2004/11 06.6.5 1:15 PM ページ 1

Mission Statement

FinancForty years of continually challenging the potential of the construction
equipment rental business.
Always striving to achieve the highest level of service.
Rental re

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

Operatin
Net inco
Total sha
Total asse

Per shar
Net incoCash divi
Note: U.S. d

For purposes of this report, the Balance Sheets andStatements of Income were created using financial dataprepared according to Japan’s Securities Report guidelines,
and adjusted to conform to U.S. SEC reporting standards.

CONTENTS
1 Mission Statement
2 Financial Highlights
3 A Message from the President
4 Our New Tactics
5 Operating Division Guidance
7 The Kanamoto Advantage
10 Corporate History - Forty Years of Kanamoto Evolution and
Growth13 Kanamoto's Environmental Efforts
15 Corporate Data
17 Branch Network

1

Kanamoto Annual Report 2003

18 Financial Section
19 Report of Operating Results and Financial Position for the39th Business Period
23 Consolidated Balance Sheets
25 Consolidated Statements of Income
26 Consolidated Statements of Cash Flows
27 Consolidated Statements of Shareholders' Equity
28 Notes to Consolidated Financial Statements
35 Non-consolidated Balance Sheets
37 Non-consolidated Statements of Income
38 Non-consolidated Statements of Shareholders' Equity
39 Notes to Non-consolidated Financial Statements
41 Report of the Audit Committee
42 Board of Directors

Net Inco
2,000

1,500

1,000

500

0

2004/11 06.6.5 1:15 PM ページ 2

Financial Highlights (Non-Consolidated)

Millions of yen

Rental revenues and sales of goods

PercentchangeThousands of
U.S. dollars

2002

2003

(2002・2003)

2003¥ 60,606¥ 60,494-0.2$ 556,013

2,255

2,350

+4.2

21,605

Operating income
Net income

1,134

953

-15.9

8,768

Total shareholders' equity

31,35632,004+2.0

294,160

Total assets

96,717

87,627-9.3

805,399

PercentchangeYen

U.S. dollars

Per share of common stock
Net income

37.49

31.30

-16.5

$ 0.29Cash dividends

18.00

18.00

00.0

0.17

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥ 108.8=US $1, the approximate exchange rate on October 31, 2003.

Net Income

Total Assets(Millions of yen)

2,000

Total Shareholder's Equity(Millions of yen)

120,000

Cash Flow(Millions of yen)

35,00030,000100,000
1,500(Millions of yen)

12,00010,00025,00080,0008,000
20,0001,000

60,0006,000
15,00040,0004,000
10,000500
20,000

0

0

0
'99

'00

'01

'02

'03

2,000

5,000

'99

'00

'01

'02

'03

0
'99

'00

'01

'02

'03

'99

'00

'01

'02

'03

Kanamoto Annual Report 2003

2

2004/11 06.6.5 1:16 PM ページ 3

A Message from the President

Our NeDevoting our total efforts to building a strong company adapted to today’s
rapidly evolving business environment.

The n

F

ounded in 1964, today Kanamoto has reached a turning point in its history as we begin our 40th year of solid
business achievement.
Kanamoto was launched from a single retail establishment founded to sell steel products. As the Company grew,
it expanded by entering the construction equipment rental industry, at that time still a niche industry but one
whose tremendous future potential we were quick to realize. Kanamoto grew rapidly as a result, establishing astrong market position during the tremendous rise in domestic construction investment during Japan’s highgrowth years. The Company listed its stock on the Sapporo Stock Exchange in 1991 and on the Tokyo Stock
Exchange Second Section in 1996, and in 1998 Kanamoto’s shares were elevated to the Tokyo Stock ExchangeFirst Section. Over these years, we expanded successfully to become Japan’s leading construction equipment
rental company.

On behalf of the Company, I wish to express my sincere appreciation to Kanamoto’s customers, business
partners, shareholders, managers and employees throughout Japan for your continued support.
Looking back over these 40 years, the character of the construction equipment rental industry has beentransformed decade by decade, as Japan’s economy evolved from the high economic growth period, through theyears of the asset-inflation bubble economy and its collapse, and into an era of economic globalization. Today theenvironment surrounding our Company is extremely challenging, notably the intensified competition to obtaincustomers and falling rental unit prices as the volume of public works construction declines.
As its principal objective over the years, Kanamoto has sought to provide excellent, uniform service tocustomers throughout Japan. We have devoted our efforts to improving the level of customer satisfaction by
aggressively expanding our business base, through efforts such opening new sales branches and forming the
Kanamoto alliance group.

In today’s market, where users’ needs are evolving at a rapid-fire pace, the ideal approach to best service ischanging daily. Kanamoto will stay abreast of the latest market trends, and continue to offer its customers thehigh-quality services they’ve come to expect only from Kanamoto.
Since November 2001, Kanamoto has been implementing the “Kanamoto Survival Plan,” a medium-term
management plan whose main objective is reducing costs. Because we have achieved most of our initial
objectives and continue to improve in-house systems throughout the Company, in the new fiscal year we havealso begun executing “Metamorphose,” Kanamoto’s new long-range management plan whose key objective is abold new effort to strengthen the Construction Equipment Rental Division’s operating systems.
“Metamorphose,” a term from biological science, means “transformation and casting off the old.”
The primary objective of “Metamorphose” is to transform Kanamoto into a company that can thrive robustly
under a changing environment, by having every employee zealously work to strengthen the Company’s
management base and improve and expand earnings.
I look forward to all of us working together with renewed vigor and support in the future.

In itsoperatKanam
objectia) Earni
KanamoMoreovemissio
introduwhich requipmeb) Exec
Current
remaini
office lo
addition
the Cometropc) Build
By takin
thoroug
construcharacte
which Kd) Pursu
Kanamodevelopregion. T
Kanamoare congroup rorganica
Japan.
■ Shift fr
Kanam
38th

The medium
plan "Kanam

Period fo
revise thi

Kanchu Kanamoto
President and Chief Executive Officer

3

Kanamoto Annual Report 2003

2004/11 06.6.5 1:16 PM ページ 4

Our New Tactics

The new long-range management plan "Metamorphose"
In its new long-range management plan "Metamorphose", Kanamoto will focus on enhancing
operating systems in the Construction Equipment Rental Division, the core business ofKanamoto and the Kanamoto group.To accomplish this plan we have established 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 replacement of its rental assets with the latest
emissions-controlled models designed to reduce pollution, during the plan period the Company will limit
introductions 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-scale construction
equipment and inexpensive rental assets, however, which boast high profit margins.
b) Execute a bold scrap and build program
Currently, Hokkaido accounts for 41% of Kanamoto’ s total revenues by region, with Honshu accounting for theremaining 59%. 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%. In
addition to taking bolder measures to close and scale back the number of unprofitable branches in particular,
the Company will concentrate on establishing lightly-equipped branches centered particularly in the Tokyo
metropolitan area.
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, including new models and new construction methods, and capture regional
construction projects. The Company will continue to reconfigure its asset composition to best suit the regional
characteristics of each branch office, independently and autonomously of the others, to create a position inwhich Kanamoto’ s presence is indispensable for its customers’ operations.
d) Pursue Kanamoto’s alliance strategy
Kanamoto is presently pursuing its approach of building a Kanamoto alliance group, which the Company has
developed in western Japan and used to produce tangible results in market share growth in the corresponding
region. The Company will introduce the technique in other marketing areas as well. By using this approach
Kanamoto has strengthened corporate cooperation as the Kanamoto group, regardless of whether its partners
are consolidated or non-consolidated companies, and improved synergistic effects. Although the Kanamotogroup reaches from Hokkaido to Okinawa when all alliance firms are included, each business base is linked
organically to form a unified entity capable of providing the same quality of products and services throughout
Japan.
■ Shift from medium-term management plan to
Kanamoto's new long-range five-year management plan
38th

39th

40th

41th

42th

43th

44th

The new long-range management plan
"Metamorphose"
The medium-term management
plan "Kanamoto Survival Plan,"
Period of renewed growth
Period for rebuilding sales
and marketing organization
Period for employees torevise thinking and attitudes

Kanamoto's Directors

Kanamoto Annual Report 2003

4

2004/11 06.6.5 1:16 PM ページ 5

Operating Division GuidanceConstruction site convenience and management savings.
Maximizing user benefits.

Today
Alway

Kanamoto conducts its primary business activity – the rental and sale of construction machinery and equipment– through its Construction Equipment Rental Division.
The principal benefit for construction companies that actively utilize rental equipment is the ability to secure“the right equipment, at the right time, in the right quantity.”

Since befields th
expandeintegrat

Construction Equipment Rental Division
A full product line-up with more than 400,000 pieces of rental machinery and equipment
Kanamoto’s mission is to be ready with all of the equipment a user requires at a construction site. Whateverproducts our customers need, we can instantly check the status of our inventory from Kanamoto’s rental asset
group using the online network linking all of our branches. Knowing the operating or maintenance condition of
every piece of equipment in our rental inventory enables us to offer services that rapidly and accurately
respond to each user’s needs.
A branch network stretching across JapanThe Kanamoto branch network can respond to customer orders throughout Japan. Over the last few years,
we’ve concentrated on opening branch offices in the Tokyo metropolitan area where demand is strong, andearned a solid reputation with customers in the Kanto Region. And through its alliances with leading local
companies in Kyushu and Okinawa, Kanamoto provides efficient services to construction firms in these areas as
well.
A complete compensation system for customer peace of mind
At Kanamoto we insure all of our rental equipment against any type of accident, in order to cope with
unforeseen emergencies. Kanamoto’s comprehensive indemnity system provides coverage and reduces users’
responsibility for monetary compensation due to an unforeseen accident.
What’s more, we strive to ensure our presence as our customers’ business partner is indispensable, byintroducing new products and proposing the latest operating solutions in response to firms’ evolving needs.
A business partner that fulfills customers’ trust
Every Kanamoto sales office throughout Japan has a storage yard and repair and maintenance facilities, staffedby members of our team of nearly 400 full-time maintenance technicians. Altogether Kanamoto has nearly 1,600
qualified maintenance staff, each of whom holds an average of four maintenance qualifications. To offer theservices customers have come to rely on for safe operating performance, at Kanamoto we continually strive toimprove our maintenance capabilities.

Fiscal 2003 operating results

5（Millions of Yen）

Stee
KanamoSales B
the foubusinesswheresteel pland stru
ties, Ka
customThe Steof bothdivisionwherebusiness
Rental D

Info
KanamoEquipmdivisioncomputtheir timthat wis
date teauthoriz
Sun Mic
U.S. In a
as varidiversifi
computproposesolution

Fiscal 200

Rental revenues

39,234

Rental r

Sales revenues

13,970

Sales rev

Division total

53,204

Division

Kanamoto Annual Report 2003

2004/11 06.6.5 1:16 PM ページ 6

Today’s changes are Kanamoto’s driving force.
Always in step with our customers.
Since being founded 40 years ago, Kanamoto has never stopped challenging itself. By advancing into emerging
fields that address the demands of each new era, while steadily pushing into growing sectors, Kanamoto has
expanded beyond being just an equipment rental company and developed into a firm that can provide
integrated solutions.

