YUSEN AIR & SEA SERVICE CO., LTD. · Yusen Air & Sea Service—Growing as a global provider of...
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Transcript of YUSEN AIR & SEA SERVICE CO., LTD. · Yusen Air & Sea Service—Growing as a global provider of...
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The Americas
South Asia and Oceania
37 offices, with regional headquarters in New York, 60,158 m2, about 500 employees
39 offices, with regional headquarters in Singapore, 38,387 m2, about 1,600 employees
Singapore, Malaysia, Indonesia, Thailand, Australia, Philippines, Vietnam
United States, Canada, Brazil
Yusen Air & Sea Service—Growing as a globalprovider of integrated logistics services
Headquartered in Tokyo, Japan, Yusen Air & Sea Service Co., Ltd.
(YAS), was established in 1955 as a cargo and travel agency on
behalf of international airlines. (The segment of travel business
was incorporated as a separate company in 1995.)
Today, as one of the world’s leading air freight forwarders,
the Company is reinforcing its presence as a total logistics
provider—with ocean transportation services, warehousing, cus-
toms brokerage and other services to complement the air freight
forwarding services—and plays an integral part in the Yusen
Global Logistics network as a member of the Nippon Yusen
Kabushiki Kaisha (NYK) Group.
Consolidated net sales for fiscal 2005, the year ended March
31, 2006, reached ¥168 billion ($1,434 million). The Group main-
tains 220 offices in 33 countries (as of July 1, 2006).
Consolidated Financial Highlights . . . . 1
To Our Stakeholders . . . . . . . . . . . . . . 4
YAS Medium-term Strategies . . . . . . . 6
Board of Directors and Officers. . . . . . 14
Financial Section . . . . . . . . . . . . . . . . 15
Corporate Governance . . . . . . . . . . . . 38
Corporate Social Responsibility . . . . . 39
Principal Group Companies . . . . . . . . . 40
Shareholders’ Information . . . . . . . . . 41
Thousands ofMillions of yen U.S. dollars
2006 2005 2004 2003 2002 2006
Net sales ¥168,454 ¥148,263 ¥118,465 ¥110,996 ¥ 91,517 $1,434,014
Operating income 10,435 10,408 7,222 7,392 2,271 88,830
Net income 7,006 6,797 3,738 4,632 1,346 59,644
Shareholders’ equity 44,138 35,894 29,488 27,137 23,607 375,742
Total assets 85,613 75,485 66,332 64,780 57,967 728,809
Per share data (yen and dollars):
Net income — primary ¥ 327.48 ¥ 317.17 ¥ 208.38 ¥ 259.34 ¥ 76.52 $ 2.788
Net income — fully diluted — — — — — —
Dividends 30.00 30.00 15.00 15.00 10.00 0.255
Shareholders’ equity 2,090.18 1,698.40 1,673.78 1,539.33 1,342.08 17.793
Note: The United States dollar amounts represent translations of Japanese yen amounts at the rate of ¥117.47 = US$1.See Note 3 to consolidated financial statements.
Consolidated Financial HighlightsYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries for the Years Ended March 31
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Net sales Net income Shareholders’ equity
200
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150
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4
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(Billions of yen)
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30
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(Billions of yen) (Billions of yen)
02 03 04 05 06 02 03 04 05 0602 03 04 05 06
Forward-Looking StatementsAll statements contained in this Annual Report other than statements of historical fact are forward-looking statements that reflectplans and expectations, based on information available to management as of the date of this Report. These forward-looking statementsinvolve known and unknown risks, uncertainties and other facts that may cause the Company’s actual results, performance or achieve-ments to differ materially from stated goals and objectives. The Company undertakes no obligation to update or revise forward-lookingstatements, whether as a result of new information, future events or otherwise.
Automobile-related products
Electronics, electrical machinery
Audio/visual equipment
Machinery
Trading company
Chemicals, medical goods
Textiles
Other
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Year ended March 31, 2006
Weight of Air Exports from Japan by Top 100 Companies
Electronics, electrical machinery
Medical equipment
Audio/visual equipment
Machinery
Trading company
Chemicals, medical goods
Textiles
Perishables
Other
Automobile-related products
%
%
Number of Air Import Transactions to Japan by Top 100 CompaniesYear ended March 31, 2006
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Europe
East Asia48 offices, with regional headquarters in Hong Kong, 72,968 m2, about 900 employees
34 offices, with regional headquarters in Amsterdam, 63,844 m2, about 500 employees
United Kingdom, Benelux, Germany, France, Italy, Czech Republic
PRC, Hong Kong, Taiwan, South Korea
180,000
135,000
90,000
45,000
0
Year ended March 31, 2006
2004 2005 2006
Sales by Geographic Region
Sales by Business Segment
Note: The above figures exclude intersegment transactions.
Note: The above figures exclude intersegment transactions.
Cargo Freight Business (air and sea cargo) 163,395
Travel 4,959
Other 100
Total 168,454
Number of Air Freight Import Transactions by Geographic Region
Weight of Air Freight Exports by Geographic Region
Air Freight Exports by Geographic Region
Year ended March 31, 2006
a
b
c
d
e
a
b
c
(Millions of yen)
FromJapan
FromNorth
America
From Europe
FromOverseasRegions
FromEast Asia
From South Asia
and Oceania
800,000
60,000
40,000
20,000
0
2004 2005 2006
Air Freight Imports by Geographic Region
ToJapan
ToNorth
America
ToEurope
ToOverseas Regions
To East Asia
To South Asia
and Oceania
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b
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Fiscal Term Japan: From April 1 to March 31Overseas regions: From January 1 to December 31
Fiscal TermJapan: From April 1 to March 31Overseas regions: From January 1 to December 31
(Millions of yen)
(Tons)
Japan
North America
Europe
East Asia
South Asia and Oceania
Total
86,264
15,785
14,936
33,915
17,554
168,454
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Japan62 offices, 66,898 m2, about 1,300 employees
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For YAS, fiscal 2005 was a tremendously good year, as accelera-
ted expansion of overseas services propelled net sales and
net income to record levels—¥168 billion ($1,434 million) for
net sales and ¥7 billion ($59 million) for net income, on a consoli-
dated basis. Overseas services represented nearly 50% of con-
solidated net sales.
In April 2005, the YAS Group embarked on YAS Global
Challenge, a three-year medium-term business plan with two pri-
mary objectives: to lay a solid operating foundation that with-
stands changes in the business environment, and to raise corpo-
rate value. These objectives will be achieved as we refine our
marketing skills, sharpen cost efficiency, and strengthen existing
bonds of trust with clients.
In the last decade, the volume of air freight leaving Japan has
nearly doubled, paralleling the globalization of world economies,
and during this time, YAS has demonstrated growth at a rate
exceeding the domestic industry average. The air freight forward-
ing business—the backbone of the YAS Group—is sure to
remain a high-growth field.
To capitalize on opportunities, now and in the future, the
Group must place greater emphasis on operations beyond
Japan’s shores. Since we operate in five regions of the world, we
designed a strategic global network supported by five headquar-
ters—to cover Japan, the Americas, Europe, East Asia and South
Asia/Oceania—each with its own executive officers to supervise
local operations.
This network will be integral to our success in accelerating
business development on a global scale, a key priority for the
Group during the three-year YAS Global Challenge. We will apply
several approaches to reach our goal but our focus will be on
three points: improving logistics services in every geographic
region, reinforcing contact between regions and establishing a
stronger presence in growth markets.
In the first year of YAS Global Challenge, we made steady
progress on several fronts. Of note, we added new locations on
our business map, raised the quality of our transportation services,
enhanced safety and security measures, augmented our gateway
function, and honed regional logistics capabilities. Next, we will
We seek to raise corporate value as atruly global enterprise
Develop a strong operating base● Enlarge scale of operations, with a focus on growth regions.● Aggressively promote ocean freight forwarding business and
logistics services.● Enhance gateway and intraregional logistics functions.● Augment transportation capacity with effective cargo space
procurement policy.● Promote synergy with the NYK Group.
To Our Stakeholders
Fortify the management base● Reinforce connections between the five operating regions.● Establish an IT system to support future development. ● Improve quality of transport services and cut related costs.● Institute a global financial structure and boost capital efficiency.● Introduce a groupwide internal control system and elevate reputation
for corporate reliability.● Strengthen corporate governance.
Basic Direction of YAS Global Challenge (April 2005 to March 2008)
Secure personnel and upgrade their skills to support the YAS Group operations
devote more attention to such growth markets as the People’s
Republic of China (PRC), India and Russia.
As an aside, in May 2006 we decided to pursue a business
alliance with Yamato Logistics Co., Ltd., that will, through the
integration of respective strengths and resources, further support
logistics services.
As a socially responsible corporate citizen, the YAS Group
seeks higher levels of compliance and corporate governance. The
Group also embraces opportunities to volunteer its logistics capa-
bilities for the good of society. A recent example is the trans-
portation of emergency relief supplies at no cost for victims of
the earthquake and tsunami that devastated the Indonesian
island of Sumatra.
But above all else, the Group’s most important contribution to
society is undoubtedly in the application of expert knowledge
indispensable to the quick, safe and efficient execution of sophis-
ticated international logistics services, includ-
ing customs clearance. We firmly believe that
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this ability underpins the realization of a comfortable society and
promotes global economic development, and we will therefore
strive to fully address this aspect of our social responsibilities.
On behalf of the Board, I ask shareholders—indeed, all stake-
holders—for your continued support and encouragement as we
work toward our goals.
August 2006
Shunichi Yano
President
The international market is expected to exhibit high growth, especially in Asia,where the YAS Group maintains a particularly solid presence.
Projected Growth in World Air Freight Forwarding Market (2003–23)
Fiscal 2005 (actual) ¥168.4 billion
Fiscal 2007 (goal) ¥200.0 billion
Fiscal 2007 Targets
(Source: Boeing World Air Cargo Forecast 2004/2005)
Net Sales
0 2 4 6 8
Average 6.2%
10 (%)
Intra-Asia
Asia – North America
Asia – Europe
Europe – Southwest Asia
Europe – Latin America
Latin America – North America
Europe – North America
Intra-Europe
Europe – Africa
Europe – Middle East
Intra-North America
8.5%
7.2%6.7%
6.4% 6.0%5.9%
5.6% 5.3% 5.2%
4.7% 4.1%
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Five-Region Structure Underpins ExpandedOverseas Business CapabilitiesA major goal in our medium-term business plan is to exact a larger
contribution from overseas services to net sales and profit. The
key to achieving this task is in our exceptional ability to acquire
cargo space from airlines at a time when handling volume is high.
Because we are able to ensure cargo space when it is needed, we
have earned a solid reputation for reliability from clients, especially
major Japanese corporations. So the potential for expanding over-
seas business can be realized if we successfully demonstrate this
advantage to non-Japanese companies and properly address the
needs of domestic companies as they pursue globalization.
YAS has maintained a five-region management structure,
with regional headquarters in Japan, the Americas, Europe, East
Asia and South Asia/Oceania, since 1996. But to facilitate faster,
more flexible responses to specific local conditions and to further
reinforce our logistics network, in 2005 we assigned executive
officers to each regional headquarters abroad to expedite man-
agement decisions relevant to the respective headquarters and
identify specific activities in growth areas.
While the delegation of responsibilities and authority to
regional executive officers is important, collaboration between
regions is also imperative to ensure that members of the Group are
always moving toward the same strategic destination. Therefore,
we encourage information sharing and bring overseas managers to
Japan for round-table discussions and training to acquire a better
understanding of the Group’s basic management policy on busi-
ness development. These sessions also provide an opportunity for
managers from all regions to exchange ideas.
Logistics Services within and betweenRegions At YAS, air freight forwarding is our primary business and we
naturally spotlight these services. But we are also actively pursu-
ing ocean freight forwarding, as a medium-term strategy, to
round out total logistics capabilities. As we extend our business
reach, we must approach the task from two perspectives—with a
focus on services within a specific region as well as on services
between regions.
We are seeing greater interest among clients for door-to-door
logistics services—a trend that has highlighted the need for
diversified logistics services. Between regions, too, logistics
services have attracted greater attention, as globalization of
world economies increasingly requires shipments to cross
borders even within the same region. This is often the case
in Europe, where, for example, freight might have to travel from
gateway Amsterdam, in the Netherlands, to Spain, or from gate-
way Frankfurt, Germany, to a destination in Eastern Europe.
YAS Medium-term Strategies
Fiscal 2004 Fiscal 2007
Weight of air freight exports 100% 138%Number of air freight import transactions 100 137Number of ocean freight export transactions 100 156Number of ocean freight import transactions 100 144
Fiscal 2007 Consolidated Sales Targets (Fiscal 2004 = 100)
Japan
The Amer i cas
Eu rope
Eas t As i a
Sou th As i a and Ocean i a
Regional Strategic Objectives
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Fiscal 2005
¥86 ,517
¥5 ,589
Total Sales
Millions of yen
Operating Income
¥16 ,813
¥1 ,050
Total Sales
Operating Income
¥15 ,674
¥1 ,203
Total Sales
Operating Income
¥34 ,192
¥1 ,702
Total Sales
Operating Income
¥17 ,786
¥898
Total Sales
Operating Income
Maintain company-owned warehouses in major cities and enhance national marketing, sales and information networks.
Strive to boost import transactions from overseas—a strong point in logistics services—and enhance export air freight, where cost competitiveness is key.
Create transportation services network to support division of labor within ASEAN, and realize greater efficiency in procurement and production logistics, especially in Singapore.
