Nippon E x press C o., Ltd. a nd consol idated subsid ia r ies
01
Basis of presenting financial statementsThe accompanying consolidated financial statements of Nippon Express Co., Ltd. (“the Company”) and consolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Financial Instruments and Exchange Law of Japan.
In order to facilitate the understanding of readers outside Japan, certain reclassifications are made to the consolidated financial statements prepared for domestic reporting purposes. In addition, the notes to the consolidated financial statements include information that is not required under accounting principles generally accepted in Japan, but is presented herein as addi-tional information.
The yen amounts are rounded off in millions. Therefore, total or subtotal amounts do not correspond with the aggregation of such account balance.
U.S. dollar amounts presented in the financial statements are included solely for convenience. The rate of ¥98.23 to US$1.00, prevailing on March 31, 2009, has been used for translation into U.S. dollar amounts in the financial statements. The U.S. dollar amounts are then rounded off in thousands. The inclusion of such amounts should not be construed as a representa-tion that Japanese yen amounts have been or could in the future be converted into U.S. dollars at that rate.
02
Summary of significant accounting policies (a) ConsolidationThe consolidated subsidiaries included 207 domestic and 57 foreign majority-owned subsidiaries for the year ended March 31, 2009, and 212 domestic and 55 foreign majority-owned subsidiaries for the year ended March 31, 2008.
The excess cost of the Company’s investments in consolidated subsidiaries over the fair value of the net assets of these companies at the dates of acquisition, consolidation goodwill, is amortized on the straight-line method over five years.
Investments in an unconsolidated subsidiary and 21 affiliates are stated at cost plus equity in undistributed income as of March 31, 2009 and 2008.
Investments in insignificant unconsolidated subsidiaries and affiliates have been carried at cost.
(Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements)
Effective the year ended March 31, 2009, the Company adopted ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements”
issued on May 17, 2006 and necessary adjustments in the process of consolidation were made to the financial statements of foreign consolidated subsidiaries. The effect of this change was immaterial.
(b) Cash and cash equivalents
Cash and cash equivalents presented in the accompanying consolidated statements of cash flows represent cash on hand, bank deposits, which are payable on demand, and short-term investments with original maturities of three months or less which are easily convertible into cash and present insignificant risk of changes in value.
(c) Securities
Other securities with market value are stated at market value on the balance sheet date. Cost of sold securities is stated using the moving-average method. The differences between the acquisition costs and the carrying values of securities are recognized in unrealized gain [loss] on securities. Unrealized gain [loss] on securities, net of applicable income taxes, is charged to net assets. Other securities without market value are stated at cost determined by the moving-average method.
(d) Inventories
Prior to April 1, 2008, purchased and finished goods, work in process, raw materials, and supplies were valued at cost, pri-marily determined by the moving-average method.
47 (Changes in measurement of inventories)
Effective the year ended March 31, 2009, the Company and its domestic subsidiaries adopted the Accounting Standards Board of Japan (ASBJ) Statement No. 9, “Accounting Standard for Measurement of Inventories” issued by ASBJ on July 5, 2006. This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value. The effect of this change was immaterial.
(e) Allowance for doubtful accounts
General provision for doubtful receivables is provided by applying a certain reserve percentage of the receivables based on experience from past transactions. When considered necessary, specific reserve is provided based on the assessment of individual receivables.
Allowance for doubtful receivables for non-current assets, which was included in “Others” in “Investment and other assets,” was ¥2,220 million ($22,606 thousand) and ¥1,992 million as of March 31, 2009 and 2008, respectively.
(f) Property and equipment except for leased assets Property and equipment is stated at cost.
Depreciation of property and equipment, except for building, is mainly computed by the declining-balance method over the applicable useful lives. Buildings are depreciated by the straight-line method over the estimated lives.
Under the Japanese tax law, capital gains arising from disposals by expropriation of assets and other similar transac-tions are deducted from the cost of property and equipment acquired in substitution. Such capital gains amounted to
¥1,304 million ($13,282 thousand) and ¥1,794 million for the years ended March 31, 2009 and 2008, respectively.
(Additional information)
Pursuant to the income tax reform in 2008, economic useful lives of the machinery and tools held by the domestic subsid-iaries were reviewed and consequently some of them were changed. The effect of this change was immaterial.
(g) Leases
On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions issued in June 1993. Under the previous accounting standard, finance leases which substantially transfer ownership of the leased assets to the lessee were to be capitalized.
