TONAMI TRANSPORTATION CO., LTD.
Head Office: 2-12, Showa-machi 3-chome, Takaoka, Toyama Pref., Japan
Phone: 0766-21-1073 Fax: 0766-21-3640

TONAMI TRANSPORTATION CO., LTD.
Annual Report 2004

Printed in JapanSystem Distribution –Continually More to Offer
PROFILEOne of Japan’s leading integrated distribution companies, Tonami has beendeveloping solutions for the distribution needs of its customers for over 50 years. The
pioneer of computerized distribution systems in Japan, the Company has a highly
advanced computerized network system and strong information technology, and has
recently completed an upgrade of its information network, including adding mobile
connections to all of its vehicles. In addition to Tonami’s core business of road haulage
services, the Company also offers rail and air transportation agency; removal;
warehousing; marketing, distribution and information management; specialty item
sales; and casualty insurance agency services.

Road haulage

Warehousing

Marketing, distribution andinformation management

Contents
1
2
4
5
34

Non-Consolidated Financial Highlights
A Message from the President
Board of Directors and Statutory Auditors
Financial Section
Corporate DataN O N - C O N S O L I D A T E D

F I N A N C I A L

H I G H L I G H T S

TONAMI TRANSPORTATION CO., LTD.

Tow years ended March 31, 2004

Thousands of
U.S. dollars
2004

Millions of yen
2003
2004

FOR THE YEAR:¥100,679$ 952,588

Road haulage services ............................................................

82,124

83,080786,072

Warehousing ...........................................................................

9,193

11,710110,796

Removal services ....................................................................

1,593

1,348

12,754

Rail forwarding services .........................................................

1,394

1,502

14,211Other services .........................................................................

2,939

3,038

28,744

Operating income ......................................................................

1,978

1,507

14,259Net income .................................................................................

4,407

684

6,472

Service revenues ........................................................................ ¥ 97,246

PER SHARE (yen and U.S. dollars):
Net income ................................................................................ ¥ 45.10

¥

6.96

$

0.06596.00

8.00

0.0757

Total assets ................................................................................ ¥108,543¥109,202$1,033,229

47,477449,210

Cash dividends ..........................................................................
AT YEAR-END:
Total shareholders’ equity .........................................................

47,551

Notes: 1. U.S. dollar amounts presented herein are included solely for convenience. The rate of ¥105.69 = U.S.$1,
prevailing on 31st March, 2004, 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 ofshares outstanding (which represents the number of issued shares less treasury stock.) during each financialyear.

2004 Composition ofService Revenues

Service Revenues

Net Income (loss)/
Net Income (loss) per Share

%

Billions of yen

Billions of yen/Yen

120 •

5•

•

50

100 •

4•

•

40

80 •

3•

•

30

60 •

2•

•

20

40 •

1•

•

10

20 •

0•

•

0

0•

-10 •
00

01

02

03

04

• -100
00

01

02

03

04

Net Income (loss)
Net Income (loss) per Share

Road haulage services
82.5
Warehousing
11.6
Removal services
1.4
Rail forwarding services 1.5
Other services
3.0

1

A

M E S S A G E

F R O MT H E

P R E S I D E N T

PERFORMANCE
During the fiscal year under review, theJapanese economy mounted a mild
recovery. A robust export market
improved corporate performances, which
in turn led to higher private sector capital
investment. Coupled with progress in
structural reforms and the clean up of thebad debt problem in the financial sector,
increased capital investment gave thestock market a much needed boost.
Nevertheless, deflation continued to exert
downward pressure on the economy, andcompanies continued to reduce their workforces. With lingering anxiety over job
security and still declining personal
Yoshihiro Minami
incomes, personal consumption failed to
President and Representative Director
rebound. In addition, the export-led
recovery was also dampened by appreciation of the yen, rising crude oil prices, andhigher interest rates.
Under these circumstances, Tonami worked on practical implementation of thevarious strategies laid out in the three-year medium-term business plan initiated in
April 2002. Specifically, the Company redoubled its efforts to market businessproposals, such as system distribution or joint delivery system, that meet theincreasingly sophisticated needs of its customers in a bid to acquire new customers.
To preserve sales levels, Tonami took steps to improve the quality of its
information-system-based transportation services system and the precision of its
work processes. These efforts were rewarded with the winning of large-scaleorders, mainly for our system distribution business.
To reinforce Group management, Tonami converted to subsidiaries Keishin
Warehousing Co., Ltd., a company that Tonami has been supporting financially, andits subsidiaries Keishin Air Service Co., Ltd., (Now Tonami Air Service Co., Ltd.) and
Keishin System Research Co., Ltd. By strengthening the links between Group
companies, the Company will seek to improve the functioning of the Group.
Reflecting the overall upward movement in the market, service revenues rose 3.5%,
to ¥100.7 billion.
The Company also strove to increase operating efficiency by raising productivity
and cutting costs. However, because of changes in the discount rate—the basic rateused in the calculation of employee retirement benefit obligations—and the rate of
return on the retirement benefit plan, employees’ severance and retirement benefits
expenses increased. This expense contributed to a 23.8% decrease in operating
income, to ¥1.5 billion. Net income declined even further, falling 84.5%, to ¥684
million. However, the significant drop in net income was primary a reaction to2

substantial extraordinary gains posted in the previous fiscal year.
In June 2003, Tonami celebrated its 60th anniversary. In commemoration, a special
dividend of ¥2 per share was declared for the fiscal year under review. Combinedwith interim and year-end dividends of ¥3 per share respectively, total cash
dividends for the fiscal year amounted to ¥8 per share.
Looking at divisional performance, our overall transportation business rose 1.0%.
Our core transportation services, revenues from road haulage services, increased
1.2% and accounted for 82.5% of total revenues. Among other transportation
services, revenues from removal services declined 15.4% while revenues from rail
forwarding rose 7.7%. Our warehousing business continued to expand, with its
revenues increasing 27.4% and contributing 11.6% of total revenues. Revenues fromother services were up 3.3%.
In capital expenditures, we concentrated on development of our system distribution
network and related facilities. We completed building the replacement facilities for
the Kakogawa office in Hyogo Prefecture and the new facilities for the Sagami
office in Kanagawa Prefecture, into which we have integrated the cramped facilitiesof the Hiratsuka and Atsugi offices.

S T R AT E G I E S A N D P E R S P E C T I V E S
During the current fiscal year, we do not expect the mild improvement in theeconomy to turn into a full-blown recovery. Negative factors, such as deflation andstagnate personal consumption continue to weight heavily on the economy.
In the transportation industry, companies’ continued shift of production overseas,
constraint in public works investment, and a weak housing market suggest haulage
volumes will be flat or decline in the year ahead.
We face a multitude of issues in the fiscal year ahead, including strengthening ourcorporate social responsibility system and learning to cope with higher fuel prices
and declining pension plan assets. We also have entered the final year of our threeyear medium-term business plan, in which we will focus on reaching its targets
while also maintaining earnings levels and improving profitability. Working together
as a Group, we will continue with business reform.
As we move ahead to meet the challenges of the future, we look forward to thecontinued support of our shareholders.
June 2004

Yoshihiro Minami
President and Representative Director
3

BOARDO F

DIRECTORSA N DSTATUTORY AUDITORSP R E S I D E N T A N D R E P R E S E N TA T I V E
DIRECTOR
Yoshihiro Minami

S TA N D I N G S TA T U T O R Y A U D I T O R S
Makoto Nagai
Nariyuki Aoki

EXECUTIVE VICE PRESIDENTS
Yohsuke Konishi
Katsusuke Watanuki

S TA T U T O R Y A U D I T O R S
Shinichiro Inujima
Toshio Yaeta
Yoji Ishiguro

SENIOR MANAGING DIRECTOR
Akiyoshi Kunisada(As of 29th June, 2004)

MANAGING DIRECTORS
Tsutomu Chujoh
Noriaki Murata
Kohichi Kishida
Iwao Hamano
DIRECTORS
Shigeki Sakamoto
Takashi Suzuki

4

F I N A N C I A LS E C T I O N

6 MANAGEMENT DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL POSITION(NON-CONSOLIDATED)
9 NON-CONSOLIDATED FIVE-YEAR SUMMARY
10 NON-CONSOLIDATED BALANCE SHEETS
12 NON-CONSOLIDATED STATEMENTS OF
INCOME
13 NON-CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
14 NON-CONSOLIDATED STATEMENTS OF
CASH FLOWS
15 NOTES TO THE NON-CONSOLIDATEDFINANCIAL STATEMENTS
20 INDEPENDENT AUDITORS’ REPORT
21 CONSOLIDATED FIVE-YEAR SUMMARY
22 CONSOLIDATED BALANCE SHEETS
24 CONSOLIDATED STATEMENTS OF INCOME
25 CONSOLIDATED STATEMENTS OF
SHAREHOLDERS’ EQUITY
26 CONSOLIDATED STATEMENTS OF
CASH FLOWS
27 NOTES TO THE CONSOLIDATEDFINANCIAL STATEMENTS
35 INDEPENDENT AUDITORS’ REPORT

5

MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL POSITION(NON-CONSOLIDATED)

Service Revenues

A N A LY S I S O F O P E R AT I O N S

Billions of yen

Although the Japanese economy showed signs of a long-awaited recovery during the
fiscal year under review, deflation still maintained its hold on the economy andpersonal consumption failed to break out of its long winter. These conditions
tempered the positive impact of the export-driven economic rebound and theconsequent increase in private sector capital investment. Reflecting these mixedbusiness conditions, service revenues for the year ended March 31, 2004 advanced
3.5%, to ¥ 100.7 billion ($953 million). During the fiscal year, the Company placedstrong emphasis on concrete implementation of various measures of its medium-termbusiness plan.

120 •
100 •
80 •
60 •
40 •
20 •
0•
00

01

02

03

04

Looking at performance by division, our major operations, revenues from road
haulage services, increased 1.2%, to ¥ 83,080 million, accounting for 82.5% of total
service revenues. Business conditions were again difficult in the fiscal year underreview, with total annual road haulage in Japan declining for the fourth year in a row,competition intensifying, and haulage prices remaining flat. In response to these
conditions, the Company worked to improve the quality of its transport services,carried out aggressive sales activities, and gave top priority to maintaining road
haulage volume.