Strengthen operating bases in Thailand, Vietnam, the Philippines and Malaysia, and develop a wider presence in India and countries of the Middle East.
Demonstrate logistics capabilities within Asia and increase the volume of freight transported to Europe and North America.
Enhance gateway function on PRC coast and add locations in inland provinces.
Improve intraregional logistics services using Hong Kong and Shanghai as bases.
Respond to demand for logistics within China economic area and boost volume of freight transported to Japan, Europe and North America.
Strengthen gateway function, especially in Germany and the Netherlands, and develop transportation services.
Develop stronger operating base in central and eastern Europe, with a view toward a higher profile in Russia.
Increase volume handling for logistics services within Europe and between Europe and other regions.
Reinforce gateway function on U.S. West Coast and maximize opportunities afforded by North America Free Trade Agreement to demonstrate logistics capabilities for automotive parts and boost revenues from transportation services to import cargo from Asia and Europe.
YAS: Global Logistics Service ProviderAs of July 1, 2006, YAS and its subsidiaries had 220 offices in 33 countries, logistics facilities with 302,255 m2 of floor space, and a global workforce of about 4,800.
7Total sales include intersegment transactions.
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Key strategies for operations in the United States highlight the establishment of a business structure that addresses the just-in-time
needs of the automaking industry in and around Chicago as well as stronger gateway functions on the U.S. West Coast. Another focus
is on turning gateways in Los Angeles and Miami into transportation staging bases for cargo moving from Asia to Latin America.
In recent years, two representative offices have been established in Mexico, in anticipation of increased demand for international
logistics services, following the ratification of a free trade agreement between Japan and Mexico. In response to heightened trade
activity between the United States and Mexico, a shuttle route was launched in fiscal 2005 to transport cargo from Los Angeles by
truck to assembly plants in several cities along the Texas-Mexico border.
U.S. FocusEnhancing just-in-time services
Amsterdam
Frankfurt
Our gateway in Frankfurt covers all of Germany as well as central and eastern Europe. Regularly scheduled truck transport carries all types of freight, particularly automotive parts, from Frankfurt to such destinations as Budapest, Hungary, and Krakow, Poland. Meanwhile, our gateway in Amsterdam covers part of Germany and all of western Europe. The new facilities of YAS Benelux feature an automated roller bed system capable of handling 42 unit load devices at one time, which enhances the subsidiary’s function as a cargo collection base linking Europe with other areas.
For YAS, its two key gateways in Europe are Frankfurt, Germany, and Amsterdam, the Netherlands, and Yusen Air & Sea Service
(Deutschland) GmbH., which maintains a 5,000 m2 facility at Frankfurt International Airport, and Yusen Air & Sea Service (Benelux)
B.V., which moved to a new 4,900 m2 facility at the Amsterdam Schiphol Airport in January 2006, provide integral gateway capacity for
the pickup and delivery network in this region.
Recent growth in the Czech automobile industry and subsequent foreign investment in plants to make automotive parts have
encouraged the YAS Group to accelerate the development of operations in central and eastern Europe. Specifically, we will be
focusing on additional services in Poland, where client needs are high. Also, in July 2006, Yusen Air & Sea Service (Europe) B.V.
launched its customer-oriented serviced in Russia with the opening of a representative office in Moscow.
Two key gateways used to strengthen presence in central and eastern Europe, boost profile in Russia
Europe Focus
Los Angeles
Dallas
Houston
CALIFORNIA
TEXAS
MEXICO
El Paso
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San Antonio●
McAllen●
Saltillo Monterrey●
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Vienna
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A vital component of services, regardless of route, is in secur-
ing gateways, such as airports and seaports, as bases for the
packaging, collection and delivery of air and ocean freight.
Therefore, a common aim at operations in all regions is to
enhance gateway capabilities and post-gateway logistics services
within respective regions as well as between them.
Toward this end, in fiscal 2005 we enhanced gateway func-
tions in key cities within the four overseas regions: in Los Angeles
and Chicago, for the Americas; in Frankfurt and Amsterdam, for
Europe; in Hong Kong and Shanghai, for East Asia; and in Sing-
apore, for South Asia/Oceania.
We aim to expand the volume of freight transported between
the United States and Europe—an interregional route with a
lower share of business than routes between the Asian regions
and Europe or the United States—and between the Asian regions
themselves.
From both medium- and long-term perspectives, we expect
logistics services for air freight to be in high demand, especially
in Asia. To capitalize on this growth potential, we will direct con-
certed efforts toward raising the volume of third-country trading—
that is, the transportation of cargo from one overseas country to
another with the initial request placed in a third country—with
an emphasis on services between Europe and Asia, excluding
Japan, and the United States and Asia, excluding Japan.
Activities in Growth MarketsDuring fiscal 2005, YAS reinforced its office network in areas
where it already has a presence, such as the PRC, which contin-
ues to exhibit remarkable growth. The Company also ventured
into new markets with the establishment of representative
offices in New Delhi, India, and Dubai, the United Arab Emirates,
The Americas
San Antonio sales office opened; New Jersey operation center
warehouse expanded.
Europe
Representative offices opened in Barcelona and Vienna; repre-
sentative office in Lyon raised to branch status; new facility
established at Amsterdam’s Schiphol Airport to improve gate-
way services and facilitate intraregional logistics services.
East Asia
On the PRC coast, offices raised to branch status in Dalian,
Qingdao, Xiamen and Guangzhou.
In the inland provinces of the PRC, a second office was
opened, at Chongqing, to complement the Xian office.
In the southern part of the PRC, a forwarding company was
established in Guangzhou through the Mainland & Hong Kong
Closer Economic Partnership Agreement; a logistics and ware-
housing company was set up in Shenzhen.
Logistics centers were set up in Taoyuan, Taiwan, and
Yangsan, South Korea.
South Asia/Oceania
Representative offices opened in New Delhi and Dubai.
Japan
Logistics centers near the New Tokyo International Airport at
Narita and at the Central Japan International Airport, near
Nagoya, went into full operation; Shiga sales office opened
under the Kyoto branch; West Japan Logistics Center expanded
at Kansai International Airport.
Network Development in Fiscal 2005
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Vietnam Plant Thai Plant
Indonesia Plant
Singapore
Support ScenarioLocal sales Local sales
Local sales
Product/ProductionPart B Production
Product/ProductionPart C Production
Part A
Control Control
Control
Product /ProductionPart A Production
YAS Singapore
Import and export activities undertaken by YAS’ local subsidiaries
Part B
Part B
Part C
Part C
Part A
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East Asia FocusBoosting gateway capacity on PRC coast and expanding network inlandIn the PRC, we have almost completed our network of points along the coast with gateway capacity. Here, we have three subsidiaries,
in Beijing, Shanghai and Hong Kong, and branches and sales offices in 19 cities, including Dalian, Qingdao, Xiamen and Guangzhou.
Our next goal is to expand the volume of freight handled to meet demand for transportation services from the PRC to other countries as
well as demand for such services as cargo tracing for clients with inland production facilities. To support this effort, three inland
offices have been established, in Xian, Chongqing and Wuhan.
South Asia and Oceania FocusSupporting clients’ logistics systems within ASEAN sphereProgress in free trade agreements as well as promotion of the ASEAN Free Trade Agreement have encouraged client companies,
particularly major Japanese-affiliated manufacturers of electrical machinery, automobiles and motorcycles, to ramp up parts
procurement and reciprocal logistics in ASEAN with Singapore as a control base.
Through close communication with regional representative offices and subsidiaries, especially YAS Singapore, we offer direct and
indirect support on procurement logistics and export of products to consumer destinations around the world.
Beijing
Shanghai
Xiamen
Hong Kong
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Xian
Qingdao
ChongqingWuhan
●Tianjin
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Wuxi
●Zhuhai●Shantou
●Fuzhou
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Dongguan
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Hangzhou
●Suzhou
Shenzhen
Guangzhou
Dalian●
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anticipating that India and the UAE will become growth market
hubs in South Asia and the Middle East, respectively.
Just recently, in July 2006, we entered a new market when
we opened a representative office in Moscow, our first in Russia.
Client-oriented transportation services do not necessarily
require extensive facilities or a large workforce, so YAS is able to
take a flexible and timely approach to network expansion. We
can establish new locations in markets when and where we see a
need for our expertise.
Full Range of ServicesToday’s international logistics services must present a full range
of forwarding possibilities. Indeed, we see a growing need for
diverse logistics-related outsourcing, including cargo storage and
inventory management, among client companies seeking to boost
profitability and management efficiency. In response, we offer
logistics services with indispensable features: value-added ware-
housing and support for supply chain management.
Deeper Synergy with NYK GroupYAS and NYK, its parent company, work to extend the synergistic
relationship that exists between the two companies in the devel-
opment of strategic measures to improve logistics services. YAS’
operations are characterized by a relatively nonasset-style
formula—wherein the Company leases fixed assets, such as
warehouse space—so the relationship with NYK presents
tremendous merit because YAS can utilize the warehouses and
transportation systems that NYK maintains in the inland provinces
of the PRC and in Russia, Eastern Europe and India as well as in
areas where YAS itself has already established a solid presence.
Alliance with Yamato LogisticsOn May 10, 2006, YAS resolved to form a basic agreement
with Yamato Logistics Co., Ltd., a subsidiary of Yamato
Holdings Co., Ltd., and a top provider of logistics services, pri-
marily in Japan. On the same day, a strategic agreement
between our parent companies—NYK and Yamato Holdings—
was signed.
Yamato Logistics specializes in business-to-business distri-
bution services, with a focus on small parcel delivery, including
express courier and mail services, and forwarding.
The new business alliance grants the YAS Group access to
the extensive domestic network and delivery service know-how
of Yamato Logistics and opens the door to a potential new
activity in business-to-consumer distribution services. In return,
Yamato Logistics gains the right to use the overseas network
maintained by the YAS Group.
Further discussions will take place to finalize details on co-
loading of air freight, and plans are in the works to establish a
joint venture before the end of 2006.
Higher Transportation Service Quality andEnhanced Safety and Security StructureTo improve the quality of transportation services, in fiscal 2005
YAS reinforced unit load device (ULD; see page 13) services at its
facilities to ensure quick and efficient ground handling operations.
Japan FocusSophisticated logistics solutions enhance productivity at client companiesYAS complements its logistics capabilities at major international airports in Japan with three facilities: the Narita Logistics Center,
adjacent to the New Tokyo International Airport at Narita; the Chubu Logistics Center at Centrair—the international airport near Nagoya
that serves the Chubu, or central, region of Japan; and the West Japan Logistics Center at the Kansai International Airport.
The Narita and Chubu logistics centers are the largest multifunction warehouses in the industry. They are equipped with leading-
edge warehouse management systems as well as all possible tools and technologies to withstand earthquakes and successfully
address environment- and security-related issues.
The Narita Logistics Center merits special mention for its Class 1000 cleanroom, allowing for the inspection of precision instruments.
In the scenario above, YAS was asked by a foreign precision equipment maker to create and maintain parts banks in four separate districts of Japan—Kyushu, in the south, Chugoku, in the southwest, Kansai, in the west, and Tohoku, in the northeast. Service parts for that maker’s equipment were then supplied to plants from each parts bank through a system accessible 24 hours a day, 365 days a year. Parts could be delivered in as little as 30 minutes from order placement.
Narita Logistics Center
Delivery to region Delivery to region
Delivery to region
Parts bank Parts bank
Parts bank
Call Service Call Service
Call Service
parts parts
parts
Plant Plant
Plant
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The Company also emphasized direct transfer from aircraft at the
unloading site to its own facilities.
To underpin cargo safety and security measures, we installed
an Explosive Trace Detection System at the Narita Logistics
Center, Chubu Logistics Center and a facility at the Kansai
International Airport. This was a first for the domestic industry.
The Company also worked tirelessly to elevate warehouse
security measures to the qualifications set by the Technology
Asset Protection Association (TAPA). Aggressive efforts resulted
in six more locations achieving Class ‘A’ status, which brought
the total number of certified locations to 14, in five countries.
Another commendable development came in September 2005
with ISO 9001-2000 certification for all the branches of Yusen Air
& Sea Service (Korea) Co., Ltd.
To further support efforts aimed at realizing higher quality in
transportation services throughout the Group, in April 2006 YAS
established a dedicated unit—the Operation Administration
Department—at the Head Office.
*Unit Load Devices (ULDs) bundle big quantities of cargo—luggage andfreight—into large units on pallets and in containers to facilitate loading onto wide-body aircraft. This cuts down on the number of units to load, whichminimizes the time and effort expended by ground crews and helps minimizeflight delays caused when cargo takes too long to load.
Efficient Management PracticesAugmenting transportation capacity and reducing unit purchase
price through an effective cargo space procurement policy is
basic to the Group’s operations. Air freight charges are influ-
enced by various factors affecting supply and demand, including
season, airline, type of cargo or commodity, route and the way
cargo is combined for consolidation. We strive to control unit
prices by creating the right mix of factors. In addition, the Group
is characterized by its relatively nonasset-style operations, and
YAS therefore maintains a higher consolidated operating income
ratio than its domestic rivals.
With an eye to the future, YAS is working on systems featur-
ing state-of-the-art information technology that will underpin new
business growth. We will restructure our basic operating system
to facilitate solutions tailored to client needs, with a view to cre-
ating a comprehensive management system that integrates the
operating system with financial and accounting systems.
We also plan to link our operating system to the advanced
domestic logistics system used by the Yamato Holdings Group
and establish our own highly cost-effective system for domestic
and international operations.
