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

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

2 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 business operations and results for the term. The year under review marked the final year of the Nittsu Shoji Group's two-year management plan, ALOZ VC PLAN In accordance with initiatives set out in this plan, we achieved our business objectives and reached our revenue and earnings targets. And, in regard to those achievements, I would like to express my appreciation to our shareholders for their continued support and understanding. In April 2006, the Nittsu Shoji Group initiated a new, three-year management plan, ALOZ STEP UP* The new plan has two key objectives to implement growth strategies and to strengthen Group businesses and operational strategies. To realize those objectives, we will focus on expanding our revenue base, bolstering our operational base, and promoting corporate social responsibility (CSR). As the handling of personal information becomes an increasingly serious social issue, the onus on companies to fulfill their corporate responsibilities is greater than ever. Recognizing the importance of sound corporate governance, the Company acquired the Privacy Mark from the Japan Information Processing Development Corporation, thereby certifying Nittsu Shoji as an organization that appropriately manages personal data. Also, coinciding with the implementation of the new Japanese Company Law, the board of directors at a meeting held on May 9, 2006, agreed on principles that will form the basis of the Company's compliance systems. By realizing the objectives of our new management plan and fulfilling our role and responsibilities as a good corporate citizen, we are confident that we will sustain our growth and meet the expectations of our shareholders. March 31, 2006 Akihiro Sato President * "STEP UP" stands for Speed, Trust, Eco, Partnership and Usefulness, Prosperity and, in the context of ALOZ STEP UP 2008, is intended to convey the meaning of steady growth. 2. Overview of Business Operations and Results During the fiscal year under review, ended March 31, 2006, the Japanese economy continued to perform with uncertainty, but signs of improvement did emerge. Deflationary pressures eased as corporate earnings improved and the number of job vacancies increased. Domestic demand expanded accompanying higher capital investment, and consumer spending picked up. On the other hand, prices of raw materials, including crude oil, rose sharply. Although certain industries maintained steady performances, in general those industries served by Nittsu Shoji continued to face severe business conditions and intensified competition accompanying hikes in the prices of crude oil and other raw materials and continuous cost cutting. The year saw stepped-up scrutiny of the CSR activities of companies following the April 2005 enforcement of the Personal Information Protection Law and the occurrence of various incidents in society, including a major train derailment, asbestos-related health claims, scandals concerning the falsification of earthquake-resistance data of buildings, and large-scale product recalls. The fiscal year under review marked the completion of the Nittsu Shoji Group's two-year management plan ALOZ VC PLAN 2005, and each business division worked to achieve the plan's final-year goals. Various measures were implemented to raise operational efficiency, including the adoption of a new Group-wide accounting system aimed at improving the allocation of resources, and an operating officer system was introduced targeting faster decision making, stricter supervision, and greater responsiveness to changes in business conditions. In the year under review, we posted year-on-year sales increases in the Petroleum and LP Gas divisions, which offset lower sales in the General Merchandising, Distribution Equipment, and International Procurement divisions. As a result, net sales rose 1.3% from the previous fiscal year, to 334,228 million. Ordinary profit was up 9.0% from the previous year, to 6,181 million, reflecting higher net sales and improved operational efficiency. Net income was 2,379 million, after extraordinary profit and loss adjustments, and deductions of current and deferred income taxes.

