Fiscal Year ended October 31, 2004

Accounting Bulletin (Consolidated)
December 13, 2004
Listed Company Name

Kanamoto Company, Ltd.

Company Code Number

9678

Listing Exchanges

Tokyo Stock Exchange, Sapporo Stock Exchange

Head Office Address

1-19, Odori Higashi 3-chome, Chuo-ku, Sapporo, Hokkaido Japan 060-0041（URL http://www.kanamoto.co.jp）
Representative
Inquiries

Kanchu Kanamoto

President

Nobuhito Utatsu
Director & Corporate Officer, Division Manager, Accounting Division
TEL 81-11-209-1600
Please send inquiries in English to takayama@kanamoto.co.jp.

Date of Report to the Board of Directors December 13, 2004

SEC Accounting Standards

The Company has not adopted SEC accounting standards

１．Consolidated Operating Results for the Fiscal Year ended October 31, 2004
(November 1, 2003– October 31, 2004)(Numbers less than one million yen have been rounded down)(1) Consolidated Operating Results
Revenues
Fiscal year ended
October 31, 2004
Fiscal year ended
October 31, 2003

Operating Income

Ordinary Income

Millions of yen％

Millions of yen％

Millions of yen％

61,336（ −3.7 ）1,878（−18.6 ）1,749（−23.2 ）63,686（ −2.4 ）

2,307

（

0.9 ）

2,279

（− 4.3 ）Net income
Net Income
Return on
per Share on
Shareholders’per Share ofa Fully Diluted
EquityCommon StockBasis

Net Income
Millions of yen

％

Yen

Yen

％

Returnon Total
AssetsOrdinary
IncomeMargin％％Fiscal year ended（ 20.1）
1,097
3.4
2.0
36.50
−
October 31, 2004
Fiscal year ended（−24.4）
913
2.9
2.4
29.96
27.11
October 31, 2003
(Note) 1. Investment profit or loss accounted for by the equity method
Fiscal Year ended October 31, 2004−
Fiscal Year ended October 31, 2003−
2. Average number of shares (consolidated) outstanding during the fiscal year
Fiscal Year ended October 31, 2004
30,030,383 sharesFiscal Year ended October 31, 2003
30,235,808 shares
3. Are there any changes in accounting method?
No
4. The percentages shown for revenues, operating income, ordinary income and net income are the percent
increase or decrease compared to the prior consolidated fiscal year

2.9
3.6

(2) Consolidated Financial Position
Total Assets

Fiscal year ended
October 31, 2004
Fiscal year ended
October 31, 2003

Shareholders’ Equity

Shareholders’Shareholders’Equity Ratio

Equity per Share

Millions of yen

Millions of yen

Yen

89,32332,74536.7

1,096.42

89,01031,90735.8

1,068.25％(Note) Number of shares (consolidated) issued and outstanding at the end of the fiscal year:
Fiscal Year ended October 31, 2004
29,859,442sharesFiscal Year ended October 31, 2003
29,868,824 shares

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 1

(3) Consolidated Cash Flows

Fiscal year ended
October 31, 2004
Fiscal year ended
October 31, 2003

Cash Flow from

Cash Flow from

Cash Flow fromOperating Activities

Investing Activities

Financing Activities

Balance of Cash andEquivalents at End of
PeriodMillions of yen

Millions of yen

Millions of yen

Millions of yen

6,230−1,535− 4,923

11,734

10,359−107−13,764

11,920(4) Companies to which consolidation accounting and equity method accounting apply
Number of consolidated subsidiaries: 5
Number of non-consolidated subsidiaries accounted for by the equity method: 0
Number of affiliated companies accounted for by the equity method: 0(5) Changes in scope of consolidation and application of equity method accounting
Consolidation (new companies)

１(Excluded)0

Equity method accounting (new companies)

0(Excluded)0

2. Projected Consolidated Operating Results for the Fiscal Year Ending October 31, 2005
(November 1, 2004 - October 31, 2005)
Revenues

Operating Income

Ordinary Income

Net Income

Millions of yen

Millions of yen

Millions of yen

Interim period

32,250

1,440

1,280

650

Full year

63,400

2,130

1,790

740

Reference: Projected net income per share of common stock (Full year)

Millions of yen¥24.78*The above projections were prepared based upon information available to the Company at the time the projections wereannounced as well as various assumptions concerning the future economic and business environment. Actual operating
results may differ from the projected figures depending upon various factors in the future

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 2

I

Current Conditions of the Company’s GroupThe Kanamoto Company group is comprised of the parent company, seven subsidiaries and two affiliatedcompanies. The business activities of the group are centered on the rental of construction equipment, andthe development of businesses involved in the rental and sale of a full line of construction-related materials.
An explanation of each company’s position with regard to its relevant business is provided below.
〔 Businesses related to the Construction Equipment Rental Division 〕
Daiichi Kikai Co., Ltd. (a consolidated subsidiary company) and Kanki Corporation (which became aconsolidated subsidiary company in October 2004), are engaged in the rental and sale of construction
equipment and machines used for construction. These two subsidiary companies operate in designatedmarketing areas and borrow rental equipment assets from the Company as needed in order to meetcustomer demand. Kanamoto Shikoku Co., Ltd., a subsidiary company that also engaged in this business,
was merged into Kanamoto in April 2004.
SRG Kanamoto Co., Ltd. (a consolidated subsidiary company) operates a rental business that provides
temporary materials for construction use. Assist Co., Ltd. (a consolidated subsidiary company) andComsupply Co., Ltd. (a non-consolidated subsidiary company) are engaged in the rental and sale offurniture and fixtures and safety products for the construction industry. The Company borrows rental assets
from SRG Kanamoto Co., Ltd., Assist Co., Ltd. and Comsupply Co., Ltd. as needed to rent to its own
customers.
In addition to the above companies, Kanatech Co., Ltd. (a consolidated subsidiary company) develops,
manufactures and sells modular housing units for temporary use. Kanki Maintenance Co., Ltd. (anon-consolidated subsidiary company), a subsidiary of Kanki Corporation, is engaged primarily in repair ofconstruction equipment. During the consolidated fiscal year under review, Kanamoto sold all of its shares ofPolyshield Services Co., Ltd., which had been a non-consolidated subsidiary company, and no longer has
an investment relationship with that firm.
〔 Businesses related to the Steel Sales Division 〕
The Company’s Steel Sales Division sells steel products and construction-related manufactured goods. The
Company has no subsidiaries or affiliated companies related to this division.
〔 Businesses related to the Information Products Division and Other Businesses 〕
As the Company’s information and telecommunications-related division, Kanamoto’s Information Products
Division is engaged in the rental and sale of computers, computer peripheral equipment and equipment forthe development of computer products. Active Technology Corporation (an affiliated company), which isengaged principally in the sale of telecommunications-related equipment such as wireless LAN devices, isaffiliated with this division.
As a supplemental business, Active Power Corporation (an affiliated company) is engaged in the sale ofmicroturbine generators manufactured by Capstone Corporation, a U.S. company, and supplies theseproducts to the Company, among others.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 3

〔 Relationship of the Operating Businesses 〕(Note) An asterisk indicates an affiliated company to which equity method is not applied

Customers

Construction-related businesses
Kanamoto Co., Ltd. Construction
equipment rental

Construction
Equipment Rental
Division・
Steel Sales
Division・
Information
Products Division

Information Products
Division-related
businesses
・
Other Businesses
Active Technology
Corporation*
Active Power
Corporation*

Construction
equipment rental
Rental of temporary
scaffolding

Daiichi Kikai Co., Ltd.

SRG Kanamoto Co., Ltd.

Rental of safety
products

modular housing units
Rental of safety

devices

products

Sale ofmicroturbine

Repair ofgenerators

Construction

Repair of
construction
equipment

Kanki Corporation

Manufacture and sale ofSale of telecom

Supply of modular
housing units

Assist Co., Ltd.

Kanatech Co., Ltd.

Comsupply Co., Ltd.
Kanki MaintenanceCo., Ltd.

equipmentLines indicate:

Consolidated
subsidiaries

Non-consolidated
subsidiaries

Affiliatedcompanies

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 4

II

Management Policies

1. Basic policies concerning business management
Kanamoto and the Kanamoto Company group believe maximizing earnings on a sustainable basis, by taking
maximum advantage of the rental business knowledge and experience accumulated over many years toprovide services that fully satisfy the expectations and needs of construction rental equipment users, is thebest way to contribute to goals of our shareholders and group stakeholders and truly contribute to society.
This is the reason the Company has always made the centerpiece of its action agenda the concept“constantly seek innovation and strive to energize the business” and focused on comprehending changes inthe business environment, never becoming complacent about its present condition and consistently
managing its business to conform to current market conditions.
By pursuing “maximization of income and minimization of expenses” as its starting point, Kanamoto isseeking to achieve this objective today through measures to build a powerful marketing organization where
customers are always Number One and realize low-cost operations based on “Metamorphose,” theCompany’s long-range management plan.

2. Basic policies concerning distribution of earnings
Although Kanamoto takes into consideration its earnings level, payout ratio, and financial position from a
medium to long-term perspective when determining its earnings distribution policy, the Company places its
primary emphasis on expanding shareholders’ long-term overall investment return and ensuring a stable
return of earnings.
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.
To provide for a flexible capital policy in the future, Kanamoto has established a system for making
purchases of treasury stock.
The consolidated fiscal year ended on October 31, 2004 marked the 40th anniversary of Kanamoto’s
founding and a turning point for the Company. To celebrate this milestone, the Company plans an annual
shareholder dividend at the end of the consolidated fiscal year under review of ¥10 per share, by adding acommemorative dividend of ¥1 per share to its regular dividend of ¥9 per share (subject to a resolution of
the Regular General Meeting of the Shareholders to be held in January 2005). As a result, the dividend forthe full year including the interim dividend will be ¥19 per share.

3. 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. In light of the position of Kanamoto’s stockin the current market, however, the Company has no plans at this time to reduce the size of its investment
unit.
Nevertheless, Kanamoto recognizes that reducing the size of its stock investment unit is one effective
measure to stimulate trading of the Company’s shares, and will maintain a flexible outlook with due
consideration to improving the liquidity of its stock. At the present time, however, substantial confusion has
arisen from revisions to Japan’s stock certificate custody system as a transition is made to a securities
deposit and transfer system for stock certificates held personally by individual investors. Kanamoto willcontinue to study this issue while monitoring the introduction of the system for dematerialization of stock
certificates.
The Company currently also has no plans to execute a stock split.