Revenues from
Road Haulage
Billions of yen
100 •

80 •

60 •

40 •

20 •

0•
00

01

02

03

04

Revenues from
Warehousing
Billions of yen
12 •Revenues from warehousing, Tonami’s second largest operations, rose 27.4%, to¥ 11,710 million, contributing 11.6% of total service revenues. Demand remains firm
for warehousing services, and the Company believes that it will continue to have an
advantage in this market because of its advanced systems. Revenues from removal
services, which generated 1.4% of total services revenues, declined 15.4%, to ¥ 1,348
million. Revenues from rail forwarding services, which contributed 1.5% of total
service revenues, increasing 7.7%, to ¥ 1,502 million. Revenues from these services
have moved steadily upward over the past few years, reflecting the market’s favorable
assessment of rail freight as an attractive option to trucking routes because of morereliable scheduling and highly competitive services. Revenues from other services rose
3.3%, to ¥ 3,038 million, accounting for 3.0% of total service revenues during the fiscal
year in review.

10 •Cost of services rose 4.2%, to ¥ 96,372 million ($912 million). Selling, general andadministration expenses edged up slightly, to ¥ 2,800 million ($26.5 million). Overall,
operating income decreased 23.8%, to ¥ 1,507 million ($14.3 million).

8•
6•
4•
2•
0•
00

01

02

03

04

6

Other income and expenses fell substantially to a net income of ¥ 1,769 million ($16.7
million). This drop was in reaction to the ¥ 2,793 million gain on disposal of property
and equipment, net and ¥ 3,502 million in others income recorded in the previous
fiscal year. Interest and dividend income decreased 5.6%, to ¥ 272 million ($2.6
million), while interest expenses declined 19.7%, to ¥ 265 million ($2.5 million).
Income before income taxes, therefore, amounted to ¥ 1,769 million ($16.7 million)
compared with ¥ 8,231 million a year earlier. Income taxes for the period dropped
substantially to ¥ 1,085 million ($10.3 million), consisting of ¥ 1,745 million ($16.5
million) in current income taxes and a deferred income tax reversal of ¥660 million($6.2 million). Consequently, the Company posted net income of ¥ 684 million ($6.5
million) compared with ¥ 4,407 million in the previous fiscal year. Net income pershare was ¥ 6.96 ($0.0659) compared with ¥ 45.10 per share in the previous year.
Net property and equipment increased 7.5%, to ¥ 62,260 million ($589 million). Landrose 4.3%, buildings and structures advanced 10.2%, machinery and tools increased
7.9%, vehicles dropped 15.1%, and construction in progress was ¥ 889 million
compared with no construction in progress in the previous year. Tonami continued tomaintain its policy of limiting capital investment to essential areas, such as themaintenance of its haulage and warehousing network.
Investments and other assets increased 14.4%, to ¥ 13,059 million ($124 million)
primarily due to a 35.2% increase in investments in securities, to ¥ 5,552 million ($52.5
million) and a 67.1% rise in investments in subsidiaries and affiliates, to ¥ 2,725 million($25.8 million).

Operating Income
Billions of yen
2.0 •

1.5 •

1.0 •

0.5 •

0

•
00

01

02

03

04

Net Income (loss)/
Net Income (loss) per Share
Billions of yen/Yen
5•

•

50

4•

•

40

3•

•

30

2•

•

20

1•

•

10

0•

•

0

• -100

-10 •
00

01

02

03

04

Net Income (loss)
Net Income (loss) per ShareA N A LY S I S O F F I N A N C I A L P O S I T I O NCurrent assets contracted 13.5%, to ¥ 33,883 million ($321 million), principally as aresult of a decrease in cash, which fell 27.1%, to ¥ 11,488 million ($109 million).
Marketable securities declined 23.2%, to ¥ 1,046 million ($9.9 million). Among tradereceivables, notes and accounts receivable rose 3.4%, to ¥ 19,011 million ($180 million).

Capital Expenditures
Billions of yen
8•Current liabilities decreased 15.8%, to ¥ 30,109 million ($285 million), primarily due tothe maturity of the ¥ 7,000 million recorded in the current portion of bons in theprevious year. Accounts payable increased 10.2%, to ¥ 9,213 million ($87.2 million).
Income tax payable dropped 38.7%, to ¥ 645 million ($6.1 million). Other current
liabilities increased 19.0%, to ¥ 6,006 million ($56.8 million). The current ratio improved to1.13 from 1.10 in the previous year, mainly due to the relative increase in current assets.

6•

4•

2•

0•
00

7

01

02

03

04

Long-term liabilities rose 25.4%, to ¥ 31,616 million ($299 million), reflecting an
increase in long-term debt, less current portion to ¥ 8,599 million ($81.4 million) due
to two unsecured bond issues for a total of ¥ 7,000 million ($66.2 million). In addition,
employees’ severance and retirement benefits expanded 2.2%, to ¥ 18,374 million($174 million).

Total Assets
Billions of yen
140 •

105 •

Shareholders’ equity declined slightly, to ¥ 47,477 million ($449 million), mainly
because of an increase the revaluation reserve for land. The equity ratio edged down
to 43.5% compared with 43.8% in the previous fiscal year, primarily due to the
expansion in total assets.

70 •

35 •

0•
00

01

02

03

04

A N A LY S I S O F C A S H F L O W S

Shareholders’ Equity
Billions of yen
60 •
50 •
40 •

Cash and cash equivalents at beginning of period were ¥ 16,739 million ($158 million).
Net cash provided by operating activities amounted to ¥ 2,334 million ($22.1 million),compared with net cash provided by operating activities of ¥ 3,011 million in theprevious fiscal year. Among other significant items in cash flow from operating activities,
depreciation and amortization was ¥ 1,796 million ($17.0 million), down 12.4%.
Net cash used in investing activities amounted to ¥ 4,359 million ($41.2 million)
compared with net cash provided by of ¥ 2,109 million in the previous fiscal year. The
main contributor to this reversal was purchase of property and equipment, which
expanded ¥ 4,708 million, to ¥ 5,857 million ($55.4 million). Proceeds from sales ofproperty and equipment decreased ¥ 2,623 million, to ¥ 1,465 million ($13.9 million).

30 •
20 •
10 •
0•
00

01

02

03

04

Net Cash Provided byOperating Activities
Billions of yen
6•5•

Net cash used in financing activities amounted to ¥ 2,237 million ($21.2 million)
compared with ¥ 2,242 million a year earlier. Among fund procurement, decrease in
short-term loans amounted to ¥ 105 million ($1.0 million), proceeds from long-term
debt amounted to ¥ 100 million ($0.9 million), and proceeds from issuance of bonds
were ¥ 6,914 million ($65.4 million). Redemption of bonds amounted to ¥ 7,000
million ($66.2 million). Cash and cash equivalents at the end of the period, therefore,
decreased by ¥ 4,262 million ($40.3 million) to ¥ 12,477 million ($118 million),providing adequate liquidity for operations.

4•
3•
2•
1•
0•
00

01

02

03

04

8

NON-CONSOLIDATED FIVE-YEAR SUMMARY TONAMI TRANSPORTATION CO., LTD

Years ended 31st March

Thousands of
U.S. dollars

Millions of yen
2000

2001

2002

2003

2004

2004

Service revenues .......................................................

¥100,291¥100,509¥ 98,462¥ 97,246¥100,679$ 952,588

Cost of services .........................................................

96,07095,80893,67992,51096,372

911,836

and administrative expenses ..................................

2,678

3,006

2,841

2,758

2,800

26,493Operating income .....................................................

1,543

1,695

1,942

1,978

1,507

14,259

Income (loss) before income taxes ..........................

2,061(14,915)

1,329

8,231

1,769

16,738Net income (loss) ......................................................

910(8,888)

578

4,407

684

6,472

Capital expenditures .................................................

3,483

4,117

823

1,261

6,684

63,242

Depreciation expenses .............................................

3,458

3,305

2,532

2,051

1,796

16,993

Net income (loss) ......................................................

¥ 9.29(¥ 91.05)¥ 5.92¥ 45.10¥ 6.96$0.0659

Cash dividends ..........................................................

6.00

6.00

6.00

6.00

8.00

0.0757

Total current assets ...................................................

¥ 48,404¥ 32,346¥ 35,436¥ 39,183¥ 33,883$ 320,589

Net property and equipment ....................................

61,731

61,88360,02357,94262,260589,081

Total assets ................................................................

120,697

109,261

109,767

108,543

109,202

1,033,229

Total current liabilities ..............................................

45,971

27,82428,43435,77830,109284,880

current portion thereof ...........................................

20,70636,802

36,741

25,214

31,616299,139

Total shareholders’ equity ........................................

54,02044,63544,59247,55147,477449,210

Number of share outstanding (thousand) ...............

97,61097,61097,61097,61097,610

Number of employees ..............................................

5,757

5,636

5,548

5,462

5,462

RESULTS OF OPERATIONS:

Selling, general

PER SHARE (yen and U.S. dollars):

YEAR-END FINANCIAL POSITION:

Long-term liabilities, excluding of

OTHER YEAR-END DATA:

9NON-CONSOLIDATED BALANCE SHEETSTONAMI TRANSPORTATION CO., LTD

As of 31st March, 2003 and 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

Cash ..............................................................................................................................................

¥ 15,750¥ 11,488$ 108,695

Marketable securities ...................................................................................................................

1,362

1,046

9,897

Notes and accounts (Note 6) .................................................................................................

18,39419,011

179,875

Less: allowance for doubtful accounts ..................................................................................

(51)

(47)

(444)

Inventories ...................................................................................................................................

140

149

1,410

Deferred tax assets (Note 5) .......................................................................................................

507

579

5,478

Other current assets .....................................................................................................................

3,081

1,657

15,678

Total current assets .......................................................................................................

39,18333,883

320,589

Land ..............................................................................................................................................

35,14036,660346,864

Buildings and structures ..............................................................................................................

40,633

43,463

411,231

Machinery and tools ....................................................................................................................

6,091

6,505

61,548

Vehicles ........................................................................................................................................

17,73015,957150,979

Construction in progress .............................................................................................................

—

889

8,411

Less: accumulated depreciation ..................................................................................................

(41,652)(41,214)(389,952)

Net property and equipment ........................................................................................

