■ Mission Statement

Over forty years of continually challenging the potential of
the construction equipment rental business.
Always striving to achieve the highest level of service.
C O N T E N T S

Annual Report 2004

Kanamoto’s growth has been synonymous with the development of Japan’s construction
equipment rental business. Whether the concern is products, quality assurance, supply
channels, or a state-of-the-art business model developed to meet changing times, helping
customers rationalize their operations has always been our foremost goal.
With support from over 7,400 customer firms nationwide, Kanamoto will further expand thepossibilities for construction equipment rental solutions in the years ahead.

For purposes of this report, the Balance Sheets and Statementsof Income were created using financial data prepared according
to Japan’s Securities Report guidelines.

2

Mission Statement

28

Consolidated Balance Sheets

3

Financial Highlights

30

Consolidated Statements of Income

4

A Message from the President

31

Consolidated Statements of Cash Flows6

Operating Division Guide

32

Consolidated Statements of Shareholders' Equity

8

The Kanamoto Advantage

33

Notes to Consolidated Financial Statements

12

CSR Report40

Non-consolidated Balance Sheets

15

Branch Network

42

Non-consolidated Statements of Income

16

Alliance & Associates

43

Non-consolidated Statements of Shareholders' Equity

20

Corporate History

44

Notes to Non-consolidated Financial Statements

22

Corporate Data

46

Report of the Audit Committee

23

Financial Section

47

Board of Directors

24

Report of Operating Results

■ Financial Highlights□ Financial Highlights (Consolidated)
Millions of yen

2003
Rental revenues and salesof goods

2004

Percent change

Thousands of
U.S. dollars( 2003・2004 )2004¥ 63,686¥ 61,336△ 3.7＄577,663

2,308

1,878

△18.6

17,693

914

1,097

20.1

10,336

Total shareholders' equity

31,90732,7462.6

308,399

Total assets

89,01089,323

0.4

841,247

Operating income
Net income

Yen

Percent change

U.S. dollars

Per share of common stock
Net income

29.96

36.50

21.8

＄0.34

Cash dividends

18.00

19.00

5.5

0.18

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥ 106.18=US $1,
the approximate exchange rate on October 31, 2004.

Kanamoto Annual Report 20043

■ A Message from the President

The energy to reach new heights, the drive to deliver
greater satisfaction, the will to innovate.
These are the qualities you’ll find behind Kanamoto’s
vitality.
Thank you for your continuing support of Kanamoto Co., Ltd.
The year 2004 marked the 40th anniversary of Kanamoto’s founding and a turning point
for the Company. From its beginning in the sale of steel and steel products, through its
expansion as the pioneer of Japan’s construction equipment rental industry, to thesuccessful listing of its stock on the Sapporo Stock Exchange in 1991 and on the Second
Section of the Tokyo Stock Exchange in 1996 and the elevation of its shares to the First
Section of the TSE in 1998, the Company has accomplished its growth into today’s
Kanamoto through the enthusiastic support of all of its stakeholders.
As you are well aware, during the past several years Japan’s entire construction industry
has been faced with a challenging environment, because of the reduced level of total
construction investment accompanying cutbacks in public works. The construction
equipment rental industry in which Kanamoto conducts its core business has been
affected as well, and the market remains in a state of weak demand.
In October 2004 we completed the first year of Kanamoto’s five-year business plan
“Metamorphose,” the Company’s program to address every stakeholder’s long-term
expectations and ensure Kanamoto survives this severe business environment. Although
the results were not necessarily perfect, we were able to achieve a corresponding level ofsuccess.
The main elements of Year Two of “Metamorphose,” which we began recently, are as
follows.
Our first objective is to increase the usable life of our rental assets. Specifically we willtake steps to extend the average life cycle, from the time we introduce an asset until its
sale as used equipment, by two to three years beyond the former typical period. This will
enable us to decrease the annual depreciation burden and improve our profit margin.
Our second objective is to increase our return on investment, or ROI. Given that
Kanamoto requires a substantial amount of annual capital investment, and the timerequired in the rental business to recover investments in construction equipment, it iscritically important that we improve our ROI because this indicator highlights the level of
earnings our invested capital is able to generate.
Therefore we will pursue a shift in our rental equipment portfolio toward assets with highKanchu Kanamoto

4

Kanamoto Annual Report 2004

President and Chief Executive Officer

profit margins, and seek to improve profit margins throughout the entire company, by
diligently seeking to improve the ROI for each separate asset.
Our third objective is thorough cost reductions, with no areas considered off limits. We
will apply strict profitability controls for all of the Company’s main cost items, with thegoal of profitability improvement.
Our fourth objective is the continuation of our branch renewal program. We will
downsize, consolidate or shut down unprofitable branches aggressively, and allocate themanagement resources obtained from this effort to newly opened branches in Japan’s
three major metropolitan areas or other regions. By increasing net sales in Honshu while
maintaining our top share of the market in Hokkaido, we project Kanamoto ultimately will
be able to increase the percentage of its total net sales generated in Honshu toapproximately 70%.
By successfully completing “Metamorphose,” Kanamoto will accomplish its
transformation into a more profitable entity and move towards meeting the demands of its
customers, its shareholders and all of the Company’s other stakeholders.
We look forward to continuing to receive your increased support and guidance over the
coming year.
□ Concept of the five-year management plan "Metamorphose"

Kanamoto’s Board Members

Kanamoto Annual Report 20045

■ Operating Division Guide

Three divisions, continually pursuing optimal services suited to today’s
expectations.

□ Fiscal 2004 operating results (Millions of Yen)

Rental revenues
Sales revenues
Division total

38,471
14,28952,760A full product line-up with more than 130,000 pieces
of rental machinery and equipment

The construction equipment rental business is Kanamoto’s core business. Kanamoto maintains a full lineup of
every item required at a construction work site, from temporary construction materials and temporary housing units
to hand tools, in addition to construction equipment, in order to meet a wide range of user needs.

Construction equipment rental business
A full product lineup and rapid response to customers
Kanamoto owns approximately 460 different models and 130,000 rental items. No other firm can match this extensive, highquality product lineup. When an order for equipment is received, the Company can immediately check the equipment situation
at all of its branches using its online network. This enables Kanamoto to quickly confirm operating conditions and maintenancestatus, and respond promptly and accurately to each customer's needs.

Superb maintenance technology and a complete repair system
To keep its products operating at maximum efficiency, Kanamoto has equipped every branch office with a repair center, where
our full-time maintenance staff of 400 technicians provides equipment maintenance. The number of personnel holding equipment
repair qualifications has increased to approximately 1,600 individuals, and each technician has an average of four different repair
skill qualifications. We also offer Kanamoto’s comprehensive compensation system, which enables customers to use their rental
equipment with peace of mind. At Kanamoto, we do what it takes to protect our customers from the risk of unforeseen
emergencies.

A branch office network that covers JapanThe Kanamoto Group’s branch office network covers Japan. By constructing an organization to supply rental equipment fromany of the group’s firms, Kanamoto has earned a reputation for excellence with its customers. In the future, Kanamoto will
aggressively promote alliances with leading local companies and devote its energies to providing users with greater convenienceand even more efficient service.

As a trusted business partner
An extensive line of rental items, advanced maintenance technology, a branch network reaching throughout Japan and acomplete repair system. Kanamoto’s professionals combine each of these benefits to offer customers top-notch service. At
Kanamoto, we don't merely respond to an order, we seek to become our customers’ best business partner by providing the latest
products, most advanced construction methods, and information honed from our knowledge and experience, all from the user’s
point of view.

6

Kanamoto Annual Report 2004

Product storage warehouse at
the Muroran Office□ Fiscal 2004 operating results (Millions of Yen)

Division total

6,058

Steel products sales business
Kanamoto’s steel products sales business handles sales of various construction materials for engineering and construction
works, including steel H-beams and formed reinforcing bars. As a distributor with strong local ties in Hokkaido, Kanamoto has
won the hard-earned trust of its customers. Currently Kanamoto is expanding its steel products sales into new business areas.
This includes focusing on Hokkaido’s leading fabricators, shifting its base of operations to the Sapporo area where the strongest
private-sector construction demand can be anticipated, and aggressively handling new commercial materials for constructionuse.
Steel materials are an indispensable and vital component for building the infrastructure that supports our daily lives. Kanamoto
will continue to offer the most appropriate materials for its customers and their local communities.

Information products business
From workstations to PC servers and other system development support devices, Kanamoto’s information products businessprovides rentals and sale of computer-related equipment.
In the IT industry, where technological improvements are being made at a bewildering pace, Kanamoto has achieved an
excellent track record by providing rental services that are well adapted to customers’ needs.
Recommending products that fit customers’ applications and proposing network solutions, all with the competitive edge
provided by a broad range of rental choices perfectly matched to today’s trends - that’s the mission of Kanamoto’s information
products business.

Kanamoto handles a broad range of the mostadvanced information products from Sun
Microsystems, Inc. and other companies.

□ Fiscal 2004 operating results (Millions of Yen)

Rental revenues
Sales revenues
Division total

362
92
454

Kanamoto Annual Report 20047

■ The Kanamoto Advantage

Kanamoto’s branding strategy is a step ahead of the trend□ Percentage of equipment introduced that meets anti-pollution standards

Ultra quiet generator

Kanamoto’s rental vehicles clear
exhaust emissions regulations

Product lineup expansion is an absolutely essential condition for supporting users’ needs. At Kanamoto, we
continually strive to improve customer satisfaction with a first-class selection of products and the highest quality
service. We will continue to support every user and customer company throughout Japan and seek to achieve evengreater rental solutions in the years ahead.

A selection of state-of-the-art rental assets with an emphasis on environmental protection
Today’s trend towards greater environmental protection is global. One measure in particular that has attracted attention is
tougher exhaust emissions regulations. These regulations are being applied to construction equipment as well as automobiles,
and their provisions put the responsibility for compliance not only on manufacturers but on users as well.
To fulfill our social responsibility towards the global environment, at Kanamoto we have systematically implemented upgrades toour rental assets that have placed us at the head of the industry. As a result, roughly 98% of the Company’s assets already comply
with regulations on emissions, noise and other forms of pollution. Of course we always pursue customer convenience, but
practicing environmental management is also an important mission expected of Kanamoto.

Extending brand power with a branch network reaching every corner of Japan
From Hokkaido to Okinawa, the “Kanamoto alliance group” is a business alliance network that reaches every corner of Japan.
This group works aggressively to promote alliances (business tie-ups) with equipment rental firms in various regions, andcontinually seeks to enhance rental equipment usability.
Through a combination of Kanamoto’s selection of state-of-the-art rental assets plus local equipment rental firms that are wellinformed about business needs in their area, Kanamoto is working to increase the level of awareness of the Kanamoto brand.

State-of-the-art hydraulic excavatorand aerial work platform

8

Kanamoto Annual Report 2004

Construction equipment rental industry trends and Kanamoto’s
positioning□ Change in construction investment in Japan and reliance on construction equipment rentals

Based on a survey by the Ministry of Land, Infrastructyure andTransport and the Japan Civil Engineering Constractors'
Association, Inc.
※ The percentages for reliance on construction equipment rentals declined in 2002
because equipment models for which firms rely primarily on rentals, such as
vehicles for high-level work, fans and electric generators, were added to thesurvey in that year.

The construction equipment rental business has established a strong reputation with both firms and individual
users by offering excellent convenience and economy. According to a study by the Ministry of Economy,Trade andIndustry (2003), the construction equipment rental industry now accounts for 57.8% of Japan’s domestic market for
construction equipment. Kanamoto is keenly aware of customers’ expectations towards this expanding market, andworks incessantly to meet customers’ needs.

