(Year Ended March 20, 2004)

All figures in millions of yen, except per share and ratio data

Fundamental Management Policy

The YASKAWA Electric Corporation, along with its subsidiaries and affiliated companies, has long held to its policy of the advancement of society and contribution to humanity through achievements in business. To accomplish these goals, the Company follows three principles: develop state-of-the-art technology with a mind for quality, respond to the market according to consumer trends and needs, and have an investor-focused view of value creation.

YASKAWA’s number one priority is the improvement of capital efficiency. To make this possible, customer satisfaction (CS) will be improved through products and services that greatly satisfy our customers. As a result of activities to improve employee satisfaction (ES), our employees will feel more loyalty and pride to work at YASKAWA. These two main activities will result in higher corporate value, greater earning power, and the restoration of shareholder value to our investors.

Dividend Policy

Our goal is to provide a stable and continuing dividend to our shareholders. We will manage our company with consideration for our financial goals, our financial conditions, and the economic environment to achieve this.

Policy on Reduction of Share Trading Unit Size

The amendments to the Japanese Commercial Code that took effect in October 2001 allow listed companies to reduce the number of shares per unit for trading (share trading unit) on stock markets in Japan. Among the reasons for not availing ourselves of this change in the regulation is our belief that YASKAWA currently has sufficient liquidity. Also, in consideration of our current share price and the additional costs related to reducing the share trading units of stock, we do not feel that it would create any additional value for the Company or for our shareholders. We will continue to monitor stock market trends and make any decisions related to this change in the Commercial Code based upon the value to our stockholders.

Management Goals

To ensure that the value for our shareholders, employees, and other stakeholders is maintained, our management performance is evaluated by two main methods: the Return-on-Equity (ROE) and the Debt-to-Equity (D/E) ratios.

We believe that our shareholders’ invested capital should earn the highest possible return. Also, we believe that we should maximize earnings for all our stakeholders, including our employees, along with investors.

Furthermore, our purpose is to make YASKAWA’s corporate structure such that it will remain profitable even in the midst of difficult economic times. To accomplish this goal, we aim to increase the profit ratio of the company and to improve the trust of those individuals and entities that provide capital to the company.

Business Strategies

YASKAWA’s new three-year business plan (FY2003-2005), Win21 Plus, builds and expands on the business, corporate, management and financial structural reforms of the past mid-term plan Win21. Additionally through the actions of Win21 Plus, YASKAWA plans to achieve the original financial targets of the previous mid-term plan, which were not achievable due to the harsh economic environment of the past few years. The new mid-term plan also aims to strengthen YASKAWA’s competitiveness and to realize greater efficiency in operations.

Win21 Plus: Strategies

YASKAWA will promote real structural change in the finance and business areas relating to the post-mechatronics shift. The company will also promote a policy toward implementation that will build on the systematic reforms of Win21 in the corporate and management areas. By reinforcing these changes through cross-functional activities, YASKAWA will create a new cost model, link market strategy and innovation, and create a new business model, which are all goals of Win21 Plus. At the same time, YASKAWA will transform its corporate structure into one capable of maintaining profitability in the face of a 30% change in demand.

Win21 Plus: Goals

1.Double value-added productivity
2.Increase ordinary income ratio to 10%
3.Reduce D/E ratio to 1.0 or less.

Win21 Plus: Financial Targets

Management Initiatives and Challenges

As we carry out the many initiatives of Win21 Plus to transform the Company into a high-earning enterprise, our group is developing policies to make this year a year in which the Company will be in a position to plan for business expansion while adding greater value to our products and services. This will be made possible through our market competitiveness and innovation.

To increase the added value, YASKAWA plans to increase the structural ratio of new products by focusing on high-profit products and markets as well as lower costs.

Within the Group, our manufacturing companies will continue to increase productivity even more, further expand manufacturing overseas, and enforce even stricter cost-reduction measures to lower procurement costs. In this fiscal year, by making the reforms in the cost structure permanent, we will strive to improve the earning capacity of the Company for even greater profits.

Greater coordination between the strategies for marketing and product development is being implemented. This along with the continuation of the timely introduction of strategic, new products into the auto-related and LCD-related markets is expected to result in stable growth. Also, the rapidly growing semiconductor-related market and Chinese markets will lead to expanded business.

Furthermore, the Win21 Plus mid-term plan contains measures and policies that reflect a forward-looking view and ensure future competitiveness and growth potential. By speeding up the development of the core competencies and the fostering of new generations of technologies, along with the strengthening of our brand-name image with a focus on our quality, skill, and technology, the realization of the Company as a high-profit body will be accelerated.

Governance Policy and Actions

Basic Premise on Governance

We believe that increasing shareholder value is based upon developing a healthy business with managerial decision making that quickly reflects an ever-changing society. Staying in accordance with the law is also an extremely important goal.

