2005
Annual Report
For the year ended March 31, 2005

TONAMI TRANSPORTATION CO., LTD.

TONAMI TRANSPORTATION CO., LTD.

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

Printed in Japan on recycled paperTonami Transportation is a leader in total logistics solutions that span all aspects from design anddevelopment of distribution channels to freight haulage and all related information management functions. Tonami has pioneered computerized distribution services in Japan, integrating physical transportwith information management to provide advanced systematized distribution services.
The Tonami Group offers a fully integrated distribution network in Japan and overseas, based on
distribution centers in 47 locations around the country linked by an advanced information network.
Tonami Group distribution services add value to industry and enhance the lifestyles of individuals.

Strategic Logistics Solutions

Contents
1 Consolidated Financial Highlights
2 To Our Shareholders and Investors
3 The 17th Medium-Term Business Plan
4 Interview with the President
8 Environmental Protection Activities
9 Financial Section
41 Board of Directors and Statutory Auditors
42 Corporate Data

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.

Consolidated Financial Highlights
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESTwo years ended March 31, 2005
Thousands of
U.S. dollars(Note 1)
2005

Millions of yen
2005
2004

FOR THE YEAR:
Operating revenues¥129,068¥126,713$1,201,863

Logistics

117,816

114,796

1,097,086

Others

11,252

11,917

104,777

Operating income

2,983

2,859

27,778Net income

2,173

1,429

20,23522.94¥ 14.50

Net income, diluted

21.36

—

0.1989Cash dividends

6.00

8.00

0.0559¥127,909¥128,293$1,191,070

52,49650,735

488,835

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

0.2136

AT YEAR-END:
Total assets
Total shareholders’ equity

Notes: 1. U.S. dollar amounts presented herein are included solely for convenience. The rate of ¥107.39 = U.S.$1, prevailing on March 31,
2005, 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
’01

’02

’03

’04

’05

(Yen)

5

50

4

40

3

30

2

20

1

10

0

0

-10
’01

’02

’03

’04

’05

-100
’01

’02

’03

’04

’05

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

Logistics
Others1

To Our Shareholders and Investors

Chairman, Yoshihiro Minami

President, Katsusuke Watanuki

Structural reforms twinned with widespread adoption of advanced IT are helping to transform theJapanese economy at a dramatic pace.
Since its establishment in 1943, Tonami Transportation has expanded to become a leader within
Japan’s distribution industry. Today, we provide a wide variety of distribution services to clients.
In April 2005, we embarked on a new path of internal change under our 17th medium-term business plan, which covers the period until March 2008. In an age characterized by rapid change, ourgoal is to create a “value-added corporate group” through innovation. We aim to add greater value to
distribution operations while upgrading activities to fulfill our corporate social responsibility (CSR).
Having been recently appointed as the president of Tonami, I am committed to executing the various measures contained in our new medium-term business plan, based on an updated system. I alsoplan to create the structures necessary for implementing all the necessary innovations.
Commitment to customer satisfaction remains the core theme throughout all of our businessactivities. Building on this commitment, we will also strive harder to contribute to the developmentof local communities and the protection of the environment. In doing so, we hope to gain the trustof all shareholders and create a company in which employees can take pride and experience satisfaction through their work. A greater emphasis on business ethics, legal and regulatory compliance andcorporate governance will underpin our greater commitment to CSR.
Facing the future, we are focused intently on taking up these challenges. I ask all shareholders
and investors for their continued support and understanding.
June 2005

Yoshihiro Minami
Chairman and Representative Director

Katsusuke Watanuki
President and Representative Director
2

The 17th Medium-Term Business Plan
Main slogan:

Aiming for a new value-added corporate group
Committed to corporate innovation
In a rapidly changing business environment, our goals are to be trusted and valued by customers
and society alike, and to grow as a company in which employees can take pride and experience satisfaction through their work. To achieve these goals, our operations must add greater value within
the distribution industry and we must take actions that fulfill Tonami’s corporate social responsibility at the level of individual employees. In doing so, we hope to create an enterprise that is bothcompetitive and of high value to society.

Six Core Objectives
1. Build advanced distribution solutions business
2. Strengthen international operations
3. Invest in human capital
4. Upgrade quality of distribution services
5. Generate higher revenues from road haulage operations
6. Develop internal governance systems

Final Year Performance Targets
Year ending March 2008
Non-consolidated

Consolidated(Millions of yen)

Operating revenues¥110,000¥142,000

Recurring profit *

2,530

4,400

Recurring profit margin

2.3%

3.1%

* Recurring profit: operating income + non-operating income - non-operating expenses

3Interview with the President

The Route to Greater SuccessIn the year ended March 2004, Tonami introduced several corporate governance reforms as part ofits efforts to create greater added value within the distribution industry. Measures included a reduction

President, Katsusuke Watanukiin the number of directors and the introduction of an executive officer system. These changes aimed toaccelerate decision-making within Tonami. Following his recent appointment as president, Katsusuke
Watanuki leads the senior management team. In this interview, he talks about the challenges in Tonami’s new
medium-term business plan and the various ongoing initiatives to create greater customer satisfaction.

Results for Year Ended March 2005 and 16th Medium-Term Business Plan

Q1. What factors enabled Tonami to report higher revenues and profits in the year
ended March 2005?
With domestic freight volumes still on the decline, we redoubled our efforts to provide efficient distribution services for customers while trying to contain costs. The cost burden became heavier due
to additional environmental and safety measures and higher oil prices. Overall, business conditions
remained harsh.
On the sales side, we aggressively marketed advanced distribution solutions to clients based on
system logistics and joint delivery systems. Besides trying to gain new clients, we also sought toboost consolidated operating revenues through the application of IT to raise the quality and accuracyof our road haulage and related distribution operations
Elsewhere, the completion of financial rehabilitation procedures for Keishin Warehousing Co.,
Ltd. helped to bolster our warehousing operations. Although there was some negative impact fromthe long typhoon season and the Niigata earthquake, we were able to post a year-on-year increase of
1.9% in consolidated operating revenues, which amounted to ¥129,068 million.
Measures across the Tonami Group to enhance productivity and reduce costs proved successful.
We posted a 4.3% year-on-year rise in operating income to ¥2,983 million. Net income was ¥2,173
million, an increase of 52.1% compared with the previous year.

Q2. The year ended March 2005 was the final one of Tonami’s 16th medium-termbusiness plan. How would you evaluate the results?
The 16th medium-term business plan had two main themes. First, we aimed to rebuild our service
infrastructure to enable us to offer clients high-value-added transport and related distribution services that would cater to more advanced customer requirements. Second, in an increasingly competitive distribution sector where customers seek rationalization gains and there are new standards forevaluating supplier performance, we aimed to institute aggressive structural reforms to maintain revenues while also protecting jobs.
I believe our performance at the consolidated level was broadly satisfactory in the year ended
March 2005. There was a new contribution from the Keishin Warehousing group of three companies, which became subsidiaries in October 2003. However, there remain many issues for us toaddress as we move forward. Besides trying to boost revenues from core road haulage operations, we

4must also work on raising the quality of distribution services and customer relations management sothat we can prevail amid fierce competition. In addition, developing a second core business alongside road haulage remains a prime ongoing concern. These are all issues we plan to tackle in the
17th medium-term business plan.

Q3. One element of the new plan is to build up the “distribution solutions business.”
What does that entail?
The distribution solutions business is part of our system logistics operations. Based on our systematized distribution network, we add extra value through functions such as consulting, information
systems and operations management. The combination of these services creates advanced distribution solutions that help give Tonami a competitive edge within the industry.
To develop these operations, we plan to focus on personnel training, on expanding the number ofconsignors, and on building up our operations management capabilities. We are also making thenecessary investments in our network of operational bases.

Diagram of Distribution System
Manufacturer

Tonami Distribution Center
Inspection of freight

Receiving of freight

Factory

Warehousing
Operations nationwide

Collection of freightTransport

Delivery

ReturnTaking backof returned
goods

EOS

Instruction to
executeproduction

Schedule for arrival of
freight, instruction to
execute shipment

Head office

Warehousing support system

Fleet deployment support system

Shipment support system

Inventory control system

Distribution processing support system

Return system

Logistics information
EDI

Case picking

Inspection

Combination of freight

Inspection

Packaging

Customer

Manufacturer Tonami

Order-taking/placement system
EOS

Information onorder-taking

Branch/sales officeTonami Manufacturer
Information on arrivalof freight andshipment, inventory
information

Pallet picking

International fleet

Distribution
processing

Route fleet

Q4. Tonami’s road haulage operations are based around a hub-and-spoke system
involving trucks with mixed freight loads traveling fixed routes. With revenues
from this core business stagnant, how do you plan to generate fresh growth?
Road haulage operations are our core business. To boost revenues, our strategy is for all our operations to tap into the distribution infrastructure to provide extra value-added functions to customers.
We are implementing four sets of measures to construct a transport system that ensures high productivity at low cost—a combination that will enable Tonami to remain cost-competitive within the5Japanese market. First, we are working to raise the quality of our transport operations. Second, we
aim to strengthen strategic functions and create a powerful sales system with greater reach. Third, weare trying to boost productivity and reduce costs further. Fourth, we are making progress in shiftingsome freight haulage operations from trucks to other modes of transport.

