ANNUALREPORT
1 9 9 9

C O N T E N T S
Financial Highlights ....................................................... 1
A Message from the President ...................................... 2
Financial Review ........................................................... 5
Five-Year Financial Summary ....................................... 9
Consolidated Balance Sheets ..................................... 10
Consolidated Statements of Income .......................... 12
Consolidated Statements of Shareholders’ Equity ..... 13
Consolidated Statements of Cash Flows ................... 14
Notes to Consolidated Financial Statements ............. 15
Report of Independent Public Accountants ................ 22
Corporate Information ................................................. 23

FINANCIAL HIGHLIGHTS
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
Years ended December 31
Yen(millions)

U.S. Dollars(thousands)

1997

1998

1999

1999

Net sales ...................................................

¥ 121,835¥ 124,652¥ 117,545$ 1,152,402

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

24,06228,30028,481

279,225

Income before income taxes ....................

30,672

28,48728,498279,392

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

16,66417,016

18,793

184,245

Shareholders’ equity .................................

172,422

187,841

204,403

2,003,951

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

213,045

207,682

218,083

2,138,069

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

¥ 354.69

Yen¥ 362.00¥ 399.20

U.S. Dollars$
3.91

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

40.00

45.00

70.00

0.69

Per share of common stock:

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥102=U.S.$1, the approximate exchange rate on December 31, 1999.
2. Net income per share figures are based on the weighted average number of shares of common stock outstanding
during each fiscal year.

1

A Message from the President
Overview of
Performance

Despite the Japanese government’s efforts to stimulate the economy in 1999 by implementing an economy revival plan and strategies for the recovery of the financial sector, investments in manufacturing machinery remained soft and unemployment rates
increased due to restructuring activities implemented by small, medium and major
companies in various industries. Accordingly, consumer spending remained weakdelaying the economic recovery.
On the other hand, the demand for our products in the North American market wasconsistently strong and healthy in 1999 due to the 8-year long economic expansion,
supported by rapid growth of the I.T. industry, improved productivity of U.S. corporations and the continued increase in stock values. Also, the E.U. market was strong due
to steady growth in the economy and strong consumer spending.
The demand for our products in Asia-Pacific was also healthy due to the unexpected speedy recovery of most economies in the region as well as the dramatic
recovery of the export business.
The results for the 1999 fiscal year, compared with 1998, were as follows:• Consolidated net sales• Operating income• Net income• Earning per share• Dividends per share: ¥ 117.5 billion (Down 5.7%): ¥ 28.5 billion (Up 0.6%): ¥ 18.8 billion (Up 10.4%): ¥ 399.20 (Up 10.3%): ¥ 70.00 (Up 55.6%)

Net Sales by product application were:• Audio-Visual Equipment• Automotive Products• Home Appliances and Power Tools• Precision Instruments and Office Equipment• Toys and Hobbies

:¥
:¥
:¥
:¥
:¥

54.4
27.6
17.6
10.9
6.9

billionbillionbillionbillionbillion(Down 7.0%)(Down 0.8%)(Down 2.6%)(Down 5.4%)(Down 18.7%)

On a regional basis, compared with 1998, we experienced the following sales resultsby region: down 7.3% in the Japanese market, down 8.2% in North and Latin America,
down 9.2% in Europe, down 4.2% in China and Hong Kong, and down 2.9% in AsiaPacific.
Despite the fact that the quantity of actual sales of our DC motor had increased by
15% due to strong worldwide demand, the turnover of consolidated sales decreased
by 5.7% because of the fact that turnover was calculated based on an appreciatedJapanese yen against the U.S. dollar. Also the average selling unit price of our DC
motor was decreased due to strong competition in the various markets.

2

Looking
Ahead

Although we need to carefully monitor the possible impact from overheated consumer
spending in the North American market, the worldwide economic outlook seems to befavorable for the balance of the year 2000. We are finally starting to see slow, but
gradual recovery of the economy in the Japanese market backed by growing consumer spending and more investment in manufacturing machinery for various industries such as the I.T. industry, housing and consumer products.
Further, economic growth can also be expected in the Asia-Pacific region, including
China. The economy in North America is still robust and healthy with continued strong
momentum in consumer spending. The soft landing for the U.S. economy seems to be
dependent upon how and when the U.S. government’s interest rate policy will be implemented in the future to control inflation.
In the E.U. market, steady growth in the economy can also be expected supportedby the reduction of the corporate tax rate in Germany, robust stock markets and higher
levels of consumer spending.
In such an economic environment, we expect to increase production quantities by
4% with estimated turnover of ¥111 billion for 2000 fiscal year.
In order for us to make the year 2000 a strong and more profitable year, we will strive
to implement the following strategies:
1. Cost reduction project:
Implementation of cost-effective design of products, global purchasing of materials
and components, renovated and rationalized manufacturing processes and utilizationof Supply Chain Management technique.
2. High manufacturing operation rate:
Full utilization of our vast production facilities, capacity and other resources.
3. New motor development:
More investment in new R&D projects and timely release of newly developed products
for audio-visual, multi-media equipment and the automotive markets.
4. Enhance customer satisfaction:
By competitive price, short production lead time, high quality, quick response andquick action to customer’s request and group quality control operations in compliancewith ISO9000, QS9000 and ISO14000 certificates.
5. Reduction of operation cost:
To reduce fixed operating costs and inventory levels of finished products, materials
and on-line components.

