semiannual2005/表1.4 06.8.21 4:54 PM ページ 2

*SemiAnnual 050721 06.8.21 4:51 PM ページ 2■ 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.

Semiannual Report 2005

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.

■ Kanamoto at a Glance

Steel Sales related business

10.5%

Information
Products - related
business andOther Business

0.7%

Construction - related business
In Kanamoto’s main business in the construction equipment rental business, market conditions
improved steadily in regions where Tokyo, Osaka and Nagoya are the key market areas, which enjoy
extensive private sector capital investment, thanks to a recovery in private demand. In regions that
depend heavily on public works, however, demand other than disaster recovery work decreased
markedly and the business environment remained severe. In the construction-related businesses of theentire Kanamoto Group, for the consolidated fiscal year interim period under review, consolidated
revenues increased 5.6% from the same period of the prior consolidated fiscal year to ¥29,849 million,
but operating income fell 22.1% year-on-year to ¥1,177 million.

Steel Sales - related business
Construction related business 88.7%

Supported by raw materials prices and strong exports since last year, the Steel Sales Division
maintained sales prices at a high level. The division’s business was also boosted by successful
participation in large-scale projects in Hokkaido and strong results from the handling of new materials.
As a result, revenues increased 25.0% year-on-year to ¥3,062 million, and operating profit and losschanged from a loss in the same period of the prior consolidated fiscal year to positive operating incomeof ¥23 million.

Information Products - related business and Other BusinessAlthough rental rates remained low, rental revenues for the Information Products Division rose 9.7%
from the same period of the prior consolidated fiscal year.
As a result of the above, revenues for the entire division were off 10.6% from the same period of theprior consolidated fiscal year to ¥215 million, and operating income was flat at ¥10 million.

CONTENTS
3 Financial Highlights

14 N o n - C o n s o l i d a t e d B a l a n c e S h e e t s

4 Management Discussion
6 Kanamoto’s Basic Policy

16 Non-Consolidated Statements of Income
Outstanding Balance of Future
Lease Payments (Non-Consolidated)

8 Semiannual Report 2005

17 M a n a g e m e n t I n d i c a t o r D a t a G r a p h s

10 C o n s o l i d a t e d B a l a n c e S h e e t s

18 B r a n c h N e t w o r k

12 C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e

19 S h a r e h o l d e r s ’ I n f o r m a t i o n

13 Consolidated Statements of Cash Flows
Segment Information
Outstanding Balance of Future
Lease Payments (Consolidated)*SemiAnnual 050721 06.8.21 4:51 PM ページ 3■ Financial Highlights□ Financial Highlights (Consolidated)Thousands of
U.S. dollars

Millions of yen

April 30, 2004

October 31, 2004

April 30, 2005

April 30, 2005

¥ 30,956¥ 61,336¥ 33,127$ 311,488

Operating income

1,579

1,879

1,291

12,142

Net income

1,098

1,097

464

4,360

Total shareholders' equity

32,96432,74633,091

311,150

Total assets

87,60589,32485,511

804,050

Rental revenues and sales of goods

yen

U.S. dollars

Per share of common stock
Net income¥ 36.75¥ 36.50¥ 15.53$ 0.15

9.00

19.00

9.00

-

Cash dividends

Note : U.S. dollar amounts have been translated from yen for convenience only, at the rate of ¥106.35=US$1, the approximate exchange rate on April 30, 2005.

=6 months ended April 30

Rental Revenues and Sales of Goods

Operating Income(Millions of Yen)

80,000=12 months ended October 31(Millions of Yen)

3,000

70,0002,500
60,0002,000
50,00040,0001,500

30,0001,000
20,000500
10,000
0

'01

'02

'03

'04

'05

(year)

0'01(Millions of Yen)

40

900

30

600

20

300

10

'01

'02

'03

'04

'05

(year)

'04

'05

(Yen)

50

1,200

0

'03

Net Income per ShareNet Income
1,500

'02

(year)

0

'01

'02

'03

'04

'05

(year)

Kanamoto Semiannual Report 2005

3

*SemiAnnual 050721 06.8.21 4:51 PM ページ 4■ Management Discussion□ Revision of operating results outlook (Business Period ending October 2005)
Significant concerns remain that Japan’s economic recovery might still be disrupted at points largely susceptible to theexternal environment. In the construction equipment rental business in particular, which is Kanamoto’s principal business,the cutbacks in public works in many regions including Hokkaido is more severe than anticipated, despite the fact theCompany initially made strong reductions in local construction demand in its initial projections. These conditions are
expected to continue during the second half of the consolidated fiscal year.

Because the majority of the Company’s earnings are concentrated in the first six months of the fiscal year, which overlaps
the construction industry’s busy period, based on its review of earnings conditions during the consolidated fiscal year
interim period under review, local economic conditions and market trends, the Company revised the operating results
outlook for the Business Period ending October 2005 (fiscal year ending October 2005 (November 1, 2004 - October 31,2005)), on June 10, 2005, as shown below.