Q5. What is the international strategy for the Tonami Group?
We aim to create a new integrated international distribution service by using all the various capabilities of Tonami Group companies. As part of these efforts, on August 1, 2005, the parent company
opened a representative office in Shanghai, China. This facility will be used as a representative officeby subsidiaries Keishin Warehousing Co., Ltd. and Tonami Trading Co., Ltd., both of which haveprior experience in international freight operations, and as a contact office by Tonami Air Service
Co., Ltd.
Our next step is to gather more information prior to the establishment of a local subsidiary to represent Tonami Group companies in Shanghai. Looking further ahead, we plan to keep our international expansion efforts focused on Asia.

Q6. What is your policy on mergers, acquisitions and alliances?
We are actively seeking opportunities for M&A and alliances with a view to expanding our operations. Potential targets or partners are thoroughly investigated to see whether the companies operate
in a way that is compatible with our own business policies.

Tonami’s Transport Network and Distribution Centers
Total number of distribution centers: 47
Tonami’s major licensed routes
Routes provided by alliance partners

Chugoku region: 2

Shinetsu region: 5

Hokuriku region: 12

Niigata

Kanazawa

Hiroshima

Toyama

Fukui

Osaka

NagoyaKanto region: 9

Kansai region: 15
ShizuokaTokyo

Tokai region: 4

6

One example of an ongoing alliance is our “Home Town” parcel delivery service. Through anagreement with Japan Post, we can make use of the national postal network to provide next-day
delivery for many types of goods, including those of agricultural cooperatives. Japan’s post office hasoffered a similar next-day parcel delivery service since 1998. The service extends from Hokkaido to
Okinawa, providing next-day deliveries nationwide except for some more remote islands in theJapanese archipelago.

Q7. Please tell us about Tonami’s initiatives on corporate governance and CSR.
Greater management transparency and improved compliance are our main goals. We are drafting
various sets of regulations and boosting the monitoring capabilities of internal auditing functions todevelop our governance systems. We believe that these measures will also help to raise management
efficiency.
Environmental measures are a major issue for the Tonami Group following the moves by theJapanese government to tighten the regulations governing diesel exhaust emissions and industrial
waste. We established an environmental department in June 2005, and we are investing further toensure that we fulfill our corporate social responsibility concerning these important issues.
In summary, we aim to add greater value within our distribution operations while upgrading CSRrelated activities. In doing so, we aim to improve the management of the Tonami Group to make it
more competitive while also increasing its value to society.
Shareholder Returns and Outlook for Year Ending March 2006

Q8. What is Tonami’s policy on returning profits to shareholders?
Recognizing that a strong capital base and future-oriented capital investment are both key elementsof sustained long-term development, we regard the return of profits to shareholders as an importantmanagement issue. Our basic policy on profit distribution is to pay a performance-related dividend,
while retaining sufficient earnings to fund future development, strengthen the business and maintainsound finances.
For the year ended March 2005, we paid total annual dividends of ¥6.00 per share, composed ofinterim and final dividends of ¥3.00 per share each.

Q9. What is the outlook for the year ending March 2006?
In the coming year, we see few prospects for a fully fledged economic recovery in Japan while deflation continues. We expect growth to remain stable and modest.
Within the Japanese distribution industry, we do not project any recovery in domestic freight volumes. High fuel prices and strengthened regulations in the form of increased environmental andsafety measures are also likely to add to our costs. We expect business conditions to become moredifficult. Faced with such a highly challenging environment, we plan to focus on offering customers
systematized distribution solutions of higher quality and efficiency.
As we embark on the 17th medium-term business plan, our core aims are to maintain operating
revenues and to boost profitability. We will also place a fresh emphasis on upgrading CSR-related
activities across the Tonami Group.
I hope that shareholders and investors will continue to extend us their support and understanding.

7

Environmental Protection Activities

Route diagrams showing
before and after switch tojoint deliveries• Expansion of joint
Conventional systemdelivery system
Tonami has developed
joint delivery systems
with other firms in the
Manufacturers
Wholesalers
and retailers
Kanto and Hokuriku
Joint delivery system
regions to lower environmental impacts by
reducing delivery freDistribution
centerquency. Tonami also
Manufacturers
Wholesalers
and retailers
operates six distribution hubs across Japan, a system that helps to restrict theuse of vehicles and the total distance traveled.

Overview of Activities

Tonami’s basic management policy is to develop its businessas a means of contributing to society through distribution
operations that support Japan’s economy, industry and society in general.
The extensive use of trucks in road haulage make the distribution industry a major emitter of atmospheric pollutants(CO2, NOx, particulates and other exhaust emissions) that
contribute to global warming. Tonami acknowledges that
this is a genuine issue and is working to promote lower
emissions through various measures. These include the useof low-emission vehicles in trucking fleets; initiatives tominimize vehicle idling while stationary; efforts to shift todifferent transport modes; and other measures to increase
distribution efficiency. In the year ended March 2005,
Tonami reduced total CO2 emissions by 1.7% comparedwith the previous year (equivalent to a reduction of 2,423
ton-CO2).
Tonami gained ISO14001 accreditation in October 2003.
In December 2003, the company formulated a code of conduct applicable to all Tonami Group employees. This code
establishes a common set of behavioral principles on key
CSR-related issues such as environmental protection andcompliance.

• Promotion of modal shift
Tonami is promoting greater use of other transport modes
such as rail or ferry, whose CO2 emissions are significantly
lower than that of road haulage.
Tonami is shifting from road to rail freight for transport
between the regions of Hokuriku and Kyushu. For transport to Hokkaido, Tonami has also switched to use offerry services between Niigata and Otaru.
Eco-conscious purchasing and procurement• Use of low-emission vehicles
In the year ended March 2005, Tonami introduced 10
trucks that use compressed natural gas as fuel and two
trucks with hybrid systems. To date, Tonami has introduced 98 low-emission vehicles to its trucking fleet,which account for 2.25% of the total. For diesel trucks,
Tonami undertakes annual replacement programs toensure full compliance with the latest regulatory emission
standards.
• Promotion of green purchasing

Status of Main Environmental Programs
Development of eco-conscious transport services• Extension of “Eco-lock” system*
Tonami developed and introduced this paper recycling
system for sensitive company documents in 1998 as amethod of promoting forest conservation. The system has
been extended to different parts of the country, including
central Japan and the Tokyo area. In the year ended March
2004, Tonami extended the system to the area around
Shizuoka.

Reduction of efficiency losses in transport services(results for year ended March 2005)* Documents containing important corporate information are normally shredded orincinerated to prevent leakage of any sensitive data. In recent years, moreincinerators are placing restrictions on acceptance of such documents as ameans to curb CO2 and dioxin emissions. However, recycling yields for shredded
paper are low (typically under 50%). Tonami’s system involves dissolution of thepaper documents. This process eliminates any data while also preserving thefibers contained in the paper, thereby boosting recycling yields to as high as
80–90%.