3

I am confident that our management policy, as described above, will lead to an improvement in productivity, stronger cost competitiveness, increase in turnover andprofit for shareholders and contribution to the society.
On behalf of the Board and Mabuchi Group, I would like to thank all of our shareholders, customers, supporting partners and employees worldwide for the continued
support.

April 2000

Takaichi Mabuchi
President

4

FINANCIAL REVIEWNet Sales

In fiscal 1999, consolidated sales amounted to ¥117,545 million ($1,152 million), down by 5.7% fromthe previous year due primarily to the effect of the appreciated yen against the U.S. dollar in thesecond half of the year and also declining selling prices from on-going worldwide competition.
Following is the trend of our markets by application in 1999:■ Audio-Visual Equipment
Shipments increased to meet increasing demands for DVD/CD/MD player motors, boosted by a technology trend toward digitization of analogue systems, as well as for PC CD-ROM player motors. However, sales decreased 7.0% to ¥54,429 million ($534 million) due to the stronger yen and user’s motor
shift to economy models.

■ Automotive Products
Motor sales for all main items such as rear view mirrors, door lock, air-conditioning damper actuators,
etc. were brisk, but sales decreased 0.8% to ¥27,599 million ($271 million) due to the same factors as
described in the Audio & Visual Market.

■ Home Appliances, Power Tools, Precision Instruments and Office Equipment
Motor sales for printer and for health care products soared. Also, motor demand for main items suchas hair dryers, shavers and power tools increased. However, sales decreased 3.7% to ¥28,514 million($280 million) due to the same factors as above.

■ Toys and Hobbies
Electronic stuffed toy motors were brisk, but sales were generally slow compared with other motor
markets and fell 18.7% to ¥6,928 million ($68 million).

Reviewing net sales by geographic area in 1999, net sales in Japan decreased 7.3% to ¥19,124 million($187 million). The Japanese economy was slightly recovering but slow during the year due to sluggishness in personal consumption and corporate capital investment despite continuing fiscal andfinancial policies to stimulate the economy.
The U.S. and the European markets enjoyed steady overall growth during the year, but overseas
sales decreased due primarily to the effect of translation from U.S. dollar to the appreciated yen. Net
sales decreased 8.2% in North and Latin America, 9.2% in Europe, 4.2% in China and Hong Kong,and 2.9% in Asia Pacific, respectively.

5Net Sales by Application

Yen(millions)Years ended December 31
1995
1996
1997
1998
1999
Audio-Visual Equipment¥ 39,389 ¥ 40,298 ¥ 55,236 ¥ 58,524 ¥ 54,429
Automotive Products
21,23022,95829,03627,80927,599Home Appliances and Power Tools
15,12014,737
17,316
18,056
17,585
Precision Instruments and Office Equipment
9,513
11,116
12,502
11,554
10,929Toys and Hobbies
6,688
7,848
7,608
8,522
6,928
Other
444
808
137
187
75
Total

U.S. Dollars(thousands)$

1999
533,618
270,578
172,402
107,147
67,921736¥ 92,384 ¥ 97,765 ¥ 121,835 ¥124,652 ¥ 117,545$ 1,152,402

Yen(millions)
1997
1998
1999
¥ 20,832 ¥ 20,634 ¥ 19,124
16,107
16,17014,843
13,838
16,22814,731
39,12944,051
42,18831,792
27,382
26,584
137
187
75

U.S. Dollars(thousands)
1999$ 187,490
145,520
144,421413,608
260,627736¥ 92,384 ¥ 97,765 ¥ 121,835 ¥124,652 ¥ 117,545$ 1,152,402

Other includes parts and equipment sales.

Net Sales by Geographic Area
Years ended December 31
Japan
North and Latin America
EuropeChina and Hong Kong
Asia Pacific
Other
Total
Other includes parts and equipment sales.

6

1995
1996
¥ 24,232 ¥ 20,154
10,835
12,834
11,948
10,83021,86028,441
23,065
24,698444
808

Costs,Cost of sales decreased by 8.3% compared to the prior year mainly due to reductions in manufacturing
Expenses, overhead costs. The gross profit ratio was 38.0% in 1999 compared to 36.2% in 1998. Selling, generalandand administrative expenses decreased by 3.9% over the previous year as a result of continuous efforts
Net Income
to reduce indirect costs. Research and development expenses amounted to ¥3,752 million ($37 million) in

1999 and ¥3,780 million in 1998. As a result of these factors, operating income slightly increased 0.6%, to¥28,481 million ($279 million) over the previous year.
Other income (expense) includes net other income of ¥17 million ($167 thousand) in 1999 versus net
other income of ¥187 million in 1998. The decrease in 1999 was principally due to a decrease in net
interest expense and income and dividend income.
Income before income taxes was comparable to the prior year. However, net income increased by 10.4%
compared to the previous year due mainly to the reduction in the effective tax rate. The effective tax rate
decreased to 33.5% in 1999 from 39.9% in 1998 primarily due to the reduction in Japan’s statutory
corporate income tax rate from 37.5% to 34.5% and a decrease in tax rates applied to the manufacturingsubsidiaries operating in Asian countries which were lower than that in Japan.

