another director, the director is required to promptly report the violation to the Board of Statutory Auditors and the Board of Directors and a remedy will be sought. The
Company’s Internal Audit Office, an organization independent of the business units, is an internal
auditing unit. The Company employs an executive officer system and separates responsibility of
directors for business supervision from that of executive officers for the execution of business.
Furthermore, the Company is constructing internal control systems as an aspect of the development of an internal control structure. The Company has established the Internal Control Committee,
which is chaired by the president, and its subordinate organizations: the Compliance Committee, acompliance control organization, and the Business Risk Management Committee, the cornerstone of
the risk management structure.
With regard to subsidiary management, the Management Council Regulations specify matters forparent company approval and reporting and subsidiaries are managed in accordance with theSubsidiary Management Regulations.

052) The Relationship between the Management Organization and Internal Control
General Meeting of Shareholders
Auditing

Board of Directors(Representative directors)(Directors)
Attorney

Board of Statutory Auditors(Statutory auditors)(Outside statutory auditors)

Internal Audit Office
Independent auditors

Supervision
Opinions

Auditing

Business Execution
Management Council(Representative directors)(Directors)

Internal control
ReportingCompliance Committee
Internal
ControlCommittee

Internal
auditing

Business Risk Management
CommitteePlanformulation,
reporting

Policypresentation,plan approval

Divisions, blocks, group companies, branches, sales offices, centers3) Description of Management Organization and State of Development of Internal Control Systems
In constructing its internal control systems, the Company has established a basic policy concerningbusiness risk management for the Tonami Transportation Group and is working to appropriately
respond to various types of risk that might have an effect on the operation of the business, to stabilize the fundamentals of the Group and, should a business risk materialize, to minimize the impact
and as far as possible ensure that neither a business loss nor a social loss is incurred.
The Company recognizes the importance of legal compliance and has established the Compliance
Committee to ensure compliance. The Company has appointed compliance promotion officers toinculcate corporate ethics and compliance among the officers and employees of Tonami
Transportation Group companies based on the Tonami Transportation Group Employee Code of
Conduct, and engages in education and holds briefings concerning compliance.
To promote the detection of potential violations in business activities and prevent their occurrence, the Company is establishing a compliance structure to ensure reporting on the state of compliance implementation, swift correction of any violations that occur and the devising of measures toprevent their recurrence.
The Company has adopted an executive officer system in order to separate management supervision and business execution and clearly define authority and responsibility. The executive officers
attend meetings of the Management Council, an organization that deliberates on important mattersrelated to business execution, strive to promptly execute business based on the basic policy decided
by the Board of Directors, and as necessary obtain and refer to advice from certified public accountants, attorneys, and other specialists concerning compliance matters.

06

The Company has division managers, block managers, and directors of Group companies attend
meetings of the Management Council and other important meetings as necessary, maintains a structure for rapidly responding to changes in the business environment, and strives to ensure management soundness.
The Internal Audit Office conducts internal audits to verify whether business is executed appropriately and efficiently and reports to the Management Council and the statutory auditors.

4) State of Internal Auditing and Auditing by Statutory Auditors
The Internal Audit Office of the Company is an internal auditing unit independent of the business
units and its staff assists with the work of the statutory auditors. As a means of ensuring the Internal
Audit Office’s independence from the Board of Directors, Internal Audit Office staff changes are
decided by the Board of Directors after being approved by the Board of Statutory Auditors. The
Internal Audit Office conducts periodic and unscheduled internal audits of the Company’s business,reports to the Management Council and statutory auditors, and requests improvements.
The Company’s statutory auditors exchange information with the independent auditors, cooperatewith the Internal Audit Office, conduct appropriate audits, and hold periodic meetings of the Boardof Statutory Auditors.
State of Development of Risk Management Structure

In accordance with the Tonami Transportation Business Risk Management Regulations, the president
serves as the Chief Risk Management Officer, risk management officers are appointed for each type ofrisk, and a risk management structure is established. In the event of unforeseen circumstances, inaccordance with the Tonami Transportation Group Large-Scale Disaster Response Regulations andthe Tonami Transportation Group Large-Scale Emergency Response Regulations, the Company will
establish an Emergency Response Headquarters run by the president, mount a rapid and appropriate
response in accordance with the regulations, and put in place a structure to prevent the spread ofdamage and minimize damage.
To ensure the propriety of business at Group companies, the Company has established the Tonami
Transportation Group’s Employee Code of Conduct, conduct guidelines that apply to all group companies. Group companies are establishing regulations on the basis of the code of conduct.
With regard to subsidiary management, matters requiring parent company approval and reportingare specified in the Management Council Regulations and subsidiaries are managed in accordancewith the Subsidiary Management Regulations. In the event that a director discovers a violation of thelaw or another important matter related to compliance in a group company, the director is required
to report the matter to a statutory auditor. In the event that a subsidiary finds that the business management or management instructions from the Company violate the law or notices another compliance-related problem, the subsidiary is required to report the matter to the Internal Audit Office or
the Compliance Office. The Internal Audit Office or the Compliance Office promptly reports thematter to a statutory auditor so that the statutory auditor can express an opinion and request
improvement measures.
The Company has established the Tonami Transportation Group Internal Reporting Regulations as
a group-wide internal reporting system concerning violations of the law and other matters related tocompliance.

07

Corporate Social Responsibility Activities

Basic Policy on Corporate Social Responsibility Activities

Grounded in the Company’s corporate philosophy and management creed, the Tonami
Transportation Group Employee Code of Conduct indicates proper conduct based on the spirit ofcompliance with the law and corporate ethics and stipulates that no business activity may be in violation of social norms or have an adverse effect on society or the natural environment.
Without development and growth in business activities, a company cannot earn reasonable profitsand contribute to society. The Code of Conduct indicates in the form of conduct guidelines mattersthat each individual employee of the Tonami Transportation Group must observe for the Tonami
Transportation Group to discharge its social responsibility as a good corporate citizen.
Principal CSR Initiatives and State of Implementation
Environmental Protection Activities

Annual social andenvironmental report

The Company has established the Environmental Division and is working to contribute to thecreation of a recycling society by engaging in efficient, wide-area recycling activities; this takes
the form of implementing activities centered on the theme “Society and the Environment,”
including promotion of the Eco-Lock System, which supports locally self-sufficient recycling, andthe Ministry of the Environment’s wide-area certification system. Furthermore, Tonami engages
in an environmental solutions business involving the proposal of optimal recycling routes withthe aim of achieving zero emissions.
Specific environmental protection activities include the following: 1) the introduction of environmentally friendly vehicles; 2) the practice of environmentally friendly driving; 3) the creationof eco-friendly distribution systems through greater efficiency in
distribution; and 4) resource conservation and energy conservation
efforts. In addition, Tonami issues an annual social and environmental report and has acquired ISO 14001 certification.
This truck runs on natural gas

Social Contributions

Tonami believes that it is vital for a company to increase corporate value by continuing, sustainable activities and fulfill its social responsibility to stakeholders and considers a sense of mission
and responsible activities to be essential elements of corporate social contribution.
Specific social contribution activities at Tonami include clean-up activities under an environmental beautification agreement with Takaoka City in Toyama Prefecture and the donation ofvehicles to social welfare facilities through the establishment of the Tonami Shozyukai
foundation. Tonami transports relief supplies when a natural disaster occurs, and the
Tonami badminton club offers badminton instruction classes as a local sports promotion activity.

Encouraging local people to take up
badminton

A clean-up in progress08

Financial Section

10

Consolidated Five-Year Summary

11

Consolidated Financial Review

14

Consolidated Balance Sheets

16

Consolidated Statements of Operations

17

Consolidated Statements of Shareholders’ Equity

18

Consolidated Statements of Cash Flows

19

Notes to the Consolidated Financial Statements

29

Independent Auditors’ Report30

Non-Consolidated Balance Sheets

32

Non-Consolidated Statements of Operations

33

Non-Consolidated Statements of Shareholders’ Equity

34

Non-Consolidated Statements of Cash Flows35

Notes to the Non-Consolidated Financial Statements

42

Independent Auditors’ Report43

Non-Consolidated Five-Year Summary09

Consolidated Five-Year Summary
TONAMI TRANSPORTATION CO., LTD
AND CONSOLIDATED SUBSIDIARIES
Years ended March 31
Thousands of
U.S. dollars
2006

2002

2003

Millions of yen
2004

Operating revenues¥118,515¥116,331¥126,713¥129,068¥129,098 $1,098,987

Operating cost

110,302

107,928

117,860

119,722

120,924

1,029,403

Selling, general and administrative expenses

5,755

5,630

5,994

6,363

6,117

52,073Operating income

2,458

2,773

2,859

2,983

2,057

17,511

Net income (loss)

720

4,819

1,429

2,173

(5,050)(42,990)

3,303

2,775

2,610

2,689

2,508

21,35022.94¥ (56.02) $(0.4769)

6.00

0.0511

2005

2006

RESULTS OF OPERATIONS:

Depreciation expenses
PER SHARE (yen and U.S. dollars):
Net income (loss)
Cash dividends

¥

7.38

¥

48.99

¥

14.50

¥

6.00

6.00

8.00

6.00

¥ 40,245¥ 43,692¥ 43,596¥ 42,447

Net property and equipment

65,33063,25871,502

71,79064,450548,651

Total assets

120,759

119,243

128,293

127,909

121,577

1,034,962

Total current liabilities

34,184

41,29839,01837,01036,004306,495

Long-term liabilities, excluding of current portion thereof

38,802

26,79937,83237,75937,995

323,444

Total shareholders’ equity

47,17050,50850,73552,49647,029400,349

6,952

6,943

7,320

7,289

7,278

YEAR-END FINANCIAL POSITION:
Total current assets¥ 40,682 $ 346,318

OTHER YEAR-END DATA:
Number of employees

10Consolidated Financial Review

Forward-looking statements in the text below represent the best judgment of the Tonami Transportation
Group (the Company and its consolidated subsidiaries) as of the end of the fiscal year under review.

Significant Accounting Policies and Estimates
The consolidated financial statements of the Tonami Transportation Group have been prepared in accordancewith corporate accounting standards generally recognized as fair and appropriate in Japan. Estimates used in
the preparation of the consolidated financial statements that may affect the reported amounts of assets and liabilities on the closing date and the reported revenues and expenses for the reporting period are principallydeferred tax assets, the allowance for doubtful accounts, the reserve for retirement allowance, and income
taxes. These estimates are subject to continuous, reasonable assessment.
Estimates, judgments, and assessments are made on the basis of factors that are deemed reasonable in lightof past performance and conditions. However, since estimates invariably involve uncertainties, actual results
may differ from the estimates.