57,94262,260589,081

Investments in securities .............................................................................................................

4,108

5,552

52,531

Investments in subsidiaries and affiliates ...................................................................................

1,631

2,725

25,783Loans to employees .....................................................................................................................

21

17

161

Deferred tax assets (Note 5) .......................................................................................................

1,710

1,234

11,675

Others ...........................................................................................................................................

3,948

3,531

33,409Total investments and other assets ..............................................................................

11,41813,059123,559

Total assets ....................................................................................................................

¥108,543¥109,202$1,033,229

ASSETS
Current assets:

Trade receivables:

Property and equipment (Notes 3 and 4):

Investments and other assets:

The accompanying Notes are an integral part of these statements.

10Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

Short-term bank loans (Note 4) ..................................................................................................

¥ 13,360¥ 13,255$ 125,414

Current portion of long-term debt (Note 4) ...............................................................................

578

612

5,790

Current portion of bonds ............................................................................................................

7,000

—

—

Trade accounts payable (Note 6) ...............................................................................................

8,358

9,213

87,170

Deposits from employees ...........................................................................................................

383

378

3,576

Income taxes payable ..................................................................................................................

1,053

645

6,103

Other current liabilities ................................................................................................................

5,046

6,006

56,827

Total current liabilities ..................................................................................................

35,77830,109284,880

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

2,110

8,599

81,360

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

5,088

4,596

43,486

Employees’ severance and retirement benefits ..........................................................................

17,975

18,374

173,848

Other long-term liabilities ...........................................................................................................

41

47

445

Total long-term liabilities ..............................................................................................

25,214

31,616299,139

Total liabilities ...............................................................................................................

60,992

61,725584,019

97,610,118 shares in 2004 ...................................................................................

14,183

14,183

134,194

Capital surplus .............................................................................................................................

14,687

14,687

138,963

Retained earnings ........................................................................................................................

12,065

12,695120,116

Revaluation reserve for land (Note 9) ........................................................................................

7,494

6,769

64,046

Unrealized gain on securities ......................................................................................................

42

882

8,345

6,032,839 shares in 2004 ......................................................................

(920)(1,739)(16,454)

Total shareholders’ equity ............................................................................................

47,55147,477449,210

Total liabilities and shareholders’ equity .....................................................................

¥108,543¥109,202$1,033,229

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:

Long-term liabilities:

Contingent liabilities (Note 8)

Shareholders’ equity (Note 10):
Common stock:
Authorised: 299,200,000 shares in 2003
299,200,000 shares in 2004
Issued:97,610,118 shares in 2003

Treasury stock, at cost : 3,307,754 shares in 2003 and

11

NON-CONSOLIDATED STATEMENTS OF INCOME

TONAMI TRANSPORTATION CO., LTD.

For the two years ended 31st March, 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

¥97,246¥100,679$952,588

Cost of services (Notes 6 and 11) ...............................................................................................

92,51096,372

911,836

Selling, general and administrative expenses (Note 11) ...........................................................

2,758

2,800

26,493

95,26899,172

938,329

1,978

1,507

14,259Interest and dividend income (Note 6) ......................................................................................

288

272

2,574

Gain on disposal of property and equipment, net ....................................................................

2,793

1

9

Interest expenses .........................................................................................................................

(330)

(276)

(2,611)Others ...........................................................................................................................................

3,502

265

2,507

6,253

262

2,479

8,231

1,769

16,738Current ..........................................................................................................................................

1,768

1,745

16,511

Deferred .......................................................................................................................................

2,056

(660)

(6,245)

3,824

1,085

10,266

Service revenues (Note 6) .............................................................................................................
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.

12¥ 4,407

¥

684

$

6,472

NON-CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYTONAMI TRANSPORTATION CO., LTD.

For the two years ended 31st March, 2004

Millions of yen
Sharesof commonstock(thousands)

Balance as at 31st March, 2002 ...............................................

97,610Commonstock

CapitalsurplusRetainedearnings¥ 14,183¥ 14,687¥ 7,732

Net income ..............................................................................

Revaluation Unrealized
reservegain onfor land securities¥ 7,872¥ 120

Treasury
stock

(¥

2)

4,407

Cash dividends applicable tothe year (¥6.00 per share) ....................................................

(586)

Revaluation reserve for land ..................................................

542

(378)

Unrealized gain on securities .................................................

(78)

Treasury stock .........................................................................

(918)

Bonuses to directors and statutory auditors ..........................
Balance as at 31st March, 2003 ...............................................

(30)
97,61014,183

14,687

Net income ..............................................................................

12,065

7,494

42

(920)

684

Cash dividends applicable tothe 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 31st March, 2004 ...............................................

(30)
97,610¥14,183¥14,687¥12,695¥6,769¥882(¥ 1,739)

Revaluation Unrealized
reservegain onfor land securities

Treasurystock

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

CapitalsurplusRetainedearnings

Balance as at 31st March, 2002 ...............................................

$ 134,194 $ 138,963 $ 73,157

Net income ..............................................................................

41,698$ 74,482$ 1,135($

19)

Cash dividends applicable tothe year ($0.0568 per share) ................................................

(5,544)

Revaluation reserve for land ..................................................

5,128(3,576)

Unrealized gain on securities .................................................

(738)

Treasury stock .........................................................................

(8,686)

Bonuses to directors and statutory auditors ..........................

(284)
134,194

Balance as at 31st March, 2003 ...............................................
Net income ..............................................................................

138,963

114,155

70,906397(8,705)

6,472

Cash dividends applicable tothe year ($0.0757 per share) ................................................

(7,087)

Revaluation reserve for land ..................................................

6,860(6,860)

Unrealized gain on securities .................................................

7,948

Treasury stock .........................................................................

(7,749)Bonuses to directors and statutory auditors ..........................

(284)

Balance as at 31st March, 2004 ...............................................

$134,194 $138,963 $120,116

The accompanying Notes are an integral part of these statements.

13$64,046$8,345($16,454)

NON-CONSOLIDATED STATEMENTS OF CASH FLOWSTONAMI TRANSPORTATION CO., LTD.

For the two years ended 31st March, 2004

Millions of yen

Thousands of
U.S. dollars(Note 1)

2003

2004

2004

Cash flows from operating activities:
Net income before income taxes ................................................................................................
Depreciation and amortization ...................................................................................................
Gain on disposal of property and equipment ...........................................................................
Gain on sales of marketable securities .......................................................................................
Gain on release from substitutional portion of government’s welfare pension fund insurance scheme ...
Gain (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 ..........................................................
Increase in reserve for retirement allowance .............................................................................
Bond issue expenses ...................................................................................................................
Decrease in accrued bonuses to employees ..............................................................................
Interest and dividend income .....................................................................................................
Interest expenses .........................................................................................................................
Increase in trade receivables .......................................................................................................
Decrease (increase) in inventories .............................................................................................
Increase in accounts payable ......................................................................................................
Decrease in accrued consumption taxes ....................................................................................
Other, net ....................................................................................................................................
Subtotal ....................................................................................................................................
Interest and dividends received ..................................................................................................
Interest paid .................................................................................................................................
Income taxes paid .......................................................................................................................
Net cash provided by operating activities ........................................................................

¥ 8,231
2,051(2,793)(0)(3,491)
39
323
111
(104)
101
—
(169)
(288)
327
(494)
2
872
(156)
75
4,637
288
(327)
(1,587)
3,011¥ 1,769
1,796
(1)
—
—
(181)
6
48
40
399
86
(52)
(271)
274
(618)
(9)
856
(92)
388
4,438
271
(274)
(2,101)
2,334$ 16,738
16,993(9)——(1,713)
57
454
378
3,775
814
(492)
(2,564)
2,592(5,847)
(85)
8,099
(870)
3,671
41,991
2,564(2,593)(19,879)
22,083

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 .......................................................................
Liquidation of subsidiaries ..........................................................................................................
Investments in loans receivable ..................................................................................................
Proceeds from collection of loans receivable ............................................................................
Other, net ....................................................................................................................................
Net cash provided by (used in) investing activities .........................................................

(10)
80
(202)
501
(1,149)
4,088
(612)
306
(19)
(585)
700
(989)
2,109

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

(189)
189
(293)
2,914
(55,417)
13,861(12,631)2,753—(4,513)
5,942
6,141(41,243)

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 used in financing activities .................................................................................

(160)
148
(726)
(918)
(586)
—
—
(2,242)

(105)
100
(578)
(819)
(749)
6,914
(7,000)(2,237)(994)
946(5,469)(7,749)(7,087)65,418(66,231)(21,166)

Effect of exchange rate change on cash and cash equivalents ............................................
Net increase in cash and cash equivalents ...............................................................................
Cash and cash equivalents at beginning of year .....................................................................
Cash and cash equivalents at end of year .................................................................................

—
2,878
13,862¥16,740—(4,262)
16,739¥12,477—(40,325)
158,378$118,053

The accompanying Notes are an integral part of these statements.

14

NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS

1.

Basis of presenting financial statements

general trade receivables and by individually reviewing
their collectibility with respect to certain doubtfulreceivables.

The accompanying non-consolidated financial statements ofTonami Transportation Co., Ltd. (the “Company”) areprepared on the basis of accounting principles generally
accepted in Japan, which are different in certain respects as
to the application and disclosure requirements ofInternational Financial Reporting Standards, and arecomplied from the consolidated financial statements
prepared by the Company as required by the Securities andExchange 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 yenamounts have been or could in the future be converted
into U.S. dollars. The rate of ¥105.69 = U.S.$1, prevailing on
31st March, 2004, has been used for the translation into
U.S. dollar amounts in the financial statements.
2.

TONAMI TRANSPORTATION CO., LTD.

(e) Property and equipment and intangible assets
Property and equipment are stated at cost. However, underJapanese tax law, capital gains resulting from disposals andother similar transactions are deducted from the cost of theproperty and equipment acquired in substitution.
Depreciation of property and equipment is computedby the declining-balance method, except for buildings andstructures, which are depreciated by the straight-line
method.
The ranges of useful lives of principal property andequipment 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.
Cost of software for internal use is amortized by thestraight-line method over the estimated useful years (fiveyears).

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.

(f) Leases(b) Marketable securities and investments insecurities

Finance leases, except those leases for which theownership of the leased assets is considered to betransferred to the lessee, are accounted for by the method
similar to that applicable to ordinary operating leases.