4. Management indicators established as objectives
Because the Company believes sustainable growth and development enables it to contribute to the benefitof its stakeholders, Kanamoto has always emphasized ROI (return on investment) and cash flow, and seeks

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 5

growth in EBITDA (earnings before interest, taxes, depreciation and amortization) to meet its primaryobjective of establishing a solid management foundation.
Kanamoto adopted these indicators because its primary business of construction equipment rental creates a
substantial capital investment burden, and the profit or loss of its operations should be evaluated over a
period of several years.
For the new long-range management plan “Metamorphose” in particular, which Kanamoto launched during
the consolidated fiscal year ended on October 31, 2004, Kanamoto revised the numerical targets for the
consolidated fiscal years ending in October 2006 and October 2008 as shown below, to reflect the additionof Kanki Corporation as a new consolidated subsidiary company. No changes have been made to the targets
for EBITDA+, which the Company has set as its ultimate indicator to increase profits and serves as thesource of future earnings.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 6

(Millions of yen, except net income per share)
Fiscal Year ending

Revenues
Consolidated operating results

Non-consolidated operating
results (Kanamoto Company)

Fiscal Year ending

October 2006

October 2008

(After three years)(After five years)

64,44067,250Ordinary income

3,360

5,420

Net income per share

58yen

96 yen

Revenues

58,00060,600

3,160

5,070

18,02919,553

Ordinary income
EBITDA＋

5. Medium to long-term corporate management strategy
Under its new long-range management plan “Metamorphose” (Five-Year Plan), which it began in thebusiness period under review (consolidated fiscal year ended October 31, 2004), Kanamoto will implement
improvements to its business organization to shift the management focus from revenue growth to improving
gross margins.
Kanamoto will seek to reinvigorate the Company and create a stronger Kanamoto Group by the end of the
fiscal year ending in October 2008, to ensure the Company is better equipped to survive in the face of achanging business environment.
During the consolidated fiscal year under review, which was the first year of its new long-term management
plan, Kanamoto closed, merged or downsized branch offices that had completed their mission and continued
to build a powerful marketing organization where customers are always Number One. At the same time theCompany strengthened its branches in the Tokyo metropolitan area, which offers the largest potential
market. The Company also achieved cost reduction results that surpassed its initial objective, by cutting
costs such as personnel expense, equipment repair expense and transport expense. For new rental asset
introductions, Kanamoto placed priority on augmenting its line-up of highly profitable small-scaleconstruction equipment. Because multiple disaster relief work projects during the busy season resulted in ajump in demand for such equipment, Kanamoto exceeded its initial objective and introduced the volume ofequipment typical for a normal year.
To attain its targets for Metamorphose during the remaining four periods of the plan, the Company has set
the following objectives.
a) Earnings-focused management
Kanamoto will shift its focus from the revenues-first approach utilized in the past and emphasize gross profit.
Moreover, because the Company has already completed the replacement of its large rental assets with thelatest emissions-controlled models designed to reduce pollution, during the plan period the Company will
limit the introduction of new rental assets and work to reduce the amount of depreciation and amortization
expense, which reduces operating income. The Company will continue to aggressively introduce small-scaleconstruction equipment and inexpensive rental assets, however, which boast high profit margins.
b) Execute a bold scrap and build program
Currently, Hokkaido accounts for 40.1% of Kanamoto’s total revenues by region, with Honshu accounting forthe remaining 59.9%. Kanamoto will further pursue the shift in sales towards Honshu, and implement a
flexible branch office location strategy that will increase the percentage of revenues accounted for by
Honshu to 65-70%. In addition to taking bolder measures to close and scale back the number of unprofitablebranches in particular, the Company will concentrate on establishing branches mainly in the Tokyo
metropolitan area.
Kanamoto’s focus will be on controlling the capital investment per branch to the extent possible, and growing
through development of low-cost branches equipped with a smaller product line-up.
Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 7c) Build a powerful marketing organization where customers are always Number One
By taking maximum advantage of its information systems, Kanamoto will implement marketing programs tothoroughly fulfill user needs. The Company will continue to reconfigure its asset composition to best suit theregional characteristics of each branch office, independently and autonomously of the others, to create aposition in which Kanamoto’s presence is indispensable for its customers’ operations.
d) Pursue Kanamoto’s alliance strategy
The Kanamoto Group and its alliance firms currently are active in many regions, from Hokkaido to Okinawa.
The Company will seek to strengthen cooperation among these firms as the Kanamoto group and increase
the synergistic effects from this approach, by seeking additional high-quality alliance members.
The Company anticipates the business environment during the consolidated fiscal year ending October 2005,
the second year of its new long-range management plan, to remain difficult. By pursuing the objectives
mentioned above, however, the Company will boost industry recognition of Kanamoto as the leading
company in the construction equipment rental business. By continuing efforts to improve and strengthen its
financial position, Kanamoto will seek to create a firm that is evaluated positively by the market, throughmeasures such as its debt rating and dividend policy.

6. Issues to be addressed by the Company
Because of the cutback in public works as a result of government measures to restore sound fiscal
administration, total construction investment has fallen sharply over the past several years. Difficult
conditions continue particularly in areas that traditionally had relied heavily on public works construction.
The construction equipment rental industry reflects this situation, as competition continues to grow, slashedrental unit prices remain at unprecedented low levels with only a few exceptions, and profit margins atconstruction equipment rental companies remain under pressure.
Given this severe environment, the Kanamoto Group had sought to compensate for the decline in its
operating margin by maintaining revenues through growth of its business base, while seeking to shrink its
balance sheet when investing in plant and equipment by means such as quickly adopting support forequipment leases.
In addition to these efforts, during the consolidated fiscal year under review (business period ended October2004) Kanamoto also began its new long-range management plan “Metamorphose” with the goal of
maintaining earnings. The issues facing Kanamoto and the measures the Company will take are described
below.
(1) Enhance marketing capabilities and customer strategies
As the leading firm in the construction equipment rental industry, Kanamoto strives to accurately understandusers’ needs and generate a profit as it develops its customer-first rental business with an emphasis on thehighest levels of quality satisfaction. Kanamoto also works to develop the construction equipment rental
market and promote a healthy industry. The Company will also take steps to increase the range of new
customers in addition to its traditional customers, which are mainly in civil engineering works andconstruction, by diversifying the types of products handled.
(2) Emphasize group management
Kanamoto’s consolidated subsidiaries are still in a growth phase. To increase operating results at thesecompanies, Kanamoto will strengthen its cooperation from a business and asset management standpoint,
including seconding the necessary individuals from Kanamoto, and seek further growth in earnings as agroup.
(3) Strengthen alliances

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 8

Kanamoto will build its alliance group in areas where the Company has not yet opened branches, andimplement efforts to create mini-alliances in areas where Kanamoto branches already exist. Kanamoto
fundamentally plans to strengthen this approach through alliances, but also considers techniques such as
business transfers and M&A, as demonstrated by its agreements with Nakano Motors Co., Ltd. (currently
Kanamoto’s Engaru branch) and Kanaya Lease Co., Ltd. (currently Kanamoto’s Tokyo Metropolitan Area HighLevel Equipment Branch) during the consolidated fiscal year under review, to be an effective approach.
(4) Reinforce financial strategy
Kanamoto continues to search for more effective, cheaper financing alternatives, while taking into accountits equipment plans for purchases or other equipment procurement. The Company will focus on enhancing
funds procurement flexibility through effective use of its commitment facility, and on improving capitalefficiency by liquidating bill receivables.
Kanamoto’s policy is to actively utilize various methods and techniques to lighten its asset and liability
balance.
(5) Cost reductions in every operation
During the consolidated fiscal year under review, Kanamoto pursued low-cost operations that produced
substantial positive results. The Company will continue this effort during the next consolidated fiscal year
and thereafter. In particular, the Company will pursue further cost reductions for asset maintenance basedon a fundamental policy of extending the life of its rental assets. Kanamoto will also aim at cutting wastefulexpenses and boosting operating income, by thoroughly implementing low-cost operations for all expenses
including transport and purchasing.
Furthermore, Kanamoto will seek to enhance its corporate brand by extending its knowledge management
system and maintenance standardization system, which effectively utilize an online system linking all
branches.

7. Basic approach concerning corporate governance and status of corporate
governance measuresa) Basic approach concerning corporate governanceKanamoto recognizes that fostering and strengthening the trust earned from shareholders, customers,
cooperating companies, local communities, and employees and their families is closely linked to theCompany’s stable development. In addition to strengthening its in-house management system for corporate
governance, the Company works to maintain and improve management transparency and fairness and todevelop activities that will ensure timely disclosure and establish an information feedback system for
management.
b) Status of corporate governance measures
Kanamoto Company’s Board of Directors is composed of nine directors, including two outside directors. As
the highest decision-making body concerning execution and supervision of the Company’s businessstrategies and business plans, the board meets regularly and at other times when appropriate based onprovisions governing the Board of Directors, and acts to respond quickly to the Company’s continually
evolving business conditions.
Kanamoto has also adopted the auditor system. The Audit Committee is composed of four auditors(including two outside auditors), who participate in all meetings of the Board of Directors to monitor the
directors’ execution of the Company’s activities and perform their audit functions in an environment thatenables them to share proper opinions, such as exchanging information with managers, on a daily basis.
In January 2001, Kanamoto introduced a corporate officer system to clarify responsibility for execution of
the Company’s businesses. Kanamoto also consolidated its organizational framework, to improve thecommunication function for top-down notification of management policies and other instructions andSummary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 9

provide a system for keeping employees well informed about the Company’s policies. The Company ismaking every effort to prepare precise business strategies that conform to the market environment andexecute comprehensive management controls at each business division and each affiliated company.
In addition to expanding the authority of the auditors’ office, strengthening its internal audit system, andpreparing ethics guidelines and establishing a Compliance Committee that includes outside committee
members, the Company has taken steps to strengthen observance of laws and ethics regulations.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 10

III

Operating Results and Financial Position(1) Operating resultsa) Summary of consolidated fiscal year operating results
During the consolidated fiscal year under review, Japan’s economy exhibited a positive trend in businesssentiment during the first half of the year centered on healthy export industries. During the second half,
however, foreign demand slumped and a mood of stagnation spread under the influence of a sudden jumpin crude oil prices and other factors. Nevertheless, the sense of a manufacturing-centered economic
recovery spurred by so-called special Chinese demand for products such as iron and steel (a sharp rise insteel materials) and marine transportation was generally felt throughout the year.
In the construction industry, which is a major customer for Kanamoto’s services, there were a number oflarge-scale projects in the Tokyo metropolitan area accompanied by private demand, and overall there wasa sense that conditions had reached bottom. Public works expenditures, however, decreased for the second
consecutive year, and the severe nationwide environment affecting construction equipment rentals overall
was unchanged.
〔 Construction-related business 〕
Following a comparatively robust first half in the consolidated fiscal year under review, which included theconstruction industry’s busy season, construction equipment rental demand turned down during the second
half and weakened under the influence of cutbacks in local public works. Although confronted with a toughbusiness environment, for the consolidated fiscal year under review the Kanamoto Group achieved
consolidated revenues of ¥54,823 million in its construction-related businesses, a decrease of 2.8%
compared to the prior consolidated fiscal year, and operating income ¥1,680 million, a 23.8% decreaseyear-on-year, as the result of detailed cost reductions, management improvements, and marketing efforts.
By the Company’s relevant business segments, total revenues for the Construction Equipment Rental
Division edged down 0.8% compared to the prior consolidated fiscal year, to ¥52,761 million. Rental
revenues decreased 1.9% year-on-year to ¥38,471 million, and sales increased by 2.3% compared to theprior consolidated fiscal year to ¥14,289 million. Given the amount of total construction declined 3.6% fromthe level of the prior consolidated fiscal year, Kanamoto was able to achieve results that were nearly
unchanged from the prior consolidated fiscal year. The main reason was synergistic results among factors
such as (1) healthy demand overall for vehicle rentals on which the Company focused and intensified its
marketing efforts during the fiscal year, (2) rentals of system support equipment (high-speed reactive
electric power controllers and (flicker control equipment) and other equipment requiring special expertise,(3) steady growth in rentals of general-purpose equipment such as hand tools and small equipment and (4)a partial recovery of rental rates for certain models.
By region, rental revenues decreased 4.6% in Hokkaido and fell 4.1% in Tohoku from the prior consolidated
fiscal year levels, despite the fact orders for restoration works following disasters last year in both Hokkaido
and the Tohoku territory were brisk during the first half of the consolidated fiscal year. Revenues wereaffected by a prolonged construction equipment rental slow period from May, coupled with delays inconstruction caused by typhoons that battered Japan repeatedly during the summer. In the Kanto Shinetsu
territory, rentals of construction equipment for urban use by the Tokyo Metropolitan Area High Level
Equipment Branch and Shin-Kiba Branch, which were established in June and specialize in the rental ofvehicles for high-level work, rose by 3.8% year-on-year, and in the Kinki-Chubu territory as well rental
revenues increased 3.9% over the same period of the prior consolidated fiscal year as the result ofconstruction for the Aichi Expo and Chubu International Airport and an increase in related private sector
demand. As a result, the percentage of total rental revenues accounted for by Hokkaido and Honshu were40.1% and 59.9%.
Construction equipment sales by the Construction Equipment Rental Division increased because of higher
sales of equipment consigned from other companies and steady domestic sales of items such as used
modular housing units and parts.
Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 11