3 Translation of an Independent Auditors Report original issued in Japanese Independent Auditors Report The Board of Directors NITTSU SHOJI CO., LTD May 19, 2006 Ryoichi Ishihara(signature) Designated and Engagement Partner Certified Public Accountant Akira Fujiwara(signature) Designated and Engagement Partner Certified Public Accountant In accordance with Section 1 of 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 59th fiscal year from April 1, 2005 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, the Company has adopted the new accounting standard for impairment of fixed assets from the year ended March 31, 2006, the change of this accounting policy is reasonable, this change of accounting policy is based on "Opinion book on the setting of the accounting standard for impairment of fixed assets " and "Application indicator of the accounting standard for impairment of fixed assets ", 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 (March 31) Sales (Millions of yen) 350,000 Operating Profit (Millions of yen) 6,000 Ordinary Profit (profit before extraordinary items) (Millions of yen) , , , , ,000 50,000 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) 35,000 30,000 25,000 20,000 15,000 10,000 5, Thousands of Millions of yen U.S. dollars Sales 299, , ,228 $2,845,220 Operating profit 4,437 4,661 5,178 44,079 Ordinary profit 5,234 5,669 6,181 52,617 Net profit 2,270 3,459 2,379 20,251 Earnings per share (yen/u.s. dollars) Net assets 26,745 29,615 32, ,342 Nittsu Shoji Co., Ltd. 2

5 0.7% 0.6% 8.6% 15.5% 8.0% 18.7% 30.6% Total 299,561 million 8.4% 10.2% 32.2% Total 329,792 million 7.7% 8.0% 5.8% 18.6% 0.4% 5.8% 17.5% 0.5% 1.2% 1.0% LP gas 29,199 million 8.7% Real estate and others 2,255 million 0.7% Logistics support 54,684 million 16.4% Petroleum 118,967 million 35.6% Industrial equipment maintenance & manufacturing 19,006 million 5.7% Total 334,228 million General Merchandise 22,803 million 6.8% Distribution equipment 23,633 million 7.1% Secure Electronic Payment Service 1,455 million 0.4% Non-life & life insurance 3,396 million 1.0% Leasing 58,827 million 17.6% 2006 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: 75,551 73,161 $ 622,805 Cash and bank deposits 3,839 6,195 52,736 Notes receivable trade 9,465 8,375 71,294 Accounts receivable trade 44,375 41, ,214 Inventories 5,456 5,344 45,492 Accounts receivable other 5,630 4,900 41,712 Deferred tax assets 5,912 5,619 47,833 Other current assets 1,222 1,388 11,815 Less: allowance for doubtful accounts (350) (389) (3,311) Fixed assets: 161, ,483 1,340,623 Property and equipment: 142, ,302 1,168,826 Lease assets 104, , ,164 Buildings 17,796 17, ,819 Structures 1,625 1,560 13,279 Machinery & equipment 3,367 3,154 26,849 Vehicles ,886 Tools, furniture and fixtures ,379 Land 13,602 13, ,466 Construction in progress Advance payments on lease assets ,716 Intangible fixed assets: 11,662 11,278 96,007 Lease assets 8,898 8,633 73,491 Leasehold ,507 Software 1, ,495 Others 1,056 1,233 10,496 Investments and other assets: 7,170 8,902 75,781 Investment securities 2,463 3,827 32,578 Investments in subsidiaries stock 1,867 2,095 17,834 Investments in capital other than stock Investments in subsidiaries capital other than stock ,507 Long-term loans receivable ,974 Long-term prepaid expenses ,911 Long-term deposits ,091 Other investments 1,005 1,378 11,730 Less: allowance for doubtful accounts (488) (752) (6,401) Total assets 237, ,644 $1,963,428 Nittsu Shoji Co., Ltd. 4