Analysis of Consolidated Operating Results for the Year Ended March 31, 2006
Overview

The Tonami Transportation Group’s business results for the fiscal year ended March 31, 2006, were unfavorable with respect to profits. Amid a continuing decline in the volume of domestic freight transport, erosion ofunit freight charges persists owing to customer demands for greater efficiency in physical distribution andintensification of competition. At the same time, fuel costs and other costs are increasing. Despite efforts to cut
costs and adjust freight charges, profitability was adversely affected.
Operating Revenues

Operating revenues increased ¥30 million yen from the previous fiscal year to ¥129,098 million. The
Company compensated for lower revenues due to a slump in the volume of freight in the mainstay road
haulage operation and freight forwarding operation by means of higher revenues from the warehousing operation and other businesses. The contribution to sales was 68.7% for the road haulage operation and freight forwarding operation, 18.7% for the warehousing operation, 3.3% from the harbor transport operation, and 9.3%
from other businesses.
Operating Cost

Operating cost increased ¥1,203 million year on year to ¥120,924 million. Higher diesel oil costs due to a
spike in crude oil prices, the mounting cost of vehicle replacement as an environmental measure, and anincrease in facilities charges and payments to freight companies in line with the opening of new distribution
centers could not be absorbed by a reduction in expressway tolls and efforts to cut fuel costs through fuel efficiency. As a result, the ratio of operating cost to operating revenues increased 0.9 percentage points from theprevious fiscal year.
Operating Revenues

Operating Cost

Operating Income(Billions of yen)(Billions of yen)(Billions of yen)

150

150

3

100

100

2

50

50

1

0

0
’02

’03

’04

’05

’06

0
’02

11

’03

’04

’05

’06

’02

’03

’04

’05

’06

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased ¥246 million year on year to ¥6,117 million, principally
due to a reduction in employment costs and IT-related costs.
Operating Income

Operating income decreased ¥926 million year on year to ¥2,057 million. The rate of increase in operating
cost exceeded the rate of increase in operating revenues, resulting in a decrease of 0.7 percentage points in theoperating income margin to 1.6%.
Net Income

Net income decreased sharply from the previous year to ¥5,050 million. The principal reason for the decrease
was the booking of an extraordinary loss of ¥7,678 million in line with the application of the accounting standards for impairment of fixed assets.

Business Segment Review
Note: Operating revenues include internal operating revenues or transfers between segments.
Logistics-Related Businesses

In road haulage operations, amid sluggishness in the volume of domestic freight transport and continued erosion of unit freight charges, the Tonami Transportation Group strove to provide distribution services thatdeliver customer satisfaction by promoting a solutions business centered on systematized distribution (thirdparty logistics) and increasing transportation quality. Nevertheless, operating revenues from logistics-related
businesses decreased ¥534 million or 0.5% year on year to ¥117,302 million.
As a result of efforts to increase operating efficiency by means of higher productivity and a group-wide effort
to cut fuel costs and other costs, operating costs and selling, general and administrative expenses totaled¥115,881 million, an increase of ¥857 million or 0.7% year on year. Operating income decreased ¥1,391 million or 49.5% to ¥1,421 million.
Other Businesses

Operating revenues from other businesses increased ¥1,529 million or 8.5% year on year to ¥19,583 million
owing to such factors as sales of regular merchandise in the merchandising business and commissioned sales
and purchases business and changes in the handling of limited-sale merchandise.
Operating income increased ¥434 million or 144.2% to ¥735 million.

Factors with a Significant Effect on Operating Results
The business environment in which the Tonami Transportation Group operates entails the risk of difficulty inabsorbing cost increases due to such factors as further increases in the price of crude oil and interest rateincreases that exceed expectations. There is also risk of difficulty in absorbing cost increases due to the further
strengthening of environmental regulations, such as regulations on diesel engine vehicle emissions. In addition, the ability to recoup investment may be impeded due to factors such as worsening business conditions at
customers or the suspension of business transactions with customers. Should any of these serious problems
occur, there is risk of loss of customer confidence and public trust which could have an adverse impact on the
Tonami Transportation Group’s business activities and business results.

Net Income (Loss)

Sales of Logistics-Related
Businesses(Billions of yen)

Sales of Other Businesses(Billions of yen)(Billions of yen)

5

150

15

100

10

50

5

4
3
2
1
0
-10

0
’02

’03

’04

’05

’06

0
’02

12

’03

’04

’05

’06

’02

’03

’04

’05

’06

Strategic Position and Outlook
Amid forecasts of a decrease in the volume of domestic freight transport for the seventh consecutive year andexpected continuation of erosion of unit freight charges owing to customer demands for greater efficiency inphysical distribution and intensification of competition, the possibility of further increases in fuel costs andother costs is a concern. For these reasons, management forecasts continuation of the challenging businessenvironment.
In this environment, the Tonami Transportation Group will strive to secure operating revenues and increase
earning power by promoting its solutions business centered on systematized distribution (third-party logistics)
and increasing transportation quality to provide distribution services that deliver customer satisfaction while
redoubling efforts to achieve the objectives set forth in the newly launched 17th medium-term business plan.

Analysis of Sources of Capital and Liquidity
Cash Flows

Consolidated cash and cash equivalents (hereinafter “cash”) totaled ¥14,034 million as of March 31, 2006.
This represents a net decrease in cash of ¥2,006 million from the previous fiscal year-end. Cash used in investing activities in connection with facilities investment and cash used in financing activities for dividend payments offset positive cash flows from operating activities.
Cash flows from operating activities

Net cash provided by operating activities totaled ¥1,454 million (a decrease in net cash of ¥2,014 million year
on year). Principal factors were a net loss before income taxes of ¥5,464 million and an impairment loss of¥7,678 million on fixed assets that does not affect cash flow.
Cash flows from investing activities

Net cash used in investing activities totaled ¥2,750 million (an increase in net cash of ¥1,312 million year onyear). The principal factor was payments of ¥2,954 million for the purchase of property and equipment.
Cash flows from financing activities

Net cash used in financing activities totaled ¥710 million (a decrease in net cash of ¥1,544 million year onyear). The principal factor was payments of ¥546 million for dividends paid.

Management’s Assessment of Issues and Future Policies
The operating environment for road haulage operations entails many problems, including increasingly intensecompetition among companies, a sharp increase in fuel costs, and higher costs associated with the strengthening of environmental and transportation safety measures. Nevertheless, the Tonami Transportation Group will
work to improve business performance through an increase in transportation quality and greater operating efficiency and strive to expand highly profitable businesses by integrating systematized distribution (third-party
logistics) — the provision of comprehensive physical distribution services that combine business processes
including existing transport, storage, distribution processing, inventory management, delivery, and information processing — with proposal capabilities while strengthening sales power by deploying a distribution solutions business characterized by improved logistics.

Net Cash (Used in) Provided
by Investing Activities

Net Cash Provided byOperating Activities

Total Assets andShareholders’ Equity(Billions of yen)(Billions of yen)
8

2

6

0

(Billions of yen)
150

100
4

-2

2

-4

50

-10

-6

0
’02

’03

’04

’05

’06

’02

’03

’04

’05

’06

’02

’03

’04

Total assets
Shareholders’ equity

13

’05

’06

Consolidated Balance Sheets
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2006 and 2005ASSETS

Thousands of
U.S. dollars(Note 1)
2006

Millions of yen
2006
2005

Current assets:
Cash and time deposits¥ 13,244¥ 15,279$ 112,744

1,000

1,065

8,513

23,17922,721

197,318

(44)

(73)

(375)

Inventories

503

568

4,282

Deferred tax assets (Note 8)

626

795

5,329

2,174

2,092

18,507

40,68242,447346,318

Land

38,28542,165

325,913

Buildings and structures

22,42925,820190,934

Machinery and vehicles

3,020

3,038

25,709Construction in progress

29

51

247

Other

687

716

5,848

64,45071,790548,651

Investments in securities (Notes 3 and 5)

9,948

7,837

84,685

Deferred tax assets (Note 8)

1,909

1,179

16,251

Other

4,588

4,656

39,057

16,445

13,672

139,993¥121,577¥127,909$1,034,962

Marketable securities (Note 3)
Trade receivables:
Notes and accounts (Note 11)
Less: allowance for doubtful accounts

Other current assets
Total current assets

Property and equipment (Notes 4, 5 and 6):

Total property and equipment

Investments and other assets:

Total investments and other assets
Total assets
The accompanying Notes are an integral part of these statements.

14

LIABILITIES AND SHAREHOLDERS’ EQUITY

Millions of yen
2006
2005

Thousands of
U.S. dollars(Note 1)
2006

Current liabilities:
Short-term bank loans (Note 5)¥ 15,940¥ 15,964$ 135,694

416

653

3,541

11,791

11,313

100,375

Income taxes payable

62

684

528

Other current liabilities

7,795

8,396

66,35736,00437,010306,495

Long-term debt, less current portion (Note 5)

11,253

11,134

95,795

Deferred tax liabilities from revaluation reserve for land (Note 12)

5,800

4,595

49,374

Employees’ severance and retirement benefits (Note 7)

18,716

19,377

159,326

Consolidation difference

236

402

2,009

Other long-term liabilities

1,990

2,251

16,940Total long-term liabilities

37,99537,759323,444

Total liabilities

73,99974,769629,939

549

644

4,674

14,183

14,183

120,737

Capital surplus

14,687

14,687125,028

Retained earnings

11,393

17,47996,986

Revaluation reserve for land (Note 12)

6,245

6,768

53,163

Unrealized gain on securities

2,485

1,329

21,154(1,964)(1,950)(16,719)

47,02952,496400,349¥121,577¥127,909$1,034,962

Current portion of long-term debt (Note 5)
Trade notes and accounts payable

Total current liabilities
Long-term liabilities:

Minority interests
Contingent liabilities (Note 11)
Shareholders’ equity (Note 13):
Common stock:
Authorized: 299,200,000 shares in 2006
299,200,000 shares in 2005
Issued:97,610,118 shares in 2006
97,610,118 shares in 2005

Treasury stock, at cost: 6,631,669 shares in 2006
6,592,631 shares in 2005
Total shareholders’ equity
Total liabilities, minority interests, and shareholders’ equity

15

Consolidated Statements of Operations
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended March 31, 2006
Thousands of
U.S. dollars(Note 1)
2006

Millions of yen
2006
2005

Operating revenues:
Operating revenues¥129,098¥129,068$1,098,987

129,098

129,068

1,098,987

120,924

119,722

1,029,403

6,117

6,363

52,073127,041

126,085

1,081,476

2,057

2,983

17,511

Interest and dividend income

237

228

2,017

Equity in earnings of unconsolidated subsidiaries and affiliates

167

148

1,422

Loss on sale of property and equipment, net

(125)

(132)

(1,064)

Interest expenses

(252)

(279)

(2,145)(7,678)—(65,361)

130

661

1,106

(7,521)626(64,025)(5,464)

3,609(46,514)

Current

640

1,464

5,448

Refund70—596

Deferred(1,076)(101)(9,160)

(366)

1,363

(3,116)

Minority interests

(48)

73

(408)

Net (loss) income¥ (5,050)

2,173$ (42,990)

Operating costs and selling, general and administrative expenses:
Operating cost (Note 14)
Selling, general and administrative expenses (Note 14)
Operating income
Other income and expenses:

Impairment losses (Note 6)
Other, net
Income (loss) before income taxes and minority interests
Income taxes (Note 8):

The accompanying Notes are an integral part of these statements.

16¥

Consolidated Statements of Shareholders’ Equity
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended March 31, 2006

Millions of yen

Balance as at March 31, 2004
Net income
Cash dividends applicable to the year(¥6.00 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Bonuses to directors and statutory auditors
Balance as at March 31, 2005
Net loss
Cash dividends applicable to the year(¥6.00 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Bonuses to directors and statutory auditors
Balance as at March 31, 2006

Shares ofcommonstock(thousands)

Commonstock

CapitalsurplusRetainedearnings

97,610¥14,183¥14,687¥15,934
2,173
(548)
1

Revaluation
reservefor land

Unrealized
gain onsecurities

Treasurystock¥6,769¥ 901¥(1,739)

(1)
428
(211)

97,610¥14,183¥14,687(81)¥17,479(5,050)
(546)
(406)

¥6,768¥1,329¥(1,950)

(523)
1,156
(14)

97,610

Balance as at March 31, 2004
Net income
Cash dividends applicable to the year ($0.0511 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Bonuses to directors and statutory auditors
Balance as at March 31, 2005
Net loss
Cash dividends applicable to the year ($0.0511 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Bonuses to directors and statutory auditors
Balance as at March 31, 2006

(84)
¥11,393¥14,183¥14,687¥6,245¥2,485¥(1,964)

Commonstock

Thousands of U.S. dollars (Note 1)
Revaluation
CapitalRetainedreserve
surplusearnings
for land

Unrealized
gain onsecurities

Treasurystock$120,737 $125,028 $135,643
18,498(4,665)
9$57,623$ 7,670 $ (14,804)

(9)
3,644

(1,796)(690)$120,737 $125,028 $148,795 $57,614 $11,314 $(16,600)(42,990)(4,648)(3,456)(4,451)
9,840
(119)
(715)
$120,737 $125,028 $ 96,986 $53,163 $21,154 $(16,719)

The accompanying Notes are an integral part of these statements.