Steel Sales Division
Kanamoto ― born in the “iron city”, Muroran. The SteelSales Business Division was our first operating division,
the foundation on which Kanamoto was built. The main
business area for the Steel Sales Division is Hokkaido,
where it sells primarily general steel products (such as
steel plate, shaped steel, round steel bar, and steel pipe)and structural steel. As a distributor with strong regionalties, Kanamoto has won the hard-earned trust of its
customers.
The Steel Sales Division’s strength lies in its combinationof both retail and wholesale functions. Currently thisdivision is giving priority to the Sapporo area in Hokkaido,
where demand is particularly strong, and developing its
business in cooperation with the Construction Equipment
Rental Division.

Fiscal 2003 operating results
Division total（Millions of Yen）

6,374

Information Products Division
Kanamoto established the Computer and Peripheral
Equipment Rental Division in 1983 as its third operating
division. Beginning with the rental of IBM PC-AT
computers, which were the most advanced equipment of
their time, this division has met the needs of companies
that wish to use the latest machines and the most up-todate technology. We are proud to have been the firstauthorized company in Japan to offer workstations fromSun Microsystems, the largest manufacturer of WS in the
U.S. In addition to providing PCs and PC servers, as wellas various manufacturer models to address specificdiversified user needs, today Kanamoto provides not only
computer rentals for data centers and call centers but canpropose equipment configurations for unique systems
solutions.

Fiscal 2003 operating results（Millions of Yen）

Rental revenues

405

Sales revenues

512

Division total

916

Sun BladeTM and Sun FireTM are registered trademarks or trademarks of Sun Microsystems, Inc.
in the United States and other countries.

Kanamoto Annual Report 2003

6

2004/11 06.6.5 1:16 PM ページ 7

The Kanamoto Advantage

Construction equipment rental industry trends and Kanamoto’s positioning

A pro

The construction equipment rental business has established a strong reputation with both businesses andindividual users by offering excellent convenience and economy. According to a study by the Ministry of
Economy and Industry (2002), the construction equipment rental industry now accounts for 57.1% of Japan’s
domestic market for construction equipment. Kanamoto is keenly aware of customers’ expectations towards
this expanding market, and works incessantly to meet customers’ needs.

For any
recognizthe ideaequally
confronConstruction equipment rental demand as a management rationalization solution

A stateFor several years following the collapse of the economic bubble,
construction investment in Japan was maintained at a high level ofapproximately 80 trillion yen with the government’s support. Since 1997
construction investment has fallen sharply to a much lower level, becauseof a freeze on private investment and a reduction in public works
spending. This change has put tremendous pressure on the constructionindustry to rationalize its management, and every company is making an
all-out effort to reduce debt and shrink assets.
As part of this effort, more companies are making the shift from directownership to construction equipment rentals as a means to procure
construction equipment. Reliance on the use of rentals by construction
firms to meet their equipment needs continues to maintain an upward
trend, rising to 55.6% fiscal 2002.
As a solution enabling companies to slash equipment procurement costs,
eliminate the need for investment in storage and repair facilities, andreduce maintenance and other running costs, the role of construction
equipment rentals will continue to grow.

Change in construction investment in Japan andreliance on construction equipment rentals
Public works investment

Private investment（Trilllions of Yen）
90
80

73.3％

（％）
80

General contractors

70

70
60

60

55.6％
Construction company
average50

To respo
stock aconstrucsanitatio
fixtures.
customethe mos
acquiringby const

50

44.0％

40

Sub-contractors

30

40

20

30

10
0

'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02
Based on data from the Ministry of Land, Infrastructure andTransport and the Japan Civil Engineering Association

Development of the construction equipment rental industry as restructuring continues
According to information published by the Ministry of Economy, Trade andIndustry, the size of Japan’s construction equipment rental industry market
in fiscal 2002 was roughly ￥981.4 billion, equivalent to approximately
1.7% of total construction investment. The market is fragmented, consistingof approximately 2,000 companies broadly classified into multi-regional
equipment rental companies such as Kanamoto, local equipment rental
companies developing operations in specific regions, and manufacturerrelated rental firms that have entered the business in recent years. With
the overwhelming number of firms being local equipment rental
companies, further industry restructuring is anticipated as competition
within the industry heats up because of the drop in rental unit prices inrecent years and as firms that cannot replace their assets with new
equipment are weeded out.
According to a survey by a construction equipment rental industry
newspaper, Kanamoto was Number One in the construction equipment
rental company revenue rankings, and large, multi-regional rental
companies held the top four of the Top Ten positions for fiscal 2001, thelatest year for which data is available. This markedly illustrates the sharp
distinction between the industry’s leading companies and local equipment
rental firms.

7

Kanamoto Annual Report 2003

Changes in the average revenue of construction
equipment rental companies and Kanamoto's net
revenues

Kanam

Kanamato's revenues
Average revenue of 130 leading construction
equipment rental companies
Average revenue of 2,000 leading construction
equipment rental companies（Billlions
of Yen）
80
70
60
50

（Billlions
of Yen）
10

5

0

'97

'98

'99

'00

'01

Efforts a
speed inin partic
cite auregulatio
lowering
responsi
obligatio
Kanamoto updat
the indu
KanamoKanamoresponsi
a producand valu

2004/11 06.6.5 1:16 PM ページ 8

A product lineup that meets the needs of equipment users and society
For any construction equipment rental company, a full line of products is indispensable. At Kanamoto, we
recognize that having a wide range of high-quality goods in stock at all times is essential for offering companies
the ideal models and components at the right time in response to their diverse orders and inquiries. From anequally vital perspective, however, at Kanamoto we believe acting to help solve the environmental problems
confronting our entire society is a critically important corporate issue.

A state-of-the-art product lineup
To respond to our customers’ diverse orders, at Kanamoto westock all of the tools needed in a construction site, fromconstruction equipment, temporary housing units, and on-site
sanitation facilities to floor plate and steel plate, furniture andfixtures. Moreover, we continually enhance our value tocustomers, by regularly updating our product lineup to include
the most advanced models. This is one reason we are actively
acquiring the latest rental assets, even as the volume of shipmentsby construction equipment manufacturers is decreasing.

Change in the value of domestic shipments byconstruction equipment manufacturers and Kanamoto’s
total equipment acquisition cost
Domestic shipments for the leasing and rental industries
Kanamoto's total equipment acquisition cost
（Billlions
of Yen）
400（Billlions
of Yen）
80

300

60

200

40

100

20

0
0
'97
'98
'99
'00
'01
'02
'03
Based on a survey by the Japan Construction Equipment Manufacturers Association
Kanamoto's total equipment acquisition cost includes equipment acquired through leasing agreements

Kanamoto leads the industry in replacing assets with environmentally-friendly equipment
Efforts aimed at environmental preservation continue to gather
speed in Japan. The strengthening of exhaust emissions regulations
in particular is attracting attention. While news reports frequently
cite automobiles as the main target, reduced emissions
regulations apply to construction equipment as well. This means
lowering the level of exhaust gases is no longer just the
responsibility of manufacturers, but is an equipment supplier’s
obligation as well.
Kanamoto recognized this situation years ago, and began efforts
to update all of its rental assets well ahead of other companies in
the industry. Today, approximately 98% of all equipment owned by
Kanamoto clears national exhaust emissions regulations.
Kanamoto is updating its assets to fulfill its corporate social
responsibilities, and this policy has enabled us ultimately to createa product line-up that offers our customer firms enhanced utility
and value as well.

Percentage of Kanamoto equipment updated to meet lowemissions regulations
（％）
100

98％

80

60

40

20

0
'99

'00

'01

'02

'03

Kanamoto Annual Report 2003

8

2004/11 06.6.5 1:17 PM ページ 9

Corpor

The Kanamoto Advantage

October

Asset operations that generate future earnings
To maximize the benefits for user firms and shareholders, Kanamoto seeks to maintain continuous and stableearnings. From rental asset acquisition through operations, to the final sale of used equipment, Kanamoto strives
to maintain asset operations that correspond to changes in its operating environment and create a rational
earnings model.

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

DecembeSeptembe

Septembe
March

Source of earnings – Emphasis on EBITDA+
At Kanamoto, we’ve aimed at increasing EBITDA (earnings income before
interest, taxes, depreciation and amortization) in the broad sense, while
continually emphasizing improvement to our ROI (return on investment)
and capital investment within the scope of cash flow from operating
activities.
Unlike product sales, the equipment rental business generates a
depreciation and amortization expense burden corresponding to thevolume of assets owned. On the other hand, however, this creates a cyclethat generates earnings from adequate periodic income through rentals,
plus a profit from the disposal of used equipment. In other words, today’s
depreciation burden is the source of tomorrow’s profit when assets are
sold. This is the reason Kanamoto focuses on EBITDA as its mostimportant management indicator.
Because we also frequently utilize finance leases when introducing assets
and have numerous small-scale assets with a value of less than 200,000,
Kanamoto has adopted a measure referred to as EBITDA+ that adds
finance lease fee payments, small-sum assets, and installment purchasefees to EBITDA as ordinarily calculated. For the past several years,
Kanamoto’s EBITDA+ has been stable at a high level.
In addition, our Net Debt Equity Ratio, an indicator of financial
soundness, remains less than one, and in the future as well Kanamoto will
endeavor to keep its financial condition stable.

Change in EBITDA+

EBITDAEBITDA+（Billlions of Yen）
200

October
150

Novembe

100

50

0

July
'99

'00

'01

'02

'03

Change in stability indicators（Ratio）
1.50

DER

1.36

Net DER

1.30
1.18

1.20

1.10

Septembe
0.94

0.90

0.81

0.77
0.67

0.64

0.59

0.60
The Debt Equity Ratio (DER), the ratio of interest-bearing debt as a percentageof shareholders' equity, indicates financial stability. The Net Debt Equity Ratio(Net DER) is calculated by deducting cash and deposits from interest-bearing
debt. In most cases a value of less than 1.0 is desired for both indicators.

9

Kanamoto Annual Report 2003

0.30

'99

'00

'01

'02

'03

2004/11 06.6.5 1:17 PM ページ 10

Corporate History – Forty Years of Kanamoto Evolution and Growth
October 1964

Kanamoto Shoten Co., Ltd. established (Reorganization in
Muroran, Hokkaido)
Zenchu Kanamoto appointed President and Representative
Director

February 1985

Advanced into Gunma Prefecture

July

Advanced into Miyagi Prefecture

Tatebayashi Branch

Kanamoto Shoten Co.,Ltd
Kanamoto Shoten era apron

October 1971

Began development of sales branch network (Hokkaido)

Sendai Branch in 1985

NovemberCompleted on-line computer system network linking all branches

Tomakomai Office (currently theTomakomai Steel Sales Branch)

December 1972

Company name changed to Kanamoto Co., Ltd.

Calculation Section computer room in
1985

June

1986

Advanced into Kanagawa Prefecture

Former headquarters building

September 1979

Advanced into Aomori Prefecture with the first office locatedoutside of Hokkaido

Shonan Branch

July

1987

Advanced into Fukushima Prefecture

Hachinohe Branch (currently the
Momoishi Branch)

September 1981

Taichu Kanamoto (Currently honorary chairman) appointed
President and Representative Director

March

Advanced into Akita Prefecture.