• Average loading rates on trucks used on trunk routes
raised by 1.4%
• Average fuel consumption per truck lowered by over 2%
year-on-year• Driver training programs undertaken to cut stationary
idling and to promote other eco-efficient practices
Promotion of waste treatment and recycling• Conservation of resources via trash separation• Introduction of more water-efficient truck washes• Participation in local community clean-up activities

Toilet tissue made of recycled paper8

Financial Section

10

Consolidated Five-Year Summary

11

Consolidated Financial Review

14

Consolidated Balance Sheets

16

Consolidated Statements of Income

17

Consolidated Statements of Shareholders’ Equity

18

Consolidated Statements of Cash Flows

19

Notes to the Consolidated Financial Statements

28

Independent Auditors’ Report

29

Non-Consolidated Five-Year Summary30

Non-Consolidated Balance Sheets

32

Non-Consolidated Statements of Income

33

Non-Consolidated Statements of Shareholders’ Equity

34

Non-Consolidated Statements of Cash Flows35

Notes to the Non-Consolidated Financial Statements

40

Independent Auditors’ Report9Consolidated Five-Year Summary
TONAMI TRANSPORTATION CO., LTD
AND CONSOLIDATED SUBSIDIARIES
Years ended March 31
Thousands of
U.S. dollars
2005

2001

2002

Millions of yen
2003

Operating revenues¥118,166¥118,515¥116,331¥126,713¥129,068 $1,201,863

Operating cost

109,672

110,302

107,928

117,860

119,722

1,114,834

Selling, general and administrative expenses

6,090

5,755

5,630

5,994

6,363

59,251

Operating income

2,404

2,458

2,773

2,859

2,983

27,778Net income (loss)(8,786)

720

4,819

1,429

2,173

20,235

Depreciation expenses

4,092

3,303

2,775

2,610

2,689

25,040Net income (loss)¥ (90.02) ¥7.38

22.94 $

0.2136

Cash dividends

6.00

6.00

6.00

8.00

6.00

0.0559¥037,583¥040,245¥043,692¥043,596

Net property and equipment

67,16065,33063,25871,502

71,790668,498

Total assets

120,696

120,759

119,243

128,293

127,909

1,191,070

Total current liabilities

34,11334,184

41,29839,01837,010344,632

Long-term liabilities, excluding of current portion thereof

38,87638,802

26,79937,83237,759351,606

Total shareholders’ equity

47,11347,17050,50850,73552,496

488,835

7,075

6,952

6,943

7,320

7,289

2004

2005

RESULTS OF OPERATIONS:PER SHARE (yen and U.S. dollars):
¥

48.99

¥

14.50

¥

YEAR-END FINANCIAL POSITION:
Total current assets¥042,447 $0,395,260

OTHER YEAR-END DATA:
Number of employees

10Consolidated Financial Review

Review of Fiscal Year Ended March 2005
Supported by robust corporate earnings and capital spending, the Japanese economy continued to recover inthe year ended March 2005. However, lackluster consumer spending, which reflected a lack of confidence due
to uncertain employment and income prospects, prevented a fully fledged recovery.
Business conditions remained harsh for the Japanese distribution industry. Amid an ongoing decline indomestic freight volumes, pressures to contain costs remained strong as customers sought increased logistical
efficiencies. The cost burden also became heavier, reflecting factors such as environmental and safety measures,
as well as higher oil prices.
The year marked the final stage of Tonami’s three-year medium-term business plan that was initiated in
April 2003. The primary management focus was on implementing the various measures contained in the planto achieve the final objectives. On the sales side, Tonami aggressively marketed advanced distribution solutions to clients based on system logistics and joint delivery systems. Besides targeting new client acquisitions,
Tonami also sought to boost consolidated operating revenues through the application of IT to raise the quality
and accuracy of road haulage and related distribution operations.
Despite the impact of an unusually large number of natural disasters, operating revenues amounted to¥129,068 million, an increase of 1.9% compared with the previous year.
Measures across the Tonami Group to enhance productivity and reduce costs proved successful, contributing
to a 4.3% year-on-year rise in operating income to ¥2,983 million. Net income amounted to ¥2,173 million,
an increase of 52.1% compared with the previous year.

Business Segment Review
Tonami Group service operations divide into two categories. Logistics-related businesses include core road
haulage operations and associated services. Other non-logistics businesses include direct marketing services.
Logistics-related businesses

Competition between operators intensified further as road haulage freight volumes continued to decline inJapan. Competitive pressures resulted in further erosion of haulage rates, creating an extremely harsh operating
environment. The Tonami Group focused on raising the quality of its transport operations while undertaking
aggressive sales and marketing activities to protect haulage volume. Tonami also focused on generating fresh
revenue growth through the expansion of integrated warehousing operations to provide value-added services
to companies seeking to rationalize logistics functions.

Operating Revenues

Operating Income

Net Income (Loss)(Billions of yen)(Billions of yen)(Billions of yen)
3

150

5
4

2

100

3
2

50

1

1
0

0

0
’01

’02

’03

’04

’05

-10
’01

11

’02

’03

’04

’05

’01

’02

’03

’04

’05

Operating revenues from logistics-related services totaled ¥117,816 million, an increase of 2.6% comparedwith the previous year. Efficient marshaling of resources together with efforts to raise productivity and to
reduce various costs resulted in a significant increase in segment operating income, which rose 32.7% on a
year-on-year basis to ¥2,812 million.
Other businesses

In non-logistics operations, the automobile repair business performed well. However, direct marketing
services and consignment sales operations posted lower service revenues due to a drop in handling volumes oflimited-sale items (although non-seasonal goods generally sold well). Segment operating revenues declined
5.6% year-on-year to ¥11,252 million. Operating income fell 66.0% to ¥301 million, chiefly reflecting an
increase in operating costs.

Financial Position and Capital Expenditures
The issuance of convertible bonds contributed to a net increase in funds of ¥2,469 million during the year
ended March 2005. Net positive cash flow totaled ¥240 million, although total assets declined by ¥384 million
on a year-on-year basis.
Consolidated capital expenditures in logistics-related operations amounted to ¥3,290 million. Capital
investments were primarily in operating bases, increased haulage capacity and improved IT functions to support advanced distribution service offerings by Tonami Group companies. These include systematized distribution services (targeting clients that seek improved logistics functions or outsourced distribution capacity) andother value-added services such as joint delivery systems or integrated contract distribution services (based on
integrated national distribution capabilities that stem from the use of online systems to link trunk haulage
routes with local delivery networks).
In logistics-related operations, capital expenditures on operating bases within Tonami’s transport network
amounted to ¥1,703 million. Vehicle replacement costs for the Tonami Group’s road haulage truck fleet
totaled ¥772 million.
In other businesses, capital expenditures related to direct marketing and consignment sales operations
totaled ¥159 million. Total investment in travel inn operations was ¥329 million.
Major capital spending projects that were completed during the year ended March 2005 included the construction of a new distribution center servicing the Kyoto-Osaka area and the refurbishment of the East Osaka office.

Cash Flows
Consolidated cash and cash equivalents totaled ¥16,040 million as of March 31, 2005. This represented a netincrease in cash from the previous year-end of ¥240 million. Cash used in investing activities offset positive
cash flows from operating activities and financing activities (such as corporate bond issuance).

Sales of Logistics-Related
Businesses

Sales of Other Businesses

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

150

15

150

100

10

100

50

5

50

0

0
’01

’02

’03

’04

’05

-10
’01

’02

’03

’04

’05

’01

’02

’03

Total assets
Shareholders’ equity

12

’04

’05

Cash flows from operating activities

Net cash provided by operating activities totaled ¥3,468 million (a year-on-year decline of ¥96 million). Major
cash-generating factors included net income before income taxes (¥3,609 million) and depreciation and amortization (¥2,689 million). Significant offsetting factors resulting in net cash outflows included a decrease in thereserve for retirement allowance (¥733 million) and income tax payments (¥1,736 million).
Cash flows from investing activities

Net cash used in investing activities totaled ¥4,062 million (a year-on-year fall of ¥660 million). The major factor
was the purchase of property and equipment, which absorbed cash totaling ¥3,921 million.
Cash flows from financing activities

Net cash provided by financing activities totaled ¥834 million (a year-on-year increase of ¥3,069 million).
Major cash-generating factors included net proceeds of ¥2,469 million from corporate bond issuance.
Significant financial outgoings included long-term debt repayments (¥947 million), acquisitions of treasury
stock (¥211 million) and dividend payments (¥548 million).

Outlook for Fiscal Year Ending March 2006
With deflation maintaining its grip, the prospects for a fully fledged economic recovery in Japan are poor.
Tonami expects growth to remain stable and modest.
Within the Japanese distribution industry, domestic freight volumes are not projected to recover. High fuelprices and strengthened regulations in the form of increased environmental and safety measures are likely to
add to the cost burden. Tonami expects business conditions to become increasingly harsh. Faced with a highly
challenging environment, Tonami plans to focus on offering customers systematized distribution solutions ofhigher quality and efficiency.
The year marks the start of Tonami’s 17th medium-term business plan. Besides aiming to maintain operating
revenues and boost profitability, the plan places a fresh emphasis on upgrading all activities across the Tonami
Group related to corporate social responsibility (CSR).
Operations have begun at the newly constructed distribution center located in Kyoto prefecture serving the
Kyoto-Osaka area. The capital investment program for the year ending March 2006 aims to reinforce Tonami’stransport network and warehousing facilities. Plans include the expansion of the newly refurbished East Osaka
office (located in Osaka prefecture) and the construction of the West Yodogawa distribution center (also in
Osaka prefecture).
For the year ending March 2006, Tonami forecasts consolidated operating revenues of ¥131.2 billion (ayear-on-year increase of 1.7%) and net income of ¥1.55 billion (a drop of 28.7%). The net income forecastreflects a projected negative impact from the adoption of asset impairment accounting standards.