17

Consolidated Statements of Cash FlowsTONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended March 31, 2006

Cash flows from operating activities:
Net (loss) income before income taxes and minority interests
Depreciation and amortization
Impairment losses (Note 6)
Loss on disposal of property and equipment
Loss (gain) on sales of investments in securities
Loss on devaluation of investments in securities
Loss on devaluation of golf club memberships
Bond issue expenses
Amortization of consolidation difference
Equity in earnings of unconsolidated subsidiaries and affiliates
Decrease in allowance for doubtful accounts
Decrease in employees’ severance and retirement benefits(Decrease) increase in accrued bonuses to employees
Interest and dividend income
Interest expenses(Increase) decrease in trade receivables
Decrease in inventories
Increase (decrease) in accounts payable
Decrease in accrued consumption taxes
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

Millions of yen
2006
2005

Thousands of
U.S. dollars(Note 1)2006

¥ (5,464)
2,508
7,678
125
7
7
13

$ (46,514)
21,35065,361
1,064
60
60
111

(154)
(167)
(135)
(661)
(276)
(237)
252
(406)
44
478
(68)
(740)
2,804
237
(252)
(1,335)
1,454¥ 3,609
2,689
—
126
(6)
15
7
31
(159)
(148)
(169)
(733)
4
(228)
279
1,574
8
(1,201)
(30)
(413)
5,255
228
(279)
(1,736)
3,468

(211)
241
(0)
65
(2,954)
102
(81)
11
50
(4)
34
(3)
(2,750)

(169)
165
(0)
21
(3,921)
141
(539)
86
—
(66)
100
120
(4,062)(1,796)
2,052
(0)
553
(25,147)
868
(690)
94
426
(34)
289
(26)
(23,410)

(77)
606
(671)
(14)
(546)
(8)
(710)

(99)
180
(947)
2,469
(211)
(548)
(10)
834

(655)
5,159
(5,712)—(119)(4,648)(68)(6,044)(2,006)
16,040¥14,034240
15,800¥16,040(17,077)
136,546$119,469—

Cash flows from investing activities:
Purchase of time deposits
Proceeds from redemption of time deposits
Purchase of marketable securities
Proceeds from sales of marketable securities
Purchase of property and equipment
Proceeds from sales of property and equipment
Purchase of investments in securities
Proceeds from sales of investments in securities
Proceeds from acquisition of subsidiaries resulting in changes in scope of consolidation
Investments in loans receivable
Proceeds from collection of loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Net decrease in short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of bonds
Purchase of treasury stock
Dividends paid
Dividends paid to minority interests
Net cash provided by (used in) financing activities—

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying Notes are an integral part of these statements.

18—(1,311)(1,422)(1,149)(5,627)(2,350)(2,018)2,145(3,456)
375
4,069
(579)
(6,299)23,8702,018(2,145)(11,365)
12,378

Notes to the Consolidated Financial Statements
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIES

1 Basis of presenting financial statements
The accompanying consolidated financial statements of Tonami Transportation Co., Ltd. (the “Company”) andconsolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which
are different in certain respects as to the application and disclosure requirements of International Financial
Reporting Standards, and are complied from the consolidated financial statements prepared by the Company as
required by the Securities and Exchange Law of Japan.
U.S. dollar amounts presented in the financial statements are included solely for convenience and should not
be construed as representations that Japanese yen amounts have been or could in the future be converted into
U.S. dollars. The rate of ¥117.47 = U.S.$1, prevailing on March 31, 2006, has been used for the translation
into U.S. dollar amounts in the financial statements.

2 Summary of significant accounting policies(a) Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its 28 significant majority-owned subsidiaries for the year ended March 31, 2006 (28 for 2005).
All significant intercompany accounts and transactions have been eliminated in consolidation.
Eight of the investments in unconsolidated subsidiaries or affiliates (8 for 2005) are accounted for by theequity method.
Differences between the acquisition cost and the underlying net equity of subsidiaries at the time of acquisition are amortized on the straight-line basis over the period of five or 20 years.
When their amounts are, however, not significant, the differences are fully charged or credited to income at
the dates of acquisition.
(b) Marketable securities and investments in securities

Securities, except for investments in unconsolidated subsidiaries and affiliates, are classified as trading securities, held-to-maturity securities or other securities. Trading securities are carried at fair value. Held-to-maturity
securities are carried at amortized cost. Marketable securities classified as other securities are carried at fairvalue with any unrealized gain or loss reported as a separate component of stockholders’ equity, net of taxes.
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determinedprincipally by the moving average method.
(c) Inventories

Inventories are stated at cost, cost being determined principally by the last purchase price method. The specificidentification cost method is used for certain inventories.
(d) Allowance for doubtful accounts

Allowance for doubtful accounts is provided in an amount sufficient to cover possible losses on collection.
Such amount is computed by applying the rate of actual losses on collection experienced in the past withrespect to general trade receivables and by individually reviewing their collectibility with respect to certain
doubtful receivables.
(e) Property and equipment and intangible assets

Property and equipment are stated at cost. However, under Japanese tax law, capital gains arisen from disposals
and other similar transactions are deducted from the cost of the property and equipment acquired in substitution.
Depreciation of property and equipment is computed by the declining balance method, except for buildings
and structures. The buildings and structures are depreciated by the straight-line method.
The ranges of useful lives of principal property and equipment are as follows:
Buildings and structures . 2-50 years
Machinery and vehicles . 2-15 years
Amortization of intangible assets is principally computed using the straight-line method on the presumptionof having no salvage value.

19

(f) Leases

Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessee areaccounted for by the method similar to that applicable to ordinary operating leases.
(g) Employees’ severance and retirement benefits

Employees of the Company and its consolidated subsidiaries are entitled to a lump-sum payment upon retirement or severance of employment. In order to provide for the employees’ severance and retirement benefits,
the Company and its consolidated subsidiaries assume a liability for severance and retirement benefits, which isincluded in the liability section of the consolidated balance sheet, based on the estimated amounts of projected
benefit obligation and plan assets at the balance sheet dates.
Past service costs are recognized in expenses using the straight-line method over 11 years (a certain period
not exceeding the employees average remaining service lives) commencing with the year as occurred.
Actuarial gains and losses are recognized in expenses using the straight-line method over 11 years (a certain
period not exceeding the employees’ average remaining service lives) commencing with the next year as
occurred.
Effective the fiscal year ended March 31, 2006, the Group has adopted “Partial Revisions to the AccountingStandards for Retirement Benefits” (Business Accounting Standard No. 3 issued by the Accounting Standards
Board of Japan on March 16, 2005) “and the “Implementation Guidance for Partial Revisions to the
Accounting Standards for Retirement Benefits” (“Financial Accounting Standard Implementation Guidance No.
7” issued by the Accounting Standards Board of Japan on March 16, 2005).
This change had no impact on the Group’s income statement.
(h) Income taxes

Income taxes consist of corporation, enterprise, and inhabitant taxes.
The Company and its consolidated subsidiaries recognize tax effects of temporary differences between the
carrying amounts of assets and liabilities for tax and financial reporting.
(i) Statements of cash flows

Cash and cash equivalents include cash on hand, deposits placed with banks on demand, and highly liquid
investments with insignificant risk of changes in value which have maturities of three months or less when purchased.
(j) Foreign currency translation

All monetary assets and liabilities denominated in foreign currencies are translated into yen at the current
exchange rates at the balance sheet date, and any gain or loss on translation is credited or charged to income.

3 Fair value of securities
No trading securities or held-to-maturity securities were held at March 31, 2006 or 2005. Securities classified
as other securities are included in “marketable securities” and “investments in securities” in the accompanying
consolidated balance sheets.
The components of unrealized gain or loss on marketable securities classified as other securities at March 31,
2006 are summarized as follows:—

Unrealized gain:
StocksBonds:
Corporate bonds
Other
Other
Unrealized loss:
StocksBonds:
Corporate bonds
Other
Other
Total

20

Acquisition
costs

Millions of yen
2006
Carryingvalue¥2,577¥6,763¥4,186

20
—
—

21
—
—

1
—
—

8

7

(1)

—
—
100
¥2,705——97¥6,888——(3)¥4,183

Unrealized
gain (loss)

The components of unrealized gain or loss on marketable securities classified as other securities at March 31,
2005 are summarized as follows:—

Unrealized gain:
StocksBonds:
Corporate bonds
Other
Other
Unrealized loss:
StocksBonds:
Corporate bonds
Other
Other
Total

Acquisition
costs

Millions of yen
2005
Carrying
value¥2,476¥4,718¥2,242

85
—
—

85
—
—

0
—
—

72

67

(5)

—
—
110
¥2,743——
109¥4,979——(1)¥2,236

Unrealized
gain (loss)

The components of unrealized gain or loss on marketable securities classified as other securities at March 31,
2006 are summarized as follows:—
Thousands of U.S. dollars
2006
Acquisition
Carrying
Unrealized
costs
value
gain (loss)

Unrealized gain:
StocksBonds:
Corporate bonds
Other
Other
Unrealized loss:
StocksBonds:
Corporate bonds
Other
Other
Total

$21,938$57,572$35,634

170
—
—

179
—
—

9
—
—

68

59

(9)

—
—
851
$23,027——826$58,636——(25)$35,609

Non-marketable securities classified as other securities at March 31, 2006 and 2005 amounted to ¥4,059 million ($34,554 thousand) and ¥3,923 million ($33,396 thousand), respectively.
Proceeds from sales of securities classified as other securities amounted to ¥8 million ($68 thousand) and¥21 million ($179 thousand) for the years ended March 31, 2006 and 2005, respectively.
The aggregate gain realized on those sales totaled ¥8 million ($68 thousand) and ¥16 million ($136 thousand) for the years ended March 31, 2006 and 2005, respectively.
The redemption schedule at March 31, 2006 for bonds with maturity dates is summarized as follows:—
Due in one
year or lessCorporate bonds
Other
Total

¥—
—
¥—

Due in one
year or lessCorporate bonds
Other
Total

$—
—
$—

Millions of yen
Due after one Due after five
year through years throughfive years
ten years

¥20
50
¥70

¥—
50
¥50

Thousands of U.S. dollars
Due after one Due after five
year through years throughfive years
ten years

$170
426
$596

$ —
426
$426

Due after
ten years¥——¥—

Due after
ten years$——$—

4 Property and equipment
Depreciable property is stated at the net book value in the consolidated balance sheets. The amounts of accumulated depreciation were ¥51,533 ($438,691 thousand) million and ¥49,174 million ($418,609 thousand)on March 31, 2006 and 2005, respectively.
Capital gains resulting from disposals and other similar transactions are deducted from the cost of property
and equipment acquired in substitution. The amounts deducted from the cost of property and equipment was¥269 million ($2,290 thousand) on March 31, 2006 and 2005, respectively.