1982

Koriyama Branch

NovemberStart of “Act '90” medium-term management plan

December 1988

Advanced into Tochigi Prefecture

Akita Branch in 1982

OctoberThird-party allocation of shares in (400 thousand shares; par value
50 yen)Advanced into Iwate Prefecture

November

Utsunomiya Branch

June

1989

September

Branches located in nearly all regions of Hokkaido
Advanced into Niigata Prefecture

Morioka Branch in1982

July

1983

Advanced into Chiba Prefecture
Nigata Branch (currently the
Nigata Machinery Center)

November 1990
June
Chiba Branch

September

1991

Start of “New Act” medium-term management plan
Advanced into Yamagata Prefecture
Listed on the Sapporo Stock Exchange

Launched Computer and Peripheral Equipment Division as thecompany’s third operating division (Tomakomai, Hokkaido)

Offices of the former Computer andPeripheral Equipment Rental Division
after relocation to Tokyo

Sapporo Stock Exchange on the day Kanamoto listed its stock

Kanamoto Annual Report 2003

10

2004/11 06.6.5 1:18 PM ページ 11

1964 - 2004
NovembeDecembeSigning ceremony for convertible
bonds

Shonai Branch (currently the
Sakata Branch)

OctoberJuly

Completed 1:1.3 stock split
Paid annual dividend of ¥10

Advanced into Saitama Prefecture
April

1995

Advanced into Toyama Prefecture

April
OctoberNovembeKanetsu Branch (currently the
Kamisato Branch)

OctoberJanuary

Completed Information Products Division Ofuna Technocenter
Completed 1:1.2 stock split
Paid an annual dividend of ¥12, including a dividend of ¥4.5 tocommemorate the Company’s stock listing

Toyama Branch

AugustOctober

Advanced into Fukui Prefecture

Fukui BranchCompleted 1:1.1 stock split
Increased annual dividend by ¥2 to ¥12

Ofuna Technocenter

October 1992

August1993

Completed 1:1.1 stock split
Increased dividend by ¥2.5 per share and paid annual dividend of
¥10

March

1996

June
Septembe

Increased capital through public offering (2 million shares)
Listed on the Second Section of the Tokyo Stock ExchangeTokyo Stock Exchange on the
day Kanamoto listed its stock

Issued Swiss franc-denominated warrants (SFr60 million)

April

Designated as a loan transaction stock for the Sapporo Stock
Exchange

October
AugustSigning ceremony for Swiss francdenominated warrants

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

NovemberStart of “Challenging '96” medium-term management plan

DecemberKanamoto’s stock began
trading as a new brand

July

Advanced into Nagano Prefecture

Kanamoto received Mercury Plaquefrom the Tokyo Stock ExchangeMay

Advanced into Ishikawa Prefecture

October

Nagano Branch

NovembeJanuary

1994

Advanced into Aichi Prefecture

Kanazawa Branch

June
Mikawa Branch

April

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

Increased capital through public offering (2 million shares)
Began conducting overseas IR briefings
January
March
October
New headquarters building
Overseas IR briefings

October
July

Advanced into Osaka Prefecture
Issued Swiss franc-denominated convertible bonds (SFr100 million)

Osaka Branch

11

Kanamoto Annual Report 2003

Advanced into Ibaraki Prefecture
Completed 1:1.1 stock split
Increased annual dividend by ¥2 to ¥14

Mito Branch

NovembeDecembe2004/11 06.6.5 1:19 PM ページ 121964 - 2004
Kanatech Co., Ltd.

Start of "Plan Jupiter" medium-term management plan

NovemberAdvanced into Mie Prefecture

December

Kyushu Kensan Co., Ltd.

Tokai Branch

April

1997

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

October

Increased annual dividend by ￥2 to ￥16

NovemberIssued Eurodollar-denominated straight corporate bonds (US$42
million)January

1998

January

2001

Introduced corporate officer system

June

Established Kanamoto Shikoku Co., Ltd.

NovemberStart of "Kanamoto Survival Plan" medium-term management plan
Established second commitment facility
Opened Hassamu Megastation
Converted Daiichi Machine Industries Co., Ltd. into a subsidiary

Introduced stock option program
Stock elevated to the First Section of the Tokyo Stock Exchange

April

Notification of elevation of
Kanamoto’s stock to the First Sectionof the Tokyo Stock Exchange

Kanamoto Shikoku Co., Ltd.

Hassamu Megastation
Celebration of Kanamoto’s
designation as a First Section
stock

Kanchu Kanamoto appointed President and Representative
Director

June
September

Honored by the Tokyo Stock Exchange with the Commendation
Award for Listed Companies, for more than five consecutive yearsof annual dividend increases following listing on the Exchange

October

Increased ordinary annual dividend by ￥2 to ￥18

August1999

Daiichi Machine Industries Co., Ltd.

February 2002

Established sales office in Tokyo

Established SRG Kanamoto Co., Ltd.

Haneda BranchConcluded a syndicated loan (7 billion yen)June
SRG Kanamoto TomakomaiCenterBeer restaurant Providence opened

July

Established third commitment facility
Advanced to Hyogo Prefecture

November

Kobe Branch

Beer restaurant Providence

October

Commemorative per-share dividend of ￥1 to commemorate 35th
year anniversary, paying total annual dividend of ￥19

November

Construction completed on the Kanamoto Hamamatsucho
K Building (Tokyo)
Issued ￥5 billion yen-denominated zero-coupon bond (Switzerland)

August2003

Merged with Taniguchi Co., Ltd.

Headquarter office of Taniguchi Co.,
Ltd. (currenty the Otaru Branch)Start of "Metamorphose" long-range management plan
Established fourth commitment facility
Converted Daiichi Machine Industries Co., Ltd. into a whollyowned subsidiary

NovemberTokyo operation division

January

2000

Implemented second stock option program

March

Kanamoto concluded an alliance with Machida Kikou Co., Ltd.

October

Paid annual ordinary dividend of ￥18 per share
Transferred temporary housing production business to Kanatech
Co., Ltd.

November
DecemberKanamoto honored with the IR Excellent Firm Award from theJapan Association for Individual Investors (JAII) (fourth company toreceive the award)

DecemberAward presentation ceremony

Established commitment facility (first in Hokkaido)
Kanamoto concluded an alliance with Kyushu Kensan Co., Ltd.
Kanamoto received the IR
Excellent Firm Award from theJapan Association for Individual
Investors

January

2004

Converted Kanamoto Shikoku Co., Ltd. into a wholly-owned
subsidiary.
(Merger planned for April 2004)

Machida Kikou Co., Ltd

Kanamoto Annual Report 2003

12

2004/11 06.6.5 1:19 PM ページ 13

Kanamoto's Environmental Efforts

A diversified approach for creation of a "sustainable society"As a business for the 21st century, Kanamoto must give consideration to both the local communities and areas
where we do business and the global environment. As a company we are moving steadily forward while seeking
the ideal environmental approach to pursue.

Kanamoto introduces low-fuel consumption, low-emissions automobiles for company vehicles
Percentage of firms that have introduced low-fuel consumption, lowemissions automobiles (non-manufacturing industries)

According to the results of a mass media
research firm survey concerning the level ofenvironmental management at listed firms
and leading companies, among 350
companies (number of valid responses)
including Kanamoto in non-manufacturingindustries, 134 firms have introduced use of
low-fuel consumption, low-emissions
automobiles.
Kanamoto was ahead of other companies
when it adopted the Toyota Prius, a hybrid
automobile, as its company vehicle in 1998.
The company currently uses 200 of thesemodels for company business.
Kanamoto is also aggressively introducing
other low-emissions vehicles, and as of2003 approximately 57% of the company’sbusiness vehicles are environmentallyfriendly low-fuel consumption, lowemissions vehicles.

Have already introduced
Have not yet introduced

38％
62％

43％
Small diesel vehicles*

57％

Approxim
collected
is recycl
smokelesdioxin an
not only
pollution
disposalheating fu
recovereraw mate
products
waste mbeing effefriendly r

Excellent low-emissions gasoline
Ultra-low-emissions gasoline
Hybrid vehicles*Diesel engines in vehicles adopted for service automobiles andother uses are not based on the new standard.

Rental equipment updated using reduced-emissions equipment

ApproaPercentage of equipment introduced that meets antipollution standards

Quantity

（％）
100

80

60

40

'99

'00

'01

'02

Generators
Mini-excavators and hydraulic excavators
Rental automobiles
Total

13

Percentage of low-fuel consumption, lowemissions vehicles introduced at Kanamoto

DisposKanamoto Annual Report 2003

'03

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

（t）
50

40

30

20

10

0

2004/11 06.6.5 1:19 PM ページ 14

Disposal of waste motor oil
Breakdown of waste motor oil disposal

Approximately 60% of the waste motor oilcollected at Kanamoto’s maintenance shops
is recycled as winter heating fuel, using
smokeless waste oil stoves that breakdown
dioxin and other contaminants. As a result,not only does Kanamoto help minimize air
pollution, it has also reduced costs for
disposal of waste motor oil and newheating fuel. In addition, about 30% of suchrecovered waste oil is sold by recyclers as araw material for reclaimed oil and recycled
products. All together, roughly 90% of thewaste motor oil collected by Kanamoto is
being effectively used as an environmentallyfriendly resource.

8％

32％
60％
Recycled in-house
Used for recycled products, fuel, etc. outside the company
Consigned to specified industrial waste traders

Approach to paper resource measures (paperless office and recycling)
Quantity of paper resources used

Kanamoto fully computerized its legally required forms by
2000, reducing its cost for such forms to less than one-third its
actual cost in 1995 and realizing resource savings ofapproximately 82 tons per year in quantity of paper used.
Although the Company has increased the number of branches
and employees since 2000, as a result of multiple use of inhouse documents, E-mail and other resource-saving efforts, thevolume of paper used has remained nearly flat. Kanamoto plansto pursue further resource savings in the future as a result of a
new system placed into operation in January 2004. Used paper
resources are also being recycling as sales promotion goods at
contract recycled paper plants.

（t）
50

40

30

20

10

0

'95

'00

'01

'02

'03

'04（Anticipation）

Kanamoto Annual Report 2003

14

2004/11 06.6.5 1:19 PM ページ 15

Corporate Data (As of March 1, 2004)

Company Name

Principal Businesses

Kanamoto Company, Ltd.

Rental of construction equipment

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

Organiz
Gene
S

Sale of steel products
Rental of engineering workstations and computer
peripherals

Boa

Established

Primary Lenders

October 28, 1964

The Bank of Tokyo-Mitsubishi

Capitalization

The Mitsubishi Trust and Banking Corporation￥8.6 billion (Paid-in capital)

Mizuho Corporate Bank
Sumitomo Mitsui Banking Corporation

Listing Exchanges

North Pacific BankTokyo Stock Exchange, First Section

The Norinchukin Bank

Sapporo Stock Exchange

Hokkaido Shinren

Stock CodeThe Hokkaido Bank

9678

UFJ Bank Limited

Common Shares Issued and Outstanding
30,253,000

The Daishi Bank
Principal Shareholders

Fiscal Year-end

ORIX Corporation

October 31

Taichu Kanamoto

Revenues￥60,494 million(Fiscal year ended October 2003)

Saburo Kanamoto
Komatsu
Kanamoto Capital Company
The Master Trust Bank of Japan, Ltd.

