Report of Operating Results and Financial Position for the Six Months ended April 30, 2012

Changes in accounting principles, procedures and presentation methods pertaining to preparation of the consolidated financial statements.

a) Beginning from this consolidated accounting fiscal year, the Company has adopted the "Accounting Standard for Quarterly Financial Reporting" and the "Guidance on Accounting Standard for Quarterly Financial Reporting". In addition, the quarterly consolidated financial report has been prepared in accordance with the "Regulation for Quarterly Consolidated Financial Statements."

b) Changes in appraisal standards and appraisal methods for principal assets (Inventory assets)

Beginning from the first quarter of the consolidated accounting fiscal year ended October 31, 2009, the Company will apply the "Accounting Standard for Measurement of Inventories" and will value inventories based on the original cost method, with cost being determined mainly by the Last-in, First-out method (amounts shown on Balance Sheets will the reduced book value based on decline in profitability).
The affect of this change on earnings is not material.

Construction equipment

Traditionally, the Company and its domestic consolidated subsidiaries valued construction equipment using the amount after deduction of depreciation expense as calculated according to the declining-balance method from the original prices, by separate fiscal year of purchase. Beginning from the first quarter of the consolidated accounting fiscal year ended October 31, 2009, the Company will calculate the amount after deduction of depreciation expense as calculated according to the straight-line method from the original prices, by separate fiscal year of purchase.
As a result, the cost of revenues from operations decreased by ¥34 million, and gross profit, operating income, ordinary income and income before taxes and adjustments increased by the same amount, respectively, compared to what they otherwise would have been had the accounting standards used in past periods been applied.

Changes in accounting standards used for normal accounting treatment

Application of accounting standards for lease transactions (Lessee side)

The Company traditionally accounted for finance lease transactions other than leases that transfer ownership of the property by applying accounting treatment based on the method applied for ordinary rental transactions. For quarterly consolidated financial statements pertaining to the consolidated fiscal year that begins on or after April 1, 2008, however, corporations will be able to apply the "Accounting Standard for Lease Transactions" and the "Guidance on Accounting Standard for Lease Transactions", and beginning from the first quarter of the consolidated accounting fiscal year ended October 31, 2009, the Company will apply these standards and account for such transactions using a method similar to that used for ordinary sale and purchase transactions. In addition, for depreciation of lease assets related to finance lease transactions other than leases that transfer ownership of the property, the Company has adopted the straight-line depreciation method, using the term of the lease as the depreciable life and a residual value of zero.
For finance lease transactions other than leases that transfer ownership of the property for which the lease transaction starting date predates the beginning of the first year in which the lease accounting standard will be applied, the Company will continue to apply the accounting practices based on the method for ordinary rental transactions.
The affect of this change on earnings is not material.

Change in depreciation methods for principal depreciable assets (Tangible fixed assets)

Traditionally, the Company and its domestic consolidated subsidiaries have applied the declining balance method for depreciation of rental equipment. Beginning from the first quarter of the consolidated accounting fiscal year ended October 31, 2009, the Company and its domestic subsidiaries have adopted the straight-line depreciation method.
As a result, the cost of revenues from operations decreased by ¥1,129 million, and gross profit, operating income, ordinary income and income before taxes and adjustments increased by the same amount, respectively, compared to what they otherwise would have been had the accounting standards used in past periods been applied.

< Management Environment >

A superficial reading of Japan's economic signals during the Kanamoto Group's interim period showed an improvement trend driven by restoration demand following the Great East Japan Earthquake. In general, however, conditions remained clouded by several factors, including concerns over the risk that the domestic economy will lose momentum, particularly because of overseas economic tremors caused by the public debt crisis in Europe.
In the construction-related service industries in which the Kanamoto Group operates as well, construction equipment rentals and related demand were vigorous, both in regions where restoration and recovery works in response to the Great East Japan Earthquake and extremely urgent public works to assist recovery in areas hit by torrential rainfall disasters are planned, and in metropolitan areas where investments for disaster prevention and seismic countermeasures are anticipated. Nevertheless, in regions not stricken by disasters, a difficult environment continued. Reductions in public works expenditures gradually began to pinch as funds were focused on the restoration budget, and with moves to restore private sector capital investment that could offset such government cutbacks also weak, demand overall will lessen.