7 Millions of yen Thousands of U.S. dollars March 31, March 31, March 31, LIABILITIES Short-term liabilities: 128, ,541 $1,068,706 Notes payable trade 9,759 8,139 69,285 Accounts payable trade 45,690 42, ,935 Commercial paper 9,000 10,500 89,384 Short-term loans 43,820 44, ,661 Accounts payable other 11,974 11,517 98,042 Income taxes payable 1,425 2,119 18,038 Advance receipts 1, ,865 Accrued bonuses 2,506 2,695 22,942 Other current liabilities 3,487 2,645 22,516 Long-term liabilities: 78,904 72, ,371 Long-term loans 71,577 65, ,840 Long-term advance receipts 4,441 4,135 35,200 Retirement benefit reserve ,678 Retirement benefit reserve for directors and corporate auditors Deferred tax liabilities 2,197 2,021 17,204 Other long-term liabilities ,545 Total liabilities 207, ,416 $1,689,078 SHAREHOLDERS EQUITY Common stock 4,000 4,000 $ 34,051 Capital surplus Capital reserve Retained earnings 24,651 26, ,934 Earned surplus reserve 1,000 1,000 8,512 Voluntary reserve: 19,808 22, ,329 Reserve for tax deferment on replacement of assets ,966 General reserve 19,562 22, ,363 Unappropriated retained earnings 3,842 2,830 24,091 Revaluation difference 925 1,766 15,033 Treasury stock (0) (0) (0) Total shareholders equity 29,615 32,227 $ 274,342 Total liabilities and shareholders equity 237,258 $230,644 $1,963,428 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, 2005 March 31, 2006 March 31, 2006 Sales 329, ,228 $2,845,220 Cost of sales 294, ,381 2,540,061 Deferred gain on installment sales Reversal of deferred gain on installment sales Selling, general and administrative expenses 30,815 30, ,207 Operating profit 4,661 5,178 44,079 Non-operating income: 1,366 1,377 11,722 Interest and dividend income Other 1,292 1,314 11,185 Non-operating expenses: ,183 Interest expenses ,094 Other ,081 Ordinary profit (profit before extraordinary items) 5,669 6,181 52,617 Extraordinary income: 3, Proceeds from sale of fixed assets Other extraordinary income 3, Extraordinary loss: 2,189 1,100 9,364 Loss on disposal of fixed assets ,596 Impairment loss ,648 Other extraordinary loss 1, Profit before income taxes 6,662 5,168 43,994 Current income taxes 2,184 3,250 27,666 Deferred income taxes 1,019 (461) (3,924) Net profit 3,459 2,379 20,251 Retained earnings brought forward ,078 Interim dividends ,238 Retained earnings at end of year 3,842 2,830 $ 24,091 Nittsu Shoji Co., Ltd. 6

9 6. Statement of Appropriations of Retained Earnings Yen U.S. dollars Unappropriated retained earnings: 3,842,937,331 2,830,069,824 $24,091,851 Reversal of reserve for tax deferment on replacement of assets 15,457,796 13,941, ,682 Total 3,858,395,127 2,844,011,512 24,210,534 Appropriations: Dividends paid 263,997, ,997,450 2,247,360 Bonuses to directors and corporate auditors 79,700,000 39,900, ,661 <of which bonuses to corporate auditors> <6,900,000> <6,900,000> <58,738> Voluntary reserve: 2,800,000,000 1,800,000,000 15,323,061 General reserve 2,800,000,000 1,800,000,000 15,323,061 Unappropriated retained earnings carried forward 714,697, ,114,062 $6,300,451 Nittsu Shoji Co., Ltd. 7

10 7. Profile of the Company (As of March 31, 2006) NITTSU SHOJI CO., LTD. May 1964 Number of shares issued: 8.8 million Paid-in capital: 4.0 billion Number of employees: 2,745 Business establishments: 283 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, 2006) 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 Manufacturing and 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: Bekasi, 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, 2006) 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 Nagoya Shizuoka Branch Gifu Branch Mie Branch Kanazawa Branch Toyama Branch Business Planning Division General Merchandise Division Osaka Kyoto Branch Kobe Branch Distribution Equipment Division Secure Electronic Payment Service Division Hiroshima Okayama Branch Yamaguchi Branch San-in Branch Leasing Division Non-Life Insurance Division Takamatsu Matsuyama Branch Life Insurance Division Industrial Equipment Maintenance & Manufacturing Division Petroleum Division Liquefied Petroleum Gas Division Real Estate Division Fukuoka Niigata Kitakyushu Branch Saga Branch Nagasaki Branch Oita Branch Kumamoto Branch Kagoshima Branch Miyazaki Branch Nagano Branch Logistics Support Division Sendai Koriyama Branch 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 59th 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, 2004 March 31, 2005)

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