Foreign
Currency

As indicated in Note 8 “Segment Information” to consolidated financial statements, overseas sales accounted for approximately 84% of consolidated net sales in 1999, of which 76% was transacted by the
U.S. dollar and U.S. dollar linked currencies. In 1999, the average rate of the yen appreciated approximately 13% against the U.S. dollar, compared with 1998.
The appreciation of the yen against the foreign currencies resulted in decreases of net sales of approximately ¥15,000 million ($147 million) and operating income of ¥7,000 million ($69 million).
The parent company uses foreign exchange forward contracts to hedge foreign exchange risks associated with accounts receivable and payables denominated in foreign currencies. It is our current policy tohedge 80% of net receivables and payables (see Note 6 “Derivative Financial Instruments”).

Financial
Position

Net working capital at December 31, 1998 and 1999 is summarized as follows:

Yen (millions)
Current Assets:
Cash and cash equivalents ..............................................
Short-term investments ...................................................
Trade receivables .............................................................
Inventories ........................................................................
Other ................................................................................
Current Liabilities:
Short-term borrowings .....................................................
Accounts payable ............................................................
Accrued expenses ...........................................................
Other ................................................................................
Net Working Capital .........................................................
Current Ratio ....................................................................

1999

Increase(Decrease)49,13327,285
13,90021,667
1,770
113,755¥ 11,701(8,481)28(8,862)420(5,194)

ー
4,819
6,257
537
11,613¥ 102,142
9.8(5,210)
(574)
238
159
(5,387)
¥
193

1998
¥

37,43235,766
13,87230,5291,350
118,949

5,210
5,393
6,019
378
17,000¥ 101,949
7.0

¥

7

The decrease in short-term investments at December 31, 1999 was primarily due to a shift to cash
equivalents and investment securities.
The decrease in inventories at December 31, 1999 was primarily due to more quantities sold inexcess of quantities produced.
Short-term borrowings were repaid in full by two overseas subsidiaries during 1999.
See Note 1-(c) to consolidated financial statements as to foreign currency translation adjustments.
Shareholders’ equity was ¥204,403 million at December 31, 1999 compared with ¥187,841 million at
December 31, 1998. Affecting equity were mainly earnings of ¥18,793 million and dividends paid of¥2,354 million. The shareholders’ equity ratio was 93.7% at December 31, 1999 compared with 90.4%
at December 31, 1998.
The Statement of Cash Flows for the years ended December 31, 1998 and 1999 is summarized
below:Yen (millions)
Net income ................................................................................................
Depreciation and amortization ..................................................................
Additions to plant and equipment .............................................................
Purchase of short-term investments and investment securities, net ........
Repayments of short-term borrowings .....................................................
Cash dividends paid .................................................................................
Other, net ..................................................................................................
Net increase in cash and cash equivalents ...............................................

1998¥ 17,016
7,314(6,431)(13,090)(5,725)(1,880)
4,130
¥
1,334

1999
¥ 18,793
7,234(3,560)(9,180)(5,210)(2,354)5,978¥ 11,701

The Company’s financial condition remains very strong. Net cash provided by operating activities of¥33,336 million in 1999 was used primarily for additions to plant and equipment, for purchase of shortterm investments and investment securities, repayments of short-term borrowings and for cash dividends.
Dividends per share increased 55.6% to ¥70 per share in 1999 from ¥45 per share in 1998. In October 1999, management announced a new dividend program in which it would continue to pay ¥50 per
share every year as a regular dividend as long as its operating results do not significantly deteriorate
and in addition, it would pay certain percentage of consolidated net income as a special dividend.
The Company believes that it has the financial resources needed to meet business requirements inthe foreseeable future, capital expenditures for the expansion or upgrading of worldwide manufacturing capacity, working capital requirements and the dividend program.

8

FIVE-YEAR FINANCIAL SUMMARY
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
Years ended December 31
Yen(millions)

U.S. Dollars(thousands)

1995

1996

1997

1998

1999

1999

Net sales ........................................

¥ 92,384¥ 97,765¥ 121,835¥ 124,652¥ 117,545$ 1,152,402

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

18,237

14,68024,06228,30028,481

279,225

Income before income taxes .........

21,065

17,47930,672

28,48728,498279,392

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

10,127

8,940

16,66417,016

18,793

184,245¥ 216.52¥ 190.70

27.50

30.00

Operating Results

Per share of common stock:
Net income ................................

¥

354.69¥362.00¥399.20$

3.91(Yen and U.S. Dollars)
Cash dividends per share ..........
(Yen and U.S. Dollars)

Depreciation and amortization .....

¥

6,400

¥

8,320

40.00

¥

7,837

45.00

¥

7,314

70.00

¥

7,234

0.69

$

70,922

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

12,128

8,367

9,753

6,832

4,051

39,716R&D expenses .........................

2,062

2,920

3,702

3,780

3,752

36,784

Shareholders’ equity ......................

¥ 149,168¥ 157,362¥ 172,422¥ 187,841¥ 204,403$ 2,003,951

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

¥ 184,028¥ 191,508¥ 213,045¥ 207,682¥ 218,083$ 2,138,069

Number of shares outstanding ......
(thousands of shares)

46,817

46,96846,99947,07647,076

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

47,27344,31956,54755,53058,279Balance Sheet

Other Data

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥102=U.S.$1, the approximate
exchange rate on December 31, 1999.
2. Net income per share figures are based on the weighted average number of shares of common stock outstanding
during each fiscal year.
3. Number of employees includes contract manufacturing labor at plants in Guang Dong, China.
4. As a result of a review of the scope of R&D expenses in 1998, figures for R&D expenses for 1996, 1997, 1998 and1999 are compiled differently from 1995. The figure for 1995 is not adjusted to the new scope of R&D expenses as
information to determine the new scope of R&D expenses was not available.