During the consolidated fiscal year under review, Kanamoto opened one new branch and closed four
branches in the Hokkaido territory, added one new branch and closed one branch in the Tohoku territory,
opened two new branches and closed one branch in the Kanto-Shinetsu territory and added one new branch
and closed one branch in the Kinki-Chubu territory.
The total number of branches decreased by one to 139 branches. The three new branches, including one
branch each the Hokkaido territory, Kanto-Shinetsu territory and Kinki-Chubu territory, were the Engaru
Branch taken over from Nakano Motors Co., Ltd. in June 2004, the Tokyo Metropolitan Area High Level
Equipment Branch, which Kanamoto succeeded to in June 2004 when it took over the business of Kanaya
Lease Co., Ltd., and the Takamatsu Branch taken over by Kanamoto when it absorbed and merged withKanamoto Shikoku Co., Ltd. in April 2004.
Turning to the operations of its consolidated subsidiaries, Daiichi Kikai Co., Ltd. enjoyed a favorable
environment for construction orders and increased revenues 15.2% from the prior consolidated fiscal year
level. Operating income declined 61.5% year-on-year as a result of an increased cost burden for new branch
start-up costs. SRG Kanamoto Co., Ltd. increased its revenues 26.4% over the prior consolidated fiscal year,
but saw its operating loss deteriorate and increase 99.0% year-on-year from the burden for depreciation on
newly purchased components. At Assist Co., Ltd. operating income improved substantially despite a 1.5%
decrease in revenues year-on-year as revenues stagnated during the second half of the fiscal year, andoperating income expanded 371.0% compared with the prior consolidated fiscal year as the company
improved its gross profit margin for the second year in a row. Kanatech Co., Ltd. saw its revenues slip 33.1%
compared to the prior consolidated fiscal year because of a large decrease in orders both from within andoutside the Kanamoto group, but did manage some improvement as it reduced its operating loss by 20%
through efforts to control costs. Kanki Corporation was included in the scope of consolidation beginning in
the consolidated fiscal year under review following the acquisition of its stock by Kanamoto in October 2004.
Only the company’s balance sheet has been consolidated, however, because the acquisition was considered
to occur at Kanamoto’s consolidated fiscal year-end.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 12

〔 Steel Sales-related business 〕
The prices of steel materials jumped sharply for the first time in 17 years since the bubble economy years,
as the market was invigorated and demand rose even in Hokkaido because of strong demand in China.
Revenues at the Steel Sales Division declined 4.9% year-on-year to ¥6,058 million, however, because thedivision did not accept every potential order as the Company sought to restrain receivables growth.
Operating income improved by ¥50 million compared to the prior consolidated fiscal year.
〔 Information Products-related business and Other Businesses 〕
From workstations to low-priced personal computer servers, the Information Products Division increased
both the number of machines rented and the number of accounts (number of borrowers) compared with theprior consolidated fiscal year. Nevertheless, rental revenues fell 11.5% year-on-year because of lower rental
rates. Revenue from sales also plunged, decreasing 81.2% from the prior consolidated fiscal year level as
new product development was delayed. Revenues for the division as a whole were reduced by half,
decreasing by 50.4% year-on-year. As a result, revenues from information products related business andother businesses shrank 50.4% from the prior consolidated fiscal year to ¥454 million, and operating income
was only ¥170,000.
Fiscal Year ended October 31, 2004 Consolidated Operating Results(Million yen; % change from prior year)
Revenues

Operating Income

Consolidated
Fiscal Year Under
Review

61,336–3 . 7 %1,878–1 8 . 6 %Prior Consolidated
Fiscal Year63,686

–2.4%

2,307

0.9%

Ordinary Income
1 , 7 4 9 –2 3 . 2 %2,279–4 . 3 %Net Income
1,097

20.1%

913

–2 4 . 4 %b) Outlook for the next consolidated fiscal year (Business Period ending October 2005)
Japan’s leading financial institutions have nearly disposed of their non-performing loans according toschedule, and prospects for Japan’s economy have also brightened. There remain concerns the economic
recovery might still be affected substantially by the international environment, however, and there are anumber of instability factors. Although progress can be noted in private sector capital investment, forexample, this continues to be confined to the largest metropolitan areas, while in local areas there are no
major projects other than restoration works in specified disaster areas. Given these circumstances,
Kanamoto forecasts the business environment will remain severe. Actual demand in Kanamoto’s main
business in the construction equipment rental industry as well is expected to be subject to tough conditions
throughout the next consolidated fiscal year.
Although the severe environment will continue for Kanamoto, which has branches in many areas, theCompany will maintain its market share and continue to improve equipment utilization rates throughalliances with local construction equipment rental firms in regions where Kanamoto has a small market share.
The Company will also proceed to develop its customer-first marketing.
Although the first half of the Company’s consolidated fiscal year (January-April) includes the constructionindustry’s so-called busy period, there is a possibility for general construction to be delayed and for rental
equipment orders to be concentrated temporarily in certain months because of disaster relief work torecover from typhoons that devastated Japan during 2004. Kanamoto will take steps to minimize theseanticipated problems. Because the second half of the consolidated fiscal year (May-October) is a slow period,
Kanamoto will pursue customer development efforts aimed at boosting rental revenues and earnings during
these months, particularly in alternative industry sectors.
With regard to Kanamoto’s scrap and build policy, the Company will continue to investigate establishing afourth branch in the Tokyo metropolitan area. Kanamoto currently has no plans to close any branches, butwill boldly pursue this option should operating results at any of its branches warrant such action.
Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 13

The entire Kanamoto Group will seek to maintain earnings, by optimizing asset operations, creating thecorporate structure and business capabilities to respond fully to this challenging business environment,
taking full advantage of Kanamoto’s broad line-up of state-of-the-art equipment unavailable from otherrental companies and avoiding competition through alliances with leading local companies in other regions.
Kanamoto is unable to determine at this time the extent of the restoration work that will be necessary
following the Niigata-Chuetsu Earthquake. Based on its experience in response to the Hokkaido Nansei-Oki
Earthquake and Hanshin-Awaji (Kobe) Earthquake in the past, the Company believes recovery work in thiscase will be required over an extensive period because of the need, for example, to restore roads in thismountainous area. Other areas where the Kanamoto group operates also suffered extensive damage fromtyphoons that struck Japan several times during 2004, and disaster recovery works are underway in theseareas as well. The Company believes these works will have a positive influence on its operating results, but
has not included these items in the projected consolidated operating results released at this time.

Fiscal Year ending October 31, 2005 Projected Consolidated Operating Results(Million yen; % change from prior year)
Revenues

Operating Income

Ordinary Income

Net Income

Interim period

32,250

4.2％

1,440

–8.7％

1,280

–16.2％

650–40.7％

Full year

63,400

3.4％

2,130

13.4％

1,790

2.3％

740

–32.5％

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 14

(2) Financial position
For the consolidated fiscal year under review, income before taxes and adjustments increased but funds
used for expenditures such as payments of corporate, local and business taxes increased, depreciation andamortization expense declined and accounts receivable increased. As a result, cash flow from operating
activities was down 39.9% from the prior consolidated fiscal year, to ¥6,230 million.
Cash flow used for investing activities increased ¥1,428 million from the prior consolidated fiscal yearto ¥1,535 million yen, primarily reflecting an increase in funds used for the purchase of tangible fixed assets.
Cash flow used for financing activities decreased ¥8,841 million year-on-year to ¥4,923 million. Thiswas mainly because the Company did not have any funds used for the redemption of straight bonds orconvertible bonds.
As a result of the above, the balance of cash and the cash equivalents at the end of the consolidated fiscal
year under review was ¥11,734 million, ¥186 million (1.6%) less than at the end of the prior consolidated
fiscal year.
〔 Cash flow indicator trends for the Kanamoto group 〕
The cash flow indicator trends for the Kanamoto group are provided below.
Fiscal Year Ended

Fiscal Year Ended

Fiscal Year Ended

October 2002

October 2003

October 2004

Shareholders’ equity ratio (%)

31.5

35.8

36.7

Shareholders’ equity ratio on a market
capitalization basis (%)

14.4

17.7

18.1

Years to repay debt

4.7

4.0

6.3

Interest coverage ratio (times)

14.2

17.2

13.4

(Note)
Shareholders’ equity ratio: Shareholders’ equity / Total assets
Shareholders’ equity ratio on a market capitalization basis: Shareholders’ equity on a market capitalization basis / Total
assetsYears to repay debt: Interest-bearing liabilities / Operating cash flow
Interest coverage ratio: Operating cash flow / Interest payments*All indicators are calculated using financial values on a consolidated basis.
*Total market capitalization is calculated by multiplying the closing share price at the end of the term by the number ofshares outstanding (after deducting treasury stock) at the end of the term.
*Cash flow from operating activities shown on the Consolidated Statements of Cash Flows is used as operating cash flow.
Interest-bearing liabilities include all liabilities on which the Company pays interest that are accounted for on theConsolidated Balance Sheets.
The amounts shown as interest expense on the Consolidated Statements of Cash Flows are used as interest payments.