Number of Employees

North Pacific Bank

1,097

The Hokkaido Bank

(Excluding directors and temporary or part-time

The Tokio Marine & Fire Insurance Company

workers)

Denyo Co., Ltd

Headquaters Buillding(Sapporo.Hokkaido)

15

Man

Kanamoto Annual Report 2003

Tokyo Operating Division2004/11 06.6.5 1:20 PM ページ 16

Organization Chart
General Meeting of the
Shareholders
Auditors
Board of Directors

Management Planning Division

President

Business Administration Section,
Facilities Management Section,
Public Relations Section

Secretarial Office

Administration Division

Administration Section,
Personnel Section

Auditing Section

Accounting Division

Accounting Section 1,
Accounting Section 2,
Finance Section

Legal Section

Credit Management Division

Managing Directors
Committee

Credit Management Section,
Credit Analysis Section

Market Development Division
Operations Control
Headquarters

Information System Division

System Support Section,
System Solutions Section

Quality Assurance Section
Business Coordination
Headquarters
New Products Department

Used Products Sales Division

North Hokkaido Region

South Hokkaido Region
Construction Equipment
Rental Division
Tohoku Region

Kanto & Shinetsu Region

Kinki & Chubu Region
Steel Sales Division

Information Products Division

Kanamoto Annual Report 2003

16

2004/11 06.6.5 1:20 PM ページ 17

Branch Network

Our Growing Branch Network

Number of Branches

Hokkaido

HonshuTotal

Construction Equipment Rental Operations

53

81

134

Steel Sales

3

0

3

Information Products Operations

0

1

1

Total

56

82

138

During the 39th business period we closed 7 existing branches and opened 3 new branches.

Construction Equipment Rental Division
Steel Sales Division
Information Products Division

Kanamoto Alliance Group Firms
SapporoAssist Co., Ltd. (9 branches)
Engaged in the rental of safety products such as signals or signs for the construction industry.

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

Hokkaido Region

Kanatech Co., Ltd. (7 branches)
Designs, manufactures and sells modular housing units for construction use.

Kyushu Kensan Group (9 branches, 4 group companies)
Construction equipment rental company headquartered in Fukuoka Prefecture.

Notes 1

Daiichi Machine Industries Co., Ltd. (7 branches)

For purpose
and adjusted

Construction equipment rental company headquartered in Kagoshima Prefecture.

Tohoku Region

Machida Kikou Co., Ltd. (14 branches)

Notes 2
Kanamoto u
operating lea
to the accou
Accordingly,
concerning t(including op

Construction equipment rental company headquartered in Okinawa Prefecture

Kinki & Chubu
RegionOsaka

Kanamoto hproduced if
The differen
Kanto & Shinetsu
RegionChugokuTokyo
KyushuShikoku
Okinawa

Under Japan
durable lives
business andeach equipm
Accordingly,
finance lease17

Kanamoto Annual Report 2003

2004/11 06.6.5 1:20 PM ページ 18

Financial Section(November 1, 2002-October 31, 2003)

Report of Operating Results and Financial Position for the 39th Business Period
Consolidated Financial PositionNon-consolidated Financial Position
Report of the Audit Committee
Board of Directors

Notes 1
For purposes of this report, the Balance Sheets and Statements of Income were created using financial data prepared according to Japan's Securities Report guidelines,
and adjusted to conform to U.S SEC reporting standards.

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

100

Straight-line method
Declining balance method

80

60

40

20

0

1

2

3

4

5

6

7

Life

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

2004/11 06.6.5 1:20 PM ページ 19

Report of Operating Results and Financial Position for the 39th Business Period (November 1, 2002-October 31, 2003)
Operating results
The business environment
During the consolidated fiscal year under review, business sentiment in some sectors of Japan’s economy showed a positive
outlook. In particular, operating results recovered substantially in major manufacturing industries that had previously
completed excess capacity adjustments.
On the other hand, in industries such as construction and services where industry reorganization has not progressed very
far, the deflationary economy continued to play itself out. At the small and medium-sized enterprises that comprise the vast
majority of the economy in particular, a situation colored by a sense of economic stagnation continued.
Personal consumption also remained sluggish, affected by the delay in recovery of the business environment and worries
about the future that are manifest in questions about employment and pension issues.
In the construction industry, which is Kanamoto’s main customer, there was no early order boost from government orders
for public works. With healthy private sector demand also concentrated in only the major metropolitan areas, a toughenvironment prevailed throughout Japan.
A synopsis for each of Kanamoto’s business sectors is provided below.
Management Results and Activities
Construction Equipment Rental Division
With the decline in public works, construction equipment rental prices remained at rock bottom levels. The businessenvironment surrounding the industry remained severe. Customers made more forceful requests for discounts,
encouraged by excessive competition among firms.
Given the decline in government orders for public works during fiscal 2003, plus other influences such as nationwide local
elections and a House of Representatives election, construction equipment rental demand throughout the fiscal year
suffered from a lack of upward momentum.
Particularly in regions where the volume of public works orders was small, the circumstances that swept over and engulfed
the construction equipment rental industry, which was already gasping from a wave of price competition as firms sought tomaintain sales, showed no positive signs of easing.
In its Construction Equipment Rental Division, Kanamoto continued efforts from the prior fiscal year as it sought tothoroughly implement low-cost operations. During the consolidated fiscal year under review, the Company undertook
efforts to reduce transportation charges and review maintenance costs, areas that received less attention in the past.
Management also worked to maintain profits through measures such as shifting rental assets to models less susceptible tounit price reductions.
During the consolidated fiscal year under review, Kanamoto opened two branches and closed two branches in the
Hokkaido region, closed one branch in the Tohoku region, added three new branches in the Kanto-Shinetsu region andopened two new branches in the Kinki-Chubu region. Altogether the branch network grew by a net addition of four
branches (seven opened, three closed). This included two newly established branches in the Hokkaido district in Otaru andYoichi, which were added when the Company merged with Taniguchi Co., Ltd. in August 2003.
By region, the downward trend in public works construction in both Hokkaido and the Tohoku region was undeniable.
Nevertheless, the Company made a strong effort and kept the decline in construction equipment rental revenues by region
to 2.4% and 0.5%, respectively, by focusing on even small-scale construction works with the intent of not losing any orders.
Rental revenues in the Kanto-Shinetsu region rose by 4.1% compared to the prior fiscal year, reflecting the results of new
branches opened in Tokyo and the surrounding areas, while rental revenues in the Kinki-Chubu region jumped 15.3% as theresult of Kanamoto’s alliance efforts.
During the consolidated fiscal year under review, the percentage of total rental revenues accounted for by Hokkaido andCash FlowPCFR

EBITDA＋
EBITDA＋ Ratio

CF = Net income + Depreciation expense - (Cashdividends + Bonuses to directors and auditors)
PCFR =Total market capitalization ÷ CF = Stock Price ÷
Cash flow per share of common stock

EBITDA+ =Operating income + Depreciation expense + Other depreciation andamortization expense+ Low-price rental assets, and others(millions of yen)(millions of yen)（％）

12,0007

10,000

6

8,000

5

6,000

4

4,000

3

2,000

2

0

1
'99

19

Kanamoto Annual Report 2003

'00

'01

'02

'03

EBITDA+ is an indicator used only for the construction equipment rental business andexcludes steel products and information products（％）

20,0008

15,000

6

10,000

4

5,000

2

0

0
'99

'00

'01

'02

'03

Honshumetroporentals i
With reequipmeused tem
year.
Operatinand sellito achiev
rental as
In additi
sector, w
Steel SThe Steesteel mademandcontrols
Informa
BecauseInformatyear. Equdevelopm
26.5%, b
PCs.
In other
Based oincomeOrdinarprior fisc

2004/11 06.6.5 1:20 PM ページ 20

Honshu were 41.3% and 58.7%, respectively, and the results from Kanamoto’s effort to shift business to the Tokyo
metropolitan area are becoming steadily apparent. As a result of these changes, revenues from construction equipment
rentals increased by 1.3% year-on-year.
With regard to the division’s sales revenues, on the other hand, revenues from overseas sales of used construction
equipment grew by 9.2%. Domestic sales rose by 2.4%, reflecting the results of a campaign the Company initiated to sell
used temporary unit housing. As a result, total sales revenues increased by 5.8% compared to the prior consolidated fiscal
year.
Operating income recovered and grew by 4.2%. This reflected efforts to shrink both total cost of revenues from operations
and selling, general and administrative expenses by managing a low-cost operation, and the success of the Company’s effort
to achieve a more balanced depreciation expense burden by emphasizing leases as the means for introducing construction
rental assets.
In addition, as described above Taniguchi Co., Ltd., a wholly-owned consolidated subsidiary conducting its business in this
sector, was merged with Kanamoto in August 2003.
Steel Sales Division
The Steel Sales Division focused its efforts on increasing sales mainly in the Sapporo metropolitan area, where demand forsteel materials was strong, with the retail business also taking pains to promote increased sales. Efforts to stimulate
demand were less successful than expected, however. Added to this was the Company’s effort to strengthen internal credit
controls to maintain sound receivables. As a result, sales fell by 14.3% compared to the prior consolidated fiscal.
Information Products Division and Other Businesses
Because demand shifted away from expensive engineering workstations to low-priced PC workstations, Kanamoto’s
Information Products Business Division saw its rental revenue shrink by 17.4% compared to the prior consolidated fiscal
year. Equipment sales also fell, declining 32.4% as sales of wireless LAN modules for factory use came to an end anddevelopment and mass production of new model modules was delayed. For the division as a whole, revenues decreased
26.5%, but operating income rose substantially, jumping by 467.1% because of an increase in highly profitable sales of usedPCs.
In other businesses, in March 2003 the Company liquidated Providence Brewery Co., Ltd.
Based on the above results, revenue declined by 0.2% compared to prior year to ￥60,494 million yen, and operating
income rose 4.2%, to ￥2,350 million.
Ordinary income was off 1.2%, to ￥2,447 million, and net income for the year was ￥953 million, 15.9% lower than in theprior fiscal year.
Fiscal Year ended October 31, 2003 Consolidated Operating Results(Million yen; %)Revenues

Operating Income

Ordinary Income

Net Income

Consolidated FY under review

63,686

2,307

2,279

913

Change from prior year

–3.1%

0.9%

–4.3%

–24.4%(Percentage figures show change compared to prior year)

Net Income
PER

PBR
PBR = ROE × PER

PER = Total market capitalization at end of period ÷ Net Income(millions of yen)