□ Fiscal year ending October 2005 Revision of projected operating results (Consolidated)(November 1, 2004 - October 31, 2005)(Millions of yen)

Revenue

Operating Income

Ordinary income

Net income

Prior projection(A)

63,400

2,130

1,790

740

Revised projection(B)

63,500

1,220

980

280

Increase (decrease)(B - A)

100

-910

-810

-460

0.2

-42.7

-45.3

-62.2

61,336

1,878

1,749

1,097

Rate of change (%)
Prior fiscal year results(fiscal year ended October 2004)□ Fiscal year ending October 2005 Revision of projected operating results (Non-Consolidated)(November 1, 2004 - October 31, 2005)(Millions of yen)

Revenue

Operating Income

Ordinary income

Net income

Prior projection(A)

57,050

1,960

1,890

900

Revised projection(B)

56,920

1,320

1,340

350

Increase (decrease)(B - A)

-130

-640

-550

-550

-0.2

-32.7

-29.1

-61.1

59,274

1,842

1,827

1,187

Rate of change (%)
Prior fiscal year results(fiscal year ended October 2004)□ Reasons for revision

Rental revenues are forecast to fall below the Company’s initial plan target because of the circumstances discussed above.
Because product sales will remain comparatively robust, however, the Company believes it can anticipate similar results inthe second half of the consolidated fiscal year and revenues are forecast to be nearly unchanged from plan.
Nevertheless, with regard to operating income and ordinary income, gross margin is expected to exceed last year's results,
but the Company forecasts selling, general and administrative expenses to exceed its initial plan because of the effect ofrental revenues falling below plan, the burden for the pro forma standard tax introduced during the current fiscal year andother factors. Finally, from the standpoint of conservative accounting, the Company plans to book reserves for valuation
losses on loans to subsidiary companies and affiliated companies and equities, and this will affect net income. Based onthese factors, the Company decided to revise its initial outlook substantially in a more conservative direction.
The Company also decided to revise its consolidated operating results because Kanki Corporation and Kanatech Co., Ltd.
experienced earnings declines that were larger than projected in the initial plan. At Kanki Corporation, however, operating
results are expected to improve in the next fiscal year, because the decrease in earnings was the result of a temporary costburden resulting from an increase in rental assets and small-sum assets that will contribute to Kanki’s businessrestructuring, and at Kanatech Co., Ltd. the replacement of that company’s temporary housing units had been planned.

4

Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 5□ Outlook for the next consolidated fiscal year
In the Construction Equipment Rental Division, Kanamoto will seek to strengthen its organization in every businessterritory and work to maintain earnings. The Company will focus on enhancing its bases to aggressively participate in the
numerous large-scale, private sector-related construction projects in regions such as the Tokyo metropolitan area and the
Kanto region, where construction equipment rental demand is strong. In the Tohoku, Tokai and Kinki territories, revenues
have increased compared with the prior consolidated fiscal year, and the Company believes these conditions will continue.
In the Hokkaido territory, where the environment is severe, the Company will reassign personnel, merge and consolidatebases and continue efforts to maintain the level of earnings in light of the vital importance of this region as Kanamoto’s baseof operations. With regard to the establishment of new bases, the Company is studying the creation of about four bases in
the Tokyo metropolitan area during the one-year period until the spring of 2006.

A large-scale, public works-related supplementary budget totaling ¥1,238,400 million has been appropriated for disaster
relief works, and Kanamoto is already responding vigorously to such work in regions with disaster relief work, such as
Fukui Prefecture. Kanamoto has decided to locate an earthquake disaster reaction office in Ojiya City in Niigata Prefecture,
because full-scale restoration construction following the Niigata Chuetsu Earthquake will begin during the second half ofthe current business period. The Company will respond to asset allocations in disaster recovery areas through flexible interbranch transfers of assets stored at existing branches.
In its Steel Sales business, the Company will bolster sales of new materials for expansion and rehabilitation of existing
facilities because it detects a slowdown in the upward trend in the steel materials market, and because steel demand in
Hokkaido is supported by private sector demand. In the Information Products business, Kanamoto will concentrate on
rentals of Sun Microsystems products, which are a specialized market, and on increasing the number of customers outsideof Tokyo in Sendai, Osaka and Nagoya, based on its expectation that the economic recovery and large-scale rental projects
will continue.
Although the environment surrounding Kanamoto will remain challenging, the Kanamoto Group is united and will move
forward to accomplish its long-range management plan.

□ Management indicators established as objectives

Kanamoto has always emphasized ROI (return on investment) and cash flow, and seeks growth in EBITDA + (earnings
before interest, taxes, depreciation and amortization) to meet its primary objective of establishing a solid managementfoundation. Kanamoto adopted these indicators because in its primary business of construction equipment rental, theCompany faces a substantial capital investment burden and the profit or loss of its operations should be evaluated over a
period of several years.
The following table shows the initial objectives set in the Company’s long-term management plan “Metamorphose”(November 2003 to October 2008). This plan seeks to increase earnings while maintaining the EBITDA+ that will become
the source of future profits. Although the Company has revised its full-year operating results outlook for the current
consolidated fiscal year to project a decrease in earnings, this partially reflects temporary profit-reducing factors. Moreover,in light of its progress in achieving results from its long-range management plan measures, the Company has not revised its
numerical targets for the consolidated fiscal year ending October 2006, which will be the turning point under“Metamorphose,” or for the consolidated fiscal year ending October 2008, the final year of the plan.
(Millions of yen, except net income per share)

Consolidated operating results

Fiscal Year ending

Fiscal Year ending

October 2006

October 2008

Revenues

64,44067,250Ordinary income

3,360

5,420

58

96

Revenues

58,00060,600Ordinary income

3,160

5,070

EBITDA+

18,02919,553

Net income per share (yen)Non-consolidated operating
results (Kanamoto Company)

EBITDA+ = Operating income + Depriciation expense + Other depriciation and amotization 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

Kanamoto Semiannual Report 2005

5

*SemiAnnual 050721 06.8.21 4:51 PM ページ 6■ Kanamoto’s Basic Policy□ Basic policies concerning business management
Kanamoto and the Kanamoto Company group believe achieving sustainable growth and development of the group’s firms
will enable the group to contribute to the benefits of its stakeholders (its shareholders, customers, business partners, local
communities, and employees and their families). This is the reason the Company has made the centerpiece of its action
agenda the concept “constantly seek innovation and strive to energize the business,” while viewing customer satisfaction as
the basis of its business and focusing on adapting to changes in its management environment to the extent possible.
By taking maximum advantage of the rental business knowledge and experience accumulated over many years, andincreasing earnings by providing highly functional services, Kanamoto believes it can satisfy the expectations and trust of its
shareholders and group stakeholders, and truly contribute to society as a firm.