〔 Fiscal Year ending October 31, 2005 Projected Cash Flows 〕
Cash flow from operating activities is projected to decrease compared to the consolidated fiscal year
under review because of a decrease in accounts receivable (liquidation of notes and accounts receivable).
Cash flow used for investing activities is projected to increase compared with the level of the priorconsolidated fiscal year under review because of a decrease in funds used for the purchase of tangible fixed
assets.
Cash flow used for financing activities is projected to decrease compared with the consolidated fiscal
year under review because the Company will decrease the amount of funds provided by long-term bankloans.
As a result, the balance of cash and cash equivalents at the term of the next consolidated fiscal year is
projected to increase compared to the balance at the end of the consolidated fiscal year under review.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 15

Ⅳ

Consolidated Financial Statements

1. Consolidated Balance Sheets
PeriodCategory(Unit: Thousands of yen)

Prior Consolidated
Accounting Fiscal Year（As of October 31, 2003）
AmountPercent

Current Consolidated
Accounting Fiscal Year(As of October 31, 2004)
AmountPercent%(Assets)

Change fromprior year%

Current Assets
Cash and deposits

11,928,637

11,742,173−186,463

Notes and accounts receivable,
trade

21,411,919

23,480,548

2,068,629

Negotiable securities

39,192−−39,192

Inventory

854,296703,059−151,236

1,958,064

1,905,762−52,301

261,196

252,069−9,127436,585

429,435−7,150−488,842−730,669−241,826

Construction equipment
Deferred tax assets
Other current assets
Allowanceaccounts

fordoubtful

36,401,049

Total Current Assets

40.9

37,782,380

42.3

1,381,330

Fixed Assets
Tangible Fixed Assets
Rental equipment

13,301,236

10,309,578−2,991,657

Buildings and structures

7,187,496

7,011,800−175,696

Machinery, equipment,
vehicles and delivery
equipment

989,031

907,542−81,489

24,637,537

26,112,181

1,474,644

1,892

2,793

901

437,874

361,109−76,765

Land
Construction in progress
Other assets
Total Tangible Fixed Assets

46,555,069

52.3

44,705,006

50.1−1,850,063

Intangible Fixed Assets−

559,067

559,067

Total Intangible Fixed Assets

102,748

262,569

159,821

Fixed Assets

102,748

Other assets

0.1

821,6370.9

718,888

Investment and Other Assets
Investment securities

3,572,156

3,938,162

366,006

Deferred tax assets

1,383,397

911,019−472,377

Other

1,559,460

2,826,514

1,267,054−563,757−1,660,994−1,097,237

Allowance for doubtful
accounts
Total Investments and Other
Assets5,951,255

6.7

6,014,701

6.7

63,445

Total Fixed Assets

52,609,073

59.1

51,541,344

57.7−1,067,728

Total Assets

89,010,122

100.0

89,323,725

100.0

313,602

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 16

(Unit: Thousands of yen)
PeriodCategory

Prior Consolidated
Accounting Fiscal Year（As of October 31, 2003）
AmountPercent

Current Consolidated
Accounting Fiscal Year(As of October 31, 2004)
AmountChange fromprior year

Percent(Liabilities)
Current Liabilities
Notes and accounts payable,
trade
Short-term bank loans

11,048,285

13,405,603

2,357,317

713,358

676,639−36,718

Long-term bank loans due
within one year

9,672,816

10,935,496

1,262,680

Corporate taxes payable

648,231368,813−279,417

Accrued bonuses to employees

442,868

480,597

37,728

Accounts payable, other5,819,386

4,129,127−1,690,259

Other current liabilities

568,574

623,001

54,42728,913,520

Total Current Liabilities

32.5

30,619,278

34.3

1,705,757

Long-term Liabilities
Long-term bank loans

20,734,299

21,952,103

1,217,804

1,777,314

1,228,829−548,485

197,093

96,281−100,811

5,333,619

2,496,910−2,836,708

Consolidation adjustment
account

14,630−−14,630

Other

61,076125,226

64,150Accrued employees retirement
benefits
Retirement allowances todirectors and auditors
Long-term accrued expenses

Total Long-term Liabilities

28,118,033

31.6

25,899,351

29.0−2,218,681

Total Liabilities

57,031,554

64.1

56,518,630

63.3−512,924

71,3030.1

59,2450.0−12,057

Common stock

8,596,737

9.7

8,596,737

9.6−

Additional paid-in capital

9,720,343

10.9

9,720,343

10.9−

Consolidated retained earnings

13,400,060

15.0

13,913,568

15.6

513,508

Valuation difference on otherinvestment securities
Treasury stock

367,4420.4

697,675

0.8

330,233−177,318−0.2−182,475−0.2−5,157

Total Shareholders’ Equity

31,907,265

35.8

32,745,849

36.7

838,583

Total Liabilities, Minority Interestand Shareholders’ Equity

89,010,122

100.0

89,323,725

100.0

313,602(Minority Interests)
Minority Interests(Shareholders’ Equity)

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 17

2. Consolidated Statements of Income
PeriodCategory(Unit: Thousands of yen)

Prior Consolidated
Accounting Fiscal Year
（From November 1, 2002
To October 31, 2003）
AmountPercent

Current Consolidated
Accounting Fiscal Year
(From November 1, 2003
To October 31, 2004)
AmountChange fromprior year

Percent

Revenues from operations
Rental revenues

40,724,552

39,759,242−965,309

Sales

22,961,732

21,577,015−1,384,716

Total revenues from operations

63,686,284

100.0

61,336,258

100.0−2,350,026

Cost of revenues from operations
Cost of rental revenues

30,928,308

29,998,533−929,775

Cost of goods sold17,970,191

17,018,896−951,294

Total cost of revenues

48,898,499

76.8

47,017,429

76.6−1,881,070

14,787,785

23.2

14,318,828

23.4−468,956

12,480,119

19.6

12,440,160

20.3−39,959

2,307,665

3.6

1,878,668

3.1−428,997

Gross profit
Selling,
generaladministrative expenses

andOperating income
Non-operating revenues
Interest revenue

2,552

2,781

229

Dividend income

79,71168,308−11,403

Gain on sale of investment
securities

134,900

47,261−87,638

−

5,845

5,845

Insurance benefits

23,14828,8505,702

Rents received

86,490113,474

26,984

Cash bonus received

18,733

1,283−17,450

Other

182,479

170,632−11,846

Total non-operating revenues

528,016

Amortizationof
consolidation
adjustment account

0.8

438,4380.7−89,577

Non-operating expenses
Interest expense

398,080

347,660−50,419

Other

158,298

219,738

61,440Total non-operating expenses

556,3780.8

567,399

0.9

11,0202,279,303

3.6

1,749,707

2.9−529,595

Ordinary income
Extraordinary profits
Gain on sale or retirement of fixed
assetsValuation gain on investment
enterprise partnership
Gain on return of entrusted portionof corporate Employee Welfare
Pension Fund

365

8,334

7,968

23,4085,130−18,278−

606,420

606,420

Other

13,162342−12,820

Total extraordinary profits

36,9360.1

620,226

1.0

583,290

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 18

(Unit: Thousands of yen)
PeriodCategory

Prior Consolidated
Accounting Fiscal Year
（From November 1, 2002
To October 31, 2003）
AmountCurrent Consolidated
Accounting Fiscal Year
(From November 1, 2003
To October 31, 2004)

Percent

AmountPercent%

Extraordinary losses

Change fromprior year%

Loss on sale or retirement of
fixed assets
Valuation loss on investment
securities

88,863

97,824

8,961

259,639

42,544−217,094

Other

92,42017,415−75,004

440,9220.7

157,7850.3−283,137

Incomebeforetaxes
andadjustments
Corporate, local and business
taxes
Adjustment for corporate andother taxes

1,875,316

3.0

2,212,149

3.6

336,832

1,036,152

1.6

839,083

1.4−197,069−55,071−0.0

256,6870.4

311,758

Minority interest in income or loss

−19,6400.0

18,939−0.0

38,579Net income

913,875

1.4

1,097,439

1.8

183,564

Total extraordinary losses

3. Statements of Consolidated Retained Earnings
PeriodCategory(Unit: Thousands of yen)

Prior Consolidated
Accounting Fiscal Year
(From November 1, 2002 to
October 31, 2003)

Current Consolidated
Accounting Fiscal Year
(From November 1, 2003 to
October 31, 2004)

AmountAmountChange fromprior year

(Capital Surplus)
Balance of capital surplus at the
beginning of the period
Balance of capital surplus at theend of the period

9,720,343

9,720,343−

9,720,343

9,720,343−(Earned Surplus)
Balance of earned surplus at the
beginning of the period
Increase in earned surplus

13,044,002

13,400,060

356,057

1,097,439

183,564

583,931

26,113

13,913,568

513,508

Net income for the period

913,875

913,875

1,097,439

Decrease in earned surplus
Dividends

541,217537,604

Directors and auditors’ bonuses
Decrease in earned surplus frommerger of non-consolidated
subsidiary
Balance of earned surplus at theend of the period

16,60014,100−557,817
13,400,060

32,226

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 19

4. Consolidated Statements of Cash Flows
PeriodCategory

Prior Consolidated
Accounting Fiscal Year
(From November 1, 2002
to October 31, 2003)
Amount(Unit: Thousands of yen)
Current Consolidated
Accounting Fiscal Year
Change from
(From November 1, 2003prior year
to October 31, 2004)
AmountCash flow from operating activities
Income before taxes andadjustments
Depreciation and amortization
expenseAmortization of consolidation
adjustment accountGain on sale or retirement of fixed
assetsLoss on sale or retirement of fixed
assetsInstallment purchases of assets forsmall-value rentals
Reclassification of cost of sales
associated with disposal of
construction equipment
Reclassification of cost of sales
associated with disposal of rental
assetsExpenditures for acquisition of rental
assetsValuation loss on investment
securities

1,875,316

2,212,149

336,832

6,650,660

5,294,745−1,355,915

61,057−5,845−66,902−365−8,334−7,96888,863

97,824

8,961

113,174

12,475−100,699

18,30622,224

3,918

1,779,039

1,482,068−296,970−906,554−1,278,248−371,693

259,639

42,544−217,094−134,900−47,261

87,638

−890

−

890

−22,216

152,945

175,161−98,310

6,692

105,003

101,589−548,485−650,074

449−101,749−102,199−82,263−71,090

11,173

181,612111,954−69,658

398,080

347,660−50,419

1,708,497−944,131−2,652,628−44,829

204,823

249,652−916,993

1,071,687

1,988,681

Increase in accounts payable, other

206,893239,627

32,733

Directors and auditors’ bonuses paid

−16,600−14,100

2,500

74,043−538,148−612,192

11,293,299

7,742,029−3,551,270

82,26371,090−11,173

Interest expense−600,912−463,881

137,030

Payment of corporate and other taxes−415,364−1,119,008−703,643

Cash flow from operating activities

10,359,286

6,230,229−4,129,056

Gain on sale of investment securities
Gain on redemption of corporate
bonds by purchase
Increase (decrease) in allowance for
doubtful accounts
Decrease in accrued bonuses to
employees
Increase (decrease) in accrued
employees retirement benefits
Increase (decrease) in retirement
allowances to directors and auditors
Interest revenue and dividend
incomeInterest expense on installment
purchases of rental assets
Interest expense
Increase (decrease) in accounts
receivable, trade(Increase) decrease in inventory
assetsIncrease (decrease) in accounts
payable, trade

Other, net
SubtotalInterest and dividends received

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 20

(Unit: Thousands of yen)
PeriodCategory

Prior Consolidated
Accounting Fiscal Year
(From November 1, 2002
to October 31, 2003)

Current Consolidated
Accounting Fiscal Year
(From November 1, 2003
to October 31, 2004)

AmountAmountChange fromprior year

Cash flow from investing activities
Disbursements for investments interm deposits
Revenue from redemption of term
deposits
Funds used for the purchase of
tangible fixed assets
Funds provided from the sale oftangible fixed assets
Funds used for the purchase ofintangible fixed assets
Funds used for the purchase ofinvestment securities
Funds provided from sale ofinvestment securities
Funds used for purchase ofinvestments
Funds used for purchase of
subsidiary company stock
Funds provided from purchase of
subsidiary company stock
following change in scope of
consolidation
Other
Cash flow from investing activities−5,000