（％）

（％）

2,000

40

1.0

1,500

30

0.75

1,000

20

0.5

500

10

0.25

0

0.0

0
'99

'00

'01

'02

'03

'99

'00

'01

'02

'03

Kanamoto Annual Report 2003

20

Issues to be addressed by the Company
Under the financial restoration policy proclaimed by the Koizumi Cabinet, controls on public works expenditures are being slowly
implemented.
Given the large number of domestic and international problems that need to be resolved, the current government economic
policies based primarily on fiscal spending controls are unlikely to undergo any major changes during the next several fiscal years.At
the same time, however, there are also limits on the low volume of private sector construction projects, which are concentrated in
major metropolitan areas. Overall, there is little expectation for an immediate increase in construction demand.
Moreover, the construction equipment rental industry also faces headwinds that grow more intense with each passing day, as thevolume of public works decreases. In addition to sharp unit price declines that are larger than anticipated, operating margins atconstruction equipment rental companies continue to shrink each year as building contractors demand large discounts. The
severity of competition among firms makes new investment difficult for independent operators and small and medium-sized firms,
and the industry faces an extremely tough business environment.
On the other hand, despite being confronted with this severe business environment, there are some positive signs for theconstruction equipment rental industry as well.
First, according to the Survey on Conditions in Specified Service Industries released by the Ministry of Economy, Trade andIndustry, which looked at the size of the rental industry market, after reaching a peak in 1996-1997 construction equipment rental
revenues began declining. Despite cutbacks in total construction investment, however, revenues began to increase again in 2000, andin 2001 rose 5.6% compared to the prior year to ￥1,063.1 billion.
Another bright spot is the rise in the construction equipment rental ratio. This shows the extent to which construction firms rely
on rentals of construction equipment, by measuring the number of pieces of rental equipment as a percentage of all of theconstruction equipment used at construction job sites. In the latest survey the ratio stood rose to 55.6%, which was further
broken down to 73.3% for large general contractors and 44.0% for subcontractors and cooperating companies.
Looked at by type of equipment, compared to the prior year survey the number of equipment categories for which construction
firms relied on equipment rentals for 60% or more of their equipment needs increased by two categories to 17 equipment
categories. The number of categories for which the ratio was 70% or higher rose by three to 11 categories. For the construction
equipment rental industry, the increasing reliance of construction companies on rentals as shown by this trend is a very positive
factor.
Kanamoto has now completed the first two years of its “Kanamoto Survival Plan,” the three-year medium-term management plan
the Company has been executing since the fiscal year ended October.
During these two years, Kanamoto reduced and improved the total cost of revenues and its selling, general and administrative
expenses, and heightened every employee’s sense of the challenges facing the Company. As a result, the Company was able toachieve operating results that exceeded its initial targets.
As Kanamoto continues its efforts to reduce costs and prepares a new organization based on execution of its Survival Plan, we
have also prepared a new five-year management plan, called “Metamorphose” as the Company’s latest blueprint for profit growth.
In the new long-range management plan, Kanamoto will focus on enhancing the operating systems in the Construction Equipment
Rental Division, which is Kanamoto's core business. To accomplish this plan we have established the following objectives, which wewill execute using bold, aggressive measures.
Fiscal Year ending October 31, 2004 Projected Consolidated Operating Results(Million yen)

Revenues

Operating Income

Ordinary Income

Net Income

Interim period

29,970

–8.0%

1,020

–46.5%

920–48.8%

420–46.2%

Full year

59,590

–6.4%

1,630

–29.3%

1,450–36.4%

580–36.5%(Percentage figures show change compared to prior year)a) Earnings-focused management
Kanamoto will shift its focus from the revenues-first approach utilized in the past and emphasize gross profit. Moreover, during theplan period the Company will limit the introduction of new rental assets and work to reduce the amount of depreciation andShareholders' Equity
Shareholders' Equity Ratio

ROE
ROE = Net income ÷ Shareholders' equity = EPS ÷ BPS

Shareholders' Equity Ratio = Shareholders' equity ÷ Total assets(Millions of yen)（％）

40,00040

30,000

35

（％）
6

4
20,00030

10,000

25

2

0

20
'99

21

Kanamoto Annual Report 2003

'00

'01

'02

'03

0
'99

'00

'01

'02

'03

amortization expense, which reduces operating income.
b) Execute a bold scrap and build program
Kanamoto will further pursue the shift in sales towards Honshu, which will increase the percentage of revenues generated incentral Japan.
In addition to taking bolder measures to close and scale back the number of unprofitable branches in particular, the Company willconcentrate on establishing lightly-equipped branches centered particularly in the Tokyo metropolitan area.
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 to thoroughly fulfill userneeds.
The Company will continue to reconfigure its asset composition to best suit the regional characteristics of each branch office, tocreate a position in which Kanamoto’s presence is indispensable for its customers’ operations.
d) Pursue Kanamoto’s alliance strategy
Kanamoto is developing its approach of building a Kanamoto alliance group, which the Company has developed in western Japanand used to produce tangible results in market share growth in the corresponding region. The Company will introduce thetechnique in other marketing areas as well.
The key factor as we pursue these measures will be the procedures we use to manage the Company’s rental assets.
Over the past few years, Kanamoto made an effort to differentiate itself from other companies by aggressively carrying out aprogram to update and reinforce its rental assets on an accelerated schedule. This has focused mainly on an antipollution program
targeting areas such as emissions control.
As a result, the majority of Kanamoto’s asset lineup consists of construction equipment models with state-of-the-art pollution
control equipment. Because it will not be necessary for the Company to replace its new equipment for the next several years tocomply with regulations, Kanamoto will be able to increase the number of years over which its uses rental assets, and implement
asset operations that ensure sufficient asset rental-based periodic income.
Kanamoto will not face any large capital investment burdens for equipment rental assets.
On the other hand, the sale and disposal of used construction equipment that has contributed to earnings to-date will be limited.
Moreover, to form sound industry business practices, Kanamoto has a policy of responding to non-payment of user service feeswith a firm business stance and optimization of rental fees, and has drafted a plan projecting a temporary drop in revenue andearnings during the first two periods that corresponds to the tough business environment
By steadily following the individual measures and strategies outlined in “Metamorphose,” its new long-range management plan,
however, the Company projects substantial improvement in its earnings level by the final fiscal year of the plan.
Basic policies concerning business management and distribution of earnings
Kanamoto Company believes that adapting to changes in its business environment, developing the firm on a sustainable basis andmaximizing earnings contributes to the best results for all of its stakeholders.This is the reason the Company has always made thecenterpiece of its action agenda the concept “constantly seek innovation and strive to energize the business.”
By offering each customer optimal solutions and services fine-tuned to its exact needs, based on rational rental proposals that takemaximum advantage of Kanamoto’s years of accumulated equipment rental knowledge and experience, Kanamoto seeks to growin a manner that will contribute fully to society.
To ensure the long-term, integrated expansion of shareholders’ profits, Kanamoto Company continues to focus comprehensively
on both capital investments and profitability based on its medium-term profit plan, general dividend trends and a sound financial
position. In particular, the Company remains committed to its policy of stable dividend growth.
Given the Company’s present circumstances and markets, management believes it has adopted an appropriate position with regard
to Kanamoto’s investment unit and stock allocation, and has no plans to reduce these positions at this time. The Company
currently also has no plans to execute a stock split.
The Company will continue to flexibly examine its activities, however, in accordance with the future situation concerning the
distribution of investment units.

Dividend per Share of Common StockROA
ROA = Net income ÷ Total assets
（％）

(Yen)

2.0

20

1.5

15

1.0

10

0.5

5

0

0.0
'99

'00

'01

'02

'03

'99

'00

'01

'02

'03

The 1999 cash dividends of ￥19
inclluded a one - timecommemorative dividend of ￥1
to celebrate the 35th anniversaryof the Company's founding.

Kanamoto Annual Report 2003

22

Consolidated Balance Sheets
ASSETS
Thousands of
U.S. dollars (Note 1)

Millions of yen
As of October 31, 2003 and 2002

2002

2003

2003

¥ 15,433¥ 11,921$ 109,564

79

47

434

23,121

21,412

196,801

810

854

7,852

Current assets:
Cash and cash equivalents
Short-term investments (Note 3)
Notes and accounts receivable, trade
Inventories

167

261

2,401

Other current assets

2,960

2,395

22,010Less: Allowance for doubtful accounts

(495)

(489)

(4,493)42,07536,401

334,569

Rental equipment

50,00943,790402,485

Building and structures

15,177

15,333140,928

Deferred income taxes (Note 8)

Total current assets
Property and equipment:

Machinery and equipment
Less: Accumulated depreciation
Land
Construction in progress
Total property and equipment

4,770

5,153

47,366(44,097)(42,361)(389,348)

25,85921,915

201,431

24,601

24,638226,448

109

2

17

50,56946,555427,896

Investments and other assets:

23

Investments in associates (Note 3)

199

164

1,504

Investments in securities (Note 3)

3,483

3,409

31,328Deferred income taxes (Note 8)

1,749

1,383

12,715

Other assets

1,819

1,662

15,278Less: Allowance for doubtful accounts

(580)

(564)

(5,182)

Total investments and other assets

6,670

6,054

55,643¥ 99,314¥ 89,010$ 818,108

Kanamoto Annual Report 2003

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

Millions of yen
As of October 31, 2003 and 2002

2002

2003

2003

Current liabilities:
Short-term bank loans (Note 4)

¥ 905

¥ 713

$ 6,557

Current portion of long-term debt (Note 4)

24,965

14,854

136,526

Notes and accounts payable, trade11,965

11,048

101,547

19

648

5,958

Accrued income taxes

541

443

4,070

Other current liabilities

1,625

1,208

11,091

Total current liabilities

40,02028,914

265,749

Long-term debt (Note 4)

24,70025,423

233,664

Accrued pension and severance costs (Note 5)

1,676

1,777

16,336

Other liabilities

1,580

918

8,438

Total non-current liabilities

27,956

28,118258,438

97

71

656

8,597

8,597

79,014

Additional paid-in capital

9,720

9,720

89,342Retained earnings

13,044

13,400123,162

Accrued bonuses for employees

Non-current liabilities:

Minority interests
Contingent liabilities (Note 6)
Shareholders' equity:
Common stock:
Authorized–66,000,000 shares
Issued–30,253,241 shares

Net unrealized gain (loss) on other securities, net of taxes (Note 3)

(108)

367

3,377

Treasury stock

(12)

(177)

(1,630)31,241

31,907

293,265¥ 99,314¥ 89,010$ 818,108

Total shareholders' equity

Kanamoto Annual Report 2003

24

Consolidated Statements of Income

Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

2003

2003

Cost of rentals¥ 40,561¥ 40,724$ 374,307

Sales of goods

30,63130,928284,268

Cost of sales

24,691

22,962211,045

Gross profit

19,376

17,970165,167

Selling, general and administrative expenses

15,245

14,788135,917

Operating income

12,957

12,480114,707

2,288

2,308

21,210Year Ended October 31, 2003 and 2002

Rental revenues

Other income (expenses):
56

82

756

Interest expenses

(475)

(398)

(3,659)Others, net

259

(117)

(1,071)

2,128

1,875

17,236

Current

865

1,036

9,523

Deferred

59

(55)

(506)

924

981

9,017

Income before minority interests

1,204

894

8,219

Minority interests in subsidiaries

(5)

(20)

(180)

¥ 1,209¥ 914$ 8,399

Interest and dividend income

Income before income taxes
Income taxes (Note 8)

Net income

Yen

U.S. dollars (Note 1)

2002

2003

2003

Basic

¥ 39.99¥ 29.96$ 0.28

Diluted

30.76

27.11

0.25

18.00

18.00

0.17

Per share of common stock:
Net income

Cash dividends applicable to the year

25

Kanamoto Annual Report 2003

Consolidated Statements of Cash Flows

Thousands of
U.S. dollars (Note 1)

Millions of yen
Year Ended October 31, 2003 and 2002

2002

2003

2003

¥ 2,128¥ 1,875$ 17,236

8,120

6,651

61,127

199

89

817

Cash flows from operating activities:
Net income before income taxes and minority interests
Adjustments for:
Depreciation expense
Loss on disposal or sales of property and equipment
Write-down of investments in securities

241

260

2,387

Profit on sales of investments in securities

(157)

(135)

(1,240)

Provision for allowance for doubtful accounts

301

(22)

(204)

Provision for accrued pension and severance costs

(333)

101

934

Interest and dividend income

(56)

(82)

(756)

Interest expenses

746

580

5,328

Other adjustments

564

949

8,725

Change in assets and liabilities
2,985

1,708

15,703

Decrease (increase) in inventories

337

(45)