Interest-Bearing Debt andDebt to Equity Ratio(Billions of yen)

Depreciation and Amortization
and Capital Expenditures(Billions of yen)(Times)

30

0.6

20

0.4

10

Net Cash Provided byOperating Activities(Billions of yen)

8

8

6

6

4

4

2

2

0.2

0

0
’01

’02

’03

’04

Interest-bearing debt (Left scale)
Debt to equity ratio (Right scale)

’05

0

0
’01

’02

’03

’04

Depreciation and amortization
Capital expenditures

13

’05

’01

’02

’03

’04

’05

Consolidated Balance Sheets
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAs of March 31, 2005 and 2004ASSETS

Millions of yen
2005
2004

Thousands of
U.S. dollars(Note 1)
2005

Current assets:
Cash and time deposits¥015,279¥015,035$0,142,276

1,065

1,046

9,917

22,721

24,199211,575

(73)

(109)

(680)

Inventories

568

576

5,289

Deferred tax assets (Note 7)

795

711

7,403

2,092

2,138

19,48042,44743,596395,260

Land

42,16541,256392,634

Buildings and structures

25,82025,068240,432

Machinery and vehicles

3,038

3,431

28,290Construction in progress

51

1,002

475

Other

716

745

6,667

71,79071,502

668,498

Investments in securities (Notes 3 and 5)

7,837

6,765

72,977

Deferred tax assets (Note 7)

1,179

1,456

10,979

Other

4,656

4,974

43,356

13,672

13,195

127,312¥127,909¥128,293$1,191,070

Marketable securities (Note 3)
Trade receivables:
Notes and accounts (Note 10)
Less: allowance for doubtful accounts

Other current assets
Total current assets

Property and equipment (Notes 4 and 5):

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
2005
2004

Thousands of
U.S. dollars(Note 1)
2005

Current liabilities:
Short-term bank loans (Note 5)¥015,964¥016,063$0148,655

653

911

6,081

11,313

12,514105,345

Income taxes payable

684

907

6,369

Other current liabilities

8,396

8,623

78,18237,01039,018344,632

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

11,134

9,196

103,678

Deferred tax liabilities from revaluation reserve for land (Note 11)

4,595

4,596

42,788

Employees’ severance and retirement benefits (Note 6)

19,377

20,110180,436

Consolidation difference

402

648

3,743

Other long-term liabilities

2,251

3,282

20,961

Total long-term liabilities

37,75937,832351,606

Total liabilities

74,76976,850696,238

644

708

5,997

14,183

14,183132,070

Capital surplus

14,687

14,687

136,763

Retained earnings

17,47915,934

162,762

Revaluation reserve for land (Note 11)

6,768

6,769

63,023

Unrealized gain on securities

1,329

901

12,375(1,950)(1,739)(18,158)

52,49650,735

488,835¥127,909¥128,293$1,191,070

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

Total current liabilities
Long-term liabilities:

Minority interests
Contingent liabilities (Note 10)
Shareholders’ equity (Note 12):
Common stock:
Authorized: 299,200,000 shares in 2005
299,200,000 shares in 2004
Issued:97,610,118 shares in 2005
97,610,118 shares in 2004

Treasury stock, at cost: 6,592,631 shares in 2005
6,032,839 shares in 2004
Total shareholders’ equity
Total liabilities, minority interests, and shareholders’ equity

15

Consolidated Statements of Income
TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended March 31, 2005
Thousands of
U.S. dollars(Note 1)
2005

Millions of yen
2005
2004

Operating revenues:
Operating revenues¥129,068¥126,713$1,201,863

129,068

126,7131,201,863

119,722

117,860

1,114,834

6,363

5,994

59,251126,085

123,854

1,174,085

2,983

2,859

27,778Interest and dividend income

228

174

2,123

Equity in earnings of unconsolidated subsidiaries and affiliates

148

65

1,378

Loss on sells of property and equipment, net

(132)

(19)

(1,229)Interest expenses

(279)

(331)

(2,598)Other, net

661

185

6,155

626

74

5,829

3,609

2,933

33,607

Current

1,464

2,122

13,632

Deferred

(101)

(699)

(940)

1,363

1,423

12,692

73

81

680

¥002,173¥001,429$0,020,235

Operating costs and selling, general and administrative expenses:
Operating cost (Note 13)
Selling, general and administrative expenses (Note 13)
Operating income
Other income and expenses:

Income before income taxes and minority interests
Income taxes (Note 7):

Minority interests
Net income
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, 2005

Millions of yen

Balance as at March 31, 2003
Net income
Cash dividends applicable to the year(¥8.00 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Decrease resulting from inclusionof consolidated subsidiaries
Bonuses to directors and statutory auditors
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

Shares ofcommonstock(thousands)

Commonstock

CapitalsurplusRetainedearnings

97,610¥14,183¥14,687¥15,018
1,429
(749)
725

Revaluation
reservefor land

Unrealized
gain onsecurities

Treasurystock¥7,494¥0,046¥ (920)

(725)
855
(819)

97,610¥14,183¥14,687(421)(68)¥15,934
2,173
(548)
1

¥6,769¥0,901¥(1,739)

(1)
428
(211)

97,610

Balance as at March 31, 2003
Net income
Cash dividends applicable to the year ($0.0745 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Decrease resulting from inclusionof consolidated subsidiaries
Bonuses to directors and statutory auditors
Balance as at March 31, 2004
Net income
Cash dividends applicable to the year ($0.0559 per share)
Revaluation reserve for land
Unrealized gain on securities
Treasury stock
Bonuses to directors and statutory auditors
Balance as at March 31, 2005

(81)
¥17,479¥14,183¥14,687¥6,768¥1,329¥(1,950)

Commonstock

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

Unrealized
gain onsecurities

Treasurystock$132,070 $136,763 $139,845
13,307(6,975)
6,751$69,783$00,428 $ (8,567)(6,751)
7,962(7,626)(3,920)(633)$132,070 $136,763 $148,375 $63,032 $08,390 $(16,193)
20,235(5,103)9(9)
3,985(1,965)(754)$132,070 $136,763 $162,762 $63,023 $12,375 $(18,158)

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, 2005

Millions of yen
2005
2004

Cash flows from operating activities:
Net income before income taxes and minority interests
Depreciation and amortization
Loss (gain) on disposal of property and equipment
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) increase in allowance for doubtful accounts(Decrease) increase in employees’ severance and retirement benefits
Increase (decrease) in accrued bonuses to employees
Interest and dividend income
Interest expenses
Decrease (increase) in trade receivables
Decrease in inventories(Decrease) increase 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

Thousands of
U.S. dollars(Note 1)
2005

¥03,609
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¥02,933
2,610
(30)
(64)
8
54
86
(90)
(65)
60
375
(56)
(174)
331
(1,576)
157
1,505
(60)
124
6,128
174
(331)
(2,407)3,564$033,606
25,040
1,173
(56)
140
65
289
(1,481)(1,378)(1,574)(6,826)37(2,123)
2,598
14,65774(11,184)(279)(3,846)48,9332,123(2,598)(16,165)
32,294

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

(169)
165
(0)
21
(3,921)
141
(539)
86
—
(66)
100
120
(4,062)

(155)
131
(31)
308
(7,809)
1,583
(21)
246
1,413
(339)
471
801
(3,402)(1,574)1,537
0
196(36,512)1,313(5,019)
801
—
(615)
931
1,117
(37,825)

Cash flows from financing activities:
Net (decrease) increase in short-term loans
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from issuance of stock
Purchase of treasury stock
Dividends paid
Dividends paid to minority interests
Net cash provided by (used in) financing activities

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

32
328
(939)
6,914
(7,000)
6
(819)
(749)
(8)
(2,235)

(922)
1,676
(8,818)22,991——(1,965)(5,103)
(93)
7,766

—
240
15,800¥16,040—(2,073)
17,873¥15,800—
2,235
147,127$149,362

Effect of exchange rate change on cash and cash equivalents
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

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 ¥107.39 = U.S.$1, prevailing on March 31, 2005, 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, 2005 (28 for 2004).
All significant intercompany accounts and transactions have been eliminated in consolidation.
Eight of the investments in unconsolidated subsidiaries or affiliates (7 for 2004) 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

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 and its consolidated
subsidiaries assume a liability for severance and retirement benefits, which is included 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.
(h) Stock issue expenses