□ Basic policies concerning distribution of earnings
The Company places its primary emphasis on expanding shareholders’ long-term overall investment return, while
simultaneously regarding the maintenance of a stable return of earnings as the basis of its earnings distribution policy.
Kanamoto’s policy is to achieve a stable return of earnings to the extent possible, based on estimates of future earnings
including its outlook for operating results.
At the same time, the Company utilizes its internal reserves by allocating funds for the introduction of rental equipment
assets that will serve as the source of future earnings, thereby contributing substantially to the Company’s continuity.
To provide for future changes in its capital policy, Kanamoto has established a flexible system for making purchases oftreasury stock.

□ Policy concerning reduction of the Company’s investment unit
One important issue for Kanamoto from the standpoint of capital policy is increasing the number of individual shareholders
and improving the liquidity of the Company’s stock. The Company recognizes that reducing the size of its stock investment
unit is one effective measure to stimulate trading of the Company’s shares. Nevertheless, given the position of Kanamoto’s
stock in the current market, the Company judges present conditions do not require an immediate reduction in the size ofthe stock investment unit. Management will maintain a flexible stance by continuing to review an increase in the liquidity ofthe stock, and study this issue while monitoring the authorities’ revision of Japan’s stock certificate custody system andintroduction of the system for dematerialization of stock certificates. The Company currently also has no plans to execute a
stock split.

□ Medium to long-term corporate management strategy

As discussed above, the numerical targets for the Company’s long-range management plan “Metamorphose” (Five-Year
Plan from November 2003 to October 2008) reflect a plan in which operating results will be under substantial pressureduring the first two fiscal years after the plan’s launch.
The Company will continue to pursue the optimization of operating assets begun in the prior consolidated fiscal year (i.e.,seek to create a highly profitable asset portfolio while controlling new asset introductions and reducing depreciation andamortization expense). By creating a corporate structure and the business capabilities capable of responding fully to thistough management environment, and using its product line-up featuring state-of-the-art equipment not available from anyother company to the maximum advantage, the Company will shift to earnings-focused management and maintainprofitability, while seeking to avoid competition through its alliances with superior local firms in selected regions.
With regard to net revenues by region, the Company will focus on the development of low-cost branches equipped with asmaller product line-up in the Tokyo metropolitan area, with the goal of stabilizing the percentage of net revenues in the
Honshu territory at about 70% of total revenues, while continuing to maintain its market share in the Hokkaido territory.
The Kanamoto Group and its alliance firms currently are active in many regions, from Hokkaido to Okinawa. In regions
where its market share is low, the group will continue to build a marketing organization where customers are Number One,
while working to ensure market share and improve equipment utilization rates through tie-ups with local construction
equipment rental firms. The Company will seek to strengthen cooperation among these firms as the Kanamoto Group, andincrease the synergistic effects from this approach, by seeking additional high-quality alliance members.
The Company seeks to create a strong Kanamoto that is evaluated positively by the market as the leading company in theconstruction equipment rental business, while simultaneously achieving the business objectives described above, and is
focused on invigorating the Kanamoto Group so it is capable of prevailing in today’s changing business environment.

6

Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 7□ Issues to be addressed by the Company

Because of the sharp decrease in total construction investment, the construction industry continues to face a challenging
management environment. The negative impact has been severe particularly in areas that traditionally had relied heavily on
public works construction, reflecting the crisis in local government finances.
Because of this environment, demand for the construction equipment rental industry as a whole has been declining. On theother hand, however, reliance on construction equipment rentals is expected to rise as firms increasingly turn to rentals forequipment used at construction sites.
Nevertheless, under current market conditions, construction equipment rental firms are scrambling for a share of ashrinking pie, price competition is unabated and the number of rental days per rental asset continues to fall, and theCompany is unable to take maximum advantage of the overwhelming dominance of Kanamoto’s asset portfolio.
The remarkable drop in equipment rental fees faced by the industry today and the concomitant decrease in earnings has
also resulted in a substantial slump in profitability, and is the single greatest issue shaking the foundation of theconstruction equipment rental business. Currently both the construction equipment rental industry and construction
equipment manufacturers are struggling to improve this situation, and as the leading company in the industry Kanamoto
also is taking corrective measures.
Moreover, in recent years accidents injurious to individuals and property caused by construction equipment and vehicles
during rental have occurred with alarming frequency, and the trend in incidents of theft of rental construction equipmentfrom job sites has been climbing. While the Company has always offered the Kanamoto comprehensive compensation
system from the standpoint of customer convenience, we have implemented additional enhancements to this system andwill begin offering this service as a new Kanamoto comprehensive compensation system from June 2005. We anticipate
broader use of this new compensation system will help reduce costs Kanamoto has incurred in the past, including rental
construction equipment maintenance and repair costs and compensation for time away from work due to injury. In addition,
given its present circumstances, the Company must accelerate the pace of its advance into the Tokyo metropolitan area, andfurther improving the capabilities of Kanamoto’s mid-level employees will be indispensable for this effort. The Company
therefore made changes to its personnel system during the consolidated fiscal year interim period under review, andrevised its employee training system, and also has been implementing special training programs for mid-level employees
since last year.
Recently natural disasters have occurred as frequently as accidents. During the past year alone a total of 19 typhoons,
including those that approached Japan, left wide swathes of damage in various locations throughout Japan, and ten typhoons
moved inland with full force, the largest number on record. Japan also suffered from numerous volcanic eruptions andearthquakes.
Through its construction equipment rental business, the Kanamoto Group is working even today to assist with disasterrecovery in the various stricken areas, and is working to strengthen its group organization to enable it to respond torequests for assistance anywhere in Japan, whenever and wherever disaster strikes. Following the Niigata Chuetsu
Earthquake, the Kanamoto group contributed materials and offered items such as temporary housing units, temporary toilet
facilities and heating equipment immediately after the earthquake occurred, and put priority on loans of equipment forlifeline restoration works. Based on this past disaster relief experience, Kanamoto will work to create a disaster recovery
support organization in cooperation with other companies in the construction equipment rental industry, construction firms
and local municipal governments, based on the principle of humanitarian assistance first.