< Interim Period Consolidated Operating Results >

The Kanamoto Group's operating results were in line with the revised operating results forecast released on May 28. In addition to ongoing debris removal works in the three prefectures damaged by the Great East Japan Earthquake, which are still continuing even though one year has passed since the quake, operating results remained stronger than initially projected as infrastructure restoration works that had been delayed were gradually started, while construction demand in unaffected regions, on the other hand, was boosted by measures taken in response to heavy rainfall disasters, earthquake-resistance countermeasures and investment to offset electricity shortages. As a result, second quarter consolidated operating results greatly exceeded the Company's previously released performance forecast.
The Kanamoto Group worked to expand its response capabilities through a variety of programs. While continuing to pursue optimum asset placement as it has in the past, the Group is adopting and providing new technologies, including information-aided construction and labor-saving new commercial products, willingly and unconditionally supporting restoration and reconstruction in the three damaged prefectures, and strengthening its branches in the same regions. The Group strove to secure earnings from every aspect by also responding aggressively to construction equipment demand that was not to related construction works, which has been exhibiting growth since the earthquake.
As a result of these factors, consolidated revenues for the first half of the Business Period ending in October 2012 were ¥40,012 million, up 13.3% compared with the same period of the previous consolidated fiscal year.
From an earnings perspective, consolidated operating income rose 106.1% from the same period one year earlier to ¥3,554 million, and consolidated ordinary income jumped 134.1% year-on-year to ¥3,297 million. Net income improved significantly to ¥1,776 million.

Consolidated Operating Results

Divisional Sales (Consolidated)

< Segment Information >

Business related to the Construction Equipment Rental Division

Looking at construction equipment rental revenues by region, the Hokkaido Region faced difficult conditions, including the first signs that reductions in public sector demand under the restoration budget will have a negative effect. As a result of vigorously developing the Group's total sales, however, the year-on-year decrease in revenues for the interim period was just 1.4%. In the Tohoku Region, rental demand was strong. Transportation infrastructure works that are part of the earthquake restoration and recovery effort gradually increased, and when restoration works following damage from heavy rains in Niigata were added, revenues expanded briskly, rising 50.3%. In the Kanto Region, revenues were underpinned by large-scale projects including the three Tokyo ring roads (Metropolitan Inter-City Expressway, Tokyo Outer Ring Road and Central Circular Route), public works such as disaster prevention and disaster mitigation works, and private sector construction demand in the Tokyo metropolitan area, and increased 14.3% compared with the interim period of the prior consolidated fiscal year. In the Kinki & Chubu Region, revenues were up 8.4% year-on-year, aided by disaster prevention and disaster mitigation works in metropolitan areas and greater demand for generators because of the electricity shortage, while in the Kyushu & Okinawa Region, revenues were sharply higher, expanding 21.0% thanks to official demand centered on northern Kyushu.
Although accounting for a very small share of Kanamoto's operating results, overseas construction equipment rental revenues more than doubled, increasing 224.6% because of gradually increasing rentals in Southeast Asia. Operating results at Shanghai Jinheyuan Engineering Construction Co., Ltd., an overseas subsidiary in China, were nearly unchanged from the previous year as that country's economy slowed, and SJ Rental, Inc. similarly turned in results that were basically flat as the demand trend was unchanged.
Overseas sales of used construction equipment were off 44.1% year-on-year, reflecting the postponement of sales as equipment was redirected to support earthquake recovery demand.
As a result of these factors, interim period revenues for Kanamoto's construction-related businesses increased 14.8% from the same period of the previous consolidated fiscal year to ¥36,944 million, and operating income climbed 110.9% year-on-year to ¥3,411 million.

Other Businesses

n the steel products sales business Kanamoto is developing in Hokkaido, revenue was off 5.4% from the same period of the prior fiscal year despite the start of large-scale private sector works, primarily in the Sapporo area, as new activities requiring steel items showed a touch of weakness. The Company's information and telecommunications-related division, on the other hand, achieved 19.6% growth in revenue thanks to a recovery in rental demand, particularly for personal computers, and steady expansion of the engineering-related employee dispatch business.
As a result of the above activities, interim period revenues for Kanamoto's other businesses slipped 2.3% from the same period of the previous consolidated fiscal year to ¥3,068 million, while operating income expanded 341.4% year-on-year to ¥63 million.

< Business Development Issues Deserving Special Mention and Status of Branch Office Changes >

During the interim period, Kanamoto opened two new branches – the Maebashi Branch in Takai-cho in Maebashi City in Gunma Prefecture and a Hiroshima South Branch located in Dejima in Hiroshima's Minami Ward – and closed its Kamisato Branch in Kamisato-cho, Kodama-gun in Saitama Prefecture.

Projected Consolidated Operating Results for the Fiscal Year Ending October 2012