NITTSU SHOJI REPORT. (April 1, 2004 March 31, 2005)

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1 2005 NITTSU SHOJI REPORT (April 1, 2004 March 31, 2005)

2 1. To Our Shareholders On March 31, 2005, Nittsu Shoji Co., Ltd., marked the conclusion of its 58th fiscal term. I would like to summarize Nittsu Shoji s business operations and results for the term. The year under review marked the first year of the Nittsu Shoji Group s two-year management plan, ALOZ VC* PLAN In accordance with initiatives set out in this plan, we made efforts to provide customers with high-value-added services and to respond swiftly to their diversifying needs. Despite a challenging business environment that was adversely affected by rising oil prices, we succeeded in reaching the management plan s profit target, with sales and profits exceeding the previous year s levels. And, in regard to those achievements, I would like to express my appreciation to our shareholders for their continued support and understanding. Going forward, we will maintain our focus on raising operational efficiency through concerted efforts to strengthen service operations from the customer s perspective and to enhance management capabilities. By increasing the value of the company, aiming to achieve goals set out in the final year of ALOZ VC Plan 2005, we are confident that we will win out in today s fiercely competitive market and meet the expectations of our shareholders. March 31, 2005 Akihiro Sato President * ALOZ is Nittsu Shoji's marketing symbol, which is made up of "A" and "Z," to reflect "everything from A to Z," and "LO," from the word "logistics." ALOZ also expresses the Company's mission of providing products and services through logistics and distribution. "VC" stands for Value Creation. 2. Overview of Business Operations and Results During the fiscal year under review, ended March 31, 2005, the Japanese economy continued to perform strongly overall as corporate earnings improved accompanying higher exports and capital investment rose. The economy pulled out of an adjustment phase; however, weak economic resilience led to concerns over a slowdown. Prices of raw materials, including crude oil, increased sharply in the second half of the fiscal year, and a series of natural disasters, such as typhoons and earthquakes, amplified social anxiety. The industries served by Nittsu Shoji continued to face severe business conditions. Companies focused on providing cost-effective and high-quality products and services while continuing efforts to restructure their operations in response to increased competition associated with deregulation and cost cutting. In the fiscal year under review, Nittsu Shoji marked its 40th anniversary and launched its two-year management plan ALOZ VC PLAN The new plan has two major objectives: maximizing profits and enhancing management capabilities. Accordingly, each business division is working to achieve the goals set out in the plan. Overseas, we took steps to promote our international operations, with a particular focus on China, which continues to post strong economic growth. We established affiliates in Wuhan and Hong Kong and opened a representative office in Shanghai. In the year under review, we posted year-on-year sales increases in the Petroleum and International Procurement divisions, which offset lower sales in the Distribution Equipment division. As a result, net sales grew 10.1% from the previous fiscal year, to 329,792 million. Ordinary profit was up 8.3% from the previous year, to 5,669 million, reflecting higher net sales and improved operational efficiency. Extraordinary profit amounted to 3,124 million, including gain on sales of investment in securities, such as Vodafone K.K. shares. Extraordinary loss totaled 2,189 million, including impairment loss on fixed assets of 901 million. As a result of such factors, net income was 3,459 million.

3 Translation of an Independent Auditors Report original issued in Japanese Independent Auditors Report The Board of Directors NITTSU SHOJI CO., LTD May 13, 2005 Shin Nihon & Co. Ryoichi Ishihara (signature) Representative and Engagement Partner Certified Public Accountant Satoshi Kimura (signature) Engagement Partner Certified Public Accountant In accordance with Article 2 of The Law for Special Exceptions to the Commercial Code Concerning Audits, etc. of Joint Stock Corporations, we have audited the balance sheet, the statement of income, the accounting matters stated in the business report, the proposal for appropriation of retained earnings and the accounting matters stated in the supplementary schedules of NITTSU SHOJI Co., Ltd. applicable to the 58th fiscal year from April 1, 2004 to March 31, The accounting matters which we have audited in the business report and the supplementary schedules were derived from the accounting books and records of the Company and its subsidiaries. These financial statements and the supplementary schedules are the responsibility of the Company s management. Our responsibility is to independently express an opinion on these financial statements and the supplementary schedules based on our audit. We conducted our audit in accordance with auditing standards, procedures and practices generally accepted and applied in Japan. Those standards, procedures and practices require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the supplementary schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the supplementary schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the supplementary schedules. We believe that our audit provides a reasonable basis for our opinion.our audit included procedures applied to the accounts of the Company s subsidiaries as considered necessary. As a result of our audit, it is our opinion that: a) the balance sheet and the statement of income present properly the Company s financial position and the results of its operations in accordance with the related regulations and the Articles of Incorporation, b) the accounting matters stated in the business report present properly the Company s affairs in accordance with the related regulations and the Articles of Incorporation, c) the proposal for appropriation of retained earnings is presented in accordance with the related regulations and the Articles of Incorporation, and d) there is nothing to point out as to the accounting matters stated in the supplementary schedules in accordance with the provisions of the Commercial Code. We have no interest in the Company which should be disclosed in compliance with the Certified Public Accountants Law. Nittsu Shoji Co., Ltd. 1