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. Marketablesecurities classified as other securities are carried at fairvalue with any unrealized gain or loss reported as aseparate component of stockholders’ equity, net of taxes.
Non-marketable securities classified as other securities arecarried at cost. Cost of securities sold is determinedprincipally by the moving average method.

(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 andretirement benefits, the Company assumes a liability forseverance and retirement benefits, which is included in theliability section of the non-consolidated balance sheets,
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 thestraight-line method over 11 years (a certain period notexceeding 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,(C) Inventories
Inventories are stated at cost, cost being determinedprincipally by the last purchase price method.
(d) Allowance for doubtful accounts
Allowance for doubtful accounts is provided in an amountsufficient to cover possible losses on collection. Suchamount is computed by applying the rate of actual losses
on collection experienced in the past with respect to15

3.

a lump-sum payment plan and an additional benefit type of
pension plan. The Company plans to revise its pension
plans and shift them to a money-market-rates linkage typefrom 1st June, 2004.
The Company has 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 received approval from
the Minister of Health, Labor and Welfare with respect to its
application for exemption from the benefit obligation related
to future employee services under the substitutional portion of
the WPFP. In accordance with paragraph 47-2 of the “Practical
Guidelines on Retirement Benefits Accounting (Interim
Report),” Report No. 13 of the Accounting System Committeeof the Japanese Institute of Certified Public Accountants, theCompany accounted for the separation of the substitutional
portion of the benefit obligation from the corporate portion of
the benefit obligation under its WPFP as of the date of
approval of the exemption, assuming that the transfer to theJapanese Government of the substitutional portion of thebenefit obligation and related portion of the pension plan
assets had been completed as of that date. As a result, theCompany recognized a gain of ¥3,491 million for the year
ended 31st March, 2003. At 31st March, 2003, the pension plan
assets to be transferred were calculated at ¥20,672 million.

Property and equipment

As stated above, capital gains resulting from disposals andother similar transactions are deducted from the cost of
property and equipment acquired in substitution. The
amounts deducted from the cost of property andequipment was ¥269 million ($2,545 thousand) as at 31st
March, 2003 and 2004, respectively.
4.

Short-term bank loans and long-term debt(a) Short-term bank loans
Short-term bank loans as at 31st March, 2003 and 2004
were as follows:—
Thousands ofMillions of yen

U.S. dollars

2003

2004

2004

Secured ........................................ ¥ 3,474¥ 3,080$29,142

Unsecured ...................................

10,17596,272

9,886Interest rates range from 0.588% to 1.375%.
(b) Long-term debt
Long-term debt as at 31st March, 2003 and 2004 was asfollows:—
Thousands ofMillions of yen

U.S. dollars

2004

2003

2004

2.05% ¥7 billion unsecured
straight bonds due 2003 ...........

(h) Bond issue expenses¥7,000

¥—$—0.89% ¥6.4 billion unsecured
—

6,400

60,554

—

600

5,677

Secured ...................................

1,689

1,511

14,297

Unsecured ..............................

1,000

700

6,623

Total ...................................

9,689

9,211

87,151Less amount due within one year ...

7,578

612

5,790

¥2,111¥8,599$81,361

straight bonds due 2008 ...........

Bond issue expenses are charged to income as incurred.

0.52% ¥0.6 billion unsecured(i) Income taxes

straight bonds due 2008 ...........

Income taxes consist of corporation, enterprise, andinhabitants taxes.
The Company recognizes tax effects of temporary
differences between the carrying amounts of assets andliabilities for tax and financial reporting.

1.700%-2.100% loans fromfinancial institutions
due 2005 to 2009(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.

The maturity date of the ¥6.4 billion 0.89% unsecured
straight bonds, issued in June 2003 is 30th June, 2008.
The maturity date of the ¥0.6 billion 0.52% unsecured
straight bonds, issued in June 2003 is 30th June, 2008.

16

Significant differences between the statutory tax rate
and the Company’s effective tax rate after applying thedeferred tax accounting for the years ended 31st March,
2003 and 2004 are as follows:—

The annual maturities of long-term debt outstanding as
at 31st March, 2004 were as follows:—
Thousands ofYear ending 31st March,Millions of yen

U.S. dollars

2005 .............................................

¥ 612¥ 5,790

2006 .............................................

412

3,898

Statutory tax rate................................................

2007 .............................................

210

1,987

Increase (decrease) in tax resulting from:2008 .............................................

178

1,684

Nondeductible expenses including

2009 and thereafter .....................

7,799

73,792entertainment, etc. ..................................

2003

2004

41.7%

41.7%

0.4

2.6

Nontaxable income including dividends(c) Pledged assets
As at 31st March, 2004, Property and equipment having a
net value of ¥18,065 million ($170,924 thousand) was
pledged as collateral for short-term bank loans and longterm debt (including current portion of long-term debt).
5.

(0.4)

(2.4)

2.3

10.8

Other .........................................................

2.4

8.7

46.4%

61.4%

Effective tax rate ................................................

On 31st March, 2003, a revised local tax law was enacted
and became effective for fiscal years commencing on 1st
April, 2004 or later. According to the revised local tax law,
income tax law rates for enterprise taxes will be reduced
resulting from introducing the assessment by estimation on
the basis of paid-in capital and value added.
The effect of this tax rate change was to decreasedeferred tax assets (net of deferred tax liabilities) by ¥39
million at 31st March, 2003 and to increase income taxes –deferred by ¥164 million for the year ended 31st March,
2003.

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 andliabilities are as follows:—
Thousands ofMillions of yen

received deduction, etc. .........................
Per capita portion of inhabitant taxes......

U.S. dollars

2003

2004

2004

Excess bonuses accrued ........ ¥ 332¥ 414$ 3,917

6.

Deferred tax assets:

As at 31st March, 2004, the Company had 28 subsidiaries
and 7 affiliates.
Receivables from, payables to, and transactions withthese subsidiaries and affiliates are summarized asfollows:—

Excess employees' severance andretirement benefits accrued

6,448

6,951

65,768Other .......................................

411

422

3,993

Gross deferred tax assets ..

7,191

7,787

73,678Valuation allowance ..............

(194)

(228)

(2,157)

Total deferred tax assets ...

6,997

7,559

71,521

Accounts and transactions with subsidiaries andaffiliates

Thousands ofMillions of yen

Deferred tax liabilities:

U.S. dollars

2003

2004

2004

Reserve under Special Taxation

Notes and accounts receivable .. ¥ 306¥ 210$ 1,987

Measures Law ......................

(4,753)(5,147)(48,699)

Loans receivable .........................

1,148

1,032

9,764

Total deferred tax liabilities....

(4,781)(5,746)(54,367)

Trade accounts payable .............

1,418

1,739

16,454

Net deferred tax assets ....................

¥2,216¥1,813$17,154

Unrealized gain on securities

(28)

(599)

(5,668)

Thousands ofIncome taxes applicable to the Company consist of
corporation, enterprise, and inhabitant taxes, which, inaggregate, resulted in a statutory tax rate of 41.7% for theyears ended 31st March, 2003 and 2004, respectively.

Millions of yen

17

U.S. dollars

2003

2004

2004

Service revenues .........................

¥2,334¥2,357$22,301

Cost of services ...........................

7,665

9,073

85,845Interest income ...........................

22

17

161

7.

Finance leases

8.

The following pro forma amounts represent the acquisition
costs, accumulated depreciation and net book value of theleased property as of 31st March, 2003 and 2004, which
would have been reflected in the balance sheets if financelease accounting had been applied to the finance leases
currently accounted for as operating leases:—Millions of yen

As at 31st March, 2004, the Company was contingently
liable as follows:—
Thousands ofMillions of yen

housing loans sublet

Thousands ofto employees ............................

¥

U.S. dollars

Others ..........................................

1,952

2003

2004

2004

Machinery and tools ................. ¥ 3,081¥ 2,861$ 27,070

7,777

9,725

92,014¥10,858¥12,586$119,084¥1,585¥ 1,853$ 17,532

9.

Other assets ..............................

2,183

3,675

34,772¥3,768¥ 5,528$ 52,304¥1,496¥ 1,008

Other assets ..............................

5,595

6,050

$

57,243¥7,091¥ 7,058$ 66,780$

57

18,469

Revaluation reserve for land

The revaluated book value of land was determinedbased on the value of land registered on the cadastres ortheir supplementary records, which are provided by the
Local Tax Law under the Law Concerning Revaluation ofLand, after making reasonable adjustments.

Net book value:
Machinery and tools .................

6

In accordance with the Law concerning Revaluation ofLand enacted on 31st March, 1998, the Company has
revaluated its owned land used for business operations as
at 31st March, 2000 and reported a revaluation reserve forland in shareholders’ equity section.

Accumulated depreciation:
Machinery and tools .................

U.S. dollars

Guarantees of welfare pension

Acquisition costs:
Other assets ..............................

Contingent liabilities

9,537

Thousands ofThousands ofMillions of yen

Millions of yen

Difference between the fair market value

U.S. dollars

2003

2004

2004

Depreciation expense .................

¥1,722¥2,083$19,709

Interest expense ..........................

152

146

1,381

of revaluated land at 31st March, 2003
and the revaluated book value ....................

Thousands ofMillions of yen

U.S. dollars¥2,179$20,6172006 and thereafter .....................

4,934

46,684

Total¥7,113$67,301$73,649

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 thatan amount equal to at least 10% of the amount to be
disbursed as a distribution of earnings be appropriated to
the legal reserve until the total of such reserve and capitalsurplus account equals 25% of the common stock account.
The legal reserve amounted to ¥1,261 million and ¥1,261
million ($11,931 thousand) at 31st March, 2003 and 2004,
respectively.
The Code provides that neither capital surplus nor thelegal reserve is available for dividends, but both may be
used to reduce or eliminate a deficit by resolution of theshareholders or may be transferred to common stock byresolution of the Board of Directors.

Future minimum lease payments (including the interest
portion thereon) subsequent to 31st March, 2004 forfinance leases accounted for as operating leases are
summarized as follows:—

2005 .............................................