Stock issue expenses are charged to income as incurred.
(i) Income taxes

Income taxes consist of corporation, enterprise, and inhabitants 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.
The corporation size-based enterprise tax was introduced by revision of the local law from the fiscal year
beginning on or after April 1, 2004. The enterprise tax on value added and capital was accounted for as selling,
general administrative expenses.
As a result, selling, general and administrative expenses increased by ¥176 million ($1,639 thousand) andoperating income and income before income taxes and minority interest decreased by ¥176 million ($1,639
thousand).
(j) 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.
(k) 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, 2005 or 2004. 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,
2005 and 2004 are summarized as follows:—

Unrealized gain:
Stocks
Bonds
Corporate bonds
Other
Other
Unrealized loss:
Stocks
Bonds
Corporate bonds
Other
Other
Total

20

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)

Unrealized gain:
Stocks
Bonds
Corporate bonds
Other
Other
Unrealized loss:
Stocks
Bonds
Corporate bonds
Other
Other
Total

Acquisition
costs

Millions of yen
2004
Carrying
value¥1,772¥3,332¥1,560

106
—
—

107
—
—

1
—
—

654

609

(45)

25
—
60
¥2,61725—
58¥4,131(0)—(2)¥1,514

Unrealized
gain (loss)

Thousands of U.S. dollars
2005
Acquisition
Carrying
Unrealized
costs
value
gain (loss)

Unrealized gain:
Stocks
Bonds
Corporate bonds
Other
Other
Unrealized loss:
Stocks
Bonds
Corporate bonds
Other
Other
Total

$23,056$43,933$20,877

793
—
—

792
—
—

(1)
—
—

670

624

(46)

—
—
1,024
$25,543——1,015$46,364——(9)$20,821Non-marketable securities classified as other securities at March 31, 2005 and 2004 amounted to ¥3,923 million ($36,530 thousand) and ¥3,680 million ($34,268 thousand), respectively.
Proceeds from sales of securities classified as other securities amounted to ¥21 million ($196 thousand) and¥417 million ($3,883 thousand) for the years ended March 31, 2005 and 2004, respectively.
The aggregate gain realized on those sales totaled ¥16 million ($149 thousand) and ¥64 million ($596 thousand) for the years ended March 31, 2005 and 2004, respectively.
The redemption schedule at March 31, 2005 for bonds with maturity dates is summarized as follows:—
Due in one
year or lessCorporate bonds
Other
Total

¥65
—
¥65

Due in one
year or lessCorporate bonds
Other
Total

$605
—
$605

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

¥20
—
¥20

¥ —
100
¥100

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

$186
—
$186

$ —
931
$931

Due after
ten years

¥—
10
¥10

Due after
ten years

$—
93
$93

4 Property and equipment
Depreciable property is stated at the net book value in the consolidated balance sheets. The amounts of accumulated depreciation were ¥49,174 (457,901 thousand) million and ¥48,838 million ($454,772 thousand) on
March 31, 2005 and 2004, 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 ($2,505 thousand) on March 31, 2005 and 2004, respectively.

21

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

Short-term bank loans as at March 31, 2005 and 2004 were as follows:—
Millions of yen
2005
2004

SecuredUnsecured¥03,681
12,283¥03,981
12,082Thousands of
U.S. dollars
2005$034,277
114,378

Interest rates range from 0.6% to 4.0%.
(b) Long-term debt

Long-term debt as at March 31, 2005 and 2004 was as follows:—
Millions of yen
2005
2004

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 2006 to 2010
and thereafter Secured
Unsecured
Total
Less: amount due within one year

Thousands of
U.S. dollars
2005¥06,400
600¥06,400
600$059,596
5,587

2,500

—

23,2801,513
774
11,787653¥11,134

1,773
1,334
10,107
911¥09,196

14,0897,207
109,759
6,081$103,678

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, 2005 are as follows:—
Year ending March 31,

Millions ofyen

Thousands of
U.S. dollars

2006
2007
2008
2009
2010 and thereafter¥0,653
393
282
7,221
3,238

$06,0813,659
2,626
67,24130,152(c) Pledged assets

Property and equipment having a net value of ¥18,972 million ($176,664 thousand) was pledged as collateralfor short-term bank loans and long-term debt as at March 31, 2005.

6 Employees’ severance and retirement benefits
Employees who terminated their service with the Company and consolidated subsidiaries are, in most cases,
entitled to pension annuity payments or to a lumpsum severance payment determined by reference to the basic
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 money-market-rates linkage
type from 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.
On 13th August, 2002 the Company and certain domestic subsidiaries received approval from the Ministerof Health, Labor and Welfare with respect to its application for exemption from the benefit obligation related tofuture employee services under the substitutional portion of the WPFP.
The projected benefit obligation and the funded status of the plans summarized as follows:—
Millions of yen
2005
2004

Projected benefit obligation
Plan assets
Accrued pension and severance costs
Prepaid pension and severance costs
Net unrecognized amount¥(22,830)
2,264
19,377—1,189

22¥(28,347)
3,022
20,110—5,215

Thousands of
U.S. dollars
2005$(212,590)
21,082
180,436—
11,072

The net unrecognized amounts were as follows:—
Millions of yen
2005
2004

Unrecognized benefit obligation at transition:
Adjustment for actuarial assumptions
Past service cost
Net unrecognized amounts¥(5,422(4,233)
1,189¥4,633582
5,215

Thousands of
U.S. dollars
2005$(50,489(39,417)
11,072The components of net periodic pension and severance costs excluding the employees’ contributory portion
were as follows:—
Millions of yen
2005
2004

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¥0,971
564
(67)
—
472
(332)
¥1,608¥1,077
662
(11)
—
621
58
¥2,4082005

2004

Thousands of
U.S. dollars
2005$09,042
5,252
(624)
—
4,395
(3,092)$14,973

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

2.5%
2.5%

2.5%
2.5%

7 Income taxes
As described in Note 2(i), 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
2005
2004

Deferred tax assets:
Excess bonuses accrued
Excess employees’ severance and retirement benefits accrued
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
2005¥(0,498
7,225
795
8,518
(544)
7,974

¥(0,510
7,305
465
8,280
(316)
7,964

$(04,637
67,278
7,403
79,318(5,066)74,253(904)(5,095)(5,999)¥(1,974(612)(5,185)(5,797)¥(2,167(8,418)(47,444)(55,862)$(18,382

Income taxes applicable to the Company consist of corporation, enterprise, and inhabitant taxes, which, inaggregate, resulted in a statutory tax rate of 41.6% for the years ended March 31, 2005 and 2004, respectively.
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, 2005 and 2004 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

23

2005

2004

41.6%

41.6%

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

1.6
(1.5)
6.8
(0.9)
0.9
48.5%

8 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, 2005 and 2004 are as follows:—
Millions of yen
2005
2004

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¥15,279
(239)
1,065
(65)
¥16,040¥15,035
(235)
1,046
(46)
¥15,800

Thousands of
U.S. dollars
2005$142,276(2,226)
9,917(605)$149,362

A summary of the acquired assets and assumed liabilities, the relevant acquisition cost, and the net cash flows
as a result of the acquisition of shares of Keishin Warehousing Co., Ltd. for the year ended March 31, 2004 is
as follows:—
Millions of yen
2004

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Minority interest
Acquisition cost
Cash and cash equivalents acquired
Cash paid, net of cash and cash equivalents acquired¥(3,696
4,895
(748)
(680)
(6,193)—970(2,357)(1,387)

9 Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book valueof the leased property as of March 31, 2005 and 2004, which would have been reflected in the consolidatedbalance sheets if finance lease accounting had been applied to the finance leases currently accounted for as
operating leases:—Millions of yen
2005
2004

Acquisition costs:
Machinery and tools
Other assets
Accumulated depreciation:
Machinery and tools
Other assets
Net book value:
Machinery and tools
Other assets¥15,82184¥15,905¥08,54651¥08,597¥07,275
33¥07,308¥14,387115¥14,502¥06,200
69¥06,269¥08,187
46¥08,233

Thousands of
U.S. dollars
2005$147,323
782$148,105$079,579
475$080,054$067,744307$068,051

Amounts of depreciation expense equivalents and interest expense equivalents for the years ended March 31,
2005 and 2004 are as follows:—
Millions of yen
2005
2004

Depreciation expense
Interest expense¥2,734181¥2,392
180

Thousands of
U.S. dollars
2005$25,459
1,685

Lease payments relating to finance leases accounted for as operating leases amounted to ¥2,892 million($26,930 thousands) and ¥2,569 million ($23,922 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,
2005 and 2004, respectively.
Future minimum lease payments (including the interest portion thereon) as at March 31, 2005 and 2004 forfinance leases accounted for as operating leases are summarized as follows:—
Millions of yen
2005
2004

Due within one year
Due over one year
Total

¥2,722
4,675¥7,39724¥2,5105,789¥8,299Thousands of
U.S. dollars
2005$25,347
43,533$68,880

10 Contingent liabilities
As at March 31, 2005, 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¥00,113467
1,182$1,05237624
11,007

11 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, 2005
and the revalued book value

Millions ofyen

Thousands of
U.S. dollars¥9,662$89,971

12 Shareholders’ equity
In accordance with the Commercial Code of Japan (the “Code”), the Company has 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. The legal reserve amounted to¥1,261 million ($11,742 thousand) at March 31, 2005 and 2004,respectively.
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 Commercial Code, year-end dividends and the related appropriation of retained
earnings are not reflected in the financial statements at the end of the financial year, but are recorded at thetime they are approved.