21

5 Short-term bank loans and long-term debt(a) Short-term bank loans

Short-term bank loans as at March 31, 2006 and 2005 were as follows:—
Millions of yen
2006
2005

SecuredUnsecured¥ 3,660
12,280¥ 3,681
12,283Thousands of
U.S. dollars
2006$ 31,157
104,537

Interest rates range from 0.55% to 2.5%.
(b) Long-term debt

Long-term debt as at March 31, 2006 and 2005 was as follows:—
Millions of yen
2006
2005

0.89% ¥6.4 billion unsecured straight bonds due 2008
0.52% ¥0.6 billion unsecured straight bonds due 2008
0.00% ¥2.5 billion unsecured convertible bond type-bonds
with stock acquisition rights due 2009
0.55%_3.00% loans from financial institutions due 2007 to 2011
and thereafter Secured
Unsecured
Total
Less: amount due within one year

Thousands of
U.S. dollars
2006¥ 6,400600¥ 6,400
600$54,482
5,108

2,500

—

21,282

1,293
876
11,669416¥11,253

1,513
774
11,787653¥11,134

11,007
7,457
99,336
3,541$95,795

The maturity date of the ¥6.4 billion 0.89% unsecured straight bonds, issued in June 2003 is June 30, 2008.
The maturity date of the ¥0.6 billion 0.52% unsecured straight bonds, issued in June 2003 is June 30, 2008.
The maturity date of the ¥2.5 billion 0.00% unsecured convertible bond type- bonds, issued in July 2004 is
September 30, 2009.
The annual maturities of long-term debt outstanding as at March 31, 2006 are as follows:—
Year ending March 31,

Millions ofyen

Thousands of
U.S. dollars

2007
2008
2009
2010
2011 and thereafter

¥ 331
282
7,254
2,679
707

$ 2,8182,401
61,75222,806
6,018(c) Pledged assets

Property and equipment having a net value of ¥18,098 million ($154,065 thousand) was pledged as collateralfor short-term bank loans and long-term debt as at March 31, 2006.

6 Impairment Losses(a) Accounting standards for impairment of fixed assets

Effective the year ended March 31, 2006, the Group has adopted a new accounting standard for the impairment of fixed assets which requires that tangible and intangible fixed assets be carried at cost less depreciation,and be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Companies would be required to recognize an impairment loss intheir statement of income if certain indicators of asset impairment exist and the book value of an asset exceeds
the undiscounted sum of future cash flows of the asset. The standard states that impairment losses should bemeasured as the excess of the book value over the higher of (1) the fair market value of the asset, net of disposition costs and (2) the present value of future cash flows arising ongoing utilization of the asset and from disposal after asset use. The standard covers land, factories, buildings and other forms of property, plant andequipment as well as intangible assets. Fixed assets will be grouped at the lowest level for which there is identifiable cash flows that are independent of cash flows of other groups of assets.
As a result of the adoption of this new accounting standard, a loss on impairment of land in the amount of¥7,678 million was recognized and loss before income taxes and minority interests increased by the sameamount for the year ended March 31, 2006 as compared with the corresponding amount under the previous
method.
Accumulated impairment losses have been directly deducted from the value of each relevant asset in accordance with the revised regulations concerning consolidated financial statements.

22

(b) Impairment losses

During the fiscal year ended March 31, 2006, the Group recorded impairment losses concerning the following
asset groupings.

Usage

Tonami Transportation
Tonami Transportation
Kawai Transportation and3 other companies

Haulage andwarehouse facilities

Location

Koto Ward,
Tokyo and 37
other sites
Warehouse facilities
Noda, Chiba
prefecture
Facilities for lease
Moriyama,
and idle asset
Shiga prefecture,and 3 other sites

Type

Impairment losses Impairment losses(millions of (thousands ofyen)
U.S. dollars)

Land andbuildings¥6,865$58,440

Leased facilities

756

6,436

Land andbuildings

57

485¥7,678$65,361

Total

The Company is a comprehensive logistics enterprise and has six operations including the road haulage operation. Organizations belonging to operations implement management accounting.
Business facilities in various locations are bases for providing the Company’s comprehensive distribution
solution services to customers. In many cases, organizations of operations are located at these business facilities
and deal with their customers.
Organizations of operations have complementary relationships. Business facilities constitute the unit for generating cash flows. The aggregate assets of organizations located at each business facility constitute an asset
grouping.
At consolidated subsidiaries, decision-making on investment is done by each business unit. Accordingly, theaggregate assets of organizations belonging to a business unit constitute an asset grouping.
Regarding the asset groupings for which impairment losses were recorded, future cash flow losses were projected partly due to a large decline in land prices. Thus, the carrying values of the asset groupings were reducedby the unrecoverable values and an impairment loss amounting to ¥7,678 million (US$65,361 thousand) wasrecorded as an extraordinary loss.
The breakdown of the impairment losses is as follows: ¥3,922 million (US$33,387 thousand) concerningland, ¥3,000 million (US$25,538 thousand) concerning buildings and ¥756 million (¥US$6,436 thousand)concerning leased facilities.
In regard to asset groupings, recoverable value of land and buildings is measured based on the net sales
value. Net sales value is assessed based mainly on appraisal value provided by real-estate appraisers. Immaterial
assets are assessed based on carrying value. Recoverable value of leased facilities is measured based on the use
value and the present value is calculated based on a 3.6% discount of future cash flows.

7 Employees’ severance and retirement benefits
Employees who terminate their service with the Company and consolidated subsidiaries are, in most cases,
entitled to pension annuity payments or to a lump-sum severance payment determined by reference to thebasic rate of pay, length of service and the conditions under which the termination occurs.
The Company has two types of defined benefit plans, a lump-sum payment plan and an additional benefit
type of pension plan. The Company revised its pension plans and shifted them to a cash balance plan (moneymarket-interest-rate linked type) on June 1, 2004.
The Company and certain significant domestic consolidated subsidiaries have established contributory
defined benefit pension plans pursuant to the Welfare Pension Insurance Law of Japan, i.e., welfare pension
fund plan (WPFP). The WPFP consists of the governmental welfare pension program (the substitutional portion) and an additional non-contributory pension plan portion.
The projected benefit obligation and the funded status of the plans summarized as follows:—
Millions of yen
2006
2005

Projected benefit obligation
Plan assets
Net unrecognized amountPrepaid pension and severance costs
Accrued pension and severance costs¥(22,165)
3,003
446
—
¥(18,716)

23¥(22,830)
2,264
1,189
—
¥ 19,377

Thousands of
U.S. dollars
2006$(188,687)
25,564
3,797—$(159,326)

The net unrecognized amounts were as follows:—
Millions of yen
2006
2005

Unrecognized benefit obligation at transition:
Adjustment for actuarial assumptions
Past service cost
Net unrecognized amounts¥ 4,269(3,823)¥ 446¥ 5,422(4,233)¥ 1,189

Thousands of
U.S. dollars
2006$ 36,341(32,544)$ 3,797

The components of net periodic pension and severance costs excluding the employees’ contributory portion
were as follows:—
Millions of yen
2006
2005

Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of unrecognized severance benefit obligation at transition
Amortization of adjustment for actuarial assumptions
Amortization of past service cost
Net periodic pension and severance costs

¥ 888
549
(98)
—
611
(410)
¥1,540

¥ 971
564
(67)
—
472
(332)
¥1,6082006

2005

Thousands of
U.S. dollars
2006$ 7,559
4,674
(834)
—
5,201
(3,490)$13,110

The assumptions used were as follows:—
Discount rates
Expected rates of return on plan assets

2.5%
2.5%

2.5%
2.5%

8 Income taxes
As described in Note 2(h), the Company and its consolidated subsidiaries recognizes tax effects of temporary
differences between the carrying amounts of assets and liabilities for tax and financial reporting.
Significant components of deferred tax assets and liabilities are as follows:—
Millions of yen
2006
2005

Deferred tax assets:
Excess bonuses accrued
Excess employees’ severance and retirement benefits accrued
Excess loss on impairment of tangible fixed assets (except for leased assets)
Accumulated loss on impairment of leased assets
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on securities
Reserve under Special Taxation Measures Law
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2006

¥

314
7,013
1,147
292
3,962
12,728(3,245)
9,483

¥

498
7,225
—
—
795
8,518
(544)
7,974

$ 2,673
59,7009,764
2,486
33,728108,351(27,624)
80,727(1,693)(5,255)(6,948)¥ 2,535(904)(5,095)(5,999)¥ 1,974(14,412)(44,735)(59,147)$ 21,580

Income taxes applicable to the Company consist of corporation, enterprise, and inhabitant taxes.
Significant differences between the statutory tax rate and the Company’s effective tax rate after applying thedeferred tax accounting for the years ended March 31, 2006 and 2005 were as follows:—
Statutory tax rate
Increase (reduction) in tax resulting from:
Nondeductible expenses including entertainment, etc.
Nontaxable income including dividends received deduction, etc.
Per capita portion of inhabitant taxes
Equity in earnings of affiliates
Other
Effective tax rate

2006

2005

—

41.6%

—
—
—
—
—
—

1.5
(1.4)
5.8
(1.8)
(7.9)
37.8%

No item is listed in the column "2006" in the above table, because the Company recorded a loss before income
taxes and minority interests in the year ended March 31, 2006.

24

9 Cash flow statements
Reconciliation of cash and time deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the consolidated statements of cash flows as at March 31, 2006 and 2005 are as follows:—
Millions of yen
2006
2005

Cash and time deposits
Time deposits with maturities exceeding three months
Cash equivalents included in marketable securities
Bonds with maturities exceeding three months
Cash and cash equivalents¥13,244
(210)
1,000
—
¥14,034¥15,279
(239)
1,065
(65)
¥16,040

Thousands of
U.S. dollars
2006$112,744(1,788)
8,513—$119,469

10 Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation, accumulated
impairment losses and net book value of the leased property as of March 31, 2006 and 2005, which would
have been reflected in the consolidated balance sheets if finance lease accounting had been applied to thefinance leases currently accounted for as operating leases:—Millions of yen
2006
2005

Acquisition costs:
Machinery and tools
Other assets
Accumulated depreciation:
Machinery and tools
Other assets
Accumulated impairment losses:
Machinery and tools
Other assets
Net book value:
Machinery and tools
Other assets¥17,352
1,403¥18,755¥10,692270¥10,962
¥
—
756
¥ 756
¥06,660377¥07,037¥15,821
1,403¥17,224¥08,547
239¥08,786¥——¥—¥07,275
1,164¥08,439

Thousands of
U.S. dollars
2006$147,714
11,944$159,658$091,019
2,298$093,317$—
6,436$ 6,436$056,695
3,210$059,905

Amounts of depreciation expense equivalents and interest expense equivalents for the years ended March 31,
2006 and 2005 are as follows:—
Millions of yen
2006
2005

Depreciation expense
Interest expense¥2,761191¥2,796
211

Thousands of
U.S. dollars
2006$23,504
1,626

Lease payments relating to finance leases accounted for as operating leases amounted to ¥3,072 million($26,151 thousands) and ¥3,038 million ($25,862 thousand), which were equal to the depreciation expense of
the leased assets computed by the straight-line method over the lease terms, for the years ended March 31,
2006 and 2005, respectively.
In the year ended March 31, 2006, impairment losses on leased assets amounting to ¥756 million ($6,436
thousand) was recorded. Since these leased assets are off-balance-sheet, the equivalent amount is included in“Other long-term liabilities”. Impairment losses on leased assets is realized over the lease term. In the fiscal year
ended March 31, 2006 reversal of impairment losses on leased assets amounting to ¥42 million ($358 thousand) was recorded.
Future minimum lease payments (including the interest portion thereon) and the balance of impairment
losses on leased assets as at March 31, 2006 and 2005 for finance leases accounted for as operating leases are
summarized as follows:—
Millions of yen
2006
2005

Due within one year
Due over one year
Total

¥2,535
5,199¥7,734¥ 714

Impairment losses on leased assets

25¥2,774
5,793¥8,567¥ —Thousands of
U.S. dollars
2006$21,580
44,258$65,838$ 6,078