¥7,784

10. Shareholders’ equity

Lease payments relating to finance leases accounted for as
operating leases amounted to ¥1,859 million and ¥2,230
million ($21,099 thousand), which were equal to thedepreciation expense of the leased assets computed by thestraight-line method over the lease terms, for the years
ended 31st March, 2003 and 2004, respectively.

Year ending 31st March,

U.S. dollars

18Year-end dividends shall be approved at a meeting ofshareholders held after the end of each financial year andinterim 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 theend of the financial year, but are recorded at the time they
are approved.

The following table sets forth the computation of net
income per share of common stock for the years ended
31st March, 2003 and 2004:—
Thousands ofMillions of yen
2004

2004

¥4,407¥684$6,472

30

35

331

¥4,377¥649$6,141of common stock outstanding .... 97,044,248

93,143,900

93,143,900

Net income available toshareholders of common stock:
Net income ...............................
Less: appropriation of bonuses todirectors and statutory auditors ...

11. Supplementary income information
Weighted-average number of shares

Supplementary income information for the two years ended
31st March, 2004 is as follows:—
Thousands ofMillions of yen

Net assets per share have been computed based on the net
assets available for distribution to stockholders of common
stock and the number of shares of common stock
outstanding at each balance sheet date.

U.S. dollars

2003

2004

2004

Depreciation expenses ...............

¥2,051¥1,796$16,993

Lease and rental ..........................

3,282

3,313

31,346Yen

12. Amounts Per Share
Basic net income per share has been computed based on
the net income available for distribution to stockholders ofcommon stock and the weighted-average number of sharesof common stock outstanding during each year. Diluted net
income per share has not been presented for the years
ended 31st March, 2003 and 2004 since the Company had
not potentially dilutive shares of common stock to beissued 31st March, 2003 and 2004.
Yen
2004

2004

¥45.10¥6.96$0.0659

2004

2004

Net assets per share .................... ¥503.92¥518.06$4.902

The annual shareholders’ meeting of the Company, which
was held on 29th June, 2004, duly approved the following
appropriations of retained earnings existing as at 31st
March, 2004:—
Thousands ofDividends (¥3.00 per share) .......

Millions of yen

U.S. dollars¥275$2,602

35

331

Bonuses to directors and

Net income per shareof common stock .....................

U.S. dollars

2003

13. Subsequent event

U.S. dollars

2003

U.S. dollars

2003

statutory auditors ......................

19

INDEPENDENT AUDITORS’ REPORTThe Board of Directors
Tonami Transportation Co., Ltd.

We have audited the accompanying non-consolidated balance sheets of Tonami
Transportation Co., Ltd. as of 31st March, 2003 and 2004, and the related nonconsolidated statements of operations, shareholders’ equity, and cash flows for theyears then ended, all expressed in yen. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted inJapan. Those standards require that we plan and perform the audit to obtainreasonable 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
31st March, 2003 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 statementswith respect to the year ended 31st March, 2004 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.

Shin Nihon & Co.
29th June, 2004

20

CONSOLIDATED FIVE-YEAR SUMMARYTONAMI TRANSPORTATION CO., LTD
AND CONSOLIDATED SUBSIDIARIES

Years ended 31st March

Thousands of
U.S. dollars

Millions of yen
2000

2001

2002

2003

2004

2004

Operating revenues ...................................................

¥117,794¥118,166¥118,515¥116,331¥126,713$1,198,912

Operating cost ...........................................................

108,902109,672

110,302

107,928

117,860

1,115,148

Selling, general and administrative expenses ..........

6,480

6,090

5,755

5,630

5,994

56,713Operating income .....................................................

2,412

2,404

2,458

2,773

2,859

27,051

Net income (loss) ......................................................

1,276(8,786)

720

4,819

1,429

13,521

Depreciation expenses .............................................

4,216

4,092

3,303

2,775

2,610

24,695¥13.04(¥ 90.02)¥ 7.38¥48.99¥14.50$0.1372

Total current assets ...................................................

¥ 52,002¥ 37,583¥ 40,245¥ 43,692¥ 43,596$ 412,489

Net property and equipment ....................................

66,99067,16065,33063,25871,502

676,526

Total assets ................................................................

130,284

120,696

120,759

119,243

128,293

1,213,861

Total current liabilities ..............................................

51,113

34,11334,184

41,29839,018369,174

current portion thereof ...........................................

22,07538,87638,802

26,79937,832357,953

Total shareholders’ equity ........................................

56,431

47,11347,17050,50850,735480,036

7,142

7,075

6,952

6,943

7,320

RESULTS OF OPERATIONS:PER SHARE (yen and U.S. dollars):
Net income (loss) ......................................................

YEAR-END FINANCIAL POSITION:

Long-term liabilities, excluding of

OTHER YEAR-END DATA:
Number of employees ..............................................

21

CONSOLIDATED BALANCE SHEETS TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAs of 31st March, 2003 and 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

Cash and time deposits ...............................................................................................................

¥ 17,023¥ 15,035$142,255

Marketable securities (Note 3) ....................................................................................................

1,362

1,046

9,897

Notes and accounts (Note 9) .................................................................................................

21,23924,199228,962

Less: allowance for doubtful accounts .................................................................................

(84)

(109)

(1,031)Inventories ...................................................................................................................................

636

576

5,450

Deferred tax assets (Note 7) .......................................................................................................

608

711

6,727

Other current assets .....................................................................................................................

2,908

2,138

20,229Total current assets .......................................................................................................

43,692

43,596412,489

Land ..............................................................................................................................................

36,837

41,256

390,349

Buildings and structures ..............................................................................................................

22,17925,068237,184

Machinery and vehicles ................................................................................................................

3,623

3,431

32,463

Construction in progress .............................................................................................................

—

1,002

9,481

Other ............................................................................................................................................

619

745

7,049

Total property and equipment .....................................................................................

63,25871,502

676,526

Investments in securities (Notes 3 and 5) ..................................................................................

5,412

6,765

64,008Deferred tax assets (Note 7) .......................................................................................................

1,928

1,456

13,776

Foreign currency translation adjustments ...................................................................................

10

—

—

Others ...........................................................................................................................................

4,943

4,974

47,062

Total investments and other assets ..............................................................................

12,293

13,195

124,846

Total assets ....................................................................................................................

¥119,243¥128,293$1,213,861

ASSETS
Current assets:

Trade receivables:

Property and equipment (Notes 4 and 5):

Investments and other assets:

The accompanying Notes are an integral part of these statements.

22

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

Short-term bank loans (Note 5) ..................................................................................................

¥ 15,435¥ 16,063$ 151,982

Current portion of long-term debt (Note 5) ...............................................................................

903

911

8,619

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:

Current portion of bonds ............................................................................................................

7,000

—

—

Trade notes and accounts payable .............................................................................................

10,347

12,514

118,403

Income taxes payable ..................................................................................................................

1,230

907

8,582

Other current liabilities ................................................................................................................

6,383

8,623

81,588

Total current liabilities ..................................................................................................

41,29839,018369,174

2,606

9,196

87,009Long-term liabilities:
Long-term debt, less current portion (Note 5) ...........................................................................
Deferred tax liabilities from revaluation reserve for land (Note 10) ........................................

5,089

4,596

43,486

Employees’ severance and retirement benefits (Note 6) ...........................................................

18,964

20,110190,273

Consolidation difference .............................................................................................................

—

648

6,131

Other long-term liabilities ...........................................................................................................

140

3,282

31,054

Total long-term liabilities ..............................................................................................

26,79937,832357,953

Total liabilities ...............................................................................................................

68,09776,850727,127

Minority interests ..........................................................................................................................

638

708

6,698

14,183

14,183

134,194

Capital surplus .............................................................................................................................

14,687

14,687

138,963

Retained earnings ........................................................................................................................

15,01815,934

150,762

Revaluation reserve for land (Note 10) ......................................................................................

7,494

6,769

64,046

Unrealized gain on securities ......................................................................................................

46

901

8,525

(920)

(1,739)(16,454)

Contingent liabilities (Note 9)
Shareholders’ equity (Note 11):
Common stock:
Authorised: 299,200,000 shares in 2003
299,200,000 shares in 2004
Issued:97,610,118 shares in 2003
97,610,118 shares in 2004 .................................................................................

Treasury stock, at cost : 3,307,754 shares in 2003 and6,032,839 shares in 2004 ......................................................................
Total shareholders’ equity ............................................................................................

50,50850,735480,036

Total liabilities, minority interests, and shareholders’ equity .....................................

¥119,243¥128,293$1,213,861

23

CONSOLIDATED STATEMENTS OF INCOME TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended 31st March, 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2004

2004

¥116,331¥126,713$1,198,912

116,331

126,713

1,198,912

Operating cost (Note 12) .............................................................................................................

107,928

117,860

1,115,148

Selling, general and administrative expenses (Note 12) ...........................................................

5,630

5,994

56,713

113,558

123,854

1,171,861

2,773

2,859

27,051

Interest and dividend income .....................................................................................................

368

239

2,261

Loss on sells of property and equipment, net ...........................................................................

2,765

(19)

(180)

Interest expenses .........................................................................................................................

(380)

(331)

(3,132)Others, net ...................................................................................................................................

3,534

185

1,751

6,287

74

700

9,060

2,933

27,751

Current ..........................................................................................................................................

2,073

2,122

20,078Deferred .......................................................................................................................................

2,121

(699)

(6,614)

4,194

1,423

13,464

47

81

766

Operating revenues:
Operating revenues .....................................................................................................................

Operating costs and selling, general and administrative expenses:

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.

24

¥

4,819

¥

1,429

$

13,521CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended 31st March, 2004

Millions of yen
Sharesof commonstock(thousands)

Balance as at 31st March, 2002 ...............................................
Net income ..............................................................................
Cash dividends applicable tothe year (¥6.00 per share) ....................................................
Revaluation reserve for land ..................................................
Unrealized gain on securities .................................................
Treasury stock .........................................................................
Bonuses to directors and statutory auditors ..........................
Balance as at 31st March, 2003 ...............................................
Net income ..............................................................................
Cash dividends applicable tothe year (¥8.00 per share) ....................................................
Revaluation reserve for land ..................................................
Unrealized gain on securities .................................................
Treasury stock .........................................................................
Decrease resulting from inclusion of consolidated subsidiaries.......
Bonuses to directors and statutory auditors ..........................
Balance as at 31st March, 2004 ...............................................