−1

4,998

1,218

−

−1,218−638,435−1,899,402−1,260,966

11,331

15,555

4,224−23,145−182,859−159,714−1,361,608−1,044,472

317,136

1,988,385

1,332,729−655,655−14,220−10

14,210−108,551−27,875

80,675−319,306

319,306

42,998−48,581−91,580−107,027−1,535,610−1,428,582−192,095−36,718

155,377

15,000,000

11,930,000−3,070,000−10,379,073−10,709,516−330,442−65,110−

65,110−5,277,692−

5,277,692−4,098,000−

4,098,000−8,076,438−5,564,061

2,512,376−165,258−5,157160,101−541,217−537,604

3,612

30,000−−30,000

−

−150

−150

−13,764,886−4,923,208

8,841,677−3,512,627−228,589

3,284,037

15,433,247

11,920,620−3,512,627−

42,124

42,124

11,920,620

11,734,154−186,465

Cash flow from financing activities
Decrease in short-term bank loans
Funds provided by long-term bankloans
Funds used to repay long-termbank loans
Funds used for redemption ofstraight bonds by purchase
Funds used for redemption ofstraight bonds
Funds used for redemption of
convertible bonds
Funds used for repayment of
installment obligations
Funds used for the purchase oftreasury stock
Payment of dividends to parent
company
Funds provided from the issue ofstock to minority shareholders
Other
Cash flow from financing activities
Increase (decrease) in cash andequivalents
Balance of cash and equivalents at
beginning of period
Increase in cash and equivalents
accompanying merger with
non-consolidated subsidiary
Balance of cash and equivalents at
end of the period

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 21

5. Significant Accounting Policies for the Consolidated Financial Statements
Prior Consolidated Fiscal Year
(From November 1, 2002
to October 31, 2003)
1. Companies includedin the consolidation

Current Consolidated Fiscal Year
(From November 1, 2003
to October 31, 2004)(1) Number of consolidated companies: 4
Consolidated company name:
Assist Co., Ltd.
SRG Kanamoto Co., Ltd.
Kanatech Co., Ltd.
Daiichi Kikai Co., Ltd.

ProvidenceaKanki Corporation is included in the

consolidated subsidiary during the priorscope of consolidation beginning in the

consolidated accounting fiscal year, wasconsolidated fiscal year under review

liquidated

Providence

following the acquisition of its stock by

Brewery’s financial results have been

Kanamoto in October 2004. Only theeliminated

from

the

company’s

StatementsofIncomeinBrewery

April

Co.,

2003.

Ltd.,

(1) Number of consolidated companies: 5
Consolidated company name:
Assist Co., Ltd.
SRG Kanamoto Co., Ltd.
Kanatech Co., Ltd.
Daiichi Kikai Co., Ltd.
Kanki Corporation

Consolidated
and

the

balanceconsolidated,

sheet

however,

has

been

becausetheConsolidated Statements of Cash Flows,

acquisition was considered to occur atand the company has been removed from

Kanamoto’s consolidated fiscal year-end.

the scope of consolidation.
Taniguchi Co., Ltd., a consolidated
subsidiary during the prior consolidated
accounting fiscal year, merged withKanamoto Co., Ltd. on August 1, 2003.
Taniguchi’s financial results have been
eliminated from the Consolidated
Statements of Income and theConsolidated Statements of Cash Flows,
and the company has been removed
from the scope of consolidation.
(2) Main non-consolidated subsidiaries(2) Main non-consolidated subsidiaries
Non-consolidated subsidiary company
Non-consolidated subsidiary company
name
name
Comsupply Co., Ltd.
Polyshield Services Co., Ltd.
Kanamoto Shikoku Co., Ltd.
Kanki Maintenance Co., Ltd.
(Reason for exclusion from consolidation)
The size of the non-consolidated

2. Matters pertaining to(Reason for exclusion from consolidation)
The size of the non-consolidated

subsidiaries is small and their net assets,

subsidiaries is small and their net assets,

sales and fiscal year profit or loss

sales and fiscal year profit or loss (amount(amount corresponding to equity) andcorresponding to equity) and retained

retained earnings (amountearnings (amount corresponding tocorresponding to equity) are small in size

equity) are small in size and do not have aand do not have a material effect on thematerial effect on the consolidated

consolidated financial statements.

financial statements.

Two unconsolidated subsidiaries andTwo unconsolidated subsidiaries

application of equity

two affiliated companies (Active(Comsupply Co., Ltd. and Kanki

method accounting

Technology Corporation and Active Power

Maintenance Co., Ltd.) and two affiliatedCorporation) have been omitted fromcompanies (Active Technology

items to which equity method accounting

Corporation and Active Power

is applied because their respective effectCorporation) have been omitted fromon consolidated net income or loss anditems to which equity method accounting

consolidated capital surplus is immaterial

is applied because their respective effectand none of the companies is importanton consolidated net income or loss

to the company’s overall operations.

(Amount corresponding to minority
interest) and consolidated capital surplus(Amount corresponding to minority
interest) is immaterial and none of thecompanies is important to the company’s
overall operations.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 22

3. Matters pertaining tothefiscalclosing

date

year
for

The fiscal year-end for all of the

The fiscal year closing date for all of theconsolidated subsidiary companies is

consolidated subsidiaries except Kanki

August 31.

Corporation is August 31.

consolidated

When preparing the consolidated

When preparing the consolidated

subsidiaries

financial statements the Company usedfinancial statements the Company used

the subsidiaries’ financial statements as

the subsidiaries’ financial statements asof August 31, adjusted for significant

of August 31, adjusted for significant

transactions that occurred between thetransactions that occurred between thesubsidiaries’ fiscal year-end and thesubsidiaries’ fiscal year-end and theconsolidation date that have a material

consolidation date that have a material

effect on the consolidated financial

effect on the consolidated financial

results.

results.

4. Accounting principles
and standards used
for normal accounting
treatment(1) Appraisal standards
and appraisal
methods forprincipal assets

a. Negotiable securities
Other negotiable securities
Securities with a market pricea. Negotiable securities
Other negotiable securities
Securities with a market price

The Company has adopted the market

Same as at left

value method (the full amount of thevaluation difference is charged to equity
using

the

directtransfertocapitalmethod, with the disposal cost determinedby the moving average method) based on
the market price on the consolidated
accounting fiscal year closing date orsimilar prices
Securities without market prices
The Company has adopted the cost

Securities without market prices
Same as at left

method, cost being determined by the(2) Depreciation
methods forprincipal
depreciable assets

moving average method
b. Construction equipment
Amount after deduction of depreciation
expense calculated according to thedeclining-balance method from the original
prices, by separate fiscal year of purchasec. Merchandise inventories and supplies(i) Merchandise inventories
Lower of cost or market based on the
Last-in, First-out method(ii) Supplies
The Latest Purchase Cost method
a. Tangible fixed assets
The
Companyhasadoptedthedeclining-balance method. Buildings onland that is leased under a fixed-term landlease agreement, however, are depreciatedusing the straight-line method using theremaining period of the fixed-term lease as
the depreciable life and zero residual value.
For certain consolidated subsidiaries, theCompany has adopted the straight-line
method for buildings and structuresacquired on or after April 1, 2000 but
excluding fixtures and equipment.
The depreciable lives mainly used by theCompany are as follows.
Rental assets
5-10 years
Buildings
31-34 years

b. Construction equipment
Same as at left

c. Merchandise inventories and supplies(i) Merchandise inventories
Same as at left(ii) Supplies
Same as at left
a. Tangible fixed assets
Same as at left

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 23

b. Intangible fixed assets
Software for use within the Company isdepreciated

using

the

b. Intangible fixed assets
Same as at left

straight-line

method based on the assumed useful life(3) Accounting
standards forfor internal use (5 years)
a. Reserve for doubtful accounts
To provide for losses on doubtful

principal allowances

accounts such as accounts receivable,

and reserves

the Company charges to income ana. Reserve for doubtful accounts
Same as at left

amount based on actual loss experience
for normal accounts, plus an amount for
projected unrecoverable amounts basedon assessments of individual accounts.
b. Accrued bonuses to employees
To fully provide for expenditures ofbonusestheCompanywillpayb. Accrued bonuses to employees
Same as at leftto

employees, an amount is appropriated to
the reserve during the year based upon asalary estimate amountc. Accrued employees retirement benefit
The Company provides for employees’c. Accrued employees retirement benefit
Same as at left

accrued retirement benefits based upon
the projected amounts of the liability for
accrued employees retirement benefits
and the value of pension assets at theend of the consolidated accounting fiscal
year. At the end of each consolidated
accounting fiscal year, the Company
appropriates an amount to the reserve toprovide for the liability recognized during
the period. Past years’ service liabilities
are fully amortized in the year incurred.
The difference based on an actuarial
calculationischargedtoincomebeginning in the consolidated accounting
fiscal year following the year in which
incurred, with the amounts allocatedproportionately using the straight-line
method, based on a specified number ofyears (10 years) that is less than the
average remaining period of employment
for employees at the time the difference
arises.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 24

(Supplemental information)
On January 1, 2004 the Company
received approval from the Minister of
Health, Labour and Welfare for exemption
from

the

obligation

to

make

futurepayments for the entrusted portion of the
Employee

Welfareaccompanying

Pensionenforcement

Fund,
of

the

Defined Benefit Corporate Pension Law.
The Company has adopted the interim
measures prescribed in Paragraph 47-2 oftheBusiness

Guidelines

Concerning

Retirement Benefit Accounting (Interim
Report)concerning

entrusted

portion

Employeereturnof

Welfare

of

the

the

corporatePensionFund(Japanese Institute of Certified Public
Accountants,

Accounting

SystemCommittee Report No. 13), and on thedayauthorization

wasreceived

theCompany accounted for the retirement
benefit liability related to the entrusted
portion and the pension assets equivalent
tothereturnamountas

being

extinguished.
The Company accounted for the affects
on earnings accompanying this treatment
at the end of the consolidated fiscal
accounting year under review by booking
extraordinary income of ¥606,420,000.
The

returnedequivalentamount(minimum actuarial liability) measured asof the end of the consolidated accounting
fiscal

year

under

reviewwas¥1,296,434,000.
d. Retirement allowances to directors andauditors
The Company provides for retirement

d. Retirement allowances to directors andauditors
Same as at left

allowances to directors and auditors
based

upon

pertinent

appropriatedtoproportionately
consolidated

rules

the

and

account

at

the

end

fiscal

year

based

of

the
upon

length of service.
(4) Lease transactions

For finance lease transactions except forSame as at left

leases that transfer ownership of theproperty to the lessee, rent expenses are(5) Hedge accounting
for principal hedging
methods

charged to income as payments are made.
a. Hedge transactions
The Company accounts for hedge

a. Hedge transactions
Same as at lefttransactions using allocations based on
accounting

standards

forforeigncurrency-denominated transactions, andspecialruleaccounting

accounting
standards

based
for

on

financial

products.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 25

b. Hedge methods and hedged transactions
The Company uses currency swaps andb. Hedge methods and hedged transactions
Same as at left

forward transactions in order to avoid thecurrency fluctuation risk related to theCompany’s foreign currency-denominatedstraight bonds and liabilities for import
payments. The Company also uses interest
swaps to avoid interest rate fluctuation risk
related to interest on bank borrowing.
c. Hedging policies
The Company’s use of derivativec. Hedging policies
Same as at lefttransactions is limited to hedging risk
within the scope of the Company’s assets
and liabilities subject to market fluctuation
risk.
d. Method for evaluating the effectiveness of d. Method for evaluating the effectiveness ofhedgeshedgesThe Company does not evaluate theSame as at left
effectiveness of its hedge transactions
because it can assume that its currency
swap