11 Contingent liabilities
As at March 31, 2006, the Company were contingently liable as follows:—
Notes discounted with banks
Guarantees of welfare pension housing loans sublet to employees
Notes endorsed
OthersMillions ofyen

Thousands of
U.S. dollars

¥ 319
2
76
¥1,038$2,716
17
647
8,836

12 Revaluation reserve for land
In accordance with the Law concerning Revaluation of Land enacted on March 31, 1998, the Company has
revaluated its owned land used for business operations on March 31, 2000 and reported a revaluation reserve
for land in shareholders’ equity section.
The revaluated book value of land was determined based on the value of land registered on the cadastres ortheir supplementary records, which are provided by the Local Tax Law under the Law Concerning Revaluationof Land, after making reasonable adjustments.
Difference between the fair market value of revalued land at March 31, 2006
and the revalued book value

Millions ofyen

Thousands of
U.S. dollars¥7,525$64,059(additional information)
Deferred taxes concerning land revaluation
Previously, regarding handling of deferred taxes concerning land revaluation, revaluation gains were offset byrevaluation losses and deferred tax liabilities for net revaluation gains were recorded. On February 17, 2004,“Auditing Treatment of Application of Tax Effect Accounting to Differences in Valuation of Other Securities”(The Japanese Institute of Certified Public Accountants Auditing Committee Report No. 70) was revised andrenamed as “Auditing Treatment of Application of Tax Effect Accounting to Differences in Valuation of Other
Securities and Losses on Impairment of Fixed Assets,” which has clarified the necessity of individually determining the recoverability of deferred tax assets concerning land revaluation losses. As a result of the necessary
treatment, the amount of land revaluation differences at March 31, 2006, is ¥929 million (US$7,908 thousand)lower than the amount based on the previous method, and the amount of deferred tax liabilities concerning
revaluation is increased by the same amount. This has no impact on net loss.

13 Shareholders’ equity
In accordance with the former Commercial Code of Japan (the “Code”), the Company provided a legal reserve,
which was included in retained earnings. The Code provides that an amount equal to at least 10% of theamount to be disbursed as a distribution of earnings be appropriated to the legal reserve until the total of suchreserve and capital surplus account equals 25% of the common stock account. In 2006, the Company transferred ¥8,742 million (US$74,419 thousand) from capital reserve to other capital surplus and reversed legal
reserve amounting to ¥1,261 million (US$ 10,735 thousand) in accordance with Paragraph 2, Article 289 of
the former Code. Accordingly, no legal reserve is included in retained earnings.
The Code provides that neither capital surplus nor the legal reserve is available for dividends, but both may
be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common
stock by resolution of the Board of Directors.
Year-end dividends shall be approved at a ordinary shareholders’ meeting held after the end of each financial
year and interim dividends may be declared by the Board of Directors held after the end of each first six month
period, respectively.
In accordance with the former Commercial Code, year-end dividends and the related appropriation ofretained earnings are not reflected in the financial statements at the end of the financial year, but are recordedat the time they are approved.

14 Supplementary income information
Supplementary income information for the year ended March 31, 2006 and 2005 is as follows:—
Millions of yen
2006
2005

Depreciation expenses
Lease and rental¥2,5085,987

26¥2,689
6,083

Thousands of
U.S. dollars
2006$21,350
50,966

15 Amounts per share
Basic (loss) income per share has been computed using the weighted-average number of shares of common
stock outstanding during each year.
In computing diluted net income per share, the weighted-average number of shares has been increased by
the number of shares that would have been outstanding assuming the conversion of all convertible bond typebonds with stock acquisition rights at the beginning of each year. Net income has been adjusted for interest
expenses on such bonds, net of applicable income taxes.
Although potentially dilutive securities exist, diluted per share data at March 31, 2006 is not provided
because the per share data is a negative figure for fiscal 2006.
Net assets per share has been computed using the number of shares of common stock outstanding at eachbalance sheet date.
Amounts per share of common stock for the years ended March 31, 2006 and 2005 were as follows:—
2006

Yen
2005

U.S. dollars
2006

Net (loss) income per share:
Basic
Diluted¥(56.02)—¥ 22.9421.36$(0.4769)—

Net assets per share:¥ 516.51¥575.96$ 4.3970

Basis for the calculation of basic and diluted net (loss) income per share for the years ended March 31, 2006
and 2005 was as follows:—
Millions of yen
2006
2005

Basic net (loss) income available to shareholders of common stock:
Net (loss) income
Net (loss) income not available to shareholders of common stock:(of which appropriation of bonuses to directors
and statutory auditors)
Net (loss) income available to shareholders of common stock:
Weighted-average number of shares of common
stock outstanding
Diluted net income available to shareholders of common stock:
Adjustments to net income:(of which commission for bonds)
Incremental number of shares of common stock(of which stock acquisition rights)
Common stock equivalents not included in calculation ofdiluted net income per share due to their non-dilutive effectThousands of
U.S. dollars
2006¥(5,050)46¥2,17384$(42,990)
392(46)(5,097)

(84)
2,089

(392)
(43,390)

90,981,585

91,078,245

—
(—)
—
(—)

0
(0.)
6,738,544(6,738,544.)(Convertible bond-type bonds
with stock acquisition rights)
Yen-denominated convertiblebond-type bond with stock acquisition rights due Sep 30,
2009(face amount: ¥2,500 million(US$ 21,282 thousand))(Stock option)
Stock options approved at theannual shareholders’ meetingof the Company held on June29, 2005(The number of stock acquisition rights was 1,340.)

—

—
(—)

—

16 Subsequent event
The annual shareholders’ meeting of the Company, which was held on June 29, 2006, duly approved the payment of dividends as followed:—
Cash dividends (¥3.00 per share)

27

Millions ofyen

Thousands of
U.S. dollars¥273$2,324

17 Segment Information
The Company’s business segments consist of logistics related services classified as Logistics and non-logistics
services classified as Others.
A summary of segment information by industry segment for the two years ended March 31, 2006 is as follows:—
Millions of yen

For the year ended March 31, 2006

Net Sales:
Outside customers
Inter segment sales
Total
Costs and expenses
Operating income

Eliminations(Notes 1 and 2) Consolidated

Logistics

OthersTotal¥117,151
151
117,302
115,881¥ 1,421¥11,947
7,636
19,583
18,848¥ 735¥129,098
7,787
136,885
134,729¥ 2,156¥—(7,787)(7,787)(7,688)¥ (99)¥129,098—
129,098
127,041¥ 2,057¥25,340
¥ 205
¥
92
¥ 913

¥117,546¥ 2,519¥ 7,678¥ 2,755¥ 4,031¥ (11)¥—¥
3¥121,577¥ 2,508¥ 7,678¥ 2,758

Assets, depreciation, impairment losses and capital expenditures:
Identifiable assets¥ 92,206
Depreciation¥ 2,314
Impairment losses¥ 7,586
Capital expenditures¥ 1,842Millions of yen

For the year ended March 31, 2005

Eliminations(Notes 1 and 2) Consolidated

Logistics

OthersTotal

Net Sales:
Outside customers
Inter segment sales
Total
Costs and expenses
Operating income¥117,81620
117,836
115,024¥ 2,812¥11,252
6,802
18,05417,753¥ 301¥129,068
6,822
135,890
132,777¥ 3,113¥—(6,822)(6,822)(6,692)¥ (130)¥129,068—
129,068
126,085¥ 2,983

Assets, depreciation and capital expenditures:
Identifiable assets
Depreciation
Capital expenditures¥ 99,088¥ 2,504¥ 2,966¥23,237
¥ 194
¥ 328

¥122,325¥ 2,698¥ 3,294¥ 5,584
¥
(9)
¥
(4)

¥127,909¥ 2,689¥ 3,290

Logistics

Thousands of U.S. dollars
Eliminations
Others
Total(Notes 1 and 2) Consolidated

For the year ended March 31, 2006

Net Sales:
Outside customers
Inter segment sales
Total
Costs and expenses
Operating income$997,284
1,286
998,570
986,473$ 12,097$101,703 $1,098,987
65,004
66,290166,707 1,165,277
160,450 1,146,923$ 6,257 $ 18,354

Assets, depreciation, impairment losses and capital expenditures:
Identifiable assets$784,932$215,715
Depreciation$ 19,699$ 1,745
Impairment losses$ 64,578$
783
Capital expenditures$ 15,681$ 7,772$1,000,647$ 21,444$ 65,361$ 23,453$— $1,098,987(66,290)—(66,290) 1,098,987(65,447) 1,081,476$ (843) $ 17,511$ 34,315 $1,034,962$(94) $ 21,350$— $ 65,361$
25 $ 23,478

Note 1. Operating cost and expenses included in the column “Eliminations” mainly consist of those charged by
the general affairs and finance divisions of the Company, amounting to ¥174 million ($1,481 thousand) and ¥197 million ($1,677 thousand) for the years ended March 31, 2006 and 2005, respectively.
Note 2. Corporate assets included in the column “Eliminations” mainly consist of surplus working funds (cashand marketable securities), long-term investment funds (investments in securities), and other assets
which belong to the administrative department, amounting to ¥29,914 million ($254,652 thousand) and¥30,220 million ($257,257 thousand) for the years ended March, 2006 and 2005, respectively.
The two business segments mainly consist of the following services:
Logistics . . .

Road haulage, freight forwarding, warehousing, and harbor transport and customs services...

Vehicle maintenance, casualty insurance, leasing, merchandising and commissioned sales and purchases, travel services, mail order services, travel inn, andother businesses

OthersNeither geographical segment information nor overseas sales have been presented because none of theCompany’s consolidated subsidiaries are domiciled outside Japan, and the Company and its consolidated subsidiaries had no overseas sales for the years ended March 31, 2006 and 2005.

28

Independent Auditors’ Report

The Board of Directors
Tonami Transportation Co., Ltd.
We have audited the accompanying consolidated balance sheets of Tonami Transportation Co., Ltd. and consolidated subsidiaries 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 yen. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tonami Transportation Co., Ltd. and consolidated subsidiaries at March 31, 2006 and2005, 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.

Supplemental Information
As described in Note 6 to the consolidated financial statements, the Company and its consolidated subsidiaries, effective the year ended March 31, 2006, adopted the new accounting standards for Impairment of
Fixed Assets.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2006 are presented solely for convenience. Our audit also included the translation of yen amounts
into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1.

June 29, 200629

Non-Consolidated Balance Sheets
TONAMI TRANSPORTATION CO., LTD

As of March 31, 2006 and 2005

Millions of yen
2006
2005

Thousands of
U.S. dollars(Note 1)
2006

9,623

¥ 11,436$ 81,919

1,000

1,065

8,513

18,71918,412

159,351

(26)

(23)

(221)

Inventories

141

144

1,200

Deferred tax assets (Note 6)

526

668

4,478

9,130

7,929

77,722

39,11339,631

332,962Land

33,731

37,599287,146

Buildings and structures

45,354

45,110386,090

Machinery and tools

6,612

6,513

56,287

Vehicles13,193

14,833112,309

Less: accumulated depreciation(43,769)(41,360)(372,597)

55,121

62,695469,235

Investments in securities

8,344

6,407

71,031

Investments in subsidiaries and affiliates

3,181

3,041

27,0797

11

59

Deferred tax assets (Note 6)

1,842

1,025

15,681Others

3,268

3,298

27,82016,642

13,782

141,670¥110,876¥116,108$943,867

ASSETS

Current assets:
Cash¥

Marketable securities
Trade receivables:
Notes and accounts (Note 7)
Less: allowance for doubtful accounts

Other current assets
Total current assets

Property and equipment (Notes 3, 4 and 5):

Net property and equipment

Investments and other assets:

Loans to employees

Total investments and other assets
Total assets
The accompanying Notes are an integral part of these statements.