□ Associated and consolidated companies of the Kanamoto Group

Consolidated
subsidiaries

Daiich Kikai Co., Ltd.

SRG Kanamoto Co., Ltd.

Kanatech Co., Ltd.

Comsupply Co., Ltd.

Kanki Maintenance Co., Ltd.

Kanki Corporation

Non-consolidated
subsidiaries

Alliance companies

Assist Co., Ltd.

Kyushu Kensan Group

Active Technology Corp.

Machida Kikou Co., Ltd.

Active Power Corp.

Construction Equipment Rental

Rental of temporary products

Rental of safety products

Modular housing units, others

Kanamoto Semiannual Report 2005

7

*SemiAnnual 050721 06.8.21 4:51 PM ページ 8■ Semiannual Report 2005

For the six months ended April 30, 2005

Operating results□ Summary of consolidated fiscal year interim period operating results
Despite numerous factors still affecting the external environment, during the consolidated fiscal year interim period underreview there were visible signs of a recovery centered on manufacturing. The shift to improving economic circumstances in
the Tokyo metropolitan area and surrounding regions continued. Other regions, however, were less fortunate in benefitingfrom these positive changes. Overall, conditions remained unchanged despite improving business sentiment, and the gap
between the Tokyo metropolitan area and other regions in terms of both local economic circumstances and personal
consumption were actualized further.

Conditions were similar in the construction industry, which is a major customer for Kanamoto’s services. The difference
between the Tokyo metropolitan area, where public works and private sector capital investment are linked and produce asynergistic effect, and other regions where this effect is less pronounced, was thrown into sharp relief as the toughmanagement environment continued.

□ Construction-related business
In Kanamoto’s main business in the construction equipment rental business, market conditions improved steadily in regions
where Tokyo, Osaka and Nagoya are the key market areas, which enjoy extensive private sector capital investment, thanks
to a recovery in private demand. In regions that depend heavily on public works, however, demand other than disasterrecovery work decreased markedly and the business environment remained severe. In the construction-related businessesof the entire Kanamoto Group, for the consolidated fiscal year interim period under review, consolidated revenues increased
5.6% from the same period of the prior consolidated fiscal year to ¥29,849 million, but operating income fell 22.1% year-onyear to ¥1,177 million.

For the Company’s Construction Equipment Rental Division on a standalone basis, rental revenues increased 1.8%
compared with the same period of the prior consolidated fiscal year to ¥20,259 million, while sales dropped 44.5% year-onyear to ¥5,543 million. This drop reflected reductions in used equipment sales as provided in the Company’s initial plan. As aresult, total revenues for the Construction Equipment Rental Division were ¥25,802 million, down 4.6% from the same periodof the prior consolidated fiscal year.
By region, the Company’s rental revenues decreased 6.1% in the Hokkaido territory, where disaster relief work ended andpublic works and large-scale construction are limited. In the Tohoku territory, the Company achieved growth in specialized
areas, such as machines for ground improvement, and revenues increased 2.2% year-on-year. On the other hand, revenues
grew steadily in both the Kanto-Shinetsu territory and the Kinki-Chubu territory, which include major metropolitan areas, as
the result of new sales branches opened by the Company. Revenues increased 11.5% year-on-year in the Kanto territory and11.4% in the Kinki-Chubu territory, which offset the drop in revenues in the Hokkaido territory. As a result of these changes,
the percentage of total rental revenues accounted for by Hokkaido and Honshu plus other regions were 33.4% are 66.6%,
respectively, as the Company further shifted its focus to Honshu.
Recovery works in parts of the Kinki-Chubu territory were brisk in the wake of natural disasters last year that were
designated serious disasters. Following the Niigata Chuetsu Earthquake, the Company received orders related totemporary housing units for restoration construction, and full-scale restoration works will be carried out in the second halfof the Company’s current fiscal year.
During the consolidated fiscal year interim period under review, Kanamoto increased the total number of branches by four
to 144 branches. Only one location was closed, the Asahikawa South Equipment Center in Asahikawa, Hokkaido. Thus one
branch was closed in the Hokkaido territory, while four branches were added in the Tohoku territory and one branch wasadded in the Kanto-Shinetsu territory. No branches were opened or closed in the Kinki-Chubu territory.
Turning to the operations of its consolidated subsidiaries, Daiichi Kikai Co., Ltd., which manages a construction equipment
rental business in Kyushu, achieved a 19.9% increase in revenues compared with the same period of the prior consolidated
fiscal year, thanks to strong sales of used temporary housing units, but operating income fell 20.4% year-on-year underpressure from capital investment for additions to rental equipment. This resulted in revenue growth and a decline inearnings.
SRG Kanamoto Co., Ltd. saw its revenues decrease by 6.8% from the same period of the prior consolidated fiscal year under
the influence of a drop in construction work, but improved its operating profit and loss by 5.9% year-on-year by reducing its
cost of revenues from operations. Assist Co., Ltd. was affected by cutbacks in public works, and was unable to increase
revenues from rentals of safety equipment, its main products, and saw its revenues shrink 8.7% from the same period of theprior consolidated fiscal year. Operating income also fell year-on-year by 13.7%.
Kanki Corporation, which became a new consolidated subsidiary in the prior consolidated fiscal year, was subject to achange in accounting accompanying the change in that company’s accounting period. Although revenues increased 19.0%
compared to the initial plan value, the company booked an operating loss resulting from an increase in small-sum assets