*TAPA: Technology Asset Protection AssociationA nonprofit association of security professionals and security managers at high-tech companies established to enforce measures to prevent theft by interna-tional crime syndicates and other threats to security. The association ranks applicants into one of three levels: Class A (the highest), B and C.
YAS Group TAPA* Class ‘A’ Certification (As of March 31, 2006)
Japan Narita Logistics Center
United States Branches in Boston, Detroit, Houston, Seattle, Dallas, Los Angeles, Atlanta and Chicago
Singapore Singapore Changi Airport office of Yusen Air & Sea Service (Singapore) Pte. Ltd. and its headquarters
Malaysia Branches at Kuala Lumpur International Airport and Penang International Airport
Philippines Second warehouse in Manila
14
Board of Directors and Officers (As of June 29, 2006)
President
Directors, Senior ManagingExecutive Officers
Masatoshi Moriya
Shunichi Yano*
Bumpei Hashizume*
Directors, Managing ExecutiveOfficers
Masaki TanakaIsao Takano Yukio Umemoto
Director,Board of Counselor
Michio Tanaka
Directors, Executive Officers
Director
Tomohiro Iida Takashi Hirano Yuji Hirano
Tsuguo YamadaShu IchikawaMasayoshi OnoKazutoshi Uno
Executive Officers
Taizo Taguchi Shizuo KikuyamaTakao TakanoMasahiro OmoriMasaaki SuemuneHiroshi Harada
*Representative Director
Corporate Auditors(As of June 29, 2006)
Consolidated Six-Year Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management’s Discussion and Analysis. . . . . . . . . . . . . . . . . . . . . . . . 17
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . 27
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Section
15
16
Millions of yen
2006 2005 2004 2003 2002 2001
Results of OperationsNet sales ¥ 168,454 ¥ 148,263 ¥ 118,465 ¥ 110,996 ¥ 91,517 ¥ 102,632 Cost of sales 127,321 109,255 85,132 78,763 64,129 72,363 Gross profit 41,133 39,008 33,333 32,233 27,388 30,269 Selling, general and administrative expenses 30,698 28,600 26,111 24,841 25,117 25,370 Operating income 10,435 10,408 7,222 7,392 2,271 4,899 Income before income taxes 11,197 10,828 6,323 7,199 2,762 3,199 Net income 7,006 6,797 3,738 4,632 1,346 1,920
Sales by Geographic RegionJapan 86,517 84,249 68,648 65,692 52,962 68,031 North America 16,813 12,470 10,510 11,712 11,526 10,872 Europe 15,674 15,261 12,085 10,687 8,869 7,319 East Asia 34,192 24,262 16,694 15,827 14,673 12,549 South Asia and Oceania 17,786 14,131 12,213 7,844 4,291 5,147 Intersegment sales/transfers 2,528 2,110 1,685 766 804 1,286 Net sales 168,454 148,263 118,465 110,996 91,517 102,632
Consolidated to nonconsolidated ratio (times) 2.16 1.93 1.91 1.87 1.96 1.73
Financial PositionCurrent assets 54,883 46,171 40,734 38,895 32,815 35,409 Current liabilities 31,243 26,978 25,247 28,125 22,862 27,666 Shareholders’ equity 44,138 35,894 29,488 27,137 23,607 20,966 Total assets 85,613 75,485 66,332 64,780 57,967 58,865 Cash flows from operating activities 6,755 8,371 3,997 3,762 2,932 3,972 Free cash flows 4,859 3,235 1,824 677 435 1,204
Per Share Data (yen)Net income—primary 327.48 317.17 208.38 259.34 76.52 109.16 Net income—fully diluted — — — — — —Dividends 30.00 30.00 15.00 15.00 10.00 10.00 Shareholders’ equity 2,090.18 1,698.40 1,673.78 1,539.33 1,342.08 1,191.80
Key Ratios (%)Gross profit to net sales 24.4 26.3 28.1 29.0 29.9 29.5 Operating income to net sales 6.2 7.0 6.1 6.6 2.5 4.8 Cost of sales to net sales 75.6 73.7 71.9 71.0 70.1 70.5 Selling, general and administrative
expenses to net sales 18.2 19.3 22.0 22.4 27.4 24.7Net income to net sales 4.2 4.6 3.2 4.2 1.5 1.9 Return on equity 17.5 20.8 13.2 18.3 6.0 9.3 Return on assets 8.7 9.6 5.7 7.5 2.3 3.4 Asset turnover (times) 2.1 2.1 1.8 1.8 1.6 1.8 Equity ratio 51.6 47.6 44.4 41.9 40.7 35.6
Other Year-End DataNumber of shares outstanding 21,065,508 21,067,412 17,573,300 17,583,360 17,590,000 17,591,900
Consolidated Six-Year SummaryYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries for the Years Ended March 31
17
Management’s Discussion and Analysis
semiconductors, automotive parts, mobile phones and other digitalproducts from Europe and Asia, excluding Japan. Customs clearanceservices for imported freight hit 3.3 million contracts in 2005, a3.1% increase over 2004.
Against this positive backdrop, however, clients of the YusenAir & Sea Service Group (hereafter referred to in the terms “the YASGroup” and “the Group”) executed inventory adjustments on suchproducts as semiconductors and electronic components in the firsthalf of the fiscal year, which led to a decrease in YAS’ volume ofexport air freight to other areas of Asia and an unavoidable declinein profits in the Group’s mainstay market of Japan. However, a con-siderable expansion in air cargo services overseas generated hugelypositive results that more than offset poor domestic results and pro-pelled consolidated sales and profits to record highs for anotherstraight year.
Net Sales, Expenses and Profitability
Consolidated net sales climbed 13.6%, to ¥168,454 million ($1,434million). The improvement reflects favorable freight forwarding num-bers on cargo headed for the PRC and other destinations abroad,increased client sales, paralleling higher fuel surcharges, and theeffect of a low yen on higher sales linked to the two preceding fac-tors, which translated into a larger contribution from overseas oper-ations in terms of yen.
Unfortunately, high oil prices and the rising cost of transporta-tion caused cost of sales to climb 16.5%, to ¥127,321 million($1,083 million). While exchange rates buoyed gross profit 5.4%, to¥41,133 million ($350 million), the gross profit margin slipped 1.9percentage points, to 24.4%.
Selling, general and administrative expenses grew 7.3%, to¥30,698 million ($261 million), and represented 18.2% of net sales,down 1.1 percentage point. As a result, operating income onlyedged up 0.3%, to ¥10,435 million ($88 million), leading to a 0.8
The scope of consolidation for this review of fiscal 2005, endedMarch 31, 2006, covers Yusen Air & Sea Service Co., Ltd. (hereafterinferred in the terms “YAS” and “the Company”), and 33 consolidatedsubsidiaries, including Yusen Air & Sea Service (U.S.A.) Inc., YusenAir & Sea Service (Deutschland) GmbH., Yusen Air & Sea Service(H.K.) Ltd., and Yusen Air & Sea Service (Singapore) Pte. Ltd.
In fiscal 2005, Yusen Air & Sea Service (Vietnam) Co., Ltd., wasadded to the scope of consolidation, while Yusen Air & Seas ServiceHoldings, Inc., was removed, owing to its liquidation and final set-tlement of its accounts, as of August 1, 2005.
Overview
In fiscal 2005, steady consumer spending in Europe and the UnitedStates prompted manufacturers marketing to these regions to boostproduction output at production facilities in Asia, particularly in thePeople’s Republic of China (PRC). The global air cargo industry bene-fited from this situation, as expanded output triggered a majorincrease in requests for the distribution of components, especiallythose used in automotive and digital home-electronics applications.The industry also encountered greater movement of finished prod-ucts from Asia, including Japan, to Europe and the United States.
In Japan, the air cargo industry also enjoyed a favorable operat-ing environment, substantiated by the fact that the aggregateweight of export air freight surpassed 1.3 million tons for the secondyear in a row. This positive business climate was supported by thriv-ing demand for services, most notably to deliver components tomanufacturing operations in other areas of Asia—a trend thatappeared in the second half of calendar 2005. The industry wasgiven a further boost by greater interest in using air routes to trans-port automotive parts and steady movement of goods, primarilysemiconductors and digital appliances, by air to destinations outsideJapan.
Import activity was also brisk, with a particular emphasis on
(Billions of yen) (%)
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Net Sales, Gross Profit Margin,
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SGA Ratio Net Income
Cost of Sales, Cost of Sales Ratio
Selling, General and Administration Expenses,
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Net Income, Net Income per Share
Cost of Sales Ratio Net Income per Share
18
percentage point drop in the operating income ratio, to 6.2%. Netother income (expenses) reached ¥762 million ($6 million) on higherexchange gains.
Net income grew 3.1%, to ¥7,006 million ($59 million), and netincome per share improved 3.3%, to ¥327.48 ($2.78). Return onequity fell, from 20.8% to 17.5%.
Sales Breakdown by Business Segment(Figures include intersegment transactions)
Cargo Freight Business (Air and Sea Cargo)In October 2004, ports on the U.S. West Coast became severely con-gested, igniting an explosion in demand to transport cargo by air. Nosuch burst of demand appeared in fiscal 2005. However, demand forinternational cargo transportation services was again brisk, and theGroup endeavored to capitalize on the situation. Efforts wererewarded with a 13.2% increase in total sales, to ¥163,395 million($1,390 million). Operating income inched up 0.2%, to ¥9,654 million($82 million).
Travel ServicesGreater overseas facilities investment by the manufacturing sectorspurred corporate demand for international business travel andunderscored a 30.8% surge in total sales, to ¥4,959 million ($42 mil-lion). But expenses, such as sales commissions, were up, erodingoperating income just slightly—0.5%—to ¥618 million ($5 million),for a year-on-year par, more or less in this segment.
OtherTotal sales jumped 25.2%, to ¥915 million ($7 million), largelybecause of an increase in the number of people dispatched from ourtemporary staff employment agency. In-house training costs rose,paralleling expanded assignment of personnel, which caused oper-ating income to dip 0.3%, to ¥155 million ($1 million).
Sales Breakdown by Geographical Region (Figures include intersegment transactions)
JapanTotal sales grew 2.7%, to ¥86,517 million ($736 million), while oper-ating income dropped 15.5%, to ¥5,589 million ($47 million).
In the air and sea freight forwarding business, inventory adjust-ments on digital appliance components came full circle and forward-ing of components from Japan to other areas of Asia picked up inthe second half of the fiscal year. Demand for automotive compo-nent forwarding services was brisk throughout the fiscal year, mir-roring expanded production of automobiles in locations around theworld. The volume of semiconductor-related components and digitalappliances, such as thin-screen televisions, rebounded in the secondhalf of the fiscal year.
Consequently, the volume of export air freight was the secondhighest on record, settling in behind the top result posted in fiscal2004 when congestion at ports on the U.S. West Coast caused asudden burst of demand for air freight. On the flip side, import airfreight, particularly automobiles, foodstuffs, medical equipment andelectronic components, continued to increase, just like overseasfreight forwarding transactions.
Consolidated subsidiaries in Japan also posted good results,contributing nicely to the overall total.
For details on the Group’s travel services, please look underSales Breakdown by Business Segment on page 18.
Operating income fell in fiscal 2005, owing to intense competi-tion and a heavier cost burden, precipitated by a steep rise in oilprices, which drove up transportation costs, as well as by amplifieddepreciation and amortization.
North AmericaTotal sales jumped 34.8%, to ¥16,813 million ($143 million), andoperating income soared 49.1%, to ¥1,050 million ($8 million). This
Total Sales
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(Billions of yen) (Billions of yen) (Billions of yen)
Total Sales and Operating Income
Total Sales and Operating Income
Total Sales and Operating Income
Total Sales and Operating Income
Japan North America Europe East Asia
Operating IncomeTotal Sales Operating IncomeTotal Sales Operating IncomeTotal Sales Operating Income
19
achievement reflects a dramatic expansion in business overall butmore specifically stems from a huge increase in the volume of air-freighted export of foodstuffs, semiconductors and aviation-relatedcomponents, as well as greater import of automotive components byair and sea routes and a boost in freight forwarding requests forsuch products as automobiles and electronic components betweenthe United States and Mexico.
For reference, the exchange rate used to calculate the figuresabove was ¥118.07 to the U.S. dollar, compared with ¥104.21, as atfiscal year end.
EuropeResults from European operations hovered near fiscal 2004 levels,with total sales rising 2.7%, to ¥15,674 million ($133 million) andoperating income slipping 2.8%, to ¥1,203 million ($10 million).
The volume of export air freight, which dropped in the first halfof fiscal 2005, showed indications of recovery in the second half,supported in particular by shipments of automotive components,medical equipment and optical equipment destined for NorthAmerica and Japan. On the import side, the Group benefited fromdemand for digital appliances and flat-screen television air freightingservices. Rounding out the situation in Europe was favorable demandfor automotive- and food-related export ocean freight forwardingservices.
For reference, the exchange rate used to calculate the figuresabove was ¥139.83 to the euro, compared with ¥141.61, as at fiscalyear end.
East AsiaThe Group welcomed a dramatic improvement in results from EastAsia, as total sales climbed 40.9%, to ¥34,192 million ($291 million)and operating income skyrocketed 60.7%, to ¥1,702 million ($14million).
The volume of export air freight grew, especially on transactionsin the PRC and Taiwan, with notable increases in shipments of auto-motive products as well as personal computers and peripheral prod-ucts through Hong Kong. The volume of import air freight, handledby a South Korean subsidiary, was also good with a focus on semi-conductors and related components.