Construction equipment rental demand as a management rationalization solution
For several years following the collapse of the economic bubble, construction investment in Japan was maintained at a high levelof approximately 80 trillion yen with the government’s support. Since 1997, construction investment has fallen sharply to a much
lower level because of a freeze on private investment and a reduction in public works spending. This change has put tremendous
pressure on the construction industry to rationalize its management, and every company is making an all-out effort to reduce
debt and shrink assets. As part of this effort, more companies are making the shift from direct ownership to construction
equipment rentals as a means to procure construction equipment. Reliance on the use of rentals by construction firms to meettheir equipment needs continues to maintain an upward trend, rising to 48.1% fiscal 2003. As a solution enabling companies toslash equipment procurement costs, eliminate the need for investment in storage and repair facilities, and reduce maintenanceand other running costs, the role of construction equipment rentals will continue to grow.

Development of the construction equipment rental industry as restructuring continues
According to information published by the Ministry of Economy, Trade and Industry, the size of Japan’s construction equipment
rental industry market in fiscal 2003 was roughly ¥935.6 billion, equivalent to approximately 1.7% of total construction
investment. The market is fragmented, consisting of approximately 2,000 companies broadly classified into multi-regional
equipment rental companies such as Kanamoto, local equipment rental companies developing operations in specific regions, andmanufacturer-related rental firms that have entered the business in recent years. With the overwhelming number of firms being
local equipment rental companies, further industry restructuring is anticipated as competition within the industry heats up
because of the drop in rental unit prices in recent years, and as firms that cannot replace their assets with new equipment are
weeded out. According to a survey by a construction equipment rental industry newspaper, Kanamoto was Number One in theconstruction equipment rental company revenue rankings, and large, multi-regional rental companies held the top four of the
Top Ten positions for fiscal 2001, the latest year for which data is available. This markedly illustrates the sharp distinction
between the industry’s leading companies and local equipment rental firms.

□ Composition of construction equipment rental□ Changes in the revenue of construction equipment rental

industry and Kanamoto' s shareindustry revenues

Based on a survey by the Japan
Construction Equipment Lease
Business Association.

Kanamoto Annual Report 20049

■ The Kanamoto Advantage

Asset operations that generate future earnings

Completion of product lineup update enables Kanamoto to improve earnings capability
Based on its social mission to utilize environmental management practices, Kanamoto was ahead of other companies in actively
replacing rental and company assets with low-emissions equipment. As a result, today Kanamoto has differentiated itself sharply
from other industry firms that have yet to replace their assets, and boasts a state-of-the-art product lineup that already meets
pollution control regulations. This policy enables Kanamoto to achieve asset management that ensures strong annual earnings.
Kanamoto’s principal business of construction equipment rentals is based on a business model of ensuring sufficient annual
earnings through asset rentals, plus earning a profit on the sale of used equipment. Maximization of “rental revenues plus profit
on used equipment sales” (lifetime recovery) and appropriate asset control are therefore absolutely indispensable. Because
Kanamoto will not need to replace or update most large assets over the next several years, from the standpoint of asset
operations we’ll be able to extend our asset rental operating period. This means we’ll be able to increase our lifetime recovery
and improve our earnings picture.

Source of earnings – Emphasis on EBITDA+
At Kanamoto, we’ve aimed at increasing EBITDA (earnings income before interest, taxes, depreciation and amortization) in the
broad sense, while continually emphasizing improvement to our ROI (return on investment) and capital investment within thescope of cash flow from operating activities. Unlike product sales, the equipment rental business generates a depreciation andamortization expense burden corresponding to the volume of assets owned. On the other hand, however, this creates a cyclethat generates earnings from adequate periodic income through rentals, plus a profit from the disposal of used equipment. In
other words, today’s depreciation burden is the source of tomorrow’s profit when assets are sold. This is the reason Kanamoto
focuses on EBITDA as its most important management indicator. Because we also frequently utilize finance leases whenintroducing assets and have numerous small-scale assets with a value of less than ¥20 billion Kanamoto has adopted a measurereferred to as EBITDA+ that adds finance lease fee payments, small-sum assets, and installment purchase fees to EBITDA as
ordinarily calculated. For the past several years, Kanamoto’s EBITDA+ has been stable at a high level.

□ Change in EBITDA+

EBITDA + = Operating income + Depreciation expense + Other depreciation and amortization
expense+ Low-price rental assets, and others
EBITDA+ is an indicator used only for the construction equipment rental business and excludes steel
products and information products

10 Kanamoto Annual Report 2004

Expanding current market dominance and solidifying Kanamoto’s
position as the leading company□ Information systems introduced

Kanamoto has adopted a web-based open system
built on a UNIX platform for its mission-criticalsystems

1978

Burroughs TK70 introduced

1981

Start of “Online Net Plan” Fujitsu M130 introduced

1985

Completed online network for all branches Fujitsu M340R introduced

1988

Fujitsu M340 introduced

1990

Fujitsu FM/G introduced

1991

Fujitsu M770 introduced

1996

Fujitsu GS8400 introduced

1998

Information system operations started

2004

Legacy migration executed

Information systems to support its rental business, plus a financial strategy that contributes to maximization of
corporate value. Taken together they create one core competence that differentiates Kanamoto from its
competitors. Kanamoto continually aims for dramatic strides forward and challenges the possibilities.

Kanamoto has built an advanced online network
When it constructed an on-line network in 1985 to connect all of the Company’s offices, Kanamoto was years ahead of its
competitors. Since then, Kanamoto’s information systems have always utilized the latest systems, and played a key role inunderstanding customer needs in response to local characteristics and maintaining an asset portfolio that provides the optimum
revenue and earnings balance.
During 2004, the Company executed a legacy migration for mission-critical systems and accomplished a full conversion to open
systems. As a result, all internal operations, from rental asset management to receipt processing, were converted to theCompany’s web. Kanamoto is now able to achieve even quicker response to its customers and more efficiency operations.

Financial strategy sets Kanamoto apart from competitors
In addition to building a strategic information system by placing all operations online, Kanamoto has always readily adopted
financial alternatives, such as a commitment facility and liquidation of bill receivables, that make excellent use of the latest
financial theories. Whether it’s reducing the size of its balance sheet or increasing capital efficiency, Kanamoto continually seeks
to revise and improve its financial position from a perspective of optimal capital structure and cash flow.
To meet the wishes of its stakeholders, Kanamoto will continue to seek maximization of its corporate value.

By using a web-based open system, Kanamoto can even operate its equipment database with GIS(Geographic Information System). This enables the Company to locate a piece of rental construction
equipment from a personal computer terminal.

Kanamoto Annual Report 2004 11

■ CSR Report

Seeking to further improve trust and corporate value.

□ Kanamoto’s corporate governance organization

Enhanced corporate governance – Increasing management transparency
Working to maintain and improve management transparency and fairness, and pursuing maximization of corporate value whilebuilding a relationship of trust with every stakeholder – this is the fundamental policy behind Kanamoto’s corporate governance.
As the highest decision-making organization for execution and supervision of the Company’s business strategies and businessplans, Kanamoto’s Board of Directors plays the key role for management decision-making and supervision. In addition, since2001 when it introduced a corporate officer system, Kanamoto has been working to increase management transparency andaccelerate decision-making by clarifying management’s supervisory responsibilities and execution authority.
For management audits, Kanamoto has adopted the auditor system. In addition to creating a system by which the Board of
Directors and the Company’s auditors receive reports from the corporate officers when necessary on all important mattersaffecting Company management and operating results, to ensure cooperation with its auditors the Company has established an
Auditing Section under the direct control of the Company president as an internal audit system.

Thorough compliance – Internal training organization enhancements and a new compliance helpline
Together with preparing a handbook to explain its corporate philosophy and outline all of the Company’s employee conduct
standards, and ensuring employees are thoroughly acquainted with its contents, Kanamoto has enacted corporate ethics rules
and created a system centered on a Compliance Committee, which includes committee members from outside the company, toensure compliance with the law and its ethics rules. The Compliance Committee fills the role of monitoring, guiding and advising
the entire Company to ensure the compliance system operates appropriately, by receiving vital information such as violations of
the law and improper conduct and conveying this promptly to management. For important legal matters, the Company has set up
a Legal Section reporting directly to the company president, and adopted a system for the president to receive advice from its
corporate attorneys at the appropriate times and implement a response.

Communications with society – Valuing IR activities
Kanamoto values the disclosure of information and communication with its shareholders and investors. From the standpoint offairness and transparency, the Company has created an environment in which anyone can easily access company information, by
actively using its company website as a tool.
To disclose corporate financial information, during the fiscal year ended in October 2004 Kanamoto begin releasing its financial
statements and operating results on a quarterly basis. In addition, after closing its interim period and fiscal year accounts, each
June and December the Company conducts settlement of accounts briefings for institutional investors and analysts, and publicly
releases the video and distribution materials on its website. Moreover, through its efforts to ensure full and timely information
disclosure by means such as Kanamoto Examiner, a quarterly publication for shareholders, and its English-language annual
report for foreign investors, Kanamoto strives for full accountability to its shareholders and investors.

12 Kanamoto Annual Report 2004

A diversified approach to creation of a "sustainable society"

Information risk management – Proper control of personal data
Even though most of the Company’s business with other firms is in the construction equipment rental business, in the course of its
operations Kanamoto handles a large quantity of personal data. In addition to establishing a Privacy Policy to protect personal
information, and providing appropriate controls on all personal data, Kanamoto has established a thorough system to address andrespond to any situation in which such information has leaked outside the Company.
As just one example, for Internet security Kanamoto utilizes the SSL (Secure Socket Layer) cryptographic technology adopted bycredit card companies for information received from users of Kanamoto’s website, and works to strengthen such measures whennecessary through improvements to enhance security and other steps.

Kanamoto introduces low-fuel consumption, low-emissions automobiles for Company vehicles
According to the results of a mass media research firm survey concerning the level of environmental management at listed firms
and leading companies, among 350 companies (number of valid responses) including Kanamoto in non-manufacturing industries,
134 firms have introduced use of low-fuel consumption, low-emissions automobiles. Kanamoto was ahead of other companies
when it adopted the Toyota Prius, a hybrid automobile, as its company vehicle in 1998. The Company currently uses 200 of thesemodels for its business.Kanamoto is also aggressively introducing other low-emissions vehicles, and as of 2004 approximately 63%of the Company’s vehicles are environmentally friendly low-fuel consumption, low-emissions vehicles.

Rental equipment updated using reduced-emissions equipment
Rentals allow our customer firms to use construction equipment owned by Kanamoto on a shared basis. Such rentals provide aservice for effectively utilizing the earth’s valuable energy resources, while enabling each user firm to shrink its capital investment.
So the construction equipment rental business is, so to speak, one answer to the world’s environmental problems.Nevertheless,even if they make a substantial effort to utilize rentals, customer firms will not be able to achieve their environmental management
goals if rental equipment does not meet antipollution standards. Currently, over 98% of the construction equipment Kanamoto owns
consists of state-of-the-art models that already meet today’s tough antipollution requirements. In the years ahead, Kanamoto will
help its customers achieve their environmental management plans by offering a full lineup of the latest construction equipment.

Disposal of waste motor oil
Kanamoto recycles about 40% of the waste motor oil collected at the Company’s maintenance shops as winter heating fuel, using
smokeless waste oil stoves that breakdown dioxin and other contaminants. In addition, the remaining approximately 60% of suchrecovered waste oil is sold to government-licensed recyclers for proper disposal. As a result, all waste oil resources are disposedof properly.
These measures not only help Kanamoto minimize air pollution, they have also reduced the Company’s costs for disposal ofwaste motor oil and new heating fuel and have achieved more effective resource use.

Kanamoto Annual Report 2004 13

■ CSR Report

Putting humanitarian assistance first-responding to pleas from every disaster area
2004 was an unprecedented year of frequent large-scale natural disasters. The Kanamoto Group is offering its fullcooperation for restoration of stricken areas. Helping the victims of disaster by taking maximum advantage of
Kanamoto’s experience gained from participation in numerous disaster recovery efforts.

Kanamoto construction
equipment being used forrestoration work on the JR
Jouetsu Shinkansen Line
Horinouchi Tunnel (Niigata
Prefecture)

Site of riverbank collapse
caused by Typhoon No.
23 (Kagawa Prefecture)

Typhoons, volcanic eruptions, earthquakes. In a year unlike any in recent memory, Japan was struck byfrequent natural disasters in 2004 that left large swaths of destruction in every affected region. Kanamoto
expresses its heartfelt sympathy and condolences to every victim and individual concerned.
Together with wreaking undreamt-of damage to various regions throughout the countr y, the successive
typhoons that swept across Japan brought into sharp relief the fragility of Japan’s infrastructure, which had
been considered more or less complete. Even now, ongoing restoration works are being carried out in theregions where damage was extensive. Immediately after these disasters, the Kanamoto Group responded torequests for help by focusing heavily on providing assistance such as heavy equipment, vehicles and electric
generators to each stricken area.
Following the Niigata Prefecture Chuetsu Earthquake as well, Kanamoto responded by immediately setting up
a task force in the local area, moving modular housing units, portable toilet facilities and construction
equipment to be used for restoration works to branch offices in the prefecture and making these available fordisaster assistance. Kanamoto also is making contributions of donated goods, such as heating equipment anditems people need for their daily lives.
The central government established a supplementary budget of ¥1,361.8 billion as recovery expenditures forthis string of disasters, of which ¥1,238.5 billion has been allocated as a supplemental public work budget forcosts to restore infrastructure such as damaged roads and embankments. As full-scale restoration work is
begun in each region, the demand for construction equipment is expected to be highly localized for someperiod of time. By accurately deploying its ample construction equipment rental assets, and establishing acomprehensive support organization, the Kanamoto Group is putting its online network to excellent use andresponding without delay to the outpouring of requests for assistance from the various regions.
In the future, an unforeseen emergency could occur at any time. Kanamoto will continue to make optimal use of
the experience it has accumulated over the years, and the entire Kanamoto Group will further study measuresthat will enable each group company to respond promptly as a construction equipment procurement expert.

□ Main natural disasters in 2004

14 Kanamoto Annual Report 2004

■ Branch Network

Our Growing Branch Network□ Kanamoto and the group companies’ operating branches

As of March 30, 2005

Kanamoto Annual Report 2004 15

■ Alliance & Associates

Sales and service network expanded again in 2004. The Kanamoto Group
continues to challenge itself.
During 2004 as well, Kanamoto pursued collaboration with leading local firms in different regions and created anorganization that enables more customers to benefit from the services of the Kanamoto Group.

Shinkiba Branch・
Shutoken Aerial
Equipment Branch(Tokyo/Shutoken Block)Shutoken Aerial Equipment
Branch equipment yard
(Tokyo/Shutoken Block)Continually establishing new footholds based on cooperation with leading local firms
In June 2004, Kanamoto established the Tokyo Metropolitan Area Aerial Equipment Branch and Shin-Kiba Branch, plus a largescale equipment yard and maintenance facility, in Koto City, Tokyo. The Company’s goal is to increase awareness of theKanamoto brand and expand Kanamoto’s share of the Tokyo area market, where construction equipment rental demand isstrong.
As its name indicates, the Tokyo Metropolitan Area Aerial Equipment Branch rents construction equipment for high level work,and supports large-scale construction projects in the heart of the Tokyo metro area as Kanamoto’s centralized base specializing
in equipment for high level work. As the Company’s core branch in the Tokyo metropolitan area, on the other hand, the ShinKiba Branch focuses on business development aimed at participation in large-scale construction works in conjunction with port
and harbor engineering projects and urban redevelopment. Kanamoto’s goal is to achieve synergistic effects, by having bothbranches complement one another in responding to a variety of customer needs.
The Company is strengthening cooperation with leading local firms in Hokkaido as well, and established the Engaru Branch(Engaru, Monbetsu-gun, Hokkaido) in June 2004.
In other efforts, Kanamoto also is pushing ahead with its branch replacement and renewal program, to position branches
effectively in the Company’s existing business areas and create an organization to provide services closely aligned with local
customers’ needs.

□ Kanamoto branches in Tokyo metropolitan area

Engaru Branch(Hokkaido/Hokumo Block)16 Kanamoto Annual Report 2004

Yukio Sato, Kanki Corpora-tion’s new president,
describes his aspirations
for the company at a
special meeting of theentire company

Kanki Corporation head
officeKanki Corporation, Hyogo Prefecture’s top construction equipment rental firm in termsof market share, becomes a Kanamoto subsidiary
Kanki Corporation (Head office: Kobe, Hyogo Prefecture) manages a comprehensive equipment rental business through its
network of eight branches in Hyogo Prefecture. For over 40 years, Kanki Corporation has maintained its leading position within
Hyogo Prefecture in the face of intense competition, based on operations firmly rooted in the local area and the company’s
sincere approach to business.
Over the course of several years, Kanki Corporation and Kanamoto have built a strong partnership. In September 2004,
Kanamoto decided to make Kanki Corporation a consolidated subsidiary to further develop this cooperative relationship.
Kanki Corporation has earned a high level of trust in its core market in Hyogo Prefecture, and boasts the unshakable strength of
the Kanki Corporation brand. By combining this with Kanamoto’s state-of-the-art, first-class rental equipment and the industry’s
most powerful online network, together the two companies have created a system that is not limited to the market in Hyogo
Prefecture and is capable of growing by advancing into undeveloped areas in western Japan.
In order to offer the services of the Kanamoto Group to customers throughout Japan in the future, Kanamoto will seek to expand
aggressively, not only through development of its own branch offices but also by building an alliance group with local firms inevery region of Japan, using a mixture of collaboration, alliances and M&A.

□ Kanki branches in Hyogo Prefecture

New and former presidentsof Kanki Corporation and
Kanamoto president Kanchu
Kanamoto inspecting abranch. Former president
Ninichiro Kirizuki is at the leftof the photograph and Yukio
Sato, Kanki Corporation’s
new president, is on the right

Kanamoto Annual Report 2004 17

■ Alliance & Associates

Kanamoto offers advanced construction equipment rental services throughout
Japan, based on the integrated capabilities of the Kanamoto group network.
The Kanamoto alliance group is comprised of the parent company, five consolidated subsidiaries and two nonconsolidated subsidiaries, two affiliated companies and two alliance partners. By combining Kanamoto’s
overwhelming inventory of rental assets with the management capabilities of strong local rental companies,
Kanamoto provides high-quality service perfectly suited to regional characteristics.

Construction - related businesses
Consolidated subsidiaries■ Assist Co., Ltd. (9 branches)
Engaged in the rental of safety products such as signals or signs for theconstruction industry.

■ SRG Kanamoto Co., Ltd. (2 branches)
A joint venture between Kanamoto and SRG Takamiya Co., Ltd. that provides
rentals of temporary scaffolding.

■ Kanatech Co., Ltd. (6 branches)
Designs, manufactures and sells modular housing units for constructionuse.

■ Daiichi Machine Industries Co., Ltd.
(8 Branches)
Construction equipment rental company headquartered in Kagoshima
Prefecture.

■ Kanki Corporation (8 branches)
Construction equipment rental company headquartered in Hyogo
Prefecture.

Information products - related businesses and other businesses
Affiliated companies■ Active Technology Corporation (1 branch)Sells telecommunications - related equipment such as
wireless LAN devices.

18 Kanamoto Annual Report 2004

■ Active Power Corporation (1 branch)Sells microturbine generators manufactured by
Capstone Corporation, a U.S. company, and supplies
these products to Kanamoto, among others.

□ Alliance & Associates

Construction - related businesses
Non-consolidated subsidiaries■ Comsupply Co., Ltd. (5 branches)
Engaged in the rental of safety products for the construction industry.

■ Kanki Maintenance Co., Ltd. (1 branch)
Repair of construction equipment.

Alliance companies■ Kyushu Kensan Group(16 branches, 4 group companies)
Construction equipment rental company headquartered in Fukuoka
Prefecture.

■ Machida Kikou Co., Ltd. (14 branches)
Construction equipment rental company headquartered in Okinawa
Prefecture.

Kanamoto Annual Report 2004 19

■ Corporate History
1964

1992

Oct Kanamoto Shoten Co., Ltd. established

Oct Completed 1:1.1 stock split(Reorganization in Muroran, Hokkaido)
Zenchu Kanamoto appointed President
and Representative Director

Increased dividend by ¥2.5 per shareand paid annual dividend of ¥10

1993
Dec Advanced into Nagano Prefecture

Aug Issued Swiss franc-denominatedwarrants (SFr60 million)

Kanamoto Shoten Co., Ltd

Kanamoto
Shoten era banner1971
Oct Began development of sales branch

Signing ceremony for Swiss francdenominated warrants

network (Hokkaido)

1972

Oct Completed 1:1.5 stock split, paid
annual dividend of ¥10

Dec Company name changed toKanamoto Co., Ltd.

Nov Start of “Challenging '96” mediumterm management plan

1994
Jan Advanced into Aichi Prefecture

Apl Increased capital through public
offering (2 million shares)
Began conducting overseas
IR briefings

Jul Advanced into Osaka Prefecture
Former headquarters building

1979
Sep Advanced into Aomori Prefecturewith the first office located outsideof Hokkaido
Overseas IR briefing

1981
Sep Taichu Kanamoto (Currently

Jul Issued Swiss franc-denominatedhonorary chairman) appointed
President and Representative
Director

convertible bonds (SFr100 million)

1982
Mar Advanced into Akita Prefecture.

Oct Third-party allocation of shares(400 thousand shares; par value 50
yen)

Nov Advanced into Iwate Prefecture

Signing ceremony for convertible
bonds

1983
Jul Advanced into Chiba Prefecture

Oct Completed 1:1.3 stock split

Sep Launched Computer and Peripheral

Paid annual dividend of ¥10

Equipment Division as the company’s
third operating division(Tomakomai, Hokkaido)

1995
Apl Advanced into Toyama Prefecture

1985
Feb Advanced into Gunma Prefecture

for the Sapporo Stock Exchange

Oct Completed 1:1.1 stock split

Nov Completed on-line computer system
network linking all branches

Jul Advanced into Miyagi Prefecture

Aug Designated as a loan transaction stock

Oct Advanced into Fukui Prefecture

Increased annual dividend by ¥2 to ¥12

1996
May Advanced into Ishikawa Prefecture
Oct Advanced into Ibaraki Prefecture
Dec Advanced into Mie Prefecture

Mar Increased capital through public
offering (2 million shares)
Listed on the Second Section of
the Tokyo Stock Exchange

Calculation Section computer roomin 1985

Jul Advanced into Kanagawa

1986

Prefecture
Tokyo Stock Exchange on the day
Kanamoto listed its stock

1987
Jul Advanced into Fukushima

Nov Start of “Act '90” medium-term
management plan

Prefecture

1988
Dec Advanced into Tochigi Prefecture

1989
Jun Branches located in nearly all
regions of Hokkaido

Sep Advanced into Niigata Prefecture

Kanamoto received
Mercury Plaque from theTokyo Stock Exchange

1990
Nov Start of “New Act” medium-term
management plan

1991
Jun Advanced into Yamagata
Prefecture

Jun Listed on the Sapporo Stock

Kanamoto’s stockbegan
trading as a new brand

Jun Relocated head office functions in
Sapporo, Chuo Ward
Conversion of first unsecured
convertible bonds(¥10 billion)

Exchange

Jul Advanced into Saitama Prefecture
Oct Completed Information Products
Division Ofuna Technocenter

Sapporo Stock Exchangeon the day Kanamoto
listed its stock

Jun Completed 1:1.2 stock split
Paid an annual dividend of ¥12, including
a dividend of ¥4.5 to commemorate theCompany’s stock listing

20 Kanamoto Annual Report 2004

New headquarters
building

Oct Completed 1:1.1 stock split
Increased annual dividend by ¥2 to ¥14

Nov Start of "Plan Jupiter" medium-term
management plan

Dec Concluded an alliance with Kyushu
Kensan Co., Ltd

1997
Apr Designated as a stock for margin
trading on the Tokyo Stock Exchange

Oct Increased annual dividend by ¥2 to¥16

Nov Issued Eurodollar-denominatedstraight corporate bonds(US$42 million)

Jan Introduced stock option program

President and Representative Director

2001
Jun Established Kanamoto Shikoku Co.,

1998
Jun Kanchu Kanamoto appointed

Kyushu Kensan Co., Ltd.

Jan Introduced corporate officer system

Ltd.

Nov Start of "Kanamoto Survival Plan"medium-term management plan
Established second commitment
facility

Apr Stock elevated to the First Sectionof the Tokyo Stock Exchange

Kanamoto Shikoku Co., Ltd.

Nov Opened Hassamu Megastation
Notification of elevation of Kanamoto’s
stock to the First Section of the Tokyo
Stock Exchange

Converted Daiichi Machine Industries
Co., Ltd. into a subsidiary

Daiichi Machine Industries Co., Ltd.
Celebration of Kanamoto’s
designation as a First Section stock

2002

Sep Honored by the Tokyo Stock Exchange

Feb Established sales office in Tokyo

with the Commendation Award for Listed
Companies, for more than five consecutive
years of annual dividend increases
following listing on the Exchange
Oct Increased ordinary annual dividendby ¥2 to ¥18

Nov Advanced to Hyogo Prefecture

Jun Concluded syndicated loan
(7 billion yen)

Nov Established third commitment facility

2003
Aug Merged with Taniguchi Co., Ltd.

Nov Start of "Metamorphose" long-range
management plan
Established fourth commitment
facility

1999
Aug Established SRG Kanamoto Co., Ltd.

Oct Commemorative per-share dividend

Dec Kanamoto honored with the IRof ¥1 to commemorate 35th year
anniversary, paying total annual
dividend of ¥19

Nov Issued ¥5 billion denominated zerocoupon bond (Switzerland)

Excellent Firm Award from the Japan
Association for Individual Investors(JAII) (fourth company to receive theaward)
Headquarter office of Taniguchi
Co.,Ltd. (currently the Otaru Branch)

Nov Converted Daiichi Machine Industries
Co., Ltd. into a wholly-owned
subsidiary

SRG Kanamoto Tomakomai Center

Jul Beer restaurant Providence
openedNov Construction completed on theAward presentation ceremony

Kanamoto Hamamatsucho K Building(Tokyo)Kanamoto received the IR Excellent
Firm Award from the Japan
Association for Individual Investors

2004

Tokyo operation
division

Jan Converted Kanamoto Shikoku Co.,2000
Mar Concluded an alliance with Machida
Kikou Co., Ltd.

Ltd. into a wholly-owned subsidiary.

Jan Implemented second stock option
programOct Paid annual ordinary dividend of ¥18
per share

Nov Established commitment facility(first in Hokkaido)

May Received the operating rights to

Oct Executed ¥12.0 billion liquidation
scheme for bill receivables

Nov Established fifth commitment facility

the construction equipment rental
business of Kanaya Lease

Jul Succeeded to the construction eqipment rental business of Nakano
Motors.

Sep Converted Kanki Corporation into a
subsidiary
Machida Kikou Co., Ltd

Oct Transferred temporary housing
production business to Kanatech Co.,Ltd.

Kanki Corporation

Oct Kanamoto concluded an alliance with
Tsuruga Kenki Lease Co., Ltd.
Kanatech Co., Ltd.

Kanamoto Annual Report 2004 21

■ Corporate Data
□ (January 31 2005)

Organization
Chart

Corporate Data

Company Name

￥59,274 million

Hokkaido Shinren(Fiscal year ended October 2004)

The Hokkaido Bank

Head Office

Number of Employees

Daishi Bank

1-19, Odori Higashi 3-chome Chuo-ku,

1,121

Shinkin Central Bank

Sapporo, Hokkaido 060-0041 Japan(Excluding directors and temporary or

Establishedpart-time workers)

October 28, 1964

Principal Businesses

Capitalization

Rental of construction equipment￥8.6 billion (Paid-in capital)

Sale of steel products

Listing Exchanges

Rental of engineering workstations andTokyo Stock Exchange, First Section

computer peripherals.

Sapporo Stock Exchange

Primary Lenders

Stock Code

The Bank of Tokyo-Mitsubishi

9678

The Mitsubishi Trust and Banking

Common Shares Issued andOutstanding

Corporation

30,253,000

Mizuho Corporate Bank

Fiscal Year-end

Sumitomo Mitsui Banking Corporation

October 31

North Pacific Bank

Revenues

The Norinchukin Bank
Headquarters Buillding(Sapporo, Hokkaido)

Principal
Shareholders

ORIX Corporation

North Pacific Bank, Ltd.

Taichu Kanamoto

The Hokkaido Bank, Ltd.

Saburo Kanamoto

Denyo Co., Ltd.

The Master Trust Bank of Japan, Ltd.
Komatsu Ltd.
Kanamoto Capital Company
Tokio Marine & Nichido Fire
Insurance Co., Ltd.

22 Kanamoto Annual Report 2004

Tokyo Operating Division

■事業部のご案内

Financial Section
November 1, 2003 - October 31, 2004

Report of Operating Results and Financial Position
for the 40th Business Period
Consolidated Financial PositionNon-consolidated Financial Position
Report of the Audit Committee
Board of Directors

Notes 1
For purposes of this report, the Balance Sheets and Statements of Income were created using financial data prepared according to Japan’s Securities Report Guidelines.
Note 2
Kanamoto uses a variety of techniques when introducing rental assets. In addition to purchasing assets by installments, the Company also finance leases (including
operating leases) are an off-balance sheet item (details are provided in the notes to the accounting statements).
Accordingly, please refer to the balance sheets (description page **) and the Supplemental Information (details of tangible fixed assets published on page**)concerning the amount of rental assets introduced in the fiscal year under review, and to the balance sheets (description page**) and the note on finance leases(including operating leases) in the notes to the balance sheets (description page**) concerning depreciation and amortization expense.
Kanamoto has adopted the declining balance method for depreciation and amortization expense. As shown, this results in a situation where paper gains are easily
produced if assets can be used over long periods of time because the depreciation and amortization expense is large for the first year, then grows smaller in later years.
The difference in depreciation according to the declining balance method and the straight-line method is shown in the diagram.

Under Japan’s current accounting system, large variances between actual asset values and book values can occur in asset value assessments. One reason is the fact
durable lives are stipulated by the Tax Code. For assets handled by Kanamoto in particular, implementing planned rental assets introductions suitable to the size of its
business and keeping balance sheet depreciation and amortization expense uniform are extremely difficult because the durable lives established by law are different foreach equipment model.
Accordingly, to achieve results more closely approximating the market-value accounting concept, Kanamoto also introduces assets by utilizing both operating leases
and finance leases in an effort to equalize depreciation and amortization expense.

Kanamoto Annual Report 2004 23

■ Report of Operating Results and Financial Position for the 40th Business Period (November 1. 2003 - October 31, 2004)

Operating results

Summary of consolidated fiscal year operating results
During the consolidated fiscal year under review, Japan’s economy exhibited a positive trend in business sentiment during the first half ofthe year centered on healthy export industries. During the second half, however, foreign demand slumped and a mood of stagnation spread
under the influence of a sudden jump in crude oil prices and other factors. Nevertheless, the sense of a manufacturing-centered economic
recovery spurred by so-called special Chinese demand for products such as iron and steel (a sharp rise in steel materials) and marinetransportation was generally felt throughout the year.
In the construction industry, which is a major customer for Kanamoto’s services, there were a number of large-scale projects in the Tokyo
metropolitan area accompanied by private demand, and overall there was a sense that conditions had reached bottom. Public works
expenditures, however, decreased for the second consecutive year, and the severe nationwide environment affecting construction
equipment rentals overall was unchanged.
Construction-related business
Following a comparatively robust first half in the consolidated fiscal year under review, which included the construction industry’s busy
season, construction equipment rental demand turned down during the second half and weakened under the influence of cutbacks in local
public works. Although confronted with a tough business environment, for the consolidated fiscal year under review the Kanamoto Group
achieved consolidated revenues of ¥54,823 million in its construction-related businesses, a decrease of 2.8% compared to the priorconsolidated fiscal year, and operating income ¥1,680 million, a 23.8% decrease year-on-year, as the result of detailed cost reductions,management improvements, and marketing efforts.
By the Company’s relevant business segments, total revenues for the Construction Equipment Rental Division edged down 0.8% comparedto the prior consolidated fiscal year, to ¥52,761 million. Rental revenues decreased 1.9% year-on-year to ¥38,471 million, and sales increasedby 2.3% compared to the prior consolidated fiscal year to ¥14,289 million. Given the amount of total construction declined 3.6% from thelevel of the prior consolidated fiscal year, Kanamoto was able to achieve results that were nearly unchanged from the prior consolidated
fiscal year. The main reason was synergistic results among factors such as (1) healthy demand overall for vehicle rentals on which theCompany focused and intensified its marketing efforts during the fiscal year, (2) rentals of system support equipment (high-speed reactive
electric power controllers and flicker control equipment and other equipment requiring special expertise, (3) steady growth in rentals ofgeneral-purpose equipment such as hand tools and small equipment and (4) a partial recovery of rental rates for certain models.
By region, rental revenues decreased 4.6% in Hokkaido and fell 4.1% in Tohoku from the prior consolidated fiscal year levels, despite thefact orders for restoration works following disasters last year in both Hokkaido and the Tohoku territory were brisk during the first half ofthe consolidated fiscal year. Revenues were affected by a prolonged construction equipment rental slow period from May, coupled withdelays in construction caused by typhoons that battered Japan repeatedly during the summer. In the Kanto Shinetsu territory, rentals of
construction equipment for urban use by the Shutoken Aerial Equipment Branch and Shin-Kiba Branch, which were established in June

24 Kanamoto Annual Report 2004

and specialize in the rental of vehicles for high-level work, rose by 3.8% year-on-year. In the Kinki-Chubu territory as well, rental revenues
increased 3.9% over the same period of the prior consolidated fiscal year as the result of construction for the Aichi Expo and Chubu
International Airport and an increase in related private sector demand. As a result, the percentage of total rental revenues accounted for by
Hokkaido and Honshu were 40.1% and 59.9%, respectively.
Construction equipment sales by the Construction Equipment Rental Division increased because of higher sales of equipment consigned
from other companies and steady domestic sales of items such as used modular housing units and parts.
During the consolidated fiscal year under review, Kanamoto opened one new branch and closed four branches in the Hokkaido territory,
added one new branch and closed one branch in the Tohoku territory, opened two new branches and closed one branch in the KantoShinetsu territory and added one new branch and closed one branch in the Kinki-Chubu territory.
The total number of branches decreased by one to 139 branches. The three new branches, including one branch each the Hokkaido
territory, Kanto-Shinetsu territory and Kinki-Chubu territory, were the Engaru Branch taken over from Nakano Motors Co., Ltd. in June
2004, the Shutoken Aerial Equipment Branch, which Kanamoto succeeded to in June 2004 when it took over the business of Kanaya Lease
Co., Ltd., and the Takamatsu Branch taken over by Kanamoto when it absorbed and merged with Kanamoto Shikoku Co., Ltd. in April
2004.
Turning to the operations of its consolidated subsidiaries, Daiichi Kikai Co., Ltd. enjoyed a favorable environment for construction orders
and increased revenues 15.2% from the prior consolidated fiscal year level. Operating income declined 61.5% year-on-year as a result of anincreased cost burden for new branch start-up costs. SRG Kanamoto Co., Ltd. increased its revenues 26.4% over the prior consolidated fiscal
year, but saw its operating loss deteriorate and increase 99.0% year-on-year from the burden for depreciation on newly purchased
components. At Assist Co., Ltd. operating income improved substantially, despite a 1.5% decrease in revenues year-on-year, as revenues
stagnated during the second half of the fiscal year, and operating income expanded 371.0% compared with the prior consolidated fiscal year
as the company improved its gross profit margin for the second year in a row. Kanatech Co., Ltd. saw its revenues slip 33.1% compared tothe prior consolidated fiscal year because of a large decrease in orders both from within and outside the Kanamoto group, but did manage
some improvement as it reduced its operating loss by 20% through efforts to control costs. Kanki Corporation was included in the scope of
consolidation beginning in the consolidated fiscal year under review following the acquisition of its stock by Kanamoto in October 2004.
Only the company’s balance sheet has been consolidated, however, because the acquisition was considered to occur at Kanamoto’s
consolidated fiscal year-end.
Steel Sales-related business
The prices of steel materials jumped sharply for the first time in 17 years since the bubble economy years, as the market was invigorated
and demand rose even in Hokkaido because of strong demand in China. Revenues at the Steel Sales Division declined 4.9% year-on-year to¥6,058 million, however, because the division did not accept every potential order as the Company sought to restrain receivables growth.

Kanamoto Annual Report 2004 25

Operating income improved by ¥50 million compared to the prior consolidated fiscal year.
Information Products-related business and Other Businesses
From workstations to low-priced personal computer servers, the Information Products Division increased both the number of machinesrented and the number of accounts (number of borrowers) compared with the prior consolidated fiscal year. Nevertheless, rental revenues
fell 11.5% year-on-year because of lower rental rates. Revenue from sales also plunged, decreasing 81.2% from the prior consolidated fiscal
year level, as new product development was delayed. Revenues for the division as a whole were reduced by half, decreasing by 50.4% yearon-year. As a result, revenues from information products related business and other businesses shrank 50.4% from the prior consolidated
fiscal year to ¥454 million, and operating income was only ¥170,000.

Outlook for the next consolidated fiscal year (Business Period ending October 2005)
Japan’s leading financial institutions have nearly disposed of their non-performing loans according to schedule, and prospects for Japan’s
economy have also brightened. There remain concerns the economic recovery might still be affected substantially by the international
environment, however, and there are a number of instability factors. Although progress can be noted in private sector capital investment,
for example, this continues to be confined to the largest metropolitan areas, while in local areas there are no major projects other thanrestoration works in specified disaster areas. Given these circumstances, Kanamoto forecasts the business environment will remain severe.
Actual demand in Kanamoto’s main business in the construction equipment rental industry as well is expected to be subject to toughconditions throughout the next consolidated fiscal year.
Although the severe environment will continue for Kanamoto, which has branches in many areas, the Company will maintain its market
share and continue to improve equipment utilization rates through alliances with local construction equipment rental firms in regions
where Kanamoto has a small market share.
The Company will also proceed to develop its customer-first marketing. Although the first half of the Company’s consolidated fiscal year
(January-April) includes the construction industry’s so-called busy period, there is a possibility for general construction to be delayed and

26 Kanamoto Annual Report 2004

for rental equipment orders to be concentrated temporarily in certain months because of disaster relief work to recover from typhoons thatdevastated Japan during 2004. Kanamoto will take steps to minimize these anticipated problems. Because the second half of theconsolidated fiscal year (May-October) is a slow period, Kanamoto will pursue customer development efforts aimed at boosting rental
revenues and earnings during these months, particularly in alternative industry sectors.
With regard to Kanamoto’s scrap and build policy, the Company will continue to investigate establishing a fourth branch in the Tokyo
metropolitan area. Kanamoto currently has no plans to close any branches, but will boldly pursue this option should operating results at anyof its branches warrant such action.
The entire Kanamoto Group will seek to maintain earnings, by optimizing asset operations, creating the corporate structure and businesscapabilities to respond fully to this challenging business environment, taking full advantage of Kanamoto’s broad line-up of state-of-the-art
equipment unavailable from other rental companies and avoiding competition through alliances with leading local companies in otherregions.
Kanamoto is unable to determine at this time the extent of the restoration work that will be necessary following the Niigata-Chuetsu
Earthquake. Based on its experience in response to the Hokkaido Nansei-Oki Earthquake and Hanshin-Awaji (Kobe) Earthquake in thepast, the Company believes recovery work in this case will be required over an extensive period because of the need, for example, torestore roads in this mountainous area. Other areas where the Kanamoto group operates also suffered extensive damage from typhoons
that struck Japan several times during 2004, and disaster recovery works are underway in these areas as well. The Company believes theseworks will have a positive influence on its operating results, but has not included these items in the projected consolidated operating results
released at this time.

Kanamoto Annual Report 2004 27

■Consolidated

Balance

SheetsASSETS
Thousands of
U.S. dollars (Note 1)

Millions of yen
As of October 31, 2004 and 2003

2003

2004

2004

¥ 11,921¥ 11,734$ 110,512

Current assets:
Cash and cash equivalents

47

0

0

21,412

23,481

221,139

Inventories

854

703

6,621

Deferred income taxes (Note 8)

261

252

2,374

Other current assets

2,395

2,343

22,068Less: Allowance for doubtful accounts

(489)

(731)

(6,882)36,40137,782335,832

Rental equipment (Note 7)

43,79039,161

368,819

Building and structures

15,333

16,039151,056

Short-term investments (Note 3)
Notes and accounts receivable, trade

Total current assets

Property and equipment:

Machinery and equipment (Note 7)

5,153

5,370

50,571

Less: Accumulated depreciation(42,361)(41,980)(395,365)

21,915

18,590175,081

24,638

26,112245,924Land
Construction in progress
Total property and equipment

2

3

26

46,55544,705421,031

164

60

565

3,409

3,878

36,524

Investments and other assets:
Investment securities- Unconsolidated subsidiaries and affiliates (Note 3)- Others(Note 3)
Deferred income taxes (Note 8)

1,383

911

8,580

Other assets

1,662

3,648

34,358Less: Allowance for doubtful accounts(564)(1,661)(15,643)

Total investments and other assets

6,054

6,836

64,384¥ 89,010¥ 89,323$ 841,247

Total assets(Note)＊For details of Short-terms investments, please refer to page 33-35 (Note 3).
＊For details of Current assets : Deferred income taxes, please refer to page 38 (Note 8).
＊Under the accounting principles and practices currently applied in Japan, finance leases and operating leases are off balance sheet items. For
details of concerning matters related to lease transactions, please refer to page 37 (Note 7).
＊For details of unconsolidated subsidiaries and affiliates, please refer to page 33-35 (Note 3).
＊For details of others, please refer to page 33-35 (Note 3).
＊For details of Investments and other assets : Deferred income taxes, please refer to page 38 (Note 8).

28 Kanamoto Annual Report 2004

LIABILITIES AND SHAREHOLDERS' EQUITY
Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Short-term bank loans (Note 4)

¥ 713

¥ 677

$ 6,373

Current portion of long-term debt (Note 4)

14,854

14,262

134,317

Notes and accounts payable, trade

11,04813,405

126,254

Accrued income taxes

648

369

3,473

Accrued bonuses

443

480

4,526

As of October 31, 2004 and 2003

Current liabilities:

Other current liabilities

1,208

1,426

13,428

Total current liabilities

28,91430,619288,371

Long-term debt (Note 4)

25,42324,275

228,621

Accrued pension and severance costs (Note 5)

1,777

1,229

11,573

918

395

3,725

28,11825,899243,919

71

59

558

8,597

8,597

80,964

Capital surplus

9,720

9,720

91,546

Retained earnings

13,40013,914

131,038

367

698

6,571

Non-current liabilities:

Other liabilities
Total non-current liabilities

Minority interests

Contingent liabilities (Note 6)

Shareholders' equity:
Common stock:
Authorized–66,000,000 shares
Issued–30,253,241 shares

Unrealized holding gain on securities (Note 3)
Treasury stock
Total shareholders' equity
Total liabilities and shareholders' equity

(177)

(182)

(1,720)31,90732,746308,399¥ 89,010¥ 89,323$ 841,247(Note)＊For details of Short-term bank loans, please refer to page 35 (Note 4).
＊For details of Current portion of long term debt, please refer to page 35 (Note 4).
＊For details of Long-term debt, please refer to page 35 (Note 4).
＊For details of Accrued pension and severance costs, please refer to page 35-36 (Note 5).
＊For details of Contingent liabilities, please refer to page 36 (Note 6).
＊For details of Unrealized holding gain on securities, please refer to page 33-35 (Note 3).

Kanamoto Annual Report 2004 29

■Consolidated

StatementsofIncomeThousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Rentals¥ 40,724¥ 39,759$ 374,451

Sales

22,962

21,577203,21263,686

61,336577,663

Rentals

30,92829,998282,526

Sales

17,97017,019160,283

48,89847,017442,809

Gross profit

14,78814,319134,854

Selling, general and administrative expenses

12,48012,440117,161

Operating income

2,308

1,879

17,693Years Ended October 31, 2004 and 2003

Revenue

Cost of sales

Other income (expenses) :Interest and dividend income
Interest expenses
Others, net
Income before income taxes and minority interests

82

71

670

(398)

(348)

(3,274)

(117)

610

5,745

1,875

2,212

20,834

1,036

839

7,903

Income taxes (Note 8) :Current
Deferred

Minority interests in subsidiaries
Net income

(55)

257

2,417

981

1,096

10,320

(20)

19

178

¥ 914

¥ 1,097$ 10,336

Yen

U.S. dollars (Note 1)

2003

2004

2004

Basic

¥ 29.96¥ 36.50$ 0.34

Diluted

27.11

-

-

18.00

19.00

0.18

Per share of common stock :Net income

Cash dividends applicable to the year
(Note)＊For details of Income taxes, please refer to page38 (Note8).

30 Kanamoto Annual Report 2004

■Consolidated

Statements

of

Cash

Flows

Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

¥ 1,875¥ 2,212$ 20,834

6,651

5,295

49,866

Loss on disposal or sales of property and equipment

89

98

921

Write-down of investments in securities

260

42

401

Gain on sales of investments in securities

(135)

(47)

(445)

Provision (reversal of provision) for allowance for doubtful accounts

(22)

153

1,440

Provision (reversal of provision) for accrued pension and severance costs

101

(548)

(5,166)

Interest and dividend income

(82)

(71)

(669)

Interest expenses

580

459

4,329

1,708

(944)

(8,892)

(45)

205

1,929

Increase (decrease) in trade payable

(917)

1,071

10,093

Other

1,230

(183)

(1,727)

Subtotal

11,293

7,742

72,914

82

71

670

Years Ended October 31, 2004 and 2003

Cash flows from operating activities :Net income before income taxes and minority interests
Adjustments for :Depreciation expenses

Decrease (increase) in trade receivable
Decrease (increase) in inventories

Interest and dividend income received
Interest expenses paid

(601)

(464)

(4,369)

Income taxes paid

(415)

(1,119)(10,539)

10,3596,230

58,676

Payments for purchase of investment securities(1,362)(1,045)(9,837)

Proceeds from sales of investment securities

1,988

1,333

12,552

Payments for purchase of property and equipment(638)(1,899)(17,888)

Other

(95)

76

711

Net cash used in investing activities(107)(1,536)(14,462)

(192)

(37)

(346)

Net cash provided by operating activities

Cash flows from investing activities :Cash flows from financing activities :Increase(decrease)in short-term bank loans, net
Proceeds from long-term debt

15,00011,930112,356

Repayments of long-term debt

(27,896)(10,710)(100,862)-(5,564)(52,402)

Cash dividends paid

(541)

(537)

(5,063)

Other

(135)

(5)

(50)

Net cash used in financing activities(13,764)(4,923)(46,367)

Net increase (decrease) in cash and cash equivalents(3,512)(229)(2,153)

Cash and cash equivalents at beginning of the year

15,433

11,921

112,268

-

42

397

¥ 11,921¥ 11,734$ 110,512

Repayments of lease obligation

Increase due to inclusion in consolidation
Cash and cash equivalents at end of the year

Kanamoto Annual Report 2004 31

■Consolidated

Years Ended October 31, 2004 and 2003

Balance at October 31, 2002

StatementsofShareholders'EquityMillions of yen

Thousands ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Unrealized
holding gain
on securities

30,253¥ 8,597¥ 9,720¥ 13,044¥ (108)Net income

914

Cash dividends(541)

Bonuses to directors and auditors

(17)
475

Other
Balance at October 31, 2003

30,253

8,597

9,720

13,400367

Net income

1,097

Cash dividends(537)

Bonuses to directors and auditors

(14)

Other

(32)

331

¥ 13,914¥ 698

Balance at October 31, 2004

30,253¥ 8,597¥ 9,720

Thousands of U.S. dollars (Note 1)

Balance at October 31, 2003

Commonstock

CapitalsurplusRetainedearnings

Unrealized
holding gain
on securities$ 80,964$ 91,546$ 126,201$ 3,460

Net income

10,336

Cash dividends(5,063)

Bonuses to directors and auditors

(133)

Other

(303)

3,111

$ 131,038$ 6,571

Balance at October 31, 2004

32 Kanamoto Annual Report 2004

$ 80,964$ 91,546

■NotestoConsolidated

Financial

Statements

1. Basis of presenting of consolidated financial statements
The consolidated financial statements have been prepared from the accounts maintained by Kanamoto Co., Ltd. (the "Company") and its consolidated subsidiaries inaccordance with the provisions set forth in the Commercial Code of Japan and the Securities and Exchange Law of Japan 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 incountries and jurisdictions other than Japan.
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.
In order to facilitate the understanding of readers outside Japan, certain reclassifications are given to the consolidated financial statements prepared for domestic
purposes.
Translations of Japanese yen amounts into U.S. dollars are included solely for the convenience of the reader, using the approximate exchange rate on October 29,
2004, which was ¥106.18 to US$1.00. These translations should not be construed as representations that the Japanese yen amounts have been, or could have been, or
could in the future be converted into U.S. dollars at this or any other rate of exchange.
2. Summary of significant accounting policies(a) Consolidation principles
The consolidated financial statements include the accounts of the Company and significant companies which the Company controls through majority voting rightor existence of certain conditions. All significant inter-company transactions and accounts are eliminated.
Investments in unconsolidated subsidiaries and affiliates of which the Company has the ability to excise significant influence over operating and financial policies
are stated at cost and equity method is not applied for the valuation of such investments since they are considered immaterial in the aggregate.
(b) Cash and cash equivalents
For the purpose of statements of cash flows, cash and cash equivalents comprise cash in hand, deposits held at call with banks and all highly liquid investmentswith maturities of three months or less.
(c) Securities
Securities except for investments in unconsolidated subsidiaries and affiliates are classified as trading securities, held-to-maturity securities or other securities.
Trading securities are carried at fair value. Held-to-maturity securities are carried at amortized cost. Marketable securities classified as other securities arecarried at fair value with unrealized gains and losses reported in a separate component of shareholders’ equity, net of taxes. Non-marketable securities classified
as other securities are carried at cost. Cost of securities sold is determined by the moving average method.
(d) Inventories
Inventories are stated principally at the lower of cost or market, cost being determined principally by the last-in, first-out method.
(e) Property and equipment
Property and equipment are stated at cost. Depreciation is mainly computed at rates based on the estimated useful lives of assets on the declining-balancemethod.
The principal estimated useful lives range from 5 to 10 years for rental equipment and from 10 to 34 years for building and structures.
(f) Accrued pension and severance costs
To provide for employees’ severance indemnities and pension payments, net periodic pension and severance costs are computed based on the projected benefit
obligation and the pension plan assets.
The actuarial assumption adjustment is to be amortized by the straight-line method beginning the following fiscal year over a period of 10 years, which is lessthan the average remaining years of service of the active participations in the plans.
See Note 5 for the method of the accounting for the separation of the substitutional portion of the benefit obligation from the corporate portion of the benefit
obligation under Welfare Pension Fund Plan.
(g) Leases
All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased
property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain "as if capitalized"
information is disclosed in the notes to the lessee’s financial statements.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred taxes and liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards.
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 on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
(i) Earnings per share
Basic Earnings per Share (“EPS”) is computed based on the average number of shares of common stock outstanding for the period. Diluted EPS assumes that
outstanding convertible bonds were converted into common stock at the beginning of the period at the current conversion price.
(j) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a financial period is made by resolution of the shareholders at a
general meeting held subsequent to the close of the financial period and the accounts for that period do not, therefore, reflect such appropriations.
3. Short-term investments and investments securities
At October 31, 2004, the Company and its consolidated subsidiaries did not possess any securities classified as trading securities or held-to-maturity securities.
Securities classified as other securities are included in “short-term investments” and “investments securities-others” in the consolidated balance sheets.
a) The components of unrealized gain or loss on marketable securities classified as other securities at October 31, 2004 were as follows:

Kanamoto Annual Report 2004 33

■NotestoConsolidated

Financial

Statements

Millions of yen
Acquisition
costs

Carrying value

Stock¥ 1,148¥ 2,373¥ 1,225

Other

30

44

14

1,178

2,417

1,239

157

135

(22)

October 31, 2004

Unrealized gain (loss)

Unrealized gain:

Unrealized loss:
Stock

968

924

(44)

1,125

1,059

(66)

¥ 2,303¥ 3,476¥ 1,173

Other

Total

Thousands of U.S. dollars
Acquisition
costs

Carrying value

Stock$ 10,817$ 22,351$ 11,534

Other

282

414

132

11,09922,765

11,666

1,473

1,270

203

October 31, 2004

Unrealized gain (loss)

Unrealized gain:

Unrealized loss:
Stock

9,119

8,706

413

10,592

9,976

616$ 21,691$ 32,741$ 11,050

Other

Total

The components of unrealized gain or loss on marketable securities classified as other securities at October 31, 2003 were as follows:

Millions of yen

October 31, 2003

Acquisition
costs

Carrying value¥ 1,130¥ 1,846

¥ 716

1,130

1,846

716

146

123

(23)

Unrealized gain (loss)

Unrealized gain:
Stock

Unrealized loss:
Stock

57

55

(2)

Other

1,114

1,040

(74)

1,317

1,218

(99)

Total

¥ 2,447¥ 3,064¥ 617

Debt securities

Non-marketable securities classified as other securities at October 31, 2004 and 2003 amounted to ¥402 million ($3,784 thousand) and ¥384 million respectively.
b) Sales of securities classified as other securities with aggregate gain and loss were summarized as follows:
Millions of yen

Thousands of U.S.dollars

October 31, 2004

October 31, 2003

Sales proceeds¥ 1,186¥ 1,924$ 11,172

Aggregate gain

66

152

622

Aggregate loss

19

18

177

34 Kanamoto Annual Report 2004

October 31, 2004

c) The redemption schedule for bonds with maturity dates at October 31, 2004 was summarized as follows:
Millions of yen

October 31, 2004

Due in one year or lessDue after one year
through five years

Due after five years
through ten years

Due after ten years

¥-

¥-

¥-

¥-

Other

-

-

924

44

Total

¥-

¥-

¥ 924

¥44

Due in one year or lessDue after one year
through five years

Corporate bonds

Thousands of U.S. dollars

October 31, 2004

Due after five years
through ten years

Due after ten years

$-

$-

$-

$-

Other

-

-

8,706

415

Total

$-

$-

$8,706$ 415

Corporate bonds

The redemption schedule for bonds with maturity dates at October 31, 2003 was summarized as follows:

Millions of yen

October 31, 2003

Due in one year or lessDue after one year
through five years

Due after five years
through ten years

Due after ten years

Corporate bonds

¥23

¥31

¥-

¥-

Other

16

-

894

38

Total

¥39

¥31

¥894

¥ 38

4. Short-term bank loans and long-term debt
The annual average interest rates applicable to short-term bank loans outstanding at October 31, 2004 and 2003 were 1.14%.
Thousands of
U.S. dollars (Note 1)

Millions of yen
Long-term debt at October 31, 2004 and 2003 consisted of the following:

Loans from banks and insurance companies, maturing through 2014 :Secured

2003

2004

2004

¥135

¥-

$-

30,27232,888309,734

Unsecured

9,870

5,649

53,204

Obligations under installment purchases, maturing through 2007

40,27738,537362,938

Less current portion

14,854

14,262

134,317¥ 25,423¥ 24,275$228,621

Millions of yen

Thousands of
U.S. dollars

Aggregate annual maturities of long-term debt subsequent to October 31, 2004 are as follows:Year ending October 31

2005¥ 14,262$134,317

2006

10,51299,001

2007

7,422

69,898

2008

3,767

35,4742009 and thereafter

2,574

24,248¥ 38,537$362,938

5. Accrued pension and severance costs
An employee whose employment is terminated is entitled, in most cases, to pension payments or lump-sum severance indemnities, the amounts of which are
determined by reference to the basic rate of pay, length of service and the conditions under which the termination occurs.
The Company has established contributory defined benefit pension plans pursuant to the Welfare Pension Insurance Law of Japan, which cover a portion of thegovernmental welfare pension program, under which the contributions are made jointly by the Company and their employees, and which include an additional
portion representing the substituted non-contributory pension plans. In addition, certain subsidiaries have maintained lump-sum severance indemnity plans.
The projected benefit obligation and funded status including a portion of the governmental welfare program at October 31, 2004 and 2003 were as follows:

Kanamoto Annual Report 2004 35

■NotestoConsolidated

Financial

Statements

Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

¥(6,204)¥(4,698)$(44,246)

Plan assets

3,385

2,504

23,585

Unrecognized actuarial assumption adjustment

1,042

965

9,088

¥(1,777)(1,229)$(11,573)

Projected benefit obligation

Accrued pension and severance costs

In computing projected benefit obligation, several simplified methods are permitted to small companies, and certain subsidiaries have adopted such methods.
The components of net periodic pension and severance costs for the years ended October 31, 2004 and 2003 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Service cost

¥ 412

¥ 328

$ 3,093

Interest cost

160

108

1,014

Expected return on plan assets

(116)

(90)

(847)

Amortization of actuarial losses

80

82

767

Sub total

536

428

4,027

-

(606)

(5,711)¥ 536¥ (178)$ (1,684)

Gain on return of the substitutional portion of welfare pension fund plans
Net periodic pension and severance costs
The assumptions used were as follows:
Discount rate

2.0%

Expected rate of return on plan assets

4.0%
Straight-line basis

Method of attributing benefit to periods of service

10 years

Amortization period for actuarial assumption adjustment

The substitutional portion of the benefits under the welfare pension fund plans (WPFP) has been included in the amounts shown in the above table.
The Company received approval from the Minister of Health, Labor and Welfare (MHLW) in the year ended October 31, 2004 with respect to its application for
exemption from the obligation for benefits related to future employee services under the substitutional portion of the WPFP. In accordance with the transitional
provision stipulated in “Practical Guidelines for Accounting for Retirement Benefits” the Company accounted for separation of the substituitional portion of the benefit
obligation from the corporate portion of the benefit obligation under their WPFPs as of the dates of approval for their exemption assuming that to the Japanese
government of the substitutional portion of the benefit obligation and related pension plan assets had been completed as of those dates. As a result, the Company
recognized a gain of ¥606 million ($5,711 thousand) for the year ended October 31, 2004. The pension assets to be transferred were calculated at ¥ 1,296 million($12,210 thousand) for the company at October 31, 2004.
6. Contingent liabilities
At October 31, 2004, the Company and its consolidated subsidiaries were contingently liable as follows:

Millions of yen

Thousands of
U.S. dollars (Note 1)

2004

2004

Guarantees of loans¥295$2,780Trade notes discounted

456

4,299

Trade notes endorsed

46

430

36 Kanamoto Annual Report 2004

7. Leases
Lease payments under finance leases for the years ended October 31, 2004 and 2003 were ¥6,015 million ($56,649 thousand) and ¥5,626 million, respectively.
Pro forma information on leased property such as acquisition costs, accumulated depreciation, obligations under finance leases, depreciations expenses, interest
expenses on finance leases that do not transfer ownership of the leased property to the lessee on an "as if capitalized" basis for the years ended October 31, 2004 and2003, was as follows:
Millions of yen

Thousands of U.S. dollars (Note 1)

Rental equipment

Machinery andequipment

Total

Rental equipment

Machinery andequipment

Total

Acquisition costs¥32,088¥435¥32,523$302,208$4,101$306,309

Accumulated depreciation

10,492

228

10,72098,8152,151

100,966

Net leased property¥21,596¥207¥21,803$203,393

1,950$205,343

For the year ended October 31, 2004

Thousands of
U.S. dollars (Note 1)

Millions of yen

Obligations under finance leases:¥ 5,450

Due within one year

$ 51,331

Due after one year

15,749148,321

Total¥21,199$199,652

Millions of yen

For the year ended October 31, 2003

Acquisition costs
Accumulated depreciation
Net book value

Rental equipment

Machinery andequipment

Total¥28,089¥556¥28,645

7,344

255

7,599

¥20,745¥301¥21,046

Millions of yen

Obligations under finance leases:
Due within one year

¥ 4,928

Due after one year

16,288

Total¥21,216

Depreciation expenses and interest expenses, which are not reflected in the consolidated statements of income, computed by the straight-line method and the interest
method were ¥5,634 million ($53,047 thousand) and ¥778 million ($7,326 thousand), respectively, for the year ended October 31, 2004 and ¥5,035 million and ¥688
million, respectively, for the year ended October 31, 2003.
The minimum rental commitments under non-cancelable operating leases for the years ended October 31, 2004 and 2003 were as follows:

For the year ended October 31, 2004

Millions of yen

Thousands of
U.S. dollars (Note 1)

Due within one year

¥1,870$17,610Due after one year

3,604

33,939Total¥5,474$51,549

For the year ended October 31, 2003

Millions of yen

Due within one year

¥1,793Due after one year

3,239

Total

¥5,032

Kanamoto Annual Report 2004 37

■NotestoConsolidated

Financial

Statements

8. Income taxes
The difference between the statutory tax rate and the effective tax rate for the years ended October 31, 2004 and 2003 was as follows:
2003

2004

41.7%

41.7%

Net operating losses of subsidiaries

2.6

3.3

Expenses not deductible for tax purposes

1.4

1.4

Inhabitants tax per capita

4.5

4.1

Statutory tax rate
Effect of:

Other
Effective tax rate

2.1

(1.0)

52.3%

49.5%

The significant components of deferred tax assets and liabilities at October 31, 2004 and 2003 were as follows:

Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Deferred tax assets:
¥ 414

¥ 368

$3,468

Accrued bonuses for employees

146

192

1,807

Provisions for doubtful accounts

243

556

5,240

Accrued pension and severance costs

729

496

4,668

Net operating loss carry forwards

154

1,241

11,687

Others

352

392

3,694

Sub total

2,038

3,245

30,564

Less valuation allowance(145)(1,608)(15,144)

Total deferred tax assets

1,893

1,637

15,420Depreciation expenses

Deferred tax liabilities:
249

474

4,466

¥1,645¥1,163$10,954

Net unrealized again on securities
Net deferred tax assets

9. Supplemental cash flow information
Non-cash investing and financing activities for the years ended October 31, 2004 and 2003 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

¥2,548¥764$7,192

Non-cash investing and financing activities:
Additions to obligations under installment purchases

38 Kanamoto Annual Report 2004

10. Segment information
Business segment information for the years ended October 31, 2004 and 2003 was as follows:
Millions of yen
Construction
related business

Steel related
business

Information andcommunication related
and other business¥54,823¥6,059¥454¥61,336¥-¥61,336

-

-

-

-

-

-

Total

54,8236,059

454

61,336-

61,336

Operating expenses

53,4126,014

454

59,610(152)

59,458For the year ended October 31, 2004

Total

Eliminations andcorporate items

Consolidated

Sales
Outside customers
Intersegment

Operating profit¥ 1,681¥45¥ 0¥ 1,726¥ 152¥ 1,879

Identifiable assets¥63,744¥3,323¥1,025¥68,123¥21,201¥89,324

Depreciation

5,060

5

9

5,074

221

5,295

Capital expenditures

2,609

2

-

2,612

1,799

4,411

Eliminations andcorporate items

Consolidated

Thousands of U.S. dollars

For the year ended October 31, 2004

Construction
related business

Steel related
business

Information andcommunication related
and other business

Total$516,323$57,061$4,279$577,663$-

Sales
Outside customers$577,663

-

-

-

-

-

-

516,323

57,061

4,279

577,663-

577,663

Operating expenses

500,492

56,635

4,277

561,405(1,436)559,970

Operating profit$ 15,831$425$2$16,258$(1,436)$17,693

Identifiable assets

Intersegment
Total$600,626$31,300$9,651$641,576$199,672$841,248

Depreciation

47,65546

86

47,7872,078

49,866

Capital expenditures

24,58021

324,598

16,943

41,541Eliminations andcorporate items

Consolidated

Millions of yen

For the year ended October 31, 2003

Construction
related business

Steel related
business

Information andcommunication related
and other business

Total¥56,396¥6,374¥916¥63,686¥-

Sales
Outside customers¥63,686

-

-

-

-

-

-

Total

56,396

6,374

916

63,686-

63,686

Operating expenses

54,1906,379

892

61,461(83)

61,378Operating profit¥2,206¥(5)¥ 24¥2,225¥83¥ 2,308

Identifiable assets

Intersegment¥65,283¥2,775¥1,067¥69,125¥19,885¥89,010Depreciation

6,472

5

10

6,487

163

6,650

Capital expenditures

3,843

66

13

3,922

478

4,400

11. Subsequent events
On January 28, 2005, the Company’s shareholders approved the payment of a cash dividend of ¥10.00 ($0.09) per one share to shareholders of record at October 31,
2004, or a total payment of ¥299 million ($2,812 thousand).

Kanamoto Annual Report 2004 39

■Non-consolidated

Balance

SheetsASSETS
Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Cash and time deposits¥ 11,346¥ 10,911$ 102,763

Notes receivable, trade

10,148

10,890102,561

Accounts receivable, trade

11,15911,067104,231

Inventories

376

285

2,681

Deferred income taxes (Note 5)

228

229

2,160

Other current assets

2,399

2,417

22,762Less : Allowance for doubtful accounts

(490)

(629)

(5,930)35,16635,170331,228

Rental equipment (Note 4)

42,50535,620335,464

Buildings

11,161

11,449107,828

Structures

3,855

3,801

35,803

Machinery and equipment (Note 4)

5,039

5,104

48,072Less : Accumulated depreciation(41,201)(38,291)(360,626)

21,35917,683

166,541

24,382

25,838

243,3452

3

26

45,743

43,524409,912- Subsidiaries and affiliates

1,025

1,037

9,768

- Others

3,392

3,801

35,793

Deferred income taxes (Note 5)

1,453

1,005

9,465

Other assets

1,618

1,776

16,729Less : Allowance for doubtful accounts and reserve for investments

(770)

(844)

(7,949)As of October 31, 2004 and 2003

Current assets :Total current assets

Property and equipment :Land
Construction in progress
Total property and equipment

Investments and other assets :Investment securities

Total investments and other assets
Total assets

6,718

6,775

63,806¥ 87,627¥ 85,469$ 804,946(Note)＊For details of Current assets : Deferred income taxes, please refer to page 45 (Note 5).
＊Under the accounting principles and practices currently applied in Japan, finance leases and operating leases are off balance sheet items. For
details of concerning matters related to lease transactions, please refer to page 44 (Note 4).
＊For details of Investments and other assets : Deferred income taxes, please refer to page 45 (Note 5).

40 Kanamoto Annual Report 2004

LIABILITIES AND SHAREHOLDERS' EQUITY
Thousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

¥ 9,576¥ 10,747$ 101,215

Notes payable, trade

7,387

8,967

84,452

Accounts payable, trade

3,049

2,838

26,732As of October 31, 2004 and 2003

Current liabilities :Current portion of long-term bank loans

363

174

1,639

Accounts payable, other

5,785

4,065

38,288

Accrued income taxes

645

362

3,412

Accrued bonuses

429

436

4,106

Notes payable, other

Other current liabilities

523

486

4,576

Total current liabilities

27,75728,075

264,420

Long-term bank loans

20,592

20,735

195,282Long-term accounts payable, other

5,321

2,426

22,853

Accrued pension and severance costs

1,777

1,227

11,554Non-current liabilities :Other liabilities
Total non-current liabilities

176

72

674

27,866

24,460230,363

8,597

8,597

80,964

Contingent liabilities (Note 3)

Shareholders' equity :Common stock :Authorized-66,000,000 shares
Issued-30,253,241 shares
Capital surplus

9,720

9,720

91,546

Retained earnings

13,497

14,101

132,799

Unrealized holding gain on securities

367

698

6,573

Treasury stock

(177)

(182)

(1,719)Total shareholders' equity
Total liabilities and shareholders' equity

32,00432,934

310,163¥ 87,627¥ 85,469$ 804,946(Note)＊For details of Contingent liabilities, please refer to page44(Note3)

Kanamoto Annual Report 2004 41

■Non-consolidated

StatementsofIncomeThousands of
U.S. dollars (Note 1)

Millions of yen
2003

2004

2004

Rentals¥ 39,639¥ 38,830$ 365,700

Sales

20,856

20,444

192,544

60,49559,274558,244

Rentals

30,59730,066283,164

Sales

16,09815,745148,286

46,69545,811

431,450

Gross profit

13,80013,463

126,794

Selling, general and administrative expenses

11,449

11,621

109,444

Operating income

2,351

1,842

17,350Years ended October 31, 2004 and 2003

Revenue

Cost of sales

Other income (expenses) :Interest and dividend income
Interest expenses

81

77

727

(373)

(332)

(3,133)

(202)

656

6,178

1,857

2,243

21,122Current

1,032

833

7,843

Deferred

(129)

223

2,099

903

1,056

9,942

¥ 954

¥ 1,187$ 11,180

Others, net
Income before income taxes
Income taxes (Note 5)

Net income

Yen

U.S. dollars (Note 1)

2003

2004

2004

Basic

¥ 31.30¥ 39.50$ 0.37

Diluted

28.30

-

-

18.00

19.00

0.18

Per share of common stock :Net income

Cash dividends applicable to the year
(Note)＊For details of Income taxes, please refer to page45 (Note5)

42 Kanamoto Annual Report 2004

■Non-consolidated

Statements

Years ended October 31, 2004 and 2003

Thousands ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Unrealized
holding gain
on securities

30,253¥ 8,597¥ 9,720¥ 13,150¥ (108)

Balance at October 31, 2002

ofShareholders'EquityMillions of yen

Net income

954

Cash dividends(541)

Bonuses to directors and auditors

(17)

Other

(49)

475

13,497367

Balance at October 31, 2003

30,253

8,597

9,720

Net income

1,187

Cash dividends(537)

Bonuses to directors and auditors

(14)

Other

(32)

331

¥ 14,101¥ 698

Balance at October 31, 2004

30,253¥ 8,597¥ 9,720

Thousands of U.S. dollars (Note 1)

Balance at October 31, 2003

Commonstock

CapitalsurplusRetainedearnings

Unrealized
holding gain
on securities$ 80,964$ 91,546$ 127,118$ 3,461

Net income

11,180Cash dividends(5,063)(133)

Bonuses to directors and auditors
Other
Balance at October 31, 2004

$ 80,964$ 91,546

(303)

3,112

$ 132,799$ 6,573

Kanamoto Annual Report 2004 43

■NotestoNon-consolidated

Financial

Statements

1. Basis of presenting of non-consolidated financial statements
The non-consolidated financial statements have been prepared from the accounts maintained by Kanamoto Co., Ltd. (the "Company") in accordance with theprovisions set forth in the Commercial Code of Japan and the Securities and Exchange Law of Japan 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.
The notes to the non-consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but ispresented herein as additional information.
In order to facilitate the understanding of readers outside Japan, certain reclassifications are given to the non-consolidated financial statements prepared for domestic
purposes.
Translations of Japanese yen amounts into U.S. dollars are included solely for the convenience of the reader, using the approximate exchange rate on October 29,
2004, which was ¥106.18 to US$1.00. These translations should not be construed as representations that the Japanese yen amounts have been, or could have been, or
could in the future be converted into U.S. dollars at this or any other rate of exchange.
2. Summary of significant accounting policies(a) Basis of presentation
The non-consolidated financial statements are prepared on the basis of the same accounting policies as those discussed in Note 2 to the consolidated financial
statements except that investments in subsidiaries and affiliates are stated at cost.
3. Contingent liabilities

At October 31, 2004

Millions of yen

Thousands of
U.S. dollars¥ 1,988$ 18,726

Guarantees of loans

4. Leases
Lease payments under finance leases for the years ended October 31, 2004 and 2003 were ¥5,721 million ($53,880 thousand) and ¥5,279 million, respectively.
Pro forma information on leased property such as acquisition costs, accumulated depreciation, obligations under finance leases, depreciations expenses, interest
expenses on finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” for the years ended October 31, 2004 and 2003,
was as follows:
Millions of yen

For the year ended October 31, 2004

Acquisition costs
Accumulated depreciation
Net book value

Thousands of U.S. dollars

Rental equipment

Machinery andequipment

Total

Rental equipment

Machinery andequipment

Total¥ 31,263¥ 416¥ 31,679$ 294,434$ 3,920$ 298,354

10,027214

10,241

94,4302,017

96,447¥ 21,236¥ 202¥ 21,438$ 200,004$ 1,903$ 201,907

Obligations under finance leases:

Due within one year
Due after one year
Total

Acquisition costs

Rental equipment

Machinery andequipment

Total¥ 27,425

¥ 459

7,097

194

¥ 20,328¥ 265¥ 20,593

Accumulated depreciation
Net book value

44 Kanamoto Annual Report 2004

Thousands of
U.S. dollars¥ 5,243$ 49,375

15,577

146,707¥ 20,820$ 196,082

Obligations under finance leases:

Millions of yen

For the year ended October 31, 2003

Millions of yen

For the year ended October 31, 2004

Millions of yen¥ 27,884

Due within one year

¥4,6897,291

Due after one year

16,064

Total¥20,753

Depreciation expenses and interest expenses, which are not reflected in the non-consolidated statements of income, computed by the straight-line method and theinterest method were ¥5,369 million ($50,570 thousand) and ¥755 million ($7,107 thousand), respectively, for the year ended October 31, 2004 and ¥4,721 million and¥657 million, respectively, for the year ended October 31, 2003.
The minimum rental commitments under non-cancelable operating leases for the years ended October 31, 2004 and 2003 were as follows:

Millions of yen

Thousands of
U.S. dollars

Due within one year

¥ 1,813$ 17,076

Due within one year

¥ 1,790

Due after one year

3,434

32,342

Due after one year

3,238

¥ 5,247$ 49,418

For the year ended October 31, 2004

Total

Millions of yen

For the year ended October 31, 2003

¥ 5,028Total

5. Income taxes
The difference between the statutory tax rate and the effective tax rate for the years ended October 31, 2004 and 2003 was as follows:
2003

2004

41.7%

41.7%

Inhabitants tax per capita

4.3

3.8

Expenses not deductible for tax purposes

1.4

3.4

Other

1.2

△1.8

48.6%

47.1%

Statutory tax rate

Effective tax rate
The significant components of deferred income tax assets and liabilities at October 31, 2004 and 2003 were as follows:

Thousands of
U.S. dollars (Note 1)

Millions of yen
Years ended October 31, 2004 and 2003

2003

2004

2004

Deferred tax assets:
¥ 404

¥ 360

$ 3,390

Accrued bonuses for employees

143

176

1,659

Provisions for doubtful accounts

237

260

2,448

Accrued pension and severance costs

729

496

4,668

Depreciation expenses

OthersTotal deferred tax assets

417

415

3,915

1,930

1,707

16,080

Deferred tax liabilities
Unrealized holding gain on securities
Net deferred tax assets

249

473

4,455

¥ 1,681¥ 1,234$ 11,625

6. Subsequent events
On January 28, 2005, the Company’s shareholders approved the payment of a cash dividend of ¥ 10.00 ($0.09) per one share to shareholders of record at October 31,
2004, or a total payment of ¥299 million ($2,812 thousand).

Kanamoto Annual Report 2004 45

■Report

of

the

Audit

Committee

The Audit Committee has received the reports of the audit procedures and results concerning the businessperformance of the directors during the 40th Business Period from November 1, 2003 through October 31,
2004 from each of the auditors. After discussing the reports we have prepared this Audit Report and reportas follows.
1. Scope of audit by the Audit Committee
Each of the auditors attends the meetings of the Board of Directors and other important meetings, receives business reports
from the directors and other managers, reads documents concerning matters such as important decisions, and investigates theconditions of the business and financial conditions at the head office and the main branches, and also requests copies ofaccounting and other documents, explanations of such documents and management reports from the subsidiary companies tothe extent considered necessary, in accordance with the policies specified by the Board of Directors and the duties of theiroffice. The auditors also receive the report and explanations of the independent auditors, and carry out the procedures
determined to be necessary for matters such as investigation of accounting documents and related documents.
For matters such as transactions between directors and business competitors, transactions between directors and the Company
that may be detrimental to the Company's profitability, undocumented uses of profits by the Company, unusual or uncustomarytransactions with a shareholder, and purchases and sale of the Company's stock, in addition to the audit procedures indicatedabove the auditors may request reports from the directors and other managers as they deem necessary and conduct aninvestigation into the details of the circumstances surrounding the transactions in question.
2. Result of audit(1) In our opinion, the audit procedures and audit results received from the independent public accounting firm Shin Nihon &Co. are appropriate.
(2) The Business Report fairly represents the condition of the Company in accordance with the laws of Japan and the Articles ofIncorporation of the Company.
(3) We have examined the Statement of Proposed Appropriation of Retained Earnings in consideration of the financial conditionof the Company and other circumstances surrounding the business, and determined that there are no matters that should behighlighted as a concern.
(4) We have examined the supporting schedules and determined that there are no matters that should be highlighted as aconcern.
(5) We have determined that there were no serious occurrences of dishonest or false activity or violations of any laws or theCompany's Articles of Incorporation by any of the directors in carrying out the duties and responsibilities of their offices
including business activities concerning the subsidiary companies.
Furthermore, we have determined that no director violated the duties and responsibilities of his office concerning matterssuch as transactions between directors and business competitors, transactions between directors and the Company that may
be detrimental to the Company's profitability, undocumented uses of profits by the Company, unusual or uncustomarytransactions with a shareholder, and purchases and sale of the Company's stock

December 25, 2004
Audit Committee, Kanamoto Company, Ltd.
(Note) Outside Corporate Auditor Akio Hashimoto and Kiyohiro Tsuji are
the outside auditor as stipulated by Article 18, Section 1 of The Law forSpecial Exceptions to the Commercial Code Concerning Audits, etc. of
Joint Stock Corporations.

46 Kanamoto Annual Report 2004

■Boardof

Directors(As of January 31, 2005)

D i r e c t o r sKanchu Kanamoto *Hidemitsu Washida *President
CEO

Executive Vice PresidentManager in Charge ofOperations Control Headquarters

Yukio Sato

Eichu Kanamoto *Nobuhito Utatsu *Tetsuo Kanamoto *President of
Kanki Corporation

Division Manager,
Administrati on Division
Manager in Charge of CreditManagement
Division & Auditing Section

Division Manager,
Accounting Division

Division Manager,
Construction Equipment

Tadao Saika

Hitoshi Narita *Osamu Kawashima

Division Manager,
Management
Planning Division
Office Chief,
Secretarial Office

Asterisk indicates directors who hold the additional post of corporate officer.

A u d i t o r s
Toshizo Okumura

Shinroku Sawada

Akio Hashimoto

Kiyohiro Tsuji

Standing Corporate
AuditorStanding Corporate
AuditorOutside Corporate
AuditorOutside Corporate
AuditorCorporate Officers
Hideki Nomiya

Masakazu Hirata

Keiichi Kitakata

Business Coordination
Headquarters
Manager in Charge ofSteel Sales Division

Deputy Division Manager, Construction
Equipment Rental Division Division
Manager, Used Products Sales Division
Manager, Quality Assurance
Department

Division Manager,
Research &Investment Division

Hiroshi Kumagai

Tatsuo Kanamoto*

Yuichi Asano

Division Manager,
Information System
Division

Regional Manager, Tohoku Region
Construction Equipment
Rental Division

Division Manager, Credit
Management Division
Manager, Auditing Section
Manager, Legal Section

Beginning on April 1, 2005, Tatsuo Kanamoto will be Regional Manager, Hokkaido Region.

Kanamoto Annual Report 2004 47

Printed on recycled paper using soy ink
Printed in Japan