9Consolidated Balance Sheets
Mabuchi Motor Co.,Ltd. and Consolidated Subsidiaries
December 31, 1998 and 1999
Yen(millions)

ASSETS

U.S. Dollars(thousands)

1998

1999

1999

Cash and cash equivalents ..........................................

¥ 37,432¥ 49,133

Short-term investments ................................................

35,76627,285267,500

Trade notes and accounts receivable ...........................

14,12414,144

138,667

Less-Allowance for doubtful receivables .....................

(252)

(244)

(2,392)Inventories ....................................................................

30,52921,667

212,422

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

1,350

1,770

17,352

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

118,949

113,755

1,115,245

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

4,021

4,003

39,245

Buildings .......................................................................

37,62736,551

358,343

Machinery and equipment ............................................

51,86949,992490,118

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

1,545

1,364

13,372

95,062

91,910901,078(52,265)(53,951)(528,931)

42,797

37,959372,147

Investment securities ....................................................

39,02654,923

538,461Long-term loans receivable ..........................................

2,991

1,951

19,127

Other investments and other assets .............................

3,919

2,961

29,03045,936

59,835

586,618

Current Assets:$

481,696

Plant and Equipment, at cost:Less-Accumulated depreciation ...................................

Investments and Other assets:

Foreign Currency Translation Adjustments ...........

ー

6,534

64,059¥ 207,682¥ 218,083$ 2,138,069

The accompanying notes to consolidated financial statements are an integral part of these balance sheets.

10

Yen
(millions)

LIABILITIES AND SHAREHOLDERS’ EQUITY

1998

U.S. Dollars(thousands)
1999

1999

Current Liabilities:
Short-term borrowings ........................................................

¥

5,210

¥

ー

$

ー

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

5,393

4,819

47,245

Accrued expenses ...............................................................

2,183

2,390

23,431

Accrued income taxes .........................................................

3,836

3,867

37,912Other current liabilities .........................................................

378

537

5,265

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

17,00011,613

113,853

Estimated retirement and termination allowances ..............

1,153

784

7,686

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

36

27

265

1,189

811

7,951

Foreign Currency Translation Adjustments .................

240

ー

ー

Minority Interests .........................................................

1,412

1,256

12,314in 1998 and 1999 ................................................

20,70520,705

202,990

Additional paid-in capital .....................................................

20,42020,420200,196

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

146,720

163,284

1,600,824

Less-Treasury stock ............................................................

(4)

(6)

(59)

Long-term Liabilities:

Contingent Liabilities
Shareholders’ Equity:
Common stock, par value ¥50 per share:
Authorized: 100,000,000 shares
Issued: 47,075,881 shares

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

187,841

204,403

2,003,951¥ 207,682¥ 218,083$ 2,138,069

11

Consolidated Statements of Income
Mabuchi Motor Co.,Ltd. and Consolidated Subsidiaries
For the years ended December 31, 1998 and 1999
Yen(millions)

U.S. Dollars(thousands)

1998

1999

1999

Net Sales ..................................................................................

¥ 124,652¥ 117,545$ 1,152,402

Cost of Sales ............................................................................

79,56372,933715,029

Gross profit ...........................................................................

45,08944,612437,373

Selling, General and Administrative Expenses ......................

16,78916,131

158,148

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

28,30028,481

279,225

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

2,681

1,662

16,294

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

(308)

(26)

(255)

Exchange losses on foreign currency transactions ..............

(1,272)(1,689)(16,559)

Other, net ..............................................................................

(914)

70

687

187

17

167

Income before income taxes ...................................................

28,48728,498279,392

Income Taxes ...........................................................................

11,3589,544

93,569Minority Interests ....................................................................

(113)

(161)

(1,578)Net Income ..............................................................................

¥ 17,016

Other Income (Expenses):¥

18,793

Yen$

184,245

U.S. Dollars

1998

1999

1999

Per Share of Common Stock:
Net income ...........................................................................

¥ 362.00

Cash dividends applicable to earnings of the year ..............

45.00

¥

399.2070.00

The accompanying notes to consolidated financial statements are an integral part of these statements.

12

$

3.91
0.69

Consolidated Statements of Shareholders’ Equity
Mabuchi Motor Co.,Ltd. and Consolidated Subsidiaries
For the years ended December 31, 1998 and 1999
Number of Shares(thousands)

Yen(millions)

1998

1999

1998

Beginning balance ...........................

46,99947,076

Conversion of convertible bonds ....

77ーEnding balance ................................

47,07647,076

U.S. Dollars(thousands)
1999

1999

Common Stock:¥

20,511¥

20,705$ー

194

202,990
ー¥

20,705¥20,705$

202,990¥

20,226¥

20,420$200,196

Additional Paid-in Capital:
Beginning balance .........................................................................
Conversion of convertible bonds ..................................................
Ending balance ..............................................................................

ー

194
¥

20,420¥20,420ー$

200,196

Retained Earnings:
Beginning balance .........................................................................

¥ 131,686¥ 146,720$ 1,438,431

Adjustment due to an increase in consolidated subsidiaries ........

ー

243

2,382

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

17,016

18,793

184,245

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

(1,880)(2,354)(23,078)

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

(102)

(118)

(1,156)

Ending balance ..............................................................................

¥ 146,720¥ 163,284$ 1,600,824

The accompanying notes to consolidated financial statements are an integral part of these statements.