South Asia and OceaniaTotal sales reached ¥17,786 million ($151 million), up 25.9%, whileoperating income hit ¥898 million ($7 million), up 13.7%. Theseresults parallel a considerable expansion in the volume of export airfreight, with an emphasis on digital equipment and electronic andautomotive components, as well as higher volumes of import airfreight, primarily household appliances, such as flat-screen televisions,and electronic and automotive components brought in over sea routes.
Financial Position
At March 31, 2006, total assets amounted to ¥85,613 million ($728million), up 13.4% from the previous fiscal year, while total liabili-ties stood at ¥40,389 million ($343 million), up 3.8%.
Current assets grew 18.9%, to ¥54,883 million ($467 million),largely owing to increases in cash and time deposits and tradenotes receivable. Noncurrent assets rose 4.8%, to ¥30,730 million($261 million), comprising ¥22,438 million in property, plant andequipment, up ¥3.5%; intangible assets of ¥1,163 million, down8.8%; and investments and advances of ¥7,129 million, up 12.0%.
Current liabilities rose 15.8%, to ¥31,243 million ($265 million),chiefly because of an increase in trade notes and accounts pay-able. The current ratio (ratio of current assets to current liabilities)improved 4.5%, to 175.7%.
Total shareholders’ equity expanded 23.0%, to ¥44,138 million($375 million), owing to higher retained earnings. The equity ratiogained 4.0 percentage points, to 51.6%.
Return on Equity Return on Assets Equity Ratio(%)
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Total Sales and Operating Income
South Asia and Oceania
20
Cash Flows
Cash and cash equivalents at March 31, 2006, stood at ¥15,161 mil-lion ($129 million), up 32.5% from a year earlier, as solid businessresults buoyed net cash provided by operating activities, which inturn covered the application of funds to purchase property, plant andequipment and to repay long-term debt.
Net cash provided by operating activities fell 19.3% year-on-year,to ¥6,755 million ($57 million). This decrease is largely representedby ¥653 million less under increase in trade notes and accountsreceivable and a ¥286 million increase in income taxes paid.
Net cash used in investing activities tumbled 63.1%, to ¥1,896million ($16 million). This considerable reduction stems from a¥3,508 million decline in spending to purchase property, plant andequipment, such as the construction of distribution facilities.
Net cash used in financing activities grew 34.3%, to ¥1,741 mil-lion ($14 million). This rather significant change is reflected in a¥1,923 million decrease in the net reduction of short-term borrow-ings, a ¥1,800 million decrease in proceeds acquired through long-term debt, and an increase of ¥393 million to pay dividends.
Shareholder Return Policy (Nonconsolidated Basis)
YAS recognizes the return of profits to shareholders as one of its toppriorities. The Company’s basic policy is to offer a stable dividendwithin the limits set by business results and further enrich thereturn of profits to shareholders while accurately gauging corporategrowth and the eventual need for funds to finance future expansionof the Group’s business activities.
Guided by this policy, the Company doubled the year-end divi-dend to ¥20.0, from the anticipated ¥10.0 announced on May 12,2005. With the interim dividend of ¥10.0 already distributed, thehigher year-end dividend brought annual dividends for fiscal 2005 to¥30.0 per share for shareholders of record, as of March 31, 2006.
Risk Information
1. General Business TrendsThe business climate that prevails in a specific country or regionwhere companies have set up operations and business trends inEurope and the United States—markets with the capacity to alterthe status of the world economy—can influence demand for interna-tional air transportation services. Indeed, air freight forwarding serv-ices are used predominantly for products and components aimed atconsumers, such as digital appliances for the home and items featur-ing information technology. Business trends in the importing coun-tries could have an impact on demand for these services.
The YAS Group seeks to build an operating structure that facili-tates stable growth and is therefore working to boost transactionsfor products, such as medical equipment and pharmaceutical- andautomotive-related items, which are relatively less susceptible tothe changing tides of business.
2. Fluctuating Fuel PricesTypically, the fuel surcharge charged by airline companies in linewith short-term fluctuations in fuel prices is a fee that clients arerequired to pay on top of air freight. Consequently, a surcharge inand of itself should have no great impact on the operating results orthe financial standing of the Group. However, the Group’s profitabil-ity could be impaired if the response to a continued skyward ascentof fuel costs causes air freight itself to increase, or if conditions pre-cipitate a sudden rise in the fuel surcharge.
3. Risks Inherent in Global Business ExpansionThe Group’s business activities extend beyond Japan to other areasof Asia, as well as Oceania, the Middle East, Europe and theAmericas. Roughly half of the Group’s sales activities are conductedoutside of Japan. Possible risks that could emerge as the Groupworks to expand its presence globally are presented below.
i. Fallout from political and economic disruption.ii. Problems related to official rules and regulations, including busi-
ness and investment permits, taxation, foreign exchange control,trade regulations and travel regulations.
iii. Issues stemming from natural disasters, such as earthquakes,tsunami, typhoons and hurricanes.
iv. Social unrest prompted by such events as war, riots, terrorism,strikes, civil strife and international disputes.
v. Globally pervasive economic disruption caused by sudden fluctu-ations in exchange rates.
vi. The spread of highly contagious diseases demonstrating a highdeath rate, such as Severe Acute Respiratory Syndrome, morecommonly known as the SARS virus, and bird flu. Each additional investments abroad is carefully considered. The
Company carefully looks into local political and economic conditionsas well as the culture, customs and public heath situation and
Free Cash Flows*
*Net cash provided by operating activities + net cash used in investing activities
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10
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Net Cash Provided by Operating Activities Net Cash Used in Investing Activities Free Cash Flows
21
strives to eliminate as effectively as possible whatever risks mayexist at the time before making the investment.
However, unexpected events do occur and the state of theworld does change in ways not always correctly anticipated. Suchdevelopments, which include greater sophistication in informationand communications technology, increasingly borderless economicand cultural environments, the frequency of terrorist activities andthe spread of new infectious diseases, could impact the businessresults and financial standing of the Group.
4. Computer Viruses, Hackers and Cyber-TerrorismYAS has established a backup system for its computer lines. TheCompany is also working to enhance backup capabilities to minimizedamage to hardware and data in the event of natural disasters, suchas earthquakes or severe storms with flooding.
The Company has taken all possible measures to prevent unauth-orized access to its systems from outside and to block infection ofits systems by computer viruses. Specifically, the Company hasinstalled firewalls and virus-checking software into its mail serversand all terminals.
Despite these defensive measures, it is possible that unfore-seen situations, such as the use of technology that breaches pre-sumed security protocols and allows a hacker to gain entry to in-house information systems, could lead to a temporary shutdown ofsystem functions or facilitate unauthorized disclosure of informa-tion. Such a situation could hurt the business results and financialstanding of the Group.
5. Claims for Damages and Tarnished Credibility Due to Leaksof Client InformationThe YAS Group handles a vast amount of client information. TheGroup also undertakes customs clearance services. Therefore, theGroup has an obligation to protect client information and strives toprevent information from leaking outside. Despite existing precau-tions, it is possible that unforeseen circumstance could result in aninformation leak. The Group’s business results could be adverselyaffected if, for example, such a leak were to lead to claims for dam-ages or if the situation tarnished the Group’s reputation.
6. Fluctuating Exchange RatesThe YAS Group endeavors to minimize the impact of fluctuatingexchange rates on foreign-currency-denominated receivables andpayables by utilizing hedging transactions, such as forwardexchange contracts and currency swaps, and therefore eliminatessuch risk that would exert a major impact on the Group’s business.However, in preparing the Group’s consolidated financial state-ments, the Company translates the financial results of overseas con-solidated subsidiaries into yen, and fluctuating exchange rates couldhave an effect on the business results and financial standing of theGroup, based on such consolidated financial statements.
7. Statutory RegulationsYAS is licensed by the Ministry of Land, Infrastructure and Transportas a provider of type 2 freight forwarding services, based on Article20 of the Freight Forwarding Business Law, and conducts air andsea cargo transportation operations—the primary business of theYAS Group.
This license has no expiration date, but if, as set forth in Article33 of the Freight Forwarding Business Law, an event causes opera-tions to be suspended or eliminated, the Company’s business will bepartially or completely suspended for a set period and permission toengage in those areas of business will be withdrawn.
To date, the YAS Group has never encountered such an event,but situations, including the withdrawal of permission to conductbusiness, may occur in the future for any number of reasons, andcould have a sizable impact on the fiscal performance and financialstanding of the Group.
In addition, different parts of the world apply different statutoryregulations that Group companies must obey. Major rules and regu-lations include social issues, such as maintaining safety, and legalissues related to transportation services.
In Japan, YAS has obtained approval and required licenses,including the aforementioned permission to provide type 2 freightforwarding services, from the relevant authorities. If statutory regu-lations pertaining to such approval and licenses are amended or ifapproval and licensing status currently held is cancelled, the fiscalperformance and financial standing of the Group could be adverselyaffected.
Approval and licenses currently held by YAS are listed below.
Requirements for Approval and Licensing Designation Issuing Authority Approval and Licensing ValidityType 2 freight forwarding services Ministry of Land, Infrastructure and Transport Business license Open
Air service agency business Ministry of Land, Infrastructure and Transport Application to operate Openas a business
General cargo truck transportation services Ministry of Land, Infrastructure and Transport Business license Open
Customs brokerage services Regional customs and duty office Business license Open
Warehousing services Regional transportation bureau Business registration Open
Medical equipment manufacturing business Prefectural offices Business license Sept. 26, 2005 to Sep. 25, 2010
22
Thousands ofU.S. dollars
Millions of yen (Note 3)
2006 2005 2006
ASSETSCurrent Assets:
Cash and time deposits (Note 11) ¥15,164 ¥11,450 $129,091Trade notes and accounts receivable 36,209 32,028 308,239Deferred tax assets—current (Note 8) 829 824 7,056Other current assets 2,871 2,137 24,445Less: Allowance for doubtful accounts (190) (268) (1,619)
Total current assets 54,883 46,171 467,212
Investments and Advances:Investments in securities (Notes 4, 6) 1,048 813 8,920Investments in unconsolidated subsidiaries and affiliates 977 849 8,318Deferred tax assets—non-current (Note 8) 2,161 2,097 18,398Other investments and advances 2,943 2,609 25,049
Total investments and advances 7,129 6,368 60,685
Property, Plant and Equipment:Buildings and structures (Note 6) 18,859 17,368 160,532Furniture and fixtures 3,339 2,883 28,422Machinery, equipment and vehicles 986 911 8,395
23,184 21,162 197,349Less: Accumulated depreciation (8,518) (7,125) (72,508)
14,666 14,037 124,841Land (Note 6) 7,763 7,621 66,089Construction in progress 9 13 77
Total property, plant and equipment 22,438 21,671 191,007
Intangible Assets 1,163 1,275 9,905
Total Assets ¥85,613 ¥75,485 $728,809
The accompanying notes are an integral part of the statements.
Consolidated Balance SheetsYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries, March 31, 2006 and 2005
23
Thousands ofU.S. dollars
Millions of yen (Note 3)
2006 2005 2006
LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:
Short-term bank loans ¥00,279 ¥00,956 $002,377Current portion of long-term debt (Note 6) 3,685 1,329 31,366Trade notes and accounts payable 18,370 16,379 156,377Accrued income taxes 2,733 2,421 23,267Accrued bonus to employees 1,418 1,453 12,068Deferred tax liabilities—current (Note 8) 2 3 15Other current liabilities 4,756 4,437 40,489
Total current liabilities 31,243 26,978 265,959
Long-Term Liabilities:Long-term debt (Note 6) 3,887 6,614 33,092Accrued retirement benefits to:
Employees (Note 7) 4,306 4,341 36,652Directors and statutory auditors 241 299 2,053
4,547 4,640 38,705Deferred tax liabilities—non-current (Note 8) 374 366 3,184Excess of underlying equity in net assets of consolidated subsidiaries over investment cost 95 140 806
Other long-term liabilities 243 181 2,072Total long-term liabilities 9,146 11,941 77,859
Minority Interests in Consolidated Subsidiaries 1,086 672 9,249
Commitments and Contingent Liabilities (Note 9)
Shareholders’ Equity:Common stock, no par value;
Authorized: 80,000,000 shares at March 31, 2006 and 2005Issued: 21,110,400 shares at March 31, 2006 and 2005 4,301 4,301 36,614
Additional paid-in capital 4,744 4,744 40,385Retained earnings (Note 13) 34,409 28,202 292,921Unrealized gain on securities 232 97 1,970Adjustments on foreign currency statement translation 570 (1,342) 4,856Less: Treasury stock, at cost
March 31, 2006 — 44,892 shares (118) — (1,004)March 31, 2005 — 42,988 shares — (108) —
Total shareholders’ equity 44,138 35,894 375,742Total Liabilities and Shareholders’ Equity ¥85,613 ¥75,485 $728,809
U.S. dollarsYen (Note 3)
Shareholders’ equity per share (Note 15) ¥2,090.18 ¥1,698.40 $17.793
The accompanying notes are an integral part of the statements.