To accomplish this goal, YASKAWA will enrich its corporate governance in accordance with the law as we strengthen, improve, and further develop the system of how our current shareholders’ meetings, board of directors, auditors, and certified public accountants operate. At the same time, we plan to establish better relationships starting with our stockholders and customers, as well as those with clients, local society, and our employees.

Furthermore, we will provide our shareholders and other capital providers with both speedy and accurate information as well as a broad range of information and will thereby increase the transparency of our company’s management.

Governance Status and Actions

An auditing system is being adopted to handle the oversight of managerial decision-making, both the execution thereof as well as assessment. Be it our investors, customers, or any other entity familiar with us examining our company, they will find it evident that YASKAWA is complying with the law through the adoption of one outside director and two outside auditors. Furthermore, no people from our company who are involved in the auditing system nor our outside directors and auditors are interested parties in either financing or trading relationships with YASKAWA.

The Board of Directors will hold meetings approximately once a month. Special meetings of the Board of Directors will be held when warranted by law or by the materiality of the issue to the management of the company or when the execution of certain business conditions requires specific supervision by the shareholders or directors.

Shin Nihon is the auditing firm for YASKAWA. As part of the contract for auditing services, we are required to provide accurate management information. The auditors provide an environment in which an open and impartial point of view can be attained. In any situation where the auditors’ judgment is necessary, YASKAWA will consult with the auditors to receive the necessary support.

In regard to legal counsel, whenever YASKAWA finds it necessary to consult with a legal advisor and receive legal advice, we will take the necessary actions to do so.

Internally, the Company has set up an Ethics Committee whose job it is to ensure our Corporate Code of Conduct is being met in all our activities. In regard to our business standards, YASKAWA has both a Company Credo as well as the YASKAWA Electric Corporate Conduct Standards, which are maintained throughout the Group. A compliance program to provide clarification for employees has been set up and promoted throughout the Group by the Company President who was named as Chairman of the Corporate Ethics Committee.

This past fiscal year we fully implemented our corporate governance program. During the last fiscal year, the Board of Directors met ten times to handle business matters of material importance and items required by law as well as to carry out business decisions. Also in this past fiscal year, YASKAWA continued to hold analyst meetings as a part of our Investor Relations program.

The year 2003 was a period of instability in world affairs influenced by the war in Iraq and SARS. The Japanese economy failed to recover during the first half of 2003 due to a slump in personal consumption resulting from the tight employment situation and continued deflation. During the latter half of 2003, however, the economy experienced a steady recovery due to increases both in exports to the United States and other countries and in domestic capital investment despite the stronger yen and weakening dollar. In the international economy, while the European economy continued to be weak, the United States experienced a clear and definite economic recovery and Asia remained strong.

In the midst of this economic environment, YASKAWA began the new Win21 Plus mid-term plan to transform the Company into a high-earning corporation by 2005. With this plan, YASKAWA Electric plans to increase its competitiveness and the effectiveness of its business operations by building on the accomplishments of the structural reforms in the following four areas that were included in the previous Win21 plan: business enterprise, corporate structure, management, and finance. With the 2003 fiscal year as the starting year of the Win21 Plus three-year plan, two objectives relating to the core strategy of creating a new cost model along with balance-sheet reforms were put forward in accord with the goal of becoming a high-earning company.

In addition to current activities such as cost reductions in current products aimed at realizing a new cost model, products with a high added value and new competitively priced products were developed or introduced to the marketplace in efforts to increase the Company’s profit rate. Also, greater use of local manufacturing has been established worldwide as demonstrated by the increased production in China and the increased productivity of the manufacturing companies within the YASKAWA group. Furthermore, expansion of the centralization of the Company’s purchasing system and the purchasing overseas resulted in a reduction in the costs of parts and of the procurement of materials. Increased effectiveness from improved business processes and right-sizing of the workforce led to decreases in overhead costs.

In regard to the balance sheet reforms, use of the ERP/SCM system made it possible to have detailed control over daily inventory. This combined with the effects of a better turnover of trade receivables and the sale of some assets resulted in greater asset efficiency and the liquidity necessary to decrease interest-incurring debt.

The positive results of this year were largely due to the focused effort on increased orders from high-growth markets such as the semiconductor, LCD, and automotive-related markets as well as the results from the taken measures that were previously mentioned. Recovery in the American economy resulted in a healthy improvement of our exports. Also with the establishment this year of a department to focus on strategies to conquer the Chinese market, the sales network expanded its reach into this fast-growing market. Revenues for this period increased over the same period last year by 16.3%, ending at 263,045 million yen.

The ordinary income for this year also increased 8,002 million yen over the last year to end at 12,010 million yen, and the net income increased 8,343 million yen to end at 5,819 million yen. This is a dramatic increase that is the best that YASKAWA has ever experienced. In respect to the yield on one’s shares, a dividend resumption of 3 yen per share will be placed on the agenda at the general meeting of shareholders on June 17, 2004.