13 Supplementary income information
Supplementary income information for the year ended March 31, 2005 and 2004 is as follows:—
Millions of yen
2005
2004

Depreciation expenses
Lease and rental¥2,6896,083¥2,610
5,301

Thousands of
U.S. dollars
2005$25,040
56,64414 Amounts per share
Net 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.
Net assets per share has been computed using the number of shares of common stock outstanding at eachbalance sheet date.

25

Amounts per share of common stock for the years ended March 31, 2005 and 2004 were as follows:—
Yen

U.S. dollars
2005

2005

2004

Net income per share:
Basic
Diluted¥022.9421.36¥014.50—$0.2136
0.1989Net assets per share¥575.96¥553.26$5.3636

Basis for the calculation of net income per share and diluted net income per share for the years ended March
31, 2005 and 2004 was as follows:—
Millions of yen
2005
2004

Net income available to shareholders of common stock:
Net income
Net income not available to shareholders of common stock :(of which appropriation of bonuses to directors
and statutory auditors)
Net income available to shareholders of common stock :Weighted-average number of shares ofcommon 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 calculation ofdiluted net income per share due to their anti-dilutive effectThousands of
U.S. dollars
2005¥2,17384¥1,42979$20,235
782

(84)
2,089

(79)
1,350

(782)
19,452

91,078,245

93,126,320

0(0)
6,738,544(6,738,544)

—
(—.)
—
(—.)

0
(0)

—

—

—

15 Subsequent event
The annual shareholders’ meeting of the Company, which was held on June 29, 2005, duly approved the following appropriations of retained earnings existing as at March 31, 2005:—
Millions ofyen

Thousands of
U.S. dollars

¥273
34

$2,542
317

Cash dividends (¥3.00 per share)
Bonuses to directors and statutory auditors

16 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, 2005 is as follows:—
Millions 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¥002,812¥11,252
6,802
18,05417,753¥00,301¥129,068
6,822
135,890
132,777¥003,113¥—(6,822)(6,822)(6,692)¥ (130)¥129,068—
129,068
126,085¥002,983

Assets, depreciation and capital expenditures:
Identifiable assets
Depreciation
Capital expenditures¥099,088¥002,504¥002,966¥23,237¥00,194¥00,328¥122,325¥002,698¥003,294¥ 5,584
¥
(9)
¥
(4)

¥127,909¥002,689¥003,290

26

Millions of yen

For the year ended March 31, 2004

Eliminations(Notes 1 and 2) Consolidated

Logistics

OthersTotal

Net Sales:
Outside customers
Inter segment sales
Total
Costs and expenses
Operating income¥114,796
49
114,845
112,727¥002,118¥11,917
5,576
17,493
16,607¥00,886¥126,713
5,625
132,338
129,334¥003,004¥—(5,625)(5,625)(5,480)¥ (145)¥126,713—
126,713
123,854¥002,859

Assets, depreciation and capital expenditures:
Identifiable assets
Depreciation
Capital expenditures¥099,694¥002,438¥007,674¥09,164¥00,180¥00,182¥108,858¥002,618¥007,856¥19,435¥(8)¥
0¥128,293¥002,610¥007,856

Logistics

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

For the year ended March 31, 2005

Net Sales:
Outside customers
Inter segment sales
Total
Costs and expenses
Operating income$1,097,086
186
1,097,272
1,071,087$0,026,185$104,777 $1,201,863
63,33963,525
168,116 1,265,388
165,313 1,236,400$0,02,803 $0,028,988$— $1,201,863( 63,525)—( 63,525) 1,201,863( 62,315) 1,174,085$ (1,210) $0,027,778

Assets, depreciation and capital expenditures:
Identifiable assets
Depreciation
Capital expenditures$0,922,693$0,023,317$0,027,619$216,380 $1,139,073$001,806 $0,025,123$003,054 $0,030,673$ 51,997 $1,191,070$(84) $0,025,040$(37) $0,030,636

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 ¥197 million ($1,834 thousand) and ¥200 million ($1,862 thousand) for the years ended March 31, 2005 and 2004, 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 ¥30,220 million ($281,404 thousand) and¥27,598 million ($256,989 thousand) for the years ended March, 2005 and 2004, 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, 2005 and 2004.

27

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, 2005 and 2004, and the related consolidated statements of income, 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 these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 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, 2005 and2004, 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.
The U.S. dollar amounts in the accompanying 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 described in Note 1.

June 29, 2005

28

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

Years ended March 31
Thousands of
U.S. dollars
2005

2001

2002

Millions of yen
2003¥100,509¥098,462¥097,246¥100,679

Operating cost

95,80893,67992,51096,372

95,308887,494

Selling, general and administrative expenses

3,006

2,841

2,758

2,800

2,819

26,250Operating income

1,695

1,942

1,978

1,507

1,377

12,823

Income (loss) before income taxes(14,915)

1,329

8,231

1,769

1,813

16,883

Net income (loss)(8,888)

578

4,407

684

862

8,027

Capital expenditures

4,117

823

1,261

6,684

3,289

30,627

Depreciation expenses

3,305

2,532

2,051

1,796

1,860

17,3209.09 $

0.08466.00

0.0559

2004

2005

RESULTS OF OPERATIONS:
Operating revenues¥099,504 $0,926,567

PER SHARE (yen and U.S. dollars):
Net income (loss)
Cash dividends¥ (91.05)

¥

5.92

¥

45.10

¥

6.96

¥

6.00

6.00

6.00

8.00

¥032,346¥035,436¥039,183¥033,883

Net property and equipment

61,88360,02357,94262,26062,695583,807

Total assets

109,261

109,767

108,543

109,202

116,108

1,081,181

Total current liabilities

27,82428,43435,77830,10934,993

325,850

Long-term liabilities, excluding of current portion thereof

36,802

36,741

25,214

31,61633,142308,614

Total shareholders’ equity

44,63544,59247,55147,47747,972446,708

Number of share outstanding (thousand)

97,61097,61097,61097,61097,610

Number of employees

5,636

5,548

5,462

5,462

5,429

YEAR-END FINANCIAL POSITION:
Total current assets¥039,631 $0,369,038

OTHER YEAR-END DATA:

29

Non-Consolidated Balance Sheets
TONAMI TRANSPORTATION CO., LTD

As of March 31, 2005 and 2004ASSETS

Thousands of
U.S. dollars(Note 1)
2005

Millions of yen
2005
2004

Current assets:
Cash¥011,436¥011,488$0,106,490

1,065

1,046

9,917

18,412

19,011

171,450

(23)

(47)

(214)

Inventories

144

149

1,341

Deferred tax assets (Note 5)

668

579

6,220

7,929

1,657

73,834

39,63133,883369,038

Land

37,59936,660350,116

Buildings and structures

45,11043,463420,058

Machinery and tools

6,513

6,505

60,648

Vehicles

14,833

15,957138,123—889—(41,360)(41,214)(385,138)

62,69562,260583,807

Investments in securities

6,407

5,552

59,661

Investments in subsidiaries and affiliates

3,041

2,725

28,317

11

17

102

Deferred tax assets (Note 5)

1,025

1,234

9,545

Others

3,298

3,531

30,711

13,782

13,059128,336¥116,108¥109,202$1,081,181

Marketable securities
Trade receivables:
Notes and accounts (Note 6)
Less: allowance for doubtful accounts

Other current assets
Total current assets

Property and equipment (Notes 3 and 4):

Construction in progress
Less: accumulated depreciation
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)
2005

Millions of yen
2005
2004

Current liabilities:
Trade notes payable¥

Short-term bank loans (Note 4)