24
Thousands ofU.S. dollars
Millions of yen (Note 3)
2006 2005 2006
Net Sales ¥168,454 ¥148,263 $1,434,014
Cost of Sales 127,321 109,255 1,083,858Gross profit 41,133 39,008 350,156
Selling, General and Administrative Expenses (Note 10) 30,698 28,600 261,326Operating income 10,435 10,408 88,830
Other Income (Expenses):Interest and dividend income 173 109 1,474Interest expense (154) (188) (1,311)Loss on write-down of investments in securities — (1) —Loss on liquidation of investments in securities (3) — (19)Foreign currency exchange gain, net 454 255 3,866Equity in earnings of unconsolidated subsidiaries and affiliates 101 97 864Gains on bad debt recovered 1 — 6Loss on early repayment of long-term debt — (80) —Others, net 190 228 1,605
762 420 6,485Income before income taxes 11,197 10,828 95,315
Income Taxes (Note 8):Current 4,060 4,194 34,565Deferred (159) (342) (1,366)
3,901 3,852 33,1997,296 6,976 62,116
Minority Interests in Net Income of Consolidated Subsidiaries (290) (179) (2,472)
Net income ¥007,006 ¥006,797 $0,059,644
U.S. dollarsYen (Note 3)
Per Share:Net income—primary (Note 15) ¥327.48 ¥317.17 $2.788Net income—fully diluted (Note 15) — — —Dividends 30.00 30.00 0.255
The accompanying notes are an integral part of the statements.
Consolidated Statements of IncomeYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries for the Years Ended March 31, 2006 and 2005
25
Millions of yen
AdjustmentsNumber of on foreignshares of Additional Unrealized currency
common stock Common paid-in Retained gain (loss) statement Treasury(thousands) stock capital earnings on securities translation stock
Balance as at March 31, 2004 17,592 ¥4,301 ¥4,744 ¥21,769 ¥129 ¥(1,419) ¥ (36)Increase in the number of shares by stock spilt 3,518 — — — — — —Net income for the year ended March 31, 2005 — — — 6,797 — — —Cash dividends — — — (290) — — —Directors’ and statutory auditors’ bonus — — — (74) — — —Unrealized loss on securities — — — — (32) — —Change in foreign currency translation adjustments — — — — — 77 —Purchase of treasury stock — — — — — — (72)
Balance as at March 31, 2005 21,110 4,301 4,744 28,202 97 (1,342) (108)Net income for the year ended March 31, 2006 — — — 7,006 — — —Cash dividends — — — (685) — — —Directors’ and statutory auditors’ bonus — — — (113) — — —Consolidation of unconsolidated subsidiaries — — — (1) — — —Unrealized gain on securities — — — — 135 — —Change in foreign currency translation adjustments — — — — — 1,912 —Purchase of treasury stock — — — — — — (10)
Balance as at March 31, 2006 21,110 ¥4,301 ¥4,744 ¥34,409 ¥232 ¥(0,570 ¥(118)
Thousands of U.S. dollars (Note 3)
AdjustmentsNumber of on foreignshares of Additional Unrealized currency
common stock Common paid-in Retained gain (loss) statement Treasury(thousands) stock capital earnings on securities translation stock
Balance as at March 31, 2005 21,110 $36,614 $40,385 $240,077 $0,827 $(11,428) $ (920)Net income for the year ended March 31, 2006 — — — 59,644 — — —Cash dividends — — — (5,829) — — —Directors’ and statutory auditors’ bonus — — — (959) — — —Consolidation of unconsolidated subsidiaries — — — (12) — — —Unrealized gain on securities — — — — 1,143 — —Change in foreign currency translation adjustments — — — — — 16,284 —Purchase of treasury stock — — — — — — (84)
Balance as at March 31, 2006 21,110 $36,614 $40,385 $292,921 $1,970 $(04,856 $(1,004)
The accompanying notes are an integral part of the statements.
Consolidated Statements of Shareholders’ EquityYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries for the Years Ended March 31, 2006 and 2005
26
Thousands ofU.S. dollars
Millions of yen (Note 3)
2006 2005 2006
Cash Flows from Operating Activities:Income before income taxes ¥11,197 ¥10,828 $095,315Depreciation and amortization 1,889 1,360 16,081Amortization of difference between investment costs and equityin net assets of consolidated subsidiaries (45) (45) (386)
Reversal for accrued retirement benefits to employees (61) (78) (521)Interest and dividend income (173) (109) (1,474)Interest expense 154 188 1,311Equity in earnings of unconsolidated subsidiaries and affiliates (101) (97) (864)Increase in trade notes and accounts receivable (2,256) (2,474) (19,203)Increase in trade notes and accounts payable 857 1,510 7,299Gain on sale of investments in securities (0) (15) (2)Loss on liquidation of investments in securities 3 — 19Loss on write-down of investments in securities — 1 —Loss on write-down of golf club membership 11 18 93Reversal of allowance for doubtful accounts (125) (12) (1,067)Other, net (869) 825 (7,379)
10,481 11,900 89,222Interest and dividend received 226 166 1,924Interest paid (162) (191) (1,377)Income taxes paid (3,790) (3,504) (32,264)
Net cash provided by operating activities 6,755 8,371 57,505
Cash Flows from Investing Activities:Purchase of property, plant and equipment (1,891) (5,399) (16,094)Proceeds from sale of property, plant and equipment 26 21 222Purchase of investments in securities (15) (62) (132)Proceeds from sale of investments in securities 1 109 6Proceeds from liquidation of investments in securities 3 — 29Purchase of shares of consolidated subsidiaries — (37) —Lending of loans (27) (48) (233)Collection of loans 30 93 254Other, net (23) 187 (196)
Net cash used in investing activities (1,896) (5,136) (16,144)
Cash Flows from Financing Activities:Short-term bank loans, net (752) (2,675) (6,402)Borrowing of long-term debt 1,000 2,800 8,513Repayment of long-term debt (1,398) (1,057) (11,899)Contributions from minority shareholders 55 — 470Cash dividends paid (683) (290) (5,813)Cash dividends paid to minority shareholders (13) (10) (110)Other, net 50 (65) 418
Net cash used in financing activities (1,741) (1,297) (14,823)
Effect of exchange rate changes on cash and cash equivalents 567 98 4,828Increase in cash and cash equivalents 3,685 2,036 31,366Cash and cash equivalents at beginning of year 11,446 9,384 97,440Consolidation of unconsolidated subsidiaries 30 26 259Cash and cash equivalents at end of year (Note 11) ¥15,161 ¥11,446 $129,065
The accompanying notes are an integral part of the statements.
Consolidated Statements of Cash FlowsYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries for the Years Ended March 31, 2006 and 2005
27
Basis of Presenting Consolidated Financial Statements
(1) Accounting Principles and Presentation
The accompanying consolidated financial statements have been preparedbased on the accounts maintained by Yusen Air & Sea Service Co., Ltd.(the “Company”), and its consolidated subsidiaries in accordance with theprovisions set forth in the Japanese Commercial Code (the “Code”) and
the Securities and Exchange Law, and in conformity with accounting prin-ciples generally accepted in Japan, which are different in certain respectsfrom the application and disclosure requirements of InternationalFinancial Reporting Standards.
Certain items presented in the consolidated financial statements sub-mitted to the Director of Kanto Finance Bureau in Japan have been reclas-sified in these accounts for the convenience of readers outside Japan.
(2) Scope of Consolidation
The Company had 42 subsidiaries as at March 31, 2006 (43 at March 31, 2005). The consolidated financial statements include the accounts of theCompany and 33 of its subsidiaries as at March 31, 2006 (33 at March 31, 2005). The 33 consolidated subsidiaries are listed below:
( *1) as of March 31, 2006( *2) owned 100.00% by Yusen Air & Sea Service
(Europe) B.V. ( *3) owned 80.00% by the Company, 20.00% by
Yusen Air & Sea Service (Singapore) Pte. Ltd. ( *4) owned 60.01% by the Company, 39.99% by
Yusen Air & Sea Service (H.K.) Ltd.( *5) owned 100.00% by Yusen Air & Sea Service
(H.K.) Ltd.( *6) owned 10.50% by the Company, 49.50% by
Yusen Air & Sea Service (Singapore) Pte. Ltd.( *7) owned 49.00% by Yusen Air & Sea Service
(Singapore) Pte. Ltd.( *8) owned 51.00% by Yusen Air & Sea Service
Management (Thailand) Co., Ltd., 49.00% byYusen Air & Sea Service (Singapore) Pte. Ltd.
( *9) owned 50.00% by Yusen Air & Sea Service (H.K.) Ltd.
(*10) owned 75.00% by Yusen Air & Sea Service(Singapore) Pte. Ltd.
(*11) owned 99.17% by Yusen Travel Co., Ltd.
The Company and these consolidated subsidiaries are together referred to as "the Companies" hereinafter.Combined total assets, net sales, net income and retained earnings of the remaining 9 (10 for 2005) subsidiaries, are not significant in relation to
those of the consolidated financial statements of the Companies for the year ended March 31, 2006.
Equity ownershipConsolidated subsidiaries percentage (*1) Capital stock (*1)
Yusen Air & Sea Service (U.S.A.) Inc. 100.00% US$14,000 thousand
Yusen Air & Sea Service (H.K.) Ltd. 100.00 HK$55,000 thousand
Yusen Air & Sea Service (Singapore) Pte. Ltd. 100.00 S$16,700 thousand
Yusen Air & Sea Service (Europe) B.V. 100.00 €18,518 thousand
Yusen Air & Sea Service (Benelux) B.V. 100.00 (*2) €700 thousand
Yusen Air & Sea Service (Deutschland) GmbH. 100.00 (*2) €4,000 thousand
Yusen Air & Sea Service (U.K.) Ltd. 100.00 (*2) £1,050 thousand
Yusen Air & Sea Service (Australia) Pty. Ltd. 100.00 (*3) A$1,500 thousand
Yusen Air & Sea Service (Canada) Inc. 100.00 C$5,000 thousand
Yusen Air & Sea Service (France) S.a.r.l. 100.00 (*2) €4,700 thousand
Yusen Air & Sea Service (Taiwan) Ltd. 100.00 (*4) NT$22,505 thousand
Yusen Air & Sea Service (Italia) S.r.l. 100.00 (*2) €774 thousand
Yusen Air & Sea Service (China) Ltd. 100.00 (*5) HK$11,000 thousand
PT. Yusen & Sea Service Indonesia 60.00 (*6) US$177 thousand
Yusen Air & Sea Service Management (Thailand) Co., Ltd. 49.00 (*7) THB10 million
Yusen Air & Sea Service (Thailand) Co., Ltd. 100.00 (*8) THB100 million
Yusen Shenda Air & Sea Service (Shanghai) Ltd. 50.00 (*9) RMB16,457 thousand
Yusen Air & Sea Service (Beijing) Co., Ltd. 75.00 (*10) RMB8,277 thousand
Yusen Air & Sea Service (Korea) Co., Ltd. 100.00 KRW2,000 million
Yusen Air & Sea Service (Vietnam) Co., Ltd. 49.00 (*7) US$600 thousand
Yusen Air Logistics (Hamamatsu) Co., Ltd. 100.00 ¥20 million
Yusen Air & Sea Service Keihin Trans Co., Ltd. 90.00 ¥36 million
Yusen Air & Sea Service (Kitakanto) Co., Ltd. 75.00 ¥50 million
Yusen Air & Sea Service (Tsukuba) Co., Ltd. 65.00 ¥50 million
Yusen Travel Co., Ltd. 100.00 ¥270 million
Yusen Air & Sea Service (Shinshu) Co., Ltd. 80.00 ¥50 million
Yusen Air & Sea Service (Tohoku) Co., Ltd. 80.00 ¥30 million
Yusen Air Logistics (Nagoya) Co., Ltd. 100.00 ¥20 million
Ryowa Diamond Air Service Co., Ltd. 99.17 (*11) ¥50 million
Yusen Air & Sea Service (Kyushu) Co., Ltd. 100.00 ¥30 million
Yusen Air & Sea Service (Hokuriku) Co., Ltd. 100.00 ¥20 million
Yusen Air & Sea Service (Chugoku) Co., Ltd. 80.00 ¥30 million
Yusen Air Staff Service Co., Ltd. 100.00 ¥20 million
1.
Notes to Consolidated Financial StatementsYusen Air & Sea Service Co., Ltd., and Its Consolidated Subsidiaries
28
subsidiaries and three (three for 2005) affiliates, and investments in three(three for 2005) unconsolidated subsidiaries and one (one for 2005) affili-ate are accounted for by the equity method whereby the costs of invest-ments are adjusted for subsequent movement of equity in undistributedearnings of the subsidiaries and affiliate.
Investments in the remaining unconsolidated subsidiaries and affiliates are stated at cost.
(5) Revaluation of Assets and Liabilities of Subsidiaries
The Company adopts the “full fair value method” that full portion of theassets and liabilities of the subsidiaries is marked to fair value as of theacquisition of the control for new consolidated subsidiaries.
(3) Consolidation and Elimination
For the purposes of preparing the consolidated financial statements, allsignificant intercompany transactions, account balances and unrealizedprofits among the Companies have been eliminated, and the portionthereof attributable to minority interests is charged to minority interests.Any difference between the cost of an investment in a subsidiary and theamount of underlying equity in net assets of the subsidiary at the time ofacquisition is in principle deferred and amortized over a five-year periodon a straight-line basis.
(4) Investments in Unconsolidated Subsidiaries and Affiliates
At March 31, 2006, the Company had nine (10 for 2005) unconsolidated
Summary of Significant Accounting Policies
(1) Financial Instruments
(a) Investments in securities and investments in unconsolidated subsid-iaries and affiliates
Investments of the Company in equity securities issued by uncon-solidated subsidiaries and affiliates are accounted for by the equitymethod. Exceptionally, investments in certain unconsolidated sub-sidiaries and affiliates are stated at cost, which is determined by mov-ing-average method, because the effect of application of the equity method would be immaterial.