transactions

andforwardtransactions will completely offset market
fluctuations or changes in cash flow from
the

time

hedge

begins

until

it

is

terminated. In addition, the Company’s
interest

swap

transactions

fulfilltherequirements for special rule accounting,and the Company has elected to use this in(6) Other material
matters pertaining
to preparation of theplace of an evaluation of effectiveness.
a. Accounting treatment of consumption tax
Accounting treatment of consumption tax

a. Accounting treatment of consumption tax
Same as at left

Consumption tax is taken out of all

consolidated

Statement of Income items and Balance

financial statements

Sheet items, except mainly for receivables
and payables.
b. Accounting standards for treasury stockand reversal of legal reserves
Beginning in the consolidated accounting──────

fiscal year under review, the Company has
adoptedthe

AccountingStandardforTreasury Stock and Reversal of Legal
Reserves (Corporate Accounting Standard
No. 1), which will be applied in Japan toconsolidated financial statements from theconsolidated accounting fiscal year thatbegins after April 1, 2002.
The

effectCompany’s

of

this

incomechangeonthestatement

for

the

consolidated accounting fiscal year underreview is not material.
Based on amendment of the provisions
concerning

consolidated

financialstatements,

theshareholders’equitysectiontheConsolidated

Balance

Sheets

of

and

the

StatementofConsolidated Retained Earned have been
prepared

using

the

amendedconsolidated balance sheet provisions.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 26

c. Per share information
Beginning in the consolidated fiscal──────

year under review, the Company has
adopted the Accounting Standard for
Earnings

Per

Share

(Corporate

Accounting Standard No. 2) and the
Implementation and the Implementation
Guidance for Accounting Standard for
Earnings

per

Share

(Corporate

Accounting Standards Implementation
Guidance No. 4), which will be applied in
Japan

to

consolidated

statements

from

the

financialconsolidated

accounting fiscal year that begins after
April 1, 2002. The effect of this change is
described

in

the

Note

Concerning

Information Per Share.
5. Valuation of

The Company has adopted the market

consolidated

value appraisal method for the evaluation

subsidiary assets

of assets and liabilities of consolidated

and liabilities

subsidiaries.

6. Amortization of the

The remainder is transferred to theconsolidation

consolidation

adjustment accountover five years using level amortization,account

andSame as at left

Same as at left

amortized

expect for extremely small amounts thatare written off completely in the year inwhich they occur.
7. Appropriation ofretained earnings

The

StatementofConsolidated

Same as at left

Retained Earnings is created based upon
the appropriation of net income decided
upon

by

the

Company

duringtheconsolidated accounting fiscal year.
8. Items included in cash

Funds included in cash (cash and cash

and equivalents onequivalents)

the Consolidated

Statement of Cash Flows include cash on

on

the

Statement of Cashhand, deposits that can be withdrawn on

Flowsdemand and highly liquid short-termSame as at left

Consolidated

investments that mature within threemonths of the date of acquisition andwhich can be easily converted into cash
and that have minimal risk of a change inprice.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 27

6. Notes to the Financial Statements(Notes to the Consolidated Balance Sheets)
Prior Consolidated Fiscal Year(As of October 31, 2003)
1. Total accumulated depreciation
for tangible fixed assets

42,361,092,000

2. Discount on notes receivable,
trade

−

3. Balance of notes
receivable-trade endorsed
4.

Current Consolidated Fiscal Year(As of October 31, 2004)

56,508,000

1. Total accumulated depreciation
for tangible fixed assets

41,979,902,000

2. Discount on notes receivable,
trade456,467,000

3. Balance of notes
receivable-trade endorsed

45,618,000

4. Notes and bills maturing at the end of the consolidated──────

fiscal year
Notes and bills maturing on the last day of theconsolidated fiscal year are settled and processed on
the note and bill clearing date. Because the last day of
the Company’s consolidated accounting fiscal year wasa financial institution holiday, notes and bills maturingon the final day of the following accounting fiscal year
are included in the consolidated accounting fiscal
year-end balance.

Total number of shares issued

1,059,945,000
30,253,241 shares(common stock)
6. Treasury stock

6. Treasury stock
Number of shares of treasury
byBills receivable
Total number of shares issued

30,253,241 shares(common stock)held

766,154,000

5. Common stock

5. Common stock

stock

Notes receivable

theCompany

Number of shares of treasury

384,417 sharesstock held by the Company(common stock)393,799 shares(common stock)

7. Items pertaining to non-consolidated subsidiaries and

7. Items pertaining to non-consolidated subsidiaries andaffiliated companies are as follows
Investment securities (stocks)

affiliated companies are as follows.

8.

8. Assets offered as collateral security
Buildings and structures

35,100,000

Land

197,434,000

Total

Investment securities (stocks)

163,646,000

60,000,000―――――――――

232,534,000

The assets shown above have been pledged ascollateral for ¥170,000,000 of short-term bankloans, ¥65,316,000 of long-term bank loans due
within one year and ¥70,000,000 of long-term bankloans.
９．Guarantees

９．Guarantees

Joint
and
severalguarantees of employee
bank
loans
(Bank
of
Tokyo-Mitsubishi, others)
Guarantee of debt for
long-term bank loan toaffiliated company(Active Power Co., Ltd.)(Mizuho Bank, Ltd.)
Total

20,902,000

Joint
and
severalguarantees of employee
bank
loans
(Bank
of
Tokyo-Mitsubishi, others)

25,669,000

269,500,000

Guarantee of debt for
long-term bank loan toaffiliated company(Active Power Co., Ltd.)(Mizuho Bank, Ltd.)269,500,000

290,402,000

Total

295,169,000

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 28

株

（Notes to the Consolidated Statements of Income）
Prior Consolidated Fiscal Year
(From November 1, 2002
to October 31, 2003)

Current Consolidated Fiscal Year
(From November 1, 2003
to October 31, 2004)

1. Major expense categories and amounts included in

1. Major expense categories and amounts included inselling, general and administrative expenses
Employeesalaries

and

wages
Depreciation expense

selling, general and administrative expenses

4,801,138,000
925,979,000

Rents
Transfer to allowance for
doubtful accounts
Transfer to accrued
bonuses to employees
Employees retirement
benefit expense
Transfer to retirement
allowances to directors andauditors
Amortization of
consolidation adjustment
account

1,435,256,000
332,086,000
440,369,000
544,652,000
1,962,000

61,057,000

Land

324,000

Machinery, equipment anddelivery equipment

41,000365,000

172,000
2,195,000

Rental equipment

18,215,000

Buildings and structures

44,936,000

equipmentdelivery equipment

and888,113,000

Depreciation expense
Rents
Transfer to allowance for
doubtful accounts
Transfer to accrued
bonuses to employees
Employees retirement
benefit expense
Transfer
toretirement
allowances to directors andauditors
Amortizationof
consolidation adjustment
account

1,453,865,000
331,332,000
442,825,000
427,675,000
10,396,000
−,000

Land
Machinery, equipment anddelivery equipment
Total

8,310,000
24,0008,334,000

Machinery,equipment

anddelivery equipmentLand

83,000309,000(Loss on retirement of fixed assets)(Loss on retirement of fixed assets)

Machinery,

4,703,521,000(Loss on sale of fixed assets)(Loss on sale of fixed assets)
Telephone subscription rights

and

3. Loss on sale or retirement of fixed assets.

3. Loss on sale or retirement of fixed assets.
Buildings and structuressalaries

wages

2. Gain on sale or retirement of fixed assets

2. Gain on sale or retirement of fixed assets

Total

Employee

2,913,000

Other

20,429,000

Total

88,863,000

20,915,000

Rental equipment

69,482,000

Buildings and structures
Machinery,equipmentdelivery equipment
Other
Total

and

5,895,000
1,138,000
97,824,000

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 29

（Notes to the Consolidated Statements of Cash Flows）
Prior Consolidated Fiscal Year
(From November 1, 2002
to October 31, 2003)

Current Consolidated Fiscal Year
(From November 1, 2003
to October 31, 2004)

1. Relationships between fiscal year-end balance for cash

1. Relationships between fiscal year-end balance for cash

and equivalents and amounts for items shown on theand equivalents and amounts for items shown on the

consolidated accounting fiscal year balance sheet

consolidated accounting fiscal year balance sheet

Cash and equivalents

2.

Cash and equivalents
11,742,173,000
Term deposits with a maturity−8,019,000
longer than 3 months
Items considered to be cash
11,734,154,000
and equivalents

11,928,637,000

Term deposits with a maturity
longer than 3 months−8,017,000

Items considered to be cash
and equivalents

11,920,620,000──────

2. Assets and liabilities of companies that became newly
consolidated companies as the result of purchases of theirstock.
The details of assets and liabilities and their relationship to
the

stock

purchase amountandexpenditures (netamount) for stock purchases at the start of consolidation
for newly consolidated companies as the result of purchaseof stock are as follows.
Kanki Corporation
Current assets

1,591,473,000

Fixed assets

760,065,000

Current liabilities−1,602,439,000

Long-term liabilities−1,232,023,000

Consolidation adjustment

570,824,000

Kanki Corporation
purchase priceKanki Corporation
cash and cash equivalents
Net: Amount expended toacquire3. Details of major non-cash transactions

Kanki Corporation

87,900,000−407,206,000−319,306,000

3. Details of major non-cash transactions

The amount of assets and liabilities related to

The amount of assets and liabilities related to

installment transactions that are newly accounted for

installment transactions that are newly accounted for

during this consolidated accounting fiscal year isduring this consolidated accounting fiscal year is¥2,548,392,000 respectively.

¥763,664,000 respectively.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 30

(Business Segment Information)
1. Segment Information by Type of BusinessPrior consolidated accounting fiscal year (From November 1, 2002 to October 31, 2003)(Unit: Thousands of yen)
Construction
equipment
rentalbusiness

Steel sales
business

Information
products
businessand otherbusinesses

56,395,818

6,373,971

916,494−−

Eliminations
or entirecompany

Consolidated

63,686,284−

63,686,284

−

−

−

−

Total

I. Revenues and operating
incomeRevenues(1) Sales to outside
customers(2) Sales or transfers
between related segments
Total

56,395,818

6,373,971

916,494

63,686,284−

63,686,284

Operating expenses

54,190,370

6,379,114

891,738

61,461,223-82,603

61,378,619

Operating income

2,205,447△5,14224,7552,225,061

82,6032,307,665

Assets65,282,946

2,775,383

1,066,994

69,125,324

19,884,798

89,010,122

Depreciation expense

6,471,681

5,339

10,2906,487,311

163,349

6,650,660

Capital disbursements

3,842,592

66,476

13,1973,922,266

477,971

4,400,238

II. Assets, depreciation
expense and capital
disbursements(Notes) 1. Method of business classification
Businesses are classified based on consideration of similarities such as the type of labor and products, thenature of the business and the business markets.
2. Principal products, by business
Principal products

Business
Construction equipment
rentals
Steel sales
Information products
and other businesses

Construction equipment such as hydraulic shovels, generators, temporary
construction materials, construction safety equipment, temporary modular
housing units, special rustproof and waterproof shields
Steel bar, sheet steel, steel products such as round bar, steel scrap
Computers and peripheral devices, telecommunications-related equipment,
microturbine generators, microbrewery