8

Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 9

because of the renewal of rental equipment assets and its response to disaster relief works.
Kanatech Co., Ltd., which provides unique manufacturing services within the group, saw its revenues grow 4.4% year-onyear, but posted an operating loss because of higher manufacturing costs resulting from a jump in materials costs.
Consolidation expenses resulting from the consolidation of profitable branches were also a factor.

□ Steel Sales-related businessSupported by raw materials prices and strong exports since last year, the Steel Sales Division maintained sales prices at ahigh level. The division’s business was also boosted by successful participation in large-scale projects in Hokkaido andstrong results from the handling of new materials (the KT Roof System, a highly durable insulated and waterproof roofing
system). As a result, revenues increased 25.0% year-on-year to ¥3,062 million, and operating profit and loss changed from aloss in the same period of the prior consolidated fiscal year to positive operating income of ¥23 million.

□ Information Products-related business and Other Businesses

Although rental rates remained low, rental revenues for the Information Products Division rose 9.7% from the same periodof the prior consolidated fiscal year. This reflected growth in personal computer demand with the economic recovery in theTokyo metropolitan area, and an increase in the number of large projects increased after the start of the Company’s fiscal
year. Revenues from sales, on the other hand, dropped 69.0% year-on-year because there were no new products to replace
LAN products, the division’s core product, and product sales fell.
As a result of the above, revenues for the entire division were off 10.6% from the same period of the prior consolidated fiscal
year to ¥215 million, and operating income was flat at ¥10 million.

□ Fiscal Year ending October 31, 2004

Interim Consolidated Operating Results(Million yen; % change from prior year)

Revenue

Operating Income

Ordinary income

Net income

Consolidated FY interim period

33,126

7.0

1,291

-18.2

1,185

-22.4

463

-57.8

Prior FY interim period

30,955

-5.0

1,578

-17.1

1,527

-15.0

1,097

40.6

□ To p i c s

Finance-related■ Kanamoto entered a commitment facility agreement to achieve stable, flexible capital funding. Since November 2000, theCompany has maintained the facility for five consecutive years. A syndicate formed by 14 banks, with The Bank of TokyoMitsubishi, Ltd. as lead manager, provides the current facility.
■ To improve capital efficiency and reduce interest-bearing debt, during the current period the Company established aliquidation scheme for small-sum diversified bill receivables, to be implemented in cooperation with The Bank of TokyoMitsubishi, Ltd. and The Mitsubishi Trust and Banking Corp. The Company has liquidated bill receivables totaling 12 billion yen
through this scheme.
■ Kanamoto participated in the forum commemorating the tenth anniversary of the establishment of the Japan Association for
Individual Investors, a specified non-profit organization, as a supporting member. The Company aired a video interview withKanamoto’s president, and also set up a campaign booth where company representatives conducted PR activities forinvestors.
Operations-related■ To expand revenues from equipment sales, the Company conducted sales campaigns again this year in various regions,beginning with the Hokkaido and Tohoku territories. In addition to construction companies, the main users of Kanamoto’s rental
construction equipment, many other potential buyers including home owners visited the sales sites. As a result, net sales roseand the Company successfully increased awareness of the Kanamoto brand.
■ The Company began offering the new Kanamoto comprehensive compensation system in June, which features additional
enhancements to the system has always provided. The enhanced system quickly received a favorable reception. Kanamoto
projects compensation system revenues will expand to 1.5 times the current level by FY2007. The future goal for this programis to assist normalization of the construction equipment rental system.
Sales Environment■ Although the volume of public works in Japan is decreasing, following the Chuetsu Earthquake in Niigata Prefecture andother natural disasters the government is pursuing disaster recovery work, and also has decided on construction of a new
Shinkansen line and upgrades to the expressway network. Portions of these projects have already been started, and amultiplier effect can be noted in local economies. Kanamoto will establish sales branches to enable the Company to support
such large-scale projects.

Kanamoto Semiannual Report 20059

*SemiAnnual 050721 06.8.21 4:51 PM ページ 10■Consolidated

Balance

SheetsASSETS
Thousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 15,142¥ 11,734¥ 18,831$ 177,067

19,551

23,481

12,706

119,471

27

-

-

-

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Current assets:
Cash and cash equivalents
Notes and accounts receivable, trade
Short - term investments

1,043

703

575

5,408

Deferred income taxes

284

252

372

3,495

Other current assets

2,419

2,343

2,345

22,055

Less: Allowance for doubtful accounts

(561)

(731)

(680)

(6,398)37,90537,782

34,149321,098

Rental equipment

38,31839,16138,797364,803

Building and structures

15,30916,03916,031

150,737

Inventories

Total current assets

Property and equipment:

Machinery and equipment
Less: Accumulated depreciation

Land

5,190

5,370

5,430

51,060(39,597)(41,980)(41,862)(393,625)

19,22018,59018,396

172,975

24,651

26,112

26,062245,062

11

3

96

900

43,88244,70544,554

418,937

Investment securities

3,822

3,938

4,318

40,608Deferred income taxes

917

911

750

7,049

1,697

3,648

2,929

27,542

Less: Allowance for doubtful accounts(618)(1,661)(1,189)(11,184)

Total investments and other assets

5,818

6,836

6,808

64,015¥ 87,605¥ 89,323¥ 85,511$ 804,050

Construction in progress
Total property and equipment

Investments and other assets:

Other assets

Total assets

Note : U.S. dollar amounts have been translated from yen for convenience only, at the rate of ¥106.35=US$1, the approximate exchange rate on April 30, 2005.