Other securities for which market quotations are available arestated at fair value. Net unrealized gain or loss on these securities isreported as a separate item in shareholders’ equity by a net-of-taxamount.
Other securities for which market quotations are unavailable arestated at cost, which is determined by the moving-average method,except as stated in the paragraph below.
Where the fair value of equity securities issued by unconsolidatedsubsidiaries and affiliates or other securities has declined significantly and such impairment of the value is not deemed temporary,those securities are written down to the fair value and the resultinglosses are included in net profit or loss for the period.
(b) DerivativesAll derivatives are stated at fair value, with changes in fair valueincluded in net profit or loss for the period in which they arise, exceptfor derivatives that are designated as “hedging instruments.” (see (c)below)
(c) Hedge accountingThe derivatives designated as hedging instruments by the Companiesare interest rate swaps. The related hedged items are interest onlong-term bank loans.
The interest rate swaps that meet the conditions for applyinghedge accounting are not measured at fair value. Net cash flow fromthese interest rate swap contracts are reflected to adjust the intereston the hedged asset or liability, rather than deferring changes in fairvalue of those contracts.
The Companies do not anticipate incurring significant losses fromthe derivative arrangements due to the event of nonperformance bythe counterparties.
(2) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation for property,plant and equipment held by the Company and domestic consolidatedsubsidiaries is computed on the declining-balance method. Depreciationof the tangible fixed assets held by overseas consolidated subsidiaries isgenerally based on the straight-line method. Useful lives of assets aregenerally within the following range:
Buildings and structures 3–60 yearsFurniture and fixtures 2–20 yearsMachinery, equipment and vehicles 4–6 years
Exceptionally, buildings and structures at Toyooka distribution center,Iwata distribution center and Yusen Air Fukumoto Building are depreciatedon the straight-line method.
Normal repairs and maintenance, including minor renewals andimprovements, are charged to income as incurred.
(3) Intangible Assets
Amortization of intangible assets is computed using the straight-linemethod. Useful lives of assets are generally within the following range:
Software for internal use 5 years
(4) Allowance for Doubtful Accounts
The Company and its domestic consolidated subsidiaries provide for theallowance for doubtful accounts based on the aggregated amount of estimated credit losses for doubtful receivables plus an amount forreceivables other than doubtful receivables calculated using historicalwrite-off experience over a certain period.
Overseas consolidated subsidiaries provide mainly for the amount of uncollectible receivables estimated on an individual basis.
(5) Accrued Bonus to Employees
Employees are paid a bonus in June of every year. The bonus includesamounts for services rendered during the previous fiscal year which arerecorded as accrued bonus on the balance sheet as of the respective fiscal year-end.
2.
29
(12) Net Income and Dividends per Share
“Shareholders’ equity per share” is computed based on the outstandingshares of common stock at relevant balance sheet dates.
“Net income per share primary” is computed based on the weighted-average number of shares of common stock outstanding during each year.
“Net income per share fully diluted” for the years ended March 31,2006 and 2005, is not shown in the consolidated statements of incomesince there were no outstanding convertible bonds or other common stockequivalents.
“Cash dividends per share” shown for each year represent dividendsdeclared as applicable to the respective year rather than those paid ineach year.
(13) Appropriation of Retained Earnings
Under the Japanese Commercial Code and the Articles of Incorporation ofthe Company, the plan for appropriation of retained earnings (primarily forcash dividend payments) proposed by the board of directors should beapproved at the shareholders’ meeting which must be held within threemonths after the end of each fiscal year. The appropriation of retainedearnings reflected in the accompanying consolidated financial statementsrepresents the results of such appropriations applicable to the immedi-ately preceding financial year which was approved by the shareholders’meeting and disposed of during that year. Dividends are paid to share-holders on the shareholders’ register at the end of each financial year. Asis customary practice in Japan, the payment of bonuses to directors andstatutory auditors is made out of retained earnings instead of beingcharged to income of the year as part of the appropriations. The JapaneseCommercial Code also provides that an amount equals to at least 10% ofcash distributions from retained earnings should be appropriated as legalreserve until the amount of additional paid-in capital and legal reserveequals 25% of common stock. The legal reserve may be used to reduce adeficit or may be transferred to common stock through resolutions byshareholders and/or directors, and may be transferred to unappropriatedretained earnings to the extent that the amount of additional paid-in capital and legal reserve does not fall below 25% of common stock.Legal reserve is included in “Retained earnings” in the accompanyingconsolidated financial statements.
(14) Treasury Stock
Under the amended Code, the Company is allowed to acquire its ownshares to the extent that the aggregate cost of treasury stock does notexceed the maximum amount available for dividends. Treasury stock isstated at cost in the shareholders’ equity of the accompanying consolidat-ed balance sheet. Net gains on resale of treasury stock are presentedunder “Additional paid-in capital” in the shareholders’ equity of theaccompanying consolidated balance sheet.
(15) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flowsare composed of cash on hand, demand deposits in banks and short-terminvestments with original maturity of three months or less that representa minor risk of fluctuation in value.
(6) Accrued Retirement Benefits
The Company, its domestic consolidated subsidiaries and certain over-seas consolidated subsidiaries have funded pension plans to cover theemployees’ retirement benefits. The amount of such retirement benefitsis determined by reference to the latest rate of pay, length of service andconditions under which the retirements occur. Past service obligations arecharged to income as incurred. Unrecognized actuarial differences areamortized on a straight-line basis over the period of 10 years from the following year in which they arise.
The Company and its two consolidated subsidiaries provide for lump-sum retirement payments for directors and statutory auditors by amountsthat would be required pursuant to the internal regulation if they retiredat the balance sheet dates.
(7) Foreign Currency Translation
All monetary assets and liabilities denominated in foreign currencies,whether long-term or short-term, are translated into Japanese yen at theexchange rates prevailing at the balance sheet date. Resulting gains andlosses are included in net profit or loss for the period.
(8) Translation of Foreign Currency Financial Statements
(Accounts of Overseas Subsidiaries and Affiliates)
Foreign currency financial statements of overseas consolidated sub-sidiaries, and overseas subsidiaries and affiliates accounted for by theequity method are translated into Japanese yen at current exchange ratesprevailing at the relevant balance sheet dates of these subsidiaries and affiliates, except that shareholders’ equity is translated at historical rates.
The net balance is recorded as “Adjustments on foreign currencystatement translation” in the shareholders’ equity of the consolidated balance sheet.
(9) Income Taxes
Income taxes of the Company and its domestic subsidiaries consist of corporate income tax, local inhabitants tax and enterprise tax.
The Company and its subsidiaries adopted deferred tax accounting torecognize deferred tax assets and liabilities for the expected future taxconsequences of temporary differences between the carrying amountsand the tax bases of assets and liabilities.
(10) Accounting for the Consumption Tax
In Japan, consumption tax is imposed at a flat rate of 5% on all domesticconsumption of goods and services (with certain exemptions). The con-sumption tax imposed on the Companies’ domestic sales to customers is withheld by the Companies at the time of sale and is paid tothe national government subsequently. The consumption tax withheldupon sale and the consumption tax paid by the Companies on the pur-chases of goods and services are not included in the related amounts in the accompanying consolidated statements of income.
(11) Accounting for Leases
Finance leases other than those that are deemed to transfer the owner-ship of the leased assets to lessees are accounted for by the method thatis applicable to ordinary operating leases.
30
Investments in Securities
Detailed information about the investments in securities classified as “other securities” at March 31, 2006 and 2005, follows:
(1) Other securities for which market quotations are available:Millions of yen Thousands of U.S. dollars
2006 2005 2006Fair value Fair value Fair value
Cost (Carrying amount) Difference Cost (Carrying amount) Difference Cost (Carrying amount) Difference
Securities for which market value exceeds cost:Equity securities ¥232 ¥638 ¥406 ¥205 ¥394 ¥189 $1,975 $5,430 $3,455Debt securities
Government bonds — — — — — — — — —Corporate bonds — — — — — — — — —
Other — — — — — — — — —¥232 ¥638 ¥406 ¥205 ¥394 ¥189 $1,975 $5,430 $3,455
Securities for which market value does not exceed cost:Equity securities ¥016 ¥014 ¥ (2) ¥038 ¥035 ¥ (3) $0,135 $0,120 $ (15)Debt securities
Government bonds — — — — — — — — —Corporate bonds — — — — — — — — —
Other — — — — — — — — —¥016 ¥014 ¥ (2) ¥038 ¥035 ¥ (3) $0,135 $0,120 $ (15)
Total ¥248 ¥652 ¥404 ¥243 ¥429 ¥186 $2,110 $5,550 $3,440
(2) Other securities for which market quotations are not available:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Other securitiesUnlisted equity securities ¥396 ¥384 $3,370
¥396 ¥384 $3,370
(3) Proceeds from sale of other securities and total amounts of gain and loss on sale of other securities:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Proceeds from sale of other securities ¥1 ¥109 $6Total amount of gain on sale of other securities 0 21 2Total amount of loss on sale of other securities — 6 —
4.
Financial Derivative Transactions
(1) Transactions, Policy and Purpose of Derivative Transactions
The Companies use derivative financial instruments, which comprise prin-cipally interest rate swap transactions and foreign currency exchange
forward contract to reduce the risk of fluctuation of interest rate and foreign currency exchange rate.
The Companies do not hold or issue derivative financial instrumentsfor trading purposes.
United States Dollar Amounts
The accompanying consolidated financial statements are prepared inJapanese yen. The U.S. dollar amounts included in the consolidatedfinancial statements and notes thereto represent the arithmetical results
of translating Japanese yen to U.S. dollars on a basis of ¥117.47=U.S.$1,the approximate effective rate of exchange prevailing at March 31, 2006.The inclusion of such U.S. dollar amounts is solely for convenience and isnot intended to imply that yen amounts have been or could be readilyconverted, realized or settled in U.S. dollars at the rate or any other rate.
3.
5.
31
(2) Risk Associated with Derivative Transactions
Derivative transactions have market risk associated with market pricevolatility and credit risk related to the possibility of a counterparty’sdefault.
The Companies do not anticipate incurring significant losses on thesederivative arrangements due to nonperformance by the counterparties.
(3) Risk Management
The Companies have established control regulations which include policiesand procedures for the approval and reporting of transactions involvingderivative financial instruments.
All derivative transactions are reported and are approved by the chieffinancial officer.
Material derivative transactions are reported to and are approved byboard of directors in accordance with internal rules.
(4) Derivative Contracts Outstanding
The following table summarizes market value information as of March 31,2006 and 2005, of outstanding derivative transactions for which hedgeaccounting has not been applied. The exchange rate used for translationof forward foreign currency exchange transactions is the forwardexchange rate prevailing at the end of the fiscal year.
Thousands of U.S. dollarsMillions of yen (Note 3)
2006 2005 2006Contracts Unrealized Contracts Unrealized Contracts Unrealized
outstanding gain (loss) outstanding gain (loss) outstanding gain (loss)Currency-related forward foreign currency exchange contracts:
Sell U.S. dollar ¥0,231 ¥ (3) ¥ — ¥ — $01,962 $ (29)Sell euro 131 (1) — — 1,117 (9)Buy U.S. dollar 390 (0) 268 (1) 3,323 (3)Buy Swiss franc 34 (0) — — 286 (2)Buy Singaporean dollar 4 0 7 (0) 36 0Buy Japanese yen 96 0 315 (7) 819 2Buy pounds sterling 57 (0) 53 (0) 484 (1)Buy Hong Kong dollar 254 (3) 431 (4) 2,165 (27)Buy Thai baht 211 (3) 124 (4) 1,797 (26)Buy euro 71 0 146 1 596 7Buy Swedish kronor 9 0 16 (0) 79 0
Currency swap transactions:Receive Thai baht, pay Singaporean dollar 316 (3) — — 2,685 (27)
¥1,804 ¥(13) ¥1,360 ¥(15) $15,349 $(115)
Long-Term Debt
Long-term debt as at March 31, 2006 and 2005, comprised the following:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Loans from banks and other financial institutions due in 2006 through 2010 ¥7,572 ¥7,943 $64,458Less: Portion due within one year (3,685) (1,329) (31,366)
¥3,887 6,614 $33,092
As is customary in Japan, short-term and long-term bank loans are made under general agreements which provide that security and guarantees forfuture and present indebtedness will be given upon request of the bank, and that the bank shall have the right, as the obligations become due, or in theevent of their default, to offset cash deposits against such obligations due to the bank.
At March 31, 2006 and 2005, assets pledged as collateral for short-term bank loans and long-term debt, including the current portion of long-termdebt, were as follows:
6.
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Investments in securities ¥176 ¥ — $1,496Buildings and structures — 702 —Land — 1,889 —
¥176 ¥2,591 $1,496
32
Retirement Benefit Plans
The Company, its domestic consolidated subsidiaries and certain over-seas consolidated subsidiaries have funded pension programs to coverthe employees’ retirement benefits. The amount of such retirement benefitsis determined by reference to the latest rate of pay, length of service andconditions under which the retirements occur.