(412)

Increase (decrease) in trade payable(1,104)(917)(8,428)Others, net

(524)

281

2,582

Subtotal

13,447

11,293

103,799

56

82

756

(748)

(601)

(5,523)

Income taxes paid

(2,109)(415)(3,818)Cash flows from operating activities

10,646

10,35995,214

Payments for purchase of investments in securities(2,646)(1,362)(12,515)

Proceeds from sales of investments in securities

2,243

1,988

18,276

Payments for purchase of property and equipment

(398)

(638)

(5,868)Others, net

359

(95)

(877)

Cash flows from investing activities

(442)

(107)

(984)

160

(192)

(1,766)

Proceeds from long-term debt

13,67015,000137,868

Repayments of long-term debt

(24,053)(27,896)(256,400)

(545)

(541)

(4,975)6(135)(1,243)(10,762)(13,764)(126,516)

Decrease (increase) in trade receivables

Interest and dividend income received
Interest expenses paid

Cash flows from investing activities:

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

Cash dividends paid
OthersCash flows from financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year(558)

(3,512)(32,286)

15,991

15,433

141,850¥ 15,433¥ 11,921$ 109,564

Kanamoto Annual Report 2003

26

Consolidated Statements of Shareholders’ Equity
Millions of yen
Thousands ofshares ofcommon stock

Commonstock

Additional
paid-in
capitalRetainedearnings

Net unrealized
gain (loss) on othersecurities,
net of taxes

Year Ended October 31, 2002 and 2003

Balance at October 31, 2001

30,253¥ 8,597¥ 9,720¥ 12,396

Net income

1,209

Cash dividends(544)

Bonuses to directors and auditors

(17)
(249)

Other
Balance at October 31, 2002

30,253¥ 8,597¥ 9,720¥ 13,044

Net income

914

Cash dividends(541)

Bonuses to directors and auditors

(17)

(108)

475

Other
Balance at October 31, 2003

¥ 141

30,253¥ 8,597¥ 9,720¥ 13,399¥ 367

Thousands of U.S. dollars (Note 1)

Balance at October 31, 2002

Commonstock

Additional
paid-in
capitalRetainedearnings$ 79,014$ 89,342$ 119,890

Net income

8,399

Cash dividends(4,974)
4,374

Other

27

Kanamoto Annual Report 2003

$ (997)(153)

Bonuses to directors and auditors
Balance at October 31, 2003

Net unrealized
gain (loss) on othersecurities,
net of taxes$ 79,014$ 89,342$ 123,162$ 3,377

Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
The consolidated financial statements have been prepared from the accounts maintained by Kanamoto Co., Ltd. (the“Company”) and its consolidated
subsidiaries in accordance with the provisions set forth in the Commercial Code of Japan and the Securities and Exchange Law of Japan and in
conformity with accounting principles and practices generally accepted in Japan, which may differ in some material respects from accounting principles
and practices generally accepted in countries and jurisdictions other than Japan.
The notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japanbut is presented herein as additional information.
In order to facilitate the understanding of readers outside Japan, certain reclassifications are given to the consolidated financial statements prepared fordomestic purposes.
Translations of Japanese yen amounts into U.S. dollars are included solely for the convenience of the reader, using the approximate exchange rate on
October 31, 2003, which was ￥108.80 to US$1.00. These translations should not be construed as representations that the Japanese yen amounts havebeen, or could have been, or could in the future be converted into U.S. dollars at this or any other rate of exchange.

2. Summary of significant accounting policies(a) Consolidation principles
The consolidated financial statements include the accounts of the Company and significant companies which the Company controls throughmajority voting right or existence of certain conditions. All significant inter-company transactions and accounts are eliminated.
Investments in unconsolidated subsidiaries and affiliates of which the Company has the ability to excise significant influence over operating andfinancial policies are stated at cost and the equity method is not applied for the valuation of such investments since they are considered immaterial
in the aggregate.
(b) Cash and cash equivalents
For the purpose of statements of cash flows, cash and cash equivalents are comprised of cash in hand, deposits held at call with banks and all highly
liquid investments with maturities of three months or less.
(c) Securities
Securities except for investments in unconsolidated subsidiaries and affiliates are classified as trading securities, held-to-maturity securities or othersecurities. Trading securities are carried at fair value. Held-to-maturity securities are carried at amortized cost. Marketable securities classified asother securities are carried at fair value with unrealized gains and losses reported in a separate component of shareholders’ equity, net of taxes.
Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method.
(d) Inventories
Inventories are mainly valued on the basis of lower of cost or market, using the last-in, first-out method.
(e) Property and equipment
Property and equipment are stated at cost. Depreciation is mainly computed at rates based on the estimated useful lives of assets on the decliningbalance method.
The principal estimated useful lives range from 5 to 10 years for rental equipment and from 10 to 34 years for building and structures.
(f) Accrued pension and severance costs
To provide for employees’ severance indemnities and pension payments, net periodic pension and severance costs are computed based on the
projected benefit obligation and the pension plan assets.
The actuarial assumption adjustment is to be amortized by the straight-line method beginning the following fiscal year over a period of 10 years,
which is less than the average remaining years of service of the active participations in the plans.
The unrecognized benefit obligation at transition is being amortized for the year ended October 31, 2001.
(g) Leases
All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership ofthe leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions
if certain“as if capitalized”information is disclosed in the notes to the lessee’s financial statements.
(h) Earnings per share
Basic Earnings per Share (“EPS”) is computed based on the average number of shares of common stock outstanding for the period. Diluted EPS
assumes that outstanding convertible bonds were converted into common stock at the beginning of the period at the current conversion price.
(i) Appropriation of retained earnings
Under the Commercial Code of Japan, the appropriation of retained earnings with respect to a financial period is made by resolution of theshareholders at a general meeting held subsequent to the close of the financial period and the accounts for that period do not, therefore, reflect
such appropriations.

3. Short-term investments, investments in securities
At October 31, 2003, the Company and its consolidated subsidiaries did not possess any securities classified as trading securities or held-to-maturity
securities. Securities classified as other securities are included in short-term investments and investments in securities in the consolidated balance
sheets.
The components of unrealized gain or loss on marketable securities classified as other securities at October 31, 2003 were as follows:

Kanamoto Annual Report 2003

28

Notes to Consolidated Financial Statements
Millions of yen
October 31, 2003

Unrealized gain:
Stocks
Unrealized loss:
StocksCorporate bonds
Other
Total

Acquisition costs

Carrying value

Unrealized gain (loss)¥ 1,130
1,130¥1,846
1,846

¥ 716
716

146
57
1,114
1,317
¥ 2,447

123
55
1,040
1,218
¥ 3,046

(23)
(2)
(74)
(99)
¥ 617

Thousands of U.S. dollars
October 31, 2003

Unrealized gain:
Stocks
Unrealized loss:
StocksCorporate bonds
Other
Total

Acquisition costs

Carrying value

Unrealized gain (loss)$10,385
10,385$16,962
16,962$6,577
6,577

1,345
523
10,242
12,110$ 22,495

1,136
506
9,557
11,199$ 28,161

(209)
(17)
(685)
(911)
$ 5,666

The components of unrealized gain or loss on marketable securities classified as other securities at October 31, 2002 were as follows:
Millions of yen
October 31, 2002

Unrealized gain:
Stocks
Unrealized loss:
StocksCorporate bonds
Other
Total

Acquisition costs

Carrying value

Unrealized gain (loss)

¥873
873

¥1,276
1,276

¥ 403
403

1,143
141
1,214
2,498
¥ 3,371

783
137
989
1,909
¥ 3,185

(360)
(4)
(225)
(589)
¥ (186)Non-marketable securities classified as other securities at October 31, 2003 and 2002 amounted to ¥384 million ($3,527 thousand) and ¥374 million,
respectively.
Proceeds from sales of securities classified as other securities amounted to ¥1,924 million ($17,688 thousand) with an aggregate gain on sales of ¥135
million ($1,240 thousand) for the year ended October 31, 2003.
Proceeds from sales of securities classified as other securities amounted to ¥1,320 million with an aggregate gain on sales of ¥87 million for the year
ended October 31, 2002.
The redemption schedule for bonds with maturity dates at October 31, 2003 was summarized as follows:
Millions of yen
October 31, 2003

Corporate bonds
Other
Total

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

Due after five years
through ten years

Due after ten years

¥ 23
16
¥ 39

¥ 31
¥ 31

¥894
¥ 894

¥38
¥ 38

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

Due after five years
through ten years

Due after ten years

$ 215
145
$ 360

$ 292
$ 292

$ 8,220$ 8,220

$ 351
$ 351

Thousands of U.S. dollars

October 31, 2003

Corporate bonds
Other
Total

29

Kanamoto Annual Report 2003

The redemption schedule for bonds with maturity dates at October 31, 2002 was summarized as follows:
Millions of yen
October 31, 2002

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

Due after five years
through ten years

Due after ten years

¥ 75
¥ 75

¥ 62
12
¥ 74

¥777
¥ 777

¥27
¥ 27

Corporate bonds
Other
Total
4. Short-term bank loans and long-term debt

The annual average interest rates applicable to short-term bank loans outstanding at October 31, 2003 and 2002 were 1.14% and 1.49%, respectively.
Long-term debt at October 31, 2003 and 2002 consisted of the following:Thousands of
U.S. dollars (Note 1)

Millions of yen

Loans from banks and insurance companies, maturing through 2008 :SecuredUnsecured
0.55% unsecured convertible bonds due 2003
Zero coupon unsecured convertible bonds due 2003
Floating rate U.S. dollar bonds due 2002
Obligations under installment purchases, maturing through 2007
Less current portion

2002

2003

2003

¥ 345
25,441
3,164
1,000
5,278
14,43749,66524,965¥ 24,700¥ 135
30,272
9,870
40,277
14,854¥ 25,423$ 1,244278,233
90,713
370,190
136,526$ 233,664

Aggregate annual maturities of long-term debt subsequent to October 31, 2003 are as follows:

Millions of yen

Thousands of
U.S. dollars (Note 1)

Year Ending October 31

2004
2005
2006
2007
2008 and thereafter¥ 14,854
11,493
7,860
4,740
1,330
¥ 40,277$ 136,526
105,641
72,246
43,567
12,210$ 370,190

At October 31, 2003, assets pledged as collateral for short-term bank loans and long-term debt including current portion of long-term debt were as
follows:
Millions of yen

Buildings and structures
Land

¥ 35
197

Thousands of
U.S. dollars (Note 1)

$ 323
1,815

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

Kanamoto Annual Report 200330

Notes to Consolidated Financial Statements
The projected benefit obligation and funded status including a portion of the governmental welfare program at October 31, 2003 and 2002 were as
follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Projected benefit obligation
Plan assets
Unrecognized actuarial assumption adjustment
Accrued pension and severance costs

2002

2003

2003

¥ (5,409)
2,983
750¥ (1,676)(6,204)3,385
1,042¥ (1,777)$ (57,027)
31,1179,574$ (16,336)

In computing projected benefit obligation, several simplified methods are permitted to small companies, and certain subsidiaries have adopted suchmethods.
The components of net periodic pension and severance costs for the years ended October 31, 2003 and 2002 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

2003

2003

Service cost
Interest cost
Expected return on plan assets

¥ 413
143
(110)

¥ 412
160
(116)