Preparation of Financial Stafements and Depriciation and Amortization Expense
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.
2. Kanamoto uses a variety of techniques when introducing rental assets. In addition to purchasing assets by installments, the Company also use finance leases(including operating leases) , which are an off-balance sheet item (details are provided in the notes to the accounting statements).
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.

10 Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 11

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

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Current liabilities:
Short-term bank loans

¥ 935

¥ 677

¥ 656

Current portion of long-term debt

14,794

14,262

10,497

98,707

Notes and accounts payable, trade

10,54013,405

13,040122,613

Accrued income taxes

682

369

709

6,667

Accrued bonuses

464

480

533

5,008

Other current liabilities

1,001

1,426

3,938

37,029Total current liabilities

28,41630,61929,373

276,192

Long-term debt

24,71824,275

19,186

180,403

Accrued pension and severance costs

1,186

1,229

1,341

12,609

239

395

2,430

22,854

26,14325,89922,957

215,866

82

59

90

842

8,597

8,597

8,597

80,834$ 6,168

Non-current liabilities:

Other liabilities
Total non-current liabilities

Minority interests

Shareholders' equity:
Common stock
Capital surplus

9,720

9,720

9,720

91,400Retained earnings

14,182

13,914

14,071

132,312

Unrealized holding gain on securities

644

698

887

8,334

Treasury stock

(179)

(182)

(184)

(1,730)32,96432,74633,091

311,150¥ 87,605¥ 89,323¥ 85,511$ 804,050

Total shareholders' equity
Total liabilities and shareholders' equity

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 inparticular, 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
for each equipment model.
Accordingly, to achieve results more closely approximating themarket-value accounting concept, Kanamoto also introduces
assets by utilizing both operating leases and finance leases in aneffort to equalize depreciation and amortization expense.

Kanamoto Semiannual Report 2005 11

*SemiAnnual 050721 06.8.21 4:51 PM ページ 12■Consolidated

StatementsofIncomeThousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

Rentals¥ 20,832¥ 39,759¥ 22,505

Sales

10,124

21,577

10,622

99,87830,956

61,33633,127

311,488

15,241

29,99816,332

153,568

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Revenue$ 211,610

Cost of revenue
Rentals

7,830

17,0198,565

80,53523,07147,017

24,897234,103

Gross profit

7,884

14,3198,230

77,385

Selling, general and administrative expenses

6,305

12,4406,939

65,243Operating income

1,579

1,879

1,291

12,142

Sales

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

27

71

30

280

(172)

(348)

(180)

(1,694)

608

610

(99)

(931)

2,042

2,212

1,042

9,797

Current

644

839

634

5,964

Deferred

259

257

(86)

(812)

903

1,096

548

5,152

41

19

30

285

¥ 1,098¥ 1,097¥ 464$ 4,360

April 30, 2004 (Unaudited)

October 31, 2004

Basic

¥ 36.75¥ 36.50¥ 15.53$ 0.15

Diluted

-

-

-

-

Others, net
Income before income taxes and minority interests
Income taxes :Minority interests in subsidiaries
Net incomeyen

Per share of common stock :U.S. dollars (Note)
April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Net income

Note : U.S. dollar amounts have been translated from yen for convenience only, at the rate of ¥106.35=US$1, the approximate exchange rate on April 30, 2005.

12 Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 13■Consolidated

Statements

of

Cash

Flows

Thousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 4,955¥ 6,230

Net used in from investing activities

120(1,536)

(79)

(743)

Net cash used in financing activities(1,896)(4,923)(5,564)(52,316)

Net cash provided by operating activities

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)¥ 12,740$ 119,791

Net increase (decrease) in cash and cash equivalents

3,179

(229)

7,097

66,732

Cash and cash equivalents at beginning of the period

11,921

11,921

11,734

110,335

42

42

-

-

¥ 15,142¥ 11,734¥ 18,831$ 177,067

Increase due to merger of unconsolidated subsidiary
Cash and cash equivalents at end of the period■Segment

Information
Millions of yen
Construction
related business

Steel related
business

Information andcommunication related
and other business¥ 29,849¥ 3,062¥ 216¥ 33,127¥-¥ 33,127

-

-

-

-

-

-

Total

29,8493,062

216

33,127-

33,127

Operating expenses

28,672

3,038

205

31,915(79)

31,836

Operating profit¥ 1,177

¥ 24

¥ 11

¥ 1,212¥ 79¥ 1,291

For the six months ended April 30, 2005

Total

Eliminations andcorporate items

Consolidated

Sales
Outside customers
Intersegment

Thousands of U.S.dollars(Note)

For the six months ended April 30, 2005

Construction
related business

Steel related
business

Information andcommunication related
and other business

Total$ 280,667$ 28,791$ 2,030$ 311,488$-

Eliminations andcorporate items

Consolidated

Sales
Outside customers$ 311,488

-

-

-

-

-

-

280,667

28,791

2,030

311,488-311,488

Operating expenses

269,599

28,5651,927

300,091(745)

299,346

Operating profit$ 11,068

$ 226

$ 103

$ 11,397$ 745$ 12,142

Intersegment
Total

Note : U.S. dollar amounts have been translated from yen for convenience only, at the rate of ¥106.35=US$1, the approximate exchange rate on April 30, 2005.