However, other finance leases which do not transfer ownership of the leased assets to the lessee were permitted to be accounted for as operating leases if certain “as if capitalized” information is disclosed in the notes to the financial state-ments. The revised accounting standard requires that lessees should capitalize all finance lease transactions to recognize leased assets and lease obligations in the balance sheet. Also, the revised accounting standard requires lessors to recognize all finance leases which transfer ownership of the leased assets to the lessee as lease receivables, and all finance leases which do not transfer ownership of the leased assets to the lessee as lease investment assets. The Company has adopted the revised accounting standard effective April 1, 2008. Under the revised accounting standard, all finance leases, includ-ing finance leases which do not transfer ownership of the leased assets to the lessee, are accounted for as if they were acquired or sold in the ordinary buy or sell transactions.
Leased assets whose ownership is not transferred to the lessee are depreciated over the respective lease periods by the straight-line method without salvage value.
The effect of this change was immaterial.
(h) Deferred charges
Bond issuance cost which can be deferred under the Corporation Law is charge to income as expended.
(i) Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enacted date.
48
03
Cash and cash equivalentsThe reconciliation between cash and cash in banks in the accompanying consolidated balance sheets and cash and cash equivalents in the accompanying consolidated statements of cash flows for the years ended March 31, 2009 and 2008 is as follows:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Cash and cash in banks in the consolidated balance sheets ¥ 97,167 ¥ 147,739 $ 989,181 Time deposits with maturities of over three months (3,973) (2,905) (40,453)
Time deposits pledged as collateral for debts (161) (195) (1,647)
Cash and cash equivalents at end
of year in the statements of cash fl ows ¥ 93,031 ¥ 144,639 $ 947,080
04
Short-term bank loans, commercial paper and long-term debt (a) Short-term bank loansShort-term bank loans are mostly unsecured and represented by short-term notes.
(b) Commercial paper
Commercial paper, due within one year, is ¥11,700 million ($119,108 thousand) and ¥8,000 million as of March 31, 2009 and 2008, respectively, which is unsecured and included in other current liabilities.
(j) Retirement benefits obligation and pension plan
Substantially all of the employees are entitled to lump-sum payments upon retirement or severance of employment.
Accrual for the lump-sum payments is stated at the present value of the estimated future obligations arising from services performed to the end of the fiscal year.
Certain consolidated subsidiaries have instead implemented the Qualified Corporate Pension Plan, which is a private non-contributory plan funded by the subsidiaries on the basis of an accepted actuarial method, and amortization of prior service cost has been charged to income.
The retirement benefits obligation is attributed to each period by the straight-line method over the years of service. The net retirement benefits obligation at transition was charged to operations as incurred.
Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized primarily by the straight-line method over the period of the average remaining years of service of the employees.
Certain consolidated subsidiaries have separately provided an allowance for lump-sum retirement benefits to directors and statutory auditors, of which actual payments of such benefits are subject to the approval of the shareholders. Provision has been made for annual increases of such liability estimated systematically by management.
(k) Per share data
Basic net income per share is computed by dividing net income available to common shareholders, by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share for the years ended March 31, 2009 and 2008 is not disclosed since there has been no potential dilution for the periods.
(l) Consumption taxes
Consumption taxes with respect to the Company and its domestic subsidiaries are excluded from respective transac-tion amounts.
49
05
Retirement benefits obligation and pension planRetirement benefits obligation as of March 31, 2009 and 2008 consists of the following:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Projected benefi ts obligation ¥ (142,554) ¥ (153,331) $ (1,451,228)
Plan assets at fair market value 38,577 64,014 392,729
Unrecognized actuarial net loss 62,237 38,970 633,586
Unrecognized prior service cost (2,751) (3,306) (28,011)
Retirement benefi ts obligation at end of year ¥ (44,490) ¥ (53,653) $ (452,923) (c) Long-term debt
Long-term debt as of March 31, 2009 and 2008 is as follows:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
1.59% ¥20 billion bonds due 2018 ¥ 20,000 ¥ 20,000 $ 203,603
1.93% ¥40 billion bonds due 2008 — 40,000 —
0.84% ¥100 million bonds due 2009 — 100 —
0.243%-3.833% loans from fi nancial institutions due 2008 to 2016 248,497 247,995 2,529,749
Total 268,497 308,095 2,733,353
Less: amount due within one year (47,298) (113,916) (481,510)
¥ 221,198 ¥ 194,179 $ 2,251,842
The annual maturities of long-term debt outstanding as of March 31, 2009 are as follows:
Years ending March 31 Millions of yen Thousands of
U.S. dollars
2011 ¥ 98,339 $ 1,001,115
2012 25,714 261,780
2013 40,919 416,573
2014 18,363 186,940
2015 and thereafter 17,861 181,829
(d) Pledged assets
A summary of assets pledged as collateral for long-term and short-term bank loans and for other purposes as of March 31, 2009 is as follows:
Millions of yen Thousands of U.S. dollars
Property and equipment ¥ 9,924 $ 101,033
Time deposits 161 1,647
Lease receivables 648 6,606
Investment in securities 639 6,509
50
06
Treasury stockThe Company held 19,441 thousand shares of treasury stock as of March 31, 2009 based on approval by the annual sharehold-ers’ meeting.