4 3. Summary of Financial Results Sales (Millions of yen) 350,000 Operating Profit (Millions of yen) 5,000 Ordinary Profit (profit before extraordinary items) (Millions of yen) 6, , , , , ,000 50,000 4,000 3,000 2,000 1,000 5,000 4,000 3,000 2,000 1, Net Profit (Millions of yen) 3,500 3,000 2,500 2,000 1,500 1, Earnings per Share* (Yen) Net Assets (Millions of yen) 30,000 25,000 20,000 15,000 10,000 5, Thousands of Millions of yen U.S. dollars Sales 295, , ,792 $3,070,403 Operating profit 4,048 4,437 4,661 43,394 Ordinary profit 4,684 5,234 5,669 52,779 Net profit 2,125 2,270 3,459 32,203 Earnings per share (yen/u.s. dollars) Net assets 24,553 26,745 29, ,719 Nittsu Shoji Co., Ltd. 2

5 0.7% 0.7% 8.9% 19.4% 8.6% 15.5% 28.8% Total 295,587 million 9.0% 9.0% 30.6% 5.3% 17.3% 0.3% 5.8% 1.3% 1.2% Total 299,561 million 18.6% 8.4% 10.2% 0.4% LP gas 26,372 million 8.0% Real estate and others 2,125 million 0.6% Logistics support 61,659 million 18.7% Petroleum 106,011 million 32.2% Industrial equipment maintenance & manufacturing 19,102 million 5.8% Non-life & life insurance 3,408 million 1.0% Total 329,792 million Leasing 57,800 million 17.5% General Merchandise 25,390 million 7.7% Distribution equipment 26,440 million 8.0% Secure Electric Payment Service 1,479 million 0.5% 2005 Nittsu Shoji Co., Ltd. 3

6 4. Balance Sheet Millions of yen Thousands of U.S. dollars March 31, March 31, March 31, ASSETS Current assets: 75,606 75,551 $ 703,388 Cash and bank deposits 6,110 3,839 35,741 Notes receivable trade 10,738 9,465 88,120 Accounts receivable trade 40,048 44, ,136 Inventories 4,733 5,456 50,796 Accounts receivable other 4,488 5,630 52,415 Deferred tax assets 6,504 5,912 55,041 Other current assets 3,378 1,222 11,376 Less: allowance for doubtful accounts (394) (350) (3,258) Fixed assets: 163, ,706 1,505,502 Property and equipment: 144, ,873 1,330,164 Lease assets 104, , ,304 Buildings 18,384 17, ,682 Structures 1,690 1,625 15,128 Machinery & equipment 3,536 3,367 31,347 Vehicles ,474 Tools, furniture and fixtures ,984 Land 13,987 13, ,636 Construction in progress Advance payments on lease assets 1, ,094 Intangible fixed assets: 11,108 11, ,574 Lease assets 7,954 8,898 82,841 Leasehold ,835 Software 1,513 1,294 12,047 Others 1,222 1,056 9,831 Investments and other assets: 7,360 7,170 66,753 Investment securities 2,405 2,463 22,930 Investments in subsidiaries stock 2,207 1,867 17,381 Investments in capital other than stock Investments in subsidiaries capital other than stock ,023 Long-term loans receivable ,955 Long-term prepaid expenses ,446 Long-term deposits ,820 Other investments 1,034 1,005 9,356 Less: allowance for doubtful accounts (648) (488) (4,543) Total assets 238, ,258 $2,208,900 Nittsu Shoji Co., Ltd. 4