13

Consolidated Statements of Cash Flows
Mabuchi Motor Co.,Ltd and Consolidated Subsidiaries
For the years ended December 31, 1998 and 1999
Yen(millions)
1998

U.S. Dollars(thousands)
1999

1999

Cash Flows from Operating Activities:
Net income ................................................................................

¥ 17,016

Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ..............................................

7,314

7,234

70,922Estimated retirement and termination allowance .................

167

203

1,990

Unrealized losses on marketable securities .........................

228

202

1,980

(Increase) Decrease in trade notes and accounts receivables ...

2,908

(28)

(274)

Decrease in inventories .........................................................

5,280

8,862

86,882(Increase) Decrease in other current assets .........................

333

(420)

(4,118)(Decrease) in trade notes and accounts payable .................

(2,333)(548)(5,372)

Increase (Decrease) in accrued income taxes ......................

(4,881)549

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

(3,915)(2,091)(20,500)

Other, net ..............................................................................

1,903

1,124

11,020Net cash provided by operating activities .........................

24,02033,336

326,824

Additions to plant and equipment .............................................

(6,431)(3,560)(34,902)

Change in short-term investments ............................................

1,229

8,279

81,167Purchase of investment securities ............................................

(41,749)(33,620)(329,608)

Proceeds from sale of investment securities ............................

27,43016,161

158,441

Collection of long-term loans receivable, net ............................

1,882

353

3,461

¥

18,793$

184,245

Cash Flows from Investing Activities:

Other, net ...................................................................................

1,682

(108)

(1,059)Net cash used in investing activities .................................

(15,957)(12,495)(122,500)(5,725)(5,210)(51,079)

Cash dividends paid ..................................................................

(1,880)(2,354)(23,078)

Net cash used in financing activities .................................

(7,605)(7,564)(74,157)

ー

377

3,696

Cash Flows from Financing Activities:
Change in short-term borrowings .............................................

Cash and Cash Equivalents from Consolidating previously
Unconsolidated Subsidiaries .....................................................
Effect of Exchange Rate Changes on Cash and Cash Equivalents ....

876

(1,953)(19,147)

Net Increase in Cash and Cash Equivalents .................................

1,334

11,701

114,716

Cash and Cash Equivalents at Beginning of Year ........................

36,09837,432366,980

Cash and Cash Equivalents at End of Year ..................................

¥ 37,432¥

49,133$

481,696

¥

¥

25

$

245

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest ....................................................................................
Income taxes ...........................................................................

305
16,2659,506

93,196

Noncash Investing and Financing Activities:
Increase in common stock and additional paid-in capitalon conversion of convertible bonds ........................................

¥

388

¥

ー

The accompanying notes to consolidated financial statements are an integral part of these statements.

14

$

ー

Notes to Consolidated Financial Statements
Mabuchi Motor Co., Ltd. and Consolidated subsidiaries

1. Summary of Significant Accounting and Reporting Policies(a) Basis of presenting
financial statements

The accompanying consolidated financial statements of Mabuchi Motor Co., Ltd.
(the “Company”) and its consolidated subsidiaries have been prepared from the consolidated financial statements filed with the Minister of Finance as required by the
Securities and Exchange Law of Japan. The Company maintains the accounts inaccordance with the provisions set forth in the Japanese Commercial Code and in
conformity with accounting principles and practices generally accepted in Japan,
which may differ in some material respects from accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
In addition, the notes to the consolidated financial statements include information
which is not required under accounting principles generally accepted in Japan but ispresented herein as additional information. For the purpose of this report, certain
reclassifications have been made to present the accompanying consolidated financial statements in a format which is familiar to readers outside Japan.
For the convenience of the reader, the accompanying consolidated financial statements have also been presented in U.S. dollars by arithmetically translating yen
amounts at the rate of ¥102 to U.S.$1, which was the approximate exchange rate
prevailing on December 31, 1999.
Certain reclassifications have been made to the accompanying consolidated financial statements for 1998 to conform to 1999 presentations.

(b) Principles of consolidation

The consolidated financial statements include the accounts of the Company and all
significant subsidiaries. All significant intercompany balances, transactions, and profits have been eliminated in consolidation. Investments in unconsolidated subsidiaries
are stated at cost.

(c) Translation of foreign
currencies

Transactions in foreign currencies are translated at the exchange rates in effect at thetime of the transactions. Monetary current assets and liabilities denominated in foreign
currencies are translated into Japanese yen at the rates of exchange in effect at thebalance sheet date. All other accounts are translated at historical rates in effect at thetime of each transaction. Exchange differences resulting from these translations areincluded in income.
Foreign subsidiaries’ assets and liabilities are translated into yen at the rates of exchange in effect at the balance sheet date. The accounts of shareholders’ equity aretranslated at historical rates. Revenues and expenses are translated at the average
rates of exchange for the year. Translation adjustments are not included in income but
are dealt with as an account of assets or liabilities.

15

(d) Cash and cash
equivalents

Cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less, that are readily convertible to known amountsof cash and are so near maturity that they present insignificant risk of changes invalue because of changes in interest rates.

(e) Short-term investments and investment
securities

Short-term investments consist principally of marketable equity securities, debt securities and investment trust. Investment securities consist principally of foreign debt
securities and marketable equity securities. Marketable securities are stated at thelower of cost determined by the moving average method or market. Closed end investment trust and foreign debt securities are stated at cost.