07
LeasesAs discussed in Note 2(g), the Company adopted the revised accounting standard for lease transactions effective the year ended March 31, 2009.a. Finance leases
As a lessee:
The Company capitalized all finance leases, recognizing leased assets and lease obligation as if they were purchased in the ordinary purchase transactions in the accompanying balance sheets at March 31, 2009.
Pension expense for the years ended March 31, 2009 and 2008 included the following components:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Service cost ¥ 6,173 ¥ 7,722 $ 62,849
Interest cost on projected benefi ts obligation 3,655 4,121 37,215
Expected return on plan assets (657) (831) (6,690)
Amortization of unrecognized actuarial net loss 3,989 1,553 40,613
Prior service cost recognized (548) (548) (5,583)
Net periodic pension cost 12,613 12,017 128,403
Proceeds from shift to DC pension plan — (7,858) —
Contribution for defi ned contribution pension plans 6,704 5,443 68,252
Total ¥ 19,317 ¥ 9,602 $ 196,656
Actuarial assumptions used to determine costs and obligations for retirement benefits are as follows:
2009 2008
Discount rate mainly 2.5% mainly 2.5%
Expected rate of return on plan assets mainly 2.5% mainly 2.5%
Recognition period of prior service cost 15 years 15 years
Amortization period of actuarial net loss (gain) 12~15 years 12~15 years
The total liabilities in connection with the retirement benefits to directors and statutory auditors, which are included in “Retirement benefits obligation,” are ¥575 million ($5,856 thousand) and ¥539 million as of March 31, 2009 and 2008, respectively.
51 (1) Amounts equivalent to acquisition costs, accumulated depreciation, and net balance as of March 31, 2008, concerning the
finance lease assets are as follows:
Millions of yen
2008
Acquisition cost Accumulated depreciation
Net lease property
Vehicles ¥ 2,200 ¥ 1,134 ¥ 1,066
Machinery and tools 1,449 904 544
Other 137 61 76
Total ¥ 3,786 ¥ 2,100 ¥ 1,686
(2) Lease expenses paid and amounts equivalent to depreciation expenses during the year ended March 31, 2008 were as follows:
Millions of yen
2008
Lease expenses paid ¥ 669
(Depreciation expenses) (669)
Amounts equivalent to depreciation expenses were calculated by the straight-line method over the period of the finance leases.
Amounts equivalent to interest expenses were not recognized due to immateriality.
As a lessor:
In accordance with the revised accounting standard for lease transactions, the Company recognized the finance leases which transfer ownership to the lessee as lease receivables and other finance leases which do not transfer ownership of the leased assets to the lessee as lease investment assets.
Lease investment assets at March 31, 2009 are summarized as follows:
Millions of yen Thousands of U.S. dollars
Gross lease receivables ¥ 85,728 $ 872,734
Estimated residual values 933 9,498
Unearned interest income (3,276) (33,354)
Lease investment assets ¥ 83,385 $ 848,879
Maturities of lease receivables and lease investment assets at March 31, 2009 are as follows:
Millions of yen Thousands of U.S. dollars
Year ending March 31 Lease receivables Investments in
leased assets Lease receivables Investments in leased assets
2010 ¥ 1,751 ¥ 28,437 $ 17,831 $ 289,499
2011 1,534 23,553 15,620 239,778
2012 1,291 17,296 13,144 176,078
2013 1,039 10,555 10,586 107,461
2014 626 4,457 6,375 45,373
2015 and thereafter 510 1,428 5,196 14,544
52
Amounts equivalent to acquisition costs, accumulated depreciation, and net balance as of March 31, 2008, concerning the finance lease assets were as follows:
Millions of yen
2008
Acquisition cost
Accumulated depreciation
Net lease property
Vehicles ¥ 40,634 ¥ 25,618 ¥ 15,015
Machinery and tools 112,820 64,419 48,401
Other 25,432 12,210 13,222
Total ¥ 178,887 ¥ 102,248 ¥ 76,639
Lease income received, depreciation expenses and amounts equivalent to interest income during fiscal 2008 were as follows:
Millions of yen
2008
Lease income received ¥ 29,849
Depreciation expenses 26,115
Interest income 2,763
Amounts equivalent to interest income are calculated by the interest method based on an excess of the aggregate sum of lease income over amounts equivalent to acquisition costs.