476

¥

—

$

4,432

13,255

13,255

123,429

412

612

3,836

14,3299,213

133,430

Deposits from employees

391

378

3,641

Income taxes payable

507

645

4,721

Other current liabilities

5,624

6,006

52,37034,99430,109325,859

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

10,687

8,599

99,516

Deferred tax liabilities from revaluation reserve for land (Note 9)

4,595

4,596

42,788

Employees’ severance and retirement benefits

17,805

18,374

165,798

55

47

512

Total long-term liabilities

33,142

31,616308,614

Total liabilities

68,136

61,725

634,473

14,183

14,183132,070

Capital surplus

14,687

14,687

136,763

Retained earnings

12,975

12,695

120,821

Revaluation reserve for land (Note 9)

6,768

6,769

63,023

Unrealized gain on securities

1,309

882

12,189(1,950)(1,739)(18,158)

47,97247,477446,708¥116,108¥109,202$1,081,181

Current portion of long-term debt (Note 4)
Trade accounts payable (Note 6)

Total current liabilities
Long-term liabilities:

Other long-term liabilities

Contingent liabilities (Note 8)
Shareholders’ equity (Note 10):
Common stock:
Authorized: 299,200,000 shares in 2005
299,200,000 shares in 2004
Issued:97,610,118 shares in 2005
97,610,118 shares in 2004

Treasury stock, at cost 6,592,631 shares in 2005
6,032,839 shares in 2004
Total shareholders’ equity
Total liabilities and shareholdersÅf equity31Non-Consolidated Statements of Income
TONAMI TRANSPORTATION CO., LTD.

For the two years ended March 31, 2005
Thousands of
U.S. dollars(Note 1)
2005

Millions of yen
2005
2004

Operating revenues (Note 6)¥99,504¥100,679$926,567

Operating cost (Notes 6 and 11)

95,30896,372887,494

Selling, general and administrative expenses (Note 11)

2,819

2,800

26,25098,127

99,172

913,744

1,377

1,507

12,823

Interest and dividend income (Note 6)

327

272

3,045

(Loss) gain on disposal of property and equipment, net

(125)

1

(1,164)

Interest expenses

(223)

(276)

(2,077)

Others

457

265

4,256

436

262

4,060

1,813

1,769

16,883Current

1,122

1,745

10,448Deferred

(171)

(660)

(1,592)

951

1,085

8,856

¥00,862¥000,684$008,027

Operating costs and expenses:

Operating income
Other income and expenses:

Income before income taxes
Income taxes (Note 5):

Net income
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, 2005

Millions of yen

Balance as at March 31, 2003

Shares ofcommonstock(thousands)

Commonstock

CapitalsurplusRetainedearnings

Revaluation
reservefor land

Unrealized
gain onsecurities

97,610¥14,183¥14,687¥12,065¥7,494¥042

Net income

Treasurystock¥ (920)684

Cash dividends applicable to the year(¥8.00 per share)(749)

Revaluation reserve for land

725

(725)

Unrealized gain on securities

840

Treasury stock(819)

Bonuses to directors and statutory auditors
Balance as at March 31, 2004

(30)
97,610¥14,183¥14,687

Net income¥12,695¥6,769¥882¥(1,739)

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

Balance as at March 31, 2003

¥14,183¥14,687¥12,975¥6,768¥1,309¥(1,950)

Commonstock

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

Unrealized
gain onsecurities

Treasurystock$132,070 $136,763 $112,348

Net income

6,369

Cash dividends applicable to the year ($0.0745 per share)(6,975)

Revaluation reserve for land

6,751

Unrealized gain on securities$69,7837,822(7,626)

Bonuses to directors and statutory auditors(279)$132,070 $136,763 $118,214

Net income

8,027

Cash dividends applicable to the year ($0.0559 per share)(5,103)

Revaluation reserve for land

9$63,032$08,213 $(16,193)(9)

Unrealized gain on securities

3,976

Treasury stock(1,965)

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

391 $ (8,567)(6,751)

Treasury stock
Balance as at March 31, 2004

$

(326)
$132,070 $136,763 $120,821

The accompanying Notes are an integral part of these statements.

33$63,023$12,189 $(18,158)

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

For the two years ended March 31, 2005

Millions of yen
2005
2004

Thousands of
U.S. dollars(Note 1)
2005

Cash flows from operating activities:
Net income before income taxes
Depreciation and amortization
Loss (gain) 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) increase in allowance for doubtful accounts
Bond issue expenses(Decrease) increase in employees’ severance and retirement benefits
Decrease in accrued bonuses to employees
Interest and dividend income
Interest expenses
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase in accounts payable
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities¥(01,813
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¥(01,769
1,796
(1)
(181)
6
48
40
86
399
(52)
(271)
274
(618)
(9)
856
(92)
388
4,438
271
(274)
(2,101)2,334$(016,882
17,320
1,164
(149)
140
74
(1,136)289(5,298)(196)(3,045)
2,077
6,826
37
52,05356
3,343
90,437
3,045(2,077)(12,189)
79,216

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
Investments in loans receivable
Proceeds from collection of loans receivable
Other, net
Net cash used in investing activities

—
10
(0)
21
(3,174)
(1)
(583)
85
(20,100)
14,012
84(9,646)

(20)
20
(31)
308
(5,857)
1,465(1,335)
291
(477)
628
649
(4,359)

—
93
(0)
196
(29,556)(9)(5,429)791(187,168)
130,478782(89,822)

—
—
(612)
(211)
(548)
2,469
—
1,098

(105)
100
(578)
(819)
(749)
6,914
(7,000)(2,237)——(5,699)(1,965)(5,103)22,991—
10,224—(41)
12,477¥(12,436—(4,262)
16,739¥(12,477—(382)
116,184$(115,802

Cash flows from financing activities:
Decrease in short-term loans
Proceeds from long-term debt
Repayments of long-term debt
Purchase of treasury stock
Dividends paid
Proceeds from issuance of bonds
Redemption of bonds
Net cash provided by (used in) investing activities
Effect of exchange rate change on cash and cash equivalents
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 ¥107.39 = U.S.$1, prevailing on March 31, 2005, 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.
(h) Bond issue expenses

Bond issue expenses are charged to income as incurred.
(i) Income taxes

Income taxes consist of corporation, enterprise, and inhabitants taxes.
The Company recognizes tax effects of temporary differences between the carrying amounts of assets and liabilities for tax and financial reporting.
The corporation size-based enterprise tax was introduced by revision of the local law from the fiscal year
beginning on or after April 1, 2004. The enterprise tax on value added and capital was accounted for as selling, general administrative expenses.
As a result, selling, general and administrative expenses increased by ¥176 million ($1,639 thousand) andoperating income and income before income taxes and minority interest decreased by ¥176 million ($1,639
thousand).
(j) 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 ($2,505 thousand) as at March 31, 2005 and 2004.

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

Short-term bank loans as at March 31, 2005 and 2004 were as follows:—
Millions of yen
2005
2004

SecuredUnsecured¥03,080
10,175¥03,080
10,175

Thousands of
U.S. dollars
2005$28,681
94,748Interest rates range from 0.600% to 1.375%.
(b) Long-term debt

Long-term debt as at March 31, 2005 and 2004 was as follows:—
Millions of yen
2005
2004

0.89% ¥6.4 billion unsecured straight bonds due 2008
¥06,400
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
Secured1,333
Unsecured266
Total
11,099Less:amount due within one year412
¥10,687

Thousands of
U.S. dollars
2005¥6,400600$059,596
5,587—

23,280

1,511
700
9,211
612
¥8,59912,413
2,477
103,3523,836$099,516

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, 2005 were as follows:—
Year ending March 31,

Millions ofyen

Thousands of
U.S. dollars

2006
2007
2008
2009
2010 and thereafter¥0,412
210
178
7,178
3,121

$03,836
1,956
1,658
66,84029,062(c) Pledged assets

As at March 31, 2005, Property and equipment having a net value of ¥17,963 million ($167,269 thousand) was
pledged as collateral for short-term bank loans and long-term debt (including current portion of long-term debt).