30

LIABILITIES AND SHAREHOLDERS’ EQUITY

Thousands of
U.S. dollars(Note 1)
2006

Millions of yen
2006
2005

Current liabilities:
Trade notes payable¥

Short-term bank loans (Note 4)

517

¥

476

$

4,401

13,255

13,255

112,837

210

412

1,788

15,395

14,329131,055

Deposits from employees

405

391

3,447

Income taxes payable

—

507

—

5,144

5,624

43,79034,92634,994297,318

Long-term debt, less current portion thereof (Note 4)

10,477

10,68789,189Deferred tax liabilities from revaluation reserve for land (Note 10)

5,800

4,595

49,374

Employees’ severance and retirement benefits

17,342

17,805

147,629

773

55

6,581

Total long-term liabilities

34,39233,142292,773

Total liabilities

69,31868,136590,091

14,183

14,183

120,737

Capital surplus

14,687

14,687125,028

Retained earnings

5,963

12,97550,762

Revaluation reserve for land (Note 10)

6,245

6,768

53,163

Unrealized gain on securities

2,444

1,309

20,805(1,964)(1,950)(16,719)

41,55847,972353,776¥110,876¥116,108$943,867

Current portion of long-term debt (Note 4)
Trade accounts payable (Note 7)

Other current liabilities
Total current liabilities
Long-term liabilities:

Other long-term liabilities

Contingent liabilities (Note 9)
Shareholders’ equity (Note 11):
Common stock:
Authorized: 299,200,000 shares in 2006
299,200,000 shares in 2005
Issued:97,610,118 shares in 2006
97,610,118 shares in 2005

Treasury stock, at cost 6,631,669 shares in 2006
6,592,631 shares in 2005
Total shareholders’ equity
Total liabilities and shareholders’ equity31Non-Consolidated Statements of Operations
TONAMI TRANSPORTATION CO., LTD.

For the two years ended March 31, 2006
Thousands of
U.S. dollars(Note 1)
2006

Millions of yen
2006
2005

Operating revenues (Note 7)¥98,978¥99,504$842,581

Operating cost (Notes 7 and 12)

95,66095,308814,336

Selling, general and administrative expenses (Note 12)

2,608

2,819

22,201

98,26898,127

836,537

710

1,377

6,044

Interest and dividend income (Note 7)

347

327

2,954

Loss on disposal of property and equipment, net

(88)

(125)

(749)

Interest expenses

(213)

(223)

(1,813)(7,621)—(64,876)

69

457

587

(7,506)436(63,897)(6,796)

1,813(57,853)

Current

330

1,122

2,809

Refund70—596

Deferred(1,170)(171)(9,960)

(770)

951

(6,555)862$ (51,298)

Operating costs and expenses:

Operating income
Other income and expenses:

Impairment losses (Note 5)
OthersIncome before income taxes
Income taxes (Note 6):

Net (loss) income¥ (6,026)

The accompanying Notes are an integral part of these statements.

32¥

Non-Consolidated Statements of Shareholders’ Equity
TONAMI TRANSPORTATION CO., LTD.

For the two years ended March 31, 2006

Millions of yen

Balance as at March 31, 2004

Shares ofcommonstock(thousands)

Commonstock

CapitalsurplusRetainedearnings

Revaluation
reservefor land

Unrealized
gain onsecurities

Treasurystock

97,610¥14,183¥14,687¥12,695¥6,769¥ 882¥(1,739)

Net income

862

Cash dividends applicable to the year(¥6.00 per share)(548)

Revaluation reserve for land1(1)Unrealized gain on securities

427

Treasury stock(211)

Bonuses to directors and statutory auditors
Balance as at March 31, 2005

(35)
97,610¥14,183¥14,687

Net loss¥12,975¥6,768¥1,309¥(1,950)(6,026)

Cash dividends applicable to the year(¥6.00 per share)(546)

Revaluation reserve for land

(406)

(523)

Unrealized gain on securities

1,135

Treasury stock(14)

Bonuses to directors and statutory auditors
Balance as at March 31, 2006

(34)
97,610

Balance as at March 31, 2004

¥14,183¥14,687¥ 5,963¥6,245¥2,444¥(1,964)

Commonstock

Thousands of U.S. dollars (Note 1)
Revaluation
CapitalRetainedreserve
surplusearnings
for land

Unrealized
gain onsecurities

Treasurystock$120,737 $125,028 $108,070

Net income

7,338

Cash dividends applicable to the year ($0.0511 per share)(4,665)

Revaluation reserve for land

9$57,623$ 7,508 $ (14,804)(9)

Unrealized gain on securities

3,635

Treasury stock(1,796)

Bonuses to directors and statutory auditors
Balance as at March 31, 2005

(298)
$120,737 $125,028 $110,454

Net loss(51,298)

Cash dividends applicable to the year ($0.0511 per share)(4,648)

Revaluation reserve for land

(3,456)$57,614(4,451)

Unrealized gain on securities

9,662

Treasury stock(119)

Bonuses to directors and statutory auditors
Balance as at March 31, 2006

$11,143 $(16,600)(290)$120,737 $125,028 $ 50,762

The accompanying Notes are an integral part of these statements.

33$53,163$20,805 $(16,719)

Non-Consolidated Statements of Cash FlowsTONAMI TRANSPORTATION CO., LTD.

For the two years ended March 31, 2006

Millions of yen
2006
2005

Thousands of
U.S. dollars(Note 1)
2006

Cash flows from operating activities:
Net (loss) income before income taxes
Depreciation and amortization
Impairment losses
Loss on disposal of property and equipment
Loss on sales of investments in securities
Loss on devaluation of investments in securities
Loss on devaluation of golf club memberships
Decrease in allowance for doubtful accounts
Bond issue expenses
Decrease in employees’ severance and retirement benefits
Decrease in accrued bonuses to employees
Interest and dividend income
Interest expenses(Increase) decrease in trade receivables
Decrease in inventories
Increase in accounts payable(Decrease) increase in accrued consumption taxes
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities¥ (6,796)
1,697
7,621
88
(36)
58
8
(67)
—
(464)
(300)
(347)
213
(271)
3
1,111
(56)
(100)
2,362
347
(213)
(1,047)
1,449¥ 1,813
1,860
—
125
(16)
15
8
(122)
31
(569)
(21)
(327)
223
733
4
5,590
6
359
9,712
327
(223)
(1,309)8,507$ (57,853)
14,44664,876
749
(306)
494
68
(570)
—
(3,950)(2,554)(2,954)
1,813(2,307)
25
9,458
(477)
(851)
20,1072,954(1,813)(8,913)
12,335

Cash flows from investing activities:
Proceeds from redemption of time deposits
Purchase of marketable securities
Proceeds from sales of marketable securities
Purchase of property and equipment
Proceeds from sales of property and equipment
Purchase of investments in securities
Proceeds from sales of investments in securities
Investments in loans receivable
Proceeds from collection of loans receivable
Other, net
Net cash used in investing activities

—
(0)
65
(1,362)
37(244)
54(21,499)
20,61635(2,298)10(0)
21(3,174)
(1)
(583)
85
(20,100)
14,012
84(9,646)—(0)553(11,594)315(2,077)
460(183,017)
175,500
298(19,562)

8
(412)
(14)
(546)
—
(964)

—
(612)
(211)
(548)
2,469
1,098

68
(3,507)(119)(4,648)—8,206(1,813)
12,436¥ 10,623(41)
12,477¥(12,436(15,434)
105,866$ 90,432

Cash flows from financing activities:
Increase in short-term loans
Repayments of long-term debt
Purchase of treasury stock
Dividends paid
Proceeds from issuance of bonds
Net cash (used in) provided by investing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The accompanying Notes are an integral part of these statements.

34

Notes to the Non-Consolidated Financial Statements
TONAMI TRANSPORTATION CO., LTD.

1 Basis of presenting financial statements
The accompanying non-consolidated financial statements of Tonami Transportation Co., Ltd. (the “Company”)
are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial Reporting Standards, andare complied from the consolidated financial statements prepared by the Company as required by the Securities
and Exchange Law of Japan.
U.S. dollar amounts presented in the financial statements are included solely for convenience and should
not be construed as representations that Japanese yen amounts have been or could in the future be converted
into U.S. dollars. The rate of ¥117.47 = U.S.$1, prevailing on March 31, 2006, has been used for the translation into U.S. dollar amounts in the financial statements.

2 Summary of significant accounting policies(a) Non-consolidation

The accompanying non-consolidated financial statements include only the accounts of the Company.
Investments in subsidiaries and affiliates are stated at cost.
(b) Marketable securities and investments in securities

Securities, except for investments in unconsolidated subsidiaries and affiliates, are classified as trading securities, held-to-maturity securities or other securities. Trading securities are carried at fair value. Held-to-maturity
securities are carried at amortized cost. Marketable securities classified as other securities are carried at fairvalue with any unrealized gain or loss reported as a separate component of stockholders’ equity, net of taxes.
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determinedprincipally by the moving average method.
(c) Inventories

Inventories are stated at cost, cost being determined principally by the last purchase price method.
(d) Allowance for doubtful accounts

Allowance for doubtful accounts is provided in an amount sufficient to cover possible losses on collection.
Such amount is computed by applying the rate of actual losses on collection experienced in the past withrespect to general trade receivables and by individually reviewing their collectibility with respect to certain
doubtful receivables.
(e) Property and equipment and intangible assets

Property and equipment are stated at cost. However, under Japanese tax law, capital gains resulting from disposals and other similar transactions are deducted from the cost of the property and equipment acquired in
substitution.
Depreciation of property and equipment is computed by the declining-balance method, except for buildings
and structures, which are depreciated by the straight-line method.
The ranges of useful lives of principal property and equipment are as follows:
Buildings and structures . 2-50 years
Machinery and vehicles . 2-15 years
Amortization of intangible assets is principally computed using the straight-line method assuming that theassets have no salvage value.
(f) Leases

Finance leases, except those leases for which the ownership of the leased assets is considered to be transferredto the lessee, are accounted for by the method similar to that applicable to ordinary operating leases.
(g) Employees’ severance and retirement benefits

The Company’s employees are entitled to a lump-sum payment upon retirement or severance of employment.
In order to provide for the employees’ severance and retirement benefits, the Company assumes a liability forseverance and retirement benefits, which is included in the liability section of the non-consolidated balance
sheets, based on the estimated amounts of projected benefit obligation and plan assets at the balance sheet dates.

35

Past service costs are recognized in expenses using the straight-line method over 11 years (a certain period
not exceeding the employees average remaining service lives) commencing with the year as occurred.
Actuarial gains and losses are recognized in expenses using the straight-line method over 11 years (a certain
period not exceeding the employees’ average remaining service lives) commencing with the next year as
occurred.
The Company has two types of defined benefit plans, a lump-sum payment plan and an additional benefit
type of pension plan. The Company revised its pension plans and shifted them to a money-market-rates linkage
type from June 1, 2004.
The Company has established contributory defined benefit pension plans pursuant to the Welfare Pension
Insurance Law of Japan.
Effective the fiscal year ended March 31, 2006, the Company has adopted “Partial Revisions to the
Accounting Standards for Retirement Benefits” (Business Accounting Standard No. 3 issued by the AccountingStandards Board of Japan on March 16, 2005) ”and the “Implementation Guidance for Partial Revisions to the
Accounting Standards for Retirement Benefits” (“Financial Accounting Standard Implementation Guidance No.
7” issued by the Accounting Standards Board of Japan on March 16, 2005).
The adoption had no material effect on the Company’s results of operations.
(h) Income taxes

Income taxes consist of corporation, enterprise, and inhabitant taxes.
The Company recognizes tax effects of temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting.
(i) Statements of cash flows

Cash and cash equivalents include cash on hand, deposits placed with banks on demand, and highly liquid
investments with insignificant risk of changes in value which have maturities of three months or less whenpurchased.