The following table sets forth a reconciliation of projected benefitobligations, plan assets, funded status of the retirement benefit plansand net liability recognized in the accompanying consolidated balancesheets at March 31, 2006 and 2005:
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Projected benefit obligations ¥(9,732) ¥(9,271) $(82,846)Plan assets 5,539 4,295 47,154Funded status of the plans (4,193) (4,976) (35,692)Unrecognized net actuarial loss 470 1,020 4,001Net liability recognized (3,723) (3,956) (31,691)Prepaid pension expenses 583 385 4,961Accrued retirement benefits to employees ¥(4,306) ¥(4,341) $(36,652)
The net periodic employee retirement benefit cost for the years endedMarch 31, 2006 and 2005, comprised the following components:
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Service cost ¥586 ¥560 $4,994Interest cost 229 210 1,945Expected return on plan assets (164) (141) (1,398)Amortization of unrecognized actuarial differences 145 147 1,239
Past service cost (26) 128 (222)¥770 ¥904 $6,558
The discount rate used to determine the actuarial present value of pro-jected benefit obligations under the plan that covers employees of theCompany and the domestic subsidiaries was 2.0% as of March 31, 2006(2.0% as of March 31, 2005). The rate of expected return on plan assetswas 3.0% as of March 31, 2006 (3.0% as of March 31, 2005). Attributionof retirement benefit to each year of service of the employees is basedon “benefit/years-of-service” approach, whereby the same amount ofthe benefit is attributed to each year. Past service obligations arecharged to income as incurred. Unrecognized actuarial differences areamortized on a straight-line basis over a period of 10 years from the fol-lowing year in which they arise.
Income Taxes
Significant components of deferred tax assets and liabilities are as follows: Thousands of
Millions of yen U.S. dollars
2006 2005 2006Deferred tax assets:
Accrued retirement benefits to employees ¥1,552 ¥1,424 $13,211Accrued bonuses to employees 606 650 5,161Accrued enterprise tax 168 143 1,434Accrued retirement benefits to directorsand statutory auditors 97 121 829
Allowance for doubtful accounts 148 160 1,261Deficit brought forward — 146 —Loss on write-down of investmentin consolidated subsidiaries 208 208 1,769
Loss from impairment of fixed assets 364 364 3,103Others 448 409 3,803
Total 3,591 3,625 30,571Valuation allowance (205) (473) (1,741)
Total deferred tax assets ¥3,386 ¥3,152 $28,830
Deferred tax liabilities:Depreciation 166 160 1,414Special tax-purpose reserve 3 3 29Prepaid pension expenses 235 155 2,005Elimination of loss on write-down of investment in consolidated subsidiaries 208 208 1,769
Others 160 74 1,358Total deferred tax liabilities 772 600 6,575
Net deferred tax assets ¥2,614 ¥2,552 $22,255
The reconciliation of the difference between the statutory income taxrate and the effective income tax rate is as follows:
2006 2005Statutory income tax rate 40.4% 40.4%Adjustments;
Entertainment expenses and othernondeductible permanent differences 0.7 0.7
Dividends income not taxable (0.1) (0.1)Per capita levy of local inhabitants tax 0.5 0.5Differences in statutory income tax rates
between Japan and other countries (6.2) (3.8)Other (0.5) (2.1)
Effective income tax rate 34.8% 35.6%
Commitments and Contingent Liabilities
The Companies were contingently liable for guarantees of trade pay-ables and bank loans owed by their unconsolidated subsidiaries, affili-ates and a third-party company in an amount of ¥152 million ($1,293thousand) at March 31, 2006 (¥207 million at March 31, 2005).
8.
9.
7.
33
10.
11.
12.
Breakdown of Selling, General and Administrative Expenses
Selling, general and administrative expenses during the years endedMarch 31, 2006 and 2005, are summarized as follows:
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Labor and payroll cost ¥13,143 ¥12,236 $111,887Provision for accrued bonus to employees 1,171 1,272 9,968Provision for accrued retirement benefits to:
Employees 626 751 5,328Directors and statutory auditors 76 67 647
Provision for doubtful accounts 22 35 184Depreciation 989 798 8,416Other 14,671 13,441 124,896
¥30,698 ¥28,600 $261,326
Cash and Cash Equivalents
Cash and cash equivalents consists of the following:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Cash and time deposits ¥15,164 ¥11,450 $129,091Time deposits with deposit term ofover three months (3) (4) (26)
Cash and cash equivalents ¥15,161 ¥11,446 $129,065
Accounting for Leases
The Companies have various lease agreements whereby the Companiesact as lessees. Finance lease contracts other than those that are deemedto transfer the ownership of the leased assets to lessees are accountedfor by the method that is applicable to ordinary operating leases.
Certain key information on lease contracts of the Companies aslessees for the years ended March 31, 2006 and 2005, are as follows:
(1) Finance lease contracts other than those which are deemed to trans-
fer the ownership of the leased assets to lessees:
Acquisition cost, accumulated depreciation, net book value and deprecia-tion of the leased assets would have been presented in the consolidatedfinancial statements as shown below if those leased assets had beencapitalized. Acquisition costs include the portion of interest thereon anddepreciation is based on the straight-line method over the lease term ofthe leased assets with nil residual value.
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Furniture and fixtures:
Acquisition cost ¥54 ¥426 $459Accumulated depreciation (39) (369) (331)Net book value ¥15 ¥057 $128
Machinery and equipment, vehicles:Acquisition cost ¥62 ¥122 $533Accumulated depreciation (25) (73) (215)Net book value ¥37 ¥049 $318
Software:Acquisition cost ¥87 ¥175 $737Accumulated amortization (65) (131) (553)Net book value ¥22 ¥044 $184
Depreciation and amortization ¥71 ¥165 $608
The scheduled maturities of future lease payments:
Due within one year ¥34 ¥080 $293Due over one year 40 70 337
¥74 ¥150 $630
Lease expenses for the year ¥71 ¥165 $608
(2) Operating lease contracts:Thousands of
Millions of yen U.S. dollars
2006 2005 2006The scheduled maturities of future lease payments:
Due within one year ¥0,777 ¥0,751 $06,618Due over one year 3,836 3,976 32,652
¥4,613 ¥4,727 $39,270
Subsequent Events
(1) The Company made an appropriation of retained earnings, proposedby the board of directors and approved by shareholders at the generalmeeting on June 29, 2006, as follows:
Thousands ofMillions of yen U.S. dollars
Retained earnings at March 31, 2006 ¥4,456 $37,932Reversal of special tax-purpose reserve 5 43Appropriations:
Cash dividends (¥20.0 per share) 421 3,587Directors’ and statutory auditors’ bonus 62 528Transfer to reserves 2,500 21,281
Total 2,983 25,396Retained earnings to be carried forward ¥1,478 $12,579
Note: The appropriation of retained earnings above is based on the non-consolidated finan-cial statements of the Company for the year ended March 31, 2006.
13.
34
(2) On February 28, 2006, the Company’s board of directors approved a 2-for-1 stock split of the Company’s common stock effective April 1, 2006, toshareholders of record on March 31, 2006. The dividend right granted to the new shares commences on April 1, 2006.
Pro forma per share information as if the stock split was effective on April 1, 2005 and 2004, as of and for the years ended March 31, 2006 and2005, are as follows:
Segment Information
(1) Industry Segments
The Companies operate principally in the following three industry segments:
i) Air and sea cargoii) Traveliii) Other
The segment information of the Companies in respect of the years ended March 31, 2006 and 2005, classified by industry segments are presented below:
Millions of yenIndustry segment Elimination or
unallocatable ConsolidatedYear ended March 31, 2006 Air and sea cargo Travel Other Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers ¥163,395 ¥4,959 ¥0,100 ¥168,454 ¥ ,— ¥168,454Intersegment sales/transfers 0 0 815 815 (815) —
Total sales 163,395 4,959 915 169,269 (815) 168,454Operating expenses 153,741 4,341 760 158,842 (823) 158,019
Operating Income ¥009,654 ¥0,618 ¥0,155 ¥010,427 ¥0,008 ¥010,435
II. Assets, Depreciation and Capital Expenditures:Assets ¥073,450 ¥6,095 ¥4,991 ¥084,536 ¥1,077 ¥085,613Depreciation 1,720 70 99 1,889 — 1,889Capital expenditures 1,832 50 9 1,891 — 1,891
Millions of yenIndustry segment Elimination or
unallocatable ConsolidatedYear ended March 31, 2005 Air and sea cargo Travel Other Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers ¥144,381 ¥3,790 ¥0,092 ¥148,263 ¥ — ¥148,263Intersegment sales/transfers 1 0 639 640 (640) —
Total sales 144,382 3,790 731 148,903 (640) 148,263Operating expenses 134,747 3,169 575 138,491 (636) 137,855
Operating Income ¥009,635 ¥0,621 ¥0,156 ¥010,412 ¥ (4) ¥010,408
II. Assets, Depreciation and Capital Expenditures:Assets ¥064,675 ¥4,922 ¥5,021 ¥074,618 ¥0,867 ¥075,485Depreciation 1,200 76 84 1,360 — 1,360Capital expenditures 5,344 55 — 5,399 — 5,399
14.
Thousands ofMillions of yen U.S. dollars
2006 2005 2006Shareholders’ equity per share ¥1,045.09 ¥849.20 $8.90Net income per share primary 163.74 158.59 1.39
35
Thousands of U.S. dollarsIndustry segment Elimination or
unallocatable ConsolidatedYear ended March 31, 2006 Air and sea cargo Travel Other Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers $1,390,953 $42,213 $00,848 $1,434,014 $ — $1,434,014Intersegment sales/transfers 2 2 6,939 6,943 (6,943) —
Total sales 1,390,955 42,215 7,787 1,440,957 (6,943) 1,434,014Operating expenses 1,308,771 36,956 6,463 1,352,190 (7,006) 1,345,184
Operating Income $0,082,184 $05,259 $01,324 $0,088,767 $0,063 $0,088,830
II. Assets, Depreciation and Capital Expenditures:Assets $0,625,274 $51,883 $42,486 $0,719,643 $9,166 $0,728,809Depreciation 14,647 592 842 16,081 — 16,081Capital expenditures 15,593 422 79 16,094 — 16,094
Note: The amounts of the common assets included in the column "Elimination or Unallocatable Amounts" were ¥4,971 million ($42,321 thousand) and ¥4,143 million for the years ended March 31,2006 and 2005, respectively, which mainly consisted of surplus funds (cash and securities).
(2) Geographic Segments
The segment information of the Companies in respect of the year ended March 31, 2006 and 2005, classified by geographic segments are presented below:
Millions of yenGeographic segment Elimination or
North East South Asia unallocatable ConsolidatedYear ended March 31, 2006 Japan America Europe Asia and Oceania Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers ¥86,264 ¥15,785 ¥14,936 ¥33,915 ¥17,554 ¥168,454 ¥ — ¥168,454Intersegment sales/transfers 253 1,028 738 277 232 2,528 (2,528) —-
Total sales 86,517 16,813 15,674 34,192 17,786 170,982 (2,528) 168,454Operating expenses 80,928 15,763 14,471 32,490 16,888 160,540 (2,521) 158,019
Operating Income ¥05,589 ¥01,050 ¥01,203 ¥01,702 ¥00,898 ¥010,442 ¥ (7) ¥010,435
II. Assets ¥45,885 ¥08,334 ¥10,661 ¥14,108 ¥07,489 ¥086,477 ¥ (864) ¥085,613
Millions of yenGeographic segment Elimination or
North East South Asia unallocatable ConsolidatedYear ended March 31, 2005 Japan America Europe Asia and Oceania Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers ¥84,050 ¥11,612 ¥14,637 ¥24,028 ¥13,936 ¥148,263 ¥ — ¥148,263Intersegment sales/transfers 199 858 624 234 195 2,110 (2,110) —
Total sales 84,249 12,470 15,261 24,262 14,131 150,373 (2,110) 148,263Operating expenses 77,632 11,766 14,023 23,203 13,341 139,965 (2,110) 137,855
Operating Income ¥06,617 ¥00,704 ¥01,238 ¥01,059 ¥00,790 ¥010,408 ¥ 0 ¥010,408
II. Assets ¥42,507 ¥07,778 ¥10,131 ¥10,622 ¥06,436 ¥077,474 ¥(1,989) ¥075,485
36
Thousands of U.S. dollarsGeographic segment Elimination or
North East South Asia unallocatable ConsolidatedYear ended March 31, 2006 Japan America Europe Asia and Oceania Total amounts total
I. Net Sales and Operating Income:Net Sales:
Net sales to outside customers $734,345 $134,374 $127,149 $288,714 $149,432 $1,434,014 $ — $1,434,014Intersegment sales/transfers 2,155 8,752 6,279 2,356 1,975 21,517 (21,517) —
Total sales 736,500 143,126 133,428 291,070 151,407 1,455,531 (21,517) 1,434,014Operating expenses 688,921 134,191 123,185 276,585 143,761 1,366,643 (21,459) 1,345,184
Operating Income $047,579 $008,935 $010,243 $014,485 $007,646 $0,088,888 $ (58) $0,088,830
II. Assets $390,607 $070,946 $090,758 $120,100 $063,751 $0,736,162 $ (7,353) $0,728,809
Note: The amounts of the common assets included in the column "Elimination or Unallocatable Amounts" were ¥4,971 million ($42,321 thousand) and ¥4,143 million for the years ended March 31,2006 and 2005, respectively, which mainly consisted of surplus funds (cash and securities).
(3) Export and other sales to overseas
Net sales of the Companies to overseas for the years ended March 31, 2006 and 2005, are presented below:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Net sales in overseas countries:
North America ¥16,843 ¥12,544 $143,383Europe 15,738 15,331 133,974East Asia 34,122 24,241 290,472South Asia and Oceania 17,938 14,270 152,707Others 2 2 15
¥84,643 ¥66,388 $720,551
Percentage of such sales against consolidated net sales 50.2% 44.7%
Per Share Information
Per share information for the years ended March 31, 2006 and 2005, is summarized as follows:Millions of yen U.S. dollars
2006 2005 2006Shareholders’ equity per share ¥2,090.18 ¥1,698.40 $17.793Net income per share primary 327.48 317.17 2.788Net income per share fully diluted — — —
Per share information is computed based on the following:Thousands of
Millions of yen U.S. dollars
2006 2005 2006Net income ¥7,006 ¥6,797 $59,644Net income not subject to distribution to common shareholders (Directors’ and statutory auditors’ bonuses) (107) (113) (916)Net income subject to current and future distribution to common stock 6,899 6,684 58,728
Number of shares ofcommon stock
2006 2005Average number of shares for the period 21,066,523 21,074,566
15.