7 Millions of yen Thousands of U.S. dollars March 31, March 31, March 31, LIABILITIES Short-term liabilities: 127, ,738 $1,198,566 Notes payable trade 10,356 9,759 90,857 Accounts payable trade 43,166 45, ,379 Commercial paper 10,000 9,000 83,791 Short-term loans 45,111 43, ,969 Accounts payable other 11,074 11, ,479 Income taxes payable 1,499 1,425 13,266 Advance receipts 686 1,075 10,008 Accrued bonuses 2,547 2,506 23,331 Other current liabilities 2,856 3,487 32,464 Long-term liabilities: 84,756 78, ,605 Long-term loans 74,297 71, ,390 Long-term advance receipts 4,294 4,441 41,346 Retirement benefit reserve 3, Retirement benefit reserve for directors and corporate auditors ,122 Deferred tax liabilities 1,772 2,197 20,454 Other long-term liabilities ,658 Total liabilities 212, ,643 $1,933,181 SHAREHOLDERS EQUITY Common stock 4,000 4,000 $ 37,240 Capital surplus Capital reserve Retained earnings 21,778 24, ,503 Earned surplus reserve 1,000 1,000 9,310 Voluntary reserve: 18,126 19, ,414 Reserve for tax deferment on replacement of assets ,290 General reserve 17,862 19, ,124 Unappropriated retained earnings 2,652 3,842 35,769 Revaluation difference ,611 Treasury stock (0) (0) (0) Total shareholders equity 26,745 29,615 $ 275,719 Total liabilities and shareholders equity 238, ,258 $2,208,900 Nittsu Shoji Co., Ltd. 5

8 5. Income Statement Millions of yen Thousands of U.S. dollars Year ended Year ended Year ended March 31, 2004 March 31, 2005 March 31, 2005 Sales 299, ,792 $3,070,403 Cost of sales 263, ,351 2,740,443 Deferred gain on installment sales Reversal of deferred gain on installment sales Selling, general and administrative expenses 31,309 30, ,891 Operating profit 4,437 4,661 43,394 Non-operating income: 1,176 1,366 12,717 Interest and dividend income Other 1,110 1,292 12,028 Non-operating expenses: ,342 Interest expenses ,616 Other Ordinary profit (profit before extraordinary items) 5,234 5,669 52,779 Extraordinary income: 55 3,182 29,624 Proceeds from sale of fixed assets Proceeds from sale of investment marketable securities 7 3,126 29,103 Other extraordinary income Extraordinary loss: 344 2,189 20,379 Loss on disposal of fixed assets ,388 Loss from write-down of investments in affiliates ,239 Additional special severance payments for early retired employees 711 6,619 Losses associated with transfer old severance indemnities system to new one 111 1,033 Other extraordinary loss ,079 Profit before income taxes 4,944 6,662 62,024 Current income taxes 2,105 2,184 20,333 Deferred income taxes 568 1,019 9,487 Net profit 2,270 3,459 32,203 Retained earnings brought forward ,023 Interim dividends ,448 Retained earnings at end of year 2,652 3,842 $ 35,769 Nittsu Shoji Co., Ltd. 6

9 6. Statement of Appropriations of Retained Earnings Yen U.S. dollars Unappropriated retained earnings: 2,652,393,803 3,842,937,331 $35,778,208 Reversal of reserve for tax deferment on replacement of assets 17,702,286 15,457, ,913 Total 2,670,096,089 3,858,395,127 35,922,122 Appropriations: Dividends paid 263,997, ,997,450 2,457,847 Bonuses to directors and corporate auditors 58,200,000 79,700, ,016 <of which bonuses to corporate auditors> <6,000,000> <6,900,000> <64,239> Voluntary reserve: 1,700,000,000 2,800,000,000 26,068,336 General reserve 1,700,000,000 2,800,000,000 26,068,336 Unappropriated retained earnings carried forward 647,898, ,697,677 $ 6,653,921 Nittsu Shoji Co., Ltd. 7