3 Property and equipment
As stated above, capital gains resulting from disposals and other similar transactions are deducted from the costof property and equipment acquired in substitution. The amounts deducted from the cost of property andequipment was ¥269 million ($2,290 thousand) as at March 31, 2006 and 2005.

4 Short-term bank loans and long-term debt(a) Short-term bank loans

Short-term bank loans as at March 31, 2006 and 2005 were as follows:—
Millions of yen
2006
2005

SecuredUnsecured¥ 3,080
10,175¥ 3,080
10,175

Thousands of
U.S. dollars
2006$26,219
86,618Interest rates range from 0.600% to 1.375%.
(b) Long-term debt

Long-term debt as at March 31, 2006 and 2005 was as follows:—
Millions of yen
2006
2005

0.89% ¥6.4 billion unsecured straight bonds due 2008
¥ 6,400
0.52% ¥0.6 billion unsecured straight bonds due 2008
600
0.00% ¥2.5 billion unsecured convertible bond typebonds with stock acquisition rights due 2009
2,500
0.850%-2.100% loans from financial institutions due 2006 to 2010 and thereafter
Secured
1,155
Unsecured32
Total
10,687
Less:amount due within one year210
¥10,477

Thousands of
U.S. dollars
2006¥ 6,400
600$54,482
5,108

2,500

21,282

1,333
266
11,099412¥10,687

9,832
273
90,977
1,788$89,189

The maturity date of the ¥6.4 billion 0.89% unsecured straight bonds, issued in June 2003 is June 30, 2008.
The maturity date of the ¥0.6 billion 0.52% unsecured straight bonds, issued in June 2003 is June 30, 2008.
The maturity date of the ¥2.5 billion 0.00% unsecured convertible bond type- bonds, issued in July 2004 is
September 30, 2009.

36

The annual maturities of long-term debt outstanding as at March 31, 2006 were as follows:—
Year ending March 31,

Millions ofyen

Thousands of
U.S. dollars

2007
2008
2009
2010
2011 and thereafter¥0,178
178
7,178
2,614
329

$01,515
1,515
61,10522,2532,801(c) Pledged assets

As at March 31, 2006, Property and equipment having a net value of ¥13,722 million ($116,813 thousand) was
pledged as collateral for short-term bank loans and long-term debt (including current portion of long-term debt).

5 Impairment Losses(a) Accounting standards for impairment of fixed assets

Effective the year ended March 31, 2006, the Company has adopted a new accounting standard for the
impairment of fixed assets which requires that tangible and intangible fixed assets be carried at cost less depreciation, and be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Companies would be required to recognize an impairment loss intheir statement of income if certain indicators of asset impairment exist and the book value of an asset exceeds
the undiscounted sum of future cash flows of the asset. The standard states that impairment losses should bemeasured as the excess of the book value over the higher of (1) the fair market value of the asset, net of disposition costs and (2) the present value of future cash flows arising ongoing utilization of the asset and from disposal
after asset use. The standard covers land, factories, buildings and other forms of property, plant and equipment
as well as intangible assets. Fixed assets will be grouped at the lowest level for which there is identifiable cash
flows that are independent of cash flows of other groups of assets.
As a result of the adoption of this new accounting standard, a loss on impairment of land in the amount of¥7,621 million was recognized and loss before income taxes and minority interests increased by the same amountfor the year ended March 31, 2006 as compared with the corresponding amount under the previous method.
Accumulated impairment losses have been directly deducted from the value of each relevant asset in accordance with the revised regulations concerning financial statements.
(b) Impairment losses

During the fiscal year ended March 31, 2006, the Company recorded impairment losses concerning the following asset groupings.
Impairment losses Impairment losses(millions of (thousands ofyen)
U.S. dollars)

Usage

LocationType

Haulage andwarehouse facilities
Warehouse facilities

Koto Ward, Tokyo and 37
other sites
Noda, Chiba prefecture

Land and buildings¥6,865$58,440

Leased facilities

756¥7,621

6,436$64,876

The Company is a comprehensive logistics enterprise and has six operations including the road haulage operation. Organizations belonging to operations implement management accounting.
Business facilities in various locations are bases for providing the Company’s comprehensive distribution
solution services to customers. In many cases, organizations of operations are located at these business facilities
and deal with their customers.
Organizations of operations have complementary relationships. Business facilities constitute the unit for generating cash flows. The aggregate assets of organizations located at each business facility constitute an asset
grouping.
Regarding the asset groupings for which impairment losses were recorded, future cash flow losses were projected partly due to a large decline in land prices. Thus, the carrying values of the asset groupings were reducedby the unrecoverable values and an impairment loss amounting to ¥7,621 million (US$64,876 thousand) wasrecorded as an extraordinary loss.
The breakdown of the impairment losses is as follows: ¥3,872 million (US$32,961 thousand) concerningland, ¥2,993 million (US$25,479 thousand) concerning buildings and ¥756 million (¥US$6,436 thousand)concerning leased facilities.
In regard to asset groupings, recoverable value of land and buildings is measured based on the net sales
value. Net sales value is assessed based mainly on appraisal value provided by real-estate appraisers. Immaterial
assets are assessed based on carrying value. Recoverable value of leased facilities is measured based on the use
value and the present value is calculated based on a 3.6% discount of future cash flows.

37

6 Income taxes
As described in Note 2(h), the Company recognizes tax effects of temporary differences between the carrying
amounts of assets and liabilities for tax and financial reporting.
Significant components of deferred tax assets and liabilities are as follows:—
Millions of yen
2006
2005

Deferred tax assets:
Excess bonuses accrued
Excess employees' severance and retirement benefits accrued
Excess loss on impairment of tangible fixed assets (except for leased assets)
Accumulated loss on impairment of leased assets
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on securities
Reserve under Special Taxation Measures Law
Total deferred tax liabilities
Net deferred tax assets

¥

405
6,928

Thousands of
U.S. dollars
2006

239
7,013
1,145
289
2,352
11,038(2,032)
9,006

¥

505
7,838
(199)
7,640

$ 2,035
59,7009,747
2,460
20,022
93,964(17,298)
76,666(1,659)(4,979)(6,638)¥ 2,368(889)(5,058)(5,947)¥ 1,693(14,123)(42,385)(56,508)$ 20,158——

Income taxes applicable to the Company consist of corporation, enterprise, and inhabitant taxes.
Significant differences between the statutory tax rate and the Company’s effective tax rate after applying thedeferred tax accounting for the years ended March 31, 2006 and 2005 are as follows:—
Statutory tax rate
Increase (decrease) in tax resulting from:
Nondeductible expenses including entertainment, etc.
Nontaxable income including dividends received deduction, etc.
Per capita portion of inhabitant taxes
Other
Effective tax rate

2006

2005

—

40.4%

—
—
—
—
—

2.0
(2.8)
11.0
1.9
52.5%

No item was listed in the column "2006" on the above table, because the Company recorded a loss before
income taxes in the year ended March 31, 2006.

7 Accounts and transactions with subsidiaries and affiliates
As at March 31, 2006, the Company had 28 subsidiaries and 8 affiliates.
Receivables from, payables to, and transactions with these subsidiaries and affiliates are summarized asfollows:—
Millions of yen
2006
2005

Notes and accounts receivable
Loans receivable
Trade accounts payable

¥

251
7,907
11,042

¥ 246
7,007
9,815

Millions of yen
2006
2005

Operating revenues
Operating cost
Interest income¥ 2,448
10,200145¥2,4809,487
102

Thousands of
U.S. dollars
2006$ 2,137
67,311
93,998
Thousands of
U.S. dollars
2006$20,839
86,831
1,234

8 Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation, accumulated
impairment losses and net book value of the leased property as of March 31, 2006 and 2005, which would38

have been reflected in the balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases:—Millions of yen
2006
2005

Acquisition costs:
Machinery and tools
Other assets
Accumulated depreciation:
Machinery and tools
Other assets
Accumulated impairment losses:
Machinery and tools
Other assets
Net book value:
Machinery and tools
Other assets

Thousands of
U.S. dollars
2006¥14,966
1,319¥16,285¥13,6541,319¥14,973$127,403
11,228$138,631¥ 9,441209¥ 9,650¥ 7,565
188¥ 7,753$ 80,370
1,779$ 82,149

¥

—

¥

756
756

¥ 5,525354¥ 5,879

¥
¥

—
—
—

¥ 6,089
1,131¥ 7,720

$

—

$

6,436
6,436

$ 47,033
3,014$ 50,047

Amounts of depreciation expense equivalents and interest expense equivalents for the years ended March 31,
2006 and 2005 are as follows:—
Millions of yen
2006
2005

Depreciation expense
Interest expense¥2,352156¥2,409173

Thousands of
U.S. dollars
2006$20,022
1,328

Lease payments relating to finance leases accounted for as operating leases amounted to ¥2,625 million($22,346 thousand) and ¥2,616 million($22,270 thousand), which were equal to the depreciation expense of
the leased assets computed by the straight-line method over the lease terms, for the years ended March 31,
2006 and 2005, respectively.
In the year ended March 31, 2006, impairment losses on leased assets amounting to ¥756 million ($6,436
thousand) was recorded. Since these leased assets are off-balance-sheet, the equivalent amount is included in“Other long-term liabilities”. Impairment losses on leased assets is realized over the lease term. In the fiscal year
ended March 31, 2006 reversal of impairment losses on leased assets amounting to ¥42 million ($358 thousand) was recorded.
Future minimum lease payments (including the interest portion thereon) and the balance of impairment
losses on leased assets at March 31, 2006 and 2005 for finance leases accounted for as operating leases are
summarized as follows:—
Millions of yen
2006
2005

Due within one year
Due over one year
Total
Impairment losses on leased assets¥2,143
4,422¥6,565¥ 714

Thousands of
U.S. dollars
2006¥2,3794,953¥7,332¥ —$18,243
37,644$55,887$ 6,078

Millions ofyen

Thousands of
U.S. dollars

¥
2
1,437

$
17
12,2339 Contingent liabilities
As at March 31, 2006, the Company was contingently liable as follows::—
Guarantees of welfare pension housing loans sublet to employees
Others10 Revaluation reserve for land
In accordance with the Law concerning Revaluation of Land enacted on March 31, 1998, the Company has
revaluated its owned land used for business operations as at March 31, 2000 and reported a revaluation reserve
for land in shareholders’ equity section.
The revaluated book value of land was determined based on the value of land registered on the cadastres ortheir supplementary records, which are provided by the Local Tax Law under the Law Concerning Revaluationof Land, after making reasonable adjustments.
Difference between the fair market value of revaluated land
at March 31, 2006 and the revaluated book value
39

Millions ofyen

Thousands of
U.S. dollars¥7,525$64,059(additional information)
Deferred taxes concerning land revaluation

Previously, regarding handling of deferred taxes concerning land revaluation, revaluation gains were offset by revaluation losses and deferred tax liabilities for net revaluation gains were recorded. On February
17, 2004, “Auditing Treatment of Application of Tax Effect Accounting to Differences in Valuation of
Other Securities” (The Japanese Institute of Certified Public Accountants Auditing Committee Report No.
70) was revised and renamed as “Auditing Treatment of Application of Tax Effect Accounting to
Differences in Valuation of Other Securities and Losses on Impairment of Fixed Assets,” which has clarified the necessity of individually determining the recoverability of deferred tax assets concerning land
revaluation losses. As a result of the necessary treatment, the amount of land revaluation differences at
March 31, 2006, is ¥929 million (US$7,908 thousand) lower than the amount based on the previous
method, and the amount of deferred tax liabilities concerning revaluation is increased by the sameamount. This has no impact on net loss.