b. Operating leases
Future payment obligations under non-cancellable operating leases as of March 31, 2009 and 2008 are as follows:
As a lessee:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Portion due within one year ¥ 18,848 ¥ 11,168 $ 191,876
Thereafter 127,429 77,889 1,297,257
Total ¥ 146,277 ¥ 89,058 $ 1,489,133
08
Income taxesIncome taxes applicable to the Company and consolidated subsidiaries comprise (1) corporation tax, (2) enterprise tax, and (3) inhabitant tax. While the normal statutory tax rates were approximately 40.7 percent both in 2009 and 2008, these income taxes resulted in effective tax rates of approximately 51.1 percent and 41.4 percent in 2009 and 2008, respectively.
The following table reconciles the above statutory tax rate to the Company’s effective tax rate for the years ended March 31, 2009 and 2008.
2009 2008
Statutory rate 40.7% 40.7%
Non-deductible items 6.8 2.0
Non-taxable items (3.0) (1.4)
Inhabitants’ minimum taxes 4.2 2.1
Other, net 2.4 (2.0)
Effective tax rate 51.1% 41.4%
53 The significant components of the Company’s deferred tax assets and liabilities as of March 31, 2009 and 2008 are as follows:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Deferred tax assets:
Current:
Allowance for doubtful accounts ¥ 214 ¥ 269 $ 2,181
Accrued expenses 7,459 8,429 75,941
Enterprise tax payable 101 792 1,037
Lease transaction 1,730 3,898 17,620
Other 15,273 4,720 155,487
Total deferred tax assets – current 24,780 18,110 252,267
Non-current:
Allowance for doubtful accounts 712 543 7,248
Retirement benefi ts 44,369 48,264 451,693
Unrealized gain 2,025 1,985 20,624
Impairment loss 5,587 5,587 56,879
Other 8,484 10,286 86,373
Valuation allowance (7,372) (7,749) (75,054)
Total deferred tax assets – non-current 53,806 58,918 547,764
Total deferred tax assets ¥ 78,587 ¥ 77,028 $ 800,032
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Deferred tax liabilities:
Current:
Accumulated depreciation ¥ 836 ¥ 810 $ 8,515
Other 11,412 148 116,184
Total deferred tax liabilities – current 12,249 959 124,700
Non-current:
Accumulated depreciation 18,208 18,995 185,363
Gain on securities contribution to
employees’ retirement benefi ts trust 20,653 20,653 210,260
Unrealized gain on securities 19,467 34,568 198,183
Other 2,897 3,592 29,498
Total deferred tax liabilities – non-current 61,227 77,810 623,305
Total deferred tax liabilities ¥ 73,476 ¥ 78,770 $ 748,005
Total net deferred tax assets:
Current ¥ 12,476 ¥ 17,091 $ 127,010
Total net deferred tax liabilities:
Non-current (7,365) (18,833) (74,984)
Total ¥ 5,110 ¥ (1,741) $ 52,026
54
09
Segment Information(a) Industry segment information
Operations of the Company and its consolidated subsidiaries have been classified into three industry segments: distribution and transportation, goods sales and other. The distribution and transportation segment includes railway forwarding, motor transport, marine and harbor transportation, air freight and travel, warehousing, heavy haulage and construction, in-factory work and other transport operations. The goods sales segment includes the sale of vehicles, supplies for transportation, petroleum, LP gas, etc., as well as lease and maintenance operations.
The other segment includes mediation, planning and design, and management of real estate and a driving school.