■Outstanding Balance of Future Lease Payments (Consolidated)Thousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 5,850¥ 5,450

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Finance Ieases
Within one year

¥ 5,839$ 54,907

17,101

15,74917,883

168,154¥ 22,951¥ 21,199¥ 23,722$ 223,061

Within one year

¥ 1,614¥ 1,870¥ 1,793$ 16,863

After one year

2,266

3,604

4,064

38,212¥ 3,881¥ 5,474¥ 5,857$ 55,075

After one year
Total
Operating Ieases

Total

Kanamoto Semiannual Report 2005 13

*SemiAnnual 050721 06.8.21 4:51 PM ページ 14■Non-Consolidated

Balance

SheetsASSETS
Thousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

Cash and time deposits¥ 14,464¥ 10,911¥ 17,733$ 166,741

Notes receivable, trade

10,821

10,8902,318

21,794

Accounts receivable, trade

7,921

11,067

8,687

81,684

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Current assets :Inventories
Other current assets

531

285

346

3,254

2,751

2,646

2,764

25,990Less : Allowance for doubtful accounts

(570)

(629)

(574)

(5,394)

Total current assets

35,91835,17031,274

294,069

Rental equipment

37,10735,62035,975338,268

Buildings

11,185

11,44911,424

107,419

Structures

3,806

3,801

3,814

35,859Property and equipment :Machinery and equipment
Less : Accumulated depreciation

Land

5,074

5,104

5,172

48,638(38,413)(38,291)(38,769)(364,546)

18,75917,683

17,616

165,638

24,382

25,83825,788242,487

11

3

96

900

43,152

43,52443,500409,025

Investment and other assets

7,333

7,619

7,768

73,045Less : Allowance for doubtful accounts and reserve for investments

(825)

(844)

(886)

(8,338)

Total investments and other assets

6,508

6,775

6,882

64,707¥ 85,578¥ 85,469¥ 81,656$ 767,801

Construction in progress
Total property and equipment

Investments and other assets :Total assets

Note : U.S. dollar amounts have been translated from yen for convenience only, at the rate of ¥106.35=US$1, the approximate exchange rate on April 30, 2005.

14 Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:51 PM ページ 15

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

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 10,356¥ 10,747¥ 10,324$ 97,076

Notes payable, trade

7,739

8,967

9,314

87,575

Accounts payable, trade

2,182

2,838

1,930

18,150

93

174

232

2,181

Accounts payable, other

4,716

4,065

3,249

30,554

Accrued income taxes

637

362

647

6,080

Accrued bonuses

449

436

466

4,384

Other current liabilities

554

486

503

4,727

Total current liabilities

26,72628,075

26,665

250,727

Long-term bank loans

21,104

20,73518,040169,629

Long-term accounts payable, other

3,532

2,426

2,126

19,990Accrued pension and severance costs

1,185

1,227

1,315

12,366

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Current liabilities :Current portion of long-term bank loans

Notes payable, otherNon-current liabilities :Other liabilities
Total non-current liabilities

73

72

93

877

25,894

24,46021,574

202,862

8,597

8,597

8,597

80,834

Shareholders' equity :Common stock :Capital surplus

9,720

9,720

9,720

91,400Retained earnings

14,177

14,101

14,397

135,371

Unrealized holding gain on securities

644

698

887

8,337

Treasury stock

(179)

(182)

(184)

(1,730)32,95832,93433,417314,212¥ 85,578¥ 85,469¥ 81,656$ 767,801

Total shareholders' equity
Total liabilities and shareholders' equity

Kanamoto Semiannual Report 2005 15

*SemiAnnual 050721 06.8.21 4:51 PM ページ 16■Non-consolidated

StatementsofIncomeThousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 20,087¥ 38,830

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Revenue
Rentals
Sales¥ 20,455$ 192,339

9,639

20,444

8,625

81,101

29,72659,27429,080273,440

15,21330,06615,182

142,759

Cost of revenue
Rentals

7,268

15,745

6,782

63,76622,48145,811

21,964

206,525

Gross profit

7,245

13,463

7,116

66,915

Selling, general and administrative expenses

5,903

11,621

5,946

55,916

Operating income

1,342

1,842

1,170

10,999Sales

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

30

77

31

289

(165)

(332)

(159)

(1,491)

642

656

45

421

1,849

2,243

1,087

10,218Current

598

833

572

5,378

Deferred

257

223

(87)

(821)

855

1,056

485

4,557

¥ 994

¥ 1,187¥ 602$ 5,661

Others, net
Income before income taxes
Income taxes

Net incomeyen

Per share of common stock :U.S. dollars (Note)

April 30, 2004 (Unaudited)

October 31, 2004

Basic

¥ 33.29¥ 39.50¥ 20.16$ 0.19Diluted

-

-

-

-

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Net income■Outstanding Balance of Future Lease Payments (Non-Consolidated)Thousands of
U.S. dollars (Note)

Millions of yen
April 30, 2004 (Unaudited)

October 31, 2004

¥ 5,614¥ 5,243

April 30, 2005 (Unaudited) April 30, 2005 (Unaudited)

Finance Ieases
Within one year
After one year
Total

¥ 5,367$ 50,467

16,856

15,577

15,941

149,894¥ 22,470¥ 20,820¥ 21,308

200,361¥ 1,601¥1,813

1,612

15,159Operating Ieases
Within one year
After one year
Total

16 Kanamoto Semiannual Report 2005

2,242

3,434

3,538

33,268¥ 3,844¥ 5,247¥ 5,150

48,426

*SemiAnnual 050721 06.8.21 4:51 PM ページ 17■Management

Indicator

Data

Graphs=Annual=Interim=Anticipated=Annual=Interim

EBITDA+EBITDA+Ratio

Cash Flow
PCFR(Millions of Yen)(%)