10 7. Profile of the Company (As of March 31, 2005) NITTSU SHOJI CO., LTD. May 1964 Number of shares issued: 8.8 million Paid-in capital: 4.0 billion Number of employees: 2,725 Business establishments: 290 locations Network in Japan Hiroshima Branch Sapporo Branch Niigata Branch Sendai Branch Total number of full-service branches: 9 Other branches: 39 Fukuoka Branch Takamatsu Branch Nagoya Branch Head Office Tokyo Branch 8. Overseas Offices (As of March 31, 2005) NITTSU SHOJI U.S.A., INC. Head office: Chicago, U.S.A. Branches: Los Angeles, Chicago, Troy March 1995 Export/import agent services Sales of packaging materials, directfrom-manufacturer delivery, and sales of gifts Export of packaging materials, construction materials, food products, and general merchandise Intermediary services for real estate rentals DALIAN NITTSU CONTAINER MANUFACTURING CO., LTD. Location: Dalian Economic and Technological Development Zone, The People s Republic of China February 1991 Manufacturing and sales of shipping containers, roll boxes, and net pallets NITTSU SHOJI (WU HAN) CO., LTD. Location: Wuhan, Chaina April 2004 Packaging and business pertaining thereto, warehousing. manufacture Sales of packaging materials and containers Transportation management NITTSU SHOJI (THAILAND) CO., LTD. Location: Bam Pine, Thailand December 1996 Packaging services Export/import agent services Sales of packaging materials Warehousing and storage NITTSU SHOJI CO., LTD. SHANGHAI REPRESENTATIVE OFFICE Location: Shanghai, Chaina August 2004 Collection of information and market survey concerning goods for import and export NITTSU SHOJI (INDONESIA) CO., LTD. Location: Jakarta, Indonesia September 2003 Packaging services Export/import agent services Sales of packaging materials Warehousing and storage NITTSU SHOJI (H.K) CO., LIMITED. Location: Hong Kong, Chaina August 2004 Import and export Sales and purchasing of merchandise Wholesaling packaging and business incidental thereto Osaka Branch Nittsu Shoji Co., Ltd. 8

11 9. Organization Chart (As of July 1, 2005) Corporate Planning Division Audit Division General Affairs Division Personnel & Industrial Relations Division Legal Affairs & Compliance Division Tokyo Western Tokyo Branch Yokohama Branch Chiba Branch Saitama Branch Maebashi Branch Utsunomiya Branch Mito Branch Kofu Branch President Accounting Division Information System Division Business Planning Division Nagoya Shizuoka Branch Gifu Branch Mie Branch Fukui Branch Kanazawa Branch Toyama Branch General Merchandise Division Distribution Equipment Division Secure Electric Payment Service Division Leasing Division Osaka Hiroshima Kyoto Branch Kobe Branch Okayama Branch Yamaguchi Branch San-in Branch Non-Life Insurance Division Life Insurance Division Industrial Equipment Maintenance & Manufacturing Division Petroleum Division Liquefied Petroleum Gas Division Real Estate Division Takamatsu Fukuoka Matsuyama Branch Kitakyushu Branch Saga Branch Nagasaki Branch Oita Branch Kumamoto Branch Kagoshima Branch Miyazaki Branch Logistics Support Division Niigata Nagano Branch Koriyama Branch Sendai Morioka Branch Aomori Branch Yamagata Branch Akita Branch Hakodate Branch Sapporo Asahikawa Branch Kushiro Branch Kitami Branch Obihiro Branch Tomakomai Branch Nittsu Shoji Co., Ltd. 9

12 Basis of the report This report is the English-language translation of the Japanese Business Report for the 58th fiscal term and has been prepared for the understanding of readers outside Japan. U.S. dollar amounts in this report are translated from yen, for convenience only, at the rate of to US$1.00. Our marketing symbol ALOZ was created from the letters A to Z, which suggest all or all things and the letters LO, which are the first two letters in the word logistics. ALOZ therefore is intended to convey the meaning that, although distribution and logistics form the base of our Company s activities, we examine all future possibilities for our operations and provide a broad range of products and services. We intend to use ALOZ as the banner of our Company s image strategy toward the market and the general public. NITTSU SHOJI CO., LTD. Hamarikyu Parkside Place 6-10, Tsukiji 5-chome Chuo-ku, Tokyo Tel.: Printed in Japan

NITTSU SHOJI REPORT. (April 1, 2005 March 31, 2006)

NITTSU SHOJI REPORT. (April 1, 2005 March 31, 2006) 2006 NITTSU SHOJI REPORT (April 1, 2005 March 31, 2006) 1. To Our Shareholders On March 31, 2006, Nittsu Shoji Co., Ltd., marked the conclusion of its 59th fiscal term. I would like to summarize the Company's