11 Shareholders’ equity
In accordance with the former Commercial Code of Japan (the “Code”), the Company provided a legal reserve,
which was included in retained earnings. The Code provides that an amount equal to at least 10% of theamount to be disbursed as a distribution of earnings be appropriated to the legal reserve until the total of suchreserve and capital surplus account equals 25% of the common stock account. In 2006, the Company transferred ¥8,742 million (US$74,419 thousand) from capital reserve to other capital surplus and reversed legal
reserve amounting to ¥1,261 million (US$10,735 thousand) in accordance with Paragraph 2, Article 289 of theformer Code. Accordingly, no legal reserve is included in retained earnings.
The Code provides that neither capital surplus nor the legal reserve is available for dividends, but both may
be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common
stock by resolution of the Board of Directors.
Year-end dividends shall be approved at a ordinary shareholders’ meeting held after the end of each financial
year and interim dividends may be declared by the Board of Directors held after the end of each first six month
period, respectively.
In accordance with the former Commercial Code, year-end dividends and the related appropriation ofretained earnings are not reflected in the financial statements at the end of the financial year, but are recordedat the time they are approved.

12 Supplementary income information
Supplementary income information for the two years ended March 31, 2006 and 2005 is as follows:—
Millions of yen
2006
2005

Depreciation expenses
Lease and rental¥1,697
3,899¥1,860
3,543

Thousands of
U.S. dollars
2006$14,446
33,191

13 Amounts per share
Basic (loss) income per share has been computed using the weighted-average number of shares of common
stock outstanding during each year.
In computing diluted net income per share, the weighted-average number of shares has been increased by
the number of shares that would have been outstanding assuming the conversion of all convertible bond typebonds with stock acquisition rights at the beginning of each year. Net income has been adjusted for interest
expenses on such bonds, net of applicable income taxes.
Although potentially dilutive securities exist, diluted per share data at March 31, 2006 is not provided
because the per share data is a negative figure for fiscal 2006.
Net assets per share has been computed using the number of shares of common stock outstanding at eachbalance sheet date.
Amounts per share of common stock for the years ended March 31, 2006 and 2005 were as follows:—
Yen
2006

Net (loss) income per share:
Basic
DilutedNet assets per share¥ (66.22)—¥456.79

40

2005

¥

9.09
8.47
¥526.70

U.S. dollars
2006$(0.5637)—$ 3.8886

Basis for the calculation of basic and diluted net (loss) income per share for the years ended March 31, 2006
and 2005 was as follows:—
Millions of yen
2006
2005

Net (loss) income available to shareholders of common stock:
Net (loss) income¥ (6,026)¥ 862
Net (loss) income not available to shareholders of common stock :—34(of which appropriation of bonuses to directors and statutory auditors)(—)(34)
Net (loss) income available to shareholders of common stock :(6,026)828
Weighted-average number of shares of common stock outstanding
90,999,165 91,095,825
Diluted net income available to shareholders of common stock
Adjustments to net income:—0(of which commission for bonds)(—)(0)
Incremental number of shares of common stock— 6,738,544(of which stock acquisition rights)(—) (6,738,544.)
Common stock equivalents not included calculation(Convertible bond-type bondsof diluted net income per share due to their anti-dilutive effect—with stock acquisition rights)

Thousands of
U.S. dollars
2006$(51,298)—(—)(51,298)—(—)—

Yen-denominated convertiblebond-type bond with stock acquisition rights due Sep 30,
2009(face amount: ¥2,500 million(US$ 21,282 thousand))(Stock option)
Stock options approved at theannual shareholders' meetingof the Company held on June29, 2005(The number of stock acquisition rights was 1,340.)

14 Subsequent event
The annual shareholders’ meeting of the Company, which was held on June 29, 2006, duly approved the payment of dividends as follows:—
Dividends (¥3.00 per share)

41

Millions ofyen

Thousands of
U.S. dollars¥273$2,324

Independent Auditors’ Report

The Board of Directors
Tonami Transportation Co., Ltd.

We have audited the accompanying non-consolidated balance sheets of Tonami Transportation Co., Ltd. as ofMarch 31, 2006 and 2005, and the related non-consolidated statements of operations, shareholders’ equity,and cash flows for the years then ended, all expressed in yen. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on these financial statements basedon our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts 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 financial statements referred to above present fairly, in all material respects, the non-consolidated financial position of Tonami Transportation Co., Ltd. at March 31, 2006 and 2005, and the non-consolidated results of its operations and its cash flows for the years then ended in conformity with accounting
principles generally accepted in Japan.
Supplemental Information
As described in Note 5 to the non-consolidated financial statements, the Company, effective the year ended
March 31, 2006, adopted the new accounting standards for Impairment of Fixed Assets.
The U.S. dollar amounts in the accompanying non-consolidated financial statements with respect to the year
ended March 31, 2005 are presented solely for convenience. Our audit also included the translation of yen
amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis describedin Note 1.

June 29, 200642

Non-Consolidated Five-Year Summary
TONAMI TRANSPORTATION CO., LTD

Years ended March 31

2005

2006

Thousands of
U.S. dollars
2006

2002

2003

Millions of yen
2004¥ 98,462¥ 97,246¥100,679¥ 99,504¥ 98,978$842,581

Operating cost

93,67992,51096,372

95,30895,660814,336

Selling, general and administrative expenses

2,841

2,758

2,800

2,819

2,608

22,201

Operating income

1,942

1,978

1,507

1,377

710

6,044

Income (loss) before income taxes

1,329

8,231

1,769

1,813

(6,796)(57,853)

Net income (loss)

578

4,407

684

862

(6,026)(51,298)

Capital expenditures

823

1,261

6,684

3,289

1,117

9,509

Depreciation expenses

2,532

2,051

1,796

1,860

1,697

14,446

9.09¥ (66.22)$ (0.5637)

RESULTS OF OPERATIONS:
Operating revenues

PER SHARE (yen and U.S. dollars):
Net income (loss)
Cash dividends

¥

5.92

¥

45.10

¥

6.96

¥

6.00

6.00

8.00

6.00

6.00

0.0511¥ 35,436¥ 39,183¥ 33,883¥ 39,631¥ 39,113$332,962

Net property and equipment

60,02357,94262,26062,69555,121

469,235

Total assets

109,767

108,543

109,202

116,108

110,876

943,867

Total current liabilities

28,43435,77830,10934,99334,926297,318

Long-term liabilities, excluding of current portion thereof

36,741

25,214

31,61633,142

34,392292,773

Total shareholders’ equity

44,59247,55147,47747,972

41,558353,776

Number of share outstanding (thousand)

97,61097,61097,61097,61097,610

Number of employees

5,548

5,462

5,462

5,429

5,298

YEAR-END FINANCIAL POSITION:
Total current assets

OTHER YEAR-END DATA:

43

Consolidated Subsidiaries

Location(Prefecture)

Company NameBusiness LineTokyo

Tonami Business Service Co., Ltd.

Financial service

Tonami Air Service Co., Ltd.

Customs clearance service

Ibaraki

Ibaraki Tonami Transportation Co., Ltd.

Road haulage

Kanagawa

Shonan Tonami Transportation Co., Ltd.

Road haulage

Kanagawa Tonami Transportation Co., Ltd.

Road haulage

Tonami Global Logistics Co., Ltd.

Harbor transport service

Kanto Tonami Transportation Co., Ltd.

Road haulage

Saitama Tonami Transportation Co., Ltd.

Road haulage

Niigata

Niigata Tonami Transportation Co., Ltd.

Road haulage

ToyamaGosei Tonami Transportation Co., Ltd.

Road haulage

Zento Transportation Co., Ltd.

Road haulage

ATS Co., Ltd.

Road haulage

Tonami Trading Co., Ltd.

Trading Company

Toyo Gomu Hokuriku Hanbai Co., Ltd.

Sale of tires

Toyama Jizake Hanbai Co., Ltd.

Sale of liquor

Toyo Tire Toyama shop Co., Ltd.

Sale of tires

Tonami Staff Support Co., Ltd.

Detached service

Shogawa Kanko Co., Ltd.

Travel inns

Tonami Automobile Technology Research Institute Co., Ltd.

Automobile technology R&D

Ishikawa

Ishikawa Tonami Transportation Co., Ltd.

Road haulage

Fukui

Fukui Tonami Transportation Co., Ltd.

Road haulage

Takefu Transportation Co., Ltd.

Road haulage

Aichi

Chukyo Tonami Transportation Co., Ltd.

Road haulage

Shiga

Kawai Transportation Co., Ltd.

Road haulage

Kyoto

Keishin Warehousing Co., Ltd.

Warehousing

Keishin System Research Co., Ltd.

Development and sale of software

Osaka Tonami Transportation Co., Ltd.

Road haulage

Kansai Tonami Transportation Co., Ltd.

Road haulage

SaitamaOsaka

44

Board of Directors and Statutory Auditors
Tonami Transportation is a leader in total logistics solutions that span
all aspects from design and development of distribution channels tofreight haulage and all related information management functions.

Chairman and Representative Director
Yoshihiro Minami

Tonami has pioneered computerized distribution services in Japan, inte-

President and Representative Director
Katsusuke Watanuki

grating physical transport with information management to provide
advanced systematized distribution services

Senior Managing Director
Akiyoshi Kunisada

The Tonami Group offers a fully integrated distribution network inJapan and overseas, based on distribution centers in 117 locations

Standing Statutory Auditors
Makoto Nagai
Nariyuki Aoki

Managing Directors
Kohichi Kishida
Shigeki Sakamotoaround the country linked by an advanced information network.
Tonami Group distribution services add value to industry and enhance

Statutory Auditors
Shinichiro Inushima
Toshio Yaeda
Yohji Ishiguro

Director and Adviser
Yohsuke Konishi

the lifestyles of individuals.

Directors
Noriaki Murata
Kiyomi Asamizu
Yasuo Terabayashi
Yoshinobu Watanabe
Toshiyuki Koroku
Shigeyuki Okada(As of June 29, 2006)

Corporate Data

Strategic Logistics Solutions
Head Office2-12, Showa-machi 3-chome, Takaoka,
Toyama Prefecture 933-8566, Japan
Phone: (0766) 21-1073
Fax: (0766) 21-3640

Contents
1 Consolidated Financial Highlights
2 To Our Shareholders and Investors
5 Corporate Governance
8 Corporate Social Responsibility Activities
9 Financial Section
44 Consolidated Subsidiaries
45 Board of Directors and Statutory Auditors
45 Corporate Data

Issued and Outstanding Shares
97,610,118 shares

Tokyo Office
3-8, Higashinihonbashi 3-chome, Chuo-ku,
Tokyo 103-0004, Japan
Phone: (03) 3664-5401
Fax: (03) 3664-5405
Date of Established

June 1943

Common Stock¥14,183 million

Forward-Looking Statements
This annual report includes forward-looking statements that represent Tonami’s assumptions and expectations in light of currently available
information. These statements reflect industry trends, clients’ situations and other factors, and involve risks and uncertainties which may
cause actual performance results to differ from those discussed in the forward-looking statements in accordance with changes in thebusiness environment.

45

Shareholders

8,162

Employees

5,298

Terminals

84

Warehouses

48

Motor Vehicles

5,542(As of March 31, 2006)

2006
Annual Report
For the year ended March 31, 2006

TONAMI TRANSPORTATION CO., LTD.

TONAMI TRANSPORTATION CO., LTD.

URL:http://www.tonami.co.jp/

Printed in Japan on recycled paper