Summarized financial information by industry segment for the years ended and as of March 31, 2009 and 2008 is as follows:
Millions of yen Distribution &
transportation Goods sales Other Sub-total Adjustment &
eliminations Total
2009:
Revenues ¥ 1,528,695 ¥ 369,661 ¥ 31,002 ¥ 1,929,359 ¥ (100,412) ¥ 1,828,946
Operating income 28,109 6,316 1,439 35,865 (2,351) 33,513
Identifi able assets 970,561 231,689 54,887 1,257,138 (85,063) 1,172,074
Depreciation & amortization 52,518 10,163 641 63,322 (236) 63,085
Capital expenditure 67,930 6,280 1,645 75,856 (233) 75,622
Thousands of U.S. dollars Distribution &
transportation Goods sales Other Sub-total Adjustment &
eliminations Total
2009:
Revenues $ 15,562,409 $ 3,763,225 $ 315,614 $ 19,641,248 $ (1,022,223) $ 18,619,025
Operating income 286,162 64,301 14,654 365,119 (23,941) 341,178
Identifi able assets 9,880,497 2,358,639 558,768 12,797,905 (865,963) 11,931,941 Depreciation & amortization 534,644 103,463 6,526 644,634 (2,410) 642,224
Capital expenditure 691,542 63,934 16,752 772,229 (2,374) 769,854
Millions of yen Distribution &
transportation Goods sales Other Sub-total Adjustment &
eliminations Total
2008:
Revenues ¥ 1,600,988 ¥ 377,964 ¥ 28,629 ¥ 2,007,582 ¥ (106,148) ¥ 1,901,433
Operating income 43,896 5,752 1,061 50,710 (2,208) 48,502
Identifi able assets 1,063,027 246,274 30,304 1,339,606 (42,200) 1,297,406
Depreciation & amortization 40,116 44,722 513 85,352 (394) 84,957
Capital expenditure 55,737 54,866 1,075 111,680 (106) 111,573
(b) Foreign operations
Summarized financial information on foreign operations for the years ended 2009 and 2008 is as follows:
Millions of yen Thousands of
U.S. dollars
2009 2008 2009
Revenue from foreign operations ¥ 364,423 ¥ 402,692 $ 3,709,901
Ratio to total revenue 19.9% 21.2% 19.9%
55
11
Subsequent events(1) Transfer of small package delivery business based on with the absorption-type company split agreement with JPExpress Co., Ltd.
The Company transferred the rights and obligations related to the whole small-package delivery business (all the necessary operations from acceptance through delivery) conducted based on Pelican delivery transportation contracts in accordance with the absorption-type company split agreement concluded with JPExpress Co., Ltd. on January 30, 2009.
The effective date of this absorption-type company split is April 1, 2009 and the summary of the assets and liabilities transferred by the absorption-type company split is as follows:
a. Summary of assets and liabilities
Millions of yen Thousands of U.S. dollars
Current assets ¥ 192 $ 1,956
Tangible fi xed assets 10,773 109,677
Intangible fi xed assets 1,736 17,681
Investments and other assets 536 5,465
Total assets 13,239 134,781
Current liabilities (0) (3)
Long-term liabilities (0) (3)
Total liabilities (0) (7)
Net assets ¥ 13,238 $ 134,773
b. Consideration Shares
It is difficult to present operating income or loss for the year ended March 31, 2009 on the spin-off business, since the busi-ness is managed together with other transportation busibusi-ness.
(2) Issuance of unsecured domestic straight bonds
The Company made a comprehensive resolution about the issuance of unsecured domestic straight bonds at the Board of Directors meeting held on May 15, 2009 as follows:
a. Aggregate amount to be issued: Within ¥30 billion ($305,405 thousand) b. Date of issuance: From May 18, 2009 until June 30, 2009
c. Amount to be paid: ¥100 per face value of ¥100 ($1.01) d. Redemption period: Within 10 years
e. Maximum interest rate: 3.0% p.a.
f. Use of the fund: Repayment of debts, capital investment and redemption of bonds
In addition, it was resolved to entrust the representative director and president with the concrete conditions of issuance and other necessary matters for issuance of the bonds within the scope of the above described matters.
10
Contingent liabilitiesAs of March 31, 2009, the Company and its consolidated subsidiaries were contingently liable as follows:
Millions of yen Thousands of U.S. dollars
Notes discounted with banks ¥ 66 $ 676
Guarantees of loans, primarily of unconsolidated subsidiaries and affi liates 1,680 17,103