97,610Commonstock

CapitalsurplusRetainedearnings¥ 14,183¥ 14,687¥ 10,307
4,819
(586)
542

Revaluation Unrealized
reservegain onfor land securities¥ 7,872¥ 123

Treasury
stock

(¥

2)

(378)
(77)
(918)

97,61014,183

14,687(64)
15,018
1,429
(749)
725

7,494

46

(920)

(725)
855
(819)

97,610¥14,183¥14,687(421)(68)¥15,934¥6,769¥ 901(¥ 1,739)

Revaluation Unrealized
reservegain onfor land securities

Treasurystock

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

Balance as at 31st March, 2002 ...............................................
Net income ..............................................................................
Cash dividends applicable tothe year ($0.0568 per share) ................................................
Revaluation reserve for land ..................................................
Unrealized gain on securities .................................................
Treasury stock .........................................................................
Bonuses to directors and statutory auditors ..........................
Balance as at 31st March, 2003 ...............................................
Net income ..............................................................................
Cash dividends applicable tothe year ($0.0757 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 31st March, 2004 ...............................................

CapitalsurplusRetainedearnings$ 134,194 $ 138,963 $ 97,521
45,596(5,544)
5,128$ 74,482$ 1,164($

19)(3,576)(729)(8,686)

134,194

138,963(606)
142,095
13,521(7,087)
6,860

70,906435(8,705)(6,860)8,090(7,749)(3,983)(644)$134,194 $138,963 $150,762

The accompanying Notes are an integral part of these statements.

25$64,046$8,525($16,454)

CONSOLIDATED STATEMENTS OF CASH FLOWS TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIESFor the two years ended 31st March, 2004

Millions of yen

Thousands of
U.S. dollars(Note 1)

2003

2004

2004

¥ 9,060
2,775(2,765)(0)¥ 2,933
2,610
(30)
—

$ 27,751
24,695(284)—(3,626)
32
338
129
—
(7)
(167)
81
94
(186)
(201)
380
(219)
(33)
812
(143)
(228)
6,126
201
(380)
(1,864)
4,083

—
(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

—
(606)
76
511
814
(852)
(615)
568
3,548
(530)
(1,646)
3,132(14,912)
1,486
14,240(568)
1,173
57,981
1,646(3,132)(22,774)
33,721

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 .......................................................................
Liquidation of subsidiaries ..........................................................................................................
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 provided by (used in) investing activities .................................................................

(111)
295
(202)
501
(2,080)
4,118
(764)
322
(19)
—
(445)
636
(848)
1,403

(155)
131
(31)
308
(7,809)
1,583
(21)
246
—
1,413
(339)
471
801
(3,402)(1,467)
1,240
(293)
2,914
(73,886)
14,978
(199)
2,328
—
13,369(3,207)4,456
7,579(32,188)

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 used in financing activities .................................................................................

(534)
379
(1,120)
—
—
—
(918)
(586)
(7)
(2,786)

32
328
(939)
6,914
(7,000)
6
(819)
(749)
(8)
(2,235)303
3,103(8,884)65,418(66,232)57(7,749)(7,087)(76)(21,147)

Effect of exchange rate change on cash and cash equivalents .............................................
Net increase in cash and cash equivalents ................................................................................
Cash and cash equivalents at beginning of year .....................................................................
Cash and cash equivalents at end of year .................................................................................

—
2,700
15,173¥17,873—(2,073)
17,873¥15,800—(19,614)169,108$149,494

Cash flows from operating activities:
Net income before income taxes and minority interests ...........................................................
Depreciation and amortization ...................................................................................................
Gain on disposal of property and equipment ...........................................................................
Gain on sales of marketable securities .......................................................................................
Gain on release from substitutional portion of government’s
welfare pension fund insurance scheme .................................................................................
Loss (gain) on sales of investments in securities .......................................................................
Loss on devaluation of investments in securities .......................................................................
Loss on devaluation of golf club memberships .........................................................................
Bond issue expenses ...................................................................................................................
Amortization of consolidation difference ...................................................................................
Equity in earnings of associated companies ..............................................................................
Increase in allowance for doubtful accounts .............................................................................
Increase in employees’ severance and retirement benefits .......................................................
Decrease in accrued bonuses to employees ..............................................................................
Interest and dividend income .....................................................................................................
Interest expenses .........................................................................................................................
Increase in trade receivables .......................................................................................................
Increase (decrease) in inventories ..............................................................................................
Increase in accounts payable ......................................................................................................
Decrease in accrued consumption taxes ....................................................................................
Other, net .....................................................................................................................................
Subtotal ....................................................................................................................................
Interest and dividends received ..................................................................................................
Interest paid .................................................................................................................................
Income taxes paid .......................................................................................................................
Net cash provided by operating activities ........................................................................

The accompanying Notes are an integral part of these statements.

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS TONAMI TRANSPORTATION CO., LTD.
AND CONSOLIDATED SUBSIDIARIES

1.

Basis of presenting financial statements(d) Allowance for doubtful accounts
Allowance for doubtful accounts is provided in an amountsufficient to cover possible losses on collection. Suchamount is computed by applying the rate of actual losses
on collection experienced in the past with respect togeneral trade receivables and by individually reviewing
their collectibility with respect to certain doubtfulreceivables.

The accompanying consolidated financial statements ofTonami Transportation Co., Ltd. (the “Company”) andconsolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan, which
are different in certain respects as to the application anddisclosure requirements of International Financial ReportingStandards, and are complied from the consolidated
financial statements prepared by the Company as requiredby 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 yenamounts have been or could in the future be converted
into U.S. dollars. The rate of ¥105.69 = U.S.$1, prevailing on
31st March, 2004, has been used for the translation into
U.S. dollar amounts in the financial statements.
2.

(e) Property and equipment and intangible assets
Property and equipment are stated at cost. However, underJapanese tax law, capital gains arisen from disposals andother similar transactions are deducted from the cost of theproperty and equipment acquired in substitution.
Depreciation of property and equipment is computedby the declining balance method, except for buildings andstructures. The buildings and structures are depreciated by
the straight-line method.
The ranges of useful lives of principal property andequipment 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 thepresumption of having no salvage value.
Cost of software for internal use is amortized by thestraight-line method over the estimated useful years (fiveyears).

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 31st March,
2004 (24 for 2003).
All significant intercompany accounts and transactions
have been eliminated in consolidation.
Seven of the investments in unconsolidated
subsidiaries or affiliates (8 for 2003) are accounted for by
the equity method.
Differences between the acquisition cost and theunderlying net equity of subsidiaries at the time ofacquisition are amortized on the straight-line basis over theperiod of five or 20 years.
When their amounts are, however, not significant, thedifferences are fully charged or credited to income at thedates of acquisition.

(f) Leases
Finance leases other than those which are deemed totransfer the ownership of the leased assets to lessee areaccounted for by the method similar to that applicable toordinary 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 andretirement benefits, the Company and its consolidated
subsidiaries assume a liability for severance and retirement
benefits, which is included in the liability section of theconsolidated balance sheet, based on the estimatedamounts of projected benefit obligation and plan assets atthe balance sheet dates.
Past service costs are recognized in expenses using
the straight-line method over 11 years (a certain period notexceeding 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.

(b) Marketable securities and investments insecurities
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. Marketablesecurities classified as other securities are carried at fairvalue with any unrealized gain or loss reported as aseparate component of stockholders’ equity, net of taxes.
Non-marketable securities classified as other securities arecarried at cost. Cost of securities sold is determinedprincipally by the moving average method.
(c) Inventories
Inventories are stated at cost, cost being determinedprincipally by the last purchase price method.
27

(h) Stock issue expenses
Millions of yen

Stock issue expenses are charged to income as incurred.

2004(i) Income taxes
Income taxes consist of corporation, enterprise, andinhabitants taxes.
The Company and its consolidated subsidiaries
recognize tax effects of temporary differences between the
carrying amounts of assets and liabilities for tax andfinancial reporting.

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

(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.

Acquisition

Carrying

Unrealized

costs

value

gain(loss)¥1,772¥3,332¥1,560

106
—
—

107
—
—

1
—
—

¥ 654

¥ 609

(¥

25
—
60
¥2,61725—
58¥4,131(0)—(2)¥1,51445)(k) Foreign currency translation
Thousands of U.S. dollars

Foreign currency receivables and payables are translated
into yen at the applicable year-end exchange rates and any
gain or loss on translation is included in current earnings.
3.

2004

No trading securities or held-to-maturity securities were
held at 31st March, 2003 or 2004. Securities classified asother securities are included in “marketable securities” and“investments in securities” in the accompanying
consolidated balance sheets.
The components of unrealized gain or loss onmarketable securities classified as other securities at 31st
March, 2003 and 2004 are summarized as follows:—
Millions of yen
2003

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

Carrying

Unrealized

costs

value

gain(loss)¥ 671¥1,108

¥437

276
203
10

279
203
10

3
0
0

¥1,749¥1,392(¥357)

54—30¥2,99353—
25¥3,071

(0)
—
(5)
¥ 79

Carrying

Unrealized

costs

value

gain(loss)$31,526$14,760

1,012
—
—

9
—
—

Unrealized gain:
Stocks ........................................ $16,766
Bonds
Corporate bonds ....................
1,003
Other ......................................
—
Other .........................................
—
Unrealized loss:
Stocks ........................................ $ 6,188
Bonds
Corporate bonds ....................
237
Other ......................................
—
Other .........................................
568
Total.............................................. $24,761

Fair Value of Securities

Acquisition

Acquisition$ 5,762

($

426)

237
—
549
$39,086(0)—(19)$14,325

Non-marketable securities classified as other securities at
31st March, 2003 and 2004 amounted to ¥3,703 million and¥3,680 million ($34,819 thousand), respectively.
Proceeds from sales of securities classified as othersecurities amounted to ¥98 million and ¥418 million ($3,955
thousand) for the years ended 31st March, 2003 and 2004,
respectively.
The aggregate gain realized on those sales totaled ¥1
million and ¥64 million ($606 thousand) for the years
ended 31st March, 2003 and 2004, respectively. The
aggregate loss realized on those sales totaled ¥33 millionand ¥0 million ($0 thousand) for the years ended 31st
March, 2003 and 2004, respectively.