5 Income taxes
As described in Note 2(i), 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
2005
2004

Thousands of
U.S. dollars
2005

Deferred tax assets:
Excess bonuses accrued
Excess employees' severance and retirement benefits accrued
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets¥(0,405
6,928
505
7,838
(199)
7,640

¥(0,414
6,951
422
7,787
(228)
7,559

$(03,771
64,513
4,702
72,986(1,853)
71,143

Deferred tax liabilities:
Unrealized gain on securities
Reserve under Special Taxation Measures Law
Total deferred tax liabilities
Net deferred tax assets(889)(5,058)(5,947)¥(1,693(599)(5,147)(5,746)¥(1,813(8,278)(47,099)(55,378)$(15,765

Income taxes applicable to the Company consist of corporation, enterprise, and inhabitant taxes, which, inaggregate, resulted in a statutory tax rate of 40.4% and 41.7% for the years ended March 31, 2005 and 2004,
respectively.
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, 2005 and 2004 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

2005

2004

40.4%

41.7%

2.0
(2.8)
11.0
1.9
52.5%

2.6
(2.4)
10.8
8.7
61.4%

6 Accounts and transactions with subsidiaries and affiliates
As at March 31, 2005, 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
2005
2004

Notes and accounts receivable
Loans receivable
Trade accounts payable¥0,246
7,007
9,815¥0,2101,032
1,739

Millions of yen
2005
2004

Operating revenues
Operating cost
Interest income¥2,480
9,487
102

37

¥2,357
9,073
17

Thousands of
U.S. dollars
2005$02,291
65,24891,396
Thousands of
U.S. dollars
2005$23,093
88,342950

7 Finance leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book valueof the leased property as of March 31, 2005 and 2004, which would 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
2005
2004

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

Thousands of
U.S. dollars
2005¥02,793
10,861¥13,654¥02,861
9,725¥12,586$026,008
101,136$127,144¥02,264
5,301¥07,565¥01,853
3,675¥05,528$021,082
49,362$070,444¥00,528
5,561¥06,089¥01,008
6,050¥07,058$004,917
51,783$056,700

Amounts of depreciation expense equivalents and interest expense equivalents for the years ended March 31,
2005 and 2004 are as follows:—
Millions of yen
2005
2004

Depreciation expense
Interest expense¥2,346143¥2,083
146

Thousands of
U.S. dollars
2005$21,846
1,332

Lease payments relating to finance leases accounted for as operating leases amounted to ¥2,470 million($23,000 thousand) and ¥2,230 million($20,765 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,
2005 and 2004, respectively.
Future minimum lease payments (including the interest portion thereon) as at March 31, 2005 and 2004 forfinance leases accounted for as operating leases are summarized as follows:—
Millions of yen
2005
2004

Due within one year
Due over one year
Total

¥2,326
3,836¥6,162Thousands of
U.S. dollars
2005¥2,1794,934¥7,113$21,659
35,720$57,380

Millions ofyen

Thousands of
U.S. dollars¥0,004
1,707$00,037
15,8958 Contingent liabilities
As at March 31, 2005, the Company was contingently liable as follows::—
Guarantees of welfare pension housing loans sublet to employees
Others9 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, 2005 and the revaluated book value

Millions ofyen

Thousands of
U.S. dollars¥9,661$89,962

10 Shareholders’ equity
In accordance with the Commercial Code of Japan (the “Code”), the Company has 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. The legal reserve amounted to¥1,261 million ($11,742 thousand) at March 31, 2005 and 2004, respectively.

38

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 Commercial Code, year-end dividends and the related appropriation of retained
earnings are not reflected in the financial statements at the end of the financial year, but are recorded at thetime they are approved.

11 Supplementary income information
Supplementary income information for the two years ended March 31, 2005 and 2004 is as follows:—
Millions of yen
2005
2004

Depreciation expenses
Lease and rental¥1,8603,543¥1,796
3,313

Thousands of
U.S. dollars
2005$17,320
32,99212 Amounts per share
Net 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.
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, 2005 and 2004 were as follows:—
Yen

Net income per share:
Basic
DilutedNet assets per share

U.S. dollars
2005

2005

2004

¥009.098.47¥526.70¥006.96—¥518.06$0.0846
0.0789$4.9046

Basis for the calculation of net income per share and diluted net income per share for the years ended March
31, 2005 and 2004 was as follows:—
Millions of yen
2005
2004

Net income available to shareholders of common stock:
Net income
Net income not available to shareholders of common stock :(of which appropriation of bonuses to directors and statutory auditors)
Net 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 calculationof diluted net income per share due to their anti-dilutive effect

¥ 862
¥ 684
34
35
(34)
(35)
828
649
91,095,825 93,143,900

Thousands of
U.S. dollars
2005$8,027
317
(317)
7,710

0
(0)
6,738,000(6,738,000)

—
(—.)
—
(—.)

0
(0)

—

—

—

13 Subsequent event
The annual shareholders’ meeting of the Company, which was held on June 29, 2005, duly approved the following appropriations of retained earnings existing as at March 31, 2005:—
Dividends (¥3.00 per share)
Bonuses to directors and statutory auditors

39

Millions ofyen

Thousands of
U.S. dollars

¥273
34

$2,542317

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, 2005 and 2004, and the related non-consolidated statements of income, shareholders’ equity, andcash 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 these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting 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, 2005 and 2004, 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.
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, 200540

Board of Directors and Statutory Auditors

Chairman and Representative Director
Yoshihiro Minami
President and Representative Director
Katsusuke Watanuki
Senior Managing Director
Akiyoshi Kunisada
Managing Directors
Kohichi Kishida
Shigeki Sakamoto
Director and Adviser
Yohsuke Konishi
Directors
Noriaki Murata
Kiyomi Asamizu
Yasuo Terabayashi
Yoshinobu Watanabe
Toshiyuki Koroku
Shigeyuki Okada
Standing Statutory Auditors
Makoto Nagai
Nariyuki Aoki
Statutory Auditors
Shinichiro Inushima
Toshio Yaeda
Yohji Ishiguro(As of June 29, 2005)41

Corporate Data

Ishikawa Tonami Transportation Co., Ltd.

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

Road haulage
Ibaraki Tonami Transportation Co., Ltd.

Road haulage
Kansai Tonami Transportation Co., Ltd.

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

Road haulage
Chukyo Tonami Transportation Co., Ltd.

Road haulage
Fukui Tonami Transportation Co., Ltd.

Road haulage
Niigata Tonami Transportation Co., Ltd.

Date of Established

June 1943

Common Stock¥14,183 million

Road haulage

Issued and Outstanding Shares
97,610,118 shares

Saitama Tonami Transportation Co., Ltd.

Road haulage
Kawai Transportation Co., Ltd.

Road haulage
ATS Co., Ltd.

Shareholders

8,186

Employees

5,429

Terminals

84

Warehouses

47

Motor Vehicles

5,608

Road haulage
Takefu Transportation Co., Ltd.

Road haulage
Nihon Unyu Co., Ltd.

Ocean-freight forwarderTonami Air Service Co., Ltd.

Customs clearance service
Tonami Trading Co., Ltd.

Trading Company
Toyo Gomu Hokuriku Hanbai Co., Ltd.

(As of March 31, 2005)

Sale of tires
Keishin System Research Co., Ltd.

Development and sale of software
Shogawa Kanko Co., Ltd.

Consolidated Subsidiaries

Travel inns
Toyama Jizake Hanbai Co., Ltd.

Kanto Tonami Transportation Co., Ltd.

Sale of liquor

Road haulage
Gosei Tonami Transportation Co., Ltd.

Tonami Automobile Technology Research InstituteCo., Ltd.

Road haulage

Automobile technology R&D

Shonan Tonami Transportation Co., Ltd.

Tonami Business Service Co., Ltd.

Road haulage

Financial service

Osaka Tonami Transportation Co., Ltd.

Toyo Shinso Co., Ltd.

Road haulage

Sale of bed-clothes

Zento Transportation Co., Ltd.

Toyo Tire Toyama shop Co., Ltd.

Road haulage

Sale of tires

Kanagawa Tonami Transportation Co., Ltd.

Keishin Warehousing Co., Ltd.

Road haulage

Warehousing

42

Tonami Transportation is a leader in total logistics solutions that span all aspects from design anddevelopment of distribution channels to freight haulage and all related information management functions. Tonami has pioneered computerized distribution services in Japan, integrating physical transportwith information management to provide advanced systematized distribution services.
The Tonami Group offers a fully integrated distribution network in Japan and overseas, based on
distribution centers in 47 locations around the country linked by an advanced information network.
Tonami Group distribution services add value to industry and enhance the lifestyles of individuals.

Strategic Logistics Solutions

Contents
1 Consolidated Financial Highlights
2 To Our Shareholders and Investors
3 The 17th Medium-Term Business Plan
4 Interview with the President
8 Environmental Protection Activities
9 Financial Section
41 Board of Directors and Statutory Auditors
42 Corporate Data

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.

2005
Annual Report
For the year ended March 31, 2005

TONAMI TRANSPORTATION CO., LTD.

TONAMI TRANSPORTATION CO., LTD.

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

Printed in Japan on recycled paper