(f) Inventories

Finished goods, work in process and raw materials are principally stated at averagecost. Marketable raw materials such as copper, gold, silver and palladium are statedat the lower of average cost or market.

(g) Depreciation

Depreciation of plant and equipment is computed by the declining-balance method
for the Company and its domestic subsidiary and principally by the straight-line method
for overseas subsidiaries over the estimated useful lives. In connection with the amendment of the Japanese corporate income tax law in 1998, the Company and its domestic subsidiary applied the straight-line method to buildings which were purchased
after April 1, 1998. The effect of the change in depreciation method is immaterial.

(h) Research and development expenses

Expenditures relating to research and development activities are charged to income
as incurred and amounted to ¥3,780 million and ¥3,752 million ($36,784 thousand)for the years ended December 31, 1998 and 1999, respectively.

16

(i) Income taxes

Income taxes of the Company and most consolidated subsidiaries are provided basedon the amount required by the tax returns for the year. No tax effect has been recorded for timing differences between tax and financial reporting in the recognition ofcertain revenues and expenses.

(j) Termination and retirement plans

The Company has a trusteed noncontributory pension plan covering substantially all
qualified full-time employees. Under the plan, eligible employees are entitled to a 10year annuity or lump-sum payments based on the rate of pay at the time of retirement
or termination, length of service and certain other factors. Annual payments to thetrustees for the pension plan are based on actuarially determined costs of the plan. It
is the Company’s policy to charge the annual payments to income, including theamortization of prior service costs.
The Company’s pension fund assets and the actuarially computed value of pension
benefits as of November 30, 1999, the latest date of report available from the trustees, were ¥3,603 million ($35,324 thousand) and ¥4,598 million ($45,078 thousand).
Certain subsidiaries have similar pension plans to the Company and have pension
fund assets of ¥1,476 million ($14,471 thousand) as of December 31, 1999. Also,
certain subsidiaries have unfunded retirement and termination allowance plans for
qualified employees and the amounts required under the plan have been fully accrued.
The Company also has an unfunded retirement and termination allowance plan for
directors and statutory auditors, and has fully accrued the amount required under theplan.
Total provisions, including the amortization of prior service costs, charged to income under these termination and retirement plans for the years ended December
31, 1998 and 1999 were ¥682 million and ¥653 million ($6,402 thousand), respectively.

17

2. Inventories
Inventories as of December 31, 1998 and 1999 were as follows:Yen(millions)

U.S. Dollars(thousands)

Finished products ...................................................................................

1998¥ 16,992

1999¥ 10,551

1999$ 103,441

Work in process ......................................................................................

4,621

3,127

30,657

Raw materials .........................................................................................

8,916

7,989

78,324¥ 30,529¥ 21,667$ 212,422

3. Short-term Investments and Investment Securities
Short-term investments and investment securities as of December 31,1998 and 1999 include marketable debt and equity
securities and investment trusts of which market value is as follows:
Yen (millions)
Book
value

1998
Marketvalue

Gains(losses)

Book
value

1999
Marketvalue

Gains(losses)

U.S. Dollars (thousands)
1999
Book
Market
Gains
value
value
(losses)

Short-term inverstments:
Debt securities ......... ¥ 21,146 ¥ 20,832 ¥ (314)¥ 9,440 ¥ 9,413 ¥(27) $ 92,549 $ 92,284 $(265)

Equity securities .......

1,775

2,003

228

1,301

2,658

1,357

12,75526,05913,304

Investment trusts .....

3,400

3,408

8

15,05015,12575

147,549

148,284735¥ 26,321 ¥ 26,243 ¥(78)¥ 25,791 ¥ 27,196 ¥ 1,405$ 252,853 $ 266,627 $ 13,774

Equity securities ....... ¥ 2,165 ¥ 2,303 ¥138¥ 2,114 ¥ 3,312 ¥ 1,198$ 20,725 $ 32,470 $ 11,745

Inverstment securities:

4. Income Taxes
The Company is subject to several taxes based on income with a normal tax rate aggregating approximately 51.1% and47.4% for the years ended December 31, 1998 and 1999, respectively. Income taxes applicable to consolidated subsidiaries were levied at the tax rates in effect in the countries where each subsidiary operates.
The amendment of the Japanese corporate income tax law in 1999 was applicable to Japanese corporations for fiscal
years beginning after March 31, 1999. As a result of the amendment, the Company will be subject to an aggregate normal
tax rate of 41.7% in 2000.

18

5. Shareholders’ Equity and Per Share Data
The Japanese Commercial Code (the “Code”) provides that an amount equivalent to at least 10% of cash dividends paid
and other cash outlays resulting from appropriations of retained earnings with respect to each annual period be appropriated to the legal reserve until such reserve equals 25% of the stated capital. The legal reserve of ¥2,774 million and ¥3,046
million ($29,863 thousand) is included in retained earnings at December 31, 1998 and 1999, respectively. The Code also
provides that additional paid in capital and the legal reserve are not available for cash dividends, but may be used toreduce a capital deficit by resolution of the shareholders or may be capitalized by resolution of the Board of Directors.
Year-end cash dividends are approved by the shareholders after the end of each fiscal year, and semi-annual interim
cash dividends are declared by the Board of Directors after the end of each interim six month period. Such dividends arepayable to shareholders of record at the end of each fiscal year or interim six month period.
In accordance with the Code, these dividends and the related appropriations of retained earnings have not been reflected in the financial statements at the end of such fiscal year. However, dividends per share shown in the accompanying
consolidated statements of income reflect dividends applicable to the respective fiscal year. Net income per share iscomputed based on the weighted average number of shares of common stock outstanding.
On September 24, 1999, semi-annual interim cash dividends (¥25 or $0.25 per share) of ¥1,177 million ($11,539 thousand) were paid to shareholders of record at June 30, 1999. On March 30, 2000, the shareholders approved the declaration of cash dividends (¥45 or $0.44 per share) totaling ¥2,118 million ($20,765 thousand), payments of bonuses to directors and statutory auditors totaling ¥145 million ($1,422 thousand) and related appropriations of retained earnings to legal
reserve of ¥230 million ($2,255 thousand).