28

The redemption schedule at 31st March, 2004 for bonds
with maturity dates is summarized as follows:—

Thousands ofMillions of yen
Due in one
year or lessCorporate bonds .......
Other .......................
Total ........................

Millions of yen

Due after one Due after fiveDue after
ten years

year through years through

¥46
—
¥46

five years

ten years

¥ 85
50
¥135

¥—
—
¥—

2.05% ¥7 billion unsecured
straight bonds due 2003............ ¥ 7,000
0.89% ¥6.4 billion unsecured
straight bonds due 2008 ...........
—
0.52% ¥0.6 billion unsecured
straight bonds due 2008 ...........
—
0.7%–3.6% loans from financial
institutions due 2005 to 2009
and thereafter
Secured ...................................
2,049
Unsecured................................
1,460
Total ................................... 10,509
Less: amount due within
one year ....................................
7,903¥ 2,606

¥—
10
¥ 10

Thousands of U.S. dollars
Due in one
year or lessCorporate bonds .......
Other .......................
Total ........................

4.

Due after one Due after fiveDue after
ten years

year through years through

$435
—
$435

five years

ten years

$ 804
473
$1,277

$—
—
$—

$—
95
$ 95

Property and equipment

Depreciable property is stated at the net book value in the
consolidated balance sheets. The amounts of accumulated
depreciation were ¥490,094 million and ¥48,838 million($462,087 thousand) on 31st March, 2003 and 2004,
respectively.
Capital gains resulting from disposals and other similartransactions are deducted from the cost of property andequipment acquired in substitution. The amounts deductedfrom the cost of property and equipment was ¥269 million($2,545 thousand) on 31st March, 2003 and 2004,
respectively.
5.

¥

—

2004

$

—

6,400

60,554

600

5,677

1,773
1,334
10,107

16,776
12,622
95,629911¥ 9,196

8,620$87,009

The maturity date of the ¥6.4 billion 0.89% unsecured
straight bonds, issued in June 2003 is 30th June, 2008.
The maturity date of the ¥0.6 billion 0.52% unsecured
straight bonds, issued in June 2003 is 30th June, 2008.
The annual maturities of long-term debt outstanding as
at 31st March, 2004 were as follows:—
Thousands ofYear ending 31st March,2005 .............................................
2006 .............................................
2007 ..............................................
2008 ..............................................
2009 and thereafter .....................

Short-term bank loans and long-term debt(a) Short-term bank loans
Short-term bank loans as at 31st March, 2003 and 2004
were as follows:—

Millions of yen

U.S. dollars

¥ 911
624
358
262
7,952

$ 8,620
5,904
3,387
2,479
75,239(c) Pledged assets
Property and equipment having a net value of ¥19,093
million ($180,651 thousand) was pledged as collateral for
short-term bank loans and long-term debt, and investment
in securities of ¥12 million ($114 thousand) was pledged ascollateral for short-term bank loans as at 31st March, 2004.

Thousands ofMillions of yen

U.S. dollars

2004

2003

U.S. dollars

2003

2004

2004

Secured ........................................ ¥ 4,283
Unsecured ................................... 11,152¥ 3,981
12,082$ 37,667
114,315Interest rates range from 0.6% to 4.0%.

6.

(b) Long-term debt

Employees’ severance and retirement benefits

An employee whose employment is terminated is entitled,
in most cases, to pension annuity payments or to a lumpsum severance payment determined by reference to thebasic rate of pay, length of service and the conditions
under which the termination occurs.
The Company has two types of defined benefit plans,a lump-sum payment plan and an additional benefit type of
pension plan. The Company plans to revise its pension
plans and shift them to a money-market-rates linkage typefrom 1st June, 2004.
The Company and certain significant domestic
consolidated subsidiaries have established contributoryLong-term debt as at 31st March, 2003 and 2004 was asfollows:—

29

defined benefit pension plans pursuant to the Welfare
Pension Insurance Law of Japan, i.e., welfare pension fundplan (WPFP). The WPFP consists of the governmental
welfare pension program (the substitutional portion) andan additional non-contributory pension plan portion.

The components of net periodic pension and severance
costs excluding the employees’ contributory portion wereas follows:—
For the year ended 31st March,Thousands ofMillions of yen

The projected benefit obligation and the funded status of
the plans summarized as follows:—

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 .................

Thousands ofMillions of yen
2003

U.S. dollars

2004

2004

Projected benefit obligation ....... (¥27,105) (¥28,347) ($268,208)
Plan assets ...................................
696
3,022
28,593
Accrued pension andseverance costs ......................... 18,964
20,110190,273
Prepaid pension andseverance costs .........................
———Net unrecognized amount ..........
7,445
5,215
49,342The net unrecognized amounts were as follows:—

U.S. dollars

2003

2004

2004

¥1,098¥1,077$10,190

1,141
(391)

662
(11)

6,264
(104)

—

—

—

250

621

5,876

0

58

549

¥2,099¥2,408$22,784

Thousands ofMillions of yen
2003

Unrecognized benefit obligation
at transition
Adjustment for
actuarial assumptions ...............
Past service cost ..........................
Net unrecognized amounts ........

¥6,805
640
7,445

2004

¥4,633582
5,215

U.S. dollars

The assumptions used were as follows:—

2004

Discount rates .............................
Expected rates of returnon plan assets ...........................

$43,835
5,507
49,342

7.

2003

2004

2.5

2.5

4.0

2.5

Income taxes

As described in Note 2(i), the Company and its
consolidated subsidiaries recognizes tax effects of
temporary differences between the carrying amounts ofassets and liabilities for tax and financial reporting.
Significant components of deferred tax assets andliabilities are as follows:—

The substitutional portions of the WPFP benefits have been
included in the amounts shown in the above table.
On 13th August, 2002 the Company and certain domestic
subsidiaries received approval from the Minister of Health,
Labor and Welfare with respect to its application for
exemption from the benefit obligation related to future
employee services under the substitutional portion of the
WPFP. In accordance with paragraph 47-2 of the “Practical
Guidelines on Retirement Benefits Accounting (interim
Report),”Report No.13 of the Accounting System Committeeof the Japanese Institute of Certified Public Accountants,
the Company and subsidiaries accounted for the separationof the substitutional portion of the benefit obligation fromthe corporate portion of the benefit obligation under its
WPFP as of the date of approval of the exemption,
assuming that the transfer to the Japanese Government of
the substitutional portion of the benefit obligation andrelated portion of the pension plan assets had been
completed as of that date. As a result the Company andsubsidiaries recognized a gain of ¥3,625 million for the year
ended 31st March, 2003. At 31st March, 2003, the pension
plan assets to be transferred were calculated at ¥21,294
million.

Thousands ofMillions of yen
2003

Deferred tax assets:
Excess bonuses accrued ........ ¥ 394
Excess employees’ severance andretirement benefits accrued ...
6,800
Other .......................................
384
Gross deferred tax assets ....
7,578
Valuation allowance ..............
(216)
Total deferred tax assets .....
7,362
Deferred tax liabilities:
Unrealized gain on securities(31)
Reserve under Special Taxation
Measures Law ...................... (4,796)
Total deferred tax liabilities . (4,827)
Net deferred tax assets .................. ¥2,535

30

U.S. dollars

2004

2004

¥ 510

$ 4,825

7,305
465
8,280
(316)
7,964

69,117
4,400
78,342(2,990)75,352(612)(5,790)(5,185)(5,797)¥2,167(49,059)(54,849)$20,503

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 theyears ended 31st March, 2003 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 31st March,
2003 and 2004 are 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 ................................................

2003

2004

41.6%

41.6%

0.6

1.6

(0.4)
2.2
(0.8)
3.1
46.3%

(1.5)
6.8
(0.9)
0.9
48.5%

Thousands ofMillions of yen

Depreciation expense .................
Interest expense ...........................

Future minimum lease payments (including the interest
portion thereon) subsequent to 31st March, 2004 forfinance leases accounted for as operating leases are
summarized as follows:—
Thousands ofYear ending 31st March,

9.

Acquisition costs:
Machinery and tools .................. ¥11,812
Other assets ..............................
169¥11,981
Accumulated depreciation:
Machinery and tools .................. ¥ 4,096
Other assets ..............................
133¥ 4,229
Net book value:
Machinery and tools .................. ¥ 7,716
Other assets ..............................
36¥ 7,752¥14,387115¥14,502$136,125
1,088$137,213¥ 6,200
69¥ 6,269$ 58,662
653$ 59,315¥ 8,18746¥ 8,233

Contingent liabilities

Millions of yen

U.S. dollars¥ 117$ 1,675

6
69
1,300

57
653
12,300Notes discounted with banks .....
Guarantees of welfare pension
housing loans sublet
to employees .............................
Notes endorsed ...........................
Others ..........................................

10. Revaluation reserve for land
In accordance with the Law concerning Revaluation ofLand enacted on 31st March, 1998, the Company has
revaluated its owned land used for business operations on
31st March, 2000 and reported a revaluation reserve forland in shareholders’ equity section.
The revaluated book value of land was determinedbased on the value of land registered on the cadastres ortheir supplementary records, which are provided by the
Local Tax Law under the Law Concerning Revaluation ofLand, after making reasonable adjustments.

U.S. dollars
2004$23,749
54,773$78,522

Thousands ofThousands of
2004

U.S. dollars¥2,5105,789¥8,299As at 31st March, 2004, the Company were contingently
liable as follows:—

The following pro forma amounts represent the acquisition
costs, accumulated depreciation and net book value of theleased property as of 31st March, 2003 and 2004, which
would have been reflected in the consolidated balance
sheets if finance lease accounting had been applied to thefinance leases currently accounted for as operatingleases:—

2003

Millions of yen

2005 .............................................
2006 and thereafter ......................
Total .............................................

Finance leases

Millions of yen$22,632
1,703

Lease payments relating to finance leases accounted for as
operating leases amounted to ¥2,048 million and ¥2,568
million ($24,297 thousand), which were equal to thedepreciation expense of the leased assets computed by thestraight-line method over the lease terms, for the years
ended 31st March, 2003 and 2004, respectively.