Motion Control SBU

In this segment, the AC Servomotor sales associated with the markets related to LCD manufacturing devices and metal working machinery remained steady throughout this period. Sales to the semiconductor-equipment markets also increased in the latter half of this year. AC Drive sales also continued to be strong as capital investments in China resulted in increased exports.

Revenues for this segment increased over the same period last year by 21.7%, ending at 105,069 million yen. Operating income also improved to 4,037 million yen for the year of 2003.

Robotics Automation SBU

The automotive-related markets experienced large increases in sales of products for arc welding and especially for spot welding, with special note of the customers’ high evaluation of our robots with built-in cables. Sales also greatly increased for painting applications, increasing our overall share in these products. LCD panel transfer robots, new products designed to handle larger panels, are successfully progressing due to the timely introduction into the market and expansion into Korea and Taiwan. In July 2003, new robots for optimum end-user welding and handling were increasingly being introduced to the market and continued to expand to meet demand. Concerning semiconductor production equipment, vacuum and clean robot orders were sluggish in the first half of the fiscal year but quickly recovered in the latter half.

Revenues for the Robotics Automation SBU increased 19.9% over the same period last year to 80,478 million yen. Operating income also increased to 5,266 million yen.

Systems Engineering SBU

The Systems Engineering SBU suffered from increased competition in the area of automation systems for wastewater process equipment, but demand for equipment in steel plants remained steady. As a result, revenues increased over the last year by 2.2% to 40,373 million yen. Operating income ended at 958 million yen.

Information Technologies SBU

The harsher competitive climate brought on by demands for lower costs in the information services industry and by a trend of declining prices in the computer peripherals industry continued throughout the period. As a result of these conditions, this segment experienced a 3.5% increase in revenues compared with the last year, ending at 24,414 million yen. Operating income stood at 1,172 million yen at the end of this year.

Other Business Segments

Revenues related to other business segments increased from the previous year by 32.0%, ending at 12,709 million yen. Operating income ended at 1,071 million yen for this period.

Assets

Current Assets increased from the previous period by 11,151 million yen, ending at 169,611 million yen in conjunction with the increases in both Notes and Accounts Receivable along with that in Sales. Additionally, due to the increases in investment securities and other assets along with a decrease in tangible fixed assets, Long-Term Assets increased to 80,217 million yen, 1,036 million yen over the previous period.

Total Assets increased from the previous period by 12,187 million yen, ending the year of 2003 at 249,829 million yen.

Liabilities

Under Current Liabilities, Short-Term Loans decreased 21,945 million yen, but Notes Payable increased by 14,183 million yen along with an increase in Production. Long-Term Liabilities increased from the previous period by a total of 7,016 million yen due to the increases in Long-Term Loans and Accrued Retirement Benefits of 2,712 million yen and 4,304 million yen respectively.

As a result of the renewal of a note in Convertible Debt of 15,000 million yen that will mature within one year and transferring it from Long-Term Liabilities to Current Liabilities, the Current Liabilities increased 14,082 million yen and Long-Term Liabilities decreased 8,013 million yen from the previous period.

Total Liabilities increased from the previous period by 6,068 million yen, ending the year of 2003 at 208,852 million yen.

Equity

Shareholders’ Equity, partially as a result of the increase in Profit Reserves, increased from the previous period by 6,083 million yen, ending the year of 2003 at 36,715 million yen.

Cash flows from operating activities ended at a positive 18,504 million yen, mainly due to earnings before taxes of 11,089 million yen. Income taxes were paid in the amount of 3,978 million yen along with the expenditures without capital of 10,302 million yen.

Cash flows from investing activities finished the year of 2003 at 1,118 million yen. This positive result was mainly due to a cash in-flow of 4,613 million yen from the sale of assets and a 3,555 million yen subsidy for expropriation of company property for public use. A cash out-flow for payments in Long-Term Tangible Assets and Investments in Securities totaled 7,582 million yen. Free Cash Flow ended at 19,622 million yen for this year.

Cash flows from financing activities ended at a minus 18,877 million yen. There was a decrease in Short-Term Loans of 14,071 million yen and in Long-Term Loans of 12,210 million yen along with the procurement in Long-Term Loans of 7,846 million yen.

Total Cash Flows as a result of these activities ended at 17,098 million yen for the year of 2003.

Note: All figures are in millions of yen.

FY2004 Consolidated

FY2004 Unconsolidated

Notes:
1. Exchange rates for the next fiscal year are set in advance at 110 yen/dollar and 130 yen/euro.
2. Dividends for the next fiscal year are still pending.

Warning

The information within this document is made as of the date of writing. Any forward-looking statements are made according to the assumptions of management and are subject to change as a result of risks and uncertainties. YASKAWA Electric undertakes no obligation to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise.