ANNUALREPORT
1 9 9 8

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

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

U.S. Dollars(thousands)

1996

1997

1998

1998

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

¥ 97,765¥ 121,835¥ 124,652$ 1,083,930

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

14,917

24,19628,431

247,226

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

17,50530,69828,513247,939

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

8,940

16,66417,016

147,965

Shareholders' equity .................................

157,362

172,422

187,841

1,633,400

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

191,508

213,045

207,682

1,805,930

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

¥ 190.70¥ 354.69¥ 362.00

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

30.00

40.00

45.00

Per share of common stock :Yen

U.S. Dollars
$

3.15
0.39

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥115=U.S.$1, the approximate exchange rate on December 31, 1998.
2. Net income per share figures are based on the weighted average number of shares of common stock outstanding
during each fiscal year.

1

A Message from the President
Overview of
Performance

Throughout the year of 1998, despite Japanese government efforts for economic recovery andfinancial stability in the domestic market, the recession continued to impact the entire country
due to weak consumer spending and the softening investment for manufacturing machineryand equipment. Since autumn in 1998, the Japanese Yen had strengthened against the US
dollar, resulting in a slowdown in exports in various industries and lowering the profitability ofmany export oriented companies.
On the other hand, the demand for our products in North America and E.U. markets had been
continuously strong and healthy in 1998, which offset the decreased sales and profits in Japan,
South-East Asia, Eastern Europe including Russia and South American markets.
I am very pleased to inform you that Mabuchi Motor, as the world leader of small D.C. motors,
had an another record year in 1998 and continued our progress in delivering value to our clientsand shareholders.
The results of 1998 Fiscal Year, compared with 1997, were as follows:• Consolidated net sales• Operating income• Net income• Earning per share• Dividends per share: ¥ 124.7 billion (Up 2.3%): ¥ 28.4 billion (Up 17.5%): ¥ 17.0 billion (Up 2.1%): ¥ 362.00 (Up 2.1%): ¥ 45.00 (Up 12.5%)

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

58.5 billion (Up 6.0%)
27.8 billion (Down 4.2%)
18.1 billion (Up 4.3%)
11.6 billion (Down 7.6%)
8.5 billion (Up 12.0%)

On a regional basis, compared with 1997, we had a mixed sales record as follows; up 0.4% inNorth and Latin America, up 17.3% in Europe, down 13.9% in Asia-Pacific (excluding China
and Hong Kong), up 12.6% in China and Hong Kong and down 1.0% in Japanese market.
The new records in turnover and profit were achieved not only by continuous strong demandfor our products, especially in North America and European markets, but also by the Company's
management commitment based on long-term strategies such as continuous expansion of
production capacities at the plants in Guang-Dong province in China and Vietnam for morestable, flexible and smoother supply of our products, improvement of information network system among Mabuchi group as well as for client and suppliers, and continuous efforts for cost
reduction activities made everywhere at Mabuchi operations.

2

Looking
Ahead

Though the business outlook in Japan and Asia Pacific countries for the balance of 1999 seems
to be continuously sluggish, the demand for our products in the global markets, especially inNorth America and Europe, is expected to be still strong and healthy. The expected turnover in1999 may be slightly decreased due to the weaker exchange rate of the Japanese Yen against
the U.S. dollar but we all at Mabuchi group are striving for achieving a new record year in the
production quantity of our products and making 1999 the epoch - making - year for strengthening the competitiveness of our products and improvement and renovation of our entire operations for the coming 21st century by taking the following steps:
1. Management with high productivity and cost competitivenessIn order to make our products more competitive in this mega - competition era, we have put up
the slogan for a management with no waste anywhere at Mabuchi's production sites and offices and for aggressive cost reduction activities in designing products, purchasing raw materials and components, manufacturing processes, and by shortening production lead-time, decreasing inventories of materials and finished products and cutting general operational expenses. With these activities, we are able to be in a more competitive position in the market
and generate better cash-flow for healthier operation and more profitability.
2. Quality
We Mabuchi have always been the quality leader in the industry and our Quality Assurance
System is in operation at every factory, laboratory and office under ISO-9002. Additionally, weare expecting to receive QS-9000 Quality Certificates for operation sites, where the automotive-related DC motors are being made, by the end of the second quarter of 1999 and more by
the end of 1999.
In order to further enhance customers satisfaction as well as to comply with the global environmental protection requirement, we are also working on obtaining a ISO-14000 Quality Certificate by the end of the year 2000.
3. New Motor Development
Our basic concept of product design is to design products which utilize interchangeable materials and parts, commonly in use for our standard products, and are capable of meeting theneeds of diversified applications.
With this basic design concept, we are aggressively investing in R&D projects for creating newtechnologies and innovative concept of DC motors and are just about releasing several new
product lines for audio-visual, automotive, home appliance and information-communicationindustries for further increase in sales and profitability.

34. Preparations for Year 2000 Problems
Our preparation work for Year 2000 Problems had started in March 1997 and, at present, approximately 80% of the Company's mission-critical problems and electronic systems havebeen renovated and tested for Year 2000 compliance. We have budgeted approximately ¥13
million (US$113 thousand) in total for 1998 and 1999 as the Year 2000 compliance expenditures and hopefully, our preparation work for Year 2000 Problems here at Mabuchi will becompleted by the end of June, 1999. We are now in the midst of investigating and setting up a
written contingency plan to assure the continuing operation of the Company in the event one ormore key suppliers or customer's fail to be Year 2000 compliant and hope that this project will
be completed by the end of the third quarter of 1999 at the latest.
I am confident that our jobs to be done during 1999, as described above, will lead to an improvement of productivity, stronger cost competitiveness, increase of turnover and profit, which
is value creation for our clients and shareholders, and eventually to the steady growth of Mabuchi
Group for the 21st century. On behalf of the Board and Mabuchi Group, I would like to thank allof our shareholders, customers, supporting partners and employees worldwide for the continued support.

April 1999

Takaichi Mabuchi
President

4

FINANCIAL REVIEWNet Sales

In 1998, net sales increased 2.3% to ¥124,652 million ($1,084 million) supported by the steady market
growths in the U.S. and Europe during the year, and also by the effect of the lower value of the yen in
the first half of the year.
Following is the trend of our markets by application and our sales record in 1998:■ Audio-Visual Equipment
Sales of this market increased 6.0%, to ¥58,524 million ($509 million) due to the robust demand for
CD-ROMs for computer games and personal computers, and also for Mini-Disc and DVD.

■ Automotive Products
Sales of this market decreased 4.2% to ¥27,809 million ($242 million) due to weak demand for power
window lift motors, while the demand for motors for rear view mirror actuators and door lock actuators
was continuously strong.

■ Home Appliances, Power Tools, Precision Instruments and Office Equipment
Sales of these markets were ¥29,610 million ($257 million) in total, down 0.7%, with mixed demand forvarious applications. Demand for PC printer motors was flat while demand for motors for shavers andhealth care products was strong.

■ Toys and Hobbies
Sales of this market inceased 12.0% to ¥8,522 million ($74 million) due to strong demand for motors
used in radio-control toys and child ride-on-vehicles.

Reviewing net sales by regional market in 1998, sales in Japan decreased 1.0% to ¥20,634 million($179 million). The Japanese economy remained slow during the year due to sluggishness in personal
consumption and corporate capital investment. Overseas, there were growths of 0.4% in North and
Latin America, 17.3% in Europe, and 12.6% in China and Hong Kong. The U.S. economy and theEuropean economies continued to enjoy steady overall growth. In Asia Pacific region (excluding China
and Hong Kong), sales dropped 13.9% due to the economic turmoil in Asian countries since thecurrency crisis in late 1997.

5

Net Sales by Application
Years ended December 31

Yen(millions)
1994

1995

1996

¥ 39,389
21,23015,120
9,513
6,688
444

¥ 40,298
22,95814,737
11,116
7,848
808¥ 55,236 ¥ 58,524
29,03627,80917,316
18,056
12,502
11,554
7,608
8,522
137
187

$

¥ 92,384¥ 97,765¥121,835 ¥ 124,652$ 1,083,930

1994¥ 23,806
9,491
10,36520,71722,412
1,028

1995¥ 24,232
10,835
11,94821,86023,065444

Yen(millions)1996¥ 20,154 ¥
12,834
10,83028,441
24,698808

1997
20,832
16,107
13,83839,12931,792137

1998¥ 20,634
16,17016,22844,051
27,382
187

U.S. Dollars(thousands)
1998$ 179,426
140,609
141,113
383,052
238,104
1,626¥ 87,819¥ 92,384¥ 97,765 ¥ 121,835¥ 124,652$ 1,083,930

Audio-Visual Equipment¥ 38,005
Automotive Products
19,228Home Appliances and Power Tools
13,532
Precision Instruments and Office Equipment 8,997
Toys and Hobbies
7,029
Other
1,028
Total

U.S. Dollars(thousands)¥ 87,819

1997

1998

1998
508,904
241,817
157,009
100,470
74,104
1,626

Other includes parts and equipment sales.

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

6Costs,Cost of sales as a percentage of net sales was 63.8% in 1998 compared with 66.7% in 1997. The
Expenses, decrease in 1998 was mainly due to lower manufacturing costs such as raw materials, and a slight sales
andincrease.
Net Income
Selling, general and administrative expenses remained at 13.4% of net sales, almost the same as thatin 1997. This ratio continues at lower levels as a result of Company-wide efforts to reduce indirect costs.
R&D expenses, which are a part of selling, general and administrative expenses, amounted to ¥3,780
million ($33 million) in 1998 and ¥3,702 million in 1997. R&D investment has been focused on development of high quality products including improvements to existing products and testing related to thedevelopment of new technologies. As a result of these factors, operating income increased 17.5%, to¥28,431 million ($247 million) over the previous year.
Other income (expense) was net other income of ¥82 million ($0.7 million) in 1998 versus net otherincome of ¥6,502 million in 1997. The significant decrease in 1998 was principally due to exchange losses
incurred in the fourth quarter of 1998, during which the yen appreciated approximately 14% against the
U.S. dollar, while a major item of other income in 1997 was exchange gains of ¥4,659 million ($41 million).
The actual effective tax rate decreased to 39.9 % in 1998 from 44.1% in 1997 primarily due to anincrease of foreign tax credits on dividend income received from overseas subsidiaries in 1998. Such
dividend income was ¥3,699 million ($32 million) in 1998 and ¥1,735 million in 1997, which has been
eliminated in the consolidated statements of income.
Net income in 1998 of ¥17,016 million (¥362.00 per share) was 2.1% higher than the 1997 net incomeof ¥16,664 million (¥354.69 per share).

Foreign
Currency

As indicated in Note 9 “Segment Information” to consolidated financial statements, overseas sales accounted for approximately 83% of consolidated net sales in 1998, of which 70% was transacted by the
U.S. dollar and U.S. dollar linked currencies. In 1998, the average rate of the yen depreciated approximately 8% against the U.S. dollar, compared with 1997. The weakening of the yen against the U.S. dollar
resulted in increases of net sales of ¥6,200 million ($54 million) and operating income of ¥2,800 million($24 million).
The parent company uses foreign exchange forward contracts to hedge foreign exchange risks associated with accounts receivable and payable denominated in foreign currencies. It is our current policy tohedge 80% of the receivables, net of the payables. (See Note 7 “Derivative Financial Instruments”.)

Financial
Position

Net working capital at December 31, 1997 and 1998 is summarized as follows:
Yen (millions)
Current Assets:
Cash and cash equivalents ..............................................
Short-term investments ...................................................
Trade receivables .............................................................
Inventories ........................................................................
Other ................................................................................
Current Liabilities:
Short-term borrowings .....................................................
Accounts payable ............................................................
Accrued expenses ...........................................................
Other ................................................................................
Net Working Capital .........................................................
Current Ratio ....................................................................

1997

1998

Increase(Decrease)¥ 36,098
37,223
16,78035,925
1,684
127,710¥37,43235,766
13,87230,5291,350
118,949¥ 1,334(1,457)(2,908)(5,396)(334)(8,761)

12,1997,218
11,392394
31,203¥ 96,507
4.1

5,210
5,367
6,045
378
17,000¥ 101,949
7.0(6,989)(1,851)(5,347)(16)(14,203)¥ 5,4427

The decrease in inventories at December 31, 1998 was primarily due to a decrease of production in
the latter half of 1998. Short-term borrowings decreased due to repayments by two overseas subsidiaries and conversion and redemption of the 1.7% unsecured convertible bonds. The decrease of
accrued expenses was due principally to a decrease of income taxes. See Note 1 (c) to consolidated
financial statements as to foreign currency translation adjustments.
Shareholders' equity was ¥187,841million ($1,633 million) at December 31, 1998, compared with
¥172,422 million at December 31, 1997. Affecting equity were mainly earnings of ¥17,016 million($148 million) and dividends paid of ¥1,880 million ($16 million). The shareholders` equity ratio was
90.4%, compared with 80.9% at December 31, 1997.
The Statement of Cash Flows for the years ended December 31, 1997 and 1998 is summarized
below:Yen (millions)
Net income ................................................................................................
Depreciation ..............................................................................................
Additions to plant and equipment .............................................................
Purchase of short-term investments and investment securities, net ........
Cash dividends paid .................................................................................
Other, net ..................................................................................................
Net increase in cash and cash equivalents ...............................................

1997¥ 16,664
7,837(11,913)(9,843)(1,644)
5,282¥ 6,383

1998¥ 17,016
7,314(6,431)(13,090)(1,880)(1,595)¥ 1,334

Net cash provided by operating activities of ¥24,020 million ($209 million) in 1998 was used primarily for additions to plant and equipment, for purchase of short-term investments and investment securities, and for cash dividends. Net cash provided by operating activities of ¥30,637 million in 1997
was used mainly for additions to plant and equipment, for purchase of short-term investments andinvestment securities, and for cash dividends.
Dividends per share increased 12.5% to ¥45 per share in 1998 from ¥40 per share in 1997. (SeeNote 6 to consolidated financial statements.)
Management believes that internally generated fund will be adequate to finace internal growth andadditional investments.

8

FIVE-YEAR FINANCIAL SUMMARY
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
Years ended December 31
Yen(millions)
1994

U.S. Dollars(thousands)

1995

1996

1997

1998

1998

¥ 92,384
18,358¥ 97,765
14,917¥ 121,835
24,196¥ 124,652
28,431$ 1,083,930
247,226

21,493
12,83021,09010,127

17,5058,940

30,698
16,66428,51317,016247,939
147,965

Net income .................................. ¥ 276.46¥ 216.52¥ 190.70¥ 354.69¥ 362.00

27.50

30.00

40.00

45.00

Operating Results
Net sales ........................................... ¥ 87,819
Operating income .............................
16,459
Income before income taxes ............
Net income ........................................

Per share of common stock:$

3.15(Yen and U.S. Dollars)

Cash dividends per share ............

25.00

0.39

(Yen and U.S. Dollars)

Depreciation and amortization .. ¥Capital expenditures ..................
R&D expenses ............................

5,510

¥

6,400

¥

8,320

¥

7,837

¥

7,314

$

63,6007,027

12,128

8,367

9,753

6,832

59,409

2,645

2,062

2,920

3,702

3,780

32,870Shareholders' equity ......................... ¥ 138,880
Total assets ....................................... ¥ 163,321¥ 149,168¥ 184,028¥ 157,362¥ 191,508¥ 172,422¥ 213,045¥ 187,841¥ 207,682$ 1,633,400$ 1,805,930

46,527

46,817

46,96846,99947,07640,02947,27344,31956,54755,530

Balance Sheet

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

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

Notes: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥115=U.S. $1, the approximate exchange rate on December 31, 1998.
2. Net income per share figures are based on the weighted average number of shares of common stock outstanding
during each fiscal year.
3. Number of employees includes contract manufacturing labor at plants in Guang Dong, China.
4. Figure of R&D expenses for 1998 is compiled differently from the previous years as a result of a review of the scopeof R&D expenses. In this connection, the figures for 1996 and 1997 previously disclosed are adjusted accordingly,
while the figures for 1994 and 1995 are the same as previously disclosed as information to determine the new scopeof R&D expenses for 1994 and 1995 was not available.

9Consolidated Balance Sheets
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
December 31, 1997 and 1998
Yen
(millions)

ASSETS

U.S. Dollars(thousands)

1997

1998

1998

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

¥ 36,098¥ 37,432

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

37,22335,766

311,008

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

17,101

14,124

122,817

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

(321)

(252)

(2,191)Inventories ....................................................................

35,92530,529265,470

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

1,684

1,350

11,739Total current assets .................................................

127,710

118,949

1,034,339

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

4,043

4,021

34,965

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

37,10537,627

327,191

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

54,26351,869451,035

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

2,867

1,545

13,43598,27895,062826,626(50,586)(52,265)(454,478)

47,692

42,797372,148

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

26,10839,092339,930

Long-term loans receivable ...........................................

5,629

2,991

26,009Other investments and other assets ..............................

5,906

3,853

33,50437,64345,936399,443¥ 213,045¥ 207,682$ 1,805,930

Current Assets:$

325,496

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

Investments and Other assets:

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

10

Yen
(millions)

LIABILITIES AND SHAREHOLDERS’ EQUITY

1997

U.S. Dollars(thousands)
1998

1998

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

¥ 11,797

¥

5,210

$

45,304

Convertible bonds to be currently redeemed .......................

402

–

–

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

7,218

5,367

46,669Accrued expenses ................................................................

2,649

2,183

18,983

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

8,743

3,862

33,583

Other current liabilities ..........................................................

394

378

3,287

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

31,20317,000147,826

Long-term debt .....................................................................

134

–

–

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

1,174

1,153

10,026

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

68

36

313

1,376

1,189

10,339Foreign Currency Translation Adjustments ..................

6,257

240

2087

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

1,787

1,412

12,27847,075,881 shares in 1998 ..................................

20,511

20,705

180,043

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

20,226

20,420177,565

Legal reserve ........................................................................

2,570

2,774

24,122Retained earnings .................................................................

129,116

143,946

1,251,704

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

(1)

(4)

(34)

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

172,422

187,841

1,633,400¥ 213,045¥ 207,682$1,805,930

Long-term Liabilities:

Contingent Liabilities
Shareholders’ Equity:
Common stock, par value ¥50 per share:
Authorized: 100,000,000 shares:
Issued: 46,998,525 shares in 1997 and11Consolidated Statements of Income
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
For the years ended December 31, 1997 and 1998
Yen
(millions)

U.S. Dollars(thousands)

1997

1998

1998

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

¥ 121,835¥ 124,652$ 1,083,930

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

81,301

79,563691,852

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

40,53445,089392,078

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

16,33816,658144,852

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

24,19628,431

247,226

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

2,268

2,681

23,313

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

(438)

(308)

(2,678)Exchange gains (losses) on foreign currency transactions

4,659(1,272)(11,061)

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

13(1,019)(8,861)

6,502

82

713

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

30,69828,513247,939

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

13,535

11,384

98,991

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

(499)

(113)

(983)

Net Income ..............................................................................

¥ 16,664

Other Income (Expenses):¥

17,016

Yen$

147,965

U.S. Dollars

1997

1998

1998

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

¥ 354.69

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

40.00

¥

362.0045.00

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

12

$

3.15
0.39

Consolidated Statements of Shareholders’ Equity
Mabuchi Motor Co., Ltd. and Consolidated Subsidiaries
For the years ended December 31, 1997 and 1998

Number of Shares(thousands)

Yen(millions)

1997

1998

1997

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

46,96846,999Conversion of convertible bonds ....

31

77

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

46,99947,076

U.S. Dollars(thousands)
1998

1998

Common Stock:¥

20,434¥77

20,511$

194

178,356
1,687¥

20,511¥

20,705$

180,043¥

20,149¥20,226$

175,878

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

77

194

1,687

¥

20,226¥

20,420$177,565

¥

2,396

¥

2,570

$

22,348Legal Reserve:
Beginning balance .........................................................................
Transfer from retained earnings .....................................................
Ending balance ..............................................................................

174
¥

2,570

204
¥

2,774

1,774
$

24,122Retained Earnings:
Beginning balance .........................................................................

¥ 114,387¥ 129,116$ 1,122,748

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

(45)

—

—

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

16,66417,016

147,965

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

(1,644)(1,880)(16,348)

Transfer to legal reserve ................................................................

(174)

(204)

(1,774)

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

(72)

(102)

(887)

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

¥ 129,116¥ 143,946$ 1,251,704

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

13

Consolidated Statements of Cash Flows
Mabuchi Motor Co.,Ltd. and Consolidated Subsidiaries
For the years ended December 31, 1997 and 1998
Yen
(millions)

U.S. Dollars(thousands)

1997

1998

1998

¥ 16,664¥ 17,016$ 147,965

7,837
91
1,050
(2,240)(1,390)
489
2,057
5,103
1,783
(807)
30,637

7,314
167
228
2,908
5,280
333
(2,333)(4,881)(3,915)
1,903
24,02063,6001,452
1,982
25,28745,913
2,896(20,287)(42,443)(34,043)
16,548208,870

Cash Flows from Investing Activities:
Additions to plant and equipment ................................................
Change in short-term investments ..............................................
Purchase of investment securities ...............................................
Proceeds from sale of investment securities ...............................
Collection of long-term loans receivable, net ..............................
Other, net ......................................................................................
Net cash used in investing activities ..................................

(11,913)(3,812)(20,268)
14,237
1,485(499)(20,770)(6,431)
1,229(41,749)
27,4301,882
1,682(15,957)(55,922)
10,687(363,035)
238,522
16,365
14,626(138,757)

Cash Flows from Financing Activities:
Change in short-term borrowings ................................................
Repayments of long-term debt ....................................................
Cash dividends paid ....................................................................
Net cash used in financing activities .................................

(2,460)(253)(1,644)(4,357)(5,725)—(1,880)(7,605)(49,782)—(16,348)(66,130)

Cash and Cash Equivalents from Consolidating previously
Unconsolidated Subsidiaries ................................................
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase in Cash and Cash Equivalents ..............................
Cash and Cash Equivalents at Beginning of Year .....................
Cash and Cash Equivalents at End of Year ...............................

594
279
6,383
29,715¥ 36,098

—
876
1,334
36,098¥ 37,432—
7,617
11,600313,896$ 325,496

¥

429
8,616

¥

305
16,265$

2,652
141,435

¥

154

¥

388

$

3,374

Cash Flows from Operating Activities:
Net income ...................................................................................
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................................
Estimated retirement and termination allowance ...................
Unrealized losses on marketable securities ...........................
(Increase) Decrease in trade notes and accounts receivable .
(Increase) Decrease in inventories ..........................................
Decrease in other current assets ............................................
Increase (Decrease) in trade notes and accounts payable .....
Increase (Decrease) in accrued income taxes ........................
Foreign currency translation adjustments ..............................
Other, net ................................................................................
Net cash provided by operating activities .........................

Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest ...............................................................................
Income taxes .....................................................................
Noncash Investing and Financing Activities:
Increase in common stock and additional paid-in capitalon conversion of convertible bonds ..................................

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

14

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

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

The accompanying consolidated financial statements of Mabuchi Motor Co., Ltd.
(the “Company” ) and its consolidated subsidiaries have been prepared from theconsolidated financial statements filed with the Minister of Finance as required by
the Securities and Exchange Law of Japan. The Company maintains the accounts inaccordance with the provisions set forth in the Japanese Commercial Code and in
conformity with accounting principles and practices generally accepted in Japan,
which may differ in some material respects from accounting principles and practices
generally accepted in countries and jurisdictions other than Japan.
In addition, the notes to the consolidated financial statements include information
which is not required under accounting principles generally accepted in Japan but ispresented herein as additional information. For the purpose of this report, certain
reclassifications have been made to present the accompanying consolidated financial statements in a format which is familiar to readers outside Japan.
For the convenience of the reader, the accompanying consolidated financial statements have also been presented in U.S. dollars by arithmetically translating yen
amounts at the rate of ¥115 to U.S. $1, which was the approximate exchange rate
prevailing on December 31, 1998.
Certain reclassifications have been made to the accompanying consolidated financial statements for 1997 to conform to 1998 presentations.

(b) Principles of
consolidation

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

(c) Translation offoreign currencies

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

15

(d) Cash andcash equivalents

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

(e) Short-term investments and investment
securities

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

(f) Inventories

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

(g) Depreciation

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

(h) Research anddevelopment expenses

16

Expenditures relating to research and development activities are charged to income
as incurred and amounted to ¥3,702 million and ¥3,780 million ($32,870 thousand)for the years ended December 31, 1997 and 1998, respectively.

(i) Income taxes

Income taxes of the Company are provided based on the amount required by the tax
returns for the year. No tax effect has been recorded for timing differences between
tax and financial reporting in the recognition of certain revenues and expenses.
Enterprise tax, which is based on income, has been charged to selling, generaland administrative expenses on the books of the Company, but has been reclassified
to “Income taxes” in the accompanying consolidated statements of income. Enterprise taxes for the years ended December 31, 1997 and 1998 were ¥2,623 millionand ¥2,297 million ($19,974 thousand), respectively.

(j) Termination andretirement plans

The Company has a trusteed noncontributory pension plan covering substantially all
qualified full-time employees. Under the plan, eligible employees are entitled to a 10year annuity or lump-sum payments based on the rate of pay at the time of retirement
or termination, length of service and certain other factors. Annual payments to thetrustees for the pension plan are based on actuarially determined costs of the plan. It
is the Company's policy to charge the annual payments to income, including theamortization of prior service costs.
The Company's pension fund assets and the actuarially computed value of pension benefits as of November 30, 1998, the latest date of report available from thetrustees, were ¥3,299 million ($28,687 thousand) and ¥3,981 million ($34,617 thousand).
Certain subsidiaries have pension plans which are similar to the Company andhave pension fund assets of ¥1,552 million ($13,496 thousand) as of December 31,
1998. Also, Mabuchi Motor Dalian Ltd., a Dalian subsidiary, has an unfunded retirement and termination allowance plan for qualified employees and the amount required under the plan has been fully accrued.
The Company also has an unfunded retirement and termination allowance plan for
directors and statutory auditors, and has fully accrued the amount required under theplan.
Total provisions, including the amortization of prior service costs, charged to income under these plans for the years ended December 31, 1997 and 1998 were¥848 million and ¥682 million ($5,930 thousand), respectively.

17

2. Inventories
Inventories as of December 31, 1997 and 1998 were as follows:Yen(millions)

U.S.Dollars(thousands)

1997

1998

1998

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

¥ 17,128¥ 16,992$ 147,757

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

6,902

4,621

40,183

Raw materials and supplies ....................................................................

11,895

8,916

77,530¥ 35,925¥ 30,529$ 265,470

3. Short-term Investments and Investment Securities
Short-term investments and investment securities as of December 31, 1997 and 1998 include marketable debt and equity
securities and investment trusts of which market value is as follows:
Yen (millions)
Book
value

1997
Marketvalue

Gains(losses)

Book
value

1998
Marketvalue

Gains(losses)U.S Dollars (thousands)
1998
Book
Market
Gains
value
vale
(losses)

Short-term inverstments:
Debt securities .........

¥ 23,985 ¥ 24,195 ¥ 210 ¥ 21,146 ¥ 20,832 ¥(314) $183,878 $181,148 $ (2,730)

Equity securities .......

1,472

1,629

157

1,775

2,003

228

15,435

17,417

1,982

Investment trusts .....

5,975

5,882

(93)

3,400

3,408

8

29,56529,63570¥ 31,432 ¥ 31,706 ¥ 274 ¥ 26,321 ¥ 26,243 ¥(78) $228,878 $228,200 $ (678)¥ 2,310 ¥ 3,322 ¥1,012 ¥138

Inverstment securities:
Equity securities .......

18

2,165 ¥

2,303 ¥

$ 18,826 $ 20,026 $ 1,200

4. Short-term Borrowings and Long-term Debt
Short-term borrowings consist of the borrowings by subsidiaries from banks. The interest rates of short-term borrowings
as of December 31, 1998 were 0.8% to 6.2%.
Long-term debt as of December 31, 1997 and 1998 comprise the following:Yen(millions)
1997
1998
5.9%-6.4% unsecured loans from banks due 1999 ............................
1.7% unsecured convertible bonds, due 1998 ....................................

¥

400
402

¥

802
(668)

Less-current portion included in current liabilities ...............................
¥

134

¥

U.S.Dollars(thousands)
1998

121
—

$ 1,052
—

121
(121)

1,052
(1,052)—$—

The 1.7% convertible bonds, which were issued in November 1989, were redeemed at the due date of December 31,
1998.

5. Income Taxes
The Company is subject to several taxes based on income with a normal tax rate aggregating approximately 51% for theyears ended December 31, 1997 and 1998. Income taxes applicable to consolidated subsidiaries were levied at the tax
rates in effect in the countries where each subsidiary operates.
The amendment of the Japanese corporate income tax law in 1998 was applicable to Japanese corporations of whichfiscal years began after March 31, 1998. As a result of the amendment, the Company will be subject to an aggregate
normal tax rate of 47.4% in 1999.

6. Shareholders' Equity and Per Share Data
The Japanese Commercial Code (the “Code” ) provides that an amount equivalent to at least 10% of cash dividends paid
and other cash outlays resulting from appropriations of retained earnings with respect to each annual period be appropriated to the legal reserve until such reserve equals 25% of the stated capital. The Code also provides that additional paidin capital and the legal reserve are not available for cash dividends, but may be used to reduce a capital deficit by resolution of the shareholders or may be capitalized by resolution of the Board of Directors.
Year end cash dividends are approved by the shareholders after the end of each fiscal year, and semi-annual interim
cash dividends are declared by the board of directors after the end of each interim six month period. Such dividends arepayable to shareholders of record at the end of each fiscal year or interim six month period.
In accordance with the Code, these dividends and the related appropriations of retained earnings have not been reflected in the financial statements at the end of such fiscal year. However, dividends per share shown in the accompanying
consolidated statements of income reflect dividends applicable to the respective fiscal year. Net income per share iscomputed based on the weighted average number of shares of common stock outstanding.
On September 25, 1998, semi-annual interim cash dividends (¥20 or $0.17 per share) of ¥940 million ($8,174 thousand)were paid to shareholders of record at June 30, 1998. On March 30, 1999, the shareholders approved the declaration of
cash dividends (¥25 or $0.22 per share) totaling ¥1,177 million ($10,235 thousand), payments of bonuses to directors andstatutory auditors totaling ¥114 million ($991 thousand) and related appropriations of retained earnings to legal reserve of¥155 million ($1,348 thousand).

19

7. Derivative Financial Instruments
The Company and a consolidated subsidiary have financial instruments such as forward exchange contracts and forward
precious metal contracts as a normal part of risk management efforts. As a result, the Company and the consolidated
subsidiary are exposed to risk of credit-related losses in the event of nonperformance of counterparties to foreign exchange contracts and precious metal contracts, but management believes risk to be minor because of the high creditability of the counterparties and such financial instruments have not been held for trading purpose. Following is a summary ofderivative financial instruments which are currently held by the Company and the consolidated subsidiary.
The Company uses foreign exchange forward contracts to hedge the risk of changes in foreign exchange rates substantially associated with accounts receivable and payable denominated in foreign currencies. The Company had forward
exchange contracts which mature within a year to sell ¥327 million ($2,843 thousand) in U.S. dollars at December 31,
1998, and the estimated fair value outstanding at December 31, 1998 was ¥318 million ($2,765 thousand). In connection
with bank borrowings in Japanese yen, in order to hedge the risk of changes in foreign exchange rates, one of the consolidated subsidiaries had forward exchange contracts which mature within a year to buy ¥7,810 million and ¥4,920 million($42,783 thousand) in Japanese yen at December 31, 1997 and 1998, respectively. The estimated fair value outstandingat December 31, 1997 and 1998 were ¥7,665 million and ¥5,059 million ($43,991 thousand), respectively.
Forward precious metal contracts are used by the Company to hedge the risk of changes in market prices resulting frompurchase of precious metals as raw materials for motor products. The contracted amounts outstanding at December 31,
1997 and 1998 were ¥291 million and ¥138 million ($1,200 thousand), respectively, and the estimated fair value outstanding at December 31, 1997 and 1998 were ¥339 million and ¥126 million ($1,096 thousand), respectively.

8. Contingent Liabilities
As of December 31, 1998, the Company and consolidated subsidiaries were contingently liable for notes discounted in theamount of ¥17 million ($148 thousand).

9. Segment Information
The Company and consolidated subsidiaries manufacture and sell small electric motors, parts and equipment used fortheir production. Almost 100% of the consolidated net sales and operating income are generated from a broad range ofmotor products.
The information on net sales, operating income and assets by geographic area, and overseas sales is summarized asfollows:

20

Segment Information by Geographic Area

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

Yen(millions)

U.S. Dollars(thousands)
1998

1997

1998

37,40551,00688,411¥ 37,694
52,34990,04360,616
51,629112,245

59,97154,045
114,016

521,487
469,957
991,443

13,64830
13,678

14,63912
14,651

127,296104
127,400

10,16650
10,216(102,715)¥ 121,835

12,34837
12,385(106,443)¥ 124,652

107,374322
107,696(925,591)$ 1,083,930¥

18,221
5,731
762
315
(833)
24,196¥ 18,907
7,193
880
417
1,034
¥ 28,431$

78,267
77,1206,496
4,585
46,577¥ 213,045¥ 70,130
59,161
5,718
4,137
68,536¥ 207,682

¥

¥
¥

$

$

327,774455,209782,983

164,409
62,548
7,652
3,626
8,991
247,226$

609,826
514,443
49,72235,974595,965$ 1,805,930

The amount of corporate assets included in Corporate and elimination is ¥83,438 million in 1997 and ¥97,695 million ($849,522
thousand) in 1998, which comprises principally cash, short-term investments and investment securities.

Overseas Sales
Yen(millions)
1997
Overseas Sales
U.S.A. ...............................................................................
Europe ..............................................................................
Asia and Other ..................................................................
Total ................................................................................
Net Sales ..........................................................................
% of Overseas Sales to Net Sales ...................................

¥ 16,107
13,83871,058100,998
121,835
82.9%

1998
¥

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

U.S. Dollars(thousands)
1998$

140,609
141,113622,713904,435
1,083,930
83.4%

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

21

Report of Independent Public Accountants

To: The Board of Directors of Mabuchi Motor Co., Ltd.
We have audited the consolidated balance sheets of Mabuchi Motor Co., Ltd. and its consolidated subsidiaries
as of December 31, 1997 and 1998, and the related consolidated statements of income, shareholders’ equity andcash flows for the years then ended. Our audits were made in accordance with auditing standards generally
accepted in Japan and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the financial position of
Mabuchi Motor Co., Ltd. and its consolidated subsidiaries as of December 31, 1997 and 1998, and the results of
their operations and cash flows for the years then ended, in conformity with accounting principles generally
accepted in Japan applied on a consistent basis.
The United States dollar amounts shown in the accompanying consolidated financial statements have beentranslated solely for convenience. We have reviewed this translation and, in our opinion, the consolidated financial
statements expressed in yen have been translated into dollars on the basis described in Note 1 (a).

CENTURY AUDIT CORPORATION(Certified Public Accountants)

Tokyo, Japan
March 30, 1999

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

22

CORPORATE INFORMATIONBOARD OF DIRECTORSAs of March 31, 1999

President

Takaichi Mabuchi

Executive Vice President

Akira Ohnishi

Managing Director

Shoji Nishimura

Directors

Yoshimasa Sugiyama
Chiaki Kajiwara
Sun Zuei Che
Shinji Kamei
Nobuyo Habuchi

Statutory Auditors

Toshiaki Takahashi
Kiyoshi Iwakura
Ichiro Ando
Yuzaburo Nagase

23

CORPORATE DIRECTORY
As of December 31, 1998

Consolidated Subsidiaries
MABUCHI INDUSTRY CO., LTD.

MABUCHI MOTOR (MALAYSIA) SDN. BHD.

19 Sam Chuk St., San Po Kong
Kowloon, Hong Kong
T e l : 852-2328-5575
F a x : 852-2352-5266

Plot 15, Kanthan Industrial Estate
31200 Chemor, Perak, Malaysia
T e l : 60-5-201-1888
F a x : 60-5-201-2288

MABUCHI TAIWAN CO., LTD.

MABUCHI MOTOR VIETNAM LTD.

6/F No.3 Sec.1 Tun Hwa South Rd.
Taipei, Taiwan
T e l : 886-2-2579-0155
F a x : 886-2-2570-6535

No.28, Bienhoa Industrial Zone 2Long Binh Ward, Bienhoa City
Dongnai Province, Vietnam
T e l : 84-61-836711
F a x : 84-61-836712

MABUCHI MOTOR TAIWAN LTD.
No.66 Kai Fa Rd., N.E.P.Z.
Kaohsiung, Taiwan
T e l : 886-7-362-1111
F a x : 886-7-361-9111

MABUCHI MOTOR AMERICA CORP.
3001, West Big Beaver Rd., Suite 520
Troy, MI. 48084 U.S.A.
T e l : 1-248-816-3100
F a x : 1-248-816-3242

MABUCHI MOTOR DALIAN LTD.
Harbin Rd., Dalian Economic
and Technical Development Zone
China
T e l : 86-411-761-1111
F a x : 86-411-761-2900

MABUCHI MOTOR (SINGAPORE) PTE. LTD.
111 North Bridge Rd., #21-02
Peninsula Plaza, Singapore 179098
T e l : 65-339-9991
F a x : 65-339-9091

MABUCHI MOTOR WAFANGDIAN LTD.

MABUCHI MOTOR (EUROPE) GmbH

Wafangdian City
Laohutun Town, China
T e l : 86-411-537-0241
F a x : 86-411-537-0291

Hahnstrasse 38, 60528
Frankfurt/Main, Germany
T e l : 49-69-6690220
F a x : 49-69-66902229

MABUCHI MOTOR (JIANGSU) CO., LTD.
No.1 Liu Xu Rd., Song Ling
Economic and Technical Development Zone
Wu Jiang City, Jiang Su, China
T e l : 86-512-345-1111
F a x : 86-512-345-0438

Non-Consolidated Subsidiaries
MABUCHI PRECISION INDUSTRIES LTD.
MABUCHI PRECISION INDUSTRIES HONG KONG LTD.
DONGGUAN MABUCHI MOTOR EQUIPMENT CO., LTD.
MABUCHI REAL ESTATE CO., LTD.
TAIWAN MABUCHI (HONG KONG) CO., LTD.
24

INVESTOR INFORMATIONAs of March 31, 1999

Corporate Headquarters
MABUCHI MOTOR CO., LTD.
430 Matsuhidai, Matsudo-shi
Chiba-ken 270-2280, JapanT e l : 047-384-1111
F a x : 047-389-5299
http : //www.mabuchi-motor.co.jp

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

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

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

Japanese Stock Exchange Listing
Tokyo stock exchange

25