$ 3,791
1,467(1,070)

Amortization:
Actuarial losses
Prior service cost
Unrecognized benefit obligation at transition
Net periodic pension and severance costs

48
(395)
¥ 99

80
¥ 536

734
$ 4,922

The assumptions used were as follows:

Discount rate
Expected rate of return on plan assets
Method of attributing benefit to periods of service
Amortization period for prior service cost
Amortization period for actuarial assumption adjustment
Amortization period for unrecognized benefit obligation at transition

2.5 %
4.0 %
Straight-line basis
1 year10 years
1 year

6. Contingent liabilities
At October 31, 2003 and 2002, the Company and its consolidated subsidiaries were contingently liable as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Guarantees of loans
Trade notes discounted
Trade notes endorsed

31

Kanamoto Annual Report 2003

2002

2003

2003

¥ 372
85
178

¥ 290
57

$ 2,669519

7. Leases
Lease payments under finance leases for the years ended October 31, 2003 and 2002 were ¥5,626 million ($51,705 thousand) and ¥4,343 million,
respectively.
Pro forma information on leased property such as acquisition costs, accumulated depreciation, obligations under finance leases, depreciations expenses,
interest expenses on finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years
ended October 31, 2003 and 2002, was as follows:

Millions of yen
For the year ended October 31, 2003

Acquisition costs
Accumulated depreciation
Net leased property

Rentalequipment¥ 28,089
7,344¥ 20,745

Machinery andequipment

¥ 556
255
¥ 301

Thousands of U.S. dollars
Total

Rentalequipment¥ 28,645
7,599
21,046$ 258,168
67,500$ 190,668

Machinery andequipment$ 5,109
2,345$ 2,764

Millions of yen

Obligations under finance leases:
Due within one year
Due after one year
Total

¥ 4,928
16,288¥ 21,216
Millions of yen

For the year ended October 31, 2002

Acquisition costs
Accumulated depreciation
Net leased property

Rentalequipment¥ 25,612
8,300¥ 17,312

Machinery andequipment

¥ 667
384
¥ 283

Total

$ 263,277
69,845$ 193,432
Thousands of
U.S. dollars (Note 1)$ 45,294
149,702$ 194,996
Millions of yen

Total¥ 26,279
8,684¥ 17,595

Obligations under finance leases:
Due within one year
Due after one year
Total

¥ 4,663
13,357¥ 18,020

Depreciation expenses and interest expenses, which are not reflected in the consolidated statements of income, computed by the straight-line method
and the interest method were ¥5,035 million ($46,274 thousand) and ¥688 million ($6,320 thousand), respectively, for the year ended October 31, 2003.
Depreciation expenses and interest expenses, which are not reflected in the consolidated statements of income, computed by the straight-line method
and the interest method were ¥3,732 million and ¥384 million, respectively, for the year ended October 31, 2002.
The minimum rental commitments under non-cancellable operating leases for the years ended October 31, 2003 and 2002 were as follows:
Millions of yen

Thousands of
U.S. dollars (Note 1)

For the Year Ended October 31,2003

Due within one year
Due after one year
Total

¥ 1,793
3,239¥ 5,032$ 16,480
29,767$ 46,247

Millions of yen
For the Year Ended October 31,2002

Due within one year
Due after one year
Total

¥ 1,543
2,643¥ 4,186

Kanamoto Annual Report 2003

32

Notes to Consolidated Financial Statements
8. Income taxes
The difference between the statutory tax rate and the effective tax rate for the years ended October 31, 2003 and 2002 was as follows:

Statutory tax rate
Operating losses of subsidiaries
Expenses not deductible for tax purposes
Inhabitants per capita taxes
Write - down of investment in associates
Other
Effective tax rate

2002

2003

41.7%
1.2
1.1
3.9
(3.4)
(1.1)
43.4 %

41.7 %
2.6
1.4
4.5
2.1
52.3 %The significant components of deferred tax assets and liabilities at October 31, 2003 and 2002 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

Deferred tax assets:
Depreciation expenses
Directors’ retirement benefits
Accrued bonuses for employees
Provisions for doubtful accounts
Accrued enterprise tax
Accrued pension and severance costs
Operating loss carryforwards
Net unrealized loss on securities
OthersSub-total
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net unrealized gain on securities
Net deferred tax assets

2002

2003

2003

¥ 388
82
150
223
1
696
176
78
298
2,092
(176)
1,916

¥ 414
80
146
243
52
729
154
220
2,038
(145)
1,893

$ 3,809
732
1,346
2,229
477
6,701
1,420
2,023
18,737(1,332)
17,405¥ 1,916249¥ 1,645

2,289$ 15,116

9. Supplemental cash flow information
Non-cash investing and financing activities for the years ended October 31, 2003 and 2002 were as follows:
Thousands of
U.S. dollars (Note 1)

Millions of yen

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

33

Kanamoto Annual Report 2003

2002

2003

2003

¥ 3,637¥ 2,548$ 23,423

10. Segment information
Business segment information for the years ended October 31, 2003 and 2002 was as follows:

2002
For the year ended October 31, 2002

Sales
Outside customers
Intersegment
Total
Operating expenses
Operating profit (loss)
Identifiable assets
Depreciation
Capital expenditures

Millions of yen
Construction
relatedbusiness¥ 56,558
56,55854,450¥ 2,108¥ 70,991
7,950
4,677

Steel
relatedbusiness¥ 7,436
7,436
7,388
¥ 48
¥ 3,444
6
2

2003
For the year ended October 31, 2003

Sales
Outside customers
Intersegment
Total
Operating expenses
Operating profit
Identifiable assets
Depreciation
Capital expenditures

Information andcommunication
related andother business

Total¥ 65,252
65,25263,092¥ 2,160¥ 75,872
7,968
4,679

¥ 1,258
1,258
1,254
¥4
¥ 1,437
12-

Eliminations
andcorporate
items¥(128)¥ 128¥ 23,44215231

Consolidated¥ 65,252
65,252
62,964¥ 2,288¥ 99,314
8,120
4,710

Millions of yen
Construction
relatedbusiness¥ 56,396
56,39654,190¥ 2,206¥65,283
6,472
3,843

Steel
relatedbusiness¥ 6,374
6,374
6,379
¥ (5)
¥ 2,775
5
66

Information andcommunication
related andother business

¥ 916
916
892
¥ 24
¥ 1,067
10
13

Total

¥ 63,686
63,686
61,461¥ 2,225¥ 69,125
6,487
3,922

Eliminations
andcorporate
items

¥(83)
¥ 83
¥ 19,885163
478

Consolidated¥ 63,686
63,686
61,378¥ 2,308¥ 89,010
6,650
4,400

Thousands of U.S. dollars
For the year ended October 31, 2003

Sales
Outside customers
Intersegment
Total
Operating expenses
Operating profit
Identifiable assets
Depreciation
Capital expenditures

Construction
relatedbusinessSteelrelatedbusiness$ 518,344
518,344498,073$ 20,271$600,027
59,48235,318$ 58,584
58,584
58,632$ (48)$ 25,509
49
611

Information andcommunication
related andother business$ 8,424
8,424
8,196
$ 228
$ 9,807
95
121

Total

$ 585,352
585,352
564,901$ 20,451$ 635,343
59,62636,050Eliminations
andcorporate
items

Consolidated$(759)$ 759$182,765
1,501
4,393

$ 585,352
585,352
564,142$ 21,210$818,108
61,12740,443

11. Subsequent events
On January 27, 2003, the Company’s shareholders approved the payment of a cash dividend of ¥9.00 ($0.08) per one share to shareholders of record
at October 31, 2003, or a total payment of ¥269 million ($2,471 thousand).

Kanamoto Annual Report 2003

34

Non-consolidated Balance Sheets
ASSETS
Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

2003

2003

Cash and time deposits¥ 14,578¥ 11,346$ 104,284

Short-term investments

75

39

360

Notes receivable, trade

10,423

10,14893,273

Accounts receivable, trade

11,796

11,159102,565

Inventories

399

376

3,456

Deferred income taxes (Note 5)

152

228

2,093

Other current assets

2,899

2,360

21,690Less: Allowance for doubtful accounts

(462)

(490)

(4,505)39,86035,166323,216

Rental equipment

48,81642,505

390,676

Buildings

10,825

11,161

102,579

Structures

3,874

3,855

35,437

Machinery and equipment

4,644

5,039

46,310(42,841)(41,201)(378,686)

25,31821,359196,316

24,22824,382224,097

104

2

18

49,65045,743

420,431

Investments in securities

3,468

3,392

31,174

Investments in associates

805

1,025

9,421

Deferred income taxes (Note 5)

1,727

1,453

13,359Other assets

1,780

1,618

14,872

Less: Allowance for doubtful accounts

(573)

(770)

(7,074)

Total investments and other assets

7,207

6,718

61,752¥ 96,717¥ 87,627$ 805,399

As of October 31, 2003 and 2002

Current assets:

Total current assets
Property and equipment:

Less: Accumulated depreciation
Land
Construction in progress
Total property and equipment
Investments and other assets:

35

Kanamoto Annual Report 2003

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

Millions of yen
As of October 31, 2003 and 2002

2002

2003

2003

Current liabilities:¥ 8,289¥ 9,576$ 88,015

Current portion of straight bonds

5,278

-

-

Current portion of convertible bonds

4,164

-

-

Notes payable, trade

8,091

7,387

67,898

Accounts payable, trade

2,857

3,049

28,022

Notes payable, other

289

363

3,336

Accounts payable, other

7,888

5,785

53,172

Accrued income taxes

-

645

5,928

Accrued bonuses for employees

519

429

3,941

Other current liabilities

676

523

4,805

Total current liabilities

38,051

27,757

255,117Long-term bank loans

16,85820,592

189,265

Long-term accounts payable, other

8,614

5,321

48,906

Accrued pension and severance costs

1,660

1,777

16,332Current portion of long-term bank loans

Non-current liabilities:

Other liabilities
Total non-current liabilities

177

176

1,619

27,30927,866

256,122

Contingent liabilities (Note 3)
Shareholders' equity:
Common stock:
Authorized – 66,000,000 shares
Issued – 30,253,241 shares

8,597

8,597

79,014

Additional paid-in capital

9,720

9,720

89,342

Legal reserve

1,372

1,375

12,641Retained earnings

11,77812,122

111,416

Net unrealized gain (loss) on other securities, net of taxes
Treasury stock
Total shareholders’ equity

(108)

367

3,377

(2)

(177)

(1,630)31,35732,004294,160¥ 96,717¥ 87,627$ 805,399

Kanamoto Annual Report 2003

36

Non-consolidated Statements of Income

Thousands of
U.S. dollars (Note 1)

Millions of yen
2002

2003

2003

Rental revenues¥ 39,206¥ 39,639$ 364,325

Cost of rentals

29,95230,597281,220

Sales of goods

21,401

20,856

191,688

Cost of sales

16,50516,098147,958

Gross profit

14,15013,800126,835

Selling, general and administrative expenses

11,895

11,449105,230

Operating income

2,255

2,351

21,605

Year ended October 31, 2003 and 2002

Other income (expenses):
Interest and dividend income

56

81

749

Interest expenses

(446)

(373)

(3,427)

Others, net

188

(202)

(1,861)

Income before income taxes

2,053

1,857

17,066

Current

830

1,032

9,481

Deferred

89

(129)

(1,183)