(Millions of Yen)(%)

10,00010

20,000

5

8,000

8

15,000

46,000

610,000

3

4,000

4

2,000

2

5,000

2

0

01

02

03

04

05

0

1

01

02

Net Income
PER(Times)
40

1.0

1,500

30

0.75

1,000

20

0.5

500

10

0.25

0

0.0

02

05

04

05

04

05

1

(Times)

2,000

01

04

PBR

(Millions of Yen)

0

03

03

04

05

01

02

Shareholders' Equity
Shareholders' Equity Ratio

03

ROE

(Millions of Yen)(%)

40,00040

30,00035

20,00030

10,000

25

(%)
6

4

2

0

01

02

03

04

05

ROA

0

20

01

02

03

Dividend per Share of Common Stock

(%)

(Yen)
2.0

20

1.5

15

1.0

10

0.5

5

0.0

01

02

03

04

05

0

￥19
￥10

￥18
￥9

￥18
￥9

￥18
￥9

￥18
￥9

￥9

￥9

￥9

￥9

￥9

01

02

03

04

05

The 2004 cash dividend of ¥19 included a one - time commemorative dividend of ¥1 tocelebrate the 40th anniversary of the Company's founding.

Kanamoto Semiannual Report 2005 17

*SemiAnnual 050721 06.8.21 4:51 PM ページ 18■BranchNetwork

As of June 30, 2005

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

As of June 30, 2005

Hokkaido

SapporoTo h o k u
Kanto

Yubari

Chubu

Hokkaido Region

Kinki
ChugokuTohoku Region

Shikoku
Ky u s h u

KanitaKamikita

Okinawa

Komeri Power Omagari

Total

Komeri Power Koudo
Sendai - minami

Komeri Power Niitsu
Ojiya

Kinki & Chubu
RegionIwaki - chuo

Osaka

Shiroyama

Kanto & Shinetsu
RegionChugokuTokyo
KyushuKomeri Power Wakayama-interShikoku
Okinawa

Kanamoto is putting priority on branch development in Tokyo, Nagoya and Osaka, Japan’s three major metropolitan areas, where there issubstantial private demand in addition to extensive public works. The Company plans to open four new construction equipment rental sales
branches within the 23 wards of Tokyo proper by next spring.
In addition, as described in Topics on page 8, during the first half Kanamoto established seven new branches in order to support disaster relief workand large-scale projects, which are expected to create a large multiplier effect in local economies.The majority of these new branches are smallscale offices with a full line-up of rental construction equipment.
In another effort, Kanamoto is developing its tool rental business with Komeri Co., Ltd. (head office: Niigata Prefecture; listed on the Tokyo Stock
Exchange First Section under Security Code 8218), a leading company in Japan’s do-it-yourself industry that could be referred to as the Japaneseversion of The Home Depot, Inc. or Lowe’s. In addition to these two sites, the Company opened Kanamoto equipment rental corners at the Komeri

18 Kanamoto Semiannual Report 2005

*SemiAnnual 050721 06.8.21 4:52 PM ページ 19■BranchNetwork

As of June 30, 2005

Power Wakayama store in February and the Komeri Power Omagari store in April. Stocked with a wide selection of tools, ranging from tools thatcan be used by week-end do-it-yourselfers to small-scale construction equipment suitable for use at construction sites, these outlets are helping
Kanamoto develop customers such as construction companies, farmers and general consumers who previously have not had a business
relationship with Kanamoto.

Yubari
BranchKanitaBranchKamikita
BranchSendai minami
BranchIwaki - chuo
BranchOjiya
BranchShiroyama
Equipment
CenterPower
Omagari Store

Power
Wakayamainter Store■Shareholders'Information

As of June 30, 2005

Company Name
Kanamoto Company, Ltd.

Fiscal Year-end
October 31

Head Office
1-19, Odori Higashi 3-chome
Chuo-ku, Sapporo, Hokkaido
060-0041 Japan

Revenues¥59,274 million(Fiscal year ended October 2004)

Established
October 28, 1964
Capitalization¥8.6 billion (Paid-in capital)
Listing Exchanges
Tokyo Stock Exchange, First Section
Sapporo Stock Exchange
Stock Code9678
Common Shares Issued and Outstanding
30,253,000 shares

Number of Employees
1,123(Excluding directors and temporary
or part-time workers)
Principal Businesses
Rental of construction equipment
Sale of steel products
Rental of engineering workstations andcomputer peripherals
Primary Lenders
The Bank of Tokyo-Mitsubishi
The Mitsubishi Trust and Banking
Corporation

Mizuho Corporate Bank
Sumitomo Mitsui Banking Corporation
North Pacific Bank
Hokkaido Shinren
The Norinchukin Bank
The Hokkaido Bank
Daishi Bank
Shinkin Central Bank
Principal Shareholders
ORIX Corporation
Taichu Kanamoto
The Master Trust Bank of Japan, Ltd.
Saburo Kanamoto
Komatsu Ltd.
Kanamoto Capital Company
Tokio Marine & Nichido Fire Insurance Co.,
Ltd.
North Pacific Bank, Ltd.
The Hokkaido Bank, Ltd.
Denyo Co., Ltd.

Transfer agent
The Mitsubishi Trust and Banking Corporation, Kanamoto’s transfer agent, plans to merge its operations with UFJ Holdings on October 1, 2005.
The new trade name planned for the post-merger corporation is Mitsubishi UFJ Trust and Banking Corporation.

Kanamoto Semiannual Report 2005 19

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