3. The total amount for assets that were eliminated or included in the categories for all companies was¥19,884,798,000 and represents primarily idle working capital (cash, deposits and negotiable securities)
long-term investment funds (investment securities) and assets used in administrative departments at theparent company.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 31

Consolidated fiscal year under review (From November 1, 2003 to October 31, 2004)(Unit: Thousands of yen)
Construction
equipment
rentalbusiness

Steel sales
business

Information
products
businessand otherbusinesses

Revenues(1) Sales to outside
customers(2) Sales or transfers
between related segments

54,823,199

6,058,708

454,349

−

−

Total

54,823,199

Operating expenses
Operating income

Eliminations
or entirecompany

Consolidated

61,336,258−

61,336,258

−

−

−

−

6,058,708

454,349

61,336,258−

61,336,258

53,142,297

6,013,546

454,178

59,610,022-152,432

59,457,590

1,680,902

45,161171

1,726,235

152,432

1,878,668

Assets

63,774,468

3,323,411

1,024,692

68,122,572

21,201,152

89,323,725

Depreciation expense

5,060,057

4,899

9,106

5,074,064

220,681

5,294,745

Capital disbursements

2,609,293

2,219

269

2,611,782

1,798,989

4,410,771

Total

I. Revenues and operating
incomeII. Assets, depreciation
expense and capital
disbursements(Notes) 1. Method of business classification
Businesses are classified based on consideration of similarities such as the type of labor and products, thenature of the business and the business markets.
2. Principal products, by businessBusiness

Principal products

Construction equipment
rentals
Steel sales
Information products
and other businesses

Construction equipment such as hydraulic shovels, generators, temporary
construction materials, construction safety equipment, temporary modular
housing units, special rustproof and waterproof shields
Steel bar, sheet steel, steel products such as round bar, steel scrap
Computers and peripheral devices, telecommunications-related equipment,
microturbine generators

3. The total amount for assets that were eliminated or included in the categories for all companies was¥21,201,152,000 and represents primarily idle working capital (cash, deposits and negotiable securities)
long-term investment funds (investment securities) and assets used in administrative departments at theparent company.

2. Segment information by location
The Company does not report segment information by location because the Company did not have any
consolidated subsidiaries or important offices located in countries or regions outside of Japan during the priorconsolidated fiscal year and the current consolidated fiscal year.

3. Foreign sales
The Company did not have any foreign sales during the prior consolidated fiscal year and the current consolidated
fiscal year.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 32

(Notes for Leasing Transactions)
Prior Consolidated Fiscal Year
(From November 1, 2002
to October 31, 2003)

Current Consolidated Fiscal Year
(From November 1, 2003
to October 31, 2004)

1. Finance lease transactions except for leases that

1. Finance lease transactions except for leases thattransfer ownership of the property to the lessee.

transfer ownership of the property to the lessee.

(1)

(1)

Amounts

corresponding

to

lease

property

Amounts

corresponding

to

lease

propertyacquisition price, accumulated depreciation andacquisition price, accumulated depreciation andoutstanding balances at the end of the consolidated

outstanding balances at the end of the consolidated

fiscal year accounting period.

fiscal year accounting period.

Acquisition
price（¥’000）

Accumulated Outstanding
depreciation
balance（¥’000）（¥’000）Rental assets

28,088,694

7,343,977 20,744,717

Other assets

555,869

Total

28,644,564

255,092

300,7777,599,069 21,045,494

Acquisition
price（¥’000）

Accumulated Outstanding
depreciation
balance（¥’000）（¥’000）Rental assets

32,088,419

10,492,130 21,596,289

Other assets

435,397

Total

32,523,817

228,409

206,988

10,720,539 21,803,278(2) Outstanding balance of future lease payments at(2) Outstanding balance of future lease payments at

the end of the consolidated accounting fiscal year

the end of the consolidated accounting fiscal year

Within one year

4,927,999,000

Within one year

5,450,340,000

After one year

16,287,547,000

After one year

15,748,713,000

21,215,546,000

Total(3) Amount of lease payments, depreciation expense
and interest expense

21,199,054,000

Total(3) Amount of lease payments, depreciation expense
and interest expense

Lease payments

5,625,507,000

Lease payments

6,015,002,000

Depreciation expense

5,034,577,000

Depreciation expense

5,633,557,000

687,650,000

Interest expense(4) Accounting method for amount equivalent todepreciation expense

Interest expense

777,925,000(4) Accounting method for amount equivalent todepreciation expense

Straight-line depreciation using the lease term as

Same as at left

the depreciable life and zero residual value.
(5) Accounting method for amount equivalent tointerest expense(5) Accounting method for amount equivalent tointerest expense

Interest method using the difference between total

Same as at left

lease payments and the acquisition price of thelease property, allocated to each year.
2. Operating leases

2. Operating leases

Future lease payments

Future lease payments

Within one year

1,793,079,000

Within one year

1,869,826,000

After one year

3,238,604,000

After one year

3,603,704,000

Total

5,031,683,000

Total

5,473,531,000

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 33

(Transactions with Affiliated Companies)
Prior consolidated accounting fiscal year (From November 1, 2002 to October 31, 2003)
Directors and major shareholders, etc.
Category

Name

Address

CapitalBusiness or occupation

Ownership percentage ofvoting rights, etc.

Director

TaichuKanamoto

Shibuya-ku,
Tokyo

−

Chairman,
Kanamoto Co., Ltd.

Direct 5.0%

Details oftransaction

Transaction amount

Item

FY-end balanceLand purchase¥5,678,000--

Related matters
Concurrent
Business
Director
relationshippost, etc.
-

(Note) Transaction terms and conditions or policy for deciding transaction terms and conditions
The land purchase price was determined based on the appraised price and the terms of payment werelump-sum payment in cash.

Current consolidated accounting fiscal year (From November 1, 2003 to October 31, 2004)
The Company had no material items to report.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 34

（Notes Related to Tax Effect Accounting）
Prior Consolidated Fiscal Year
(From November 1, 2002
to October 31, 2003)

Current Consolidated Fiscal Year
(From November 1, 2003
to October 31, 2004)

1. Principal items accounted for as deferred tax assets and1. Principal items accounted for as deferred tax assets anddeferred tax liabilities

deferred tax liabilities

Deferred tax assets

Deferred tax assets

Amount in excess of limit forinclusion

242,551,000

Amount in excess of limit forinclusion

556,404,000

Disallowance of deferred business
taxes

51,852,000

Disallowance of deferredbusiness taxes

24,011,000

Excess accrued employees
retirement benefit

729,123,000

Excess accrued employees
retirement benefit

495,646,000

Amount in excess of limit for
retirement benefit

79,625,000

Amount in excess of limit for
retirement benefit

38,804,000

Amount in excess of limit for
accrued bonuses to employees
Disallowance of excess
depreciation
Amount of loss carried forward
Other

154,478,000

Amount in excess of limit for
accrued bonuses to employees
Disallowance of excess
depreciation
Amount of loss carried forward

220,060,000

Other

146,397,000
414,445,000

191,844,000
368,263,000
1,240,912,000
329,388,000

Deferred tax asset subtotal

2,038,534,000

Deferred tax asset subtotal

3,245,275,000

Valuation reserve-144,868,000

Valuation reserve-1,608,037,000

Total deferred tax assets

1,893,666,000

Total deferred tax assets

1,637,238,000

Deferred tax liability
Valuation difference on othernegotiable securities
Total deferred tax liability
Net amount of deferred tax assets
Disclosure item: Current assets
Fixed assets

249,072,000

Deferred tax liability
Valuation difference on othernegotiable securities

249,072,000

Total deferred tax liability

1,644,594,000

Net amount of deferred tax assets

261,196,000

Disclosure item: Current assets
Fixed assets

1,383,397,000

474,149,000
474,149,000
1,163,088,000
252,069,000
911,019,000

2. Causes of principal differences between the statutory

2. Causes of principal differences between the statutory

tax rate and burden ratio for corporate and other taxes

tax rate and burden ratio for corporate and other taxes

following application of tax effect accounting by major

following application of tax effect accounting by major

category.

category.

Statutory corporate tax rate

41.7％

（Adjustment）

Statutory corporate tax rate

41.7％

（Adjustment）

Local tax equalization
Items not included permanently in
losses such as expense accountConsolidated subsidiary losses
Valuation loss on investment inconsolidated companies
Other
Burden ratio for corporate and othertaxes after application of tax effectaccounting

4.5％
1.4％
2.6％
1.3％
0.8％
52.3％

Local tax equalization
Items not included permanently in
losses such as expense accountConsolidated subsidiary losses
Valuation loss on investment inconsolidated companies
Other
Burden ratio for corporate and othertaxes after application of tax effectaccounting

4.1％
1.4％
3.3％
0.2％
-1.2％
49.5％

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 35

3. The statutory corporate tax rate used in the calculation3.

──────

of deferred tax assets and deferred tax liabilities forthe consolidated accounting fiscal year under review
was changed from 41.7% in the prior fiscal year to40.4% with the promulgation of the Law to Partially
Amend the Local Tax Law (Law No. 9 of 2003) on
March

31,

2003

(However,theamendment

is

expected to be annulled after November 1, 2004). As aresult, the total amount of deferred tax assets (theamountafter

deductingdeferredtax

liabilities)

decreased by ¥23,594,000, and the adjustment forcorporate and other taxes and the valuation difference
for

other

negotiablesecurities

increasedby¥31,608,000 and ¥8,014,000, respectively, compared
to what they otherwise would have been had thestatutory corporate tax rate used in previous periods
been applied.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 36

（Notes related to negotiable securities）
Negotiable securities
1. Other negotiable securities with market prices(Unit: Thousands of yen)

Prior consolidated accounting
fiscal year
(As of October 31, 2003)
Type(1) Stock

Current consolidated accounting
fiscal year
(As of October 31, 2004)

Acquisition
price

Amountreported ontheconsolidatedbalance sheet

Valuation
profit orloss

Acquisition
price

Amountreported ontheconsolidatedbalance sheet

Valuation
profit or
loss

1,129,925

1,845,514

715,589

1,129,650

2,351,587

1,221,936

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

−

29,97044,013

14,043

1,129,925

1,845,514

715,589

1,159,620

2,395,600

1,235,979

146,306

123,543-22,762

140,412

119,330-21,082(2) Bonds

Negotiablesecurities
whose balanceon theconsolidatedbalance sheet
exceeds theacquisition
price

a.

Governmenb. Corporate
bondsc. Other(3) Othernegotiablesecurities
Subtotal(1) Stock(2) Bonds

Negotiablesecurities
whose balanceon theconsolidatedbalance sheet
is less than theacquisition
price

a.