919

903

8,298

¥ 1,134¥ 954$ 8,768

Income taxes (Note 5)

Net income

Per share of common stock:

Yen

U.S. dollars (Note 1)

Net income
Basic¥ 37.49¥ 31.30$ 0.29Diluted

28.85

28.30

0.26

18.00

18.00

0.17

Cash dividends applicable to the year

37

Kanamoto Annual Report 2003

Non-consolidated Statements of Shareholders' Equity
Millions of yen
Thousands ofshares ofcommon stock

Commonstock

Additional
paid-in
capitalLegalreserve

Retainedearnings¥ 1,372¥ 11,205

Net unrealized
gain (loss) on othersecurities,
net of taxes

Year Ended October 31, 2003 and 2002

Balance at October 31, 2001

30,253¥ 8,597¥ 9,720

Net income

1,134Cash dividends(544)

Bonuses to directors and auditors

(17)

Other
Balance at October 31, 2002

(249)
30,253¥ 8,597¥ 9,720¥ 1,372¥ 11,778

Net income

954

Cash dividends(541)

Bonuses to directors and auditors(17)
30,253¥ 8,597¥ 9,720¥ (108)

3

(52)

475

¥ 1,375¥ 12,122

¥ 367

Other
Balance at October 31, 2003

¥ 141

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

Additional
paid-in
capitalLegalreserve

Retainedearnings$ 79,014$ 89,342$ 12,615$ 108,252

Net unrealized
gain (loss) on othersecurities,
net of taxes

Year Ended October 31, 2003

Balance at October 31, 2002
Net income

8,768

Cash dividends(4,974)

Bonuses to directors and auditors

(153)

Other
Balance at October 31, 2003

$ (997)$ 79,014$ 89,342

26

(477)

4,374

$ 12,641$ 111,416$ 3,377

Kanamoto Annual Report 2003

38

Notes to Non-consolidated Financial Statements
1. Basis of presenting non-consolidated financial statements
The non-consolidated financial statements have been prepared from the accounts maintained by Kanamoto Co., Ltd. (the “Company”) in accordancewith the provisions set forth in the Commercial Code of Japan and the Securities and Exchange Law of Japan and in conformity with accounting
principles and practices generally accepted in Japan, which may differ in some material respects from accounting principles and practices generally
accepted in countries and jurisdictions other than Japan.
The notes to the non-consolidated financial statements include information which is not required under accounting principles generally accepted inJapan but is presented herein as additional information.
In order to facilitate the understanding of readers outside Japan, certain reclassifications are given to the non-consolidated financial statements
prepared for domestic purposes.
Translations of Japanese yen amounts into U.S. dollars are included solely for the convenience of the reader, using the approximate exchange rate on
October 31, 2003, which was ￥108.80 to US$1.00. These translations should not be construed as representations that the Japanese yen amounts havebeen, or could have been, or could in the future be converted into U.S. dollars at this or any other rate of exchange.

2. Summary of significant accounting policies(a) Basis of presentation
The non-consolidated financial statements are prepared on the basis of the same accounting policies as those discussed in Note 2 to theconsolidated financial statements except that investments in subsidiaries and affiliates are stated at cost.

3. Contingent liabilities
At October 31, 2003 and 2002, the Company was contingently liable as follows:
Thousands of
U.S. dollars

Millions of yen

Guarantees of loans

2002

2003

2003

¥ 372

¥ 290

$ 2,669

4. Leases
Lease payments under finance leases for the years ended October 31, 2003 and 2002 were ¥5,279 million ($48,523 thousand) and ¥3,838 million,
respectively.
Pro forma information on leased property such as acquisition costs, accumulated depreciation, obligations under finance leases, depreciation expenses,
and interest expenses on finance leases that do not transfer ownership of the leased property to the lessee on an "as if capitalized" basis for the years
ended October 31, 2003 and 2002, was as follows:
Millions of yen
For the year ended October 31, 2003

Rentalequipment

Acquisition costs
Accumulated depreciation
Net leased property¥ 27,425
7,097¥ 20,328

Machinery andequipment

¥ 459
194
¥ 265

Thousands of U.S. dollars
Total

Rentalequipment¥ 27,884
7,291¥ 20,593$ 252,073
65,230$ 186,843

Machinery andequipment$ 4,217
1,780$ 2,437
Millions of yen

Obligations under finance leases:
Due within one year
Due after one year
Total

¥ 4,689
16,064¥ 20,753

Millions of yen
For the year ended October 31, 2002

Acquisition costs
Accumulated depreciation
Net leased property

39

Kanamoto Annual Report 2003

Rentalequipment¥ 24,072
7,533¥ 16,539

Machinery andequipment

¥ 563
339
¥ 224

Total

$ 256,290
67,010$ 189,280
Thousands of
U.S. dollars$ 43,098
147,648$ 190,746

Millions of yen
Total¥ 24,635
7,872¥ 16,763

Obligations under finance leases:
Due within one year
Due after one year
Total

¥ 4,259
12,900¥ 17,159

Depreciation expenses and interest expenses, which are not reflected in the non-consolidated statements of income, computed by the straight-line
method and the interest method were ¥4,721 million ($43,391 thousand) and ¥657 million ($6,037 thousand), respectively, for the year ended October
31, 2003.
Depreciation expenses and interest expenses, which are not reflected in the non-consolidated statements of income, computed by the straight-line
method and the interest method were ¥3,272 million and ¥334 million, respectively, for the year ended October 31, 2002.
The minimum rental commitments under non-cancellable operating leases for the years ended October 31, 2003 and 2002 were as follows:
Millions of yen

Thousands of
U.S. dollars

For the year ended October 31, 2003

Due within one year
Due after one year
Total

Millions of yen
For the year ended October 31, 2002

¥ 1,790
3,238¥ 5,028$ 16,450
29,767$ 46,217

Due within one year
Due after one year
Total

¥ 1,543
2,643¥ 4,186

5. Income taxes
The difference between the statutory tax rate and the effective tax rate for the years ended October 31, 2003 and 2002 was as follows:Year ended October 31, 2003 and 2002

2002

2003

Statutory tax rate
Inhabitants’ per capita taxes
Expenses not deductible for tax purposes
Other
Effective tax rate

41.7 %
3.8
1.1-1.9
44.7 %

41.7 %
4.3
1.4
1.2
48.6 %The significant components of deferred income tax assets at October 31, 2003 and 2002 were as follows:

Thousands of
U.S. dollars

Millions of yen
Year ended October 31, 2003 and 2002

Deferred tax assets:
Depreciation expenses
Directors’ retirement benefits
Accrued bonuses for employees
Provisions for doubtful accounts
Accrued enterprise tax
Accrued pension and severance costs
Net unrealized loss on securities
OthersTotal deferred tax assets
Deferred tax liabilities:
Net unrealized gain on securities
Net deferred tax assets

2002

2003

2003

¥ 387
74
144
223
692
78
281
1,879

¥ 404
71
143
237
52
729
294
1,930

$ 3,713
654
1,319
2,177
477
6,700
2,701
17,741¥ 1,879249¥ 1,681

2,289$ 15,452

6. Subsequent events
On January 27, 2004, the Company’s shareholders approved the payment of a cash dividend of ¥9.00 ($0.08) per one share to shareholders of record
at October 31, 2003, or a total payment of ¥269 million ($2,471 thousand).

Kanamoto Annual Report 2003

40

Report of the Audit Committee

The Audit Committee has received the reports of the audit procedures and results concerning the businessperformance of the directors during the 39th Business Period from November 1, 2002 through October 31,
2003 from each of the auditors. After discussing the reports we have prepared this Audit Report and report asfollows.
1. Scope of audit by the Audit Committee
Each of the auditors attends the meetings of the Board of Directors and other important meetings, receives
business reports from the directors and other managers, reads documents concerning matters such asimportant decisions, and investigates the conditions of the business and financial conditions at the head officeand the main branches, and also requests copies of accounting and other documents, explanations of such
documents and management reports from the subsidiary companies to the extent considered necessary, in
accordance with the policies specified by the Board of Directors and the duties of their office. The auditors also
receive the report and explanations of the independent auditors, and carry out the procedures determined tobe necessary for matters such as investigation of accounting documents and related documents.
For matters such as transactions between directors and business competitors, transactions between directors
and the Company that may be detrimental to the Company's profitability, undocumented uses of profits by theCompany, unusual or uncustomary transactions with a shareholder, and purchases and sale of the Company's
stock, in addition to the audit procedures indicated above the auditors may request reports from the directors
and other managers as they deem necessary and conduct an investigation into the details of the circumstances
surrounding the transactions in question.
2. Result of audit(1) In our opinion, the audit procedures and audit results received from the independent public accounting firm
Shin Nihon & Co. are appropriate.
(2) The Business Report fairly represents the condition of the Company in accordance with the laws of Japanand the Articles of Incorporation of the Company.
(3) We have examined the Statement of Proposed Appropriation of Retained Earnings in consideration of thefinancial condition of the Company and other circumstances surrounding the business, and determined that
there are no matters that should be highlighted as a concern.
(4) We have examined the supporting schedules and determined that there are no matters that should behighlighted as a concern.
(5) We have determined that there were no serious occurrences of dishonest or false activity or violations of
any laws or the Company's Articles of Incorporation by any of the directors in carrying out the duties andresponsibilities of their offices including business activities concerning the subsidiary companies.
Furthermore, we have determined that no director violated the duties and responsibilities of his officeconcerning matters such as transactions between directors and business competitors, transactions between
directors and the Company that may be detrimental to the Company's profitability, undocumented uses of
profits by the Company, unusual or uncustomary transactions with a shareholder, and purchases and sale of
the Company's stock.

December 25, 2003
Audit Committee, Kanamoto Company, Ltd.
(Note) Outside Corporate Auditor Kiyoshi Onishi is the outside auditor as stipulated by Article
18, Section 1 of The Law for Special Exceptions to the Commercial Code Concerning Audits, etc. of
Joint Stock Corporations.

41

Kanamoto Annual Report 2003

Board of Directors (As of March 1, 2004)
Directors

Kanchu Kanamoto *Hidemitsu Washida *President
CEO

Executive Vice PresidentManager in Charge ofOperations Control Headquarters

Yukio Sato *Eichu Kanamoto *Nobuhito Utatsu *Tetsuo Kanamoto *Senior Corporate Officer
Manager, Business Coordination Headquarters

Division Manager, Administration Division
Manager in Charge of Credit Management
Division & Auditing Section

Division Manager, Accounting Division

Division Manager, Construction Equipment
Rental Division
Regional Manager, Kinki&Chubu Region
Construction Equipment Rental Division

Hitoshi Narita *Kojiro Satsuma

Tadao Saika

Division Manager, Management Planning Division
Office Chief, Secretarial Office

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

Auditors

Toshizo Okumura

Shinroku Sawada

Kiyoshi Onishi

Akio Hashimoto

Standing Corporate Auditor

Standing Corporate Auditor

Outside Corporate Auditor

Outside Corporate Auditor

Corporate Officers

Hideki Nomiya
Business Coordination Headquarters
Manager in Charge of Steel Sales Division

Masakazu Hirata

Keiichi Kitakata

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

Hiroshi Kumagai

Tatsuo Kanamoto

Yuichi Asano

Division Manager, Information System Division

Regional Manager, Tohoku Region
Construction Equipment Rental Division

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

Kanamoto Annual Report 2003

42