6. Derivative Financial Instruments
The Company enters into forward exchange contracts and forward precious metal contracts as a normal part of risk
management efforts. As a result, the Company is exposed to risk of credit-related losses in the event of nonperformanceof counterparties to foreign exchange contracts and precious metal contracts, but management believes such risks to beminor because of the high creditability of the counterparties and such financial instruments have not been held for trading
purpose. Following is a summary of derivative financial instruments which are currently held by the Company.
The Company uses foreign exchange forward contracts to hedge the risk of changes in foreign exchange rates substantially associated with accounts receivable and payable denominated in foreign currencies. The Company had forward
exchange contracts which mature within a year to sell ¥327 million and ¥296 million ($2,902 thousand) in U.S. dollars at
December 31, 1998 and 1999, respectively, and the estimated fair value outstanding at December 31, 1998 and 1999 were¥318 million and ¥287 million ($2,814 thousand), respectively.
Forward precious metal contracts are used by the Company to hedge the risk of changes in market prices resulting frompurchase of precious metals as raw materials for motor products. The contracted amounts outstanding at December 31,
1998 and 1999 were ¥138 million and ¥45 million ($441 thousand), respectively, and the estimated fair value outstandingat December 31, 1998 and 1999 were ¥126 million and ¥48 million ($471 thousand), respectively.

7. Contingent Liabilities
As of December 31,1999, the Company and certain subsidiaries were contingently liable principally for bank guarantees in
the amount of ¥30 million ($294 thousand).

19

8. Segment Information
The Company and consolidated subsidiaries manufacture and sell small electric motors, parts and equipment used for
production purposes. Almost 100% of the consolidated net sales and operating income are generated from a broad rangeof motor products. The information on net sales, operating income and assets by geographic area, and overseas sales issummarized as follows:
Segment Information by Geographic Area

Yen(millions)1998

Net sales:Japan
Outside customers .......................................................
Intersegment ................................................................
Total ...........................................................................
Asia
Outside customers .......................................................
Intersegment ................................................................
Total ...........................................................................
U.S.A.
Outside customers .......................................................
Intersegment ................................................................
Total ...........................................................................
EuropeOutside customers .......................................................
Intersegment ................................................................
Total ...........................................................................
Corporate and elimination ................................................
Consolidated ..........................................................................
Operating Income:Japan ................................................................................
Asia ...................................................................................
U.S.A. ...............................................................................
Europe ..............................................................................
Corporate and elimination ................................................
Consolidated ..........................................................................
Assets:Japan ................................................................................
Asia ...................................................................................
U.S.A. ...............................................................................
Europe ..............................................................................
Corporate and elimination ................................................
Consolidated ..........................................................................

¥

37,69452,34990,043

1999¥

35,952
43,92379,875

U.S. Dollars(thousands)
1999$

352,471430,618
783,089

59,97154,045
114,016

56,19746,659102,856

550,951
457,441
1,008,392

14,63912
14,651

13,28026
13,306130,196255
130,451

12,34837
12,385(106,443)

12,11719
12,136(90,628)

118,794
186
118,980(888,510)¥ 124,652¥

117,545$ 1,152,402¥

18,776
7,193
880
417
1,034

¥

17,525
7,499
697
559
2,201

$

171,81473,5206,833
5,480
21,578¥28,300¥28,481$

279,225¥

70,13059,161
5,718
4,137
68,536¥65,06378,0205,264
4,942
64,794$

637,873
764,90251,60848,451
635,235¥ 207,682¥

218,083$ 2,138,069

The amount of corporate assets included in “Corporate and elimination” is ¥97,695 million in 1998 and ¥111,334 million($1,091,510 thousand) in 1999, which comprises principally cash, short-term investments and investment securities.

20

Overseas Sales
Yen(millions)
1998
Overseas Sales
U.S.A. ...............................................................................
Europe ..............................................................................
Asia and Other ..................................................................
Total ..............................................................................
Net Sales ................................................................................
% of Overseas Sales to Net Sales .........................................

¥

16,17016,22871,612104,010
124,652
83.4%

U.S. Dollars(thousands)
1999¥

14,843
14,731
68,824
98,398
117,545
83.7%

1999
$

145,520
144,421674,745964,686
1,152,402

Overseas sales are the total of exports by the Company and sales by consolidated overseas subsidiaries.

21

Report of Independent Public Accountants

To the Board of Directors of Mabuchi Motor Co., Ltd.
We have audited the consolidated balance sheets of Mabuchi Motor Co., Ltd. and its consolidated subsidiaries
as of December 31, 1998 and 1999, and the related consolidated statements of income, shareholders’ equity andcash flows for the years then ended. Our audits were made in accordance with auditing standards generally
accepted in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of
Mabuchi Motor Co., Ltd. and its consolidated subsidiaries as of December 31, 1998 and 1999, and the results of
their operations and cash flows for the years then ended, in conformity with accounting principles generally
accepted in Japan applied on a consistent basis.
The United States dollar amounts shown in the accompanying consolidated financial statements have beentranslated solely for convenience. We have reviewed this translation and, in our opinion, the consolidated financial
statements expressed in yen have been translated into dollars on the basis described in Note 1 (a).