Governmenb. Corporate
bondsc. Other

−

−

−

−

−

−

56,94555,093-1,852

−

−

−

−

−

−

−

−

−

(3) Othernegotiablesecurities

1,114,308

1,039,849-74,459

968,278

924,350-43,928

Subtotal

1,317,560

1,218,485-99,074

1,108,690

1,043,680-65,0102,447,485

3,064,000

616,5142,268,311

3,439,280

1,170,969

Total

2. Other negotiable securities sold during the prior consolidated accounting fiscal(Unit: Thousands of yen)year and the current consolidated accounting fiscal year
Prior Consolidated Fiscal Year
(From November 1, 2002 to October 31, 2003)

Current Consolidated Fiscal Year
(From November 1, 2003 to October 31, 2004)

Selling amount

Total gain on sale

Total loss on sale

Selling amount

Total gain on sale

Total loss on sale

1,924,477

152,482

17,581

1,186,260

66,04918,787

3. Details of other negotiable securities that do not have a market value(Unit: Thousands of yen)
Prior consolidated accounting
fiscal year
(As of October 31, 2003)
Amount shown on the consolidatedbalance sheet

Type

Current consolidated accounting
fiscal year
(As of October 31, 2004)
Amount shown on the consolidatedbalance sheet

Other negotiable securities
Unlisted stocks (excluding
over-the-counter stocks)

383,700

361,189

Unlisted foreign bonds−−

Corporate bonds with warrants
for new stock−−

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 37

4. Planned future redemption amounts of other securities that have a maturity date
(Unit: Thousands of yen)
Prior consolidated accounting fiscal year
(As of October 31, 2003)
Type
Withinone year
1. Bonds
a. Government
bonds
b. Corporate bondsc. Other
2. Other securities
Total

After one After five
years
year andwithin five within ten
years
years

Current consolidated accounting fiscal year
(As of October 31, 2004)

After tenyears

Withinone year

After one After five
years
year andwithin five within ten
years
years

After ten
years

−

−

−

−

−

−

−

−

23,36831,725

−

−

−

−

−

−

−

−

−

−

−

−

−

−

15,824−894,330

38,172−−

924,350

44,01339,192

31,725894,330

38,172−−

924,350

44,013

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 38

（Notes related to Derivative Transactions）
1. Notes related to transaction conditions
Prior Consolidated Fiscal Year
(From November 1, 2002 to October 31, 2003)
a. Contents and purpose of derivative transactions

Current Consolidated Fiscal Year
(From November 1, 2003 to October 31, 2004)
a. Contents and purpose of derivative transactions

The Kanamoto Group uses forward exchange

Same as at left

agreements and currency swap transactions for
specified foreign currency-denominated assets andliabilities to avoid the risk of future exchange rates
fluctuations in currency markets related to its foreign
currency-denominated assets and liabilities.
The Company also uses interest swaps to limit withina specific range the affect any future increase inmarket interest rates will have on payments of intereston the Company’s floating rate loans. The Company
accounts for derivative transactions using hedge
accounting principles.
Hedge accounting methods
The Company accounts for hedge transactions
using allocations based on accounting standards
for foreign currency-denominated transactions,and special rule accounting based on accounting
standards for financial products.
Hedge methods and hedged transactions
Hedge methods
Currency swaps, forward exchange agreements
and interest swaps
Hedged transactions
Foreign currency-denominated straight bonds,
import payment liabilities and loans
Hedging policy
The Company’s use of derivative transactions islimited hedging risk within the scope of theCompany’s assets and liabilities subject to market
fluctuation risk.
Method for evaluating the effectiveness of hedges
The

Companydoes

notevaluatetheeffectiveness of its hedge transactions because it
can assume its currency swap transactions andforward transactions will completely offset market
fluctuations or changes in cash flow from the time
the hedge begins until it is terminated. In
addition,theCompany’s

interest

swap

transactions fulfill the requirements for special
rule accounting, and the Company has elected touse this in place of an evaluation of effectiveness.
b. Transaction matching policy
The Kanamoto Group has adopted a policy of usingb. Transaction matching policy
Same as at leftderivative transactions only to avoid the risks to its
assets and liabilities exposed to market fluctuation
risk. The Company’s policy is to not use derivativetransactions to earn short-term trading gains or for
speculative purposes.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 39

c. Transaction-related risksc. Transaction-related risks

Derivative transactions present market risk relatedSame as at left

to fluctuations in the market prices of the commodity
subject to the transactions and credit risk related to
non-performances of the agreements by customers.
The foreign currency-related forward agreements
used by the Kanamoto Group present risk fromcurrency market fluctuations, and the interest swaps
used by the Kanamoto Group present risk fromchanges in market interest rates.
The Company believes it faces minimal credit risk
because the counterparties to the Kanamoto Group’s
derivative transactions are always domestic banks or
securities firms with excellent creditworthiness.

d. Transaction risk management system
The Company’s basic policy concerningderivative transactions is determined by the Boardof Directors, and the manager responsible forfinance section in the Accounting Division executesand manages the transactions based on internalmanagement guidelines. The chief financial officer
reports on the Company’s financial affairs,
including all derivative transactions, at the regularmeetings of the Board of Directors.
e. Supplemental explanation of matters related totransaction market prices
Forward agreements and currency swap
transactions accounted for on the Company’s
financial statements through conversion of therelevant foreign currency-denominated money
claims and money liabilities by being appropriatedto foreign currency-denominated claims or
liabilities or other accounts at the end of theconsolidated fiscal year are excluded fromtransactions for which market prices are disclosed.

d. Transaction risk management system
Same as at left

e. Supplemental explanation of matters related totransaction market prices
Same as at left

2. Notes related to transaction market prices etc.
Prior consolidated accounting fiscal year (As of October 31, 2003)
The Company had no material items to report.
Current consolidated accounting fiscal year (As of October 31, 2004)
The Company had no material items to report.

（Notes related to accrued employees retirement benefit）
1. Summary of the employees retirement benefit system adopted by the Company
The Company and its consolidated subsidiaries have established a pension fund system and a retirement
lump-sum benefit system as a defined benefit plan. In addition, when an employee retires or leaves the Company,
in some cases the Company pays an additional retirement amount that is not covered by the reserve for accrued
employees retirement benefit when using actuarial accounting based on retirement benefit accounting.
On January 1, 2004 the Company received approval from the Minister of Health, Labour and Welfare for
exemption from the obligation to make future payments for the entrusted portion of the Employee Welfare
Pension Fund

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 40

2. Details of the Company’s liability for accrued employees retirement benefit(Unit: Thousands of yen)
Prior Consolidated Accounting
Fiscal Year(As of October 31, 2003)

Current Consolidated Accounting
Fiscal Year(As of October 31, 2004)(1) Liability for accrued employees retirement
benefit-6,204,505-4,698,071(2) Pension assets

3,385,495

2,504,295(3) Liability for unreserved accrued employees
retirement benefit (1) ＋(2)-2,819,009-2,193,776(4) Unamortized amount of the one-time valuationdifference for change in accounting standards−−

1,041,695

964,947(6) Unrecognized past years’ service obligation(reduction in liability)−−(7) Net liability shown on the consolidated balance
sheet (3)＋(4)＋(5)＋(6)-1,777,314-1,228,829−−-1,777,314-1,228,829(5) Unrecognized actuarial differences(8) Prepaid pension expense(9) Accrued employees retirement benefit (7)−(8)(Note)

1. The Company’s consolidated companies have adopted the simple method for calculating the accrued
employees’ retirement benefit.
2. The Company has adopted the interim measures prescribed in Paragraph 47-2 of the Business Guidelines
Concerning Retirement Benefit Accounting (Interim Report) concerning return of the entrusted portion of thecorporate Employee Welfare Pension Fund (Japanese Institute of Certified Public Accountants, Accounting
System Committee Report No. 13), and on the day authorization was received the Company accounted forthe retirement benefit liability related to the entrusted portion and the pension assets equivalent to thereturn amount as being extinguished. The returned equivalent amount (minimum actuarial liability)
measured as of the end of the consolidated accounting fiscal year under review was ¥1,296,434,000.

3. Details of accrued employees retirement benefit expense
Prior Consolidated
Accounting Fiscal Year
(From November 1, 2002 to
October 31, 2003)(Unit: Yen thousands)
Current Consolidated
Accounting Fiscal Year
(From November 1, 2003 to
October 31, 2004)(1) Service costs

412,493

328,382(2) Interest costs

159,633

107,677(3) Expected return on plan investments（reduction）

116,437

89,914(4) Write-off of past years’ service liability
expense−−(5) Write-off of expense for actuarial based
difference

79,85881,473(6) Amount of one-time valuation difference
for change in accounting standards charged as
an expense−−

535,547

427,618−

606,420535,547

178,802(7) Employees retirement benefit expense(8) Gain on return of entrusted portion of corporate
Employee Welfare Pension Fund

TOTAL

Note: The employees retirement benefit expenses at consolidated subsidiary companies that have adopted
the simple method are included in service costs.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 41

4. Matters related to the basis for accounting for the accrued employees retirement
benefit and other items
Prior Consolidated Accounting
Fiscal Year(As of October 31, 2002)

Current Consolidated Accounting
Fiscal Year(As of October 31, 2003)

2.50%

2.00%

(1) Discount rate(2) Expected
investments

rate

of

return

on

plan

4.00%

4.00%

(3) Method of allocating projected benefits toperiods of service

Service period fixed
benefit basis

Service period fixed
benefit basis(4) Amortization period of past years’ service
liability

−

−

(5)
Amortizationdifferences

periodfor

actuarial

10 years beginning from the next 10 years beginning from the next
consolidated accounting fiscal year consolidated accounting fiscal year(6) Number of years for amortization of
one-time valuation difference for change inaccounting standards−−

Prior Consolidated Accounting
Fiscal Year
(From November 1, 2002
To October 31, 2003)

Current Consolidated
Accounting Fiscal Year
(From November 1, 2003
To October 31, 2004)(Per share information)
PeriodCategory
Net assets per share¥1,068.25¥1,096.42¥29.96¥36.50¥27.11−

Net income per share of common stock
Net income per share of common stock after
adjustment for potential ordinary shares(Supplemental information)
Beginning in the consolidated

net income per share of common

fiscal year, the Company has

stock

adoptedpotential

the

Accounting

The Company has not reported
after

adjustment
ordinaryforsharesStandard for Earnings Per Sharebecause it does not have any(Corporate Accounting Standard

potential shares that would haveNo. 2) and the Implementationa dilution effect.

Guidancefor

AccountingStandard for Earnings per Share(Corporate

AccountingStandards

Implementation

Guidance No. 4). The earnings
per share when the accounting
standard

andtheimplementation

guidanceareapplied to the prior consolidated
fiscal year are as follows.
（Prior consolidated fiscal year）
Net assets per share¥1,033.04
Net income per share of common
stock¥39.43
Net income per share of common
stock after adjustment forpotential ordinary shares¥30.33

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 42

(Note) The basis for calculating consolidated fiscal year earnings per share is as follows.
PeriodCategory

Prior Consolidated Accounting
Fiscal Year
(From November 1, 2002
To October 31, 2003)

Current Consolidated
Accounting Fiscal Year
(From November 1, 2003
To October 31, 2004)

913,875

1,097,439

14,1007,300

899,775

1,090,139

30,030,383

29,865,301

13,961−(13,961)−

3,677,771−

Net income per share of common stock
Net income（¥,000）
Amount not attributed to common stock
shareholders (¥ ‘000)
Net income related to common stock(¥ ‘000)
Average number of outstanding shares
during the fiscal year
Net income per share of common stock after
adjustment for potential ordinary sharesFiscal year net income adjustment(Interest expense [Tax equivalentdeduction amount])
Change in number of shares of common
stock (shares)(Convertible bonds)(3,677,771)

Summary of latent stock not included in thecalculation of interim period (fiscal year)
earnings per share on a fully diluted basis
because it does not have a dilution effectWarrants based on the provisionsof Article 280-19 of the old
Commercial Code (incentive stock
options)−
Same as at left

(Material events after the close of the consolidated fiscal year)
The Company had no material items to report.

Summary of Consolidated Fiscal Year Financial Statements, FY Ended October 31, 2004

P. 43