On 31st March, 2003, a revised local tax law wasenacted and become effective for fiscal years commencing
on 1st April, 2004 or later. According to the revised local
tax law, income tax law rates for enterprise taxes will be
reduced resulting from introducing the assessment by
estimation on the basis of paid-in capital and value added.
The effect of this tax rate change was to decreasedeferred tax assets (net of deferred tax liabilities) by ¥39
million at 31st March, 2003 and to increase income taxes –deferred by ¥164 million for the year ended 31st March,
2003.
8.

U.S. dollars¥2,392180¥1,898167

Thousands ofMillions of yen

Difference between the fair market valueof revalued land at 31st March, 2003
and the revalued book value ......................

$ 77,463
435$ 77,898

31¥7,784

U.S. dollars$73,649

11. Shareholders’ equity
Yen

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 thatan amount equal to at least 10% of the amount to be
disbursed as a distribution of earnings be appropriated to
the legal reserve until the total of such reserve and capitalsurplus account equals 25% of the common stock account.
The legal reserve amounted to ¥1,261 million and ¥1,261
million ($11,931 thousand) at 31st March, 2004 and 2003,
respectively.
The Code provides that neither capital surplus nor the legal
reserve is available for dividends, but both may be used toreduce or eliminate a deficit by resolution of theshareholders or may be transferred to common stock byresolution of the Board of Directors.
Year-end dividends shall be approved at a meeting ofshareholders held after the end of each financial year andinterim 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 theend of the financial year, but are recorded at the time they
are approved.

Net income per share ofcommon stock ..........................

U.S. dollars

2003

2004

2004

¥48.99¥14.50$0.1371

The following table sets forth the computation of net
income per share of common stock for the years ended
31st March, 2003 and 2004:—
Thousands ofMillions of yen

Net income available toshareholders of common stock:
Net income ............................... ¥4,819
Less: appropriation of bonuses
to directors and statutory
auditors ....................................
66¥4,753Weighted-average number ofshares of common stock
outstanding ............................. 97,026,668

U.S. dollars

2004

2004

¥1,429$13,52179¥1,350748$12,773

93,126,320

93,126,320

2003

Net assets per share have been computed based on the net
assets available for distribution to stockholders of common
stock and the number of shares of common stock
outstanding at each balance sheet date.
Yen

12. Supplementary income information
Supplementary income information for the year ended 31st
March, 2003 and 2004 is as follows:—

U.S. dollars

2003

2004

2004

Net assets per share .................... ¥535.00¥553.26$5.235

Thousands ofMillions of yen

Depreciation expenses ...............
Lease and rental ..........................

14. Subsequent event

U.S. dollars

2003

2004

2004

¥2,775
4,866¥2,6105,301$24,695
50,156

The annual shareholders’ meeting of the Company, which
was held on 29th June, 2004, duly approved the following
appropriations of retained earnings existing as at 31st
March, 2004:—
Thousands of

13. Amounts Per Share
Basic net income per share has been computed based on
the net income allocable to or available for distribution to
stockholders of common stock and the weighted-average
number of shares of common stock outstanding during
each year. Diluted net income per share has not beenpresented for the years ended 31st March, 2003 and 2004
since neither the Company nor any of the consolidated
subsidiaries had potentially dilutive shares of common
stock to be issued 31st March, 2003 and 2004.

Dividends (¥3.00 per share) .......
Bonuses to directors andstatutory auditors ......................

32

Millions of yen

U.S. dollars¥275$2,60235

331

15. 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 31st March 2004 is as follows:—
For the year ended 31st March, 2003
Millions of yen
Logistics

OthersTotal

Eliminations(Notes 1 and 2)

Consolidated

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

¥105,785
13
105,798
103,711¥ 2,087¥10,546
4,900
15,446
14,621¥ 0,825¥116,331
4,913
121,244
118,332¥ 2,912¥—(4,913)(4,913)(4,774)¥ (139)¥116,331—
116,331
113,558¥ 2,773

Assets, depreciation and capital expenditures:
Identifiable assets: ..................................................
Depreciation: ..........................................................
Capital expenditures: ..............................................

¥ 87,653¥ 2,603¥ 1,983¥ 9,532¥ 0,184¥ 0,077¥ 97,185¥ 2,787¥ 2,060¥ 22,058¥12¥
10¥119,243¥ 2,775¥ 2,070

For the year ended 31st March, 2004
Millions of yen
Logistics

OthersTotal

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

¥114,796
49
114,845
112,727¥ 2,118¥11,917
5,576
17,493
16,607¥ 886¥126,713
5,625
132,338
129,334¥ 3,004¥—(5,625)(5,625)(5,480)¥(145)¥126,713—
126,713
123,854¥ 2,859

Assets, depreciation and capital expenditures:
Identifiable assets: ..................................................
Depreciation: ..........................................................
Capital expenditures: ..............................................

¥ 99,694¥ 2,438¥ 7,674¥ 9,164
¥ 180
¥ 182

¥108,858¥ 2,618¥ 7,856¥ 19,435¥
8¥0¥128,293¥ 2,610¥ 7,856

33

Eliminations(Notes 1 and 2)

Consolidated

For the year ended 31st March, 2004
Thousands of U.S. dollars
Logistics

OthersTotal

Eliminations(Notes 1 and 2)

Consolidated

Net Sales:
Outside customers .................................................. $1,086,158
Inter segment sales .................................................
464
Total .................................................................... 1,086,622
Costs and expenses ..................................................... 1,066,582
Operating income ........................................................ $ 20,040$112,754
52,758
165,512
157,129$ 8,383$1,198,912
53,222
1,252,134
1,223,711$ 28,423$—(53,222)(53,222)(51,850)$ (1,372)$1,198,912—
1,198,912
1,171,861$ 27,051

Assets, depreciation and capital expenditures:
Identifiable assets: ..................................................
Depreciation: ..........................................................
Capital expenditures: ..............................................

$ 86,706$ 1,703$ 1,722$1,029,974$ 24,771$ 74,331$183,887$76$
0$1,213,861$ 24,695$ 74,331$943,268$ 23,068$ 72,609

Note 1. Operating cost and expenses included in the column “Eliminations” mainly consist of those charged by the generalaffairs and finance divisions of the Company, amounting to ¥188 million and ¥200 million ($1,892 thousand) for theyears ended 31st March, 2003 and 2004, respectively.
Note 2. Corporate assets included in the column “Eliminations” mainly consist of surplus working funds (cash andmarketable securities), long-term investment funds (investments in securities), and other assets which belong to theadministrative department, amounting to ¥28,287 million and ¥27,598 million ($261,122 thousand) for the years
ended 31st March, 2003 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
Others ......... Vehicle maintenance, casualty insurance, leasing, merchandising and commissioned sales andpurchases, travel services, mail order services, travel inn, and other businesses
Neither geographical segment information nor overseas sales have been presented because none of the Company’s
consolidated subsidiaries are domiciled outside Japan, and the Company and its consolidated subsidiaries had no overseas
sales for the years ended 31st March, 2003 and 2004.

34

INDEPENDENT AUDITORS’ REPORTThe 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 31st March, 2003 and 2004,
and the related consolidated statements of operations, shareholders’ equity, and cash
flows for the years then ended, all expressed in yen. These financial statements are theresponsibility 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 inJapan. Those standards require that we plan and perform the audit to obtainreasonable 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. andconsolidated subsidiaries at 31st March, 2003 and 2004, and the consolidated results of
their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended 31st March, 2004 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.

Shin Nihon & Co.
29th June, 2004

35

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

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

Date of Establishment
June 1943

Common Stock¥14,183 million

Issued and Outstanding Shares
97,610,118 shares

Shareholders
8,427

Employees
5,462

Terminals
85

Warehouses
43

Motor Vehicles
5,580(As of 31st March, 2004)

Consolidated Subsidiaries

Kanto Tonami Transportation Co., Ltd.
Road haulage
Gosei Tonami Transportation Co., Ltd.
Road haulage
Osaka Tonami Transportation Co., Ltd.
Road haulage
Shonan Tonami Transportation Co., Ltd.
Road haulage
Ibaraki Tonami Transportation Co., Ltd.
Road haulage
Fukui Tonami Transportation Co., Ltd.
Road haulage
Ishikawa Tonami Transportation Co., Ltd.
Road haulage
Kanagawa Tonami Transportation Co., Ltd.
Road haulage
Kansai Tonami Transportation Co., Ltd.
Road haulage
Zento Transportation Co., Ltd.
Road haulage
Takefu Transportation Co., Ltd.
Road haulage
Kawai Transportation Co., Ltd.
Road haulage
Chukyo Tonami Transportation Co., Ltd.
Road haulage
Saitama Tonami Transportation Co., Ltd.
Road haulage
ATS Co., Ltd.
Road haulage
Niigata Tonami Transportation Co., Ltd.
Road haulage
Keishin Warehousing Co., Ltd.
Warehousing
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.
Sale of tires
Shogawa Kanko Co., Ltd.
Travel inns
Toyama Jizake Hanbai Co., Ltd.
Sale of liquor
Tonami Automobile Technology Research Institute Co., Ltd.
Automobile technology R&D
Keishin System Research Co., Ltd.
Development and sale of software
Toyo Tire Toyama shop Co., Ltd.
Sale of tires
Toyo Shinso Co., Ltd.
Sale of bed-clothes
Tonami Business Service Co., Ltd.
Financial service
36System Distribution –Continually More to Offer
PROFILEOne of Japan’s leading integrated distribution companies, Tonami has beendeveloping solutions for the distribution needs of its customers for over 50 years. The
pioneer of computerized distribution systems in Japan, the Company has a highly
advanced computerized network system and strong information technology, and has
recently completed an upgrade of its information network, including adding mobile
connections to all of its vehicles. In addition to Tonami’s core business of road haulage
services, the Company also offers rail and air transportation agency; removal;
warehousing; marketing, distribution and information management; specialty item
sales; and casualty insurance agency services.

Road haulage

Warehousing

Marketing, distribution andinformation management

Contents
1
2
4
5
34

Non-Consolidated Financial Highlights
A Message from the President
Board of Directors and Statutory Auditors
Financial Section
Corporate Data

TONAMI TRANSPORTATION CO., LTD.
Head Office: 2-12, Showa-machi 3-chome, Takaoka, Toyama Pref., Japan
Phone: 0766-21-1073 Fax: 0766-21-3640

TONAMI TRANSPORTATION CO., LTD.
Annual Report 2004

Printed in Japan