37
To the Board of Directors and Shareholders of Yusen Air & Sea Service Co., Ltd.
We have audited the accompanying consolidated balance sheets of Yusen Air & Sea Service Co., Ltd., and its consolidated subsidiaries as of March31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended, all expressed inJapanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesexamining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement pres-entation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position ofYusen Air & Sea Service Co., Ltd., and its consolidated subsidiaries as of March 31, 2006 and 2005, and the consolidated results of their operations andtheir cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of the reader, have been translated on the basis set forth inNote 3 to the accompanying consolidated financial statements.
Tokyo, JapanJune 29, 2006
Report of Independent Auditors
38
Basic Stance and Initiatives on Corporate Governance
YAS seeks to maintain its standing as a good corporate citizen with
the heartfelt trust of all stakeholders and their constant support.
Toward this end, the Company takes a high moral road in executing
its business activities—global logistics services—and strives to
uphold dependable and fair business practices, in compliance with
prevailing laws and within accepted social parameters.
In June 2005, we adopted an executive officer system under
which the Board of Directors focuses on expediting decisions relat-
ed to business strategies and management direction and executive
officers shoulder the responsibility for day-to-day operations. This
structure ensures swift resolutions to all management issues.
Directors and executive officers are obliged to provide reports to
the Board of Directors and the Board of Executive Officers, respec-
tively, for discussion and monitoring.
Corporate auditors check on the execution of duties by directors,
maintain contact with the internal auditing department, assess
through reports and other materials from accounting auditors the
due diligence of directors to their assigned duties, and ensure con-
sistent, good-quality corporate governance practices.
Management Structure
Directors and Auditors
The Board of Directors consists of 10 directors, one of whom is
from outside the Company. The Board of Executive Officers has 14
members, eight of whom are also directors of the Company, as of
June 29, 2006. The Board of Auditors consists of four corporate
auditors, two of whom are from outside the Company.
At the beginning of each fiscal year, the corporate auditors
question the accounting auditor about the auditing plan and receive
reports describing the results of audits at the interim and year-end.
Corporate auditors are also present during actual audits by the
accounting auditor and will confirm the methods used in the audits.
The CSR internal auditing office, which is responsible for inter-
nal audits, will acquaint corporate auditors with its auditing plans
and will present regular reports to this Board on its findings.
Directors’ remuneration for fiscal 2005 were as follows:
Remuneration paid to internal directors ¥218 million
Remuneration paid to external directors ¥ 5 million
Total ¥223 million
Support from External Director and External Auditors
The external director (auditors) brings an outside perspective to the
Company’s business and helps to ensure objectivity and neutrality in
decision-making processes by the Board of Directors. To maximize
the function that is expected of the external director (auditors), dis-
cussion topics and a report agenda will be presented to the external
director (auditors) in advance of Board of Executive Officers’ and
Board of Directors’ meetings, and a time for opinions will be set
aside in each meeting.
Corporate Governance
General Shareholders Meeting
10 directors, one of whom is an external director(Make business decisions) Four auditors, two of whom are external auditors
14 executive officers (Execute operations) (Internal auditing department)
Board of Corporate Auditors Accounting Auditor
Board of Directors
Representative Directors
CSR Internal Audit officeBoard of Executive Officers
Personal Information Protection Committees
Compliance Committees
Head Office (departments and offices)
Branch Structure (Sales Division, departments, branches)
Audits
Appointment, dismissal Appointment, dismissal Appointment, dismissal
Establish, dissolve
Reports Direction, supervisionInstructions Reports Instructions Reports
Reports
Audits
Audits
Audits
CooperationReports
Opinion exchange
Appointment, non-reappointment, request for dismissal
Reports
Appointment, dismissal, supervision
Appointment, dismissal
Reports Direction, supervision
Instructions
(As of June 29, 2006)
Instructions
39
System for Execution of Duties
YAS has established a system to ensure the appropriate and effec-
tive execution of duties by directors, in keeping with decision-making
rules and the duties and powers granted to directors as set forth in
Rules for the Board of Directors and in accordance with guidelines
for broaching topics for discussion at a Board of Directors’ meeting.
Directors meet regularly once a month to resolve important mat-
ters of a business nature and matters dictated by law and the
Articles of Incorporation, and when necessary, directors will hold
unscheduled meetings at any time.
Important matters that have an impact on the business of either
the Company or the Group or an overall impact on both organiza-
tions are discussed by the Board of Executive Officers, which meets
twice a month, in accordance with Rules for the Board of Executive
Officers. This timeframe ensures swift and efficient decision-making
by the Board of Directors.
Corporate auditors conduct audits on the execution of duties by
directors in accordance with Rules for the Board of Auditors and
established standards for audits by corporate auditors.
Internal Guidelines
The Company has prepared a Code of Conduct that describes the
ethical guidelines to which directors and all in the service of the
Company must adhere. Furthermore, the Company is working to
form an effective internal structure that encourages directors to set
the example for others to follow in respecting these guidelines and
that ensures full understanding of the code by all associated parties
whether inside or outside the Company.
Risk Management
Risk management, as it pertains to the execution of business activi-
ties at YAS, is twofold. For risks associated with operations, each
department determines an appropriate method to deal with the risks
inherent in respective operations. For major risks with the potential
to impact business or the entire company, a person of responsibility
will be swiftly designated to address the situation.
In addition, a person of responsibility in each department pro-
vides reports on the results of risk management efforts to the Board
of Directors and the Board of Executive Officers.
For status updates on the execution of business activities, a sys-
tem is in place whereby the internal auditing department undertakes
audits and reports its findings to the president.
Corporate social responsibility (CSR) is the cornerstone ofany business, and YAS is well aware that the right CSRactivities will underpin success in markets at home andabroad. Efforts hinge on the CSR internal auditing office.
CSR and Internal Audits
In September 2005, the internal auditing office at the Head Office
in Tokyo was given a wider mandate with the addition of CSR
duties. The office promotes the concept of CSR throughout the
Company and enhances related activities, including compliance,
emergency responses and environment and social contribution.
To ensure that a true sense of compliance permeates the cor-
porate atmosphere, the office was quick to distribute compliance
manuals to all employees upon its formation and followed this up
with required e-learning classes on CSR. The office is currently
conducting programs designed for different career levels, such as
directors, newly elected executives, department and branch man-
agers, and recently recruited staff.
To enhance the practical aspect of the Manual of Basic
Measures for Disaster Scenarios, a blueprint of responses pub-
lished in May 2005, we created implementation guidelines for
disaster responses by the Head Office, which describe concrete
actions, organizational roles and the instruction-giving chain of
command applied in times of disaster.
In addition, with disaster recovery in mind, the office recom-
mended disaster-prevention exercises at the Narita Logistics
Center and the Chubu Logistics Center. Drills were conducted at
these locations in fiscal 2005.
On the environmental front, YAS is involved in CO2 Diet Action,
a carbon dioxide reduction declaration initiated by Tokyo Electric
Power Co., Ltd., as a member of the NYK Group.
Corporate Social Responsibility
40
Principal Group Companies (As of July 1, 2006)
Americas
● Yusen Air & Sea Service (U.S.A.) Inc.*● Yusen Air & Sea Service (Canada) Inc.*● Yusen Air & Sea Service do Brasil Ltda.● Yusen Travel (U.S.A.) Inc.
Europe
■ Yusen Air & Sea Service (Europe) B.V.*● Yusen Air & Sea Service (Benelux) B.V.*● Yusen Air & Sea Service (Deutschland) GmbH.*● Yusen Air & Sea Service (U.K.) Ltd.*● Yusen Air & Sea Service (France) S.A.R.L.*● Yusen Air & Sea Service (Italia) S.R.L.*● Yusen Air & Sea Service (Czech) s.r.o.
East Asia
● Yusen Air & Sea Service (Hong Kong) Ltd.*● Yusen Air & Sea Service (China) Ltd.*● Yusen Air & Sea Service Logistics (Shanghai) Co., Ltd.● Yusen Shenda Air & Sea Service (Shanghai) Ltd.*● Yusen Air Logistics (Xiamen) Co., Ltd.● Yusen Air & Sea Service (Beijing) Co., Ltd.*● Yusen Air & Sea Service Logistics (Shenzhen) Ltd.● Yusen Air & Sea Service (Guangdong) Ltd. ● Yusen Air & Sea Service (Taiwan) Ltd.*● Yusen Air & Sea Service (Korea) Co., Ltd.*● Yusen Travel (Hong Kong) Ltd.
South Asia and Oceania
● Yusen Air & Sea Service (Singapore) Pte. Ltd.*● PT. Yusen Air & Sea Service Indonesia* ● Yusen Air & Sea Service (Australia) Pty. Ltd.*● Yusen Air & Sea Service (Philippines) Inc.**● Yusen Air & Sea Service (Thailand) Co., Ltd.■ Yusen Air & Sea Service Management (Thailand) Co., Ltd.*● Yusen Air & Sea Service (Vietnam) Co., Ltd.*● Trans Asia Shipping Corporation Bhd. (Tasco)● Yusen Travel (Singapore) Ltd.
Japan
● Yusen Air & Sea Service (Tohoku) Co., Ltd.*● Yusen Air & Sea Service (Kitakanto) Co., Ltd.*● Yusen Air & Sea Service (Tsukuba) Co., Ltd.*● Yusen Air & Sea Service (Shinshu) Co., Ltd.*● Yusen Air & Sea Service (Hokuriku) Co., Ltd.*● Yusen Air & Sea Service (Chugoku) Co., Ltd.*● Yusen Air & Sea Service (Kyushu) Co., Ltd.*● Yusen Air Logistics (Hamamatsu) Co., Ltd.*● Yusen Air Logistics (Nagoya) Co., Ltd.*● Yusen Air & Sea Service Keihin Trans Co., Ltd.*● Yusen Travel Co., Ltd.*● Ryowa Diamond Air Service Co., Ltd. *■ Yusen Air Loginet Co., Ltd.1
**Consolidated subsidiary
**Affiliate accounted under the equity method● Cargo freight business (air and sea cargo)● Travel business■ Other business
1. This company changed its name from Yusen Air Staff Service Co., Ltd., on June 20,2006.
42
Shareholders’ Information(As of March 31, 2006)
Head Office Yusen Hakozaki-cho Building,
30-1, Nihonbashi Hakozaki-cho, Chuo-ku,
Tokyo 103-0015, Japan
Phone: +81-3-3669-4381
Fax: +81-3-3669-8540
URL: http://www.yusen.co.jp/
Established February 28, 1955
Paid-in Capital ¥4,301 million
Common Shares Authorized: 80,000,000
Issued: 21,110,400Note: On April 1, 2006, the Company executed a two-for-one
stock split of its common stock. The Company now hasa total of 42,220,800 issued common shares.
Number of Shareholders 2,924
Number of Employees 1,049
Annual Meeting The annual meeting of shareholders is held in
June in Tokyo, Japan.
Independent Registered Public Accounting Firm
ChuoAoyama PricewaterhouseCoopers
32F, Kasumigaseki Building, 2-5, Kasumigaseki
3-chome, Chiyoda-ku, Tokyo 100-6088Note: On June 29, 2006, Deloitte Touche Tohmatsu was
appointed independent public accountant for theCompany.
Transfer Agent The Mitsubishi UFJ Trust and Banking
Corporation
4-5, Marunouchi 1-chome, Chiyoda-ku,
Tokyo 100-8212, Japan
Stock Listing First Section of Tokyo Stock Exchange
41
Stock PriceYears ended March 31 (Yen)
2002 2003 2004 2005 2006
3,800 6,840High 1,920 1,670 3,480 4,740 *1 3,480 *3
4,940 *2
3,310 3,500Low 641 920 1,100 3,640 *1 2,950 *3
4,290 *2
The above table sets forth the high and low sale prices in the:*1 Tokyo Stock Exchange (from February 28, 2005);*2 Jasdaq Securities Exchange (from December 13, 2004 to February 27, 2005)
Other data are based on announcements by the Japan Securities DealersAssociation.
*3 Indicates the ex-rights price by stock split.
Principal ShareholdersThousands of Percentage of
Name shares voting rights
Nippon Yusen Kabushiki Kaisha 12,864 61.25
The Master Trust Bank of Japan, Limited
(Trust Account) 1,208 5.76
Japan Trustee Services Bank, Limited
(Trust Account) 1,113 5.30
State Street Bank and Trust Company 347 1.65
Mixx 272 1.29
The Bank of Tokyo-Mitsubishi UFJ, Ltd. 268 1.28
Japan Trustee Services Bank, Limited
(Trust Account 4) 204 0.97
Tokio Marine & Nichido Fire Insurance Co., Ltd. 203 0.97
The Mitsubishi UFJ Trust and Banking
Corporation 184 0.88
Mellon Bank Treaty Clients Omnibus 161 0.77
For Further Information Contact:Corporate Communications & IR Department, Yusen Air & Sea Service Co., Ltd.
E-mail. [email protected]
Printed in Japan