CENTURY AUDIT CORPORATION(Certified Public Accountants)

Tokyo, Japan
March 30, 2000

See note 1 (a) to the consolidated financial statements which explains the basis of preparing the consolidated
financial statements of Mabuchi Motor Co., Ltd. and its consolidated subsidiaries under Japanese accounting
principles and practices.

22

CORPORATE INFORMATIONBOARD OF DIRECTORSAs of April 1, 2000

President

Takaichi Mabuchi

Executive Vice President

Akira Ohnishi

Managing Director

Shoji Nishimura
Shinji Kamei

Directors

Yoshimasa Sugiyama
Chiaki Kajiwara
Sun Zuei Che
Nobuyo Habuchi

Statutory Auditors

Toshiaki Takahashi
Kiyoshi Iwakura
Ichiro Ando
Yuzaburo Nagase

23

CORPORATE DIRECTORY
As of December 31, 1999

Consolidated Subsidiaries
MABUCHI INDUSTRY CO., LTD.
19 Sam Chuk St., San Po Kong
Kowloon, Hong Kong
Tel : 852-2328-5575
Fax : 852-2352-1008
MABUCHI TAIWAN CO., LTD.
6/F No. 3 Sec. 1 Tun Hwa South Rd.
Taipei, Taiwan
Tel : 886-2-2579-0155
Fax : 886-2-2570-6535
MABUCHI MOTOR TAIWAN LTD.
No. 66 Kai Fa Rd., N.E.P.Z.
Kaohsiung, Taiwan
Tel : 886-7-362-1111
Fax : 886-7-361-9111
MABUCHI MOTOR DALIAN LTD.
Harbin Rd., Dalian Economic
and Technical Development Zone
China
Tel : 86-411-761-1111
Fax : 86-411-761-2900
MABUCHI MOTOR WAFANGDIAN LTD.
Wafangdian City
Laohutun Town, China
Tel : 86-411-537-0241
Fax : 86-411-537-0291

MABUCHI PRECISION INDUSTRIES LTD.
1087 Hinata-cho,Tatebayashi-shi
Gunma-ken, 374-0076, Japan
Tel : 81-276-72-1941
Fax : 81-276-72-1943
MABUCHI PRECISION INDUSTRIES HONG KONG LTD.
19 Sam Chuk St., San Po Kong
Kowloon, Hong Kong
Tel : 852-2328-5575
Fax : 852-2352-1008
DONGGUAN MABUCHI MOTOR EQUIPMENT CO., LTD.
16 Tian Bao Road, Dong Zong Road
Dong Guang City, Guang Dong Province
China
Tel : 86-769-225-6985
Fax : 86-769-225-6984
MABUCHI MOTOR AMERICA CORP.
3001, West Big Beaver Rd., Suite 520
Troy, MI. 48084 U.S.A.
Tel : 1-248-816-3100
Fax : 1-248-816-3242

MABUCHI MOTOR (JIANGSU) CO., LTD.
No. 1 Liu Xu Rd., Song Ling
Economic and Technical Development Zon
Wu Jiang City, Jiang Su, China
Tel : 86-512-345-1111
Fax : 86-512-345-0438

MABUCHI MOTOR (SINGAPORE) PTE. LTD.
111 North Bridge Rd., #21-02
Peninsula Plaza, Singapore 179098
Tel : 65-339-9991
Fax : 65-339-9091

MABUCHI MOTOR (MALAYSIA) SDN. BHD.
Plot 15, Kanthan Industrial Estate
31200 Chemor, Perak, Malaysia
Tel : 60-5-201-1888
Fax : 60-5-201-2288

MABUCHI MOTOR (EUROPE) GmbH
Hahnstrasse 38, 60528
Frankfurt/Main, Germany
Tel : 49-69-6690220
Fax : 49-69-66902229

Non-Consolidated Subsidiaries
MABUCHI REAL ESTATE CO., LTD.
TAIWAN MABUCHI (HONG KONG) CO., LTD.

24

MABUCHI MOTOR VIETNAM LTD.
No. 28, Bienhoa Industrial Zone 2Long Binh Ward, Bienhoa City
Dongnai Province, Vietnam
Tel : 84-61-836711
Fax : 84-61-836712

INVESTOR INFORMATIONAs of March 31, 2000

Corporate Headquarters
MABUCHI MOTOR CO., LTD.
430 Matsuhidai, Matsudo-shi
Chiba-ken 270-2280, Japan
Tel : 047-384-1111
Fax : 047-389-5299
http : //www.mabuchi-motor.co.jp

Ordinary General Meeting of Shareholders
The Ordinary General Meeting of Shareholders will be heldat the end of March in Matsudo.

Independent AccountantsCentury Audit Corporation (Member Firm of KPMG International)
Tokyo, Japan

Transfer Agent of Common Shares Handling Office
The Toyo Trust and Banking Co., Ltd.
Corporate Agency Department
10-11, Higashi-suna 7-chome, Koto-ku
Tokyo 137-8081, Japan
Tel : 03-5683-5111

Japanese Stock Exchange Listing
Tokyo stock exchange

25